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Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ____________
Commission file number 0-25779
THESTREET.COM, INC.
(Exact name of registrant as specified in charter)
Delaware 06-1515824
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
14 Wall Street, 14th Floor 10005
New York, New York (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 321-5000
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Name of Each Exchange on Which
Title of Each Class the Securities are Registered
Common Stock, par value $0.01 per share Nasdaq National Market
Indicate by a check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the Registrant's common stock held by
non-affiliates of the Registrant on February 18, 2000 was approximately $184.1
million. On such date, the last sale price of the Registrant's common stock
was $14.9375 per share. Solely for purposes of this calculation, shares
beneficially owned by directors and officers of the Registrant and persons
owning 5% or more of the Registrant's common stock have been excluded, in
that such persons may be deemed to be affiliates of the Registrant. Such
exclusion should not be deemed a determination or admission by the Registrant
that such individuals or entities are, in fact, affiliates of the Registrant.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
Title of Each Class Number of Shares Outstanding
at February 18, 2000
Common Stock, $0.01 par value 25,292,581
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THESTREET.COM, INC.
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I
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ITEM 1. BUSINESS...........................................................................................3
ITEM 2. PROPERTIES........................................................................................16
ITEM 3. LEGAL PROCEEDINGS.................................................................................16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................................16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............................17
ITEM 6. SELECTED FINANCIAL DATA...........................................................................17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................................................32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...............................................................32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................................................33
ITEM 11. EXECUTIVE COMPENSATION..............................................................................33
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................................33
PART IV
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................33
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.................................34
SIGNATURES ...................................................................................................35
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THESTREET.COM, INC.
1999 ANNUAL REPORT ON FORM 10-K
PART I
ITEM 1. 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 100 professional reporters and
editors, together with more than 30 outside contributors, we update our site
with between 60 and 70 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.
Since our formation, we have derived 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 have aggressively promoted our site and provided a portion of
our content for free. We have sought to maximize our revenue per reader--both
paying subscribers and free users--by selling advertisements on all areas of
our site. Currently, our financially oriented readers provide 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.
In January 2000, we announced that in the second quarter of 2000 we plan
to convert our main web site, which currently contains both free content and
content available only to paying subscribers, to a completely free site
accompanied by a network of free and subscription sites. We believe that
although this new strategy is likely to cause our subscription revenues to
decrease, over time it will increase our site traffic, resulting in an
increase in our advertising revenues and our overall revenues.
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 Jupiter
Communications, online assets under management will grow to more than $3
trillion by 2003. Similarly, investors in Europe are beginning to play a more
proactive role in managing their finances, according to a March 2000 Jupiter
Communications 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 and point of view that comes from
independent reporting. Other financial sites offer stock quotes, charts and
other investment tools, but provide limited financial commentary and analysis.
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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 well positioned to become a 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 well-known writers, including James J. Cramer, Herb
Greenberg, Adam Lashinsky, Gary B. Smith, Brenda Buttner, Jim Seymour and Ben
Holmes. 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:
- 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.
- 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.
- 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.
- 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.
Although our approach has allowed us to increase our subscriber base more
than 225% from 32,000 at the end of 1998 to approximately 104,000 (not
including free-trial members) as of December 31, 1999, we believe that the
majority of Internet users are unwilling to pay for content online. The
Internet provides a myriad of sources for information, including financial
news, and most of these sources provide their information at no charge. In
order to effectively compete with these sources, and to attract the audience
that will enable us to build relationships with a larger number of
advertisers, we believe we too must offer a web site with all free information.
Therefore, in January 2000, we announced that in the second quarter of
2000 we plan to convert our main web site, which currently contains both free
content and content available only to paying subscribers, to a completely
free site accompanied by a network of free and subscription sites.
NEW STRATEGY
Our objective is to become the leading business and financial news and
information destination for investors. Under our new strategy, which we
expect to implement in the second quarter of 2000, we aim to further develop
a mass audience for our site by offering our content for free on our current
primary web site, www.TheStreet.com in order to increase our advertising
revenues. Our new strategy includes the following key elements:
RELAUNCH OUR WEB SITE (www.TheStreet.com) AS THE MOST INSIGHTFUL, USEFUL AND
TRUSTWORTHY BUSINESS AND FINANCIAL NEWS PORTAL ON THE WEB
We are building upon our comprehensive offerings and going free so that
readers can satisfy all of their business and financial news and information
needs without leaving our site. In 1999, we added to our group of columnists,
launched "TheStreet.com," our weekly television show on the FOX News Channel,
expanded our coverage of global financial markets, launched our joint
newsroom with The New York Times, acquired ipoPros.com, expanded our personal
financial and mutual fund coverage, increased the frequency of in-depth
special reports, added new community features such as message boards and
significantly upgraded our investment tools with offerings like real-time
stock quotes and a sophisticated portfolio tracker.
Recently, we launched www.TheStreet.co.uk, our sister site in the United
Kingdom, expanded our news coverage both before the markets open and after
they close, added after-hours trading data, and further enhanced our
community features with ticker-based message boards and a sports scoreboard
linked to FOXSports.com.
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Through the initiatives described above, we aim to transform our financial
market-centered web site into a general business and financial news and
analysis portal that contains everything a user needs to stay informed and
connected in the new, "Internet-speed" business world.
LEVERAGE OUR CONTENT AND OTHER OFFERINGS TO MAXIMIZE REVENUE ACROSS A DIVERSE
CUSTOMER BASE
Although we plan to offer our content for free on our primary web site to
attract a larger, more mainstream audience, we believe that serious investors
and financial professionals still represent a significant market opportunity
for subscriptions and advertising revenue. To leverage our content and other
offerings in order to take advantage of these audiences, TheStreet.com plans
to continue to offer a subscription-based product, which will take the form
of a more specialized, higher-priced content that will include research,
commentary and information and opinions on financial markets, companies and
economics.
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 and e-commerce revenues grew from approximately $2.5 million in
1998 to approximately $7.9 million in 1999. 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 opportunities both for
increased financial services-related advertising as well as technology and
luxury-goods advertising. However, as our mainstream traffic increases, we
expect to experience dilution of our reader demographic on our free site, which
would likely result in a decrease in our ability to command premium
advertising rates. See "Risk Factors-We Face a Possible Decline in Our User
Demographic As We Attract a Larger Mainstream Audience."
LEVERAGE STRATEGIC PARTNERSHIPS
During 1999, we continued 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 have signed up thousands of subscribers
without incurring typical consumer marketing costs. For example, under
subscription distribution agreements with E*TRADE and DLJdirect, Inc., each
online broker purchases discounted subscriptions in bulk to distribute as a
premium service to certain of its customers.
By syndicating our content to other leading sites, we continue to expose
our brand name and quality writing to millions of potential users and drive
additional traffic to our site. In 1999, we renewed our content syndication
agreements with Yahoo!, America Online, MSN Money Central, Salon.com and
other leading companies, under which we provide selected stories each day, at
times on a delayed basis, for co-branded publication with a link to our site.
These content syndication relationships capitalize on the cost efficiencies
of online delivery by creating additional value from stories already produced
for our own site.
We have also leveraged our partner relationships by creating co-branded
areas on our web site or a partner's site, which drive traffic to our site
and increase brand awareness among key audiences. For example, under our
agreement with E*TRADE, Power E*TRADE customers (active customers) are given
free access to a co-branded web site which contains all of the content found
on our main 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, Fortune, The Economist and Wired. Many of our
writers have had work published in the New York Observer. A column written
for our site by our editor-at-large, Cory Johnson, is carried by The Industry
Standard, a weekly news magazine covering the Internet industry.
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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
100 professional reporters and editors who, together with more than 30
outside contributors throughout the world, produce between 60 and 70 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.
During 1999, we were named as a finalist for the General Excellence in
New Media category of the 1999 National Magazine Awards. The purpose of this
category is "to honor an interactive publication that most effectively serves
its intended audience and reflects an outstanding level of interactivity,
journalistic integrity and service." We were also a winner of the 1999 Front
Page Award in Internet Breaking Business News, given each year by the
Newswomen's Club of New York. Our 1998 story package "Looking Out for the
Shareholder" was a 1999 winner of the Excellence in Financial Journalism
Award sponsored by the New York State Society of Certified Public Accountants.
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 are:
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 our
television show, "TheStreet.com," which is shown weekly on the FOX News
Channel.
HERB GREENBERG. Mr. Greenberg, formerly of the San Francisco Chronicle,
is a staffer and daily commentator. Mr. Greenberg also appears
regularly on TheStreet.com television show and writes a regular column
for Fortune magazine.
BRENDA BUTTNER. Ms. Buttner, a former anchor of CNBC's "The Money
Club," which won the network's first Cable Ace Award, is a
senior columnist. Ms. Buttner profiles America's top mutual fund
managers and comments on the mutual fund industry. She also serves
as the host of TheStreet.com television show. Before serving as a
CNBC anchor, she was the network's Washington correspondent,
covering the White House and Capitol Hill.
DAVE KANSAS. Mr. Kansas, our editor-in-chief and executive vice
president/chief strategic officer, writes a column about market trends.
Mr. Kansas worked at The Wall Street Journal for five years, most
recently as a financial markets reporter. Mr. Kansas also appears
regularly on TheStreet.com television show and 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.
ADAM LASHINSKY. Mr. Lashinsky, our Silicon Valley commentator, came to
us from the San Jose Mercury News, where he was that paper's high-tech
stocks columnist. Prior to that, he covered a variety of beats as a
reporter for Crain's Chicago Business, where he ultimately was an
assistant managing editor. In addition, he writes The Wired Investor, a
column on tech stocks in Fortune magazine, and contributes regularly to
Marketplace, a nationally broadcast radio business-news magazine.
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
five times each week about technical analysis and at-home trading. He
also appears regularly on TheStreet.com television show.
BEN HOLMES. Mr. Holmes, the founder of ipoPros.com, a research boutique
specializing in the analysis of equity syndicate offerings, writes
several times a week for our main site about upcoming initial public
offerings, secondary offerings and lockup expirations. Prior to
starting ipoPros.com, which was acquired by TheStreet.com in
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December 1999, he was a hedge fund manager with Worldwide Capital and
a broker for Merrill Lynch.
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. According to this policy,
our editorial staffers are not permitted to individually own individual
stocks (though they may, and most do, own equity in TheStreet.com). Our
outside contributors, including James Cramer, a money manager and large
shareholder in and director of TheStreet.com, are required to disclose their
current positions in any of the stocks they write about. Mr. Cramer has no
control over the editorial content of TheStreet.com and his employment
agreement prohibits him from discussing individual stocks with editorial
staffers, limiting his contact with the editorial staff to the
editor-in-chief or his designee.
THESTREET.COM WEB SITE
We produce original coverage of business, 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, personal finance, 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 to all users without
registration or a subscription, include our regularly updated Markets
coverage, personal finance content, general business stories produced by our
joint newsroom with The New York Times on the Web, 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 and
currently includes stock, technology, mutual fund, personal finance and
international news stories and commentaries each business day; some
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 each business day and on weekends.
The following is a detailed description of TheStreet.com web site,
beginning with the free sections, then the premium sections, and ending with
a description of the community features, which are a mix of free and premium.
MARKETS
The Markets section, which features continuously updated market news
stories from about 4 a.m. until 12 a.m. Eastern time each business day, is
free and covers the following:
- 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. In
1999, we expanded our coverage of foreign markets. Most recently, we
increased the frequency of our European and Asian markets reports and
expanded our "Before the Bell" and after-hours coverage of the U.S. markets.
HEADLINES FROM TSC/NYTIMES.com
The free headlines section includes insightful yet brief stories on the
major business and financial news events of the day, with a focus on breaking
business news, personal finance and stock market coverage. These stories,
which complement the news and commentary produced by our own editorial staff,
are produced by our joint newsroom with The New York Times on the Web and
published simultaneously on both our site and The New York Times web site. See
"Business -TheStreet.com/NY Times Joint Newsroom."
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PERSONAL FINANCE
To assist our many readers who leave part or all of their stock
selection to professional money managers, we have a free area providing daily
personal finance news and features. 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.
BASICS
This 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 personal financial planning.
COMMENTARY
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, mutual funds,
initial public offerings, technology and international investing. In 1999, we
added approximately 13 new columnists to the site, including IPO specialist
Ben Holmes, technology columnist Adam Lashinsky, insider-trading expert Bob
Gabele, technical analyst John Roque, international expert David Kurapka, as
well as expanded offerings by other columnists.
TECH STOCKS
The Tech Stocks section 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, telecommunications and the Internet. We also publish a
separate technology stock update several times daily detailing the major news
in the sector. In 1999, we increased our coverage of technology conferences
and the business-to-business internet 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, banking and financial services,
brokerages/Wall Street and online brokers. It also includes our daily
coverage of the options market.
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. In 1999 and the first quarter of 2000, we have
expanded our international coverage, deploying staffers in New York, San
Francisco, London, Frankfurt, Tokyo and Hong Kong, and adding outside
contributors to provide continuous coverage of global markets and certain key
individual stocks. Most recently, the depth and breadth of our international
coverage has benefited from the launch in February 2000 of TheStreet.co.uk,
our U.K. sister site, based in London, England.
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:
- both topic and ticker-based message boards, which allow readers to
share their opinions about current issues and stocks;
- email between our readers and our staff;
- polls that invite readers to vote on issues related to the latest
financial and investing news;
- regular chats featuring our top-name contributors and expert staffers
hosted on Yahoo!, America Online, and other services; and
- streaming audio programs, including audio feeds from our television
program.
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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:
- detailed stock quotes, both delayed and, currently for subscribers
only, real time;
- intraday and historical stock charts with adjustable parameters;
- mutual fund quotes and scoreboards;
- summary company profiles;
- analysts' buy/sell ratings;
- news wire service feeds;
- SEC filings;
- insider buying information;
- analyst rankings; and
- a powerful, sophisticated 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.
INTERNATIONAL EXPANSION
In 1999, we began an international expansion in an effort to build a
global brand and to continue to bring to our readers the best and most
comprehensive financial news and analysis on the web. The first step in this
expansion was the formation in September 1999 of a counterpart to
TheStreet.com in the United Kingdom, known as "TheStreet.co.uk." Our partners
in this venture, Chase Capital Partners, Barclays Private Equity, ETF Group,
and 3i, invested a total of $16.9 million for a minority stake in the
company. The site was successfully launched in February 2000 and features
business and economic news, investment commentary and in-depth personal
finance pages.
In addition, in December 1999, we entered into an agreement with
Ha'aretz Group, an Israeli newspaper publisher, to invest $2.25 million in
exchange for a minority stake in Business Net Online, Ltd., a new venture
that aims to launch an online business publication in 2000 to be known as
Israel Business Online. Also, under that agreement, TheStreet.com will
publish selected news and headlines on Israeli technology companies listed on
U.S. exchanges from the Israel Business Online site and that site will
publish selected news and headlines from TheStreet.com.
THESTREET.COM/NY TIMES JOINT NEWSROOM
In November 1999, we launched a joint newsroom with The New York Times
on the Web, which reports on breaking business news, personal finance and the
financial markets. Stories generated by the joint newsroom, which by December
31, 1999 had seven reporters on staff, are published simultaneously on both
TheStreet.com site and The New York Times on the Web. Additionally, the two
sites share one another's news headlines, with stories from TheStreet.com
available from The New York Times site and The New York Times business
stories accessible from TheStreet.com.
SUBSCRIPTION SALES
As of December 31, 1999, we had over 104,000 subscribers (not including
free-trial members). 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. During
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the last six months of 1999, approximately 82% of our annual subscribers whose
subscriptions came up for renewal, and 96% of our monthly subscribers, renewed
their subscriptions.
We have actively marketed our subscriptions by offering 30-day free
trials 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.
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, E*TRADE purchases bulk
subscriptions at a discounted rate that it offers to certain new E*TRADE
brokerage customers and to its existing Power E*TRADE customers (active
traders).
In addition, in June 1999, we entered into an agreement with DLJdirect,
Inc. under which DLJdirect purchases bulk subscriptions at a discounted rate
that it offers to its large account holders as well as to those persons who
open an account with DLJdirect as a result of a promotion involving
TheStreet.com. DLJdirect also purchases bulk subscriptions at a discounted
rate for all of its in-house professionals.
We have also increased the number of our subscribers through the efforts
of our Professional Markets group, which in 1999 entered into agreements with
approximately 20 financial institutions to provide content to certain of
their financial professionals and clients. See "Business--Professional
Markets."
Recently, we have made special offers to our subscribers allowing them to
lock-in current subscription rates for certain periods in advance of a
subscription rate increase anticipated with the implementation of our new
strategy.
However, we expect that, once we relaunch of our web site and begin
offering our content for free on that site, our subscription revenues will
begin to decline. See "Risk Factors -- Risk Associated with Our New Strategy
- -- We May Have Difficulty Retaining Current Subscribers After We Go Free."
ADVERTISING SALES
We currently derive a substantial portion of our revenues from
advertising sales. Under our new strategy, which we expect to implement in
the second quarter of 2000, we expect that this portion of our revenues will
increase. We have established a desirable reader demographic that has enabled
us to build a growing advertising business and charge rates that are, 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 $2.5 million in 1998 to
approximately $7.9 million in 1999. In 1999, advertising revenues represented
approximately 55% of our total revenue. We believe that our advertising
revenues will continue to grow in 2000, particularly after the implementation
of our new strategy of offering our content for free. See "Risk Factors -- We
Depend on Our Top Advertisers for a Significant Portion of Our Advertising
Revenues, and the Loss of Several of Our Top Advertisers May Harm Our
Business."
DEMOGRAPHICS
Our audience presents a desirable reader demographic for advertisers in
the financial services, technology and luxury goods industries. According to
@plan, a third-party neutral marketing research firm, the percentage of our
readers who have portfolios over $250,000 is higher than any other site
surveyed in @plan's Winter 2000 study. Also, according to the same study, our
readers are two and one-half times more likely than the average Web user
surveyed by @plan to own securities. In addition, compared to the average
Internet user surveyed by @plan, our readers are more than seven times more
likely to trade stocks online. The survey research portion of the @plan
system is conducted by The Gallup Organization. As we shift from a
subscription-based site to a free site, we expect that the increased audience
will bring with it a decline in this demographic from its current high level.
See "Risk Factors---We Face a Possible Decline in Our User Demographic As We
Attract a larger Mainstream Audience" and "Risk Factors--Difficulties or
Delays in Implementing Our Network Strategy May Harm Our Business."
In December 1999, our web site attracted more than 2.2 million unique
visitors who generated over 26 million page views, as compared with
approximately 280,000 unique visitors who generated over 7 million page views
in December 1998. Our unique visitor information was based on data provided
to us by DoubleClick Inc., a company that measures our users in connection
with delivering advertisements on our web site.
A unique visitor is a person who visits TheStreet.com site from a
particular personal computer. A person who makes multiple visits from the
same computer in a given time period is only counted once. A page view means
one person's download of one page of our web site.
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<PAGE>
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:
- LONG DURATION AND HIGH FREQUENCY OF VISITS. In the fourth quarter of
1999 our subscribers and free-trial members spent an average of 27
minutes per visit on our site. We believe this duration compares
favorably to the time spent by readers on other financial sites.
However, this time period may decrease on our main site once this site
becomes free. Further, according to a study conducted in October 1999
by NFO Interactive for TheStreet.com, approximately 88% of our
subscribers visit our site at least once every day.
- OUR MARKETING EFFORTS. Advertisers like the fact that we conduct an
extensive marketing and media relations campaign to increase the
visibility of our site.
- 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 maintain an internal, direct advertising sales department which, as
of December 31, 1999, consisted of 18 employees. By using a direct sales
force rather than outsourcing advertising sales, we control our relationships
and are better able to serve our clients. In anticipation of the
implementation of our new strategy and our increased reliance on advertising
revenues, we are in the process of expanding this department.
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 $47 to $57; premium positioning advertising
featuring targeted advertisements for which our current rate card CPM ranges
from $58 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 $65 to $75.
OUR ADVERTISERS
In 1999, more than 170 advertisers advertised on our web site. In 1999,
our top advertiser accounted for approximately 10% of our advertising revenue,
and our top five advertisers accounted for approximately 36% of our
advertising revenues, compared with approximately 65% for the year ended
December 31, 1998. In 1999, we continued to add well-known non-financial
services industry companies to the roster of advertisers on our site,
including, US West, Steuben, LuxuryFinder, and General Motors. In addition,
in 1999 we added several new finance services advertisers, including Van
Kampen Funds and the Chicago Mercantile Exchange.
The following is a list of our top ten brokerage and non-brokerage
advertisers in 1999:
TOP 10 BROKERAGE ADVERTISERS
Ameritrade National Discount Brokers
Datek On-Site Trading
DLJdirect Precision Edge
E*TRADE Salomon Smith Barney
LiveTrade Web Street Securities
TOP 10 NON-BROKERAGE ADVERTISERS
Compaq LowestFare.com
Exxon/Mobil Multex
First USA Phillips Publishing
INVESTools West Tech Virtual Job Fair
Lincoln Worden Brothers
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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 AT&T, Bell Atlantic and Intimate Brands.
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:
- cable television networks, including CNBC and the FOX News Channel;
- local and network radio stations, including Westwood One, WFAN and
WNEW;
- newspapers, including The Wall Street Journal, The New York Times and
Investor's Business Daily;
- print magazines, including Fortune, SmartMoney and Inc.;
- outdoor locations, including phone kiosks, moving and stationary
billboards and train platforms;
- in-flight advertising, including flights on United Airlines, Northwest
Airlines and US Airways; and
- online sites, including CBS.Marketwatch.com, 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:
- AMERICA ONLINE. Under our new, expanded agreement with America Online,
we will become an anchor tenant in several departments of AOL's
Personal Finance channel, including the AOL Market Day, Active Trader,
Investment Research and Investing Forums areas, providing financial
news and live events to AOL. In addition, we will receive promotion in
CompuServe's Personal Finance area, and AOL will feature our headlines
on AOL.com and Netscape Netcenter. These areas will feature 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 live events, of which there will be several per month, will
include at least one live chat per month with James Cramer.
Additionally, our U.K. sister site, TheStreet.co.uk, will syndicate
content to AOL UK.
- YAHOO! Under our agreement with Yahoo!, 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 subscription sign-up page. In addition,
we host approximately four online chats on Yahoo! Chat each month,
featuring our writers or special guests. These chats have helped us
raise the profile of our staff and expose our brand to millions of
Yahoo! users.
- Under a separate agreement with Yahoo!, our stories are "indexed" on
Yahoo! Finance. Under this agreement, every request by a user of
Yahoo! Finance for a stock or mutual fund quote pulls up a list of
stories from TheStreet.com about that stock or fund. These headlines
link directly to our site so that readers can click straight through
to TheStreet.com. If the story is in our free area, the readers click
straight into the story. If it's a premium story, and if the reader is
not a free-trial member or
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<PAGE>
subscriber of TheStreet.com, the reader is offered the opportunity to
register for a free trial.
- MOTOROLA. Under our agreement with Motorola, TheStreet.com will
provide financial news and commentary over Web-enabled wireless
devices via Motorola's Mobile Internet Exchange-TM- communications
platform, also known as the MIX-TM- platform.
- SALON.COM. Under our agreement with Salon.com, it publishes four
updated financial market news stories from TheStreet.com each weekday.
- MICROSOFT MSN MONEYCENTRAL. Under our agreement with Microsoft, MSN
MoneyCentral publishes on its web site two feature columns from The
Street.com each week: one by James Cramer and one by Herb Greenberg.
- INTUIT. Under our agreement with Intuit, Intuit includes a number 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.
- ABCNEWS.COM. Our agreement with ABCNEWS.com 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.
- 3COM. Under our agreement with 3Com, users of the Palm VII hand-held
organizer will be able to access branded financial markets stories by
TheStreet.com via a remote wireless connection to the Internet.
We distribute content to many other leading web sites, including those
of DLJdirect, E*TRADE 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 Index, an index of
20 Internet companies. Options based on the index began trading in December
1998. Since its launch, TheStreet.com Internet Sector Index has been
mentioned or featured on prominent news outlets including The New York Times,
The Wall Street Journal, the Los Angeles Times and CNBC. In May 1999, Salomon
SmithBarney created equity-linked notes based on the index. These notes trade
on the American Stock Exchange.
Additionally, in conjunction with the American Stock Exchange, in
February 1999 we created TheStreet.com E-Commerce Index, an index of 15
electronic commerce companies. This index has since been increased to 18
companies. In June 1999, TheStreet.com E-Finance Index, an index of 11 online
financial services companies was launched in conjunction with the American
Stock Exchange. This index has since been increased to 14 companies.
MEDIA RELATIONS
TheStreet.com engages in an ongoing media-relations campaign. In 1999,
TheStreet.com, our writers and our stories were mentioned or featured in more
than 3000 reports by more than 100 news outlets, including The Wall Street
Journal, The New York Times, USA Today, The Financial Times, CNBC and US News
& World Report. In addition to TheStreet.com television show on the FOX News
Channel, which regularly features our columnists, editors and reporters, some
of our writers appear frequently on other television programs.
Editor-at-large Cory Johnson appears on the syndicated program "Next Step,"
and senior columnist Adam Lashinsky appears on ZDTV's "Silicon Spin" program.
TELEVISION SHOW
In May 1999, we entered into an agreement with FOX News Network L.L.C.
to co-produce a television show. The television show, which premiered in July
1999, is entitled "TheStreet.com" and features our editorial staff and
outside contributors, and is currently aired three times each weekend on FOX
News Channel. We believe that this television show has boosted our brand
awareness and raised the profile of our writers.
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<PAGE>
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 December 1999, for example, we had approximately 18,000 reader
contacts, from a base of over 104,000 subscribers and additional readers in
their 30-day free trial. As of December 31, 1999, our customer service
department had 25 personnel.
PROFESSIONAL MARKETS
TheStreet.com appeals to a broad range of financial professionals,
including analysts, money managers and financial advisors. Our October 1999
subscriber study conducted by NFO Interactive showed that approximately 27%
of our subscribers were financial professionals. In 1999, our Professional
Markets group entered into agreements with 21 financial institutions,
including Fidelity Investments Institutional Brokerage Group, KeyBank and
Bank of America Securities, to provide them with our content delivered
according to their transmission needs.
Additionally, in 1999 we entered into an agreement with ILX Systems, a
leading market data company, under which ILX will offer real-time financial
news and commentary provided by TheStreet.com on the ILX platform, which is
available to over 130,000 financial professionals.
In connection with the implementation of our new strategy, we are in the
process of developing a new web site that will feature information, news,
commentary and data specifically tailored to satisfy the exacting needs of
financial professionals and other serious investors.
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:
- online services or web sites focused on business, finance and
investing, such as CBS.MarketWatch.com, CNBC.com, CNNfn.com, The Wall
Street Journal Interactive Edition, DowJones.com,Forbes.com,
SmartMoney.com, Microsoft MSN MoneyCentral and The Motley Fool;
- publishers and distributors of traditional media, including print,
radio and television, such as The Wall Street Journal, Fortune,
Bloomberg Business Radio and CNBC;
- providers of terminal-based financial news and data, such as Bloomberg
Business News, Reuters News Service, Dow Jones Markets and Bridge News
Service;
- web "portal" companies, such as Yahoo! and America Online; and
- online brokerage firms, many of which provide financial and investment
news and information, such as Charles Schwab, E*TRADE and Merrill
Lynch.
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.
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 "Risk Factors--A General Decline in Online Advertising or Our Inability
to Adapt to Trends in Online Advertising Could Harm Our Advertising Revenues."
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 a power supply that is intended to be uninterruptible.
In addition, in September 1999, we entered into an agreement with
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<PAGE>
USinternetworking, Inc. under which USi provides us with a mirror site for
disaster recovery in the event of the failure of our primary systems. The USi
failover site became operational in December 1999.
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 in-house
subscription management system is based on technology provided by Art
Technology Group and Clear Commerce and is hosted at Exodus Communications'
facility. This system has allowed us to communicate automatically with
readers during their free-trial periods and to make a wide variety of
customized subscription offers available to potential subscribers.
Our operations are dependent on our ability and that of Exodus and USI
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--Disruptions Associated
with Moving Our Subscription Management System In-house May Harm Our
Business" and "Risk Factors--We Face a Risk of System Failure that May Result
in Reduced Traffic, Reduced Revenue and Harm to Our Reputation."
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. Failure to adequately protect our intellectual property could
harm our brand, devalue our proprietary content and affect our ability to
compete effectively. Further, defending our intellectual property rights
could result in the expenditure of significant financial and managerial
resources, which could materially adversely affect our business, results of
operations and financial condition. 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. Any
infringement 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. See "Risk Factors--Failure to Protect Our Intellectual Property
Rights Could Harm Our Brand-Building Efforts and Ability to Compete
Effectively."
EMPLOYEES
As of December 31, 1999, we had 253 employees, of which 96 worked in
editorial, 17 in consumer marketing and media relations, 18 in advertising,
four in professional markets, 51 in technology, six in analyst rankings, 25
in customer service/technical support and 22 in finance/administration. We
also have four employees who work on our television show, four who work on
the ipoPros.com site and six who work in the TSC/NYTimes joint newsroom.
These figures include employees from TheStreet.co.uk, our U.K. subsidiary,
which had 28 employees as of December 31, 1999. We have never had a work
stoppage and none of our personnel are represented under collective
bargaining agreements. We consider our relations with our employees to be
good.
FACILITIES
In December 1999, we relocated our principal administrative, sales,
marketing, technology and editorial facilities to a larger facility,
encompassing approximately 69,000 square feet of office space on two floors
in an office building on Wall Street in New York City, New York. 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
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Communications in Jersey City, New Jersey. TheStreet.co.uk, our U.K.
subsidiary, is housed in approximately 15,000 square feet of office space in
London, England.
GOVERNMENT REGULATION
Currently, we are not subject to any direct governmental regulation
other than the securities laws and regulations applicable to all publicly
owned companies, and laws and regulations applicable to businesses generally.
Few laws or regulations are directly applicable to access to, or commerce on,
the Internet. Due to the increasing popularity and use of the Internet, it is
likely that a number of laws and regulations may be adopted at the local,
state, national or international levels with respect to the Internet,
including the possible levying of tax on e-commerce transactions. Any new
legislation could inhibit the growth in use of the Internet and decrease the
acceptance of the Internet as a communications and commercial medium, which
could in turn decrease the demand for our services or otherwise have a
material adverse effect on our future operating performance and business. See
"Risk Factors -- Government Regulation and Legal Uncertainties Relating to
the Web Could Increase Our Costs of Transmitting Data and Increase Our Legal
and Regulatory Expenditures and Could Decrease Our Readership."
ITEM 2. PROPERTIES
TheStreet.com's principal executive offices are currently located at 14
Wall Street, New York, New York. Consisting of approximately 69,000 square
feet, this facility is currently leased to TheStreet.com under a lease which
expires in 2009 with an average annual rent of approximately $2 million. We
also lease approximately 3,200 square feet for our West Coast bureau in San
Francisco, California under a lease which expires in 2003 and our U.K.
subsidiary leases office space in London, England.
ITEM 3. LEGAL PROCEEDINGS
TheStreet.com is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders
during 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock has been quoted on the Nasdaq National Market under
the symbol TSCM since our initial public offering on May 11, 1999. The following
table sets forth, for the periods indicated, the high and low sales prices per
share of the common stock as reported on the Nasdaq National Market. Such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
1999 Low High
- ---- --- ----
<S> <C> <C>
second quarter (from May 11, 1999) 25.0625 71.25
third quarter 15.1875 37.875
fourth quarter 14.0000 22.1875
</TABLE>
On March 27, 2000, the last reported sale price for our Common Stock
was $11.9375 per share.
HOLDERS
The number of holders of record of our Common Stock on March 27, 2000
was 298, which does not include beneficial owners of our Common Stock whose
shares are held in the names of various dealers, clearing agencies, banks,
brokers and other fiduciaries.
DIVIDENDS
There were no dividends or other distributions made by us during the
fiscal year ended December 31, 1999. It is anticipated that cash dividends
will not be paid to the holders of our Common Stock in the foreseeable future.
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ITEM 6. 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 herein.
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, 1998, and 1999, and the balance sheet data as of
December 31, 1998 and 1999 are derived from our financial statements that have
been audited by Arthur Andersen LLP, independent public accountants, and are
included elsewhere herein. The balance sheet data as of December 31, 1996 and
1997 has been derived from our audited financial statements which are not
included herein.
<TABLE>
<CAPTION>
JUNE 18, 1996
(INCEPTION) YEAR ENDED YEAR ENDED YEAR ENDED
THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31,
DECEMBER 31,
1996 1997 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Advertising & E-Commerce $-- $118 $2,544 $7,897
Subscription............................. -- 321 1,686 4,550
Other.................................... -- 150 393 1,869
-- --- --- -----
Total net revenues.................... -- 589 4,623 14,316
Cost of revenues............................ 298 1,147 3,955 9,548
--- ----- ----- -----
Gross profit (loss)................... (298) (558) 668 4,768
Operating expenses:
Product development...................... 469 402 2,346 7,475
Sales and marketing...................... 397 2,189 9,205 16,402
General and administrative............... 548 2,210 5,158 15,121
Noncash compensation expense............. -- -- 90 4,532
-- -- -- -----
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JUNE 18, 1996
(INCEPTION) YEAR ENDED YEAR ENDED YEAR ENDED
THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31,
DECEMBER 31,
1996 1997 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total operating expenses.............. 1,414 4,801 16,799 43,530
----- ----- ------
Loss from operations.................. (1,712) (5,359) (16,131) (38,762)
Interest expense (Income), net.............. 21 405 227 (4,415)
-- --- ---
Loss before provision for income
taxes and minority interest (1,733) (5,764) (16,358) (34,347)
Provision for income taxes............... -- -- -- 95
-- -- -- --
Loss before minority interest (1,733) (5,764) (16,358) (34,442)
Minority interest -- -- -- 808
-- -- -- ---
Net loss.............................. $(1,733) $(5,764) $(16,358) $(33,634)
======== ======== ========= =========
Net loss per share - basic and diluted...... $(0.29) $(0.95) $(2.13) $(1.73)
======= ======= ======= =======
Weighted average basic and
diluted shares outstanding.................. 6,061 6,061 8,575 21,053
======= ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
1996 1997 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short term investments.... $18 $157 $24,612 $119,415
Working capital (deficit)............................ (253) (1,343) 22,918 114,544
Total assets......................................... 305 911 27,581 143,550
Long-term debt, less current
maturities........................................ 1,357 6,335 -- --
Redeemable convertible preferred stock............... -- -- 21,107 --
Total stockholders' equity (deficit)................. (1,433) (7,157) 2,417 111,414
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward-looking statements within the meaning of
Section 27(a) of the Securities Act of 1933, as amended, Section 21(E) of the
Securities Exchange Act of 1934, as amended, including, without limitation,
statements regarding our expectations, beliefs, intentions or future strategies
that are signified by the words "expects", "anticipates", "intends", "believes",
or similar language. All forward-looking statements included in this annual
report on Form 10-K are based on information available to us on the date hereof,
and we assume no obligation to update any such forward-looking statements. These
forward-looking statements are subject to risks and uncertainties which could
cause actual results to differ.
The following discussion and analysis should be read in conjunction
with the audited consolidated financial statements and notes thereto.
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. We combine 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 approximately
100 professional reporters and editors, together with over 30 outside
contributors, we update our site with original stories throughout each business
day and with many additional features on weekends. As a result, we are able to
provide our readers with original content that provides for a loyal and
increasing readership base.
We originally organized in June 1996 as a limited liability company
funded by our co-founders, Mr. James J. Cramer and Dr. Martin Peretz. In May
1998, we were re-organized from a limited liability company into a C
corporation, and in May 1999, we completed our initial public offering. We are
based in New York City with bureaus in San Francisco, Silicon Valley and London.
Mr. Kevin W. English, who served as our chairman and chief executive officer
since October 1998, resigned those positions on November 5, 1999. Mr. Thomas
Clarke, Jr., who was hired in October 1999 as president and chief operating
officer, was appointed chief executive officer on November 5, 1999. Mr. Fred
Wilson, who has served as a director since May 1998, was appointed chairman of
the board of directors on November 5, 1999.
In September 1999, TheStreet.com, Inc. and minority investors
including 3i, Barclays Capital, Chase Capital Partners, ETF Group, and Intel
invested a total of $17 million to form TheStreet.com (Europe) Limited, a
holding company majority owned by TheStreet.com. TheStreet.com owns
approximately 63% of the holding company. The Street.com transferred certain
assets consolidated at fair market value, including certain technologies and
trademarks valued at $9,000,000 and $1,000,000, respectively.
We currently derive our revenues from advertising and e-commerce,
retail and professional subscriptions, and other sources, including
advertising and sponsor revenues from TheStreet.com television show and
content syndication fees. Our two principal sources of revenue are generated
from advertisers and subscribers. During the fourth quarter of 1999, we
acquired ipoPros.com, Inc., a company with a subscription-based online web
site offering research, ratings, data and news about initial and secondary
stock offerings.
We have entered into a number of strategic relationships that
continue to help create brand awareness and increase subscription and
advertising revenues. We have subscription distribution agreements with third
parties such as E*TRADE and DLJdirect; e-commerce marketing partnerships with
First USA, LowestFare.com and NetStock Direct; content distribution
agreements with companies including Yahoo!, America Online and Intuit; and
joint ventures with media companies such as The New York Times Co. and Fox
News Network LLC. We made a majority investment in TheStreet.com (Europe)
Limited to form TheStreet.co.uk, a London-based counterpart to TheStreet.com.
In the fourth quarter of 1999, we entered into a joint venture with Ha'aretz
Group, a leading Israeli newspaper publisher, to make a strategic investment
in a new online news provider to cover Israel business and technology news.
As part of our joint venture with Fox News Network LLC, we launched a
weekly television show in July 1999, entitled "TheStreet.com," on the FOX News
Channel. The program features several of our editorial personalities along with
special guests from the financial community, and runs in three half-hour time
slots each weekend.
In addition to providing financial news and commentary, we have
developed indices listed on major stock exchanges to monitor the collective
performance of stocks in various sectors. In conjunction with the
Philadelphia Stock Exchange and the Susquehanna Investment Group, we created
TheStreet.com Internet Sector Index, an index of 20 Internet companies.
Options based on the index began trading in December 1998. In February 1999,
TheStreet.com and the American Stock Exchange created TheStreet.com
E-Commerce Index, an index of 15 electronic commerce companies. This index
has since been increased to 18 companies. In June 1999, TheStreet.com and the
American Stock Exchange created a third
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stock index,TheStreet.com E-Finance Index, an index of 11 electronic
finance companies. This index has since been increased to 14 companies.
We recently announced a new strategy to transform our current offering
of news and commentary into a network of free and paid sites under TheStreet.com
name. We aim to further develop a mass audience for our site by going free in
order to increase the number of unique visitors to the site and increase our
advertising and e-commerce revenues. We expect to begin implementing our new
strategy in the second quarter of 2000.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1999 AND 1998
NET REVENUES
Advertising and E-Commerce Revenues. Advertising and e-commerce
revenues increased from $2,544,000 for the twelve months ended December 31,
1998 to $7,897,000 for the twelve months ended December 31, 1999, due to an
increase in our sales of sponsorship, banner, and email advertisements. For
the twelve months ended December 31, 1998 and 1999, the majority of our
advertising and e-commerce revenues were derived from sponsorship contracts.
For the twelve months ended December 31, 1999, the top five
advertisers accounted for approximately 36% of our advertising and e-commerce
revenue, compared with approximately 65% for the twelve months ended December
31, 1998.
Subscription Revenues. Net subscription revenues increased from
$1,685,000 for the twelve months ended December 31, 1998 to $4,550,000 for
the twelve months ended December 31, 1999, due to the growth in our
subscriber base. During the twelve months ended December 31, 1999,
cancellation chargebacks and refunds accounted for approximately 4% of total
subscription revenues. For the twelve months ended December 31, 1999,
approximately 75% of our net subscription revenue was derived from annual
subscriptions.
Other Revenues. Other revenues increased from $394,000 for the
twelve months ended December 31, 1998 to $1,869,000 for the twelve months
ended December 31, 1999. For the twelve months ended December 31, 1998, our
other revenues were mainly derived from a syndication and hosting partnership
with ABCNEWS.com and Starwave (an affiliate of ABCNEWS.com). As part of this
arrangement, we agreed to syndicate a portion of our news content to
ABCNEWS.com in return for technology and hosting services from Starwave. This
arrangement ceased after our internal subscription management system became
operational in late May 1999. For the twelve months ended December 31, 1999,
other revenues consisted primarily of hosting and new syndication
arrangements with online and print media companies, barter revenues, revenues
from TheStreet.com television show, and revenues from one-time consulting
services related to content syndication. Barter revenue recognized during
1997, 1998 and 1999 was $0, $31,000 and $893,000, respectively. Barter
transactions are recognized at the fair value as determined by the comparable
advertising market rates at the time of the placement.
COST OF REVENUES. Cost of revenues increased from $3,955,000 for the twelve
months ended December 31, 1998 to $9,548,000 for the twelve months ended
December 31, 1999, primarily due to the growth of our editorial staff from 53
as of December 31, 1998 to 116 as of December 31, 1999. In addition, we have
experienced an increase in the number of outside contributors, data service
fees for editorial research, the number of new research tools made available
to our subscribers, and costs related to TheStreet.co.uk.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased from
$2,346,000 for the twelve months ended December 31, 1998 to $7,475,000 for
the twelve months ended December 31, 1999, primarily due to the commencement
of TheStreet.co.uk operations and other new product development initiatives,
increased expenses for contract programmers and developers, and an increase
in the headcount from 13 employees as of December 31, 1998 to 51 as of
December 31, 1999, which included staff for TheStreet.co.uk.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased from
$9,205,000 for the twelve months ended December 31, 1998 to $16,402,000 for
the twelve months ended December 31, 1999, primarily due to an increase in
headcount from 27 as of December 31, 1998 to 64 as of December 31, 1999,
an increase in print advertising, and increased content distribution fees.
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GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative costs
increased from $5,158,000 for the twelve months ended December 31, 1998 to
$15,121,000 for the twelve months ended December 31, 1999, primarily as a
result of an increase in headcount from 7 as of December 31, 1998 to 22 as of
December 31, 1999 and incurring additional costs to support the growth of our
business such as occupancy costs, moving expenses, professional service fees,
insurance costs, equipment depreciation, and administrative costs for
TheStreet.co.uk.
NONCASH COMPENSATION EXPENSE. During 1998 and the first six months of 1999,
we granted options to purchase shares of common stock at exercise prices that
were less than the fair market value of the underlying shares of common stock
on the date of grant. This resulted in noncash compensation expense over the
period that these specific options vest. For the twelve months ended December
31, 1999, we recorded $4,532,000 in noncash compensation expense related to
these options. This includes non-cash compensation recognized in connection
with Kevin English's departure from the Company on November 5, 1999. The
remaining noncash compensation expense beyond 1999 is currently estimated to
be $5.5 million.
INTEREST EXPENSE (INCOME) NET. For the twelve months ended December 31, 1998,
interest expense on loans from founders of the TheStreet.com, L.L.C. was
$389,000. In May 1998, the loans and remaining accrued interest were
converted into equity when TheStreet.com, L.L.C. converted into
TheStreet.com, Inc. For the twelve months ended December 31, 1998 interest
income was $161,000, primarily due to interest earned on the cash proceeds
from a private placement in May 1998. For the twelve months ended December
31, 1999, interest income was $4,415,000, primarily due to interest earned on
both the cash proceeds from our initial public offering and funds contributed
by private equity investors in TheStreet.co.uk.
INCOME TAXES. For the twelve months ended December 31, 1999, income taxes
were $95,000, primarily due to state and local income tax assessments. 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. 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.
MINORITY INTEREST. For the twelve months ended December 31, 1999, minority
interest was $808,000. This figure represents the loss attributable to the
minority interest in TheStreet.com (Europe) Limited held by outside
investors, which consists of results from operations offset by preferred
dividends on shares held by TheStreet.com (Europe) Limited investors.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997
NET REVENUES
Advertising Revenues. Advertising revenues increased from $118,000 for
the twelve months ended December 31, 1997 to $2,544,000 for the twelve months
ended December 31, 1998, due to the commencement of sponsorship sales, and
increased banner and email advertisement sales. During 1997, 100% of advertising
revenues were derived from the delivery of banner advertisements as a result of
monthly advertising agreements. During 1998, 86% of our advertising revenues
were derived from sponsorship contracts.
Subscription Revenues. Net subscription revenues increased from
$321,000 for the twelve months ended December 31, 1997, to $1,685,000 for the
twelve months ended December 31, 1998, due to the growth in our subscriber base.
Substantially all of the revenues in 1997 related to monthly subscriptions. In
1998, approximately 50% of our net subscription revenue was derived from annual
subscriptions. During 1998, cancellation chargebacks and refunds accounted for
approximately 2% of total subscription revenues.
Other Revenues. Other revenues increased from $150,000 for the twelve
months ended December 31, 1997, to $394,000 for the twelve months ended December
31, 1998. In 1997, other revenues consisted entirely of revenues derived from a
syndication and hosting partnership with ABCNEWS.com and Starwave (an affiliate
of ABCNEWS.com). As part of this arrangement, we agreed to syndicate a portion
of our news content to ABCNEWS.com in return for technology and hosting services
from Starwave. In 1998, we derived $300,000 from this agreement.
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COST OF REVENUES. Cost of revenues increased from $1,146,000 for the twelve
months ended December 31, 1997, to $3,955,000 for the twelve months ended
December 31, 1998, primarily as a result of the growth of our editorial staff
from 21 to 53, increased fees paid to outside contributors and increased
licensing fees.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased from
$402,000 for the twelve months ended December 31, 1997, to $2,346,000 for the
twelve months ended December 31, 1998, primarily as a result of the
construction of our new site during 1998, and growth in our staff from three
to 13. All product development costs were expensed as incurred.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased from
$2,189,000 for the twelve months ended December 31, 1997, to $9,205,000 for
the twelve months ended December 31, 1998, primarily due to a significant
advertising campaign in 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $2,210,000 for the twelve months ended December 31, 1997, to
$5,158,000 for the twelve months ended December 31, 1998, primarily as a
result of increased finance and administration costs to support the growth of
our business and higher rent payments to accommodate the increase in staff.
NONCASH COMPENSATION EXPENSE. During 1998, we granted options to purchase
shares of our common stock at exercise prices that were less than the fair
market value of the underlying shares of common stock. This resulted in
noncash compensation expense over the period that these specific options
vested. For the twelve months ended December 31, 1998, we recorded $90,000 in
noncash compensation expense related to these options.
INTEREST EXPENSE, NET. Net interest expense decreased from $405,000 for the
twelve months ended December 31, 1997 to $389,000 for the twelve months ended
December 31, 1998. In 1998, the interest on these loans was $383,000 from the
beginning of the year to May 1998, at which time 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 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.
LIQUIDITY AND CAPITAL RESOURCES. We currently invest in money market funds
and other short-term instruments that are highly liquid, of high-quality
investment grade, and have maturities of less than one year, with the intent
to make such funds readily available for operating purposes. As of December
31, 1999, our cash, cash equivalents and short-term investments, amounted to
$119,415,000, compared with $24,612,000 as of December 31, 1998.
We believe that our market risk exposures are immaterial as we do not
own instruments for trading purposes, and reasonable possible near-term changes
in market rates or prices will not result in material near-term losses in
earnings, material changes in fair values or cash flows for all instruments.
Cash used in operating activities was $4,371,000, $15,829,000, and
$23,335,000 for
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the twelve months ended December 31, 1997, 1998 and 1999, respectively. Cash
used in operating activities resulted primarily from net losses, and
increases in accounts receivable and other receivables, which were partially
offset by increases in accounts payable, accrued expenses, deferred revenue,
deferred rent and certain noncash charges.
Cash used in investing activities was $490,000, $334,000 and
$23,214,000 for the twelve months ended December 31, 1997, 1998, and 1999
respectively. During 1999, we purchased a minority interest in Business Net
Online, Ltd., and acquired ipoPros.com., Inc. We continue to acquire equipment
to increase capacity, enhance our web site, and develop TheStreet.co.uk site.
Cash provided by financing activities was $5,000,000, $40,618,000, and
$130,176,000 for the twelve months ended December 31, 1997, 1998, and 1999,
respectively. In 1997, the amount provided by financing activities represented
loans and investments from the founders. In 1998, the amount consisted primarily
of net proceeds from the private placement of equity securities in May and
December 1998. In 1999,the amount consisted of $4,000,000 as a result of
issuance of common stock in the first quarter of 1999; proceeds from the initial
public offering completed in May 1999 of 6,325,000 shares at a $19 offering
price per share, totaling $108,788,000, net of underwriting and offering
expenses; and funds contributed by private equity investors in the TheStreet.com
(Europe) Limited totaling $16,694,000.
We believe that the net proceeds from our initial public offering,
together with our current cash, will be sufficient to meet our anticipated cash
needs for at least the next 12 months. 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 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 materially adversely affect our business, results of operations 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, these equity securities might have rights,
preferences or privileges senior to those of our common stock.
YEAR 2000 COMPLIANCE
To date our systems and software have not experienced any material
disruption due to the onset of the Year 2000, and we have completed our Year
2000 preparedness activities. However, we cannot assure that we will not
experience disruptions in the future as a consequence of Year 2000 issues. We
cannot quantify the amount of our potential exposure, but do not believe it
to be material.
RISK FACTORS
WE HAVE A HISTORY OF LOSSES AND WE ANTICIPATE LOSSES WILL CONTINUE
As of December 31, 1999, we had an accumulated deficit of $47.7
million. We have not achieved profitability and expect to continue to incur net
losses in 2000 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 recently announced that we expect our U.S. operations to become
EBITDA-positive beginning in the second half of 2001, but we cannot guarantee
that this will happen. EBITDA is a measure of earnings before interest, taxes,
depreciation or amortization are taken into account. If we are unable to achieve
EBITDA-positive results beginning in the second half of 2001, the price of our
common stock may decrease.
RISKS ASSOCIATED WITH OUR NEW STRATEGY
CHANGES TO OUR NEW STRATEGY MAY HARM OUR BUSINESS
We recently announced that we plan to convert our main Web site to a
free site in the second quarter of 2000, accompanied by a network of free and
subscription sites. We may decide to change that strategy prior to
implementation, or we may decide to implement a
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different strategy. We believe the successful implementation of this new
strategy will increase our number of unique visitors and page views, and that
we will be able to increase our advertising revenues as a result. However, we
cannot assure you that we will be able to implement this strategy on schedule
and in a cost-effective manner or at all, or that the strategy will help us
attract significantly increased traffic, or that we will be able to increase
our advertising revenues as a result.
UNFORESEEN DEVELOPMENT DIFFICULTIES MAY HINDER OR PREVENT THE
IMPLEMENTATION OF OUR NEW STRATEGY
We expect to spend significant resources in re-launching our free
main site in the second quarter of 2000 and in enhancing our technological
infrastructure to accommodate the expected increase in traffic, but
unforeseen development difficulties could prevent us from implementing the
strategy on schedule or at all. The cost to implement our strategy, including
technology and related costs, could be higher than anticipated. Additionally,
the enhanced technological infrastructure may not support the anticipated
increase in traffic.
WE DEPEND ON THIRD PARTIES FOR ASSISTANCE IN TECHNOLOGICAL
IMPLEMENTATION
We are dependent on third parties, including technology consulting
firms, to help us implement the strategy and develop a forthcoming site
intended for investment professionals and active individual investors. If
these third parties are not able to fulfill their responsibilities to us on
schedule or if the technology developed by them for our use does not function
as anticipated, the implementation of our strategy may be delayed and the
cost of implementation may be higher than anticipated.
WE MAY HAVE DIFFICULTY INCREASING OUR CAPACITY TO SELL OUR INCREASED
ADVERTISING INVENTORY
We also plan to substantially increase the size of our advertising
sales force in order to sell the increased advertising inventory that would
result from having a network of multiple sites and from the expected increase
in traffic. However, if we are unable to quickly attract and integrate new
advertising sales staff and retain current staff, we may not be able to
increase or sustain our advertising revenues. Additionally, we expect that
our overall advertising rates will decrease under this strategy. If we are
unable to attract significantly increased traffic and advertising revenues
under this strategy, or if we are unable to successfully implement the
strategy on schedule and in a cost-effective manner, our business, results of
operations and financial condition could be materially adversely affected.
WE MAY HAVE DIFFICULTY RETAINING CURRENT SUBSCRIBERS AFTER WE GO FREE
We will seek to retain our current subscribers under our strategy and
attract new subscribers by marketing our subscription-based services to users of
our free content. We may not be able to retain our current subscribers and
attract additional subscribers in a cost-effective manner. If our subscription
base declines or our cost of subscriber acquisition increases, our business,
results of operations and financial condition could be materially adversely
affected.
WE FACE A POSSIBLE DECLINE IN OUR USER DEMOGRAPHIC AS WE ATTRACT A
LARGER MAINSTREAM AUDIENCE
Currently, our financially oriented readers provide 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. 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. However,
as our mainstream traffic increases, particularly in connection with the
implementation of our new strategy to offer our content for free, we expect
to experience dilution of our reader demographic, which would likely result
in a decrease in our ability to command premium advertising rates.
IF WE ARE UNABLE TO ATTRACT OR RETAIN QUALIFIED EDITORIAL STAFF AND OUTSIDE
CONTRIBUTORS, OUR BUSINESS COULD BE HARMED
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 editors and 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 editors and 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 editors and writers with appropriate
qualifications, our business, results of operations and financial condition
could be materially adversely affected.
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In addition, we believe that some of our writers, including Mr. James
J. Cramer, Mr. Herb Greenberg and Mr. Adam Lashinsky 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. Mr. Lashinsky has an employment agreement with us
that terminates in February 2003. If we lose the services of prominent members
of our editorial staff, including Mr. Greenberg or Mr. Lashinsky, 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. A significant reduction in the number of our subscribers or readers
could materially adversely affect our business, results of operations and
financial condition.
POTENTIAL FLUCTUATIONS IN OUR QUARTERLY FINANCIAL RESULTS MAKE FINANCIAL
FORECASTING DIFFICULT
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 is likely to decrease.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN PERSONNEL IN
KEY BUSINESS POSITIONS
Our future success depends upon our ability to attract and retain
personnel in key business positions. The loss of one or more of our key
personnel, or our inability to attract replacements, could materially
adversely affect our business, results of operations and financial condition.
A few of our employees have entered into non-competition agreements with us.
However, competition in the Internet industry is intense, and other employees
may leave us and work for our competitors or start their own competing
businesses.
Our ability to develop and maintain both our site and our corporate
computer network is dependent on our ability to recruit and retain technology
personnel. Certain technology employees have left the company to pursue new
opportunities and we will need to replace these employees. Competition for
skilled technologists is intense, and we may not be able to retain existing or
attract additional technology personnel with appropriate expertise.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
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.
WE DEPEND ON OUR TOP ADVERTISERS FOR A SIGNIFICANT PORTION OF OUR ADVERTISING
REVENUES, AND THE LOSS OF SEVERAL OF OUR TOP ADVERTISERS WOULD HARM OUR BUSINESS
In 1999, our top five advertisers accounted for approximately 36% of
our total advertising revenues. Our business, results of operations and
financial condition could be materially adversely affected by the loss of a
number of our top advertisers, and such a loss could be concentrated in a single
quarter. 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, as we convert our main
site to a free site, we believe our overall advertising rates will decrease. As
is typical in the advertising industry, our advertising contracts have
cancellation provisions.
OUR INTERNATIONAL EXPANSION INCREASES EXPENSES AND MAY CREATE COMPLIANCE AND
OPERATIONAL DIFFICULTIES
We are expanding our business into international markets.
TheStreet.co.uk, a site intended for investors in the United Kingdom and
majority owned by TheStreet.com, was launched in February 2000. However,
there can be no assurance that the site will continue to operate
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successfully, and delays or operational difficulties could adversely affect our
business, results of operations, and financial condition. The success of
TheStreet.co.uk depends on its ability to continue to finance ongoing
operations; attract and retain key personnel, advertisers, paid subscribers, and
strategic partners; prevent system failures; manage growth; and successfully
compete with other well-financed news organizations..
As we expand internationally, we will continue to incur significant
additional costs that will result in additional losses. Also, we will continue
to encounter many of the risks associated with international business expansion,
generally. These risks include, but are not limited to, language barriers,
cultural differences, changes in currency exchange rates, political and economic
instability, difficulties with regulatory compliance and difficulties with
enforcing contracts and other legal obligations.
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE
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:
- online services or web sites focused on business, finance and
investing, such as CBS.MarketWatch.com, CNBC.com, CNNfn.com, The Wall
Street Journal Interactive Edition, DowJones.com, SmartMoney.com;
Microsoft MSN MoneyCentral and The Motley Fool;
- publishers and distributors of traditional media, including print,
radio and television, such as The Wall Street Journal, Fortune,
Bloomberg Business Radio and CNBC;
- providers of terminal-based financial news and data, such as Bloomberg
Business News, Reuters News Service, Dow Jones Markets and Bridge News
Service;
- web "portal" companies, such as Yahoo! and America Online; and
- online brokerage firms, many of which provide financial and investment
news and information, such as Charles Schwab, E*TRADE and Merrill
Lynch.
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 more of their financial news and commentary 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.
A FAILURE TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH OTHER COMPANIES
COULD DECREASE OUR SUBSCRIBER AND READER BASE, WHICH MAY HARM OUR BUSINESS
We depend on establishing and maintaining subscription distribution
relationships with financial services firms and content syndication
relationships with high-traffic web sites for a significant portion of our
current subscriber and reader base. 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
or
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successfully renew relationships with these firms or sites on commercially
reasonable terms or at all. These relationships may not attract significant
numbers of subscribers or readers.
Many companies that we may approach for a strategic relationship or who
already have strategic relationships with us also provide 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.
FAILURE TO RETAIN AND INTEGRATE OUR ADVERTISING SALES FORCE COULD RESULT IN
LOWER ADVERTISING REVENUES
We depend on our internal advertising sales department to maintain
and increase our advertising sales, and as our main site becomes free and our
dependency on advertising revenue increases, we expect to expand our
advertising sales staff significantly. As of December 31, 1999, our U.S.
advertising sales department consisted of 16 employees and our U.K.
advertising sales department consisted of two employees. We will need to
quickly add and successfully integrate a number of new advertising sales
staff members under our new strategy. 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 sales personnel to become productive. Our business,
results of operations and financial condition could be materially adversely
affected if we do not effectively expand and maintain an effective
advertising sales department.
WE MAY BE UNABLE TO MANAGE OUR GROWTH, WHICH MAY HARM OUR BUSINESS
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, 1999, we had a total of 225 U.S.
employees, as compared to 100 employees as of December 31, 1998 and 33
employees as of December 31, 1997. As of December 31, 1999, TheStreet.co.uk
had 28 employees. We expect that the number of our employees both in the U.S.
and in the U.K. 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 MAY BE UNABLE TO GROW THROUGH ACQUISITIONS AND INTEGRATE FUTURE ACQUISITIONS
INTO OUR BUSINESS
We intend to pursue a growth strategy that may involve acquisitions of
other companies. However, we may be unable to successfully pursue and complete
acquisitions in a timely and cost-effective manner. Further, the pursuit and
integration of acquisitions will require substantial attention from our senior
management, which will limit the amount of time these individuals will have
available to devote to our existing operations. There can be no assurance that
we can successfully integrate these acquisitions into our business or implement
our plans without delay or substantial cost. In addition, future acquisitions by
us could result in the incurrence of debt and contingent liabilities, which
could have a material adverse effect upon our financial condition and results of
operations. Any failure or any inability to effectively manage and integrate
growth may have a material adverse effect on our financial condition and results
of operations.
INCREASES IN 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 expect our
reader base to increase significantly when our main site converts to a totally
free site. Accordingly, our web site must accommodate a
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<PAGE>
high volume of traffic, often at unexpected times. Although we are upgrading our
systems in connection with the launch of our network of sites, 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 THAT MAY RESULT IN REDUCED TRAFFIC, REDUCED
REVENUE AND HARM TO OUR REPUTATION
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. In February 2000,
our Internet-hosting agreement with Exodus Communications, Inc. was renewed, and
we currently continue to maintain all of our production servers at Exodus's New
Jersey data center. Our operations depend on Exodus's ability to protect its own
systems and our systems in its data center against damage from fire, power loss,
water damage, telecommunications failure, 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. In addition,
in September 1999, we entered into an agreement with USinternetworking, Inc.
under with USi provides us with a mirror site for partial disaster recovery in
the event of the failure of our primary systems. In December 1999, we did
experience a system failure that required us to use USi's mirror site for a
short period of time. Our own internal systems and operations, as well as those
of Exodus and USi, may be subject to damage or interruption from human error,
natural disasters, fire, water damage, power loss, telecommunication failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. 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 and e-commerce
partners. Many prominent web sites have recently been subjected to "distributed
denial-of-service" attacks, during which their servers were inundated with
requests for data, causing them to overload and preventing legitimate traffic
from getting through, which rendered the sites unresponsive to users for a
period of time. Like most other web sites, we may be vulnerable to such attacks
and other deliberate attempts to disrupt our technological operations. 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.
ANY FAILURE OF OUR INTERNAL SECURITY MEASURES OR BREACH OF OUR PRIVACY
PROTECTIONS COULD CAUSE US TO LOSE USERS AND SUBJECT US TO LIABILITY
Users who subscribe to our premium service are required to furnish
certain personal information (including name, email address and credit card
information) which we use to administer our services. After our conversion to
a free site, we will no longer need credit-card information to process
subscription payments for our main site, but we will continue to gather
credit card information for the subscription-based sites in our network. In
addition, we plan to collect registration information from users of our free
sites who wish to gain access to certain features of our site. If the
security measures that we use to protect personal information are
ineffective, we may lose users and our business may be harmed. Additionally,
we rely on security and authentication technology licensed from third parties
to perform real-time credit card authorization and verification. We cannot
predict whether technological developments could allow these security
measures to be circumvented. We may need to use significant resources to
prevent security breaches or to alleviate problems caused by any security
breaches. If we are not able to prevent all security breaches, our business,
results of operations and financial condition could be materially adversely
affected.
Our users depend on us to keep their personal information private and
not to disclose it to third parties. We therefore maintain a strict privacy
policy, under which we will not furnish, rent or sell to third parties any
personal information about our subscribers or other users. We have retained the
ability to modify the privacy policy at any time. Like
28
<PAGE>
most web sites that require some form of registration, we use "cookies" (small
data files placed by a web server on a user's hard drive to enable the server to
track the user's movement on the site) in order to help our subscribers navigate
throughout the site, and we use individual tracking information obtained from
the cookies for internal purposes, such as to administer subscriber accounts and
process purchases in our online store. In addition, companies that serve banners
and other advertisements on our site use their own cookies, enabling them to
limit the frequency with which a user is shown a particular ad. Some Internet
users and industry observers have expressed privacy concerns about cookies. If
our users perceive that we are not protecting their privacy, our business,
results of operations and financial condition could be materially adversely
affected.
DIFFICULTIES ASSOCIATED WITH OUR BRAND DEVELOPMENT MAY HARM OUR ABILITY TO
ATTRACT SUBSCRIBERS AND READERS
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. The new sites that we plan to introduce in
the second quarter of 2000 will not have widely recognized brands, and we
will need to increase awareness of these brands among potential users. We
cannot assure you that our efforts to build brand awareness will be cost
effective or successful.
FAILURE TO MAINTAIN OUR REPUTATION FOR TRUSTWORTHINESS MAY REDUCE THE NUMBER OF
OUR READERS, WHICH MAY HARM OUR BUSINESS
It is very important that we maintain our reputation as a trustworthy
news organization. The occurrence of events, including our misreporting a news
story or the non-disclosure of a stock ownership position 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.
POTENTIAL LIABILITY FOR INFORMATION DISPLAYED ON OUR WEB SITE MAY REQUIRE US TO
DEFEND AGAINST LEGAL CLAIMS, WHICH MAY CAUSE SIGNIFICANT OPERATIONAL
EXPENDITURES
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. We recently
introduced stock ticker-based message boards that allow users to post comments
about individual stocks. We undertake no obligation to moderate these message
boards, however potential liability for providers of message board services has
not yet been well-established. We may choose to allow our editorial staffers or
outside contributors to post on our boards, thus increasing our potential
liability. Our insurance may not adequately protect us against these claims.
YEAR 2000 COMPLICATIONS MAY DISRUPT OUR OPERATIONS AND HARM OUR BUSINESS
Many currently installed computer systems and software products were
coded during their production to accept only two-digit entries to identify a
year in the date code field. To date our systems and software have not
experienced any material disruption due to the onset of the Year 2000, and our
vendors and strategic partners have not reported experiencing any Year 2000
problems. However, because we and our subscribers and readers are dependent, to
a very substantial degree, upon the proper functioning of our and their computer
systems, any future occurrence of Year 2000 problems or the failure of our Year
2000 contingency plans 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.
FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR
BRAND-BUILDING EFFORTS AND ABILITY TO COMPETE EFFECTIVELY
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
29
<PAGE>
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 our trademarks in the United States and we have pending U.S. and
foreign 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. Failure to adequately protect our intellectual
property could harm our brand, devalue our proprietary content and affect our
ability to compete effectively. Further, defending our intellectual property
rights could result in the expenditure of significant financial and managerial
resources, which could materially adversely affect our business, results of
operations and financial condition.
WE MAY HAVE TO DEFEND AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, WHICH
MAY CAUSE SIGNIFICANT OPERATIONAL EXPENDITURES
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. We
incorporate 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.
Any infringement 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.
DIFFICULTIES IN DEVELOPING NEW AND ENHANCED SERVICES AND FEATURES FOR OUR WEB
SITE COULD HARM OUR BUSINESS
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. These
difficulties may include the loss of, or inability to obtain or maintain,
third-party technology license agreements. Furthermore, the new services we may
introduce could contain errors that are discovered after these services are
introduced. In these 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.
OUR ABILITY TO MAINTAIN AND INCREASE OUR READERSHIP DEPENDS 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:
- - inadequate network infrastructure;
- - security concerns;
- - inconsistent quality of service; and
- - 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 a number of 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 this information, which could materially
adversely affect our business, results of operations and financial condition.
A GENERAL DECLINE IN ONLINE ADVERTISING OR OUR INABILITY TO ADAPT TO TRENDS IN
ONLINE ADVERTISING COULD HARM OUR ADVERTISING REVENUES
No standards have been widely accepted to measure the effectiveness of
web
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<PAGE>
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 these 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. In addition, some Internet commentators, privacy advocates and
federal and state officials have recently suggested that legislation may be
needed to better safeguard online privacy, by the limitation or elimination
of the use of cookies or by other methods. If such legislation is passed, it
is likely to restrict the ability of online advertisers to target their ads,
which may result in a decrease in online advertising rates or online
advertising spending generally. Such a decrease 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 COULD INCREASE
OUR COSTS OF TRANSMITTING DATA AND INCREASE OUR LEGAL AND REGULATORY
EXPENDITURES AND COULD DECREASE OUR READERSHIP
Existing domestic and international laws or regulations and private
industry guidelines specifically regulate communications or commerce on the web.
Further, laws and regulations that address issues such as user privacy, pricing,
online content regulation, taxation of e-commerce transactions and the
characteristics and quality of online products and services are under
consideration by federal, state, local and foreign governments and agencies
and by private industry groups. 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. This 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.
CONCERNS ABOUT WEB SECURITY COULD REDUCE OUR ADVERTISING REVENUES, DECREASE OUR
READER BASE AND INCREASE OUR WEB SECURITY EXPENDITURES
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 against the
threat of security breaches or to alleviate problems caused by these breaches.
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SHARES ELIGIBLE FOR PUBLIC SALE AFTER OUR INITIAL PUBLIC OFFERING COULD
ADVERSELY AFFECT OUR STOCK PRICE
As of December 31, 1999, there were outstanding 25,248,434 shares of
our common stock. Of these shares, the shares sold in our initial public
offering are freely tradeable except for any shares purchased by our
"affiliates" as defined in Rule 144 under the Securities Act. The remaining
shares are "restricted securities," subject to the volume limitations and other
conditions of Rule 144 under the Securities Act.
Many of these restricted shares, because they were obtained in 1998
private placements by holders who are not affiliates of the Company, are now
eligible for sale under Rule 144. In addition, after the first anniversary of
our initial public offering, some holders of common stock will have the right
to request the registration of their shares under the Securities Act of 1933,
as amended. Upon the effectiveness of that registration statement, all shares
covered by that registration statement will be freely transferable. We cannot
predict if future sales of our common stock by these holders, 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.
CONTROL BY PRINCIPAL STOCKHOLDERS, OFFICERS AND DIRECTORS COULD ADVERSELY AFFECT
OUR STOCKHOLDERS
Our officers, directors and greater-than-five-percent stockholders
(and their affiliates), acting together, 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 common
stock.
VOLATILITY OF OUR STOCK PRICE COULD ADVERSELY AFFECT OUR STOCKHOLDERS
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 price at which they
bought them.
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 that company. The institution of similar 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.
ANTI-TAKEOVER PROVISIONS COULD PREVENT OR DELAY A CHANGE OF CONTROL
Provisions of our amended and restated certificate of incorporation and
amended and restated 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.
WE DO NOT INTEND 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements required by this item
are included in Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to
the Company's definitive Proxy Statement for its Annual Meeting of Stockholders
to be held in 2000, to be filed with the Securities and Exchange Commission
within 120 days after the end of the fiscal year covered by this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the Company's definitive Proxy Statement for its Annual Meeting of Stockholders
to be held in 2000, to be filed with the Securities and Exchange Commission
within 120 days after the end of the fiscal year covered by this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the Company's definitive Proxy Statement for its Annual Meeting of Stockholders
to be held in 2000, to be filed with the Securities and Exchange Commission
within 120 days after the end of the fiscal year covered by this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the Company's definitive Proxy Statement for its Annual Meeting of Stockholders
to be held in 2000, to be filed with the Securities and Exchange Commission
within 120 days after the end of the fiscal year covered by this Report.
33
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements:
See Index to Consolidated Financial Statements on page F-1.
2. Consolidated Financial Statement Schedules:
See Index to Consolidated Financial Statements on page F-1.
3. Exhibits:
The following exhibits are filed herewith or are incorporated
by reference to exhibits previously filed with the Commission:
Exhibit
Number Description
------- -----------
*3.1 Amended and Restated Certificate of Incorporation
3.2 Amended and Restated Bylaws
*4.1 Amended and Restated Registration Rights
Agreement, dated as of December 21, 1998,
among TheStreet.com and the stockholders
named therein.
*4.2 TheStreet.com Rights Plan
4.3 Amended and Restated 1998 Stock Incentive Plan
27.1 Financial Data Schedule
---------------
* Incorporated by reference to Exhibits to the Registrant's
Registration Statement on Form S-1 dated February 23, 1999
(File No. 333-72799).
(b) The Company filed no reports on Form 8-K for the year ended
December 31, 1999.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THESTREET.COM, INC.
Dated: March 30, 2000 By: /s/ Thomas J. Clarke
-------------------------------
Thomas J. Clarke
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons in the
capacities and on the dates indicated:
Signature and Title Date
/s/ Thomas J. Clarke March 30, 2000
- ------------------------------------------
Thomas J. Clarke
Chief Executive Officer and Director
/s/ Paul Kothari March 30, 2000
- ------------------------------------------
Paul Kothari
Chief Financial Officer
/s/ Leah Johnson March 30, 2000
- ------------------------------------------
Leah Johnson
Controller
/s/ Fred Wilson March 30, 2000
- ------------------------------------------
Fred Wilson
Chairman of the Board
/s/ Jerry Colonna March 30, 2000
- ------------------------------------------
Jerry Colonna
Director
/s/ James J. Cramer March 30, 2000
- ------------------------------------------
James J. Cramer
Director
/s/ Edward F. Glassmeyer March 30, 2000
- ------------------------------------------
Edward F. Glassmeyer
Director
/s/ Michael Golden March 30, 2000
- ------------------------------------------
Michael Golden
Director
/s/ Dave Kansas March 30, 2000
- ------------------------------------------
Dave Kansas
Director
/s/ Martin Peretz March 30, 2000
- ------------------------------------------
Martin Peretz
Director
/s/ Linda Srere March 30, 2000
- ------------------------------------------
Linda Srere
Director
35
<PAGE>
THESTREET.COM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants........................................................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999....................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1998 and 1999......................... F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended
December 31, 1997, 1998 and 1999................................................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1998 and 1999......................... F-8
Notes to Consolidated Financial Statements.........................................................................F-10
Schedule II - Valuation and Qualifying Accounts....................................................................
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TheStreet.com, Inc.:
We have audited the accompanying consolidated balance sheets of
TheStreet.com, Inc. (a Delaware corporation) and subsidiary as of December
31, 1998 and 1999 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in
the period ended December 31, 1999. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
TheStreet.com, Inc. and subsidiary as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
consolidated financial statements is presented for the purpose of complying
with the Securities and Exchange Commission's rules and is not part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic consolidated 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 2, 2000
F-2
<PAGE>
THESTREET.COM, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
------------------------ -----------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 24,611,958 $ 108,239,811
Short-term investments - 11,175,322
Accounts receivable, net of allowance for doubtful 811,419 2,467,164
accounts of $40,000 and $300,000 as of December 31,
1998 and December 31, 1999,
respectively.
Other receivables 663,137 2,607,162
Prepaid expenses and other current assets 687,639 4,122,057
------------------------ -----------------------
Total current assets 26,774,153 128,611,516
Property and equipment, net of accumulated depreciation 599,937 10,199,653
and amortization of $78,110 and $769,707 as of
December 31, 1998 and December 31, 1999, respectively.
Other assets 207,329 410,717
Goodwill and intangibles, net - 2,078,349
Long-term investment, at cost - 2,250,000
------------------------ -----------------------
Total assets $ 27,581,419 $ 143,550,235
======================== =======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 3,333 $ -
Accounts payable 1,927,065 4,290,538
Accrued expenses 1,250,577 6,675,541
Deferred revenue 675,513 2,858,945
Other current liabilities - 242,456
------------------------ -----------------------
Total current liabilities 3,856,488 14,067,480
Deferred rent 200,636 2,182,100
Minority interest - 15,886,741
------------------------ -----------------------
Total liabilities 4,057,124 32,136,321
------------------------ -----------------------
Commitments and Contingencies
Redeemable convertible Series B preferred stock; $0.01 21,106,898 -
par value; 9 1/2% cumulative; 345,366 and 0 shares
issued and outstanding as of December 31, 1998 and
1999, respectively.
Stockholders' equity
Common Stock; $0.01 par value;
</TABLE>
F-3
<PAGE>
<TABLE>
<S> <C> <C>
100,000,000 shares authorized; 13,763,838 and 137,638 252,484
25,248,434 shares issued and outstanding at December
31, 1998 and December 31, 1999, respectively.
Convertible Preferred Stock -
Series A; $0.01 par value; 9 1/2 % cumulative; 118,441
and 0 shares issued and outstanding as of December 31, 1,184 -
1998 and December 31, 1999, respectively.
Series C; $0.01 par value; 1,500 shares issued and 15
outstanding as of December 31, 1998 and 0 as of -
December 31, 1999.
Additional paid-in capital 16,349,199 174,363,323
Deferred compensation (1,578,000) (5,450,860)
Advertising receivable (10,042,062)
-
Accumulated comprehensive loss (20,618)
-
Accumulated deficit (12,492,639) (47,688,353)
------------------------ ------------------------
Total stockholders' equity 2,417,397 111,413,914
------------------------ ------------------------
Total liabilities and stockholders' equity $ 27,581,419 $ 143,550,235
======================== ========================
</TABLE>
The accompanying notes to financial statements are an integral part of
these consolidated balance sheets.
F-4
<PAGE>
THESTREET.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net revenues:
Advertising & E-Commerce revenues $117,652 $2,544,409 $ 7,897,044
Subscription revenues 320,682 1,685,446 4,549,924
Other revenues 150,400 393,511 1,869,231
------------------ ------------------ --------------------
Total net revenues 588,734 4,623,366 14,316,199
Cost of revenues 1,146,383 3,955,270 9,547,860
------------------ ------------------ --------------------
Gross profit (557,649) 668,096 4,768,339
------------------ ------------------ --------------------
Operating expenses:
Product development expenses 402,379 2,346,354 7,474,789
Sales and marketing expenses 2,188,968 9,204,711 16,402,079
General and administrative expenses 2,209,707 5,158,158 15,121,007
Noncash compensation expense - 90,000 4,531,869
------------------ ------------------ --------------------
Total operating expenses 4,801,054 16,799,223 43,529,744
------------------ ------------------ --------------------
Loss from operations (5,358,703) (16,131,127) (38,761,405)
Interest expense (405,748) (388,747) -
Interest income - 161,423 4,415,031
------------------ ------------------ --------------------
Loss before provision for income taxes
and minority interest (5,764,451) (16,358,451) (34,346,374)
Provision for income taxes - - 94,750
----------------- ----------------- -------------------
Loss before minority interest (5,764,451) (16,358,451) (34,441,124)
Minority interest - - 807,687
------------------ ------------------ --------------------
Net Loss $(5,764,451) $(16,358,451) $ (33,633,437)
================== ================== ====================
Net loss per share - basic and diluted $(0.95) $ (2.13) $ (1.73)
================== ================== ====================
Weighted average basic and diluted
shares outstanding 6,060,606 8,575,128 21,052,614
================== ================== ====================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
TheStreet.com
Statements of Stockholders' Equity (Deficit)
For the Years Ended December 31, 1997, 1998, and 1999
<TABLE>
<CAPTION>
Common Stock Series A Series C
------------ -------- -------- Additional
Par Paid in
Shares Value Shares Par Value Shares Par Value Capital
------ ----- ------ --------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 6,060,606 $60,606 1,500 $15 1,500 $15 $239,364
Issuance of warrants - - - - - - 41,000
Net Loss - - - - - - -
--------- ------ ------- ----- ----- --- --------------
Balance at December 31, 1997 6,060,606 60,606 1,500 15 1,500 15 280,364
Issuance of Common Stock 181,818 1,818 3,637
Capital Contribution - - - - - - 375,000
Net Loss from January 1, 1998
through may 7, 1998 - - - - - - -
Termination of LLC - - - - - - (12,815,014)
Conversion of Debt to Equity - - 116,941 1,169 11,692,786
Net Proceeds from Private Placement
in May 1998 3,418,333 34,183 - - - - 2,700,483
Net Proceeds from Private Placement
in December 1998 4,072,778 40,728 - - - - 12,177,606
Recognition of deferred compensation - - - - - - 1,668,000
Noncash compensation expense - - - - - - -
Accretion of Redeemable Convertible
Series B - - - - - - -
Preferred Stock to redemption value - - - - - - (481,270)
Exercise of Options 30,303 303 - - - - 606
Preferred stock dividends - - - - - - 747,001
Net loss from May 8, 1998 through
December 31, 1998 - - - - - - -
---------- ------- --------- ------- ------- ---- --------------
Balance at December 31, 1998 13,763,838 137,638 118,441 1,184 1,500 15 16,349,199
Issuance of Common Stock from
initial public offering and
conversion of Series A, B and C
preferred stock 6,325,000 63,250 (118,441) (1,184) (1,500) (15) 133,892,447
Issuance of Common Stock
</TABLE>
<TABLE>
<CAPTION>
Total
Accumulated Accumulated Other Deferred Advertising Stockholders'
Deficit Comprehensive Loss Compensation Receivable Equity (Deficit)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $(1,733,392) $- $- $- (1,433,392)
Issuance of warrants - - - - 41,000
Net Loss (5,764,451) - - - (5,764,451)
------------ --- ------------ --- -------------
Balance at December 31, 1997 (7,497,843) - - - (7,156,843)
Issuance of Common Stock - - - - 5.455
Capital Contribution - - - - 375,000
Net Loss from January 1, 1998
through may 7, 1998 (5,317,171) - - - (5,317,171)
Termination of LLC 12,815,014 -
Conversion of Debt to Equity - - - - 11,693,955
Net Proceeds from Private Placement
in May 1998 - - - - 2,734,666
Net Proceeds from Private Placement
in December 1998 - - - - 12,218,334
Recognition of deferred compensation - - (1,668,000) - -
Noncash compensation expense - - 90,000 - 90,000
Accretion of Redeemable Convertible
Series B - - - - -
Preferred Stock to redemption value
- - - - (481,270)
Exercise of Options 909
Preferred stock dividends (1,451,359) - - - (704,358)
Net loss from May 8, 1998 through
December 31, 1998 (11,041,280) - - - (11,041,280)
------------ --- ------------ --- -------------
Balance at December 31, 1998 (12,492,639) - (1,578,000) - 2,417,397
Issuance of Common Stock - - - - 133,954,498
Issuance of Common Stock
</TABLE>
F-6
<PAGE>
TheStreet.com
Statements of Stockholders' Equity (Deficit)
For the Years Ended December 31, 1997, 1998, and 1999
<TABLE>
<CAPTION>
Common Stock Series A Series C
------------ -------- -------- Additional
Par Paid in
Shares Value Shares Par Value Shares Par Value Capital
------ ----- ------ --------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
for acquisition 97,403 974 - - - - 1,557,474
Issuance of Common Stock for
advertising receivables and cash
1,320,901 13,209 - - - - 13,459,981
Accretion of Redeemable Convertible
Series B Preferred Stock to
redemption value
2,746,088 27,461 - - - - -
Recognition of deferred Compensation
- - - 8,409,733
Exercise of Options 995,204 9,952 694,489
Preferred Stock Dividends - - - - - - -
Noncash advertising expense - - - - - - -
Noncash compensation expense - - - - - - -
Other Comprehensive (loss) -
foreign currency translation - - - - - - -
Net loss - - - - - - -
----------- --------- --------- --------- ------- -----------------
Balance at December 31, 1999 25,248,434 $252,484 - - - $ $174,363,323
=========== ========= ========= ========= ======= =================
</TABLE>
<TABLE>
<CAPTION>
Total
Accumulated Accumulated Other Deferred Advertising Stockholders'
Deficit Comprehensive Loss Compensation Receivable Equity (Deficit)
------- ------------------ ------------ ---------- ----------------
<S> <C> <C> <C> <C> <C>
for acquisition - - - - 1,558,448
Issuance of Common Stock for
advertising receivables and cash - - - (12,000,000) 1,473,190
Accretion of Redeemable Convertible
Series B Preferred Stock to
redemption value - - - - 27,461
Recognition of deferred Compensation - - (8,409,733) - -
Exercise of Options - - - - 704,441
Preferred Stock Dividends (1,562,277) - - - (1,562,277)
Noncash advertising expense - - - 1,957,938 1,957,938
Noncash compensation expense - - 4,536,873 - 4,536,873
Other Comprehensive (loss) -
foreign currency - (20,618) - - (20,618)
translation
Net loss (33,633,437) - - - (33,633,437)
------------- --------- ------------ ------------- ------------
Balance at December 31, 1999 $(47,688,353) $(20,618) $(5,450,860) $(10,042,062) $111,413,914
============= ========= ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
<PAGE>
THESTREET.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Loss $(5,764,451) $ (16,358,451) $ (33,633,437)
Adjustments to reconcile net loss to net
cash used in operating activities:
Noncash compensation expense - 90,000 4,531,869
Noncash advertising expense - 1,957,938
-
Allowance for doubtful accounts - 40,000 260,000
Minority Interest - (807,687)
-
Depreciation and amortization 158,884 244,505 818,475
Noncash expense for warrants 41,000 - -
(Increase) decrease in accounts receivable (130,699) (720,720) (1,907,728)
(Increase) in other receivables and unbilled
revenue - (663,137) (1,942,874)
(Increase) decrease in prepaid expenses and
other current assets 58,054 (660,184) (3,434,418)
(Increase) in other assets (63,659) (122,035) (202,301)
Increase in accounts payable and accrued
expenses 1,102,763 1,695,955 6,653,443
Increase in deferred revenue 176,125 499,388 2,147,903
Increase in deferred rent 50,738 125,810 2,223,920
------------------------ --------------------- -----------------------
Net cash used in operating activities (4,371,245) (15,828,869) (23,334,897)
Cash Flows from Investing Activities:
Purchase of short-term investments - - (11,175,322)
Purchase of long-term investments - - (1,125,000)
Acquisition of subsidiary, net of cash
acquired - - (477,472)
Capital expenditures (490,429) (333,787) (10,435,845)
------------------------ --------------------- -----------------------
Net cash used in investing activities (490,429) (333,787) (23,213,639)
------------------------ --------------------- -----------------------
Cash Flows from Financing Activities:
Proceeds from sale of minority interest - - 16,694,428
Proceeds from issuance of common stock - 6,364 113,485,294
Net borrowings (repayments) under line of
credit - 3,333 (3,333)
Proceeds from notes payable 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 5,000,000 40,617,922 130,176,389
------------------------ --------------------- -----------------------
</TABLE>
F-8
<PAGE>
THESTREET.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net increase in cash 138,326 24,455,266 83,627,853
Cash and cash equivalents, beginning of year
18,366 156,692 24,611,958
------------------------ --------------------- -----------------------
Cash and cash equivalents, end of year $156,692 $ 24,611,958 $ 108,239,811
======================== ===================== =======================
</TABLE>
Supplemental Disclosures of Cash Flow Information:
<TABLE>
<S> <C> <C> <C>
Cash paid during the period for:
Income Taxes - $ - $ 94,750
Interest - $ 3,098 $ -
</TABLE>
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.
During 1999, the Company purchased a 19.9% interest in Business Net Online for
$2,250,000. Payment terms required $1,125,000 to be paid in 1999. As of December
31, 1999, the remaining balance of $1,125,000 was reflected in accrued expenses,
and will be paid in 2000.
During 1999, the Company issued 97,403 shares in connection with its purchase
of ipoPros.com
The accompanying notes are an integral part of these consolidated
financial statements.
F-9
<PAGE>
THESTREET.COM, INC.
NOTES TO CONSOLIDATED 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 ("Series A
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 common
stock split (See Note 8).
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.
CONSOLIDATION
The consolidated financial statements include the accounts of The Street.com,
Inc. and its 63% owned subsidiary The Street.co.uk (See Note 12). All
intercompany balances and transactions have been eliminated in consolidation.
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 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. The fair value of the content delivered and the fair value of the
technology and hosting services were both estimated by management to
F-10
<PAGE>
be approximately $300,000 during 1998 and, therefore, no gain or loss was
recognized as a result of these transactions.
Revenues from barter transactions are recognized in accordance with the
provisions of Accounting Principles Board Opinion No. 29 ("APB 29") during the
period in which the advertisements are displayed on the Company's Web site.
Under the provisions of APB 29, barter transactions are recorded at the fair
value of the goods or services received.
Barter revenue recognized during 1997, 1998, and 1999 was $0, $30,945 and
$893,000 respectively. Barter transactions are recognized at fair value as
determined by the comparable advertising market rates at the time of placement.
CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
The Company considers all short-term marketable equity securities with a
maturity of three months or less to be cash equivalents. Short-term
investments consist primarily of commercial paper and a certificate of
deposit with maturities of less than one-year. The certificate of deposit in
the amount of $1,400,000 serves as collateral for an outstanding letter of
credit, and is therefore restricted. A second Letter of Credit in the amount
of $2,000,000 was issued as security for one of our operating leases, and is
therefore restricted cash.
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). Leasehold improvements are amortized
using the straight-line method over the shorter of the respective lease term or
the estimated useful life of the asset.
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, 1999.
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.
FOREIGN CURRENCY EXCHANGE
The financial statements of all foreign subsidiaries were prepared in their
local currencies and translated into U.S. dollars based on the current exchange
rate at the end of the period for the balance sheet and an average rate for the
statement of operations. Translation adjustments are reflected in accumulated
comprehensive loss. The effects of applying Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" had no material impact on the
consolidated financial statements.
BUSINESS CONCENTRATIONS AND CREDIT RISK-
Financial instruments which subject the Company to concentrations of credit risk
consist
F-11
<PAGE>
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 SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings Per Share." Under the provisions of SFAS No. 128, 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.
ADVERTISING COSTS
Advertising costs are expensed as incurred. The Company expenses the production
costs of advertising the first time the advertising takes place. For the years
ended December 31, 1997, 1998, and 1999, advertising costs were $1,797,728,
$7,334,438, and $7,980,202, respectively.
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 8).
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because the
Company does not currently hold any derivative instruments and does not engage
in hedging activities, the Company expects the adoption of SFAS No. 133 will not
have a material impact on its financial position, results of operations, or cash
flows. The Company will be required to adopt SFAS No. 133 in fiscal 2001 in
accordance with SFAS No. 137, which delays the required implementation of SFAS
No. 133 for one year.
In March 1998, the Accounting Standards of Executive Committee (AcSEC) issued
Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. The adoption of SOP
98-1 did not have a material effect on its financial position, results of
operations, or cash flows.
On January 1, 1999, the Company adopted SOP 98-5 "Reporting on the cost
of Start-up Activities." SOP 98-5 requires that certain start-up expenses and
organization costs previously capitalized must now be expensed. The adoption of
this statement did not have a material effect on the financial statements.
(2) ACQUISITION
In December 1999, the Company acquired all of the outstanding stock of
ipoPros.com, Inc. The Company paid total consideration of approximately
$2,040,000 in cash and common stock. The acquisition has been accounted for
under the purchase method of accounting and, accordingly, the purchase price
has been allocated to the tangible and intangible net assets acquired and
liabilities assumed on the basis of their respective fair values on the
acquisition date. As a result of this acquisition, the Company has recorded
goodwill of approximately $1,928,000, which is the excess of net assets
acquired and is being amortized over a useful life of 3 years. In connection
with the acquisition, the founded and majority shareholder of ipoPros agreed
not to engage in activities on behalf of any U.S. organization.
The acquisition did not have a material effect on the results of operations
of the Company for the year-ended December 31, 1999. Costs in excess of net
assets acquired were recorded as intangible assets as follows:
<TABLE>
<CAPTION>
ipoPros.com
------------------------------
<S> <C>
Accounts receivable $ 2,942
Fixed assets 33,657
Other assets 17,579
</TABLE>
F-12
<PAGE>
<TABLE>
<S> <C>
Intangible assets 2,078,349
Current liabilities (92,292)
-----------
Total purchase price $ 2,040,235
===========
</TABLE>
(3) NET LOSS PER SHARE
As discussed in Note 1, 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>
1997 1998 1999
----------------- ------------------ -----------------
<S> <C> <C> <C>
Numerator:
Net loss ($5,764,451) ($16,358,451) ($33,633,437)
Preferred stock dividends - (1,451,359) (1,562,277)
Accretion of Redeemable Convertible
Series B
Preferred Stock - (481,270) (1,252,569)
----------------- ------------------ -----------------
Net loss available to
common shareholders ($5,764,451) ($18,291,080) ($36,448,283)
================= ================== =================
Denominator:
Weighted average basic and diluted
shares outstanding 6,060,606 8,575,128 21,052,614
================= ================== =================
Net loss per share - basic and diluted ($0.95) ($2.13) ($1.73)
================= ================== =================
</TABLE>
Outstanding options of 0, 1,497,286, and 2,688,980 for the periods ended
December 31, 1997, 1998 and 1999, respectively, have been excluded from the
above calculations as they would be antidilutive.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following-
<TABLE>
<CAPTION>
1998 1999
---------------- ----------------
<S> <C> <C>
Computer equipment $548,501 $5,056,494
Furniture and fixtures 129,546 901,580
Leasehold improvements - 5,011,286
---------------- ----------------
678,047 10,969,360
Less- Accumulated depreciation and amortization 78,110 769,707
---------------- ----------------
Property and equipment, net $599,937 $10,199,653
================ ================
</TABLE>
Depreciation and amortization expense aggregated $154,611, $229,547, and
$763,045 for the years ending 1997, 1998, and 1999, respectively.
During 1998, the Company entered into a sale leaseback transaction. Under this
transaction, assets with a net book value of $944,092 were sold at a loss of
$197,429.
(5) ACCRUED EXPENSES
Accrued expenses consist of the following-
<TABLE>
<CAPTION>
December 31
-------------------------------------------
1998 1999
--------------------- ------------------
<S> <C> <C>
Accrued bonuses $ 565,794 $1,276,178
Accrued long-term investment - 1,125,000
Accrued other 162,719 3,565,850
Accrued consulting fees 322,064 708,513
Accrued financing costs 200,000 0
--------- ----------
$1,250,577 $6,675,541
========== ==========
</TABLE>
F-13
<PAGE>
(6) 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) bore interest at the bank's prime lending rate
(8.5% at December 31, 1998). Interest is payable monthly and the agreement
matured in September 1999. The agreement includes certain financial covenants.
The line of credit matured in 1999 and was not renewed.
(7) 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,
1999, the Company incurred approximately $44.5 million of net operating loss
carryforwards available to offset future taxable income through 2014.
In accordance with SFAS No. 109, the Company recognized a deferred tax asset of
$17.8 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.
The provision for income taxes for the year ended December 31, 1999 primarily
represents various state income tax payments.
(8) STOCKHOLDERS' EQUITY
The total number of shares of all classes of stock which the Corporation is
authorized to issue is 110,000,000, consisting of 10,000,000 shares of preferred
stock, par value of $0.01 per share and 100,000,000 shares of common stock, par
value of $0.01.
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.
INITIAL PUBLIC OFFERING
On May 14, 1999, TheStreet.com completed its initial public offering (the
"IPO") and sold an aggregate of 6,325,000 shares of common stock to the public
(including 741,667 shares from TheStreet.com and 83,333 shares from Kevin
English, TheStreet.com's former Chairman of the Board, Chief Executive Officer
and President, pursuant to the exercise of the underwriters' overallotment
option). Net proceeds to TheStreet.com were $108,788,000, after deducting
underwriting discounts, commissions and expenses payable in connection with the
IPO. In connection with the IPO, all of the Company's redeemable and convertible
preferred stock, plus accumulated dividends, were converted into common stock.
EQUITY INVESTMENTS
On February 22, 1999, the Company sold 37,728 shares of Series B Preferred Stock
and 1,320,901 shares of Common Stock to The New York Times ("NYT") in exchange
for $3 million in
F-14
<PAGE>
cash and $12 million of advertising services. Under the agreement, the New York
Times and its affiliates will provide $12 million of advertising services over a
four-year period in return for its ownership position. Any unused portion of
these advertising services are payable in cash to the Company by NYT. The $12
million has been reflected in equity as an advertising receivable. The Company
has recorded advertising expense during 1999 based upon the best available
advertising contract rates being charged by NYT to advertisers spending
comparable amounts with a corresponding credit to the advertising receivable.
In February 1999 the Company sold 83,333 shares of Common Stock for $1 million.
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 Redeemable Convertible
Series B 9 1/2% Cumulative Preferred Stock ("Series B 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 Preferred Stock accumulate dividends annually at $9.50 per
share. These shares are senior to Common Stock and Series C Convertible
Preferred Stock ("Series C 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 B Preferred Stock also has a redemption feature whereby, at the option of
the holder, the Series B Preferred Stock may be redeemed at the liquidation
value of $100 per share plus accumulated dividends. The shares are redeemable
one-third per year beginning in June 2003 through June 2005. During 1998 and
1999, the Company recorded approximately $481,000 and $1,253,000, respectively
as a charge to additional paid in capital to accrete the Series B Preferred
Stock to its redemption value. In addition, the Series B Preferred Stock has
been increased by accumulated dividends which are payable under the redemption
feature.
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 were mandatorily converted to common stock upon the 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 Preferred Stock
and 4,072,778 shares of Common Stock to a group consisting of certain existing
stockholders and other investors. As 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. This amount was received in 1999.
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
F-15
<PAGE>
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.
F-16
<PAGE>
STOCK OPTIONS
Under the terms of the Company's 1998 Stock Option and Incentive Plan (the
"Stock Option Plan"), 4,400,000 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 Year Ended December 31, 1999
=================================== ===============================
<S> <C> <C>
Net loss, as reported ($16,358,451) ($33,633,437)
=================================== ===============================
Net loss, pro forma ($16,360,457) ($34,967,812)
=================================== ===============================
Basic and diluted loss per share, as reported ($2.13) ($1.73)
=================================== ===============================
Basic and diluted loss per share, pro forma ($2.13) ($1.80)
=================================== ===============================
</TABLE>
A summary of the activity of the Stock Option Plan is as follows-
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
--------------------- ------------------
<S> <C> <C>
Options outstanding, January 1, 1998 0 $ 0
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
Options granted 2,673,875 11.39
Options exercised (995,204) 0.93
Options cancelled (486,977) 2.59
--------------------- ------------------
Options outstanding, December 31, 1999 2,688,980 $ 10.60
===================== ==================
</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
option holder upon the option holder's exercise. During 1998 and 1999, the
stockholder delivered 136,364 and 60,606 shares respectively upon exercise of
the options which are reflected as cancellations in the above table.
There were no options granted prior to January 1, 1998. As of December 31, 1998
and December 31, 1999, 50,167 and 103,514, respectively, of the above options
were exercisable. The above options vest up to a four-year period and have terms
not to exceed 10 years. Generally, options are granted at fair market value with
exercise prices determined by the Company's Compensation Committee. For options
granted at less than fair market value, a compensation charge will be recognized
for the difference between the exercise price and fair market value over the
vesting period.
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 December 31, 1999
<S> <C> <C>
Expected option lives 4 years 4 years
</TABLE>
F-17
<PAGE>
<TABLE>
<S> <C> <C>
Risk-free interest rates 6.0% 6.0%
Expected Volatility 0% 25%
Dividend Yield 0% 0
</TABLE>
The results may not be representative of future periods.
The following table summarizes information about options outstanding at December
31, 1999.
<TABLE>
<CAPTION>
Options Outstanding
Weighted Average Remaining Weighted Average
Contractual Life Exercise Price
Range of Exercise Price Options Outstanding ---------------- --------------
----------------------- -------------------
<S> <C> <C> <C>
$0.03-0.03 105,758 3.4 $0.03
$0.15-0.15 385,188 3.9 0.15
$2.10-3.00 788,327 4.1 2.98
$9.00-12.00 40,997 4.2 11.02
$14.63-21.88 1,212,744 4.7 17.32
$22.13-31.75 105,800 4.5 27.40
$33.94-35.50 50,166 4.5 34.44
------
2,688,980 4.4 $10.60
</TABLE>
DEFERRED COMPENSATION
During 1998 and the first quarter 1999, the Company granted stock options with
exercise prices which were less than fair market value of the underlying shares
of common stock on the date of grant. As a result, the Company has recorded
deferred compensation of approximately $1,668,000 and $8,409,733 during December
31, 1998 and 1999 respectively. These amounts will be recognized as noncash
compensation expense over the remaining vesting period of the options, in the
amount of $1,745,000, $1,673,000, $1,652,000, and $380,000 for the years
ending December 31, 2000, 2001, 2002, and 2003, respectively.
(9) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company is committed under operating leases, principally for office space,
furniture and fixtures, and equipment. Certain leases are subject to rent
reviews and require payment of expenses under escalation clauses. Rent and
equipment rental expense were $160,257, $700,073, $2,968,184 for the three years
ended December 31, 1997, 1998, and 1999. Future minimum base rents under terms
of non-cancellable operating leases are as follows for the years ending December
31, -
<TABLE>
<CAPTION>
<S> <C>
2000 $3,937,704
2001 3,545,186
2002 2,766,536
2003 2,699,007
2004 2,674,709
Thereafter 11,236,145
</TABLE>
Minimum payments have not been reduced by minimum sublease rentals of $1,757,876
due in the future under non-cancellable subleases.
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 2003.
EMPLOYMENT AGREEMENTS
F-18
<PAGE>
The Company has employment agreements with certain of its officers. The
agreements provide for payments of approximately $1,706,000, $1,141,000,
$390,000, and $73,750 during December 31, 2000, 2001, 2002, and 2003
respectively, and expire at various dates through May 2003.
LETTERS OF CREDIT
A company controlled by a shareholder has guaranteed obligations under the
operating lease for the Company's office space. During 1999, the Company
released the shareholder of this obligation after providing a letter of credit
in the amount of approximately $1,400,000 to the landlord.
During 1999, the Company provided an irrevocable standby letter of credit in the
amount of $2,000,000 to one of its lessors as security for an operating lease.
(10) 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.
(11) 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 or 1999.
During 1999, the revenues derived from within the United States were
$14,316,000.
(12) LONG-TERM INVESTMENTS, AT COST
In September 1999, TheStreet.com, Inc. and minority investors including 3i,
Barclays Capital, Chase Capital Partners, ETF Group, and Intel formed
TheStreet.com (Europe) Limited, a holding company majority owned by
TheStreet.com. TheStreet.com owns approximately 63% of the holding company.
The Street.com transferred certain assets consolidated at fair market value,
including certain technologies and trademarks valued at $9,000,000 and
$1,000,000, respectively.
In December 1999, TheStreet.com, Inc. purchased a 19.99% interest in Business
Net Online Ltd., which plans to launch an online business publication serving
the Israeli market. As of December 31, 1999, approximately $1,125,000 of this
investment was unpaid and reflected in accrued expenses (see Note 5). The
investment is being accounted for on a cost basis.
(13) INVESTMENT IN THESTREET.CO.UK
In September 1999, TheStreet.com, Inc. and a syndicate of investors (the
"Syndicate") invested a total of $17 million in TheStreet.com (Europe) Limited.
Members of the Syndicate include Chase Capital Partners, Barclays Private
Equity, ETF Group, 3i, Intel Corporation and others. The terms of the
investment include the following:
(1) a preferred dividend of $5 million (plus interest) payable to the
Syndicate which will convert into shares upon a public offering of
shares or a sale of TheStreet.com (Europe) Limited;
(2) the license of certain intellectual property of TheStreet.com, Inc.
(including, without limitation, use of the name "TheStreet.com") to
TheStreet.com (Europe) Limited for $1 million;
(3) the transfer of certain software from TheStreet.com, Inc. to
TheStreet.com (Europe) Limited for $9 million; and
(4) the subscription by TheStreet.com, Inc. for a $10 million loan note,
the principal of and interest upon which will accrue and convert into
shares on a public offering or sale of TheStreet.com (Europe) Limited.
(14) SEGMENT INFORMATION
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. The chief
operating decision maker allocates resources and assesses the performance
associated with advertising, subscription or other activities on a
single-segment basis.
F-19
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Balance at Provisions Charged Write-offs Balance at End of
Beginning of Period to Expense Period
<S> <C> <C> <C> <C>
For the year ended December 31, 1997 $ 0 $ 0 $ 0 $ 0
For the year ended December 31, 1998 $ 0 $ 40,000 $ 0 $ 40,000
For the year ended December 31, 1999 $ 40,000 $ 260,000 $ 0 $ 300,000
</TABLE>
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
THESTREET.COM, INC.
A Delaware Corporation
Effective November 5, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - OFFICES.................................................................................1
Section 1. Registered Office........................................................1
Section 2. Other Offices............................................................1
ARTICLE II - MEETINGS OF STOCKHOLDERS...............................................................1
Section 1. Place of Meetings........................................................1
Section 2. Annual Meetings..........................................................1
Section 3. Special Meetings.........................................................2
Section 4. Quorum...................................................................2
Section 5. Proxies..................................................................3
Section 6. Voting...................................................................4
Section 7. Nature of Business at Meetings
of Stockholders..........................................................4
Section 8. List of Stockholders Entitled to Vote....................................5
Section 9. Stock Ledger.............................................................6
Section 10. Record Date..............................................................6
Section 11. Inspectors of Election...................................................7
ARTICLE III - DIRECTORS.............................................................................7
Section 1. Number and Election of Directors.........................................7
Section 2. Nomination of Directors..................................................8
Section 3. Vacancies................................................................9
Section 4. Duties and Powers.......................................................10
Section 5. Organization............................................................10
Section 6. Resignations and Removals
of Directors............................................................10
Section 7. Meetings................................................................11
Section 8. Quorum..................................................................11
Section 9. Actions of Board........................................................11
Section 10. Meetings by Means of Conference
Telephone...............................................................12
Section 11. Committees..............................................................12
Section 12. Compensation............................................................12
Section 13. Interested Directors....................................................13
ARTICLE IV - OFFICERS..............................................................................13
Section 1. General.................................................................13
Section 2. Election................................................................14
Section 3. Voting Securities Owned by the Corporation..............................14
Section 4. Chairman of the Board of Directors......................................14
Section 5. President...............................................................15
Section 6. Vice Presidents.........................................................15
i
<PAGE>
Section 7. Secretary...............................................................16
Section 8. Treasurer...............................................................16
Section 9. Assistant Secretaries...................................................17
Section 10. Assistant Treasurers....................................................17
Section 11. Other Officers..........................................................18
ARTICLE V - STOCK..................................................................................18
Section 1. Form of Certificates....................................................18
Section 2. Signatures..............................................................18
Section 3. Lost, Destroyed, Stolen or Mutilated Certificates.......................18
Section 4. Transfers...............................................................19
Section 5. Transfer and Registry Agents............................................19
Section 6. Beneficial Owners.......................................................19
ARTICLE VI - NOTICES...............................................................................20
Section 1. Notices.................................................................20
Section 2. Waivers of Notice.......................................................20
ARTICLE VII - GENERAL PROVISIONS...................................................................20
Section 1. Dividends...............................................................20
Section 2. Disbursements...........................................................21
Section 3. Fiscal Year.............................................................21
Section 4. Corporate Seal..........................................................21
ARTICLE VIII - INDEMNIFICATION.....................................................................21
Section 1. Power to Indemnify in Actions,
Suits or Proceedings Other than
Those by or in the Right of the
Corporation.............................................................21
Section 2. Power to Indemnify in Actions,
Suits or Proceedings by or in
the Right of the Corporation............................................22
Section 3. Authorization of Indemnification........................................23
Section 4. Good Faith Defined......................................................23
Section 5. Indemnification by a Court..............................................24
Section 6. Expenses Payable in Advance.............................................24
Section 7. Nonexclusivity of Indemnification
and Advancement of Expenses.............................................25
Section 8. Insurance...............................................................25
Section 9. Certain Definitions.....................................................25
Section 10. Survival of Indemnification and
Advancement of Expenses.................................................26
Section 11. Limitation on Indemnification...........................................26
Section 12. Indemnification of Employees and Agents.................................26
ii
<PAGE>
ARTICLE IX - AMENDMENTS............................................................................27
Section 1. Amendments..............................................................27
Section 2. Entire Board of Directors...............................................27
</TABLE>
iii
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
THESTREET.COM, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have
offices at such other places, both within and without the State of Delaware, as
the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for
the election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware, as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The annual meetings of
stockholders shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at which meetings the stockholders shall elect directors, and transact
such other business as may properly be brought before the meeting. Written
notice of the annual meeting stating the place, date and hour of
<PAGE>
the meeting shall be given to each stockholder entitled to vote at such meeting
not less than ten nor more than sixty days before the date of the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by
law or by the certificate of incorporation of the Corporation, as amended and
restated from time to time (the "Certificate of Incorporation"), special
meetings of stockholders, for any purpose or purposes, may be called by either
(i) the Chairman of the Board of Directors, (ii) the President, or (iii) the
Board of Directors in accordance with the provisions of the Certificate of
Incorporation in effect as of the date hereof. Such request shall state the
purpose or purposes of the proposed meeting. At a special meeting of the
stockholders, only such business shall be conducted as shall be specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise required by law or by
the Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder entitled to vote at the meeting not
2
<PAGE>
less than ten nor more than sixty days before the date of the meeting.
SECTION 5. PROXIES. Any stockholder entitled to vote may do so
in person or by his or her proxy appointed by an instrument in writing
subscribed by such stockholder or by his or her attorney thereunto authorized,
delivered to the Secretary of the meeting; PROVIDED, HOWEVER, that no proxy
shall be voted or acted upon after three years from its date, unless said proxy
provides for a longer period. Without limiting the manner in which a stockholder
may authorize another person or persons to act for him or her as proxy, either
of the following shall constitute a valid means by which a stockholder may grant
such authority:
(i) A stockholder may execute a writing authorizing another
person or persons to act for him or her as proxy. Execution may be
accomplished by the stockholder or his or her authorized officer,
director, employee or agent signing such writing or causing his or her
signature to be affixed to such writing by any reasonable means,
including, but not limited to, by facsimile signature.
(ii) A stockholder may authorize another person or persons to
act for him or her as proxy by transmitting or authorizing the
transmission of a telegram or other means of electronic transmission to
the person who will be the holder of the proxy or to a proxy
solicitation firm, proxy support service organization or like agent
duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided that any such telegram or other
means of electronic transmission must either set forth or be submitted
with information from which it can be determined that the telegram or
other electronic transmission was authorized by the stockholder.
Any copy, facsimile telecommunication or other reliable reproduction of the
writing or transmission authorizing another person or persons to act as proxy
for a stockholder may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used;
3
<PAGE>
PROVIDED that such copy, facsimile telecommunication or other reproduction shall
be a complete reproduction of the entire original writing or transmission.
SECTION 6. VOTING. At all meetings of the stockholders at
which a quorum is present, except as otherwise required by law, the Certificate
of Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the affirmative vote of the holders of a
majority of the total number of votes of the capital stock present in person or
represented by proxy and entitled to vote on such question, voting as a single
class. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his or her discretion,
may require that any votes cast at such meeting shall be cast by written ballot.
SECTION 7. NATURE OF BUSINESS AT MEETINGS OF STOCKHOLDERS. No
business may be transacted at an annual meeting of stockholders, other than
business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committee thereof), (b) otherwise properly brought before
the annual meeting by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (c) otherwise properly brought before the
annual meeting by any stockholder of the Company (i) who is a stockholder of
record on the date of the giving of the notice provided for in this Section 7
and on the record date for the determination of stockholders entitled to vote at
such annual meeting and (ii) who complies with the notice procedures set forth
in this Section 7.
In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form to the
Secretary of the Company.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Company not less than sixty (60) days nor more than ninety (90) days prior to
the anniversary date of the immediately preceding annual meeting of
stockholders; PROVIDED, HOWEVER, that
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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 so received not later than the close
of business on the tenth (10th) day following the day on which such notice of
the date of the annual meeting was mailed or such public disclosure of the date
of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of such stockholder,
(iii) the class or series and number of shares of capital stock of the Company
which are owned beneficially or of record by such stockholder, (iv) a
description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business and (v) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
No business shall be conducted at the annual meeting of
stockholders except business brought before the annual meeting in accordance
with the procedures set forth in this Section 7, PROVIDED, HOWEVER, that, once
business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this Section 7 shall be deemed to preclude
discussion by any stockholder of any such business. If the Chairman of an annual
meeting determines that business was not properly brought before the annual
meeting in accordance with the foregoing procedures, the Chairman shall declare
to the meeting that the business was not properly brought before the meeting and
such business shall not be transacted.
SECTION 8. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to
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vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
of the Corporation who is present.
SECTION 9. STOCK LEDGER. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 8 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
SECTION 10. RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the Board of
Directors and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall not be more than sixty nor less than ten days before the date
of such meeting; and (2) in the case of any other action, shall not be more
than sixty days prior to such other action. If no record date is fixed: (1)
the record date for determining stockholders entitled to notice of or to vote
at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting
is held; and (2) the record date for determining stockholders for any other
purpose shall be at the close
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of business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; PROVIDED, HOWEVER, that the Board of Directors
may fix a new record date for the adjourned meeting.
SECTION 11. INSPECTORS OF ELECTION. In advance of any meeting
of stockholders, the Board by resolution or the Chairman or President shall
appoint one or more inspectors of election to act at the meeting and make a
written report thereof. One or more other persons may be designated as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is present, ready and willing to act at a meeting of stockholders, the
Chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Unless otherwise required by law, inspectors may be officers, employees
or agents of the Corporation. Each inspector, before entering upon the discharge
of his or her duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his or
her ability. The inspector shall have the duties prescribed by law and shall
take charge of the polls and, when the vote is completed, shall make a
certificate of the result of the vote taken and of such other facts as may be
required by law.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of
Directors shall initially consist of eight members, which number may be changed
from time to time by resolution adopted by the Board of Directors, in accordance
with the provisions of Article V of the Amended and Restated Certificate of
Incorporation. Except as provided in Section 3 of this Article III, directors
shall be elected by the stockholders at the annual meetings of stockholders, and
each director so elected shall hold office until such director's successor is
duly elected and qualified, or until such director's death, or until such
director's earlier resignation or removal. Directors need not be stockholders.
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SECTION 2. NOMINATION OF DIRECTORS. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors of the Company, except as may be otherwise provided in the
Certificate of Incorporation with respect to the right of holders of preferred
stock of the Corporation to nominate and elect a specified number of directors
in certain circumstances. Nominations of persons for election to the Board of
Directors may be made at any annual meeting of stockholders, or at any special
meeting of stockholders called for the purpose of electing directors, (a) by or
at the direction of the Board of Directors (or any duly authorized committee
thereof) or (b) by any stockholder of the Company (i) who is a stockholder of
record on the date of the giving of the notice provided for in this Section 2
and on the record date for the determination of stockholders entitled to vote at
such meeting and (ii) who complies with the notice procedures set forth in this
Section 2.
In addition to any other applicable requirements, for a
nomination to be made by a stockholder, such stockholder must have given timely
notice thereof in proper written form to the Secretary of the Company.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Company (a) in the case of an annual meeting, not less than sixty (60) days nor
more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; PROVIDED, HOWEVER, 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 so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, 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.
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To be in proper written form, a stockholder's notice to the
Secretary must set forth (a) as to each person whom the stockholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class or series and number of shares of capital stock of
the Company which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Company which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the
Company unless nominated in accordance with the procedures set forth in this
Section 2. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
SECTION 3. VACANCIES. The filling of any vacancy on the Board
of Directors that results from an
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increase in the number of directors shall be governed by the Amended and
Restated Certificate of Incorporation. Whenever the holders of any one or more
class or classes or series of preferred stock of the Corporation shall have the
right, voting separately as a class, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall also be governed by the Amended and
Restated Certificate of Incorporation.
SECTION 4. DUTIES AND POWERS. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws required to be exercised or done by the stockholders.
SECTION 5. ORGANIZATION. At each meeting of the Board of
Directors, the Chairman of the Board of Directors, or, in his or her absence, a
director chosen by a majority of the directors present, shall act as Chairman.
The Secretary of the Corporation shall act as Secretary at each meeting of the
Board of Directors. In case the Secretary shall be absent from any meeting of
the Board of Directors, an Assistant Secretary shall perform the duties of
Secretary at such meeting; and in the absence from any such meeting of the
Secretary and all the Assistant Secretaries, the Chairman of the meeting may
appoint any person to act as Secretary of the meeting.
SECTION 6. RESIGNATIONS AND REMOVALS OF DIRECTORS. Any
director of the Corporation may resign at any time, by giving written notice to
the Chairman of the Board of Directors, the President or the Secretary of the
Corporation. Such resignation shall take effect at the time therein specified
or, if no time is specified, immediately; and, unless otherwise specified in
such notice, the acceptance of such resignation shall not be necessary to make
it effective. Except as otherwise required by law and subject to the rights, if
any, of the holders of shares of preferred stock then outstanding, any director
or the entire Board of Directors may be removed from office at any time, but
only for cause, and only by the affirmative vote of the holders of at least a
majority in
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voting power of the issued and outstanding capital stock of the Corporation
entitled to vote in the election of directors.
SECTION 7. MEETINGS. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Delaware. Regular meetings of the Board of Directors may be
held at such time and at such place as may from time to time be determined by
the Board of Directors and, unless required by resolution of the Board of
Directors, without notice. Special meetings of the Board of Directors may be
called by the Chairman of the Board of Directors, the Vice Chairman, if there be
one, or a majority of the directors then in office. Notice thereof stating the
place, date and hour of the meeting shall be given to each director either by
mail not less than forty-eight (48) hours before the date of the meeting, by
telephone, facsimile or telegram on twenty-four (24) hours' notice, or on such
shorter notice as the person or persons calling such meeting may deem necessary
or appropriate in the circumstances.
SECTION 8. QUORUM. Except as may be otherwise required by law,
the Certificate of Incorporation or these By-Laws, at all meetings of the Board
of Directors, a majority of the entire Board of Directors shall constitute a
quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting of the time
and place of the adjourned meeting, until a quorum shall be present.
SECTION 9. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
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SECTION 10. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 10 shall
constitute presence in person at such meeting.
SECTION 11. COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent permitted by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
SECTION 12. COMPENSATION. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary, or such other emoluments as the Board of Directors shall
from time to time determine. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
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SECTION 13. INTERESTED DIRECTORS. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because such person's or their
votes are counted for such purpose if (i) the material facts as to such person's
or their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to such person's or their relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee thereof or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be
chosen by the Board of Directors and shall include a President, a Secretary and
a Treasurer. The Board of Directors, in its discretion, may also choose a
Chairman of the Board of Directors (who must be a director) and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law, the Certificate of
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Incorporation or these By-Laws. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board of Directors, need such officers be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors at its first
meeting held after each Annual Meeting of Stockholders shall elect the officers
of the Corporation who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors; and all officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any Vice
President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. THE CHAIRMAN OF
THE BOARD OF DIRECTORS, IF THERE BE ONE, SHALL PRESIDE AT ALL MEETINGS OF THE
STOCKHOLDERS AND OF THE BOARD OF DIRECTORS. THE CHAIRMAN OF THE BOARD OF
DIRECTORS SHALL BE DESIGNATED BY A MAJORITY OF THE ENTIRE BOARD OF DIRECTORS.
EXCEPT WHERE BY LAW THE SIGNATURE OF
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THE PRESIDENT IS REQUIRED, THE CHAIRMAN OF THE BOARD OF DIRECTORS SHALL POSSESS
THE SAME POWER AS THE PRESIDENT TO SIGN ALL CONTRACTS, CERTIFICATES AND OTHER
INSTRUMENTS OF THE CORPORATION WHICH MAY BE AUTHORIZED BY THE BOARD OF
DIRECTORS. DURING THE ABSENCE OR DISABILITY OF THE PRESIDENT, THE CHAIRMAN OF
THE BOARD OF DIRECTORS SHALL EXERCISE ALL THE POWERS AND DISCHARGE ALL THE
DUTIES OF THE PRESIDENT. THE CHAIRMAN OF THE BOARD OF DIRECTORS SHALL ALSO
PERFORM SUCH OTHER DUTIES AND MAY EXERCISE SUCH OTHER POWERS AS FROM TIME TO
TIME MAY BE ASSIGNED TO HIM OR HER BY THESE BY-LAWS OR BY THE BOARD OF
DIRECTORS.
SECTION 5. PRESIDENT. The President shall, subject to the
control of the Board of Directors and, if there be one, the Chairman of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. The President shall execute all bonds, mortgages, contracts
and other instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, the President shall be the Chief Executive Officer of the
Corporation. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him or her by these
By-Laws or by the Board of Directors.
SECTION 6. VICE PRESIDENTS. At the request of the President or
in his or her absence or in the event of his or her inability or refusal to act
(and if there be no Chairman of the Board of Directors), the Vice President or
the Vice Presidents if there is more than one (in the order designated by the
Board of Directors) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors from time to time may
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prescribe. If there be no Chairman of the Board of Directors and no Vice
President, the Board of Directors shall designate the officer of the Corporation
who, in the absence of the President or in the event of the inability or refusal
of the President to act, shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President.
SECTION 7. SECRETARY. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision the Secretary shall be. If the Secretary
shall be unable or shall refuse to cause to be given notice of all meetings of
the stockholders and special meetings of the Board of Directors, and if there be
no Assistant Secretary, then either the Board of Directors or the President may
choose another officer to cause such notice to be given. The Secretary shall
have custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his or her signature. The
Secretary shall see that all books, reports, statements, certificates and other
documents and records required by law to be kept or filed are properly kept or
filed, as the case may be.
SECTION 8. TREASURER. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the
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Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer shall give
the Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of the office of Treasurer and for the restoration to the Corporation, in
case of the Treasurer's death, resignation, retirement or removal from office,
of all books, papers, vouchers, money and other property of whatever kind in the
Treasurer's possession or under control of the Treasurer belonging to the
Corporation.
SECTION 9. ASSISTANT SECRETARIES. Except as may be otherwise
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his or her
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of the Treasurer's disability or refusal to act, shall
perform the duties of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer. If required
by the Board of Directors, an Assistant Treasurer shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of the office
of Assistant Treasurer and for the restoration to the Corporation, in case of
the Assistant Treasurer's death, resignation, retirement or removal from office,
of all books, papers, vouchers, money and other property of
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whatever kind in the Assistant Treasurer's possession or under control of the
Assistant Treasurer belonging to the Corporation.
SECTION 11. OTHER OFFICERS. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation, (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such holder of stock in the Corporation.
SECTION 2. SIGNATURES. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
SECTION 3. LOST, DESTROYED, STOLEN OR MUTILATED CERTIFICATES.
The Board of Directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or such
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person's legal representative, to advertise the same in such manner as the Board
of Directors shall require and/or to give the Corporation a bond in such sum as
it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
SECTION 4. TRANSFERS. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, properly endorsed for transfer
and payment of all necessary transfer taxes; PROVIDED, HOWEVER, that such
surrender and endorsement or payment of taxes shall not be required in any case
in which the officers of the Corporation shall determine to waive such
requirement. Every certificate exchanged, returned or surrendered to the
Corporation shall be marked "Cancelled," with the date of cancellation, by the
Secretary or Assistant Secretary of the Corporation or the transfer agent
thereof. No transfer of stock shall be valid as against the Corporation for any
purpose until it shall have been entered in the stock records of the Corporation
by an entry showing from and to whom transferred.
SECTION 5. TRANSFER AND REGISTRY AGENTS. The Corporation may
from time to time maintain one or more transfer offices or agencies and registry
offices or agencies at such place or places as may be determined from time to
time by the Board of Directors.
SECTION 6. BENEFICIAL OWNERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
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ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, facsimile, telex or cable.
SECTION 2. WAIVERS OF NOTICE.
(a) Whenever any notice is required by law, the Certificate of
Incorporation or these By-Laws, to be given to any director, member of a
committee or stockholder, a waiver thereof in writing, signed, by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting, present by person or represented by proxy, shall constitute a waiver of
notice of such meeting, except where the person attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.
(b) Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the stockholders, directors or members of
a committee of directors need be specified in any written waiver of notice
unless so required by law, the Certificate of Incorporation or these By-Laws.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the requirements of the GCL
and the provisions of the Certificate of Incorporation, dividends upon the
capital stock of the Corporation may be declared by the Board of Directors at
any regular or special meeting of the Board of Directors, and may be paid in
cash, in property, or in shares of the Corporation's capital stock. Before
payment of any
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dividend, there may be set aside out of any funds of the Corporation available
for dividends such sum or sums as the Board of Directors from time to time, in
its absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for purchasing any of the shares of capital stock, warrants,
rights, options, bonds, debentures, notes, scrip or other securities or
evidences of indebtedness of the Corporation, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for any other
proper purpose, and the Board of Directors may modify or abolish any such
reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR
PROCEEDINGS OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject
to Section 3 of this Article VIII, the Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the Corporation) by reason of the fact that such person is or was a director
or officer of the Corporation, or is or was a director or officer of the
Corporation serving at the request of the Corporation as a director or
officer,
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employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, such person
had no reasonable cause to believe his or her conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that such person did not act in good faith and in a
manner which such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR
PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of
this Article VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director or officer of the Corporation, or is or was a director or officer of
the Corporation serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by such person
in connection with the defense or settlement of such action or suit if such
person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of the Corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case,
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such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders. To
the extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith, without
the necessity of authorization in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation, or, with respect to
any criminal action or proceeding, to have had no reasonable cause to believe
his or her conduct was unlawful, if such person's action is based on the records
or books of account of the Corporation or another enterprise, or on information
supplied to such person by the officers of the Corporation or another enterprise
in the course of their duties, or on the advice of legal counsel for the
Corporation or another enterprise or on information or records given or reports
made to the Corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Corporation or another enterprise. The term "another enterprise" as used in
this Section 4 shall mean any other corporation or any partnership, joint
venture,
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trust, employee benefit plan or other enterprise of which such person is or was
serving at the request of the Corporation as a director, officer, employee or
agent. The provisions of this Section 4 shall not be deemed to be exclusive or
to limit in any way the circumstances in which a person may be deemed to have
met the applicable standard of conduct set forth in Section 1 or 2 of this
Article VIII, as the case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director or officer may apply to the Court of Chancery of the State of Delaware
or any other court of competent jurisdiction in the State of Delaware for
indemnification to the extent otherwise permissible under Sections 1 and 2 of
this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because such person has met the applicable standards
of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article VIII nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT
OF EXPENSES. The indemnification and ad-
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vancement of expenses provided by or granted pursuant to this Article VIII shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under the Certificate
of Incorporation or any By-Law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by law. The provisions of this Article VIII shall not
be deemed to preclude the indemnification of any person who is not specified in
Section 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the GCL, or otherwise.
SECTION 8. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power or
the obligation to indemnify such person against such liability under the
provisions of this Article VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee
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benefit plan or other enterprise, shall stand in the same position under the
provisions of this Article VIII with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued. For purposes of this
Article VIII, references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the Corporation"
as referred to in this Article VIII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director or
officer (or his or her heirs, executors or personal or legal representatives) or
advance expenses in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors of the Corporation.
SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation
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similar to those conferred in this Article VIII to directors and officers of the
Corporation.
ARTICLE IX
AMENDMENTS
SECTION 1. AMENDMENTS. These By-Laws may be altered, amended
or repealed, in whole or in part, or new By-Laws may be adopted by the Board of
Directors or by the stockholders as provided in the Certificate of
Incorporation.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article
IX and in these By-Laws generally, the term "entire Board of Directors" means
the total number of directors which the Corporation would have if there were no
vacancies.
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Exhibit 4.3
THESTREET.COM, INC.
1998 STOCK INCENTIVE PLAN
AS AMENDED AND RESTATED AS OF NOVEMBER 1, 1999
SECTION 1 Purposes
The purpose of TheStreet.com, Inc. 1998 Stock Incentive Plan,
as amended and restated as of November 1, 1999 (the "Plan") is to enable
TheStreet.com, Inc. (the "Company") and its Related Companies (as defined below)
to attract, retain and reward employees, directors and consultants and
strengthen the existing mutuality of interests between such persons and the
Company's stockholders by offering such persons an equity interest in the
Company. For purposes of the Plan, a "Related Company" means any corporation,
partnership, joint venture or other entity in which the Company owns, directly
or indirectly, at least a 20% beneficial ownership interest.
SECTION 2 Types of Awards
Awards under the Plan may be in the form of (i) Stock Options;
(ii) Restricted Stock; and/or (iii) Tax Offset Payments.
SECTION 3 Administration
3.1 The Plan shall be administered by the Compensation
Committee of the Company's Board of Directors (the "Board") or such other
committee of directors as the Board shall designate (the "Committee"), which
shall consist of not less than two directors. The members of the Committee shall
serve at the pleasure of the Board.
3.2 The Committee shall have the following authority with
respect to awards under the Plan: to grant awards; to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as it
shall deem advisable; to interpret the terms and provisions of the Plan and any
award granted under the Plan; and to otherwise supervise the administration of
the Plan. In particular, and without limiting its authority and powers, the
Committee shall have the authority:
<PAGE>
(1) to determine whether and to what extent any award
or combination of awards will be granted hereunder;
(2) to select the employees, directors or consultants
to whom awards will be granted;
(3) to determine the number of shares of the common
stock of the Company (the "Stock") to be covered by each award granted
hereunder subject to the limitations contained herein;
(4) to determine the terms and conditions of any
award granted hereunder, including, but not limited to, any vesting or
other restrictions based on such performance objectives (the
"Performance Objectives") and such other factors as the Committee may
establish, and to determine whether the Performance Objectives and
other terms and conditions of the award are satisfied;
(5) to determine the treatment of awards upon an
award holder's retirement, disability, death, termination for cause or
other termination of employment or service;
(6) to determine that amounts equal to the amount of
any dividends declared with respect to the number of shares covered by
an award (i) will be paid to the employee currently or (ii) will be
deferred and deemed to be reinvested or (iii) will otherwise be
credited to the employee, or that the employee has no rights with
respect to such dividends;
(7) to amend the terms of any award, prospectively or
retroactively; provided, however, that no amendment shall impair the
rights of the award holder without his or her written consent; and
(8) to substitute new Stock Options for previously
granted Stock Options, or for options granted under other plans or
agreements, in each case including previously granted options having
higher option prices.
3.3 The Committee shall have the right to designate awards as
"Performance Awards." The grant or vesting of a Performance Award shall be
subject to the achievement of Performance Objectives established by the
Committee based on one or more of the following criteria, in each case applied
to the Company on a consolidated basis and/or to a business unit and which the
Committee may use
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as an absolute measure, as a measure of improvement relative to prior
performance, or as a measure of comparable performance relative to a peer group
of companies: sales, operating profits, operating profits before interest
expense and taxes, net earnings, earnings per share, return on equity, return on
assets, return on invested capital, total shareholder return, cash flow, debt to
equity ratio, market share, stock price, economic value added, and market value
added.
3.4 All determinations made by the Committee pursuant to the
provisions of the Plan shall be final and binding on all persons, including the
Company and Plan participants.
SECTION 4 Stock Subject to Plan
4.1 The total number of shares of Stock which may be issued
under the Plan shall be 4,400,000. Such shares may consist of authorized but
unissued shares or treasury shares.
4.2 To the extent a Stock Option terminates without having
been exercised, or shares awarded are forfeited, the shares subject to such
award shall again be available for distribution in connection with future awards
under the Plan. Shares of Stock equal in number to the shares surrendered in
payment of the option price, and shares of Stock which are withheld in order to
satisfy federal, state or local tax liability, shall not count against the above
limit, and shall again be available for grants under the Plan.
4.3 No employee shall be granted Stock Options, Restricted
Stock, or any combination thereof with respect to more than 1,000,000 shares of
Stock in any fiscal year (subject to adjustment as provided in Section 4.4). No
employee shall be granted a Tax Offset Payment in any fiscal year with respect
to more than the number of shares of Stock covered by awards granted to such
employee in such fiscal year.
4.4 In the event of any merger, reorganization, consolidation,
sale of substantially all assets, recapitalization, Stock dividend, Stock split,
spin-off, split-up, split-off, distribution of assets or other change in
corporate structure affecting the Stock, a substitution or adjustment, as may be
determined to be appropriate by the Committee or the Board in its sole
discretion, shall be made in the aggregate number of shares reserved for
issuance under the Plan, the number of shares as to which awards may be granted
to any individual in any fiscal year, the number of shares subject to
outstanding awards and the amounts to be paid by award holders or the
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Company, as the case may be, with respect to outstanding awards; provided,
however, that no such adjustment shall increase the aggregate value of any
outstanding award.
SECTION 5 Eligibility
Employees, directors, and consultants of the Company or a
Related Company are eligible to be granted awards under the Plan. Only employees
are eligible to be granted Incentive Stock Options. The participants under the
Plan shall be selected from time to time by the Committee, in its sole
discretion, from among those eligible.
SECTION 6 Stock Options
6.1 The Stock Options awarded to employees under the Plan may
be of two types: (i) Incentive Stock Options within the meaning of Section 422
of the Code or any successor provision thereto; and (ii) Non-Qualified Stock
Options. To the extent that any Stock Option does not qualify as an Incentive
Stock Option, it shall constitute a Non-Qualified Stock Option.
6.2 Subject to the following provisions, Stock Options awarded
under the Plan shall be in such form and shall have such terms and conditions as
the Committee may determine:
(1) OPTION PRICE. The option price per share of Stock
purchasable under a Stock Option shall be determined by the Committee,
and may be less than the fair market value of the Stock on the date of
the award of the Stock Option. For purposes of the Plan, "fair market
value" shall mean the closing price of a share of Stock on the NASDAQ
National Market on the trading day immediately preceding the date of
grant.
(2) OPTION TERM. The term of each Stock Option shall
be fixed by the Committee.
(3) EXERCISABILITY. Stock Options shall be
exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. The Committee may
waive such exercise provisions or accelerate the exercisability of the
Stock Option at any time in whole or in part.
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(4) METHOD OF EXERCISE. Stock Options may be
exercised in whole or in part at any time during the option period by
giving written notice of exercise, in such manner as may be determined
by the Company, specifying the number of shares to be purchased,
accompanied by payment of the purchase price. Payment of the purchase
price shall be made in such manner as the Committee may provide in the
award, which may include cash (including cash equivalents), delivery of
shares of Stock already owned by the optionee or subject to awards
hereunder, "cashless exercise", any other manner permitted by law
determined by the Committee, or any combination of the foregoing. If
the Committee determines that a Stock Option may be exercised using
shares of Restricted Stock, then unless the Committee provides
otherwise, the shares received upon the exercise of a Stock Option
which are paid for using Restricted Stock shall be restricted in
accordance with the original terms of the Restricted Stock award.
(5) NO STOCKHOLDER RIGHTS. An optionee shall have
neither rights to dividends or other rights of a stockholder with
respect to shares subject to a Stock Option until the optionee has
given written notice of exercise and has paid for such shares.
(6) SURRENDER RIGHTS. The Committee may provide that
options may be surrendered for cash upon any terms and conditions set
by the Committee.
(7) NON-TRANSFERABILITY. Unless otherwise provided by
the Committee, (i) Stock Options shall not be transferable by the
optionee other than by will or by the laws of descent and distribution,
and (ii) during the optionee's lifetime, all Stock Options shall be
exercisable only by the optionee or by his or her guardian or legal
representative.
(8) TERMINATION OF EMPLOYMENT. Following the
termination of an optionee's employment with the Company or a Related
Company, the Stock Option shall be exercisable to the extent determined
by the Committee. The Committee may provide different post-termination
exercise provisions with respect to termination of employment for
different reasons. The Committee may provide that, notwithstanding the
option term fixed pursuant to Section 6.2(b), a Stock Option which is
outstanding on the date of an optionee's death shall remain outstanding
for an additional period after the date of such death.
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6.3 Notwithstanding the provisions of Section 6.2, no
Incentive Stock Option shall (i) have an option price which is less than 100% of
the fair market value of the Stock on the date of the award of the Incentive
Stock Option, (ii) be exercisable more than ten years after the date such
Incentive Stock Option is awarded, or (iii) be awarded more than ten years after
May 6, 1998, the original effective date of the Plan. No Incentive Stock Option
granted to an employee who owns more than 10% of the total combined voting power
of all classes of stock of the Company or any of its parent or subsidiary
corporations, as defined in Section 424 of the Code, shall (A) have an option
price which is less than 110% of the fair market value of the Stock on the date
of award of the Incentive Stock Option or (B) be exercisable more than five
years after the date such Incentive Stock Option is awarded.
SECTION 7 Restricted Stock
Subject to the following provisions, all awards of Restricted
Stock to employees shall be in such form and shall have such terms and
conditions as the Committee may determine:
(1) The Restricted Stock award shall specify the
number of shares of Restricted Stock to be awarded, the price, if any,
to be paid by the recipient of the Restricted Stock and the date or
dates on which, or the conditions upon the satisfaction of which, the
Restricted Stock will vest. The grant and/or the vesting of Restricted
Stock may be conditioned upon the completion of a specified period of
service with the Company or a Related Company, upon the attainment of
specified Performance Objectives or upon such other criteria as the
Committee may determine.
(2) Stock certificates representing the Restricted
Stock awarded to an employee shall be registered in the employee's
name, but the Committee may direct that such certificates be held by
the Company or its designee on behalf of the employee. Except as may be
permitted by the Committee, no share of Restricted Stock may be sold,
transferred, assigned, pledged or otherwise encumbered by the employee
until such share has vested in accordance with the terms of the
Restricted Stock award. At the time Restricted Stock vests, a
certificate for such vested shares shall be delivered to the employee
(or his or her designated beneficiary in the event of death), free of
all restrictions.
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(3) The Committee may provide that the employee shall
have the right to vote or receive dividends on Restricted Stock. Unless
the Committee provides otherwise, Stock received as a dividend on, or
in connection with a stock split of, Restricted Stock shall be subject
to the same restrictions as the Restricted Stock.
(4) Except as may be provided by the Committee, in
the event of an employee's termination of employment before all of his
or her Restricted Stock has vested, or in the event any conditions to
the vesting of Restricted Stock have not been satisfied prior to any
deadline for the satisfaction of such conditions set forth in the
award, the shares of Restricted Stock which have not vested shall be
forfeited, and the Committee may provide that (i) any purchase price
paid by the employee shall be returned to the employee or (ii) a cash
payment equal to the Restricted Stock's fair market value on the date
of forfeiture, if lower, shall be paid to the employee.
(5) The Committee may waive, in whole or in part, any
or all of the conditions to receipt of, or restrictions with respect
to, any or all of the employee's Restricted Stock.
SECTION 8 Tax Offset Payments
The Committee may provide for a Tax Offset Payment by the
Company to an employee with respect to one or more awards granted under the
Plan. The Tax Offset Payment shall be in an amount specified by the Committee,
which shall not exceed the amount necessary to pay the federal, state, local and
other taxes payable with respect to the applicable award and the receipt of the
Tax Offset Payment, assuming that the employee is taxed at the maximum tax rate
applicable to such income. The Tax Offset Payment shall be paid solely in cash.
SECTION 9 Tax Withholding
Each award holder shall, no later than the date as of which
the value of an award first becomes includible in such person's gross income for
applicable tax purposes, pay, pursuant to such arrangements as the Company may
establish from time to time, any federal, state, local or other taxes of any
kind required by law to be withheld with respect to the award. The obligations
of the Company under the Plan shall be conditional on such payment, and the
Company (and, where applicable, any Related Company), shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the employee.
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SECTION 10 Amendments and Termination
The Plan is of unlimited duration. The Board may discontinue
the Plan at any time and may amend it from time to time. No amendment or
discontinuation of the Plan shall adversely affect any award previously granted
without the award holder's written consent. Amendments may be made without
stockholder approval except as required to satisfy regulatory requirements.
SECTION 11 Change of Control
11.1 In the event of a Change of Control, if so determined by
the Committee and specifically documented in either a special form of agreement
at the time of grant or an amendment to an existing agreement, in each case on
an individual-by-individual basis:
(1) all or a portion (as determined by the Committee)
of outstanding Stock Options awarded to such individual under the Plan
shall become fully exercisable and vested; and
(2) the restrictions applicable to all or a portion
(as determined by the Committee) of any outstanding Restricted Stock
awards under the Plan held by such individual shall lapse and such
shares shall be deemed fully vested.
11.2 A "Change of Control" means the happening of any
of the following:
(1) the acquisition by any person or group deemed a
person under Sections 3(a)(9) and 13(d)(3) of the Securities Exchange
Act of 1934 (the "Exchange Act") (other than the Company and its
subsidiaries as determined immediately prior to that date) of
beneficial ownership, directly or indirectly (with beneficial ownership
determined as provided in Rule 13d-3, or any successor rule, under the
Exchange Act), of a majority of the total combined voting power of all
classes of stock of the Company having the right under ordinary
circumstances to vote at an election of the Board of Directors of the
Company, if such person or group deemed a person prior to such
acquisition was not a beneficial owner of at least five percent (5%) of
such total combined voting power of the Company;
8
<PAGE>
(2) the election to the Board of Directors of the
Company of members as a result of which a majority of the Board of
Directors shall consist of persons who are not members of the Board of
Directors as of the date of grant;
(3) the date of approval by the stockholders of the
Company of an agreement providing for the merger or consolidation of
the Company with another corporation or other entity where (x)
stockholders of the Company immediately prior to such merger or
consolidation would not beneficially own following such merger or
consolidation shares entitling such stockholders to a majority of all
votes (without consolidation of the rights of any class of stock to
elect directors by a separate class vote) to which all stockholders of
the surviving corporation would be entitled in the election of
directors, or (y) where the members of the Board of Directors,
immediately prior to such merger or consolidation, would not,
immediately after such merger or consolidation, constitute a majority
of the board of directors of the surviving corporation; or
(4) the sale of all or substantially all of the
assets of the Company.
SECTION 12 General Provisions
12.1 If at any time the Committee determines that the delivery
of Common Stock under the Plan is or may be unlawful under the laws of any
applicable jurisdiction, the right to exercise any Stock Option or receive any
Restricted Stock shall be suspended until the Committee determines that such
delivery is lawful. The Company shall have no obligation to effect any
registration of qualification of the Common Stock under federal or state laws.
12.2 Any person exercising a Stock Option or receiving
Restricted Stock shall make such representations (including representations to
the effect that such person will not dispose of the Common Stock so acquired in
violation of federal and state securities laws) and furnish such information as
may, in the opinion of counsel for the Company, be appropriate to permit the
Company to issue the Common Stock in compliance with applicable federal and
state securities laws. The Committee may refuse to permit the exercise of such
Stock Option or delivery of such Restricted Stock until such representations and
information have been provided.
9
<PAGE>
12.3 The Company may place an appropriate legend evidencing
any transfer restrictions on all shares of Common Stock issued under the Plan
and may issue stop transfer instructions in respect thereof.
12.4 Nothing set forth in this Plan shall prevent the Board
from adopting other or additional compensation arrangements. Neither the
adoption of the Plan nor any award hereunder shall confer upon any employee of
the Company, or of a Related Company, any right to continued employment or
service as a director or consultant.
12.5 Determinations by the Committee under the Plan relating
to the form, amount, and terms and conditions of awards need not be uniform, and
may be made selectively among persons who receive or are eligible to receive
awards under the Plan, whether or not such persons are similarly situated.
12.6 No member of the Board or the Committee, nor any officer
or employee of the Company acting on behalf of the Board or the Committee, shall
be personally liable for any action, determination or interpretation taken or
made with respect to the Plan, and all members of the Board or the Committee and
all officers or employees of the Company acting on their behalf shall, to the
extent permitted by law, be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation.
10
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