<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1998
REGISTRATION NO. 333-59751
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
THEGLOBE.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7310 14-1781422
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
31 WEST 21ST STREET
NEW YORK, NEW YORK 10010
(212) 886-0800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
TODD V. KRIZELMAN
STEPHAN J. PATERNOT
THEGLOBE.COM, INC.
31 WEST 21ST STREET
NEW YORK, NEW YORK 10010
(212) 886-0800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF CO-AGENTS FOR SERVICE)
----------------
COPIES TO:
VALERIE FORD JACOB, ESQ. ALLEN L. WEINGARTEN, ESQ.
STUART H. GELFOND, ESQ. MORRISON & FOERSTER LLP
FRIED, FRANK, HARRIS, SHRIVER & 1290 AVENUE OF THE AMERICAS
JACOBSON NEW YORK, NEW YORK 10104
ONE NEW YORK PLAZA (212) 468-8000
NEW YORK, NEW YORK 10004
(212) 859-8000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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 (the "Securities Act"), 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 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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.001 par
value(2)...................... $50,000,000 $14,750
</TABLE>
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(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating
the registration fee.
(2) The Common Stock offered hereby includes Preferred Stock Purchase Rights
(the "Rights"). The Rights will be associated and trade with the Common
Stock. The value, if any, of the Rights will be reflected in the market
price of the Common Stock.
----------------
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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 14, 1998
PRELIMINARY PROSPECTUS
3,100,000 SHARES
[LOGO]
COMMON STOCK
All of the 3,100,000 shares of Common Stock, par value $0.001 per share (the
"Common Stock"), offered hereby are being sold by theglobe.com, inc. (the
"Company" or "theglobe.com"). Of the shares offered hereby, the Company is
offering (the "Concurrent Offering") directly to certain investors, including
officers and directors of the Company, their relatives and their business
associates (collectively, the "Concurrent Purchasers"), shares having an
aggregate initial public offering price of up to approximately $5 million
(416,667 shares assuming an initial public offering price of $12.00 per share,
which is the midpoint of the estimated initial public offering price range set
forth below). If the Concurrent Offering is consummated, the balance of the
3,100,000 shares of Common Stock offered hereby will be included in the initial
public offering (the "Initial Public Offering"). The price per share will be
the same in the Initial Public Offering and the Concurrent Offering. The
consummation of the Concurrent Offering and the Initial Public Offering are
contingent upon each other. If the Concurrent Offering is not consummated for
the proposed amount, the shares of Common Stock not sold to the Concurrent
Purchasers will not be offered to purchasers in the Initial Public Offering.
See "Concurrent Offering." References herein to the "Offerings" include the
Initial Public Offering and the Concurrent Offering.
Prior to the Offerings, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price for the Common Stock will be between $11.00 and $13.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The shares of Common Stock have been
approved for quotation on the Nasdaq National Market under the symbol "TGLO,"
subject to official notice of issuance.
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING NET
PRICE TO AND PLACEMENT PROCEEDS TO
PUBLIC AGENT FEES(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share
Initial Public Offering................... $ $ $
Concurrent Offering....................... $ $ $
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Total(3).................................... $ $ $
</TABLE>
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(1) Bear, Stearns & Co. Inc. and Volpe Brown Whelan & Company are acting as the
Company's placement agents (the "Placement Agents") in connection with the
Concurrent Offering, for which they will receive the Placement Agent fees
indicated above. The Company has agreed to indemnify the Underwriters and
the Placement Agents against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,275,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
402,500 additional shares of Common Stock on the same terms and conditions
as set forth above, to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting and Placement
Agent Fees and Net Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
----------
The shares of Common Stock included in the Initial Public Offering are being
offered by the Underwriters, subject to prior sale, when, as and if delivered
to and accepted by the Underwriters against payment therefor and subject to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify the Initial Public Offering and to reject orders in whole or
in part. It is expected that delivery of the Common Stock will be made against
payment therefor on or about , 1998 at the offices of Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York 10167.
----------
BEAR, STEARNS & CO. INC. VOLPE BROWN WHELAN & COMPANY
The date of this Prospectus is , 1998.
<PAGE>
theglobe.com is one of the world's leading online communities with over 6.5
million unique users+ and over 1.9 million members.*
+ ABC Interactive, August 1998 Site Report
* as determined by management of
theglobe.com
theglobe.com [Logo] [ORBIT LOGO]
Focus on social dynamics of a community:
home work family travel
entertainment special interests
day-to-day conversation
[graphics of face photographs, screen shots of Web site pages]
[FOLD-OUT COVER]
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OF-
FERINGS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUB-
SEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 4
Risk Factors......................... 7
Cautionary Notice Regarding Forward-
Looking Statements.................. 24
Concurrent Offering.................. 25
Use of Proceeds...................... 25
Dividend Policy...................... 25
Capitalization....................... 26
Dilution............................. 27
Selected Financial Data.............. 28
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 29
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business........................... 39
Management......................... 52
Certain Relationships and Related
Transactions...................... 61
Principal Stockholders............. 63
Description of Capital Stock....... 65
Shares Eligible for Future Sale.... 72
Underwriting....................... 74
Legal Matters...................... 75
Experts............................ 75
Additional Information............. 75
Index to Financial Statements...... F-1
</TABLE>
----------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS AND
SUBSCRIPTIONS.
----------------
The Company has a registered United States trademark for theglobe. The
Company has filed United States trademark applications for theglobe.com and
theglobe.com logo. Additionally, the Company has submitted trademark
applications in various foreign countries for theglobe.com and theglobe.com
logo. See "Business--Intellectual Property and Proprietary Rights."
----------------
This Prospectus includes statistical data regarding the Company and the
Internet industry. Such data are based on Company records or are taken or
derived from information published by various sources, including Media Metrix,
Inc., a media research firm specializing in market and technology measurement
on the Internet ("Media Metrix"), Jupiter Communications, LLC, a media
research firm focusing on the Internet industry ("Jupiter Communications"),
International Data Corporation, a provider of market information and strategic
information for the information technology industry ("IDC") and ABC
Interactive, an auditor of statistical information for the Internet industry.
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the Financial Statements
and Notes related thereto appearing elsewhere in this Prospectus. Except where
the context otherwise requires, all references in this Prospectus to (a) the
"Company" or "theglobe.com" refer to theglobe.com, inc., a Delaware
corporation, (b) the "Web" refer to the World Wide Web and (c) the "site" refer
to the Company's Web site. Unless otherwise indicated or unless the context
otherwise requires, all information in this Prospectus reflects, upon the
closing of the Offerings, (i) the automatic conversion of all outstanding
shares of the Company's Preferred Stock into shares of Common Stock, (ii) no
exercise of the Underwriters' over-allotment option and (iii) the Company's 1
for 2 reverse split of the Company's capital stock effected as of September 24,
1998.
THE COMPANY
theglobe.com is one of the world's leading online communities with over 1.9
million members in the United States and abroad. In August 1998, over 6.5
million unique users visited the site. theglobe.com is a destination on the
Internet where users are able to personalize their online experience by
publishing their own content and interacting with others having similar
interests. theglobe.com facilitates this interaction by providing various free
services, including home page building, discussion forums, chat, e-mail and a
marketplace where members can purchase a variety of products and services.
Additionally, theglobe.com provides its users news, weather, movie and music
reviews, multi-player gaming, horoscopes and personals. By satisfying its
users' personal and practical needs, theglobe.com seeks to become their online
home. The Company's primary revenue source is the sale of advertising, with
additional revenues generated through e-commerce arrangements and the sale of
membership subscriptions for enhanced services.
The Company was founded by Todd V. Krizelman and Stephan J. Paternot in May
1995 to capitalize on the growing demand for online destinations that allow
users to develop their own identities and establish relationships with other
Internet users. theglobe.com offers users the ability to become active
participants in its community and provides users set-up tools and guidance to
build a personal Web site quickly and easily. theglobe.com community is
organized in an intuitive hierarchy modeled after the real world. There are six
"Themes of Interest": Arts and Entertainment, Business and Finance, Lifestyles,
Romance, Special Interests and Geographical Interests. Themes of Interest are
subdivided into 24 "Cities," which are further divided into 75 "Districts."
Within each District members have the ability to create or join "Interest
Groups," theglobe.com's smallest form of community. There are currently 325
Interest Groups. Interest Groups, once proposed by any member, are posted for
petition. Those groups that garner enough votes then go "live" on the site.
Members are not limited as to the number of communities they can join and are
able to leave an Interest Group at any time. Because of this, the communities
are dynamic and evolve as member interests change. "Community Leaders" are
elected to manage communities and are able to highlight member content,
communicate directly to constituents and organize events. The community focus
of theglobe.com offers several advantages to the Company that include (i)
member loyalty, (ii) member-developed content at a low cost to the Company and
(iii) the ability to offer advertising targeted to specific user interests. In
the last three months, the Company had approximately 110 advertisers, including
Coca Cola, Dunkin' Donuts, J. Crew, Procter & Gamble, Sony, 3Com and Visa.
Since its founding, theglobe.com has experienced strong growth. According to
Media Metrix, theglobe.com was ranked as the fourth fastest-growing Web site in
terms of audience reach for the first half of 1998. Over 6.5 million unique
users visited the site in August 1998, according to ABC Interactive.
Additionally, the site has added approximately 100,000 new members every month
since October 1997. Approximately 25% to 35% of theglobe.com's monthly traffic
originates from abroad, reflecting the site's international appeal.
theglobe.com's goal is to be the leading online community site. The Company
seeks to attain this goal through the following key strategies: (i) improving
user experience, (ii) developing brand identity and awareness, (iii) increasing
new membership acquisition through strategic alliances, (iv) expanding
globally, (v) further developing e-commerce and (vi) enhancing membership
services.
4
<PAGE>
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by the
Company..................... 3,100,000 shares
Common Stock to be
outstanding after the
Offerings................... 9,791,339 shares(1)(2)
Use of Proceeds.............. The Company will use the net proceeds of the
Offerings for advertising, brand name promotions
and other general corporate purposes, including
investment in the development and functionality
of theglobe.com Web site, enhancements of the
Company's network infrastructure and working
capital. The Company may also use a portion of
the proceeds for strategic alliances and
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National
Market Symbol............... "TGLO"
</TABLE>
- --------
(1) Based on the number of shares of Common Stock outstanding as of September
30, 1998, including 5,473,735 shares of Common Stock that will be issued
upon the automatic conversion of the Company's existing preferred stock
(the "Preferred Stock") upon consummation of the Offerings. Excludes
2,023,009 shares of Common Stock issuable upon the exercise of outstanding
warrants (the "Warrants") to acquire Common Stock at an exercise price of
approximately $2.91 per share following consummation of the Offerings. If
the Underwriters' over-allotment option is exercised in full, an additional
402,500 shares of Common Stock would be offered by the Company, and
10,193,839 shares of Common Stock would be outstanding after the Offerings.
(2) Also excludes (i) 822,650 and 693,771 shares of Common Stock issuable upon
the exercise of stock options that would be outstanding after the Offerings
under the Company's 1998 Stock Option Plan and 1995 Stock Option Plan,
respectively, at a weighted average exercise price of $11.81 per share
(assuming an initial public offering price of $12.00 per share) and $0.72
per share, respectively; and (ii) 377,350 and 4,625 shares of Common Stock
reserved for future issuance under the 1998 Stock Option Plan and the 1995
Stock Option Plan, respectively. See "Capitalization," "Management--
Executive Compensation," "Description of Capital Stock" and the Financial
Statements and the Notes related thereto appearing elsewhere in this
Prospectus.
RISK FACTORS
Purchasers of the Common Stock in the Offerings should carefully consider the
risk factors set forth under the caption "Risk Factors" beginning on page 7 and
the other information included in this Prospectus prior to making an investment
decision regarding the Common Stock. An investment in the shares of Common
Stock offered hereby involves a high degree of risk. The Company has a limited
operating history and anticipates losses and negative operating cash flow for
the foreseeable future. The Company's operations are dependent on the growth
and commercial viability of the Internet and an unproven business model, and
are subject to government regulation and legal uncertainties associated with
the Internet, security risks and intense competition. See "Risk Factors" for a
description of these and other risks.
----------------
The Company was incorporated in May 1995 in the State of Delaware. The
Company's principal executive offices are located at 31 West 21st Street, New
York, New York 10010, and its telephone number is (212) 886-0800.
5
<PAGE>
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth certain summary financial data for the
Company. This information should be read in conjunction with the Financial
Statements and Notes related thereto appearing elsewhere in this Prospectus.
See "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
MAY 1, 1995 SIX MONTHS
(INCEPTION) YEAR ENDED ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, ---------------------- ----------------------
1995 1996 1997 1997 1998
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.............. $ 27 $ 229 $ 770 $ 208 $ 1,173
Gross profit.......... 14 113 347 102 670
Loss from operations.. (66) (772) (3,883) (779) (6,470)
Net loss.............. (66) (750) (3,584) (767) (5,824)
Basic and diluted net
loss per share(1).... (0.06) (0.67) (3.13) (0.67) (5.01)
Weighted average
shares outstanding
used in basic and
diluted per share
calculation(1)....... 1,125,000 1,125,000 1,146,773 1,140,960 1,161,389
Pro forma basic and
diluted net loss per
share(2)............. $ (0.91) $ (0.95)
Weighted average
shares used in
computing pro forma
basic and diluted net
loss per share
calculation(2)....... 3,920,095 6,115,148
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments.. $13,155 46,651
Working capital....................................... 10,452 43,948
Total assets.......................................... 15,603 49,099
Capital lease obligations, excluding current
installments......................................... 629 629
Total stockholders' equity............................ 11,571 45,067
</TABLE>
- --------
(1) Weighted average shares do not include any common stock equivalents because
such inclusion would have been anti-dilutive. See the Financial Statements
and Notes related thereto appearing elsewhere in this Prospectus for the
determination of shares used in computing basic and diluted loss per share.
(2) Pro forma gives effect to the conversion of all outstanding shares of the
Company's Preferred Stock into Common Stock upon the closing of the
Offerings as if such conversion had occurred on January 1, 1997, or the
date of issuance, if later.
(3) As adjusted to reflect the sale of 3,100,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $12.00 per share (the
midpoint of the estimated initial public offering price range set forth on
the front cover of this Prospectus) after deducting the estimated
underwriting and Placement Agent fees and estimated offering expenses
payable by the Company. See "Use of Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors and other information contained in this
Prospectus should be considered carefully before purchasing the Common Stock
offered hereby.
LIMITED OPERATING HISTORY
The Company was founded in May 1995. Accordingly, the Company has a limited
operating history upon which an evaluation of the Company, its current
business and its prospects can be based, each of which must be considered in
light of the risks, expenses and problems frequently encountered by all
companies in the early stages of development, and particularly by such
companies entering new and rapidly developing markets like the Internet. Such
risks include, without limitation, the lack of broad acceptance of the
community model on the Internet, the possibility that the Internet will fail
to achieve broad acceptance as an advertising and commercial medium, the
inability of the Company to attract or retain members, the inability of the
Company to generate significant e-commerce-based revenues or subscription
service revenues from its members, a new and relatively unproven business
model, the Company's ability to anticipate and adapt to a developing market,
the failure of the Company's network infrastructure (including its server,
hardware and software) to efficiently handle its Internet traffic, changes in
laws that adversely affect the Company's business, the ability of the Company
to manage effectively its rapidly expanding operations, including the amount
and timing of capital expenditures and other costs relating to the expansion
of the Company's operations, the introduction and development of different or
more extensive communities by direct and indirect competitors of the Company,
including those with greater financial, technical and marketing resources, the
inability of the Company to maintain and increase levels of traffic on its Web
site, the inability of the Company to attract, retain and motivate qualified
personnel and general economic conditions. To address these risks, the Company
must, among other things, attract and retain members, maintain its customer
base and attract a significant number of new advertising customers, respond to
competitive developments, develop and extend its brand, continue to form and
maintain relationships with strategic partners, continue to attract, retain
and motivate qualified personnel, and continue to develop and upgrade its
technologies and commercialize its services incorporating such technologies.
There can be no assurance that the Company will be successful in addressing
such risks, and any failure to do so could have a material adverse effect on
the Company's business, results of operations and financial condition.
FLUCTUATING RATES OF REVENUE GROWTH
There can be no assurance the Company's revenue growth in recent periods
will continue or increase. The Company's limited operating history makes the
prediction of future results difficult or impossible and, therefore, the
Company's recent revenue growth should not be taken as an indication of any
growth that can be expected in the future. Furthermore, its limited operating
history leads the Company to believe that period-to-period comparisons of its
operating results are not meaningful and that the results for any period
should not be relied upon as an indication of future performance. To the
extent that revenues do not grow at anticipated rates, the Company's business,
results of operations and financial condition would be materially and
adversely affected.
ANTICIPATED LOSSES FOR THE FORSEEABLE FUTURE
The Company has not achieved profitability to date, and the Company
anticipates that it will continue to incur net losses for the foreseeable
future. The extent of these losses will depend, in part, on the amount of
growth in the Company's revenues from advertising sales, e-commerce and
membership subscription fees. As of June 30, 1998, the Company had an
accumulated deficit of $10.2 million. The Company expects that its operating
expenses will increase significantly during the next several years, especially
in the areas of sales and marketing, and brand promotion. Thus, the Company
will need to generate increased revenues to achieve profitability. To the
extent that increases in its operating expenses precede or are not
subsequently followed by commensurate increases in revenues, or that the
Company is unable to adjust operating expense levels accordingly, the
Company's business, results of operations and financial condition would be
materially and adversely affected.
7
<PAGE>
There can be no assurance that the Company will ever achieve or sustain
profitability or that the Company's operating losses will not increase in the
future.
DEPENDENCE ON CONTINUED GROWTH IN USE AND COMMERCIAL VIABILITY OF THE INTERNET
The Company's future success is substantially dependent upon continued
growth in the use of the Internet. To support advertising sales, e-commerce
and membership service fees on theglobe.com, the Internet's recent and rapid
growth must continue, and e-commerce on the Internet must become widespread.
None of these can be assured. The Internet may prove not to be a viable
commercial marketplace. Additionally, due to the ability of consumers to
easily compare prices of similar products or services on competing Web sites,
gross margins for e-commerce transactions may narrow in the future and,
accordingly, the Company's revenues from e-commerce arrangements may be
materially negatively impacted. If use of the Internet does not continue to
grow, the Company's business, results of operations and financial condition
would be materially and adversely affected.
Additionally, to the extent that the Internet continues to experience
significant growth in the number of users and the level of use, there can be
no assurance that its technical infrastructure will continue to be able to
support the demands placed upon it. The necessary technical infrastructure for
significant increases in e-commerce, such as a reliable network backbone, may
not be timely and adequately developed. In addition, performance improvements,
such as high-speed modems, may not be introduced in a timely fashion.
Furthermore, security and authentication concerns with respect to transmission
over the Internet of confidential information, such as credit card numbers,
may remain. Issues like these could lead to resistance against the acceptance
of the Internet as a viable commercial marketplace. Also, the Internet could
lose its viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of activity, or
due to increased governmental regulation. Changes in or insufficient
availability of telecommunications services could result in slower response
times and adversely affect usage of the Internet. To the extent the Internet's
technical infrastructure does not effectively support the growth that may
occur, the Company's business, results of operations and financial condition
would be materially and adversely affected.
DEPENDENCE ON MEMBERS FOR CONTENT AND PROMOTION
The Company depends substantially upon member involvement for content and
for word-of-mouth promotion. Particularly, the Company depends upon the
voluntary efforts of certain highly motivated members who are most active in
developing content to attract other Internet users to the site. The Company
expects such member involvement to reduce the need for the Company to expend
resources on content development and site promotion. There can be no assurance
that members will continue to generate significant content or to promote the
site or that the member-generated content or promotional efforts will continue
to attract other Internet users. There also can be no assurance that the
Company's business would not be materially and adversely affected if its most
highly active members became dissatisfied with the Company's services or its
focus on the commercialization of those services.
UNPROVEN BUSINESS MODEL; DEVELOPING MARKET; UNPROVEN ACCEPTANCE OF THE
COMPANY'S PRODUCTS
The Company's business model is new and relatively unproven. The model
depends upon the Company's ability to generate multiple revenue streams by
leveraging its community platform. To be successful, the Company must, among
other things, develop and market products and services that achieve broad
market acceptance by its users, advertisers and e-commerce vendors. There can
be no assurance that any Internet community, including theglobe.com, will
achieve broad market acceptance. Accordingly, no assurance can be given that
the Company's business model will be successful or that it can sustain revenue
growth or be profitable.
The market for the Company's products and services is new, rapidly
developing and characterized by an increasing number of market entrants. As is
typical of any new and rapidly evolving market, demand and market acceptance
for recently introduced products and services are subject to a high level of
uncertainty and risk. Moreover, because this market is new and rapidly
evolving, it is difficult to predict its future growth rate, if any, and its
ultimate size. If the market fails to develop, develops more slowly than
expected or becomes saturated
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with competitors, or if the Company's products and services do not achieve or
sustain market acceptance, the Company's business, results of operations and
financial condition would be materially and adversely affected. See
"Business--Industry Background."
BRAND IDENTITY IS CRITICAL TO THE COMPANY; RISKS ASSOCIATED WITH BRAND
DEVELOPMENT
The Company believes that establishing and maintaining brand identity is a
critical aspect of efforts to attract and expand its member base, Internet
traffic and advertising and commerce relationships. Furthermore, the Company
believes that the importance of brand recognition will increase as low
barriers to entry encourage the proliferation of Internet sites. In order to
attract and retain members, advertisers and commerce vendors, and in response
to competitive pressures, the Company intends to increase substantially its
financial commitment to the creation and maintenance of brand loyalty among
these groups. The Company plans to accomplish this, although not exclusively,
through advertising campaigns in several forms of media, including television,
print, billboards, buses, telephone kiosks, online media, and other marketing
and promotional efforts. If the Company does not generate a corresponding
increase in revenue as a result of its branding efforts or otherwise fails to
promote its brand successfully, or if the Company incurs excessive expenses in
an attempt to promote and maintain its brand, the Company's business, results
of operations and financial condition would be materially and adversely
affected.
Promotion and enhancement of theglobe.com brand will also depend, in part,
on the Company's success in providing a high-quality "community experience."
Such success cannot be assured. If members, other Internet users, advertisers
and commerce vendors do not perceive theglobe.com community experience to be
of high quality, or if the Company introduces new services or enters into new
business ventures that are not favorably received by such parties, the value
of the Company's brand could be diluted. Such brand dilution could decrease
the attractiveness of theglobe.com to such parties, and could materially and
adversely affect the Company's business, results of operations and financial
condition.
SUBSTANTIAL RELIANCE ON ADVERTISING REVENUES; SHORT-TERM NATURE OF ADVERTISING
CONTRACTS; COMPANY GUARANTEE OF MINIMUM IMPRESSION LEVELS
The Company derives a substantial portion of its revenues from the sale of
advertisements on its site, and expects to continue to do so for the
foreseeable future. For the year ended December 31, 1997 and the six months
ended June 30, 1998, advertising revenues represented 77% and 89%,
respectively, of the Company's net revenues. The Company's business model
therefore is highly dependent on the amount of "traffic" on theglobe.com,
which has a direct effect on the Company's advertising revenues. The Company
is in the early stages of implementing its advertising sales programs which,
if not successful, could materially and adversely affect the Company's
business, results of operations and financial condition.
To date, substantially all of the Company's advertising contracts have been
for terms averaging one to two months in length, with relatively few longer-
term advertising contracts. Many of the Company's advertising customers have
limited experience with Internet advertising, have not devoted a significant
portion of their advertising expenditures to Internet advertising and may not
believe Internet advertising to be effective relative to traditional
advertising media. Also, the Company's advertising customers may object to the
placement of their advertisements on certain members' personal homepages, the
content of which they deem undesirable. There can be no assurance that the
Company's current advertisers will continue to purchase advertisements on
theglobe.com.
The Company's contracts with advertisers typically guarantee the advertiser
a minimum number of "impressions," or times that an advertisement is seen by
users of theglobe.com. To the extent that minimum impression levels are not
achieved for any reason, the Company may be required to "make good" or provide
additional impressions after the contract term, which may adversely affect the
availability of advertising inventory and which could have a material adverse
effect on the Company's business, results of operations and financial
condition. To the extent minimum guaranteed impressions are not met, the
Company defers recognition of the corresponding revenues until guaranteed
impression levels are achieved.
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Additionally, the process of managing advertising within a large, high-
traffic Web site such as the Company's is an increasingly important and
complex task. The Company licenses from DoubleClick, Inc. ("DoubleClick") its
advertising management system ("D.A.R.T."). Under the license agreement,
DoubleClick provides the Company an Internet advertising administration system
to facilitate the Company's management of advertising on its Web site. The
D.A.R.T. service is intended to permit the Company to generate ad tags,
schedule advertising to run in the online environments in which the Company
places the ad tags and generate reports on such advertising. The DoubleClick
agreement is for a term of three years and will expire on April 15, 2000,
subject to DoubleClick's right to terminate the agreement upon 30 days' notice
following the Company's breach of the terms of the agreement or if
DoubleClick, in its reasonable good faith discretion, determines that the
Company has used, could use or intends to use the D.A.R.T. technology in a
manner that could damage or cause injury to the D.A.R.T. technology or
reflects unfavorably on the reputation of DoubleClick. No assurance can be
given that DoubleClick will not elect to terminate the agreement. Any such
termination and replacement could disrupt the Company's ability to manage its
advertising operations for a period of time. In addition, to the extent that
the Company encounters system failures or material difficulties in the
operation of this system, the Company could be unable to deliver banner
advertisements and sponsorships through its site. Any extended failure of, or
material difficulties encountered in connection with, the Company's
advertising management system may expose the Company to "make good"
obligations with its advertisers, which, by displacing saleable advertising
inventory, among other consequences, would reduce revenues and could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company's ability to generate significant advertising revenues will
depend, in part, on its ability to create new advertising programs without
diluting the perceived value of its existing programs. The Company's ability
to generate advertising revenues will depend also, in part, on advertisers'
acceptance of the Internet as an attractive and sustainable medium, the
development of a large base of users of the Company's products and services,
the effective development of Web site content that provides user demographic
characteristics that will be attractive to advertisers, and government
regulation. The adoption of Internet-based advertising, particularly by those
advertisers that have historically relied upon traditional advertising media,
requires the acceptance of a new way of conducting business and exchanging
information. There can be no assurance that the market for Internet
advertising will continue to emerge or become sustainable. If the market
develops more slowly than expected, the Company's business, results of
operations and financial condition could be materially and adversely affected.
The Internet as an advertising medium has not been available for a
sufficient period of time to gauge its effectiveness as compared with
traditional advertising media. No standards have been widely accepted for the
measurement of the effectiveness of Internet-based advertising, and there can
be no assurance that any such standards will become widely accepted in the
future. Internet advertising rates are based in part on third-party estimates
of users of an Internet site. Such estimates are often based on sampling
techniques or other imprecise measures, and may materially differ from Company
estimates. There can be no assurance that advertisers will accept the
Company's or other parties' measurements of impressions. The rejection by
advertisers of such measurements could have a material adverse effect on the
Company's business, results of operations and financial condition.
The sale of Internet advertising is subject to intense competition that has
resulted in a wide variety of pricing models, rate quotes and advertising
services. This has made it difficult to project future levels of advertising
revenues and rates. It is also difficult to predict which pricing models, if
any, will achieve broad acceptance among advertisers. As described above, to
date, the Company has based its advertising rates on providing advertisers
with a guaranteed number of impressions, and any failure of the Company's
advertising model to achieve broad market acceptance, would have a material
adverse effect on the Company's business, results of operations and financial
condition.
"Filter" software programs that limit or remove advertising from an Internet
user's desktop are available to consumers. Widespread adoption or increased
use of such software by users or the adoption of such software by certain
Internet access providers could have a material adverse effect upon the
viability of advertising on the Internet and on the Company's business,
results of operations and financial condition.
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POTENTIAL FLUCTUATIONS IN OPERATING RESULTS; QUARTERLY FLUCTUATIONS
The Company's operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside the Company's
control. See "--Limited Operating History" and "--Fluctuating Rates of Revenue
Growth." As a strategic response to changes in the competitive environment,
the Company may from time to time make certain pricing, service or marketing
decisions or acquisitions that could have a material short-term or long-term
adverse effect on the Company's business, results of operations and financial
condition. In particular, in order to accelerate the promotion of theglobe.com
as a brand, the Company intends to significantly increase its marketing budget
after consummation of the Offerings. See "--Brand Identity Is Critical to the
Company; Risks Associated with Brand Development."
The Company believes that it may experience seasonality in its business,
with use of the Internet and theglobe.com being somewhat lower during the
summer vacation and year-end holiday periods. Advertising impressions (and
therefore revenues) may be expected to decline accordingly in those periods.
Additionally, seasonality may affect significantly the Company's advertising
revenues during the first and third calendar quarters, as advertisers
historically spend less during these periods. Because Internet advertising is
an emerging market, additional seasonal and other patterns in Internet
advertising may develop as the market matures, and there can be no assurance
that such patterns will not have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company derives a significant portion of its revenues from the sale of
advertising under short-term contracts, averaging one to two months in length.
As a result, the Company's quarterly revenues and operating results are, to a
significant extent, dependent on advertising revenues from contracts entered
into within the quarter, and on the Company's ability to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. See "--
Substantial Reliance on Advertising Revenues; Short-term Nature of Advertising
Contracts; Company Guarantee of Minimum Impression Levels."
In addition to selling advertising, a key element of the Company's strategy
is to generate revenues through e-commerce arrangements. To date, the revenues
received by the Company under the revenue-sharing portions of these
arrangements have not been material, and there can be no assurance that the
Company will receive a material amount of revenue under these agreements in
the future. Each of the Company's existing e-commerce arrangements is
terminable upon short notice. As a result, the Company's revenues from e-
commerce may fluctuate significantly from period to period depending on the
continuation of its key e-commerce arrangements.
The foregoing factors, in some future quarters, may lead the Company's
operating results to fall below the expectations of securities analysts and
investors. In such event, the trading price of the Common Stock would likely
be materially and adversely affected.
BROAD DISCRETION IN USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of Common Stock
offered hereby for advertising, brand name promotions and other general
corporate purposes, including investment in the development and functionality
of theglobe.com Web site, enhancements of the Company's network infrastructure
and working capital. The Company may also use a portion of the proceeds for
potential strategic alliances and acquisitions. The Company has not yet
determined the amount of the net proceeds that will be used specifically for
each of the foregoing purposes. Accordingly, management will have significant
flexibility in applying the net proceeds of the Offerings. The failure of
management to apply such funds effectively could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Use of Proceeds."
DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent on the performance of
its senior management and key technical personnel. In particular, the
Company's success depends on the continued efforts of its senior
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management team, especially its Co-Chief Executive Officers and Co-Presidents
(and co-founders), Todd V. Krizelman and Stephan J. Paternot. The Company does
not carry key person life insurance on any of its personnel. The loss of the
services of any of its executive officers or other key employees could have a
material adverse effect on the business, results of operations and financial
condition of the Company.
The Company's future success also depends on its continuing ability to
retain and attract highly qualified technical and managerial personnel. As of
August 31, 1998, the Company had grown to 93 full-time employees from
approximately 20 in June 1997, and the Company anticipates that the number of
its employees will increase significantly in the next 12 months. Wages for
managerial and technical employees are increasing and are expected to continue
to increase in the foreseeable future due to the competitive nature of this
job market. There can be no assurance that the Company will be able to retain
its key managerial and technical personnel or that it will be able to attract
and retain additional highly qualified technical and managerial personnel in
the future. The Company has experienced difficulty from time to time in
attracting the personnel necessary to support the growth of its business, and
there can be no assurance that the Company will not experience similar
difficulty in the future. The inability to attract and retain the technical
and managerial personnel necessary to support the growth of the Company's
business, due to, among other things, a large increase in the wages demanded
by such personnel, could have a material adverse effect upon the Company's
business, results of operations and financial condition. See "Business--
Employees" and "--Technology" and "Management."
MANAGEMENT OF GROWTH; INEXPERIENCED MANAGEMENT
The Company's recent growth has placed, and is expected to continue to
place, a significant strain on its managerial, operational and financial
resources. To manage its potential growth, the Company must continue to
implement and improve its operational and financial systems, and must expand,
train and manage its employee base. The Company's Chief Operating Officer and
Chief Financial Officer joined the Company during August and July 1998,
respectively. In addition, each of the Company's Director of Advertising
Sales, Director of Technology, Director of Communications and Director of
Human Resources has been with the Company for less than two years.
Furthermore, the members of the Company's current senior management (other
than the Chairman) have not had any previous experience managing a public
company or a large operating company. There can be no assurance that the
Company will be able to effectively manage the expansion of its operations,
that the Company's systems, procedures or controls will be adequate to support
the Company's operations or that Company management will be able to achieve
the rapid execution necessary to fully exploit the market opportunity for the
Company's products and services. Any inability to manage growth effectively
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business."
COMPETITION FOR MANAGEMENT TIME; POTENTIAL CONFLICTS OF INTEREST
Michael S. Egan is the Chairman of the Company and, as such, Mr. Egan serves
as Chairman of the Board of Directors and as an executive officer of the
Company with primary responsibility for day-to-day strategic planning and
financing arrangements. After the Offerings, Mr. Egan will also continue to be
the controlling investor of Dancing Bear Investments, Inc. ("Dancing Bear
Investments"), which will hold a controlling interest in the Company after the
Offerings, and Chairman and Chief Executive Officer of Certified Vacations, an
entity affiliated with Dancing Bear Investments. Dancing Bear Investments may
also acquire other entities in the future. Edward A. Cespedes is the Vice
President of Corporate Development of the Company with primary responsibility
for corporate development opportunities including mergers and acquisitions.
After the Offerings, Mr. Cespedes will also continue to serve as a Managing
Director of Dancing Bear Investments. Messrs. Egan and Cespedes have not
committed to devote any specific percentage of their business time with the
Company. Accordingly, the Company will compete with Dancing Bear Investments
and related entities for the time of Messrs. Egan and Cespedes. The Company
has recently begun e-commerce arrangements with certain entities controlled by
Dancing Bear Investments or by Republic Industries, Inc. ("Republic
Industries"), an entity affiliated with H. Wayne Huizenga, a director of the
Company, which are not currently material to the Company.
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See "Certain Relationships and Related Transactions." These arrangements are
not the result of arm's-length negotiations. Due to their relationships with
their related entities, Messrs. Egan, Cespedes and Huizenga will have an
inherent conflict of interest in making any decision related to transactions
between their related entities and the Company. The Company intends to review
related party transactions in the future on a case-by-case basis.
NEED TO ENHANCE AND DEVELOP THEGLOBE.COM TO REMAIN COMPETITIVE
To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionality and features of theglobe.com and develop other
products and services. Enhancements of or improvements to the Web site may
contain undetected programming errors that require significant design
modifications, resulting in a loss of customer confidence and user support and
a decrease in the value of the Company's brand name recognition.
The Company plans to develop and introduce new features and functions, such
as increased capabilities for user personalization and interactivity. This
will require the development or licensing of increasingly complex
technologies. There can be no assurance that the Company will be successful in
developing or introducing such features and functions or that such features
and functions will achieve market acceptance or enhance the Company's brand
name recognition. Any failure of the Company to effectively develop and
introduce new features and functions, or the failure of such new features and
functions to achieve market acceptance, could have a material adverse effect
on the Company's business, results of operations and financial condition.
The Company also plans to develop and introduce new products and services,
such as new content targeted for specific user groups with particular
demographic and geographic characteristics. There can be no assurance that the
Company will be successful in developing or introducing such products and
services or that such products and services will achieve market acceptance or
enhance the Company's brand name recognition. Any failure of the Company to
effectively develop and introduce these products and services, or the failure
of such products and services to achieve market acceptance, could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business--Products and Services."
INTERNET INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE
The market for Internet products and services is characterized by rapid
technological developments, evolving industry standards and customer demands,
and frequent new product introductions and enhancements. These market
characteristics are exacerbated by the emerging nature of the market and the
fact that many companies are expected to introduce new Internet products and
services in the near future. The Company's future success will depend in
significant part on its ability to continually improve the performance,
features and reliability of the site in response to both evolving demands of
the marketplace and competitive product and service offerings, and there can
be no assurance that the Company will be successful in doing so. In addition,
the widespread adoption of developing multimedia enabling technologies could
require fundamental and costly changes in the Company's technology and could
fundamentally affect the nature, viability and measurability of Internet-based
advertising, which could adversely affect the Company's business, results of
operations and financial condition. See "Business--Products and Services."
RISK OF CAPACITY CONSTRAINTS AND SYSTEMS FAILURES
A key element of the Company's strategy is to generate a high volume of user
traffic. The Company's ability to attract advertisers and to achieve market
acceptance of its products and services, and its reputation, depend
significantly upon the performance of the Company and its network
infrastructure (including its server, hardware and software). Any system
failure that causes interruption or slower response time of the Company's
products and services could result in less traffic to the Company's Web site
and, if sustained or repeated, could reduce the attractiveness of the
Company's products and services to advertisers and licensees. An increase in
the volume of user traffic could strain the capacity of the Company's
technical infrastructure, which could lead to slower response time or system
failures, and could adversely affect the delivery of the number of impressions
that are owed to advertisers and thus the Company's advertising revenues. In
addition, as the number of Web pages on
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and users of theglobe.com increase, there can be no assurance that the Company
and its technical infrastructure will be able to grow accordingly, and the
Company faces risks related to its ability to scale up to its expected
customer levels while maintaining superior performance. Any failure of the
Company's server and networking systems to handle current or higher volumes of
traffic would have a material adverse effect on the Company's business,
results of operations and financial condition.
The Company is also dependent upon third parties to provide potential users
with Web browsers and Internet and online services necessary for access to the
site. In the past, users have occasionally experienced difficulties with
Internet and online services due to system failures, including failures
unrelated to the Company's systems. Any disruption in Internet access provided
by third parties could have a material adverse effect on the Company's
business, results of operations and financial condition. Furthermore, the
Company is dependent on hardware suppliers for prompt delivery, installation
and service of equipment used to deliver the Company's products and services.
The Company's operations are dependent in part upon its ability to protect
its operating systems against damage from human error, fire, floods, power
loss, telecommunications failures, break-ins and similar events. The Company
does not presently have redundant, multiple-site capacity in the event of any
such occurrence. The Company's servers are also vulnerable to computer
viruses, break-ins and similar disruptions from unauthorized tampering with
the Company's computer systems. The occurrence of any of these events could
result in the interruption, delay or cessation of service, which could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, the Company's reputation and theglobe.com
brand could be materially and adversely affected. See "Business--Facilities."
SECURITY RISKS
Experienced programmers ("hackers") have attempted on occasion to penetrate
the Company's network security. The Company expects that these attempts, some
of which have succeeded, will continue to occur from time to time. Because a
hacker who is able to penetrate the Company's network security could
misappropriate proprietary information or cause interruptions in the Company's
products and services, the Company may be required to expend significant
capital and resources to protect against or to alleviate problems caused by
such parties. Additionally, the Company may not have a timely remedy against a
hacker who is able to penetrate its network security. Such purposeful security
breaches could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition to purposeful
security breaches, the inadvertent transmission of computer viruses could
expose the Company to a material risk of loss or litigation and possible
liability.
In offering certain payment services through its "globeStores" program, the
Company could become increasingly reliant on encryption and authentication
technology licensed from third parties to provide the security and
authentication necessary to effect secure transmission of confidential
information, such as customer credit card numbers. Advances in computer
capabilities, discoveries in the field of cryptography and other discoveries,
events, or developments could lead to a compromise or breach of the algorithms
that the Company's licensed encryption and authentication technology used to
protect such confidential information. If such a compromise or breach of the
Company's licensed encryption authentication technology occurs, it could have
a material adverse effect on the Company's business, results of operations and
financial condition. The Company may be required to expend significant capital
and resources and engage the services of third parties to protect against the
threat of such security, encryption and authentication technology breaches or
to alleviate problems caused by such breaches. Concerns over the security of
Internet transactions and the privacy of users may also inhibit the growth of
the Internet generally, particularly as a means of conducting commercial
transactions.
INTENSE COMPETITION
The market for members, users and Internet advertising is new and rapidly
evolving, and competition for members, users and advertisers, as well as
competition in the e-commerce market, is intense and is expected to increase
significantly. Barriers to entry are relatively insubstantial and the Company
may face competitive pressures from many additional companies both in the
United States and abroad.
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The Company believes that the principal competitive factors for companies
seeking to create communities on the Internet are critical mass, functionality
of the Web site, brand recognition, member affinity and loyalty, broad
demographic focus and open access for visitors. Other companies that are
primarily focused on creating Internet communities are Tripod, Inc., a
subsidiary of Lycos, Inc. ("Tripod"), and GeoCities, Inc. ("GeoCities"), and,
in the future, Internet communities may be developed or acquired by companies
currently operating Web directories, search engines, shareware archives and
content sites, and by commercial online service providers ("OSPs"), Internet
service providers ("ISPs") and other entities, certain of which may have more
resources than the Company. The Company competes for users and advertisers
with other content providers and with thousands of Web sites operated by
individuals, the government and educational institutions. Such providers and
sites include America Online, Inc. ("AOL"), Angelfire Communications
("Angelfire"), CNET, Inc. ("CNET"), CNN/Time Warner, Inc. ("CNN/Time Warner"),
Excite, Inc. ("Excite"), Hotmail Corporation ("Hotmail"), Infoseek Corporation
("Infoseek"), Lycos, Inc. ("Lycos"), Microsoft Corporation ("Microsoft"),
Netscape Communications Corporation ("Netscape"), Switchboard Inc.
("Switchboard"), Xoom Inc. ("Xoom") and Yahoo! Inc. ("Yahoo!"). In addition,
the Company could face competition in the future from traditional media
companies, such as newspaper, magazine, television and radio companies, a
number of which, including The Walt Disney Company ("Disney"), CBS Corporation
("CBS") and The National Broadcasting Company ("NBC"), have recently made
significant acquisitions of or investments in Internet companies.
The Company believes that the principal competitive factors in attracting
advertisers include the amount of traffic on its Web site, brand recognition,
customer service, the demographics of the Company's members and users, the
Company's ability to offer targeted audiences and the overall cost
effectiveness of the advertising medium offered by the Company. The Company
believes that the number of Internet companies relying on Internet-based
advertising revenue, as well as the number of advertisers on the Internet and
the number of users, will increase substantially in the future. Accordingly,
the Company will likely face increased competition, resulting in increased
pricing pressures on its advertising rates, which could have a material
adverse effect on the Company.
Many of the Company's existing and potential competitors, including
companies operating Web directories and search engines, and traditional media
companies, have longer operating histories in the Internet market, greater
name recognition, larger customer bases and significantly greater financial,
technical and marketing resources than the Company. Such competitors may be
able to undertake more extensive marketing campaigns for their brands and
services, adopt more aggressive advertising pricing policies and make more
attractive offers to potential employees, distribution partners, e-commerce
companies, advertisers and third-party content providers. Furthermore, the
Company's existing and potential competitors may develop communities that are
equal or superior in quality to, or that achieve greater market acceptance
than, theglobe.com. There can be no assurance that the Company will be able to
compete successfully against its current or future competitors or that
competition will not have a material adverse effect on the Company's business,
results of operations and financial condition.
Additionally, the e-commerce market is new and rapidly evolving, and
competition among e-commerce merchants is expected to increase significantly.
The Company will rely primarily on e-commerce partners to generate e-commerce
revenues. The Company's ability to generate revenues from any of its present
or future e-commerce partners may be adversely affected by competition between
any such partner and other Internet retailers.
There can be no assurance that Web sites maintained by the Company's
existing and potential competitors will not be perceived by advertisers as
being more desirable for placement of advertisements than theglobe.com. In
addition, many of the Company's current advertising customers and strategic
partners have established collaborative relationships with certain of the
Company's existing or potential competitors. There can be no assurance that
the Company will be able to retain or grow its membership base, traffic levels
and advertising customer base at historical levels, or that competitors will
not experience better retention or greater growth in these areas than the
Company. Accordingly, there can be no assurance that any of the Company's
advertising customers, strategic partners or e-commerce partners will not
sever or will elect not to renew their agreements with the Company, the result
of which could have a material adverse effect on the Company's business,
results of operations and financial condition.
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DEPENDENCE ON THIRD-PARTY RELATIONSHIPS
The Company is and will continue to be significantly dependent on a number
of third-party relationships to increase traffic on theglobe.com and thereby
generate advertising revenues, maintain the current level of service and
variety of content for its members, and meet future milestones. The Company is
generally dependent on other Web site operators that provide links to
theglobe.com. The Company also has relationships with several online retailers
whereby the Company is paid for providing to them online storefronts and
promotional materials on theglobe.com. See "Business--Business Strategy--
Increase New Membership Acquisition through Strategic Alliances."
Most of the Company's arrangements with third-party Internet sites and other
third-party service providers do not require future minimum commitments to use
the Company's services or to provide access or links to the Company's services
or products, are not exclusive and are short-term or may be terminated at the
convenience of the other party. Moreover, the Company does not have agreements
with the majority of other Web site operators that provide links to
theglobe.com, and such Web site operators may terminate such links at any time
without notice to the Company. There can be no assurance that third parties
regard their relationship with the Company as important to their own
respective businesses and operations, that they will not reassess their
commitment to the Company at any time in the future or that they will not
develop their own competitive services or products.
There can be no assurance that the Company will be able to maintain
relationships with third parties that supply the Company with software or
products that are crucial to the Company's success, or that such software or
products will be able to sustain any third-party claims or rights against
their use. Furthermore, there can be no assurance that the software, services
or products of those companies that provide access or links to the Company's
services or products will achieve market acceptance or commercial success.
Accordingly, there can be no assurance that the Company's existing
relationships will result in sustained business partnerships, successful
service or product offerings or the generation of significant revenues for the
Company. Failure of one or more of the Company's strategic relationships to
achieve or maintain market acceptance or commercial success or the termination
of one or more successful strategic relationships could have a material
adverse effect on the Company's business, results of operations and financial
condition. In particular, the elimination of a pre-installed bookmark on a Web
browser that directs traffic to the Company's Web site could significantly
reduce traffic on the Company's Web site, which would have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Business--Corporate Alliances and Relationships."
ADDITIONAL FINANCING REQUIREMENTS; ABILITY TO INCUR DEBT; EXPECTED NEGATIVE
OPERATING CASH FLOW FOR THE FORESEEABLE FUTURE
The Company currently anticipates that the net proceeds of the Offerings,
together with available funds and cash flows generated from advertising
revenues, will be sufficient to meet its anticipated needs for working
capital, capital expenditures and business expansion for the next 12 months.
The Company expects that it will continue to experience negative operating
cash flow for the foreseeable future as a result of significant spending on
advertising and infrastructure. Accordingly, the Company may need to raise
additional funds in a timely manner in order to fund its anticipated
expansion, develop new or enhanced services or products, respond to
competitive pressures or acquire complementary products, businesses or
technologies. If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of the stockholders of
the Company will be reduced, stockholders may experience additional dilution
and such securities may have rights, preferences or privileges senior to those
of the holders of the Common Stock. The Company does not currently have any
contractual restrictions on its ability to incur debt and, accordingly, the
Company could incur significant amounts of indebtedness to finance its
operations. Any such indebtedness could contain covenants which would restrict
the Company's operations. There can be no assurance that additional financing
will be available on terms favorable to the Company, or at all. If adequate
funds are not available or are not available on acceptable terms, the Company
may not be able to fund its expansion, take advantage of acquisition
opportunities, develop or enhance services or products or respond to
competitive pressures. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
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RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
As part of its business strategy, the Company expects to review acquisition
prospects that would complement its existing business, augment the
distribution of its community or enhance its technological capabilities.
Future acquisitions by the Company could result in potentially dilutive
issuances of equity securities, large and immediate write-offs, the incurrence
of debt and contingent liabilities or amortization expenses related to
goodwill and other intangible assets, any of which could materially and
adversely affect the Company's business, results of operations and financial
condition.
Furthermore, acquisitions entail numerous risks and uncertainties, including
difficulties in the assimilation of operations, personnel, technologies,
products and information systems of the acquired companies, the diversion of
management's attention from other business concerns, the risks of entering
geographic and business markets in which the Company has no or limited prior
experience and the potential loss of key employees of acquired organizations.
The Company has not made any acquisitions in the past. No assurance can be
given as to the ability of the Company to successfully integrate any
businesses, products, technologies or personnel that might be acquired in the
future, and the failure of the Company to do so could have a material adverse
effect on the Company's business, results of operations and financial
condition.
RELIANCE ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company regards substantial elements of its Web site and underlying
technology as proprietary and attempts to protect them by relying on
trademark, service mark, copyright and trade secret laws and restrictions on
disclosure and transferring title and other methods. The Company also
generally enters into confidentiality agreements with its employees and
consultants and in connection with its license agreements with third parties
and generally seeks to control access to and distribution of its technology,
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's proprietary information without authorization or to develop similar
technology independently. The Company pursues the registration of its
trademarks in the United States and internationally. The Company has
registered a United States trademark for theglobe. The Company has filed
United States trademark applications for theglobe.com and theglobe.com logo.
Additionally, the Company has submitted trademark applications for
theglobe.com and theglobe.com logo in Australia, Brazil, Canada, China, the
European Union (covering Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Italy, Ireland, Luxembourg, the Netherlands, Portugal, Spain, Sweden
and the United Kingdom), Hong Kong, Israel, Japan, New Zealand, Norway,
Russia, Singapore, South Africa, Switzerland and Taiwan. Effective trademark,
service mark, copyright and trade secret protection may not be available in
every country in which the Company's services are distributed or made
available through the Internet, and policing unauthorized use of the Company's
proprietary information is difficult. See "Business--Intellectual Property and
Proprietary Rights."
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any of the Company's proprietary rights. There can be no
assurance that the steps taken by the Company will prevent misappropriation or
infringement of its proprietary information, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation might result in substantial costs and diversion of resources and
management attention. Furthermore, there can be no assurance that the
Company's business activities will not infringe upon the proprietary rights of
others, or that other parties will not assert infringement claims against the
Company, including claims that by directly or indirectly providing hyperlink
text links to Web sites operated by third parties. Moreover, from time to
time, the Company may be subject to claims of alleged infringement by the
Company or its members of the trademarks, service marks and other intellectual
property rights of third parties. Such claims and any resultant litigation,
should it occur, might subject the Company to significant liability for
damages, might result in
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invalidation of the Company's proprietary rights and, even if not meritorious,
could result in substantial costs and diversion of resources and management
attention and could have a material adverse effect on the Company's business,
results of operations and financial condition.
The Company currently licenses from third parties certain technologies
incorporated into theglobe.com. As the Company continues to introduce new
services that incorporate new technologies, it may be required to license
additional technology from others. There can be no assurance that these third-
party technology licenses will continue to be available to the Company on
commercially reasonable terms, if at all. Additionally, there can be no
assurance that the third parties from which the Company currently licenses its
technology will be able to defend their proprietary rights successfully
against claims of infringement. As a result, any inability of the Company to
obtain any of these technology licenses could result in delays or reductions
in the introduction of new services or could adversely affect the performance
of its existing services until equivalent technology can be identified,
licensed and integrated. See "Business--Intellectual Property and Proprietary
Rights."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES ASSOCIATED WITH THE INTERNET
A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws
or regulations concerning various aspects of the Internet, including, but not
limited to, online content, user privacy, taxation, access charges, liability
for third-party activities and jurisdiction. Additionally, it is uncertain as
to how existing laws will be applied by the judiciary to the Internet. The
adoption of new laws or the application of existing laws may decrease the
growth in the use of the Internet, which could in turn decrease the demand for
the Company's services, increase the Company's cost of doing business or
otherwise have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business--Government Regulation and
Legal Uncertainties" for a description of various legislative and regulatory
proposals which could be material to the Company.
There can be no assurance that the United States or foreign nations will not
enact legislation or seek to enforce existing laws prohibiting or restricting
certain content, such as online gambling, from the Internet. Currently, online
gambling advertisers account for under ten percent of the Company's
advertising revenues. Prohibition and restriction of Internet content could
dampen the growth of Internet use, decrease the acceptance of the Internet as
a communications and commercial medium, expose the Company to liability,
and/or require substantial modification of theglobe.com, and thereby have a
material adverse effect on the Company's business, results of operations and
financial condition.
Internet user privacy has become an issue both in the United States and
abroad. Current United States privacy law consists of a few disparate statutes
directed at specific industries that collect personal data, none of which
specifically covers the collection of personal information online. There can
be no assurance that the United States or foreign nations will not adopt
legislation purporting to protect such privacy. Any such action could affect
the way in which the Company is allowed to conduct its business, especially
those aspects that involve the collection or use of personal information, and
could have a material adverse effect on the Company's business, results of
operations and financial condition.
The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local level and
by certain foreign governments that could impose taxes on the sale of goods
and services and certain other Internet activities. The United States Congress
is considering legislation that would place a temporary moratorium on certain
types of taxation on Internet commerce. There can be no assurance that any
such legislation will be adopted by Congress or what form it will take, or
that current attempts at taxing or regulating commerce over the Internet would
not substantially impair the growth of e-commerce and as a result have a
material adverse effect on the Company's business, results of operations and
financial condition.
Certain local telephone carriers have asserted that the growing popularity
and use of the Internet has burdened the existing telecommunications
infrastructure, and that many areas with high Internet use have begun
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to experience interruptions in telephone service. These carriers have
petitioned the Federal Communications Commission (the "FCC") to impose access
fees on ISPs and OSPs. If such access fees are imposed, the costs of
communicating on the Internet could increase substantially, potentially
slowing the growth in use of the Internet, which could in turn decrease demand
for the Company's services or increase the Company's cost of doing business,
and thus have a material adverse effect on the Company's business, results of
operations and financial condition.
Although the Company's server is located in the State of New York, the
governments of other states and foreign countries might attempt to take action
against the Company for violations of their laws. There can be no assurance
that violations of such laws will not be alleged or charged by state or
foreign governments and that such laws will not be modified, or new laws
enacted, in the future. Any of the foregoing could have a material adverse
effect on the Company's business, results of operations and financial
condition.
LIABILITY FOR INFORMATION RETRIEVED FROM OR TRANSMITTED OVER THE INTERNET;
LIABILITY FOR PRODUCTS SOLD OVER THE INTERNET
Because materials may be downloaded by the online or Internet services
operated or facilitated by the Company or the Internet access providers with
which it has relationships and may be subsequently distributed to others,
there is a potential that claims will be made against the Company for
defamation, negligence, copyright or trademark infringement or other theories
based on the nature and content of such materials. Such claims have been
brought against online services in the past and, from time to time, the
Company has received inquiries from third parties regarding such matters. Such
claims could be material in the future. In addition, the increased attention
focused upon liability issues and legislative proposals could materially
impact the overall growth of Internet use.
The Company could also be exposed to liability with respect to third-party
information that may be accessible through the Company's Web site, or through
content and materials that may be posted by members on their personal Web
sites or on chat rooms or bulletin boards offered by the Company. Such claims
might include, among others, that, by directly or indirectly providing
hyperlink text links to Web sites operated by third parties or by providing
hosting services for members' sites, the Company is liable for copyright or
trademark infringement or other wrongful actions by such third parties through
such Web sites. It is also possible that, if any third-party content
information provided on the Company's Web site contains errors, third parties
could make claims against the Company for losses incurred in reliance on such
information.
The Company offers e-mail service, which is provided by a third party. See
"--Dependence on Third-Party Relationships." Such service may expose the
Company to potential risk, such as liabilities or claims resulting from
unsolicited e-mail ("spamming"), lost or misdirected messages, illegal or
fraudulent use of e-mail or interruptions or delays in e-mail service.
The Company also enters into agreements with commerce partners and sponsors
under which the Company is entitled to receive a share of any revenue from the
purchase of goods and services through direct links from the Company's Web
site. Such arrangements may expose the Company to additional legal risks and
uncertainties, including pursuant to regulation by local, state, federal and
foreign authorities and potential liabilities to consumers of such products
and services, even if the Company does not itself provide such products or
services. There can be no assurance that any indemnification provided to the
Company in its agreements with these parties, if available, will be adequate.
Even to the extent such claims do not result in liability to the Company,
the Company could incur significant costs in investigating and defending
against such claims. The imposition on the Company of potential liability for
information carried on or disseminated through its systems could require the
Company to implement measures to reduce its exposure to such liability, which
may require the expenditure of substantial resources and limit the
attractiveness of the Company's services to members and users.
The Company's general liability insurance may not cover all potential claims
to which it is exposed or may not be adequate to indemnify the Company for all
liability that may be imposed. Any imposition of liability that
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is not covered by insurance or is in excess of insurance coverage could have a
material adverse effect on the Company's business, results of operations and
financial condition.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND EXPANSIONS
A part of the Company's strategy is to continue to develop theglobe.com
community model in international markets. Approximately 25% to 35% of the
Company's monthly traffic originates from abroad. There can be no assurance
that the Internet or the Company's community model will become widely accepted
for advertising and e-commerce in any international markets. In addition, the
Company expects that the success of any additional foreign operations it
initiates in the future will also be substantially dependent upon local
partners. If revenues from international ventures are not adequate to cover
the investments in such activities, the Company's business, results of
operations and financial condition could be materially and adversely affected.
The Company may experience difficulty in managing international operations as
a result of difficulty in locating an effective foreign partner, competition,
technical problems, local laws and regulations, distance and language and
cultural differences, and there can be no assurance that the Company or its
international partners will be able to successfully market and operate the
Company's community model in foreign markets. The Company also believes that,
in light of substantial anticipated competition, it will be necessary to move
quickly into international markets in order to effectively obtain market
share, and there can be no assurance that the Company will be able to do so.
There are certain risks inherent in doing business on an international level,
such as unexpected changes in regulatory requirements, trade barriers,
difficulties in staffing and managing foreign operations, fluctuations in
currency exchange rates, longer payment cycles in general, problems in
collecting accounts receivable, difficulty in enforcing contracts, political
and economic instability, seasonal reductions in business activity in certain
other parts of the world and potentially adverse tax consequences. There can
be no assurance that one or more of such factors will not have a material
adverse effect on the Company's future international operations and,
consequently, on the Company's business, results of operations and financial
condition.
CONTROL BY CURRENT STOCKHOLDERS
Following consummation of the Offerings, it is anticipated that Michael S.
Egan, the Chairman of the Company, will beneficially own or control, directly
or indirectly, 6,071,024 shares of Common Stock which in the aggregate will
represent approximately 51.4% of the outstanding shares of Common Stock.
Following the consummation of the Offerings, it is anticipated that Messrs.
Krizelman and Paternot, collectively, will beneficially own 15.7% of the
Common Stock. Messrs. Egan, Krizelman and Paternot and certain directors of
the Company will also hold outstanding Warrants exercisable for 2,023,009
shares of Common Stock in the aggregate. See "Description of Capital Stock--
Warrants." Messrs. Egan, Krizelman, Paternot and Cespedes and Rosalie V.
Arthur, a director of the Company, expect to enter into a stockholders'
agreement (the "Stockholders' Agreement") pursuant to which Dancing Bear
Investments, Mr. Egan or entities controlled by Mr. Egan and certain permitted
transferees (collectively, the "Egan Group") will agree to vote for certain
nominees of Messrs. Krizelman and Paternot or entities controlled by Messrs.
Krizelman and Paternot and certain permitted transferees (the "Krizelman and
Paternot Groups") to the Board of Directors and the Krizelman and Paternot
Groups will agree to vote for the nominees of the Egan Group to the Board, who
will represent a majority of the Board of Directors. Accordingly, the Egan
Group will have the ability to elect a majority of the directors of the
Company and the Egan Group and the Krizelman and Paternot Groups will also
have the ability to control the outcome of all issues submitted to a vote of
the stockholders of the Company requiring majority approval. See "Principal
Stockholders." The Stockholders' Agreement will also provide that the Egan
Group, the Krizelman and Paternot Groups, Mr. Cespedes and Ms. Arthur will be
subject to certain "tag-along" and "drag-along" rights in connection with any
private sale of securities of the Company after the Offerings. Voting control
by the Egan Group and the Krizelman and Paternot Groups may discourage certain
types of transactions involving an actual or potential change of control of
the Company, including transactions in which the holders of Common Stock might
receive a premium for their shares over prevailing market prices. See "Certain
Relationships and Related Transactions."
IMPACT OF THE YEAR 2000
The Year 2000 issue is the potential for system and processing failures of
date-related data and the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example,
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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.
The Company may be affected by Year 2000 issues related to non-compliant
information technology ("IT") systems or non-IT systems operated by the
Company or by third parties. The Company has substantially completed
assessment of its internal and external (third-party) IT systems and non-IT
systems. At this point in its assessment, the Company is not currently aware
of any Year 2000 problems relating to systems operated by the Company or by
third parties that would have a material effect on the Company's business,
results of operations or financial condition, without taking into account the
Company's efforts to avoid such problems. Based on its assessment to date, the
Company does not anticipate that costs associated with remediating the
Company's non-compliant IT systems or non-IT systems will be material,
although there can be no assurance to such effect. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Impact of the Year 2000."
To the extent that the Company's assessment is finalized without identifying
any additional material non-compliant IT systems operated by the Company or by
third parties, the most reasonably likely worst case Year 2000 scenario is a
systemic failure beyond the control of the Company, such as a prolonged
telecommunications or electrical failure. Such a failure could prevent the
Company from operating its business, prevent users from accessing the
Company's Web site, or change the behavior of advertising customers or persons
accessing the Company's Web site. The Company believes 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 the Company's Web site, or other business
interruptions of a material nature, as well as claims of mismanagement,
misrepresentation, or breach of contract, any of which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
IMPACT OF GENERAL ECONOMIC CONDITIONS
Time spent on the Internet by individuals, purchases of new computers and
purchases of membership subscriptions to Internet sites are typically
discretionary for consumers and may be particularly affected by adverse trends
in the general economy. The success of the Company's operations depends to a
significant extent upon a number of factors relating to discretionary consumer
spending, including economic conditions (and perceptions of such conditions by
consumers) affecting disposable consumer income such as employment, wages and
salaries, business conditions, interest rates, availability of credit and
taxation, for the economy as a whole and in regional and local markets where
the Company operates. There can be no assurance that consumer spending will
not be adversely affected by general economic conditions, which could
negatively impact the Company's results of operations or financial condition.
Any significant deterioration in general economic conditions or increases in
interest rates may inhibit consumers' use of credit and cause a material
adverse effect on the Company's revenues and profitability. In addition, the
Company's business strategy relies on advertising by and agreements with other
Internet companies. Any significant deterioration in general economic
conditions that adversely affected these companies could also have a material
adverse effect on the Company's business, results of operations and financial
condition.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock. The shares of Common Stock have been approved for quotation on the
Nasdaq National Market, subject to official notice of issuance; however, there
can be no assurance as to the development or liquidity of any trading market
for the Common Stock or that investors in the Common Stock will be able to
resell their shares at or above the initial public offering price. The initial
public offering price for the shares of Common Stock will be determined
through negotiations between the Company and representatives of the
Underwriters and may not be indicative of the market price of the Common Stock
after the Offerings. See "Underwriting." The trading price of the Company's
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Common Stock could be subject to wide fluctuations in response to quarterly
variations in operating results, announcements of technological innovations or
new products and services by the Company or its competitors, changes in
financial estimates by securities analysts, the operating and stock price
performance of other companies that investors may deem comparable to the
Company and other events or factors. In addition, the stock market in general,
and the market prices for Internet-related companies in particular, have
experienced extreme volatility that often has been unrelated to the operating
performance of such companies. These broad market and industry fluctuations
may adversely affect the trading price of the Company's Common Stock,
regardless of the Company's operating performance. In the past, following
periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against such
company. Such litigation, if instituted, whether or not successful, could
result in substantial costs and a diversion of management's attention and
resources, which would have a material adverse effect on the Company's
business, results of operations and financial condition.
SHARES ELIGIBLE FOR FUTURE SALE; NO PRIOR TRADING MARKET; REGISTRATION RIGHTS
Upon consummation of the Offerings, the Company will have outstanding a
total of 9,791,339 shares of Common Stock (10,193,839 if the Underwriters'
over-allotment option is exercised in full), and 822,650 and 693,771 shares of
Common Stock subject to stock options granted under the Company's 1998 Stock
Option Plan and 1995 Stock Option Plan, respectively. See "Management--
Executive Compensation." In addition, upon consummation of the Offerings,
2,023,009 shares of Common Stock will be issuable upon exercise of outstanding
Warrants. Of the outstanding shares, the 3,100,000 shares of Common Stock
being sold in the Offerings (3,502,500 if the Underwriters' over-allotment
option is exercised in full) will be immediately eligible for sale in the
public market without restriction or further registration under the Securities
Act, unless purchased by or issued to any "affiliate" of the Company (within
the meaning of the Securities Act). All of the shares of Common Stock
outstanding prior to the Offerings are "restricted securities" as such term is
defined under Rule 144 under the Securities Act ("Rule 144") in that such
shares were issued in private transactions not involving a public offering.
Restricted securities may be sold in the public market only if registered or
if they qualify for an exemption from registration under Rules 144, 144(k) or
701 promulgated under the Securities Act or another exemption from
registration. Of the 5,628,884 shares of capital stock issued prior to the
Offerings, and not registered under the Securities Act, approximately
1,062,455 shares are not subject to the volume limitations of Rule 144 and are
currently eligible for sale in the public market without restriction. Holders
of substantially all of the Company's Common Stock and outstanding preferred
equity have been granted registration rights with respect to the shares of
Common Stock into which their securities are convertible. See "Description of
Capital Stock--Registration Rights." However, pursuant to the terms of the
agreements pursuant to which the registration rights were granted, such
holders have agreed not to sell or otherwise transfer or dispose of any shares
of Common Stock or other securities of the Company held by them without the
consent of the Company for a period of seven days prior to and up to 180 days
after the date of this Prospectus. Additionally, the Company and members of
the Company's management who are stockholders of the Company and certain other
stockholders have agreed that, subject to certain exceptions, for a period of
180 days after the date of this Prospectus, without the prior written consent
of Bear, Stearns & Co. Inc., they will not, directly or indirectly, issue,
sell, offer or agree to sell, grant any option for the sale, pledge, make any
short sale, establish an open "put equivalent position" within the meaning of
Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or otherwise dispose of any shares of Common Stock (or
securities convertible into, exercisable for or exchangeable for Common Stock)
of the Company or of any of its subsidiaries. The Company intends to file a
registration statement on Form S-8 for the shares held pursuant to its option
plans that may make those shares freely tradeable. Such registration statement
will become effective immediately upon filing, and shares covered by that
registration statement will thereupon be eligible for sale in the public
markets, subject to the applicable lock-up agreements and Rule 144 limitations
applicable to affiliates. See "Shares Eligible for Future Sale."
No information is currently available and no prediction can be made as to
the timing or amount of future sales of such shares or the effect, if any,
that future sales of shares, or the availability of shares for future sale,
will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts
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of Common Stock (including shares issuable upon the exercise of stock
options), or the perception that such sales could occur, could materially
adversely affect prevailing market prices for the Common Stock and the ability
of the Company to raise equity capital in the future. See "Shares Eligible for
Future Sale" and "Description of Capital Stock--Registration Rights."
ANTITAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
Prior to the consummation of the Offerings, the Board of Directors expects
to adopt a Rights Agreement (defined below), to be effective upon the
consummation of the Offerings, that may have the effect of discouraging,
delaying or preventing a change in control of the Company or unsolicited
acquisition proposals. Further, certain provisions of the Company's Fourth
Amended and Restated Certificate of Incorporation and By-Laws and of Delaware
law could have the effect of delaying or preventing a change in control of the
Company. See "Description of Capital Stock."
SIGNIFICANT DILUTION; ABSENCE OF DIVIDENDS
Investors purchasing shares of Common Stock in the Offerings will incur
immediate and substantial dilution of $7.39 per share (assuming an initial
public offering price of $12.00 per share) in net tangible book value per
share of the Common Stock from the initial public offering price. To the
extent outstanding options to purchase Common Stock are exercised, there will
be further dilution. In addition, the Company does not anticipate paying any
cash dividends in the foreseeable future. See "Dividend Policy" and
"Dilution."
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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains statements that constitute "forward-looking
statements." These forward-looking statements can be identified by the use of
predictive, future-tense or forward-looking terminology, such as "believes,"
"anticipates," "expects," "estimates," "may," "will," or similar terms. These
statements appear in a number of places in this Prospectus and include
statements regarding the intent, belief or current expectations of the
Company, its directors or its officers with respect to, among other things:
(i) trends affecting the Company's financial condition or results of
operations, (ii) the Company's business and growth strategies, (iii) the
Internet and Internet commerce and (iv) the Company's financing plans.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors.
Factors that could adversely affect actual results and performance include,
among others, the Company's limited operating history, dependence on continued
growth in the use of the Internet, the Company's unproven business model,
dependence on members, reliance on advertising revenues, potential
fluctuations in quarterly operating results, security risks of transmitting
information over the Internet, government regulation, technological change and
competition. The accompanying information contained in this Prospectus,
including, without limitation, the information set forth under the heading
"Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" identifies important additional
factors that could materially adversely affect actual results and performance.
Prospective investors are urged to carefully consider such factors. All
forward-looking statements attributable to the Company are expressly qualified
in their entirety by the foregoing cautionary statement.
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CONCURRENT OFFERING
Concurrent with the shares offered hereby in the Initial Public Offering,
the Company intends to sell to the Concurrent Purchasers up to approximately
$5 million of Common Stock (416,667 shares assuming an initial public offering
price of $12.00 per share, which is the midpoint of the estimated initial
public offering price range set forth on the front cover of this Prospectus)
at the same price per share to be paid by the investors in the Initial Public
Offering. The Company expects that the Concurrent Purchasers will include
certain of the Company's officers and directors, their relatives and their
business associates. The consummation of the Concurrent Offering and the
Initial Public Offering are contingent upon each other. In the event the
Concurrent Offering is not consummated by the closing date of the Initial
Public Offering, the Concurrent Offering will be terminated and all payments
made by the Concurrent Purchasers in connection with the Concurrent Offering
will be promptly returned. If the Concurrent Offering is not consummated for
the proposed amount, the shares of Common Stock not sold to the Concurrent
Purchasers will not be offered to purchasers in the Initial Public Offering.
All proceeds of the Concurrent Offering will be paid directly to the Company
and will be segregated in a separate non-interest bearing bank account
established by the Company pending the consummation of the Concurrent
Offering. Bear, Stearns & Co. Inc. and Volpe Brown Whelan & Company are acting
as the Placement Agents in connection with the Concurrent Offering. The
Placement Agents will receive a Placement Agent fee of $ per share of Common
Stock sold in the Concurrent Offering and will be indemnified by the Company
against certain liabilities, including liabilities under the Securities Act.
See "Underwriting."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,100,000 shares of
Common Stock offered in the Offerings by the Company are estimated to be
approximately $33.5 million (approximately $38.0 million if the Underwriters'
over-allotment option is exercised in full), based on an assumed initial
public offering price of $12.00 per share (the midpoint of the estimated
initial public offering price range set forth on the front cover of this
Prospectus) and after deducting the estimated underwriting discounts and
commissions, Placement Agent fees and other estimated offering expenses.
The Company will use the net proceeds of the Offerings for advertising,
brand name promotions and for other general corporate purposes, including
investment in the development and functionality of theglobe.com Web site,
enhancements of the Company's network infrastructure and working capital. The
Company may also use a portion of the proceeds for strategic alliances and
acquisitions. Although the Company reviews potential strategic alliances and
acquisitions from time to time, it has not had more than preliminary
discussions with respect to any such alliances or acquisitions. The Company
has not yet determined the amount of net proceeds to be used specifically for
each of the foregoing purposes. Accordingly, management will have significant
flexibility in applying the net proceeds of the Offerings. Pending any such
use, as described above, the Company intends to invest the net proceeds in
interest-bearing instruments. See "Risk Factors--Broad Discretion in Use of
Proceeds."
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common Stock.
The Company currently intends to retain its future earnings, if any, to fund
the development and growth of its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future. The declaration and
payment of dividends by the Company are subject to the discretion of the Board
of Directors. Any future determination to pay dividends will depend on the
Company's results of operations, financial condition, capital requirements,
contractual restrictions and other factors deemed relevant by the Board of
Directors.
25
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of June 30, 1998, (ii) the pro forma capitalization as of such date, after
giving effect to the conversion of all outstanding shares of Preferred Stock
into Common Stock and (iii) the pro forma capitalization of the Company as of
June 30, 1998 as adjusted to reflect the 3,100,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$12.00 per share. The capitalization information set forth in the table below
is qualified and should be read in conjunction with the Financial Statements
and Notes related thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Obligations under capital leases, excluding
current installments.......................... $ 629 $ 629 $ 629
Stockholders' equity:
Preferred Stock, 3,000,000 shares authorized:
Series A through E, $.001 par value;
2,900,001 shares authorized; 1,449,995.5
shares issued and outstanding (aggregate
liquidation value of $21,886,110); none
issued and outstanding, pro forma and pro
forma as adjusted........................... 1 -- --
Common Stock, $.001 par value; 22,000,000
shares authorized, actual, 100,000,000
shares authorized pro forma and pro forma as
adjusted; 1,196,979 shares issued and
outstanding, actual; 6,670,714 shares
outstanding, pro forma; 9,770,714 shares
issued and outstanding, pro forma as
adjusted(1)(2).............................. 1 7 10
Additional paid-in capital................... 21,875 21,870 55,363
Net unrealized loss on available-for-sale se-
curities.................................... (29) (29) (29)
Deferred compensation........................ (53) (53) (53)
Accumulated deficit.......................... (10,224) (10,224) (10,224)
-------- -------- --------
Total stockholders' equity................... 11,571 11,571 45,067
-------- -------- --------
Total capitalization....................... $ 12,200 $ 12,200 $ 45,696
======== ======== ========
</TABLE>
- --------
(1) Based on the number of shares of Common Stock outstanding as of June 30,
1998, and adjusted to include 5,473,735 shares of Common Stock that will
be issued upon the automatic conversion of all of the Company's
outstanding shares of Preferred Stock upon consummation of the Offerings.
Authorized pro forma and pro forma as adjusted give effect to Fourth
Amended and Restated Certificate of Incorporation of the Company to
become effective prior to consummation of the Offerings. Each share of
the Company's Series A, B and C Preferred Stock, totaling 1,449,970
shares, by its terms, is automatically convertible into one share of
Common Stock. Each of the Company's 25.5 shares of Series D Preferred
Stock is automatically convertible into approximately 157,795 shares of
Common Stock, totaling 4,023,765 shares in the aggregate. Based upon the
Series D Preferred Stock's original conversion terms, the shares of
Series D Preferred Stock are to be converted into 51% of the Company's
fully diluted shares on the date of conversion, excluding 700,000 options
from the Company's 1998 Stock Option Plan and the Series E Warrants. See
Note 5 to the Company's Financial Statements.
(2) Excludes 2,023,009 shares of Common Stock issuable upon the exercise of
outstanding Warrants at an exercise price of approximately $2.91 per
share following the consummation of the Offerings. See "Description of
Capital Stock--Warrants." If the Underwriters' over-allotment option is
exercised in full, an additional 402,500 shares of Common Stock would be
offered by the Company and 10,193,839 shares of Common Stock would be
outstanding after the Offerings. See "Underwriting." Excludes (i) 822,650
and 693,771 shares of Common Stock issuable upon the exercise of stock
options that would be outstanding after the Offerings under the Company's
1998 Stock Option Plan and 1995 Stock Option Plan, respectively, at a
weighted average exercise price of $11.81 per share (assuming an initial
public offering price of $12.00 per share) and $0.72 per share,
respectively, and (ii) 377,350 and 4,625 shares of Common Stock reserved
for future issuance under the Company's 1998 Stock Option Plan and the
1995 Stock Option Plan, respectively. See "Capitalization," "Management--
Executive Compensation," "Description of Capital Stock" and the Financial
Statements and Notes related thereto appearing elsewhere in this
Prospectus.
26
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1998,
after giving effect to the conversion of all outstanding shares of Preferred
Stock into 5,473,735 shares of Common Stock, was approximately $11,570,624 or
$1.73 per share of Common Stock. Pro forma net tangible book value per share
is determined by dividing the pro forma tangible net worth of the Company (pro
forma total assets less pro forma total liabilities) by the number of shares
of Common Stock. After giving effect to the sale of 3,100,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $12.00 per
share and the application of the estimated net proceeds from the Offerings,
pro forma net tangible book value of the Company as of June 30, 1998 would
have been $45,066,624 or $4.61 per share. This represents an immediate
increase in pro forma net tangible book value of $2.88 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$7.39 per share to new investors. The following table illustrates this
dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $12.00
Pro forma net tangible book value per share as of June 30,
1998........................................................ $1.73
Increase per share attributable to new investors............. 2.88
-----
Pro forma net tangible book value per share after the
Offerings..................................................... 4.61
------
Dilution per share to new investors............................ $ 7.39(1)
------
</TABLE>
- --------
(1) The foregoing computations assume no exercise of the Underwriters' over-
allotment option, stock options or the Warrants. The Warrants entitle the
holders thereof to purchase an aggregate of 2,023,009 shares of Common
Stock at an exercise price of approximately $2.91 per share. If the
foregoing Warrants had been exercised at June 30, 1998, pro forma net
tangible book value after the Offerings would have been $50,948,977 in the
aggregate or $4.32 per share, representing an immediate dilution to new
investors of $7.68 per share and an immediate increase in net tangible
book value of $2.59 per share attributable to the Offerings.
The following table summarizes, as of June 30, 1998, the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by the existing stockholders and by new investors
purchasing shares in the Offerings (after giving effect to the conversion of
the outstanding shares of Preferred Stock into shares of Common Stock and
before deduction of estimated underwriting discounts and commissions and other
estimated expenses of the Offerings):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)........ 6,670,714 68% $21,900,057 37% $ 3.28
Investors in the
Concurrent Offering.... 416,667(2) 4% 5,000,004 8% $12.00
Investors in the Initial
Public Offering........ 2,683,333 28% 32,199,996 55% $12.00
--------- --- ----------- ---
Total................. 9,770,714(3) 100% 59,100,057 100% $ 6.05
========= === =========== ===
</TABLE>
- --------
(1) Assumes all of the Company's outstanding Preferred Stock is converted into
Common Stock. Excludes 2,023,009 shares of Common Stock that may be issued
upon the exercise of the Warrants at approximately $2.91 per share.
(2) Represents an estimate of the number of shares to be purchased.
(3) Excludes 822,650 and 693,771 shares of Common Stock reserved for issuance
under options that will be outstanding after the Offerings pursuant to the
Company's 1998 Stock Option Plan and the Company's 1995 Stock Option Plan,
respectively, at a weighted average exercise price of $11.81 per share
(assuming an initial public offering price of $12.00 per share) and $0.72
per share, respectively. See "Management--Executive Compensation,"
"Description of Capital Stock--Warrants" and Notes 5 and 6 to the
Financial Statements appearing elsewhere in this Prospectus. To the extent
stock options are exercised, there will be further dilution to new
investors.
27
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data should be read in
conjunction with the Financial Statements and Notes related thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The consolidated statement
of operations data for the period from May 1, 1995 (inception) to December 31,
1995 and each of the years in the two-year period ended December 31, 1997, and
the consolidated balance sheet data at December 31, 1996 and 1997, are derived
from the consolidated financial statements of the Company which have been
audited by KPMG Peat Marwick LLP, independent accountants, and are included
elsewhere in this Prospectus. The balance sheet data at December 31, 1995 are
derived from audited financial statements of the Company not included herein.
The statement of operations data for each of the six-month periods ended June
30, 1997 and 1998, and the balance sheet data at June 30, 1998, are derived
from unaudited interim financial statements of the Company included elsewhere
in this Prospectus. The unaudited financial statements have been prepared on
substantially the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations for such periods. Historical results are not necessarily indicative
of the results to be expected in the future, and results of interim periods
are not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
MAY 1, 1995
(INCEPTION) YEAR ENDED SIX MONTHS ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------- --------------------
1995 1996 1997 1997 1998
------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 27 $ 229 $ 770 $ 208 $ 1,173
Cost of revenues........ 13 116 423 106 503
--------- --------- --------- --------- ---------
Gross profit............ 14 113 347 102 670
Operating expenses:
Sales and marketing.... 1 276 1,248 224 4,493
Product development.... 60 120 154 63 251
General and
administrative........ 19 489 2,828 594 2,396
--------- --------- --------- --------- ---------
Total operating
expenses............... 80 885 4,230 881 7,140
--------- --------- --------- --------- ---------
Loss from operations.... (66) (772) (3,883) (779) (6,470)
Interest income
(expense), net......... -- 22 335 12 673
--------- --------- --------- --------- ---------
Loss before provision
for income taxes....... (66) (750) (3,548) (767) (5,797)
--------- --------- --------- --------- ---------
Provision for income
taxes.................. -- -- 36 -- 27
--------- --------- --------- --------- ---------
Net loss................ $ (66) $ (750) $ (3,584) $ (767) $ (5,824)
========= ========= ========= ========= =========
Basic and diluted net
loss per share(1)...... $ (0.06) $ (0.67) $ (3.13) $ (0.67) $ (5.01)
========= ========= ========= ========= =========
Weighted average shares
outstanding used in
basic and diluted per
share calculation(1)... 1,125,000 1,125,000 1,146,773 1,140,960 1,161,389
========= ========= ========= ========= =========
Pro forma basic and
diluted net loss per
share(2)............... $ (0.91) $ (0.95)
========= =========
Weighted average shares
used in computing pro
forma basic and diluted
net loss per share
calculation(2)......... 3,920,095 6,115,148
========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997 1998
---- ---- ------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term
investments....................................... $587 $757 $18,874 $13,155
Working capital.................................... 575 648 17,117 10,452
Total assets....................................... 647 973 19,462 15,603
Capital lease obligations, excluding current
installments...................................... -- -- 99 629
Total stockholders' equity......................... $632 $795 $17,352 $11,571
</TABLE>
- --------
(1) Weighted average shares do not include any common stock equivalents
because such inclusion would have been anti-dilutive. See the Financial
Statements and Notes related thereto appearing elsewhere in this
Prospectus for the determination of shares used in computing pro forma
basic and diluted loss per share.
(2) Pro forma gives effect to the conversion of all outstanding shares of the
Company's Preferred Stock into Common Stock upon the closing of the
Offerings as if such conversion had occurred on January 1, 1997, or the
date of original issuance, if later.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All statements, trend analysis and other information contained in this
Prospectus relative to markets for the Company's products and trends in
revenues, gross margin and anticipated expense levels, as well as other
statements including words such as "believe," "anticipate," "expect,"
"estimate," "plan" and "intend" and other similar expressions, constitute
forward-looking statements. Those forward-looking statements are subject to
business and economic risks, and the Company's actual results of operations
may differ materially from those contained in the forward-looking statements.
For a more detailed discussion of these business and economic risks, see "Risk
Factors." The following discussion of the financial condition and results of
operations of the Company should also be read in conjunction with the
Financial Statements and Notes related thereto included elsewhere in this
Prospectus.
OVERVIEW
theglobe.com is one of the world's leading online communities with over 1.9
million members in the United States and abroad. In August 1998, over 6.5
million unique users visited the site. theglobe.com is a destination on the
Internet where users are able to personalize their online experience by
publishing their own content and interacting with others having similar
interests. theglobe.com facilitates this interaction by providing various free
services, including home page building, discussion forums, chat, e-mail and a
marketplace where members can purchase a variety of products and services.
Additionally, theglobe.com provides its users news, weather, movie and music
reviews, multi-player gaming, horoscopes and personals. By satisfying its
users' personal and practical needs, theglobe.com seeks to become their online
home. The Company's primary revenue source is the sale of advertising, with
additional revenues generated through e-commerce arrangements, and the sale of
membership subscriptions for enhanced services.
The Company was incorporated in May 1995. For the period from inception
through December 1995, the Company had minimal sales and its operating
activities related primarily to the development of the necessary computer
infrastructure and initial planning and development of theglobe.com. Operating
expenses in 1995 were minimal. During 1996, the Company continued the
foregoing activities and also focused on recruiting personnel, raising capital
and developing programs to attract and retain members. In 1997, the Company
moved its headquarters to New York City, expanded its membership base from
less than 250,000 to almost 1 million, improved and upgraded its services,
expanded its production staff, built an internal sales department and began
active promotion of theglobe.com to increase market awareness. From the end of
1997 through June 30, 1998, revenues and operating expenses have increased as
the Company has placed a greater emphasis on building its advertising revenues
and memberships by expanding its sales force and promoting theglobe.com brand.
To date, the Company's revenues have been derived principally from the sale
of advertisements and, to a lesser extent, from subscription revenues. E-
commerce revenues have not been significant to date, but are expected to
increase as the Company's existing e-commerce arrangements grow and new
arrangements are entered into. Advertising revenues constituted 89% of total
revenues for the six months ended June 30, 1998 and 77% of total revenues for
the year ended December 31, 1997. The Company sells a variety of advertising
packages to clients, including banner advertisements, event sponsorship, and
targeted and direct response advertisements. Currently, the Company's
advertising revenues are derived principally from short-term advertising
arrangements, averaging one to two months, in which the Company guarantees a
minimum number of impressions for a fixed fee. Advertising revenues 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. Payments received from advertisers prior to
displaying their advertisements on the site are recorded as deferred revenues
and are recognized as revenue ratably when the advertisement is displayed. To
the extent minimum guaranteed impression levels are not met, the Company
defers recognition of the corresponding revenues until guaranteed levels are
achieved.
29
<PAGE>
In addition to advertising revenues, the Company derives other revenues
primarily from its membership subscriptions. The Company's membership programs
offer premium services for a monthly fee, providing additional services such
as incremental storage space and the ability to host limited commercial
activity. Although non-advertising revenues may continue to grow through the
development of new membership programs and the planned enhancements of
theglobe.com's e-commerce merchandising solution, globeStores, in the fourth
quarter of 1998, the Company expects to derive its revenue principally from
the sale of advertising space on its Web site for the foreseeable future. The
Company's recent arrangements with its premier e-commerce partners generally
provide the Company with a fee for renting space in theglobe.com Marketplace,
and/or a share of any sales resulting from direct links from the Company's Web
site. Revenues from these programs will be recognized in the month that the
service is provided. Revenues from the Company's share of the proceeds from
its e-commerce partners' sales will be recognized by the Company upon
notification from its partners of sales attributable to the Company's site. To
date, revenues from e-commerce arrangements have not been material.
The Company incurred net losses of $65,706, $750,180 and $3.6 million for
the period from May 1, 1995 (date of inception) to December 31, 1995, and the
years ended December 31, 1996 and 1997, respectively, and $5.8 million for the
six months ended June 30, 1998. At June 30, 1998, the Company had an
accumulated deficit of $10.2 million. The net losses and accumulated deficit
resulted from the Company's lack of substantial revenues and the significant
operation, infrastructure and other costs incurred in the development and
marketing of the Company's services. As a result of its expansion plans and
its expectation that its operating expenses will increase significantly in the
next several years, especially in the areas of sales and marketing and brand
promotion, the Company expects to incur additional losses from operations for
the foreseeable future. To the extent that increases in its operating expenses
precede or are not subsequently followed by commensurate increases in
revenues, or that the Company is unable to adjust operating expense levels
accordingly, the Company's business, results of operations and financial
condition would be materially and adversely affected. There can be no
assurance that the Company will ever achieve or sustain profitability or that
the Company's operating losses will not increase in the future.
The Company has recorded deferred compensation of approximately $25,000 and
$83,100 for the years ended December 31, 1996 and 1997, respectively, in
connection with the grant of certain stock options to employees, representing
the difference between the deemed value of the Company's Common Stock for
accounting purposes and the exercise price of such options at the date of
grant. Such amount is presented as a reduction of stockholders' equity and
amortized over the vesting period of the applicable options, generally three
to five years. Amortization of deferred stock compensation is allocated to the
general and administrative expense line identified on the statement of
operations. As a result, the Company currently expects to amortize the
following amounts of deferred compensation annually: 1998--$46,200; 1999--
$26,300; 2000--$1,800; 2001--$1,200; and 2002--$500. Amortization of deferred
compensation was $23,100 and $28,100 for the six months ended June 30, 1998
and the year ended 1997, respectively.
The Company expects to record a charge to earnings estimated to be
$2,047,500 (assuming an initial public offering price of $12.00 per share) in
the third quarter of 1998 in connection with the transfer during the third
quarter of 1998 of Warrants to acquire 225,000 shares of Common Stock from
Dancing Bear Investments (its largest stockholder) to Todd V. Krizelman,
Stephan J. Paternot and Edward A. Cespedes. The actual amount of such charge
will be determined by the difference between the initial public offering price
and the exercise price per Warrant (approximately $2.91 per share assuming an
initial public offering price of $12.00 per share).
Also, during July 1998, pursuant to the terms of an employment agreement
with an officer of the Company, the Company granted stock options to purchase
112,500 shares of Common Stock, 87,500 of which have an exercise price per
share equal to 85% of the initial public offering price. As a result, the
Company will record deferred compensation expense estimated to be $157,500
(assuming an initial public offering price of $12.00 per share), representing
the difference between the deemed value of the Company's Common Stock, the
initial public offering price and the exercise price of 87,500 options at the
date of grant. Such amount shall be presented as a reduction of stockholders'
equity and amortized over the vesting period of the applicable options. The
87,500
30
<PAGE>
options shall vest with respect to one-third of the shares subject thereto on
each of the first three anniversaries of the date of grant. The remaining
options will be granted at the initial public offering price which is equal to
the fair market value per share of the Company's Common Stock on the date of
grant.
RESULTS OF OPERATIONS
The following table sets forth the results of operations (as a percentage of
total revenues) for the periods indicated by each item reflected in the
Company's statement of operations. Given its limited operating history, the
Company believes that an analysis of its cost and expense categories as a
percentage of revenue is not meaningful.
<TABLE>
<CAPTION>
MAY 1, 1995
(INCEPTION) YEAR ENDED SIX MONTHS ENDED
TO DECEMBER 31, JUNE 30,
DECEMBER 31, --------------- -------------------
1995 1996 1997 1997 1998
------------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Revenues................. 100% 100% 100% 100% 100%
Cost of revenues......... 48% 51% 55% 51% 43%
---- ------ ------ -------- --------
Gross profit........... 52% 49% 45% 49% 57%
Operating expenses:
Sales and marketing.... 5% 121% 162% 108% 383%
Product development.... 224% 52% 20% 30% 21%
General and administra-
tive.................. 68% 213% 367% 285% 204%
---- ------ ------ -------- --------
Total operating ex-
penses.............. 297% 386% 549% 423% 608%
---- ------ ------ -------- --------
Loss from operations..... (245%) (337%) (504%) (374%) (551%)
Interest income (ex-
pense), net............. (0%) 10% 43% 5% 57%
---- ------ ------ -------- --------
Loss before provision for
income taxes............ (245%) (327%) (461%) (369%) (494%)
Provision for income tax-
es...................... 0% 0% 4% 0% 2%
---- ------ ------ -------- --------
Net loss................. (245%) (327%) (465%) (369%) (496%)
==== ====== ====== ======== ========
</TABLE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1998
Revenues. Revenues increased from $208,241 for the six months ended June 30,
1997 to $1.2 million for the six months ended June 30, 1998, an increase of
463%. The period to period growth in revenues resulted from an increase in (i)
the number of advertisers as well as the average contract duration and value,
(ii) the Company's Web site traffic and (iii) to a lesser extent, its
subscription memberships.
Advertising Revenues. Advertising revenues were $144,166 or 69% of total
revenues and $1.0 million or 89% of total revenues for the six months ended
June 30, 1997 and 1998, respectively. Commencing in April 1996, the Company
engaged an Internet advertising service provider to sell the Company's Web
site advertising inventory in exchange for a service fee. The Company
recognized revenues net of such service fees. Commencing May 1, 1997, the
Company canceled this arrangement and created its own internal sales
department in order to properly represent theglobe.com brand on a consistent
basis as well as to reduce overall sales costs. Accordingly, the
advertisements sold by the Internet advertising service provider accounted for
approximately 28% of total revenues for the six months ended June 30, 1997.
The Company did not record any similar expense in the six months ended June
30, 1998. In addition, the Company recorded $37,500 and $39,906 of barter
advertising revenues, representing 18% and 3% of total revenues, for the six
months ended June 30, 1997 and 1998, respectively, which primarily related to
an advertising contract with a major Internet search engine provider that was
cancelled in January 1998. The Company anticipates that advertising revenues
will continue to account for a substantial share of total revenues for the
foreseeable future and that barter revenue will continue to comprise an
insignificant portion of the Company's total revenues in the future.
Subscription Revenues. The Company's subscription membership revenues were
$64,075 or 31% of total revenues and $129,792 or 11% of total revenues for the
six months ended June 30, 1997 and 1998, respectively. At June 30, 1998, the
Company had deferred revenues of $132,353, attributable to prepaid
subscription memberships which are amortized ratably over the remaining
membership term, typically ranging from one to 12 months.
31
<PAGE>
Cost of Revenues. Cost of revenues consists primarily of Internet connection
charges, Web site equipment leasing costs, depreciation, barter advertising
expenses, salaries of operations personnel and other related maintenance and
support costs. Gross margins were 49% and 57% for the six months ended June
30, 1997 and 1998, respectively. The increase in gross margin was primarily
due to a greater increase in revenues relative to the increase in cost of
revenues. In addition, the Company recorded $37,500 and $39,906 of barter
advertising expenses during the six months ended June 30, 1997 and 1998,
respectively, included in cost of revenues, which is equivalent to the barter
advertising revenues recorded in the same period. The June 30, 1997 and 1998
gross margins exclusive of the barter transactions were 60% and 59%,
respectively. Therefore, excluding barter, gross margins have remained fairly
consistent from period to period.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily
of salaries of sales and marketing personnel, commissions, advertising, public
relations, sales force and other marketing related expenses. Sales and
marketing expenses increased from $224,170 or 108% of total revenues for the
six months ended June 30, 1997 to $4.5 million or 383% of total revenues for
the six months ended June 30, 1998. The period to period increase in sales and
marketing expenses was primarily attributable to expansion of the Company's
online and print advertising, public relations and other promotional
expenditures, as well as increased sales and marketing personnel and related
expenses required to implement the Company's marketing strategy in the first
half of 1998. Sales and marketing expenses also increased as a result of the
Company's decision to shift its advertising to an internal sales department in
the second quarter of 1997. Sales and marketing expenses as a percentage of
total revenues have increased as a result of the continued development and
implementation of theglobe.com's branding and marketing campaign. The Company
expects sales and marketing expenses will continue to increase in absolute
dollars for the foreseeable future as the Company continues its branding
strategy, expands its direct sales force, hires additional marketing personnel
and increases expenditures for marketing and promotion.
Product Development Expenses. Product development expenses include personnel
costs associated with the development, testing and upgrades to the Company's
Web site and systems as well as personnel costs related to its editorial
content and community management and support. Product development expenses
increased from $62,500 or 30% of total revenues for the six months ended June
30, 1997 to $250,869 or 21% of total revenues for the six months ended June
30, 1998. The absolute dollar increase in product development expenses was
primarily attributable to increased staffing levels required to support
theglobe.com and related back-office systems and to enhance the content and
features within the Company's Web site. The Company believes that timely
deployment of new and enhanced features and technology are critical to
attaining its strategic objectives and remaining competitive. Accordingly, the
Company intends to continue recruiting and hiring experienced product
development personnel and to make additional investments in product
development. The Company expenses product development costs as incurred. As
such, the Company expects that product development expenditures will increase
in absolute dollars in future periods.
General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related costs for general corporate
functions, including finance, accounting, facilities and legal expenses, and
fees for professional services. General and administrative expenses increased
from $594,358 or 285% of total revenues for the six months ended June 30, 1997
to $2.4 million or 204% of total revenues for the six months ended June 30,
1998, an increase of $1.8 million, or 303%. The absolute dollar increase in
general and administrative expenses was primarily due to increased salaries
and related expenses associated with management's employment contracts, hiring
of additional personnel, and increases in professional fees and travel. The
increased salaries also reflect the highly competitive nature of hiring in the
new media industry. The Company expects that it will incur additional general
and administrative expenses as the Company hires additional personnel and
incurs additional costs related to the growth of the business and its
operation as a public company, including directors' and officers' liability
insurance, investor relations programs and professional service fees.
Accordingly, the Company anticipates that general and administrative expenses
will continue to increase in absolute dollars.
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<PAGE>
Interest Income (Expense), Net. Interest income (expense), net includes
income from the Company's cash and investments and expenses related to the
Company's capital lease obligations. Interest income (expense), net increased
from $11,384 for the six months ended June 30, 1997 to $672,637 for the six
months ended on June 30, 1998, an increase of $661,253. The increase in
interest income was primarily due to a higher average cash, cash equivalent
and investment balance as a result of capital received from the issuance of
shares of the Company's Preferred Stock in the third quarter of 1997.
Income Taxes. Income taxes of $26,500 for the six months ended June 30, 1998
are based solely on state and local taxes on business and investment capital.
The Company's effective tax rate differs from the statutory federal income tax
rate, primarily as a result of the uncertainty regarding the Company's ability
to utilize its net operating loss carryforwards. Due to the uncertainty
surrounding the timing or realization of the benefits of its net operating
loss carryforwards in future tax returns, the Company has placed a valuation
allowance against its otherwise recognizable deferred tax assets. As of June
30, 1998 and December 31, 1997, the Company had approximately $9.9 million and
$4.4 million of federal net operating loss carryforwards for tax reporting
purposes available to offset future taxable income. The Company's federal net
operating loss carryforwards expire beginning 2000 through 2012. The Tax
Reform Act of 1986 imposes substantial restrictions on the utilization of net
operating losses and tax credits in the event of an "ownership change" of a
corporation. Due to the change in the Company's ownership interests in the
third quarter of 1997, as defined in the Internal Revenue Code of 1986, as
amended (the "Code"), future utilization of the Company's net operating loss
carryforwards will be subject to certain limitations or annual restrictions.
See Note 4 to the Notes to Financial Statements appearing elsewhere in this
Prospectus.
COMPARISON OF THE PERIOD FROM MAY 1, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND
YEARS ENDED DECEMBER 31, 1996 AND 1997
Revenues. Revenues were $26,815, $229,363, and $770,293 for the period from
May 1, 1995 (inception) to December 31, 1995, and for the years ended December
31, 1996 and 1997, respectively. The period to period growth resulted from an
increase in (i) the number of advertisers as well as the average contract
duration and value, (ii) the Company's Web site traffic and (iii) to a lesser
extent, its subscription memberships.
Advertising Revenues. Advertising revenues were $26,815 or 100% of total
revenues, $216,814 or 95% of total revenues, and $592,409 or 77% of total
revenues for the period from May 1, 1995 (inception) to December 31, 1995, and
for the years ended December 31, 1996 and 1997, respectively. Commencing in
April 1996, the Company engaged an Internet advertising service provider to
sell the Company's Web site advertising inventory in exchange for a service
fee. During 1996, the advertisements sold by the Internet advertising service
provider accounted for approximately 71% of total revenues. Commencing May 1,
1997, the Company canceled this arrangement and created its own internal sales
department in order to represent theglobe.com brand on a consistent basis as
well as to reduce overall sales costs. During 1997, revenues from this service
provider were only 8% of total revenues. During 1997, the Company recorded
$166,500 of barter advertising revenues, representing 22% of total revenues,
which primarily related to an advertising contract with a major Internet
search engine provider.
Subscription Revenues. The Company's subscription membership revenues were
$12,549 or 5% of total revenues and $177,884 or 23% of total revenues for the
years ended December 31, 1996 and 1997, respectively. At December 31, 1996 and
1997, the Company had deferred revenues of $32,144 and $113,290, respectively,
attributable to prepaid subscription memberships. The Company did not have
subscription revenues in its year of inception.
Cost of Revenues. Cost of revenues were $12,779 or 48% of total revenues,
$116,780 or 51% of total revenues, $423,706 or 55% of total revenues for the
period from May 1, 1995 (inception) to December 31, 1995, and for the years
ended December 31, 1996 and 1997, respectively. Gross margins were 52%, 49%
and 45% in 1995, 1996 and 1997, respectively. The general decline in gross
margins as a percentage of total revenues was attributable to the growth of
the networking infrastructure resulting in an increase in Internet connection,
support
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<PAGE>
and maintenance charges, equipment costs as well as operations personnel
costs. In 1995, the Company's first year of operation, cost of revenues only
represented Internet connection and support and maintenance charges. In 1997,
gross margins also decreased due to the inclusion of $166,500 of barter
advertising expenses in cost of revenues, which was equivalent to the barter
advertising revenues recorded in the same period. The 1997 gross margin
exclusive of the barter transactions was 57%. The Company's 1997 gross margin
was positively impacted by its decision to shift its advertising to an
internal sales department during May 1997 and the increase in the Company's
subscription members.
Sales and Marketing Expenses. Sales and marketing expenses were $1,248 or 5%
of total revenues, $275,947 or 121% of total revenues, and $1.2 million or
162% of total revenues for the period from May 1, 1995 (inception) to December
31, 1995, and for the years ended December 31, 1996 and 1997, respectively. In
the first year of operation, the Company did not dedicate meaningful funds to
sales and marketing. The period to period increase in sales and marketing
expenses from 1996 to 1997 was primarily attributable to expansion of the
Company's online and print advertising, public relations and other promotional
expenditures as well as increased sales and marketing personnel and related
expenses required to implement the Company's marketing strategy. Sales and
marketing expenses also increased as a result of the Company's decision to
shift its advertising to an internal sales department in the second quarter of
1997.
Product Development Expenses. Product development expenses were $60,000 or
224% of total revenues, $120,000 or 52% of total revenues, and $153,667 or 20%
of total revenues for the period from May 1, 1995 (inception) to December 31,
1995, and for the years ended December 31, 1996 and 1997, respectively. The
increases in absolute dollars in product development expenses were primarily
attributable to increased staffing levels required to support theglobe.com and
its related back-office systems. Product development expenses as a percentage
of total revenues have decreased because of the growth in total revenues.
General and Administrative Expenses. General and administrative expenses
were $18,380 or 68% of total revenues, $489,073 or 213% of total revenues, and
$2.8 million or 367% of total revenues for the period from May 1, 1995
(inception) to December 31, 1995, and for the years ended December 31, 1996
and 1997, respectively. The period to period increase in general and
administrative expenses was primarily due to increases in the number of
general and administrative personnel, professional services, travel and
facility related expenses to support the growth of the Company's operations.
The increased salaries reflect the highly competitive nature of hiring in the
new media industry. General and administrative expenses as a percentage of
total revenues decreased in 1996 because of the growth in total revenues.
General and administrative expenses as a percentage of total revenues and in
absolute dollars increased in 1997 primarily related to expenses associated
with management's employment contracts and accrued bonuses granted during the
second half of 1997 combined with the additional costs required to support the
rapid growth of the Company's operations.
Interest Income (Expense), Net. Interest income (expense), net was $(114),
$22,257 and $334,720, for the period from May 1, 1995 (inception) to December
31, 1995, and for the years ended December 31, 1996 and 1997, respectively.
The increase in interest income for the year ended December 31, 1997 was
primarily due to a higher average cash, cash equivalent and investment balance
as a result of the proceeds received from the issuance of shares of the
Company's Preferred Stock in the third quarter of 1997.
Income Taxes. Income taxes of $36,100 for the year ended December 31, 1997
were based solely on state and local taxes on business and investment capital.
The Company paid less than $1,000 in income taxes in 1995 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has primarily financed its operations
through (i) the private placement of its Preferred Stock through which the
Company raised $20 million and $280,000 in the third and second quarters of
1997, respectively, and $910,000 in 1996, (ii) the private placement of
Preferred Stock and Common Stock, through which the Company raised $647,000
and $4,700, respectively, in 1995 and (iii) capital equipment lease
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<PAGE>
financing which, from December 1997 through June 1998, raised approximately
$963,000. As of June 30, 1998, the Company had approximately $3.0 million in
cash and cash equivalents and $10.2 million in marketable securities.
Net cash used in operating activities was $330,223 and $5.4 million for the
six months ended June 30, 1997 and 1998, respectively, and $58,510, $601,602,
and $1.9 million for the period from May 1, 1995 (inception) to December 31,
1995, and for the years ended December 31, 1996 and 1997, respectively. The
Company had significant negative cash flows from operating activities in each
fiscal and quarterly period to date. Net cash used in operating activities
resulted primarily from the Company's net operating losses, adjusted for
certain non-cash items, and a higher level of accounts receivable due to the
time lag between revenue recognition and the receipt of payments from
advertisers, which were partially offset by increases in accounts payable,
accrued expenses, deferred revenues and the timing of payments associated with
the Company's 1997 accrued bonuses in the first quarter of 1998. For the six
months ended June 30, 1998, the increase in net cash used in operating
activities resulted primarily from the Company's net operating loss of $5.8
million and the payment of 1997's bonuses of $1.1 million during the first six
months of 1998.
Net cash provided (used) in investing activities was $(229,696) and $2.6
million for the six months ended June 30, 1997 and 1998, respectively, and
$(51,101), $(138,309), and $(13.2) million for the period from May 1, 1995
(inception) to December 31, 1995, and for the years ended December 31, 1996
and 1997, respectively. Net cash provided (used) in investing activities was
primarily related to purchase and sales of short-term investments with the
proceeds from the Company's issuance of shares of the Company's Preferred
Stock in the third quarter of 1997, totaling $20 million, and the purchase of
property and equipment in connection with the Company's build out of its
infrastructure. During December 1997 and the first six months of 1998, the
Company acquired additional equipment under capital leases of $126,000 and
$836,648, respectively.
Net cash provided by (used in) financing activities was $258,205 and
$(69,233) for the six months ended June 30, 1997 and 1998, respectively, and
$696,685, $909,955, and $20.2 million for the period from May 1, 1995
(inception) to December 31, 1995, and for the years ended December 31, 1996
and 1997, respectively. Net cash provided by financing activities during 1995
consisted primarily of $45,500 in convertible notes payable and $646,505 in
proceeds from the issuance of the Company's Common Stock. Net cash provided by
financing activities in 1996 and in 1997 consisted primarily of net proceeds
from the issuance of the Company's Preferred Stock. Net cash used in financing
activities of $(77,405) consisted primarily of payments under its capital
lease obligations.
As of June 30, 1998, the Company's principal commitments consisted of
obligations outstanding under capital and operating leases. The Company spent
approximately $557,253 on capital expenditures since inception, excluding
capital lease arrangements. The Company estimates that its capital
expenditures for the second half of 1998 and 1999 will be approximately $2
million and $7 million, respectively. The Company currently expects that its
principal capital expenditures during that time will relate to improvements to
technical infrastructure and a planned move of the Company headquarters at the
end of 1998.
The Company's capital requirements depend on numerous factors, including
market acceptance of the Company's services, the amount of resources the
Company devotes to investments in its Web site, the resources the Company
devotes to marketing and selling its services and its brand promotions and
other factors. The Company has experienced a substantial increase in its
capital expenditures and operating lease arrangements since its inception
consistent with the growth in the Company's operations and staffing, and
anticipates that this will continue for the foreseeable future. Additionally,
the Company will continue to evaluate possible investments in businesses,
products and technologies, and plans to expand its sales and marketing
programs and conduct more aggressive brand promotions.
The Company believes that the net proceeds from the Offerings, together with
its current cash and cash equivalents, will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures for at
least 12 months. If cash generated from operations is insufficient to satisfy
the Company's liquidity requirements, the Company may seek to sell additional
equity or debt securities or to obtain a credit facility. The
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<PAGE>
sale of additional equity or convertible debt securities could result in
additional dilution to the Company's stockholders. The incurrence of
indebtedness would result in increased fixed obligations of the Company and
could result in operating covenants that would restrict the Company's
operations. There can be no assurance that financing will be available in
amounts or on terms acceptable to the Company, if at all. See "Risk Factors--
Additional Financing Requirements; Ability to Incur Debt; Expected Negative
Operating Cash Flow for the Foreseeable Future."
QUARTERLY RESULTS OF OPERATIONS DATA
The following table sets forth certain unaudited quarterly statement of
operations data for each of the six quarters ended June 30, 1998 as well as
such data expressed as a percentage of the Company's total revenues for the
periods indicated. 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 in conjunction with the Financial
Statements and Notes related thereto appearing elsewhere in this Prospectus.
The operating results for any quarter are not necessarily indicative of the
operating results for any future period. In particular, because of the
Company's limited operating history, the Company has limited meaningful
financial data upon which to base revenues and planned operating expenses.
Additionally, the Company believes that it may experience seasonality in its
business, with use of the Internet and theglobe.com being somewhat lower
during the summer vacation period and year-end holiday periods. Additionally,
seasonality may affect significantly the Company's advertising revenue during
the first and third calendar quarters. See "Risk Factors--Potential
Fluctuations in Operating Results; Quarterly Fluctuations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1997 1997 1997 1998 1998
--------- -------- ------------- ------------ --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 87 $ 121 $ 207 $ 355 $ 394 $ 780
Cost of revenues........ 25 81 133 185 213 291
----- ----- ------- ------- ------- -------
Gross profit........... 62 40 74 170 181 489
Operating expenses:
Sales and marketing.... 64 160 404 620 1,411 3,083
Product development.... 30 32 37 54 85 165
General and
administrative........ 303 291 1,511 722 1,098 1,299
----- ----- ------- ------- ------- -------
Total operating
expenses.............. 397 483 1,952 1,396 2,594 4,547
----- ----- ------- ------- ------- -------
Loss from operations... (335) (443) (1,878) (1,226) (2,413) (4,058)
Interest income, net... 3 8 113 210 456 217
----- ----- ------- ------- ------- -------
Loss before provision
for income taxes...... (332) (435) (1,765) (1,016) (1,957) (3,841)
Provision for income
taxes.................. -- -- 18 18 16 10
----- ----- ------- ------- ------- -------
Net loss................ $(332) $(435) $(1,783) $(1,034) $(1,973) $(3,851)
===== ===== ======= ======= ======= =======
PERCENTAGE OF REVENUES:
Revenues................ 100% 100% 100% 100% 100% 100%
Cost of revenues........ 29% 67% 64% 52% 54% 37%
----- ----- ------- ------- ------- -------
Gross profit........... 71% 33% 36% 48% 46% 63%
Operating expenses:
Sales and marketing.... 74% 132% 196% 175% 358% 395%
Product development.... 34% 27% 18% 15% 22% 21%
General and
administrative........ 348% 240% 731% 203% 279% 167%
----- ----- ------- ------- ------- -------
Total operating
expenses............... 456% 399% 945% 393% 659% 583%
----- ----- ------- ------- ------- -------
Loss from operations.... (385%) (366%) (909%) (345%) (613%) (520%)
Interest income, net.... 4% 7% 55% 59% 116% 28%
----- ----- ------- ------- ------- -------
Loss before provision
for income taxes....... (381%) (359%) (854%) (286%) (497%) (492%)
Provision for income
taxes.................. 0% 0% 9% 5% 4% 1%
----- ----- ------- ------- ------- -------
Net loss................ (381%) (359%) (863%) (291%) (501%) (493%)
===== ===== ======= ======= ======= =======
</TABLE>
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<PAGE>
IMPACT OF THE YEAR 2000
The Year 2000 issue is the potential for system and processing failures of
date-related data and 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. The Company may be affected by Year 2000 issues related
to non-compliant IT systems or non-IT systems operated by the Company or by
third parties. The Company has substantially completed an assessment of its
internal and external (third-party) IT systems and non-IT systems. At this
point in its assessment, the Company is not currently aware of any Year 2000
problems relating to systems operated by the Company or by third parties that
would have a material effect on the Company's business, results of operations
or financial condition, without taking into account the Company's efforts to
avoid such problems, although there can be no assurance thereof.
The Company's IT systems consist of software developed either in-house or
purchased from third parties, and hardware purchased from vendors. At this
point, the Company's assessment of its in-house software has identified only
approximately 2,000 lines of code out of several hundred thousand in its
proprietary, in-house software which are not Year 2000 compliant. Those
portions of code which are not compliant are used solely for internal
statistical analysis. The Company does not anticipate any difficulty in
modifying this code to become Year 2000 compliant by December 31, 1998. The
Company has contacted its principal vendors of hardware and software. All of
those contacted vendors have notified the Company that the hardware and
software that they have supplied to the Company is Year 2000 compliant.
The Company has also substantially completed an assessment of its non-IT
systems which the Company has identified as containing embedded chip systems
for Year 2000 issues. At this point in its assessment, the Company is not
currently aware of any Year 2000 problems relating to these systems which
would have a material effect on the Company's business, results of operations,
or financial condition, without taking into account the Company's efforts to
avoid such problems.
The Company's IT systems and other business resources rely on IT systems and
non-IT systems provided by service providers and therefore may be vulnerable
to those service providers' failure to remediate their own Year 2000 issues.
Such service providers include those for the Company's network and e-mail
services and landlords for the Company's leased office spaces. The Company has
contacted these principal service providers and has been notified that the IT
and non-IT systems which they provide to the Company are Year 2000 compliant.
Cost. Based on its assessment to date, the Company does not anticipate that
costs associated with remediating the Company's non-compliant IT systems or
non-IT systems will be material.
Risks. To the extent that the Company's assessment is finalized without
identifying any additional material non-compliant IT systems operated by the
Company or by third parties, the most reasonably likely worst case Year 2000
scenario is a systemic failure beyond the control of the Company, such as a
prolonged telecommunications or electrical failure. Such a failure could
prevent the Company from operating its business, prevent users from accessing
the Company's Web site, or change the behavior of advertising customers or
persons accessing the Company's Web site. The Company believes 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 the Company's Web site, or other business
interruptions of a material nature, as well as claims of mismanagement,
misrepresentation, or breach of contract.
Contingency Plan. As discussed above, the Company is engaged in an ongoing
Year 2000 assessment. Following the completion of the assessment, the Company
plans to conduct a full-scale Year 2000 simulation of its IT systems. The
results of this simulation and the Company's assessment will be taken into
account in determining the nature and extent of any contingency plans.
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<PAGE>
EFFECTS OF INFLATION
Due to relatively low levels of inflation in 1995, 1996 and 1997 and the
first six months of 1998, inflation has not had a significant effect on the
Company's results of operations since inception.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income" as of January 1,
1998. SFAS No. 130 requires the Company to report in its financial statements,
in addition to its 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 certain investments in debt and
equity securities. For the six months ended June 30, 1998 and the year ended
December 31, 1997, comprehensive net loss was approximately $11,600 lower and
$41,200 higher, respectively, than the net loss reported in the Company's
statements of operations for the applicable periods, due to unrealized gains
or losses on securities classified as available-for-sale.
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. The Company has determined that it does 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 the Company as the Company
currently does not have any derivative instruments or hedging activities.
38
<PAGE>
BUSINESS
OVERVIEW
theglobe.com is one of the world's leading online communities with over 1.9
million members in the United States and abroad. In August 1998, over 6.5
million unique users visited the site. theglobe.com is a destination on the
Internet where users are able to personalize their online experience by
publishing their own content and interacting with others having similar
interests. theglobe.com facilitates this interaction by providing various free
services, including home page building, discussion forums, chat, e-mail and a
marketplace where members can purchase a variety of products and services.
Additionally, theglobe.com provides its users news, weather, movie and music
reviews, multi-player gaming, horoscopes and personals. By satisfying its
users' personal and practical needs, theglobe.com seeks to become their online
home. The Company's primary revenue source is the sale of advertising, with
additional revenues generated through e-commerce arrangements and the sale of
membership subscriptions for enhanced services.
Since its founding in May 1995, theglobe.com has experienced strong growth.
According to Media Metrix, theglobe.com was ranked as the fourth fastest-
growing Web site in terms of audience reach for the first half of 1998. Over
6.5 million unique users visited the site in August 1998, according to ABC
Interactive. Additionally, the site has added approximately 100,000 new
members every month since October 1997. Approximately 25% to 35% of
theglobe.com's monthly traffic originates from abroad, reflecting the site's
international appeal.
INDUSTRY BACKGROUND
The rapid adoption of the Internet as a means to gather information,
communicate, interact and be entertained, combined with the vast proliferation
of Web sites, has made the Internet an important new mass medium. IDC
estimates that the number of Web users exceeded 68 million in 1997, and will
grow to over 319 million by 2002. The Internet enables advertisers to target
advertising campaigns utilizing sophisticated databases of information on the
users of various sites and to directly generate revenues from these users
through online transactions. As a result, the Internet has become a compelling
means to advertise and market products and services.
With the volume of sites and vast abundance of information available on the
Internet, users are increasingly seeking an online home where they can
interact with others with similar interests and quickly find information,
products and services related to a particular interest or need. Community
sites were developed as a solution to the challenges posed by the Internet's
growth and complexity. They offer a single location where users can build
their personal Web sites and place them among the sites of others having
similar interests. In addition, community sites generally offer services
including access to e-mail accounts, chat rooms, news, and entertainment
services, among other features. By satisfying the needs of its users,
communities seek to establish a close relationship with their audience. As a
result, the Company believes that users tend to be loyal to and spend more
time online at community sites.
Advertising. Jupiter Communications estimates that spending on Internet
advertising in the United States will grow from $940 million in 1997 to $7.7
billion in 2002. The Internet has become a compelling advertising vehicle that
provides advertisers with targeting tools not available from traditional
advertising media. The interactive nature of the Internet and the development
of "click-through" advertising banners and other feedback tools enable
advertisers to measure impression levels, establish a dialogue with users and
receive "real-time" direct feedback from their target markets. Such feedback
provides advertisers with an effective means to measure the attractiveness of
their offerings among targeted audiences and make modifications to their
advertising campaigns on short notice. Community sites are generally able to
provide advertisers significantly more information regarding consumers than
other Web sites because they collect detailed demographic data and facilitate
the development of user-created affinity groups. The ability to target
advertisements to broad audiences, specific regional populations, affinity
groups or individuals makes community Web site advertising a highly versatile
and effective tool for delivering customized and cost-effective messages.
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<PAGE>
One indicator of the Internet's popularity as an advertising medium is the
growing number and diversity of Internet advertisers. Most early Internet
advertisers were technology and Internet-related companies. Today, a growing
number of Internet advertisers consist of traditional, consumer product and
service companies. The diverse audience of users accessing community sites has
made such sites especially attractive to consumer product and service
companies advertising on the Internet. The Company believes that this trend
should continue, and that a wide variety of companies outside the technology
and Internet industries, such as financial services, consumer goods,
automotive and pharmaceutical companies, are or will be increasingly using the
Internet, and community sites in particular, to advertise.
E-commerce and Direct Marketing. The Internet has become a significant
marketplace for buying and selling goods and services. Jupiter Communications
estimates that the amount of goods or services purchased in online consumer
transactions will grow from approximately $2.6 billion in 1997 to
approximately $37.5 billion in 2002. Improvements in security, interface
design and transaction-processing technologies have facilitated an increase in
online consumer transactions. Early adopters of such improvements include
online merchants offering broad product catalogs (such as books, music CDs and
toys), those seeking distribution efficiencies (such as PCs, flowers and
groceries) and those offering products and services with negotiable pricing
(such as automobiles and mortgages). The Company believes that as the volume
of online transactions increases, traditional retailers will offer a wide
variety of products and services online. The Company believes that online
communities provide businesses an attractive environment for selling products
and services by providing direct access to users with like interests.
The Internet allows marketers to collect meaningful demographic information
and feedback from consumers, and to rapidly respond to this information with
new messages. This offers a significant new opportunity for businesses to
increase the effectiveness of their direct marketing campaigns. In traditional
media, a significant portion of all advertising budgets are spent on direct
marketing because of its effectiveness. However, the effectiveness of direct
marketing campaigns is dependent upon the quality of consumer data used to
develop and place consumer advertisements. In addition to providing detailed
demographic data, community Web site participants indicate their areas of
personal interest by self-selecting themselves into affinity groups. This
added level of information provides direct marketers an invaluable tool to
target potential customers more accurately. Accordingly, advertisers are able
to improve their direct marketing campaigns which may translate into higher
sales.
THEGLOBE.COM SOLUTION
The Company was founded by Todd V. Krizelman and Stephan J. Paternot to
capitalize on the growing demand for online destinations that allow users to
develop their own identities and establish relationships with other Internet
users. theglobe.com community is organized in an intuitive hierarchy modeled
after the real world. There are six "Themes of Interest": Arts and
Entertainment, Business and Finance, Lifestyles, Romance, Special Interests
and Geographical Interests. Themes of Interest are subdivided into 24
"Cities," which are further divided into 75 "Districts." Within each District
members have the ability to create or join "Interest Groups," theglobe.com's
smallest form of community. There are currently 325 Interest Groups. Interest
Groups, once proposed by any member, are posted for petition. Those groups
that garner enough votes then go "live" on the site. Members are not limited
as to the number of communities they can join and are able to leave an
Interest Group at any time. Because of this, the communities are dynamic and
evolve as member interests change. "Community Leaders" are elected to manage
communities and are able to highlight member content, communicate directly to
constituents and organize events.
Within Interest Groups, members can access a collection of services provided
by theglobe.com to generate content, including chat, open forums and e-mail.
Member created content within Interest Groups satisfy users' desires for topic
specific information, conversation and debate. Members vote and generate
content for communities, thereby facilitating production of desirable content
on theglobe.com. Viewing community content does not require membership,
allowing theglobe.com to leverage its member-created content to attract a
large audience of users. As these users become familiar with theglobe.com, the
Company believes that it has a greater ability to convert them into members,
perpetuating the growth of the site.
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The unique community focus of theglobe.com offers the Company several
advantages that include:
Member Loyalty. Because theglobe.com provides a home for its members,
members develop loyalty to the site and to the communities in which they
participate. The Company believes that this translates into more frequent
usage by members and longer stays at the site. According to Media Metrix,
theglobe.com was ranked as the fourth fastest-growing Web site in terms of
audience reach for the first half of 1998.
Member-Developed Content. The majority of content on theglobe.com is
developed by users on a voluntary basis for the benefit of all users of the
site. As a result, the Company avoids the majority of costs associated with
content development.
Targeted Advertising. theglobe.com structure provides a valuable platform
for advertisers by allowing them to target advertisements based on both
demographic information and affinity group affiliations. Advertisers are also
drawn to theglobe.com's volume of user traffic, frequency and average length
of use. theglobe.com's ability to reach users across a wide variety of
interest areas has made the site attractive to both technology companies as
well as traditional consumer product and service companies. Currently,
approximately 60% of theglobe.com's advertisers are branded consumer product
and service companies.
BUSINESS STRATEGY
theglobe.com's goal is to be the leading online community site. The Company
seeks to attain this goal through the following key strategies:
Improve User Experience. The Company will continue efforts to improve user
experience on theglobe.com by: (i) simplifying user interfaces and improving
the ease of use of services, (ii) improving customer support, (iii) developing
loyalty programs to reward members for increased usage, (iv) expanding the
suite of personal publishing/Web site building tools, (v) creating additional
opportunities for participating in existing affinity groups, as well as
expanding the number of affinity groups, (vi) personalizing the site to the
preferences of individual members and (vii) launching new services to enhance
the community.
Develop Brand Identity and Awareness. The Company intends to expand its
presence as a mass market site by building brand awareness. The Company plans
to continue to allocate a significant portion of its resources to develop its
brand in the same fashion as traditional consumer product and service
companies. The Company believes that establishing brand awareness among
consumers is instrumental in attracting new members to theglobe.com and also
has the effect of attracting media buyers who tend to favor well-known and
trusted companies. theglobe.com also intends to continue to market its
services in various media. In March 1998, theglobe.com launched advertising
campaigns in several forms of media, including television, print, billboards,
buses, telephone kiosks, online media, and other marketing and promotional
efforts designed to build its brand name in selected cities.
Increase New Membership Acquisition through Strategic Alliances. theglobe.com
continues to seek new ways to reach potential members when they are first
becoming acquainted with the Internet. The Company believes that early contact
with such users will enhance its ability to instill customer loyalty.
Accordingly, the Company has established a strategic alliance with EarthLink
Network, Inc. ("EarthLink"), one of the largest ISPs in the United States,
through which members gain Internet access and are directed to theglobe.com as
their home site upon startup. The Company has also formed strategic alliances
with companies including Advertising Age and Ziff Davis University. These
relationships are designed to drive additional traffic to the site, create brand
building opportunities and allow for the marketing of products and services to
theglobe.com's user base.
Expand Globally. The Company believes that significant opportunities exist
to capitalize on the growth of the Internet internationally and is pursuing
strategic relationships with international companies to exploit cross-
marketing, co-branding and promotional opportunities. Approximately 25% to 35%
of theglobe.com's traffic is
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generated by members outside of the United States who are able to communicate
and publish on the site in their respective languages. The Company has
received prominent press coverage in Europe, Asia and Australia, and has
established a relationship with MTV U.K. to feature theglobe.com's founders on
a weekly news show (to be launched initially in the United Kingdom in the fall
of 1998).
Further Develop E-commerce. The Company intends to increase its e-commerce
revenues by continuing to increase the number of e-commerce partners in
theglobe.com Marketplace (the "Marketplace"), and through globeStores, its e-
commerce merchandising solution aimed at the small to mid-sized office and
home office market. In addition, the Company is seeking to expand the number
of its premier commerce partners ("Premier Partners") that rent space on
theglobe.com. As of August 31, 1998, 43 companies, including Premier Partners,
participated in the Marketplace.
Enhance Membership Services. The Company currently offers additional
Internet services, such as increased storage space for building home pages,
through its Gold and Platinum membership programs. To attract a wider
subscriber base, the Company intends to develop new membership programs
offering premium content, shopping clubs and entertainment services.
PRODUCTS AND SERVICES
theglobe.com provides users with access to the following collection of
products and services to generate content and purchase merchandise online:
Free Services. theglobe.com provides a range of free services to its members
through which they are able to personalize their online experience. These
services include personal Web site hosting, discussion forums, chat and e-
mail. Additionally, theglobe.com provides news, weather, movie and music
reviews, multiplayer gaming, horoscopes and personals. Members are also
provided discounts on merchandise offered by certain retailers in the
Marketplace.
theglobe.com Marketplace. theglobe.com Marketplace provides users access to
products offered by leading retailers and service providers. The Company
allows retailers to locate in its Marketplace and collects a fee based on a
percentage of transactions. The Marketplace currently has 43 participants,
including BarnesandNoble.com, FAO Schwarz and Lens Express.
Premier Partners. The Company has relationships with Premier Partners who
pay a fixed monthly fee, generally from $10,000 to $30,000 per month, in order
to receive prominent placement on theglobe.com. Premier Partner agreements
typically run for a period of six months to three years and are renewable at
the option of the partner. Examples include:
Lowestfare.com. Lowestfare.com, a division of Global Discount Travel
Services, LLC, is a full service discount travel company, offering
discounted airline, car and hotel reservations, vacation packages and
cruises to the leisure and business consumer. Lowestfare.com has entered
into a three-year agreement with theglobe.com to be the exclusive provider
of travel-related services, as well as content, including weather, mapping,
destination information and voice response e-mail. Additionally,
theglobe.com will provide Lowestfare.com with advertising and Marketplace
exposure.
E! Online. E! Online, one of the premier Internet entertainment sites,
will be theglobe.com's Premier Partner in the Company's entertainment
category, providing among other things, movie reviews, celebrity news and
gossip. The Company has entered into a one-year relationship with E!
Online, whereby the Company will be paid a guaranteed fee in exchange for
giving E! Online preferred placement.
Republic Industries. Republic Industries owns the largest chain of new
vehicle dealerships in the United States and operates a chain of used car
megastores under the AutoNation USA brand name. AutoNation will be given
preferred placement in theglobe.com's auto category, pursuant to a three-
year agreement that Republic Industries has entered into with theglobe.com.
The Company also has such agreements with Cyberian Outpost, Inc. for
software and computer hardware, GetSmart for consumer finance, Classified
Warehouse for classified advertisements, RSL Communications for Internet
telephony services and VitaSave for herbs and vitamin products.
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globeStores. globeStores is the Company's e-commerce merchandising solution
aimed at the small to mid-sized office and home office market. The globeStore
tool set will allow merchants and users to build storefronts at theglobe.com
assisted by an easy-to-use online guide. The Company will offer globeStore
merchants and users various options ranging from a basic promotional
storefront to a more complete solution, including a catalog, shopping cart and
online transaction capabilities. The Company intends to charge globeStore
owners a monthly service fee based on the level of service utilized and a
transactional fee.
Member Subscriptions. The Company currently offers additional Internet
services through its Gold and Platinum membership packages. These packages
provide services such as additional storage space and the ability to host
limited commercial activity. Member subscriptions are available for a $4.95 or
$9.95 monthly fee, depending on the level of service.
CORPORATE ALLIANCES AND RELATIONSHIPS
theglobe.com has established a number of relationships designed to drive
additional traffic to its site, create brand building opportunities, and allow
for the marketing of products and services to theglobe.com user base. These
arrangements are with a variety of online and offline partners and provide a
cost effective way to deliver traffic to the site because they do not require
significant capital expenditures. Examples include:
EarthLink. theglobe.com seeks to reach new members as they first become
acquainted with the Internet. The Company believes that early contact with
such users will enhance the Company's ability to instill customer loyalty.
Consistent with this strategy, the Company has established an alliance,
currently in a trial phase, with EarthLink, one of the largest ISPs in the
United States. EarthLink has created a custom version of their "start-up
CD-ROM" which not only gives users Internet access but also automatically
directs them to theglobe.com as their home site upon start-up.
Additionally, EarthLink promotes theglobe.com within its site and pays the
production costs of co-branded theglobe.com/EarthLink start-up CD-ROMs.
EarthLink pays a commission to the Company for each member or user gaining
Internet access by utilizing the co-branded start-up CD-ROM. When the trial
phase is completed (expected in October 1998), the alliance will be
automatically renewed for one-year periods, unless terminated by either
party.
Advertising Age. theglobe.com hosts a full-service community for
Advertising Age, a leading trade publication for the advertising industry.
In exchange for providing the full range of membership services available
on theglobe.com to users of the Advertising Age Web site, the Company
receives free promotion on the Advertising Age Web site, as well as
discounts on advertising in Advertising Age magazine. This relationship
provides theglobe.com with significant exposure throughout the advertising
community, particularly among media buyers.
JobDirect, Inc. JobDirect, Inc. ("JobDirect") is an Internet resume
service that connects entry-level job seekers with employment
opportunities. In exchange for development of community features for its
Web site, JobDirect provides theglobe.com with a link from its site as well
as prominent promotion in its offline job events on college campuses.
JobDirect provides all of its members e-mail from theglobe.com and
distributes co-branded marketing material to college students, providing
theglobe.com with exposure to the college-age market segment.
In addition to the above relationships, the Company has a variety of other
arrangements designed primarily to drive traffic to its site, including
agreements with Ziff Davis University, Launch Magazine, Wall Street Sports
LLC, LINCS and WebSurfer.
ADVERTISING CUSTOMERS
With over 6.5 million unique users as of August 1998, according to ABC
Interactive, and over 1.9 million members in the United States and abroad,
theglobe.com has successfully attracted both mass market consumer product
companies as well as technology-related businesses advertising on the
Internet. Due to its advantages as a community Web site, the Company believes
that it is well positioned to capture a portion of the growing number of
consumer product and service companies seeking to advertise online. In the
last three months,
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approximately 110 customers advertised on theglobe.com. During that period,
approximately 70% were repeat customers and no one customer accounted for more
than 10% of revenues. Some of the Company's advertising clients include:
Lee Jeans Coca Cola J. Crew Ziff Davis
Procter & Gamble Visa Polygram BellSouth
Dunkin' Donuts Office Depot Levi's Microsoft
Sony 3Com USWest Intel
ADVERTISING SALES AND DESIGN
The Company seeks to distinguish itself from its competition through the
creation of unique advertising and sponsorship opportunities that are designed
to build brand loyalty for its corporate sponsors by seamlessly integrating
their advertising messages into theglobe.com's content. Through its close
relationship with the end user, the Company has the ability to deliver
advertising to specific targets within the site's themed content areas,
allowing advertisers to single out and effectively deliver their messages to
their respective target audiences. For example, a company can target an
advertisement solely to 35-40 year old Canadian men with music interests. The
Company believes that such sophisticated targeting is a critical element for
capturing worldwide advertising budgets for the Internet. Additionally, the
Company intends to expand the amount and type of demographic information it
collects from its members, which will allow it to offer more specific data to
its advertising clients.
While the Company's competition generally provides banner advertising as its
primary delivery system, the Company offers an assortment of advertising
options to its clients, allowing them to take advantage of theglobe.com's
unique relationship with its users and rapidly growing membership base. In
addition to direct response indicators like "click-throughs," theglobe.com
also specializes in providing innovative and aggressive selling services and a
number of "branding" and "beyond the banner" sponsorship packages for its
advertisers at higher premiums, such as:
. Banner Advertising . Sweepstakes
. Button Advertising . Content Development
. Contextual Links within Relevant . Affinity Packages for Advertising
Content Partners
. Pop Up and Log Out Interstitials . Opt-In Direct Marketing/Lead
. E-mail Sponsorship Programs Generation
. Celebrity Event Sponsorships . Pre- and Post-Campaign Market
Research
The Company has built an internal sales organization of 23 professionals,
focusing on both selling advertisements on the Web site and developing long-
term strategic relationships with clients. A significant portion of the
Company's sales personnel's income is commission based. All of the Company's
sales personnel sell advertising exclusively for theglobe.com. The Company
currently sells over 95% of its advertising inventory through its in-house
sales staff, allowing the Company to better control its pricing and inventory,
maintain brand consistency and capture maximum revenue. The Company has sales
offices in New York City and San Francisco, and intends to open additional
sales offices in selected markets around the world.
MARKETING AND PROMOTIONS
The Company has committed significant funds to advertising in traditional
offline media, totaling approximately $3.1 million in the first six months of
1998. The Company launched an $8 million advertising campaign in March 1998,
including television, print, billboards, buses, telephone kiosks, online
media, and other marketing and promotional efforts. These efforts are aimed at
generating significant additional traffic to theglobe.com, building and
defining a desirable online destination in the minds of present and potential
online consumers, and creating a strong and viable brand within the Internet
industry and advertising trades. The Company intends to continue to commit a
significant part of its budget to marketing theglobe.com brand. The Company
advertises on national cable channels like MTV, E! Entertainment Television,
Comedy Central, ESPN and the Sci-Fi Channel. The Company has also purchased
advertising on network television in several markets including New York, San
Francisco, Seattle, Boston, Denver and Atlanta.
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TECHNOLOGY
The Company's strategy is to apply existing technologies in novel ways to
deliver content and provide services to members of its online community. The
various features of theglobe.com's online environment are implemented using a
combination of commercially available and proprietary software components. The
Company favors licensing and integrating "best-of-breed" commercially
available technology from industry leaders such as Oracle, Sun Microsystems
and Microsoft whenever possible. The Company reserves internal development of
software for those components which are either unavailable on the market or
which have major strategic advantages when developed internally. The Company
believes that this component approach is more manageable, reliable and
scalable than single-source solutions. In addition, the emphasis on commercial
components speeds development time, which is an advantage when competing in a
rapidly evolving market.
Consistent with the Company's preference for off-the-shelf software
components, the hardware systems utilized by the Company also consist of
commercially available components. The Company believes that this architecture
provides the ability to increase scale more quickly and reliably, and at lower
cost, than more centralized systems. Although the existing infrastructure
currently exceeds the Company's present demand, the Company has aggressive
plans for additional upgrades in anticipation of increased demand.
The Company's distributed server architecture allows it to roll out upgrades
incrementally on an as-needed basis. In addition to being scalable, the Web-
serving architecture is also entirely redundant. The Company's Internet
servers are connected to the Internet through multiple dedicated 45 Mb T3
connections obtained through two separate backbone providers, AppliedTheory
and UUNET. This approach to connectivity protects the Company by allowing it
to continue operations in the event of a failure in either backbone. See "Risk
Factors--Internet Industry Characterized by Rapid Technological Change."
In order to efficiently manage the system, the Company has developed highly
automated methods of monitoring the system performance of each component. In
the event of a failure in any subsystem, the failed subsystem is immediately
taken out of service and requests are distributed among the remaining
operational systems. The Company has also developed a suite of tools to
perform routine management tasks such as log processing and content updates in
an automated, remote-controlled fashion. The Company believes that its
investment in automation lessens the need for the additional personnel that
would otherwise be required to support the system as it grows. See "Risk
Factors--Internet Industry Is Characterized by Rapid Technological Change" and
"--Dependence on Key Personnel."
COMPETITION
The market for members, users and Internet advertising is new and rapidly
evolving, and competition for members, users and advertisers is intense and is
expected to increase significantly. Barriers to entry are relatively
insubstantial and the Company may face competitive pressures from many
additional companies both in the United States and abroad. The Company
believes that the principal competitive factors for companies seeking to
create communities on the Internet are critical mass, functionality of the Web
site, brand recognition, member affinity and loyalty, broad demographic focus
and open access for visitors. Other companies that are primarily focused on
creating Internet communities are Tripod and GeoCities and, in the future,
Internet communities may be developed or acquired by companies currently
operating Web directories, search engines, shareware archives, content sites,
OSPs, ISPs and other entities, certain of which may have more resources than
the Company. In addition, the Company could face competition in the future
from traditional media companies, a number of which, including Disney, CBS and
NBC, have recently made significant acquisitions or investments in Internet
companies. Furthermore, the Company competes for users and advertisers with
other content providers and with thousands of Web sites operated by
individuals, the government and educational institutions. Such providers and
sites include AOL, Angelfire, CNET, CNN/Time Warner, Excite, Hotmail,
Infoseek, Lycos, Microsoft, Netscape, Switchboard, Xoom and Yahoo!. The
Company also faces competitive pressure from traditional media such as
newspapers, magazines, radio and television. The Company believes that the
principal competitive factors in attracting advertisers include the amount of
traffic on its Web site, brand recognition, customer service, the
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demographics of the Company's members and users, the Company's ability to
offer targeted audiences and the overall cost-effectiveness of the advertising
medium offered by the Company. The Company believes that the number of
Internet companies relying on Internet-based advertising revenue, as well as
the number of advertisers on the Internet and the number of users, will
increase substantially in the future. Accordingly, the Company will likely
face increased competition, resulting in increased pricing pressures on its
advertising rates, which could have a material adverse effect on the Company.
See "Risk Factors--Intense Competition."
Additionally, the e-commerce market is new and rapidly evolving and
competition among e-commerce merchants is expected to increase significantly.
The Company will rely primarily on e-commerce partners to generate e-commerce
revenues. The Company's ability to generate revenues from any of its present
or future e-commerce partners may be adversely affected by competition between
any such partner and other Internet retailers.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company regards substantial elements of its Web site and underlying
technology as proprietary and attempts to protect them by relying on
trademark, service mark, copyright and trade secret laws and restrictions on
disclosure and transferring title and other methods. The Company currently has
no patents or patents pending and does not anticipate that patents will become
a significant part of the Company's intellectual property in the foreseeable
future. The Company also generally enters into confidentiality agreements with
its employees and consultants and in connection with its license agreements
with third parties and generally seeks to control access to and distribution
of its technology, documentation and other proprietary information. Despite
these precautions, it may be possible for a third party to copy or otherwise
obtain and use the Company's proprietary information without authorization or
to develop similar technology independently. The Company pursues the
registration of its trademarks in the United States and internationally. The
Company has registered a United States trademark for theglobe. The Company has
filed United States trademark applications for theglobe.com and theglobe.com
logo. Additionally, the Company has submitted trademark applications for
theglobe.com and theglobe.com logo in Australia, Brazil, Canada, China, the
European Union (covering Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Italy, Ireland, Luxembourg, the Netherlands, Portugal, Spain, Sweden
and the United Kingdom), Hong Kong, Israel, Japan, New Zealand, Norway,
Russia, Singapore, South Africa, Switzerland and Taiwan. Effective trademark,
service mark, copyright and trade secret protection may not be available in
every country in which the Company's services are distributed or made
available through the Internet, and policing unauthorized use of the Company's
proprietary information is difficult. See "Risk Factors--Reliance on
Intellectual Property and Proprietary Rights."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Company is currently subject to certain federal and state laws and
regulations that are applicable to certain activities on the Internet.
Legislative and regulatory proposals under consideration by federal, state,
local and foreign governmental organizations concern various aspects of the
Internet, including, but not limited to, online content, user privacy,
taxation, access charges, liability for third-party activities and
jurisdiction. Such government regulation may place the Company's activities
under increased regulation, increase the Company's cost of doing business,
decrease the growth in Internet use and thereby decrease the demand for the
Company's services or otherwise have a material adverse effect on the
Company's business, results of operations and financial condition. See "Risk
Factors--Government Regulation and Legal Uncertainties Associated with the
Internet."
Online Content. Online content restrictions cover many areas, including but
not limited to, indecent or obscene content and gambling. Several federal and
state statutes prohibit the transmission of certain types of indecent,
obscene, or offensive information and content, including sexually explicit
information and content, over the Internet to certain persons. The
constitutionality and the enforceability of some of these statues is not clear
at this time. For example, in 1997 the Supreme Court of the United States held
that selected parts of the federal Communications Decency Act of 1996 (the
"CDA") governing "indecent" and "patently offensive" content were
unconstitutional. Many other provisions of the CDA, including those relating
to "obscenity," however, remain in effect. Prior to the Supreme Court's
decision, a federal district court in New York held that certain provisions of
the New York penal law modeled on the CDA violated the Constitution. A
companion provision
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of that law, however, was subsequently upheld. Since the Supreme Court's
decision, a federal district court in New Mexico held that a recently adopted
provision of the New Mexico penal law purporting to make it unlawful to
disseminate over the Internet information that is "harmful to minors" also
violated the Constitution. The Senate version of the appropriations bill for
the Departments of Commerce, Justice, and State, as passed on August 31, 1998,
contains several Internet-related provisions. One of the provisions of the
bill is generally referred to as "CDA II," and, if enacted, would require that
Web sites engaged in the business of the commercial distribution of material
that is deemed to be harmful to minors restrict access to such material by
persons under 17 years of age. Another provision would, if enacted, require
public schools and libraries that receive federal funding of Internet access
to install software that would filter out material that is inappropriate for
minors. The House version of the bill, passed on August 6, 1998, contains
neither of these provisions. However, a similar bill requiring Web sites to
restrict access by persons under 17 years of age to material that is harmful
to minors is pending before the House Commerce Committee. The Company cannot
predict the final terms of any such legislation or the effect that such
legislation could have on the Company.
The U.S. Department of Justice and some state Attorneys General have
recently intensified their efforts in taking action against businesses that
operate Internet gambling activities, and pending legislation seeks to ban
Internet gambling. On July 23, 1998 the Senate passed the "Internet Gambling
Prohibition Act," which, if enacted, would prohibit placing, receiving or
otherwise making a bet or wager via the Internet in any state, and would also
prohibit engaging in the business of betting or wagering through the Internet
in any state. The bill also would direct the Secretary of State to negotiate
with foreign countries to conclude international agreements that would enable
the United States to enforce specified provisions of the act outside the
United States. A similar bill has been introduced in the House of
Representatives. Currently, online gambling advertisers account for under ten
percent of the Company's advertising revenues.
Certain states, including New York and California, have enacted laws or
adopted regulations that expressly or as a matter of judicial interpretation
apply various consumer fraud and false advertising requirements to parties who
conduct business over the Internet. The constitutionality and the
enforceability of some of these statues is not clear at this time. For
example, in 1997, a federal district court held that a Georgia criminal
statute violated the Constitution when it prohibited Internet transmissions
that falsely identify the sender or use trade names or logos that would
falsely state or imply that the sender was legally authorized to use them.
Internet Privacy. The United States government currently has limited
authority over the collection and dissemination of personal data collected
online. The Federal Trade Commission Act (the "Act") prohibits unfair and
deceptive practices in and affecting commerce. The Act authorizes the Federal
Trade Commission (the "FTC") to seek injunctive and other equitable relief,
including redress, for violations of the Act, and provides a basis for
government enforcement of certain fair information practices. For instance,
failure to comply with a stated privacy policy may constitute a deceptive
practice in certain circumstances and the FTC would have authority to pursue
the remedies available under the Act for such violations. Furthermore, in
certain circumstances, information practices may be inherently deceptive or
unfair, regardless of whether the entity has publicly adopted any privacy
policies. The FTC has issued an opinion letter addressing the possible
unfairness inherent in collecting certain personal identifying information
from children online and transferring it to third parties without obtaining
prior parental consent. However, as a general matter, the FTC lacks authority
to require companies to adopt privacy policies.
Certain industry groups have proposed, or are in the process of proposing,
various voluntary standards regarding the treatment of data collected over the
Internet. In order to establish and bolster user and member confidence in its
privacy policies, the Company may incur expenses in obtaining the endorsement
of such industry groups or in altering its current policies to comply with
such standards. There can be no assurance that the adoption of such voluntary
standards will preclude any legislative or administrative body from taking
governmental action regarding Internet privacy.
In June 1998, the FTC released a report analyzing the effectiveness of self-
regulation as a means of protecting consumer privacy on the Internet. The
report concluded that industry self-regulation had not provided adequate
protection for Internet users. The report listed four core information
practices that the FTC believes
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must be part of any privacy protection effort: notice, choice, access and
security. In order to protect the privacy of children, the FTC recommended
legislation that would require Web sites that obtain information from children
to provide actual notice to parents and to obtain parental consent. On July
21, 1998, Commissioner Pitofsky stated before a hearing of the House of
Representatives Subcommittee on Telecommunications, Trade, and Consumer
Protection that, unless the computer industry could demonstrate that it had
developed and implemented broad-based and effective self-regulatory programs
by the end of 1998, the FTC would seek additional legislative standards and
agency authority regarding Internet privacy. At the same hearing, the FTC
proposed model legislation that would force companies to comply with the four
core information practices and offer a safe harbor for industries that choose
to establish their own means for providing consumer privacy protections, as
long as those means are subject to governmental approval. There can be no
assurance that these efforts will not adversely affect the Company's ability
to collect demographic and personal information from members, which could have
an adverse affect on its ability to attract advertisers. This, in turn, could
have a material adverse effect on the Company's business, results of
operations and financial condition.
Moreover, the FTC has begun investigations into the privacy practices of
companies that collect information on the Internet. For example, on August 13,
1998, the FTC announced that it had entered into a proposed consent order with
one of the Company's competitors. In its complaint, the FTC alleged that such
competitor engaged in three deceptive practices. First, the FTC alleged that
the company falsely represented that the personal identifying information it
collects through the membership application form is used only to provide
members the specific offers and products or services they request. Second, the
FTC alleged that the competitor falsely represented that the "optional
information" it collects through the application form is not disclosed to
third parties without the member's permission. Third, the FTC alleged that the
competitor had falsely represented that it collected and maintained the
information provided by children who joined certain neighborhoods on its site,
rather than the undisclosed third parties who actually collected and
maintained the information.
Without admitting that these allegations are correct, the competitor has
tentatively agreed, among other things, to post a clear and prominent privacy
statement on its home page and each location where information is collected,
disclosing the information collected, the purpose to which the information
would be used, the persons to whom the information would be released, and the
methods by which subscribers could access and remove the information. The
competitor also agreed to obtain express parental consent before collecting
information from children 12 and under. Finally, the competitor agreed to
post, for five years, a clear and prominent hyperlink within its privacy
statement directing visitors to the FTC's site to view educational material on
privacy.
The Company is undertaking a review of its practices in light of the
foregoing recent FTC activity. However, the Company cannot predict the exact
form of the regulations that the FTC will adopt. Accordingly, there can be no
assurance that the Company's current practices would comply with the
regulatory scheme that is ultimately adopted or that the Company will not have
to make significant changes to comply with such laws. The Company includes
statements about user privacy in its user agreement entered into with new
members. The current user agreement states that its members should not have an
expectation of privacy in their accounts and that the Company may be forced to
disclose member e-mail to the government or third parties under certain
circumstances, or that third parties may unlawfully intercept private
communications. Additionally, the current user agreement states that, from
time to time, the Company may make its database of user information (including
e-mail addresses) available to other parties for promotions of and
solicitations for their goods or services that may be of interest to members
of theglobe.com community. In the current user agreement, each member
expressly consents to allow the use and disclosure of personally identifiable
information and each member is informed that he or she has the ability to
remove their personal information from the database of information made
available to third parties.
Regardless of the user agreement, the Company could be required under
several privacy statutes and regulations, including the Electronic
Communications Privacy Act of 1974, as amended, to disclose information about
users in a variety of contexts including, but not limited to, pursuant to an
administrative subpoena or court order. The Senate version of the Departments
of Commerce, Justice, and State appropriations bill, adopted on August 31,
1998, would, if enacted, grant the FBI administrative subpoena authority to
quickly access the records of an Internet service provider regarding a
potential sexual predator using the Internet to improperly contact children.
The House version of the bill, passed on August 6, 1998, does not contain a
similar provision.
48
<PAGE>
At the international level, the European Union (the "EU") has adopted a
directive (the "Directive") that provides for EU member countries to impose
restrictions on the collection and use of personal data, effective October
1998. The Directive could, among other things, affect United States companies
that collect information over the Internet from individuals in EU member
countries, and may impose restrictions that are more stringent than current
Internet privacy standards in the United States. There can be no assurance
that this Directive will not be interpreted or applied in a manner that would
adversely affect the Company's business, results of operations and financial
condition.
Any new legislation or regulation enacted by federal, state or foreign
governments regulating online privacy or the application or interpretation of
existing laws and regulations could affect the way in which the Company is
allowed to conduct its business, especially those aspects that contemplate the
collection or use of members' personal information.
Internet Taxation. A number of proposals have been made at the federal,
state and local level, and by certain foreign governments, that would impose
additional taxes on the sale of goods and services over the Internet, and
certain states have taken measures to tax Internet-related activities.
Currently, Congress is considering legislation that would place a temporary
moratorium on any new taxation of Internet commerce. On June 23, 1998, the
House of Representatives passed H.R. 4105, the "Internet Tax Freedom Act,"
which includes a three-year moratorium on state and local taxes on Internet
access, bit taxes or multiple or discriminatory taxes on electronic commerce.
Certain existing state laws, however, would be expressly excepted from this
moratorium if any such state law were reaffirmed within a one-year period. The
bill would also create a commission to study several Internet taxation issues
and to present proposed legislation to the President and Congress. H.R. 4105,
if enacted in its current form, would also prohibit the FCC and the states
from regulating the prices of Internet access and online services. See "Access
Charges" below. The Senate is also considering legislation on Internet
taxation. Any legislation that is eventually passed by both houses of Congress
may contain provision different from those in H.R. 4105. In addition to the
version passed by the House of Representatives, the Senate Commerce Committee
approved a version of S. 442 on November 4, 1997 that would, among other
things, impose a six-year moratorium, and the Senate Finance Committee
approved a version of S. 442 on July 28, 1998 that would, among other things,
impose a two-year moratorium.
There can be no assurance that any such legislation will be adopted by
Congress or that new taxes will not be imposed upon e-commerce after any
moratorium adopted by Congress expires or that current attempts at taxing or
regulating commerce over the Internet would not substantially impair the
growth of Internet commerce and as a result adversely affect the Company's
opportunity to derive financial benefit from such activities.
The Clinton Administration has stated that the United States will advocate
in the World Trade Organization and other appropriate international
organizations that the Internet be declared a tariff-free environment whenever
it is used to deliver products and services. In addition, the Clinton
Administration has stated that no new taxes should be imposed on Internet
commerce, but rather that taxation should be consistent with established
principles of international taxation, should avoid inconsistent national tax
jurisdictions and double taxation and should be simple to administer and easy
to understand. However, there can be no assurance that foreign countries will
not seek to tax Internet transactions.
Access Charges. Several telecommunications carriers are supporting
regulation of the Internet by the FCC in the same manner that the FCC
regulates other telecommunications services. These carriers have alleged that
the growing popularity and use of the Internet has burdened the existing
telecommunications infrastructure, resulting in interruptions in phone
service. Local telephone carriers such as Pacific Bell, a subsidiary of SBC
Communications Inc., have petitioned the FCC to regulate ISPs in a manner
similar to long-distance telephone carriers and to impose access fees on ISPs.
In May 1997, however, the FCC granted information service providers an
exemption from interstate access charges and, in August 1998, the Eighth
Circuit Court of Appeals upheld the FCC's exemption. If the FCC were to
withdraw the exemption or if the Supreme Court were to find that the exemption
is improper, the costs of communicating on or through the Internet could
increase
49
<PAGE>
substantially, potentially slowing the growth in Internet use, which could, in
turn, decrease demand for the Company's services or increase the Company's
cost of doing business.
Liability for Information Retrieved from or Transmitted over the
Internet. Materials may be downloaded and publicly distributed over the
Internet by the Internet services operated or facilitated by the Company or by
the Internet access providers with which the Company has relationships. These
third-party activities could result in potential claims against the Company
for defamation, negligence, copyright or trademark infringement or other
claims based on the nature and content of such materials. The CDA provides
that no provider or user of an interactive computer service shall be treated
as the publisher or speaker of any information provided by another information
content provider. See "Risk Factors--Liability for Information Retrieved from
or Transmitted over the Internet; Liability for Products Sold over the
Internet."
Future legislation or regulations or court decisions may hold the Company
liable for listings accessible through its Web site, for content and materials
posted by members on their respective personal Web pages, for hyperlinks from
or to the personal Web pages of members, or through content and materials
posted in the Company's chat rooms or bulletin boards. Such liability might
arise from claims alleging that, by directly or indirectly providing hyperlink
text links to Web sites operated by third parties or by providing hosting
services for members' sites, the Company is liable for copyright or trademark
infringement or other wrongful actions by such third parties through such Web
sites. If any third-party material on the Company's Web site contains
informational errors, the Company may be sued for losses incurred in reliance
on such information. While the Company attempts to reduce its exposure to such
potential liability through, among other things, provisions in member
agreements, user policies and disclaimers, the enforceability and
effectiveness of such measures are uncertain.
On August 4, 1998, the House passed H.R. 2281, the "Digital Millennium
Copyright Act," whose Title II contains the "Internet Copyright Infringement
Liability Clarification Act" (on September 17, 1998, the Senate passed an
amended version of H.R. 2281). This legislation would, if enacted, provide
that, under certain circumstances, a "service provider" would not be liable
for any monetary relief, and would be subject to limited injunctive relief,
for claims of direct infringement, based on copyright materials transmitted by
users over its digital communications network, temporarily stored on its
system by its system caching procedures, stored on systems or networks under
its control or connected to its systems or networks by hyperlinks and other
information location tools. This legislation also provides that, under certain
circumstances, a service provider shall not be liable for any claim based on
the service provider's good faith removal of or disabling access to such
infringing material.
The Company's e-mail service is provided by a third party. See "Risk
Factors--Dependence on Third-Party Relationships." Such relationship exposes
the Company to potential derivative risk, such as claims resulting from
unsolicited e-mail ("spamming"), lost or misdirected messages, illegal or
fraudulent use of e-mail or interruptions or delays in e-mail service.
Potential liability for information carried on or disseminated through the
Company's systems could lead the Company to implement measures to reduce its
exposure to such liability, which may require the expenditure of substantial
resources and limit the attractiveness of the Company's services to members
and users. While the Company attempts to reduce its exposure to such potential
liability through, among other things, provisions in member agreements, user
policies and disclaimers, the enforceability and effectiveness of such
measures are uncertain.
The Company also enters into agreements with commerce partners and sponsors
under which the Company is entitled to receive a share of any revenue from the
purchase of goods and services through direct links from the Company's Web
site. Such arrangements may expose the Company to additional legal risks and
uncertainties, including potential liabilities to consumers of such products
and services by virtue of the Company's involvement in providing access to
such products or services, even if the Company does not itself provide such
products or services. While the Company's agreements with these parties often
provide that the Company will be indemnified against such liabilities, there
can be no assurance that such indemnification, if available, will be
enforceable or adequate. Although the Company carries general liability
insurance, the Company's insurance may not cover all potential claims to which
it is exposed or may not be adequate to indemnify the Company for all
liability that
50
<PAGE>
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
the Company's business, results of operations and financial condition.
The increased attention on liability issues relating to information
retrieved or transmitted over the Internet and legislative and administrative
proposals in this area could decrease the growth of Internet use, thereby
decreasing the demand for the Company's services. Even to the extent that
claims relating to such issues do not result in liability to the Company, the
Company could incur significant costs in investigating and defending against
such claims.
Domain Names. Domain names are the user's Internet "addresses." Domain names
have been the subject of significant trademark litigation in the United
States. The Company has registered the domain name "theglobe.com." There can
be no assurance that third parties will not bring claims for infringement
against the Company for the use of this trademark. Moreover, because domain
names derive value from the individual's ability to remember such names, there
can be no assurance that the Company's domain names will not lose their value
if, for example, users begin to rely on mechanisms other than domain names to
access online resources.
The current system for registering, allocating and managing domain names has
been the subject of litigation and of proposed regulatory reform. There can be
no assurance that the Company's domain names will not lose their value, or
that the Company will not have to obtain entirely new domain names in addition
to or in lieu of its current domain names, if such litigation or reform
efforts result in a restructuring in the current system.
Jurisdiction. Due to the global reach of the Internet, it is possible that,
although transmissions by the Company over the Internet originate primarily in
the State of New York, the governments of other states and foreign countries
might attempt to regulate Internet activity and the Company's transmissions or
take action against the Company for violations of their laws. There can be no
assurance that violations of such laws will not be alleged or charged by state
or foreign governments and that such laws will not be modified, or new laws
enacted, in the future. Any of the foregoing could have a material adverse
effect on the Company's business, results of operations and financial
condition.
EMPLOYEES
As of August 31, 1998, the Company had 93 full-time employees, including 23
in sales and marketing, 54 in production and 16 in finance and administration.
The Company's future success will depend, in part, on its ability to continue
to attract, retain and motivate highly qualified technical and management
personnel, for whom competition is intense. From time to time, the Company
also employs independent contractors to support its research and development,
marketing, sales and support and administrative organizations. The Company's
employees are not represented by any collective bargaining unit, and the
Company has never experienced a work stoppage. The Company believes that its
relations with its employees are good.
FACILITIES
The Company's headquarters are currently located in a leased facility in New
York City, consisting of approximately 12,000 square feet of office space, a
majority of which is under a five-year lease with four years remaining. The
Company has recently entered into a three-year lease for approximately 2,800
square feet of commercial space in New York City for its data facilities. The
Company intends to relocate its headquarters in the first half of 1999 to a
larger facility and is currently evaluating a number of locations in the
greater New York City area. Additionally, the Company has recently entered
into two six-month leases for a total of 3,943 square feet of office space in
New York City. The Company also leases approximately 1,200 square feet of
office space in San Francisco for its West Coast sales office.
LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to the Company's
knowledge, threatened against the Company.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
Company's executive officers and directors. Executive officers are appointed
by, and serve at the discretion of, the Board of Directors. All directors hold
office until the annual meeting of stockholders of the Company following their
election or until their successors are duly elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael S. Egan......... 58 Chairman
Todd V. Krizelman....... 24 Co-Chief Executive Officer, Co-President and Director
Stephan J. Paternot..... 24 Co-Chief Executive Officer, Co-President, Secretary and
Director
Dean S. Daniels......... 41 Vice President and Chief Operating Officer
Edward A. Cespedes...... 32 Vice President of Corporate Development and Director
Francis T. Joyce........ 45 Vice President, Chief Financial Officer and Treasurer
Rosalie V. Arthur....... 39 Director
Henry C. Duques......... 55 Director
Robert M. Halperin...... 70 Director
David H. Horowitz....... 69 Director
H. Wayne Huizenga....... 60 Director
</TABLE>
MICHAEL S. EGAN. Mr. Egan has served as Chairman of theglobe.com since
August 1997. As such, Mr. Egan serves as Chairman of the Board of Directors
and as an executive officer of the Company with primary responsibility for
day-to-day strategic planning and financing arrangements. Mr. Egan has been
the controlling investor of Dancing Bear Investments, a privately held
investment company, since 1996, which holds a controlling interest in the
Company. From 1986 to 1996, he was the majority owner and Chairman of Alamo
Rent-A-Car, Inc. ("Alamo"), now a subsidiary of Republic Industries. Mr. Egan
began his career with Alamo in 1976 and held various management and ownership
positions during this period until he bought a controlling interest in 1986.
Mr. Egan is also Chairman and Chief Executive Officer of Certified Vacations,
a wholesale tour operator. Mr. Egan is a director of Florida Panthers
Holdings, Inc. Mr. Egan began in the car rental business with Olins Rent-A-
Car, where he held various positions, including President. Prior to acquiring
Alamo, Mr. Egan held various administrative positions at Yale University and
administrative and teaching positions at the University of Massachusetts at
Amherst. Mr. Egan is a graduate of Cornell University, where he received a
Bachelor's degree in Hotel Administration.
TODD V. KRIZELMAN. Mr. Krizelman co-founded the Company in the fall of 1994.
He is Co-Chief Executive Officer and Co-President of the Company and has
served in various capacities with the Company since its founding. Mr.
Krizelman graduated from Cornell University in 1996, where he received a
Bachelor's degree in Biology.
STEPHAN J. PATERNOT. Mr. Paternot co-founded the Company in the fall of
1994. He is Co-Chief Executive Officer, Co-President and Secretary of the
Company and has served in various capacities with the Company since its
founding. Mr. Paternot graduated from Cornell University in 1996, where he
received Bachelor's degrees in Business and Computer Science.
DEAN S. DANIELS. Mr. Daniels was appointed Vice President and Chief
Operating Officer of the Company in August 1998. From February 1997 until
joining the Company, Mr. Daniels served as Vice President and General Manager
of CBS New Media, a subsidiary managing all of CBS Television Network's
activity on the Internet. From March 1996 to February 1997, Mr. Daniels was
the Director of Interactive Services at CBS News. From 1994 to 1996, Mr.
Daniels served as Director of Affiliate News Services at CBS NEWSPATH. From
1992 to 1994, Mr. Daniels was Director of News of WCBS-TV, a CBS owned
television station in New York. Prior
52
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to that time, Mr. Daniels held various positions at WCBS-TV, including
executive producer, and was the recipient of four Emmy Awards.
EDWARD A. CESPEDES. Mr. Cespedes was appointed Vice President of Corporate
Development in July 1998 and has served as a director of the Company since
August 1997. As Vice President for Corporate Development, Mr. Cespedes has
primary responsibility for corporate development opportunities including
mergers and acquisitions. Mr. Cespedes is also a Managing Director of Dancing
Bear Investments. Mr. Cespedes joined Dancing Bear Investments at its
inception in 1996, where his responsibilities include venture capital
investments, mergers and acquisitions and finance. Prior to joining Dancing
Bear Investments, Mr. Cespedes served as Director of Corporate Finance for
Alamo in 1996, where he was responsible for general corporate finance in the
United States and in Europe. From 1988 to 1996, Mr. Cespedes worked in the
Investment Banking Division of J.P. Morgan & Company, where he most recently
focused on mergers and acquisitions. Mr. Cespedes received a Bachelor's degree
in International Relations from Columbia University.
FRANCIS T. JOYCE. Mr. Joyce was appointed Vice President, Chief Financial
Officer and Treasurer of the Company in July 1998. From 1997 until joining the
Company, Mr. Joyce served as Chief Financial Officer of the Reed Travel Group,
a division of Reed Elsevier Plc, which is an international publisher of travel
information. From 1994 to 1997, Mr. Joyce was the Chief Financial Officer at
Alexander Consulting Group, a division of Alexander & Alexander Services,
Inc., an international professional services firm, which included a human
resources consulting firm, an insurance brokerage unit and an executive
planning life insurance unit. From 1988 to 1994, Mr. Joyce worked as a Senior
Vice President and controller at Bates Worldwide, a division of Saatchi &
Saatchi Co., an advertising firm. Mr. Joyce received a Bachelor of Science in
Accounting from the University of Scranton and a Master of Business
Administration from Fordham University. He is a Certified Public Accountant.
ROSALIE V. ARTHUR. Ms. Arthur has served as a director of the Company since
August 1997. Ms. Arthur is a Senior Managing Director and Vice President of
Mergers and Acquisitions of Dancing Bear Investments. She currently serves on
the Board of Directors of Dancing Bear Investments and several of its
affiliated companies. She also served on the Board of Directors of Alamo and
affiliated entities and Nantucket Nectars. Prior to joining Dancing Bear
Investments, she served as Chief of Staff and Financial Counselor to the
Chairman of Alamo from 1986 to 1996, when the Company was sold. Ms. Arthur was
the Manager of Financial Reporting at Sensormatic Electronics Corporation from
1984 to 1986 and worked in the audit department of KPMG Peat Marwick from 1980
to 1984. Ms. Arthur received her Bachelor of Science in Accounting from the
University of South Florida. She is a Certified Public Accountant.
HENRY C. DUQUES. Mr. Duques is Chairman and Chief Executive Officer of First
Data Corporation, a position he has held since April 1989. From September 1987
to 1989, he served as President and Chief Executive Officer of the Data Based
Services Group of American Express Travel Related Services Company, Inc., the
predecessor to First Data Corporation. He was Group President of Financial
Services and a member of the board of directors of Automatic Data Processing,
Inc. from 1984 to 1987. Mr. Duques is currently a director of Unisys
Corporation. Mr. Duques holds a Bachelor of Business Administration in
Accounting and an MBA in Accounting and Finance from George Washington
University.
ROBERT M. HALPERIN. Mr. Halperin has served as a director of the Company
since 1995. Mr. Halperin has acted as an advisor to Greylock Management, a
venture capital firm, for the past five years. He is a member of the board of
directors of Avid Technology, Inc. In addition, Mr. Halperin serves on the
Board of Directors of the Associates of Harvard Business School, the Harvard
Business School Publishing Co. and Stanford Health Services and also is a Life
Trustee of the University of Chicago. He is the former Vice Chairman of
Raychem Corporation's Board of Directors and also served as its President and
Chief Operating Officer. Mr. Halperin joined Raychem Corporation in 1957. Mr.
Halperin received a Master of Business Administration degree from Harvard
Business School, and he earned a Bachelor's degree in liberal arts from the
University of Chicago and a Bachelor's degree in Mechanical Engineering from
Cornell University.
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<PAGE>
DAVID H. HOROWITZ. Mr. Horowitz has served as a Director of the Company
since December 1995. Mr. Horowitz has acted as an investor and consultant in
the media and communications industries for at least the past five years, and
as a consultant to the American Society of Composers, Authors and Publishers,
and a Lecturer at the Columbia University School of Law. From 1973 to 1984,
Mr. Horowitz was an officer and director of Warner Communications, Inc., and
until 1985 he was President and CEO of MTV Networks, Inc. Mr. Horowitz is a
graduate of Columbia University, where he received a Bachelor's degree, and is
a graduate of Columbia Law School.
H. WAYNE HUIZENGA. Mr. Huizenga has served as a director of the Company
since July 1998. Mr. Huizenga has served as the Chairman of the Board of
Republic Industries since August 1995, as its Co-Chief Executive Officer since
October 1996 and as its Chief Executive Officer from August 1995 until October
1996. Mr. Huizenga also serves as the Chairman of the Board and Chief
Executive Officer of Republic Services, Inc., as the Chairman of the Board of
Florida Panthers Holdings, Inc., as the Chairman of the Board of Extended Stay
America, Inc. and a director of NationsRent, Inc. From September 1994 until
October 1995, Mr. Huizenga served as the Vice Chairman of Viacom Inc.
("Viacom"), and as the Chairman of the Board of Blockbuster Entertainment
Group ("Blockbuster"), a division of Viacom. From April 1987 through September
1994, Mr. Huizenga served as the Chairman of the Board and Chief Executive
Officer of Blockbuster. In September 1994, Blockbuster merged into Viacom. In
1971, Mr. Huizenga co-founded Waste Management, Inc. and served in various
capacities, including President, Chief Operating Officer and a director from
its inception until 1984. Mr. Huizenga also owns or controls the Miami
Dolphins and Florida Marlins professional sports franchises, as well as Pro
Player Stadium, in South Florida.
KEY EMPLOYEES
The following table sets forth the names and positions of the Company's key
employees.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Vance Huntley.................................. Director of Technology
Esther Loewy................................... Director of Communications
Will Margiloff................................. Director of Advertising Sales
Richard Mass................................... General Counsel
David Tonkin................................... Director of Human Resources
</TABLE>
VANCE HUNTLEY. Vance Huntley joined theglobe.com in August 1995 as Director
of Technology. Between 1991 and 1994 Mr. Huntley held software development
positions with Delta-Epsilon Software and the Cornell Institute of Social
Economic Research. In 1994 Mr. Huntley developed a Transmission Electron
Microscopy simulation for the Cornell Materials Science Center while
completing his BS in the Applied & Engineering Physics program at Cornell
University. In 1990, Mr. Huntley wrote simulation software at the Lawrence
Livermore National Laboratory Supercomputing Center.
ESTHER LOEWY. Ms. Loewy joined theglobe.com in May 1997 as Director of
Communications. As such, Ms. Loewy is responsible for managing the in-house
communications department for the Company as well as the direction of
theglobe.com's media and public relations. Before joining theglobe.com, Ms.
Loewy was a consultant for the @Cafe in New York and other media companies
from 1995 to 1997. From 1992 to 1995 Ms. Loewy was a Senior Account Executive
at Charles Levine Communication.
WILL MARGILOFF. Mr. Margiloff joined theglobe.com in March 1998 as Director
of Advertising Sales. Mr. Margiloff is responsible for the management and
direction of theglobe.com's sales force in New York and San Francisco, as well
as the expansion of the Company's advertising efforts both domestically and
internationally. Before joining theglobe.com, from 1997 to 1998 Mr. Margiloff
was the Vice President of East Coast Sales for 24/7 Media. From 1995 to 1998
Mr. Margiloff held the senior sales management position at software site
Jumbo!
54
<PAGE>
RICHARD W. MASS. Mr. Mass was appointed General Counsel of the Company in
September 1998. From 1994 until joining the Company, Mr. Mass served as a
senior attorney supporting AT&T's Internet services and was also the chief
counsel for Downtown Digital, AT&T's digital production facility that
developed interactive television programming and Web sites. From 1992 to 1994,
Mr. Mass was an attorney at Gray Cary Ware & Freidenrich in Palo Alto,
California. From 1991 to 1992, Mr. Mass was a Visiting Assistant Professor of
Law at the University of Miami and from 1987 to 1990 Mr. Mass was an attorney
at Proskauer, Rose, Goetz & Mendelsohn in New York. Mr. Mass received a
Bachelor of Arts in Economics from Williams College and received a law degree
from Stanford Law School.
DAVID TONKIN. Mr. Tonkin joined theglobe.com in May 1998 as Director of
Human Resources. Mr. Tonkin is responsible for managing the recruiting, hiring
and human resource administration of all employees at theglobe.com. Before
joining theglobe.com, from 1995 to 1998 Mr. Tonkin worked as a Senior Resource
Manager for Knowledge Transfer International, responsible for recruiting,
developing and managing consulting staffing services. Prior to that time, from
1994 to 1995, Mr. Tonkin worked as Human Resource Manager for NightRider (Alco
Management Service). From 1993 to 1994 Mr. Tonkin worked as Operations Manager
for Premier Shoe Company.
BOARD COMMITTEES
The Audit Committee of the Board of Directors reviews and monitors the
corporate financial reporting and the internal and external audits of the
Company, including, among other things, the Company's control functions, the
results and scope of the annual audit and other services provided by the
Company's independent accountants, and the Company's compliance with legal
matters that have a significant impact on the Company's financial condition.
The Audit Committee will consult with the Company's management and the
Company's independent accountants prior to the presentation of financial
statements to stockholders and, as appropriate, initiates inquiries into
aspects of the Company's financial affairs. In addition, the Audit Committee
has the responsibility to consider and recommend the appointment of, and to
review fee arrangements with, the Company's independent accountants. The
current members of the Audit Committee are Messrs. Halperin and Horowitz and
Ms. Arthur.
The Compensation Committee of the Board of Directors reviews and makes
recommendations to the Board regarding the Company's compensation policies and
all forms of compensation to be provided to executive officers and directors
of the Company, including, among other things, annual salaries and bonuses and
stock option and other incentive compensation arrangements of the Company. In
addition, the Compensation Committee reviews bonus and stock compensation
arrangements for all other employees of the Company. The current members of
the Compensation Committee are Messrs. Egan, Halperin and Horowitz and Ms.
Arthur. Prior to July 15, 1998, the Compensation Committee consisted of
Messrs. Egan, Halperin, Krizelman and Paternot. Stock option grants will be
approved, at the election of the Compensation Committee, by either the entire
Board or a subcommittee of the Compensation Committee consisting of Messrs.
Horowitz and Halperin.
The Nominating Committee of the Board of Directors makes recommendations to
the Board of Directors regarding nominees for the Board of Directors. The
current members of the Nominating Committee are Messrs. Egan, Krizelman and
Paternot and Ms. Arthur.
EXECUTIVE OFFICERS
Executive officers of the Company are appointed by the Board of Directors
and serve at the discretion of the Board of Directors.
DIRECTORS' COMPENSATION
Directors who are also employees of the Company receive no compensation for
serving on the Board of Directors. With respect to Directors who are not
employees of the Company ("Non-Employee Directors"), the Company intends to
reimburse such directors for all travel and other expenses incurred in
connection with
55
<PAGE>
attending such Board of Directors and committee meetings. Non-Employee
Directors are also eligible to receive automatic stock option grants under the
1998 Plan. The 1998 Plan provides that each eligible Non-Employee Director as
of July 13, 1998 will receive an initial grant of options to acquire 25,000
shares of Common Stock, and each Director who becomes an eligible Non-Employee
Director after such date will receive an initial grant of options to acquire
12,500 shares of Common Stock. In addition, each eligible Non-Employee
Director will receive an annual grant of options to acquire 3,750 shares of
Common Stock on the first business day following each of the Company's annual
meeting of shareholders that occurs while the 1998 Plan is in effect. All such
stock options will be granted with per share exercise prices equal to the fair
market value of the Common Stock as of the date of grant.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to the Company's Co-
Chief Executive Officers (collectively, the "Named Executives") during the
year ended December 31, 1997:
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
NUMBER OF
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)(2)
- --------------------------- ---------- --------- ------------ -------------------
<S> <C> <C> <C> <C>
Todd V. Krizelman,....... $76,000 $18,750 144,976 $500,000
Co-Chief Executive
Officer and
Co-President
Stephan J. Paternot,..... $76,000 $18,750 144,976 $500,000
Co-Chief Executive
Officer,
Co-President and
Secretary
</TABLE>
- --------
(1) The Company did not have any other executive officers during this period.
(2) Reflects a one-time payment of $500,000 associated with the Company's sale
of Preferred Stock and Warrants to Dancing Bear Investments in August
1997.
1997 YEAR END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FISCAL
AT FISCAL YEAR-END (#) YEAR-END ($)(2)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Todd V. Krizelman........... 25,000 144,976 $69,000 $301,550
Stephan J. Paternot......... 25,000 144,976 $69,000 $301,550
</TABLE>
- --------
(1) The Named Executives did not exercise any options in 1997.
(2) Based on a per share fair market value of Common Stock equal to $2.78, as
of December 31, 1997.
56
<PAGE>
OPTIONS GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE ---------------------
NAME GRANTED (#) 1997 ($/SH) EXPIRATION DATE 5% 10%
- ---- ----------- ------------- ----------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Todd V. Krizelman....... 144,976 37% $0.70 May 2007 $ 172,348 $ 438,705
Stephan J. Paternot..... 144,976 37% $0.70 May 2007 $ 172,348 $ 438,705
</TABLE>
- --------
(1) These amounts represent certain assumed rates of appreciation only and are
displayed in connection with Securities and Exchange Commission ("SEC")
disclosure rules. Actual gains, if any, on stock option exercises are
dependent on future performance of the Common Stock.
EMPLOYMENT AGREEMENTS
On August 13, 1997, the Company entered into employment agreements (each a
"Chief Executive Employment Agreement") with Todd V. Krizelman and Stephan J.
Paternot. Pursuant to the terms of each Chief Executive Employment Agreement,
each individual will be employed as an Executive (as defined in each Chief
Executive Employment Agreement) of the Company. Each Chief Executive
Employment Agreement provides for an annual base salary of $125,000 with
eligibility to receive annual increases amounting to no less than 15% of the
Executive's then-base salary. Pursuant to the Chief Executive Employment
Agreements, each of the Executives also received a one-time payment of
$500,000 associated with the sale of Preferred Stock and Warrants to Dancing
Bear Investments, and each is entitled to an annual cash bonus, which will be
assessed at the Board's discretion and upon the achievement of target
performance objectives set forth in the Company's budget. Each Executive is
also entitled to participate in the stock option plans of the Company as well
as all health, welfare, and other benefit plans provided by the Company to its
most senior executives.
Each of the Chief Executive Employment Agreements is for a term expiring on
August 13, 2002, subject to earlier termination as provided in each Chief
Executive Employment Agreement. Each of the Chief Executive Employment
Agreements provides that, in the event of termination by the Company without
Cause (as defined in each Chief Executive Employment Agreement), the Executive
will be entitled to receive from the Company: (i) any accrued and unpaid base
salary, (ii) reimbursement for any reasonable and necessary monies advanced or
expenses incurred in connection with the Executive's employment, (iii) a pro-
rata portion of the annual bonus for the year of termination and (iv) for one
year following such termination or the remainder of the term of the Chief
Executive Employment Agreement, whichever is less, continued salary payments
and employee benefits. In addition, termination without Cause automatically
triggers the vesting of all stock options held by the Executive.
In the event of a Change in Control (as defined in each Chief Executive
Employment Agreement) or a dissolution of the Company, each Executive may
elect to terminate his employment by delivering a notice within 60 days to the
Company and receive (i) any accrued and unpaid base salary as of the
termination date and (ii) an amount reimbursing the Executive for expenses
incurred on behalf of the Company prior to the termination date.
Each Chief Executive Employment Agreement contains a covenant not to compete
with the Company for a period of five years from the date of each Chief
Executive Employment Agreement or, in the case of termination without Cause or
after a Change in Control, the earlier of a period of one year immediately
following termination of employment or five years from the consummation of the
Offerings.
The Company has entered into an Employment Agreement with Dean S. Daniels
(the "Daniels Employment Agreement"). Pursuant to the terms of the Daniels
Employment Agreement, Mr. Daniels will be employed as Chief Operating Officer
of the Company effective August 31, 1998. The Daniels Employment Agreement
provides for an annual base salary of not less than $250,000 per year and an
annual cash bonus of $50,000. Mr.
57
<PAGE>
Daniels will be granted stock options to purchase 112,500 shares of Common
Stock. The options will be granted at the initial public offering price which
is equal to the fair market value per share of Common Stock as of the date of
grant. Of such options, 87,500 will vest with respect to one-third of the
shares subject thereto on each of the first three anniversaries of the date of
grant, and 25,000 will vest with respect to one-seventh of such shares on each
of the first seven anniversaries of the date of grant. The Daniels Employment
Agreement also provides for the accelerated vesting of an aggregate of 25,000
of such options upon the Company's attainment of certain financial targets in
the 1998 and 1999 fiscal years of the Company.
The Daniels Employment Agreement is for a term expiring on August 31, 2001,
subject to earlier termination as provided in the Daniels Employment
Agreement. The Daniels Employment Agreement provides that, in the event of
termination by the Company without Cause (as defined in the Daniels Employment
Agreement), Mr. Daniels will be entitled to receive from the Company (i) any
accrued and unpaid base salary (as of the termination date) and salary
continuation during a non-competition period following termination which will
be one year, (ii) reimbursement for any and all reasonable monies advanced or
expenses incurred in connection with his employment, and (iii) the annual
bonus for the year of termination. In addition, termination without Cause
automatically triggers the vesting of all options held by Mr. Daniels that
have not yet vested.
The Daniels Employment Agreement contains a covenant not to compete with the
Company for a period of one year from the date of the Daniels Employment
Agreement's termination.
On July 13, 1998, the Company entered into an Employment Agreement with
Francis T. Joyce (the "Joyce Employment Agreement"). Pursuant to the terms of
the Joyce Employment Agreement, Mr. Joyce will be employed as Chief Financial
Officer of the Company. The Joyce Employment Agreement provides for an annual
base salary of not less than $200,000 per year with eligibility to receive
annual increases in base salary as determined by the Co-Chief Executive
Officers and Co-Presidents of the Company. Mr. Joyce will also receive an
annual cash bonus of $50,000. Mr. Joyce will be granted options to purchase
112,500 shares of Common Stock, 87,500 of which will have an exercise price
per share equal to 85% of the initial public offering price. As a result, the
Company will record a charge for deferred compensation expense of $157,500 in
the third quarter of 1998, representing the difference between the deemed
value of the Company's Common Stock, the initial public offering price
(assuming an initial public offering price of $12.00 per share) for accounting
purposes and the exercise price of such options at the date of grant. Such
amount will be presented as a reduction of stockholders' equity and amortized
over the vesting period of the applicable options. The remaining options will
be granted at the initial public offering price which is equal to the fair
market value per share of the Company's Common Stock on the date of grant. Of
such options, 87,500 will vest with respect to one-third of the shares subject
thereto on each of the first three anniversaries of the date of grant, and
25,000 will vest with respect to one-seventh of such shares on each of the
first seven anniversaries of the date of grant. The Joyce Employment Agreement
also provides for the accelerated vesting of an aggregate of 25,000 of such
options upon the Company's attainment of certain financial targets in the 1998
and 1999 fiscal years of the Company.
The Joyce Employment Agreement is for a term expiring on July 13, 2001,
subject to earlier termination as provided in the Joyce Employment Agreement.
The Joyce Employment Agreement provides that, in the event of termination by
the Company without Cause (as defined in the Joyce Employment Agreement), Mr.
Joyce will be entitled to receive from the Company (i) any accrued and unpaid
base salary (as of the termination date) and salary continuation during a non-
competition period following termination which will be six months (or one
year, if the Company elects to pay Mr. Joyce his salary during such period),
(ii) reimbursement for any and all monies advanced or expenses incurred in
connection with his employment, and (iii) a pro rata portion of the annual
bonus for the year of termination. In addition, termination without Cause
automatically triggers the vesting of all stock options held by Mr. Joyce that
have not yet vested.
1998 STOCK OPTION PLAN
The Company's 1998 Stock Option Plan (the "1998 Plan") was adopted by the
Board of Directors on July 15, 1998, and approved by the stockholders of the
Company as of July 15, 1998. The 1998 Plan provides for the
58
<PAGE>
grant of "incentive stock options" intended to qualify under Section 422 of
the Code and stock options which do not so qualify. The granting of incentive
stock options is subject to limitation as set forth in the 1998 Plan.
Directors, officers, employees and consultants of the Company and its
subsidiaries are eligible to receive grants under the 1998 Plan. The 1998 Plan
is designed to comply with the requirements for "performance-based
compensation" under Section 162(m) of the Code, and the conditions for
exemption from the short-swing profit recovery rules under Rule 16b-3 of the
Exchange Act.
The purpose of the 1998 Plan is to strengthen the Company by providing an
incentive to its directors, officers, employees and consultants and thereby
encouraging them to devote their abilities and industry to the success of the
Company's business enterprise. Options may be granted by the Board or
Committee (as defined below) in its discretion to directors, officers,
employees and consultants of the Company and its subsidiaries. In addition,
directors of the Company who are not also employees of the Company or any of
its subsidiaries are eligible to receive automatic formula option grants as
provided in the 1998 Plan. Such formula option grants include an initial grant
of options to acquire 25,000 shares to the eligible non-employee directors who
served on the Board as of July 15, 1998 (12,500 shares to eligible non-
employee directors who become directors for the first time after July 15,
1998) as well as annual grants of options to acquire 3,750 shares to eligible
non-employee directors on the day following each annual shareholders meeting
while the 1998 Plan is in effect. The terms and conditions of such options are
set forth in the 1998 Plan.
The 1998 Plan authorizes for issuance 1,200,000 shares of Common Stock,
subject to adjustment as provided in the 1998 Plan. As of July 15, 1998, the
Board of Directors approved for grant 100,000 options to each of Messrs.
Krizelman and Paternot and 25,000 options to Mr. Cespedes. One-quarter of Mr.
Cespedes' options are immediately vested. Additionally, the Company intends to
grant, subject to Board of Directors or Committee approval, 100,000 and 3,750
options to Mr. Egan and Mr. Cespedes, respectively, in connection with their
appointment as officers of the Company. Options will be granted by the Board
of Directors or a committee (the "Committee") of the Board of Directors
comprised of two or more "non-employee directors" within the meaning of Rule
16b-3, and unless otherwise determined by the Board of the Directors, "outside
directors" within the meaning of Section 162(m), which will administer the
1998 Plan. See "--Board Committees." No individual may be granted options with
respect to more than a total of 250,000 shares during any three consecutive
calendar year period under the 1998 Plan. Shares of Common Stock subject to
the 1998 Plan may either be authorized and unissued shares or previously
issued shares acquired or to be acquired by the Company and held in its
treasury. Subject to the terms of the 1998 Plan, the Committee has the right
to grant options to eligible participants and to determine the terms and
conditions of option agreements, including the vesting schedule and exercise
price of such options. The 1998 Plan provides that the term of any option may
not exceed ten years. In the event of a Change in Control (as defined in the
1998 Plan) all outstanding options will become immediately and fully vested.
If a participant's employment (or service as a director) is terminated
following a Change in Control, any options vested at such time will remain
outstanding until the earlier of the first anniversary of such termination and
the expiration of the option term.
In order to prevent dilution or enlargement of the rights of participants,
the 1998 Plan permits the Committee to make adjustments to the aggregate
number of shares subject to the 1998 Plan or any option, and to the purchase
price to be paid or the amount to be received in connection with the
realization of any option, upon the occurrence of certain events as described
in the 1998 Plan.
The Company intends, subject to final approval of the Board of Directors, to
issue shares of Common Stock to the Company's Community Leaders under the 1998
Plan. Immediately following the execution of the underwriting agreement, each
of the Company's Community Leaders, as of July 23, 1998, will be issued 11
fully vested shares of Common Stock (approximately 3,500 in the aggregate),
contingent upon the closing of the Offerings. As a result, the Company will
record a charge for compensation expense estimated at $42,000 in the fourth
quarter of 1998 (assuming an initial public offering price of $12.00 per
share) for the full value of the Company's Common Stock.
59
<PAGE>
1995 STOCK OPTION PLAN
The Company's 1995 Stock Option Plan, as amended (the "1995 Plan"), was
adopted by the Board of Directors on May 26, 1995. The 1995 Plan provides for
the grant of incentive stock options and non-qualified stock options.
Directors, employees and consultants of the Company and its affiliates are
eligible to receive grants under the 1995 Plan. The 1995 Plan authorizes for
issuance 791,000 shares of Common Stock, subject to adjustment as provided in
the 1995 Plan. The remaining options under the 1995 Plan may be granted by
Messrs. Krizelman and Paternot pursuant to the terms of the 1995 Plan. The
Company currently intends to grant 250 options to each of its employees
currently employed by the Company and who have served prior to January 1, 1998
and 100 options to each of its employees employed by the Company as of July
24, 1998 whose employment commenced after January 1, 1998.
401(K) SAVINGS PLAN
theglobe.com has established a savings and profit-sharing plan that
qualifies as a tax-deferred saving plan under Section 401(k) of the Code (the
"Savings Plan") for certain eligible employees of theglobe.com. Under the
Savings Plan, participants may contribute up to 15% of their eligible
compensation, up to $10,000, in any year on a pre-tax basis. Such employee
contributions are fully vested at all times. In addition, theglobe.com may, in
its discretion, make additional contributions on behalf of participants. All
amounts contributed under the Savings Plan are invested in one or more
investment accounts administered by the plan administrator.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On July 15, 1998, Michael S. Egan, Robert M. Halperin, David H. Horowitz and
Rosalie V. Arthur were appointed as members of the Compensation Committee.
Prior to such date, the Compensation Committee was comprised of Messrs. Egan,
Halperin, Krizelman and Paternot. Mr. Egan, effective as of July 22, 1998,
also serves as an executive officer of the Company in his role as Chairman.
Mr. Egan is also the controlling investor of Dancing Bear Investments, and Ms.
Arthur is a Senior Managing Director of Dancing Bear Investments. See "Certain
Relationships and Related Transactions--Arrangements with Entities Controlled
by Certain Directors and Officers." Although it is contemplated that Mr. Egan
will not receive a salary or bonus from the Company, the Company intends to
grant, subject to Board of Directors or Committee approval, stock options to
Mr. Egan for 100,000 shares of Common Stock under the 1998 Plan, as
consideration for his performance of services in his capacity as an executive
officer. In the past fiscal year, Mr. Egan has served as a director of
Certified Vacations, an entity with which the Company has recently begun e-
commerce arrangements.
KEY MAN INSURANCE
The Company does not have and currently does not intend to purchase key man
insurance.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with its directors
and officers. These agreements provide, in general, that the Company shall
indemnify and hold harmless such directors and officers to the fullest extent
permitted by law against any judgments, fines, amounts paid in settlement, and
expenses (including attorneys' fees and disbursements) incurred in connection
with, or in any way arising out of, any claim, action or proceeding (whether
civil or criminal) against, or affecting, such directors and officers
resulting from, relating to or in any way arising out of, the service of such
directors and officers as directors and officers of the Company.
60
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ARRANGEMENTS WITH ENTITIES CONTROLLED BY CERTAIN DIRECTORS AND OFFICERS
The Company has recently entered into an e-commerce contract with Republic
Industries, an entity affiliated with H. Wayne Huizenga, pursuant to which the
Company has granted a right of first negotiation with respect to the exclusive
right to engage in or conduct an automotive "clubsite" on theglobe.com through
AutoNation, a subsidiary of Republic Industries. Additionally, Republic has
agreed to purchase advertising from the Company for a three-year period at a
price which will be adjusted to match any more favorable advertising price
quoted to a third party by the Company, excluding certain short-term
advertising rates.
In addition, the Company has entered into an e-commerce arrangement with
InteleTravel, an entity controlled by Michael S. Egan, whereby the Company
developed a Web community for InteleTravel in order for its travel agents to
conduct business through theglobe.com Web site in exchange for access to
InteleTravel customers for distribution of the Company's products and
services.
The Company believes that the terms of the foregoing arrangements are on
comparable terms as if they were entered into with unaffiliated third parties.
As of the date hereof, revenues received by the Company from Republic and
InteleTravel have not been material.
STOCKHOLDERS' AGREEMENT
Messrs. Egan, Krizelman, Paternot and Cespedes, Ms. Arthur and Dancing Bear
Investments (an entity controlled by Mr. Egan) expect to enter into a
Stockholders' Agreement pursuant to which the Egan Group will agree to vote
for certain nominees of the Krizelman and Paternot Groups to the Board of
Directors and the Krizelman and Paternot Groups will agree to vote for the
Egan Group's nominees to the Board, who will represent a majority of the
Board. Additionally, pursuant to the terms of the Stockholders' Agreement,
Messrs. Krizelman, Paternot and Cespedes and Ms. Arthur have granted an
irrevocable proxy to Dancing Bear Investments with respect to any shares that
may be acquired or beneficially owned by them pursuant to the exercise of
outstanding Warrants transferred to each of them by Dancing Bear Investments.
Such shares will be voted by Dancing Bear Investments, which is controlled by
Mr. Egan, and will be subject to a right of first refusal in favor of Dancing
Bear Investments upon transfer. The Stockholders' Agreement will also provide
that if the Egan Group sells shares of Common Stock and Warrants representing
25% or more of the Company's outstanding Common Stock (including the Warrants)
in any private sale after the Offerings, the Krizelman and Paternot Groups,
Mr. Cespedes and Ms. Arthur will be required to sell up to the same percentage
of their shares as the Egan Group sells. If the Egan Group sells shares of
Common Stock or Warrants representing 25% or more of the Company's outstanding
Common Stock (including the Warrants) or the Krizelman and Paternot Groups
collectively sell shares or Warrants representing 7% or more of the shares and
Warrants of the Company in any private sale after the Offerings, each other
party to the Stockholders' Agreement, including entities controlled by them
and their permitted transferees, may, at their option, sell up to the same
percentage of their shares.
61
<PAGE>
TRANSACTIONS WITH DIRECTORS, OFFICERS AND 5% STOCKHOLDERS
Since the Company's inception, the Company has raised capital primarily
through the sale of shares of its Common Stock and Preferred Stock. The
following table summarizes the shares of Common Stock and Preferred Stock
purchased by executive officers, directors and 5% stockholders of the Company
and persons associated with them since the Company's inception.
<TABLE>
<CAPTION>
PREFERRED STOCK
EXECUTIVE OFFICERS, COMMON -----------------------------------------
DIRCTORS AND 5% STOCKHOLDERS STOCK SERIES B SERIES C SERIES D(1) SERIES E(2)
- ----------------------------- ------ -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Dancing Bear Investments,
Inc.(3)...................... 25.5 5
Michael S. Egan(4)............ 25.5 5
Robert M. Halperin(5)......... 42,709 23,810 6,250
David H. Horowitz(6).......... 15,972 50,000 12,500
</TABLE>
- --------
(1) Convertible into 4,023,765 shares of Common Stock.
(2) Represents Warrants to purchase 5 shares of Series E Preferred Stock prior
to the Offerings and an aggregate of 2,023,009 shares of Common Stock
after the Offerings.
(3) Dancing Bear Investments paid $20 million for its initial investment in
the Series D Preferred Stock and the Warrants.
(4) Includes the shares that Mr. Egan is deemed to beneficially own as the
controlling investor of Dancing Bear Investments.
(5) Mr. Halperin paid $8,171.88 in 1998 in connection with the exercise of
options for his Common Stock. Mr. Halperin paid $25,000.50 and $25,000 for
his Series B and Series C Preferred Stock issued in December 1995 and
November 1996, respectively.
(6) Mr. Horowitz paid $3,111.06 in 1997 in connection with the exercise of
options for his Common Stock. Mr. Horowitz paid $52,000 and $50,000 for
his Series B and Series C Preferred Stock issued in December 1995 and
November 1996, respectively.
All of the directors and executive officers of the Company are also parties
to registration rights agreements with the Company which are described under
"Description of Capital Stock--Registration Rights." The Company also has
entered into indemnification agreements with its directors and officers. See
"Management--Indemnification Agreements."
In the Concurrent Offering, the Company will sell to the Concurrent
Purchasers shares of Common Stock having a value of up to approximately $5
million (416,667 shares assuming an initial public offering price of $12.00
per share) at the same price paid per share in the Initial Public Offering.
The Company expects that the Concurrent Purchasers will include certain of the
Company's officers and directors, their relatives and their business
associates. See "Principal Stockholders."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of September 23, 1998 and as adjusted to
reflect the sale of 3,100,00 shares offered by the Company hereunder, certain
information with respect to the beneficial ownership of the Common Stock of
the Company by (i) each person known to the Company to own 5% or more of the
outstanding shares of Common Stock, (ii) each of the Company's directors,
(iii) each of the Company's executive officers, and (iv) all of the directors
and executive officers as a group.
The percentages of total shares of Common Stock set forth below assume that
only the indicated person or group has exercised options and warrants which
are exercisable within 60 days of September 23, 1998 and do not reflect the
percentage of Common Stock which would be calculated if all other holders of
currently exercisable options or Warrants had exercised their securities. See
footnote 1 below.
<TABLE>
<CAPTION>
SHARES OF COMMON PERCENTAGE OF TOTAL SHARES
STOCK WHICH MAY BE OF COMMON STOCK
SHARES PURCHASED IN THE --------------------------------
NAME BENEFICIALLY OWNED(1) CONCURRENT OFFERING(2) BEFORE OFFERINGS AFTER OFFERINGS
---- --------------------- ---------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Dancing Bear
Investments, Inc.(3)... 6,046,774 69.4% 51.2%
Michael S. Egan(4)...... 6,053,024 16,667(5) 69.4 51.4
Todd V. Krizelman(6).... 754,943 10.9 7.6
Stephan J. Paternot(7).. 807,488 11.7 8.1
Dean S. Daniels(8)...... 0 * *
Edward A. Cespedes(9)... 31,250 * *
Francis T. Joyce(10).... 0 * *
Rosalie V. Arthur(11)... 31,250 4,167 * *
Henry C. Duques(12)..... 6,250 * *
Robert M. Halperin(13).. 85,963 1.3 *
David H. Horowitz(14)... 105,556 1.6 1.1
H. Wayne Huizenga(15)... 6,250 250,000 *
All directors and
executive officers as a
group (11
persons)(16)........... 7,881,974 85.3% 66.3%
</TABLE>
- --------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock options or
Warrants held by that person that are currently exercisable or
exercisable within 60 days of September 23, 1998 are deemed outstanding.
Such shares, however, are not deemed outstanding for the purposes of
computing the percentage ownership of each other person.
(2) The Company is offering up to approximately $5 million of Common Stock in
the Concurrent Offering. The Concurrent Purchasers (which include officers
and directors of the Company, their relatives and their business
associates) have provided indications of interest to purchase shares of
Common Stock in the Concurrent Offering but may not be obligated to
purchase shares until after the registration statement of which this
Prospectus is a part becomes effective. These share numbers are based on an
initial public offering price of $12.00 per share (the mid-point of the
estimated initial public offering price range set forth on the front
cover).
(3) Includes: (a) 25.5 shares of Series D Preferred Stock, which will be
converted into an aggregate of 4,023,765 shares of Common Stock upon
consummation of the Offerings, (b) 1,773,009 shares of Common Stock
issuable following consummation of the Offerings upon exercise of
Warrants and (c) 250,000 shares of Common Stock issuable following
consummation of the Offerings, upon exercise of Warrants held by persons
other than Dancing Bear Investments but as to which Dancing Bear
Investments will have voting power upon exercise pursuant to a
Stockholders' Agreement. Dancing Bear Investments' mailing address is 333
East Las Olas Blvd., Ft. Lauderdale, FL 33301.
(4) Includes the following shares that Mr. Egan is deemed to beneficially own
as the controlling investor of Dancing Bear Investments: (a) 25.5 shares
of Series D Preferred Stock, which will be converted into an
63
<PAGE>
aggregate of 4,023,765 shares of Common Stock upon consummation of the
Offerings, (b) 1,773,009 shares of Common Stock issuable, following
consummation of the Offerings, upon exercise of Warrants, (c) 250,000
shares of Common Stock issuable following consummation of the Offerings
upon exercise of Warrants held by persons other than Mr. Egan but as to
which Mr. Egan will have voting power upon exercise pursuant to the
Stockholders' Agreement, and (d) 6,250 shares of Common Stock subject to
options that are currently exercisable. Excludes 118,750 shares of Common
Stock subject to options that will not be exercisable within 60 days of
September 23, 1998. Mr. Egan's mailing address is care of the Company.
(5) Represents 16,667 shares of Common Stock expected to be purchased by two
trusts for the benefit of Mr. Egan's children as to which he disclaims
beneficial ownership.
(6) Includes (a) 22,455 shares of Series A Preferred Stock, which will be
converted into an equal number of shares of Common Stock upon consummation
of the Offerings, (b) 107,488 shares of Common Stock subject to options
that are currently exercisable and (c) 100,000 shares of Common Stock
issuable following consummation of the Offerings upon exercise of Warrants.
Excludes 172,488 shares of Common Stock subject to options that will not be
exercisable within 60 days of September 23, 1998. Mr. Krizelman's mailing
address is care of the Company.
(7) Includes 107,488 shares of Common Stock subject to options that are
currently exercisable and 100,000 shares of Common Stock issuable following
consummation of the Offerings upon exercise of Warrants. Excludes 172,488
shares of Common Stock subject to options that will not be exercisable
within 60 days of September 23, 1998. Mr. Paternot's mailing address is
care of the Company.
(8) Excludes 112,500 shares of Common Stock subject to options that will not be
exercisable within 60 days of September 23, 1998.
(9) Includes 6,250 shares of Common Stock subject to options that are currently
exercisable, and 25,000 shares of Common Stock issuable following
consummation of the Offerings upon exercise of Warrants. Excludes 22,500
shares of Common Stock subject to options that will not be exercisable
within 60 days of September 23, 1998.
(10) Excludes 112,500 shares of Common Stock subject to options that will not be
exercisable within 60 days of September 23, 1998.
(11) Includes 6,250 shares of Common Stock subject to options that are currently
exercisable, and 25,000 shares of Common Stock issuable following
consummation of the Offerings upon exercise of Warrants. Excludes (i)
22,500 shares of Common Stock subject to options that will not be
exercisable within 60 days of September 23, 1998 (ii) shares held by
Dancing Bear Investments (see footnote 3 above) for which Ms. Arthur serves
as an officer and a director, and as to which Ms. Arthur disclaims
beneficial ownership, and (iii) 2,500 shares for which trusts for the
benefit of Ms. Arthur's children have indicated interest in the purchase of
Common Stock in the Concurrent Offerings and as to which Ms. Arthur
disclaims beneficial ownership.
(12) Includes 6,250 shares of Common Stock subject to options that are currently
exercisable. Excludes 18,750 shares of Common Stock subject to options that
will not be exercisable within 60 days of September 23, 1998.
(13) Includes 23,810 shares of Series B Preferred Stock, and 1,250 shares of
Series C Preferred Stock, each convertible into an equal number of shares
of Common Stock, and 13,194 shares of Common Stock subject to options that
are currently exercisable. Excludes 47,848 shares of Common Stock subject
to options that are not currently exercisable. Excludes 90,180 shares of
Common Stock owned by Mr. Halperin's children for which he has a power of
attorney but as to which he disclaims beneficial ownership.
(14) Includes 50,000 shares of Series B Preferred Stock and 2,500 shares of
Series C Preferred Stock, each convertible into an equal number of shares
of Common Stock, and 27,084 shares of Common Stock subject to options that
are currently exercisable. Excludes 35,694 shares of Common Stock subject
to options that are not currently exercisable.
(15) Includes 6,250 shares of Common Stock subject to options that are
exercisable within 60 days of September 23, 1998. Excludes 22,500 shares of
Common Stock subject to options that are not exercisable within 60 days of
September 23, 1998.
(16) See footnotes 3 through 15 above.
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DESCRIPTION OF CAPITAL STOCK
The Company's stockholders have approved the Fourth Amended and Restated
Certificate of Incorporation (the "Certificate") which will be filed with the
Delaware Secretary of State prior to consummation of the Offerings. Pursuant
to the Certificate, the Company's authorized capital stock will consist of 100
million shares of Common Stock and three million shares of Preferred Stock,
par value $.001 per share (the "Preferred Stock"). As of June 30, 1998, there
were 1,196,979 shares of Common Stock outstanding and 1,449,995.5 shares of
Preferred Stock outstanding (which may be convertible into shares of Common
Stock at any time).
The following descriptions of the Company's capital stock do not purport to
be complete and are subject to and qualified in their entirety by the
provisions of the Certificate and the Company's By-Laws, which are included as
exhibits to the Registration Statement of which this Prospectus is a part, and
by the provisions of applicable law. The By-laws have been approved by the
Company's Board of Directors in the form included as an exhibit to the
Registration Statement and will become effective prior to consummation of the
Offerings.
COMMON STOCK
Following the Offerings, 9,791,339 shares of Common Stock will be
outstanding (10,193,839 if the Underwriters' over-allotment option is
exercised in full). As of September 23, 1998, there were approximately 36
holders of the Company's Common Stock (after giving effect to the conversion
of Preferred Stock which will occur upon consummation of the Offerings). All
of the issued and outstanding shares of Common Stock are, and upon the
completion of the Offerings the shares of Common Stock offered hereby will be,
fully paid and non-assessable. Each holder of shares of Common Stock is
entitled to one vote per share on all matters to be voted on by stockholders
generally, including the election of directors. There are no cumulative voting
rights. The holders of Common Stock are entitled to dividends and other
distributions as may be declared from time to time by the Board of Directors
out of funds legally available therefor, if any. See "Dividend Policy." Upon
the liquidation, dissolution or winding up of the Company, the holders of
shares of Common Stock would be entitled to share ratably in the distribution
of all of the Company's assets remaining available for distribution after
satisfaction of all its liabilities and the payment of the liquidation
preference of any outstanding Preferred Stock as described below. The holders
of Common Stock have no preemptive or other subscription rights to purchase
shares of stock of the Company, nor are such holders entitled to the benefits
of any redemption or sinking fund provisions.
PREFERRED STOCK
As of June 30, 1998, the Company has 1,449,995.5 shares outstanding of
Preferred Stock, designated into Series A, Series B, Series C, Series D and
Series E. Shares of each series of Preferred Stock are convertible into Common
Stock, subject to anti-dilution adjustments, and will automatically convert
into Common Stock concurrently with the closing of the Offerings (subject to
anti-dilution adjustments). Additionally, the holders of shares of each series
of Preferred Stock may currently elect to convert each series to Common Stock
by a majority vote of the outstanding shares in that series. Further,
currently each share of Series A Preferred Stock shall automatically convert
to Common Stock upon the conversion into shares of Common Stock of all
outstanding shares of Series B Preferred Stock and Series C Preferred Stock.
If the Company issues additional shares of Common Stock for per share
consideration of less than $0.20, $1.05 and $4.00 for the Series A, Series B
and Series C Preferred Stock, respectively, anti-dilution adjustments will be
made. Assuming that the conditions to the automatic conversion are satisfied,
following the closing of the Offerings, no shares of Preferred Stock will
remain outstanding. The Board of Directors has the authority, without further
action by the stockholders, to issue the Preferred Stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. Preferred Stock could thus be issued
quickly with terms calculated to delay or prevent a change of control of the
Company or to serve as an entrenchment device for incumbent management. The
issuance of Preferred Stock may have the effect of decreasing the market price
of the Common Stock, and may adversely affect the voting and other rights of
the holders of Common Stock.
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WARRANTS
As of June 30, 1998, the Company has issued and outstanding Warrants to
purchase 5 shares of Series E Preferred Stock, each convertible into one
percent of the fully diluted Common Stock. Upon consummation of the Offerings,
the Series E Preferred Stock will be converted into Common Stock, and the
Warrants will be exercisable into 2,023,009 shares of Common Stock (subject to
certain anti-dilution adjustments) at an exercise price of approximately $2.91
per share. Prior to the consummation of the Offerings, a portion of the
Warrants held by Dancing Bear Investments will be transferred to certain
employees and directors of the Company. The Warrants may be exercised at any
time on or before August 13, 2004. After expiration of the exercise period,
the holder of the Warrants will have no future rights to exercise such
Warrants.
RIGHTS AGREEMENT
The Board of Directors currently expects to adopt a rights agreement (the
"Rights Agreement") to be effective simultaneously with or shortly after the
consummation of the Offerings. Pursuant to the Rights Agreement, the Board of
Directors will declare a dividend of one preferred stock purchase right (a
"Right") for each outstanding share of Common Stock. Each Right will entitle
the registered holder to purchase from the Company one one-thousandth of a
share of a new series of junior participating preferred stock, par value $.001
per share (the "Junior Preferred Stock"), of the Company at a price to be
determined by the Board of Directors, per one one-thousandth of a share (the
"Purchase Price"), subject to adjustment. The description and terms of the
Rights will be set forth in a Rights Agreement between the Company and the
designated Rights Agent. The description set forth below is intended as a
summary only and is qualified in its entirety by reference to the form of the
Rights Agreement, a form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
The Rights will be attached to all certificates representing outstanding
shares of Common Stock, and no separate Right Certificates (as defined below)
will be distributed. The Rights will separate from the shares of Common Stock
on the earlier to occur of (i) a public announcement that, without the prior
consent of the Board of Directors of the Company, a person or group (an
"Acquiring Person"), including any affiliates or associates of such person or
group (other than Dancing Bear Investments, Michael S. Egan, Todd V.
Krizelman, Stephan J. Paternot or any entities controlled by such persons)
acquired beneficial ownership of securities having 15% or more of the voting
power of all outstanding voting securities of the Company (as defined below)
and; (ii) 10 business days (or such later date as the Board of Directors of
the Company may determine) following the commencement of, or announcement of
an intention (which intention remains in effect for five business days) to
make, a tender offer or exchange offer the consummation of which would result
in any person or group becoming an Acquiring Person (the earlier of such dates
being called the "Distribution Date"). The first date of public announcement
that a person or group has become an Acquiring Person is the "Stock
Acquisition Date."
The Rights Agreement will provide that, until the Distribution Date, the
Rights will be transferred with and only with the shares of Common Stock.
Until the Distribution Date (or earlier redemption or expiration of the
Rights), new Common Stock certificates issued upon transfer or new issuance of
shares 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
shares of Common Stock outstanding, even without such notation, will also
constitute the transfer of the Rights associated with the shares of Common
Stock represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the shares of Common
Stock as of the close of business on the Distribution Date (and to each
initial record holder of certain shares of Common Stock issued after the
Distribution Date), and such separate Right Certificates alone will evidence
the Rights.
The Rights will not be exercisable until the Distribution Date and will
expire at 5:00 P.M., New York, New York time, on the tenth anniversary of the
date of issuance, unless earlier redeemed by the Company as described below.
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In the event that any person becomes an Acquiring Person (except pursuant to
a Permitted Offer as defined below), each holder of a Right will have (subject
to the terms of the Rights Agreement) the right (the "Flip-In Right") to
receive upon exercise the number of shares of Common Stock, or, in the
discretion of the Board of Directors of the Company, the number of one-
thousandths of a share of Junior Preferred Stock (or, in certain
circumstances, other securities of the Company) having a value (immediately
prior to such triggering event) equal to two times the Purchase Price.
Notwithstanding the foregoing, following the occurrence of the event described
above, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person or any
affiliate or associate thereof will be null and void. A "Permitted Offer" is a
tender or exchange offer for all outstanding shares of Common Stock which is
at a price and on terms determined, prior to the purchase of shares under such
tender or exchange offer, by a majority of Disinterested Directors (as defined
below) to be adequate (taking into account all factors that such Disinterested
Directors deem relevant) and otherwise in the best interests of the Company
and its stockholders (other than the person or any affiliate or associate
thereof on whose behalf the offer is being made) taking into account all
factors that such Disinterested Directors may deem relevant. "Disinterested
Directors" are directors of the Company who are not officers of the Company
and who are not Acquiring Persons or affiliates or associates thereof, or
representatives of any of them.
In the event that, at any time following the Stock Acquisition Date, (i) the
Company is acquired in a merger or other business combination transaction in
which the holders of all of the outstanding shares of Common Stock immediately
prior to the consummation of the transaction are not the holders of all of the
surviving corporation's voting power, or (ii) more than 50% of the Company's
assets or earning power is sold or transferred, in either case with or to an
Interested Stockholder, or, if in such transaction all holders of shares of
Common Stock are not offered the same consideration, any other person, then
each holder of a Right (except Rights which previously have been voided as set
forth above) shall thereafter have the right (the "Flip-Over Right") to
receive, upon exercise, shares of common stock of the acquiring company having
a value equal to two times the Purchase Price. The holder of a Right will
continue to have the Flip-Over Right whether or not such holder exercises or
surrenders the Flip-In Right.
The Purchase Price payable, and the number of one-thousandths of a share of
Junior Preferred Stock or other securities 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 shares of Junior Preferred Stock, (ii) upon the grant
to holders of the shares of Junior Preferred Stock of certain rights or
warrants to subscribe for or purchase shares of Junior Preferred Stock at a
price, or securities convertible into shares of Junior Preferred Stock with a
conversion price, less than the then current market price of the shares of
Junior Preferred Stock or (iii) upon the distribution to holders of the shares
of Junior Preferred Stock of evidences of indebtedness or assets (excluding
regular quarterly cash dividends) or of subscription rights or warrants (other
than those referred to above).
The Purchase Price payable, and the number of one-thousandths of a share of
Junior Preferred Stock or other securities issuable, upon exercise of the
Rights are also subject to adjustment in the event of a stock split of the
shares of Common Stock, or a stock dividend on the shares of Common Stock
payable in shares of Common Stock, or subdivisions, consolidations or
combinations of the shares of Common Stock occurring, in any such case, prior
to the Distribution Date.
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 one-thousandths of a share of Junior
Preferred Stock will be issued and, in lieu thereof, an adjustment in cash
will be made based on the market price of the shares of Junior Preferred Stock
on the last trading day prior to the date of exercise.
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights, the Company may redeem
the Rights in whole, but not in part, at a price of $.001 per Right (the
"Redemption Price"), which redemption shall be effective upon the action of
the Board of Directors of the Company. Additionally, the Company may redeem
the then outstanding Rights in whole, but not in part, at the
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Redemption Price (i) after the triggering of the Flip-In Right and before the
expiration of any period during which the Flip-In Right may be exercised in
connection with a merger or other business combination transaction or series
of transactions involving the Company in which all holders of shares of Common
Stock are not offered the same consideration but not involving an Interested
Stockholder (as defined in the Rights Agreement), (ii) following an event
giving rise to, and the expiration of the exercise period for, the Flip-in
Right if and for as long as no person beneficially owns securities
representing 15% or more of the voting power of the Company's voting
securities or (iii) if the Acquiring Person reduces his ownership below 5% in
transactions not involving the Company. The redemption of Rights described in
the preceding sentence shall be effective only as of such time when the Flip-
in Right is not exercisable, and in any event, only after 10 business days'
prior notice. Upon the effective date of the 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 shares of Junior Preferred Stock purchasable upon exercise of the Rights
will be non-redeemable and junior to any other series of preferred stock the
Company may issue (unless otherwise provided in the terms of such stock). Each
share of Junior Preferred Stock will have a preferential quarterly dividend in
an amount equal to 1,000 times the dividend declared on each share of Common
Stock, but in no event less than $1. In the event of liquidation, the holders
of Junior Preferred Stock will receive a minimum preferred liquidation payment
equal to the greater of $1 or 1,000 times the payment made per each share of
Common Stock. Each share of Junior Preferred Stock will have 1,000 votes,
voting together with the shares of Common Stock. In the event of any merger,
consolidation or other transaction in which shares of Common Stock are
exchanged, each share of Junior Preferred Stock will be entitled to receive
1,000 times the amount and type of consideration received per share of Common
Stock. The rights of the Junior Preferred Stock as to dividends, liquidation
and voting, and in the event of mergers and consolidations, are protected by
customary anti-dilution provisions. Fractional shares of Junior Preferred
Stock will be issuable; however, the Company may elect to distribute
depositary receipts in lieu of such fractional shares. In lieu of fractional
shares other than fractions that are multiples of one one-thousandth of a
share, an adjustment in cash will be made based on the market price of the
Junior Preferred Stock on the last trading date prior to the date of exercise.
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. While the distribution of the Rights will not be
taxable to stockholders of the Company, stockholders may, depending upon the
circumstances, recognize taxable income should the Rights become exercisable
or upon the occurrence of certain events thereafter.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group of persons that attempts to acquire
the Company on terms not approved by the Board of Directors. The Rights should
not interfere with any merger or other business combination approved by the
Board of Directors prior to the time that a person or group has acquired
beneficial ownership of 15% or more of the Common Stock since the Rights may
be redeemed by the Company at the Redemption Price until such time.
"Interested Stockholder" means any Acquiring Person or any of their
affiliates or associates, or any other person in which an Acquiring Person or
their affiliates or associates have in excess of 5% of the total combined
economic or voting power, or any person acting in concert or on behalf of any
such Acquiring Person or their affiliates or associates.
REGISTRATION RIGHTS
Pursuant to the terms of the Investor Rights Agreement, dated as of August
13, 1997 (the "Investor Rights Agreement"), among the Company and the holders
of the Series B, Series C, Series D and Series E Preferred Stock, at any time
following the Offerings, holders of 25% of all of the Common Stock converted
from Series B, Series C, Series D or Series E Preferred Stock, or issued as a
dividend or distribution for the above-mentioned Preferred Stock (the
"Registrable Securities"), or 50% of the Registrable Securities issued or
issuable in respect of the Series B and Series C Preferred Stock have the
right to require the Company to file a registration statement covering all or
part of their shares up to four times at the Company's expense. Holders of
4,890,740 shares of
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Common Stock (after giving effect to the conversion which will occur upon
consummation of the Offerings) have registration rights under the Investor
Rights Agreement. The Company will not be obligated to register such shares if
such holders propose to sell such securities at an aggregate price to the
public of less than $5 million. The Company may defer registration for not
more than 120 days if the Board of Directors determines that it would be
seriously detrimental to the Company and its stockholders to register the
Registrable Securities at such time. An underwriter participating in the sale
of the Registrable Securities may limit the number of shares of Registrable
Securities offered, and such number shall be allocated to the holders of such
securities on a pro rata basis. The Company is not required to effect more
than one demand registration on behalf of such holders in any 12 calendar
month period. The Company is not required in most cases to pay the
registration expenses for any such demand registration that is subsequently
withdrawn by the requesting Holders.
Holders of Registrable Securities have the right to include all or part of
their Registrable Securities in a registration statement filed by the Company
for purposes of a public offering (Piggyback Registration). The holders of a
majority of Registrable Securities have amended the Investor Rights Agreement
to waive any registration rights in connection with the Offerings. An
underwriter participating in such Offerings may limit the number of shares
offered, and such number shall be allocated first to the Company, then to such
holders on a pro rata basis, then to any stockholder on a pro rata basis. The
Company has the right to terminate or withdraw any such registration and shall
bear the expenses of any such withdrawn registration. The Company is not
obligated further after it has effected five such registrations for any such
holders.
Pursuant to the Investor Rights Agreement, holders of Registrable Securities
have agreed with the Company to be subject to lock-up periods of not more than
seven days prior to and 180 days following the date of this Prospectus and of
not more than seven days prior to and 90 days following the effective date of
any subsequent prospectus. All registration rights terminate three years after
the date of this Prospectus. Any right described in this section may be
amended and waived by written consent of the Company and the holders of a
majority of the Registrable Securities.
Pursuant to the terms of a Registration Rights Agreement by and among
Dancing Bear Investments, certain holders of Series A Preferred Stock, Messrs.
Krizelman and Paternot and the Company, the Company has granted registration
rights to such persons similar to the rights granted pursuant to the Investor
Rights Agreement. As a result, virtually all of the Company's outstanding
Common Stock or Preferred Stock has registration rights.
LIMITATION OF DIRECTOR LIABILITY
The Certificate limits the liability of directors of the Company to the
Company and its stockholders to the fullest extent permitted by Delaware law.
Specifically, directors of the Company will not be personally liable for money
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law ("DGCL"), which concerns unlawful
payments of dividends, stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAWS PROVISIONS
Delaware Law. The Company is subject to the provisions of Section 203
("Section 203") of the DGCL. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns (or, in certain
cases, within three years prior, did own) 15% or more of the corporation's
voting stock. Under Section 203, a business combination between the Company
and an interested stockholder is prohibited unless it satisfies one of the
following conditions: (i) the Company's Board of Directors must have
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previously approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder, or (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the Company outstanding at the time the transaction commenced
(excluding, for purposes of determining the number of shares outstanding,
shares owned by (a) persons who are directors and also officers and (b)
employee stock plans, in certain instances) or (iii) the business combination
is approved by the Board of Directors and authorized at an annual or special
meeting of the stockholders by the affirmative vote of the holders of at least
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder.
Special Meetings. The By-Laws provide that special meetings of stockholders
for any purpose or purposes can be called only upon the request of the
Chairman of the Board, the President, the Board of Directors, or the holders
of shares entitled to at least a majority of the votes at the meeting.
Amendment of Company By-Laws. In order to adopt, repeal, alter or amend the
provisions set forth therein, the By-Laws require either the affirmative vote
of the holders of at least a majority of the voting power of all of the issued
and outstanding shares of capital stock of the Corporation entitled to vote
thereon or by the Board of Directors.
Advance Notice Provisions for Stockholder Nominations and Proposals. The By-
Laws establish advance notice procedures for stockholders to make nominations
of candidates for election as directors, or bring other business before an
annual meeting of stockholders of the Company.
These procedures provide that only persons who are nominated by or at the
direction of the Board of Directors, or by a stockholder who has given timely
written notice to the Secretary of the Company prior to the meeting at which
directors are to be elected, will be eligible for election as directors of the
Company. Further, these procedures provide that at an annual meeting, only
such business may be conducted as has been specified in the notice of the
meeting given by, or at the direction of, the Board or by a stockholder who
has given timely written notice to the Secretary of the Company of such
stockholder's intention to bring such business before such meeting.
Under these procedures, notice of stockholder nominations to be made or
business to be conducted at an annual meeting must be received by the Company
not less than 60 days nor more than 90 days prior to the date of the meeting
(or, if less than 70 days' notice or prior public disclosure of the date of
the meeting is given or made to the stockholders, the 10th day following the
earlier of (i) the day such notice was mailed or (ii) the day such public
disclosure was made). Under these procedures, notice of a stockholder
nomination to be made at a special meeting at which directors are to be
elected must be received by the Company not later than the close of business
on the tenth day following the day on which such notice of the date of the
special meeting was mailed or public disclosure of the date of the special
meeting was made, whichever occurs first.
Under the By-Laws, a stockholder's notice nominating a person for election
as a director must contain certain information about the proposed nominee and
the nominating stockholder. If the Chairman determines that a nomination was
not made in accordance with the By-Laws, such nomination will be disregarded.
Similarly, a stockholder's notice proposing the conduct of business must
contain certain information about such business and about the proposing
stockholder. If the Chairman determines that business was not properly brought
before the meeting in accordance with the By-Laws, such business will not be
conducted.
By requiring advance notice of nominations by stockholders, the By-Laws
afford the Board an opportunity to consider the qualifications of the proposed
nominee and, to the extent deemed necessary or desirable by the Board, to
inform stockholders about such qualifications. By requiring advance notice of
other proposed business, the By-Laws also provide an orderly procedure for
conducting annual meetings of stockholders and, to the extent deemed necessary
or desirable by the Board, provides the Board with an opportunity to inform
stockholders, prior to such meetings, of any business proposed to be conducted
at such meetings, together with any
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recommendations as to the Board's position regarding action to be taken with
respect to such business, so that stockholders can better decide whether to
attend such a meeting or to grant a proxy regarding the disposition of any
such business.
Although the Certificate does not give the Board any power to approve or
disapprove stockholder nominations of the election of directors or proposals
for action, the foregoing provisions may have the effect of precluding a
contest for the election of directors or the consideration of stockholder
proposals if the proper procedures are not followed, and of discouraging or
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its own proposal, without regard to
whether consideration of such nominees or proposals might be harmful or
beneficial to the Company and its stockholders.
WRITTEN CONSENT PROVISIONS
The By-Laws provide that any action required or permitted to be taken by the
holders of capital stock at any meeting of stockholders of the Company may be
taken without a meeting only by the holders of outstanding capital stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no public market for the Common
Stock. No information is currently available and no prediction can be made as
to the timing or amount of future sales of shares, or the effect, if any, that
future sales of shares, or the availability of shares for future sale, will
have on the market price of the Common Stock prevailing from time to time.
Sales of substantial amounts of the Common Stock (including shares issuable
upon the exercise of stock options) in the public market after the lapse of
the restrictions described below, or the perception that such sales may occur,
could materially adversely affect the prevailing market prices for the Common
Stock and the ability of the Company to raise equity capital in the future.
See "Risk Factors--Shares Eligible for Future Sale; No Prior Trading Market;
Registration Rights."
Upon consummation of the Offerings, the Company will have 9,791,339
outstanding shares of Common Stock (10,193,839 if the Underwriters' over-
allotment option is exercised in full), and 822,650 and 693,771 shares of
Common Stock subject to options granted under the Company's 1998 Stock Option
Plan and 1995 Stock Option Plan, respectively. See "Management--Executive
Compensation." In addition, upon consummation of the Offerings, 2,023,009
shares of Common Stock will be issuable upon exercise of outstanding Warrants.
Of the outstanding shares, the 3,100,000 shares of Common Stock being sold in
the Offerings (3,502,500 if the Underwriters' over-allotment option is
exercised in full) will be immediately eligible for sale in the public market
without restriction or further registration under the Securities Act, unless
purchased by or issued to any "affiliate" of the Company, as that term is
defined in Rule 144, described below. All of the shares of Common Stock
outstanding prior to the Offerings are "restricted securities" as such term is
defined under Rule 144, in that such shares were issued in private
transactions not involving a public offering and may not be sold in the
absence of registration other than in accordance with Rule 144, 144(k) or 701
promulgated under the Securities Act or another exemption from registration.
In general, under Rule 144 as currently in effect, any affiliate of the
Company or any person (or persons whose shares are aggregated in accordance
with Rule 144) who has beneficially owned shares of Common Stock which are
treated as Restricted Securities 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 outstanding shares of Common Stock (approximately 97,913
shares based upon the number of shares outstanding after the Offerings) or the
reported average weekly trading volume in the Common Stock during the four
weeks preceding the date on which notice of such sale was filed under Rule
144. Sales under Rule 144 are also subject to certain manner of sale
restrictions and notice requirements and to the availability of current public
information concerning the Company. In addition, affiliates of the Company
must comply with the restrictions and requirements of Rule 144 (other than the
one-year holding period requirements) in order to sell shares of Common Stock
that are not Restricted Securities (such as Common Stock acquired by
affiliates in market transactions). Furthermore, if a period of at least two
years has elapsed from the date Restricted Securities were acquired from the
Company or an affiliate of the Company, a holder of such Restricted Securities
who is not an affiliate at the time of the sale and who has not been an
affiliate for at least three months prior to such sale would be entitled to
sell the shares immediately without regard to the volume, manner of sale,
notice and public information requirements of Rule 144.
Holders of virtually all of the Company's outstanding Common Stock and all
of the Company's outstanding preferred equity will have certain demand
registration rights with respect to the shares of Common Stock into which
their securities are convertible (subject to the 180-day lock-up arrangement
described below), under certain circumstances and subject to certain
conditions, to require the Company to register their shares of Common Stock
under the Securities Act, and certain rights to participate in any future
registration of securities by the Company. The Company is not required to
effect more than one demand registration on behalf of such holders in any
twelve calendar month period. Pursuant to the agreements pursuant to which the
registration rights were granted, holders of Registrable Securities have
agreed to be subject to lock-up periods of not more than seven days prior to
and 180 days following the date of this Prospectus and of not more than seven
days prior to and 90 days following the effective date of any subsequent
Prospectus. The Company intends to file a registration statement on Form S-8
for the shares held pursuant to its option plans that may make those shares
freely tradeable. Such registration statement will become effective
immediately upon filing and, shares covered by that
72
<PAGE>
registration statement will thereupon be eligible for sale in the public
markets, subject to the applicable lock-up agreements and Rule 144 limitations
applicable to affiliates. See "Description of Capital Stock--Registration
Rights."
The Company and its executive officers, directors and certain of its current
stockholders have agreed that, subject to certain exceptions, for a period of
180 days after the date of this Prospectus, without the prior written consent
of Bear, Stearns & Co. Inc., they will not, directly or indirectly, issue,
sell, offer or agree to sell, grant any option for the sale of, pledge, make
any short sale, establish an open "put equivalent position" within the meaning
of Rule 16a-1(h) under the Exchange Act or otherwise dispose of any shares of
Common Stock (or securities convertible into, exercisable for or exchangeable
for Common Stock) of the Company or of any of its subsidiaries. The foregoing
sentence shall not apply to (A) in the case of the Company, the shares of
Common Stock to be sold hereunder, (B) the issuance of any shares of Common
Stock upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof and referred to in this Prospectus,
(C) in the case of the Company any shares of Common Stock issued or options to
purchase Common Stock granted pursuant to existing employee benefit plans of
the Company referred to in this Prospectus, (D) the pledge by certain
directors of the Company and Dancing Bear Investments or its affiliates of
shares of Common Stock to a financial institution in connection with a bona
fide financing transaction, (E) transfers of shares of Common Stock to
immediate family members or trusts for the benefit of such family members (a
"Family Transferee"); provided such transferee enters into a similar lock-up
agreement, (F) the transfer of all or part of any Warrants held by Dancing
Bear Investments on the date hereof to any employee of Dancing Bear
Investments, any employee of the Company, Michael S. Egan or a Family
Transferee of Michael S. Egan, provided that each transferee shall have
executed a similar lock-up agreement, or (G) shares of Common Stock issued in
connection with a merger, recapitalization or consolidation of the Company.
73
<PAGE>
UNDERWRITING
The underwriters of the Offerings named below (the "Underwriters"), for whom
Bear, Stearns & Co. Inc. and Volpe Brown Whelan & Company, LLC are acting as
representatives, have severally agreed with the Company, subject to the terms
and conditions of the Underwriting Agreement (the form of which has been filed
as an exhibit to the Registration Statement on Form S-1 of which this
Prospectus is a part), to purchase from the Company the aggregate number of
shares set forth opposite their respective names below at the initial public
offering price less the underwriting discounts and commissions set forth on
the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Bear, Stearns & Co. Inc............................................
Volpe Brown Whelan & Company, LLC..................................
---
Total............................................................
===
</TABLE>
The nature of the respective obligations of the Underwriters is such that
all of the shares of Common Stock must be purchased if any are purchased.
Those obligations are subject, however, to various conditions, including the
approval of certain matters by counsel. The Company has agreed to indemnify
the Underwriters against certain liabilities, including liabilities under the
Securities Act, and, where such indemnification is unavailable, to contribute
to payments that the Underwriters may be required to make in respect of such
liabilities.
The Company has been advised that the Underwriters propose to offer the
shares of Common Stock, initially at the initial public offering price set
forth on the cover page of this Prospectus and to certain selected dealers at
such price less a concession not to exceed $ per share; that the
Underwriters may allow, and such selected dealers may reallow, a concession to
certain other dealers not to exceed $ per share; and that after the
commencement of the Offerings, the public offering price and the concessions
may be changed.
The Company has granted the Underwriters an option to purchase in the
aggregate up to 402,500 additional shares of Common Stock solely to cover
over-allotments, if any. The option may be exercised in whole or in part at
any time within 30 days after the date of this Prospectus. To the extent the
option is exercised, the Underwriters will be severally committed, subject to
certain conditions, including the approval of certain matters by counsel, to
purchase the additional shares of Common Stock in proportion to their
respective purchase commitments as indicated in the preceding table.
The Underwriters have reserved for sale at the initial public offering price
up to 5% of the shares of Common Stock to be sold in the Initial Public
Offering for sale to employees of the Company and its affiliates, and to their
associates and related persons. The number of shares available for sale to the
general public will be reduced to the extent any reserved shares are
purchased. Any reserved shares not so purchased will be offered by the
Underwriters on the same basis as the other shares offered hereby. The
Underwriters do not expect sales of Common Stock to any accounts over which
they exercise discretionary authority to exceed 5% of the number of shares
being offered hereby.
The Company and its executive officers, directors and certain of its current
stockholders have agreed that, subject to certain exceptions, for a period of
180 days after the date of this Prospectus, without the prior written consent
of Bear, Stearns & Co. Inc., they will not, directly or indirectly, issue,
sell, offer or agree to sell, grant any option for the sale of, pledge, make
any short sale, establish an open "put equivalent position" within the meaning
of Rule 16a-1(h) under the Exchange Act or otherwise dispose of any shares of
Common Stock (or securities convertible into, exercisable for or exchangeable
for Common Stock) of the Company or of any of its subsidiaries.
Prior to the Offerings, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined
through negotiations among the Company and representatives of the
74
<PAGE>
Underwriters. Among the factors to be considered in making such determination
will be the Company's financial and operating history and condition, its
prospects and prospects for the industry in which it does business in general,
the management of the Company, prevailing equity market conditions and the
demand for securities considered comparable to those of the Company.
The consummation of the Concurrent Offering and the Initial Public Offering
are contingent upon one another. The price of the shares to be sold to the
Concurrent Purchasers in the Concurrent Offering is equal to the initial
public offering price. See "Concurrent Offering." In connection with the
Concurrent Offering, the Placement Agents will be paid a fee of $ per share
for each share sold in the Concurrent Offering in consideration for the
provision of certain advisory services and for acting as the Company's
Placement Agents. The Placement Agents will be indemnified by the Company
against certain liabilities, including liabilities under the Securities Act.
In order to facilitate the Offerings, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise
affect the price of the Common Stock during and after the Offerings.
Specifically, the Underwriters may over-allot or otherwise create a short
position in the Common Stock for their own account by selling more shares than
have been sold to them by the Company. The Underwriters may elect to cover any
such short position by purchasing shares in the open market or by exercising
the over-allotment options granted to the Underwriters. In addition, such
persons may stabilize or maintain the price of the Common Stock by bidding for
or purchasing shares in the open market and may impose penalty bids, under
which selling concessions allowed to syndicate members or other broker-dealers
participating in the Offerings are reclaimed if shares previously distributed
in the Offerings are repurchased in connection with stabilization transactions
or otherwise. The effect of these transactions may be to stabilize or maintain
the market price of the Common Stock at a level above that which might
otherwise prevail in the open market. The imposition of a penalty bid may also
affect the price of the Common Stock to the extent that it discourages resales
thereof. No representation is made as to the magnitude or effect of any such
stabilization or other transactions. Such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations), New York, New York. Certain
legal matters in connection with the Offerings will be passed upon for the
Underwriters by Morrison & Foerster LLP, New York, New York.
EXPERTS
The financial statements for theglobe.com, inc. as of December 31, 1996 and
1997 and for the period from May 1, 1995 (inception) to December 31, 1995 and
the years ended December 31, 1996 and 1997 included in this Prospectus and
elsewhere in the Registration Statement have been so included in reliance on
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, upon the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement (which term
shall encompass any and all amendments thereto) on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the Common Stock offered
hereby. This Prospectus, which is part of the Registration Statement, does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain items of which are omitted in
accordance with the rules and regulations of the SEC. Statements made in this
Prospectus
75
<PAGE>
as to the contents of any contract, agreement or other document referred to
are not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
hereby made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. For further information with respect to the Company, reference
is hereby made to the Registration Statement and such exhibits and schedules
filed as a part thereof, which may be inspected, without charge, at the Public
Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at regional offices of the SEC located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Information relating to the operation of the Public Reference Section may be
obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a Web site
that contains reports, proxy and information statements regarding registrants
that file electronically with the SEC. The address of this Web site is
(http://www.sec.gov). Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the SEC, upon
payment of the prescribed fees.
76
<PAGE>
THEGLOBE.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheets as of December 31, 1996 and 1997 and June 30, 1998
(unaudited).............................................................. F-3
Statements of Operations for the period from May 1, 1995 (inception) to
December 31, 1995 and for the years ended December 31, 1996 and 1997 and
for the six months ended June 30, 1997 (unaudited) and 1998 (unaudited).. F-4
Statements of Stockholders' Equity for the period from May 1, 1995
(inception) to December 31, 1995 and for the years ended December 31,
1996 and 1997 and for the six months ended June 30, 1998 (unaudited)..... F-5
Statements of Cash Flows for the period from May 1, 1995 (inception) to
December 31, 1995 and for the years ended December 31, 1996 and 1997 and
for the six months ended June 30, 1997 (unaudited) and 1998 (unaudited).. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
theglobe.com, inc.:
We have audited the accompanying balance sheets of theglobe.com, inc. as of
December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity and cash flows for the period from May 1, 1995
(inception) to December 31, 1995 and for the years ended December 31, 1996 and
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of theglobe.com, inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for the period from May 1, 1995 (inception) to December 31, 1995 and for
the years ended December 31, 1996 and 1997 in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
April 16, 1998, except for note 9,
which is as of July 22, 1998
F-2
<PAGE>
THEGLOBE.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 757,118 $ 5,871,291 $ 2,997,391
Short-term investments................. -- 13,003,173 10,157,830
Accounts receivable, less allowance for
doubtful accounts of $12,000 and
$27,868 in 1997 and 1998,
respectively.......................... 66,128 254,209 624,191
Prepaids and other current assets...... 2,377 -- 75,847
---------- ----------- -----------
Total current assets................. 825,623 19,128,673 13,855,259
Property and equipment, net.............. 136,780 325,842 1,173,582
Other assets............................. 10,945 7,657 574,239
---------- ----------- -----------
Total assets......................... $ 973,348 $19,462,172 $15,603,080
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 130,478 $ 396,380 $ 2,029,901
Accrued expense........................ 15,234 325,454 834,959
Accrued bonuses........................ -- 1,148,999 150,000
Deferred revenue....................... 32,144 113,290 132,353
Current installments of obligations
under capital leases.................. -- 27,174 255,962
---------- ----------- -----------
Total current liabilities............ 177,856 2,011,297 3,403,175
Obligations under capital leases,
excluding current installments.......... -- 98,826 629,281
Stockholders' equity:
Preferred Stock, 3,000,000 shares
authorized:
Convertible preferred stock, Series A
through E, $0.001 par value; 2,900,001
shares authorized; 1,379,970,
1,449,995.5 and 1,449,995.5, shares
issued and outstanding at December 31,
1996 and 1997, and as of June 30,
1998, respectively; aggregate
liquidation preference of $1,606,110,
$21,886,110 and $21,886,110 at
December 31, 1996 and 1997, and as of
June 30, 1998, respectively........... 1,380 1,450 1,450
Common stock, $0.001 par value;
100,000,000 shares authorized;
1,125,000, 1,154,271 and 1,196,979
shares issued and outstanding at
December 31, 1996 and 1997, and as of
June 30, 1998, respectively........... 1,125 1,154 1,197
Additional paid-in capital............. 1,629,926 21,866,965 21,875,094
Net unrealized loss on securities...... -- (41,201) (29,647)
Deferred compensation.................. (21,053) (76,033) (52,914)
Accumulated deficit.................... (815,886) (4,400,286) (10,224,556)
---------- ----------- -----------
Total stockholders' equity........... 795,492 17,352,049 11,570,624
Commitments..............................
---------- ----------- -----------
Total liabilities and stockholders'
equity.............................. $ 973,348 $19,462,172 $15,603,080
========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
THEGLOBE.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995 YEAR ENDED SIX MONTHS ENDED
(INCEPTION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, ---------------------- ----------------------
1995 1996 1997 1997 1998
-------------- --------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 26,815 $ 229,363 $ 770,293 $ 208,241 $ 1,173,398
Cost of revenues........ 12,779 116,780 423,706 106,032 503,181
--------- --------- ----------- --------- -----------
Gross profit........ 14,036 112,583 346,587 102,209 670,217
Operating expenses:
Sales and marketing... 1,248 275,947 1,248,349 224,170 4,493,039
Product development... 60,000 120,000 153,667 62,500 250,869
General and
administrative....... 18,380 489,073 2,827,591 594,358 2,396,716
--------- --------- ----------- --------- -----------
Loss from
operations......... (65,592) (772,437) (3,883,020) (778,819) (6,470,407)
--------- --------- ----------- --------- -----------
Other income (expense):
Interest and dividend
income............... 980 25,966 334,720 11,384 703,097
Interest expense...... (1,094) (3,709) -- -- (30,460)
--------- --------- ----------- --------- -----------
Total interest
income (expense),
net................ (114) 22,257 334,720 11,384 672,637
--------- --------- ----------- --------- -----------
Loss before
provision for
income taxes....... (65,706) (750,180) (3,548,300) (767,435) (5,797,770)
--------- --------- ----------- --------- -----------
Provision for income
taxes.................. -- -- 36,100 -- 26,500
--------- --------- ----------- --------- -----------
Net loss............ $ (65,706) $(750,180) $(3,584,400) $(767,435) $(5,824,270)
========= ========= =========== ========= ===========
Basic and diluted net
loss per share......... $ (0.06) $ (0.67) $ (3.13) $ (0.67) $ (5.01)
========= ========= =========== ========= ===========
Weighted average basic
and diluted shares
outstanding............ 1,125,000 1,125,000 1,146,773 1,140,960 1,161,389
========= ========= =========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
THEGLOBE.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE NET
PREFERRED COMMON UNREALIZED
STOCK STOCK ADDITIONAL GAIN (LOSS) TOTAL
------------------ ----------------- PAID-IN ON SALE OF DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES COMPENSATION DEFICIT EQUITY
----------- ------ --------- ------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common shares
to founders.... -- $ -- 1,125,000 $ 1,125 $ 3,555 $ -- $ -- $ -- $ 4,680
Issuance of
Series A
convertible
preferred
stock.......... 356,490 356 -- -- 66,644 -- -- -- 67,000
Promissory notes
converted to
Series A
convertible
preferred
stock.......... 226,505 227 -- -- 46,011 -- -- -- 46,238
Issuance of
Series B
convertible
preferred
stock.......... 551,915 552 -- -- 578,953 -- -- -- 579,505
Net loss for the
period from May
1, 1995
(inception) to
December 31,
1995........... -- -- -- -- -- -- -- (65,706) (65,706)
----------- ------ --------- ------- ----------- -------- -------- ------------- ------------
Balance as of
December 31,
1995........... 1,134,910 1,135 1,125,000 1,125 695,163 -- -- (65,706) 631,717
Issuance of
Series B
convertible
preferred
stock.......... 23,810 24 -- -- 24,961 -- -- -- 24,985
Issuance of
Series C
convertible
preferred
stock.......... 221,250 221 -- -- 884,749 -- -- -- 884,970
Deferred
compensation... -- -- -- -- 25,053 -- (25,053) -- --
Amortization of
deferred
compensation... -- -- -- -- -- -- 4,000 -- 4,000
Net loss........ -- -- -- -- -- -- -- (750,180) (750,180)
----------- ------ --------- ------- ----------- -------- -------- ------------- ------------
Balance at
December 31,
1996........... 1,379,970 1,380 1,125,000 1,125 1,629,926 -- (21,053) (815,886) 795,492
Issuance of
Series C
convertible
preferred
stock.......... 70,000 70 -- -- 279,930 -- -- -- 280,000
Exercise of
stock options.. -- -- 29,271 29 4,478 -- -- -- 4,507
Issuance of
Series D
convertible
preferred
stock, net of
expense of
$130,464....... 25.5 -- -- -- 19,869,536 -- -- -- 19,869,536
Net unrealized
loss on
securities..... -- -- -- -- -- (41,201) -- -- (41,201)
Deferred
compensation... -- -- -- -- 83,095 -- (83,095) -- --
Amortization of
deferred
compensation... -- -- -- -- -- -- 28,115 -- 28,115
Net loss........ -- -- -- -- -- -- -- (3,584,400) (3,584,400)
----------- ------ --------- ------- ----------- -------- -------- ------------- ------------
Balance at
December 31,
1997........... 1,449,995.5 1,450 1,154,271 1,154 21,866,965 (41,201) (76,033) (4,400,286) 17,352,049
Amortization of
deferred
compensation... -- -- -- -- -- -- 23,119 -- 23,119
Exercise of
stock options
(unaudited).... -- -- 42,708 43 8,129 -- -- -- 8,172
Net loss for the
period
(unaudited) -- -- -- -- -- -- -- (5,824,270) (5,824,270)
Change in net
unrealized gain
(loss) on
securities
(unaudited).... -- -- -- -- -- 11,554 -- -- 11,554
----------- ------ --------- ------- ----------- -------- -------- ------------- ------------
Balance at June
30, 1998
(unaudited).... 1,449,995.5 $1,450 1,196,979 $ 1,197 $21,875,094 $(29,647) $(52,914) $ (10,224,556) $ 11,570,624
=========== ====== ========= ======= =========== ======== ======== ============= ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
THEGLOBE.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995 YEAR ENDED SIX MONTHS ENDED
(INCEPTION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, ----------------------- ----------------------
1995 1996 1997 1997 1998
-------------- --------- ------------ --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(65,706) $(750,180) $ (3,584,400) $(767,435) $(5,824,270)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 10,530 47,595 60,210 37,499 238,411
Non-cash related
interest............. 738
Deferred compensation
earned............... -- 4,000 28,115 14,057 23,119
Changes in operating
assets and
liabilities:
Accounts receivable,
net.................. (3,025) (63,103) (188,081) 23,212 (369,982)
Prepaids and other
current assets....... (16,440) (2,377) 2,377 2,377 (75,847)
Other assets.......... -- -- -- -- (568,226)
Accounts payable...... 9,794 120,684 265,902 57,706 1,633,521
Accrued expenses...... 5,599 9,635 310,220 192,532 509,505
Accrued bonuses....... -- -- 1,148,999 37,250 (998,999)
Deferred revenue...... -- 32,144 81,146 72,579 19,063
-------- --------- ------------ --------- -----------
Net cash used in
operating activities.. (58,510) (601,602) (1,875,512) (330,223) (5,413,705)
-------- --------- ------------ --------- -----------
Cash flows from
investing activities:
Purchase of
securities............ -- -- (13,044,374) -- (230,484)
Proceeds from sale of
securities............ -- -- -- -- 3,087,381
Purchases of property
and equipment......... (51,101) (138,309) (119,984) (229,696) (247,859)
-------- --------- ------------ --------- -----------
Net cash (used in)
provided by investing
activities........... (51,101) (138,309) (13,164,358) (229,696) 2,609,038
-------- --------- ------------ --------- -----------
Cash flows from
financing activities:
Payments under capital
lease obligations..... -- -- -- -- (77,405)
Proceeds from
convertible promissory
notes................. 45,500 -- -- -- --
Proceeds from exercise
of common stock
options............... -- -- 4,507 4,507 8,172
Proceeds from issuance
of common stock....... 4,680 -- -- -- --
Proceeds from issuance
of convertible
preferred Series A, B
and C stock........... 646,505 909,955 280,000 280,000 --
Proceeds from issuance
of convertible
preferred Series D
stock................. -- -- 20,000,000 -- --
Payment of financing
costs................. -- -- (130,464) (26,302) --
-------- --------- ------------ --------- -----------
Net cash provided by
(used in) financing
activities........... 696,685 909,955 20,154,043 258,205 (69,233)
-------- --------- ------------ --------- -----------
Net change in cash and
cash equivalents..... 587,074 170,044 5,114,173 (301,714) (2,873,900)
Cash and cash
equivalents at
beginning of period.... -- 587,074 757,118 757,118 5,871,291
-------- --------- ------------ --------- -----------
Cash and cash
equivalents at end of
period................. $587,074 $ 757,118 $ 5,871,291 $ 455,404 $ 2,997,391
======== ========= ============ ========= ===========
Supplemental disclosure
of cash flow
information:
Cash paid during the
period for:
Interest............... $ 1,094 $ 3,709 $ -- $ -- $ 30,460
======== ========= ============ ========= ===========
Income taxes........... $ -- -- -- -- 45,125
======== ========= ============ ========= ===========
Supplemental disclosure
of noncash
transactions:
Series A convertible
preferred stock issued
upon conversion of
promissory notes,
including accrued
interest of $738...... $ 46,238 $ -- $ -- $ -- $ --
======== ========= ============ ========= ===========
Equipment acquired
under capital leases.. $ -- $ -- $ 126,000 $ -- $ 836,648
======== ========= ============ ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
THEGLOBE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
theglobe.com, inc. (the "Company") was incorporated on May 1, 1995
(inception) and commenced operations on that date. theglobe.com is an online
community with members and users in the United States and abroad.
theglobe.com's users are able to personalize their online experience by
publishing their own content and interacting with others having similar
interests. The Company's primary revenue source is the sale of advertising,
with additional revenues generated through e-commerce arrangements and the
sale of membership subscriptions for enhanced services.
The Company's business is characterized by rapid technological change, new
product development and evolving industry standards. Inherent in the Company's
business are various risks and uncertainties, including its limited operating
history, unproven business model and the limited history of commerce on the
Internet. The Company's success may depend in part upon the emergence of the
Internet as a communications medium, prospective product development efforts
and the acceptance of the Company's solutions by the marketplace.
During August 1997, Dancing Bear Investments, Inc. invested $20,000,000 in
the Company in exchange for a 51% ownership interest in the Company on a fully
diluted basis, plus warrants (the "Dancing Bear Investment") (See Note 5).
(b) Initial Public Offerings
In June 1998, 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 addition to the IPO, the
Company will be offering shares in a concurrent offering (the "Concurrent
Offering") directly to certain investors at a price per share equal to the IPO
price per share (collectively referred to as the "Offerings"). The
consummation of the Concurrent Offering and the IPO are contingent upon each
other. In the event the Concurrent Offering is not consummated by the closing
date of the IPO, the Concurrent Offering will be terminated and all payments
received in connection with the Concurrent Offering will be promptly returned.
If the Concurrent Offering is not consummated for the proposed amount, the
shares of Common Stock not sold will not be offered to purchasers in the IPO.
The Company plans to offer 3,100,000 shares of Common Stock at an estimated
price of between $11 and $13 per share, of which 2,683,333 and 416,667 shares
of its Common Stock will be offered in its IPO and Concurrent Offering,
respectively, at an assumed offering price of $12 per share.
If the IPO is consummated under the terms presently anticipated, upon the
closing of the proposed Offerings all of the then outstanding shares of the
Company's Convertible Preferred Stock will automatically convert into shares
of common stock.
(c) Unaudited Interim Financial Information
The interim financial statements of the Company for the six months ended
June 30, 1997 and 1998, included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the SEC. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations relating to
interim financial statements.
In the opinion of management, the accompanying unaudited interim financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of
F-7
<PAGE>
THEGLOBE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
the Company at June 30, 1997 and 1998, and the results of its operations and
its cash flows for the six months ended June 30, 1997 and 1998.
(d) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
(e) Cash and Cash Equivalents
The Company considers all highly liquid securities with original maturities
of three months or less to be cash equivalents. Cash equivalents at
December 31, 1996 and 1997 were approximately $752,000 and $3,997,000,
respectively, and $2,994,000 as of June 30, 1998, which consisted of
certificates of deposit.
(f) Short-term Investments
Short-term investments are classified as available-for-sale and are
available to support current operations or to take advantage of other
investment opportunities. The majority of these investments are corporate
bonds, which are stated at their estimated fair value based upon publicly
available market quotes. Unrealized gains and losses are computed on the basis
of specific identification and are included in stockholders equity. Realized
gains, realized losses and declines in value, judged to be other-than-
temporary, are included in income. The costs of securities sold are based on
the specific-identification method and interest earned is included in interest
income. As of December 31, 1997, the Company had gross unrealized losses of
$41,678 and gross unrealized gains of $477 from its short-term investments. As
of June 30, 1998 the Company had gross unrealized losses of $56,654 and gross
unrealized gains of $27,007.
(g) Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related
assets, generally ranging from three to five years. Equipment under capital
leases is stated at the present value of minimum lease payments and is
amortized using the straight-line method over the shorter of the lease term or
the estimated useful lives of the assets.
(h) Other Assets
At June 30, 1998, other assets included $568,226 of security deposits held
in an escrow account as collateral for certain capital lease equipment.
(i) Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. To
date, no such impairment has been recorded.
F-8
<PAGE>
THEGLOBE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(j) Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases for operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in results of operations in
the period that the tax change occurs. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized.
(k) Revenue Recognition
The Company's revenues are derived principally from the sale of banner
advertisements under short-term contracts. To date, the duration of the
Company's advertising commitments has generally averaged from one to two
months. Advertising revenues 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 the guarantee of a minimum number of
"impressions" or times that an advertisement appears in pages viewed by the
users of the Company's online properties.
The Company also derived revenues from its membership subscriptions which
are deferred and recognized ratably over the term of the subscription period,
which is generally up to one year. Subscription revenues accounted for 0%, 5%,
23%, 31% and 11% of revenues for the period from May 1, 1995 (inception) to
December 31, 1995, the years ended December 31, 1996 and 1997, and for the six
months ended June 30, 1997 and 1998, respectively.
The Company trades advertisements on its Web properties in exchange for
advertisements on the Internet sites of other companies. Barter revenues and
expenses are recorded at the fair market value of services provided or
received, whichever is more determinable in the circumstances. Revenue from
barter transactions is recognized as income when advertisements are delivered
on the Company's Web properties. Barter expense is recognized when the
Company's advertisements are run on other companies' Web sites, which is
typically in the same period when the barter revenue is recognized. Barter
revenues and expenses were approximately $-0-, $-0-, and $166,500 for the
period from May 1, 1995 (inception) to December 31, 1995 and for the years
ended December 31, 1996 and 1997, respectively, and $37,500 and $39,906 for
the six months ended June 30, 1997 and 1998, respectively.
(l) Product Development
Product development expenses include personnel costs associated with the
development, testing and upgrades to the Company's Web site and systems as
well as personnel costs related to its editorial content and community
management and support. Product development costs and enhancements to existing
products are charged to operations as incurred. Software development costs are
required to be capitalized when a product's technological feasibility has been
established by completion of a working model of the product which capitalized
asset would be fully expensed by the time when a product is available for
general release to customers. To date, completion of a working model of the
Company's products and general release have substantially coincided. As a
result, the Company has not capitalized any software development costs since
such costs have not been significant.
F-9
<PAGE>
THEGLOBE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(m) Advertising
Advertising costs are expensed as incurred. Advertising costs totaling
$1,248, $202,986 and $1,057,606 in 1995, 1996 and 1997, respectively, and
$183,413 and $4,000,047 for the six months ended June 30, 1997 and 1998,
respectively, are included in sales and marketing expenses in the Company's
statements of operations.
(n) Stock-Based Compensation
The Company accounts for stock-based compensation arrangements in accordance
with Statement of Financial Accounting Standard ("SFAS") No. 123, Accounting
for Stock-Based Compensation, which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date
of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of Accounting Principle Board ("APB") Opinion No. 25 and provide
pro forma net earnings disclosures for employee stock option grants if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
(o) Net Loss Per Common Share
The Company adopted SFAS No. 128, "Computation of Earnings Per Share,"
during the year ended December 31, 1997. In accordance with SFAS No. 128 and
the SEC Staff Accounting Bulletin No. 98, basic earnings per share are
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
Convertible Preferred Stock (using the if-converted method) and shares
issuable upon the exercise of stock options and warrants (using the Treasury
Stock method); common equivalent shares are excluded from the calculation if
their effect is anti-dilutive. Pursuant to SEC Staff Accounting Bulletin No.
98, common stock and convertible preferred stock issued for nominal
consideration, prior to the anticipated effective date of an IPO, are required
to be included in the calculation of basic and diluted net loss per share, as
if they were outstanding for all periods presented. To date, the Company has
not had any issuances or grants for nominal consideration.
Diluted loss per share has not been presented separately, as the outstanding
stock options, warrants and contingent stock purchase warrants are anti-
dilutive for each of the periods presented.
Anti-dilutive potential common shares outstanding were 1,309,910 for the
period ended December 31, 1995, 1,722,019 and 7,436,672 for the years ended
December 31, 1996 and 1997, respectively, and 2,082,699 and 7,414,964 for the
six-month periods ended June 30, 1997 and 1998.
(p) Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." This statement establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements.
Comprehensive income generally represents all changes in shareholders' equity
during the period except those resulting from investments by, or distributions
to, shareholders. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997 and requires restatement of earlier periods presented. For
the six months ended June 30, 1998 and the year ended December 31, 1997,
comprehensive net loss was approximately $11,600 lower and approximately
$41,200 higher, respectively, than the net loss reported in the Company's
statements of operations for the applicable periods, due to unrealized gains
or losses on securities classified as available-for-sale.
F-10
<PAGE>
THEGLOBE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
and Enterprise and Related Information." SFAS No. 131 establishes standards
for the way that a public enterprise reports information about operating
segments in annual financial statements, and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997 and requires statement of earlier periods
presented. The Company has determined that it does not have any separately
reporting 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 standards 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. This statement does not apply to the Company as the Company
currently does not have any derivative instruments or hedging activities.
(q) Stock Split
In May 1996, the Company authorized and implemented a ten-for-one common
stock split. In August 1997, the Company authorized and implemented an
additional ten-for-one preferred stock split. In September 1998, the Company
authorized a one-for-two reverse stock split of all common and preferred
stock. All share and per share information in the accompanying financial
statements has been retroactively restated to reflect the effect of the stock
splits and the reverse stock split.
(2) CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents, short-term investments
and trade accounts receivable. The Company maintains cash and cash equivalents
with various domestic financial institutions. The Company performs periodic
evaluations of the relative credit standing of these institutions. From time
to time, the Company's cash balances with any one financial institution may
exceed Federal Deposit Insurance Corporation insurance limits.
The Company's customers are concentrated in the United States. The Company
performs ongoing credit evaluations, generally does not require collateral and
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of customers, historical trends and other information; to
date, such losses have been within management's expectations.
For the period from May 1, 1995 (inception) to December 31, 1995, there were
no customers that accounted for over 10% of revenues generated by the Company,
or of accounts receivable at December 31, 1995.
For the year ended December 31, 1996, one customer accounted for
approximately 71% of total revenues generated by the Company and 90% of
accounts receivable at December 31, 1996.
For the year ended December 31, 1997, there was one customer that accounted
for 11% of revenues (excluding barter advertising revenues of $166,500)
generated by the Company. There were no customers that accounted for over 10%
of accounts receivable at December 31, 1997.
For the six months ended June 30, 1998, there were no customers that
accounted for over 10% of revenues generated by the Company, or of accounts
receivable at June 30, 1998.
F-11
<PAGE>
THEGLOBE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment, including assets
under capital leases of $-0-,
$126,000, and $962,648,
respectively......................... $181,557 $421,164 $1,500,187
Furniture and fixtures................ 7,853 14,230 19,714
-------- -------- ----------
189,410 435,394 1,519,901
Less accumulated depreciation and
amortization, including amounts
related to assets under capital
leases of $-0-, $-0- and $110,007,
respectively......................... 52,630 109,552 346,319
-------- -------- ----------
Total............................... $136,780 $325,842 $1,173,582
======== ======== ==========
</TABLE>
(4) INCOME TAXES
The Company did not incur any income taxes for the period from May 1, 1995
(inception) to December 31, 1995 and for the year ended December 31, 1996 as a
result of operating losses. Income taxes for the year ended December 31, 1997
are based solely on state and local taxes on business and investment capital.
The difference between the provision for income taxes computed at the
statutory rate and the reported amount of tax expense (benefit) attributable
to income before income taxes for the period from May 1, 1995 (inception) to
December 31, 1995 and for the year ended December 31, 1996 and 1997 are as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- -----------
<S> <C> <C> <C>
Tax expense at statutory rates........... $(22,340) $(257,781) $(1,218,695)
Increase (reduction) in income taxes
resulting from:
Valuation allowance adjustment......... 25,938 302,644 1,710,346
State and local income taxes, net of
Federal income tax benefit............ (3,660) (45,131) (458,817)
Other, net............................. 62 268 3,266
-------- --------- -----------
$ -- $ -- $ 36,100
======== ========= ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1997 are presented below.
<TABLE>
<CAPTION>
1996 1997
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 326,982 $ 2,018,635
Allowance for doubtful accounts.................... -- 5,520
Deferred compensation.............................. 1,600 14,773
--------- -----------
Total gross deferred tax assets.................. 328,582 2,038,928
Less valuation allowance............................. (328,582) (2,038,928)
--------- -----------
Net deferred tax assets.......................... $ -- $ --
========= ===========
</TABLE>
F-12
<PAGE>
THEGLOBE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
The valuation allowance for deferred tax assets as of January 1, 1996 and
1997 was $328,582 and $2,038,928 respectively. The net change in the total
valuation allowance for the years ended December 31, 1996 and 1997 was
$302,644 and $1,710,346, respectively. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary
differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income and tax planning strategies in making this
assessment.
At December 31, 1997, the Company had net operating loss carryforwards
available for federal and state income tax purposes of $4.4 million. These
carryforwards expire through 2012 for federal purposes and state purposes.
Under Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"), the utilization of net operating loss carryforwards may be limited
under the change in stock ownership rules of the Code. As a result of
ownership changes which occurred in August 1997, the Company's operating tax
loss carryforwards and tax credit carryforwards are subject to these
limitations.
(5) CAPITALIZATION
Authorized Shares
During 1997, the Company amended and restated its certificate of
incorporation. As a result, the total number of shares which the Company is
authorized to issue is 25,000,000 shares: 22,000,000 of these shares are
Common Stock, each having a par value of $0.001; and 3,000,000 shares are
Preferred Stock, each having a par value of $0.001. In July 1998, the
Company's stockholders approved the Fourth Amended and Restated Certificate of
Incorporation, which will be filed with the Delaware Secretary of State prior
to consummation of the Offerings, to increase the number of authorized shares
from 25,000,000 to 103,000,000 shares.
Common Stock
During 1995, the Company issued a total of 1,125,000 shares of Common Stock
to its founders in exchange for $4,680 in cash. During 1997, the Company
issued an additional 29,271 shares of Common Stock in connection with the
exercise of certain stock options.
Convertible Preferred Stock
As of December 31, 1997 and June 30, 1998, the Company had five series of
Convertible Preferred Stock (collectively "Preferred Stock") authorized and of
which only four of the series were outstanding. The holders of the various
series of Preferred Stock generally have the same rights and privileges. Each
class of the Company's Preferred Stock is convertible into Common Stock, as
defined below, and has rights and preferences which are generally more senior
to the Company's Common Stock and are more fully described in the Company's
amended and restated certificate of incorporation.
In 1995, the Company completed a private placement of 582,995 shares of
Series A Preferred Stock for an aggregate price of approximately $113,000.
Such consideration consisted of $67,000 in cash and the conversion of
outstanding Notes (described below) in the aggregate amount of approximately
$46,000. In 1995, the Company issued Convertible Promissory Notes ("Notes") in
the aggregate principal amount of $45,500,
F-13
<PAGE>
THEGLOBE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
bearing interest at rates between 6.62% and 8% per annum. Under the terms and
conditions of the original Note agreements, the Notes were convertible into
preferred stock at conversion prices equal to $0.20 per share, the highest
price paid for shares of its Preferred Stock sold during such time period.
These Notes, including interest thereon, were converted into a total of
226,505 shares of Series A Preferred Stock in connection with the Company's
1995 private placement of Series A Preferred Stock, in accordance with the
original terms and conditions of such Notes.
During December 1995, the Company completed a private placement of 575,725
shares of Series B Preferred Stock at $1.05 per share in two issuances for an
aggregate price of approximately $604,000, $579,000 was paid in cash in 1995
and $25,000 in 1996.
In 1996, the Company completed a private placement of 221,250 shares of
Series C Preferred Stock at $4.00 per share for an aggregate price of
approximately $885,000, paid in cash.
In April 1997, the Company amended the Series C Preferred Stock agreement in
order to extend the above private placement of Series C Preferred Stock to
April 15, 1997. In connection with this private placement, the Company issued
an additional 70,000 shares of Series C Preferred Stock at $4.00 per share for
an aggregate price of $280,000 in 1997.
In August 1997, the Company authorized and issued 25.5 shares of Series D
Preferred Stock for an aggregate cash amount of $20,000,000 in connection with
the Dancing Bear Investment. These shares constituted 51% of the fully diluted
capital stock of the Company at the time of exercise, as defined. In addition
to the Series D Preferred Stock, Dancing Bear Investments, Inc. also received
warrants which provide the right to purchase up to 5 shares of Series E
Preferred Stock representing 10% of the fully diluted capital stock of the
Company at the time of exercise for an aggregate purchase price of $5,882,353,
if exercised in total. In connection with the Dancing Bear Investment, two
officers and shareholders of the Company received $500,000 each as signing
bonuses in connection with their employment agreements. Such amounts were
accrued for at that time and were subsequently paid in the first quarter of
1998.
The conversion rate of the Series A, B and C Preferred Stock, as defined in
the original private placement agreements shall be the quotient obtained by
dividing the applicable series' original issue price by the applicable series'
conversion price. The original issue price and conversion price shall be
$0.20, $1.05 and $4 per share for Series A, B and C, respectively, as
determined by negotiations among the parties. Each share of Series D and E
Preferred Stock shall be convertible into an amount of common representing 1%
of the fully diluted capital stock, as defined in the original private
placement agreement. Such conversion features were determined by negotiations
among the parties.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, as defined, on a pari passu basis, an amount equal
to $0.20, $1.05, $4, $784,314 and $1,176,471 per share for Series A, B, C, D
and E convertible Preferred Stock, respectively, shall be paid out of the
assets of the Company available for distribution before any such payments
shall be made on any shares of the Company's common shares or any other
capital stock of the Company other than the Preferred Stock, plus any declared
but unpaid dividends.
F-14
<PAGE>
THEGLOBE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
The following table summarizes the Convertible Preferred Stock authorized,
issued and outstanding and liquidation preferences:
<TABLE>
<CAPTION>
PREFERRED SHARES EQUIVALENT SHARES OF
ISSUED AND OUTSTANDING COMMON STOCK
-------------------------------------------- -----------------------------
DECEMBER 31,
SHARES JUNE 30, ------------------- JUNE 30,
AUTHORIZED 1996 1997 1998 1996 1997 1998
---------- --------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Series A................ 1,165,990 582,995 582,995 582,995 582,995 582,995 582,995
Series B................ 1,151,450 575,725 575,725 575,725 575,725 575,725 575,725
Series C................ 582,500 221,250 291,250 291,250 221,250 291,250 291,250
Series D................ 51 0 25.5 25.5 0 3,503,357 3,503,357
Series E................ 10 0 0 0 0 1,761,366 1,761,366
--------- --------- ----------- ----------- --------- --------- ---------
2,900,001 1,379,970 1,449,995.5 1,449,995.5 1,379,970 6,714,593 6,714,593
========= ========= =========== =========== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
LIQUIDATION PREFERENCE
-------------------------------
DECEMBER 31,
LIQUIDATION -------------------- JUNE 30,
PREFERENCE PER SHARE 1996 1997 1998
-------------------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Series A................... $ 0.20 116,599 116,599 116,599
Series B................... $ 1.05 604,511 604,511 604,511
Series C................... $ 4.00 885,000 1,165,000 1,165,000
Series D................... $ 784,313.72 0 20,000,000 20,000,000
Series E................... $1,176,470.60 0 0 0
--------- ---------- ----------
1,606,110 21,886,110 21,886,110
========= ========== ==========
</TABLE>
As a result of the Company's adoption of the 1998 Stock Option Plan in July
1998 (see note 9), the number of shares that the outstanding Series E Warrants
are convertible into upon exercise increased from 1,761,366 to 2,023,009. In
accordance with the original terms of the Series E Warrant agreement up to
500,000 of the authorized options under the 1998 Stock Option Plan are to be
included in the calculation for determining the number of shares of Common
Stock that the Series E Warrants are convertible into upon exercise.
All Preferred Shares shall be automatically converted into common shares in
the event the Company closes a firm commitment for an underwritten initial
public offering of its common stock for an aggregate amount of at least
$15,000,000. The Preferred Shares are subject to additional mandatory
conversion rights, as defined in the Company's amended and restated
certificate of incorporation.
Holders of Preferred Stock are entitled to receive dividends when and if
declared by the Board of Directors. No such dividends have yet been declared
by the Board of Directors.
(6) STOCK OPTION PLAN
1995 Stock Option Plan
During 1995, the Company established the 1995 Stock Option Plan, which was
amended (the "Amended Plan") by the Board of Directors in December 1996. Under
the Amended Plan, the Board of Directors may issue incentive stock options or
nonqualified stock options to purchase up to 666,000 common shares. Incentive
stock options may be granted only to officers who are employees of the
Company, directors of the Company and other employees of the Company who are
deemed to be "key employees." Incentive stock options must be granted at the
fair market value of the Company's Common Stock at the date the option is
issued.
Nonqualified stock options may be granted to officers, directors, other
employees, consultants and advisors of the Company. The option price for
nonqualified stock options shall be at least 85% of the fair market value of
the Company's Common Stock. The granted options under the amended plan shall
be for periods not to exceed ten years. Incentive options granted to
stockholders who own greater than 10% of the total combined voting power of
all classes of stock of the Company must be issued at 110% of the fair market
value of the stock on the date the options are granted.
F-15
<PAGE>
THEGLOBE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
In connection with the Dancing Bear Investments investment, the Company
reserved an additional 125,000 shares of its common stock for issuance upon
the exercise of options to be granted in the future under the Amended Plan.
The per share weighted-average fair value of stock options granted during
1995, 1996 and 1997 was $0.02, $0.16 and $0.32, respectively, on the date of
grant using the option-pricing method with the following weighted-average
assumptions: 1995--risk-free interest rate 6%, and an expected life of three
years; 1996--risk-free interest rate 6.18%, and an expected life of two years;
1997--risk-free interest rate 6.00%, and an expected life of three years. As
permitted under the provisions of SFAS No. 123, and based on the historical
lack of a public market for the Company's units, no factor for volatility has
been reflected in the option pricing calculation.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, compensation cost of $4,000 and $28,115 has been recognized for
its stock options granted below fair market value in 1996 and 1997,
respectively, in the accompanying financial statements.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE
GRANTED EXERCISE PRICE
------- --------------
<S> <C> <C>
Outstanding at December 31, 1995..................... 175,000 $0.02
Granted.............................................. 167,049 $0.12
Exercised............................................ --
Canceled............................................. --
-------
Outstanding at December 31, 1996..................... 342,049 $0.06
Granted.............................................. 411,701 $0.74
Exercised............................................ (29,271) $0.16
Canceled............................................. (2,500) $0.82
-------
Outstanding at December 31, 1997..................... 721,979 $0.44
=======
Vested at December 31, 1997.......................... 397,983
=======
Options available at December 31, 1997............... 39,751
=======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<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>
$0.02-$0.105 281,889 1 $ 0.05 233,262 $ 0.04
$0.40-$0.70 354,840 1 0.65 164,721 0.66
$0.82 82,250 5 0.82 0 0
------- -------
721,979 397,983
======= =======
</TABLE>
At December 31, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $0.02--$0.82 and 1 year,
respectively.
During the six month period ended June 30, 1998, the Company granted 55,750
options with a weighted average exercise price of $3.78 per share and a
weighted average contractual life of 5 years. The range of exercise prices
were as follows: 44,250 options at $2.78 per share; 1,500 options at $4.60 per
share; and 10,000 options at $8.10 per share. All options granted from July 1,
1998 through September 28, 1998 will be granted at the initial public offering
price, except as noted in note 9.
F-16
<PAGE>
THEGLOBE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
The Company applies APB No. 25 in accounting for its stock options granted
to employees and accordingly, no compensation expense has been recognized in
the financial statements (except for those options issued with exercise prices
less than fair market value at date of grant). Had the Company determined
compensation expense based on the fair value at the grant date for its stock
options issued to employees under SFAS No. 123, the Company's net loss would
have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- ----------
<S> <C> <C> <C>
Net loss--as reported....................... $65,706 $750,180 $3,584,400
======= ======== ==========
Net loss--pro forma......................... $66,873 $756,135 $3,621,373
======= ======== ==========
Basic net loss per common share--as
reported................................... $ (0.06) $ (0.67) $ (3.13)
======= ======== ==========
Basic net loss per common share--pro forma.. $ (0.06) $ (0.67) $ (3.16)
======= ======== ==========
</TABLE>
(7) COMMITMENTS
(a) Office Leases
In May 1997, the Company terminated its office lease in Ithaca, NY. The
Company moved to New York City and entered into an operating lease agreement
related to its new office space during February 1997.
Rent expense for the operating leases was $-0-, $26,181 and $81,157 for the
period from May 1, 1995 (inception) to December 31, 1995 and for the years
ended December 31, 1996 and 1997, respectively.
Future minimum payments under the New York City office operating leases are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- --------
<S> <C>
1998................................................................ $120,200
1999................................................................ 121,787
2000................................................................ 86,517
2001................................................................ 87,000
2002................................................................ 7,250
--------
Total minimum lease payments........................................ $422,754
========
</TABLE>
(b) Equipment Leases
The Company's lease obligations are collateralized by certain assets at
December 31, 1997. Future minimum lease payments under noncancellable
operating leases (with initial or remaining lease terms in excess of one year)
and future minimum capital lease obligations as of December 31, 1997 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ -------- ---------
<S> <C> <C>
1998.................................................... $ 41,399 $41,014
1999.................................................... 41,399 23,551
2000.................................................... 41,399 12,860
2001.................................................... 35,189 9,058
2002.................................................... -- 7,567
-------- -------
Total minimum lease payments.......................... $159,386 $94,050
======== =======
Less amount representing interest (at rates ranging from
11% to 12.5%).......................................... 33,386
--------
Present value of minimum capital lease payments......... 126,000
--------
Less current installments of obligation under capital
leases................................................. 27,174
--------
Obligations under capital leases, excluding current
installments........................................... $ 98,826
========
</TABLE>
F-17
<PAGE>
THEGLOBE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
In addition, the Company entered into five capital leases in 1998 with
future minimum payments totaling $1,062,884 starting in 1998 through 2003.
(c) Advertising Contracts
During October 1997, the Company entered into an exclusive one-year contract
with an advertising agency with a minimum monthly fee of $50,000.
(d) Employment Agreements
The Company maintains employment agreements expiring in 2002, with two
executive officers of the Company. The employment agreements provide for
minimum salary levels, incentive compensation and severance benefits, among
other items.
(8) RELATED PARTY TRANSACTIONS
Certain officers and directors of the Company also serve as officers and
directors of Dancing Bear Investments, Inc., an entity which will continue to
control the Company following completion of the Offerings.
The Company has recently entered into an e-commerce contract with Republic
Industries, Inc. ("Republic"), an entity affiliated with a Director of the
Company, pursuant to which the Company has granted a right of first
negotiation with respect to the exclusive right to engage in or conduct an
automotive "clubsite" on theglobe.com Web site through AutoNation, a
subsidiary of Republic. Additionally, Republic has agreed to purchase
advertising from the Company for a three-year period at a price which will be
adjusted to match any more favorable advertising price quoted to a third party
by the Company, excluding certain short-term advertising rates. In addition,
the Company has entered into an e-commerce arrangement with InteleTravel, an
entity controlled by the Chairman of the Company, whereby the Company
developed a Web community for InteleTravel in order for its travel agents to
conduct business through theglobe.com in exchange for access to InteleTravel
customers for distribution of the Company's products and services. The Company
believes that the terms of the foregoing arrangements are on comparable terms
as if they were entered into with unaffiliated third parties. As of June 30,
1998, the Company had not received any revenues from InteleTravel or Republic.
STOCKHOLDERS' AGREEMENT
The Chairman, the Co-Chief Executive Officers, a Vice President and a
Director of the Company and Dancing Bear Investments, Inc. (an entity
controlled by the Chairman) expect to enter into a Stockholders' Agreement
(the "Stockholders' Agreement") pursuant to which the Chairman and Dancing
Bear Investments, Inc. or certain entities controlled by the Chairman and
certain permitted transferees (the "Chairman Group") will agree to vote for
certain nominees of the Co-Chief Executive Officers or certain entities
controlled by the Co-Chief Executive Officers and certain permitted
transferees (the "Co-Chief Executive Officer Groups") to the Board of
Directors and the Co-Chief Executive Officer Groups will agree to vote for the
Chairman Group's nominees to the Board, who will represent a majority of the
Board. Additionally, pursuant to the terms of the Stockholders' Agreement, the
Co-Chief Executive Officers, a Vice President and a Director have granted an
irrevocable proxy to Dancing Bear Investments, Inc. with respect to any shares
that may be acquired by them pursuant to the exercise of outstanding Warrants
transferred to each of them by Dancing Bear Investments, Inc. Such shares will
be voted by Dancing Bear Investments, Inc., which is controlled by the
Chairman, and will be subject to a right of first refusal in favor of Dancing
Bear Investments, Inc. upon transfer. The Stockholders' Agreement will also
provide that if the Chairman Group sells shares of Common Stock and Warrants
representing 25% or more of the Company's outstanding Common Stock (including
the Warrants) in any private sale after the Offerings, the Co-Chief Executive
Officer Groups, a Vice President and a Director of the Company will be
required to sell up to the same percentage of their shares as the Chairman
Group sells. If either the Chairman Group sells shares of Common Stock or
Warrants representing 25% or more of the Company's
F-18
<PAGE>
THEGLOBE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
outstanding Common Stock (including the Warrants) or the Co-Chief Executive
Officer Groups sell shares or Warrants representing 7% or more of the shares
and Warrants of the Company in any private sale after the Offerings, each
other party to the Stockholders' Agreement, including entities controlled by
them and their permitted transferees, may, at their option, sell up to the
same percentage of their shares.
(9) SUBSEQUENT EVENTS (UNAUDITED)
In July 1998, the Company approved the Fourth Amended and Restated
Certificate of Incorporation, which will be filed with the Delaware Secretary
of State prior to consummation of the Offerings, to increase the number of
authorized shares from 25,000,000 shares to 103,000,000 shares.
The Company's 1998 Stock Option Plan (the "1998 Plan") was adopted by the
Board of Directors on July 15, 1998, and approved by the stockholders of the
Company as of July 15, 1998. The 1998 Plan provides for the grant of
"incentive stock options" intended to qualify under Section 422 of the Code
and stock options which do not so qualify. The granting of incentive stock
option is subject to limitation as set forth in the 1998 Plan. Directors,
officers, employees and consultants of the Company and its subsidiaries are
eligible to receive grants under the 1998 Plan.
The 1998 Plan authorizes the issuance of 1,200,000 shares of Common Stock,
subject to adjustment as provided in the 1998 Plan. On July 15, 1998 the Board
of Directors approved the grant of 100,000 options each to two executives at
the initial public offering price. During the period from June 30, 1998
through September 24, 1998, the Company granted 822,650 options under the 1998
Plan with a weighted average exercise price equal to the initial public
offering price.
The Company expects to record a charge of $2,047,500 (assuming an initial
public offering price of $12 per share) to earnings in the third quarter of
1998 in connection with the transfer during the third quarter of 1998 of
warrants to acquire 225,000 shares of Common Stock by Dancing Bear Investments
to certain officers of the Company, at an exercise price of approximately
$2.91 per share. The Company has accounted for such transaction as if it were
a compensatory plan adopted by the Company. Accordingly, such amount will be
recorded as non-cash compensation expense in the Company's statement of
operations for services provided by such officers to the Company with an
offsetting contribution to capital by a principal shareholder. The amount of
such charge will based on the difference between the initial public offering
price (currently assumed to be $12 per share) and the exercise price per
warrant of approximately $2.91 per share.
During July and August 1998, the Company entered into two employment
agreements expiring in 2001, with two officers of the Company. The employment
agreements provide for minimum salary levels, incentive compensation and
severance benefits, among other items. The Company granted 112,500 stock
options to each of the two executives. The exercise price for 87,500 of the
options granted to one officer will be 85% of the initial public offering
price and the remaining options granted to that officer and the 112,500
options granted to the other officer will be granted at the initial public
offering price which is equal to the fair market value per share of the
Company's Common Stock on the date of grant. The 87,500 options will vest over
a three year period. As a result, the Company will record deferred
compensation expense of $157,500 (assuming an initial public offering price of
$12 per share) in the third quarter relating to the 87,500 shares granted at
85% of the initial public offering price, representing the difference between
the deemed value of the Company's Common Stock, the initial public offering
price for accounting purposes, and the exercise price of such options at the
date of grant. Such amount will be presented as a reduction of stockholders'
equity and amortized over the three year vesting period of the applicable
options.
F-19
<PAGE>
[GLOBESTORES LOGO, SCREEN SHOTS OF WEB SITE PAGES]
theglobe.com
One virtual community at theglobe.com, embodied by personal homepage building
and hosting, chat rooms, free e-mail, discussion forums, special interest
groups, a marketplace, neighborhoods, horoscope forum and more.
[FOLD-OUT COVER]
In the first half of '98, Media Metrix ranked theglobe.com as the 4th fastest-
growing web site in terms of audience reach.
Fastest-growing web sites
4. theglob.com
theglobe.com [LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table shows the expenses, other than underwriting discounts
and commissions, to be incurred in connection with the sale and distribution
of securities being registered by the Company. Except for the SEC registration
fee, Nasdaq Listing Fee and the NASD Filing Fee, all amounts are estimated.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 14,750
Nasdaq Listing Fee............................................... 74,625
NASD Filing Fee.................................................. 5,500
Blue Sky Fees and Expenses....................................... 15,000
Legal Fees and Expenses.......................................... 790,025
Accounting Fees and Expenses..................................... 250,000
Printing Expenses................................................ 125,000
Miscellaneous Expenses........................................... 100
----------
Total.......................................................... $1,275,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement in connection with specified
actions, suits, proceedings whether civil, criminal, administrative, or
investigative (other than action by or in the right of the corporation--a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with
the defense or settlement of such action, and the statue requires court
approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. The statue provides
that it is not exclusive of other indemnification that may be granted by a
corporation's charter, by-laws, disinterested director vote, stockholder vote,
agreement, or otherwise.
Article VI of the By-Laws requires the Company to indemnify any person who
was or is a party or is threatened to be made a party to or is involved
(including, without limitation, as a witness) in any threatened, pending or
completed action, suit, arbitration, alternative dispute mechanism,
investigation, administrative hearing or any other proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) brought by reason of the fact that he or she is or was a
director or officer of the Company, or, while a director or officer of the
Company, is or was serving at the request of the Company as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefits plan
against expenses (including attorneys' fees, judgments, fines, excise taxes
under the Employee Retirement Income Security Act of 1974, penalties and
amounts paid in settlement) incurred by him or her in connection with such
action, suit or proceeding if he or she acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability for (i) any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional
II-1
<PAGE>
misconduct or a knowing violation of law, (iii) payment of unlawful dividends
or unlawful stock purchases or redemptions, or (iv) any transaction from which
the director derived an improper personal benefit.
Article VI of the Certificate provides that to the fullest extent that the
DGCL, as it now exists or may hereafter be amended, permits the limitation or
elimination of the liability of directors, a director of the Company shall not
be liable to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director. Any amendment to or repeal of, or adoption of
any provision of the Certificate inconsistent with, such Article VI shall not
adversely affect any right or protection of a director of the Company for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
The Company has entered into indemnification agreements with its directors
and officers substantially in the form attached to this registration statement
as Exhibit 10.4. These agreements provide, in general, that the Company will
indemnify such directors and officers for, and hold them harmless from and
against, any and all amounts paid in settlement or incurred by, or assessed
against, such directors and officers arising out of or in connection with the
service of such directors and officers as a director or officer of the Company
or its Affiliates (as defined therein) to the fullest extent permitted by
Delaware law.
The Company maintains directors' and officers' liability insurance which
provides for payment, on behalf of the directors and officers of the Company
and its subsidiaries, of certain losses of such persons (other than matters
uninsurable under law) arising from claims, including claims arising under the
Securities Act, for acts or omissions by such persons while acting as
directors or officers of the Company and/or its subsidiaries, as the case may
be.
The Underwriting Agreement (the form of which is filed as Exhibit 1.1
hereto) provides for indemnification by the Underwriters of the Company and
its officers and directors for certain liabilities arising under the
Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
All sales, unless otherwise noted, were made in reliance on Section 4(2) of
the Securities Act and/or Regulation D or Rule 701 promulgated under the
Securities Act and were made without general solicitation or advertising. The
purchasers were sophisticated investors with access to all relevant
information necessary to evaluate these investments, and who represented to
the Registrant that the shares were being acquired for investment.
<TABLE>
<CAPTION>
DATE OF TITLE OF NUMBER OF CONSIDERATION
PURCHASER ISSUANCE SECURITIES SHARES RECEIVED ($)
- --------- -------- ------------------ --------- -------------
<S> <C> <C> <C> <C>
Alce Partners, L.P.......... 12/22/95 Series B Preferred 95,240 100,002
Bergendahl, Anders.......... 9/7/95 Series A Preferred 79,815 15,750
12/22/95 Series B Preferred 47,620 50,001
11/13/96 Series C Preferred 1,500 30,000
Bergendahl, Mia............. 9/7/95 Series A Preferred 79,815 15,750
12/22/95 Series B Preferred 23,810 25,000.50
Cayuga Venture Fund......... 11/13/96 Series C Preferred 1,250 25,000
David Duffield Trust........ 12/22/95 Series B Preferred 95,240 100,002
11/13/96 Series C Preferred 12,500 250,000
3/15/97 Series C Preferred 12,500 250,000
de Selliers, Baudouin....... 11/13/96 Series C Preferred 2,500 50,000
Ganem, Bruce................ 11/13/96 Series C Preferred 750 15,000
3/15/97 Series C Preferred 750 15,000
GC&H Investments............ 12/22/95 Series B Preferred 23,810 25,000.50
Grey, Nicki................. 11/16/95 Series A Preferred 3,215 500
Grinstead, Simon............ 11/16/95 Series A Preferred 53,215 10,500
Halperin, Mark R. .......... 12/22/95 Series B Preferred 23,810 25,000.50
11/13/96 Series C Preferred 1,250 25,000
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
DATE OF TITLE OF NUMBER OF CONSIDERATION
PURCHASER ISSUANCE SECURITIES SHARES RECEIVED ($)
- --------- -------- ------------------ --------- -------------
<S> <C> <C> <C> <C>
Halperin Dow, Peggy
Anne................... 12/22/95 Series B Preferred 23,810 25,000.50
11/13/96 Series C Preferred 1,250 25,000
Halperin, Philip W...... 12/22/95 Series B Preferred 23,810 25,000.50
11/13/96 Series C Preferred 1,250 25,000
Halperin, Robert M...... 12/22/95 Series B Preferred 23,810 25,000.50
11/13/96 Series C Preferred 1,250 25,000
5/29/98 Common Stock 42,708 8,171.88
Hirsch, Jason........... 11/16/95 Series A Preferred 19,245 3,000
Horowitz, David H. ..... 12/22/95 Series B Preferred 50,000 52,500
11/13/96 Series C Preferred 2,500 50,000
6/19/97 Common Stock 15,972 3,111.06
Huret Family Trust...... 11/13/96 Series C Preferred 1,250 25,000
Karlsson, Bengt......... 11/13/96 Series C Preferred 5,000 100,000
Krizelman, Allen........ 9/7/95 Series A Preferred 75,845 15,000
Krizelman, Susan........ 11/16/95 Series A Preferred 6,415 1,000
Krizelman, Todd......... 5/26/95 Common Stock 525,000 2,184
11/16/95 Series A Preferred 22,455 3,500
Leavitt Investments,
L.P.................... 11/13/96 Series C Preferred 7,500 150,000
Maconie, Andrew......... 11/16/95 Series A Preferred 3,215 513.70
Miller, Dan............. 11/13/96 Series C Preferred 3,750 75,000
Muckstadt, Jack......... 11/13/96 Series C Preferred 750 15,000
3/15/97 Series C Preferred 750 15,000
Muller, Georges......... 1/22/96 Series B Preferred 23,810 25,000.50
Paternot, Jacques....... 9/7/95 Series A Preferred 16,425 3,000
12/22/95 Series B Preferred 6,665 6,998.25
Paternot, Madeleine..... 11/16/95 Series A Preferred 1,285 205.48
Paternot, Monica........ 11/16/95 Series A Preferred 1,930 308.22
Paternot, Stephan....... 5/26/95 Common Stock 600,000 2,496
Paternot, Thierry....... 11/16/95 Series A Preferred 3,215 513.70
12/22/95 Series B Preferred 19,050 20,002.50
Paternot, Yves.......... 9/7/95 Series A Preferred 88,690 17,000
12/22/95 Series B Preferred 23,810 25,000.50
S. Knight Pond Trust.... 9/7/95 Series A Preferred 128,215 26,500
12/22/95 Series B Preferred 71,430 75,001.50
Tuli, John.............. 1/1/97 Common Stock 13,299 1,396.34
</TABLE>
(1) In August 1997, the Company issued and sold to Dancing Bear Investments
(i) 25.5 shares of Series D Preferred Stock which will convert into 4,023,765
shares of Common Stock upon consummation of the Offerings and (ii) Warrants to
purchase 2,023,009 shares of Common Stock of the Company at the time of
exercise for an aggregate price of $5,882,353. The aggregate consideration for
such transaction was $20 million.
(2) Since inception, the Company has granted stock options to directors,
officers and employees of the Company under the Company's 1998 Stock Option
Plan and 1995 Stock Option Plan. As of September 1998, the Company has granted
822,650 and 693,771 shares of Common Stock to directors, officers and
employees of the Company under the Company's 1998 Stock Option Plan and 1995
Stock Option Plan, respectively, and the Company issued -0- and 92,604 shares
of Common Stock pursuant to the exercise of these options under the Company's
1998 Stock Option Plan and 1995 Stock Option Plan, respectively.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The following Exhibits are attached hereto and incorporated herein by
reference:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement**
1.2 Form of Placement Agent Agreement**
3.1 Form of Fourth Amended and Restated Certificate of Incorporation of
the Company**
3.2 Form of By-Laws of the Company**
4.1 Second Amended and Restated Investor Rights Agreement among the
Company and certain equity holders of the Company dated as of August
13, 1997**
4.2 Amendment No.1 to Second Amended and Restated Investor Rights
Agreement among the Company and certain equity holders of the Company
dated as of July 15, 1998**
4.3 Form of Registration Rights Agreement dated as of July 15, 1998**
4.4 Specimen certificate representing shares of Common Stock of the
Company
4.5 Amended and Restated Warrant to Acquire Shares of Common Stock**
4.6 Form of Rights Agreement, by and between the Company and American
Stock Transfer & Trust Company as Rights Agent
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson**
9.1 Form of Stockholders' Agreement by and among Dancing Bear Investments,
Inc., Michael Egan, Todd V. Krizelman, Stephan J. Paternot, Edward A.
Cespedes and Rosalie V. Arthur, dated as of October , 1998
10.1 Employment Agreement dated August 13, 1997, by and between the Company
and Todd V. Krizelman**
10.2 Employment Agreement dated August 13, 1997, by and between the Company
and Stephan J. Paternot**
10.3 Employment Agreement dated July 13, 1998, by and between the Company
and Francis T. Joyce**
10.4 Form of Indemnification Agreement between the Company and each of its
Directors and Executive Officers**
10.5 Lease Agreement dated January 14, 1997 between the Company and Fifth
Avenue West Associates L.P.**
10.6 1998 Stock Option Plan**
10.7 1995 Stock Option Plan**
10.8 Refiled as Exhibit 4.6
10.9 D.A.R.T. Service Agreement dated April 15, 1997**+
10.10 Amendment dated as of May 1, 1998, to original D.A.R.T. Service
Agreement dated April 15, 1997**+
10.11 Employment Agreement dated August 31, 1998, by and between the Company
and Dean Daniels**
10.12 Agreement between the Company, Republic Industries, Inc., and Michael
S. Egan, dated August 12, 1998, regarding the conduct of automotive
clubsites on theglobe.com**+
10.13 Data Center Space Lease between Telehouse International Corporation of
America and the Company, dated August 24, 1998**
10.14 Travel Services Alliance Agreement between the Company and
Lowestfare.com, dated as of September 15, 1998+
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
11.1 Computation of Loss Per Share
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in
Exhibit 5.1)**
23.3 Consent of ABC Interactive**
23.4 Consent of Jupiter Communications, LLC**
23.5 Consent of International Data Corporation**
24.1 Power of Attorney**
27.1 Financial Data Schedule**
99.1 Valuation and Qualifying Accounts**
</TABLE>
- --------
*To be filed by amendment.
**Previously filed.
+Confidential treatment requested.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) to provide to the Underwriters at the closing specified in the
Underwriting Agreements, certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(2) that 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 Securities Act of 1933 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 questions whether such indemnification by them is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(3) that 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; and
(4) that for purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
filed shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, 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 THE 13TH DAY OF OCTOBER 1998.
theglobe.com, inc.
/s/ Todd Krizelman
By: _________________________________
TODD KRIZELMAN
Co-Chief Executive Officer and
Co-President
/s/ Stephan Paternot
By: _________________________________
STEPHAN PATERNOT
Co-Chief Executive Officer, Co-
President and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
Michael Egan* Chairman
- ------------------------------------- October 13,
MICHAEL EGAN 1998
/s/ Todd Krizelman Co-Chief Executive
- ------------------------------------- Officer, Co- October 13,
TODD KRIZELMAN President and 1998
Director
/s/ Stephan Paternot Co-Chief Executive
- ------------------------------------- Officer, Co- October 13,
STEPHAN PATERNOT President, 1998
Secretary and
Director
Francis T. Joyce* Vice President and
- ------------------------------------- Chief Financial October 13,
FRANK JOYCE Officer (Principal 1998
Accounting Officer)
Edward Cespedes* Director
- ------------------------------------- October 13,
EDWARD CESPEDES 1998
Rosalie Arthur* Director
- ------------------------------------- October 13,
ROSALIE ARTHUR 1998
Robert Halperin* Director
- ------------------------------------- October 13,
ROBERT HALPERIN 1998
David H. Horowitz* Director
- ------------------------------------- October 13,
DAVID H. HOROWITZ 1998
H. Wayne Huizenga* Director
- ------------------------------------- October 13,
H. WAYNE HUIZENGA 1998
*By Attorney-in-Fact
II-6
<PAGE>
[THEGLOBE.COM LOGO]
THEGLOBE.COM, INC.
SEE REVERSE FOR CERTAIN DEFINITIONS
COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP
88335R 10 1
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON ASSESSABLE SHARES OF THE PAR VALUE OF $.001 EACH OF THE
COMMON STOCK OF
============================= THEGLOBE.COM, 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 by the Transfer Agent and
Registrar.
WITNESS the facsimile signatures of its duty authorized officers.
Dated:
CO-CHIEF EXECUTIVE OFFICER, CO-CHIEF EXECUTIVE OFFICER,
CO-PRESIDENT AND SECRETARY AND CO-PRESIDENT
<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 UNIF GIFT MIN ACT- ______CUSTODIAN _______
TEN ENT- as tenants by the entireties (CUST) (MINOR)
JT TEN- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as tenants Act____________
in common (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 Common 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 TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME 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 ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT
TO S.E.C. RULE 17AD-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST,
STOLEN, MUTILATED OR DESTROYED, THE CORPORATION
WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION
TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
-2-
<PAGE>
EXHIBIT 4.6
--------------------------------
theglobe.com, inc.
and
American Stock Transfer & Trust Company
as Rights Agent
------------------------
Stockholder Rights Agreement
Dated as of October____, 1998
--------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Certain Definitions..............................................1
Section 2. Appointment of Rights Agent......................................5
Section 3. Issue of Right Certificates......................................5
Section 4. Form of Right Certificate........................................6
Section 5. Countersignature and Registration................................7
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificate......................................................8
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights....9
Section 8. Cancellation and Destruction of Right Certificates..............11
Section 9. Reservation and Availability of Capital Stock...................12
Section 10. Preferred Stock Record Date.....................................13
Section 11. Adjustment of Purchase Price, Number and Kind 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. Additional Covenants............................................23
Section 15. Fractional Rights and Fractional Shares.........................24
Section 16. Rights of Action................................................26
Section 17. Agreement of Right Holders......................................26
Section 18. Right Certificate Holder Not Deemed a Stockholder...............27
Section 19. Concerning the Rights Agent.....................................27
Section 20. Merger or Consolidation or Change of Name of Rights Agent.......28
Section 21. Duties of Rights Agent..........................................29
Section 22. Change of Rights Agent..........................................31
Section 23. Issuance of New Right Certificates..............................32
Section 24. Redemption and Termination......................................32
Section 25. Exchange........................................................34
Section 26. Notice of Certain Events........................................35
Section 27. Notices.........................................................36
Section 28. Supplements and Amendments......................................37
Section 29. Determination and Actions by the Board of Directors, etc........37
Section 30. Successors......................................................38
Section 31. Benefits of this Agreement......................................38
Section 32. Severability....................................................38
Section 33. Governing Law...................................................38
Section 34. Counterparts....................................................38
Section 35. Descriptive Headings............................................38
</TABLE>
<PAGE>
STOCKHOLDER RIGHTS AGREEMENT
This Agreement, dated as of October __, 1998, between
theglobe.com, inc., a Delaware corporation (the "Company"), and American
Stock Transfer & Trust Company ("Rights Agent").
The Board of Directors of the Company (the "Board") authorized
and declared a dividend of one preferred share purchase right (a "Right")
for each share of Common Stock (as hereinafter defined) of the Company
outstanding at the Close of Business (as hereinafter defined) on October
__, 1998 (the "Record Date"), each Right representing the right to purchase
one one-thousandth (subject to adjustment as provided herein) of a Junior
Participating Preferred Stock of the Company having the rights, powers and
preferences set forth in the form of Certificate of Designation attached
hereto as Exhibit A, upon the terms and subject to the conditions herein
set forth, and has further authorized the issuance of one Right with
respect to each share of Common Stock that shall become outstanding between
the Record Date and the Distribution Date (as such term is hereinafter
defined); provided, however, that Rights may be issued with respect to
shares of Common Stock that shall become outstanding after the Distribution
Date and prior to the earlier of the Redemption Date and the Final
Expiration Date in accordance with the provisions of Section 23 hereof.
Accordingly, 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 shall have the meanings indicated:
(a) "Acquiring Person" shall mean any Person, who or which,
together with all Affiliates and Associates of such Person, without the
prior approval of the Company, shall be the Beneficial Owner of securities
representing 15% or more of the Voting Power (other than as a result of a
Permitted Offer) or who was such a Beneficial Owner at any time after the
date hereof, whether or not such Person continues to be the Beneficial
Owner of securities representing 15% or more of the Voting Power.
Notwithstanding the foregoing, (A) the term "Acquiring Person" shall not
include (i) the Company, (ii) any subsidiary of the Company, (iii) any
employee benefit plan of the Company or any of its subsidiaries, (iv) any
Person or entity holding securities of the Company organized, appointed or
established by the Company or any of its subsidiaries for or pursuant to
the terms of any such plan acting in such capacity , (v) Dancing Bear
Investments, Inc., Michael S. Egan, Todd V. Krizelman, Stephan J. Paternot
or any Person controlled by any such party, and (B) no Person shall become
an "Acquiring Person" (i) as a result of the acquisition of shares of
Common Stock by the Company which, by reducing the number of shares Common
Stock outstanding, increases the proportional number of shares beneficially
owned by such Person together with all Affiliates and Associates of such
Person, provided, that if (1) a Person would become an Acquiring Person
(but for the operation of this subclause (i)) as a result of the
acquisition of shares of Common Stock by the Company, and (2) after such
share acquisition by the Company, such Person, or an Affiliate or Associate
of such Person, becomes the Beneficial Owner of any additional shares of
Common Stock, then such Person shall be deemed an Acquiring Person; or (ii)
if (1) within five Business Days after such Person would otherwise have
become or, if such Person did so inadvertently, after such Person discovers
that such Person would otherwise have become, an Acquiring Person (but for
the operation of this subclause (ii)), such Person notifies the Board of
Directors that such Person did so inadvertently, and (2) within two
Business Days after such notification (or such greater period of time as
may be determined by action of the Board, but in no event greater than five
Business Days), such Person divests itself of a sufficient number of shares
of Common Stock so that such Person is the Beneficial Owner of such number
of shares of Common Stock that such Person no longer would be an Acquiring
Person.
(b) "Act" shall mean the Securities Act of 1933, as amended and
as in effect on the date of this Agreement.
(c) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended and as in
effect on the date of this Agreement (the "Exchange Act").
(d) 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;
(ii) which such Person or any of such Person's Affiliates or
Associates 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, 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
<PAGE>
own," any security if the agreement, arrangement or understanding to vote
such security (1) arises solely from a revocable proxy or consent given to
such Person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and regulations
promulgated under the Exchange Act and (2) is not also then reportable on
Schedule 13D or Schedule 13G 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 (other than customary
agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities), relating
to the acquisition, holding, voting (except to the extent contemplated
by the second proviso to Section 1(d)(ii)(B)) or disposing of any
securities of the Company.
Notwithstanding anything in this definition of a Beneficial Owner to the
contrary, the phrase "then outstanding," when used with reference to a
Person's Beneficial Ownership 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 own beneficially hereunder.
(e) "Business Day" shall mean any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(f) "Close of Business" on any given date shall mean 5:00 P.M.,
New York City time, on such date; provided, however, that if such date is
not a Business Day it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
(g) "Common Stock" shall mean the Common Stock, $.001 par value,
of the Company or, in the event of a subdivision, combination or
consolidation with respect to such Common Stock, the Common Stock resulting
from such subdivision, combination or consolidation. "Common Stock" when
used with reference to stock issued by any Person other than the Company
shall mean the capital stock (or equity interest) with the greatest
combined economic and voting power of such Person or, if such other Person
is a subsidiary of another Person, of the Person or Persons which
ultimately control such first-mentioned Person.
(h) "Disinterested Directors" shall mean the members of the Board
who are not (i) employees of the Company or (ii) Acquiring Persons or their
Affiliates or Associates or representatives of any of them.
(i) "Distribution Date" shall have the meaning set forth in
Section 3 hereof.
(j) "Final Expiration Date" shall have the meaning set forth in
Section 7 hereof.
(k) "Interested Stockholder" shall mean any Acquiring Person or
any Affiliate or Associate of an Acquiring Person or any other Person in
which any such Acquiring Person Affiliate or Associate has an interest
which represents in excess of 5% of the total combined economic or voting
power of such Person, or any other Person acting directly or indirectly on
behalf of or in concert with any such Acquiring Person Affiliate or
Associate.
(l) "Permitted Offer" shall mean a tender or exchange offer for
all outstanding shares of Common Stock which is at a price and on terms
determined, prior to the purchase of such shares under such tender or
exchange offer, by at least a majority of the Disinterested Directors to be
both adequate and otherwise in the best interests of the Company and its
stockholders (other than the Person, or any Affiliate or Associate thereof,
on whose behalf the offer is being made) taking into account all factors
that such Disinterested Directors may deem relevant.
(m) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company, trust, association, joint venture
or other entity, and shall include any successor (by merger or otherwise)
of such entity.
(n) "Preferred Stock" shall mean the Junior Participating
Preferred Stock, $.001 par value per share, of the Company having the
relative rights, preferences and limitations set forth in the Form of
Certificate of Designation, Preferences and Rights attached to this
Agreement as Exhibit A.
(o) "Section 11(a)(ii) Event" shall mean any event described in
<PAGE>
Section 11(a)(ii) hereof.
(p) "Section 13 Event" shall mean any event described in clause
(x), (y) or (z) of Section 13(a) hereof.
(q) "Stock 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 the Exchange Act) by the Company or
an Acquiring Person that an Acquiring Person has become such.
(r) A "subsidiary" of any Person shall mean any corporation or
other Person of which a majority of the voting power of the voting equity
securities or equity interests is owned, directly or indirectly, by such
Person.
(s) "Triggering Event" shall mean any Section 11(a)(ii) Event or
any Section 13 Event.
(t) "Voting Power" shall mean the voting power of all securities
of the Company then outstanding generally entitled to vote for the election
of directors of the Company.
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, upon ten (10) days' prior
written notice to the Rights Agent. The Rights Agent shall have no duty to
supervise, and in no event be liable for, the acts or omissions of any such
co-Rights Agent.
Section 3. Issue of Right Certificates. (a) The Rights will be
evidenced by the certificates for Common Stock registered in the names of
the holders thereof (which certificates shall also be deemed to be Right
Certificates (as defined below)) and not by separate Right Certificates,
and the right to receive Right Certificates will be transferable only in
connection with the transfer of the underlying shares of Common Stock
(including a transfer to the Company), until the earliest to occur of (i)
the Stock Acquisition Date or (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) after the date of the commencement by any
Person (other than the Company, any subsidiary of the Company, any employee
benefit plan of the Company or any of its subsidiaries or any Person or
entity organized, appointed or established by the Company for or pursuant
to the terms of any such plan) of, 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 Person or entity organized, appointed or established by
the Company for or pursuant to the terms of any such plan) to commence
(which intention to commence remains in effect for five Business Days after
such announcement), a tender or exchange offer the consummation of which
would result in any Person becoming an Acquiring Person (including, in the
case of both clauses (i) and (ii) of this Section 3(a), any such date which
is after the date of this Agreement and prior to the issuance of the
Rights) (the earlier of such dates being herein referred to as the
"Distribution Date"); provided, however, that if the tender or exchange
offer referred to in clause (ii) above is terminated prior to the
occurrence of a Distribution Date, then no Distribution Date shall occur as
a result of such tender offer. As soon as practicable after the
Distribution Date, the Company will prepare and execute, and the Rights
Agent will countersign and send, or cause to be sent, by first-class,
insured, postage prepaid mail, to each record holder of the 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 Right Certificate,
substantially in the form of Exhibit B hereto (a "Right Certificate"),
evidencing one Right for each share of Common Stock so held. As of and
after the Distribution Date, the Rights will be evidenced solely by such
Right Certificates.
(b) Certificates issued for Common Stock which become outstanding
(including, without limitation, reacquired Common Stock referred to in the
last sentence of Section 3(b)) prior to the earliest of the Distribution
Date, the Redemption Date or the Final Expiration Date, shall be deemed
also to be certificates for Rights and from and after the date hereof shall
bear the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Stockholder Rights Agreement
between theglobe.com, inc. (the "Company") and American Stock
Transfer & Trust Company (the "Rights Agent") dated as of October
__, 1998 (the "Stockholder Rights Agreement"), the terms of which
are hereby incorporated herein by reference and a copy of which
is on file at the principal offices of the Company. Under certain
circumstances, as set forth in the Stockholder Rights Agreement,
such Rights will be evidenced by separate certificates and will
no longer be evidenced by this certificate. The Company will mail
to the holder of this certificate a copy of the Stockholder
Rights Agreement without charge after receipt by the Company's
corporate secretary of a written request therefor from such
<PAGE>
holder. Under certain circumstances set forth in the Stockholder
Rights Agreement, Rights issued to, or held by, any Person who
is, was or becomes an Interested Stockholder (as defined in the
Stockholder Rights Agreement) and any subsequent holder may
become null and void.
With respect to such certificates containing the foregoing legend, until
the Distribution Date, the Rights associated with the Common Stock
represented by such certificates shall be evidenced by such certificates
alone, and the surrender for transfer of any such certificates shall also
constitute the transfer of the Rights associated with the Common Stock
represented thereby. In the event that the Company purchases or acquires
any shares of Common Stock prior to the Distribution Date, any Rights
associated with such shares of Common Stock shall be deemed canceled and
retired so that the Company shall not be entitled to exercise any Rights
associated with the Common Stock which are no longer outstanding.
Section 4. Form of Right Certificate. (a) The Right Certificates
(and the forms of election to purchase and of assignment to be printed on
the reverse thereof) 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 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 23 hereof, the Right Certificates shall entitle the holders
thereof to purchase such number of one one-thousandth of a share of
Preferred Stock as shall be set forth therein at the price per one
one-thousandth of a share set forth therein (the "Purchase Price"), but the
amount and type of securities purchasable upon the exercise of each Right
and the Purchase Price thereof shall be subject to adjustment as provided
herein.
(b) Any Right Certificate issued pursuant to Section 3(a) or
Section 23 hereof that represents Rights beneficially owned by an
Interested Stockholder and any Right Certificate issued at any time upon
the transfer of any Rights to such an Interested Stockholder or to any
nominee of such Interested Stockholder which are null and void pursuant to
Section 7(e) hereof, and any Right Certificate issued pursuant to Section 6
or Section 11 upon transfer, exchange, replacement or adjustment of any
other Right Certificate hereof referred to in this sentence, shall contain
(to the extent feasible) the following legend:
The Rights represented by this Right Certificate are or were
beneficially owned by a Person who was or became an Interested
Stockholder. Accordingly, this Right Certificate and the Rights
represented hereby are null and void.
Provisions of Section 7(e) hereof shall be operative whether or not the
foregoing legend is contained on any such Right Certificate. The Company
shall give notice to the Rights Agent promptly after it becomes aware of
the existence of any Interested Stockholder.
Section 5. Countersignature and Registration. The Right
Certificates shall be executed on behalf of the Company by its Chairman,
any Chief Executive Officer, President or Vice President, 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
Right Certificates shall be countersigned by the Rights Agent and shall not
be valid for any purpose unless so countersigned. In case any officer of
the Company who shall have signed any of the Right Certificates shall cease
to be such officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right 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 Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the
Company by any person who, at the actual date of the execution of such
Right Certificate, shall be a proper officer of the Company to sign such
Right Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its office designated as the appropriate place for
surrender of such Right Certificate for transfer, books for registration
and transfer of the Right Certificates issued hereunder. Such books shall
show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the
Right Certificates and the certificate number and the date of each of the
Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificate.
Subject to the provisions of Sections 4(b), 7(e) and 15 hereof, at any time
after the Close of Business on the Distribution Date, and at or prior to
the Close of Business on the earlier of the Redemption Date or the Final
Expiration Date, any Right Certificate or Right Certificates may be
<PAGE>
transferred, split up, combined or exchanged for another Right Certificate
or Right Certificates, entitling the registered holder to purchase a like
number of one one-thousandths of a share of Preferred Stock (or, following
a Triggering Event, other securities, as the case may be) as the Right
Certificate or Right Certificates surrendered then entitled such holder (or
former holder in the case of a transfer) to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Right Certificate
or Right Certificates shall make such request in writing delivered to the
Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split-up, combined or exchanged at the
principal 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 Right
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Right Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates
or Associates thereof as the Company shall reasonably request. Thereupon
the Rights Agent shall, subject to the provisions of Section 4(b), Section
7(e) and Section 15 hereof, countersign and deliver to the Person entitled
thereto a Right Certificate or Right 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 Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Right 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 Right Certificate if mutilated, the
Company will make and deliver a new Right Certificate of like tenor to the
Rights Agent for countersignature and delivery to the registered holder in
lieu of the Right Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) Subject to Section 7(e) hereof, the registered holder of any
Right 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 Right Certificate, with the form of
election to purchase and the certificate on the reverse side thereof duly
executed, to the Rights Agent at the principal office or offices of the
Rights Agent designated for such purpose, together with payment of the
aggregate Purchase Price for the total number of one one-thousandths of a
share of Preferred Stock (or other securities, as the case may be) as to
which such surrendered Rights are exercised, at or prior to the earliest of
(i) the Close of Business on October ___, 2008 (the "Final Expiration
Date"), (ii) the time at which the Rights are redeemed as provided in
Section 24 hereof (the "Redemption Date"), (iii) the time at which the
Rights are exchanged as provided in Section 25 hereof, or (iv) the
consummation of a transaction contemplated by Section 13(d) hereof.
(b) From and after the date hereof, the Purchase Price for each
one one-thousandth share of Preferred Stock pursuant to the exercise of a
Right shall be $70.00 subject to adjustment from time to time as provided
in the third sentence of this Section 7(b) and in Sections 11 and 13(a)
hereof. The Purchase Price shall be payable in accordance with Section 7(c)
below. Anything in this Agreement to the contrary notwithstanding, 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 the
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 Common Stock)
into a greater or lesser number of Common Stock, then in any such case,
each share of Common Stock outstanding following such subdivision,
combination or consolidation shall continue to have one Right (subject to
adjustment as provided herein) associated therewith and the Purchase Price
following any such event shall be proportionately adjusted to equal the
result obtained by multiplying the Purchase Price immediately prior to such
event by a fraction the numerator of which shall be the total number of
shares of Common Stock outstanding immediately prior to the occurrence of
the event and the denominator of which shall be the total number of shares
of Common Stock outstanding immediately following the occurrence of such
event, and the number of fractional shares of Preferred Stock issuable upon
exercise of each Right shall be proportionately adjusted to equal the
result obtained by multiplying the number of fractional shares of Preferred
Stock for which a Right is exercisable immediately prior to such event by a
fraction, the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to the occurrence of the event
and the denominator of which shall be the total number of shares of Common
Stock outstanding immediately following the occurrence of such event. The
adjustment provided for in the preceding sentence shall be made
successively whenever such a dividend is declared or paid or such a
subdivision, combination or consolidation is effected.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly
executed, accompanied by payment of the Purchase Price for the shares of
<PAGE>
Preferred Stock (or other securities, 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 Right Certificate in accordance with Section 6 hereof by
certified check, cashier's check or money order payable to the order of the
Company, the Rights Agent shall, subject to Section 21(k), thereupon
promptly (i)(A) requisition from any transfer agent of the shares of
Preferred Stock certificates for the number of shares of Preferred Stock to
be purchased, and the Company hereby irrevocably authorizes its transfer
agent to comply with all such requests, or (B) requisition from the
depositary agent (if the Company, in its sole discretion, shall have
elected to deposit the shares of Preferred Stock issuable upon exercise of
the Rights hereunder into a depositary) depositary receipts representing
such number of one one-thousandths of a share of Preferred Stock as are to
be purchased (in which case certificates for the shares of Preferred Stock
represented by such receipts shall be deposited by the transfer agent with
the depositary agent) and the Company will direct the depositary agent to
comply with such requests, (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 15 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 Right 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 Right Certificate. In the event
that the Company is obligated to issue other securities (including Common
Stock) of the Company pursuant to Section 11(a) hereof, the Company will
make all arrangements necessary so that such other securities are available
for distribution by the Rights Agent, if and when appropriate.
In addition, in the case of an exercise of the Rights by a holder
pursuant to Section 11(a)(ii) hereof, the Rights Agent shall return such
Right Certificate to the registered holder thereof after imprinting,
stamping or otherwise indicating thereon that the rights represented by
such Right Certificate no longer include the rights provided by Section
11(a)(ii) hereof and if less than all the Rights represented by such Right
Certificate were so exercised, the Rights Agent shall indicate on the Right
Certificate the number of Rights represented thereby which continue to
include the rights provided by Section 11(a)(ii) hereof.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent to the registered holder of
such Right Certificate or to his duly authorized assigns, subject to the
provisions of Section 15 hereof, or the Rights Agent shall place an
appropriate notation on the Right Certificate with respect to those Rights
exercised.
(e) Notwithstanding anything in this Agreement to the contrary,
if an Interested Stockholder engages in or there occurs one or more of the
transactions set forth in Section 11(a)(ii) or Section 13(a) on or after
the time the Interested Stockholder became such, then any Rights that are
or were on or after the earlier of the Distribution Date or the Stock
Acquisition Date beneficially owned by (i) an Interested Stockholder, (ii)
a transferee of an Interested Stockholder who becomes a transferee after
the Interested Stockholder becomes such, or (iii) a transferee of an
Interested Stockholder who becomes a transferee prior to or concurrently
with the Interested Stockholder becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from
the Interested Stockholder to holders of equity interests in such
Interested Stockholder or to any Person with whom the Interested
Stockholder has a 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 the avoidance of
this Section 7(e), 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 insure 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 Right Certificates or other Person as a
result of its failure to make any determinations with respect to an
Interested Stockholder or its transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake
any action with respect to a registered holder upon the occurrence of any
purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the
form of election to purchase set forth on the reverse side of the Right
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 Right Certificates.
All Right Certificates surrendered for the purpose of exercise (other than
a partial exercise), transfer, split up, combination or exchange shall, if
surrendered to the Company or to any of its agents, be delivered to the
<PAGE>
Rights Agent for cancellation or in canceled form, or, if surrendered to
the Rights Agent, shall be canceled by it, and no Right 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 Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Right Certificates to the Company, or shall, at the written
request of the Company, destroy such canceled Right Certificates, and in
such case shall deliver a certificate of destruction thereof to Company.
Section 9. Reservation and Availability of Capital Stock. The
Company covenants and agrees that at all time prior to the occurrence of a
Section 11(a)(ii) Event it will cause to be reserved and kept available out
of its authorized and unissued shares of Preferred Stock, or any authorized
and issued shares of Preferred Stock held in its treasury, the number of
shares of Preferred Stock that will be sufficient to permit the exercise in
full of all outstanding Rights and, after the occurrence of a Section
11(a)(ii) Event, shall, to the extent reasonably practicable, so reserve
and keep available a sufficient number of shares of Common Stock (and/or
other securities) which may be required to permit the exercise in full of
the Rights pursuant to this Agreement.
So long as the shares of Preferred Stock (and, after the
occurrence of a Section 11(a)(ii) Event, shares of Common Stock, or any
other securities, as the case may be) issuable upon the exercise of the
Rights may be listed on any national securities exchange, the Company shall
use its best efforts to cause, from and after such time as the Rights
become exercisable, all shares reserved for such issuance to be listed on
such exchange upon official notice of issuance upon such exercise.
The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Preferred Stock (or
shares of Common Stock and/or other securities, as the case may be)
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such shares or other securities (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid
and nonassessable shares or securities.
The Company further covenants and agrees that it will pay when
due and payable any and all U.S. federal and state transfer taxes and
charges which may be payable in respect of the issuance or delivery of the
Right Certificates or of any shares of Preferred Stock (or shares of Common
Stock and/or other securities, as the case may be) 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 Right
Certificates to a person other than, or the issuance or delivery of
certificates or depositary receipts for the shares of Preferred Stock (or
shares of Common Stock and/or other securities, as the case may be) in a
name other than that of, the registered holder of the Right Certificate
evidencing Rights surrendered for exercise or to issue or to deliver any
certificates or depositary receipts for shares of Preferred Stock (or
shares of Common Stock and/or other securities, as the case may be) upon
the exercise of any Rights, until any such tax shall have been paid (any
such tax being payable by the holder of such Right Certificate at the time
of surrender) or until it has been established to the Company's reasonable
satisfaction that no such tax is due.
The Company shall use its best efforts to (i) file, as soon as
practicable following the Stock Acquisition Date (or, if required by law,
at such earlier time following the Distribution Date as so required), a
registration statement under the 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
Act and the rules and regulations thereunder) until the date of the
expiration of the rights provided by Section 11(a)(ii). The Company will
also take such action as may be appropriate under the blue sky laws of the
various states.
Section 10. Preferred Stock Record Date. Each Person in whose
name any certificate for shares of Preferred Stock (or shares of Common
Stock and/or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the
holder of record of the shares of Preferred Stock (or shares of Common
Stock and/or other securities, as the case may be) represented thereby on,
and such certificate shall be dated, the date upon which the Right
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 shares of Common Stock and/or other
securities, as the case may be) 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 (or shares of Common Stock and/or other
securities, as the case may be) transfer books of the Company are open.
Section 11. Adjustment of Purchase Price, Number and Kind of
<PAGE>
Shares or Number of Rights. The Purchase Price, the number and kind of
shares covered by each Right and the number of Rights outstanding are
subject to adjustment from time to time as provided in this Section 11:
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Stock
payable in shares of Preferred Stock, (B) subdivide the outstanding
Preferred Stock, (C) combine the outstanding Preferred Stock into a
smaller number of shares 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) and Section 7(e) hereof, 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 Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock
which, if such Right 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) hereof, 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) hereof.
(ii) In the event any Person, alone or together with its
Affiliates and Associates, shall become an Acquiring Person, then
proper provision shall be made so that each holder of a Right (except
as provided below and in Section 7(e) hereof) shall, for a period of
60 days after the later of (i) the occurrence of any such event or
(ii) the effective date of an appropriate registration statement under
the Act pursuant to Section 9 hereof, have a right to receive, upon
exercise thereof at a price equal to the then current Purchase Price
in accordance with the terms of this Agreement, such number of shares
of Common Stock of the Company (or, in the discretion of the Board of
Directors, one one-thousandths of a share of Preferred Stock) as shall
equal the result obtained by (x) multiplying the then current Purchase
Price by the then number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior to
the first occurrence of a Section 11(a)(ii) Event and (y) dividing
that product by 50% of the then current per share market price of the
Company's Common Stock (determined pursuant to Section 11(d) hereof)
on the date of such first occurrence (such number of shares being
referred to as the "Adjustment Shares"); provided, however, that if
the transaction that would otherwise give rise to the foregoing
adjustment is also subject to the provisions of Section 13 hereof,
then only the provisions of Section 13 hereof shall apply and no
adjustment shall be made pursuant to this Section 11(a)(ii).
(iii) In the event that there shall not be sufficient
treasury shares or authorized but unissued (and unreserved) shares of
Common Stock to permit the exercise in full of the Rights in
accordance with the foregoing Section 11(a)(ii) and the Rights become
so exercisable (and the Board has determined to make the Rights
exercisable into fractions of a share of preferred stock),
notwithstanding any other provision of this Agreement, to the extent
necessary and permitted by applicable law, each Right shall thereafter
represent the right to receive, upon exercise thereof at the then
current Purchase Price in accordance with the terms of this Agreement,
(A) a number of shares (or fractions of shares) of Common Stock (up to
the maximum number of shares of Common Stock which may permissibly be
issued) and (B) a number of one one-thousandths of a share of
Preferred Stock or a number of (or fractions of) other equity
securities of the Company (or, in the discretion of the Board, debt
securities) which the Board has determined to have the same aggregate
current market value (determined pursuant to Sections 11(d)(i) and
11(d)(ii) hereof, to the extent applicable) as one share of Common
Stock (such number of shares (or fractions of shares) of Preferred
Stock (or other equity securities or debt securities of the Company)
being referred to as a "capital stock equivalent"), equal in the
aggregate to the number of Adjustment Shares; provided, however, if
sufficient shares of Common Stock and/or capital stock equivalents are
unavailable, then the Company shall, to the extent permitted by
applicable law, take all such action as may be necessary to authorize
additional shares of Common Stock or capital stock equivalents for
issuance upon exercise of the Rights, including the calling of a
meeting of stockholders; and provided, further, that if the Company is
unable to cause sufficient shares of Common Stock and/or capital stock
equivalents to be available for issuance upon exercise in full of the
Rights, then each Right shall thereafter represent the right to
receive the Adjusted Number of Shares upon exercise at the Adjusted
Purchase Price (as such terms are hereinafter defined). As used
<PAGE>
herein, the term "Adjusted Number of Shares" shall be equal to that
number of shares (or fractions of shares) of Common Stock (and/or
capital stock equivalents) equal to the product of (x) the number of
Adjustment Shares and (y) a fraction, the numerator of which is the
number of shares of Common Stock (and/or shares or units of common
stock equivalents) available for issuance upon exercise of the Rights
and the denominator of which is the aggregate number of Adjustment
Shares otherwise issuable upon exercise in full of all Rights
(assuming there were a sufficient number of shares of Common Stock
available) (such fraction being referred to as the "Proration
Factor"). The "Adjusted Purchase Price" shall mean the product of the
Purchase Price and the Proration Factor. The Board of Directors may,
but shall not be required to, establish procedures to allocate the
right to receive shares of Common Stock and capital stock equivalents
upon exercise of the Rights among holders of Rights.
(b) In case the Company shall fix a record date for the issuance
of rights (other than the Rights), options or warrants to all holders of
Preferred Stock entitling them (for a period expiring within 45 calendar
days after such record date) to subscribe for or purchase shares of
Preferred Stock (or shares having the same rights and privileges as the
Preferred Stock ("equivalent preferred stock")) or securities convertible
into shares of Preferred Stock or equivalent preferred stock at a price per
share of Preferred Stock or per share of equivalent preferred stock (or
having a conversion price per share, if a security convertible into shares
of Preferred Stock or equivalent preferred stock) less than the then
current per share market price of the Preferred Stock (as determined
pursuant to Section 11(d) hereof) 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 shares of Preferred
Stock outstanding on such record date, plus the number of shares of
Preferred Stock which the aggregate offering price of the total number of
shares 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 per share
market price, and the denominator of which shall be the number of shares of
Preferred Stock outstanding on such record date, plus the number of
additional shares 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); 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 the exercise of one Right. 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 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. Shares 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 the making of
a distribution to all holders 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 or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b) 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) hereof) 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) of the portion of the assets or evidences of
indebtedness so to be distributed or of such subscription rights or
warrants applicable to one share of Preferred Stock and the denominator of
which shall be such current per share market price of the Preferred Stock;
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 to be issued upon exercise of one
Right. 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
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 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
<PAGE>
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 30 Trading Days after the ex-dividend
date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification, then, and in each such
case, the "current per share market price" shall be appropriately
adjusted to reflect the current per share market price 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 New York Stock Exchange or, if the Security is not
listed or admitted to trading on the New York Stock Exchange, 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 National Association of Securities Dealers,
Inc. Automated Quotations System ("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, selected by the Board,
making a market in the Security. If on any such date no such market
maker is making a market in the Security, the fair value of the
Security on such date as determined in good faith by the Board 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. Subject to Section 11(d)(ii)
hereof, if any Security is not publicly held or so listed or traded,
"current per share market price" of such Security shall mean the fair
market value per share as determined in good faith by the Board, whose
determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent.
(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 the foregoing
Section 11(d)(i). If the Preferred Stock is not publicly traded, the
current per share market price of the Preferred Stock shall be
conclusively deemed to be the current per share market price of the
Common Stock as determined pursuant to the foregoing Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof), multiplied by
one thousand. If neither the Common Stock nor the Preferred Stock is
publicly held or so listed or traded, "current per share market price"
shall mean the fair value per share as determined in good faith by the
Board, whose determination shall be described in a statement filed
with the Rights Agent and shall be binding on the Rights Agent.
(e) Notwithstanding anything herein to the contrary, no
adjustment in the Purchase Price shall be required unless such adjustment
would require an increase or decrease of at least 1% in the Purchase Price;
provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section
11 shall be made to the nearest cent or to the nearest one one-thousandth
of a share of Preferred Stock or one hundred-thousandth 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 mandates such adjustment or (ii) the Final Expiration Date.
(f) If, as a result of an adjustment made pursuant to Section
11(a)(ii) or 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock of the Company
other than Preferred Stock, thereafter the number of other shares so
receivable upon exercise of any Right 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 Sections
11(a) through 11(c) hereof, inclusive, and the provisions of Sections 7, 9,
10, 13 and 15 hereof 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 one-thousandths of
a share 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) hereof, upon each adjustment of the Purchase
<PAGE>
Price as a result of the calculations made in Sections 11(b) and 11(c)
hereof, 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 one one-thousandths of a share of Preferred
Stock (calculated to the nearest one-millionth of a share of Preferred
Stock) obtained by (i) multiplying (A) the number of one one-thousandths of
a share of Preferred Stock covered by a Right immediately prior to this
adjustment of the Purchase Price by (B) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii)
dividing the product so obtained by 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 lieu of any
adjustment in the number of one one-thousandths of a share 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 one one-thousandths of a share 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 Right Certificates have been issued, shall be
at least 10 days later than the date of the public announcement. If Right
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 Right
Certificates on such record date Right Certificates evidencing, subject to
Section 15 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the
date of adjustment, and upon surrender thereof, if required by the Company,
new Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be
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 Right 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 one one-thousandths of a share of Preferred Stock
issuable upon the exercise of the Rights, the Right Certificates
theretofore and thereafter issued may continue to express the Purchase
Price and the number of one one-thousandths of a share of Preferred Stock
which were expressed in the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then par value, if any, of the number
of one one-thousandths of a share of Preferred Stock, Common Stock or other
securities 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 such number of fully
paid and nonassessable one one-thousandths of a share of Preferred Stock,
Common Stock or other securities at such adjusted Purchase Price.
(1) 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 issuance to the holder of any Right exercised after such
record date the number of one one-thousandths of a share of Preferred
Stock, Common Stock or other securities of the Company, if any, issuable
upon such exercise over and above the number of one one-thousandths of a
share of Preferred Stock, Common Stock or other securities of the Company,
if any, issuable upon 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 upon the occurrence of the
event requiring such adjustment.
(m) Notwithstanding anything in this Section 11 to the contrary,
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 shares of Preferred
Stock at less than the current market price, (iii) issuance wholly for cash
of shares of Preferred Stock or securities which by their terms are
convertible into or exchangeable for shares of Preferred Stock, (iv) stock
dividends, or (v) issuance of rights, options or warrants referred to in
this Section 11, hereafter made by the Company to holders of its Preferred
Stock shall not be taxable to such stockholders.
<PAGE>
(n) The exercise of Rights under Section 11(a)(ii) hereof shall
only result in the reduction of rights under Section 11(a)(ii) hereof to
the extent so exercised and shall not otherwise affect the rights
represented by the Rights under this Agreement, including the rights
represented by Section 13 hereof.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Sections 7(b), 11 or
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 Preferred Stock and the Common Stock a copy of such
certificate and (c) mail a brief summary thereof to each holder of a Right
Certificate in accordance with Section 26 hereof. The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment
therein contained and shall not be deemed to have knowledge of such
adjustment unless and until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets
or Earning Power. (a) In the event that, on or following the Stock
Acquisition Date or the Distribution Date, directly or indirectly, (x) the
Company shall consolidate with, or merge with and into, any Interested
Stockholder or, if in such merger or consolidation all holders of Common
Stock are not offered the same consideration, any other Person, (y) the
Company shall consolidate with, or merge with, any Interested Stockholder
or, if in such merger or consolidation all holders of Common Stock are not
offered the same consideration, any other Person and the Company shall be
the continuing or surviving corporation of such consolidation or merger
(other than, in a case of any transaction described in (x) or (y), a merger
or consolidation which would result in all of the securities generally
entitled to vote in the election of directors ("voting securities") of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into securities of
the surviving entity) all of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation
and the holders (and relative percentage holdings of each such holder) of
such securities not having changed as a result of such merger or
consolidation) or (z) the Company shall sell or otherwise transfer (or one
or more of its subsidiaries shall sell or otherwise transfer), in one
transaction or a series of related 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 Interested Stockholder or, if in
such transaction all holders of Common Stock are not offered the same
consideration, any other Person (other than the Company or any subsidiary
of the Company in one or more transactions each of which does not violate
Section 14(b) hereof), then, and in each such case (except as provided in
Section 13(d) hereof), proper provision shall be made so that (A) each
holder of a Right, except as provided in Section 7(e) hereof, shall
thereafter have the right to receive, upon the exercise thereof at a price
equal to the then current Purchase Price in accordance with the terms of
this Agreement, and in lieu of Preferred Stock, such number of shares of
freely tradeable Common Stock of the Principal Party (as hereinafter
defined), not subject to any liens, rights of first refusal, encumbrances
or other adverse claims, as shall equal the result obtained by (1)
multiplying the then current Purchase Price by the number of one
one-thousandths of a share of Preferred Stock for which a Right is then
exercisable (without taking into account any adjustment previously made
pursuant to Section 11(a)(ii) hereof) and dividing that product by (2) 50%
of the then current per share market price of the Common Stock of such
Principal Party (determined pursuant to Section 11(d) hereof) on the date
of consummation of such Section 13 Event; (B) 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; (C) the term "Company" shall thereafter be deemed to refer to
such Principal Party, it being specifically intended that the provisions of
Section 11 hereof shall only apply to such Principal Party following the
first occurrence of a Section 13 Event; and (D) 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 assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to its shares of Common Stock thereafter deliverable
upon the exercise of the Rights.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in (x) or (y)
of the first sentence of Section 13(a) hereof, the Person that is the
issuer of any securities into which shares of Common Stock of the
Company are converted in such merger or consolidation, and if no
securities are so issued, the Person that is the other party to such
merger or consolidation (including, if applicable, the Company if it
is the surviving corporation); and
(ii) in the case of any transaction described in (z) of the
first sentence of Section 13(a) hereof, the Person that is the party
receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions;
<PAGE>
provided, however, that in any of the foregoing cases, (1) if the Common
Stock of such Person is not at such time and has not been continuously over
the preceding 12-month period registered under Section 12 of the Exchange
Act, and such Person is a direct or indirect subsidiary or Affiliate of
another Person the Common Stock of which is and has been so registered,
"Principal Party" shall refer to such other Person; (2) in case such Person
is a subsidiary, directly or indirectly, or Affiliate of more than one
Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is
the issuer of the Common Stock having the greatest aggregate market value;
and (3) in case such Person is owned, directly or indirectly, by a joint
venture formed by two or more Persons that are not owned, directly or
indirectly, by the same Person, the rules set forth in clauses (1) and (2)
above of this Section 13(b) shall apply to each of the chains of ownership
having an interest in such joint venture as if such party were a
"subsidiary" of both or all of such joint venturers and the Principal
Parties in each such chain shall bear the obligations set forth in this
Section 13 in the same ratio as their direct or indirect interests in such
Person bear to the total of such interests.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of shares of its authorized 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 Section 13(a)
and 13(b) hereof and further providing that, as soon as practicable after
the date of any consolidation, merger, sale or transfer mentioned in
Section 13(a) hereof, the Principal Party at its own expense shall
(i) prepare and file a registration statement under the Act
with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, and use its best
efforts to cause such registration statement to (A) become effective
as soon as practicable after such filing and (B) remain effective
(with a prospectus at all times meeting the requirements of the Act)
until the Final Expiration Date;
(ii) use its best efforts to qualify or register the Rights
and the securities purchasable upon exercise of the Rights under the
blue sky laws of such jurisdictions as may be necessary or
appropriate; and
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with
the requirements for registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers. The rights under
this Section 13 shall be in addition to the rights to exercise Rights and
adjustments under Section 11(a)(ii) hereof and shall survive any exercise
thereof.
(d) Notwithstanding anything in this Agreement to the contrary,
the provisions of this Section 13 shall not be applicable to a transaction
described in subparagraphs (x) and (y) of Section 13(a) hereof if: (i) such
transaction is consummated with a Person or Persons who acquired shares of
Common Stock pursuant to a Permitted Offer (or a wholly owned subsidiary of
any such Person or Persons); (ii) the price per share of Common Stock
offered in such transaction is not less than the price per share of Common
Stock paid to all holders of Common Stock whose shares were purchased
pursuant to such Permitted Offer; and (iii) the form of consideration
offered in such transaction is the same as the form of consideration paid
pursuant to such Permitted Offer. Upon consummation of any such transaction
contemplated by this Section 13(d), all Rights hereunder shall expire.
Section 14. Additional Covenants. (a) The Company covenants and
agrees that it 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 does not violate Section 14(b) hereof), (ii) merge
with or into any other Person (other than a subsidiary of the Company in a
transaction which does not violate Section 14(b) hereof), or (iii) sell or
transfer (or permit any subsidiary to sell or transfer), in one
transaction, or a series of related 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 does not violate Section 14(b) hereof) if (x) at the time of
or after such consolidation, merger or sale or transfer there are any
charter or by-law provisions of the Company or any other Person or any
rights, warrants or other instruments of the Company or any other Person
outstanding or agreements in effect or any other action taken which would
materially 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 stockholders of the Person
who constitutes, or would constitute, the "Principal Party" for purposes of
Section 13(a) hereof shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates and Associates.
<PAGE>
The Company shall not consummate any such consolidation, merger, sale or
transfer unless prior thereto the Company and such other Person shall have
executed and delivered to the Rights Agent a supplemental agreement
evidencing compliance with this subsection.
(b) The Company covenants and agrees that, after the earlier of
(i) the Stock Acquisition Date and (ii) the Distribution Date, it will not,
except as permitted by Section 24 or Section 28 hereof, take (or permit any
of its subsidiaries to take) any action the purpose of which is to, or if
at the time such action is taken it is reasonably foreseeable that the
effect of which is to, materially diminish or otherwise eliminate the
benefits intended to be afforded by the Rights.
Section 15. Fractional Rights and Fractional Shares. (a) The
Company shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the
Right 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
15(a), the current market value of a whole Right shall be the closing price
of the Rights for the Trading Day immediately prior to the date on which
such fractional Rights would have been otherwise issuable. The closing
price of the Rights 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 New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, 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, selected by the Board, making a market in the Rights. 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
shares of Preferred Stock (other than fractions which are one
one-thousandths or integral multiples of one one-thousandths of a share of
Preferred Stock) upon exercise of the Rights or to distribute certificates
which evidence fractional shares of Preferred Stock (other than fractions
which are one one-thousandths or integral multiples of one one-thousandth
of a share of Preferred Stock). Fractions of shares of Preferred Stock in
integral multiples of one one-thousandths 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 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 shares
of Preferred Stock represented by such depositary receipts. In lieu of
fractional shares of Preferred Stock that are not one one-thousandth or
integral multiples of one one-thousandth of a share of Preferred Stock, the
Company shall pay to the registered holders of Right 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 share of Preferred
Stock. For purposes of this Section 15(b), the current market value of a
share of Preferred Stock shall be the closing price of a share of Preferred
Stock (as determined pursuant to Section 11(d)(ii) hereof) for the Trading
Day immediately prior to the date of such exercise.
(c) Following the occurrence of one of the transactions or events
specified in Section 11 hereof giving rise to the right to receive shares
of Common Stock or capital stock equivalents (other than Preferred Stock)
or other securities upon the exercise of a Right, the Company shall not be
required to issue fractions of shares or units of such Common Stock,
capital stock equivalents or other securities upon exercise of the Rights
or to distribute certificates which evidence fractional shares of such
Common Stock, capital stock equivalents or other securities. In lieu of
fractional shares or units of such Common Stock, capital stock equivalents
or other securities, the Company may pay to the registered holders of Right
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 a
share or unit of such capital stock equivalents or other securities. For
purposes of this Section 15(c), the current market value shall be
determined in the manner set forth in Section 11(d) hereof for the Trading
Day immediately prior to the date of such exercise and, if such capital
stock equivalent is not traded, each such capital stock equivalent shall
have the value of one one-thousandth of a share of Preferred Stock.
(d) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any
fractional shares upon exercise of a Right (except as provided above).
<PAGE>
Section 16. Rights of Action. All rights of action in respect of
this Agreement excepting the rights of action given to the Rights Agent
under Section 19 hereof are vested in the respective registered holders of
the Right Certificates (and, prior to the Distribution Date, the registered
holders of the Common Stock); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Common Stock),
without the consent of the Rights Agent or of the holder of any other Right
Certificate (or, prior to the Distribution Date, of the Common Stock), may,
in his own behalf and for his own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of, his right to exercise the Rights evidenced by
such Right Certificate in the manner provided in such Right Certificate and
in this Agreement. Without limiting the foregoing or any remedies available
to the holders of Rights, it is specifically acknowledged that the holders
of Rights would not have an adequate remedy at law for any breach of this
Agreement and will be entitled to specific performance of the obligations
under, and injunctive relief against actual or threatened violations of the
obligations hereunder of any Person subject to, this Agreement.
Section 17. Agreement of Right 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 Common Stock;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered
at the principal office or offices of the Rights Agent designated for such
purpose, duly endorsed or accompanied by a proper instrument of transfer
and with the appropriate form fully executed;
(c) subject to Section 6 and Section 7(f) hereof, the Company and
the Rights Agent may deem and treat the person in whose name the Right
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 Right Certificate 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, subject to the
last sentence of Section 7(e) hereof, shall be required to 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 a beneficial interest in 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 18. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of the shares of
Preferred Stock or any other securities of the Company which may at any
time be issuable on the exercise of the Rights represented thereby, nor
shall anything contained herein or in any Right Certificate be construed to
confer upon the holder of any Right Certificate, as such, any of the rights
of a shareholder 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 other
distributions or to exercise any preemptive or subscription rights, or
otherwise, until the Right or Rights evidenced by such Right Certificate
shall have been exercised in accordance with the provisions hereof.
Section 19. 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, bad faith or willful
misconduct on the part of the Rights Agent, for anything done or omitted by
the Rights Agent in connection with the acceptance and administration of
this Agreement, including the costs and expenses of defending against any
claim of liability arising therefrom. The indemnification provided for
hereunder shall survive the expiration of the Rights and the termination of
this Agreement. In no case shall the Rights Agent be liable for special,
indirect, incidental or consequential loss or damage of any kind
whatsoever, even if the Rights Agent has been advised of the likelihood of
<PAGE>
such loss or damage.
The Rights Agent 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 in reliance upon any
Right Certificate or certificate for 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.
Section 20. Merger or Consolidation or Change of Name of Rights
Agent. 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 all or substantially all of the
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 22
hereof. In case at the time such successor Rights Agent shall succeed to
the agency created by this Agreement, any of the Right 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 Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of
the predecessor or in the name of the successor Rights Agent. In all such
cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Right Certificates so
countersigned; and in case at that time any of the Right Certificates shall
not have been countersigned, the Rights Agent may countersign such Right
Certificates either in its prior name or in its changed name. In all such
cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
Section 21. Duties of Rights Agent. The Rights Agent undertakes
the duties and obligations imposed by this Agreement upon the following
terms and conditions, by all of which the Company and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to
any action taken or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any
fact or matter (including, without limitation, the identity of any
Acquiring Person and the determination of the current per share market
price of any Security) be proved or established by the Company prior to
taking or suffering 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, any Chief Executive Officer, President, Vice
President, the Treasurer, the Secretary or any Assistant 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 or suffered in
good faith by it under the provisions of this Agreement in reliance upon
such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
gross negligence, bad faith 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
Right Certificates or be required to verify the same (except its
countersignature thereof). 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 responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in respect
of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by
the Company of any covenant or condition contained in this Agreement or in
any Right Certificate; nor shall it be responsible for any adjustment
required under the provisions of Section 11 or 13 hereof or responsible for
the manner, method or amount of any such adjustment or the ascertaining of
the existence of facts that would require any such adjustment (except with
<PAGE>
respect to the exercise of Rights evidenced by Right Certificates after
receipt of the certificate described in Section 12 hereof); nor shall it by
any act hereunder be deemed to make any representation or warranty as to
the authorization or reservation of any shares of Preferred Stock or Common
Stock or other securities to be issued pursuant to this Agreement or any
Right Certificate or as to whether any shares of Preferred Stock or Common
Stock or other securities will, when issued, be validly authorized and
issued, fully paid and nonassessable; nor shall it be under any duty to
make any independent investigation or determination of the identity of any
Acquiring Person or any Affiliate or Associate thereof, but shall be
entitled to rely, in the absence of instructions identifying any such
Person, on representations made by holders of Right Certificates.
(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 performance of its duties hereunder from
any one of the Chairman, any Chief Executive Officer, President, Vice
President, the Secretary, any Assistant 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 liable for any action taken
or suffered by it in good faith in accordance with instructions of any such
officer.
(h) The Rights Agent and any shareholder, 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, omission, default, neglect or
misconduct of any such attorneys or agents or for any loss to the Company
resulting from any such act, omission, default, neglect or misconduct;
provided, however, 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 hereunder if there shall be reasonable grounds for believing that
repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.
(k) If, with respect to any Right Certificates surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has not
been completed, the Rights Agent shall not take any further action with
respect to such requested exercise of transfer without first consulting
with the Company.
Section 22. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under
this Agreement upon 30 days' notice in writing mailed to the Company and to
each transfer agent of the Common Stock and Preferred Stock by registered
or certified mail, and to the holders of the Right Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon 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 and Preferred Stock by registered or certified mail, and
to holders of the Right 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 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 Right Certificate (who shall, with such
notice, submit his Right Certificate for inspection by the Company), then
the registered holder of any Right 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 either (a) a corporation organized and doing business under
the laws of the United States or of the State of New York (or of any other
state of the United States so long as such corporation is authorized to do
business as a banking institution in the State of New York), in good
standing, having a principal office in the State of New York, which is
authorized under such laws to exercise corporate trust or stock transfer
powers and is 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 $50,000,000 (or such lower number
<PAGE>
as approved by the Board) or (b) an affiliate of such a corporation. 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 and Preferred Stock, and mail a notice
thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 22, 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 23. Issuance of New Right Certificates. Notwithstanding
any of the provisions of this Agreement or of the Rights to the contrary,
the Company may, at its option, issue new Right 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 Right
Certificates made in accordance with the provisions of this Agreement.
In addition, in connection with the issuance or sale of Common
Stock following the Distribution Date and prior to the earliest of the
Redemption Date, the Final Expiration Date and the consummation of a
transaction contemplated by Section 13(d) hereof, the Company (a) shall
with respect to Common Stock so issued or sold pursuant to the exercise of
stock options or under any employee plan or arrangement, or upon the
exercise, conversion or exchange of securities, notes or debentures issued
by the Company, and (b) may, in any other case, if deemed necessary or
appropriate by the Board of Directors of the Company, issue Right
Certificates representing the appropriate number of Rights in connection
with such issuance or sale; provided, however, that no Right Certificates
shall be issued if, and to the extent that, appropriate adjustment shall
otherwise have been made in lieu of the issuance thereof.
Section 24. Redemption and Termination.
(a) (i) The Board of Directors of the Company may, at its option,
redeem all but not less than all of the then outstanding Rights at a
redemption price of $.001 per Right, as such amount may be
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") at any
time prior to the earlier of (A) the occurrence of a Section 11(a)(ii)
Event or (B) the Final Expiration Date, and the Company may, at its
option, pay the Redemption Price either in Common Stock (based on the
current per share market price, as defined in Section 11(d) hereof, of
the Common Stock at the time of redemption) or cash; provided,
however, that if the Company elects to pay the Redemption Price in
Common Stock, the Company shall not be required to issue any
fractional Common Stock and the number of Common Stock issuable to
each holder of Rights shall be rounded down to the next whole share.
(ii) In addition, the Board of Directors of the Company may
redeem all but not less than all of the then outstanding Rights at the
Redemption Price following the occurrence of a Stock Acquisition Date
but prior to any event described in Section 13(a), either (x) if each
of the following shall have occurred and remain in effect: (1) a
Person who is an Acquiring Person shall have transferred or otherwise
disposed of a number of voting securities of the Company in a
transaction, or series of transactions, (which did not result in the
occurrence of an event described in Section 11(a)) such that such
Person is thereafter a Beneficial Owner of securities representing 5%
or less of the Voting Power, (2) there are no other Persons,
immediately following the occurrence of the event described in clause
(1), who are Acquiring Persons, and (3) the transfer or other
disposition described in clause (1) above was other than pursuant to a
transaction, or series of transactions, which directly or indirectly
involved the Company or any of its Subsidiaries or (y) in connection
with any event specified in Sections 11(a)(ii) or 13(a) in which all
holders of Common Stock are offered the same consideration and not
involving an Interested Stockholder or any other Person in which such
Interested Stockholder has any interest, or any other Person acting
directly or indirectly on behalf of or in association with any such
Interested Stockholder or (z) following the occurrence of an event set
forth in, and the expiration of any period during which the holder of
Rights may exercise the rights under, Section 11(a)(ii) if and for as
long as the Interested Stockholder is not thereafter the Beneficial
Owner of securities representing 15% or more of the Voting Power.
(b) In the case of a redemption permitted under Section 24(a)(i)
hereof, immediately upon the date for redemption set forth in (or
determined in the manner specified in) a resolution of the Board of
Directors of the Company ordering the redemption of the Rights, evidence of
which shall have been filed with the Rights Agent, and without any further
action and without any notice, the right to exercise the Rights will
<PAGE>
terminate and the only right thereafter of the holders of Rights shall be
to receive the Redemption Price for each Right so held. In the case of a
redemption permitted under Section 24(a)(ii), evidence of which shall have
been filed with the Rights Agent, the right to exercise the Rights will
terminate and represent only the right to receive the Redemption Price upon
the later of ten Business Days following the giving of notice or the
expiration of any period during which the rights under Section 11(a)(ii)
hereof may be exercised. 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 date for redemption set forth
in a resolution of the Board of Directors ordering the redemption of the
Rights, the Company shall mail a notice of redemption to all the holders of
the then outstanding Rights at their last addresses as they appear upon the
registry books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the transfer agent for the Common Stock. Any notice
which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption
Price will be made. Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value any Rights at any time
in any manner other than that specifically set forth in this Section 24 and
other than in connection with the purchase of shares of Common Stock prior
to the Distribution Date.
(c) In the case of a redemption permitted under Section 24(a)(i)
hereof, the Company may, at its option, discharge all of its obligations
with respect to the Rights by (i) issuing a press release announcing the
manner of redemption of the Rights in accordance with this Agreement and
(ii) mailing payment of the Redemption Price to the registered holders of
the Rights at their last addresses as they appear on the registry books of
the Rights Agent or, prior to the Distribution Date, on the registry books
of the Transfer Agent of the Common Stock, and upon such action, all
outstanding Rights and Right Certificates shall be null and void without
any further action by the Company.
Section 25. Exchange. (a) The Board of Directors of the Company
may, at its option, at any time after the time that any Person becomes an
Acquiring Person, 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) and Section 11(a)(ii) hereof)
for Common Stock of the Company at an exchange ratio of one share of Common
Stock per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction involving either the Common Stock or the
Preferred Stock occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the
foregoing, the Board of Directors shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any
subsidiary of the Company, any employee benefit plan of the Company or any
such subsidiary, any entity holding Common Stock for or pursuant to the
terms of any such plan or any trustee, administrator or fiduciary of such a
plan), together with all Affiliates and Associates of such Person, becomes
the Beneficial Owner of 50% or more of the 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 25 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 shares of
Common Stock equal to the number of such Rights held by such holder
multiplied by the 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 shall promptly 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 shares of Common Stock for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will
be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 7(e) and Section 11(a)(ii) hereof) held by each
holder of Rights.
(c) In any exchange pursuant to this Section 25, the Company, at
its option, may substitute Preferred Stock (or equivalent preferred stock,
as such term is defined in Section 11(b) hereof) for some or all of the
Common Stock exchangeable for Rights, at the initial rate of one-thousandth
of a share of Preferred Stock (or equivalent preferred stock) for each
share of Common Stock, as appropriately adjusted to reflect adjustments in
the voting rights of the Preferred Stock pursuant to the terms thereof, so
that the fraction of a share of Preferred Stock delivered in lieu of each
share of Common Stock shall have the same voting rights as one share of
Common Stock.
(d) The Board of Directors of the Company shall not authorize any
exchange transaction referred to in Section 25(a) hereof unless at the time
such exchange is authorized there shall be sufficient Common Stock or
<PAGE>
Preferred Stock issued but not outstanding or authorized but unissued to
permit the exchange of Rights as contemplated in accordance with this
Section 25.
Section 26. 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 Preferred Stock or to make any other distribution to the holders
of Preferred Stock (other than a regularly quarterly cash dividend), (ii)
to offer to the holders of Preferred Stock rights or warrants to subscribe
for or to purchase any additional shares 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 shares of
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 does not violate Section 14(b) hereof), 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 or Persons (other than the Company and/or any
of its subsidiaries in one or more transactions each of which does not
violate Section 14(b) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the
Company shall give to each holder of a Right Certificate, in accordance
with Section 27 hereof, a notice of such proposed action to the extent
feasible and file a certificate with the Rights Agent to that effect, which
shall specify the record date for the purposes of such stock dividend,
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 Preferred Stock, if any such date
is to be fixed. Such notice shall be so given in the case of any action
covered by clause (i) or (ii) above of this Section 26(a) at least 20 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 20 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
Preferred Stock whichever shall be the earlier.
(b) In case of a Section 11(a)(ii) Event, then (i) the Company
shall as soon as practicable thereafter give to each holder of a Right
Certificate, in accordance with Section 27 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 and (ii) all references in the foregoing Section 26(a) to Preferred
Stock shall be deemed thereafter to refer also, if appropriate, to Common
Stock and/or, if appropriate, other securities of the Company.
Section 27. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any
Right Certificate to or on the Company shall be sufficiently given or made
if sent by first-class mail, postage prepaid, and addressed (until another
address is filed in writing with the Rights Agent) as follows:
theglobe.com, inc.
31 West 21 Street
New York, NY 10010
Attention: Todd Krizelman, Co-Chief Executive
Officer and Co-President
Subject to the provisions of Section 22, any notice or demand authorized by
this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or
made if sent by first-class mail, postage prepaid, and addressed (until
another address is filed in writing with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate or, if
prior to the Distribution Date, to the holder of certificates representing
Common Stock shall be sufficiently given or made if sent by first-class
mail, postage prepaid, and addressed to such holder at the address of such
holder as shown on the registry books of the Company.
Section 28. Supplements and Amendments. Prior to the Distribution
Date, the Company and the Rights Agent shall, if the Company so directs,
supplement or amend any provision of this Agreement without the approval of
any holders of certificates representing Common Stock. From and after the
Distribution Date, the Company and the Rights Agent shall, if the Company
so directs, supplement or amend this Agreement without the approval of any
holders of Right Certificates 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
<PAGE>
desirable and which shall not adversely affect the interests of the holders
of Right Certificates (other than an Interested Stockholder); provided,
however, that this Agreement may not be supplemented or amended to
lengthen, pursuant to clause (iii) of this sentence, (A) a time period
relating to when the Rights may be redeemed at such time as the Rights are
not then redeemable, or (B) any other time period unless such lengthening
is for the purpose of protecting, enhancing or clarifying the rights of,
and/or the benefits to, the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Company which states that
the proposed supplement or amendment is in compliance with the terms of
this Section 28, the Rights Agent shall execute such supplement or
amendment, provided that such supplement or amendment does not adversely
affect the rights or obligations of the Rights Agent under Section 19 or 21
of this Agreement. Prior to the Distribution Date, the interests of the
holders of Rights shall be deemed coincident with the interests of the
holders of Common Stock.
Section 29. Determination and Actions by the Board of Directors,
etc. 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, 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, without
limitation, a determination to redeem or not redeem the Rights or to amend
this Agreement and whether any proposed amendment adversely affects the
interests of the holders of Right Certificates). For all purposes of this
Agreement, any calculation of the number of shares of Common Stock or other
securities outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common
Stock or any other securities 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 General Rules and Regulations under the Exchange Act as in effect on
the date of this 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 in good faith, shall (x) be final, conclusive and binding on the
Company, the Rights Agent, the holders of the Right Certificates and all
other parties, and (y) not subject the Board to any liability to the
holders of the Right Certificates.
Section 30. 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 31. Benefits of this Agreement. This Agreement shall be
for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Stock) and nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent
and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Stock) any legal or equitable right, remedy
or claim under this Agreement.
Section 32. 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.
Section 33. Governing Law. This Agreement, each Right and each
Right Certificate issued hereunder shall be deemed to be a contract made
under the laws of the State of Delaware 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 to be performed entirely within such
State.
Section 34. 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 35. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the
provisions hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and their respective corporate seals to be hereunto
affixed and attested, all as of the day and year first above written.
theglobe.com, inc.
By:--------------------------------
Name:
Title:
AMERICAN STOCK TRANSFER &
TRUST COMPANY
as Rights Agent
By:--------------------------------
Name:
Title:
<PAGE>
Exhibit A
---------
Form of
Certificate of Designation,
Preferences and Rights of
Junior Participating Preferred Stock
of
theglobe.com, inc.
(Pursuant to Section 151
of the General Corporation Law of the State of Delaware)
I, Todd Krizelman, Co-Chief Executive Officer and Co-President of
theglobe.com, inc. (the "Company"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, in accordance
with the provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Fourth Amended and Restated Certificate of Incorporation
of the Company (the "Restated Certificate"), said Board of Directors
adopted the following resolution creating a series of 100,000 shares of
Preferred Stock, par value $.001 per share, designated as Junior
Participating Preferred Stock:
RESOLVED that pursuant to the authority vested in the Board of
Directors of this Company in accordance with the provisions of the Restated
Certificate the Board of Directors hereby creates a series of Preferred
Stock of the Company and hereby states the designation and number of
shares, and fixes the relative rights, preferences and limitations thereof
(in addition to the provisions set forth in the Restated Certificate which
are applicable to the Preferred Stock of all classes and series) as
follows:
Section 1. Designation and Amount. There shall be a series of
Preferred Stock, par value $.001 per share, of the Company which shall be
designated as "Junior Participating Preferred Stock," par value $.001 per
share, and the number of shares constituting such series shall be 100,000.
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 Junior Participating Preferred Stock to a number less than that
of the shares then outstanding plus the number of shares issuable upon
exercise of outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the Company.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders
of any shares of any series of Preferred Stock ranking prior and superior
to the Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Junior Participating Preferred Stock in preference to
the holders of shares of Common Stock, par value $.001 per share (the
"Common Stock"), of the Company and any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, quarterly dividends payable in
cash on the first day of each January, April, July, and October 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 of Junior
Participating Preferred Stock in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1, or (b) subject to the
provision for adjustment hereinafter set forth, 1000 times the aggregate
per share amount of all cash dividends, and 1000 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 any share or fraction of
a share of Junior Participating Preferred Stock. In the event the Company
shall at any time after ___________, 1998 (the "Rights Declaration Date")
declare or pay any dividend on Common Stock payable in shares of Common
<PAGE>
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 lesser number of
shares, then in each such case the amount to which holders of shares of
Junior Participating Preferred Stock were entitled immediately prior to
such event under 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) On or after the first issuance of any share or
fractional share of Junior Preferred Stock, no dividend on Common Stock
shall be declared unless concurrently therewith a dividend on distribution
is declared on the Junior Preferred Stock as provided in paragraph (A)
above; and the declaration of any such dividend on the Common Stock shall
be expressly conditioned upon payment or declaration of and provision for a
dividend on the Junior Preferred Stock as above provided. In the event no
dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on
the Junior Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such
shares of Junior Participating Preferred Stock unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, 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 Junior Participating 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
Junior Participating 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 Junior Participating Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 60 days prior to the date
fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Junior
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Junior Participating Preferred Stock shall entitle the
holder thereof to (1000) votes on all matters submitted to a vote of the
stockholders of the Company. In the event the Company shall at any time
after the Rights Declaration Date declare or pay any dividend on 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 lesser number of shares, then in each such case the
number of votes per share to which holders of shares of Junior
Participating 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 or by law, the
Fourth Amended and Restated Certificate of Incorporation or the By-laws of
the Company (the "By-laws") the holders of shares of Junior Participating
Preferred Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of stockholders of
the Company.
(C) (i) If at any time dividends on any Junior Participating
Preferred Stock shall be in arrears in an amount equal to
six (6) quarterly dividends thereon, the occurrence of such
contingency shall mark the beginning of a period (herein
called a "default period") which shall extend until such
time when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly
dividend period on all shares of Junior Participating
Preferred Stock then outstanding shall have been declared
and paid or set apart for payment. During each default
period, all holders of Preferred Stock (including holders of
the Junior Participating Preferred Stock) with dividends in
arrears in an amount equal to six (6) quarterly dividends
thereon, voting as a class, irrespective of series, shall
have the right to elect two (2) Directors.
(ii) During any default period, such voting right of the
<PAGE>
holders of Junior Participating Preferred Stock may be
exercised initially at a special meeting called pursuant to
subparagraph (iii) of this Section 3(C) or at any annual
meeting of stockholders, and thereafter at annual meetings
of stockholders, provided that neither such voting right nor
the right of the holders of any other series of Preferred
Stock, if any, to increase in certain cases, the authorized
number of Directors shall be exercised unless the holders of
ten percent (10%) in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The
absence of a quorum of the holders of Common Stock shall not
affect the exercise by the holders of Preferred Stock of
such voting right. At any meeting at which the holders of
Preferred Stock shall exercise such voting right initially
during an existing default period, they shall have the
right, voting as a class, to elect Directors to fill such
vacancies, if any, in the Board of Directors as may then
exist up to two (2) Directors or, if such right is exercised
at an annual meeting, to elect two (2) Directors. If the
number which may be so elected at any special meeting does
not amount to the required number, the holders of the
Preferred Stock shall have the right to make such increase
in the number of Directors as shall be necessary to permit
the election by them of the required number. After the
holders of the Preferred Stock shall have exercised their
right to elect Directors in any default period and during
the continuance of such period, the number of Directors
shall not be increased or decreased except by vote of the
holders of Preferred Stock as herein provided or pursuant to
the rights of any equity securities ranking senior to or
pari passu with the Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their
right to elect Directors, the Board of Directors may order,
or any stockholder or stockholders owning in the aggregate
not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding, irrespective of
series, may request, the calling of a special meeting of the
holders of Preferred Stock, which meeting shall thereupon be
called by the Chairman, any Chief Executive Officer or
President of the Company. Notice of such meeting and of any
annual meeting at which holders of Preferred Stock are
entitled to vote pursuant to this paragraph (C) (iii) shall
be given to each holder of record of Preferred Stock by
mailing a copy of such notice to him at his last address as
the same appears on the books of the Company. Such meeting
shall be called for a time not earlier than 10 days and not
later than 60 days after such order or request or in default
of the calling of such meeting within 60 days after such
order or request, such meeting may be called on similar
notice by any stockholder or stockholders owning in the
aggregate not less than ten percent (10%) of the total
number of shares of Preferred Stock outstanding.
Notwithstanding the provisions of this paragraph (C)(iii),
no such special meeting shall be called during the period
within 60 days immediately preceding the date fixed for the
next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Company if applicable, shall
continue to be entitled to elect the whole number of
Directors until the holders of Preferred Stock shall have
exercised their right to elect two (2) Directors voting as a
class, after the exercise of which right (x) the Directors
so elected by the holders of Preferred Stock shall continue
in office until their successors shall have been elected by
such holders or until the expiration of the default period,
and (y) any vacancy in the Board of Directors may (except as
provided in paragraph (C)(ii) of this Section 3) be filled
by vote of a majority of the remaining Directors theretofore
elected by the holders of the class of stock which elected
the Director whose office shall become vacant. References in
this paragraph (C) to Directors elected by the holders of a
particular class of stock shall include Directors elected by
such Directors to fill vacancies as provided in clause (y)
of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x)
the right of the holders of Preferred Stock as a class to
elect Directors shall cease, (y) the term of any Directors
elected by the holders of Preferred Stock as a class shall
terminate, and (z) the number of Directors shall be such
number as may be provided for in the Fourth Amended and
Restated Certificate or By-laws of the Company irrespective
of any increase made pursuant to the provisions of paragraph
(C) (ii) of this Section 3 (such number being subject,
however, to change thereafter in any manner provided by law
or in the Fourth Amended and Restated Certificate or
<PAGE>
By-laws). Any vacancies in the Board of Directors effected
by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining
Directors.
(D) Except as otherwise set forth herein or required by law,
the Fourth Amended Certificate of Incorporation or the By-laws, holders of
Junior Participating 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.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Junior Participating 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
Junior Participating Preferred Stock outstanding shall have been paid in
full, the Company shall not:
(i) Declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire
for consideration any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Junior Participating Preferred Stock;
(ii) Declare or pay dividends on 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 Junior Participating Preferred Stock
except dividends paid ratably on the Junior Participating
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 on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Junior Participating Preferred Stock
provided that the Company may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Company ranking
junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Junior Participating
Preferred Stock; or
(iv) Purchase or otherwise acquire for consideration any
shares of Junior Participating Preferred Stock or any shares
of stock ranking on a parity with the Junior Participating
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 Company shall not permit any subsidiary of the
Company to purchase or otherwise acquire for consideration any shares of
stock of the Company unless the Company 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 Junior Participating
Preferred Stock purchased or otherwise acquired by the Company in any
manner whatsoever shall be retired and canceled 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 to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, no
distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to
the Junior Participating Preferred Stock unless, prior thereto, the holders
of shares of Junior Participating Preferred Stock shall have received per
share, the greater of $1 or 1000 times the payment made per share of Common
Stock, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment
(the "Liquidation Preference"). Following the payment of the full amount
of the Liquidation Preference, no additional distributions shall be made to
the holders of shares of Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Common Stock shall have received an
<PAGE>
amount per share (the "Common Adjustment") equal to the quotient obtained
by dividing (i) the Liquidation Preference by (ii) 1000 (as appropriately
adjusted as set forth in subparagraph C below to reflect such events as
stock splits, stock dividends and recapitalizations with respect to the
Common Stock) (such number in clause (ii), the "Adjustment Number").
Following the payment of the full amount of the Liquidation Preference and
the Common Adjustment in respect of all outstanding shares of Junior
Participating Preferred Stock and Common Stock, respectively, holders of
Junior Participating Preferred Stock and holders of shares of Common Stock
shall receive their ratable and proportionate share of the remaining assets
to be distributed in the ratio of the Adjustment Number to 1 with respect
to such Preferred Stock and Common Stock, on a per share basis,
respectively.
(B) In the event there are not sufficient assets available
to permit payment in full of the Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if any, which rank on a
parity with the Junior 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 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 Company shall at any time after the
Rights Declaration Date declare or pay any dividend on 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 lesser number of shares, then in each such case the
Adjustment Number in effect immediately prior to such event under the
preceding sentence 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.
Section 7. Consolidation, Merger, etc. If the Company 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 event the
shares of Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share subject to the
provision for adjustment hereinafter set forth equal to 1000 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 Company shall at
any time after the Rights Declaration Date declare or pay any dividend on
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 lesser number of shares, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Junior Participating 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
are outstanding immediately prior to such event.
Section 8. Redemption. The shares of Junior Participating
Preferred Stock shall not be redeemable.
Section 9. Ranking. The Junior Participating Preferred Stock
shall rank junior to all other series of the Company's Preferred Stock as
to the payment of dividends and the distribution of assets, unless the
terms of any such series shall provide otherwise.
Section 10. Fractional Shares. Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder,
in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the
benefit of all other rights of holders of Junior Participating Preferred
Stock.
<PAGE>
IN WITNESS WHEREOF, I have executed this Certificate and do
affirm the foregoing as true under penalties of perjury this ____ day of
October, 1998.
By:
--------------------------------
Todd Krizelman
Co-Chief Executive Officer and
Co-President
Attest:
- ----------------------------
Stephan Paternot
Co-Chief Executive Officer,
Co-President and Secretary
<PAGE>
EXHIBIT B
---------
Form of Right Certificate
Certificate No. R- ______ Rights
NOT EXERCISABLE AFTER ________, OR EARLIER IF REDEEMED BY THE
CORPORATION. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.001 PER
RIGHT ON THE TERMS SET FORTH IN THE STOCKHOLDER RIGHTS AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE STOCKHOLDER RIGHTS
AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO IS AN
INTERESTED STOCKHOLDER, WHETHER CURRENTLY HELD BY OR ON BEHALF OF
SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, SHALL BECOME NULL AND
VOID.
Right Certificate
theglobe.com, 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 Stockholder Rights Agreement, dated as of October __, 1998 (the
"Stockholder Rights Agreement"), between theglobe.com, inc., a Delaware
corporation (the "Company"), and American Stock Transfer & Trust Company
(the "Rights Agent"), to purchase from the Company at any time after the
Distribution Date (as such term is defined in the Stockholder Rights
Agreement) and prior to 5:00 P.M., New York, New York time, on ___________,
unless the Rights evidenced hereby shall have been previously redeemed by
the Company, at the principal office or offices of the Rights Agent
designated for such purpose, or at the office of its successor as Rights
Agent, one one-thousandth of a fully paid non-assessable share of Junior
Participating Preferred Stock, $.001 par value per share (the "Preferred
Stock"), of the Company, at a purchase price of $70.00 per one
one-thousandth of a share of Preferred Stock (the "Purchase Price"), upon
presentation and surrender of this Right Certificate with the Form of
Election to Purchase duly executed. The number of Rights evidenced by this
Right Certificate (and the number of one one-thousandths of a share of
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 ____________, ____ based on the shares of Preferred Stock as
constituted at such date.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Stockholder Rights Agreement), if the Rights evidenced by
this Right Certificate are beneficially owned by (i) an Interested
Stockholder (as such terms are defined in the Rights Agreement), (ii) a
transferee of any such Interested Stockholder who becomes a transferee
after the Interested Stockholder becomes such, or (iii) under certain
circumstances specified in the Stockholder Rights Agreement, a transferee
of any such Interested Stockholder who becomes a transferee prior to or
concurrently with the Interested Person becoming such, such Rights shall
become null and void and no holder hereof shall have any right with respect
to such Rights from and after the occurrence of such Section 11(a)(ii)
Event.
As provided in the Stockholder Rights Agreement, the Purchase
Price and the number of one one-thousandths of a share of Preferred Stock
or other securities which may be purchased upon the exercise of the Rights
evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events, including Triggering
Events (as such term is defined in the Stockholder Rights Agreement).
This Right Certificate is subject to all of the terms, provisions
and conditions of the Stockholder Rights Agreement, which terms, provisions
and conditions are hereby incorporated herein by reference and made a part
hereof and to which Stockholder 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 Right Certificates, which limitations of rights include the
temporary suspension of the exercisability of such Rights under the
specific circumstances set forth in the Rights Agreement. Copies of the
Rights Agreement are on file at the principal executive offices of the
Company and the principal office or offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates,
upon surrender at the principal office of the Rights Agent, may be
exchanged for another Right Certificate or Right Certificates of like tenor
and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Preferred Stock or other securities as the
<PAGE>
Rights evidenced by the Right Certificate or Right Certificates surrendered
shall have entitled such holder to purchase. If this Right Certificate
shall be exercised in part, the holder shall be entitled to receive upon
surrender hereof another Right Certificate or Right Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Stockholder Rights Agreement,
the Rights evidenced by this Certificate may be redeemed by the Company at
a redemption price of $.001 per Right (subject to adjustment as provided in
the Stockholder Rights Agreement) payable in shares of Common Stock or
cash.
The Company shall not be required to issue fractions of Rights or
to distribute Right Certificates which evidence fractional Rights. In lieu
of such fractional Rights, there shall be paid to the registered holders of
the Right 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 as defined in the Stockholder Rights
Agreement.
The Company will not be required to issue fractions of shares of
Preferred Stock (other than fractions which are one one-thousandths or
integral multiples of one one of a share of Preferred Stock) upon exercise
of the Rights or to distribute certificates which evidence fractional
shares of Preferred Stock (other than fractions which are one
one-thousandth or integral multiples of one one-thousandth of a share of
Preferred Stock). In lieu of fractional shares of Preferred Stock other
than fractions that are multiples of one one-thousandth of a share of
Preferred Stock, the Company will pay to the registered holders of Right
Certificates at the time such Rights are exercised an amount in cash equal
to the same fraction of the current market value of one share of Preferred
Stock as defined in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the shares of
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 Stockholder Rights Agreement or herein be construed to confer upon the
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 Stockholder
Rights Agreement), or to receive dividends or other distributions or to
exercise any preemptive or subscription rights, or otherwise, until the
Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Stockholder Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
<PAGE>
WITNESS the signature of the proper officers of the Company and
its corporate seal. Dated as of _________, ______.
[SEAL]
ATTEST: theglobe.com, inc.
Attest:
By By
----------------------------- -------------------------------
Name: Name:
Title: Title:
Countersigned:
AMERICAN STOCK TRANSFER & TRUST
COMPANY
as Rights Agent
By
----------------------------
Authorized Signatory
Name:
Title:
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED __________________________________________________ hereby
sells, assigns and transfers unto ________________________________________
- ---------------------------------------------------------------------------
(Please print name and address of transferee)
- ---------------------------------------------------------------------------
this Right Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint _________
Attorney, to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.
Dated: ____________, _____
---------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of
Securities Dealers, Inc., or a commercial bank, savings association, credit
union or trust company having an office or correspondent in the United
States or other eligible guarantor institution which is a participant in a
signature guarantee medallion program.
- ---------------------------------------------------------------------------
The undersigned hereby certifies that (1) the Rights evidenced by the
Right Certificate are not being sold, assigned or transferred by or on
behalf of a Person who is or was an Interested Stockholder thereof (as such
terms are defined in the Shareholder Rights Agreement) and (2) after due
inquiry and to the best knowledge of the undersigned, the undersigned did
not acquire the Rights evidenced by this Right Certificate from any Person
who is or was or subsequently became an Interested Stockholder.
---------------------------
Signature
<PAGE>
Form of Reverse Side of Right Certificate -- continued
- ----------------------------------------------------------------------------
FORM OF ELECTION TO PURCHASE
(To be executed by the registered holder if such holder desires
to exercise Rights represented by the Right Certificate.)
To the Rights Agent:
The undersigned hereby irrevocably elects to exercise Rights
represented by this Right Certificate to purchase the shares of Preferred
Stock, Common Stock or such other securities issuable upon the exercise of
such Rights at this time as follows:
Please Insert
Number of Rights
To Be Exercised
---------------
(i) Preferred Stock Exercise -
(ii) Section 11(a)(ii) Exercise -
(iii) Section 13 Exercise -
The undersigned requests that certificates for such shares of
Preferred Stock, Common Stock or other securities be issued in the name of:
Please insert social security
or other identifying number ________________________________________________
- ----------------------------------------------------------------------------
(Please print name and address of transferee)
- ----------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right 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 of transferee)
- ----------------------------------------------------------------------------
<PAGE>
Form of Reverse Side of Right Certificate -- continued.
- ----------------------------------------------------------------------------
Dated: _________, ____
------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of
Securities Dealers, Inc., or a commercial bank, savings association, credit
union or trust company having an office or correspondent in the United
States or other eligible guarantor institution which is a participant in a
signature guarantee medallion program.
<PAGE>
Form of Reverse Side of Right Certificate -- continued.
- ----------------------------------------------------------------------------
The undersigned hereby certifies that (1) the Rights evidenced by
this Right Certificate are not being exercised by or on behalf of a Person
who is or was an Interested Stockholder thereof (as such terms are defined
in the Stockholder Rights Agreement) and (2) after due inquiry and to the
best knowledge of the undersigned, the undersigned did not acquire the
Rights evidenced by this Rights Certificate from any Person who is or was
an Interested Stockholder.
----------------------------
Signature
- ----------------------------------------------------------------------------
NOTICE
------
The signature on the foregoing Forms of Assignment and Election
and certificates must conform to the name as written upon the face of this
Right 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 or 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 Right Certificate to be an Interested
Stockholder (as such terms are defined in the Stockholder Rights Agreement)
and such Assignment or Election to Purchase will not be honored.
<PAGE>
EXHIBIT C
---------
October __, 1998
SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE STOCKHOLDER RIGHTS
AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES
AN INTERESTED STOCKHOLDER (AS DEFINED IN THE STOCKHOLDER RIGHTS AGREEMENT)
AND CERTAIN RELATED PERSONS, WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH
PERSON OR BY ANY SUBSEQUENT HOLDER, SHALL BECOME NULL AND VOID.
The Board of Directors of theglobe.com, inc., a Delaware
corporation (the "Company"), declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of Common Stock, of
par value $.001 per share (the "Common Stock"), of the Company. The
dividend is payable to the stockholders of record as of 5:00 P.M., New
York, New York time, on October ___, 1998 (the "Record Date"), and with
respect to Common Stock issued thereafter until the Distribution Date (as
hereinafter defined) and, in certain circumstances, with respect to shares
of Common Stock issued after the Distribution Date. Except as set forth
below, each Right, when it becomes exercisable, entitles the registered
holder to purchase from the Company one one-thousandth of a share of Junior
Participating Preferred Stock, of par value $.001 per share (the "Preferred
Stock"), at a price of $70.00 per one one-thousandth of a share of
Preferred Stock (the "Purchase Price"), subject to adjustment. The
description and terms of the Rights are set forth in a Stockholder Rights
Agreement, dated as of October __, 1998 (the "Stockholder Rights
Agreement"), between the Company and American Stock Transfer & Trust
Company (the "Rights Agent").
The Rights are attached to all certificates representing
outstanding shares of Common Stock, and no separate Right Certificates (as
hereinafter defined) have been distributed. The Rights will separate from
the shares of Common Stock on the earliest to occur of (i) the first date
of public announcement that without the prior consent of the Board of
Directors of the Company, a person or group (an "Acquiring Person"),
including any affiliates or associates of such person or group (other than
Dancing Bear Investments, Michael S. Egan, Todd V. Krizelman, Stephan J.
Paternot or any entities controlled by such persons) has acquired
beneficial ownership of securities having 15% or more of the voting power
of all outstanding voting securities of the Company (as hereinafter
defined); or (ii) ten (10) business days (or such later date as the Board
of Directors of the Company may determine) following the commencement of,
or announcement of an intention (which intention remains in effect for five
business days after such announcement) to commence, a tender offer or
exchange offer the consummation of which would result in a person or group
becoming an Acquiring Person (as hereinafter defined); (the earlier of such
dates being called the "Distribution Date"). A person or group whose
acquisition of voting securities causes a Distribution Date pursuant to
clause (i) above is an "Acquiring Person". The first date of public
announcement that a person or group has become an Acquiring Person is the
"Stock Acquisition Date".
The Rights Agreement provides that until the Distribution Date
the Rights will be transferred with and only with the shares of Common
Stock. Until the Distribution Date (or earlier redemption or expiration of
the Rights), new Common Stock certificates issued upon transfer or new
issuance of shares of Common Stock will contain a notation incorporating
the Stockholder Rights Agreement by reference. Until the Distribution Date
(or earlier redemption or expiration of the Rights), the surrender for
transfer of any certificates for shares of Common Stock outstanding, even
without such notation, will also constitute the transfer of the Rights
associated with the shares of Common Stock represented by such certificate.
As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the shares of Common Stock as of the close of business
on the Distribution Date (and to each initial record holder of certain
shares of Common Stock issued after the Distribution Date), and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and
will expire at 5:00 P.M., New York, New York time, on _______, ____unless
earlier redeemed by the Company as described below.
In the event that any person becomes an Acquiring Person (except
pursuant to a Permitted Offer as hereinafter defined), each holder of a
Right will have (subject to the terms of the Stockholder Rights Agreement)
the right (the "Flip-In Right") to receive upon exercise the number of
shares of Common Stock, or, in the discretion of the Board of Directors of
the Company, the number of one one-thousandths of a share of Preferred
Stock (or, in certain circumstances, other securities of the Company)
having a value (immediately prior to such triggering event) equal to two
<PAGE>
times the Purchase Price. Notwithstanding the foregoing, following the
occurrence of the event described above, all Rights that are, or (under
certain circumstances specified in the Stockholder Rights Agreement) were,
beneficially owned by any Acquiring Person or any affiliate or associate
thereof will be null and void. A "Permitted Offer" is a tender or exchange
offer for all outstanding shares of Common Stock which is at a price and on
terms determined, prior to the purchase of shares under such tender or
exchange offer, by a majority of Disinterested Directors (as hereinafter
defined) to be adequate (taking into account all factors that such
Disinterested Directors deem relevant) and otherwise in the best interests
of the Company and its stockholders (other than the person or any affiliate
or associate thereof on whose basis the offer is being made) taking into
account all factors that such Disinterested Directors may deem relevant.
"Disinterested Directors" are directors of the Company who are not officers
of the Company and who are not Acquiring Persons or affiliates or
associates thereof, or representatives of any of them.
In the event that, at any time following the Stock Acquisition
Date or the Distribution Date, (i) the Company is acquired in a merger or
other business combination transaction in which the holders of all of the
outstanding shares of Common Stock immediately prior to the consummation of
the transaction are not the holders of all of the surviving corporation's
voting power, or (ii) more than 50% of the Company's assets or earning
power is sold or transferred, in either case with or to an Interested
Stockholder, or, if in such transaction all holders of shares of Common
Stock are not offered the same consideration, any other person, then each
holder of a Right (except Rights which previously have been voided as set
forth above) shall thereafter have the right (the "Flip-Over Right") to
receive, upon exercise, shares of common stock of the acquiring company
having a value equal to two times the Purchase Price. The holder of a Right
will continue to have the Flip-Over Right whether or not such holder
exercises or surrenders the Flip-In Right.
The Purchase Price payable, and the number of one-thousandths of
a share of Preferred Stock or other securities 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 shares of Preferred Stock, (ii) upon the grant to
holders of the shares of Preferred Stock of certain rights or warrants to
subscribe for or purchase shares of Preferred Stock at a price, or
securities convertible into shares of Preferred Stock with a conversion
price, less than the then current market price of the shares of Preferred
Stock or (iii) upon the distribution to holders of the shares of Preferred
Stock of evidences of indebtedness or assets (excluding regular quarterly
cash dividends) or of subscription rights or warrants (other than those
referred to above).
The Purchase Price payable, and the number of one-thousandths of
a share of Preferred Stock or other securities issuable, upon exercise of
the Rights are also subject to adjustment in the event of a stock split of
the shares of Common Stock, or a stock dividend on the shares of Common
Stock payable in shares of Common Stock, or subdivisions, consolidations or
combinations of the shares of Common Stock occurring, in any such case,
prior to the Distribution Date.
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 one-thousandths of a share of
Preferred Stock will be issued, and in lieu thereof, an adjustment in cash
will be made based on the market price of the shares of Preferred Stock on
the last trading day prior to the date of exercise.
At any time prior to the earlier to occur of (i) a person
becoming an Acquiring Person or (ii) the expiration of the Rights, the
Company may redeem the Rights in whole, but not in part, at a price of
$.001 per Right (the "Redemption Price"), which redemption shall be
effective upon the action of the Board of Directors of the Company.
Additionally, the Company may redeem the then outstanding Rights in whole,
but not in part, at the Redemption Price (i) after the triggering of the
Flip-In Right and before the expiration of any period during which the
Flip-In Right may be exercised in connection with a merger or other
business combination transaction or series of transactions involving the
Company in which all holders of shares of Common Stock are not offered the
same consideration but not involving an Interested Stockholder (as defined
in the Stockholder Rights Agreement) or any other person acting on their
behalf, (ii) following an event giving rise to, and the expiration of the
exercise period for, the Flip-In Right if and for as long as no person
beneficially owns securities representing 15% or more of the voting power
of the Company's voting securities or (iii) if the Acquiring Person reduces
his ownership below 5% in transactions not involving the Company. The
redemption of Rights described in the preceding sentence shall be effective
only as of such time when the Flip-In Right is not exercisable, and in any
event, only after 10 business days' prior notice. Upon the effective date
of the 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 shares of Preferred Stock purchasable upon exercise of the
Rights will be non-redeemable and junior to any other series of preferred
<PAGE>
stock the Company may issue (unless otherwise provided in the terms of such
stock). Each share of Preferred Stock will have a preferential quarterly
dividend in an amount equal to 1000 times the dividend declared on each
share of Common Stock, but in no event less than $1. In the event of
liquidation, the holders of Preferred Stock will receive a preferred
liquidation payment equal to the greater of $1 or 1000 times the payment
made per each share of Common Stock. Each share of Preferred Stock will
have 1000 votes, voting together with the shares of Common Stock. In the
event of any merger, consolidation or other transaction in which shares of
Common Stock are exchanged, each share of Preferred Stock will be entitled
to receive 1000 times the amount and type of consideration received per
share of Common Stock. The rights of the Preferred Stock as to dividends,
liquidation and voting, and in the event of mergers and consolidations, are
protected by customary anti-dilution provisions. Fractional shares of
Preferred Stock will be issuable; however, the Company may elect to
distribute depositary receipts in lieu of such fractional shares. In lieu
of fractional shares other than fractions that are multiples of one
one-thousandth of a share, an adjustment in cash will be made based on the
market price of the Preferred Stock on the last trading date prior to the
date of exercise.
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. While the
distribution of the Rights will not be taxable to stockholders of the
Company, stockholders may, depending upon the circumstances, recognize
taxable income should the Rights become exercisable or upon the occurrence
of certain events thereafter.
"Interested Stockholder" means any Acquiring Person or any of
their affiliates or associates, or any other person in which an Acquiring
Person or their affiliates or associates have an interest in excess of 5%
or the total combined economic or voting power, or any person acting in
concert or on behalf of any such Acquiring Person or their affiliates or
associates.
A copy of the Stockholder Rights Agreement has been filed with
the Securities and Exchange Commission as an Exhibit to the Company's
Registration Statement on Form S-1. A copy of the Stockholder 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 Stockholder Rights Agreement, which is
incorporated herein by reference.
<PAGE>
Exhibit 9.1
FORM OF STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT (the "Agreement"), dated as of October ___,
1998, by and among theglobe.com, inc., a Delaware corporation, Michael S.
Egan, Dancing Bear Investments, Inc., a Delaware corporation ("DBI" and,
together with Michael S. Egan, "Dancing Bear"), Todd V. Krizelman, Stephan
J. Paternot, Edward A. Cespedes and Rosalie V. Arthur.
WHEREAS, Dancing Bear owns warrants (the "Warrants") to purchase
4,046,018 shares of Series E Preferred Stock of the Company, par value
$.001 per share (the "Series E Preferred Stock"), which shares are then
convertible, in the aggregate, into 4,046,018 shares of Common Stock, par
value $.001 per share, of the Company (the "Common Stock").
WHEREAS, upon the consummation of a Qualified Public Offering (as
defined herein), the Warrants will become exercisable directly for
4,046,018 shares of Common Stock in the aggregate; and
WHEREAS, contemporaneously with this Agreement, Dancing Bear has
transferred Warrants exercisable for 200,000, 200,000, 50,000 and 50,000
shares of Series E Preferred Stock to Todd V. Krizelman, Stephan J.
Paternot, Edward A. Cespedes and Rosalie V. Arthur (collectively referred
to herein as the "Holders"), respectively; and
WHEREAS, the parties hereto wish to provide certain restrictions on
the disposition by the Holders of any Warrants held by them and any shares
of Series E Preferred Stock or Common Stock for which such Warrants may be
exercised (the "Warrant Shares"); and
WHEREAS, the parties wish to provide for certain arrangements with
respect to the voting of the Warrant Shares in the event the Warrants held
by the Holders are exercised; and
WHEREAS, Messrs. Krizelman and Paternot and Dancing Bear wish to
provide for certain arrangements with respect to the voting of any shares
of Stock (defined herein) held by them.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definitions.
-----------
For purposes of this Agreement, the following terms shall have the
meanings indicated:
"Acceptance Notice" shall have the meaning given to it in Section 7
hereof.
"Agreement" shall have the meaning given to it in the preamble hereto.
"Beneficially Own" shall have the meaning ascribed thereto in Rule
13d-3 under the Securities Exchange Act of 1934, as amended.
"Board" shall mean the Board of Directors of the Company and any
authorized committee thereof.
"Buyer" shall have the meaning given to it in Section 9 hereof.
"Cause" shall mean (i) conduct by an individual that is fraudulent or
unlawful, (ii) gross negligence of or willful misconduct by an individual
which discredits or damages the Company, (iii) willful and repeated failure
by an individual to perform his or her duties and such failure to perform
adversely affects the Company, (iv) an individual has become the subject of
any order, judgment, or decree of any court or regulatory authority of
competent jurisdiction which is final and non-appealable, permanently or
temporarily enjoining him or her from engaging in any activity in
connection with the purchase or sale of any security or commodity, or in
connection with any violation of federal or state securities laws or
federal commodities laws; or (v) an individual is found by a court of
competent jurisdiction in a civil action or by the SEC to have violated any
federal or state securities laws, and the judgment in such civil action or
finding by the SEC has not been subsequently reversed, suspended, or
vacated.
"Closing Date" shall have the meaning given to it in Section 7 hereof.
"Common Stock" shall have the meaning given to it in the preamble
hereto.
<PAGE>
"Company" shall mean theglobe.com, inc., a Delaware corporation, and
any successor entity.
"Controlled Entity" shall mean an entity in which a Holder or Dancing
Bear Beneficially Owns a controlling interest, or an entity which
Beneficially Owns a controlling interest in Dancing Bear.
"Dancing Bear" shall have the meaning given to it in the preamble
hereto.
"Dancing Bear Nominee" shall have the meaning given to it in Section 5
hereof.
"DBI" shall have the meaning given to it in the preamble hereto.
"Founder Nominees" shall have the meaning given to it in Section 5
hereof.
"Fully Diluted Capital Stock" shall mean all issued and outstanding
shares of Common Stock and any Warrant Shares (assuming the Warrants have
been exercised).
"Holders" shall have the meaning given to it in the preamble hereto
and shall include any other party deemed a "Holder" pursuant to Section 3
hereof.
"Offered Securities" shall have the meaning given to it in Section 7
hereof.
"Offering Notice" shall have the meaning given to it in Section 7
hereof.
"Options" shall mean options exercisable for Common Stock.
"Permitted Transfer" shall mean a Transfer of Stock, Warrants, Warrant
Shares or Options (i) by a Holder or Dancing Bear to a Controlled Entity,
or (ii) by a Holder or Mr. Egan, while living, to such Holder's or Mr.
Egan's respective spouse or children or to a trust or trusts for the
benefit of such Holder's or Mr. Egan's respective spouse, children or their
issue, siblings, or parents or, at death, by will, trust or the laws of
intestacy. As a condition to any such Transfer, the transferee shall
execute an instrument in form and substance satisfactory to the Company
agreeing to be bound by the terms of this Agreement as if an original
signatory hereto, and shall execute such further documents, proxies or
stock transfer powers as may be necessary or desirable to implement the
provisions hereof.
"Permitted Transferee" shall mean a Person who receives Stock,
Warrants, Warrant Shares or Options in a Permitted Transfer.
"Person" means an individual, a corporation, a joint venture, a
partnership, a limited liability company, a firm, an association, a
business trust or any other entity.
"Preferred Stock" shall mean, collectively, the Series A, Series B,
Series C, Series D and Series E Preferred Stock of the Company, par value
$.001 per share.
"Prospective Buyer" shall have the meaning given to it in Section 7
hereof.
"Qualified Public Offering" shall mean the first underwritten public
offering of shares of Common Stock which is registered under the Securities
Act on Form S-1 (or any successor form thereto) at an aggregate offering
price of not less than $15 million.
"SEC" shall mean the Securities and Exchange Commission.
"Selling Holder" shall have the meaning given to it in Section 7
hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series E Preferred Stock" shall have the meaning set forth in the
preamble hereto.
"Stock" shall mean the Common Stock, the Preferred Stock and any other
series or class of capital stock of the Company, the holders of which are
entitled to participate generally in the election of members of the Board.
<PAGE>
"Tag-Along Notice" shall have the meaning given to it in Section 9
hereof.
"Take-Along Notice" shall have the meaning given to it in Section 8
hereof.
"Take Along Right" shall have the meaning given to it in Section 8
hereof.
"Transfer" means to sell, assign, donate, gift, convey, transfer,
pledge, encumber, hypothecate, grant any option with respect to or
otherwise dispose of any interest in (or enter into any agreement or
understanding with respect to the foregoing).
"Warrants" shall have the meaning given to it in the preamble hereto.
"Warrant Shares" shall have the meaning given to it in the Recitals
hereto.
Section 2. Warrants and Warrant Shares Subject to Agreement. Each of
the Holders hereby agrees that, except as may otherwise be provided herein,
this Agreement shall apply to any Warrants Transferred to such Holder on
the date of this Agreement or any future Warrant Shares issued to any such
Holder and shall continue to apply to any Warrants or Warrant Shares
Transferred by such Holder to any Permitted Transferee, whether by sale,
option, gift, bequest or otherwise. Unless otherwise provided herein, all
such transferees shall expressly become parties to this Agreement, shall be
subject to the same rights and restrictions as the Holders and, unless the
context indicates otherwise, all references to "Holder" or "Holders" herein
shall include such transferees.
Section 3. Stock Subject to Agreement. Each of the Holders and Dancing
Bear hereby agrees that, except as may otherwise be provided herein, this
Agreement shall apply to any Stock currently held by them on the date
hereof, any Stock subsequently acquired by them whether by purchase,
option, gift, bequest or otherwise, or any Stock Transferred by them to a
Permitted Transferee. Unless otherwise provided herein, all such
transferees shall expressly become parties to this Agreement, shall be
subject to the same rights and restrictions as Dancing Bear or the Holders,
as applicable, and, unless the context indicates otherwise, all references
to "Holder" or "Holders" herein shall include such transferees.
Section 4. Transfers of Warrants and Warrant Shares. No Holder shall
Transfer all or any part of his or her Warrants or Warrant Shares without
the prior written consent of Dancing Bear, except (i) to a Permitted
Transferee of such Holder, or (ii) as expressly permitted by Section 7
hereof.
Section 5. Board Representation.
--------------------
(a) Board of Directors. The Board shall be composed of the number of
directors determined in accordance with the Fourth Amended and Restated
Certificate of Incorporation of the Company, but shall be not less than
nine members without the prior written consent of the parties hereto.
Nominees for election to the Board shall be designated as follows: (i)
Dancing Bear (or its Permitted Transferees) shall have the right to
designate a majority of the nominees of the Board (each such designee being
hereinafter referred to as a "Dancing Bear Nominee"); (ii) Messrs.
Krizelman and Paternot (or the Permitted Transferees) shall collectively
have the right to designate two individuals for nomination to the Board
(such designees being hereinafter referred to as the "Founder Nominees").
Each of Dancing Bear and Messrs. Krizelman and Paternot (and their
respective Permitted Transferees) shall vote, or cause to be voted, all
shares of Stock Beneficially Owned by them at any regular or special
meeting of stockholders called for the purpose of filling positions on the
Board, or in any written consent executed in lieu of such a meeting of
stockholders in favor of the election of each Dancing Bear Nominee and each
Founder Nominee. Dancing Bear and Messrs. Krizelman and Paternot (or their
respective Permitted Transferees) shall not vote to remove any member of
the Board elected in accordance with the foregoing procedure except (i) for
Cause or (ii) each of Dancing Bear and Messrs. Krizelman and Paternot (or
their respective Permitted Transferees) shall vote, or cause to be voted,
all shares of Stock Beneficially Owned by it or him in favor of the removal
of any Dancing Bear Nominee, upon the request of Dancing Bear, or any
Founder Nominee, upon the request of Messrs. Krizelman and Paternot.
(b) Replacement Directors. If following election to the Board, any
nominee shall resign, be removed, or be unable to serve for any reason
prior to the expiration of their term as a nominee of the Company, Dancing
Bear (or its Permitted Transferees) in the case of a Dancing Bear Nominee,
<PAGE>
or Messrs. Krizelman and Paternot (or its Permitted Transferees) in the
case of a Founder Nominee (following the same procedure for designating
such nominees set forth in Section 5(a)), shall be entitled to designate a
replacement nominee. Following such designation, each of Dancing Bear and
Messrs. Krizelman and Paternot (and their respective Permitted Transferees)
shall vote, or cause to be voted, all shares of Stock Beneficially Owned by
them in favor of the election to the Board of such replacement nominee at
any special meeting of stockholders called for such purpose, or in any
written consent executed in lieu of such a meeting.
(c) Further Action. In order to effectuate the provisions of this
Section 5, each of Dancing Bear and Messrs. Krizelman and Paternot (and
their respective Permitted Transferees) agrees that, in addition to voting,
or causing to be voted, all shares of Stock Beneficially Owned by it or him
in favor of the election to the Board of each Dancing Bear Nominee, each
Founder Nominee, and any replacement nominee designated in accordance with
Section 5(b) hereof, such parties will take, or use their best efforts to
cause to be taken, all such further action as may be necessary to ensure
the election of such nominees to the Board; provided, however, that no
party shall be required to solicit the vote of any other stockholder of the
Company.
Section 6. Voting of Warrant Shares. Each Holder hereby grants to
Dancing Bear an irrevocable proxy to vote all Warrant Shares for which any
Warrants held by them have been exercised, with full power of substitution,
in Dancing Bear's full discretion. Each Holder acknowledges that this proxy
is coupled with an interest and agrees not to give any other proxy or
proxies in derogation of this proxy as long as this Agreement is in force.
Such proxy shall remain in effect with respect to each Warrant or Warrant
Share held by a Holder until such time as a Holder has Transferred such
Warrant or Warrant Share pursuant to Section 7 hereof to a third party
(other than a Permitted Transferee).
Section 7. Right of First Refusal for Warrants and Warrant Shares.
------------------------------------------------------
(a) If at any time any Holder or any Permitted Transferee of a Holder
desires to Transfer Warrants or Warrant Shares (a "Selling Holder") in a
bona fide arms-length transaction to any third party other than a Permitted
Transferee (a "Prospective Buyer"), which Transfer is not pursuant to a
registration statement under the Securities Act, the Selling Holder shall
give written notice thereof (an "Offering Notice") to Dancing Bear. The
Offering Notice shall state (i) the number of Warrants or Warrant Shares
proposed to be sold (the "Offered Securities"), (ii) the name and address
of the Prospective Buyer, (iii) the price per Offered Security (which shall
be payable in cash) at which the Selling Holder has a reasonable and bona
fide intention to Transfer the Offered Securities to the Prospective Buyer,
and (iv) the method of payment and other terms and conditions of the
proposed Transfer.
(b) Dancing Bear (or its Permitted Transferees) shall have the
irrevocable option, but not an obligation, to purchase from the Selling
Holder all, but not less than all, of the Offered Securities. To exercise
such option, Dancing Bear shall, within 20 business days of its receipt of
the Offering Notice, deliver to the Selling Holder a notice of its
intention to exercise such option (an "Acceptance Notice"). By so
delivering an Acceptance Notice, Dancing Bear shall be committed to
exercise the option and purchase the Offered Securities at the per security
purchase price specified in the Offering Notice. The exercise of such
option and the purchase and sale of the Offered Securities resulting from
the exercise of such option shall take place at the principal offices of
Dancing Bear on the fifth day following the date of delivery of the Dancing
Bear Acceptance Notice, or at such other place, on such other date, or
both, as the Selling Holder and Dancing Bear shall agree upon in writing
(the "Closing Date"). On the Closing Date, the Selling Holder shall deliver
(i) the certificate(s) representing the number of Offered Securities to
Dancing Bear (or its Permitted Transferees) in proper form for transfer
with appropriate stock powers executed in blank attached and with all
documentary or transfer tax stamps affixed, and (ii) a certificate
representing that Dancing Bear (or its Permitted Transferees) will receive
good title to the securities represented by such certificate(s), free and
clear of all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements (other than this Agreement), and voting trusts,
against payment of the purchase price therefor by a wire transfer of funds
to a bank account designated by the Selling Holder or by certified or
official bank check or checks.
(c) If Dancing Bear (or its Permitted Transferees) do not elect to
purchase the Offered Securities, the Selling Holder shall be free, during
the 30-day period commencing on the date the option granted pursuant to
this Section 7 expires unexercised, to Transfer of all but not less than
<PAGE>
all of the Offered Securities to the Prospective Buyer at a per security
price which shall not be less than the price specified in the Offering
Notice. After such 30-day period, the Selling Holder shall not sell any
Warrants and Warrant Shares without again complying with the provisions of
this Section 7.
Section 8. Take-Along Right for Stock.
--------------------------
(a) If at any time Dancing Bear (or its Permitted Transferees) propose
to sell or exchange (in a business combination or otherwise) in a bona fide
arms-length transaction to any third party (including such purchaser's
affiliates, a "Buyer"), other than in a Permitted Transfer, pursuant to a
registration statement under the Securities Act, or in a sale pursuant to
Rule 144 under the Securities Act, shares of Stock, Warrants or Warrant
Shares which equal or exceed 25% of the Fully Diluted Capital Stock of the
Company, then, subject to the last sentence of this paragraph, Dancing Bear
(or such Permitted Transferees) shall have the right (a "Take-Along Right")
to require each Holder and their respective Permitted Transferees to sell
or exchange up to the same percentage of the Fully Diluted Capital Stock
then Beneficially Owned by such Holder (or such Permitted Transferee) as is
being sold or exchanged by Dancing Bear (and its Permitted Transferees) and
as is set forth in the Take-Along Notice (defined below) to such 25% Buyer,
on the same terms and subject to the same conditions (including but not
limited to obligations with respect to indemnification) as the sale or
exchange by Dancing Bear (and its Permitted Transferees). To exercise a
Take-Along Right, Dancing Bear shall give written notice thereof (a
"Take-Along Notice") to each Holder and their Permitted Transferees. The
Take-Along Notice shall state (i) the name and address of the 25% Buyer,
(ii) the price per security and the form of consideration which the 25%
Buyer proposes to pay for the purchased securities, (iii) the percentage of
Fully Diluted Capital Stock owned by Dancing Bear which is being sold or
exchanged, and (iv) the method of payment and other terms and conditions of
the proposed transfer. The Take-Along Right specified in this Section 8(a)
may only be exercised with respect to a Holder if the consideration to be
received includes cash in an amount sufficient to satisfy any income tax
liability attributable to the sale of such securities.
(b) The exercise of any Take-Along Right and the purchase and sale of
Stock, Warrants and Warrant Shares resulting from the exercise of such
Right shall take place at the principal offices of Dancing Bear on the
fifth business day following the date of delivery of any Take-Along Notice,
or at such other place, on such other date, or both, as the 25% Buyer and
Dancing Bear shall agree upon in writing.
Section 9. Tag-Along Rights for Stock.
--------------------------
(a) If at any time Dancing Bear (or its Permitted Transferees)
proposes to sell or exchange (in a business combination or otherwise) in
one or a series of related or contemporaneous, bona fide arms-length
transaction to any Buyer, other than in a Permitted Transfer, pursuant to a
registration statement under the Securities Act or in a sale pursuant to
Rule 144 under the Securities Act, shares of Stock, Warrants or Warrant
Shares which equal or exceed 25% of the Fully Diluted Capital Stock of the
Company, Dancing Bear shall so notify (a "Tag-Along Notice") each Holder
and their respective Permitted Transferees. The Tag-Along Notice shall
state (i) the name and address of the Buyer, (ii) the price per share and
the form of consideration which the Buyer proposes to pay for the purchased
Stock, Warrants or Warrants Shares, (iii) the percentage of Fully Diluted
Capital Stock owned by Dancing Bear and its Permitted Transferees which is
being sold or exchanged, and (iv) the method of payment and other terms and
conditions of the proposed Transfer. Each Holder and their respective
Permitted Transferees shall have the option, exercisable by written notice
to Dancing Bear, within 10 business days after Dancing Bear delivers a
Tag-Along Notice stating its intention to effect such sale, to require
Dancing Bear and its Permitted Transferees to provide as part of any such
proposed sale that each such Holder and their Permitted Transferees be
given the right to sell or exchange up to the same percentage of Fully
Diluted Capital Stock stated in the Tag-Along Notice which is then
Beneficially Owned by them (pro rata in proportion to the respective number
of shares of Stock, Warrants or Warrant Shares owned by Dancing Bear and
its Permitted Transferees, each Holder and their Permitted Transferees), in
such transaction or series of transactions on the same terms and conditions
(including but not limited to obligations with respect to indemnification)
as Dancing Bear and its Permitted Transferees, and, if such option is
exercised, Dancing Bear and its Permitted Transferees shall not proceed
with such sale unless the parties who have exercised such option are given
the right so to participate. Notwithstanding anything to the contrary set
forth above, any Warrants or Warrant Shares proposed to be sold or
exchanged by any Holder or their Permitted Transferees pursuant to this
<PAGE>
Section 9(a) shall be subject to Dancing Bear's right of first refusal as
set forth in Section 7 hereof.
(b) If at any time Messrs. Krizelman or Paternot (or their Permitted
Transferees) propose to sell or exchange (in a business combination or
otherwise) in one or a series of related or contemporaneous, bona fide
arms-length transactions to any Buyer, other than in a Permitted Transfer,
pursuant to a registration statement under the Securities Act or pursuant
to Rule 144 under the Securities Act, shares of Stock, Warrants or Warrant
Shares which equal or exceed 7% of the Fully Diluted Capital Stock of the
Company, Messrs. Krizelman or Paternot (or their Permitted Transferees)
shall deliver a Tag-Along Notice to Dancing Bear, each other Holder and
their respective Permitted Transferees. The Tag-Along Notice shall state
(i) the name and address of the Buyer, (ii) the price per share and the
form of consideration which the Buyer proposes to pay for the purchased
Stock, Warrants or Warrants Shares, (iii) the collective percentage of the
Fully Diluted Capital Stock owned by both Messrs. Krizelman and Paternot
(and their Permitted Transferees) which is being sold or exchanged, and
(iv) the method of payment and other terms and conditions of the proposed
transfer. Dancing Bear, each other Holder and their respective Permitted
Transferees shall have the option, exercisable by written notice to Messrs.
Krizelman and Paternot (or their Permitted Transferees), within 10 business
days after Messrs. Krizelman and Paternot (or their Permitted Transferees)
deliver a Tag-Along Notice stating their intention to effect such sale or
exchange, to require Messrs. Krizelman and Paternot (or their Permitted
Transferees) to provide as part of their proposed sale that Dancing Bear,
each other Holder and their respective Permitted Transferees be given the
right to sell or exchange up to the same percentage of Fully Diluted
Capital Stock then beneficially owned by each of them (pro rata in
proportion to the respective number of shares of Stock, Warrants and
Warrant Shares owned by Messrs. Krizelman and Paternot and their Permitted
Transferees, collectively, and each other Holder, Dancing Bear and their
respective Permitted Transferees), in such transaction or series of
transactions on the same terms and conditions (including but not limited to
obligations with respect to indemnification) as Messrs. Krizelman and
Paternot and their Permitted Transferees, and, if such option is exercised,
Messrs. Krizelman and Paternot and their Permitted Investors shall not
proceed with such sale unless the parties who have exercised such option
are given the right so to participate. Notwithstanding anything to the
contrary set forth above, no Warrants or Warrant Shares may be sold or
exchanged by any Holder or their Permitted Transferees pursuant to this
Section 9(b) unless such sale or exchange is in accordance with Dancing
Bear's right of first refusal set forth in Section 7 hereof.
(c) The exercise of any Tag-Along Right and the purchase and sale of
Stock, Warrants and Warrant Shares resulting from the exercise of such
right shall take place at the principal offices of the Company on the fifth
business day following the date of delivery of any Tag-Along Notice, or at
such other place, on such other date, or both, as the Buyer and Messrs.
Krizelman and Paternot or Dancing Bear, as applicable, shall agree upon in
writing.
Section 10. Legend. The following legend shall be noted conspicuously
on all certificates representing shares of Stock, Warrants, Warrant Shares
or Options heretofore or hereafter issued which are subject to the terms of
this Agreement:
"The securities represented by this certificate are subject to
restrictions on transfer and voting, as provided in a Stockholders'
Agreement dated as of October ___, 1998, among theglobe.com, inc. (the
"Company") and certain of its securityholders, a copy of which is on
file with the Secretary of the Company. No sale, assignment, transfer,
pledge, encumbrance or other disposition shall be effective unless and
until the terms and conditions of that Stockholders' Agreement shall
have been complied with in full.
Section 11. No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities, and neither the
Company nor any other party hereto shall take any action which is
inconsistent in any material respect with the rights granted to or
obligations undertaken by the parties to this Agreement.
Section 12. Termination. This Agreement, and the obligations of the
parties hereto, shall terminate:
(a) with respect to a Holder's Warrants and Warrant Shares at such
time as all of such Warrants and Warrant Shares have been transferred to a
third party (other than a Permitted Transferee) in accordance with the
terms of this Agreement;
(b) with respect to a party's Stock or Options upon such time as all
<PAGE>
of such party's Stock or Options have been transferred to a third party
(other than a Permitted Transferee) in accordance with the terms of this
Agreement; or
(c) in its entirety, with the exception of the provisions contained in
Sections 6 and 7 hereof, in the event that Dancing Bear and its Permitted
Transferees hold less than 10% of the Fully Diluted Capital Stock of the
Company.
Section 13. Availability of Equitable Remedies. Since a breach of the
provisions of this Agreement could not adequately be compensated by money
damages, any non-breaching party shall be entitled, in addition to any
other right or remedy available to him, to an injunction restraining such
breach and to specific performance of any such provision of this Agreement,
and in either case no bond or other security shall be required in
connection therewith, and each party hereto hereby consents to such
injunction and to the ordering of such specific performance.
Section 14. Modification. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter
hereof, supersedes all existing agreements among them concerning such
subject matter, and may be modified only by a written instrument duly
executed by each party hereto at the time of any such modification;
provided, however, that any Permitted Transferee may become a party to this
Agreement upon the execution of an instrument in form and substance
satisfactory to the Company agreeing to be bound by the terms of this
Agreement as if an original signatory hereto, with no further action
required by any other party hereto.
Section 15. Notices. Any notice under or relating to this Agreement
shall be given in writing and shall be deemed sufficiently given when
delivered by hand or by conformed facsimile transmission, on the second
business day after a writing is consigned (freight prepaid) to a commercial
overnight courier, and on the fifth business day after a writing is
deposited in the mail, postage and other charges prepaid, addressed as
follows:
The Company:
theglobe.com,inc.
31 West 21 Street
New York, NY 10010
Attention: Todd V. Krizelman
Stephan Paternot
Telecopier No.: (212) 367-8604
Dancing Bear:
Dancing Bear Investments, Inc.
333 East Las Olas Boulevard
Fort Lauderdale, FL 33301
Attention: Rosalie V. Arthur
Telecopier No.: (954) 769-5930
Todd V. Krizelman:
c/o theglobe.com, inc.
31 West 21st Street
New York, NY 10010
Telecopier No.: (212) 367-8604
Stephan J. Paternot:
c/o theglobe.com, inc.
31 West 21st Street
New York, NY 10010
Telecopier No.: (212) 367-8604
Edward A. Cespedes:
c/o Dancing Bear Investments, Inc.
333 East Las Olas Boulevard
Fort Lauderdale, FL 33301
Telephone No.: (954) 769-5930
Rosalie V. Arthur:
c/o Dancing Bear Investments, Inc.
333 East Las Olas Boulevard
Fort Lauderdale, FL 33301
Telephone No.: (954) 769-5930
<PAGE>
or to such other address or telecopy number as either party may, from time to
time, designate in a written notice given in a like manner.
Any notice or other communication to be given hereunder to a Permitted
Transferee may be given by any party hereto to Todd V. Krizelman (in the
case of a Permitted Transferee of Todd V. Krizelman), to Stephan J.
Paternot (in the case of a Permitted Transferee of Stephan J. Paternot) to
Edward A. Cespedes (in the case of a Permitted Transferee of Edward A.
Cespedes) to Rosalie V. Arthur (in the case of a Permitted Transferee of
Rosalie V. Arthur) and to Dancing Bear (in the case of a Permitted
Transferee of Dancing Bear), in accordance with the provisions of this
Section 15. It shall be the responsibility of any of the Holders, as the
case may be, to deliver any such notice or communication to their
respective Permitted Transferees, and any party hereto shall have (i) no
responsibility to deliver such notice or communications to any such
Permitted Transferees and (ii) no liability of any kind whatsoever under
this Agreement or otherwise for failure of any of the Holders of Dancing
Bear, as the case may be, to deliver such notice or communication to any of
their respective Permitted Transferees.
Section 16. Waiver. Any waiver by any party of a breach of any
provision of this Agreement shall not operate as, or be construed to be, a
waiver of any other breach of such provision or of any breach of any other
provision of this Agreement. The failure of a party to insist upon strict
adherence to any term of this Agreement on one or more occasions shall not
be considered a waiver or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this
Agreement. Any waiver of any provision of this Agreement must be in
writing.
Section 17. Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors, assigns, heirs, and personal representatives.
Section 18. Separability. If any provision of this Agreement is
invalid, illegal, or unenforceable, the balance of this Agreement shall
remain in effect, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other persons
and circumstances.
Section 19. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 20. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without
giving effect to the rules of such state respecting conflicts of law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed or have
caused their duly authorized officers to execute this Agreement as of the
date first written above.
theglobe.com, inc.
By:
----------------------------
Name:
Title:
DANCING BEAR INVESTMENTS, INC.
By:
----------------------------
Name:
Title:
----------------------------
Michael S. Egan
----------------------------
Todd V. Krizelman
----------------------------
Stephan J. Paternot
----------------------------
Edward A. Cespedes
----------------------------
Rosalie V. Arthur
<PAGE>
EXHIBIT 10.14
TRAVEL SERVICES ALLIANCE AGREEMENT
This Travel Services Alliance Agreement (the "Agreement") is made as of
this 15th day of September, 1998 (the "Effective Date") between theglobe.com,
inc., a New York corporation with its principal place of business at 31 West
21st Street, New York, NY 10010 ("theglobe.com"), and Lowestfare.com, a division
of Global Discount Travel Services, LLC, a Nevada limited liability company with
its principal place of business at 980 Kelly Johnson Drive, Las Vegas, NV 89119
("Lowestfare").
Recitals
--------
WHEREAS, Lowestfare wishes to act as theglobe.com's exclusive provider
of travel-related content, and to place certain advertisements on website
locations owned or controlled by theglobe.com;
WHEREAS, theglobe.com wishes to enter into such an exclusive
relationship, and to accept such advertising, subject to the terms of this
Agreement.
NOW THEREFORE, theglobe.com and Lowestfare, for good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged,
hereby agree as follows:
Agreement
---------
1. Definitions.
Capitalized terms used in this Agreement shall have the following meanings:
"Co-Branded Site" shall have the meaning assigned to it in Subsection 3.2
("Co-Branded Site").
"Confidential Information" shall have the meaning assigned to it in Section 9
("Confidentiality").
"Disclosing Party" shall have the meaning assigned to it in Section 9
("Confidentiality").
"Editorial Content" shall mean travel-related editorial content and related
materials provided by Lowestfare hereunder.
"End User" means a person who visits theglobe.com Site, or who links from
theglobe.com Site to the Co-Branded Site, or both.
"Fee" shall have the meaning assigned to it in Subsection 6.1 ("Fees").
"Indemnified Party" shall have the meaning assigned to it in Section 15
("Indemnity").
"Indemnifying Party" shall have the meaning assigned to it in Section 15
("Indemnity").
1.
<PAGE>
"Lowestfare Content" shall mean all materials delivered by Lowestfare to
theglobe.com for display on theglobe.com Site, including without limitation the
Lowestfare Marks, the Editorial Content, "buttons", "banners", and other
materials described in Exhibit A ("Lowestfare Content").
"Lowestfare Marks" shall mean the trademarks, logos and other product and
service identifiers of Lowestfare described in Exhibit B ("Marks"), and as may
be modified from time to time during the Term upon the agreement of the parties.
"Monthly Sweepstakes" shall have the meaning assigned to it in Subsection 3.3
("Monthly Sweepstakes").
"Phase" shall mean the periods of time and the corresponding work assigned to
such periods as described in Exhibit C ("Phases"). For purpose of this
Agreement, there shall be three (3) Phases, designated as "Phase I", "Phase II"
and "Phase III".
"Quarterly Sweepstakes" shall have the meaning assigned to it in Subsection
2.1(b) ("Quarterly Sweepstakes").
"Receiving Party" shall have the meaning assigned to it in Section 9
("Confidentiality").
"Registered User" shall mean an End User who has registered at theglobe.com
Site.
"Registration Page" shall mean the web page so designated by theglobe.com at
theglobe.com Site.
"Template" shall have the meaning assigned to it in Subsection 8.2 ("Template").
"Term" shall have the meaning assigned to it in Section 12 ("Term and
Termination").
"theglobe.com Site" shall mean http://www.theglobe.com, or such other site so
designated by theglobe.com.
"theglobe.com Marks" shall mean the domain name and theglobe.com's trademarks,
service marks, logos and other company and product identifiers provided by
theglobe.com to Lowestfare under this Agreement, and as may be added to, deleted
from or modified from time to time by theglobe.com.
"Travel Services Company" shall have the meaning assigned to it in Subsection
3.1 ("Exclusive Travel Services Relationship").
"User Information" shall have the meaning assigned to it in Section 11 ("User
Information and Registration Data").
2.
<PAGE>
2. Phase I Services
The parties shall provide Phase I Services as provided herein and as provided in
Exhibit C ("Phases"):
2.1 Registration And Email.
(a) "Opt In" Registration. During the period of the Term before the
commencement of the activities described in Subsection 2.1(b) ("Quarterly
Sweepstakes"), theglobe.com shall place a "check box", including the name of
Lowestfare and the terms of the associated offer, on the Registration Page, by
means of which End Users may be automatically registered with Lowestfare also.
(b) Quarterly Sweepstakes. Lowestfare shall provide to theglobe.com
no less frequently than one (1) time each calendar quarter commencing with the
Effective Date, a prize for distribution by theglobe.com to winners of
theglobe.com's quarterly registration sweepstakes. The rules and operation of
such quarterly registration sweepstakes ("Quarterly Sweepstakes") shall be
determined solely by theglobe.com, in reasonable consultation with the original
provider of the prize. Lowestfare shall not be held liable by theglobe.com or
any third party for the administration, operation or legality of the Quarterly
Sweepstakes. theglobe.com intends that new Registered Users will be
automatically entered into such Quarterly Sweepstakes, and that such Registered
Users who do not wish to participate in such Quarterly Sweepstakes will be
offered the opportunity not to participate by checking an "opt out" box on the
Registration Page.
2.2 E-mail Promotion. At least one (1) time each calendar quarter during
the Term, commencing with the Effective Date, theglobe.com will direct an e-mail
campaign to all Registered Users. Such e-mail campaign shall, at a minimum,
reasonably promote the Co-Branded Site, and may, at theglobe.com's discretion,
include additional material regarding theglobe.com and its goods and services.
2.3 Framing. theglobe in its sole discretion may frame all or any part of
the Lowestfare website (currently, "http///www.lowestfare.com"), or the
Co-Branded Site, and any revenue theglobe derives from banner sales shall be
solely theglobe's.
3. Phase II Services.
The parties shall provide Phase II Services as provided herein and as provided
in Exhibit C ("Phases"):
3.1 Exclusive Travel Services Relationship. theglobe.com shall not, during
the Term, enter into any agreements with any of the companies ("Travel Services
Companies") described in Exhibit F ("Travel Services Companies") whereby such
Travel Services Companies shall provide travel-related content substantially
similar to that listed in Exhibit A ("Lowestfare Content") to theglobe.com and
receive placement of the trademarks, logos, or other company or product
identifiers on theglobe.com Site. Notwithstanding the foregoing: (a)
theglobe.com shall not be restricted in any manner from accepting banner ads or
banner-like ads
3.
<PAGE>
from any party; and (b) the foregoing restriction shall not apply to Registered
User web pages (including any "theglobe.com Stores" located at such web pages)
hosted by theglobe.com.
3.2 Co-Branded Site. Lowestfare shall, according to the schedule
contained in Exhibit C ("Phases"), develop and operate a web page (the
"Co-Branded Site"), to be located at one (1) or more server computers owned or
controlled by Lowestfare, which shall include content provided by Lowestfare and
shall reflect the user interface of the Template as licensed by theglobe.com
pursuant to Section 8 ("Licenses and Standards"). The design, layout, and "look
& feel" of the Co-Branded Site shall be mutually agreed to by the parties.
3.3 Placement.
(a) Linking to Co-Branded Site. theglobe.com shall link by
contextual links, "buttons", or similar identifiers determined by theglobe.com,
from theglobe.com Site to the Co-Branded Site. The specific pages at
theglobe.com Site from which such links may be made shall be determined by and
agreed to by both parties, but may include the following pages as may exist as
of the Effective Date, or as may be created or modified by theglobe.com during
the Term:
(i) theglobe.com homepage
(ii) What's New Area
(iii) Business & Finance Theme Area
(iv) Metro Theme Area
(v) Romance Theme Area
(vi) Life/College Theme Areas
(vii) Assorted (News, Sports, etc.)
(viii) NavBar
(ix) Myglobe.com
(x) Travel
(b) Impressions. theglobe.com shall deliver at least: (i)
( ) End User page impressions of Lowestfare Content at the.globe,com Site
during the first year of the Term in locations at theglobe.com Site to be
mutually agreed upon by both parties; (ii) ( ) End User
page impressions of Lowestfare Content at theglobe.com Site during the second
year of the Term in locations at theglobe.com Site to be mutually agreed upon
by both parties; and (iii) ( ) End User page impressions of
Lowestfare Content at theglobe.com Site during the third year of the Term in
locations at theglobe.com Site to be mutually agreed upon by both
4.
<PAGE>
parties. Such page impressions shall include, without limitation, all
impressions given at theglobe.com Site for all Lowestfare banner ads and
contextual button impressions. It is the parties' shared expectation that the
foregoing page impressions shall be provided in the quantities and from the
locations at theglobe.com Site described in Exhibit D ("Locations"); provided,
however, that the parties understand and agree that such expectation does not
represent any binding obligation on either party. theglobe.com will work with
Lowestfare to identify the most effective mix of banner ads, contextual links,
and "buttons" to be used on different pages of theglobe.com Site, including but
not limited to new sections of theglobe.com Site as they are launched. The
number of the foregoing page impressions shall be remeasured monthly, and any
overages or shortfalls from the pro rated monthly quantity (i.e.,
( ) impressions per month during the first year of the
Term), shall be rolled forward into the overall total in subsequent months on an
ongoing basis until the end of the Term.
3.4 Online Promotion. theglobe.com shall provide the relationship
between the parties with advertisements in accordance with Exhibit D
("Locations"), with online advertising solutions companies determined by
theglobe.com such as DoubleClick Inc. and 24/7 Media Inc.
4. Phase III Services.
The parties shall provide Phase III Services as provided herein and as provided
in Exhibit C ("Phases");
4.1 Affiliate Program. At the discretion of Lowestfare, theglobe.com
shall promote an affiliate program, to be determined solely by theglobe.com, to
be located on the "Making Money" page at theglobe.com Site, or such other
location as determined by theglobe.com, to allow Registered Users who have
personal home pages located at theglobe.com Site to place on such home pages
certain Lowestfare Content with links to the Co-Branded Site.
4.2 Offline Promotion. The globe shall promote the relationship
between the parties with the advertisements in print media as determined by
theglobe.com.
5. Content and Liability.
5.1 Lowestfare Content. In addition to all other obligations of
Lowestfare with respect to the Phases, Lowestfare shall also from time to time
during the Term promptly deliver to theglobe.com the Lowestfare Content
described in Exhibit C ("Phases"), and shall continue to provide such Lowestfare
Content during the Term of the Agreement in accordance therewith. Such
Lowestfare Content shall be provided in file transfer protocol ("ftp") format,
at least one (1) time each week.
5.2 Liability. As between theglobe.com and Lowestfare, Lowestfare
is solely responsible for any legal liability arising out of or relating to
Lowestfare Content or the Co-Branded Site. The Lowestfare Content and the
Co-Branded Site: (a) shall not infringe any third party's copyright, patent,
trademark, trade secret, or other proprietary rights or rights of publicity or
privacy; (b) shall not violate any law, statute, ordinance or regulation
(including without limitation the laws and regulations governing export control,
unfair competition, anti-discrimination or false advertising); (c) shall not
be defamatory, trade libelous, unlawfully
5.
<PAGE>
threatening or unlawfully harassing; (d) shall not be obscene, pornographic or
indecent or contain child pornography; and (e) shall not contain any viruses,
Trojan horses, worms, time bombs, cancelbots or other computer programming
routines that are intended to damage, detrimentally interfere with,
surreptitiously intercept or expropriate any system, data or personal
information.
6. Payment.
6.1 Fees. During the Term, Lowestfare shall pay to theglobe.com the
following fees: (a) During the first year of the Term, Lowestfare shall pay to
theglobe.com a fee ("Fee") of One Million Two Hundred Thousand Dollars
($1,200,000.00) in twelve (12) monthly payments of One Hundred Thousand Dollars
($100,000.00) each, the first two (2) of such Fee payments (totaling Two Hundred
Thousand Dollars ($200,000) to be made on the Effective Date, and each
subsequent payment One Hundred Thousand Dollars ($100,000)) to be made thirty
(30) days after the immediately prior payment. (b) During the second year of the
Term, Lowestfare shall pay to theglobe.com a fee of Two Million Four Hundred
Thousand Dollars ($2,400,000) in twelve (12) equal monthly payments, the first
of such payments to be made on the one-year anniversary of the Effective Date.
(c) During the third year of the Term, Lowestfare shall pay to theglobe.com a
fee of Three Million Five Hundred Thousand Dollars ($3,500,000) in twelve equal
monthly payments, the first of such payments to be made on the two-year
anniversary of the Effective Date.
6.2 Taxes. All fees and payments stated herein exclude and
Lowestfare shall pay, any sales, use, property, license, value added,
withholding, excise or similar tax, federal, state or local, related to such
payments or the parties' performance of their obligations or exercise of their
rights under their Agreement and any related duties, tariffs, imposts and
similar charges, exclusive of taxes based on theglobe.com's net income.
7. Support.
At its sole expense, Lowestfare shall be responsible for, and shall provide, all
customer and technical support for End Users relating to the Co-Branded Site,
theglobe.com may redirect any End User inquiries regarding the travel component
of the Co-Branded Site to Lowestfare.
8. Licenses And Standards.
8.1 Content. Lowestfare hereby grants to theglobe.com a
non-exclusive, nontransferable worldwide, royalty-free license (without the
right to grant sublicenses) to use, download, or distribute publicly perform,
publicly display and digitally perform the Lowestfare Content on or in
conjunction with theglobe.com Site, and theglobe.com's performance under this
Agreement.
8.2 Template. theglobe.com hereby grants to Lowestfare a
non-exclusive, non-transferable, worldwide royalty-free license (without the
right to grant sublicenses) to install the object code version of the software
("Template") described in EXHIBIT E ("TEMPLATE") solely at the Co-Branded Site,
and solely to use and to permit End Users to use the Template pursuant to the
use of such Co-Branded Site. The Template shall at all times remain the sole
and exclusive property of theglobe.com, subject only to the license expressly
granted herein.
6.
<PAGE>
Lowestfare understands and agrees that theglobe.com may, from time to time and
in theglobe.com's discretion, provide modified, updated, correct or enhanced
versions of the Template to Lowestfare, and Lowestfare shall replace the prior
version with such new version within a reasonable amount of time. In the event
the Template is modified, updated, corrected or enhanced within six months from
the Effective Date, theglobe.com shall reimburse Lowestfare for any costs
incurred in implementing such Template.
8.3 Trademarks. Lowestfare hereby grants theglobe.com a non-
exclusive, nonsublicenseable license to use the Lowestfare Marks in links to and
advertisements and promotions for theglobe.com Site. theglobe.com hereby grants
to Lowestfare a non-exclusive, nonsublicenseable license to use theglobe.com's
Marks on the Co-Branded Site.
8.4 Restrictions. Each party, as a trademark owner hereunder, may
terminate the foregoing trademark license if, in its sole discretion, the
licensee's use of the marks does not conform to the such party's standards;
alternatively, the owner may specify that certain pages of the licensee's
website may not contain the licensed marks; provided, however, the objecting
-----------------
party must state in writing the basis for the objection and provide the other
party with a reasonable opportunity to cure such offending action. Title to and
ownership of the owner's marks shall remain with the owner. The licensee shall
use the marks exactly in the form provided and in conformance with any trademark
usage policies. The licensee shall not form any combination marks with the
owner's marks. The licensee shall not take any action inconsistent with
ownership of the marks and any benefits accruing from use of such trademarks
shall automatically vest in the owner.
9. Confidentiality.
9.1 Confidential Information. Each party (the "Disclosing Party")
may from time to time during the Term of this Agreement disclose to the other
party (the "Receiving Party") certain non-public information regarding the
Disclosing Party's business, including technical, marketing, financial,
personnel, planning, and other information ("Confidential Information"). The
Disclosing Party shall mark all such Confidential Information in tangible form
with the legend 'confidential', 'proprietary', or with similar legend. With
respect to Confidential Information disclosed orally, the Disclosing Party shall
describe such Confidential Information as such at the time of disclosure, and
shall confirm such Confidential Information as such in writing within thirty
(30) days after the date of oral disclosure. Regardless of whether so marked,
however, any non-public information regarding the Template, including the
Template itself, shall be deemed to be the Confidential Information of
theglobe.com.
9.2 Protection of Confidential Information. Except as expressly
permitted by this Agreement, the Receiving Party shall not disclose the
Confidential Information of the Disclosing Party using the same degree of care
which the Receiving Party ordinarily uses with respect to its own proprietary
information, but in no event with less than reasonable care. The Receiving Party
shall not use the Confidential Information of the Disclosing Party for any
purpose not expressly permitted by this Agreement, and shall limit the
disclosure of the Confidential Information of the Disclosing Party to the
employees or agents of the Receiving Party who have a need to know such
Confidential Information for purposes of this Agreement, and with respect to
agents who are recipients of the Confidential Information of the Disclosing
Party, who are
7.
<PAGE>
bound in writing by confidentiality terms no less restrictive than those
contained herein. The Receiving Party shall provide copies of such written
agreements to the Disclosing Party upon request; provided, however, that such
agreement copies shall themselves be deemed the Confidential Information of the
Receiving Party.
9.3 Exceptions. Notwithstanding anything herein to the contrary,
Confidential Information shall not be deemed to include any information which:
(a) was already lawfully known to the Receiving Party at the time of disclosure
by the Disclosing Party as reflected in the written records of the Receiving
Party; (b) was or has been disclosed by the Disclosing Party to a third party
without obligation of confidence; (c) was or becomes lawfully known to the
general public without breach of this Agreement; (d) is independently developed
by the Receiving Party without access to, or use of, the Confidential
Information; (e) is approved in writing by the Disclosing Party for disclosure
by the Receiving Party; (f) is required to be disclosed in order for the
Receiving Party to enforce its rights under this Agreement; or (g) is required
to be disclosed by law or by the order or a court or similar judicial or
administrative body, including as part of any filing with the Securities
Exchange Commission; provided, however, that the Receiving Party shall notify
the Disclosing Party of such requirement immediately and in writing, and shall
cooperate reasonably with the Disclosing Party, at the Disclosing Party's
expense, in the obtaining of a protective or similar order with respect thereto.
9.4 Return of Confidential Information. The Receiving Party shall
return to the Disclosing Party, destroy or erase all Confidential Information
of the Disclosing Party in tangible form: (a) upon the written request of the
Disclosing Party (except for Software or Modified Software contained in such
Confidential Information); or (b) upon the expiration or termination of this
Agreement, whichever comes first, and in both cases, the Receiving Party shall
certify promptly and in writing that it has done so.
10. USER INFORMATION AND REGISTRATION DATA.
10.1 User Information. Any information or data collected from or about
End Users (including without limitation voluntarily-disclosed information, any
information Lowestfare collects regarding End Users from their access or use of
the Co-Branded Site (including without limitation all statistical, demographic
and psychographic information about such End Users) and any reports about
traffic (collectively, "User Information")) shall be owned exclusively by
theglobe.com. However, during the Term of this Agreement, theglobe.com hereby
grants to Lowestfare a nonexclusive, nontransferable, nonsublicenseable license
to use User Information only as required to exercise its rights and carry out
its obligations hereunder. Lowestfare acknowledges that the User Information
constitutes extremely valuable trade secrets of theglobe.com. Lowestfare shall
not use the User Information for any purpose other than as expressly granted
under this Agreement nor disclose the User Information to any third party.
Without limiting the foregoing, under no circumstances may Lowestfare send
unsolicited emails to any End Users, nor may Lowestfare permit or authorize any
third parties to do so. Lowestfare shall use at least industry-standard methods
to protect the security of User Information. This Subsection 10.1 ("User
Information") shall not apply to End Users who (a) have registered as
Lowestfare.com users, including pursuant to Subsection 2.1 ("`Opt In'
Registration") and Subsection 2.1 (b) ("Quarterly Sweepstakes"); or (b) are or
become customers of
8.
<PAGE>
Lowestfare.com or Global Discount Travel Services, or its respective
subsidiaries, now existing or hereafter organized.
10.2 Registration Data. As part of the User Information, theglobe.com
shall provide to Lowestfare the email addresses and names of Registered Users.
11. Disclaimer of Warranties.
EACH PARTY PROVIDES ALL MATERIALS AND SERVICES TO THE OTHER PARTY "AS IS." EACH
PARTY DISCLAIMS ALL WARRANTIES AND CONDITIONS, EXPRESS, IMPLIED OR STATUTORY,
INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF TITLE, NON-INFRINGEMENT,
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. Each party acknowledges
that it has not entered into this Agreement in reliance upon any warranty or
representation except those specifically set forth herein.
12. Term and Termination.
12.1 Term. The term of this Agreement ("Term") shall continue for a
period of three (3) years following the Effective Date.
12.2 Termination for Cause. Notwithstanding the foregoing, this
Agreement may be terminated by either party upon notice for the material breach
of this Agreement by the other party which breach has remained uncured for a
period of thirty (30) days from the date of written notice thereof.
12.3 Effect of Expiration or Termination. Upon the expiration or
termination of this Agreement, all licenses granted hereunder shall immediately
terminate, and each party shall promptly remove all references to the other
party's trademarks from any site that caches, indexes or links to such party's
site.
13. Survival.
Upon the expiration or termination of this Agreement, Section 1 ("Definitions"),
Subsection 5.2 ("Liability"), Section 9 ("Confidentiality"), Section 11
("Disclaimer of Warranties"), Subsection 12.4 ("Effect of Expiration or
Termination"), Section 13 ("Survival"), Section 14 ("Limitation of Liability"),
Section 15 ("Indemnity") and Section 16 ("General Provisions") shall survive and
continue to bind the parties.
14. Limitation on Liability.
EXCEPT IN THE EVENT OF A BREACH OF SECTION 8 ("LICENSES AND STANDARDS") OR
SECTION 9 ("CONFIDENTIALITY"), NEITHER PARTY SHALL BE LIABLE FOR SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS (HOWEVER ARISING, INCLUDING
NEGLIGENCE) ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. EXCEPT IN THE
EVENT OF A BREACH OF SECTION 8 ("LICENSES AND STANDARDS") OR SECTION 9
("CONFIDENTIALITY"), A FAILURE TO PAY FEES OWED, OR AN INDEMNITY CLAIM, IN NO
EVENT SHALL
9.
<PAGE>
EITHER PARTY BE LIABLE TO THE OTHER PARTY IN AN AMOUNT GREATER THAN THE AMOUNTS
ACTUALLY PAID BY LOWESTFARE TO THEGLOBE HEREUNDER.
15. Indemnity.
Each party (the "Indemnifying Party") shall indemnify the other party (the
"Indemnified Party") against any and all claims, losses, damages costs and
expenses, including reasonable attorneys' fees, which the Indemnified Party may
incur as a result of claims in any form by third parties arising from: (a) the
Indemnifying Party's acts, omissions or misrepresentations to the extent that
the Indemnified Party is deemed a principal of the Indemnifying Party, (b) the
violation of any third party proprietary right by the Indemnifying Party's
domain name, software or any content provided by the Indemnifying Party
(including without limitation the Lowestfare Content) for use on the Indemnified
Party's servers, or (c) breach of Subsection 16.5 ("Compliance with Laws"). In
addition, Lowestfare shall indemnify theglobe.com against any and all claims,
losses, damages, costs and expenses, including reasonable attorneys' fees, which
theglobe.com may incur as a result of claims in any form by third parties
arising from; the content on the Co-Branded Site. The foregoing obligations are
conditioned on the Indemnified Party's giving the Indemnifying Party notice of
the relevant claim, cooperating with the Indemnifying Party, at the Indemnifying
Party's expense, in the defense of such claim, and giving the Indemnifying Party
the right to control the defense and settlement of any such claim, except that
the Indemnifying Party shall not enter into any settlement that affects the
Indemnified Party's rights or interest without the Indemnified Party's prior
written approval. The Indemnified Party shall have the right to participate in
the defense at its expense.
16. General Provisions.
16.1 Governing Law. This Agreement will be governed and construed in
accordance with the laws of the State of New York without giving effect to
conflict of laws principles. Both parties consent to jurisdiction in New York
and further agree that any cause of action arising under this Agreement shall be
brought in a court in New York, New York. The parties exclude the application of
The United Nations Convention on Contracts for the International Sale of Goods
from this Agreement.
16.2 Severability; Headings. If any provision herein is held to be
invalid or unenforceable for any reason, the remaining provisions will continue
in full force without being impaired or invalidated in any way. Headings are for
reference purposes only and in no way define, limit, construe or describe the
scope or extent of such section.
16.3 Force Majeure. If performance hereunder is prevented, restricted
or interfered with by any act or condition whatsoever beyond the reasonable
control of a party, the party so affected, upon giving prompt notice to the
other party, shall be excused from such performance to the extent of such
prevention, restriction or interference. Each party acknowledges that the
operation of the other party's website and services may be interfered with by
numerous factors outside of a party's control, and theglobe.com does not
guarantee continuous or uninterrupted display of Lowestfare Content.
10.
<PAGE>
16.4 Independent Contractors. The parties are independent contractors,
and no agency, partnership, joint venture, employee-employer or franchisor-
franchisee relationship is intended or created by this Agreement. Neither party
shall make any warranties or representations on behalf of the other party.
16.5 Compliance with Laws. At its own expense, each party shall comply
with all applicable laws, regulations, rules, ordinances and orders regarding
the marketing, promotion and performance of its obligations hereunder, including
without limitation the operation of the Co-Branded Site and its other activities
related to this Agreement.
16.6 Notice. Any notices hereunder shall be given to the appropriate
party at the address specified above or at such other address as the party shall
specify in writing. Notice shall be deemed given: upon personal delivery; if
sent by fax, upon confirmation of receipt; or if sent by certified or registered
mail, postage prepaid, five (5) days after the date of mailing.
16.7 Entire Agreement; Waiver. This Agreement sets forth the entire
understanding and agreement of the parties, and supersedes any and all oral or
written agreements or understandings between the parties, as to the subject
matter of this Agreement, including the Travel Services Alliance Agreement
between theglobe.com and lowestfare.com dated as of September 9, 1998. It may
be changed only by a writing signed by theglobe.com and Lowestfare. The waiver
of a breach of any provision of this Agreement will not operate or be
interpreted as a waiver of any other or subsequent breach.
16.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be taken together and deemed to be one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Lowestfare.com, a division of theglobe.com, inc.
Global Discount Travel Services LLC
By: /s/ By: /s/
------------------------------ ------------------------------
Title: CEO Title:
------------------------------ ------------------------------
Date: 9-16-98 Date: 16\Sept.\98
------------------------------ ------------------------------
11.
<PAGE>
Exhibit A
Lowestfare Content
Editorial Content
- -----------------
. Travel
. Flight Reservations
. Quick Rez
. Vacation Packages
. Vacations
. Getaways
. Cruises
. Destination Guide
. Travel Articles
. Travel Resources
. Maps
. Weather
. Currency Converter
. Travel Affiliate Program
Buttons, Banners, Etc.
- ----------------------
Other Materials
- ---------------
12.
<PAGE>
Exhibit B
Marks
13.
<PAGE>
Exhibit C
Phases
Phase I
(To commence upon the Effective Date and to continue for the Term of the
Agreement)
Promotional Matters
Phase II
(To commence the fourth (4th) calendar quarter of 1998 (Q4,98) and to continue
for the Term of the Agreement)
Site Integration
Phase III
(To commence the first (1st) calendar quarter of 1999 (Q1,99) and to continue
for the Term of the Agreement)
Affiliate Program & Online Promotion
14.
<PAGE>
Exhibit D
Locations
- --------------------------------------------------------------------------------
Type Approx. Yearly Impressions Total Cost
- --------------------------------------------------------------------------------
Exclusive Travel Partner $1,200,000
Travel Content Area
Placement Theme Areas
Homepage Promotion
What's New
Business
Metro
Romance
Life College
Myglobe.com
Quarterly Registration Giveaway
Registered Users
Permanent Opt-in Registration Pg.
Registered Users
Monthly Travel Sweepstakes
Registered Users
Quarterly Email
Affiliate Membership Program
Online and Offline Promotion
Online
Offline Print
Assorted
- --------------------------------------------------------------------------------
Total $1,200,000
- --------------------------------------------------------------------------------
15.
<PAGE>
EXHIBIT E
Template
Subject to Subsection 8.2 ("Template"), the initial Template shall provide a
user interface substantially consistent with the following:
[TEMPLATE SCREEN]
16.
<PAGE>
Exhibit F
Travel Services Companies
Travel Service Companies shall mean all companies that provide full-service
travel content and reservations for airlines, hotels, vacations, cars, cruises
and charter flights, including, but not limited to:
Travelocity
Expedia
Preview Travel
Internet Travel Network (ITN)
American Express Travel
Carson-Wagonlits
Omega Travel
Cheap Tickets
Biz Travel
17.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.1
loss per share
Computation of loss per share
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
1995 1996 1997 1997 1998
--------------- ------------- -------------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic:
Net Loss (65,706) ($750,180) ($3,584,400) ($767,435) ($5,824,270)
Net loss applicable to common
stockholders ($65,706) ($750,180) ($3,584,400) ($767,435) ($5,824,270)
=============== ============= ============== =============== ==============
Basic weighted average shares
outstanding 1,125,000 1,125,000 1,146,773 1,140,960 1,161,389
=============== ============= ============== =============== ==============
Basic loss per common share ($0.06) ($0.67) ($3.13) ($0.67) ($5.01)
=============== ============= ============== =============== ==============
Diluted:
Net loss applicable to common
stockholders ($65,706) ($750,180) ($3,584,400) ($767,435) ($5,824,270)
=============== ============= ============== =============== ==============
Basic weighted average shares
outstanding 1,125,000 1,125,000 1,146,773 1,140,960 1,161,389
Net effect of dilutive
securities 0 0 0 0 0
--------------- ------------- -------------- --------------- --------------
Diluted weighted average
shares outstanding 1,125,000 1,125,000 1,146,773 1,140,960 1,161,389
=============== ============= ============== =============== ==============
Diluted loss per common
share ($0.06) ($0.67) ($3.13) ($0.67) ($5.01)
=============== ============= ============== =============== ==============
</TABLE>
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULE
The Board of Directors and Stockholders
theglobe.com, inc.:
The audits referred to in our report dated April 16, 1998, except for note 9,
which is as of July 22, 1998, included the related financial statement schedule
as of December 31, 1997, and for the period from May 1, 1995 (inception) to
December 31, 1995 and for the years ended December 31, 1996 and 1997, included
in the Registration Statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits. In our
opinion, such financial statements schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects, the information set forth therein.
We consent to the use of our report included herein and to the reference to our
firm under the headings "Selected Financial Data" and "Experts" in the
Prospectus.
KPMG PEAT MARWICK LLP
New York, New York
October 14, 1998
