<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 23, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TheStreet.com
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7374 06-15150824
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
</TABLE>
------------------------
TWO RECTOR STREET
NEW YORK, NEW YORK 10006
(212) 271-4004
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KEVIN W. ENGLISH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
THESTREET.COM, INC.
TWO RECTOR STREET
NEW YORK, NEW YORK 10006
(212) 271-4004
(800) 562-9571
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies To:
<TABLE>
<S> <C>
DAVID J. GOLDSCHMIDT, ESQ. ALEXANDER D. LYNCH, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP ALAN P. BLAUSTEIN, ESQ.
919 THIRD AVENUE BROBECK, PHLEGER & HARRISON LLP
NEW YORK, NEW YORK 10022 1633 BROADWAY, 47TH FLOOR
(212) 735-3000 NEW YORK, NEW YORK 10019
(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
under the Securities Act, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.01 per share (including the
associated Rights to purchase Series A Junior Participating
Stock)(2)................................................... $75,000,000 $20,850.00
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933.
(2) The Rights to purchase shares of our Series A Junior Participating Preferred
Stock initially are attached to and trade with the shares of our common
stock being registered hereby. Value attributed to such Rights, if any, is
reflected in the market price of our common stock.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK TO OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED FEBRUARY 23, 1999.
Shares
THESTREET.COM, INC.
Common Stock
----------------------
This is an initial public offering of shares of common stock of
TheStreet.com, Inc. All of the shares of common stock are being sold by
the TheStreet.com, Inc. ("TheStreet.com" or the "Company"). Prior to this
offering, there has been no public market for the common stock. The common stock
has been approved for quotation on the Nasdaq National Market under the symbol
"TSCM".
See "Risk Factors" beginning on page 6 to read about certain factors you
should consider before buying shares of the common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF 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>
Initial public offering price........................................... $ $
Underwriting discounts.................................................. $ $
Proceeds, before expenses, to TheStreet.com............................. $ $
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional shares from TheStreet.com at the initial public offering price less
the underwriting discount.
----------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
Goldman, Sachs & Co.
Hambrecht & Quist
Thomas Weisel Partners LLC
----------------------
Prospectus dated , 1999.
<PAGE>
[ART WORK TO COME]
2
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information about our company and the common stock being sold in this offering
and our financial statements and the notes to those statements included
elsewhere in this prospectus.
THESTREET.COM
TheStreet.com is a leading web-based provider of original, timely,
comprehensive and trustworthy financial news, commentary and information aimed
at helping readers make informed investment decisions. TheStreet.com combines
the most important qualities of traditional print journalism--accuracy,
intelligence, fairness and wit--with the web's advantages as a financial news
medium--timeliness, interactivity and global distribution. With a staff of more
than 50 reporters and editors, together with two dozen outside contributors, we
update our site with approximately 40 original stories throughout each business
day and with many additional features on weekends. Trained at the nation's
leading financial news organizations, our journalists produce quality news
coverage and in-depth analysis in a real-time, interactive medium ideally suited
to the needs of today's investors. We have developed a community of loyal
readers who turn to TheStreet.com for their financial and investing news and
information needs. During 1998, our subscriber base grew more than 380% to
approximately 32,000 at the end of the year; as of February 17, 1999, we had
approximately 37,000 subscribers. We derive our revenues primarily from sales of
subscriptions to our web site and from sales of advertising targeted to our
desirable reader demographic.
In recent years, individuals have been taking greater control of their
investments. The web has facilitated this behavioral shift by providing
investors with easy access to information that was once generally available only
to investment professionals. According to International Data Corporation, an
independent market research firm, the number of online brokerage accounts in the
United States is expected to grow from 3.5 million at the end of 1997 to
24 million at the end of 2002, with online brokers expected to manage over
$1.5 trillion in assets by the end of 2002. Increasingly, this growing group of
self-directed investors is seeking timely, comprehensive and trustworthy
financial news and information that can help them make informed investing
decisions.
At TheStreet.com, we aim to meet the increasing demands of today's
investors by providing a broad range of original financial news and in-depth
anaylsis through a real-time, interactive medium. Our objective is to establish
TheStreet.com as the leading and most comprehensive financial news and
information destination for investors. We aim to further develop a community of
loyal readers in order to build our subscription base and attract advertisers.
Our strategy includes the following key elements:
o expand our web site as a comprehensive financial news and information
destination;
o leverage our content to maximize revenue across a diverse customer base;
o capitalize on reader demographics desirable to advertisers;
o leverage strategic partnerships; and
o build brand awareness of TheStreet.com and our writers.
In February 1999, The New York Times Company made an investment for a
minority equity stake in TheStreet.com. We are currently discussing
opportunities for strategic alliances with The New York Times Company.
Our principal executive offices are located at Two Rector Street, 14th
Floor, New York, New York 10006. Our telephone number at that location is (800)
562-9571. Our web site is www.thestreet.com. The information contained on our
web site is not incorporated by reference into this prospectus.
------------------------
Unless otherwise indicated, all information in this prospectus
(i) reflects the conversion of all outstanding shares of our convertible
preferred stock and accumulated dividends into an aggregate of shares of
common stock upon the completion of this offering, assuming that the initial
public offering price is $ per share; and (ii) assumes no underwriters'
exercise of the over-allotment option. See "Description of Capital Stock" and
"Underwriting".
3
<PAGE>
THE OFFERING
The following information assumes that the underwriters do not exercise the
option granted by us to purchase additional shares in this offering. The
following information excludes shares of common stock issuable upon exercise of
options, which vest over certain periods of time, outstanding as of the date of
this prospectus. See "Underwriting".
<TABLE>
<S> <C>
Common stock offered by TheStreet.com............................. shares
Common stock to be outstanding after the offering................. shares
Proposed Nasdaq National Market symbol............................ "TSCM"
Use of proceeds................................................... To provide working capital to develop new
products and expand internationally, to fund
general corporate purposes and to create a
public market for our common stock.
</TABLE>
SUMMARY FINANCIAL DATA
The following table summarizes our statement of operations. The share
information gives effect to the conversion of our business from a limited
liability company into a corporation at the beginning of each period indicated.
See our financial statements and the notes to those statements included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 18, 1996
(INCEPTION)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
--------------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................................... $ -- $ 589 $ 4,623
Gross profit (loss)............................................ (298) (558) 668
Loss from operations........................................... (1,712) (5,359) (16,041)
Net loss....................................................... $(1,733) $ (5,764) $(16,268)
------- -------- --------
------- -------- --------
Pro forma basic and diluted net loss per share................... $ $ $
------- -------- --------
------- -------- --------
Pro forma weighted average basic and diluted
shares outstanding (1).........................................
------- -------- --------
------- -------- --------
</TABLE>
- ------------------
(1) The pro forma weighted average shares outstanding give effect to the
conversion of all of our outstanding convertible preferred stock and
accumulated dividends into an aggregate of shares of common stock
upon the completion of this offering.
4
<PAGE>
The following table is a summary of our balance sheet as of December 31,
1998, (i) on an actual basis and (ii) on an as adjusted basis to reflect the
conversion of all outstanding shares of our convertible preferred stock and
accumulated dividends into shares of common stock and to give effect to the sale
of the shares of common stock offered by this prospectus at an
assumed initial public offering price of $ per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses. See "Use of Proceeds" and "Capitalization".
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $24,612 $
Working capital....................................................................... 22,918
Total assets.......................................................................... 27,581
Total stockholders' equity............................................................ 23,524
</TABLE>
5
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. The risks described below are not the only ones facing our
company. Additional risks may also impair our business operations. If any of the
following risks occur, our business, results of operations or financial
condition could be materially adversely affected. In such case, the trading
price of our common stock could decline, and you may lose all or part of your
investment. You should also refer to the other information set forth in this
prospectus, including our financial statements and the notes to those
statements.
This prospectus contains certain "forward-looking statements" based on our
current expectations, assumptions, estimates and projections about TheStreet.com
and our industry. These forward-looking statements involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in such forward-looking statements as a result of certain factors, as more fully
described in this section and elsewhere in this prospectus. We undertake no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
Such factors include those set forth in this section and elsewhere in this
prospectus.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY
We commenced operations in June 1996 and launched our web site in November
1996. Accordingly, we have only a limited operating history upon which you can
evaluate our business and prospects. An investor in our common stock must
consider the risks, expenses and difficulties frequently encountered by early
stage companies in new and rapidly evolving markets, including web-based
financial news and information companies. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
WE HAVE A HISTORY OF LOSSES AND WE ANTICIPATE LOSSES WILL CONTINUE
As of December 31, 1998, we had an accumulated deficit of $12.4 million
that represented our cumulative loss from May 7, 1998, which was the date we
converted to a C corporation. We have not achieved profitability and expect to
continue to incur net losses in 1999 and subsequent fiscal periods. We expect to
continue to incur significant operating expenses and, as a result, will need to
generate significant revenues to achieve profitability, which may not occur.
Even if we do achieve profitability, we may be unable to sustain or increase
profitability on a quarterly or annual basis in the future. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
WE DEPEND ON OUR EDITORIAL STAFF AND OUTSIDE CONTRIBUTORS
Our future success depends substantially upon the continued efforts of our
editorial staff and outside contributors to produce original, timely,
comprehensive and trustworthy content. Only a few of our writers are bound by
employment agreements. Competition for financial journalists is intense, and we
may not be able to retain existing or attract additional highly qualified
writers in the future. If we lose the services of a significant number of our
editorial staff and outside contributors or are unable to continue to attract
additional writers with appropriate qualifications, our business, results of
operations and financial condition could be materially adversely affected.
In addition, we believe that certain of our writers, including Mr. James J.
Cramer and Mr. Herb Greenberg, have a large and loyal following among our
readers. Mr. Cramer has an employment agreement with us that terminates in
February 2003. Mr. Greenberg has an employment agreement with us that terminates
in March 2001. If we lose the services of prominent members of our editorial
staff, including Mr. Greenberg, or popular outside contributors, including
Mr. Cramer, a significant number of our subscribers may not renew their
subscriptions or the number of our readers may decrease.
6
<PAGE>
A significant reduction in the number of our subscribers or readers could
materially adversely affect our business, results of operations and financial
condition.
WE FACE INTENSE COMPETITION
An increasing number of financial news and information sources compete for
consumers' and advertisers' attention and spending. We expect this competition
to continue to increase. We compete for advertisers, readers, staff and outside
contributors with many types of companies, including:
o online services or web sites focused on business, finance and investing, such
as MarketWatch.com, The Wall Street Journal Interactive Edition and The Motley
Fool;
o publishers and distributors of traditional media, including print, radio and
television, such as The Wall Street Journal, Fortune, Bloomberg Business Radio
and CNBC;
o providers of terminal-based financial news and data, such as Bloomberg
Business News, Reuters News Service, Dow Jones Markets and Bridge News
Service;
o web "portal" companies, such as Yahoo! and America Online; and
o online brokerage firms, many of which provide financial and investment news
and information, such as Charles Schwab and E*TRADE.
Our ability to compete depends on many factors, including the originality,
timeliness, comprehensiveness and trustworthiness of our content and that of our
competitors, the ease of use of services developed either by us or our
competitors and the effectiveness of our sales and marketing efforts.
Many of our existing competitors, as well as a number of 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, undertake more
far-reaching marketing campaigns, adopt more aggressive pricing policies
(including offering their financial news for free) and make more attractive
offers to existing and potential employees, outside contributors, strategic
partners and advertisers. Our competitors may develop content that is equal or
superior to ours or that achieves greater market acceptance than ours. It is
also possible that new competitors may emerge and rapidly acquire significant
market share. We may not be able to compete successfully for advertisers,
readers, staff or outside contributors, which could materially adversely affect
our business, results of operations and financial condition. Increased
competition could result in price reductions, reduced margins or loss of market
share, any of which could materially adversely affect our business, results of
operations and financial condition.
We also compete with other web sites, television, radio and print media for
a share of advertisers' total advertising budgets. If advertisers perceive the
Internet or our web site to be a limited or an ineffective advertising medium,
they may be reluctant to devote a portion of their advertising budget to
Internet advertising or to advertising on our web site. See
"Business--Competition".
WE NEED TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH OTHER WEB SITES
We depend on establishing and maintaining subscription distribution
relationships with online financial services firms and content syndication
relationships with high-traffic web sites for a significant portion of our
subscriber base and traffic. There is intense competition for relationships with
these firms and placement on these sites, and we may have to pay significant
fees to establish additional content syndication relationships or maintain
existing relationships in the future. We may be unable to enter into
relationships with these firms or sites on commercially reasonable terms or at
all. Even if we enter into such relationships, they may not attract significant
numbers of readers. Therefore, our site may not receive a significant number of
additional subscribers or readers from such relationships.
Many companies that we may approach for a strategic relationship or who
already have strategic relationships with us also provide
7
<PAGE>
financial news and information from other sources. As a result, these companies
may be reluctant to enter into or maintain strategic relationships with us. Our
business, results of operations and financial condition could be materially
adversely affected if we do not establish additional, and maintain existing,
strategic relationships on commercially reasonable terms or if any of our
strategic relationships do not result in an increase in the number of
subscribers or readers of our web site.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside our control.
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 industry.
We believe that quarter-to-quarter comparisons of our operating results may
not be a good indication of our future performance, nor would our operating
results for any particular quarter be indicative of future operating results. In
some future quarters our operating results may be below the expectations of
public market analysts and investors. In such an event, the price of our common
stock may fall. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
WE DEPEND ON MAINTAINING AND INCREASING OUR SUBSCRIBER BASE
Our future success is highly dependent on an increase in the number of
readers who are willing to subscribe to online financial news and information
publications. The number of Internet users willing to pay for online financial
news and information may not continue to increase. If the market for
subscription-based online financial news and information publications develops
more slowly than we expect, our business, results of operations and financial
condition could be materially adversely affected. Further, we presently offer a
portion of our content for free. In the future we intend to increase the free
portion of our content to increase traffic. However, this change may reduce the
number of our new or renewing subscribers, which could have a material adverse
effect on our business, results of operations and financial condition.
Additionally, during the fourth quarter of 1998, we began to participate in a
program where our readers can receive annual subscriptions to our site by
redeeming frequent flyer miles through a third-party service. While we expect
the number of annual subscriptions attributable to this program to increase in
the future, additional readers may not subscribe through this program. Further,
while we do not expect that these subscibers will renew their subscriptions at a
rate consistent with the renewal rate of our general subscriber base, it is
possible that the actual renewal rate of these subscribers may be significantly
lower than our expectations, which could materially adversely affect our
business, results of operations and financial condition.
WE DEPEND ON CERTAIN ADVERTISERS AND ON OUR ADVERTISING SALES DEPARTMENT
In 1998, our top advertiser accounted for approximately 40%, and our top
five advertisers accounted for approximately 67%, of our total advertising
revenues. Our business, results of operations and financial condition could be
materially adversely affected by the loss of one or more of our top advertisers.
Further, if we do not continue to increase our revenue from financial services
advertisers or attract advertisers from non-financial industries, our business,
results of operations and financial condition could be materially adversely
affected. We believe that we charge advertising rates that are among the highest
of financial web sites. However, there can be no assurance that we will be able
to command premium rates in the future.
We depend on our internal advertising sales department to maintain and
increase our advertising sales. As of February 15, 1999, our advertising sales
department consisted of eight employees. The success of our advertising sales
department is subject to a number of risks, including the competition we face
from other companies in hiring and retaining sales personnel and the length of
time it takes new
8
<PAGE>
sales personnel to become productive. Our business, results of operations and
financial condition could be materially adversely affected if we do not maintain
an effective advertising sales department.
WE NEED TO MANAGE OUR GROWTH
We have experienced rapid growth in our operations. Our rapid growth has
placed, and our anticipated future growth will continue to place, a significant
strain on our managerial, operational and financial resources. To manage our
growth, we must continue to implement and improve our managerial controls and
procedures and operational and financial systems. In addition, our future
success will depend on our ability to expand, train and manage our workforce, in
particular our editorial, advertising sales and business development staff. As
of December 31, 1998, we had a total of 100 employees, as compared to 33
employees as of December 31, 1997. We expect that the number of our employees
will continue to increase for the foreseeable future. We will need to integrate
these employees into our workforce successfully. We cannot assure you that we
have made adequate allowances for the costs and risks associated with this
expansion, that our systems, procedures or controls will be adequate to support
our operations, or that our management will be able to successfully offer and
expand our services. If we are unable to manage our growth effectively, our
business, results of operations and financial condition could be materially
adversely affected.
WE DEPEND ON KEY MANAGEMENT PERSONNEL
Our future success depends upon the continued service of certain key
management personnel. The loss of one or more of our key management personnel
could materially adversely affect our business, results of operations and
financial condition. In addition, we recently hired our new Chief Financial
Officer and a General Counsel. These individuals will have to be integrated into
our management team successfully. A few of our employees have entered into
non-competition agreements with us. However, other employees may leave us and
work for our competitors or start their own competing business.
INCREASED TRAFFIC MAY STRAIN OUR SYSTEMS
In the past, we have experienced significant spikes in traffic on our web
site when there have been important financial news events. In addition, the
number of our readers has continued to increase over time and we are seeking to
increase our reader base further. Accordingly, our web site must accommodate a
high volume of traffic, often at unexpected times. Our web site has in the past,
and may in the future, experience slower response times than usual or other
problems for a variety of reasons. These occurrences could cause our readers to
perceive our web site as not functioning properly and, therefore, cause them to
use other methods to obtain their financial news and information. In such a
case, our business, results of operations and financial condition could be
materially adversely affected.
WE FACE A RISK OF SYSTEM FAILURE
Our ability to provide timely information and continuous news updates
depends on the efficient and uninterrupted operation of our computer and
communications hardware and software systems. Similarly, our ability to track,
measure and report the delivery of advertisements on our site depends on the
efficient and uninterrupted operation of a third-party system, Dart by
DoubleClick. These systems and operations are vulnerable to damage or
interruption from human error, natural disasters, telecommunication failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. Although we do not have a formal disaster recovery plan, we are in the
process of developing one. Any system failure, including network, software or
hardware failure, that causes an interruption in our service or a decrease in
responsiveness of our web site could result in reduced traffic, reduced revenue
and harm to our reputation, brand and our relations with our advertisers. In
February 1999, we entered into a one-year Internet-hosting agreement with Exodus
Communications, Inc. to maintain all of our production servers at Exodus' New
Jersey data center. Our operations depend on Exodus' ability to protect its and
our systems in its data center against damage from fire, power loss, water
damage, telecommunications failure,
9
<PAGE>
vandalism and similar unexpected adverse events. Although Exodus provides
comprehensive facilities management services, including human and technical
monitoring of all production servers 24 hours-per-day, seven days-per-week,
Exodus does not guarantee that our Internet access will be uninterrupted,
error-free or secure. Any disruption in the Internet access to our web site
provided by Exodus could materially adversely affect our business, results of
operations and financial condition. Our insurance policies may not adequately
compensate us for any losses that we may incur because of any failures in our
system or interruptions in our delivery of content. Our business, results of
operations and financial condition could be materially adversely affected by any
event, damage or failure that interrupts or delays our operations.
RISKS ASSOCIATED WITH MOVING OUR SUBSCRIPTION MANAGEMENT SYSTEM IN-HOUSE
Presently, our subscription management system is hosted by Starwave
Corporation on its systems located in Seattle, Washington. However, during 1999
we plan to move this function to our own internal systems. It is possible that
because of a variety of logistical and technical reasons we may be unable to
complete this move on time or at all. Further, we may face significant technical
problems in integrating our subscription management system with our internal
systems or maintaining our subscription management system. These problems,
should they occur, could adversely affect our ability to process online
subscriptions or to convert efficiently our free-trial members to paid
subscribers, which could materially adversely affect our business, results of
operations and financial condition.
RISKS ASSOCIATED WITH OUR BRAND DEVELOPMENT AND POSSIBLE HARM TO OUR REPUTATION
We believe that maintaining and growing awareness about the TheStreet.com
brand is an important aspect of our efforts to continue to attract subscribers
and readers. The importance of brand recognition will increase in the future
because of the growing number of web sites providing financial news and
information. We cannot assure you that our efforts to build brand awareness will
be successful. It is very important that we maintain our reputation as a
trustworthy news organization. The occurrence of certain events, including our
misreporting a news story or the non-disclosure of stock ownership by one or
more of our writers in breach of our compliance policy, could harm our
reputation for trustworthiness. These events could result in a significant
reduction in the number of our readers, which could materially adversely affect
our business, results of operations and financial condition.
LIABILITY FOR INFORMATION DISPLAYED ON OUR WEB SITE
We may be subject to claims for defamation, libel, copyright or trademark
infringement or based on other theories relating to the information we publish
on our web site. These types of claims have been brought, sometimes
successfully, against online services as well as other print publications in the
past. We could also be subject to claims based upon the content that is
accessible from our web site through links to other web sites. Our insurance may
not adequately protect us against these claims.
YEAR 2000 RISKS
Many currently installed computer systems and software products are coded
to accept only two-digit entries to identify a year in the date code field.
Consequently, on January 1, 2000, many of these systems could fail or
malfunction because they may not be able to distinguish between 20th century
dates and 21st century dates. Accordingly, our customers, potential customers,
vendors and strategic partners may need to upgrade their computer systems and
software products to comply with applicable "Year 2000" requirements.
Because we and our subscribers and readers are dependent, to a very
substantial degree, upon the proper functioning of our and their computer
systems, a failure of our or their computer systems to correctly recognize dates
beyond December 31, 1999, could materially disrupt our operations or the ability
of our subscribers and readers to access our web site, which could materially
adversely affect our business, results of operations and financial condition.
See "Management's Discussion and
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Analysis of Financial Condition and Results of Operations--Year 2000 Readiness
Disclosure".
WE RELY ON OUR INTELLECTUAL PROPERTY
To protect our rights to our intellectual property, we rely on a
combination of trademark and copyright law, trade secret protection,
confidentiality agreements and other contractual arrangements with our
employees, affiliates, clients, strategic partners and others. The protective
steps we have taken may be inadequate to deter misappropriation of our
proprietary information. We may be unable to detect the unauthorized use of, or
take appropriate steps to enforce, our intellectual property rights. We have
registered certain of our trademarks in the United States and we have pending
U.S. applications for other trademarks. Effective trademark, copyright and trade
secret protection may not be available in every country in which we offer or
intend to offer our services. In addition, although we believe that our
proprietary rights do not infringe on the intellectual property rights of
others, other parties may assert infringement claims against us or claims that
we have violated a patent or infringed a copyright, trademark or other
proprietary right belonging to them. These claims, even if not meritorious,
could result in the expenditure of significant financial and managerial
resources on our part, which could materially adversely affect our business,
results of operations and financial condition. We incorporate certain licensed
third-party technology in some of our services. In these license agreements, the
licensors have generally agreed to defend, indemnify and hold us harmless with
respect to any claim by a third party that the licensed software infringes any
patent or other proprietary right. We cannot assure you that these provisions
will be adequate to protect us from infringement claims. The loss of or
inability to obtain or maintain any of these technology licenses could result in
delays in introduction of new services. See "Business--Intellectual Property".
RISKS OF DEVELOPING NEW AND ENHANCED SERVICES AND FEATURES FOR OUR WEB SITE
We intend to introduce additional and enhanced services in order to retain
our current readers and attract new readers. If we introduce a service that is
not favorably received, our current readers may choose a competitive service
over ours or fail to renew their subscriptions. We may also experience
difficulties that could delay or prevent us from introducing new services.
Furthermore, the new services we may introduce could contain errors that are
discovered after such services are introduced. In such cases, we may need to
significantly modify the design or implementation of such services on our web
site to correct these errors. Our business, results of operations and financial
condition could be materially adversely affected if we experience difficulties
in introducing new services or if these new services are not accepted by our
readers.
RISKS RELATED TO OUR INDUSTRY
WE DEPEND ON THE CONTINUED GROWTH IN USE AND EFFICIENT OPERATION OF THE WEB
The web-based information market is new and rapidly evolving. Our business
would be materially adversely affected if web usage does not continue to grow or
grows slowly. Web usage may be inhibited for a number of reasons, such as:
o inadequate network infrastructure;
o security concerns;
o inconsistent quality of service; and
o unavailability of cost-effective, high-speed access to the Internet.
Our readers depend on Internet service providers, online service providers
and other web site operators for access to our web site. Many of these services
have experienced significant service outages in the past and could experience
service outages, delays and other difficulties due to system failures unrelated
to our systems. These occurrences could cause our readers to perceive the web in
general or our web site in particular as an unreliable medium and, therefore,
cause them to use other media to obtain their financial news and information. We
also depend on certain information providers to deliver information and data
feeds to us on a timely basis. Our web site could experience disruptions or
interruptions in service due to the failure or delay in the transmission or
receipt of
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<PAGE>
this information, which could have a material adverse effect on our business,
results of operations and financial condition.
RISKS ASSOCIATED WITH ONLINE ADVERTISING
No standards have been widely accepted to measure the effectiveness of web
advertising. If standards do not develop, existing advertisers may not continue
or increase their levels of web advertising. If standards develop and we are
unable to meet such standards, advertisers may not continue advertising on our
site. Furthermore, advertisers that have traditionally relied upon other
advertising media may be reluctant to advertise on the web. Our business,
results of operations and financial condition could be materially adversely
affected if the market for web advertising declines or develops more slowly than
expected.
Different pricing models are used to sell advertising on the web. It is
difficult to predict which, if any, will emerge as the industry standard. This
uncertainty makes it difficult to project our future advertising rates and
revenues. We cannot assure you that we will be successful under alternative
pricing models that may emerge. Moreover, "filter" software programs that limit
or prevent advertising from being delivered to a web user's computer are
available. Widespread adoption of this software could materially adversely
affect the commercial viability of web advertising, which could materially
adversely affect our advertising revenues.
We compete with other web sites, television, radio and print media for a
share of advertisers' total advertising budgets. If advertisers perceive the web
in general or our web site in particular to be a limited or an ineffective
advertising medium, they may be reluctant to devote a portion of their
advertising budget to online advertising or to advertising on our web site.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE WEB
Certain existing laws or regulations specifically regulate communications
or commerce on the web. Further, laws and regulations that address issues such
as user privacy, pricing, online content regulation, taxation and the
characteristics and quality of online products and services are under
consideration by federal, state, local and foreign governments and agencies.
Several telecommunications companies have petitioned the Federal Communications
Commission to regulate Internet service providers and online services providers
in a manner similar to the regulation of long distance telephone carriers and to
impose access fees on such companies. Such regulation, if imposed, could
increase the cost of transmitting data over the web. Moreover, it may take years
to determine the extent to which existing laws relating to issues such as
intellectual property ownership and infringement, libel, obscenity and personal
privacy are applicable to the web. The Federal Trade Commission and government
agencies in certain states have been investigating certain Internet companies
regarding their use of personal information. We could incur additional expenses
if any new regulations regarding the use of personal information are introduced
or if these agencies chose to investigate our privacy practices. Any new laws or
regulations relating to the web, or certain application or interpretation of
existing laws, could decrease the growth in the use of the web, decrease the
demand for our web site or otherwise materially adversely affect our business.
WEB SECURITY CONCERNS COULD HINDER INTERNET COMMERCE
Concern about the transmission of confidential information over the
Internet has been a significant barrier to electronic commerce and
communications over the web. Any well-publicized compromise of security could
deter more people from using the web or from using it to conduct transactions
that involve the transmission of confidential information, such as signing up
for a paid subscription, executing stock trades or purchasing goods or services.
Because many of our advertisers seek to advertise on our web site to encourage
people to use the web to purchase goods or services, our business, results of
operations and financial condition could be materially adversely affected if
Internet users significantly reduce their use of the web because of security
concerns. We may also incur significant costs to protect ourselves
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<PAGE>
against the threat of security breaches or to alleviate problems caused by such
breaches.
RISKS RELATED TO THIS OFFERING
INVESTORS WILL INCUR IMMEDIATE DILUTION AND MAY EXPERIENCE FURTHER DILUTION
The initial offering price of our common stock will be substantially higher
than the pro forma net tangible book value per share of the outstanding common
stock immediately after the offering. If you purchase common stock in this
offering, you will incur immediate and substantial dilution in the pro forma net
tangible book value per share of the common stock from the price you pay for
common stock. We also have a large number of outstanding stock options to
purchase the common stock with exercise prices significantly below the estimated
initial public offering price of the common stock. To the extent such options
are exercised, there will be further dilution. See "Dilution".
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE
After this offering there will be outstanding shares of our
common stock. There will be shares outstanding if the underwriters'
over-allotment option is exercised in full. Of these shares, the shares sold in
this offering will be freely tradeable except for any shares purchased by our
"affiliates" as defined in Rule 144 under the Securities Act. The remaining
shares will be "restricted securities," subject to the volume
limitations and other conditions of Rule 144 under the Securities Act.
Our directors, executive officers, and substantially all of our current
stockholders and optionholders have agreed, subject to certain limited
exceptions, for a period of 180 days after the date of this prospectus, that
they will not, without the prior written consent of Goldman, Sachs & Co.,
directly or indirectly, offer to sell, sell or otherwise dispose of any shares
of common stock. See "Underwriting". After the first anniversary of this
offering, some holders of common stock will have the right to request the
registration of their shares under the Securities Act. Upon the effectiveness of
such registration, all shares covered by such registration statement will be
freely transferable. In addition, following the completion of this offering, we
also intend to file a registration statement on Form S-8 under the Securities
Act covering 2,527,272 shares of common stock reserved for issuance under the
1998 Stock Incentive Plan. Such registration statement will automatically become
effective upon filing. Of the number of shares subject to outstanding options
upon completion of the offering, options to purchase shares will have
vested as of such date. Accordingly, subject to the exercise of such options,
shares registered under such registration statement will be available for sale
in the open market immediately after the 180-day lock-up agreements expire. See
"Description of Capital Stock--Registration Rights" and "Shares Eligible for
Future Sale".
We cannot predict if future sales of our common stock, or the availability
of our common stock for sale, will materially adversely affect the market price
for our common stock or our ability to raise capital by offering equity
securities. See "Shares Eligible for Future Sale" and "Underwriting".
CONTROL BY PRINCIPAL STOCKHOLDERS, OFFICERS AND DIRECTORS
Upon completion of this offering, our officers, directors and
greater-than-five-percent stockholders (and their affiliates) will, in the
aggregate, beneficially own approximately % ( % if the underwriters'
over-allotment option is exercised in full) of the outstanding common stock. As
a result, these persons, acting together, will have the ability to control
substantially all matters submitted to our stockholders for approval (including
the election and removal of directors and any merger, consolidation or sale of
all or substantially all of our assets) and to control our management and
affairs. Accordingly, this concentration of ownership may have the effect of
delaying, deferring or preventing a change in control of us, impeding a merger,
consolidation, takeover or other business combination involving us or
discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us, which in turn could materially adversely
affect the market price of the
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<PAGE>
common stock. See "Management" and "Principal Stockholders".
POSSIBLE VOLATILITY OF OUR STOCK PRICE
We cannot predict the extent to which investor interest in us will lead to
the development of a trading market or how liquid that market might become. The
initial public offering price for the shares of our common stock will be
determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market. The stock market has experienced significant price and volume
fluctuations and the market prices of securities of technology companies,
particularly Internet-related companies, have been highly volatile. Investors
may not be able to resell their shares at or above the initial public offering
price. See "Underwriting".
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. The institution of such litigation against us
could result in substantial costs and a diversion of our management's attention
and resources, which could materially adversely affect our business, results of
operations and financial condition.
BROAD DISCRETION AS TO USE OF PROCEEDS
Our management will have broad discretion in how we use the net proceeds of
this offering. Investors will be relying on the judgment of our management
regarding the application of the proceeds of this offering. See "Use of
Proceeds".
CERTAIN ANTI-TAKEOVER PROVISIONS
Provisions of our Amended and Restated Certificate of Incorporation, Bylaws
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. See "Description of
Capital Stock".
NO INTENTION TO PAY DIVIDENDS
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future. See
"Dividend Policy".
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the
shares of common stock offered hereby will be approximately
$ million ($ million if the underwriters' over-allotment
option is exercised in full), at an assumed initial public offering price of
$ per share and, after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us. The principal
purposes of this offering are to provide working capital to develop new products
and expand internationally, to fund general corporate purposes, to create a
public market for our common stock and to facilitate our future access to the
public capital markets. In addition, we may use a portion of the net proceeds to
acquire or invest in complementary businesses, technologies, services or
products. However, we currently have no commitments or agreements with respect
to any such transactions.
As of the date of this prospectus, we cannot specify with certainty the
particular uses for the net proceeds to be received upon completion of the
offering. Accordingly, our management will have broad discretion in the
application of the net proceeds.
Pending such uses, the net proceeds will be invested in short-term
investment-grade instruments, certificates or deposit or direct or guaranteed
obligations of the U.S. government.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and
do not anticipate paying any cash dividends on our common stock for the
foreseeable future.
CORPORATE INFORMATION
We were formed in Delaware on June 18, 1996 as TheStreet.com, L.L.C. and we
converted into TheStreet.com, Inc., a Delaware corporation, on May 7, 1998.
References in this prospectus to "the Company", "TheStreet.com", "we", "us" and
"our" refer to TheStreet.com, Inc. and our predecessor, TheStreet.com, L.L.C.
WRONG! is a registered trademark of TheStreet.com. TSC, TheStreet.com,
TheStreet, the TSC logo and TheStreet.com logo are our trademarks. Each
trademark, trade name or service mark of any other company appearing in this
prospectus belongs to its holder.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of TheStreet.com as of
December 31, 1998, (i) on an actual basis, (ii) on a pro forma basis to reflect
the conversion of all outstanding shares of our convertible preferred stock and
accumulated dividends into shares of common stock and (iii) on a pro forma basis
as adjusted to give effect to the sale of the shares of common stock
offered hereby, after deducting the underwriting discount and commissions and
estimated offering expenses that we will pay assuming an initial public offering
price of $ per share. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the notes to those statements
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------
PRO
PRO FORMA AS
ACTUAL FORMA ADJUSTED
------- ------- --------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Long-term debt................................................................ $ -- $ -- $ --
Stockholders' equity:
Common Stock, $0.01 par value, 40,000,000 shares authorized; 13,763,838 shares
issued and outstanding, actual; pro forma and pro forma as
adjusted(1)................................................................. 138
Convertible Preferred Stock -
Series A 9 1/2% Cumulative Preferred Stock, $0.01 par value, 118,441 shares
issued and outstanding, actual; none pro forma and pro forma as
adjusted................................................................. 1 -- --
Series B 9 1/2% Cumulative Preferred Stock, $0.01 par value, 345,366 shares
issued and outstanding, actual; none pro forma and pro forma as
adjusted................................................................. 3 -- --
Series C Preferred Stock, $0.01 par value, 1,500 shares issued and
outstanding, actual; none pro forma and pro forma as adjusted............ -- -- --
Additional paid-in capital.................................................... 35,785
Accumulated deficit........................................................... (12,403)
------- ------- --------
Total stockholders' equity.................................................... 23,524
------- ------- --------
Total capitalization........................................................ $23,524 $ $
------- ------- --------
------- ------- --------
</TABLE>
- ------------------
(1) Excludes (i) 1,497,286 shares of common stock issuable upon the exercise of
options then outstanding under our 1998 Stock Incentive Plan of which 66,667
are vested as of December 31, 1998 and (ii) an aggregate of 1,029,986
additional shares reserved for issuance. See "Management--1998 Stock
Incentive Plan".
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<PAGE>
DILUTION
The pro forma net tangible book value of TheStreet.com as of December 31,
1998 was approximately $ , or $ per share of common stock. Pro
forma net tangible book value per share represents the amount of total tangible
assets less total liabilities, divided by the pro forma shares of common stock
outstanding as of December 31, 1998 after giving effect to the conversion of all
outstanding shares of our convertible preferred stock and accumulated dividends.
After giving effect to the issuance and sale of the shares of common
stock offered hereby, after deducting underwriting discount and commissions and
estimated offering expenses that we will pay assuming an initial public offering
price of $ per share, the pro forma net tangible book value of
TheStreet.com as of December 31, 1998 would have been $ million, or $
per share. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and an immediate dilution of
$ per share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share........................................................... $
Pro forma net tangible book value per share at December 31, 1998....................... $
Increase in pro forma net tangible book value per share attributable to new
investors............................................................................. --
Pro forma net tangible book value per share after offering........................................
-------
Dilution per share to new investors............................................................... $
-------
-------
</TABLE>
The following table summarizes, on a pro forma basis, as of December 31,
1998, the differences between the number of shares of common stock purchased
from TheStreet.com, the aggregate cash consideration paid and the average price
per share paid by existing stockholders and new investors purchasing shares of
common stock 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......................... % $ % $
New investors.................................
--------- ----- ----------- ----- -------
Total.................................. 100% $ 100%
--------- ----- ----------- ----- -------
--------- ----- ----------- ----- -------
</TABLE>
The foregoing discussion and table assumes no exercise of any stock options
outstanding at December 31, 1998. As of December 31, 1998, there were 1,497,286
options outstanding to purchase common stock. To the extent that any of these
options are exercised, there will be further dilution to the new investors.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to, and
should be read in conjunction with, our financial statements and the notes to
those statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this prospectus. The
selected statement of operations data presented below for the period from
June 18, 1996 (inception) through December 31, 1996 and the years ended
December 31,1997 and 1998, and the balance sheet data as of December 31, 1997
and 1998 are derived from our financial statements that have been audited by
Arthur Andersen LLP, independent public accountants, and are included elsewhere
in the prospectus. The balance sheet data as of December 31, 1996 has been
derived from our audited financial statements not included in this prospectus.
<TABLE>
<CAPTION>
JUNE 18, 1996
(INCEPTION)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- ----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Advertising.......................................... $ -- $ 118 $ 2,544
Subscription......................................... -- 321 1,686
Other................................................ -- 150 393
---------- ------- ---------
Total net revenues................................ -- 589 4,623
Cost of revenues....................................... 298 1,147 3,955
---------- ------- ---------
Gross profit...................................... (298) (558) 668
Operating expenses:
Product development.................................. 469 402 2,346
Sales and marketing.................................. 397 2,189 9,205
General and administrative........................... 548 2,210 5,158
---------- ------- ---------
Total operating expenses.......................... 1,414 4,801 16,709
---------- ------- ---------
Loss from operations.............................. (1,712) (5,359) (16,041)
Interest expense, net.................................. 21 405 227
---------- ------- ---------
Loss before provision for income taxes............ (1,733) (5,764) (16,268)
Provision for income taxes(1).......................... -- -- --
---------- ------- ---------
Net loss.......................................... $ (1,733) $(5,764) $ (16,268)
---------- ------- ---------
---------- ------- ---------
Pro forma basic and diluted net loss per share......... $ $ $
---------- ------- ---------
---------- ------- ---------
Pro forma weighted average basic and diluted shares
outstanding(2).......................................
---------- ------- ---------
---------- ------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................................... $ 18 $ 157 $24,612
Working capital (deficit)....................................................... (253) (1,343) 22,918
Total assets.................................................................... 305 911 27,581
Long-term debt, less current maturities......................................... 1,357 6,335 --
Total stockholders' equity (deficit)............................................ (1,433) (7,157) 23,524
</TABLE>
(footnotes on next page)
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<PAGE>
- ------------------
(1) Prior to May 7, 1998, we were a LLC and as a result were treated as a
partnership for both Federal and state income tax purposes. Upon conversion
to a C corporation, we applied the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
Had SFAS 109 been applied for all periods from inception, the deferred tax
asset generated, primarily from net operating loss carryforwards, would have
been offset by a full valuation allowance.
(2) The pro forma weighted average shares outstanding give effect to the
conversion of all of our outstanding convertible preferred stock and
accumulated dividends into an aggregate of shares of common
stock upon the completion of this offering.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes to those statements which appear elsewhere in this
prospectus. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed below and elsewhere in this prospectus, particularly in "Risk
Factors".
OVERVIEW
TheStreet.com is a leading web-based provider of original, timely,
comprehensive and trustworthy financial news, commentary and information aimed
at helping readers make informed investment decisions. TheStreet.com combines
the most important qualities of traditional print journalism--accuracy,
intelligence, fairness, and wit--with the web's advantages as a financial news
medium--timeliness, interactivity and global distribution. With a staff of more
than 50 reporters and editors, together with two dozen outside contributors, we
update our site with approximately 40 original stories throughout each business
day and with many additional features on weekends. During 1998, our subscriber
base grew more than 380% to approximately 32,000 at the end of the year; as of
February 17, 1999 we had approximately 37,000 subscribers.
We were originally organized in June 1996 as a limited liability company
funded by our co-founders, Mr. James J. Cramer and Dr. Martin Peretz. During
1996, we hired our first reporters and began publishing in November of that
year. In August 1997, we launched our high-capacity web site hosted by Starwave
Corporation. Our coverage of the stock market during its turmoil in October 1997
increased our traffic significantly. In October 1998, we hired Mr. Kevin English
as our Chief Executive Officer and President.
We derive our revenues from retail and professional subscriptions,
advertising and other sources, including content syndication fees. We offer both
monthly and annual subscriptions at current regular prices of $9.95 and $99.95,
respectively. From time to time, we offer seasonal and special discounts and
promotions. Substantially all our retail subscribers pay by credit card. Monthly
subscriptions are automatically renewed and annual subscribers are notified by
email three to four weeks prior to the expiration date of their subscriptions.
Unless these annual subscribers elect to cancel, they too are renewed
automatically, although they have the option to cancel during the 30 days
following their renewal date. In each of the months in the fourth quarter of
1998, approximately 90% of our annual subscribers whose subscriptions came up
for renewal, and 97% of our monthly subscribers, renewed their subscriptions. We
also enter into subscription distribution agreements with third parties pursuant
to which these third parties, such as E*TRADE, purchase subscriptions to our
service for certain of their members or subscribers. We recognize the revenue
for customers ratably over the period of the subscription. We treat the payment
for the unused portion of the subscription as deferred revenue. See
"Business--Subscription Sales".
Our subscriber base continued to grow through 1998, from a base of
approximately 6,700 at the end of December 1997 to approximately 32,000 at the
end of December 1998. In 1998, we established a Professional Markets group to
make enterprise-wide sales to financial services companies. Approximately 2,400
of our subscribers at the end of 1998 were the result of corporate sales to
financial services firms. During the fourth quarter of 1998, we initiated a
marketing program where individuals can receive annual subscriptions to
TheStreet.com by redeeming frequent flyer miles. We do not receive any revenues
from these subscribers for their initial annual subscriptions. Rather, we pay a
third-party service a nominal amount per subscriber to participate in this
program. As a result of this program, we received 5,500 new annual subscriptions
during the fourth quarter of 1998.
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<PAGE>
Subscription revenues represent customer subscriptions that provide full
access to our financial news, commentary and information. Subscriptions are
generally charged to customers' credit cards or are charged directly to
companies that subscribe. These subscriptions are generally billed in advance on
a monthly, quarterly or annual basis. Deferred revenue relates to subscription
fees for which amounts have been collected but for which revenue has not been
recognized.
Advertising revenue, derived from the sale of sponsorships and of banner
and email advertisements, is recognized ratably over the period advertising is
displayed, provided that no significant company obligations remain and
collection of the resulting receivable is probable.
We established a Professional Markets group in 1998 to sell our service to
institutions on an enterprise-wide basis. During 1998 and 1999, this
Professional Markets group entered into agreements with 15 financial
institutions, including PaineWebber, BT Alex. Brown, Fidelity and Deutsche Bank,
to provide each of them with our content delivered according to their
transmission needs. The agreements entered into by our Professional Markets
group are typically one year in duration. We recognize revenues derived from
these agreements ratably over the term of the agreement.
Our cost of revenues is made up of editorial staff costs, outside
contributor fees and content licensing fees. Since these are expected to
increase more slowly than our revenues, we believe that our gross margins will
increase as our revenues increase.
Our product development expenses are also largely fixed, though there are
some variable costs related to increasing the capacity of our web site. The
largest element of our sales and marketing expenses represents marketing costs
for new subscriber acquisition, which are closely tied to our subscription
growth.
We have only a limited operating history upon which you can evaluate our
business and prospects. We have not achieved profitability, and expect to
continue to incur net losses in 1999 and subsequent fiscal periods. We expect to
continue to incur significant operating expenses and, as a result, will need to
generate significant revenues to achieve profitability, which may not occur.
Even if we do achieve profitability, we may be unable to sustain or increase
profitability on a quarterly or annual basis in the future. We believe that
quarter-to-quarter comparisons of our operating results may not be a good
indication of our future performance, nor would our operating results for any
particular quarter be indicative of future operating results.
RESULTS OF OPERATIONS
NET REVENUES
SUBSCRIPTION REVENUES. Net subscription revenues are derived from annual
and monthly subscriptions. We calculate net subscription revenues by deducting
from gross revenues cancellation chargebacks and any refunds. During 1998, these
chargebacks and refunds accounted for approximately 2% of total subscription
revenues. During 1997, net subscription revenues were $321,000. Substantially
all of these revenues related to monthly subscriptions. Net subscription
revenues increased to $1,686,000 in 1998 because of the growth in our subscriber
base. In 1998, approximately 46% of our net subscription revenue was derived
from annual subscriptions.
ADVERTISING REVENUES. Advertising revenues are derived from sponsorship
arrangements and from the delivery of banner and email advertisements. During
1997, our advertising revenues were $118,000, all of which were derived from the
delivery of banner advertisements pursuant to monthly advertising agreements.
Advertising revenues increased from $118,000 in 1997 to $2,544,000 in 1998
because we began to sell sponsorships and increased our sales of banner and
email advertisements. During 1998, 65% of our advertising revenues were derived
from sponsorship contracts.
OTHER REVENUES. Other revenues consist primarily of content syndication
fees. In 1997, our other revenues consisted entirely of revenues derived from a
syndication and hosting partnership with ABCNEWS.com and Starwave (an affiliate
of ABCNEWS.com). Pursuant to this arrangement, we agreed to
21
<PAGE>
syndicate a portion of our news content to ABCNEWS.com in return for technology
and hosting services from Starwave. During 1998, $300,000 of our other revenues
were derived from this agreement. We expect that the revenues and associated
product development expenses incurred in connection with this arrangement will
cease once our internal subscription management system becomes operational. See
"Business--Infrastructure, Operations and Technology".
COST OF REVENUES
Cost of revenues includes compensation and benefits for editorial staff,
fees paid to outside contributors and content licensing fees payable to content
providers. Cost of revenues increased from $298,000 in 1996 to $1,147,000 in
1997 and to $3,955,000 in 1998, primarily as a result of the growth of our
editorial staff from 10 at the end of 1996 to 21 at the end of 1997 and to 53 at
the end of 1998. Our cost of revenues is expected to increase on an absolute
dollar basis in 1999 because of the expansion of our editorial staff, increased
fees paid to outside contributors and increased licensing fees, but it is
expected to decrease as a percentage of revenues.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses include compensation and benefits for software
developers, expenses for contract programmers and developers, and communications
lines, computer equipment and other technology costs. Product development
expenses decreased from $469,000 in 1996, to $402,000 in 1997 and then increased
to $2,346,000 in 1998 primarily as a result of the development of our original
site in 1996 and the construction of our new site during 1998. We increased our
technology headcount from one person at the end of 1996 to three at the end of
1997 to 13 at the end of 1998. All product development costs are expensed as
incurred. We intend to increase our product development expenditures in 1999 to
introduce our own subscription management system and to further enhance the
programming on the web site. These expenses may fluctuate as a percentage of
revenue over time depending on the projects undertaken.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of advertising and promotion
on television, online and in print; advertising commissions; promotional
materials; and compensation, benefits and sales commissions to our direct sales
force. Sales and marketing expenses increased from $397,000 in 1996 to
$2,189,000 in 1997 and to $9,205,000 in 1998 primarily due to the commencement
of marketing initiatives in 1997 and to a significant advertising campaign in
the first half of 1998. Our sales and marketing expenses are expected to
increase on an absolute dollar basis in 1999 because of the expansion of our
sales staff and marketing programs, but they are expected to decrease as a
percentage of revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of compensation and
benefits for general management, finance and administrative personnel, occupancy
costs, professional fees, depreciation and other office expenses. General and
administrative expenses increased from $548,000 in 1996 to $2,210,000 in 1997
and to $5,158,000 in 1998 primarily as a result of an increase in management and
administrative staff, equipment costs and rent payments to support the growth of
the business. We anticipate hiring additional personnel and incurring additional
costs related to our being a public company, including introducing investor
relations programs, increasing professional service fees and increasing
directors and officers liability insurance premiums. Accordingly, our general
and administrative expenses are expected to increase on an absolute dollar basis
in 1999 but are expected to decrease as a percentage of revenues.
INTEREST EXPENSE, NET
Interest expense consists primarily of interest on loans to TheStreet.com,
L.L.C. from its members and another lender that were converted into equity in
May 1998. Interest income consists primarily of interest income from excess cash
balances invested in short-term investment-grade instruments, certificates of
deposit or direct or guaranteed obligations of
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the U.S. government. In 1996, net interest expense was $21,000. It increased to
$405,000 in 1997 because of the growth in the members' loan balances. In 1998,
the interest on these loans was $383,000 from the beginning of the year to May
1998, when the loans and remaining accrued interest were converted into equity
of TheStreet.com, Inc. An additional $5,000 of interest expense was recorded in
1998 for a bank loan. There was no interest income in 1996 or 1997. In 1998,
interest income was $161,000.
INCOME TAXES
No benefit for Federal and state income taxes is reported in the financial
statements, as we had elected to be taxed as a partnership prior to May 7, 1998,
at which time we converted to a C corporation. Therefore, for the periods
presented through May 7, 1998, the Federal and state tax effects of the tax
losses were recorded by the members of the TheStreet.com, L.L.C. in their
respective income tax returns. Subsequent to our conversion to a C corporation,
we have accounted for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Had we
applied the provisions of SFAS 109 for the period from inception, the deferred
tax asset generated, primarily from net operating loss carryforwards, would have
been offset by a full valuation allowance.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, certain data
from our statements of operations. The statement of operations data has been
derived from our financial statements, which, in our management's opinion, have
been prepared on substantially the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial information for
the periods presented. This information should be read in conjunction with the
audited financial statements and notes to those statements included elsewhere in
this prospectus. The operating results in any quarter are not necessarily
indicative of the results that may be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------
MARCH 31, 1998 JUNE 30, 1998 SEPTEMBER 30, 1998 DECEMBER 31, 1998
-------------- ------------- ------------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Advertising........................ $ 574 $ 586 $ 575 $ 809
Subscription....................... 259 448 438 541
Other.............................. 85 82 105 121
-------- ------- -------- -------
Total net revenues................. 918 1,116 1,118 1,471
Cost of revenues..................... 646 844 1,077 1,388
-------- ------- -------- -------
Gross profit....................... 272 272 41 83
-------- ------- -------- -------
Operating expenses:
Product development................ 137 205 444 1,560
Sales and marketing................ 2,570 3,849 1,535 1,251
General and administrative......... 779 1,009 1,313 2,057
-------- ------- -------- -------
Total operating expenses........... 3,486 5,063 3,292 4,868
-------- ------- -------- -------
Loss from operations................. (3,214) (4,791) (3,251) (4,785)
Interest income (expense), net....... (257) (77) 76 31
-------- ------- -------- -------
Net loss............................. ($ 3,471) ($4,868) ($ 3,175) ($4,754)
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
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Product development expenses increased significantly in the fourth quarter
as a result of the consulting, hardware and software costs associated with
building our new hosting and content management systems and our new web site.
Sales and marketing expenses were greater in the first two quarters of 1998
compared to the last two quarters primarily as a result of an aggressive
television advertising campaign. Subsequent to this campaign, quarterly
advertising costs declined as a percentage of quarterly revenues. General and
administrative expenses increased in the fourth quarter primarily as a result of
the growth in general management, professional services and infrastructure
costs.
LIQUIDITY AND CAPITAL RESOURCES
From inception on June 18, 1996 through April 1998, we funded our
operations primarily from investments and loans from Mr. Cramer and Dr. Peretz
and a loan from a third party. The loans and accrued interest were converted
into equity as part of the May 1998 private placement and, since then, we have
funded our operations primarily from the sale of equity securities and from cash
received from the sale of subscriptions and advertising. In May 1998, we raised
approximately $10 million in a private placement. In December 1998, we raised
approximately $25 million in a second private placement. As of December 31,
1998, we had working capital of $22.9 million available to us. See "Certain
Transactions--1998 Private Placements".
Cash used in operating activities was $15.8 million in 1998 compared to
$4.4 million in 1997 and $1.4 million for the period from June 18, 1996
(inception) to December 31, 1996. Significant uses of cash in operations that
led to the net operating loss in 1998 include costs associated with our
marketing initiatives, technology development and increased staffing in our
editorial and business operations.
Cash provided by financing activities was $40.6 million in 1998 compared to
$5.0 million in 1997 and $1.6 million for the period from June 18, 1996
(inception) through December 31, 1996. In 1996 and 1997, the amounts represented
loans and investments from the founders. In 1998, they consisted primarily of
net proceeds from the private placement of equity securities in May and December
1998.
In September 1998, we entered into a sale and leaseback transaction for
substantially all of our fixed assets, including fixtures and fittings,
telephone equipment and office equipment. Since that date, we have financed
substantially all of our fixed asset purchases through an operating lease.
Capital expenditures were $334,000 in 1998, $490,000 in 1997 and $173,000 for
the period from June 18, 1996 (inception) through December 31, 1996. We did not
have any commitments for capital expenditures at December 31, 1998. As of
December 31, 1998, we had commitments under non-cancellable operating leases of
$2.3 million for 1999.
We also have a revolving working capital line of credit of $2.0 million
from a commercial bank, secured against certain accounts receivable held by us,
that carries interest at the bank's prime lending rate. As of December 31, 1998,
approximately $3,000 was outstanding under this line of credit.
We believe that the net proceeds from this offering, together with our
current cash, will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months following the
offering. Thereafter, if cash generated from operations is insufficient to
satisfy our liquidity requirements, we may need to raise additional funds
through public or private financings, strategic relationships or other
arrangements. There can be no assurance that such additional funding, if needed,
will be available on terms attractive to us, or at all. Strategic relationships,
if necessary to raise additional funds, may require us to provide rights to
certain of our content. The failure to raise capital when needed could have a
material adverse effect on our business, results of operation and financial
condition. If additional funds are raised through the issuance of equity
securities, the percentage ownership of our then-current stockholders would be
reduced. Furthermore, such equity securities might have rights, preferences or
privileges senior to those of the common stock.
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YEAR 2000 READINESS DISCLOSURE
OUR STATE OF READINESS
We have defined Year 2000 compliance as follows:
Information technology ("IT") time and date data processes, including, but
not limited to, calculating, comparing and sequencing data from, into and
between the 20th and 21st centuries contained in our products and services,
and our non-IT systems, will function accurately, continuously and without
degradation in performance and without requiring intervention or
modification in any manner that will or could materially adversely affect
the performance of such products or the delivery of such services as
applicable at any time hereafter.
We have received warranties and assurances from our significant vendors
stating that they are or expect to be Year 2000 compliant in a timely manner. We
are currently assessing the materiality of our non-IT systems and will seek
assurances of Year 2000 compliance from providers of material non-IT systems. We
also have developed some of our own tools and applications on third-party
platforms. We rely on the underlying platforms for date processing functions.
THE COSTS TO ADDRESS YEAR 2000 ISSUES
We have expensed amounts incurred in connection with our Year 2000
compliance efforts since inception through December 31, 1998. Such amounts have
not been material. The additional costs to make our systems Year 2000 compliant
by mid-1999 will be expensed as incurred, but are not expected to be material.
We are not currently aware of any material operational issues or costs
associated with preparing our systems for the Year 2000. Nonetheless, we may
experience material unexpected costs caused by undetected errors or defects in
the technology used in our systems or because of the failure of a material
vendor to be Year 2000 compliant.
RISKS ASSOCIATED WITH YEAR 2000 ISSUES
Notwithstanding our Year 2000 compliance efforts, the failure of a material
system or vendor, or the Internet generally, to be Year 2000 compliant could
harm the operation of our systems or prevent or delay the delivery of our
services being offered through us, or have other unforeseen, material adverse
consequences to us.
We are also subject to external Year 2000-related failures or disruptions
that might generally affect industry and commerce, such as utility or
transportation company Year 2000 compliance failures and related service
interruptions. All of these factors could materially adversely affect our
business, results of operations and financial condition.
CONTINGENCY PLANS
We have not yet developed a contingency plan to address situations that may
result if we are unable to achieve Year 2000 compliance. The cost of developing
and implementing such a plan, if necessary, could be material.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes new
standards for the way companies report information about operating segments in
annual financial statements. The disclosures prescribed by SFAS 131 are
effective for the year ending December 31, 1998. We do not believe we operate in
more than one segment.
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BUSINESS
OVERVIEW
TheStreet.com is a leading web-based provider of original, timely,
comprehensive and trustworthy financial news, commentary and information aimed
at helping readers make informed investment decisions. TheStreet.com combines
the most important qualities of traditional print journalism--accuracy,
intelligence, fairness and wit--with the web's advantages as a financial news
medium--timeliness, interactivity and global distribution. With a staff of more
than 50 reporters and editors, together with two dozen outside contributors, we
update our site with approximately 40 original stories throughout each business
day and with many additional features on weekends. Trained at the nation's
leading financial news organizations, our journalists produce quality news
coverage and in-depth analysis in a real-time, interactive medium ideally suited
to the needs of today's investors. We have developed a community of loyal
readers who turn to TheStreet.com for their financial and investing news and
information needs. During 1998, our subscriber base grew more than 380% to
approximately 32,000 at the end of the year; as of February 17, 1999, we had
approximately 37,000 subscribers.
We derive our revenues primarily from the sale of subscriptions to our web
site and from advertising sales. To build brand awareness, increase traffic and
create a ready source of potential subscribers, we aggressively promote our site
and provide a portion of our content for free. We seek to maximize our revenue
per reader--both paying subscribers and free users--by selling advertisements on
all areas of our site. Our financially oriented readers comprise an upscale
demographic that is desirable to advertisers, enabling us to charge advertising
rates that we believe to be among the highest of financial web sites. We believe
we are well positioned for significant growth in both subscription and
advertising sales as the market for online financial news and information
continues to expand.
INDUSTRY BACKGROUND
The web has rapidly established itself as an effective means for investors
to manage their portfolios, research investments and trade securities. At the
same time, individuals have been taking greater control of their investments by
directly researching information on investments, tracking their portfolios,
purchasing no-load mutual funds and playing a more proactive role in their
relationships with financial advisors. The web has facilitated these behavioral
shifts by providing investors with easy access to information that was once
generally available only to investment professionals, such as timely market
news, intra-day and historical quotes, charts, SEC filings and analysts'
earnings estimates. According to International Data Corporation, the number of
online brokerage accounts in the United States is expected to grow from
3.5 million at the end of 1997 to 24 million at the end of 2002, with online
brokers expected to manage over $1.5 trillion in assets by the end of 2002.
Similarly, investors in Europe are beginning to play a more proactive role in
managing their finances, according to a November 1998 Forrester Research report.
Increasingly, this growing group of self-directed investors is seeking
timely, comprehensive and trustworthy financial news and information that can
help them make informed investing decisions. Many existing financial news
sources, however, fail to meet this need. Traditional print publications,
constrained by publication cycles of days or even months, are limited in their
ability to keep pace with financial markets. Television provides a measure of
timeliness but generally lacks depth of analysis. In addition, viewers are
subject to television's predetermined schedules. On the web, some news and
information sources offer little disclosure about their background and any
conflicts of interest, potentially rendering their information untrustworthy.
Some online news outlets do little more than republish stories that have already
appeared in their affiliated print publications and many simply aggregate
stories from disparate news and press release wires without supplying the
original insight, analysis
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and point of view that comes from independent reporting. Other financial sites
offer stock quotes, charts and other investment tools, but provide limited
financial news.
The democratization of Wall Street represents a significant opportunity for
a financial news, commentary and information web site that combines the depth of
coverage of traditional media with the immediacy and interactivity of the web.
We believe that as the audience for investment news grows both in the United
States and abroad, we are poised to become the leading source worldwide for
original, timely, comprehensive and trustworthy financial news, commentary and
information.
THESTREET.COM SOLUTION
At TheStreet.com, we aim to meet the increasing demands of today's
investors. Our large and experienced news organization provides a broad range of
original financial news and in-depth analysis to our readers through a
real-time, interactive medium. We complement this news and analysis with
compelling commentary by such well-known writers as James J. Cramer, Herb
Greenberg, Brenda Buttner and Jim Seymour. We believe this combination of
coverage and commentary, together with our community features and investment
tools, provides a solution for the shortcomings of existing financial news
sources by combining the best attributes of each:
o ORIGINAL. Our stories are written by our staffers, for our web site. They are
not merely aggregated from other online sources, nor are they originally
prepared for another medium and simply re-purposed for the web.
o TIMELY. Our focused reporters continuously track and investigate the latest
financial news. We update our web site dozens of times throughout the business
day to keep our readers abreast of developing news stories.
o COMPREHENSIVE. We seek to achieve both depth and breadth of coverage. We aim
to provide in-depth analysis that is more valuable to investors than a
broadcast sound bite or a wire-service dispatch. We offer a broad range of
content, community features and investment tools to meet the needs of a
variety of individuals, from active investors to buy-and-hold stock purchasers
to first-time Roth IRA contributors.
o TRUSTWORTHY. We aim to uphold the highest ethical and journalistic standards,
striving to ensure that our stories are accurate, reliable and fair, and that
staff members and outside contributors adhere to our rigorous disclosure and
conflict-of-interest policy.
We believe our approach is effective. During 1998, our subscriber base grew
more than 380% to approximately 32,000 at the end of the year; as of
February 17, 1999, we had approximately 37,000 subscribers.
STRATEGY
Our objective is to establish TheStreet.com as the leading and most
comprehensive financial news and information destination for investors. We aim
to further develop a loyal community of readers in order to build our
subscription base and attract advertisers. Our strategy includes the following
key elements:
EXPAND OUR WEB SITE AS A COMPREHENSIVE FINANCIAL NEWS AND INFORMATION
DESTINATION
We are building upon our comprehensive offerings so that readers can
satisfy all of their financial and investing news and information needs without
leaving our web site. For example, we are expanding our coverage of
international markets, adding new community features such as message boards and
enhancing the sophistication of our investment tools with offerings like
real-time stock quotes. Through continued additions like these, we aim to give
investors an informative, robust and entertaining user experience.
LEVERAGE OUR CONTENT TO MAXIMIZE REVENUE ACROSS A DIVERSE CUSTOMER BASE
To leverage our content across and derive greater revenues from a wider
audience, we offer various levels of access to our content at different price
points. We currently offer free content as well as paid premium content and in
the future plan to add more customized offerings for both retail and
professional investors. Free content builds our brand, increases traffic,
broadens our base of prospective subscribers and expands opportunities for
advertising revenues. Our
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premium content offering includes a wide variety of breaking news, analysis,
commentary and investment tools.
We are developing specialized, higher-priced products for both retail
investors and financial professionals. To satisfy retail investors' demand for
the customized delivery of content, we plan to add additional services such as
increased personalization. We further believe that financial professionals
represent a significant market opportunity for subscriptions and advertising
revenue. We have built a sales group to target that audience through
enterprise-wide sales and plan to develop specialized content for professionals.
We believe these additions to our product line will allow us to maximize both
our reach and our revenue per user.
CAPITALIZE ON READER DEMOGRAPHICS DESIRABLE TO ADVERTISERS
Our desirable reader demographic has enabled us to build a growing
advertising business. To reach this attractive audience, our advertisers pay
rates that we believe are among the highest of financial web sites. Our
advertising revenues grew from approximately $118,000 in 1997 to approximately
$2.5 million in 1998. By the end of January 1999 we had signed contracts for
$3.1 million in advertising revenues for the year, $600,000 more than the total
advertising revenues we generated in all of 1998. We expect that as we increase
our traffic and expand our offering of news and commentary, community features
and investment tools, we will continue to create significant opportunities both
for increased financial services-related advertising as well as technology and
luxury-goods advertising.
LEVERAGE STRATEGIC PARTNERSHIPS
We continue to build our subscriber base and brand awareness through both
subscription distribution and content syndication relationships. Under
subscription distribution relationships with online brokerages and other firms,
we expect to sign up thousands of subscribers without incurring typical consumer
marketing costs. For example, under our recent subscription distribution
agreement with E*TRADE, the online broker will purchase discounted subscriptions
in bulk to distribute as a premium service to certain of its customers.
By syndicating our content to other leading sites, we expose our brand name
and quality writing to millions of potential subscribers and drive additional
traffic to our site. Under content syndication agreements with Yahoo!, America
Online, Charles Schwab and other leading companies, we provide selected stories
each day, at times on a delayed basis, for co-branded publication with a link to
our site. Our content syndication agreements capitalize on the cost efficiencies
of online delivery by creating additional value from stories already produced
for our own site.
BUILD BRAND AWARENESS OF THESTREET.COM AND OUR WRITERS
We believe that increased brand awareness helps us attract additional
traffic, subscribers, strategic partners, advertisers and talented employees. We
engage in a comprehensive marketing and media-relations campaign to raise
visibility and cultivate our brand identity. We advertise on television, print
and online media and conduct innovative marketing campaigns. We also build the
visibility of our individual writers. Our writers and their work have been
featured or mentioned in publications such as The Wall Street Journal, The New
York Times and Fortune. Contributor James Cramer and senior columnist Herb
Greenberg appear regularly on CNBC, and Mr. Greenberg appears twice daily on
KRON television, the San Francisco television affiliate of NBC.
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OUR EDITORIAL STAFF AND OUTSIDE CONTRIBUTORS
We believe that our original, timely, comprehensive and trustworthy content
is a competitive advantage. Our editorial staff consists of more than 50
professional reporters and editors who, together with two dozen outside
contributors throughout the world, produce approximately 40 original news,
analysis and commentary pieces each business day that are aimed at helping
readers make informed investment decisions. We also publish additional features
and news updates on weekends. Our editorial staff and outside contributors have
broken numerous important stories, many of which have been cited by other
publications such as The Wall Street Journal and The New York Times.
Before joining TheStreet.com, many members of our editorial staff worked at
other leading news organizations, including The Wall Street Journal, The New
York Times, CNBC, Dow Jones News Service, SmartMoney, Bloomberg, Reuters and USA
Today. Among our site's notable writers:
JAMES J. CRAMER. Mr. Cramer, a money manager, is an outside
contributor to TheStreet.com and writes multiple columns each business day.
Mr. Cramer also is a founder and director of TheStreet.com. In addition,
Mr. Cramer writes for Time magazine and appears regularly on CNBC.
HERB GREENBERG. Mr. Greenberg, formerly of the San Francisco
Chronicle, is a staffer and daily commentator. Mr. Greenberg also appears
regularly on CNBC and writes a regular column for Fortune magazine. In
addition, he provides business coverage twice each morning for KRON
television, the San Francisco television affiliate of NBC.
BRENDA BUTTNER. Ms. Buttner, a former anchor of CNBC's The Money Club
and winner of the network's first Cable Ace Award, is a regular outside
contributor. Ms. Buttner profiles America's top mutual fund managers and
comments on the mutual fund industry.
DAVE KANSAS. Mr. Kansas, our editor-in-chief, writes a column about
market trends. Mr. Kansas worked at The Wall Street Journal for five years,
most recently as a financial markets reporter. He has provided commentary
for several television networks, including ABC, CBS, NBC, CNBC and CNN. His
writing has appeared in The New Republic, Red Herring, Upside, The Industry
Standard, Slate and the New York Observer.
ALEX BERENSON. Mr. Berenson, a senior staff writer, covers media and
entertainment companies. Mr. Berenson was recently featured in a "Heroes"
column in Brill's Content, a media magazine, for his coverage of Tel-Save
Holdings (now Tel-Save.com).
JIM SEYMOUR. Mr. Seymour, a longtime commentator for PC Magazine and
the founding editor-in-chief of PC/Computing magazine, writes about
America's leading technology stocks as an outside contributor.
GARY B. SMITH. Mr. Smith, an individual investor who manages his own
money using technical analysis, is an outside contributor who writes four
times each week about technical analysis and at-home trading.
To ensure impartiality and prevent any conflict-of-interest or appearance
of conflict, our editorial staff and outside contributors are required to abide
by our strict compliance policy. Pursuant to this policy, our editorial staffers
are not permitted to own individual stocks (though they may, and most will, own
equity in TheStreet.com). In addition, James Cramer, a money manager and outside
contributor to, large stockholder of and director of TheStreet.com, has no
control over the editorial content of TheStreet.com and, like our other
contributors, is required to disclose his current positions in any of the stocks
he writes about. Mr. Cramer's employment agreement prohibits him from discussing
individual stocks with editorial staffers and limits his contact with the
editorial staff to the editor-in-chief or his designee. See "Certain
Transactions--Cramer Employment Agreements".
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THESTREET.COM WEB SITE
We produce original coverage of Wall Street, money management and financial
planning. Topics include the U.S. stock, bond and global financial markets,
technology and other individual stocks, mutual funds, options, hedge funds,
analysts, IPOs, online brokers, 401(k)s and taxes.
Our content currently falls into two categories: free and premium. The free
areas of our site, currently accessible without registration or a subscription,
include our regularly updated Markets coverage, most of our educational Basics
section and many of our investment tools. Our premium content is available to
those who have purchased a monthly, annual or multi-year subscription or who are
currently registered for our 30-day free trial. It currently includes
approximately 20 stock, technology, mutual fund, personal finance and
international news stories and commentaries each business day; certain
investment tools; and all free areas of the site. Our premium content
subscribers and free-trial members also receive market and news summaries via
email twice daily.
The following is a detailed description of the various sections on
TheStreet.com web site.
MARKETS
The Markets section is a free area that features approximately 20 stories
throughout each business day, from about 8 a.m. until 8 p.m. Eastern time. These
stories aim to keep readers abreast of the latest movements of the major
indices, the most active stocks, news from foreign markets, the direction of the
bond market, earnings news, merger and acquisitions news and other major market
events. Easy-to-read tables within the stories give readers a summary of index
performance and earnings news, including corporate earnings surprises.
COMMENTARY
The most popular area on the site, our Commentary section is a premium area
that includes columns from staffers and a network of outside contributors who
write about topics such as money management, technical analysis, currency
issues, industry analysis, macroeconomics, fundamental analysis, financial
planning and mutual funds.
TECH REPORT
The Tech Report is a premium area that covers technology stocks. Our tech
reporters, many of whom are located in our West Coast bureau in San Francisco,
cover areas such as hardware, software, networking, semiconductors, the Internet
and the Year 2000 problem. We also publish a separate technology stock update
several times daily detailing the major news in the sector.
STOCK NEWS
The Stock News section is a premium area that includes coverage of
companies outside of the technology sector, such as retail, media/entertainment,
biotechnology, energy, brokerages/Wall Street and online brokers. It also
includes our daily coverage of the options market.
FUNDS/TAXES
To assist our many readers who leave part or all of their stock selection
to professional money managers, we have a premium area covering daily mutual
fund news. Each day we answer an individual reader's fund question, with the
Friday question dedicated to bonds. Our tax and 401(k) coverage is also located
here.
INTERNATIONAL
Recognizing that knowledge of international markets is vital to
understanding the U.S. markets, we have a dedicated International section, which
is a premium area. We have hired one New York-based staffer, one London-based
staffer and several correspondents and contributors to provide coverage of
foreign markets and some individual stocks. We expect to expand our
international coverage in 1999 with the deployment of staffers in key financial
markets in Europe and Asia.
BASICS
This mostly free section caters to readers who are gaining familiarity with
the markets and investing. It features basic guides on stocks, bonds, mutual
funds, options, taxes and financial planning.
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COMMUNITY FEATURES
We offer several interactive features that help create a community
atmosphere among our readers. We believe that developing a sense of community
among our readers increases our brand awareness, increases the frequency and
duration of reader visits and fosters loyalty to our site and our writers.
Current community features include:
o email between our readers and our staff;
o polls that invite readers to vote on issues related to the latest financial
and investing news; and
o regular chats featuring our top-name contributors and expert staffers hosted
on Yahoo!, America Online, and other services.
In addition, we plan to introduce message boards, an investment game and
streaming audio programs.
INVESTMENT TOOLS
Committed to providing our readers with the most robust interactive
experience that an online financial publication can offer, we feature a variety
of interactive investment tools that enable users to conduct their own financial
research. Among the investment tools we offer are:
o detailed stock quotes;
o intraday and historical stock charts;
o mutual fund quotes and scoreboards;
o summary company data;
o SEC filings; and
o a portfolio tracker.
We are currently working to enhance the investment tools offerings on our
site, both in terms of volume and quality, to strengthen our position as a
comprehensive financial news and information destination. Planned investment
tools include real-time stock quotes and news wire feeds.
SUBSCRIPTION SALES
As of February 17, 1999, we had approximately 37,000 subscribers. Readers
can choose either an annual subscription regularly priced at $99.95 or a monthly
subscription regularly priced at $9.95. From time to time, we offer seasonal and
special discounts and promotions. The number of our subscribers has risen each
month since August 1997, when we began tracking that data. In each of the months
of the fourth quarter of 1998, approximately 90% of our annual subscribers whose
subscriptions came up for renewal, and 97% of our monthly subscribers, renewed
their subscriptions.
We actively market our subscriptions by offering a 30-day free trial to our
readers. Once these readers have signed up for the free trial, we seek to
convert them to paid subscribers by allowing them access to all areas of our
site. We also send them a series of targeted emails that highlight the benefits
of membership. We continue to contact by email those readers whose free trials
have expired without conversion.
We plan to launch an in-house subscription management system in 1999. We
expect that this system will enhance our ability to convert free-trial members
to paid subscribers through the use of customized emails and automated pop-up
reminder messages. See "Risk Factors--Risks Associated with Moving Our
Subscription Management System In-house".
As part of our efforts to increase our subscriber base, we have entered
into subscription distribution agreements with online financial services firms.
For example, under our agreement with E*TRADE, which has a term through
January 12, 2000, E*TRADE has agreed to purchase bulk subscriptions at a
discounted rate that it will offer to certain new E*TRADE brokerage customers
and to its existing Power E*TRADE customers (active customers).
We have also increased the number of our subscribers through the efforts of
our Professional Markets group, which has entered into agreements with 15
financial institutions to provide content to their financial professionals. See
"--Professional Markets".
ADVERTISING SALES
We currently derive, and expect to continue to derive, a substantial
portion of our revenues from advertising sales. We have established a desirable
reader demographic that has enabled us to build a growing advertising business
and charge rates that are,
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to our knowledge, among the highest of financial web sites. We have been able to
attract an increasing number of advertisers, both within and beyond the
financial services industry.
Our advertising revenues grew from approximately $118,000 in 1997 to
approximately $2.5 million in 1998. In 1998, advertising revenues represented
approximately 55% of our total revenue. We believe that our advertising revenues
will continue to grow in 1999. By the end of January 1999, we had signed
contracts for approximately $3.1 million in advertising revenues for 1999--more
than the total advertising revenues we generated in all of 1998. In addition,
our top three advertisers in terms of committed revenue in January 1999 also
advertised with us in 1998. One advertiser increased its advertising commitment
in 1999 from $250,000 to $1 million, and another increased its advertising
commitment from $20,000 to $750,000.
DEMOGRAPHICS
Our audience presents a desirable reader demographic for advertisers in the
financial services, technology and luxury goods industries. According to @plan,
an independent research firm affiliated with the Gallup Organization, the
percentage of our readers who are men with portfolios over $500,000 is higher
than at any other site surveyed in @plan's December 1998 study. Also, according
to the same study, we have the highest percentage of readers who own securities.
In addition, compared to the average Internet user surveyed by @plan, our
readers are five times more likely to trade stocks online and three times more
likely to own a top prestige luxury car.
OTHER FACTORS ATTRACTIVE TO ADVERTISERS
In addition to our desirable reader demographics, advertisers seek a
presence on TheStreet.com for a number of other reasons, including:
o LONG DURATION AND HIGH FREQUENCY OF VISITS. In 1998 our readers spent an
average of 24 minutes per visit on our site. We believe this duration compares
favorably to the time spent by readers on other financial sites. Further,
according to a study conducted in October 1998 by NFO Interactive for
TheStreet.com, approximately 77% of our subscribers visit our site at least
once every day.
o PAID SUBSCRIBERS. Our subscribers have already demonstrated a willingness to
pay for products and services online by virtue of their having subscribed to
TheStreet.com. This trait is highly attractive to advertisers seeking to
encourage online sales of their products and services.
o OUR MARKETING EFFORTS. Advertisers like the fact that we conduct an extensive
marketing and media relations campaign to increase the visibility of our site.
o OUR EDITORIAL CONTENT. Many advertisers like to associate their products and
services with our original, timely and trustworthy editorial content.
OUR ADVERTISING SALES DEPARTMENT
We have maintained an internal, direct advertising sales department since
1997. As of February 15, 1999, our advertising sales department consisted of
eight employees. By using a direct sales force rather than outsourcing
advertising sales, we control our advertising relationships and are better able
to serve our clients.
ADVERTISING OPPORTUNITIES AT THESTREET.COM
We offer a variety of advertising options that may be purchased
individually or in packages, such as "run-of-site" banner advertisements that
run throughout our web site, for which our current rate card CPM (cost per
thousand impressions) ranges from $51 to $57; premium positioning advertising
featuring targeted advertisements for which our current rate card CPM ranges
from $60 to $68; sponsorships, which run in a fixed area of our web site for a
set duration; and advertising on our twice-daily email bulletins delivered to
our subscribers and free-trial readers, for which our current rate card CPM
ranges from $30 to $52.
OUR ADVERTISERS
In 1998, 61 advertisers advertised on our web site. In 1998, our top
advertiser accounted for approximately 40%, and our top five advertisers
accounted for approximately 67%, of our advertising revenues. Historically,
advertisers on TheStreet.com have mainly
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come from the financial services industry. However, in 1998 we added such
well-known non-financial brands as Volvo, Mercedes, and Stolichnaya Vodka to our
roster of advertisers. In addition, in 1999 we have added several new
advertisers, including Chase Manhattan Bank, Multex.com, Precision Edge
Securities and Compaq.
The following is a list of our top ten brokerage and non-brokerage
advertisers in 1998:
<TABLE>
<CAPTION>
TOP 10 BROKERAGE ADVERTISERS
<S> <C>
American Express Financial Direct Fidelity
Ameritrade On-Site Trading
Datek Polar Trading
DLJdirect Quick & Reilly
Dreyfus Web Street Securities
<CAPTION>
TOP 10 NON-BROKERAGE ADVERTISERS
<S> <C>
American Stock Exchange Kinsella Communications
Chicago Board of Options Exchange Mercedes
horsesmouth SAP America
INVESTools Stockgenie
Janus Volvo
</TABLE>
In addition, we believe that investor relations professionals increasingly
are recognizing that both the sophisticated individual investor and the
professional investor are turning to the web for timely information. As a
leading online financial news and information site, we believe we will benefit
from this trend. Some companies that have run investor relations advertising on
our site include ITT Industries, SAP America and Intimate Brands.
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MARKETING
We pursue a variety of marketing initiatives designed to build brand
awareness, increase traffic to our site and accelerate subscription growth.
These initiatives include advertising in every major category of media,
establishing strategic distribution relationships with leading companies,
maintaining a well-trained team of in-house customer service representatives,
developing brand extensions and engaging in an ongoing media-relations campaign.
ADVERTISING CAMPAIGN
Advertisements for TheStreet.com appear in a variety of online and offline
media, including:
o cable television networks, including CNBC;
o local and network radio, including Westwood One, WFAN and WNEW;
o newspapers, including The Wall Street Journal and The New York Times;
o print magazines, including Fortune and SmartMoney;
o outdoor locations, including phone kiosks, moving and stationary billboards
and train platforms;
o in-flight advertising, including flights on United Airlines, Northwest
Airlines and US Airways; and
o online sites, including SmartMoney.com and Bloomberg.com.
CONTENT SYNDICATION
We have established content syndication agreements with leading companies
to increase recognition of our brand and attract new readers to TheStreet.com
site. Key partners with whom we have content syndication and promotion
agreements include:
o YAHOO! Under our agreement with Yahoo!, which has a term through
December 31, 1999, we syndicate approximately five stories daily, some
delayed, for co-branded publication on Yahoo! Finance. Each of our stories
published on Yahoo! Finance contains direct links to our site and sign-up
page. In addition, we host approximately four online chats on Yahoo! Chat each
month, featuring our writers or special guests. In 1998, such special guests
included John Bogle, senior chairman of the Vanguard Group; Maria Bartiromo,
anchor for CNBC; and Christos Cotsakos, chairman and CEO of E*TRADE Group.
These chats have helped us raise the profile of our staff and expose our brand
to millions of Yahoo! users.
In February 1999, we signed an agreement with Yahoo! that provides for our
stories to be "indexed" on Yahoo! Finance. Under this agreement, every request
by a user of Yahoo! Finance for a stock or mutual fund quote will pull up a
list of headlines that includes free stories from TheStreet.com that mention
the stock or fund. These headlines will be hyperlinked directly to our site so
that users can click straight through to TheStreet.com. Also, subscribers of
TheStreet.com will be able to customize Yahoo! Finance to include our premium
stories on their headline list.
o AMERICA ONLINE. Under our agreement with America Online, which has a term
through July 23, 1999, we have a dedicated TheStreet.com area on AOL's
Personal Finance channel, where we post stories each day. The area features
prominent links to our web site. As part of the agreement, AOL users receive a
20% discount when they purchase a new subscription to TheStreet.com. The
agreement also provides for regular live TheStreet.com chat events on AOL,
typically two each month.
o INTUIT. Under our agreement with Intuit, which has a term through March 20,
2000, Intuit includes certain of our stories in a package of financial news
and information that it provides to certain sites such as Quicken.com,
AOL.com, Excite and Webcrawler. Such stories include our logo and a prominent
link to a free-trial sign-up page.
o ABCNEWS.COM. Our agreement with ABCNEWS.com, which has a term through May 1,
1999, provides for the co-branded publication of five of our stories each day
on the ABCNEWS.com site. Our logo and links to our site appear prominently on
the Business section of the ABCNEWS.com page.
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o 3COM. Under our agreement with 3Com, which terminates one year from the
commercial release of the forthcoming Palm VII hand-held organizer, users of
the organizer will be able to access branded financial markets stories by
TheStreet.com via a remote wireless connection to the Internet.
o UNITED FEATURE SYNDICATE. Our agreement with United Feature Syndicate, which
has a term through February 14, 2000, provides for the syndication of articles
from our site to numerous print newspapers. The newspaper articles are
credited to TheStreet.com, extending the brand to readers of newspapers around
the country.
We distribute content to many other leading web sites, including those of
DLJdirect, Charles Schwab and the Chicago Board Options Exchange.
THESTREET.COM INTERNET SECTOR AND E-COMMERCE INDICES
In conjunction with the Philadelphia Stock Exchange and the Susquehanna
Investment Group, we created TheStreet.com Internet Sector, an index of 20
Internet stocks. Options based on the index began trading in December 1998.
Since its launch, TheStreet.com Internet Sector has been mentioned or featured
on prominent news outlets including The New York Times, The Wall Street Journal,
the Los Angeles Times and CNBC. Additionally, in conjunction with the American
Stock Exchange and Susquehanna Investment Group, in February 1999 we created
TheStreet.com E-Commerce Index, an index of 15 electronic commerce stocks.
MEDIA RELATIONS
TheStreet.com engages in an ongoing media-relations campaign. In 1998,
TheStreet.com, our writers and our stories were mentioned or featured in more
than 400 reports by more than 40 news outlets, including The Wall Street
Journal, The New York Times, USA Today, The Financial Times, ABC News, CNN and
Newsweek. Two of our daily commentators, James Cramer and Herb Greenberg, make
regularly scheduled television appearances, and our West Coast bureau chief,
Cory Johnson, appears daily on a radio program that we sponsor. These
appearances help increase our brand awareness and build our reputation and that
of our writers.
TELEVISION PILOT
We have filmed and edited a television pilot featuring Brenda Buttner as
host and James Cramer and Herb Greenberg as commentators. We are currently
seeking a cable or network television broadcast partner to air the pilot and any
subsequent episodes. We believe that the broadcasting of this television show
would significantly boost our brand awareness as well as further raise the
profile of our writers.
CUSTOMER SERVICE
Customer service is a critical element of our marketing strategy. Because
TheStreet.com is published online, we can interact with our readers much more
easily than traditional print publications or broadcast media companies. In
November 1998, for example, we had approximately 15,000 reader contacts, from a
base of about 50,000 individuals, including subscribers and readers in their
30-day free trial. As of February 15, 1999, our customer service department had
21 personnel.
PROFESSIONAL MARKETS
TheStreet.com appeals to a broad range of financial professionals,
including analysts, money managers and financial advisors. Our October 1998
subscriber study conducted by NFO Interactive showed that approximately 25% of
our subscribers were financial professionals. In 1998 and 1999, our Professional
Markets group entered into agreements with 15 financial institutions, including
PaineWebber, BT Alex. Brown, Fidelity and Deutsche Bank, to provide them with
our content delivered according to their transmission needs. Through such
arrangements, we currently reach approximately 2,600 financial professionals.
In addition, we are devoting significant resources to our Professional
Markets group, as we believe that subscription sales to this market will be
significant and that financial professionals will provide a desirable reader
demographic to advertisers.
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We plan to develop new products that will be customized to better satisfy
the exacting needs of financial professionals. We expect these products will
feature information, news, commentary, data and investment tools of particular
relevance to financial professionals.
COMPETITION
An increasing number of financial news and information sources compete for
consumers' and advertisers' attention and spending. We expect this competition
to continue to increase. We compete for advertisers, readers, staff and outside
contributors with many types of companies, including:
o online services or web sites focused on business, finance and investing, such
as MarketWatch.com, The Wall Street Journal Interactive Edition and The Motley
Fool;
o publishers and distributors of traditional media, including print, radio and
television, such as The Wall Street Journal, Fortune, Bloomberg Business Radio
and CNBC;
o providers of terminal-based financial news and data, such as Bloomberg
Business News, Reuters News Service, Dow Jones Markets and Bridge News
Service;
o web "portal" companies, such as Yahoo! and America Online; and
o online brokerage firms, many of which provide financial and investment news
and information, such as Charles Schwab and E*TRADE.
Our ability to compete depends on many factors, including the originality,
timeliness, comprehensiveness and trustworthiness of our content and that of
competitors, the ease of use of services developed either by us or our
competitors and the effectiveness of our sales and marketing efforts.
Many of our existing competitors, as well as a number of 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, undertake more
far-reaching marketing campaigns, adopt more aggressive pricing policies
(including offering their financial news for free) and make more attractive
offers to existing and potential employees, outside contributors, strategic
partners and advertisers. Our competitors may develop content that is equal or
superior to ours or that achieves greater market acceptance than ours. It is
also possible that new competitors may emerge and rapidly acquire significant
market share. We may not be able to compete successfully for readers, staff and
outside contibutors which could have a material adverse effect on our business,
results of operations and financial condition. Increased competition could
result in price reductions, reduced margins or loss of market share, any of
which could materially adversely affect our business, results of operations and
financial condition.
We also compete with other web sites, television, radio and print media for
a share of advertisers' total advertising budgets. If advertisers perceive the
Internet or our web site to be a limited or an ineffective advertising medium,
they may be reluctant to devote a portion of their advertising budget to
Internet advertising or to advertising on our web site.
INFRASTRUCTURE, OPERATIONS & TECHNOLOGY
TheStreet.com's technological infrastructure is built and maintained for
reliability, security and flexibility. This infrastructure is hosted primarily
at Exodus Communications' facility in Jersey City, New Jersey, which is equipped
with an uninterruptible power supply.
We have made, and expect to continue to make, technological improvements
that we expect will reduce costs and increase our advertising sales and
subscription base. Our content-management system allows our stories to be
prepared for publication in a number of output formats. This feature enables us
to distribute our stories to multiple destinations economically. Our
subscription management system is currently based on the Starwave Corporation's
commerce system-based application. We are currently developing a new
subscription management system that is
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scheduled to launch in 1999. We expect that this new system will be based on
technology provided by Art Technology Group and Clear Commerce and will be
hosted at Exodus Communications' facility. We expect that this system will allow
us to communicate automatically with readers during their free-trial period and
to make a wide variety of customized subscription offers available to potential
subscribers. See "Risk Factors--Risks Associated with Moving Our Subscription
Management System In-house". We are also constructing our systems to capture
information on reader behavior that will be stored in a data warehouse. We
expect that this will allow us to segment our reader population, enabling us to
personalize our services for the individual reader and allowing our advertisers
to target better their intended audience. Our operations are dependent on our
ability and that of Exodus to protect our systems against damage from fire,
earthquakes, power loss, telecommunications failure, break-ins, computer
viruses, hacker attacks and other events beyond our control. See "Risk
Factors--We Face a Risk of System Failure".
INTELLECTUAL PROPERTY
To protect our rights to intellectual property, we rely on a combination of
trademark, copyright law, trade secret protection, confidentiality agreements
and other contractual arrangements with our employees, affiliates, clients,
strategic partners and others. The protective steps we have taken may be
inadequate to deter misappropriation of our proprietary information. We may be
unable to detect the unauthorized use of, or take appropriate steps to enforce,
our intellectual property rights. We have registered certain of our trademarks
in the United States and we have pending U.S. applications for other trademarks.
Effective trademark, copyright and trade secret protection may not be available
in every country in which we offer or intend to offer our services. In addition,
although we believe that our proprietary rights do not infringe on the
intellectual property rights of others, other parties may assert infringement
claims against us or claims that we have violated a patent or infringed a
copyright, trademark or other proprietary right belonging to them. These claims,
even if not meritorious, could result in the expenditure of significant
financial and managerial resources on our part, which could materially adversely
affect our business, results of operations and financial condition. We
incorporate certain licensed third-party technology in some of our services. In
these license agreements, the licensors have generally agreed to defend,
indemnify and hold us harmless with respect to any claim by a third party that
the licensed software infringes any patent or other proprietary right. We cannot
assure you that these provisions will be adequate to protect us from
infringement claims. The loss of or inability to obtain or maintain any of these
technology licenses could result in delays in introduction of new services. See
"Risk Factors--We Rely On Our Intellectual Property".
EMPLOYEES
As of February 15, 1999, we had 122 full-time employees, of which 55 worked
in editorial, eight in marketing and media relations, eight in advertising, five
in professional markets, 14 in technology, four in art, 21 in customer service
and seven in finance/administration. We have never had a work stoppage and no
personnel are represented under collective bargaining agreements. We consider
our relations with our employees to be good.
FACILITIES
Our principal administrative, sales, marketing, technology and editorial
facilities are located in approximately 22,500 square feet of office space in
New York, New York. We are seeking larger facilities, into which we expect to
move in the second half of 1999. Our West Coast bureau is located in
approximately 3,200 square feet of office space in San Francisco, California.
Our communications and network infrastructure is hosted at Exodus Communications
in Jersey City, New Jersey, except for our commerce database, which is currently
hosted by the Starwave Corporation in Seattle, Washington.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding the executive
officers, directors and key employees of TheStreet.com:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Executive Officers and Directors
Kevin W. English..................................... 46 Chairman of the Board of Directors, Chief Executive
Officer and President (Class III)
Dave Kansas.......................................... 31 Editor-in-Chief and Director (Class II)
Paul Kothari......................................... 45 Vice President and Chief Financial Officer
Michael S. Zuckert................................... 40 Vice President and General Counsel
Jerry Colonna(1)..................................... 35 Director (Class I)
James J. Cramer(2)................................... 44 Director (Class I)
Edward F. Glassmeyer(1).............................. 57 Director (Class II)
Martin Peretz........................................ 59 Director (Class I)
Fred Wilson(2)....................................... 37 Director (Class III)
Michael Golden(3).................................... 49 Director Nominee (Class II)
Key Employees
Brendan Amyot........................................ 34 Vice President and General Manager--Consumer Markets
Simon Clark.......................................... 33 Vice President and General Manager--International
Markets
John R. Fitzgerald................................... 36 Vice President and General Manager--Professional
Markets
Dawn M. Kikel........................................ 33 Vice President--Advertising Sales
Dan Woods............................................ 38 Vice President and Chief Technology Officer
</TABLE>
- ------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Mr. Golden has been nominated to serve as a Director of TheStreet.com
KEVIN W. ENGLISH has served as Chief Executive Officer and President of
TheStreet.com since October 1998. He was appointed Chairman of the Board in
December 1998. Before joining TheStreet.com, he served as the Vice President and
General Manager of the Nexis Enterprise Group, a division of Lexis-Nexis, from
February 1998 to October 1998. From September 1997 to February 1998,
Mr. English served on a special assignment, reporting to the Chairman of Reed
Elsevier, the parent company of Lexis-Nexis. Mr. English served as Vice
President of Sales and Marketing of Lexis-Nexis from May 1995 to September 1997
and as a Senior Director from 1994 to May 1995.
DAVE KANSAS has served as Editor-in-Chief of TheStreet.com since April 1997
and has served as a Director of TheStreet.com since May 1998. He served as its
Executive Editor from September 1996 to April 1997. From October 1992 to
September 1996, Mr. Kansas held a variety of positions at The Wall Street
Journal, most recently as a Financial Markets Reporter.
PAUL KOTHARI has served as Vice President and Chief Financial Officer of
TheStreet.com since February 1999. From February 1998 to February 1999,
Mr. Kothari was the Chief Financial Officer at International Telecommunication
Data Systems, Inc., a wireless billing and customer care service company. From
August 1993 to January 1998, Mr. Kothari was the Vice President of Finance at
Bellcore, a telecommunications company.
MICHAEL S. ZUCKERT has served as Vice President and General Counsel of
TheStreet.com since February 1999. From
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1987 to January 1999, Mr. Zuckert held a variety of positions within the legal
department of Morgan Stanley Dean Witter & Co., most recently as a Principal.
JERRY COLONNA has served as a Director of TheStreet.com since May 1998. In
1996, Mr. Colonna co-founded Flatiron Partners, an Internet-focused, early-stage
venture capital firm, and has served as a Managing Partner since its inception.
In February 1995, Mr. Colonna joined CMG@Ventures, an Internet-focused venture
capital firm, as a founding Partner. Prior to joining CMG@Ventures, Mr. Colonna
worked for nearly 10 years at CMP Publications, a technology publishing firm.
Mr. Colonna also serves as a Director of GeoCities, Inc.
JAMES J. CRAMER is a co-founder and outside contributor of TheStreet.com.
Mr. Cramer has served as a Director of TheStreet.com since May 1998, and served
as Co-Chairman from June 1996 to December 1998. Mr. Cramer founded and has
served as a President and Director of Cramer, Berkowitz & Co., a hedge fund,
since its inception in 1987.
EDWARD F. GLASSMEYER has served as a Director of TheStreet.com since
December 1998. Mr. Glassmeyer co-founded Oak Investment Partners, a venture
capital firm with $1.6 billion of committed capital, in November 1978.
Mr. Glassmeyer serves as a Director of Mobius Management Systems, Inc., a
software infrastructure provider for Internet-based bill presentment and payment
and is a Director of several privately held Oak portfolio companies in the
information technology sector.
MARTIN PERETZ is a co-founder of TheStreet.com. Dr. Peretz has served as a
Director of TheStreet.com since May 1998. He served as Co-Chairman of
TheStreet.com from June 1996 to December 1998. Since 1974, Dr. Peretz has served
as the Editor-in-Chief and Chairman of The New Republic. He has been a member of
the faculty of Harvard University since 1966. Dr. Peretz also serves as a
director of 11 mutual funds managed by the Dreyfus-Mellon Bank Group, of
LeukoSite, a publicly traded biotechnology company, and of The Electronic
Newstand, Inc., a web site specializing in the sale of magazine subscriptions.
FRED WILSON has served as a Director of TheStreet.com since May 1998. In
1996, Mr. Wilson co-founded Flatiron Partners, an Internet-focused, early-stage
venture capital firm, and has served as a Managing Partner since its inception.
Prior to Flatiron Partners, Mr. Wilson worked at Euclid Partners, an early stage
venture capital firm, for 10 years where he served as General Partner from 1991
to 1996.
MICHAEL GOLDEN was nominated in February 1999 to serve as a Director of
TheStreet.com. Mr. Golden has worked for The New York Times Company since 1984.
Since October 1997, he has served as its Vice Chairman and Senior Vice
President. From January 1996 to October 1997, he was the New York Times' Vice
President for Operations Development. From October 1994 to January 1996, Mr.
Golden was the Executive Vice President and Publisher of Tennis Magazine, a New
York Times publication. From September 1991 to October 1994, he was the
Executive Vice President and General Manager of the New York Times' Women's
Publishing Division.
BRENDAN AMYOT has served as Vice President and General Manager--Consumer
Markets of TheStreet.com since January 1999. Mr. Amyot served in several
positions at TheStreet.com from August 1996 to January 1999. From January 1995
to August 1996, Mr. Amyot was the Associate Consumer Marketing Director at
Entertainment Weekly. From March 1993 to December 1994, Mr. Amyot was the
Circulation Director at Vibe.
SIMON CLARK has served as Vice President and General Manager--International
Markets since February 1999. From December 1997 to February 1999, he served as
Chief Financial Officer and Vice President of Operations of TheStreet.com, and
from June 1997 to November 1997 he served as Director of Finance. From January
1992 to June 1997, Mr. Clark held several positions at Reuters, most recently
Director of Corporate Web Sites.
JOHN R. FITZGERALD has served as Vice President and General
Manager--Professional Markets of TheStreet.com since January 1999. From December
1996 to December 1998, he served as President of Standard & Poor's Consumer
Markets Division. From December 1994 to December 1996, he was the Managing
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Director--Americas for MMS International, a unit of Standard & Poor's. From
November 1992 to December 1994, he was the Vice President of Business
Development for JJ Kenny Evaluation, a unit of Standard & Poor's.
DAWN M. KIKEL has served as Vice President--Advertising Sales of
TheStreet.com since October 1997. From June 1996 to September 1997, Ms. Kikel
worked for Institutional Investor Inc. as Publisher of Infrastructure Finance, a
global magazine focusing on investment in large infrastructure projects, and as
Industry Director for money management from January 1993 to May 1996.
DAN WOODS has served as Vice President and Chief Technology Officer of
TheStreet.com since May 1998. From June 1995 to April 1998, Mr. Woods served as
Director of Editorial Technology for Time New Media's Pathfinder web site. From
1992 to May 1995, he worked as a Database Editor at the News & Observer, a
newspaper in Raleigh, North Carolina.
CLASSIFIED BOARD OF DIRECTORS
Our Board of Directors is divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the Board of
Directors will be elected each year. These provisions, together with the
provision of our Amended and Restated Certificate of Incorporation allow the
Board of Directors to fill vacancies of or increase the size of the Board of
Directors, and may deter a stockholder from removing incumbent directors and
filling such vacancies with its own nominees in order to gain control of the
Board.
Our Board has resolved that Mr. Colonna, Mr. Cramer and Dr. Peretz will
serve as Class I Directors whose terms expire at the 2000 annual meeting of
stockholders. Mr. Glassmeyer and Mr. Kansas will serve as Class II Directors
whose terms expire at the 2001 annual meeting of stockholders. Mr. English and
Mr. Wilson will serve as Class III Directors whose terms expire at the 2002
annual meeting of stockholders.
BOARD COMMITTEES
We have established an Audit Committee and a Compensation Committee. The
Audit Committee reviews our internal accounting procedures and considers and
reports to the Board of Directors with respect to other auditing and accounting
matters, including the selection of our independent auditors, the scope of
annual audits, fees to be paid to our independent auditors and the performance
of our independent auditors. The Audit Committee currently consists of
Mr. Cramer and Mr. Wilson. The Compensation Committee reviews and recommends to
the Board of Directors the salaries, benefits and stock option grants of all
employees, consultants, directors and other individuals compensated by us. The
Compensation Committee also administers our stock option and other employee
benefits plans. The Compensation Committee currently consists of Mr. Glassmeyer
and Mr. Colonna.
DIRECTOR COMPENSATION
Directors do not currently receive any compensation for serving on the
Board of Directors, although they are reimbursed for reasonable travel expenses
incurred in connection with attending Board of Directors and committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee makes all compensation decisions. Prior to the
formation of the Compensation Committee in June 1998, our Board of Directors
made decisions relating to compensation of the Company's executive officers.
None of our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more of its executive
officers serving as a member of our Board of Directors or Compensation
Committee. Our Compensation Committee currently consists of Mr. Colonna and
Mr. Glassmeyer, neither of whom has ever been an officer or employee of
TheStreet.com. Mr. Cramer served as a member of the Compensation Committee
from June 1998 to February 1999, when Mr. Glassmeyer was appointed to the
Compensation Committee. During his tenure on the Compensation Committee,
Mr. Cramer, an outside contributor to TheStreet.com, participated in all
decisions relating to compensation of our executive officers, but was excluded
from discussions by
40
<PAGE>
the Board of Directors regarding his own compensation. See "Certain
Transactions".
EMPLOYMENT AGREEMENTS
In October 1998, we entered into an employment agreement with Mr. Kevin
English, our Chairman of the Board, Chief Executive Officer and President. This
agreement provides for an annual base salary of $350,000. Mr. English is also
eligible to receive a bonus of up to $100,000 for each fiscal year during which
he is employed upon the achievement of quarterly and annual objectives, plus any
additional bonus compensation awarded in the sole discretion of the Compensation
Committee. Pursuant to the agreement, we granted Mr. English, a stock option to
purchase 400,000 shares of common stock at an exercise price of $0.15 per share.
The stock option becomes exercisable at a rate of 25% annually, commencing in
October 1999. The terms of the stock option agreement also provide that
Mr. English is entitled to receive additional stock options in the event we do
an equity financing. In December 1998, we completed an equity financing and
Mr. English received a stock option to purchase 121,316 shares of common stock
at an exercise price of $0.15 per share. The option becomes exercisable 25%
annually commencing in December 1999.
As of January 1999, Mr. English also receives the use of a one-bedroom
corporate apartment, a monthly parking spot, term life insurance in the amount
of $500,000 and disability insurance paying not less than $180,000 per year. If
Mr. English is terminated for reasons other than a disability, for cause or due
to a liquidation, dissolution or shutdown of our business, or if he should
resign for good reason, he will be entitled to receive his remaining earned but
unpaid salary, any bonus earned through the most recently ended fiscal quarter
and an amount equal to his then current annual base salary. We maintain a key
person life insurance policy for Mr. English. Mr. English's employment agreement
terminates in December 2003.
In September 1996, we entered into an employment agreement with Dave
Kansas, our Editor-in-Chief and a director. Mr. Kansas' employment agreement
provides for an annual base salary of $130,000, subject to annual review by the
Compensation Committee. Under the agreement, Mr. Kansas is eligible to receive
an annual bonus of up to 30% of his annual base salary. However, the
Compensation Committee has discretion to grant Mr. Kansas a bonus in excess of
such amount and, in 1998, Mr. Kansas received $78,769 as a bonus. The employment
agreement terminates on August in 1999.
In May 1998, we entered into an employment agreement with Simon Clark, our
Vice President and General Manager--International Markets. Mr. Clark's
employment agreement provides for an annual base salary of $150,000. The
Compensation Committee will review Mr. Clark's salary annually. The employment
agreement terminates on August 30, 1999.
In May 1998, we entered into an employment agreement with Brendan Amyot,
our Vice President and General Manager--Consumer Markets. Mr. Amyot's employment
agreement provides for an annual base salary of $130,000. The Compensation
Committee will review Mr. Amyot's salary annually. The employment agreement
terminates on August 30, 1999.
41
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned for all services
rendered to us in all capacities during 1998 by our Chief Executive Officer and
our four most highly compensated executive officers, other than our Chief
Executive Officer, who earned more than $100,000 in 1998 and who were serving as
executive officers at the end of 1998 (collectively, the "Named Executive
Officers"). As of January 1999, Mr. Clark and Mr. Amyot ceased to be executive
officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION(1) SECURITIES
FISCAL --------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#)
- ------------------------------------------------------------- ------ ------- ------- ------------
<S> <C> <C> <C> <C>
Kevin W. English, Chairman of the Board,
Chief Executive Officer and President(2)................... 1998 $71,791 $25,000 521,316
Dave Kansas, Editor-in-Chief and Director.................... 1998 130,000 78,769 105,758
Simon Clark, Chief Financial Officer and Vice
President--Operations...................................... 1998 150,000 25,944 30,303
Brendan Amyot, Vice President -- Business Development
and Marketing.............................................. 1998 130,000 26,064 30,303
</TABLE>
- ------------------------
(1) The column for "Other Annual Compensation" has been omitted because there is
no compensation required to be reported in that column. The aggregate amount
of perquisites and other personal benefits provided to each Named Executive
Officer is less than 10% of the total annual salary and bonus of that
officer.
(2) Mr. English joined TheStreet.com in October 1998. See "--Employment
Agreements".
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<PAGE>
OPTION GRANTS IN FISCAL YEAR
The following table sets forth information regarding stock options granted
to our Named Executive Officers during 1998. We have never granted any stock
appreciation rights.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS(1) VALUE AT ASSUMED
------------------------------------------------------ ANNUAL RATES OF
PERCENT OF STOCK
NUMBER OF TOTAL OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(3)
OPTIONS IN FISCAL PRICE PER EXPIRATION -------------------
NAME GRANTED(#) YEAR(%)(2) SHARE DATE 5% 10%
- ---------------------------------- ---------- ------------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Kevin W. English.................. 400,000(4) 24.0% $0.15 10/18/08 $37,733 $ 95,625
121,316(4) 7.3 0.15 12/20/08 11,444 29,002
Dave Kansas....................... 75,758(5) 4.6 0.03 5/06/03 628 1,388
30,000 1.8 0.03 6/30/03 249 549
Simon Clark....................... 30,303(6) 1.8 0.03 5/06/03 251 555
Brendan Amyot..................... 30,303(7) 1.8 0.03 5/06/03 251 555
</TABLE>
- ------------------
(1) All options were granted under the Amended and Restated 1998 Stock Incentive
Plan. The options shown in this table, except as otherwise indicated below,
become exercisable at a rate of 25% annually over four years from the date
of grant. See "--1998 Stock Incentive Plan".
(2) In 1998, we granted options to employees to purchase an aggregate of
1,663,953 shares of common stock.
(3) Potential realizable value is based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until the expiration of the five or ten-year term as applicable. These
numbers are calculated based on Securities and Exchange Commission
requirements and do not reflect our projection or estimate of future stock
price growth. Potential realizable values are computed by multiplying the
number of shares of common stock subject to a given option by the exercise
price, as determined by our Board of Directors, assuming that the aggregate
stock value derived from that calculation compounds at the annual 5% or 10%
rate shown in the table for the entire five or ten-year term of the option
and subtracting from that result the aggregate option exercise price.
(4) The option granted to Mr. English vests fully if any of the following
occurs: (i) there is a change of control as defined in his employment
agreement, (ii) we fail to renew Mr. English's employment agreement, or
(iii) Mr. English's employment agreement is terminated for good reason,
which includes a reduction in his responsibilities or compensation,
relocation of Mr. English or a merger or asset sale in which the acquiring
entity does not assume our obligations under Mr. English's employment
agreement. If Mr. English is terminated for good reason before October 1999,
50% of the shares underlying the option vest fully. If he is terminated
before October 2000, 75% vest, and if he is terminated before October 2001,
100% vest. In addition, Mr. English may exercise this option by cash, or
through cashless exercise subject to the approval of our management and
Board of Directors.
(5) Pursuant to the LLC Agreement of TheStreet.com, L.L.C. (the "LLC"), Dave
Kansas, Simon Clark, Brendan Amyot, and two other employees were entitled to
receive Class C-1 Units in the LLC. The LLC Agreement provided that in the
event of the merger of the LLC with and into TheStreet.com, Inc., each
employee's entitlement to the Class C-1 Units would terminate and be
replaced by an option to purchase shares of common stock of TheStreet.com
based upon the conversion ratio set forth in the merger agreement. The LLC
merged with and into TheStreet.com in May 1998. In connection with the
merger, Mr. Kansas was granted an option to purchase 75,758 shares of common
stock in exchange for the 1,250 Class C-1 Units that he
(Footnotes continued on next page)
43
<PAGE>
(Footnotes continued from previous page)
was entitled to receive under the LLC Agreement. The option fully vested on
October 1, 1998, on which date Mr. Kansas exercised the option. The 75,758
shares of common stock issued to Mr. Kansas upon the option exercise were
contributed to us pursuant to a Share Contribution Agreement, dated May 7,
1998, between us and Peretz Partners, L.L.C. (the "Share Contribution
Agreement"). The terms of the Share Contribution Agreement require Peretz
Partners to contribute to us an aggregate of 196,970 shares of common stock
in connection with options granted to Brendan Amyot, Dave Kansas, Simon
Clark and two other employees. See "Certain Transactions--Share Contribution
Agreement".
(6) In connection with the merger of the LLC into TheStreet.com, Inc., Mr. Clark
was granted an option to purchase 30,303 shares of common stock in exchange
for the 500 Class C-1 Units that he was entitled to receive under the LLC
Agreement. The option vested fully on June 1, 1998, on which date Mr. Clark
exercised the option. The 30,303 shares of common stock issued to Mr. Clark
were contributed to us pursuant to the Share Contribution Agreement.
(7) In connection with the merger of the LLC into TheStreet.com, Inc., Mr. Amyot
was granted an option to purchase 30,303 shares of common stock in exchange
for the 500 Class C-1 Units that he was entitled to receive under the LLC
Agreement. This option vests fully on April 1, 1999. The 30,303 shares of
common stock to be issued to Mr. Amyot when he exercises this option will be
contributed to us pursuant to the Share Contribution Agreement.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning the exercise of stock
options during the fiscal year ended December 31, 1998 by each of the Named
Executive Officers and the fiscal year-end value of unexercised options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1998 DECEMBER 31,1998(1)
ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kevin W. English.............. -- -- -- 521,316 -- $ 1,485,750
Dave Kansas................... 75,758 --(2) -- 30,000 -- $ 89,100
Simon Clark................... 30,303 --(2) -- -- -- --
Brendan Amyot................. -- -- -- 30,303 -- $ 90,000
</TABLE>
- ------------------
(1) There was no public market for the common stock on December 31, 1998. The
fair market value of the common stock as of December 31, 1998 was $3.00 per
share.
(2) At the time of exercise, the fair market value was equal to the exercise
price.
44
<PAGE>
1998 STOCK INCENTIVE PLAN
The Amended and Restated TheStreet.com, Inc. 1998 Stock Incentive Plan (the
"1998 Stock Incentive Plan"), which became effective on May 6, 1998, provides
for the granting of incentive stock options, non-qualified stock options,
restricted stock and tax offset payments. The 1998 Stock Incentive Plan is
administered by our Compensation Committee. The total number of shares of our
common stock that may be issued under the 1998 Stock Incentive Plan to our
employees, directors and consultants (or of any entity in which we own at least
a 20% beneficial interest) is 2,527,272. The terms and conditions of options and
restricted stock will be set forth by the Compensation Committee in each
individual award agreement. The Compensation Committee may designate an award as
a "performance award" by making its grant or vesting subject to the achievement
of performance goals established by the Compensation Committee. The Compensation
Committee may also pay an awardee a tax offset payment as compensation for some
or all of the taxes that the awardee owes with respect to an award. In the event
of a change of control, if so determined by the Compensation Committee at the
time of grant or by amendment (with the holder's consent) of such grant, all
outstanding options will vest and become fully exercisable and the restrictions
applicable to any outstanding restricted stock awards shall lapse and such
shares shall be deemed fully vested. Under the 1998 Stock Incentive Plan, a
change of control occurs when there is (i) an acquisition in which a majority of
our common stock is acquired by an entity or person owning less than 5% of our
total common stock outstanding prior to the acquisition; (ii) an election of
members of the Board of Directors in which a majority of the Board members after
the election were not members of the Board on the date of option grant; (iii) a
merger or consolidation with another corporation where our stockholders
immediately prior to such merger or consolidation no longer comprise a majority
of the voting shares of the surviving corporation; or (iv) a sale of all or
substantially all of our assets. As of December 31, 1998, 1,497,286 options were
outstanding, of which 66,667 were vested.
45
<PAGE>
CERTAIN TRANSACTIONS
LLC FINANCING
From our inception as a limited liability company in June 1996, until May
1998, we were financed through contributions from our founders and through loans
bearing interest at the prime interest rate plus 1%. In return for their
contributions, our founders received certain amounts of our Class A, B, C and D
membership units of the limited liability company and a lender received Class E
units.
In May 1998, our Board of Directors approved our reorganization from a
limited liability company into a C corporation. As part of this reorganization,
each Class C membership unit was converted into 181.81818 shares of our common
stock. In addition, our Class A and Class B membership units were converted into
shares of our Series A 9 1/2% Cumulative Preferred Stock and Series C Preferred
Stock at a ratio of one preferred share per $100 of both Class A and Class B
membership units. Our Class D and Class E membership units were converted into
shares of our Series A 9 1/2% Cumulative Preferred Stock at a ratio of one
preferred share per $100 of Class D and Class E membership units.
1998 PRIVATE PLACEMENTS
In December 1998, we raised gross proceeds of $25 million by completing a
private placement of 243,891 shares of our Series B Preferred Stock and
4,072,778 shares of our common stock to certain investors. In connection with
this transaction we amended and restated the Registration Rights Agreement and
the Stockholders' Agreement in each case to include, among other things, the new
purchasers. The Amended and Restated Stockholders' Agreement will terminate upon
completion of this offering.
In May 1998, we raised gross proceeds of approximately $10 million by
completing a private placement of 101,475 shares of our Series B 9 1/2%
Cumulative Preferred Stock ("Series B Preferred Stock") and 3,418,333 shares of
our common stock to a group of certain investors. In connection with this
transaction, we granted the purchasers of these shares registration rights. See
"Description of Capital Stock -- Registration Rights". At such time we also
entered into a Stockholders' Agreement with such stockholders which by its terms
will terminate upon the completion of this offering.
Assuming an initial public offering price of $ per share of common
stock, all of the outstanding shares of the convertible preferred stock,
including accumulated dividends, will convert into an aggregate of
shares of common stock upon the completion of this offering.
THE NEW YORK TIMES INVESTMENT
In February 1999, we sold 37,728 shares of our Series B Preferred Stock and
1,320,901 shares of our common stock to the New York Times Company for an
aggregate consideration of $15 million in cash and services. Additionally, as
part of this transaction Mr. Michael Golden, the vice chairman and senior vice
president of The New York Times Company has been nominated by us to be a
director of TheStreet.com. In connection with this sale, we are currently
discussing opportunities for strategic alliances with The New York Times
Company. However, we cannot assure you that we will be able to enter into any
such alliance on commercially reasonable terms or at all.
CRAMER EMPLOYMENT AGREEMENTS
In May 1998, we entered into a one-year employment agreement with James
Cramer, an outside contributor. Pursuant to the terms of the agreement, we
granted Mr. Cramer a stock option to purchase 66,667 shares of common stock at
an exercise price of $0.033 per share. The option vested fully in May 1998. In
February 1999, we entered into a new employment agreement with Mr. Cramer,
superseding the earlier agreement. Mr. Cramer's new employment agreement
provides for an annual salary of $250,000, which increases annually by 10%.
Under the new agreement, we granted Mr. Cramer an
46
<PAGE>
option to purchase 333,333 shares of common stock at an exercise price of $3.00
per share. The option becomes exercisable at a rate of 25% annually commencing
in February 2000. The employment agreement terminates in February 2003. We
maintain a "key person" life insurance policy for Mr. Cramer.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Amended and Restated Registration Rights Agreement we have
granted our existing stockholders certain registration rights. See "Description
of Capital Stock--Registration Rights".
SHARE CONTRIBUTION AGREEMENT
On May 7, 1998, we entered into a Share Contribution Agreement with Peretz
Partners, L.L.C. pursuant to which it agreed to contribute to us up to an
aggregate of 196,970 shares of common stock. We are required to issue the same
number of shares to Brendan Amyot, Dave Kansas and Simon Clark and two other
employees upon the exercise of options granted to them under our 1998 Stock
Incentive Plan.
OFFICE LEASE
On August 14, 1996, we signed a lease with the State Teachers Retirement
System of Ohio ("OTR") to rent space at Two Rector Street, New York, New York
10006. Cramer Berkowitz & Co., a company controlled by Mr. James Cramer,
guaranteed our obligations under the lease. On September 25, 1997, OTR
transferred these premises, including its interest in the lease, to Rector
Trinity Associates, L.L.C. (the "Landlord"). The Landlord has agreed to release
Cramer Berkowitz & Co. from this guarantee upon receiving a Letter of Credit
from TheStreet.com.
47
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of February 23, 1999 and as adjusted to reflect
the sale of the shares of common stock offered hereby by: (1) each person who we
know owns beneficially more than 5% of our common stock, (2) each of our
directors, including our Chief Executive Officer, (3) our four most highly
compensated executive officers, other than our Chief Executive Officer, who were
serving as executive officers at the end of 1998 and (4) all of our executive
officers and directors as a group. The following information, however, does not
reflect the conversion of all outstanding shares of our preferred stock and
accumulated dividends into an aggregate of shares of common stock
upon the completion of this offering assuming that the initial public offering
price is $ per share.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
BENEFICIALLY OWNED BEFORE BENEFICIALLY OWNED AFTER
THE OFFERING(1) THE OFFERING(1)
------------------------- -------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE(2) NUMBER PERCENTAGE(2)
- ------------------------------------------------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Kevin W. English...................................... -- --
Dave Kansas........................................... 151,515 151,515
Simon Clark........................................... 90,909 90,909
Brendan Amyot......................................... 181,818 181,818
James J. Cramer....................................... 2,695,728(3) 2,695,728(3)
Cramer Partners, L.L.C................................ 2,518,636 2,518,636
Martin Peretz......................................... 2,627,032(4) 2,627,032(4)
Peretz Partners, L.L.C................................ 2,386,595 2,386,595
Fred Wilson........................................... 405,910(5) 405,910(5)
Jerry Colonna......................................... 405,910(5) 405,910(5)
Edward F. Glassmeyer.................................. 1,221,834(6) 1,221,834(6)
Oak Investment Partners VIII, L.P. and Oak VIII
Affiliates Fund, L.P................................ 1,221,834 1,221,834
Chase Venture Capital Associates, L.P................. 1,189,400 1,189,400
Softbank Technology Ventures IV L.P. and Softbank
Technology Advisors Fund L.P........................ 1,194,809 1,194,809
Constellation Venture Capital L.P. and Constellation
Venture Offshore, L.P............................... 951,761 951,761
Spinnaker Clipper Fund, L.P., Spinnaker Founders Fund,
L.P. and Spinnaker Offshore Founders Fund, L.P...... 814,556 814,556
The New York Times Company............................ 1,320,901(7) 1,320,901(7)
All executive officers and directors as a group (9
persons)............................................ 7,374,746 7,374,746
</TABLE>
- ------------------
(1) Percentage ownership is based on shares outstanding as of
February 22, 1999. Shares of common stock subject to options currently
exercisable or exercisable within 60 days of February 22, 1999 are deemed
outstanding for the purpose of computing the percentage ownership of the
person holding such options but are not deemed outstanding for computing the
percentage ownership of any other person. Unless otherwise indicated below,
the persons and entities named in the table have sole voting and sole
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable.
(2) Assumes the underwriters' over-allotment option is not exercised.
(3) Includes 2,518,636 shares owned by Cramer Partners, L.L.C.
(4) Includes 2,325,989 shares owned by Peretz Partners, L.L.C. and 283,892
shares owned by other family members and entities.
(5) Includes 310,900 shares owned by Flatiron Fund, L.L.C., 86,213 shares owned
by The Flatiron Fund 1998/99, L.L.C. and 8,797 shares owned by Flatiron
Associates, L.L.C. of which Mr. Colonna and Mr. Wilson are general partners.
(6) Includes 1,198,619 shares owned by Oak Investment Partners VIII, L.P. and
23,215 shares owned by Oak VIII Affiliates Fund, L.P. Mr. Glassmeyer is a
managing member of Oak Associates VIII, L.L.C., which is the general partner
of Oak Investment Partners VIII, L.P. and of Oak VIII Affiliates, L.L.C.,
which is the general partner of Oak VIII Affiliates Fund, L.P.
(7) Mr. Golden has been nominated to the Board of Directors of TheStreet.com. He
serves as Vice Chairman and Senior Vice President of the New York Times
Company.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the Board of Directors may from time to time
determine. Each stockholder is entitled to one vote for each share of common
stock held on all matters submitted to a vote of stockholders. Cumulative voting
for the election of directors is not provided for in our Amended and Restated
Certificate of Incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election. The
common stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Upon the occurrence of a liquidation, dissolution or
winding-up of TheStreet.com, the holders of shares of common stock would be
entitled to share ratably in the distribution of all of the TheStreet.com's
assets remaining available for distribution after satisfaction of all its
liabilities and the payment of the liquidation preference of any outstanding
preferred stock. Each outstanding share of common stock is, and all shares of
common stock to be outstanding upon completion of this offering will be, fully
paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, within the limitations and
restrictions stated in our Amended and Restated Certificate of Incorporation, to
provide by resolution for the issuance of shares of preferred stock, in one or
more classes or series, and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares
constituting any series or the designation of such series. The issuance of
preferred stock could have the effect of decreasing the market price of the
common stock and could adversely affect the voting and other rights of the
holders of common stock.
OPTIONS
As of December 31, 1998, (i) options to purchase a total of 1,497,286
shares of common stock were outstanding, of which 66,667 options had vested on
such date; and (ii) up to 1,029,986 additional shares of common stock may be
subject to options granted in the future. All of the options contain standard
anti-dilution provisions. See "Management--Executive Compensation".
REGISTRATION RIGHTS
On December 21, 1998, we entered into an Amended and Restated Registration
Rights Agreement (the "Registration Rights Agreement") with our existing
stockholders pursuant to which we granted them certain registration rights in
respect of 7,489,444 shares of common stock held by them. Such stockholders are
hereinafter referred to as the "existing stockholders". A copy of the
Registration Rights Agreement has been attached to the Registration Statement of
which this prospectus forms a part. Pursuant to the Registration Rights
Agreement, at any time, on or after the first anniversary of this offering,
certain existing stockholders who hold in the aggregate at least shares
of common stock may request us to register under the Securities Act all or any
portion of the common stock purchased by the existing stockholders in the May
and December 1998 private placements (hereinafter referred to as the "Restricted
Stock"). However, the securities to be registered must have a reasonably
anticipated aggregate public offering price of at least $500,000.
In addition, the holder of any Restricted Stock may request that we file a
registration statement on Form S-3, covering all stock as requested by any
holder of Restricted Stock who requests that we register their holdings. We are
not obligated to effect a registration statement on Form S-3 more than once in
any 180-day period or unless the proceeds of this registration shall reasonably
be expected to exceed $500,000.
These registration rights are subject to our right to delay the filing of a
registration
49
<PAGE>
statement in certain circumstances for up to 90 days.
In addition, the holders of Restricted Stock will have certain "piggyback"
registration rights. If we propose to register any common stock under the
Securities Act (other than pursuant to this offering or in connection with the
registration of securities issued (i) under an employee benefits plan or
(ii) in consideration for an acquisition), each holder of Restricted Stock may
require us to include all or a portion of their Restricted Stock in such
registration; provided however, that the managing underwriter, if any, of any
such offering has certain rights to limit the number of Restricted Stock
proposed to be included in such registration.
We would bear all registration expenses incurred in connection with these
registrations. Each participating seller of Restricted Stock would bear their
proportionate share of all underwriting discounts and selling commissions.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
Certain provisions of our Amended and Restated Certificate of Incorporation
and Amended and Restated Bylaws, which provisions are summarized 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 it its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders.
CLASSIFIED BOARD OF DIRECTORS
Our Board of Directors is divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the Board of
Directors will be elected each year. These provisions, when coupled with the
provision of our Amended and Restated Certificate of Incorporation authorizing
the Board of Directors to fill vacant directorships or increase the size of the
Board of Directors, may deter a stockholder from removing incumbent directors
and simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with its own nominees.
CUMULATIVE VOTING
Our Amended and Restated Certificate of Incorporation expressly denies
stockholders the right to cumulate votes in the election of directors.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS
Our Amended and Restated Certificate of Incorporation eliminates the
ability of stockholders to act by written consent. It further provides that
special meetings of our stockholders 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 DIRECTORS NOMINATIONS
Our Amended and Restated 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 provide timely
notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at our principal executive offices not less
than 60 days nor more than 90 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders; provided, that in the
event that the annual meeting is called for a date that is not within thirty
(30) days before or after such anniversary date, notice by the stockholder in
order to be timely must be received not later than the close of business on the
10th day following the date on which notice of the date of the annual meeting
was mailed to stockholders or made public, whichever first occurs. In the case
of a special meeting of stockholders called for the purpose of electing
directors, notice by the stockholder in order to be timely must be received not
later than the close of business on the tenth (10th) day following the day on
which notice of the date of the special meeting was mailed or public disclosure
of the date of the special meeting was made, whichever first occurs. Our Amended
and Restated Bylaws also specify certain requirements as to the form and content
of a stockholder's notice. These provisions may preclude stockholders from
bringing matters
50
<PAGE>
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. 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 shares of
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
The Delaware General Corporation Law 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. Our Amended and Restated Certificate of
Incorporation imposes supermajority vote requirements in connection with certain
business combination transactions and the amendment of certain provisions of our
Amended and Restated Certificate of Incorporation and Amended and Restated
Bylaws, including those provisions relating to the classified board of
directors, action by written consent and special meetings by stockholders.
RIGHTS AGREEMENT
Under Delaware law, every corporation may create and issue rights entitling
the holders of such rights to purchase from the corporation shares of its
capital stock of any class or classes, subject to any provisions in its
certificate of incorporation. The price and terms of such shares must be stated
in the certificate of incorporation or in a resolution adopted by the board of
directors for the creation or issuance of such rights.
We have entered into a stockholder rights agreement. As with most
stockholder rights agreements, the terms of our rights agreement are complex and
not easily summarized, particularly as they relate to the acquisition of our
common stock and to exercisability. This summary may not contain all of the
information that is important to you. Accordingly, you should carefully read our
rights agreement, which is incorporated by reference into this prospectus, in
its entirety.
Our rights agreement provides that each share of our prospective common
stock outstanding will have the right to purchase one one-hundredth of a
preferred share attached to it. The purchase price per one one-hundredth of a
preferred share under the stockholder rights agreement is four times the
average closing price of our common stock for the first five days of trading
after the consummation of this offering. Each share of our common stock will
have one right attached.
Initially, the rights under our rights agreement are attached to
outstanding certificates representing our common stock and no separate
certificates representing the rights will be distributed. The rights will
separate from our common stock and be represented by separate certificates
approximately 10 days after someone acquires or commences a tender offer for 15%
of our outstanding common stock.
After the rights separate from our common stock, certificates representing
the rights will be mailed to record holders of the common stock. Once
distributed, the rights certificates alone will represent the rights.
All shares of our common stock issued prior to the date the rights separate
from the common stock will be issued with the rights attached. The rights are
not exercisable until the date the rights separate from the common stock. The
rights will expire on February 16, 2009, unless earlier redeemed or exchanged by
us.
If an acquiror obtains or has the rights to obtain 15% or more of our
common stock, then each right will entitle the holder to purchase a number of
shares of our common stock equal to two times the purchase price of each right.
Each right will entitle the holder to purchase a number of shares of common
stock of the acquiror having a then current market value of twice the purchase
price if an acquiror obtains 15% or more of our common stock and any of the
following occurs:
51
<PAGE>
o we merge into another entity
o an acquiring entity merges into us
o we sell more than 50% of our assets or earning power
Under our rights agreement, any rights that are or were owned by an
acquiror of more than 15% of our outstanding common stock will be null and void.
Our rights agreement contains exchange provisions which provides that after
an acquiror obtains 15% or more, but less than 50% of our respective outstanding
common stock, our board of directors may, at its option, exchange all or part of
the then outstanding and exercisable rights for common shares. In such an event,
the exchange ratio is two common shares per right, adjusted to reflect any stock
split, stock dividend or similar transaction.
Our board of directors may, at its option, redeem all of the outstanding
rights under our rights agreement prior to the earlier of (1) the time that an
acquiror obtains 15% or more of our outstanding common stock or (2) the final
expiration date of the rights agreement. The redemption price under our rights
agreement is $0.01 per right, subject to adjustment. The right to exercise the
rights will terminate upon the action of our board ordering the redemption of
the rights and the only right of the holders of the rights will be to receive
the redemption price.
Holders of rights will have no rights as our stockholders including the
right to vote or receive dividends, simply by virtue of holding the rights.
Our rights agreement provides that the provisions of the rights agreement
may be amended by the board of directors prior to the date any person acquires
15% of our respective common stock without the approval of the holders of the
rights. However, after the date any person acquires 15% of our common stock, the
rights agreement may not be amended in any manner which would adversely effect
the interests of the holders of the rights, excluding the interests of any
acquiror. In addition, our rights agreement provides that no amendment may be
made to adjust the time period governing redemption at a time when the rights
are not redeemable.
Our rights agreement contains rights that have anti-takeover effects. The
rights may cause substantial dilution to a person or group that attempts to
acquire us without conditioning the offer on a substantial number of rights
being acquired. Accordingly, the existence of the rights may deter acquirors
from making takeover proposals or tender offers. However, the rights are not
intended to prevent a takeover, but rather are designed to enhance the ability
of our board to negotiate with an acquiror on behalf of all the stockholders. In
addition, the rights should not interfere with a proxy contest.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is American Stock
Transfer Corporation. Its address is 40 Wall Street, New York, New York 10005,
and its telephone number at this location is (212) 936-5100.
LISTING
Our common stock will be listed on the Nasdaq National Market under the
trading symbol "TSCM".
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices of our common stock. Furthermore,
since no shares will be available for sale shortly after this offering because
of certain contractual and legal restrictions on resale described below, sales
of substantial amounts of common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of our common stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless such shares
are purchased by "affiliates" as that term is defined in Rule 144 under the
Securities Act (the "Affiliates"). The remaining shares of common
stock held by existing stockholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act. Restricted securities may be sold
in the public market only if registered or if they qualify for an exemption from
registration under Rule 144 promulgated under the Securities Act, which rules
are summarized below.
As a result of the contractual restrictions described below and the
provisions of Rule 144, the restricted securities will be available for sale in
the public market subject to the volume limitations and other conditions of
Rule 144. The shares could be available for resale immediately upon the
expiration of the 180-day lock-up period.
LOCK-UP AGREEMENTS
All of our officers, directors and substantially all of our stockholders
have signed Lock-Up Agreements under which they agreed not to transfer or
dispose of, directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for shares of common stock, for
a period of 180 days after the date of this prospectus. Transfers or
dispositions can be made sooner with the prior written consent of Goldman, Sachs
& Co.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
o 1% of the number of shares of common stock then outstanding, which will equal
approximately shares immediately after this offering; or
o the average weekly trading volume of the common stock on the Nasdaq National
Market during the four calendar weeks preceding the filing of a notice on
Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
Affiliates 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,
including the holding period of any prior owner other than an Affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
STOCK OPTIONS
Following the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act covering 2,527,272 shares of
common stock reserved for issuance under the 1998 Stock Incentive Plan. The
registration statement will become effective automatically upon filing. As of
December 31, 1998, options to purchase 1,497,286 shares of common stock were
issued and outstanding. Upon the expiration of the Lock-Up Agreements described
above, at least 66,667 shares of common stock will be subject to vested options
(based on options outstanding as of December 31, 1998).
53
<PAGE>
Accordingly, shares registered under the registration statement will, subject to
vesting provisions and Rule 144 volume limitations applicable to our Affiliates,
be available for sale in the open market immediately after the 180-day lock-up
agreements expire. See "Description of Capital Stock--Registration Rights".
REGISTRATION RIGHTS
Upon completion of this offering, the holders of shares of our
common stock, or their transferees, are entitled to request that we register
their shares under the Securities Act. See "Description of Capital
Stock--Registration Rights." After these shares are registered, they will become
freely tradable without restriction under the Securities Act. Any sales of
securities by these stockholders could have a material adverse effect on the
trading price of our common stock.
54
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Brobeck, Phleger & Harrison LLP, New York, New York.
EXPERTS
The financial statements of TheStreet.com, Inc. as of December 31, 1997 and
1998 and for the period from June 18, 1996 (inception) through December 31, 1996
and for the years ended December 31, 1997 and 1998 included in this prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in auditing and accounting.
CHANGE IN ACCOUNTANTS
In July, 1998, we decided to replace Anchin, Block & Anchin LLP with Arthur
Andersen LLP as our independent public accountants to audit financial statements
for the period from June 18, 1996 (inception) through December 31, 1996 and for
the years ended December 31, 1997 and December 31, 1998. The decision to change
independent public accountants from Anchin, Block & Anchin LLP to Arthur
Andersen LLP was approved by our Board of Directors.
We believe, and have been advised by Anchin, Block & Anchin LLP that it
concurs in such belief, that, for the period from June 18, 1996 (inception)
through December 31, 1997, we and Anchin, Block & Anchin LLP did not have any
disagreement on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Anchin, Block & Anchin LLP would have caused it
to make reference in connection with its report on our financial statements to
the subject matter of the disagreement.
The report of Anchin, Block & Anchin LLP on our financial statements for
the period from June 18, 1996 (inception) through December 31, 1997 did not
contain an adverse opinion or a disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During that
period there were no "reportable events" within the meaning of
Item 304(a)(1)(v) of Regulation S-K promulgated under the Securities Act.
ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission (the "Commission") a
Registration Statement on Form S-1 under the Securities Act with respect to the
shares of common stock offered hereby. This prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules filed therewith. For further information with respect to TheStreet.com
and the common stock offered hereby, reference is made to the Registration
Statement and the exhibits and schedule filed therewith. Statements contained in
this prospectus regarding the contents of any contract or any other document to
which reference is made are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement and the
exhibits and schedule filed therewith may be inspected without charge at the
public reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the
55
<PAGE>
Commission's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the Registration Statement may be obtained from such offices upon the payment of
the fees prescribed by the Commission. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. The Commission maintains a World Wide web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.
56
<PAGE>
THESTREET.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheets as of December 31, 1997 and 1998............................................................ F-3
Statements of Operations for the Period from
June 18, 1996 (Inception) to December 31, 1996
and the Years Ended December 31, 1997 and 1998........................................................... F-4
Statements of Stockholders' Equity (Deficit) for the
Period from June 18, 1996 (Inception) to December 31, 1996
and the Years Ended December 31, 1997 and 1998........................................................... F-5
Statements of Cash Flows for the Period from
June 18, 1996 (Inception) to December 31, 1996 and
the Years Ended December 31, 1997 and 1998............................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
The financial statements included herein have been adjusted to give effect to
(i) the increase in the authorized number of all classes of stock to 41,000,000
consisting of 1,000,000 shares of preferred stock, par value $0.01 per share and
40,000,000 shares of common stock, par value $0.01 per share and (ii) to reflect
the one-for-three reverse common stock split. We expect to be in a position to
render the following report upon the effectiveness of such events assuming that
from February 9, 1999 to the effective date of such events, no other events will
have occurred that would effect the financial statements or notes thereto.
ARTHUR ANDERSEN LLP
New York, New York
February 9, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TheStreet.com, Inc.:
We have audited the accompanying balance sheets of TheStreet.com, Inc. (a
Delaware corporation), as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
period from June 18, 1996 (inception) to December 31, 1996 and the two years
ended December 31, 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 TheStreet.com, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the period from June 18, 1996 (inception) to December 31, 1996 and the two
years ended December 31, 1998, in conformity with generally accepted accounting
principles.
F-2
<PAGE>
THESTREET.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 156,692 $ 24,611,958
Accounts receivable, net of allowance for doubtful accounts of
$0 and $40,000 as of December 31, 1997 and 1998,
respectively.................................................. 130,699 811,419
Other receivables and unbilled revenue.......................... -- 663,137
Prepaid expenses and other current assets....................... 27,455 687,639
------------ ------------
Total current assets....................................... 314,846 26,774,153
Property and equipment, net of accumulated depreciation and
amortization of $162,632 and $78,110 as of December 31, 1997
and 1998, respectively........................................ 495,697 599,937
Other assets.................................................... 100,251 207,329
------------ ------------
Total assets............................................... $ 910,794 $ 27,581,419
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Line of credit.................................................. $ -- $ 3,333
Accounts payable................................................ 691,800 1,927,065
Accrued expenses................................................ 789,887 1,250,577
Deferred revenue................................................ 176,125 675,513
------------ ------------
Total current liabilities.................................. 1,657,812 3,856,488
Deferred rent................................................... 74,825 200,636
Long-term debt.................................................. 6,335,000 --
------------ ------------
Total liabilities.......................................... 8,067,637 4,057,124
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock; $0.01 par value; 40,000,000 shares authorized,
6,060,606 and 13,763,838 shares issued and outstanding at
December 31, 1997 and 1998, respectively................... 60,606 137,638
Convertible Preferred Stock--
Series A; $0.01 par value; 9 1/2% cumulative; 1,500 and
118,441 shares issued and outstanding in 1997 and 1998,
respectively............................................. 15 1,184
Series B; $0.01 par value; 9 1/2% cumulative; 0 and 345,366
shares issued and outstanding in 1997 and 1998,
respectively............................................. -- 3,454
Series C; $0.01 par value; 1,500 shares issued and
outstanding in 1997 and 1998............................. 15 15
Additional paid-in capital.................................... 280,364 35,784,643
Accumulated deficit........................................... (7,497,843) (12,402,639)
------------ ------------ ------------
Total stockholders' equity (deficit)....................... (7,156,843) 23,524,295
------------ ------------ ------------
Total liabilities and stockholders' equity (deficit)....... $ 910,794 $ 27,581,419 $
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
THESTREET.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JUNE 18,
1996
(INCEPTION) FOR THE YEARS ENDED
TO DECEMBER 31
DECEMBER 31 ---------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Net revenues:
Advertising revenues.......................................... $ -- $ 117,652 $ 2,544,409
Subscription revenues......................................... -- 320,682 1,685,446
Other revenues................................................ -- 150,400 393,511
----------- ----------- ------------
Total net revenues......................................... -- 588,734 4,623,366
Cost of revenues................................................ 297,830 1,146,383 3,955,270
----------- ----------- ------------
Gross profit (loss)........................................ (297,830) (557,649) 668,096
----------- ----------- ------------
Operating expenses:
Product development expenses.................................. 468,909 402,379 2,346,354
Sales and marketing expenses.................................. 397,508 2,188,968 9,204,711
General and administrative expenses........................... 547,522 2,209,707 5,158,158
----------- ----------- ------------
Total Operating expenses................................... 1,413,939 4,801,054 16,709,223
----------- ----------- ------------
Loss from operations....................................... (1,711,769) (5,358,703) (16,041,127)
Interest expense, net........................................... 21,623 405,748 227,324
----------- ----------- ------------
Loss before provision for income taxes..................... (1,733,392) (5,764,451) (16,268,451)
Provision for income taxes...................................... -- -- --
----------- ----------- ------------
Net loss................................................... $(1,733,392) $(5,764,451) $(16,268,451)
----------- ----------- ------------
----------- ----------- ------------
Net loss per share--basic and diluted........................... $ (0.29) $ (0.95) $ (2.07)
----------- ----------- ------------
----------- ----------- ------------
Weighted average basic and diluted shares outstanding........... 6,060,606 6,060,606 8,575,128
----------- ----------- ------------
----------- ----------- ------------
Pro forma per share data (unaudited):
Pro forma net loss per share--basic and diluted............... $ $ $
----------- ----------- ------------
----------- ----------- ------------
Pro forma weighted average basic and diluted shares
outstanding................................................
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
THESTREET.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JUNE 18, 1996 (INCEPTION) TO DECEMBER 31, 1996
AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
---------------------------------------------------------
COMMON STOCK SERIES A SERIES B SERIES C
--------------------- ------------------ ------------------ -----------------
SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE
---------- --------- ------- --------- ------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 18, 1996 (inception)..... -- $ -- -- $ -- -- $ -- -- $--
Issuance of Common Stock............... 6,060,606 60,606 1,500 15 -- -- 1,500 15
Net loss............................... -- -- -- -- -- -- -- --
---------- --------- ------- ------- ------- ------- ------ ---
Balance at December 31, 1996............. 6,060,606 60,606 1,500 15 -- -- 1,500 15
Issuance of warrants................... -- -- -- -- -- -- -- --
Net loss............................... -- -- -- -- -- -- -- --
---------- --------- ------- ------- ------- ------- ------ ---
Balance at December 31, 1997............. 6,060,606 60,606 1,500 15 -- -- 1,500 15
Issuance of common stock............... 181,818 1,818 -- -- -- -- -- --
Capital contribution................... -- -- -- -- -- -- -- --
Termination of LLC..................... -- -- -- -- -- -- -- --
Conversion of debt to equity........... -- -- 116,941 1,169 -- -- -- --
Net proceeds from private placement in
May 1998............................. 3,418,333 34,183 -- -- 101,475 1,015 -- --
Net proceeds from private placement in
December 1998........................ 4,072,778 40,728 -- -- 243,891 2,439 -- --
Exercise of options.................... 30,303 303 -- -- -- -- -- --
Preferred Stock dividends.............. -- -- -- -- -- -- -- --
Net loss............................... -- -- -- -- -- -- -- --
---------- --------- ------- ------- ------- ------- ------ ---
Balance at December 31, 1998............. 13,763,838 $ 137,638 118,441 $ 1,184 345,366 $ 3,454 1,500 $15
---------- --------- ------- ------- ------- ------- ------ ---
---------- --------- ------- ------- ------- ------- ------ ---
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDERS'
PAID-IN ACCUMULATED EQUITY
CAPITAL DEFICIT (DEFICIT)
----------- ------------ -------------
<S> <C> <C> <C>
Balance at June 18, 1996 (inception)..... $ -- $ -- $ --
Issuance of Common Stock............... 239,364 -- 300,000
Net loss............................... -- (1,733,392) (1,733,392)
----------- ------------ -----------
Balance at December 31, 1996............. 239,364 (1,733,392) (1,433,392)
Issuance of warrants................... 41,000 -- 41,000
Net loss............................... -- (5,764,451) (5,764,451)
----------- ------------ -----------
Balance at December 31, 1997............. 280,364 (7,497,843) (7,156,843)
Issuance of common stock............... 3,637 -- 5,455
Capital contribution................... 375,000 -- 375,000
Termination of LLC..................... (12,815,014) 12,815,014 --
Conversion of debt to equity........... 11,692,786 -- 11,693,955
Net proceeds from private placement in
May 1998............................. 10,039,072 -- 10,074,270
Net proceeds from private placement in
December 1998........................ 24,756,833 -- 24,800,000
Exercise of options.................... 606 -- 909
Preferred Stock dividends.............. 1,451,359 (1,451,359) --
Net loss............................... -- (16,268,451) (16,268,451)
----------- ------------ -----------
Balance at December 31, 1998............. $35,784,643 $(12,402,639) $23,524,295
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
THESTREET.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JUNE 18, 1996 FOR THE YEARS ENDED
(INCEPTION) TO DECEMBER 31
DECEMBER 31 ----------------------------
1996 1997 1998
--------------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................... $(1,733,392) $(5,764,451) $(16,268,451)
Adjustments to reconcile net loss to net cash used in
operating activities:
Allowance for doubtful accounts............................ -- -- 40,000
Depreciation and amortization.............................. 15,158 158,884 244,505
Noncash expense for warrants............................... -- 41,000 --
Increase in accounts receivable............................ -- (130,699) (720,720)
Increase in other receivables and unbilled revenue......... -- -- (663,137)
(Increase) decrease in prepaid expenses and other current
assets................................................... (85,509) 58,054 (660,184)
Increase in other assets................................... (21,635) (63,659) (122,035)
Increase in accounts payable and accrued expenses.......... 378,924 1,102,763 1,695,955
Increase in deferred revenue............................... -- 176,125 499,388
Increase in deferred rent.................................. 24,087 50,738 125,810
----------- ----------- ------------
Net cash used in operating activities................. (1,422,367) (4,371,245) (15,828,869)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (172,901) (490,429) (333,787)
Organization costs........................................... (21,366) -- --
----------- ----------- ------------
Net cash used in investing activities................. (194,267) (490,429) (333,787)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock....................... 300,000 -- 6,364
Net borrowings under line of credit.......................... -- -- 3,333
Proceeds from notes payable.................................. 1,335,000 5,500,000 5,733,955
Repayment of notes payable................................... -- (500,000) --
Net proceeds from private placements......................... -- -- 34,874,270
----------- ----------- ------------
Net cash provided by financing activities............. 1,635,000 5,000,000 40,617,922
----------- ----------- ------------
Net increase in cash.................................. 18,366 138,326 24,455,266
Cash and cash equivalents, beginning of period................. -- 18,366 156,692
----------- ----------- ------------
Cash and cash equivalents, end of period....................... $ 18,366 $ 156,692 $ 24,611,958
----------- ----------- ------------
----------- ----------- ------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes............................................... -- -- --
Interest................................................... -- -- $ 3,098
Supplemental Disclosure of Noncash Investing Activities:
During 1998, the holder of a note payable by the Company
contributed $375,000 of principal to the Company as an
equity contribution........................................
During 1998, the holders of certain notes payable by the
Company converted $11,693,955 of outstanding principal and
interest, into 116,941 of Series A 9 1/2% Cumulative
Convertible Preferred Stock................................
During 1998, the Company entered into a sale-leaseback
transaction for certain of its computers and furniture and
fixtures. The transaction resulted in a deferred loss of
$197,429 which will be recognized in proportion to the rent
expense under the operating lease..........................
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
THESTREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION, NATURE OF BUSINESS AND SUMMARY OF OPERATIONS AND SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
TheStreet.com, Inc. (the "Company") is a leading web-based provider of
original, timely, comprehensive and trustworthy financial news, commentary and
information aimed at helping readers make informed investment decisions. The
Company combines the most important qualities of traditional print
journalism--accuracy, intelligence, fairness and wit--with the web's advantages
as a financial news medium--timeliness, interactivity and global distribution.
The Company was formed on June 18, 1996 in the state of Delaware as a
limited liability company ("LLC"). On May 7, 1998, the Company's Board of
Directors approved the reorganization of the LLC into a C corporation.
Accordingly, holders of Class C membership units were converted into 181.81818
shares of Common Stock for each unit. In addition, Class A and Class B
membership units were converted to Series A 9 1/2% Cumulative Preferred Stock
and Series C Preferred Stock at a ratio of one preferred share for each $100 of
Class A and Class B membership units, respectively. Class D and Class E
membership units were converted to Series A 9 1/2% Cumulative Preferred Stock at
a ratio of one preferred share per $100 of Class D and Class E membership units.
All share and per share data has been retroactively adjusted to reflect the
reorganization and the one-for-three reverse stock split (see Note 11).
The Pro Forma December 31, 1998 information reflected in the accompanying
balance sheet reflects the conversion of all Convertible Preferred Stock plus
accrued dividends into Common Stock upon completion of the proposed initial
public offering (see Note 11).
The Company is proposing an initial public offering of up to
shares of Common Stock. See "Risk Factors" in the accompanying prospectus.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, specifically for allowance for doubtful accounts for accounts
receivable and the useful lives of fixed assets, that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
REVENUE RECOGNITION
The Company generates its revenues primarily from subscriptions and
advertising.
Subscription revenues represent customer subscriptions that provide
subscribers access to financial news, commentary and information. Subscriptions
are generally charged to customers' credit cards or are charged directly to
companies that subscribe to the service. These are generally billed in advance
on a monthly, quarterly or annual basis. Revenue from subscriptions is
recognized ratably over the subscription period. Deferred revenue relates to
subscription fees for which amounts have been collected but for which revenue
has not been recognized.
Advertising revenue, derived from the sale of sponsorship and banner and
email advertisements and on the Company's web site, is recognized ratably in the
period the advertising is displayed, provided that no significant Company
obligations remain and collection of the resulting receivable is probable.
Company obligations typically include guarantees of a minimum number of
"impressions" or
F-7
<PAGE>
THESTREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(1) ORGANIZATION, NATURE OF BUSINESS AND SUMMARY OF OPERATIONS AND SIGNIFICANT
ACCOUNTING POLICIES--(CONTINUED)
times that an advertisement is viewed by users of the Company's web site. Such
amounts are recognized as revenue in the month earned.
Other revenues consist primarily of content syndication fees. In 1997,
other revenues entirely consisted of revenues derived from a syndication and
hosting partnership with ABCNEWS.com and Starwave (an affiliate of ABCNEWS.com).
Pursuant to this arrangement, the Company agreed to syndicate a portion of its
news content to ABCNEWS.com in return for technology and hosting services from
Starwave. During 1998, $300,000 of other revenues were derived from this
agreement.
CASH AND CASH EQUIVALENTS
The Company considers all short-term marketable equity securities with a
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets (3 years for computer
equipment and 5-7 years for furniture and fixtures).
ACCOUNTING FOR LONG-LIVED ASSETS
The Company accounts for long-lived assets under the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS No. 121"). SFAS No. 121 establishes financial accounting and reporting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used, and for
long-lived assets and certain identifiable tangibles to be disposed of.
Management has performed a review of all long-lived assets and has determined
that no impairment of the respective carrying values has occurred as of
December 31, 1998.
INCOME TAXES
The Company was organized on June 18, 1996 as a limited liability company
for Federal and state income tax purposes. Accordingly, the Company was treated
as a partnership and the net losses of the Company were included in the
individual tax returns of the members. On May 7, 1998, the Company converted
from an LLC to a C corporation. At the time of the conversion, the Company
adopted Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, 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 tax bases. 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 or liabilities of a change in tax
rates is recognized in the period that the tax change occurs.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts and other
receivables, and accounts payable approximate fair value due to the short-term
maturity of these instruments. The carrying amounts of outstanding borrowings
approximate fair value.
F-8
<PAGE>
THESTREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(1) ORGANIZATION, NATURE OF BUSINESS AND SUMMARY OF OPERATIONS AND SIGNIFICANT
ACCOUNTING POLICIES--(CONTINUED)
BUSINESS CONCENTRATIONS AND CREDIT RISK
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and accounts receivable. The Company maintains
cash with various financial institutions. The Company performs periodic
evaluations of the relative credit standing of these institutions. The Company's
clients are primarily concentrated in the United States. The Company performs
ongoing credit evaluations, generally does not require collateral, and
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of customers, historical trends and other information. To date,
such losses have been within management's expectations.
NET LOSS PER COMMON SHARE
Historical--
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings Per Share", and SEC Staff Accounting Bulletin No. 98 ("SAB No. 98").
Under the provisions of SFAS No. 128 and SAB No. 98, basic net loss per common
share ("Basic EPS") is computed by dividing net loss by the weighted average
number of common shares outstanding. Diluted net loss per common share ("Diluted
EPS") is computed by dividing net loss by the weighted average number of common
shares and dilutive common share equivalents then outstanding.
Pro forma--
Pro forma net loss per share is calculated assuming conversion of all
Convertible Preferred Stock which converts automatically upon the completion of
the initial public offering (see Note 11).
STOCK-BASED COMPENSATION
The Company has adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), and elected to
continue the accounting set forth in Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"). The Company has
provided the necessary pro forma disclosures as if the fair value method had
been applied (Note 7).
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information".
This statement establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. This statement is
effective for financial statements for periods beginning after December 15, 1997
and need not be applied to interim periods in the initial year of application.
Comparative information for earlier years presented is to be restated. The
Company does not believe it operates in more than one segment.
F-9
<PAGE>
THESTREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) NET LOSS PER SHARE
As discussed in Note 1, historical net loss per share is calculated in
accordance with SFAS No. 128. The following table reconciles the numerator and
denominator for the calculation:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Numerator:
Net loss........................................... $ (1,733,392) $ (5,764,451) $(16,268,451)
Preferred Stock dividends.......................... -- -- (1,451,359)
------------ ------------ ------------
Net loss available to common
shareholders............................. $ (1,733,392) $ (5,764,451) $(17,719,810)
------------ ------------ ------------
------------ ------------ ------------
Denominator:
Weighted average basic and diluted shares
outstanding..................................... 6,060,606 6,060,606 8,575,128
------------ ------------ ------------
------------ ------------ ------------
Net loss per share--basic and diluted................ $ (0.29) $ (0.95) $ (2.07)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Pro forma net loss per share is calculated assuming conversion of the
Convertible Preferred Stock and accumulated dividends into Common Stock in
connection with the proposed initial public offering as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Numerator--Pro forma:
Net loss available to common shareholders.......... $ (1,733,392) $ (5,764,451) $(17,719,810)
Preferred Stock dividends.......................... -- -- 1,451,359
------------ ------------ ------------
Pro forma net loss......................... $ (1,733,392) $ (5,764,451) $(16,268,451)
------------ ------------ ------------
------------ ------------ ------------
Denominator--Pro forma:
Weighted average basic and diluted shares
outstanding..................................... 6,060,606 6,060,606 8,575,128
Assumed conversion of--
Convertible Preferred Stock.....................
Preferred Stock dividends.......................
------------ ------------ ------------
Pro forma basic and diluted weighted
average shares outstanding...............
------------ ------------ ------------
------------ ------------ ------------
Pro forma net loss per share--basic and diluted......
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Outstanding options of 0, 0 and 1,497,286 for the periods ended
December 31, 1996, 1997 and 1998, respectively, have been excluded from the
above calculations as they would be antidilutive.
F-10
<PAGE>
THESTREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Computer equipment............................................ $373,089 $548,501
Furniture and fixtures........................................ 285,240 129,546
-------- --------
658,329 678,047
Less accumulated depreciation and amortization................ (162,632) (78,110)
-------- --------
Property and equipment, net................................... $495,697 $599,937
-------- --------
-------- --------
</TABLE>
Depreciation and amortization expense aggregated $13,022, $154,611 and
$229,547, respectively, for the period ending December 31, 1996, and the years
ending 1997 and 1998.
(4) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Accrued bonuses............................................... $136,157 $ 565,794
Accrued other................................................. 226,359 162,719
Accrued consulting fees....................................... -- 322,064
Accrued financing costs....................................... -- 200,000
Accrued interest.............................................. 427,371 --
-------- ----------
$789,887 $1,250,577
-------- ----------
-------- ----------
</TABLE>
(5) LONG-TERM DEBT AND LINE OF CREDIT
In September 1998, the Company entered into a line of credit agreement with
a bank and had available borrowings under the agreement of up to the lesser of
$2,000,000 or 80% of eligible accounts receivable, as defined. The borrowings
($3,333 at December 31, 1998) bear interest at the bank's prime lending rate
(8.5% at December 31, 1998). Interest is payable monthly and the agreement
matures in September 1999. The agreement includes certain financial covenants.
As of December 31, 1997, the Company had long-term debt as follows:
<TABLE>
<S> <C>
Note payable--members, due June 1, 1999, interest at prime plus 1% and payable
beginning January 1, 1998.................................................... $ 4,835,000
Note payable--other, due June 1, 1999, interest at prime plus 1% and payable
beginning January 1, 1998.................................................... 1,500,000
-------------
$ 6,335,000
-------------
-------------
</TABLE>
During 1998, additional funds were advanced to the Company under Note
payable--members and interest continued to accrue on all notes payable.
In April 1998, the holder of the Note payable--other forgave $375,000 of
principal in consideration of certain membership units under the limited
liability company. The units were given to the holder by two members from
existing membership interests of the Company. There were no new membership
interests issued by the Company as a result of this transaction.
In May 1998, the Note payable--members of $10,443,342, including accrued
interest, and the Note payable--other of $1,250,613, including accrued interest,
were converted into Class D and Class E
F-11
<PAGE>
THESTREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) LONG-TERM DEBT AND LINE OF CREDIT--(CONTINUED)
membership interests. Subsequent thereto, the membership interests were
converted into 116,941 shares of Series A 9 1/2% cumulative preferred stock.
(6) INCOME TAXES
On May 7, 1998, the Company converted from an LLC to a C corporation for
Federal and state income tax purposes. For the period from May 7, 1998 to
December 31, 1998, the Company incurred approximately $10.9 million of net
operating loss carryforwards available to offset future taxable income through
2013.
In accordance with SFAS No. 109, the Company recognized a deferred tax
asset of $4.3 million primarily resulting from the above mentioned net operating
loss carryforward. A full valuation allowance has been recorded related to the
deferred tax asset as a result of management's uncertainty as to the realization
of such asset. Accordingly, no provision has been recorded. There are no other
significant temporary differences.
Had the Company applied the provisions of SFAS 109 for the period from
inception through May 7, 1998 the Company would have recorded a deferred tax
asset, primarily from net operating loss carryforwards and a corresponding full
valuation allowance.
(7) STOCKHOLDERS' EQUITY (DEFICIT)
The total number of shares of all classes of stock whichwhich the
Corporation is authorized to issue is 41,000,000, consisting of 1,000,000 shares
of preferred stock, par value of $0.01 per share and 40,000,000 shares of common
stock, par value of $0.01 (see Note 11).
1998 PRIVATE PLACEMENTS
In May 1998, the Company raised approximately $10 million of gross proceeds
by completing a private placement of 101,475 shares of Series B 9 1/2%
Cumulative Preferred Stock and 3,418,333 shares of Common Stock to a group of
investors. In connection with the transaction, the Company granted the
purchasers of such stock certain registration rights.
At such time, the Company also entered into a Stockholders' Agreement with
such stockholders which, by its terms, will terminate upon the consummation of
the initial public offering. Subject to certain conditions, the shares of each
series of the Convertible Preferred Stock and dividends carry the following
rights and will automatically convert into Common Stock as follows:
The Series A and B 9 1/2% Cumulative Preferred Stock accumulate
dividends annually at $9.50 per share. These shares are senior to Common
Stock and Series C Convertible Preferred Stock and are pari passu to one
another. The shares have no voting rights and a liquidation preference of
$100 per share plus accumulated dividends. The shares plus any accrued and
unpaid dividends mandatorily convert to Common Stock upon a qualified
initial public offering ("IPO") at the liquidation preference payment
divided by the IPO price.
The Series C Convertible Preferred Stock is senior only to the Common
Stock. These shares have no voting rights and a liquidation preference of
$100 per share. The shares mandatorily convert to common stock upon an IPO
at the liquidation preference payment divided by the IPO price.
In December 1998, the Company raised approximately $25 million of gross
proceeds by completing a private placement of 243,891 shares of Series B 9 1/2%
Cumulative Preferred Stock and 4,072,778 shares of Common Stock to a group
consisting of certain existing stockholders and other investors. As
F-12
<PAGE>
THESTREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(7) STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
of December 31, 1998, approximately $525,000 of the proceeds had not yet been
received and is reflected in other receivables in the accompanying balance
sheet. In connection with this transaction the Company amended and restated the
Registration Rights Agreement and the Stockholders' Agreement in each case to
include, among other things, the new purchasers.
REGISTRATION RIGHTS
In December 1998, the Company entered into an Amended and Restated
Registration Rights Agreement (the "Registration Rights Agreement") with
existing stockholders pursuant to which the Company granted certain registration
rights in respect of certain shares of Common Stock held by the existing
stockholders. Such stockholders are hereinafter referred to as the "existing
stockholders". Pursuant to the Registration Rights Agreement, at any time, on or
after the first anniversary of the IPO, certain existing stockholders of Common
Stock may request the Company to register all or any portion of the Common Stock
purchased by the existing stockholders in the Private Placements (hereinafter
referred to as the "Restricted Stock"). However, the securities to be registered
must have a reasonably anticipated aggregate public offering price of at least
$500,000.
In addition, the holders of Restricted Stock will have certain "piggyback"
registration rights. If the Company proposes to register and common stock under
the Securities Act of 1933 each holder of Restricted Stock may require the
Company to include all or a portion of their Restricted Stock in such
registration, provided however, that the managing underwriter, if any, of such
offering has certain rights to limit the number of Restricted Stock proposed to
be included in such registration.
STOCK OPTIONS
Under the terms of the Company's 1998 Stock Option and Incentive Plan (the
"Stock Option Plan"), 2,527,272 shares of common stock of the Company have been
reserved for incentive stock options, nonqualified stock options (incentive and
nonqualified stock options are collectively referred to as "Options"),
restricted stock, or any combination thereof. Awards may be granted to such
directors, employees and consultants of the Company as the Compensation
Committee of the Board of Directors shall in its discretion select. Only
employees of the Company are eligible to receive grants of incentive stock
options.
Had compensation for the Stock Option Plan been determined consistent with
the provisions of SFAS No. 123, the effect on the Company's net loss and basic
and diluted net loss per share would have been changed to the following pro
forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Net loss, as reported........................................................ $(16,268,451)
------------
------------
Net loss, pro forma.......................................................... $(16,270,457)
------------
------------
Basic and diluted loss per share, as reported................................ $ (2.07)
------------
------------
Basic and diluted loss per share, pro forma.................................. $ (2.07)
------------
------------
</TABLE>
F-13
<PAGE>
THESTREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(7) STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
A summary of the activity of the Stock Option Plan for the year ended
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Options outstanding, January 1, 1998............................ -- $ --
Options granted............................................... 1,663,953 0.12
Options exercised............................................. (30,303) 0.03
Options cancelled............................................. (136,364) 0.03
---------
Options outstanding, December 31, 1998.......................... 1,497,286 0.12
---------
---------
</TABLE>
During 1998, the Company entered into an agreement with one of its
stockholders whereby the stockholder agreed to provide the shares of Common
Stock due the optionholder upon the optionholder's exercise. During 1998, the
stockholder delivered 136,364 shares upon exercise of the options which are
reflected as cancellations in the above table. As of December 31, 1998, there
are 60,606 options outstanding included in the above table for which the
stockholder is responsible. These options will be vested in 1999.
There were no options granted prior to January 1, 1998. As of December 31,
1998, 66,667 of the above options were exercisable.
The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Expected option lives..................................... 4 years
Risk-free interest rates.................................. 6.0%
Expected volatility....................................... 0%
Dividend yield............................................ 0%
</TABLE>
Because the determination of fair value of all options granted after such
time as the Company becomes a public entity will include an expected volatility
in addition to factors described in the above table, the results may not be
representative of future periods.
The following table summarizes information about options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------
WEIGHTED
AVERAGE
NUMBER OF REMAINING WEIGHTED
SHARES CONTRACTUAL AVERAGE
RANGE OF EXERCISE PRICE OUTSTANDING LIFE EXERCISE PRICE
- ------------------------------------------------ ---------- ----------- --------------
<S> <C> <C> <C>
$0.03-0.033..................................... 388,788 4.7 years $ 0.03
0.15........................................... 1,106,832 5.8 years 0.15
3.00........................................... 1,666 5.0 years 3.00
----------
1,497,286
----------
----------
</TABLE>
In December 1998, the Company, pursuant to the private placement which
occured in December 1998, granted 121,316 options to an officer of the Company
at an exercise price of $0.15 per share. On the date of grant, after giving
effect to the private placement, the fair market value of Common Stock was
deemed to be $3.00 per share. As a result the Company will recognize
compensation expense for
F-14
<PAGE>
THESTREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(7) STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
the difference between fair market value on the date of grant and the exercise
price of these options over the vesting period of the options. The effect of
this on the results of operations for the year ended December 31, 1998 has been
deemed immaterial.
(8) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company is committed under operating leases, principally for office
space and equipment. Certain leases are subject to rent reviews and require
payment of expenses under escalation clauses. Rent expense and equipment rental
were $40,820, $160,257 and $700,073, respectively, for the three years ended
December 31, 1998. Future minimum base rents under terms of noncancelable
operating leases are as follows for the years ending December 31:
<TABLE>
<S> <C>
1999..................................................... $2,278,997
2000..................................................... 492,145
2001..................................................... 464,866
2002..................................................... 474,796
2003..................................................... 429,036
Thereafter............................................... 1,642,356
</TABLE>
LITIGATION
The Company, from time to time, becomes involved in various routine legal
proceedings in the ordinary course of its business. The Company believes that
the outcome of all pending legal proceedings and unasserted claims in the
aggregate will not have a material adverse effect on its results of operations,
financial position or liquidity.
CONTENT AND DISTRIBUTION AGREEMENTS
The Company has various content and distribution agreements with vendors.
The agreements require the Company to provide certain content and subscriptions
to the vendors in exchange for various services. The agreements expire at
various dates through 2000.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain of its officers. The
agreements provide for payments of approximately $623,000, $350,000 and $262,000
during December 31, 1999, 2000 and 2001, respectively, and expire at various
dates through September 30, 2001.
(9) EMPLOYEE BENEFIT PLAN
Effective January 1, 1997, the Company adopted a noncontributory savings
plan with a salary reduction arrangement in accordance with Section 401(k) of
the Internal Revenue Code. The 401(k) plan covers all eligible employees and is
funded solely by employee contributions.
(10) MAJOR CUSTOMERS
Revenue from one customer accounted for approximately $1,007,250 (22%) of
total revenue for the year ending December 31, 1998 and had $102,333 of accounts
receivable outstanding at December 31, 1998.
No customer accounted for more than 10% of revenues in 1997 and 1996.
F-15
<PAGE>
THESTREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(11) SUBSEQUENT EVENTS (UNAUDITED)
INITIAL PUBLIC OFFERING
The Company is contemplating an initial public offering of its securities,
the shares of common stock and offering price per share to be determined.
STOCK SPLIT
All share amounts have been retroactively adjusted to reflect the
one-for-three reverse common stock split which was approved by the Company's
Board of Directors on February 16, 1999. In connection therewith, the authorized
number of common stock was revised to be 40,000,000. Both of these items are
subject to stockholder approval.
RIGHTS AGREEMENT
In February 1999, the Company's Board of Directors adopted a Rights
Agreement whereby certain rights to purchase preferred stock will be issued with
each share of common stock issued after May 7, 1998.
EQUITY INVESTMENTS
In February 1999, the Company sold 37,728 shares of Series B 9 1/2%
Cumulative Preferred Stock and 1,320,901 shares of Common Stock to the New York
Times in exchange for $15 million in cash and services.
In February 1999 the Company sold 83,333 shares of Common Stock for $1
million.
F-16
<PAGE>
UNDERWRITING
TheStreet.com and the underwriters named below (the "Underwriters") have
entered into an underwriting agreement with respect to the shares being offered.
Subject to certain conditions, each underwriter has severally agreed to purchase
the number of shares indicated in the following table. Goldman, Sachs & Co.,
Hambrecht & Quist LLC and Thomas Weisel Partners LLC are the representatives of
the Underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
- ------------------------------------------------------------------ ----------------
<S> <C>
Goldman, Sachs & Co...............................................
Hambrecht & Quist LLC.............................................
Thomas Weisel Partners LLC........................................
------
Total........................................................
------
------
</TABLE>
-------------------------
If the Underwriters sell more than the total number set forth in the table
above, the Underwriters have an option to buy up to an additional shares
from TheStreet.com to cover such sales. They may exercise that option for 30
days. If any shares are purchased pursuant to this option, the Underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.
The following tables show the per share and total underwriting discounts
and commissions to be paid to the Underwriters by TheStreet.com. Such amounts
are shown assuming both no exercise and full exercise of the Underwriters'
option to purchase additional shares.
<TABLE>
<CAPTION>
Paid by TheStreet.com
- ---------------------------------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share........... $ $
Total............... $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the Underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
TheStreet.com, and its directors, officers and substantially all of their
stockholders have agreed with the Underwriters not to dispose of or hedge any of
their common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of the representatives. This agreement does not apply to
any existing employee benefit plans. See "Shares Eligible for Future Sale" for a
discussion of certain transfer restrictions.
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the TheStreet.com and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be TheStreet.com's historical performance, estimates of the
business potential and earnings prospects of the TheStreet.com, an assessment of
the TheStreet.com's management and the consideration of the above factors in
relation to market valuation of companies in related businesses.
The common stock will be quoted on the Nasdaq National Market under the
symbol "TSCM."
In connection with the offering, the Underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions
U-1
<PAGE>
created by short sales. Short sales involve the sale by the Underwriters of a
greater number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the other underwriters a portion of the
underwriting discount received by it because the representatives have
repurchased shares sold by or for the account of such underwriter in stabilizing
or short covering transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
A research analyst from Hambrecht & Quist is a contributor to TheStreet.com
web site but does not receive any compensation.
The Underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
At the request of TheStreet.com, the Underwriters have reserved up to
shares of common stock for sale, at the initial public offering
price, to employees, directors, friends, and persons having business
relationships with TheStreet.com through a directed share program. The number of
shares of common stock available for sale to the general public in the public
offering will be reduced to the extent these persons purchase the reserved
shares. Any reserved shares of common stock not so purchased will be offered by
the Underwriters to the general public on the same basis as the other shares of
common stock offered hereby.
TheStreet.com estimates that its share of the total expenses of the
offering, excluding underwriting discounts and commissions, will be
approximately $ .
TheStreet.com has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
U-2
<PAGE>
------------------------------------------------------
------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 15
Dividend Policy................................ 15
Corporate Information.......................... 15
Capitalization................................. 16
Dilution....................................... 17
Selected Financial Data........................ 18
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.................... 20
Business....................................... 26
Management..................................... 38
Certain Transactions........................... 46
Principal Stockholders......................... 48
Description of Capital Stock................... 49
Shares Eligible for Future Sale................ 53
Legal Matters.................................. 55
Experts........................................ 55
Change in Accountants.......................... 55
Additional Information......................... 55
Index to Financial Statements.................. F-1
Underwriting................................... U-1
</TABLE>
------------------------
Through and including , 1999 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
Shares
THESTREET.COM, INC.
Common Stock
------------------------
THESTREET.COM, INC.
------------------------
GOLDMAN, SACHS & CO.
HAMBRECHT & QUIST
THOMAS WEISEL PARTNERS LLC
Representatives of the Underwriters
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the expenses to be incurred in connection
with the offering described in this Registration Statement, all of which will be
paid by the Company. All amounts are estimates, other than the SEC registration
fee, the NASD fee, and the Nasdaq listing fee.
<TABLE>
<S> <C>
SEC Registration fee....................................... $20,850.00
NASD fee................................................... $ 8,000.00
Nasdaq listing fee......................................... *
Accounting fees and expenses............................... *
Legal fees and expenses.................................... *
Director and officer insurance expenses.................... *
Printing and engraving..................................... *
Transfer Agent fees and expenses........................... *
Blue sky fees and expenses................................. *
Miscellaneous expenses.....................................
----------
Total.................................................... $
----------
----------
</TABLE>
- ------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law ("DGCL"), as amended,
allows a corporation to eliminate the personal liability of directors of a
corporation to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the DGCL provides, among other things, that the Company may
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 (other than
an action by or in the right of the Company) by reason of the fact that the
person is or was a director, officer, agent or employee of the Company or is or
was serving at the Company's request as a director, officer, agent, or employee
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys' ties, judgment, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding. The power to indemnify applies (a) if such
person is successful on the merits or otherwise in defense of any action, suit
or proceeding, or (b) if such person acted in good faith and in a manner he
reasonably believed to be in the best interest, or not opposed to the best
interest, of the Company, and with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The power to
indemnify applies to actions brought by or in the right of the Company as well,
but only to the extent of defense expenses (including attorneys' fees but
excluding amounts paid in settlement) actually and reasonably incurred and not
to any satisfaction of judgment or settlement of the claim itself, and with the
further limitation that in such actions no indemnification shall be made in the
event of any adjudication of negligence or misconduct in the performance of his
duties to the Company, unless the court believes that in light of all the
circumstances indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director, who
willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for such actions. A
director who was either absent when the unlawful actions were approved or
dissented at the time, may avoid liability by causing his or her dissent to such
actions to be entered in the books containing the minutes of the meetings of the
board of
II-1
<PAGE>
directors at the time such action occurred or immediately after such absent
director receives notice of the unlawful acts.
Our Amended and Restated Certificate of Incorporation includes a provision
that eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability:
-- for any breach of the director's duty of loyalty to TheStreet.com or its
stockholders;
-- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
-- under the section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
-- for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our Amended and Restated Bylaws provide that:
-- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
-- we may indemnify our other employees and agents to the same extent that
we indemnified our officers and directors, unless otherwise determined
by our Board of Directors; and
-- we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware Law.
The indemnification provisions contained in the Company's Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws are not
exclusive of any other rights to which a person may be entitled by law,
agreement, vote of stockholders or disinterested directors or otherwise. In
addition, the Company maintains insurance on behalf of its directors and
executive officers insuring them against any liability asserted against them in
their capacities as directors or officers or arising out of such status.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its inception, we issued and sold the following securities to certain
corporate and institutional investors and high net worth individuals, including
certain of our directors and officers, in transactions exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereunder:
From our inception as a limited liability company in June 1996, until May
1998, we were financed through contributions from our founders and through loans
at the prime interest rate plus 1%. In return for their contributions, our
founders received certain amounts of our Class A, B, C and D membership units of
the limited liability company and a lender received Class E units.
In May 1998, our Board of Directors approved our reorganization from a
limited liability company into a C Corporation. As part of this reorganization,
each Class C membership unit was converted into 181.81818 shares of our common
stock. In addition, our Class A and Class B membership units were converted into
shares of our Series A 9 1/2% Cumulative Preferred Stock and Series C Preferred
Stock at a ratio of one preferred share per $100 of both Class A and Class B
membership units. Our Class D and Class E membership units were converted into
shares of our Series A 9 1/2% Cumulative Preferred Stock at a ratio of one
preferred share per $100 of Class D and Class E membership units.
In May 1998, we sold 101,475 shares of our Series B 9 1/2% Cumulative
Preferred Stock ("Series B Preferred Stock") and 3,418,333 shares of our common
stock for an aggregate price of approximately $10,000,000.
II-2
<PAGE>
In December 1998, we sold 243,891 shares of our Series B Preferred Stock
and 4,072,778 shares of our common stock for an aggregate price of approximately
$25,000,000.
In February 1999, we sold 83,333 shares of our common stock for an
aggregate price of $1,000,000.
In February 1999, we also sold 37,728 shares of our Series B Preferred
Stock and 1,320,901 shares of our common stock to The New York Times Company for
an aggregate consideration of $15,000,000 in cash and services.
From time to time, we have granted stock options to employees. The
following table sets forth information regarding the grants during the past
three fiscal years:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES GRANTED EXERCISE PRICE
-------------- ----------------
<S> <C> <C>
June 18, 1996 (inception) through December 31, 1996............... -- --
January 1, 1997 through December 31, 1997......................... -- --
January 1, 1998 through December 31, 1998......................... 1,663,953 $ 0.12
</TABLE>
No underwriters were involved in connection with the sales of securities
referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- -----------------------------------------------------------------------------------------------------
<S> <C>
1.1 -- Underwriting Agreement*
3.1 -- Amended and Restated Certificate of Incorporation of TheStreet.com*
3.2 -- By-laws of TheStreet.com, as amended*
4.1 -- Amended and Restated Registration Rights Agreement dated as of December 21, 1998 among TheStreet.com
and stockholders named therein*
4.2 -- TheStreet.com's Rights Plan dated , 1999*
4. -- Specimen Certificate for TheStreet.com's common stock*
5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP*
10.1 -- License Agreement, dated February 17, 1999, between Yahoo! Inc. and TheStreet.com, Inc.*
10.2 -- The Amended and Restated 1998 Stock Incentive Plan of the TheStreet.com*
10.3 -- Interactive Services Agreement, dated April 16, 1998, between America Online, Inc. and TheStreet.com,
L.L.C.*
10.4 -- Content License and Marketing Agreement, dated as of January 12, 1999, between E*TRADE Group, Inc.
and TheStreet.com, Inc.*
10.5 -- Employment Agreement, dated, October 6, 1998, between Kevin English and TheStreet.com, Inc.*
10.6 -- Employment Agreement, dated February 22, 1999, between James Cramer and TheStreet.com, Inc.*
16.1 -- Letter, dated February , 1999 from Anchin, Block and Anchin LLP*
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1)*
24.1 -- Power of Attorney (contained on the signature pages of this Registration Statement)
99.1 -- Consent of Michael Golden
</TABLE>
- ------------------
* To be filed by amendment.
II-3
<PAGE>
(b) Financial Statement Schedules.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing certificates in such denominations and registered in such names
as required by the Underwriters 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 provisions described in Item 14, or otherwise, the
registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim for
indemnification by the registrant against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against pubic policy as expressed in the
Securities Act and will be governed by the final adjudication of such 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 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 the offering of such securities at that
time shall be deemed to be the initial bonafide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS 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 FEBRUARY 23, 1999.
TheStreet.com, Inc.
By: /s/ Kevin English
---------------------------------
Name: Kevin English
Title: Chairman of the Board of
Directors, Chief Executive
Officer and President
Each person whose signature appears below hereby constitutes and appoints
Kevin English and Paul Kothari, and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and in his name, place, and stead, in any and all capacities, to sign
any and all (i) amendments (including post-effective amendments) and additions
to this Registration Statement and (ii) Registration Statements, and any and all
amendments thereto (including post-effective amendments), relating to the
offering contemplated pursuant to Rule 462(b) under the Securities Act of 1933,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants to such attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED BELOW.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -----------------
<S> <C> <C>
/s/ Kevin English Chairman of the Board of Directors, Chief February 23, 1999
- ------------------------------------------ Executive Officer and President
Kevin English
/s/ Paul Kothari Chief Financial Officer February 23, 1999
- ------------------------------------------
Paul Kothari
/s/ Dave Kansas Editor-in-Chief and Director February 23, 1999
- ------------------------------------------
Dave Kansas
/s/ James J. Cramer Director February 23, 1999
- ------------------------------------------
James J. Cramer
/s/ Martin Peretz Director February 23, 1999
- ------------------------------------------
Martin Peretz
/s/ Fred Wilson Director February 23, 1999
- ------------------------------------------
Fred Wilson
/s/ Jerry Colonna Director February 23, 1999
- ------------------------------------------
Jerry Colonna
/s/ Edward F. Glassmeyer Director February 23, 1999
- ------------------------------------------
Edward F. Glassmeyer
</TABLE>
II-5
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Period from June 18, 1996 (Inception) to December 31, 1996
and the Years Ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
BALANCE AT PROVISIONS BALANCE AT
BEGINNING CHARGED TO END OF
OF PERIOD EXPENSE WRITE-OFFS PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1996...................................... $ 0 $ 0 $ 0 $ 0
-------- -------- -------- --------
December 31, 1997...................................... $ 0 $ 0 $ 0 $ 0
-------- -------- -------- --------
December 31, 1998...................................... $ 0 $ 40,000 $ 0 $ 40,000
-------- -------- -------- --------
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TheStreet.com, Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of TheStreet.com, Inc. included in this registration
statement and have issued our report thereon dated February 9, 1999. Our audit
was made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in the index above is the responsibility
of the Company's management and is presented for purpose of complying with the
Securities and Exchange Commissions rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects, the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
New York, New York
February 9, 1999
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TheStreet.com, Inc.:
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made part of this registration
statement.
Arthur Andersen LLP
New York, New York
February 19, 1999
<PAGE>
CONSENT OF MICHAEL GOLDEN
To: The Street.com, Inc.
I hereby consent to the use of my name as a nominee for director of
TheStreet.com, Inc. and to be named in the Registration Statement on Form S1 of
TheStreet.com.
/s/ Michael Golden
-------------------------
Michael Golden
