<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1999
REGISTRATION NO. 333-69881
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NUMBER 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
MININGCO.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7379 13-4034015
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
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220 EAST 42ND STREET, 24(TH) FLOOR
NEW YORK, NEW YORK 10017
(212) 849-2000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------------
MR. SCOTT P. KURNIT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MININGCO.COM, INC.
220 EAST 42ND STREET, 24(TH) FLOOR
NEW YORK, NEW YORK 10017
(212) 849-2000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------------
Copies to:
<TABLE>
<S> <C>
ALEXANDER D. LYNCH, ESQ. JULIE M. ALLEN, ESQ.
ALAN P. BLAUSTEIN, ESQ. O'SULLIVAN GRAEV & KARABELL, LLP
BROBECK, PHLEGER & HARRISON LLP 30 ROCKEFELLER PLAZA
1633 BROADWAY, 47(TH) FLOOR NEW YORK, NEW YORK 10112
NEW YORK, NEW YORK 10019 (212) 408-2400
(212) 581-1600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 25, 1999
PROSPECTUS
3,000,000 SHARES
[LOGO]
COMMON STOCK
---------------------
This is an initial public offering of our common stock. We are selling all of
the 3,000,000 shares offered under this prospectus. We anticipate that the
initial public offering price will be between $12.00 and $14.00 per share.
Up to 300,000 of the shares being offered may be reserved for sale to our
employees, directors and other persons we designate. See "Underwriting."
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.
------------------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
-------------------- --------------------
<S> <C> <C>
Public offering price................................................ $ $
Underwriting discounts and commissions............................... $ $
Concurrent placement price........................................... $ $
Total proceeds, before expenses, to us from this offering and the
concurrent placement............................................... $ $
</TABLE>
------------------------
The underwriters may purchase up to an additional 350,000 shares from us and up
to 100,000 shares from Mr. Scott P. Kurnit, our President and Chief Executive
Officer, at the initial public offering price less the underwriting discount.
------------------------
BEAR, STEARNS & CO. INC.
VOLPE BROWN WHELAN & COMPANY
WIT CAPITAL CORPORATION
AS E-MANAGER
The date of this Prospectus is , 1999.
<PAGE>
[PICTURES OF THE MININGCO.COM HOME PAGE AND
VARIOUS OTHER PAGES WITHIN MININGCO.COM]
<PAGE>
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.
------------------------
TABLE OF CONTENTS
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PAGE
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<S> <C>
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
<CAPTION>
PAGE
---------
<S> <C>
Business....................................... 27
Management..................................... 41
Certain Transactions........................... 51
Principal Stockholders......................... 55
Description of Securities...................... 57
Shares Eligible for Future Sale................ 61
Underwriting................................... 63
Legal Matters.................................. 65
Experts........................................ 65
Where You Can Find Additonal Information....... 65
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL (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-, 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
aggregates 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. Based on an independent report published by Media Metrix, Inc., 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. This amount is distributed among
the guides based on the user traffic on each guide's GuideSite.
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.
1
<PAGE>
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.
2
<PAGE>
THE OFFERING
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<S> <C>
Common Stock Offered in this Offering.............. 3,000,000 shares
Common Stock Offered in the Concurrent Placement... 206,783 shares
Common Stock Outstanding After this Offering and
the Concurrent Placement......................... 11,551,829 shares
Use of Proceeds.................................... We intend to use the net proceeds of
this offering to execute our business
plan. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol............. MINE
</TABLE>
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:
- 2,125,054 shares issuable upon the exercise of options outstanding at a
weighted average exercise price of $5.83 per share, of which 881,158 are
exercisable, and 1,035,154 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;
- Up to 200,000 guide options outstanding at an exercise price of $13.00 per
share, all of which are immediately exercisable; and
- 65,860 shares issuable upon the exercise of warrants outstanding at a
weighted average exercise price of $9.80 per share.
------------------------
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS:
- REFLECTS A 1.00 FOR 2.809 REVERSE STOCK SPLIT OF OUR COMMON STOCK THAT
WILL OCCUR BEFORE WE CLOSE THIS OFFERING AND 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 206,783 SHARES IN THE CONCURRENT PLACEMENT
- ASSUMES THAT THE UNDERWRITERS DO NOT EXERCISE THEIR OPTION TO PURCHASE
ADDITIONAL SHARES AFTER THE CLOSING OF THIS OFFERING AND THE CONCURRENT
PLACEMENT
------------------------
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.
3
<PAGE>
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."
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27, 1996
(INCEPTION) YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, ----------------------
1996 1997 1998
------------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues............................................................... $ -- $ 391 $ 3,722
Gross profit (loss).................................................... (91) (1,457) (267)
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
</TABLE>
The following table is a summary of our balance sheet data. The pro forma
column 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. 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. The
pro forma as adjusted column assumes an initial public offering price of $13.00
per share. Please see "Concurrent Placement," "Use of Proceeds" and
"Capitalization."
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ------------- --------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................ $ 10,644 $ 10,644 $ 48,014
Working capital...................................................... 4,231 4,231 41,601
Total assets......................................................... 15,658 15,658 53,028
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 45,117
</TABLE>
4
<PAGE>
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.
WE HAVE ONLY BEEN IN BUSINESS FOR A SHORT PERIOD OF TIME.
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.
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.
If our revenues do not increase substantially, we may never become profitable.
Even if we do achieve profitability, we may not sustain or increase
profitability on a quarterly or annual basis 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 $27.9 million. We expect to continue to lose money for
the foreseeable future because we plan to continue to incur significant
expenses.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE.
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 quarter-to-quarter comparisons of our results of operations
as an indication of future performance. 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 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.
Both user traffic on our website and our revenues are difficult to forecast
accurately. Our operating expenses are based on our expectations of our future
revenues and are relatively fixed in the
5
<PAGE>
short term. 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 NOT BE ABLE TO EXECUTE OUR BUSINESS PLAN IF INTERNET USAGE DOES NOT
GROW.
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 NOT BE ABLE TO EXECUTE OUR BUSINESS PLAN IF INTERNET ADVERTISING DOES
NOT INCREASE.
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. 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.
Advertisers that have traditionally relied upon other advertising media may
be reluctant to advertise on the Internet. These businesses may find Internet
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. 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 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.
6
<PAGE>
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 guaranteed impression levels are not met, we defer
recognition of the corresponding revenues until guaranteed impression levels are
achieved. 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.
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. Our revenues could be
adversely affected if we are unable to adapt to other Internet advertising
pricing models if they are adopted. 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.
WE MAY NOT BE ABLE TO ADAPT AS INTERNET TECHNOLOGIES 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."
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."
7
<PAGE>
THE DEVELOPMENT OF OUR BRAND IS ESSENTIAL TO OUR FUTURE SUCCESS.
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. If our brand marketing efforts are unsuccessful, our
business, financial condition and results of operations would be materially
adversely affected.
WE MUST INCREASE OUR INTERNAL ADVERTISING SALES FORCE TO SUPPORT OUR GROWTH.
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 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. 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.
We face intense competition for users and for advertisers' and electronic
commerce marketers' spending. 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. Competition could result in less user traffic to MINING.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 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);
- 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.
8
<PAGE>
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 DEPEND ON OUR NETWORK OF GUIDES FOR CONTENT.
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. 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 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 Interal
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 employees for tax or employee benefit
purposes or otherwise. Please see "Business--Government Regulation and Legal
Uncertainties."
WE DEPEND ON RELATIONSHIPS WITH THIRD PARTIES.
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. 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.
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
9
<PAGE>
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 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 March 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.
10
<PAGE>
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."
WE MAY REQUIRE ADDITIONAL FINANCING.
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. We
may, however, 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 senior 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. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
11
<PAGE>
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 38.3% of the common stock following this offering and the
concurrent placement. These stockholders will 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 STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE.
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 and the concurrent placement will suffer immediate and substantial
dilution of their investment. To the extent outstanding options to purchase
common stock are exercised, there will be further dilution. 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 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 data has been included in the studies published by the Internet market
research firms of International Data Corporation, Jupiter Communications, Media
Metrix, Inc. and @Plan. 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
Internet-related markets may not grow over the next three to four years at the
rates projected by International Data Corporation or Jupiter Communications, or
at all. 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 $37.4 million ($41.6 million if the underwriters'
over-allotment option is exercised in full), assuming an initial public offering
price of $13.00 per share.
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. MiningCo has not yet determined the
amount of net proceeds to be used specifically for each of the foregoing
purposes. Accordingly, management will have significant flexibility in applying
the net proceeds of 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 206,783 shares being sold in the
concurrent placement after deducting underwriting discounts and the
estimated offering costs payable by MiningCo, assuming an initial
public offering price of $13.00 per share.
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 $ 48,014
---------- ----------- -----------
---------- ----------- -----------
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 11,548,981 shares issued
and outstanding pro forma as adjusted (1)........................ 2 8 12
Additional paid-in capital........................................... 4,428 36,831 74,197
Deferred compensation................................................ (1,239) (1,239) (1,239)
Accumulated deficit.................................................. (27,853) (27,853) (27,853)
---------- ----------- -----------
Total stockholders' (deficit) equity............................... (24,662) 7,747 45,117
---------- ----------- -----------
Total capitalization............................................. $ 8,180 $ 8,180 $ 45,550
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
- ------------------------
(1) MiningCo expects that there will be 11,551,829 shares of common stock
outstanding after the offering and the concurrent placement. This number
includes, in addition to the adjustments described above, 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 $13.00 per share and the 206,783 shares
being sold in the concurrent placement at a price of $12.09 per share (93% of
$13.00), 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 $44,548,100, or $3.86 per share. This
represents an immediate increase in pro forma net tangible book value of $3.00
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $9.14 per share to investors purchasing shares in this
offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......................... $ 13.00
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.................................................... 3.00
---------
Pro forma net tangible book value per share after this offering and the
concurrent placement.................................................. 3.86
---------
Pro forma dilution per share to investors purchasing shares in this
offering.............................................................. $ 9.14
---------
---------
</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
- 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 72.2% $ 33,494,762 44.7% $ 4.02
Investor in the concurrent placement......... 206,783 1.8 2,500,006 3.3 12.09
New investors in this offering............... 3,000,000 26.0 39,000,000 52.0 13.00
------------ --------- ------------- --------- ------
Total.................................... 11,548,981 100% $ 74,994,768 100% $ 6.49
------------ --------- ------------- --------- ------
------------ --------- ------------- --------- ------
</TABLE>
None of the foregoing tables or calculations assume that any options or
warrants outstanding as of December 31, 1998 will be exercised. New investors in
this offering and in the concurrent placement will be further diluted to the
extent that these options or warrants are 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
$8.68 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 PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues................................................................. $ -- $ 391 $ 3,722
Cost of revenues......................................................... 91 1,848 3,989
------------- ---------- ----------
Gross profit (loss)...................................................... (91) (1,457) (267)
Operating expenses:
Sales and marketing.................................................... 241 1,678 7,725
General and administrative............................................. 1,101 2,415 3,678
Product development.................................................... 948 2,791 2,771
Noncash employee compensation.......................................... -- -- 451
------------- ---------- ----------
Total operating expenses................................................. 2,290 6,884 14,625
------------- ---------- ----------
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
------------- ---------- ----------
------------- ---------- ----------
</TABLE>
17
<PAGE>
The following balance sheet data is presented:
- 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 payable 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 206,783 shares being sold in the concurrent
placement after deducting underwriting discounts and the estimated
offering costs payable by MiningCo, assuming an initial public offering
price of $13.00 per share.
<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 $ 48,014
Working capital (deficit)............................ 1,195 (3,098) 4,231 4,231 41,601
Total assets......................................... 2,039 1,357 15,658 15,658 53,028
Notes payable, excluding current portion............. 3,972 8,481 621 284 284
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 45,117
</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. 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,
agencies and electronic commerce marketers.
Revenues from advertising sales are recognized ratably in the period in
which the advertisement is displayed, provided that no significant MiningCo
obligations remain 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 times that an
advertisement is delivered to users of MININGCO.COM for a fixed fee. To the
extent these minimum guaranteed impression levels are not met, MiningCo defers
recognition of the corresponding revenues until the guaranteed impression levels
are achieved. 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.
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<PAGE>
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 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, $92,000 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 was $478,000 for the year ended December 31, 1998, of which $27,000
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 $1,173,000 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
assumed initial public offering price of $13.00 per share, and $4.21 per share.
This expense will be amortized over the four-year vesting period of the
applicable options.
Upon the closing of this offering, Mining Co intends to grant fully vested,
non-qualified stock options to purchase up to 200,000 shares of common stock to
a substantial majority of its guides. The exercise price per share of these
options is expected to be the initial public offering price of the common stock
and have two year terms. Since the guides are independent contractors, MiningCo
expects to record deferred compensation expense of up to approximately $1.9
million representing the fair market value of the options at the date of grant.
The resulting deferred compensation expense will be included in cost of
revenues.
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
20
<PAGE>
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 fees paid to guides, 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. 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. Cost of revenues was $91,000 for the period from
June 27, 1996 (inception) to December 31, 1996, $1.8 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 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 a growth in user traffic
to MiningCo's service. Fees paid to a third-party Internet advertising sales
organization starting in June 1998 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, 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 $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
21
<PAGE>
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 $175,000 per year, investor relations programs of
approximately $96,000 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 $2.8 million for
the year ended December 31, 1998. 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 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 needed 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. MiningCo has recorded deferred
compensation charges of $1,716,900 during 1998, for the difference between the
exercise price and the deemed fair value of stock options granted by MiningCo.
These amounts are being amortized by charges to costs of revenues and operating
expenses over the vesting periods of the individual stock options, which are
typically four years. Amortization of such charges amounted to $478,000, of
which $27,000 is classified in costs 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. 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.
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.
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<PAGE>
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 include
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
by 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.... 292 494 511 551 546 720 1,168
----------- ----------- ------- ------- ----------- ----------- -------
Gross profit
(loss)........ (292) (448) (376) (341) (394) (324) (138)
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..... 664 743 811 573 471 594 752
Amortization of
deferred
compensation.... -- -- -- -- 200 31 94
----------- ----------- ------- ------- ----------- ----------- -------
Total operating
expenses...... 1,752 2,221 1,613 1,298 1,553 2,382 4,148
----------- ----------- ------- ------- ----------- ----------- -------
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.... 1,555
------------
Gross profit
(loss)........ 589
Operating expenses:
Sales and
marketing....... 4,085
General and
administrative... 1,377
Product
development..... 954
Amortization of
deferred
compensation.... 126
------------
Total operating
expenses...... 6,542
------------
Loss from
operations........ (5,953)
Other income
(expense), net.... (45)
------------
Net loss............ $ (5,998)
------------
------------
</TABLE>
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
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<PAGE>
attributable to MiningCo's net losses during these periods, adjusted for certain
non-cash items, 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 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, 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 its 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 revenue is uncertain. MiningCo
has incurred substantial costs to create, launch and enhance MININGCO.COM, to
build brand awareness 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 and if MiningCo's spending levels are not
adjusted accordingly, MiningCo may not generate sufficient revenues to 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
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 be unavailable 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 our brand, develop or enhance services, respond to competitive pressures
or take advantage of acquisition
24
<PAGE>
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 senior 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 equipment used internally. This assessment plan consists of
the following steps:
- evaluating MiningCo's date dependent code, software, hardware and external
dependencies
- quality assurance testing of MiningCo's internally-developed proprietary
software 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
- formulating repair or replacement requirements and implementing corrective
measures
- the preparation and implementation of 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.
- MiningCo's telephone system, fax machines and mail systems have been
certified as Year 2000 compliant.
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<PAGE>
- 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 will 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. MiningCo has not received compliance information from some 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, misrepresentation or breach of contract 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 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 aggregates
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. Based on an independent report published by Media Metrix, Inc., 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. International Data Corporation estimates
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.
Jupiter Communications estimates 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. Jupiter Communications estimates 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 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.
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 knowledgable
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,
the 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 high-quality, relevant content, 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. According to the winter 1999
survey of 40,000 Internet users conducted by @Plan, an Internet market research
company, the percentage of MININGCO.COM users that purchase online is 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
content 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
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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. The Company 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 and advertising agencies 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 and advertising agencies enter into short-term
agreements, typically one to three months, under which they generally receive a
guaranteed number of impressions for a fixed fee. The Company'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. The Company 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, the Company 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, 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
globally distributed 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 our 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 our insurance may not
adequately compensate us for any losses that may occur due to any failures in
our system or interruptions in our service. MiningCo's business, results of
operations and financial condition could be materially adversely affected by any
damage or failure that interrupts or delays our 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 is in the process of developing a comprehensive disaster recovery plan
to respond to system failures. 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 has implemented or intends to implement 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. As of the
date hereof, 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. 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.
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.
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 the Company 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.
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
employees 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 certified public accountant.
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 Vice President and Chief Financial
Officer of XL Capital Corporation, a 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.
43
<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."
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 may
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 may 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 may
immediately vest and become fully exercisable.
45
<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 -- 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 133,170 -- 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>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS 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 $13.00 03/30/08 $ 114,498 $ 189,746
William C. Day................ 6,372 1.5 0.51 13.00 03/30/08 79,586 131,681
67,640 16.3 1.01 13.00 07/02/08 811,004 1,364,003
Alan T. Wragg................. 4,720 1.1 0.51 13.00 03/30/08 58,953 97,542
7,120 1.7 1.01 13.00 07/02/08 85,369 143,579
<CAPTION>
NAME 10%
- ------------------------------ ------------
<S> <C>
Scott P. Kurnit............... $ 305,192
William C. Day................ 211,606
2,212,413
Alan T. Wragg................. 156,745
232,886
</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 assumed initial public offering price of $13.00 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 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 assumed initial public offering price of $13.00 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 -- $ 381,634 $ --
William C. Day.................. 1,780 $ 22,232 123,282 129,940(2) 1,539,792 1,589,131
Alan T. Wragg................... -- -- 69,769 60,520(3) 871,414 752,335
</TABLE>
- ------------------------
(1) The fair market value of the common stock at the time of the exercise was
$3.00 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
$778,127.
(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
$666,966.
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 1, 1999, the board authorized, and the stockholders
approved, an increase of 1,342,380 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 2,075,267 shares of common stock under the new stock option plan, of
which options to purchase 508,222 shares are currently exercisable. Of the
options to purchase 1,567,045 shares of common stock that are not currently
exercisable, the options to purchase 372,936 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 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 by and 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 use 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. 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>
NUMBER OF $0.03 NUMBER OF $4.21
NUMBER OF SHARES WARRANTS WARRANTS
OF SERIES A TO PURCHASE COMMON TO PURCHASE COMMON
PURCHASER PREFERRED STOCK STOCK EXERCISED STOCK EXERCISED
- ---------------------------------------------------- ----------------- -------------------- ---------------------
<S> <C> <C> <C>
Crystal Internet Venture Fund, L.P.................. 711,109 14,748 39,556
Doll Technology Affiliates Fund, L.P................ 49,217 5,270 183
Doll Technology Investment Fund..................... 836,542 89,563 3,099
Doll Technology Side Fund, L.P...................... 32,044 3,431 119
Scott P. Kurnit..................................... 200,000 4,154 11,125
Open Text Corporation............................... 433,333 -- --
Zero Stage Capital V, L.P........................... 917,803 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. 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
51
<PAGE>
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>
NUMBER OF $5.06 NUMBER OF $7.02
NUMBER OF SHARES WARRANTS WARRANTS
OF SERIES B TO PURCHASE COMMON TO PURCHASE COMMON
PURCHASER PREFERRED STOCK STOCK EXERCISED STOCK EXERCISED
- ---------------------------------------------------- ----------------- --------------------- ---------------------
<S> <C> <C> <C>
C-Max Capital Limited Partnership-I................. 2,222,222 -- 85,440
Crystal Internet Venture Fund, L.P.................. 482,136 54,884 --
Doll Technology Affiliates Fund, L.P................ 30,437 3,659 --
Doll Technology Investment Fund..................... 517,339 62,192 --
Doll Technology Side Fund, L.P...................... 19,817 2,383 --
Open Text Corporation............................... 1,114,327 -- --
XL Capital Corporation.............................. 277,778 -- --
Zero Stage Capital V, L.P........................... 428,771 68,234 --
</TABLE>
SERIES C FINANCING
On October 5, 1998, MiningCo issued convertible promissory notes of 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. 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 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.
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.
52
<PAGE>
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>
NUMBER OF SHARES OF
PURCHASERS SERIES C PREFERRED STOCK
- ------------------------------------------------------------------- -------------------------
<S> <C>
C-Max Capital Limited Partnership-I................................ 599,123
Crystal Internet Venture Fund, L.P................................. 513,635
Doll Technology Affiliates Fund, L.P............................... 27,640
Doll Technology Investment Fund.................................... 469,792
Doll Technology Side Fund, L.P..................................... 17,996
Open Text Corporation.............................................. 913,856
Prospect Street NYC Discovery Fund, L.P............................ 1,794,872
XL Capital Corporation............................................. 1,794,872
Zero Stage Capital V, L.P.......................................... 121,503
Zero Stage Capital VI, L.P......................................... 512,821
</TABLE>
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
53
<PAGE>
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 the 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
- 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. 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. 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.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIALLY OWNED PRIOR BENEFICIALLY OWNED
TO ---------------------------------------------
OFFERING AND CONCURRENT BEFORE OFFERING AND AFTER OFFERING AND
BENEFICIAL OWNER PLACEMENT CONCURRENT PLACEMENT CONCURRENT PLACEMENT
- ---------------------------------------------- ------------------------- ----------------------- --------------------
<S> <C> <C> <C>
Scott P. Kurnit (1)........................... 1,537,597 18.4% 13.3%
Marc M. Watson (2)............................ 1,107,640 13.3 9.6
C-Max Capital Limited Partnership-I (3)....... 1,089,840 13.1 9.4
Dixon R. Doll (4)............................. 904,445 10.8 7.8
Open Text Corporation (5)..................... 885,201 10.6 7.7
Doll Funds (6)................................ 882,195 10.6 7.6
Zero Stage Capital Entities (7)............... 875,099 10.5 7.6
XL Capital Corporation (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 6.2
Prospect Street NYC Discovery Fund, L.P.
(11)........................................ 638,975 7.7 5.5
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 38.3
</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. Within 30 days of the date of this
offering, the underwriters may choose to purchase up to 100,000 shares
beneficially owned by Mr. Kurnit. See "Underwriting."
(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) Includes 85,440 shares issuable upon the exercise of warrants. The address
of C-Max Capital Limited Partnership-I is 2950 SW 27th Avenue, Suite 110,
Miami, FL 33133.
55
<PAGE>
(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 Capital Corporation is 3 East 54th Street, 17th Floor, New
York, New York 10022.
(9) Consists of 737,864 shares held by XL Capital Corporation, of which Mr. Wood
is an employee. 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
prior to the closing of this offering. Copies of this document have been filed
with the SEC as exhibits 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 2,205,406 shares of common
stock outstanding and held of record by 51 stockholders. There will be
11,551,829 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, as, when and if 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. 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. Upon the
closing of this offering, there will be no shares of preferred stock
outstanding.
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 3,221,560 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
2,075,267 shares of common stock, of which options to purchase 508,222 shares
are currently exercisable. Of the options to purchase 1,567,045 shares of common
stock that are not currently exercisable, the options to purchase 372,936 shares
of common stock originally granted under MiningCo's predecessor stock option
plan will immediately vest and become exercisable upon the closing of this
offering. In addition, as of the date of this prospectus, there are outstanding
options to
57
<PAGE>
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 by and 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 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 these holders 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 6,779,276 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 THE 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 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
58
<PAGE>
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 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,
corporate 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.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage.
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
shall not eliminate or limit the liability of a director:
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<PAGE>
- for any breach of the director's duty of loyalty to the corporation or its
stockholders
- 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
- 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 has entered 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
Upon the closing of this offering, the transfer agent and registrar for the
common stock will be American Stock Transfer & Trust Company, New York, New
York.
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<PAGE>
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 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 11,551,829 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 8,551,829 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)
3,448,722 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 115,518 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 would be entitled to sell
those shares under Rule 144(k) without regard to the requirements described
above. To the extent that those shares were acquired from an affiliate of
MiningCo, that 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 2,125,054
shares of common stock are outstanding, of which options to purchase 508,222
shares are currently exercisable. Of the options to purchase 1,616,832 shares of
common stock that are not currently exercisable, options to purchase 372,936
shares of common stock shall immediately vest and become exercisable upon the
closing of this offering. Upon the closing of this offering, MiningCo intends to
file a registration statement to register for resale the 3,221,560 shares of
common stock reserved for issuance under the stock option plan and
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<PAGE>
the 125,000 shares of Common Stock authorized for issuance under the purchase
plan. That 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.
Upon the closing of this offering, MiningCo intends to grant fully vested,
non-qualified stock options to purchase up to 200,000 shares of common stock to
a substantial majority of its guides. The exercise price per share of these
options is expected to be the initial public offering price of the common stock.
MiningCo's directors and officers and stockholders who hold 8,317,476 shares
in the aggregate, together with the holders of options to purchase 2,069,927
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. 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, 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 agreement among the
underwriters and MiningCo (the "Underwriting Agreement"), each of the
underwriters named below, for whom Bear, Stearns & Co. Inc. and Volpe Brown
Whelan & Company, LLC are acting as representatives and Wit Capital Corporation
is facilitating online distribution, 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...............................................................................
Volpe Brown Whelan & Company, LLC.....................................................................
Wit Capital Corporation...............................................................................
-----------
Total.............................................................................................
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
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 $ 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 $ 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 350,000 additional shares of common stock of
MiningCo at the "initial public offering price" less the "underwriting
discounts", each as set forth on the cover page of this prospectus. Mr. Scott
Kurnit, MiningCo's President and Chief Executive Officer, has granted a 30-day
over-allotment option to the underwriters to purchase up to an aggregate of
100,000 shares of common stock of MiningCo at the "initial public offering
price" less the "underwriting discounts", each as set forth on the cover page of
this prospectus. If the underwriters exercise these options 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 ten percent (10%) of the shares of common
stock to be sold in this offering for sale to employees of MiningCo and its
affiliates, and to their associates and related persons. The number of shares
available for sale to the general public will be reduced to the extent 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.
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<PAGE>
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 8,524,259 shares
in the aggregate, together with the holders of options to purchase 2,069,927
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.
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 existing stock option plan and employee stock 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 will
be determined by negotiations between MiningCo and the Representatives. Among
the factors to be considered in those negotiations will be:
- 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.
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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<PAGE>
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 the 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 sommission.
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 commission'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 of 1934,
as amended, and, in accordance with those requirements, will file periodic
reports, proxy statements and other information with the commission. Upon
approval of the common stock for quotation on the Nasdaq National Market, 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.
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<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
Statement 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-7
</TABLE>
F-1
<PAGE>
The Board of Directors and Stockholders
MiningCo.com, Inc.:
When the reverse stock split referred to in Note 14 of the Notes to
Financial Statements has been consummated, we will be in a position to render
the following report.
KPMG LLP
/S/ KPMG LLP
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.
New York, New York
January 20, 1999, except as to Note 14
which is as of , 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 4,427,800 36,830,500
Deferred compensation............................................................ -- (1,238,900) (1,238,900)
Accumulated deficit.............................................................. (11,078,500) (27,853,100) (27,853,100)
----------- ----------- --------------
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 1,847,900 3,988,500
------------- ------------- --------------
Gross profit (loss)........................................... (90,800) (1,457,300) (266,900)
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 2,791,200 2,771,500
Amortization of deferred compensation............................. -- -- 451,000
------------- ------------- --------------
Total operating expenses........................................ 2,289,800 6,883,900 14,624,900
------------- ------------- --------------
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
------------- ------------- --------------
------------- ------------- --------------
</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 $ 4,427,800 $ (1,238,900) $ (27,853,100) $ (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
notes 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 the $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 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 profitabillity, 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 offering 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 this offering.
(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
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)
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(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.
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)
(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. Revenues from advertising
sales are recognized ratably in the period in which the advertisement is
displayed, provided that no significant MiningCo obligations remain 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) for a fixed
fee. To the extent minimum guaranteed impression levels are not met, MiningCo
defers recognition of the corresponding revenues until guaranteed impression
levels are achieved. 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.
GUIDE COMPENSATION
The Company's guides are compensated at an amount equal to the greater of a
monthly minimum guarantee or a percentage of net revenues generated by the
entire GuideSite network, which is distributed among the guides based on the
user traffic on their respective GuideSites. Net revenues has been defined as
total revenues received less particular types of non-cash revenues, third-party
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)
advertising sales representative organization fees and marketing expenses. In
addition, management distributes a semi-annual discretionary bonus to guides.
Guide compensation is included as a component of cost of revenues.
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 that are
either fixed or are based on the amount of user traffic directed from the
partner's site to MININGCO.COM.
(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 the Company'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.
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.
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)
(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.
(M) STOCK SPLIT
In August 1996, MiningCo authorized and implemented an additional
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 (see note 13).
(N) DEFERRED OFFERING COSTS
At December 31, 1998, specific incremental costs directly attributable to
the initial public offering ("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
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)
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).
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
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)
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.
(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
F-14
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(5) INCOME TAXES (CONTINUED)
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.
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
F-15
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(6) RELATED PARTY TRANSACTIONS (CONTINUED)
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 exerciseable 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.
(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
F-16
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(7) NOTES PAYABLE (CONTINUED)
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 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.
F-17
<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
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 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
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)
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>
(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>
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 (CONTINUED)
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 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.
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
F-20
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(10) CAPITALIZATION (CONTINUED)
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 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.
F-21
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(10) CAPITALIZATION (CONTINUED)
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 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.
F-22
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(10) CAPITALIZATION (CONTINUED)
<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 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.
F-23
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(10) CAPITALIZATION (CONTINUED)
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 1, 1999, the
Board of Directors and shareholders increased the authorized number of shares
authorized under the plan by 890,000 shares, effectively authorizing 2,776,800
in the aggregate. These 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.
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)
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 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, $92,000 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 372,936 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%.
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)
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.
(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.
F-26
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(12) COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
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.
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 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 2,776,800. In addition, a total of 813,122 additional options were
granted at the IPO price
(14) REVERSE STOCK SPLIT--UNAUDITED
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 is subject to Board of Directors and
stockholder approval.
F-28
<PAGE>
[LOGOS OF ADVERTISERS AND ELECTRONIC COMMERCE PARTNERS]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the registrant in connection with the sale of
the common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
------------
<S> <C>
SEC registration fee................................................................................ $ 13,700
NASD filing fee..................................................................................... 5,500
Nasdaq National Market listing fee.................................................................. 95,000
Legal fees and expenses............................................................................. 425,000
Accounting fees and expenses........................................................................ 400,000
Printing and engraving.............................................................................. 250,000
Blue sky fees and expenses (including legal fees)................................................... 20,000
Transfer agent fees................................................................................. 15,000
Miscellaneous....................................................................................... 175,800
------------
Total......................................................................................... $ 1,400,000
------------
------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The registrant's Amended and Restated Certificate of Incorporation in effect
as of the date hereof, and the registrant's Second Amended and Restated
Certificate of Incorporation to be in effect upon the closing of this offering
(collectively, the "certificate") provides that, except to the extent prohibited
by the Delaware General Corporation Law, as amended (the "DGCL"), the
registrant's directors shall not be personally liable to the registrant or its
stockholders for monetary damages for any breach of fiduciary duty as directors
of the registrant. Under the DGCL, the directors have a fiduciary duty to the
registrant which is not eliminated by this provision of the certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the registrant, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by the DGCL. This provision
also does not affect the directors' responsibilities under any other laws, such
as the Federal securities laws or state or Federal environmental laws. The
registrant has applied for liability insurance for its officers and directors.
Section 145 of the DGCL empowers 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, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the
II-1
<PAGE>
DGCL and provides that the registrant 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 that person is or was a director or
officer of the registrant, or is or was serving at the request of the registrant
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 such person in connection with any threatened, pending or
completed action, suit or proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the certificate. The registrant is not aware of any
threatened litigation or proceeding that may result in a claim for any
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The registrant has sold and issued the following securities since June 27,
1996 (inception):
COMMON STOCK AND PREFERRED STOCK. In June 1996, the registrant issued (i)
an aggregate of 100 shares of its common stock, no par value per share, to its
founder Mr. Scott P. Kurnit in exchange for $10,000 in cash and (ii) an
aggregate of 7.5 shares of its common stock, no par value per share, to its
co-founder Mr. William C. Day in exchange for $750 in cash. Those shares were
subsequently recapitalized into 4,000,000 and 300,000 shares of the registrant's
common stock, respectively.
On April 23, 1998, the registrant issued an aggregate of 3,346,715 shares of
Series A Convertible Preferred Stock (the "Series A Preferred"), at a purchase
price of $1.50 per share, to investors in consideration for the cancellation of
outstanding indebtedness. Upon the closing of this offering, all of the
outstanding shares of Series A Preferred will convert into an aggregate of
1,191,433 shares of common stock.
On April 23, 1998, the registrant issued an aggregate of 5,397,600 shares of
Series B Convertible Preferred Stock (the "Series B Preferred"), at a purchase
price of $1.80 per share, to investors in consideration for the cancellation of
outstanding indebtedness and the payment of additional cash. At a subsequent
closing, the registrant issued an aggregate of 1,199,996 shares of Series B
Preferred to investors for $1,799,994. Upon the closing of this offering, all of
the outstanding shares of Series B Preferred will convert into an aggregate of
2,348,752 shares of common stock.
On November 13, 1998, the registrant issued an aggregate of 6,910,726 shares
of Series C Convertible Preferred Stock (the "Series C Preferred"), at a
purchase price of $1.95 per share, to investors in consideration for the
cancellation of outstanding indebtedness and cash. At a subsequent closing, the
registrant issued an aggregate of 391,085 shares of Series C Preferred to
certain investors for $1.95. Upon the closing of this offering, all of the
outstanding shares of Series C Preferred will convert into an aggregate of
2,599,455 shares of common stock.
WARRANTS. The registrant from time to time has granted warrants to
investors, consultants and other third parties in connection with business
transactions in reliance upon exemption from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended. The following table sets
II-2
<PAGE>
forth information regarding those grants and assumes a 1.00 for 2.809 reverse
stock split of the common stock to be effected prior to the closing of this
offering.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICES
----------- --------------
<S> <C> <C>
June 27, 1996 (inception) to December 31, 1996.................. -- --
January 1, 1997 to December 31, 1997............................ 427,003 $0.03-$14.04
January 1, 1998 to December 31, 1998............................ 309,340 $0.03-$7.02
January 1, 1999 to February 8, 1999............................. -- --
</TABLE>
OPTIONS. The registrant from time to time has granted stock options to
employees and consultants in reliance upon exemption from registration pursuant
to either (i) Section 4(2) of the Securities Act of 1933, as amended, or (ii)
Rule 701 promulgated under the Securities Act of 1933, as amended. The following
table sets forth information regarding such grants and assumes a 1.00 for 2.809
reverse stock split of the common stock to be effected prior to the closing of
this offering.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICES
----------- --------------
<S> <C> <C>
June 27, 1996 (inception) to December 31, 1996............... -- --
January 1, 1997 to June 30, 1998............................. 1,098,568 $0.51-$0.56
July 1, 1998 to December 31, 1998............................ 329,958 $1.01-$4.21
January 1, 1999 to February 8, 1999.......................... 331,852 IPO Price-110%
IPO Price
</TABLE>
The above securities were offered and sold by the registrant in reliance
upon exemptions from registration pursuant to either (i) Section 4(2) of the
Securities Act of 1933, as amended, as transactions not involving any public
offering, or (ii) Rule 701 promulgated under the Securities Act of 1933, as
amended. No underwriters were involved in connection with the sales of
securities referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation
3.2* Form of Certificate of Amendment to Amended and Restated Certificate of Incorporation.
3.3* Form of Second Amended and Restated Certificate of Incorporation to be in effect upon the closing of
this offering.
3.4** Bylaws.
3.5* Form of Amended and Restated Bylaws to be in effect upon the closing of this offering.
4.1* Specimen Common Stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1** 1997 Employee Incentive Stock Option Plan.
10.2** 1998 Stock Option/Stock Issuance Plan.
10.3** Amended and Restated Investors' Rights Agreement, dated as of November 13, 1998.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<S> <C>
10.4** Sublease, dated as of November 1, 1996, by and between the Registrant and Minet, Inc., and Lease, dated
as of January 27, 1998, by and between Two Twenty East Limited Partnership and Minet, Inc.
10.5** Form of MiningCo.com, Inc. Guide Agreement
10.6** Letter Agreement, dated as of October 20, 1996, by and between the Registrant and Mr. Scott P. Kurnit,
as amended.
10.7* Agreement, dated as of March 1998, by and between the Registrant and Frontier Global Center.
10.8** Letter Agreement, dated as of July 28, 1996, by and between the Registrant and Mr. Alan Wragg, as
amended.
10.9 Amended and Restated 1998 Stock Option/Stock Issuance Plan.
10.10* 1999 Employee Stock Purchase Plan.
10.11 Letter Agreement, dated as of January 11, 1999, by and between the Registrant and Mr. Todd B. Sloan.
10.12 Common Stock Purchase Agreement, dated as of February 23, 1999, by and between the Registrant and
Comcast Interactive Investments, Inc.
10.13 Form of Second Amended and Restated Investors' Rights Agreement, to be entered into on or before the
closing of this Offering.
11.1** Statement re: Computation of Basic and Diluted Net Loss Per Share.
23.1 Consent of KPMG LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1** Powers of Attorney.
24.2 Power of Attorney for Todd B. Sloan, the registrant's Chief Financial Officer.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
** Supplied previously as exhibits to Form S-1 filed on December 30, 1998.
(b) Financial Statement Schedules.
Valuation and Qualifying Accounts--Allowance for Doubtful Accounts
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in those
denominations and registered in those names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
this indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
those liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by that
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court
II-4
<PAGE>
of appropriate jurisdiction the question whether this indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of that issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424 (b)(1) or
(4), or 497(h) under the Securities Act of 1933, shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of these securities at
that time shall be deemed to be the initial BONA FIDE offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized in The
City of New York, State of New York, on this 25th day of February, 1999.
<TABLE>
<S> <C> <C>
MININGCO.COM, INC.
By: /s/ SCOTT P. KURNIT
-----------------------------------------
Name: SCOTT P. KURNIT
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities indicated on February 25, 1999:
SIGNATURE TITLE
- ------------------------------ ---------------------------
President and Chief
/s/ SCOTT P. KURNIT Executive Officer, and
- ------------------------------ Chairman of the Board of
Scott P. Kurnit Directors (principal
executive officer)
/s/ TODD B. SLOAN Chief Financial Officer
- ------------------------------ (principal financial and
Todd B. Sloan accounting officer)
* Director
- ------------------------------
Frank J. Biondi, Jr.
* Director
- ------------------------------
Dixon R. Doll
* Director
- ------------------------------
Ronald Unterman
* Director
- ------------------------------
Marc M. Watson
* Director
- ------------------------------
Kristopher A. Wood
<TABLE>
<S> <C> <C> <C>
*By: /s/ SCOTT P. KURNIT
-------------------------
Scott P. Kurnit
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
The Board of Directors and Stockholders
MiningCo.com, Inc.:
When the reverse split referred to in Note 13 of the Notes to Financial
Statements has been consummated, we will be in a position to render the
following report.
KPMG LLP
/S/ KPMG LLP
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholders
MiningCo.com, Inc.:
Under date of January 20, 1999, except as to Note 13, which is as of January
, 1999, we reported on the 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, as contained in the
Registration Statement. In connection with our audits of the aforementioned
financial statements, we also audited the related financial statement schedule
as listed in the accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
New York, New York
January 20, 1999
S-1
<PAGE>
MININGCO.COM, INC.
VALUATION AND QUALIFYING ACCOUNTS--
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
PROVISION
BALANCE AT FOR BALANCE AT
BEGINNING DOUBTFUL END
OF PERIOD ACCOUNTS DEDUCTIONS OF PERIOD
----------- ----------- --------------- ----------
<S> <C> <C> <C> <C>
For the period from June 27, 1996 (inception) to December 31,
1996:
Allowance for doubtful accounts.............................. $ 0 $ 0 $ 0 $ 0
--
--
----------- ----------- ----------
----------- ----------- ----------
For the year ended December 31, 1997:
Allowance for doubtful accounts.............................. $ 0 $ 6,000 $ 0 $ 6,000
--
--
----------- ----------- ----------
----------- ----------- ----------
For the year ended December 31, 1998:
Allowance for doubtful accounts.............................. $ 6,000 $ 140,000 $ 0 $ 146,000
--
--
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation.
3.2* Form of Certificate of Amendment to Amended and Restated Certificate of Incorporation.
3.3* Form of Second Amended and Restated Certificate of Incorporation to be in effect upon the closing of
this offering.
3.4** Bylaws.
3.5* Form of Amended and Restated Bylaws to be in effect upon the closing of this offering.
4.1* Specimen Common Stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1** 1997 Employee Incentive Stock Option Plan.
10.2** 1998 Stock Option/Stock Issuance Plan.
10.3** Amended and Restated Investors' Rights Agreement, dated as of November 13, 1998.
10.4** Sublease, dated as of November 1, 1996, by and between the Registrant and Minet, Inc., and Lease, dated
as of January 27, 1998, by and between Two Twenty East Limited Partnership and Minet, Inc.
10.5** Form of MiningCo.com, Inc. Guide Agreement.
10.6** Letter Agreement, dated as of October 20, 1996, by and between the Registrant and Mr. Scott P. Kurnit,
as amended.
10.7* Agreement, dated as of March 1998, by and between the Registrant and Frontier Global Center.
10.8** Letter Agreement, dated as of July 28, 1996, by and between the Registrant and Mr. Alan Wragg, as
amended.
10.9 Amended and Restated 1998 Stock Option/Stock Issuance Plan.
10.10* 1999 Employee Stock Purchase Plan.
10.11 Letter Agreement, dated as of January 11, 1999, by and between the Registrant and Mr. Todd B. Sloan.
10.12 Common Stock Purchase Agreement, dated as of February 23, 1999, by and between the Registrant and
Comcast Interactive Investments, Inc.
10.13 Form of Second Amended and Restated Investors' Rights Agreement, to be entered into on or before the
closing of this Offering.
11.1* Statement re: Computation of Basic and Diluted Net Loss Per Share.
23.1 Consent of KPMG LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1** Powers of Attorney.
24.2 Power of Attorney for Todd B. Sloan, the registrant's Chief Financial Officer.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
** Supplied previously as exhibits to Form S-1 filed on December 30, 1998.
(b) Financial Statement Schedules.
<PAGE>
Exhibit 10.9
MININGCO.COM, INC.
AMENDED AND RESTATED
1998 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This Amended and Restated 1998 Stock Option/Stock Issuance Plan is
intended to promote the interests of MiningCo.com, Inc., a Delaware corporation,
by providing eligible persons with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under which eligible persons
may, at the discretion of the Plan Administrator, be issued shares of Common
Stock directly, either through the immediate purchase of such shares or as a
bonus for services rendered the Corporation (or any Parent or Subsidiary), and
(iii) the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive options at periodic
intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12 Registration Date, the Discretionary
Option Grant and Stock Issuance Programs may be administered by the Board (which
authority may be
<PAGE>
delegated to the Primary Committee or Secondary Committee). Beginning with the
Section
12 Registration Date, the following provisions shall govern the administration
of the Plan:
(i) The Board shall have the authority to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders but may delegate such authority in whole or in part to the Primary
Committee.
(ii) Administration of the Discretionary Option Grant and
Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons.
(iii) Administration of the Automatic Option Grant Program
shall be self-executing in accordance with the terms of that program.
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full power and authority
subject to the provisions of the Plan:
(i) to establish such rules as it may deem appropriate for
proper administration of the Plan, to make all factual determinations, to
construe and interpret the provisions of the Plan and the awards thereunder and
to resolve any and all ambiguities thereunder;
(ii) to determine, with respect to awards made under the
Discretionary Option Grant and Stock Issuance Programs, which eligible persons
are to receive such awards, the time or times when such awards are to be made,
the number of shares to be covered by each such award, the vesting schedule (if
any) applicable to the award, the status of a granted option as either an
Incentive Option or a Non-Statutory Option and the maximum term for which the
option is to remain outstanding;
(iii) to amend, modify or cancel any outstanding award with
the consent of the holder or accelerate the vesting of such award; and
(iv) to take such other discretionary actions as permitted
pursuant to the terms of the applicable program.
Decisions of each Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties.
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
2
<PAGE>
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any options or stock issuances under the Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Only non-employee Board members shall be eligible to participate
in the Automatic Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
9,058,666(1) shares. Such authorized share reserve consists of (i) the number of
shares which remained available for issuance, as of the Plan Effective Date,
under the Predecessor Plan as last approved by the Corporation's stockholders,
including the shares subject to the outstanding options incorporated into the
Plan and the additional shares which would otherwise be available for future
grant, plus (ii) an increase of 2,500,000 shares authorized by the Board and
approved by the Stockholders prior to the Plan Effective Date, plus (iii) an
increase of 3,758,666 shares authorized by the Board and approved by the
Stockholders on February 1, 1999.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 750,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1998 calendar year.
C. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent
- ----------
(1) Share numbers in the Plan do not reflect the stock split to be
effected in connection with the initial public offering.
3
<PAGE>
issuance under the Plan to the extent those options expire, terminate or are
cancelled for any reason prior to exercise in full. Unvested shares issued under
the Plan and subsequently repurchased by the Corporation, at the original
exercise or issue price paid per share, pursuant to the Corporation's repurchase
rights under the Plan shall be added back to the number of shares of Common
Stock reserved for issuance under the Plan and shall accordingly be available
for reissuance through one or more subsequent options or direct stock issuances
under the Plan. However, should the exercise price of an option under the Plan
be paid with shares of Common Stock or should shares of Common Stock otherwise
issuable under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option or the
vesting of a stock issuance under the Plan, then the number of shares of Common
Stock available for issuance under the Plan shall be reduced by the gross number
of shares for which the option is exercised or which vest under the stock
issuance, and not by the net number of shares of Common Stock issued to the
holder of such option or stock issuance. Shares of Common Stock underlying one
or more stock appreciation rights exercised under the Plan shall NOT be
available for subsequent issuance.
D. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities for which any one person may be
granted options, separately exercisable stock appreciation rights and direct
stock issuances under this Plan per calendar year, (iii) the number and/or class
of securities for which grants are subsequently to be made under the Automatic
Option Grant Program to new and continuing non-employee Board members, (iv) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option under the Plan and (v) the number and/or class of
securities and price per share in effect under each outstanding option
incorporated into this Plan from the Predecessor Plan. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive. In no event shall any such adjustments be made in connection with
the conversion of one or more outstanding shares of the Corporation's preferred
stock into shares of Common Stock.
4
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator at the time of the option grant.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section II of
Article Five and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
under Section 12 of the 1934 Act at the time the option is exercised, then the
exercise price may also be paid as follows:
(i) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value
on the Exercise Date, or
(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide
irrevocable instructions to (a) a Corporation-approved
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover
the aggregate exercise price payable for the purchased shares
plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by
reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. CESSATION OF SERVICE.
5
<PAGE>
1. The following provisions shall govern the exercise of any
options outstanding at the time of the Optionee's cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable
for such period of time thereafter as shall be determined by
the Plan Administrator and set forth in the documents
evidencing the option, but no such option shall be exercisable
after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by
his or her Beneficiary.
(iii) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of
Service. Upon the expiration of the applicable exercise period
or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any
vested shares for which the option has not been exercised.
However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to
the extent the option is not otherwise at that time
exercisable for vested shares.
(iv) Should the Optionee's Service be terminated for
Misconduct or should the Optionee engage in Misconduct while
his or her options are outstanding, then all such options
shall terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding:
(i) to extend the period of time for which the option is
to remain exercisable following the Optionee's cessation of
Service to such period of time as the Plan Administrator shall
deem appropriate, but in no event beyond the expiration of the
option term, and/or
(ii) to permit the option to be exercised, during the
applicable post-Service exercise period, for one or more
additional installments in which the Optionee would have
vested had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee
6
<PAGE>
cease Service while holding such unvested shares, the Corporation shall have the
right to repurchase, at the exercise price paid per share, any or all of those
unvested shares. The terms upon which such repurchase right shall be exercisable
(including the period and procedure for exercise and the appropriate vesting
schedule for the purchased shares) shall be established by the Plan
Administrator and set forth in the document evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. Non-Statutory Options shall be
subject to the same restrictions, except that a Non-statutory Option may, to the
extent permitted by the Plan Administrator, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for Optionee and/or one
or more such family members. The terms applicable to the assigned portion shall
be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall NOT be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
7
<PAGE>
A. Each option outstanding at the time of a Change in Control but
not otherwise fully-vested shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not so accelerate
if and to the extent: (i) such option is, in connection with the Change in
Control, assumed or otherwise continued in full force and effect by the
successor corporation (or parent thereof) pursuant to the terms of the Change in
Control, (ii) such option is replaced with a cash incentive program of the
successor corporation which preserves the spread existing at the time of the
Change in Control on the shares of Common Stock for which the option is not
otherwise at that time exercisable and provides for subsequent payout in
accordance with the same vesting schedule applicable to those option shares or
(iii) the acceleration of such option is subject to other limitations imposed by
the Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control, except to
the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) or otherwise continue in full force and effect
pursuant to the terms of the Change in Control or (ii) such accelerated vesting
is precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.
C. Immediately following the consummation of the Change in Control,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof) or otherwise
expressly continued in full force and effect pursuant to the terms of the Change
in Control.
D. Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities which would have been
issuable to the Optionee in consummation of such Change in Control had the
option been exercised immediately prior to such Change in Control. Appropriate
adjustments to reflect such Change in Control shall also be made to (i) the
exercise price payable per share under each outstanding option, PROVIDED the
aggregate exercise price payable for such securities shall remain the same, (ii)
the maximum number and/or class of securities available for issuance over the
remaining term of the Plan and (iii) the maximum number and/or class of
securities for which any one person may be granted options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year.
E. The Plan Administrator may at any time provide that one or more
options will automatically accelerate in connection with a Change in Control,
whether or not those options are assumed or otherwise continued in full force
and effect pursuant to the terms of the Change in Control. Any such option shall
accordingly become exercisable, immediately prior to the effective date of such
Change in Control, for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. In addition, the Plan Administrator may at any time
provide that one or more of the Corporation's repurchase rights shall not be
assignable in connection with such Change in
8
<PAGE>
Control and shall terminate upon the consummation of such Change in Control.
F. The Plan Administrator may at any time provide that one or more
options will automatically accelerate upon an Involuntary Termination of the
Optionee's Service within a designated period (not to exceed eighteen (18)
months) following the effective date of any Change in Control in which those
options do not otherwise accelerate. Any options so accelerated shall remain
exercisable for fully-vested shares until the EARLIER of (i) the expiration of
the option term or (ii) the expiration of the one (1)-year period measured from
the effective date of the Involuntary Termination. In addition, the Plan
Administrator may at any time provide that one or more of the Corporation's
repurchase rights shall immediately terminate upon such Involuntary Termination.
G. The Plan Administrator may at any time provide that one or more
options will automatically accelerate in connection with a Hostile Take-Over.
Any such option shall become exercisable, immediately prior to the effective
date of such Hostile Take-Over, for all of the shares of Common Stock at the
time subject to that option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. In addition, the Plan Administrator may
at any time provide that one or more of the Corporation's repurchase rights
shall terminate automatically upon the consummation of such Hostile Take-Over.
Alternatively, the Plan Administrator may condition such automatic acceleration
and termination upon an Involuntary Termination of the Optionee's Service within
a designated period (not to exceed eighteen (18) months) following the effective
date of such Hostile Take-Over. Each option so accelerated shall remain
exercisable for fully-vested shares until the expiration or sooner termination
of the option term.
H. The portion of any Incentive Option accelerated in connection
with a Change in Control or Hostile Take Over shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.
IV. STOCK APPRECIATION RIGHTS
The Plan Administrator may, subject to such conditions as it may
determine, grant to selected Optionees stock appreciation rights which will
allow the holders of those rights to elect between the exercise of the
underlying option for shares of Common Stock and the surrender of that option in
exchange for a distribution from the Corporation in an amount equal to the
excess of (a) the Option Surrender Value of the number of shares for which the
option is surrendered over (b) the aggregate exercise price payable for such
shares. The distribution may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
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ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening options.
Shares of Common Stock may also be issued under the Stock Issuance Program
pursuant to share right awards which entitle the recipients to receive those
shares upon the attainment of designated performance goals or Service
requirements. Each such award shall be evidenced by one or more documents which
comply with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share of Common Stock subject to
direct issuance shall be fixed by the Plan Administrator.
2. Subject to the provisions of Section II of Article Five,
Shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. VESTING/ISSUANCE PROVISIONS.
1. The Plan Administrator may issue shares of Common Stock
which are fully and immediately vested upon issuance or which are to vest in one
or more installments over the Participant's period of Service or upon attainment
of specified performance objectives. Alternatively, the Plan Administrator may
issue share right awards which shall entitle the recipient to receive a
specified number of vested shares of Common Stock upon the attainment of one or
more performance goals or Service requirements established by the Plan
Administrator.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to his or her unvested
shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to
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the issued shares of Common Stock, whether or not the Participant's interest in
those shares is vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock, or should the performance
objectives not be attained with respect to one or more such unvested shares of
Common Stock, then those shares shall be immediately surrendered to the
Corporation for cancellation, and the Participant shall have no further
stockholder rights with respect to those shares. To the extent the surrendered
shares were previously issued to the Participant for consideration paid in cash
or cash equivalent (including the Participant's purchase-money indebtedness),
the Corporation shall repay to the Participant the cash consideration paid for
the surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to the
surrendered shares.
5. The Plan Administrator may waive the surrender and
cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the cessation of the
Participant's Service or the non-attainment of the performance objectives
applicable to those shares. Such waiver shall result in the immediate vesting of
the Participant's interest in the shares of Common Stock as to which the waiver
applies. Such waiver may be effected at any time, whether before or after the
Participant's cessation of Service or the attainment or non-attainment of the
applicable performance objectives.
6. Outstanding share right awards shall automatically
terminate, and no shares of Common Stock shall actually be issued in
satisfaction of those awards, if the performance goals or Service requirements
established for such awards are not attained. The Plan Administrator, however,
shall have the authority to issue shares of Common Stock in satisfaction of one
or more outstanding share right awards as to which the designated performance
goals or Service requirements are not attained.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. All of the Corporation's outstanding repurchase rights shall
terminate automatically, and all the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Change in
Control, except to the extent (i) those repurchase rights are assigned to the
successor corporation (or parent thereof) or otherwise continue in full force
and effect pursuant to the terms of the Change in Control or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.
B. The Plan Administrator may at any time provide for the automatic
termination of one or more of those outstanding repurchase rights and the
immediate vesting of the shares of Common Stock subject to those terminated
rights upon (i) a Change in Control or Hostile Take-Over or (ii) an Involuntary
Termination of the Participant's Service within a
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designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control or Hostile Take-Over in which those repurchase
rights are assigned to the successor corporation (or parent thereof) or
otherwise continue in full force and effect.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
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ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Options shall be made on the dates specified below:
1. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 56,179 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held after
the Underwriting Date, each individual who is to continue to serve as a
non-employee Board member, whether or not that individual is standing for
re-election to the Board, shall automatically be granted a Non-Statutory Option
to purchase 14,044 shares of Common Stock, provided such individual has served
as a non-employee Board member for at least six (6) months.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial 56,179-share option shall vest,
and the Corporation's repurchase right shall lapse, in a series of four (4)
successive equal annual installments upon the Optionee's completion of each year
of Board service over the four (4)-year period measured from the grant date.
Each annual 14,044-share option shall vest, and the Corporation's repurchase
right shall lapse, upon the Optionee's completion of one (1) year of Board
service measured from the grant date.
E. CESSATION OF BOARD SERVICE. The following provisions shall govern
the exercise of any options outstanding at the time of the Optionee's cessation
of Board service:
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(i) Any option outstanding at the time of the Optionee's
cessation of Board service for any reason shall remain exercisable
for a twelve (12)-month period following the date of such cessation
of Board service, but in no event shall such option be exercisable
after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by his
or her Beneficiary.
(iii) Following the Optionee's cessation of Board service, the
option may not be exercised in the aggregate for more than the
number of shares in which the Optionee was vested on the date of
such cessation of Board service. Upon the expiration of the
applicable exercise period or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service, terminate and cease to be
outstanding for any and all shares in which the Optionee is not
otherwise at that time vested.
(iv) However, should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all shares
at the time subject to the option shall immediately vest so that
such option may, during the twelve (12)-month exercise period
following such cessation of Board service, be exercised for all or
any portion of those shares as fully-vested shares of Common Stock.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile Take-Over, the
shares of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option may,
immediately prior to the effective date of such Change in Control the Hostile
Take-Over, be exercised for all or any portion of those shares as fully-vested
shares of Common Stock. Each such option accelerated in connection with a Change
in Control shall terminate upon the Change in Control, except to the extent
assumed by the successor corporation (or parent thereof) or otherwise continued
in full force and effect pursuant to the terms of the Change in Control. Each
such option accelerated in connection with
a Hostile Take-Over shall remain exercisable until the expiration or sooner
termination of the option term.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control or Hostile
Take-Over.
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C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding options. The Optionee shall in return be entitled to a
cash distribution from the Corporation in an amount equal to the excess of (i)
the Option Surrender Value of the shares of Common Stock at the time subject to
each surrendered option (whether or not the Optionee is otherwise at the time
vested in those shares) over (ii) the aggregate exercise price payable for such
shares. Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation.
D. Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control had the option been exercised immediately prior to such
Change in Control. Appropriate adjustments shall also be made to the exercise
price payable per share under each outstanding option, PROVIDED the aggregate
exercise price payable for such securities shall remain the same.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for options made
under the Discretionary Option Grant Program.
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ARTICLE FIVE
MISCELLANEOUS
I. NO IMPAIRMENT OF AUTHORITY
Outstanding awards shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
II. FIRST REFUSAL RIGHT
Until the Section 12(g) Registration Date, the Corporation shall
have the right of first refusal with respect to any proposed disposition by the
Optionee or the Participant (or any successor in interest) of any shares of
Common Stock issued under the Plan. Such right of first refusal shall be
exercisable in accordance with the terms established by the Plan Administrator
and set forth in the document evidencing such right.
III. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
IV. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan with the right to use shares of Common Stock in satisfaction of all or part
of the Taxes incurred by such holders in connection with the exercise of their
options or the vesting of their shares. Such right may be provided to any such
holder in either or both of the following formats:
STOCK WITHHOLDING: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option
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or the vesting of such shares, a portion of those shares with an aggregate Fair
Market Value equal to the percentage of the Taxes (not to exceed one hundred
percent (100%)) designated by the holder.
STOCK DELIVERY: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
V. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective with respect to the Discretionary
Option Grant and Stock Issuance Programs upon the Plan Effective Date. The
Automatic Option Grant Program shall become effective on the Underwriting Date.
Options may be granted under the Discretionary Option Grant at any time on or
after the Plan Effective Date. The Plan was amended and restated on February 1,
1999 to increase the share reserve by an additional 3,758,666 shares and to
effect a change to the definition of Involuntary Termination.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further options or direct stock issuances shall be made under the
Predecessor Plan after the Section 12 Registration Date. All options outstanding
under the Predecessor Plan are incorporated into the Plan and are treated as
outstanding options under the Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the terms of the documents
evidencing such option, and no provision of the Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Changes in Control, may, in the Plan Administrator's discretion, be extended
to one or more options incorporated from the Predecessor Plan which do not
otherwise contain such provisions.
D. The Plan shall terminate upon the EARLIEST of (i) July 2, 2008,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Change in Control. Upon such plan
termination, all outstanding options and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.
VI. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock
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issuances at the time outstanding under the Plan unless the Optionee or the
Participant consents to such amendment or modification. In addition, certain
amendments may require stockholder approval pursuant to applicable laws or
regulations.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs shall be held in escrow until there
is obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
VII. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VIII. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including, if
applicable, the filing and effectiveness of the Form S-8 registration statement
for the shares of Common Stock issuable under the Plan, and all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
IX. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.
B. BENEFICIARY shall mean, in the event the Plan Administrator
implements a beneficiary designation procedure, the person designated by an
Optionee or Participant, pursuant to such procedure, to succeed to such person's
rights under any outstanding awards held by him or her at the time of death. In
the absence of such designation or procedure, the Beneficiary shall be the
personal representative of the estate of the Optionee or Participant or the
person or persons to whom the award is transferred by will or the laws of
descent and distribution.
C. BOARD shall mean the Corporation's Board of Directors.
D. CHANGE IN CONTROL shall mean a change in ownership or control of
the Corporation effected through any of the following transactions:
(i) a merger, consolidation or reorganization approved by the
Corporation's stockholders, UNLESS securities representing more than
fifty percent (50%) of the total combined voting power of the voting
securities of the successor corporation are immediately thereafter
beneficially owned, directly or indirectly and in substantially the
same proportion, by the persons who beneficially owned the
Corporation's outstanding voting securities immediately prior to
such transaction,
(ii) any stockholder-approved transfer or other disposition of
all or substantially all of the Corporation's assets, or
(iii) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities pursuant to
a tender or exchange offer made directly to the Corporation's
stockholders which the Board recommend such stockholders to accept.
E. CODE shall mean the Internal Revenue Code of 1986, as amended.
F. COMMON STOCK shall mean the Corporation's common stock.
G. CORPORATION shall mean MiningCo.com, Inc., a Delaware
corporation, and its successors.
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H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.
I. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported on the Nasdaq National Market or any
successor system. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in
the composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(iii) For purposes of any options made on the Underwriting
Date, the Fair Market Value shall be deemed to be equal to the price
per share at which the Common Stock is to be sold in an initial
public offering pursuant to the Underwriting Agreement.
(iv) For purposes of any options made prior to the
Underwriting Date, the Fair Market Value shall be determined by the
Plan Administrator, after taking into account such factors as it
deems appropriate.
L. HOSTILE TAKE-OVER shall mean:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total
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combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who
either (A) have been Board members continuously since the beginning
of such period or (B) have been elected or nominated for election as
Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time
the Board approved such election or nomination.
M. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
N. INVOLUNTARY TERMINATION shall mean the termination of the Service
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation or Parent or
Subsidiary employing the individual which materially reduces his or
her duties and responsibilities, (B) a reduction in his or her level
of compensation (including base salary, fringe benefits and target
bonus under any performance based bonus or incentive programs) or
(C) a relocation of such individual's place of employment by more
than fifty (50) miles, provided and only if such change, reduction
or relocation is effected by the Corporation without the
individual's consent. Notwithstanding the foregoing, an individual's
voluntary resignation following (i) a relocation shall not be
considered an Involuntary Termination if the relocation is part of a
general relocation of a significant portion of the operations of the
Corporation (or Parent or Subsidiary employing the individual) or of
the department or division in which such individual is employed to a
location in the United States and if expenses reasonably incurred by
such individual in connection with such relocation are to be
reimbursed by the Corporation or any successor entity or (ii) a
general reduction in the level of base salary, target bonuses or
fringe benefits which is applied to all or substantially all of the
employees of the Corporation (or Parent or Subsidiary employing such
individual) in connection with a cost reduction program shall not
constitute an Involuntary Termination.
O. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person
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of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any intentional wrongdoing by such person, whether by
omission or commission, which adversely affects the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. This shall not
limit the grounds for the dismissal or discharge of any person in the Service of
the Corporation (or any Parent or Subsidiary).
P. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
Q. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
R. OPTION SURRENDER VALUE shall mean the Fair Market Value per share
of Common Stock on the date the option is surrendered to the Corporation or, in
the event of a Hostile Take-Over, effected through a tender offer, the highest
reported price per share of Common Stock paid by the tender offeror in effecting
such Hostile Take-Over, if greater. However, if the surrendered option is an
Incentive Option, the Option Surrender Value shall not exceed the Fair Market
Value per share.
S. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant or Automatic Option Grant Program.
T. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
Program, Permanent Disability or Permanently Disabled shall mean the inability
of the non-employee Board member to perform his or her usual duties as a Board
member by reason of any medically determinable physical or mental impairment
expected to result in death or to be of continuous duration of twelve (12)
months or more.
W. PLAN shall mean the Corporation's 1998 Stock Incentive Plan, as
amended and restated in this document.
X. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those
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programs with respect to the persons under its jurisdiction. However, the
Primary Committee shall have the plenary authority to make all factual
determinations and to construe and interpret any and all ambiguities under the
Plan to the extent such authority is not otherwise expressly delegated to any
other Plan Administrator.
Y. PLAN EFFECTIVE DATE shall mean July 2, 1998.
Z. PREDECESSOR PLAN shall mean the Corporation's pre-existing 1997
Employee Incentive Stock Option Plan in effect immediately prior to the Plan
Effective Date hereunder.
AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
BB. SECONDARY COMMITTEE shall mean a committee of one (1) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
CC. SECTION 12 REGISTRATION DATE shall mean the date on which the
Common Stock is first registered under Section 12(g) of the 1934 Act.
DD. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
EE. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
FF. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
GG. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
HH. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
II. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
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JJ. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
KK. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing an initial public
offering of the Common Stock.
LL. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
<PAGE>
Exhibit 10.11
MININGCO.COM INC.
220 E. 42nd Street
New York, NY 10017
January 11, 1999
Todd Sloan
[Address]
Dear Todd:
MiningCo.com, Inc. (MiningCo.com) is pleased to offer you the position as CFO at
MiningCo.com.
1. START DATE; DUTIES: Your start date shall be on or about January 15. You
agree to use your best efforts to perform your duties for MiningCo.com
diligently and to the best of your ability. You agree to devote your full
business time and attention to performing your duties for MiningCo.com.
2. SALARY: US $3,173 per week, payable in accordance with MiningCo.com's
normal payroll practices and subject to whatever withholdings are required
by law. It is expected that salaries will be reviewed annually. You will be
eligible to participate in an Executive Bonus Pool if one is established.
You will be entitled to 3 months salary continuation (mitigated against any
other consulting or employment income) if your are terminated without
cause.
3. OPTIONS: MiningCo.com will grant to you stock options at the next grant
date to purchase 175,000 shares of common stock ("Shares") at an exercise
price of $1.50 per share in accordance with its then current stock option
plan. The options will vest 25% after the first year of employment with the
remainder vesting 1/36th per month thereafter.
It is expected that options will be reviewed annually by the compensation
committee of the Board of Directors of MiningCo.com
4. BENEFITS: You shall be entitled to those employment benefits generally made
available to employees of MiningCo.com. In addition, you shall be eligible
for 2 weeks of paid vacation each year.
5. LOCATION: MiningCo.com expects that its offices will be located in the New
York metropolitan area. It is expected that you will perform your services
primarily in the New York metropolitan area.
6. CONFIDENTIALITY: You agree that you will not, during the term of your
employment and at any time thereafter, divulge or use, directly or
indirectly, except in the course of your employment, any proprietary,
confidential or secret material or information relating to MiningCo.com or
any affiliated entity of MiningCo.com. Upon termination of your employment,
you agree to return promptly to MiningCo.com all confidential information
then in your possession.
<PAGE>
OFFER LETTER TO TODD SLOAN, PAGE 2
7. PROPRIETARY RIGHTS: You agree that all ideas, plans and materials prepared
by you in the course of your employment by MiningCo.com (collectively, the
"Materials") will be considered works-made-for-hire and shall be the
MiningCo.com's sole and exclusive property. If the Materials are not
copyrightable subject matter or for any reason are deemed not to be
works-made-for-hire, then and in such event, by this agreement you hereby
assign all right, title and interest in and to the Materials to
MiningCo.com.
8. EXPIRATION: This offer of employment expires if not accepted by you on
January 12, 1999.
9. MISCELLANEOUS:
a. This offer letter shall be governed by the laws of the State of New York
applicable to contracts made and wholly performed therein.
b. You and MiningCo.com agree that nothing in this offer letter shall
create a specific employment term.
c. Concurrently with the execution of this offer letter, you agree to
MiningCo.com's standard confidentiality non-competition proprietary rights
agreement and to execute any successor agreement to such agreement.
Sincerely, Agreed and Accepted
MININGCO.COM, INC. EMPLOYEE
By: /s/ Scott P. Kurnit /s/ Todd Sloan
------------------------------- -----------------------------------
Its: CEO Todd Sloan
Date: 1/11/99 Date: 1/12/99
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<PAGE>
Exhibit 10.12
MININGCO.COM, INC.
- -------------------------------------------------------------------------------
COMMON STOCK PURCHASE AGREEMENT
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
1. SALE OF SHARES; USE OF PROCEEDS..........................................................................1
1.1 SALE OF SHARES..................................................................................1
1.2 USE OF PROCEEDS.................................................................................1
2. THE CLOSING..............................................................................................1
2.1 CLOSING DATE....................................................................................1
2.2 DELIVERY........................................................................................2
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.................................................2
3.1 ORGANIZATION AND STANDING, ETC..................................................................2
3.2 AUTHORIZATION...................................................................................2
3.3 CAPITALIZATION..................................................................................3
3.4 NON-CONTRAVENTION...............................................................................3
3.5 FINANCIAL STATEMENTS............................................................................4
3.6 OWNERSHIP OF EQUITY.............................................................................4
3.7 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC......................................................4
3.8 PATENTS AND OTHER INTANGIBLE ASSETS.............................................................5
3.9 LITIGATION, ETC.................................................................................5
3.10 LABOR MATTERS...................................................................................5
3.11 INVESTMENT COMPANY..............................................................................5
3.12 INSURANCE.......................................................................................5
3.13 OFFERING........................................................................................5
3.14 BROKERS AND FINDERS.............................................................................6
3.15 ENVIRONMENTAL LAWS..............................................................................6
3.16 ABSENCE OF CHANGES..............................................................................6
3.17 FURTHER ASSURANCES..............................................................................6
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..........................................................7
4.1 EXPERIENCE......................................................................................7
4.2 ABILITY TO BEAR ECONOMIC RISK...................................................................7
4.3 INVESTMENT......................................................................................7
4.4 RULE 144........................................................................................7
4.5 ACCESS TO DATA..................................................................................7
4.6 AUTHORIZATION...................................................................................8
4.7 COMPLIANCE WITH OTHER INSTRUMENTS...............................................................8
4.8 ACCREDITED INVESTOR.............................................................................8
5. CONDITIONS TO CLOSING OF COMPANY.........................................................................8
5.1 REPRESENTATIONS.................................................................................8
5.2 COVENANTS.......................................................................................8
5.3 PURCHASE PRICE..................................................................................9
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
6. CONDITION TO CLOSING OF PURCHASER........................................................................9
6.1 REPRESENTATIONS.................................................................................9
6.2 COVENANTS.......................................................................................9
6.3 LEGAL OPINION...................................................................................9
6.4 SECOND AMENDED AND RESTATED INVESTORS'RIGHTS AGREEMENT..........................................9
6.5 CLOSING OF IPO..................................................................................9
6.6 UNDERWRITING AGREEMENT..........................................................................9
7. MISCELLANEOUS............................................................................................9
7.1 GOVERNING LAW...................................................................................9
7.2 SURVIVAL.......................................................................................10
7.3 SUCCESSORS AND ASSIGNS.........................................................................10
7.4 ENTIRE AGREEMENT; AMENDMENT....................................................................10
7.5 NOTICES, ETC...................................................................................10
7.6 DELAYS OR OMISSIONS............................................................................11
7.7 COUNTERPARTS...................................................................................11
7.8 SEVERABILITY...................................................................................11
7.9 TITLE AND SUBTITLES............................................................................11
7.10 BEST OF KNOWLEDGE; KNOWLEDGE...................................................................11
7.11 FURTHER ASSURANCES AND COOPERATION.............................................................11
</TABLE>
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<PAGE>
MININGCO.COM, INC.
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT is made as of the 23rd day of
February, 1999 (the "Effective Date") by and between MININGCO.COM, INC., a
Delaware corporation (the "Company"), and COMCAST INTERACTIVE INVESTMENTS, INC.,
a Delaware corporation (the "Purchaser").
WHEREAS, Purchaser wishes to make an investment in the Company and the
Company wishes to sell shares of its common stock, par value $.001 per share
(the "Common Stock"), to the Purchaser;
WHEREAS, the Company has filed a registration statement with the
Securities and Exchange Commission (the "Commission") with respect to the
planned initial public offering ("IPO") of shares of its Common Stock (such
registration statement, including the prospectus (the "Prospectus"), financial
statements and schedules, exhibits and all other documents filed as a part
thereof, together with any amendments thereto, is hereinafter referred to as the
"Registration Statement"); and
WHEREAS, the Purchaser is an "accredited investor" and wishes to
purchase from the Company shares of its Common Stock in a transaction exempt
from registration under the Securities Act of 1933, as amended, such purchase to
close simultaneously with the closing of the IPO.
NOW, THEREFORE, the parties hereto agree as follows:
1. SALE OF SHARES; USE OF PROCEEDS
1.1 SALE OF SHARES. Subject to the terms and conditions hereof, at the
Closing (as hereinafter defined) the Company hereby agrees to issue and sell to
Purchaser and Purchaser agrees to purchase from the Company, for the aggregate
amount of $2,500,000, shares of the Company's Common Stock (the "Shares") at a
price per share equal to the price at which the Company's Common Stock is sold
to the public in the IPO less the seven percent (7%) underwriting discount being
paid to the underwriters in connection with the IPO (the "Per Share Purchase
Price").
1.2 USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Shares for working capital and general corporate purposes.
2. THE CLOSING
2.1 CLOSING DATE. The closing of the purchase and sale of the Shares
(the "Closing") shall occur simultaneously with the closing of the IPO. The
Company will give Purchaser two (2) business days' written notice of the date of
the closing (the "Closing Date"). The Company will notify the Purchaser of the
IPO price promptly after it is determined by the Company's pricing committee.
<PAGE>
2.2 DELIVERY. At the Closing (i) Purchaser will deliver to the Company
a check or wire transfer funds in the amount of $2,500,000 (the "Aggregate
Purchase Price") and (ii) the Company shall deliver a certificate representing
the number of Shares equal to the amount of $2,500,000 divided by the Per Share
Purchase Price, registered in the name of Purchaser. In the event that the
Aggregate Purchase Price would result in the issuance of a fractional share,
then the Aggregate Purchase Price shall be increased to reflect the issuance
of one additional share at the Per Share Purchase Price.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company represents and warrants to the Purchaser as of the date
hereof as follows:
3.1 ORGANIZATION AND STANDING, ETC. The Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the state of Delaware. The Company is duly qualified and is in good
standing as a foreign corporation in each jurisdiction in which the character or
location of its properties (owned, leased or licensed) or the nature or conduct
of its business makes such qualification necessary, except for those failures to
be so qualified or in good standing which will not, individually or in the
aggregate, have a material adverse effect on the Company's business, properties,
assets, operations, condition (financial or other) or results of operations (a
"Material Adverse Effect"). The Company has all requisite corporate power and
authority and all necessary material consents, approvals, authorizations,
orders, registrations, qualifications, licenses and permits of and from all
public, regulatory or governmental agencies and bodies to own, lease and operate
its properties and conduct its business as now being conducted and as described
in the Registration Statement and the Prospectus, and no such consent, approval,
authorization, order, registration, qualification, license or permit contains a
materially burdensome restriction not adequately disclosed in the Registration
Statement and the Prospectus.
3.2 AUTHORIZATION. This Agreement and the transactions contemplated
herein have been duly and validly authorized by the Company and this Agreement
has been duly and validly executed and delivered by the Company. This Agreement
constitutes the valid and legally binding obligation of the Company, enforceable
in accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent that any indemnification
provision contained herein may be limited by applicable federal or state
securities laws. The Shares, when issued, delivered and sold in accordance in
compliance with the provisions of this Agreement, will be duly and validly
issued and outstanding, fully paid and nonassessable, and will be free of any
liens, encumbrances or restrictions on transfer; provided, however that the
Shares may be subject to restrictions on transfer under the state and/or federal
securities laws.
3.3 CAPITALIZATION. Effective as of the Closing, the Company expects
that its authorized capital stock shall consist of 50,000,000 shares of Common
Stock, and 5,000,000 shares of preferred stock, $.001 par value per share (the
"Preferred Stock"). All of the outstanding shares of Common Stock (i) are, or
will be on the Closing Date, duly and validly authorized and issued, fully paid
and nonassessable, (ii) were not issued and are not now in violation of or
subject to any preemptive rights and (iii) will be, following the Closing Date,
free of restrictions on transfer, other than restrictions set forth under
federal or state securities laws. All of the outstanding shares of Preferred
Stock have been duly and validly authorized and are
2
<PAGE>
validly issued and outstanding, fully paid and nonassessable and were not issued
in violation of any preemptive rights. The shares of Common Stock issuable upon
conversion of the Preferred Stock have been duly and validly authorized and
reserved for issuance upon such conversion and, upon conversion of the Preferred
Stock, the shares of Common Stock issuable upon such conversion will be validly
issued and outstanding, fully paid and nonassessable and will not have been
issued in violation of or subject to any preemptive rights. All outstanding
warrants (the "Warrants") to purchase Common Stock of the Company have been duly
and validly authorized, executed and delivered by the Company and constitute
valid and binding obligations of the Company and the shares of Common Stock
issuable upon exercise of such Warrants have been duly and validly authorized
and reserved for issuance upon such exercise and, upon payment of the exercise
price thereof upon exercise of such warrants, such shares of Common Stock will
be validly issued and outstanding, fully paid and nonassessable and will not
have been issued in violation of or subject to any preemptive rights. Except as
described in or expressly contemplated by the Registration Statement and the
prospectus filed in connection with the Company's IPO (the Prospectus"), there
are no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, any shares of capital stock or other
equity interests in the Company or any of its subsidiaries, or any contract,
commitment, agreement, understanding or arrangement of any kind relating to the
issuance of any capital stock of the Company or any such subsidiary, or any such
convertible or exchangeable securities or any such rights, warrants or options.
Except as described in the Registration Statement and Prospectus, the Company is
not a party to, and to the Company's best knowledge, immediately after the
Closing, there will be no agreement, restriction or encumbrance (such as a right
of first refusal, right of first offer, registration rights agreement,
stockholders' agreement or any similar agreement) with respect to the purchase,
sale or voting of any shares of capital stock of the Company (whether
outstanding or issuable upon conversion or exercise of outstanding securities).
3.4 NON-CONTRAVENTION. The Company is not in violation of its
Certificate of Incorporation or Bylaws or in default in the performance of any
material obligation, agreement or condition contained in any agreement,
instrument, franchise, license, permit, judgment, order or decree to which the
Company is a party or by which it or any of its properties or assets is bound.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby do not and will not (i) conflict with or
result in a breach of any of the material terms and provisions of, or constitute
a default (or an event which with notice or lapse of time, or both, would
constitute a default) under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company pursuant
to, any material agreement, instrument, franchise, license or permit to which
the Company is a party or by which any of its properties or assets may be bound,
which default would have a Material Adverse Effect or (ii) violate or conflict
with any material provision of applicable law or the Certificate of
Incorporation or Bylaws of the Company or any judgment, decree, order, statute,
rule or regulation of any court or any public, governmental or regulatory agency
or body having jurisdiction over the Company or any of its properties or assets,
which default would have a Material Adverse Effect. No consent, approval,
authorization, order, registration, qualification, license or permit of or with
any court or any public, governmental or regulatory body having jurisdiction
over the Company or any of its properties or assets is required for the
execution, delivery and performance of this Agreement or the consummation of the
transactions
3
<PAGE>
contemplated hereby, except as may be required under federal and state
securities laws, which filings will be made on or before the deadline therefor.
3.5 FINANCIAL STATEMENTS. The financial statements, including the notes
thereto, and supporting schedules included in the Registration Statement and the
Prospectus present fairly the financial position of the Company as of the dates
indicated and the results of its operations and changes in cash flow for the
periods specified. Except as otherwise stated in the Registration Statement or
Prospectus, (i) said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis; (ii) the
supporting schedules included in the Registration Statement or the Prospectus
present fairly the information required to be stated therein; (iii) the pro
forma financial information included in the Registration Statement and the
Prospectus have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements and the assumptions
used in the preparation thereof are, in the Company's opinion, reasonable and
(iv) the other financial and statistical information and data included in the
Registration Statement and the Prospectus is, in all material respects,
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Company.
3.6 OWNERSHIP OF EQUITY. The Company does not own, directly or
indirectly, any stock, partnership interest or joint venture interest in, or any
security issued by, any other entity.
3.7 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good
and marketable title to all personal property owned by it which is material to
the business of the Company, in each case free and clear of all liens,
encumberances and defects except such as are described in the Prospectus or such
as do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company. The Company does not own any real property. Any real property and
buildings held under lease by the Company are held by it under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company, in each case except as described in or
contemplated by the Prospectus.
3.8 PATENTS AND OTHER INTANGIBLE ASSETS. Except as described in the
Prospectus, the Company has sufficient interests in all trademarks, trade names,
inventions (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), patents,
copyrights, and other intellectual property reasonably necessary to conduct the
business now operated by it, and has not received any written notice of
infringement of or conflict with asserted rights of others with respect to any
intellectual property rights that, if determined adversely to the Company, would
individually or in the aggregate have a Material Adverse Effect.
3.9 LITIGATION, ETC. Except as described in the Prospectus, there is no
litigation or governmental proceedings to which the Company is a party or to
which any property of the Company is subject or which is pending or, to the
knowledge of the Company, contemplated against the Company which, if determined
adversely to the Company, would individually or in the aggregate have a Material
Adverse Effect or which is required to be disclosed in the Registration
Statement and the Prospectus, and there are no statutes, regulations, contracts
or
4
<PAGE>
other documents applicable to the Company that are required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
3.10 LABOR MATTERS. No labor dispute with the employees of the Company
exists or, to the knowledge of the Company, is imminent which would have,
individually or in the aggregate a Material Adverse Effect.
3.11 INVESTMENT COMPANY. The Company is not, and upon consummation of
the transactions contemplated hereby will not be, subject to registration as an
"investment company" under the Investment Company Act of 1940, as amended.
3.12 INSURANCE. The Company maintains insurance of the types and in the
amounts generally deemed customary in the business in which it is engaged and
the Company does not have any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not have a Material Adverse Effect.
3.13 OFFERING. Subject to the accuracy of the Purchaser's
representations in Section 4 hereof, the offer, sale and issuance of the Shares
to be issued in conformity with the terms of this Agreement constitute
transactions exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended, and applicable state securities laws.
3.14 BROKERS AND FINDERS. The Company has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.15 ENVIRONMENTAL LAWS. The Company (i) is in material compliance with
any and all applicable foreign, federal, state and local laws and regulations
relating to (A) the protection of human health and safety, and (B) the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"); (ii) has received all permits, licenses or
other approvals required of it under applicable Environmental Laws to conduct
its business and (iii) is in compliance with all terms and conditions of any
such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, individually or in the aggregate, have a
Material Adverse Effect. To the Company's knowledge, there are no material costs
or liabilities associated with Environmental Laws (including, without
limitation, any capital or operating expenditures required for cleanup, closure
of properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties) which would, individually or in the aggregate,
have a Material Adverse Effect.
3.16 ABSENCE OF CHANGES. Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, except as
set forth in the Registration Statement and the Prospectus, there has been no
material adverse change or any development involving a prospective material
adverse change in the business, properties, operations, condition
5
<PAGE>
(financial or other) or results of operations of the Company, whether or not
arising from transactions in the ordinary course of business, and since the date
of the latest balance sheet presented in the Registration Statement and the
Prospectus, the Company has not incurred or undertaken any liabilities or
obligations, direct or contingent, whether or not arising from transactions in
the ordinary course of business, which are material to the Company, except for
liabilities or obligations that are reflected in the Registration Statement and
the Prospectus.
3.17 FURTHER ASSURANCES. The Company agrees and covenants that at any
time and from time to time it will promptly execute and deliver to the Purchaser
such further instruments and documents and take such further action as the
Purchaser may reasonably require in order to carry out the full intent and
purpose of this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as of the
date hereof as follows:
4.1 EXPERIENCE. It is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests.
4.2 ABILITY TO BEAR ECONOMIC RISK. The Purchaser acknowledges that
investment in the Shares involves a high degree of risk, and represents that it
is able, without materially impairing its financial condition, to hold the
Shares for an indefinite period of time and to suffer a complete loss of its
investment.
4.3 INVESTMENT. It is acquiring the Shares for investment for its own
account, not as a nominee or agent, and not with the view to, or for resale in
connection with, any distribution thereof. It understands that the Shares have
not been, and will not be when issued, sold or transferred, registered under the
Securities Act and that the Shares will be issued by reason of a specific
exemption from the registration provisions of the Securities Act, the
availability of which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. Purchaser was not formed solely for the purpose of acquiring
the Shares.
4.4 RULE 144. It acknowledges that the Shares must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from such registration is available. It acknowledges and understands that the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things, the existence of a public
market for the Shares, the availability of certain current public information
about-the Company, the resale occurring not less than one year after a party has
purchased and paid for the security to be sold, the sale being effected through
a "broker's transaction" or in transactions directly with a "market maker" and
the number of shares being sold during any three-month period not exceeding
specified limitations, and it agrees to comply fully with such provisions as in
effect from time to time.
4.5 ACCESS TO DATA. It has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's management and the
opportunity to
6
<PAGE>
review the Company's business plan. The Purchaser acknowledges that it has
received all the information it has requested from the Company and it considers
necessary or appropriate for deciding whether to acquire the Shares. The
Purchaser represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the offering of
the Shares and to obtain any additional information necessary to verify the
accuracy of the information given the Purchaser.
4.6 AUTHORIZATION. All action (corporate or partnership, as
appropriate) on the part of the Purchaser necessary for the authorization,
execution, delivery and performance of this Agreement by Purchaser and the
performance of all of the Purchaser's obligations hereunder has been taken or
will be taken prior to the Closing. This Agreement when executed and delivered
by the Purchaser will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, and subject to laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and rules of law governing specific performance, injunctive relief or other
equitable remedies.
4.7 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance of and compliance with this Agreement, and the issuance of the
Shares have not resulted and will not result in any violation of, or conflict
with, or constitute a default under, any of the terms of any corporate or
partnership restriction or of any indenture, mortgage, deed of trust, pledge,
bank loan or credit agreement, corporate charter, bylaw or any instrument,
document or agreement by which the Purchaser or its properties may be bound or
affected, or result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Purchaser.
4.8 ACCREDITED INVESTOR. The Purchaser is an "accredited investor" as
such term is defined in Rule 501 under the Securities Act.
5. CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Shares at the Closing
Date is, at the option of the Company, subject to the fulfillment as of the
Closing Date of the following conditions:
5.1 REPRESENTATIONS. The representations and warranties made by
Purchaser in Section 4 hereof shall be true and correct when made, and shall be
true and correct in all material respects as of the Closing Date.
5.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Purchaser on or prior to the Closing Date
shall have been performed or complied with in all material respects.
5.3 PURCHASE PRICE. The Purchaser shall have tendered the Aggregate
Purchase Price.
6. CONDITION TO CLOSING OF PURCHASER.
The Purchaser's obligation to purchase the Shares at the Closing is
subject to the fulfillment as of the Closing Date of the following conditions:
7
<PAGE>
6.1 REPRESENTATIONS. The representations and warranties made by the
Company in Section 3 hereof shall be true and correct when made, and shall be
true and correct in all material respects as of the Closing Date.
6.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with in all material respects.
6.3 LEGAL OPINION. Purchaser shall have received from Brobeck, Phleger
& Harrison LLP, counsel to the Company, an opinion letter substantially in the
form attached hereto as Exhibit A addressed to them, dated as of the date of the
Closing.
6.4 SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT. The
parties shall have entered into the Second Amended and Restated Investors'
Rights Agreement in substantially the form attached hereto as Exhibit B.
6.5 CLOSING OF IPO. The Company shall have closed the IPO.
6.6 UNDERWRITING AGREEMENT. The representations and warranties set
forth in the Underwriting Agreement (the "Underwriting Agreement") by and among
the Company and Bear Stearns & Co. Inc., Volpe Brown Whelan & Company, LLC and
Wit Capital Corporation shall be true and correct when made, and shall be true
and correct in all material respects as of the Closing Date. An executed copy of
the Underwriting Agreement will be provided to the Purchaser prior to the
Closing Date.
7. MISCELLANEOUS
7.1 GOVERNING LAW. This Agreement shall be governed and construed in
all respects by the laws of the State of Delaware, as applied to agreements
among Delaware residents, made and to be performed entirely within the State of
Delaware.
7.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive the closing of the transactions contemplated hereby
for a period of twelve months from the date hereof. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto,
provided, however, that the right and obligation of the Purchaser to purchase
the Shares shall not be assignable without the consent of the Company.
7.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents
delivered pursuant hereto at the Closing constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
specifically set forth herein or therein; provided, however, that the accuracy
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of the representations and warranties set forth in the Underwriting Agreement
shall be a condition to Purchaser's obligation to proceed to Closing. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
7.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to the Purchaser, at the Purchaser's address set forth on the
signature page hereto, or at such other address as the Purchaser shall have
furnished to the Company in writing, or (b) if to the Company, one copy to its
address set forth on the signature page of this Agreement and addressed to the
attention of the President, or at such other address as the Company shall have
furnished to the Purchaser. Notices may also be sent by telecopier, with a
confirmation copy by certified or registered mail.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid, or
upon electronic confirmation of receipt if sent by telecopier.
7.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any holder of any
Shares, upon any breach or default of the Company under this Agreement, shall
impair any such right, power or remedy of such holder nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or
waiver of or acquiescence in any similar breach or default thereafter occurring;
nor shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this Agreement, must be in writing and be
executed by the party to be bound thereby, and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be cumulative and
not alternative.
7.7 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be enforceable against the party actually executing such
counterpart(s), and all of which together shall constitute one instrument.
7.8 SEVERABILITY. In the event that any provisions of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provisions; provided, that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
7.9 TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
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7.10 BEST OF KNOWLEDGE; KNOWLEDGE. Information shall be deemed to be
known to the "best of knowledge" or to the "knowledge" of a party if that
information was actually known by an executive officer of such party.
7.11 FURTHER ASSURANCES AND COOPERATION. From and after the Effective
Date, the parties agree to use their commercially reasonable efforts to satisfy
the Closing Conditions set forth in Sections 5 and 6 above.
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IN WITNESS WHEREOF, the parties have executed this Stock Purchase
Agreement as of the date first written above.
COMPANY:
MININGCO.COM, INC.
By: /s/ Scott Kurnit
---------------------------------
Name: Scott Kurnit
Title: CEO
Address: 220 East 42nd Street
New York, NY 10017
Attention: President
Fax: (212) 849-2121
PURCHASER:
COMCAST INTERACTIVE INVESTMENTS, INC.
By: /s/ Jordan Nadle
----------------------------------
Name: Jordan Nadle
Title: VP
Address: c/o Comcast Interactive
Capital Group, Inc.
1500 Market Street
Philadelphia, PA
19102-2148
Attention: Kathy M. Hyneman
Fax: (215) 981-7794
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Exhibit 10.13
MININGCO.COM, INC.
FORM OF SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
(this "AGREEMENT") dated as of __________, 1999, by and among MININGCO.COM,
INC., a Delaware corporation having a principal place of business at 220 East
42nd Street, 24th Floor, New York, New York 10017 (the "COMPANY"), and each of
the investors named on the attached EXHIBIT A and having a principal place of
business as set forth thereon (each an "INVESTOR" and collectively the
"INVESTORS"), as such EXHIBIT A may be amended from time to time to add such
other person(s) who may hereafter become a party to this Agreement.
RECITALS
WHEREAS, on April 20, 1998 the Company and certain of the Investors
(collectively, the "SERIES A INVESTORS") entered into that certain Series A
Convertible Preferred Stock Purchase Agreement (the "SERIES A PURCHASE
AGREEMENT"), pursuant to which the Company issued and sold to the Series A
Investors an aggregate of 3,346,715 shares of the Company's Series A Convertible
Preferred Stock, $.001 par value per share (the "SERIES A STOCK");
WHEREAS, on April 20, 1998 the Company and certain of the Investors
(collectively, the "SERIES B INVESTORS") entered into that certain Series B
Convertible Preferred Stock Purchase Agreement (the "SERIES B PURCHASE
AGREEMENT"), pursuant to which the Company issued and sold to the Series B
Investors an aggregate of 6,597,596 shares of the Company's Series B Convertible
Preferred Stock, $.001 par value per share (the "SERIES B STOCK");
WHEREAS, on November 13, 1998 and December 4, 1998 the Company and
certain of the Investors (collectively, the "SERIES C INVESTORS") entered into
that certain Series C Convertible Preferred Stock Purchase Agreement (the
"SERIES C PURCHASE AGREEMENT"), pursuant to which the Company issued and sold to
the Series C Investors an aggregate to 7,301,811 shares of the Company's Series
C Convertible Preferred Stock, $.001 par value per share (the "SERIES C STOCK"
and, together with the Series A Stock and the Series B Stock, the "PREFERRED
Stock");
WHEREAS, on April 20, 1998 the Series A Investors and Series B
Investors entered into that certain Investors' Rights Agreement (the "Investors'
Rights Agreement"), and on November 13, 1998 the Investors' Rights Agreement was
amended and restated to provide certain rights to the Series C Investors (the
"Amended and Restated Investors' Rights Agreement");
WHEREAS, the Company desires to issue and sell shares of its Common
Stock (as defined below) to Comcast Interactive Investments, Inc. ("Comcast")
pursuant to a Common Stock Purchase Agreement (the "Comcast Stock Purchase
Agreement") and it is a condition to
<PAGE>
the closing of the transactions contemplated by the Comcast Stock
Purchase Agreement that the Company and the Investors enter into this Agreement
to provide certain rights to Comcast;
WHEREAS, pursuant to Section 4.3 of the Amended and Restated Investors'
Rights Agreement, the Amended and Restated Investors' Rights Agreement may be
amended, waived, discharged or terminated by the written consent of the Company
and the holders of at least two-thirds of the Registrable Shares, and that any
such amendments, waivers, discharges or terminations effected in accordance with
Section 4.3 of the Amended and Restated Investors' Rights Agreement shall be
binding upon all parties thereto, including those not signing such amendment,
waiver, discharge or termination; and
WHEREAS, by entering into this Agreement, the Company, and the Series A
Investors, Series B Investors and Series C Investors whose signatures are set
forth on the signature pages hereto, which Investors constitute the holders of
at least two-thirds of the Registrable Shares, hereby consent to amending the
Amended and Restated Investors' Rights Agreement in the manner set forth herein.
NOW, THEREFORE, in consideration of the promises and mutual agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION I
DEFINITIONS; REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"C-MAX" shall mean C-Max Capital Limited Partnership - I, a Florida
limited partnership and an Investor hereunder.
"COMCAST SHARES" shall mean shares of Common Stock issued to Comcast
pursuant to the Comcast Stock Purchase Agreement.
"COMMISSION" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"COMMON STOCK" shall mean the Common Stock, $.001 par value, of the
Company.
"CONVERSION SHARES" shall mean shares of Common Stock issued or
issuable upon conversion of the Preferred Stock.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
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"EXCLUDED STOCK" shall mean (i) the Reserved Employee Shares, (ii)
securities issuable as a stock dividend or upon any subdivision of shares of
Common Stock, provided that the securities issued pursuant to such stock
dividend or subdivision are limited to additional shares of Common Stock, (iii)
securities issuable pursuant to a Qualified Public Offering, (iv) debt
securities without equity features or conversion privileges (provided, however,
that any debt security convertible into the Company's capital stock shall be
Excluded Stock if a majority of the Board of Directors approves its issuance),
(v) securities issued in connection with equipment or debt financing or leases
(including securities issued in consideration of guarantees of such financing or
leases) which are approved by the Series A Investor Director, the Series B
Investor Director and the Series C Investor Director, (vi) up to an aggregate of
200,000 shares of Common Stock (or options or warrants to purchase such shares
of Common Stock) issuable to consultants or vendors to the Company at prices or
exercise prices determined by the Board of Directors to be not less than fair
market value, (vii) the shares of Common Stock issued or issuable upon
conversion of the Preferred Stock, (viii) the shares of Common Stock issued or
issuable upon exercise of the options and warrants contemplated by the
capitalization table of the Company provided as a schedule to the Series C
Purchase Agreement (ix) the shares of stock issuable upon exercise of a warrant
issued, or to be issued, to Citicorp, N.A. to purchase 100,000 shares of Common
Stock, as described in a certain Letter Agreement by and between the Company and
Citicorp, N.A., dated June 20, 1997, and (x) if expressly approved by the
Company's Board of Directors, including a majority of the Series A Investor
Director, the Series B Investor Director and the Series C Investor Director,
securities issued (a) to vendors, customers or co-venturers or other persons in
similar commercial or corporate partnering situations, or (b) in connection with
an acquisition by the Company or an affiliate of the Company.
"QUALIFIED PUBLIC OFFERING" shall mean a firm commitment underwritten
public offering of the Company's Common Stock underwritten by a nationally
recognized full-service investment bank pursuant to which (i) the aggregate
gross proceeds received by the Company are at least $15,000,000, and (ii) the
price per share is not less than $10.00 (following appropriate adjustment in the
event of any stock dividends, stock split, combination or other similar
recapitalization affecting such shares).
"REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act (as hereinafter defined) and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRABLE SHARES" shall mean the Series A Registrable Shares, the
Series B Registrable Shares and the Series C Registrable Shares.
"RESERVED EMPLOYEE SHARES" shall mean shares of Common Stock (or
options to purchase such shares of Common Stock) issued or issuable at not less
than fair market value to officers, employees or directors of, or consultants
to, the Company pursuant to any stock purchase or option plan or other employee
stock bonus arrangement as provided by the Company's Board of Directors. The
number of Reserved Employee Shares shall not exceed 5,300,000 shares of Common
Stock (inclusive of shares subject to currently outstanding employee options)
prior to the one (1) year anniversary of the execution of this Agreement;
PROVIDED, HOWEVER, that after the one (1) year anniversary, the number of shares
set aside for
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Reserved Employee Shares may be increased (or decreased) by the vote of the
Board of Directors.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SERIES A INVESTOR DIRECTOR" shall have the meaning given to that term
in the Amended and Restated Shareholders Agreement entered into
contemporaneously herewith.
"SERIES B INVESTOR DIRECTOR" shall have the meaning given to that term
in the Amended and Restated Shareholders Agreement entered into
contemporaneously herewith.
"SERIES C INVESTOR DIRECTOR" shall have the meaning given to that term
in the Amended and Restated Shareholders Agreement entered into
contemporaneously herewith.
"SERIES A REGISTRABLE SHARES" shall mean (i) the shares of Common Stock
issued or issuable upon conversion of the Series A Stock; (ii) an aggregate of
864,557 shares of Common Stock issued or issuable by the Company to certain
Investors upon the exercise of certain warrants issued on March 27, 1997, April
14, 1997, July 10, 1997, July 24, 1997, August 7, 1997, August 27, 1997,
September 22, 1997 and January 15, 1998 in connection with that certain Note and
Warrant Purchase Agreement dated March 27, 1997, as such warrants and such Note
and Warrant Purchase Agreement have been amended from time to time (such
warrants collectively referred to herein as the "SERIES A OUTSTANDING
WARRANTS"); and (iii) shares issued or issuable upon an adjustment for (a) stock
splits, stock dividends and the like (including, without limitation, any such
adjustments with respect to the securities referred to in (i) and (ii) above),
and (b) in the Series A Outstanding Warrants as in effect on the date hereof.
Notwithstanding the foregoing, Series A Registrable Shares shall not include
shares of Common Stock issued or issuable pursuant to the foregoing which (i)
have been registered under the Securities Act pursuant to an effective
registration statement filed thereunder and disposed of in accordance with the
registration statement covering them, (ii) are publicly sold pursuant to Rule
144 under the Securities Act or, as to any one holder, all of his or its shares
may be sold in a single transaction, or (iii) are eligible for sale under Rule
144(k) under the Securities Act.
"SERIES B REGISTRABLE SHARES" shall mean (i) the shares of Common Stock
issued or issuable upon conversion of the Series B Stock; (ii) an aggregate of
702,777 shares of Common Stock issued or issuable by the Company to certain
Investors upon the exercise of certain warrants issued on November 26, 1997,
February 2, 1998, February 12, 1998 and February 26, 1998 in connection with
those certain Note and Warrant Purchase Agreements dated November 26, 1997,
February 2, 1998 and February 12, 1998, respectively, as such warrants and such
Note and Warrant Purchase Agreement have been amended from time to time (such
warrants collectively referred to herein as the "SERIES B OUTSTANDING WARRANTS"
and, together with the Series A Outstanding Warrants, the "OUTSTANDING
WARRANTS"); (iii) the shares of Common Stock issued or issuable by the Company
to certain of the Investors upon the exercise of certain warrants issued in
connection with the sale of the Series B Stock; (iv) the 60,000 shares of Common
Stock issued or issuable by the Company to Mr. Kevin Watson upon the exercise of
a warrant issued in connection with the execution of an advisory agreement with
the
4
<PAGE>
Company; and (v) shares issued or issuable upon an adjustment for stock splits,
stock dividends and the like (including, without limitation, any such
adjustments with respect to the securities referred to in (i) above).
Notwithstanding the foregoing, Series B Registrable Shares shall not include
shares of Common Stock issued or issuable pursuant to the foregoing which (i)
have been registered under the Securities Act pursuant to an effective
registration statement filed thereunder and disposed of in accordance with the
registration statement covering them, (ii) are publicly sold pursuant to Rule
144 under the Securities Act or, as to any one holder, all of his or its shares
may be sold in a single transaction, or (iii) are eligible for sale under Rule
144(k) under the Securities Act.
"SERIES C REGISTRABLE SHARES" shall mean the shares of Common Stock
issued or issuable upon conversion of the Series C Stock and shares issued or
issuable upon an adjustment for stock splits, stock dividends and the like
(including, without limitation, any such adjustments with respect to the
securities referred above). Notwithstanding the foregoing, Series C Registrable
Shares shall not include shares of Common Stock issued or issuable pursuant to
the foregoing which (i) have been registered under the Securities Act pursuant
to an effective registration statement filed thereunder and disposed of in
accordance with the registration statement covering them, (ii) are publicly sold
pursuant to Rule 144 under the Securities Act or, as to any one holder, all of
his or its shares may be sold in a single transaction, or (iii) are eligible for
sale under Rule 144(k) under the Securities Act.
1.2. RESTRICTIVE LEGEND. (a) Each certificate representing Preferred
Stock or Conversion Shares shall, except as otherwise provided in Section 1.3,
be stamped or otherwise imprinted with a legend substantially in the following
form:
"TRANSFER RESTRICTED
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS (I) UPON TRANSFER PURSUANT TO AN AMENDED AND
RESTATED SHAREHOLDERS AGREEMENT BY AND AMONG THE COMPANY AND
ITS SHAREHOLDERS, AND (II) PURSUANT TO AN AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT BY AND AMONG THE COMPANY AND
CERTAIN SHAREHOLDERS. A COPY OF THE AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT AND A COPY OF THE AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT MAY BE OBTAINED FROM THE COMPANY
WITHOUT CHARGE UPON THE WRITTEN REQUEST OF THE HOLDER HEREOF.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SHARES UNDER
THAT ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS, IN
THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, AN
EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE."
(b) Each certificate representing Comcast Shares shall be stamped or
otherwise imprinted with a legend substantially in the following form:
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<PAGE>
"TRANSFER RESTRICTED
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS PURSUANT TO A SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT BY AND AMONG THE COMPANY AND
CERTAIN SHAREHOLDERS. A COPY OF THE SECOND AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT MAY BE OBTAINED FROM THE
COMPANY WITHOUT CHARGE UPON THE WRITTEN REQUEST OF THE HOLDER
HEREOF.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SHARES UNDER
THAT ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS, IN
THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, AN
EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE."
1.3. REQUIRED REGISTRATION.
(a) Following the earlier to occur of (a) the third anniversary of the
date of execution and delivery of this Agreement, and (b) the date which is six
(6) months following the date of a Qualified Public Offering, either (i) the
holders of Series A Registrable Shares constituting at least fifty percent (50%)
of the Series A Registrable Shares then owned beneficially or of record by
Investors and Investor Transferees (as hereinafter defined), (ii) (A) the
holders of Series B Registrable Shares constituting at least fifty percent (50%)
of the Series B Registrable Shares then owned beneficially or of record by
Investors and Investor Transferees or (B) C-Max, or (iii) the holders of Series
C Registrable Shares constituting at least fifty percent (50%) of the Series C
Registrable Shares then owned beneficially or of record by Investors and
Investor Transferees, may request that the Company use commercially reasonable
efforts to register under the Securities Act all or any portion of the
Registrable Shares held by such requesting holder or holders for sale in the
manner specified in such notice; PROVIDED, HOWEVER, that the Company may, by
notice to the requesting holders, delay such requested registration if the
Company's Board of Directors determines that such registration at the time
requested would have a material adverse effect upon the Company; PROVIDED,
FURTHER, HOWEVER, that the Company's ability to delay such registration shall be
limited to durations of no longer than ninety (90) days and the Company shall
not delay more than once during any twelve (12) month period.
(b) The Company shall not be obligated pursuant to this Section 1.3 to
effectuate more than: (i) one (1) registration before a Qualified Public
Offering for the benefit of the holders set forth in Section 1.3(a)(i) above;
(ii) one (1) registration before a Qualified Public Offering for the benefit of
the holders set forth in Section 1.3(a)(ii) above; (iii) one (1) registration
before a Qualified Public Offering for the benefit of the holders set forth in
Section 1.3(a)(iii) above; (iv) one (1) registration after a Qualified Public
Offering for the benefit of the holders set forth in Section 1.3(a)(i) above;
(v) one (1) registration after a Qualified Public Offering for the benefit of
the holders set forth in Section 1.3(a)(ii) above; or (vi) one (1) registration
after a Qualified Public Offering for the benefit of the holders set forth in
Section 1.3(a)(iii). In addition, the aggregate offering price of the
Registrable Shares to be sold pursuant
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<PAGE>
to each such registration shall be at least $5,000,000. Notwithstanding anything
to the contrary contained herein, no request may be made under this Section 1.3:
(i) within one hundred eighty (180) days after the effective date of a
registration statement filed by the Company covering a firm commitment
underwritten public offering of securities of the Company under the Securities
Act; or
(ii) during the period starting with the date sixty (60) days prior to
the Company's estimated date of filing of, and ending on the date six (6) months
immediately following the effective date of any registration statement
pertaining to securities of the Company (other than a registration of securities
in a Rule 145 transaction or with respect to an employee benefit plan), provided
that the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective and that the Company's
estimate of the date of filing such registration statement is made in good
faith.
(c) Following receipt of any notice under Section 1.3(a), the Company
shall promptly notify all Investors and Investor Transferees from whom notice
has not been received and, as soon thereafter as practicable, shall use its
reasonable efforts to register under the Securities Act, for public sale in
accordance with the method of disposition specified in such notice from
requesting holders, the number of shares of Registrable Shares specified in such
notice (and in all notices received by the Company from other holders within
twenty (20) days after the giving of such notice by the Company). If such method
of disposition shall be an underwritten public offering, the Company shall
designate the managing underwriter of such offering, following consultation and
subject to the approval of the Investors and Investor Transferees from whom
notice has been received, which approval shall not be unreasonably withheld or
delayed. All sellers must participate in the underwriting. The Company's
registration obligation hereunder shall be deemed satisfied only when a
registration statement or statements covering shares of Registrable Shares
specified in notices received as aforesaid, for sale in accordance with the
method of disposition specified by the requesting holders, shall have become
effective and, if such method of disposition is a firm commitment underwritten
public offering, all such shares shall have been sold pursuant thereto.
(d) The Company shall be entitled to include in any registration
statement referred to in this Section 1.3, for sale in accordance with the
method of disposition specified by the requesting holders, shares of Common
Stock to be sold by the Company for its own account and for the account of other
selling shareholders, except as and to the extent that, in the reasonable
opinion of the managing underwriter (if such method of disposition shall be an
underwritten public offering), such inclusion would materially adversely affect
the marketing of the shares of Common Stock to be sold. Except for registration
statements on Form S-4, S-8 or any successor thereto, and subject to Section
1.3(b), the Company will not file with the Commission any other registration
statement with respect to its Common Stock, whether for its own account or that
of other shareholders, from the date of receipt of a notice from requesting
holders pursuant to this Section 1.3 until the completion of the lesser of the
period of distribution of the shares of Registrable Shares registered thereby
and 90 days from the effective date of the registration statement, unless the
Registrable Shares shall be entitled to be included therein in accordance with
Section 1.4 below.
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(e) The Company will use commercially reasonable efforts to maintain
the effectiveness of any Form S-1 used to register the shares pursuant to this
Section 1.03 for up to ninety (90) days or such earlier time as all of the
Registrable Shares have been sold.
1.4. INCIDENTAL REGISTRATION.
(a) If, at any time, the Company determines to register any of its
securities under the Securities Act for sale to the public, whether for its own
account or for the account of other security holders or both (except with
respect to registration statements on Form S-8 or its then equivalent, or in
connection with a Rule 145 transaction or Form S-4 or its equivalent, or another
form not available for registering the Registrable Shares for sale to the
public), each such time it will give prompt written notice to all holders of
outstanding Registrable Shares, including each holder who has the right to
acquire Registrable Shares, and the holders of the Comcast Shares of its
intention so to do and of the proposed method of distribution of such
securities. Upon the written request of any such holder, received by the Company
within twenty (20) days after the giving of any such notice by the Company, to
include in the registration all or any part of the Registrable Shares and the
Comcast Shares, the Company will use commercially reasonable efforts to cause
the Registrable Shares and the Comcast Shares as to which registration shall
have been so requested to be included in the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
and under the conditions such registration is permitted under the Securities Act
and this Section 1.4. In the event that any registration pursuant to this
Section 1.4 shall be, in whole or in part, an underwritten public offering of
Common Stock, the number of shares of Registrable Shares and Comcast Shares to
be included in such an underwriting may be reduced (pro rata among the
requesting holders based upon the number of shares of Registrable Shares and
Comcast Shares owned by such holders) if and to the extent that the managing
underwriter shall be of the opinion that the inclusion of some or all of the
Registrable Shares or Comcast Shares would adversely affect the marketing of the
securities to be sold by the Company therein. Any such limitation shall be
imposed in such manner so as to avoid any diminution in the number of shares the
Company may register for sale by giving first priority for the shares to be
registered for issuance and sale by the Company, by giving second priority for
any Registrable Shares to be registered pursuant to Section 1.3 hereof and the
Comcast Shares, and by giving third priority for the Registrable Shares to be
registered for sale by any other Investor pursuant to the terms of this Section
1.4. Notwithstanding the foregoing provisions, the Company may, in its sole
discretion, terminate or withdraw any registration statement referred to in this
Section 1.4 without thereby incurring any liability to the holders of
Registrable Shares and Comcast Shares.
(b) The Company will use commercially reasonable efforts to maintain
the effectiveness of any form used to register the shares pursuant to this
Section 1.04 for up to ninety (90) days or such earlier time as all of the
Registrable Shares and Comcast Shares have been sold.
1.5. REGISTRATION ON FORM S-3. If at any time the holders of at least
twenty percent (20%) of the Registrable Shares then owned beneficially or of
record by Investors and Investor Transferees request that the Company file a
registration statement on Form S-3 or any successor thereto for a public
offering of all or any portion of the Registrable Shares held by such requesting
holder or holders, the reasonably anticipated aggregate price to the public (net
of
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underwriting discounts and commissions) of which would exceed $2,000,000, and
the Company is a registrant entitled to use Form S-3 or any successor thereto to
register such shares, then the Company shall use all commercially reasonable
efforts to register under the Securities Act on Form S-3 or any successor
thereto, for public sale in accordance with the method of disposition specified
in such notice, the number of Registrable Shares specified in such notice.
Whenever the Company is required by this Section 1.5 to use all reasonable
efforts to effect the registration of Registrable Shares, each of the procedures
and requirements of Section 1.3 (including but not limited to the requirement
that the Company notify all holders of Registrable Shares and Comcast Shares
from whom notice has not been received and provide them with the opportunity to
participate in the offering) shall apply to such registration. The Company shall
be obligated to register Registrable Shares and Comcast Shares pursuant to this
Section 1.5 on two occasions; PROVIDED, HOWEVER, that such obligation shall be
deemed satisfied only when a registration statement or statements covering all
shares of Registrable Shares and Comcast Shares specified in notices received as
aforesaid, for sale in accordance with the method of disposition specified by
the requesting holders, shall have become effective. The Company will use its
commercially reasonable efforts to maintain the effectiveness of any Form S-3
for a period of up to one hundred eighty (180) days or such earlier time as all
of the Registrable Shares and Comcast Shares have been sold.
1.6. LIMITATION ON REGISTRATION REQUEST. Notwithstanding any other
provision of this Agreement, the right of a holder of Registrable Shares to
request registration of the same by the Company pursuant to Sections 1.3, 1.4
and 1.5 hereof, or the right of a holder of Comcast Shares to include Comcast
Shares in a registration pursuant to Section 1.3(c) or 1.4 hereof, shall not
apply with respect to such holder upon the earliest to occur of (a) all of such
holder's Conversion Shares or Comcast Shares can be sold in compliance with the
volume and other restrictions set forth in Rule 144 of the Securities Act, (b)
all of such holder's Conversion Shares or Comcast Shares may be sold in
compliance with Rule 144(k) of the Securities Act, or (c) five (5) years from
the date of the consummation of the Qualified Public Offering.
1.7. REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions of Sections 1.3, 1.4 or 1.5 to use its commercially reasonable
efforts to effect the registration of any Registrable Shares or Comcast Shares
under the Securities Act, the Company will, at its cost and expense (including
without limitation, payment of the costs and expenses described in Section 1.8),
as expeditiously as reasonably practicable:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section 1.3,
shall be on Form S-1 or other form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use all reasonable efforts to cause such registration statement
to become and remain effective for the period set forth in Section 1.3, 1.4, or
1.5, as applicable;
(b) prepare and file as expeditiously as reasonably practicable and in
any event within ninety (90) days with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in Section 1.7(a) above and comply with the provisions of
the Securities Act with respect to the disposition of all Registrable
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Shares and Comcast Shares covered by such registration statement in accordance
with the sellers' intended method of disposition set forth in such registration
statement for such period;
(c) furnish to each seller of Registrable Shares and Comcast Shares and
to each underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Registrable Shares and Comcast Shares covered by such
registration statement;
(d) use all reasonable efforts to register or qualify the Registrable
Shares and Comcast Shares covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the sellers of
Registrable Shares and Comcast Shares or, in the case of an underwritten public
offering, the managing underwriter reasonably shall request, PROVIDED, HOWEVER,
that the Company shall not for any such purpose be required to qualify generally
to transact business as a foreign corporation in any jurisdiction where it is
not so qualified or to consent to general service of process in any such
jurisdiction;
(e) use all reasonable efforts to list the Registrable Shares and
Comcast Shares covered by such registration statement with NASDAQ or any
securities exchange on which the Common Stock of the Company is then listed, or
NASDAQ or such securities exchange as shall be selected by the Company, or, if
the Company fails to make an application to so list within thirty (30) days of a
request for the same by the Investors in connection with a Qualified Public
Offering, the Investors may determine the place of listing, subject to
qualification by the Company to list its shares thereon;
(f) immediately notify each seller of Registrable Shares and Comcast
Shares and each underwriter under such registration statement, at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event of which the Company has knowledge as a
result of which the prospectus contained in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing. The sellers
of Registrable Shares and Comcast Shares agree upon receipt of such notice
forthwith to cease making offers and sales of Registrable Shares and Comcast
Shares pursuant to such registration statement or deliveries of the prospectus
contained therein for any purpose until the Company has prepared and furnished
such amendment or supplement to the prospectus as may be necessary so that, as
thereafter delivered to purchasers of such Registrable Shares and Comcast
Shares, such prospectus shall not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing;
(g) notify each seller of Registrable Shares and Comcast Shares under
such registration statement of (i) the effectiveness of such registration
statement, (ii) the filing of any post-effective amendments to such registration
statement, or (iii) the filing of a supplement to such registration statement;
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(h) at the request of any seller of Registrable Shares or Comcast
Shares, use all reasonable efforts to furnish on the date that Registrable
Shares and Comcast Shares are delivered to the underwriters for sale pursuant to
such registration: (i) an opinion dated such date of counsel representing the
Company for the purposes of such registration, addressed to the sellers (with a
copy provided to the underwriters), and in customary form; and (ii) a letter
dated such date from the independent public accountants retained by the Company,
addressed to the sellers (with a copy provided to the underwriters) and covering
such matters with respect to such registration as such underwriters reasonably
may request; and
(i) make available for inspection upon reasonable notice during the
Company's regular business hours by each seller of Registrable Shares or Comcast
Shares, any underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent retained by
such seller or underwriter, all material financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers and directors to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in connection with such
registration statement.
For purposes of Section 1.7(a) and 1.7(b) and of Section 1.3(d), the
period of distribution of Registrable Shares and Comcast Shares in a firm
commitment underwritten public offering shall be deemed to extend until each
underwriter has completed the distribution of all securities purchased by it,
and the period of distribution of Registrable Shares and Comcast Shares in any
other registration shall be deemed to extend until the earlier of the sale of
all Registrable Shares and Comcast Shares covered thereby and 90 days after the
effective date of such registration statement, with reasonable extensions to be
granted for suspensions thereof.
In connection with and as a condition to each registration hereunder,
the sellers of Registrable Shares and Comcast Shares shall (a) provide such
information and execute such documents as may reasonably be required in
connection with such registration, (b) agree to sell Registrable Shares and
Comcast Shares on the basis provided in any underwriting arrangements, and (c)
complete and execute all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required or requested
under the terms of such underwriting arrangements.
In connection with each registration pursuant to Sections 1.3, 1.4 or
1.5 covering an underwritten public offering, the Company and each seller agree
to enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
1.8. EXPENSES. All expenses incurred by the Company in complying with
Sections 1.3, 1.4 and 1.5, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, transfer taxes, fees of transfer agents and registrars, and the
reasonable fees and disbursements of one counsel for the sellers of Registrable
Shares and Comcast Shares (which fees and expenses do not exceed $15,000 in the
aggregate), but
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excluding any Selling Expenses, are called "Registration Expenses." All
underwriting discounts and selling commissions applicable to the sale of
Registrable Shares and Comcast Shares and the fees of more than one counsel are
called "Selling Expenses."
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 1.3, 1.4 or 1.5. The Company shall not,
however, be required to pay for the Registration Expenses of any registration
proceeding begun pursuant to Section 1.3 or 1.5, the request for which is
subsequently withdrawn by the requesting holders of Registrable Shares, in which
event the Registration Expenses shall be borne by the requesting holders of the
Registrable Shares in proportion to the number of shares for which registration
was requested. All Selling Expenses in connection with each registration
statement under Sections 1.3, 1.4 or 1.5 shall be borne by the participating
sellers in proportion to the number of Registrable Shares and Comcast Shares
sold by each, or by such participating sellers other than the Company (except to
the extent the Company shall be a seller) as they may agree.
1.9. INFORMATION BY HOLDER. The holder or holders of Registrable Shares
and Comcast Shares included in any registration shall furnish to the Company
such information regarding such holder or holders of Registrable Shares and
Comcast Shares, the Registrable Shares and Comcast Shares held by them and the
distribution proposed by such holder or holders of Registrable Shares and
Comcast Shares as the Company may reasonably request in writing and as shall be
required in connection with any registration (including any amendment to a
registration statement or prospectus), qualification or compliance referred to
in this Section 1.9.
1.10. LOCK-UP AGREEMENTS. Each holder of Registrable Shares and Comcast
Shares shall agree to be bound by such lock-up agreements (not to exceed a
period of 180 days following the date of the prospectus relating to any such
underwriting) as the managing underwriter of any such registration shall specify
as a requirement to any such underwriting, provided that the entry of such
holder of Registrable Shares or Comcast Shares into such agreements shall be
conditioned upon at least ninety percent (90%) of the then current shareholders
(including all shareholders, who, together with their affiliates, hold at least
one percent (1%) of the then outstanding shares of the Company's capital stock)
and all executive key officers (including, at a minimum, Scott Kurnit) and
directors of the Company also agreeing to execute such lock-up agreement
regardless of the number of shares of the capital stock of the Company then
owned by them.
1.11. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of a registration of any of the Registrable Shares or
Comcast Shares under the Securities Act pursuant to Sections 1.3, 1.4 or 1.5,
the Company will indemnify and hold harmless each seller of such Registrable
Shares or Comcast Shares thereunder, each underwriter of such Registrable Shares
or Comcast Shares thereunder and each other person, if any, who controls such
seller or underwriter within the meaning of Section 15 of the Securities Act,
from and against any losses, claims, damages or liabilities, joint or several,
to which such seller, underwriter or controlling person may become subject under
the Securities Act or under any other statute or at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which
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such Registrable Shares or Comcast Shares were registered under the Securities
Act pursuant to Sections 1.3, 1.4 or 1.5, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or any violations of applicable law relating to such
registration, and will pay the reasonable legal fees and other expenses of each
such seller, each such underwriter and each such controlling person incurred by
them in connection with investigating or defending any action whether or not
resulting in any liability insofar as such loss, claim, damage, liability or
action results from the foregoing, PROVIDED, HOWEVER, that the Company will not
be liable to a seller in any such case if and to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in reliance
upon and in conformity with information furnished in writing by any such seller,
any such underwriter or any such controlling person specifically for use in such
registration statement or prospectus; and, PROVIDED, FURTHER, HOWEVER, that the
Company will not be liable to a holder in any such case to the extent that any
such loss, claim, damage, liability or action arises out of or is based upon an
untrue or alleged untrue statement or omission or an alleged omission made in
any preliminary prospectus or final prospectus if (1) such holder failed to send
or deliver a copy of the final prospectus or prospectus supplement with or prior
to the delivery of written confirmation of the sale of the Registrable Shares or
Comcast Shares, and (2) the final prospectus or prospectus supplement would have
corrected such untrue statement or omission.
(b) In the event of a registration of any of the Registrable Shares or
Comcast Shares under the Securities Act pursuant to Sections 1.3, 1.4 or 1.5,
each seller of such Registrable Shares or Comcast Shares thereunder, severally
and not jointly, will indemnify and hold harmless the Company, each person, if
any, who controls the Company within the meaning of the Securities Act, each
officer of the Company who signs the registration statement, each director of
the Company, each underwriter and each person who controls any underwriter
within the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Shares or Comcast Shares were registered under the
Securities Act pursuant to Sections 1.3, 1.4 or 1.5, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will pay the reasonable legal fees and
other expenses of the Company and each such officer, director, underwriter and
controlling person incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that such seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information furnished in
writing to the Company by such seller specifically for use in such registration
statement or prospectus; and PROVIDED, FURTHER, HOWEVER, that the liability of
each seller hereunder shall be limited to the amount of gross proceeds received
by such seller in connection with such registration.
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(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability that it may have to
such indemnified party other than under this Section 1.11 and shall only relieve
it from any liability that it may have to such indemnified party under this
Section 1.11 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 1.11 for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof; PROVIDED,
HOWEVER, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded (based on the advice of counsel) that there may be reasonable defenses
available to it which are different from or additional to those available to the
indemnifying party or if the interests of the indemnified party reasonably may
be deemed to conflict with the interests of the indemnifying party, the
indemnified party shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in the defense of such
action, with the expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the indemnifying party as
incurred, it being understood, however, that the indemnifying party shall not,
in connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel as
required by the local rules of such jurisdiction) at any time for all such
indemnified parties.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Shares or Comcast Shares exercising rights under this Agreement, or
any controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 1.11 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 1.11 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
selling holder or any such controlling person in circumstances for which
indemnification is provided under this Section 1.11; then, and in each such
case, the Company and each such holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion as may be reasonable taking into account such
matters as (i) their relative fault as to the matters giving rise to such
losses, claims, damages or liabilities, (ii) their relative ability or
opportunity to have avoided such losses, claims, damages or liabilities,
PROVIDED, HOWEVER, that, in any such case, no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 12(f) of the
Securities Act) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
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(e) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
1.12. CHANGES IN COMMON STOCK OR PREFERRED STOCK. If, and as often as,
there is any change in the Common Stock or the Preferred Stock by way of a stock
split, stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock or
the Preferred Stock as so changed.
1.13. RULE 144 REPORTING AND RULE 144A INFORMATION. With a view to
making available the benefits of certain rules and regulations of the Commission
that may at any time permit the resale of the Registrable Shares or Comcast
Shares without registration, the Company will:
(a) at all times after 90 days after the first registration statement
covering a public offering of securities of the Company under the Securities Act
shall have become effective or following registration under Section 12 of the
Exchange Act, use its commercially reasonable efforts to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(ii) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(iii) furnish to each holder of Registrable Shares and Comcast Shares
forthwith upon request a written statement by the Company as to its compliance
with the reporting requirements of such Rule 144 and of the Securities Act and
the Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Registrable Shares or Comcast
Shares without registration; and
(b) at any time, at the request of any holder of Preferred Stock or
Registrable Shares or Comcast Shares, make available to such holder and to any
prospective transferee of such Preferred Stock or Registrable Shares or Comcast
Shares the information concerning the Company described in Rule 144A(d)(4) under
the Securities Act.
1.14. DAMAGES. The Company recognizes and agrees that the holders of
Registrable Shares and Comcast Shares will suffer irreparable harm and will not
have an adequate remedy at law if the Company fails to comply with any provision
of Section 1, and the Company expressly agrees that, in the event of such
failure, the holders of Registrable Shares, Comcast Shares or any other person
entitled to the benefits of Section 1 shall be entitled to seek
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specific performance of any and all provisions of Section 1 and may seek to
enjoin the Company from continuing to commit any further breach of this Section
1.
SECTION 2
INFORMATION RIGHTS; INSPECTION RIGHTS; SMALL BUSINESS
ADMINISTRATION EXAMINER AUDITS
2.1 INFORMATION RIGHTS. As long as any Investor or any Investor
Transferee owns any Preferred Stock (and, with respect to clauses (d) - (h)
below, as long as any Investor or any Investor Transferee owns at least three
percent (3%) of the Company's Common Stock on an as converted basis) each such
Investor, or any Investor Transferee, shall be entitled to receive, and the
Company shall mail to any such Investor or Investor Transferee, at the times
specified, the following reports:
(a) as soon as available, and in any event within thirty (30) days
after the end of each month, a balance sheet for the Company as of the end of
such month and the related statements of income, shareholder's equity and
cashflows for the year to date, prepared in accordance with generally accepted
accounting principles and certified by the Chief Financial Officer of the
Company as true, correct and complete;
(b) as soon as available and in any event within ninety (90) days after
the end of each fiscal year of the Company, a balance sheet of the Company as of
the end of such fiscal year and the related statements of income, shareholders'
equity and cash flows for the fiscal year then ended, prepared in accordance
with generally accepted accounting principles and audited by a firm of
independent public accountants of national recognition selected by the Board of
Directors of the Company and reasonably acceptable to the Investors;
(c) no later than thirty (30) days prior to the start of each fiscal
year, the Company's annual operating plan, including, without limitation,
consolidated capital and operating expense budgets, cash flow projections and
income and loss projections for the Company and its subsidiaries in respect of
such fiscal year, all itemized in reasonable detail and prepared on a monthly
basis, and, promptly after preparation, any revisions to any of the foregoing;
(d) promptly following receipt by the Company, each audit response
letter, accountant's management letter and other written report submitted to the
Company by its independent public accountants in connection with an annual or
interim audit of the books of the Company or any of its subsidiaries;
(e) promptly after the commencement thereof, notice of all actions,
suits, claims, proceedings, investigations and inquiries that are likely to
materially adversely affect the Company or any of its subsidiaries;
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(f) promptly upon sending, making available or mailing the same, all
press releases, reports and financial statements that the Company sends or makes
available to its shareholders;
(g) promptly, from time to time, such other material information
regarding the business, prospects, financial condition, operations, property or
affairs of the Company and its Subsidiaries as such Investor reasonably may
request; and
(h) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited profit or loss statement, schedule as to the
sources and application of funds for such fiscal quarter and an unaudited
balance sheet and a statement of stockholder's equity, as of the end of such
fiscal quarter and a statement showing the number of shares of each class and
series of capital stock and securities convertible into or exercisable for
shares of capital stock outstanding at the end of the period, the number of
common shares issuable upon conversion of exercise of any outstanding securities
convertible or exercisable for common shares and the exchange ratio or exercise
price applicable thereto, all in sufficient detail as to permit the Investor to
calculate its percentage equity ownership in the Company.
The obligations of the Company to furnish financial information to the
Investors and the Investor Transferees pursuant to this Section 2.1 shall
terminate upon the earlier to occur of (i) the completion of a Qualified Public
Offering, or (ii) such time as the Company otherwise becomes subject to the
reporting requirements of the Exchange Act.
2.2 INSPECTION RIGHTS. As long as any Investor or any Investor
Transferee owns any Preferred Stock, the Company shall permit each Investor and
such persons as it may designate, subject to the Company's reasonable approval
and the execution of a confidentiality agreement acceptable to the Company, at
such Investor's expense, upon not less than three (3) business days prior notice
to the Company to visit and inspect, during normal business hours and without
disruption to the Company's business, any of the properties of the Company and
its subsidiaries, examine their books (and take copies and extracts therefrom),
discuss the affairs, finances and accounts of the Company and its subsidiaries
with their officers and employees, and consult with and advise the management of
the Company and its subsidiaries as to their affairs, finances and accounts, all
at reasonable times and upon reasonable notice. The Investors and their approved
designees agree that he or it will keep confidential and will not disclose,
divulge or use (other than for purposes of monitoring its investment in the
Company) any confidential, proprietary or secret information which such Investor
may obtain from the Company pursuant to financial statements, reports and other
materials submitted by the Company to such Investor pursuant to this Agreement,
or pursuant to inspection rights granted hereunder, unless such information is
known to the public through no fault of any Investor or its designees or
representatives; PROVIDED, HOWEVER, an Investor may disclose such information
(i) to its attorneys, accountants and other professionals to the extent
necessary to obtain their services in connection with its investment in the
Company, (ii) to any prospective permitted transferee of the Preferred Stock, so
long as the prospective transferee agrees to be bound by the provisions of this
Section 2.2, (iii) to any general partner or affiliate of such Investor, and
(iv) to any other Investor.
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2.3 SMALL BUSINESS ADMINISTRATION EXAMINER AUDITS. So long as any of
the Investors which holds shares of the capital stock of the Company is a Small
Business Investment Company, and at any reasonable time and from time to time
during normal business hours and upon prior notice, the Company will provide
Small Business Administration examiners access to its books and records for
Small Business Administration audit purposes. In addition, upon request by the
Investors, the Company shall deliver or cause to be delivered copies of any and
all documents, costs, or other instruments which the Investors may request from
time to time (a) in response to a request for production of the same for the
Small Business Administration, or (b) in compliance with any instrument under
the Small Business Investment Act.
SECTION 3
RIGHT TO PURCHASE NEW SECURITIES
3.1 PARTICIPATION RIGHTS. The Company shall, at least ten (10) days
prior to any issuance by the Company of any of its securities other than
Excluded Stock to any party, give written notice of such issuance to each holder
of Registrable Shares (the "OFFEREES"). The Company's written notice to the
Offerees shall describe the securities proposed to be issued by the Company and
specify the number, price and payment terms. Each holder of the Registrable
Shares shall have the right, for a period of twenty (20) days from such notice,
to purchase, at the same price and on the same terms and conditions, that number
of additional securities of the Company as would be necessary to preserve such
holder's percentage interest in the equity of the Company on a fully diluted, as
converted basis, as of the time immediately prior to such issuance. Each Offeree
may accept the Company's offer as to the full number of securities offered to it
or any lesser number, by written notice thereof given by it to the Company prior
to the expiration of the aforesaid twenty (20) day period, in which event the
Company shall promptly sell and such Offeree shall buy, upon the terms
specified, the number of securities agreed to be purchased by such Offeree.
The Company shall be free at any time after the end of the aforesaid
twenty (20) day period and prior to ninety (90) days after the date of its
notice of offer to the Offerees, to offer and sell to any third party or parties
the number of such securities not agreed by the Offerees to be purchased by
them, at a price and on payment terms no less favorable to the Company than
those specified in such notice of offer to the Offerees. However, if such third
party sale or sales are not consummated within such ninety (90) day period, the
Company shall not sell such securities as shall not have been purchased within
such period without again complying with this Section 3.1. The obligations of
the Company under this Section 3.1 shall terminate upon the completion of a
Qualified Public Offering. Notwithstanding anything contained in this Agreement
to the contrary, the written notice of an offer to purchase newly issued shares
to which a participation right applies (as provided in the preceding paragraph)
need not be given prior to the purchase by the party intending to purchase the
newly issued shares, provided such offer is sent within five (5) days thereafter
and remains open for a twenty (20) day period from the receipt thereof, and
further provided that the Company has set aside a number of shares sufficient to
satisfy the obligations of the Company pursuant to this section.
18
<PAGE>
SECTION 4
MISCELLANEOUS
4.1 SUCCESSORS AND ASSIGNS. All covenants and agreements contained in
this Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto
(including without limitation transferees of any Preferred Stock, Registrable
Shares or Comcast Shares), whether so expressed or not; PROVIDED, HOWEVER, that
the rights conferred in this Agreement on the Investors shall only inure to the
benefit of a transferee of Preferred Stock, Registrable Shares or Comcast Shares
if: (a) (1) there is transferred to such transferee at least 100,000 Registrable
Shares or Comcast Shares (the transferee in any such case being referred to as a
"INVESTOR TRANSFEREE"), or (2) such transferee is an affiliate of the
transferor; and (b) such transfer may otherwise be effected in accordance with
applicable securities laws; and (c) notice of such transfer or assignment is
given to the Company and such Transferee has agreed in writing to be bound by
the terms of this Agreement and the Amended and Restated Shareholders Agreement.
The parties acknowledge that the Amended and Restated Shareholders Agreement
terminates upon the closing of a Qualified Public Offering.
4.2 GOVERNING LAW. This Agreement is executed and delivered in the
State of New York, and this Agreement shall be governed by and construed in
accordance with the laws of the State of New York for all purposes and in all
respects, without giving effect to the conflict of law provisions thereof.
4.3 INTEGRATION; AMENDMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement among the parties with regard to the subjects hereof and thereof, and
supersede any previous agreement or understanding between or among the parties
with respect to such subjects, including, without limitation, the Investors'
Rights Agreement and the Amended and Restated Investors' Rights Agreement. No
party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth herein
or therein. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought; PROVIDED, HOWEVER, that
with the written consent of the Company and the holders of at least two-thirds
of the Registrable Shares any provisions of this Agreement may be waived,
modified or amended, on behalf of all parties hereto, and such waiver,
modification or amendment may be given or withheld for any reason or no reason
in the sole discretion of any party. Notwithstanding the foregoing, the number
of registrations that the Company is required to make under Sections 1.4 and 1.5
of this Agreement may not be modified or amended without the prior written
consent of Comcast. Any amendments, waivers, discharges or terminations of this
Agreement effected in accordance herewith shall be binding upon all parties
hereto, including those not signing such amendment, waiver, discharge or
termination.
4.4 NOTICES. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, on the date of transmittal of
19
<PAGE>
services via telecopy to the party to whom notice is to be given (with a
confirming copy being delivered within 24 hours thereafter), or on the third day
after mailing if mailed to the party to whom notice is to be given, by first
class mail, registered or certified, postage prepaid, or on the date of receipt
if served via overnight courier providing a receipt and properly addressed as
set forth on SCHEDULE I hereto. Any party may change its address for purposes of
this paragraph by giving notice of the new address to each of the other parties
in the manner set forth above.
4.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
4.6 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
4.7 DISPUTE RESOLUTION. If the parties should have a material dispute
arising out of or relating to this Agreement or the parties' respective rights
and duties hereunder, then the parties will resolve such dispute in the
following manner: (i) any party may at any time deliver to the others a written
dispute notice setting forth a brief description of the issue for which such
notice initiates the dispute resolution mechanism contemplated by this Section
4.7; (ii) during the forty-five (45) day period following the delivery of the
notice described in Section 4.7 (i) above, appropriate representatives of the
various parties will meet and seek to resolve the disputed issue through
negotiation, (iii) if representatives of the parties are unable to resolve the
disputed issue through negotiation, then within thirty (30) days after the
period described in Section 4.7(ii) above, the parties will refer the issue (to
the exclusion of a court of law) to final and binding arbitration in New York,
New York in accordance with the then existing rules (the "Rules") of the
American Arbitration Association ("AAA"), and judgment upon the award rendered
by the arbitrators may be entered in any court having jurisdiction thereof;
provided, however, that the law applicable to any controversy shall be the law
of the State of New York, regardless of principles of conflicts of laws. In any
arbitration pursuant to this Agreement, (i) discovery shall be allowed and
governed by the New York Code of Civil Procedure and (ii) the award or decision
shall be rendered by a majority of the members of a Board of Arbitration
consisting of three (3) members, one of whom shall be appointed by each of the
respective parties and the third of whom shall be the chairman of the panel and
be appointed by mutual agreement of said two party-appointed arbitrators. In the
event of failure of said two arbitrators to agree within sixty (60) days after
the commencement of the arbitration proceeding upon the appointment of the third
arbitrator, the third arbitrator shall be appointed by the AAA in accordance
with the Rules. In the event that either party shall fail to appoint an
arbitrator within thirty (30) days after the commencement of the arbitration
proceedings, such arbitrator and the third arbitrator shall be appointed by the
AAA in accordance with the Rules. Nothing set forth above shall be interpreted
to prevent the parties from agreeing in writing to submit any dispute to a
single arbitrator in lieu of a three (3) member Board of Arbitration. Upon the
completion of the selection of the Board of Arbitration (or if the parties agree
otherwise in writing, a single arbitrator), an award or decision shall be
rendered within no more than forty-five (45) days. Notwithstanding the
foregoing, the request by either party for preliminary or permanent
20
<PAGE>
injunctive relief, whether prohibitive or mandatory, shall not be subject to
arbitration and may be adjudicated only by the courts of the State of New York
or the U.S. District Court in New York.
4.8 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
21
<PAGE>
IN WITNESS WHEREOF, the Company and the Investors have executed this
Agreement under seal as of the day and year first above written.
THE COMPANY:
MININGCO.COM, INC.
By:
-------------------------------------------
Scott Kurnit, President and CEO
THE INVESTORS:
ZERO STAGE CAPITAL V LIMITED PARTNERSHIP
By: Zero Stage Capital Associates Limited
Partnership, its General Partner
By:
-------------------------------------------
Stanley L. Fung, General Partner
ZERO STAGE CAPITAL VI LIMITED PARTNERSHIP
By:Zero Stage Capital Associates Limited
Partnership, its General Partner
By:
-------------------------------------------
Stanley L. Fung, General Partner
COMCAST INTERACTIVE INVESTMENTS, INC.
By:
-------------------------------------------
Name:
Title:
22
<PAGE>
DOLL TECHNOLOGY INVESTMENT FUND, a California
limited partnership
By:Doll Technology Investment Management,
L.L.C., its General Partner
By:
-------------------------------------------
Dixon R. Doll, Managing Member
DOLL TECHNOLOGY AFFILIATES FUND, L.P.
By:Doll Technology Investment Management,
L.L.C.,its General Partner
By:
-------------------------------------------
Dixon R. Doll, Managing Member
DOLL TECHNOLOGY SIDE FUND, L.P.
By:Doll Technology Investment Management,
L.L.C. its General Partner
By:
-------------------------------------------
Dixon R. Doll, Managing Member
CRYSTAL INTERNET VENTURE FUND, L.P.
By:Crystal Venture Ltd.., its
General Partner
By:
----------------------------------------
Daniel Kellogg, Vice President
OPEN TEXT CORPORATION
By:
----------------------------------------
Thomas Hearne, Chief Financial Officer
23
<PAGE>
INFOTECH VENTURES, LTD.
By:
----------------------------------------
Mr. Lip-Bu Tan
---------------------------------------
Mr. Scott Kurnit
C-MAX CAPITAL LIMITED PARTNERSHIP - I
By: C. Max Capital Company, its General
Partner
By:
-------------------------------------
Name:
Title:
XL CAPITAL CORPORATION
By:
-------------------------------------
Name:
Title:
PROSPECT STREET NYC DISCOVERY FUND, L.P.
By:
-------------------------------------
Name:
Title:
--------------------------------------
Mr. Gary Lauder
24
<PAGE>
-------------------------------------
Mr. Peter Jadrosich
-------------------------------------
Mr. William A. Day
-------------------------------------
Mr. Robert W. Harris
-------------------------------------
Ms. Diane Katzin
-------------------------------------
Mr. Shepard Kurnit
-------------------------------------
Mr. Paul Kurnit
-------------------------------------
Mr. Stanley L. Fung
-------------------------------------
Mr. Gordon Baty
-------------------------------------
Mr. Paul Kelley
25
<PAGE>
-------------------------------------
Mr. Brian Johnson
CAMELOT OFFSHORE FUND LTD.
By:
----------------------------------
Name:
Title:
CAMELOT CAPITAL L.P.
By:
-----------------------------------
Name:
Title:
THE MARKS FAMILY LIMITED PARTNERSHIP
By:
---------------------------------
Name:
Title:
AWAD & ASSOCIATES LIMITED PARTNERSHIP
By:
----------------------------------
Name:
Title:
AWAD & ASSOCIATES II LTD.
By:
---------------------------------
Name:
Title:
26
<PAGE>
---------------------------------
Mr. Richard B. Felder
---------------------------------
Nicholas R. Pontikes and
William N. Pontikes, Trustees of
Nicholas R. Pontikes Trust U/A
7-22-95
DAHLM PARTNERS
By:
-------------------------------
Name:
Title:
----------------------------------
Mr. Douglas Kaplan
-----------------------------------
Mr. Lawrence Kaplan
-----------------------------------
Ms. Allison Klein
-----------------------------------
Mr. Howard Klein
----------------------------------
Mr. Matthew Klein
27
<PAGE>
Computation of net loss per common share EXHIBIT 11.1
<TABLE>
<CAPTION>
Period from
June 27, 1996
(inception)
through Year Ended Year Ended
December 31, December 31, December 31,
1996 1997 1998
-------------- ------------ ------------
<S> <C> <C> <C>
Basic:
Net loss............................... ($2,438,100) ($8,640,400) ($15,577,800)
Accretion of convertible preferred
stock to liquidation value........... 0 0 (1,230,500)
------------ ------------ -------------
Net loss applicable to common
stockholders......................... ($2,438,100) ($8,640,400) (16,808,300)
------------ ------------ -------------
------------ ------------ -------------
Weighted average shares of common
stock outstanding.................... 1,816,255 1,529,961 1,512,708
Add: Warrants issued for nominal
consideration 218,889 218,889 218,890
------------ ------------ -------------
Basic weighted average shares
outstanding.......................... 2,035,144 1,748,850 1,731,598
------------ ------------ -------------
------------ ------------ -------------
Basic net loss per common share........ ($1.20) ($4.94) ($9.71)
------------ ------------ -------------
------------ ------------ -------------
Diluted:
Net loss applicable to common
stockholders......................... ($2,438,100) ($8,640,400) (16,808,300)
------------ ------------ ------------
------------ ------------ ------------
Basic weighted average shares
outstanding.......................... 2,035,144 1,748,850 1,731,598
Net effect of dilutive securities...... 0 0 0
------------ ------------ ------------
Diluted weighted average shares
outstanding.......................... 2,035,144 1,748,850 1,731,598
------------ ------------ ------------
------------ ------------ ------------
Diluted net loss per common share...... ($1.20) ($4.94) ($9.71)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<PAGE>
EXHIBIT 23.1
The Board of Directors and Stockholders
MiningCo.com, Inc.:
When the reverse stock split referred to in Note 14 of the Notes to
Financial Statements has been consummated, we will be in a position to render
the following consent.
KPMG LLP
/s/ KPMG LLP
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
MiningCo.com, Inc.:
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
New York, New York
February 25, 1999
<PAGE>
POWER OF ATTORNEY
The undersigned officer of MiningCo.com, Inc. (the "Company"), hereby
severally constitutes and appoints Scott P. Kurnit, President and Chief
Executive Officer, and William C. Day, Chief Operating Officer, and each of them
individually, with full powers of substitution and resubstitution, my true and
lawful attorney, with full powers to them and each of them to sign for me, in my
name and in the capacities indicated below, the Registration Statement on Form
S-1 filed with the Securities and Exchange Commission, and any and all
amendments to said Registration Statement (including post-effective amendments),
and any registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, in connection with the registration under
the Securities Act of 1933, as amended, of equity securities of the Company, and
to file or cause to be filed the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as each of them might
or could do in person, and hereby ratifying and confirming all that said
attorneys, and each of them, or their substitute or substitutes, shall do or
cause to be done by virtue of this Power of Attorney.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ TODD B. SLOAN Chief Financial Officer
- ------------------------------ February 22, 1999
Todd B. Sloan
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 10,644,300 303,200
<SECURITIES> 0 0
<RECEIVABLES> 1,063,300 124,300
<ALLOWANCES> 146,000 6,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 11,661,600 421,500
<PP&E> 4,112,400 991,200
<DEPRECIATION> 810,400 242,800
<TOTAL-ASSETS> 15,657,700 1,357,100
<CURRENT-LIABILITIES> 7,430,300 3,519,100
<BONDS> 770,000 3,881,700
32,071,700 0
0 0
<COMMON> 2,200 1,500
<OTHER-SE> 24,664,200 (10,945,800)
<TOTAL-LIABILITY-AND-EQUITY> 15,657,700 1,357,100
<SALES> 0 0
<TOTAL-REVENUES> 3,721,600 390,600
<CGS> 0 0
<TOTAL-COSTS> 18,613,400 8,731,800
<OTHER-EXPENSES> 686,000 (299,200)
<LOSS-PROVISION> 146,000 6,000
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (15,577,800) (8,640,400)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (15,577,800) (8,640,400)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 16,808,300 (8,640,400)
<EPS-PRIMARY> (9.71) (4.94)
<EPS-DILUTED> (9.71) (4.94)
</TABLE>
