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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NO.: 0-25053
THEGLOBE.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 14-1782422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
120 BROADWAY
NEW YORK, NEW YORK 10271
(Address of principal executive offices) (Zip Code)
(212) 894-3600
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.001 per share
Preferred Stock Purchase Rights
---------------------------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K [X].
The number of shares outstanding of the Registrant's Common Stock, $.001
par value (the "Common Stock") as of March 20, 2000 was 30,461,575.
Aggregate market value of the voting Common Stock held by non-affiliates of
the registrant as of the close of business on March 20, 2000:
$156,059,000.*
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
The information required by Part III of this report, to the extent not set
forth herein, is incorporated by reference from the registrant's definitive
proxy statement relating to the annual meeting of stockholders to be held
in 2000, which definitive proxy statement shall be filed with the
Securities and Exchange Commission within 120 days after the end of the
fiscal year to which this Report relates.
* Includes voting stock held by third parties which may be deemed
to be beneficially owned by affiliates, but for which such
affiliates have disclaimed beneficial ownership.
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THEGLOBE.COM, INC.
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1. Business.........................................................1
Item 2. Properties......................................................18
Item 3. Legal Proceedings...............................................18
Item 4. Submission of Matters to a Vote of Security Holders.............18
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.............................................19
Item 6. Selected Consolidated Financial Data............................21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......46
Item 8. Consolidated Financial Statements and Supplementary Data........47
Item 9. Changes in and Disagreements with Accountants and
Accounting and Financial Disclosure.............................68
PART III
Item 10. Directors and Executive Officers of the Registrant..............69
Item 11. Executive Compensation..........................................69
Item 12. Security Ownership of Certain Beneficial Owners and
Management......................................................69
Item 13. Certain Relationships and Related Transactions..................69
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.............................................................70
SIGNATURES..................................................................73
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PART I
ITEM 1. BUSINESS
OVERVIEW
theglobe.com ("theglobe" or "the Company") is one of the world's
leading online properties with over 3.6 million registered members in the
United States and abroad. We specialize in delivering "community", which we
define as bringing people together around shared topics of interest. We
deliver "community" through four different streams: (1) our flagship
website, www.theglobe.com, which features the Company's best-of-breed
community products-globeClubs and uPublish!, both of which enable users to
personalize their online experience by interacting with other users around
similar interests; (2) distribution of "customized community solutions" to
strategic partners who desire to include community in their Web properties;
(3) the small business sector through providing web hosting services to
businesses and professional webmasters; and (4) a world leading games
information network. Our games information network includes HappyPuppy,
GamesDomain, KidsDomain, ConsoleDomain, Chips & Bits, Inc. and Strategy
Plus, Inc. (the "Games Network"). In December 1999, our online properties
had 4.7 million unique visitors and a reach of 7.2% of the Internet
according to Media Metrix. Since our inception in May 1995, enhancements to
our core infrastructure capabilities, products and services, as well as
strategic partnerships and acquisitions have enabled us to experience
growth in our user base, reach and revenues.
Our primary revenue source is the sale of advertising, with additional
revenues generated through the development and sale of promotional
sponsorship placements within our websites, the sale of merchandise through
our online store, electronic commerce revenue shares and, to a lesser
extent, membership service fees for the sale of enhanced services. Some of
our prominent advertisers include America Online, Microsoft, Intel,
Coca-Cola, American Express, Disney, AT&T and Hewlett Packard.
Additionally, we have created strategic partnerships with Sportsline.com,
Inc., AOL-UK, Excite-UK, Time Warner's Road Runner, Alloy.com,
DirectHit.com, Deja.com and OneMain.com to distribute our customized
community solutions.
BUSINESS STRATEGY
Our goal is to be the Internet's leading provider of community
solutions. Our business focuses on generating revenue through selling
targeted online advertising and promotional sponsorships on our network of
online properties, e-commerce and direct marketing efforts.
We seek to attain our goal through the following key strategies:
Develop our best-of-breed community solutions and games information
content. We create compelling services and games information content by:
o enabling members and partners to customize their online community
experiences through the use of our community solutions;
o developing loyalty programs to reward members for increased usage
and referrals;
o improving customer support to better service our members and
partners;
o integrating new communication functionality into our uPublish!
and globeClubs products;
o expanding the suite of personal publishing and website building
tools;
o continually monitoring our users' activity and eliciting their
feedback to create future enhancements; and
o developing cutting-edge editorial coverage of computer and video
games.
Distribute our customized community solutions to three types of
customers. Aggregating online communities will benefit our customers as
follows:
o our community partners gain an opportunity to host vibrant online
communities, which enhance the experience of their users, and
promote increased user traffic and loyalty; and
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o our advertising clients and e-commerce customers gain access to
large unduplicated, targeted audiences to whom they can sell
their products and services.
We target three basic customer segments for distribution of our
customized community solutions and games information content:
o BUSINESS TO CONSUMER DIRECT. Consumer direct represents our
traditional customers to whom we offer community solutions that
assist in finding and communicating with people around similar
interests on theglobe.com, our flagship website, and throughout
our world leading Games Network.
o BUSINESS TO BUSINESS. Our consumer indirect segment extends our
community solutions and Games Network to include the audiences of
web properties of our strategic partners. Through these
relationships, our partners take advantage of the strength of our
community tools to retain users and to promote increased site
usage by enabling consumers to find and communicate with people
around similar topics of interest. The users from these aggregate
communities create critical mass of highly targeted audiences for
our partners, end users and advertising customers.
A significant focus of our company in 2000 will be the
distribution of our customized community solutions and Games
Network to additional strategic partners. Our service offerings
consist of the development, hosting and maintenance of co-branded
community solutions for consumer Web properties. We host these
community micro-sites on our central operating system, which
enables us to aggregate members and community discussions from
each of our partners' community sites and makes those discussions
available for real-time or delayed interaction on other community
networks.
We offer integrated solutions for clubs, message boards and
homepage building. We also provide an array of operating and
support services to our partners, including community site
hosting and maintenance, direct customer support and end-user
support. We have designed our central operating system to be
reliable and to handle rapid growth in customer and member
activity. Our central technology enables us to rapidly develop a
partners' community site in a relatively short period of time.
Hosting and maintaining our partners' community sites on our
system significantly reduces our partners need to invest in
additional hardware and software or devote significant
engineering or support resources to develop and maintain their
sites.
These distribution partnerships increase our audience, which, in
turn, significantly increases our ability to sell targeted
advertising to our clients.
o BUSINESS TO SMALL BUSINESS. Through our WebJump.com property, we
offer small business websites hosting services and the ability to
enhance their websites with our leading publishing and
communication applications
PRODUCTS AND SERVICES
globeClubs. globeClubs is a network of web and e-mail based clubs that
allows users to interact around very specific topics of interest.
globeClubs also lends itself to groups who want to use it as a publishing
tool. There are two ways for our users to participate in our e-mail based
club service: (1) the user explores a comprehensive list of current clubs
(categorized in 13 categories and over 4,000 subcategories) joins an
existing group or (2) the user starts a new e-mail club and invites other
members to discuss or debate topics that are not currently part of the
globeClubs list.
The following represents a partial list of features included within
the globeClubs service:
o LIVE CHAT HELP DESK. Technical and general support is available
seven days a week to answer any
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question a user may have regarding the globeClubs service;
o OWNER'S RESOURCE CENTER. We have developed the Leaders Lounge
Club, a place where club owners can learn from experienced
members on what it takes to make a club successful. In addition,
members have access to our community staff, a forum message board
and a chat room;
o CLUB STATISTICS. Each club publishes up-to-date statistics that
allow club members to view a comprehensive display of a club's
status (including information regarding member totals, the number
of messages, frequency of member postings and content
popularity);
o HTML. Club members and owners can put up photos, text and
graphics on a club main page;
o PROMOTION TOOLS. We provide pre-made banners that members can put
on their homepages to promote their clubs;
o ADVANCED SEARCH. Allows members to search for topics, clubs, club
owners, discussion language and age groups;
o PROFILES. Enables users to develop profiles about themselves
describing appearances, hobbies, likes and dislikes, photos and
links to their favorite websites;
o PRIVACY. A club can remain hidden from the general public, where
only club members will find it; and
o SUBSCRIPTION SETTINGS. Members can change where they receive
messages posted to a club. There are 3 ways to subscribe to a
club: Individually (one at a time sent to your email address), by
digest (multiple posts collected in one e-mail) or Web only
(viewing messages on our website).
uPublish! uPublish! is a full service website building solution with
templates, features and functionality from which to choose. We offer a rich
picture gallery (from PictureNow!) and features such as roving chat, audio
chat, headlines, audio messages, and globeClubs information, coupled with
an intuitive design that caters to both the homepage building veteran and
the new user. Users create a wide range of both full sites and individual
pages with a superior tool set and 25 megabytes of disk space available.
Additionally, detailed help screens are available to users through the
entire homepage or website building process. A user may employ uPublish! in
two ways: (1) a user may build a homepage or website of his or her own
filled with personally chosen content or (2) a user may interact with other
users of uPublish! on an existing homepage or website via various audio and
text tools.
The following represents a partial list of features available to
homepage and website builders:
o TEXT. Type in specific messages within uPublish!;
o PICTURES: Upload photos or choose from the multitude of photos
available in our uPublish! photo gallery;
o CLIP ART: A complete gallery of clip art is available;
o BULLETED LISTS: Create a bulleted list of information to include
about a given subject, such as listing statistics, facts, quotes
or any other relevant information;
o ROVING CHAT: Add a feature to their site, enabling people who are
simultaneously browsing the site to communicate with one another;
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o CONTACT INFORMATION: Add demographic information about themselves
to allow other users to reach them;
o COUNTER: Add a counter (in analog or digital format) to their
site to see how many people have visited;
o DATES: Add a list of important dates to their site, such as a
schedule of games or playoff dates;
o EMAIL LINK: Set up a link to allow others to send them email,
with their email address already embedded inside;
o GUESTBOOK: This allows visitors to post messages to the owner of
a homepage or website via signing a guestbook;
o HEADLINES: Add a variety of content feeds to their site;
o SITE LINKS: Add a section of specific links to their pages
including other websites;
o LIVE VOICE CHAT: Add a live voice chat room to their websites.
Visitors can talk to the site builder or to each other via HearMe
technology. This function can also be executed as text chat;
o MY CLUBS: Add links to the globeClubs to which they belong;
o POLL: Create their own poll, with up to four possible responses.
Statistics are shown to allow users to see vote split in
percentages;
o GIFT REGISTRY INFORMATION: Add information about the gifts they
would like to receive, as well as the stores at which they are
registered;
o SEARCH: Add the ability to search their site or other Web
properties for additional information;
o SELL YOUR PERSONAL DIGITAL CONTENT: Sell their own digital
content right on their sites, done in partnership with WAVE;
o CALENDAR: Add their personal schedule to their sites;
o PROMOTION: A number of promotional tools can be added to member
homepages and websites. These include joining a free ad banner
exchange network, submitting pages or sites to major search
engines, categorizing one's page or site for promotion within
theglobe community and emailing friends and family once a page or
site has been created;
o HTML: If users prefer to write their own HTML, they are provided
with an online editor to assist them through the process; and
o FILES: uPublish! offers homepage and website builders a file
manager to manage all files that are created. Files can be viewed
on both the directory and subdirectory levels.
BUSINESS TO BUSINESS RELATIONSHIPS
We have a number of strategic distribution relationships to provide
partners with our customized community solutions. These relationships
provide us with a cost-effective method of aggregating critical mass in
highly targeted audiences without incurring significant marketing or
infrastructure costs. Some of our premier
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partners include, but are not limited to, the following:
o Sportsline.com, Inc. We develop and operate community services
for CBS Sportsline, a leader in global Internet sports media.
o Time Warner's Road Runner. Road Runner is one of the nation's
leading providers of high speed online service. We provide our
Games Network and message boards to Road Runner's 650,000
subscribers.
o Excite UK. GamesDomain, a games publication within the Games
Network, provides comprehensive games information content to
Excite UK, one of the UK's leading web portals.
o OneMain.com. OneMain.com, an Internet Service Provider in smaller
metropolitan markets and rural communities, offers our co-branded
customized community solutions to its approximately 600,000
subscribers.
o Alloy.com. This website focuses on teen community and commerce
and will feature uPublish!, our website and homepage building
solution.
o DirectHit.com. A search technology provider owned by Ask Jeeves,
DirectHit.com will offer our globeClubs service through text link
to its users.
o AOL UK. We provide game downloads to AOL UK's approximately
600,000 members.
o Chaitime.com. Chaitime.com, a South Asian online community, will
offer a private label version of uPublish! and globeClubs, as
well as our message boards functionality, to its users.
o Deja.com. Deja.com, a consumer decision-making decision Web
property, and we agree to cross distribute and promote one of
each others core services, Deja Ratings and globeClubs,
respectively.
In addition to our agreements to distribute our community
solutions to strategic partners, we have various strategic relationships
with certain entities to provide content on our site. Some of these
partners include HotJobs.com, Reuters news service, CBS Marketwatch, Dr.
Koop.com, Isyndicate, Mortgage IT and E!Online.
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ADVERTISING CUSTOMERS
We had over 4.7 million unique users and a reach of 7.2% of the
Internet according to the December 1999 Media Metrix report. Additionally,
we have over 3.6 million registered members in the United States and abroad
with an additional 600,000 registered members related to our Webjump
property. We have attracted mass market consumer product companies as well
as technology-related businesses to advertise on our sites. We believe that
our core community and Games Network, as well as our numerous distribution
partners, make us well positioned to capture a portion of the growing
number of consumer product and service companies advertising online.
In 1999, no single advertiser accounted for more than 10% of total
revenues and approximately 70% of our advertisers were repeat customers.
For the twelve months ended December 31, 1999, approximately 470 clients
advertised on our sites running over 700 individual advertising campaigns.
Some of our advertising clients include:
Ameritrade CNET Intel Pepsi
American Express Dell Computers Kellogg's Brands Sprint
AOL Disney Kodak Sony
AT&T Dunkin' Donuts Lee Jeans 3Com
BellSouth EA Sports Levi's US West
Coca Cola Hewlett Packard Microsoft Warner Brother's
CNBC Hilton Office Depot Visa
ADVERTISING SALES AND DESIGN
We distinguish ourselves from our competition by creating unique
advertising and sponsorship opportunities designed to build brand loyalty
for our corporate sponsors by seamlessly integrating their advertising
messages into our different sites' content, as well as delivering targeted
messages to our users' desktop. By aggregating users around common
interests, we increase the ability to target these groups of users through
traditional web based advertising opportunities as well as direct marketing
initiatives that target the user off the web using their e-mail client.
We can deliver targeted advertising within different vertical areas of
our sites, allowing advertisers to single out and effectively deliver their
messages to their targeted audiences. We have the ability to target
specific demographic data, which include, but are not limited to, age,
gender, product, sub-vertical categorization and country. We believe that
sophisticated targeting is a critical element for capturing worldwide
advertising budgets for the Internet. Additionally, we have been expanding
the amount and type of demographic data we collect (all voluntarily
provided by our users), which allows us to offer more specific data to our
advertising clients for promotion of their products both online and
offline.
While our competition generally provides banner advertising as its
primary advertising option, we believe that our competitive advantage to
garnering significant advertising revenue lies in the flexibility of our
advertising options. We offer an assortment of advertising units and
advertising programs to ensure that our customers meet their needs. We
offer clients the following forms of advertising, which can be purchased
individually, in assorted combinations or in pre-defined packages:
o Banner advertising o Sweepstakes
o Five sizes of button o Affinity packages for
advertising advertising partners
o Text links o Direct marketing and lead
o Three sizes of pop-up generation, if users have
advertisements opted in to these programs
o Full page advertisements o List services for third
o Various sponsorship programs party direct marketing
o Market research for
advertising campaigns
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We have an internal advertising sales staff of approximately 32
professionals. These professionals focus on selling advertisements on our
websites and developing long-term strategic relationships with clients. A
significant portion of our sales personnel's compensation is commission
based. We have sales offices in New York City, Chicago, San Francisco and
London and intend to open additional sales offices in selected markets
around the world.
MARKETING AND PROMOTIONS
In 1999, we committed approximately $8.7 million to offline and online
media advertising. In November 1999, we launched an extensive television
advertising campaign to promote two new core products: uPublish!, our state
of the art personal publishing tool and globeClubs, a network of web and
e-mail based clubs that allows users to interact around very specific
topics of interest. During 1999, we used online and offline media to
generate brand awareness and registrations for our service. For the year
ended December 1999, we generated approximately 1.2 million new
registrations for our properties. Additionally, we increased our membership
base by over 600,000 members from our acquisition of WebJump.com in
November 1999. Our online marketing efforts were focused on:
o generating additional traffic to our sites,
o building and defining a desirable online destination in the minds
of present and potential online consumers, and
o creating a strong and viable brand within the Internet and
advertising industries.
In 2000, we intend to continue our marketing efforts. The dollars allocated
to marketing will primarily be used to secure distribution partnerships as
well as to continue to build traffic and our individual website brands.
TECHNOLOGY
Our strategy is to operate our business through the application of
existing technologies. The various features of our online environment are
implemented using a combination of off-the-shelf and proprietary software
components. Whenever possible, we favor licensing and integrating
"best-of-breed" technology from industry leaders, including Oracle, Sun
Microsystems and Microsoft. We believe that this component approach is more
manageable, reliable and scalable than single-source solutions. In
addition, our emphasis on commercial components accelerates our development
time. We believe that this is an advantage in our rapidly evolving market.
In addition to being scalable, our system has many redundancies, which
benefits us if our systems experience operating difficulties. Our servers
are connected to the Internet through a combination of links provided
through three separate carriers: AppliedTheory, UUNET and AT&T. This
approach to connectivity allows us to continue operations in the event of a
failure in any carrier. We plan to continue to upgrade our systems as
necessary to conform to our business plan. Our system allows us to roll out
upgrades incrementally on an as-needed basis.
To efficiently manage our systems, we have developed highly automated
methods of monitoring the performance of each system component. If any
subsystem fails, the failed subsystem is taken out of service and requests
are distributed among the remaining operational systems. We have also
developed tools to perform routine management tasks such as log processing
and content updates in an automated, remote-controlled fashion. We believe
that our investment in automation lessens the need for the additional
personnel that would otherwise be required to support the system as it
grows.
Our data processing systems and servers are hosted at the New York
Teleport in Staten Island, New York under a three year lease with Telehouse
International Corporation. The New York Teleport facility provides
security, electricity and premises for our systems. The facility has four
independent diesel generators designed to provide power to these systems
within seconds of a power surge. If required, the diesel generators can
supply the data center's power for several days. Telehouse International
Corporation does not guarantee that our Internet access will be
uninterrupted, error-free or secure.
We maintain additional server equipment at Exodus Communications,
Inc.'s facility in Seattle, Washington. Exodus provides and manages power,
environmentals and connectivity to the Internet through multiple links on a
24 hour-a-day, seven days per week basis. Exodus does not guarantee that
our Internet
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access will be uninterrupted, error-free or secure.
COMPETITION
Competition among community-focused sites is growing rapidly, as new
companies continue to enter the market and existing companies continue to
layer community applications onto their sites. We expect that the market
will continue to evolve rapidly, and the rate of product innovations and
new product introductions will remain high.
Barriers to entry are relatively insubstantial and we face competitive
pressures from many companies, both in the United States and abroad. With
the abundance of companies operating in this market, consumers and
advertisers have a wide selection of community services to choose from. In
order to remain competitive for consumers and the advertising and
e-commerce revenue each user represents, we must maintain a concerted
effort to continually develop new offerings, refine our core products and
enter into successful distribution agreements.
We believe that in order to attract new users and retain existing
ones, we need to:
o Educate users and other Web properties on the benefits of
community, specifically theglobe.com community;
o Maintain functional, intuitively-designed websites;
o Foster our brand image in the marketplace;
o Offer our users best-of-breed services both developed in-house
and via third-party relationships;
o Maintain a broad demographic focus, with a wide content and
service appeal to the largest possible audience; and
o Maintain a sizable, vibrant audience, enabling users to find
other users with similar interests (thereby increasing each
user's likelihood to participate in theglobe.com community.)
As an outsourced community solutions provider, we compete for business
relationships with software and service firms such as PeopleLink, Urbanite,
Homepage.com and TalkCity.
As a leading community destination site, we compete for users and
advertisers with:
o Stand-alone online discussion services and web-based clubs such
as Egroups, Ecircles, Deja.com and TalkCity;
o Stand-alone online publishing and homepage hosting sites such as
Homestead, FortuneCity and NetTaxi; and
o Multi-focused media sites offering either one or both of the
above services, such as Yahoo!, Lycos, NBCi, Microsoft's MSN,
America Online and Disney's Go Network.
As one of the largest games information properties on the Web, our
Games Network competes for users and advertisers with:
o Games information sites and communities such as Snowball's IGN,
ZDnet's Gamespot, and CNET's GameCenter; and
o Online games centers, where users can play games such as Uproar,
Pogo and Lycos' Gamesville.
As a leading community for children, our KidsDomain site competes for
users and advertisers with
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children-focused communities and sites such as Nick.com and Children's
Television Workshop.
As a business-to-business web hosting service, our Webjump property
competes with:
o Other free business hosting services such as Go2Net's Hypermart
and FreeYellow; and
o Fee-based business hosting services such as AT&T Small Business
Hosting and Yahoo's SimpleNet.
Many of our existing competitors, as well as a number of potential
competitors, may have the following advantages:
o Longer operating histories in the Internet market;
o Larger market presence;
o Larger customer bases; and
o Greater financial, technical, and marketing resources.
In addition, many companies involved in the community services market
may be acquired by, receive investments from, or enter into commercial
relationships with larger, well-established and well-financed companies. In
the past year, Xoom.com entered into a strategic relationship with NBC,
Yahoo! completed its acquisition of Geocities, and Egroups merged with
ONEList. These acquisitions and alliances may pose competitive advantages
for our competitors through combined marketing efforts, increased capital
and combined user bases. As a result of this highly competitive market,
these consolidations and strategic ventures may continue in the future.
We believe that the number of Internet businesses relying on
advertising revenue will continue to grow, as will the total amount of
advertising conducted on the Web. We believe that in order to garner the
greatest share of advertising expenditures, we must continue to:
o Maintain brand visibility in the advertisement buying community;
o Attract a high volume of traffic to our sites;
o Cover a broad range of topics with our sites' information
content;
o Appeal to a wide-ranging demographic;
o Offer advertisers the ability to precisely target our highly
segmental audience;
o Accurately determine the most profitable and competitive price
points for our various advertising packages; and
o Prove to advertisers the efficacy of advertising to our targeted
audience.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We regard substantial elements of our site and underlying technology
as proprietary. We attempt to protect them by relying on intellectual
property laws. We also generally enter into confidentiality agreements with
our employees and consultants and in connection with our license agreements
with third parties. We also seek to control access to and distribution of
our technology, documentation and other proprietary information. Despite
these precautions, it may be possible for a third party to copy or
otherwise obtain and use our proprietary information without authorization
or to develop similar technology independently.
We pursue the registration of our trademarks in the United States and
internationally. Our efforts include:
o The registration of a United States trademark for THEGLOBE.COM
and THEGLOBE (logo);
o The filing of United States trademark applications for BUILD A
WORLD AROUND YOU, GLOBECLUBS, SHOP.THEGLOBE.COM and TGLO;
o The registration of THEGLOBE (logo) in the European Union,
Israel, New Zealand and Norway; and
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o The filing of trademark applications for THEGLOBE (logo) in
Australia, Brazil, Canada, China, Hong Kong, Japan, Russian
Federation, Singapore, South Africa, Switzerland and Taiwan.
Additionally, Attitude Network has filed applications to register
HAPPY PUPPY (logo) and KIDS DOMAIN (logo) in the United States, Canada, and
the European Union. Attitude Network has registered GD GAMES DOMAIN (logo)
in the United Kingdom and has applied to register GAMES DOMAIN (logo) in
Canada, China and the European Union.
theglobe.com is implementing a patent strategy designed to create
barriers to entry to potential competitors. We have filed a number of
patent applications with the United States Patent & Trademark Office
covering various aspects of the business and are working with our patent
counsel on additional patents for inclusion in our patent portfolio. While
our strategy is meant to create effective barriers to entry for others into
our markets, the scope of our patents will not be determined until final
action is taken by the United States Patent & Trademark Office.
Effective trademark, service mark, copyright, patent and trade secret
protection may not be available in every country in which our services are
distributed or made available through the Internet. Policing unauthorized
use of our proprietary information is difficult. Existing or future
trademarks or service marks applied for or registered by other parties and
which are similar to ours may prevent us from expanding the use of our
trademarks and service marks into other areas. See "Risk Factors--We rely
on intellectual property and proprietary rights."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
We are subject to laws and regulations that are applicable to various
Internet activities. There are many legislative and regulatory proposals
under consideration by federal, state, local and foreign governments and
agencies, including matters relating to:
o online content;
o online gambling;
o Internet privacy;
o Internet taxation;
o access charges;
o liability for information retrieved from or transmitted over the
Internet;
o unsolicited commercial email messages;
o domain names; and
o jurisdiction.
New laws and regulations may increase our costs of compliance and
doing business, decrease the growth in Internet use, decrease the demand
for our services or otherwise have a material adverse effect on our
business.
ONLINE CONTENT
General Restrictions on Transmitting Indecent and Obscene Content.
Several federal and state statutes generally prohibit the transmission of
indecent or obscene information and content, including sexually explicit
information and content. The constitutionality of some of these statutes is
unclear at this time. For example, on the one hand in 1997 the Supreme
Court of the United States held that selected parts of the Federal
Communications Decency Act of 1996 imposing criminal penalties for
transmitting indecent and patently offensive content were unconstitutional.
On the other hand, many other provisions of the Communications Decency Act,
including those relating to obscenity, remain in effect. For example, on
April 19, 1999, the Supreme Court summarily affirmed a lower court decision
holding that selected parts of the Communications Decency Act imposing
criminal penalties for transmitting indecent comments or images with an
intent to annoy was constitutional, as long as those comments or images
were also obscene.
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Restrictions on Transmitting Indecent and Obscene Content to Minors.
Other federal and state statutes specifically prohibit transmission of
certain content to minors. The Child Online Protection Act, which became
effective in November, 1998, requires websites engaged in the business of
the commercial distribution of material that is deemed to be obscene or
harmful to minors to restrict minors' access to this material. However, the
Child Online Protection Act exempts from liability telecommunications
carriers, Internet service providers and companies involved in the
transmission, storage, retrieval, hosting, formatting or translation of
third-party communications where these companies do not select or alter the
third-party material. On February 1, 1999, a federal district court in
Pennsylvania entered a preliminary injunction preventing enforcement of the
harmful-to-minors portion of the act. The provisions of the act relating to
obscenity, however, remain in effect. On April 2, 1999, the Justice
Department appealed the federal district court's decision to the Third
Circuit Court of Appeals. The Third Circuit has not yet handed down its
decision in this case. A similar state statute in New Mexico has been found
unconstitutional by the Tenth Circuit of Appeals.
Content Filters. Congress, selected states, and some municipalities
have proposed, or are currently considering, mandating the use of content
filters in public libraries and schools to restrict access to certain
materials available through the Internet. In Loudoun County, Virginia, a
content filter policy was adopted by the county library board in 1997 and
was later found to be unconstitutional by a federal district court. The
adoption of content filters in public libraries and schools may render
certain parts of our websites inaccessible to end users, affecting our
advertising revenues.
Consumer Fraud and Advertising. Some 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 statutes is
unclear at this time.
GAMBLING
The U.S. Department of Justice and some state Attorneys General have
intensified their efforts in taking action against businesses that operate
Internet gambling activities. In the current Congress, a bill is pending
that, if enacted, would prohibit placing or receiving a bet via the
Internet in any state. Even in the absence of new legislation directed
specifically at Internet-based gambling, existing federal and state
statutes criminalize some gambling activities. In June 1999, a federal
commission ordered to study the economic and social effects of gambling
issued a report recommending a broad ban on Internet gambling. In July
1999, a New York Supreme Court held that state gambling laws applied to an
offshore Internet casino whose computer servers were located and licensed
in Antigua. Online gambling advertisers accounted for under ten percent of
our advertising revenues in 1999.
PRIVACY
Several privacy laws and regulations have been adopted relating to the
collection, use, and disclosure of personally identifiable information. Any
additional legislation or regulations relating to consumer privacy or the
application or interpretation of existing laws and regulations could affect
the way in which we are allowed to conduct our business, especially those
aspects that contemplate the collection or use of our members' personal
information.
Children's Online Privacy Protection Act. In October 1998, the
Children's Online Privacy Protection Act was signed into law. The law
directs the Federal Trade Commission to develop regulations governing the
collection of data from children by commercial website operators. On
October 20, 1999, the FTC issued its final regulations. The regulations
apply to commercial websites directed to, or that knowingly collect
information from, children under 13. The rule becomes effective April 21,
2000.
Under the rule, these websites, with certain exceptions, would have to
obtain parental consent before collecting, using, or disclosing personal
information from children. This consent, with certain exceptions, would
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have to be verifiable. Verifiable consent means any reasonable effort,
taking into consideration available technology, to ensure that parents of
children from whom information is sought receive notice of the website
operator's personal information collection, use, and disclosure practices
and that authorizes the collection, use, and disclosure of the information.
Certain less secure methods of obtaining consent such as e-mail will be
permissible for two years and only for internal uses. Information collected
for disclosure to third parties will require more secure methods such as
use of a credit card, toll-free number, digital signature, or e-mail that
is sent along with a password or a personal identification number. Websites
must also give parents a choice as to whether their child's information can
be disclosed to third parties, and give parents a chance to prevent further
use or future collection of personal information from their child. Parents
must also, upon request, be given a means of reviewing the personal
information collected from their child.
The statute includes a "safe harbor" program for industry groups or
others who wish to create self-regulatory programs to govern participants'
compliance. The rule outlines the process by which industry groups and
others may obtain certification of their guidelines. One safe harbor
application is currently pending before the FTC.
We currently require parental consent before allowing people who
identify themselves as being 12 or younger to become members of
theglobe.com website and to post any data in our chat rooms, forums, and
similar discussion groups. We are reviewing our current parental consent
practices and expect to have a verifiable consent mechanism in place by the
effective date of the rule.
Gramm-Leach-Bliley Act. In November 1999, the Gramm-Leach-Bliley Act
("GLBA") was signed into law. The GLBA contains certain privacy provisions
which require, among other things that, entities that qualify as financial
institutions under the act (which potentially may cover entities engaged in
a wide range of businesses) to provide individuals with a notice of their
privacy policies before entering into a customer relationship and to
prohibit the transfer of certain information regarding individuals who
obtain a financial service from such an entity to an unaffiliated third
party, subject to certain exceptions, unless the individual has been given
the opportunity to opt out of such sharing of their information. The FTC,
along with other federal agencies, has proposed rules to implement the GLBA
privacy provisions. The FTC proposed rule has requested comment on the
types of entities that may be deemed to be financial institutions. The
proposed rules are expected to become effective in November 2000. We will
be monitoring this rule making process to determine what impact, if any, it
may have on our business.
Other Federal Privacy Bills. Several other privacy bills have been
introduced in the current Congress. We cannot predict the exact form of any
legislation that the Congress might enact. Accordingly, we cannot assure
you that our current practices will comply with any legislative scheme that
Congress ultimately adopts or that we will not have to make significant
changes to comply with such laws.
FTC Reports. 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
been adequate. The report listed four core information practices that the
FTC believes must be part of any privacy protection effort: notice, choice,
access and security. In July 1999, the FTC issued a second report in which
it concluded that legislation to address online privacy was not appropriate
at that time.
FTC Enforcement Activity. The Federal Trade Commission Act prohibits
unfair and deceptive practices in and affecting commerce. The FTC Act
authorizes the FTC to seek injunctive and other relief for violations of
the FTC Act, and provides a basis for government enforcement of fair
information practices. For instance, failure to comply with a stated
privacy policy may constitute a deceptive practice in some circumstances
and the FTC would have authority to pursue the remedies available under the
Act for any violations. Furthermore, in some circumstances, the FTC may
assert that information practices may be inherently deceptive or unfair,
regardless of whether the entity has publicly adopted any privacy policies.
The FTC has begun investigations into the privacy practices of
companies that collect information on the Internet. For example, on
February 12, 1999, the FTC made final a consent order with one of our
competitors in connection with that competitor's online collection of
personally identifiable data and its subsequent use of that data.
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Similarly, on August 12, 1999, the FTC entered into a final consent order
with the operator of a website directed to children and teens that focuses
on issues relating to money and investing. The FTC alleged that the site
falsely represented that personal information collected from children in a
survey would be maintained anonymously, and that the participant would be
sent an e-mail newsletter as well as prizes. The FTC's action was
predicated on its allegation that the personal information about the child
and family finances were in fact maintained in an identifiable manner. The
order prohibits such alleged misrepresentations in the future and requires
the operator to post a privacy notice on its sites directed toward children
and obtain verifiable parental consent before collecting personally
identifiable information from children.
DoubleClick, Inc. has disclosed that the FTC is investigating its
advertisement and data collection practices. In 1999, DoubleClick purchased
Abacus Direct Corp., an owner of a database containing consumers' offline
catalogue purchasing behavior. Shortly thereafter, DoubleClick announced
its intention to link the personal identities of consumers in the Abacus
database to the other information and anonymous data it collects about
Internet users in the ordinary course of its business. This announcement
was opposed by a number of privacy groups, including the Electronic Privacy
Information Center, who petitioned the FTC to begin an investigation.
Although DoubleClick has announced that it would refrain from linking the
personal identities with the other information and anonymous data until the
government and industry can agree on a set of privacy standards, the
investigations are ongoing.
The attorneys general of New York and Michigan have also announced
that they are investigating DoubleClick. The attorney general of Michigan
has sent a notice of intended action to DoubleClick. That notice of
intended action is a formal warning that sometimes precedes the filing of a
formal lawsuit.
We are continuing to review our privacy practices in light of FTC
enforcement activity. We cannot assure you that the FTC's activities in
this area will not adversely affect our ability to collect demographic and
personal information from members, which could have an adverse effect on
our ability to attract advertisers. This could have a material adverse
effect on us.
Voluntary Self-Regulation. Some industry groups and other
organizations have proposed, or are in the process of proposing, various
voluntary standards regarding the treatment of data collected over the
Internet. In order to improve user and member confidence in our site, we
revised theglobe.com website user agreement and privacy policy and became a
licensee of the TRUSTe Privacy Program. As a TRUSTe licensee, we have
agreed to adhere to certain established privacy principles for theglobe.com
website as well as to comply with TRUSTe's oversight and consumer
resolution process. theglobe.com website privacy policy now sets forth what
personal information is being collected, how it will be used, with whom it
will be shared, who is gathering the information, what options the user
has, what security procedures are in place to prevent misuse or loss, and
how users can correct information to control its dissemination. We may
choose to join other organizations that require us to comply with other
privacy principles. We may incur expenses in obtaining the endorsement of
these organizations or in altering our current policies to comply with
these privacy principles. We cannot assure you that the adoption of
voluntary standards will preclude any legislative or administrative body
from taking governmental action regarding Internet privacy.
European Union Privacy Directive. At the international level, the
European Union adopted a directive that requires EU member countries to
impose restrictions on the collection and use of personal data, effective
October 25, 1998. Among other provisions, the directive generally requires
member countries to prevent the transfer of personally-identifiable data to
countries that do not offer equivalent privacy protections. At present, the
EU has indicated that the United States does not provide protections
equivalent to that of the directive. The directive could, among other
things, affect United States companies that collect information over the
Internet from individuals in EU member countries, and may impose
restrictions that are more stringent than current Internet privacy
standards in the United States. In response to the directive, on November
4, 1998, the U.S. Department of Commerce published for comment a set of
safe harbor principles regarding privacy protection for personally
identifiable data. These principles were revised on April 19, 1999. The
Commerce Department proposed that organizations that come within the safe
harbor would be presumed to maintain an adequate level of privacy
protection and could continue to receive personal data transfers from EU
member countries. The draft safe harbor provides for:
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o notice regarding the organization's intended use of personal
data;
o the opportunity for an individual to choose how the organization
or a third party will use personal information;
o requirements regarding the security and integrity of personal
data and access by an individual to data regarding that
individual; and
o mechanisms for ensuring an organization's compliance with the
privacy principles.
The Commerce Department and the EU are engaged in ongoing discussions
about the application of the directive to United States companies. On March
14, 2000, the Commerce Department and the EU jointly announced that an
arrangement had been reached. The EU Parliament and the EU member states
must approve the arrangement before it can be implemented. The Commerce
Department has urged these entities to approve the arrangement prior to the
June 2000 U.S.-EU Summit. We own some websites operated in the U.K. that
collect personally identifiable data. We are continuing to review our
privacy policies and practices in light of the directive and the proposed
safe harbor. We cannot assure you that the U.S. and EU's activities in this
area will not adversely affect our ability to collect demographic and
personal information from members, which could have an adverse affect on
our ability to attract advertisers. This could have a material adverse
effect on us.
INTERNET TAXATION
United States. Governments at the federal, state and local level, and
some foreign governments, have made a number of proposals that would impose
additional taxes on the sale of goods and services and various other
Internet activities. In 1998, the federal Internet Tax Freedom Act was
signed into law, placing a three-year moratorium on state and local taxes
on Internet access and on multiple or discriminatory taxes on electronic
commerce. However, this moratorium exempts existing state or local laws.
The statute also created a commission, known as the Advisory Commission on
Electronic Commerce to study several Internet taxation issues. The Advisory
Commission must submit its findings to Congress no later than April 21,
2000. In addition, bills have been introduced in the Senate and the House
proposing that the three-year moratorium be made permanent. We cannot
assure you that future laws imposing taxes or other impositions on Internet
commerce would not substantially impair the growth of Internet commerce and
as a result materially adversely affect our business.
World Trade Organization. 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 the
government should impose no new taxes 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. On
November 11, 1999, Congress passed a concurrent resolution urging the U.S.
to seek a global consensus supporting a moratorium on tariffs and on
special, multiple and discriminatory taxation of e-commerce. We cannot
assure you that foreign countries will not seek to tax Internet
transactions or will show similar support of such a moratorium.
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. Incumbent local exchange telephone carriers have in the past
petitioned the FCC to regulate Internet service providers in a manner
similar to long-distance telephone carriers and to impose interstate access
charges on Internet service providers. In May 1997, however, the FCC
confirmed that Internet service providers will continue to be exempt from
interstate access charges. In August 1998, the Eighth Circuit Court of
Appeals upheld the FCC's authority to maintain the exemption.
In February 1999, the FCC adopted an order concerning payment by
incumbent local exchange carriers of reciprocal compensation for dial-up
calls to Internet service providers that obtain their local telephone
service from
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competitive local exchange carriers. The FCC found that Internet traffic is
largely interstate, and therefore subject to the FCC's jurisdiction,
because end user calls to Internet service providers do not terminate at
the Internet service providers' servers, but continue to Internet locations
that often are outside the state or country in which the call originates.
Although the FCC stated that the order does not require Internet service
providers to pay access charges for calls placed through their services,
the order does provide further support for a possible, ultimate finding
that access charges must be paid for at least some categories of Internet
services, such as Internet-based voice telephony.
If the FCC were to withdraw the exemption or take other action
responding to telecommunications carrier concerns, the costs of
communicating through the Internet could increase substantially,
potentially slowing the growth in Internet use. This could decrease demand
for our services or increase our cost of doing business.
LIABILITY FOR INFORMATION RETRIEVED FROM OR TRANSMITTED OVER THE
INTERNET
Liability issues relating to information retrieved or transmitted over
the Internet include claims for copyright or trademark infringement,
defamation, unsolicited electronic mail, negligence, or other claims based
on the nature and content of these materials.
Copyright. In October 1998, the Digital Millennium Copyright Act,
whose Title II contains the Internet Copyright Infringement Liability
Clarification Act, was signed into law. This statute provides that, under
some circumstances, a service provider would not be liable for any monetary
relief, and would be subject to limited injunctive relief, for claims of
infringement, based on copyright materials transmitted by users over its
digital communications network or stored on its systems or under the
control of or connected to its systems. This statute also provides that,
under some circumstances, a service provider would not be liable for any
claim if the service provider acted in good faith to remove access to the
infringing material. With respect to infringement caused by storing
material on a system or network, in order to benefit from the protections
of the act, a service provider must appoint a designated agent to receive
notifications of claimed infringement and must provide information about
that agent to the U.S. Copyright Office and to the public in a publicly
accessible place on the service. We have appointed a designated agent to
receive notifications of claimed infringement on theglobe.com website, have
provided that information to the Copyright Office, and made it available to
the public on the site.
Defamation. The Communications Decency Act of 1996 provides that no
provider or user of an interactive computer service shall be treated as the
publisher or speaker of any information provided by another information
content provider.
Revenue Sharing. We sell products directly to consumers and we also
enter into agreements with commerce and service partners and sponsors under
which we are entitled to receive a share of the revenue from the purchase
of goods and services through direct links from our site. These
arrangements may expose us to additional legal risks, including potential
liabilities to consumers by virtue of our involvement in providing access
to these products or services, even if we do not ourselves provide these
products or services. Some of our agreements with these parties provide
that these parties will indemnify us against liabilities. However, we
cannot assure you that this indemnification will be enforceable or
adequate. Although we carry general liability insurance, our insurance may
not cover all potential claims or liabilities to which we are exposed. Any
imposition of liability that is not covered by insurance could have a
material adverse effect on our business.
Materials may be downloaded and publicly distributed over the Internet
by the Internet services operated or facilitated by us. Future legislation
or regulations or court decisions may hold us liable for listings and other
content accessible through our website, for content and materials posted by
members on their respective personal web pages, for hyperlinks from or to
the personal web pages of members, for content and materials transmitted by
members in e-mail clubs, or through content and materials posted in our
chat rooms or bulletin boards. Liability might arise from claims alleging
that, by directly or indirectly providing hyperlinks to websites operated
by third parties or by providing hosting services for members' sites, we
are liable for copyright or trademark infringement or other wrongful
actions by these third parties. If any material on our website contains
informational errors, someone might sue us for losses incurred in reliance
on the erroneous information. We attempt to reduce our exposure to
potential liability through, among other things, provisions in member
agreements, user policies, insurance and
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disclaimers. however, the enforceability and effectiveness of these
measures are uncertain. Future legislation or regulation in the area of
liability for information received from or transmitted over the Internet
could decrease the growth of Internet use. These factors could decrease the
demand for our services. We may also incur significant costs in
investigating and defending against these claims.
UNSOLICITED COMMERCIAL ELECTRONIC MAIL
Some states have adopted laws that address unsolicited commercial
e-mail or "spamming." The federal government and other states, including
New York, are considering, or have considered, similar legislation.
California has adopted a law permitting electronic mail service
providers to sue parties who initiate unsolicited commercial messages in
violation of its e-mail policy, if the initiator has notice of that policy.
California also requires unsolicited e- mail advertisements to include
opt-out instructions with a toll-free telephone number or a valid return
address in the e-mail and requires senders of unsolicited e-mail
advertisements to honor opt-out requests. California also imposes criminal
penalties on parties who knowingly use Internet domain name of another
party to send one or more messages where such messages damage or cause
damage to a computer, computer system, or computer network. Similarly,
under Virginia law, it is a crime to send unsolicited bulk e-mail
containing false message headers or to sell software designed to do so, and
civil penalties can be imposed for injuries caused by unsolicited bulk
e-mail. Under Washington law, recipients of unsolicited commercial e-mail
containing false headers and misleading subject lines can bring lawsuits
seeking damages of up to $500.00.
A third party provides our e-mail service. Potential liability for
information disseminated through our systems could lead us to implement
measures to reduce our exposure to liability. This could require the
expenditure of substantial resources and limit the attractiveness of our
services. We attempt to reduce our exposure to potential liability through,
among other things, provisions in member agreements, user policies and
disclaimers. However, the enforceability and effectiveness of these
measures are uncertain.
DOMAIN NAMES
Domain names have been the subject of significant trademark litigation
in the United States. The current system for registering, allocating and
managing domain names has been the subject of litigation and is currently
subject to regulatory reform.
We have registered several domain names, including "theglobe.com,"
"shop.theglobe.com," "tglo.com," "happypuppy.com," "realmx.com,"
"kidsdomain.com" "gamesdomain.com," "webjump.com," and "cdmag.com." We
cannot assure you that third parties will not bring claims for infringement
against us for the use of these names. Moreover, because domain names
derive value from the individual's ability to remember the names, we cannot
assure you that our domain names will not lose their value if, for example,
users begin to rely on mechanisms other than domain names to access online
resources. We cannot assure you that our domain names will not lose their
value, or that we will not have to obtain entirely new domain names in
addition to or in place of our current domain names.
JURISDICTION
Due to the global reach of the Internet it is possible that the
governments of other states and foreign countries might attempt to regulate
Internet activity and our transmissions. Our facilities are located
primarily in New York, California, and Washington. Additionally, we own
websites, which are based in the United Kingdom and are subject to some
regulation under U.K. law. Consequently, foreign countries may take action
against us for violations of their laws. We cannot assure you that
violations of these laws will not be alleged or charged by state or foreign
governments and that these laws will not be modified, or new laws enacted,
in the future. Any actions of this type could have a material adverse
effect on our business.
OTHER
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America Online has disclosed that the Department of Labor is
investigating the applicability of the Fair Labor Standards Act to its
Community Leader program. AOL's Community Leaders perform tasks such as
answering questions from subscribers, supervising chat rooms and enforcing
community rules. AOL has stated that it believes its Community Leader
program reflects industry practices, that its Community Leaders are
volunteers, not employees, and that its actions comply with law. AOL has
also stated that it is cooperating with the DOL, but is unable to predict
the outcome of the DOL's investigation. AOL has also disclosed that former
volunteers have brought a class-action suit against AOL alleging violations
of the FLSA and comparable state statutes. We have also implemented a
community leader program. We believe that the AOL program differs from our
program in several significant respects. However, we cannot predict the
outcome of this investigation or lawsuit, or their effect on our business.
EMPLOYEES
As of December 31, 1999, we had approximately 220 full-time employees,
including approximately 35 employees related to our shop.theglobe.com
operations and 40 employees related to our operations of our Games Network.
The 145 employees related to the operations of theglobe.com consisted of 46
employees in sales and marketing, 47 employees in product development, 14
employees in technology and 38 employees in finance and administration. Our
future success depends, in part, on our ability to continue to attract,
retain and motivate highly qualified technical and management personnel.
Competition for these persons is intense. From time to time, we also employ
independent contractors to support our research and development, marketing,
sales and support and administrative organizations. Our employees are not
represented by any collective bargaining unit and we have never experienced
a work stoppage. We believe that our relations with our employees are good.
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ITEM 2. PROPERTIES
Our headquarters are located in an approximately 47,000 square foot
facility located in New York City, under a lease which expires in January
2014. We maintain a sales office in an approximately 4,000 square foot
facility in San Francisco, California, under a lease that expires in June
2004. We also maintain approximately 14,100 square feet of office space in
Seattle, Washington in connection with our e-commerce operations that
expires in December 2000. In connection with our operation of a portion of
our Games Network, we maintain 2,465 square feet of office space in
Birmingham, England, under a lease that expires in October 2007. Our
principal web server equipment and operations are maintained by our
personnel at the New York Teleport facility in Staten Island, New York. We
rent approximately 2,800 square feet of space under a Data Center Space
Lease that expires in August 2001. Additional web server equipment relating
to our electronic commerce business is located with and maintained by
Exodus Communications, Inc. in Seattle, Washington. We believe that its
current facilities are adequate to maintain its current operations.
ITEM 3. LEGAL PROCEEDINGS
On July 1, 1999, the Company filed a complaint in Supreme Court of the
State of New York, County of New York. The lawsuit alleges that
Stockplayer.com, Inc. breached advertising service agreements with the
Company by failing to pay for advertising services performed by the
Company. On August 13, 1999, Stockplayer.com, Inc. filed its answer denying
that it breached these advertising services agreements. The answer also
alleges that the Company breached alleged express and implied warranties in
connection with certain information provided by the Company to
Stockplayer.com. Stockplayer.com alleges that it has been damaged in an
amount not less than $5,000,000. Based on our analysis, the Company
believes that these allegations are without merit and plans to vigorously
defend these allegations. The Company believes that it is unlikely that
this claim will have a material adverse effect on the Company's
consolidated financial condition or results of operations.
From time to time the Company has been named in other claims arising
in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to our stockholders' for a vote during the
three months ended December 31, 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
Our Common Stock has traded on the NASDAQ National Market under the
Symbol "TGLO" since its initial public offering on November 13, 1998. Prior
to that date, there was no public market for our Common Stock. The
following table sets forth the range of high and low closing sales prices
of our Common Stock for the periods indicated as reported by the NASDAQ
stock market:
Fiscal Quarter Ended High Low
-------------------- ------ ------
December 31, 1999......................... $16.38 $ 8.38
September 30, 1999........................ $19.31 $10.25
June 30, 1999............................. $39.47 $12.75
March 31, 1999............................ $33.53 $15.75
December 31, 1998 (commencing November
13, 1998)....................... ......... $31.75 $13.72
The market price of our Common Stock is highly volatile and fluctuates
in response to a wide variety of factors. See "Risk Factors--Our stock
price is volatile."
HOLDERS OF COMMON STOCK
We had approximately 353 holders of record of Common Stock as of March
16, 2000. This does not reflect persons or entities who hold Common Stock
in nominee or "street" name through various brokerage firms.
DIVIDENDS
We have not paid any cash dividends on our Common Stock since our
inception. We expect to reinvest any future earnings in the Company to
finance growth, and therefore do not intend to pay dividends in the
foreseeable future. Our board of directors will determine if we pay any
future dividends.
USE OF PROCEEDS
On November 13, 1998, we completed our initial public offering of
approximately 7.0 million shares of Common Stock at a price of $4.50 per
share (File No. 333-59751). We received net proceeds of $27.3 million, net
of $2.0 million in underwriting discounts and $2.0 million in offering
costs. On May 19, 1999, we completed our secondary public offering of 3.5
million shares of Common Stock at a price of $20.00 per share (File No.
333-76153). We received net proceeds of $65.0 million, net of $3.5 million
in underwriting discounts and $1.5 million in offering costs. The number of
shares offered and the per share offering price reflect a two-for-one stock
split we effected on May 14, 1999. None of the expenses incurred in our
initial and secondary public offerings were direct or indirect payments to
our directors, officers, general partners or their associates, to persons
owning ten percent or more of any class of our equity securities or to our
affiliates. As of December 31, 1999, the net proceeds received from our
public offerings have been used for networking infrastructure and the
functionality of our websites and for general corporate purposes, which
include working capital, advertising costs, the leasing of new office
facilities, the expansion of our sales and marketing capabilities, our
advertising campaign and our brand name promotions. We have also used a
portion of such net proceeds for the acquisition of complementary
businesses, assets, services and
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technology. None of the general corporate expenses incurred were direct or
indirect payments to our directors, officers, general partners or their
associates, to persons owning ten percent or more of any class of our
equity securities or to our affiliates.
RECENT SALES OF UNREGISTERED SECURITIES
On November 30, 1999, we issued 1,104,972 shares of our Common Stock
in connection with the acquisition of the web hosting assets of
Webjump.com. Additional shares of Common Stock may be issued upon the
attainment of certain performance goals in 2000. This transaction was a
private placement exempt from the registration requirements of the
Securities Act of 1933, as amended, pursuant to Rule 506 of Regulation D,
promulgated thereunder.
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<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data with respect to our
consolidated balance sheets as of December 31, 1999 and 1998 and the
related consolidated statements of operations for the years ended December
31, 1999, 1998 and 1997 have been derived from our audited consolidated
financial statements which are included herein. The selected financial data
with respect to our balance sheets as of December 31, 1997, 1996 and 1995
the related statements of operations for the year ended December 31, 1996
and the period May 1, 1995 (inception) through December 31, 1995 have been
derived from our audited financial statements which are not included
herein. The following selected consolidated financial data should be read
in conjunction with the consolidated financial statements and the notes
thereto and the information contained in Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
MAY 1, 1995
(INCEPTION)
THROUGH
DECEMBER
YEAR ENDED DECEMBER 31, 31,
------------------------------------------- -------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenues................... $18,641 $ 5,510 $ 770 $ 229 $ 27
Cost of revenues........... 8,548 2,136 257 116 13
------- ------- ------- ------- -------
Gross profit............... 10,093 3,374 513 113 14
Operating expenses (3):
Sales and marketing...... 19,352 9,402 1,415 276 1
Product development...... 10,488 2,633 154 120 60
General and
administrative......... 12,165 6,828 2,828 489 19
Non-recurring charge..... -- 1,370 -- -- --
Amortization of
goodwill and
intangible assets...... 20,460 -- -- -- --
------- ------- ------- ------- -------
Total operating expenses... 62,465 20,233 4,397 885 80
------- ------- ------- ------- -------
Loss from operations....... (52,372) (16,859) (3,884) (772) (66)
Other income, net.......... 1,705 892 335 22 --
------- ------- ------- ------- -------
Loss before provision
for income taxes and
extraordinary item (50,667) (15,967) (3,549) (750) (66)
Provision for income
taxes.................... 290 79 36 -- --
------- ------- ------- ------- -------
Loss before
extraordinary item....... (50,957) (16,046) (3,585) (750) (66)
Extraordinary item-gain
on early retirement of
debt..................... 1,356 -- -- -- --
------- ------- ------- ------- -------
Net loss................... (49,601) $(16,046) $(3,585) $ (750) $ (66)
======= ======= ======= ======= =======
Basic and diluted net loss
per share (1) (2):
Loss before
extraordinary item..... $ (2.06) $ (3.37) $ (1.56) $ (0.33) $ (0.03)
Extraordinary item-gain
on early retirement of
debt..................... $ 0.06 $ -- $ -- $ -- $ --
------- -------- ------- ------- -------
Net loss................. $ (2.00) $ (3.37) $ (1.56) $ (0.33) $ (0.03)
======= ======= ======= ======= =======
Weighted average shares
outstanding used in
basic and diluted per
share calculation
(1)(2)................... 24,777 4,762 2,294 2,250 2,250
======= ======= ======= ======= =======
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEETS DATA:
Cash and cash
equivalents and short-
term investments.......... $55,875 $30,149 $18,874 $ 757 $ 587
Working capital............. 52,965 27,009 17,117 648 575
Total assets................ 138,843 38,130 19,462 973 647
Capital lease
obligations, excluding
current installments...... 2,201 2,006 99 -- --
Total stockholders'
equity.................... 126,909 30,301 17,352 795 632
- ----------------------
<FN>
(1) Weighted average shares outstanding does not include any common stock
equivalents because the inclusion of those common stock equivalents
would have been anti-dilutive. See the consolidated financial
statements and the related notes appearing elsewhere in this Form 10-K
for the determination of shares used in computing basic and diluted
net loss per share.
(2) Weighted average shares outstanding and the basic and diluted net loss
per common share reflect the two-for-one stock split effected by the
Company on May 14, 1999. All prior periods have been adjusted to
reflect the stock split.
(3) Certain reclassifications have been made to prior year's selected
consolidated financial data to conform to the current year's
presentation.
</FN>
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. These forward-looking
statements can be identified by the use of predictive, future-tense or
forward-looking terminology, such as "believes," "anticipates," "expects,"
"estimates," "plans," "may," "intends," "will," or similar terms. Investors
are cautioned that any 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 described under
"Risk Factors" and elsewhere in this report. The following discussion
should be read together with the consolidated financial statements and
notes to those statements included elsewhere in this report.
OVERVIEW
We are one of the world's leading online properties with over 3.6
million registered members in the United States and abroad. We specialize
in bringing people together around shared topics of interest. We deliver
"community" through four different streams: our flagship website,
www.theglobe.com, featuring our best-of-breed community products-globeClubs
and uPublish!, both of which enable our users to personalize their online
experience by interacting with other users with similar interests;
distribution of our customized community solutions to strategic partners
who desire to include community in their Web properties; small businesses
looking to add "community" to their websites; and a leading games
information network. Our games information network includes HappyPuppy,
GamesDomain, KidsDomain, ConsoleDomain, Chips & Bits, Inc. and Strategy
Plus, Inc. Since our inception in May 1995, significant developments to
core infrastructure capabilities, products and services, and strategic
partnerships and acquisitions have enabled us to experience tremendous
growth in our user base, reach and revenues.
Our primary revenue source is the sale of advertising, with additional
revenues generated through the development and sale of promotional
sponsorship placements within our websites, the sale of merchandise through
our online store, electronic commerce revenue shares and, to a lesser
extent, membership service fees for the sale of enhanced services.
In 1997, we accomplished the following:
o moved our headquarters to New York City;
o expanded our membership base from 250,000 to almost 1 million
members;
o improved and upgraded our services;
o expanded our production staff;
o built an internal sales department; and
o began an active promotional campaign of theglobe brand to
increase awareness.
During 1998, revenues and operating expenses increased significantly
as we placed a greater emphasis on building our advertising revenues,
sponsorship revenues and memberships by expanding our sales force and
promoting theglobe brand.
In November 1998, we completed an initial public offering of
approximately 7.0 million shares of our Common Stock. The initial offering
price was $4.50 per share which resulted in net proceeds of $27.3 million,
after underwriting discounts of $2.0 million and offering costs $2.0
million.
In February, 1999, we acquired factorymall.com, an online department
store doing business as Azazz.com, which sells a variety of name brand
products directly to consumers, for an aggregate purchase price of $22.8
million. The consideration paid, in part, consisted of approximately 0.7
million shares of newly issued Common Stock. We have integrated Azazz.com
into our electronic commerce site, now known as "shop.theglobe.com."
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<PAGE>
In April 1999, we acquired Attitude Networks, Ltd., a provider of
online games information content whose websites include Happy Puppy, Games
Domain and Kids Domain, three leading websites serving game enthusiasts.
The aggregate purchase price amounted to $46.8 million and was comprised,
in part, of approximately 1.6 million shares of newly issued Common Stock.
In May 1999, we completed a secondary public offering of 3.5 million
shares of Common Stock at an offering price of $20.00 per share. Net
proceeds amounted to $65.0 million, after underwriting discounts of $3.5
million and offering costs of $1.5 million.
In December 1999, we acquired the web hosting assets of Webjump.com, a
web hosting property that primarily focuses on small businesses. The total
purchase price for this transaction was $13.0 million and was primarily
comprised of 1.1 million shares of newly issued Common Stock. An additional
$12.5 million, payable in newly issued shares of Common Stock, is
contingent based upon the attainment of certain performance targets on or
before November 2000.
In February 2000, we acquired Chips & Bits, Inc. and Strategy Plus,
Inc., providers of online and offline entertainment content focused towards
game enthusiasts. The total purchase price for this transaction was
approximately $15.3 million and was comprised, in part, of 1.9 million
newly issued shares of Common Stock. An additional $1.25 million, payable
in newly issued shares of Common Stock, is contingent on the attainment of
certain performance targets by Chips & Bits, Inc. and Strategy Plus, Inc.
during the fiscal year 2000.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues. To date, our primary revenue source has been the sale of
advertisements on our online properties. Advertising revenues constituted
80% and 89% of total revenues for the years ended December 31, 1999 and
1998, respectively. We sell a variety of advertising packages to clients,
including banner advertisements, event sponsorships, and targeted and
direct response advertisements. Our advertising revenues are derived
principally from short-term advertising arrangements, averaging one to
three months. We generally guarantee a minimum number of impressions,
defined as the number of times that an advertisement appears in pages
viewed by the users of our online properties, 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.
In addition to advertising revenues, we derive other revenues through
the development and sale of sponsorship placements within our websites, the
sale of merchandise through our online stores, electronic commerce revenue
shares and, to a lesser extent, membership service fees for the sale of
enhanced services. We earn revenue on sponsorship contracts for fees
relating to the design, coordination, and integration of the customer's
content and links. A number of arrangements with our premier electronic
commerce partners provide us with a share of any sales resulting from
direct links from our websites. To date, revenues from electronic commerce
revenue share arrangements have not been significant. Memberships fees for
the sale of enhanced services have been insignificant to date.
Revenues increased to $18.6 million for the year ended December 31,
1999 as compared with $5.5 million for the year ended December 31, 1998.
Advertising revenues for the year ended December 31, 1999 were $15.0
million which represented 80% of total revenues. Advertising revenues for
the year ended December 31, 1998 were $4.9 million which represented 89% of
total revenues. The growth in advertising revenues was primarily
attributable to an increase in the number of advertisers as well as the
average commitment per advertiser and an increase in our traffic on our
websites. We anticipate that advertising revenues will continue to account
for a substantial share of our total revenues for the foreseeable future.
We experienced an increase in other revenue due primarily to increased
sales through our online store. Other revenues were also derived from the
development and sale of sponsorship placements within our websites,
electronic commerce revenue shares and membership service fees. Barter
revenues represented 5% of total revenues for the year ended December 31,
1999 and 2% of total
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<PAGE>
revenues for the year ended December 31, 1998.
Cost of Revenues. Cost of revenues consist primarily of Internet
connection charges, staff costs and related costs of operations personnel,
depreciation and maintenance costs of website equipment and the costs of
merchandise sold and shipping fees in connection with our online store.
Gross margins were 54% and 61% for the years ended December 31, 1999 and
1998, respectively. The decrease in the gross margins for the year-to-year
period was primarily attributable to a higher concentration of electronic
commerce sales which traditionally results in lower gross margins than
advertising revenues. The absolute dollar increase in cost of revenues was
due to an increase in Internet connection costs to support the increase in
website traffic, as well as an increase in depreciation expense related to
increased equipment costs, costs of merchandise and personnel costs
required to support the expansion of our sites and services. We expect cost
of revenues to continue to increase in absolute dollars as additional
connectivity and staffing costs will be required to support our future
growth and we continue to increase sales through our online store.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and related expenses of sales and marketing personnel,
commissions, advertising and marketing costs, public relations expenses,
coupons and other promotional activities and barter expense. Sales and
marketing expense was $19.4 million for the year ended December 31, 1999 as
compared with $9.4 million for the year ended December 31, 1998. The period
to period increase in sales and marketing expense was attributable to
increased salary and related personnel costs to support our revenue growth,
increased advertising costs, which included costs associated with our
television advertising campaign and promotional expenses required to
implement our branding and marketing strategy. We expects sales and
marketing costs to increase in absolute dollars due to increased staffing
costs necessary to support our growth.
Product Development. Product development expenses include salaries and
related personnel costs, costs incurred in connection with the development
of, testing of and upgrades to our websites and community management tools
and editorial and content costs. Product development expenses increased to
$10.5 million for the year ended December 31, 1999 as compared to $2.6
million for the year ended December 31, 1998. The period to period increase
was primarily attributable to increased staffing levels required to support
our websites and to enhance their content and features. Additionally, we
incurred development expenses related to two new products, globeClubs and
uPublish!, which were launched in the fourth quarter of 1999. Development
costs related to these products were not significant. Product development
expenses also increased as a result of added features in connection with
the launch of certain site re-designs and upgrades that occurred at various
intervals throughout 1999. We intend to continue recruiting and hiring
experienced product development personnel who will maintain and upgrade our
community management tools.
General and Administrative Expenses. General and administrative
expenses consist primarily of salaries and related personnel costs for
general corporate functions, including finance, human resources, legal and
facilities, outside legal and professional fees, bad debt expenses and
general corporate overhead costs. General and administrative expenses were
$12.2 million for the year ended December 31, 1999 as compared with $6.8
million for the year ended December 31, 1998. The increase was primarily
attributed to increased salaries and personnel costs associated with
building of our basic infrastructure, increased legal and other
professional fees and travel expenses. These increases were, in part,
attributable to our acquisitions in 1999. The increased salaries also
reflect the highly competitive nature of hiring in the new media industry.
General and administrative costs also increased due to additional
provisions for bad debts and sales tax expenses, along with increased
public company expenses such as directors' and officers' liability
insurance and investor relations programs. We expect to incur additional
general and administrative expenses as we hire additional personnel and
incur additional costs related to the growth of the business.
Non-recurring charges. We recorded a non-recurring, non-cash charge of
approximately $1.4 million in the third quarter of 1998. This charge was in
connection with the transfer of outstanding warrants to acquire 450,000
shares of common stock by Dancing Bear Investments, which was our principal
shareholder at the time of the transfer, to some of our officers. There was
no similar charge in 1999.
25
<PAGE>
Amortization of Goodwill and Intangible Assets. Amortization expense
was $20.5 million for the year ended December 31, 1999 and related to the
acquisitions of shop.theglobe.com in February 1999, Attitude Network, Ltd.
in April 1999 and the web hosting assets of Webjump.com in December 1999.
The gross goodwill and purchased intangibles of approximately $84.0 million
related to these acquisitions is being amortized over the expected period
of benefit ranging from two to three years (three years for goodwill).
There was no similar charge for the year ended December 31, 1998.
Other income (expense). Other income (expense) includes interest
income from our cash, cash equivalents and short-term investments, interest
expenses related to our capital lease obligations, amortization of debt
discounts and realized gains and losses from the sale of short-term
investments. Interest income was $2.5 million for the year ended December
31, 1999 as compared with $1.1 million for the year ended December 31,
1998. The period to period increase in interest income was attributable to
increased cash, cash equivalents and short-term investments resulting from
the net proceeds of our initial and secondary public offerings of Common
Stock. Interest expense was $0.8 million for the year ended December 31,
1999, as compared with $0.2 million for the year ended December 31, 1998.
The increase was attributable to increased interest expenses related to the
assumption of additional capital lease obligations and the amortization of
the debt discount related to long-term debt assumed in connection with the
acquisition of Attitude Network, Ltd. The long-term debt was fully re-paid
in October 1999.
Income Taxes. Income taxes were $0.3 million for the year ended
December 31, 1999 as compared with $0.1 million for the year ended December
31, 1998. Income taxes were based solely on state and local taxes on
business and investment capital. The period to period increase is a result
of our initial and secondary public offerings which, in turn, increased our
investment capital. Our effective tax rate differs from the statutory
federal income tax rate, primarily as a result of the uncertainty regarding
our ability to utilize our net operating loss carryforwards. Due to the
uncertainty surrounding the timing or realization of the benefits of our
net operating loss carryforwards in future tax returns, we have placed a
100% valuation allowance against our otherwise recognizable deferred tax
assets. At December 31, 1999, the Company had net operating loss
carryforwards available for U.S. and foreign tax purposes of $69.5 million
and $1.0 million, respectively. These carryforwards expire through 2019.
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 our ownership
interests in the third quarter of 1997, as defined in the Internal Revenue
Code of 1986, as amended (the "Code"), future utilization of our net
operating loss carryforwards prior to the change of ownership will be
subject to certain limitations or annual restrictions.
Extraordinary Item-Gain on Early Retirement of Debt. During 1999, we
recorded an extraordinary gain of $1.4 million as a result of the early
retirement of long-term debt. In connection with the acquisition of
Attitude Network, Ltd., we assumed a non-interest bearing obligation
("happypuppy note") to the former owner of the happypuppy.com website
("happypuppy"). In October 1999, in connection with the settlement of
certain litigation between the former owners of happypuppy and us, we made
a lump sum payment of approximately $1.4 million to the former owners of
happypuppy, which represented full payment of the happypuppy note. The net
present value of the happypuppy note at the time of payment was $2.8
million. The extraordinary gain represented the difference between the lump
sum payment and the net present value of the happypuppy note at the time
the payment was tendered.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues. Revenues increased to $5.5 million for the year ended
December 31, 1998 as compared to $0.8 million for the year ended December
31, 1997. The year to year growth resulted from an increase in: (1) the
number of advertisers and the average commitment per advertiser, (2) our
website traffic, (3) the number of our sales people and (4) marketing and
advertising expenditures. Advertising revenues were approximately $4.9
million, or 89% of total revenues, for the year ended December 31, 1998 as
compared with $0.6 million, or 77% of total revenues, for the year ended
December 31, 1997. Other revenues were derived from membership service
fees, development fees, electronic commerce revenue shares and sponsorship
placements within our website. Barter revenues accounted for approximately
2% of total revenues for the year ended December 31, 1998 as compared with
22% of total revenues for the year ended December 31, 1997.
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<PAGE>
Cost of Revenues. Gross margins were 61% for the year ended December
31, 1998 as compared with 45% for the year ended December 31, 1997. The
increase in gross margin was primarily due to an increase in revenues
relative to the increase in cost of revenues. Cost of revenues were $2.1
million for the year ended December 31, 1998 as compared with $0.3 million
for the year ended December 31, 1997. The period to period increase in cost
of revenues was primarily due to an increase in Internet connection costs
to support the increase in website traffic, increased depreciation charges
resulting from increased equipment purchases needed to expand and support
our site and increase salary and personnel costs required to support the
expansion of our site and services. During the fourth quarter of 1998, we
moved our website hosting functions to a separate facility in Staten
Island, New York.
Sales and Marketing Expenses. Sales and marketing expenses were $9.4
million for the year ended December 31, 1998 as compared with $1.4 million
for the year ended December 31, 1997. The period to period increase was
primarily attributable to expansion of our online and print advertising,
public relations and other promotional expenditures and increased sales and
marketing personnel and related costs required to implement our marketing
strategy. Sales and marketing expenses also increased as a result of our
decision to shift our advertising to an internal sales department in the
second quarter of 1997.
Product Development Expenses. Product development expenses were $2.6
million for the year ended December 31, 1998 as compared to $0.2 million
for the year ended December 31, 1997. The increase in product development
expenses was primarily attributable to increased staffing levels required
to support our website and to enhance its content and features. Product
development expenses also increased as a result of the launch of our
website redesign in November 1998.
General and Administrative Expenses. General and administrative
expenses were $6.8 million for the year ended December 31, 1998 as compared
to $2.8 million for the year ended December 31, 1997. The period to period
increase in general and administrative expenses was primarily due to
increased salaries and related expenses associated with our management's
employment contracts, hiring of additional administrative personnel and
increases in professional fees and travel. The increased salaries also
reflect the highly competitive nature of hiring in the new media industry.
Additionally, during 1998, we incurred certain costs associated with
operating a public company including directors' and officers' insurance and
investor relations costs.
Non-recurring charges. We recorded a non-recurring, non-cash charge of
approximately $1.4 million in the third quarter of 1998. This charge was in
connection with the transfer of outstanding warrants to acquire 450,000
shares of common stock by Dancing Bear Investments, which was our principal
shareholder at the time of the transfer, to some of our officers. There was
no similar charge in 1997.
Other Income (expense). Other income (expense) includes interest
income from our cash, cash equivalents and short-term investments, interest
expenses related to our capital lease obligations, and realized gains and
losses from sales of short-term investments. Other income (expense) was
$0.9 million for the year ended December 31, 1998 as compared with $0.3
million for the year ended December 31, 1997. The period to period increase
is attributable to increased interest income resulting from higher average
cash, cash equivalents and short-term investments balances. These balances
increased as a result of net proceeds received from the issuance of shares
of our preferred stock in the third quarter of 1997 and the issuance of
Common Stock in connection with our initial public offering in November
1998. The increased interest income was offset by increase interest expense
resulting from the assumption of certain capital lease obligations in 1998.
Income Taxes. Income taxes were approximately $0.1 million for the
year ended December 31, 1998 as compared to $36,000 for the year ended
December 31, 1997. Income taxes were based solely on state and local taxes
on business and investment capital. These taxes increased from year to year
due to an increase in our investment capital. The investment capital
increased as a result of the proceeds received from our issuance of shares
of preferred stock in the third quarter of 1997 and our issuance of Common
Stock in connection with our initial public offering in November 1998. Our
effective tax rate differs from the statutory federal income tax rate,
primarily as a result of the uncertainty regarding our ability to utilize
net operating loss carryforwards. Due to the uncertainty surrounding the
timing or realization of the benefits of our net operating loss
carryforwards in future tax returns, we have placed a 100% valuation
allowance against our deferred tax assets. As of December 31, 1998, we
27
<PAGE>
had approximately $29.2 million of federal and state net operating loss
carryforwards for tax reporting purposes available to offset future taxable
income. Our federal net operating loss carryforwards will expire beginning
in 2001 through 2018, if not utilized. 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 our ownership interests in the third quarter of 1997, as defined
in the Code, future utilization of our net operating loss carryforwards
will be affected by limitations or annual restrictions.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had approximately $36.6 million in cash
and cash equivalents and approximately $19.3 million in short-term
investments. Net cash used in operating activities was approximately $30.1
million, $13.5 million and $1.9 million for the years ended December 31,
1999, 1998 and 1997, respectively. The increase in net operating cash used
for the year ended December 31, 1999 resulted primarily from the increase
in operating losses for the period. Additionally, the increase in net
operating cash used was attributable to increases in accounts receivable
and prepaid and other current assets and decreases in accounts payable and
deferred revenues. These items were partially offset by an increase in
accrued compensation. The increase in net operating cash used for the year
ended December 31, 1998 was primarily attributable to increases in net
operating losses for the period, accounts receivable and prepaid and other
current assets as well as a decrease in accrued compensation. These items
were partially offset by increases in accounts payable and deferred
revenues.
Net cash (used in) provided by investing activities was approximately
($25.4) million, $9.6 million and ($13.2) million for the years ended
December 31, 1999, 1998 and 1997, respectively. Significant components of
net cash used in investing activities during 1999 related to the purchases
of short-term investments and property and equipment and the payment of
security deposits in connection with our capital lease obligations. These
items were partially offset by proceeds received from the sales of
short-term securities and net cash received in connection with our
acquisitions of factorymall and Attitude Network, Ltd. Net cash provided by
investing activities during 1998 was the result of proceeds received from
the sales of short-term securities partially offset by the purchases of
property and equipment and the payments of security deposits in connection
with our capital lease obligations.
Net cash provided by financing activities was approximately $62.8
million, $27.2 million and $20.2 million for the years ended December 31,
1999, 1998 and 1997, respectively. Net cash provided by financing
activities during 1999 was primarily attributable to net proceeds received
from our secondary public offering of Common Stock and proceeds received
from the exercise of stock options and warrants. These items were partially
offset by payments of capital lease obligations and payments of long-term
debt, which was assumed in connection with our acquisition of Attitude
Network, Ltd. Net cash provided by financing activities during 1998 was
primarily attributable to net proceeds received from our initial public
offering of Common Stock and proceeds received from the exercise of stock
options. These items were partially offset by the payments of capital lease
obligations in 1998.
As of December 31, 1999, we had obligations amounting to $4.9 million
in connection with equipment purchased under capital leases. These
obligations are payable at various intervals between 2000 and 2003. We
expect to meet our current capital lease obligations with our cash, cash
equivalents and short-term investments.
Our capital requirements depend on numerous factors, including market
acceptance of our services, the capital required to maintain our websites,
the resources we devote to marketing and selling our services and our brand
promotions and other factors. We have experienced a substantial increase in
our capital expenditures and lease arrangements since our inception
consistent with the growth in our operations and staffing. We anticipate
that this will continue for the foreseeable future. Additionally, we will
continue to evaluate possible investments in businesses, products and
technologies, and we plan to expand our sales force. We believe that our
current cash, cash equivalents and short-term investments, which primarily
resulted from our initial and secondary public offerings, together with
cash flows will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for our existing business for at
least 12 months. However, we may need to raise additional funds during 2000
to obtain or operate any acquired businesses or joint venture arrangements.
See "Risk Factors -- We may need to raise additional funds, including
through the issuance of debt."
28
<PAGE>
IMPACT OF YEAR 2000
Year 2000 issues related to non-compliant information technology
systems or non-information technology systems operated by us or by third
parties may affect us. We have completed our assessment of our internal and
external third-party information technology systems and non-information
technology systems and a test of the information technology systems that
support our websites. We have not experienced any Year 2000 related issues
to date with our internal systems or external third party systems on which
we rely. We do not anticipate any Year 2000 problems. We have not incurred
any material costs in relation to the evaluation, assessment and testing of
its Year 2000 compliance.
EFFECTS OF INFLATION
Due to relatively low levels of inflation in 1999, 1998, 1997 and 1996
inflation has not had a significant effect on our results of operations
since inception.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). 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, 2000. We have not yet analyzed the
impact of this pronouncement on our consolidated financial statements.
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RISK FACTORS
In addition to the other information in this report, the following
factors should be carefully considered in evaluating our business and
prospects.
OUR LIMITED OPERATING HISTORY MAKES FINANCIAL FORECASTING DIFFICULT.
theglobe was founded in May 1995. Accordingly, we have a limited
operating history for you to use in evaluating us and our prospects. Our
prospects should be considered in light of the risks encountered by
companies in the early stages of development, particularly companies
operating in new and rapidly evolving markets like the Internet. We may not
successfully address these risks. For example, we may not be able to:
o maintain or increase levels of user and member traffic on our
websites;
o maintain or increase the percentage of our advertising inventory
sold;
o maintain or increase both CPM levels and sponsorship revenues;
o adapt to meet changes in our markets and competitive
developments;
o integrate or successfully develop recent acquisitions;
o develop or acquire content for our services;
o identify, attract, retain and motivate qualified personnel; and
o raise sufficient capital to sustain future operations.
REVENUE GROWTH IN PRIOR PERIODS MAY NOT BE INDICATIVE OF FUTURE GROWTH.
We achieved significant revenue growth during 1998 and 1999. Our
limited operating history makes prediction of future growth difficult.
Accurate predictions of future growth are also difficult because of the
rapid changes in our markets. Accordingly, investors should not rely on
past revenue growth rates as a prediction of future growth.
WE ANTICIPATE INCREASED OPERATING EXPENSES AND EXPECT TO CONTINUE TO INCUR
LOSSES.
To date, we have not been profitable, and we expect that we will
continue to incur net losses for the foreseeable future. We had net losses
of approximately $0.8 million, $3.6 million, $16.0 million and $49.6
million for the years ended December 31, 1996, 1997, 1998 and 1999,
respectively. As of December 31, 1999, we had an accumulated deficit of
approximately $70.0 million. The principal causes of our losses are likely
to continue to be:
o costs resulting from development and enhancement of our services;
o amortization expense related to our acquisitions;
o increased sales and marketing expenses necessary to maintain
revenue growth and develop brand identity;
o growth of our sales force;
o expansion of our business facilities and systems infrastructure;
and
o failure to generate sufficient revenue to compensate for
increased costs.
o increased general and administrative expenses;
We will need to generate significantly increased revenues to achieve
profitability, particularly if we are unable to adjust our expenses in
light of any earnings shortfall. We cannot assure you that we will ever
achieve or sustain profitability.
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OUR QUARTERLY OPERATING RESULTS FLUCTUATE AND VARY BY SEASON.
Our quarterly revenues, expenses and operating results have varied
significantly in the past and are likely to vary significantly from quarter
to quarter in the future. As a result, quarter to quarter comparisons of
our revenues and operating results may not be meaningful. In addition, due
to our limited operating history and our new and unproven business model,
we cannot predict our future revenues or results of operations accurately.
It is likely that in one or more future quarters, our operating results
will fall below the expectation of securities analysts and investors. If
this occurs, the trading price of our Common Stock would almost certainly
be materially and adversely affected. The factors which will cause our
quarterly operating results to fluctuate include:
o the level of traffic on our website;
o the overall demand for Internet advertising and electronic
commerce;
o the addition or loss of advertisers and electronic commerce
partners on our website;
o overall usage and acceptance of the Internet;
o seasonal trends in advertising and electronic commerce sales and
member usage;
o capital expenditures and other costs relating to the expansion of
our operations;
o the incurrence of costs relating to acquisitions;
o the timing and profitability of acquisitions, joint ventures and
strategic alliances; and
o competition from other providing services similar to those of
ours.
We derive a substantial portion of our revenues from the sale of
advertising under short-term contracts. These contracts average one to
three months in length. As a result, our quarterly revenues and operating
results are, to a significant extent, dependent on advertising revenues
from contracts entered into within the quarter, and on our ability to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. We believe that advertising sales in traditional media, such as
television and radio, generally are lower in the first and third calendar
quarters. If the Internet transitions from an emerging to a more developed
form of media, these same patterns may develop in Internet advertising
sales. Internet advertising expenditures may also develop a different
seasonality pattern. Traffic levels on our site and the Internet have
typically declined during the summer and year-end vacation and holiday
periods.
In addition to selling advertising, an increasing portion of our
revenues may be generated from electronic commerce through our
shop.theglobe.com and Chips & Bits, Inc. subsidiaries. We also have
existing electronic commerce arrangements with third parties for the sale
of merchandise on our websites which are terminable upon short notice. As a
result, our revenues from electronic commerce may fluctuate significantly
from period to period depending on the level of demand for products
featured on our sites and overall competition in the marketplace.
WE DEPEND ON OUR MEMBERS FOR CONTENT AND PROMOTION.
We depend substantially upon member involvement for content and
word-of-mouth promotion. Particularly, we depend upon the voluntary efforts
of some highly motivated members who are most active in developing content
to attract other Internet users to our site. This member involvement
reduces the need for us to spend funds on content development and site
promotion. However, we cannot assure you that these members will continue
to effectively generate significant content or promote our site. Our
business may be materially and adversely affected if our most highly active
members become dissatisfied with our services or our focus on the
commercialization of those services or for any other reason stop generating
content that effectively promotes our site.
OUR BUSINESS MODEL IS NEW AND UNPROVEN.
Our business model is new and relatively unproven. This model depends
upon our ability to obtain more than one type of revenue source by using
our community platform or Games Network. To be successful, we must,
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among other things, develop and market products and services that achieve
broad market acceptance by our users, advertisers and electronic commerce
vendors. We must continue to develop electronic commerce revenue streams by
marketing products directly to users and having users purchase products
through our site. We cannot assure you that any Internet community,
including our site, will achieve broad market acceptance and to be able to
generate significant electronic commerce revenues. We also cannot assure
you that our business model will be successful, that it will sustain
revenue growth or that it will be profitable.
Additionally, the market for our products and services is new, rapidly
developing and characterized by an increasing number of market entrants. As
is typical of most new and rapidly evolving markets, demand and market
acceptance for recently introduced products and services are highly
uncertain and risky. Moreover, because this market is new and rapidly
evolving, we cannot predict our future growth rate, if any. If this market
fails to develop, develops slower than expected or becomes saturated with
competitors, or if our products and services do not achieve or sustain
market acceptance, our business would be materially and adversely affected.
OUR ACQUISITIONS OR JOINT VENTURES ENTAIL NUMEROUS RISKS AND UNCERTAINTIES.
As part of our business strategy, we review acquisition prospects or
joint ventures that we expect to complement our existing business, increase
our traffic, augment the distribution of our community, enhance our
technological capabilities or increase our electronic commerce revenues. On
February 1, 1999, we acquired shop.theglobe.com, formerly known as Azazz,
to develop electronic commerce retailing on our site. On April 9, 1999, we
acquired Attitude Network, Ltd. to add two leading game enthusiast websites
to our entertainment theme. On November 20, 1999, we acquired the web
hosting assets of Webjump.com to expand our home page hosting services. On
February 24, 2000, we acquired Chips & Bits, Inc., an electronic commerce
retailer that focuses primarily on game enthusiasts and Strategy Plus,
Inc., an offline media property that publishes a monthly games magazine. We
consider and evaluate, from time to time, potential business combinations,
either involving potential investments in our Common Stock or other
business combinations or joint ventures, or our acquisition of other
companies. If consummated, any such transaction could result in a change of
control of our company or could otherwise be material to our business or to
your investment in our Common Stock. We are currently in discussions or
negotiations for various transactions of these types, some of which may be
material, but we have not reached any binding agreements. These
transactions may or may not be consummated. Our future acquisitions or
joint ventures could result in numerous risks and uncertainties, including:
o potentially dilutive issuances of equity securities, which may be
freely tradable in the public market or subject to registration
rights which could require us to publicly register a large amount
of Common Stock have a material adverse effect on our stock
price;
o large and immediate write-offs;
o the incurrence of debt and contingent liabilities or amortization
expenses related to goodwill and other intangible assets;
o difficulties in the assimilation of operations, personnel,
technologies, products and information systems of the acquired
companies;
o the diversion of management's attention from other business
concerns;
o the risks of entering geographic and business markets in which we
have no or limited prior experience such as electronic commerce
retailing;
o the risk that the acquired business will not perform as expected;
and
o risks associated with international expansion.
WE MAY BE UNSUCCESSFUL IN DEVELOPING BRAND AWARENESS; BRAND IDENTITY IS
CRITICAL TO US.
We believe that establishing and maintaining awareness of
"theglobe.com" brand name, and the brand name of our wholly owned
subsidiaries, is critical to attracting and expanding our member base, the
traffic on our websites and our advertising and electronic commerce
relationships. If we fail to promote and maintain our brand or
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our brand value is diluted, our business, operating results and financial
condition could be materially adversely affected. The importance of brand
recognition will increase because low barriers to entry continue to result
in an increased number of websites. To promote our brand, we may be
required to continue to increase our financial commitment to creating and
maintaining brand awareness. We may not generate a corresponding increase
in revenues to justify these costs. Additionally, if members, other
Internet users, advertisers and customers do not perceive our community
experience or Games Network to be of high quality, or if we introduce new
services or enter into new business ventures that are not favorably
received by these parties, the value of our brand could be materially
diluted.
WE RELY SUBSTANTIALLY ON ADVERTISING REVENUES.
We derive a substantial portion of our revenues from the sale of
advertisements on our website. We expect to continue to do so for the
foreseeable future. For the years ended December 31, 1999, 1998 and 1997,
advertising revenues represented 80%, 89% and 77%, respectively, of our
total revenues. Our business model and revenues are highly dependent on the
amount of traffic on our sites and our ability to properly monetize this
traffic. The level of traffic on our site determines the amount of
advertising inventory we can sell. Our ability to generate significant
advertising revenues depends, in part, on our ability to create new
advertising programs without diluting the perceived value of our existing
programs. Our ability to generate advertising revenues will also depend, in
part, on the following:
o advertisers' acceptance of the Internet as an attractive and
sustainable medium;
o advertisers' willingness to pay for advertising on the Internet
at current rates;
o the development of a large base of users of our products and
services;
o our level of traffic;
o the effective development of website content that attracts users
having demographic characteristics attractive to advertisers; and
o price competition among websites.
We cannot assure you that the market for Internet advertising will
continue to emerge or become sustainable. If the Internet advertising
market develops slower than we expect, our business performance would be
materially adversely affected. To date, substantially all our advertising
contracts have been for terms averaging one to three months in length, with
relatively few longer term advertising contracts. Additionally, our
advertising customers may object to the placement of their advertisements
on some members' personal homepages, the content of which they deem
undesirable. For any of the foregoing reasons, we cannot assure you that
our current advertisers will continue to purchase advertisements on our
site. We also compete with traditional advertising media, including
television, radio, cable and print, for a share of advertisers' total
advertising budgets. This results in significant pricing pressures on our
advertising rates, which could have a material adverse effect on us.
A significant portion of our revenues are derived from Internet
companies that are early stage entities. These entities are dependant on
additional financing in order to survive. For companies such as these, the
risk of default on outstanding indebtedness to us may be higher than we
anticipate.
WE RELY ON THIRD PARTIES OVER WHOM WE HAVE LIMITED CONTROL TO MANAGE THE
PLACEMENT OF ADVERTISING ON OUR WEBSITE.
The process of managing advertising within a large, high-traffic
website such as ours is an increasingly important and complex task. We
license our advertising management system from DoubleClick, Inc. under an
agreement expiring in October 2000. DoubleClick may terminate the agreement
upon 30 days' notice if (1) we breach the agreement or (2) DoubleClick
reasonably determines that we have used their advertising management system
in a manner that could damage their technology or which reflects
unfavorably on DoubleClick's reputation. No assurance can be given that
DoubleClick would not terminate the agreement. Any termination and
replacement of DoubleClick's service could disrupt our ability to manage
our advertising operations. Additionally, we have entered into a contract
with Engage Technologies, Inc. for the license of proprietary software to
manage the
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placement of advertisements on our website. This software has been
implemented and our relationship under the contract has not yet been
material. There can be no assurance that this software will effectively
manage the placement of advertisements on our website and that errors will
not occur. For example, Doubleclick informed us in June 1999 that its
method of reporting the numbers of unique visitors to the theglobe website
was not accurate. We cannot assure you that there will be no
miscalculations of such or other measurements in the future. Any
miscalculations or other problems with reporting these measurements could
have a material adverse effect on our business, financial condition or
stock price.
To the extent that we encounter system failures or material
difficulties in the operation of our advertising management systems, we may
o be unable to deliver banner advertisements and sponsorships
through our site; and
o be required to provide additional impressions to our advertisers
after the contract term.
Our obligations to provide additional impressions would displace
saleable advertising inventory. This would reduce revenues and could have a
material adverse effect on us.
WE DEPEND SUBSTANTIALLY ON OUR KEY PERSONNEL.
Our performance is substantially dependent on the continued service of
our senior management and key technical personnel, all of whom have only
worked together for a short time. In particular, our success depends on the
continued efforts of our senior management team, especially our founders,
our President and our Chief Financial Officer. We do not carry key person
life insurance on any of our personnel. The loss of the services of any of
our executive officers or other key employees would likely have a material
adverse effect on our business. Additionally, we are currently searching
for a new Chief Executive Officer. There is no guarantee that we will be
successful in hiring a new Chief Executive Officer.
WE DEPEND ON HIGHLY QUALIFIED TECHNICAL AND MANAGERIAL PERSONNEL.
Our future success also depends on our continuing ability to attract,
retain and motivate highly qualified technical and managerial personnel.
Our business plan requires us to increase our employee base over the next
12 months. Competition for employees in our industry is intense. We may be
unable to attract, assimilate or retain highly qualified technical and
managerial personnel in the future. Wages for managerial and technical
employees are increasing and are expected to continue to increase in the
future. We have from time to time in the past experienced, and we expect to
continue to experience in the future, difficulty in hiring and retaining
highly skilled employees with appropriate qualifications. Furthermore,
there is no guarantee that our stock option plan will be considered
attractive by industry standards. If we are unable to attract and retain
the technical and managerial personnel necessary to support the growth of
our business, our business would likely be materially and adversely
affected.
WE MAY NOT EFFECTIVELY MANAGE OUR GROWTH; OUR MANAGEMENT TEAM IS
INEXPERIENCED IN THE MANAGEMENT OF A LARGE PUBLIC COMPANY.
Our recent growth has placed significant strains on our resources. To
manage our future growth, we must continue to implement and improve our
operational systems and expand and train our employee base. Some of our key
employees were hired during 1998, including our President and Chief
Operating Officer, who joined us in August 1998 and our Chief Financial
Officer, who joined us in July 1998. In addition, our Director of
Advertising Sales, General Counsel, General Manager, Director of
Communications and Director of Human Resources each have been with us for
less than three years. Furthermore, the members of our current senior
management, other than the Chairman, have not had any previous experience
managing a public company or a large operating company. Accordingly, we
cannot assure you that:
o we will be able to effectively manage the expansion of our
operations;
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o our key employees will be able to work together effectively as a
team to successfully manage our growth;
o we will be able to hire, train and manage our growing employee
base;
o our systems, procedures or controls will be adequate to support
our operations; and
o our management will be able to achieve the rapid execution
necessary to fully exploit the market opportunity for our
products and services.
Our inability to manage growth effectively could have a material
adverse effect on our business.
OUR CHAIRMAN AND VICE PRESIDENT OF CORPORATE DEVELOPMENT HAVE OTHER
INTERESTS AND TIME COMMITMENTS; WE HAVE CONFLICTS OF INTEREST WITH SOME OF
OUR DIRECTORS.
Because our Chairman and our Vice President of Corporate Development
are officers or employees of other companies, we will have to compete for
their time. Michael S. Egan is our Chairman. Mr. Egan serves as the
Chairman of our board of directors and as an executive officer with primary
responsibility for day-to-day strategic planning and financing
arrangements. Mr. Egan also is the controlling investor of Dancing Bear
Investments, an entity controlled by Mr. Egan, which is our largest
stockholder. Edward A. Cespedes is our Vice President of Corporate
Development with primary responsibility for corporate development
opportunities including mergers and acquisitions. Mr. Cespedes also serves
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 us. Accordingly, we compete with Dancing Bear
Investments and Messr. Egan's other related entities for their time. Mr.
Egan was named Chairman of ANC Rental Corporation, a proposed spin-off of
the car rental business of AutoNation, Inc.
We currently have revenue agreements with entities controlled by Mr.
Egan and by H. Wayne Huizenga, one of our directors. These agreements were
not the result of arm's-length negotiations, but we believe that the terms
of these agreements are on comparable terms as if they were entered into
with unaffiliated third parties. The revenues recognized from such
agreements represented less than 4% and 3% of total revenue for the years
ended December 31, 1999 and 1998. Due to their relationships with their
related entities, Messrs. Egan, Cespedes and Huizenga will have an inherent
conflict of interest in making any decision related to transactions between
their related entities and us. We intend to review related party
transactions in the future on a case-by-case basis.
WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL AND OTHER CHANGES.
The markets in which we compete are characterized by:
o rapidly changing technology;
o evolving industry standards;
o frequent new service and product announcements, introductions and
enhancements; and
o changing consumer demands.
We may not be able to keep up with these rapid changes. In addition,
these market characteristics are heightened by the emerging nature of the
Internet and the apparent need of companies from varying industries to
offer Internet-based products and services. As a result, our future success
depends on our ability to adapt to rapidly changing technologies and
standards. We will also need to continually improve the performance,
features and reliability of our services in response to competitive
services and product offerings and the evolving demands of the marketplace.
In addition, the widespread adoption of new Internet, networking or
telecommunications technologies or other technological changes could
require us to incur substantial expenditures to modify our services or
infrastructure and could fundamentally affect the nature of our business.
WE HAVE CAPACITY CONSTRAINT AND SYSTEM DEVELOPMENT RISKS.
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A key element of our strategy is to generate a high volume of user
traffic. Our ability to attract advertisers and to achieve market
acceptance of our products and services and our reputation depend
significantly upon the performance of our network infrastructure, including
our servers, hardware and software. Any system failure, including network,
software or hardware failure, that causes an interruption in our service or
a decrease in responsiveness of our website could result in reduced traffic
and reduced revenue, and could impair our reputation. Our websites must
accommodate a high volume of traffic and deliver frequently updated
information. Our websites have in the past and may in the future experience
slower response times for a variety of reasons, including system failures
and an increase in the volume of user traffic on our websites. Accordingly,
we face risks related to our ability to accommodate our expected customer
levels while maintaining superior performance. In addition, slower response
time may damage our reputation and result in fewer users at our sites or
users spending less time at our sites. This would decrease the amount of
inventory available for sale to advertisers. Accordingly, any failure of
our servers and networking systems to handle current or higher volumes of
traffic at sufficient response times would have a material adverse effect
on our business.
In the fourth quarter of 1998 and the first quarter of 1999, we moved
our principal servers to the New York Teleport facility in Staten Island,
New York under a lease with Telehouse International Corporation of America.
We maintain computer hardware, servers and operations relating to
shop.theglobe.com in Seattle, Washington which are hosted by Exodus
Communications, Inc. Although Exodus provides comprehensive facilities
management services, including human and technical monitoring of all
production servers 24 hours-per-day, seven days-per-week, they do not
guarantee that our Internet access will be uninterrupted, error-free or
secure. Our operations depend on the ability to protect our systems against
damage from unexpected events, including fire, power loss, water damage,
telecommunications failures and vandalism. Any disruption in our Internet
access could have a material adverse effect on us. In addition, computer
viruses, electronic break-ins or other similar disruptive problems could
also materially adversely affect our websites. Our reputation, theglobe.com
brand and the brands of our subsidiaries could be materially and adversely
affected by any problems to our sites. Our insurance policies may not
adequately compensate us for any losses that may occur due to any failures
or interruptions in our systems. We do not presently have any secondary
off-site systems or a formal disaster recovery plan.
In addition, our users depend on Internet service providers, online
service providers and other website operators for access to our websites.
Many of them have experienced significant outages in the past, and could
experience outages, delays and other difficulties due to system failures
unrelated to our systems. Moreover, the Internet infrastructure may not be
able to support continued growth in its use. Furthermore, we depend on
hardware suppliers for prompt delivery, installation and service of
equipment used to deliver our products and services. Any of these problems
could materially adversely affect our business.
HACKERS MAY ATTEMPT TO PENETRATE OUR SECURITY SYSTEM; ONLINE SECURITY
BREACHES COULD HARM OUR BUSINESS.
Consumer and supplier confidence in our websites depends on
maintaining relevant security features. Substantial or ongoing security
breaches on our systems or other Internet-based systems could significantly
harm our business. We incur substantial expenses protecting against and
remedying security breaches. Security breaches also could damage our
reputation and expose us to a risk of loss or litigation. Experienced
programmers or "hackers" have successfully penetrated our systems and we
expect that these attempts will continue to occur from time to time.
Because a hacker who is able to penetrate our network security could
misappropriate proprietary information or cause interruptions in our
products and services, we may have to expend significant capital and
resources to protect against or to alleviate problems caused by these
hackers. Additionally, we may not have a timely remedy against a hacker who
is able to penetrate our network security. Such security breaches could
materially adversely affect our company. In addition, the transmission of
computer viruses resulting from hackers or otherwise could expose us to
significant liability. Our insurance policies carry low coverage limits,
which may not be adequate to reimburse us for losses caused by security
breaches. We also face risks associated with security breaches affecting
third parties with whom we have relationships.
COMPETITION FOR MEMBERS, USERS AND ADVERTISERS, AS WELL AS COMPETITION IN
THE ELECTRONIC COMMERCE MARKET IS INTENSE AND IS EXPECTED TO INCREASE
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SIGNIFICANTLY.
The market for members, users and Internet advertising among websites
is new and rapidly evolving. Competition for members, users and
advertisers, as well as competition in the electronic commerce market, is
intense and is expected to increase significantly. Barriers to entry are
relatively insubstantial and we believe we will face competitive pressures
from many additional companies both in the United States and abroad.
Accordingly, pricing pressure on advertising rates will increase in the
future which could have a material adverse effect on us. All types of
websites compete for users. Competitor websites include community sites and
games information network, as well as "gateway" or "portal" sites and
various other types of websites. We believe that the principal competitive
factors in attracting users to a site are:
o functionality of the website;
o brand recognition;
o member affinity and loyalty;
o broad demographic focus;
o open access for visitors;
o critical mass of users, particularly for community-type sites;
o attractiveness of content and services to users; and
o pricing and customer service for electronic commerce sales.
We compete for users, advertisers and electronic commerce marketers
with the following types of companies:
o other online community websites, such as GeoCities, which was
acquired by Yahoo!; Tripod and AngelFire, subsidiaries of Lycos;
and Xoom.com which was acquired by NBC;
o search engines and other Internet "portal" companies, such as
Excite@Home, InfoSeek, which was acquired by the Walt Disney
Company, Lycos and Yahoo!;
o online content websites, such as CNET, ESPN.com and ZDNet.com;
o publishers and distributors of television, radio and print, such
as CBS, NBC and CNN/Time Warner;
o general purpose consumer online services, such as America Online
and Microsoft Network;
o websites maintained by Internet service providers, such as AT&T
WorldNet, EarthLink and MindSpring;
o electronic commerce websites, such as Amazon.com, Etoys and
CDNow; and
o other websites serving game enthusiasts, including Ziff Davis'
Gamespot and CNET's Gamecenter.
Many of our competitors, including other community sites, have
announced that they are contemplating developing Internet navigation
services and are attempting to become "gateway" or "portal" sites through
which users may enter the web. In the event these companies develop
successful "portal" sites, we could lose a substantial portion of our user
traffic. Furthermore, many non-community sites have been developing
community aspects in their sites.
Many of our existing and potential competitors, including companies
operating web directories and search engines, and traditional media
companies, have the following advantages:
o longer operating histories in the Internet market,
o greater name recognition;
o larger customer bases; and
o significantly greater financial, technical and marketing
resources
In addition, providers of Internet tools and services, including
community-type sites, may be acquired by,
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receive investments from, or enter into other commercial relationships with
larger, well-established and well-financed companies, such as Microsoft and
America Online. For example, Excite merged with At Home, America Online
acquired Netscape and Xoom.com and Snap.com completed a transaction in
which NBC merged some of its online assets with these entities to form
NBCi. In addition, there has been other significant consolidation in the
industry. This consolidation may continue in the future. We could face
increased competition in the future from traditional media companies,
including cable, newspaper, magazine, television and radio companies. A
number of these large traditional media companies, including Walt Disney
Co., CBS and NBC, have been active in Internet related activities. Those
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, electronic commerce companies, advertisers,
third-party content providers and acquisition targets. Furthermore, our
existing and potential competitors may develop sites that are equal or
superior in quality to, or that achieve greater market acceptance than, our
sites. We cannot assure you that advertisers may not perceive our
competitors' sites as more desirable than ours.
To compete with other websites, we have developed and will continue to
develop and introduce new features and functions, such as increased
capabilities for user personalization and interactivity. We also have
developed and will continue to introduce new products and services, such as
"community tools" and new content targeted for specific user groups with
particular demographic and geographic characteristics. These improvements
will require us to spend significant funds and may require the development
or licensing of increasingly complex technologies. Enhancements of or
improvements to our websites 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 our brand name.
Our failure to effectively develop and produce new features, functions,
products and services could affect our ability to compete with other
websites. This could have a material adverse effect on us.
Web browsers offered by Netscape and Microsoft also increasingly
incorporate prominent search buttons that direct traffic to services that
compete with ours. These features could make it more difficult for Internet
users to find and use our product and services. In the future, Netscape,
Microsoft and other browser suppliers may also more tightly integrate
products and services similar to ours into their browsers or their
browsers' pre-set home page. Additionally, entities that sponsor or
maintain high-traffic websites or that provide an initial point of entry
for Internet viewers, such as the Regional Bell Operating Companies, cable
companies or Internet service providers, such as Microsoft and America
Online, offer and can be expected to consider further development,
acquisition or licensing of Internet search and navigation functions that
compete with us. These competitors could also take actions that make it
more difficult for viewers to find and use our products and services.
Additionally, the electronic commerce market is new and rapidly
evolving, and we expect competition among electronic commerce merchants to
increase significantly. Because the Internet allows consumers to easily
compare prices of similar products or services on competing websites and
there are low barriers to entry for potential competitors, gross margins
for electronic commerce transactions may narrow in the future. Many of the
products that we sell on our website may be sold by the maker of the
product directly or by other websites. Competition among Internet
retailers, our electronic commerce partners and product makers may have a
material adverse effect on our ability to generate revenues through
electronic commerce transactions or from these electronic commerce
partners.
WE DEPEND ON THE CONTINUED GROWTH IN THE USE AND COMMERCIAL VIABILITY OF
THE WEB.
Our market is relatively new and rapidly evolving. Our business is
substantially dependent upon the continued rapid growth in the use of the
Internet and electronic commerce on the Internet becoming more widespread.
Commercial use of the Internet is relatively new. Web usage may be
inhibited for a number of reasons, including:
o inadequate network infrastructure;
o security and authentication concerns with respect to transmission
over the Internet of confidential
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information, including credit card numbers, or other personal
information;
o ease of access;
o inconsistent quality of service;
o availability of cost-effective, high-speed service; and
o bandwidth availability.
If the Internet develops as a commercial medium more slowly than we
expect, it will materially adversely affect our business. Additionally, if
web usage grows, the Internet infrastructure may not be able to support the
demands placed on it by this growth or its performance and reliability may
decline. Websites have experienced interruptions in their service as a
result of outages and other delays occurring throughout the Internet
network infrastructure. If these outages or delays frequently occur in the
future, web usage, as well as usage of our website, could grow more slowly
or decline. Also, the Internet's commercial viability may be significantly
hampered due to:
o delays in the development or adoption of new operating and
technical standards and performance improvements required to
handle increased levels of activity;
o increased government regulation; and
o insufficient availability of telecommunications services which
could result in slower response times and adversely affect usage
of the Internet.
WE MAY BE MATERIALLY ADVERSELY AFFECTED IF ELECTRONIC COMMERCE DOES NOT
BECOME A VIABLE SOURCE OF SIGNIFICANT REVENUES OR PROFITS FOR THE COMPANY.
IN ADDITION, OUR ELECTRONIC COMMERCE BUSINESS MAY RESULT IN SIGNIFICANT
LIABILITY CLAIMS AGAINST US.
In February 1999, we acquired shop.theglobe.com and in February 2000
we acquired Chips & Bits, Inc. Both of these entities are direct marketers
of products over the Internet. However, we have limited experience in the
sale of products online compared to our competitors and the development of
relationships with manufacturers and suppliers of these products. We also
face many uncertainties which may affect our ability to generate electronic
commerce revenues and profits, including:
o our ability to obtain new customers at a reasonable cost, retain
existing customers and encourage repeat purchases;
o the likelihood that both online and retail purchasing trends may
rapidly change;
o the level of product returns;
o merchandise shipping costs and delivery times;
o our ability to manage inventory levels;
o our ability to secure and maintain relationships with vendors;
o the possibility that our vendors may sell their products through
other sites; and
o intense competition for electronic commerce revenues, resulting
in downward pressure on gross margins.
Accordingly, we cannot assure you that electronic commerce
transactions will provide a significant or sustainable source of revenues
or profits. Additionally, due to the ability of consumers to easily compare
prices of similar products or services on competing websites, gross margins
for electronic commerce transactions which are narrower than for
advertising businesses may further narrow in the future and, accordingly,
our revenues and profits from electronic commerce arrangements may be
materially negatively impacted. If use of the Internet for electronic
commerce does not continue to grow, our business and financial condition
would be materially and adversely affected.
Additionally, consumers may sue us if any of the products that we sell
are defective, fail to perform properly or injure the user. Some of our
agreements with manufacturers contain provisions intended to limit our
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exposure to liability claims. However, these limitations may not prevent
all potential claims. Liability claims could require us to spend
significant time and money in litigation or to pay significant damages. As
a result, any claims, whether or not successful, could seriously damage our
reputation and our business.
INTERNET ADVERTISING MAY NOT PROVE AS EFFECTIVE AS TRADITIONAL MEDIA.
The Internet advertising market is new and rapidly evolving. We cannot
yet gauge its effectiveness as compared to traditional advertising media.
Many of our current or potential advertising partners have little or no
experience using the Internet for advertising purposes and they have
allocated only a limited portion of their advertising budgets to Internet
advertising. The adoption of Internet advertising, particularly by those
entities that have historically relied upon traditional media, requires the
acceptance of a new way of conducting business, exchanging information and
advertising products and services. Advertisers that have traditionally
relied upon other advertising media may be reluctant to advertise on the
Internet or find it less effective.
No standards have been widely accepted to measure the effectiveness of
Internet advertising or to measure the demographics of our user base.
Additionally, no standards have been widely accepted to measure the number
of members, unique users, page views or impressions related to a particular
site. We cannot assure you that any standards will become available in the
future, that standards will accurately measure our users or the full range
of user activity on our sites or that measurement services will accurately
report our user activity based on their standards. If standards do not
develop, advertisers may not advertise on the Internet. In addition, we
depend on third parties to provide these measurement services. These
measurements are often based on sampling techniques or other imprecise
measures and may materially differ from each other and from our estimates.
We cannot assure you that advertisers will accept our or other parties'
measurements. The rejection by advertisers of these measurements could have
a material adverse effect on our business 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. For example, advertising rates may be based on the
number of user requests for additional information made by clicking on the
advertisement, known as "click throughs," or on the number of times an
advertisement is displayed to a user, known as "impressions." Our contracts
with advertisers typically guarantee the advertiser a minimum number of
impressions. To the extent that minimum impression levels are not achieved
for any reason, including the failure to obtain the expected traffic, our
contracts with advertisers may require us to provide additional impressions
after the contract term, which may adversely affect the availability of our
advertising inventory. In addition, certain long-term contracts with
advertisers may be canceled if response rates or sales generated from our
site are less than advertisers expectations. This could have a material
adverse effect on us.
Our revenues could be materially adversely affected if we are unable
to adapt to other pricing models for Internet advertising if they are
adopted. It is difficult to predict which, if any, pricing models for
Internet advertising will emerge as the industry standard. This makes it
difficult to project our future advertising rates and revenues.
Additionally, it is possible that Internet access providers may, in the
future, act to block or limit various types of advertising or direct
solicitations, whether at their own behest or at the request of users.
Moreover, "filter" software programs that limit or prevent advertising from
being delivered to an Internet user's computer are available. Widespread
adoption of this software could adversely affect the commercial viability
of Internet advertising. In addition, concern regarding the privacy of user
data on the Web may reduce the amount of user data collected in the future,
thus reducing our ability to provide targeted advertisements. This may, in
turn, put downward pressure on CPM's.
WE DEPEND ON THIRD PARTIES TO INCREASE TRAFFIC ON OUR SITES AND TO PROVIDE
SOFTWARE AND PRODUCTS.
We are dependent on various websites that provide direct links to our
sites. These websites may not attract significant numbers of users and we
may not receive a significant number of additional users from these
relationships. We also enter into agreements with advertisers, electronic
commerce marketers or other third-party websites that require us to
exclusively feature these parties in particular areas or on particular
pages of our sites.
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These exclusivity agreements may limit our ability to enter into other
relationships. Our agreements with third party sites do not require future
minimum commitments to use our services or provide access to our sites and
may be terminated at the convenience of the other party. Moreover, we do
not have agreements with a majority of the websites that provide links to
our site. These sites may terminate their links at any time. Many companies
we may pursue for strategic relationships offer competing services. As a
result, these competitors may be reluctant to enter into strategic
relationships with us. Our business could be materially adversely affected
if we do not establish and maintain strategic relationships on commercially
reasonable terms or if any of our strategic relationships do not result in
increased traffic on our websites.
Additionally, we cannot assure you that we will be able to maintain
relationships with third parties that supply us with software or products
that are crucial to our success, or that these software or products will be
able to sustain any third-party claims or rights against their use.
Furthermore, we cannot assure you that the software, services or products
of those companies that provide access or links to our services or products
will achieve market acceptance or commercial success. Accordingly, we
cannot assure you that our existing relationships will result in sustained
business partnerships, successful service or product offerings or the
generation of significant revenues for us.
WE MAY NEED TO RAISE ADDITIONAL FUNDS, INCLUDING, BUT NOT LIMITED TO, THE
ISSUANCE OF DEBT.
We believe that the net proceeds from our secondary offering, together
with our current cash and cash equivalents and short-term investments, will
be sufficient to meet our anticipated cash needs for working capital and
capital expenditures for our existing business for the next twelve months.
However, we may need to raise additional funds in the future to acquire or
operate any additional businesses, products or technologies or joint
venture arrangements. We expect that we will continue to experience
negative operating cash flows for the foreseeable future as a result of our
operating losses and infrastructure needs. Accordingly, we may need to
raise additional funds in a timely manner in order to:
o fund our anticipated expansion;
o develop new or enhanced services or products;
o respond to competitive pressures;
o acquire complementary products, businesses or technologies; and
o enter into joint ventures.
If we raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders
will be reduced. Stockholders may experience additional dilution and these
securities may have rights senior to those of the holders of our Common
Stock. We do not have any contractual restrictions on our ability to incur
debt. Any indebtedness could contain covenants which restrict our
operations. We cannot assure you that additional financing will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our business could be
materially adversely effected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
WE RELY ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.
We regard substantial elements of our websites and underlying
technology as proprietary and attempt to protect them by relying on
intellectual property laws and restrictions on disclosure. We also
generally enter into confidentiality agreements with our employees and
consultants. In connection with our license agreements with third parties
we generally seek to control access to and distribution of our technology
and other proprietary information. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use our
proprietary information without authorization or to develop similar
technology independently. Thus, we cannot assure you that the steps taken
by us will prevent misappropriation or infringement of our proprietary
information which could have a material adverse effect on our business. In
addition, our competitors may independently develop similar technology,
duplicate our products or design around our intellectual property rights.
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We pursue the registration of our trademarks in the United States and
internationally. In addition, we have filed a number of patent applications
with the United States Patent Office. However, effective intellectual
property protection may not be available in every country in which our
services are distributed or made available through the Internet. Policing
unauthorized use of our proprietary information is difficult. Legal
standards relating to the validity, enforceability and scope of protection
of proprietary rights in Internet-related businesses are also uncertain and
still evolving. We cannot assure you about the future viability or value of
any of our proprietary rights.
Litigation may be necessary in the future to enforce our intellectual
property rights or to determine the validity and scope of the proprietary
rights of others. Furthermore, we cannot assure you that our business
activities will not infringe upon the proprietary rights of others, or that
other parties will not assert infringement claims against us, including
claims related to providing hyperlinks to websites operated by third
parties or providing advertising on a keyword basis that links a specific
search term entered by a user to the appearance of a particular
advertisement. Moreover, from time to time, third parties may assert claims
of alleged infringement by us or our members of their intellectual property
rights. See Note 10 of the consolidated financial statements and "Legal
Proceedings" under Item 3 in Part I in this Form 10-K. Any litigation
claims or counterclaims could impair our business because they could:
o be time-consuming;
o result in costly litigation;
o subject us to significant liability for damages;
o result in invalidation of our proprietary rights;
o divert management's attention;
o cause product release delays; or
o require us to redesign our products or require us to enter into
royalty or licensing agreements that may not be available on
terms acceptable to us, or at all.
We license from third parties various technologies incorporated into
our sites. As we continue to introduce new services that incorporate new
technologies, we may be required to license additional technology from
others. We cannot assure you that these third-party technology licenses
will continue to be available to us on commercially reasonable terms.
Additionally, we cannot assure you that the third parties from which we
license our technology will be able to defend our proprietary rights
successfully against claims of infringement. As a result, our inability 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 our existing services until equivalent technology can be
identified, licensed and integrated.
We have registered several Internet domain names including
"theglobe.com," "shop.theglobe.com," "globelists.com," "tglo.com,"
"azazz.com," "happypuppy.com, " "realmx.com," "kidsdomain.com,"
"gamesdomain.com," "webjump.com" and "cdmag.com." The regulation of domain
names in the United States and in foreign countries may change. Regulatory
bodies could establish additional top-level domains, appoint additional
domain name registrars or modify the requirements for holding domain names,
any or all of which may dilute the strength of our names. We may not
acquire or maintain our domain names in all of the countries in which our
websites may be accessed, or for any or all of the top-level domain names
that may be introduced. The relationship between regulations governing
domain names and laws protecting proprietary rights is unclear. Therefore,
we may not be able to prevent third parties from acquiring domain names
that infringe or otherwise decrease the value of our trademarks and other
proprietary rights.
WE MAY FACE INCREASED GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES IN OUR
INDUSTRY.
There are an increasing number of federal, state, local and foreign
laws and regulations pertaining to the Internet. In addition, a number of
federal, state, local and foreign legislative and regulatory proposals are
under
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consideration. Laws or regulations may be adopted with respect to the
Internet relating to liability for information retrieved from or
transmitted over the Internet, online content regulation, user privacy and
quality of products and services. Changes in tax laws relating to
electronic commerce could materially effect our business and financial
condition. Moreover, the applicability to the Internet of existing laws
governing issues such as intellectual property ownership and infringement,
copyright, trademark, trade secret, obscenity, libel, employment and
personal privacy is uncertain and developing. Any new legislation or
regulation, or the application or interpretation of existing laws or
regulations, may decrease the growth in the use of the Internet, may impose
additional burdens on electronic commerce or may alter how we do business.
This could decrease the demand for our services, increase our cost of doing
business, increase the costs of products sold through the Internet or
otherwise have a material adverse effect on our business, results of
operations and financial condition.
There are certain various issues being discussed by the accounting
profession and the Securities and Exchange Commission that would affect
Internet companies accounting policies with regards to revenue recognition,
barter transactions, impression guarantees as they relate to advertising
contracts, coupon and promotional expenses and customer acquisition costs.
While these discussions remain in the preliminary stages as of now, we
cannot predict the impact that certain proposed changes would have on our
results of operations, our financial condition or our stock price.
WE MAY BE EXPOSED TO LIABILITY FOR INFORMATION RETRIEVED FROM OR
TRANSMITTED OVER THE INTERNET OR FOR PRODUCTS SOLD OVER THE INTERNET.
Users may access content on our websites or the websites of our
distribution partners or other third parties through website links or other
means, and they may download content and subsequently transmit this content
to others over the Internet. This could result in claims against us based
on a variety of theories, including defamation, obscenity, negligence,
copyright, trademark infringement or the wrongful actions of third parties.
Other theories may be brought based on the nature, publication and
distribution of our content or based on errors or false or misleading
information provided on our websites. Claims have been brought against
online services in the past and we have received inquiries from third
parties regarding these matters. The claims could be material in the
future. We could also be exposed to liability for third party content
posted by members on their personal web pages or by users in our chat rooms
or on our bulletin boards.
Additionally, we offer e-mail service, which a third party provides.
The e-mail service may expose us to potential liabilities or claims
resulting from unsolicited e-mail, lost or misdirected messages, fraudulent
use of e-mail or delays in e-mail service. We also enter into agreements
with commerce partners and sponsors under which we are entitled to receive
a share of any revenue from the purchase of goods and services through
direct links from our sites. After the shop.theglobe.com acquisition in
February 1999, we also began selling products directly to consumers. We
increase our electronic commerce capabilities through our acquisition of
Chips & Bits, Inc. Those arrangements may expose us to additional legal
risks, regulations by local, state, federal and foreign authorities and
potential liabilities to consumers of these products and services, even if
we do not ourselves provide these products or services. We cannot assure
you that any indemnification that may be provided to us in some of these
agreements with these parties will be adequate. Even if these claims do not
result in our liability, we could incur significant costs in investigating
and defending against these claims. The imposition of potential liability
for information carried on or disseminated through our systems could
require us to implement measures to reduce our exposure to liability. Those
measures may require the expenditure of substantial resources and limit the
attractiveness of our services. Additionally, our insurance policies may
not cover all potential liabilities to which we are exposed.
WE MAY HAVE TROUBLE EXPANDING INTERNATIONALLY.
A part of our strategy is to expand into foreign markets. In April
1999, we acquired Attitude Network, Ltd., which operates Games Domain.com,
Kids Domain.com and Console Domain.com through a wholly-owned U.K.
subsidiary. We have not previously operated internationally. Additionally,
we may not be completely familiar with U.K. law and its ramifications on
our business. There can be no assurance that the Internet or our community
model will become widely accepted for advertising and electronic commerce
in any international markets. To expand overseas we intend to seek to
acquire additional websites and enter into relationships with foreign
business partners.
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This strategy contains risks, including:
o we may experience difficulty in managing international operations
because of distance, as well as language and cultural
differences;
o we or our future foreign business associates may not be able to
successfully market and operate our services in foreign markets;
o because of substantial anticipated competition, it will be
necessary to implement our business strategy quickly in
international markets to obtain a significant share of the
market; and
o we do not have the content or services necessary to substantially
expand our operations in many foreign markets.
We will unlikely be able to significantly penetrate these markets
unless we gain the relevant content, either through partnerships, other
business arrangements or possibly acquisitions with content-providers in
these markets. There are also risks inherent in doing business on an
international level, including:
o unexpected changes in regulatory requirements;
o trade barriers;
o difficulties in staffing and managing foreign operations;
o fluctuations in currency exchange rates and the introduction of
the euro;
o longer payment cycles in general;
o problems in collecting accounts receivable;
o difficulty in enforcing contracts;
o political and economic instability;
o seasonal reductions in business activity in certain other parts
of the world; and
o potentially adverse tax consequences.
VARIOUS STOCKHOLDERS, INDIVIDUALLY OR IN THE AGGREGATE, MAY CONTROL US.
Michael S. Egan, our Chairman, beneficially owns or controls, directly
or indirectly, 9,844,606 shares of our Common Stock which in the aggregate
represents approximately 28% of the outstanding shares of our Common Stock.
Todd V. Krizelman and Stephen J. Paternot, our Co-Chief Executive Officers,
together, beneficially own 12% of the outstanding shares of Common Stock.
Accordingly, Mr. Egan would likely be able to exercise significant
influence in any stockholder vote, particularly if Messrs. Krizelman and
Paternot support his position. Yale and Christina Brozen, the former owners
of Chips & Bits, Inc. and Strategy Plus, Inc., beneficially own
approximately 6% of the outstanding shares of Common Stock as tenants in
the entirety.
Messrs. Egan, Krizelman, Paternot and Edward A. Cespedes and Rosalie
V. Arthur, each of whom is a director of our company, and we have entered
into a stockholders' agreement. As a result of the stockholders' agreement,
Mr. Egan has agreed to vote for up to two nominees of Messrs. Krizelman and
Paternot to the board of directors and Messrs. Krizelman and Paternot have
agreed to vote for the nominees of Mr. Egan to the board, which will be up
to five directors. Consequently, Messrs. Egan, Krizelman and Paternot will
likely be able to elect a majority of our directors. Additionally, each
party other than Mr. Egan has granted an irrevocable proxy with respect to
all matters subject to a stockholder vote to Dancing Bear Investments,
Inc., an entity controlled by Mr. Egan, for any shares held by that party
received upon the exercise of outstanding warrants for 400,000 shares of
our Common Stock. The stockholders' agreement also provides for tag-along
and drag-along rights in connection with any private sale of these
securities.
THE YEAR 2000 ISSUE MAY AFFECT OUR OPERATIONS.
Year 2000 issues related to non-compliant information technology
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systems or non-information technology systems operated by us or by third
parties may affect us. We have completed our assessment of our internal and
external third-party information technology systems and non-information
technology systems and a test of the information technology systems that
support our websites. We have not experienced any Year 2000 related issues
to date with our internal systems or external third party systems on which
we rely. We do not anticipate any Year 2000 problems, although we cannot
assure you that this will be the case. We have not incurred any material
costs in relation to the evaluation and assessment of its Year 2000
compliance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Impact of the Year 2000."
A failure could prevent us from operating our business, prevent users
from accessing our websites, or change the behavior of advertising
customers or persons accessing our websites. We believe that the primary
business risks, in the event of a failure, would include, but not be
limited to:
o lost advertising revenues;
o increased operating costs;
o loss of customers or persons accessing our websites;
o other business interruptions of a material nature; and
o claims of mismanagement, misrepresentation, or breach of
contract.
Any of these risks could have a material adverse effect on our
business.
OUR STOCK PRICE IS VOLATILE.
The trading price of our Common Stock has been volatile and may
continue to be volatile in response to various factors, including:
o quarterly variations in our operating results;
o competitive announcements;
o changes in financial estimates by securities analysts;
o failure to meet analysts estimates;
o the operating and stock price performance of other companies that
investors may deem comparable to us; and
o news relating to trends in our markets.
The stock market has experienced significant price and volume
fluctuations, and the market prices of technology companies, particularly
Internet-related companies, have been highly volatile. In the past,
following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted
against a company. Litigation, if instituted, whether or not successful,
could result in substantial costs and a diversion of management's attention
and resources, which would have a material adverse effect on our business.
THE SALE OF SHARES ELIGIBLE FOR FUTURE SALE IN THE OPEN MARKET COULD
DEPRESS OUR STOCK PRICE.
Sales of significant amounts of Common Stock in the public market in
the future, the perception that sales will occur or the registration of
such shares could materially and adversely affect the market price of the
Common Stock or our future ability to raise capital through an offering of
our equity securities. We currently have approximately 17,318,389 shares of
Common Stock that are freely tradable. Approximately 7,864,034 shares of
Common Stock are held by our "affiliates," within the meaning of the
Securities Act of 1933, and are currently eligible for sale in the public
market subject to volume limitation. In connection with our acquisition of
Attitude Network, Ltd., approximately 1,570,922 shares will become eligible
for sale in the public market without restriction in April 2000.
Additionally, as a result of the acquisitions of the web hosting assets of
Webjump.com and Chips & Bits, Inc. and Strategy Plus, Inc., approximately
$9.5 million and $5.0 million, respectively, of Common Stock could
potentially become eligible for sale in the public market as soon as April
2000. The potential sale of Common
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Stock is subject to demand registration agreements executed in connection
with the acquisitions. The number of shares to be sold is dependant on the
average market price of Common Stock for the five days preceding the sale.
The remaining shares are eligible for sale without restriction in November
2000 and March 2001, respectively. In connection with our distribution
agreement with Sportsline.com, Inc., 699,281 shares will become eligible
for sale in the public market without restriction in February 2001.
There are outstanding options to purchase 4,546,049 shares of Common
Stock which become eligible for sale in the public market from time to time
depending on vesting and the expiration of lock-up agreements. The issuance
of these securities are registered under the Securities Act. In addition,
there are outstanding warrants to purchase up to 4,011,534 shares of our
Common Stock upon exercise. Substantially all of our stockholders holding
restricted securities, including shares issuable upon the exercise of
warrants to purchase our Common Stock, are entitled to registration rights
under various conditions.
ANTI-TAKEOVER PROVISIONS AFFECTING US COULD PREVENT OR DELAY A CHANGE OF
CONTROL.
Provisions of our charter, by-laws and stockholder rights plan and
provisions of applicable Delaware law may:
o have the effect of delaying, deferring or preventing a change in
control of our company;
o discourage bids of our Common Stock at a premium over the market
price; or
o adversely affect the market price of, and the voting and other
rights of the holders of, our Common Stock.
We must follow Delaware laws that could have the effect of delaying,
deterring or preventing a change in control of our company. One of these
laws prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder, unless various conditions are met. In
addition, provisions of our charter and by-laws, and the significant amount
of Common Stock held by our executive officers, directors and affiliates,
could together have the effect of discouraging potential takeover attempts
or making it more difficult for stockholders to change management.
WE DO NOT EXPECT TO PAY CASH DIVIDENDS.
We do not anticipate paying any cash dividends in the foreseeable
future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Collection Risks. Our accounts receivables are subject, in the normal
course of business, to collection risks. Although the Company regularly
assesses these risks and has policies and business practices to mitigate
the adverse effects of collection risks, significant losses may result due
to the non-payment of receivables by our advertisers.
Interest Rate Risk. Our return on its investments in cash and cash
equivalents and short-term investments is subject to interest rate risks.
We regularly assesses these risks and has established policies and business
practices to manage the market risk of its short-term securities.
Foreign Currency Risk. We transact business in the United Kingdom.
Accordingly, we are subject to exposure from adverse movements in foreign
currency exchange rates. The effect of foreign currency exchange rate
fluctuations for 1999 was not material. We do not use derivative financial
instruments to limit our foreign currency risk exposure.
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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
Independent Auditors' Report.................................. 48
Consolidated Balance Sheets as of December 31, 1999 and 1998.. 49
Consolidated Statements of Operations for each of the
years in the three year period ended December 31, 1999........ 50
Consolidated Statements of Stockholders' Equity and
Comprehensive Loss for each of the years in the three year
period ended December 31, 1999................................ 51
Consolidated Statements of Cash Flows for each of
the years in the three year period ended December 31, 1999.... 52
Notes to Consolidated Financial Statements.................... 53
Financial Statement Schedule:
II - Valuation and Qualifying Accounts for
each of the years in the three year period
ended December 31, 1999 Exhibit 99.1
All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements
or Notes thereto.
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
theglobe.com, inc.:
We have audited the accompanying consolidated balance sheets of
theglobe.com, inc. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity and
comprehensive loss and cash flows for each of the years in the three-year
period ended December 31, 1999. In connection with our audits of the
consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule 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 consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
theglobe.com, inc. and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1999 in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
New York, New York
January 28, 2000
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<TABLE>
<CAPTION>
THEGLOBE.COM, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------------
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 36,585,998 $ 29,250,572
Short-term investments............................. 19,288,627 898,546
Accounts receivable, less allowance for doubtful
accounts of $1,408,092 and $300,136 in 1999 and
1998, respectively............................... 4,219,716 2,004,875
Prepaid and other current assets................... 2,164,937 678,831
------------ ------------
Total current assets........................... 62,259,278 32,832,824
Property and equipment, net........................... 9,464,291 3,562,559
Restricted investments................................ 3,657,497 1,734,495
Goodwill and intangible assets, net................... 63,462,251 --
------------ ------------
Total assets.................................... $138,843,317 $ 38,129,878
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 2,722,017 $ 2,614,445
Accrued expense.................................... 2,439,369 817,463
Accrued compensation............................... 1,610,445 691,279
Deferred revenue................................... 565,919 673,616
Current installments of obligations under capital
leases........................................... 1,956,982 1,026,728
------------ ------------
Total current liabilities....................... 9,294,732 5,823,531
Obligations under capital leases, excluding current
installments....................................... 2,200,895 2,005,724
Deferred rent......................................... 438,263 --
Stockholders' equity:
Preferred stock, $.0.001 par value; 3,000,000 shares
authorized; no shares issued and outstanding
at December 31, 1999 and 1998, respectively -- --
Common stock, $0.001 par value; 100,000,000 shares
authorized; 27,770,918 and 20,624,512 shares
issued and outstanding at December 31, 1999 and
1998, respectively............................... 27,771 20,625
Additional paid-in capital......................... 197,307,293 50,904,181
Deferred compensation.............................. (269,307) (128,251)
Accumulated other comprehensive loss............... (109,462) (50,006)
Accumulated deficit................................ (70,046,868) (20,445,926)
------------ ------------
Total stockholders' equity...................... 126,909,427 30,300,623
Commitments and contingencies.........................
------------ ------------
Total liabilities and stockholders' equity...... $138,843,317 $ 38,129,878
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
THEGLOBE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues................................. $ 18,640,960 $ 5,509,818 $ 770,293
Cost of revenues......................... 8,547,514 2,136,151 257,206
------------ ------------ ------------
Gross profit....................... 10,093,446 3,373,667 513,087
Operating expenses:
Sales and marketing................... 19,352,022 9,401,403 1,414,849
Product development................... 10,488,190 2,632,613 153,667
General and administrative............ 12,164,650 6,828,134 2,827,591
Non-recurring charge.................. -- 1,370,250 --
Amortization of goodwill and
intangible assets................... 20,459,526 -- --
------------ ------------ ------------
Total operating expenses........... 62,464,388 20,232,400 4,396,107
------------ ------------ ------------
Loss from operations............... (52,370,942) (16,858,733) (3,883,020)
Other income (expense):
Interest and dividend income.......... 2,485,293 1,083,400 334,720
Interest and other expense............ (780,654) (191,389) --
------------ ------------ ------------
Total other income, net............ 1,704,639 892,011 334,720
------------ ------------ ------------
Loss before provision for income
taxes and extraordinary item..... (50,666,303) (15,966,722) (3,548,300)
Provision for income taxes............... 290,337 78,918 36,100
------------ ------------ ------------
Loss before extraordinary item..... (50,956,640) (16,045,640) (3,584,400)
Extraordinary item-gain on early
retirement of debt............... 1,355,698 -- --
------------ ------------ ------------
Net loss........................... $(49,600,942) $(16,045,640) $ (3,584,400)
============ ============ ============
Basic and diluted net loss per share:
Loss before extraordinary item......... $ (2.06) $ (3.37) $ (1.56)
Extraordinary item-gain on early
retirement of debt................... $ 0.06 $ -- $ --
------------ ------------ ------------
Net loss............................... $ (2.00) $ (3.37) $ (1.56)
============ ============ ============
Weighted average basic and diluted
shares outstanding................... 24,777,444 4,762,280 2,293,546
============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
50
<PAGE>
<TABLE>
theglobe.com, inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
<CAPTION>
Other
Additional Deferred compreh- Total
paid-in compen- ensive Accumulated stockholders'
Convertible Common stock capital sation loss deficit equity
preferred stock ---------------- ------------ --------- ---------- -------------- -------------
----------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................. 2,759,940 $2,760 2,250,000 $2,250 $1,627,421 $(21,053) $ -- $(815,886) $ 795,492
Net loss................. -- -- -- -- -- -- -- (3,584,400) (3,584,400)
Net unrealized loss on
securities............ -- -- -- -- -- -- (41,201) -- (41,201)
------------
Comprehensive loss.... (3,625,601)
------------
Issuance of Series C
convertible preferred
stock................. 140,000 140 -- -- 279,860 -- -- -- 280,000
Exercise of stock options -- -- 58,542 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
Deferred compensation.... -- -- -- -- 83,095 (83,095) -- -- --
Amortization of deferred
compensation.......... -- -- -- -- -- 28,115 -- -- 28,115
---------- ------- ---------- ------- ----------- -------- --------- ------------- ------------
Balance at December 31,
1997.................. 2,899,991 2,900 2,308,542 2,309 21,864,360 (76,033) (41,201) (4,400,286) 17,352,049
Net loss................. -- -- -- -- -- -- -- (16,045,640) (16,045,640)
Net unrealized loss on
securities............ -- -- -- -- -- -- (8,805) -- (8,805)
------------
Comprehensive loss.... (16,054,445)
------------
Deferred compensation.... -- -- -- -- 118,125 (118,125) -- -- --
Amortization of deferred
compensation.......... -- -- -- -- -- 65,907 -- -- 65,907
Issuance of common stock
in connection with
exercise of stock
options............... -- -- 398,166 398 254,619 -- -- -- 255,017
Conversion of preferred
stock in connection
with the Company's
IPO................... (2,899,991) (2,900) 10,947,470 10,947 (8,047) -- -- -- --
Non-cash compensation.... -- -- 7,000 7 31,493 -- -- -- 31,500
Issuance of common stock
in connection with the
Initial Public
Offering, net of
offering costs........ -- -- 6,963,334 6,964 27,273,381 -- -- -- 27,280,345
Transfer of warrants from
significant shareholder
to officers........... -- -- -- -- 1,370,250 -- -- -- 1,370,250
---------- ------- ---------- ------- ----------- -------- --------- ------------- ------------
Balance at December 31,
1998 ................. -- -- 20,624,512 20,625 50,904,181 (128,251) (50,006) (20,445,926) 30,300,623
Net loss................. -- -- -- -- -- -- (49,600,942) (49,600,942)
Net unrealized loss on
securities............. -- -- -- -- -- -- (58,923) -- (58,923)
Foreign currency
translation
adjustment............. -- -- -- -- -- -- (533) -- (533)
------------
Comprehensive loss.... (49,660,398)
------------
Deferred compensation.... -- -- -- -- 251,622 (251,622) -- -- --
Amortization of deferred
compensation........... -- -- -- -- -- 110,566 -- -- 110,566
Issuance of common stock
in connection with
exercise of stock
options............... -- -- 175,480 175 417,286 -- -- -- 417,461
Issuance of common stock
in connection with
Employee Stock Purchase
Plan.................. -- -- 7,200 7 75,042 -- -- -- 75,049
Issuance of common stock
in connection with
exercise of warrants.. -- -- 100,000 100 145,286 -- -- -- 145,386
Issuance of common stock
in connection with
acquisitions.......... -- -- 3,363,726 3,364 80,472,172 -- -- -- 80,475,536
Issuance of common stock
in connection with
Secondary Public
Offering, net of
offering costs........ -- -- 3,500,000 3,500 65,009,935 -- -- -- 65,013,435
Non-cash compensation.... -- -- -- -- 31,769 -- -- -- 31,769
---------- ------- ---------- ------- ----------- -------- --------- ------------- ------------
Balance at December 31,
1999.................... -- $ -- 27,770,918 $27,771 $197,307,293 $(269,307) $(109,462) $(70,046,868) $126,909,427
========== ======= ========== ======= =========== ======== ========= ============= ============
See accompanying notes to consolidated financial statements.
</TABLE>
51
<PAGE>
<TABLE>
theglobe.com, inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year ended
December 31,
----------------------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................. $(49,600,942) $(16,045,640) $(3,584,400)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 23,004,644 715,410 60,210
Transfer of stock warrants from significant
shareholder to officers............................ -- 1,370,250 --
Non-cash compensation................................ 31,769 31,500 --
Amortization of deferred compensation................ 110,566 65,907 28,115
Loss on disposal of equipment........................ 99,179 -- --
Amortization of debt discount........................ 147,012 -- --
Gain on early retirement of debt..................... (1,355,698) -- --
Deferred rent...................................... 438,263 -- --
Changes in operating assets and liabilities:
Accounts receivable, net............................. (1,896,755) (1,750,666) (188,081)
Prepaid and other current assets..................... (1,356,820) (678,831) 2,377
Other assets......................................... -- 7,657 --
Accounts payable..................................... (502,479) 2,218,065 265,902
Accrued expenses..................................... 525,654 492,009 310,220
Accrued compensation................................. 919,166 (457,720) 1,148,999
Deferred revenue..................................... (654,472) 560,326 81,146
------------ ------------ -----------
Net cash used in operating activities.................. (30,090,913) (13,471,733) (1,875,512)
------------ ------------ -----------
Cash flows from investing activities:
Purchase of securities................................... (30,135,867) -- (13,044,374)
Proceeds from sale of securities......................... 11,686,864 12,095,822 --
Purchases of property and equipment...................... (5,556,647) (730,359) (119,984)
Payment of security deposits............................. (1,898,897) (1,734,495) --
Cash acquired from acquisitions, net of cash paid........ 552,159 -- --
------------ ------------ -----------
Net cash (used in) provided by investing activities.... (25,352,388) 9,630,968 (13,164,358)
------------ ------------ -----------
Cash flows from financing activities:
Payments of long-term debt............................... (1,379,738) -- --
Payments under capital lease obligations................. (1,492,333) (315,316) --
Proceeds from exercise of common stock options and warrants 562,847 255,017 4,507
Net proceeds from issuance of common stock............... 65,088,484 27,280,345 --
Payment of financing costs............................... -- -- (130,464)
Proceeds from issuance of convertible preferred Series C
stock.................................................. -- -- 280,000
Proceeds from issuance of convertible preferred Series D
stock.................................................. -- -- 20,000,000
------------ ------------ -----------
Net cash provided by financing activities............ 62,779,260 27,220,046 20,154,043
------------ ------------ -----------
Net change in cash and cash equivalents.............. 7,335,958 23,379,281 5,114,173
Effect of exchange rate changes on cash and cash
equivalents........................................ (533) -- --
Cash and cash equivalents at beginning of period............ 29,250,572 5,871,291 757,118
------------ ------------ -----------
Cash and cash equivalents at end of period.................. $36,585,998 $29,250,572 $ 5,871,291
============ ============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 534,458 $ 123,724 $ --
============ ============ ===========
Income taxes........................................... $ 209,723 $ 69,890 $ --
============ ============ ===========
Supplemental disclosure of non-cash transactions:
Equipment acquired under capital leases.................. $ 2,545,134 $ 3,221,769 $ 126,000
============ ============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
52
<PAGE>
THEGLOBE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of the Company
theglobe.com, inc. (the "Company" or "theglobe") was incorporated on
May 1, 1995 (inception) and commenced operations on that date. theglobe.com
is an online property with registered members and users in the United
States and abroad. theglobe'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 the development
and sale of sponsorship placements within our websites, the sale of
merchandise through our online store, electronic commerce revenue shares
and, to a lesser extent, membership service fees for the sale of 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 community
solutions by the marketplace.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries from their respective dates of
acquisition. All significant intercompany balances and transactions have
been eliminated in consolidation.
(c) 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
were $30.2 million at December 31, 1999 and consisted of government
securities. Cash equivalents were $3.0 million as of December 31, 1998 and
consisted of corporate bonds and mutual funds.
(d) Short-term Investments
The Company accounts for its short-term investments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115
establishes the accounting and reporting requirements for all debt
securities and for investments in equity securities that have readily
determinable fair market value. All short-term marketable securities must
be classified as one of the following: held-to-maturity, available-for-sale
or trading securities. The Company's short-term investments consist of both
held-to-maturity and available-for-sale securities. The Company's
held-to-maturity securities are carried at amortized cost in the statement
of financial position. The amortization of the discount or premium that
arises at acquisition is included in earnings. The Company's
available-for-sale securities are carried at fair value, with unrealized
gains and losses reported as a separate component of stockholders' equity.
Unrealized gains and losses are computed on the basis of the specific
identification method. Realized gains, realized losses and declines in
value judged to be other-than-temporary, are included in other income
(expense). The cost of available-for-sale securities sold are based on the
specific-identification method and interest earned is included in net
income.
53
<PAGE>
At December 31, 1999 and 1998, the fair value of the Company's
available-for-sale securities approximated cost and unrealized gains and
losses were not material. The Company's short-term investments were
comprised of the following at December 31, 1999 and 1998:
DECEMBER 31,
------------------------
1999 1998
------------ ----------
(IN THOUSANDS)
Available-for-sale securities........ $ 2,889 $ --
Held-to-maturity securities.......... 16,400 899
-------- -------
Short-term investments.......... $ 19,289 $ 899
======== =======
(e) Property and Equipment
Property and equipment is stated at cost, net of accumulated
depreciation and amortization. Property and equipment is depreciated using
the straight-line method over the estimated useful lives of the related
assets, generally three to five years for equipment and five to seven years
for furniture and fixtures. Leasehold improvements are amortized using the
straight-line method over the shorter of the lease term or the estimated
useful life of the asset. Equipment under capital leases is stated at the
present value of minimum lease payments and is amortized using the
straight-line method over the estimated useful lives of the assets.
(f) Restricted Investments
At December 31, 1999 and 1998, restricted investments included
security deposits held in Certificates of Deposit and other interest
bearing accounts as collateral for certain capital lease equipment and
office space leases. In 1999, the Company pledged approximately $1.5
million as collateral in connection with its office space at 120 Broadway
in New York City.
(g) Goodwill and Intangible Assets
Goodwill and intangible assets primarily relate to the Company's
acquisitions accounted for under the purchase method of accounting, or
purchase of intangible assets. Under the purchase method of accounting, the
excess of the purchase price over the identifiable net tangible assets of
the acquired entity is recorded as identified intangible assets and
goodwill. Goodwill and intangible assets is stated at cost, net of
accumulated amortization, and is being amortized using the straight-line
method over the expected period of benefit ranging from 2 to 3 years (3
years for goodwill). As of December 31, 1999, accumulated amortization was
$20.5 million.
(h) Impairment of Long-Lived Assets
The Company reviews its long-lived assets and certain identifiable
intangible 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 the expected future
undiscounted 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.
(i) Fair Value of Financial Instruments
The carrying amount of certain of the Company's financial instruments,
including cash, cash equivalents, short-term investments, accounts
receivable, accounts payable, accrued expenses and deferred revenue,
approximate their fair value at December 31, 1999 and 1998 because of their
short maturities. The carrying amount of the Company's capital lease
obligations approximate their fair value based upon the implicit interest
rate of the leases.
54
<PAGE>
(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 consolidated 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 the consolidated 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
advertisements under short-term contracts. To date, the duration of the
Company's advertising commitments has generally averaged from one to three
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", defined as the number of times that an advertisement appears
in pages viewed by the users of the Company's online properties. Payments
received from advertisers prior to displaying their advertisements on its
sites are recorded as deferred revenues and are recognized as revenue
ratably when the advertisement is displayed. To the extent minimum
guaranteed impressions levels are not met, we defer recognition of the
corresponding revenues until guaranteed levels are achieved.
The Company also derives other revenues from the development and sale
of sponsorship placements within its websites, sales of merchandise from
its online department store, acquired in February 1999 in connection with
shop.theglobe.com, e-commerce revenue shares and membership service fees
from the sale of enhanced services. Development fees related to the sale of
sponsorship placements on our websites are recognized as revenue once the
related activities have been performed. Merchandise sales from the online
store are recognized as revenue when the product is shipped to the
customer. Freight out costs are included in net sales and have not been
significant to date. The Company provides an allowance for merchandise sold
through its online store. The allowance provided to date has not been
significant. Revenues from the Company's share of the proceeds from its
e-commerce partners' sales are recognized upon notification from its
partners of sales attributable to the Company's sites. Membership service
fees are deferred and recognized ratably over the term of the subscription
period. Other revenues accounted for 20%, 11% and 23% of revenues for the
years ended December 31, 1999, 1998 and 1997, 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 readily 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' websites, which typically occurs in the same period in which
barter revenue is recognized. Barter revenues and expenses represented 5%,
2% and 22% of revenues for the years ended December 31, 1999, 1998 and
1997, respectively.
(l) Advertising
Advertising costs are expensed as incurred and are included in sales
and marketing expense. The value of promotional coupons issued to customers
is expensed when redeemed and is included in sales and marketing expense.
Advertising costs were $8.7 million, $7.3 million and $1.1 million for the
years ended December 31, 1999, 1998 and 1997, respectively. The value of
promotional coupons was not material for the year ended December 31, 1999
and the Company did not issue coupons for the years ended December 31, 1998
and 1997.
(m) Product Development
Product development expenses include professional fees, staff costs
and related expenses associated with
55
<PAGE>
the development, testing and upgrades to the Company's website as well as
expenses related to its editorial content and community management and
support. Product development costs and enhancements to existing products
are charged to operations as incurred. During 1998, the Company adopted the
American Institute of Certified Public Accountants' Statement of Position
98-1, "Accounting for the Cost of Computer Software Developed or Obtained
for Internal Use" ("SOP 98-1"). SOP 98-1 requires all costs related to the
development of internal use software other than those incurred during the
application development stage to be expensed as incurred. It also provides
guidance on the capitalization of costs uncurred during the application
development stage for computer software developed or obtained for internal
use. As of December 31, 1999, the Company capitalized approximately $1.3
million in connection with the Company's back office systems.
(n) Stock-Based Compensation
The Company has adopted Statement of Financial Accounting Standard No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), 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 123 allows
entities to continue to apply the provisions of Accounting Principle Board
Opinion No. 25 ("APB 25") and provide pro forma net earnings disclosures
for employee stock option grants if the fair-value-based method defined in
SFAS 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion 25 and provide the pro forma disclosure
provisions of SFAS 123.
(o) Net Loss Per Common Share
The Company adopted Statement of Financial Accounting Standard No.
128, "Computation of Earnings Per Share," ("SFAS 128") during the year
ended December 31, 1997. In accordance with SFAS 128 and the SEC Staff
Accounting Bulletin No. 98, basic earnings per share is computed using the
weighted average number of common 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.
Diluted net loss per common share for the years ended December 31,
1999, 1998 and 1997 does not include the effects of options to purchase
4,301,887, 2,830,242 and 1,443,958 shares of Common Stock, respectively;
warrants to purchase 4,011,534, 4,046,018 and 3,522,732 shares of Common
Stock, respectively; and -0-, -0- and 9,906,654 shares of convertible
preferred stock on an "as if" converted basis, respectively.
(p) Comprehensive Income
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). 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. The Company's comprehensive loss was approximately $49.7
million, $16.1 million and $3.7 million and for the years ended December
31, 1999, 1998 and 1997, respectively. The Company's other comprehensive
loss items for the year ended December 31, 1999 were approximately $59,000
of net unrealized losses related to its short-term investments and a $1,000
loss related to its foreign currency translation adjustment. The other
comprehensive loss item for the years ended December 31, 1998 and 1997 was
$9,000 and $41,000, respectively, and represented the Company's net
unrealized losses on its short-term investments.
56
<PAGE>
(q) 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.
(r) 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 invests its cash and
cash equivalents and short-term investments among a diverse group of
issuers and instruments. The Company performs periodic evaluations of these
investments and the relative credit standings of the institutions with
which it invests. At certain times, the Company's cash balances with any
one financial institution may exceed Federal Deposit Insurance Corporation
insurance limits.
The Company's customers are primarily concentrated in the United
States. The Company performs ongoing credit evaluations of its customers'
financial condition 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 year ended December 31, 1999, there were no customers that
accounted for over 10% of revenues generated by the Company. The Company
had one customer that represented more than 10% of accounts receivable as
of December 31, 1999.
For the year ended December 31, 1998, there were no customers that
accounted for over 10% of revenues generated by the Company, or of accounts
receivable at December 31, 1998.
For the year ended December 31, 1997, there were no customers that
accounted for over 10% of revenues generated by the Company.
(s) Segment Reporting
During 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
annual and interim reporting standards for operating segments of a company.
SFAS 131 requires disclosures of selected segment-related financial
information about products, major customers and geographic areas. The
Company is organized in a single operating segment for purposes of making
operating decisions and assessing performance. The chief operating decision
maker evaluates performance, makes operating decisions and allocates
resources based on financial data consistent with the presentation in the
accompanying consolidated financial statements.
The Company's revenues have been earned primarily from customers in
the United States. In addition, all significant operations and assets are
based in the United States.
(t) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). 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, 2000. The Company has not yet
analyzed the impact of this pronouncement on its consolidated financial
statements.
(u) Reclassifications
Certain reclassifications have been made to prior year's consolidated
financial statements to conform to the current year's presentation.
(2) ACQUISITIONS
a) factorymall.com, inc.
On February 1, 1999, theglobe formed Nirvana Acquisition Corp.
("Nirvana"), a Washington corporation and a wholly-owned subsidiary of
theglobe. Nirvana was merged with and into factorymall.com, inc., a
Washington corporation d/b/a Azazz ("factorymall"), with factorymall as the
surviving corporation. The merger was effected pursuant to the Agreement
and Plan of Merger, dated February 1, 1999, by and among theglobe, Nirvana,
and
57
<PAGE>
factorymall and certain shareholders thereof. As a result of the merger,
factorymall became a wholly-owned subsidiary of theglobe. factorymall
operated Azazz, a leading interactive department store. This transaction
was accounted for under the purchase method of accounting.
The consideration paid by theglobe in connection with the merger
consisted of approximately 614,104 newly issued shares of Common Stock
valued at $17.5 million. In addition, options to purchase shares of
factorymall's common stock, without par value, were exchanged for options
to purchase approximately 82,034 shares of theglobe's Common Stock valued
at $1.7 million. Warrants to purchase shares of factorymall common stock
were exchanged for warrants to purchase approximately 18,810 shares of
theglobe's Common Stock valued at $0.4 million. theglobe also assumed
certain bonus obligations of factorymall triggered in connection with the
merger that resulted in the issuance by theglobe of approximately 73,728
shares of Common Stock, valued at $2.0 million, and payment by theglobe of
approximately $0.5 million in cash, which has been included as part of the
total purchase price consideration. The Company also incurred expenses of
approximately $0.7 million related to the merger.
The total purchase price for this transaction was approximately $22.8
million. Of this amount, approximately $0.1 million of the purchase price
was allocated to net tangible assets. The historical carrying amounts of
such net tangible assets approximated their fair values. The purchase price
in excess of the fair value of the net tangible assets assumed, in the
amount of $22.7 million was allocated to goodwill and certain identifiable
intangible assets and is being amortized using the straight-line method
over its estimated useful life of 2 to 3 years (3 years for goodwill), the
expected period of benefit. Factorymall's results of operations are
included in the consolidated statement of operations from February 1, 1999.
b) Attitude Network, Ltd.
On April 5, 1999, theglobe formed Bucky Acquisition Corp. ("Bucky"), a
Delaware corporation and a wholly-owned subsidiary of theglobe. Bucky was
merged with and into Attitude Network, Ltd., a Delaware corporation
("Attitude"), with Attitude as the surviving corporation. The merger was
effective pursuant to the Agreement and Plan of Merger, dated April 5,
1999, which closed on April 9, 1999, by and among theglobe, Bucky, Attitude
and certain shareholders thereof. As a result of the merger, Attitude
became a wholly-owned subsidiary of theglobe. Attitude's properties publish
games information content and include HappyPuppy, KidsDomain and
GamesDomain. This transaction was accounted for under the purchase method
of accounting.
The consideration paid by theglobe in connection with the merger
consisted of 1,570,922 newly issued shares of Common Stock valued at $43.1
million. In addition, options to purchase shares of Attitude's common stock
were exchanged for options to purchase approximately 84,760 shares of
Common Stock valued at $1.9 million. Warrants to purchase shares of
Attitude common stock were exchanged for warrants to purchase approximately
46,706 shares of theglobe Common Stock valued at $1.0 million. The Company
also incurred expenses of approximately $0.8 million related to the merger.
The total purchase price for this transaction was approximately $46.8
million. Of this amount, approximately $0.2 million of the purchase price
was allocated to net tangible liabilities. The historical carrying amounts
of such net tangible liabilities approximated their fair values. The
purchase price in excess of the fair value of the net tangible liabilities
assumed in the amount of $47.0 million was allocated to goodwill and
certain identifiable intangible assets and is being amortized using the
straight-line method over a its estimated useful life of 3 years, the
expected period of benefit. Attitude's results of operations are included
in the consolidated statement of operations from April 9, 1999.
The following unaudited pro forma consolidated financial information
gives effect to the acquisitions of factorymall.com and Attitude Network,
Ltd. as if they had occurred at the beginning of the respective periods
presented. The unaudited pro forma consolidated financial information is
not necessarily indicative of the consolidated results that would have
occurred, nor is it necessarily indicative of results that may occur in the
future.
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<PAGE>
DECEMBER DECEMBER
31, 31,
1999 1998
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Revenues............................................. $ 19,032 $ 7,869
Net loss............................................. (57,016) (47,107)
Net loss per share-basic and diluted................. $ (2.26) $ (6.71)
Weighted average basic and diluted shares
outstanding........................................ 25,261 7,021
(c) Web Hosting Assets of Webjump.com
On November 30, 1999, Jump Acquisition LLC ("Jump LLC"), a Delaware
limited liability company and a wholly owned subsidiary of theglobe,
acquired all of the assets of Webjump.com ("Webjump"), a web hosting
property catering primarily to small businesses and professional
webmasters, from Infonent.com. The purchase of the Webjump assets was
effected pursuant to an Agreement of Purchase and Sale, dated November 30,
1999, by and among theglobe, Jump LLC, Infonent.com and certain
stockholders of Infonent.com. The assets acquired in connection with this
transaction consisted of data, intellectual property and other physical
property used in connection with the operation of Webjump's web hosting
property. The Company intends to use the acquired assets to expand its own
web hosting operations.
The Company issued 1,104,972 shares of newly issued Common Stock,
valued at $12.9 million, in connection with this transaction. An additional
$12.5 million , payable in newly issued shares of Common Stock, is
contingent based upon the attainment by the Webjump property of certain
performance targets on or prior to November 30, 2000.
In addition to the issuance of Common Stock, the Company incurred
acquisition costs of $0.1 million. The aggregate purchase price of $13.0
million has been accounted for as purchased intangible assets and will be
amortized using the straight-line method over an estimated useful life of 3
years, the expected period of benefit.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER DECEMBER
31, 31,
1999 1998
---------- ----------
(IN THOUSANDS)
Computer equipment and software, including assets
under capital leases of $5,830 and $3,306,
respectively....................................... $ 9,613 $ 4,299
Furniture and fixtures, including assets under
capital leases of $42 and $42, respectively........ 1,159 89
Leasehold improvements............................... 2,025 --
---------- ----------
12,797 4,388
Less accumulated depreciation and amortization,
including amounts related to assets under capital 3,333 825
leases of $1,828 and $461, respectively............ ---------- ----------
Total............................................. $ 9,464 $ 3,563
========== ==========
(4) INCOME TAXES
Income taxes for the year ended December 31, 1999 and 1998 are based
solely on state and local taxes on business and investment capital.
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<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998 are presented below.
1999 1998
---------- ----------
(IN THOUSANDS)
Deferred tax assets:
Net operating loss carryforwards.................. $ 32,344 $ 13,412
Allowance for doubtful accounts................... 603 138
Depreciation...................................... 151 (28)
Issuance of warrants.............................. 630 630
Deferred compensation............................. 193 45
Start-up costs.................................... 210 --
Deferred revenue.................................. 75 --
Other............................................. -- 97
---------- ----------
Total gross deferred tax assets................ 34,206 14,294
Less valuation allowance............................. (31,893) (14,294)
---------- ----------
Total net deferred tax assets.................. 2,313 --
Deferred tax liabilities:
Intangible assets other than goodwill............. (2,313) --
---------- ----------
Total gross deferred tax liabilities........... (2,313) --
---------- ----------
$ -- $ --
========== ==========
Because of the Company's lack of earnings history, the deferred tax
assets have been fully offset by a 100% valuation allowance. The valuation
allowance for deferred tax assets was $31.9 million and $14.3 million as of
December 31, 1999 and 1998, respectively. The net change in the total
valuation allowance was $17.6 million and $12.3 million for the years ended
December 31, 1999 and 1998, respectively.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment. Of the total valuation allowance of $31.9 million,
subsequently recognized tax benefits, if any, in the amount of $5.8 million
will be applied directly to contributed capital.
At December 31, 1999, the Company had net operating loss carryforwards
available for US and foreign tax purposes of $69.5 million and $1.0 million
respectively. These carryforwards expire through 2019.
Under Section 382 of the Internal Revenue Code of 1986, as amended
(the "Code"), the utilization of net operating loss carryforwards may be
limited under the change in stock ownership rules of the Code. As a result
of ownership changes which occurred in August 1997 and May 1999, the
Company's operating tax loss carryforwards and tax credit carryforwards are
subject to these limitations.
(5) STOCKHOLDERS' EQUITY
Authorized Shares
In July 1998, 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 103,000,000 shares: 100,000,000 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.
60
<PAGE>
Common Stock
On November 14, 1998, the Company completed its initial public
offering and concurrent offering ("the offerings") directly to certain
investors in which it sold 6,963,334 shares of Common Stock, including
763,334 shares in connection with the exercise of the underwriters'
over-allotment option, at $4.50 per share. Upon the closing of the
offerings, all of the Company's preferred stock, par value $0.001 per share
(the "Preferred Stock") automatically converted into an aggregate of
10,947,470 shares of Common Stock. Net proceeds from the offerings, after
underwriting and placement agent fees of $2.0 million and offering costs of
$2.0 million, were $27.3 million.
In May 1999, the Company completed a secondary public offering of
3,500,000 shares of its Common Stock at an offering price of $20.00 per
share. Net proceeds to the Company amounted to $65.0 million, after
underwriting discounts and offering costs of $3.5 million and $1.5 million,
respectively.
The Company issued shares of Common Stock in connection with the
acquisitions of factorymall, Attitude and the web hosting assets of
Webjump. The shares issued in connection with these transactions amounted
to 687,832, 1,570,922 and 1,104,972, respectively. Additional shares may be
issued in connection with the acquisition of the Webjump assets pending
attainment of certain performance goals by November 2000.
Certain holders of Common Stock are subject to substantial
restrictions on the transfer or sale of shares and also have certain
'piggyback' and demand registration rights which, with certain exceptions,
require the Company to make all reasonable efforts to include within any of
the Company's registration statements to sell such securities any shares
that have been requested to be so included.
Stock Split
On May 14, 1999, the Company effected a 2-for-1 stock split to all
shareholders of record as of May 3, 1999. All share and per share
information in the accompanying consolidated financial statements has been
retroactively restated to reflect the effect of the stock split.
Convertible Preferred Stock
In April 1997, the Company amended the Series C Preferred Stock
agreement in order to extend the 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., an entity controlled
by the Chairman, which holds a majority interest in the Company. 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 provided
the right to purchase up to 10 shares of Series E Preferred Stock ("Series
E Warrants") 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.
As of December 31, 1997, the Company had five series of Convertible
Preferred Stock (collectively "Preferred Stock") authorized 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.
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<PAGE>
The conversion rate of the Series A, B and C Preferred Stock, as
defined in the original private placement agreements was the quotient
obtained by dividing the applicable series' original issue price by the
applicable series' conversion price. The original issue price and
conversion price was $0.10 per share for Series A, $0.525 per share for
Series B and $2.00 per share for Series C, as determined by negotiations
among the parties. Each share of Series D and E Preferred Stock was
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 per share for Series A, $0.525 per share for Series B, $2.00
per share for Series C, $392,156.86 per share for Series D and $588,235.30
per share for Series E, would be paid out of the assets of the Company
available for distribution before any such payments would 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.
Upon consummation of the initial public offerings, all of the
Company's outstanding Preferred Stock was converted into 10,947,470 shares
of Common Stock.
The number of common shares that the outstanding Series E Warrants are
convertible into upon exercise became fixed as a result of the consummation
of the initial public offering at 4,046,018 shares. These warrants are
immediately exercisable at approximately $1.45 per share. In May 1999,
100,000 shares of the Series E Warrants were exercised.
Warrants
In connection with the acquisitions of factorymall and Attitude, the
Company assumed warrants to purchase 18,810 and 46,706 shares of Common
Stock, respectively. These warrants are immediately exercisable at a
weighted average exercise price of $9.16.
(6) 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 must be granted at the fair market
value of the Company's Common Stock at the date the option is issued.
Nonqualified stock options may be granted to officers, directors,
other employees, consultants and advisors of the Company. The option price
for nonqualified stock options shall be at least 85% of the fair market
value of the Company's Common Stock. A committee selected by the Company's
Board of Directors has the authority to approve optionees and the terms of
the stock options granted, including the option price and the vesting
terms. Options granted under the Amended Plan expire after a ten year
period. 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 Common Stock for issuance
upon the exercise of options to be granted in the future under the Amended
Plan.
In July 1998, the Company's 1998 Stock Option Plan (the "1998 Plan")
was adopted by the Board of Directors and approved by the stockholders of
the Company. The 1998 Plan authorized the issuance of 2,400,000 shares of
Common Stock, subject to adjustment as provided in the 1998 Plan. In March
1999, the Board of Directors authorized an increase in the number of shares
reserved for issuance under the 1998 Plan from 2,400,000 to 3,400,000. This
increase was subsequently approved by the Company's stockholders in June
1999. The 1998
62
<PAGE>
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. A committee selected by the Company's Board of
Directors has the authority to approve optionees and the terms of the stock
options granted, including the option price and the vesting terms. Options
granted under the 1998 Plan expire after a ten year period and are subject
to the acceleration of vesting upon the occurrence of certain events.
The Company applies APB Opinion No. 25 in accounting for its Amended
Plan and 1998 Plan and, accordingly, compensation cost of $66,000, $66,000
and $28,000 has been recognized for stock options granted to employees
below fair market value in 1999, 1998 and 1997, respectively, in the
accompanying consolidated financial statements. Compensation cost
recognized in connection with stock options granted to non-employees was
$55,000 for the year ended December 31, 1999. There were no stock options
granted to non-employees, other than directors, during 1998 and 1997.
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 consolidated 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:
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net loss -- as reported................ $49,601 $16,046 $ 3,584
========== ========== ==========
Net loss -- pro forma.................. $61,071 $21,290 $ 3,621
========== ========== ==========
Basic net loss per common share--
as reported.......................... $ (2.00) $ (3.37) $ (1.56)
========== ========== ==========
Basic net loss per common share--
pro forma............................ $ (2.46) $ (4.47) $ (1.58)
========== ========== ==========
The per share weighted-average fair value of stock options granted
during 1999, 1998 and 1997 was $13.85, $4.02 and $0.16, respectively, on
the date of grant using the option-pricing method with the following
weighted-average assumptions: 1999--risk-free interest rate 5.14%, and an
expected life of four years, and a volatility of 111%; 1998--risk-free
interest rate 5.00%, and an expected life of four years, and a volatility
of 150%; 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 for 1997.
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<PAGE>
Stock option activity during the periods indicated is as follows:
WEIGHTED
AVERAGE
OPTIONS EXERCISE
GRANTED PRICE
---------- ----------
Outstanding at December 31, 1996..................... 684,098 $ 0.03
Granted.............................................. 823,402 $ 0.37
Exercised............................................ (58,542) $ 0.08
Canceled............................................. (5,000) $ 0.41
----------
Outstanding at December 31, 1997..................... 1,443,958 $ 0.22
Granted.............................................. 1,835,100 $ 4.51
Exercised............................................ (405,166) $ 0.63
Canceled............................................. (43,650) $ 0.39
----------
Outstanding at December 31, 1998..................... 2,830,242 $ 2.93
Granted.............................................. 1,823,300 $16.32
Assumed in connection with acquisitions.............. 522,885 $24.80
Exercised............................................ (175,480) $ 2.38
Canceled............................................. (699,060) $22.83
----------
Outstanding at December 31, 1999..................... 4,301,887 $ 8.06
========== =====
Vested at December 31, 1997.......................... 795,966
==========
Vested at December 31, 1998.......................... 694,346
==========
Vested at December 31, 1999.......................... 2,335,447
==========
Options available at December 31, 1999............... 563,740
==========
The following table summarizes information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- ---------------------------
Weighted
Average
Remaining
Contractual Weighted Weighted
Range of Number Life Average Number Average
Exercise Price Outstanding (years) Exercise Price Outstanding Exercise Price
- ------------------ ---------------- ------------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$.01 - $.01 125,000 5.9 $ 0.01 125,000 $ 0.01
$.05 - $.05 71,612 5.9 $ 0.05 69,612 $ 0.05
$.20 - $.20 73,278 6.9 $ 0.20 68,478 $ 0.20
$.35 - $.41 663,504 7.3 $ 0.36 640,304 $ 0.36
$1.39 - $1.39 62,634 8.0 $ 1.39 6,299 $ 1.39
$2.30 - $2.30 2,000 8.3 $ 2.30 400 $ 2.30
$3.83 - $4.95 1,589,898 8.6 $ 4.41 955,085 $ 4.47
$5.99 - $5.99 11,677 6.5 $ 5.99 11,677 $ 5.99
$9.38 - $13.88 489,452 8.8 $10.87 72,052 $10.65
$14.18 - $20.22 1,022,585 9.2 $16.56 371,712 $15.75
$21.41 - $31.90 145,955 8.9 $23.76 14,536 $22.30
$32.88 - $34.26 44,292 9.3 $33.73 292 $34.26
- ----------------- --------- --- ------ --------- ------
$.01 - $34.26 4,301,887 8.4 $ 8.06 2,335,447 $ 4.94
================= ========= === ====== ========= ======
</TABLE>
(7) EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan ("ESPP") was adopted by the
Board of Directors in February 1999 and subsequently approved by the
Company's stockholders in June 1999. The ESPP provides eligible employees
of the Company the opportunity to apply a portion of their compensation to
the purchase of shares of the Company at a 15% discount. The Company has
reserved 400,000 authorized shares of Common Stock for issuance under the
ESPP. As of December 31, 1999, the Company had issued approximately 7,200
shares in
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<PAGE>
connection with the ESPP.
(8) NON-RECURRING CHARGE
The Company recorded a non-cash, non-recurring charge of $1.4 million
to earnings in the third quarter of 1998 in connection with the transfer of
Series E Warrants to acquire 450,000 shares of Common Stock by Dancing Bear
Investments, Inc. (the Company's principal shareholder at the date of
transfer) to certain officers of the Company, at an exercise price of
approximately $1.45 per share. The Company accounted for such transaction
as if it were a compensatory plan adopted by the Company. Accordingly, such
amount was recorded as a non-cash, non-recurring compensation expense in
the Company's statement of operations for services provided by such
officers to the Company with an offsetting increase to additional paid-in
capital. The amount of the non-cash charge was based on the difference
between the fair market value at the time of the transfer ($4.50 per share)
and the exercise price per warrant of approximately $1.45 per share.
(9) EXTRAORDINARY ITEM-GAIN ON EARLY RETIREMENT OF DEBT
In connection with the acquisition of Attitude, the Company assumed a
non-interest bearing obligation, payable over 17 years, ("happypuppy note")
to the former owner of the happypuppy.com website ("happypuppy"), an online
property acquired by Attitude prior to its acquisition by the Company. The
net present value of the happypuppy note as of the date of acquisition was
approximately $2.7 million. In October 1999, in connection with the
settlement of certain litigation between the Company and the former owner
of happypuppy, the Company made a lump sum payment of approximately $1.4
million to the former owner of happypuppy. The $1.4 million represented
full repayment of the happypuppy note. At the time of repayment, the net
present value of the happypuppy note was approximately $2.8 million.
Accordingly, the Company recognized an extraordinary gain of $1.4 million
on the early retirement of long-term debt.
(10) COMMITMENTS & CONTINGENCIES
(a) Operating Leases
The Company has several non-cancelable leases, primarily relating to
the rental of certain facilities and equipment. Future minimum lease
payments, by year and in the aggregate, under operating leases with initial
or remaining terms in excess of one year consisted of the following at
December 31, 1999:
YEAR ENDED DECEMBER 31, AMOUNT
- ---------------------- -----------
2000....................................................... $ 2,152,240
2001....................................................... 1,781,732
2002....................................................... 1,560,165
2003....................................................... 1,515,649
2004 and thereafter........................................ 16,057,667
-----------
Total minimum lease payments.......................... $23,067,453
===========
Rent expense under operating leases amounted to $2.4 million, $0.4
million and $0.1 million for the years ended December 31, 1999, 1998 and
1997, respectively.
(b) Capital Leases
The Company has non-cancelable capital leases relating to the lease of
certain property and equipment. The Company's lease obligations are
collateralized by Certificates of Deposit and interest bearing accounts at
December 31, 1999. Future minimum lease payments, by year and in the
aggregate, under capital leases with initial or remaining terms
65
<PAGE>
in excess of one year consisted of the following at December 31, 1999:
CAPITAL
YEAR ENDED DECEMBER 31, LEASES
---------------------- ----------
2000...................................................... $2,375,259
2001...................................................... 2,096,319
2002...................................................... 390,480
2003...................................................... 1,703
2004 and thereafter....................................... --
----------
Total minimum lease payments........................ 4,863,761
Less amount representing interest (at rates ranging
from 10.5% to 19.9%).................................... 705,884
----------
Present value of minimum capital lease payments........... 4,157,877
Less current installments of obligation under capital
leases................................................. 1,956,982
----------
Obligations under capital leases, excluding current
installments........................................... $2,200,895
==========
(c) Employment Agreements
The Company maintains employment agreements, expiring at various
intervals from 2000 through 2003, with four executive officers and eight
employees of the Company. The employment agreements provide for minimum
salary levels, incentive compensation and severance benefits, among other
items.
(d) Litigation
On July 1, 1999, the Company filed a complaint in Supreme Court of the
State of New York, County of New York. The lawsuit alleges that
Stockplayer.com, Inc. breached advertising service agreements with the
Company by failing to pay for advertising services performed by the
Company. On August 13, 1999, Stockplayer.com, Inc. filed its answer denying
that it breached these advertising services agreements. The answer also
alleges that the Company breached alleged express and implied warranties in
connection with certain information provided by the Company to
Stockplayer.com. Stockplayer.com alleges that it has been damaged in an
amount not less than $5,000,000. Based on our analysis, the Company
believes that these allegations are without merit and plans to vigorously
defend these allegations. The Company believes that it is unlikely that
this claim will have a material adverse effect on the Company's
consolidated financial condition or results of operations.
From time to time the Company has been named in other claims arising
in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations or liquidity.
(11) RELATED PARTY TRANSACTIONS
Certain officers and directors of the Company also serve as officers
and directors of Dancing Bear Investments, Inc.
In 1998, the Company entered into an electronic commerce contract with
AutoNation, Inc. ("AutoNation"), (formerly doing business as Republic
Industries), an entity affiliated with a Director of the Company, pursuant
to which the Company granted a right of first negotiation with respect to
the exclusive right to engage in or conduct an automotive "clubsite" on
theglobe website through AutoNation. Additionally, AutoNation agreed to
purchase advertising from the Company for a three-year period at a price
which adjusted to match any more favorable advertising price quoted to a
third party by the Company, excluding certain short-term advertising rates.
For the years ended December 31, 1999 and 1998, the Company recognized
revenue of $0.3 million and $0.1 million, respectively, in connection with
the AutoNation agreement.
Additionally in 1998, the Company entered into an electronic commerce
arrangement with InteleTravel, an entity controlled by the Chairman of the
Company, whereby the Company agreed to develop a web community for
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InteleTravel in order for its travel agents to conduct business through
theglobe in exchange for access to InteleTravel customers for distribution
of the Company's products and services. For the year ended December 31,
1999, the Company recognized revenue of $0.3 million in connection with the
InteleTravel agreement. There was no revenue recognized for the year ended
December 31, 1998.
In 1999, the Company entered into a community agreement with
ClikVacations.com Inc., an entity controlled by the Chairman of the
Company, whereby the Company agreed to co-brand certain products and
services of theglobe for use on the Clik.com website. Additionally, the
Company agreed to sell all advertising inventory related to these
co-branded products and services in exchange for a portion of the net
advertising sales. The Company recognized revenue of $0.1 million in
connection with the ClikVacations.com agreement for the year ended December
31, 1999.
The Company believes that the terms of the foregoing arrangements are
on comparable terms as if they were entered into with unaffiliated third
parties.
STOCKHOLDERS' AGREEMENT
In 1997, the Chairman, the Co-Chief Executive Officers, a Vice
President and a Director of the Company and Dancing Bear Investments, Inc.
(an entity controlled by the Chairman) entered into a Stockholders'
Agreement (the "Stockholders' Agreement") pursuant to which the Chairman
and Dancing Bear Investments, Inc. or certain entities controlled by the
Chairman and certain permitted transferees (the "Chairman Group") will
agree to vote for certain nominees of the Co-Chief Executive Officers or
certain entities controlled by the Co-Chief Executive Officers and certain
permitted transferees (the "Co-Chief Executive Officer Groups") to the
Board of Directors and the Co-Chief Executive Officer Groups will agree to
vote for the Chairman Group's nominees to the Board, who will represent up
to five members of the Board. Additionally, pursuant to the terms of the
Stockholders' Agreement, the Co-Chief Executive Officers, a Vice President
and a Director have granted an irrevocable proxy to Dancing Bear
Investments, Inc. with respect to any shares that may be acquired by them
pursuant to the exercise of outstanding Warrants transferred to each of
them by Dancing Bear Investments, Inc. Such shares will be voted by Dancing
Bear Investments, Inc., which is controlled by the Chairman, and will be
subject to a right of first refusal in favor of Dancing Bear Investments,
Inc. upon certain private transfers. The Stockholders' Agreement also
provides that if the Chairman Group sells shares of Common Stock and
Warrants representing 25% or more of the Company's outstanding Common Stock
(including the Warrants) in any private sale after the Offerings, the
Co-Chief Executive Officer Groups, a Vice President and a Director of the
Company will be required to sell up to the same percentage of their shares
as the Chairman Group sells. If either the Chairman Group sells shares of
Common Stock or Warrants representing 25% or more of the Company's
outstanding Common Stock (including the Warrants) or the Co-Chief Executive
Officer Groups sell shares or Warrants representing 7% or more of the
shares and Warrants of the Company in any private sale after the Offerings,
each other party to the Stockholders' Agreement, including entities
controlled by them and their permitted transferees, may, at their option,
sell up to the same percentage of their shares.
(12) SUBSEQUENT EVENTS-UNAUDITED
(a) Resignation of Co-Chief Executive Officers
In January 2000, the Co-Chief Executive Officers announced they would
be resigning their positions as Co-Chief Executive Officers of the Company,
effective upon the hiring of a new Chief Executive Officer. The Company
anticipates the hiring of a new Chief Executive Officer by the second
quarter of 2000.
(b) 2000 Broad Based Employee Stock Option Plan
In February 2000, the Board of Directors adopted the 2000 Broad Based
Employee Stock Option Plan (the
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"2000 Plan"). The 2000 Plan authorized the issuance of 850,000 nonqualified
stock options as provided in section 422 of the Internal Revenue Code.
Nonqualified stock options under the 2000 Plan may be granted to directors,
officers, other employees, consultants and advisors of the Company. The
2000 Plan requires that the majority of the stock options issued are to
non-management employees. A committee selected by the Company's Board of
Directors has the authority to approve optionees and the terms of the stock
options granted, including the option price and the vesting terms. Options
granted under the 2000 Plan expire after a ten year period and are subject
to the acceleration of vesting upon the occurrence of certain events. As of
March 2000, the Company had approximately 400,000 stock options outstanding
under the 2000 Plan.
(c) Acquisition of Chips & Bits, Inc. and Strategy Plus, Inc.
On February 24, 2000, CB Acquisition Corp. ("CB Merger Sub"), a
Vermont corporation and a wholly-owned subsidiary of theglobe was merged
with and into Chips & Bits, Inc., a Vermont corporation ("Chips & Bits"),
with Chips & Bits as the surviving corporation (the "CB Merger"). Also on
February 24, 2000, SP Acquisition Corp. ("SP Merger Sub"), a Vermont
corporation and a wholly-owned subsidiary of theglobe, was merged with and
into Strategy Plus, Inc., a Vermont corporation ("Strategy Plus"), with
Strategy Plus as the surviving corporation (together with the CB Merger,
the "Mergers"). The Mergers were effected pursuant to an Agreement and Plan
of Merger dated as of January 13, 2000 by and among theglobe, CB Merger
Sub, SP Merger Sub, Chips & Bits, Strategy Plus, Yale Brozen and Christina
Brozen (the "Merger Agreement"). As a result of the Mergers, both Chips &
Bits and Strategy Plus became wholly-owned subsidiaries of theglobe.
The total purchase price of this transaction was $15.3 million. The
consideration paid by the Company consisted of 1,885,125 shares of the
Company's Common Stock, valued at $14.9 million, and $0.3 million. In
addition, the Company assumed certain bonus obligations of Chips & Bits and
Strategy Plus triggered in connection with the Mergers that resulted in the
issuance of 18,852 shares of the Common Stock, valued at $0.1 million,
which has been included as part of the purchase price consideration. The
Company has also incurred preliminary acquisition costs of approximately
$0.2 million. An additional payment of $1.3 million in newly issued shares
of Common Stock is contingent upon the attainment of certain performance
targets by Chips & Bits and Strategy Plus during the 2000 fiscal year.
This transaction will be accounted for under the purchase method of
accounting and the difference between the purchase price and the estimated
fair value of the acquired assets and liabilities of Chips & Bits and
Strategy Plus will be recorded as goodwill and other intangible assets. The
goodwill and other intangible assets will be amortized over a estimated
useful life of three years, the expected period of benefit.
(e) Sportsline.com, Inc. Partnership
In February 2000, the Company entered into a strategic partnership
with Sportsline.com, Inc. ("Sportsline"), whereby the Company will
exclusively develop and operate community solutions on the Sportsline
website. Under the terms of the agreement, Sportsline will receive a
minimum guarantee of $5.0 million, payable in the Company's Common Stock.
The total shares of Common Stock issued in connection with the agreement
was 699,281. Sportsline will receive additional compensation in stock or
cash, based upon the achievement of certain performance goals throughout
the term of the agreement. Additionally, the Company receives the exclusive
right to sell advertising, sponsorships and non-sports related e-commerce
within the Sportsline community area.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by Part III, Item 10, regarding the
Registrant's directors is included in the our Proxy Statement relating to
our annual meeting of stockholders to be held in June 2000, and is
incorporated herein by reference. The information appears in the Proxy
Statement under the caption "Election of Directors." The Proxy Statement
will be filed within 120 days of December 31, 1999, the Company's year end.
ITEM 11. EXECUTIVE COMPENSATION
Information called for by Part III, Item 11, is included in the our
Proxy Statement relating to the our annual meeting of stockholders to be
held in June 2000, and is incorporated herein by reference. The information
appears in the Proxy Statement under the caption "Executive Compensation."
The Proxy Statement will be filed within 120 days of December 31, 1999, the
Company's year end.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by Part III, Item 12, is included in the our
Proxy Statement relating to the our annual meeting of stockholders to be
held in June 2000, and is incorporated herein by reference. The information
appears in the Proxy Statement under the caption "Beneficial Ownership of
Shares." The Proxy Statement will be filed within 120 days of December 31,
1999, the Company's year end.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding our relationships and related transactions is
available under "Certain Transactions" in our Proxy Statement relating to
our annual meeting of stockholders to be held in June 2000, and is
incorporated herein by reference. The Proxy Statement will be filed within
120 days of December 31, 1999, the Company's year end.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements: See Index to Consolidated Financial
Statements at Item 8 on page 38 of this report.
(2) Financial Statement Schedule: See Index to Consolidated Financial
Statements at Item 8 on page 38 of this report.
(3) EXHIBITS
The following Exhibits are attached hereto and incorporated herein by
reference:
2.1 Agreement and Plan of Merger dated as of February 1, 1999
by and among theglobe.com, inc., Nirvana Acquisition
Corp., factorymall.com, inc. d/b/a Azazz, and certain
selling stockholders thereof**
2.2 Agreement and Plan or Merger dated as of April 5, 1999 by
and among theglobe.com, inc., Bucky Acquisition Corp.,
Attitude Network, Ltd. and certain shareholders thereof***
2.3 Agreement of Purchase and Sale as dated November 30, 1999
by and among theglobe.com, inc., Jump Acquisition LLC,
Infonent.com, Inc. and certain stockholders thereof****
2.4 Agreement and Plan of Merger dated as of January 13, 2000
by and among theglobe.com, inc., Chips & Bits, Inc.,
Strategy Plus, Inc., CB Acquisition Corp., SP Acquisition
Corp., Yale Brozen and Tina Brozen*****
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 August 31,
1998********
4.3 Amendment No.2 to Second Amended and Restated Investor
Rights Agreement among the Company and certain equity
holders of the Company, dated April 9, 1999*******
4.4 Form of Amendment No. 3 to the Second Amended and Restated
Investor Rights Agreement among the Company and certain
equity holders of the Company*******
4.5 Registration Rights Agreement, dated as of September 1,
1998********
4.6 Amendment No.1 to Registration Rights Agreement, dated as
of April 9, 1999*******
4.7 Specimen certificate representing shares of Common Stock
of the Company*
4.8 Amended and Restated Warrant to Acquire Shares of Common
Stock*
4.9 Form of Rights Agreement, by and between the Company and
American Stock Transfer & Trust Company as Rights Agent*
4.10 Registration Rights Agreement among the Company and
certain equity holders of the Company, dated February 1,
1999, in connection with the acquisition of
factorymall.com********
4.11 Form of Amended and Restated Registration Rights Agreement
among the Company and certain equity holders of the
Company in connection with the acquisition of
factorymall.com*******
4.12 Registration Rights Agreement among the Company and
certain shareholders of the Company, dated April 9, 1999,
in connection with the acquisition of Attitude Network,
Ltd*******
4.13 Registration Rights Agreement among the Company and
certain shareholders of the Company, dated November 30,
1999, in connection with the acquisition of Webjump.com
from Infonet.com, Inc.
4.14 Registration Rights Agreement among the Company and
certain shareholders of the Company, dated February 22,
1999, in connection with the acquisition of Chips & Bits,
Inc. and Strategy Plus, Inc.
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 February 14, 1999***
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*
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10.5 Lease Agreement dated January 12, 1999 between the Company
and Broadpine Realty Holding Company, Inc.********
10.6 200 Broad Based Stock Option Plan
10.7 1998 Stock Option Plan, as amended*******
10.8 1995 Stock Option Plan*
10.9 factorymall.com,inc. 1998 Stock Option Plan******
10.10 Form of Nonqualified Stock Option Agreement with James
McGoodwin, Kevin McKeown and Mark Tucker******
10.11 Attitude Network, Ltd. Stock Option Plan*******
10.12 Form of Employee Stock Purchase Plan********
10.13 License Agreement between the Company and Engage
Technologies, Inc. dated October 31, 1998********
10.14 Employment Agreement dated August 31, 1998, by and between
the Company and Dean Daniels*
10.15 Data Center Space Lease between Telehouse International
Corporation of America and the Company, dated August 24,
1998*
23.1 Consent of KPMG LLP
27.1 Financial Data Schedule
99.1 Valuation and Qualifying Accounts
(b) REPORTS ON FORM 8-K
On October 20, 1999, we filed a Form 8-K/A under Item 2 and 7 amending
the original Form 8-K filed on April 9, 1999 regarding the completion of
the acquisition of Attitude Network, Ltd.
On October 20, 1999, we filed a Form 8-K/A under Item 7 amending the
original Form 8-K filed on February 1, 1999 and an amended Form 8-K/A filed
on April 1, 1999 regarding the completion of the acquisition of
factorymall.com.
On November 30, 1999, we filed a Form 8-K under Item 2 and 7 regarding
the acquisition of the web hosting assets of Webjump.com from Infonent.com,
Inc.
- -------------------------
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* Incorporated by reference from our registration statement on Form
S-1 (Registration No. 333-59751).
** Incorporated by reference from our report on Form 8-K filed on
February 16, 1999.
*** Incorporated by reference from our report on Form 8-K filed on
April 9, 1999.
**** Incorporated by reference from our report on Form 8-K filed on
November 30, 1999.
***** Incorporated by reference from our report on Form 8-K filed on
February 24, 2000.
****** Incorporated by reference from our Registration of Form S-8 (No.
333-75503), filed on April 1, 1999.
******* Incorporated by reference from our registration statement on Form
S-1 (Registration No. 333-76153).
******** Incorporated by reference on our Report Form 10-K filed March 1999.
+ Confidential treatment granted as to parts of this document.
++ Confidential treatment requested.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 30, 2000 theglobe.com, inc.
By /s/ Todd V. Krizelman
-------------------------------
TODD V. KRIZELMAN
CO-CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated this 30th day of March,
2000.
/s/ Michael S. Egan Chairman
-------------------------
MICHAEL S. EGAN
/s/ Todd V. Krizelman Co-Chief Executive Officer and Director
-------------------------
TODD V. KRIZELMAN
/s/ Stephan J. Paternot Co-Chief Executive Officer, Secretary
------------------------- and Director
STEPHAN J. PATERNOT
/s/ Dean S. Daniels President and Chief Operating Officer
-------------------------
DEAN S. DANIELS
/s/ Francis T. Joyce Vice President and Chief Financial
------------------------- Officer (Chief Accounting Officer)
FRANCIS T. JOYCE
/s/ Edward A. Cespedes Vice President of Corporate
------------------------- Development and Director
EDWARD A. CESPEDES
/s/ Rosalie V. Arthur Director
-------------------------
ROSALIE V. ARTHUR
/s/ Henry C. Duques Director
-------------------------
HENRY C. DUQUES
/s/ Robert M. Halperin Director
-------------------------
ROBERT M. HALPERIN
/s/ H. Wayne Huizenga Director
-------------------------
H. WAYNE HUIZENGA
73
REGISTRATION RIGHTS AGREEMENT
THEGLOBE.COM, INC.
NOVEMBER 30, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS...........................................................1
2. REGISTRATION; RESTRICTIONS ON TRANSFER................................3
2.1 Restrictions on Transfer.....................................3
2.2 Demand Registration..........................................4
2.3 General Provisions Applicable to Demand Registration.........5
2.4 Delay, Postponement and Suspension of Sale...................6
2.5 No Piggyback Registrations...................................7
2.6 Registration Expenses........................................7
2.7 Obligations of the Company...................................8
2.8 Termination of Registration Rights..........................10
2.9 Delay of Registration.......................................10
2.10 Indemnification.............................................10
2.11 "Market Stand-Off" Agreement................................13
2.12 Rule 144 Reporting..........................................14
3. CONFIDENTIALITY......................................................14
4. GENERAL..............................................................15
4.1 Governing Law...............................................15
4.2 Survival....................................................15
4.3 Successors and Assigns......................................15
4.4 Severability................................................16
4.5 Amendment and Waiver........................................16
4.6 Delays or Omissions.........................................16
4.7 Notices.....................................................16
4.8 Attorneys' Fees.............................................17
4.9 Headings....................................................17
4.10 Entire Agreement............................................17
4.11 Counterparts................................................17
4.12 Third-Party Beneficiaries...................................17
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into
as of the 30th day of November 1999, by and among theglobe.com, inc., a
Delaware corporation (the "Company"), and each Holder (as defined in
Section 1 below).
WHEREAS, pursuant to the Agreement of Purchase and Sale, dated
November 30, 1999 (the "Purchase Agreement"), by and among the Company,
Jump Acquisition LLC, Infonent.com, Inc., a Delaware corporation
("Infonent"), and the stockholders of Infonent, pertaining to the
acquisition by the Company of the assets of Webjump (as such term is
defined in the Purchase Agreement), the Company has agreed to provide
certain registration rights to the Holders as set forth herein; and
WHEREAS, the foregoing parties desire to set forth their agreement as
to the registration rights of the Holders;
NOW, THEREFORE, the parties hereto, in consideration of the foregoing,
the mutual covenants and agreements hereinafter set forth, and other good
and valuable consideration the receipt and sufficiency of which hereby are
acknowledged, agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following respective meanings:
"AUDITED FINANCIAL STATEMENTS" shall mean balance sheets, statements
of operations, statements of stockholders' equity and statements of cash
flows, including any pro forma financial statements, with respect to
Webjump (and any notes related to the foregoing) necessary in the Company's
judgment in order to meet the requirements of Regulation S-X of the
Securities Act or other federal laws applicable to the Company in
connection with the Registration Statement contemplated by Section 2.2 of
this Agreement, covering any time period required by such securities laws,
prepared in accordance with United States Generally Accepted Accounting
Principles consistently applied and, if required, audited by a nationally
recognized independent accounting firm selected by the Company, which firm
has executed an unqualified opinion related to, and has consented to the
inclusion of, such financial statements in such Registration Statement. The
Company shall bear the cost of preparation of the Audited Financial
Statements; provided, that in the event such costs exceed $50,000, Holders
shall be liable for such excess, in proportion to their pro rata ownership
of Registered Securities.
"COMMON STOCK" shall mean the common stock, par value $.001 per share,
of the Company.
"COMPETITOR" shall mean any Person directly or indirectly engaged in,
or owning or controlling a free web page hosting service, an e-commerce
website, or a virtual community Web site.
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section
3.
"DELAY PERIOD" shall have the meaning set forth in Section 2.4.
"EFFECTIVE DATE" shall have the meaning set forth in Section 2.2.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
References to a particular section of the Securities Exchange Act of 1934,
as amended, shall include a reference to the comparable section, if any, of
any such similar federal statute.
"FAMILY MEMBER" shall mean a Holder's spouse, natural and adoptive
children, siblings, parents and grandparents; provided that none of the
foregoing is a Competitor of the Company.
"HOLDER" means any Person listed on Exhibit A hereto who owns of
record Registrable Securities and who has executed a counterpart signature
page to this Agreement, or any assignee of record of Registrable Securities
held by such Person in accordance with Section 4.3 hereof.
"INFONENT" shall have the meaning set forth in the recitals hereto.
"PERSON" shall mean any individual, corporation, limited liability
company, partnership, trust or association, or any other entity or
organization, including any government entity.
"PURCHASE AGREEMENT" shall have the meaning set forth in the recitals
hereto.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance
with the Securities Act, and the declaration or ordering of effectiveness
of such registration statement or document.
"REGISTRABLE SECURITIES" means (i) shares of Common Stock issued to
the Holders pursuant to the Purchase Agreement; and (ii) any Common Stock
issued as a dividend or other distribution with respect to, or in exchange
for or in replacement of, such above-described securities. As to any
particular Registrable Securities, such securities shall cease to be
Registrable Securities when (a) a Registration Statement with respect to
the sale of such securities shall have become effective under the
Securities Act, (b) they may be sold by the Holder thereof pursuant to Rule
144 or any successor rule under the Securities Act, (c) they shall have
been otherwise transferred, new certificates for them not bearing a legend
restricting further transfer under the Securities Act shall have been
delivered by the Company and subsequent public distribution of them shall
not require registration of them under the Securities Act, or (d) they
shall have ceased to be outstanding.
"REGISTRATION STATEMENT" means a registration statement of the
Company, filed with the Commission on an appropriate form, including any
registration statement filed pursuant to the provisions of this Agreement,
including the prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933, as amended, shall include
a reference to the comparable section, if any, of any such similar federal
statute.
"TRANSFER" shall have the meaning set forth in Section 2.1.
2. REGISTRATION; RESTRICTIONS ON TRANSFER.
2.1 RESTRICTIONS ON TRANSFER. (a) Each Holder agrees not to make any
sale, offer for sale, pledge or other disposition (collectively, a
"Transfer") of all or any portion of Registrable Securities unless and
until:
(i)- Subject to the terms of any notice delivered pursuant
to Section 2.3(9), there is then in effect a Registration Statement under
the Securities Act covering such proposed Transfer and such Transfer is
made in accordance with such Registration Statement; or
(ii) (A) The transferee has agreed in a letter addressed to
the Company to be bound by this Agreement, (B) such Holder shall have
notified the Company, in advance of the proposed Transfer, of the name and
address of the proposed transferee and shall have furnished the Company
with a detailed statement of the circumstances surrounding such proposed
Transfer, (C) the transferee is not a Competitor of the Company, and (D) if
requested by the Company, such Holder shall have furnished the Company with
an opinion of counsel, reasonably satisfactory to the Company, that such
Transfer will not require registration of such shares under the Securities
Act.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such Registration Statement or opinion of counsel shall be
necessary for a Transfer by Infonent to any of the stockholders thereof as
of the date hereof or a Holder to the Holder's Family Members or trusts for
the benefit of an individual Holder or such Holder's Family Members,
provided, however, that such Holder shall have notified the Company in
advance of the proposed Transfer, the name and address of the proposed
transferee, and such transferee agrees in a letter addressed to the Company
to be bound by all of the provisions of this Agreement to the same extent
as if such transferee were an original Holder hereunder.
(iv) In the case of any Transfer, the transferee shall
deliver evidence reasonably satisfactory to the Company that such Holder is
an "accredited investor" within the meaning of that term as defined in Rule
501 promulgated under the Securities Act.
(b) Each certificate representing Registrable Securities shall be
stamped or otherwise imprinted with the following legends:
(I) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED."
(II) ANY LEGEND REQUIRED BY APPLICABLE STATE SECURITIES
LAWS.
(c) The Company shall promptly reissue certificates without the
legend specified in Section 2.1(b)(i) at the request of any Holder who has
obtained an opinion of counsel (which counsel may be counsel to the
Company, but the Company shall not be required to have its counsel deliver
such opinion) or other evidence in each case reasonably acceptable to the
Company to the effect that the Registrable Securities proposed to be
disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on a certificate representing Registrable
Securities pursuant to applicable state securities laws and the
stop-transfer instructions with respect to such Registrable Securities
shall be removed upon receipt by the Company of an order of the appropriate
blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION. (a) Upon receipt of written notice from the
Holders of a majority in interest of Registrable Securities, the Company
agrees to use its commercially reasonable best efforts to file with the SEC
as soon as commercially practicable following April 20, 2000, a
Registration Statement on Form S-1, Form S-3 (if the Company is then
eligible), or such other similar form as may be permitted under the
Securities Act, covering the number of Registrable Securities equal to the
quotient obtained by dividing $9,500,000 by the average closing price of
the Company's Common Stock as reported on the Nasdaq National Market on the
five trading days immediately prior to such filing; provided that in the
event Audited Financial Statements are necessary for such filing, such
Audited Financial Statements shall have been delivered to the Company prior
to the time that any filing pursuant to this Section 2.2 shall be required.
The Company may at any time amend the Registration Statement to amend the
form on which such Registration Statement has been filed, so long as
permitted by applicable federal law. The Company shall use its commercially
reasonable best efforts to cause the Registration Statement to be declared
effective pursuant to the Securities Act as promptly as practicable
following the filing thereof (the "Effective Date").
(b) Following the date hereof, each of the Company, Infonent and
any Holder hereunder shall use its commercially reasonable best efforts to
determine if Audited Financial Statements are required as a result of the
Company's acquisition of the Webjump Business and, if so required, each
such party shall use its commercially reasonable best efforts to cause such
Audited Financial Statements to be delivered to the Company prior to April
20, 2000.
2.3 GENERAL PROVISIONS APPLICABLE TO DEMAND REGISTRATION. (a) No
Holder may include any of its Registrable Securities in a Registration
Statement pursuant to this Agreement unless and until such Holder furnishes
to the Company in writing, as soon as practicable after the date hereof but
in no event later than fifteen (15) business days prior to an Effective
Date, the information specified in Item 507 or 508 of Regulation S-K
promulgated under the Securities Act, as applicable, and any additional
information required by the Securities Act for use in connection with such
Registration Statement or prospectus or preliminary prospectus included
therein. Each selling Holder agrees to promptly furnish such information
and any additional information required to be disclosed in order to make
the information previously furnished to the Company by such Holder not
materially misleading.
(b) The Company shall not be required to effect a registration as
set forth in Section 2.2 in any particular jurisdiction in which the
Company would be required to qualify to do business as a foreign
corporation or to pay taxes wherein it would not but for the requirements
of this Agreement be obligated to be so qualified or to consent to general
service of process or pay taxes in any such state or jurisdiction effecting
such registration, qualification or compliance.
(c) The Company shall not have any further obligation under
Section 2.2 if a Registration Statement has been declared effective with
respect to the obligation specified under such Section.
(d) Each Holder shall, upon five (5) business days' notice to the
Company (or such shorter period acceptable to the Company), have the right
to withdraw from a Registration Statement, provided that such withdrawal
occurs prior to the Effective Date of such Registration Statement. In the
event that a Holder withdraws from a Registration Statement, the Company's
obligation pursuant to Section 2.2 shall be deemed to have been satisfied
with respect to such Holder.
(e) In the event of any sale or disposition of Registrable
Securities pursuant to a Registration Statement referred to in Section 2.2,
each Holder that has sold or disposed of Registrable Securities thereunder
will promptly notify the Company in writing of the amount of Registrable
Securities sold or disposed of by such Holder.
(f) The Company may elect to include in any Registration
Statement made pursuant to Section 2.2(a), shares of Common Stock of the
Company for its own account and any other shares of Common Stock which are
requested to be included in such Registration Statement pursuant to the
exercise of piggyback registration rights granted by the Company; provided
that the inclusion of such additional shares shall not cause any reduction
in the number of Registrable Securities in such registration.
(g) The Company reserves the right to, at any time after the
first day of effectiveness of any Registration Statement, upon written
notice to the Holders, (i) cause such Registration Statement to cease being
effective and/or (ii) require that such Holders immediately, or upon any
effective date specified in such notice, cease any Transfer of the
Restricted Securities, other than pursuant to Section 2.1 (ii). Such notice
may be delivered prior to the effectiveness of the Registration Statement.
2.4 DELAY, POSTPONEMENT AND SUSPENSION OF SALE. Notwithstanding the
provisions of Section 2.2 hereof, the Company shall have the right on one
or more occasions to delay the filing or effectiveness of a Registration
Statement, or, if a Registration Statement has become effective, suspend
the distribution or disposition of the Holders' Registrable Securities
pursuant to such Registration Statement, for the period (the "Delay
Period") specified below in the event that either (i) the Company files a
Registration Statement covering shares of Common Stock or any other
security of the Company to be issued by the Company or for resale, or (ii)
the Company determines in its reasonable judgment that (a) the filing or
declaration of effectiveness of a Registration Statement at such time would
require the Company to disclose in such Registration Statement a proposed
or consummated financing, reorganization or recapitalization, or pending or
consummated negotiations relating to a merger, consolidation, acquisition
or similar transaction or other business transaction, venture or other
material business arrangement or other material event, disclosure of which
could otherwise adversely affect the Company; or (b) pro forma and/or
historical financial statements meeting the requirements of the Securities
Act as a result of any transaction described in clause (ii)(a) above are
not available at such time. In the case of clause (i) above, the Delay
Period shall begin on the second (2nd) business day following the date of a
written notice given by the Company to the Holders of the filing of a
Registration Statement in connection with such offering, and shall end on
the closing date of such offering, subject to any lock-up period described
in Section 2.11. In the case of clause (ii) above, the Delay Period shall
begin on the date of the first Holder's receipt of a written notice (as
determined pursuant to Section 4.7 hereof) given by the Company to the
Holders and shall end no later than ninety (90) days thereafter; provided
that the Company shall not exercise this right more than one time in any
six (6) month period. Any notice by the Company pursuant to this Section
2.4 shall be given in the manner set forth in Section 4.7. If the filing or
effectiveness of the Registration Statement is delayed or the right of
Holders to distribute or dispose of Registrable Securities pursuant to the
Registration Statement is suspended by the Company as set forth in this
Section 2.4, the Company shall use its commercially reasonable best efforts
to file and cause to be declared effective, or reinstate the Holders'
ability to distribute or dispose of Registrable Securities pursuant to, the
Registration Statement as soon as practicable following the expiration of
any Delay Period (in the case of clause (i) above, subject to any lock-up
period described in Section 2.11); provided that necessary financial
statements are available for filing. The Company shall not be deemed to be
in breach of its obligations pursuant to Section 2.2 or otherwise pursuant
to this Agreement due to the commencement or continuation of any Delay
Period as set forth in this Section 2.4.
2.5 NO PIGGYBACK REGISTRATIONS. No Holder shall have the right to
include any Registrable Securities in any Registration Statement filed or
proposed to be filed by the Company, other than in a Registration Statement
contemplated by Section 2.2(a).
2.6 REGISTRATION EXPENSES. (a) All expenses incident to the Company's
performance of or compliance with this Agreement shall be borne by the
Company, regardless of whether a Registration Statement becomes effective,
including without limitation:
(i) all registration and filing fees and expenses;
(ii) fees and expenses relating to compliance with federal
securities and state "blue sky" securities laws;
(iii) expenses of printing (including printing certificates
for the Registrable Securities and prospectuses), messenger and delivery
services and telephone charges;
(iv) fees and disbursements of counsel for the Company and
fees and disbursements of up to $10,000 for one counsel for all of the
Holders of the Registrable Securities selling such securities pursuant to
any one Registration Statement;
(v) all application and filing fees in connection with
listing the Registrable Securities on a national securities exchange or
automated quotation system pursuant to the requirements hereof;
(vi) all fees and disbursements of independent certified
public accountants of the Company (including the expenses of any special
audit required by or incident to such performance); and
(vii) such other reasonable and customary expenses as may be
at such time (A) associated with registered offerings and (B) customarily
borne by the issuer, which such reasonable and customary expenses shall not
be deemed to include any underwriter or agent discounts, commissions or
applicable transfer taxes attributable to the sale of Registrable
Securities.
The Company shall, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers
and employees performing legal or accounting duties), the expense of any
annual audit, and the fees and expenses of any Person, including special
experts, retained by the Company. Notwithstanding the provisions of this
Section 2.6, each Holder shall pay registration expenses if and to the
extent required by applicable law.
2.7 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities pursuant to this Agreement, the
Company shall, as expeditiously as reasonably possible:
(a) Subject to the right to institute any Delay Period and the
other terms and provisions set forth in Section 2.4, upon the occurrence of
any event that would cause a Registration Statement or any prospectus
contained therein (i) to contain a material misstatement or omission or
(ii) not to be effective and usable for resale of Registrable Securities
(other than pursuant to Section 2.4), the Company shall promptly file an
appropriate amendment to such Registration Statement, (A) in the case of
clause (i), correcting any such misstatement or omission, and (B) in the
case of clauses (i) and (ii), using its commercially reasonable efforts to
cause such amendment to be declared effective and such Registration
Statement and the related prospectus to become usable for their intended
purpose(s) as soon as commercially practicable thereafter;
(b) Prepare and file with the SEC such amendments and
post-effective amendments to a Registration Statement as may be necessary
to declare such Registration Statement effective; cause any prospectus
included as a part of a Registration Statement to be supplemented by any
required prospectus supplement, and as so supplemented, to be filed
pursuant to Rule 424, and to comply fully with Rules 424 and 430A of the
Securities Act, as applicable, in a timely manner; and otherwise comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by a Registration Statement during the applicable
period in accordance with the intended method or methods of distribution by
the sellers thereof as set forth in such Registration Statement or
supplement to the prospectus;
(c) Furnish to counsel for the selling Holders named in any
Registration Statement or prospectus, before filing with the SEC, copies of
any Registration Statement or any prospectus included therein or any
amendments or supplements to any such Registration Statement or prospectus,
which documents will be subject to the review and comment of counsel for
such Holders for a period of time as is reasonably appropriate under the
circumstances, determined in the sole discretion of the Company (it being
acknowledged that such period shall be at least two (2) business days in
the case of an initial draft of the Registration Statement and such shorter
time as may be appropriate in the case of any supplements or amendments
thereto), and the Company agrees to reasonably consider such comments in
preparing the filing of any such Registration Statement or prospectus or
any amendment or supplement to any such Registration Statement or
prospectus (including all such documents incorporated by reference);
(d) Furnish (without charge) to counsel for the selling Holders,
one copy of the Registration Statement, each amendment and supplement
thereto (in each case including all exhibits) and furnish to the Holders
such number of copies of the prospectus included in such Registration
Statement, including each preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(e) Use reasonable commercial best efforts to register or qualify
the Registrable Securities covered by a Registration Statement under such
securities or blue sky laws of such States of the United States of America
where any exemption is not available as shall be reasonably requested by
the Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify generally to do business as
a foreign corporation, to pay taxes in any jurisdiction where it would not
but for the requirements of this Agreement be obligated to be so qualified,
to consent to general service of process or to pay taxes in any such state
or jurisdiction;
(f) Promptly notify counsel for the Holders selling Registrable
Securities covered by a Registration Statement: (i) when the Registration
Statement, any pre-effective amendment, the prospectus or any prospectus
supplement related thereto or post-effective amendment to the Registration
Statement has been filed and, with respect to the Registration Statement or
any post-effective amendment, when the same has become effective; (ii) of
any request by the SEC or state securities authority for amendments or
supplements to the Registration Statement or the prospectus related thereto
or for additional information; (iii) of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for such purpose; (iv) of the receipt by the
Company of any notification with respect to the suspension of the
qualification of any Registrable Securities for sale under the securities
or blue sky laws of any jurisdiction or the initiation of any proceeding
for such purpose; and (v) at any time when a prospectus relating to the
Registration Statement is required to be delivered under the Securities
Act, upon discovering that, or upon the happening of any event as a result
of which, the prospectus included in such Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, in the light of the circumstances
under which they were made, and in the case of this clause (v), the Company
will, subject to the other terms of this Agreement, promptly prepare and
furnish to the Holders participating in the offering of the Registrable
Securities, a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they
were made;
(g) Comply with all applicable rules and regulations of the SEC,
and make generally available to the Holders, as soon as reasonably
practicable after the effective date of a Registration Statement (and in
any event within sixteen (16) months thereafter), an earnings statement
(which need not be audited) covering the period of at least twelve (12)
consecutive months beginning with the first day of the Company's first
calendar quarter after the effective date of such Registration Statement,
which earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder;
(h) Cause all Registrable Securities covered by a Registration
Statement to be listed on the Nasdaq National Market or other principal
securities exchange on which similar securities issued by the Company are
then listed, if the listing of such Registrable Securities is then
permitted under the rules of such exchange;
(i) Provide and cause to be maintained a transfer agent and
registrar for all such Registrable Securities covered by a Registration
Statement not later than the effective date of such Registration Statement;
and
(j) Cooperate with the selling Holders of Registrable Securities
to facilitate the timely preparation and delivery of certificates not
bearing any restrictive legends representing the Registrable Securities to
be sold, and cause such Registrable Securities to be issued in such
denominations and registered in such names in accordance with the
instructions of the selling Holders of Registrable Securities.
Each Holder agrees that if a Registration Statement shall have been
declared effective, upon the giving of any notice from the Company of the
happening of any event of the kind described in Section 2.7(f)(v), or the
giving of notice by the Company of the invocation of any Delay Period
pursuant to Section 2.4, such Holder will discontinue such Holder's
disposition of Registrable Securities pursuant to such Registration
Statement covering such Registrable Securities until (A) in the case of
Section 2.7(f)(v), such Holder's receipt of the copies of the supplemented
or amended prospectus contemplated by such Section and, if so directed by
the Company, such Holder will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such
Holder's possession, of the prospectus covering such Registrable Securities
that was being utilized at the time of receipt of such notice, and (B) in
the case of any Delay Period pursuant to Section 2.4, the expiration of
such period or as otherwise provided in Section 2.4.
2.8 TERMINATION OF REGISTRATION RIGHTS. All registration rights
granted to a Holder pursuant to Section 2.2 shall terminate and be of no
further force and effect upon the earlier of: (i) such time as the
securities of the Company held by a Holder cease to be Registrable
Securities, as defined herein, and (ii) such time as the Registration
Statement described in Section 2.2(a) has been declared effective.
2.9 DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any registration as
the result of any controversy that might arise with respect to this
Agreement.
2.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement pursuant to Section 2.2:
(a) Indemnification by the Company. To the extent permitted by
law, the Company will indemnify and hold harmless each Holder, the
partners, officers and directors of each Holder, if any, who control such
Holder within the meaning of the Securities Act or the Exchange Act,
against any and all losses, claims, damages, liabilities or expenses
whatsoever as incurred (including but not limited to reasonable attorneys'
fees and any and all reasonable expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in
settlement of any claim or litigation), joint or several, to which they may
become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof), arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement or final prospectus contained
therein or any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Company shall not be
liable in any case to the extent that any loss, claim, damage, liability or
expense (or action or proceeding in respect thereof) arises out of or is
based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in
conformity with written information furnished expressly for use in
connection with such registration by such Holder, partner, officer,
director, or controlling person of such Holder, and provided, further, that
the Company shall not be liable to any Person who participates in the
offering or sale of Registrable Securities or any other Person, if any, who
controls such Person, in any such case if any such loss, claim, damage,
liability or expense (or action or proceeding in respect thereof) arises
out of such Person's or such Person's underwriter or agent failure to send
or give a copy of the final prospectus or amendment or supplement thereto,
as the same may be then supplemented or amended, to the Person asserting an
untrue statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of Registrable
Securities to such Person if such statement or omission was corrected in
such final prospectus.
(b) Indemnification by the Holders. To the extent permitted by
law, each Holder will, if Registrable Securities held by such Holder are
included in such Registration Statement, indemnify and hold harmless the
Company, each of its directors, its officers, and each Person, if any, who
controls the Company within the meaning of the Securities Act, and any
other Holder selling securities under such Registration Statement or any of
such other Holder's partners, directors or officers, if any, who control
such Holder, against any losses, claims, damages, liabilities or expenses
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), severally, to
which the Company or any such director, officer, controlling Person, or
other such Holder, partner, director, or officer, if any, or controlling
such other Holder may become subject under the Securities Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement for
registration of the Registrable Securities, or final prospectus contained
therein or any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent (and only to the extent)
that such losses, claims, damages, liabilities or expenses (or actions or
proceedings in respect thereof) arise out of or are based upon any such
untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by such Holder expressly for use in
connection with such registration; provided that the liability of each
Holder under this Section 2.10(b) shall be limited to the amount received
by such Holder from the sale of Registrable Securities pursuant to such
Registration Statement.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section
2.10, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of
the commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of
this Section 2.10, except to the extent that the indemnifying party is
prejudiced by such failure to give notice. In case any such action is
brought against an indemnified party, and it notifies an indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein, and, to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof.
Notwithstanding the foregoing, the indemnified party shall have the right
to employ its own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i)
the employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such action, (ii) the
indemnifying party shall not have employed counsel to have charge of the
defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to the indemnifying party
(in which case the indemnifying party shall not have the right to direct
the defense of such action on behalf of the indemnified party), in any of
which events such fees and expenses shall be borne by the indemnifying
party. In no event shall the indemnifying party be liable for fees and
expenses of more than one counsel (in addition to any local counsel)
separate from its own counsel for all indemnified parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances,
and which counsel shall be approved by the indemnifying party, whose
approval shall not be unreasonably withheld. No indemnifying party shall be
liable for any settlement of any action or proceeding effected without its
written consent, which consent shall not be unreasonably withheld. No
indemnifying party shall, without the consent of the indemnified party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in
respect of such claim or litigation.
(d) Contribution. If the indemnification provided for in this
Section 2.10 is held by a court of competent jurisdiction to be
unenforceable by an indemnified party with respect to any losses, claims,
damages, liabilities or expenses (including but not limited to attorneys'
fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or
any claim whatsoever, and any and all amounts paid in settlement of any
claim or litigation), joint or several, of the nature contemplated by such
indemnification provision, the indemnifying party, in lieu of indemnifying
such indemnified party thereunder, shall to the extent permitted by
applicable law contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or expense (or
action or proceeding in respect thereof) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof), as
well as any other relevant equitable considerations. The relative fault of
the indemnifying party and of the indemnified party shall be determined by
a court of law by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or
by the indemnified party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. In addition, no Person shall be obligated to contribute
hereunder any amounts in payment for any settlement of any action or claim
effected without such Person's consent, which consent shall not be
unreasonably withheld.
(e) Survival of Indemnification. The obligations of the Company
and the Holders under this Section 2.10 shall survive completion of any
offering of Registrable Securities in a Registration Statement pursuant to
Section 2.2.
2.11 "MARKET STAND-OFF" AGREEMENT. In the case of any underwritten
public offering by the Company of shares of Common Stock or securities
convertible into or exercisable for Common Stock, whether for its own
account or for the account of any stockholder of the Company, each Holder
agrees that, during a period of seven (7) days prior to and ninety (90)
days following the effective date of a Registration Statement filed in
connection with such offering, such Holder will not, without the prior
written consent of the Company, directly or indirectly, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase
any option or contract to sell, grant any option, right or warrant for the
sale of, or otherwise dispose of or transfer any shares of Common Stock or
any securities convertible into or exchangeable or exercisable for Common
Stock, whether now owned or hereafter acquired by such Holder or with
respect to which such Holder has or hereafter acquires the power of
disposition, or enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of the Common Stock, whether any such
swap or transaction is to be settled by delivery of Common Stock or other
securities, in cash or otherwise; provided that the Company's officers or
directors shall have entered into similar arrangements with the Company.
The Company shall give notice of such restriction in the manner set forth
in Section 4.7, provided that such notice may include the Company's best
estimates of the "market stand-off" period and such may change due to the
timing of such offering and market conditions and the Company may
reasonably deliver additional notices for new "market stand-off" periods as
it deems appropriate under the circumstances. Upon the request of the
underwriters for any underwritten public offering of Common Stock of the
Company referred to above, each Holder hereby agrees to deliver a "lock-up"
or "market stand-off" agreement signed by such Holder which is equivalent
in substance to the agreement set forth in this Section 2.11 addressed to
such underwriter. Any such underwriter shall expressly be deemed to be a
third party beneficiary of this Section 2.11.
The obligations described in this Section 2.11 shall not apply to a
registration relating solely to employee benefit plans or similar forms
that may be promulgated in the future, or a registration relating solely to
a Rule 145 transaction (including the registration for resale of securities
issued in a Rule 145 transaction) on Form S-4 under the Securities Act or
similar forms that may be promulgated in the future, unless in any such
case such registration is in connection with an underwritten public
offering. The Company may impose stop-transfer instructions with respect to
the shares of Common Stock (or other securities) subject to the foregoing
restriction until the end of such restrictive period.
2.12 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its commercially reasonable best
efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act; and
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act.
(c) Furnish to any Holder, upon request by such Holder, a
representation of the Company's compliance with the current reporting
requirements set forth in Rule 144; provided, that the Company shall be
under no obligation to furnish such representation more than once in any
quarter.
3. CONFIDENTIALITY.
(a) Each Holder agrees not to disclose to any third party or use
Confidential Information (as hereinafter defined) of the Company for its
own use or for any purpose except to evaluate its current equity investment
in the Company. Each Holder shall undertake to treat such Confidential
Information in a manner consistent with the treatment of its own
information of similar proprietary nature and agrees that it shall protect
the confidentiality of Confidential Information. Each transferee of any
Holder who receives Confidential Information shall agree to be bound by
such provisions and the Company is not required to deliver any Confidential
Information to any person who does not agree to be so bound.
(b) "Confidential Information" means any notices given by the
Company pursuant to the terms of this Agreement and any other information
disclosed by the Company either directly or indirectly in a writing stamped
"Confidential" or "Proprietary" or, if disclosed orally, which is promptly
confirmed in writing to be Confidential Information. Confidential
Information does not include information, technical data or know-how which
(i) is generally known or publicly available not as a result of any action
or inaction of a Holder; (ii) is disclosed to a Holder on a
non-confidential basis by a third party having a legal right to disclose
such information; or (iii) is approved for release by written authorization
of the Company. The provisions of this Section shall not apply to the
extent that a Holder is required to disclose Confidential Information
pursuant to any law, statute, rule or regulation or any legal process or
order of any court, provided that the Holder shall notify the Company of
any such required disclosure as promptly as possible and shall cooperate
with the Company in order to limit the scope of any order or service of
legal process requiring disclosure of such Confidential Information.
4. GENERAL.
4.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of New York without giving effect to conflicts
of laws principles. Each of the parties to this Agreement hereby
irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of New York and the courts of the
United States of America located in the Southern District of the State of
New York for any action, claim or proceeding arising out of or relating to
this Agreement (and agrees not to commence any action, claim or proceeding
relating hereto except in such courts), and further agrees that service of
any process, summons, notice or document by U.S. registered mail to its
respective address shall be effective service of process for any action,
claim or proceeding brought against it in any such court. Each of the
parties to this Agreement hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, claim or proceeding arising
out of this Agreement in the courts of the State of New York or the courts
of the United States of America located in the State of New York and hereby
further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, claim or proceeding brought
in any such court has been brought in an inconvenient forum. Each of the
parties hereto hereby irrevocably and unconditionally waives any right it
may have to trial by jury in connection with any action, claim or
proceeding arising out of or relating to this Agreement.
4.2 SURVIVAL. The provisions of Section 2.10 and Section 3 hereof
shall survive any termination of this Agreement
4.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
Person who shall be a Holder from time to time in accordance with the terms
of this Agreement.
4.4 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
4.5 AMENDMENT AND WAIVER. (a) Except as otherwise expressly provided
herein, this Agreement may be amended or modified and the observance of any
provision hereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) upon the written
consent of the Company and the Holders of at least a majority in interest
of the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 4.5 shall be binding upon each Holder and the
Company.
(b) Except as otherwise expressly provided herein, the
obligations of the Company and the rights of the Holders under this
Agreement may be waived only with the written consent of at least a
majority in interest of the Registrable Securities.
(c) This Agreement may be amended only with the written consent
of the Company to include any additional party as a "Holder."
4.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any Holder or the Company,
upon any breach, default or noncompliance of the Company or any Holder, as
the case may be, under this Agreement shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach,
default or noncompliance, or any acquiescence therein, or of any similar
breach, default or noncompliance thereafter occurring. It is further agreed
that any waiver, permit, consent or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under this
Agreement or any waiver on such Holder's part of any provisions or
conditions of this Agreement must be in writing and shall be effective only
to the extent specifically set forth in such writing. All remedies, either
under this Agreement, by law or otherwise afforded to Holders, shall be
cumulative and not alternative.
4.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery
to the party to be notified, (ii) when sent by confirmed facsimile if sent
during normal business hours of the sender; if not, then on the next
business day, (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after deposit with a recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be
sent to the party to be notified at the address as set forth on Exhibit A
hereto or at such other address as such party may designate in writing to
the other party in accordance with this Section 4.7 by ten (10) days'
advance written notice to the other parties hereto. All communications made
to the Company shall be sent to theglobe.com, inc., 120 Broadway, 22nd
floor, New York, N.Y., 10271, Attn. Richard Mass, Esq.
4.8 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
4.9 HEADINGS. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be
considered in construing the intent of this Agreement.
4.10 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof and supersedes all previous negotiations, agreements and
arrangements made between the parties with respect to such subject matter.
4.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
4.12 THIRD-PARTY BENEFICIARIES. This Agreement shall inure to the
benefit of and be binding upon the Company and each of the other
signatories hereto and their respective successors and assigns. The
underwriter for an underwritten public offering of the Company, as
described in Section 2.11, shall be expressly deemed to be a third-party
beneficiary of the provisions of such Section. Other than as expressly set
forth in this paragraph, no other party will be considered a third-party
beneficiary of any rights or benefits created under this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date set forth in the first paragraph hereof.
COMPANY: HOLDER:
theglobe.com, inc.
By: /s/ Dean Daniels By: /s/ Brian Shuster
----------------------------- --------------------------
Name: Dean Daniels Name: Brian Shuster
Title: Title: CEO
<PAGE>
EXHIBIT A
SCHEDULE OF HOLDERS
Name Address Telephone and Facsimile
- ---- ------- -----------------------
Infonent, Inc. 150 Almaden Boulevard, Telephone: (408) 278-4400
Suite 500, San Jose, CA 95113 Facsimile: (408) 278-4498
REGISTRATION RIGHTS AGREEMENT
THEGLOBE.COM, INC.
FEBRUARY 22, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS..........................................................1
2. REGISTRATION; RESTRICTIONS ON TRANSFER...............................3
2.1 Restrictions on Transfer....................................3
2.2 Demand Registration.........................................4
2.3 General Provisions Applicable to Demand Registration........5
2.4 Delay, Postponement and Suspension of Sale..................6
2.5 No Piggyback Registrations..................................7
2.6 Registration Expenses.......................................7
2.7 Obligations of the Company..................................8
2.8 Termination of Registration Rights.........................10
2.9 Delay of Registration......................................10
2.10 Indemnification............................................10
2.11 "Market Stand-Off" Agreement...............................13
2.12 Rule 144 Reporting.........................................14
3. CONFIDENTIALITY.....................................................14
4. GENERAL.............................................................15
4.1 Governing Law..............................................15
4.2 Survival...................................................15
4.3 Successors and Assigns.....................................15
4.4 Severability...............................................15
4.5 Amendment and Waiver.......................................16
4.6 Delays or Omissions........................................16
4.7 Notices....................................................16
4.8 Attorneys' Fees............................................16
4.9 Headings...................................................17
4.10 Entire Agreement...........................................17
4.11 Counterparts...............................................17
4.12 Third-Party Beneficiaries..................................17
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into
as of the 22nd day of February, 2000, by and among theglobe.com, inc., a
Delaware corporation (the "Company"), and each Holder (as defined in
Section 1 below).
WHEREAS, pursuant to the Agreement and Plan of Merger, dated January
13, 2000 (the "Merger Agreement"), by and among the Company, CB Acquisition
Corp., SP Acquisition Corp., Chips & Bits, Inc., a Vermont corporation,
("CB") Strategy Plus, Inc., a Vermont corporation, ("SP," and together with
CB, the "Targets") pertaining to the acquisition by the Company of all of
the outstanding capital stock of the Targets, the Company has agreed to
provide certain registration rights to the Holders as set forth herein; and
WHEREAS, the foregoing parties desire to set forth their agreement as
to the registration rights of the Holders;
NOW, THEREFORE, the parties hereto, in consideration of the foregoing,
the mutual covenants and agreements hereinafter set forth, and other good
and valuable consideration the receipt and sufficiency of which hereby are
acknowledged, agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following respective meanings:
"AUDITED FINANCIAL STATEMENTS" shall mean balance sheets, statements
of operations, statements of stockholders' equity and statements of cash
flows, including any pro forma financial statements, with respect to the
Targets (and any notes related to the foregoing) necessary in the Company's
judgment in order to meet the requirements of Regulation S-X of the
Securities Act or other federal laws applicable to the Company in
connection with the Registration Statement contemplated by Section 2.2 of
this Agreement, covering any time period required by such securities laws,
prepared in accordance with United States Generally Accepted Accounting
Principles consistently applied and, if required, audited by a nationally
recognized independent accounting firm selected by the Company, which firm
has executed an unqualified opinion related to, and has consented to the
inclusion of, such financial statements in such Registration Statement. The
Company shall bear the cost of preparation of the Audited Financial
Statements; provided, that in the event such costs exceed $85,000, the
Holders shall be liable for such excess, in proportion to their pro rata
ownership of Registrable Securities.
"CB" shall have the meaning set forth in the recitals hereto.
"COMMON STOCK" shall mean the common stock, par value $.001 per share,
of the Company.
"COMPETITOR" shall mean any Person directly or indirectly engaged in
the retail sale of video and/or computer games over the Internet and/or by
catalogue, and/or the writing, distribution and/or publication of computer
or video game news, reviews, previews and tips, whether in print or online.
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section
3.
"DELAY PERIOD" shall have the meaning set forth in Section 2.4.
"EFFECTIVE DATE" shall have the meaning set forth in Section 2.2.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
References to a particular section of the Securities Exchange Act of 1934,
as amended, shall include a reference to the comparable section, if any, of
any such similar federal statute.
"FAMILY MEMBER" shall mean a Holder's spouse, natural and adoptive
children, siblings, parents and grandparents; provided that none of the
foregoing is a Competitor of the Company.
"HOLDER" means any Person listed on Exhibit A hereto who owns of
record Registrable Securities and who has executed a counterpart signature
page to this Agreement, or any assignee of record of Registrable Securities
held by such Person in accordance with Section 4.3 hereof.
"MERGER AGREEMENT" shall have the meaning set forth in the recitals
hereto.
"PERSON" shall mean any individual, corporation, limited liability
company, partnership, trust or association, or any other entity or
organization, including any government entity.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance
with the Securities Act, and the declaration or ordering of effectiveness
of such registration statement or document by the Commission.
"REGISTRABLE SECURITIES" means (i) shares of Common Stock issued to
the Holders pursuant to the Merger Agreement; and (ii) any Common Stock
issued as a dividend or other distribution with respect to, or in exchange
for or in replacement of, such above-described securities. As to any
particular Registrable Securities, such securities shall cease to be
Registrable Securities when (a) a Registration Statement with respect to
the sale of such securities shall have become effective under the
Securities Act, (b) they may be sold by the Holder thereof pursuant to Rule
144 or any successor rule under the Securities Act, (c) they shall have
been otherwise transferred, new certificates for them not bearing a legend
restricting further transfer under the Securities Act shall have been
delivered by the Company and subsequent public distribution of them shall
not require registration of them under the Securities Act, or (d) they
shall have ceased to be outstanding.
"REGISTRATION STATEMENT" means a registration statement of the
Company, filed with the Commission on an appropriate form, including any
registration statement filed pursuant to the provisions of this Agreement,
including the prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933, as amended, shall include
a reference to the comparable section, if any, of any such similar federal
statute.
"SP" shall have the meaning set forth in the recitals hereto.
"TARGETS" shall have the meaning set forth in the recitals hereto.
"TRANSFER" shall have the meaning set forth in Section 2.1.
2. REGISTRATION; RESTRICTIONS ON TRANSFER.
2.1 RESTRICTIONS ON TRANSFER. (a) Each Holder agrees not to make any
sale, offer for sale, pledge or other disposition (collectively, a
"Transfer") of all or any portion of Registrable Securities unless and
until:
(i) Subject to the terms of any notice delivered pursuant to
Section 2.3(g), there is then in effect a Registration Statement under the
Securities Act covering such proposed Transfer and such Transfer is made in
accordance with such Registration Statement; or
(ii) (A) The transferee has agreed in a letter addressed to
the Company to be bound by this Agreement, (B) such Holder shall have
notified the Company, in advance of the proposed Transfer, of the name and
address of the proposed transferee and shall have furnished the Company
with a detailed statement of the circumstances surrounding such proposed
Transfer, (C) the transferee is not a Competitor of the Company, and (D) if
requested by the Company, such Holder shall have furnished the Company with
an opinion of counsel, reasonably satisfactory to the Company, that such
Transfer will not require registration of such shares under the Securities
Act.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such Registration Statement or opinion of counsel shall be
necessary for a Transfer by a Holder to such Holder's Family Members or
trusts for the benefit of an individual Holder or such Holder's Family
Members, provided, however, that such Holder shall have notified the
Company in advance of the proposed Transfer, the name and address of the
proposed transferee, and such transferee agrees in a letter addressed to
the Company to be bound by all of the provisions of this Agreement to the
same extent as if such transferee were an original Holder hereunder.
(iv) In the case of any Transfer, the transferee shall
deliver evidence reasonably satisfactory to the Company that such Holder is
an "accredited investor" within the meaning of that term as defined in Rule
501 promulgated under the Securities Act.
(b) Each certificate representing Registrable Securities shall be
stamped or otherwise imprinted with the following legends:
(I) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED."
(II) ANY LEGEND REQUIRED BY APPLICABLE STATE SECURITIES
LAWS.
(c) The Company shall promptly reissue certificates without the
legend specified in Section 2.1(b)(i) at the request of any Holder who has
obtained an opinion of counsel (which counsel may be counsel to the
Company, but the Company shall not be required to have its counsel deliver
such opinion) or other evidence in each case reasonably acceptable to the
Company to the effect that the Registrable Securities proposed to be
disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on a certificate representing Registrable
Securities pursuant to applicable state securities laws and the
stop-transfer instructions with respect to such Registrable Securities
shall be removed upon receipt by the Company of an order of the appropriate
blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION. (a) Subject to clause (b) below, upon receipt
of written notice from the Holders of a majority in interest of Registrable
Securities, the Company agrees to use its commercially reasonable best
efforts to file with the SEC as soon as commercially practicable following
April 20, 2000, a Registration Statement on Form S-1, Form S-3 (if the
Company is then eligible), or such other similar form as may be permitted
under the Securities Act, covering the number of Registrable Securities
equal to the quotient obtained by dividing $5,000,000 by the average
closing price of the Company's Common Stock as reported on the Nasdaq
National Market on the five trading days immediately prior to such filing;
provided that in the event Audited Financial Statements are necessary for
such filing, such Audited Financial Statements shall have been delivered to
the Company prior to the time that any filing pursuant to this Section 2.2
shall be effected. The Company may at any time amend the Registration
Statement to amend the form on which such Registration Statement has been
filed, so long as permitted by applicable federal law. The Company shall
use its commercially reasonable best efforts to cause the Registration
Statement to be declared effective pursuant to the Securities Act as
promptly as practicable following the filing thereof (the "Effective
Date").
(b) Notwithstanding any provision to the contrary contained in
this Agreement, the Company shall have the right to include all Holders'
shares required to be registered pursuant to Section 2.2(a) hereof, in a
Registration Statement filed for the benefit of any stockholder of the
Company or for the Company's own account, which inclusion shall terminate
the Company's obligations to effect the Registration contemplated by
Section 2.2(a).
2.3 GENERAL PROVISIONS APPLICABLE TO DEMAND REGISTRATION. (a) No
Holder may include any of its Registrable Securities in a Registration
Statement pursuant to this Agreement unless and until such Holder furnishes
to the Company in writing, as soon as practicable after the date hereof but
in no event later than fifteen (15) business days prior to an Effective
Date, the information specified in Item 507 or 508 of Regulation S-K
promulgated under the Securities Act, as applicable, and any additional
information required by the Securities Act for use in connection with such
Registration Statement or prospectus or preliminary prospectus included
therein. Each selling Holder agrees to promptly furnish such information
and any additional information required to be disclosed in order to make
the information previously furnished to the Company by such Holder not
materially misleading.
(b) The Company shall not be required to effect a registration as
set forth in Section 2.2 in any particular jurisdiction in which the
Company would be required to qualify to do business as a foreign
corporation or to pay taxes wherein it would not but for the requirements
of this Agreement be obligated to be so qualified or to consent to general
service of process or pay taxes in any such state or jurisdiction effecting
such registration, qualification or compliance.
(c) The Company shall not have any further obligation under
Section 2.2 if a Registration Statement has been declared effective with
respect to the obligation specified under such Section.
(d) Each Holder shall, upon five (5) business days' notice to the
Company (or such shorter period acceptable to the Company), have the right
to withdraw from a Registration Statement, provided that such withdrawal
occurs prior to the Effective Date of such Registration Statement. In the
event that a Holder withdraws from a Registration Statement, the Company's
obligation pursuant to Section 2.2 shall be deemed to have been satisfied
with respect to such Holder.
(e) In the event of any sale or disposition of Registrable
Securities pursuant to a Registration Statement referred to in Section 2.2,
each Holder that has sold or disposed of Registrable Securities thereunder
will promptly notify the Company in writing of the amount of Registrable
Securities sold or disposed of by such Holder.
(f) The Company may elect to include in any Registration
Statement made pursuant to Section 2.2(a), shares of Common Stock of the
Company for its own account and any other shares of Common Stock which are
requested to be included in such Registration Statement pursuant to the
exercise of piggyback registration rights granted by the Company; provided
that the inclusion of such additional shares shall not cause any reduction
in the number of Registrable Securities in such registration.
(g) The Company shall only be required to, maintain the
effectiveness of any Registration Statement for one business day and after
such time, the Company may, in its sole discretion, upon written notice to
the Holders, (i) cause such Registration Statement to cease being effective
and/or (ii) require that such Holders immediately, or upon any date
specified in such notice (provided that such date is not the first
effective date of such Registration Statement), cease any Transfer of the
Restricted Securities, other than pursuant to Section 2.1(ii). Such notice
may be delivered prior to the effectiveness of the Registration Statement.
2.4 DELAY, POSTPONEMENT AND SUSPENSION OF SALE. Notwithstanding the
provisions of Section 2.2 hereof, the Company shall have the right on one
or more occasions to delay the filing or effectiveness of a Registration
Statement, or, if a Registration Statement has become effective, suspend
the distribution or disposition of the Holders' Registrable Securities
pursuant to such Registration Statement, for the period (the "Delay
Period") specified below in the event that either (i) the Company files a
Registration Statement covering shares of Common Stock or any other
security of the Company to be issued by the Company or for resale, or (ii)
the Company determines in its reasonable judgment that (a) the filing or
declaration of effectiveness of a Registration Statement at such time would
require the Company to disclose in such Registration Statement a proposed
or consummated financing, reorganization or recapitalization, or pending or
consummated negotiations relating to a merger, consolidation, acquisition
or similar transaction or other business transaction, venture or other
material business arrangement or other material event, disclosure of which
could otherwise adversely affect the Company; or (b) pro forma and/or
historical financial statements meeting the requirements of the Securities
Act as a result of any transaction described in clause (ii)(a) above are
not available at such time. In the case of clause (i) above, the Delay
Period shall begin on the second (2nd) business day following the date of a
written notice given by the Company to the Holders of the filing of a
Registration Statement in connection with such offering, and shall end on
the closing date of such offering, subject to any lock-up period described
in Section 2.11. In the case of clause (ii) above, the Delay Period shall
begin on the date of the first Holder's receipt of a written notice (as
determined pursuant to Section 4.7 hereof) given by the Company to the
Holders and shall end no later than ninety (90) days thereafter; provided
that the Company shall not exercise this right more than one time in any
six (6) month period. Any notice by the Company pursuant to this Section
2.4 shall be given in the manner set forth in Section 4.7. If the filing or
effectiveness of the Registration Statement is delayed or the right of
Holders to distribute or dispose of Registrable Securities pursuant to the
Registration Statement is suspended by the Company as set forth in this
Section 2.4, the Company shall use its commercially reasonable best efforts
to file and cause to be declared effective, or reinstate the Holders'
ability to distribute or dispose of Registrable Securities pursuant to, the
Registration Statement as soon as practicable following the expiration of
any Delay Period (in the case of clause (i) above, subject to any lock-up
period described in Section 2.11); provided that necessary financial
statements are available for filing. The Company shall not be deemed to be
in breach of its obligations pursuant to Section 2.2 or otherwise pursuant
to this Agreement due to the commencement or continuation of any Delay
Period as set forth in this Section 2.4.
2.5 NO PIGGYBACK REGISTRATIONS. No Holder shall have the right to
include any Registrable Securities in any Registration Statement filed or
proposed to be filed by the Company, other than in a Registration Statement
contemplated by Section 2.2(a).
2.6 REGISTRATION EXPENSES. (a) All expenses incident to the Company's
performance of or compliance with this Agreement shall be borne by the
Company, regardless of whether a Registration Statement becomes effective,
including without limitation:
(i) all registration and filing fees and expenses;
(ii) fees and expenses relating to compliance with federal
securities and state "blue sky" securities laws;
(iii) expenses of printing (including printing certificates
for the Registrable Securities and prospectuses), messenger and delivery
services and telephone charges;
(iv) fees and disbursements of counsel for the Company and
fees and disbursements of up to $5,000 for one counsel for all of the
Holders of the Registrable Securities selling such securities pursuant to
any one Registration Statement;
(v) all application and filing fees in connection with
listing the Registrable Securities on a national securities exchange or
automated quotation system pursuant to the requirements hereof;
(vi) all fees and disbursements of independent certified
public accountants of the Company (including the expenses of any special
audit required by or incident to such performance); and
(vii) such other reasonable and customary expenses as may be
at such time (A) associated with registered offerings and (B) customarily
borne by the issuer, which reasonable and customary expenses shall not be
deemed to include any underwriter or agent discounts, commissions or
applicable transfer taxes attributable to the sale of Registrable
Securities.
The Company shall, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers
and employees performing legal or accounting duties), the expense of any
annual audit, and the fees and expenses of any Person, including special
experts, retained by the Company. Notwithstanding the provisions of this
Section 2.6, each Holder shall pay registration expenses if and to the
extent required by applicable law.
2.7 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities pursuant to this Agreement, the
Company shall, as expeditiously as reasonably possible:
(a) Subject to the right to institute any Delay Period and the
other terms and provisions set forth in Section 2.4, upon the occurrence of
any event that would cause a Registration Statement or any prospectus
contained therein (i) to contain a material misstatement or omission or
(ii) not to be effective and usable for resale of Registrable Securities
(other than pursuant to Section 2.4), the Company shall promptly file an
appropriate amendment to such Registration Statement, (A) in the case of
clause (i), correcting any such misstatement or omission, and (B) in the
case of clauses (i) and (ii), using its commercially reasonable efforts to
cause such amendment to be declared effective and such Registration
Statement and the related prospectus to become usable for their intended
purpose(s) as soon as commercially practicable thereafter;
(b) Prepare and file with the SEC such amendments and
post-effective amendments to a Registration Statement as may be necessary
to declare such Registration Statement effective; cause any prospectus
included as a part of a Registration Statement to be supplemented by any
required prospectus supplement, and as so supplemented, to be filed
pursuant to Rule 424, and to comply fully with Rules 424 and 430A of the
Securities Act, as applicable, in a timely manner; and otherwise comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by a Registration Statement during the applicable
period in accordance with the intended method or methods of distribution by
the sellers thereof as set forth in such Registration Statement or
supplement to the prospectus;
(c) Furnish to counsel for the selling Holders named in any
Registration Statement or prospectus, before filing with the SEC, copies of
any Registration Statement or any prospectus included therein or any
amendments or supplements to any such Registration Statement or prospectus,
which documents will be subject to the review and comment of counsel for
such Holders for a period of time as is reasonably appropriate under the
circumstances, determined in the sole discretion of the Company (it being
acknowledged that such period shall be at least three (3) business days in
the case of an initial draft of the Registration Statement and such shorter
time as may be appropriate in the case of any supplements or amendments
thereto), and the Company agrees to reasonably consider such comments in
preparing the filing of any such Registration Statement or prospectus or
any amendment or supplement to any such Registration Statement or
prospectus (including all such documents incorporated by reference);
(d) Furnish (without charge) to counsel for the selling Holders,
one copy of the Registration Statement, each amendment and supplement
thereto (in each case including all exhibits) and furnish to the Holders
such number of copies of the prospectus included in such Registration
Statement, including each preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(e) Use reasonable commercial efforts to register or qualify the
Registrable Securities covered by a Registration Statement under such
securities or blue sky laws of such States of the United States of America
where any exemption is not available as shall be reasonably requested by
the Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify generally to do business as
a foreign corporation, to pay taxes in any jurisdiction where it would not
but for the requirements of this Agreement be obligated to be so qualified,
to consent to general service of process or to pay taxes in any such state
or jurisdiction;
(f) Promptly notify counsel for the Holders selling Registrable
Securities covered by a Registration Statement: (i) when the Registration
Statement, any pre-effective amendment, the prospectus or any prospectus
supplement related thereto or post-effective amendment to the Registration
Statement has been filed and, with respect to the Registration Statement or
any post-effective amendment, when the same has become effective; (ii) of
any request by the SEC or state securities authority for amendments or
supplements to the Registration Statement or the prospectus related thereto
or for additional information; (iii) of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for such purpose; (iv) of the receipt by the
Company of any notification with respect to the suspension of the
qualification of any Registrable Securities for sale under the securities
or blue sky laws of any jurisdiction or the initiation of any proceeding
for such purpose; and (v) at any time when a prospectus relating to the
Registration Statement is required to be delivered under the Securities
Act, upon discovering that, or upon the happening of any event as a result
of which, the prospectus included in such Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, in the light of the circumstances
under which they were made, and in the case of this clause (v), the Company
will, subject to the other terms of this Agreement, promptly prepare and
furnish to the Holders participating in the offering of the Registrable
Securities, a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they
were made;
(g) Comply with all applicable rules and regulations of the SEC,
and make generally available to the Holders, as soon as reasonably
practicable after the effective date of a Registration Statement (and in
any event within sixteen (16) months thereafter), an earnings statement
(which need not be audited) covering the period of at least twelve (12)
consecutive months beginning with the first day of the Company's first
calendar quarter after the effective date of such Registration Statement,
which earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder;
(h) Cause all Registrable Securities covered by a Registration
Statement to be listed on the Nasdaq National Market or other principal
securities exchange on which similar securities issued by the Company are
then listed, if the listing of such Registrable Securities is then
permitted under the rules of such exchange;
(i) Provide and cause to be maintained a transfer agent and
registrar for all such Registrable Securities covered by a Registration
Statement not later than the effective date of such Registration Statement;
and
(j) Cooperate with the selling Holders of Registrable Securities
to facilitate the timely preparation and delivery of certificates not
bearing any restrictive legends representing the Registrable Securities to
be sold, and cause such Registrable Securities to be issued in such
denominations and registered in such names in accordance with the
instructions of the selling Holders of Registrable Securities.
Each Holder agrees that if a Registration Statement shall have been
declared effective, upon the giving of any notice from the Company of the
happening of any event of the kind described in Section 2.7(f)(v), or the
giving of notice by the Company of the invocation of any Delay Period
pursuant to Section 2.4, such Holder will discontinue such Holder's
disposition of Registrable Securities pursuant to such Registration
Statement covering such Registrable Securities until (A) in the case of
Section 2.7(f)(v), such Holder's receipt of the copies of the supplemented
or amended prospectus contemplated by such Section and, if so directed by
the Company, such Holder will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such
Holder's possession, of the prospectus covering such Registrable Securities
that was being utilized at the time of receipt of such notice, and (B) in
the case of any Delay Period pursuant to Section 2.4, the expiration of
such period or as otherwise provided in Section 2.4.
2.8 TERMINATION OF REGISTRATION RIGHTS. All registration rights
granted to a Holder pursuant to Section 2.2 shall terminate and be of no
further force and effect upon the earlier of: (i) such time as the
securities of the Company held by a Holder cease to be Registrable
Securities, as defined herein, and (ii) such time as the Registration
Statement described in Section 2.2(a) has been declared effective.
2.9 DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any registration as
the result of any controversy that might arise with respect to this
Agreement.
2.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement pursuant to Section 2.2:
(a) Indemnification by the Company. To the extent permitted by
law, the Company will indemnify and hold harmless each Holder, the
partners, officers and directors of each Holder, if any, who control such
Holder within the meaning of the Securities Act or the Exchange Act,
against any and all losses, claims, damages, liabilities or expenses
whatsoever as incurred (including but not limited to reasonable attorneys'
fees and any and all reasonable expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in
settlement of any claim or litigation), joint or several, to which they may
become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof), arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement or final prospectus contained
therein or any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Company shall not be
liable in any case to the extent that any loss, claim, damage, liability or
expense (or action or proceeding in respect thereof) arises out of or is
based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in
conformity with written information furnished expressly for use in
connection with such registration by such Holder, partner, officer,
director, or controlling person of such Holder, and provided, further, that
the Company shall not be liable to any Person who participates in the
offering or sale of Registrable Securities or any other Person, if any, who
controls such Person, in any such case if any such loss, claim, damage,
liability or expense (or action or proceeding in respect thereof) arises
out of such Person's or such Person's underwriter or agent's failure to
send or give a copy of the final prospectus or amendment or supplement
thereto, as the same may be then supplemented or amended, to the Person
asserting an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus.
(b) Indemnification by the Holders. To the extent permitted by
law, each Holder will, if Registrable Securities held by such Holder are
included in such Registration Statement, indemnify and hold harmless the
Company, each of its directors, its officers, and each Person, if any, who
controls the Company within the meaning of the Securities Act, and any
other Holder selling securities under such Registration Statement or any of
such other Holder's partners, directors or officers, if any, who control
such Holder, against any losses, claims, damages, liabilities or expenses
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), severally, to
which the Company or any such director, officer, controlling Person, or
other such Holder, partner, director, or officer, if any, or controlling
such other Holder may become subject under the Securities Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement for
registration of the Registrable Securities, or final prospectus contained
therein or any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent (and only to the extent)
that such losses, claims, damages, liabilities or expenses (or actions or
proceedings in respect thereof) arise out of or are based upon any such
untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by such Holder expressly for use in
connection with such registration.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section
2.10, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of
the commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of
this Section 2.10, except to the extent that the indemnifying party is
prejudiced by such failure to give notice. In case any such action is
brought against an indemnified party, and it notifies an indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein, and, to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof.
Notwithstanding the foregoing, the indemnified party shall have the right
to employ its own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i)
the employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such action, (ii) the
indemnifying party shall not have employed counsel to have charge of the
defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to the indemnifying party
(in which case the indemnifying party shall not have the right to direct
the defense of such action on behalf of the indemnified party), in any of
which events such fees and expenses shall be borne by the indemnifying
party. In no event shall the indemnifying party be liable for fees and
expenses of more than one counsel (in addition to any local counsel)
separate from its own counsel for all indemnified parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances,
and which counsel shall be approved by the indemnifying party, whose
approval shall not be unreasonably withheld. No indemnifying party shall be
liable for any settlement of any action or proceeding effected without its
written consent, which consent shall not be unreasonably withheld. No
indemnifying party shall, without the consent of the indemnified party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in
respect of such claim or litigation.
(d) Contribution. If the indemnification provided for in this
Section 2.10 is held by a court of competent jurisdiction to be
unenforceable by an indemnified party with respect to any losses, claims,
damages, liabilities or expenses (including but not limited to attorneys'
fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or
any claim whatsoever, and any and all amounts paid in settlement of any
claim or litigation), joint or several, of the nature contemplated by such
indemnification provision, the indemnifying party, in lieu of indemnifying
such indemnified party thereunder, shall to the extent permitted by
applicable law contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or expense (or
action or proceeding in respect thereof) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof), as
well as any other relevant equitable considerations. The relative fault of
the indemnifying party and of the indemnified party shall be determined by
a court of law by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or
by the indemnified party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. In addition, no Person shall be obligated to contribute
hereunder any amounts in payment for any settlement of any action or claim
effected without such Person's consent, which consent shall not be
unreasonably withheld.
(e) Survival of Indemnification. The obligations of the Company
and the Holders under this Section 2.10 shall survive completion of any
offering of Registrable Securities in a Registration Statement pursuant to
Section 2.2.
2.11 "MARKET STAND-OFF" AGREEMENT. In the case of any underwritten
public offering by the Company of shares of Common Stock or securities
convertible into or exercisable for Common Stock, whether for its own
account or for the account of any stockholder of the Company, each Holder
agrees that, during a period of seven (7) days prior to and ninety (90)
days following the effective date of a Registration Statement filed in
connection with such offering, such Holder will not, without the prior
written consent of the Company, directly or indirectly, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase
any option or contract to sell, grant any option, right or warrant for the
sale of, or otherwise dispose of or transfer any shares of Common Stock or
any securities convertible into or exchangeable or exercisable for Common
Stock, whether now owned or hereafter acquired by such Holder or with
respect to which such Holder has or hereafter acquires the power of
disposition, or enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of the Common Stock, whether any such
swap or transaction is to be settled by delivery of Common Stock or other
securities, in cash or otherwise; provided that all the Company's officers
and directors shall have entered into similar arrangements with the
Company. The Company shall give notice of such restriction in the manner
set forth in Section 4.7, provided that such notice may include the
Company's best estimates of the "market stand-off" period and such may
change due to the timing of such offering and market conditions and the
Company may reasonably deliver additional notices for new "market
stand-off" periods as it deems appropriate under the circumstances. Upon
the request of the underwriters for any underwritten public offering of
Common Stock of the Company referred to above, each Holder hereby agrees to
deliver a "lock-up" or "market stand-off" agreement signed by such Holder
which is equivalent in substance to the agreement set forth in this Section
2.11 addressed to such underwriter. Any such underwriter shall expressly be
deemed to be a third party beneficiary of this Section 2.11.
The obligations described in this Section 2.11 shall not apply to a
registration relating solely to employee benefit plans or similar forms
that may be promulgated in the future, or a registration relating solely to
a Rule 145 transaction (including the registration for resale of securities
issued in a Rule 145 transaction) on Form S-4 under the Securities Act or
similar forms that may be promulgated in the future, unless in any such
case such registration is in connection with an underwritten public
offering. The Company may impose stop-transfer instructions with respect to
the shares of Common Stock (or other securities) subject to the foregoing
restriction until the end of such restrictive period.
2.12 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its commercially reasonable best
efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act; and
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act.
3. CONFIDENTIALITY.
(a) Each Holder agrees not to disclose to any third party or use
Confidential Information (as hereinafter defined) of the Company for its
own use or for any purpose except to evaluate its current equity investment
in the Company. Each Holder shall undertake to treat such Confidential
Information in a manner consistent with the treatment of its own
information of similar proprietary nature and agrees that it shall protect
the confidentiality of Confidential Information. Each transferee of any
Holder who receives Confidential Information shall agree to be bound by
such provisions and the Company is not required to deliver any Confidential
Information to any person who does not agree to be so bound.
(b) "Confidential Information" means any notices given by the
Company pursuant to the terms of this Agreement and any other information
disclosed by the Company either directly or indirectly in a writing stamped
"Confidential" or "Proprietary" or, if disclosed orally, which is promptly
confirmed in writing to be Confidential Information. Confidential
Information does not include information, technical data or know-how which
(i) is generally known or publicly available not as a result of any action
or inaction of a Holder; (ii) is disclosed to a Holder on a
non-confidential basis by a third party having a legal right to disclose
such information; or (iii) is approved for release by written authorization
of the Company. The provisions of this Section shall not apply to the
extent that a Holder is required to disclose Confidential Information
pursuant to any law, statute, rule or regulation or any legal process or
order of any court, provided that the Holder shall notify the Company of
any such required disclosure as promptly as possible and shall cooperate
with the Company in order to limit the scope of any order or service of
legal process requiring disclosure of such Confidential Information.
4. GENERAL.
4.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of New York without giving effect to conflicts
of laws principles. Each of the parties to this Agreement hereby
irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of New York and the courts of the
United States of America located in the Southern District of the State of
New York for any action, claim or proceeding arising out of or relating to
this Agreement (and agrees not to commence any action, claim or proceeding
relating hereto except in such courts), and further agrees that service of
any process, summons, notice or document by U.S. registered mail to its
respective address shall be effective service of process for any action,
claim or proceeding brought against it in any such court. Each of the
parties to this Agreement hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, claim or proceeding arising
out of this Agreement in the courts of the State of New York or the courts
of the United States of America located in the State of New York and hereby
further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, claim or proceeding brought
in any such court has been brought in an inconvenient forum. Each of the
parties hereto hereby irrevocably and unconditionally waives any right it
may have to trial by jury in connection with any action, claim or
proceeding arising out of or relating to this Agreement.
4.2 SURVIVAL. The provisions of Section 2.10 and Section 3 hereof
shall survive any termination of this Agreement
4.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
Person who shall be a Holder from time to time in accordance with the terms
of this Agreement.
4.4 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
4.5 AMENDMENT AND WAIVER. (a) Except as otherwise expressly provided
herein, this Agreement may be amended or modified and the observance of any
provision hereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) upon the written
consent of the Company and the Holders of at least a majority in interest
of the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 4.5 shall be binding upon each Holder and the
Company.
(b) Except as otherwise expressly provided herein, the
obligations of the Company and the rights of the Holders under this
Agreement may be waived only with the written consent of at least a
majority in interest of the Registrable Securities.
(c) This Agreement may be amended only with the written consent
of the Company to include any additional party as a "Holder."
4.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any Holder or the Company,
upon any breach, default or noncompliance of the Company or any Holder, as
the case may be, under this Agreement shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach,
default or noncompliance, or any acquiescence therein, or of any similar
breach, default or noncompliance thereafter occurring. It is further agreed
that any waiver, permit, consent or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under this
Agreement or any waiver on such Holder's part of any provisions or
conditions of this Agreement must be in writing and shall be effective only
to the extent specifically set forth in such writing. All remedies, either
under this Agreement, by law or otherwise afforded to Holders, shall be
cumulative and not alternative.
4.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery
to the party to be notified, (ii) when sent by confirmed facsimile if sent
during normal business hours of the sender; if not, then on the next
business day, (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after deposit with a recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be
sent to the party to be notified at the address as set forth on Exhibit A
hereto or at such other address as such party may designate in writing to
the other party in accordance with this Section 4.7 by ten (10) days'
advance written notice to the other parties hereto. All communications made
to the Company shall be sent to theglobe.com, inc., 120 Broadway, 22nd
floor, New York, N.Y., 10271, Attn. Richard Mass, Esq.
4.8 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
4.9 HEADINGS. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be
considered in construing the intent of this Agreement.
4.10 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof and supersedes all previous negotiations, agreements and
arrangements made between the parties with respect to such subject matter.
4.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
4.12 THIRD-PARTY BENEFICIARIES. This Agreement shall inure to the
benefit of and be binding upon the Company and each of the other
signatories hereto and their respective successors and assigns. The
underwriter for an underwritten public offering of the Company, as
described in Section 2.11, shall be expressly deemed to be a third-party
beneficiary of the provisions of such Section. Other than as expressly set
forth in this paragraph, no other party will be considered a third-party
beneficiary of any rights or benefits created under this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date set forth in the first paragraph hereof.
COMPANY: HOLDER:
theglobe.com, inc.
By: /s/ Dean S. Daniels
---------------------------
Name: Dean S. Daniels
Title: President & C.O.O.
/s/ Yale Brozen
-------------------------------
Yale Brozen
/s/ Christina Brozen
-------------------------------
Christina Brozen
<PAGE>
EXHIBIT A
SCHEDULE OF HOLDERS
Name Address Telephone
- ---- ------- ---------
Yale Brozen P.O. Box 171 802-767-9010
Rochester, VT 05767
Christina Brozen P.O. Box 171 802-767-9010
Rochester, VT 05767
EXHIBIT 23.1
ACCOUNTANT'S CONSENT
--------------------
The Board of Directors
theglobe.com, inc.:
We consent to incorporation by reference in the registration statement (No.
333-79677) on Form S-8 of theglobe.com, inc. of our report dated January
28, 2000, relating to the consolidated balance sheets of theglobe.com, inc.
and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and
comprehensive loss and cash flows for each of the years in the three-year
period ended December 31, 1999, and related financial statement schedule,
which report appears in the December 31, 1999, annual report on Form 10-K
of theglobe.com, inc.
/s/ KPMG LLP
New York, New York
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.1
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 36,585,998
<SECURITIES> 19,288,627
<RECEIVABLES> 5,627,808
<ALLOWANCES> (1,408,092)
<INVENTORY> 0
<CURRENT-ASSETS> 62,259,278
<PP&E> 12,797,251
<DEPRECIATION> (3,332,960)
<TOTAL-ASSETS> 138,843,317
<CURRENT-LIABILITIES> 9,294,732
<BONDS> 0
0
0
<COMMON> 27,771
<OTHER-SE> 126,881,656
<TOTAL-LIABILITY-AND-EQUITY> 138,843,317
<SALES> 18,640,960
<TOTAL-REVENUES> 18,640,960
<CGS> 8,547,514
<TOTAL-COSTS> 71,011,902
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (780,464)
<INCOME-PRETAX> (50,666,303)
<INCOME-TAX> 290,337
<INCOME-CONTINUING> (50,956,640)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,355,698
<CHANGES> 0
<NET-INCOME> (49,600,942)
<EPS-BASIC> (2.00)
<EPS-DILUTED> (2.00)
</TABLE>
EXHIBIT 99.1
SCHEDULE II
theglobe.com
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
BALANCE ADDITIONS BALANCE
AT BEGINNING CHARGED TO AT END
YEAR ENDED OF PERIOD EXPENSE DEDUCTIONS OF PERIOD
- ----------------- ---------- ---------- ---------- ----------
December 31, 1997 $ -- $ 12,000 $ -- $ 12,000
December 31, 1998 $ 12,000 $ 387,878 $ 99,742 $ 300,136
December 31, 1999 $ 300,136 $1,881,473 $ 773,517 $1,408,092
