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FILED PURSUANT TO RULE 424B4
REGISTRATION NO. 333-69881
PROSPECTUS
3,000,000 SHARES
[LOGO]
COMMON STOCK
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This is an initial public offering of our common stock. We are selling all of
the 3,000,000 shares offered under this prospectus.
There is currently no public market for the shares. Our common stock has been
approved for quotation on the Nasdaq National Market under the symbol "MINE."
At the same time as we sell the shares offered by this prospectus, we will sell
shares of our common stock to Comcast Interactive Investments, Inc. for
$2,500,000 at a price per share equal to 93% of the initial public offering
price. Since these shares will be sold in a private placement, Comcast will not
be able to immediately resell the shares in the public market. See "Concurrent
Placement."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT RISKS THAT YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PER
SHARE TOTAL
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Public offering price................................................ $25.00 $75,000,000
Underwriting discounts and commissions............................... $ 1.75 $ 5,250,000
Concurrent placement price........................................... $23.25 $ 2,500,000
Total proceeds, before expenses, to us from this offering and the
concurrent placement............................................... $23.25 $72,250,000
</TABLE>
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The underwriters may purchase up to an additional 450,000 shares from us at the
initial public offering price less the underwriting discount to cover
over-allotments.
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BEAR, STEARNS & CO. INC.
VOLPE BROWN WHELAN & COMPANY
WIT CAPITAL CORPORATION
AS E-MANAGER-TM-
The date of this Prospectus is March 24, 1999.
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PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER MININGCO.COM, INC. NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE
TO PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION. THIS
PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY
SALE OF THESE SECURITIES.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary............................. 1
Risk Factors................................... 5
Concurrent Placement........................... 13
Forward Looking Statements; Market Data........ 13
Use of Proceeds................................ 14
Dividend Policy................................ 14
Capitalization................................. 15
Dilution....................................... 16
Selected Financial Data........................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19
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PAGE
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Business....................................... 27
Management..................................... 41
Certain Transactions........................... 51
Principal Stockholders......................... 55
Description of Securities...................... 57
Shares Eligible for Future Sale................ 61
Underwriting................................... 63
Legal Matters.................................. 66
Experts........................................ 66
Where You Can Find Additonal Information....... 66
Index to Financial Statements.................. F-1
</TABLE>
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UNTIL APRIL 18, 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF
INVESTING IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS," BEFORE INVESTING
IN OUR COMMON STOCK.
OUR BUSINESS
MININGCO.COM is a leading Internet news, information and entertainment
service. Our service is a network of over 600 web sites, each of which focuses
on a specific topic and is managed by a knowledgeable human guide. Through these
GuideSites-TM-, the guides create and maintain Internet directories that include
approximately 400,000 pre-screened links to other web sites, which are
summarized by the guides, enabling users to quickly find relevant Internet
content. The GuideSite network also provides original high-quality content,
consisting primarily of text, that is created regularly by the guides on
thousands of subjects. Additionally, since our GuideSites focus on specific
topics, users with like interests can form communities by communicating with
each other directly or through the guides. We believe that our service offers an
enjoyable and efficient Internet experience for users across a broad range of
topics, creating highly targeted marketing opportunities for advertisers and for
businesses that market their products and services over the Internet. We believe
that over 4.6 million unique users visited MININGCO.COM in January 1999, making
MININGCO.COM the sixth largest news/ information/entertainment Internet property
in terms of audience reach and the 26th largest Internet property overall in
that month.
MININGCO.COM'S guides are located in over 40 states and 18 countries. We use
a work force of part-time independent contractors because we can draw upon a
broad experience base more cost-effectively than with a large internal editorial
staff. The guides complete a comprehensive 16-week training process and their
GuideSites are monitored for quality and consistency. We have exclusive online
rights to all of the guide-developed content. MININGCO.COM'S guides are
compensated based on the greater of a monthly guarantee or a percentage of
revenues generated by all of the GuideSites.
We believe that our network of GuideSites provides a highly targeted
Internet platform for advertisers and marketers over a broad range of consumer
and business categories. Advertisers and electronic commerce partners have
significant flexibility in determining the level of targeting that they want to
achieve on MININGCO.COM. For several of our electronic commerce partners, we
have developed promotions that integrate original content from MININGCO.COM with
our partners' offerings. We believe these promotions create an engaging
purchasing environment for users, while enhancing the value of our service as an
electronic commerce platform. Some of our recent advertisers and electronic
commerce partners include Bertelsmann Music Group, eBay, IBM, Lowestfare.com,
Microsoft Network, Netscape, Office Max and Qwest.
OUR STRATEGY
Our objective is to become a primary Internet destination and a leading
advertising and electronic commerce platform. We are focused on increasing the
number of users and page views on MININGCO.COM by:
- Building brand awareness through expanded online and offline marketing
campaigns;
- Broadening existing and developing new distribution and syndication
partnerships; and
- Expanding MININGCO.COM'S functions, features and content.
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We also intend to convert user traffic into revenues by:
- Broadening our base of advertisers and electronic commerce partners and
optimizing our advertising rates by leveraging the increasing flow of user
traffic in highly targeted sections within the GuideSite network; and
- Expanding our internal advertising sales force, which will enable us to
establish and maintain closer relationships with our advertisers,
advertising agencies and electronic commerce marketers, and reduce
advertising sales costs as a percentage of revenues.
CORPORATE INFORMATION
We were incorporated in New York on June 27, 1996 as General Internet Inc.
We reincorporated in Delaware in December 1998 as MiningCo.com, Inc. Our
principal executive offices are located at 220 East 42nd Street, 24th Floor, New
York, New York 10017. Our telephone number at that location is (212) 849-2000
and our e-mail address is [email protected]. INFORMATION CONTAINED ON OUR WEB
SITE DOES NOT CONSTITUTE PART OF THIS PROSPECTUS.
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THE OFFERING
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Common Stock Offered in this Offering.............. 3,000,000 shares
Common Stock Offered in the Concurrent Placement... 107,527 shares
Common Stock Outstanding After this Offering and
the Concurrent Placement......................... 11,611,781 shares
Use of Proceeds.................................... We intend to use the net proceeds of
this offering to execute our business
plan. See "Use of Proceeds."
Nasdaq National Market Symbol...................... MINE
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ADDITIONAL SHARES MAY BE ISSUED AFTER THIS OFFERING AND THE CONCURRENT PLACEMENT
UPON THE EXERCISE OF OPTIONS AND WARRANTS.
You should be aware that we are permitted, and in some cases obligated, to
issue shares of common stock in addition to the common stock to be outstanding
after this offering and the concurrent placement. If and when we issue these
shares, the percentage of common stock you own may be diluted. The following is
a summary of these additional shares of common stock:
- 2,269,752 shares issuable upon the exercise of options outstanding at a
weighted average exercise price of $12.76 per share, of which 922,427 are
exercisable, and 731,241 shares available for future option grants;
- 125,000 shares available for issuance to our employees who elect to buy
stock in the future under our employee stock purchase plan; and
- 65,860 shares issuable upon the exercise of warrants outstanding at a
weighted average exercise price of $9.80 per share.
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UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS:
- REFLECTS A 1.00 FOR 2.809 REVERSE STOCK SPLIT OF OUR COMMON STOCK THAT WAS
EFFECTED ON MARCH 19, 1999. THIS REVERSE STOCK SPLIT OF OUR COMMON STOCK
WILL NOT IMPACT THE NUMBER OF SHARES BEING OFFERED AND WILL NOT HAVE ANY
IMPACT ON THE PURCHASERS OF THE SHARES IN THIS OFFERING OR THE CONCURRENT
PLACEMENT;
- REFLECTS THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF OUR
CONVERTIBLE PREFERRED STOCK INTO 6,139,640 SHARES OF OUR COMMON STOCK AT
THE SAME TIME AS THE CLOSING OF THIS OFFERING AND THE CONCURRENT
PLACEMENT;
- ASSUMES THE ISSUANCE OF 107,527 SHARES IN THE CONCURRENT PLACEMENT; AND
- ASSUMES THAT THE UNDERWRITERS DO NOT EXERCISE THEIR OPTION TO PURCHASE
ADDITIONAL SHARES AFTER THE CLOSING OF THIS OFFERING AND THE CONCURRENT
PLACEMENT.
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General Internet, GuideSite, Mining Co., The Mining Company and our logo are
our trademarks. Each other trademark, trade name or service mark appearing in
this prospectus belongs to its holder.
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SUMMARY FINANCIAL DATA
The following table sets forth our summary financial data. This table does
not present all of our financial information. You should read this information
together with our financial statements and the notes to those statements
beginning on page F-1 of this prospectus and the information under "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The pro forma information reflects the automatic
conversion of all outstanding shares of our convertible preferred stock into
6,139,640 shares of our common stock and the automatic forgiveness and
cancellation of $337,100 in unsecured promissory notes payable, each of which
will occur upon the closing of this offering and the concurrent placement.
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<CAPTION>
PERIOD FROM
JUNE 27, 1996
(INCEPTION) YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, ----------------------
1996 1997 1998
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(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues............................................................. $ -- $ 391 $ 3,722
Gross profit (loss).................................................. (91) (1,492) (307)
Loss from operations................................................. (2,381) (8,341) (14,892)
Net loss............................................................. (2,438) (8,640) (15,578)
Net loss attributable to common stockholders......................... (2,438) (8,640) (16,808)
Basic and diluted net loss per common share.......................... $ (1.20) $ (4.94) $ (9.71)
Weighted average shares outstanding used in basic and diluted net
loss per common share calculation.................................. 2,035,144 1,748,850 1,731,598
Pro forma basic and diluted net loss per common share................ $ (1.98)
Weighted average shares outstanding used in pro forma basic and
diluted net loss per common share.................................. 7,871,238
</TABLE>
The following table is a summary of our balance sheet data. The pro forma as
adjusted column reflects the sale of 3,000,000 shares of common stock in this
offering after deducting underwriting discounts and estimated offering expenses.
The pro forma as adjusted column also reflects the sale of $2,500,000 of common
stock in the concurrent placement. Please see "Concurrent Placement" and
"Capitalization."
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DECEMBER 31, 1998
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents............................................ $ 10,644 $ 10,644 $ 81,494
Working capital...................................................... 4,231 4,231 75,081
Total assets......................................................... 15,658 15,658 86,508
Notes payable, excluding current portion............................. 621 284 284
Capital leases, excluding current installments....................... 149 149 149
Convertible preferred stock.......................................... 32,072 -- --
Total stockholders' (deficit) equity................................. (24,662) 7,747 78,597
</TABLE>
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RISK FACTORS
ANY INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CONSIDER CAREFULLY THE FOLLOWING INFORMATION ABOUT THESE RISKS, TOGETHER
WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE YOU DECIDE TO
BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR
BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL CONDITION WOULD LIKELY SUFFER. IN
THIS CASE, THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE
ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
BECAUSE WE HAVE ONLY BEEN IN BUSINESS FOR A SHORT PERIOD OF TIME, THERE IS
LIMITED INFORMATION UPON WHICH YOU CAN EVALUATE OUR BUSINESS.
We were incorporated in June 1996 and launched MININGCO.COM in April 1997.
Accordingly, you can only evaluate our business based on our limited operating
history. As a young company, we face risks and uncertainties relating to our
ability to successfully implement our business plan. If we are unsuccessful in
addressing these risks and uncertainties, our business, results of operations
and financial condition will be materially adversely affected.
WE HAVE LOST MONEY EVERY QUARTER AND EVERY YEAR, AND WE EXPECT TO LOSE MONEY IN
THE FUTURE.
IF OUR REVENUES DO NOT INCREASE SUBSTANTIALLY, WE MAY NEVER BECOME
PROFITABLE. We have not generated enough revenues to exceed the substantial
amounts we have spent to create, launch and enhance MININGCO.COM and to grow our
business. Even if we do achieve profitability, we may not sustain or increase
profitability on a quarterly or annual basis in the future.
A PORTION OF OUR HISTORICAL REVENUES HAVE BEEN DERIVED FROM AN ARRANGEMENT
WITH CITIBANK N.A. AND FROM BARTER AGREEMENTS. In 1998, approximately 12% of our
revenues were derived from an advertising arrangement with Citibank, N.A., which
ended on December 31, 1998. In 1998, approximately 10% of our revenues were
derived from agreements where we traded advertisements on MININGCO.COM in
exchange for advertisements on other web sites without receiving any cash
payments. We expect that these barter revenues will continue to account for
approximately 10% of our revenues in the future.
OUR COSTS OF REVENUES COMBINED WITH OUR OPERATING EXPENSES HAVE EXCEEDED OUR
REVENUES FOR ALL QUARTERS. We have historically funded our operations by selling
our stock and not by generating income from our business. At December 31, 1998,
our accumulated deficit was $26.7 million. We expect to continue to lose money
for the foreseeable future because we plan to continue to incur significant
expenses.
FLUCTUATIONS IN OUR OPERATING RESULTS MAY NEGATIVELY IMPACT OUR STOCK PRICE.
Our quarterly operating results may fluctuate significantly in the future
due to a variety of factors that could affect our revenues or our expenses in
any particular quarter. It is possible that in some future periods our results
of operations may be below the expectations of public market analysts and
investors. In this event, the price of our common stock is likely to fall.
You should not rely on our results of operations during any particular
quarter as an indication of our results for a full year or any other quarter.
Factors that may affect our quarterly results include:
- the demand for advertising on MININGCO.COM;
- the number of users on, and the frequency of their use of, MININGCO.COM
since our advertising revenues are typically based on user traffic;
- our ability to attract and retain advertisers and electronic commerce
partners;
- our ability to meet the minimum numbers of advertisements that we are
required to deliver to users by many of our advertising contracts, since
our failure to do this would result in our
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deferring recognition of the related revenues and would reduce our
available advertising inventory in subsequent periods;
- changes in rates paid for advertising on MININGCO.COM;
- the timing and amount of our costs related to advertising sales and
marketing efforts; and
- fees we may pay for distribution or content or other costs we may incur as
we expand our operations.
Our operating expenses are based on our expectations of our future revenues
and are relatively fixed in the short term. Given our limited operating history
and our difficulties in accurately estimating the user traffic historically
experienced on our website, user traffic on our website is difficult to forecast
accurately. Consequently, since revenues from Internet advertising will make up
a significant amount of our revenues for the foreseeable future, our revenues
are difficult to forecast accurately. In particular, we intend to expend
significant amounts to expand our internal advertising sales force and to build
brand awareness of MININGCO.COM. We may be unable to adjust spending quickly
enough to offset any unexpected revenue shortfall. If we have a shortfall in
revenues in relation to our expenses, or if our expenses precede increased
revenues, then our results of operations and financial condition would be
materially adversely affected.
SEASONAL FACTORS MAY AFFECT OUR QUARTERLY OPERATING RESULTS.
Seasonality of our user traffic on MININGCO.COM and our advertising revenues
may cause our total revenues to fluctuate. User traffic on web sites has
typically declined during the summer and year-end vacation and holiday periods.
We believe that advertising sales in traditional media, such as television and
radio, generally are lower in the first and third calendar quarters of each
year. Similar seasonal or other patterns may develop in our business.
WE WILL ONLY BE ABLE TO EXECUTE OUR BUSINESS PLAN IF INTERNET USAGE GROWS.
Our business would be adversely affected if Internet usage does not grow.
Internet usage may be inhibited for any of the following reasons:
- the Internet infrastructure may not be able to support the demands placed
on it, and its performance and reliability may decline as usage grows;
- security and authentication concerns with respect to the transmission over
the Internet of confidential information, such as credit card numbers, and
attempts by unauthorized computer users, so-called hackers, to penetrate
online security systems; and
- privacy concerns, including those related to the ability of web sites to
gather user information without the user's knowledge or consent.
WE WILL ONLY BE ABLE TO EXECUTE OUR BUSINESS PLAN IF INTERNET ADVERTISING
INCREASES.
OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION WOULD BE
MATERIALLY ADVERSELY AFFECTED IF THE INTERNET ADVERTISING MARKET DEVELOPS MORE
SLOWLY THAN WE EXPECT OR IF WE ARE UNSUCCESSFUL IN INCREASING OUR ADVERTISING
REVENUES. Revenues from Internet advertising will make up a significant amount
of our revenues for the foreseeable future. Since the Internet advertising
market is new and rapidly evolving, we cannot yet gauge its effectiveness as
compared to traditional advertising media.
THE ADOPTION OF INTERNET ADVERTISING, PARTICULARLY BY THOSE ENTITIES THAT
HAVE HISTORICALLY RELIED UPON TRADITIONAL MEDIA FOR ADVERTISING, 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.
These businesses may find Internet
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advertising to be less effective than traditional advertising media for
promoting their products and services. Many potential advertising and electronic
commerce partners have little or no experience using the Internet for
advertising purposes. Consequently, they may allocate only limited portions of
their advertising budgets to Internet advertising.
ADVERTISERS AND ELECTRONIC COMMERCE MARKETERS MAY NOT ADVERTISE ON
MININGCO.COM OR MAY PAY LESS FOR ADVERTISING ON MININGCO.COM IF THEY DO NOT
BELIEVE THAT THEY CAN RELIABLY MEASURE THE EFFECTIVENESS OF INTERNET ADVERTISING
OR THE DEMOGRAPHICS OF THE USER VIEWING THEIR ADVERTISEMENTS. We use both
internal measurements and measurements provided to us by third parties. If these
third parties are unable to continue to provide these services, we would have to
perform them ourselves or obtain them from another provider. This could cause us
to incur additional costs or cause interruptions in our business while we are
replacing these services. In addition, we are implementing additional systems
designed to record demographic data on our users. If we do not implement these
systems successfully, we may not be able to accurately evaluate the demographic
characteristics of our users. 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.
TO THE EXTENT THAT MINIMUM GUARANTEED IMPRESSION LEVELS ARE NOT MET RATABLY
OVER THE CONTRACT PERIOD, WE DEFER RECOGNITION OF THE CORRESPONDING PRO-RATA
PORTION OF THE REVENUES RELATED TO SUCH UNFULFILLED OBLIGATION UNTIL THE
GUARANTEED IMPRESSION LEVELS ARE ACHIEVED. Advertising based on impressions, or
the number of times an advertisement is delivered to users, comprises virtually
all of our current revenues. To the extent that minimum impression levels are
not achieved for any reason, we may be required to provide additional
impressions after the contract term, which would reduce our advertising
inventory.
OUR REVENUES COULD BE ADVERSELY AFFECTED IF WE ARE UNABLE TO ADAPT TO OTHER
INTERNET ADVERTISING PRICING MODELS 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.
WE MAY NOT BE ABLE TO ADAPT AS INTERNET TECHNOLOGIES AND CUSTOMER DEMANDS
CONTINUE TO EVOLVE.
To be successful, we must adapt to rapidly changing Internet technologies by
continually enhancing MININGCO.COM and introducing new services to address our
customers' changing demands. We could incur substantial costs if we need to
modify our services or infrastructure in order to adapt to changes affecting
providers of Internet services. Our business, results of operations and
financial condition could be materially adversely affected if we incurred
significant costs to adapt, or cannot adapt, to these changes.
REGULATORY AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS.
Any new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could decrease the demand for our service,
increase our cost of doing business or otherwise have a material adverse effect
on our business, results of operations and financial condition. There is, and
will be, an increasing number of laws and regulations pertaining to the
Internet. These laws or regulations may relate to liability for information
retrieved from or transmitted over the Internet, online content regulation, user
privacy, taxation and the quality of products and services. Moreover, the
applicability to the Internet of existing laws governing intellectual property
ownership and infringement, copyright, trademark, trade secret, obscenity,
libel, employment, personal privacy and other issues is uncertain and
developing. Please see "Business--Government Regulation and Legal
Uncertainties."
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WE MAY BE LIABLE FOR THE CONTENT WE MAKE AVAILABLE ON THE INTERNET.
We make content available on MININGCO.COM and on the web sites of our
advertisers and distribution partners. The availability of this content could
result in claims against us based on a variety of theories, including
defamation, obscenity, negligence, copyright or trademark infringement. Other
claims may be brought based on the nature, publication and distribution of our
content or based on errors or false or misleading information provided on
MININGCO.COM, including information deemed to constitute professional advice
such as legal, medical, financial or investment advice. We could also be exposed
to liability for third-party content accessed through MININGCO.COM'S links to
other websites or posted by users in chat rooms or bulletin boards offered on
the GuideSites. Our financial condition could be materially adversely affected
if we were found liable for information that we make available. Implementing
measures to reduce our exposure to this liability may require us to spend
substantial resources and limit the attractiveness of our service to users.
Please see "Business--Government Regulations and Legal Uncertainties."
THE DEVELOPMENT OF OUR BRAND IS ESSENTIAL TO OUR FUTURE SUCCESS.
If our brand marketing efforts are unsuccessful, our business, financial
condition and results of operations would be materially adversely affected. In
order to build our brand awareness, we must succeed in our brand marketing
efforts, provide high-quality services and increase user traffic on
MININGCO.COM. These efforts have required, and will continue to require,
significant expenses.
WE MUST INCREASE OUR INTERNAL ADVERTISING SALES FORCE TO SUPPORT OUR GROWTH.
Our business, results of operations and financial condition will be
materially adversely affected if we do not develop and maintain an effective
internal advertising sales force. On January 31, 1999, our internal advertising
sales force had nine members. We need to substantially increase our internal
advertising sales force in the near future to support our growth. Our ability to
increase our sales force involves a number of risks and uncertainties,
including:
- the competition we face in hiring and retaining advertising sales
personnel;
- our ability to integrate, train and motivate additional advertising sales
and advertising sales support personnel;
- our ability to manage a multi-location advertising sales organization; and
- the length of time it takes new advertising sales personnel to become
productive.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.
Competition could result in less user traffic to MININGCO.COM, price
reductions for our advertising inventory, reduced margins or loss of market
share, any of which would have a material adverse effect on our business,
results of operations and financial condition. We face intense competition for
users and for advertisers and electronic commerce marketers. We expect this
competition to increase because there are no substantial barriers to entry in
our market. Competition may also increase as a result of industry consolidation.
We may not be able to compete successfully.
We compete for users, advertisers and electronic commerce marketers with the
following:
- Internet retrieval companies, search engines and other Internet "portal"
companies (such as Excite, InfoSeek, Lycos and Yahoo!);
- online content web sites (such as C--net, ESPN.com and ZDNet.com);
- online community web sites (such as iVillage);
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- online personal homepage services (such as GeoCities and theglobe.com);
- publishers and distributors of television, radio and print (such as CBS,
Disney, NBC and Time Warner);
- general purpose consumer online services (such as America Online and
Microsoft Network); and
- web sites maintained by Internet service providers (such as AT&T Worldnet,
Earthlink and MindSpring).
Our ability to compete depends on many factors, many of which are outside of
our control. These factors include the quality of content provided by us and by
our competitors, the ease of use of services developed either by us or by our
competitors, the timing and market acceptance of new and enhanced services
developed either by us or by our competitors, and sales and marketing efforts by
us and our competitors.
Based on our review of publicly available documents, we believe that many of
our existing competitors, as well as potential new competitors, have longer
operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
This may allow them to devote greater resources than we can to the development
and promotion of their services. These competitors may also engage in more
extensive research and development, adopt more aggressive pricing policies and
make more attractive offers to existing and potential employees, guides,
distribution partners, and advertisers and electronic commerce partners. Our
competitors may develop services that are equal or superior to MININGCO.COM or
that achieve greater market acceptance than MININGCO.COM. In addition, current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their services to address the needs of advertisers and electronic commerce
marketers. As a result, it is possible that new competitors may emerge and
rapidly acquire significant market share.
WE WOULD BE UNABLE TO PROVIDE CONTENT WITHOUT THE EFFORTS OF OUR NETWORK OF
GUIDES.
Our business, results of operations and financial condition would be
materially adversely affected if our guides fail to provide us with adequate
content or if we fail to successfully replace former guides on a timely basis.
We are substantially dependent on our network of guides for providing in-depth,
high-quality, up-to-date content that covers thousands of subjects. Our guides
may not continue to provide us with a sufficient amount of high-quality content
covering a broad enough range of subjects. Furthermore, any number of guides may
discontinue their relationship with us. In addition, since the guides are
independent contractors, we have less control over the content production
process than if the guides were our employees.
WE COULD INCUR SIGNIFICANT WITHHOLDING TAXES AND EMPLOYEE BENEFITS EXPENSES IF
THE GUIDES WERE DEEMED TO BE OUR EMPLOYEES RATHER THAN INDEPENDENT
CONTRACTORS.
One or more jurisdictions or taxing authorities, including the Internal
Revenue Service, may seek to treat the guides as our employees rather than
independent contractors. As a result, they may seek to impose taxes, interest or
penalties on us. In addition, employees are generally entitled to healthcare and
other benefits that are typically unavailable to independent contractors. Since
we believe that the guides are independent contractors, we would vigorously
oppose any claim to the contrary. However, our efforts to do so might not be
successful. We have not estimated the minimum quantitative effect that these
taxes or employee benefit costs would have on us if the guides were deemed to be
employees. Our business, results of operations and financial condition would be
materially adversely affected if these claims are made and we do not prevail or
if we are required to treat the guides as
9
<PAGE>
employees for tax or employee benefit purposes or otherwise. Please see
"Business--Government Regulation and Legal Uncertainties."
WE DEPEND ON RELATIONSHIPS WITH THIRD PARTIES.
Our business, results of operations and financial condition could be
materially adversely affected if we do not establish and maintain distribution
relationships on commercially reasonable terms or if any of our distribution
relationships do not result in increased user traffic on MININGCO.COM. A portion
of the users who come to MININGCO.COM come from third-party web sites with which
we have non-exclusive, short-term distribution relationships. Since these web
sites may not attract significant numbers of users themselves, MININGCO.COM may
not receive a significant number of additional users from these relationships.
Moreover, we may have to pay significant fees to establish additional
relationships or maintain existing relationships in the future.
In the future, we may also enter into agreements with advertisers,
electronic commerce marketers or other third-party web sites that require us to
exclusively feature these parties in certain sections or on certain pages of
MININGCO.COM. These exclusivity agreements may limit our ability to enter into
other advertising or sponsorship agreements or other strategic relationships.
Many companies we may pursue for strategic relationships also offer competing
services. As a result, these competitors may be reluctant to enter into
strategic relationships with us.
WE MAY NOT EFFECTIVELY MANAGE OUR GROWTH.
In order to execute our business plan, we must grow significantly. This
growth will place a significant strain on our personnel, management systems and
resources. If we do not manage growth effectively, our business, results of
operations and financial condition would be materially adversely affected. We
expect that the number of our employees, including management-level employees,
will continue to increase for the foreseeable future. Some of our key employees
have recently been hired, including our Vice President--Marketing who was hired
in November 1998 and our Chief Financial Officer who was hired in January 1999.
These individuals do not have significant experience working with us or our
management team. In addition, we expect that the number of guides will continue
to increase as new GuideSites are established. We must continue to improve our
operational and financial systems and managerial controls and procedures, and we
will need to continue to expand, train and manage our workforce. We must also
maintain close coordination among our technical, accounting, finance, marketing,
sales and editorial organizations.
WE DEPEND ON OUR KEY PERSONNEL.
Our future success depends, in part, on the continued service of our key
management personnel, particularly Mr. Scott P. Kurnit, our President and Chief
Executive Officer, and Mr. William C. Day, our Chief Operating Officer. Although
we are the beneficiary of a key person life insurance policy on Mr. Kurnit's
life, the loss of his services, or the services of other key employees, would
have a material adverse effect on our business, results of operations and
financial condition. Our future success also depends on our ability to attract,
retain and motivate highly skilled employees. Competition for employees in our
industry is intense. We may be unable to attract, assimilate or retain other
highly qualified employees 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.
THE PERFORMANCE OF MININGCO.COM IS CRITICAL TO OUR BUSINESS AND TO OUR
REPUTATION.
Any system failure, including network, software or hardware failure, that
causes an interruption in our service or a decrease in responsiveness of
MININGCO.COM could result in reduced user traffic on
10
<PAGE>
MININGCO.COM and reduced revenue. MININGCO.COM has in the past experienced
slower response times and interruptions in service for a variety of reasons.
MININGCO.COM could also be affected by computer viruses, electronic break-ins or
other similar disruptions. Our insurance policies have low coverage limits and
therefore our insurance may not adequately compensate us for any losses that may
occur due to any interruptions in our service.
In January 1998, we entered into an Internet-hosting agreement with Frontier
Global Center ("Frontier") to maintain all of our production servers at
Frontier's Manhattan Data Center until February 1, 2000. Our operations depend
on Frontier's ability to protect its and our systems against damage from fire,
power loss, water damage, telecommunications failures, vandalism and other
malicious acts, and similar unexpected adverse events. Any disruption in the
Internet access provided by Frontier could have a material adverse effect on our
business, results of operations and financial condition.
Our users and our guides depend on Internet service providers, online
service providers and other web site operators for access to MININGCO.COM. Each
of these providers has experienced significant outages in the past, and could
experience outages, delays and other difficulties due to system failures
unrelated to our systems.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Third parties may infringe or misappropriate our patents, trademarks or
other proprietary rights, which could have a material adverse effect on our
business, results of operations or financial condition. While we enter into
confidentiality agreements with our material employees, guides, consultants and
strategic partners, and generally control access to and distribution of our
proprietary information, the steps we have taken to protect our proprietary
rights may not prevent misappropriation. In addition, we do not know whether we
will be able to defend our proprietary rights since the validity, enforceability
and scope of protection of proprietary rights in Internet-related industries is
uncertain and still evolving.
Third parties may assert infringement claims against us. From time to time
in the ordinary course of business we have been, and we expect to continue to
be, subject to claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. These claims and any resultant
litigation, should it occur, could subject us to significant liability for
damages. In addition, even if we prevail, litigation could be time-consuming and
expensive to defend, and could result in the diversion of our time and
attention. Any claims from third parties may also result in limitations on our
ability to use the intellectual property subject to these claims unless we are
able to enter into agreements with the third parties making these claims.
WE WOULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR MATERIAL
THIRD-PARTY SYSTEMS ARE NOT YEAR 2000 COMPLIANT.
We have not yet devised a Year 2000 contingency plan. The failure of our
internal systems, or any material third-party systems, to be Year 2000 compliant
would have a material adverse effect on our business, results of operations and
financial condition. Although we believe that each of our material systems is
Year 2000 compliant, we will not conduct an end-to-end system test until the
second quarter of 1999. Accordingly, we do not yet know whether our internal
system, as a whole, is Year 2000 compliant. We are also contacting our
third-party vendors, licensors and providers of hardware, software and services
regarding their Year 2000 readiness. Although Frontier has represented to us
that its internal systems are Year 2000 compliant, their failure to be compliant
would adversely affect our ability to deliver our service. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Impact of the Year 2000."
11
<PAGE>
WE CANNOT PREDICT OUR FUTURE CAPITAL NEEDS AND WE MAY NOT BE ABLE TO SECURE
ADDITIONAL FINANCING.
We may need to raise additional funds in the future in order to fund more
aggressive brand promotion or more rapid expansion, to develop new or enhanced
services, to respond to competitive pressures or to make acquisitions. Any
required additional financing may not be available on terms favorable to us, or
at all. If adequate funds are not available on acceptable terms, we may be
unable to fund our expansion, successfully promote our brand, or take advantage
of acquisition opportunities, develop or enhance services, respond to
competitive pressures or take advantage of acquisition opportunities, any of
which could have a material adverse effect on our business, results of
operations and financial condition. If additional funds are raised by our
issuing equity securities, stockholders may experience dilution of their
ownership interest and the newly issued securities may have rights superior to
those of the common stock. If additional funds are raised by our issuing debt,
we may be subject to limitations on our operations, including limitations on the
payment of dividends. We currently anticipate that the net proceeds from this
offering and the concurrent placement, together with currently available funds,
will be sufficient to meet our anticipated needs for at least the next 12
months. Please see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
FUTURE SALES OF COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD ADVERSELY AFFECT
OUR STOCK PRICE.
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market after this
offering, or the perception that these sales could occur. These sales also might
make it more difficult for us to sell equity securities in the future at a time
and at a price that we deem appropriate. Please see "Shares Eligible for Future
Sale."
AFTER THIS OFFERING AND THE CONCURRENT PLACEMENT, OUR OFFICERS AND DIRECTORS MAY
STILL CONTROL US.
Our executive officers and directors will, in the aggregate, beneficially
own approximately 38.6% of the common stock following this offering and the
concurrent placement. These stockholders may be able to exercise control over
all matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of delaying or preventing a change in
control of us, which could have a material adverse effect on our stock price.
Please see "Principal Stockholders."
OUR SHARES MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS.
The market for the stocks of Internet-related companies has experienced
extreme price and volume fluctuations. Following this offering, investor
interest in us may not lead to the development of an active or liquid trading
market. The market price of our common stock may be volatile, and may decline
below the initial public offering price. In the past, securities class action
litigation has often been instituted against a company following periods of
volatility in the market price of the company's securities. If instituted
against us, regardless of the outcome, litigation could result in substantial
costs and a diversion of our management's attention and resources and have a
material adverse effect on our business, results of operations and financial
condition.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price per share will significantly exceed the
net tangible book value per share. Accordingly, investors purchasing shares in
this offering will suffer immediate and substantial dilution of their
investment. Please see "Dilution."
12
<PAGE>
CONCURRENT PLACEMENT
On February 23, 1999, MiningCo and Comcast Interactive Investments, Inc.
entered into a common stock purchase agreement pursuant to which MiningCo has
agreed to sell to Comcast shares of common stock for a total of $2,500,000.
Comcast will purchase the shares at a price equal to $23.25, or 93% of the
initial public offering price per share. Since Comcast will purchase the shares
directly from MiningCo in a private placement, the underwriters will not receive
any discount or commission on the sale of these shares. The closing of this
concurrent placement is contingent on, and is scheduled to close simultaneously
with, the closing of this offering.
The shares being sold in the concurrent placement will not be registered for
immediate resale under the Securities Act. As a result, Comcast will not
immediately be able to sell its shares in the public market. However, Comcast
will become a party to MiningCo's amended and restated investors' rights
agreement. Pursuant to this agreement, Comcast will be able to have its shares
of common stock registered for resale under the Securities Act at various times
in the future. See "Description of Securities--Registration Rights" and "Shares
Eligible for Future Sale."
FORWARD LOOKING STATEMENTS; MARKET DATA
Many statements made in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere are
forward-looking statements that are not based on historical facts. Because these
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements, including those
discussed under "Risk Factors."
This prospectus contains market data related to MiningCo and the Internet.
This market data includes projections that are based on a number of assumptions.
The assumptions include that:
- no catastrophic failure of the Internet will occur;
- the number of people online and the total number of hours spent online
will increase significantly over the next five years;
- the value of online advertising dollars spent per online user hour will
increase;
- the download speed of content will increase dramatically; and
- Internet security and privacy concerns will be adequately addressed.
If any one or more of the foregoing assumptions turns out to be incorrect,
actual results may differ from the projections based on these assumptions. The
failure of these markets to grow at these projected rates may have a material
adverse effect on MiningCo's business, results of operations and financial
condition, and the market price of MiningCo's common stock.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to MiningCo from the sale of the shares offered by this
prospectus and in the concurrent placement, after deducting underwriting
discounts and the estimated offering expenses payable by MiningCo, are estimated
to be approximately $70.9 million ($81.3 million if the underwriters'
over-allotment option is exercised in full). The principal purposes of this
offering are to obtain additional capital, to create a public market for the
common stock and to facilitate future access by MiningCo to public securities
markets.
MiningCo intends to use the net proceeds of this offering and the concurrent
placement to execute its business plan. As part of this plan, MiningCo expects
to increase its sales and marketing efforts and hire additional internal
advertising sales personnel. In addition, MiningCo expects to use a portion of
the proceeds to fund its capital expenditures. MiningCo estimates that its
capital expenditures will be approximately $4.0 million for 1999, which is
expected to be used for technical infrastructure improvements and for the
expansion of MiningCo's office space. While MiningCo may also use a portion of
the proceeds for acquisitions, MiningCo has no present understandings or
agreements relating to any acquisitions. Other than with respect to its expected
capital expenditures, MiningCo has not yet determined the amount of net proceeds
to be used specifically for any of the other foregoing purposes. Accordingly,
management will have significant flexibility in applying a significant portion
of the net proceeds of this offering and the concurrent placement. Pending any
such use, as described above, MiningCo intends to invest the net proceeds in
interest-bearing instruments.
DIVIDEND POLICY
MiningCo has not declared or paid any cash dividends on its capital stock
since inception and does not expect to pay any cash dividends for the
foreseeable future. MiningCo currently intends to retain future earnings, if
any, to finance the expansion of its business.
14
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1998, the capitalization
of MiningCo:
- on an actual basis;
- on a pro forma basis to reflect the automatic conversion of all
outstanding shares of convertible preferred stock into 6,139,640 shares
of common stock and the automatic forgiveness and cancellation of
$337,100 in unsecured promissory notes upon the closing of this
offering and the concurrent placement; and
- on a pro forma as adjusted basis to give effect to the sale of
3,000,000 shares in this offering and 107,527 shares being sold in the
concurrent placement after deducting underwriting discounts and the
estimated offering costs payable by MiningCo.
This information should be read together with MiningCo's financial statements
and the notes relating to those statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents............................................ $ 10,644 $ 10,644 $ 81,494
---------- ----------- -----------
---------- ----------- -----------
Notes payable, excluding current portion............................. $ 621 $ 284 $ 284
Obligations under capital leases, excluding current
installments....................................................... 149 149 149
Convertible preferred stock, $0.001 par value; 18,662,260 shares
authorized; 17,246,122 shares issued and outstanding actual; no
shares issued and outstanding pro forma or pro forma as adjusted... 32,072 -- --
Stockholders' (deficit) equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized; no
shares issued and outstanding actual, pro forma or pro forma as
adjusted......................................................... -- -- --
Common stock, $0.001 par value, 50,000,000 shares authorized;
2,202,558 shares issued and outstanding actual; 8,342,198 shares
issued and outstanding pro forma; and 11,449,725 shares issued
and outstanding pro forma as adjusted (1)........................ 2 8 11
Additional paid-in capital........................................... 3,231 35,634 106,481
Deferred compensation................................................ (1,239) (1,239) (1,239)
Accumulated deficit.................................................. (26,656) (26,656) (26,656)
---------- ----------- -----------
Total stockholders' (deficit) equity............................... (24,662) 7,747 78,597
---------- ----------- -----------
Total capitalization............................................. $ 8,180 $ 8,180 $ 79,030
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
- ------------------------
(1) MiningCo expects that there will be 11,611,781 shares of common stock
outstanding after this offering and the concurrent placement. This number
includes, in addition to the adjustments described above, 162,056 shares
issued upon option and warrant exercises that occurred after December 31,
1998. After the closing of this offering and the concurrent placement, no
shares of preferred stock will be issued or outstanding. See "Prospectus
Summary--Additional shares may be issued after this offering and the
concurrent placement upon the exercise of options and warrants."
15
<PAGE>
DILUTION
The pro forma net tangible book value of MiningCo as of December 31, 1998
was $7,178,100, or $0.86 per share. MiningCo's pro forma net tangible book value
per share is equal to the amount of MiningCo's total assets less intangible
assets less total liabilities, divided by the pro forma number of shares of
common stock outstanding as of December 31, 1998.
Assuming that MiningCo sells the 3,000,000 shares offered by this prospectus
at an initial public offering price of $25.00 per share and the 107,527 shares
being sold in the concurrent placement at a price of $23.25 per share (93% of
$25.00), after deducting the underwriting discounts and the estimated offering
expenses payable by MiningCo, the pro forma net tangible book value of MiningCo
as of December 31, 1998 would have been $78,028,100, or $6.81 per share. This
represents an immediate increase in pro forma net tangible book value of $5.95
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $18.19 per share to investors purchasing shares in this
offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share................................. $ 25.00
Pro forma net tangible book value per share as of December 31, 1998... $ 0.86
Pro forma increase in net tangible book value per share attributable
to new investors.................................................... 5.95
---------
Pro forma net tangible book value per share after this offering and the
concurrent placement.................................................. 6.81
---------
Pro forma dilution per share to investors purchasing shares in this
offering.............................................................. $ 18.19
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1998, differences between existing stockholders and the new investors purchasing
shares in this offering and the concurrent placement in:
- the total number of shares of common stock purchased from MiningCo;
- the total consideration paid to MiningCo; and
- the average price per share paid by existing stockholders, by stockholders
purchasing shares in the concurrent placement and by new investors
purchasing shares in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....................... 8,342,198 72.9% $ 33,494,762 30.2% $ 4.02
Investor in the concurrent placement........ 107,527 0.9 2,500,000 2.3 23.25
New investors in this offering.............. 3,000,000 26.2 75,000,000 67.5 25.00
------------ --------- -------------- ---------
Total................................... 11,449,725 100% $ 110,994,762 100% $ 9.69
------------ --------- -------------- ---------
------------ --------- -------------- ---------
</TABLE>
None of the foregoing tables or calculations assume that any options or
warrants outstanding as of December 31, 1998 will be exercised. If all
outstanding options and warrants were exercised on the date of the closing of
this offering, investors purchasing shares in this offering would suffer total
dilution of $17.19 per share. Please see "Prospectus Summary--Additional shares
may be issued after this offering and the concurrent placement upon the exercise
of options and warrants."
16
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read together with the
financial statements and the notes to those statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. The statement of operations data for the
period from June 27, 1996 (inception) through December 31, 1996 and for the
years ended December 31, 1997 and 1998, and the balance sheet data at December
31, 1997 and 1998 are derived from the audited financial statements of MiningCo
included elsewhere in this prospectus. The balance sheet data as of December 31,
1996 has been derived from audited financial statements of MiningCo not included
in this prospectus. Historical results are not necessarily indicative of the
results to be expected in the future.
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27, 1996
(INCEPTION) YEAR ENDED
TO DECEMBER 31,
DECEMBER 31, ----------------------
1996 1997 1998
------------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues............................................................... $ -- $ 391 $ 3,722
Cost of revenues....................................................... 91 1,883 4,029
------------- ---------- ----------
Gross profit (loss).................................................... (91) (1,492) (307)
Operating expenses:
Sales and marketing.................................................. 241 1,678 7,725
General and administrative........................................... 1,101 2,415 3,678
Product development.................................................. 948 2,756 2,731
Amortization of deferred compensation................................ -- -- 451
------------- ---------- ----------
Total operating expenses............................................... 2,290 6,849 14,585
------------- ---------- ----------
Loss from operations................................................... (2,381) (8,341) (14,892)
Other income (expense), net............................................ (57) (299) (686)
------------- ---------- ----------
Net loss............................................................... (2,438) (8,640) (15,578)
Cumulative dividends and accretion of convertible preferred stock to
liquidation value.................................................... -- -- (1,230)
------------- ---------- ----------
Net loss attributable to common stockholders........................... $ (2,438) $ (8,640) $ (16,808)
------------- ---------- ----------
------------- ---------- ----------
Basic and diluted net loss per common share............................ $ (1.20) $ (4.94) $ (9.71)
------------- ---------- ----------
------------- ---------- ----------
Weighted average shares outstanding used in basic and diluted net loss
per common share calculation......................................... 2,035,144 1,748,850 1,731,598
------------- ---------- ----------
------------- ---------- ----------
Pro forma basic and diluted net loss per common share.................. $ (1.98)
----------
----------
Weighted average shares outstanding used in pro forma basic and diluted
net loss per common share calculation................................ 7,871,238
----------
----------
</TABLE>
17
<PAGE>
The following balance sheet data is presented:
- on an actual basis;
- on a pro forma basis at December 31, 1998 to reflect the automatic
conversion of all outstanding shares of convertible preferred stock into
6,139,640 shares of common stock and the automatic forgiveness and
cancellation of $337,100 in unsecured promissory notes payable upon the
closing of this offering and the concurrent placement; and
- on a pro forma as adjusted basis at December 31, 1998 to give effect to
the sale of 3,000,000 shares in this offering and 107,527 shares being
sold in the concurrent placement after deducting underwriting discounts
and the estimated offering costs payable by MiningCo.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
DECEMBER 31, ------------------------
--------------------------------- PRO FORMA
1996 1997 1998 PRO FORMA AS ADJUSTED
--------- ---------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 1,647 $ 303 $ 10,644 $ 10,644 $ 81,494
Working capital (deficit)............................ 1,195 (3,098) 4,231 4,231 75,081
Total assets......................................... 2,039 1,357 15,658 15,658 86,508
Convertible notes payable............................ -- 4,851 -- -- --
Notes payable, excluding current portion............. 3,972 3,630 621 284 284
Capital leases, excluding current installments....... -- 252 149 149 149
Convertible preferred stock.......................... -- -- 32,072 -- --
Total stockholders' (deficit) equity................. (2,425) (10,944) (24,662) 7,747 78,597
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF MININGCO SHOULD BE READ TOGETHER WITH THE FINANCIAL STATEMENTS AND
THE NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. PLEASE SEE "RISK FACTORS" AND "FORWARD LOOKING STATEMENTS; MARKET
DATA."
OVERVIEW
For the period from MiningCo's incorporation on June 27, 1996 through April
1997, MiningCo's operating activities related primarily to the initial
development of MININGCO.COM, recruitment of employees and guides, and the
establishment of MiningCo's organizational and technical infrastructure. Since
the launch of MININGCO.COM in April 1997, revenues and operating expenses have
increased as MiningCo enhanced its network of guides, expanded its editorial and
operating staff, improved MININGCO.COM's functions and features and promoted
MININGCO.COM to increase brand awareness. As part of its marketing efforts,
MiningCo has conducted online campaigns and, beginning in June 1998, an offline
campaign consisting of a national trade magazine print campaign, and outdoor and
radio advertisements in selected cities.
To date, substantially all of MiningCo's revenues have been derived from the
sale of advertisements on MININGCO.COM. These sales have been made both to
companies that advertise their products and services over the Internet and to
electronic commerce marketers. MiningCo expects to derive its revenue
principally from the sale of advertising on MININGCO.COM for the foreseeable
future. MiningCo currently offers advertisers and electronic commerce partners
numerous sizes and types of advertising placement, including banner
advertisements, button advertisements and text links. MiningCo also offers
sponsorship programs and other promotional opportunities to build brand
awareness and drive user traffic to an advertiser's or electronic commerce
partner's web site. To date, sales of advertisements on MININGCO.COM have been
generated primarily by MiningCo's internal advertising sales organization and,
to a lesser extent, by third-party advertising sales representatives. While
MiningCo has to date contracted primarily with one company to provide its
third-party sales representation needs, this arrangement is not exclusive and
MiningCo may hire other third parties in the future. For the year ended December
31, 1998, a third-party Internet advertising sales representative organization
accounted for approximately 21% of MiningCo's total revenues. As of January 31,
1999, MiningCo had an internal advertising sales organization consisting of nine
professionals. MiningCo believes that it needs to significantly increase the
size of its internal advertising sales organization to successfully execute its
growth strategy and, accordingly, MiningCo intends to hire additional
advertising sales professionals. By doing so, MiningCo believes it can reduce
its advertising sales costs as a percentage of revenues and develop and maintain
closer relationships with advertisers and electronic commerce marketers.
Advertising revenues are derived principally from short-term advertising
contracts in which MiningCo typically guarantees a minimum number of impressions
over a specified period of time for a fixed fee. Revenues from advertising sales
are recognized ratably in the period in which the advertisement is displayed,
provided that no significant MiningCo obligations remain, at the lesser of the
ratio of impressions delivered over total guaranteed impressions or the straight
line basis over the term of the contract, and collection of the resulting
receivable is probable. Payments received from advertisers prior to displaying
their advertisements on MININGCO.COM are recorded as deferred revenues and are
recognized as revenues ratably as the advertisements are displayed. Pursuant to
its agreements with advertisers, MiningCo generally guarantees a minimum number
of impressions, or times that an advertisement is delivered to users of
MININGCO.COM, to be delivered over a specified period of time for a fixed fee.
To the extent these minimum guaranteed impression levels are not met ratably
over the contract period, MiningCo defers recognition of the corresponding
pro-rata portion of the revenues related to such unfulfilled obligation until
the guaranteed impression levels are achieved. When there is no guarantee of a
minimum number of impressions, MiningCo recognizes revenue in the period in
which the advertisement is displayed.
19
<PAGE>
For the year ended December 31, 1998, approximately 10% of MiningCo's
revenues were generated by agreements where MiningCo traded advertisements on
MININGCO.COM in exchange for advertisements on third-party web sites without
receiving any cash payment. The corresponding expenses from these barter
arrangements, which equal the amount of the barter revenues from these
arrangements, are included as a component of cost of revenues.
Advertisers on MININGCO.COM enter into short-term agreements, typically one
to three months in duration. MiningCo's agreements with its electronic commerce
partners are typically longer in duration, ranging from six months to two years
and, in particular cases, these agreements entitle MiningCo to a share of
revenues generated by sales of merchandise and services over a particular
threshold resulting from direct links from MININGCO.COM. Through December 31,
1998, MiningCo had not recognized any material revenues from these revenue
sharing agreements. Any revenues MiningCo derives from these revenue sharing
agreements will be recognized by MiningCo upon notification from its advertisers
and electronic commerce partners of sales attributable to MININGCO.COM.
Guides are currently compensated at an amount equal to the greater of a
monthly minimum guarantee or a percentage of net advertising revenues generated
by the entire GuideSite network, which is distributed among the guides based on
the user traffic on their respective GuideSites. For these purposes, net
advertising revenues has been defined as total advertising revenues received
less particular types of non-cash revenues, third-party advertising sales
representative organization fees and marketing costs. Guides are also currently
entitled to share a percentage of net transaction revenues and net syndication
revenues. In addition, management may distribute a semi-annual discretionary
bonus to guides. Guide compensation, including any compensation that may result
from the grant of stock options to the guides, is included as a component of
cost of revenues.
MiningCo has recorded deferred compensation expense of approximately
$1,716,900 for the year ended December 31, 1998 in connection with the grant of
stock options to employees and directors, representing the difference between
the deemed value of the common stock at the date of grant for accounting
purposes and the exercise price of the related options. This expense is
amortized over the vesting period, typically four years, of the applicable
options. MiningCo currently expects to amortize the following amounts of
deferred compensation expense annually: 1999--$332,000; 2000--$332,000;
2001--$332,000; and 2002--$242,900. However, $89,000 of the deferred
compensation expense will amortize upon the closing of this offering as a result
of an automatic acceleration clause contained within the original terms of the
option plan for a portion of the outstanding options. Amortization of deferred
compensation expense was $478,000 for the year ended December 31, 1998, of which
$27,000 is related to deferred compensation expense for the grant of options to
operations personnel, has been included in cost of revenues.
During January 1999, MiningCo entered into employment arrangements with two
employees. The employment arrangements provide for minimum salary levels, and
incentive compensation and severance benefits. MiningCo granted options to
purchase a total of 133,500 shares of common stock to the two employees. The
exercise price of the options is $4.21 per share. As a result, MiningCo expects
to record deferred compensation expense of approximately $2,775,000 in the first
quarter of 1999 relating to these options based on the difference between the
deemed fair value of the common stock for accounting purposes, in this case the
initial public offering price of $25.00 per share, and $4.21 per share. This
deferred compensation expense will be amortized over the four-year vesting
period of the applicable options.
Mining Co has granted fully vested, non-qualified stock options to purchase
200,000 shares of common stock to a substantial majority of its guides. The
exercise price per share of these options is $25.00 and the options have two
year terms. Since the guides are independent contractors, MiningCo expects to
record compensation expense of up to approximately $3.6 million representing the
fair market value of the options at the date of grant. The resulting
compensation expense will be included in cost of revenues in the quarter in
which this offering is consummated.
20
<PAGE>
RESULTS OF OPERATIONS
REVENUES. Revenues consist primarily of advertising revenues on
MININGCO.COM. MININGCO.COM was launched in April 1997. Revenues were $0 for the
period from June 27, 1996 (inception) to December 31, 1996, $391,000 for the
year ended December 31, 1997, which included $73,000 of barter revenues, and
$3.7 million for the year ended December 31, 1998, which included $366,000 of
barter revenues. During the year ended December 31, 1998, 12% of MiningCo's
revenues were derived from an advertising arrangement with Citibank N.A., which
ended on December 31, 1998. The period-to-period growth in revenues was
primarily attributable to an increase in the number of advertisers and the
number of advertisements delivered to users. MiningCo anticipates that revenues
from advertising will continue to account for substantially all of MiningCo's
revenues for the foreseeable future, and that barter revenues will remain
relatively constant as a percentage of Mining Co's total revenues.
COST OF REVENUES. Since the launch of MININGCO.COM in April 1997, cost of
revenues has consisted primarily of guide compensation, third-party Internet
advertising sales organization fees, salaries of operations personnel, site
hosting and depreciation costs and barter advertising expenses. In 1996,
MiningCo's first year of operation, cost of revenues consisted of guide fees,
site hosting and depreciation costs incurred in connection with developing
MiningCo's service. Cost of revenues was $91,000 for the period from June 27,
1996 (inception) to December 31, 1996, $1.9 million for the year ended December
31, 1997 and $4.0 million for the year ended December 31, 1998. This
period-to-period growth in cost of revenues was primarily attributable to an
increase in the fees paid to guides, which increased by $1.1 million from 1996
to 1997 and an additional $1.0 million from 1997 to 1998, and in site hosting
and operations costs, which increased by $492,000 from 1996 to 1997 and an
additional $570,000 from 1997 to 1998, which was due to growth in user traffic
on MININGCO.COM. Commencing in June 1998, MiningCo engaged a third-party
Internet advertising sales representative organization to supplement its
internal advertising sales force in selling MININGCO.COM'S advertising inventory
in exchange for a service fee. Fees paid to the third-party Internet advertising
sales organization accounted for an increase of $233,000 in cost of revenues
from 1997 to 1998.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of online and offline advertising costs, salaries and commissions of
internal sales and marketing personnel, public relations costs, payments to
third-party Internet companies to drive user traffic to MININGCO.COM and other
marketing expenses. In 1996, MiningCo did not dedicate meaningful funds to sales
and marketing as MININGCO.COM was not launched until April 1997. Sales and
marketing expenses were $241,000 for the period from June 27, 1996 (inception)
to December 31, 1996, $1.7 million for the year ended December 31, 1997 and $7.7
million for the year ended December 31, 1998. The period-to-period increase in
sales and marketing expenses from 1996 to 1997 was primarily attributable to the
initiation of MiningCo's online advertising and other promotional expenditures,
which increased by $916,000, as well as increased sales and marketing personnel
and related expenses, which increased by $512,000. The period-to-period increase
in sales and marketing expenses from 1997 to 1998 was primarily attributable to
the initiation of MiningCo's offline marketing and the expansion of online
advertising efforts, which accounted for an increase of $4.9 million, of which
$817,000 was expense related to third-party Internet companies to drive user
traffic to MININGCO.COM, as well as increased sales and marketing personnel and
related expenses, which increased by $329,000. Sales and marketing expenses in
absolute dollars have increased as a result of the continued development and
implementation of MiningCo's branding and marketing campaigns. MiningCo expects
that sales and marketing expenses will continue to increase in absolute dollars
for the foreseeable future as MiningCo increases expenditures for marketing,
promotion and branding, expands its internal advertising sales force and hires
additional marketing personnel.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of salaries and related costs for general corporate functions,
including finance, accounting, facilities and legal expenses, and fees for
professional services. General and administrative expenses were
21
<PAGE>
$1.1 million for the period from June 27, 1996 (inception) to December 31, 1996,
$2.4 million for the year ended December 31, 1997 and $3.7 million for the year
ended December 31, 1998. The absolute dollar increase in general and
administrative expenses was primarily attributable to increased salaries and
related expenses associated with hiring additional personnel, which increased by
$694,000 from 1996 to 1997 and by $622,000 from 1997 to 1998, and
facility-related expenses, which increased by $588,000 from 1996 to 1997 and by
$622,000 from 1997 to 1998, to support the growth of MiningCo's operations.
MiningCo expects that it will incur additional general and administrative
expenses as it hires additional personnel and incurs additional costs related to
the growth of its business and its operation as a public company, including
directors' and officers' liability insurance of approximately $240,000 per year,
investor relations programs of approximately $100,000 per year and professional
service fees. Accordingly, MiningCo anticipates that general and administrative
expenses will continue to increase in absolute dollars in future periods.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses include
personnel and consulting costs associated with the design, development and
testing of MININGCO.COM and MiningCo's systems and editorial personnel costs.
MiningCo expenses its product development costs as incurred. Product development
expenses were $948,000 for the period from June 27, 1996 (inception) to December
31, 1996, $2.8 million for the year ended December 31, 1997 and $2.7 million for
the year ended December 31, 1998. MiningCo launched its site in April, 1997. The
increase in absolute dollars in product development expenses from 1996 to 1997
was primarily attributable to increased staffing levels required to design,
develop and test modifications and improvements to MININGCO.COM. Product
development expenses remained relatively constant from 1997 to 1998 due to
nonrecurring consulting fees associated with the pre-launch development of
MININGCO.COM incurred during the first six months of 1997, offset by an increase
in staffing levels in 1998 to support the growth and development of
MININGCO.COM. MiningCo believes that timely deployment of new and enhanced
features and technology are critical to attaining its strategic objectives.
Accordingly, MiningCo intends to continue recruiting and hiring experienced
product development personnel and to make additional investments in product
development. MiningCo expects that product development expenditures will
increase in absolute dollars in future periods.
AMORTIZATION OF DEFERRED COMPENSATION EXPENSE. MiningCo has recorded
deferred compensation expense of $1,716,900 during 1998, for the difference
between the exercise price and the deemed fair value of stock options granted by
MiningCo to employees, consisting of operational and non-operational personnel,
and directors. This amount is being amortized over the vesting periods of the
individual stock options, which are typically four years. During 1998,
amortization of these charges for non-operational personnel amounted to
$451,000. During 1998, amortization of these charges for operational personnel
was $27,000, which amount is included in cost of revenues.
OTHER INCOME (EXPENSE), NET. Other income (expense), net includes interest
expense related to MiningCo's debt and capital lease obligations, net of income
from consulting activities and interest income from MiningCo's cash and cash
equivalents. Other income (expense), net was $(57,000) for the period from June
27, 1996 (inception) to December 31, 1996, $(299,000) for the year ended
December 31, 1997 and $(686,000) for the year ended December 31, 1998. The
change was primarily attributable to interest accrued on outstanding debt
obligations and amortization of debt discount. During 1997, MiningCo provided
consulting services to a major financial institution for an aggregate amount of
$450,000. Pursuant to its agreement with this financial institution, MiningCo
agreed to provide strategic assistance in creating, supporting and managing
customized web sites around which communities on specific areas of interest for
the financial institution's customers would be created. The term of the
agreement was from June 20, 1997 through December 15, 1997. Fees generated by
these services, net of expenses, have been recorded as other income, net of
which $350,000 was recorded for the year ended December 31, 1997. MiningCo did
not provide consulting services during 1998 and does not anticipate providing
consulting services in the future.
22
<PAGE>
CUMULATIVE DIVIDENDS AND ACCRETION OF CONVERTIBLE PREFERRED
STOCK. Cumulative dividends on MiningCo's convertible preferred stock amounted
to $1,196,800 in 1998. In addition, MiningCo accreted $33,700 of costs
associated with the convertible preferred stock issuances. Each share of
convertible preferred stock was entitled to a cumulative dividend at a rate of
$0.135 per share per annum for the Series A convertible preferred stock, $0.162
per share per annum for the Series B convertible preferred stock and $0.176 per
share per annum for the Series C convertible preferred stock. Upon the closing
of this offering, 3,346,715 shares of Series A convertible preferred stock,
6,597,596 shares of Series B convertible preferred stock and 7,301,811 shares of
Series C convertible preferred stock, representing all of the outstanding shares
of convertible preferred stock, shall automatically convert into 6,139,640
shares of common stock.
QUARTERLY RESULTS OF OPERATIONS DATA
The following table sets forth unaudited quarterly statement of operations
data for each of the eight quarters ended December 31, 1998. In the opinion of
management, this data has been prepared substantially on the same basis as the
audited financial statements appearing elsewhere in this prospectus, and
includes all necessary adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of such data. The quarterly data
should be read together with the financial statements and the notes to those
statements appearing elsewhere in this prospectus. The results of operations for
any quarter are not necessarily indicative of the results of operations for any
future period.
MiningCo has a limited operating history upon which to evaluate its business
and to predict revenues and plan operating expenses. In order to be successful,
MiningCo must attract more user traffic to MININGCO.COM and generate significant
advertising revenues. MiningCo expects its quarterly operating results to vary
significantly in the future due to a variety of factors, many of which are
outside its control. Since MiningCo expects to be substantially dependent on
revenues from advertising for the foreseeable future, its quarterly revenues are
likely to be particularly affected by user traffic levels on MININGCO.COM.
MiningCo launched its service in April 1997 with a significant online marketing
campaign. As a result, MiningCo spent heavily on marketing in the second quarter
of 1997 to help support this launch. During the second half of 1997, MiningCo's
general and administrative expenses declined due to reductions in compensation
of MiningCo's officers. Following the completion of a private equity financing
in April 1998, MiningCo used a portion of the proceeds to begin its offline
marketing campaign. Please see "Risk Factors--Our quarterly operating results
may fluctuate."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1997 1997 1997 1998 1998 1998
----------- ----------- --------------- --------------- ----------- ----------- ---------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............ $ -- $ 46 $ 135 $ 210 $ 152 $ 396 $ 1,030
Cost of revenues.... 300 503 520 560 556 730 1,178
----------- ----------- ------- ------- ----------- ----------- -------
Gross profit
(loss)........ (300) (457) (385) (350) (404) (334) (148)
Operating expenses:
Sales and
marketing....... 359 847 239 233 301 1,042 2,297
General and
administrative... 729 631 563 492 581 715 1,005
Product
development..... 656 734 802 564 461 584 742
Amortization of
deferred
compensation.... -- -- -- -- 200 31 94
----------- ----------- ------- ------- ----------- ----------- -------
Total operating
expenses...... 1,744 2,212 1,604 1,289 1,543 2,372 4,138
----------- ----------- ------- ------- ----------- ----------- -------
Loss from
operations........ (2,044) (2,669) (1,989) (1,639) (1,947) (2,706) (4,286)
Other income
(expense), net.... (75) (120) (15) (89) (478) (93) (70)
----------- ----------- ------- ------- ----------- ----------- -------
Net loss............ $ (2,119) $ (2,789) $ (2,004) $ (1,728) $ (2,425) $ (2,799) $ (4,356)
----------- ----------- ------- ------- ----------- ----------- -------
----------- ----------- ------- ------- ----------- ----------- -------
<CAPTION>
<S> <C>
DECEMBER 31,
1998
------------
<S> <C>
Revenues............ $ 2,144
Cost of revenues.... 1,565
------------
Gross profit
(loss)........ 579
Operating expenses:
Sales and
marketing....... 4,085
General and
administrative... 1,377
Product
development..... 944
Amortization of
deferred
compensation.... 126
------------
Total operating
expenses...... 6,532
------------
Loss from
operations........ (5,953)
Other income
(expense), net.... (45)
------------
Net loss............ $ (5,998)
------------
------------
</TABLE>
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, MiningCo has financed its operations primarily through the
private placement of equity securities and the incurrence of indebtedness. As of
December 31, 1998, MiningCo had $10.6 million in cash and cash equivalents.
To date, MiningCo has experienced negative cash flows from operating
activities. Net cash used in operating activities was $6.0 million for the year
ended December 31, 1997 and $9.8 million for the year ended December 31, 1998.
Net cash used in operating activities for these periods was primarily
attributable to MiningCo's net losses during these periods, adjusted for certain
non-cash items, and a higher level of accounts receivable resulting from an
increase in MiningCo's revenues, which was partially offset by increases in
accounts payable, accrued expenses and deferred revenues. For the year ended
December 31, 1998, the increase in net cash used in operating activities was
primarily attributable to MiningCo's net operating loss of $15.6 million offset
by an increase in accounts payable and accrued expenses.
Net cash used in investing activities was $148,000 for the year ended
December 31, 1997 and $2.9 million for the year ended December 31, 1998. All net
cash used in investing activities related to capital expenditures, primarily for
the acquisition of equipment.
Net cash provided by financing activities was $4.8 million for the year
ended December 31, 1997 and $23.1 million for the year ended December 31, 1998.
Net cash provided by financing activities in 1997 was primarily attributable to
net proceeds received by MiningCo from the issuance of notes payable. Net cash
provided by financing activities in 1998 was primarily attributable to net
proceeds from the issuances of loans payable and preferred stock and the
exercise of warrants by investors in December 1998, and, to a lesser extent,
borrowings under a secured credit facility related to equipment financing. At
December 31, 1998, there was no additional availability under this credit
facility and the balance outstanding was $437,500, of which $154,000 is due in
1999, $157,000 in 2000 and $126,500 in 2001. In January and February 1999,
MiningCo entered into a lease line of credit for $781,300 to finance capital
equipment, of which $232,200 is due in 1999, $268,800 in 2000, $273,300 in 2001
and $7,000 in 2002.
As of December 31, 1998, MiningCo's principal capital commitments consisted
of obligations outstanding under capital and operating leases. MiningCo has
spent approximately $3.4 million on capital expenditures since inception,
excluding capital lease agreements. MiningCo estimates that its capital
expenditures will be approximately $4.0 million for 1999. MiningCo currently
expects that its principal capital expenditures through 1999 will relate to
improvements to its technical infrastructure and expansion of MiningCo's office
space.
MiningCo's ability to generate significant revenues is uncertain. MiningCo
has incurred substantial costs to create, launch and enhance MININGCO.COM and to
grow its business. MiningCo incurred net losses of $2.4 million for the period
from June 27, 1996 (inception) to December 31, 1996, $8.6 million for the year
ended December 31, 1997 and $15.6 million for the year ended December 31, 1998.
At December 31, 1998, MiningCo had an accumulated deficit of $27.9 million.
MiningCo expects losses from operations and negative cash flow to continue for
the foreseeable future as a result of its expansion plans and its expectation
that its operating expenses, particularly sales and marketing expenses, will
increase significantly in the next several years. Although MiningCo has
experienced revenue growth in recent periods, MiningCo's revenues may not remain
at their current level or increase in the future. If MiningCo's revenues do not
increase substantially, MiningCo may not achieve profitability, which would have
a material adverse effect on MiningCo's business, results of operations and
financial condition. Even if MiningCo achieves profitability, it may not sustain
or increase profitability on a quarterly or annual basis in the future.
MiningCo currently anticipates that the net proceeds of this offering,
together with the net proceeds of the concurrent placement and available funds,
will be sufficient to meet its anticipated needs for at least the next 12
months. MiningCo may need to raise additional funds in the future in order to
24
<PAGE>
fund more aggressive brand promotion or more rapid expansion, to develop new or
enhanced services, to respond to competitive pressures or to make acquisitions.
Any required additional financing may not be available on terms favorable to
MiningCo, or at all. If adequate funds are not available or not available on
acceptable terms, MiningCo may be unable to fund its expansion, successfully
promote its brand, develop or enhance services, respond to competitive pressures
or take advantage of acquisition opportunities, which could have a material
adverse effect on MiningCo's business, results of operations and financial
condition. If additional funds are raised by the issuance of MiningCo's equity
securities, stockholders may experience dilution of their ownership interest and
those securities may have rights superior to those of the holders of the common
stock. If additional funds are raised by the issuance of debt by MiningCo,
MiningCo may be subject to certain limitations on its operations, including
limitations on the payment of dividends.
IMPACT OF THE YEAR 2000
Many currently installed computer systems and software products are coded to
accept or recognize only two-digit entries in the date code field. These systems
may recognize a date using "00" as the year 1900 rather than the year 2000. As a
result, computer systems and/or software used by many companies and governmental
agencies may need to be upgraded to comply with Year 2000 requirements or risk
system failure or miscalculations causing disruptions of normal business
activities.
MiningCo is exposed to the risk that the systems on which it depends to
conduct its operations are not Year 2000 compliant.
STATE OF READINESS. MiningCo has substantially completed the process of
determining the Year 2000 readiness of its information technology systems, which
includes the hardware and software necessary to provide and deliver
MININGCO.COM, and its non-information technology systems, including telephone
systems and other office equipment used internally. MiningCo's assessment plan
consists of the following steps:
- evaluating MiningCo's date dependent code, software and hardware and
evaluating external dependencies
- quality assurance testing of MiningCo's internally-developed proprietary
software and systems incorporated in MININGCO.COM
- contacting third-party vendors and licensors of material hardware,
software and services that are related to the delivery of MININGCO.COM
- contacting vendors of material non-information technology systems used by
MiningCo
- formulating repair or replacement requirements and implementing corrective
measures
- evaluating the need for, and preparing and implementing, if required, a
contingency plan
To date, MiningCo's assessment has determined the following:
- Internally developed software and systems have been checked for date
dependent code, and all material files and systems are Year 2000 compliant.
MiningCo believes that recently installed code is also Year 2000 compliant.
- MiningCo has been informed by vendors of material hardware and software
components of its information technology systems that the products used by
MiningCo are currently Year 2000 compliant.
- MiningCo's hosting service, Frontier Global Center, has certified that its
systems are Year 2000 compliant.
- Commercial software upon which MiningCo is dependent is either Year 2000
compliant or will be upgraded to be compliant in the normal course of
business through upgrades or installation of software patches.
- Substantially all hardware used in MiningCo's network operations and all
of the hardware used in its office operations has been certified as Year
2000 compliant by its vendors.
25
<PAGE>
- MiningCo's telephone system, fax machines and mail systems have been
certified as Year 2000 compliant.
- MiningCo's landlords and third-party advertising sales representative and
servicing organizations have not yet provided MiningCo with information
regarding their Year 2000 compliance.
While MiningCo has assessed the Year 2000 readiness of each of its material
internal systems, it will not conduct an end-to-end system test until the second
quarter of 1999. Accordingly, MiningCo cannot yet assess whether its internal
system, as a whole, is Year 2000 compliant. In addition, MiningCo will continue
to attempt to obtain verification from all remaining distributors, suppliers and
vendors that their systems are Year 2000 compliant. MiningCo intends to complete
its assessment, and the replacement or remediation of any non-Year 2000
compliant technologies, by the end of the third quarter of 1999.
COSTS. MiningCo estimates that the total cost for its Year 2000 compliance
efforts will be approximately $250,000. Most of these expenses relate to the
operating costs associated with time spent by employees in Year 2000 compliance
matters. If MiningCo encounters unexpected difficulties, or if it is unable to
obtain compliance information from material third parties, it may need to spend
additional amounts to ensure that its systems are Year 2000 compliant.
RISKS. Although MiningCo has received compliance information from its
material third-party vendors, it has not received compliance information from
all of its third-party vendors. In addition, it is possible that MiningCo's
third-party vendors were mistaken in certifying that their systems are Year 2000
compliant. In addition, MiningCo will not conduct an end-to-end system test
until the second quarter of 1999. The failure of MiningCo to fix its internal
systems or to fix or replace material third-party software, hardware or services
on a timely basis could result in lost revenues, increased operating costs and
other business interruptions, any of which could have a material adverse effect
on MiningCo's business, results of operations and financial condition. Moreover,
the failure to adequately address Year 2000 compliance issues could result in
claims of mismanagement and related litigation, which would be costly and
time-consuming to defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside MiningCo's control will be Year 2000 compliant. The failure by those
entities to be Year 2000 compliant could result in a systemic failure beyond the
control of MiningCo, such as a prolonged Internet, telecommunications or
electrical failure, which could also prevent MiningCo from delivering
MININGCO.COM, decrease the use of the Internet or prevent users from accessing
MININGCO.COM, any of which would have a material adverse effect on MiningCo's
business, results of operations and financial condition.
CONTINGENCY PLAN. As discussed above, MiningCo is engaged in an ongoing
Year 2000 assessment and has developed no contingency plans to address the
worst-case scenario that might occur if technologies it is dependent upon
actually are not Year 2000 compliant. The results of MiningCo's Year 2000
simulation testing and the responses received from all third-party vendors and
service providers will be taken into account in determining the need for and
nature and extent of any contingency plans. MiningCo intends to develop any
required contingency plan by the end of the second quarter of 1999.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), which provides guidance
for determining whether computer software is internal-use software and
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. SOP 98-1
also provides guidance on capitalization of the costs incurred for computer
software developed or obtained for internal use. MiningCo does not expect the
adoption of SOP 98-1 to have a material effect on its capitalization policy.
26
<PAGE>
BUSINESS
OVERVIEW
MININGCO.COM is a leading Internet news, information and entertainment
service. Our service is a network of over 600 web sites, each of which focuses
on a specific topic and is managed by a knowledgeable human guide. Through these
GuideSites, MININGCO.COM provides annotated Internet directories that include
approximately 400,000 pre-screened links to other web sites, enabling users to
quickly find relevant Internet content. The GuideSite network also provides
original high-quality content that is created regularly by the guides on
thousands of subjects. Additionally, our GuideSites provide focused forums
around which organized and moderated online communities develop. We believe that
our service offers an enjoyable and efficient Internet experience for users
across a broad range of topics, creating highly targeted marketing opportunities
for advertisers and for businesses that market their products and services over
the Internet. We believe that over 4.6 million unique users visited MININGCO.COM
in January 1999, making MININGCO.COM the sixth largest news/information/
entertainment Internet property in terms of audience reach and the 26th largest
Internet property overall for that month.
INDUSTRY BACKGROUND
The Internet is a significant and rapidly growing global medium for
collecting and exchanging information, communicating, entertaining and
conducting business. The growth of this medium is being driven by the
development of compelling Internet content, increasing consumer awareness of the
Internet and inexpensive web access. MiningCo believes that the number of
Internet users worldwide exceeded 68 million in 1997 and will grow to over 319
million by 2002.
INTERNET ADVERTISING AND ELECTRONIC COMMERCE. Unlike most traditional
media, the Internet allows advertisers to target specific audiences while
tracking impression levels, user demographics and advertisement effectiveness.
MiningCo believes that online advertising revenues will grow from approximately
$940 million in 1997 to approximately $7.7 billion in 2002.
Since online purchases of goods and services can be less expensive and more
convenient than traditional transactions, the Internet is becoming a powerful
electronic commerce platform. MiningCo believes that as the volume of electronic
commerce transactions expands, retailers will offer a greater variety of
products and services over the Internet. MiningCo believes that the amount of
goods and services purchased in online consumer transactions will grow from
approximately $2.6 billion in 1997 to approximately $37.5 billion in 2002.
INTERNET NAVIGATION. The rapid growth in the amount of information
available on the Internet presents significant challenges for users seeking
specific information and resources. A number of tools have emerged to enable
users to find this information, including Internet directories and search
engines. Internet directories generally list web sites by specific topics of
interest and by their Internet address, thus enabling an interested user to go
directly to the listed site by clicking on the address. However, with the growth
of the amount of content available on the Internet, these directories have
become increasingly difficult to build and maintain with a high level of
quality. Search engines typically use software that searches the Internet to
capture, store and index web site information in order to retrieve web site
listings in response to a query. These software programs have a limited ability
to accurately determine the quality or relevance of the web sites being
referenced. MiningCo believes that, as the Internet grows, the ability of
traditional Internet directories and search engines to provide current and
relevant references is likely to diminish, making these services less useful.
CONTENT. A vast amount of content is being added to the Internet every day
and the quality of this content varies significantly. MiningCo believes that
higher quality Internet content is typically found
27
<PAGE>
on topic-specific sites, and is created by individuals who are knowledgeable
about their topics. Because these sites tend to be widely dispersed, users
generally must visit a number of unaffiliated sites in order to access
high-quality content on more than one topic. MiningCo believes that few Internet
services offer aggregated high-quality content across a wide range of topics.
COMMUNITY. Internet users often seek organized online communities where
they can interact with individuals who share similar interests and find related
information, products and services. MiningCo believes that few Internet services
provide a broad range of community features. For example, home page services
allow users to create their own web pages and interact with other users, but
often do not provide quality information, products and services. In addition,
home page services often lack paid individuals responsible for monitoring and
organizing the communities.
MiningCo believes that Internet users are seeking Internet navigation that
enables users to efficiently locate relevant information, original content
developed by knowledgeable authors on a broad range of topics and moderated and
organized online communities. In addition, MiningCo believes that Internet
advertisers and electronic commerce marketers are seeking a highly targeted
audience with a propensity to purchase goods and services online.
THE MININGCO.COM SOLUTION
MiningCo, through its network of knowledgeable and paid guides, offers
relevant, filtered Internet directories, high-quality original content on
thousands of subjects and hundreds of full-featured online communities. The
guides complete a comprehensive 16-week training process and are monitored for
quality and consistency. MiningCo believes that MININGCO.COM fosters brand
loyalty, repeat usage and increased duration of visits by providing an
enjoyable, efficient Internet experience. The breadth of the GuideSite network
and the focus of each GuideSite on MININGCO.COM provides advertisers and
electronic commerce marketers with highly targeted marketing opportunities
across numerous consumer and business categories.
ENHANCED INTERNET NAVIGATION SERVICE. MiningCo's network of over 600
GuideSites features annotated Internet directories that include approximately
400,000 links to other web sites. The guides regularly search the Internet to
find relevant content sites, or specific pages within a site, and evaluate their
quality and timeliness, saving the user from this time-consuming and often
frustrating task. In addition to pre-screening and selecting links, the guides
provide concise descriptions of the content on each link, enabling users to
quickly indentify relevant Internet content.
HIGH-QUALITY, AGGREGATED CONTENT. MiningCo's service provides original
content that is created by the guides on a regular basis. This content includes
features and newsletters. The aggregation of GuideSites allows users to find a
broad range of high-quality content within a single network. MiningCo has
exclusive online rights to all guide-developed content, which enables MiningCo
to increase both MININGCO.COM usage and related revenue opportunities. For
example, MiningCo is able to syndicate this content to other Internet services
to drive traffic to MININGCO.COM. Additionally, MiningCo can use this content to
create promotions for its electronic commerce partners that integrate this
content with content provided by the electronic commerce partner.
RICHER COMMUNITY EXPERIENCE. MiningCo believes that its GuideSites provide
focused forums around which online communities develop. Each GuideSite includes
a variety of community features that are moderated by the guides, including
bulletin boards, chat and events calendars, as well as quality information,
products and services. MiningCo believes that its knowledgeable and paid guides
maintain high-quality interaction and organization in their communities. Users
may also e-mail guides directly to seek information.
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TARGETED ADVERTISING AND ELECTRONIC COMMERCE. MiningCo believes that its
service provides advertisers and electronic commerce marketers with a broad
range of highly targeted marketing opportunities. MiningCo believes that, in
winter 1999, the percentage of MININGCO.COM users that purchased online was
higher than users of leading navigation sites in some of the largest electronic
commerce categories, including books, airline tickets/reservations, computer
hardware, general software, musical CDs/tapes, stocks and mutual funds, event
tickets, home banking software, flowers, Internet software and business
equipment.
THE MININGCO.COM STRATEGY
MiningCo's objective is to become a primary Internet destination and a
leading Internet advertising and electronic commerce platform. The key elements
of MiningCo's strategy include:
BUILDING BRAND AWARENESS. MiningCo believes that establishing brand
awareness is critical to attracting and retaining users, advertisers and
electronic commerce partners. In June 1998, MiningCo augmented its online
marketing efforts with the initiation of its first significant offline marketing
campaign. MiningCo intends to build its brand awareness and user traffic by
significantly expanding its marketing efforts, including both offline and online
marketing initiatives. MiningCo also intends to build brand awareness through
distribution and syndication partnerships.
INCREASING TRAFFIC THROUGH DISTRIBUTION AND SYNDICATION PARTNERSHIPS. In
addition to its marketing and brand building initiatives, MiningCo believes that
distribution and syndication partnerships are a valuable way to drive traffic to
MININGCO.COM. Through these partnerships, MiningCo provides content to a
partner's web site, and users can link to MININGCO.COM by clicking on this
content. MiningCo has formed partnerships with Internet service providers such
as AT&T Worldnet, BellSouth.net and Earthlink; content web sites such as CBS
SportsLine and Weather.com; search engines/Internet directories such as
GoTo.com, LookSmart, Metacrawler and Netscape Communications' NetSearch; and
broadband cable-related sites such as AMC American Pop, American Movie Classics,
Bravo, Court TV, Home Box Office, Independent Film Channel, LifetimeTV.com,
Romance Classics and Showtime. MiningCo also intends to enter into relationships
with companies that could provide channel or section content to MiningCo.
MiningCo intends to expand its existing distribution and syndication
partnerships and to develop relationships with additional partners in the
future.
INCREASING USAGE OF MININGCO.COM. MiningCo believes that expanding the
functions, features and content of MININGCO.COM, as well as increasing internal
cross-promotion between GuideSites, will increase user loyalty, repeat usage and
duration per visit. MiningCo plans to further develop its registration and
personalization processes and to introduce programs to convert users to members.
EXPANDING INTERNAL ADVERTISING SALES CAPABILITIES. MiningCo believes that a
strong internal advertising sales organization is essential to effectively
generate revenues from MININGCO.COM. As of January 31, 1999, MiningCo had an
internal advertising sales staff of nine professionals. To supplement the
efforts of its internal advertising sales staff, MiningCo uses third-party
advertising sales representatives to sell advertisements. MiningCo intends to
significantly increase the size of its internal sales staff in order to maintain
closer relationships with its advertisers and electronic commerce partners, to
optimize its advertising rates and to reduce advertising sales costs as a
percentage of revenues.
CONVERTING TRAFFIC INTO REVENUES. MiningCo's service is designed to offer a
highly targeted platform for advertisers and electronic commerce partners.
MiningCo intends to increase its advertising revenues by focusing on a number of
key strategies, including broadening its base of advertisers and electronic
commerce partners and optimizing its advertising rates by leveraging the
increasing flow of traffic in highly targeted sections within the GuideSite
network.
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MININGCO.COM
MiningCo's service is a scalable network of more than 600 GuideSites, each
of which focuses on a particular topic and is managed by a knowledgeable guide
who is paid by MiningCo. MiningCo's GuideSites are currently organized into the
following 18 channels and 105 sections:
ARTS/LITERATURE
Books/Authors
Performing Arts
Visual Arts/Design
Writing/Publishing
BUSINESS/CAREERS
Business
Industries/Professions
Job Searching
COMPUTING/TECHNOLOGY
Business/Industry
Games
Hardware
Multimedia
OS
Programming
Software
EDUCATION
Adult/Continuing Ed
Arts
College/University
History
Languages
Literature
Philosophy/Religion
Primary/Secondary Ed
Sciences--Life/Earth
Sciences--Physical/
Computer
Social Sciences
ENTERTAINMENT
Comedy
Movies
Music
Online
Radio
TV
FINANCE/INVESTING
GAMES
Electronic Games
Games--General
HEALTH/FITNESS
Alternative Medicine
Disabilities
Diseases/Conditions
Fitness/Wellness
Medicine
Mental Health
Women's Health
HOBBIES
Arts/Crafts
Collecting
Pastimes
HOME/FAMILY
Beauty/Fashion
Cars/Cycles
Drinks/Beverages
Food/Cooking
Gardening
Home
Parenting
Pets
Relationships
INTERNET/ONLINE
Business/Industry
Communication
Design
Development/
Programming
Security
Sites/Services
KIDS/TEENS
Arts
Computers/Internet
Kids/Teens Connecting
Entertainment
Games
For Grownups
For Teens
Hobbies/Interests
Home/Family
News/Current Events
Homework
Sports/Fitness For Teens
LOCAL
California US
Canada
Great Plains US
Hawaii US
Midatlantic US
Midwest US
Mountain US
New England US
Pacific Northwest US
Southeast US
Southwest US
NEWS/MEDIA
Media
News/Weather
SHOPPING
SOCIETY/CULTURE
Beliefs/Folklore
Cultures--Americas
Cultures--World
Government/Politics
Groups/Subcultures
Issues/Causes
Religion
Sexuality
SPORTS
Fishing/Hunting
Individual/Spectator
Motor Sports
Recreation
Sports-General
Team/Spectator
Water Sports
Winter Sports
TRAVEL
Asia/Pacific/Mideast
Europe
Latin America/Caribbean
Resources
US/Canada
Vacations
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MiningCo has developed a template for consistent presentation of each
GuideSite's navigational features, content and community tools. This template
includes:
- a welcome page that promotes various aspects of a GuideSite, including the
guide's latest featured article;
- the name, e-mail address and photograph of the guide managing the
GuideSite;
- an Internet directory that provides annotated links to the guide's
selected third-party Internet content;
- an archive of the guide's original content features;
- a guide-created e-mail newsletter to allow GuideSite users to stay in
touch with developments on the GuideSite and the GuideSite's topic;
- a guide-moderated bulletin board where visitors can post questions,
opinions or information;
- a chat room for visitors that is used for regularly scheduled,
guide-hosted chat sessions and unscheduled open chat;
- an events calendar maintained by the guide that lists various activities
and events related to the GuideSite's topic;
- a guide biography page that provides users with background information
regarding the guide; and
- a feedback form for users to submit comments directly to the guide
regarding a particular GuideSite.
In order to receive e-mail newsletters and to access GuideSite bulletin boards
and chat rooms, users first register with MININGCO.COM by providing basic
information.
MiningCo's editors regularly identify noteworthy content features within the
GuideSites, and combine this content in a variety of formats for users. This
content is used to create daily features on pages within MININGCO.COM (e.g.,
"MININGCO TODAY"), and to develop e-mail newsletters. MiningCo believes that
these features and newsletters are effective site promotion and user retention
tools.
DISTRIBUTION AND SYNDICATION PARTNERSHIPS
MiningCo believes that its distribution and syndication partnerships drive
traffic to MININGCO.COM. Through these partnerships, MiningCo provides content
to a partner's web site, and users can link to MININGCO.COM by clicking on the
content. The flexibility and breadth of MiningCo's content enables it to partner
with a broad range of Internet companies, including Internet service providers,
content web sites, search engines/Internet directories and broadband
cable-related sites. MiningCo has agreements to provide content to some of the
leading Internet service providers, such as AT&T WorldNet, BellSouth.net and
EarthLink. Additionally, MiningCo provides content to popular content web sites
such as CBS SportsLine and Weather.com. MiningCo also currently has agreements
with search engines/Internet directories such as GoTo.com, LookSmart,
Metacrawler and Netscape Communications' NetSearch. MiningCo also has agreements
with broadband cable-related sites such as AMC American Pop, American Movie
Classics, Bravo, Court TV, LifetimeTV.com, Home Box Office, Independent Film
Channel, Romance Classics and Showtime. These agreements typically require
MiningCo to make payments that are either fixed or are based on the amount of
user traffic directed from the partner's site to MININGCO.COM. In some
instances, MiningCo will display a partner's logo and/or color scheme to users
who are directed to MININGCO.COM by that partner.
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ADVERTISING AND ELECTRONIC COMMERCE RELATIONSHIPS
MiningCo believes its service provides a highly targeted platform for
advertisers and electronic commerce partners over a broad range of consumer and
business categories. To date, sales of advertisements on MININGCO.COM have been
generated primarily by MiningCo's internal advertising sales organization and,
to a lesser extent, by third-party advertising sales representatives. As of
January 31, 1999, MiningCo had an internal advertising sales organization
consisting of nine professionals, located in New York, Los Angeles and San
Francisco. MiningCo intends to significantly increase the size of its internal
advertising sales organization. MiningCo's internal advertising sales force
maintains close relationships with advertisers by consulting regularly with them
on design and placement of their Internet-based advertising, by providing them
with advertising measurement analysis and by providing a high level of customer
support. MiningCo's agreements with its third-party advertising sales
representatives are generally terminable by either party with 90 days' prior
written notice.
MiningCo's advertisers enter into short-term agreements, typically one to
three months, under which they generally receive a guaranteed number of
impressions for a fixed fee. MiningCo's agreements with its electronic commerce
partners are typically longer in length, ranging from six months to two years
and, in particular cases, these agreements entitle MiningCo to a share of
revenues generated by sales of merchandise or services over a particular
threshold resulting from direct links from MININGCO.COM. Advertisers and
electronic commerce partners have significant flexibility in determining the
placement of their advertisements based on the level of targeting they want to
achieve. MiningCo offers advertisers and electronic commerce partners numerous
sizes and types of advertising placement, including banner advertisements,
button advertisements and text links. MiningCo also offers sponsorship programs
and other promotional opportunities to build brand awareness and to drive
traffic to the web sites of its advertisers and electronic commerce partners.
ADVERTISING CUSTOMERS. The following is a list of some of the advertisers
that advertised on MININGCO.COM during 1998:
- @Hand
- Auction Universe
- Bid.com
- Bell Atlantic's Big Yellow
- Citibank
- Dow Jones Interactive
- eBay
- HomeShark
- House.net
- IBM
- Intellipost
- Schering-Plough
- Tripod
- ValuPage
- Ziff Davis' ZD University
ELECTRONIC COMMERCE PARTNERS. As of January 31, 1999, MiningCo had
electronic commerce partnerships with the following entities:
- Bertelsmann Music Group (Music CD's)
- Beyond.com (Software)
- BigStar Entertainment (Videos)
- Buy.com (Computer hardware)
- iVillage (Baby supplies through iBaby)
- LowestFare.com (Travel)
- Office Max (Office supplies)
- Trading Direct (Online brokerage)
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MiningCo leverages its content to facilitate online sales of merchandise and
services. For several of its electronic commerce partners, MiningCo has
developed promotions that integrate original content from MININGCO.COM with
traditional commercial advertising. MiningCo provides links to these integrated
promotional web sites by prominently displaying an electronic commerce partner's
advertisement within MININGCO.COM. For example, MiningCo has developed an online
video store for BigStar that integrates BigStar's video offerings with movie
reviews independently written by MININGCO.COM guides. As part of this promotion,
guides can make recommendations for movies related to their GuideSites' topics
that are linked to the BigStar video store. As of December 31, 1998, over 130
guides had created annotated links to BigStar's video store within their
GuideSites. MiningCo believes these features create a more relevant, engaging
purchasing vehicle for users, while enhancing the value of MiningCo's service as
an electronic commerce platform.
MARKETING AND BRAND PROMOTION
MiningCo believes that an aggressive brand promotion campaign will increase
usage of MININGCO.COM, as well as attract additional advertisers and electronic
commerce partners. MiningCo markets its service through online advertising. In
addition, MiningCo has been advertising in selected cities through traditional
offline media, including outdoor and radio advertisements, and a national trade
magazine campaign. MiningCo also utilizes public relations, trade shows and
ongoing customer communications programs. MiningCo intends to expand its
marketing and brand promotion initiatives.
THE GUIDE RELATIONSHIP
As of January 31, 1999, MiningCo's 605 guides, 333 of which had been guides
for at least one year, were located in over 40 states and 18 countries. Through
the GuideSites, these independent contractors create annotated Internet
directories and original content, and moderate community tools such as bulletin
boards and chat.
APPLICATION AND TRAINING. MiningCo recruits its guides through various
methods, including searches of the Internet for topic-specific web sites run by
individuals, MININGCO.COM user inquiries, referrals by existing guides and
Internet-based classified job listings. Guide applications are available on
MININGCO.COM and are screened by a team of editors who read and evaluate the
applicant's sample feature and Internet directories, as well as assess the
applicant's knowledge of his or her topic. Once an application is accepted, the
applicant becomes an associate guide and is placed into a four-week preliminary
training class. During this period, the associate guide is taught how to
construct and maintain a GuideSite, how to administer a bulletin board and chat,
and how to create features and newsletters. At the same time, MiningCo reviews
the associate guide's feature articles and directories for quality of
organization, annotation, completeness, direct linking to relevant pages within
web sites and writing skills. If the associate guide meets certain qualification
criteria at the end of this period, his or her web site becomes a live GuideSite
and the associate guide becomes a guide.
Following successful completion of the training class, each guide is placed
in a comprehensive 12-week follow-on training and quality control process.
During this period, the editorial staff provides guides with feedback on the
strengths and weaknesses of their GuideSites and makes recommendations for
further improvements of both quality and consistency. At the end of this 12-week
period, the quality of the GuideSite is rated. This rating is regularly
revisited by the editors and is one of the factors that determines a guide's
minimum compensation.
GUIDE CONTRACTS. Pursuant to the standard guide contract, MiningCo is
granted an exclusive perpetual license to use guide-developed MININGCO.COM
content on the Internet and on any other commercial online service, subject to
the guide sharing in any associated revenue. In addition, MiningCo also retains
the right, on a non-exclusive basis, to use the content in any offline media,
subject to the guide sharing in any associated revenue. The guides have agreed
to share with MiningCo
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any revenue derived from the guide's use of this content in any offline media.
The standard guide contract is terminable by either party upon 15 days' prior
written notice.
GUIDE COMPENSATION. Guides are currently compensated based on the greater
of a monthly guarantee or a percentage of net advertising revenues generated by
all of the GuideSites on MININGCO.COM, which is distributed among the guides
based on the user traffic on each guide's respective GuideSite. By compensating
guides based on the net advertising revenues of all of the GuideSites, the
guides are provided incentives to help and encourage each other. Guides are also
currently entitled to share a percentage of net transaction revenues and net
syndication revenues. In addition, MiningCo may distribute a discretionary bonus
to guides based on outstanding content, exceptional performance and longevity.
Upon the closing of this offering, MiningCo intends to grant non-qualified stock
options to a significant majority of its guides to purchase up to an aggregate
of 200,000 shares of common stock at an exercise price per share equal to the
initial public offering price.
EDITORIAL PROCEDURES. The guides are directly supported by a team of 35
MiningCo employees, including 22 editors. Editors regularly monitor each
GuideSite to assess the relevance and quality of features, the management of
community tools and compliance with MiningCo policies. Editors also provide
weekly newsletters and host chats with guides to better communicate GuideSite
tips, including news, ideas for improving sites and marketing information.
ONLINE GUIDE LOUNGE. MiningCo provides relevant information to the guides
through a password-protected web site and via bulletin boards, chat and
newsletters. The guide lounge includes a library of reference information for
the guides, including MiningCo policies, publishing regulations and other useful
information. The guide lounge also enables guides to become members of their own
community.
OPERATING INFRASTRUCTURE
MININGCO.COM's operating infrastructure is designed to provide timely and
efficient delivery of the service to users. In response to end-user requests,
each page on a GuideSite is generated and delivered by one of MiningCo's web and
applications servers. MiningCo's service uses Microsoft Windows NT and Sun
Solaris as operating systems, and Microsoft's Internet Index Server and
Netscape's Enterprise Web server software. MININGCO.COM's functions integrate
commercial and company-developed software. All of MiningCo's internally
developed applications utilize Active Server Page technology, and many interact
with various third-party applications licensed by MiningCo, including
Microsoft's Internet Index Server search function, Microsoft's SQL Server
database software, Proxicom's Forum Bulletin Board System, Paralogic's Parachat
and L-Soft's Listserv for e-mail newsletters. MiningCo intends to add to its
serving and technical capabilities as required to meet usage demands.
The administrative control center is MiningCo's internally developed
Internet-based site management environment. This center enables MiningCo's
guides to remotely manage their GuideSites at any time via a password-protected
interface in order to preview and upload content, view usage and feedback
reports, and access administrative tools for newsletters, chat, bulletin boards
and events calendars.
In March 1998, MiningCo entered into an Internet-hosting agreement with
Frontier to maintain all of MiningCo's production servers at Frontier's
Manhattan Data Center. This agreement terminates on February 1, 2000. Frontier
provides comprehensive facilities management services including human and
technical monitoring of all production servers 24 hours per day, seven days per
week. Frontier provides the means of connectivity for MININGCO.COM's servers to
end-users via the Internet through high capacity transmission wires. These
connections link to many different parts of the Internet via a combination of
public and private peering agreements. The facility has two independent
uninterruptible power supplies, which are battery-powered, as well as two
independent diesel generators designed to provide power to these systems within
seconds of a power outage. The diesel generators can supply the data center's
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power for nine days before refueling is required. Frontier does not guarantee
that MiningCo's Internet access will be uninterrupted, error-free or secure.
MiningCo's operations are dependent on Frontier's ability to protect both
Frontier's and MiningCo's systems against damage from fire, power loss, water
damage, telecommunications failures, vandalism and other malicious acts, and
similar unexpected adverse events. Any disruption in the Internet access
provided by Frontier could have a material adverse effect on MiningCo's
business, results of operations and financial condition.
MININGCO.COM must accommodate a high volume of traffic and MININGCO.COM has
in the past and may in the future experience slower response times and system
downtime for a variety of reasons. An increase in volume of users accessing
MININGCO.COM could lead to systems failures or slower response times and
adversely affect advertising revenues. Users may become dissatisfied by any
system failure that interrupts MiningCo's ability to provide MININGCO.COM to
them or results in slower response time. MININGCO.COM could also be affected by
computer viruses, electronic break-ins or other similar disruptions. MiningCo's
insurance policies have low coverage limits and therefore insurance may not
adequately compensate MiningCo for any losses that may occur due to any failures
in its system or interruptions in its service. MiningCo is in the process of
developing a comprehensive disaster recovery plan to respond to system failures.
MiningCo's business, results of operations and financial condition could be
materially adversely affected by any damage or failure that interrupts or delays
its operations.
All of MiningCo's production data is copied to backup tapes each night and
these backup tapes are rotated to a third-party facility for off-site storage.
MiningCo keeps all of its production servers behind packet-filtered routers and
does not allow any outside access to any administrative functions. Strict
password management and physical security measures are followed.
MiningCo's users and guides depend on Internet service providers, online
service providers and other web site operators for access to MININGCO.COM. Each
of these providers and operators has experienced significant outages in the
past, and could experience outages, delays and other difficulties due to system
failures unrelated to MiningCo's systems. Moreover, the Internet infrastructure
may not be able to support continued growth in its use. Any of these problems
could materially adversely affect MiningCo's business, results of operations and
financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
GENERAL. There is an increasing number of laws and regulations pertaining
to the Internet. In addition, a number of legislative and regulatory proposals
are under consideration by federal, state, local and foreign governments and
agencies. 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, taxation and quality of
products and services. 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, may decrease the growth in the
use of the Internet, which could in turn decrease the demand for MiningCo's
service, increase MiningCo's cost of doing business or otherwise have a material
adverse effect on MiningCo's business, results of operations and financial
condition.
LIABILITY FOR INFORMATION RETRIEVED FROM MININGCO.COM AND FROM THE
INTERNET. Content may be accessed on MININGCO.COM or on the web sites of
MiningCo's distribution partners, and this content may be downloaded by users
and subsequently transmitted to others over the Internet. This could result in
claims against MiningCo based on a variety of theories, including defamation,
obscenity, negligence, copyright or trademark infringement or other theories
based on the nature, publication and distribution of this content. These types
of claims have been brought, sometimes successfully, against providers of
Internet services in the past. MiningCo could also be exposed to liability with
respect to third-party content that may be posted by users in chat rooms or
bulletin boards offered on the GuideSites. It is
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also possible that if any information, including information deemed to
constitute professional advice such as legal, medical, financial or investment
advice, provided on MININGCO.COM contains errors or false or misleading
information, third parties could make claims against MiningCo for losses
incurred in reliance on such information. MININGCO.COM contains approximately
400,000 human-filtered annotated links to other web sites. As a result, MiningCo
may be subject to claims alleging that, by directly or indirectly providing
links to other web sites, MiningCo is liable for copyright or trademark
infringement or the wrongful actions of third parties through their respective
web sites.
The Communications Decency Act of 1996 (the "CDA") was enacted to prohibit
the transmission over the Internet of indecent, obscene or offensive content.
While selected parts of the CDA have been deemed unconstitutional, provisions
protecting providers of Internet services from claims related to third-party
content remain effective. Under the CDA, a provider of Internet services will
generally not be treated as a publisher or speaker of any information available
on its service but provided by a third-party content provider unless the
provider of Internet services exerts editorial control over the content or
embraces the content as its own. MiningCo's activities may prevent it from being
able to take advantage of this safe harbor provision. In particular, while
MiningCo does not edit the guide-developed content prior to its availability on
MININGCO.COM and only monitors this content to ensure compliance with MiningCo's
policies, MiningCo may be subjected to claims that it is the publisher of the
content available on the GuideSites. In addition, since MiningCo has exclusive
online rights to all guide-developed content on MININGCO.COM, it aggregates this
content for use on MININGCO.COM and for syndication and distribution to
third-party web sites and electronic commerce partners. MiningCo may be
subjected to claims that it is the publisher of this aggregated guide-developed
content. While MiningCo attempts to reduce its exposure to this potential
liability through, among other things, provisions in guide agreements, user
policies and disclaimers, the enforceability and effectiveness of such measures
are uncertain.
MiningCo's general liability insurance may not cover all potential claims to
which MiningCo is exposed and may not be adequate to indemnify MiningCo for all
liability that may be imposed. Any imposition of liability that is not covered
by insurance or is in excess of insurance coverage could have a material adverse
effect on MiningCo's business, results of operations and financial condition.
Even to the extent that these claims do not result in liability to MiningCo,
MiningCo could incur significant costs in investigating and defending against
these claims. Potential liability for information disseminated through
MININGCO.COM could lead MiningCo to implement measures to reduce its exposure to
such liability, which may require the expenditure of substantial resources and
limit the attractiveness of MiningCo's service to users.
STATUS OF THE GUIDES AS INDEPENDENT CONTRACTORS. MiningCo treats the guides
as independent contractors for tax and employee benefit purposes. One or more
jurisdictions may deem the guides to be employees of MiningCo rather than
independent contractors and seek to impose taxes, interest and penalties to
MiningCo. MiningCo could have substantial tax and employee benefit liabilities
if it were ultimately determined that the guides are employees of MiningCo. See
"Risks Factors--We could incur significant withholding taxes and employee
benefits expenses if the guides were deemed to be our employees rather than
independent contractors."
ONLINE CONTENT REGULATIONS. Several federal and state statutes prohibit the
transmission of indecent, obscene or offensive content over the Internet to
particular groups of persons. In addition, pending legislation seeks to ban
Internet gambling and federal and state officials have taken action against
businesses that operate Internet gambling activities. The enforcement of these
statutes and initiatives, and any future enforcement activities, statutes and
initiatives, may result in limitations on the type of content and advertisements
available on MININGCO.COM. Legislation regulating online content could dampen
the growth in use of the Internet generally and decrease the acceptance of the
Internet as an advertising and electronic commerce medium, which could have a
material adverse effect on MiningCo's business, results of operations and
financial condition.
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PRIVACY CONCERNS. The Federal Trade Commission is considering adopting
regulations regarding the collection and use of personal identifying information
obtained from individuals when accessing web sites, with particular emphasis on
access by minors. These regulations may include requirements that companies
establish certain procedures to, among other things:
- give adequate notice to consumers regarding information collection and
disclosure practices;
- provide consumers with the ability to have personal identifying
information deleted from a company's database;
- provide consumers with access to their personal information and with the
ability to rectify inaccurate information;
- clearly identify affiliations or a lack thereof with third parties that
may collect information or sponsor activities on a company's web site; and
- obtain express parental consent prior to collecting and using personal
identifying information obtained from children under 13 years of age.
These regulations may also include enforcement and redress provisions. While
MiningCo is implementing programs designed to enhance the protection of the
privacy of its users, including children, there can be no assurance that these
programs will conform with any regulations adopted by the FTC. Moreover, even in
the absence of those regulations, the FTC has begun investigations into the
privacy practices of companies that collect information on the Internet. One
investigation resulted in a consent decree pursuant to which an Internet company
agreed to establish programs to implement the principles noted above. MiningCo
may become subject to a similar investigation, or the FTC's regulatory and
enforcement efforts may adversely affect the ability to collect demographic and
personal information from users, which could have an adverse effect on
MiningCo's ability to provide highly targeted opportunities for advertisers and
electronic commerce marketers. Any of these developments would have a material
adverse effect on MiningCo's business, results of operations and financial
condition.
It is also possible that cookies, or information keyed to a specific server,
file pathway or directory location that is stored on a user's hard drive,
possibly without the user's knowledge, which are used to track demographic
information and to target advertising, may become subject to laws limiting or
prohibiting their use. A number of Internet commentators, advocates and
governmental bodies in the United States and other countries have urged the
passage of laws limiting or abolishing the use of cookies. Limitations on or
elimination of MiningCo's use of cookies could limit the effectiveness of
MiningCo's targeting of advertisements, which could have a material adverse
effect on MiningCo's business, results of operations and financial condition.
The European Union has adopted a directive that imposes restrictions on the
collection and use of personal data. Under the directive, EU citizens are
guaranteed rights to access their data, rights to know where the data
originated, rights to have inaccurate data rectified, rights to recourse in the
event of unlawful processing and rights to withhold permission to use their data
for direct marketing. The directive could, among other things, affect U.S.
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 standard in the United States. In particular, companies
with offices located in EU countries will not be allowed to send personal
information to countries that do not maintain adequate standards of privacy. The
directive does not, however, define what standards of privacy are adequate. As a
result, the directive may adversely affect the activities of entities such as
MiningCo that engage in data collection from users in EU member countries.
DATA PROTECTION. Legislative proposals have been made by the federal
government that would afford broader protection to owners of databases of
information such as stock quotes and sports scores.
37
<PAGE>
This protection already exists in the EU. If enacted, this legislation could
result in an increase in the price of services that provide data to web sites
and could create potential liability for unauthorized use of this data. Either
of these possibilities could have a material adverse effect on MiningCo's
business, results of operations and financial condition.
INTERNET TAXATION. A number of legislative proposals have been made at the
federal, state and local level, and by certain foreign governments, that would
impose additional taxes on the sale of goods and services over the Internet and
certain states have taken measures to tax Internet-related activities. Although
Congress recently placed a three-year moratorium on state and local taxes on
Internet access or on discriminatory taxes on electronic commerce, existing
state or local laws were expressly excepted from this moratorium. Further, once
this moratorium is lifted, some type of federal and/or state taxes may be
imposed upon Internet commerce. This legislation, or other attempts at
regulating commerce over the Internet, may substantially impede the growth of
commerce on the Internet and, as a result, adversely affect MiningCo's
opportunity to derive financial benefit from those activities.
ARRANGEMENTS WITH ELECTRONIC COMMERCE PARTNERS. MiningCo enters into
agreements with certain electronic commerce partners under which MiningCo may be
entitled to receive a share of certain revenue generated from the purchase of
goods and services through direct links from MININGCO.COM. These agreements may
expose MiningCo to additional legal risks and uncertainties, including potential
liabilities to consumers of those products and services by virtue of MiningCo's
involvement in providing access to those products or services, even if MiningCo
does not itself provide those products or services. Any indemnification provided
to MiningCo in its agreements with these parties, if available, may not be
adequate.
DOMAIN NAMES. Domain names are the user's Internet "addresses." The current
system for registering, allocating and managing domain names has been the
subject of litigation, including trademark litigation, and of proposed
regulatory reform. MiningCo has registered the domain name "MININGCO.COM."
Although MiningCo is seeking to register "MININGCO.COM" as a trademark in the
United States, it may not successfully obtain the registration and third parties
may bring claims for infringement against MiningCo for the use of this
trademark. There can be no assurance that MiningCo's domain names will not lose
their value, or that MiningCo will not have to obtain entirely new domain names
in addition to or in lieu of its current domain names if reform efforts result
in a restructuring in the current system.
JURISDICTIONS. Due to the global nature of the Internet, it is possible
that, although transmissions by MiningCo over the Internet originate primarily
in New York, the governments of other states and foreign countries might attempt
to regulate MiningCo's transmissions or prosecute MiningCo for violations of
their laws. These laws may be modified, or new laws enacted, in the future. Any
of the foregoing developments could have a material adverse effect on MiningCo's
business, results of operations and financial condition. In addition, as
MiningCo's service is available over the Internet in multiple states and foreign
countries, these jurisdictions may claim that MiningCo is required to qualify to
do business as a foreign corporation in each of these states or foreign
countries. MiningCo is qualified to do business only in California and New York,
and failure by MiningCo to qualify as a foreign corporation in a jurisdiction
where it is required to do so could subject MiningCo to taxes and penalties and
could result in the inability of MiningCo to enforce contracts in these
jurisdictions. Any new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to MiningCo's
business, or the application of existing laws and regulations to the Internet
and other online services could have a material adverse effect on MiningCo's
business, results of operations and financial condition.
38
<PAGE>
INTELLECTUAL PROPERTY
MiningCo seeks to protect its proprietary rights, but its actions may be
inadequate to protect its patents, trademarks or other proprietary rights or to
prevent others from claiming violations of their proprietary rights. MiningCo
has one United States patent pending, four patent applications on file with the
United States Patent and Trademark Office and one international patent
application. MiningCo enters into confidentiality agreements with its material
employees, guides, consultants and strategic partners, and generally controls
access to and distribution of its proprietary information. Despite MiningCo's
efforts to protect its proprietary rights from unauthorized use or disclosure,
parties may attempt to disclose, obtain or use its proprietary information. The
steps MiningCo has taken may not prevent misappropriation of its proprietary
information. Third parties may infringe or misappropriate MiningCo's proprietary
rights, which could have a material adverse affect on MiningCo's business,
results of operations and financial condition. The validity, enforceability and
scope of protection of proprietary rights in Internet-related industries is
uncertain and still evolving.
Furthermore, third parties may assert infringement claims against MiningCo.
From time to time MiningCo has been, and MiningCo expects to continue to be,
subject to claims in the ordinary course of its business, including claims of
alleged infringement of the trademarks and other intellectual property rights of
third parties by MiningCo or its guides. These claims and any resultant
litigation, should it occur, could subject MiningCo to significant liability for
damages and could result in the invalidation of MiningCo's proprietary rights.
In addition, even if MiningCo prevails, any litigation could be time-consuming
and expensive to defend, and could result in the diversion of management's time
and attention, any of which could materially adversely affect MiningCo's
business, results of operations and financial condition. Any claims from third
parties may also result in limitations on MiningCo's ability to use the
trademarks and other intellectual property subject to those claims unless
MiningCo enters into agreements with the third parties responsible for those
claims, which may be unavailable on commercially reasonable terms.
COMPETITION
MiningCo competes for users, advertisers and electronic commerce marketers
with the following:
- Internet retrieval companies, search engines and other Internet "portal"
companies (such as Excite, InfoSeek, Lycos and Yahoo!);
- online content web sites (such as C--net, ESPN.com and ZDNet.com);
- online community web sites (such as iVillage);
- online personal homepage services (such as GeoCities and theglobe.com);
- publishers and distributors of television, radio and print (such as CBS,
Disney, NBC and Time Warner);
- general purpose consumer online services (such as America Online and
Microsoft Network); and
- web sites maintained by Internet service providers (such as AT&T WorldNet,
EarthLink and MindSpring).
MiningCo believes that its ability to compete depends on many factors, many
of which are outside of its control. These factors include the quality of
content provided by MiningCo and its competitors, the ease of use of services
developed either by MiningCo or its competitors, the timing and market
acceptance of new and enhanced services developed either by MiningCo or its
competitors, and sales and marketing efforts of MiningCo and its competitors.
MiningCo also competes with television, radio, cable and print (traditional
advertising media) for a share of advertisers' total advertising budgets. If
advertisers perceive the Internet or MININGCO.COM to be
39
<PAGE>
a limited or ineffective advertising medium, advertisers may be reluctant to
devote a significant portion of their advertising budget to Internet advertising
or to advertise on MININGCO.COM.
Please see "Risk Factors--We may not be able to compete successfully" for a
more detailed description of the risks of competition to MiningCo.
EMPLOYEES AND GUIDES
As of January 31, 1999, MiningCo had 113 full-time employees, including 27
in marketing and sales, 35 in editorial and guide support, 12 in finance and
administration and 39 in product development, operations and technical support.
As of January 31, 1999, MiningCo had 605 guides and an additional 91 guides in
training. None of the guides are employed by MiningCo, but rather they are
engaged by MiningCo as independent contractors. None of MiningCo's employees are
represented by a union. MiningCo believes its relationship with its employees
and the guides is good.
FACILITIES
MiningCo's headquarters are currently located in a leased facility in New
York City, consisting of approximately 12,000 square feet of office space that
is under a four-year lease with two years remaining. Annual rental payments
under this lease during 1998 was approximately $285,000, which amount is subject
to annual increases. MiningCo also entered into a six-month lease for
approximately 3,000 square feet of commercial space in Westchester, New York.
MiningCo believes that additional space will be available on commercially
acceptable terms.
LEGAL PROCEEDINGS
MiningCo is not a party to any material legal proceedings.
40
<PAGE>
MANAGEMENT
The following table sets forth, as of January 31, 1999, the name, age and
position within MiningCo of each director, executive officer and other key
employee of MiningCo.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Scott P. Kurnit*(1)....................... 44 Chairman of the Board of Directors, President and Chief
Executive Officer
William C. Day*........................... 34 Chief Operating Officer
Todd B. Sloan*............................ 36 Chief Financial Officer
Alan T. Wragg*............................ 55 President--Advertising Sales and E-Commerce
John R. Caplan............................ 29 Vice President--Marketing
A. Jeffrey Radov.......................... 47 Vice President--Business Development
Elizabeth A. Maier........................ 46 Vice President--Product Design and Development
Eric W. Bingham........................... 39 Vice President--Business Operations
Olga V. Taller............................ 41 Vice President--Guide Operations
Robert W. Harris.......................... 41 Vice President--Finance and Administration
Kenneth H. Appleman....................... 40 Vice President--Chief Technology Officer
Frank J. Biondi, Jr....................... 53 Director
Dixon R. Doll (1)......................... 56 Director
Ronald Unterman (1)(2).................... 52 Director
Marc M. Watson (1)(2)..................... 53 Director
Kristopher A. Wood (2).................... 27 Director
</TABLE>
- ------------------------
* Denotes executive officer.
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
SCOTT P. KURNIT has served as MiningCo's Chairman of the Board of Directors,
President and Chief Executive Officer since he founded MiningCo in June 1996.
From March 1995 to February 1996, Mr. Kurnit served as President and Chief
Executive Officer of MCI/News Corporation Internet Ventures with responsibility
for the Internet initiatives of the parent companies. From June 1993 to March
1995, Mr. Kurnit served as Executive Vice President of Prodigy Service Co., an
online services company ("Prodigy"). From March 1985 to June 1993, Mr. Kurnit
was the President for both Viewer's Choice and Showtime Event Television for
Viacom Inc. From June 1979 to March 1985, Mr. Kurnit was employed by Warner
Communication in various capacities, including Director of Programming for Qube
and Vice President of Programming and Advertising Sales for all of the company's
cable systems. Mr. Kurnit received his B.A. in Sociology and Communications from
Hampshire College.
WILLIAM C. DAY has served as MiningCo's Chief Operating Officer since he
co-founded MiningCo in June 1996. From December 1998 until January 1999, Mr. Day
also served as MiningCo's Chief Financial Officer. From October 1995 to June
1996, Mr. Day served as Vice President, Software Development for Prodigy. From
July 1994 to October 1995, Mr. Day served as Vice President, General Manager for
Content and Community for Prodigy, and from May 1993 to July 1994, he served as
Director, Internet Development for Prodigy. Mr. Day received his B.S. in
Mechanical Engineering from Yale University, and an M.B.A. from The Wharton
School of the University of Pennsylvania.
TODD B. SLOAN has served as MiningCo's Chief Financial Officer since January
1999. From August 1996 to October 1998, Mr. Sloan served as Executive Vice
President/Chief Operating Officer for SW Networks (a wholly owned subsidiary of
Sony Music since November 1997 and a wholly owned subsidiary of Sony Corporation
of America from February 1995 to October 1997). From February 1995 to October
1998, Mr. Sloan also served as Chief Financial Officer of SW Networks. From
September 1985 to February 1995, Mr. Sloan served in various capacities,
including Senior Manager, for Ernst &
41
<PAGE>
Young. Mr. Sloan received his B.B.A. in Accounting and Finance from the
University of Wisconsin/ Madison. Mr. Sloan is a C.P.A.
ALAN T. WRAGG has served as MiningCo's President--Advertising Sales and
E-Commerce since August 1996. From September 1987 to August 1996, Mr. Wragg
served as the Publisher of TVSM, Inc. (now owned by News Corporation), a U.S.
publisher of cable television programming guides, including The Cable Guide,
Total TV Weekly and Total TV Online. Mr. Wragg also spent 14 years at Time Inc.
as Advertising Director at LIFE Monthly and as a sales executive at Sports
Illustrated. Mr. Wragg received his B.B.A. in Marketing from Cleveland State
University, and an M.B.A. from Adelphi University.
JOHN R. CAPLAN has served as MiningCo's Vice President--Marketing since
November 1998. From October 1995 to November 1998, Mr. Caplan served as Director
of Marketing for Berenter Greenhouse & Webster, an advertising and marketing
agency specializing in consumer brands. From October 1994 to September 1995, he
served as President of Advertising & Diversity, Inc., a marketing strategy firm.
From September 1991 to October 1994, Mr. Caplan served as an Account Executive
for TDI Worldwide (now owned by CBS Corporation), an outdoor advertising
company. Mr. Caplan received his B.A. in English from the University of
Rochester.
A. JEFFREY RADOV has served as MiningCo's Vice President--Business
Development since September 1996, and also served as MiningCo's Chief Financial
Officer from November 1997 to December 1998. From January 1996 to August 1996,
Mr. Radov served as Director of Content and Communities for Prodigy. From
January 1992 to December 1995, Mr. Radov served as a principal of Radov &
Associates, a private consulting firm. Mr. Radov received his B.A. in Social
Science from Cornell University, and an M.B.A. from The Wharton School of the
University of Pennsylvania.
ELIZABETH A. MAIER has served as MiningCo's Vice President--Product Design
and Development since July 1996. From November 1995 to July 1996, Ms. Maier
served as Prodigy's Senior Director, Product Design. From July 1995 to November
1995, Ms. Maier served as Prodigy's Manager, Customer Applications. From October
1988 to July 1995, Ms. Maier held a variety of product design and management
positions with Prodigy. Ms. Maier received her B.A. in Psychology from Syracuse,
and a Ph.D. in Cognitive Psychology from Michigan State University.
ERIC W. BINGHAM has served as MiningCo's Vice President--Business Operations
since July 1996. From June 1995 to June 1996, Mr. Bingham served as Director,
Business Development for News Corporation, an international media company. From
January 1990 to May 1995, Mr. Bingham served as Director, International
Operations for Home Box Office, a division of Time Warner Inc. Mr. Bingham
received his B.A. in History from Allegheny College, and an M.B.A. from Boston
University.
OLGA V. TALLER has served as MiningCo's Vice President--Guide Operations
since August 1996. From April 1987 to August 1996, Ms. Taller held various
positions at Prodigy, including Director, Server Infrastructure and Manager of
the Advanced Connectivity and Database Group. Ms. Taller received her M.S. in
Economics from the Moscow Institute of Economics and Statistics.
ROBERT W. HARRIS has served as MiningCo's Vice President--Finance and
Administration since July 1996. From January 1994 to June 1996, Mr. Harris was a
private consultant to media start-up venture companies. From 1986 to December
1993, Mr. Harris worked in various capacities for Home Box Office and Paramount
Pictures Corp. Mr. Harris received his B.S. in Commerce from the University of
Virginia and is a C.P.A.
KENNETH H. APPLEMAN has served as MiningCo's Vice President--Chief
Technology Officer since July 1996. From October 1995 to July 1996, Mr. Appleman
served as President of Precognetics, Inc., a technical consulting firm. From
September 1985 to October 1995, Mr. Appleman held a variety of technical
management and software development positions at Prodigy. Mr. Appleman received
his B.A. in English from S.U.N.Y. Albany, and an M.S. in Computer Science from
Pace University.
42
<PAGE>
FRANK J. BIONDI, JR. has served as a director of MiningCo since December
1998. From April 1996 to November 1998, Mr. Biondi served as Chairman and Chief
Executive Officer of Universal Studios, Inc., an international entertainment
company. From July 1987 to January 1996, Mr. Biondi served as President and
Chief Executive Officer of Viacom Inc., an international entertainment company.
Mr. Biondi currently serves on the boards of directors of Bank of New York
Company, Inc., a bank holding company, and Vail Resorts, Inc., a mountain resort
company. Mr. Biondi received his B.A. in Psychology from Princeton University,
and an M.B.A. from Harvard University.
DIXON R. DOLL has served as a director of MiningCo since August 1997. Since
June 1996, Mr. Doll has served as Managing General Partner of Doll Capital
Management, a venture capital investment firm. From September 1994 to June 1996,
Mr. Doll was an independent venture capitalist. From 1985 to September 1994, Mr.
Doll served as General Partner of Accel Partners, a venture capital investment
firm. Since 1973, Mr. Doll has held various senior management positions at DMW
Group LLC and predecessor entities, a network integration and professional
services firm, including Chairman of the Board of Directors and Chief Executive
Officer. Mr. Doll serves on the boards of directors of International
Manufacturing Services, Inc., a provider of advanced manufacturing services,
Network Equipment Technologies, Inc., a manufacturer of multi-service
communications products, Zamba Corp., a supplier of mobile data communication
software, and a number of private companies. Mr. Doll received a B.S. in
Electrical Engineering from Kansas State University, and an M.S.E. and Ph.D.
from the University of Michigan.
RONALD UNTERMAN has served as a director of MiningCo since January 1997.
From August 1988 to December 1997, Mr. Unterman served as Vice President of
Envirogen, Inc. Since December 1997, Mr. Unterman has served as Senior Vice
President, Technology Development of Envirogen, Inc., an environmental
biotechnology company. Mr. Unterman received his B.A. in Biology from Haverford
College, and a Ph.D. from Columbia University in Biochemistry.
MARC M. WATSON has served as a director of MiningCo since April 1998. In
1998, Mr. Watson co-founded C-Max Capital Corp., an investment firm focusing on
private technology and medical-related companies and currently serves as its
Managing Director. From October 1993 to October 1998, Mr. Watson was Chairman of
the Board of Sano Corporation, a drug delivery systems development company. Mr.
Watson currently serves on the board of directors of Equitrac Corporation, a
provider of computer system solutions. Mr. Watson received both his B.B.A. in
Accounting and his J.D. from the University of Miami.
KRISTOPHER A. WOOD has served as a director of MiningCo since November 1998.
Since September 1997, Mr. Wood has served as Managing Director of XL Ventures,
Inc., the parent company of XL Ventures LLC, which is the venture capital
investment subsidiary of Big Flower Holdings, Inc., an advertising, marketing
and information services company. Since September 1995, Mr. Wood has also served
as Director--Mergers & Acquisitions for Big Flower Holdings, Inc. (and its
predecessor, Big Flower Press Holdings, Inc.). From July 1993 to May 1995, Mr.
Wood was a member of the Global Finance Group at BT Alex. Brown Incorporated, an
investment banking firm. Mr. Wood received his B.S. in Economics from The
Wharton School of the University of Pennsylvania.
DIRECTORS' TERMS
All directors hold office until the next annual meeting of stockholders or
until their successors have been duly elected and qualified. Each of Messrs.
Doll, Unterman, Watson and Wood was originally elected to the board of directors
pursuant to an agreement that will terminate upon the closing of this offering.
Mr. Kurnit was originally elected to the board of directors pursuant to a
provision of his employment agreement, which provision will terminate upon the
closing of this offering.
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<PAGE>
BOARD COMMITTEES
The audit committee of the board of directors was established in May 1998
and reviews, acts on and reports to the board of directors with respect to
various auditing and accounting matters, including the recommendation of
MiningCo's independent auditors, the scope of the annual audits, fees to be paid
to the independent auditors, the performance of MiningCo's independent auditors
and the accounting practices of MiningCo. The members of the audit committee are
Messrs. Unterman, Watson and Wood.
The compensation committee of the board of directors was established in May
1998 and determines the salaries, benefits and stock option grants for
MiningCo's employees, consultants, directors and other individuals compensated
by MiningCo. The compensation committee also administers MiningCo's compensation
plans. The members of the compensation committee are Messrs. Doll, Kurnit,
Unterman and Watson.
DIRECTOR COMPENSATION
Other than reimbursing directors for customary and reasonable expenses of
attending board of directors or committee meetings, MiningCo does not currently
compensate its directors.
Under MiningCo's stock option plan, each individual who first becomes a
non-employee member of the board of directors at any time after this offering
will be granted an option to purchase 20,000 shares of common stock on the date
the individual joins the board of directors, provided the individual has not
previously been employed by MiningCo or any parent or subsidiary corporation. In
addition, on the date of each annual stockholders' meeting beginning in 1999,
each non-employee member of the board of directors who is to continue to serve
on the board of directors will automatically be granted an option to purchase
5,000 shares of common stock, provided the individual has served as a
non-employee member of the board of directors for at least six months. Please
see "--Amended and Restated 1998 Stock Option/Stock Issuance Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
MiningCo's compensation committee currently consists of Messrs. Doll,
Kurnit, Unterman and Watson. Other than Mr. Kurnit, MiningCo's President and
Chief Executive Officer, none of the members of the compensation committee is or
has been an officer or employee of MiningCo. Prior to the formation of the
compensation committee in May 1998, the board of directors as a whole made
decisions relating to compensation of MiningCo's executive officers. Mr. Kurnit
has participated in all discussions and decisions concerning the compensation of
MiningCo's executive officers, except that he was excluded from discussions by
the board of directors regarding his own compensation.
Mr. Doll is affiliated with Doll Technology Investment Fund, Doll Technology
Affiliates Fund, L.P. and Doll Technology Side Fund, L.P. Mr. Marc Watson is
affiliated with C-Max Capital Limited Partnership-I. These funds, together with
Mr. Kurnit, have in the past provided financing to MiningCo in consideration for
the issuance of MiningCo securities. Please see "Certain Transactions" for
information relating to these financing transactions.
In addition to Mr. Marc Watson, Mr. Kevin Watson is affiliated with C-Max
Capital Limited Partnership-I. MiningCo and Mr. Kevin Watson entered into an
advisory agreement effective April 20, 1998, pursuant to which Mr. Kevin Watson
agreed to provide consulting and advisory services to MiningCo. These services
include introducing MiningCo to members of the investment community and
assisting MiningCo with respect to financial and strategic matters. In
consideration for his services under this agreement, Mr. Kevin Watson was
granted a warrant to purchase up to a total of 21,360 shares of common stock at
an exercise price of $5.06 per share. This warrant is exercisable at any time
during the 10-year period beginning on the date of the closing of this offering.
44
<PAGE>
EMPLOYMENT, SEVERANCE AND OTHER AGREEMENTS
MiningCo and Mr. Kurnit are parties to a letter agreement dated October 20,
1996, as amended, governing his employment with MiningCo. The agreement expires
in June 1999. The agreement provides that Mr. Kurnit will receive a base salary
of $195,000 per annum and will be eligible to receive a bonus at the discretion
of the board of directors, which bonus shall not be less than $100,000 per
annum. Mr. Kurnit's employment may be terminated by MiningCo at any time. In the
event that Mr. Kurnit is terminated by MiningCo without cause, Mr. Kurnit shall
be entitled to be paid his base salary for 12 months following his termination.
In addition, if Mr. Kurnit is involuntarily terminated within 12 months
following a change of control of MiningCo, all of his unvested stock options
will immediately vest and become fully exercisable.
MiningCo and Mr. Wragg are parties to a letter agreement dated July 28,
1996, as amended on October 21, 1998, governing his employment with MiningCo.
The agreement provides that Mr. Wragg will receive a base salary of $125,000 per
annum and will be eligible to receive a quarterly commission bonus based on
annual gross advertising sales revenue. The agreement also provides that Mr.
Wragg's salary, bonus and option grants are to be reviewed annually by the
compensation committee. In the event that Mr. Wragg's employment is terminated
for any reason by MiningCo other than for gross misconduct, Mr. Wragg shall be
entitled to be paid his base salary for 12 months following his termination and
he shall receive MiningCo's standard benefits for six months following his
termination. In addition, if Mr. Wragg is involuntarily terminated within 12
months following a change of control of MiningCo, all of his unvested stock
options will immediately vest and become fully exercisable.
MiningCo and Mr. Sloan are parties to a letter agreement dated January 11,
1999 governing his employment with MiningCo. The agreement provides that Mr.
Sloan will receive a base salary of $165,000 per annum and options to purchase
62,300 shares of common stock at an exercise price of $4.21 per share. Mr. Sloan
will also be eligible to participate in an executive bonus pool if one is
established. In the event that Mr. Sloan is terminated without cause he shall be
entitled to be paid his base salary for three months following his termination.
In addition, if Mr. Sloan is involuntarily terminated within 12 months following
a change of control of MiningCo, all of his unvested stock options will
immediately vest and become fully exercisable.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to MiningCo's Chief Executive Officer and the other two executive officers
of MiningCo whose annual salary and bonus exceeded $100,000 in 1998 for services
rendered in all capacities to MiningCo during 1997 and 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------
ANNUAL COMPENSATION(1) AWARDS
-----------------
---------------------- SHARES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
- -------------------------------------------------------------- --------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
Scott P. Kurnit............................................... 1998 $ 170,750 $ 100,000 9,204
President, Chief Executive Officer and Chairman of the Board 1997 138,125 100,000 21,475
of Directors
William C. Day................................................ 1998 125,625 25,000 74,012
Chief Operating Officer 1997 109,687 -- 180,990
Alan T. Wragg................................................. 1998 137,732 -- 11,840
President--Advertising Sales and E-Commerce 1997 131,250 -- 118,449
</TABLE>
- ------------------------
(1) In accordance with the rules of the SEC, other compensation in the form of
perquisites and other personal benefits has been omitted for the named
executive officers because the aggregate amount of these perquisites and
other personal benefits constituted less than the lesser of $50,000 or 10%
of the total of annual salary and bonuses for each of the named executive
officers in 1997 and 1998.
OPTION GRANTS IN LAST YEAR
The following table sets forth information regarding options granted to the
named executive officers during the year ended December 31, 1998. Each option
represents the right to purchase one share of common stock and was granted under
MiningCo's stock option plan. These options become exercisable at a rate of 25%
annually over four years from the date of grant. However, all options that
expire prior to July 2008 shall accelerate and become exercisable upon the
closing of this offering. MiningCo has not granted any stock appreciation
rights.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
-------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(3)
OPTIONS EMPLOYEES EXERCISE MARKET EXPIRATION --------------------------
NAME GRANTED IN 1998(1) PRICE PRICE(2) DATE 0% 5%
- ---------------------------- ----------- ------------- ----------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Scott P. Kurnit............. 9,204 2.2% $ 0.56 $25.00 03/30/08 $ 224,946 $ 369,654
William C. Day.............. 6,372 1.5 0.51 25.00 03/30/08 156,050 256,233
67,640 16.3 1.01 25.00 07/02/08 1,622,684 2,686,144
Alan T. Wragg............... 4,720 1.1 0.51 25.00 03/30/08 115,593 189,802
7,120 1.7 1.01 25.00 07/02/08 170,809 282,752
<CAPTION>
NAME 10%
- ---------------------------- ------------
<S> <C>
Scott P. Kurnit............. $ 591,666
William C. Day.............. 409,933
4,317,702
Alan T. Wragg............... 303,654
454,495
</TABLE>
- ------------------------
(1) During the year ended December 31, 1998, MiningCo granted options to
purchase a total of 415,611 shares of common stock to employees.
(2) There was no public market for the common stock during 1998. For purposes of
this table, the initial public offering price of $25.00 per share has been
assumed to be the market price at the date of grant.
46
<PAGE>
(3) Amounts in these columns represent hypothetical gains that could be achieved
for the respective options if exercised at the end of the option term. The
0%, 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the SEC and do not represent MiningCo's estimate or
projection of MiningCo's future common stock prices. Actual gains, if any,
on stock option exercises depend on MiningCo's future performance and
overall stock market conditions. The amounts reflected in the table may be
more or less than the amounts actually achieved.
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1998 AND YEAR-END
OPTION VALUES
The following table sets forth information concerning the value realized
upon exercise of options during 1998 and the number and value of unexercised
options held by each of the named executive officers at December 31, 1998. There
was no public trading market for the common stock as of December 31, 1998.
Accordingly, the values set forth below have been calculated on the basis of the
initial public offering price of $25.00 per share, less the applicable exercise
price per share, multiplied by the number of shares underlying the options.
<TABLE>
<CAPTION>
VALUE NUMBER OF SECURITIES
REALIZED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES (MARKET PRICE OPTIONS AT DECEMBER 31, IN-THE- MONEY OPTIONS AT
ACQUIRED AT EXERCISE 1998 DECEMBER 31, 1998
ON LESS EXERCISE -------------------------- ---------------------------
NAME EXERCISE PRICE)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- ------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Scott P. Kurnit................ -- -- 30,678 -- $ 749,464 $ --
William C. Day................. 1,780 $ 43,592 123,282 129,940(2) 3,019,176 3,148,411
Alan T. Wragg.................. -- -- 69,769 60,520(3) 1,708,642 1,478,575
</TABLE>
- ------------------------
(1) Solely for purposes of this calculation, the fair market value of the common
stock at the time of the exercise was deemed to be the initial public
offering price of $25.00 per share. The exercise price of the options was
$0.51 per share.
(2) Options to purchase 62,300 shares of common stock will accelerate and become
exercisable when this offering closes. This will result in an increase in
the value of Mr. Day's unexercised in-the-money exercisable options of
$1,525,727.
(3) Options to purchase 53,400 shares of common stock will accelerate and become
exercisable when this offering closes. This will result in an increase in
the value of Mr. Wragg's unexercised in-the-money exercisable options of
$1,307,766.
AMENDED AND RESTATED 1998 STOCK OPTION/STOCK ISSUANCE PLAN
MiningCo's amended and restated 1998 stock option/stock issuance plan serves
as the successor equity incentive program to MiningCo's 1997 employee incentive
stock option plan. The 1998 stock option/stock issuance plan became effective on
July 2, 1998 upon adoption by the board of directors and was approved by the
stockholders on the same day. On February 1, 1999 the board approved the amended
and restated 1998 stock option/stock issuance plan, which was approved by the
stockholders on the same day. 1,886,800 shares of common stock were initially
authorized for issuance under the stock option plan. This initial share reserve
was comprised of the shares that remained available for issuance under the old
stock option plan on the effective date of the new stock option plan, including
the shares subject to outstanding options under that plan plus an increase of
890,000 shares. On February 5, 1999, the board authorized, and the stockholders
approved, an increase of 1,338,085 shares. Outstanding options under the old
stock option plan were incorporated into the new stock option plan upon the date
of the approval of the new stock option plan, and no further option grants are
being made under the old stock option plan. The incorporated options will
continue to be governed by their existing terms, unless the plan administrator
elects to extend one or more features of the new stock option plan to those
options.
47
<PAGE>
As of the date of this prospectus, there are outstanding options to purchase
a total of 2,219,965 shares of common stock under the new stock option plan, of
which options to purchase 561,095 shares are currently exercisable. Of the
options to purchase 1,658,870 shares of common stock that are not currently
exercisable, the options to purchase 351,099 shares of common stock, with a
weighted average exercise price of $0.51 per share, originally granted under the
old stock option plan shall immediately vest and become exercisable upon the
closing of this offering. Since MiningCo intends to file a registration
statement on Form S-8 as soon as practicable following the commencement of this
offering, any shares issued upon exercise of these options will be immediately
available for sale in the public market, subject to the terms of lock-up
agreements entered into between substantially all of these optionholders and the
underwriters.
Except as otherwise noted in the previous paragraph or below, the
outstanding options under the old stock option plan contain substantially the
same terms and conditions summarized below for the discretionary option grant
program in effect under the new stock option plan. The new stock option plan is
divided into three separate components:
- the discretionary option grant program under which eligible individuals in
MiningCo's employ or service (including officers, non-employee members of
the board of directors, consultants and guides) may, at the discretion of
the plan administrator, be granted options to purchase shares of common
stock at an exercise price determined by the plan administrator;
- the stock issuance program under which those individuals may, in the plan
administrator's discretion, be issued shares of common stock directly,
through the purchase of those shares at a price determined by the plan
administrator or as a bonus tied to the performance of services; and
- the automatic option grant program under which option grants will
automatically be made at periodic intervals to eligible non-employee
members of the board of directors to purchase shares of common stock at an
exercise price equal to 100% of the fair market value of those shares on
the grant date.
In no event may any one participant in the new stock option plan receive
option grants or direct stock issuances for more than 267,000 shares in the
aggregate per calendar year. Under the old stock option plan, only employees
were eligible to receive option grants and the exercise price could not be less
than the fair market value per share on the grant date.
The discretionary option grant program and the stock issuance program are
administered by the compensation committee of the board of directors. The
compensation committee as plan Administrator has complete discretion to
determine which eligible individuals are to receive option grants or stock
issuances, the time or times when option grants or stock issuances are to be
made, the number of shares subject to each grant or issuance, the status of any
granted option as either an incentive stock option or a non-statutory stock
option under the Federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted option
is to remain outstanding. The administration of the automatic option grant
program is self-executing in accordance with the express provisions of that
program. Under the old stock option plan, only incentive stock options were
granted.
The exercise price for the shares of common stock subject to option grants
made under the new stock option plan may be paid in cash or in shares of common
stock valued at fair market value on the exercise date. The option may also be
exercised through a same-day sale program without any cash outlay by the
optionee. In addition, the plan administrator may provide financial assistance
to one or more participants in the new stock option plan in connection with
their acquisition of shares, by allowing those individuals to deliver a
full-recourse, interest-bearing promissory note in payment of the option
exercise price and any associated withholding taxes incurred in connection with
that acquisition.
48
<PAGE>
In the event of an acquisition of MiningCo, whether by merger or asset sale
or a sale by the stockholders of more than 50% of the total voting power of
MiningCo that is recommended by the board of directors, each outstanding option
under the discretionary option grant program which is not to be assumed by the
successor corporation or otherwise continued will automatically accelerate in
full, and all repurchase rights relating to shares under the discretionary
option grant program and stock issuance program will immediately lapse, except
to the extent MiningCo's repurchase rights with respect to those shares are to
be assigned to the successor corporation or otherwise continued in effect. Under
the stock option plan, the plan administrator has the authority at the time of
grant to provide that the shares subject to options granted under the
discretionary option grant program will automatically vest:
- upon an acquisition of MiningCo whether or not those options are assumed
or continued, or
- upon a hostile change in control of MiningCo effected through:
- a tender offer for more than 50% of MiningCo's outstanding voting
stock, or
- a proxy contest for the election of the board of directors, or
- if the individual is terminated involuntarily or resigns for good
reason within 12 months following an acquisition in which the
individual's options were assumed or otherwise continued in effect or
following a hostile change in control.
The vesting of outstanding shares under the stock issuance program may be
accelerated upon similar terms and conditions. In addition, all outstanding
options under MiningCo's old stock option plan will be exercisable upon the
closing of this offering.
Stock appreciation rights are authorized for issuance under the
discretionary option grant program, which rights provide the holders with the
election to surrender their outstanding options for an appreciation distribution
from MiningCo equal to the excess of the fair market value of the vested shares
of common stock subject to the surrendered option over the aggregate exercise
price payable for those shares. This appreciation distribution may be made in
cash or in shares of common stock. There are currently no outstanding stock
appreciation rights.
The plan administrator has the authority to effect the cancellation of
outstanding options under the discretionary option grant program (including
options incorporated from the old stock option plan) in return for the grant of
new options for the same or different number of option shares with an exercise
price per share based upon the fair market value of the common stock on the new
grant date.
Under the automatic option grant program, non-employee board of directors
members will be entitled to receive option grants. Each automatic grant will
have an exercise price equal to the fair market value per share of common stock
on the grant date and will have a maximum term of 10 years, subject to earlier
termination following the optionee's cessation of board of directors service.
Each automatic option will be immediately exercisable; however, any shares
purchased upon exercise of the option will be subject to repurchase, at the
option exercise price paid per share, should the optionee's service as a
non-employee member of the board of directors cease prior to vesting in the
shares. Each 20,000-share grant will vest in four equal and successive annual
installments over the optionee's period of board of director service. Each
annual 5,000-share grant will vest upon the optionee's completion of one year of
board of directors service measured from the grant date. However, each
outstanding option will immediately vest upon changes in control of MiningCo or
the death or disability of the optionee while serving as a board of directors
member. Please see "--Director Compensation."
The board of directors may amend or modify the stock option plan at any
time, subject to any required stockholder approval. The stock option plan will
terminate on the earliest of:
- July 1, 2008
49
<PAGE>
- the date on which all shares available for issuance under the stock option
plan have been issued as fully-vested shares
- the termination of all outstanding options in connection with particular
changes in control or ownership of MiningCo
1999 EMPLOYEE STOCK PURCHASE PLAN
MiningCo's employee stock purchase plan will become effective when the
underwriting agreement for this offering is executed. The purchase plan is
designed to allow eligible employees of MiningCo and participating subsidiaries
to purchase shares of common stock, at semi-annual intervals, through their
periodic payroll deductions. 125,000 shares of common stock have been reserved
for issuance under the purchase plan.
The purchase plan will be implemented in a series of successive purchase
periods, each with a duration of six months. Purchase periods will generally run
from the first business day in May to the last business day in October each year
and from the first business day in November to the last business day in April
the next year. However, the initial purchase period will begin on the
underwriting agreement's execution date and will end on October 31, 1999.
Employees who are scheduled to work more than 20 hours per week for more
than five calendar months per year on the start date of any purchase period are
eligible to enter the purchase plan on that start date.
Payroll deductions may not exceed 15% of the participant's cash earnings.
The accumulated payroll deductions of each participant will be applied to the
purchase of shares on the participant's behalf on each purchase date. The
purchase price per share will equal 85% of the lower of the fair market value of
the common stock on the start of the purchase period or the fair market value on
the purchase date. No participant may purchase more than 500 shares on any
purchase date.
In the event MiningCo is acquired by merger or asset sale, all outstanding
purchase rights will automatically be exercised immediately prior to the
effective date of the acquisition. The purchase price will be equal to 85% of
the lower of the fair market value per share of common stock on the start of the
purchase period in which that acquisition occurs or the fair market value per
share of common stock immediately prior to the acquisition.
The purchase plan will terminate on the earliest of:
- October 31, 2009
- the date on which all shares available for issuance under the purchase
plan have been sold in accordance with the purchase plan
- the date on which all purchase rights are exercised in connection with an
acquisition of MiningCo by merger or asset sale
Subject to stockholder approval for certain amendments, the board of
directors may at any time alter, suspend or discontinue the purchase plan.
50
<PAGE>
CERTAIN TRANSACTIONS
SERIES A FINANCING
Between March 1997 and January 1998, MiningCo issued convertible promissory
notes in an aggregate principal amount of $4,950,000 to a number of investors,
including the investors set forth in the table below. Pursuant to their terms,
the principal amount due on these notes was either automatically convertible
into shares of MiningCo's capital stock upon the closing of the next equity
financing conducted by MiningCo or due and payable on the earlier of the fifth
anniversary of the delivery of the notes or upon an event of default under the
notes. These notes bore interest at a variable rate equal to the prime rate
published by a major financial institution plus 2% per annum. On April 23, 1998,
in consideration for the cancellation of the principal amount of these notes and
$70,000 in interest that accrued on these notes prior to August 12, 1997,
MiningCo issued to the noteholders a total of 3,346,715 shares of Series A
convertible preferred stock. The remaining interest on these notes was evidenced
by newly issued unsecured promissory notes that, by their terms, will be
forgiven and cancelled upon the closing of this offering. Upon the closing of
this offering, the outstanding shares of Series A convertible preferred stock
will convert into a total of 1,191,433 shares of common stock.
At the time of the delivery of the convertible promissory notes, MiningCo
issued warrants to purchase a total of 309,748 shares of common stock to the
investors. Of these warrants, warrants to purchase 218,890 shares of common
stock had an exercise price of $0.03 per share and warrants to purchase 90,858
shares of common stock had an exercise price of $4.21 per share. In December
1998, all of the warrants to purchase common stock at an exercise price of $0.03
per share were exercised and warrants to purchase a total of 66,753 shares of
common stock at an exercise price of $4.21 per share were exercised. The
remaining warrant for 24,105 shares was cancelled.
The following table lists the number of shares of Series A convertible
preferred stock that were purchased, and the warrants that were exercised in
December 1998, by executive officers, directors and their affiliated entities,
and by 5% stockholders:
<TABLE>
<CAPTION>
AMOUNT OF
PRINCIPAL AMOUNT OF
SURRENDERED IN INTEREST
CONSIDERATION SURRENDERED IN NUMBER OF $0.03 NUMBER OF $4.21
NUMBER OF SHARES OF SERIES A CONSIDERATION WARRANTS WARRANTS
OF SERIES A PREFERRED OF SERIES A TO PURCHASE COMMON TO PURCHASE COMMON
PURCHASER PREFERRED STOCK STOCK PREFERRED STOCK STOCK EXERCISED STOCK EXERCISED
- ------------------------------ ----------------- -------------- --------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Crystal Internet Venture Fund,
L.P......................... 711,109 $ 1,066,664 -- 14,748 39,556
Doll Technology Affiliates
Fund, L.P................... 49,217 $ 73,826 -- 5,270 183
Doll Technology Investment
Fund........................ 836,542 $ 1,219,776 $ 35,036 89,563 3,099
Doll Technology Side Fund,
L.P......................... 32,044 $ 48,066 -- 3,431 119
Scott P. Kurnit............... 200,000 $ 300,000 -- 4,154 11,125
Open Text Corporation......... 433,333 $ 650,000 -- -- --
Zero Stage Capital V, L.P..... 917,803 $ 1,341,668 $ 35,036 98,263 3,400
</TABLE>
SERIES B FINANCING
Between November 1997 and February 1998, MiningCo issued convertible
promissory notes in an aggregate principal amount of $2,800,000 to a number of
existing investors, including Crystal Internet Venture Fund, L.P., Doll
Technology Affiliates Fund, L.P., Doll Technology Investment Fund, Doll
Technology Side Fund, L.P. and Zero Stage Capital V, L.P. Pursuant to their
terms, the notes were either automatically convertible into shares of MiningCo's
Series B convertible preferred stock upon
51
<PAGE>
the closing of the next equity financing conducted by MiningCo or due and
payable on the earlier of the first anniversary of the delivery of the notes,
unless the payee extended the maturity date, or upon an event of default under
the notes. These notes bore interest at a fixed rate equal to 10% per annum,
although a few of these notes bore interest at a variable rate equal to the
prime rate published by a major financial institution plus 2% per annum. In
addition, at the time of the delivery of the convertible promissory notes,
MiningCo issued warrants to these investors to purchase a total of 250,192
shares of common stock at an exercise price of $5.06 per share. In December
1998, all of these warrants were exercised.
On April 23, 1998, in consideration for the cancellation of the principal
amount of $2,800,000 and $69,800 in accrued interest under the convertible
promissory notes, MiningCo issued to the noteholders a total of 1,594,380 shares
of Series B convertible preferred stock. Further, in consideration for the
cancellation of $1,700,000 in principal and $305,800 in accrued interest under
an obligation to Open Text Corporation, MiningCo issued to Open Text Corporation
1,114,327 shares of Series B convertible preferred stock. Moreover, additional
investors, including C-Max Capital Limited Partnership-I, purchased a total of
2,688,893 shares of Series B convertible preferred stock in consideration for
$4,840,007. In addition to the issuance of shares of Series B convertible
preferred stock, on April 23, 1998, MiningCo issued warrants to the additional
investors to purchase a total of 107,695 shares of common stock at an exercise
price of $7.02 per share. In December 1998, warrants to purchase a total of
103,801 shares of common stock were exercised. The remaining warrant was
cancelled.
In June 1998, MiningCo issued a total of 1,199,996 shares of Series B
convertible preferred stock to various investors in consideration for
$2,160,000. These investors included Crystal Internet Venture Fund, L.P., Doll
Technology Affiliates Fund, L.P., Doll Technology Investment Fund, Doll
Technology Side Fund, L.P. and XL Capital Corporation.
Upon the closing of this offering, the outstanding shares of Series B
convertible preferred stock will convert into a total of 2,348,752 shares of
common stock.
The following table lists the shares of Series B convertible preferred stock
purchased, and the warrants exercised in December 1998, by executive officers,
directors and their affiliated entities, and by 5% stockholders:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
PRINCIPAL INTEREST
SURRENDERED IN SURRENDERED IN
CONSIDERATION CONSIDERATION NUMBER OF $5.06 NUMBER OF $7.02
NUMBER OF SHARES OF SERIES B OF SERIES B WARRANTS WARRANTS
OF SERIES B PREFERRED PREFERRED TO PURCHASE COMMON TO PURCHASE COMMON
PURCHASER PREFERRED STOCK STOCK STOCK STOCK EXERCISED STOCK EXERCISED
- ------------------------------ ----------------- -------------- -------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
C-Max Capital Limited
Partnership-I............... 2,222,222 -- -- -- 85,440
Crystal Internet Venture Fund,
L.P......................... 482,136 $ 600,000 $ 17,850 54,884 --
Doll Technology Affiliates
Fund, L.P................... 30,437 $ 40,219 $ 1,162 3,659 --
Doll Technology Investment
Fund........................ 517,339 $ 683,595 $ 19,752 62,192 --
Doll Technology Side Fund,
L.P......................... 19,817 $ 26,186 $ 757 2,383 --
Open Text Corporation......... 1,114,327 $ 1,700,000 $ 305,789 -- --
XL Ventures LLC............... 277,778 -- -- -- --
Zero Stage Capital V, L.P..... 428,771 $ 750,000 $ 21,788 68,234 --
</TABLE>
52
<PAGE>
SERIES C FINANCING
On October 5, 1998, MiningCo issued convertible promissory notes in an
aggregate principal amount of $1,081,000 to a number of existing investors,
including some of the investors set forth in the table below. Pursuant to their
terms, these notes were either automatically convertible into shares of
MiningCo's Series C convertible preferred stock upon the closing of the next
equity financing conducted by MiningCo or due and payable on the earlier of the
60th day following October 5, 1999 or an event of default under the notes. These
notes bore interest at a fixed rate equal to 8% per annum.
On November 13, 1998, in consideration for the cancellation of the principal
amount and $8,900 in accrued interest under the convertible promissory notes,
MiningCo issued to the noteholders a total of 558,917 shares of Series C
convertible preferred stock. Further, in consideration for the cancellation of
$1,555,600 in principal and $226,400 in accrued interest under an obligation to
Open Text Corporation, MiningCo issued to Open Text Corporation 913,856 shares
of Series C convertible preferred stock. This amount represented all of the
remaining principal and interest under this obligation. Moreover, additional
third-party investors, including some of the investors set forth in the table
below, purchased a total of 5,437,953 shares of Series C convertible preferred
stock in consideration for $10,604,000, at a price per share equal to $5.48
(calculated on an as-converted post-split basis). The terms of the Series C
convertible preferred stock were determined by arm's length negotiation between
MiningCo and XL Ventures LLC and Prospect Street NYC Discovery Fund, L.P., third
parties previously unaffiliated with MiningCo.
On December 4, 1998, MiningCo issued an aggregate of 391,085 shares of
Series C convertible preferred stock to existing stockholders in consideration
for $762,600.
Upon the closing of this offering, the outstanding shares of Series C
convertible preferred stock will convert into a total of 2,599,455 shares of
common stock.
The following table lists the number of shares of Series C convertible
preferred stock purchased by executive officers, directors and their affiliated
entities, and by 5% stockholders:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
PRINCIPAL INTEREST
NUMBER OF SURRENDERED IN SURRENDERED IN
SHARES OF CONSIDERATION CONSIDERATION
SERIES C OF SERIES C OF SERIES C
PREFERRED PREFERRED PREFERRED
PURCHASERS STOCK STOCK STOCK
- ---------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
C-Max Capital Limited Partnership-I........... 599,123 $ 400,000 $ 3,289
Crystal Internet Venture Fund, L.P............ 513,635 $ 193,000 $ 1,587
Doll Technology Affiliates Fund, L.P.......... 27,640 $ 5,000 $ 41
Doll Technology Investment Fund............... 469,792 $ 245,000 $ 2,014
Doll Technology Side Fund, L.P................ 17,996 $ 3,000 $ 25
Open Text Corporation......................... 913,856 $ 1,555,600 $ 226,400
Prospect Street NYC Discovery Fund, L.P....... 1,794,872 -- --
XL Ventures LLC............................... 1,794,872 -- --
Zero Stage Capital V, L.P..................... 121,503 $ 235,000 $ 1,932
Zero Stage Capital VI, L.P.................... 512,821 -- --
</TABLE>
Between November 1, 1998 and December 30, 1998, the Dow Jones Internet
Commerce Index increased approximately 63%. MiningCo believes that this factor,
together with a continued increase in page views on MININGCO.COM and an increase
in MiningCo's revenues for the quarter ended December 31, 1998 compared to the
quarter ended September 30, 1998, was primarily responsible for the increase in
the fair value of the common stock from $5.48 per share as of November 13, 1998
to the assumed initial public offering price per share as of December 30, 1998.
53
<PAGE>
OPEN TEXT CORPORATION
On October 17, 1996, MiningCo executed a promissory note payable to Open
Text in the original principal amount of $3,905,616. On August 27, 1997,
MiningCo and Open Text amended this note to reduce the principal amount
outstanding under this note to $3,255,600. The remaining $650,000 in principal
was evidenced by a newly issued convertible subordinated promissory note that
was subsequently cancelled on April 23, 1998, in consideration for the issuance
of 433,333 shares of Series A convertible preferred stock. None of the
outstanding interest was evidenced by the newly issued convertible subordinated
promissory note. On April 23, 1998, MiningCo and Open Text amended the
promissory note to reduce the outstanding principal amount from $3,255,600 to
$1,555,600. This reduction of $1,700,000 in principal, as well as $305,800 of
interest, was simultaneously converted into 1,114,327 shares of Series B
convertible preferred stock. On November 13, 1998, MiningCo issued 913,856
shares of Series C convertible preferred stock in cancellation of the remaining
$1,555,600 in principal and $226,400 in interest outstanding under the
promissory note.
On August 27, 1997, in connection with the execution of the convertible
subordinated promissory note, MiningCo issued Open Text warrants to purchase
24,105 shares of common stock at an exercise price of $4.21 per share. These
warrants were cancelled in December 1998. In January 1998, MiningCo issued Open
Text warrants to purchase 2,670 shares of common stock at an exercise price of
$4.21 per share. In June and July of 1998, MiningCo issued Open Text warrants to
purchase an aggregate of 6,230 shares of common stock at an exercise price of
$4.21 per share. These warrants to purchase an aggregate of 8,900 shares of
common stock remain outstanding.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
On April 23, 1998, MiningCo and the purchasers of its Series A convertible
preferred stock and Series B convertible preferred stock entered into an
investors' rights agreement. On November 13, 1998, the investors' rights
agreement was amended and restated to include the purchasers of MiningCo's
Series C convertible preferred stock. Under the terms of the amended and
restated investors' rights agreement, holders of MiningCo's Series A convertible
preferred stock, Series B convertible preferred stock and Series C convertible
preferred stock were granted registration rights with respect to the
registration under the Securities Act of the shares of common stock issuable
upon conversion of their respective shares of MiningCo's convertible preferred
stock. Comcast will become a party to the amended and restated investors' rights
agreement. As a result, it will receive rights to have its shares of common
stock registered for resale under the Securities Act. Please see "Description of
Securities--Registration Rights."
STOCK OPTIONS GRANTED TO EXECUTIVE OFFICERS
For information regarding the grant of stock options to executive officers
and directors, please see "Management--Director Compensation" and "--Executive
Compensation."
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of MiningCo's common stock as of February 8, 1999, and as adjusted to
reflect the sale of the shares of common stock offered by this prospectus and in
the concurrent placement, by:
- each person, or group of affiliated persons, who MiningCo knows
beneficially owns 5% or more of the common stock,
- each director and named executive officer of MiningCo and
- all directors and executive officers of MiningCo as a group.
In accordance with the SEC's rules, the following table gives effect to the
shares of common stock that could be issued upon the exercise of outstanding
options and warrants within 60 days of February 8, 1999. In addition, the shares
beneficially owned include the common stock issuable upon conversion of the
convertible preferred stock upon the closing of this offering and the concurrent
placement. Unless otherwise indicated in the footnotes to the table, the
following individuals have sole vesting and sole investment control with respect
to the shares they beneficially own.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
---------------------------------------------
NUMBER OF SHARES BEFORE OFFERING AND AFTER OFFERING AND
BENEFICIAL OWNER BENEFICIALLY OWNED CONCURRENT PLACEMENT CONCURRENT PLACEMENT
- ---------------------------------------------- ------------------------- ----------------------- --------------------
<S> <C> <C> <C>
Scott P. Kurnit (1)........................... 1,537,597 18.4% 13.4%
Marc M. Watson (2)............................ 1,107,640 13.3 9.7
C-Max Capital Limited Partnership-I (3)....... 1,089,840 13.1 9.5
Dixon R. Doll (4)............................. 904,445 10.8 7.9
Open Text Corporation (5)..................... 885,201 10.6 7.7
Doll Funds (6)................................ 882,195 10.6 7.7
Zero Stage Capital Entities (7)............... 875,099 10.5 7.6
XL Ventures LLC (8)........................... 737,864 8.8 6.4
Kristopher A. Wood (9)........................ 737,864 8.8 6.4
Crystal Internet Venture Fund, L.P. (10)...... 716,839 8.6 6.3
Prospect Street NYC Discovery Fund, L.P.
(11)........................................ 638,975 7.7 5.6
William C. Day (12)........................... 135,742 1.6 1.2
Alan T. Wragg (13)............................ 69,769 * *
Ronald Unterman............................... 17,800 * *
Frank J. Biondi, Jr........................... 17,800 * *
All directors and executive officers as a
group (9 persons) (14)...................... 4,510,857 52.6 38.6
</TABLE>
- ------------------------
* Less than 1% of total.
(1) Includes 30,678 shares issuable upon the exercise of stock options. Does not
include 195,800 shares issuable upon the exercise of options that do not
vest within 60 days of February 8, 1999.
(2) Includes 1,089,840 shares beneficially owned by C-Max Capital Limited
Partnership-I. Mr. Watson is a director of C-Max Capital Corporation, the
general partner of C-Max Capital Limited Partnership-I. Mr. Watson disclaims
beneficial ownership of the shares held by C-Max Capital Limited
Partnership-I except to the extent of his pecuniary interest therein.
(3) The address of C-Max Capital Limited Partnership-I is 2950 SW 27th Avenue,
Suite 110, Miami, FL 33133.
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(4) Includes 22,250 shares held by the Dixon and Carol Doll Family Trust, of
which Mr. Doll is a beneficiary. Also includes:
- 804,082 shares beneficially owned by Doll Technology Investment Fund
- 47,310 shares beneficially owned by Doll Technology Affiliates Fund, L.P.
- 30,803 shares beneficially owned by Doll Technology Side Fund, L.P.
Mr. Doll is the managing member of Doll Technology Investment Management,
L.L.C., the general partner of each of these funds. Mr. Doll disclaims
beneficial ownership of the shares held by these funds except to the extent
of his pecuniary interest in each of them.
(5) Includes 8,900 shares issuable upon the exercise of warrants. The address of
Open Text Corporation is 185 Columbia Street West, Waterloo, Ontario, Canada
N2L 5Z5.
(6) Consists of:
- 804,082 shares held by Doll Technology Investment Fund
- 47,310 shares held by Doll Technology Affiliates Fund, L.P.
- 30,803 shares held by Doll Technology Side Fund, L.P.
The address of each of the foregoing entities is 3000 Sand Hill Road,
Building 3, Suite 210, Menlo Park, California 94025.
(7) Consists of:
- 692,534 shares held by Zero Stage Capital V Limited Partnership
- 182,565 shares held by Zero Stage Capital VI Limited Partnership
The address of each of the foregoing entities is 101 Main Street, 17th Floor,
Cambridge, Massachusetts 02142-1519.
(8) The address of XL Ventures LLC is 1105 North Market Street, Suite 1300,
Wilmington, DE 19801.
(9) Consists of 737,864 shares held by XL Ventures LLC. Mr. Wood is an employee
of its parent company, XL Ventures, Inc. Mr. Wood disclaims beneficial
ownership of these shares.
(10) The address of Crystal Internet Venture Fund, L.P. is 1120 Chester Avenue,
Suite 310, Cleveland, Ohio 44114.
(11) The address of Prospect Street NYC Discovery Fund, L.P. is 10 East 40th
Street, 44th Floor, New York, New York 10016.
(12) Includes 121,502 shares issuable upon the exercise of options. Does not
include 62,300 shares issuable upon the exercise of options which will
become exercisable upon the closing of this offering or 202,920 shares
issuable upon the exercise of options that do not vest within 60 days of
February 8, 1999.
(13) Consists of 69,769 shares issuable upon the exercise of options. Does not
include 53,400 shares issuable upon the exercise of options which will
become exercisable upon the closing of this offering or 24,920 shares
issuable upon the exercise of options that do not vest within 60 days of
Februay 8, 1999.
(14) Includes 225,509 shares issuable upon the exercise of stock options.
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<PAGE>
DESCRIPTION OF SECURITIES
The following descriptions of the common stock, the preferred stock and
provisions of MiningCo's certificate of incorporation reflect changes that will
occur upon the filing of an amended and restated certificate of incorporation
immediately following the closing of this offering. This document has been filed
with the SEC as an exhibit to MiningCo's registration statement, of which this
prospectus forms a part.
The authorized capital stock of MiningCo consists of 50,000,000 shares of
common stock, par value $.001 per share, and 5,000,000 shares of preferred
stock, par value $.001 per share.
COMMON STOCK
As of the date of this prospectus, there are 2,364,614 shares of common
stock outstanding and held of record by 59 stockholders. There will be
11,611,781 shares of common stock outstanding upon the closing of this offering
and the concurrent placement.
Holders of common stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders. Holders of a majority of the shares
of common stock entitled to vote in any election of directors may elect all of
the directors standing for election. Holders of common stock are entitled to
receive dividends, if, as, and when declared by the board of directors out of
funds legally available for such purposes, subject to any dividend preferences
of any outstanding preferred stock. Upon the liquidation, dissolution or winding
up of MiningCo, the holders of common stock are entitled to share ratably in the
assets of MiningCo available for distribution, subject to the preferential
rights of any outstanding preferred stock. Holders of the common stock have no
preemptive, subscription, redemption or conversion rights. Upon the closing of
this offering, there will be no shares of preferred stock outstanding. The
rights, preferences and privileges of holders of common stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of preferred stock that MiningCo may designate and issue in the future.
PREFERRED STOCK
As of the date of this prospectus, there are 17,246,122 shares of
convertible preferred stock outstanding. All outstanding shares of convertible
preferred stock will be converted into a total of 6,139,640 shares of common
stock upon the closing of this offering. After the closing, these shares of
convertible preferred stock will no longer be authorized, issued or outstanding.
Upon the closing of this offering, the board of directors will be
authorized, without further stockholder approval, to issue from time to time up
to an aggregate of 5,000,000 shares of preferred stock in one or more series.
The board of directors may fix or alter the designations, preferences, rights
and any qualifications, limitations or restrictions of the shares of each of
these series, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, redemption price or prices, liquidation
preferences and the number of shares constituting any series or designations of
these series. MiningCo has no present plans to issue any shares of preferred
stock. Please see "--Anti-Takeover Effects of Certain Provisions of Delaware Law
and MiningCo's Certificate of Incorporation and Bylaws."
OPTIONS
Options to purchase a total of 3,224,885 shares of common stock may be
granted under the stock option plan. As of the date of this prospectus, there
are outstanding under the stock option plan options to purchase a total of
2,219,965 shares of common stock, of which options to purchase 561,095 shares
are currently exercisable. Of the options to purchase 1,658,870 shares of common
stock that are not currently exercisable, the options to purchase 351,099 shares
of common stock originally granted under MiningCo's predecessor stock option
plan will immediately vest and become exercisable upon the
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<PAGE>
closing of this offering. In addition, as of the date of this prospectus, there
are outstanding options to purchase a total of 49,787 shares of common stock
which were not granted under the stock option plan, none of which are currently
exercisable. Since MiningCo intends to file a registration statement on Form S-8
as soon as practicable following the closing of this offering, any shares issued
upon exercise of these options will be immediately available for sale in the
public market, subject to the terms of lock-up agreements entered into between
substantially all of these optionholders and the underwriters. Please see
"Management--Amended and Restated 1998 Stock Option/Stock Issuance Plan" and
"Shares Eligible for Future Sale."
COMMON STOCK WARRANTS
As of the date of this prospectus, MiningCo has outstanding warrants to
purchase a total of 65,860 shares of common stock, at an average exercise price
of $9.80 per share. Of these warrants, the holders of warrants to purchase a
total of 30,260 shares of common stock have entered into lock-up agreements with
the underwriters. The warrants contain anti-dilution provisions providing for
adjustments of the exercise price and the number of shares of common stock
underlying the warrants upon the occurrence of any recapitalization,
reclassification, stock dividend, stock split, stock combination or similar
transaction. The warrants grant to their holders registration rights, described
below, with respect to the common stock issuable upon their exercise. Please see
"Shares Eligible for Future Sale."
REGISTRATION RIGHTS
Pursuant to the terms of the amended and restated investors' rights
agreement, after the closing of this offering and the concurrent placement the
holders of 6,779,276 shares of common stock will be entitled to demand that
MiningCo register their shares for resale under the Securities Act. The holders
of 50% or more of the shares of common stock to be issued upon the conversion of
each series of convertible preferred stock are entitled to demand that MiningCo
register their shares under the Securities Act, subject to certain limitations.
MiningCo is not required to effect more than one demand registration for each
group of holders. In addition, after the closing of this offering and the
concurrent placement, these holders and Comcast will be entitled to piggyback
registration rights with respect to the registration of shares of common stock
under the Securities Act. In the event that MiningCo proposes to register any
shares of common stock under the Securities Act, either for its account or for
the account of other security holders, the holders of shares having piggyback
rights are entitled to receive notice of that registration and are entitled to
include their shares in the registration, subject to limitations. Further, at
any time after MiningCo becomes eligible to file a registration statement on
Form S-3, the holders of 6,886,803 shares of common stock may require MiningCo
to file on two occasions Form S-3 registration statements under the Securities
Act with respect to their shares of common stock. These registration rights are
subject to conditions and limitations, among them the right of the underwriters
of an offering to limit the number of shares of common stock to be included in
the registration. MiningCo is generally required to bear all of the expenses of
these registrations, except underwriting discounts and selling commissions.
Registration of any of the shares of common stock held by security holders with
registration rights would result in those shares becoming freely tradable
without restriction under the Securities Act.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND MININGCO'S
CERTIFICATE OF INCORPORATION AND BYLAWS
MiningCo is subject to the provisions of Section 203 of the Delaware General
Corporation Law (as amended from time to time, the "DGCL"). Section 203 of the
DGCL generally prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained that status with the
approval of the board of directors or unless the business combination is
approved in a prescribed manner. A "business
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<PAGE>
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, fifteen percent (15%) or more
of a corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to MiningCo and, accordingly, may discourage attempts to acquire
MiningCo.
In addition, certain provisions of the certificate and MiningCo's bylaws,
which will be in effect upon the closing of this offering and which are
described in the following paragraphs, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders.
BOARD OF DIRECTORS VACANCIES. The certificate authorizes the board of
directors to fill vacant directorships or increase the size of the board of
directors. This may deter a stockholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
vacancies created by that removal with its own nominees.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. The certificate
provides that stockholders may not take action by written consent, but only at
duly called annual or special meetings of stockholders. The certificate further
provides that special meetings of stockholders of MiningCo may be called only by
the chairman of the board of directors or a majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must deliver a written notice
to the principal executive offices of MiningCo within a prescribed time period.
The bylaws also specify requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
directors at an annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to limitations imposed by the Nasdaq National
Market. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital,
acquisitions and employee benefit plans. The existence of authorized but
unissued and unreserved common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of MiningCo by means of a
proxy contest, tender offer, merger or otherwise.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The certificate provides that, except to the extent prohibited by the DGCL,
MiningCo's directors shall not be personally liable to MiningCo or its
stockholders for monetary damages for any breach of fiduciary duty as directors
of MiningCo. Under the DGCL, the directors have a fiduciary duty to MiningCo
that is not eliminated by this provision of the certificate and, in appropriate
circumstances, injunctions and other nonmonetary relief will remain available.
This provision also does not affect the directors' responsibilities under any
other laws, including the Federal securities laws or state or Federal
environmental laws.
Section 145 of the DGCL enables a corporation to indemnify its directors and
officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers. However, this provision does
not eliminate or limit the liability of a director:
- for any breach of the director's duty of loyalty to the corporation or its
stockholders,
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- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law,
- for payments of dividends or approval of stock repurchases or redemptions
that are prohibited by the DGCL or
- for any transaction from which the director derived an improper personal
benefit.
MiningCo's certificate provides that it may fully indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding (whether civil, criminal, administrative
or investigative) by reason of the fact that the person is or was a director or
officer of MiningCo or is or was serving at the request of MiningCo as a
director or officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by that person in connection with any threatened, pending or
completed action, suit or proceeding.
MiningCo intends to enter into indemnification agreements with its directors
and executive officers. MiningCo believes that the provisions of its certificate
and bylaws and these agreements are necessary to attract and retain qualified
directors and executive officers. MiningCo's bylaws also permit it to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions, regardless of whether the DGCL
would permit indemnification. MiningCo has obtained liability insurance for its
officers and directors.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent for which indemnification will be required
or permitted under the certificate. MiningCo is not aware of any threatened
litigation or proceeding that may result in a claim for indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock will be American Stock
Transfer & Trust Company, New York, New York.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the common
stock, and no prediction can be made as to the effect, if any, that market sales
of shares of common stock or the availability of shares of common stock for sale
will have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of common stock in the public market,
or the perception that such sales could occur, could adversely affect the market
price of the common stock and could impair MiningCo's future ability to raise
capital through the sale of its equity securities.
Upon the closing of this offering and the concurrent placement, MiningCo
will have an aggregate of 11,611,781 shares of common stock outstanding,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants. Of the outstanding shares, the 3,000,000
shares being sold in this offering will be freely tradable, except that any
shares held by "affiliates" of MiningCo may only be sold in compliance with the
limitations described below. The remaining 8,611,781 shares of common stock will
be deemed "restricted securities" that may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act. These rules are
summarized below.
Subject to the lock-up agreements described below and the provisions of
Rules 144, 144(k) and 701, additional shares will be available for sale in the
public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ------------------ -------------------------------------------------------------------------
<C> <S>
3,128 After the date of this prospectus
24,442 Upon the filing of a registration statement to register for resale shares
of common stock issuable upon the exercise of options granted under
MiningCo's stock option plan
5,075,537 After 180 days from the date of this prospectus (subject, in some cases,
to volume limitations)
3,508,674 At various times after 180 days from the date of this prospectus
</TABLE>
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of common stock (approximately 116,118 shares immediately
after this offering and the concurrent placement) or (ii) the average weekly
trading volume in the common stock during the four calendar weeks preceding the
date on which notice of that sale is filed, subject to restrictions. In
addition, a person who is not deemed to have been an affiliate of MiningCo at
any time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years is entitled to sell those
shares under Rule 144(k) without regard to the requirements described above. To
the extent that shares are acquired from an affiliate of MiningCo, the acquiring
person's holding period for the purpose of effecting a sale under Rule 144
commences on the date of transfer from the affiliate.
As of the date of this prospectus, options to purchase a total of 2,269,752
shares of common stock are outstanding, of which options to purchase 561,095
shares are currently exercisable. Of the options to purchase 1,708,657 shares of
common stock that are not currently exercisable, options to purchase 351,099
shares of common stock shall immediately vest and become exercisable upon the
closing of this offering. Upon the commencement of this offering, MiningCo
intends to file a registration statement to register for resale the 3,224,885
shares of common stock reserved for issuance under the stock option plan and the
125,000 shares of common stock authorized for issuance under the purchase plan.
That
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<PAGE>
registration statement will automatically become effective upon filing.
Accordingly, shares issued upon the exercise of stock options granted under the
stock option plan will be eligible for resale in the public market from time to
time, subject to vesting restrictions and, in the case of some of the options
the lock-up agreements referred to below. Upon the closing of this offering,
65,860 shares of common stock will be issuable upon the exercise of outstanding
warrants.
MiningCo has granted fully vested, non-qualified stock options to purchase
200,000 shares of common stock to a substantial majority of its guides. The
exercise price per share of these options is $25.00.
MiningCo's directors and officers and stockholders who hold 8,473,569 shares
in the aggregate, together with the holders of options to purchase 2,217,740
shares of common stock and the holders of warrants to purchase 30,260 shares of
common stock, have agreed that they will not sell, directly or indirectly, any
shares of common stock without the prior written consent of Bear, Stearns & Co.
Inc. for a period of 180 days from the date of this prospectus. Please see
"Underwriting."
MiningCo has agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of the prospectus, except
MiningCo may issue, and grant options to purchase, shares of common stock under
the stock option plan and the purchase plan. In addition, MiningCo may issue
shares of common stock in connection with any acquisition of another company if
the terms of that issuance provide that the common stock shall not be resold
prior to the expiration of the 180-day period referenced in the preceding
sentence.
Following this offering, some holders of shares of common stock will have
rights to have their shares of common stock registered for resale under the
Securities Act. Please see "Description of Securities--Registration Rights."
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among the underwriters and MiningCo, each of the underwriters named below, for
whom Bear, Stearns & Co. Inc., Volpe Brown Whelan & Company, LLC and Wit Capital
Corporation as e-Manager-TM- are acting as representatives, has severally agreed
to purchase from MiningCo the aggregate number of shares of common stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Bear, Stearns & Co. Inc.............................................................................. 1,152,000
Volpe Brown Whelan & Company, LLC.................................................................... 768,000
Wit Capital Corporation.............................................................................. 60,000
BancBoston Robertson Stephens Inc.................................................................... 60,000
BT Alex.Brown Incorporated........................................................................... 60,000
Goldman, Sachs & Co.................................................................................. 60,000
Hambrecht & Quist LLC................................................................................ 60,000
ING Baring Furman Selz LLC........................................................................... 60,000
Lazard Freres & Co. LLC.............................................................................. 60,000
Lehman Brothers Inc.................................................................................. 60,000
Morgan Stanley & Co. Incorporated.................................................................... 60,000
PaineWebber Incorporated............................................................................. 60,000
Salomon Smith Barney Inc............................................................................. 60,000
SG Cowen Securities Corporation...................................................................... 60,000
Brean Murray & Co., Inc.............................................................................. 30,000
Burnham Securities Inc............................................................................... 30,000
Chatsworth Securities LLC............................................................................ 30,000
E*trade Securities................................................................................... 30,000
Friedman, Billings, Ramsey & Co., Inc................................................................ 30,000
Gaines, Berland Inc.................................................................................. 30,000
Jefferies & Company.................................................................................. 30,000
Jesup & Lamont Securities Corporation................................................................ 30,000
Ladenburg, Thalmann & Co. Inc........................................................................ 30,000
Needham & Company, Inc............................................................................... 30,000
Sanders Morris Mundy Inc............................................................................. 30,000
C.E. Unterberg, Towbin............................................................................... 30,000
----------
Total............................................................................................ 3,000,000
----------
----------
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to approval of certain legal matters by counsel and to various other
conditions. The nature of the underwriters' obligations is that they are
committed to purchase and pay for all of the above shares of common stock if any
are purchased. This offering and the concurrent placement are contingent on each
other.
The underwriters propose to offer the shares of common stock directly to the
public at the "initial public offering price" set forth on the cover page of
this prospectus and at that price less a concession not in excess of $1.05 per
share of common stock to certain other dealers who are members of the National
Association of Securities Dealers, Inc. The underwriters may allow, and those
dealers may reallow, concessions not in excess of $0.10 per share of common
stock to certain other dealers. After this offering, this offering price,
concessions and other selling terms may be changed by the underwriters.
MiningCo has granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of 450,000 additional shares of common stock of
MiningCo at the "initial public offering
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<PAGE>
price" less the "underwriting discounts", each as set forth on the cover page of
this prospectus. If the underwriters exercise this option in whole or in part,
then each of the underwriters will be severally committed, subject to certain
conditions, including the approval of certain matters by counsel, to purchase
the additional shares of common stock in proportion to their respective purchase
commitments as indicated in the preceding table.
The underwriters, at the request of MiningCo, have reserved for sale at the
initial public offering price up to 305,000 of the shares of common stock to be
sold in this offering for sale to employees and directors of MiningCo and other
persons designated by MiningCo. The number of shares available for sale to the
general public will be reduced to the extent that any reserved shares are
purchased. Any reserved shares not so purchased will be offered by the
underwriters on the same basis as the other shares offered hereby.
Wit Capital is making a prospectus in electronic format available on its
Internet web site. All dealers purchasing shares from Wit Capital in this
offering have also agreed to make a prospectus in electronic format available on
web sites maintained by each of the dealers. Other than the prospectus in
electronic format, the information on such web sites is not part of this
prospectus or the registration statement of which this prospectus forms a part,
has not been approved and/or endorsed by MiningCo or any underwriter in such
capacity and should not be relied on by prospective investors.
The underwriters do not expect to confirm sales of common stock to any
accounts over which they exercise discretionary authority.
The underwriting agreement provides that MiningCo will indemnify the
underwriters against certain liabilities under the Securities Act of 1933, as
amended, or will contribute to payments that the underwriters may be required to
make in respect thereof.
MiningCo's directors and officers and stockholders who hold 8,473,569 shares
in the aggregate, together with the holders of options to purchase 2,217,740
shares of common stock and the holders of warrants to purchase 30,260 shares of
common stock, have agreed that they will not sell, directly or indirectly, any
shares of common stock without the prior written consent of Bear, Stearns & Co.
Inc. for a period of 180 days from the date of this prospectus. However, Bear,
Stearns & Co. Inc. may, in its sole discretion and at any time or from time to
time, without notice to MiningCo's stockholders or to Nasdaq, release all or any
portion of the securities subject to lock-up agreements.
In addition, MiningCo has agreed that for a period of 180 days after the
date of this prospectus it will not, without the prior written consent of Bear,
Stearns & Co. Inc., offer, sell or otherwise dispose of any shares of common
stock except for the shares of common stock offered by this prospectus and in
the concurrent placement, the shares of common stock issuable upon exercise of
outstanding warrants and the shares issued and options granted pursuant to
MiningCo's stock option plan and purchase plan.
Prior to this offering, there has been no public market for the common stock
of MiningCo. Consequently, the initial offering price for the common stock was
determined by negotiations between MiningCo and the representatives of the
underwriters. Among the factors considered in those negotiations were:
- the results of operations of MiningCo in recent periods;
- estimates of the prospects of MiningCo and the industry in which MiningCo
competes;
- an assessment of MiningCo's management;
- the general state of the securities markets at the time of this offering;
and
- the prices of similar securities of generally comparable companies.
MiningCo's common stock has been approved for quotation on the Nasdaq National
Market under the symbol MINE. There can be no assurance, however, that an active
or orderly trading market will develop for the common stock or that the common
stock will trade in the public markets subsequent to this offering at or above
the initial offering price.
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In order to facilitate this offering, persons participating in this offering
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock during and after this offering, including
over-allotment, stabilizing and short-covering transactions and the impositions
of penalty bids. Persons participating in this offering may also engage in
passive market making transactions in the common stock on the Nasdaq National
Market. Specifically, the underwriters may over-allot or otherwise create a
short position in the common stock for their own account by selling more shares
of common stock than have been sold to them by MiningCo. The underwriters may
elect to cover this short position by purchasing shares of common stock in the
open market or by exercising the over-allotment option granted to the
underwriters. In addition, the underwriters may stabilize or maintain the price
of the common stock by bidding for or purchasing shares of common stock in the
open market and may impose penalty bids, under which selling concessions allowed
to syndicate members or other broker-dealers participating in this offering are
reclaimed if shares of common stock previously distributed in this offering are
repurchased in connection with stabilization transactions or otherwise. The
effect of these transactions may be to stabilize or maintain the market price at
a level above that which might otherwise prevail in the open market. The
imposition of a penalty bid may also affect the price of the common stock to the
extent that it discourages resales. No representation is made as to the
magnitude or effect of this stabilization or other transactions. These
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
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LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for MiningCo by Brobeck, Phleger & Harrison LLP, New York, New
York, and for the underwriters by O'Sullivan Graev and Karabell, LLP, New York,
New York.
EXPERTS
The financial statements for MiningCo.com, Inc. as of December 31, 1997 and
1998 and for the period from June 27, 1996 (inception) to December 31, 1996 and
the years ended December 31, 1997 and 1998 included in this prospectus and
elsewhere in the registration statement have been so included in reliance on the
report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, upon the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
MiningCo has filed with the SEC a registration statement on Form S-1
(including exhibits, schedules and amendments) under the Securities Act with
respect to the shares of common stock to be sold in this offering. This
prospectus does not contain all the information set forth in the registration
statement. For further information with respect to MiningCo and the shares of
common stock to be sold in this offering, reference is made to the registration
statement. Statements contained in this prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
In each instance reference is made to the copy of that contract, agreement or
other document filed as an exhibit to the registration statement.
You may read and copy all or any portion of the registration statement or
any other information MiningCo files at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. MiningCo's SEC filings, including the registration statement,
are also available to you on the SEC's web site (http://www.sec.gov).
As a result of this offering, MiningCo will become subject to the
information and reporting requirements of the Securities Exchange Act, and, in
accordance with those requirements, will file periodic reports, proxy statements
and other information with the SEC. These reports, proxy and information
statements and other information may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
MiningCo intends to furnish its stockholders with annual reports containing
audited financial statements and with quarterly reports for the first three
quarters of each year containing unaudited interim financial information.
66
<PAGE>
MININGCO.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Independent Auditors' Report.............................................................................. F-2
Balance Sheets as of December 31, 1997 and 1998........................................................... F-3
Statements of Operations for the period from June 27, 1996 (inception) to December 31, 1996, and for the
years ended December 31, 1997 and 1998.................................................................. F-4
Statements of Stockholders' Deficit for the period from June 27, 1996 (inception) to December 31, 1996,
and for the years ended December 31, 1997 and 1998...................................................... F-5
Statements of Cash Flows for the period from June 27, 1996 (inception) to December 31, 1996, and for the
years ended December 31, 1997 and 1998.................................................................. F-6
Notes to Financial Statements............................................................................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
MiningCo.com, Inc.:
We have audited the accompanying balance sheets of MiningCo.com, Inc. as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' deficit and cash flows for the period from June 27, 1996
(inception) to December 31, 1996 and for the years ended December 31, 1997 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MiningCo.com, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the period from June 27, 1996 (inception) to December 31, 1996 and for the
years ended December 31, 1997 and 1998 in conformity with generally accepted
accounting principles.
/S/ KPMG LLP
New York, New York
January 20, 1999, except as to Note 2(m)
which is as of March 19, 1999
F-2
<PAGE>
MININGCO.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, (SEE NOTE
------------------------ 2(A))
1997 1998 DECEMBER 31,
----------- ----------- 1998
--------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 303,200 $10,644,300 $ 10,644,300
Accounts receivable, less allowance for doubtful accounts of $6,000 in 1997
and $146,000 in 1998........................................................... 118,300 917,300 917,300
Prepaid assets................................................................... -- 100,000 100,000
----------- ----------- --------------
Total current assets........................................................... 421,500 11,661,600 11,661,600
Property and equipment, net........................................................ 748,400 3,302,000 3,302,000
Debt issuance costs, net of amortization of $24,500 in 1997........................ 97,800 -- --
Deferred offering costs............................................................ -- 568,700 568,700
Deposits........................................................................... 89,400 125,400 125,400
----------- ----------- --------------
Total assets................................................................... $ 1,357,100 $15,657,700 $ 15,657,700
----------- ----------- --------------
----------- ----------- --------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Trade accounts payable and accrued expenses...................................... $ 1,257,300 $ 6,413,200 $ 6,413,200
Deferred compensation payable--related party..................................... 414,700 181,700 181,700
Guide fees payable............................................................... 157,300 462,400 462,400
Deferred revenue................................................................. 529,600 -- --
Convertible loans payable........................................................ 1,010,200 -- --
Current portion of notes payable................................................. -- 154,000 154,000
Current installments of obligations under capital leases......................... 150,000 219,000 219,000
----------- ----------- --------------
Total current liabilities...................................................... 3,519,100 7,430,300 7,430,300
Convertible notes payable, net of unamortized debt discount of $38,700 in 1997..... 4,851,000 -- --
Notes payable, excluding current portion........................................... 3,630,100 620,600 283,500
Deferred rent...................................................................... 49,600 47,700 47,700
Obligations under capital leases, excluding current installments................... 251,600 149,400 149,400
Redeemable convertible preferred stock, $0.001 par value;
Series A--3,346,715 shares authorized, issued and outstanding at December 31,
1998; liquidation preference of $1.50 per share plus unpaid dividends of 9%
per annum ($5,325,700 in the aggregate at December 31, 1998).................. -- 5,259,700 --
Series B--6,597,596 shares authorized, issued and outstanding at December 31,
1998; liquidation preference of $1.80 per share plus unpaid dividends of 9%
per annum ($12,602,100 in the aggregate at December 31, 1998)................. -- 12,448,300 --
Series C--8,717,949 shares authorized, 7,301,811 shares issued and outstanding
at December 31, 1998; liquidation preference of $1.95 per share plus unpaid
dividends of 9% per annum ($14,403,100 in the aggregate at December 31,
1998)......................................................................... -- 14,363,700 --
Stockholders' (deficit) equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized, no shares issued
and outstanding................................................................ -- -- --
Common stock, $0.001 par value; 50,000,000 shares authorized, 1,475,339 and
2,202,558 shares issued and outstanding at December 31, 1997 and 1998,
respectively, 8,342,198 issued and outstanding pro forma (unaudited)........... 1,500 2,200 8,300
Additional paid-in capital....................................................... 132,700 3,231,000 35,633,700
Deferred compensation............................................................ -- (1,238,900) (1,238,900)
Accumulated deficit.............................................................. (11,078,500) (26,656,300) (26,656,300)
----------- ----------- --------------
Total stockholders' (deficit) equity........................................... (10,944,300) (24,662,000) 7,746,800
----------- ----------- --------------
Commitments and contingencies
Total liabilities and stockholders deficit................................... $ 1,357,100 $15,657,700 $ 15,657,700
----------- ----------- --------------
----------- ----------- --------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
MININGCO.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27, 1996
(INCEPTION)
TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------
1996 1997 1998
------------- ------------- --------------
<S> <C> <C> <C>
Revenues............................................................ $ -- $ 390,600 $ 3,721,600
Cost of revenues.................................................... 90,800 1,882,900 4,028,500
------------- ------------- --------------
Gross profit (loss)........................................... (90,800) (1,492,300) (306,900)
Operating expenses:
Sales and marketing............................................... 240,900 1,678,300 7,724,500
General and administrative........................................ 1,100,900 2,414,400 3,677,900
Product development............................................... 948,000 2,756,200 2,731,500
Amortization of deferred compensation............................. -- -- 451,000
------------- ------------- --------------
Total operating expenses........................................ 2,289,800 6,848,900 14,584,900
------------- ------------- --------------
Loss from operations.......................................... (2,380,600) (8,341,200) (14,891,800)
Other income (expense):
Other income, net................................................. -- 349,800 --
Interest income................................................... 9,200 8,800 49,700
Interest expense, including $65,300 and $230,300 of amortization
of debt discount in 1997 and 1998 and $24,500 and $6,100 of debt
issuance costs in 1997 and 1998, respectively................... (66,700) (657,800) (735,700)
------------- ------------- --------------
Total other income (expense), net............................. (57,500) (299,200) (686,000)
------------- ------------- --------------
Net loss............................................................ (2,438,100) (8,640,400) (15,577,800)
Cumulative dividends and accretion of convertible preferred stock to
liquidation value................................................. -- -- (1,230,500)
------------- ------------- --------------
Net loss attributable to common stockholders.................. $ (2,438,100) $ (8,640,400) $ (16,808,300)
------------- ------------- --------------
------------- ------------- --------------
Basic and diluted net loss per common share......................... $ (1.20) $ (4.94) $ (9.71)
------------- ------------- --------------
------------- ------------- --------------
Weighted average shares outstanding used in basic and diluted net
loss per common share calculation................................. 2,035,144 1,748,850 1,731,598
------------- ------------- --------------
------------- ------------- --------------
Pro forma basic and diluted net loss per share...................... $ (1.98)
--------------
--------------
Weighted average shares outstanding used in pro forma basic and
diluted net loss per common share calculation..................... 7,871,238
--------------
--------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
MININGCO.COM, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT DEFICIT
---------- --------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock.............. 1,816,255 $ 1,800 $ 11,500 $ -- $ -- $ 13,300
Net loss for the period from June 27,
1996 (inception) to December 31,
1996................................ -- -- -- -- (2,438,100) (2,438,100)
---------- --------- ------------ ------------- -------------- --------------
Balance as of December 31, 1996....... 1,816,255 1,800 11,500 -- (2,438,100) (2,424,800)
Cancellation of common stock.......... (367,802) (300) 300 -- -- --
Issuance of warrants in connection
with debt transactions.............. -- -- 104,000 -- -- 104,000
Exercise of stock options............. 26,886 -- 13,600 -- -- 13,600
Issuance of stock options in lieu of
services............................ -- -- 3,300 -- -- 3,300
Net loss for the year ended December
31, 1997............................ -- -- -- -- (8,640,400) (8,640,400)
---------- --------- ------------ ------------- -------------- --------------
Balance as of December 31, 1997....... 1,475,339 1,500 132,700 -- (11,078,500) (10,944,300)
Issuance of warrants in connection
with debt transactions.............. -- -- 216,000 -- -- 216,000
Deferred compensation related to stock
options granted..................... -- -- 1,716,900 (1,716,900) -- --
Amortization of deferred
compensation........................ -- -- -- 478,000 -- 478,000
Common stock issued for stock
options............................. 87,583 100 77,100 -- -- 77,200
Issuance of common stock in connection
with the exercise of warrants....... 639,636 600 2,255,800 -- -- 2,256,400
Issuance of stock options and warrants
in lieu of services rendered........ -- -- 63,000 -- -- 63,000
Cumulative dividends on convertible
preferred stock..................... -- -- (1,196,800) -- -- (1,196,800)
Accretion of convertible preferred
stock to liquidation value.......... -- -- (33,700) -- -- (33,700)
Net loss for the year ended December
31, 1998............................ -- -- -- -- (15,577,800) (15,577,800)
---------- --------- ------------ ------------- -------------- --------------
Balance as of December 31, 1998....... 2,202,558 $ 2,200 $ 3,231,000 $ (1,238,900) $ (26,656,300) $ (24,662,000)
---------- --------- ------------ ------------- -------------- --------------
---------- --------- ------------ ------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
MININGCO.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27,
1996
(INCEPTION) YEAR ENDED
TO DECEMBER 31,
DECEMBER 31, -----------------------
1996 1997 1998
------------ ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................................... $(2,438,100) $(8,640,400) $(15,577,800)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization of property and equipment.............. 29,400 213,400 567,600
Amortization of debt issuance costs.................................. -- 24,500 6,100
Amortization of debt discount........................................ -- 65,300 230,300
Amortization of deferred compensation expense........................ -- -- 478,000
Stock options and warrants issued in lieu of services rendered....... -- 3,300 63,000
Deferred rent........................................................ 39,100 10,500 (1,900)
Deferred compensation--related party................................. 151,300 263,400 67,000
Deferred interest on debt............................................ 66,100 558,300 401,700
Bad debt expense..................................................... -- 6,000 140,000
Changes in operating assets and liabilities:
Accounts receivable................................................ (300) (124,000) (939,000)
Prepaid assets..................................................... -- -- (100,000)
Deposits........................................................... (62,900) (26,500) (36,000)
Accounts payable and accrued expenses.............................. 301,600 955,700 5,155,900
Guide fees payable................................................. -- 157,300 305,100
Deferred revenue................................................... -- 529,600 (529,600)
------------ ---------- -----------
Net cash used in operating activities............................ (1,913,800) (6,003,600) (9,769,600)
------------ ---------- -----------
Cash flows from investing activities:
Capital expenditures................................................... (357,800) (148,000) (2,941,900)
------------ ---------- -----------
Net cash used in investing activities............................ (357,800) (148,000) (2,941,900)
------------ ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock................................. 13,300 -- --
Proceeds from issuance of common stock in connection with the exercise
of warrants.......................................................... -- -- 2,256,400
Proceeds from secured credit facility, net............................. -- -- 437,500
Proceeds from issuance of convertible preferred stock, net of expenses
of $184,900.......................................................... -- -- 18,181,700
Proceeds from issuance of loans payable................................ 3,905,600 5,000,000 2,881,000
Principal payments under capital lease obligations..................... -- (83,800) (212,500)
Proceeds from exercise of common stock options......................... -- 13,600 77,200
Deferred financing/offering costs...................................... -- (122,300) (568,700)
------------ ---------- -----------
Net cash provided by financing activities........................ 3,918,900 4,807,500 23,052,600
------------ ---------- -----------
Net increase (decrease) in cash and cash equivalents........... 1,647,300 (1,344,100) 10,341,100
Cash and cash equivalents at beginning of period......................... -- 1,647,300 303,200
------------ ---------- -----------
Cash and cash equivalents at end of period............................... $1,647,300 $ 303,200 $10,644,300
------------ ---------- -----------
------------ ---------- -----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
MININGCO.COM, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27,
1996
(INCEPTION) YEAR ENDED
TO DECEMBER 31,
DECEMBER 31, -----------------------
1996 1997 1998
------------ ---------- -----------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid.......................................................... $ 600 $ 8,100 $ 94,165
------------ ---------- -----------
------------ ---------- -----------
Noncash transactions:
Equipment acquired under capital leases................................ $ -- $ 485,400 $ 179,300
------------ ---------- -----------
------------ ---------- -----------
Barter transactions.................................................... $ -- $ 72,500 $ 365,700
------------ ---------- -----------
------------ ---------- -----------
Conversion of $4,950,000 of the convertible notes payable-Series A
notes together with $70,000 of interest thereon into 3,346,715 shares
of Series A preferred stock on April 23, 1998........................ $ -- $ -- $ 5,020,000
------------ ---------- -----------
------------ ---------- -----------
Conversion of $1,700,000 of the 8.25% notes payable together with
$305,800 of interest thereon into 1,114,327 shares of Series B
preferred stock on April 23, 1998.................................... $ -- $ -- $ 2,005,800
------------ ---------- -----------
------------ ---------- -----------
Conversion of $2,800,000 of the convertible notes payable-Series B
together with $69,800 of interest thereon into 1,594,380 shares of
Series B preferred stock on April 23, 1998........................... $ -- $ -- $ 2,869,800
------------ ---------- -----------
------------ ---------- -----------
Conversion of $1,555,600 of the 8.25% notes payable together with
$226,400 of interest thereon into 913,856 shares of Series C
preferred on November 13, 1998....................................... $ -- $ -- $ 1,782,000
------------ ---------- -----------
------------ ---------- -----------
Conversion of $1,081,000 of the convertible notes payable-Series C
together with $8,900 of interest thereon into 558,917 shares of
Series C preferred stock on November 13, 1998........................ $ -- $ -- $ 1,089,900
------------ ---------- -----------
------------ ---------- -----------
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(1) ORGANIZATION AND BUSINESS
MiningCo.com, Inc. ("MiningCo") was incorporated in New York on June 27,
1996 (inception) as General Internet Inc. and commenced operations on that date.
In December 1998, MiningCo reincorporated in Delaware. MiningCo's Internet
service, MININGCO.COM, is an Internet news, information and entertainment
service. MiningCo's network is comprised of numerous GuideSites, each of which
focuses on a particular topic and is managed by a human guide. The guides are
independent contractors who are compensated based on the greater of a monthly
guarantee or a percentage of advertising revenues generated by all of the
GuideSites. MiningCo's primary revenue source is the sale of advertising.
MiningCo's business is characterized by rapid technological change, new
product and service development and evolving industry standards. Inherent in the
Company's business are various risks and uncertainties, including its limited
operating history, uncertain profitability, history of losses, anticipated
continuing losses, the dependence on the Internet and risks associated with
Internet advertising.
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(A) INITIAL PUBLIC OFFERING, CONCURRENT PLACEMENT AND UNAUDITED PRO FORMA
BALANCE SHEET
In December 1998, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission ("SEC") that
would permit MiningCo to sell shares of MiningCo's common stock in connection
with a proposed initial public offering ("IPO").
On February 23, 1999, MiningCo and Comcast Interactive Investments, Inc.
("Comcast") entered into a common stock purchase agreement pursuant to which
MiningCo has agreed to sell Comcast up to $2,500,000 of common stock. Since
Comcast will purchase the shares directly from MiningCo in a private placement
transaction, the underwriters will not receive any discount or commission
relating to the sale of the shares. As a result, Comcast will purchase the
shares at a price of 93% of the initial public offering price per share. The
closing of the concurrent placement and the IPO are contingent on each other.
If the IPO is consummated under the terms presently anticipated, upon the
closing of the proposed IPO, each of the then outstanding shares of the
Company's convertible preferred stock will automatically convert into 0.356
shares of common stock (see note 10).
The accompanying pro forma balance sheet as of December 31, 1998 gives
effect to (a) the automatic conversion of 3,346,715, 6,597,596 and 7,301,811
shares of Series A, B and C convertible preferred stock, respectively,
representing all outstanding shares of convertible preferred stock, into
6,139,640 shares of common stock (see note 10) and (b) the automatic forgiveness
and cancellation of $337,100 in unsecured promissory notes payable (see note 8),
both upon the closing of the IPO.
(B) 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.
F-8
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(C) CASH AND CASH EQUIVALENTS
MiningCo considers all highly liquid securities with original maturities of
three months or less to be cash equivalents, which principally consist of money
market accounts.
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over three
years, which is the estimated useful life of the related assets. Leasehold
improvements are amortized over their estimated useful lives, or the term of the
related lease, whichever is shorter. Equipment under capital leases is stated at
the present value of minimum lease payments and is amortized using the
straight-line method over the shorter of the lease term or the estimated useful
life of the assets.
(E) DEBT ISSUANCE COSTS
Amortization of debt issuance costs is calculated on the straight-line
method over the life of the related debt instrument.
(F) IMPAIRMENT OF LONG-LIVED ASSETS
MiningCo reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to future net cash flows
expected to be generated by the assets. If the 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
impairment has occurred.
(G) INCOME TAXES
MiningCo accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in results of operations in
the period that includes the enactment date.
(H) REVENUE AND EXPENSE RECOGNITION
REVENUE RECOGNITION
To date, substantially all of MiningCo's revenues have been derived from the
sale of advertisements on MININGCO.COM. MiningCo offers numerous sizes and types
of advertising placement, including banner advertisements, button
advertisements, text links and sponsorship programs. Advertising revenues are
derived principally from short-term advertising contracts in which MiningCo
F-9
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
typically guarantees a minimum number of impressions to advertisers over a
specified period of time for a fixed fee. Revenues from advertising sales are
recognized ratably in the period in which the advertisement is displayed,
provided that no significant MiningCo obligations remain, at the lesser of the
ratio of impressions delivered over total guaranteed impressions or the straight
line basis over the term of the contract, and collection of the resulting
receivable is probable. Payments received from advertisers prior to displaying
their advertisements on MININGCO.COM are recorded as deferred revenue and are
recognized as revenue ratably as the advertisements are displayed. Pursuant to
its agreements with advertisers, MiningCo generally guarantees a minimum number
of impressions (times that an advertisement appears in pages viewed by the users
of MININGCO.COM) to be delivered over a specified period of time for a fixed
fee. To the extent minimum guaranteed impression levels are not met ratably over
the contract period, MiningCo defers recognition of the corresponding pro-rata
portion of the revenues relating to such unfulfilled obligations until the
guaranteed impression levels are achieved. When there is no guarantee of a
minimum number of impressions, MiningCo recognizes revenues in the period in
which the advertisement is displayed. MiningCo's short-term advertising
agreements are generally terminable by either party upon relatively short
notice. MiningCo's agreements with its electronic commerce partners are
typically longer in length, and in certain cases, entitle MiningCo to a share of
revenues generated by sales over a particular threshold resulting from direct
links from MININGCO.COM. To date, MiningCo has not recognized any revenues from
these revenue sharing agreements. MiningCo's revenue derived from these revenue
sharing agreements will be recognized by MiningCo upon notification from its
advertisers and electronic commerce partners of sales attributable to
MININGCO.COM.
A portion of MiningCo's revenues are from barter advertisements (agreements
whereby MiningCo trades advertisements on MININGCO.COM in exchange for
advertisements on third-party web sites). Barter advertising revenues and
expenses are recorded at the fair market value of services provided or received,
whichever is more determinable in the circumstances. Revenue from barter
advertising transactions is recognized as income when advertisements are
delivered on MININGCO.COM. Barter expense is recognized when MiningCo's
advertisements are run on third-party web sites, which is typically in the same
period when barter revenue is recognized. Barter expense is included as a
component of cost of revenues. Barter advertising revenues and expenses were $0,
$72,500 and $365,700 for the period from June 27, 1996 (inception) through
December 31, 1996 and for the years ended December 31, 1997 and 1998,
respectively.
At December 31, 1998, accounts receivable include approximately $417,300 of
unbilled receivables, $392,300 of which have been subsequently billed. Such
unbilled receivables represent the recognized sales value of short term
advertising contracts that were earned but not billable to customers at December
31, 1998. The terms of the related advertising contracts typically require
billing at the end of 30, 60 or 90 days from the signing of the contract.
EXPENSE RECOGNITION--GUIDE COMPENSATION
MiningCo's guides are compensated at an amount equal to the greater of a
monthly minimum guarantee or a percentage of net advertising revenues generated
by the entire GuideSite network, which is distributed among the guides based on
the user traffic on their respective GuideSites. Net advertising revenues has
been defined as total advertising revenues received less particular types of
F-10
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
non-cash revenues, third-party advertising sales representative organization
fees and marketing expenses. Guides are currently entitled to a percentage of
net transaction revenues and net syndication revenues. In addition, management
may distribute a semi-annual discretionary bonus to guides. Guide compensation
is included as a component of cost of revenues.
EXPENSE RECOGNITION--DISTRIBUTION AND SYNDICATION PARTNERSHIPS
MiningCo has entered into distribution and syndication partnership
agreements that drive traffic to MININGCO.COM. Through these partnerships,
MiningCo provides content to a partner's web site, and users can link to
MININGCO.COM by clicking on the content. MiningCo has agreements to provide
content to some of the leading Internet service providers, content web sites,
search engines/Internet directories and broadband cable-related sites. These
short term agreements typically require MiningCo to make payments, which are
expensed, that are either fixed or are based on the amount of user traffic
directed from the partner's site to MININGCO.COM. MiningCo's fixed fees are paid
on a monthly basis and contracts in which fees are paid in advance are deferred
and amortized over the contract term.
(I) PRODUCT DEVELOPMENT EXPENSES
Product development expenses include personnel and consulting costs
associated with the design, development and testing of MININGCO.COM and
MiningCo's systems and editorial personnel costs. MiningCo generally expenses
its product development expenses as incurred. Software development costs are
required to be capitalized when a product's technological feasibility has been
established by completion of a working model of the product. To date, completion
of a working model of MiningCo's service and general release have substantially
coincided. As a result, MiningCo has not capitalized any software development
costs since those costs have not been significant.
(J) ADVERTISING EXPENSES
MiningCo expenses the costs of advertising its service as incurred. These
costs amounted to $60,000, $510,900 and $5,262,800 for the period from June 27,
1996 (inception) through December 31, 1996 and for the years ended December 31,
1997 and 1998, respectively, and are included in sales and marketing in
MiningCo's statements of operations.
(K) STOCK-BASED COMPENSATION
MiningCo accounts for its employee stock option plans in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. Compensation
expense related to employee stock options is recorded only if, on the date of
grant, the fair value of the underlying stock exceeds the exercise price.
MiningCo adopted the disclosure-only requirements of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which allows entities to continue to apply the provisions of APB
Opinion No. 25 for transactions with employees and provide pro forma net income
and pro forma earnings per share disclosures for employee stock as if the
fair-value-based method of accounting in SFAS No. 123 had been applied to these
transactions.
F-11
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MiningCo accounts for non-employee stock-based awards in which goods or
services are the consideration received for the equity instruments issued based
on the fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measured.
(L) BASIC AND DILUTED NET LOSS PER COMMON SHARE
MiningCo adopted SFAS No. 128, "Computation of Earnings Per Share," during
the year ended December 31, 1997. In accordance with SFAS No. 128 and the SEC
Staff Accounting Bulletin No. 98, basic earnings per share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon the conversion of the 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, all options,
warrants or other potentially dilutive instruments issued for nominal
consideration, prior to the anticipated effective date of an initial public
offering (including the 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. As a result, MiningCo has included 218,890 shares of common
stock in the calculation of basic and diluted net loss per common share for all
periods presented which relate to certain investor warrants issued for nominal
consideration, all of which were exercised in December 1998 when MiningCo
exercised its right to call those warrants (see notes 8 and 10).
Diluted net loss per common share for the period from June 27, 1996
(inception) through December 31, 1996, the years ended December 31, 1997, and
1998, does not include the effects of options to purchase 0, 818,638, and
1,178,436 shares of common stock, respectively, 0, 427,003, and 68,708 common
stock warrants, respectively, or 0, 0 and 6,139,640 shares of convertible
preferred stock on an "as if" converted basis, respectively, as the effect of
their inclusion is anti-dilutive during each period.
The pro forma net loss per common share for the year ended December 31, 1998
is computed by dividing the net loss by the sum of the weighted average number
of shares of common stock outstanding and the shares resulting from the
automatic conversion of all of the outstanding convertible preferred stock into
6,139,640 shares of common stock, as if they had been outstanding for the entire
year ended December 31, 1998.
(M) STOCK SPLIT
In August 1996, MiningCo authorized and implemented a 1-for-40,000 common
stock split. Accordingly, all share and per share information in the
accompanying financial statements has been retroactively restated to reflect the
effect of the stock split.
All common share and per share amounts in the accompanying financial
statements have been adjusted retroactively for a 1.00-for-2.809 reverse stock
split of MiningCo's common stock which was approved by the Board of Directors
and stockholders and effected on March 19, 1999.
F-12
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(N) DEFERRED OFFERING COSTS
At December 31, 1998, specific incremental costs directly attributable to
the IPO transaction have been deferred for an aggregate amount of $568,700.
(O) RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, MiningCo adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income", which establishes standards for reporting and
displaying comprehensive income and its components in a full set of general
purpose financial statements. The adoption of this standard has had no impact on
MiningCo's financial statements. Accordingly, MiningCo's comprehensive net loss
is equal to its net loss for all periods presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information", which establishes standards for the way
that a public enterprise reports information about operating segments in annual
financial statements, and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. In the initial
year of application, comparative information for earlier years must be restated.
MiningCo has determined that it does not have any separately reportable business
segments.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), which provides guidance
for determining whether computer software is internal-use software and on
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. MiningCo does not expect the adoption of
SOP 98-1 to have a material effect on its capitalization policy.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. This
statement is not expected to affect MiningCo as MiningCo currently does not
engage or plan to engage in derivative instruments or hedging activities.
(3) BUSINESS AND CREDIT CONCENTRATIONS
Financial instruments which subject MiningCo to concentrations of credit
risk consist primarily of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities. The carrying amounts of these
instruments approximate fair value. The carrying amount of MiningCo's capital
leases and other equipment financing obligations approximates the fair value of
these instruments based upon management's best estimate of interest rates which
are similar to the rates obtained in its January and February 1999 lease line of
credit (see note 13).
F-13
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(3) BUSINESS AND CREDIT CONCENTRATIONS (CONTINUED)
MiningCo maintains cash and cash equivalents with a domestic financial
institution. MiningCo performs periodic evaluations of the relative credit
standing of this institution. From time to time, MiningCo's cash balances with
this financial institution may exceed Federal Deposit Insurance Corporation
insurance limits.
MiningCo's customers are concentrated in the United States. MiningCo
performs ongoing credit evaluations, generally does not require collateral and
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of each customer, historical trends and other information; to
date, such amounts have been within management's expectations.
For the period from June 27, 1996 (inception) to December 31, 1996, there
were no customers that accounted for over 10% of total revenues generated by
MiningCo, or of gross accounts receivable at December 31, 1996.
For the year ended December 31, 1997, one customer accounted for
approximately 19% of total revenues generated by MiningCo. No customers
accounted for over 10% of gross accounts receivable at December 31, 1997. As of
December 31, 1997, MiningCo had receivables in excess of $10,000 from three
separate customers totaling approximately $43,000.
For the year ended December 31, 1998, one customer accounted for
approximately 12% of total revenues generated by MiningCo. This advertising
arrangement ended on December 31, 1998. For the year ended December 31, 1998, a
third-party Internet advertising sales representative organization accounted for
approximately 21% of MiningCo's total revenues and accounted for approximately
35% of gross accounts receivable at December 31, 1998, totaling approximately
$376,000.
In June 1997, MiningCo entered into a consulting agreement with a major
financial institution pursuant to which MiningCo agreed to provide consulting
assistance in connection with the development of micro communities for an
aggregate amount of $450,000. Fees in connection with this agreement have been
recognized as performance occurred under the terms of the agreement, net of any
expenses, and have been recorded as other income for the year ended December 31,
1997. In connection with this agreement, MiningCo issued the financial
institution a warrant to purchase 35,600 shares of common stock at $14.05 per
share with an expiration date of December 31, 1999. The fair value of the
warrants, using the Black-Scholes model based upon the following assumptions:
risk-free interest rate of 6%; dividend yield of 0%; expected life of 2.5 years;
and volatility of 0%, was deemed insignificant on the date of grant.
F-14
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- ------------
<S> <C> <C>
Equipment and computer hardware, including
assets under capital leases of $485,400
and $664,700, respectively....................................... $ 949,100 $ 4,062,200
Leasehold improvements............................................. 32,400 32,400
Furniture and fixtures............................................. 9,700 17,800
----------- ------------
991,200 4,112,400
Less accumulated depreciation and amortization, including assets
under capital leases of $64,500, and $239,900, respectively...... (242,800) (810,400)
----------- ------------
Total.............................................................. $ 748,400 $ 3,302,000
----------- ------------
----------- ------------
</TABLE>
(5) INCOME TAXES
No provision for US federal or state income taxes has been recorded for any
period as MiningCo has incurred operating losses since inception.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
MiningCo's deferred tax assets for federal and state income taxes are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1998
------------- --------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................. $ 4,887,000 $ 12,100,000
Allowance for doubtful accounts.............................. 1,000 67,000
Deferred compensation........................................ 191,000 84,000
Depreciation................................................. (14,000) (26,000)
Deferred rent................................................ 23,000 22,000
------------- --------------
5,088,000 12,247,000
------------- --------------
Less valuation allowance..................................... (5,088,000) (12,247,000)
------------- --------------
Deferred tax assets............................................ $ -- $ --
------------- --------------
------------- --------------
</TABLE>
Realization of deferred tax assets is dependent upon future earnings, if
any. MiningCo has recorded a full valuation allowance against its deferred tax
assets since management believes that it is not more likely than not that these
assets will be realized. No income tax benefit has been recorded for all periods
presented because of the valuation allowance.
F-15
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(5) INCOME TAXES (CONTINUED)
During the period from June 27, 1996 (inception) to December 31, 1996, the
years ended December 31, 1997 and 1998, the valuation allowance for the deferred
tax assets increased by $1,121,000, $3,967,000, and $7,159,000, respectively.
As of December 31, 1997 and 1998, MiningCo had net operating loss
carryforwards for federal income tax purposes of approximately $10.6 million and
$26.3 million, respectively. There can be no assurance that MiningCo will
realize the benefit of the net operating loss carryforwards. The federal net
operating loss carryforwards are available to offset future taxable income and
expire at various dates beginning in fiscal year 2011 through 2013 if not
utilized.
Due to the "change in ownership" provisions of the Internal Revenue Code,
the availability of MiningCo's net operating loss and credit carryforwards may
be subject to an annual limitation against taxable income in future periods,
which could substantially limit the eventual utilization of these carryforwards.
(6) RELATED PARTY TRANSACTIONS
At December 31, 1997, Mr. Scott P. Kurnit, MiningCo's President and Chief
Executive Officer and Chairman of the Board of Directors, elected to defer
compensation in the amount of $414,700, for accrued but unpaid salary and
bonuses. In January 1998, Mr. Kurnit converted $300,000 of that amount into a
convertible note payable (see note 8). During 1998, Mr. Kurnit elected to defer
an additional $67,000 of compensation, which at December 31, 1998 totaled
$181,700.
On April 20, 1998, MiningCo and a director of an investor in MiningCo
executed an advisory agreement, pursuant to which, the individual agreed to
provide consulting and advisory services to MiningCo including, but not limited
to, introducing MiningCo to members of the investment community and assisting
MiningCo with respect to financial and strategic matters. In consideration for
his services under the advisory agreement, the individual was issued a warrant
to purchase up to an aggregate of 21,360 shares of MiningCo's common stock, at
an exercise price of $5.06 per share. The warrant is exercisable at any time
during the 10-year period commencing on the date of the closing of a qualified
initial public offering (which would include the IPO). The fair value of the
warrants, using the Black-Scholes model and the following assumptions: (1)
risk-free interest rate of 6%, dividend yield of 0%, expected life of ten years,
and volatility of 0%, resulted in a compensation charge of $36,000 during 1998.
F-16
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(7) NOTES PAYABLE
8.25% NOTES PAYABLE
The following summarizes the 8.25% Notes Payable activity during 1997 and
1998:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST TOTAL
------------- ----------- -------------
<S> <C> <C> <C>
Balance at January 1, 1997......................... $ 3,905,600 $ 66,100 $ 3,971,700
Conversion into convertible note payable-- Series A
on August 27, 1997............................... (650,000) -- (650,000)
Accrued interest during 1997....................... -- 308,400 308,400
------------- ----------- -------------
Balance at December 31, 1997....................... 3,255,600 374,500 3,630,100
------------- ----------- -------------
Conversion into Series B preferred stock on April
23, 1998......................................... (1,700,000) (305,800) (2,005,800)
Accrued interest from January 1, 1998 through
November 13, 1998................................ -- 157,700 157,700
Conversion into Series C preferred stock on
November 13, 1998................................ (1,555,600) (226,400) (1,782,000)
------------- ----------- -------------
Balance at December 31, 1998....................... $ -- $ -- $ --
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
On October 17, 1996, MiningCo executed a secured 8.25% Promissory Note
("8.25% Note") in the original principal amount of $3,905,600. On August 27,
1997, the 8.25% Note was amended to, among other things, reduce the principal
amount outstanding thereunder to $3,255,600, reflecting a reduction of $650,000
which was converted into a convertible note payable. In connection with the
execution of the convertible note payable (see note 8), MiningCo issued warrants
to purchase 24,105 shares of MiningCo's common stock at an exercise price of
$4.21 per share. The fair value of the warrants, using a Black-Scholes model and
the following assumptions: risk-free interest rate of 5.7%, dividend yield of
0%, expected life of ten years and volatility of 0%, was deemed insignificant on
the date of grant.
On April 23, 1998, the 8.25% Note was amended again to, among other things,
(i) reduce the principal amount outstanding thereunder to $1,555,600, reflecting
a reduction of $1,700,000 which was simultaneously converted into 944,444 shares
of Series B convertible preferred stock ("Series B Preferred") (see notes 9 and
10), (ii) reduce the interest amount outstanding thereunder by $305,800, which
was simultaneously converted into 169,883 shares of Series B Preferred, and
(iii) provide that the remaining principal and interest would automatically
convert into shares of MiningCo's Series C convertible preferred stock ("Series
C Preferred") upon the closing of the next financing conducted by MiningCo if
the next sale of equity to new investors on or prior to March 31, 1999 was at a
price per share less than $3.00 per share (on a pre-split basis), otherwise the
note was due and payable on March 31, 1999. On November 13, 1998, MiningCo
issued 913,856 shares of MiningCo's Series C Preferred at $1.95 per preferred
share in consideration for the cancellation of the remaining $1,555,600 of
principal and $226,400 of interest outstanding under the 8.25% Note.
In January, June and July 1998, MiningCo issued to the holder of the 8.25%
Note warrants to purchase an additional 2,670, 2,111 and 4,119 shares of
MiningCo's common stock at an exercise price of $4.21 per share in consideration
for entering into a subordination agreement with another creditor
F-17
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(7) NOTES PAYABLE (CONTINUED)
of MiningCo. The value attributed to the warrants, using a Black-Scholes pricing
model and the following assumptions: risk-free interest rate of 6.0%, dividend
yield of 0%, expected life of ten years and volatility of 0%, was $18,000 in the
aggregate, based upon the respective grant dates, which was recorded as
additional interest expense in 1998.
NOTES PAYABLE--CREDIT FACILITY
During January 1998, MiningCo entered into an asset backed credit facility
with Phoenix Leasing Incorporated ("Phoenix") which was funded as MiningCo
pledged fixed assets as security to Phoenix. During the year ended December 31,
1998, MiningCo received a total loan of $507,700 and pledged $507,700 of fixed
assets as security. The effective interest rate of the credit facility is 18%.
As of December 31, 1998, the balance outstanding was $437,500 of which $154,000
is due in 1999, $157,000 in 2000 and $126,500 in 2001.
(8) CONVERTIBLE NOTES PAYABLE--SERIES A NOTES
The following summarizes the Convertible Notes Payable--Series A Notes
activity during 1997 and 1998:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST TOTAL
------------- ----------- -------------
<S> <C> <C> <C>
Balance at January 1, 1997......................... $ -- $ -- $ --
Issuance of notes between March 27, 1997 and
December 31, 1997................................ 4,000,000 -- 4,000,000
Conversion of $650,000 of the 8.25% notes payable
into a Series A convertible note on August 27,
1998............................................. 650,000 -- 650,000
Accrued interest during 1997....................... -- 239,700 239,700
------------- ----------- -------------
Balance at December 31, 1997....................... 4,650,000 239,700 4,889,700
------------- ----------- -------------
Conversion of $300,000 of Mr. Kurnit's deferred
compensation into Series A convertible note...... 300,000 -- 300,000
Interest accrued through April 23, 1998............ -- 154,800 154,800
Conversion into Series A preferred stock on April
23, 1998......................................... (4,950,000) (70,000) (5,020,000)
Conversion of remaining accrued interest into a
newly issued unsecured promissory note on April
23, 1998......................................... -- (324,500) (324,500)
------------- ----------- -------------
Balance at December 31, 1998....................... $ -- $ -- $ --
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
Between March 27, 1997 and January 15, 1998, MiningCo issued several secured
subordinated notes, which converted into Series A Notes ("Series A Notes"), for
an aggregate principal amount of $4,950,000, which amount included (i) the
conversion of $650,000 from the 8.25% Notes and (ii) the conversion of $300,000
of deferred compensation owed to Mr. Kurnit. These notes bore interest at a
variable rate equal to the prime rate plus two percent per annum. At December
31, 1997, prime rate
F-18
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(8) CONVERTIBLE NOTES PAYABLE--SERIES A NOTES (CONTINUED)
plus 2% was 10.5%. Pursuant to their terms, the principal due on the Series A
Notes were automatically convertible into shares of MiningCo's common stock or
convertible preferred stock upon the closing of the next equity financing
conducted by MiningCo. The conversion price for these notes, as provided for in
the original note agreement, was $1.50 per preferred share.
In connection with the issuance of this debt, MiningCo issued warrants to
purchase 218,890 shares of MiningCo's common stock at an exercise price of $0.03
per share and 90,858 shares of MiningCo's common shares at an exercise price of
$4.21 per share (which includes warrants to purchase 24,105 shares relating to
the conversion of $650,000 from the 8.25% Notes), all of which expire ten years
from their date of issuance; provided that, under certain circumstances,
MiningCo could cancel the warrants after providing the holders thereof a
reasonable period of time to exercise the warrants prior to their cancellation.
The value attributed to the warrants was $106,000 for warrants issued with an
exercise price of $0.03 and $31,000 for warrants issued with an exercise price
of $4.21 per share. These values were estimated, using a Black-Scholes pricing
model, based on the following assumptions: risk-free interest rate of 6.0%,
dividend yield of 0%, expected life of 10 years and volatility of 0%. These
amounts were recorded as an original issue debt discount and amortized to
interest expense over the life of the loans. In December 1998, MiningCo
exercised its right to call certain investor warrants which resulted in the
issuance of 218,890 shares of common stock at $0.03 per share and 66,753 shares
of common stock at $4.21 per share for net cash proceeds of approximately
$287,600. The remaining 24,105 warrants with an exercise price of $4.21 per
share were cancelled.
On April 23, 1998, MiningCo issued an aggregate of 3,346,715 shares of
Series A Preferred, at a purchase price of $1.50 per preferred share, to holders
of the Series A Notes, in consideration for the cancellation of all principal
owed under the Series A Notes and $70,000 of interest accrued under the Series A
Notes prior to August 12, 1997. All remaining interest under the Series A Notes
up through April 23, 1998 was evidenced by newly issued unsecured promissory
notes of MiningCo which amounted to $337,100 as of December 31, 1998. The notes
bear interest at 6% and have no due date. In accordance with the terms of the
note upon the closing of a qualified initial public offering (including the
IPO), all amounts due under these unsecured promissory notes will automatically,
by its original terms, be forgiven and canceled. Accordingly, such amount shall
be recorded as a contribution to additional paid in capital upon the closing of
the IPO.
The following summarizes the unsecured promissory notes activity during
1998:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST TOTAL
---------- --------- ----------
<S> <C> <C> <C>
Balance at January 1, 1998................................. $ -- $ -- $ --
Conversion of remaining accrued interest on Series A notes
into a newly issued unsecured promissory note on April
23, 1998................................................. 324,500 -- 324,500
Accrued interest during 1998............................... -- 12,600 12,600
---------- --------- ----------
Balance at December 31, 1998............................... $ 324,500 $ 12,600 $ 337,100
---------- --------- ----------
---------- --------- ----------
</TABLE>
F-19
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(9) CONVERTIBLE LOAN PAYABLE--SERIES B NOTES
The following summarizes the Convertible Loans Payable--Series B Notes
activity during 1997 and 1998:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST TOTAL
------------- ---------- -------------
<S> <C> <C> <C>
Balance at January 1, 1997.......................... $ -- $ -- $ --
Issuance of Series B notes on November 26, 1997..... 1,000,000 -- 1,000,000
Accrued interest during 1997........................ -- 10,200 10,200
------------- ---------- -------------
Balance at December 31, 1997........................ 1,000,000 10,200 1,010,200
------------- ---------- -------------
Issuance of Series B notes in February 1998......... 1,800,000 -- 1,800,000
Accrued interest through April 23, 1998............. -- 59,600 59,600
Conversion of the Series B notes and accrued
interest thereon into Series B preferred stock on
April 23, 1998.................................... (2,800,000) (69,800) (2,869,800)
------------- ---------- -------------
Balance at December 31, 1998........................ $ -- $ -- $ --
------------- ---------- -------------
------------- ---------- -------------
</TABLE>
Between November 1997 and February 1998, MiningCo issued several secured
subordinated notes ("Series B Notes") for an aggregate principal amount of
$2,800,000, of which $1,000,000 bore interest at a variable rate equal to the
prime rate plus two percent per annum and $1,800,000 bore interest at 10%
percent per annum and were due on demand. At December 31, 1997, prime rate plus
2% was 10.5%. Pursuant to their terms, the Series B Notes were automatically
convertible into shares of MiningCo's Series B Preferred upon the closing of the
next equity financing conducted by MiningCo. The conversion price for these
notes, as provided for in the original note agreement, was $1.80 per preferred
share.
In connection with the issuance of this debt, MiningCo issued warrants to
purchase 250,192 shares of MiningCo's common stock at an exercise price of $5.06
per share, all of which expire ten years from their date of issuance; provided
that, under certain circumstances, MiningCo may cancel the warrants after
providing the holders thereof a reasonable period of time to exercise the
warrants prior to their cancellation. The fair value of the warrants, using the
Black-Scholes model and the following assumptions: risk-free interest rate of
6.0%, dividend yield of 0%, expected life of 10 years and volatility of 0%, was
$150,000 and recorded as additional interest expense. In December 1998, MiningCo
exercised its right to call certain investor warrants which resulted in the
issuance of 250,192 shares of common stock at $5.06 per share for net cash
proceeds of approximately $1,266,000.
On April 23, 1998, MiningCo issued 1,594,380 shares of Series B Preferred,
at a purchase price of $1.80 per share, to holders of the Series B Notes, in
consideration for the cancellation of all indebtedness of MiningCo under the
Series B Notes.
(10) CAPITALIZATION
AUTHORIZED SHARES
During 1996 and 1997, MiningCo amended and restated its certificate of
incorporation. As a result, at December 31, 1997, the total number of shares
which MiningCo was authorized to issue was
F-20
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(10) CAPITALIZATION (CONTINUED)
30,000,000; 26,500,000 of these shares were common stock, each having a par
value of $0.001; and 3,500,000 shares were preferred stock, each having a par
value of $0.001. During each of April 1998 and November 1998, MiningCo amended
and restated its certificate of incorporation. As a result, at December 31,
1998, the total number of shares which MiningCo was authorized to issue was
53,662,260; 35,000,000 of these shares were common stock, each having a par
value of $0.001; and 18,662,260 shares were preferred stock, each having a par
value of $0.001 of which 3,346,715, 6,597,596, and 8,717,949 have been
designated as Series A Preferred, Series B Preferred and Series C Preferred,
respectively (see note 13).
REDEEMABLE CONVERTIBLE PREFERRED STOCK
On April 23, 1998, MiningCo issued an aggregate of 3,346,715 shares of
Series A Preferred, at a purchase price of $1.50 per share, to holders of the
Series A Notes, in consideration for the cancellation of all principal owed
under the Series A Notes, amounting to $4,950,000, and $70,000 of interest
accrued under the Series A Notes prior to August 12, 1997. All remaining
interest under the Series A Notes up through April 23, 1998 was evidenced by
newly unsecured promissory notes of MiningCo which amounted to $337,100 as of
December 31, 1998 (see note 8).
On April 23, 1998, MiningCo issued an aggregate of 6,597,596 shares of
Series B Preferred, at a purchase price of $1.80 per share, to (i) holders of
the Series B Notes in consideration for the cancellation of all indebtedness of
MiningCo under the Series B Notes, amounting to $2,869,900, (ii) the 8.25% Note
holder, in consideration for the cancellation of $1,700,000 in principal and
$305,800 in accrued interest, and (iii) $7,000,000 from other investors.
In connection with the issuance of the Series B Preferred, MiningCo issued
warrants to purchase 107,695 shares of MiningCo's common stock at an exercise
price of $7.02 per share, all of which expire ten years from their date of
issuance; provided that, under certain circumstances, MiningCo may cancel the
warrants after providing the holders with a reasonable period of time to
exercise the warrants prior to their cancellation. In December 1998, MiningCo
exercised its right to call certain investor warrants which resulted in the
issuance of 103,801 shares of common stock at $7.02 per share for net cash
proceeds of approximately $702,800. The warrant for the remaining 3,894 shares
was cancelled.
On October 5, 1998, MiningCo delivered a number of convertible promissory
notes ("Series C Notes") in the aggregate principal amount of $1,081,000.
Pursuant to their terms, the Series C Notes were automatically convertible into
shares of MiningCo's Series C Convertible Preferred Stock ("Series C
Preferred"), at a conversion price equal to the lesser of $3.60 per share of
Series C Preferred or the purchase price per share of the Series C Preferred,
upon the closing of the next equity financing conducted by MiningCo. The
conversion price for the notes was $1.95 per preferred share which was the
highest price paid for the Company's preferred stock during such time period.
On November 13, 1998 and December 4, 1998, MiningCo issued an aggregate of
7,301,811 shares of Series C Preferred, at a purchase price of $1.95 per share,
to (i) holders of the Series C Notes in consideration for the cancellation of
all indebtedness of MiningCo under the Series C Notes, amounting to $1,089,900
(ii) the holders of the Series C Notes in consideration for the payment of
$2,322,000, (iii) the 8.25% Note holder, in consideration for the cancellation
of $1,782,000 in principal and accrued
F-21
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(10) CAPITALIZATION (CONTINUED)
interest, and (iv) other investors in consideration for the payment of
$9,044,600, including $762,600 from existing stockholders pursuant to
participation rights granted to those stockholders.
The following summarizes the Convertible Notes Payable--Series C Notes
activity during 1998:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST TOTAL
------------- --------- -------------
<S> <C> <C> <C>
Balance at January 1, 1997........................... $ -- $ -- $ --
Issuance of notes on October 5, 1998................. 1,081,000 -- 1,081,000
Accrued interest through November 13, 1998........... -- 8,900 8,900
Conversion into Series C preferred stock on November
13, 1998........................................... (1,081,000) (8,900) (1,089,900)
------------- --------- -------------
Balance at December 31, 1998......................... $ -- $ -- $ --
------------- --------- -------------
------------- --------- -------------
</TABLE>
Each share of Series A Preferred, Series B Preferred and Series C Preferred
is entitled to a cumulative dividend at the rate of $0.135, $0.162, and $0.176
per share per annum, respectively, payable in preference and priority to any
payment of any cash dividend on common stock, when and as declared by the Board
of Directors of MiningCo. Upon the closing of a qualified initial public
offering (including the IPO), all cumulative dividends will be canceled. Each
holder of Series A Preferred, Series B Preferred and Series C Preferred shares
shall be entitled to the number of votes equal to the number of whole shares of
common stock into which the shares of preferred stock are convertible into on
the date of the vote.
Each share of Series A Preferred, Series B Preferred and Series C Preferred
is convertible into 0.356 shares of common stock, as adjusted for dilutive
issuances of stock and other securities. In the event of any liquidation or
dissolution of MiningCo, including certain mergers, consolidations and asset
sales, holders of the Series A Preferred, Series B Preferred and Series C
Preferred will receive a liquidation preference if the total proceeds of the
sale or liquidation are less than $60,000,000. Series A Preferred, Series B
Preferred and Series C Preferred stockholders first receive the purchase price
of their Series A Preferred, Series B Preferred and Series C Preferred shares,
as applicable, plus all accrued and/or declared but unpaid dividends, before
sharing the balance of the proceeds on an as-converted basis with common
stockholders. At the option of the stockholders, Series A Preferred, Series B
Preferred and Series C Preferred may be converted into shares of common stock;
however, those shares automatically convert into common shares in the event of a
qualified initial public offering (including the IPO) resulting in proceeds to
MiningCo of not less than $15 million and at an offering price per share equal
to at least $10.00 per common share. If the IPO is consummated under the terms
currently anticipated, upon the closing of the proposed IPO, 3,346,715,
6,597,596 and 7,301,811 shares
F-22
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(10) CAPITALIZATION (CONTINUED)
of Series A, B and C convertible preferred stock, respectively, representing all
of the outstanding shares of convertible preferred stock, shall automatically
convert into 6,139,640 shares of common stock.
<TABLE>
<CAPTION>
SERIES A SERIES B
------------------------- ---------------------------
<S> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- --------------
Balance at January 1, 1998................................................
Conversion of the $4,950,000 of the convertible notes payable Series A
together with $70,000 of interest thereon into Series A preferred stock
on April 23, 1998........................................................ 3,346,715 $ 5,020,000
Conversion of $1,700,000 of the 8.25% notes payable together with $305,800
of interest thereon into Series B preferred stock on April 23, 1998...... 1,114,327 $ 2,005,800
Conversion of $2,800,000 of the convertible notes payable-- Series B
together with $69,800 of interest thereon into Series B preferred stock
on April 23, 1998........................................................ 1,594,380 $ 2,869,800
Issuance of Series B preferred stock on April 23, 1998 in consideration of
cash proceeds of $7 million.............................................. 3,888,889 $ 7,000,000
Conversion of the remaining $1,555,600 of 8.25% notes payable together
with $226,400 of interest thereon into Series C preferred stock on
November 13, 1998........................................................
Conversion of $1,081,000 of the convertible notes payable-- Series C
together with $8,900 of interest thereon into Series C preferred stock on
November 13, 1998........................................................
Issuance of Series C preferred on November 13, and December 4, 1998 in
consideration of cash proceeds of $11.4 million..........................
----------- ------------ ----------- --------------
Balance at December 31, 1998.............................................. 3,346,715 $ 5,020,000 6,597,596 $ 11,875,600
----------- ------------ ----------- --------------
----------- ------------ ----------- --------------
<CAPTION>
SERIES C
---------------------------
<S> <C> <C>
SHARES AMOUNT
----------- --------------
Balance at January 1, 1998................................................
Conversion of the $4,950,000 of the convertible notes payable Series A
together with $70,000 of interest thereon into Series A preferred stock
on April 23, 1998........................................................
Conversion of $1,700,000 of the 8.25% notes payable together with $305,800
of interest thereon into Series B preferred stock on April 23, 1998......
Conversion of $2,800,000 of the convertible notes payable-- Series B
together with $69,800 of interest thereon into Series B preferred stock
on April 23, 1998........................................................
Issuance of Series B preferred stock on April 23, 1998 in consideration of
cash proceeds of $7 million..............................................
Conversion of the remaining $1,555,600 of 8.25% notes payable together
with $226,400 of interest thereon into Series C preferred stock on
November 13, 1998........................................................ 913,856 $ 1,782,000
Conversion of $1,081,000 of the convertible notes payable-- Series C
together with $8,900 of interest thereon into Series C preferred stock on
November 13, 1998........................................................ 558,917 $ 1,089,900
Issuance of Series C preferred on November 13, and December 4, 1998 in
consideration of cash proceeds of $11.4 million.......................... 5,829,038 $ 11,366,600
----------- --------------
Balance at December 31, 1998.............................................. 7,301,811 $ 14,238,500
----------- --------------
----------- --------------
</TABLE>
Upon request of Series A Preferred, Series B Preferred and Series C
Preferred stockholders on or after March 31, 2003, MiningCo may be required to
redeem Series A Preferred, Series B Preferred and Series C Preferred at an
amount equal to $1.50, $1.80 and $1.95 per share, respectively, plus all accrued
and/or declared but unpaid dividends.
<TABLE>
<CAPTION>
CARRYING 1998
# OF PRICE PER DIVIDEND TOTAL VALUE AT --------------------------
SHARES SHARE RATE CONSIDERATION ISSUANCE(1) ACCRETION DIVIDENDS
----------- ----------- --------- -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Series A.............. 3,346,715 $ 1.50 $ 0.135 $ 5,020,000 $ 4,943,900 $ 10,100 $ 305,700
Series B.............. 6,597,596 $ 1.80 $ 0.162 $ 11,875,600 $ 11,698,200 $ 23,600 $ 726,560
Series C.............. 7,301,811 $ 1.95 $ 0.176 $ 14,238,500 $ 14,199,100 -- $ 164,600
------------ ------------
$ 33,700 $ 1,196,800
------------ ------------
------------ ------------
<CAPTION>
BALANCE AT EQUIVALENT
DECEMBER 31, LIQUIDATION SHARES OF
1998 VALUE COMMON STOCK
-------------- -------------- --------------
<S> <C> <C> <C>
Series A.............. $ 5,259,700 $ 5,325,700 1,191,433
Series B.............. $ 12,448,300 $ 12,602,100 2,348,752
Series C.............. $ 14,363,700 $ 14,403,100 2,599,455
--------------
6,139,640
--------------
--------------
</TABLE>
- ------------------------------
(1) Includes offering related costs of $76,100, $177,460 and $39,400 for Series
A, B and C, respectively
COMMON STOCK
During 1996, MiningCo issued shares of common stock to its founders and
original employees at approximately $0.03 per share. MiningCo's right to
repurchase these shares in certain circumstances was to lapse over a period of
three years. During 1997, MiningCo's Board of Directors approved a
F-23
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(10) CAPITALIZATION (CONTINUED)
resolution to cancel these shares in exchange for incentive stock options.
Accordingly, on March 20, 1997, MiningCo canceled 367,802 common shares and
exchanged these shares on a one-for-one basis for participation in the 1997
Employee Stock Incentive Plan. These incentive stock options were granted with
an exercise price equal to their fair market value, or $0.51 per share, at the
date of grant as determined by an independent valuation.
WARRANTS
Warrant activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WARRANTS EXERCISE
GRANTED PRICE
---------- -----------
<S> <C> <C>
Outstanding at December 31, 1996....................................... -- $ --
Granted................................................................ 427,003 3.14
Exercised.............................................................. -- --
Canceled............................................................... -- --
----------
Outstanding at December 31, 1997....................................... 427,003 3.14
Granted................................................................ 309,340 5.60
Exercised.............................................................. (639,636) 3.53
Canceled............................................................... (27,999) 4.60
----------
Outstanding at December 31, 1998....................................... 68,708 9.66
----------
----------
</TABLE>
All warrants are exercisable and have expiration dates generally ten years
from the date of grant.
At December 31, 1998, there were 68,708 shares of common stock reserved for
issuance upon exercise of outstanding warrants at a weighted average exercise
price of $9.66 per share, of which 2,848 warrants in the aggregate with an
exercise price of $6.32 per share were exercised on January 11, 1999.
The weighted-average fair value of warrants granted during 1997 and 1998 was
$0.25 and $1.03, respectively, on the date of grant using a Black Scholes
pricing model with the following weighted-average assumptions for 1997 and 1998:
(i) risk-free interest rate-6.0% for both years; (ii) dividend yield-0.0% for
both years; and (iii) expected life-10 years for both years.
As of December 31, 1998, the following number of warrants to purchase common
stock remain outstanding: 8,900 shares at $4.21 per share; 21,360 shares at
$5.06 per share; 2,848 shares at $6.32 per share (which where exercised on
January 11, 1999); and 35,600 shares at $14.05 per share.
(11) STOCK OPTION PLAN
MiningCo's Board of Directors has authorized 996,800 shares at December 31,
1997 and 1,886,800 shares at December 31, 1998 of its common stock for issuance
pursuant to its 1998 Stock Option/Stock Issuance Plan (successor plan to
MiningCo's 1997 Employee Incentive Stock Option Plan). On February 5, 1999, the
Board of Directors and shareholders increased the authorized number of shares
authorized under the plan by 1,338,085 shares, effectively authorizing 3,224,885
in the aggregate. These
F-24
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(11) STOCK OPTION PLAN (CONTINUED)
options have ten year terms and have been issued at the fair market value of
MiningCo's common stock on the date of the applicable grant (except for certain
1998 options issued with exercise prices less than the deemed fair value at the
date of grant). Incentive options granted to stockholders who own more than 10%
of the outstanding stock of MiningCo must be issued at 110% of the fair market
value of the stock on the date that the options are granted.
Stock option activity under the Plan during the periods indicated is as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS GRANTED EXERCISE PRICE
--------------- -----------------
<S> <C> <C>
Options outstanding at December 31, 1996.................. --
Granted at $0.51.......................................... 871,343 $ 0.51
Granted at $0.56(1)....................................... 21,475 $ 0.56
Exercised................................................. (26,886) $ 0.51
Canceled.................................................. (97,081) $ 0.51
--------------- -----
Outstanding as of December 31, 1997....................... 768,851 $ 0.51
--------------- -----
Granted at $0.51.......................................... 146,759 $ 0.51
Granted at $0.56(1)....................................... 9,204 $ 0.56
Granted at $1.01.......................................... 237,879 $ 1.01
Granted at $2.81.......................................... 10,110 $ 2.81
Granted at $4.21.......................................... 81,969 $ 4.21
Exercised................................................. (87,583) $ 0.90
Canceled.................................................. (38,540) $ 0.64
--------------- -----
Outstanding as of December 31, 1998....................... 1,128,649 $ 0.87
--------------- -----
--------------- -----
Exercisable at December 31, 1997.......................... 244,123 $ 0.51
---------------
---------------
Exercisable at December 31, 1998.......................... 477,721 $ 0.55
---------------
---------------
Total options available as of December 31, 1997........... 201,063
---------------
---------------
Total options available as of December 31, 1998........... 643,682
---------------
---------------
</TABLE>
- ------------------------
(1) Represents options granted to stockholder owning more than 10% of the
outstanding stock of MiningCo.
The weighted-average remaining life of the 1,128,649 options outstanding at
December 31, 1998 is 8.75 years.
For the twelve months ended December 31, 1998, MiningCo recorded deferred
compensation expense of approximately $1,716,900, in connection with the grant
of certain options to employees and directors, representing the difference
between the deemed fair value of MiningCo's common stock at the date of grant
for accounting purposes and the exercise price of the related options. This
amount is presented as a reduction of stockholders equity (deficit) and
amortized over the vesting period, typically four years, of the applicable
options. MiningCo granted approximately 485,921 options at a weighted average
exercise price of $1.43 per share; all of which were granted at less than the
deemed fair value
F-25
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(11) STOCK OPTION PLAN (CONTINUED)
at the date of grant. MiningCo has amortized $478,000 of deferred compensation
for the year ended December 31, 1998 of which $27,000 has been included in cost
of revenues. MiningCo expects to amortize the following amounts of deferred
compensation annually: 1999--$332,000; 2000--$332,000; 2001--$332,000; and
2002--$242,900. However, $89,000 of the deferred compensation will amortize upon
the closing of a qualified initial public offering (including the IPO) as a
result of an automatic acceleration clause contained within the original terms
of 361,332 options under the original option plan.
In September 1997, MiningCo recorded compensation expense of approximately
$3,300 in connection with options granted to consultants to purchase 49,787
shares of common stock at an exercise price of $0.51 per share. The fair value
of the options was determined using the Black-Scholes model and the following
assumptions: risk-free interest rate of 5.7%, dividend yield of 0%, expected
life of 10 years and volatility of 0%.
MiningCo also recorded compensation expense of approximately $23,000 in
connection with options granted to consultants under the Plan in December 1998
to purchase 5,340 shares of common stock at an exercise price of $4.21 per
share. The fair value of the options was determined using the Black-Scholes
model and the following assumptions: risk-free interest rate of 6.0%, dividend
yield of 0%, and volatility of 0%.
Had MiningCo determined compensation expense based on the fair value on the
grant date for its stock options issued to employees under SFAS No. 123,
MiningCo's net loss would have been adjusted to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------
1997 1998
------------- --------------
<S> <C> <C>
Net loss attributable to common stockholders--as reported...... $ (8,640,400) $ (16,808,300)
------------- --------------
------------- --------------
Net loss attributable to common stockholders--pro forma per
SFAS No. 123................................................. $ (8,675,900) $ (17,007,500)
------------- --------------
------------- --------------
Basic and diluted net loss per common share--as reported....... $ (4.94) $ (9.71)
------------- --------------
------------- --------------
Basic and diluted net loss per common share--pro forma per SFAS
No. 123...................................................... $ (4.96) $ (9.82)
------------- --------------
------------- --------------
</TABLE>
The per share weighted-average fair value of stock options granted during
1997 and 1998 was $0.09 and $3.87, respectively, on the date of grant using the
Black Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1998: (i) risk-free interest rate--5.7% and 6%
respectively; (ii) dividend yield--0.0% for both years; and (iii) expected
life--3.4 and 4.4 years, respectively. As permitted under the provisions of SFAS
No. 123, and based on the historical lack of a public market for MiningCo's
options, no factor for volatility has been reflected in the option pricing
calculation.
F-26
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(12) COMMITMENTS AND CONTINGENCIES
(A) LEASES
MiningCo leases certain facilities in New York and White Plains (Westchester
County) and equipment under non-cancelable operating leases. These leases
generally provide for rental increases at specified intervals. In addition,
MiningCo is a lessee, under several capital lease agreements with third parties
for certain equipment. Total rent expense for the years ended December 31, 1997
and December 31, 1998 was $320,900 and $320,600, respectively.
Future minimum lease payments under non-cancelable operating leases and
capital leases as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
- ---------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
1999.................................................................. $ 255,500 $ 284,700
2000.................................................................. 143,800 197,300
2001.................................................................. 18,400 --
---------- ----------
Total minimum lease payments.................................... 417,700 $ 482,000
----------
----------
Less amount representing interest (at rates ranging from 9.7% to
18.7%).............................................................. 49,300
----------
Present value of net minimum lease payments........................... 368,400
Less current installment of obligations under capital leases.......... 219,000
----------
Obligations under capital leases, excluding current installments...... $ 149,400
----------
----------
</TABLE>
(B) EMPLOYMENT AGREEMENTS
MiningCo has employment agreements with two senior employees which provide
for severance benefits, among other items. In the event these agreements are
terminated, MiningCo may be liable for severance up to $420,000 payable during
the year following that termination.
(13) SUBSEQUENT EVENTS--UNAUDITED
Effective upon the closing of the IPO, MiningCo will be authorized to issue
50,000,000 shares of common stock and 5,000,000 shares of undesignated preferred
stock.
During January 1999, MiningCo entered into employment arrangements with two
employees. The employment arrangements provide for minimum salary levels, and
incentive compensation and severance benefits, among other items. MiningCo
granted 133,500 options in the aggregate to the two employees. The exercise
price of the options is $4.21 per share. As a result, MiningCo expects to record
deferred compensation expense in the first quarter of 1999 relating to the
133,500 options for the difference between the deemed fair value of MiningCo's
common stock (the initial public offering price for accounting purposes) and the
exercise price of that option at the date of grant of $4.21 per share. This
amount will be presented as a reduction of stockholders' equity and amortized
over the four-year vesting period of the applicable options.
F-27
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(13) SUBSEQUENT EVENTS--UNAUDITED (CONTINUED)
In January and February 1999, MiningCo entered into a lease line of credit
for $781,300 to finance capital equipment, of which $232,200 is due in 1999,
$268,800 in 2000, $273,300 in 2001, and $7,000 in 2002. The effective interest
rate of the credit facility was 16%.
In February 1999, the Board adopted an Employee Stock Purchase Plan and
reserved 125,000 shares of common stock for issuance thereunder.
In February 1999, the Board of Directors authorized an increase in the
shares reserved for issuance under the Company's stock option plan from
1,886,800 to 3,224,885. In addition, in February and March 1999 a total of
922,734 additional options were granted at the IPO price.
F-28
<PAGE>
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