As filed with the Securities and Exchange Commission on September 15, 1998
Registration No. 333-59751
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------------------
AMENDMENT NO. 2 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
(the "Concurrent Purchasers") 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 not 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. If the Concurrent Offering is not consummated
for all the proposed shares, the shares of Common Stock not sold to the
Concurrent Purchasers will not be offered to purchasers in the Initial
Public Offering. See "Concurrent Offering." References herein to the
"Offerings" include the 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 has been made
for quotation of the Common Stock on the Nasdaq National Market under the
symbol "TGLO."
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 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.
<PAGE>
theglobe.com is one of the world's leading online communities with
over 6 million users* and over 1.9 million members in the United States and
abroad.
*as of 6/98
theglobe.com [Logo]
Focus on social dynamics of a community:
home work family travel
entertainment special
interests
day-to-day conversation
[graphics of face photographs, screen shots of Web site pages]
[Fold-Out Cover]
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").
------------------
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 1 for reverse split of
the Company's Common Stock effected on September , 1998.
The Company
theglobe.com is one of the world's leading online communities with
over 1.9 million members in the United States and abroad. In 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. Because of this, "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. Excludes 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) Also excludes (i) 1,638,800 and 1,438,041 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) 161,200 and one share
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.
Risk Factors
Purchasers of the Common Stock in the Offerings should carefully
consider the risk factors set forth under the caption "Risk Factors"
beginning on page 6 and the other information included in this Prospectus
prior to making an investment decision. An investment in the shares of
Common Stock offered hereby involves a high degree of risk. The Company has
a limited operating history and anticipates losses and negative operating
cash flow for the foreseeable future. The Company's operations are
dependent on the growth and commercial viability of the Internet and an
unproven business model, and are subject to government regulation and legal
uncertainties associated with the Internet, security risks and intense
competition. See "Risk Factors" for a description of these and other risks.
<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 2,322,778
Pro forma basic and diluted net
loss per share(FN2)............
Weighted average shares used in
computing pro forma basic and
diluted net loss per
share (FN2)....................
</TABLE>
June 30, 1998
----------------------------------------
Actual As Adjusted(3)
------ --------------
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
- -------------
(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) Pro forma gives effect to Preferred Stock conversion.
(3) 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."
<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.
Limited Operating History
The Company was founded in May 1995. Accordingly, the Company has a
limited operating history upon which an evaluation of the Company, its
current business and its prospects can be based, each of which must be
considered in light of the risks, expenses and problems frequently
encountered by all companies in the early stages of development, and
particularly by such companies entering new and rapidly developing markets
like the Internet. Such risks include, without limitation, the lack of
broad acceptance of the community model on the Internet, the possibility
that the Internet will fail to achieve broad acceptance as an advertising
and commercial medium, the inability of the Company to attract or retain
members, the inability of the Company to generate significant
e-commerce-based revenues or subscription service revenues from its
members, a new and relatively unproven business model, the Company's
ability to anticipate and adapt to a developing market, the failure of the
Company's network infrastructure (including its server, hardware and
software) to efficiently handle its Internet traffic, changes in laws that
adversely affect the Company's business, the ability of the Company to
manage effectively its rapidly expanding operations, including the amount
and timing of capital expenditures and other costs relating to the
expansion of the Company's operations, the introduction and development of
different or more extensive communities by direct and indirect competitors
of the Company, including those with greater financial, technical and
marketing resources, the inability of the Company to maintain and increase
levels of traffic on its Web site, the inability of the Company to attract,
retain and motivate qualified personnel, and general economic conditions.
To address these risks, the Company must, among other things, attract and
retain members, maintain its customer base and attract a significant number
of new advertising customers, respond to competitive developments, develop
and extend its brand, continue to form and maintain relationships with
strategic partners, continue to attract, retain and motivate qualified
personnel, and continue to develop and upgrade its technologies and
commercialize its services incorporating such technologies. There can be no
assurance that the Company will be successful in addressing such risks, and
any failure to do so could have a material adverse effect on the Company's
business, results of operations and financial condition.
Fluctuating Rates of Revenue Growth
There can be no assurance the Company's revenue growth in recent
periods will continue or increase. The Company's limited operating history
makes the prediction of future results difficult or impossible and,
therefore, the Company's recent revenue growth should not be taken as an
indication of any growth that can be expected in the future. Furthermore,
its limited operating history leads the Company to believe that
period-to-period comparisons of its operating results are not meaningful
and that the results for any period should not be relied upon as an
indication of future performance. To the extent that revenues do not grow
at anticipated rates, the Company's business, results of operations and
financial condition would be materially and adversely affected.
Anticipated Losses for the Forseeable Future
The Company has not achieved profitability to date, and the Company
anticipates that it will continue to incur net losses for the foreseeable
future. The extent of these losses will depend, in part, on the amount of
growth in the Company's revenues from advertising sales, e-commerce and
membership subscription fees. As of June 30, 1998, the Company had an
accumulated deficit of $10.2 million. The Company expects that its
operating expenses will increase significantly during the next several
years, especially in the areas of sales and marketing, and brand promotion.
Thus, the Company will need to generate increased revenues to achieve
profitability. To the extent that increases in its operating expenses
precede or are not subsequently followed by commensurate increases in
revenues, or that the Company is unable to adjust operating expense levels
accordingly, the Company's business, results of operations and financial
condition would be materially and adversely affected. 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."
Brand Identity is Critical to the Company; Risks Associated with Brand
Development
The Company believes that establishing and maintaining brand identity
is a critical aspect of efforts to attract and expand its member base,
Internet traffic and advertising and commerce relationships. Furthermore,
the Company believes that the importance of brand recognition will increase
as low barriers to entry encourage the proliferation of Internet sites. In
order to attract and retain members, advertisers and commerce vendors, and
in response to competitive pressures, the Company intends to increase
substantially its financial commitment to the creation and maintenance of
brand loyalty among these groups. The Company plans to accomplish this,
although not exclusively, through advertising campaigns in several forms of
media, including television, print, billboards, buses, telephone kiosks,
online media, and other marketing and promotional efforts. If the Company
does not generate a corresponding increase in revenue as a result of its
branding efforts or otherwise fails to promote its brand successfully, or
if the Company incurs excessive expenses in an attempt to promote and
maintain its brand, the Company's business, results of operations and
financial condition would be materially and adversely affected.
Promotion and enhancement of theglobe.com brand will also depend, in
part, on the Company's success in providing a high-quality "community
experience." Such success cannot be assured. If members, other Internet
users, advertisers and commerce vendors do not perceive theglobe.com
community experience to be of high quality, or if the Company introduces
new services or enters into new business ventures that are not favorably
received by such parties, the value of the Company's brand could be
diluted. Such brand dilution could decrease the attractiveness of
theglobe.com to such parties, and could materially and adversely affect the
Company's business, results of operations and financial condition.
Substantial Reliance on Advertising Revenues; Short-term Nature of Adverstising
Contracts; Company Guarantee of Minimum Impression Levels
The Company derives a substantial portion of its revenues from the
sale of advertisements on its site, and expects to continue to do so for
the foreseeable future. For the year ended December 31, 1997 and the six
months ended June 30, 1998, advertising revenues represented 77% and 89%,
respectively, of the Company's net revenues. The Company's business model
therefore is highly dependent on the amount of "traffic" on theglobe.com,
which has a direct effect on the Company's advertising revenues. The
Company is in the early stages of implementing its advertising sales
programs, which, if not successful, could materially and adversely affect
the Company's business, results of operations and financial condition.
To date, substantially all of the Company's advertising contracts have
been for terms averaging one to two months in length, with relatively few
longer-term advertising contracts. Many of the Company's advertising
customers have limited experience with Internet advertising, have not
devoted a significant portion of their advertising expenditures to Internet
advertising and may not believe Internet advertising to be effective
relative to traditional advertising media. Also, the Company's advertising
customers may object to the placement of their advertisements on certain
members' personal homepages, the content of which they deem undesirable.
There can be no assurance that the Company's current advertisers will
continue to purchase advertisements on theglobe.com.
The Company's contracts with advertisers typically guarantee the
advertiser a minimum number of "impressions," or times that an
advertisement is seen by users of theglobe.com. To the extent that minimum
impression levels are not achieved for any reason, the Company may be
required to "make good" or provide additional impressions after the
contract term, which may adversely affect the availability of advertising
inventory and which could have a material adverse effect on the Company's
business, results of operations and financial condition. To the extent
minimum guaranteed impressions are not met, the Company defers recognition
of the corresponding revenues until guaranteed impression levels are
achieved.
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 on April 15, 2000, subject to
DoubleClick's right to terminate the agreement upon 30-days notice
following the Company's breach of the terms of the agreement or if
DoubleClick, in its reasonable good faith discretion, determines that the
Company has used, could use or intends to use the D.A.R.T. technology in a
manner that could damage or cause injury to the D.A.R.T. technology or
reflects unfavorably on the reputation of DoubleClick. No assurance can be
given that DoubleClick will not elect to terminate the agreement. Any such
termination and replacement could disrupt the Company's ability to manage
its advertising operations for a period of time. In addition, to the extent
that the Company encounters system failures or material difficulties in the
operation of this system, the Company could be unable to deliver banner
advertisements and sponsorships through its site. Any extended failure of,
or material difficulties encountered in connection with, the Company's
advertising management system may expose the Company to "make good"
obligations with its advertisers, which, by displacing saleable advertising
inventory, among other consequences, would reduce revenues and 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" and "--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 "--Brand Identity is Critical to
the Company; Risks Associated with Brand Development."
The Company believes that it may experience seasonality in its
business, with use of the Internet and theglobe.com being somewhat lower
during the summer vacation and year-end holiday periods. Advertising
impressions (and therefore revenues) may be expected to decline accordingly
in those periods. Additionally, seasonality may affect significantly the
Company's advertising revenues during the first and third calendar
quarters, as advertisers historically spend less during these periods.
Because Internet advertising is an emerging market, additional seasonal and
other patterns in Internet advertising may develop as the market matures,
and there can be no assurance that such patterns will not have a material
adverse effect on the Company's business, results of operations and
financial condition.
The Company derives a significant portion of its revenues from the
sale of advertising under short-term contracts, averaging one to two months
in length. As a result, the Company's quarterly revenues and operating
results are, to a significant extent, dependent on advertising revenues
from contracts entered into within the quarter, and on the Company's
ability to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. See "--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 potential strategic alliances and acquisitions.
The Company has not yet determined the amount of the net proceeds that will
be used specifically for each of the foregoing purposes. Accordingly,
management will have significant flexibility in applying the net proceeds
of the Offerings. The failure of management to apply such funds effectively
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Use of Proceeds."
Dependence on Key Personnel
The Company's performance is substantially dependent on the
performance of its senior management and key technical personnel. In
particular, the Company's success depends on the continued efforts of its
senior 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; Inexperienced Management
The Company's recent growth has placed, and is expected to continue to
place, a significant strain on its managerial, operational and financial
resources. To manage its potential growth, the Company must continue to
implement and improve its operational and financial systems, and must
expand, train and manage its employee base. The Company's Chief Operating
Officer and Chief Financial Officer joined the Company during August and
July 1998, respectively. In addition, each of the Company's Director of
Advertising Sales, Director of Technology, Director of Communications and
Director of Human Resources has been with the Company for less than two
years. Furthermore, the members of the Company's current senior management
(other than the Chairman) have not had any previous experience managing a
public company or a large operating company. There can be no assurance that
the Company will be able to effectively manage the expansion of its
operations, that the Company's systems, procedures or controls will be
adequate to support the Company's operations or that Company management
will be able to achieve the rapid execution necessary to fully exploit the
market opportunity for the Company's products and services. Any inability
to manage growth effectively could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
Competition for Management Time; Potential Conflicts of Interest
Michael S. Egan is the Chairman of the Company and, as such, Mr. Egan
serves as Chairman of the Board of Directors and as an executive officer of
the Company with primary responsibility for day-to-day strategic planning
and financing arrangements. After the Offerings, Mr. Egan will also
continue to be the controlling investor of Dancing Bear Investments, Inc.
("Dancing Bear Investments"), which will hold a controlling interest in the
Company after the Offering, 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. 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.
Need to Enhance and Develop theglobe.com to Remain Competitive
To remain competitive, the Company must continue to enhance and
improve the responsiveness, functionality and features of theglobe.com and
develop other products and services. Enhancements of or improvements to the
Web site may contain undetected programming errors that require significant
design modifications, resulting in a loss of customer confidence and user
support and a decrease in the value of the Company's brand name
recognition.
The Company plans to develop and introduce new features and functions,
such as increased capabilities for user personalization and interactivity.
This will require the development or licensing of increasingly complex
technologies. There can be no assurance that the Company will be successful
in developing or introducing such features and functions or that such
features and functions will achieve market acceptance or enhance the
Company's brand name recognition. Any failure of the Company to effectively
develop and introduce new features and functions, or the failure of such
new features and functions to achieve market acceptance, could 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 materially adversely affect the Company's
business, results of operations and financial condition. See
"Business--Products and Services."
Internet Industry is Characterized by Rapid Technological Change
The market for Internet products and services is characterized by
rapid technological developments, evolving industry standards and customer
demands, and frequent new product introductions and enhancements. These
market characteristics are exacerbated by the emerging nature of the market
and the fact that many companies are expected to introduce new Internet
products and services in the near future. The Company's future success will
depend in significant part on its ability to continually improve the
performance, features and reliability of the site in response to both
evolving demands of the marketplace and competitive product and service
offerings, and there can be no assurance that the Company will be
successful in doing so. In addition, the widespread adoption of developing
multimedia enabling technologies could require fundamental 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 is also dependent upon third parties to provide potential
users with Web browsers and Internet and online services necessary for
access to the site. In the past, users have occasionally experienced
difficulties with Internet and online services due to system failures,
including failures unrelated to the Company's systems. Any disruption in
Internet access provided by third parties could have a material adverse
effect on the Company's business, results of operations and financial
condition. Furthermore, the Company is dependent on hardware suppliers for
prompt delivery, installation and service of equipment used to deliver the
Company's products and services.
The Company's operations are dependent in part upon its ability to
protect its operating systems against damage from human error, fire,
floods, power loss, telecommunications failures, break-ins and similar
events. The Company does not presently have redundant, multiple site
capacity in the event of any such occurrence. The Company's servers are
also vulnerable to computer viruses, break-ins and similar disruptions from
unauthorized tampering with the Company's computer systems. The occurrence
of any of these events could result in the interruption, delay or cessation
of service, which could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, the
Company's reputation and theglobe.com brand could be materially and
adversely affected. See "Business--Facilities."
Security Risks
Experienced programmers ("hackers") have attempted on occasion to
penetrate the Company's network security. The Company expects that these
attempts, some of which have succeeded, will continue to occur from time to
time. Because a hacker who is able to penetrate the Company's network
security could misappropriate proprietary information or cause
interruptions in the Company's products and services, the Company may be
required to expend significant capital and resources to protect against or
to alleviate problems caused by such parties. Additionally, the Company may
not have a timely remedy against a hacker who is able to penetrate its
network security. Such purposeful security breaches could have a material
adverse effect on the Company's business, results of operations and
financial condition. In addition to purposeful security breaches, the
inadvertent transmission of computer viruses could expose the Company to a
material risk of loss or litigation and possible liability.
In offering certain payment services through its "globeStores"
program, the Company could become increasingly reliant on encryption and
authentication technology licensed from third parties to provide the
security and authentication necessary to effect secure transmission of
confidential information, such as customer credit card numbers. Advances in
computer capabilities, discoveries in the field of cryptography and other
discoveries, events, or developments could lead to a compromise or breach
of the algorithms that the Company's licensed encryption and authentication
technology used to protect such confidential information. If such a
compromise or breach of the Company's licensed encryption authentication
technology occurs, it could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company may be
required to expend significant capital and resources and engage the
services of third parties to protect against the threat of such security,
encryption and authentication technology breaches or to alleviate problems
caused by such breaches. Concerns over the security of Internet
transactions and the privacy of users may also inhibit the growth of the
Internet generally, particularly as a means of conducting commercial
transactions.
Intense Competition
The market for members, users and Internet advertising is new and
rapidly evolving, and competition for members, users and advertisers 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 The Walt Disney Company ("Disney"), CBS Corporation ("CBS") and
The National Broadcasting Company ("NBC"), have recently made significant
acquisitions of or investments in Internet companies.
The Company believes that the principal competitive factors in
attracting advertisers include the amount of traffic on its Web site, brand
recognition, customer service, the demographics of the Company's members
and users, the Company's ability to offer targeted audiences and the
overall cost-effectiveness of the advertising medium offered by the
Company. The Company believes that the number of Internet companies relying
on Internet-based advertising revenue, as well as the number of advertisers
on the Internet and the number of users, will increase substantially in the
future. Accordingly, the Company will likely face increased competition,
resulting in increased pricing pressures on its advertising rates, which
could have a material adverse effect on the Company.
Many of the Company's existing and potential competitors, including
companies operating Web directories and search engines, and traditional
media companies, have longer operating histories in the Internet market,
greater name recognition, larger customer bases and significantly greater
financial, technical and marketing resources than the Company. Such
competitors may be able to undertake more extensive marketing campaigns for
their brands and services, adopt more aggressive advertising pricing
policies and make more attractive offers to potential employees,
distribution partners, 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; Expected Negative Operating Cash Flow
for the Forseeable Future
The Company currently anticipates that the net proceeds of the
Offerings, together with available funds and cash flows generated from
advertising revenues, will be sufficient to meet its anticipated needs for
working capital, capital expenditures and business expansion for the next
12 months. The Company expects that it will continue to experience negative
operating cash flow for the foreseeable future as a result of significant
spending on advertising and infrastructure. Accordingly, the Company may
need to raise additional funds in a timely manner in order to fund its
anticipated expansion, develop new or enhanced services or products,
respond to competitive pressures or acquire complementary products,
businesses or technologies. If additional funds are raised through the
issuance of equity or convertible debt securities, the percentage ownership
of the stockholders of the Company will be reduced, stockholders may
experience additional dilution and such securities may have rights,
preferences or privileges senior to those of the holders of the Common
Stock. 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. 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 and, from time to
time, the Company has received inquiries from third parties regarding such
matters. Such claims could be material in the future. In addition, the
increased attention focused upon liability issues and legislative proposals
could materially impact the overall growth of Internet use.
The Company could also be exposed to liability with respect to
third-party information that may be accessible through the Company's Web
site, or through content and materials that may be posted by members on
their personal Web sites or on chat rooms or bulletin boards offered by the
Company. Such claims might include, among others, that by directly or
indirectly providing hyperlink text links to Web sites operated by third
parties or by providing hosting services for members' sites, the Company is
liable for copyright or trademark infringement or other wrongful actions by
such third parties through such Web sites. It is also possible that if any
third-party content information provided on the Company's Web site contains
errors, third parties could make claims against the Company for losses
incurred in reliance on such information.
The Company offers e-mail service, which is provided by a third party.
See "--Dependence on Third-Party Relationships." Such service may expose
the Company to potential risk, such as liabilities or claims resulting from
unsolicited e-mail ("spamming"), lost or misdirected messages, illegal or
fraudulent use of e-mail or interruptions or delays in e-mail service.
The Company also enters into agreements with commerce partners and
sponsors under which the Company is entitled to receive a share of any
revenue from the purchase of goods and services through direct links from
the Company's Web site. Such arrangements may expose the Company to
additional legal risks and uncertainties, including potential liabilities
to consumers of such products and services, even if the Company does not
itself provide such products or services. There can be no assurance that
any indemnification provided to the Company in its agreements with these
parties, if available, will be adequate.
Even to the extent such claims do not result in liability to the
Company, the Company could incur significant costs in investigating and
defending against such claims. The imposition on the Company of potential
liability for information carried on or disseminated through its systems
could require the Company to implement measures to reduce its exposure to
such liability, which may require the expenditure of substantial resources
and limit the attractiveness of the Company's services to members and
users.
The Company's general liability insurance may not cover all potential
claims to which it is exposed or may not be adequate to indemnify the
Company for all liability that may be imposed. Any imposition of liability
that 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 also hold
outstanding Warrants exercisable for 4,046,018 shares of Common Stock in
the aggregate. See "Description of Capital Stock -- Warrants." Messrs.
Egan, Krizelman, Paternot and Cespedes and Rosalie V. Arthur, a director of
the Company, expect to enter into a stockholders' agreement (the
"Stockholders' Agreement") pursuant to which Mr. Egan agrees to vote for
certain nominees of Messrs. Krizelman, 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 the ability to elect a majority of the
directors of the Company and Messrs. Egan, Krizelman and Paternot will also
have the ability to control the outcome of all issues submitted to a vote
of the stockholders of the Company requiring majority approval. See
"Principal Stockholders." The Stockholders' Agreement will also provide
that Messrs. Egan, Krizelman, Paternot and Cespedes and Ms. Arthur will be
subject to certain "tag-along" and "drag-along" rights in connection with
any private sale of securities of the Company after the Offerings. Voting
control by 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 may be affected by Year 2000 issues related to
non-compliant information technology ("IT") systems or non-IT systems
operated by the Company or by third parties. The Company has substantially
completed assessment of its internal and external (third party) IT systems
and non-IT systems. At this point in its assessment, the Company is not
currently aware of any Year 2000 problems relating to systems operated by
the Company or by third parties that would have a material effect on the
Company's business, results of operations or financial condition, without
taking into account the Company's efforts to avoid such problems. Based on
its assessnment to date, the Company does not anticipate that costs
associated with remediating the Company's non-compliant IT systems or
non-IT systems will be material, although there can be no assurance to such
effect. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Impact of the Year 2000."
To the extent that the Company's assessment is finalized without
identifying any additional material non-compliant IT systems operated by
the Company or by third parties, the most reasonably likely worst case Year
2000 scenario is a systemic failure beyond the control of the Company, such
as a prolonged telecommunications or electrical failure. Such a failure
could prevent the Company from operating its business, prevent users from
accessing the Company's Web site, or change the behavior of advertising
customers or persons accessing the Company's Web site. The Company believes
that the primary business risks, in the event of such failure, would
include but not be limited to, lost advertising revenues, increased
operating costs, loss of customers or persons accessing the Company's Web
site, or other business interruptions of a material nature, as well as
claims of mismanagement, misrepresentation, or breach of contract, any of
which could have a material adverse effect on the Company's business,
results of operations and financial condition.
Impact of General Economic Conditions
Time spent on the Internet by individuals, purchases of new computers
and purchases of membership subscriptions to Internet sites are
discretionary for consumers and may be particularly affected by adverse
trends in the general economy. The success of the Company's operations
depends to a significant extent upon a number of factors relating to
discretionary consumer spending, including economic conditions (and
perceptions of such conditions by consumers) affecting disposable consumer
income such as employment, wages and salaries, business conditions,
interest rates, availability of credit and taxation, for the economy as a
whole and in regional and local markets where the Company operates. There
can be no assurance that consumer spending will not be adversely affected
by general economic conditions, which could negatively impact the Company's
results of operations or financial condition. Any significant deterioration
in general economic conditions or increases in interest rates may inhibit
consumers' use of credit and cause a material adverse effect on the
Company's revenues and profitability. In addition, the Company's business
strategy relies on advertising by and agreements with other Internet
companies. Any significant deterioration in general economic conditions
that adversely affected these companies could also have a material adverse
effect on the Company's business, results of operations and financial
condition.
No Prior Public Market; Possible Volatility of Stock Price
Prior to the Offerings, there has been no public market for the Common
Stock. The Company has applied 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 1,638,800 and
1,438,041 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 a substantial portion 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."
Significant 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." 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 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
consummation of the Concurrent Offering and the Initial Public Offering are
not 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 the Concurrent Purchasers in connection with the Concurrent Offering
will be promptly returned. If the Concurrent Offering is not consummated
for all the proposed shares, the shares of Common Stock not sold to the
Concurrent Purchasers will not be offered to purchasers in the Initial
Public Offering. All proceeds of the Concurrent Offering will be paid
directly to the Company and will be segregated in a separate non-interest
bearing bank account established by the Company pending the consummation of
the Concurrent Offering. Bear, Stearns & Co. Inc. and Volpe Brown Whelan &
Company are acting as the Placement Agents in connection with the
Concurrent Offering. The Placement Agents will receive a 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. Although the Company reviews potential
strategic alliances and acquisitions from time to time, it has not had more
than preliminary discussions with respect to any such alliances or
acquisitions. The Company has not yet determined the amount of net proceeds
to be used specifically for each of the foregoing purposes. Accordingly,
management will have significant flexibility in applying the net proceeds
of the Offerings. Pending any such use, as described above, the Company
intends to invest the net proceeds in interest-bearing instruments. See
"Risk Factors -- Broad Discretion in Use of Proceeds."
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain its future earnings, if any,
to fund the development and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. The
declaration and payment of dividends by the Company are subject to the
discretion of the Board of Directors. Any future determination to pay
dividends will depend on the Company's results of operations, financial
condition, capital requirements, contractual restrictions and other factors
deemed relevant by the Board of Directors.
<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, 100,000,000 shares
authorized pro forma and pro forma
as adjusted; 2,393,958 shares issued
and outstanding, actual; 13,341,527
shares outstanding, pro forma;
shares issued and outstanding,
pro forma as adjusted (1)(2)......... 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 all of the
Company's outstanding shares of Preferred Stock upon consummation of
the Offerings. Authorized pro forma and pro forma as adjusted gives
effect to Fourth Amended and Restated Certificate of Incorporation of
the Company to become effective prior to consummation of the
Offerings. Each share of the Company's Series A, B and C Preferred
Stock, totaling 2,899,940 shares, by its terms, are automatically
convertible into one share of Common Stock. Each of the Company's 51
shares of Series D Preferred Stock are automatically convertible into
approximately 157,795 shares of Common Stock, totaling 8,047,529
shares. Based upon the Series D Preferred Stock's original conversion
terms, the shares of Series D Preferred Stock are to be converted into
51% of the Company's fully diluted shares on the date of conversion,
excluding 800,000 options from the Company's 1998 Stock Option Plan
and the Series E Warrants. See Note 5 to the Company's Financial
Statements.
(2) Excludes 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) 1,638,800 and 1,438,041 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) 161,200 and one share 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 1,638,800 and 1,438,041 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(1)........................ $ (0.03) $ (0.33) $ (1.56) $ (0.34) $ (2.51)
=========== =========== =========== =========== ===========
Weighted average
shares outstanding
used in basic and
diluted per share
calculation(1)............................... 2,250,000 2,250,000 2,293,545 2,281,920 2,322,778
Pro forma basic and diluted net loss
per share(2).................................
Weighted average shares used computing
pro forma basic and diluted net loss
per share(2).................................
=========== =========== =========== =========== ===========
</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.
(2) Pro forma gives effect to Preferred Stock conversion.
</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 1.9 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).
Also, during July 1998, pursuant to the terms of an employment
agreement with an officer of the Company, the Company granted stock options
to purchase 225,000 shares of Common Stock, 175,000 of which have an
exercise price per share equal to 85% of the initial public offering price.
The remaining options will be granted at the initial public offering price
which is equal to the fair market value per share of the Company's Common
Stock on the date of grant. As a result, the Company will record deferred
compensation expense, representing the difference between the deemed value
of the Company's Common Stock, the initial public offering price for
accounting purposes and the exercise price of such options at the date of
grant. Such amount shall be presented as a reduction of stockholders'
equity and amortized over the vesting period of the applicable options. 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.
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
Preferred Stock and Common Stock, through which the Company raised $647,000
and $4,700, respectively, 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; Expected Negative Operating Cash Flow for the
Forseeable Future."
Quarterly Results of Operations Data
The following table sets forth certain unaudited quarterly statement
of operations data for each of the six quarters ended June 30, 1998 as well
as such data expressed as a percentage of the Company's total revenues for
the periods indicated. In the opinion of management, this information has
been prepared substantially on the same basis as the audited financial
statements appearing elsewhere in this Prospectus, and all necessary
adjustments, consisting only of normal recurring adjustments, have been
included in the amounts stated below to present fairly the unaudited
quarterly results of operations data.
The quarterly data should be read in conjunction with the 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.
State of Readiness. The Company may be affected by non-compliant IT
systems or non-IT systems operated by the Company or by third parties. The
Company has substantially completed an assessment of its internal and
external (third party) IT systems and non-IT systems. At this point in its
assessment, the Company is not currently aware of any Year 2000 problems
relating to systems operated by the Company or by third parties that would
have a material effect on the Company's business, results of operations, or
financial condition, without taking into account the Company's efforts to
avoid such problems, although there can be no assurance thereof.
The Company's IT systems consist of software developed either in-house
or purchased from third parties, and hardware purchased from vendors. At
this point, the Company's assessment of its in-house software has
identified only approximately 2,000 lines of code out of several hundred
thousand in its proprietary, in-house software which are not Year 2000
compliant. Those portions of code which are not compliant are used solely
for internal statistical analysis. The Company does not anticipate any
difficulty in modifying this code to become Year 2000 compliant by December
31, 1998. The Company has contacted its principal vendors of hardware and
software. All of those contacted vendors have notified the Company that the
hardware and software that they have supplied to the Company is Year 2000
compliant.
The Company has also substantially completed an assessment of its
non-IT systems which the Company has identified as containing embedded chip
systems for Year 2000 issues. At this point in its assessment, the Company
is not currently aware of any Year 2000 problems relating to these systems
which would have a material effect on the Company's business, results of
operations, or financial condition, without taking into account the
Company's efforts to avoid such problems.
The Company's IT systems and other business resources rely on IT
systems and non-IT systems provided by service providers and therefore may
be vulnerable to those service providers' failure to remediate their own
Year 2000 issues. Such service providers include those for the Company's
network and e-mail services and landlords for the Company's leased office
spaces. The Company has contacted these principal service providers and has
been notified that the IT and non-IT systems which they provide to the
Company are Year 2000 Compliant.
Cost. Based on its assessment to date, the Company does not anticipate
that costs associated with remediating the Company's non-compliant IT
systems or non-IT systems will be material.
Risks. To the extent that the Company's assessment is finalized
without identifying any additional material non-compliant IT systems
operated by the Company or by third parties, the most reasonably likely
worst case Year 2000 scenario is a systemic failure beyond the control of
the Company, such as a prolonged telecommunications or electrical failure.
Such a failure could prevent the Company from operating its business,
prevent users from accessing the Company's Web site, or change the behavior
of advertising customers or persons accessing the Company's Web site. The
Company believes that the primary business risks, in the event of such
failure, would include but not be limited to, lost advertising revenues,
increased operating costs, loss of customers or persons accessing the
Company's Web site, or other business interruptions of a material nature,
as well as claims of mismanagement, misrepresentation, or breach of
contract.
Contingency Plan. As discussed above, the Company is engaged in an
ongoing Year 2000 assessment. Following the completion of the assessment,
the Company plans to conduct a full-scale Year 2000 simulation of its IT
systems. The results of this simulation and the Company's assessment will
be taken into account in determining the nature and extent of any
contingency plans.
Effects of Inflation
Due to relatively low levels of inflation in 1995, 1996 and 1997 and
the first six months of 1998, inflation has not had a significant effect on
the Company's results of operations since inception.
Impact of Recently Issued Accounting Standards
The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" as
of January 1, 1998. SFAS No. 130 requires the Company to report in 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. For the six months ended
June 30, 1998 and the year ended December 31, 1997, comprehensive net loss
was approximately $11,600 lower and $41,200 higher, respectively, than the
net loss reported in the Company's statements of operations for the
applicable periods, due to unrealized gains or losses on securities
classified as available-for-sale.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. The Company has determined that it
does not have any separately reportable business segments.
In June 1998, the FASB issued SFAS No. 133. Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standard for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The statement is not expected to affect the Company as
the Company currently does not have any derivative instruments or hedging
activities.
<PAGE>
BUSINESS
Overview
theglobe.com is one of the world's leading online communities with
over 1.9 million members in the United States and abroad, In 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. Because of this, the
communities are dynamic and evolve as member interests change. "Community
Leaders" are elected to manage communities and are able to highlight member
content, communicate directly to constituents and organize events.
Within Interest Groups, members can access a collection of services
provided by theglobe.com to generate content, including chat, open forums
and e-mail. Member created content within Interest Groups satisfy users'
desires for topic specific information, conversation and debate. Members
vote and generate content for communities, thereby facilitating production
of desirable content on theglobe.com. Viewing community content does not
require membership, allowing theglobe.com to leverage its member-created
content to attract a large audience of users. As these users become
familiar with theglobe.com, the Company believes 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 theglobe.com's volume of user traffic, frequency and
average length of use. theglobe.com's ability to reach users across a wide
variety of interest areas has made the site attractive to both technology
companies as well as traditional consumer product and service companies.
Currently, approximately 60% of theglobe.com's advertisers are branded
consumer product and service companies.
Business Strategy
theglobe.com's goal is to be the leading online community site. The
Company seeks to attain this goal through the following key strategies:
Improve User Experience. The Company will continue efforts to improve
user experience on theglobe.com by: (i) simplifying user interfaces and
improving the ease of use of services, (ii) improving customer support,
(iii) developing loyalty programs to reward members for increased usage,
(iv) expanding the suite of personal publishing/Web site building tools,
(v) creating additional opportunities for participating in existing
affinity groups, as well as expanding the number of affinity groups, (vi)
personalizing the site to the preferences of individual members and (vii)
launching new services to enhance the community.
Develop Brand Identity and Awareness. The Company intends to expand
its presence as a mass market site by building brand awareness. The Company
plans to continue to allocate a significant portion of its resources to
develop its brand in the same fashion as traditional consumer product and
service companies. The Company believes that establishing brand awareness
among consumers is instrumental in attracting new members to theglobe.com
and also has the effect of attracting media buyers who tend to favor
well-known and trusted companies. theglobe.com also intends to continue to
market its services in various media. In March 1998, theglobe.com launched
advertising campaigns in several forms of media, including television,
print, billboards, buses, telephone kiosks, online media, and other
marketing and promotional efforts designed to build its brand name in
selected cities.
Increase New Membership Acquisition through Strategic Alliances.
theglobe.com continues to seek new ways to reach potential members when
they are first becoming acquainted with the Internet. The Company believes
that early contact with such users will enhance its ability to instill
customer loyalty. Accordingly, the Company has established a strategic
alliance with EarthLink Network, Inc. ("EarthLink"), one of the largest
ISPs in the United States, through which members gain Internet access and
are directed to theglobe.com as their home site upon startup. The Company
has also formed strategic alliances with companies including Advertising
Age, 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, 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 has committed significant funds to advertising in
traditional offline media, totaling approximately $ in the first six
months of 1998. The Company launched an $8 million advertising campaign in
March 1998, including television, print, billboards, buses, telephone
kiosks, online media, and other marketing and promotional efforts. These
efforts are aimed at generating significant additional traffic to
theglobe.com, building and defining a desirable online destination in the
minds of present and potential online consumers, and creating a strong and
viable brand within the Internet industry and advertising trades. The
Company intends to continue to commit a significant part of its budget to
marketing theglobe.com brand. The Company advertises on national cable
channels like MTV, E! Entertainment Television, Comedy Central, ESPN and
the Sci-Fi Channel. The Company has also purchased advertising on network
television in several markets including New York, San Francisco, Seattle,
Boston, Denver and Atlanta.
Technology
The Company's strategy is to apply existing technologies in novel ways
to deliver content and provide services to members of its online community.
The various features of theglobe.com's online environment are implemented
using a combination of commercially available and proprietary software
components. The Company favors licensing and integrating "best-of-breed"
commercially available technology from industry leaders such as Oracle, Sun
Microsystems and Microsoft whenever possible. The Company reserves internal
development of software for those components which are either unavailable
on the market or which have major strategic advantages when developed
internally. The Company believes that this component approach is more
manageable, reliable, and scalable than single-source solutions. In
addition, the emphasis on commercial components speeds development time,
which is an advantage when competing in a rapidly evolving market.
Consistent with the Company's preference for off-the-shelf software
components, the hardware systems utilized by the Company also consist of
commercially available components. The Company believes that this
architecture provides the ability to increase scale more quickly and
reliably, and at lower cost, than more centralized systems. Although the
existing infrastructure currently exceeds the Company's present demand, the
Company has aggressive plans for additional upgrades in anticipation of
increased demand.
The Company's distributed server architecture allows it to roll out
upgrades incrementally on an as-needed basis. In addition to being
scalable, the Web-serving architecture is also entirely redundant. The
Company's Internet servers are connected to the Internet through multiple
dedicated 45 Mb T3 connections obtained through two separate backbone
providers, AppliedTheory and UUNET. This approach to connectivity protects
the Company by allowing it to continue operations in the event of a failure
in either backbone. See "Risk Factors--Internet Industry Characterized by
Rapid Technological Change."
In order to efficiently manage the system, the Company has developed
highly automated methods of monitoring the system performance of each
component. In the event of a failure in any subsystem, the failed subsystem
is immediately taken out of service and requests are distributed among the
remaining operational systems. The Company has also developed a suite of
tools to perform routine management tasks such as log processing and
content updates in an automated, remote-controlled fashion. The Company
believes that its investment in automation lessens the need for the
additional personnel that would otherwise be required to support the system
as it grows. See "Risk Factors--Internet Industry Characterized by Rapid
Technological Change" and "--Dependence on Key Personnel."
Competition
The market for members, users and Internet advertising is new and
rapidly evolving, and competition for members, users and advertisers is
intense and is expected to increase significantly. Barriers to entry are
relatively insubstantial and the Company may face competitive pressures
from many additional companies both in the United States and abroad. The
Company believes that the principal competitive factors for companies
seeking to create communities on the Internet are critical mass,
functionality of the Web site, brand recognition, member affinity and
loyalty, broad demographic focus and open access for visitors. Other
companies that are primarily focused on creating Internet communities are
Tripod and GeoCities and, in the future, Internet communities may be
developed or acquired by companies currently operating Web directories,
search engines, shareware archives, content sites, OSPs, ISPs and other
entities, certain of which may have more resources than the Company. In
addition, the Company could face competition in the future from traditional
media companies, a number of which, including Disney, CBS and NBC, have
recently made significant acquisitions or investments in Internet
companies. Furthermore, the Company competes for users and advertisers with
other content providers and with thousands of Web sites operated by
individuals, the government and educational institutions. Such providers
and sites include AOL, Angelfire, CNET, CNN/Time Warner, Excite, Hotmail,
Infoseek, Lycos, Microsoft, Netscape, Switchboard, Xoom and Yahoo! The
Company also faces competitive pressure from traditional media such as
newspapers, magazines, radio and television. The Company believes that the
principal competitive factors in attracting advertisers include the amount
of traffic on its Web site, brand recognition, customer service, the
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.
The Company believes it is currently in compliance with applicable
laws regarding the collection and dissemination of information pertaining
to its members. However, it has undertaken a review of its practices in
light of recent activity undertaken by the FTC. The Company includes
statements about user privacy in its user agreement entered into with new
members. The user agreement states that its members should not have an
expectation of privacy in their accounts and that the Company may be forced
to disclose member e-mail to the government or third parties under certain
circumstances, or that third parties may unlawfully intercept private
communications. Additionally, the user agreement states that, from time to
time, the Company may make its database of user information (including
e-mail addresses) available to other parties for promotions of and
solicitations for their goods or services that may be of interest to
members of theglobe.com community. In the user agreement, each member
expressly consents to allow the use and disclosure of personally
identifiable information and each member is informed that he or she has the
ability to remove their personal information from the database of
information made available to third parties.
Regardless of the user agreement, the Company could be 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 has recently entered into a three year lease for
approximately square feet of commercial space in New York City for
its data facilities. 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. Additionally, the Company
has recently entered into two six month leases for a total of square
feet of office space in New York City. The Company also leases
approximately 1,200 square feet of office space in San Francisco for its
West Coast sales office.
Legal Proceedings
There are no material legal proceedings pending or, to the Company's
knowledge, threatened against the Company.
<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
Henry C. Duques............ 55 Director
Robert M. Halperin......... 70 Director
David H. 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 is the
controlling investor of Dancing Bear Investments a privately held
investment company, since 1996, which holds a controlling interest in the
Company. From 1986 to 1996, he was the majority owner and Chairman of Alamo
Rent-A-Car, Inc. ("Alamo"), now a subsidiary of Republic Industries, 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.
Henry C. Duques. Mr. Duques is Chairman and Chief Executive Officer of
First Data Corporation, a position he has held since April 1989. From
September 1987 to 1989, he served as President and Chief Executive Officer
of the Data Based Services Group of American Express Travel Related
Services Company, Inc., the predecessor to First Data Corporation. He was
Group President of Financial Services and a member of the board of
directors of Automatic Data Processing, Inc. from 1984 to 1987. Mr. Duques
is currently a director of Unisys Corporation. Mr. Duques holds a Bachelor
of Business Administration in Accounting and an MBA in Accounting and
Finance from George Washington University.
Robert M. Halperin. Mr. Halperin has served as a director of the
Company since 1995. Mr. Halperin has acted as an advisor to Greylock
Management, a venture capital firm, for the past five years. He is a member
of the board of directors of Avid Technology, Inc. In addition, Mr.
Halperin serves on the Board of Directors of the Associates of Harvard
Business School, the Harvard Business School Publishing Co. and Stanford
Health Services and also is a Life Trustee of the University of Chicago. He
is the former Vice Chairman of Raychem Corporation's Board of Directors and
also served as its President and Chief Operating Officer. Mr. Halperin
joined Raychem Corporation in 1957. Mr. Halperin received a master of
business administration degree from Harvard Business School, and he earned
a bachelor's degree in liberal arts from the University of Chicago and a
bachelor's degree in Mechanical Engineering from Cornell University.
David H. Horowitz. Mr. Horowitz has served as a Director of the
Company since December 1995. Mr. Horowitz has acted as an investor and
consultant in the media and communications industries for at least the past
five years, and as a consultant to the American Society of Composers,
Authors and Publishers, and a Lecturer at the Columbia University School of
Law. From 1973 to 1984, Mr. Horowitz was an officer and director of Warner
Communications, Inc., and until 1985 he was President and CEO of MTV
Networks, Inc. Mr. Horowitz is a graduate of Columbia University, where he
received a bachelor's degree, and is a graduate of Columbia Law School.
H. Wayne Huizenga. Mr. Huizenga has served as a director of the
Company since July 1998. Mr. Huizenga has served as the Chairman of the
Board of Republic Industries, 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., as
the Chairman of the Board of Extended Stay America, Inc. and a director of
NationsRent, Inc. From September 1994 until October 1995, Mr. Huizenga
served as the Vice Chairman of Viacom Inc. ("Viacom"), and as the Chairman
of the Board of Blockbuster Entertainment Group ("Blockbuster"), a division
of Viacom. From April 1987 through September 1994, Mr. Huizenga served as
the Chairman of the Board and Chief Executive Officer of Blockbuster. In
September 1994, Blockbuster merged into Viacom. In 1971, Mr. Huizenga
co-founded Waste Management, Inc. and served in various capacities,
including President, Chief Operating Officer and a director from its
inception until 1984. Mr. Huizenga also owns or controls the Miami Dolphins
and Florida Marlins professional sports franchises, as well as Pro Player
Stadium, in South Florida.
Key Employees
The following table sets forth the names and positions of the
Company's key employees.
Name Position
---- --------
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
Vance Huntley. Vance Huntley joined theglobe.com in August 1995 as
Director of Technology. Between 1991 and 1994 Mr. Huntley held software
development positions with Delta-Epsilon Software and the Cornell Institute
of Social Economic Research. In 1994 Mr. Huntley developed a Transmission
Electron Microscopy simulation for the Cornell Materials Science Center
while completing his BS in the Applied & Engineering Physics program at
Cornell University. In 1990, Mr. Huntley wrote simulation software at the
Lawrence Livermore National Laboratory Supercomputing Center.
Esther Loewy. Ms. Loewy joined theglobe.com in May 1997 as Director of
Communications. As such, Ms. Loewy is responsible for managing the in-house
communications department for the Company as well as the direction of
theglobe.com's media and public relations. Before joining theglobe.com, Ms.
Loewy was a consultant for the @Cafe in New York and other media companies
from 1995 to 1997. From 1992 to 1995 Ms. Loewy was a Senior Account
Executive at Charles Levine Communication.
Will Margiloff. Mr. Margiloff joined theglobe.com in March 1998 as
Director of Advertising Sales. Mr. Margiloff is responsible for the
management and direction of theglobe.com's sales force in New York and San
Francisco, as well as the expansion of the Company's advertising efforts
both domestically and internationally. Before joining theglobe.com, from
1997 to 1998 Mr. Margiloff was the Vice President of East Coast Sales for
24/7 Media. From 1995 to 1998 Mr. Margiloff held the senior sales
management position at software site Jumbo!
Richard W. Mass. Mr. Mass was appointed General Counsel of the Company
in September 1998. From 1994 until joining the Company, Mr. Mass served as
a senior attorney supporting AT&T's Internet services and was also the
chief counsel for Downtown Digital, AT&T's digital production facility that
developed interactive television programming and Web sites. From 1992 to
1994, Mr. Mass was an attorney at Gray Cary Ware & Freidenrich in Palo
Alto, California. From 1991 to 1992, Mr. Mass was a Visiting Assistant
Professor of Law at the University of Miami and from 1987 to 1990 Mr. Mass
was an attorney at Proskauer, Rose, Goetz & Mendelsohn in New York. Mr.
Mass received a Bachelor of Arts in Economics from Williams College and
received a law degree from Stanford Law School.
David Tonkin. Mr. Tonkin joined theglobe.com in May 1998 as Director
of Human Resources. Mr. Tonkin is responsible for managing the recruiting,
hiring and human resource administration of all employees at theglobe.com.
Before joining theglobe.com, from 1995 to 1998 Mr. Tonkin worked as a
Senior Resource Manager for Knowledge Transfer International, responsible
for recruiting, developing and managing consulting staffing services. Prior
to that time, from 1994 to 1995, Mr. Tonkin worked as Human Resource
Manager for NightRider (Alco Management Service). From 1993 to 1994 Mr.
Tonkin worked as Operations Manager for Premier Shoe Company.
Board Committees
The Audit Committee of the Board of Directors reviews and monitors the
corporate financial reporting and the internal and external audits of the
Company, including, among other things, the Company's control functions,
the results and scope of the annual audit and other services provided by
the Company's independent accountants, and the Company's compliance with
legal matters that have a significant impact on the Company's financial
condition. The Audit Committee will consult with the Company's management
and the Company's independent accountants prior to the presentation of
financial statements to stockholders and, as appropriate, initiates
inquiries into aspects of the Company's financial affairs. In addition, the
Audit Committee has the responsibility to consider and recommend the
appointment of, and to review fee arrangements with, the Company's
independent accountants. The current members of the Audit Committee are
Messrs. Halperin and Horowitz and Ms. Arthur.
The Compensation Committee of the Board of Directors reviews and makes
recommendations to the Board regarding the Company's compensation policies
and all forms of compensation to be provided to executive officers and
directors of the Company, including, among other things, annual salaries
and bonuses and stock option and other incentive compensation arrangements
of the Company. In addition, the Compensation Committee reviews bonus and
stock compensation arrangements for all other employees of the Company. The
current members of the Compensation Committee are Messrs. Egan, Halperin
and Horowitz and Ms. Arthur. Prior to July 15, 1998, the Compensation
Committee consisted of Messrs. Egan, Halperin, Krizelman and Paternot.
Stock option grants will be approved, at the election of the Compensation
Committee, by either the entire Board or a subcommittee of the Compensation
Committee consisting of Messrs. Horowitz and Halperin.
The Nominating Committee of the Board of Directors makes
recommendations to the Board of Directors regarding nominees for the Board
of Directors. The current members of the Nominating Committee are Messrs.
Egan, Krizelman and Paternot and Ms. Arthur.
Executive Officers
Executive officers of the Company are appointed by the Board of
Directors and serve at the discretion of the Board of Directors.
Directors' Compensation
Directors who are also employees of the Company receive no
compensation for serving on the Board of Directors. With respect to
Directors who are not employees of the Company ("Non-Employee Directors"),
the Company intends to reimburse such directors for all travel and other
expenses incurred in connection with 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, 1997.
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 225,000 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 accelerated vesting of an
aggregate of 50,000 of such 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
reasonable monies advanced or expenses incurred in connection with his
employment, and (iii) the annual bonus for the year of termination. In
addition termination without Cause automatically triggers the vesting of
all 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 Options to purchase 225,000 shares of Common Stock,
175,000 of which will have an exercise price per share equal to 85% of the
the initial public offering price.) As a result, the Company will record a
charge for deferred compensation expense in the third quarter of 1998,
representing the difference between the deemed value of the Company's
Common Stock, the initial public offering price for accounting purposes and
the exercise price of such options at the date of grant. Such amount will
be presented as a reduction of stockholders' equity and amortized over the
vesting period of the applicable options. 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
also provides for the accelerated vesting of an aggregate of 50,000 of such
options upon the Company's attainment of certain financial targets in the
1998 and 1999 fiscal years of the Company.
The Joyce Employment Agreement is for a term expiring on July 13,
2001, subject to earlier termination 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 and 7,500 options to Mr. Egan and Mr. Cespedes,
respectively, in connection with their appointment as officers of the
Company. Options will be granted by the Board of Directors or a committee
(the "Committee") of the Board of Directors comprised of two or more
"non-employee directors" within the meaning of Rule 16b-3, and unless
otherwise determined by the Board of the Directors, "outside directors"
within the meaning of Section 162(m), which will administer the 1998 Plan.
See "-- Board Committees." No individual may be granted options with
respect to more than a total of 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.
The Company intends, subject to final approval of the Board of
Directors, to issue shares of Common Stock to the Company's Community
Leaders under the 1998 Plan. Immediately following the execution of the
Underwriting Agreement, each of the Company's Community Leaders, as of
July 23, 1998, will be issued fully vested shares of Common Stock
(approximately in the aggregate), contingent upon the closing of the
Offerings.
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. Options relating to approximately
1,438,041 shares of Common Stock are outstanding under the 1995 Plan and
approximately one share remains 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 as of July 24, 1998
whose employment commenced after January 1, 1998.
401(k) Savings Plan
theglobe.com has established a savings and profit-sharing plan that
qualifies as a tax-deferred saving plan under Section 401(k) of the
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.
Compensation Committee Interlocks and Insider Participation
On July 15, 1998, Michael S. Egan, Robert M. Halperin, David H.
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 Certain Directors and Officers."
Although it is contemplated that Mr. Egan will not receive a salary or
bonus from the Company, the Company intends to grant, subject to Board of
Directors or Committee approval, stock options to Mr. Egan for 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 Certain Directors and Officers
The Company has recently entered into an e-commerce contract with
Republic Industries, Inc. ("Republic"), an entity affiliated with H. Wayne
Huizenga, pursuant to which the Company has granted a right of first
negotiation with respect to the exclusive right to engage in or conduct an
automotive "clubsite" on theglobe.com. Additionally, Republic has agreed to
purchase advertising from the Company for a three-year period at a price
which will be adjusted to match any more favorable advertising price quoted
to a third party by the Company, excluding certain short-term advertising
rates.
In addition, the Company has entered into an e-commerce arrangement
with InteleTravel, an entity controlled by Michael S. Egan, whereby the
Company developed a Web community for InteleTravel in order for its travel
agents to conduct business through theglobe.com Web site in exchange for
access to InteleTravel customers for distribution of the Company's products
and services.
The Company believes that the terms of the foregoing arrangements are
on comparable terms as if they were entered into with unaffiliated third
parties. As of the date hereof, revenues received by the Company from
Republic and InteleTravel have not been material.
Stockholders' Agreement
Messrs. Egan, Krizelman and Paternot and Ms. Arthur expect to enter
into a Stockholders' 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 Stockholders' Agreement, Messrs.
Krizelman, Paternot and Cespedes and Ms. Arthur have granted an irrevocable
proxy to Dancing Bear Investments with respect to 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 Dancing Bear Investments,
which is controlled by Michael S. Egan, and will be subject to a right of
first refusal in favor of Dancing Bear Investments upon transfer. The
Stockholders' Agreement will also provide that Messrs. Egan, Krizelman,
Paternot and Cespedes and Ms. Arthur will be subject to certain "tag-along"
rights and Messrs. Krizelman, Paternot and Cespedes and Ms. Arthur will be
subject to certain "drag-along" rights, with respect to such shares 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.
Common
Executive Stock Preferred Stock
Officers, ------------------------------------------------------
Directors and
5% Stockholders Series B Series C Series D(1) Series E(2)
- --------------- -------- -------- -------- ---------- ----------
Dancing Bear(3) 51 10
Investments, Inc.
Michael S.Egan(4) 51 10
Robert M. Halperin(5) 85,417 47,620 12,500
David H. Horowitz(6) 31,944 100,000 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 $8,171.88 in 1998 in connection with the exercise of
options for his Common Stock. Mr. Halperin paid $25,000.50 and $25,000
for his Series B and Series C Preferred Stock issued in December 1995
and November 1996, respectively.
(6) Mr. Horowitz paid $3,111.06 in 1997 in connection with the exercise of
options for his Common Stock. Mr. Horowitz paid $52,000 and $50,000
for his Series B and Series C Preferred Stock issued in December 1995
and November 1996, respectively.
All of the directors and executive officers of the Company are also
parties to registration rights agreements with the Company which are
described under "Description of Capital Stock--Registration Rights." The
Company also has entered into indemnification agreements with its directors
and officers. See "Management--Indemnification Agreements."
In the Concurrent Offering, the Company will sell to the Concurrent
Purchasers shares of Common Stock 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) Offering 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 * *
Henry C. Duques(10) 12,500 * *
Robert M. Halperin(11) 168,453 1.3
David H. Horowitz(12) 208,334 1.6
H. Wayne Huizenga(13) 12,500 *
All directors and 15,757,694 85.5%
executive officers as a
group
(11 persons) (14)
- -----------------------
*Less than one percent.
(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
Stockholders' Agreement. Dancing Bear Investments' mailing address is
333 East Las Olas Blvd., Ft. Lauderdale, FL 33301.
(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 225,000 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 225,000 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 12,500 shares of Common Stock subject to options that are
currently exercisable. Excludes 37,500 shares of Common Stock subject
to options that will not be exercisable within 60 days of August 19,
1998.
(11) 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 22,916 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.
(12) 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.
(13) 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.
(14) See footnotes 3 through 13 above.
</TABLE>
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's stockholders have approved the Fourth Amended and
Restated Certificate of Incorporation (the "Certificate") which will be
filed with the Delaware Secretary of State prior to consummation of the
Offerings. Pursuant to the Certificate, the Company's authorized capital
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 2,393,958 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 Certificate and the Company's By-Laws, which are
included as exhibits to the Registration Statement of which this Prospectus
is a part, and by the provisions of applicable law. The 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. As of , 1998, there were approximately holders of the
Company's Common Stock. 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 2,899,991 shares outstanding of
Preferred Stock designated into Series A, Series B, Series C, Series D and
Series E. Shares of each series of Preferred Stock are convertible into
Common Stock, subject to anti-dilution adjustments, and will automatically
convert into Common Stock 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. 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 stock purchase right (a "Right") for each
outstanding share of Common Stock. Each Right will entitle the registered
holder to purchase from the Company one one-thousandth of a share of a new
series of junior preferred stock, par value $.001 per share (the "Junior
Preferred Stock"), of the Company at a price of $ per one
one-thousandth of a share (the "Purchase Price"), subject to adjustment.
The description and terms of the Rights will be set forth in a Rights
Agreement between the Company and the designated Rights Agent. The
description set forth below is intended as a summary only and is qualified
in its entirety by reference to the form of the Rights Agreement, 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) a public
announcement that, without the prior consent of the Board of Directors of
the Company, a person or group (an "Acquiring Person"), including any
affiliates or associates of such person or group (other than Dancing Bear
Investments, Michael S. Egan, Todd V. Krizelman, Stephan J. Paternot, H.
Wayne Huizenga or any entities controlled by such persons) acquired
beneficial ownership of securities having 15% or more of the voting power
of all outstanding voting securities of the Company (as 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 (which is not subsequently withdrawn) to make,
a tender offer or exchange offer the consummation of which would result in
any 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 Junior Preferred
Stock (or, in certain circumstances, other securities of the Company)
having a value (immediately prior to such triggering event) equal to two
times the Purchase Price. Notwithstanding the foregoing, following the
occurrence of the event described above, all Rights that are, or (under
certain circumstances specified in the Rights Agreement) were, beneficially
owned by any Acquiring Person or any affiliate or associate thereof will be
null and void. A "Permitted Offer" is a tender or exchange offer for all
outstanding shares of Common Stock which is at a price and on terms
determined, prior to the purchase of shares under such tender or exchange
offer, by a majority of Disinterested Directors (as 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 Junior Preferred Stock or other securities issuable, upon exercise
of the Rights are subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the shares of Junior Preferred Stock,
(ii) upon the grant to holders of the shares of Junior Preferred Stock of
certain rights or warrants to subscribe for or purchase shares of Junior
Preferred Stock at a price, or securities convertible into shares of Junior
Preferred Stock with a conversion price, less than the then current market
price of the shares of Junior Preferred Stock or (iii) upon the
distribution to holders of the shares of Junior Preferred Stock of
evidences of indebtedness or assets (excluding regular quarterly cash
dividends) or of subscription rights or warrants (other than those referred
to above).
The Purchase Price payable, and the number of one-thousandths of a
share of Junior Preferred Stock or other securities issuable, upon exercise
of the Rights are also subject to adjustment in the event of a stock split
of the shares of Common Stock, or a stock dividend on the shares of Common
Stock payable in shares of Common Stock, or subdivisions, consolidations or
combinations of the shares of Common Stock occurring, in any such case,
prior to the Distribution Date.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1%
in such Purchase Price. No fractional one-thousandths of a share of Junior
Preferred Stock will be issued and, in lieu thereof, an adjustment in cash
will be made based on the market price of the shares of Junior Preferred
Stock on the last trading day prior to the date of exercise.
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights, the Company may
redeem the Rights in whole, but not in part, at a price of $.001 per Right
(the "Redemption Price"), which redemption shall be effective upon the
action of the Board of Directors of the Company. Additionally, the Company
may redeem the then outstanding Rights in whole, but not in part, at the
Redemption Price (i) after the triggering of the Flip-In Right and before
the expiration of any period during which the Flip-In Right may be
exercised in connection with a merger or other business combination
transaction or series of transactions involving the Company in which all
holders of shares of Common Stock are not offered the same consideration
but not involving 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 Flip-in Right if and for as long as no person
beneficially owns securities representing 15% or more of the voting power
of the Company's voting securities or (iii) if the Acquiring Person reduces
his ownership below 5% in transactions not involving the Company. The
redemption of Rights described in the preceding sentence shall be effective
only as of such time when the Flip-in Right is not exercisable, and in any
event, only after 10 business days' prior notice. Upon the effective date
of the redemption of the Rights, the right to exercise the Rights will
terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
The shares of Junior Preferred Stock purchasable upon exercise of the
Rights will be non-redeemable and junior to any other series of preferred
stock the Company may issue (unless otherwise provided in the terms of such
stock). Each share of Junior Preferred Stock will have a preferential
quarterly dividend in an amount equal to 1,000 times the dividend declared
on each share of Common Stock, but in no event less than $10. In the event
of liquidation, the holders of Junior Preferred Stock will receive a
minimum 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
Junior Preferred Stock will have 1,000 votes, voting together with the
shares of Common Stock. In the event of any merger, consolidation or other
transaction in which shares of Common Stock are exchanged, each share of
Junior Preferred Stock will be entitled to receive 1,000 times the amount
and type of consideration received per share of Common Stock. The rights of
the Junior Preferred Stock as to dividends, liquidation and voting, and in
the event of mergers and consolidations, are protected by customary
anti-dilution provisions. Fractional shares of Junior Preferred Stock will
be issuable; however, the Company may elect to distribute depositary
receipts in lieu of such fractional shares. In lieu of fractional shares
other than fractions that are multiples of one two-hundredth of a share, an
adjustment in cash will be made based on the market price of the Junior
Preferred Stock on the last trading date prior to the date of exercise.
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 Registrable Securities.
Pursuant to the terms of a Registration Rights Agreement by and among
Dancing Bear Investments, certain holders of Series A Preferred Stock,
Messrs. Krizelman and Paternot and the Company, the Company has granted
registration rights to such persons similar to the rights granted pursuant
to the Investor Rights Agreement. As a result, virtually all of the
Company's outstanding Common Stock or Preferred Stock has registration
rights.
Limitation of Director Liability
The Certificate limits the liability of directors of the Company to
the Company and its stockholders to the fullest extent permitted by
Delaware law. Specifically, directors of the Company will not be personally
liable for money damages for breach of fiduciary duty as a director, except
for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law ("DGCL"),
which concerns unlawful payments of dividends, stock purchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit.
Delaware Law and Certain Charter and By-Laws Provisions
Delaware Law
The Company is subject to the provisions of Section 203 ("Section
203") of the DGCL. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. A "business
combination" includes a merger, asset sale or other transaction resulting
in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns
(or, in certain cases, within three years prior, did own) 15% or more of
the corporation's voting stock. Under Section 203, a business combination
between the Company and an interested stockholder is prohibited unless it
satisfies one of the following conditions: (i) the Company's Board of
Directors must have 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 American
Stock Transfer & Trust Company.
<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 virtually all or substantially all of the Company's
outstanding Common Stock and all of the Company's outstanding preferred
equity will have certain demand registration rights with respect to the
shares of Common Stock into which their securities are convertible (subject
to the 180-day lock-up arrangement described below), under certain
circumstances and subject to certain conditions, to require the Company to
register their shares of Common Stock under the Securities Act, and certain
rights to participate in any future registration of securities by the
Company. The Company is not required to effect more than one demand
registration on behalf of such holders in any twelve calendar month period.
Pursuant to the agreements pursuant to which the registration rights were
granted, holders of Registrable Securities have agreed to be subject to
lock-up periods of not more than seven days prior to and 180 days following
the date of this Prospectus and of not more than seven days prior to and 90
days following the effective date of any subsequent Prospectus. The Company
intends to file a registration statement on Form S-8 for the shares held
pursuant to its option plans 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) the transfer of all or part of any Warrants held by Dancing
Bear Investments on the date hereof to any employee of Dancing Bear
Investments, any employee of the Company, Michael S. Egan or a Family
Transferee of Michael S. Egan, provided that each transferee shall have
executed a similar lock-up agreement, or (G) shares of Common Stock issued
in connection with a merger, recapitalization or consolidation of the
Company.
<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. Information relating to the operation of the Public
Reference Section may be obtained by calling the SEC at 1-800-SEC-0330. The
SEC maintains a Web site that contains reports, proxy and information
statements regarding registrants that file electronically with the SEC. The
address of this Web site is (http://www.sec.gov). Copies of all or any
portion of the Registration Statement may be obtained from the Public
Reference Section of the SEC, upon payment of the prescribed fees.
<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 9,
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 $1,606,110,
$21,886,110 and $21,886,110 at
December 31, 1996 and 1997, and as of
June 30, 1998................... 2,760 2,900 2,900
Common stock, $0.001 par value;
100,000,000 shares authorized;
2,250,000, 2,308,541 and
2,393,958 shares issued and
outstanding, respectively....... 2,250 2,309 2,394
Additional paid-in capital........ 1,627,421 21,864,360 21,872,447
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 ........... $ 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 2,322,778
=========== =========== =========== =========== ===========
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 holder's
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) -- -- 85,417 85 8,087 -- -- -- 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 2,393,958 2,394 21,872,447 (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 5).
(b) Initial Public Offerings
In June 1998, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange
Commission ("SEC") that would permit the Company to sell shares
of the Company's common stock in connection with a proposed
initial public offering ("IPO"). In addition to the IPO, the
Company will be offering shares in a concurrent offering (the
"Concurrent Offering") directly to certain investors at a price
per share equal to the IPO price per share less the underwriting
discount and commissions but including a placement agent fee,
(collectively referred to as the "Offerings"). The consummation
of the Concurrent Offering and the IPO are not contingent upon
each other. In the event the Concurrent Offering is not
consummated by the closing date of the IPO, the Concurrent
Offering will be terminated and all payments received in
connection with the Concurrent Offering will be promptly
returned. If the Concurrent Offering is not consummated for all
of the proposed shares, the shares of Common Stock not sold will
not be offered to purchasers in the IPO.
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.
<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
In the opinion of management, the accompanying unaudited interim
financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the
financial position of the Company at June 30, 1997 and 1998, and
the results of its operations and its cash flows for the six
months ended June 30, 1997 and 1998.
(d) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(e) Cash and Cash Equivalents
The Company considers all highly liquid securities with original
maturities of three months or less to be cash equivalents. Cash
equivalents at December 31, 1996 and 1997 were approximately
$752,000 and $3,997,000, respectively, and $2,994,000 as of June
30, 1998, which consisted of certificates of deposit.
(f) Short-term Investments
Short-term investments are classified as available-for-sale and
are available to support current operations or to take advantage
of other investment opportunities. The majority of these
investments are corporate bonds, which are stated at their
estimated fair value based upon publicly available market quotes.
Unrealized gains and losses are computed on the basis of specific
identification and are included in stockholders equity. Realized
gains, realized losses and declines in value, judged to be
other-than-temporary, are included in income. The costs of
securities sold are based on the specific-identification method
and interest earned is included in interest income. As of
December 31, 1997, the Company had gross unrealized losses of
$41,678 and gross unrealized gains of $477 from its short-term
investments. As of June 30, 1998 the Company had gross unrealized
losses of $14,976 and gross unrealized gains of $26,530.
(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.
<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
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to
be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the
fair value of the assets. To date, no such impairment has been
recorded.
(j) Income Taxes
The Company accounts for income taxes using the asset and
liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases for operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in results of
operations in the period that the tax change occurs. Valuation
allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized.
(k) Revenue Recognition
The Company's revenues are derived principally from the sale of
banner advertisements under short-term contracts. To date, the
duration of the Company's advertising commitments has generally
averaged from one to two months. Advertising revenues are
recognized ratably in the period in which the advertisement is
displayed, provided that no significant Company obligations
remain and collection of the resulting receivable is probable.
Company obligations typically include the guarantee of a minimum
number of "impressions" or times that an advertisement appears in
pages viewed by the users of the Company's online properties.
The Company also derived revenues from its membership
subscriptions which are deferred and recognized ratably over the
term of the subscription period, which is generally up to one
year. Subscription revenues accounted for 0%, 5%, 23%, 31% and
11% of revenues for the period from May 1, 1995 (inception) to
December 31, 1995, the years ended December 31, 1996 and 1997,
and for the six months ended June 30, 1997 and 1998,
respectively.
The Company trades advertisements on its Web properties in
exchange for advertisements on the Internet sites of other
companies. Barter revenues and expenses are recorded at the fair
market value of services provided or received, whichever is more
determinable in the circumstances. Revenue from barter
transactions is recognized as income when advertisements are
delivered on the Company's Web properties. Barter expense is
recognized when the Company's advertisements are run on other
companies' Web sites, which is typically in the same period when
the barter revenue is recognized. Barter revenues and expenses
were approximately $-0-, $-0-, and $166,500 for the period from
May 1, 1995 (inception) to December 31, 1995 and for the years
ended December 31, 1996 and 1997, respectively, and $37,500 and
$39,906 for the six months ended June 30, 1997 and 1998,
respectively.
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(1), Continued
(l) Product Development
Product development expenses include personnel costs associated
with the development, testing and upgrades to the Company's Web
site and systems as well as personnel costs related to its
editorial content and community management and support. Product
development costs and enhancements to existing products are
charged to operations as incurred. Software development costs are
required to be capitalized when a product's technological
feasibility has been established by completion of a working model
of the product which capitalized asset would be fully expensed by
the time when a product is available for general release to
customers. To date, completion of a working model of the
Company's products and general release have substantially
coincided. As a result, the Company has not capitalized any
software development costs since such costs have not been
significant.
(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.
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(1), Continued
(o) Net Loss Per Common Share, Continued
Anti-dilutive potential common shares outstanding were 2,619,820
for the period ended December 31, 1995, 3,444,037 and 14,873,343
for the years ended December 31, 1996 and 1997, respectively, and
4,165,398 and 14,829,927 for the six-month periods ended June 30,
1997 and 1998.
(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. For
the six months ended June 30, 1998 and the year ended December
31, 1997, comprehensive net loss was approximately $11,600 lower
and approximately $41,200 higher, respectively, than the net loss
reported in the Company's statements of operations for the
applicable periods, due to unrealized gains or losses on
securities classified as available-for-sale.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of and Enterprise and Related Information." SFAS No. 131
establishes standards for the way that a public enterprise
reports information about operating segments in annual financial
statements, and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997 and requires statement of
earlier periods presented. The Company has determined that it
does not have any separately reporting business segments.
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15,
1999. This statement does not apply to the Company as the Company
currently does not have any derivative instruments or hedging
activities.
(q) Stock Split
In May 1996, the Company authorized and implemented a ten-for-one
common stock split. In August 1997, the Company authorized and
implemented an additional ten-for-one preferred stock split. All
share and per share information in the accompanying financial
statements has been retroactively restated to reflect the effect
of these stock splits.
<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. In July 1998, the Company's stockholders approved the Fourth
Amended and Restated Certificate of Incorporation, which will be filed
with the Delaware Secretary of State prior to consummation of the
Offerings, to increase the number of authorized shares from 25,000,000
to 103,000,000 shares.
Common Stock
During 1995, the Company issued a total of 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
As of December 31, 1997 and June 30, 1998, the Company had five series
of Convertible Preferred Stock (collectively "Preferred Stock")
authorized and of which only four of the series were outstanding. The
holders of the various series of Preferred Stock generally have the
same rights and privileges. Each class of the Company's Preferred
Stock is convertible into Common Stock, as defined below, and has
rights and preferences which are generally more senior to the
Company's Common Stock and are more fully described in the Company's
amended and restated certificate of incorporation.
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(5), Continued
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. Under the terms and conditions of the original Note agreements,
the Notes were convertible into preferred stock at conversion prices
equal to $0.10 per share, the highest price paid for shares of its
Preferred Stock sold during such time period. These Notes, including
interest thereon, were converted into a total of 453,010 shares of
Series A Preferred Stock in connection with the Company's 1995 private
placement of Series A Preferred Stock, in accordance with the original
terms and conditions of such Notes.
During December 1995, the Company completed a private placement of
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 the time of exercise, as defined. In addition to the Series
D Preferred Stock, Dancing Bear Investments, Inc. also received
warrants which provide the right to purchase up to 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, as
defined in the original private placement agreements shall be the
quotient obtained by dividing the applicable series' original issue
price by the applicable series' conversion price. The original issue
price and conversion price shall be $0.10, $0.525 and $2 per share for
Series A, B and C, respectively, as determined by negotiations among
the parties. Each share of Series D and E Preferred Stock shall be
convertible into an amount of common representing 1% of the fully
diluted capital stock, as defined in the original private placement
agreement. Such conversion features were determined by negotiations
among the parties.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, as defined, on a pari passu basis, an
amount equal to $0.10, $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:
<TABLE>
<CAPTION>
Preferred Shares Equivalent Shares of
Issued and Outstanding Common Stock
----------------------------------------------------- --------------------------------------
December 31,
Shares June 30, ------------------------ June 30,
Authorized 1996 1997 1998 1996 1997 1998
--------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Series A 1,165,990 1,165,990 1,165,990 1,165,990 1,165,990 1,165,990 1,165,990
Series B 1,151,450 1,151,450 1,151,450 1,151,450 1,151,450 1,151,450 1,151,450
Series C 582,500 442,500 582,500 582,500 442,500 582,500 582,500
Series D 51 0 51 51 0 7,006,713 7,006,713
Series E 10 0 0 0 0 3,522,732 3,522,732
--------- --------- --------- --------- --------- ---------- ----------
2,900,001 2,759,940 2,899,991 2,899,991 2,759,940 13,429,385 13,429,385
========= ========= ========= ========= ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Liquidation Preference
--------------------------------------
December 31,
Liquidation ----------------------- June 30,
Preference Per Share 1996 1997 1998
-------------------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Series A $ 0.10 116,599 116,599 116,599
Series B $ 0.525 604,511 604,511 604,511
Series C $ 2.00 885,000 1,165,000 1,165,000
Series D $ 392,156.86 0 20,000,000 20,000,000
Series E $ 588,235.30 0 0 0
-------------------- --------- ---------- ----------
1,606,110 21,886,110 21,886,110
========= ========== ==========
</TABLE>
All Preferred Shares shall be automatically converted into common
shares in the event the Company closes a firm commitment for an
underwritten initial public offering of its common stock for an
aggregate amount of at least $15,000,000. The Preferred Shares are
subject to additional mandatory conversion rights, as defined in the
Company's amended and restated certificate of incorporation.
Holders Of Preferred Stock are entitled to receive dividends when and
if declared by the Board of Directors. No such dividends have yet been
declared by the Board of Directors.
(6) Stock Option Plan
1995 Stock Option Plan
During 1995, the Company established the 1995 Stock Option Plan, which
was amended (the "Amended Plan") by the Board of Directors in December
1996. Under the Amended Plan, the Board of Directors may issue
incentive stock options or nonqualified stock options to purchase up
to 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.
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(6), Continued
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 investment, 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.
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) $ 0.41
-------
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
=========
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 Unaudited)
(6), Continued
The following table summaries information about stock options outstanding
at 12/31/97:
Options Outstanding Options Exercisable
---------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Outstanding Price
- ------------- -------------- ------------- --------- ------------- ------------
$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
$0.41 170,500 5 0.41 0 0
--------- ---------
1,443,958 795,965
========= =========
At December 31, 1997, the range of exercise prices and
weighted-average remaining contractual life of outstanding options was
$0.01 - $0.41 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) Related Party Transactions
Certain officers and directors of the Company also serve as officers
and directors of Dancing Bear Investments, Inc., an entity which will
continue to control the Company following completion of the Offerings.
The Company has recently entered into an e-commerce contract with
Republic Industries, Inc. ("Republic"), an entity affiliated with a
Director of the Company, pursuant to which the Company has granted a
right of first negotiation with respect to the exclusive right to
engage in or conduct an automotive "clubsite" on theglobe.com Web
site. Additionally, Republic has agreed to purchase advertising from
the Company for a three-year period at a price which will be adjusted
to match any more favorable advertising price quoted to a third party
by the Company, excluding certain short-term advertising rates. In
addition, the Company has entered into an e-commerce arrangement with
InteleTravel, an entity controlled by the Chairman of the Company,
whereby the Company developed a Web community for InteleTravel in
order for its travel agents to conduct business through theglobe.com
in exchange for access to InteleTravel customers for distribution of
the Company's products and services. The Company believes that the
terms of the foregoing arrangements are on comparable terms as if they
were entered into with unaffiliated third parties. As of June 30,
1998, the Company had not received any revenues from InteleTravel or
Republic.
(9) Subsequent Events (unaudited)
In July 1998, the Company approved the Fourth Amended and Restated
Certificate of Incorporation, which will be filed with the Delaware
Secretary of State prior to consummation of the Offerings, to increase
the number of authorized shares from 25,000,000 shares to 103,000,000
shares.
The Company's 1998 Stock Option Plan (the "1998 Plan") was adopted by
the Board of Directors on July 15, 1998, and approved by the
stockholders of the Company as of July 15, 1998. The 1998 Plan
provides for the grant of "incentive stock options" intended to
qualify under Section 422 of the Code and stock options which do not
so qualify. The granting of incentive stock option is subject to
limitation as set forth in the 1998 Plan. Directors, officers,
employees and consultants of the Company and its subsidiaries are
eligible to receive grants under the 1998 Plan.
The 1998 Plan authorizes 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 1,656,000 options of Company outstanding
under this Plan.
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
by Dancing Bear Investments to certain officers of the Company, at an
exercise price of approximately $1.45 per share. The Company has
accounted for such transaction as if it were a compensatory plan
adopted by the Company. Accordingly, such amount will be recorded as
non-cash compensation expense in the Company's statement of operations
for services provided by such officers to the Company with an
offsetting contribution to capital by a principal shareholder. The
amount of such charge will be determined by the difference between the
initial public offering price per share and the exercise price per
warrant.
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 225,000 stock options to each to the two executives. The
exercise price for 175,000 of the options granted to one officer will
be 85% of the initial public offering price and the remaining options
granted to that officer and for the options granted to the other
officer were equal to
<PAGE>
theglobe.com, inc.
Notes to Financial Statements, Continued
(All information subsequent to December 31, 1997 is Unaudited)
(9) Continued
the fair market value per share of the Company's Common Stock as of the
date of the grant. The options will vest over a three year period. As a
result, the Company will record deferred compensation in the third quarter
relating to the 175,000 shares granted at 85% of the initial public
offering price, representing the difference between the deemed value of the
Company's Common Stock, the initial public offering price for accounting
purposes and the exercise price of such options at the date of grant. Such
amount will be presented as a reduction of stockholders' equity and
amortized over the three year vesting period of the applicable options.
<PAGE>
[Inside back cover]
[globeStores logo, screen shots of Web site pages]
theglobe.com
One virtual community at theglobe.com, embodied by
personal homepage building and hosting, chat rooms, free
e-mail, discussion forums, special interest groups, a
marketplace, neighborhoods, horoscope forum and more.
<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................. 6
Cautionary Notice Regarding
Forward Looking Statements. 22
Use of Proceeds.............. 23
Dividend Policy.............. 23
Concurrent Offering.......... 23
Capitalization............... 24
Dilution..................... 25
Selected Financial Data...... 27
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations................. 29
Business..................... 39
Management................... 52
Certain Relationships and
Related Transactions....... 62
Principal Stockholders....... 64
Description of Capital Stock. 66
Shares Eligible for Future Sale 73
Underwriting................. 75
Legal Matters................ 76
Experts...................... 76
Additional Information....... 76
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
12/22/95 Series B 95,240 50,001
Preferred
11/13/96 Series C 15,000 30,000
Preferred
Bergendahl, Mia 9/7/95 Series A 159,630 15,750
Preferred
12/22/95 Series B 47,620 25,000.50
Preferred
Cayuga Venture Fund 11/13/96 Series C 12,500 25,000
Preferred
David Duffield 12/22/95 Series B 190,480 100,002
Trust Preferred
11/13/96 Series C 250,000 500,000
Preferred
de Selliers, 11/13/96 Series C 25,000 50,000
Baudouin Preferred
Ganem, Bruce 11/13/96 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
11/13/96 Series C 12,500 25,000
Preferred
Halperin Dow, 12/22/95 Series B 47,620 25,000.50
Peggy Anne Preferred
11/13/96 Series C 12,500 25,000
Preferred
Halperin, Philip W. 12/22/95 Series B 47,620 25,000.50
Preferred
11/13/96 Series C 12,500 25,000
Preferred
Halperin, Robert M. 12/22/95 Series B 47,620 25,000.50
Preferred
11/13/96 Series C 12,500 25,000
Preferred
5/29/98 Common Stock 85,417 8,171.88
Hirsch, Jason 11/16/95 Series A 38,490 3,000
Preferred
Horowitz, David H. 12/22/95 Series B 100,000 52,500
Preferred
11/13/96 Series C 25,000 50,000
Preferred
6/19/97 Common Stock 31,944 3,111.06
Huret Family Trust 11/13/96 Series C 12,500 25,000
Preferred
Karlsson, Bengt 11/13/96 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 11/13/96 Series C 75,000 150,000
Investments, L.P. Preferred
Maconie, Andrew 11/16/95 Series A 6,430 513.70
Preferred
Miller, Dan 11/13/96 Series C 37,500 75,000
Preferred
Muckstadt, Jack 11/13/96 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
(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 and
143,958 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.
</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 Fourth Amended and Restated Certificate of
Incorporation of the Company
3.2 Form of By-Laws of the Company**
4.1 Second Amended and Restated Investor Rights Agreement among
the Company and certain equity holders of the Company dated
as of August 13, 1997**
4.2 Amendment No.1 to Second Amended and Restated Investor
Rights Agreement among the Company and certain equity
holders of the Company dated as of July 15, 1998**
4.3 Form of Registration Rights Agreement dated as of July 15, 1998**
4.4 Specimen certificate representing shares of Common Stock of
the Company*
4.5 Amended and Restated Warrant to Acquire Shares of Common
Stock**
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson**
9.1 Stockholders' Agreement by and among Dancing Bear
Investments, Inc., Michael Egan, Todd V. Krizelman, Stephan
J. Paternot, Edward A. Cespedes and Rosalie V. Arthur, dated
as of , 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 Form of Rights Agreement dated 1998, by and between
the Company and American Stock Transfer & Trust Company 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**
10.12 Agreement between the Company, Republic Industries, Inc., and
Michael S. Egan, dated August 12, 1998, regarding the conduct
of automotive clubsites on theglobe.com+
11.1 Computation of Loss Per Share**
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibit 5.1)**
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.
<PAGE>
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. 2 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 15th day of September 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. 2 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 September 15, 1998
- --------------------------
Michael Egan
/s/ Todd Krizelman Co-Chief Executive Officer, September 15, 1998
- -------------------------- Co-President and Director
Todd Krizelman
/s/ Stephan Paternot Co-Chief Executive Officer, September 15, 1998
- -------------------------- Co-President, Secretary and
Director
Stephan Paternot
Frank Joyce* Vice President and Chief September 15, 1998
- -------------------------- Financial Officer (Principal
Accounting Officer)
Frank Joyce
Edward Cespedes* Director September 15, 1998
- --------------------------
Edward Cespedes
Rosalie Arthur* Director September 15, 1998
- --------------------------
Rosalie Arthur
Robert Halperin* Director September 15, 1998
- --------------------------
Robert Halperin
David H. Horowitz* Director September 15, 1998
- --------------------------
David H. Horowitz
H. Wayne Huizenga* Director September 15, 1998
- --------------------------
H. Wayne Huizenga
- --------------------------
* By Attorney-in-Fact
EXHIBIT 3.1
FORM OF
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
THEGLOBE.COM, INC.
TODD V. KRIZELMAN and STEPHAN J. PATERNOT hereby certify that:
1. The date of filing of the original Certificate of Incorporation of
this corporation with the Secretary of State of the State of Delaware was
May 26, 1995. The original name under which the corporation was
incorporated was Webgenesis, Inc.
2. The original Certificate of Incorporation was amended and restated
on August 13, 1997, and was duly filed with the Secretary of State of the
State of Delaware.
3. They are the duly elected and acting Co-Chief Executive Officers
and Co-Presidents of theglobe.com, inc., a Delaware corporation.
4. The Amended and Restated Certificate of Incorporation of this
corporation is hereby amended and restated in its entirety (the "Fourth
Amended and Restated Certificate of Incorporation") to read as follows:
I.
The name of this Corporation is theglobe.com, inc. (the
"Corporation").
II.
The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 1013
Centre Road, City of Wilmington 19805, County of New Castle; and the name
of the registered agent of the Corporation in the State of Delaware at such
address is The Prentice-Hall Corporation System, Inc.
III.
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Delaware
General Corporation Law.
IV.
A. AUTHORIZED CAPITAL STOCK. The aggregate number of shares of capital
stock which the Corporation shall have authority to issue is one hundred
three million (103,000,000) shares divided into the following classes:
1. One hundred million (100,000,000) shares of Common Stock each
having a par value of one-tenth of one cent ($0.001) per share (the "Common
Stock"). Each share of Common Stock shall entitle the holder thereof to one
vote in person or by proxy on all matters submitted to a vote of the
stockholders of the Corporation; and
2. Three million (3,000,000) shares of Preferred Stock, each
having a par value of one-tenth of one cent ($0.001) per share (the
"Preferred Stock").
B. PREFERRED STOCK. Preferred Stock may be issued from time to time in
one or more series. The Board of Directors of the Corporation (the "Board")
is hereby authorized, by filing a certificate pursuant to the Delaware
General Corporation Law, to fix or alter from time to time the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof, including without
limitation the dividend rights, dividend rates, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions),
redemption price or prices, and the liquidation preferences of any wholly
unissued series of Preferred Stock, and to establish from time to time the
number of shares constituting any such series and the designation thereof,
or any of them; and to increase or decrease the number of shares of any
series subsequent to the issuance of shares of that series, but not below
the number of shares of such series then outstanding. In case the number of
shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status that such shares had prior to the adoption
of the resolution originally fixing the number of shares of such series.
C. DESIGNATION OF PREFERRED STOCK.
1. One million one hundred sixty-five thousand, nine hundred ninety
(1,165,990) shares of Preferred Stock are hereby designated Series A
Preferred Stock (the "Series A Preferred Stock");
2. One million one hundred fifty-one thousand, four hundred fifty
(1,151,450) shares of Preferred Stock are hereby designated Series B
Preferred Stock (the "Series B Preferred Stock");
3. Five hundred eighty-two thousand five hundred (582,500) shares of
Preferred Stock are hereby designated Series C Preferred Stock (the "Series
C Preferred Stock");
4. Fifty-one (51) shares of Preferred Stock are hereby designated
Series D Preferred Stock (the "Series D Preferred Stock"); and
5. Ten (10) shares of Preferred Stock are hereby designated Series E
Preferred Stock (the "Series E Preferred Stock").
D. RIGHTS, PREFERENCES, ETC. OF SERIES PREFERRED STOCK. The rights,
preferences, privileges, restrictions and other matters relating to the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock (collectively,
the "Series Preferred Stock"), are as follows:
1. Dividend Rights. The holders of the then outstanding shares of
Series Preferred Stock shall be entitled to receive, pari passu (with each
share in the same series of Series Preferred Stock being entitled to the
same dividend), dividends when, as and if declared by the Board out of any
funds legally available therefor, prior and in preference to any
declaration or payment of any dividend on the Common Stock payable other
than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock. Such dividends shall not be cumulative. No dividend
may be declared or paid on any series of Series Preferred Stock unless such
dividend is declared and paid pro rata on all series of outstanding Series
Preferred Stock.
2. Liquidation Preference.
a. In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of each
share of Series Preferred Stock then outstanding shall be entitled, pari
passu, to be paid out of the assets of the Corporation legally available
for distribution to its stockholders, whether from capital, surplus or
earnings, before any payment or setting apart for payment of any amount
shall be made in respect of the Common Stock, until such time as the
holders of the Series Preferred Stock shall have received their respective
preference amounts (the "Preference Amounts") as specified below. Each
Preference Amount shall be adjusted for any combinations, consolidations,
or stock distributions or stock dividends with respect to such shares, plus
all declared but unpaid dividends thereon, if any, to the date fixed for
distribution:
(i) The Series A Preferred Stock Preference Amount is ten
cents ($0.10) per share;
(ii) The Series B Preferred Stock Preference Amount is
fifty-two and one-half cents ($0.525) per share;
(iii) The Series C Preferred Stock Preference Amount is two
dollars ($2.00) per share;
(iv) The Series D Preferred Stock Preference Amount is three
hundred ninety-two thousand one-hundred fifty-six dollars and eighty-six
cents ($392,156.86) per share; and
(v) The Series E Preferred Stock Preference Amount is five
hundred eighty-eight thousand two hundred thirty-five dollars and thirty
cents ($588,235.30) per share.
If upon liquidation, dissolution or winding up of the
Corporation the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders their full respective
Preference Amounts, then such holders shall share ratably in any
distribution of assets in proportion to the full amount to which they would
otherwise be respectively entitled.
b. After payment has been made to the holders of Series Preferred
Stock of their full Preference Amounts, the remaining assets of the
Corporation shall be distributed ratably among the holders of the Common
Stock.
3. Conversion. The holders of the Series Preferred Stock shall have
conversion rights as follows:
a. Optional Conversion. Subject to and in compliance with the
provisions of this Section 3, any shares of Series Preferred Stock may, at
the option of the holder thereof, be converted at any time into fully-paid
and nonassessable shares of Common Stock as set forth below:
(i) Series A Preferred Stock, Series B Preferred Stock, and
Series C Preferred Stock shall each be convertible into
Common Stock in the amount determined by multiplying the
applicable conversion rate then in effect (determined as
provided in Section 3.b(i) below) by the number of shares of
Series Preferred Stock being converted.
(ii) The number of shares of Common Stock to which a holder of
Series D Preferred Stock or Series E Preferred Stock shall
be entitled upon conversion shall be an amount as determined
in Section 3.b(ii) below.
b. Conversion Rate.
---------------
(i) The conversion rate in effect at any time for conversion
of the Series A Preferred Stock shall be the quotient obtained by dividing
the Series A Original Issue Price (as defined herein) by the Series A
Conversion Price (as defined herein), calculated as provided in Section
3.c. The conversion rate in effect at any time for conversion of the Series
B Preferred Stock shall be the quotient obtained by dividing the Series B
Original Issue Price (as defined herein) by the Series B Conversion Price
(as defined herein), calculated as provided in Section 3.c. The conversion
rate in effect at any time for conversion of the Series C Preferred Stock
shall be the quotient obtained by dividing the Series C Original Issue
Price (as defined herein) by the Series C Conversion Price (as defined
herein), calculated as provided in Section 3.c. The "Series A Original
Issue Price" shall be ten cents ($0.10) per share. The "Series B Original
Issue Price" shall be fifty-two and one-half cents ($0.525) per share. The
"Series C Original Issue Price" shall be two dollars ($2.00) per share.
(ii) Each share of Series D Preferred Stock shall be
convertible into an amount of Common Stock representing 1.0% of the Fully
Diluted Capital Stock (as defined below), and each share of Series E
Preferred Stock shall be convertible into an amount of Common Stock
representing 1.0% of the Fully Diluted Capital Stock, as calculated on the
date of conversion.
As used herein, "Fully Diluted Capital Stock" means the fully diluted
capital stock of the Corporation, and assumes, without duplication, that
(A) all outstanding shares of capital stock are outstanding, (B) all
warrants (excluding any warrant to purchase Series E Preferred Stock or
Common Stock issued or issuable upon conversion of Series E Preferred
Stock), rights or options to acquire capital stock of the Corporation, or
any other securities which may be exchanged for or convertible into capital
stock of the Corporation, which have been issued or granted, including any
options authorized under any stock option plans (except as set forth
below), shall have been exercised, exchanged or converted whether or not
such warrants, rights or options or other securities shall have vested or
are then exercisable, exchangeable or convertible and (C) if any stock
appreciation rights or other phantom stock or similar rights have been
authorized, granted or issued, the capital stock equivalents underlying
such rights are outstanding; provided, however, that "Fully Diluted Capital
Stock" shall not include (i) any equity securities, equity security
equivalents (including stock appreciation rights) or securities convertible
or exchangeable into any of the foregoing, or into which any of the
foregoing are converted, issued or granted by the Corporation after August
13, 1997, without the approval of six (6) of the nine (9) members of the
Board as required by Article V, or any equity securities issued upon
conversion or exchange of any of the foregoing; or (ii) shares of Common
Stock issued in a Qualified IPO. The Fully Diluted Capital Stock shall be
calculated based upon the following formula: Fully Diluted Capital Stock =
X/(1-Y), where "X" equals the Fully Diluted Capital Stock other than with
respect to the Series D Preferred Stock and the Series E Preferred Stock;
and "Y" equals 1/100th of the aggregate number of outstanding shares of
Series D Preferred Stock and Series E Preferred Stock. The antidilution
provisions contained in this Section 3.b shall terminate upon the closing
of a Qualified IPO after giving effect to the conversion as set forth in
paragraph d below.
c. Conversion Price. The conversion price for the Series A
Preferred Stock shall be ten cents ($0.10) per share (the "Series A
Conversion Price"), as adjusted from time to time in accordance with this
Section 3. The conversion price for the Series B Preferred Stock shall be
fifty-two and one-half cents ($0.525) per share (the "Series B Conversion
Price"), as adjusted from time to time in accordance with this Section 3.
The conversion price for the Series C Preferred Stock shall be two dollars
($2.00) per share (the "Series C Conversion Price" and collectively with
the Series A Conversion Price and the Series B Conversion Price, the
"Conversion Prices"), as adjusted from time to time in accordance with this
Section 3.
d. Automatic Conversion. Each share of Series Preferred Stock
shall automatically be converted into shares of Common Stock at the then
effective applicable conversion rate in the event of the closing of a firm
commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Act"), covering the offer and sale of Common Stock (whether for the
account of the Corporation or for the account of one or more stockholders
of the Corporation) to the public at an aggregate offering price of not
less than fifteen million dollars ($15,000,000) (a "Qualified IPO"), in
which event the conversion of each share of Preferred Stock shall be deemed
to have occurred automatically at the closing of such Qualified IPO. In
addition, each share of the Series A Preferred Stock shall automatically
convert upon (i) the vote or written consent of the holders of a majority
of the outstanding Series A Preferred Stock, or (ii) the conversion into
shares of Common Stock of all outstanding shares of the Series B Preferred
Stock and Series C Preferred Stock. Each share of Series B Preferred Stock
shall automatically convert upon the vote or written consent of the holders
of a majority of the outstanding Series B Preferred Stock. Each share of
Series C Preferred Stock shall automatically convert upon the vote or
written consent of the holders of a majority of the outstanding Series C
Preferred Stock. Each share of Series D Preferred Stock shall automatically
convert upon the vote or written consent of the holders of a majority of
the outstanding Series D Preferred Stock. Each share of Series E Preferred
Stock shall automatically convert upon the vote or written consent of the
holders of a majority of the outstanding Series E Preferred Stock.
e. Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of Series Preferred Stock. In lieu of any
fractional shares to which the holder of Series Preferred Stock would
otherwise be entitled, the Corporation shall pay cash equal to such
fraction multiplied by the then-effective applicable Conversion Price.
Before any holder of Series Preferred Stock shall be entitled to convert
the same into full shares of Common Stock, it shall surrender the
certificate or certificates therefor, duly endorsed, at the offices of the
Corporation at such offices that it elects to convert the same (except that
no such written notice of election to convert shall be necessary in the
event of an automatic conversion pursuant to Section 3.d). The Corporation
shall, as soon as practicable thereafter, issue and deliver at such offices
to such holder a certificate or certificates, registered in such names as
specified by the holder, for the number of shares of Common Stock to which
it shall be entitled as aforesaid and a check payable to the holder in the
amount of any cash amounts payable as the result of a conversion into
fractional shares of Common Stock, and any accrued and unpaid dividends on
the converted shares. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of
the shares to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such shares of Common
Stock on such date (except that, in the event of an automatic conversion
pursuant to Section 3.d, such conversion shall be deemed to have been made
immediately prior to the closing of a Qualified IPO, or the effective date
of the consent). If the conversion is in connection with an underwritten
offering of securities registered pursuant to the Act, the conversion may,
at the option of any holder tendering shares of Preferred Stock for
conversion, be conditioned upon the closing with the underwriter of the
sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock issuable upon such conversion of the
tendered shares shall not be deemed to have converted such shares until
immediately prior to the closing of such sale of securities. Any
conversions of shares of Series D Preferred Stock or Series E Preferred
Stock which occur at substantially the same time shall be deemed to have
occurred simultaneously.
f. Adjustments for Subdivision, Dividends, Combinations or
Consolidations of Common Stock.
------------------------------------------------------------
(i) If the Corporation shall at any time or from time to
time after the date that the first share of Series D Preferred Stock is
issued (the "Original Issue Date") effect a combination or consolidation of
the outstanding Common Stock, by reclassification or otherwise, into a
lesser number of shares of Common Stock, the Conversion Prices in effect
immediately prior to such combination or consolidation shall, concurrently
with the effectiveness of such combination or consolidation, be
proportionately increased.
(ii) In the event the Corporation shall declare or pay any
dividend on the Common Stock payable in Common Stock or in the event the
outstanding shares of Common Stock shall be subdivided, by reclassification
or otherwise than by payment of a dividend in Common Stock, into a greater
number of shares of Common Stock, the Conversion Prices in effect
immediately prior to such dividend or subdivision shall be proportionately
decreased:
a. in the case of any such dividend, immediately after
the close of business on the record date for the determination of holders
of any class of securities entitled to receive such dividend, or
b. in the case of any such subdivision, at the close of
business on the date immediately prior to the date upon which such
corporate action becomes effective.
If such record date shall have been fixed and such dividend
shall not have been fully paid on the date fixed therefor, the adjustment
previously made in the applicable Conversion Price that became effective on
such record date shall be canceled as of the close of business on such
record date, and thereafter the applicable Conversion Price shall be
adjusted as of the time of actual payment of such dividend. The adjustment
provisions set forth in this subsection shall not apply to the Series D
Preferred Stock or the Series E Preferred Stock to the extent that an
adjustment in the number and kind of securities issuable upon conversion of
the Series D Preferred Stock or the Series E Preferred Stock is effected
through a change in the Fully Diluted Capital Stock pursuant to subsection
3.b above.
g. Adjustments for Other Dividends and Distributions. If the
Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the termination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, in each
such event provision shall be made so that the holders of the Series
Preferred Stock shall receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon, the amount of other
securities of the Corporation that they would have received had their
Series Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such
event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 3 with respect
to the rights of the holders of the Series Preferred Stock or with respect
to such other securities by their terms. The adjustment provisions set
forth in this subsection shall not apply to the Series D Preferred Stock or
the Series E Preferred Stock to the extent that an adjustment in the number
and kind of securities issuable upon conversion of the Series D Preferred
Stock or the Series E Preferred Stock is effected through a change in the
Fully Diluted Capital Stock pursuant to subsection 3.b above.
h. Adjustment for Reclassification, Exchange and Substitution. If
at any time or from time to time after the Original Issue Date, the Common
Stock issuable upon the conversion of the Series Preferred Stock is changed
into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend or a
reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section 3), in any such event each holder of Series
Preferred Stock shall have the right thereafter to convert such stock into
the kind and amount of stock and other securities and property receivable
upon such recapitalization, reclassification or other change by holders of
the maximum number of shares of Common Stock into which such shares of
Series Preferred Stock could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further
adjustment as provided herein or with respect to such other securities or
property by the terms thereof. The adjustment provisions set forth in this
subsection shall not apply to the Series D Preferred Stock or the Series E
Preferred Stock to the extent that an adjustment in the number and kind of
securities issuable upon conversion of the Series D Preferred Stock or the
Series E Preferred Stock is effected through a change in the Fully Diluted
Capital Stock pursuant to subsection 3.b above.
i. Sale of Shares Below Conversion Price.
-------------------------------------
(i) If at any time or from time to time the Corporation
issues or sells, or is deemed by the express provisions of this subsection
(i) to have issued or sold, Additional Shares of Common Stock (as defined
herein), other than as provided in Sections 3.f through 3.h above, for an
Effective Price (as defined herein) less than the then effective Series B
Conversion Price or Series C Conversion Price, then and in each such case
the then existing Series B Conversion Price or Series C Conversion Price,
as applicable, shall be reduced, as of the opening of business on the date
of such issue or sale, to a price determined by multiplying the Series B
Conversion Price or Series C Conversion Price, as applicable, by a fraction
(i) the numerator of which shall be (A) the number of shares of Common
Stock deemed Outstanding (as defined herein) immediately prior to such
issue or sale, plus (B) the number of shares of Common Stock that the
Aggregate Consideration Received (as defined herein) by the Corporation for
the total number of Additional Shares of Common Stock so issued could
purchase at such Series B Conversion Price or Series C Conversion Price, as
applicable, and (ii) the denominator of which shall be the number of shares
of Common Stock deemed Outstanding immediately prior to such issue or sale
plus the total number of Additional Shares of Common Stock so issued. For
the purposes of this paragraph, the number of shares of Common Stock deemed
to be outstanding as of a given date shall be the sum of (A) the number of
shares of Common Stock actually "Outstanding," (B) the number of shares of
Common Stock into which the then outstanding shares of Series Preferred
Stock could be converted if fully converted on the day immediately
preceding the given date, and (C) the number of shares of Common Stock
which could be obtained through the exercise or conversion of all other
rights, options and convertible securities on the day immediately preceding
the given date.
(ii) For the purpose of making any adjustment required under
this Section 3.i, the consideration received by the Corporation from any
issue or sale of securities shall (A) to the extent it consists of cash, be
computed at the net amount of cash received by the Corporation after
deduction of any underwriting or similar commissions, compensation or
concessions paid or allowed by the Corporation in connection with such
issue or sale but without deduction of any expenses payable by the
Corporation, (B) to the extent it consists of property other than cash, be
computed at the fair value of that property as determined in good faith by
the Board, and (C) if Additional Shares of Common Stock, Convertible
Securities (as defined herein) or rights or options to purchase either
Additional Shares of Common Stock or Convertible Securities are issued or
sold together with other stock or securities or other assets of the
Corporation for a consideration that covers both, be computed as the
portion of the consideration so received that may be reasonably determined
in good faith by the Board to be allocable to such Additional Shares of
Common Stock, Convertible Securities or rights or options.
(iii) For the purpose of the adjustment required under this
Section 3.i, if the Corporation issues or sells any rights or options for
the purchase of, stock or other securities convertible into, Additional
Shares of Common Stock (such convertible stock or securities being herein
referred to as "Convertible Securities") and if the Effective Price of such
Additional Shares of Common Stock is less than the Series B Conversion
Price (in the case of the Series B Preferred Stock) or the Series C
Conversion Price (in the case of the Series C Preferred Stock), in each
case the Corporation shall be deemed to have issued at the time of the
issuance of such rights or options or Convertible Securities the maximum
number of Additional Shares of Common Stock issuable upon exercise or
conversion thereof and to have received as consideration for the issuance
of such shares an amount equal to the total amount of the consideration, if
any, received by the Corporation for the issuance of such rights or options
or Convertible Securities, plus, in the case of such rights or options, the
minimum amounts of consideration, if any, payable to the Corporation upon
the exercise of such rights or options, plus, in the case of Convertible
Securities, the minimum amounts of consideration, if any, payable to the
Corporation (other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities) upon the conversion thereof;
provided that, if in the case of Convertible Securities the minimum amounts
of such consideration cannot be ascertained but are a function of
antidilution or similar protective clauses, the Corporation shall be deemed
to have received the minimum amounts of consideration without reference to
such clauses; provided further, that, if the minimum amount of
consideration payable to the Corporation upon the exercise or conversion of
rights, options or Convertible Securities is reduced over time or on the
occurrence or non-occurrence of specified events other than by reason of
antidilution adjustments, the Effective Price shall be recalculated using
the figure to which such minimum amount of consideration is reduced;
provided further, that, if the minimum amount of consideration payable to
the Corporation upon the exercise or conversion of such rights, options or
Convertible Securities is subsequently increased, the Effective Price shall
be again recalculated using the increased minimum amount of consideration
payable to the Corporation upon the exercise or conversion of such rights,
options or Convertible Securities. No further adjustment of the Series B
Conversion Price or the Series C Conversion Price, as adjusted upon the
issuance of such rights, options or Convertible Securities, shall be made
as a result of the actual issuance of Additional Shares of Common Stock on
the exercise of any such rights or options or the conversion of any such
Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire
without having been exercised, the Series B Conversion Price and Series C
Conversion Price as adjusted upon the issuance of such rights, options or
Convertible Securities shall be readjusted to the Series B Conversion Price
and Series C Conversion Price which would have been in effect had an
adjustment been made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights
of conversion of such Convertible Securities, and such Additional Shares of
Common Stock, if any, were issued or sold for the consideration actually
received by the Corporation upon such exercise, plus the consideration, if
any, actually received by the Corporation for the granting of all such
rights or options, whether or not exercised, plus the consideration
received for issuing or selling the Convertible Securities actually
converted, plus the consideration, if any, actually received by the
Corporation (other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities) on the conversion of such
Convertible Securities, provided that such readjustment shall not apply to
prior conversion of Series B Preferred or Series C Preferred.
(iv) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Corporation or deemed to be issued
pursuant to this Section 3.i, whether or not subsequently reacquired or
retired by the Corporation, other than (A) shares of Common Stock issued
upon conversion of the Series Preferred Stock; (B) shares of Common Stock
and/or options, warrants or other Common Stock purchase rights, and the
Common Stock issued pursuant to such options, warrants or other rights (as
adjusted for any stock dividends, combinations, splits, recapitalizations
and the like) issued or to be issued to employees, officers or directors
of, or consultants or advisors to, the Corporation or any subsidiary
pursuant to stock purchase or stock option plans or other arrangements that
are approved by the Board; (C) shares of Common Stock issued pursuant to
the exercise of options, warrants or convertible securities outstanding as
of the Original Issue Date and (D) shares of Common Stock issued in a
Qualified IPO. The "Effective Price" of Additional Shares of Common Stock
shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been
issued or sold by the Corporation under this Section 3.i, into the
aggregate consideration received, or deemed to have been received by the
Corporation for such issue under this Section 3.i, for such Additional
Shares of Common Stock.
j. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Prices pursuant to this
Section 3, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish
to each holder of Series Preferred Stock, a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Series Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting
forth (i) such adjustments and readjustments, (ii) the Conversion Prices at
the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon
the conversion of Series Preferred Stock.
k. Notices of Record Date. In the event that the Corporation
shall propose at any time:
(i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities, whether or not
a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock of any
class or series or other rights;
(iii) to effect any reclassification or recapitalization of
its Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other
Corporation, or sell, lease or convey all or substantially all its property
or business, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of the Preferred Stock;
a. at least ten days' prior written notice of the date
on which a record shall be taken for such dividend,
distribution or subscription rights (and specifying the date
on which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote in respect of the
matter referred to in (iii) and (iv) above; and
b. in the case of the matters referred to in (iii) and
(iv) above, at least 10 days' prior written notice of the
date when the same shall take place (and specifying, if
practicable, or estimating the date on which the holders of
Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon the
occurrence of such event).
Each such written notice shall be given by first-class mail, postage
prepaid, addressed to the holders of Series Preferred Stock at the address
for each such holder as shown on the books of the Corporation.
l. Common Stock Reserved. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of
Common Stock solely for the purpose of effecting the conversion of the
shares of Series Preferred Stock, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series Preferred Stock, and if at any time the
number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Series Preferred Stock, the Corporation shall take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
m. Voting Rights.
-------------
(i) Except as otherwise provided herein or as required by
law, each share of Series Preferred Stock issued and outstanding shall have
the number of votes equal to the number of shares of Common Stock into
which such shares of Series Preferred Stock, as applicable, are convertible
as adjusted from time to time pursuant to Section 3 hereof. Except as
otherwise provided herein or as required by law, the Common Stock and the
Series Preferred Stock shall vote together as a single class. Fractional
votes by the holders of Series Preferred Stock shall not, however, be
permitted and any fractional voting rights resulting from the above formula
(after aggregating all shares into which shares of Series Preferred Stock
held by each holder could be converted) shall be rounded to the nearest
whole number.
(ii) The holders of Series D Preferred Stock, voting
together as a class, shall be entitled to elect five (5) directors of the
Corporation and to exercise any right of removal or replacement of such
directors; the holders of shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, voting together as a class,
shall be entitled to elect two (2) directors of the Corporation and to
exercise any right of removal or replacement of such directors; the holders
of shares of Series Preferred Stock and shares of Common Stock, voting
together as a class, shall be entitled to elect two (2) directors of the
Corporation and to exercise any right of removal or replacement of such
directors. All vacancies on the Board shall be filled only in accordance
with this section. This Section 3.m may be amended only by the affirmative
vote of eight (8) of the nine (9) members of the Board. This Section
3.m(ii) shall terminate upon the consummation of a Qualified IPO.
V.
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of
the powers of the Corporation, of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided that:
1. The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board. The number of directors
which shall constitute the whole Board shall be nine (9). The affirmative
vote of at least six (6) of the nine (9) directors shall be necessary for
effecting or validating the following actions, and such actions shall not
constitute the valid and binding actions of the Board or the Corporation
unless so approved:
a. Any action of the Board, or failure to act, that would
cause, or could reasonably be expected to result in, a major shift (a
"Major Shift") in the Corporation's "basic business plan." The
Corporation's "basic business plan" is to be a virtual community in which
the paramount priority is getting people to interact and/or communicate
with each other. This may include selling subscriptions, advertising and
merchandising in furtherance of this paramount priority. It is also
expected that there will be other priorities in support of the virtual
community. Any two (2) directors acting together may reasonably determine
that a proposed Board action, or failure to act, would constitute a Major
Shift and, therefore, that such action, or failure to act, shall be subject
to the super-majority Board approval requirements set forth in this Section
1; provided, however, that a "Major Shift" shall not include the issuance
by the Corporation of equity or debt securities (unless such action is
intended, or could reasonably be expected, to result in a Major Shift) or
the removal or termination of a director or officer of the Corporation.
b. Any transaction between the Corporation and any officer
or director of the Corporation or holder of greater than 10% of the Fully
Diluted Capital Stock or any affiliate or immediate family member of the
foregoing.
c. Any issuance, reservation or authorization of capital
stock or other securities by the Corporation that would, if approved in
accordance with the provision hereof, result in a change in the number of
shares of Fully Diluted Capital Stock (excluding the issuance of Series E
Preferred Stock upon the exercise of outstanding warrants and the pro rata
issuance of stock dividends that do not dilute any stockholder's equity
interest in the Corporation).
This Section 1 may be amended only by the affirmative vote of eight
(8) of the nine (9) members of the Board. The super-majority voting
provisions contained in this Section 1 shall terminate upon the closing of
a Qualified IPO.
2. The Board may from time to time make, amend, supplement or
repeal the Bylaws in the manner set forth therein.
3. The directors of the Corporation need not be elected by
written ballot unless the Bylaws of the Corporation so provide.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
VI.
A director of the Corporation shall, to the full extent not prohibited
by the Delaware General Corporation Law now existing or as hereafter
amended, not be liable to the Corporation or its stockholders for monetary
damages for breach of his fiduciary duty as a director.
VII.
The Corporation is to have perpetual existence.
VIII.
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Fourth Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and
all rights conferred upon the stockholders herein are granted subject to
this right.
* * * * *
1. This Fourth Amended and Restated Certificate of Incorporation
has been duly approved by the Board.
2. This Fourth Amended and Restated Certificate of Incorporation
has been duly adopted in accordance with the provisions of Sections 228,
242, and 245 of the General Corporation Law of the State of Delaware by the
Board and the stockholders of the Corporation. The total number of
outstanding shares entitled to vote or act by written consent was two
million two hundred seventy-six thousand five hundred ninety-seven
(2,276,597) shares of common stock, par value $0.001 per share, of the
Corporation, one million one hundred sixty-five thousand nine hundred
ninety (1,165,990) shares of Series A Preferred Stock, one million one
hundred fifty-one thousand four hundred fifty (1,151,450) shares of Series
B Preferred Stock, five hundred eighty-two thousand five hundred (582,500)
shares of Series C Preferred Stock and fifty-one (51) shares of Series D
Preferred Stock. [A majority of the outstanding shares of common stock, par
value $0.001 per share, of the Corporation, a majority of the outstanding
shares of Series A Preferred Stock, a majority of the outstanding shares of
Series B Preferred Stock, a majority of the outstanding shares of Series C
Preferred Stock and a majority of the outstanding shares of Series D
Preferred Stock approved this Fourth Amended and Restated Certificate of
Incorporation by written consent in accordance with Section 228 of the
General Corporation Law of the State of Delaware and written notice of such
was given by the Corporation in accordance with said Section 228.]
<PAGE>
IN WITNESS WHEREOF, theglobe.com, inc. has caused this Fourth Amended
and Restated Certificate of Incorporation to be signed by its Co-Chief
Executive Officers and Co-Presidents in New York, New York this __ day of
September, 1998.
THEGLOBE.COM, INC.
By
---------------------------------
Todd V. Krizelman,
Co-Chief Executive Officer
and Co-President
ATTEST:
By
------------------------------------
Stephan J. Paternot,
Co-Chief Executive Officer,
Co-President and Secretary
Exhibit 10.6
THEGLOBE.COM, INC.
1998 STOCK OPTION PLAN
As Adopted July 15, 1998
<PAGE>
THEGLOBE.COM, INC.
1998 STOCK OPTION PLAN
1. Purpose.
-------
The purpose of this Plan is to strengthen theglobe.com, inc., a
Delaware corporation (the "Company"), by providing an incentive to its
employees, officers, consultants and directors and thereby encouraging them
to devote their abilities and industry to the success of the Company's
business enterprise. It is intended that this purpose be achieved by
extending to employees (including future employees who have received a
formal written offer of employment), officers, consultants and directors of
the Company and its Subsidiaries an added long-term incentive for high
levels of performance and extraordinary efforts through the grant of
Incentive Stock Options and Nonqualified Stock Options (as each term is
herein defined).
2. Definitions.
-----------
For purposes of the Plan:
2.1 "Adjusted Fair Market Value" means, in the event of a Change
in Control, the greater of (a) the highest price per Share paid to holders
of the Shares in any transaction (or series of transactions) constituting
or resulting in a Change in Control or (b) the highest Fair Market Value of
a Share during the ninety (90) day period ending on the date of a Change in
Control.
2.2 "Affiliate" means any entity, directly or indirectly,
controlled by, controlling or under common control with the Company or any
corporation or other entity acquiring, directly or indirectly, all or
substantially all the assets and business of the Company, whether by
operation of law or otherwise.
2.3 "Agreement" means the written agreement between the Company
and an Optionee evidencing the grant of an Option and setting forth the
terms and conditions thereof.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Cause" means:
(a) for purposes of Section 6.4, the commission of an act of
fraud or intentional misrepresentation or an act of embezzlement,
misappropriation or conversion of assets or opportunities of the Company or
any of its Subsidiaries; and
(b) in the case of an Optionee whose employment with the
Company or a Subsidiary is subject to the terms of an employment agreement
between such Optionee and the Company or Subsidiary, which employment
agreement includes a definition of "Cause", the term "Cause" as used in the
Plan or any Agreement shall have the meaning set forth in such employment
agreement during the period that such employment agreement remains in
effect; and
(c) in all other cases, (i) intentional failure to perform
reasonably assigned duties, (ii) dishonesty or willful misconduct in the
performance of duties, (iii) involvement in a transaction in connection
with the performance of duties to the Company or any of its Subsidiaries
which transaction is adverse to the interests of the Company or any of its
Subsidiaries and which is engaged in for personal profit or (iv) willful
violation of any law, rule or regulation in connection with the performance
of duties (other than traffic violations or similar offenses).
2.6 "Change in Capitalization" means any increase or reduction in
the number of Shares, or any change (including, but not limited to, in the
case of a spin-off, dividend or other distribution in respect of Shares, a
change in value) in the Shares or exchange of Shares for a different number
or kind of shares or other securities of the Company or another
corporation, by reason of a reclassification, recapitalization, merger,
consolidation, reorganization, spin-off, split-up, issuance of warrants or
rights or debentures, stock dividend, stock split or reverse stock split,
cash dividend, property dividend, combination or exchange of shares,
repurchase of shares, change in corporate structure or otherwise.
2.7 A "Change in Control" shall mean the occurrence of any of the
following:
(a) An acquisition (other than directly from the Company) of
any voting securities of the Company (the "Voting Securities") by any
"Person" (as the term person is used for purposes of Section 13(d) or 14(d)
of the Exchange Act), immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of thirty percent (30%) or more of the then outstanding Shares or the
combined voting power of the Company's then outstanding Voting Securities;
provided, however, in determining whether a Change in Control has occurred
pursuant to this Section 2.7(a), Shares or Voting Securities which are
acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A
"Non-Control Acquisition" shall mean an acquisition by (i) an employee
benefit plan (or a trust forming a part thereof) maintained by (A) the
Company or (B) any corporation or other Person of which a majority of its
voting power or its voting equity securities or equity interest is owned,
directly or indirectly, by the Company (for purposes of this definition, a
"Majority-Owned Subsidiary"), (ii) the Company or its Majority-Owned
Subsidiaries, or (iii) any Person in connection with a "Non-Control
Transaction" (as hereinafter defined);
(b) The individuals who, as of date plan is adopted are
members of the Board (the "Incumbent Board"), cease for any reason to
constitute at least two-thirds of the members of the Board; provided,
however, that if the election, or nomination for election by the Company's
common stockholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of
the Plan, be considered as a member of the Incumbent Board; provided
further, however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule
14a-11 promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(c) The consummation of:
(i) A merger, consolidation or reorganization with or
into the Company or in which securities of the Company are issued, unless
such merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger,
consolidation or reorganization with or into the Company or in which
securities of the Company are issued where:
(A) the stockholders of the Company, immediately
before such merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined voting power
of the outstanding voting securities of the corporation resulting from such
merger or consolidation or reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of the Voting
Securities immediately before such merger, consolidation or reorganization,
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute at
least two-thirds of the members of the board of directors of the Surviving
Corporation, or a corporation beneficially directly or indirectly owning a
majority of the Voting Securities of the Surviving Corporation, and
(C) no Person other than (1) the Company, (2) any
Majority-Owned Subsidiary, (3) any employee benefit plan (or any trust
forming a part thereof) that, immediately prior to such merger,
consolidation or reorganization, was maintained by the Company or any
Majority-Owned Subsidiary, or (4) any Person who, immediately prior to such
merger, consolidation or reorganization had Beneficial Ownership of thirty
percent (30%) or more of the then outstanding Voting Securities or Shares,
has Beneficial Ownership of thirty percent (30%) or more of the combined
voting power of the Surviving Corporation's then outstanding voting
securities or its common stock.
(ii) A complete liquidation or dissolution of the
Company; or
(iii) The sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Majority-Owned Subsidiary or the distribution to the
Company's stockholders of the stock of a Majority-Owned Subsidiary or any
other assets).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then
outstanding Shares or Voting Securities as a result of the acquisition of
Shares or Voting Securities by the Company which, by reducing the number of
Shares or Voting Securities then outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Persons, provided that
if a Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of Shares or Voting Securities by the
Company, and after such share acquisition by the Company, the Subject
Person becomes the Beneficial Owner of any additional Shares or Voting
Securities which increases the percentage of the then outstanding Shares or
Voting Securities Beneficially Owned by the Subject Person, then a Change
in Control shall occur.
If an Eligible Individual's employment is terminated by the
Company without Cause prior to the date of a Change in Control but the
Eligible Individual reasonably demonstrates that the termination (A) was at
the request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a change in control or (B) otherwise arose
in connection with, or in anticipation of, a Change in Control which has
been threatened or proposed, such termination shall be deemed to have
occurred after a Change in Control for purposes of the Plan provided a
Change in Control shall actually have occurred.
2.8 "Code" means the Internal Revenue Code of 1986, as amended.
2.9 "Committee" means a committee, as described in Section 3.1,
appointed by the Board from time to time to administer the Plan and to
perform the functions set forth herein.
2.10 "Company" means theglobe.com, inc., a Delaware corporation.
2.11 "Consultant" means any consultant or advisor that qualifies
as an "employee" within the meaning of rules applicable to Form S-8, as in
effect from time to time, of the Securities Act of 1933, as amended.
2.12 "Director" means a director of the Company.
2.13 "Disability" means:
(a) in the case of an Optionee whose employment with the
Company or a Subsidiary is subject to the terms of an employment agreement
between such Optionee and the Company or Subsidiary, which employment
agreement includes a definition of "Disability", the term "Disability" as
used in the Plan or any Agreement shall have the meaning set forth in such
employment agreement during the period that such employment agreement
remains in effect; and
(b) in all other cases, the term "Disability" as used in the
Plan or any Agreement shall mean a physical or mental infirmity which
impairs the Optionee's ability to perform substantially his or her duties
for a period of one hundred eighty (180) consecutive days.
2.14 "Division" means any of the operating units or divisions of
the Company designated as a Division by the Committee.
2.15 "Eligible Director" means a director of the Company who does
not perform services as, or have the responsibilities of, an employee or
officer, and who does not receive compensation or other consideration from
the Company or any Subsidiary, other than in his or her capacity as a
director.
2.16 "Eligible Individual" means any of the following
individuals: (a) any director, officer or employee of the Company or a
Subsidiary, (b) any individual to whom the Company or a Subsidiary has
extended a formal, written offer of employment, or (c) any Consultant.
2.17 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.18 "Fair Market Value" on any date means the closing sales
prices of the Shares on such date on the principal national securities
exchange on which such Shares are listed or admitted to trading, or, if
such Shares are not so listed or admitted to trading, the average of the
per Share closing bid price and per Share closing asked price on such date
as quoted on the National Association of Securities Dealers Automated
Quotation System or such other market in which such prices are regularly
quoted, or, if there have been no published bid or asked quotations with
respect to Shares on such date, the Fair Market Value shall be the value
established by the Board in good faith and, in the case of an Incentive
Stock Option, in accordance with Section 422 of the Code.
2.19 "Formula Option" means an Option granted pursuant to Section
6.
2.20 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee as
an Incentive Stock Option.
2.21 "Nonemployee Director" means a director of the Company who
is a "nonemployee director" within the meaning of Rule 16b-3 promulgated
under the Exchange Act.
2.22 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
2.23 "Option" means a Nonqualified Stock Option, an Incentive
Stock Option, a Formula Option, or any or all of them.
2.24 "Optionee" means a person to whom an Option has been granted
under the Plan.
2.25 "Outside Director" means a director of the Company who is an
"outside director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
2.26 "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect to the
Company.
2.27 "Performance-Based Compensation" means any Option that is
intended to constitute "performance-based compensation" within the meaning
of Section 162(m)(4)(C) of the Code and the regulations promulgated
thereunder.
2.28 "Permitted Transferee" means an Optionee's immediate family,
trusts solely for the benefit of such family members and partnerships in
which such family members and/or trusts are the only partners. For this
purpose, "immediate family" of an Optionee means the Optionee's spouse,
parents, children, stepchildren and grandchildren and the spouses of such
parents, children, stepchildren and grandchildren.
2.29 "Plan" means this theglobe.com, inc. 1998 Stock Option Plan,
as amended from time to time.
2.30 "Pooling Transaction" means an acquisition of the Company in
a transaction which is intended to be treated as a "pooling of interests"
under generally accepted accounting principles.
2.31 "Shares" means the Common Stock, par value $0.001 per share,
of the Company.
2.32 "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) with respect
to the Company.
2.33 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a)
of the Code applies.
2.34 "Ten-Percent Stockholder" means an Eligible Individual, who,
at the time an Incentive Stock Option is to be granted to him or her, owns
(within the meaning of Section 422(b)(6) of the Code) stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company, or of a Parent or a Subsidiary.
3. Administration.
--------------
3.1 The Plan shall be administered by the Committee, which shall
hold meetings at such times as may be necessary for the proper
administration of the Plan. The Committee shall keep minutes of its
meetings. A quorum shall consist of not fewer than two (2) members of the
Committee and a majority of a quorum may authorize any action. Any decision
or determination reduced to writing and signed by a majority of all of the
members of the Committee shall be as fully effective as if made by a
majority vote at a meeting duly called and held. The Committee shall
consist of at least two (2) Directors and may consist of the entire Board;
provided, however, that (A) if the Committee consists of less than the
entire Board, each member shall be a Nonemployee Director and (B) to the
extent necessary for any Option intended to qualify as Performance-Based
Compensation to so qualify, each member of the Committee, whether or not it
consists of the entire Board, shall be an Outside Director. For purposes of
the preceding sentence, if one or more members of the Committee is not a
Nonemployee Director and an Outside Director but recuses himself or herself
or abstains from voting with respect to a particular action taken by the
Committee, then the Committee, with respect to that action, shall be deemed
to consist only of the members of the Committee who have not recused
themselves or abstained from voting.
3.2 No member of the Committee shall be liable for any action,
failure to act, determination or interpretation made in good faith with
respect to the Plan or any transaction hereunder. The Company hereby agrees
to indemnify each member of the Committee for all costs and expenses and,
to the extent permitted by applicable law, any liability incurred in
connection with defending against, responding to, negotiating for the
settlement of or otherwise dealing with any claim, cause of action or
dispute of any kind arising in connection with any actions in administering
the Plan or in authorizing or denying authorization to any transaction
hereunder.
3.3 Subject to the express terms and conditions set forth herein,
the Committee shall have the power from time to time to:
(a) determine those Eligible Individuals to whom Options
shall be granted under the Plan and the number of such Options to be
granted and to prescribe the terms and conditions (which need not be
identical) of each such Option, including the exercise price per Share
subject to each Option, and make any amendment or modification to any
Agreement consistent with the terms of the Plan;
(b) to construe and interpret the Plan and any Agreements
granted hereunder and to establish, amend and revoke rules and regulations
for the administration of the Plan, including, but not limited to,
correcting any defect or supplying any omission, or reconciling any
inconsistency in the Plan or in any Agreement, in the manner and to the
extent it shall deem necessary or advisable, including so that the Plan
complies with Rule 16b-3 under the Exchange Act, the Code to the extent
applicable and other applicable law, and otherwise to make the Plan fully
effective. All decisions and determinations by the Committee in the
exercise of this power shall be final, binding and conclusive upon the
Company, its Subsidiaries, the Optionees, and all other persons having any
interest therein;
(c) to determine the duration and purposes for leaves of
absence which may be granted to an Optionee on an individual basis without
constituting a termination of employment or service for purposes of the
Plan;
(d) to exercise its discretion with respect to the powers
and rights granted to it as set forth in the Plan; and
(f) generally, to exercise such powers and to perform such
acts as are deemed necessary or advisable to promote the best interests of
the Company with respect to the Plan.
4. Stock Subject to the Plan; Grant Limitations.
--------------------------------------------
4.1 The maximum number of Shares that may be made the subject of
Options granted under the Plan is one million eight hundred thousand
(1,800,000). The maximum number of Shares that may be the subject of
Options granted to any Eligible Individual during any three (3) consecutive
calendar year period may not exceed 500,000 Shares. Upon a Change in
Capitalization, the maximum number of Shares referred to in the first two
sentences of this Section 4.1 shall be adjusted in number and kind pursuant
to Section 9. The Company shall reserve for the purposes of the Plan, out
of its authorized but unissued Shares or out of Shares held in the
Company's treasury, or partly out of each, such number of Shares as shall
be determined by the Board.
4.2 Upon the granting of an Option, the number of Shares
available under Section 4.1 for the granting of further Options shall be
reduced by the number of Shares in respect of which the Option is granted;
provided, however, that if any Option is exercised by tendering Shares,
either actually or by attestation, to the Company as full or partial
payment of the exercise price, the maximum number of Shares available under
Section 4.1 shall be increased by the number of Shares so tendered.
4.3 Whenever any outstanding Option or portion thereof expires,
is canceled, is settled in cash (including the settlement of tax
withholding obligations using Shares) or is otherwise terminated for any
reason without having been exercised or payment having been made in respect
of the entire Option, the Shares allocable to the expired, canceled,
settled or otherwise terminated portion of the Option may again be the
subject of Options granted hereunder.
5. Option Grants for Eligible Individuals.
--------------------------------------
5.1 Authority of Committee. Subject to the provisions of the
Plan, the Committee shall have full and final authority to select those
Eligible Individuals who will receive Options, and the terms and conditions
of the grant to such Eligible Individuals shall be set forth in an
Agreement.
5.2 Exercise Price. The purchase price or the manner in which the
exercise price is to be determined for Shares under each Option shall be
determined by the Committee and set forth in the Agreement; provided,
however, that the exercise price per Share under each Incentive Stock
Option shall not be less than 100% of the Fair Market Value of a Share on
the date the Option is granted (110% in the case of an Incentive Stock
Option granted to a Ten-Percent Stockholder).
5.3 Maximum Duration. Options granted hereunder shall be for such
term as the Committee shall determine, provided that an Incentive Stock
Option shall not be exercisable after the expiration of ten (10) years from
the date it is granted (five (5) years in the case of an Incentive Stock
Option granted to a Ten-Percent Stockholder) and a Nonqualified Stock
Option shall not be exercisable after the expiration of ten (10) years from
the date it is granted; provided, however, that the Committee may provide
that an Option (other than an Incentive Stock Option) may, upon the death
of the Optionee, be exercised for up to one (1) year following the date of
the Optionee's death even if such period extends beyond ten (10) years from
the date the Option is granted. The Committee may, subsequent to the
granting of any Option, extend the term thereof, but in no event shall the
term as so extended exceed the maximum term provided for in the preceding
sentence.
5.4 Vesting. Subject to Section 7.4, each Option shall become
exercisable in such installments (which need not be equal) and at such
times as may be designated by the Committee and set forth in the Agreement.
To the extent not exercised, installments shall accumulate and be
exercisable, in whole or in part, at any time after becoming exercisable,
but not later than the date the Option expires. The Committee may
accelerate the exercisability of any Option or portion thereof at any time.
5.5 Deferred Delivery of Option Shares. The Committee may, in its
discretion, permit Optionees to elect to defer the issuance of Shares upon
the exercise of one or more Nonqualified Stock Options granted pursuant to
the Plan. The terms and conditions of such deferral shall be determined at
the time of the grant of the Option or thereafter and shall be set forth in
the Agreement evidencing the grant.
5.6 Limitations on Incentive Stock Options. To the extent that
the aggregate Fair Market Value (determined as of the date of the grant) of
Shares with respect to which Incentive Stock Options granted under the Plan
and "incentive stock options" (within the meaning of Section 422 of the
Code) granted under all other plans of the Company or its Subsidiaries (in
either case determined without regard to this Section 5.6) are exercisable
by an Optionee for the first time during any calendar year exceeds
$100,000, such Incentive Stock Options shall be treated as Nonqualified
Stock Options. In applying the limitation in the preceding sentence in the
case of multiple Option grants, Options which were intended to be Incentive
Stock Options shall be treated as Nonqualified Stock Options according to
the order in which they were granted such that the most recently granted
Options are first treated as Nonqualified Stock Options.
6. Option Grants for Nonemployee Directors.
---------------------------------------
6.1 Grant. Formula Options shall be granted to Eligible Directors
as follows:
(a) Initial Grant for Current Eligible Directors. Each
person who is an Eligible Director as of July 15, 1998, shall, as of such
date, be granted a Formula Option in respect of 50,000 Shares.
(b) Initial Grant for Subsequent Eligible Directors. Each
Eligible Director who becomes a Director for the first time after July 15,
1998 and while this Plan is in effect, shall, upon becoming a Director, be
granted a Formula Option in respect of 25,000 Shares.
(c) Annual Grant. Each Eligible Director shall be granted a
Formula Option in respect of 7,500 Shares on the first business day after
the annual meeting of the stockholders of the Company in each year that the
Plan is in effect provided that the Eligible Director is a Director on such
date.
All Formula Options shall be evidenced by an Agreement containing
such other terms and conditions not inconsistent with the provisions of the
Plan as determined by the Board; provided, however, that such terms shall
not vary the price, amount or timing of Formula Options provided under this
Section 6, including provisions dealing with vesting, forfeiture and
termination of such Formula Options.
6.2 Purchase Price. The purchase price for Shares under each
Formula Option shall be equal to 100% of the Fair Market Value of such
Shares on the date the Formula Option is granted.
6.3 Vesting. Subject to Section 7.4, (i) each Formula Option
granted pursuant to Section 6.1(a) above to a person who was also a
Director as of August 13, 1997, shall be fully vested and exercisable with
respect to 25% of the Shares subject thereto as of the date of grant, and
with respect to an incremental 25% of the Shares subject thereto on each of
the first three (3) anniversaries of the date of grant, and (ii) each other
Formula Option granted pursuant to this Section 6 shall become fully vested
and exercisable with respect to an incremental 25% of the Shares subject
thereto on each of the first four anniversaries of the date of grant;
provided, however, in each case, that the Optionee continues to serve as a
Director as of such date of vesting. Notwithstanding the foregoing (i) if
an Optionee's service as a Director terminates for any reason, other than
for Cause, then each Formula Option held by such Optionee shall become
fully and immediately vested and exercisable as of such date of termination
and (ii) if an Optionee's service as a Director terminates for Cause, then
each Formula Option held by such Optionee, whether or not then vested and
exercisable, shall immediately terminate and the Optionee shall have no
further rights in such Formula Option as of such date of termination.
6.4 Duration. Subject to Section 7.4, each Formula Option shall
terminate on the date which is the tenth anniversary of the date of grant
(or if later, the first anniversary of the date of the Director's death if
such death occurs prior to such tenth anniversary), unless terminated
earlier as follows:
(a) If an Optionee's service as a Director terminates for
any reason other than for Cause, the Optionee (or in the event of death, by
the person or persons to whom such rights shall pass by will or the laws of
descent or distribution) may for a period of two (2) years after such
termination exercise his or her Formula Option, after which time the
Formula Option shall automatically terminate in full.
(b) If an Optionee's service as a Director terminates for
Cause, the Formula Option granted to the Optionee hereunder shall
immediately terminate in full and no rights thereunder may be exercised.
7. Terms and Conditions Applicable to All Options.
----------------------------------------------
7.1 Non-Transferability. No Option shall be transferable by the
Optionee otherwise than by will or by the laws of descent and distribution
or, in the case of an Option other than an Incentive Stock Option, pursuant
to a domestic relations order (within the meaning of Rule 16a-12
promulgated under the Exchange Act), and an Option shall be exercisable
during the lifetime of such Optionee only by the Optionee or his or her
guardian or legal representative. Notwithstanding the foregoing, the
Committee may set forth in the Agreement evidencing an Option (other than
an Incentive Stock Option) at the time of grant or thereafter, that the
Option may be transferred to a Permitted Transferee, and for purposes of
the Plan, such Permitted Transferee shall be deemed to be the Optionee. The
terms of an Option shall be final, binding and conclusive upon the
beneficiaries, executors, administrators, heirs and successors of the
Optionee.
7.2 Method of Exercise. The exercise of an Option shall be made
only by a written notice delivered in person or by mail to the Secretary of
the Company at the Company's principal executive office, specifying the
number of Shares to be exercised and, to the extent applicable, accompanied
by payment therefor and otherwise in accordance with the Agreement pursuant
to which the Option was granted. The exercise price for any Shares
purchased pursuant to the exercise of an Option shall be paid, as
determined by the Committee in its discretion, in either of the following
forms (or any combination thereof): (a) cash or (b) the transfer, either
actually or by attestation, to the Company of Shares upon such terms and
conditions as determined by the Committee. In addition, Options may be
exercised through a registered broker-dealer pursuant to such cashless
exercise procedures which are, from time to time, deemed acceptable by the
Committee. Any Shares transferred to the Company (or withheld upon
exercise) as payment of the exercise price under an Option shall be valued
at their Fair Market Value on the day preceding the date of exercise of
such Option. If requested by the Committee, the Optionee shall deliver the
Agreement evidencing the Option to the Secretary of the Company who shall
endorse thereon a notation of such exercise and return such Agreement to
the Optionee. No fractional Shares (or cash in lieu thereof) shall be
issued upon exercise of an Option and the number of Shares that may be
purchased upon exercise shall be rounded to the nearest number of whole
Shares.
7.3 Rights of Optionees. No Optionee shall be deemed for any
purpose to be the owner of any Shares subject to any Option unless and
until (a) the Option shall have been exercised pursuant to the terms
thereof, (b) the Company shall have issued and delivered Shares to the
Optionee, and (c) the Optionee's name shall have been entered as a
stockholder of record on the books of the Company. Thereupon, the Optionee
shall have full voting, dividend and other ownership rights with respect to
such Shares, subject to such terms and conditions as may be set forth in
the applicable Agreement.
7.4 Effect of Change in Control. In the event of a Change in
Control, all Options outstanding on the date of such Change in Control
shall become immediately and fully exercisable. In addition, to the extent
set forth in an Agreement evidencing the grant of an Option, an Optionee
will be permitted to surrender to the Company for cancellation within sixty
(60) days after such Change in Control any Option or portion of an Option
to the extent not yet exercised and the Optionee will be entitled to
receive a cash payment in an amount equal to the excess, if any, of (a) (i)
in the case of a Nonqualified Stock Option, the greater of (A) the Fair
Market Value, on the date preceding the date of surrender, of the Shares
subject to the Option or portion thereof surrendered or (B) the Adjusted
Fair Market Value of the Shares subject to the Option or portion thereof
surrendered or (ii) in the case of an Incentive Stock Option, the Fair
Market Value, on the date preceding the date of surrender, of the Shares
subject to the Option or portion thereof surrendered, over (b) the
aggregate exercise price for such Shares under the Option or portion
thereof surrendered. In the event an Optionee's employment with, or service
as a Director of, the Company and its Subsidiaries terminates following a
Change in Control, each Option held by the Optionee that was exercisable as
of the date of termination of the Optionee's employment or service shall,
notwithstanding any shorter period set forth in the Agreement evidencing
the Option, remain exercisable for a period ending not before the earlier
of (x) the first anniversary of the termination of the Optionee's
employment or service or (y) the expiration of the stated term of the
Option.
8. Effect of a Termination of Employment.
-------------------------------------
The Agreement evidencing the grant of each Option shall set forth
the terms and conditions applicable to such Option upon a termination or
change in the status of the employment of the Optionee by the Company or a
Subsidiary or a Division (including a termination or change by reason of
the sale of a Subsidiary or a Division), which, except for Director
Options, shall be as the Committee may, in its discretion, determine at the
time the Option is granted or thereafter.
9. Adjustment Upon Changes in Capitalization.
-----------------------------------------
(a) In the event of a Change in Capitalization, the
Committee shall conclusively determine the appropriate adjustments, if any,
to (i) the maximum number and class of Shares or other stock or securities
with respect to which Options may be granted under the Plan, (ii) the
maximum number and class of Shares or other stock or securities with
respect to which Options may be granted to any Eligible Individual during
any three (3) consecutive calendar year period, (iii) the number and class
of Shares or other stock or securities which are subject to outstanding
Options granted under the Plan and the exercise price therefor, if
applicable and (iv) the number and class of Shares or other securities in
respect of which Director Options are to be granted under Section 6.
(b) Any such adjustment in the Shares or other stock or
securities subject to outstanding Incentive Stock Options (including any
adjustments in the exercise price) shall be made in such manner as not to
constitute a modification as defined by Section 424(h)(3) of the Code and
only to the extent otherwise permitted by Sections 422 and 424 of the Code.
(c) If, by reason of a Change in Capitalization, an Optionee
shall be entitled to exercise an Option with respect to new, additional or
different shares of stock or securities, such new, additional or different
shares shall thereupon be subject to all of the conditions, restrictions
and performance criteria which were applicable to the Shares subject to the
Option prior to such Change in Capitalization.
10. Effect of Certain Transactions.
------------------------------
Subject to Section 7.4 or as otherwise provided in an Agreement,
in the event of (a) the liquidation or dissolution of the Company or (b) a
merger or consolidation of the Company (a "Transaction"), the Plan and the
Options issued hereunder shall continue in effect in accordance with their
respective terms, except that following a Transaction each Optionee shall
be entitled to receive in respect of each Share subject to any outstanding
Options, upon exercise of any Option, the same number and kind of stock,
securities, cash, property or other consideration that each holder of a
Share was entitled to receive in the Transaction in respect of a Share;
provided, however, that such stock, securities, cash, property, or other
consideration shall remain subject to all of the conditions, restrictions
and performance criteria which were applicable to the Options prior to such
Transaction.
11. Interpretation.
--------------
(a) The Plan is intended to comply with Rule 16b-3
promulgated under the Exchange Act and the Committee shall interpret and
administer the provisions of the Plan or any Agreement in a manner
consistent therewith. Any provisions inconsistent with such rule shall be
inoperative and shall not affect the validity of the Plan.
(b) Unless otherwise expressly stated in the relevant
Agreement, each Option (other than Formula Options) granted under the Plan
is intended to be Performance-Based Compensation. The Committee shall not
be entitled to exercise any discretion otherwise authorized hereunder with
respect to such Options if the ability to exercise such discretion or the
exercise of such discretion itself would cause the compensation
attributable to such Options to fail to qualify as Performance-Based
Compensation.
12. Pooling Transactions.
--------------------
Notwithstanding anything contained in the Plan or any Agreement
to the contrary, in the event of a Change in Control which is also intended
to constitute a Pooling Transaction, the Committee shall take such actions,
if any, as are specifically recommended by an independent accounting firm
retained by the Company to the extent reasonably necessary in order to
assure that the Pooling Transaction will qualify as such, including but not
limited to (a) deferring the vesting, exercise, payment, settlement or
lapsing of restrictions with respect to any Option, (b) providing that the
payment or settlement in respect of any Option be made in the form of cash,
Shares or securities of a successor or acquirer of the Company, or a
combination of the foregoing, and (c) providing for the extension of the
term of any Option to the extent necessary to accommodate the foregoing,
but not beyond the maximum term permitted for any Option.
13. Termination and Amendment of the Plan or Modification of Options.
----------------------------------------------------------------
13.1 Plan Amendment or Termination. The Plan shall terminate on
the day preceding the tenth anniversary of the date of its adoption by the
Board and no Option may be granted thereafter. The Board may sooner
terminate the Plan and the Board may at any time and from time to time
amend, modify or suspend the Plan; provided, however, that:
(a) no such amendment, modification, suspension or
termination shall impair or adversely alter any Options theretofore granted
under the Plan, except with the consent of the Optionee, nor shall any
amendment, modification, suspension or termination deprive any Optionee of
any Shares which he or she may have acquired through or as a result of the
Plan; and
(b) to the extent necessary under any applicable law,
regulation or exchange requirement, no amendment shall be effective unless
approved by the stockholders of the Company in accordance with applicable
law, regulation or exchange requirement.
13.2 Modification of Options. No modification of an Option shall
adversely alter or impair any rights or obligations under the Option
without the consent of the Optionee.
14. Non-Exclusivity of the Plan.
---------------------------
The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive
arrangement or as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or
only in specific cases.
15. Limitation of Liability.
-----------------------
As illustrative of the limitations of liability of the Company,
but not intended to be exhaustive thereof, nothing in the Plan shall be
construed to:
(a) give any person any right to be granted an Option other
than at the sole discretion of the Committee;
(b) give any person any rights whatsoever with respect to
Shares except as specifically provided in the Plan;
(c) limit in any way the right of the Company or any
Subsidiary to terminate the employment or service of any person at any
time; or
(d) be evidence of any agreement or understanding, expressed
or implied, that the Company will employ any person at any particular rate
of compensation or for any particular period of time.
16. Regulations and Other Approvals; Governing Law.
----------------------------------------------
16.1 Except as to matters of federal law, the Plan and the rights
of all persons claiming hereunder shall be construed and determined in
accordance with the laws of the State of Delaware without giving effect to
conflicts of laws principles thereof.
16.2 The obligation of the Company to sell or deliver Shares with
respect to Options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal
and state securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate by the
Committee.
16.3 The Board may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any government
authority, or to obtain for Eligible Individuals granted Incentive Stock
Options the tax benefits under the applicable provisions of the Code and
regulations promulgated thereunder.
16.4 Each Option is subject to the requirement that, if at any
time the Committee determines, in its discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Option
or the issuance of Shares, no Options shall be granted or payment made or
Shares issued, in whole or in part, unless listing, registration,
qualification, consent or approval has been effected or obtained free of
any conditions as acceptable to the Committee.
16.5 Notwithstanding anything contained in the Plan or any
Agreement to the contrary, in the event that the disposition of Shares
acquired pursuant to the Plan is not covered by a then current registration
statement under the Securities Act of 1933, as amended (the "Securities
Act"), and is not otherwise exempt from such registration, such Shares
shall be restricted against transfer to the extent required by the
Securities Act and Rule 144 or other regulations thereunder. The Committee
may require any individual receiving Shares pursuant to an Option granted
under the Plan, as a condition precedent to receipt of such Shares, to
represent and warrant to the Company in writing that the Shares acquired by
such individual are acquired without a view to any distribution thereof and
will not be sold or transferred other than pursuant to an effective
registration thereof under said Act or pursuant to an exemption applicable
under the Securities Act or the rules and regulations promulgated
thereunder. The certificates evidencing any of such Shares shall be
appropriately amended to reflect their status as restricted securities as
aforesaid.
17. Miscellaneous.
-------------
17.1 Multiple Agreements. The terms of each Option may differ
from other Options granted under the Plan at the same time, or at some
other time. The Committee may also grant more than one Option to a given
Eligible Individual during the term of the Plan, either in addition to, or
in substitution for, one or more Options previously granted to that
Eligible Individual.
17.2 Withholding of Taxes.
--------------------
(a) At such times as an Optionee recognizes taxable income
in connection with the receipt of Shares hereunder (a "Taxable Event"), the
Optionee shall pay to the Company an amount equal to the federal, state and
local income taxes and other amounts as may be required by law to be
withheld by the Company in connection with the Taxable Event (the
"Withholding Taxes") prior to the issuance of such Shares. The Company
shall have the right to deduct from any payment of cash to an Optionee an
amount equal to the Withholding Taxes in satisfaction of the obligation to
pay Withholding Taxes. The Committee may provide in the Agreement, at the
time of grant or at any time thereafter, that the Optionee, in satisfaction
of the obligation to pay Withholding Taxes, may elect to have withheld a
portion of the Shares then issuable to him or her having an aggregate Fair
Market Value equal to the Withholding Taxes.
(b) If an Optionee makes a disposition, within the meaning
of Section 424(c) of the Code and regulations promulgated thereunder, of
any Share or Shares issued to such Optionee pursuant to the exercise of an
Incentive Stock Option within the two-year period commencing on the day
after the date of the grant or within the one-year period commencing on the
day after the date of transfer of such Share or Shares to the Optionee
pursuant to such exercise, the Optionee shall, within ten (10) days of such
disposition, notify the Company thereof, by delivery of written notice to
the Company at its principal executive office.
17.3 Effective Date. The effective date of the Plan shall be as
determined by the Board, subject only to the approval by the affirmative
vote of the holders of a majority of the securities of the Company present,
or represented, and entitled to vote at a meeting of stockholders duly held
in accordance with the applicable laws of the State of Delaware within
twelve (12) months of the adoption of the Plan by the Board.
Exhibit 10.8
----------------------------------
theglobe.com,inc.
and
American Stock Transfer & Trust Company
as Rights Agent
----------------------------
Form of
Shareholder Rights Agreement
Dated as of September____, 1998
----------------------------------
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Certain Definitions............................................1
Section 2. Appointment of Rights Agent....................................5
Section 3. Issue of Right Certificates....................................5
Section 4. Form of Right Certificate......................................7
Section 5. Countersignature and Registration..............................8
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen
Right Certificate..............................................8
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.........................................................9
Section 8. Cancellation and Destruction of Right Certificates............12
Section 9. Reservation and Availability of Capital Stock.................12
Section 10. Preferred Stock Record Date...................................14
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
or Number of Rights...........................................14
Section 12. Certificate of Adjusted Purchase Price or Number of Shares....21
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.................................................21
Section 14. Additional Covenants..........................................24
Section 15. Fractional Rights and Fractional Shares.......................25
Section 16. Rights of Action..............................................27
Section 17. Agreement of Right Holders....................................27
Section 18. Right Certificate Holder Not Deemed a Shareholder.............28
Section 19. Concerning the Rights Agent...................................28
Section 20. Merger or Consolidation or Change of Name of Rights Agent.....29
Section 21. Duties of Rights Agent........................................30
Section 22. Change of Rights Agent........................................32
Section 23. Issuance of New Right Certificates............................33
Section 24. Redemption and Termination....................................33
Section 25. Exchange......................................................35
Section 26. Notice of Certain Events......................................36
Section 27. Notices.......................................................37
Section 28. Supplements and Amendments....................................38
Section 29. Determination and Actions by the Board of Directors, etc......39
Section 30. Successors....................................................39
Section 31. Benefits of this Agreement....................................40
Section 32. Severability..................................................40
Section 33. Governing Law.................................................40
Section 34. Counterparts..................................................40
Section 35. Descriptive Headings..........................................40
<PAGE>
SHAREHOLDER RIGHTS AGREEMENT
This Agreement, dated as of September __, 1998, between
theglobe.com, inc., a Delaware corporation (the "Company"), and American
Stock Transfer & Trust Company ("Rights Agent").
The Board of Directors of the Company (the "Board") authorized
and declared a dividend of one preferred share purchase right (a "Right")
for each share of Common Stock (as hereinafter defined) of the Company
outstanding at the Close of Business (as hereinafter defined) on September
__, 1998 (the "Record Date"), each Right representing the right to purchase
one one-thousandth (subject to adjustment as provided herein) of a Junior
Participating Preferred Stock of the Company having the rights, powers and
preferences set forth in the form of Certificate of Designation attached
hereto as Exhibit A, upon the terms and subject to the conditions herein
set forth, and has further authorized the issuance of one Right with
respect to each share of Common Stock that shall become outstanding between
the Record Date and the Distribution Date (as such term is hereinafter
defined); provided, however, that Rights may be issued with respect to
shares of Common Stock that shall become outstanding after the Distribution
Date and prior to the earlier of the Redemption Date and the Final
Expiration Date in accordance with the provisions of Section 23 hereof.
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement,
the following terms shall have the meanings indicated:
(a) "Acquiring Person" shall mean any Person, who or which,
together with all Affiliates and Associates of such Person, without the
prior approval of the Company, shall be the Beneficial Owner of securities
representing 15% or more of the Voting Power (other than as a result of a
Permitted Offer) or who was such a Beneficial Owner at any time after the
date hereof, whether or not such Person continues to be the Beneficial
Owner of securities representing 15% or more of the Voting Power.
Notwithstanding the foregoing, (A) the term "Acquiring Person" shall not
include (i) the Company, (ii) any subsidiary of the Company, (iii) any
employee benefit plan of the Company or any of its subsidiaries, (iv) any
Person or entity holding securities of the Company organized, appointed or
established by the Company or any of its subsidiaries for or pursuant to
the terms of any such plan acting in such capacity , (v) Dancing Bear
Investments, Inc., Michael S. Egan, Todd V. Krizelman, Stephan J. Paternot,
H. Wayne Huizenga or any Person controlled by any such party, and (B) no
Person shall become an "Acquiring Person" (i) as a result of the
acquisition of shares of Common Stock by the Company which, by reducing the
number of shares Common Stock outstanding, increases the proportional
number of shares beneficially owned by such Person together with all
Affiliates and Associates of such Person, provided, that if (1) a Person
would become an Acquiring Person (but for the operation of this subclause
(i)) as a result of the acquisition of shares of Common Stock by the
Company, and (2) after such share acquisition by the Company, such Person,
or an Affiliate or Associate of such Person, becomes the Beneficial Owner
of any additional shares of Common Stock, then such Person shall be deemed
an Acquiring Person; or (ii) if (1) within five Business Days after such
Person would otherwise have become or, if such Person did so inadvertently,
after such Person discovers that such Person would otherwise have become,
an Acquiring Person (but for the operation of this subclause (ii)), such
Person notifies the Board of Directors that such Person did so
inadvertently, and (2) within two Business Days after such notification (or
such greater period of time as may be determined by action of the Board,
but in no event greater than five Business Days), such Person divests
itself of a sufficient number of shares of Common Stock so that such Person
is the Beneficial Owner of such number of shares of Common Stock that such
Person no longer would be an Acquiring Person.
(b) "Act" shall mean the Securities Act of 1933, as amended and
as in effect on the date of this Agreement.
(c) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended and as in
effect on the date of this Agreement (the "Exchange Act").
(d) A Person shall be deemed the "Beneficial Owner" of, and shall
be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, rights (other than the Rights),
warrants or options, or otherwise; provided, however, that a Person
shall not be deemed the "Beneficial Owner" of, or to "beneficially
own," securities tendered pursuant to a tender or exchange offer made
by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange; or (B) the right to vote pursuant to any agreement,
arrangement or understanding; provided, further, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security if the agreement, arrangement or
understanding to vote such security (1) arises solely from a revocable
proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act
and (2) is not also then reportable on Schedule 13D or Schedule 13G
under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly,
by any other Person (or any Affiliate or Associate thereof) with which
such Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities), relating
to the acquisition, holding, voting (except to the extent contemplated
by the second proviso to Section 1(d)(ii)(B)) or disposing of any
securities of the Company.
Notwithstanding anything in this definition of a Beneficial Owner to the
contrary, the phrase "then outstanding," when used with reference to a
Person's Beneficial Ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the
number of such securities not then actually issued and outstanding which
such Person would be deemed to own beneficially hereunder.
(e) "Business Day" shall mean any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(f) "Close of Business" on any given date shall mean 5:00 P.M.,
New York City time, on such date; provided, however, that if such date is
not a Business Day it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
(g) "Common Stock" shall mean the Common Stock, $.001 par value,
of the Company or, in the event of a subdivision, combination or
consolidation with respect to such Common Stock, the Common Stock resulting
from such subdivision, combination or consolidation. "Common Stock" when
used with reference to stock issued by any Person other than the Company
shall mean the capital stock (or equity interest) with the greatest
combined economic and voting power of such Person or, if such other Person
is a subsidiary of another Person, of the Person or Persons which
ultimately control such first-mentioned Person.
(h) "Disinterested Directors" shall mean the members of the Board
who are not (i) employees of the Company, (ii) Acquiring Persons or their
Affiliates or Associates or representatives of any of them, or (iii) any
Person who was directly or indirectly proposed or nominated as a director
of the Company by a Transaction Person.
(i) "Distribution Date" shall have the meaning set forth in
Section 3 hereof.
(j) "Final Expiration Date" shall have the meaning set forth in
Section 7 hereof.
(k) "Interested Stockholder" shall mean any Acquiring Person or
Transaction Person or any Affiliate or Associate of an Acquiring Person or
Transaction Person or any other Person in which any such Acquiring Person,
Transaction Person, Affiliate or Associate has an interest which represents
in excess of 5% of the total combined economic or voting power of such
Person, or any other Person acting directly or indirectly on behalf of or
in concert with any such Acquiring Person, Transaction Person, Affiliate or
Associate.
(l) "Permitted Offer" shall mean a tender or exchange offer for
all outstanding shares of Common Stock (other than a tender or exchange
offer which would constitute a Transaction) which is at a price and on
terms determined, prior to the purchase of such shares under such tender or
exchange offer, by at least a majority of the Disinterested Directors to be
both adequate and otherwise in the best interests of the Company and its
shareholders (other than the Person, or any Affiliate or Associate thereof,
on whose behalf the offer is being made) taking into account all factors
that such Disinterested Directors may deem relevant.
(m) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company, trust, association, joint venture
or other entity, and shall include any successor (by merger or otherwise)
of such entity.
(n) "Preferred Stock" shall mean the Junior Participating
Preferred Stock, $.001 par value per share, of the Company having the
relative rights, preferences and limitations set forth in the Form of
Certificate of Designation, Preferences and Rights attached to this
Agreement as Exhibit A.
(o) "Section 11(a)(ii) Event" shall mean any event described in
Section 11(a)(ii) hereof.
(p) "Section 13 Event" shall mean any event described in clause
(x), (y) or (z) of Section 13(a) hereof.
(q) "Stock Acquisition Date" shall mean the first date of public
announcement (which for purposes of this definition, shall include, without
limitation, a report filed pursuant to the Exchange Act) by the Company or
an Acquiring Person that an Acquiring Person has become such.
(r) A "subsidiary" of any Person shall mean any corporation or
other Person of which a majority of the voting power of the voting equity
securities or equity interests is owned, directly or indirectly, by such
Person.
(s) "Transaction" shall mean any merger, consolidation or sale of
assets described in Section 13(a) hereof or any acquisition of Common Stock
of the Company which would result in a Person becoming a Transaction
Person.
(t) "Transaction Person" with respect to a Transaction shall mean
(x) any Person who (i) is or will become an Acquiring Person or a Principal
Party (as such term is defined in Section 13(b) hereof) 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.
(u) "Triggering Event" shall mean any Section 11(a)(ii) Event or
any Section 13 Event.
(v) "Voting Power" shall mean the voting power of all securities
of the Company then outstanding generally entitled to vote for the election
of directors of the Company.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company in accordance
with the terms and conditions hereof, and the Rights Agent hereby accepts
such appointment. The Company may from time to time appoint such co-Rights
Agents as it may deem necessary or desirable, upon ten (10) days' prior
written notice to the Rights Agent. The Rights Agent shall have no duty to
supervise, and in no event be liable for, the acts or omissions of any such
co-Rights Agent.
Section 3. Issue of Right Certificates. (a) The Rights will be
evidenced by the certificates for Common Stock registered in the names of
the holders thereof (which certificates shall also be deemed to be Right
Certificates (as defined below)) and not by separate Right Certificates,
and the right to receive Right Certificates will be transferable only in
connection with the transfer of the underlying shares of Common Stock
(including a transfer to the Company), until the earliest to occur of (i)
the Stock Acquisition Date or (ii) the Close of Business on the tenth
Business Day (or such later date as may be determined by action of the
Company's Board of Directors) after the date of the commencement by any
Person (other than the Company, any subsidiary of the Company, any employee
benefit plan of the Company or any of its subsidiaries or any Person or
entity organized, appointed or established by the Company for or pursuant
to the terms of any such plan) of, or of the first public announcement of
the intention of any Person (other than the Company, any subsidiary of the
Company, any employee benefit plan of the Company or of any subsidiary of
the Company or any Person or entity organized, appointed or established by
the Company for or pursuant to the terms of any such plan) to commence
(which intention to commence remains in effect for five Business Days after
such announcement), a tender or exchange offer the consummation of which
would result in any Person becoming an Acquiring Person (including, in the
case of both clauses (i) and (ii) of this Section 3(a), any such date which
is after the date of this Agreement and prior to the issuance of the
Rights) or (iii) twenty Business Days prior to the date on which a
Transaction is reasonably expected to become effective or be consummated
(the earliest of such dates being herein referred to as the "Distribution
Date"); provided, however, that if the tender or exchange offer referred to
in clause (ii) above is terminated prior to the occurrence of a
Distribution Date, then no Distribution Date shall occur as a result of
such tender offer. As soon as practicable after the Distribution Date, the
Company will prepare and execute, and the Rights Agent will countersign and
send, or cause to be sent, by first-class, insured, postage prepaid mail,
to each record holder of the Common Stock as of the Close of Business on
the Distribution Date, at the address of such holder shown on the records
of the Company, a Right Certificate, substantially in the form of Exhibit B
hereto (a "Right Certificate"), evidencing one Right for each share of
Common Stock so held. As of and after the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.
(b) Certificates issued for Common Stock which become outstanding
(including, without limitation, reacquired Common Stock referred to in the
last sentence of Section 3(b)) prior to the earliest of the Distribution
Date, the Redemption Date or the Final Expiration Date, shall be deemed
also to be certificates for Rights and from and after the date hereof shall
bear the following legend:
This certificate also evidences and entitles the holder
hereof to certain rights as set forth in a Shareholder
Rights Agreement between theglobe.com, inc. (the
"Company") and American Stock Transfer & Trust Company
(the "Rights Agent") dated as of September __, 1998
(the "Shareholder Rights Agreement"), the terms of
which are hereby incorporated herein by reference and a
copy of which is on file at the principal offices of
the Company. Under certain circumstances, as set forth
in the Shareholder Rights Agreement, such Rights will
be evidenced by separate certificates and will no
longer be evidenced by this certificate. The Company
will mail to the holder of this certificate a copy of
the Shareholder Rights Agreement without charge after
receipt by the Company's corporate secretary of a
written request therefor from such holder. Under
certain circumstances set forth in the Shareholder
Rights Agreement, Rights issued to, or held by, any
Person who is, was or becomes an Interested Stockholder
(as defined in the Shareholder Rights Agreement) and
any subsequent holder may become null and void.
With respect to such certificates containing the foregoing legend, until
the Distribution Date, the Rights associated with the Common Stock
represented by such certificates shall be evidenced by such certificates
alone, and the surrender for transfer of any such certificates shall also
constitute the transfer of the Rights associated with the Common Stock
represented thereby. In the event that the Company purchases or acquires
any shares of Common Stock prior to the Distribution Date, any Rights
associated with such shares of Common Stock shall be deemed canceled and
retired so that the Company shall not be entitled to exercise any Rights
associated with the Common Stock which are no longer outstanding.
Section 4. Form of Right Certificate. (a) The Right Certificates
(and the forms of election to purchase and of assignment to be printed on
the reverse thereof) may have such marks of identification or designation
and such legends, summaries or endorsements printed thereon as the Company
may deem appropriate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any applicable law or
with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Rights may from time to time
be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 23 hereof, the Right Certificates shall entitle the holders
thereof to purchase such number of one one-thousandth of a share of
Preferred Stock as shall be set forth therein at the price per one
one-thousandth of a share set forth therein (the "Purchase Price"), but the
amount and type of securities purchasable upon the exercise of each Right
and the Purchase Price thereof shall be subject to adjustment as provided
herein.
(b) Any Right Certificate issued pursuant to Section 3(a) or
Section 23 hereof that represents Rights beneficially owned by an
Interested Stockholder and any Right Certificate issued at any time upon
the transfer of any Rights to such an Interested Stockholder or to any
nominee of such Interested Stockholder which are null and void pursuant to
Section 7(e) hereof, and any Right Certificate issued pursuant to Section 6
or Section 11 upon transfer, exchange, replacement or adjustment of any
other Right Certificate hereof referred to in this sentence, shall contain
(to the extent feasible) the following legend:
The Rights represented by this Right Certificate are or
were beneficially owned by a Person who was or became
an Interested Stockholder. Accordingly, this Right
Certificate and the Rights represented hereby are null
and void.
Provisions of Section 7(e) hereof shall be operative whether or not the
foregoing legend is contained on any such Right Certificate. The Company
shall give notice to the Rights Agent promptly after it becomes aware of
the existence of any Interested Stockholder.
Section 5. Countersignature and Registration. The Right
Certificates shall be executed on behalf of the Company by its Chairman,
any Chief Executive Officer, President or Vice President, either manually
or by facsimile signature, shall have affixed thereto the Company's seal or
a facsimile thereof, and shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The
Right Certificates shall be countersigned by the Rights Agent and shall not
be valid for any purpose unless so countersigned. In case any officer of
the Company who shall have signed any of the Right Certificates shall cease
to be such officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right Certificates,
nevertheless, may be countersigned by the Rights Agent, and issued and
delivered by the Company with the same force and effect as though the
person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the
Company by any person who, at the actual date of the execution of such
Right Certificate, shall be a proper officer of the Company to sign such
Right Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its office designated as the appropriate place for
surrender of such Right Certificate for transfer, books for registration
and transfer of the Right Certificates issued hereunder. Such books shall
show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the
Right Certificates and the certificate number and the date of each of the
Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificate.
Subject to the provisions of Sections 4(b), 7(e) and 15 hereof, at any time
after the Close of Business on the Distribution Date, and at or prior to
the Close of Business on the earlier of the Redemption Date or the Final
Expiration Date, any Right Certificate or Right Certificates may be
transferred, split up, combined or exchanged for another Right Certificate
or Right Certificates, entitling the registered holder to purchase a like
number of one one-thousandths of a share of Preferred Stock (or, following
a Triggering Event, other securities, as the case may be) as the Right
Certificate or Right Certificates surrendered then entitled such holder (or
former holder in the case of a transfer) to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Right Certificate
or Right Certificates shall make such request in writing delivered to the
Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split-up, combined or exchanged at the
principal office of the Rights Agent designated for such purpose. Neither
the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any such surrendered Right
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Right Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates
or Associates thereof as the Company shall reasonably request. Thereupon
the Rights Agent shall, subject to the provisions of Section 4(b), Section
7(e) and Section 15 hereof, countersign and deliver to the Person entitled
thereto a Right Certificate or Right Certificates, as the case may be, as
so requested. The Company may require payment of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Right Certificate, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to them, and,
at the Company's request, reimbursement to the Company and the Rights Agent
of all reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Right Certificate if mutilated, the
Company will make and deliver a new Right Certificate of like tenor to the
Rights Agent for countersignature and delivery to the registered holder in
lieu of the Right Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) Subject to Section 7(e) hereof, the registered holder of any
Right Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein) in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase and the certificate on the reverse side thereof duly
executed, to the Rights Agent at the principal office or offices of the
Rights Agent designated for such purpose, together with payment of the
aggregate Purchase Price for the total number of one one-thousandths of a
share of Preferred Stock (or other securities, as the case may be) as to
which such surrendered Rights are exercised, at or prior to the earliest of
(i) the Close of Business on September ___, 2008 (the "Final Expiration
Date"), (ii) the time at which the Rights are redeemed as provided in
Section 24 hereof (the "Redemption Date"), (iii) the time at which the
Rights are exchanged as provided in Section 25 hereof, or (iv) the
consummation of a transaction contemplated by Section 13(e) hereof.
(b) From and after the date hereof, the Purchase Price for each
one one-thousandth share of Preferred Stock pursuant to the exercise of a
Right shall be [to be determined], subject to adjustment from time to time
as provided in the third sentence of this Section 7(b) and in Sections 11
and 13(a) hereof. The Purchase Price shall be payable in accordance with
Section 7(c) below. Anything in this Agreement to the contrary
notwithstanding, in the event that at any time after the date of this
Agreement and prior to the Distribution Date, the Company shall (i) declare
or pay any dividend on the Common Stock payable in shares of Common Stock
or (ii) effect a subdivision, combination or consolidation of the Common
Stock (by reclassification or otherwise than by payment of dividends in
Common Stock) into a greater or lesser number of Common Stock, then in any
such case, each share of Common Stock outstanding following such
subdivision, combination or consolidation shall continue to have one Right
(subject to adjustment as provided herein) associated therewith and the
Purchase Price following any such event shall be proportionately adjusted
to equal the result obtained by multiplying the Purchase Price immediately
prior to such event by a fraction the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to the
occurrence of the event and the denominator of which shall be the total
number of shares of Common Stock outstanding immediately following the
occurrence of such event, and the number of fractional shares of Preferred
Stock issuable upon exercise of each Right shall be proportionately
adjusted to equal the result obtained by multiplying the number of
fractional shares of Preferred Stock for which a Right is exercisable
immediately prior to such event by a fraction, the numerator of which shall
be the total number of shares of Common Stock outstanding immediately prior
to the occurrence of the event and the denominator of which shall be the
total number of shares of Common Stock outstanding immediately following
the occurrence of such event. The adjustment provided for in the preceding
sentence shall be made successively whenever such a dividend is declared or
paid or such a subdivision, combination or consolidation is effected.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly
executed, accompanied by payment of the Purchase Price for the shares of
Preferred Stock (or other securities, as the case may be) to be purchased
and an amount equal to any applicable transfer tax required to be paid by
the holder of such Right Certificate in accordance with Section 6 hereof by
certified check, cashier's check or money order payable to the order of the
Company, the Rights Agent shall, subject to Section 21(k), thereupon
promptly (i)(A) requisition from any transfer agent of the shares of
Preferred Stock certificates for the number of shares of Preferred Stock to
be purchased, and the Company hereby irrevocably authorizes its transfer
agent to comply with all such requests, or (B) requisition from the
depositary agent (if the Company, in its sole discretion, shall have
elected to deposit the shares of Preferred Stock issuable upon exercise of
the Rights hereunder into a depositary) depositary receipts representing
such number of one one-thousandths of a share of Preferred Stock as are to
be purchased (in which case certificates for the shares of Preferred Stock
represented by such receipts shall be deposited by the transfer agent with
the depositary agent) and the Company will direct the depositary agent to
comply with such requests, (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional
shares in accordance with Section 15 hereof, (iii) after receipt of such
certificates or depositary receipts, cause the same to be delivered to or
upon the order of the registered holder of such Right Certificate,
registered in such name or names as may be designated by such holder and
(iv) when appropriate, after receipt thereof deliver such cash to or upon
the order of the registered holder of such Right Certificate. In the event
that the Company is obligated to issue other securities (including Common
Stock) of the Company pursuant to Section 11(a) hereof, the Company will
make all arrangements necessary so that such other securities are available
for distribution by the Rights Agent, if and when appropriate.
In addition, in the case of an exercise of the Rights by a holder
pursuant to Section 11(a)(ii) hereof, the Rights Agent shall return such
Right Certificate to the registered holder thereof after imprinting,
stamping or otherwise indicating thereon that the rights represented by
such Right Certificate no longer include the rights provided by Section
11(a)(ii) hereof and if less than all the Rights represented by such Right
Certificate were so exercised, the Rights Agent shall indicate on the Right
Certificate the number of Rights represented thereby which continue to
include the rights provided by Section 11(a)(ii) hereof.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent to the registered holder of
such Right Certificate or to his duly authorized assigns, subject to the
provisions of Section 15 hereof, or the Rights Agent shall place an
appropriate notation on the Right Certificate with respect to those Rights
exercised.
(e) Notwithstanding anything in this Agreement to the contrary,
if an Interested Stockholder engages in or there occurs one or more of the
transactions set forth in Section 11(a)(ii) or Section 13(a) on or after
the time the Interested Stockholder became such, then any Rights that are
or were on or after the earlier of the Distribution Date or the Stock
Acquisition Date beneficially owned by (i) an Interested Stockholder, (ii)
a transferee of an Interested Stockholder who becomes a transferee after
the Interested Stockholder becomes such, or (iii) a transferee of an
Interested Stockholder who becomes a transferee prior to or concurrently
with the Interested Stockholder becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from
the Interested Stockholder to holders of equity interests in such
Interested Stockholder or to any Person with whom the Interested
Stockholder has a continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of
Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of
this Section 7(e), shall become null and void without any further action
and no holder of such Rights shall have any rights whatsoever with respect
to such Rights, whether under any provision of this Agreement or otherwise.
The Company shall use all reasonable efforts to insure that the provisions
of this Section 7(e) and Section 4(b) hereof are complied with, but shall
have no liability to any holder of Right Certificates or other Person as a
result of its failure to make any determinations with respect to an
Interested Stockholder or its transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake
any action with respect to a registered holder upon the occurrence of any
purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the
form of election to purchase set forth on the reverse side of the Right
Certificate surrendered for such exercise and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial
Owner) or Affiliates or Associates thereof as the Company shall reasonably
request.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise (other than
a partial exercise), transfer, split up, combination or exchange shall, if
surrendered to the Company or to any of its agents, be delivered to the
Rights Agent for cancellation or in canceled form, or, if surrendered to
the Rights Agent, shall be canceled by it, and no Right Certificates shall
be issued in lieu thereof except as expressly permitted by any of the
provisions of this Agreement. The Company shall deliver to the Rights Agent
for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Right Certificates to the Company, or shall, at the written
request of the Company, destroy such canceled Right Certificates, and in
such case shall deliver a certificate of destruction thereof to Company.
Section 9. Reservation and Availability of Capital Stock. The
Company covenants and agrees that at all time prior to the occurrence of a
Section 11(a)(ii) Event it will cause to be reserved and kept available out
of its authorized and unissued shares of Preferred Stock, or any authorized
and issued shares of Preferred Stock held in its treasury, the number of
shares of Preferred Stock that will be sufficient to permit the exercise in
full of all outstanding Rights and, after the occurrence of a Section
11(a)(ii) Event, shall, to the extent reasonably practicable, so reserve
and keep available a sufficient number of shares of Common Stock (and/or
other securities) which may be required to permit the exercise in full of
the Rights pursuant to this Agreement.
So long as the shares of Preferred Stock (and, after the
occurrence of a Section 11(a)(ii) Event, shares of Common Stock, or any
other securities, as the case may be) issuable upon the exercise of the
Rights may be listed on any national securities exchange, the Company shall
use its best efforts to cause, from and after such time as the Rights
become exercisable, all shares reserved for such issuance to be listed on
such exchange upon official notice of issuance upon such exercise.
The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Preferred Stock (or
shares of Common Stock and/or other securities, as the case may be)
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such shares or other securities (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid
and nonassessable shares or securities.
The Company further covenants and agrees that it will pay when
due and payable any and all U.S. federal and state transfer taxes and
charges which may be payable in respect of the issuance or delivery of the
Right Certificates or of any shares of Preferred Stock (or shares of Common
Stock and/or other securities, as the case may be) upon the exercise of
Rights. The Company shall not, however, be required to pay any transfer tax
which may be payable in respect of any transfer or delivery of Right
Certificates to a person other than, or the issuance or delivery of
certificates or depositary receipts for the shares of Preferred Stock (or
shares of Common Stock and/or other securities, as the case may be) in a
name other than that of, the registered holder of the Right Certificate
evidencing Rights surrendered for exercise or to issue or to deliver any
certificates or depositary receipts for shares of Preferred Stock (or
shares of Common Stock and/or other securities, as the case may be) upon
the exercise of any Rights, until any such tax shall have been paid (any
such tax being payable by the holder of such Right Certificate at the time
of surrender) or until it has been established to the Company's reasonable
satisfaction that no such tax is due.
The Company shall use its best efforts to (i) file, as soon as
practicable following the Stock Acquisition Date (or, if required by law,
at such earlier time following the Distribution Date as so required), a
registration statement under the Act, with respect to the securities
purchasable upon exercise of the Rights on an appropriate form, (ii) cause
such registration statement to become effective as soon as practicable
after such filing, and (iii) cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of the
Act and the rules and regulations thereunder) until the date of the
expiration of the rights provided by Section 11(a)(ii). The Company will
also take such action as may be appropriate under the blue sky laws of the
various states.
Section 10. Preferred Stock Record Date. Each Person in whose
name any certificate for shares of Preferred Stock (or shares of Common
Stock and/or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the
holder of record of the shares of Preferred Stock (or shares of Common
Stock and/or other securities, as the case may be) represented thereby on,
and such certificate shall be dated, the date upon which the Right
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price (and any applicable transfer taxes) was made; provided,
however, that if the date of such surrender and payment is a date upon
which the Preferred Stock (or shares of Common Stock and/or other
securities, as the case may be) transfer books of the Company are closed,
such person shall be deemed to have become the record holder of such shares
on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Stock (or shares of Common Stock and/or other
securities, as the case may be) transfer books of the Company are open.
Section 11. Adjustment of Purchase Price, Number and Kind of
Shares or Number of Rights. The Purchase Price, the number and kind of
shares covered by each Right and the number of Rights outstanding are
subject to adjustment from time to time as provided in this Section 11:
(a) (i) In the event the Company shall at any time after the date
of this Agreement (A) declare a dividend on the Preferred Stock
payable in shares of Preferred Stock, (B) subdivide the outstanding
Preferred Stock, (C) combine the outstanding Preferred Stock into a
smaller number of shares or (D) issue any shares of its capital stock
in a reclassification of the Preferred Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation), except as
otherwise provided in this Section 11(a) and Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock
issuable on such date, shall be proportionately adjusted so that the
holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock
which, if such Right had been exercised immediately prior to such date
and at a time when the Preferred Stock transfer books of the Company
were open, such holder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision,
combination or reclassification; provided, however, that in no event
shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of
the Company issuable upon exercise of one Right. If an event occurs
which would require an adjustment under both this Section 11(a)(i) and
Section 11(a)(ii) hereof, the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event any Person, alone or together with its
Affiliates and Associates, shall become an Acquiring Person, then
proper provision shall be made so that each holder of a Right (except
as provided below and in Section 7(e) hereof) shall, for a period of
60 days after the later of (i) the occurrence of any such event or
(ii) the effective date of an appropriate registration statement under
the Act pursuant to Section 9 hereof, have a right to receive, upon
exercise thereof at a price equal to the then current Purchase Price
in accordance with the terms of this Agreement, such number of shares
of Common Stock of the Company (or, in the discretion of the Board of
Directors, one one-thousandths of a share of Preferred Stock) as shall
equal the result obtained by (x) multiplying the then current Purchase
Price by the then number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior to
the first occurrence of a Section 11(a)(ii) Event and (y) dividing
that product by 50% of the then current per share market price of the
Company's Common Stock (determined pursuant to Section 11(d) hereof)
on the date of such first occurrence (such number of shares being
referred to as the "Adjustment Shares"); provided, however, that if
the transaction that would otherwise give rise to the foregoing
adjustment is also subject to the provisions of Section 13 hereof,
then only the provisions of Section 13 hereof shall apply and no
adjustment shall be made pursuant to this Section 11(a)(ii).
(iii) In the event that there shall not be sufficient
treasury shares or authorized but unissued (and unreserved) shares of
Common Stock to permit the exercise in full of the Rights in
accordance with the foregoing Section 11(a)(ii) and the Rights become
so exercisable (and the Board has determined to make the Rights
exercisable into fractions of a share of preferred stock),
notwithstanding any other provision of this Agreement, to the extent
necessary and permitted by applicable law, each Right shall thereafter
represent the right to receive, upon exercise thereof at the then
current Purchase Price in accordance with the terms of this Agreement,
(A) a number of shares (or fractions of shares) of Common Stock (up to
the maximum number of shares of Common Stock which may permissibly be
issued) and (B) a number of one one-thousandths of a share of
Preferred Stock or a number of (or fractions of) other equity
securities of the Company (or, in the discretion of the Board, debt
securities) which the Board has determined to have the same aggregate
current market value (determined pursuant to Sections 11(d)(i) and
11(d)(ii) hereof, to the extent applicable) as one share of Common
Stock (such number of shares (or fractions of shares) of Preferred
Stock (or other equity securities or debt securities of the Company)
being referred to as a "capital stock equivalent"), equal in the
aggregate to the number of Adjustment Shares; provided, however, if
sufficient shares of Common Stock and/or capital stock equivalents are
unavailable, then the Company shall, to the extent permitted by
applicable law, take all such action as may be necessary to authorize
additional shares of Common Stock or capital stock equivalents for
issuance upon exercise of the Rights, including the calling of a
meeting of shareholders; and provided, further, that if the Company is
unable to cause sufficient shares of Common Stock and/or capital stock
equivalents to be available for issuance upon exercise in full of the
Rights, then each Right shall thereafter represent the right to
receive the Adjusted Number of Shares upon exercise at the Adjusted
Purchase Price (as such terms are hereinafter defined). As used
herein, the term "Adjusted Number of Shares" shall be equal to that
number of shares (or fractions of shares) of Common Stock (and/or
capital stock equivalents) equal to the product of (x) the number of
Adjustment Shares and (y) a fraction, the numerator of which is the
number of shares of Common Stock (and/or shares or units of common
stock equivalents) available for issuance upon exercise of the Rights
and the denominator of which is the aggregate number of Adjustment
Shares otherwise issuable upon exercise in full of all Rights
(assuming there were a sufficient number of shares of Common Stock
available) (such fraction being referred to as the "Proration
Factor"). The "Adjusted Purchase Price" shall mean the product of the
Purchase Price and the Proration Factor. The Board of Directors may,
but shall not be required to, establish procedures to allocate the
right to receive shares of Common Stock and capital stock equivalents
upon exercise of the Rights among holders of Rights.
(b) In case the Company shall fix a record date for the issuance
of rights (other than the Rights), options or warrants to all holders of
Preferred Stock entitling them (for a period expiring within 45 calendar
days after such record date) to subscribe for or purchase shares of
Preferred Stock (or shares having the same rights and privileges as the
Preferred Stock ("equivalent preferred stock")) or securities convertible
into shares of Preferred Stock or equivalent preferred stock at a price per
share of Preferred Stock or per share of equivalent preferred stock (or
having a conversion price per share, if a security convertible into shares
of Preferred Stock or equivalent preferred stock) less than the then
current per share market price of the Preferred Stock (as determined
pursuant to Section 11(d) hereof) on such record date, the Purchase Price
to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of shares of Preferred
Stock outstanding on such record date, plus the number of shares of
Preferred Stock which the aggregate offering price of the total number of
shares of Preferred Stock and/or equivalent preferred stock so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current per share
market price, and the denominator of which shall be the number of shares of
Preferred Stock outstanding on such record date, plus the number of
additional shares of Preferred Stock and/or equivalent preferred stock to
be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided, however,
that in no event shall the consideration to be paid upon the exercise of
one Right be less than the aggregate par value of the shares of capital
stock of the Company issuable upon the exercise of one Right. In case such
subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall
be determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent
and shall be binding on the Rights Agent. Shares of Preferred Stock owned
by or held for the account of the Company shall not be deemed outstanding
for the purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is fixed, and in the event that
such rights, options or warrants are not so issued, the Purchase Price
shall be adjusted to be the Purchase Price which would then be in effect if
such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of
a distribution to all holders of Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price
to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the then current per share market
price (as determined pursuant to Section 11(d) hereof) of the Preferred
Stock on such record date, less the fair market value (as determined in
good faith by the Board of Directors of the Company, whose determination
shall be described in a statement filed with the Rights Agent and shall be
binding on the Rights Agent) of the portion of the assets or evidences of
indebtedness so to be distributed or of such subscription rights or
warrants applicable to one share of Preferred Stock and the denominator of
which shall be such current per share market price of the Preferred Stock;
provided, however, that in no event shall the consideration to be paid upon
the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company to be issued upon exercise of one
Right. Such adjustments shall be made successively whenever such a record
date is fixed; and in the event that such distribution is not so made, the
Purchase Price shall again be adjusted to be the Purchase Price which would
be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the
purpose of this Section 11(d)(i)) on any date shall be deemed to be the
average of the daily closing prices per share of such Security for the 30
consecutive Trading Days (as such term is hereinafter defined) immediately
prior to such date; provided, however, that in the event that the current
per share market price of the Security is determined during a period
following the announcement by the issuer of such Security of (A) a dividend
or distribution on such Security payable in shares of such Security or
securities convertible into such shares, or (B) any subdivision,
combination or reclassification of such Security, and prior to the
expiration of 30 Trading Days after the ex-dividend date for such dividend
or distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the "current per share
market price" shall be appropriately adjusted to reflect the current per
share market price equivalent of such Security. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted
to trading on the New York Stock Exchange or, if the Security is not listed
or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which
the Security is listed or admitted to trading or, if the Security is not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or, if on any such date the
Security is not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker, selected
by the Board, making a market in the Security. If on any such date no such
market maker is making a market in the Security, the fair value of the
Security on such date as determined in good faith by the Board shall be
used. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the Security is listed or admitted to
trading is open for the transaction of business or, if the Security is not
listed or admitted to trading on any national securities exchange, a
Business Day. Subject to Section 11(d)(ii) hereof, if any Security is not
publicly held or so listed or traded, "current per share market price" of
such Security shall mean the fair market value per share as determined in
good faith by the Board, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights
Agent.
(ii) For the purpose of any computation hereunder, the "current
per share market price" of the Preferred Stock shall be determined in
accordance with the method set forth in the foregoing Section 11(d)(i). If
the Preferred Stock is not publicly traded, the current per share market
price of the Preferred Stock shall be conclusively deemed to be the current
per share market price of the Common Stock as determined pursuant to the
foregoing Section 11(d)(i) (appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date
hereof), multiplied by one thousand. If neither the Common Stock nor the
Preferred Stock is publicly held or so listed or traded, "current per share
market price" shall mean the fair value per share as determined in good
faith by the Board, whose determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights Agent.
(e) Notwithstanding anything herein to the contrary, no
adjustment in the Purchase Price shall be required unless such adjustment
would require an increase or decrease of at least 1% in the Purchase Price;
provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section
11 shall be made to the nearest cent or to the nearest one one-thousandth
of a share of Preferred Stock or one hundred-thousandth of any other share
or security, as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no
later than the earlier of (i) three years from the date of the transaction
which mandates such adjustment or (ii) the Final Expiration Date.
(f) If, as a result of an adjustment made pursuant to Section
11(a)(ii) or 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock of the Company
other than Preferred Stock, thereafter the number of other shares so
receivable upon exercise of any Right shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Preferred Stock contained in Sections
11(a) through 11(c) hereof, inclusive, and the provisions of Sections 7, 9,
10, 13 and 15 hereof with respect to the Preferred Stock shall apply on
like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one-thousandths of
a share of Preferred Stock purchasable from time to time hereunder upon
exercise of the Rights, all subject to further adjustment as provided
herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i) hereof, upon each adjustment of the Purchase
Price as a result of the calculations made in Sections 11(b) and 11(c)
hereof, each Right outstanding immediately prior to the making of such
adjustment shall thereafter evidence the right to purchase, at the adjusted
Purchase Price, that number of one one-thousandths of a share of Preferred
Stock (calculated to the nearest one-millionth of a share of Preferred
Stock) obtained by (i) multiplying (A) the number of one one-thousandths of
a share of Preferred Stock covered by a Right immediately prior to this
adjustment of the Purchase Price by (B) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii)
dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment
of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of one one-thousandths of a share of Preferred
Stock purchasable upon the exercise of a Right. Each of the Rights
outstanding after such adjustment of the number of Rights shall be
exercisable for the number of one one-thousandths of a share of Preferred
Stock for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the
nearest one ten-thousandth) obtained by dividing the Purchase Price in
effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to
adjust the number of Rights, indicating the record date for the adjustment,
and, if known at the time, the amount of the adjustment to be made. This
record date may be the date on which the Purchase Price is adjusted or any
day thereafter, but, if the Right Certificates have been issued, shall be
at least 10 days later than the date of the public announcement. If Right
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Company shall, as promptly as
practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 15 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the
date of adjustment, and upon surrender thereof, if required by the Company,
new Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be
distributed shall be issued, executed and countersigned in the manner
provided for herein and shall be registered in the names of the holders of
record of Right Certificates on the record date specified in the public
announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-thousandths of a share of Preferred Stock
issuable upon the exercise of the Rights, the Right Certificates
theretofore and thereafter issued may continue to express the Purchase
Price and the number of one one-thousandths of a share of Preferred Stock
which were expressed in the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then par value, if any, of the number
of one one-thousandths of a share of Preferred Stock, Common Stock or other
securities issuable upon exercise of the Rights, the Company shall take any
corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue such number of fully
paid and nonassessable one one-thousandths of a share of Preferred Stock,
Common Stock or other securities at such adjusted Purchase Price.
(1) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for
a specified event, the Company may elect to defer until the occurrence of
such event the issuance to the holder of any Right exercised after such
record date the number of one one-thousandths of a share of Preferred
Stock, Common Stock or other securities of the Company, if any, issuable
upon such exercise over and above the number of one one-thousandths of a
share of Preferred Stock, Common Stock or other securities of the Company,
if any, issuable upon exercise on the basis of the Purchase Price in effect
prior to such adjustment; provided, however, that the Company shall deliver
to such holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares upon the occurrence of the
event requiring such adjustment.
(m) Notwithstanding anything in this Section 11 to the contrary,
the Company shall be entitled to make such reductions in the Purchase
Price, in addition to those adjustments expressly required by this Section
11, as and to the extent that it in its sole discretion shall determine to
be advisable in order that any (i) consolidation or subdivision of the
Preferred Stock, (ii) issuance wholly for cash of any shares of Preferred
Stock at less than the current market price, (iii) issuance wholly for cash
of shares of Preferred Stock or securities which by their terms are
convertible into or exchangeable for shares of Preferred Stock, (iv) stock
dividends, or (v) issuance of rights, options or warrants referred to in
this Section 11, hereafter made by the Company to holders of its Preferred
Stock shall not be taxable to such shareholders.
(n) The exercise of Rights under Section 11(a)(ii) hereof shall
only result in the reduction of rights under Section 11(a)(ii) hereof to
the extent so exercised and shall not otherwise affect the rights
represented by the Rights under this Agreement, including the rights
represented by Section 13 hereof.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Sections 7(b), 11 or
13 hereof, the Company shall promptly (a) prepare a certificate setting
forth such adjustment, and a brief statement of the facts accounting for
such adjustment, (b) file with the Rights Agent and with each transfer
agent for the Preferred Stock and the Common Stock a copy of such
certificate and (c) mail a brief summary thereof to each holder of a Right
Certificate in accordance with Section 26 hereof. The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment
therein contained and shall not be deemed to have knowledge of such
adjustment unless and until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets
or Earning Power. (a) In the event that, on or following the Stock
Acquisition Date or, if a Transaction is proposed, the Distribution Date,
directly or indirectly, (x) the Company shall consolidate with, or merge
with and into, any Interested Stockholder or, if in such merger or
consolidation all holders of Common Stock are not offered the same
consideration, any other Person, (y) the Company shall consolidate with, or
merge with, any Interested Stockholder or, if in such merger or
consolidation all holders of Common Stock are not offered the same
consideration, any other Person and the Company shall be the continuing or
surviving corporation of such consolidation or merger (other than, in a
case of any transaction described in (x) or (y), a merger or consolidation
which would result in all of the securities generally entitled to vote in
the election of directors ("voting securities") of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into securities of the surviving entity)
all of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation and the holders
(and relative percentage holdings of each such holder) of such securities
not having changed as a result of such merger or consolidation) or (z) the
Company shall sell or otherwise transfer (or one or more of its
subsidiaries shall sell or otherwise transfer), in one transaction or a
series of related transactions, assets or earning power aggregating more
than 50% of the assets or earning power of the Company and its subsidiaries
(taken as a whole) to any Interested Stockholder or, if in such transaction
all holders of Common Stock are not offered the same consideration, any
other Person (other than the Company or any subsidiary of the Company in
one or more transactions each of which does not violate Section 14(b)
hereof), then, and in each such case (except as provided in Section 13(e)
hereof), proper provision shall be made so that (A) each holder of a Right,
except as provided in Section 7(e) hereof, shall thereafter have the right
to receive, upon the exercise thereof at a price equal to the then current
Purchase Price in accordance with the terms of this Agreement, and in lieu
of Preferred Stock, such number of shares of freely tradeable Common Stock
of the Principal Party (as hereinafter defined), not subject to any liens,
rights of first refusal, encumbrances or other adverse claims, as shall
equal the result obtained by (1) multiplying the then current Purchase
Price by the number of one one-thousandths of a share of Preferred Stock
for which a Right is then exercisable (without taking into account any
adjustment previously made pursuant to Section 11(a)(ii) hereof) and
dividing that product by (2) 50% of the then current per share market price
of the Common Stock of such Principal Party (determined pursuant to Section
11(d) hereof) on the date of consummation of such Section 13 Event; (B)
such Principal Party shall thereafter be liable for, and shall assume, by
virtue of such Section 13 Event, all the obligations and duties of the
Company pursuant to this Agreement; (C) the term "Company" shall thereafter
be deemed to refer to such Principal Party, it being specifically intended
that the provisions of Section 11 hereof shall only apply to such Principal
Party following the first occurrence of a Section 13 Event; and (D) such
Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its Common Stock) in
connection with the consummation of any such transaction as may be
necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its shares of
Common Stock thereafter deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in (x) or (y)
of the first sentence of Section 13(a) hereof, the Person that is the
issuer of any securities into which shares of Common Stock of the
Company are converted in such merger or consolidation, and if no
securities are so issued, the Person that is the other party to such
merger or consolidation (including, if applicable, the Company if it
is the surviving corporation); and
(ii) in the case of any transaction described in (z) of the
first sentence of Section 13(a) hereof, the Person that is the party
receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions;
provided, however, that in any of the foregoing cases, (1) if the Common
Stock of such Person is not at such time and has not been continuously over
the preceding 12-month period registered under Section 12 of the Exchange
Act, and such Person is a direct or indirect subsidiary or Affiliate of
another Person the Common Stock of which is and has been so registered,
"Principal Party" shall refer to such other Person; (2) in case such Person
is a subsidiary, directly or indirectly, or Affiliate of more than one
Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is
the issuer of the Common Stock having the greatest aggregate market value;
and (3) in case such Person is owned, directly or indirectly, by a joint
venture formed by two or more Persons that are not owned, directly or
indirectly, by the same Person, the rules set forth in clauses (1) and (2)
above of this Section 13(b) shall apply to each of the chains of ownership
having an interest in such joint venture as if such party were a
"subsidiary" of both or all of such joint venturers and the Principal
Parties in each such chain shall bear the obligations set forth in this
Section 13 in the same ratio as their direct or indirect interests in such
Person bear to the total of such interests.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of shares of its authorized Common Stock which have not been issued
or reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Company and
such Principal Party shall have executed and delivered to the Rights Agent
a supplemental agreement providing for the terms set forth in Section 13(a)
and 13(b) hereof and further providing that, as soon as practicable after
the date of any consolidation, merger, sale or transfer mentioned in
Section 13(a) hereof, the Principal Party at its own expense shall
(i) prepare and file a registration statement under the Act
with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, and use its best
efforts to cause such registration statement to (A) become effective
as soon as practicable after such filing and (B) remain effective
(with a prospectus at all times meeting the requirements of the Act)
until the Final Expiration Date;
(ii) use its best efforts to qualify or register the Rights
and the securities purchasable upon exercise of the Rights under the
blue sky laws of such jurisdictions as may be necessary or
appropriate; and
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with
the requirements for registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers. The rights under
this Section 13 shall be in addition to the rights to exercise Rights and
adjustments under Section 11(a)(ii) hereof and shall survive any exercise
thereof.
(d) The Company shall not consummate any such merger,
consolidation, sale or transfer which shall be a Transaction unless prior
thereto certificates evidencing the Rights have been distributed in
accordance with Section 3(a) to holders of Common Stock not less than
twenty business days prior to the date on which the Transaction becomes
effective or is consummated.
(e) Notwithstanding anything in this Agreement to the contrary,
the provisions of this Section 13 shall not be applicable to a transaction
described in subparagraphs (x) and (y) of Section 13(a) hereof if: (i) such
transaction is consummated with a Person or Persons who acquired shares of
Common Stock pursuant to a Permitted Offer (or a wholly owned subsidiary of
any such Person or Persons); (ii) the price per share of Common Stock
offered in such transaction is not less than the price per share of Common
Stock paid to all holders of Common Stock whose shares were purchased
pursuant to such Permitted Offer; and (iii) the form of consideration
offered in such transaction is the same as the form of consideration paid
pursuant to such Permitted Offer. Upon consummation of any such transaction
contemplated by this Section 13(e), all Rights hereunder shall expire.
Section 14. Additional Covenants. (a) The Company covenants and
agrees that it shall not, at any time after the Distribution Date, (i)
consolidate with any other Person (other than a subsidiary of the Company
in a transaction which does not violate Section 14(b) hereof), (ii) merge
with or into any other Person (other than a subsidiary of the Company in a
transaction which does not violate Section 14(b) hereof), or (iii) sell or
transfer (or permit any subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and
its subsidiaries taken as a whole, to any other Person or Persons (other
than the Company and/or any of its subsidiaries in one or more transactions
each of which does not violate Section 14(b) hereof) if (x) at the time of
or after such consolidation, merger or sale or transfer there are any
charter or by-law provisions of the Company or any other Person or any
rights, warrants or other instruments of the Company or any other Person
outstanding or agreements in effect or any other action taken which would
materially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately
after such consolidation, merger or sale, the shareholders of the Person
who constitutes, or would constitute, the "Principal Party" for purposes of
Section 13(a) hereof shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates and Associates.
The Company shall not consummate any such consolidation, merger, sale or
transfer unless prior thereto the Company and such other Person shall have
executed and delivered to the Rights Agent a supplemental agreement
evidencing compliance with this subsection.
(b) The Company covenants and agrees that, after the earlier of
(i) the Stock Acquisition Date and (ii) the Distribution Date, it will not,
except as permitted by Section 24 or Section 28 hereof, take (or permit any
of its subsidiaries to take) any action the purpose of which is to, or if
at the time such action is taken it is reasonably foreseeable that the
effect of which is to, materially diminish or otherwise eliminate the
benefits intended to be afforded by the Rights.
Section 15. Fractional Rights and Fractional Shares. (a) The
Company shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the
Right Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section
15(a), the current market value of a whole Right shall be the closing price
of the Rights for the Trading Day immediately prior to the date on which
such fractional Rights would have been otherwise issuable. The closing
price of the Rights for any day shall be the last sale price, regular way,
or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading
or, if the Rights are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use or, if on
any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker, selected by the Board, making a market in the Rights. If on
any such date no such market maker is making a market in the Rights the
fair value of the Rights on such date as determined in good faith by the
Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of
shares of Preferred Stock (other than fractions which are one
one-thousandths or integral multiples of one one-thousandths of a share of
Preferred Stock) upon exercise of the Rights or to distribute certificates
which evidence fractional shares of Preferred Stock (other than fractions
which are one one-thousandths or integral multiples of one one-thousandth
of a share of Preferred Stock). Fractions of shares of Preferred Stock in
integral multiples of one one-thousandths of a share of Preferred Stock
may, at the election of the Company, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a depositary
selected by it, provided that such agreement shall provide that the holders
of such depositary receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the shares
of Preferred Stock represented by such depositary receipts. In lieu of
fractional shares of Preferred Stock that are not one one-thousandth or
integral multiples of one one-thousandth of a share of Preferred Stock, the
Company shall pay to the registered holders of Right Certificates at the
time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of one share of Preferred
Stock. For purposes of this Section 15(b), the current market value of a
share of Preferred Stock shall be the closing price of a share of Preferred
Stock (as determined pursuant to Section 11(d)(ii) hereof) for the Trading
Day immediately prior to the date of such exercise.
(c) Following the occurrence of one of the transactions or events
specified in Section 11 hereof giving rise to the right to receive shares
of Common Stock or capital stock equivalents (other than Preferred Stock)
or other securities upon the exercise of a Right, the Company shall not be
required to issue fractions of shares or units of such Common Stock,
capital stock equivalents or other securities upon exercise of the Rights
or to distribute certificates which evidence fractional shares of such
Common Stock, capital stock equivalents or other securities. In lieu of
fractional shares or units of such Common Stock, capital stock equivalents
or other securities, the Company may pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an
amount in cash equal to the same fraction of the current market value of a
share or unit of such capital stock equivalents or other securities. For
purposes of this Section 15(c), the current market value shall be
determined in the manner set forth in Section 11(d) hereof for the Trading
Day immediately prior to the date of such exercise and, if such capital
stock equivalent is not traded, each such capital stock equivalent shall
have the value of one one-thousandth of a share of Preferred Stock.
(d) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any
fractional shares upon exercise of a Right (except as provided above).
Section 16. Rights of Action. All rights of action in respect of
this Agreement excepting the rights of action given to the Rights Agent
under Section 19 hereof are vested in the respective registered holders of
the Right Certificates (and, prior to the Distribution Date, the registered
holders of the Common Stock); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Common Stock),
without the consent of the Rights Agent or of the holder of any other Right
Certificate (or, prior to the Distribution Date, of the Common Stock), may,
in his own behalf and for his own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of, his right to exercise the Rights evidenced by
such Right Certificate in the manner provided in such Right Certificate and
in this Agreement. Without limiting the foregoing or any remedies available
to the holders of Rights, it is specifically acknowledged that the holders
of Rights would not have an adequate remedy at law for any breach of this
Agreement and will be entitled to specific performance of the obligations
under, and injunctive relief against actual or threatened violations of the
obligations hereunder of any Person subject to, this Agreement.
Section 17. Agreement of Right Holders. Every holder of a Right,
by accepting the same, consents and agrees with the Company and the Rights
Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered
at the principal office or offices of the Rights Agent designated for such
purpose, duly endorsed or accompanied by a proper instrument of transfer
and with the appropriate form fully executed;
(c) subject to Section 6 and Section 7(f) hereof, the Company and
the Rights Agent may deem and treat the person in whose name the Right
Certificate (or, prior to the Distribution Date, the associated Common
Stock certificate) is registered as the absolute owner thereof and of the
Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificate or the associated Common Stock certificate
made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent, subject to the
last sentence of Section 7(e) hereof, shall be required to be affected by
any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any
holder of a Right or a beneficial interest in a Right or other Person as a
result of its inability to perform any of its obligations under this
Agreement by reason of any preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, or any
statute, rule, regulation or executive order promulgated or enacted by any
governmental authority, prohibiting or otherwise restraining performance of
such obligation; provided, however, the Company must use its best efforts
to have any such order, decree or ruling lifted or otherwise overturned as
soon as possible.
Section 18. Right Certificate Holder Not Deemed a Shareholder. No
holder, as such, of any Right Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of the shares of
Preferred Stock or any other securities of the Company which may at any
time be issuable on the exercise of the Rights represented thereby, nor
shall anything contained herein or in any Right Certificate be construed to
confer upon the holder of any Right Certificate, as such, any of the rights
of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting
thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except
as provided in Section 25 hereof), or to receive dividends or other
distributions or to exercise any preemptive or subscription rights, or
otherwise, until the Right or Rights evidenced by such Right Certificate
shall have been exercised in accordance with the provisions hereof.
Section 19. Concerning the Rights Agent. The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered
by it hereunder and, from time to time, on demand of the Rights Agent, its
reasonable expenses and counsel fees and other disbursements incurred in
the administration and execution of this Agreement and the exercise and
performance of its duties hereunder. The Company also agrees to indemnify
the Rights Agent for, and to hold it harmless against, any loss, liability,
or expense, incurred without gross negligence, bad faith or willful
misconduct on the part of the Rights Agent, for anything done or omitted by
the Rights Agent in connection with the acceptance and administration of
this Agreement, including the costs and expenses of defending against any
claim of liability arising therefrom. The indemnification provided for
hereunder shall survive the expiration of the Rights and the termination of
this Agreement. In no case shall the Rights Agent be liable for special,
indirect, incidental or consequential loss or damage of any kind
whatsoever, even if the Rights Agent has been advised of the likelihood of
such loss or damage.
The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any
Right Certificate or certificate for Common Stock or for other securities
of the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to
be signed, executed and, where necessary, verified or acknowledged, by the
proper Person or Persons.
Section 20. Merger or Consolidation or Change of Name of Rights
Agent. Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the stock transfer or all or substantially all of the
corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of
the parties hereto, provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 22
hereof. In case at the time such successor Rights Agent shall succeed to
the agency created by this Agreement, any of the Right Certificates shall
have been countersigned but not delivered, any such successor Rights Agent
may adopt the countersignature of the predecessor Rights Agent and deliver
such Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of
the predecessor or in the name of the successor Rights Agent. In all such
cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Right Certificates so
countersigned; and in case at that time any of the Right Certificates shall
not have been countersigned, the Rights Agent may countersign such Right
Certificates either in its prior name or in its changed name. In all such
cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
Section 21. Duties of Rights Agent. The Rights Agent undertakes
the duties and obligations imposed by this Agreement upon the following
terms and conditions, by all of which the Company and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to
any action taken or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any
fact or matter (including, without limitation, the identity of any
Acquiring Person and the determination of the current per share market
price of any Security) be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed by
any one of the Chairman, any Chief Executive Officer, President, Vice
President, the Treasurer, the Secretary or any Assistant Secretary of the
Company and delivered to the Rights Agent; and such certificate shall be
full authorization to the Rights Agent for any action taken or suffered in
good faith by it under the provisions of this Agreement in reliance upon
such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any
of the statements of fact or recitals contained in this Agreement or in the
Right Certificates or be required to verify the same (except its
countersignature thereof). All such statements and recitals are, and shall
be deemed to have been made, by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in respect
of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by
the Company of any covenant or condition contained in this Agreement or in
any Right Certificate; nor shall it be responsible for any adjustment
required under the provisions of Section 11 or 13 hereof or responsible for
the manner, method or amount of any such adjustment or the ascertaining of
the existence of facts that would require any such adjustment (except with
respect to the exercise of Rights evidenced by Right Certificates after
receipt of the certificate described in Section 12 hereof); nor shall it by
any act hereunder be deemed to make any representation or warranty as to
the authorization or reservation of any shares of Preferred Stock or Common
Stock or other securities to be issued pursuant to this Agreement or any
Right Certificate or as to whether any shares of Preferred Stock or Common
Stock or other securities will, when issued, be validly authorized and
issued, fully paid and nonassessable; nor shall it be under any duty to
make any independent investigation or determination of the identity of any
Acquiring Person or any Affiliate or Associate thereof, but shall be
entitled to rely, in the absence of instructions identifying any such
Person, on representations made by holders of Right Certificates.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered
all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or
performing by the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from
any one of the Chairman, any Chief Executive Officer, President, Vice
President, the Secretary, any Assistant Secretary or the Treasurer of the
Company, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be liable for any action taken
or suffered by it in good faith in accordance with instructions of any such
officer.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not Rights Agent under this Agreement. Nothing herein shall preclude
the Rights Agent from acting in any other capacity for the Company or for
any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, omission, default, neglect or
misconduct of any such attorneys or agents or for any loss to the Company
resulting from any such act, omission, default, neglect or misconduct;
provided, however, reasonable care was exercised in the selection and
continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent
to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights hereunder if there shall be reasonable grounds for believing that
repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.
(k) If, with respect to any Right Certificates surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has not
been completed, the Rights Agent shall not take any further action with
respect to such requested exercise of transfer without first consulting
with the Company.
Section 22. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under
this Agreement upon 30 days' notice in writing mailed to the Company and to
each transfer agent of the Common Stock and Preferred Stock by registered
or certified mail, and to the holders of the Right Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of
the Common Stock and Preferred Stock by registered or certified mail, and
to holders of the Right Certificates by first-class mail. If the Rights
Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Rights Agent. If the
Company shall fail to make such appointment within a period of 30 days
after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Right Certificate (who shall, with such
notice, submit his Right Certificate for inspection by the Company), then
the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a
court, shall be either (a) a corporation organized and doing business under
the laws of the United States or of the State of New York (or of any other
state of the United States so long as such corporation is authorized to do
business as a banking institution in the State of New York), in good
standing, having a principal office in the State of New York, which is
authorized under such laws to exercise corporate trust or stock transfer
powers and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50,000,000 (or such lower number
as approved by the Board) or (b) an affiliate of such a corporation. After
appointment, the successor Rights Agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor
Rights Agent shall deliver and transfer to the successor Rights Agent any
property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not
later than the effective date of any such appointment the Company shall
file notice thereof in writing with the predecessor Rights Agent and each
transfer agent of the Common Stock and Preferred Stock, and mail a notice
thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 22, however, or any
defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.
Section 23. Issuance of New Right Certificates. Notwithstanding
any of the provisions of this Agreement or of the Rights to the contrary,
the Company may, at its option, issue new Right Certificates evidencing
Rights in such form as may be approved by its Board of Directors to reflect
any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.
In addition, in connection with the issuance or sale of Common
Stock following the Distribution Date and prior to the earliest of the
Redemption Date, the Final Expiration Date and the consummation of a
transaction contemplated by Section 13(e) hereof, the Company (a) shall
with respect to Common Stock so issued or sold pursuant to the exercise of
stock options or under any employee plan or arrangement, or upon the
exercise, conversion or exchange of securities, notes or debentures issued
by the Company, and (b) may, in any other case, if deemed necessary or
appropriate by the Board of Directors of the Company, issue Right
Certificates representing the appropriate number of Rights in connection
with such issuance or sale; provided, however, that no Right Certificates
shall be issued if, and to the extent that, appropriate adjustment shall
otherwise have been made in lieu of the issuance thereof.
Section 24. Redemption and Termination.
--------------------------
(a) (i) The Board of Directors of the Company may, at its option,
redeem all but not less than all of the then outstanding Rights at a
redemption price of $.001 per Right, as such amount may be
appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption
price being hereinafter referred to as the "Redemption Price") at any
time prior to the earlier of (A) the occurrence of a Section 11(a)(ii)
Event or (B) the Final Expiration Date, and the Company may, at its
option, pay the Redemption Price either in Common Stock (based on the
current per share market price, as defined in Section 11(d) hereof, of
the Common Stock at the time of redemption) or cash; provided,
however, that if the Company elects to pay the Redemption Price in
Common Stock, the Company shall not be required to issue any
fractional Common Stock and the number of Common Stock issuable to
each holder of Rights shall be rounded down to the next whole share.
(ii) In addition, the Board of Directors of the Company may
redeem all but not less than all of the then outstanding Rights at the
Redemption Price following the occurrence of a Stock Acquisition Date
but prior to any event described in Section 13(a), either (x) if each
of the following shall have occurred and remain in effect: (1) a
Person who is an Acquiring Person shall have transferred or otherwise
disposed of a number of voting securities of the Company in a
transaction, or series of transactions, (which did not result in the
occurrence of an event described in Section 11(a)) such that such
Person is thereafter a Beneficial Owner of securities representing 5%
or less of the Voting Power, (2) there are no other Persons,
immediately following the occurrence of the event described in clause
(1), who are Acquiring Persons, and (3) the transfer or other
disposition described in clause (1) above was other than pursuant to a
transaction, or series of transactions, which directly or indirectly
involved the Company or any of its Subsidiaries or (y) in connection
with any event specified in Sections 11(a)(ii) or 13(a) in which all
holders of Common Stock are offered the same consideration and not
involving an Interested Stockholder or any other Person in which such
Interested Stockholder has any interest, or any other Person acting
directly or indirectly on behalf of or in association with any such
Interested Stockholder or (z) following the occurrence of an event set
forth in, and the expiration of any period during which the holder of
Rights may exercise the rights under, Section 11(a)(ii) if and for as
long as the Interested Stockholder is not thereafter the Beneficial
Owner of securities representing 15% or more of the Voting Power.
(iii) Notwithstanding anything to the contrary in this
Agreement, including, without limitation, the provisions of Sections
24 (a)(i) and (a)(ii) hereof, in the event that a majority of the
Board of Directors is comprised of persons elected at a meeting of
shareholders 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) with the objective or for
the purpose of either facilitating a Transaction or circumventing
directly or indirectly the provisions of this Section 24(a)(iii), then
(1) the Rights may not be redeemed for a period of 365 days following
the effectiveness of such election if such redemption is reasonably
likely to have the objective, purpose or effect of facilitating a
Transaction, and (2) the Rights may not be redeemed following such
365-day period if (x) such redemption is reasonably likely to have the
objective, purpose or effect of facilitating a Transaction and (y)
during such 365-day period, the Company enters into any agreement,
arrangement or understanding with any Transaction Person which is
reasonably likely to have the purpose or effect of facilitating a
Transaction.
(b) In the case of a redemption permitted under Section 24(a)(i)
and (a) (iii) hereof, immediately upon the date for redemption set forth in
(or determined in the manner specified in) a resolution of the Board of
Directors of the Company ordering the redemption of the Rights, evidence of
which shall have been filed with the Rights Agent, and without any further
action and without any notice, the right to exercise the Rights will
terminate and the only right thereafter of the holders of Rights shall be
to receive the Redemption Price for each Right so held. In the case of a
redemption permitted under Section 24(a)(ii) and (a)(iii) hereof, evidence
of which shall have been filed with the Rights Agent, the right to exercise
the Rights will terminate and represent only the right to receive the
Redemption Price upon the later of ten Business Days following the giving
of notice or the expiration of any period during which the rights under
Section 11(a)(ii) hereof may be exercised. The Company shall promptly give
public notice of any such redemption; provided, however, that the failure
to give, or any defect in, any such notice shall not affect the validity of
such redemption. Within ten (10) days after such date for redemption set
forth in a resolution of the Board of Directors ordering the redemption of
the Rights, the Company shall mail a notice of redemption to all the
holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the
Common Stock. Any notice which is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the notice. Each
such notice of redemption will state the method by which the payment of the
Redemption Price will be made. Neither the Company nor any of its
Affiliates or Associates may redeem, acquire or purchase for value any
Rights at any time in any manner other than that specifically set forth in
this Section 24 and other than in connection with the purchase of shares of
Common Stock prior to the Distribution Date.
(c) In the case of a redemption permitted under Section 24(a)(i)
and (a)(iii) hereof, the Company may, at its option, discharge all of its
obligations with respect to the Rights by (i) issuing a press release
announcing the manner of redemption of the Rights in accordance with this
Agreement and (ii) mailing payment of the Redemption Price to the
registered holders of the Rights at their last addresses as they appear on
the registry books of the Rights Agent or, prior to the Distribution Date,
on the registry books of the Transfer Agent of the Common Stock, and upon
such action, all outstanding Rights and Right Certificates shall be null
and void without any further action by the Company.
Section 25. Exchange. (a) The Board of Directors of the Company
may, at its option, at any time after the time that any Person becomes an
Acquiring Person, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 7(e) and Section 11(a)(ii) hereof)
for Common Stock of the Company at an exchange ratio of one share of Common
Stock per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction involving either the Common Stock or the
Preferred Stock occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the
foregoing, the Board of Directors shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any
subsidiary of the Company, any employee benefit plan of the Company or any
such subsidiary, any entity holding Common Stock for or pursuant to the
terms of any such plan or any trustee, administrator or fiduciary of such a
plan), together with all Affiliates and Associates of such Person, becomes
the Beneficial Owner of 50% or more of the Common Stock then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of
this Section 25 and without any further action and without any notice, the
right to exercise such Rights shall terminate and the only right thereafter
of a holder of such Rights shall be to receive that number of shares of
Common Stock equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Company shall promptly give public
notice of any such exchange; provided, however, that the failure to give,
or any defect in, such notice shall not affect the validity of such
exchange. The Company shall promptly mail a notice of any such exchange to
all of the holders of such Rights at their last addresses as they appear
upon the registry books of the Rights Agent. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of exchange will state the method by
which the exchange of shares of Common Stock for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will
be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 7(e) and Section 11(a)(ii) hereof) held by each
holder of Rights.
(c) In any exchange pursuant to this Section 25, the Company, at
its option, may substitute Preferred Stock (or equivalent preferred stock,
as such term is defined in Section 11(b) hereof) for some or all of the
Common Stock exchangeable for Rights, at the initial rate of one-thousandth
of a share of Preferred Stock (or equivalent preferred stock) for each
share of Common Stock, as appropriately adjusted to reflect adjustments in
the voting rights of the Preferred Stock pursuant to the terms thereof, so
that the fraction of a share of Preferred Stock delivered in lieu of each
share of Common Stock shall have the same voting rights as one share of
Common Stock.
(d) The Board of Directors of the Company shall not authorize any
exchange transaction referred to in Section 25(a) hereof unless at the time
such exchange is authorized there shall be sufficient Common Stock or
Preferred Stock issued but not outstanding or authorized but unissued to
permit the exchange of Rights as contemplated in accordance with this
Section 25.
Section 26. Notice of Certain Events. (a) In case the Company
shall propose (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders
of Preferred Stock (other than a regularly quarterly cash dividend), (ii)
to offer to the holders of Preferred Stock rights or warrants to subscribe
for or to purchase any additional shares of Preferred Stock or shares of
stock of any class or any other securities, rights or options, (iii) to
effect any reclassification of its Preferred Stock (other than a
reclassification involving only the subdivision of outstanding shares of
Preferred Stock), (iv) to effect any consolidation or merger into or with
any other Person (other than a subsidiary of the Company in a transaction
which does not violate Section 14(b) hereof), or to effect any sale or
other transfer (or to permit one or more of its subsidiaries to effect any
sale or other transfer), in one or more transactions, of 50% or more of the
assets or earning power of the Company and its subsidiaries (taken as a
whole) to, any other Person or Persons (other than the Company and/or any
of its subsidiaries in one or more transactions each of which does not
violate Section 14(b) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the
Company shall give to each holder of a Right Certificate, in accordance
with Section 27 hereof, a notice of such proposed action to the extent
feasible and file a certificate with the Rights Agent to that effect, which
shall specify the record date for the purposes of such stock dividend,
distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the shares of Preferred Stock, if any such date
is to be fixed. Such notice shall be so given in the case of any action
covered by clause (i) or (ii) above of this Section 26(a) at least 20 days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other
action, at least 20 days prior to the date of the taking of such proposed
action or the date of participation therein by the holders of the shares of
Preferred Stock whichever shall be the earlier.
(b) In case of a Section 11(a)(ii) Event, then (i) the Company
shall as soon as practicable thereafter give to each holder of a Right
Certificate, in accordance with Section 27 hereof, a notice of the
occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii)
hereof and (ii) all references in the foregoing Section 26(a) to Preferred
Stock shall be deemed thereafter to refer also, if appropriate, to Common
Stock and/or, if appropriate, other securities of the Company.
Section 27. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any
Right Certificate to or on the Company shall be sufficiently given or made
if sent by first-class mail, postage prepaid, and addressed (until another
address is filed in writing with the Rights Agent) as follows:
theglobe.com, inc.
31 West 21 Street
New York, NY 10010
Attention: Todd Krizelman, Co-Chief Executive Officer
and Co-President
Subject to the provisions of Section 22, any notice or demand authorized by
this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or
made if sent by first-class mail, postage prepaid, and addressed (until
another address is filed in writing with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate or, if
prior to the Distribution Date, to the holder of certificates representing
Common Stock shall be sufficiently given or made if sent by first-class
mail, postage prepaid, and addressed to such holder at the address of such
holder as shown on the registry books of the Company.
Section 28. Supplements and Amendments. Prior to the Distribution
Date, the Company and the Rights Agent shall, if the Company so directs,
supplement or amend any provision of this Agreement without the approval of
any holders of certificates representing Common Stock. From and after the
Distribution Date, the Company and the Rights Agent shall, if the Company
so directs, supplement or amend this Agreement without the approval of any
holders of Right Certificates in order (i) to cure any ambiguity, (ii) to
correct or supplement any provision contained herein which may be defective
or inconsistent with any other provisions herein, (iii) to shorten or
lengthen any time period hereunder, or (iv) to change or supplement the
provisions hereunder in any manner which the Company may deem necessary or
desirable and which shall not adversely affect the interests of the holders
of Right Certificates (other than an Interested Stockholder); provided,
however, that this Agreement may not be supplemented or amended to
lengthen, pursuant to clause (iii) of this sentence, (A) a time period
relating to when the Rights may be redeemed at such time as the Rights are
not then redeemable, or (B) any other time period unless such lengthening
is for the purpose of protecting, enhancing or clarifying the rights of,
and/or the benefits to, the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Company which states that
the proposed supplement or amendment is in compliance with the terms of
this Section 28, the Rights Agent shall execute such supplement or
amendment, provided that such supplement or amendment does not adversely
affect the rights or obligations of the Rights Agent under Section 19 or 21
of this Agreement. Prior to the Distribution Date, the interests of the
holders of Rights shall be deemed coincident with the interests of the
holders of Common Stock.
Notwithstanding anything contained in this Agreement to the
contrary, in the event that a majority of the Board of Directors is
comprised of persons elected at a meeting of shareholders 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) with the objective or for the purpose of either facilitating a
Transaction or circumventing directly or indirectly the provisions of this
Section 28, then (A) for a period of 365 days following the effectiveness
of such action, this Agreement shall not be amended or supplemented in any
manner reasonably likely to have the objective, purpose or effect of
facilitating a Transaction and (B) no amendments or supplements may be made
following such 365-day period if (1) such amendment or supplement is
reasonably likely to have the objective, purpose or effect of facilitating
a Transaction and (2) during such 365-day period, the Company enters into
any agreement, arrangement or understanding with any Transaction Person
which is reasonably likely to have the objective, purpose or effect of
facilitating a Transaction.
Section 29. Determination and Actions by the Board of Directors,
etc. The Board of Directors of the Company shall have the exclusive power
and authority to administer this Agreement and to exercise all rights and
powers specifically granted to the Board, or the Company, or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of
this Agreement, and (ii) make all determinations deemed necessary or
advisable for the administration of this Agreement (including, without
limitation, a determination to redeem or not redeem the Rights or to amend
this Agreement and whether any proposed amendment adversely affects the
interests of the holders of Right Certificates). For all purposes of this
Agreement, any calculation of the number of shares of Common Stock or other
securities outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common
Stock or any other securities of which any Person is the Beneficial Owner,
shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i)
of the General Rules and Regulations under the Exchange Act as in effect on
the date of this Agreement. All such actions, calculations, interpretations
and determinations (including, for purposes of clause (y) below, all
omissions with respect to the foregoing) which are done or made by the
Board in good faith, shall (x) be final, conclusive and binding on the
Company, the Rights Agent, the holders of the Right Certificates and all
other parties, and (y) not subject the Board to any liability to the
holders of the Right Certificates.
Section 30. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 31. Benefits of this Agreement. This Agreement shall be
for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Stock) and nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent
and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Stock) any legal or equitable right, remedy
or claim under this Agreement.
Section 32. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction
or other authority to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected, impaired
or invalidated.
Section 33. Governing Law. This Agreement, each Right and each
Right Certificate issued hereunder shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be
governed by and construed in accordance with the laws of such State
applicable to contracts to be made and to be performed entirely within such
State.
Section 34. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
Section 35. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and their respective corporate seals to be hereunto
affixed and attested, all as of the day and year first above written.
theglobe.com, inc.
By:
-------------------------------
Name:
Title:
AMERICAN STOCK TRANSFER &
TRUST COMPANY
as Rights Agent
By:
-------------------------------
Name:
Title:
<PAGE>
Exhibit A
---------
Form of
Certificate of Designation,
Preferences and Rights of
Junior Participating Preferred Stock
of
theglobe.com,inc.
(Pursuant to Section 151
of the General Corporation Law of the State of Delaware)
I, Todd Krizelman, Co-Chief Executive Officer and Co-President of
theglobe.com, inc. (the "Company"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, in accordance
with the provisions of Section 103 thereof, DO HEREBY CERTIFY as follows:
That pursuant to the authority conferred upon the Board of
Directors by the Fourth Amended and Restated Certificate of Incorporation
of the Company (the "Restated Certificate"), said Board of Directors
adopted the following resolution creating a series of _______ shares of
Preferred Stock designated as Junior Participating Preferred Stock:
RESOLVED that pursuant to the authority granted to and vested in
the Board of Directors of this Company in accordance with the provisions of
the Restated Certificate the Board of Directors hereby creates a series of
Preferred Stock of the Company and hereby states the designation and number
of shares, and fixes the relative rights, preferences and limitations
thereof (in addition to the provisions set forth in the Restated
Certificate which are applicable to the Preferred Stock of all classes and
series) as follows:
Section 1. Designation and Amount. There shall be a series of
Preferred Stock, par value $.001 per share, of the Company which shall be
designated as "Junior Participating Preferred Stock," par value $.001 per
share, and the number of shares constituting such series shall be _______.
Such number of shares may be increased or decreased by resolution of the
Board of Directors; provided, that no decrease shall reduce the number of
shares of Junior Participating Preferred Stock to a number less than that
of the shares then outstanding plus the number of shares issuable upon
exercise of outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the Company.
Section 2. Dividends and Distributions.
---------------------------
(A)Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the
Junior Participating Preferred Stock with respect to dividends, the holders
of shares of Junior Participating Preferred Stock in preference to the
holders of shares of Common Stock, par value $.001 per share (the "Common
Stock"), of the Company and any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable in cash on
the first day of January, April, July, and October in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Junior Participating
Preferred Stock in an amount per share (rounded to the nearest cent) equal
to the greater of (a) [to be determined], or (b) subject to the provision
for adjustment hereinafter set forth, 1000 times the aggregate per share
amount of all cash dividends, and 1000 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other
than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share
of Junior Participating Preferred Stock. In the event the Company shall at
any time after ___________, 1998 (the "Rights Declaration Date") (i)
declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount to which holders of shares of Junior Participating
Preferred Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Company shall declare a dividend or distribution on the
Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
[to be determined] per share on the Junior Participating Preferred Stock
shall nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such
shares of Junior Participating Preferred Stock unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Junior Participating Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date in either of which events such dividends shall begin to accrue
and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of
Junior Participating Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares
shall be allocated pro rata on a share-by-share basis among all such shares
at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Junior Participating Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 60 days prior to the date
fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Junior
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Junior Participating Preferred Stock shall entitle the
holder thereof to 1000 votes on all matters submitted to a vote of the
stockholders of the Company. In the event the Company shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a smaller number
of shares, then in each such case the number of votes per share to which
holders of shares of Junior Participating Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Junior Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a
vote of stockholders of the Company.
(C) (i) If at any time dividends on any Junior Participating
Preferred Stock shall be in arrears in an amount equal to six (6)
quarterly dividends thereon, the occurrence of such contingency
shall mark the beginning of a period (herein called a "default
period") which shall extend until such time when all accrued and
unpaid dividends for all previous quarterly dividend periods and
for the current quarterly dividend period on all shares of Junior
Participating Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default
period, all holders of Preferred Stock (including holders of the
Junior Participating Preferred Stock) with dividends in arrears
in an amount equal to six (6) quarterly dividends thereon, voting
as a class, irrespective of series, shall have the right to elect
two (2) Directors.
(ii) During any default period, such voting right of the holders
of Junior Participating Preferred Stock may be exercised
initially at a special meeting called pursuant to subparagraph
(iii) of this Section 3(C) or at any annual meeting of
stockholders, and thereafter at annual meetings of stockholders,
provided that neither such voting right nor the right of the
holders of any other series of Preferred Stock, if any, to
increase in certain cases, the authorized number of Directors
shall be exercised unless the holders of ten percent (10%) in
number of shares of Preferred Stock outstanding shall be present
in person or by proxy. The absence of a quorum of the holders of
Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting right. At any meeting at which the
holders of Preferred Stock shall exercise such voting right
initially during an existing default period, they shall have the
right, voting as a class, to elect Directors to fill such
vacancies, if any, in the Board of Directors as may then exist up
to two (2) Directors or, if such right is exercised at an annual
meeting, to elect two (2) Directors. If the number which may be
so elected at any special meeting does not amount to the required
number, the holders of the Preferred Stock shall have the right
to make such increase in the number of Directors as shall be
necessary to permit the election by them of the required number.
After the holders of the Preferred Stock shall have exercised
their right to elect Directors in any default period and during
the continuance of such period, the number of Directors shall not
be increased or decreased except by vote of the holders of
Preferred Stock as herein provided or pursuant to the rights of
any equity securities ranking senior to or pari passu with the
Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to
elect Directors, the Board of Directors may order, or any
stockholder or stockholders owning in the aggregate not less than
ten percent (10%) of the total number of shares of Preferred
Stock outstanding, irrespective of series, may request, the
calling of a special meeting of the holders of Preferred Stock,
which meeting shall thereupon be called by the Chairman, any
Chief Executive Officer or President of the Company. Notice of
such meeting and of any annual meeting at which holders of
Preferred Stock are entitled to vote pursuant to this paragraph
(C) (iii) shall be given to each holder of record of Preferred
Stock by mailing a copy of such notice to him at his last address
as the same appears on the books of the Company. Such meeting
shall be called for a time not earlier than 10 days and not later
than 60 days after such order or request or in default of the
calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any
stockholder or stockholders owning in the aggregate not less than
ten percent (10%) of the total number of shares of Preferred
Stock outstanding. Notwithstanding the provisions of this
paragraph (C)(iii), no such special meeting shall be called
during the period within 60 days immediately preceding the date
fixed for the next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Company if applicable, shall
continue to be entitled to elect the whole number of Directors
until the holders of Preferred Stock shall have exercised their
right to elect two (2) Directors voting as a class, after the
exercise of which right (x) the Directors so elected by the
holders of Preferred Stock shall continue in office until their
successors shall have been elected by such holders or until the
expiration of the default period, and (y) any vacancy in the
Board of Directors may (except as provided in paragraph (C)(ii)
of this Section 3) be filled by vote of a majority of the
remaining Directors theretofore elected by the holders of the
class of stock which elected the Director whose office shall
become vacant. References in this paragraph (C) to Directors
elected by the holders of a particular class of stock shall
include Directors elected by such Directors to fill vacancies as
provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect
Directors shall cease, (y) the term of any Directors elected by
the holders of Preferred Stock as a class shall terminate, and
(z) the number of Directors shall be such number as may be
provided for in the Restated Certificate or By-laws of the
Company irrespective of any increase made pursuant to the
provisions of paragraph (C) (ii) of this Section 3 (such number
being subject, however, to change thereafter in any manner
provided by law or in the Restated Certificate or By-laws). Any
vacancies in the Board of Directors effected by the provisions of
clauses (y) and (z) in the preceding sentence may be filled by a
majority of the remaining Directors.
(D) Except as set forth herein, holders of Junior Participating
Preferred Stock shall have no special voting rights and their consent shall
not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
--------------------
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of
Junior Participating Preferred Stock outstanding shall have been paid in
full, the Company shall not:
(i) Declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Junior
Participating Preferred Stock;
(ii) Declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with
the Junior Participating Preferred Stock except dividends paid
ratably on the Junior Participating Preferred Stock and all such
parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) Redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Junior
Participating Preferred Stock provided that the Company may at
any time redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any stock of the Company
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Junior Participating Preferred
Stock; or
(iv) Purchase or otherwise acquire for consideration any shares
of Junior Participating Preferred Stock or any shares of stock
ranking on a parity with the Junior Participating Preferred Stock
except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes.
(B) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Junior Participating
Preferred Stock purchased or otherwise acquired by the Company in any
manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
--------------------------------------
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Company, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Junior Participating
Preferred Stock shall have received per share, the greater of 1000 times
[to be determined] or 1000 times the payment made per share of Common
Stock, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment
(the " Liquidation Preference"). Following the payment of the full amount
of the Liquidation Preference, no additional distributions shall be made to
the holders of shares of Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Common Stock shall have received an
amount per share (the "Common Adjustment") equal to the quotient obtained
by dividing (i) the Liquidation Preference by (ii) 1000 (as appropriately
adjusted as set forth in subparagraph C below to reflect such events as
stock splits, stock dividends and recapitalizations with respect to the
Common Stock) (such number in clause (ii), the "Adjustment Number").
Following the payment of the full amount of the Liquidation Preference and
the Common Adjustment in respect of all outstanding shares of Junior
Participating Preferred Stock and Common Stock, respectively, holders of
Junior Participating Preferred Stock and holders of shares of Common Stock
shall receive their ratable and proportionate share of the remaining assets
to be distributed in the ratio of the Adjustment Number to 1 with respect
to such Preferred Stock and Common Stock, on a per share basis,
respectively.
(B) In the event there are not sufficient assets available to
permit payment in full of the Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if any, which rank on a
parity with the Junior Participating Preferred Stock then such remaining
assets shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event there
are not sufficient assets available to permit payment in full of the Common
Adjustment, then such remaining assets shall be distributed ratably to the
holders of Common Stock.
(C) In the event the Company shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then
in each such case the Adjustment Number in effect immediately prior to such
event shall be adjusted by multiplying such Adjustment Number by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Consolidation, Merger, etc. If the Company shall enter
into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property then in any such event the
shares of Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 1000 times the
aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share
of Common Stock is changed or exchanged. In the event the Company shall at
any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of
shares of Junior Participating Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event.
Section 8. Redemption. The shares of Junior Participating
Preferred Stock shall not be redeemable.
Section 9. Ranking. The Junior Participating Preferred Stock
shall rank junior to all other series of the Company's Preferred Stock as
to the payment of dividends and the distribution of assets, unless the
terms of any such series shall provide otherwise.
Section 10. Fractional Shares. Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder,
in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the
benefit of all other rights of holders of Junior Participating Preferred
Stock.
IN WITNESS WHEREOF, I have executed this Certificate and do
affirm the foregoing as true under penalties of perjury this ____ day of
September, 1998.
By:
-----------------------------------
Todd Krizelman
Co-Chief Executive Officer and
Co-President
Attest:
- ----------------------------------
Stephan Paternot
Co-Chief Executive Officer,
Co-President and Secretary
<PAGE>
EXHIBIT B
---------
Form of Right Certificate
Certificate No. R- ______ Rights
NOT EXERCISABLE AFTER ________, OR EARLIER IF REDEEMED
BY THE CORPORATION. THE RIGHTS ARE SUBJECT TO
REDEMPTION AT $.001 PER RIGHT ON THE TERMS SET FORTH IN
THE SHAREHOLDER RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES SET FORTH IN THE SHAREHOLDER RIGHTS
AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO
IS AN INTERESTED STOCKHOLDER, WHETHER CURRENTLY HELD BY
OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT
HOLDER, SHALL BECOME NULL AND VOID.
Right Certificate
theglobe.com, inc.
This certifies that ___________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions
of the Shareholder Rights Agreement, dated as of September __, 1998 (the
"Shareholder Rights Agreement"), between theglobe.com, inc., a Delaware
corporation (the "Company"), and American Stock Transfer & Trust Company
(the "Rights Agent"), to purchase from the Company at any time after the
Distribution Date (as such term is defined in the Shareholder Rights
Agreement) and prior to 5:00 P.M., New York, New York time, on ___________,
unless the Rights evidenced hereby shall have been previously redeemed by
the Company, at the principal office or offices of the Rights Agent
designated for such purpose, or at the office of its successor as Rights
Agent, one one-thousandth of a fully paid non-assessable share of Junior
Participating Preferred Stock, $.001 par value per share (the "Preferred
Stock"), of the Company, at a purchase price of [to be determined] per one
one-thousandth of a share of Preferred Stock (the "Purchase Price"), upon
presentation and surrender of this Right Certificate with the Form of
Election to Purchase duly executed. The number of Rights evidenced by this
Right Certificate (and the number of one one-thousandths of a share of
Preferred Stock which may be purchased upon exercise hereof) set forth
above, and the Purchase Price set forth above, are the number and Purchase
Price as of ____________, ____ based on the shares of Preferred Stock as
constituted at such date.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Shareholder Rights Agreement), if the Rights evidenced by
this Right Certificate are beneficially owned by (i) an Interested
Stockholder (as such terms are defined in the Rights Agreement), (ii) a
transferee of any such Interested Stockholder who becomes a transferee
after the Interested Stockholder becomes such, or (iii) under certain
circumstances specified in the Shareholder Rights Agreement, a transferee
of any such Interested Stockholder who becomes a transferee prior to or
concurrently with the Interested Person becoming such, such Rights shall
become null and void and no holder hereof shall have any right with respect
to such Rights from and after the occurrence of such Section 11(a)(ii)
Event.
As provided in the Shareholder Rights Agreement, the Purchase
Price and the number of one one-thousandths of a share of Preferred Stock
or other securities which may be purchased upon the exercise of the Rights
evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events, including Triggering
Events (as such term is defined in the Shareholder Rights Agreement).
This Right Certificate is subject to all of the terms, provisions
and conditions of the Shareholder Rights Agreement, which terms, provisions
and conditions are hereby incorporated herein by reference and made a part
hereof and to which Shareholder Rights Agreement reference is hereby made
for a full description of the rights, limitations of rights, obligations,
duties and immunities hereunder of the Rights Agent, the Company and the
holders of the Right Certificates, which limitations of rights include the
temporary suspension of the exercisability of such Rights under the
specific circumstances set forth in the Rights Agreement. Copies of the
Rights Agreement are on file at the principal executive offices of the
Company and the principal office or offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates,
upon surrender at the principal office of the Rights Agent, may be
exchanged for another Right Certificate or Right Certificates of like tenor
and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Preferred Stock or other securities as the
Rights evidenced by the Right Certificate or Right Certificates surrendered
shall have entitled such holder to purchase. If this Right Certificate
shall be exercised in part, the holder shall be entitled to receive upon
surrender hereof another Right Certificate or Right Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Shareholder Rights Agreement,
the Rights evidenced by this Certificate may be redeemed by the Company at
a redemption price of $.001 per Right (subject to adjustment as provided in
the Shareholder Rights Agreement) payable in shares of Common Stock or
cash.
The Company shall not be required to issue fractions of Rights or
to distribute Right Certificates which evidence fractional Rights. In lieu
of such fractional Rights, there shall be paid to the registered holders of
the Right Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right as defined in the Shareholder Rights
Agreement.
The Company will not be required to issue fractions of shares of
Preferred Stock (other than fractions which are one one-thousandths or
integral multiples of one one of a share of Preferred Stock) upon exercise
of the Rights or to distribute certificates which evidence fractional
shares of Preferred Stock (other than fractions which are one
one-thousandth or integral multiples of one one-thousandth of a share of
Preferred Stock). In lieu of fractional shares of Preferred Stock other
than fractions that are multiples of one one-thousandth of a share of
Preferred Stock, the Company will pay to the registered holders of Right
Certificates at the time such Rights are exercised an amount in cash equal
to the same fraction of the current market value of one share of Preferred
Stock as defined in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the shares of
Preferred Stock or of any other securities of the Company which may at any
time be issuable on the exercise hereof, nor shall anything contained in
the Shareholder Rights Agreement or herein be construed to confer upon the
holder hereof, as such, any of the rights of a stockholder of the Company
or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in the Shareholder
Rights Agreement), or to receive dividends or other distributions or to
exercise any preemptive or subscription rights, or otherwise, until the
Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Shareholder Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the signature of the proper officers of the Company and
its corporate seal. Dated as of _________, ______.
[SEAL]
ATTEST: theglobe.com, inc.
Attest:
By By
------------------------------- -----------------------------
Name: Name:
Title: Title:
Countersigned:
AMERICAN STOCK TRANSFER & TRUST
COMPANY
as Right Agent
By
-------------------------------
Authorized Signatory
Name:
Title:
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED _______________________________________________________
hereby sells, assigns and transfers unto _________________________________
__________________________________________________________________________
(Please print name and address of transferee)
__________________________________________________________________________
this Right Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint _________
Attorney, to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.
Dated: ____________, _____
___________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of
Securities Dealers, Inc., or a commercial bank, savings association, credit
union or trust company having an office or correspondent in the United
States or other eligible guarantor institution which is a participant in a
signature guarantee medallion program.
- --------------------------------------------------------------------------
The undersigned hereby certifies that (1) the Rights evidenced by
this Right Certificate are not being sold, assigned or transferred by or on
behalf of a Person who is or was an Interested Stockholder thereof (as such
terms are defined in the Shareholder Rights Agreement) and (2) after due
inquiry and to the best knowledge of the undersigned, the undersigned did
not acquire the Rights evidenced by this Right Certificate from any Person
who is or was or subsequently became an Interested Stockholder.
___________________________
Signature
<PAGE>
Form of Reverse Side of Right Certificate -- continued
- --------------------------------------------------------------------------
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed by the registered holder if such holder desires
to exercise Rights represented by the Right Certificate.)
To the Rights Agent:
The undersigned hereby irrevocably elects to exercise Rights
represented by this Right Certificate to purchase the shares of Preferred
Stock, Common Stock or such other securities issuable upon the exercise of
such Rights at this time as follows:
Please Insert
Number of Rights
To Be Exercised
---------------
(i) Preferred Stock Exercise _
(ii) Section 11(a)(ii) Exercise _
(iii) Section 13 Exercise _
The undersigned requests that certificates for such shares of
Preferred Stock, Common Stock or other securities be issued in the name of:
Please insert social security
or other identifying number ______________________________________________
__________________________________________________________________________
(Please print name and address of transferee)
__________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance remaining of
such Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number ______________________________________________
__________________________________________________________________________
(Please print name and address of transferee)
__________________________________________________________________________
<PAGE>
Form of Reverse Side of Right Certificate -- continued.
- --------------------------------------------------------------------------
Dated: _________, ____
___________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of
Securities Dealers, Inc., or a commercial bank, savings association, credit
union or trust company having an office or correspondent in the United
States or other eligible guarantor institution which is a participant in a
signature guarantee medallion program.
<PAGE>
Form of Reverse Side of Right Certificate -- continued.
- --------------------------------------------------------------------------
The undersigned hereby certifies that (1) the Rights evidenced by
this Right Certificate are not being exercised by or on behalf of a Person
who is or was an Interested Stockholder thereof (as such terms are defined
in the Shareholder Rights Agreement) and (2) after due inquiry and to the
best knowledge of the undersigned, the undersigned did not acquire the
Rights evidenced by this Rights Certificate from any Person who is or was
an Interested Stockholder.
___________________________
Signature
- --------------------------------------------------------------------------
NOTICE
------
The signature on the foregoing Forms of Assignment and Election
and certificates must conform to the name as written upon the face of this
Right Certificate in every particular, without alteration or enlargement or
any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the Beneficial Owner
of the Rights evidenced by this Right Certificate to be an Interested
Stockholder (as such terms are defined in the Shareholder Rights Agreement)
and such Assignment or Election to Purchase will not be honored.
<PAGE>
EXHIBIT C
---------
September __, 1998
SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE SHAREHOLDER RIGHTS
AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES
AN INTERESTED STOCKHOLDER (AS DEFINED IN THE SHAREHOLDER RIGHTS AGREEMENT)
AND CERTAIN RELATED PERSONS, WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH
PERSON OR BY ANY SUBSEQUENT HOLDER, SHALL BECOME NULL AND VOID.
The Board of Directors of theglobe.com, inc., a Delaware
corporation (the "Company"), declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of Common Stock, of
par value $.001 per share (the "Common Stock"), of the Company. The
dividend is payable to the stockholders of record as of 5:00 P.M., New
York, New York time, on September ___, 1998 (the "Record Date"), and with
respect to Common Stock issued thereafter until the Distribution Date (as
hereinafter defined) and, in certain circumstances, with respect to Common
Shares issued after the Distribution Date. Except as set forth below, each
Right, when it becomes exercisable, entitles the registered holder to
purchase from the Company one one-thousandth of a share of Junior
Participating Preferred Stock, of par value $.001 per share (the "Preferred
Stock"), at a price of [to be determined] per one one-thousandth of a share
of Preferred Stock (the "Purchase Price"), subject to adjustment. The
description and terms of the Rights are set forth in a Shareholder Rights
Agreement, dated as of September __, 1998 (the "Shareholder Rights
Agreement"), between the Company and American Stock Transfer & Trust
Company (the "Rights Agent").
The Rights are attached to all certificates representing
outstanding shares of Common Stock, and no separate Right Certificates (as
hereinafter defined) have been distributed. The Rights will separate from
the shares of Common Stock on the earliest to occur of (i) the first date
of public announcement that a person or "group" has acquired beneficial
ownership of securities having 15% or more of the voting power of all
outstanding voting securities of the Company (as hereinafter defined); or
(ii) ten (10) business days (or such later date as the Board of Directors
of the Company may determine) following the commencement of, or
announcement of an intention 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 Shareholder 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 provides that until the Distribution Date
the Rights will be transferred with and only with the shares of Common
Stock. Until the Distribution Date (or earlier redemption or expiration of
the Rights), new Common Stock certificates issued upon transfer or new
issuance of shares of Common Stock will contain a notation incorporating
the Shareholder Rights Agreement by reference. Until the Distribution Date
(or earlier redemption or expiration of the Rights), the surrender for
transfer of any certificates for shares of Common Stock outstanding, even
without such notation, will also constitute the transfer of the Rights
associated with the shares of Common Stock represented by such certificate.
As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the shares of Common Stock as of the close of business
on the Distribution Date (and to each initial record holder of certain
shares of Common Stock issued after the Distribution Date), and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and
will expire at 5:00 P.M., New York, New York time, on _______, ____unless
earlier redeemed by the Company as described below.
In the event that any person becomes an Acquiring Person (except
pursuant to a Permitted Offer as hereinafter defined), each holder of a
Right will have (subject to the terms of the Shareholder 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 two-hundredths 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 Shareholder 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 Shareholder 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 two-hundredths 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 two-hundredths 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 two-hundredths of a share of
Preferred Stock will be issued, and in lieu thereof, an adjustment in cash
will be made based on the market price of the shares of Preferred Stock on
the last trading day prior to the date of exercise.
At any time prior to the earlier to occur of (i) a person
becoming an Acquiring Person or (ii) the expiration of the Rights, the
Company may redeem the Rights in whole, but not in part, at a price of
$.001 per Right (the "Redemption Price"), which redemption shall be
effective upon the action of the Board of Directors of the Company.
Additionally, the Company may redeem the then outstanding Rights in whole,
but not in part, at the Redemption Price (i) after the triggering of the
Flip-In Right and before the expiration of any period during which the
Flip-In Right may be exercised in connection with a merger or other
business combination transaction or series of transactions involving the
Company in which all holders of shares of Common Stock are not offered the
same consideration but not involving a Transaction Person (as defined in
the Shareholder Rights Agreement), (ii) following an event giving rise to,
and the expiration of the exercise period for, the Flip-In Right if
and for as long as no person beneficially owns securities representing 15%
or more of the voting power of the Company's voting securities or (iii) if
the Acquiring Person reduces his ownership below 5% in transactions not
involving the Company. The redemption of Rights described in the preceding
sentence shall be effective only as of such time when the Flip-In
Right is not exercisable, and in any event, only after 10 business days'
prior notice. Upon the effective date of the redemption of the Rights, the
right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
The shares of 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 1000 times the dividend declared on each
share of Common Stock, but in no event less than [to be determined] (the
equivalent of [to be determined] per share of common stock). In the event
of liquidation, the holders of Preferred Stock will receive a preferred
liquidation payment equal to the greater of 1000 times [to be determined]or
1000 times the payment made per each share of Common Stock. Each share of
Preferred Stock will have 1000 votes, voting together with the shares of
Common Stock. In the event of any merger, consolidation or other
transaction in which shares of Common Stock are exchanged, each share of
Preferred Stock will be entitled to receive 200 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 Shareholder
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 Shareholder 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 Shareholder 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.
A copy of the Shareholder Rights Agreement has been filed with
the Securities and Exchange Commission as an Exhibit to the Company's
Registration Statement on Form S-1. A copy of the Shareholder Rights
Agreement is available free of charge from the Company. This summary
description of the Rights does not purport to be complete and is qualified
in its entirety by reference to the Shareholder Rights Agreement, which is
incorporated herein by reference.
Exhibit 10.12
August 12, 1998
Republic Industries, Inc.
110 S.E. 6th Street
Republic Tower
Fort Lauderdale, Florida 33301
Attention: Thomas W. Hawkins
Senior Vice President
Dear Mr. Hawkins:
In consideration of the mutual agreements set forth herein, and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Republic Industries, Inc. ("Republic"), Michael S.
Egan ("Egan") and theglobe.com wish to memorialize the following
understandings and agreements:
1. Egan and theglobe.com hereby grant to Republic a Right of
First Negotiation with respect to the conduct of automotive
"clubsites" on theglobe.com, pursuant to the terms of this
paragraph. This means that during the period commencing on the
date hereof and ending six (6) months hereafter, Egan and
theglobe.com shall negotiate exclusively with Republic and shall
use their commercially reasonable efforts to reach an agreement
(the "Exclusivity Agreement") with Republic pursuant to which
Republic would be granted exclusive rights to engage in or
conduct an automotive clubsite on theglobe.com.
2. Republic hereby agrees that it shall purchase advertising
from theglobe.com for the three-year period commencing on the
date hereof, upon the terms and conditions set forth in Exhibit 1
hereto. Egan and theglobe.com hereby grant to Republic a "most
favored nation" right for a period of three years pursuant to the
terms of this paragraph. This means that during the three-year
period commencing on the date hereof, in the event that
theglobe.com grants a third party the right to advertise on
theglobe.com at a price that is more favorable than the price
offered to Republic, theglobe.com shall offer the more favorable
price to Republic for advertising generally comparable in type
and scope to Republic's advertising on theglobe.com; provided,
however, that theglobe.com shall have no such obligation to offer
Republic such favorable pricing in the context of so-called
short-term, distressed advertising rates. Any amounts paid for
advertising on theglobe.com by Republic pursuant to the
Exclusivity Agreement shall be credited toward Republic's
commitment under this paragraph 2.
If the foregoing accurately reflects our understanding, please
indicate your agreement by executing this letter agreement as indicated
below.
Sincerely,
theglobe.com
By:
------------------------------
Name:
Title:
---------------------------------
MICHAEL S. EGAN, individually
AGREED AND ACCEPTED:
REPUBLIC INDUSTRIES, INC.
By:
-----------------------------
Name: Thomas W. Hawkins
Its: Senior Vice President
Attachment
<PAGE>
Exhibit 1
theglobe.com
Deal Structure
- --------------
Term: 3 years
Total Commitment: $ ($ per year)
Start Date: 9/1/98
Components by Year:
Year One:
Integrated Advertising Buy
a) 2.4 (Two million four hundred thousand)
banners/buttons/contextual links per month or 28.8 (twenty-eight
million eight hundred thousand) banners/buttons/links per year to
promote AutoNation sites and product promotion (no third party
with the exception of local dealer network)
b) Monthly "Auto" text impressions on theglobe.com homepage
c) Opt-in Lead Generation of theglobe.com and Auto area pages
d) Monthly inclusion in theglobe.com monthly newsletter
Year Two:
Integrated Advertising Buy
a) Two (2) million banners/buttons/contextual links per month or 24
(twenty-four) million banners/buttons/links per year to promote
AutoNation sites and product promotion (no third party with the
exception of local dealer network)
b) Monthly "Auto" text impressions on theglobe.com homepage
c) Opt-in Lead Generation of theglobe.com and Auto area pages
d) Monthly inclusion in theglobe.com monthly newsletter
Year Three:
Integrated Advertising Buy
a) One million five hundred thousand (1.5) million
banners/buttons/contextual links per month or 18 (eighteen)
million banners/buttons/links per year to promote AutoNation
sites and product promotion (no third party with the exception of
local dealer network)
b) Monthly "Auto" text impressions on
theglobe.com homepage
c) Opt-in Lead Generation of theglobe.com
and Auto area pages
d) Monthly inclusion in theglobe.com monthly newsletter
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
September 15, 1998
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 DEC-31-1997
<CASH> 2,997,391 5,871,291
<SECURITIES> 10,157,830 13,003,173
<RECEIVABLES> 652,059 282,077
<ALLOWANCES> 27,868 27,868
<INVENTORY> 0 0
<CURRENT-ASSETS> 13,855,259 19,128,673
<PP&E> 1,519,901 435,394
<DEPRECIATION> 346,319 109,552
<TOTAL-ASSETS> 15,603,080 19,462,172
<CURRENT-LIABILITIES> 3,403,175 2,011,297
<BONDS> 0 0
0 0
2,900 2,900
<COMMON> 2,395 2,309
<OTHER-SE> 11,565,329 17,346,840
<TOTAL-LIABILITY-AND-EQUITY> 15,603,080 19,462,172
<SALES> 0 0
<TOTAL-REVENUES> 1,173,398 770,293
<CGS> 0 0
<TOTAL-COSTS> 503,181 423,706
<OTHER-EXPENSES> 7,140,624 4,213,739
<LOSS-PROVISION> 0 15,868
<INTEREST-EXPENSE> 30,460 0
<INCOME-PRETAX> (5,797,770) (3,548,300)
<INCOME-TAX> 26,500 36,100
<INCOME-CONTINUING> (5,824,270) (3,584,400)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,824,270) (3,584,400)
<EPS-PRIMARY> (2.51) (1.56)
<EPS-DILUTED> (2.51) (1.56)
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