As filed with the Securities and Exchange Commission on August 20, 1998
Registration No. 333-59751
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------------------
AMENDMENT NO. 1 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 Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification
incorporation or ----------------------------------- Number)
organization)
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 & Jacobson 1290 Avenue of the Americas
One New York Plaza New York, New York 10104
New York, New York 10004 (212) 468-8000
(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
===========================================================================
Title of Each Class of Proposed Maximum
Securities Aggregate Amount of
to be Registered Offering Price(1) Registration Fee
- ---------------------------------------------------------------------------
Common Stock, $.001 par $50,000,000 $14,750
value (2)
===========================================================================
(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.
===========================================================================
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.
<PAGE>
SUBJECT TO COMPLETION, DATED , 1998
PRELIMINARY PROSPECTUS
Shares
[LOGO]
Common Stock
All of the 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, shares are
being offered to the public in an initial public offering (the "Initial
Public Offering") and shares are being offered in a concurrent
offering (the "Concurrent Offering") by the Company directly to certain
investors at a price per share equal to the Initial Public Offering price
per share less the underwriting discounts and commissions but including a
placement agent fee (the "Placement Agent Fee"). The consummation of the
Concurrent Offering and the Initial Public Offering are contingent upon
each other. The Concurrent Offering will not be consummated with respect to
less than shares. 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 such
investors in connection with the Concurrent Offering will be promptly
returned. See "Concurrent Offering." References herein to the "Offerings"
include the shares of the Company's Common Stock being offered in the
Initial Public Offering as well as the shares of Common Stock to be
sold by the Company in 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 $ and $ per
share. See "Underwriting" for a discussion of the factors to be considered
in determining the initial public offering price. Application will be made
for quotation of the Common Stock on the Nasdaq National Market under the
symbol "TGLO."
------------------
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.
===========================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
- -------------------------------------------------------------------------------
Per Share................... $ $ $
Initial Public Offering... $ $ $
Concurrent Offering....... $ $ $
- -------------------------------------------------------------------------------
Total (3)................... $ $ $
===============================================================================
(1) Bear, Stearns & Co. Inc. and Volpe Brown Whelan & Company are also
acting as the Company's placement agents (the "Placement Agents") in
connection with the Concurrent Offering, and the Company has agreed to
pay the Placement Agents a fee of $ per share. In addition, 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 $ .
(3) The Company has granted the Underwriters a 30-day option to purchase
up to 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 Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------
The shares of Common Stock 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 Offerings 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.
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 Rights."
------------------
This Prospectus includes statistical data regarding the Internet
industry. Such data is taken or derived from information published by
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"), and International Data Corporation, a
provider of market information and strategic information for the
information technology industry ("IDC"). Although the Company believes that
such data are generally indicative of the matters reflected therein, such
data are inherently imprecise and investors are cautioned not to place
undue reliance on such data.
------------------
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 DESCRIPTON OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and Financial
Statements and Notes 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 for Common Stock split to be
effected immediately prior to the consummation of the Offerings.
The Company
theglobe.com is one of the world's leading online communities with
over 1.7 million members in the United States and abroad. In June 1998, 6.1
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 where each layer reflects a more specific level of interest.
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, ensuring that 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 unique 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 June 1998, the
Company had 90 advertisers, including, Coca Cola, Dunkin' Donuts, J. Crew,
Procter & Gamble, Sony, 3Com and Visa.
Since its founding, theglobe.com has experienced strong growth. The
site has added approximately 100,000 new members every month since October
1997, and generated over 100 million page views in June 1998, an increase
of over 100% from January 1998. More than 6.1 million unique users visited
the site in June 1998, reflecting an increase of more than 350% since
January 1998. Approximately 25% to 35% of theglobe.com's monthly traffic
originates from abroad, reflecting the site's international appeal.
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.
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.
-----------------------------------
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.
<PAGE>
The Offerings
Common Stock offered by the Company
Initial Public Offering............................ shares
Concurrent Offering................................ shares
Total.......................................... shares
Common Stock to be outstanding after the Offerings... shares (1)(2)
Use of Proceeds......................................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
- -------------
(1) Based on the number of shares of Common Stock outstanding as of June
30, 1998, including 10,947,469 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. Also includes 4,046,018 shares of Common Stock issuable
upon the exercise of outstanding warrants (the "Warrants") to acquire
Common Stock at an exercise price of approximately $1.45 per share
following consummation of the Offerings. If the Underwriters'
over-allotment option were exercised in full, an additional shares of
Common Stock would be offered by the Company, and shares of Common
Stock would be outstanding after the Offerings.
(2) Excludes (i) 1,235,000 and 1,425,941 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 $
per share (assuming an initial offering price of $ per share) and $
per share, respectively; and (ii) 565,000 and 12,001 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 Financial Statements and the Notes related thereto appearing
elsewhere in this Prospectus.
<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
(inception) Six Months
through Year Ended Ended
December 31, December 31, June 30,
------------ --------
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 (0.03) (0.33) (1.56) (0.34) (2.51)
share(FN1)
Weighted average shares
outstanding used in basic and
diluted per share calculation (FN1) 2,250,000 2,250,000 2,293,545 2,281,920 2,322,794
Pro forma basic and diluted net
loss per share (basic and
diluted) (FN2).................
Weighted average shares used in
computing pro forma net loss per
share (FN2)....................
</TABLE>
June 30, 1998
----------------------------------------
Actual As Adjusted(2)
------ --------------
Balance Sheet Data:
Cash and cash equivalents
and short-term
investments............. $ 13,155
Working capital........... 10,452
Total assets.............. 15,603
Capital lease
obligations, excluding
current installments.... 629
Total stockholders' equity 11,571
- -------------
[FN]
(1) Weighted average shares do not include any common stock equivalents
because such inclusion would have been anti-dilutive. See Financial
Statements and related Notes thereto appearing elsewhere in this
Prospectus for the determination of shares used in computing basic and
diluted loss per share.
(2) As adjusted to reflect the sale of shares of Common Stock
offered hereby at an assumed initial public offering price of $
per share) the midpoint of the estimated range set forth on the front
cover of this Prospectus) after deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable
by the Company. See "Use of Proceeds" and "Capitalization."
</FN>
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a
high degree of risk. The following factors and the other information
contained in this Prospectus should be considered carefully before
purchasing the Common Stock offered hereby. This Prospectus contains
forward-looking statements that involve significant risks and
uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of
various factors, including those set forth below, under "Cautionary Notice
Regarding Forward-Looking Statements" and elsewhere in this Prospectus.
Limited Operating History; Fluctuating Rates of Revenue Growth; Anticipated
Losses
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 premium 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.
Although the Company has experienced significant revenue growth in
recent periods, there can be no assurance that this 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.
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 service 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. 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, nor 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 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."
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.
Reliance on Advertising Revenues
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.
Additionally, the process of managing the placement of 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 in April 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. If it elected to do
so, the Company believes that it could replace the D.A.R.T. service with
other available advertising management systems. However, 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 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. 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 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.
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; Fluctuating Rates of
Revenue Growth; Anticipated Losses." 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 "--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 "--Reliance on Advertising Revenues."
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 strategic alliances and acquisitions.
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 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 June 30, 1998, the Company had grown to approximately 80 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 and adverse effect upon the Company's
business, results of operations and financial condition. See
"Business--Employees" and "--Technology" and "Management."
Management of Growth; New Management Team
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 Financial
Officer joined the Company during July 1998. In addition, each of the
Company's Director of Advertising Sales, Director of Technology, Director
of Communications, Director of Human Resources and Director of Sales and
Marketing has been with the Company for less than two years. Furthermore,
the members of the Company's current senior management 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"), Chairman and Chief Executive Officer of
Certified Vacations and Chairman of AutobyInternet, related entities of
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 management time of Messrs. Egan
and Cespedes. The Company has recently begun e-commerce arrangements with
certain entities controlled by Dancing Bear Investments which are not
currently material to the Company. See "Certain Relationships and Related
Transactions." These arrangements are not the result of arms' length
negotiations, although the Company believes they are on terms that would be
as favorable to the Company as would have been obtained on an arms' length
basis. Due to their relationships with Dancing Bear Investments, Messrs.
Egan and Cespedes will have an inherent conflict of interest in making any
decision related to transactions between entities related to Dancing Bear
Investments and the Company. The Company intends to review related party
transactions in the future on a case-by-case basis.
Enhancement and Development of theglobe.com
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 materially
adversely affect 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 adversely affect the Company's business, results
of operations and financial condition. See "Business--Products and
Services."
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 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 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 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 intends to enter into a Web hosting agreement with a third
party (the "Host") by the end of 1998. Pursuant to the agreement, the Host
is expected to provide and manage power and environmentals for the
Company's networking and server equipment and also provide site
connectivity to the Internet. Any disruption in the Internet access
provided by the Host or any failure of the Company's server and networking
systems to handle current or higher volumes of traffic could 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. Despite the implementation of
network security measures by the Company, its 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, although such actions have not been so to date. In
addition to purposeful security breaches, the inadvertent transmission of
computer viruses could expose the Company to a 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 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, 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. 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 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 Disney, CBS and 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, 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.
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 and strategic 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.
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
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. 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."
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 it 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, the
Company is liable for copyright or trademark infringement. 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. Although such claims have
not resulted in any significant litigation or had a material adverse effect
on the Company's business to date, such claims and any resultant
litigation, should it occur, might subject the Company to significant
liability for damages, might result in 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."
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 American 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 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 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
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. The Company has
received inquiries from third parties regarding such matters, all of which
have been resolved to date without any payments or other material adverse
effect on the Company. In addition, the increased attention focused upon
liability issues and legislative proposals could 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 potential liabilities
to consumers of such products and 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 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. While the Company will attempt to reduce its exposure to such
liability through the use of member agreements and user policies and
disclaimers, the enforceability and effectiveness of such measures are
uncertain.
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 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.
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, although
substantially all of the Company's advertising revenue is generated in the
United States. 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 the completion of the Offerings, Michael S. Egan, the
Chairman of the Company, will beneficially own or control, directly or
indirectly, shares of Common Stock which in the aggregate will
represent approximately % of the outstanding shares of Common Stock (and
shares and % on a fully diluted basis). Following consummation of
the Offerings, Messrs. Krizelman and Paternot, collectively, will
beneficially own % of the Common Stock ( % on a fully diluted basis).
Following the Offerings, Messrs. Egan, Krizelman and Paternot and certain
directors of the Company will hold outstanding Warrants exercisable for
4,046,018 shares of Common Stock. See "Description of Capital Stock --
Warrants." Messrs. Egan, Krizelman and Paternot expect to enter into a
voting agreement (the "Voting Agreement") pursuant to which Mr. Egan agrees
to vote for certain nominees of Messrs. Krizelman and Paternot to the Board
of Directors and Messrs. Krizelman and Paternot agree to vote for the
nominees of Mr. Egan to the Board who will represent a majority of the
Board of Directors. Accordingly, Mr. Egan will have theability to elect a
majority of the directors of the company and Messrs. Egan, Krizelman and
Paternot will also have the ability to control theoutcome of all issues
submitted to a vote of the stockholders of the Company requiring majority
approval. See "Principal Stockholders." The Voting Agreement will also
provide that Messrs. Egan, Krizelman and Paternot 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
Messrs. Egan, Krizelman and Paternot 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, 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 has reviewed its internal programs and has determined that
there are no significant Year 2000 issues within the Company's systems or
services. However, although the Company believes that its systems are Year
2000 compliant, the Company utilizes third-party equipment and software
that may not be Year 2000 compliant. Failure of such third-party equipment
or software to operate properly with regard to the year 2000 and thereafter
could require the Company to incur unanticipated expenses to remedy any
problems, which could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company is in
the process of contacting all of its significant suppliers and strategic
partners to determine the extent to which the Company's interface systems
are vulnerable to these third parties' failure to remediate their own Year
2000 issues. Furthermore, the purchasing patterns of advertisers may be
affected by Year 2000 issues as companies expend significant resources to
correct their current systems for Year 2000 compliance. These expenditures
may result in reduced funds available for Internet advertising or
sponsorship of Internet services, 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
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. Although the Company intends to apply for quotation on the Nasdaq
National Market, if the Common Stock is listed, 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
Offering. See "Underwriting." The trading price of the Company's 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.
Shares Eligible for Future Sale; No Prior Trading Market; Registration Rights
Upon consummation of the Offerings, the Company will have outstanding
a total of shares of Common Stock, and approximately 1,235,000 and
1,425,941 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." Of such shares, the shares of
Common Stock being sold in the Offerings (together with any shares sold
upon exercise of the Underwriters' over-allotment options) will be
immediately eligible for sale in the public market without restriction,
except for shares 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 Offering will be "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. In addition, upon consummation of the
Offerings, 4,046,018 shares of Common Stock will be issuable upon exercise
of an outstanding Warrants. Approximately shares of Common Stock are not
subject to the volume limitations of Rule 144 and are currently eligible
for sale in the public market without restriction, except for shares held
by an "affiliate" of the Company. Certain holders of the Company's Common
Stock have been granted registration rights with respect to such shares.
Additionally, holders of all of the Company's outstanding 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 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 and stock incentive
plan 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 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 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."
Dilution; Absence of Dividends
Investors purchasing shares of Common Stock in the Offerings will
incur immediate and substantial dilution of $ 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."
<PAGE>
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). 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.
<PAGE>
CONCURRENT OFFERINGS
Concurrent with the shares offered hereby in the Initial Public
Offering, the Company intends to sell to certain individuals (the
"Concurrent Purchasers") up to shares of Common Stock at a price equal
to the Initial Public Offering price less underwriting discounts and
commissions but including the Placement Agent Fee. The Company expects that
the Concurrent Purchasers will include certain of the Company's directors
and officers. The Concurrent Offering will not be consummated with respect
to less than shares. 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. 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 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 shares of Common
Stock offered in the Offerings by the Company are estimated to be
approximately $ million (approximately $ million if the
Underwriters' overallotment option is exercised in full), based on an
assumed initial public offering price of $ per share (the midpoint of
the estimated range) and after deducting the estimated underwriting
discounts and commissions, Placement Agent Fees and other estimated
offering expenses. See "Description of Capital Stock."
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 its
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. 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.
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.
<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 shares
of Common Stock offered by the Company hereby at an assumed initial public
offering price of $ 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.
June 30, 1998
---------------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------------------------------------------
(Dollars in thousands, except per share data)
Obligations under capital leases,
excluding current installments..........$ 629 $ 629
Stockholders' equity:
Preferred Stock, 3,000,000
shares authorized:
Series A through E, $.001
par value; 2,900,001 shares
authorized; 2,899,991 shares
issued and outstanding (aggregate
liquidation value of $21,886,110);
none issued and outstanding, pro
forma and pro forma as adjusted...... 3 --
Common Stock, $.001 par value;
22,000,000 shares authorized,
actual and pro forma; 100,000,000
shares authorized, pro forma as
adjusted; 2,308,541 shares issued
and outstanding, actual; 13,341,527
shares outstanding, pro forma;
shares issued and outstanding,
pro forma as adjusted (1)............ 2 13
Unrealized loss on available-for-sale
securities........................... (30) (30)
Additional paid-in capital........... 21,873 21,865
Deferred compensation................. (52) (52)
Accumulated deficit................... (10,225) (10,225)
Total stockholders' equity............ 11,571 11,571
======== ========
Total capitalization.............. $12,200 $12,200 $
---------------------------------- ======== ======== ========
(1) Based on the number of shares of Common Stock outstanding as of
June 30, 1998, and adjusted to include 10,947,469 shares of Common
Stock that will be issued upon the automatic conversion of the
Company's existing Preferred Stock upon consummation of the Offerings.
Excludes 4,046,018 shares of Common Stock issuable upon the exercise
of outstanding Warrants at an exercise price of approximately $1.45
per share following the consummation of the Offerings. See
"Description of Capital Stock--Warrants." If the Underwriters'
over-allotment option were exercised in full, an additional shares of
Common Stock would be offered by the Company and shares of Common
Stock would be outstanding after the Offerings. See "Underwriting."
Excludes (i) 1,235,000 and 1,425,941 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
$ per share (based on an initial public offering price of $ )
and $ per share, respectively and (ii) 565,000 and 12,00 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 Financial Statements and Notes related thereto
appearing elsewhere in this Prospectus.
<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 10,947,469 shares of Common Stock was approximately $
or $ 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 goodwill less pro forma total
liabilities) by the number of shares of Common Stock. After giving effect
to the sale of shares of Common Stock offered hereby at an assumed
initial public offering price of $ 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 $ per share.
This represents an immediate increase in pro forma net tangible book value
of $ per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $ per share to new investors. The
following table illustrates this dilution on a per share basis:
Assumed initial public offering price per share.... $____
Pro forma net tangible book value per share as of
June 30, 1998..................................... $____
Increase per share attributable to new investors.. ____
Pro forma net tangible book value per share after
the Offerings..................................... ____
Dilution per share to new investors................ $ (1)
=======
- -----------
(1) The foregoing computations assume no exercise of the Underwriters'
overallotment option, stock options or the Warrants. The Warrants
entitle the holders thereof to purchase an aggregate of 4,046,018
shares of Common Stock at an exercise price of approximately $1.45 per
share. If the foregoing Warrants had been exercised at June 30, 1998,
pro forma net tangible book value per share after the Offerings would
have been $ , representing an immediate dilution to new investors
of $ per share and an immediate increase in net tangible book
value of $ 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 this Offering (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):
Shares Purchased Total Consideration Average
-------- ----------- --------------------- Price
Number Percentage Amount Percentage Per Share
-------- ----------- -------- ------------ ---------
Existing
stockholders(1)...... 13,341,527 $ 21,900,057 $ 1.64
Investors in the
Concurrent Offering... $ $
--------(2) -------- ---------
Investors in the
Initial Public
Offering
---------- ---------- -------- ------------ ---------
Total............... (3) 100% 100%
========== ========== ======== ============ =========
- -------------------------
(1) Assumes all of the Company's outstanding Preferred Stock is converted
into Common Stock. Excludes 4,046,018 shares of Common Stock that may
be issued upon the exercise of the Warrants at approximately $1.45 per
share.
(2) Represents an estimate of the number of shares to be purchased.
(3) Excludes 1,235,000 and 1,425,941 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 $ per share (based on an initial public offering price of
$ ) and $ per share, respectively. See "Management--Executive
Compensation," "Description of Capital Stock--Warrants" and Note ___
of Notes to Financial Statements. To the extent outstanding stock
options are exercised, there will be further dilution to new
investors.
<PAGE>
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
The following selected consolidated financial data should be read in
conjunction with the Company's 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)
through Year Ended Six Months Ended
December 31, December 31, June 30,
------------- ----------- --------
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 ......................................... (0) 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........................... $ (0.03) $ (0.33) $ (1.56) $ (0.34) $ (2.51)
=========== =========== =========== =========== ===========
Weighted average
shares outstanding
used in basic and
diluted per share
calculation.................................. 2,250,000 2,250,000 2,293,545 2,281,920 2,322,794
=========== =========== =========== =========== ===========
Pro forma basic and diluted net loss per share (1)
Weighted average shares outstanding used in pro forma basic and
diluted per share calculation (1)
</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
(1) Weighted average shares do not include any common stock equivalents
because such inclusion would have been anti-dilutive. See Financial
Statements and Notes related thereto appearing elsewhere in this
Prospectus for an explanation of the weighted average number of shares
used to compute pro forma basic and diluted loss per share.
</TABLE>
<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 the Notes related thereto
included elsewhere in this Prospectus.
Overview
theglobe.com is one of the world's leading online communities today
with over 1.7 million members in the United States and abroad. In June
1998, 6.1 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.
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 introduction 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, 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 in the third quarter of 1998 in connection with the transfer
during the third quarter of 1998 of Warrants to acquire 450,000 shares of
Common Stock from Dancing Bear Investments (its largest stockholder) to
Todd V. Krizelman, Stephan J. Paternot and Edward A. Cespedes. The amount
of such charge will be determined by the difference between the initial
public offering price per share and the exercise price per Warrant
(approximately $1.45 per share).
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)
to Six Months Ended
December 31, Year Ended December 31, June 30,
------------ ----------------------- --------
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 administrative..... 68% 213% 367% 285% 204%
---- ---- ---- ---- ----
Total Operating expenses 297% 386% 549% 423% 608%
---- ---- ---- ---- ----
Loss from operations.............. (245%) (337%) (504%) (374%) (551%)
Interest income (expense), net.... (0%) 10% 43% 5% 57%
---- ---- ---- ---- ----
Loss before provision for income
taxes.......................... (245%) (327%) (461%) (369%) (494%)
Provision for income taxes........ 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.
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.
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,
respectively. 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 5 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 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 was 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
Common Stock, through which the Company raised $647,000 in 1995 and (iii)
capital equipment lease 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 this Offering,
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 sale of additional equity or convertible debt securities
could result in additional dilution to the Company's stockholders. 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."
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 audited
financial statements of the Company and the notes 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, except per share data)
Statement of Operations
Data:
<S> <C> <C> <C> <C> <C> <C>
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
(expense), 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
(expense), 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>
Impact of the Year 2000
The Year 2000 issue is the result of computer-controlled systems using
two digits rather than four to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business
activities.
The Company has reviewed its internal programs and has determined that
there are no significant Year 2000 issues within the Company's systems or
services. However, although the Company believes that its systems are Year
2000 compliant, the Company utilizes third-party equipment and software
that may not be Year 2000 compliant. Failure of such third-party equipment
or software to operate properly with regard to the year 2000 and thereafter
could require the Company to incur unanticipated expenses to remedy any
problems, which could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company is in
the process of contacting all of its significant suppliers and strategic
partners to determine the extent to which the Company's interface systems
are vulnerable to those third parties' failure to remediate their own Year
2000 issues. Furthermore, the purchasing patterns of advertisers may be
affected by Year 2000 issues as companies expend significant resources to
correct their current systems for Year 2000 compliance. These expenditures
may result in reduced funds available for Internet advertising or
sponsorship of Internet services, which could have a material adverse
effect on the Company's business, results of operations and financial
condition.
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" in
the quarter ended June 30, 1998. SFAS No. 130 requires the Company to
report in their 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. There were no
differences between the Company's comprehensive loss and its net loss as
reported.
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.
<PAGE>
BUSINESS
Overview
theglobe.com is one of the world's leading online communities with
over 1.7 million members in the United States and abroad, In June 1998, 6.1
million unique users visited this 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. The site has added over 100,000 new members every month since
October 1997, and generated over 100 million page views in June 1998, an
increase of over 100% from January 1998. More than 6.1 million unique users
visited the site in June 1998, reflecting an increase of more than 350%
since January 1998. Approximately 25% to 35% of theglobe.com's monthly
traffic originates from abroad, reflecting the site's international appeal.
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.
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 Internet users exceeded 69 million
in 1997, and will grow to over 320 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, 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 U.S. will grow from $1.9 billion 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.
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 $3 billion in
1997 to approximately $38 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, with each layer reflecting a more
specific level of interest. 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, ensuring that 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 it has a greater ability
to convert them into members, perpetuating the growth of the site.
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. This translates into more frequent usage by members and longer
stays at the site. According to Media Metrix, the average time spent per
user at theglobe.com in the period April through June 1998 was
approximately 15% higher than the average time spent on the top 25 Web
sites visited most frequently.
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 the globe.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, Together Systems 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 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 the
introduction of "Globe-shops," its e-commerce merchandising solution aimed
at the small to mid-sized office and home office market, in the fall of
1998. 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 June 30, 1998, approximately 35 companies, including
four 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 35
participants including BarnesandNoble.com, FAO Schwarz and Lens Express.
The Company also has relationships with four Premier Partners who pay an
additional fixed monthly fee in order to receive prominent placement at
theglobe.com. Premier marketplace agreements typically run for a period of
six months to one year and are renewable at the option of the partner. The
Company currently has such agreements with Cyberian Outpost, Inc. for
software and computer hardware, GetSmart for consumer finance, Classified
Warehouse for classified advertisements and has signed a letter of intent
with RSL Communications for Internet telephony and phone services.
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 August 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 which 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, Together Systems, Launch
Magazine, Wall Street Sports LLC, LINCS, WebSurfer, Mining Company and
Lycos.
Advertising Customers
With over 1.6 million registered members, over 6.1 million monthly
users and over 100 million monthly page views as of June 1998, the Company
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 it is well
positioned to capture a portion of the growing number of consumer product
and service companies seeking to advertise online. In June 1998,
approximately 90 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
Generation
. E-mail Sponsorship Programs
. Celebrity Event Sponsorships . Pre- and Post-Campaign Market
Research
The Company has built an internal sales organization of 16
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 was the first community Web site to commit significant
funds to advertising in traditional offline media, distinguishing itself
from most of its competitors and other online companies. 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.
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--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--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
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."
Intellectual Property and Proprietary Rights
The Company regards substantial elements of its Web site and
underlying technology as proprietary and attempts to protect it 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, obscene or offensive information
and content, such as sexually explicit information, gambling and consumer
fraud.
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 of that law,
however, was subsequently upheld. On July 23, 1998, the Senate passed the
appropriations bill for the Departments of Commerce, Justice, and State
(S.2260). One of the amendments to the bill is known as "CDA II," and, if
enacted, would prohibit commercial Web sites from distributing
adult-oriented material deemed to be "harmful to minors." Another amendment
would, if enacted, require public schools and libraries that receive
federal funding on Internet access to install software that would filter
out material that is "inappropriate for minors." The House version of the
bill, was passed on August 6, 1998.
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 substantially similar
bill has been introduced in the House of Representatives.
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.
Congress is considering numerous proposals regarding Internet privacy
although none have yet passed either the Senate or House of
Representatives.
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 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 Pitiofsky 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
could in turn 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 proposed consent order has been placed on the public record for
sixty days for comments by interested persons. After sixty days, the FTC
plans to again review the order and will decide whether to withdraw or make
the final proposed consent order.
Despite the Company's policies protecting user privacy, the Company
could be forced to disclose information about users by an administrative
subpoena or court order. For example, on July 22, 1998, the Senate adopted
an amendment to S.2260, the Departments of Commerce, Justice, and State
appropriations bill, that 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 Senate passed this appropriations bill as
amended, on July 23, 1998. The House version of the bill was passed on
August 5, 1998.
At the international level, the European Union (the "EU") has adopted
a directive (the "Directive") that will 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 U.S. There can be no assurance that this Directive
will not adversely affect the Internet privacy activities of entities such
as the Company that engage in data collection from users in certain EU
member countries in conducting their business.
Any new legislation enacted by federal, state, or foreign governments
regulating online privacy 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 such state law was 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 Finance Committee approved a version
of S.442 on November 4, 1997 that would, among other things, impose a
six-year moratorium and the Senate Commerce 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 Internet 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 e-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 and
OSPs in a manner similar to long distance telephone carriers and to impose
access fees on ISPs and OSPs. If either of these petitions is granted, or
the relief sought therein is otherwise granted, the costs of communicating
on or through the Internet could increase 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. See "Risk Factors--Liability for Information Retrieved from
or Transmitted 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 May 14, 1998, the Senate passed S.2037, the "Digital Millennium
Copyright Act," whose Title II contained the "Internet Copyright
Infringement Liability Clarification Act." 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 infringing 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. On August 4, 1998, House of
Representatives has passed a bill containing similar provisions for service
providers.
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 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 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 June 30, 1998, the Company had 75 full-time employees, including
20 in sales and marketing, 45 in production and 10 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 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 intends to relocate its headquarters at the end of
1998 to a larger facility and is currently evaluating a number of locations
in the greater New York City area. The Company has also leased
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.
<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.
Name Age Position
---- --- --------
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
Robert M. Halperin......... 70 Director
David Horowitz............. 69 Director
H. Wayne Huizenga.......... 60 Director
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. From 1986 to 1996, he was the majority
owner and Chairman of Alamo Rent-A-Car, Inc. ("Alamo"), now a subsidiary of
Republic Industries, Inc. 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, and
Chairman of AutobyInternet. 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 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 also serves on the board of directors of AutobyInternet. 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 Rent-A-Car 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.
Robert M. Halperin. Mr. Halperin has served as a director of the
Company since 1995. He 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.
David Horowitz. Mr. Horowitz has served as a Director of the Company
since December 1995. He 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, Inc. 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. and
as the Chairman of the Board of Extended Stay America, 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.
The Company currently intends to appoint an additional member to the
Board of Directors. This Board member will be a nominee of Michael S. Egan.
Key Employees
The following table sets forth the names and positions of the
Company's key employees.
Name Position
---- --------
Susan Berkowitz Director of Sales and Marketing
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
Susan Berkowitz. Ms. Berkowitz joined theglobe.com in 1996 as Director
of Sales and Marketing. Before joining theglobe.com, Ms. Berkowitz was the
Director of Media Ventures at SPIN Magazine from 1994 to 1996. Prior to
that time, Ms. Berkowitz was hired to build a new worldwide Entertainment
Marketing division for J. Walter Thompson from 1993 to 1994. Prior to that
time, Ms. Berkowitz was a Vice President at Chase Manhattan Bank in the
Real Estate Investment Banking division from 1987 to 1993.
Vance Huntley. Vance Huntley joined theglobe.com in 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!
Richard W. Mass. Mr. Mass will be 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 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 50,000 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 25,000 shares of Common
Stock. In addition, each eligible Non-Employee Director will receive an
annual grant of options to acquire 7,500 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)
Long-Term
Compensation
------------
Number of
Securities
Underlying
Annual Compensation Securities
------------------- Underlying
Bonus Options All Other
Name and Principal Position Salary($) ($) (#) Compensation($)(2)
- --------------------------- -------- ------ ----------- -----------------
Todd V. Krizelman, $76,000 $18,750 289,951 $500,000
Co-Chief Executive
Officer and Co-President
Stephan J. Paternot, $76,000 $18,750 289,951 $500,000
Co-Chief Executive Officer,
Co-President and Secretary
- ----------------------
(1) The Company did not have any other executive officers during this
period.
(2) Reflects a one-time payment of $500,000 associated with the Company's
sale of Preferred Stock and Warrants to Dancing Bear Investments in
August 1997.
1997 YEAR END OPTION VALUES (1)
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options Options at Fiscal
at Fiscal Year-End (#) Year-End ($)(2)
---------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- ----------- ------------- ----------- -------------
Todd V. Krizelman 50,000 289,951 $68,000 $295,750
Stephan J. Paternot 50,000 289,951 $68,000 $295,750
(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 $ , as
of December 31, 1998.
OPTIONS GRANTS IN 1997
Potential
Realizable Value
at Assumed Rates
Number of Percent Exercise of Stock Price
Securities of Options or Appreciation for
Underlying Granted to Base Option Term (1)
Options Employees Price Expiration ----------------
Name Granted(#) in 1997 ($/sh) Date 5% 10%
- ------------------ --------- --------- ------- ---------- --------- -----
Todd V. Krizelman 289,951 37% $0.35 May 2007 $172,348 $438,705
Stephan J. Paternot 289,951 37% $0.35 May 2007 $172,348 $438,705
- --------------
(1) These amounts represent certain assumed rates of appreciation only and
are displayed in connection with 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 therein) 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 are
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 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 the 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 ("COO") 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. Daniels
will be granted stock options (the "Options") to purchase 175,000 shares of
Common Stock, with an exercise price per share equal to the fair market
value per share of Common Stock as of the date of the grant. The Daniels
Employment Agreement also provides for the grant of additional options upon
the Company's attainment of certain financial targets in the 1998 and 1999
fiscal years of the Company. The Options will vest with respect to
one-third of the shares subject thereto on each of the first three
anniversaries of the date of grant.
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
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 stock 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 ("CFO") 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 stock options (the "Options") to purchase 175,000
shares of Common Stock, with an exercise price per share equal to the fair
market value per share of Common Stock as of the date of the grant (which
shall be 15% below the initial public offering price.) The Joyce Employment
Agreement also provides for the grant of additional options upon the
Company's attainment of certain financial targets in the 1998 and 1999
fiscal years of the Company. The 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 Joyce Employment Agreement is for a term expiring on July 13,
2001, subject to earlier termination and 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.
The Joyce Employment Agreement contains a covenant not to compete with
the Company for a period of from six months (or one year, if the Company
elects to pay Mr. Joyce his salary during such period) from the date of the
Joyce Employment Agreement's termination.
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 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 Securities
Exchange Act of 1934, as amended (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 50,000 shares to the
eligible non-employee directors who served on the Board as of July 15, 1998
(25,000 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 7,500 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 1,800,000 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 200,000 options to each of
Messrs. Krizelman and Paternot and 50,000 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, 200,000 options to Mr. Egan in connection with his appointment as
an officer in 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 500,000 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.
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 1,582,000 shares of Common Stock, subject to
adjustment as provided in the 1995 Plan. As of June 30, 1998, options
relating to approximately 1,425,941 shares of Common Stock are outstanding
under the 1995 Plan and approximately 12,001 shares remain subject to
future option grants. 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 500 options to each of its
employees currently employed by the Company and who have served prior to
January 1, 1998 and 200 options to each of its employees currently employed
by the Company 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
Internal Revenue 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.
Stock Incentive 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 a stock incentive plan. Immediately following the execution
of the Underwriting Agreement, each of the Company's Community Leaders, as
of July 23, 1998, will be issued fully vested shares of Common Stock
(approximately in the aggregate), contingent upon the closing of the
Offerings.
Compensation Committee Interlocks and Insider Participation
On July 15, 1998, Michael S. Egan, Robert M. Halperin, David Horowitz
and Rosalie 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 will, effective as of July
22, 1998, also serve 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 Michael S. Egan." Although it is
contemplated that Mr. Egan will not receive salary or bonus from the
Company, however the Board of Directors approved a grant of stock options
to Mr. Egan for 200,000 shares of Common Stock under the Company's 1998
Stock Option 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 AutobyInternet and Certified Vacations, entities
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.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Arrangements with Entities Controlled by Michael S. Egan
The Company has recently entered into an e-commerce contract with
AutobyInternet, an entity controlled by Michael S. Egan, pursuant to which
the Company will pay AutobyInternet a fee for every new subscribing member
of theglobe.com referred to the Company by AutobyInternet. In addition, the
Company has entered into an e-commerce arrangement with Certified
Vacations, another entity controlled by Michael S. Egan. As of June 30,
1998, the Company had not paid any fees to AutobyInternet or received any
revenues from Certified Vacations.
Voting Agreement
Messrs. Egan, Krizelman and Paternot expect to enter into a Voting
Agreement pursuant to which Mr. Egan agrees to vote for certain nominees of
Messrs. Krizelman and Paternot to the Board of Directors and Messrs.
Krizelman and Paternot agree to vote for Mr. Egan's nominees to the Board,
who will represent a majority of the Board. Additionally, pursuant to the
terms of the Voting Trust Agreement, Messrs. Krizelman and Paternot have
agreed to contribute any shares which may be acquired by them pursuant to
exercise of outstanding Warrants transferred to each of them by Dancing
Bear Investments to a voting trust controlled by Michael S. Egan. Such
shares will be voted by Michael S. Egan and will be subject to restrictions
on transfer for a period of years. The Voting Trust Agreement will also
provide that Messrs. Egan, Krizelman and Paternot 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.
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 Preferred Stock. The following
table summarizes the shares of Common Stock and Preferred Stock purchased
for greater than $60,000 by executive officers, directors and 5%
stockholders of the Company and persons associated with them since the
Company's inception.
Executive Preferred Stock
Officers, --------------------------------------------
Directors and
5% Stockholders Series B Series C Series D(1) SeriesE(2)
- --------------- -------- -------- ----------- ----------
Dancing Bear(3) 51 10
Investments, Inc.
Michael S.Egan(4) 51 10
Robert M. Halperin(5) 47,620 12,500
David Horowitz(6) 100,000 25,000
- --------------------
(1) Convertible into 8,047,529 shares of Common Stock.
(2) Represents Warrants to purchase 10 shares of Series E Preferred Stock
prior to the Offerings and an aggregate of 4,046,018 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 $25,000.50 and $25,000 for his Series B and Series C
Preferred Stock issued in December 1995 and , respectively.
(6) Mr. Horowitz paid $52,000 and $50,000 for his Series B and Series C
Preferred Stock issued in December 1995 and , 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 at a price equal to the Initial
Public Offering price per share less underwriting discounts and commissions
but including the Placement Agent Fee. The Company expects that the
Concurrent Purchasers will include certain of the Company's directors and
officers.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of August 19, 1998 and as adjusted
to reflect the sale of 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 August 19, 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
Stock Expected to be Percentage of Total Shares
Shares Purchased in the of Common Stock
Beneficially Concurrent ------------------
Name Owned (1) Offerings Before Offerings After Offerings
---- ------------ --------- ---------------- ---------------
<S> <C> <C> <C>
Dancing Bear Investments, 12,093,547 69.6%
Inc. (2)
333 East Las Olas Blvd.
Ft. Lauderdale, FL
Michael S. Egan(3) 12,106,047 69.6
Todd V. Krizelman(4) 1,509,885 11.0
Stephan J. Paternot(5) 1,614,975 11.7
Dean S. Daniels(6) 0 * *
Edward A. Cespedes(7) 62,500 * *
Francis T. Joyce(8) 0 * *
Rosalie V. Arthur(9) 62,500 * *
Robert M. Halperin(10) 168,453 1.3
David Horowitz(11) 208,334 1.6
H. Wayne Huizenga(12) 12,500 *
All directors and 15,745,194 85.4%
executive officers as a
group
(10 persons) (13)
- -----------------------
*Less than one percent.
<FN>
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission (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 August 19, 1998 are deemed outstanding. Such shares,
however, are not deemed outstanding for the purposes of computing the
percentage ownership of each other person.
(2) Includes: (a) 51 shares of Series D Preferred Stock, which will be
converted into an aggregate of 8,047,529 shares of Common Stock upon
consummation of the Offerings, (b) 3,546,018 shares of Common Stock
issuable following consummation of the Offerings upon exercise of
Warrants and (c) 500,000 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
Voting Trust Agreement.
(3) Includes the following shares that Mr. Egan is deemed to beneficially
own as the controlling investor of Dancing Bear Investments: (a) 51
shares of Series D Preferred Stock, which will be converted into an
aggregate of 8,047,529 shares of Common Stock upon consummation of the
Offerings, (b) 3,546,018 shares of Common Stock issuable, following
consummation of the Offerings, upon exercise of Warrants, (c) 500,000
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 a Voting Trust Agreement, and (d) 12,500 shares of Common
Stock subject to options that are currently exercisable. Excludes
200,000 shares subject to options that will not be exercisable within
60 days of August 19, 1998. Mr. Egan's mailing address is care of the
Company.
(4) Includes (a) 44,910 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) 194,976 shares of Common Stock
subject to options that are currently exercisable and (c) 200,000
shares of Common Stock issuable following consummation of the
Offerings upon exercise of Warrants. Excludes 344,975 shares subject
to options that will not be exercisable within 60 days of August 19,
1998. Mr. Krizelman's mailing address is care of the Company.
(5) Includes 194,976 shares of Common Stock subject to options that are
currently exercisable and 200,000 shares of Common Stock issuable
following consummation of the Offerings upon exercise of Warrants.
Excludes 344,975 shares subject to options that will not be
exercisable within 60 days of August 19, 1998. Mr Paternot's mailing
address is care of the Company.
(6) Excludes 175,000 shares of Common Stock subject to options that will
not be exercisable within 60 days of August 19, 1998.
(7) Includes 12,500 shares of Common Stock subject to options that are
currently exercisable, and 50,000 shares of Common Stock issuable
following consummation of the Offerings upon exercise of Warrants.
Excludes 37,500 shares subject to options that will not be exercisable
within 60 days of August 19, 1998.
(8) Excludes 175,000 share of Common Stock subject to options that will
not be exercisable within 60 days of August 19, 1998.
(9) Includes 12,500 shares of Common Stock subject to options that are
currently exercisable, and 50,000 shares of Common Stock issuable
following consummation of the Offerings upon exercise of Warrants.
Excludes 37,500 shares subject to options that will not be exercisable
within 60 days of August 19, 1998 and shares held by Dancing Bear
Investments (see footnote 2 above) for which Ms. Arthur serves as an
officer and a director, and as to which Ms. Arthur disclaims
beneficial ownership.
(10) Includes 47,620 shares of Series B Preferred Stock, and 12,500 shares
of Series C Preferred Stock, each convertible into an equal number of
shares of Common Stock, and 22,816 shares of Common Stock subject to
options that are currently exercisable. Excludes 91,667 shares of
Common Stock subject to options that are not currently exercisable.
Excludes 180,360 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.
(11) Includes 100,000 shares of Series B Preferred Stock and 25,000 shares
of Series C Preferred Stock, each convertible into an equal number of
shares of Common Stock, and 51,390 shares of Common Stock subject to
options that are currently exercisable. Excludes 66,666 shares of
Common Stock subject to options that are not currently exercisable.
(12) Includes 12,500 shares subject to options that are exercisable within
60 days of August 19, 1998. Excludes 37,500 shares subject to options
that are not exercisable within 60 days of August 19, 1998.
(13) See footnotes 3 through 12 above.
</FN>
</TABLE>
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's stockholders have approved the Second Amended and
Restated Certificate of Incorporation (the "Certificate") which will be
filed with the Delaware Secretary of State prior to consummation of the
Offering. Pursuant to the Certificate, the Company's authorized capital
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 2,308,541 shares of Common Stock outstanding
and 2,899,991 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 Company's Certificate and 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 Bylaws 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, approximately shares of Common Stock
will be outstanding. 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 2,900,001 shares 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 concurrent 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 $0.10, $0.525 and $2.00 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.
Warrants
As of June 30, 1998, the Company has issued and outstanding Warrants
to purchase 10 shares of Series E Preferred Stock, each convertible into
one percent of the fully diluted Common Stock, and having an exercise price
of $ per share. Upon consummation of the Offerings, the Series E
Preferred Stock will be converted into Common Stock, and the Warrants will
be exercisable into 4,046,018 shares of Common Stock (subject to certain
anti-dilution adjustments) at an exercise price of approximately $1.45 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
to be effective simultaneously with the consummation of the Offerings.
Pursuant to the Rights Agreement, the Board of Directors will declare a
dividend of one preferred share 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 preferred stock, par value $.001 per share (the "Junior
Preferred Shares"), of the Company at a price of $ per 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, which will be filed as an exhibit to the Registration
Statement. See "Additional Information."
The Rights will be attached to all certificates representing
outstanding shares of Common Stock, and no separate Right Certificates (as
hereinafter defined) will be 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 a person or "group" (other than Dancing Bear
Investments, Michael S. Egan or any entity controlled by Michael S. Egan)
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), (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 to commence, a tender
offer or exchange offer the consummation of which would result in a person
or group becoming an Acquiring Person or (iii) twenty business days prior
to the date on which a Transaction (as defined in the Rights Agreement) is
reasonably expected to become effective or be consummated (the earliest 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 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.
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 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-thousandth 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 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 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, or any person who was directly or
indirectly proposed or nominated as a director of the Company by a
Transaction Person (as defined in the Rights Agreement).
In the event that, at any time following the Stock Acquisition Date
or, if a Transaction is proposed, 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 $.01 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 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 a
Transaction Person (as defined in the Rights Agreement), (ii) following an
event giving rise to, and the expiration of the exercise period for, the
Subscription 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 Subscription 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 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 1,000 times the dividend declared on each
share of Common Stock, but in no event less than $10. In the event of
liquidation, the holders of Preferred Stock will receive a preferred
liquidation payment equal to the greater of $1,000 or 1,000 times the
payment made per each share of Common Stock. Each share of 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 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 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 two-hundredth 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.
In the event that a majority of the Board of Directors of the Company
is comprised of persons elected at a meeting of stockholders who were not
nominated by the Board of Directors in office immediately prior to such
meeting (including successors of such persons elected to the Board of
Directors), then for 365 days following such meeting, the Rights Agreement
may not be amended and the Rights may not be redeemed if such amendment or
redemption, as the case may be, is reasonably likely to facilitate a
combination or sale, mortgage or other transfer of assets or earning power
(a "Transaction") with a Transaction Person (as defined below). The Rights
Agreement may not be amended and the Rights may not be redeemed thereafter
if during such 365 day period the Company enters into any agreement
reasonably likely to facilitate a Transaction with a Transaction Person and
the amendment or redemption, as the case may be, is reasonably likely to
facilitate a Transaction with a Transaction Person.
A "Transaction Person" with respect to a Transaction means (x) any
Person who (i) is or will become an Acquiring Person or a Principal Party
(as such term is defined in the Rights Agreement) if the Transaction were
to be consummated and (ii) either (A) such Person directly or indirectly
proposed or nominated a director of the Company which director is in office
at the time of consideration of the Transaction, or (B) the Transaction
with such Person was approved by persons elected to the Board of Directors
with the objective, for the purpose or with the effect of facilitating a
merger or consolidation of the Company, a sale, mortgage or transfer, in
one or more transactions, of assets or earning power aggregating more than
50% of the assets or earning power of the Company and its subsidiaries
(taken as a whole) or any transaction which would result in a Person
becoming an Acquiring Person, or (y) an Affiliate or Associate of such a
Person.
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.
Registration Rights
Pursuant to the terms of the Investor Rights Agreement, dated as of
August 13, 1997 (the "Investor Rights Agreement"), 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 shares of 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 $5,000,000. 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 shares at such time. An underwriter
participating in the sale of the Registrable Securities may limit the
number of shares 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
twelve 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 Registerable Securities.
Pursuant to the terms of the Registration Rights Agreement by and
among Dancing Bear Investments, the 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.
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 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
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 .
<PAGE>
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
outstanding shares of Common Stock ( if the Underwriters'
over-allotment option is exercised in full). All of the shares of Common
Stock offered hereby ( if the Underwriters' over-allotment option is
exercised in full), will be immediately eligible for sale 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 (or shares issued upon conversion of
Preferred Stock upon consummation of the Offerings), are "Restricted
Securities," as that term is defined in Rule 144, 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 addition, upon consummation of the Offerings, 4,046,018
shares of Common Stock will be issuable upon exercise of outstanding
Warrants.
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 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 certain 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 and stock incentive plan 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 "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) 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.
<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.
Underwriter Number of
------------ Shares
Bear, Stearns & Co. Inc......................... --------
Volpe Brown Whelan & Company, LLC..............
Total......................................
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 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 additional shares of Common Stock solely to cover
over-allotments, if any. The options may be exercised in whole or in part
at any time within 30 days after the date of this Prospectus. To the extent
the options are 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 tables.
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 Offerings
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
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 closing of the Concurrent Offering is conditioned upon the closing
of the Initial Public Offering. The price of the shares to be sold to the
Concurrent Purchasers in the Concurrent Offering is equal to the Initial
Public Offering price less underwriting discounts and commissions plus the
Placement Agent Fee. The Placement Agents in connection with the Concurrent
Offering 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 offering 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 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. 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.
<PAGE>
theglobe.com, inc.
INDEX TO FINANCIAL STATEMENTS
Page
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, 1997 (unaudited) and 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
<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 8,
which is as of July 22, 1998
<PAGE>
theglobe.com, inc.
Balance Sheets
December 31, June 30,
-----------------------
Assets 1996 1997 1998
------------------------ ---------
(unaudited)
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 $19,462,17 $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; 2,759,940, 2,899,991
and 2,899,991, shares issued outstanding at
December 31, 1996 and 1997, and as
of June 30, 1998, respectively; aggregate
liquidation preference of
$21,837,110;.................. 2,760 2,900 2,900
Common stock, $0.001 par value;
100,000,000 shares authorized;
2,250,000, 2,308,541 and
2,394,058 shares issued and
outstanding, respectively....... 2,250 2,309 2,395
Additional paid-in capital........ 1,627,421 21,864,360 21,872,446
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
======== =========== ==========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
theglobe.com, inc.
Statements of Operations
Period from
May 1,
1995
(inception) Year Ended Six Months Ended
to December 31, June 30,
December 31, ------------------- -----------------------
1995 1996 1997 1997 1998
-------------- ------- ---------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Advertising ...... $ 26,815 $ 216,814 $ 592,409 $ 144,166 $ 1,043,606
Subscriptions .... -- 12,549 177,884 64,075 129,792
----------- ----------- ----------- ----------- -----------
Total 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) .. (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 ........ $ (0.03) $ (0.33) $ (1.56) $ (0.34) $ (2.51)
=========== =========== =========== =========== ===========
Weighted average
basic and diluted
shares
outstanding ...... 2,250,000 2,250,000 2,293,545 2,281,920 2,322,794
=========== =========== =========== =========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
theglobe.com, inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Net
unrealized
gain
Convertible (loss) Total
preferred stock Common Stock Additional on sale stock-
----------------- ----------------- paid-in of Deferred Accumulated holders
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........... $ -- $ $2,250,000 $2,250 $ 2,430 $ -- $ -- $ -- $ 4,680
Issuance of Series A
convertible preferred
stock................. 712,980 713 -- -- 66,287 -- -- -- 67,000
Promissory notes
converted to Series A
convertible preferred
stock................. 453,010 453 -- -- 45,785 -- -- -- 46,238
Issuance of Series B
convertible preferred
stock................. 1,103,830 1,104 -- -- 578,401 -- -- -- 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.............. 2,269,820 2,270 2,250,000 2,250 692,903 -- -- (65,706) 631,717
Issuance of Series B
convertible preferred
stock................. 47,620 48 -- -- 24,937 -- -- -- 24,985
Issuance of Series C
convertible preferred
stock................. 442,500 442 -- -- 884,528 -- -- -- 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.................. 2,759,940 2,760 2,250,000 2,250 1,627,421 -- (21,053) (815,886) 795,492
Issuance of Series C
convertible preferred
stock................. 140,000 140 -- -- 279,860 -- -- -- 280,000
Exercise of stock options -- -- 58,541 59 4,448 -- -- -- 4,507
Issuance of Series D
convertible preferred
stock, net of expense
of $130,464........... 51 -- -- -- 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.................. 2,899,991 2,900 2,308,541 2,309 21,864,360 (41,201) (76,033) (4,400,286) 17,352,049
Amortization of deferred
compensation.......... -- -- -- -- -- -- 23,119 -- 23,119
Exercise of stock options
(unaudited) -- -- 85,517 86 8 ,086 -- -- -- 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)........... 2,899,991 2,900 2,394,058 2,395 21,872,446 (29,647) (52,914) (10,224,556) 11,570,624
========= ======= ========== ====== =========== ========= ======= ========== ==========
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
theglobe.com, inc.
Statements of Cash Flows
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
========= =========== ============= ========= =============
See accompanying notes to financial statements.
</TABLE>
<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 6)
(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 less the underwriting
discount and commissions but including a placement agent fee,
(collectively referred to as the "Offerings"). 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 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
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(1), Continued
(c) Unaudited Interim Financial Information, Continued
position of 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.
(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
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(1), Continued
(i) Impairment of Long-Lived Assets, Continued
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.
(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.
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 are expensed as incurred.
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(1), Continued
(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 Securities and Exchange Commission
("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 2,619,820
for the period ended December 31, 1995, 3,444,037 and 14,873,344
for the years ended December 31, 1996 and 1997, respectively, and
3,823,398 and 17,528,945 for the six-month periods ended June 30,
1997 and 1998.
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(1), Continued
(p) Recent Accounting Pronouncements
In June 1997, 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. SFAS
No. 130 had no impact on the Company's financial statements.
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. All share and per share information in the
accompanying financial statements has been retroactively restated
to reflect the effect of this stock split. In August 1997, the
Company authorized and implemented a ten-for-one preferred stock
split.
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(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.
(3) Property and Equipment
Property and equipment consist of the following:
June
December December 30,
31, 31, 1998
1996 1997 (unaudited)
--------- ---------- ------------
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
======== ======== ==========
- -------------------------------------------
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(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:
1995 1996 1997
------------------------------------
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
======== ======== =========
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.
1996 1997
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............ $ -- $ --
========= =========
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.
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(4), Continued
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 utilization of net operating loss carryforwards may be limited
under the change in stock ownership rules of the Internal Revenue
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.
Common Stock
During 1995, the Company issued a total of 2,250,000 shares of Common
Stock to its founders in exchange for $4,680 in cash. During 1997, the
Company issued an additional 58,541 shares of Common Stock in
connection with the exercise of certain stock options.
Convertible Preferred Stock
Each class of the Company's Convertible Preferred Stock (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 1,165,990 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, bearing interest at rates between 6.62% and 8% per annum.
These Notes, including interest thereon, were converted into a total
of 453,010 shares of Series A Preferred Stock in connection with the
Company's 1995 private placement, as required by the terms and
conditions of such Notes.
As of December 31, 1997, 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.
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(5), Continued
During December 1995, the Company completed a private placement of
1,151,450 shares of Series B Preferred Stock at 0.525 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 442,500 shares
of Series C Preferred Stock at $2.00 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 140,000 shares of Series C
Preferred Stock at $2.00 per share for an aggregate price of $280,000
in 1997.
In August 1997, the Company authorized and issued 51 shares of Series
D Preferred Stock for an aggregate cash amount of $20,000,000 in
connection with the investment by Dancing Bear Investments, Inc. These
shares constituted 51% of the fully diluted capital stock of the
Company at that time. In addition to the Series D Preferred Stock,
Dancing Bear Investments, Inc. received warrants which provide the
right to purchase up to 10 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 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 $0.10, $0.525 and $2 per
share for Series A, B and C, respectively. 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.
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 $0.10, $0.525 and $2, $392,156.86 and $588,235.30 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.
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(5), continued
The following table summarizes the Convertible preferred Stock
authorized, issued and outstanding and liquidation preferences:
Shares
Issued and
Outstanding
Shares Liquidation
Authorized 1996 1997 Preference
--------- ---- ---- -----------
Series A 1,165,990 1,165,990 1,165,990 $ 0.10
Series B 1,151,450 1,151,450 1,151,450 $ 0.525
Series C 582,500 442,500 582,500 $ 2.00
Series D 51 0 51 $ 392,156.86
Series E 10 0 0
--------- --------- ---------
2,900,001 2,759,940 2,899,991
========= ========= =========
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.
(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 1,332,000 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.
In connection with the Dancing Bear Investments, the Company reserved
an additional 250,000 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 $0.01, $0.08 and $0.16, 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.
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(6), continued
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:
Weighted
Options average
granted exercise
price
------ --------
Outstanding at December 31, 1995......... 350,000 $ 0.01
Granted.................................. 334,097 $ 0.06
Exercised................................ -
Canceled................................. -
------- ------
Outstanding at December 31, 1996......... 684,097 $ 0.03
Granted.................................. 823,402 $ 0.37
Exercised................................ (58,541) $ 0.08
Canceled................................. (5,000) $ 0.49
-------
Outstanding at December 31, 1997......... 1,443,958 $ 0.22
=========
Vested at December 31, 1997 795,965
=========
Options available at December 31, 1997 79,502
=========
The following table summarizes information about stock options
outstanding at 12/31/97:
Options Outstanding Options Exercisable
------------------- ------------------------
Weighted
Average ----------- Weighted
Range of Remaining Weighted -----------
Exercise Number Contractual Average Number Average
Price Outstanding Life Exercise Outstanding Exercise
Price Price
- ------------- ---------- ---------- ---------- ---------- -----------
$0.01-$0.0525 563,778 1 $ 0.026 466,524 $ 0.02
$0.20-$0.35 709,680 1 0.323 329,441 0.33
$0.49 170,500 5 0.49 0 0
---------- --------
1,443,958 795,965
========== ========
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 Unaudited)
(6), Continued
At December 31, 1997, the range of exercise prices and
weighted-average remaining contractual life of outstanding options was
$0.01 - $0.49 and 1 year, respectively.
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:
1995 1996 1997
---- ---- ----
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 $ (0.03) $ (0.33) $ (1.56)
share - as reported ======= ======== ==========
Basic net loss per common
share -pro forma $ (0.03) $ (0.34) $ (1.58)
======= ======== =========
(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:
Year ended December 31, Amount
1998........................ $120,200
1999........................ 121,787
2000........................ 86,517
2001........................ 87,000
2002........................ 7,250
--------
Total minimum lease payments $422,754
========
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(7), Continued
(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:
Capital Operating
Year ending December 31, leases leases
------------------------
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
========
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.
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(8) Subsequent Events (unaudited)
The Company expects to record a charge to earnings in the third
quarter of 1998 in connection with the transfer during the third
quarter 1998 of warrants to acquire 450,000 shares of Common Stock by
Dancing Bear Investments to certain officers of the Company. The
amount of such charge will be determined by the difference between the
initial public offering price per share and the exercise price per
warrant.
In July 1998, the Company approved the amendment and restatement of
its certificate of incorporation to increase the number of authorized
shares from 25,000,000 shares to 100,000,000 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 for issuance of 1,800,000 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 200,000 options each
to two executives. There are 1,235,000 options of Company outstanding
under this Plan.
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 350,000 stock options to the two executives at exercise prices
equal to the fair market value per share of the Common Stock as of the
date of the grant. The options will vest over a three year period.
<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 Offering other than those contained in this Prospectus,
and, if given or made, such information or representations must not be
relied upon as having been authorized by the Company or any Underwriter.
This Prospectus does not constitute 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 subsequent to the date hereof.
- -----------------
TABLE OF CONTENTS
Page
Prospectus Summary........... 3
Risk Factors................. 7
Cautionary Notice Regarding
Forward Looking Statements. 23
Use of Proceeds.............. 24
Dividend Policy.............. 24
Concurrent Offering.......... 24
Capitalization............... 25
Dilution..................... 26
Selected Financial Data...... 28
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations................. 29
Business..................... 38
Management................... 51
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
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.
= Shares
[LOGO]
Common Stock
PROSPECTUS
Bear, Stearns & Co. Inc.
Volpe Brown Whelan & Co.
, 1998
<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 and the NASD Filing Fee, all amounts are estimated.
SEC Registration Fee..................................... $14,750
NASD Filing Fee.......................................... 5,500
Blue Sky Fees and Expenses............................... *
Legal Fees and Expenses.................................. *
Accounting Fees and Expenses............................. *
Printing Expenses........................................ *
Miscellaneous Expenses................................... *
----
Total................................................. $
=
- -------------
* To be filed by amendment.
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 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 10.2. 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 190,480 100,002
Preferred
Bergendahl, Anders 9/7/95 Series A 159,630 15,750
Preferred
Series B 95,240 50,001
Preferred
Series C 15,000 30,000
Preferred
Bergendahl, Mia 9/7/95 Series A 159,630 15,750
Preferred
Series B 47,620 25,000.50
Preferred
Cayuga Venture Fund Series C 12,500 25,000
Preferred
David Duffield 12/22/95 Series B 190,480 100,002
Trust Preferred
Series C 250,000 500,000
Preferred
de Selliers, Series C 25,000 50,000
Baudouin Preferred
Ganem, Bruce Series C 15,000 30,000
Preferred
GC&H Investments 12/22/95 Series B 47,620 25,000.50
Preferred
Grey, Nicki 11/16/95 Series A 6,430 500
Preferred
Grinstead, Simon 11/16/95 Series A 106,430 10,500
Preferred
Halperin, Mark R. 12/22/95 Series B 47,620 25,000.50
Preferred
Series C 12,500 25,000
Preferred
Halperin Dow, 12/22/95 Series B 47,620 25,000.50
Peggy Anne Preferred
Series C 12,500 25,000
Preferred
Halperin, Philip W. 12/22/95 Series B 47,620 25,000.50
Preferred
Series C 12,500 25,000
Preferred
Halperin, Robert M. 12/22/95 Series B 47,620 25,000.50
Preferred
Series C 12,500 25,000
Preferred
Hirsch, Jason 11/16/95 Series A 38,490 3,000
Preferred
Horowitz, David 12/22/95 Series B 100,000 52,500
Preferred
Series C 25,000 50,000
Preferred
Common Stock 31,944 3,111
Huret Family Trust Series C 12,500 25,000
Preferred
Karlsson, Bengt Series C 50,000 100,000
Preferred
Krizelman, Allen 9/7/95 Series A 151,690 15,000
Preferred
Krizelman, Susan 11/16/95 Series A 12,830 1,000
Preferred
Krizelman, Todd Common Stock 1,050,000
11/16/95 Series A 44,910 3,500
Preferred
Leavitt Series C 75,000 150,000
Investments, L.P. Preferred
Maconie, Andrew 11/16/95 Series A 6,430 513.70
Preferred
Miller, Dan Series C 37,500 75,000
Preferred
Muckstadt, Jack Series C 15,000 30,000
Preferred
Muller, Georges 1/22/96 Series B 47,620 25,000.50
Preferred
Paternot, Jacques 9/7/95 Series A 32,850 3,000
Preferred
12/22/95 Series B 13,330 6,998.25
Preferred
Paternot, Madeleine 11/16/95 Series A 2,570 205.48
Preferred
Paternot, Monica 11/16/95 Series A 3,860 308.22
Preferred
Paternot, Stephan Common Stock 1,200,000
Paternot, Thierry 11/16/95 Series A 6,430 513.70
Preferred
12/22/95 Series B 38,100 20,002.50
Preferred
Paternot, Yves 9/7/95 Series A 177,380 17,000
Preferred
12/22/95 Series B 47,620 25,000.50
Preferred
S. Knight Pond 9/7/95 Series A 256,430 26,500
Trust Preferred
12/22/95 Series B 142,860 75,001.50
Preferred
Tuli, John Common Stock 26,597
<FN>
(1) In August 1997, the Company issued and sold to Dancing Bear
Investments (i) 51 shares of Series D Preferred Stock which will
convert into 8,047,529 shares of Common Stock upon consummation
of the Offerings and (ii) Warrants to purchase 4,046,018 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 July 1998, the Company has granted 1,235,000 and 1,425,941
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
144,058 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
</FN>
</TABLE>
Item 16. Exhibits and financial statement schedules
(a) Exhibits
The following Exhibits are attached hereto and incorporated
herein by reference:
1.1 Form of Underwriting Agreement*
1.2 Placement Agent Agreement*
3.1 Form of Second 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
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson
9.1 Voting Trust Agreement by and among Michael Egan, Todd V.
Krizelman and Stephan J. Paternot dated as of 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 Rights Agreement dated 1998, by and between the Company and
as Rights Agent*
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
11.1 Computation of Loss Per Share**
23.1 Consent of KPMG Peat Marwick
23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibit 5.1)
24.1 Power of Attorney**
27.1 Financial Data Schedule*
99.1 Valuation and Qualifying Accounts**
____________________________
* 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 deliver 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on
the 20th day of August 1998.
theglobe.com, inc.
By: /s/ Todd Krizelman
-----------------------
Todd Krizelman
Co-Chief Executive Officer and
Co-President
By: /s/ Stephan Paternot
------------------------
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. 1 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 August 20, 1998
- --------------------------
Michael Egan
/s/ Todd Krizelman Co-Chief Executive Officer, August 20, 1998
- -------------------------- Co-President and Director
Todd Krizelman
/s/ Stephan Paternot Co-Chief Executive Officer, August 20, 1998
- -------------------------- Co-President, Secretary and
Director
Stephan Paternot
Frank Joyce* Vice President and Chief August 20, 1998
- -------------------------- Financial Officer (Principal
Accounting Officer)
Frank Joyce
Edward Cespedes* Director August 20, 1998
- --------------------------
Edward Cespedes
Rosalie Arthur* Director August 20, 1998
- --------------------------
Rosalie Arthur
Robert Halperin* Director August 20, 1998
- --------------------------
Robert Halperin
David Horowitz* Director August 20, 1998
- --------------------------
David Horowitz
H. Wayne Huizenga* Director August 20, 1998
- --------------------------
H. Wayne Huizenga
- --------------------------
* By Attorney-in-Fact
EXHIBIT 3.2
EXHIBIT 3.2
FORM OF
BY-LAWS
OF
theglobe.com, inc.
(hereinafter called the "Corporation")
(Effective as of ______________, 1998)
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office of the
Corporation within the State of Delaware shall be in the City of Dover,
County of Kent.
Section 2. Other Offices. The Corporation may also have an office
or offices other than said registered office at such place or places,
either within or without the State of Delaware, as the Board of Directors
shall from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. All meetings of the stockholders
for the election of directors or for any other purpose shall be held at any
such time and place, either within or without the State of Delaware as
shall be designated from time to time by the Board of Directors and stated
in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual Meetings. Annual meetings of stockholders shall
be held on such date and at such time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting or
in a duly executed waiver thereof. At such annual meetings, the
stockholders shall elect by a plurality vote the directors standing for
election and transact such other business as may properly be brought before
the meeting in accordance with these By-Laws.
Section 3. Special Meetings. Special meetings of stockholders,
for any purpose or purposes, unless otherwise prescribed by statute may be
called by the Board of Directors, the Chairman of the Board of Directors,
if one shall have been elected, or the Chief Executive Officer(s) or
President(s), and shall be called by the Secretary upon the request in
writing of a stockholder or stockholders holding of record at least a
majority of the voting power of the issued and outstanding shares of
capital stock of the Corporation entitled to vote at such meeting.
Section 4. Notice of Meetings. Except as otherwise expressly
required by statute, written notice of each annual and special meeting of
stockholders stating the date, place and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given to each stockholder of record entitled to vote
thereat not less than ten nor more than sixty days before the date of the
meeting. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice. Notice shall be given
personally or by mail and, if by mail, shall be sent in a postage prepaid
envelope, addressed to the stockholder at such stockholder's address as it
appears on the records of the Corporation. Notice by mail shall be deemed
given at the time when the same shall be deposited in the United States
mail, postage prepaid. Notice of any meeting shall not be required to be
given to any person who attends such meeting, except when such person
attends the meeting in person or by proxy for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened, or who,
either before or after the meeting, shall submit a signed written waiver of
notice, in person or by proxy. Neither the business to be transacted at,
nor the purpose of, an annual or special meeting of stockholders need be
specified in any written waiver of notice.
Section 5. Organization. At each meeting of stockholders, the
Chairman of the Board, if one shall have been elected, or, in such person's
absence or if one shall not have been elected, the Chief Executive
Officer(s) or President(s), shall act as chairmen of the meeting. The
Secretary or, in such person's absence or inability to act, the person whom
the chairman of the meeting shall appoint secretary of the meeting, shall
act as secretary of the meeting and keep the minutes thereof.
Section 6. Conduct of Business. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct
of discussion as seems to him or her in order. The date and time of the
opening and closing of the polls for each matter upon which the
stockholders will vote at a meeting shall be announced at the meeting.
Section 7. Quorum, Adjournments. The holders of a majority of the
voting power of the issued and outstanding shares of capital stock of the
Corporation entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at all
meetings of stockholders, except as otherwise provided by statute or by the
Second Amended and Restated Certificate of Incorporation. If, however, such
quorum shall not be present or represented by proxy at any meeting of
stockholders, the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until
a quorum shall be present or represented by proxy. At such adjourned
meeting at which a quorum shall be present or represented by proxy, any
business may be transacted which might have been transacted at the meeting
as originally called. If the adjournment is for more than thirty days, or,
if after adjournment a new record date is set, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at
the meeting.
Section 8. Voting. Except as otherwise provided by statute or the
Second Amended and Restated Certificate of Incorporation and these By-Laws,
each stockholder of the Corporation shall be entitled at each meeting of
stockholders to one vote for each share of capital stock of the Corporation
standing in such stockholder's name on the record of stockholders of the
Corporation:
(a) on the date fixed pursuant to the provisions of Section
7 of Article V of these By-Laws as the record date for the
determination of the stockholders who shall be entitled to notice
of and to vote at such meeting; or
(b) if no such record date shall have been so fixed, then at
the close of business on the day next preceding the day on which
notice thereof shall be given, or, if notice is waived, at the
close of business on the date next preceding the day on which the
meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for such stockholder by a proxy
signed by such stockholder or such stockholder's attorney-in-fact, but no
proxy shall be voted after three years from its date, unless the proxy
provides for a longer period. Any such proxy shall be delivered to the
secretary of the meeting at or prior to the time designated in the order of
business for so delivering such proxies. When a quorum is present at any
meeting, the affirmative vote of the holders of a majority of the voting
power of the issued and outstanding stock of the Corporation entitled to
vote thereon, present in person or represented by proxy, shall decide any
question brought before such meeting, unless the question is one upon which
by express provision of statute or of the Second Amended and Restated
Certificate of Incorporation or of these By-Laws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question. Unless required by statute, or determined by the
chairman of the meeting to be advisable, the vote on any question need not
be by ballot. On a vote by ballot, each ballot shall be signed by the
stockholder voting, or by such stockholder's proxy, if there be such proxy.
Section 9. List of Stockholders Entitled to Vote. At least ten
days before each meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder shall be prepared. Such list
shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at
least ten days prior to the meeting, either at a place within the city,
town, or village where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time thereof,
and may be inspected by any stockholder of the Corporation who is present.
Section 10. Inspectors. The Board of Directors shall, in advance
of any meeting of stockholders, appoint one or more inspectors to act at
such meeting or any adjournment thereof. If any of the inspectors so
appointed shall fail to appear or act, the chairman of the meeting shall,
or if inspectors shall not have been appointed, the chairman of the meeting
may appoint one or more inspectors. Each inspector, before entering upon
the discharge of such inspector's duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of such inspector's ability. The
inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and
effect of proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right
to vote, count and tabulate all votes, ballots or consents, determine the
results, and do such acts as are proper to conduct the election or vote
with fairness to all stockholders. On request of the chairman of the
meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any
fact found by them. No director or candidate for the office of director
shall act as an inspector of an election of directors. Inspectors need not
be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided by statute or in the Second Amended and Restated
Certificate of Incorporation, any action required to be taken or which may
be taken at any annual or special meeting of the stockholders of the
Corporation may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding 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. Prompt notice of the taking of any such corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing.
Section 12. Advance Notice Provisions for Election of Directors.
Only persons who are nominated in accordance with the following procedures
shall be eligible for election as directors of the Corporation. Nominations
of persons for election to the Board of Directors may be made at any annual
meeting of stockholders, or at any special meeting of stockholders called
for the purpose of electing directors, (a) by or at the direction of the
Board of Directors (or any duly authorized committee thereof) or (b) by any
stockholder of the Corporation (i) who is a stockholder of record on the
date of the giving of the notice provided for in this Section 12 and on the
record date for the determination of stockholders entitled to vote at such
meeting and (ii) who complies with the notice procedures set forth in this
Section 12.
In addition to any other applicable requirements, for a
nomination to be made by a stockholder such stockholder must have given
timely notice thereof in proper written form to the Secretary of the
Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of
the Corporation (a) in the case of an annual meeting, not less than 60 days
nor more than 90 days prior to the date of the annual meeting; provided,
however, that in the event that less than 70 days' notice or prior public
disclosure of the date of the annual meeting is given or made to
stockholders, notice by the stockholder in order to be timely must be so
received not later than the close of business on the 10th day following the
day on which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made,
whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than
the close of business on the 10th day following the day on which notice of
the date of the special meeting was mailed or public disclosure of the date
of the special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth (a) as to each person whom the stockholder
proposes to nominate for election as a director (i) the name, age, business
address and residence address of the person, (ii) the principal occupation
or employment of the person, (iii) the class or series and number of shares
of capital stock of the Corporation which are owned beneficially or of
record by the person and (iv) any other information relating to the person
that would be required to be disclosed in a proxy statement or other
filings required to be made in connection with solicitations of proxies for
election of directors pursuant to Section 14 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the rules and regulations
promulgated thereunder; and (b) as to the stockholder giving the notice (i)
the name and record address of such stockholder, (ii) the class or series
and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by
proxy at the meeting to nominate the persons named in its notice and (v)
any other information relating to such stockholder that would be required
to be disclosed in a proxy statement or other filings required to be made
in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written
consent of each proposed nominee to be named as a nominee and to serve as a
director if elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in
this Section 12. If the chairman of the meeting determines that a
nomination was not made in accordance with the foregoing procedures, the
chairman shall declare to the meeting that the nomination was defective and
such defective nomination shall be disregarded.
Section 13. Advance Notice Provisions for Business to be
Transacted at Annual Meeting. No business may be transacted at an annual
meeting of stockholders, other than business that is either (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors (or any duly authorized committee
thereof), (b) otherwise properly brought before the annual meeting by or at
the direction of the Board of Directors (or any duly authorized committee
thereof) or (c) otherwise properly brought before the annual meeting by any
stockholder of the Corporation (i) who is a stockholder of record on the
date of the giving of the notice provided for in this Section 13 and on the
record date for the determination of stockholders entitled to vote at such
annual meeting and (ii) who complies with the notice procedures set forth
in this Section 13.
In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form to
the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of
the Corporation not less than 60 days nor more than 90 days prior to the
date of the annual meeting; provided, however, that in the event that less
than 70 days' notice or prior public disclosure of the date of the annual
meeting is given or made to stockholders, notice by the stockholder in
order to be timely must be so received not later than the close of business
on the 10th day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure of the date of the
annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to
bring before the annual meeting (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and record
address of such stockholder, (iii) the class or series and number of shares
of capital stock of the Corporation which are owned beneficially or of
record by such stockholder, (iv) a description of all arrangements or
understandings between such stockholder and any other person or persons
(including their names) in connection with the proposal of such business by
such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before
the meeting.
No business shall be conducted at the annual meeting of
stockholders except business brought before the annual meeting in
accordance with the procedures set forth in this Section 13, provided,
however, that, once business has been properly brought before the annual
meeting in accordance with such procedures, nothing in this Section 13
shall be deemed to preclude discussion by any stockholder of any such
business. If the chairman of an annual meeting determines that business was
not properly brought before the annual meeting in accordance with the
foregoing procedures, the chairman shall declare to the meeting that the
business was not properly brought before the meeting and such business
shall not be transacted.
ARTICLE III
DIRECTORS
---------
Section 1. Place of Meetings. Meetings of the Board of Directors
shall be held at such place or places, within or without the State of
Delaware, as the Board of Directors may from time to time determine or as
shall be specified in the notice of any such meeting.
Section 2. Annual Meeting. The Board of Directors shall meet for
the purpose of organization, the election of officers and the transaction
of other business, as soon as practicable after each annual meeting of
stockholders, on the same day and at the same place where such annual
meeting shall be held. Notice of such meeting need not be given. In the
event such annual meeting is not so held, the annual meeting of the Board
of Directors may be held at such other time or place (within or without the
State of Delaware) as shall be specified in a notice thereof given as
hereinafter provided in Section 5 of this Article III.
Section 3. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such time and place as the Board of Directors
may fix. If any day fixed for a regular meeting shall be a legal holiday at
the place where the meeting is to be held, then the meeting which would
otherwise be held on that day shall be held at the same hour on the next
succeeding business day.
Section 4. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, if one shall have
been elected, or by two or more directors of the Corporation or by any
Chief Executive Officer or President.
Section 5. Notice of Meetings. Notice of regular meetings of the
Board of Directors need not be given except as otherwise required by law or
these By-Laws. Notice of each special meeting of the Board of Directors for
which notice shall be required, shall be given by the Secretary as
hereinafter provided in this Section 5, in which notice shall be stated the
time and place of the meeting. Except as otherwise required by these
By-Laws, such notice need not state the purposes of such meeting. Notice of
any special meeting, and of any regular or annual meeting for which notice
is required, shall be given to each director at least (a) four hours before
the meeting if by telephone or by being personally delivered or sent by
telex, telecopy, or similar means or (b) five days before the meeting if
delivered by mail to the director's residence or usual place of business.
Such notice shall be deemed to be delivered when deposited in the United
States mail so addressed, with postage prepaid, or when transmitted if sent
by telex, telecopy, or similar means. Neither the business to be transacted
at, nor the purpose of, any special meeting of the Board of Directors need
be specified in the notice or waiver of notice of such meeting. Any
director may waive notice of any meeting by a writing signed by the
director entitled to the notice and filed with the minutes or corporate
records. The attendance at or participation of the director at a meeting
shall constitute waiver of notice of such meeting, unless the director at
the beginning of the meeting or promptly upon such director's arrival
objects to holding the meeting or transacting business at the meeting.
Section 6. Organization. At each meeting of the Board of
Directors, the Chairman of the Board, if one shall have been elected, or,
in the absence of the Chairman of the Board or if one shall not have been
elected, any Chief Executive Officer or President (or, in the their
absence, another director chosen by a majority of the directors present)
shall act as chairman of the meeting and preside thereat. The Secretary or,
in such person's absence, any person appointed by the chairman shall act as
secretary of the meeting and keep the minutes thereof.
Section 7. Quorum and Manner of Acting. A majority of the entire
Board of Directors shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, and, except as otherwise
expressly required by statute or the Second Amended and Restated
Certificate of Incorporation or these By-Laws, the affirmative vote of a
majority of the directors present at any meeting at which a quorum is
present shall be the act of the Board of Directors. In the absence of a
quorum at any meeting of the Board of Directors, a majority of the
directors present thereat may adjourn such meeting to another time and
place. Notice of the time and place of any such adjourned meeting shall be
given to all of the directors unless such time and place were announced at
the meeting at which the adjournment was taken, in which case such notice
need only be given to the directors who were not present thereat. At any
adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as originally
called. The directors shall act only as a Board and the individual
directors shall have no power as such.
Section 8. Action by Consent. Unless restricted by the Second
Amended and Restated Certificate of Incorporation, any action required or
permitted to be taken by the Board of Directors or any committee thereof
may be taken without a meeting if all members of the Board of Directors or
such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the
Board of Directors or such committee, as the case may be.
Section 9. Telephonic Meeting. Unless restricted by the Second
Amended and Restated Certificate of Incorporation, any one or more members
of the Board of Directors or any committee thereof may participate in a
meeting of the Board of Directors or such committee by means of a
conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Participation
by such means shall constitute presence in person at a meeting.
Section 10. Committees. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or
more committees, including an executive committee, each committee to
consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence of disqualification of any member of a
committee, the member or members present at any meeting and not
disqualified from voting, whether or not such members constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at
the meeting in the place of any such absent or disqualified member.
Each such committee, to the extent provided in the resolution
creating it, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to
all papers which require it; provided, however, that no such committee
shall have the power or authority in reference to the following matters:
(a) approving or adopting, or recommending to the stockholders, any action
or matter expressly required by the General Corporation Law of Delaware to
be submitted to stockholders for approval or (b) adopting, amending or
repealing any by-law of the Corporation. Each such committee shall serve at
the pleasure of the Board of Directors and have such name as may be
determined from time to time by resolution adopted by the Board of
Directors. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors.
Section 11. Fees and Compensation. Directors and members of
committees may receive such compensation, if any, for their services, and
such reimbursement for expenses, as may be fixed or determined by the Board
of Directors. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 12. Resignations. Any director of the Corporation may
resign at any time by giving written notice of such director's resignation
to the Corporation. Any such resignation shall take effect at the time
specified therein or, if the time when it shall become effective shall not
be specified therein, immediately upon its receipt. Unless otherwise
specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 13. Filling of Vacancies.
In case of a vacancy created by an increase in the number of
directors or any vacancy created by death, removal, or resignation, the
vacancy or vacancies may be filled either (a) by the Board of Directors, or
(b) by the shareholders. In the case of a director appointed to fill a
vacancy created by an increase in the number of directors, the director so
appointed shall hold office until the next meeting at which directors are
elected . In the case of a director appointed to fill a vacancy created by
the death, removal or resignation of a director, the newly appointed
director shall hold office for the term to which his predecessor was
elected or until his successor is elected.
Section 14. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or
between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be
void or voidable solely for this reason, or solely because the director or
officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or
transaction, or solely because such person's or persons' votes are counted
for such purposes if (a) the material facts as to such person's or persons'
relationship or interest and as to the contract or transaction are
disclosed or are known to the directors or committee who then in good faith
authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors may be less than a quorum, or (b) the material facts as to such
person's or persons' relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good
faith by vote of the stockholders or (c) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee thereof or the
stockholders. Interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
--------
Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall include one (or more) Chief
Executive Officers, one (or more) Presidents, one or more Vice Presidents
(including Senior, Executive or other classifications of Vice Presidents)
and a Secretary. The Board of Directors, in its discretion, may also choose
as an officer of the Corporation a Chairman and a Vice Chairman of the
Board and may choose other officers (including a Treasurer, one or more
Assistant Secretaries and one or more Assistant Treasurers) as may be
necessary or desirable. Such officers as the Board of Directors may choose
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors. The Board of Directors may
delegate to any officer of the Corporation the power to choose such other
officers and to proscribe their respective duties and powers. Any number of
offices may be held by the same person, unless otherwise prohibited by law,
the Second Amended and Restated Certificate of Incorporation or these
By-Laws. The officers of the Corporation need not be stockholders of the
Corporation nor, except in the case of the Chairman of the Board and Vice
Chairman of the Board of Directors, need such officers be directors of the
Corporation.
Section 2. Term. All officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their
earlier resignation or removal. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
Section 3. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of such officer's resignation
to the Corporation. Any such resignation shall take effect at the time
specified therein or, if the time when it shall become effective shall not
be specified therein, immediately upon receipt. Unless otherwise specified
therein, the acceptance of any such resignation shall not be necessary to
make it effective.
Section 4. Removal. Any officer may be removed at any time by the
Board of Directors with or without cause.
Section 5. Compensation. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to
time by the Board of Directors. An officer of the Corporation shall not be
prevented from receiving compensation by reason of the fact that such
officer is also a director of the Corporation.
Section 6. Chairman of the Board. The Chairman of the Board, if
one shall have been elected, shall be a member of the Board, and if
determined by the Board, an officer of the Corporation and, if present,
shall preside at each meeting of the Board of Directors or the
stockholders. The Chairman of the Board shall advise and counsel with the
Chief Executive Officer(s) and President(s), and in their absence with
other executives of the Corporation, and shall perform such other duties as
may from time to time be assigned to the Chairman of the Board by the Board
of Directors.
ARTICLE V
STOCK CERTIFICATES AND THEIR TRANSFER
-------------------------------------
Section 1. Stock Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the
name of the Corporation by, the Chairman of the Board or a Vice Chairman of
the Board or a Chief Executive Officer or a President or a Vice President
and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of shares
owned by such holder in the Corporation. If the Corporation shall be
authorized to issue more than one class of stock or more than one series of
any class, the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof
and the qualifications, limitations or restriction of such preferences
and/or rights shall be set forth in full or summarized on the face or back
of the certificate which the Corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in
Section 202 of the General Corporation Law of Delaware, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without
charge to each stockholder who so requests the designations, preferences
and relative, participating, optional or other special rights of each class
of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 2. Facsimile Signatures. Any or all of the signatures on
a certificate may be a facsimile, engraved or printed. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be
issued by the Corporation with the same effect as if such person was such
officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been
lost, stolen, or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of
such lost, stolen, or destroyed certificate or certificates, or the owner's
legal representative, to give the Corporation a bond in such sum as it may
direct sufficient to indemnify it against any claim that may be made
against the Corporation on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new
certificate.
Section 4. Transfers of Stock. Upon surrender to the Corporation
or the transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation to issue a
new certificate to the person entitled thereto, cancel the old certificate
and record the transaction upon its records; provided, however, that the
Corporation shall be entitled to recognize and enforce any lawful
restriction on transfer. Whenever any transfer of stock shall be made for
collateral security, and not absolutely, it shall be so expressed in the
entry of transfer if, when the certificates are presented to the
Corporation for transfer, both the transferor and the transferee request
the Corporation to do so.
Section 5. Transfer Agents and Registrars. The Board of Directors
may appoint, or authorize any officer or officers to appoint, one or more
transfer agents and one or more registrars.
Section 6. Regulations. The Board of Directors may make such
additional rules and regulations, not inconsistent with these By-Laws, as
it may deem expedient concerning the issue, transfer and registration of
certificates for shares of stock of the Corporation.
Section 7. Fixing the Record Date. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or to express consent
to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights,
or entitled to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board
of Directors may fix, in advance, a record date, which shall not be more
than sixty nor less than ten days before the date of such meeting, nor more
than sixty days prior to any other action. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders
shall apply to any adjournment of the meeting; provided, however, that the
Board of Directors may fix a new record date for the adjourned meeting.
Section 8. Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its
records as the owner of shares of stock to receive dividends and to vote as
such owner, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares of stock on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
ARTICLE VI
INDEMNIFICATION OF OFFICERS AND DIRECTORS
-----------------------------------------
Section 1. General. Each person who was or is made 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 resolution mechanism, investigation,
administrative hearing or any other proceeding, whether civil, criminal,
administrative or investigative ("Proceeding") brought by reason of the
fact that such person (the "Indemnitee") is or was a director or officer of
the Corporation or is or was serving at the request of the Corporation as a
director or officer of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to an
employee benefit plan, whether the basis of such Proceeding is alleged
action in an official capacity as a director or officer or in any other
capacity while serving as such a director or officer, shall be indemnified
and held harmless by the Corporation to the full extent permitted by the
General Corporation Law of Delaware, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that
such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), or by other applicable law as then in effect, against all
expenses, liabilities, losses and claims (including attorneys' fees,
judgments, fines, excise taxes under the Employee Retirement Income
Security Act of 1974, as amended from time to time, penalties and amounts
to be paid in settlement) actually incurred or suffered by such Indemnitee
in connection with such Proceeding (collectively, "Losses").
Section 2. Derivative Actions. The Corporation shall 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 Proceeding
brought by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that such person (also an "Indemnitee") is or
was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to an employee benefit plan, against Losses actually
incurred or suffered by the Indemnitee in connection with the defense or
settlement of such action or suit if the Indemnitee acted in good faith and
in a manner the Indemnitee reasonably believed to be in or not opposed to
the best interests of the Corporation, provided that no indemnification
shall be made in respect of any claim, issue or matter as to which Delaware
law expressly prohibits such indemnification by reason of an adjudication
of liability of the Indemnitee unless and only to the extent that the Court
of Chancery of the State of Delaware or the court in which such action or
suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
the Indemnitee is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 3. Indemnification in Certain Cases. Notwithstanding any
other provision of this Article VI, to the extent that an Indemnitee has
been wholly successful on the merits or otherwise in any Proceeding
referred to in Sections 1 or 2 of this Article VI on any claim, issue or
matter therein, the Indemnitee shall be indemnified against Losses actually
incurred or suffered by the Indemnitee in connection therewith. If the
Indemnitee is not wholly successful in such Proceeding but is successful,
on the merits or otherwise, as to one or more but less than all claims,
issues or matters in such Proceeding, the Corporation shall indemnify the
Indemnitee, against Losses actually incurred or suffered by the Indemnitee
in connection with each successfully resolved claim, issue or matter. In
any review or Proceeding to determine such extent of indemnification, the
Corporation shall bear the burden of proving all matters and which amounts
sought in indemnity are allocable to claims, issues or matters which were
not successfully resolved. For purposes of this Section 3 and without
limitation, the termination of any such claim, issue or matter by dismissal
with or without prejudice shall be deemed to be a successful resolution as
to such claim, issue or matter.
Section 4. Procedure. (a) Any indemnification under Sections 1
and 2 of this Article VI (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination
that indemnification of the Indemnitee is proper (except that the right of
the Indemnitee to receive payments pursuant to Section 5 of this Article VI
shall not be subject to this Section 4) in the circumstances because the
Indemnitee has met the applicable standard of conduct. Such determination
shall be made promptly, but in no event later than 60 days after receipt by
the Corporation of the Indemnitee's written request for indemnification.
The Secretary of the Corporation shall, promptly upon receipt of the
Indemnitee's request for indemnification, advise the Board of Directors
that the Indemnitee has made such request for indemnification.
(b) The entitlement of the Indemnitee to indemnification shall be
determined in the specific case (1) by the Board of Directors by a majority
vote of the directors who are not parties to such Proceeding, even though
less than a quorum (the "Disinterested Directors"), or (2) if there are no
Disinterested Directors, or if such Disinterested Directors so direct, by
independent legal counsel, or (3) by the stockholders.
(c) In the event the determination of entitlement is to be made
by independent legal counsel, such independent legal counsel shall be
selected by the Board of Directors and approved by the Indemnitee. Upon
failure of the Board of Directors to so select such independent legal
counsel or upon failure of the Indemnitee to so approve, such independent
legal counsel shall be selected by the American Arbitration Association in
New York, New York or such other person as such Association shall designate
to make such selection.
(d) If the Board of Directors or independent legal counsel shall
have determined that the Indemnitee is not entitled to indemnification to
the full extent of the Indemnitee's request, the Indemnitee shall have the
right to seek entitlement to indemnification in accordance with the
procedures set forth in Section 6 of this Article VI.
(e) If the person or persons empowered pursuant to Section 4(b)
of this Article VI to make a determination with respect to entitlement to
indemnification shall have failed to make the requested determination
within 60 days after receipt by the Corporation of such request, the
requisite determination of entitlement to indemnification shall be deemed
to have been made and the Indemnitee shall be absolutely entitled to such
indemnification, absent (i) misrepresentation by the Indemnitee of a
material fact in the request for indemnification or (ii) a final judicial
determination that all or any part of such indemnification is expressly
prohibited by law.
(f) The termination of any proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, adversely affect the rights of the
Indemnitee to indemnification hereunder except as may be specifically
provided herein, or create a presumption that the Indemnitee did not act in
good faith and in a manner which the Indemnitee reasonably believed to be
in or not opposed to the best interests of the Corporation or create a
presumption that (with respect to any criminal action or proceeding) the
Indemnitee had reasonable cause to believe that the Indemnitee's conduct
was unlawful.
(g) For purposes of any determination of good faith hereunder,
the Indemnitee shall be deemed to have acted in good faith if the
Indemnitee's action is based on the records or books of account of the
Corporation or an affiliate, including financial statements, or on
information supplied to the Indemnitee by the officers of the Corporation
or an affiliate in the course of their duties, or on the advice of legal
counsel for the Corporation or an affiliate or on information or records
given or reports made to the Corporation or an affiliate by an independent
certified public accountant or by an appraiser or other expert selected
with reasonable care to the Corporation or an affiliate. The Corporation
shall have the burden of establishing the absence of good faith. The
provisions of this Section 4(g) of this Article VI shall not be deemed to
be exclusive or to limit in any way the other circumstances in which the
Indemnitee may be deemed to have met the applicable standard of conduct set
forth in these By-Laws.
(h) The knowledge and/or actions, or failure to act, of any other
director, officer, agent or employee of the Corporation or an affiliate
shall not be imputed to the Indemnitee for purposes of determining the
right to indemnification under these By-Laws.
Section 5. Advances for Expenses and Costs. All expenses
(including attorneys fees) incurred by or on behalf of the Indemnitee (or
reasonably expected by the Indemnitee to be incurred by the Indemnitee
within three months) in connection with any Proceeding shall be paid by the
Corporation in advance of the final disposition of such Proceeding within
twenty days after the receipt by the Corporation of a statement or
statements from the Indemnitee requesting from time to time such advance or
advances whether or not a determination to indemnify has been made under
Section 4 of this Article VI. The Indemnitee's entitlement to such
advancement of expenses shall include those incurred in connection with any
Proceeding by the Indemnitee seeking an adjudication or award in
arbitration pursuant to these By-Laws. The financial ability of an
Indemnitee to repay an advance shall not be a prerequisite to the making of
such advance. Such statement or statements shall reasonably evidence such
expenses incurred (or reasonably expected to be incurred) by the Indemnitee
in connection therewith and shall include or be accompanied by a written
undertaking by or on behalf of the Indemnitee to repay such amount if it
shall ultimately be determined that the Indemnitee is not entitled to be
indemnified therefor pursuant to the terms of this Article VI.
Section 6. Remedies in Cases of Determination not to Indemnify or
to Advance Expenses. (a) In the event that (i) a determination is made that
the Indemnitee is not entitled to indemnification hereunder, (ii) advances
are not made pursuant to Section 5 of this Article VI or (iii) payment has
not been timely made following a determination of entitlement to
indemnification pursuant to Section 4 of this Article VI, the Indemnitee
shall be entitled to seek a final adjudication either through an
arbitration proceeding or in an appropriate court of the State of Delaware
or any other court of competent jurisdiction of the Indemnitee's
entitlement to such indemnification or advance.
(b) In the event a determination has been made in accordance with
the procedures set forth in Section 4 of this Article VI, in whole or in
part, that the Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration referred to in paragraph (a) of this Section 6
shall be de novo and the Indemnitee shall not be prejudiced by reason of
any such prior determination that the Indemnitee is not entitled to
indemnification, and the Corporation shall bear the burdens of proof
specified in Sections 3 and 4 of this Article VI in such proceeding.
(c) If a determination is made or deemed to have been made
pursuant to the terms of Sections 4 or 6 of this Article VI that the
Indemnitee is entitled to indemnification, the Corporation shall be bound
by such determination in any judicial proceeding or arbitration in the
absence of (i) a misrepresentation of a material fact by the Indemnitee or
(ii) a final judicial determination that all or any part of such
indemnification is expressly prohibited by law.
(d) To the extent deemed appropriate by the court, interest shall
be paid by the Corporation to the Indemnitee at a reasonable interest rate
for amounts which the Corporation indemnifies or is obliged to indemnify
the Indemnitee for the period commencing with the date on which the
Indemnitee requested indemnification (or reimbursement or advancement of
expenses) and ending with the date on which such payment is made to the
Indemnitee by the Corporation.
Section 7. Rights Non-Exclusive. The indemnification and
advancement of expenses provided by, or granted pursuant to, the other
Sections of this Article VI shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses
may be entitled under any law, by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
Section 8. Insurance. The Corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan,
against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power to indemnify such
person against such liability under the provisions of this Article VI.
Section 9. Definition of Corporation. For purposes of this
Article VI, references to "the Corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority
to indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan, shall stand in
the same position under this Article VI with respect to the resulting or
surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
Section 10. Other Definitions. For purposes of this Article VI,
references to "fines" shall include any excise taxes assessed on a person
with respect to any employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants or beneficiaries; and
a person who acted in good faith and in a manner such person reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article VI.
Section 11. Survival of Rights. The indemnification and
advancement of expenses provided by, or granted pursuant to this Article VI
shall, unless otherwise provided when authorized or ratified, continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of
such a person. No amendment, alteration, rescission or replacement of these
By-Laws or any provision hereof shall be effective as to an Indemnitee with
respect to any action taken or omitted by such Indemnitee in Indemnitee's
position with the Corporation or any other entity which the Indemnitee is
or was serving at the request of the Corporation prior to such amendment,
alteration, rescission or replacement.
Section 12. Indemnification of Employees and Agents of the
Corporation. The Corporation may, by action of the Board of Directors from
time to time, grant rights to indemnification and advancement of expenses
to employees and agents of the Corporation with the same scope and effect
as the provisions of this Article VI with respect to the indemnification of
directors and officers of the Corporation.
Section 13. Savings Clause. If this Article VI or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each person
entitled to indemnification under the first paragraph of this Article VI as
to all losses actually and reasonably incurred or suffered by such person
and for which indemnification is available to such person pursuant to this
Article VI to the full extent permitted by any applicable portion of this
Article VI that shall not have been invalidated and to the full extent
permitted by applicable law.
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends. Subject to the provisions of statute and
the Second Amended and Restated Certificate of Incorporation, dividends
upon the shares of capital stock of the Corporation may be declared by the
Board of Directors at any regular or special meeting. Dividends may be paid
in cash, in property or in shares of stock of the Corporation, unless
otherwise provided by statute or the Second Amended and Restated
Certificate of Incorporation.
Section 2. Reserves. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors may, from time to time, in its
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation or for such other purpose as the Board of
Directors may think conducive to the interests of the Corporation. The
Board of Directors may modify or abolish any such reserve in the manner in
which it was created.
Section 3. Seal. The seal of the Corporation shall be in such
form as shall be approved by the Board of Directors.
Section 4. Fiscal Year. The fiscal year of the Corporation shall
be fixed, and once fixed, may thereafter be changed, by resolution of the
Board of Directors.
Section 5. Checks, Notes, Drafts, Etc. All checks, notes, drafts
or other orders for the payment of money of the Corporation shall be
signed, endorsed or accepted in the name of the Corporation by such
officer, officers, person or persons as from time to time may be designated
by the Board of Directors or by an officer or officers authorized by the
Board of Directors to make such designation.
Section 6. Execution of Contracts, Deeds, Etc. The Board of
Directors may authorize any officer or officers, agent or agents, in the
name and on behalf of the Corporation to enter into or execute and deliver
any and all deeds, bonds, mortgages, contracts and other obligations or
instruments, and such authority may be general or confined to specific
instances.
Section 7. Voting of Stock in Other Corporations. Unless
otherwise provided by resolution of the Board of Directors, the Chairman of
the Board, any Chief Executive Officer or any President, from time to time,
may (or may appoint one or more attorneys or agents to) cast the votes
which the Corporation may be entitled to cast as a shareholder or otherwise
in any other corporation, any of whose shares or securities may be held by
the Corporation, at meetings of the holders of the shares or other
securities of such other corporation. In the event one or more attorneys or
agents are appointed, the Chairman of the Board, any Chief Executive
Officer or any President may instruct the person or persons so appointed as
to the manner of casting such votes or giving such consent. The Chairman of
the Board, or any Chief Executive Officer or any President may, or may
instruct the attorneys or agents appointed to, execute or cause to be
executed in the name and on behalf of the Corporation and under its seal or
otherwise, such written proxies, consents, waivers or other instruments as
may be necessary or proper in the circumstances.
ARTICLE VIII
AMENDMENTS
----------
These By-Laws may be repealed, altered, amended or rescinded in
whole or in part, or new By-Laws may be adopted by 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.
EXHIBIT 4.2
AMENDMENT NO. 1 TO
SECOND AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
theglobe.com, inc.
August , 1998
<PAGE>
AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
This AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED INVESTOR RIGHTS
AGREEMENT (the "Amendment") is entered into as of the __ day of August,
1998, by and among theglobe.com, inc., a Delaware corporation (the
"Company"), and the Investors, as defined in the Second Amended and
Restated Investor Rights Agreement (the "Agreement"). Capitalized items
used herein and not otherwise defined shall have the meanings ascribed
thereto in the Agreement.
W I T N E S S E T H:
-------------------
WHEREAS, the Investors hold registration and information rights
pursuant to the Agreement;
WHEREAS, pursuant to Section 2.10 of the Agreement, the holders of a
majority in interest of the Registrable Securities desire to amend the
provisions of Section 2 of the Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
The first paragraph of Section 2.2 of the Agreement is hereby deleted
in its entirety and is replaced with the following:
2.2 PIGGYBACK REGISTRATIONS. Except in connection with an
Initial Offering, the Company shall notify all Holders in writing
at least fifteen (15) days prior to the filing of any
registration statement under the Securities Act for purposes of a
public offering of securities (other than non-convertible debt
securities) of the Company (excluding registration statements
relating to employee benefit plans or with respect to corporate
reorganizations or shares sold in connection with an acquisition,
including other transactions under Rule 145 of the Securities
Act) and will afford each such Holder an opportunity to include
in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include
in any such registration statement all or any part of the
Registrable Securities held by it shall, within fifteen (15) days
after the above-described notice from the Company, so notify the
Company in writing. Such notice shall state the maximum number of
Registrable Securities intended to be included in such
registration and the intended method of disposition of the
Registrable Securities by such Holder. If a Holder decides not to
request inclusion of all of its Registrable Securities in any
registration statement thereafter filed by the Company, such
Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent such registration
statement or registration statements as may be filed by the
Company with respect to offerings of its securities, all upon the
terms and conditions set forth herein. Notwithstanding the
foregoing, nothing in this Section 2.2 shall be deemed to convey
upon any Holder the right to include in any registration
statement filed in connection with an Initial Offering all or
part of such Holder's Registrable Securities.
Paragraph (a) of Section 2.2 of the Agreement is hereby deleted in its
entirety and is replaced with the following:
(a) UNDERWRITING. If the registration statement under which
the Company gives notice under this Section 2.2 is for an
underwritten offering, the Company shall so advise the Holders.
In such event, the right of any such Holder to be included in a
registration pursuant to this Section 2.2 shall be conditioned
upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. Each Holder proposing
to distribute its Registrable Securities through such
underwriting shall enter into a custody agreement and power of
attorney authorizing the Company to sell the Registrable
Securities to be offered by such Holders and to execute on the
Holder's behalf an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by
the Company. If any Holder is or will be unable to deliver any
document reasonably required by the underwriters to register such
Registrable Securities, then the Company shall have no obligation
to include such Registrable Securities in such registration.
Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten,
the number of shares that may be included in the underwriting
shall be allocated as follows: first, to the Company for its own
account; second, to the holders under the Company's Registration
Rights Agreement, dated as of August ____, 1998 (the
"Registration Rights Agreement"), and Holders on a pro rata basis
based on the total number of Registrable Securities held by such
persons; and third, to any stockholder of the Company (other than
a Holder or a holder under the Registration Rights Agreement) on
a pro rata basis. No such reduction shall reduce the securities
being offered by the Company for its own account to be included
in the registration and underwriting. In no event will shares of
any other selling stockholder be included in such registration
which would reduce the number of shares which may be included by
Holders without the written consent of Holders of not less than
two-thirds (66 2/3%) of the Registrable Securities proposed to be
sold in the offering.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 1 to Second Amended and Restated Investor Rights Agreement as of the
date set forth above.
theglobe.com, inc. Dancing Bear Investments, Inc.
By: By:
------------------------------- ------------------------------
Todd V. Krizelman Name:
Co-Chief Executive Officer and Title:
Co-President
Robert Halperin
By:
-------------------------------
Stephan J. Paternot
Co-Chief Executive Officer,
Co-President and Secretary ------------------------------
David Horowitz
------------------------------
EXHIBIT 4.3
FORM OF
REGISTRATION RIGHTS AGREEMENT
theglobe.com, inc.
AUGUST__, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS........................................................1
2. Registration.......................................................3
2.1 Piggyback Registrations.....................................3
2.2 Demand Registration.........................................4
2.3 Expenses of Registration....................................6
2.4 Obligations of the Company..................................6
2.5 Expiration of Registration Rights..........................10
2.6 Delay of Registration; Furnishing Information..............10
2.7 Indemnification............................................10
2.8 Assignment of Registration Rights..........................12
2.9 Amendment of Registration Rights...........................13
2.10 "Market Stand-Off" Agreement...............................13
2.11 Rule 144 Reporting.........................................13
3. INFORMATION RIGHTS................................................14
3.1 Quarterly Reports..........................................14
3.2 Confidentiality............................................14
4. GENERAL...........................................................15
4.1 Governing Law..............................................15
4.2 Survival...................................................15
4.3 Successors and Assigns.....................................15
4.4 Severability...............................................15
4.5 Amendment and Waiver.......................................15
4.6 Delays or Omissions........................................16
4.7 Notices....................................................16
4.8 Attorneys' Fees............................................16
4.9 Headings...................................................16
4.10 Entire Agreement...........................................16
4.11 Counterparts...............................................16
<PAGE>
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of August___, 1998 (this
"Agreement"), by and among theglobe.com, inc., a Delaware corporation (the
"Company"), Dancing Bear Investments, Inc. ("Egan"), Todd V. Krizelman
("Krizelman"), Stephan J. Paternot ("Paternot") and the persons listed on
Exhibit A hereto (the "Series A Investors").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Egan purchased from the Company fifty-one (51) shares of the
Company's Series D Preferred Stock and a warrant to purchase ten (10)
shares of the Company's Series E Preferred Stock (the "Warrant"), pursuant
to a Stock Purchase Agreement dated August 13, 1997 (the "Stock Purchase
Agreement");
WHEREAS, simultaneously therewith, Egan, the Company, the holders of
Series B Preferred Stock ("Series B Holders") and the holders of Series C
Preferred Stock ("Series C Holders," and together with the Series B
Holders, the "Series B and C Holders") entered into a Second Amended and
Restated Investor Rights Agreement, dated August 13, 1997 (the "Investor
Rights Agreement"), which provides certain registration rights to Egan and
the Series B and C Holders, such registration rights terminating three
years after the date of the Initial Offering pursuant to Section 2.6 of
such agreement (the "Termination");
WHEREAS, Krizelman and Paternot each own Common Stock of the Company,
par value $0.001 per share ("Common Stock"), and do not possess
registration rights;
WHEREAS, the Series A Investors own Series A Preferred Stock, par
value $0.001 per share, of the Company ("Series A Preferred Stock") and do
not possess registration rights;
WHEREAS, the parties hereto desire to provide certain registration
rights, to be effective upon an Initial Offering (as defined herein), with
respect to the Common Stock (i) held by Krizelman and Paternot, (ii) issued
upon the conversion of Series A Preferred Stock held by each holder
thereof, and (iii) issued upon conversion of the Series D Preferred Stock,
Series E Preferred Stock or upon exercise of the Warrant held by Egan,
following Termination of existing registration rights held by Egan.
NOW, THEREFORE, in consideration of the market stand-off provisions
contained herein restricting the sale of securites of the Company held by
the parties hereto, amendment of the Warrant to be exercisable for a fixed
number of shares of Common Stock following an Initial Offering, and the
mutual promises, representations, warranties, covenants and conditions set
forth in this Agreement, the parties hereto agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following respective meanings:
"COMMON STOCK" has the meaning given to it in the recitals hereto.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"HOLDER" means Krizelman, Paternot, and Egan and, pursuant to Section
2.8, their successors and assigns owning of record Registrable Securities
that have not been sold to the public.
"INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the
Securities Act raising gross proceeds for the Company in excess of Fifteen
Million Dollars ($15,000,000).
"INVESTOR RIGHTS AGREEMENT" has the meaning given to it in the
recitals hereto.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance
with the Securities Act, and the declaration or ordering of effectiveness
of such registration statement or document.
"REGISTRABLE SECURITIES" means (i) Common Stock; (ii) Common Stock
issued or issuable upon conversion of the Series A Preferred Stock; (iii)
any Common Stock issued upon the conversion of any shares of Series D
Preferred Stock; (iv) any Common Stock issued upon exercise of the Warrant
(or upon the conversion of Series E Preferred Stock which was issued upon
exercise of the Warrant); and (v) any Common Stock of the Company issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, such above-described
securities. Notwithstanding the foregoing, Registrable Securities shall not
include any securities that have been sold by a person to the public either
pursuant to a registration statement or Rule 144 or any successor rule or
sold in a private transaction in which the transferor's rights under
Section 2 of this Agreement are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of
shares determined by calculating the total number of shares of the
Company's Common Stock that are Registrable Securities and either (i) are
then issued and outstanding or (ii) are issuable pursuant to then
exercisable or convertible securities.
"REGISTRATION EXPENSES" means all expenses incurred by the Company in
complying with Sections 2.1 and 2.2, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements of a single
special counsel for the Holders, blue sky fees and expenses and the expense
of any special audits incident to or required by any such registration (but
excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING EXPENSES" means all underwriting discounts and selling
commissions applicable to the sale.
"SERIES A INVESTORS" has the meaning given to it in the recitals
hereto.
"SERIES A PREFERRED STOCK" has the meaning given to it in the recitals
hereto.
"SERIES B HOLDERS" has the meaning given to it in the recitals hereto.
"SERIES B PREFERRED STOCK" means shares of Series B Preferred Stock,
par value $0.001 per share, of the Company.
"SERIES B AND C HOLDERS" has the meaning given to it in the recitals
hereto.
"SERIES C HOLDERS" has the meaning given to it in the recitals hereto.
"SERIES D PREFERRED STOCK" means the shares of Series D Preferred
Stock, par value $0.001 per share, of the Company.
"SERIES E PREFERRED STOCK" has the meaning given to it in the recitals
hereto.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
"STOCK PURCHASE AGREEMENT" has the meaning given to it in the recitals
hereto.
"WARRANT" has the meaning given to it in the recitals hereto.
2. REGISTRATION.
2.1 PIGGYBACK REGISTRATIONS. Except in connection with an Initial
Offering, the Company shall notify all Holders in writing at least fifteen
(15) days prior to the filing of any registration statement under the
Securities Act for purposes of a public offering of securities (other than
non-convertible debt securities) of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities
of the Company, but excluding registration statements relating to employee
benefit plans or with respect to corporate reorganizations or shares sold
in connection with an acquisition, including other transactions under Rule
145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held
by it shall, within fifteen (15) days after the above-described notice from
the Company, so notify the Company in writing. Such notice shall state the
maximum number of Registrable Securities intended to be included in such
registration and the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to request inclusion of
all of its Registrable Securities in any registration statement thereafter
filed by the Company, such Holder shall nevertheless continue to have the
right to include any Registrable Securities in any subsequent such
registration statement or registration statements as may be filed by the
Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein. Notwithstanding the foregoing, nothing in this
Section 2.1 shall be deemed to convey upon any Holder the right to include
in any registration statement filed in connection with an Initial Offering
all or part of such Holder's Registrable Securities.
(a) UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 2.1 is for an underwritten
offering, the Company shall so advise the Holders. In such event, the right
of any such Holder to be included in a registration pursuant to this
Section 2.1 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein; provided that each such
Holder shall agree to reasonable limitations on the ability to withdraw
from such underwriting. Each Holder proposing to distribute its Registrable
Securities through such underwriting shall enter into a custody agreement
and power of attorney, authorizing the Company to (i) sell the Registrable
Securities to be offered by such Holders and (ii) execute on the Holder's
behalf an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. If any Holder
is or will be unable to deliver any document reasonably required by the
underwriters in connection with the sale of such Registrable Securities,
including, but not limited to legal opinions and other closing
certificates, then the Company shall have no obligation to include such
Registrable Securities in such registration. Notwithstanding any other
provision of the Agreement, if the underwriter determines in good faith
that marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting
shall be allocated as follows: first, to the Company for its own account;
second, to the holders under the Investor Rights Agreement and the Holders
on a pro rata basis based on the total number of Registrable Securities
held by such persons; and third, to any stockholder of the Company (other
than a Holder or a holder under the Investor Rights Agreement) on a pro
rata basis. No such reduction shall reduce the securities being offered by
the Company for its own account to be included in the registration and
underwriting. In no event will shares of any other selling stockholder be
included in such registration which would reduce the number of shares which
may be included by Holders, and holders under the Investor Rights
Agreement, without the written consent of Holders, and holders under the
Investor Rights Agreement of not less than two-thirds (66 2/3%) of the
Registrable Securities proposed to be sold in the offering.
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2.1 prior to the effectiveness of such registration, whether or not
any Holder has elected to include securities in such registration, in which
event the Company shall give written notice to all Holders of record of
Registrable Securities. The Registration Expenses of such withdrawn
registration shall be borne by the Company in accordance with Section 2.3
hereof.
(c) LIMIT ON NUMBER. The Company shall not have any further
obligations under this Section 2.1 if the Company has already effected five
(5) registrations for any Holders pursuant to this Section 2.1. No rights
conveyed to a Holder in this Agreement shall be in duplication of any
rights conveyed to a holder pursuant to the Investor Rights Agreement, and
no such Holder shall be entitled to Demand or Piggyback Registration Rights
under both such agreements.
2.2 DEMAND REGISTRATION. Subject to Section 2.2 (c), at any time and
from time to time after the closing of an Initial Offering, the Holders of
(x) twenty-five percent (25%) of all of the Registrable Securities or (y)
fifty percent (50%) of the sum of the total number of Registrable
Securities originally issued as Common Stock and the number of shares of
Common Stock issuable in respect of the Series A Preferred Stock, shall
have the right to require the Company to file a registration statement
under the Securities Act covering all or part of their respective
Registrable Securities, by delivering a written request therefor to the
Company specifying the number of Registrable Securities to be included in
such registration by such Holders and the intended method of distribution
thereof. All requests pursuant to this Section 2.2 are referred to herein
as "Demand Registration Requests," and the registrations requested are
referred to herein as "Demand Registrations." As promptly as practicable,
but no later than ten (10) days after receipt of a Demand Registration
Request, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within fifteen (15) days after receipt of such
written notice from the Company; provided, however, that the Company shall
not be obligated to effect any such registration, qualification or
compliance pursuant to this Section 2.2:
(i) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any)
at an aggregate price to the public of less than $5,000,000; or
(ii) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its
stockholders for such Registration to be effected at such time, in which
event the Company shall have the right to defer the filing of the
registration statement for a period of not more than one hundred twenty
(120) days after receipt of the request of the Holder or Holders under this
Section 2.2; provided that such right to delay a request shall be exercised
by the Company no more than once in any one-year period, or
(iii) if the Company has already effected four (4) Demand
Registrations for the Holders pursuant to this Section 2.2;
(iv) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent
to service of process in effecting such registration, qualification or
compliance; or
(v) if the registration statement with respect to a Demand
Registration would be declared effective within a period of 180 days after
the effective date of the registration statement pertaining to the Initial
Offering or within a period of ninety days (90) after the effective date of
the registration statement pertaining to subsequent public offerings (other
than registration statements relating to employee benefit plans or Rule 145
transactions).
(c) If the selling Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall
so advise the Company as a part of their request made pursuant to this
Section 2.2 and the Company shall include such information in the written
notice referred to in Section 2.2(a). In such event, the right of any
Holder to include its Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting
(unless otherwise mutually agreed by a majority in interest of the selling
Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
enter into an underwriting agreement in customary form with the underwriter
or underwriters selected for such underwriting by a majority in interest of
the selling Holders (which underwriter or underwriters shall be reasonably
acceptable to the Company). If any Holder is or will be unable to deliver
any document reasonably required by the underwriters in connection with the
sale of such Registrable Securities, including legal opinions and closing
certificates, then the Company shall have no obligation to include such
Registrable Securities in such registration. Notwithstanding any other
provision of this Section 2.2, if the underwriter advises the Company that
marketing factors require a limitation of the number of securities to be
underwritten then the Company shall so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant hereto, and the
number of shares that may be included in the underwriting shall be
allocated to the Holders of such Registrable Securities (and to any holders
of registrable securities making a concurrent Demand Registration Request
pursuant to Section 2.2 of the Investor Rights Agreement) on a pro rata
basis based on the number of Registrable Securities proposed to be
registered by all such selling Holders. Any Registrable Securities excluded
or withdrawn from such underwriting shall be withdrawn from the
registration.
2.3 EXPENSES OF REGISTRATION. Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration
under Section 2.1 or Section 2.2 shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder shall be
borne by the holders of the securities so registered pro rata on the basis
of the number of shares so registered. The Company shall not, however, be
required to pay for expenses of any registration proceeding begun pursuant
to Section 2.2, the request of which has been subsequently withdrawn by the
requesting Holders unless (i) the withdrawal is based upon material adverse
information concerning the Company of which such Holders were not aware at
the time of such request, or (ii) the Holders of a majority of Registrable
Securities agree to forfeit their right to one requested registration
pursuant to Section 2.2, in which event such right shall be forfeited by
all Holders. If the Holders are required to pay the Registration Expenses,
such expenses shall be borne by the holders of securities (including
Registrable Securities) requesting such registration in proportion to the
number of shares for which registration was requested. If the Company is
required to pay the Registration Expenses of a withdrawn offering pursuant
to clause (i) above, then the Holders shall not forfeit their rights
pursuant to Section 2.2 to a registration.
2.4 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to
cause such registration statement to become effective and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one
hundred eighty (180) days or, if earlier, until the Holder or Holders have
completed the distribution related thereto.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish (without charge) to the selling Holders such number
of copies of the registration statement, each amendment and supplement
thereto (in each case including all exhibits) and the prospectus included
in such registration statement, including each preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(d) Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required
in connection therewith or as a condition thereto to qualify to do business
or to file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form of the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Promptly notify each Holder selling Registrable Securities,
and every other holder of securities, if any, covered by such registration
statement and each managing underwriter, if any: (i) when the registration
statement, any pre-effective amendment, the prospectus or any prospectus
supplement related thereto or post-effective amendment to the registration
statement has been filed and, with respect to the registration statement or
any post-effective amendment, when the same has become effective; (ii) of
any request by the Commission or state securities authority for amendments
or supplements to the registration statement or the prospectus related
thereto or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings for the
purpose; (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation of any proceeding for such purpose; and (v)
of the existence of any fact of which the Company becomes aware which
results in the registration statement, the prospectus related thereto or
any document incorporated therein by reference containing an untrue
statement of a material fact or omitting to state a material fact required
to be stated therein or necessary to make any statement therein not
misleading.
(g) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities
are being sold through underwriters or, if such securities are not being
sold through underwriters, on the date that the registration statement with
respect to such securities becomes effective: (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to the managing
underwriter in an underwritten public offering addressed to the
underwriters, if any, and to the Holders requesting registration of
Registrable Securities, and (ii) a "cold comfort" letter dated as of such
date, from the independent certified public accountants of the Company, in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering addressed to
the underwriters, if any, and if permitted by applicable accounting
standards, to the Holders requesting registration of Registrable
Securities.
(h) Comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders, as soon
as reasonably practicable after the effective date of the registration
statement (and in any event within 16 months thereafter), an earnings
statement (which need not be audited) covering the period of at least
twelve consecutive months beginning with the first day of the Company's
first calendar quarter after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder.
(i) (i) Cause all such Registrable Securities covered by such
registration statement to be listed on the principal securities exchange on
which similar securities issued by the Company are then listed (if any), if
the listing of such Registrable Securities is then permitted under the
rules of such exchange, or (ii) if no similar securities are then so
listed, cause all such Registrable Securities to be listed on a national
securities exchange, secure designation of all such Registrable Securities
as a National Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ") "national market system security" within the meaning of
Rule 11Aa2-1 of the Commission, secure NASDAQ authorization for such shares
and, without limiting the generality of the foregoing, take all actions
that may be reasonably required by the Company as the issuer of such
Registrable Securities in order to facilitate the managing underwriter's
arranging for the registration of at least two market makers as such with
respect to such shares with the National Association of Securities Dealers,
Inc.
(j) Provide and cause to be maintained a transfer agent and
registrar for all such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement.
(k) Use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement.
(l) Provide a CUSIP number for all Registrable Securities, not
later than the effective date of the registration statement.
(m) Make reasonably available its employees and personnel and
otherwise provide reasonable assistance to the underwriters (taking into
account the needs of the Company's businesses and the requirements of the
marketing process) in the marketing of Registrable Securities in any
underwritten offering.
(n) Promptly prior to the filing of any document which is to be
incorporated by reference into the registration statement or the prospectus
(after the initial filing of such registration statement) provide copies of
such document to counsel to the selling Holders of Registrable Securities
and to the managing underwriter, if any, and make the Company's
representatives reasonably available for discussion of such document and
make such changes in such document concerning the selling Holders prior to
the filing thereof as counsel for such selling Holders or underwriters may
reasonably request.
(o) Cooperate with the selling Holders of Registrable Securities
and the managing underwriter, if any, to facilitate the timely preparation
and delivery of certificates not bearing any restrictive legends
representing the Registrable Securities to be sold, and cause such
Registrable Securities to be issued in such denominations and registered in
such names in accordance with the underwriting agreement prior to any sale
of Registrable Securities to the underwriters or, if not an underwritten
offering, in accordance with the instructions of the selling Holders of
Registrable Securities at least three business days prior to any sale of
Registrable Securities.
(p) Take all such other commercially reasonable actions as are
necessary or advisable in order to expedite or facilitate the disposition
of such Registrable Securities.
The Company may require as a condition precedent to the Company's
obligations under this Section 2.5 that each seller of Registrable
Securities as to which any registration is being effected furnish the
Company such information regarding such seller and the distribution of such
securities as the Company may from time to time reasonably request provided
that such information shall be used only in connection with such
registration.
Each Holder of Registrable Securities acknowledges that in connection
with any underwritten offering, the underwriters may require an
over-allotment option covering up to 15% of the shares of capital stock
sold in the underwriter offering. The Company may at its option (a) provide
the shares subject to the over-allotment option (provided that all of the
Registrable Securities to be included in the underwriter offering are sold
in the initial underwritten offering) or (b) determine that up to 15% of
each Holder's Registrable Securities to be sold in the underwritten
offering shall not be included in the initial underwriter offering but
shall be reserved to satisfy the over-allotment option and the Holders of
Registrable Securities hereby agree to take all actions reasonably
necessary to comply with the Company's determination.
Each Holder of Registrable Securities agrees that upon receipt of any
notice from the Company of the happening of any event of the kind described
in Section 2.4(f)(v), such Holder will discontinue such Holder's
disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's receipt
of the copies of the supplemented or amended prospectus contemplated by
Section 2.4(f)(v) and, if so directed by the Company, will deliver to the
Company (at the Company's expense) all copies, other than permanent file
copies, then in such Holder's possession of the prospectus covering such
Registrable Securities that was in effect at the time of receipt of such
notice. In the event the Company shall give any such notice, the applicable
period mentioned in Section 2.4(a) shall be extended by the number of days
during such period from and including the date of the giving of such notice
to and including the date when each seller of any Registrable Securities
covered by such registration statement shall have received the copies of
the supplemented or amended prospectus contemplated by Section 2.4(f).
If any such registration statement or comparable statement under "blue
sky" laws refers to any Holder by name or otherwise as the Holder of any
securities of the Company, then such Holder shall have the right to require
(i) the insertion therein of language, in form and substance satisfactory
to such Holder and the Company, to the effect that the holding by such
Holder of such securities is not to be construed as a recommendation by
such Holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such Holder will assist
in meeting any future financial requirements of the Company, or (ii) in the
event that such reference to such Holder by name or otherwise is not in the
judgment of the Company, as advised by counsel, required by the Securities
Act or any similar federal statute or any state "blue sky" or securities
law then in force, the deletion of the reference to such Holder.
2.5 EXPIRATION OF REGISTRATION RIGHTS. A Holder's registration rights
shall expire if (i) the Company has completed its Initial Offering and is
subject to the provisions of the Exchange Act, and (ii) all Registrable
Securities held by and issued to such Holder may be sold under Rule 144
during any ninety (90) day period.
2.6 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the
result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 2.1 or 2.2 that the selling
Holders shall furnish to the Company such information regarding themselves,
the Registrable Securities held by them and the intended method of
disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
2.7 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.1 or 2.2:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers, directors and legal
counsel of each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities (joint or several) to
which they may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state
securities law in connection with the offering covered by such registration
statement; and the Company will reimburse each such Holder, partner,
officer or director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this Section 2.7(a)
shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the
consent of the Company, which consent shall not be unreasonably withheld or
delayed, nor shall the Company be liable in any such case for any such
loss, claim, damage, liability or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in
connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities
as to which such registration qualifications or compliance is being
effected, indemnify and hold harmless the Company, each of its directors,
its officers, and legal counsel and each person, if any, who controls the
Company within the meaning of the Securities Act, any underwriter and any
other Holder selling securities under such registration statement or any of
such other Holder's partners, directors or officers or any person who
controls such Holder, against any losses, claims, damages or liabilities
(joint or several) to which the Company or any such director, officer,
controlling person, underwriter or other such Holder, or partner, director,
officer or controlling person of such other Holder may become subject under
the Securities Act, the Exchange Act or other federal or state law, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder under
an instrument duly executed by such Holder and stated to be specifically
for use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or other
Holder, or partner, officer, director or controlling person of such other
Holder in connection with investigating or defending any such loss, claim,
damage, liability or action if it is judicially determined that there was
such a Violation; provided, however, that the indemnity agreement contained
in this Section 2.7(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld or delayed; provided further, that in no event shall
any indemnity under this Section 2.7 exceed the proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section
2.7, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in
and, to the extent the indemnifying party so desires, jointly with any
other indemnifying party similarly noticed, to assume the defense thereof
with counsel mutually satisfactory to the parties; provided, however, that
an indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests or conflicting defenses between such indemnified party
and any other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 2.7, but the omission to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 2.7.
(d) If the indemnification provided for in this Section 2.7 is
held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or
liabilities referred to herein, the indemnifying party, in lieu of
indemnifying such indemnified party thereunder, shall to the extent
permitted by applicable law contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage or liability
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the
other in connection with the Violation(s) that resulted in such loss,
claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided
that, in no event shall any contribution by a Holder hereunder exceed the
proceeds from the offering received by such Holder.
(e) The obligations of the Company and Holders under this Section
2.7 shall survive completion of any offering of Registrable Securities in a
registration statement. No indemnifying party, in the defense of any such
claim or litigation, shall, except with the consent of each indemnified
party, consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation. In the event any offering
of Registrable Securities is underwritten, and the underwriting agreement
provides for indemnification and/or contribution by the Company and the
Holders offering securities thereunder, the indemnification and/or
contribution obligations of the Company and the Holders hereunder shall in
no event exceed the obligations of the parties set forth in such
underwriting agreement.
2.8 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee of Registrable Securities
which (i) is a Holder's family member or trust for the benefit of an
individual Holder, or (ii) acquires at least ten thousand (10,000) shares
of Registrable Securities prior to conversion to Common Stock or one
hundred thousand (100,000) shares of Registrable Securities issued upon
conversion of the Shares (as adjusted for stock splits, combinations and
the like that occur after the original issuance of such shares); provided,
however, (A) the transferor shall, within ten (10) days after such
transfer, furnish to the Company written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned, and (B) such transferee shall agree
to be subject to all restrictions set forth in this Agreement; provided,
further, that such transfer shall have been made in compliance with the
Bylaws, as applicable.
2.9 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 2
may be amended and the observance thereof may be waived (either generally
or in a particular instance and either retroactively or prospectively) only
with the written consent of the Company and the Holders of at least a
majority in interest of the Registrable Securities. Any amendment or waiver
effected in accordance with this Section 2.9 shall be binding upon each
Holder and the Company. By acceptance of any benefits under this Section 2,
Holders hereby agree to be bound by the provisions hereunder.
2.10 "MARKET STAND-OFF" AGREEMENT. If requested by the Company as the
representative of the underwriters of Common Stock (or other securities) of
the Company, each Holder shall not sell or otherwise transfer or dispose of
any Shares of Common Stock (or other securities) of the Company held by
each such Holder (other than those included in the registration) for a
period specified by the representative of the underwriters not to exceed a
period of seven (7) days prior to and one hundred eighty (180) days
following the effective date of a registration statement of the Company
filed under the Securities Act pertaining to the Company's Initial Offering
or a period of seven (7) days prior to and ninety (90) days following the
effective date of any other registration statement of the Company filed
under the Securities Act (other than registration statements relating to
employee benefit plans and transactions under Rule 145 of the Securities
Act), provided that all executive officers and directors of the Company
enter into similar agreements. The Company will also agree to a lock-up of
the same duration if requested by the underwriters of the Common Stock.
The obligations described in this Section 2.10 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form
S-8 or similar forms that may be promulgated in the future, or a
registration relating solely to shares issued in an acquisition or pursuant
to a Commission Rule 145 transaction on Form S-4 or similar forms that may
be promulgated in the future. The Company may impose stop-transfer
instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said one
hundred eighty (180) day period.
2.11 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date
of the first registration filed by the Company for an offering of its
securities to the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request: a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 of the
Securities Act and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual
or quarterly report of the Company; and such other reports and documents as
a Holder may reasonably request in availing itself of any rule or
regulation of the SEC allowing it to sell any such securities without
registration.
3. INFORMATION RIGHTS.
3.1 QUARTERLY REPORTS. So long as an Investor owns at least ten
thousand (10,000) shares of the Shares or one hundred thousand (100,000)
shares of the Common Stock issued upon conversion of the Shares (as
adjusted for stock splits, combinations and the like that occur after the
original issuance of such shares), as soon as practicable after the end of
each fiscal quarter of the Company, and in any event within ninety (90)
days thereafter, the Company will furnish to such Investor an unaudited
balance sheet of the Company, as at the end of such fiscal quarter, and an
unaudited consolidated statement of income and an unaudited consolidated
statement of cash flows of the Company, for such quarter, all prepared in
accordance with generally accepted accounting principles consistently
applied. This obligation shall expire and terminate as to each Investor on
the effective date of the first registration statement for the public
offering of the Company's Common Stock.
3.2 CONFIDENTIALITY.
(a) Each Investor agrees not to disclose to any third party or
use Confidential Information (as hereinafter defined) of the Company for
its own use or for any purpose except to evaluate and enforce its equity
investment in the Company. Each Investor shall undertake to treat such
Confidential Information in a manner consistent with the treatment of its
own information of similar proprietary nature and agrees that it shall
protect the confidentiality of Confidential Information. Each transferee of
any Investor who receives Confidential Information shall agree to be bound
by such provisions.
(b) "Confidential Information" means any reports provided
pursuant to Section 3.1 and any other information disclosed by the Company
either directly or indirectly in a writing stamped "Confidential" or
"Proprietary" or, if disclosed orally, which is promptly confirmed in
writing to be Confidential Information. Confidential Information does not
include information, technical data or know-how which (i) is in the
Investor's possession at the time of disclosure as shown by Investor's
files and records immediately prior to the time of disclosure; (ii) is
generally known not as a result of any action or inaction of the Investor;
(iii) is disclosed to an Investor on a non-confidential basis by a third
party having a legal right to disclose such information; or (iv) is
approved for release by written authorization of Company. The provisions of
this Section shall not apply (x) to the extent that an Investor is required
to disclose Confidential Information pursuant to any law, statute, rule or
regulation or any order or legal process of any court; or (y) to the
disclosure of Confidential Information to an Investor's counsel,
accountants or other professional advisors.
4. GENERAL.
4.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of New York without giving effect to conflicts
of laws principles.
4.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder
and the closing of the transactions contemplated hereby. All statements as
to factual matters contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant hereto in connection with
the transactions contemplated hereby shall be deemed to be representations
and warranties by the Company hereunder solely as of the date of such
certificate or instrument.
4.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate
written notice of the transfer of any Registrable Securities specifying the
full name and address of the transferee, the Company may deem and treat the
person listed as the holder of such shares in its records as the absolute
owner and holder of such shares for all purposes, including the payment of
dividends or any redemption price.
4.4 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
4.5 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the
holders of fifty-one percent (51%) of the Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of
the Company and the rights of the Holders under this Agreement may be
waived only with the written consent of fifty-one percent (51%) of the
Registrable Securities.
(c) Notwithstanding the foregoing, this Agreement may be amended
with only the written consent of the Company to include additional
purchasers of Shares as "Investors," "Holders" and parties hereto.
4.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any
breach, default or noncompliance of the Company under this Agreement shall
impair any such right, power or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or
approval of any kind or character on any Holder's part of any breach,
default or noncompliance under the Agreement or any waiver on such Holder's
part of any provisions or conditions of this Agreement must be in writing
and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, by law, or otherwise
afforded to Holders, shall be cumulative and not alternative.
4.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery
to the party to be notified, (ii) when sent by confirmed facsimile if sent
during normal business hours of the recipient; if not, then on the next
business day, (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (iv) two (2)
days after deposit with a recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be
sent to the party to be notified at the address as set forth on Exhibit A
hereto or at such other address as such party may designate by ten (10)
days advance written notice to the other parties hereto.
4.8 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
4.9 HEADINGS. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
4.10 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof and supersedes all previous negotiations, agreements and
arrangements made between the parties with respect to such subject matter.
Without limiting the foregoing, the Prior Investor Rights Agreement is
hereby expressly superseded.
4.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date set forth in the first paragraph hereof.
theglobe.com, inc.
By:
-----------------------------------
Name:
Title:
--------------------------------------
MICHAEL S. EGAN
--------------------------------------
TODD V. KRIZELMAN
--------------------------------------
STEPHAN J. PATERNOT
<PAGE>
EXHIBIT A
SERIES A INVESTORS
Bergendahl, Anders
Bergendahl, Mia
Grey, Nicki
Grinstead, Simon
Hirsch, Jason
Krizelman, Allen
Krizelman, Susan
Krizelman, Todd
Maconie, Andrew
Paternot, Jacques
Paternot, Madeleine
Paternot, Monica
Paternot, Thierry
Paternot, Yves
S. Knight Pond Trust
EXHIBIT 4.5
NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE SHARES
ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. NEITHER SUCH WARRANTS NOR SUCH SHARES MAY BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH SUCH ACT.
AMENDED AND RESTATED WARRANT TO PURCHASE
EQUITY OF THEGLOBE.COM, INC.
NO. 1
This certifies that, for and in partial consideration of payment
of the Purchase Price (as defined in the Stock Purchase Agreement, dated as
of the date hereof (the "Purchase Agreement"), between Dancing Bear
Investments, Inc. a Florida corporation (together with its successors and
assigns, "Warrantholder") and theglobe.com, inc., a Delaware corporation
(the "Company")), Warrantholder is entitled to purchase from the Company,
subject to the terms and conditions hereof, at any time at or after the
date hereof and before 5:00 p.m., New York time on the Expiration Date (as
defined herein), 10 shares of Series E Preferred Stock, par value $.001 per
share, of the Company (the "Series E Warrant Shares") at the Exercise Price
(as defined herein).
ARTICLE I
Section 1.01: Definition of Terms. As used in this Warrant, the
following capitalized terms shall have the following respective meanings:
Business Day: A day other than a Saturday, Sunday or other day on
which banks in the State of New York are authorized or required by law to
remain closed.
Common Stock: Common Stock, $.001 par value per share, of the
Company.
Common Stock Equivalents: Securities that are convertible into,
or exercisable or exchangeable for, shares of Common Stock.
Exercised Shares: With respect to any exercise of the Warrant,
the shares for which this Warrant is actually and effectively exercised.
Exercise Price: $588,235.30 per Warrant Share, as adjusted
pursuant to the terms hereof.
Expiration Date: August 13, 2004.
Fair Market Value: With respect to any property or share of
capital stock, the fair market value of such property or share as
determined by mutual agreement between the Company and the Warrantholder
or, if the parties are unable to agree, as determined by a nationally
recognized independent investment banking firm selected by mutual agreement
between the Company and the Warrantholder (or, if the parties are unable to
agree on such firm by a nationally recognized independent investment
banking firm selected by the President of the American Arbitration
Association or his designee).
Fully Diluted Capital Stock: As defined in the Second Amended and
Restated Certificate of Incorporation of the Company.
Person: An individual, partnership, joint venture, corporation,
limited liability company, trust, unincorporated organization or government
of any department or agency thereof.
Qualified IPO: As defined in the Second Amended and Restated
Certificate of Incorporation of the Company.
Sale of the Company: A consolidation or merger of the Company
with or into any other entity or entities (other than a consolidation or
merger in which stockholders of the Company immediately prior to the
transaction continue to hold a majority of the capital stock of the
surviving corporation), or a sale, conveyance or other disposition of all
or substantially all of the assets of the Company (including through the
consolidation or merger of one or more subsidiaries of the Company with or
into any other entity or entities or a sale, conveyance or other
disposition of one or more subsidiaries of the Company) or the effectuation
by the Company of a transaction or series of related transactions in which
more than fifty (50%) percent of the capital stock on an economic basis or
voting power of the Company is disposed of (other than pursuant to the
Purchase Agreement or pursuant to a public offering of the Company's
capital stock).
Series E Preferred: Series E Preferred Stock, $.001 par value per
share, of the Company.
Stockholders Agreement: The Stockholders Agreement, dated as of
the date hereof, among the Company and certain of its Stockholders, as the
same may be amended or supplemented from time to time.
Warrant Shares: Shares of Series E Preferred, Common Stock and/or
other securities purchased or purchasable upon exercise of this Warrant.
ARTICLE II
DURATION AND EXERCISE OF WARRANT;
DETERMINATION OF EXERCISE PRICE
Section 2.01: Duration of Warrant. The Warrantholder may exercise
this Warrant at any time and from time to time in whole or in part after
the date hereof and before 5:00 p.m., New York time, on the Expiration
Date. If this Warrant is not exercised on or before 5:00 p.m., New York
time, on the Expiration Date, it shall become void, and all rights
hereunder shall thereupon cease.
Section 2.02: Exercise of Warrant.
(a) The Warrantholder may exercise this Warrant, in whole or in
part, by presentation and surrender of this Warrant to the Company at its
principal corporate office or at the office of its stock transfer agent, if
any, with the subscription form attached hereto as Exhibit A (the
"Subscription Form") duly executed and accompanied by payment of the full
Exercise Price (by certified check or wire transfer of same day funds) for
the Exercised Shares.
(b) (i) Exercise Prior to a Qualified IPO: In the event of any
exercise of this Warrant prior to the closing of a Qualified IPO, upon
receipt of this Warrant with the Subscription Form fully executed and
accompanied by payment of the Exercise Price for the Exercised Shares, the
Company shall cause to be issued certificates for the total number of
shares of Series E Preferred representing the Exercised Shares in such
denominations as are requested for delivery to the Warrantholder,
registered in the name of the Warrantholder or its nominee, and the Company
shall thereupon deliver such certificates to the Warrantholder. Upon
exercise in accordance with the provisions hereof, the Warrantholder shall
be deemed to be the holder of record of the shares of Series E Preferred
issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Series E Preferred shall not then be actually delivered to the
Warrantholder.
(ii) Exercise After a Qualified IPO: Upon consummation of a
Qualified IPO, this Warrant shall be converted into a warrant to purchase
4,046,018 fully-paid and non-assessable shares of Common Stock. The
Exercise Price per Warrant Share will equal (x) the aggregate Exercise
Price for all the shares of Series E Preferred into which this Warrant was
exercisable immediately prior to the closing of the Qualified IPO divided
by (y) 4,046,018, as such Exercise Price may be further adjusted pursuant
to Article III.
After closing of a Qualified IPO, upon receipt of this Warrant
with the Subscription Form fully executed and accompanied by payment of the
Exercise Price for the Exercised Shares, the Company shall cause to be
issued certificates for the total number of shares of Common Stock
representing the Exercised Shares in such denominations as are requested
for delivery to the Warrantholder, registered in the name of the
Warrantholder or its nominee, and the Company shall thereupon deliver such
certificates to the Warrantholder. Upon exercise, the Warrantholder shall
be deemed to be the holder of record of the shares of Common Stock issuable
upon such exercise, notwithstanding that the stock transfer books of the
Company shall then be closed or that certificates representing such shares
of Common Stock shall not then be actually delivered to the Warrantholder.
(c) If the Warrantholder shall exercise this Warrant with respect
to less than all of the Warrant Shares, the Company shall execute a new
warrant in the form of this Warrant for the balance of the Warrant Shares
and deliver such new warrant to the Warrantholder simultaneous with the
delivery of shares pursuant to Section 2.02(b).
(d) The Company shall pay any and all stock transfer and similar
taxes which may be payable in respect of the issuance of any Warrant Shares
to the Warrantholder.
Section 2.03: Reservation of Shares. The Company hereby agrees
that at all times there shall be reserved for issuance and delivery upon
exercise of this Warrant such number of shares of Series E Preferred and
Common Stock necessary for issuance upon exercise hereof (and for
conversion of any such Series E Preferred). All such shares shall be duly
authorized, and when issued upon such exercise in accordance with the terms
hereof, shall be validly issued, fully paid and nonassessable, free and
clear of all liens, security interests, charges and other encumbrances or
restrictions on sale and free and clear of all preemptive rights other than
restrictions imposed by federal and state securities laws and the
Stockholders Agreement.
Section 2.04: Increase in Authorized Shares. The Company shall
not issue any securities if, after giving effect to such issuance, the
Company would not possess the authorized but unissued quantity of shares of
Series E Preferred and Common Stock necessary for issuance upon exercise of
this Warrant (and for conversion of any such Series E Preferred).
Notwithstanding the foregoing, if at any time it is determined that the
Company does not possess the quantity of shares of Common Stock necessary
for issuance upon exercise of this Warrant, the Company shall take the
requisite corporate action necessary to adequately increase the authorized
number of shares and/or to redeem or repurchase an adequate number of
outstanding shares.
Section 2.05: Fractional Shares. The Company shall not be
required to issue any fraction of a share of its capital stock in
connection with the exercise of this Warrant, and in any case where the
Warrantholder would, except for the provisions of this Section 2.05, be
entitled under the terms of this Warrant to receive a fraction of a share
upon the exercise of this Warrant, the Company may, upon the exercise of
this Warrant and receipt of the Exercise Price, issue the largest number of
whole shares purchasable upon exercise of this Warrant; provided that the
Company shall, in lieu of issuing any fractional share pay the
Warrantholder a sum in cash equal to the Fair Market Value of such
fractional shares.
ARTICLE III
ADJUSTMENT OF SHARES OF
COMMON STOCK PURCHASABLE
The number and kind of Warrant Shares shall be subject to
adjustment from time to time upon the happening of certain events as
provided in this Article III.
Section 3.01: Mechanical Adjustments.
(a) In case the Company shall at any time or from time to time
after the closing of a Qualified IPO (i) pay any dividend, or make any
distribution on the outstanding shares of Common Stock (or Common Stock
Equivalents) in shares of Common Stock, (ii) subdivide the outstanding
shares of Common Stock, (iii) combine the outstanding shares of Common
Stock into a smaller number of shares or (iv) issue by reclassification of
the shares of Common Stock any shares of capital stock of the Company, then
and in each such case, the Exercise Price in effect immediately prior to
such event or the record date therefor, whichever is earlier, shall be
adjusted so that the Warrantholder shall be entitled to receive the number
and type of shares of Common Stock which such Warrantholder would have
owned or have been entitled to receive after the happening of any of the
events described above, had such Warrant been converted into Common Stock
immediately prior to the happening of such event or the record date
therefor, whichever is earlier. An adjustment made pursuant to this Section
3.01(a) shall become effective (x) in the case of any such dividend or
distribution, immediately after the close of business on the record date
for the determination of holders of shares of Common Stock entitled to
receive such dividend or distribution, or (y) in the case of such
subdivision, reclassification or combination, at the close of business on
the day upon which such corporate action becomes effective.
(b) Except with respect to Excluded Securities (as defined
below), in case the Company shall issue any shares of Common Stock (or
Common Stock Equivalents) after consummation of a Qualified IPO at an
aggregate consideration per share (or having a conversion, exercise or
exchange price per share) less than the Exercise Price as of the date of
issuance of such shares (or Common Stock Equivalents), then in each such
case, the Exercise Price shall be adjusted by multiplying (i) the Exercise
Price in effect on the day immediately prior to the date of issuance of
such shares (or Common Stock Equivalents) by (ii) a fraction, the numerator
of which shall be the sum of (x) the number of shares of Common Stock
outstanding on such date prior to such issuance and (y) the number of
shares of Common Stock purchasable at the then Exercise Price with the
aggregate consideration receivable by the Company for the total number of
shares of Common Stock so issued (or issuable upon conversion, exchange or
exercise of such Common Stock Equivalents), and the denominator of which
shall be the sum of (x) the number of shares of Common Stock outstanding on
such date prior to such issuance and (y) the number of additional shares of
Common Stock issued (or issuable upon conversion, exchange or exercise of
such Common Stock Equivalents). An adjustment made pursuant to this Section
3.01(b) shall be made on the next Business Day following the date on which
any such issuance is made and shall be effective retroactively to the close
of business on the date of such issuance. For purposes of this Section
3.01(b), the number of shares of Common Stock outstanding shall be deemed
to include shares of Common Stock issuable upon exercise, exchange or
conversion of all outstanding Common Stock Equivalents. For purposes of
this Section 3.01(b), the aggregate consideration receivable by the Company
in connection with the issuance of shares of Common Stock or of Common
Stock Equivalents shall be deemed to be equal to the sum of the aggregate
offering price (e.g., the aggregate consideration received by the Company
in connection with the issuance of all such Common Stock and/or Common
Stock Equivalents before deduction of underwriting discounts or commissions
and expenses payable to third parties, if any) of all such Common Stock
and/or Common Stock Equivalents plus the minimum aggregate amount, if any,
payable upon conversion, exchange or exercise of any such Common Stock
Equivalents. If the consideration received by the Company in connection
with the sale or issuance of shares of Common Stock (or Common Stock
Equivalents) consists, in whole or in part, of property other than cash or
its equivalent, the value of such property shall be the Fair Market Value.
The issuance or reissuance of any shares of Common Stock (whether treasury
shares or newly issued shares) pursuant to a dividend or distribution on,
or subdivision, combination or reclassification of, the outstanding shares
of Common Stock requiring an adjustment in the Exercise Price pursuant to
Section 3.01(a) shall not be deemed to constitute an issuance of Common
Stock or Common Stock Equivalents by the Company to which this Section
3.01(b) applies. Upon the expiration of any unconverted, unexchanged or
unexercised Common Stock Equivalents for which an adjustment has been made
pursuant to this Section 3.01(b), the adjustments shall forthwith be
reversed to effect such Exercise Price as would have been in effect if such
Common Stock Equivalents, to the extent outstanding immediately prior to
such expiration or termination, had never been issued. Excluded Securities
shall mean all shares of Common Stock or Common Stock Equivalents issued
and outstanding as of the date this Warrant was originally acquired by the
Warrantholder and shares of capital stock or Common Stock Equivalents of
the Company issued pursuant to action of the Company's Board of Directors
to employees, directors, officers and consultants in connection with their
services.
(c) For purposes of Subsections (a) through (d) of this Section
3.01, the number of shares of Common Stock at any time outstanding shall
not include any shares of Common Stock then owned or held by or for the
account of the Company.
(d) If the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or
other distribution payable after the consummation of a Qualified IPO and
shall thereafter, and before such dividend or distribution is paid or
delivered to stockholders entitled thereto, legally abandon its plan to pay
or deliver such dividend or distribution, then no adjustment in the
Exercise Price then in effect shall be made by reason of the taking of such
record, and any such adjustment previously made as a result of the taking
of such record shall be reversed.
(e) (i) In the case of a Sale of the Company or a proposed
reorganization of the Company or a proposed reclassification of the capital
stock of the Company prior to closing of a Qualified IPO, the Warrant shall
thereafter be exercisable into the shares of stock or other securities or
property to which holders of Series E Preferred would have been entitled
upon such Sale of the Company, reorganization or reclassification, in an
amount equal to the number of the issued and outstanding shares of capital
stock of the surviving corporation which the Warrantholder (as
Warrantholder) would have been entitled to receive in such Sale of the
Company, reorganization or reclassification if the Warrantholder had
exercised the Warrant in whole immediately prior to such event. In any such
case, appropriate adjustment (as determined by the Board of Directors)
shall be made in the application of the provisions herein set forth with
respect to the rights and interest thereafter of the holder of the Warrant,
to the end that the provisions set forth herein shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of
stock or other property thereafter deliverable upon the exercise of the
Warrant. The Company shall not effect any such Sale of the Company unless
prior to or simultaneously with the consummation thereof the surviving
corporation or purchaser, as the case may be, shall assume by written
instrument the obligation to deliver to the Warrantholder such shares of
stock, securities or assets as, in accordance with the foregoing
provisions, such holder is entitled to receive and shall have agreed that
this Warrant shall be binding and enforceable against such surviving
corporation or purchaser, as the case may be. The provisions of this
paragraph (a) shall similarly apply to successive Sales of the Company, and
upon any such Sale of the Company all references to the Company hereunder
shall be deemed to be references to the surviving corporation, as
applicable.
(ii) In the case of a Sale of the Company or a proposed
reorganization of the Company or a proposed reclassification of the capital
stock of the Company (except a transaction for which provision for
adjustment is otherwise made in this Section 3.01) after the closing of a
Qualified IPO, the Warrant shall thereafter be exerciseable into the number
of shares of stock or other securities or property to which a holder of the
number of shares of Common Stock of the Company deliverable upon exercise
of such Warrant would have been entitled upon such Sale of the Company,
reorganization or reclassification; and, in any such case, appropriate
adjustment (as determined by the Board of Directors) shall be made in the
application of the provisions herein set forth with respect to the rights
and interest thereafter of the holders of the Warrant, to the end that the
provisions set forth herein (including provisions with respect to changes
in and other adjustments of the applicable conversion price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to
any shares of stock or other property thereafter deliverable upon the
exercise of the Warrant. The Company shall not effect any such Sale of the
Company unless prior to or simultaneously with the consummation thereof the
successor Company or purchaser, as the case may be, shall assume by written
instrument the obligation to deliver to the Warrantholder such shares of
stock, securities or assets as, in accordance with the foregoing
provisions, each such holder is entitled to receive. The provisions of this
Section 3.01(e) shall similarly apply to successive Sales of the Company.
(f) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Section 3.01(a) or (b), the Warrant Shares
shall simultaneously be adjusted by multiplying the number of Warrant
Shares issuable upon exercise of each Warrant immediately prior to such
adjustment by the Exercise Price immediately prior to such adjustment and
dividing the product so obtained by the Exercise Price, as adjusted.
(g) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least one cent
($.01) in such price; provided, however, that any adjustments which by
reason of this Section 3.01(g) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 3.01 shall be made to the nearest cent or
to the nearest one-hundredth of a share, as the case may be.
Notwithstanding anything in this Section 3.01 to the contrary, the Exercise
Price shall not be reduced to less than the then existing par value of the
Common Stock as a result of any adjustment made hereunder.
(h) In the event that at any time, as a result of any adjustment
made pursuant to Section 3.01(a) after consummation of a Qualified IPO, the
Warrantholder thereafter shall become entitled to receive any shares of
capital stock of the Company other than Common Stock, thereafter the number
of such other shares so receivable upon exercise of any Warrant 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 Common
Stock contained in Section 3.01(a).
(i) In the event that the Company shall have declared a dividend
or distribution payable after the Exercise Date and having a record date
prior to the Exercise Date, securities delivered upon exercise of the
Warrant shall be entitled to participate in any such dividend or
distribution as if the record date for such dividend were the Exercise
Date.
(j) If any event occurs as to which, in the opinion of the Board
of Directors, the provisions of this Section 3.01 are not strictly
applicable or if strictly applicable would not fairly protect the rights of
the Warrantholder in accordance with the essential intent and principles of
such provisions, the Board of Directors shall make an adjustment in the
application of such provisions, in accordance with such essential intent
and principles, so as to protect such rights of the Warrantholder.
Section 3.02: Notices of Adjustment. Whenever the number of
Warrant Shares or the Exercise Price is adjusted as herein provided, the
Company shall prepare and deliver forthwith to the Warrantholder a
certificate signed by its President or a Vice President, or by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, setting forth the adjusted number of shares purchasable upon the
exercise of this Warrant and the Exercise Price of such shares after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which adjustment was made.
Section 3.03: Form of Warrant After Adjustments. The form of this
Warrant need not be changed because of any adjustments in kind of the
Warrant Shares, and Warrants theretofore or thereafter issued may continue
to express the same price and kind of shares as are stated in this Warrant,
as initially issued.
Section 3.04: Treatment of Warrantholder. Prior to due
presentment for registration of transfer of this Warrant, the Company may
deem and treat the Warrantholder as the absolute owner of this Warrant
(notwithstanding any notation of ownership or other writing hereon) for all
purposes and shall not be affected by any notice to the contrary.
ARTICLE IV
OTHER PROVISIONS RELATING TO RIGHTS OF WARRANTHOLDER
Section 4.01: No Rights as Stockholder; Notice to Warrantholder.
Nothing contained in this Warrant shall be construed as conferring upon the
Warrantholder the right to vote or to receive dividends or to consent or to
receive notice as a stockholder in respect of any meeting of stockholders
for the election of directors of the Company or of any other matter, or any
rights whatsoever as a stockholder of the Company. The Company shall give
notice to the Warrantholder in accordance with Section 6.07 if at any time
prior to the expiration or exercise in full of the Warrants, any of the
following events shall occur:
(a) the Company shall declare any dividend or distribution with
respect to its capital stock;
(b) a dissolution, liquidation or winding up of the Company shall
be proposed; or
(c) a Sale of the Company, a capital reorganization or
reclassification of the capital stock of the Company.
Such giving of notice shall be initiated at least ten Business
Days prior to the date fixed as a record date or effective date or the date
of closing of the Company's stock transfer books for the determination of
the stockholders entitled to such dividend or distribution, or for the
determination of the stockholders entitled to vote on such proposed merger,
consolidation, sale, conveyance, dissolution, liquidation or winding up.
Such notice shall specify such record date or the date of closing the stock
transfer books, as the case may be.
Section 4.02: Lost, Stolen, Mutilated or Destroyed Warrants. If
this Warrant is lost, stolen, mutilated or destroyed, the Company may, on
such reasonable terms as to indemnity or otherwise as it may in its
reasonable discretion impose (which shall, in the case of a mutilated
Warrant, include the surrender thereof), issue a new Warrant of like
denomination and tenor as, and in substitution for, this Warrant.
ARTICLE V
SPLIT-UP, COMBINATION,
EXCHANGE AND TRANSFER OF WARRANTS
Section 5.01: Split-Up, Combination, Exchange and Transfer of
Warrants. Subject to the provisions of Section 5.02 hereof, this Warrant
may be split up, combined or exchanged for another Warrant or Warrants
containing the same terms to purchase a like number of Warrant Shares. If
the Warrantholder desires to split up, combine or exchange this Warrant,
the Warrantholder shall make such request in writing delivered to the
Company and shall surrender to the Company this Warrant and any other
Warrants to be so split-up, combined or exchanged. Upon any such surrender
for a split-up, combination or exchange, the Company shall execute and
deliver to the person entitled thereto a Warrant or Warrants, as the case
may be, as so requested. The Company may require such Warrantholder to pay
a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any split-up, combination or exchange of
Warrants.
Section 5.02: Transfer. This Warrant and all rights hereunder may
not be sold, transferred or otherwise disposed of, in whole or in part, to
any person except to a Controlled Entity or Family Transferee (each as
defined in the Stockholders Agreement) of the Warrantholder or to employees
of the Company or of the Warrantholder. Upon the delivery to the Company at
its principal corporate office of this Warrant along with a duly completed
Assignment Form substantially in the form of Exhibit B hereto, the Company
shall execute and deliver a new Warrant in the form of this Warrant, but
registered in the name of the transferee, to purchase the Warrant Shares
assigned to the transferee. In case the Warrantholder shall assign this
Warrant with respect to less than all of the Warrant Shares, the Company
shall execute a new warrant in the form of this Warrant for the balance of
the Warrant Shares and deliver such new warrant to the Warrantholder.
Warrant Shares may only be transferred in accordance with the Stockholders
Agreement.
Section 5.03: Restrictive Legend. Each Warrant Share issued upon
exercise of this Warrant shall bear a legend containing the following
words:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
IN COMPLIANCE WITH SUCH ACT."
(b) THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A STOCKHOLDERS AGREEMENT, A COPY OF
WHICH MAY BE OBTAINED FROM THE COMPANY
The requirement that the above legend (a) be placed upon certificates
evidencing any such securities shall cease and terminate upon the earliest
of the following events: (i) when such shares are transferred in an
underwritten public offering, (ii) when such shares are transferred
pursuant to Rule 144(k) under the Securities Act or (iii) when such shares
are transferred in any other transaction if the seller delivers to the
Company an opinion of its counsel, which counsel and opinion shall be
reasonably satisfactory to the Company, to the effect that such legend is
no longer necessary in order to protect the Company against a violation by
it of the Securities Act upon any sale or other disposition of such shares
without registration thereunder. Upon the occurrence of such event, the
Company, upon the surrender of certificates containing such legend, shall,
at its own expense, deliver to the holder of any such securities as to
which the requirement for such legend shall have terminated, one or more
new certificates evidencing such securities not bearing such legend.
Notwithstanding the removal of legend (a) in accordance with this Section
5.02, legend (b) shall remain on the certificates until it may be removed
pursuant to the Stockholders Agreement.
ARTICLE VI
OTHER MATTERS
Section 6.01: Successors and Assigns. The terms and provisions of
this Warrant shall bind and inure to the benefit of each of the Company and
the Warrantholder and their respective successors and assigns. The Company
may not assign its rights or obligations under this Warrant except in
connection with a Sale of the Company and upon assumption by the surviving
corporation or purchaser, as the case may be, of such obligations in
accordance with the requirements of Section 3.01. The Warrantholder may
only assign it rights under the Warrant in accordance with Section 5.02.
Section 6.02: No Inconsistent Agreements. The Company will not on
or after the date of this Warrant enter into any agreement with respect to
its securities which is inconsistent with the rights granted to the
Warrantholder or otherwise conflicts with the provisions hereof.
Section 6.03: Entire Agreement. This Warrant and the Exhibits
hereto contain the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior and contemporaneous
arrangements or understandings with respect thereto.
Section 6.04: Amendments and Waivers. The terms and provisions of
this Warrant, including the provisions of this sentence, may be modified or
amended, or any of the provisions hereof waived, temporarily or
permanently, pursuant to the written consent of the Company and the
Warrantholder.
Section 6.05: Counterparts. This Warrant may be executed in any
number of counterparts, and each such counterpart hereof shall be deemed to
be an original instrument, but all such counterparts together shall
constitute but one agreement.
Section 6.06: Governing Law. This Warrant shall be governed by
and construed in accordance with the laws of the State of Delaware, without
giving effect to any choice or conflict of law provision or rule. Each of
the parties hereto, for itself and on behalf of its successors, assigns and
transferees, hereby irrevocably and unconditionally (a) submits for itself
and its property in any legal action or proceeding relating to this Warrant
or for recognition and enforcement of any judgment in respect thereof, to
the general jurisdiction of the courts of the State of New York located in
New York County, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof; (b)
consents that the venue for any suit, action or legal proceeding relating
to this Warrant shall be in New York, New York; (c) consents that any such
action or proceeding may be brought in such courts, and waives any
objection that it may now or hereafter have to the venue of any such action
or proceeding in any such court or that such action or proceeding was
brought in an inconvenient court and agrees not to plead or claim the same;
(d) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of U.S. mail), postage prepaid, and by overnight
delivery service at its address as provided in Section 6.07 or at such
other address as it shall have notified each of the other parties hereto in
the manner provided in Section 6.07; (e) agrees that nothing herein shall
affect the right to effect service of process in any other manner permitted
by law; and (f) waives trial by jury in any legal action or proceeding
relating to this Warrant and for any counterclaim therein.
Section 6.07: Notices. All notices, requests, demands, claims and
other communications provided for hereunder shall be in writing. Any
notice, request, demand, claim or other communication hereunder shall be
sent by (i) personal delivery (including receipted courier service) or
overnight delivery service, (ii) facsimile during normal business hours,
with confirmation of receipt, to the number indicated, (iii) reputable
commercial overnight delivery service courier or (iv) registered or
certified mail, return receipt requested, postage prepaid and addressed to
the intended recipient as set forth below:
If to the Company:
theglobe.com, inc.
31 West 21st Street
New York, NY 10010
Attn: Chief Executive Officer
Telephone: (212) 367-8555
Facsimile: (212) 267-8604
with a copy to:
Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attention: Matthew W. Sonsini, Esq.
Telephone: (415) 843-5148
Facsimile: (415) 857-0663
If to Warrantholder:
Dancing Bear Investments, Inc.
The 110 Tower, 29th Floor
Box 70, 110 S.E. 6th Street
Ft. Lauderdale, FL 33301
Attention: Michael Egan
With an additional copy to Rosalie Arthur
Telephone: (954) 527-6550
Facsimile: (954) 527-6182
with a copy to:
Tripp, Scott, Conklin & Smith
The 110 Tower
110 S.E. 6th Street
Ft. Lauderdale, FL 33301
Attention: Dennis Smith, Esq.
Telephone: (305) 525-7500
Facsimile: (305) 761-8475
and to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10019
Attention: Valerie Ford Jacob, Esq.
Telephone: (212) 859-8000
Facsimile: (212) 859-4000
Notices and other communications under this Warrant shall be deemed to have
been given two (2) business days after being entrusted to a reputable
commercial overnight delivery service, or on the date of facsimile
transmission with confirmed answer back, or on the date of receipt if given
by any other method of delivery. Any party may change its facsimile number
or its address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties
hereto notice in the manner then set forth.
Section 6.08: Severability. Whenever possible, each provision of
this Warrant shall be interpreted in such manner as to be effective and
valid, but if any provision of this Warrant is held to be invalid or
unenforceable in any respect, such invalidity or unenforceability shall not
render invalid or unenforceable any other provision of this Warrant.
IN WITNESS WHEREOF, this Amended and Restated Warrant has been
duly executed by the Company as of the day of , 1998.
THE GLOBE.COM, INC.
By:
-------------------------------------
Name: Todd Krizelman
Title: Co-Chief Executive Officer and
Co-President
Attest:
----------------------------
Co-Chief Executive Officer,
Co-President and Secretary
<PAGE>
Exhibit A to Warrant
FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
THEGLOBE.COM, INC.
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, _____________[FN1]
Warrant Shares of [Series E Preferred/Common Stock] covered by the within
Warrant and requests that the certificates for such shares representing
such Warrant Shares be issued in the name of, and delivered to,
________________________ whose address is ________________________. The
undersigned herewith makes payment in full therefor of the Exercise Price
therefor (or $___________ in the aggregate).
------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
Warrant)
------------------------------------------
(Street Address)
------------------------------------------
(City) (State) (Zip Code)
[FN]
1 Insert here the number of Warrant Shares as to which this Warrant is
being exercised. In the case of a partial exercise, a new Warrant or
Warrants will be issued and delivered, representing the unexercised
Warrant Shares, to the holder surrendering the Warrant.
</FN>
<PAGE>
Exhibit B to Warrant
FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto ____________________ the right
represented by such Warrant to purchase __________________(FN1) Warrant
Shares and appoints _________________ Attorney to make such transfer on the
books of theglobe.com, inc. maintained for such purpose, with full power of
substitution in the premises. The undersigned hereby certifies that the
proposed transferee is a Controlled Entity or Family Transferee of the
undersigned.
Dated:
------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
Warrant)
------------------------------------------
(Street Address
------------------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- --------------------------
- --------------------------
- ---------------
[FN]
1 Insert here the number of Warrant Shares as to which this Warrant is
being assigned. In the case of a partial assignment, a new Warrant or
Warrants will be issued and delivered, representing the unassigned
portion of the Warrant, to the holder surrendering the Warrant.
</FN>
Exhibit 5.1
212-859-8272
August 19, 1998 (FAX: 212-859-8587)
theglobe.com, inc.
31 West 21 Street
New York, NY 10010
RE: Registration Statement on Form S-1 (No. 333-59751)
Ladies and Gentlemen:
We have acted as special counsel for theglobe.com, inc., a Delaware
corporation (the "Company"), in connection with the underwritten initial
public offering (the "Offering") by the Company of shares (the "Shares") of
common stock, par value $.01 per share (the "Common Stock") of the Company,
including Shares which may be offered and sold upon the exercise of an
over-allotment option granted to the underwriters. The Shares are to be
offered to the public pursuant to an underwriting agreement to be entered
into among the Company, Bear, Stearns & Co., Inc. and Volpe Brown Whelan &
Company, as representatives of the underwriters (the "Underwriting
Agreement"). The opinion set forth below is based on the assumption that,
prior to the sale of the Shares pursuant to the Underwriting Agreement, the
Company's Second Amended and Restated Certificate of Incorporation will
have become effective in substantially in the form filed as Exhibit 3.1 to
the Registration Statement, as amended, of the Company on Form S-1 (No.
333-59751) (the "Registration Statement"), and that at least par value will
be paid for the Shares.
With your permission, all assumptions and statements of reliance
herein have been made without any independent investigation or verification
on our part except to the extent otherwise expressly stated, and we express
no opinion with respect to the subject matter or accuracy of such
assumptions or items relied upon.
In connection with this opinion, we have (i) investigated such
questions of law, (ii) examined originals or certified, conformed or
reproduction copies of such agreements, instruments, documents and records
of the Company, such certificates of public officials and such other
documents, and (iii) received such information from officers and
representatives of the Company as we have deemed necessary or appropriate
for the purposes of this opinion. In all examinations, we have assumed the
legal capacity of all natural persons executing documents, the genuineness
of all signatures, the authenticity of original and certified documents and
the conformity to original or certified copies of all copies submitted to
us as conformed or reproduction copies. As to various questions of fact
relevant to the opinions expressed herein, we have relied upon, and assume
the accuracy of, representations and warranties contained in the documents
and certificates and oral or written statements and other information of or
from representatives of the Company and others and assume compliance on the
part of all parties to the documents with their covenants and agreements
contained therein.
Based upon the foregoing and subject to the limitations,
qualifications and assumptions set forth herein, we are of the opinion that
the Shares registered pursuant to the Registration Statement (when issued,
delivered and paid for in accordance with the terms of the Underwriting
Agreement) will be duly authorized, validly issued, fully paid and
non-assessable.
The opinion expressed herein is limited to the General Corporation Law
of the State of Delaware, as currently in effect.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming part of the Registration
Statement. In giving such consent, we do not hereby admit that we are in
the category of such persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ Stuart H. Gelfond
-----------------------------------------
Stuart H. Gelfond
EXHIBIT 10.5
AGREEMENT OF LEASE, made this 14th day of January 1997, between
FIFTH AVENUE WEST ASSOCIATES, L.P., 13 East 16 Street #400, New York, NY
10003 party of the first part, hereinafter referred to as OWNER, and
WEBGENESIS, INC., 609 College Ave., Ithaca, NY 14850 party of the second
part, hereinafter referred to as Tenant.
W I T N E S S E T H:
Owner hereby leases to Tenant and Tenant hereby hires from Owner
entire 4th floor, as per the attached "Exhibit A" in the building known as
31 West 21 Street in the Borough of Manhattan, City of New York ("Building
or "building"), for the term of Five (5) Years (or until such term shall
sooner cease and expire as hereinafter provided) to commence on the 1st day
of February, nineteen hundred and 97, and to end on the 31st day of
January, 2002 ("Expiration Date") both dates inclusive, at an annual rental
rate set forth in Article 41 ("rent" or "Fixed Rent") together with all
other sums of money as shall become due and payable by Tenant under this
lease (collectively, "additional rent" or "Additional Rent") which Tenant
agrees to pay in lawful money of the United States which shall be legal
tender in payment of all debts and dues, public and private, at the time of
payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner
may designate, without any set off or deduction whatsoever, except that
Tenant shall pay the first monthly installment(s) on the execution
hereof (unless this lease be a renewal).
In the event that, at the commencement of the term of this lease,
or thereafter, Tenant shall be in default in the payment of rent to Owner
pursuant to the terms of another lease with Owner or with Owner's
predecessor in interest, Owner may at Owner's option and without notice to
Tenant add the amount of such arrears to any monthly installment of rent
payable hereunder and the same shall be payable to Owner as additional
rent.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns,
hereby covenant as follows:
Occupancy: 1. Tenant shall pay the rent as above and as
hereinafter provided.
Use: 2. Tenant shall use and occupy demised premises
for offices provided such use is in accordance
with the Certificate of Occupancy for the
building, if any, and for no other purpose.
Alterations: 3. Tenant shall make no changes in or to the
demised premises of any nature without Owner's
prior written consent. Subject to the prior
written consent of Owner, and to the provisions of
this article, Tenant at Tenant's expense, may make
alterations, installations, additions or
improvements which are nonstructural and which do
not affect utility services or plumbing and
electrical lines, in or to the interior of the
demised premises using contractors or mechanics
first approved by Owner. Tenant shall, at its
expense, before making any alterations, additions,
installations or improvements obtain all permits,
approval and certificates required by any
governmental or quasi-governmental bodies and
(upon completion) certificates of final approval
thereof and shall deliver promptly duplicates of
all permits, approvals and certificates to Owner.
Tenant agrees to carry and will cause Tenant's
contractors and sub-contractors to carry such
workman's compensation, general liability,
personal and property damage insurance as Owner
may require. If any mechanic's lien is filed
against the demised premises, or the building of
which the same forms a part, for work claimed to
have been done for, or materials furnished to,
Tenant, whether or not done pursuant to this
article, the same shall be discharged by Tenant
within thirty days thereafter, at tenant's
expense, by filing the bond required by law or
otherwise. All fixtures and all paneling,
partitions, railings and like installations,
installed in the premises at any time, either by
Tenant or by Owner on Tenant's behalf, shall, upon
installation, become the property of Owner and
shall remain upon and be surrendered with the
demised premises unless Owner, by notice to tenant
no later than twenty days prior to the date fixed
at the termination of this lease, elects to
relinquish Owner's right thereto and to have them
removed by Tenant, in which event the same shall
be removed from the demised premises by Tenant
prior to the expiration of the lease, at Tenant's
expense. Nothing in this Article shall be
construed to give Owner title to or to prevent
Tenant's removal of trade fixtures, moveable
office furniture and equipment, but upon removal
of any such from the premises or upon removal of
other installations as may be required by Owner,
tenant shall immediately and at its expense,
repair and restore the premises to the condition
existing prior to installation and repair any
damage to the demised premises or the building due
to such removal. All property permitted or
required to be removed, by Tenant at the end of
the term remaining in the premises after Tenant's
removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's
property or removed from the premises by Owner, at
Tenant's expense.
Repairs: 4. Owner shall maintain and repair the exterior of
and the public portions of the building. Tenant
shall, throughout the term of this lease, take
good care of the demised premises including the
bathrooms and lavatory facilities (if the demised
premises encompass the entire floor of the
building) and the windows and window frames and,
the fixtures and appurtenances therein and at
Tenant's sole cost and expense promptly make all
repairs thereto and to the building, whether
structural or non-structural in nature, caused by
or resulting from the carelessness, omission,
neglect or improper conduct of Tenant, Tenant's
servants, employees, invitees, or licensees, and
whether or not arising from such Tenant conduct or
omission, when required by other provisions of
this lease, including Article 6. Tenant shall also
repair all damage to the building and the demised
premises caused by the moving of Tenant's
fixtures, furniture or equipment. All the
aforesaid repairs shall be of quality or class
equal to the original work or construction. If
Tenant fails, after ten days notice, to proceed
with due diligence to make repairs required to be
made by Tenant, the same may be made by the Owner
at the expense of Tenant, and the expenses thereof
incurred by owner shall be collectible, as
additional rent, after rendition of a bill or
statement therefor. If the demised premises be or
become infested with vermin, Tenant shall, at its
expense, cause the same to be exterminated. Tenant
shall give Owner prompt notice of any defective
condition in any plumbing, heating system or
electrical lines located in the demised premises
and following such notice, Owner shall remedy the
condition with due diligence, but at the expense
of Tenant, if repairs are necessitated by damage
or injury attributable to Tenant, Tenant's
servants, agents, employees, invitees or licensees
as aforesaid. Except as specifically provided in
Article 9 or elsewhere in this lease, there shall
be no allowance to the Tenant for a diminution of
rental value and no liability on the part of Owner
by reason of inconvenience, annoyance or injury to
business arising from Owner, Tenant or others
making or failing to make any repairs,
alterations, additions or improvements in or to
any portion of the building or the demised
premises or in and to the fixtures, appurtenances
or equipment thereof. The provisions of this
Article 4 with respect to the making of repairs
shall not apply in the case of fire or other
casualty with regard to which Article 9 thereof
shall apply.
Window Cleaning: 5. Tenant will not clean nor require, permit,
suffer or allow any window in the demised premises
to be cleaned from the outside in violation of
Section 202 of the New York State Labor Law or any
other applicable law or of the Rules of the Board
of Standards and Appeals, or of any other Board or
body having or asserting jurisdiction.
Requirements of Law, 6. Prior to the commencement of the lease term, if
Fire Insurance Tenant is then in possession, and at all times
Floor Loads: thereafter, Tenant shall, at Tenant's sole cost
and expense, promptly comply with all present and
future laws, orders and regulations of all state,
federal, municipal and local governments,
departments, commissions and boards and any
direction of any public officer pursuant to law,
and all orders, rules and regulations of the New
York Board of Fire Underwriters, or the Insurance
services Office, or any similar body which shall
impose any violation, order or duty upon Owner or
Tenant with respect to the demised premises,
whether or not arising out of Tenant's use or
manner of use thereof, or, with respect to the
building, if arising out of Tenant's use or manner
of use of the demised premises or the building
(including the use permitted under the require
Tenant to make structural repairs or alterations
unless Tenant has, by its manner of use of the
demised premises or method of operation therein,
violated any such laws, ordinances, orders, rules,
regulations or requirements with respect thereto.
Tenant shall not do or permit any act or thing to
be done in or to the demised premises which is
contrary to law, or which will invalidate or be in
conflict with public liability, fire or other
policies of insurance at any time carried by or
for the benefit of Owner. Tenant shall not keep
anything in the demised premises except as now or
hereafter permitted by the Fire Department, Board
of Fire Underwriters, Fire Insurance Rating
Organization and other authority having
jurisdiction, and then only in such manner and
such quantity so as not to increase the rate for
fire insurance applicable to the building, nor use
the premises in a manner which will increase the
insurance rate for the building or any property
located therein over that in effect prior to the
commencement of the fire insurance rate shall, at
the beginning of this lease or at any time
thereafter, be higher than it otherwise would be,
then Tenant shall reimburse Owner, as additional
rent hereunder, for that portion of all fire
insurance premiums thereafter paid by Owner which
shall have been charged because of such failure by
Tenant. In any action or proceeding wherein Owner
and Tenant are parties, a schedule or "make-up" or
rate for the building or demised premises issued
by a body making fire insurance rates applicable
to said premises shall be conclusive evidence of
the facts therein stated and of the several items
and charges in the fire insurance rates then
applicable to said premises. Tenant shall not
place a load upon any floor of the demised
premises exceeding the floor load per square foot
area which it was designed to carry and which is
allowed by law. Owner reserves the right to
prescribe the weight and position of all safes,
business machines and mechanical equipment. Such
installations shall be placed and maintained by
Tenant, at Tenant's expense, in settings
sufficient, in Owner's judgement, to absorb and
prevent vibration, noise and annoyance.
Subordination: 7. This lease is subject and subordinate to all
ground or underlying leases and to all mortgages
which may now or hereafter affect such leases or
the real property of which demised premises are a
part and to all renewals, modifications,
consolidations, replacements and extensions of any
such underlying leases and mortgages. This clause
shall be self-operative and no further instrument
or subordination shall be required by any ground
or underlying lessor or by any mortgagee,
effecting any lease or the real property of which
the demised premises are a part. In confirmation
of such subordination, Tenant shall execute
promptly any certificate that Owner may request.
Property Loss, 8. Owner or its agents shall not be liable for any
Damage, damage to property of Tenant or of others
Reimbursement, entrusted to employees of the building, nor for
Indemnity: loss of or damage to any property of Tenant by
theft or otherwise, nor for injury or damage to
persons or property resulting from any cause of
whatsoever nature, unless caused by or due to the
negligence of Owner, its agents, servants or
employees; Owner or its agents shall not be liable
for any damage caused by other tenants or persons
in, upon or about said building or caused by
operations in connection of any private, public or
quasi-public work. If at any time any windows of
the demised premises are temporarily closed,
darkened or bricked up (or permanently closed,
darkened or bricked up, if required by law) for
any reason whatsoever including, but limited to
Owner's own acts, Owner shall not be liable for
any damage Tenant may sustain thereby and Tenant
shall not be entitled to any compensation therefor
nor abatement or diminution of rent shall the same
release Tenant from its obligations hereunder nor
constitute an eviction. Tenant shall indemnify and
save harmless Owner against and from all
liabilities, obligations, damages, penalties,
claims, costs and expenses for which Owner shall
not be reimbursed by insurance, including
reasonable attorney's fees, paid, suffered or
incurred as a result of any breach by Tenant,
Tenant's agents, contractors, employees, invitees,
or licensees, of any covenant or conditions of
this lease, or the carelessness, negligence or
improper conduct of the Tenant, Tenant's agents,
contractors, employees, invitees or licensees.
Tenant's liability under this lease extends to the
acts and omissions of any sub-tenant, and any
agent, contractor, employee, invitee or licensee
of any sub-tenant. In case any action or
proceeding is brought against Owner by reason of
any such claim, Tenant, upon written notice from
Owner, will, at Tenant's expense, resist or defend
such action or proceeding by counsel approved by
Owner in writing, such approval not to be
unreasonably withheld.
Destruction, Fire 9. (a) If the demised premises or any part thereof
and Other shall be damaged by fire or other casualty, Tenant
Casualty: shall give immediate notice thereof to Owner and
this lease shall continue in full force and effect
except as hereinafter set forth, (b) if the
demised premises are partially damaged or rendered
partially unusable by fire or other casualty, the
damages thereto shall be repaired by and at the
expense of Owner and the rent, until such repair
shall be substantially completed, shall be
apportioned from the day following the casualty
according to the part of the premises which is
usable, (c) if the demised premises are totally
damaged or rendered wholly unusable by fire or
other casualty, then the rent shall be
proportionately paid up to the time of the
casualty and thenceforth shall cease until the
date when the premises shall have been repaired
and restored by Owner, subject to Owner's right to
elect not to restore the same as hereinafter
provided, (d) if the demised premises are rendered
wholly unusable or (whether or not the demised
premises are damaged in whole or in part) if the
building shall be so damaged that Owner shall
decide to demolish it or to rebuild it, then, in
any of such events, Owner shall decide to demolish
it or to rebuild it, then, in any of such events,
Owner may elect to terminate this lease by written
notice to Tenant, given within 90 days after such
fire or casualty, specifying a date for the
expiration of the lease, which date shall not be
more than 60 days after the giving of such notice,
and upon the date specified in such notice the
term of this lease shall expire as fully and
completely as if such date were the date set forth
above for the termination of this lease and Tenant
shall forthwith quit, surrender and vacate the
premises without prejudice however, to Owner's
rights and remedies against Tenant under the lease
provisions in effect prior to such termination,
and any rent owing shall be paid up to such date
and any payments of rent made by Tenant which were
on account of any period subsequent to such date
shall be returned to Tenant. Unless Owner shall
repairs and restorations under the conditions of
(b) and (c) hereof, with all reasonable
expedition, subject to delays due to adjustment of
insurance claims, labor troubles and causes beyond
Owner's control. After any such casualty, Tenant
shall cooperate with Owner's restoration by
removing from the premises as promptly as
reasonably possible, all of Tenant's salvageable
inventory and movable equipment, furniture, and
other property. Tenant's liability for rent shall
resume five (5) days after written notice from
Owner that the premises are substantially ready
for Tenant's occupancy, (e) Nothing contained
hereinabove shall relieve Tenant from liability
that may exist as a result of damage from fire or
other casualty. Notwithstanding the foregoing,
each party shall look first to any insurance in
its favor before making any claim against the
other party for recovery for loss or damage
resulting from fire or other casualty, and to the
extent that such insurance is in force and
collectible and to the extent permitted by law,
Owner and Tenant each hereby releases and waives
all right of recovery against the other or any one
claiming through or under each of them by way of
subrogation or otherwise. The foregoing release
and waiver shall be in force only if both
releasors' insurance policies contain a clause
providing that such a release or waiver shall not
invalidate the insurance. If, and to the extent,
that such waiver can be obtained only by the
payment of additional premiums, then the party
benefiting from the waiver shall pay such premium
within ten days after written demand or shall be
deemed to have agreed that the party obtaining
insurance coverage shall be free of any further
obligation under the provisions hereof with
respect to waiver of subrogation. Tenant
acknowledges that Owner will not carry insurance
on Tenant's furniture and/or furnishings or any
fixtures or equipment, improvements, or
appurtenances removable by Tenant and agrees that
Owner will not be obligated to repair any damage
thereto or replace the same. (f) Tenant hereby
waives the provisions of Section 227 of the Real
Property Law and agrees that the provisions of
this article shall govern and control in lieu
thereof.
Eminent 10. If the whole or any part of the demised
Domain: premises shall be acquired or condemned by Eminent
Domain for any public or quasi-public use or
purpose, then and in that event, the term of this
lease shall cease and terminate from the date of
title vesting in such proceeding and Tenant shall
have no claim for the value of any unexpired term
of said lease.
Assignment, 11. Tenant, for itself, its heirs, distributees,
Mortgage, executors, administrators, legal representatives,
Etc.: successors and assigns, expressly covenants that
it shall not assign, mortgage or encumber this
agreement, nor underlet, or suffer or permit the
demised premises or any part thereof to be used by
others, without the prior written consent of Owner
in each instance. Transfer of the majority of the
stock of a corporate Tenant shall be deemed an
assignment. If this lease be assigned, or if the
demised premises or any part thereof be underlet
or occupied by anybody other than Tenant, Owner
may, after default by Tenant, collect rent from
the assignee, under-tenant or occupant, and apply
the net amount collected to the rent herein
reserved, but no such assignment, underletting,
occupancy or collection shall be deemed a waiver
of this covenant, or the acceptance of the
assignee, under-tenant or occupant as tenant, or a
release of Tenant from the further performance by
Tenant of covenants on the part of Tenant herein
contained. The consent by Owner to an assignment
or underletting shall not in any wise be construed
to relieve Tenant from obtaining the express
consent in writing of Owner to any further
assignment or underletting.
Electric 12. Rates and conditions in respect to submetering
Current: or rent inclusion, as the case may be, are to be
added in RIDER attached hereto. Tenant covenants
and agrees that at all times its use of electric
current shall not exceed the capacity of existing
leeders to the building or the risers or wiring
installation and Tenant may not use any electrical
equipment which, in Owner's opinion, reasonably
exercised, will overload such installations or
interfere with the use thereof by other tenants of
the building. The change at any time of the
character of electric service shall in no wise
make Owner liable or responsible to Tenant, for
any loss, damages or expenses which Tenant may
sustain.
Access to 13. Owner or Owner's agents shall have the right
Premises: (but shall not be obligated) to enter the demised
premises in any emergency at any time, and, at
other reasonable times, to examine the same and to
make such repairs, replacements and improvements
as Owner may deem necessary and reasonably
desirable to any portion of the building or which
Owner may elect to perform in the premises after
Tenant's failure to make repairs or perform any
work which Tenant is obligated to perform under
this lease, or for the purpose of complying with
laws, regulations and other directions of
governmental authorities. Tenant shall permit
Owner to use and maintain and replace pipes and
conduits in and through the demised premises and
to erect new pipes and conduits therein provided,
wherever possible, they are within walls or
otherwise concealed. Owner may, during the
progress of any work in the demised premises, take
all necessary materials and equipment into said
premises without the same constituting an eviction
nor shall the Tenant be entitled to any abatement
of rent while such work is in progress nor to any
damages by reason of loss or interruption of
business or otherwise. Throughout the term hereof
Owner shall have the right to enter the demised
premises at reasonable hours for the purpose of
showing the same to prospective purchasers or
mortgagees of the building, and during the last
six months of the term for the purpose of showing
the same to prospective tenants and may, during
said six months period, place upon the premises
the usual notices "To Let" and "For Sale" which
notices Tenant shall permit to remain thereon
without molestation. If Tenant is not present to
open and permit an entry into the premises, Owner
or Owner's agents may enter the same whenever such
entry may be necessary or permissible by master
key or forcibly and provided reasonable care is
exercised to safeguard Tenant's property, such
entry shall not render Owner or its agents liable
therefor, nor in any event shall the obligations
of Tenant hereunder be affected. If during the
last month of the term Tenant shall have removed
all or substantially all of Tenant's property
therefrom, Owner may immediately enter, alter,
renovate or redecorate the demised premises
without limitation or abatement of rent, or
incurring liability to Tenant for any compensation
and such act shall have no effect on this lease or
Tenant's obligations hereunder.
Area: Building is leased hereunder, anything contained
in or indicated on any sketch, blue print or plan,
or anything contained elsewhere in this lease to
the contrary notwithstanding. Owner makes no
representation as to the location of the property
line of the building. All vaults and vault space
and all such areas not within the property line of
the building, which Tenant may be permitted to use
and/or occupy, is to be used and/or occupied under
a revocable license, and if any such license be
revoked, or if the amount of such space or area be
diminished or required by any federal, state or
municipal authority or public utility, Owner shall
not be subject to any liability nor shall Tenant
be entitled to any compensation or diminution or
abatement of rent, nor shall such revocation,
diminution or requisition be deemed constructive
or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall
be paid by Tenant, if used by Tenant, whether or
not specifically leased hereunder.
Occupancy: 15. Tenant will not at any time use or occupy the
demised premises in violation of the certificate
of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected
the premises and accepts them as is, subject to
the riders annexed hereto with respect to Owner's
work, if any. In any event, Owner makes no
representation as to the condition of the premises
and Tenant agrees to accept the same subject to
violations, whether or not of record. If any
governmental license or permit shall be required
for the proper and lawful conduct of Tenant's
business, Tenant shall be responsible for and
shall procure and maintain such license or permit.
Bankruptcy: 16. (a) Anything elsewhere in this lease to the
contrary notwithstanding, this lease may be
cancelled by Owner by sending of a written notice
to Tenant within a reasonable time after the
happening of any one or more of the following
events: (1) the commencement of a case in
bankruptcy or under the laws of any state naming
Tenant as the debtor; or (2) the making by Tenant
of an assignment or any other arrangement for the
benefit of creditors under any state statute.
Neither Tenant nor any person claiming through or
under Tenant, or by reason of any statute or order
of court, shall thereafter be entitled to the
premises. If this lease shall be assigned in
accordance with its terms, the provisions of this
Article 16 shall be applicable only to the party
then owning Tenant's interest in this lease.
(b) It is stipulated and agreed that in the
event of the termination of this lease pursuant to
(a) hereof, Owner shall forthwith, notwithstanding
any other provisions of this lease to the
contrary, be entitled to recover from Tenant as
and for liquidated damages an amount equal to the
difference between the rental reserved hereunder
for the unexpired portion of the term demised and
the fair and reasonable rental value of the
demised premises for the same period. In the
computation of such damages the difference between
any installment of rent becoming due hereunder
after the date of termination and the fair and
reasonable rental value of the demised premises
for the period for which such installment was
payable shall be discounted to the date of
termination at the rate of four percent (4%) per
annum. If such premises or any part thereof be
re-let by the Owner for the unexpired term of said
lease, or any part thereof, before presentation of
proof of such liquidated damages to any court,
commission or tribunal, the amount of rent
reserved upon such reletting shall be deemed to be
the fair and reasonable rental value for the part
or the whole of the premises so re-let during the
term of re-letting. Nothing herein contained shall
limit or prejudice the right of the Owner to prove
for and obtain as liquidated damages by reason of
such termination, an amount equal to the maximum
allowed by any statute or role of law in effect at
the time when, and governing the proceedings in
which, such damages are to be proved, whether or
not such amount be greater, equal to, or less than
the amount of the difference referred to above.
Default: 17. (1) If Tenant defaults in fulfilling any of
the covenants of this lease other than the
covenants for the payment of rent or additional
rent; or if the demised premises becomes vacant or
deserted "or if this lease be rejected under ss.
235 of Title 11 of the U.S. Code (bankruptcy
code);" or if any execution or attachment shall be
issued against Tenant or any of Tenant's property
whereupon the demised premises shall be taken or
occupied by someone other than Tenant; or if
Tenant shall make default with respect to any
other lease between Owner and Tenant; or if Tenant
shall have failed, after five (5) days written
notice, to redeposit with Owner any portion of the
security deposited hereunder which Owner has
applied to the payment of any rent and additional
rent due and payable hereunder or failed to move
into or take possession of the premises within
fifteen (15) days after the commencement of the
terms of this lease, of which fact owner shall be
the sole judge; then in any one or more of such
events, upon Owner serving a written five (5) days
notice upon Tenant specifying the nature of said
default and upon the expiration of said five (5)
days, if Tenant shall have failed to comply with
or remedy such default, or if the said default or
omission complained of shall be of a nature that
the same cannot be completely cured or remedied
within said five (5) day period, and if Tenant
shall not have diligently commenced during such
default within such five (5) day period, and shall
not thereafter with reasonable diligence and in
good faith, proceed to remedy or cure such
default, then Owner may serve a written three (3)
days' notice of cancellation of this lease upon
Tenant, and upon the expiration of said three (3)
days this lease and the term thereunder shall end
and expire as fully and completely as if the
expiration of such three (3) day period were the
day herein definitely fixed for the end and
expiration of this lease and the term thereof and
Tenant shall then quit and surrender the demised
premises to Owner but Tenant shall remain liable
as hereinafter provided.
(2) If the notice provided for in (1) hereof
shall have been given, and the terms shall expire
as aforesaid: or if Tenant shall make default in
the payment of the rent reserved herein or any
item of additional rent herein mentioned or any
part of either or in making any other payment
herein required; then and in any of such events
Owner may without notice, re-enter the demised
premises either by force or otherwise, and
dispossess Tenant by summary proceedings or
otherwise, and the legal representative of Tenant
or other occupant of demised premises re-enter or
to institute legal proceedings to that end. If
Tenant shall make default hereunder prior to the
date fixed as the commencement of any renewal or
extension of this lease, Owner may cancel and
terminate such renewal or extension agreement by
written notice.
Remedies of 18. In case of any such default, re-entry,
Owner and expiration and/or dispossess by summary
Waiver of proceedings or otherwise, (a) the rent, and
Redemption: additional rent, shall become due thereupon and be
paid up to the time of such re-entry, dispossess
and/or expiration, (b) Owner may re-let the
premises or any part or parts thereof; either in
the name of Owner or otherwise, for a term or
terms, which may at Owner's option be less than or
exceed the period which would otherwise have
constituted the balance of the term of this lease
and may grant concessions or free rent or charge a
higher rental than that in this lease, (c) Tenant
or the legal representatives of Tenant shall also
pay Owner as liquidated damages for the failure of
Tenant to observe and perform said Tenant's
covenants herein contained, any deficiency between
the rent hereby reserved and/or covenanted to be
paid and the net amount, if any, of the rents
collected on account of the subsequent lease or
leases of the demised premises for each month of
the period which would otherwise have constituted
the balance of the term of this lease. The failure
of Owner to re-let the premises or any part or
parts thereof shall not release or affect Tenant's
liability for damages. In computing such
liquidated damages there shall be added to the
said deficiency such expenses as Owner may incur
in connection with re-letting, such as legal
expenses, attorneys' fees, brokerage, advertising
and for keeping the demised premises in good order
or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly
installments by Tenant on the rent day specified
in this lease any suit brought to collect the
amount of the deficiency for any month shall not
prejudice in any way the rights of Owner to
collect the deficiency for any subsequent month by
a similar proceeding. Owner, in putting the
demised premises in good order or preparing the
same for re-rental may, at Owner's option, make
such alterations, repairs, replacements, and/or
decorations in the demised premises as Owner, in
Owner's sole judgment, considers advisable and
necessary for the purpose of re-letting the
demised premises, and the making of such
alterations, repairs, replacements, and/or
decorations shall not operate or be construed to
release Tenant from liability hereunder as
aforesaid. Owner shall in no event be liable in
any way whatsoever for failure to re-let the
demised premises, or in the event that the demised
premises are re-let, for failure to collect the
rent thereof under such re-letting, an in no event
shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums
payable by Tenant to Owner hereunder. In the event
of a breach or threatened breach by Tenant of any
of the covenants or provisions hereof, Owner shall
have the right of injunction and the right to
invoke any remedy allowed at law or in equity as
if re-entry, summary proceedings and other
remedies were not herein provided for. Mention in
this lease of any particular remedy, shall not
preclude Owner from any other remedy, in law or in
equity. Tenant hereby expressly waives any and all
rights of redemption granted by or under any
present or future laws.
Fees and 19. If Tenant shall default in the observance or
Expenses: performance of any term or covenant on Tenant's
part to be observed or performed under or by
virtue of any of the terms or provisions in any
article of this lease, then, unless otherwise
provided elsewhere in this lease, Owner may
immediately or at any time thereafter and without
notice perform the obligation of Tenant
thereunder. If Owner, in connection with the
foregoing or in connection with any default by
Tenant in the covenant to pay rent hereunder,
makes any expenditures or incurs any obligations
for the payment of money, including but not
limited to attorney's fees, in instituting,
prosecuting or defending any action or
proceedings, then Tenant will reimburse Owner for
such sums so paid or obligation incurred with
interest and costs. The foregoing expenses
incurred by reason of Tenant's default shall be
deemed to be additional rent hereunder and shall
be paid by Tenant to Owner within five (5) days of
rendition of any bill or statement to Tenant
therefor. If Tenant's lease term shall have
expired at the time of making of such expenditures
or incurring of such obligations, such sums shall
be recoverable by Owner as damages.
Building 20. Owner shall have the right at any time without
Alterations the same constituting an eviction and without
and incurring liability to Tenant therefor to change
Management: the arrangement and or location of public
entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other
public parts of the building and to change the
name, number or designation by which the building
may be known. There shall be no allowance to
Tenant for diminution of rental value and no
liability on the part of Owner by reason of
inconvenience, annoyance or injury to business
arising from Owner or other Tenant making any
repairs in the building or any such alterations,
additions and improvements. Furthermore, Tenant
shall not have any claim against Owner by reason
of Owner's imposition of any controls of the
manner of access to the building by Tenant's
social or business visitors as the Owner may deem
necessary for the security of the building and its
occupants.
No Representations 21. Neither Owner nor Owner's agents have made any
by Owner: representations or promises with respect to the
physical condition of the building, the land upon
which it is erected or the demised premises, the
rents, leases, expenses of operation or any other
matter or thing affecting or related to the
demised premises or the building except as herein
expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or
otherwise except as expressly set forth in the
provisions of this lease. Tenant has inspected the
building and the demised premises and is
thoroughly acquainted with their condition and
agrees to take the same "as is" on the date
possession is tendered and acknowledges that the
taking of possession of the demised premises by
Tenant shall be conclusive evidence that the said
premises and the building of which the same form a
part were in good and satisfactory condition at
the time such possession was so taken, except as
to latent defects. All understandings and
agreements heretofore made between the parties
hereto are merged in this contract, which alone
fully and completely expresses the agreement
between Owner and Tenant and any executory
agreement hereafter made shall be ineffective to
part, unless such executory agreement is in
writing and signed by the party against whom
enforcement of the change, modification, discharge
or abandonment is sought.
End of Term: 22. Upon the expiration or other termination of
the term of this lease, Tenant shall quit and
surrender to Owner the demised premises, broom
clean, in good order and condition, ordinary wear
and damages which Tenant is not required to repair
as provided elsewhere in this lease excepted, and
Tenant shall remove all its property from the
demised premises. Tenant's obligations to observe
or perform this covenant shall survive the
expiration or other termination of this lease. If
the last day of the term of this lease or any
renewal thereof, falls on Sunday, this lease shall
expire at noon on the preceding Saturday unless it
be a legal holiday in which case it shall expire
at noon on the preceding business day.
Quiet 23. Owner covenants and agrees with Tenant that
Enjoyment: upon Tenant paying the rent and additional rent
and observing and performing all the terms,
covenants and conditions, on Tenant's part to be
observed and performed, Tenant may peaceably and
quietly enjoy the premises hereby demised,
subject, nevertheless, to the terms and conditions
of this lease including, but not limited to,
Article 34 hereof and to the ground leases,
underlying leases and mortgages hereinbefore
mentioned.
Failure 24. If Owner is unable to give possession of the
to give demised premises on the date of the commencement
Possession: of the term hereof, because of the holding-over or
retention of possession of any tenant, undertenant
or occupants or if the demised premises are
located in a building being constructed, because
such building has not been sufficiently completed
to make the premises ready for occupancy or
because of the fact that a certificate of
occupancy has not be procured or if Owner has not
completed any work required to be performed by
Owner, or for any other reason, Owner shall not be
subject to any liability for failure to give
possession on said date and the validity of the
lease shall not be impaired under such
circumstances, nor shall the same be construed in
any way to extend the terms of this lease, but the
rent payable hereunder shall be abated (provided
Tenant is not responsible for Owner's inability to
obtain possession or complete any work required)
soon after Owner shall have given Tenant notice
that the premises are substantially ready for
Tenant's occupancy. If permission is given to
Tenant to enter into the possession of the demised
premises or to occupy premises other than the
demised premises prior to the date specified as
the commencement of the term of this lease, Tenant
covenants and agrees that such occupancy shall be
deemed to be under all the terms, covenants,
conditions and provisions of this lease, except as
to the covenant to pay rent. The provisions of
this article are intended to constitute "an
express provision to the contrary" within the
meaning of Section 323-a of the New York Real
Property Law.
No Waiver: 25. The failure of Owner to seek redress for
violation of, or to insist upon the strict
performance of any covenant or condition of this
lease or any of the Rules or Regulations, set
forth or hereafter adopted by Owner, shall not
prevent a subsequent act which would have
originally constituted a violation from having all
the force and effect of an original violation. The
receipt by Owner of rent with knowledge of the
breach of any covenant of this lease shall not be
deemed a waiver of such breach and no provision of
this lease shall be deemed to have been waived by
Owner unless such waiver be in writing signed by
Owner. No payment by Tenant or receipt by Owner of
a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on
account of the earliest stipulated rent, nor shall
any endorsement or statement of any check or any
letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Owner
may accept such check or payment without prejudice
to Owner's right to recover the balance of such
rent or pursue any other remedy in this lease
provided. All checks tendered to Owner as and for
the rent of the demised premises shall be deemed
payment for the account of Tenant. Acceptance by
Owner of rent from anyone other than Tenant shall
not be deemed to operate as an to Owner by the
payor of such rent or as a consent by Owner to an
assignment or subletting by Tenant of the demised
premises to such payor, or as a modification of
the provisions of this lease. No act or thing done
by Owner or Owner's agent during the term hereby
demised shall be deemed as acceptance of a
surrender of said premises and no agreement to
accept such surrender shall be valid unless in
writing signed by Owner. No employee of Owner or
Owner's agent shall have any power to accept the
keys of said premises prior to the termination of
the lease and the delivery of keys to any such
agent or employee shall not operate as a
termination of the lease or a surrender of the
premises.
Waiver of 26. It is mutually agreed by and between Owner and
Trial by Jury: Tenant that the respective parties hereto shall
and they hereby do waive trial by jury in any
action, preceeding or counterclaim brought by
either of the parties hereto against the other
(except for personal injury or property damage)
and any matters wherever arising out of or in any
way connected with this lease, the relationship of
Owner and Tenant, Tenant's use of or occupancy of
said premises, and any emergency statutory or any
other statutory remedy. It is further mutually
agreed that in the event Owner commences any
summary proceeding for possession of the premises,
Tenant will not interpose any counterclaim of
whatever nature or description in any such
preceeding.
Inability to 27. This lease and the obligation of Tenant to pay
Perform: rent hereunder and perform all of the other
covenants and agreements hereunder on part of
Tenant to be performed shall in no wise be
affected, impaired or excused because Owner is
unable to fulfill any of its obligations under
this lease or to or is delayed for supplying any
service expressly or implicitly to be supplied or
is unable to make, or is delayed in making any
repair, additions, alterations or decorations or
is unable to supply or is delayed in supplying any
equipment or fixtures if Owner is prevented or
delayed from so doing by reason of or labor
troubles as any event whatsoever beyond Owner's
sole control including, but not limited to,
government in connection with a National Emergency
or by reason of any rule, order or regulation
government agency or by reason of the conditions
of supply and demand which have been or are
affected by war or other emergency.
Title and 28. Except as otherwise in this lease provided, a
Notices: bill, statement, notice or communication which
Owner may desire or be required to give to Tenant,
shall be deemed sufficiently given or rendered to,
in writing, delivered to Tenant personally or sent
by registered or certified mail addressed to
Tenant at the building of which the demised
premises form a part or at the last known
residence address or business address of Tenant or
left at any of the aforesaid premises addressed to
Tenant, at the time of the rendition of such bill
or statement and of the giving of such notice or
communication shall be deemed to be the time when
the same is delivered to Tenant, mailed, or left
at the premises as herein provided. Any notice by
Tenant to Owner must be served by registered or
certified mail addressed to Owner at the address
first hereinabove given or at such other address
as owner shall designate by written notice.
Water 29. If Tenant requires, uses or consumes water for
Charges: any purpose in addition to ordinary lavatory
purposes (of which fact Tenant constitutes Owner
to be the sole judge) Owner may install a water
meter and thereby measure Tenant's water
consumption for all purposes. Tenant shall pay
Owner for the cost of the meter and the cost of
the installation, thereof and throughout the
duration of Tenant's occupancy Tenant shall keep
said meter and installation equipment in good
working order and repair at Tenant's own cost and
expense in default of which Owner may cause such
meter and equipment to be replaced or repaired and
collect the cost thereof from Tenant, as
additional rent. Tenant agrees to pay for water
consumed, as shown on said meter as and when bills
are rendered and on default in making such payment
Owner may pay such charges and collect the same
from Tenant, as additional rent. Tenant covenants
and agrees to pay, as additional rent, the sewer
rent, charge or any other tax, rent, levy or
charge which now or hereafter is assessed, imposed
or a lien upon the demised premises or the realty
of which they are part pursuant to law, order or
regulation made or issued in connection with the
use, consumption, maintenance or supply of water,
water system or sewage or sewage connection or
system. If the building or the demised premises or
any part thereof is supplied with water through a
meter through which water is also supplied to
other premises Tenant shall pay to Owner, as
additional rent, on the first day of each month,
$50.00 of the total meter charges as Tenant's
portion. Independently of and in addition to any
of the remedies reserved to Owner hereinabove or
elsewhere in this lease, Owner may sue for and
collect any monies to be paid by Tenant or paid by
Owner for any of the reasons or purposes
hereinabove set forth.
Sprinklers: 30. Anything elsewhere in this lease to the
contrary notwithstanding, if the New York Board of
Fire Underwriters or the New York Fire Insurance
Exchange or any business, department or official
of the federal, state or city government recommend
or require the installation of a sprinkler system
or that any changes, modifications, alterations or
additional sprinkler heads or other equipment be
made or supplied in an existing sprinkler system
by reason of Tenant's business, or the location of
partitions, trade fixtures, or other contents of
the demised premises, or for any other reason, or
if any such sprinkler system installations,
modifications, alterations, additional sprinkler
heads or other equipment, become necessary to
prevent the imposition of a penalty or charge
against the full allowance for a sprinkler system
in the first insurance date set by any said
Exchange or by any fire insurance company, Tenant
shall, at Tenant's expense, promptly make such
sprinkler system installations, changes,
modifications, alterations, and supply additional
sprinkler heads or other equipment as required
whether the work involved shall be structural or
non-structural in nature. Tenant shall pay to
Owner as additional rent the sum of $50.00, on the
first day of each month during the term of this
lease, as Tenant's portion of the contract price
for sprinkler supervisory service.
Elevators, 31. As long as Tenant is not in default under any
Heat, of the covenants of this lease Owner shall: (a)
Cleaning: provide necessary passenger elevator facilities on
business days from 8 a.m. to 6 p.m. and on
Saturdays from 8 a.m. to 1 p.m.; (b) if freight
elevator service is provided, same shall be
provided only on regular business days Monday
through Friday inclusive, and on those days only
between the hours of 9 a.m. and 12 noon and
between 1 p.m. and 9 p.m.; (c) furnish heat, water
and other services supplied by Owner to the
demised premises, when and as required by law, on
business days from 8 a.m. to 6 p.m. and on
Saturdays from 8 a.m. to 1 p.m.; (d) clean the
marble halls and public partitions of the building
which are used in common by all tenants. Tenant
shall, at Tenant's expense, keep the demised
premises, including the windows, clean and in
order, to the satisfaction of Owner, and for that
purpose shall employ the person or persons or
corporation approved by Owner. Tenant shall pay to
Owner the cost of removal of any of Tenant's
refuse and rubbish from the building halls for the
same shall be rendered by Owner to Tenant at such
time as Owner may elect and shall be due and
payable hereunder, and the amount of such bills
shall be deemed to be, and be paid as, additional
rent. Tenant shall, however, have the option of
independently contracting for the removal of such
rubbish and refuse in the event that Tenant does
not wish to have same done by employees of Owner.
Under such circumstances, however, the removal of
such refuse and rubbish by others shall be subject
to such rules and regulations as, in the judgement
of Owner, are necessary for the proper operation
of the building. Owner reserves the right to stop
service of the heating, elevator, plumbing and
electric systems, when necessary, by reason of
accident, or emergency, or for repairs,
alterations, replacements or improvements, in the
judgement of Owner desirable or necessary to be
made, until said repairs, alterations,
replacements or improvements shall have been
completed. If the building of which the demised
premises are a part supplies manually operated
elevator service, Owner may proceed with
alterations necessary to substitute automatic
control elevator service upon ten (10) day written
notice to Tenant without in any way affecting the
obligations of Tenant hereunder, provided that the
same shall be done with the minimum amount of
inconvenience to Tenant, and Owner pursues with
due diligence the completion of the alterations.
32. $12,696.66 as security for the faithful
performance and observance by Tenant of the terms,
provisions and conditions of this lease; it is
agreed that in the event Tenant defaults in
respect of any of the terms, provisions and
conditions of this lease, including, but not
limited to, the payment of rent and additional
rent, Owner may use, apply or retain the whole or
any part of the security so deposited to the
extent required for the payment of any rent and
additional rent or any other sum as to which
tenant is in default or for any sum which Owner
may expend or may be required to expend by reason
of Tenant's default in respect of any of the
terms, covenants and conditions of this lease,
including but not limited to, any damages or
deficiency in the re-letting of the premises,
whether such damages or deficiency accrued before
or after summary proceedings or other re-entry by
Owner. In the event that Tenant shall fully and
faithfully comply with all of the terms,
provisions, covenants and conditions of this
lease, the security shall be returned to Tenant
after the date fixed as the end of the Lease and
after delivery of entire possession of the demised
premises to Owner. In the event of a sale of the
land and building or leasing of the building, of
which the demised premises form a part, Owner
shall have the right to transfer the security to
the vendee or lessee and Owner shall thereupon be
released by Tenant from all liability for the
return of such security; and Tenant agrees to look
to the new Owner solely for the return of said
security, and it is agreed that the provisions
hereof shall apply to every transfer or assignment
made of the security to a new Owner. Tenant
further covenants that it will not assign or
encumber or attempt to assign or encumber the
monies deposited herein as security and that
neither Owner nor its successors or assigns shall
be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.
Captions: 33. The Captions are inserted only as a matter of
convenience and for reference and in no way
define, limit or describe the scope of this lease
nor the intent of any provision thereof.
Definitions: 34. The term "Owner" as used in this lease means
only the owner of the fee or of the leasehold of
the building, or the mortgagee in possession, for
the time being of the land and building (or the
owner of a lease of the building or of the land
and building) of which the demised premises form a
part, so that in the event of any sale or sales of
said land and building or of said lease, or in the
event of a lease of said building, or of the land
and building, the said Owner shall be and hereby
is entirely freed and relieved of all covenants
and obligations of Owner hereunder, and it shall
be deemed and construed without further agreement
between the parties or their successors in
interest, or between the parties and the
purchaser, at any such sale, or the said lessee of
the building, or of the land and building, that
the purchaser or the lessee of the building has
assumed and agreed to carry out any and all
covenants and obligations of Owner hereunder. The
words "re-enter" and "re-entry" as used in this
lease are not restricted to their technical legal
meaning. The term "rent" includes the annual
rental rate whether so-expressed or expressed in
monthly installments, and "additional rent."
"Additional rent" means all sums which shall be
due to new Owner from Tenant under this lease, in
addition to the annual rental rate. The term
"business days" as used in this lease, shall
exclude Saturdays (except such portion thereof as
is covered by specific hours in Article 31
hereof), Sundays and all days observed by the
State or Federal Government as legal holidays and
those designated as holidays by the applicable
building service union employees service contract
or by the applicable Operating Engineers contract
with respect to HVAC service.
Adjacent Excavation: 35. If an excavation shall be made upon land
adjacent to the demised premises, or shall be
authorized to be authorized to cause such
excavation, license to enter upon the demised
premises for the purpose of doing such work as
said person shall deem necessary to preserve the
wall or the building of which demised premises
form a part from injury or damage and to support
the same by proper foundations without any claim
for damages or indemnity against Owner, or
diminution or abatement of rent.
Rules and 36. Tenant and Tenant's servants, employees,
Regulations: agents, visitors, and licensees shall observe
faithfully, and comply strictly with, the Rules
and Regulations annexed hereto and such other and
further reasonable Rules and Regulations as Owner
or Owner's agents may from time to time adopt.
Notice of any additional rules or regulations
shall be given in such manner as Owner may elect.
In case Tenant disputes the reasonableness of any
additional Rule or Regulation hereafter made or
adopted by Owner or Owner's agents, the parties
hereto agree to submit the question of the
reasonableness of such Rule or Regulation for
decision in the New York office of the American
Arbitration Association, whose determination shall
be final and conclusive upon the parties hereto.
The right to dispute the reasonableness of any
additional Rule or Regulation upon Tenant's part
shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon
Owner within ten (10) days after the giving of
notice thereof. Nothing in this lease contained
shall be construed to impose upon Owner any duty
or obligation to enforce the Rules and Regulations
or terms, covenants or conditions in any other
lease, as against any other tenant and Owner shall
not be liable to Tenant for violation of the same
by any other tenant, its servants, employees,
agents, visitors or licensees.
Glass: 37. Owner shall replace, at the expense of the
Tenant, any and all plate and other glass damaged
or broken from any cause whatsoever in and about
the demised premises. Owner may insure, and keep
insured, at Tenant's expense, all plate and other
glass in the demised premises for and in the name
of Owner. Bills for the premiums therefor shall be
rendered by Owner to Tenant at such times as Owner
may elect, and shall be due from, and payable by,
Tenant when rendered, and the amount thereof shall
be deemed to be, and be paid, as additional rent.
Estoppel 38. Tenant, at any time, and from time to time,
Certificate: upon at least 10 days' prior notice by Owner,
shall execute, acknowledge and deliver to Owner,
and/or to any other person, firm or corporation
specified by Owner, a statement certifying that
this Lease is unmodified in full force and effect
(or, if there have been modifications, that the
same is in full force and effect as modified and
stating the modifications), stating the dates to
which the rent and additional rent have been paid,
and stating whether or not there exists any
default by Owner under this Lease, and, if so,
specifying each such default.
Directory 39. If, at the request of and as accommodation to
Board Tenant, Owner shall place upon the directory board
Listing: in the lobby of the building, one or more names of
persons other than Tenant, such directory board
listing shall not be construed as the consent by
Owner to an assignment or subletting by Tenant to
such person or persons.
Successors and 40. The covenants, conditions and agreements
Assigns: contained in this lease shall bind and inure to
the benefit of Owner and Tenant and their
respective heirs, distributees, executors,
administrators, successors, and except as
otherwise provided in this lease, their assigns.
- --------------------
Security shall at
all times be no less
than two months
fixed and Additional
Rent.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and
sealed this lease as of the day and year first above written.
Corp.
Seal
-----------------------------------
Witness for Owner: FIFTH AVENUE WEST ASSOCIATES, L.P.
BY STEVEN ALBERT, GENERAL PARTNER
/s/ Steve Albert
- --------------------------- -------------------------------------------[L.S.)
Corp.
/s/ Todd Krizelman Seal
-----------------------------------
Witness for Tenant WEBGENESIS, INC.
BY (PLEASE PRINT): TODD KRIZELMAN
/s/ Stephan Paternot CEO
- --------------------------- TITLE:-------------------------------------[L.S.)
DATE: 11/17/97
ACKNOWLEDGMENTS
CORPORATE TENANT INDIVIDUAL TENANT
STATE OF NEW YORK, ss: STATE OF NEW YORK, ss:
County of County of
On this day of , 19 , before
me personally came On this day of , 19 ,
before me personally came to me
to me known, who being by me duly known and known to me to be
sworn, did depose and say that he the individual described in
resides in , that he is and who, as TENANT, executed the
the of the corporation foregoing instrument and
described and which executed the acknowledged to me that he executed
foregoing instrument, as TENANT; the same.
that he knows the seal of said
corporation; that the seal affixed to
said instrument is such corporate ---------------------------
seal; that it was so affixed by order
of the Board of Directors of said
corporation, and that he signed his
name thereto by like order.
------------------------------
IMPORTANT - PLEASE READ
RULES AND REGULATIONS
ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 36.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or
encumbered by any Tenant or used for any purpose other than for ingress or
egress from the demised premises and for delivery of merchandise and
equipment in a prompt and efficient manner using elevators and passageways
designated for such delivery by Owner. There shall not be used in any
space, or in the public hall of the building, either by any Tenant or by
jobbers or others in the delivery or receipt of merchandise, any hand
trucks, except those equipped with rubber tires and sideguards. If said
premises are situated on the ground floor of the building, Tenant thereof
shall further, at Tenant's expense, keep the sidewalk and curb in front of
said premises clean and free from ice, snow, dirt and rubbish.
2. The water and wash closets and plumbing fixtures shall not be used
for any purposes other than those for which they were designed or
constructed and no sweepings, rubbish, rags, acids or other substances
shall be deposited therein, and the expense of any breakage, stoppage, or
damage resulting from the violation of this rule shall be borne by the
Tenant who, or whose clerks, agents, employees or visitors, shall have
caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit to be
swept or thrown from the demised premises any dirt or other substances into
any of the corridors or halls, elevators, or out of the doors or windows or
stairways of the building and Tenant shall not use, keep or permit to be
used or kept any foul or noxious gas or substance in the demised premises,
or permit or suffer the demised premises to be occupied or used in a manner
offensive or objectionable to Owner or other occupants of the buildings by
reason of noise, odors, and or vibrations, or interfere in any way, with
other Tenants or those having business therein, nor shall any animals or
birds be kept in or about the building. Smoking or carrying lighted cigars
or cigarettes in the elevators of the buildings is prohibited.
4. No awnings or other projections shall be attached to the outside
walls of the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, printed or affixed by any Tenant on any part of the
outside of the demised premises or the building or on the inside of the
demised premises if the same is visible from the outside of the premises
without the prior written consent of Owner, except that the name of Tenant
may appear on the entrance door of the premises. In the event of the
violation of the foregoing by any Tenant, Owner may remove same without any
liability and may charge the expense incurred by such removal to Tenant or
Tenants violating this rule. Interior signs on doors and directory tablet
shall be inscribed, painted or affixed for each Tenant by Owner at the
expense of such Tenant, and shall be of a size, color and style acceptable
to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any
part of the demised premises or the building of which they form a part. No
boring, cutting or stringing of wires shall be permitted, except with the
prior written consent of Owner, and as Owner may direct. No Tenant shall
lay linoleum, or other similar floor covering, so that the same shall come
in direct contact with the floor of the demised premises, and, if linoleum
or other similar floor covering is desired to be used as interlining of
builder's deadening felt shall be first affixed to the floor, by a paste or
other material, soluble in water, the use of cement or other similar
adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows by any Tenant, nor shall any changes be made in
existing locks or mechanism thereof. Each Tenant must, upon the termination
of his Tenancy, restore to Owner all keys of stores, offices and toilet
rooms, either furnished to, or otherwise procured by, such Tenant, and in
the event of the loss of any keys so furnished, such Tenant shall pay to
Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky
matter of any description shall be delivered to and removed from the
premises only on the freight elevators and through the service entrances
and corridors, and only during hours and in a manner approved by Owner.
Owner reserves the right to inspect all freight to be brought into the
building and to exclude from the building all freight which violates any of
these Rules and Regulations of the lease of which these Rules and
Regulations are a part.
9. No Tenant shall obtain for use upon the demised premises ice,
drinking water, towel and other similar services, or accept barbering or
bootblacking services in the demised premises, except from persons
authorized by Owner, and at hours and under regulations fixed by Owner.
Canvassing, soliciting and peddling in the building is prohibited and each
Tenant shall cooperate to prevent the same.
10. Owner reserves the right to exclude from the building between the
hours of 6 p.m. and 8 a.m. on business days, after 1 p.m. on Saturdays, and
at all hours on Sundays and legal holidays all persons who do not present a
pass to the building signed by Owner. Owner will furnish passes to persons
for whom say Tenant requests same in writing. Each Tenant shall be
responsible for all persons for whom he requests such pass and shall be
liable to Owner for all acts of such persons. Notwithstanding the
foregoing, Owner shall not be required to allow Tenant or any person to
enter or remain in the building, except on business days from 8:00 a.m. to
6:00 p.m. and on Saturdays from 8:00 a.m. to 1:00 p.m.
11. Owner shall have the right to prohibit any advertising by any
Tenant which in Owner's opinion, tends to impair the reputation of the
building or its desirability as a loft building, and upon written notice
from Owner, Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on
the demised premises, any inflammable, combustible or explosive fluid,
material, chemical or substance, or cause or permit any odors of cooking or
other processors, or any unusual or other objectionable odors to permeate
in or emanate from the demised premises.
13. Tenant shall not use the demised premises in a manner which
disturbs or interferes with other Tenants in the beneficial use of their
premises.
*MERGE (ADD ON) AT THIS POINT*
- ------------------------------
COMMERCIAL USE ONLY - NO LIVING ALLOWED
---------------------------------------
<PAGE>
RIDER OF AGREEMENT OF LEASE ("LEASE")
MADE AS OF JANUARY 14, 1997
BY AND BETWEEN
FIFTH AVENUE WEST ASSOCIATES, L.P., AS OWNER
AND
WEBGENESIS, INC., AS TENANT
THIS RIDER IS INTENDED TO BE AFFIXED TO THE LEASE. IN THE EVENT OF ANY
INCONSISTENCY BETWEEN THE PROVISIONS OF THIS RIDER AND THE PRINTED PORTION
OF THIS LEASE, THE PROVISIONS OF THIS RIDER SHALL CONTROL.
ARTICLE 41 - FIXED RENT AND ADDITIONAL RENT
-------------------------------------------
Tenant shall pay to Owner Fixed Rent during the first twelve (12)
months of the term an amount of $75,400.00 per year, payable in equal
monthly installments of $6,283.33 in advance on the first business day of
each and every calendar month.
For the purpose of this lease the Base Rent shall be as follows,
payable in equal monthly installments:
February 1st, 1997 until January 31st, 1998 - $75,400.00
February 1st, 1998 until January 31st, 1999 - $75,400.00
February 1st, 1999 until January 31st, 2000 - $81,200.00
February 1st, 2000 until January 31st, 2001 - $87,000.00
February 1st, 2001 until January 31st, 2002 - $87,000.00
Commencing February 1st, 1997, and each anniversary of this Lease on
February 1st of each year thereafter through and including February 1st,
2001, there shall be Fixed annual increases of three and one-half (3.5%)
percent over the Base Rent payable in the immediately preceding year.
Provided no default exists under this Lease, Fixed Rent for the month
of February 1997 shall be reduced to 0 to give effect to the fact a full
month's rent was received by the Owner at the signing of this Lease. Fixed
Rent for the months of March, April and May 1997 shall be further reduced
to 0 to give effect to a Rent Abatement. No part of the Rent Abatement
shall be granted unless no default exists under the Lease.
Provided Tenant notifies Owner of its intention to exercise its option
in writing via Certified mail, return receipt requested, at least six
months prior to the expiration of the initial Lease term, Tenant shall have
the option to extend this Lease for a period of five (5) years, commencing
February 1st, 2002 and ending January 1st, 2007. Fixed Rent for the first
year of the option period shall be the then current Market Rent, which
shall be determined in accordance with the procedure set forth hereinafter.
Fixed Rent for each remaining year of the option period shall increase
three and one-half percent (3.5%) over the Fixed Rent payable in the
immediately preceding year.
Market Rent:
------------
The parties shall have thirty (30) days after Owner receives Tenant's
extension option notice in accordance herewith in which to agree on the
Market Rent for the Extended Term. If the parties agree on the Market Rent
during such thirty (30) day period, Owner and Tenant shall execute an
amendment to this Lease setting forth the Market Rent for the Extended
Term.
If the parties are unable to agree on the Market Rent within the
thirty (30) day period, then, within twenty (20) days after the expiration
of that period, each party, at its cost and by giving notice to the other
party, shall appoint a qualified M.A.I. real estate appraiser with at least
5 years' full-time commercial appraisal experience in the New York
metropolitan area to appraise and set the Market Rent for the Demised
Premises. The Market Rent shall be based on new leases for comparable space
in at least five (5) comparable buildings in the area in which the Demised
Premises are located and based upon the Demised Premises as improved,
whether such improvements were made by Owner or Tenant. If five (5)
comparables are not available, the appraiser shall use such other Market
data as is relevant, with appropriate adjustments consistent with accepted
appraisal practices. If a party does not appoint such an appraiser within
the aforementioned period, the single appraiser appointed shall be the sole
appraiser and shall set the Market Rent for the Demised Premises. The two
appraisers appointed by the parties as stated in this paragraph shall meet
promptly and attempt to establish the Market Rent for the Demised Premises.
If they are unable to agree within twenty (20) days after the second
appraiser has been appointed, they shall select a third appraiser meeting
the qualifications stated in this paragraph, within ten (10) days after the
last day the two appraisers are given to set the Market Rent. Each of the
two parties shall bear one half (1/2) of the cost of appointing and paying
the third appraiser. The third appraiser shall be a person who has not
previously acted in any capacity for either party.
Within thirty (30) days after the selection of the third appraiser,
the third appraiser shall set the Market Rent for the Demised Premises.
RIDER TO AGREEMENT OF LEASE ("LEASE")
MADE AS OF JANUARY 14, 1997
BY AND BETWEEN
FIFTH AVENUE WEST ASSOCIATES, L.P., AS OWNER
AND
WEBGENESIS, INC., AS TENANT
THIS RIDER IS INTENDED TO BE AFFIXED TO THE LEASE. IN THE EVENT OF ANY
INCONSISTENCY BETWEEN THE PROVISIONS OF THIS RIDER AND THE PRINTED PORTION
OF THIS LEASE, THE PROVISIONS OF THIS RIDER SHALL CONTROL.
ARTICLE 42 - NOTICES
--------------------
Any notice, request, consent, approval, demand or other communication
permitted or required to be given pursuant to the terms, covenants and
conditions of this Lease, or pursuant to any law or governmental regulation
(collectively, "Notices"), shall be in writing and, unless otherwise
required by such law or regulation, be sent registered or certified mail
return receipt requested to the parties at the addresses set forth in this
Lease.
ARTICLE 43 - EXCULPATION
------------------------
If Owner or any successor in interest in an individual, joint venture,
tenancy-in-common, general or limited partnership, unincorporated
association or other unincorporated aggregate of individuals (collectively,
"unincorporated Owner") and shall at any time have any liability under,
pursuant to or in connection with this Lease, neither Tenant nor any other
party shall seek any personal or money judgment against unincorporated
Owner or in any other way under or pursuant to this Lease. Any attempt by
Tenant or others to seek any such personal liability or monetary obligation
shall, in addition to and not in limitation of unincorporated Owner's other
rights, powers, privileges and remedies under this Lease, immediately vest
unincorporated Owner with the unconditional right to cancel this Lease on
three (3) days' notice to Tenant.
ARTICLE 44 - BROKER
-------------------
Tenant represents and warrants that it has not dealt with any broker
or brokers other than JULIEN J. STUDLEY, INC. and ALEX DEFORTUNA, LICENSED
REAL ESTATE BROKER in the negotiation of this Lease. Tenant shall indemnify
and hold Owner harmless from and against any and all loss, liability,
claims or expenses (including, without limitation, attorneys' fees) that
Owner may incur by reason of the breach of the foregoing representation or
by reason of the claim of any brokers in connection with this transaction
or arising out of any assignment of this Lease or sublease of all or a part
of the Demised Premises by Tenant.
ARTICLE 45 - LATE CHARGES
-------------------------
If Tenant fails to pay any installment of Fixed Rent or Additional
Rent by the fifth (5th) day of each month, Tenant shall be required to pay
a late charge of eight (8) cents for each dollar unpaid. Such charge is to
be computed retroactively to the date on which Fixed Rent or Additional
Rent became due and payable. The late charge is intended to compensate
Owner for additional expenses incurred in processing such late payments and
is not intended to prevent Owner from exercising any other available
remedies against Tenant.
ARTICLE 46 - TENANT COVENANTS
-----------------------------
46.1 Tenant shall not make any claim against Owner for any injury or
damage to Tenant or to any other person or for any damage (by water,
malicious mischief or otherwise) to, or loss of, or loss of use of (by
theft, mysterious disappearance or otherwise) any property of Tenant or of
any other person, or property irrespective of the cause of such injury,
damage or loss, unless caused by the negligence of Owner, its agents,
servants or employees, in the operation or maintenance of the Demised
Premises or the Building. No property other than such as might normally be
brought upon or kept in the Demised Premises as an incident to the
reasonable use of the Demised Premises for the purposes herein specified
shall be brought upon or kept in the Demised Premises.
46.2 Tenant shall, at its sole cost and expense:
46.2.1 Maintain the Demised Premises in a clean and sanitary
manner. If tenant uses a cleaning service in the evening after 6:00 PM or
on weekends, that service shall be an approved service designated by the
Owner and used substantially in the Building.
46.2.2 Remove all rubbish and other debris from the Demised
Premises to such locations in the Building as may be reasonably specified
by Owner from time to time and under conditions approved by Owner.
46.2.3 Obtain and maintain a service contract (or contracts) with
a person or company reasonably acceptable to Owner for the extermination of
vermin, rats, mice, flies and other insects in the Demised Premises and use
all reasonable diligence in accordance with the best prevailing methods for
doing so in the Borough of Manhattan to prevent and exterminate vermin,
rats, mice, flies and other insects in, on or about the Demised Premises.
46.3 Obtain and maintain an annual service contract for the air
conditioning unit(s), if any, within the Demised Premises, and pay directly
for individual repairs not covered by said contract. In addition, Tenant
agrees to obtain and pay directly for any and all permits and/or licenses
associated with the operation of the air conditioning unit(s).
Unless specified or defined in this lease, or otherwise agreed between
Owner and Tenant, any and all air conditioning equipment existing or
installed by either Owner or Tenant in the demised premises at the time or
during the term of this lease shall remain in the demised premises and
shall be considered leasehold improvements at the expiration of this lease
or upon vacating of the demised premises by tenant either willfully or
under any other terms or conditions of this lease.
46.4 If Tenant shall, at its sole cost and expense, place and maintain
machines and mechanical equipment located in the Demised Premises that
cause noise or vibration that may be transmitted to the structure of the
Building (to such a degree as to be reasonably objectionable to Owner or
any occupant of the Building) in settings of cork, rubber or spring type
vibration eliminators sufficient to eliminate noise or vibration.
46.5 Tenant shall not permit any cooking on the Demised Premises,
whether hot or cold.
46.6 Tenant has inspected the Demised Premises and agrees to take them
as they are in an "as is" condition, and agrees to bear all expenses of
making nonstructural repairs to the Demised Premises, including without
limitation, plumbing, electrical work, fixtures and all interior repairs,
in a manner consistent with section 3.
46.7 Tenant agrees that it shall not permit its employees and/or
visitors to congregate in the Building lobby, the public corridors or in
front of the Building. Tenant expressly agrees that any violation of this
Article shall be a material default under this Lease.
46.8 Tenant shall not bring any pets into the Demised Premises or
permit any pets to be brought into or kept within the Demised Premises.
ARTICLE 47 - INSURANCE
----------------------
The Tenant shall, at its sole cost and expense, obtain and at all
times during the Term maintain with responsible insurance carriers
acceptable to Owner licensed to do business in the State of New York,
insurance covering the Demised Premises for the mutual benefit of Owner and
Tenant as follows:
47.1 Fire Insurance with broad form extended coverage endorsement from
time to time available, for an amount not less than the full replacement
value of Tenant's Improvements and Tenant's personal property located in
the Demised Premises. "Full replacement value" shall be determined at the
request of Owner by an architect, appraiser, appraisal company or one of
the insurers selected by Owner and paid for by Tenant, but such
determination shall not be required to be made more frequently than once
every two (2) years. No omission on the part of Owner to request any such
determination shall relieve Tenant of any of its obligations under this
Article.
47.2 Comprehensive General Liability Insurance, with such limits as
may be reasonably requested by Owner from time to time, but not less than a
combined single limit of $1,500,000.00.
47.3 All required insurance policies shall name Owner as an additional
insured or loss payee, as the case may be, and shall include a provision
that they shall not be canceled without thirty (30) days' prior written
notice to Owner. Tenant shall deliver copies of all required insurance
policies or certificates evidencing such coverage prior to the Commencement
Date and renewal policies prior to the expiration of the existing policies
together with evidence of the payment of premiums therefore.
47.4 Tenant shall pay to Owner an Additional Rent an amount equal to
any additional insurance premium charged to Owner by Owner's insurers as a
direct or indirect result of Tenant's tenancy in the Building.
47.5 Tenant can only deliver to or remove from the Demised Premises
any freight, furniture, business equipment, merchandise and bulky matter of
any description, on the freight elevators and/or through the service
entrances and corridors of the Building and only during the hours and in
the manner approved by Owner from time to time. Tenant can only be
permitted to deliver to or remove from the Demised Premises any of the
items described in this article after Tenant has given Owner three (3) days
prior written notice of Tenant's intention to make such delivery or
removal, and provides Owner with written evidence that such delivery or
removal is being made by an individual or an entity who possesses general
liability and workers compensation insurance or other insurance as may be
required by Owner in an amount which Owner deems to be sufficient.
ARTICLE 48 - ADDITIONAL REMEDIES
--------------------------------
48.1 If the Term shall terminate pursuant to Article 17 or otherwise,
then:
48.1.1 Tenant shall pay to Owner all Fixed Rent and Additional
Rent required to be paid by Tenant to the date upon which the Term shall
have terminated or to the date of re-entry upon the Demised Premises by
Owner, as the case may be;
48.1.2 Owner shall be entitled to retain all moneys, if any, paid
by Tenant to Owner, whether an advance rent, security or otherwise;
48.1.3 Tenant shall be liable for and shall pay to Owner, as
damages, any deficiency between the Fixed Rent and Additional Rent payable
for the period which otherwise would have constituted the unexpired portion
of the Term (conclusively presuming the Additional Rent to be the same as
was payable for the twelve (12) month period immediately preceding such
termination or re-entry) and the net amount, if any, of rents collected
under any reletting effected pursuant to the provisions of this Article for
any part of such period (first deducting from the rents collected under any
such reletting all of Owner's expenses in connection with the termination
of this Lease or Owner's re-entry upon the Demised Premises and, in
connection with such reletting, all repossession costs, brokerage
commissions, legal expenses, attorneys' fees, alteration costs and other
expenses); and
48.1.4 Any such deficiency shall be paid in monthly installments
by Tenant on the days specified in this Lease for the payment of
installments of Fixed Rent. Owner shall be entitled to recover from Tenant
each monthly deficiency as the same shall arise and no suit to collect the
amount of the deficiency for any month shall prejudice Owner's right to
collect the deficiency for any subsequent month by a similar proceeding.
Alternatively a suit or suits for the recovery of such deficiencies may be
brought by Owner from time to time at its election.
48.1.5 Notwithstanding anything herein to the contrary, the
Premises herein mentioned are demised for the whole term with a whole
amount of the rent herein reserved due and payable at the time of the
making of this Lease, and the payment of rent in installments as above
provided in for the convenience of tenant only and if in default of any
installment of rent, then the whole of the rent reserved for the whole of
the period then remaining unpaid, shall, at the landlord's option, at once
become due and payable without notice or demand.
ARTICLE 49 - CERTIFICATES BY TENANTS
------------------------------------
At any time and from time to time, Tenant, for the benefit of Owner
and the lessor under any ground lease or underlying lease or the holder of
any leasehold mortgage affecting any ground lease or underlying lease, or
of any fee mortgage covering the land or the land and building containing
the Demised Premises, on at least five (5) days prior written request by
Owner, will deliver to Owner a statement, certifying that this Lease is not
modified and is in full force and effect (or if there shall have been
modifications the same is in full force and effect as modified, and stating
the modifications), the commencement and expiration dates hereof, the dates
to which the Fixed Rent, Additional Rent and other charges have been paid,
and whether or not, to the best knowledge of the signer of such statement,
there are any then existing defaults on the part of either Owner or Tenant
in the performance of the terms, covenants and conditions of this Lease,
and if so, specifying the default of which the signer of such statement has
knowledge.
Owner shall from time to time provide upon ten (10) days prior written
request by Tenant a statement certifying as to status of rent and
Additional Rent payments due under this Lease and/or that lease has not
been modified and remains in full force and effect.
ARTICLE 50 - LEGAL REQUIREMENTS
-------------------------------
If at any time during the term of this Lease, the fire safety law
requirements of the City of New York pursuant to Local Law #5 of 1973 or
otherwise ("Fire Requirements") or the masonry or exterior wall
requirements of the City of New York pursuant to Local Law #10 of 1980 or
otherwise ("Masonry Requirements") or life safety requirements of the City
of New York pursuant to Local Law #16 of 1984 or otherwise ("Safety
Requirements") or any other laws or requirements of the City of New York or
any agency having jurisdiction ("Other Requirements") impose any
obligations or requirements upon Owner to perform any alteration, changes,
installations or improvements (collectively "changes") to the building
hereof and/or the Demised Premises, then Tenant shall pay to Owner as
Additional Rent five point eight (5.8%) percent ("Tenant's Payment") of all
costs and expense incurred by Owner in complying with the Fire
Requirements, Masonry Requirements or other Requirements. Tenant's Payment
shall be due and payable to Owner within thirty (30) days after rendition
of a bill therefore accompanied by a statement setting forth the changes
performed by Owner. The obligation of Tenant in respect of such Additional
Rent shall survive the expiration of this Lease. Notwithstanding anything
to the contrary in this Paragraph, should Tenant's use, occupancy, or
installation require specific compliance under such Requirements above,
then Tenant shall be responsible for 100% of the cost of said Changes.
ARTICLE 51 - ALTERATIONS
------------------------
Anything in Article 3 to the contrary notwithstanding, Owner shall not
unreasonably withhold or delay approval of written requests of Tenant to
make non-structural interior alterations, decorations, additions and
improvements (herein referred to as "alterations") in the Demised Premises,
provided that such alterations do not affect utility services or plumbing
and electrical lines or other systems of the building, and provided that
all such alterations shall be performed in accordance with the following
conditions:
51.1 All such alterations costing more than $2,500.00 shall be
performed in accordance with plans and specifications first submitted to
Owner for its prior written approval.
51.2 All alterations shall be done in a good and workmanlike manner.
Alterations shall be done in compliance with all other applicable
provisions of this Lease and with all governmental authorities having
jurisdiction; and Tenant shall, prior to the commencement of any such
alterations, at its sole cost and expense, obtain and exhibit to Owner any
governmental permit required in connection with such alterations.
51.3 All work in connection with alterations shall be performed with
union labor having the proper jurisdictional qualifications.
51.4 Tenant shall keep the building and the Demised Premises free and
clear of all liens for any work or material claimed to have been furnished
to Tenant or to the Demised Premises.
51.5 Prior to the commencement of any work by or for Tenant, Tenant
shall furnish to Owner Certificates of Insurance evidencing the existence
of the following insurance:
51.5.1 Worker's compensation insurance covering all persons
employed for such work and with respect to whom death or bodily injury
claim could be asserted against Owner, Tenant or the Demised Premises.
51.5.2 General liability insurance naming Owner, its designees,
and Tenant as insured, with limits of not less than $1,000,000 in the event
of bodily injury to one person and not less than $1,000,000, in the event
of bodily injury to any number of persons in any one occurrence, and with
limits of not less than $500,000 for property damage. Tenant, at its sole
cost and expense, shall cause all such insurance to be maintained at all
times when the work to be performed for or by Tenant is in progress. All
such insurance shall be issued by a company authorized to do business in
New York and all policies, or certificates therefore, issued by the insurer
and bearing notations evidencing the payment of premiums, shall be
delivered to Owner.
51.6 All work to be performed by Tenant shall be done in a manner
which will not unreasonably interfere with or disturb other Tenants and
occupants of the building.
51.7 Any alterations to be made by Tenant (other than plumbing and
electrical work) may be performed by any reputable contractor or mechanic
(collectively, "Contractor") selected by Tenant and approved by Owner,
which approval Owner agrees it will not unreasonably withhold or delay,
provided the Contractor's performance of the alterations would not result
in any labor discord in the Building.
51.8 Tenant may, at any time during the Term, remove any alteration
made by Tenant, solely at its expense, provided Tenant promptly repairs any
damage resulting from such removal.
51.9 Any restoration or repair which Tenant is required to make
(whether structural or non-structural) shall be of a quality or class equal
to the then Building Standard.
51.10 Tenant shall pay to Owner the sum of One Hundred Dollars
($100.00) in connection with any Tenant Changes or Alterations, which must
be approved of by Owner in accordance with the term of this Article.
51.11 The time during which Owner may make Owner's elections pursuant
to Article 3 hereof shall be extended to include a period commencing thirty
(30) days prior to the expirations or other termination of this Lease or
any renewal or extension thereof and terminating ninety (90) days
thereafter. Tenant agrees that Owner's rights hereunder shall survive the
expiration of this Lease or any renewal or extension thereof.
51.12 Nothing in this Lease shall be construed in any way as
constituting the permission, consent or request of the Owner, express or
implied, through act or omission to act by inference or otherwise, to any
contractor, subcontractor, laborer, or materialman for the performance of
any labor or the furnishing of any materials for any specific improvement,
installation, addition, decoration, alteration, or repair of the Demised
Premises or as giving the Tenant the right, power, or authority to contract
for or permit the rendering of any service or the furnishing of any
material that would give rise to the filing of any mechanic's lien against
the fee of the Demised Premises.
ARTICLE 52 - CONTRACTORS
------------------------
When in this Lease the Tenant shall take or be required to take any
action which may affect or alter the plumbing or electrical facilities or
services furnished by Owner in the Building, the Demised Premises, or any
portion thereof, Tenant shall only be entitled to have such work performed
by the building contractor designated from time to time by Owner, in its
sole and absolute discretion, to perform such alteration and Owner shall
not be required to permit, and Tenant shall not be entitled to use, any
contractor not designated by Owner's selected contractors', provided,
however, that such contractors' bids do not exceed by more than 15% the
bids for work of comparable quality, workmanship and specifications for
performing such alterations submitted by Tenant's contractors. If Tenant's
contractor's bids are more than 15% below the bids of Owner's contractors,
Owner agrees not to unreasonably withhold or delay approval of Tenant's
performance of such alteration. Notwithstanding the foregoing, Tenant's
contractors must be properly licensed.
ARTICLE 53 - TENANT'S CONDEMNATION CLAIM
----------------------------------------
Anything in Article 10 to the contrary notwithstanding, Tenant shall
have the right to make a claim against the condemning authority for the
value of its trade fixtures and business machines and equipment taken in
the condemnation and for reimbursement of its resultant moving expenses.
ARTICLE 54 - ACCESS TO THE DEMISED PREMISES
-------------------------------------------
Supplementing the provisions of Article 13, Owner's right to enter the
Demised Premises and its access thereto to make repairs and Alterations and
to erect and maintain pipes and conduits (except in the event of an
emergency, in which event that right shall be unrestricted) shall be
subject to the following conditions:
54.1 Owner shall give Tenant reasonable notice of proposed, entry or
access;
54.2 Owner shall not be obligated to perform work other than during
normal business hours.
ARTICLE 55 - SQUARE FOOTAGE
---------------------------
Tenant acknowledges that no representations have been made by the
Owner as to the amount of square footage in the Demised Premises,
irrespective of any reference in this Lease to square footage for any
computation. The Tenant has inspected the Demised Premises and relies upon
its own judgment in computing the square footage.
ARTICLE 56 - PLATE GLASS
------------------------
Tenant, at its own cost and expense, shall replace all damaged or
broken plate glass or other windows in or about the Demised Premises.
ARTICLE 57 - ADDITIONAL RENT
----------------------------
All payments other than the Fixed Rent to he made by Tenant pursuant
to this Lease shall be deemed Additional Rent and, in the event of any
non-payment, Owner shall have all rights and remedies provided for herein
or by law for non-payment of rent.
ARTICLE 58 - CONDITIONAL LIMITATION
-----------------------------------
If Tenant defaults in the payment of Fixed or Additional Rent, or in
making any other payment required for a total of two (2) months, whether or
not consecutive, in any twelve (12) month period, and Owner shall have
served upon Tenant a petition and notice of petition to dispossess Tenant
by summary proceedings for any one or both of those months, then,
notwithstanding that those defaults shall have been cured prior to the
entry of a judgment against Tenant, any further similar default shall be
deemed to be deliberate and Owner may require Tenant to deposit two
additional months security deposit and/or at Owner's option Owner may serve
a written three (3) days' notice of cancellation of this Lease upon the
Tenant, and upon the expiration of that three (3) days, whether or not
Tenant has paid its rent within that period, this Lease shall end and
expire as fully and completely as if the expiration of such three (3) day
period were the day herein definitely fixed for the end and expiration of
this Lease and the Term, and Tenant shall remain liable as elsewhere
provided in the Lease.
ARTICLE 59 - UTILITY INCREASE
-----------------------------
Intentionally Omitted
ARTICLE 60 - GAS AND WATER
--------------------------
Tenant shall make its own arrangements with the public utility company
or companies or such New York City agencies servicing the Demised Premises
for the furnishing of and payment of charges for gas and water. In no event
shall Owner be responsible for charges for any such service. If gas or
water is used in the Demised Premises, Tenant covenants to install the
appropriate gas cutoff devices (manual and automatic) and motors for each
service at Tenant's own cost and expense. Anything to the contrary in
Article 29 of this Lease notwithstanding, water charges contained in
Article 29 of this Lease are for the use of existing lavatories and Tenant
must install a meter for any other use of water in or about the Demised
Premises.
ARTICLE 61 - NOISE
------------------
Tenant shall not permit noise to emanate from the premises at a sound
level which shall in any way disturb other tenants of the building or at a
level that exceeds the level of sound emanating from other floors for the
building. This Article shall directly bind any successors in interest to
the Tenant. Tenant agrees that if at any time Tenant violates any of the
provisions of this Article, such violation shall be deemed a breach of a
substantial obligation of the terms of this Lease.
ARTICLE 62 - PORNOGRAPHY
------------------------
Tenant agrees that the value of the Demised Premises substantially
diminished and the reputation of Owner and the partners of the Owner will
be seriously injured if the premises are used for any obscene or
pornographic purposes or any sort of commercial sex establishment. Tenant
agrees that tenant will not bring or permit any obscene or pornographic
material on the premises, and shall not conduct or permit any obscene, nude
or semi-nude live performances on the premises, nor permit use of the
premises for nude modeling, rap sessions, or as a massage parlor. Tenant
also agrees that it will not permit the production or processing of any
video tape, film or photography on the premises which depict explicit
sexual acts. Tenant agrees further that it will not permit any of the
herein mentioned uses by any sublessee or assignee of the premises. This
Paragraph shall bind successors in interest to the Tenant. Tenant agrees
that any violation of the term of this Paragraph shall be deemed a breach
of a substantial obligation of the Tenant under this Lease. Pornographic
material, for purposes of this Paragraph, is defined as any written or
pictorial matter with prurient appeal or any object or instrument primarily
used for lewd or prurient sexual activity.
ARTICLE 63 - ODORS
------------------
Tenant shall not cause or permit any unusual or objectionable odors,
by-products or waste material to emanate from the Demised Premises. Tenant
covenants that it will hold Owner harmless against all claims, damages or
causes of action for damages arising after the commencement of the term of
this Lease and will indemnify the Owner from any suits, orders or decrees
and judgments entered therein, brought on account of any such emanation
from the Demised Premises of unusual or objectionable odors, by-products or
waste material. Tenant covenants to pay any attorney's fees and other legal
expenses incurred by owner in connection with any claim or suit as
described in this Paragraph.
ARTICLE 64 - OWNER'S COSTS BY TENANT'S DEFAULTS
-----------------------------------------------
If Owner, as a result of a default by Tenant of any of the provisions
of this Lease, including the covenants to pay rent and/or Additional Rent,
makes any expenditure or incurs any obligations for the payment of money,
including but not limited to attorney's fees, in instituting, prosecuting
or defending any action or proceeding, such sums so paid or obligations so
incurred with interest and costs shall be deemed to be Additional Rent
hereunder and shall be paid by Tenant to Owner within five (5) days of
rendition of any bill or statement to Tenant therefore, and if any
expenditure is incurred in collecting such obligations, such sum shall be
recoverable by Owner as additional damages.
ARTICLE 65 - HOLDING OVER
-------------------------
If Tenant holds over in possession after the expiration or sooner
termination of the original term or of any extended term of this Lease,
such holding over shall not be deemed to extend the term or renew the
Lease, but such holding over hereafter shall continue upon the covenants
and conditions herein set forth, except that the charge for use and
occupancy of such holding over for each calendar month or part thereof
(even if such part shall be a small fraction of a calendar month) shall be
the sum of:
65.1 One-twelfth (1/12) of the highest annual rent rate set forth on
Page One of this Lease, times two point five (2.5) plus
65.2 One-twelfth (1/12) of annual Additional Rental, which annual
Additional Rental would have been payable pursuant to this Lease had this
Lease not expired, plus
63.3 Those other items of Additional Rent (not annual Additional Rent)
which would have been payable monthly pursuant to this Lease, had this
Lease not expired, which total sum Tenant agrees to pay to Owner promptly
upon demand, in full, without set-off or deduction. Neither the billing nor
the collection of use and occupancy charge shall be deemed a waiver of any
right of Owner to collect damages for Tenant's failure to vacate the
Demised Premises after the expiration or sooner termination of this Losses.
The aforesaid provisions of this Article shall survive the expiration of
this Lease.
ARTICLE 66 - DEPOSIT OF CHECKS
------------------------------
Owner's deposit of any checks delivered by Tenant simultaneously with
Tenant's execution and delivery of this Lease shall not constitute Owner's
execution and delivery of this Lease.
ARTICLE 67 - PARTIAL PAYMENT
----------------------------
If Owner receives from Tenant any payment ("Partial Payment") less
than the sum of the Fixed Rent, Additional Rent and other charges then due
and owing pursuant to the term of this Lease, Owner in its sole discretion
may allocate such Partial Payment in whole or in part to any Fixed annual
Rent, any annual rent and/or any other charges or to any combination
thereof.
ARTICLE 68 - PORTERS WAGE RATE
------------------------------
Intentionally omitted
ARTICLE 69 - ASSIGNMENT
-----------------------
Tenant may sublet all or a portion of the Demised Premises or assign
this lease with Owner's prior written consent which shall not be
unreasonably withheld, provided that:
I
(a) Tenant shall furnish Owner with the name and business address
of the proposed subtenant or assignee, a counterpart of the proposed
subleasing or assignment agreement, and satisfactory information with
respect to the nature and character of the business of the proposed
subtenant or assignee together with current financial information and
references reasonably satisfactory to Owner.
(b) In the reasonable judgment of the Owner the proposed
subtenant or assignee is financially responsible with respect to its
proposed obligations under the proposed agreement and is of a character
engaged in a business which is in keeping with the standards of the
building and the floor or floors in which the Demised Premises are located.
(c) An executed duplicate original in a form satisfactory to
Owner for review by Owner's counsel of such subleasing or assignment
agreement shall be delivered to Owner at least five (5) days prior to the
effective date thereof. In the event of any assignment, Tenant will deliver
to Owner at least five (5) days prior to the effective date thereof an
assumption agreement wherein the assignee agrees to assume all of the
terms, covenants and conditions of this lease to be performed by Tenant
hereunder and which provides that Tenant named herein and such assignee
shall after the effective date of such assignment be jointly and severally
liable for the performance of all of the terms, covenants and conditions of
this lease.
(d) Tenant, at Tenant's expense, shall provide and permit
reasonably appropriate means of ingress to and egress from space sublet by
Tenant.
(e) Except for any subletting or assignment by Tenant to Owner,
each subletting or assignment shall be subject to all the covenants,
agreements, terms, provisions and conditions contained in this lease.
(f) Tenant covenants and agrees that notwithstanding any
subletting or assignment to Owner or to any other subtenant or assignee
and/or acceptance of rent or Additional Rent by Owner from any subtenant or
assignee, Tenant shall and will remain fully liable for the payment of the
annual rent and Additional Rent due and to become due hereunder and for the
performance of all the covenants, agreements, terms, provisions and
conditions contained in this lease on the part of the Tenant to be
performed.
(g) Tenant further agrees that it shall not at any time publicly
advertise at a rental rate less than the Fixed annual Rental plus any
Additional Rent then payable hereunder, for assignment or sublease of all
of the space demised herein, or for sublease of any portion of the space
demised herein, but nothing herein contained shall be deemed to be Owner's
consent to any assignment or subletting.
(h) Notwithstanding anything herein contained to the contrary,
Tenant shall have no right to assign this lease or to sublet the whole of
the Demised Premises prior to or during the first (6) six months following
the commencement date hereof.
(i) Tenant shall have no right to assign this lease or sublet the
whole or any part of the Demised Premises to any party who in dealing with
or has dealt with Owner or Owner's agent with respect to space then still
available for rent in the building within the 12 months immediately
preceding Owner's receipt of Tenant's notice pursuant to item 11 of this
Article.
(j) Such subletting or assignment shall not cause Owner any cost.
(k) Tenant shall have complied and shall comply with each of the
provisions in this Article and Owner shall not have made any election as
provided in item II hereof.
II
If Tenant shall desire to sublet all or a portion of the Demised
Premises or to assign this lease, Tenant shall send to Owner a written
notice by registered mail at least ninety (90) days prior to the date such
assignment or subletting is to commence stating (w) that the intention in
to assign the lease, (x) the portion of the Premises that the Tenant
desires to sublet, and if the portion intended to be sublet shall be less
than the entire Demised Premises and other than an entire floor or multiple
thereof, such notice shall be accompanied by a reasonably accurate floor
plan of the premises to be sublet, (y) the term of such proposed subletting
and (z) the proposed commencement date of such subletting or assignment.
(a) If Tenant desires to sublet all of the Demised Premises or to
assign this lease, then within sixty (60) days after receipt of the
aforesaid notice Owner may notify Tenant that Owner elects (1) to cancel
this lease, in which event such cancellation shall become effective on the
date set forth pursuant to (z) above and this lease shall thereupon
terminate on said date with the same force and effect as if said date were
the expiration date of this lease: or (2) to require Tenant to assign this
lease to Owner effective from the date not forth pursuant to (z) above. In
either event Tenant shall be obligated to surrender possession of the
Demised Premises in the same condition as Tenant is obliged to surrender
possession at the end of the term as provided in this lease. Such
assignment to Owner shall provide that the parties to such assignment
expressly negate any intention that any estate created under such
assignment be merged with any other estate held by either of said parties.
(b) If Tenant desires to sublet less than all of the Demised Premises
then within sixty (60) days after receipt of the aforesaid notice, Owner
may notify Tenant that Owner elects to require Tenant to sublease to Owner
as subtenant of Tenant, the portion of the Demised Premises that Tenant had
specified in its notice to Owner, for the term, and from the commencement
date specified in said notice. The annual rent and Additional Rent, which
Owner shall pay to Tenant shall be a pro rata apportionment of the annual
and Additional Rent payable hereunder and it is hereby expressly agreed
that such sublease to Owner shall be upon all the covenants, agreements,
terms, provisions and conditions contained in this lease except for such
thereof which are inapplicable and such sublease shall give Owner the
unqualified and unrestricted right without Tenant's permission to assign
such sublease or any interest therein and/or to sublet the space covered by
such sublease or any part or parts of such space and to make or cause to
have made or permit to be made any and all changes, alterations,
decorations, additions, and improvements in the space covered by such
sublease, and that such may be removed, in whole or part, at Owner's
option, prior to or upon the expiration or other termination of such
sublease provided that any damages or injury caused by such removal shall
be repaired. Such sublease to Owner shall also provide that the parties to
such sublease expressly negate any intention that any estate created under
such sublease be merged with any other estate hold by either of said
parties.
(c) Tenant covenants and agrees that any such assignment or subletting
to Owner or further assignment or subletting by Owner or Owner's assignee
or subleases may be for any purpose or purposes that Owner, in Owner's
uncontrolled discretion, shall deem suitable or appropriate.
(d) If Owner, should fail to exercise any of the elections granted to
it pursuant to the provisions of sub-paragraphs "a" or "b" of Item II of
this Article and if Tenant should sublet all or a portion of the Demised
Premises for a rental in excess of the sum of annual rental stipulated
herein and Additional Rent arising hereunder, then Tenant shall pay to
Owner as Additional Rent 50% of such excess amount. In computing such
excess amount appropriate pro-rata adjustments shall be made with respect
to a subletting of less than all of the Demised Premises.
(e) Tenant hereby waives any claim against Owner for money damages
which it may have based upon any assertion that Owner has unreasonably
withheld or unreasonably delayed any consent to an assignment or a
subletting pursuant to this Article. Tenant agrees that its sole remedy
shall be an action or proceeding to enforce such provision or for specific
performance.
(f) Assignment and subletting shall for purposes of this Article 69
include any sale, exchange or disposition of any portion of seller's
shares, partnership or ownership interests or any change of ownership of
Tenant, if Tenant is not an individual.
(g) If this Lease is assigned, sublet or if the demised premises or
any part thereof be underlet or occupied by any party other than Tenant
without Owner's written permission, Owner may, in addition to any other
remedy provided to Owner under this Lease or by law, after default by
Tenant, collect rent from the assignee, subleases, undertenant or occupant,
and apply the net amount collected to the rent herein reserved. No
assignment, subletting, underletting, occupancy or collection shall be
deemed a waiver of the provisions hereof, the acceptance of the assignee,
subleases, undertenant or occupant as Tenant, or a release of Tenant from
the further performance by or enforcement upon Tenant of covenants herein
contained and shall not prevent the Owner from commencing an action or
proceeding to terminate the prime Tenant's Lease and evict the prime Tenant
for the subject premise. Such a termination and eviction action or
proceeding shall be based upon the illegal assignment, subletting or
occupancy by someone other than the Tenant. The acceptance of rent or other
payments to Owner from the assignee, subleases, undertenant or occupant
shall not in any way be construed to relieve Tenant from obtaining the
expressed written consent of Owner for such assignment, sublet or
underletting and shall in no way be construed an acceptance and/or
acknowledgement of such action or person nor shall it confer any rights
upon such person.
III
If this lease is assigned and Owner consents to such assignment,
Tenant covenants and agrees that the term, covenants and conditions of this
lease may be changed, altered or modified in any manner whatsoever by Owner
and the assignee without prior written consent of Tenant, that no such
change, alteration or modification shall release Tenant from the
performance by it of any of the terms, covenant and conditions on its part
to be performed under this lease. Any such change, alteration or
modification which would have the effect of increasing or enlarging
Tenant's obligations or liabilities under this lease shall not, to the
extent only such increase or enlargement, be binding upon Tenant.
ARTICLE 70 - INTERCOM
---------------------
During this lease Tenant shall pay as Additional Rent the sum of $10.00 per
month for maintenance of the exterior buzzer intercom system. If the system
remains out of order for an unreasonable period of time, Tenant shall not
be responsible for intercom charges during such time.
ARTICLE 71 - ESTATE TAX ESCALATION
----------------------------------
71.1 As used herein:
71.1.1 The term "Escalation Year" shall mean each calendar year
which shall include any part of the term.
71.1.2 The term "Taxes" shall mean all real estate taxes,
assessments (special or otherwise), sewer rents, rates and charges, county
taxes or any other governmental charge of a similar or dissimilar nature,
whether general, special, ordinary or extraordinary, foreseen or
unforeseen, which may be levied, assessed or imposed upon or with respect
to all or any part of the land ("Land") upon which the Building is
constructed or the Building by the City or County of New York or any other
taxing authority. If by law any assessment may be divided and paid in
annual installments, then, for the purposes of this Article (a) such
assessment shall be deemed to have been so divided upon application made
thirty (30) days after the date of entry, whether before or after the date
hereof, (b) such assessment shall be deemed payable in the maximum number
of annual installments permitted by law, and (c) there shall be deemed
included in Taxes for each Escalation Year the annual installment of such
assessment becoming payable during such Escalation Year, together with
interest payable during such Escalation Year on such annual installment and
on all installments thereafter becoming due as provided by law, all as if
such assessment had been so divided. If at any time during the Term the
methods of taxation prevailing on the date hereof shall be altered so that
in lieu of or as an addition to or as a substitute for the whole of any
part of the Taxes now levied, assessed or imposed (a) a tax, assessment,
levy, imposition or charge based on the rents received therefrom whether or
not wholly or partially as a capital levy or otherwise, or (b) a tax,
assessment, levy, imposition or charges measured by or based in whole or in
part upon all or any part of the Land or the Building and imposed on Owner,
or (c) a license fee measured by the rent payable by Tenant to Owner, or
(d) any other tax, levy, imposition, charge or license fee however
described or imposed, then all such taxes, assessments, levies,
impositions, charges or license fees or the part thereof so measured or
based, shall be deemed to be Taxes.
71.1.3 The term "Owner's Basic Tax Liability" shall mean the
Taxes attributable to the Land and the Building for Calendar Year 1997, and
"Owner's Base Year" shall mean the Calendar Year 1997.
71.1.4 The term "Tenant's Proportionate Share" shall mean five
point eight (5.8%) percent.
71.2 If Taxes payable in any Escalation Year falling wholly or
partially within the Term shall be in an amount constituting an increase
above Owner's Basic Tax Liability, Tenant shall pay as Additional Rent for
such Escalation Year a sum equal to the Tenant's Proportionate Share of the
amount by which Taxes for such Escalation Year exceed Owner's Basic Tax
Liability. Tenant shall, if Owner so elects, pay his proportionate share of
taxes in advance as Additional Rent.
71.3 If by any reason of any law, statute, regulation or agreement
with a taxing or other governmental authority (including, without
limitation, a so-called "J-51 Program") any part of the Taxes shall be
reduced, i.e., suspended or abated, then there shall be subtracted from
Taxes for purposes of determining the Additional Rent payable hereunder, an
amount equal to the decrease in such taxes due to such suspension or
abatement.
71.4 If, as a result of any application or proceeding brought by or on
behalf of Owner for reduction in the assessed valuation of the Real
Property affecting any Escalation Year commencing after Owner's Base Year,
there shall be a decrease in Taxes for any such Escalation Year with
respect to which Owner shall have previously rendered an Owner's statement,
the Owner's Statement next following such decrease shall include an
adjustment for such Escalation Year reflecting such decrease in Taxes less
all costs and expenses, including, without limitation, any attorneys' fees
incurred by Owner in connection with such application or proceeding with
respect to any Escalation Year occurring after Owner's Base Year.
ARTICLE 72 - MISCELLANEOUS
--------------------------
This Lease embodies the entire agreement between Owner and Tenant. Any
change, addition, waiver, release or discharge of this Lease shall be
ineffective unless signed by the party against whom such change, addition,
waiver, release or discharge is sought to be enforced. Each right, power
and remedy of Owner provided for in this Lease or now or hereafter existing
at law, in equity, by statute or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power or remedy
provided for herein or now or hereafter existing at law, in equity, by
statute or otherwise, and the exercise or beginning of the exercise by
Owner of any one or more of such rights, powers or remedies shall not
preclude the simultaneous or later exercise by Owner of any or all such
other rights, power or remedies.
73. Tenant shall be allowed (4) four listings in each of the building
standard directories, for which it agrees to reimburse the Owner. Tenant
agrees that no signage shall be affixed directly to the entrance door
leading to the Demised Premises.
74. If electric current being supplied to Tenant is by the public
utility corporation serving the part of the city where the building is
located, Tenant agrees to purchase same from such public utility
corporation. If electric current be supplied by Owner, Tenant covenants and
agrees to purchase the same from Owner or Owner's designated agent at
charges, terms and rates set, from time to time, during the term of this
lease by Owner but not more than those specified in the service
classification in effect on January 1, 1970 pursuant to which Owner then
purchased electric current from the public utility corporation serving the
part of the city where the building is located. Said charges may be revised
by Owner in order to maintain the return to Owner produced under the
foregoing in the event that the Public Service commission approves changes
in service classifications, terms, rates or charges for such public utility
during the term hereof. Where more than one meter measures the service of
Tenant in the building, the service rendered through each meter may be
computed and billed separately in accordance with the rates herein. Bills
therefore shall be rendered at such times as Owner may elect. In the event
that such bills are not paid within five (5) days after the same are
rendered, Owner may, without further notice, discontinue the service of
electric current to demised premises without releasing Tenant from any
liability under this lease and without Owner or Owner's agent incurring any
liability for any damage or loss sustained by Tenant by such discontinuance
of service. At the option of Owner, Tenant also agrees to purchase from
Owner or its agent all lamps or bulbs used in the demised premises and to
pay the cost of installation thereof. Owner shall not in any other wise be
liable or responsible to Tenant for any loss or damage or expense which
Tenant may sustain or incur if either the quantity or character of electric
services is changed or is no longer available or suitable for Tenant's
requirements. Any riser or risers to Supply Tenant's electrical
requirements, upon written request of Tenant, will be installed by Owner,
at the sole cost and expense of Tenant, if in Owner's sole judgment the
same are necessary and will not cause permanent damage or injury to the
building or demised premises or cause or create a dangerous or hazardous
condition or entail excessive or unreasonable alterations, repair or
expense or interfere with or disturb other tenants or occupants. In
addition to the installation of such riser or risers Owner will also, at
the sole cost and expense of Tenant, install all other equipment proper and
necessary in connection therewith subject to the aforesaid terms and
conditions. Tenant covenants and agrees that at all times its use of
electric current shall never exceed the capacity of existing feeders to the
building or the risers or wiring installations. It is further covenanted
and agreed by Tenant that all the aforesaid costs and expenses shall be
paid by Tenant to Owner within five (5) days after rendition of any bill or
statement to Tenant therefore. Owner may discontinue any of the aforesaid
services upon thirty (30) days notice to Tenant without being liable to
Tenant therefore or without in any way affecting this lease or the
liability of Tenant hereunder or causing a diminution of rent and the same
shall not be deemed to be a lessening or diminution of services within the
meaning of any law, rule or regulation now or hereafter enacted,
promulgated or issued. In the event Owner gives such notice of
discontinuance, Owner shall permit Tenant to receive such service direct
from said public utility corporation, in which event, the Tenant will, at
its own cost and expense, furnish and install all risers, service wiring,
and switches that may be necessary for such installation and required by
the public utility company, and will, at its own cost and expense, maintain
and keep in good repair all such risers, wiring and switches. Tenant shall
make no alterations or additions to the electric equipment and/or
appliances without the prior written consent of Owner in each instance.
Rigid conduit only will be allowed. If any tax is imposed upon Owner's
receipts from the sale or resale of electric energy or gas or telephone
service to Tenant by any Federal, State or Municipal Authority, Tenant
covenants and agrees that where permitted by law, tenant's pro rata share
of such taxes shall be passed on to and included in the bill of and paid by
Tenant to Owner. Any sums due and payable to Owner under this Article shall
be collectible as Additional Rent.
75. Intentionally Deleted.
76. Owner's Work within the Demised Premises shall consist of the
following:
a. Landlord shall deliver Premises in broom-clean condition,
"AS IS", with windows in reasonably operable condition.
77. Upon completion of Tenant construction to alter or improve
interior of Demised Premises, Tenant shall submit copies of bills and
canceled checks paid for such work, which shall not include furnishings, to
Landlord. Upon Landlord's verification of the validity of work completed
and bills and canceled checks submitted, Landlord will reimburse Tenant for
the cost of such work up to a maximum of $29,000.00.
78. Tenant shall have the first right to lease, from and after such
dates on which Tenant, from time to time, gives Landlord notice that it
wishes to lease additional space pursuant to this first right to lease any
unencumbered space which may become available on the 3rd or 5th floors, if
not designated by Landlord for residential use. Landlord shall not be
obligated to notify Tenant of such designation when it occurs. Tenant must
exercise this right within twenty days of giving notice.
79. Landlord represents that Tenant shall have access to the Building
24 hours a day, 7 days a week.
LEASE MODIFICATION AND EXPANSION AGREEMENT
This Agreement is dated as of October 1, 1997 between FIFTH AVENUE
WEST ASSOCIATES, L.P., having an office at 13 East 16th Street, Suite #400,
New York, New York 10003 ("Owner") and WEBGENESIS, INC., a corporation
having an address at 31 West 21st Street, New York, New York 10010
("Tenant").
Recitals
--------
A. Owner is the current owner of the premises having an address at 31
West 21st Street, New York, New York 10010 ("Building") .
B. Tenant occupies Suite #400 of the Building pursuant to a Lease
dated January 14, 1997 between FIFTH AVENUE WEST ASSOCIATES, L.P., as
Owner, and WEBGENESIS, INC., as Tenant.
C. The Lease for Suite #400 provides that it shall terminate on
January 31st, 2002 unless otherwise renewed or extended.
D. Upon payment of Ten ($10.00) Dollars by Tenant to Owner, the
receipt and sufficiency of which is acknowledged, Owner and Tenant agree
that:
1. The Lease shall be amended to provide that, as of December 1,
1997, Suite #602 shall be added to the Demised Premises, so that the first
page of the Lease shall read "Owner hereby leases to Tenant and Tenant
hereby hires from Owner, Suite #400 and Suite #602."
2. The terms of the Lease Modification and Expansion Agreement
for Suite #602 shall expire on November 30, 1999 unless sooner terminated
pursuant to the provisions of the Lease.
3. Article 41 ("Fixed Rent and Additional Rent") shall be amended
so that during the Modification and Expansion Period from December 1, 1997
to November 30, 1999, Tenant's annual Fixed Rent shall be increased by
$44,800.00, representing charges applicable for Suite #602. All rent shall
be paid on the first day of each month in advance in equal monthly
installments.
4. Article 29 ("Water Charges") and Art1cle 30 ("Sprinklers")
shall be amended so that during the Modification and Expansion Period,
Tenant's monthly charges shall be increased by $30.00 each, representing
the charges applicable for Suite #602.
5. Article 32 ("Security") shall be amended so that Tenant's
security deposit for suites #400 and #602 shall at all times be equal to
two months Fixed and Additional Rent.
6. Article 50 ("Legal Requirements") shall be amended so that
during the Modification and Expansion Period, Tenant's charges shall be
increased by five point eight percent (5.8%), representing the share
applicable to Suite #602.
7. Article 70 ("Intercom") shall be amended so that during the
Modification and Expansion period, Tenant's monthly charge shall be
increased by $10.00, representing the charge applicable to Suite #602.
8. Article 71 ("Real Estate Tax Escalation") shall be amended for
the Modification and Expansion Period so that "Tenant's Proportionate
Share" shall be increased by five point eight percent (5.8%), representing
the share applicable to Suite #602.
9. Owner shall deliver Suite #602 to Tenant in broom-clean
condition.
10. Except as modified by this Agreement, all other provisions of
the Lease shall continue as stated in the Lease for the Modification and
Expansion Period.
11. Except as modified by this Agreement, Tenant shall be
required to pay all Additional Rent as stated in the Lease during the
Modification and Expansion Period.
12. Execution of this Agreement by the Owner shall not constitute
a waiver of or consent to any default, breach or condition that might ripen
into a default or breach and Owner preserves any right or remedy it may
have against Tenant with respect thereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
first day first written above.
/s/ /s/
- --------------------------------- ----------------------------
FIFTH AVENUE WEST ASSOCIATES, L.P. WEBGENESIS, INC.
BY STEVEN ALBERT, GENERAL PARTNER BY: (PLEASE PRINT)
TITLE: [illegible]
NAME: [illegible]
COMMERCIAL USE ONLY - NO LIVING ALLOWED
---------------------------------------
EXHIBIT 10.9
D.A.R.T. SERVICE AGREEMENT
--------------------------
"DART Technology," as herein defined, may be used only on the
condition that the Company (as defined herein) agrees to the following
terms and conditions. As of April 15, 1997, DoubleClick, Inc.
("DoubleClick") with an address at 41 Madison Avenue, New York, NY 10010
grants to:
Company: Web Genesis, Inc.
Address: 31 West 21st Street, 4th Floor
------------------------------
New York, NY USA 10011
---------------------------------------------
City State Country Zip Code
(herein "Company"), and Company hereby accepts on the terms and conditions
set forth herein, the right to use the DART Technology, developed and owned
by DoubleClick as described below in connection with the delivery of
Banners (as defined herein) to the Web Site (as defined herein).
1. Definitions: As used herein the following defined terms shall
have the following meanings:
a. "Advertiser" is defined as each advertiser which
authorizes Company to deliver said advertiser's Banners to the Web
Site.
b. "Banner" is defined as an Advertiser's advertisement and
its contents which appears on the Web Site.
c. "Impression" is defined as occurring each time a Banner
appears on the Web Site resulting from a user accessing or visiting
such Web Site.
d. "Non-Paying Banner" is defined as a Banner for which
Company does not receive payment or consideration of any kind for its
delivery to the Web Site. All Non-Paying Banners shall reside on
Company's server.
e. "Paid Banner" is defined as a Banner for which Company
shall receive payment or consideration of any kind (including, without
limitation, in-kind or barter consideration) from an Advertiser for
delivery of its Banner to the Web Site.
f. "Web Site" is defined as webgenesis.com.
2. DART Technology: The DART Technology consists of (a) any and
all of DoubleClick's proprietary technology which allows for the targeted
delivery of Banners to Internet users based on a set of criteria selected
by Advertisers, (b) DoubleClick's Ad Management System and (c) all
accompanying written, explanatory or technical material, user or reference
manuals and installation guidelines related to the DART technology (the
"Documentation").
Company shall be given a unique password to access DoubleClick's
Ad Management System so as to permit the delivery of Banners using the DART
Technology which password shall be made available to DoubleClick by Company
for DoubleClick's use in trafficking Banners as provided hereunder. Company
shall be solely responsible for soliciting all Advertisers and handling all
Advertiser inquiries of any type or nature.
DoubleClick's sole obligations hereunder shall be to (a) make the
DART Technology available to Company for the delivery of Banners, (b)
traffic Banners using the DART Technology, which trafficking shall consist
of inputting the Banners into the DART Technology service and (c) redirect
its server to pick up Non-Paying Banners from Company's server so as to
enable Company to deliver said Non-Paying Banners. Notwithstanding the
foregoing, Company may, upon thirty (30) days prior written notice to
DoubleClick, and provided Company's designated employees have been trained
by DoubleClick as provided herein, traffic Banners using the DART
Technology. Thereafter, Company shall be solely responsible for trafficking
all Banners in connection with the Web Site.
3. Grant of Rights: In consideration of Company's payment to
DoubleClick of the fees specified in this Agreement, DoubleClick grants
Company the non-exclusive and non-transferable right during the Term hereof
to use the DART Technology for delivery Banners to the Web Site. The
parties acknowledge and agree that Company's access to the DART Technology
shall not extend beyond that necessary to permit Company to deliver the
Banners to the Web Site. Company agrees that it shall be solely responsible
for all costs and expenses it incurs in connection with this Agreement and
use of the DART Technology, including, without limitation, expenses
associated with creating, developing, editing, updating and otherwise
managing Banners and all content and services available on or through
Banners, delivery of Banners to the Web Site and establishment and
maintenance of links to the Web Site.
4. Training: DoubleClick shall provide those employees of Company
who will be accessing and using the DART Technology with a training course
(the "Training Course") explaining the proper use of the DART Technology at
a time and place to be mutually agreed upon by DoubleClick and Company.
Company acknowledges and agrees that (a) it shall not permit any of its
employees to access and use the DART Technology unless any such employee
has successfully completed the Training Course and has been so certified by
DoubleClick; and (b) the DART Technology shall only be used in accordance
with the policies, practices and procedures described in the Documentation.
5. Fee: In consideration of the rights herein granted, Company
agrees to pay to DoubleClick as follows:
a. For Paid Banners: DoubleClick shall receive a monthly fee
calculated as follows:
Number of Paid Banner Cost Per One Thousand
Impressions per Month Impressions (CPM)
--------------------- ---------------------
0 - 5,000,000
5,000,001 and above
(By way of example, if for a given calendar month there are 7,000,000
Paid Banner Impressions and DoubleClick provides trafficking services,
DoubleClick's fee for said month shall equal calculated as
follows: (i) /CPM for Paid Banner Impressions 1 through 5,000,000
(i.e. ) and (ii) /CPM for Paid Banner Impressions 5,000,001
through 7,000,000 (i.e. ).
If Company elects to traffic Paid Banners as provided in
paragraph 2 hereof, the above referenced costs per 1,000 Paid Banner
Impressions shall each be reduced by to and ,
respectively.
b. For Non-Paying Banners: Company shall pay to DoubleClick
a monthly fee equal to /CPM for Non-Paying Banner Impressions.
c. Payment Terms: All fees due to DoubleClick for any
calendar month shall be payable by check within thirty (30) days
following the end of each month.
6. Term: The term of this Agreement (the "Initial Term") shall
commence on the date first set forth above and shall continue for a period
of six (6) months thereafter. The term shall thereafter be automatically
extended on the same terms and conditions as are contained herein for five
(5) consecutive additional six (6) month periods (the "Subsequent Periods")
unless either party provides the other with written notice at least sixty
(60) days prior to the end of the Initial Term or any Subsequent Period
stating that the Agreement shall not be renewed. The Initial Term and any
Subsequent Period, shall collectively be referred to as the "Term". Upon
the expiration or earlier termination of this Agreement, Company's right to
use the DART Technology or any part thereof shall end immediately and
Company shall no longer access the DART Technology and Company shall return
all original Documentation (and any authorized copies of said original
Documentation) to DoubleClick.
7. Limitations on Use: Company may not use, copy, modify, alter
or distribute the DART Technology (electronically or otherwise), except as
expressly authorized by DoubleClick in writing. Under no circumstances may
Company reverse assemble, reverse compile or otherwise attempt by any other
method to create or derive the source programs or any part thereof from the
object program or from other information made available under this
Agreement or otherwise, nor authorize any third parties to do the same.
Company shall not be entitled to copy the Documentation, except as
expressly authorized by DoubleClick in writing.
8. Proprietary Protection: Company understands and acknowledges
that the DART Technology reflects substantial trade secrets of DoubleClick
and that DoubleClick shall have the sole and exclusive ownership of all
right, title and interest in and to the DART Technology and all copies, and
all Enhancements (as defined herein) thereto (including ownership of all
copyrights, patents and other intellectual property rights pertaining
thereto), subject only to the rights expressly granted to Company herein.
This Agreement does not provide Company with any title to or ownership
interest in the DART Technology, but only with a right of limited use
during the Term hereof. At no time shall Company assert any right, title or
interest in the DART Technology or any element thereof or in any new
release of or Enhancement to the DART Technology or in the names
"DoubleClick", "Spotlight", "Test It", or any derivatives thereof, or any
other trademarks, service marks, tradenames, symbols and logos owned or
controlled by DoubleClick (collectively, "DoubleClick's Proprietary
Materials"). Company agrees that it will not directly or indirectly use or
permit any of DoubleClick's Proprietary Materials to be used in connection
with any product, service, promotion or publication without DoubleClick's
prior written consent. Company further acknowledges and agrees that the
Documentation was developed by DoubleClick and DoubleClick retains the sole
and exclusive ownership of, and all right, title and interest in and to the
Documentation, including the copyrights therein.
9. Maintenance: Upon Company's request, DoubleClick will provide
maintenance services, if DoubleClick's personnel are available to provide
such technical support, for a fee to be negotiated in good faith by the
parties prior to DoubleClick providing such services [, based upon
DoubleClick's standard hourly rates]. It is understood and agreed that
DoubleClick shall not be required to perform any maintenance services
hereunder.
10. Updates and Upgrades: During the Term hereof and upon
Company's request and only as long as all outstanding fees have been paid
by Company to DoubleClick, DoubleClick shall provide Company with any
non-custom enhancements, maintenance modifications, updates and/or upgrades
of the DART Technology (collectively, "Enhancements") as they become
available, at no additional expense to Company and upon the provision of
said Enhancements to Company the foregoing will become part of the DART
Technology for purposes of this Agreement. DoubleClick's failure to provide
Enhancements shall not be deemed a material breach of this Agreement.
11. Representations and Warranties by DoubleClick: DoubleClick
warrants and represents that DoubleClick has the full unrestricted right,
power, and legal capacity to enter into this Agreement, to carry out the
terms and conditions hereof and to grant to Company the rights and
privileges herein granted to Company. EXCEPT AS PROVIDED IN THIS PARAGRAPH
11, DOUBLECLICK MAKES NO WARRANTIES OF ANY KIND, WHETHER EXPRESS OR
IMPLIED, INCLUDING ANY IMPLIED WARRANTY OR MERCHANTABILITY OR FITNESS OF
THE DART TECHNOLOGY FOR A PARTICULAR PURPOSE. DOUBLECLICK SHALL NOT BE
LIABLE FOR OR TO COMPANY, NOR FOR OR TO ADVERTISERS, NOR FOR THE CONTENTS
OF THE WEB SITE OR PAGES, NOR FOR ANY LOSS, COST, DAMAGE OR EXPENSE
(INCLUDING COUNSEL FEES) INCURRED BY ANY ADVERTISER IN CONNECTION WITH THE
DELIVERY OF ANY OF ADVERTISER'S BANNERS TO THE WEB SITE BY COMPANY,
INCLUDING, WITHOUT LIMITATION, FOR ANY TECHNICAL MALFUNCTION, COMPUTER
ERROR OR LOSS OF DATA OR OTHER INJURY, DAMAGE OR DISRUPTION TO ADVERTISER'S
BANNERS. IN NO EVENT SHALL DOUBLECLICK BE LIABLE FOR ANY INDIRECT,
INCIDENTIAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES ARISING OUT OF OR
RELATED TO THIS AGREEMENT EVEN IF SUCH DAMAGES ARE FORSEEABLE AND WHETHER
OR NOT DOUBLECLICK HAS BEEN ADVISED OF THE POSSIBILITY THEREOF. IN NO EVENT
SHALL DOUBLECLICK'S LIABILITY ARISING OUT OF THE USE OF THE DART TECHNOLOGY
OR OTHERWISE OUT OF THIS AGREEMENT, NOTWITHSTANDING THE FORM IN WHICH ANY
ACTION MAY BE BROUGHT (E.G. TORT, CONTRACT, OR OTHERWISE) EXCEED THE TOTAL
AMOUNT PAID TO DOUBLECLICK BY COMPANY HEREUNDER. COMPANY SHALL REQUIRE ALL
ADVERTISERS TO SIGN A STATEMENT ACKNOWLEDGING THE FOREGOING, WHICH
STATEMENTS SHALL BE PROMPTLY FORWARDED TO DOUBLECLICK BY COMPANY. THE
COMPANY ACKNOWLEDGES THAT THE AFOREMENTIONED REQUIREMENT IS OF THE ESSENCE
OF THIS AGREEMENT.
12. Representation and Warranties by Company: Company warrants
and represents that:
a. Company has the full unrestricted right, power, and legal
capacity to enter into this Agreement, to grant the rights herein
granted and fully to perform its obligations hereunder;
b. Company has entered into Agreements with each Advertiser
granting Company the right to deliver said Advertiser's Banners to the
Web Site using DART Technology;
c. Company and/or Advertisers own and/or have the right to
use to the extent necessary all material contained in the Banners,
including, without limitation, the copyright, trademark and other
proprietary rights in and to such materials and the use of such
materials will not violate any federal, state or local laws or
regulations;
d. Company and/or Advertisers have secured the requisite
permission to use any person's name, voice, likeness and performance
as embodied in the Banners, or any other element contained in said
material; and
e. Company's use of the DART Technology will not violate any
federal, state or local laws.
13. Indemnification: Company agrees to indemnify and hold
DoubleClick harmless from and against any and all claims, actions, losses,
damages, liability, costs and expenses (including reasonable attorneys'
fees) arising out of or in connection with (i) the breach of any
representation, warranty or agreement made by Company hereunder, (ii) the
Web Site including, without limitation, claims for infringement of
copyright or other intellectual property rights and violation of rights of
privacy or publicity and/or (iii) the delivery of Banners by Company using
the DART Technology. DoubleClick shall promptly notify Company of all
claims and proceedings related thereto of which DoubleClick becomes aware.
14. Termination by DoubleClick: DoubleClick shall have the right
to terminate this Agreement at any time if:
a. Company breaches or is in default of any of its
representations, warranties, agreements, covenants or obligations
contained herein, including, without limitation, Company's payment
obligations, and fails to cure such breach or default within thirty
(30) days of Company's receipt of DoubleClick's written notice of such
default.
b. DoubleClick, in its reasonable good faith discretion,
determines that Company has used, could use, or intends to use the
DART Technology in such a manner that (a) could damage or cause injury
to the DART Technology or (b) reflects unfavorably on the reputation
of DoubleClick.
15. Assignment: The Agreement does not extend to Company's
subsidiaries, affiliates, assignees, or related or sister companies.
Company's rights hereunder may not be sold, transferred, leased, assigned
or sublicensed to any individual, firm, corporation or other entity
(including, without limitation, Company's subsidiaries, affiliates,
assignees, or related or sister companies) without DoubleClick's prior
written consent. Any act in derogation of the foregoing shall be null and
void and shall not relieve Company of its obligations under this Agreement.
Any attempt by Company to assign the rights granted herein shall be void
and shall automatically terminate Company's right to use the DART
Technology.
16. Audit Rights: Upon written notice, DoubleClick may examine
(or at DoubleClick's cost and expense appoint an independent certified
public accountant or reputable industry audit representative to examine)
the books and records of Company relating to the revenues earned by Company
in connection with its delivery of Banners using the DART Technology, on
the premises of Company, during reasonable business hours.
17. Confidentiality: Any information relating to or disclosed in
the course of this Agreement by either party (the "Disclosing Party") to
the other party (the "Receiving Party"), which is or should be reasonably
understood to be confidential or proprietary to the Disclosing Party,
including but not limited to, the material terms of this Agreement,
information about the DART Technology and technical processes and formulas,
source code, product designs, sales, cost and other unpublished financial
information, product and business plans, projections, and marketing data
shall be deemed "Confidential Information" and shall not be used, disclosed
or reproduced by the Receiving Party without the Disclosing Party's prior
written consent. "Confidential Information" shall not include information
(a) already lawfully known to or independently developed by the Receiving
Party, (b) disclosed in published materials, (c) generally known to the
public, (d) lawfully obtained from any third party, or (e) required to be
disclosed by law.
18. Independent Contractor Status: For purposes hereof each party
shall be and act as an independent contractor and not as partner, joint
venturer or agent of the other.
19. Modifications and Waivers: This Agreement, including
represents the entire understanding between DoubleClick and Company and
supersedes all prior agreements. No waiver, modification or addition to
this Agreement shall be valid unless in writing and signed by the parties
to this Agreement.
20. Applicable Law: This Agreement shall be governed by and
construed in accordance with the substantive laws of the State of New York
and Company agrees that jurisdiction and venue of all matters relating to
this Agreement shall be vested exclusively in the federal, state or local
courts within the State of New York.
21. Severability: If any provision of this Agreement shall be
adjudicated by any court of competent jurisdiction to be unenforceable or
invalid, that provision shall be limited or eliminated to the minimum
extent necessary so that this Agreement shall otherwise remain in full
force and effect and the other provisions shall be unaffected.
Accepted:
WEB GENESIS INC.
By:
---------------------------
Title:
------------------------
Approved:
DOUBLECLICK, INC.
By:
---------------------------
Title:
------------------------
EXHIBIT 10.10
Amendment dated as of May 1, 1998, to original DART Service Agreement dated
April 15, 1997. For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby amend the
original DART Service Agreement as follows:
I. All capitalized terms used herein but not otherwise defined herein shall
have the meaning set forth in the original DART Service Agreement.
II. The following shall constitute new and revised definitions to the
original DART Service Agreement.
New and Revised Definitions:
"Paid Banner" is defined as a Banner for which Company shall receive
payment or consideration of any kind (including, without limitation,
in-kind or barter consideration) from an Advertiser for the delivery of its
Banner to the Web Site. Paid Banners do not include Non-Paying Banners,
Button Banners and Chat Banners.
"Non-Paying Banner" is defined as a Banner for which Company does not
receive payment or consideration of any kind for its delivery to the Web
Site. All Non-Paying Banners shall reside on the Company's server.
"Button Banner" is defined as a Banner for which Company shall receive
payment or consideration of any kind (including, without limitation,
in-kind or barter consideration) from an Advertiser for delivery of its
Banner to the Web Site that is 120 pixels wide by 120 pixels high or
smaller. All Button Banners shall reside on the Company's Server.
"Chat Banner" is defined as a Banner for which Company shall receive
payment or consideration of any kind (including, without limitation,
in-kind or barter consideration) from an Advertiser for delivery of its
Banner to the areas of the Web Site the content of which is exclusively
online chat, whereby users communicate with one another in near real time.
All Chat Banners shall reside on the Company's server.
III. The following amends the fee in the original DART Service Agreement
and shall take effect on May 1, 1998.
Revised Fees for Banners trafficked by Company:
A. For Paid Banners which Company traffics, DoubleClick shall receive
a monthly fee calculated as follows:
Number of Paid Banner Cost Per One Thousand
Impressions per Month Impressions (CPM)
- --------------------- ---------------------
First 10,000,000
From 10,000,001 to 20,000,000
From 20,000,001 to 30,000,000
From 30,000,001 to 40,000,000
From 40,000,001 to 50,000,000
From 50,000,001 and above
By way of example, if for a given calendar month there are 30,000,000 Paid
Banner Impressions which are trafficked by Company and delivered through
the DART Service, DoubleClick's fee for said month shall equal
calculated as follows: (i) /CPM for Paid Banner Impressions 1 through
10,000,000 (i.e. ); plus (ii) /CPM for Paid Banner Impression
10,000,001 to 20,000,000 (i.e. ); plus (iii) /CPM for Paid Banner
Impressions 20,000,001 to 30,000,000 (i.e. ).
B. For Non-Paying Banners which Company traffics: Company shall pay to
DoubleClick a monthly fee equal to /CPM for Non-Paying Banners
trafficked by Company and delivered through the DART Service provided that
Non-Paying Banners will not be served from DoubleClick's servers, but shall
be redirected by DoubleClick to the Company's servers for delivery from
such servers.
C. For Button Banners and Chat Banners which Company traffics: Company
shall pay to DoubleClick a monthly fee equal to /CPM for Button
Banners and Chat Banners trafficked by Company and delivered through the
DART Service, provided that Button Banners and Chat Banners will not be
served from DoubleClick's servers, but shall be redirected by DoubleClick
to the Company's servers for delivery from such servers.
Except as otherwise amended by this Amendment, the terms and conditions of
the original DART Service Agreement are hereby ratified and confirmed and
shall continue in full force and effect.
Accepted: Approved:
WEB GENESIS DOUBLECLICK INC.
By: By:
----------------------- -----------------------
Title: Title:
----------------------- -----------------------
Date: Date:
----------------------- -----------------------
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, dated as of August 31st, 1998 (this
"Agreement"), by and between theglobe.com, inc., a Delaware corporation
(the "Company") and Dean Daniels (the "Employee").
WHEREAS, the Employee represents that he possesses skills,
experience and knowledge that are of value to the Company; and
WHEREAS, the Company desires to enlist the services and
employment of the Employee on behalf of the Company and the Employee is
willing to render such services on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereto agree as follows:
1. Employment Term. Subject to the terms and provisions of this
Agreement, the Company hereby agrees to employ the Employee and Employee
hereby agrees to be employed by the Company for the period commencing on
the date of this Agreement and ending on the third anniversary of the date
of this Agreement, unless terminated sooner as hereinafter provided (the
"Employment Term").
2. Duties. During the Employment Term the Employee shall serve as
Chief Operating Officer of the Company or such other position(s) as may be
agreed upon by Company and Employee and shall perform such duties, services
and responsibilities incident to such position(s) as determined from time
to time by the Board of Directors of the Company (the "Board"). The
Employee also agrees to perform such other duties, services and
responsibilities as may from time to time be requested by the Board
commensurate with the Employee's position(s). In performing such duties
hereunder, the Employee will report directly to the Chief Executive Officer
and/or the President of the Company.
The Employee shall devote his full business time, attention and
skill to the performance of such duties, services and responsibilities, and
will use his best efforts to promote the interests of the Company. The
Employee will not, without the prior written approval of the President or
Chief Executive Officer of the Company, engage in any other corporate,
civic or charitable activity which would interfere with the performance of
his duties as an employee of the Company, is in violation of written
Company policies, is in violation of applicable law, or would create a
conflict of interest with respect to the Employee's obligations as an
employee of the Company.
3. Compensation. In consideration of the performance by the
Employee of the Employee's obligations during the Employment Term
(including any services as an officer, director, employee, member of any
committee of the Company or any subsidiary, or otherwise), the Company
shall compensate the Employee as follows:
(a) A base salary (the "Base Salary") at an annual rate of not
less than $250,000 per year, payable in accordance with the normal payroll
practices of the Company then in effect. Over the course of the Employment
Term, the Employee will be eligible to receive annual increases in the Base
Salary as determined by the Chief Executive Officer and the President of
the Company within the guidelines established by the Board of Directors.
(b) An annual cash bonus of no less than $50,000 (the "Bonus").
(c) Options to purchase shares of common stock of the Company, in
the amounts and under the terms and conditions (including as to timing of
vesting) set forth in the stock option attached hereto, which stock option
has been duly executed and delivered by the Company and Employee on or
prior to the date of this Agreement.
The Employee shall be solely responsible for taxes imposed on the
Employee by reason of any compensation and benefits provided under this
Agreement (except those taxes normally borne by the Company) and all such
compensation and benefits shall be subject to applicable withholding taxes.
4. Disability. If the Employee is unable, as reasonably
determined by the Chief Executive Officer or President of the Company, to
perform his duties, services and responsibilities hereunder by reason of a
physical or mental infirmity for a total of 90 calendar days in any
twelve-month period during the Employment Term ("Disability"), the Company
shall not be obligated to pay the Employee any Base Salary for any period
of absence in excess of such 90 calendar days and, in any case, shall be
entitled to terminate the Employee's employment hereunder in accordance
with Section 7.
5. Benefits and Stock Options. In addition to the payments
described in Section 3 of this Agreement, during the period that the
Employee is employed by the Company pursuant to this Agreement, the
Employee shall be entitled to participate in any employee benefit plans
(including any stock option or similar plans) then in effect for similarly
situated employees and receive any other fringe benefits that the Company
then provides to similarly situated employees to the extent the Employee
meets the eligibility requirements for any such plan or benefit.
6. Vacations. During the Employment Term the Employee shall be
entitled to no less than 15 the number of paid vacation days in each
calendar year.
7. Termination. The Employee's employment with the Company and
the Employment Term shall terminate upon the expiration of the Employment
Term or upon the earlier occurrence of any of the following events:
(a) The death of the Employee ("Death").
(b) The mutual agreement between the Company and the Employee on
an early termination date.
(c) The termination of employment by the Company for Cause.
Termination of employment for "Cause" shall mean termination based on: (i)
the Employee's material breach of this Agreement, (ii) conduct by the
Employee that is fraudulent or unlawful, (iii) gross negligence of or
willful misconduct by the Employee which discredits or damages the Company
or (iv) willful and repeated failure to perform his duties and such failure
to perform adversely affects the Company.
(d) The termination of employment by the Company for Disability.
(e) The termination of employment by the Company other than for
Cause, Disability or Death.
8. Termination Payments. If the Employee's employment with the
Company terminates for whatever reason, the Company will pay the Employee
(i) any accrued and unpaid Base Salary as of the Termination Date and (ii)
an amount to reimburse the Employee for any and all monies advanced or
expenses incurred in connection with the Employee's employment for
reasonable and necessary expenses incurred by the Employee on behalf of the
Company on or prior to the date of termination but not paid to the
Employee. If the Employee's employment with the Company terminates pursuant
to Section 7(e) hereof, (i) all stock options held by the Employee that
have not vested shall automatically vest, (ii) the Company will continue to
pay the Employee an amount equal to the Employee's Base Salary (at the rate
in effect at the time of termination of employment) for one year following
the termination of Employee's employment, and (iii) the Company will pay
the Employee an amount in the cash equal to the Bonus in respect of the
calendar year in which such termination occurs.
The foregoing payments upon termination shall constitute the
exclusive payments due the Employee upon termination under this Agreement,
but shall have no effect on any benefits which may be due the Employee
under any plan of the Company which provides benefits after termination of
employment, other than severance pay or salary continuation which shall be
reduced by the amount of any payment received by the Employee pursuant to
this Agreement.
9. Employee Covenants.
------------------
(a) Unauthorized Disclosure. The Employee agrees and understands
that in the Employee's position with the Company, the Employee has been and
will be exposed to and receive information relating to the confidential
affairs of the Company and its subsidiaries and/or affiliates, including
but not limited to technical information, intellectual property, business
and marketing plans, strategies, customer information, other information
concerning the products, promotions, development, financing, expansion
plans, business policies and practices of the Company, its subsidiaries
and/or affiliates, and other forms of information considered by the Company
to be confidential and in the nature of trade secrets. The Employee agrees
that during the Employment Term and thereafter, the Employee will keep such
information confidential and not disclose such information, either directly
or indirectly, to any third person or entity without the prior written
consent of the Company. This confidentiality covenant has no temporal,
geographical or territorial restriction. Upon termination of this
Agreement, the Employee will promptly supply to the Company all property,
keys, notes, memoranda, writings, lists, files, reports, customer lists,
correspondence, tapes, disks, cards, surveys, maps, logs, machines,
technical data or any other tangible product or document which has been
produced by, received by or otherwise submitted to the Employee during or
prior to the Employment Term. Any material breach of the terms of this
paragraph shall be considered Cause.
(b) Non-competition. By and in consideration of the Company's
entering into this Agreement and the payments to be made and benefits to be
provided by the Company hereunder, and further in consideration of the
Employee's exposure to the proprietary information of the Company, the
Employee agrees that the Employee will not, during the Employment Term and
for a period of one year thereafter (the "Non-competition Term"), directly
or indirectly own, manage, operate, join, control, be employed by, or
participate in the ownership, management, operation or control of, or be
connected in any manner, including but not limited to holding, the
positions of shareholder, director, officer, consultant, independent
contractor, employee, partner, or investor, in the case of a termination in
any Restricted Enterprise (as defined below); provided that in no event
shall ownership of less than 1% of the outstanding equity securities of any
issuer whose securities are registered under the 1934 Act, standing alone,
be prohibited by this Section 9(b). For purposes of this paragraph, the
term "Restricted Enterprise" shall mean any person, corporation,
partnership or other entity engaged in the virtual community or portal
business. Following termination of this Agreement, upon request, the
Employee shall notify the Company of the Employee's then current employment
status.
(c) Non-solicitation. During the Non-competition Term, the
Employee shall not interfere with or harm, or intentionally attempt to
interfere with or harm, the relationship with the Company or its
subsidiaries, or endeavor to entice away from the Company or its
subsidiaries, any person who at any time during the Employment Term was an
employee or customer of the Company or any of its subsidiaries or otherwise
had a material business relationship with the Company or any of its
subsidiaries.
(d) Remedies. The Employee agrees that any breach of the terms of
this Section 9 would result in irreparable injury and damage to the Company
for which the Company would have no adequate remedy at law; the Employee
therefore also agrees that in the event of said breach or any anticipatory
breach under applicable law, the Company shall be entitled to an immediate
injunction and restraining order to prevent such breach and/or threatened
breach and/or continued breach by the Employee and/or any and all persons
and/or entities acting for and/or with the Employee, without having to
prove damages, and to all costs and expenses, in addition to any other
remedies to which the Company may be entitled at law or in equity. The
terms of this paragraph shall not prevent the Company from pursuing any
other available remedies for any breach or threatened breach hereof,
including but not limited to the recovery of damages from the Employee. The
Employee and the Company further agree that the provisions of the covenant
not to compete are reasonable. The Employee hereby acknowledges that due to
the global aspects of the Company's business and competitors it would not
be appropriate to include any geographic limitation on this Section 9.
Should a court or arbitrator determine, however, that any provision of the
covenant not to compete is unreasonable, either in period of time,
geographical area, or otherwise, the parties hereto agree that the covenant
should be interpreted and enforced to the maximum extent which such court
or arbitrator deems reasonable.
The provisions of this Section 9 shall survive any termination of
this Agreement and the Employment Term.
10. Proprietary Rights. The Employee represents and warrants that
all patents, patent applications, rights to inventions, copyright
registrations and other license, trademark and trade name rights heretofore
owned by the Employee and relating to the business of the Company or any of
its subsidiaries have been duly transferred to such corporation.
11. Non-Waiver of Rights. The failure to enforce at any time the
provisions of this Agreement or to require at any time performance by the
other party of any of the provisions hereof shall in no way be construed to
be a waiver of such provisions or to affect either the validity of this
Agreement or any part hereof, or the right of either party to enforce each
and every provision in accordance with its terms.
12. Notices. Every notice relating to this Agreement shall be in
writing and shall be given by personal delivery or by registered or
certified mail, postage prepaid, return receipt requested.
13. Binding Effect/Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
heirs, executors, personal representatives, estates, successors (including,
without limitation, by way of merger) and assigns. Notwithstanding the
provisions or the immediately preceding sentence, the Employee shall not
assign all or any portion of this Agreement without the prior written
consent of the Company.
14. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements, written or oral, between them
as to such subject matter. This Agreement may not be amended, nor may any
provision hereof be modified or waived, except by an instrument in writing
duly signed by the party to be charged.
15. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part,
such provision or application shall to that extent be severable and shall
not affect other provisions or applications of this Agreement.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York,
without reference to the principles of conflict of laws.
17. Modifications and Waivers. No provision of this Agreement may
be modified, altered or amended except by an instrument in writing executed
by the parties hereto. No waiver by either party hereto of any breach by
the other party hereto of any provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions at the time or at any prior or subsequent time.
18. Headings. The headings contained herein are solely for the
purposes of reference, are not part of this Agreement and shall not in any
way affect the meaning or interpretation of this Agreement.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by authority of its Board of Directors, and the Employee has
hereunto set his hand, the day and year first above written.
Company:
-------
theglobe.com, inc.
By:
----------------------------------
Stephan Paternot, President
Employee:
-------------------------------------
Dean Daniels
<PAGE>
SCHEDULE 1
----------
STOCK OPTION
- ------------
The Employee shall be granted a stock option (the "Option") to purchase
175,000 shares of Common Stock, with an exercise price per share equal to
the fair market value per share of Common Stock as of the date of grant.
The Option shall vest with respect to one-third of the shares subject
thereto on each of the first 3 anniversaries of the date of grant. The
Option shall be subject to the terms and conditions set forth in the Plan,
a copy of which has been provided to the Employee.
In the event that the Company's revenues in respect of fiscal year 1998
reach $7 million, the Employee shall also be granted an Option to purchase
25,000 shares of Common Stock, with an exercise price per share equal to
the fair market value per share of Common Stock as of the date of grant.
The option shall be fully vested upon grant and subject to the terms and
conditions set forth in the Plan.
In the event that the Company's revenues in respect of fiscal year 1999
reach $25 million, the Employee shall also be granted an Option to purchase
25,000 shares of Common Stock, with an exercise price per share equal to
the fair market value per share of Common Stock as of the date of grant.
The option shall be fully vested upon grant and subject to the terms and
conditions set forth in the Plan.
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
8, 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 statement
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
August 20, 1998