<PAGE>
As filed with the Securities and Exchange Commission on December 23, 1999.
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
Register.com, Inc.
(Exact name of registrant as specified in its charter)
Delaware 7379 11-3239091
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification
number)
---------------
575 Eighth Avenue, 11th Floor
New York, NY 10018
Telephone: (212) 798-9100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Richard D. Forman
President and Chief Executive Officer
Register.com, Inc.
575 Eighth Avenue, 11th Floor
New York, NY 10018
Telephone: (212) 798-9100
(Name, address, including zip code, and telephone number, including area code
of agent for service)
---------------
Copies to:
Alexander D. Lynch, Esq. Stacy J. Kanter, Esq.
Scott L. Kaufman, Esq. Skadden, Arps, Slate, Meagher & Flom LLP
Brobeck, Phleger & Harrison LLP 919 Third Avenue
1633 Broadway, 47th Floor New York, NY 10024
New York, NY 10019 (212) 735-3000
(212) 581-1600
---------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
---------------
<PAGE>
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Amount of
Securities to be Registered Offering Price (1) Registration Fee
<S> <C> <C>
Common stock, par value $0.0001 per share ...... $80,000,000 $21,120
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o).
---------------
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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- --------------------------------------------------------------------------------
<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell and is not soliciting an offer
to buy these securities in any jurisdiction where the offer or sale is not
permitted.
Subject to Completion, Dated December 23, 1999
[Register.com Logo]
- --------------------------------------------------------------------------------
Register.com, Inc.
Shares
Common Stock
- --------------------------------------------------------------------------------
This is an initial public offering of common stock of Register.com, Inc. We
anticipate that the initial public
offering price will be between $___ and $___ per share.
We intend to apply to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "RCOM."
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Per Share Total
----------- --------
Public offering price $ $
Underwriting discounts and commissions $ $
Proceeds, before expenses, to Register.com $ $
We have granted the underwriters the right to purchase up to an additional
shares at the public offering price within 30 days from the date of this
prospectus to cover over-allotments.
Deutsche Banc Alex. Brown Thomas Weisel Partners LLC
Legg Mason Wood Walker
Incorporated
Wit Capital Corporation
The date of this prospectus is , 2000.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock we are selling in this
offering, including the risk factors and our financial statements and related
notes, included elsewhere in this prospectus.
Register.com, Inc.
Our Business
We are a leading provider of Internet domain name registration services
worldwide. Domain names, such as mybrand.com, are the equivalent of addresses
on the Internet and are registered through companies known as registrars.
Domain names serve as part of the infrastructure for Internet communications
and are one of the first steps for individuals and businesses seeking to
establish an online identity. We offer a quick and user-friendly registration
process, responsive and reliable customer support and a suite of value-added
products and services such as email, web hosting, domain name forwarding and
real-time domain name management. Our goal is to provide a one-stop solution
that enables our customers to establish, maintain and enhance their presence on
the Internet.
In June 1999, we became the first registrar other than Network Solutions,
Inc. to register domain names in the .com, .net and .org top level domains
directly on behalf of customers. We refer to registrars other than Network
Solutions as competitive registrars. For the three months ended September 30,
1999, we registered approximately 159,000 new domain names in the .com, .net
and .org domains, establishing us as the leading competitive registrar. We
estimate that this corresponds to approximately 10% of all new domain names
registered in these domains during this period.
We derive our revenues from domain name registration fees, online products
and services and advertising. Our net revenues for the three months ended
September 30, 1999 were $2.2 million, which represents a 44% increase in
revenues over the three months ended June 30, 1999.
Market Opportunity
As a result of the growth of the Internet and the introduction of
competition into the domain name registration industry, we believe there is
great potential for growth in the market for domain name registrations. We also
believe that this growth will be driven by individuals' and businesses' desire
for an online identity and brand, as well as the need to promote products,
services and events. We estimate that growth in global domain name
registrations in all top level domains will accelerate over the next few years
from approximately 11 million domain names registered through September 30,
1999 to approximately 140 million domain names by the end of 2003.
Our Solution
Registration Services. Our core expertise is providing domain name
registration services. We register domain names in the .com, .net and .org
domains and are able to register domain names in approximately 80 country code
domains in approximately 60 countries. In addition, through our Corporate
Register.com program, we offer corporations services targeted to their needs,
such as multiple domain name registrations and international brand protection.
Online Products and Services. We have assembled a suite of targeted
products and services to assist our customers with their online identities,
including email, web hosting and real-time domain management.
2
<PAGE>
Customer Service. Our customer support group seeks to provide dependable
and timely resolution of customer inquiries, 24 hours per day, seven days per
week. We manage and respond to customer inquiries through our internally
developed Internet-based customer care tracking system. We have teams of
customer service representatives who specialize in key aspects of our business,
and who are informed about our products, services and technology through our
ongoing training.
Distribution. We believe that our direct and indirect distribution
channels enable us to reach a broad range of potential customers with products
and services targeted to their needs and to increase our exposure across the
market. We provide our products and services directly to our customers through
our www.register.com website as well as our Corporate Register.com program. We
also offer domain name registration services indirectly through our network of
co-brand and private label websites, which include Internet service providers,
also known as ISPs, web-hosting companies and other companies whose websites
may appeal to our target customers. We provide our customers quick,
easy-to-use, value-added and flexible solutions across both of our distribution
channels.
Our Strategy
Our objectives are to continue to increase our share of domain name
registrations, to differentiate our products and services and to develop
long-term relationships with our customers by helping them to establish,
maintain and enhance their online presence. Our key strategies for achieving
these objectives include:
o introducing new products and services;
o enhancing brand awareness;
o extending distribution channels;
o expanding Corporate Register.com;
o pursuing strategic acquisitions;
o offering names in additional top level domains; and
o expanding internationally.
Our History
We were founded by Richard D. Forman, Peter A. Forman and Dan B. Levine as
Forman Interactive Corp., a New York corporation, on November 23, 1994. Forman
Interactive merged with and into Register.com, Inc., a Delaware corporation, on
June 25, 1999. Our principal executive offices are located at 575 Eighth
Avenue, 11th Floor, New York, New York 10018. Our telephone number at that
location is (212) 798-9100. References in this prospectus to "Register.com,"
"we," "our" and "us" refer to Register.com, Inc. and Forman Interactive.
--------------------
We maintain a corporate website at www.register.com. The contents of our
website are not part of this prospectus.
3
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered ...................................... shares
Common stock to be outstanding after the offering ......... shares
Use of proceeds ........................................... We plan to use the proceeds from
this offering for general corporate
purposes, including working capital,
and acquisitions and strategic
investments. Please see "Use of
Proceeds."
Proposed Nasdaq National Market symbol .................... RCOM
</TABLE>
The foregoing information is based on the shares outstanding as of
December 1, 1999. The total number of shares of common stock that we assume
will be outstanding after the offering excludes:
o 1,003,410 shares of common stock issuable upon the exercise of stock
options outstanding as of December 1, 1999, with a weighted average
exercise price of $3.33 per share;
o 164,480 shares of common stock issuable upon exercise of stock options
to be granted upon the consummation of this offering with an exercise
price equal to the initial public offering price of our common stock;
o 482,110 shares of common stock reserved for issuance under our stock
option plans; and
o 1,773,763 shares of common stock issuable upon exercise of outstanding
warrants with a weighted average exercise price of $5.23 per share.
Unless otherwise noted, the information in this prospectus assumes:
o the conversion of each outstanding share of our preferred stock into
one share of our common stock upon the consummation of this offering;
and
o no exercise of the underwriters' over-allotment option.
We intend to effect a stock split prior to the consummation of this
offering.
4
<PAGE>
Our Summary Financial Data
The following table summarizes financial data for our business. You should
read the summary financial data in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
financial statements and the notes to those financial statements included
elsewhere in this prospectus. The pro forma basic and diluted net loss per
share data give effect to the conversion of our Exchangeable Preferred Stock
and Series A Convertible Preferred Stock at the date of original issuance.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1995 1996 1997 1998
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues ...................... $ 87,696 $ 868,018 $ 713,263 $ 1,319,359
Gross profit ...................... 75,297 525,878 521,724 858,207
Operating expenses:
Sales and marketing ............. 166,330 935,495 366,975 863,720
Research and development ........ 102,901 390,814 71,471 276,687
General and administrative
(exclusive of non-cash
compensation ) ................. 94,704 743,609 263,017 795,425
Non-cash compensation ........... -- -- -- 149,682
---------- ------------ ---------- ------------
Total operating expenses ....... 363,935 2,069,918 701,463 2,085,514
Net loss .......................... $ (288,638) $ (1,714,076) $ (205,526) $ (1,160,748)
========== ============ ========== ============
Basic and diluted net loss per
share ........................... $ (0.23) $ (0.90) $ (0.08) $ (0.26)
========== ============ ========== ============
Weighted average common
shares used in basic and
diluted net loss per share ...... 1,265,674 1,895,401 2,538,488 4,484,680
========== ============ ========== ============
Pro forma basic and diluted net
loss per share ..................
Weighted average shares used
in pro forma basic and
diluted net loss per share ......
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<CAPTION>
Nine Months
Ended
September 30,
--------------------------------
1998 1999
-------------- ----------------
<S> <C> <C>
Statement of Operations Data:
Net revenues ...................... $ 790,995 $ 4,455,404
Gross profit ...................... 522,564 3,033,842
Operating expenses:
Sales and marketing ............. 624,751 4,615,621
Research and development ........ 153,934 1,093,672
General and administrative
(exclusive of non-cash
compensation ) ................. 628,032 954,422
Non-cash compensation ........... 149,682 4,572,257
---------- ------------
Total operating expenses ....... 1,556,399 11,235,972
Net loss .......................... $ (999,714) $ (7,783,064)
========== ============
Basic and diluted net loss per
share ........................... $ (0.23) $ (1.48)
========== ============
Weighted average common
shares used in basic and
diluted net loss per share ...... 4,350,796 5,248,029
========== ============
Pro forma basic and diluted net
loss per share .................. $ (1.31)
============
Weighted average shares used
in pro forma basic and
diluted net loss per share ...... 5,932,027
============
</TABLE>
The following table is a summary of our balance sheet at September 30,
1999. The pro forma as adjusted data give effect to the conversion of each
outstanding share of preferred stock into one share of common stock and the
sale of __________ shares of common stock offered hereby at an assumed initial
public offering price of $_______ per share, after deducting underwriting
discounts and commissions and estimated offering expenses payable by us.
September 30, 1999
-----------------------------
Pro Forma
Actual As Adjusted
-------------- ------------
Balance Sheet Data:
Cash and cash equivalents ......... $33,514,527 $
Working capital ................... 24,751,157
Total assets ...................... 43,124,904
Total liabilities ................. 20,688,638
Stockholders' equity .............. 22,436,266
5
<PAGE>
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider carefully the risks described below, together with the other
information contained in this prospectus, before you decide to buy our common
stock. If any of the following events actually occurs, our business, financial
condition and results of operations may suffer materially. As a result, the
market price of our common stock could decline, and you could lose all or part
of your investment in our common stock.
Risks Related to Our Industry and Our Business
We have a limited operating history as a domain name registrar and expect to
encounter difficulties faced by early-stage companies.
We only recently entered the domain name registration industry. In
February 1998, we began providing a consumer interface for registering domain
names in the .com, .net and .org domains and in country code domains by
forwarding the information we gathered from the consumer to Network Solutions
or the applicable country code registrars or registries. In June 1999, we began
to compete directly with Network Solutions for registrations in the .com, .net
and .org domains. Accordingly, we have only a limited operating history upon
which our current business and prospects can be evaluated, and our operating
results, since June 1999, are not comparable to our results for prior periods.
As a young company in a newly competitive and rapidly evolving industry, we
face risks and uncertainties relating to our ability to implement our business
plan successfully. These risks include our ability to:
o respond effectively to competitive pressures;
o accurately assess customer demand for our domain name registration and
other value-added products and services;
o expand the number of top level domains in which we offer registration
services to meet the changing needs of our customers;
o increase awareness of our brand;
o manage growth in our product and service offerings;
o continue offering responsive customer service, as demand for our
products and services increases;
o strengthen customer loyalty;
o maintain our current, and develop new, strategic relationships;
o continue to develop and upgrade our technology;
o attract and retain skilled personnel; and
o attract a large number of advertisers.
Our ability to implement our business strategy successfully is subject to many
risks and uncertainties that are beyond our control. We cannot assure you that
we will adequately address these risks and uncertainties or that our business
plan will be successful.
We have a history of losses and expect losses to continue for the foreseeable
future.
We have never been profitable. We have incurred substantial costs to
create and introduce our products and services, to operate these services, to
promote awareness of these products and services and our brand and to grow our
business. We incurred net losses of approximately $1.2 million for the year
ended December 31, 1998 and $7.8 million for the nine months ended September
30, 1999. As of September 30, 1999, our accumulated deficit
6
<PAGE>
totaled $11.2 million. We anticipate that our operating expenses will increase
substantially in the foreseeable future as we develop new products and
services, increase our sales and marketing operations, develop new distribution
channels and strategic relationships, improve our operational and financial
systems and broaden our customer service capabilities. Accordingly, although we
had positive cash flow from operations for the nine months ended September 30,
1999, we expect to incur additional losses for the foreseeable future, and
these losses are expected to increase significantly from current levels, which
in turn will increase our accumulated deficit. If we do become profitable in
the future, we cannot assure you that we will be able to sustain or increase
profitability.
The domain name registration industry is in its early stages of development
and, since April 1999, has been in a transitional phase to introduce
competition.
Before April 1999, the domain name registration system for the .com, .net
and .org domains was managed by Network Solutions pursuant to a cooperative
agreement with the U.S. government. In November 1998, the Department of
Commerce recognized the Internet Corporation for Assigned Names and Numbers,
commonly known as ICANN, to oversee key aspects of the Internet domain name
registration system. ICANN is a non-profit, international corporation that was
formed to oversee a select set of technical management functions relating to
the Internet. Although we believe that the measures adopted to date by the
Department of Commerce and ICANN have on balance benefited us, we cannot assure
you that any future measures will benefit us or that they will not have a
material adverse effect on our business, financial condition and results of
operations. In addition, we continue to face the risks that:
o the U.S. government may, for any reason, reassess its decision to
introduce competition into, or ICANN's role in overseeing, the domain
name registration market;
o the Internet community may become dissatisfied with ICANN and refuse to
recognize its authority or support its policies, which could create
instability in the domain name registration system; and
o ICANN may attempt to impose additional fees on registrars if it fails
to obtain funding sufficient to run its operations.
We may not be able to maintain or improve our competitive position because of
strong competition from Network Solutions.
Network Solutions' authorization by the U.S. government to act as the sole
domain name registrar prior to April 1999 in the .com, .net and .org domains
gives it a significant competitive advantage in the domain name registration
industry.
Before the recent introduction of competition into the domain name
registration industry, Network Solutions was the sole entity authorized by the
U.S. government to serve as the registrar for domain names in the .com, .net
and .org domains. This position allowed Network Solutions to develop a
substantial customer base, which gives it advantages in securing customer
renewals and in developing and marketing ancillary products and services.
Although we believe the introduction of competition into the market for domain
name registration services has caused this market to expand, we face
significant competition from Network Solutions as we seek to increase our
overall share of this market. For a more detailed discussion of the
introduction of competition in the domain name registration services industry,
see "Business--Administration of the Internet; Government Regulation and Legal
Uncertainties."
7
<PAGE>
Network Solutions' exclusive control over the registry for the .com, .net
and .org domains has given it an advantage over all competitive registrars.
The agreements among Network Solutions, ICANN and the U.S. Department of
Commerce have given Network Solutions the exclusive right to operate and
maintain the registry for the .com, .net and .org domains at least until
November 30, 2003. As the exclusive registry for these domains, Network
Solutions receives from us, and every other competitive registrar, $9 per
domain name per year for two-year registrations through January 14, 2000, and
$6 per domain name per year thereafter. Although registry fees may not be used
directly to fund Network Solutions' registrar business, the substantial net
revenues from these fees, and the certainty of receiving them, provide Network
Solutions significant advantages over any competitive registrar.
In addition, the agreements provide that if Network Solutions separates
its registry and registrar operations by May 9, 2001 and sells the registry
assets to a third party, the term of exclusivity for the third party extends
for an additional four years to November 30, 2007. If a sale of the registry
occurs, Network Solutions could use the proceeds of the sale, which we believe
would be substantial, to fund its registration operations and related product
and service offerings. We believe that any use of the proceeds to finance
Network Solutions registrar business would give it additional advantages and
could have a material adverse effect on our business, financial condition and
results of operations.
We also face competition from other competitive registrars and others in the
domain name registration industry and expect this competition to intensify.
When we began providing online domain name registrations in the .com, .net
and .org domains in June 1999, we were one of only five testbed competitive
registrars accredited by ICANN to interface with the Shared Registration
System. The Shared Registration System was designed to allow registrars to
interface directly with Network Solutions' registry for domain names. The
testbed period ended on November 30, 1999. Accordingly, we have virtually no
operating experience upon which our current business and prospects in a more
competitive market can be evaluated. As of December 21, 1999, ICANN has
accredited 70 competitive registrars to register domain names in the .com, .net
and .org domains. As of December 21, 1999, 22 of these competitive registrars
had actively begun to register domain names. An additional 28 companies have
qualified for accreditation but have yet to sign the agreements required by
ICANN and Network Solutions. We face substantial competition from competitive
registrars and others in that:
o many accredited registrars not currently registering domain names may
begin to do so in the near future;
o companies that are not accredited registrars may offer domain name
registrations through a competing accredited registrar's system; and
o ICANN may accredit new registrars to register domain names in the .com,
.net and .org domains.
Our competitors in the domain name registration industry include companies
with strong brand recognition and Internet industry experience, such as major
telecommunications firms, cable companies, ISPs, web-hosting providers,
Internet portals, systems integrators, consulting firms and other registrars.
Many of these companies also possess core capabilities to deliver ancillary
services, such as customer service, billing services and network management.
Our position as the leading competitive registrar could be harmed by any of
these existing or future competitors, some of which may have longer operating
histories, greater name recognition and greater financial, technical,
marketing, distribution and other resources than we do.
Our ability to register domain names in the .com, .net and .org domains depends
upon the continued availability and functionality of the Shared Registration
System.
The success of our business as a competitive registrar depends upon the
continued availability and functionality of the Shared Registration System,
which is maintained by
8
<PAGE>
Network Solutions, and its ability to adapt to an expanding market for domain
name registrations. As of December 21, 1999, there were 22 registrars
registering names through the Shared Registration System and an additional 76
that may begin using the system at any time. Because the Shared Registration
System has been in general use only since April 1999, we cannot assure you that
it will be able to handle the growing traffic generated by large numbers of
registrars or registrations. Our ability to provide domain name registration
services in the .com, .net and .org domains would be materially harmed by any
failure of the Shared Registration System to accommodate our registration needs.
We may also face competition from companies developing and marketing
alternative domain naming systems.
There are companies developing and marketing systems to direct Internet
traffic without using the existing domain name system. Widespread acceptance of
these alternative systems would eliminate the need to register a domain name to
establish an online presence and could materially adversely affect our
business, financial condition and results of operations.
Our near-term success depends upon sustaining the growth of our domain name
registration business.
Our domain name registration services business generated approximately 34%
of our net revenues during the nine months ended September 30, 1999, and we
expect it to account for an increasing portion of our net revenues in future
periods. Our revenue growth in recent periods may not, however, be indicative
of our future operating results. We may not be able to sustain in future
periods the rate of growth in domain name registrations that we have
experienced in recent periods. If we do not successfully maintain or improve
our current market position as a domain name registrar, our business, financial
condition and results of operations could be materially adversely affected.
We may be adversely affected if we are required to reduce the prices we charge
for our products and services.
Since competition in the domain name registration industry is in its early
stages, we cannot assure you that we will not be required, by market factors or
otherwise, to reduce, perhaps significantly, the prices we charge for our
domain name registration and related products and services. Further, some of
our competitors are offering domain name registrations for free and derive
their revenues from other sources. Reducing the prices we charge for domain
name registration services in order to remain competitive could materially
adversely affect our business, financial condition and results of operations.
We may be adversely affected if our customers do not renew their domain name
registrations through us.
The growth of our business depends in part on our customers' renewing
their domain name registrations through us. Having only recently become an
accredited registrar, we do not have any actual experience with registration
renewals. If our customers decide, for any reason, not to renew their
registrations through us, our business, financial condition and results of
operations would be materially adversely affected.
We may be adversely affected by the introduction of, or failure to introduce,
additional generic top level domains, such as .web, .firm and .store.
Our growth strategy includes offering domain name registration services in
new generic top level domains that may be introduced by ICANN, or another
approving entity, including .web, .firm and .store. We cannot assure you that
these new domains will be introduced, that we will be accredited to offer
registrations in these domains or that customers will rely on us
9
<PAGE>
to provide registration services within any new top level domains. Our
business, financial condition and results of operations may be adversely
affected by the failure to introduce additional generic top level domains or by
customers' turning to other registrars for these registration needs.
Our ability to register domain names in the .com, .net and .org domains depends
upon our continued accreditation by ICANN.
We need to be an ICANN-accredited registrar in order to register domain
names in the .com, .net and .org domains. Our current ICANN accreditation
agreement expires on April 26, 2000. While we anticipate that ICANN will renew
this agreement, we cannot assure you that it will do so. If ICANN does not
renew our accreditation, our business, financial condition and results of
operations would be materially adversely affected.
We depend upon third parties to provide a substantial number of the value-added
products and services we offer and if these third parties prematurely terminate
or fail to perform under the terms of their existing contracts, our net
revenues may decline.
Many of our arrangements with third parties who offer products and
services through our websites are short-term and can be modified or canceled
without penalty for any reason and with little or no notice. If a number of
these providers were to terminate, significantly reduce or modify their
business relationships with us or were to fail to perform their contractual
obligations, then our business, financial condition and results of operations
could be materially adversely affected.
If our customers do not find our expanded product and service offerings
appealing, our net revenues may not grow.
Part of our strategy includes offering value-added products and services
to our customers. We expect to incur significant costs in acquiring, developing
and marketing these new products and services. Our customers may not purchase
these products and services:
o if our products and services fail to meet their needs;
o if our competitors offer products and services that are comparable or
superior to ours or offer them before we do;
o if our competitors offer their products and services at more
competitive prices than we do; or
o if our customers prefer the selection of products and services offered
by our competitors.
If our customers elect not to purchase our products and services, our
anticipated net revenues may be below expectations, we may not generate
sufficient revenue to offset these related costs and our business, financial
condition and results of operations would be materially adversely affected.
Our failure to establish and maintain strategic online relationships that
generate a significant amount of traffic could limit the growth of our
business.
We expect that in the future a significant portion of our customers will
purchase their domain name registrations through our network of co-brand and
private label websites comprising our indirect distribution channel. If these
third parties do not attract a significant number of visitors to their
websites, we may not receive a significant number of customers from these
relationships and our net revenues may decrease or not grow. In addition, we
plan
10
<PAGE>
to enter into more of these relationships. Our net revenues may suffer if we
fail to enter into new relationships, expand our network or maintain existing
relationships or if these relationships do not result in a number of new
customers sufficient to justify their cost.
If we fail to meet minimum performance standards under our contracts with
customers, our customers may terminate their relationships with us.
Our service agreements with some of our customers require us to meet
minimum performance standards, including standards regarding the availability
and response time of our services. If we fail to meet these standards, our
customers may terminate their relationships with us and we could be subject to
damages.
Our net revenues and operating results may be subject to significant
fluctuation and these fluctuations may impair our business.
We believe that our future net revenues and operating results, both
annually and quarterly, may be subject to significant fluctuations due to a
variety of factors, many of which are beyond our control. These factors may
include:
o the introduction of additional competitive registrars or top level
domains;
o our responses to competitive pricing of domain name registration and
related products and services;
o fluctuations in the number of requests for domain name registrations or
demand for our other products and services;
o introduction, or enhancements, of new and existing products and
services by us or our competitors;
o market acceptance of our new product and service offerings;
o increased competition;
o costs associated with providing domain name registration and related
products and services;
o costs of our marketing campaign to build our brand;
o capital expenditures to establish facilities to sustain our growth;
o litigation costs;
o changes in or enforcement of government regulations and ICANN policies
affecting our business;
o patterns of growth in the use of and interest in the Internet; and
o general economic conditions.
You should not rely on period-to-period comparisons of our operating
results as indicators of future performance. In the event that our operating
results in any future period fall below the expectations of securities analysts
and investors, the trading price of our common stock would likely fall.
Rapid growth in our business could strain our managerial, operational,
financial, accounting and information systems, customer service staff and
office resources.
The anticipated future growth necessary to expand our operations will
place a significant strain on our managerial, operational, financial,
accounting and information systems, customer service staff and office
resources. In order to achieve our growth strategy, we will need to expand all
aspects of our business, including our computer systems and related
infrastructure,
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customer service capabilities and sales and marketing efforts. The demands on
our network infrastructure, technical staff and technical resources have grown
rapidly with our expanding customer base. We cannot assure you that our
infrastructure, technical staff and technical resources will adequately
accommodate or facilitate the anticipated growth of our customer base. We also
expect that we will need to continually improve our financial and managerial
controls, billing systems, reporting systems and procedures, and we will also
need to continue to expand, train and manage our workforce. If we fail to
manage our growth effectively, our business, financial condition and results of
operation could be materially adversely affected.
In addition, as we offer new products and services, we will need to
increase the size of and expand the training of our customer service staff to
ensure that they can adequately respond to customer inquiries. If we fail to
provide our customer service staff training and staffing sufficient to support
new products and services, we may lose customers who feel that their inquiries
have not adequately been addressed.
If we are unable to attract and retain highly qualified management and
technical personnel, we may not be able to execute our growth strategy and our
business may be harmed.
Our success depends in large part on the continued contributions of our
senior management team and technology personnel. Given the rapid growth of the
Internet, there has been intense competition for a limited pool of qualified
individuals. As a result, we may be unable to retain our key employees or
attract, integrate, train and retain other highly qualified employees in the
future. We face intense competition in hiring and retaining personnel from a
number of sectors, including technology and Internet companies. Many of these
companies have greater financial resources than we do to attract and retain
qualified personnel. If we fail to attract new personnel or retain and motivate
our current personnel, our business, financial condition and results of
operations could be materially adversely affected.
Our business may suffer if we are unable to successfully build awareness of our
brand name.
Building recognition of our brand is critical to attracting additional
traffic and customers to our website, new strategic alliances, acquisition
candidates, advertisers and employees. Our failure to promote and maintain our
brand successfully may result in price reductions and lower profit margins,
loss of customers, loss of market share and loss of strategic alliances.
Accordingly, we intend to continue pursuing an aggressive brand-enhancement
strategy, which includes mass market and multimedia advertising, promotional
programs and public relations activities. We intend to make significant
expenditures, over $25 million in 2000, on these advertising and promotional
programs and activities in the future. These expenditures may not result in a
sufficient increase in net revenues to cover our advertising and promotional
expenses. We cannot assure you that promoting our brand name will increase our
net revenues. Accordingly, if we incur expenses in promoting our brand without
a corresponding increase in our net revenues, our business, financial condition
and results of operations would be materially adversely affected.
Our failure to respond to the rapid technological changes in our industry may
harm our business.
If we are unable, for technological, legal, financial or other reasons, to
adapt in a timely manner to changing market conditions or customer
requirements, we could lose customers, strategic alliances and market share.
The Internet and electronic commerce are characterized by rapid technological
change. Sudden changes in user and customer requirements and preferences, the
frequent introduction of new products and services embodying new technologies
and the emergence of new industry standards and practices could render our
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existing products, services and systems obsolete. The emerging nature of
products and services in the domain name registration industry and their rapid
evolution will require that we continually improve the performance, features
and reliability of our products and services. Our success will depend, in part,
on our ability:
o to enhance our existing products and services;
o to develop and license new products, services and technologies that
address the increasingly sophisticated and varied needs of our current
and prospective customers; and
o to respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
The development of additional products and services and other proprietary
technology involves significant technological and business risks and requires
substantial expenditures and lead time. We may be unable to use new
technologies effectively or adapt our websites, internally developed technology
and transaction-processing systems to customer requirements or emerging
industry standards. Updating our technology internally and licensing new
technology from third parties may require us to incur significant additional
capital expenditures.
If we are unable to find suitable acquisition and investment candidates, our
growth strategy could be impeded.
Our growth strategy includes identifying and, from time to time, acquiring
or investing in suitable candidates on acceptable terms. Moreover, in pursuing
acquisition and investment opportunities, we may be in competition with other
companies having similar growth and investment strategies. Competition for
these acquisitions or investment targets could also result in increased
acquisition or investment prices and a diminished pool of businesses,
technologies, services or products available for acquisition or investment. Our
growth could be impeded if we fail to identify and acquire or invest in
promising candidates on terms acceptable to us.
Our acquisition strategy could subject us to significant risks, any of which
could harm our business.
Acquisitions involve a number of risks and present financial, managerial
and operational challenges, including:
o diversion of management attention from running our existing business;
o increased expenses, including compensation expenses resulting from
newly hired employees;
o adverse effects on our reported operating results due to possible
amortization of goodwill associated with acquisitions; and
o potential disputes with the sellers of acquired businesses,
technologies, services or products.
In addition, we may not be successful in integrating the business, technology,
operations and personnel of any acquired company. Performance problems with an
acquired business, technology, service or product could also have a material
adverse impact on our reputation as a whole. In addition, any acquired
business, technology, service or product could significantly underperform
relative to our expectations. For all these reasons, our pursuit of an overall
acquisition and investment strategy or any individual acquisition or investment
could have a material adverse effect on our business, financial condition and
results of operations.
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Our international expansion strategy could subject us to significant risks,
many of which could harm our business.
If we do not successfully manage our expansion into foreign markets, our
business may suffer. We intend to expand our operations internationally,
primarily through strategic alliances with non-U.S. ISPs and the creation of
local language websites. Operating internationally may require us to modify the
way we conduct our business and deliver our services in these markets. If we do
not appropriately anticipate changes and adapt our practices, our business,
financial condition and results of operations could be materially adversely
affected. We anticipate that we will face the following challenges
internationally:
o the burden and expense of complying with a wide variety of foreign laws
and regulatory requirements;
o potentially adverse tax consequences;
o longer payment cycles and problems in collecting accounts receivable
for products other than domain name registrations;
o technology export and import restrictions or prohibitions;
o tariffs and other trade barriers;
o political and economic instability;
o cultural and language differences;
o fluctuations in currency exchange rates;
o difficulties in staffing and managing foreign operations to the extent
any are established; and
o seasonal reductions in business activity, especially during the summer
months in Europe and certain other parts of the world.
If we fail to comply with the regulations of the country code registries, our
business may be materially adversely affected.
Each of the country code registries require registrars to comply with
specific regulations. Many of these regulations vary from country code to
country code. If we fail to comply with the regulations imposed by country code
registries, these registries may prohibit us from registering or continuing to
register names in their country codes. Any prohibitions restricting us from
offering domain name registrations in a significant number of country codes
could materially adversely affect our business, financial condition and results
of operations.
If country code registries fail or otherwise cannot process registrations or
related information, our business may be harmed.
Country code registries may be administered by the host country,
entrepreneurs or other third parties. If these registry businesses fail or are
otherwise prevented from processing domain name registrations or the related
information in country code top level domains, we may be unable to honor our
subscriptions with registrants who have registered, or are in the process of
registering, domain names in the applicable country code top level domain, and
our business, financial condition and results of operations could be materially
adversely affected.
We may not be able to obtain additional financing necessary to execute our
business strategy.
We currently believe that the net proceeds from this offering, together
with our cash balance and cash from operations, will be sufficient to fund our
working capital and capital
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expenditure requirements for at least the next 12 months. To the extent we
require additional funds to support our operations, for acquisitions or
investments or the expansion of our business, we may need to sell additional
equity, issue debt or convertible securities, obtain credit facilities through
financial institutions or obtain other sources of funding. We cannot assure you
that any additional funding, if required, will be available to us in amounts or
on terms acceptable to us. If sufficient funds are not available or are not
available on acceptable terms, our ability to fund our expansion, take
advantage of acquisition or investment opportunities, develop or enhance our
products and services or otherwise respond to competitive pressures would be
significantly limited.
We may not be able to protect and enforce our intellectual property rights or
protect ourselves from the intellectual property claims of third parties.
We may be unable to protect and enforce our intellectual property rights
from infringement.
We rely upon copyright, trade secret and trademark law, invention
assignment agreements and confidentiality agreements to protect our proprietary
technology, processes and other intellectual property to the extent that
protection is sought or secured at all. We do not have, and have not applied
for, patents on any of our technologies or processes. While we typically enter
into confidentiality agreements with our employees, consultants and strategic
partners, and generally control access to and distribution of our proprietary
information, we cannot ensure that our efforts to protect our proprietary
information will be adequate to protect against infringement and
misappropriation of our intellectual property by third parties, particularly in
foreign countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.
Furthermore, because the validity, enforceability and scope of protection
of proprietary rights in Internet-related industries is uncertain and still
evolving, we cannot assure you that we will be able to defend our proprietary
rights. In addition to being difficult to police, once any infringement is
detected, disputes concerning the ownership or rights to use intellectual
property could be costly and time-consuming to litigate, may distract
management from operating the business and may result in our losing significant
rights and our ability to operate our business.
We cannot assure you that third parties will not develop technologies or
processes similar or superior to ours.
We cannot ensure that third parties will not be able to independently
develop technology, processes or other intellectual property that is similar to
or superior to ours. The unauthorized reproduction or other misappropriation of
our intellectual property rights, including copying the look, feel and
functionality of our website, could enable third parties to benefit from our
technology without our receiving any compensation and could materially
adversely affect our business, financial condition and results of operations.
We may be subject to claims of alleged infringement of intellectual
property rights of third parties.
We do not conduct comprehensive patent searches to determine whether our
technology infringes patents held by others. In addition, technology
development in Internet-related industries is inherently uncertain due to the
rapidly evolving technological environment. As such, there may be numerous
patent applications pending, many of which are confidential when filed, with
regard to similar technologies. Third parties may assert infringement claims
against us and these claims and any resultant litigation, should it occur,
could subject us to significant liability for damages. Even if we prevail,
litigation could be time-consuming and expensive to defend, and could result in
the diversion of management's time and attention. Any claims from third parties
may also result in limitations on our ability to use the intellectual
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property subject to these claims unless we are able to enter into agreements
with the third parties making these claims. Such royalty or licensing
agreements, if required, may be unavailable on terms acceptable to us, or at
all. If a successful claim of infringement is brought against us and we fail to
develop non-infringing technology or to license the infringed or similar
technology on a timely basis, it could materially adversely affect our
business, financial condition and results of operations.
As a registrar of domain names and a provider of web-hosting services, we
may be subject to various claims, including claims from third parties asserting
that their rights have been infringed by domain names registered or websites
hosted on behalf of other parties.
We may be subject to various claims, including trademark infringement,
unfair competition and violations of publicity and privacy rights, to the
extent that such parties consider their rights to be violated by the
registration of particular domain names by other parties or our hosting of
third-party websites. If these claims against us are successful, our business,
financial condition and results of operations could be materially adversely
affected.
We may be held liable if third parties misappropriate our users' personal
information.
A fundamental requirement for online communications is the secure
transmission of confidential information over public networks. If third parties
succeed in penetrating our network security or otherwise misappropriate our
customers' personal or credit card information, we could be subject to
liability. Our liability could include claims for unauthorized purchases with
credit card information, impersonation or other similar fraud claims as well as
for other misuses of personal information, including for unauthorized marketing
purposes. These claims could result in litigation and adverse publicity which
could have a material adverse effect on our business, financial condition and
results of operations, as well as our reputation.
In addition, the Federal Trade Commission and state agencies have been
investigating various Internet companies regarding their use of personal
information. We could have additional expenses if new regulations regarding the
use of personal information are introduced or if our privacy practices are
investigated.
We may incur significant expenses related to the security of personal
information online.
The need to securely transmit confidential information online has been a
significant barrier to electronic commerce and online communications. Any
well-publicized compromise of security could deter people from using online
services such as the ones we offer, or from using them to conduct transactions
that involve transmitting confidential information. Because our success depends
on the acceptance of online services and electronic commerce, we may incur
significant costs to protect against the threat of security breaches or to
alleviate problems caused by these breaches.
We may be held liable for Year 2000 problems relating to one of our former
product offerings.
From July 1995 until October 1998, we sold Internet Creator, a website
creation and management software program. We later offered this product to our
web-hosting customers at no cost. Although we have conducted usability tests to
confirm to our satisfaction that Internet Creator is Year 2000 compliant, we
cannot be certain that users of the product will not experience systems
failures, delays or miscalculations affecting their websites that result from
Year 2000 problems. If users of the product experience Year 2000 problems and
successfully assert actions against us, our business, financial condition and
results of operations could be materially adversely affected.
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Risks Related to Our Technology and the Internet
Systems disruptions and failures could cause our customers and advertisers to
become dissatisfied with us and may impair our business.
Our customers, advertisers and strategic alliances may be dissatisfied
with our products and services due to interruptions in service.
Our ability to maintain our computer and telecommunications equipment in
working order and to reasonably protect them from interruption is critical to
our success. Our website must accommodate a high volume of traffic and deliver
frequently updated information. Our website has in the past experienced slower
response times as a result of increased traffic. Our customers, advertisers and
strategic alliances may become dissatisfied by any systems failure that
interrupts our ability to provide our products and services to them.
Substantial or repeated system failures would significantly reduce the
attractiveness of our website. Our general liability insurance policies may not
adequately compensate us for losses that may occur due to interruptions in our
service. These types of occurrences could create a negative perception of our
website and cause our customers, advertisers and strategic alliances to switch
to another domain name registration service provider.
Our customers depend on ISPs, online service providers and others to
access our website. Many of these parties have experienced outages and could in
the future experience outages, delays and other difficulties due to systems
failures unrelated to our systems. Although we carry general liability
insurance, our insurance may not cover any claims by dissatisfied customers,
advertisers or strategic alliances, or may be inadequate to indemnify us for
any liability that may be imposed in the event that a claim were brought
against us. Our business could be materially harmed by any system failure,
security breach or other damage that interrupts or delays our operations. In
particular, if we were to experience repeated and/or prolonged system-wide
service outages, our business, financial condition and results of operations
could be materially adversely affected.
Our business could be materially harmed if our computer systems were
damaged.
Substantially all of our network and communications systems are located at
a third party's facility. Fires, floods, earthquakes, power losses,
telecommunications failures, break-ins and similar events could damage these
systems. Computer viruses, electronic break-ins, human error or other similar
disruptive problems could also adversely affect our systems. We do not carry
business interruption insurance. Accordingly, any significant systems
disruption could have a material adverse effect on our business, financial
condition and results of operations.
We may not be able to deliver our products and services if third parties fail
to provide reliable software, systems and related services to us on agreeable
license terms.
We depend upon various third parties for software, systems and related
services, including access to the Shared Registration System provided by
Network Solutions. Some of these parties have a limited operating history or
may depend on reliable delivery of services from others. If these parties fail
to provide reliable software, systems and related services on agreeable license
terms, we may be unable to deliver our products and services.
If our third-party provider of credit card processing services fails to process
payments in a timely fashion, our customers may be unable to obtain their
domain names.
Under the terms of the accreditation agreement with ICANN, all registrars
are required to obtain a reasonable assurance of payment of registration fees
prior to registering or renewing domain names. We rely upon Cybersource to
process credit card payments for our individual
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customers. If Cybersource or its system fails for any reason to process credit
card payments in a timely fashion, the domain name reservation process will be
delayed and a customer may be unable to obtain their desired domain name. In
addition, any significant delay would create a substantial burden upon our
customer support representatives as they attempt to resolve issues and respond
to inquiries resulting from the processing failures. These problems could have
a material adverse effect on our business, financial condition and results of
operations.
Year 2000 problems may disrupt our internal operations.
Many currently installed computer systems and software products are coded
to accept or recognize only two-digit entries to identify the year in any date.
These systems may interpret the date code "00" as the year 1900 rather than the
year 2000. This Year 2000 problem could result in systems failures, delays or
miscalculations that cause disruptions to our operations or the operations of
third-party providers of products and services that we offer. Our failure to
correct a material Year 2000 problem could materially harm our business,
financial condition and results of operations. In addition, the failure of
these third-party providers to correct any material Year 2000 problems
affecting products and services upon which we rely could materially adversely
affect our business, financial condition and results of operations. For a more
detailed discussion of year 2000 issues, please, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
If Internet usage does not grow, or if the Internet does not continue to expand
as a medium for commerce, our business may suffer.
Our success depends upon the continued development and acceptance of the
Internet as a widely used medium for commerce and communication. Rapid growth
in the uses of and interest in the Internet is a relatively recent phenomenon
and we cannot assure you that use of the Internet will continue to grow at its
current pace. A number of factors could prevent continued growth, development
and acceptance, including:
o the unwillingness of companies and consumers to shift their purchasing
from traditional vendors to online vendors;
o the Internet infrastructure may not be able to support the demands
placed on it, and its performance and reliability may decline as usage
grows;
o security and authentication issues may create concerns with respect to
the transmission over the Internet of confidential information, such as
credit card numbers, and attempts by unauthorized computer users,
so-called hackers, to penetrate online security systems; and
o privacy concerns, including those related to the ability of websites to
gather user information without the user's knowledge or consent, may
impact consumers' willingness to interact online.
Any of these issues could slow the growth of the Internet, which could have a
material adverse effect on our business, financial condition and results of
operations.
If Internet markets fail to grow at the rates estimated in this prospectus, our
business and the market price of our common stock could be materially adversely
affected.
This prospectus contains industry market data, including data relating to
the growth of the Internet. These data have been obtained from independent
industry sources. We have not independently verified the data obtained from
these industry sources and we cannot assure you of their accuracy or
completeness. Further, there are no independent industry sources that estimate
the growth of domain name registrations. The future increases in domain name
registrations included in this prospectus are based on management's best
estimates and are
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inherently imprecise and therefore you should not place undue reliance on them.
The Internet and our business markets may not grow at the rates estimated in
this prospectus, or at all. The failure of these markets to grow at the rates
estimated could have a material adverse effect on our business and the market
price of our common stock.
If the use of the Internet as an advertising and marketing medium fails to
develop or develops more slowly than we expect, our future business could be
materially adversely affected.
Our future success depends in part on a significant increase in the use of
the Internet as an advertising and marketing medium. Advertising revenues
constituted 36% of our net revenues for the nine months ended September 30,
1999. The Internet advertising market is new and rapidly evolving, and it
cannot yet be compared with traditional advertising media to gauge its
effectiveness. As a result, demand for and market acceptance of Internet
advertising solutions are uncertain. Many of our current and potential
customers have little or no experience with Internet advertising and have
allocated only a limited portion of their advertising and marketing budgets to
Internet activities. The adoption of Internet advertising, particularly by
entities that have historically relied upon traditional methods of advertising
and marketing, requires the acceptance of a new way of advertising and
marketing. These customers may find Internet advertising to be less effective
for meeting their business needs than traditional methods of advertising and
marketing. Furthermore, there are software programs that limit or prevent
advertising from being delivered to a user's computer. Widespread adoption of
this software by users would significantly undermine the commercial viability
of Internet advertising. These factors could materially adversely affect our
business, financial condition and results of operations.
We depend on the technological stability and maintenance of the Internet
infrastructure.
Our success and the viability of the Internet as an information medium and
commercial marketplace will depend in large part upon the stability and
maintenance of the infrastructure for providing Internet access and carrying
Internet traffic, including the proper maintenance of root zone servers and
domain name zone servers. Failure to develop a reliable network system or
timely development and acceptance of complementary products, such as high-speed
modems, could materially harm our business. In addition, the Internet could
lose its viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity or due to increased government regulation.
We may become subject to burdensome government regulations and legal
uncertainties affecting the Internet.
To date, government regulations have not materially restricted the use of
the Internet. The legal and regulatory environment pertaining to the Internet,
however, is uncertain and may change. Both new and existing laws may be applied
to the Internet by state, federal or foreign governments, covering issues that
include:
o sales and other taxes;
o user privacy;
o pricing controls;
o characteristics and quality of products and services;
o consumer protection;
o cross-border commerce;
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o libel and defamation;
o copyright, trademark and patent infringement;
o pornography; and
o other claims based on the nature and content of Internet materials.
The adoption of any new laws or regulations or the new application or
interpretation of existing laws or regulations to the Internet could hinder the
growth in use of the Internet and other online services generally and decrease
the acceptance of the Internet and other online services as media of
communications, commerce and advertising. Our business may be harmed if any
slowing of the growth of the Internet reduces the demand for our services. In
addition, new legislation could increase our costs of doing business and
prevent us from delivering our products and services over the Internet, thereby
harming our business, financial condition and results of operations.
For example, in November 1999, the Anticybersquatting Consumer Protection
Act was enacted to curtail a practice commonly known in the industry as
"cybersquatting." A cybersquatter is generally defined in this Act as one who
registers a domain name that is identical or similar to another party's
trademark or the name of a living person, in each case with the bad faith
intent to profit from use of the domain name. Although the Act states that
registrars may not be held liable for registering or maintaining a domain name
for another person absent a showing of the registrar's bad faith intent to
profit from the use of the domain name, registrars may be held liable if they
fail to comply promptly with procedural provisions. If we are held liable under
this law, any liability could have a material adverse effect on our business,
financial condition and results of operations.
We file tax returns in such states as required by law based on principles
applicable to traditional businesses. However, one or more states could seek to
impose additional income tax obligations or sales tax collection obligations on
out-of-state companies, such as ours, which engage in or facilitate electronic
commerce. A number of proposals have been made at state and local levels that
could impose such taxes on the sale of products and services through the
Internet or the income derived from such sales. Such proposals, if adopted,
could substantially impair the growth of electronic commerce and materially
adversely affect our business, financial condition and results of operations.
Legislation limiting the ability of the states to impose taxes on
Internet-based transactions has been enacted by the United States Congress.
However, this legislation, known as the Internet Tax Freedom Act, imposes only
a three-year moratorium, which commenced October 1, 1998 and ends on October
21, 2001, on state and local taxes on electronic commerce. It is possible that
the tax moratorium could fail to be renewed prior to October 21, 2001. Failure
to renew this legislation would allow various states to impose taxes on
Internet-based commerce. The imposition of such taxes could materially
adversely affect our business, financial condition and results of operations.
Risks Related to This Offering
There has been no prior market for our common stock and our stock may
experience extreme price and volume fluctuations.
The stock market has experienced extreme price and volume fluctuations
that have particularly affected the market prices of the securities of
Internet-related companies. Prior to this offering, there has been no public
market for our common stock. We cannot predict the extent to which investor
interest in our stock will lead to the development of an active trading market
or how liquid that market might become. The initial public offering price for
the shares will be determined by negotiations between us and the
representatives of the
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underwriters and may not be indicative of prices that will prevail in the
trading market. The market price of our common stock may decline below the
initial public offering price. In the past, companies that have experienced
volatility in the market price of their stock have been the objects of
securities class action litigation. If we were the object of securities class
action litigation, it could result in substantial costs and a diversion of our
management's attention and resources.
Our management has broad discretion over how to use the proceeds of this
offering and may not use the proceeds in ways that help our business succeed.
We estimate that our net proceeds from this offering will be $____, at an
initial public offering price of $___ per share after deducting underwriting
discounts and estimated offering expenses. We have no specific plans for the
net proceeds of this offering other than to fund general corporate purposes,
including working capital, and acquisitions and strategic investments.
Accordingly, our management will have broad discretion as to how to apply the
net proceeds of this offering. If we fail to use the proceeds effectively, our
business may not grow and our net revenues and net income may decline.
Our directors, executive officers and 5% stockholders own enough of our shares
to control Register.com, which will limit your ability to influence corporate
matters.
Our directors, executive officers and 5% stockholders currently
beneficially own approximately 73% of our common stock, and after the offering
will beneficially own approximately ___% of our common stock. Accordingly,
these stockholders could control the outcome of any corporate transaction or
other matter submitted to our stockholders for approval, including mergers,
consolidations and the sale of all or substantially all of our assets, and also
could prevent or cause a change in control. The interests of these stockholders
may differ from the interests of our other stockholders. In addition, third
parties may be discouraged from making a tender offer or bid to acquire us
because of this concentration of ownership.
Shares eligible for public sale after this offering could adversely affect our
stock price.
Based on shares outstanding on ________, 2000, from time to time after
this offering, a total of _________ additional shares of common stock may be
sold in the public market by existing stockholders beginning 180 days after the
date of this prospectus. The market price of our common stock could decline as
a result of sales by these existing stockholders of their shares of common
stock in the market after this offering, or the perception that these sales
could occur. These sales also might make it difficult for us to sell equity
securities in the future at a time and price that we deem appropriate.
Our charter documents and Delaware law may inhibit a takeover that stockholders
may consider favorable.
Provisions in our amended and restated certificate of incorporation and
amended and restated bylaws, including those that provide for authorized but
unissued shares of common and preferred stock and notice requirements for
stockholder meetings, and Delaware law, relating to the ability to conduct
specific types of mergers within specified time periods, may have the effect of
delaying or preventing a change of control or changes in our management that
stockholders may consider favorable or beneficial or that would provide
stockholders with a premium to the market price of their common stock. The
authorization of undesignated preferred stock gives our board the ability to
issue preferred stock with voting or other rights or preferences that could
impede the success of any attempt to change control of the company. If a change
of control or change in management is delayed or prevented, this premium may
not be realized or the market price of our common stock could decline.
21
<PAGE>
You will incur immediate and substantial dilution.
The initial public offering price per share will significantly exceed the
net tangible book value per share. Accordingly, investors purchasing shares in
this offering will suffer immediate dilution of their investment equal to $____
per share, based on an assumed initial offering price of $ . If we issue
additional shares of common stock in the future, investors purchasing shares in
this offering may experience further dilution. Any further dilution could
adversely affect the trading price of our stock.
22
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of the shares
of common stock in this offering of approximately $ million, assuming an
initial public offering price of $ per share and after deducting underwriting
discounts and commissions and estimated offering expenses. If the underwriters
exercise their over-allotment option in full, we estimate that our net proceeds
will be approximately $ million.
We plan to use the proceeds from this offering for general corporate
purposes, including working capital, and acquisitions and strategic
investments. As of the date of this prospectus, we have not made any specific
expenditure plans with respect to the proceeds of this offering. Therefore, we
cannot specify with certainty the particular uses for the net proceeds to be
received upon completion of this offering. Accordingly, our management will
have significant flexibility in applying the net proceeds of this offering.
Pending any use, we intend to invest the net proceeds of this offering in
short-term, investment-grade, interest-bearing securities.
The principal purposes of this offering are to increase our working
capital, to create a public market for our common stock, to facilitate future
access to the public capital markets and to increase our visibility in the
marketplace. Although we engage in discussions with potential acquisition and
strategic investment candidates from time to time, we have no present
commitments with respect to any acquisition or strategic investment.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently anticipate retaining any future earnings for the development and
operation of our business. Accordingly, we do not anticipate declaring or
paying any cash dividends in the foreseeable future.
23
<PAGE>
CAPITALIZATION
The following table shows our capitalization as of September 30, 1999 on
an actual basis, a pro forma basis and a pro forma as adjusted basis. The pro
forma column reflects the conversion of each outstanding share of preferred
stock into one share of common stock, which will occur upon the closing of this
offering. The pro forma as adjusted column further reflects our sale of shares
of common stock in this offering at an assumed initial public offering price of
$_____ per share, after deducting underwriting discounts and commissions and
estimated offering expenses payable by us.
You should read the following table in conjunction with our financial
statements and the notes to those financial statements included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
September 30, 1999
--------------------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------------- ---------------- ------------
<S> <C> <C> <C>
Capital lease obligations ...................... $ 42,817 $ 42,817 $
----------- ----------- ------------
Stockholders' equity:
Preferred Stock, $.0001 par value; 5,000,000
shares authorized:
Series A Convertible Preferred Stock;
1,917,000 shares authorized; 1,341,237
shares issued and outstanding (actual);
no shares issued or outstanding (pro
forma and pro forma as adjusted) .......... 134 --
Common Stock, $.0001 par value;
25,000,000 shares authorized; 5,953,584
shares issued and outstanding (actual);
7,294,821 shares issued and outstanding
(pro forma); ____ shares issued and
outstanding (pro forma as adjusted) ......... 595 729
Additional paid-in capital ................... 34,285,279 34,285,279
Unearned compensation ........................ (691,825) (691,825)
Accumulated deficit .......................... (11,157,917) (11,157,917)
----------- -----------
Total stockholders' equity .................. 22,436,266 22,436,266
----------- -----------
Total capitalization ...................... $22,479,083 $22,479,083 $
=========== =========== ============
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of September 30, 1999. It does
not include:
o 62,560 shares of common stock issued upon the exercise of stock options
between October 1, 1999 and December 1, 1999;
o 1,003,410 shares of common stock issuable upon the exercise of stock
options outstanding as of December 1, 1999 with a weighted average
exercise price of $3.33 per share;
o 164,480 shares of common stock issuable upon the exercise of stock
options to be granted upon the consummation of this offering, with an
exercise price equal to the initial offering price of our common stock;
o 482,110 shares of common stock reserved for issuance under our stock
option plans; and
o 1,773,763 shares of common stock issuable upon exercise of outstanding
warrants with a weighted average exercise price of $5.23 per share.
24
<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma net tangible book value per share of our common
stock after this offering. We calculate pro forma net tangible book value per
share by dividing the net tangible book value (total tangible assets less total
liabilities) by the pro forma number of outstanding shares of common stock.
Our pro forma net tangible book value at September 30, 1999 was $20.2
million or $2.78 per share, based on 7,294,821 shares of our common stock
outstanding after giving effect to the conversion of all outstanding shares of
our preferred stock into common stock upon the closing of this offering.
After giving effect to the issuance and sale of the shares of common stock
that we are offering (less the underwriting discounts and estimated offering
expenses payable by us), our pro forma net tangible book value at ______, 1999
would be $____ million or $____ per share. This represents an immediate
increase in pro forma net tangible book value of $___ per share to existing
stockholders and an immediate dilution of $_____ per share to investors
purchasing shares in the offering. If the initial public offering price is
higher or lower, the dilution to new investors will be greater or less,
respectively. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ........................... $
Pro forma net tangible book value per share at September 30, 1999 ......... $ 2.78
Increase in pro forma net tangible book value per share attributable to
this offering ...........................................................
Pro forma net tangible book value per share after this offering ...........
Dilution per share to new investors ....................................... $
======
</TABLE>
The following table shows on a pro forma basis at September 30, 1999,
after giving effect to the conversion of all outstanding shares of our
preferred stock into an aggregate of 1,341,237 shares of common stock upon the
closing of this offering, the number of shares of common stock purchased from
us, the total consideration paid to us and the average price per paid share by
existing stockholders and by new investors purchasing common stock in this
offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
Number Percentage Amount Percentage Per Share
----------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1) ........ 7,294,821 % $28,696,299 % $ 3.93
New investors ....................
--------- -----------
Total (1) ...................... 100.0% 100.0%
===== =====
</TABLE>
- -------------
(1) The above information is based on shares outstanding as of September 30,
1999. It excludes:
o 62,560 shares of common stock issued upon the exercise of stock options
between October 1, 1999 and December 1, 1999;
o 1,003,410 shares of common stock issuable upon the exercise of stock
options outstanding as of December 1, 1999, with a weighted average
exercise price of $3.33 per share;
o 164,480 shares of common stock issuable upon the exercise of stock
options to be granted upon the consummation of this offering, with an
exercise price equal to the initial offering price of our common stock.
o 482,110 shares of common stock reserved for issuance under our stock
option plans; and
o 1,773,763 shares of common stock issuable upon exercise of outstanding
warrants with a weighted average exercise price of $5.23 per share.
To the extent that any of these stock options or warrants are exercised,
new investors will experience further dilution.
25
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data below as of December 31, 1997 and 1998 and
September 30, 1999, and for the years ended December 31, 1997 and 1998 and for
the nine months ended September 30, 1999 have been derived from our financial
statements included in this prospectus, which have been audited by
PricewaterhouseCoopers LLP, independent accountants. The selected financial
data below as of and for the years ended December 31, 1995 and 1996 and for the
nine months ended September 30, 1998 have been derived from our unaudited
financial statements. These unaudited financial statements have been prepared
on the same basis as our audited financial statements and, in our opinion,
include all adjustments, consisting of normal recurring adjustments, necessary
for the fair presentation of our financial position and results of operations.
Historical results are not necessarily indicative of results to be expected for
any future period. You should read the data below together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and the notes to those statements included in this
prospectus. The pro forma basic and diluted net loss per share data give effect
to the conversion of our Exchangeable Preferred Stock and the Series A
Convertible Preferred Stock at the date of original issuance.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1995 1996 1997 1998
------------- --------------- ------------- ---------------
Statement of Operations Data:
<S> <C> <C> <C> <C>
Net revenues ...................... $ 87,696 $ 868,018 $ 713,263 $ 1,319,359
Cost of revenues .................. 12,399 342,140 191,539 461,152
---------- ------------ ---------- ------------
Gross profit ...................... 75,297 525,878 521,724 858,207
Operating expenses:
Sales and marketing ............. 166,330 935,495 366,975 863,720
Research and development ........ 102,901 390,814 71,471 276,687
General and administrative
(exclusive of non-cash
compensation) .................. 94,704 743,609 263,017 795,425
Non-cash compensation ........... -- -- -- 149,682
---------- ------------ ---------- ------------
Total operating expenses ........ 363,935 2,069,918 701,463 2,085,514
---------- ------------ ---------- ------------
Loss from operations .............. (288,638) (1,544,040) (179,739) (1,227,307)
Other income (expenses), net ...... -- (170,036) (25,787) 66,559
---------- ------------ ---------- ------------
Net loss .......................... $ (288,638) $ (1,714,076) $ (205,526) $ (1,160,748)
========== ============ ========== ============
Basic and diluted net loss per
share ........................... $ (0.23) $ (0.90) $ (0.08) $ (0.26)
========== ============ ========== ============
Weighted average shares used
in basic and diluted net loss
per share ....................... 1,265,674 1,895,401 2,538,488 4,484,680
========== ============ ========== ============
Pro forma basic and diluted net
loss per share ..................
Weighted average shares used
in pro forma basic and
diluted net loss per share ......
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
--------------------------------
1998 1999
--------------- ---------------
Statement of Operations Data:
<S> <C> <C>
Net revenues ...................... $ 790,995 $ 4,455,404
Cost of revenues .................. 268,431 1,421,562
------------- ------------
Gross profit ...................... 522,564 3,033,842
Operating expenses:
Sales and marketing ............. 624,751 4,615,621
Research and development ........ 153,934 1,093,672
General and administrative
(exclusive of non-cash
compensation) .................. 628,032 954,422
Non-cash compensation ........... 149,682 4,572,257
------------- ------------
Total operating expenses ........ 1,556,399 11,235,972
------------- ------------
Loss from operations .............. (1,033,835) (8,202,130)
Other income (expenses), net ...... 34,121 419,066
------------- ------------
Net loss .......................... $ (999,714) $ (7,783,064)
============= ============
Basic and diluted net loss per
share ........................... $ (0.23) $ (1.48)
============= ============
Weighted average shares used
in basic and diluted net loss
per share ....................... 4,350,796 5,248,029
============= ============
Pro forma basic and diluted net
loss per share .................. $ (1.31)
============
Weighted average shares used
in pro forma basic and
diluted net loss per share ...... 5,932,027
============
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------- September 30,
1995 1996 1997 1998 1999
----------- ------------- --------------- ------------- --------------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents .............. $226,995 $ 21,074 $ 60,845 $1,284,648 $33,514,527
Working capital (deficiency) ........... 179,345 (949,383) (1,131,173) 569,616 24,751,157
Total assets ........................... 260,002 141,774 180,786 1,611,025 43,124,904
Total liabilities ...................... 147,451 1,002,920 1,243,457 788,245 20,688,638
Stockholders' equity (deficit) ......... 112,551 (861,146) (1,062,671) 822,780 22,436,266
</TABLE>
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations together with "Selected Financial Data," our financial
statements, the notes to those statements and the other information appearing
elsewhere in this prospectus.
Overview
We are a leading provider of Internet domain name registration services
worldwide. Domain names serve as part of the infrastructure for Internet
communications and are one of the first steps for individuals and businesses
seeking to establish an online identity. We offer a quick and user-friendly
registration process, responsive and reliable customer support and a suite of
value-added products and services such as email, web hosting, domain name
forwarding and real-time domain name management. Our goal is to provide a
one-stop solution that enables our customers to establish, maintain and enhance
their presence on the Internet.
We are the successor by merger to Forman Interactive Corp., which was a
developer of electronic commerce software and began offering web hosting and
related products and services in 1997. In February 1998, we began to distribute
domain names either for free or, to a lesser extent, were paid commissions for
the domain names we distributed for international registrars and registries. In
April 1999, we commenced offering registration services for country code
domains and in June 1999, we began offering registrations in the .com, .net and
.org domains.
Net Revenues
We derive our net revenues from domain name registrations, online products
and services and advertising. Net revenues from domain name registrations
consist of fees paid by registrants over the course of the registration period
net of commissions and a provision for credit card chargebacks. We currently
earn registration fees in connection with new registrations and transferred
registrations. We pay commissions on domain name registrations processed
through the participants in our network of co-brand and private label websites
and those we process through our www.register.com website that are referred to
us by participants in our affiliate network. We currently offer two-year
registration periods for the initial domain name registration in the .com, .net
and .org domains with annual renewals and either one- or two-year registration
periods for domain names in the country code domains. We currently charge $70
for the initial two-year registration for domain names in the .com, .net and
.org domains and approximately $40 to $299 for one- or two-year country code
domain name registrations. In January 2000, under the ICANN accreditation
agreements the registry will accept generic top level registration periods
ranging from one to ten years for new registrations and renewals. We expect to
begin to offer multi-year registrations in 2000. Because we only began
operating as a registrar in April 1999, we have not processed any registration
renewals. We anticipate that registration renewals will contribute to our net
revenues once our customers' initial registrations reach the end of their
terms.
Domain name registration revenues are deferred at the time of the
registration and are recognized ratably over the term of the registration
period. Under this subscription-based model, we recognize revenue when we
provide the registration services, including customer service and maintenance
of the individual domain name records. ICANN requires us to have reasonable
assurance of payment in order to register a domain name. Therefore, we require
prepayment via credit card for all online domain name registration sales, which
provides us with the full cash fee at the beginning of the registration period
while recognizing the revenues over the registration period. For some of our
customers who register domain names through our Corporate Register.com program,
we establish lines of credit based on credit worthiness, thereby reasonably
assuring payment.
27
<PAGE>
Online products and services, which consist of email, domain name
forwarding and web hosting, are sold either as annual or monthly subscriptions,
depending on the product or service offering. These revenues are recognized
ratably over the period in which we provide our services. We offer web hosting
through our own servers and through web-hosting services provided by third
parties. We currently do not actively promote our own web-hosting service and,
therefore, do not anticipate significant revenue growth from this service in
future periods.
Advertising revenues are derived from the sale of sponsorships and banner
advertisements under short-term contracts that range from one month to one year
in duration. We recognize these revenues ratably over the period in which the
advertisements are displayed provided that no significant company obligation
remains and collection of the resulting receivable is probable.
Cost of Revenues
Our cost of revenues consists of the costs associated with providing
domain name registrations and online products and services. Cost of revenues
for domain name registrations primarily consists of registry fees, depreciation
on the equipment used to process the domain name registrations, the fees paid
to the co-location facilities maintaining our equipment and fees paid to the
financial institutions to process credit card payments on our behalf. Through
January 14, 2000, we must pay a $9 per year registry fee for each .com, .net
and .org two-year domain name registration. This fee will be reduced to $6 per
year commencing on January 15, 2000. We currently pay registry fees of
approximately $5 to $150 for one- or two-year country code domain name
registrations. The largest component of our cost of revenues is the registry
fees which, while paid in full at the time that the domain name is registered,
are recorded as a prepaid expense and recognized ratably over the term of the
registration.
Cost of revenues for our online products and services consists of fees
paid to third party service providers, depreciation on the equipment used to
deliver the services, fees paid to the co-location facilities maintaining our
equipment and fees paid to the financial institutions to process credit card
payments on our behalf.
While we have no direct cost of revenues associated with our advertising
revenue we do incur operational costs including salaries and commissions which
are classified as operating expenses. We have no incremental cost of revenues
associated with advertising since we use the same equipment to deliver the
advertisements as we use for our domain name registration services.
Operating Expenses
Our operating expenses consist of sales and marketing, research and
development, general and administrative and non-cash compensation expenses. Our
sales and marketing expenses consist primarily of employee salaries, marketing
programs such as advertising and, to a lesser extent, commissions paid to our
sales representatives. Research and development expenses consist primarily of
employee salaries, fees for outside consultants and related costs associated
with the development and integration of new products and services, the
enhancement of existing products and services and quality assurance. General
and administrative expenses consist primarily of employee salaries and other
personnel related expenses for executive, financial and administrative
personnel, as well as professional services fees and bad debt accruals.
Non-cash compensation expenses are related to grants of common stock, stock
options and warrants made to employees, directors, consultants and vendors.
Facilities expenses are allocated across our different operating expense
categories.
28
<PAGE>
Results of Operations
Since we began operating as a domain name registrar only in the second
quarter of 1999 and generated only limited revenues from domain name
registration services prior to this time, we believe that year-to-year
comparisons of 1997 against 1998 and period-to-period comparisons of the nine
months ended September 30, 1999 against the comparable period in 1998 are not
meaningful and you should not rely upon them as indications of our future
performance.
We anticipate that in future periods net revenues from domain name
registrations will be the largest component of our net revenues and cost of
domain name registrations will be the largest component of our cost of
revenues. The following table presents selected statement of operations data
for the periods indicated as a percentage of net revenues.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
----------------------- -------------------------
1997 1998 1998 1999
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues .............................. 100% 100% 100% 100%
Cost of revenues .......................... 27 35 34 32
--- --- --- ---
Gross profit .............................. 73 65 66 68
--- --- --- ---
Operating expenses
Sales and marketing .................... 51 66 79 104
Research and development ............... 10 21 19 25
General and administrative (exclusive of
non-cash compensation) ............... 37 60 79 21
Non-cash compensation .................. -- 11 19 103
--- --- --- ---
Total operating expenses .................. 98 158 196 253
--- --- --- ---
Loss from operations ...................... (25) (93) (130) (185)
Other income (expenses), net .............. (4) 5 4 9
------ --- ---- ----
Net loss .................................. (29)% (88)% (126)% (176)%
===== === ==== ====
</TABLE>
Nine Months Ended September 30, 1998 and 1999
Net Revenues
Total net revenues increased 463% from $0.8 million for the nine months
ended September 30, 1998 to $4.5 million for the nine months ended September
30, 1999.
Domain Name Registrations. Revenues from domain name registrations
increased from $27,000 for the nine months ended September 30, 1998 to $1.5
million for the nine months ended September 30, 1999. This increase was
primarily from the shift in our business from serving as a distributor of
domain names to serving as a generic top level domain name registrar in June
1999. Additionally, we had no deferred revenue from domain name registrations
at September 30, 1998 while deferred revenue was $12.9 million at September 30,
1999. We anticipate that revenues from domain name registrations will increase
in absolute dollars and as a percentage of our net revenues in future periods
as a result of growth in the market for domain name registrations, renewals and
transfers and the implementation of our business strategy.
Online Products and Services. Revenues from online products and services
increased 86% from $747,000 for the nine months ended September 30, 1998 to
$1.4 million for the nine months ended September 30, 1999 primarily from
increased sales of web hosting provided through our servers. We anticipate that
revenues from online products and services will remain flat in the near term as
we begin to introduce new online products and services and no longer actively
promote our own web-hosting services. We anticipate that these revenues will
increase over the longer term as we expand our online product and service
offerings.
29
<PAGE>
Advertising. Revenues from advertising increased from $17,000 for the nine
months ended September 30, 1998 to $1.6 million for the nine months ended
September 30, 1999 primarily from the increased number of page views and the
volume of advertising and sponsorships sold on our www.register.com and
FutureSite websites. We anticipate that revenues from advertising will increase
in absolute dollars but decrease as a percentage of total net revenues.
Cost of Revenues
Total cost of revenues increased 430% from $268,000 for the nine months
ended September 30, 1998 to $1.4 million for the nine months ended September
30, 1999.
Cost of Domain Name Registrations. Cost of domain name registrations
increased from $7,000 for the nine months ended September 30, 1998 to $1.0
million for the nine months ended September 30, 1999. The increase was
primarily from the shift in our business from serving as a distributor of
domain names to serving as a generic top level domain name registrar in June
1999. As a distributor, we generally passed through registry costs to the
applicable registry or registrar. We anticipate that cost of revenues for
domain name registrations will increase in absolute dollars primarily as a
result of growth in our domain name registrations and renewals.
Cost of Online Products and Services. Cost of online products and services
increased 45% from $261,000 for the nine months ended September 30, 1998 to
$379,000 for the nine months ended September 30, 1999. The increase was
primarily from the additional depreciation expense associated with the
equipment dedicated to our operations to support our growing online product and
service offerings. We anticipate these costs will increase in absolute dollars
as we expand our online product and service offerings.
Operating Expenses
Total operating expenses increased from $1.6 million for the nine months
ended September 30, 1998 to $11.2 million for the nine months ended September
30, 1999.
Sales and Marketing. Sales and marketing expenses increased from $625,000
for the nine months ended September 30, 1998 to $4.6 million for the nine
months ended September 30, 1999. The increase was primarily from the costs
associated with the launch of our radio and print media advertising campaign in
September 1999 and from salaries associated with newly hired sales, marketing
and customer service professionals. We anticipate that sales and marketing
expenses will increase substantially in absolute dollars as we further our
marketing programs and international expansion. Additionally, we anticipate
increasing our customer service staff and domain name registration sales force
to support both the demands of our customers as well as to further our direct
and indirect sales strategy for domain name registrations.
Research and Development. Research and development expenses increased from
$154,000 for the nine months ended September 30, 1998 to $1.1 million for the
nine months ended September 30, 1999. The increase resulted primarily from
salaries associated with newly hired technology personnel to support our
growth. We anticipate that research and development expenses will continue to
increase in absolute dollars as we continue to invest in developing and
modifying our systems to grow our business.
General and Administrative. General and administrative expenses increased
52% from $628,000 for the nine months ended September 30, 1998 to $954,000 for
the nine months ended September 30, 1999. The increase was primarily from
salaries associated with newly hired personnel and related costs required to
manage our growth and facilities expansion. We expect that our general and
administrative expenses will increase in absolute dollars to support our
overall growth including increased expenses relating to our new
responsibilities as a public company.
30
<PAGE>
Non-cash Compensation. Non-cash compensation expenses increased from
$150,000 for the nine months ended September 30, 1998 to $4.6 million for the
nine months ended September 30, 1999. The increase was primarily associated
with the modification of warrants previously granted to some of our
stockholders and the issuance of warrants in connection with a financial
consulting agreement.
Other Income (Expenses), Net.
Other income (expenses), net consists primarily of interest income net of
interest expense. Other income (expenses), net increased from $34,000 for the
nine months ended September 30, 1998 to $419,000 for the nine months ended
September 30, 1999. The increase was primarily from interest earned on our cash
balance as a result of our equity financings and cash provided by operations.
Years Ended December 31, 1997 and 1998
Net Revenues
Total net revenues increased 85% from $713,000 for 1997 to $1.3 million
for 1998.
Domain Name Registrations. We had no revenues from domain name
registrations for 1997 as we did not distribute domain names until February
1998. Revenues from commissions earned from distributing domain name
registrations was $37,000 in 1998.
Online Products and Services. Revenues from online products and services
increased 54% from $713,000 for 1997 to $1.1 million for 1998. The increase was
attributable to the growth of our web-hosting service.
Advertising. We had no revenues from advertising for 1997. Revenues from
advertising were $133,000 for 1998. The increase was attributable to the launch
of our www.register.com website and our initial advertising sales efforts.
Cost of Revenues
Total cost of revenues increased 141% from $192,000 for 1997 to $461,000
for 1998.
Cost of Domain Name Registrations. We incurred no cost of domain name
registrations for 1997 because we did not begin to distribute domain names
until February 1998. As a distributor of domain names, we simply forwarded a
registration request to the appropriate registrar without paying any registry
fees. Cost of domain name registrations was $19,000 for 1998.
Cost of Online Products and Services. Cost of online products and services
increased 131% from $192,000 for 1997 to $442,000 for 1998. The increase
resulted primarily from the depreciation expense associated with the equipment
dedicated to our operations to support our web-hosting business.
Operating Expenses
Total operating expenses increased 197% from $701,000 for 1997 to $2.1
million for 1998.
Sales and Marketing. Sales and marketing expenses increased 135% from
$367,000 for 1997 to $864,000 for 1998. The increase was primarily attributable
to costs associated with additional customer service personnel, marketing
personnel and telemarketers for our web-hosting business as well as limited
advertising campaigns.
Research and Development. Research and development expenses increased 287%
from $71,000 for 1997 to $277,000 for 1998. The increase was primarily
attributable to the salaries associated with newly hired technology personnel.
General and Administrative. General and administrative expenses increased
202% from $263,000 for 1997 to $795,000 for 1998. The increase was primarily
due to salaries of newly hired executive and financial personnel to help manage
our growth.
Non-cash Compensation. We had no non-cash compensation expenses for 1997.
Non-cash compensation expenses was $150,000 for 1998, which was primarily from
our issuance of non-plan options at exercise prices below fair market value.
31
<PAGE>
Other Income (Expenses), Net.
Other income (expenses), net increased from ($26,000) for 1997 to $67,000
for 1998, which was primarily from interest earned on our cash balance as a
result of our equity financings.
Quarterly Results of Operations
The following tables set forth selected unaudited quarterly statement of
operations data, in dollar amounts and as a percentage of net revenue, for each
of the four quarters ended September 30, 1999. In our opinion this information
has been prepared substantially on the same basis as the audited financial
statements appearing elsewhere in this prospectus, and all necessary
adjustments, consisting only of normal recurring adjustments, have been
included in the amounts stated below to present fairly the unaudited quarterly
results of operations data. The quarterly data should be read with our
financial statements and the notes to those statements appearing elsewhere in
this prospectus. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------
December 31, March 31, June 30, September 30,
1998 1999 1999 1999
-------------- ----------- ------------ --------------
(in thousands)
<S> <C> <C> <C> <C>
Net revenues .............................. $ 528 $ 747 $ 1,521 $ 2,187
Cost of revenues .......................... 192 92 233 1,097
------ -------- -------- --------
Gross profit .............................. 336 655 1,288 1,090
------ -------- -------- --------
Operating expenses
Sales and marketing .................... 239 720 998 2,898
Research and development ............... 123 267 357 470
General and administrative (exclusive of
non-cash compensation) ............... 167 202 199 553
Non-cash compensation .................. -- 586 3,945 41
------ -------- -------- --------
Total operating expenses .................. 529 1,775 5,499 3,962
------ -------- -------- --------
Loss from operations ...................... (193) (1,120) (4,211) (2,872)
Other income (expenses), net .............. 32 13 71 336
------ -------- -------- --------
Net loss .................................. $ (161) $ (1,107) $ (4,140) $ (2,536)
====== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------
December 31, March 31, June 30, September 30,
1998 1999 1999 1999
-------------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Net revenues .............................. 100% 100% 100% 100%
Cost of revenues .......................... 36 12 15 50
--- --- --- ---
Gross profit .............................. 64 88 85 50
--- --- --- ---
Operating expenses
Sales and marketing .................... 45 96 66 133
Research and development ............... 23 36 24 21
General and administrative (exclusive of
non-cash compensation) ............... 32 27 13 25
Non-cash compensation .................. -- 79 259 2
--- --- --- ---
Total operating expenses .................. 100 238 362 181
--- --- --- ---
Loss from operations ...................... (36) (150) (277) (131)
Other income (expenses), net .............. 6 2 5 15
--- ---- ---- ----
Net loss .................................. (30)% (148)% (272)% (116)%
=== ==== ==== ====
</TABLE>
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Our net revenues have increased significantly in absolute dollars over the
past four quarters as a result of repositioning our focus on the domain name
registration services business. We expect that net revenues will continue to
increase in the future as we continue to expand our business and the market for
domain name registrations grows.
Our operating expenses have increased significantly in absolute dollars
over the past four quarters as a result of our repositioning our focus on the
domain name registration service business. We expect operating expenses will
continue to increase in the future as we continue to expand our business.
Liquidity and Capital Resources
Since 1997, we have funded our operations and met our capital expenditure
requirements primarily through private sales of equity securities, cash
generated from operations, and borrowings. Since inception, proceeds from the
sale of our common and preferred stock through September 30, 1999 totaled
approximately $28.7 million. At September 30, 1999, we had $33.5 million of
cash.
Our business generated $10.0 million of cash from operations during the
nine months ended September 30, 1999. This cash generated from operations was
primarily due to increased domain name registrations. Net cash used in
operating activities was $693,000 and $123,000 for 1998 and 1997, respectively.
The principal use of cash for these periods was to fund our losses from
operations.
Net cash used for investing activities was $2.6 million during the nine
months ended September 30, 1999. We used $267,000 and $16,000 in cash for
investing activities for 1998 and 1997, respectively. In each period, cash used
for investing activities related primarily to the purchase of property and
equipment and investments in our systems infrastructure.
We generated $24.8 million in cash from financing activities for the nine
months ended September 30, 1999. We generated $2.2 million and $178,000 in cash
from financing activities for 1998 and 1997, respectively. In the nine months
ended September 30, 1999, substantially all of these financing activities were
private sales of equity securities. For 1998, the $2.2 million represents the
issuance of equity securities offset by the repayment of indebtedness. For
1997, cash from financing activities represents borrowed indebtedness.
Although we have no material commitments for capital expenditures, we
anticipate that we will substantially increase our capital expenditures and
lease commitments consistent with our anticipated growth in operations,
infrastructure and personnel, including the implementation of additional
co-location facilities and various capital expenditures associated with
expanding our facilities. We currently anticipate that we will continue to
experience significant growth in our operating expenses for the foreseeable
future and that our operating expenses will be a material use of our cash
resources. We believe that the net proceeds from this offering, together with
our existing cash and cash from operations will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at
least the next 12 months.
Year 2000 Readiness
Many currently installed computer systems and software products are coded
to accept or recognize only two-digit entries in the date code field. These
systems may recognize a date using "00" as the year 1900 rather than the year
2000. As a result, it is necessary to update the computer systems and software
used by many companies and governmental agencies to comply with Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
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We are exposed to the risk that the systems on which we depend to conduct
our operations are not Year 2000 compliant.
State of Readiness. We have completed our primary Year 2000 testing and
implementation of any necessary upgrades in order to become Year 2000
compliant. In addition we are continually testing our systems for the purpose
of added assurance. Our assessment and testing focused on two areas as follows:
Externally Purchased Systems and Services. These systems and services
consist of but are not limited to Domain Name Services, operating systems,
web-server software, file servers, application servers, email, routers and
switches, telephone, voice mail systems, desktop computers, and accounting.
These systems were purchased or contracted by the company from various vendors.
Where possible, we have received verification from the respective vendors that
they are Year 2000 compliant. Further, we believe that we have upgraded all
systems to compliant products.
Internally Developed Systems. Our internally developed systems consist of
our software and hardware and include date-dependent code. We have evaluated
and tested our proprietary systems and believe that all material files and
systems are Year 2000 compliant.
We completed our primary testing in November 1999 and continue to test our
systems throughout the month of December 1999 for the sole purpose of added
assurance.
Further, we face non-information technology Year 2000 related risks, both
internally and externally based. Internal non-information technology risks
include disruption to our security and mailing systems, mail room facilities,
fire and backup generator systems. External non-information technology risks
include the possible interruption of electrical power, water, sewage,
telecommunications, mass transportation and garbage collection. If a disruption
in either internal or external non-information technology systems occurs, we
could experience a material disruption in our business similar to other
businesses in our geographic locations.
Costs. The total cost for our Year 2000 compliance efforts was
approximately $50,000. Most of these expenses relate to the operating costs
associated with time spent by our employees in Year 2000 compliance matters.
Risks. Although we have obtained compliance information from many of our
material third-party vendors, we have not received compliance information from
all of our third-party vendors. In addition, it is possible that our
third-party vendors were mistaken in certifying that their systems are Year
2000 compliant. If we fail to fix our internal systems or to fix or replace
material third-party software, hardware or services on a timely basis, we may
suffer lost revenues, increased operating costs and other business
interruptions, any of which could have a material adverse effect on our
business, results of operations and financial condition. Moreover, if we fail
to adequately address Year 2000 compliance issues, we may be subject to claims
of mismanagement and related litigation, which would be costly and
time-consuming to defend. Furthermore, if services we provided a client cause
damage or injury to that client because the service was not Year 2000
compliant, we could be liable to the client for breach of warranty. In
addition, we cannot assure you that governmental agencies, utility companies,
Internet access companies, third-party service providers and others outside our
control will be Year 2000 compliant. If those entities fail to be Year 2000
compliant, there may be a systemic failure beyond our control, such as a
prolonged Internet, telecommunications or electrical failure, which could have
a material adverse effect on our business, financial condition and results of
operations.
Contingency Plan. As a result of our Year 2000 testing we have deemed it
not necessary to develop a contingency plan.
Forward-looking Statements. The Year 2000 discussion above is provided as
a "Year 2000 Readiness Disclosure" as defined in the Year 2000 Information and
Readiness Disclosure
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Act of 1998 (Public Law 105-271, 112 Stat. 2386) enacted on October 19, 1998
and contains forward-looking statements. These statements are based on
management's best current estimates, which were derived from a number of
assumptions about future events, including the continued availability of
resources, representations received from third parties and other factors.
However, we cannot assure you that these estimates will be achieved, and our
actual results could differ materially from those anticipated. Specific factors
that might cause material differences include:
o the ability to identify and remediate all relevant systems;
o results of Year 2000 testing;
o adequate resolution of Year 2000 issues by governmental agencies,
businesses and other third parties who are our outsourcing service
providers, suppliers, and vendors;
o unanticipated system costs; and
o our ability to implement adequate contingency plans.
Recent Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" ("SOP 98-5"). SOP 98-5, which is effective for fiscal years
beginning after December 15, 1998, provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start up
activities and organization costs to be expensed as incurred. As we have
expensed these costs historically, the adoption of this standard did not have a
significant impact on our results of operations or financial position.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities" ("SFAS 133"), which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts, (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. We do not expect the adoption of this statement
to have a significant impact on our results of operations or financial
position.
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<PAGE>
BUSINESS
Overview
We are a leading provider of Internet domain name registration services
worldwide. Domain names serve as part of the infrastructure for Internet
communications and are one of the first steps for individuals and businesses
seeking to establish an online identity. We offer a quick and user-friendly
registration process, responsive and reliable customer support and a suite of
value-added products and services such as email, web hosting, domain name
forwarding and real-time domain name management. Our goal is to provide a
one-stop solution that enables our customers to establish, maintain and enhance
their presence on the Internet.
We offer our products and services directly through our www.register.com
website and our Corporate Register.com program, and indirectly through our
network of co-brand and private label websites, which include ISPs, web-hosting
companies and other companies whose websites may appeal to our target
customers. These distribution channels enable us to reach a broad range of
potential customers with products and services targeted to their needs and to
increase our exposure across the market. We seek to enter into strategic
alliances, which are important sources for new customer opportunities, brand
building, revenue growth and increased product and service offerings. We derive
our revenues from domain name registration fees, online products and services
and advertising. Our net revenues for the three months ended September 30, 1999
were $2.2 million, which represents a 44% increase in net revenues over the
three months ended June 30, 1999.
We have been an active participant in the domain name registration
industry since February 1998. In June 1999, we became the first competitive
registrar to register domain names in the .com, .net and .org domains directly
on behalf of customers. For the three months ended September 30, 1999, we
registered approximately 159,000 new domain names in the .com, .net and .org
domains, establishing us as the leading competitive registrar. We estimate that
this corresponds to approximately 10% of all new domain names registered in
these domains during this period. During November 1999, we registered
approximately 83,000 domain names in the .com, .net and .org domains,
representing a 102% increase over the approximately 41,000 domain names we
registered during July 1999, our first full calendar month of operating as a
registrar for these domains. We estimate that growth in global domain name
registrations in all top level domains will accelerate over the next few years
from approximately 11 million domain names registered through September 30,
1999, to approximately 140 million domain names registered through the end of
2003.
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<PAGE>
Industry Background and Market Opportunity
The Internet and Electronic Commerce
The Internet has emerged as a significant global communications medium,
enabling businesses and individuals to conduct business and communicate
electronically. According to International Data Corporation, a technology and
Internet research consulting company commonly known as IDC, the number of
Internet users worldwide will grow from an estimated 142.2 million in 1998 to
approximately 502.4 million by the end of 2003. IDC also expects the number of
web pages to grow from 0.9 billion in 1998 to 13.1 billion by 2003. We believe
that any growth in the number of Internet users and web pages will result in a
corresponding growth in the demand for domain name registration services. In
addition, IDC estimates that worldwide electronic commerce will grow from $50.0
billion in 1998 to $1.3 trillion in 2003. We believe that this rapid growth of
electronic commerce will contribute to the growth in demand for domain name
registration services as businesses around the world establish an Internet
presence in order to remain competitive.
There is also a growing demand for products and services that enable
individuals and companies to establish and maintain their Internet presence.
IDC forecasts that the market for Internet and electronic commerce services
worldwide will grow from $7.4 billion in 1998 to $43.7 billion in 2002.
Businesses and individuals are seeking products and services such as website
creation and development tools, interactive capabilities, electronic commerce
capabilities, web hosting, website content and infrastructure. We believe that
many of the businesses and individuals registering domain names are also
interested in purchasing these products and services through a single source.
The Internet is evolving into an important medium for advertisers due to
its interactive nature, global reach, rapidly growing audience and the
significant increase in electronic commerce. IDC estimates that spending on
Internet advertising will grow from $1.9 billion in 1998 to approximately $10.8
billion in 2003.
Domain Name Registration System
The domain name system is organized hierarchically, so that, for example,
in the domain name mybrand.com, .com is the top level domain and mybrand is the
second level domain. Top level domains are classified as either generic or
country code. The most common generic top level domains are .com, .net and
.org.
There are over 250 different country code top level domains, representing
191 countries, such as .co.uk and .uk for the United Kingdom and .md for
Moldova. Each registry for country code domain names is responsible for
maintaining and operating its own database of registered domain names. Some
country code domains are unrestricted and allow anyone, from anywhere, to
register their domain names on a first-come, first-served basis. Over 80
countries follow this unrestricted practice. Others require that prospective
registrants have a local presence in the country to be able to register for
domain names in that country. While there have been movements directed at
creating uniform domain name registration rules and registrar administration
guidelines, to date there is no international uniformity.
From January 1993 until April 1999, Network Solutions was the sole entity
authorized by the U.S. government to act as registrar and registry for domain
names in the .com, .net and .org top level domains. Network Solutions continues
to act as sole registry, maintaining the files in the Shared Registration
System for the generic top level domains and the directory databases listing
these domain names and their numerical addresses.
In October 1998, the Department of Commerce called for the formation of a
non-profit corporation to oversee the management of the .com, .net and .org
domains and in November
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1998, ICAAN was recognized as this non-profit corporation. In April 1999, as a
preliminary step to introducing competition into the domain name registration
system for .com, .net and .org domains, ICANN selected five registrars to
participate in a testbed to evaluate whether the Shared Registration System
could accommodate multiple registrars. On June 2, 1999, we were the first of
these five competitive registrars to launch our registration services. On
November 30, 1999, the testbed was completed, and all registrars meeting
ICANN's standards for accreditation were permitted to register domain names in
the .com, .net and .org domains. As of December 21, 1999, there were 70
ICANN-accredited registrars. Of these, only 22 are connected to the Shared
Registration System, and the remainder are still in the development phase with
respect to offering registration services. An additional 28 companies have
qualified for accreditation but have yet to sign the agreements required by
ICANN and Network Solutions.
For a detailed discussion of the regulatory background of the domain name
registration system, see "Administration of the Internet; Government Regulation
and Legal Uncertainties."
Domain Name Registration Market
As a result of the growth of the Internet and the introduction of
competition in the domain name registration industry, we believe there is great
potential for growth in the market for domain name registrations. We estimate
that growth in global domain name registrations in all top level domains will
accelerate over the next few years from approximately 11 million domain names
registered through September 30, 1999 to approximately 140 million domain names
through the end of 2003.
Although there has been a market for domain name registrations for over
six years, a substantial percentage of the growth in domain name registrations
has occurred more recently. Approximately 75% of all domain names were
registered in the 18 months ended September 30, 1999 and over 50% were
registered in the 12 months ended September 30, 1999. During the nine months
ended September 30, 1999, a total of approximately 3.6 million new generic top
level domain names were registered worldwide, an increase of 89% over
approximately 1.9 million new domain names registered in all of 1998. We
believe that the market for domain name registrations will continue to grow and
that this growth will be driven primarily by:
Individuals. As more people begin to use the Internet and as online
activities become a greater part of family communications and identities, they
will want to establish their own unique presence on the Internet.
Corporations. As a result of the significant growth in electronic
commerce, as well as the increasing focus on the global promotion and
protection of their corporate identities, corporations will continue to be
significant users of domain name registration services.
Small offices and home offices. As small offices and home offices
increasingly move their businesses online, demand for domain name registration
and related online products and services will increase.
Further, we believe that businesses will use domain names for a number of
distinct purposes, including:
Products and services. Registering products and services as domain names
and establishing web identities related to particular products and services,
which are key components of a global promotional, marketing and brand
protection strategy.
One-time events. One-time events, such as sporting events and elections,
which represent additional domain name registration opportunities as sponsors
increasingly turn to the Internet to differentiate and promote their events.
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The Register.com Solution
We provide solutions that assist individuals and businesses in
establishing, maintaining and enhancing their Internet presence. We believe
that our industry experience and our emphasis on, and ability to respond to,
the needs of our customers have positioned us to capitalize on the growing
market for domain name registration and related products and services. Our
competitive advantages include:
Substantial Industry Experience. We have been active in the domain name
registration industry since February 1998, when we began offering domain names
to customers throughout the world. We were one of five registrars selected by
ICANN to participate in the testbed process and, in June 1999, were the first
of these registrars to register domain names directly on behalf of customers.
Our experience in providing a consumer interface for registrations prior to
June 1999, our participation in the testbed and our involvement with the
development of ICANN's policies contribute to our substantial operational
experience in, and knowledge of, the domain name registration industry.
Customer Service Focus. Our customer support group seeks to provide
dependable and timely resolution of customer inquiries, 24 hours per day, seven
days per week. We manage and respond to customer inquiries through our
internally developed Internet-based customer care tracking system. We have
teams of customer service representatives who specialize in key aspects of our
business, and who are informed about our products, services and technology
through our ongoing training.
Value-Added Products and Services. We have assembled a suite of targeted
products and services to assist our customers with their online identities. In
addition to our quick and easy-to-use domain name registration services, we
offer a range of value-added products and services that we provide or that are
provided by third parties. These products and services include real-time domain
management, web hosting, comprehensive email services, domain name forwarding
and trademark protection services. We also offer services to participants in
our network of co-brand and private label websites to enable them to manage
their customers' domain names.
Broad and Efficient Distribution Channels. We believe that our direct and
indirect distribution channels enable us to reach a broad range of potential
customers with products and services targeted to their needs and to increase
our exposure across the market. We sell our services directly through our www.
register.com website and dedicated Corporate Register.com account managers. We
also offer domain name registration services indirectly through our network of
co-brand and private label websites. As of December 15, 1999, this network
consisted of over 200 participants. We serve as the exclusive registrar for a
substantial majority of these participants.
Scalable, Reliable and Secure Technological Platform. We designed and
developed our technological infrastructure with a view toward ensuring the
scalability, reliability and security essential to support the growth expected
in the domain name registration industry. Our selection by ICANN as a testbed
registrar was based in part on our technological plans.
The Register.com Strategy
Our objectives are to continue to increase our share of domain name
registrations, to differentiate our service and to develop a long-term
relationship with our customers by helping them to establish, maintain and
enhance their online presence. Our key strategies for achieving these
objectives include:
Introducing New Products and Services. We will continue to introduce new
products and services in order to empower our customers as they develop their
online presence. As part of this strategy, we will continue to enter into new
strategic alliances, develop new applications and website features and invest
in our technologies. We believe that these
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enhancements will increase traffic to our website and strengthen customer
loyalty, as well as position us as a preferred registrar for ISPs, web-hosting
companies and other companies whose websites may appeal to our target
customers.
Enhancing Brand Awareness. We will continue to build our brand awareness
and reputation in order to drive additional traffic to our website and attract
new strategic alliances, acquisition candidates, advertisers and talented
employees. We are promoting our brand through a marketing campaign, including
print and radio advertisements, increasing our distribution channels and adding
and improving our products and services. We also promote our brand through
speaking engagements, interviews and industry conferences.
Extending Distribution Channels. We will continue to extend our
distribution channels in order to further broaden our potential customer base.
We are focusing on expanding the participants in our co-brand and private label
network and, in particular, to include companies that have significant
subscriber or user bases.
Expanding Corporate Register.com. We will expand our Corporate
Register.com program by offering new products and services and by increasing
our targeted marketing to our potential customers. Our dedicated Corporate
Register.com account managers focus on servicing large corporate customers with
offerings such as multiple domain name registrations, multiple registration and
registrar transfers and international brand protection. We expect to expand our
current products and services to offer multi-year registration options,
international trademark infringement notification and account consolidation and
billing.
Pursuing Strategic Acquisitions. We intend to selectively pursue
acquisitions of, and strategic investments in, companies, including other
domain name registrars and developers of web-based applications and services.
We will target companies that offer complementary products, services and
technologies that can expand our business.
Offering Names in Additional Top Level Domains. We intend to continue to
offer our customers the ability to register domains in additional country codes
to meet their global needs. We also intend to register names in new generic top
level domains, such as .web, .firm and .store, if and when such domains become
available and we are authorized to do so by ICANN.
Expanding Internationally. We are expanding our relationships with foreign
ISPs and other foreign companies in order to offer our products and services to
the growing international Internet market. We also intend to pursue alliances
to create local language websites to provide domain name registration and
value-added products and services to non-English speaking people.
Products and Services
Registration Services. Our core expertise is providing domain name
registration services. We register domain names in the .com, .net and .org
domains and are able to register domain names in approximately 80 country code
domains in approximately 60 countries. We currently charge $70 for the initial
two-year registration for names in the .com, .net and .org domains and
approximately $40 to $299 for the initial one- or two-year country code domain
name registrations. We intend to charge similar amounts for renewal
registrations. We provide the following basic products and services, for no
additional fee, together with our registration services:
o FutureSite. We provide customers a presence on the Internet immediately
following registration until they launch their own website. Entering a
customer's new domain name will bring up a webpage stating: "Coming
Soon! We recently registered our domain name at register.com."
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o Domain Manager. This quick and easy-to-use service enables our
customers to view and modify important domain name information online,
on a real-time basis, including their email address, the location of
the server that hosts their website and all billing information.
Corporate Register.com Services. Through our Corporate Register.com
program, we offer:
o Multiple Domain Registrations. We register large numbers of domain
names, typically greater than 30 per customer.
o International Brand Protection. We register domain names in country
codes throughout the world, thereby assisting customers in protecting
their brands.
o Multiple Registration and Registrar Transfers. We facilitate the
processing of domain name transfers between registrants. If we were not
originally the registrar for a customer's domain names, we will
facilitate our designation as the registrar for those domain names.
Online Products and Services. We offer value-added products and services,
some of which we provide and some of which are provided by third parties. These
products and services include:
o Email. We resell comprehensive email services to our customers. These
email services enable our customers to use their unique domain names to
create branded email addresses, such as [email protected].
o SiteLink URL Forwarding. We have developed a domain name forwarding
system that allows customers to forward traffic from their domain names
to other web addresses.
o Web hosting. We offer web hosting to our customers primarily through
our strategic alliances.
In addition, we pursue advertisers for our website to offer additional
products and services that are complementary to our own offerings and appeal to
our customers. These include:
o trademark services;
o incorporation services;
o web hosting;
o online marketing;
o computer hardware and equipment; and
o virtual intranet applications for the small office and home office
market.
Customer Service
We believe that our ability to establish and maintain long-term
relationships with our customers depends, in part, on the strength of our
customer support operations and staff. Furthermore, we value frequent
communication with and feedback from our customers in order to continually
improve the quality of care provided by our customer service representatives.
Our customer service representatives handle general inquiries, investigate the
status of orders and payments and answer technical questions about the Internet
and domain name management.
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Our technology team developed our Internet-based customer service inquiry
tracking system, which we use to respond to substantially all customer service
inquiries. This system enables our customer service representatives to access
customer account information efficiently, including all past requests and our
responses. Additionally, based on information provided by our customers at the
time of their inquiry, our system automatically routes the inquiry to the
appropriate team of customer service representatives. This system also allows
our management to monitor the efficiency and effectiveness of our
representatives. We solicit feedback from our customers by emailing
quality-of-service surveys to them after we have resolved their inquiries. We
analyze the survey results on a quantitative and qualitative basis. These
responses provide us with real-time feedback on the quality of our customer
service.
Distribution
We believe that our direct and indirect distribution channels enable us to
reach a broad range of potential customers with products and services targeted
to their needs and to increase our exposure across the market. We provide our
customers quick, easy-to-use, value-added and flexible solutions across both of
our distribution channels.
Direct. We provide our products and services directly to our customers
through our www.register.com website. We also offer services to corporate
customers through our Corporate Register.com program.
o Website. Through our www.register.com website, customers may register a
domain name in six quick, easy-to-follow steps and access the
value-added products and services we offer to establish, maintain and
enhance their Internet presence. Through our affiliate program, we pay
a commission for customer referrals that result in domain name
registrations to encourage others to provide links to our website.
o Corporate Register.com. We launched this service to meet the needs of
corporate customers. Many companies currently rely on internal brand
managers and attorneys to register and monitor important trademarks and
brand names on the Internet. We believe that we can provide these
services more efficiently through our dedicated team of account
managers. As of December 15, 1999, our Corporate Register.com clients
included:
o APBnews.com;
o eBay;
o NASDAQ;
o Outpost.com; and
o Schering Plough Corporation.
Indirect. We offer our products and services indirectly through our
network of co-brand and private label websites, which include ISPs, web-hosting
companies and other companies whose websites may appeal to our target
customers. In addition, we provide ISP Manager, a real-time domain management
tool that allows these companies to control aspects of the domain name for
their customers directly and to monitor their customers' domain name
registration activity. As of December 15, 1999, we have signed up over 200
participants in our network of co-brand and private label websites.
Substantially all of these are currently co-brand participants.
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o Co-brand. We provide our network participants with the opportunity to
earn incremental revenue with minimal cost or effort on their part by
providing them a co-branded website through which they can offer our
services. In less than one day, we can construct and deliver a
customized, co-branded website that offers the same quick, easy-to-use,
six-step registration process available on our website. Typically, a
co-branded website is accessed through the participant's home page and
provides one or more links back to its website to facilitate the sale
of additional products and services. Our "register.com" logo usually
appears side by side with our co-brand participant's logo, providing us
with additional brand visibility. We also typically manage all of the
domain name support services, including notification, billing,
collections and customer service. Co-brand participants typically enter
into one-to-three year contracts with renewal options and receive
commissions depending upon the volume of registrations and the nature
of the relationship. A substantial majority of these contracts provide
for us to act as exclusive domain name registrar for the co-brand
participant.
o Private Label. We offer companies that we expect will provide a large
volume of registrations the opportunity to interface directly with our
domain name registration system through which they can offer our
services. This distribution channel allows an end-user to register a
domain name and purchase other products and services on a webpage that
maintains the look and feel of the website of our private label
participant. We also offer our private label participants a range of
billing, notification and customer support options.
Marketing
Our marketing efforts focus on attracting customers by emphasizing our
simplified registration process and customer service. We use a combination of
Internet, print and radio advertisements. We believe this combination of online
and offline advertising is particularly effective in targeting individuals and
small- to medium-sized businesses.
In September and October 1999, we sponsored a telephone survey of males
aged 18-49 to measure brand awareness in the domain name registration services
industry. The survey was conducted by Data Development Corporation, a marketing
research firm specializing in customized research. The results of the survey
indicated that, while there is no dominant brand in the domain registration
industry, through aided and unaided prompting approximately 20% of people
surveyed recognized our brand prior to our launching any significant
advertising campaign.
Strategic Alliances
We seek to enter into strategic alliances to expand our business, which
are important sources for new customer opportunities, brand building, revenue
growth and increasing our product and service offerings. Our strategic
alliances include:
o Excite@Home. We have entered into a strategic marketing relationship
with Excite@Home, a global media company. We will be a featured domain
name registration service sponsor on the Excite.com and WebCrawler.com
websites. Our relationship with Excite@Home provides us exposure to
these large website audiences.
o Staples, Inc. We are the exclusive registrar for Staples, Inc. and its
Staples.com website, and have entered into a cooperative marketing
agreement with Staples. Staples is a leading retailer of office
supplies, furniture and technology products to individuals and
businesses. Our relationship with Staples provides us a range of
marketing and
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branding opportunities, including through a co-branded website and
promotion of our brand name and services in Staples' retail stores. In
addition, Staples made an equity investment in us.
o Concentric Network Corporation. We are Concentric's exclusive provider
of registration services for Concentric-branded registrations.
Concentric advertises on our www.register.com website to provide
complete, easy-to-use Internet business solutions for small- to
medium-sized companies and data center services for larger
corporations. Through a private label distribution relationship,
Concentric will provide our domain name registration services together
with its virtual web-hosting and other services to its customers. In
addition, Concentric made an equity investment in us.
o ZDNet. We are the preferred registrar for the ZDNet website. ZDNet's
website offers nearly 30 channels centering on issues such as home
computing, technology, news and electronic commerce. Our relationship
with ZDNet provides us exposure to its technology and Internet-focused
audience.
Advertising Sales
We believe that our growing user base provides advertisers and merchants
with an attractive platform from which to reach their target audience. During
the three-month period ended September 30, 1999, our advertising revenues
increased by 74% over the prior three-month period ended June 30, 1999. Because
we attract visitors to our website with the products and services we offer, as
compared to other sites that attract visitors with their content, we believe
these visitors are more likely to purchase goods or services through our
website. In addition, we sell advertising space on FutureSite pages.
Technology
Our technology infrastructure is built and maintained for reliability,
scalability, flexibility and security and is administered by our skilled
technical staff.
Facilities. Our online systems currently reside at two co-location
facilities located in Jersey City, New Jersey and New York, New York, but the
majority of these systems are currently located in Jersey City. We believe each
facility has ample power redundancy, fire suppression, peering to other ISPs,
bandwidth and backbone redundancy to support the current and anticipated growth
of our business.
Reliability. Our technology platform uses technologies to maximize
reliability. All hardware components are redundant through highly available
systems. We provide software and data reliability through a variety of
processes and quality-assurance procedures. Our standard procedures include
daily database backups, offsite storage of critical information and incremental
backups of ongoing database modifications. Additional reliability is provided
by our fault-tolerant and redundant platform architecture, which utilizes
clustering technology that is designed to ensure uninterrupted service.
Scalability and Flexibility. We designed our systems to handle a large
volume of domain name registrations, general website traffic and domain name
server queries in an efficient, scalable and fault-tolerant manner. Our
application servers are clustered and use a shared file system which allows us
to add additional capacity. Our system is designed to scale easily and to
support rapid growth without the need to redesign the network.
Security. Our technology incorporates a variety of security techniques to
protect domain name registration data, including limiting access to users that
are authenticated through a Virtual Private Network (VPN) and encrypting user
passwords at the time of account creation.
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We have initiated processes to maintain internal server passwords as well as to
ensure limited accessibility to critical components on the network. Our network
is protected by a suite of industry-leading hardware/software security
solutions.
Ongoing Improvements. We are in the process of implementing new load
balancing and security protocols to help protect our network and further
improve scalability. We expect to add network operation centers in other
locations, which will help add redundancy and intelligent load balancing to our
systems. We believe that introducing geographic redundancy will enable us to
maintain systems that are less susceptible to regional Internet outages.
Technology Staff. Our technology team is skilled in developing scalable,
reliable and critical applications and solutions. Many of our technologies,
including our web-based customer care tracking system, were developed in-house.
Our team of engineers monitors our systems 24 hours per day, seven days per
week.
Administration of the Internet; Government Regulation and Legal Uncertainties
The Internet domain name registration system is composed of two principal
functions: registry and registrar. The registry maintains the database that
contains the top level domains and their corresponding Internet protocol
addresses. The registrar acts as an intermediary between the registry and
individuals and businesses, referred to as registrants, seeking to register
domain names.
Under a 1993 cooperative agreement with the U.S. Department of Commerce,
Network Solutions was authorized to act as the sole registry and sole registrar
for domain names in the .com, .net and .org, top level domains. On July 1,
1997, President Clinton approved and released a report entitled A Framework for
Global Electronic Commerce, in which he authorized the creation of an
inter-agency working group under the leadership of the Department of Commerce
to study domain name system registration and administration issues,
specifically the issue of privatizing the management of the domain name system.
In October 1998, in response to this report, the Department of Commerce amended
the Network Solutions cooperative agreement to call for the formation of a
not-for-profit corporation to oversee the management of, and create policies
regarding, domain names in the .com, .net and .org top level domains. The
Department of Commerce also proposed that additional registrars be authorized
to register domain names in these domains based upon the idea that competitive
registrars would benefit consumers and businesses. ICANN was recognized as this
not-for-profit corporation by the Department of Commerce in November 1998.
ICANN's authority is based upon voluntary compliance with its consensus
policies. While these policies do not constitute law in the United States or
elsewhere, they are expected to have a significant influence on the future of
the domain name registration system.
In April 1999, ICANN selected five testbed companies to act as registrars
to register domain names and compete with Network Solutions. These five
entities were Register.com, America Online, Inc., France Telecom, Melbourne IT
and CORE, which is a worldwide consortium of registrars. Each registrar was
required to execute a one-year accreditation agreement with ICANN. Register.com
was the first of the testbed companies to begin directly registering domain
names. The testbed registrars were the first registrars provided with access to
the Shared Registration System, which allowed them to interface directly with
Network Solutions' registry. The testbed period ended on November 30, 1999, and
the registrar accreditation process was opened to the public. As of December
21, 1999, 70 companies were accredited by ICANN to act as registrars.
On November 10, 1999, ICANN, Network Solutions and the Department of
Commerce executed a set of agreements that were intended to amend the 1993
cooperative agreement and make Network Solutions an ICANN-accredited registrar.
These agreements also provided for Network Solutions to act as the registry for
a minimum of four years from the effective date of the agreement. Under these
agreements:
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o Network Solutions is prohibited until approximately October 2000 from
entering into exclusive agreements with any third-party partners,
including web-hosting companies and ISPs. This provision is intended to
provide us and other competitive registrars with the ability to enter
into agreements with these third parties;
o the annual fee that a registrar must pay to the registry for each
generic top level domain name registered will be reduced from $9 to $6
per year, effective January 15, 2000;
o the registry for generic top level domain names will no longer limit
registrations to an initial period of two years. After January 15,
2000, the registry will accept generic top level domain name
registrations for periods from one to ten years; and
o the InterNIC website www.internic.net, formerly controlled by Network
Solutions, will be turned over to ICANN on May 31, 2000. This website
links to a directory of domain names in the Network Solutions registry,
and now contains information regarding the introduction of competitive
registrars and includes the names of the operational, ICANN-accredited
registrars.
On December 1, 1999, ICANN's first substantive policy, the Uniform Dispute
Resolution Policy, became effective. This dispute resolution policy was created
to address the problem of cybersquatting, or registering the trademark of
another as a domain name with the intent to wrongfully profit from the goodwill
in that name created by the trademark holder. ICANN intends to create
additional policies governing the domain name registration system, and we will
be affected by any of these policies. We played a leading role in the drafting
and implementation of the Uniform Dispute Resolution Policy, and we intend to
continue to play an active role in the development of ICANN policies.
We anticipate that new top level domains, such as .firm, .web and .store,
will eventually be authorized by ICANN for introduction into the domain name
registration system. The timing of the introduction of these new top level
domains depends on a number of factors, including reaching a consensus among
the international Internet community on what the domains will be, and what type
of registry will be established to serve as the repository for such domains. If
and when these domains become available, we intend to petition ICANN for
authorization to act as a registrar for these domains.
There have been ongoing legislative developments and judicial decisions
with respect to trademark infringement claims, unfair competition claims, and
dispute resolution policies relating to the registration of domain names. To
help protect ourselves from liability in the face of these ongoing legal
developments, we have taken the following precautions:
o in our standard registration agreement, we require that each registrant
indemnify, defend and hold us harmless for any dispute arising from the
registration or use of a domain name registered in that person's name;
and
o we adopted the Uniform Domain Name Dispute Resolution Policy as
approved by ICANN on October 24, 1999.
Despite these precautions, we cannot assure you that our indemnity and dispute
resolution policies will be sufficient to protect us against claims asserted by
various third parties, including claims of trademark infringement and unfair
competition.
New laws or regulations regarding domain names and domain name registrars
may be adopted at any time. Our responses to uncertainty in the industry or new
regulations could increase our costs or prevent us from delivering our services
over the Internet, which could delay growth in demand for our services and
limit the growth of our revenues. New and existing laws may cover issues such
as:
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o pricing controls;
o the creation of additional generic top level domains and country code
domains;
o consumer protection;
o cross-border domain name registration;
o trademark, copyright and patent infringement;
o domain name dispute resolution; and
o other claims based on the nature of content of domain names and domain
name registration.
In November 1999, the Anticybersquatting Consumer Protection Act was
enacted by the United States government. This law seeks to curtail a practice
commonly known in the domain name registration industry as "cybersquatting." A
cybersquatter is generally defined in the Act as one who registers a domain
name that is identical or similar to another party's trademark, or the name of
another living person, in each case with the bad faith intent to profit from
use of the domain name. The law states that registrars may not be held liable
for registration or maintenance of a domain name for another person absent a
showing of the registrar's bad faith intent to profit from the use of the
domain name. Registrars may be held liable, however, if they do not comply
promptly with procedural provisions of the law. For example, if there is a
litigation involving a domain name, the registrar is required to deposit a
certificate representing the domain name registration with the court. To date,
there is no precedent to specify under what circumstances we may suffer
liability under this law. If we are held liable under this law, any liability
could have a material adverse effect on our business financial condition and
results of operations.
Competition
We believe that our industry experience, product and service offerings,
customer service focus, quick and easy to use registration process and broad
and efficient distribution policies enable us to compete favorably in providing
domain name registration services and ancillary products and services and in
attracting advertisers. However, our competitors may have greater name
recognition, longer operational histories and greater financial, technical and
managerial resources and may undertake extensive marketing campaigns for their
brands and services, adopt aggressive pricing policies and make more attractive
offers to potential distribution partners, advertisers and customers.
Competition in the Domain Name Registration Industry. As of December 21,
1999, there were 70 ICANN-accredited registrars. Of these, only 22 are
connected to the Shared Registration System, and the remainder are still in the
development phase with respect to offering registration services. An additional
28 companies have qualified for accreditation but have yet to sign the
agreements required by ICANN and Network Solutions. Our principal competitor in
the market for domain name registration services is Network Solutions. The
barriers for other competitors seeking to enter the market as domain name
registrars include developing the requisite technological infrastructure and
meeting ICANN's accreditation requirements. In addition to other registrars, we
face competition from companies who align themselves with accredited registrars
to offer domain name registration services, including ISPs, web-hosting
companies, telecommunications firms and Internet professional service firms.
Competition with respect to our online products and services. A key
component of our business strategy is to offer value-added products and
services that encourage customers to use our website for the development and
maintenance of their online presence. The markets for our products and services
are highly competitive. Other registrars may develop or enter into
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strategic relationships to offer products and services similar to those that we
now provide, including our email, domain-forwarding and website-hosting
features. In addition to competing with other registrars, we also compete with
many other providers of these products and services, including application
service providers and Internet professional services firms.
Competition for Advertisers. We compete for Internet advertising and
sponsorship revenues with other domain name registrars, content-based websites,
ISPs, Internet content providers, large web-based publishers, Internet search
engines and portal companies and various other companies that facilitate
Internet advertising. We also compete with traditional offline media for a
share of advertisers' total advertising budgets.
Intellectual Property and Proprietary Rights
We believe that we are well positioned in the domain name registration and
shared Internet web-hosting markets in part due to our highly recognized brand,
register.com. We regard our trademarks, copyrights, trade secrets and other
intellectual property as critical to our success. We rely on trademark and
copyright law, trade secret protection and confidentiality and/or license
agreements with our employees, customers, partners and others to protect our
intellectual property rights. Despite our precautions, third parties could
obtain and use our intellectual property without authorization. Furthermore,
the validity, enforceability and scope of protection of intellectual property
in Internet-related industries is uncertain and still evolving. The laws of
some foreign countries do not protect intellectual property to the same extent
as do the laws of the United States. Our trademark registration applications
are pending for "The First Step on the Web" and "SiteAmerica." All other
trademarks and service marks used in this prospectus are the property of their
respective owners.
We have received initial rejections from the U.S. Patent and Trademark
Office on our trademark applications for "register" and "register.com" based on
descriptiveness. In due course we will be preparing a response arguing that
these brands have become widely known through extensive use in commerce and are
valid trademarks. While we will be taking all reasonable measures to secure
trademark registrations for the "register" and "register.com" marks, we cannot
assure you that we will be able to obtain these registrations.
Effective trademark, service mark, copyright and trade secret protection
may not be available in every country in which our services are or will be made
available. We also expect to license proprietary rights such as trademarks or
copyrighted material to strategic partners in the course of planned national
and international expansion. While we will attempt to ensure in our agreements
that licensees will maintain the quality of our service, we cannot assure you
that they will not take actions that might diminish the value of our
proprietary rights or reputation and that could thereby materially harm our
business.
We also rely on certain technologies that we license from other parties.
For instance, Network Solutions has licensed us the right to use key software
products and database technology. We cannot assure you that these third-party
technology licenses will not infringe on the proprietary rights of others or
will continue to be available to us on commercially reasonable terms, if at
all. The loss of such technology could require us to obtain substitute
technology of lower quality or performance standards or at greater cost, which
could materially harm our business.
To date, we have not been notified that our technologies infringe the
proprietary rights of any third parties. There can be no assurance that others
will not claim that we have infringed their proprietary rights with respect to
past, current or future technologies. We expect that the number of infringement
claims in our market will increase as the number of services and competitors in
our industry grows. Any of those claims, whether meritorious or not, could be
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time consuming, result in costly litigation, or require us to enter into
royalty or licensing agreements. Royalty or licensing agreements might not be
available on terms we find acceptable or at all. As a result, any such claim
could materially harm our business.
Employees
As of December 15, 1999, we had approximately 122 full-time employees.
None of our employees are represented by a labor union or are subject to
collective-bargaining agreements. We believe that we maintain good
relationships with our employees.
Facilities
We currently lease approximately 20,000 square feet of space in one
location in New York, New York under a ten-year contract that expires in 2009.
We also sublease 2,700 square feet in our current location on a month-to-month
basis. We believe that our current space will meet our needs for approximately
18 months.
Legal Proceedings
We are not party to any material legal proceedings and are not aware of
any pending or threatened litigation that would materially and adversely affect
our business.
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MANAGEMENT
Our executive officers and directors
The following table sets forth our executive officers and directors, their
ages and the positions they hold:
<TABLE>
<CAPTION>
Name Age Position
- -------------------------------- ----- ---------------------------------------
<S> <C> <C>
Richard D. Forman (1) .......... 35 President, Chief Executive Officer
and Chairman of the Board of Directors
Alan G. Breitman ............... 29 Vice President of Finance and
Accounting; Treasurer
Robert D. Gardos ............... 27 Vice President of Technology
Sascha A. Mornell .............. 31 Vice President of Marketing
Jack S. Levy ................... 29 General Counsel and Secretary
Lauren M. Gaviser .............. 28 Director of Strategic Initiatives
Gerhard Karba .................. 43 Director of Development
Niles H. Cohen (1) ............. 39 Director
Peter A. Forman ................ 38 Director
Mark S. Hoffman (1) ............ 38 Director
Samantha McCuen ................ 31 Director
Reginald Van Lee ............... 41 Director Nominee
</TABLE>
- -------------
(1) Member of compensation committee.
Richard D. Forman has been our Chief Executive Officer since March 1996
and our President since March 1998. He has served as one of our Directors since
our inception and as Chairman of the Board since May 1999. Since 1994, Mr.
Forman has also been the President of Lease On Line, Inc., a real estate
brokerage and management firm. In addition, Mr. Forman has managed real estate
in the New York City area since August 1992. Mr. Forman was formerly a
consultant with Booz Allen & Hamilton, Inc. in its New York City and Sydney,
Australia offices. Mr. Forman is the brother of Peter A. Forman, one of our
directors and co-founders. In 1987, Mr. Forman graduated from the University of
Pennsylvania's Management and Technology Program, and received his B.S. in
Economics from the Wharton School of Business and B.S. in Electrical
Engineering from the Moore School of Electrical Engineering. In 1992, Mr.
Forman received his M.S. in Real Estate from New York University.
Alan G. Breitman has served as our Vice President of Finance and
Accounting since November 1998 and was appointed our Treasurer in December
1998. From December 1998 until October 1999, Mr. Breitman served as our
Secretary. From September 1998 through October 1998, Mr. Breitman served as the
Chief Financial Officer of Metro Lights Advertising, a domestic outdoor
advertising company. From August 1997 through August 1998, Mr. Breitman was the
Manager of Financial Planning and Analysis at Allaire Corporation, a developer
of Internet development tools. From May 1997 to July 1997, Mr. Breitman was the
Manager of Financial Planning and Analysis for Datamedic, a developer of
integrated point of care computerized patient record and practice management
solutions. From May 1996 to May 1997, Mr. Breitman worked as both the
accounting manager and financial analyst for Visibility, Inc., a developer of
manufacturing accounting systems. From 1995 to 1996, Mr. Breitman was the
Manager of Internal Financial Reporting for Xtra Corp. From 1992 to 1995, Mr.
Breitman was an auditor at Coopers & Lybrand, where he worked primarily with
high technology and financial services companies. Mr. Breitman received his
B.S. in Business from Skidmore College in 1992.
Robert D. Gardos has served as our Vice President of Technology since June
1999. From June 1998 until June 1999, Mr. Gardos served as our Director of
Information Systems. From May 1997 to May 1998, Mr. Gardos was the Chief
Financial Officer for Touchlink, a privately held company that he co-founded to
provide public Internet kiosks. From December
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1994 to April 1997, Mr. Gardos was a Senior Consultant for Ernst & Young where
he managed system selection and implementation projects. From January 1994 to
December 1994, Mr. Gardos was an analyst for UMS Management group, a firm
specializing in utility consulting. Mr. Gardos received his B.S. in Economics
from the Wharton School of Business, with a concentration in Finance in 1993.
Sascha A. Mornell has served as our Vice President of Marketing since June
1999. From May 1998 until June 1999, Mr. Mornell served as our Director of
Online Products and Marketing. From August 1997 to March 1998, Mr. Mornell was
Manager of International Business Development and Marketing at the National
Basketball Association in New York. From August 1992 to December 1995, Mr.
Mornell was the New Product Development Manager for Dreyer's Brand Ice Cream in
Tokyo, Japan. Mr. Mornell received his B.A. in History from the University of
California at Berkeley in 1990 and received his M.B.A. from Harvard Business
School in 1997.
Jack S. Levy has served as our General Counsel and Secretary since October
1999. From September 1996 until October 1999, Mr. Levy was an associate in the
corporate department of Willkie Farr & Gallagher. Mr. Levy received his B.A. in
Government from Harvard College in 1992 and his J.D. from Columbia Law School
in 1996.
Lauren M. Gaviser has served as our Director of Strategic Initiatives
since April 1999. From August 1996 until April 1999, Ms. Gaviser was a senior
associate at Booz Allen & Hamilton, Inc., in its Communications, Media and
Technology Practice in New York and from December 1992 until May 1994 was in
the Sales and Marketing division of Alcatel Bell Telephone in Antwerp, Belgium.
Ms. Gaviser received her B.A. in Spanish and Comparative Area Studies from Duke
University in 1992 and received her M.B.A. from Columbia University in 1996.
Gerhard Karba has served as our Director of Development since October
1999. From November 1998 until September 1999, Mr. Karba was Executive Vice
President of Mik & Associates Inc., a custom software and systems integration
company. From December 1997 until October 1998, Mr. Karba was President of
Ambras Technologies, Inc., a software company that was acquired by Mik &
Associates. From 1993 to November 1997, Mr. Karba served as the President of
Paradigm Software Technologies, an enterprise software company specializing in
high-end project tracking and billing systems. Mr. Karba received his Executive
M.B.A. degree from Pace University in 1992, and his B.B.A. from Pace University
in 1986.
Niles H. Cohen has served as one of our Directors since November 1995.
Since 1994, Mr. Cohen has been the Managing Member of Capital Express, LLC, a
New Jersey-based venture capital firm that he founded. Mr. Cohen is a member of
the boards of directors of several privately held companies, including
Awards.com, Inc., 1-800 BIRTHDAY.com, Inc. and MoneyHunt Properties, Inc. Since
December 1988, Mr. Cohen has been the President of Nihco Equities, Inc., an
investment and consulting firm that he founded. Mr. Cohen received his B.S. in
Economics from the Wharton School of Business in 1982.
Peter A. Forman, our co-founder, has served as one of our Directors since
our inception in 1994. Mr. Forman served as our President from our inception in
1994 until March 1998 and as Chairman of the Board from our inception in 1994
until May 1999. Since January 1998, Mr. Forman has been a Managing Member of
Forman Capital Management, which specializes in early stage internet and
technology companies. Since February, 1999, Mr. Forman has served as President
of WellSet, a consumer and commercial products manufacturing, marketing, and
distribution company. From August 1983 until February 1999, Mr. Forman served
as the Chief Executive Officer of Ben Forman & Sons, Inc. Mr. Forman is the
brother of the Company's President and Chief Executive Officer, Richard D.
Forman. Mr. Forman has a background in software development and computer
systems operations. Mr. Forman received his B.S. in Economics from the Wharton
School of Business in 1983.
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Mark S. Hoffman has served as one of our Directors since March 1999. Since
October, 1994, he has been a Member of Palisade Capital Management, LLC, the
investment manager of Palisade Private Partnership, L.P. Mr. Hoffman received
his B.S. in Economics from the Wharton School of Business in 1983.
Samantha McCuen has served as one of our Directors since June 1999. She is
a Vice President of Sandler Capital Management. Ms. McCuen joined Sandler in
January 1996 and is currently responsible for analyzing, structuring and
managing Sandler's investments in Internet and technology companies in the
public and private sectors. She has been a principal of Sandler Internet
Partners, L.P. since October 1999. From 1990 to 1996, Ms. McCuen held both
equity research and investment banking positions at Morgan Stanley Dean Witter
where she specialized in Internet and PC software companies. Ms. McCuen
received her B.A. in Economics from Lehigh University in 1990.
Reginald Van Lee is a Director Nominee and will become one of our
Directors prior to the consummation of this offering, subject to stockholder
approval. Mr. Van Lee joined Booz Allen & Hamilton, Inc. in 1984 and has been a
Partner there since 1993. Mr. Van Lee, who specializes in international
business strategy and management of technology-driven companies in the global
communications, media and technology industries, is currently the Managing
Partner of Booz Allen & Hamilton's New York City office. Mr. Van Lee received
his B.S. in Civil Engineering in 1979 and his M.S. in Civil Engineering in 1980
from the Massachusetts Institute of Technology. In 1984, Mr. Van Lee received
his M.B.A. from Harvard Business School.
Each of our directors is nominated and elected in accordance with our
stockholders agreement, which will terminate upon the consummation of this
offering. For a more detailed discussion of the stockholders agreement, please
see "Certain Relationships and Related Transactions."
Board Committees
Audit Committee. The audit committee will be formed prior to the
consummation of this offering. The audit committee will report to the board of
directors regarding the appointment of our independent public accountants, the
scope and results of our annual audits, compliance with our accounting and
financial policies and management's procedures and policies relative to the
adequacy of our internal accounting controls.
Compensation Committee. The compensation committee of the board of
directors reviews and makes recommendations to the board regarding our
compensation policies and all forms of compensation to be provided to our
executive officers and directors. In addition, the compensation committee
reviews bonus and stock compensation arrangements for all of our other
employees. The current members of the compensation committee are Richard D.
Forman, Mark Hoffman and Niles Cohen. Mr. Forman will step down from the
compensation committee prior to the consummation of this offering.
Director Compensation
We will pay directors who are not affiliated with any stockholder who
purchased shares from us prior to this offering, who we refer to as unaffilated
directors, an annual fee of $4,000. Our other directors do not receive
compensation for their services as members of our board of directors. We
reimburse our directors for expenses incurred in connection with their
attendance at board and committee meetings. We currently do not provide
additional compensation for committee participation or special assignments of
the board of directors.
Reginald Van Lee, who is an unaffiliated director nominee, will be
entitled to receive options to purchase 10,000 shares of our common stock with
an exercise price equal to the initial public offering price of our common
stock upon his joining our board. Subject to his continuing service as a
director, 50% of these options will vest on the first anniversary of his
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becoming a director and the remaining 50% will vest on the second anniversary.
Each future unaffiliated director, upon becoming a director, will receive a
grant of options to purchase 10,000 shares of our common stock with an exercise
price equal to the fair market value of our common stock on the close of
business on the date of grant. Subject to the option holder's continuing
service as a director, 50% of these options will vest upon the first
anniversary of the individual's becoming a director and 50% will vest upon the
second anniversary.
No interlocking relationships currently exist between our board of
directors or compensation committee and the board of directors or compensation
committee of any other company, nor has any interlocking relationship existed
in the past.
Limitation on Directors' Liability and Indemnification
Our amended and restated certificate of incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for:
o any breach of their duty of loyalty to the corporation or its
stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
o any transaction from which the director derived an improper personal
benefit.
In accordance with applicable law, this limitation of liability does not apply
to liabilities arising under the federal securities laws and does not affect
the availability of equitable remedies such as injunctive relief or rescission.
Our amended and restated certificate of incorporation and our amended and
restated bylaws provide that we will indemnify our directors and officers and
may indemnify our employees and other agents to the fullest extent permitted by
law. We believe that indemnification under our amended and restated bylaws
covers at least negligence and gross negligence on the part of indemnified
parties. Our amended and restated bylaws also permit us to secure insurance on
behalf of any officer, director, employee or other agent for any liability
arising out of his or her actions in his or her capacity as an officer,
director, employee or other agent, regardless of whether the amended and
restated bylaws would permit indemnification.
The limited liability and indemnification provisions in our amended and
restated certificate of incorporation and amended and restated bylaws may
discourage stockholders from bringing a lawsuit against our directors for
breach of their fiduciary duty and may reduce the likelihood of derivative
litigation against our directors and officers, even though a derivative action,
if successful, might otherwise benefit us and our stockholders. A stockholder's
investment in us may be adversely affected to the extent we pay the costs of
settlement or damage awards against our directors and officers under these
indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification.
Employment Agreements
We have entered into employment agreements with each of Richard D. Forman
and Jack S. Levy.
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<PAGE>
Mr. Forman's employment agreement with us became effective as of November
15, 1995 and terminates on June 30, 2000. The agreement entitles Mr. Forman to
receive a current base salary of $200,000 per year, health benefits, and
reimbursement of car expenses and perquisites up to a maximum of $20,000 per
year. In addition, Mr. Forman is entitled to exercise, at any time prior to
January 4, 2003, an option to purchase up to 500,000 shares of common stock, of
which:
o 150,000 shares have an exercise price of $0.60 per share;
o 100,000 shares have an exercise price of $1.60 per share;
o 100,000 shares have an exercise price of $3.00 per share; and
o 150,000 shares have an exercise price of $6.00 per share.
All of Mr. Forman's options under his employment agreement are fully
vested.
Mr. Levy's employment agreement with us became effective as of October 11,
1999. The agreement provides for a one-year term, at which time the term will
be extended for consecutive 45-day periods, unless terminated by either party.
Mr. Levy is entitled to an annual salary of at least $116,327 and received a
signing bonus of $25,000. Mr. Levy is also entitled to receive a $50,000 cash
bonus within 15 days of the closing of either our initial public offering or
our change in control, plus a $25,000 cash bonus at the one-year anniversary of
our initial public offering or the six-month anniversary of our change in
control. We have also granted Mr. Levy options to purchase up to 35,000 shares
of our common stock at an exercise price of $5.00 per share. These options vest
beginning on January 11, 2000 in 42 monthly installments of 833 shares and a
final monthly installment of 847 shares.
We also granted Mr. Levy options to purchase 15,000 shares of our common
stock. The exercise price per share for these options will equal the initial
public offering price if we complete an initial public offering before October
31, 2000 and will equal $25.00 if we complete an initial public offering on or
after October 31, 2000. These options vest on a monthly basis for a period of
42 months, with the initial vesting date being the earlier of October 31, 2000
and the closing of an initial public offering.
The vesting of Mr. Levy's options will accelerate upon the earlier of:
o our change in control, in which case vesting will accelerate to the
six-month anniversary of the closing of the transaction; or
o the termination of Mr. Levy's employ by us without cause or by him for
good reason following our change in control, in which case vesting will
accelerate to the date of his termination.
If Mr. Levy's employment is terminated by us without cause or by him for
good reason following our change in control, the vesting of any options that
would have vested through the expiration of the employment term had the
termination not occurred will be accelerated to the date of the termination.
This provision will apply to Mr. Levy's options to purchase 15,000 shares of
common stock only if an initial public offering or change in control has
occurred prior to the effective date of his termination. In addition, we would
be required to pay Mr. Levy the bonuses applicable to these transactions, as
well as pay his salary until the scheduled expiration of the employment
agreement. If Mr. Levy's employment is terminated due to death or for good
cause, or a voluntary resignation, he will not be entitled to any compensation
from us in addition to the payment of any accrued base salary, bonuses and
benefits.
Executive Compensation
The following table sets forth the total compensation paid or accrued for
the year ended December 31, 1998 to our Chief Executive Officer and to each of
our most highly compensated executive officers other than our Chief Executive
Officer whose salary and bonus for the fiscal year exceeded $100,000. We refer
to the Chief Executive Officer and the other officers as named executive
officers.
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<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------- ------------------
Securities
Underlying All Other
Name and Principal Position Salary Bonus Options/SARs (#) Compensation ($)
- ---------------------------------------- ----------- ---------- ------------------ -----------------
<S> <C> <C> <C> <C>
Richard D. Forman
Chief Executive Officer and President .. $114,000 $20,000 500,000 $17,587
</TABLE>
Option Grants in Last Fiscal Year
The following table sets forth grants of stock options for the year ended
December 31, 1998 to each of our named executive officers. The potential
realizable value is calculated based on the term of the option at its time of
grant. It is calculated assuming that the fair market value of common stock on
the date of grant appreciates at the indicated annual rate compounded annually
for the entire term of the option and that the option is exercised and sold on
the last day of its term for the appreciated stock price. These numbers are
calculated based on the requirements of the Securities and Exchange Commission
and do not reflect our estimate of future stock price growth. The percentage of
total options granted to employees in the last fiscal year is based on options
to purchase an aggregate of 213,000 shares of common stock granted under our
plans and non-plan options to purchase an aggregate of 500,000 shares of common
stock.
<PAGE>
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------
% of Potential Realizable
Total Value at Assumed
Options Annual Rates of
Number Granted Stock Price
of Shares to Appreciation
Option Term
Underlying Employees Exercise ------------------------------------
Options in Fiscal Price Per Expiration
Name Granted Year Share Date 0% 5% 10%
- --------------------------- ------------ ----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard D. Forman ......... 150,000 21% $ 0.60 1/4/2003 $97,500 $150,000 $301,500
100,000 14% 1.60 1/4/2003 -- -- 41,000
100,000 14% 3.00 1/4/2003 -- -- --
150,000 21% 6.00 1/4/2003 -- -- --
</TABLE>
Aggregated Option Exercises in the Year Ended December 31, 1998 and Year-End
Option Values
The following table sets forth information concerning the options held by
each of our named executive officers at December 31, 1998. There was no public
trading market for the common stock as of December 31, 1998. Accordingly, the
values set forth below have been calculated on the basis of an assumed initial
public offering price of $______ per share, less the applicable exercise price
per share, multiplied by the number of shares underlying the options.
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End at Fiscal Year End ($)
------------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Richard D. Forman ......... 500,000 --
</TABLE>
Stock Option Plans
We adopted our stock option plans for the purpose of promoting our
long-term growth and profitability by providing key persons the incentive to
improve stockholder value and to
55
<PAGE>
contribute to our growth and success, as well as to enable us to attract and
retain talented and skilled persons for positions of substantial
responsibility. We have used stock options as a component of compensation for
our officers and key employees.
1997 Stock Option Plan.
Our predecessor company, Forman Interactive Corporation, adopted our 1997
Stock Option Plan in December 1997. We assumed the 1997 plan in our merger with
Forman Interactive. A total of 500,000 shares of common stock have been
authorized for issuance under the plan. As of December 1, 1999, options to
purchase an aggregate of 493,410 shares of common stock were outstanding under
the plan, and an aggregate of 6,590 shares of common stock are authorized but
have not yet been granted as awards under the plan. The number and price of
shares covered by outstanding stock options and the number of shares authorized
under the plan will be proportionately adjusted, as determined by the board, to
take into account any stock split, reverse stock split, stock dividend,
combination, recapitalization or similar event.
Our officers, employees, non-employee directors and consultants are
eligible to participate in the plan. As plan administrator, our board of
directors has the sole discretion to determine which eligible individuals may
receive awards, the type of awards to be made and the terms and conditions of
each award.
If we merge with another company and do not survive the merger, or we sell
substantially all of our common stock to another person, or enter into any
similar transaction, all outstanding options must be assumed by the surviving
company, unless the board determines in its sole discretion to terminate all
outstanding options effective at the closing of the transaction by delivering a
notice of termination to each optionholder at least 20 days prior to the
closing. Each optionholder would, however, have the right to exercise the
vested portion of the option during the period from the delivery of the notice
until the closing.
No options may be granted under the plan after December 2007, but options
granted prior to that date may continue to be exercised until their stated
terms.
1999 Stock Option Plan.
In April 1999, our board of directors adopted our 1999 Stock Option Plan,
which is subject to stockholder approval within one year of adoption. A total
of 650,000 shares of common stock have been authorized for issuance under the
plan, and no more than 500,000 shares may be issued under the plan to any one
individual. As of December 1, 1999, no options to purchase shares of common
stock were outstanding under the plan. The number and price of shares covered
by outstanding stock options and the number of shares authorized under the plan
will be proportionately adjusted, as determined by the board, to take into
account any stock split, reverse stock split, stock dividend, combination,
recapitalization or similar event.
Our directors, officers, employees and consultants and other advisors are
eligible to participate in the plan. As plan administrator, the compensation
committee of our board of directors has the sole discretion to determine which
eligible individuals may receive awards, the type of awards to be made and the
terms and conditions of each award. Unless otherwise fixed by the plan
administrator, each option shall expire ten years from the date of grant. No
options may be granted under the plan after April 2009, but options granted
prior to that date may continue to be exercised until their stated terms.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Equity Issuances and Financings
In August 1996, we borrowed an aggregate of $100,000 from our co-founders,
Richard D. Forman, our President, Chief Executive Officer and Chairman of our
board of directors, Peter A. Forman, one of our directors, and Dan B. Levine, a
director at the time of the transaction, to fund our operations. In connection
with this transaction, we issued warrants to purchase shares of our common
stock at an exercise price of $0.85 per share as follows:
Common Stock
Name of Investor Underlying Warrants
- --------------------------- --------------------
Richard D. Forman ......... 44,641
Peter A. Forman ........... 44,641
Dan B. Levine ............. 28,365
In January 1998, each exercised in full his warrants and used the amount
due from us under the loan to pay the exercise price.
In September 1996, pursuant to a letter agreement among Capital Express,
LLC, Peter A. Forman, Richard D. Forman and Dan B. Levine, and in consideration
for personally guaranteeing a commercial loan to us in the amount of $162,000
from Citibank, N.A. we issued to each of Richard Forman and Peter Forman
warrants to purchase 135,000 shares of our common stock at an exercise price of
$0.60 per share. In January 1998, each forfeited accrued but unpaid
compensation in order to effect a cashless conversion of these warrants.
Also, in January 1998, we sold 800,000 shares of our common stock at a
price of $1.25 per share to Internet Web Builders, LLC for a purchase price of
$1.0 million. Concurrently with the closing of this transaction, we issued
warrants to purchase up to an aggregate of 700,000 shares of our common stock
based upon our reaching specified revenue targets at an exercise price of $1.25
per share. In June 1999, we modified the terms of the warrants to remove the
revenue targets, to fix the number of shares underlying the warrants at 700,000
and to increase the exercise price to $3.40 per share. These warrants were
issued on a pro rata basis to the stockholders immediately prior to the
Internet Web Builders investment as follows:
Common Stock
Name of Investor Underlying Warrants
- ------------------------------ --------------------
Richard D. Forman ............ 199,919
Peter A. Forman .............. 156,642
Dan B. Levine ................ 81,085
Capital Express, LLC ......... 262,354
As payment of a finder's fee in connection with the Internet Web Builders
investment, we issued to each of Zachary Prensky, our then director, and Niles
Cohen, our current director, warrants to purchase 100,000 shares of our common
stock, at exercise prices of $1.25 for 50% of the shares and $3.00 for the
remaining shares. At the time of the transactions, Zachary Prensky was both one
of our directors and the managing member of Internet Web Builders. In addition,
Niles Cohen is, and at the time of the transactions was, the managing member of
Capital Express, LLC.
In May 1998, we sold 1,040,000 shares of our common stock at a purchase
price of $1.25 per share. Of these, our directors, executive officers, 5%
stockholders and Melvin Forman, an immediate family member of two of our
directors, purchased shares as follows:
Name of Investor Common Stock
- -------------------------------- -------------
Richard D. Forman .............. 88,000
Peter A. Forman ................ 88,000
Capital Express, LLC ........... 40,000
Internet Web Builders .......... 504,000
Melvin Forman .................. 80,000
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<PAGE>
Concurrently with the closing of this transaction, as payment of a
finder's fee, we issued to each of Zachary Prensky and Niles Cohen warrants to
purchase 63,334 shares of our common stock, at exercise prices of $1.25 for 50%
of the shares and $3.00 for the remaining shares.
In March 1999, we issued 428,571 shares of our Exchangeable Preferred
Stock to Palisade Private Partnership, L.P. at a purchase price of $7.00 per
share. These shares were automatically converted to common stock on August 15,
1999, in accordance with their terms. In addition, we entered into a service
agreement with Palisade Private Partnership, LP, whereby Palisade agreed to
provide us six months of financial and other advising services in exchange for
a warrant to purchase 120,000 shares of our common stock at a price of $7.50
per share. Mr. Hoffman, one of our current directors, is a member of Palisade
Private Holdings, LLC, the General Partner of Palisade Private Partnership L.P.
In May 1999, we sold 583,333 shares of our common stock to Staples, Inc.
at a price of $12.00 per share. In connection with the transaction, we issued
to Staples warrants to purchase up to 200,000 shares of our common stock at an
exercise price of $0.01. Also in May 1999, we entered into a marketing
agreement with Staples. The agreement gives us the exclusive right to market
our domain name registration services on all of Staples' branded properties,
including Staples.com's website and the Staples retail stores. Further, the
agreement gives Staples the exclusive right to market its office supplies on
our website.
From June 1999 through July 1999, we sold 1,341,237 shares of our Series A
Convertible Preferred Stock at a purchase price of $12.00 per share and issued
warrants to purchase 268,253 shares of our common stock, each at an exercise
price of $12.00 per share. Of these, our directors, officers and 5%
stockholders purchased shares and were issued warrants as follows:
<TABLE>
<CAPTION>
Series A Convertible Common Stock
Name of Investor Preferred Stock Underlying Warrants
- ---------------------------------------------- ---------------------- --------------------
<S> <C> <C>
Richard D. Forman ............................ 417 83
Peter A. Forman .............................. 1,398 280
Dan B. Levine ................................ 131 27
Alan G. Breitman ............................. 4,167 834
Concentric Network Corporation ............... 401,667 8,334
Internet Web Builders, LLC ................... 1,981 396
Sandler Capital IV FTE Partners L.P. ......... 109,000 21,800
Sandler Capital Management ................... 41,667 8,334
Sandler Capital IV Partners L.P. ............. 266,000 53,200
Staples, Inc. ................................ 34,474 6,896
</TABLE>
Samantha McCuen, one of our current directors, is a Vice President of Sandler
Capital Management and a principal of Sandler Internet Partners L.P. At the
time of the Series A Convertible Preferred Stock financing, Zachary Prensky was
one of our directors and a managing member of Internet Web Builders, LLC.
Legg Mason Wood Walker, Incorporated earned an advisory fee in connection
with the sale of our Exchangeable Preferred Stock, our common stock to Staples
and our Series A Convertible Preferred Stock. See "Underwriting."
In June 1999, we entered into a marketing and distribution agreement with
Concentric Network Corporation. The agreement makes us the exclusive provider
of domain name registration services in generic top level domains for
Concentric's branded web-hosting and electronic services. The agreement also
provides that Concentric will be one of up to three web-hosting or electronic
commerce service providers on our website. We pay Concentric $41,666.67 per
month under the agreement for co-branded marketing programs. In addition,
Concentric has agreed to purchase advertising space on our website for seven
months commencing March 2000 at a rate of $100,000 per month.
In connection with the sale of our Series A Convertible Preferred Stock,
we entered into a Registration Rights Agreement with Dan B. Levine, Peter A.
Forman, Richard D. Forman, Capital Express, L.L.C., Internet Web Builders,
L.L.C., Palisade Private Partnership, L.P., Staples,
58
<PAGE>
Inc. and the purchasers of our Series A Preferred Stock. This Registration
Rights Agreement amends and restates registration rights agreement that we
entered into in connection with the sale of our Exchangeable Preferred Stock
and our sale of common stock to Staples. For a description of the Registration
Rights Agreement, please see "Description of Capital Stock--
Registration Rights Agreement."
Also in connection with the sale of our Series A Convertible Preferred
Stock, we entered into a Stockholders Agreement with the parties to our
Registration Rights Agreement. This Stockholders Agreement will terminate upon
the occurrence of a number of specified conditions, including the consummation
of this offering. Our Stockholders Agreement amends and restates the
stockholders agreement that we entered into in connection with the sale of our
Exchangeable Preferred Stock and our sale of common stock to Staples. Under the
current Stockholders Agreement, the parties agreed to restrictions on the
transferability of their shares in number of specified circumstances, including
rights of first refusal, tag along rights and drag along rights.
This agreement also provides that we maintain a seven-member board of
directors and that each of the parties to the agreement vote all voting stock
in favor of the following:
o Three director nominees designated by Richard D. Forman, Peter A. Forman
and Daniel B. Levine, subject to their collectively owning a specified
minimum percentage of our shares and rights to acquire our shares. Richard
D. Forman and Peter A. Forman serve as the directors, and Reggie Van Lee
is the director nominee, designated by this group.
o One director nominee designated by Capital Express, subject to their
owning a specified minimum percentage of our shares and rights to acquire
our shares. Niles H. Cohen currently serves as the director designated by
Capital Express.
o One director nominee designated by Internet Web Builders, L.L.C., subject
to their owning a specified minimum percentage of our shares and rights to
acquire our shares. Zachary Prensky initially served as the director
designated by Internet Web Builders, L.L.C. This director position is
currently vacant and is expected to be filled prior to the consummation of
our initial public offering.
o One director nominee designated by Palisade Private Partnership, L.P.,
subject to their owning a specified minimum percentage of our shares and
rights to acquire our shares. Mark Hoffman currently serves as the
director designated by Palisade Private Partnership, L.P. Palisade Private
Partnership, L.P. may also designate a representative to attend board of
directors' meetings in a non-voting observer capacity.
o One director nominee designated by the holders of at least 50% of the
outstanding Series A Preferred Stock, for as long as the Series A
Preferred Stock represents at least 6% of our outstanding common stock and
rights to acquire our common stock. Samantha McCuen currently serves as
the director designated by the Series A Preferred Stock.
In addition, we must obtain Staples' written consent prior to entering into a
merger, consolidation or sale of all or substantially all of our assets unless
the merger consideration equals at least $12.00 per share of common stock, with
adjustments for stock splits, dividends and similar events.
In December 1997, we borrowed an aggregate of $80,000 at an annual rate of
10% from Kenneth Greif, the managing member of Internet Web Builders, LLC. In
connection with this transaction, we issued 3,200 shares of our common stock to
Mr. Greif for no additional consideration. We repaid this loan in January 1998.
Other Transactions
From inception until May 1998, we utilized office space and received
administrative services from Ben Forman & Sons, Inc. Melvin Forman, an
executive officer of Ben Forman & Sons, is the father of Richard D. Forman and
Peter A. Forman. During 1998, Peter A. Forman served as an executive officer of
Ben Forman & Sons.
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<PAGE>
We pay $500 per month to one of Lease On Line, Inc.'s employees for
facilities management services provided to us. In addition, we provide Lease On
Line the use of approximately 200 square feet of our office space and various
office services without charge. Richard D. Forman is the President and
principal owner of Lease On Line.
We have entered into employment agreements with Richard D. Forman and Jack
S. Levy. For a detailed description of these agreements, please see
"Management--Employment Agreements."
We believe that all of the transactions set forth in this section were
made on terms no less favorable to us than could have been obtained from
unaffiliated third parties. We intend that all future transactions between us
and our officers, directors, principal stockholders and their affiliates will
be approved by a majority of the independent and disinterested directors on our
board of directors and will be on terms no less favorable to us than could be
obtained from unaffiliated third parties.
Board of Advisors
We have established a Board of Advisors to assist with the planning of our
strategic growth and development. The Board of Advisors currently consists of
Robert H. Lessin, Co-Chief Executive Officer of Wit Capital Corporation, Stuart
D. Levi, a partner in the firm of Skadden, Arps, Slate, Meagher & Flom LLP,
Peter J. Varvara, the President and Chief Executive office of Customer
Strategies Worldwide, and Steve W. Klebe, Vice President of Payment Alliances
Cybersource. Members of the Board of Advisors do not receive a stated salary
for their services as members. From time to time, the Board of Directors has
granted warrants to purchase common stock as compensation to the members of the
Board of Advisors. As of December 15, 1999, we have granted warrants to
purchase an aggregate of 14,071 shares to the members of the Board of Advisors,
at exercise prices ranging from $1.50 to $10.00 per share.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of December 15, 1999, and as adjusted to
reflect the sale of the shares of common stock offered hereby, by each person
or group of affiliated persons whom we know to beneficially own 5% or more of
our common stock, each director, our director nominee, each named executive
officer and all of our directors and executive officers as a group. Unless
otherwise indicated, the address of each beneficial owner listed below is c/o
Register.com, Inc., 575 Eighth Avenue, 11th Floor, New York, New York 10018.
The following table gives effect to the shares of common stock issuable
within 60 days of December 15, 1999 upon the exercise of all options and other
rights beneficially owned by the indicated stockholders on that date.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to securities. To our knowledge, except as set forth in the footnotes
to the following table, each stockholder identified in the table possesses sole
voting and investment power with respect to all shares of common stock shown as
being beneficially owned by the stockholder.
<TABLE>
<CAPTION>
Number of Percentage of Shares
Beneficially Owned
Shares ----------------------
Beneficially Before After
Beneficial Owner Owned Offering Offering
- ----------------------------------------------------- -------------- ---------- ---------
<S> <C> <C> <C>
Richard D. Forman (1) ............................... 1,716,551 23.5%
Peter A. Forman (2) ................................. 1,078,328 14.5
Mark S. Hoffman (3) ................................. 548,571 7.4
Niles H. Cohen (4) .................................. 1,472,674 16.8
Samantha McCuen (5) ................................. 500,001 6.8
Reginald Van Lee .................................... -- --
Kenneth Greif (6) ................................... 1,503,824 20.1
Capital Express, LLC (7) ............................ 1,409,340 18.7
Internet Web Builders, LLC (8) ...................... 1,306,377 17.9
Staples, Inc. (9) ................................... 824,703 11.0
Palisade Private Partnership LP (10) ................ 548,571 7.4
Concentric Network Corporation (11) ................. 500,001 6.8
Sandler Capital Entities (12) ....................... 500,001 6.8
All directors and executive officers and our director
nominee as a group (12 persons) ................... 5,403,566 73.2%
</TABLE>
- -------------
(1) Includes 10,800 shares of common stock transferred to the RDF 1999 Family
Trust, warrants to purchase 200,002 shares of common stock and options to
purchase 500,000 shares of common stock.
(2) Includes warrants to purchase 156,922 shares of common stock.
(3) Includes 428,571 shares owned by Palisade Private Partnership LP and a
warrant to purchase 120,000 shares of common stock. Mr. Hoffman is a
member of Palisade Private Holdings, LLC, the General Partner of Palisade
Private Partnership LP. Mr. Hoffman shares voting and investment power
with respect to all shares beneficially owned by Palisade Private
Partnership LP.
(4) Includes warrants to purchase 63,334 shares of common stock. Also includes
1,146,986 shares owned by Capital Express, LLC and warrants to purchase
262,354 shares of common stock held by Capital Express LLC. Mr. Cohen is
the managing member of Capital Express, LLC. Mr. Cohen shares voting and
investment power with respect to all shares beneficially owned by Capital
Express, LLC.
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<PAGE>
(5) Includes 266,000 shares of common stock owned by Sandler Capital IV
Partners, LP and a warrant to purchase 53,200 shares of common stock owned
by Sandler Capital IV FTE Partners, LP; 109,000 shares of common stock and
a warrant to purchase 21,800 shares of common stock owned by Sandler
Capital IV FTE Partners, LP and 41,667 shares of common stock and a
warrant to purchase 8,334 shares of common stock owned by Sandler Capital
Management. Ms. McCuen is a Vice President of Sandler Capital Management
and may be deemed to share voting and investment power with respect to all
shares beneficially owned by the Sandler Capital Entities. Ms. McCuen
disclaims beneficial ownership of such shares except to the extent of her
pecuniary interest in these entities.
(6) Includes warrants to purchase 194,247 shares of common stock. Mr. Greif
disclaims beneficial ownership of an aggregate of 62,500 shares of common
stock underlying these warrants, which he has informed us he holds on
behalf of a group of business associates and family members. Also includes
1,305,981 shares of common stock and warrants to purchase 396 shares of
common stock owned by Internet Web Builders, LLC. Mr. Greif is the
managing member and majority owner of Internet Web Builders, LLC and
shares voting and investment power with respect to all shares beneficially
owned by Internet Web Builders, LLC. Mr. Greif's address is c/o Internet
Web Builders, LLC, 1270 Avenue of the Americas, Suite 1905, New York, New
York 10019.
(7) Includes warrants to purchase 262,354 shares of common stock. The address
of Capital Express, LLC is 1100 Valleybrook Avenue, Lyndhurst, New Jesey
07071.
(8) Includes warrants to purchase 396 shares of common stock. The address of
Internet Web Builders, LLC is 1270 Avenue of the Americas, Suite 1905, New
York, New York 10019.
(9) Includes warrants to purchase 206,896 shares of common stock. The address
of Staples, Inc. is 500 Staples Drive, Framingham, Massachusetts 01702.
(10) Includes warrants to purchase 120,000 shares of common stock. The address
of Palisade Private Partnership LP is One Bridge Plaza, Fort Lee, New
Jersey 07024.
(11) Includes warrants to purchase 83,334 shares of common stock. The address
of Concentric Network Corporation is 1400 Parkmoor Avenue, San Jose,
California 95126.
(12) Includes warrants to purchase 53,200 shares of common stock owned by
Sandler Capital IV Partners, LP; warrants to purchase 21,800 shares of
common stock owned by Sandler Capital IV FTE Partners LP and warrants to
purchase 8,334 shares of common stock owned by Sandler Capital Management.
The address of the Sandler Capital Entities is 767 Fifth Avenue, 45th
Floor, New York, New York 10153.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The following description of our common stock and preferred stock and the
relevant provisions of our amended and restated certificate of incorporation
and amended and restated bylaws as will be in effect upon the closing of this
offering are summaries and are qualified by reference to these documents. Forms
have been filed with the Securities and Exchange Commission as exhibits to our
registration statement, of which this prospectus forms a part.
Upon the closing of this offering, our authorized capital stock will
consist of 200,000,000 shares of common stock, par value $0.0001 per share, and
5,000,000 shares of preferred stock, par value $0.0001 per share.
Common Stock
As of December 1, 1999, there were 7,294,821 shares of common stock
outstanding held of record by 28 stockholders, after giving effect to the
conversion of our outstanding preferred stock. Holders of common stock are
entitled to one vote for each share held on all matters submitted to a vote of
stockholders and do not have cumulative voting rights. Accordingly, holders of
a majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
common stock are entitled to receive ratably those dividends, if any, as the
board of directors may declare out of funds legally available therefor, subject
to any preferential dividend rights of any outstanding preferred stock. If we
liquidate, dissolve or wind up the company, the holders of our common stock
will be entitled to receive ratably our net assets available after the payment
of all debts and liabilities and after the prior rights of any outstanding
preferred stock have been satisfied. Holders of the common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of common stock are, and the shares that we are offering will be, when
issued, after payment of consideration, fully paid and nonassessable. The
rights, preferences and privileges of holders of common stock are subject to,
and may be adversely affected by, the rights of the holders of preferred stock
that we may designate and issue in the future.
Preferred Stock
As of the date of this prospectus, there were no outstanding shares of
preferred stock, other than the 1,341,237 shares of Series A Convertible
Preferred Stock, all of which will be converted into common stock upon the
consummation of the offering. Following the conversion of all outstanding
shares of Series A Preferred Stock upon the consummation of this offering, no
shares of preferred stock will be outstanding. Upon the consummation of this
offering, the board of directors will be authorized, without further
stockholder approval, to issue from time to time up to an aggregate of
5,000,000 shares of preferred stock in one or more series and to fix or alter
the designations, preferences, rights and any qualifications, limitations or
restrictions of the shares of each series thereof, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
including sinking fund provisions, redemption price or prices, liquidation
preferences and the number of shares constituting any series or designation of
series. We have no present plans to issue any shares of preferred stock.
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Warrants
As of December 1, 1999, there were warrants outstanding to purchase a
total of 1,773,763 shares of common stock, including:
Shares Issuable Exercise Price
Upon Exercise Per Share Expiration Date
- ----------------- --------------- ----------------
100,000 $ 1.25 January 2003
100,000 3.00 January 2003
700,000 3.40 June 2005
63,334 1.25 May 2003
63,334 3.00 May 2003
1,000 1.50 September 2008
8,571 2.00 February 2009
1,500 2.00 March 2009
120,000 7.00 February 2004
52,997 14.27 March 2004
200,000 .01 May 2002
1,500 5.00 May 2009
88,274 14.27 May 2004
3,500 10.00 May 2009
1,500 5.50 June 2009
268,253 12.00 June 2004
The warrants are subject to customary adjustments for stock splits,
mergers, reclassification and similar transactions. In addition, the warrants
expiring on June 30, 2004 are subject to adjustment if, at any time prior to
December 31, 1999, we issue additional shares of common stock or securities
exchangeable into or convertible for common stock for a purchase price of less
than $10.00 per share, subject to adjustments for stock splits, mergers,
reclassifications and similar transactions.
Options
Options to purchase a total of 1,150,000 shares of common stock may be
granted under our stock option plans. As of December 1, 1999, there were
outstanding options to purchase a total of 493,510 shares of common stock,
excluding options to purchase 164,480 shares that will be granted upon the
closing of this offering. In addition, as of December 1, 1999, there were
outstanding non-plan options to purchase 510,000 shares of common stocks. Since
we intend to file a registration statement on Form S-8 as soon as practicable
following the closing of this offering, any shares issued upon exercise of
these options will be immediately available for sale in the public market,
subject to the terms of lock-up agreements entered into with the underwriters.
Registration Rights
Under the terms of our registration rights agreement, dated as of June 30,
1999, and other existing registration rights after the closing of this offering
the holders of 8,727,189 shares of common stock and shares of common stock
issuable upon the exercise of outstanding options and warrants will be entitled
to have us register their shares under the Securities Act. These holders will
be entitled to exercise a total of up to six demands for the registration of
their shares and securities under the Securities Act, subject to certain
limitations. The registration rights agreement also entitles these holders to
piggyback registration rights with respect to the registration of their shares
under the Securities Act, subject to various limitations. Piggyback
registration rights to include shares in this offering have been waived.
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The registration rights are subject to specified conditions and
limitations, among them the right of the underwriters of an offering to limit
the number of shares of common stock held by security holders with registration
rights to be included in a registration. We are generally required to bear all
of the expenses of these registrations, except underwriting discounts and
selling commissions. If we register any of these shares, these shares would
become freely tradable without restriction under the Securities Act immediately
upon effectiveness of the registration.
Anti-Takeover Effects of Provisions of Delaware Law and Our Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws
Delaware Law. We are subject to the provisions of Section 203 of the
Delaware General Corporation Law. Subject to some exceptions, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained that status with the
approval of the board of directors or unless the business combination is
approved in a prescribed manner. Generally, "business combinations" mean
mergers, asset sales and other transactions resulting in a financial benefit to
the interested stockholder. Subject to various exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of the corporation's voting stock. This
statute could prohibit or delay mergers or other attempts to effect a change in
control and, accordingly, may discourage attempts to acquire us.
Amended and Restated Certificate of Incorporation and Amended and Restated
Bylaws. Various provisions of our amended and restated certificate of
incorporation and our amended and restated bylaws, which provisions will be in
effect upon the consummation of this offering, are summarized in the following
paragraphs. These provisions may be deemed to have an anti-takeover effect and
may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders.
Board Vacancies and Removals. Our amended and restated certificate of
incorporation authorizes the board of directors to fill vacant directorships or
increase the size of the board of directors, which may delay a stockholder from
removing incumbent directors and simultaneously gaining control of the board of
directors by filling the vacancies created by the removal with its own
nominees. The amended and restated certificate of incorporation also provides
that directors may be removed by stockholders only for cause and only by the
affirmative vote of holders of two-thirds of the outstanding shares of voting
stock.
Stockholder Action; Special Meeting of Stockholders. Our amended and
restated bylaws provide that stockholders may not act by written consent. The
amended and restated bylaws
further provide that special meetings of our stockholders may be called only by
a majority of the board of directors, the Chairman or the President.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations.
Our amended and restated bylaws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate candidates
for election as directors at an annual meeting of stockholders, must provide
timely notice to us in writing. To be timely, a stockholder's notice must be
received at our principal executive offices not less than 90 days nor more than
120 days prior to the anniversary date of the immediately preceding annual
meeting of stockholders. In the event that the annual meeting is called for a
date that is not within 30 days before or 70 days after the anniversary date,
in order to be timely, notice from the stockholder must be received:
o not earlier than 120 days prior to the annual meeting of stockholders;
and
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o not later than 90 days prior to the annual meeting of stockholders or
the tenth day following the date on which notice of the annual meeting
was made public.
In the case of a special meeting of stockholders called for the purpose of
electing directors, notice by the stockholder, in order to be timely, must be
received:
o not earlier than 120 days prior to the special meeting; and
o not later than 90 days prior to the special meeting or the close of
business on the tenth day following the day on which public disclosure
of the date of the special meeting was made.
Our amended and restated bylaws also specify requirements as to the form
and content of a stockholder's notice. These provisions may preclude
stockholders from bringing matters before an annual or special meeting of
stockholders or from making nominations for directors at an annual or special
meeting of stockholders.
Authorized But Unissued Shares. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to various limitations imposed by the Nasdaq
National Market. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions, as part of a poison pill defense and employee
benefit plans. The existence of authorized but unissued shares of common stock
and preferred stock could make more difficult or discourage an attempt to
obtain control over us by means of a proxy contest, tender offer, merger or
otherwise.
Supermajority Vote to Amend Our Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws. The Delaware General Corporation
Law provides generally that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's certificate
of incorporation or bylaws, unless a corporation's certificate of incorporation
or bylaws, as the case may be, requires a greater percentage. Our amended and
restated certificate of incorporation will impose a two-thirds supermajority
vote requirement in connection with various corporate governance actions and
the amendment of various provisions of our amended and restated certificate of
incorporation, including those provisions relating to special meetings of
stockholders. In addition, a two-thirds supermajority vote of stockholders will
be required to amend our amended and restated bylaws.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is __________.
Listing
We intend to apply to have our common stock approved for quotation on the
Nasdaq National Market under the trading symbol "RCOM."
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices of our common stock.
Furthermore, since shares will be available for sale shortly after this
offering because of certain contractual and legal restrictions on resale
described below, sales of substantial amounts of common stock in the public
market after these restrictions lapse could adversely affect the prevailing
market price and our ability to raise equity capital in the future.
Upon the consummation of this offering, we will have outstanding an
aggregate of _________ shares of our common stock, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options. Of
these shares, all shares sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act unless these
shares are purchased by "affiliates" as that term is defined in Rule 144 under
the Securities Act. This leaves shares eligible for sale in the public market
as follows:
Number of
Shares Date
- ---------- -----
The remaining shares of common stock held by existing stockholders are
"restricted securities" as defined in Rule 144. Restricted securities may be
sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144 or 701 under the Securities Act,
which rules are summarized below.
Lock-up Agreements
All of our directors, executive officers and substantially all of our
security holders have signed lock-up agreements with the underwriters, which
generally require them not to transfer or dispose of, directly or indirectly,
any shares of our common stock or any securities convertible into or
exercisable or exchangeable for shares of our common stock for 180 days after
the date of this prospectus, except under limited circumstances. See
"Underwriting-- Lock-up."
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the number of shares of common stock then outstanding, which will equal
approximately __________ shares immediately after the offering, or the average
weekly trading volume of the common stock on the Nasdaq National Market during
the four calendar weeks preceding the filing of a notice on Form 144 with
respect to the sale. Sales under Rule 144 are also subject to manner-of-sale
provisions, notice requirements and the availability of current public
information about us.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years, including the holding period of any
prior owner other than an affiliate, is entitled to sell shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144. Therefore, unless otherwise restricted, "144(k)
shares" could be sold immediately upon consummation of this offering.
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Rule 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock plan or other written agreement is
eligible to resell such shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period, contained in Rule 144.
Registration Rights
After this offering, the holders of at least 8,727,189 shares of common
stock and shares of common stock issuable upon the exercise of outstanding
options and warrants will be entitled to rights with respect to the
registration of those shares under the Securities Act. See "Description of
Capital Stock--Registration Rights." After registration and resale under a
registration statement, these shares of our common stock become freely
tradeable without restriction under the Securities Act. These sales could have
a material adverse effect on the trading price of our common stock.
Form S-8
We intend to file a registration statement on Form S-8 under the
Securities Act covering shares of common stock reserved for issuance under
our stock option plan and the shares reserved for issuance upon exercise of
outstanding non-plan options and some of our warrants. We expect this
registration statement to be filed and to become effective as soon as
practicable after the effective date of this offering.
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UNDERWRITING
We intend to offer our common stock through a number of underwriters.
Deutsche Bank Securities Inc., Thomas Weisel Partners LLC, Legg Mason Wood
Walker, Incorporated and Wit Capital Corporation are acting as representatives
of each of the underwriters named below. Subject to the terms and conditions
set forth in an underwriting agreement among us and the underwriters, we have
agreed to sell to the underwriters, and each of the underwriters severally and
not jointly has agreed to purchase from us, the number of shares of common
stock set forth opposite its name below.
Number of
Underwriter Shares
- -------------------------------------------------- ----------
Deutsche Bank Securities Inc. ................
Thomas Weisel Partners LLC ...................
Legg Mason Wood Walker, Incorporated .........
Wit Capital Corporation ......................
----------
Total ......................................
In the underwriting agreement, the several underwriters have agreed,
subject to the terms and conditions set forth in the underwriting agreement, to
purchase all of the shares of common stock being sold under the terms of the
underwriting agreement if any of the shares of common stock being sold under
the terms of the underwriting agreement are purchased. In the event of a
default by an underwriter, the underwriting agreement provides that, in certain
circumstances, the underwriting commitments of the nondefaulting underwriters
may be increased or the underwriting agreement may be terminated.
We have agreed to indemnify the underwriters against certain liabilities,
including certain liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and
certain other conditions. The underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part.
Thomas Weisel Partners LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in December 1998.
Since December 1998, Thomas Weisel Partners LLC has been named as a lead or
co-manager on 100 filed public offerings of equity securities, of which 79 have
been completed, and has acted as a syndicate member in an additional 54 public
offerings of equity securities. Thomas Weisel Partners LLC does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us under the underwriting agreement entered into in connection with this
offering.
Wit Capital Corporation, a member of the National Association of
Securities Dealers, Inc., will participate in the offering as one of the
representatives of the underwriters. The National Association of Securities
Dealers, Inc. approved the membership of Wit Capital Corporation on September
4, 1997. Since that time, Wit Capital Corporation has acted as an underwriter,
e-Manager or selected dealer in over 170 public offerings. Robert H. Lessin,
Co-Chief Executive Officer of Wit Capital Corporation, serves as a member of
our Board of Advisors and received warrants to purchase 1,500 shares of our
common stock as consideration for his
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services. In addition to his option and warrant holdings, Mr. Lessin owned
213,333 shares of our common stock at December 15, 1999. Except for its
participation as a manager in this offering and Mr. Lessin's relationship with
us, Wit Capital Corporation has no relationship with us or any of our founders
or significant stockholders.
A prospectus in electronic format is being made available on an Internet
website maintained by Wit Capital Corporation. Other than the prospectus in
electronic format, the information on Wit Capital Corporation's website and any
information contained on any other website maintained by Wit Capital
Corporation is not a part of this prospectus or the registration statement of
which this prospectus forms a part, has not been approved or endorsed by us or
any underwriter in its capacity as underwriter and should not be relied upon by
investors.
Legg Mason Wood Walker, Incorporated acted as our financial advisor in
connection with the private placement of our Exchangeable Preferred Stock that
occurred in March 1999, our common stock that occurred in May 1999, and our
Series A Convertible Preferred Stock that occurred in June and July of 1999, for
which we received aggregate net proceeds of $25.7 million. We paid an advisory
fee to Legg Mason Wood Walker, Incorporated for its services, consisting of $1.1
million in cash and warrants to purchase 141,271 shares of our common stock at a
price of $14.27 per share (on a pre-split basis), and gave them piggyback
registration rights with respect to the common stock issuable upon exercise of
their warrants. At present, none of these warrants have been exercised. We also
agreed that Legg Mason could be included as a managing underwriter in connection
with our initial public offering.
Commissions and Discounts
The representatives have advised us that the underwriters propose
initially to offer the shares of common stock to the public at the initial
public offering price set forth on the cover page of this prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share of common stock. The underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share of common stock on sales
to certain other dealers. After the initial public offering, the public
offering price, concession and discount may change.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. Other than the per share information, this information
is presented assuming either no exercise or full exercise by the underwriters
of the over-allotment option.
<TABLE>
<CAPTION>
Per Share Without Option With Option
----------- ---------------- ------------
<S> <C> <C> <C>
Public offering price ............ $ $ $
Underwriting discount ............ $ $ $
Proceeds, before expenses,
to Register.com, Inc. .......... $ $ $
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $ and are payable by us.
Over-allotment Option
We have granted an option to the underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of
additional shares of our common stock at the public offering price set forth on
the cover page of this prospectus, less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of our common stock offered hereby. To the extent that the
underwriters exercise this option, each underwriter will be obligated, subject
to certain conditions, to purchase a number of additional shares of our common
stock proportionate to such underwriter's initial amount reflected in the first
paragraph of this section.
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Reserved Shares
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to approximately 10% of the shares offered hereby to
be sold to some of our directors, officers, employees, business associates and
related persons. The number of shares of our common stock available for sale to
the general public will be reduced to the extent that those persons purchase
the reserved shares. Any reserved shares which are not orally confirmed for
purchase within one day of the pricing of the offering will be offered by the
underwriters to the general public on the same terms as the other shares
offered by this prospectus.
Lock-up
We and our executive officers, directors and substantially all of our
securityholders immediately prior to the offering have agreed, subject to
certain exceptions, without the prior written consent of Deutsche Bank
Securities Inc. on behalf of the underwriters for a period of 180 days after
the date of this prospectus, not to directly or indirectly:
o offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant for the sale of or otherwise dispose of or transfer any shares
of our common stock or securities convertible into or exchangeable or
exercisable for or repayable with our common stock, whether now owned or
later acquired by the person executing the agreement or with respect to
which the person executing the agreement or with respect to which the
person executing the agreement later acquires the power of disposition, or
file a registration statement under the Securities Act with respect to any
shares of our common stock; or
o enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock whether
any such swap or transaction is to be settled by delivery of our common
stock or other securities, in cash or otherwise.
Nasdaq National Market Quotation
We intend to apply to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "RCOM."
Before this offering, there has been no public market for our common
stock. The initial public offering price will be determined through
negotiations among us and the representatives. The factors to be considered in
determining the initial public offering price, in addition to prevailing market
conditions, are the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us, certain of our financial
information, our history, our prospects, the industry in which we compete, and
an assessment of our management, its past and present operations, the prospects
for, and timing of, our future revenue, the present state of our development,
and the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours. There can be
no assurance that an active trading market will develop for our common stock or
that our common stock will trade in the public market subsequent to the
offering at or above the initial public offering price.
The underwriters do not expect sales of our common stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares offered in this offering.
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters to
bid for and purchase our
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common stock. As an exception to these rules, the representatives are permitted
to engage in transactions that stabilize the price of our common stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering, that is, if they sell more shares of our common
stock than are set forth on the cover page of this prospectus, the
representatives may reduce that short position by purchasing our common stock
in the open market. The representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described
above.
The representatives may also impose a penalty bid on underwriters. This
means that if the representatives purchase shares of our common stock in the
open market to reduce the underwriters' short position or to stabilize the
price of our common stock, they may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those
shares.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that
it discourages resales of our common stock.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the
representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
LEGAL MATTERS
The validity of the common stock that we are offering will be passed upon
for us by Brobeck, Phleger & Harrison LLP, New York, New York. Certain legal
matters in connection with the offering will be passed upon for the
underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
Skadden, Arps, Slate, Meagher & Flom LLP has from time to time represented, and
may continue to represent, us in connection with certain legal matters. Stuart
D. Levi, a partner in the firm of Skadden, Arps, Slate, Meagher & Flom LLP,
serves as a member of our Board of Advisors and as of December 15, 1999 held
warrants to purchase 1,500 shares of common stock.
EXPERTS
The financial statements as of December 31, 1997 and 1998, and September
30, 1999, and for the years ended December 31, 1997 and 1998, and for the nine
months ended September 30, 1999 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits, schedules and amendments filed with
the registration statement, under the Securities Act with respect to the common
stock to be sold in this offering. This prospectus does not contain all of the
information set forth in this registration statement. For further information
about us and the shares of common stock to be sold in the offering, please
refer to the registration statement. For additional information, please refer
to the exhibits that have been filed with our registration statement on Form
S-1.
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You may read and copy all or any portion of the registration statement or
any other information that we file at the Securities and Exchange Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C., 20549. You
can request copies of these documents upon payment of a duplicating fee, by
writing to the Securities and Exchange Commission. Please call the Securities
and Exchange Commission at 1-800-SEC-0330 for further information about the
public reference rooms. Our Securities and Exchange Commission filings,
including the registration statement, will also be available on the Securities
and Exchange Commission's website (http://www.sec.gov).
As a result of the offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended, and,
in accordance with these requirements, will file periodic reports, proxy
statements and other information with the Securities and Exchange Commission.
We intend to provide our stockholders annual reports containing financial
statements audited by our independent auditors and to make available quarterly
reports containing unaudited financial data for the first three quarters of
each fiscal year.
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Register.com, Inc.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Accountants .................................................. F-2
Financial Statements
Balance Sheets at December 31, 1997 and 1998, and September 30, 1999 ............. F-3
Statements of Operations for the years ended December 31, 1997 and 1998, and the
nine months ended September 30, 1998 (unaudited) and 1999 ....................... F-4
Statements of Stockholders' (Deficit) Equity for the years ended December 31, 1997
and 1998, and the nine months ended September 30, 1999 .......................... F-5
Statements of Cash Flows for the years ended December 31, 1997 and 1998, and the
nine months ended September 30, 1998 (unaudited) and 1999 ....................... F-6
Notes to Financial Statements .................................................... F-7
</TABLE>
F-1
<PAGE>
Report to Independent Accountants
To the Board of Directors and
Stockholders of Register.com, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' (deficit) equity and cash flows present fairly, in
all material respects, the financial position of Register.com, Inc. at December
31, 1997 and 1998, and September 30, 1999 and the results of its operations and
its cash flows for the years ended December 31, 1997 and 1998, and for the nine
months ended September 30, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which 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,
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.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1999
F-2
<PAGE>
Register.com, Inc.
Balance Sheet
<TABLE>
<CAPTION>
Pro Forma
December 31,
------------------------------- September 30, September 30,
1997 1998 1999 1999
--------------- -------------- --------------- ----------------
(Unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents ............................. $ 60,845 $ 1,284,648 $ 33,514,527 $ 33,514,527
Short-term investments ................................ -- -- 551,050 551,050
Accounts receivable, less allowance of $20,764,
$65,947 and $205,833, respectively .................. 12,904 67,509 1,254,395 1,254,395
Prepaid domain name registry fees ..................... -- -- 1,967,917 1,967,917
Deferred tax asset .................................... -- -- 2,190,765 2,190,765
Other current assets .................................. 26,329 3,925 149,465 149,465
------------ ------------ ------------- -------------
Total current assets ............................... 100,078 1,356,082 39,628,119 39,628,119
Fixed assets, net ...................................... 78,440 224,300 2,007,916 2,007,916
Prepaid domain name registry fees, net of current
portion ............................................... -- -- 1,488,869 1,488,869
Other assets ........................................... 2,268 30,643 -- --
------------ ------------ ------------- -------------
Total assets ....................................... $ 180,786 $ 1,611,025 $ 43,124,904 $ 43,124,904
============ ============ ============= =============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses ................. $ 710,393 $ 610,474 $ 5,402,997 $ 5,402,997
Income taxes payable .................................. -- -- 2,190,765 2,190,765
Deferred revenue, net ................................. 32,038 113,527 7,139,901 7,139,901
Capital lease obligations, current portion ............ 20,780 10,425 10,704 10,704
Notes payable ......................................... 338,040 52,040 -- --
Notes payable -- related parties ...................... 130,000 -- -- --
Other current liabilities ............................. -- -- 132,595 132,595
------------ ------------ ------------- -------------
Total current liabilities .......................... 1,231,251 786,466 14,876,962 14,876,962
------------ ------------ ------------- -------------
Deferred revenue, net of current portion ............... -- -- 5,779,563 5,779,563
Capital lease obligations, net of current portion ...... 12,206 1,779 32,113 32,113
------------ ------------ ------------- -------------
Total liabilities .................................. 1,243,457 788,245 20,688,638 20,688,638
------------ ------------ ------------- -------------
Commitments and contingencies
Stockholders' (deficit) equity
Preferred stock -- $.0001 par value, 5,000,000
shares authorized; Series A convertible preferred
1,917,000 shares authorized; none issued and
outstanding at December 31, 1997 and 1998,
1,341,237 issued and outstanding at September
30, 1999 and none issued and outstanding pro
forma (liquidation preference of $16,094,844) ....... -- -- 134 --
Common stock -- $.0001 par value, 25,000,000
shares authorized; 2,541,548, 4,941,680 and
5,953,584 shares issued and outstanding at
December 31, 1997 and 1998, and September 30,
1999, respectively, 7,294,821 issued and
outstanding pro forma ............................... 254 494 595 729
Additional paid-in capital ............................ 1,151,180 4,303,106 34,285,279 34,285,279
Unearned compensation ................................. -- (105,967) (691,825) (691,825)
Accumulated deficit ................................... (2,214,105) (3,374,853) (11,157,917) (11,157,917)
------------ ------------ ------------- -------------
Total stockholders' (deficit) equity ............... (1,062,671) 822,780 22,436,266 22,436,266
------------ ------------ ------------- -------------
Total liabilities and stockholders' equity ......... $ 180,786 $ 1,611,025 $ 43,124,904 $ 43,124,904
============ ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Register.com, Inc.
Statement of Operations
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------------- ----------------------------------
1997 1998 1998 1999
-------------- --------------- --------------- ----------------
(Unaudited)
<S> <C> <C> <C> <C>
Net revenues .................................... $ 713,263 $ 1,319,359 $ 790,995 $ 4,455,404
Cost of revenues ................................ 191,539 461,152 268,431 1,421,562
---------- ------------ ------------ ------------
Gross profit ................................. 521,724 858,207 522,564 3,033,842
---------- ------------ ------------ ------------
Operating costs and expenses
Sales and marketing ............................ 366,975 863,720 624,751 4,615,621
Research and development ....................... 71,471 276,687 153,934 1,093,672
General and administrative (exclusive of
non-cash compensation) ....................... 263,017 795,425 628,032 954,422
Non-cash compensation .......................... -- 149,682 149,682 4,572,257
---------- ------------ ------------ ------------
Total operating cost and expenses ............ 701,463 2,085,514 1,556,399 11,235,972
---------- ------------ ------------ ------------
Loss from operations ............................ (179,739) (1,227,307) (1,033,835) (8,202,130)
Other income (expenses), net .................... (25,787) 66,559 34,121 419,066
---------- ------------ ------------ ------------
Net loss ..................................... $ (205,526) $ (1,160,748) $ (999,714) $ (7,783,064)
========== ============ ============ ============
Basic and diluted net loss per share ......... $ (.08) $ (.26) $ (.23) $ (1.48)
========== ============ ============ ============
Weighted average common shares used
in basic and diluted net loss per share 2,538,488 4,484,680 4,350,796 5,248,029
========== ============ ============ ============
Pro forma basic and diluted net loss per share
(unaudited) .................................... $ (1.31)
============
Weighted average common shares used in
pro forma basic and diluted net loss per
share (unaudited) .............................. 5,932,027
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Register.com, Inc.
Statement of Stockholders' (Deficit) Equity
<TABLE>
<CAPTION>
Exchangeable Series A Convertible
Preferred Stock Preferred Stock Common Stock
----------------------- ---------------------- ---------------------
Shares Amount Shares Amount Shares Amount
------------- -------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997 ................... -- $ -- -- $ -- 2,538,348 $ 254
Issuance of common
stock in
connection with
notes payable ......... -- -- -- -- 3,200 --
Net loss ............... -- -- -- -- -- --
-- ----- -- ----- --------- -----
Balance at December
31, 1997 ............... -- -- -- -- 2,541,548 254
Issuance of common
stock in exchange
for accrued
compensation .......... -- -- -- -- 270,000 27
Exercise of warrants
issued in
connection with
stockholder loans ..... -- -- -- -- 117,647 12
Conversion of
stockholder note
payable ............... -- -- -- -- 35,294 4
Sale of common
stock ................. -- -- -- -- 1,973,333 197
Issuance of common
stock in exchange
for services .......... -- -- -- -- 3,858 --
Issuance of common
stock warrants for
services .............. -- -- -- -- -- --
Issuance of
compensatory
stock options ......... -- -- -- -- -- --
Amortization of
unearned
compensation .......... -- -- -- -- -- --
Net loss ............... -- -- -- -- -- --
-- ----- -- ----- --------- -----
Balance at December
31, 1998 ............... -- -- -- -- 4,941,680 494
Sale of exchangeable
preferred stock ....... 428,571 43 -- -- -- --
Sale and issuance of
common stock and
warrants .............. -- -- -- -- 583,333 58
Sale and issuance of
series A
convertible
preferred stock and
warrants .............. -- -- 1,341,237 134 -- --
Conversion of
exchangeable
preferred stock to
common stock .......... (428,571) (43) -- -- 428,571 43
Issuance of common
stock warrants for
services .............. -- -- -- -- -- --
Issuance of
compensatory
stock options ......... -- -- -- -- -- --
Amortization of
unearned
compensation .......... -- -- -- -- -- --
Modification of
common stock
warrants .............. -- -- -- -- -- --
Net loss ............... -- -- -- -- -- --
-------- ----- --------- ----- --------- -----
Balance at September
30, 1999 ............... -- $ -- 1,341,237 $ 134 5,953,584 $ 595
======== ===== ========= ===== ========= =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Additional
Paid-in Unearned Accumulated
Capital Compensation Deficit Total
-------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1,
1997 ................... $ 1,147,180 $ -- $ (2,008,579) $ (861,145)
Issuance of common
stock in
connection with
notes payable ......... 4,000 -- -- 4,000
Net loss ............... -- -- (205,526) (205,526)
------------ ----------- -------------- ------------
Balance at December
31, 1997 ............... 1,151,180 -- (2,214,105) (1,062,671)
Issuance of common
stock in exchange
for accrued
compensation .......... 261,639 -- -- 261,666
Exercise of warrants
issued in
connection with
stockholder loans ..... 99,988 -- -- 100,000
Conversion of
stockholder note
payable ............... 44,115 -- -- 44,119
Sale of common
stock ................. 2,490,535 -- -- 2,490,732
Issuance of common
stock in exchange
for services .......... 5,787 -- -- 5,787
Issuance of common
stock warrants for
services .............. 28,887 -- -- 28,887
Issuance of
compensatory
stock options ......... 220,975 (123,475) -- 97,500
Amortization of
unearned
compensation .......... -- 17,508 -- 17,508
Net loss ............... -- -- (1,160,748) (1,160,748)
------------ ----------- -------------- ------------
Balance at December
31, 1998 ............... 4,303,106 (105,967) (3,374,853) 822,780
Sale of exchangeable
preferred stock ....... 2,840,732 -- -- 2,840,775
Sale and issuance of
common stock and
warrants .............. 6,693,439 -- -- 6,693,497
Sale and issuance of
series A
convertible
preferred stock and
warrants .............. 15,289,887 -- -- 15,290,021
Conversion of
exchangeable
preferred stock to
common stock .......... -- -- -- --
Issuance of common
stock warrants for
services .............. 569,930 -- -- 569,930
Issuance of
compensatory
stock options ......... 710,185 (710,185) -- --
Amortization of
unearned
compensation .......... -- 124,327 -- 124,327
Modification of
common stock
warrants .............. 3,878,000 -- -- 3,878,000
Net loss ............... -- -- (7,783,064) (7,783,064)
------------ ----------- -------------- ------------
Balance at September
30, 1999 ............... $ 34,285,279 $ (691,825) $ (11,157,917) $ 22,436,266
============ =========== ============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Register.com, Inc.
Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------------------- -----------------------------------
1997 1998 1998 1999
--------------- ----------------- --------------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss .......................................... $ (205,526) $ (1,160,748) $ (999,714) $ (7,783,064)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities
Deferred revenues .............................. (20,568) 81,489 52,638 12,805,937
Depreciation and amortization .................. 41,182 121,474 91,106 276,406
Compensatory stock options and
warrants expense ............................. 4,000 163,797 149,682 4,572,257
Deferred income taxes .......................... -- -- -- (2,190,765)
Changes in assets and liabilities affecting
operating cash flows
Accounts receivable ............................. (5,348) (54,605) (1,951) (1,186,886)
Prepaid domain name registry fees ............... -- -- -- (3,456,786)
Other current assets ............................ (17,239) 22,404 (16,144) (145,540)
Other assets .................................... -- (28,375) (28,152) 30,643
Accounts payable and accrued expenses 80,711 161,747 175,570 4,792,523
Income taxes payable ............................ -- -- -- 2,190,765
Other current liabilities ....................... -- -- -- 132,595
----------- ------------- ----------- -------------
Net cash provided by (used in)
operating activities ......................... (122,788) (692,817) (576,965) 10,038,085
----------- ------------- ----------- -------------
Cash flows from investing activities
Purchases of fixed assets ......................... (15,578) (267,330) (146,243) (2,021,792)
Purchases of investments .......................... -- -- -- (551,050)
----------- ------------- ----------- -------------
Net cash used in investing activities .......... (15,578) (267,330) (146,243) (2,572,842)
----------- ------------- ----------- -------------
Cash flows from financing activities
Proceeds from notes payable ....................... 358,040 -- -- --
Repayment of notes payable ........................ (162,000) (286,000) (286,000) (52,040)
Net proceeds from issuance of common
stock and warrants .............................. -- 2,490,732 2,490,732 6,693,498
Net proceeds from issuance of preferred
stock and warrants .............................. -- -- -- 18,130,796
Principal payments on capital lease
obligations ..................................... (17,903) (20,782) (18,643) (7,618)
----------- ------------- ----------- -------------
Net cash provided by financing
activities ................................... 178,137 2,183,950 2,186,089 24,764,636
----------- ------------- ----------- -------------
Net increase in cash and cash equivalents .......... 39,771 1,223,803 1,462,881 32,229,879
Cash and cash equivalents at beginning of
period ............................................ 21,074 60,845 60,845 1,284,648
----------- ------------- ----------- -------------
Cash and cash equivalents at end of period ......... $ 60,845 $ 1,284,648 $ 1,523,726 $ 33,514,527
=========== ============= =========== =============
Supplemental disclosure of cash flow
information
Cash paid for interest ............................ $ 21,912 $ 14,510 $ 10,912 $ 4,451
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
Register.com, Inc.
Notes to Financial Statements
1. Nature of Business And Organization
Nature of Business
Register.com, Inc. (the "Company" or "Register.com") provides Internet
domain name registration and other online services such as web-hosting, email,
domain name forwarding and advertising. The Company has also marketed software
for creation of Internet websites.
In April 1999, the Company was selected as one of the initial five testbed
registrars by the Internet Corporation for Assigned Names and Numbers
("ICANN"), an independent non-profit organization selected by the Department of
Commerce to manage and oversee the system for generic top level domain name
registration. In June 1999, the Company commenced online registration as an
ICANN- accredited registrar of .com, .net and .org domains.
Organization
The Company originally operated as Forman Interactive Corp. ("Forman"), a
New York Corporation that was formed in November 1994. Pursuant to a Merger
Agreement dated June 25, 1999 by and among Register.com, a Delaware Corporation
formed in May 1999 specifically for the purpose of this merger, and Forman, the
stockholders of Forman exchanged their shares for an equivalent number of
shares of Register.com. References herein to the operations and historical
financial information of the "Company" prior to the date of the merger refer to
the operations and historical financial information of Forman.
2. Summary of Significant Accounting Policies
Cash equivalents
The Company considers all highly liquid investments purchased with an
initial maturity of 90 days or less to be cash equivalents. The Company
maintains its cash balances in highly rated financial institutions. At times,
such cash balances may exceed the Federal Deposit Insurance Corporation limit.
The Company has pledged approximately $2,400,000 of its cash equivalents and
short-term investments as collateral against outstanding letters of credit.
Short-term investments
Short-term investments are classified as held-to-maturity and consist of
certificates of deposit with highly rated financial institutions with maturity
dates of less than one year, and are carried at cost.
Fixed assets
Depreciation of equipment and furniture and fixtures is provided for by
the straight-line method over their estimated useful lives of three to five
years. Amortization of leasehold improvements is provided for by the
straight-line method over the shorter of their estimated useful life or the
lease term. The costs of additions and betterments are capitalized, and repairs
and maintenance costs are charged to operations in the periods incurred.
Long-lived assets
The Company reviews for the impairment of long-lived assets whenever
events or circumstances indicate that the carrying amount of an asset may not
be recoverable. An
F-7
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
impairment loss would be recognized when estimated undiscounted future cash
flows expected to result from the use of the asset and its eventual disposition
is less than its carrying amount. No such impairment losses have been
identified by the Company.
Revenue recognition
The Company's revenues are primarily derived from domain name registration
fees, advertising and online products and services.
Domain name registration fees
Registration fees charged to end-users for registration services are
recognized on a straight-line basis over the life of the registration term, two
years for initial registrations and one year for the registration renewals.
Substantially all end-user subscribers pay for services with major credit cards
for which the Company receives daily remittances from the credit card carriers.
A provision for chargebacks from the credit card carriers is included in
accounts payable and accrued expenses. Such amounts are separately recorded and
deducted from gross registration fees in determining net revenues.
Online products and services
Revenue from online products and services is recognized over the period in
which services are provided, generally monthly. Payments received in advance of
services being provided are included in deferred revenue.
Advertising
Advertising revenues are derived principally from short-term advertising
contracts in which the Company typically guarantees a minimum number of
impressions or pages to be delivered to users over a specified period of time
for a fixed fee. Advertising revenues are recognized ratably in the period in
which the advertisement is displayed, provided that no significant obligations
remain, at the lesser of the ratio of impressions delivered over total
guaranteed impressions or the straight line basis over the term of the
contract. To the extent that minimum guaranteed impressions are not met, the
Company defers recognition of the corresponding revenues until the guaranteed
impressions are achieved.
Deferred revenue
Deferred revenue primarily relates to the unearned portion of revenue
related to the unexpired term of registration fees, net of an estimate for
credit card chargebacks, deferred advertising revenue and online products and
services revenue.
Prepaid domain name registry fees
Prepaid domain name registry fees represents amounts paid to the registry
for generic top level domains for updating and maintaining the registry. Domain
name registry fees are recognized on a straight-line basis over the life of the
registration term, two years for initial registrations and one year for the
registration renewals.
Research and development and software development costs
Research and development costs, other than certain software development
costs, are charged to expense as incurred. Software development costs incurred
subsequent to the
F-8
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
establishment of technological feasibility and prior to the general release of
the product or service to the public, are capitalized and amortized to cost of
revenues over the estimated useful life of the related product or service.
Software development costs eligible for capitalization have not been
significant to date.
Advertising costs
The Company expenses the costs of advertising in the period in which the
costs are incurred. Advertising expenses were approximately $49,500, $228,000,
and $3,082,500 for the years ended December 31, 1997 and 1998, and the nine
months ended September 30, 1999, respectively.
Income taxes
The Company recognizes deferred taxes by the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for differences between the financial statement and
tax bases of assets and liabilities at enacted statutory tax rates in effect
for the years in which the differences are expected to reverse. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. In addition, valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
Fair value of financial instruments
All current assets and liabilities are carried at cost, which approximates
fair value because of the short-term maturity of those instruments.
Concentration of credit risk
Concentration of credit risks associated with registration receivables is
limited due to the wide variety and number of customers, as well as their
dispersion across geographic areas. Additionally, the majority of the Company's
receivables at September 30, 1999 are comprised of amounts due from credit card
carriers. The Company has no derivative financial instruments. At December 31,
1998 one customer aggregated 15% of the total net accounts receivable balance.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the management of the Company to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Interim financial data
The unaudited financial data for the nine months ended September 30, 1998
has been prepared by management and includes all adjustments, consisting of
normal recurring adjustments, necessary to present fairly the results of
operations and cash flows. The results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the operating results to
be expected for the entire year ending December 31, 1999.
F-9
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
Stock based compensation
The Company accounts for employee stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations ("APB No. 25"). The Company applies
the disclosure requirements of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123") (Note 9).
Loss per share
Basic earnings per share ("Basic EPS") is computed by dividing net loss
available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share ("Diluted
EPS") gives effect to all dilutive potential common shares outstanding during a
period. In computing Diluted EPS, the treasury stock method is used in
determining the number of shares assumed to be purchased from the conversion of
common stock equivalents.
Diluted net loss per share for the nine months ended September 30, 1999
does not include the effect of 1,341,237 shares of Series A Convertible
Preferred Stock outstanding because its effect is anti-dilutive. Diluted net
loss per share for the years ended December 31, 1997 and 1998 and the nine
months ended September 30, 1999 does not include 10,000, 723,100 and 929,100,
respectively, of stock options outstanding with exercise prices ranging from
$.60 to $6.00 per share because their effects are anti-dilutive. Additionally,
diluted net loss per share for the years ended December 31, 1997 and 1998, and
the nine months ended September 30, 1999 excludes 270,000, 1,027,668, and
1,770,263, respectively, of common shares issuable upon the exercise of
outstanding warrants, with exercise prices ranging from $.01 to $12.00 per
share because their effects are anti-dilutive.
Pro forma information (unaudited)
The pro forma balance sheet at September 30, 1999 reflects the automatic
conversion of 1,341,237 shares of the Series A Convertible Preferred Stock into
1,341,237 shares of common stock upon the closing of a qualified IPO (see Note
7). The pro forma basic and diluted net loss per share assumes the conversion
of the Exchangeable Preferred Stock and Series A Convertible Preferred Stock at
the date of original issuance.
Comprehensive income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). This statement requires companies to classify items
of their comprehensive income by their nature in the financial statements and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS No. 130 is effective for financial
statements issued for fiscal years beginning after December 15, 1997. The
Company adopted SFAS No. 130 in fiscal year 1998. There was no difference
between net income and comprehensive income for the years ended December 31,
1997 and 1998, or the nine months ended September 30, 1999.
Segment reporting
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS No. 131"), which established
standards for reporting information about operating segments in annual
financial statements. It also
F-10
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 was adopted by the Company
at December 31, 1998. Adoption of SFAS No. 131 had no impact on the Company's
results of operations, financial position or cash flows as it operates in one
segment.
Recent accounting pronouncements
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities" ("SOP 98-5"). SOP 98-5, which is effective for fiscal
years beginning after December 15, 1998, provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incurred. As the
Company has expensed these costs historically, the adoption of this standard
did not have a significant impact on the Company's results of operations or
financial position.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
and Hedging Activities" ("SFAS 133"), which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The Company does
not expect the adoption of this statement to have a significant impact on the
Company's results of operations or financial position.
3. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
---------------------------- --------------
1997 1998 1999
------------ ------------- --------------
<S> <C> <C> <C>
Computer equipment ...................................... $ 53,733 $ 307,052 $1,745,150
Furniture and fixtures .................................. 32,331 46,341 86,145
Office equipment ........................................ 59,404 59,404 116,398
Leasehold improvements .................................. -- -- 525,167
--------- ---------- ----------
145,468 412,797 2,472,860
Less: accumulated depreciation and amortization ......... (67,028) (188,497) (464,944)
--------- ---------- ----------
Total fixed assets ................................. $ 78,440 $ 224,300 $2,007,916
========= ========== ==========
</TABLE>
Included in office equipment is $97,675 of assets under capital lease at
September 30, 1999. Accumulated amortization of such assets amounted to $58,205
at September 30, 1999.
F-11
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
4. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
------------------------- --------------
1997 1998 1999
----------- ----------- --------------
<S> <C> <C> <C>
Trade accounts payable ............ $322,516 $334,023 $ 409,380
Accrued payroll ................... 278,522 32,361 181,868
Accrued registry fees ............. -- -- 1,244,763
Provision for chargebacks ......... -- -- 621,630
Accrued advertising ............... -- -- 2,026,846
Other ............................. 109,355 244,090 918,510
-------- -------- ----------
$710,393 $610,474 $5,402,997
======== ======== ==========
</TABLE>
5. Notes Payable
In December 1997, the Company issued an $80,000 note payable. The note
bore interest at 10% per annum and was due on the earlier of an equity
financing or December 31, 1999. In connection with the issuance of the note,
the Company issued 3,200 shares of common stock to the noteholder. The Company
has recorded the fair value of the shares, in the amount of $4,000, as interest
expense. The Company repaid the note upon the closing of the January 1998
private placement.
At December 31, 1997 and 1998, the Company was indebted to a bank on notes
aggregating $258,040 and $52,040, respectively. The notes were payable upon
demand and guaranteed by the stockholders. The notes bore interest at the
bank's prime rate +1%. The notes were also secured by an interest in all
personal property and fixtures of the Company, but were subordinate to the
capitalized lease equipment obligations. These amounts were repaid in 1998 and
1999.
6. Notes Payable -- Related Parties
In August 1996, the Company issued an aggregate of $100,000 in notes to
certain stockholders and executive officers. The notes were payable upon demand
and bore interest at 8% per annum. In addition, the Company issued warrants to
acquire an aggregate of 117,647 shares of common stock at $.85 per share. The
warrants expire on the earlier of August 2006 or repayment of the notes. The
Company has recorded the estimated fair value of the warrants, as determined
using the Black-Scholes model, of $69,412 as additional interest expense. In
January 1998, the noteholders elected to exercise the warrants in exchange for
repayment of the notes.
In August 1996, the Company was advanced $30,000 under an informal note
agreement with a principal stockholder of the Company. The note bore interest
at 8% per annum and was payable upon demand. In January 1998, the Company and
the noteholder agreed to convert the principal and unpaid interest on the note
into 35,294 shares of common stock. The Company has recorded the difference
between the conversion price and the fair value of the common stock issued, in
the amount of $14,118 as additional interest expense.
Interest expense to related parties amounted to approximately $10,400,
$14,100 and $0 for the years ended December 31, 1997 and 1998, and the nine
months ended September 30, 1999, respectively.
F-12
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
7. Stockholders' Equity
Authorized Capital
In June 1999, the Company amended its certificate of incorporation to
increase the authorized shares of Common Stock to 25,000,000 and Preferred
Stock to 5,000,000 shares. 428,571 shares of Preferred Stock have been
designated as Exchangeable Preferred Stock and 1,917,000 shares of Preferred
Stock have been designated as Series A Convertible Preferred Stock.
Common Stock
In January and May 1998, the Company completed private placements of an
aggregate of 1,840,000 shares of common stock at $1.25 per share, providing
proceeds, net of offering expenses, of $2,290,732. In connection with these
placements, the Company issued warrants to acquire an aggregate of 326,668
shares of its common stock as a finders fee to two individuals who were members
of two different entities that are principal stockholders of the Company (Note
8). Additionally, the Company issued warrants to acquire up to 700,000 shares
of common stock to all stockholders of record prior to the January 1998 private
placement, on a pro rata basis to their stock holdings (Note 8).
In June 1998, the Company completed a private placement of 133,333 shares
of common stock at $1.50 per share, providing proceeds of $200,000.
In May 1999, the Company completed a private placement of 583,333 shares
of its common stock and a warrant to acquire 200,000 shares of its common stock
at an exercise price of $.01 per share (Note 8), providing gross proceeds of
$7,000,000 and proceeds, net of offering expenses, of $6,693,439. In addition,
the Company and the investor entered into a two-year marketing agreement that
allows for cross-marketing among each of the parties websites. In addition, the
Company issued the placement agent in the offering warrants to acquire 88,274
shares of common stock at an exercise price of $14.27 per share (Note 8).
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of the Company's stockholders. Common stockholders are
entitled to receive dividends, if any, as may be declared by the Board of
Directors, subject to any preferential dividend rights of the preferred
stockholders. The Company has reserved a total of 4,040,600 shares for issuance
under the Company's stock option plans, exercise of warrants and non-plan
options, and conversion of the Series A Convertible Preferred Stock.
Exchangeable Preferred Stock
In March 1999, the Company completed a private placement of 428,571 shares
of exchangeable preferred stock at a price of $7.00 per share, providing
proceeds, net of expenses, of $2,840,732. The Company also issued the investor
warrants to acquire 120,000 shares of common stock at an exercise price of
$7.50 per share in exchange for financial consulting services (Note 8). In
addition, the Company issued the placement agent in the offering warrants to
acquire 52,997 shares of common stock at an exercise price of $14.27 per share
(Note 8). On August 15, 1999, the Exchangeable Preferred Stock automatically
converted into 428,571 shares of common stock.
Series A Convertible Preferred Stock
In June and July 1999, the Company completed a private placement of
1,341,237 shares of its Series A Convertible Preferred Stock (the "Series A
Stock") at $12.00 per share, providing
F-13
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
proceeds, net of offering expenses, of $15,289,887. In addition, the Company
also issued the investors warrants to acquire an aggregate of 268,251 shares of
common stock at an exercise price of $12.00 per share (Note 8). Additionally,
the Company entered into a marketing and distribution agreement with one
investor who purchased 401,667 shares of the Company's Series A Convertible
Preferred Stock (Note 10).
Voting
Each share of Series A Stock is entitled to the number of votes equal to
the number of shares of common stock into which the Series A Stock are then
convertible. Series A stockholders vote together with common stockholders as
one class. The holders of the Series A Stock, voting as a single class, have
the right to elect 1 member of the Board of Directors.
Conversion
Each share of Series A Stock is currently convertible, at the option of
the holder, into one share of common stock, subject to certain antidilutive
adjustments. Each share of Series A Stock will automatically convert into
common stock upon the completion of an initial public offering of the Company's
common stock at a price of at least $18.00 per share (subject to adjustment for
stock splits, stock dividends or recapitalizations) and with gross proceeds of
at least $20,000,000.
Dividends and liquidation preference
The holders of the Series A Stock are entitled to receive dividends prior
and in preference to dividends on common stock. Dividends, if any, are
noncumulative and are payable when declared by the Board of Directors. In the
event of liquidation of the Company, the holders of the Series A Stock are
entitled to receive, prior and in preference to any distribution to the holders
of the common stock, an amount equal to $12.00 per share, plus any declared but
unpaid dividends.
8. Warrants
In September 1996, the Company modified the terms of a warrant granted in
connection with an equity financing in 1995. Under the initial terms, the
warrant holder had the right to acquire up to 1,266,915 shares of common stock,
based upon the Company meeting certain revenue targets and obtaining funding by
the existing stockholders, at an exercise price of $.0001 per share and were to
expire in September 1997. Under the revised terms, warrants to acquire 394,000
shares of common stock at $.0001 per share became immediately exercisable and
warrants to acquire 394,000 shares of common stock would become exercisable
upon the occurrence of certain events prior to February 24, 1997. In September
1996, warrants to acquire 394,000 shares were exercised. In February 1997, the
warrants to acquire the remaining 394,000 shares expired.
In September 1996, the Company issued warrants to acquire an aggregate of
270,000 shares of common stock at $.60 per share to two officers and directors
of the Company in exchange for their personal guarantees on a $162,000 demand
note payable to a bank. The fair value of the warrants at the time of issuance
of $85,320 was recorded as interest expense. In January 1998, the warrant
holders exercised the warrants by forgiving for approximately $260,000 in
accrued compensation. The difference between the accrued compensation forgiven
and the exercise price of the warrants was recorded as a contribution of
capital.
F-14
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
In January and April 1998, and in connection with a private placement of
common stock, the Company issued warrants to acquire 163,334 shares of common
stock at an exercise price of $1.25 per share and warrants to acquire 163,334
shares of common stock at an exercise price of $3.00 per share as a finders
fee. The warrants were immediately exercisable and expire at various dates
through May 2003.
In January 1998, and in connection with the January 1998 private placement
of common stock, the Company issued warrants to acquire up to, in the
aggregate, 700,000 shares of its common stock at $1.25 per share to all the
stockholders of record prior to the private placement. The warrants were issued
to stockholders on a pro rata basis to their stock holdings prior to the
private placement. Under the initial terms of the agreement, the vesting of
these warrants was contingent upon the Company reaching certain revenue targets
for the quarter ended June 30, 2000. In June 1999, the Company and the warrant
holders modified the terms of the warrant to (i) remove the revenue targets,
(ii) fix the aggregate number of shares at 700,000, and (iii) increase the
exercise price to $3.40 per share. The Company has recorded compensation
expense in the amount of $3,878,000 based upon the difference between the fair
value of the Common Stock and the exercise price of the warrants at the time of
modification.
In September 1998, the Company issued warrants to acquire an aggregate of
1,000 shares of common stock to consultants at an exercise price of $1.50 per
share. The Company has recorded the estimated fair value of the warrants, in
the amount of $2,587, at the time of grant as consulting expense. The warrants
are exercisable through September 2008.
In March 1999, in connection with a private placement of Exchangeable
Preferred Stock, the Company entered into a six-month financial advisory
services agreement with the acquirer of the Exchangeable Preferred Stock. Under
the terms of the agreement, the Company issued the investor warrants to acquire
120,000 shares of common stock at an exercise price of $7.50 per share. The
warrants expire in February 2004. The Company has recorded the estimated fair
value of the warrants, in the amount of $493,320, as consulting expense.
In May 1999, in connection with a private placement of the Company's
common stock (see Note 7), the Company issued the purchaser warrants to acquire
200,000 shares of common stock at an exercise price of $.01 per share. The
warrants are exercisable through May 2002.
In February, March, May and June 1999, the Company issued warrants to
acquire an aggregate of 13,071 shares of common stock to consultants at
exercise prices ranging from $2.00 to $5.50 per share. The Company has recorded
the estimated fair value of the warrants, in the amount of $75,890, at the time
of grant as consulting expense. The warrants are exercisable through May 2009.
In March and May 1999, the Company issued warrants to acquire an aggregate
of 141,271 shares of common stock at an exercise price of $14.27 per share as a
fee for the March 1999 sale of Exchangeable Preferred Stock and the May 1999
sale of common stock. The warrants expire in March and May 2004.
In June 1999, and in connection with a private placement of Series A
Convertible Preferred Stock, the Company issued the investors warrants to
acquire an aggregate of 268,251 shares of common stock at an exercise price of
$12.00 per share. The warrants are exercisable through June 2004.
F-15
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
The following table is a summary of the common shares issuable upon
exercise of warrants outstanding at September 30, 1999:
Shares Issuable Exercise Price
Issuance Date Expiration Date Upon Exercise Per Share
- ---------------- ----------------- ----------------- ---------------
January 1998 January 2003 100,000 $ 1.25
January 1998 January 2003 100,000 $ 3.00
January 1998 June 2005 700,000 $ 3.40
April 1998 May 2003 63,334 $ 1.25
April 1998 May 2003 63,334 $ 3.00
September 1998 September 2008 1,000 $ 1.50
February 1999 February 2009 8,571 $ 2.00
March 1999 March 2009 1,500 $ 2.00
March 1999 February 2004 120,000 $ 7.00
March 1999 March 2004 52,997 $ 14.27
May 1999 May 2002 200,000 $ .01
May 1999 May 2009 1,500 $ 5.00
May 1999 May 2004 88,274 $ 14.27
June 1999 June 2009 1,500 $ 5.50
June 1999 June 2004 268,253 $ 12.00
------- -------
Total shares and average exercise 1,770,263 $ 5.19
========= =======
price
9. Stock Option Plans
1997 Stock Option Plan
The Company's 1997 Stock Option Plan (the "1997 Plan") permits the grant
of both "incentive stock options" designed to qualify under the Internal
Revenue Code Section 422 and non-qualified stock options. Options under the
plan may only be granted to employees of the Company. A total of 500,000 shares
of common stock have been reserved for issuance under the 1997 Plan. Each
option, once vested, allows the optionee the right to purchase one share of the
Company's common stock. The Board of Directors determines the exercise price of
the options. Options granted to date generally vest over 36 to 45 months and
expire ten years from the date of grant.
1999 Stock Option Plan
The Company's 1999 Stock Option Plan (the "1999 Plan"), which has been
approved by the Board of Directors and is subject to shareholder approval,
permits the grant of both incentive stock options and non-qualified stock
options. Incentive stock options may only be granted to employees of the
Company whereas non-qualified stock options may be granted to non-employees,
directors and consultants. A total of 650,000 shares have been reserved for
issuance under the 1999 Plan. The Compensation Committee of the Board of
Directors determines the exercise price of the options. No options have been
granted under the 1999 Plan as of September 30, 1999.
F-16
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
Stock option activity under the 1997 and 1999 Plans can be summarized as
follows:
<TABLE>
<CAPTION>
Weighted-
Average
Number Exercise
of Shares Price
----------- ----------
<S> <C> <C>
Outstanding at December 31, 1996 ........................................ -- $ --
Granted ............................................................... 10,000 .60
Exercised ............................................................. -- --
Forfeited ............................................................. -- --
------ ------
Outstanding at December 31, 1997 ........................................ 10,000 .60
Granted ............................................................... 213,100 1.42
Exercised ............................................................. -- --
Forfeited ............................................................. (10,000) .60
------- ------
Outstanding at December 31, 1998 ........................................ 213,100 1.42
Granted ............................................................... 229,950 4.29
Exercised ............................................................. -- --
Forfeited ............................................................. (23,950) 3.28
------- ------
Outstanding at September 30, 1999 ....................................... 419,100 $ 2.89
======= =======
Options available for future grant ...................................... 730,900
=======
Weighted average per share value of options granted during 1997 ......... $ .30
=======
Weighted average per share value of options granted during 1998 ......... $ .87
=======
Weighted average per share value of options granted during 1999 ......... $ 4.43
=======
</TABLE>
The following table summarizes information about options outstanding under
the 1997 and 1999 Plans at September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- ------------------------------
Weighted-
Number Average Weighted- Number Weighted
Outstanding at Remaining Average Exercisable at Average
Exercise September 30, Contractual Exercise September 30, Exercise
Price 1999 Life (Years) Price 1999 Price
- --------------- ---------------- -------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
$ .60-$1.50 172,500 8.7 $ 1.23 86,250 $ 1.23
$1.75-$3.00 97,100 9.3 $ 2.71 25,625 $ 2.64
$3.50-$5.00 149,500 9.7 $ 4.92 30,887 $ 4.90
------- --- ------ ------ -------
419,100 9.2 $ 2.89 142,762 $ 2.28
======= === ====== ======= =======
</TABLE>
F-17
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
As permitted by SFAS No. 123. "Accounting for Stock-Based Compensation",
the Company accounts for its stock-based compensation arrangements pursuant to
APB Opinion No.25, "Accounting for Stock Issued to Employees". In accordance
with the provisions of SFAS No. 123, the Company discloses the pro forma
effects of accounting for these arrangements using the minimum value method to
determine fair value. Based on the fair value of the stock options at the grant
date the Company's net loss would have been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
December 31, September 30,
-------------------------------- -----------------
1997 1998 1999
-------------- ---------------- -----------------
<S> <C> <C> <C>
Net loss
As reported ........................... $ (205,526) $ (1,160,748) $ (7,783,064)
Pro forma ............................. $ (205,526) $ (1,164,635) $ (7,829,134)
Net loss per share
As reported-basic and diluted ......... $ (0.08) $ (0.26) $ (1.48)
Pro forma basic and diluted ........... $ (0.08) $ (0.26) $ (1.49)
</TABLE>
In January 1998, the Company granted an aggregate of 500,000 non-plan
options to an officer and principal stockholder of the Company. 150,000 of such
options have an exercise price of $.60 per share and vested immediately. The
remaining 350,000 of such options vest over a period of 24 months and have the
following exercise prices: 100,000 are exercisable at $1.60 per share, 100,000
are exercisable at $3.00 per share and the remaining 150,000 are exercisable at
$6.00 per share. The Company has recorded compensation expense of $97,500 based
upon the difference between the exercise price and estimated fair value of the
common stock on the date of grant.
In October 1998, the Company granted non-plan options to acquire 10,000
shares of the Company's common stock at exercise prices ranging from $.60 to
$1.25 per share to a consultant for services rendered. The Company has recorded
the estimated fair value of the options on the date of grant, as determined
using the Black-Scholes option pricing model, of $26,300 as consulting expense.
The fair value of each option grant is estimated using the minimum value
method of the Black-Scholes option-pricing model, which assumes no volatility.
The values were obtained using assumptions which were arrived using information
provided by management of the Company. Changes in the information would affect
the assumptions and the option prices derived from the assumptions. The
weighted average assumptions used for grants made in 1997 and 1998 and the nine
months ended September 30, 1999 were as follows:
1997 1998 1999
--------- --------- ---------
Risk free interest rate .......... 6.3% 6.1% 5.5%
Expected lives (years) ........... 5.0 5.0 5.0
Expected dividends ............... 0.0% 0.0% 0.0%
10. Related Party Transactions
General and administrative
During 1997 and 1998, the Company leased office space and received
administrative and support services from an entity in which a principal
stockholder of the Company is an
F-18
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
executive officer. These expenses aggregated approximately $18,682 and $577 in
1997 and 1998, respectively. Included in accounts payable are approximately
$75,739 and $4,890 due to the aforementioned related party at December 31, 1997
and 1998, respectively.
Concentric Networks Corporation
In June 1999, the Company entered into a one-year marketing and
distribution agreement with Concentric Networks Corporation ("Concentric").
Under the terms of the agreement, the Company is required to fund $41,667 per
month to a cooperative marketing program from which the parties will jointly
promote their services. In addition, Concentric has agreed to purchase a
minimum of $100,000 per month of advertising from the Company. In June 1999,
Concentric also purchased 401,667 shares of the Company's Series A Convertible
Preferred Stock (Note 7).
11. Income Taxes
The Company has incurred losses since inception that have generated net
operating loss carryforwards of approximately $1,200,000, $2,200,000 and $0 at
December 31, 1997 and 1998, and September 30, 1999, respectively. These
carryforwards are available to offset future taxable income and expire in 2009
through 2018. These losses may be subject to limitation on future year's
utilization should certain ownership changes occur.
The net operating loss carryforwards and temporary differences between the
carrying amounts of assets and liabilities for financial reporting and income
tax purposes result in a net deferred tax asset of $702,243, $1,206,744 and
$5,094,624 at December 31, 1997 and 1998, and September 30, 1999, respectively.
The Company's operating plans anticipate taxable income in future periods;
however, such plans make significant assumptions which cannot be reasonably
assured. Therefore, in consideration of the Company's accumulated losses and
the uncertainty of its ability to utilize the deferred tax asset in the future,
the Company has recorded a valuation allowance in the amount of $702,243,
$1,206,744 and $2,903,859 at December 31, 1997 and 1998, and September 30,
1999, respectively, to offset the deferred tax benefit amount.
The provision for income taxes for the years ended December 31, 1997 and
1998, and the nine months ended September 30, 1999 consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
--------------- --------------
1997 1998 1999
------ ------ --------------
<S> <C> <C> <C>
Current:
Federal ................................ $-- $-- $1,315,331
State .................................. -- -- 875,434
--- --- ----------
Total current .......................... -- -- 2,190,765
--- --- ----------
Deferred:
Federal ................................ -- -- (1,315,331)
State .................................. -- -- (875,434)
--- --- ----------
Total deferred ......................... -- -- (2,190,765)
--- --- ----------
Total provision for income taxes ......... $-- $-- $ --
=== === ==========
</TABLE>
F-19
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
The components of the net deferred tax asset as of December 31, 1997 and
1998, and September 30, 1999 consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
------------------------------ --------------
1997 1998 1999
------------- --------------- --------------
<S> <C> <C> <C>
Deferred tax assets:
Operating loss carryforward ............... $ 538,957 $ 982,066 $ --
Allowance for doubtful accounts ........... 24,703 29,620 92,448
Accrued expenses .......................... 124,139 121,137 757,072
Deferred revenue .......................... 14,444 50,990 5,802,679
---------- ------------ ------------
Total deferred tax assets .............. 702,243 1,183,813 6,652,199
Deferred tax liabilities:
Prepaid domain name registry fees ......... -- -- 1,552,589
Depreciation and amortization ............. -- (22,931) 4,986
---------- ------------ ------------
Total deferred tax liabilities ......... -- (22,931) 1,557,575
Net deferred tax asset ...................... 702,243 1,206,744 5,094,624
Less: valuation allowance ................... (702,243) (1,206,744) (2,903,859)
---------- ------------ ------------
Deferred tax asset .......................... $ -- $ -- $ 2,190,765
========== ============ ============
</TABLE>
The financial statement income tax provision differs from income taxes
determined by applying statutory Federal income tax rate to the financial
statement net loss for the years ended December 31, 1997 and 1998, and the nine
months ended September 30, 1999 as a result of the following:
<TABLE>
<CAPTION>
December 31, September 30,
----------------------------- --------------
1997 1998 1999
------------- ------------- --------------
<S> <C> <C> <C>
Tax benefit at Federal statutory rate ....................... (34.0)% (34.0)% (34.0)%
State income tax benefit, net of Federal tax charge ......... ( 7.1) ( 8.0) (10.9)
Non-deductible compensation expenses ........................ -- .1 17.0
Valuation allowance ......................................... 41.1 41.9 27.9
----- ----- -----
--% --% --%
====== ====== ======
</TABLE>
12. Commitments
Operating leases
The Company leases office facilities and equipment under operating leases
expiring through 2009. The Company also leases telephone equipment under a
capital lease expiring through 2004. Future minimum lease payments due under
noncancellable operating leases and capital leases were as follows:
F-20
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
<TABLE>
<CAPTION>
Operating Capital
------------- ------------
<S> <C> <C>
Year ending September 30,
2000 .................................................... $ 283,889 $ 10,704
2001 .................................................... 401,748 10,704
2002 .................................................... 413,800 10,704
2003 .................................................... 349,673 10,704
2004 .................................................... 360,163 10,704
Thereafter .............................................. 2,075,701 3,329
---------- ---------
Total minimum lease payments ......................... $3,884,974 56,849
==========
Less: amount representing interest ........................ (14,032)
---------
Present value of future minimum lease payments ............ 42,817
Less: current portion ..................................... (10,704)
---------
Capital lease obligations, net of current portion ......... $ 32,113
=========
</TABLE>
Rent expense for the years ended December 31, 1997 and 1998, and the nine
months ended September 30, 1999 was approximately $14,000, $43,000 and
$157,000, respectively.
Employment agreements
In the normal course of business, the Company enters into employment
agreements with various employees.
Marketing and distribution/strategic partnership agreements
In the normal course of business, the Company enters into marketing and
distribution/strategic partnership agreements with various entities. These
agreements generally have a term of 12 to 24 months, and a number require the
Company to purchase a minimum amount of advertising or pay other fees over the
term of the contract. Future minimum payments required under the marketing and
distribution/strategic partnership agreements for the years ended September 30,
2000 and 2001 are approximately $2,200,000 (including $500,000 to Concentric --
Note 10) and $1,000,000, respectively.
13. Contingencies
Litigation
There are various claims, lawsuits and pending actions against the Company
incidental to the operations of its business. It is the opinion of management,
after consultation with counsel, that the ultimate resolution of such claims,
lawsuits and pending actions will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
14. Subsequent Events
In December 1999, the Company's Board of Directors authorized management
to file a registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its common stock to the public.
In December 1999, the Compensation Committee of the Board of Directors
authorized the Company to grant options to acquire 199,480 shares of common
stock under the 1997 and 1999 Plans with an exercise price equal to the IPO
price per share.
In December 1999, Concentric agreed to purchase additional advertising on
our website for seven months commencing in March 2000 at a rate of $100,000 per
month.
F-21
<PAGE>
You may rely only on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor the sale of common
stock means that information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or
solicitation of an offer to buy these shares in any circumstances under which
the offer or solicitation is unlawful.
TABLE OF CONTENTS
Page
---------
Prospectus Summary ....................... 2
Risk Factors ............................. 6
Use of Proceeds .......................... 23
Dividend Policy .......................... 23
Capitalization ........................... 24
Dilution ................................. 25
Selected Financial Data .................. 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................ 27
Business ................................. 36
Management ............................... 50
Certain Relationships and Related
Transactions .......................... 57
Principal Stockholders ................... 61
Description of Capital Stock ............. 63
Shares Eligible for Future Sale .......... 67
Underwriting ............................. 69
Legal Matters ............................ 72
Experts .................................. 72
Where You Can Find Additional
Information ........................... 72
Index to Financial Statements ............ F-1
Dealer Prospectus Delivery Obligation: Until , 2000 (25 days after the
date of this prospectus), all dealers that buy, sell or trade in these shares
of common stock, whether or not participating in this offering, may be required
to deliver a prospectus. Dealers are also obligated to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
Register.com
Logo
_____________ Shares
Common Stock
Deutsche Banc Alex. Brown
Thomas Weisel Partners LLC
Legg Mason Wood Walker,
Incorporated
Wit Capital Corporation
Prospectus
_______________, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth an estimate of the costs and expenses,
other than the underwriting discounts and commissions, payable by the
Registrant in connection with the issuance and distribution of the common stock
being registered.
SEC registration fee ................................... $21,120
NASD fee ............................................... 8,500
NASDAQ listing fee .....................................
Legal fees and expenses ................................
Accounting fees and expenses ...........................
Printing expenses ......................................
Blue sky fees and expenses .............................
Transfer Agent and Registrar fees and expenses .........
Miscellaneous ..........................................
Total .............................................. $
=======
Item 14. Indemnification of Directors and Officers
The registrant's certificate of incorporation in effect as of the date
hereof, and the registrant's certificate of incorporation to be in effect upon
the closing of this offering (collectively, the "Certificate") provides that,
except to the extent prohibited by the Delaware General Corporation Law, as
amended (the "DGCL"), the registrant's directors shall not be personally liable
to the registrant or its stockholders for monetary damages for any breach of
fiduciary duty as directors of the registrant. Under the DGCL, the directors
have a fiduciary duty to the registrant which is not eliminated by this
provision of the Certificate and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available. In addition, each director will continue to be subject to liability
under the DGCL for breach of the director's duty of loyalty to the registrant,
for acts or omissions which are found by a court of competent jurisdiction to
be not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are prohibited by DGCL. This provision does not limit the
directors' responsibilities under any other laws, including the federal
securities laws or state or federal environmental laws. The registrant
maintains liability insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director: (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. The DGCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
Certificate eliminates the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the DGCL and provides that the
registrant shall fully indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (whether civil, criminal, administrative or investigative)
by reason of the fact that
II-1
<PAGE>
such person is or was a director or officer of the registrant, or is or was
serving at the request of the registrant as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
Item 15. Recent Sales of Unregistered Securities
Within the last three years, the Registrant has sold and issued the
following securities:
(1) In December 1997, the Registrant issued 3,200 shares of common stock
to a member of one of its stockholders.
(2) From January 1997 through December 1997, the Registrant granted
employees options to purchase 10,000 shares of common stock at a
weighted average exercise price of $0.60.
(3) In January and May 1998, the Registrant issued an aggregate of
1,840,000 shares of common stock to a group of investors, including
some members of management, at a purchase price of $1.25 per share,
with proceeds, net of offering expenses, of $2,290,732. In connection
with these transactions, the Registrant issued to two of its directors
warrants to acquire an aggregate of 163,334 shares of common stock at
an exercise price of $1.25 per share and 163,334 shares of common
stock at an exercise price of $3.00 per share. The Registrant also
issued to stockholders of record prior to the private placement
warrants to purchase 700,000 shares of its common stock at an exercise
price of $1.25 per share. These warrants were modified in June 1999 to
increase the exercise price to $3.40 per share.
(4) In June 1998, the Registrant issued 133,333 shares of common stock to
a private investor at a purchase price of $1.50 per share, with
proceeds of $200,000.
(5) In August 1998, the Registrant issued 3,858 shares of common stock to
a consultant in consideration for services.
(6) In September 1998, the Registrant issued to consultants warrants to
purchase an aggregate of 1,000 shares of common stock at an exercise
price of $1.50 per share.
(7) From January 1998 through December 1998, the Registrant granted
employees options to purchase 213,100 shares of common stock at a
weighted average exercise price of $1.42.
(8) In March 1999, the Registrant issued 428,571 shares of exchangeable
preferred stock to Palisade Private Partnership, LP at a price of
$7.00 per share, with proceeds, net of expenses, of $2,840,732. The
Registrant also issued warrants to purchase 120,000 shares of common
stock at an exercise price of $7.50 per share to Palisade Private
Partnership, LP for financial advisory services.
(9) In May 1999, the Registrant issued 583,333 shares of its common stock
to Staples, Inc. at a purchase price of $12.00 per share for an
aggregate purchase price of $6,999,996. In connection with the
transaction, the Registrant also issued warrants to purchase 200,000
shares of common stock at an exercise price of $0.01 per share.
II-2
<PAGE>
(10) In June and July 1999, the Registrant issued 1,341,237 shares of its
Series A Convertible Preferred Stock to a group of investors,
including some members of management, at a price of $12.00 per share,
with proceeds, net of offering expenses, of $15,289,887. In connection
with the transaction, the Registrant also issued warrants to acquire
an aggregate of $268,251 shares of common stock at an exercise price
of $12.00 per share.
(11) In February, March, May and June 1999, the Registrant issued to
consultants warrants to acquire an aggregate of 13,071 shares of
common stock at exercise prices ranging from $2.00 to $5.50 per share.
(12) From January 1999 through December 1999, the Registrant granted
employees options to purchase 303,260 shares of common stock at a
weighted average exercise price of $4.66.
Legg Mason Wood Walker, Incorporated was the placement agent for the
equity sales in March, May, June and July 1999. In connection with its
services, it was issued warrants to purchase 141,271 shares of common stock at
an exercise price of $14.27 per share.
The issuances of the above securities were issued in transactions exempt
from registration under the Securities Act in reliance on Section 4(2) thereof
as transactions by an issuer not involving any public offering. In addition,
the issuances of employee options described above were issued in transactions
exempt from registration under the Securities Act in reliance upon Rule 701
and/or Rule 4(2) promulgated under the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ----------- --------------------------------------------------------------------------------
<S> <C>
1.1* Form of underwriting agreement.
3.1 Certificate of Incorporation, as amended.
3.2* Form of amended and restated certificate of incorporation to be in effect
upon the closing of the offering.
3.3 Bylaws.
3.4* Form of amended and restated bylaws to be in effect upon the closing of
the offering.
4.1* Specimen common stock certificate.
4.2 See Exhibits 3.1, 3.2, and 3.3 for provisions of the certificate of
incorporation and bylaws defining the rights of holders of Common Stock.
4.3* Registration Rights Agreements.
4.4* Amended and Restated Stockholders Agreement.
4.5 Certificate of designations, preferences and relative, participating, optional
and other special rights of preferred stock and qualifications, limitations and
restrictions of Series A Convertible Preferred Stock.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 1997 Stock Option Plan.
10.2* 1999 Stock Option Plan.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.3 Registrar Accreditation Agreement, dated November 30, 1999, by and
between ICANN and Register.com, Inc.
10.4 Registrar License and Agreement, dated December 13, 1999, by and
between Network Solutions, Inc. and Register.com, Inc.
10.5* Lease between Pennbus Realties, Inc. and Forman Interactive Corp.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1 Powers of attorney (please see Signature Page).
27.1 Financial Data Schedule.
99.1 Consent of Director Nominee Reginald Van Lee.
</TABLE>
- -------------
* To be filed by amendment.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or the notes thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424 (b) (1)
or (4) or 497 (h) under the Securities Act of 1933 shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on this 23rd day of December, 1999.
REGISTER.COM, INC.
By: /s/ Richard D. Forman
--------------------------------
Richard D. Forman
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned directors and/or officers of Register.com, Inc. (the
"Company"), hereby severally constitute and appoint Richard D. Forman,
President and Chief Executive Officer, and Alan G. Breitman, Vice President of
Finance and Accounting, and each of them individually, with full powers of
substitution and resubstitution, our true and lawful attorneys, with full
powers to them and each of them to sign for us, in our names and in the
capacities indicated below, the registration statement on Form S-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
registration statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, in connection with the registration under the Securities
Act of 1933, as amended, of equity securities of the Company, and to file or
cause to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as each of them
might or could do in person, and hereby ratifying and confirming all that said
attorneys, and each of them, or their substitute or substitutes, shall do or
cause to be done by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 23, 1999:
<TABLE>
<CAPTION>
Signature Title(s)
- -------------------------------- ---------------------------------------------
<S> <C>
/s/ Richard D. Forman President, Chief Executive Officer and
- -------------------------------- Director (Principal Executive Officer)
Richard D. Forman
/s/ Alan G. Breitman Vice President of Finance and Accounting
------------------------------- (Principal Accounting and Financial Officer)
Alan G. Breitman
/s/ Peter A. Forman Director
-------------------------------
Peter A. Forman
/s/ Niles H. Cohen Director
-------------------------------
Niles H. Cohen
/s/ Samantha McCuen Director
- --------------------------------
Samantha McCuen
/s/ Mark S. Hoffman Director
- --------------------------------
Mark S. Hoffman
</TABLE>
II-5
<PAGE>
Schedule II -- Valuation and Qualification Accounts
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and Ending
of Period Expenses Deductions of Period
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
For the year ended December 31, 1997:
Provision for doubtful accounts ............ $ -- $ 75,764 $ 55,000 $ 20,764
======= ======== ======== ========
For the year ended December 31, 1998:
Provision for doubtful accounts ............ $20,764 $ 72,232 $ 27,049 $ 65,947
======= ======== ======== ========
For the nine months ended September 30, 1999:
Provision for doubtful accounts ............ $65,947 $427,902 $288,016 $205,833
======= ======== ======== ========
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ----------- --------------------------------------------------------------------------------
<S> <C>
1.1* Form of underwriting agreement.
3.1 Certificate of Incorporation, as amended.
3.2* Form of amended and restated certificate of incorporation to be in effect
upon the closing of the offering.
3.3 Bylaws.
3.4* Form of amended and restated bylaws to be in effect upon the closing of
the offering.
4.1* Specimen common stock certificate.
4.2 See Exhibits 3.1, 3.2, and 3.3 for provisions of the certificate of
incorporation and bylaws defining the rights of holders of Common Stock.
4.3* Registration Rights Agreements.
4.4* Amended and Restated Stockholders Agreement.
4.5 Certificate of designations, preferences and relative, participating, optional
and other special rights of preferred stock and qualifications, limitations and
restrictions of Series A Convertible Preferred Stock.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 1997 Stock Option Plan.
10.2* 1999 Stock Option Plan.
10.3 Registrar Accreditation Agreement, dated November 30, 1999, by and
between ICANN and Register.com, Inc.
10.4 Registrar License and Agreement, dated December 13, 1999, by and
between Network Solutions, Inc. and Register.com, Inc.
10.5* Lease between Pennbus Realties, Inc. and Forman Interactive Corp.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1 Powers of attorney (please see Signature Page).
27.1 Financial Data Schedule.
99.1 Consent of Director Nominee Reginald Van Lee.
</TABLE>
- -------------
* To be filed by amendment.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
REGISTER.COM CORP.
THE UNDERSIGNED, in order to form a corporation for the purposes herein
stated, under and pursuant to the provisions of the General Corporation Law of
the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation is Register.com Corp. (hereinafter
called the "Corporation").
SECOND: The registered office of the Corporation is to be located at 9 East
Loockerman Street, in the City of Dover, in the County of Kent, in the State of
Delaware 19901. The name of its registered agent at that address is National
Corporate Research, Ltd.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 12,428,571 of which (i) 12,000,000
shares shall be common stock, par value $0.0001 per share ("Common Stock"), and
(ii) 428,571 shares shall be exchangeable Preferred Stock, par value $0.0001 per
share (the "Exchangeable Preferred").
The following is a statement of the powers, preferences, privileges and
rights, and the qualifications, limitations or restrictions thereof in respect
of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Exchangeable Preferred.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). Except as provided by law, by the provisions hereof or by the
provisions establishing any other series of convertible or exchangeable
preferred stock of the Corporation, holders of Common Stock will vote such
shares together with the holders of the Exchangeable Preferred and of any other
outstanding series of stock, voting as a single class. There shall be no
cumulative voting.
<PAGE>
3. Dividends. Subject to the terms and provisions of the Exchangeable
Preferred, dividends may be declared and paid on the Common Stock from funds
lawfully available therefor as and when determined by the Board of Directors.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any participation rights of any then outstanding
Exchangeable Preferred.
B. EXCHANGEABLE PREFERRED STOCK.
The Exchangeable Preferred shall have the following rights, preferences, powers,
privileges and restrictions, qualifications and limitations.
1. Voting. The holders of shares of Exchangeable Preferred shall vote
together with the holders of shares of Common Stock as a single class on an
As-Exchanged Basis (as hereinafter defined) on all matters coming before the
Corporation's stockholders. The consent of a majority of the Exchangeable
Preferred shall be required for any action that amends, alters or repeals the
preferences, special rights, or other powers of the Exchangeable Preferred or
which affects the Exchangeable Preferred adversely. As used herein, voting on an
"As-Exchanged Basis" shall mean that each holder of shares of Exchangeable
Preferred shall be entitled to cast, with respect to each such matter, such
number of votes equal to the number of whole shares of Common Stock into which
the shares of Exchangeable Preferred held by such holder shall then be
exchangeable.
2. Dividends. So long as shares of the Exchangeable Preferred are
outstanding, no dividend shall be declared or made upon the Common Stock unless
a dividend is declared, paid or set aside for payment on all outstanding shares
of the Exchangeable Preferred in an amount equal to the dividend that would be
payable on the Common Stock into which the Exchangeable Preferred is then
exchangeable.
3. Liquidation, Dissolution or Winding Up. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of the Exchangeable Preferred then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders, before any payment shall be made to the holders of Common Stock,
by reason of their ownership thereof, an amount equal to $7.00 per share of
Exchangeable Preferred.
4. Optional Exchange. The holders of the Exchangeable Preferred shall have
the following exchange rights (the "Exchange Rights"):
(a) Right to Exchange. (i) Each share of Exchangeable Preferred shall be
exchangeable, at the option of the holder thereof, at any time prior to the
Automatic Exchange Date (as hereinafter defined) and without the payment of
additional consideration by the holder thereof, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing $7.00 by
the lesser of (x) $7.00 or (ii) the lowest per share Consideration (as defined
below) received by the Corporation for the issuance of Additional Shares of
Equity Securities (as defined below) by the Corporation prior to the Exchange
Deadline (as defined below) (the "Exchange Price").
-2-
<PAGE>
(ii) The term "Consideration" for the issuance of Additional Shares
of Equity Securities shall mean the consideration per share received by the
Corporation computed as follows:
(1) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts paid or payable
for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Equity Securities are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The consideration per
share received by the Corporation for Additional Shares of Equity Securities
which take the form of options and convertible securities, shall be determined
by dividing
(A) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such options or convertible
securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such options or the conversion or exchange
of such convertible securities, or in the case of options for convertible
securities, the exercise of such options for convertible securities and the
conversion or exchange of such convertible securities, by
(B) the maximum number of shares of each class of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such options or the conversion or exchange of such
convertible securities.
(iii) The term "Additional Shares of Equity Securities" as used
herein shall mean all shares of equity securities issued by the Corporation,
whether or not subsequently reacquired or retired by the Corporation, and any
security convertible into or exchangeable for any equity securities issued by
the Corporation, including without limitation all rights, options or warrants to
subscribe for, purchase or otherwise acquire any class of Common Stock or
convertible securities issued by the Corporation, except that Additional Shares
of Equity Securities shall not include shares of Common Stock issued or
issuable:
-3-
<PAGE>
(A) upon issuance or exercise of options to acquire Common
Stock granted pursuant to the Register.Com Corp. 1997 Employee Stock Option
Plan, not exceeding 500,000 shares (subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting shares of Common Stock) unless such options which
have not been granted on the date hereof are granted at an exercise price
reflecting greater than a 25% discount on the greater of (x) the fair market
value thereof, as determined by the Board of Directors in good faith, and (y)
$7.00;
(B) upon exercise of warrants or options being granted or
issued prior to the issuance of the Exchangeable Preferred;
(C) upon issuance or exercise of a warrant to Legg Mason Wood
Walker Incorporated pursuant to its entrance into that certain engagement letter
dated January 14, 1999 with the Corporation; and
(D) upon issuance or exercise of any warrants to vendors of the
Corporation or its predecessor that were being negotiated at the time of the
issuance of the Exchangeable Preferred by the Corporation's predecessor and were
disclosed to Palisade Private Partnership, L.P. prior to such issuance.
(iv) No Impairment. The Corporation will not, by any voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Corporation, but will at all times
in good faith assist in the carrying out of all of the provisions of this
Section and in the taking of all such action as may be necessary or appropriate
in order to protect the rights of the holders of the Exchangeable Preferred
against impairment.
In the event of a liquidation of the Corporation, the Exchange Rights of
the Exchangeable Preferred shall terminate at the close of business on (i) the
third full day preceding the date fixed for the payment of any amounts
distributable on liquidation to the holders of such series or (ii) any earlier
Automatic Exchange Date, as hereinafter defined.
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon exchange of Exchangeable Preferred. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the then fair market value of shares of
Common Stock (as reasonably determined by the Corporation).
(c) Mechanics of Exchange.
(i) In order for a holder of Exchangeable Preferred to exchange
shares thereof into shares of Common Stock, such holder shall surrender the
certificate or certificates for such shares, at the office of the transfer agent
for such shares (or at the principal office of the Corporation, if the
Corporation serves as its own transfer agent with respect to such shares),
together with written notice that such holder elects to exchange all or any
number of the shares
-4-
<PAGE>
of Exchangeable Preferred represented by such certificate or certificates. Such
notice shall state such holder's name or the names of the nominees in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued. If required by the Corporation, certificates surrendered for exchange
shall be endorsed or accompanied by a written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or his or its attorney duly authorized in writing. The date of
receipt by the transfer agent of such certificates and notice for such shares
(or by the Corporation, if the Corporation serves as its own transfer agent for
such shares) shall be the exchange date ("Exchange Date"). The Corporation
shall, as soon as practicable after the Exchange Date, issue and deliver at such
office to such holder, or to his or its nominee, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when any shares of
Exchangeable Preferred shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the exchange of
shares of such series, such number of its duly authorized shares of Common Stock
as shall from time to time be sufficient to effect the exchange of all shares of
Exchangeable Preferred outstanding or reserved for issuance.
(iii) Upon any such exchange, no adjustment to the Exchange Price
shall be made for any dividends on any share of Exchangeable Preferred
surrendered for exchange or on the Common Stock delivered upon exchange.
(iv) All shares of Exchangeable Preferred that shall have been
surrendered for exchange as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the Exchange Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor. Any shares of Exchangeable
Preferred so exchanged shall be retired and cancelled and shall not be reissued,
and the Corporation (without the need for stockholder action) may from time to
time take such appropriate action as may be necessary to reduce the authorized
Exchangeable Preferred accordingly.
(v) The Corporation shall pay any and all issue and other taxes that
may be payable in respect of any issuance or delivery of shares of Common Stock
upon exchange of shares of Exchangeable Preferred pursuant to this Section B(4).
The Corporation shall not, however, be required to pay any tax that may be
payable in respect of any transfer involved in the issuance and delivery of
shares of Common Stock in a name other than that in which the shares of
Exchangeable Preferred so exchanged were registered, and no such issuance or
delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the issuance of Exchangeable
Preferred effect a subdivision of the outstanding Common Stock, the Exchange
Price then in effect with respect to the Exchangeable Preferred immediately
before that subdivision shall be proportionately
-5-
<PAGE>
decreased. If the Corporation shall at any time or from time to time after the
issuance of Exchangeable Preferred combine the outstanding shares of Common
Stock, the Exchange Price with respect to the Exchangeable Preferred then in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(e) Adjustment for Reclassification, Exchange or Substitution. If the
Common Stock shall be changed into the same or a different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares provided for above), then, and in each such event, the holders of shares
of Exchangeable Preferred shall have the right thereafter to exchange such
shares into the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, or other change, as would be
received by holders of the number of shares of Common Stock into which such
shares of Exchangeable Preferred might have been exchanged immediately prior to
such reclassification or change.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment of the Exchange Price applicable to the Exchangeable Preferred
pursuant to this Section B(4), the Corporation at its expense shall promptly
compute such adjustment in accordance with the terms hereof and furnish to each
holder of Exchangeable Preferred a certificate setting forth such adjustment and
showing in detail the facts upon which such adjustment is based. The Corporation
shall, upon the written request at any time of any holder of Exchangeable
Preferred, furnish or cause to be furnished to such holder a similar certificate
setting forth (i) such adjustments, (ii) the Exchange Price applicable to the
Exchangeable Preferred then in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which then would be received
upon the exchange of a share of Exchangeable Preferred.
(g) Notice of Record Date. In the event: (i) that the Corporation
subdivides or combines its outstanding shares of Common Stock; (ii) of any
reclassification of the Common Stock of the Corporation (other than a
subdivision or combination of its outstanding shares of Common Stock ); or (iii)
of the involuntary or voluntary dissolution, liquidation or winding up of the
Corporation; then the Corporation shall cause to be filed at its principal
office or at the office of the transfer agent of Exchangeable Preferred, and
shall cause to be mailed to the holders of shares of Exchangeable Preferred at
their last addresses as shown on the records of the Corporation or such transfer
agent, at least ten days prior to the date specified in (A) below or twenty days
before the date specified in (B) below, a notice stating (A) the record date of
such subdivision or combination, or, if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such
subdivision or combination are to be determined, or (B) the date on which such
reclassification, sale, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification, sale,
dissolution or winding up.
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<PAGE>
5. Automatic Exchange.
(a) Upon the earlier to occur of (i) the later of (x) August 15, 1999
and (y) the closing of any private sale of Additional Shares of Equity
Securities or other financing transactions by the Corporation; provided that on
August 15, 1999 a bona fide letter of intent or term sheet for such private sale
or other financing shall have been provided by or to the Corporation and the
Corporation shall have been in the process of negotiating the terms of such
offering with one or more investors; provided, further, that in the event such
negotiations have been abandoned by either the Corporation, in its sole
discretion, or the investor(s) with whom the Corporation was in the process of
negotiating, such closing, for the purposes of this Section 5(a), shall be
deemed to have occurred on the date of such abandonment, and (ii) a public
offering of the Company's Common Stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended (in each case, the
"Exchange Deadline"), then (x) all outstanding shares of Exchangeable Preferred
shall automatically be exchanged into shares of Common Stock, at the then
effective Exchange Price for the applicable series and (y) the number of
authorized shares of Exchangeable Preferred shall be automatically reduced by
the number of shares of Exchangeable Preferred so exchanged, and all references
to the shares thereof shall be deleted and shall be of no further force or
effect.
(b) All holders of record of shares of Exchangeable Preferred to be so
exchanged shall be given written notice of the Automatic Exchange Date and the
place designated for automatic exchange of all such shares. Such notice need not
be given in advance of the occurrence of the Automatic Exchange Date. Such
notice shall be sent by first class or registered mail, postage prepaid, to each
record holder of such shares at such holder's address last shown on the records
of the transfer agent for such shares (or the records of the Corporation, if it
serves as its own transfer agent). Upon receipt of such notice, each holder of
shares of Exchangeable Preferred shall surrender his or its certificate or
certificates for all such shares to the Corporation at the place designated in
such notice, and shall thereafter receive certificates for the number of shares
of Common Stock to which such holder is entitled pursuant to this Section B(5).
On the Automatic Exchange Date, all rights with respect to the shares of
Exchangeable Preferred so exchanged, including the rights, if any, to receive
notices and vote (other than as a holder of Common Stock) will terminate, except
only the rights of the holders thereof, upon surrender of their certificate or
certificates therefor, to receive certificates for the number of shares of
Common Stock into which such shares have been exchanged. If so required by the
Corporation, certificates surrendered for exchange shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or by
his or its attorney duly authorized in writing. As soon as practicable after the
Automatic Exchange Date and the surrender of the certificate or certificates for
the shares so exchanged, the Corporation shall cause to be issued and delivered
to such holder, or on his or its written order, a certificate or certificates
for the number of full shares of Common Stock issuable on such exchange in
accordance with the provisions hereof and cash as provided in clause (b) of
Section B(4) in respect of any fraction of a share of Common Stock otherwise
issuable upon such exchange.
(c) All certificates evidencing exchanged shares required to be
surrendered in accordance with the provisions hereof shall, from and after the
Automatic Exchange Date, be deemed to have been retired and cancelled, and the
shares of Exchangeable Preferred represented thereby exchanged into Common Stock
for all purposes, notwithstanding the failure of the holder or holders thereof
to surrender such certificates on or prior to such date. The Corporation may
thereafter take such appropriate action (without the need for Stockholder
action) as may be necessary to reduce the authorized Exchangeable Preferred
accordingly.
-7-
<PAGE>
FIFTH: The name and mailing address of the incorporator is: Hope A. Wankel,
c/o Loeb & Loeb LLP, 345 Park Avenue, New York, New York 10154.
SIXTH: The election of directors need not be by written ballot unless the
by-laws so provide.
SEVENTH: The Board of Directors of the Corporation is authorized and
empowered from time to time in its discretion to make, alter, amend or repeal
by-laws of the Corporation, except as such power may be restricted or limited by
the General Corporation Law of the State of Delaware.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of this Corporation, as the case may be, and also on this
Corporation.
NINTH: Anything to the contrary in this Certificate of Incorporation
notwithstanding, no director shall be liable personally to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided however, that nothing in this paragraph shall eliminate or
limit the liability of a director (i) for any breach of such director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which such director derived an
improper personal benefit. The modification or repeal of this Article Ninth
shall not affect the restriction hereunder of a director's personal liability
for any act or omission occurring prior to such modification or repeal.
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<PAGE>
I, the undersigned, being the sole incorporator, for the purpose of forming
a corporation under the laws of the State of Delaware do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and accordingly, have hereto set my hand and seal this 11th day of May,
1999.
/s/ Hope A. Wankel
------------------------------
Hope A. Wankel, Incorporator
c/o Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
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<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
REGISTER.COM CORP.
Register.com Corp., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, does hereby
certify:
First: That the sole incorporator adopted the following resolutions
proposing and declaring advisable the following amendments to the Certificate of
Incorporation of said corporation:
RESOLVED, that Article FIRST of the Certificate of Incorporation of
Register.com Corp. be amended in its entirety to read as follows:
"FIRST: The name of the corporation is Register.com, Inc. (hereinafter
called the "Corporation")."
RESOLVED, that Article FOURTH of the Certificate of Incorporation of
Register.com Corp. in its entirety to read as follows:
FOURTH:
A. The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 30,000,000, of which
(i) 25,000,000 shares shall be Common Stock, par value $0.0001 per
share ("Common Stock"), and (ii) 5,000,000 shares of Preferred Stock,
par value $0.0001 per share (the "Preferred Stock"). Shares of
Preferred Stock may be issued from time to time in one or more series
as may be established from time to time by resolution of the Board of
Directors of the Corporation (the "Board of Directors"), each of which
<PAGE>
series shall consist of such number of shares and have such distinctive
designation or title as shall be fixed by resolutions of the Board of
Directors prior to the issuance of any shares of such series. Each such
class or series of Preferred Stock shall have such voting powers, full
or limited, or no voting powers, and such preferences and relative,
participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be stated
in such resolutions of the Board of Directors providing for the
issuance of such series Preferred Stock. The Board of Directors is
further authorized to increase or decrease (but not below the number of
shares of such class or series then outstanding) the number of shares
of any series subsequent to the issuance of shares of that series.
Second: The Corporation has no stockholders of record, no subscribers
for shares whose subscriptions have been accepted and no directors.
Third: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 241 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, said Register.com Corp. has caused this certificate
to be signed by Hope Wankel, its sole incorporator this 17th day of June, 1999.
REGISTER.COM CORP.
By:/s/ Hope Wankel
-------------------------------
Hope Wankel, Sole Incorporator
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<PAGE>
BY-LAWS
OF
REGISTER.COM, INC.
ARTICLE I
OFFICES
SECTION 1. Principal Office. The registered office of the
corporation shall be located in such place as may be provided from time to time
in the Certificate of Incorporation.
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 or as the business of the
corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 1. Annual Meetings. The annual meeting of the
stockholders of the corporation shall be held on the 4th day of December at
10:00 a.m. in each year if not a legal holiday, and, if a legal holiday, then on
the next business day following at the same hour, when the stockholders shall
elect a board and transact such other business as may properly come before the
meeting.
SECTION 2. Special Meetings. Special meetings of the
stockholders for any purpose or purposes, unless otherwise prescribed by statute
or by the Certificate of Incorporation, may be held at any place, within or
without the State of Delaware, and may be called by resolution of the board of
directors, or by the Chairman or the President, or by the holders of not less
than one-quarter of all of the shares entitled to vote at the meeting.
SECTION 3. Notice and Purpose of Meetings. Written or printed
notice of the meeting stating the place, day and hour of the meeting and, in
case of a special meeting, stating the purpose or purposes for which the meeting
is called, shall be delivered not less than ten nor more than sixty days before
the date of the meeting, either personally or by mail, by or at the direction of
the Chairman or the President, the Secretary, or the persons calling the
meeting, to each stockholder of record entitled to vote at such meeting.
<PAGE>
SECTION 4. Quorum. The holders of a majority of the shares of
capital stock issued and outstanding and entitled to vote, represented in person
or by proxy, shall constitute a quorum at all meetings of the stockholders for
the transaction of business, except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders 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 notified.
SECTION 5. Voting Process. If a quorum is present or
represented, the affirmative vote of a majority of the shares of stock present
or represented at the meeting shall be the act of the stockholders unless the
vote of a greater number of shares of stock is required by law, by the
Certificate of Incorporation or by these by-laws. Each outstanding share of
stock having voting power, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. A shareholder may vote either
in person or by proxy executed in writing by the stockholder or by his duly
authorized attorney-in-fact. The term, validity and enforceability of any proxy
shall be determined in accordance with the General Corporation Law of the State
of Delaware.
SECTION 6. Written Consent of Stockholders Without a Meeting.
Whenever the stockholders are required or permitted to take any action by vote,
such action may be taken without a meeting, without prior notice and without a
vote, if a written consent, setting forth the action so taken, shall be signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting
called for such purpose.
ARTICLE III
DIRECTORS
SECTION 1. Powers. The business affairs of the corporation
shall be managed by its board of directors. The board of directors 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
directed or required to be exercised or done by the stockholders. The board of
directors may adopt such rules and regulations, not inconsistent with the
Certificate of Incorporation or these By-Laws or applicable laws, as it may deem
proper for the conduct of its meetings and the management of the Corporation.
SECTION 2. Number, Qualifications, Term. The board of
directors shall consist of one or more members. The number of directors shall be
fixed initially by the Incorporator and may thereafter be changed from time to
time by resolution of the board of directors or of the shareholders. Directors
need not be residents of the State of Delaware nor stockholders of the
corporation. The directors shall be elected at the annual meeting of the
stockholders, and each director elected shall serve until the next succeeding
annual meeting and until his successor shall have been elected and qualified.
SECTION 3. Vacancies. Vacancies and newly created
directorships resulting from any increase in the number of directors may be
filled by a majority of the directors then in office, though less than a quorum,
and the directors so chosen shall hold office until the next annual election and
until their successors are duly elected and shall qualify. A vacancy created by
the removal of a director by the stockholders may be filled by the stockholders.
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<PAGE>
SECTION 4. Place of Meetings. Meetings of the board of
directors, regular or special, may be held either within or without the State of
Delaware.
SECTION 5. First Meeting. The first meeting of each newly
elected board of directors shall be held immediately following and at the place
of the annual meeting of stockholders and no other notice of such meeting shall
be necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present, or it may convene at such place and
time as shall be fixed by the consent in writing of all the directors.
SECTION 6. Regular Meetings. Regular meetings of the board of
directors may be held upon such notice, and at such time and at such place as
shall from time to time be determined by the board.
SECTION 7. Special Meetings. Special meetings of the board of
directors may be called by the Chairman or the President or by the number of
directors who then legally constitute a quorum. Notice of each special meeting
shall, if mailed, be addressed to each director at his last known address at
least four (4) days prior to the date on which the meeting is to be held; or
such notice shall be sent to each director at such address by telegram, telex,
or facsimile, or be delivered to him personally, or be sent to each director by
e-mail to his last known e-mail address, not later than one full day before the
date on which such meeting is to be held.
SECTION 8. Notice; Waiver. Attendance of a director at any
meeting shall constitute a waiver of notice of such meeting, except where a
director attends for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the board of directors need be specified in the notice or waiver of notice of
such meeting.
SECTION 9. Quorum. A majority of the directors then in office
shall constitute a quorum for the transaction of business unless a greater
number is required by law, by the Certificate of Incorporation or by these
by-laws. If a quorum shall not be present at any meeting of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
SECTION 10. Action Without A Meeting. Any action required or
permitted to be taken at a meeting of the directors may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors entitled to vote with respect to the subject
matter thereof. In addition, meetings of the board may be held by means of
conference telephone as permitted by the General Corporation Law of the State of
Delaware.
SECTION 11. Action. Except as otherwise provided by law or in
the Certificate of Incorporation or these by-laws, if a quorum is present, the
affirmative vote of a majority of the members of the board of directors will be
required for any action.
SECTION 12. Removal of Directors. Subject to any provisions of
applicable law, any or all of the directors may be removed (a) for cause, by
action of stockholders or by action of the remaining members of the board, and
(b) without cause, by vote of the stockholders.
3
<PAGE>
ARTICLE IV
COMMITTEES
SECTION 1. Executive Committee. The board may, by resolution
adopted by a majority of the whole board, designate one or more of its members
to constitute members or alternate members of an Executive Committee.
SECTION 2. Powers and Authority of Executive Committee. The
Executive Committee shall have and may exercise, between meetings of the Board,
all the powers and authority of the Board in the management of the business and
affairs of the Company, including, the right to authorize the purchase of stock,
except that the Executive Committee shall not have such power or authority in
reference to amending the Certificate of Incorporation; adopting an agreement of
merger or consolidation; recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets;
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the by-laws of the Corporation or
authorizing the declaration of a dividend.
SECTION 3. Other Committees. The Board may, by resolution
adopted by a majority of the whole Board, designate one or more other
committees, each of which shall, except as otherwise prescribed by law, have
such authority of the Board as shall be specified in the resolution of the Board
designating such committee. A majority of all the members of such committee may
determine its action and fix the time and place of its meeting, unless the Board
shall otherwise provide. The Board shall have the power at any time to change
the membership of, to fill all vacancies in and to discharge any such committee,
either with or without cause.
SECTION 4. Procedure; Meetings; Quorum. Regular meetings of
the Executive Committee or any other committee of the Board, of which no notice
shall be necessary, may be held at such times and places as shall be fixed by
resolution adopted by a majority of the members thereof. Special meetings of the
Executive Committee or any other committee of the Board shall be called at the
request of any member thereof. So far as applicable, the provisions of Article
III of these By-laws relating to notice, quorum and voting requirements
applicable to meetings of the Board shall govern meetings of the Executive
Committee or any other committee of the Board. The Executive Committee and each
other committee of the Board shall keep written minutes of its proceedings and
circulate summaries of such written minutes to the Board before or at the next
meeting of the Board.
ARTICLE V
OFFICERS
SECTION 1. Number. The board of directors at its first meeting
after each annual meeting of stockholders shall choose a President, a Secretary
and a Treasurer, none of whom need be a member of the board. The board of
directors may also choose one or more vice presidents, assistant secretaries and
assistant treasurers. The board of directors may appoint such other officers and
agents as it shall deem necessary, 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. More than two offices may be held
by the same person.
4
<PAGE>
SECTION 2. Compensation. The salaries or other compensation of
all officers of the corporation shall be fixed by the board of directors. No
officer shall be prevented from receiving a salary or other compensation by
reason of the fact that he is also a director.
SECTION 3. Term; Removal; Vacancy. The officers of the
corporation shall hold office until their successors are chosen and qualify. Any
officer may be removed at any time, with or without cause, by the affirmative
vote of a majority of the whole board of directors. Any vacancy occurring in any
office of the corporation shall be filled by the board of directors.
SECTION 4. President. The President shall be the chief
executive officer of the corporation, shall preside at all meetings of the
stockholders and the board of directors in the absence of the Chairman, shall
have general supervision over the business of the corporation and shall see that
all directions and resolutions of the board of directors are carried into
effect.
SECTION 5. Vice President. The vice presidents shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe. If there shall
be more than one vice president, the vice presidents shall perform such duties
and exercise such powers in the absence or disability of the President, in the
order determined by the board of directors.
SECTION 6. Secretary. The Secretary shall attend all meetings
of the board of directors and all meetings of the stockholders and record all
the proceedings of the meetings of the corporation and of the board of directors
in a book to be kept for that purpose. He 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 he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have the authority to affix the same to an instrument requiring
it and when so affixed, it may be attested by his signature or by the signature
of 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 signature.
SECTION 7. Assistant Secretary. The assistant secretary, if
there shall be one, or if there shall be more than one, the assistant
secretaries in the order determined by the board of directors, shall, in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such powers
as the board of directors may from time to time prescribe.
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. He shall disburse the funds of the corporation as may be ordered by
the board of directors, taking proper vouchers for such disbursements, and shall
render to the Chairman, the President and the board of directors, at its regular
meetings, or when the board of directors so requires, an account of all of his
transactions as Treasurer and of the financial condition of the corporation.
5
<PAGE>
SECTION 9. Assistant Treasurer. The assistant treasurer, if
there shall be one, or, if there shall be more than one, the assistant
treasurers in the order determined by the board of directors, shall, in the
absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
ARTICLE VI
CAPITAL STOCK
SECTION 1. Form. The shares of the capital stock of the
corporation shall be represented by certificates in such form as shall be
approved by the board of directors and shall be signed by the Chairman, the
President, an Executive Vice President or a vice president, and by the Treasurer
or an assistant treasurer or the Secretary or an assistant secretary of the
corporation, and may be sealed with the seal of the corporation or a facsimile
thereof.
SECTION 2. Lost and Destroyed 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 or destroyed.
When authorizing such issue of a new certificate, the board of directors, in its
discretion and as a condition precedent to the issuance thereof, may prescribe
such terms and conditions as it deems expedient, and may require such
indemnities as it deems adequate, to protect the corporation from any claim that
may be made against it with respect to any such certificate alleged to have been
lost or destroyed.
SECTION 3. Transfer of Shares. Upon surrender to the
corporation or the transfer agent of the corporation of a certificate
representing shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, a new certificate shall be
issued to the person entitled thereto, and the old certificate cancelled and the
transaction recorded upon the books of the corporation.
SECTION 4. Dividends. Subject to the provisions of the
certificate of incorporation and to applicable law, dividends on the outstanding
shares of the corporation may be declared in such amounts and at such time or
times as the board may determine. Before payment of any dividend, there may be
set aside out of the net profits of the corporation available for dividends such
sum or sums as the board from time to time in its absolute discretion deems
proper as a reserve fund to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the corporation, or for such other
purpose as the board shall deem conducive to the interests of the corporation,
and the board may modify or abolish any such reserve.
ARTICLE VII
INDEMNIFICATION
SECTION 1. (a) The Corporation shall indemnify, subject to the
requirements of subsection (d) of this Section, 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 he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he 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 no reasonable cause to believe his 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 the person did not act in good faith and in a
manner which he 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 conduct was unlawful.
6
<PAGE>
(b) The Corporation shall indemnify, subject to the
requirements of subsection (d) of this Section, 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 he is or was a director, officer, employee
or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and 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 of the State of Delaware 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, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery of the State of Delaware or such other court shall deem
proper.
(c) To the extent that a director, officer, employee or agent
of the Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of this
Section, or in defense of any claim, issue or matter therein, the Corporation
shall indemnify him against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this
Section (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, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in subsections (a) and (b)
of this Section. Such determination shall be made (1) by the Board of Directors
by a majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (2) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred by a director, officer, employee or
agent in defending a civil or criminal action, suit or proceeding may 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 he is not
entitled to be indemnified by the Corporation as authorized in this Section.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this Section shall not
limit the Corporation from providing any other indemnification or advancement of
expenses permitted by law nor shall they be deemed exclusive of any other rights
to which a person seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
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(g) The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Section.
(h) For the purposes of this Section, 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, officers, employees or
agents, so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Section with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(i) For purposes of this Section, references to "other
enterprises" shall include employee benefit plans; 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,
officer, employee, or agent with respect to any employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he 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 Section.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section shall, unless otherwise provided when
authorized or ratified by the Board of Directors, continue as to a person who
has ceased to be a director, officer, employee or agent of the Corporation and
shall inure to the benefit of the heirs executors and administrators of such a
person.
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ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. Checks. 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 2. Fiscal Year. The fiscal year of the corporation
shall be determined, and may be changed, by resolution of the board of
directors.
SECTION 3. 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 in any manner reproduced.
ARTICLE IX
AMENDMENTS
SECTION 1. These by-laws may be altered, amended, supplemented
or repealed or new by-laws may be adopted (a) at any regular or special meeting
of stockholders at which a quorum is present or represented, by the affirmative
vote of the holders of a majority of the shares entitled to vote, provided
notice of the proposed alteration, amendment or repeal be contained in the
notice of such meeting, or (b) by a resolution adopted by a majority of the
whole board of directors at any regular or special meeting of the board. The
stockholders shall have authority to change or repeal any by-laws adopted by the
directors.
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CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
SERIES A CONVERTIBLE
PREFERRED STOCK
OF
REGISTER.COM, INC.
-------------------------
Pursuant to Section 151(g) of the
Delaware General Corporation Law
-------------------------
Register.com, Inc., a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority contained in Article
Fourth of its Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and in accordance with the provisions of Section 151(g) of the
Delaware General Corporation Law, the Board of Directors of the Corporation by
unanimous written consent dated June 25, 1999 adopted the following resolution,
which resolution remains in full force and effect on the date hereof:
RESOLVED, that there is hereby established a series of
authorized preferred stock having a par value of $0.0001 per share,
which series shall be designated as "Series A Convertible Preferred
Stock" (the "Series A Preferred Stock"), which shares shall consist of
1,917,000 shares and shall have the following voting powers,
preferences and relative participating, optional and other special
rights, and qualifications, limitations and restrictions:
1. Certain Definitions.
Unless the context otherwise requires, the terms defined in
this paragraph 1 shall have, for all purposes of this resolution, the meanings
herein specified (with terms defined in the singular having comparable meanings
when used in the plural).
Business Day. The term "Business Day" shall mean a day other
than a Saturday or Sunday or any federal holiday.
<PAGE>
Common Equity. The term "Common Equity" shall mean all shares
now or hereafter authorized of any class of common stock of the Corporation,
including the Common Stock, and any other stock of the Corporation, howsoever
designated, and authorized after the Initial Issue Date, which has the right
(subject always to prior rights of any class or series of preferred stock) to
participate in the distribution of the assets and earnings of the Corporation
without limit as to per share amount.
Common Stock. The term "Common Stock" shall mean the common
stock, par value $0.0001 per share, of the Corporation.
Conversion Date. The term "Conversion Date" shall have the
meaning set forth in subparagraph 4(b) below.
Conversion Price. The term "Conversion Price" shall initially
mean $12.00 per share and thereafter shall be subject to adjustment from time to
time pursuant to the terms of paragraph 4 below.
Initial Issue Date. The term "Initial Issue Date" shall mean
the date that shares of Series A Preferred Stock are first issued by the
Corporation.
Junior Stock. The term "Junior Stock" shall mean Common Equity
and any class or series of stock of the Corporation authorized after the Initial
Issue Date which is not entitled to receive any assets upon liquidation,
dissolution or winding up of the affairs of the Corporation until the Series A
Preferred Stock, and any class or series of Parity Stock, shall have received
the entire amount to which such stock is entitled upon such liquidation,
dissolution or winding up.
Last Offer. The term "Last Offer" shall have the meaning set
forth in subparagraph 6(i) below.
Liquidation Preference. The term "Liquidation Preference"
shall mean $12.00 per share.
New Shares. The term "New Shares" shall have the meaning set
forth in subparagraph 6(c) below.
Parity Stock. The term "Parity Stock" shall mean the
Exchangeable Preferred Stock of the Corporation, and any other class or series
of preferred stock which is entitled to receive payment of dividends or assets
upon liquidation, dissolution or winding up of the Corporation on a parity with
the Series A Preferred Stock.
Preissuance Notice. The term "Preissuance Notice" shall have
the meaning set forth in subparagraph 6(d) below.
Qualified IPO. The term "Qualified IPO" shall have the meaning
set forth in subparagraph 4(j) below.
Qualified Sale. The term "Qualified Sale" shall have the
meaning set forth in subparagraph 6(i) below.
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Rights. The term "Rights" shall mean any options, warrants,
convertible or exchangeable securities or other rights, however denominated, to
subscribe for, purchase or otherwise acquire Common Stock or other Rights to
subscribe for purchase or otherwise acquire Common Stock, with or without
payment of additional consideration in cash or property, either immediately or
upon the occurrence of a specified date or a specified event or the satisfaction
or happening of any other condition or contingency.
2. Dividends.
There will be no dividends payable on the Series A Preferred
Stock unless declared by the Board of Directors of the Corporation. To the
extent permitted by the holders of Series A Preferred Stock (in accordance with
the terms and conditions of paragraph 5, below), the holders of Series A
Preferred Stock shall be entitled to receive, out of funds legally available
therefor, such cash or property dividends on the same terms and conditions and
at the same times as the holders of the Corporation's Common Stock are entitled
to receive any such dividend. Cash or property dividends shall be paid at an
equal rate per share for all outstanding shares of Series A Preferred Stock,
with the then outstanding shares of Series A Preferred Stock deemed to be that
number of shares equal to the number of shares of Common Stock into which such
shares of Series A Preferred Stock are then convertible.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or other winding up of the affairs of the Corporation, before any
payment or distribution shall be made to the holders of any Junior Stock, the
holders of Series A Preferred Stock shall be entitled to be paid, out of the
assets of the Corporation, in cash or property, at its fair market value as
determined by the Board of Directors of the Corporation, the Liquidation
Preference per share, plus an amount equal to all dividends accrued and unpaid
thereon to the date of such liquidation or dissolution or such other winding up,
as such amount may be adjusted from time to time in accordance with the
provisions of paragraph 4 hereof, and the holders of any Parity Stock shall be
entitled to any preferential amount provided therefor in the Corporation's
Certificate of Incorporation out of the assets of the Corporation available for
distribution to its stockholders. Except as provided in this paragraph, holders
of Series A Preferred Stock shall not be entitled to any distribution in the
event of liquidation, dissolution or winding up of the affairs of the
Corporation.
(b) If, upon any such liquidation, dissolution or other
winding up of the affairs of the Corporation, the assets of the Corporation
shall be insufficient to permit the payment in full of any preferential amount
that is on such event payable with respect to any Parity Stock, and the
Liquidation Preference per share plus an amount equal to all dividends accrued
and unpaid on the Series A Preferred Stock, as such amount may be adjusted from
time to time in accordance with the provisions of paragraph 4 hereof, then the
assets of the Corporation shall be ratably distributed among the holders of
Series A Preferred Stock and any Parity Stock in proportion to the full amounts
to which they would otherwise be respectively entitled if all amounts to be paid
with respect thereto, pursuant to the foregoing, were paid in full. In the event
of a merger or sale of substantially all of the assets of the Corporation, or
any similar transaction where the Corporation's then existing shareholders would
represent less than 50% of the voting power of the combined or surviving entity,
such a transaction will be treated as a liquidation subject to the terms and
provisions of this paragraph 3 if the holders of more than 50% of the
outstanding Series A Preferred Stock shall so elect prior to such transaction.
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4. Conversion Rights.
(a) A holder of shares of Series A Preferred Stock may convert
such shares into Common Stock at any time. For the purposes of conversion, each
share of Series A Preferred Stock shall be valued at the Liquidation Preference,
which shall be divided by the Conversion Price in effect on the Conversion Date
to determine the number of shares issuable upon conversion. Immediately
following such conversion, the rights of the holders of converted Series A
Preferred Stock shall cease and the persons entitled to receive the Common Stock
upon the conversion of Series A Preferred Stock shall be treated for all
purposes as having become the owners of such Common Stock.
(b) To convert Series A Preferred Stock, a holder must, except
as provided below, (i) surrender the certificate or certificates evidencing the
shares of Series A Preferred Stock to be converted, duly endorsed, at the office
of the Corporation or transfer agent for the Series A Preferred Stock, (ii)
notify the Corporation at such office that he elects to convert Series A
Preferred Stock, and the number of shares he wishes to convert, (iii) state in
writing the name or names in which he wishes the certificate or certificates for
shares of Common Stock to be issued, and (iv) pay any transfer or similar tax,
if required by the second sentence of subparagraph 4(d), below. With respect to
(ii) above, in the event that a holder fails to notify the Corporation of the
number of shares of Series A Preferred Stock which he wishes to convert, he
shall be deemed to have elected to convert all shares represented by the
certificate or certificates surrendered for conversion. The date on which the
holder satisfies all the above requirements is the "Conversion Date." As soon as
practical thereafter, the Corporation shall deliver to that converting holder a
certificate for the number of full shares of Common Stock issuable upon the
conversion and a new certificate representing the unconverted portion, if any,
of the shares of Series A Preferred Stock represented by the certificate or
certificates surrendered for conversion. The person in whose name the Common
Stock certificate is registered shall be treated as the stockholder of record on
and after the Conversion Date. No payment or adjustment will be made for accrued
and unpaid dividends on converted shares of Series A Preferred Stock or
dividends on any Common Stock issued. However, dividends will be paid on any
dividend payment date with respect to Series A Preferred Stock surrendered for
conversion after a record date for the payment of a dividend to the registered
holder of Series A Preferred Stock on such record date, and all dividends
otherwise accrued on the Series A Preferred Stock but previously unpaid shall be
paid in cash promptly upon conversion. If a holder of Series A Preferred Stock
converts more than one share at any time, the number of full shares of Common
Stock issuable upon conversion shall be based on the total value of all shares
of Series A Preferred Stock converted.
(c) The Corporation will not issue any fractional shares of
Common Stock upon conversion of Series A Preferred Stock. Instead, any
fractional share of Common Stock resulting from the conversion of Series A
Preferred Stock that is .5 or greater shall be rounded up to the next whole
share, and any fractional share of Common Stock resulting from the conversion of
Series A Preferred Stock that is less than .5 shall be rounded down to the next
whole share.
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(d) If a holder converts shares of Series A Preferred Stock,
the Corporation shall pay any documentary, stamp or similar issue or transfer
tax due on the issuance of shares of Common Stock upon the conversion. However,
the holder shall pay any such tax which is due because the shares are issued in
a name other than the holder's name.
(e) The Corporation has reserved and shall continue to reserve
out of its authorized but unissued Common Stock or its Common Stock held in
treasury enough shares of Common Stock to permit the conversion of the Series A
Preferred Stock in full. All shares of Common Stock which may be issued upon
conversion of Series A Preferred Stock shall be fully paid and nonassessable.
The Corporation will comply with all securities laws regulating the offer and
delivery of shares of Common Stock upon conversion of Series A Preferred Stock
and will list such shares on each national securities exchange, or automated
quotation system, if any, on which the Common Stock is listed or quoted.
(f) If the Corporation:
(i) pays a dividend or makes a distribution on its
Common Stock in shares of its Common Stock;
(ii) subdivides its outstanding shares of Common
Stock into a greater number of shares;
(iii) combines its outstanding shares of Common Stock
into a smaller number of shares; or
(iv) issues by reclassification or reorganization of
its Common Stock any shares of its capital stock;
then the Conversion Price in effect immediately prior to such action shall be
adjusted so that any holder of Series A Preferred Stock thereafter converting
his Series A Preferred Stock will receive the number of shares of capital stock
of the Corporation which he would have owned immediately following such action,
as if he had converted his Series A Preferred Stock immediately prior to such
action. The adjustment shall become effective immediately after the record date
in the case of dividend or distribution and immediately after the effective date
of a subdivision, combination, reclassification or reorganization. Such
adjustment shall be made successively whenever any event listed above shall
occur. If, after an adjustment referred to in clauses (i) through (iv) above, a
holder of Series A Preferred Stock, upon conversion of such stock may receive
shares of two or more classes of capital stock of the Corporation, the
Corporation shall determine the allocation of the adjusted Conversion Price
between the classes of capital stock. After such allocation, the Conversion
Price of each class of capital stock shall thereafter be subject to adjustment
on terms comparable to those applicable to Common Stock in this subparagraph
(f).
(g) If, during the 18-month period following the Initial Issue
Date, the Corporation issues additional shares of Common Stock, or securities
exchangeable or convertible into Common Stock (other than pursuant to warrants,
options, securities and other similar rights issued and outstanding as of the
Initial Issue Date or which the Corporation as of the Initial Issue Date is
obligated to issue), for consideration of less than $10.00 per share (as such
dollar amount is adjusted pursuant to subparagraph 4(f) above), the Conversion
Price shall be reduced to the price per share at which such additional shares of
Common Stock are issued or are issuable; provided, however, that in no event
shall the Conversion Price be reduced below $8.00 per share (as such dollar
amount is adjusted pursuant to subparagraph 4(f) above) pursuant to the terms
and provisions of this subparagraph 4(g).
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<PAGE>
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance.
This subparagraph 4(g) does not apply to (i) the conversion of Series A
Preferred Stock, or the conversion, exchange or exercise of other securities
convertible into or exchangeable or exercisable for Common Stock, (ii) up to
750,000 shares of Common Stock issued to the Corporation's directors, officers,
employees, consultants and independent contractors upon exercise of stock
options granted after the date hereof with an exercise price of less than $10.00
per share (or such dollar amount as adjusted pursuant to subparagraph 4(f)
above) under bona fide stock option or employee benefit plans adopted by the
Board of Directors of the Corporation and approved by the holders of Common
Stock when required by law, or (iii) Common Stock or Rights issued to acquire,
or in the acquisition of, all or any portion of a business as a going concern,
in an arm's length transaction between the Corporation and an unaffiliated third
party, whether such acquisition shall be effected by purchase of assets,
exchange of securities, merger, consolidation or otherwise; provided, that a
majority of the Board of Directors of the Corporation shall have determined in
good faith that the fair market value of such shares of Common Stock is at least
$10.00 per share (or such dollar amount as adjusted pursuant to subparagraph
4(f) above).
(h) For purposes of any computation respecting consideration
received pursuant to subparagraph 4(g) above, the following shall apply:
(i) in case of the issuance of shares of Common Stock
for cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Corporation for any
underwriting of the issue or otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market
value thereof as determined by the Board of Directors of the
Corporation (irrespective of the accounting treatment thereof);
provided, that if any Director shall have an interest in the stock
issuance transaction, the fair market value of the Corporation's Common
Stock shall, for the purposes of such transaction, be determined by a
majority of the disinterested Directors; and
(iii) in the case of the issuance of options,
warrants or other securities convertible into or exchangeable or
exercisable for shares, the aggregate consideration received therefor
shall be deemed to be the consideration received by the Corporation for
the issuance of such options, warrants or other securities plus the
additional minimum consideration, if any, to be received by the
Corporation upon the conversion or exchange or exercise thereof (the
consideration in each case to be determined in the same manner as
provided in clauses (i) and (ii) of this subparagraph 4(h).
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(i) No adjustment in the Conversion Price need be made unless
the adjustment would require an increase or decrease of at least 1% in the
Conversion Price. Any adjustments that are not made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
paragraph 4 shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be.
(j) The Series A Preferred Stock shall be converted
automatically into Common Stock, at the then applicable Conversion Price, upon
the completion of a registered underwritten public offering of Common Stock of
the Corporation, provided that such public offering (1) raises gross proceeds
for the Corporation of at least $20,000,000, and (2) occurs at an offering price
per share of Common Stock of at least $18.00 (or such dollar amount as adjusted
pursuant to subparagraph 4(f) above) (any such public offering, a "Qualified
IPO"). The Qualified IPO condition contained in clause (2) above shall not apply
if Mr. Michael Marocco is not, at the time of such Qualified IPO, employed by
either of Sandler Capital Partners IV, L.P. or Sandler Capital Partners IV FTE,
L.P., two of the original purchasers of Series A Preferred Stock.
(k) No adjustment in the Conversion Price need be made under
this paragraph 4 for (1) rights to purchase Common Stock pursuant to a
Corporation plan for reinvestment of dividends, or (2) any change in the par
value or no par value of the Common Stock, and in no event shall any adjustment
made under this paragraph 4 reduce the Conversion Price below the par value of
the Common Stock, provided, that in the event of an increase in the par value of
the Common Stock pursuant to any of the types of transactions described in
subparagraph 4(f) above, the Conversion Price shall not adjust under this
paragraph 4; and provided further, that in the event of an increase in the par
value of the Common Stock not pursuant to any of the types of transactions
described in subparagraph 4(f) above, the Conversion Price shall adjust as
provided in this paragraph 4.
(l) Whenever the Conversion Price is adjusted, the Corporation
shall promptly mail to holders of Series A Preferred Stock, first class, postage
prepaid, a notice of the adjustment. The Corporation shall file with the
transfer agent, if any, for Series A Preferred Stock, a certificate from the
Corporation's Chief Financial Officer or equivalent officer or independent
public accountants briefly stating the facts requiring the adjustment and the
manner of computing it. Subject to subparagraph 4(q) below, the certificate
shall be conclusive evidence that the adjustment is correct.
(m) The Corporation from time to time may reduce the
Conversion Price by any amount for any period of time if the period is at least
twenty (20) Business Days and if the reduction is irrevocable during the period,
but in no event may the Conversion Price be less than the par value of a share
of Common Stock. Whenever the Conversion Price is reduced, the Corporation shall
mail to holders of Series A Preferred Stock a notice of the reduction. The
Corporation shall mail, first class, postage prepaid, the notice at least 15
days before the date the reduced Conversion Price takes effect. The notice shall
state the reduced Conversion Price and the period it will be in effect. A
reduction of the Conversion Price pursuant to this subparagraph 4(m) does not
change or adjust the Conversion Price otherwise in effect for purposes of
subparagraphs 4(f) and 4(g) above.
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(n) If:
(i) the Corporation takes any action which would
require an adjustment in the Conversion Price pursuant to clause (iv)
of subparagraph 4(f) above; or
(ii) the Corporation consolidates or merges with, or
transfers all or substantially all of its assets to, another
corporation, and stockholders of the Corporation must approve the
transaction; or
(iii) there is a dissolution or liquidation of the
Corporation;
a holder of Series A Preferred Stock may want to convert such stock into shares
of Common Stock prior to the record date for, or the effective date of, the
transaction so that he may receive the rights, warrants, securities or assets
which a holder of shares of Common Stock on that date may receive. Therefore,
the Corporation shall mail to such holders, first class, postage prepaid, a
notice stating the proposed record or effective date, as the case may be, of the
transaction described in (i), (ii) or (iii) above, as applicable. The
Corporation shall mail the notice at least ten (10) days before such date.
Failure to mail the notice or any defect in such notice shall not affect the
validity of any transaction referred to in clause (i), (ii) or (iii) of this
subparagraph 4(n).
(o) If the Corporation is party to a merger which reclassifies
or changes its Common Stock, upon consummation of such transaction, Series A
Preferred Stock shall automatically become convertible into the kind and amount
of securities, cash or other assets which the holder of Series A Preferred Stock
would have owned immediately after the consolidation, merger, transfer or
reclassification if such holder had converted his Series A Preferred Stock into
Common Stock immediately before the effective date of the transaction, and
appropriate adjustment (as determined by the Board of Directors of the
Corporation) shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the holders of Series A
Preferred Stock, to the end that the provisions set forth herein (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be feasible,
in relation to any shares of stock or other securities or property thereafter
deliverable upon the conversion of Series A Preferred Stock. If this
subparagraph 4(o) applies, subparagraph 4(f) does not apply.
(p) In any case in which this paragraph 4 shall require that
an adjustment to the Conversion Price as a result of any event is to become
effective from and after a record date, the Corporation may elect to defer until
after the occurrence of such event the issuance to the holder of any shares of
Series A Preferred Stock converted after such record date and before the
occurrence of such event of the additional shares of Common Stock issuable upon
such conversion, over and above the shares issuable on the basis of the
Conversion Price in effect immediately prior to adjustment.
(q) Except as provided in the immediately following sentence,
any determination that the Corporation or its Board of Directors must make
pursuant to this paragraph 4 shall be conclusive. Whenever the Corporation or
its Board of Directors shall be required to make a determination under this
paragraph 4, such determination shall be made in good faith and may be
challenged in good faith by a majority of the holders of Series A Preferred
Stock, and any dispute shall be resolved, at the Corporation's expense, by an
investment banking firm of recognized national standing selected by the
Corporation and acceptable to such holders of Series A Preferred Stock.
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(r) All shares of Series A Preferred Stock converted pursuant
to this paragraph 4 shall be retired and shall be restored to the status of
authorized and unissued shares of preferred stock, without designation as to
series, and may thereafter be reissued as shares of any series of preferred
stock other than Series A Preferred Stock.
5. Voting Rights.
(a) The holders of Series A Preferred Stock shall vote as a
class on matters with respect to which they have a class voting right under
Delaware Law. In addition, other than as may be set forth herein with respect to
a specific series of Preferred Stock, and subject thereto, each holder of shares
of Series A Preferred Stock shall be entitled to vote on all matters, including
the election of directors, and, except as otherwise expressly provided herein or
by law, shall be entitled to the number of votes equal to the largest number of
full shares of Common Stock into which such shares of Series A Preferred Stock
could be converted, pursuant to the provisions of paragraph 4 above, at the
record date for the determination of the shareholders entitled to vote on such
matters or, if no such record date is established, at the date such vote is
taken. Except as otherwise expressly provided herein, the holders of Series A
Preferred Stock and the holders of Common Stock shall vote together and not as
separate classes.
(b) The Corporation shall not, without the consent of the
holders of a majority of the Series A Preferred Stock:
(i) enter into any non-Internet-related activity or
business, other than those activities or businesses directly or
indirectly related to the Corporation's Internet and small business
strategy;
(ii) amend its Certificate of Incorporation or
By-laws in any manner that would adversely affect the rights,
preferences or privileges of the Series A Preferred Stock;
(iii) declare dividends on the Common Stock or on any
class or series of Preferred Stock; or
(iv) issue any class or series of preferred stock
which is entitled to receive assets upon liquidation, dissolution or
winding up of the Corporation senior in priority and preference to the
Series A Preferred Stock.
6. Right of First Offer
(a) The Corporation hereby grants to each of the holders of
Series A Preferred Stock the right of first offer to purchase, pursuant to the
terms set forth herein, such holder's pro rata share (determined as hereinafter
provided) of all or any part of any New Shares (as defined in subparagraph 6(c)
below) which the Corporation may, from time to time, propose to issue.
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(b) Any holder's pro rata share, for purposes of such right of
first offer with respect to any issuance of New Shares, is the ratio of (i) the
number of outstanding shares of Common Stock held of record by such holder and,
with respect to the shares of Series A Preferred Stock held by such holder, the
largest number of full shares of Common Stock into which such shares of Series A
Preferred could be converted, to (ii) the total number of outstanding shares of
Common Stock held of record by all holders of Series A Preferred Stock and the
largest number of full shares of Common Stock into which all shares of Series A
Preferred could be converted.
(c) Except as set forth below, "New Shares" shall mean any
shares of Common Stock or Rights issued or sold or proposed to be issued or sold
by the Corporation on or after the Initial Issue Date. "New Shares" does not
include (i) the shares of Series A Preferred Stock issued and sold after the
Initial Issue Date, warrants issued and sold by the Corporation to the initial
purchasers of the Series A Preferred Stock in connection with their purchase
thereof or any shares of Common Stock issued upon exercise of any thereof, (ii)
the warrants issued or to be issued to Legg Mason Wood Walker, Incorporated
("Legg Mason") pursuant to the letter agreement, dated as of January 14, 1999,
between the Corporation and Legg Mason and the shares of Common Stock issued
upon exercise thereof, (iii) shares of Common Stock or Rights issued in
consideration of the acquisition of all or any portion of a business as a going
concern, whether such acquisition shall be effected by a purchase of assets,
exchange of securities, merger, consolidation, reorganization or otherwise, (iv)
shares of Common Stock or Rights offered or proposed to be offered to the public
pursuant to a registration statement filed under the Securities Act or to any
underwriter of any such offering, (v) shares of Common Stock or Rights issued in
connection with any stock split or stock dividend by the Corporation, (vi)
shares of Common Stock or Rights which the Corporation and the holders of at
least 50% of the issued and outstanding shares of the Series A Preferred Stock
agree in writing at any time and from time to time should not be subject to the
rights of first offer of the holders of Series A Preferred Stock pursuant to
this paragraph 6, (vii) shares of Common Stock or Rights issued upon exercise,
exchange or conversion of any Rights as to which the holders of Series A
Preferred Stock shall have been afforded the opportunity to exercise their
rights of first offer pursuant to this paragraph 6, (viii) stock options granted
to the Corporation's directors, officers, employees, consultants and independent
contractors pursuant to bona fide stock option or employee benefit plans of the
Corporation approved by a majority of either the Board of Directors of the
Corporation or committee of the Board of Directors of the Corporation delegated
to perform such function, or shares of Common Stock issued upon exercise
thereof, (ix) shares of Common Stock or Rights issued to any person(s) deemed to
be "strategic" investors as determined in the good faith judgment of a majority
of the Board of Directors of the Corporation (excluding any director designated
by holders of the Series A Preferred), (x) shares of Common Stock issued upon
exercise of Rights outstanding on the Initial Issue Date, or (xi) shares of
Common Stock issued upon exercise, exchange or conversion of any Rights referred
to in any preceding clause of this sentence. No adjustment in the number of
shares of Common Stock issuable or issued upon exercise, exchange or conversion
of any of the Rights referred to in the immediately preceding sentence by reason
of original provisions thereof which provide for an automatic adjustment upon
the occurrence of specified events shall be deemed to be an issuance or proposed
issuance of New Shares.
10
<PAGE>
(d) In the event the Corporation plans to undertake an
issuance of New Shares, it shall give each holder of the Series A Preferred
Stock written notice of such intention (the "Preissuance Notice"). The
Preissuance Notice shall contain all of the following information to the extent
known by the Corporation and applicable to the proposed issuance: (i) specify
the kind and amount of New Shares proposed to be issued, (ii) if such New Shares
consist of or include Rights, briefly describe the terms of such Rights, (iii)
state the method or manner of issuance, (iv) state the kind(s) and amount(s) of
consideration for which such New Shares are proposed to be issued, (v) state
that the Corporation has informed each purchaser, if any, of the existence and
requirements of this paragraph 6, and (vi) if the consideration for any issuance
of New Shares does not consist entirely of cash, the Preissuance Notice must
state the good faith evaluation, upon a reasonable basis therefor, of the Board
of Directors of the Corporation of the fair market value of such noncash
consideration. If the holders of the Series A Preferred Stock are unable to
deliver such noncash consideration, as of the date the Preissuance Notice is
given, such holders may deliver cash consideration equal to such fair market
value of such noncash consideration.
(e) The holders of the Series A Preferred Stock shall have an
option, exercisable for a period of 15 days from the date of delivery of the
Preissuance Notice, to indicate its nonbinding interest in purchasing its pro
rata share (as defined in subparagraph (b) above) of the New Shares on the terms
and conditions set forth in the Preissuance Notice. Such option shall be
exercised by delivery by such holder of written notice to the Corporation.
(f) In the event options indicating an interest to purchase
have been exercised by such holders with respect to some but not all of the New
Shares, those holders who have exercised their options within the 15-day period
specified in subparagraph 6(d) shall have an additional option, for a period of
five days next succeeding the expiration of such 15-day period, to indicate an
interest to purchase all or any part of the balance of such New Shares on the
terms and conditions set forth in the Preissuance Notice, which option shall be
exercised by the delivery of written notice to the Corporation. In the event
there are two or more such holders that choose to exercise the last-mentioned
option for a total number of New Shares in excess of the number available, the
New Shares available for each such holder's option shall be allocated to such
holder on a pro rata basis (as defined in subparagraph (b) above).
(g) If options indicating an interest to purchase the New
Shares are not fully exercised as to all of the New Shares, the options shall
terminate and none of the parties shall have any liability or further obligation
to the other.
(h) If the options indicating an interest to purchase the New
Shares are exercised in full by one or more of the holders of the Series A
Preferred Stock, then the Corporation and such holders of the Series A Preferred
Stock (or their duly authorized representatives) shall immediately commence
negotiations of a definitive purchase agreement with respect to the purchase of
the New Shares. If the Corporation and such holders do not execute and deliver
such a definitive purchase agreement within 10 days thereof, none of the parties
shall have any liability or further obligation to the other.
11
<PAGE>
(i) If the options are not fully exercised or if the parties
are unable to execute and deliver a definitive agreement as set forth in
subparagraphs 6(f) and (h), respectively, then the Corporation thereafter shall
have 180 days to consummate a Qualified Sale, commencing from the earlier of the
15-day period specified in subparagraph (d) above and the 10-day period
specified in subparagraph (h) above. A "Qualified Sale" shall mean a sale of
either (x) New Shares with substantially similar powers, preferences,
privileges, rights, restrictions, qualifications and limitations as the New
Shares described in the Last Offer (as defined below), and otherwise sold on
terms and conditions substantially similar to those set forth in the Last Offer,
or (y) New Shares with different powers, preferences, privileges and rights,
restrictions, qualifications and limitations as the New Shares described in the
Last Offer, and otherwise sold on different terms and conditions from those set
forth in the Last Offer, which differences, taken as a whole, are not less
favorable to the Corporation than the New Shares and terms and conditions of the
sale thereof as set forth in the Last Offer. The determination as to whether any
such sale satisfies either clause (x) or (y) above shall be determined by a
majority of the Board of Directors of the Corporation (excluding any director
designated by holders of the Series A Preferred Stock) acting in good faith,
which determination shall be conclusive and binding on all holders of Series A
Preferred Stock. The term "Last Offer" shall mean the last to occur of the
following prior to the expiration of the options or the termination of
negotiations, as the case may be: (1) the Preissuance Notice, (2) the last
written offer to purchase New Shares provided to the Corporation by the holders
of Series A Preferred Stock, if any, or (3) the last written offer to sell New
Shares provided to the holders of the Series A Preferred Stock by the
Corporation, if any. In the event the Corporation has not sold New Shares
satisfying either clause (x) or (y) above within such 180-day period, the
Corporation shall not thereafter sell New Shares without first offering such New
Shares to the holders of the Series A Preferred Stock in accordance with the
procedures and time periods set forth above.
7. Headings of Subdivisions.
The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
8. Severability of Provisions.
If any voting powers, preferences and relative, participating,
optional and other special rights of the Series A Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution (as such resolution may be amended from time to time) is invalid,
unlawful or incapable of being enforced by reason of any rule of law or public
policy, all other voting powers, preferences and relative, participating,
optional and other special rights of the Series A Preferred Stock and all other
qualifications, limitations and restrictions with respect thereto set forth in
this resolution (as so amended) which can be given effect without the invalid,
unlawful or unenforceable voting powers, preferences and relative,
participating, optional and other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof shall, nevertheless, remain
in full force and effect, and no voting powers, preferences and relative,
participating, optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof herein set forth shall be
deemed dependent upon any other such voting powers, preferences and relative,
participating, optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof unless so expressed herein.
12
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this
certificate to be duly executed by Richard D. Forman, President and Chief
Executive Officer, this 20th day of June, 1999.
REGISTER.COM, INC.
By: /s/ Richard D. Forman
------------------------
Name: Richard D. Forman
Title: President & CEO
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FORMAN INTERACTIVE CORP.
1997 STOCK OPTION PLAN
<PAGE>
FOREMAN INTERACTIVE CORP.
1997 STOCK OPTION PLAN
1. Purposes of the Plan
The purposes of this Forman Interactive Corp. 1997 Stock
Option Plan (the "Plan") are to enable Forman Interactive Corp. ("the Company")
to attract, retain, and motivate the employees who are important to the success
and growth of the business of the Company and to create a long-term mutuality of
interest between those employees and the stockholders of the Company by granting
those employees options (which may be either Incentive Stock Options (as defined
herein) or Non-Qualified Stock Options (as defined herein) to purchase Common
Stock (as defined herein).
2. Definitions
(a) "Act" means the Securities Exchange Act of 1934.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended. Any reference to any section of the Code shall also be a reference to
any successor provision.
(d) "Committee" means such committee, if any, appointed by
the Board to administer the Plan, consisting of three or more directors as may
be appointed from time to time by the Board. If the Board does not appoint a
committee for this purpose, "Committee" means the Board.
(e) "Common Stock" means the common stock of the Company,
par value $.0001 per share, any Common Stock into which the Common Stock may be
converted and any Common Stock resulting from any reclassification of the Common
Stock.
(f) "Company" means Forman Interactive Corp. and any of its
Subsidiaries whose employees are Participants in the Plan.
(g) "Disability" means a permanent and total disability, as
determined by the Committee in its sole discretion. A Disability shall be deemed
to occur at the time of the determination of the Disability by the Committee.
(h) "Fair Market Value" means, for purposes of this Plan,
unless otherwise required by any applicable provision of the Code or any
regulations thereunder, the value of a Share (as defined herein) on a particular
date, determined as follows:
(i) if the Common Stock is listed or admitted to
trading on such date on a national securities exchange or quoted through the
Nasdaq National Market ("Nasdaq"), the closing sale price of a Share as reported
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on the relevant composite transaction tape, if applicable, or on the principal
such exchange (determined by trading value in the Common Stock) or through the
National Market System, as the case may be, on such date, or in the absence of
reported sales on such date, the mean between the highest reported bid and
lowest reported asked prices reported on such composite transaction tape or
exchange or through the National Market System, as the case may be, on such
date; or
(ii) if the Common Stock is not listed or quoted
as described in the preceding clause, but bid and asked prices are quoted
through Nasdaq, the mean between the highest reported bid and lowest reported
asked prices as quoted through Nasdaq on such date; or
(iii) if the Common Stock is not listed or quoted
on a national securities exchange or through Nasdaq or, if pursuant to (i) and
(ii) above the Fair Market Value is to be determined based upon the mean of the
highest reported bid and lowest reported asked prices and the Committee
determines that such mean does not properly reflect the Fair Market Value, by
such other method as the Committee determines to be reasonable and consistent
with applicable law; or
(iv) if the Common Stock is not publicly traded,
such amount as set by the Committee in good faith.
(i) "Incentive Stock Option" means any Option intended to
qualify as an "incentive" stock option," as defined in Section 422 of the Code.
(j) "Non-Qualified Stock Option" shall mean any option
awarded under this Plan that is not an Incentive Stock Option."
(k) "Option" means the right to purchase one Share at a
prescribed purchase price on the terms specified in the Plan. An Option may be
an Incentive Stock Option or a Non Qualified Stock Option.
(l) "Participant" means an employee of the Company who is
granted Options under the Plan.
(m) "Share" means a share of Common Stock.
(n) "Subsidiary" means any corporation more than 50% of the
voting stock of which is directly or indirectly beneficially owned by the
Company. An entity shall be deemed a Subsidiary of the Company only for such
periods as the requisite ownership relationship is maintained.
(o) "Substantial Stockholder" means any Participant who at
the time of grant owns directly (or is deemed to own by reason of the
attribution rules set forth in Section 424(d) of the Code) Shares possessing
more than 10% of the total combined voting power of all classes of stock of the
Company as determined under Section 422 of the Code.
(p) "Termination of Employment" with respect to an
individual means that individual is no longer an employee of the Company or any
of its Subsidiaries. In the event an entity shall cease to be a Subsidiary of
the Company, there shall be deemed a Termination of Employment of any individual
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<PAGE>
who is not otherwise an employee of the Company or another Subsidiary of the
Company at the time the entity ceases to be a Subsidiary. A Termination of
Employment shall not include a leave of absence approved for purposes of the
Plan by the Committee.
(q) "Transfer" or "Transferred" shall mean attach, sell,
assign, pledge, encumber, charged or otherwise transfer.
3. Effective Date/Expiration of Plan
The Plan shall become effective upon its adoption by the Board
and approval by the stockholders of the Company (the "Effective Date"). Grants
of Options under the Plan may be made after adoption of the Plan by the Board,
subject to stockholder approval to the extent required by law. No Option shall
be granted under the Plan on or after the tenth anniversary of the Effective
Date (the "Termination Date"), but Options granted prior to the Termination Date
may be exercised after the Termination Date.
4. Administration
(a) Duties of the Committee. The Plan shall be administered
by the Committee. The Committee shall have full authority to interpret the Plan
and to decide any questions and settle all controversies and disputes that may
arise in connection with the Plan; to establish, amend and rescind rules for
carrying out the Plan; to administer the Plan, subject to its provisions; to
select Participants in, and grant Options under, the Plan; to determine the
terms, exercise price and form of exercise payment of each Option granted under
the plan; to determine which Options granted under the Plan shall be Incentive
Stock Options; to prescribe the form or forms of instruments evidencing Options
and any other instruments required under the Plan (which need not be uniform)
and to change such forms from time to time; and to make all other determinations
and to take all such steps in connection with the Plan and the Options as the
Committee, in its sole discretion, deems necessary or desirable. The Committee
shall not be bound to any standards of uniformity or similarity of action,
interpretation or conduct in the discharge of its duties hereunder, regardless
of the apparent similarity of the matters coming before it. Any determination,
interpretation or other action made or taken by the Company, the Board or the
Committee arising out of or in connection with the Plan shall be final,
conclusive and binding on all parties.
(b) Advisors. The Committee may designate the Secretary of
The Company, other employees of the Company or competent professional advisors
to assist the Committee in the administration of the Plan, and may grant
authority to such persons to execute Option Agreements (as defined herein) or
other documents on behalf of the Committee. The Committee may employ such legal
counsel, consultants and agents as it may deem desirable for the administration
of the Plan, and may rely upon any advice received from any such counsel or
consultant and any computation received from any such consultant or agent, and
the Committee shall not be liable with respect to any action taken or omitted by
it in good faith pursuant to the advice or counsel. Expenses incurred by the
Committee in the engagement of such counsel, consultant or agent shall be paid
by the Company.
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<PAGE>
(c) Indemnification. No officer or former officer of the
Company, member or former member of the Board or the Committee, or person
designated pursuant to paragraph (b) shall be liable for any action or
determination made in good faith with respect to the Plan or any Option granted
under it. To the maximum extent permitted by applicable law or the Certificate
of Incorporation or By-Laws of the Company and to the extent not covered by the
Company's insurance, each officer or former office and member or former member
of the Committee or of the Board shall be indemnified and held harmless by the
Company against any cost or expense (including reasonable fees of counsel
reasonably acceptable to the Company) or liability (including any sum paid in
settlement of a claim with the approval of the Company), and advanced amounts
necessary to pay the foregoing at the earliest time and to the fullest extent
permitted, arising out of any act or omission to act in connection with the
Plan, except to the extent arising out of such officer's former officer's ,
member's or former member's own fraud or bad faith. Such indemnification shall
be in addition to any rights of indemnification the officers, former officers,
members or former members may have as directors under applicable law or under
the Certificate of Incorporation or By-Laws of the Company or any Subsidiary of
the Company.
(d) Meetings of the Committee. The Committee shall select
one of its members as a Chairman and shall adopt such rules and regulations,
subject to the By-Laws of the Company, as it shall deem appropriate concerning
the holding of its meetings and the transaction of its business. Any member of
the Committee may be removed at any time either with or without cause by
resolution adopted by the Board, and any vacancy on the Committee may at any
time be filled by resolution adopted by the Board. A majority of the Committee
members shall constitute a quorum. All determinations by the Committee shall be
made by the affirmative vote of a majority of its members. Any such
determination may be made at a meeting duly called and held at which a majority
of the members of the Committee are in attendance in person or through telephone
communication. Any determination set forth in writing and signed by all the
members of the Committee shall be as fully effective as if it had been made by a
majority vote of the members at a meeting duly called and held.
5. Shares: Adjustment Upon Certain Events
(a) Shares to be Delivered: Fractional Shares. Shares to be
issued under the Plan shall be made available, at the discretion of the Board,
either from authorized but unissued Shares or from issued Shares reacquired by
the Company and held in treasury. No fractional shares will be issued or
transferred upon the exercise of any Option. In lieu thereof, the Company shall
pay a cash adjustment equal to the same fraction of the Fair Market Value of one
Share on the date of exercise.
(b) Number of Shares. Subject to adjustment as provided in
this Section 5, the maximum aggregate number of Shares that may be issued under
the Plan shall be 500,000. If Options are for any reason canceled, or expire or
terminate unexercised, the Shares covered by such Options shall again be
available for the grant of Options, subject to the foregoing limit.
(c) Adjustments: Recapitalization, etc. The existence of
the Plan and the Options granted hereunder shall not affect in any way the right
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<PAGE>
or power of the Board or the stockholders of the Company to make or authorize
any adjustment, recapitalization, reorganization or other change in the
Company's capital structure or its business, any merger or consolidation of the
Company, any issue of bonds, debentures, preferred or prior preference stocks
ahead of or affecting Common Stock, the dissolution or liquidation of the
Company or any of its Subsidiaries, any sale or transfer of all or part of its
assets or business or any other corporate act or proceeding. If and whenever the
Company takes any such action, however, the following provisions, to the extent
applicable, shall govern:
(i) If and whenever the Company shall effect a
stock split, stock dividend, subdivision, recapitalization or combination of
Shares or other changes in the Company's capital stock, (x) the Purchase Price
(as defined herein) per Share and the number and class of Shares and/or other
securities with respect to which outstanding Options thereafter may be
exercised, and (y) the total number and class of Shares and/or other securities
that may be issued under this Plan shall be proportionately adjusted by the
Committee. The Committee may also make such other adjustments as it deems
necessary to take into consideration any other event (including, without
limitation, accounting changes), if the Committee determines that such
adjustment is appropriate to avoid distortion in the operation of the Plan.
(ii) Subject to Section 5(c)(iii) if the Company
merges or consolidates with one or more corporations, then from and after the
effective date of such merger or consolidation, upon exercise of Options
theretofore granted, the Participant shall be entitled to purchase under such
Options, in lieu of the number of Shares as to which such Options shall then be
exercisable but on the same terms and conditions of exercise set forth in such
Options, the number and class of Shares and/or other securities or property
(including) cash) to which the Participant would have been entitled pursuant to
the terms of the agreement of merger or consolidation, if, immediately prior to
such merger or consolidation, the Participant had been the holder of record of
the total number of Shares receivable upon exercise of such Options (whether or
not then exercisable).
(iii) In the event of a merger or consolidation
in which the Company is not the surviving entity or in the event of any
transaction that results in the acquisition of all or substantially all of the
Company's outstanding Common Stock by a single person or entity or by a group of
persons and/or entities acting in concert, or in the event of the sale or
transfer of all or substantially all of the Company's assets (the foregoing
being referred to as "Acquisition Events"), then the Committee may in its sole
discretion terminate all outstanding Options effective as of the consummation of
the Acquisition Event by delivering notice of termination to each Participant at
least 20 days prior to the date of consummation of the Acquisition Event;
provided that, during the period from the date on which such notice of
termination is delivered to the consummation of the Acquisition Event, each
Participant shall have the right to exercise in full all the Options that are
then outstanding (without regard to limitations on exercise otherwise contained
in the Option Agreement), but contingent on occurrence of the Acquisition Event,
and provided that, if the Acquisition Event does not take place within a
specified period after giving such notice for any reason whatsoever, the notice
and exercise of such options shall be null and void, and further provided that
each Participant may elect to exercise his or her option in part rather than in
full, in which case the unexercised balance of such option shall immediately
terminate and be deemed cancelled upon such partial exercise. If an Acquisition
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<PAGE>
Event occurs and the Committee does not terminate the outstanding Options
pursuant to the preceding sentence, then the provisions of Section 5(c)(ii)
shall apply.
(iv) Subject to Section 5(b), the Committee may
grant Options under the Plan in substitution for options held by employees of
another corporation who concurrently become employees of the Company as a the
result of a merger or consolidation of the employing corporation with the
Company, or as the result of the acquisition by the Company of property or stock
of the employing corporation. The Company may direct that substitute awards be
granted on such terms and conditions as the Committee considers appropriate
under the circumstances.
(v) If, as a result of any adjustment made
pursuant to the preceding paragraphs of this Section 5, any Participant shall
become entitled upon exercise of an Option to receive any securities other than
Common Stock, then the number and class of securities so receivable thereafter
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Common
Stock set forth in this Section 5, as determined by the Committee in its
discretion.
(vi) Except as hereinbefore expressly provided,
the issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash, property, labor or
services, upon direct sale, upon the exercise of rights or warrants to subscribe
therefor or upon conversion of shares or other securities, and in any case
whether or not for fair value, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number and class of shares and/or
other securities or property subject to Options theretofore granted or the
Purchase Price.
6. Awards and Terms of Options
(a) Grant. The Committee may grant Options, including
Options intended to be Incentive Stock Options, to employees of the Company.
Each Option shall be evidenced by an Option agreement (the "Option Agreement")
in such form as the Committee shall approve from time to time. To the extent
that any Option does not qualify as an Incentive Stock Option (whether because
of its provisions or the time or manner of its exercise or otherwise), such
Option or the portion thereof which does not qualify shall constitute a separate
Non-Qualified Stock Option.
(b) Exercise Price. The purchase price per Share (the
"Purchase Price") deliverable upon the exercise of an Option shall be determined
by the Committee, subject to the following: (i) the Purchase Price shall not be
less than the par value of a Share and (ii) in the case of Incentive Stock
Options, the Purchase Price shall not be less than 100% (110% for an Incentive
Stock Option granted to a Substantial Stockholder) of the Fair Market Value per
share on the date the Incentive Stock Option is granted.
(c) Number of Shares. The Option Agreement shall specify
the number of Options granted to the Participant, as determined by the Committee
in its sole discretion.
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<PAGE>
(d) Exercisability. At the time of grant, the Committee
shall specify when and on what terms the Options granted shall be exercisable.
In the case of Options not immediately exercisable in full, the Committee may at
any time accelerate the time as to which all or any part of the Options may be
exercised and may waive any other conditions to exercise, subject to terms of
the Option Agreement and the Plan. No option shall be exercisable after the
expiration of ten years from the date of grant (five years, in the case of
Incentive Stock Option granted to a Substantial Stockholder). Each Option shall
be subject to earlier termination as provided in Section 7 below.
(e) Special Rule for Incentive Options. If required by
Section 422 of the Code, to the extent the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by the Participant during any calendar year (under all plans of his
or her employer corporation and its parent and subsidiary corporations) exceeds
$100,000, such Options shall not be treated as Incentive Stock Options. Nothing
in this special rule shall be construed as limiting the exercisability of any
Option, unless the Committee expressly provides for such a limitation at time of
grant. Should the foregoing provision not be necessary in order for the Options
to qualify as Incentive Stock Options, or should any additional provisions be
required, the Committee may amend the Plan accordingly, without the necessity of
obtaining the approval of the stockholders of the Company.
(f) Exercise of Options.
(i) A participant may elect to exercise one or
more Options by giving written notice to the Committee of such election and of
the number of Shares with respect to which the Options are being exercised,
accompanied by payment in full of the aggregate Purchase Price for such Shares.
(ii) Shares purchased pursuant to the exercise of
Options shall be paid for at the time of exercise as follows:
(1) in cash or by check, bank draft or money
order payable to the order of the Company;
(2) if so permitted by the Committee: (1)
through the delivery of unencumbered Shares (including Shares being acquired
pursuant to the Options then being exercised), provided such Shares (or such
Options) have been owned by the Participant for such period as may be required
by applicable accounting standards to avoid a charge to earnings, (II) through a
combination of Shares and cash as provided above, (III) by delivery of a
promissory note of the Participant to the Company, such promissory note to be
payable, in the case of an Incentive Stock Option, on such terms as are
specified in the Option Agreement (except that, in lieu of a stated rate of
interest, the Option Agreement may provide that the rate of interest on the
promissory note will be such rate as is sufficient, at the time the note is
given, to avoid the imputation of interest under the applicable provisions of
the Code), or (IV) by a combination of cash (or cash and Shares) and the
Participant's promissory note; provided, that, if the Shares delivered upon
exercise of the Option is an original issue of authorized Shares, at least so
much of the exercise price as represents the par value of such Shares shall be
paid in cash or by a combination of cash and Shares;
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<PAGE>
(3) through the delivery of irrevocable
instructions to a broker to deliver promptly to the Company an amount equal to
the aggregate Purchase Price; or
(4) On such other terms and conditions as
may be acceptable to the Committee and in accordance with applicable law.
(iii) Upon receipt of payment and satisfaction of
the requirements, if any, as to withholding of taxes as set forth herein, the
Company shall deliver to the Participant as soon as practicable a certificate or
certificates for the Shares then purchased. No Shares shall be issued until
payment therefor, as provided herein, has been made or provided for.
(g) Buy Out and Settlement Provisions. The Committee may at
any time on behalf of the Company offer to buy out an Option previously granted,
based on such terms and conditions as the Committee shall establish and
communicate to the Participant at the time that such offer is made, and the
Participant shall be entitled to accept or reject such offer in his or her sole
discretion.
(h) Modification, Extension and Renewal of Options. Subject
to the terms and conditions and within the limitations of the Plan, the
Committee may modify, extend or renew outstanding Options granted under the Plan
(provided that the rights of a Participant are not reduced without his or her
consent, or accept the surrender of outstanding Options (up to the extent not
theretofore exercised) and authorize the granting of new Options in substitution
therefor (to the extent not theretofore exercised).
(i) Other Terms and Conditions. Options may contain such
other provisions, which shall not be inconsistent with any of the foregoing
terms of the Plan, as the Committee shall deem appropriate including, without
limitation, permitting "reloads" such that the same number of Options are
granted as the number of (i) Options exercised, (ii) shares used to pay for the
exercise price of Options or (iii) shares used to pay withholding taxes
("Reloads"). With respect to Reloads, the exercise price of the new Option shall
be the Fair Market Value on the date of the Reload and the term of the Option
shall be the same as the remaining term of the Options that are exercised, if
applicable, or such other exercise price and term as determined by the
Committee.
7. Effect of Termination of Employment
(a) Death, Disability, Retirement, etc. Except as otherwise
provided in the Participant's Option Agreement, upon Termination of Employment,
all outstanding Options then exercisable and not exercised by the Participant
prior to such Termination of Employment (and any Options not previously
exercisable but made exercisable by the Committee at or after the Termination of
Employment) shall remain exercisable by the Participant to the extent not
exercised for the following time periods (subject to Section 6(d)):
(i) In the event of the Participant's death, such Options
shall remain exercisable (by the legal representative of the Participant's
estate or by the person given authority to exercise such Options by the
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<PAGE>
Participant's will or by operation of law) for a period of one year from the
date of the Participant's death, provided that the Committee, in its discretion,
may at any time extend such time period to up to three years from the date of
the Participant's death.
(ii) In the event of the Participant's
Disability, or if the Participant retires at or after age 65 (or, with the
consent of the Committee or under and early retirement policy of the Company,
before age 65) or, if the Participant's employment is terminated by the Company
without Cause, such Options shall remain exercisable for one year from the date
of the Participant's Termination of Employment, provided that the Committee, in
its discretion, may at any time extend such time period to up to three years
from the date of the Participant's Termination of Employment.
(b) Cause. Upon the Termination of Employment of a
Participant for Cause or by the Participant in violation of an agreement between
the Participant and the Company or any of its Subsidiaries, or if it is
discovered after such Termination of Employment that such Participant had
engaged in conduct that would have justified a Termination of Employment for
Cause, all outstanding Options shall immediately be canceled. Termination of
Employment for "Cause" means (i) the Participant's willful and continued failure
substantially to perform his or her duties with the Company, (ii) fraud,
misappropriation or intentional material damage to the property or business of
the Company or (iii) commission of a felony.
(c) Other Termination. In the event of Termination of
Employment for any reason other than as provided in Section 7(a) or 7(b), all
outstanding Options not excised by the Participant prior to such Termination of
Employment shall remain exercisable (to the extent exercisable by such
Participant immediately before such termination) for a period of three months
after such termination, provided that the Committee in its discretion may extend
such time period to up to one year from the date of the Participant's
Termination of Employment, and provided further that no Options that were not
exercisable during the period of employment shall thereafter become exercisable,
unless the Committee determines that such Options shall be exercisable.
8. Nontransferability of Options
No Option shall be Transferable by the Participant otherwise
than by will or under applicable laws of descent and distribution, and during
the lifetime of the Participant may be exercised only by the Participant or his
or her guardian or legal representative. In addition, no Option shall, except as
otherwise provided herein, be Transferable in any way (whether by operation of
law or otherwise), and any attempt to Transfer shall be void, and no such Option
shall in any manner be subject to the debts, contracts, liabilities, engagements
or torts of any person who shall be entitled to such Option, nor shall it be
subject to attachment or legal process for or against such person.
9. Rights as a Stockholder
A Participant (or a permitted transferee of an Option) shall
have no rights as a stockholder with respect to any Shares covered by such
Participant's Option until such Participant (or permitted transferee) shall have
become the holder of record of such Shares, and no adjustments shall be made for
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<PAGE>
dividends in cash or other property or distributions or other rights in respect
to any such Shares, except as otherwise specifically provided in this Plan.
10. Determinations
Each determination, interpretation or other action made or
taken pursuant to the provisions of this Plan by the Company, the Board or the
Committee shall be final, conclusive, and binding for all purposes and upon all
persons, including, without limitation, the Participants, the Company and its
Subsidiaries, directors, officers, and other employees of the Company and its
Subsidiaries, and the respective heirs, executors, administrators, personal
representatives and other successors in interest of each of the foregoing.
11. Termination, Amendment and Modification
The plan shall terminate at the close of business on the tenth
anniversary of the Effective Date, unless terminated sooner as hereinafter
provided, and no Option shall be granted under the Plan on or after that date.
The termination of the Plan shall not terminate any outstanding Options that by
their terms continue beyond the termination date of the Plan. At any time prior
to the tenth anniversary of the Effective Date, the Board or the Committee may
amend or terminate the Plan or suspend the Plan in whole or in part.
Notwithstanding the foregoing, however, no such amendment may, without the
approval of the stockholders of the Company, effect any change that would
require stockholder approval under applicable law.
Nothing contained in this Section 11 shall be deemed to
prevent the Board or the Committee from authorizing amendments of outstanding
Options of Participants, including, without limitations, the reduction of the
Purchase Price specified therein (or the granting or issuance of new Options at
a Lower Purchase Price upon cancellation of outstanding Options), as long as all
Options outstanding at any one time shall not call for issuance of more Shares
than the remaining number provided for under the Plan and as long as the
provisions of any amended Options would have been permissible under the Plan if
such Option had been originally granted or issued as of the date of such
amendment with such amended terms.
Notwithstanding anything to the contrary contained in this
Section 11, no termination, amendment or modification of the Plan may, without
the consent of the Participant or the permitted transferee of such Participant's
Option, alter or impair the rights and obligations arising under any then
outstanding Option.
12. Non-Exclusivity
Neither the adoption of the Plan by the Board nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including, without
limitation, the granting or issuance of stock options, Shares and/or other
incentives otherwise than under the Plan, and such arrangements may be either
generally applicable or limited in application.
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<PAGE>
13. Use of Proceeds
The proceeds of the sale of Shares subject to Options under
the Plan are to be added to the general funds of the Company and used for its
general corporate purposes as the Board shall determine.
14. General Provisions
(a) Right to Terminate Employment. Neither the adoption of
the Plan nor the grant of Options shall impose any obligation on the Company to
continue the employment of any participant, nor shall it impose any obligation
on the part of any Participant to remain in the employ of the Company, subject
however to the provisions of any agreement between the Company and the
Participant.
(b) Purchase for Investment. If the Board determines that
the law so requires, the holder of an option granted hereunder shall, upon any
exercise or conversion thereof, executive and deliver to the Company a written
statement, in form satisfactory to the Company, representing and warranting that
such Participant is purchasing or accepting the Shares then acquired for such
Participant's own account and not with a view to the resale or distribution
thereof, that any subsequent offer for sale or sale of any such Shares shall be
made either pursuant to (i) a Registration Statement on an appropriate form
under the Securities Act of 1933 (the "Securities Act"), which Registration
Statement shall have become effective and shall be current with respect to the
Shares being offered and sold, or (ii) a specific exemption from the
registration requirements of the Securities Act, and that in claiming such
exemption the holder will, prior to any offer for sale or sale of such Shares,
obtain a favorable written opinion, satisfactory in form and substance to the
Company, from counsel approved by the Company as to the availability of such
exception. In addition to any legend required by this Plan, the certificates for
such shares may include any legend with the Committee deems appropriate to
reflect any restriction on Transfer.
(c) Trusts, etc., This Plan is intended to be an "unfunded"
deferred compensation plan. Nothing contained in the Plan and no action taken
pursuant to the Plan (including, without limitation, the grant of any Option
thereunder) shall create or be construed to create a trust of any kind, or a
fiduciary relationship, between the Company and any Participant or the executor,
administrator or other personal representative or designated beneficiary of such
Participant, or any other persons.
(d) Notices. Each Participant shall be responsible for
furnishing the Committee with the current and proper address for the mailing to
such Participant of notices and the delivery to such Participant of agreements,
Shares and payments. Any notices required or permitted to be given shall be
deemed given if directed to the person to whom addressed at such address and
mailed by regular United States mail, first class and prepaid. If any item
mailed to such address is returned as undeliverable to the addressee, mailing
will be suspended until the Participant furnishes the proper address.
(e) Severability of Provisions. If any provisions of the
Plan shall be held invalid or unenforceable, such invalidity or unenforceability
-12-
<PAGE>
shall not affect any other provisions of the Plan, and the Plan shall be
construed and enforced as if such provisions had not been included.
(f) Payment to Minors, etc. Any benefit payable to or for
the benefit of a minor, an incompetent person or other person incapable of
receipting therefor shall be deemed paid when paid to such person's guardian or
to the party providing or reasonably appearing to provide for the care of such
person, and such payment shall fully discharge the Committee, the Company and
their employees, agents and representatives with respect thereto.
(g) Headings and Captions. The headings and captions herein
are provided for reference and convenience only. They shall not be considered
part of the Plan and shall not be employed in the construction of the Plan.
(h) Controlling Law. The Plan shall be construed and
enforced according to the laws of the State of New York (regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws).
15. Issuance of Stock Certificates; Legends; Payment of
Expenses
(a) Stock Certificates. Upon any exercise of an Option and
payment of the exercise price as provided in such Option, a certificate or
certificates for the Shares as to which such Option has been exercised shall be
issued by the Company in the name of the person or persons exercising such
Option and shall be delivered to or upon the order of such person or persons.
(b) Legends. Certificates for Shares issued upon exercise
of an Option shall bear such legend or legends as the Committee, in its
discretion, determines to be necessary or appropriate to prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act or to implement the provisions of any documents between the Company and the
Participant with respect to such Shares, including, without limitation, any
right of the Company to purchase Shares issued to the participant upon the
exercise of Options as contained in the Option Agreement.
(c) Payment of Expenses. The Company shall pay all issue or
transfer taxes with respect to the issuance or transfer of Shares, as well as
all fees and expenses necessarily incurred by the Company in connection with
such issuance or transfer and with the administration of the Plan.
(d) Other Benefits. No Option granted under this Plan shall
be deemed compensation for purposes of computing benefits under any retirement
plan of the Company nor affect any benefits under any other benefit plan now or
subsequently in effect under which the availability or amount of benefits is
related to the level of compensation.
(e) No Right to Same Benefits. The provisions of Options
need not be the same with respect to each Participant, and such Options to
individual Participants need not be the same under subsequent grants.
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<PAGE>
(f) Death/Disability. The Committee may in its discretion
require the transferee of a Participant to supply it with written notice of the
Participant's death or Disability and to supply it with a copy of the will (in
the case of the Participant's death) or such other evidence as the Committee
deems necessary to establish the validity of the transfer of an Option. The
Committee may also require the agreement of the transferee to be bound by all of
the terms and conditions of the Plan.
(g) Section 16(b) of the Act. In the event that the Company
becomes publicly held, all elections and transactions under the Plan by persons
subject to Section 16 of the Act involving shares of Common Stock are intended
to comply with any applicable exemptive condition under Rule 16b-3 under Section
16(b) of the Act. To the extent applicable, the Committee may establish and
adopt written administrative guidelines, designed to facilitate compliance with
Section 16(b) of the Act, as it may deem necessary or proper for the
administration and operation of the Plan and the transaction of business
thereunder. For purposes of this paragraph, the Company shall be deemed publicly
held when and if the Company has a class of common equity securities registered
under Section 12 of the Act.
16. Listing of Shares and Related Matters
If at any time the Board shall determine in its sole
discretion that the listing, registration or qualification of the Shares covered
by the Plan upon any national securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the award or
sale of Shares under the Plan, no Shares will be delivered unless and until such
listing, registration, qualification, consent or approval shall have been
effected or obtained, or otherwise provided for, free of any conditions not
acceptable to the Board.
17. Withholding Taxes
The Company shall be entitled to withhold (or secure payment
from the Participant in cash or other property, including Shares already owned
by the Participant for six months or more (valued at the Fair Market Value
thereof on the date of delivery) in lieu of withholding) the amount of any
Federal, state or local taxes required by law to be withheld by the Company for
any Shares or cash payments deliverable under this Plan, and the Company may
defer such delivery unless such withholding requirement is satisfied. The
Committee may permit any such withholding obligation with regard to any
Participant to be satisfied by reducing the number of Shares otherwise
deliverable or by delivering Shares already owned. Any fraction of a Share
required to satisfy such tax obligations shall be disregarded and the amount due
shall be paid instead in cash by the Participant.
<PAGE>
REGISTRAR ACCREDITATION AGREEMENT
Table of Contents
I. DEFINITIONS................................................................1
II. TERMS AND CONDITIONS OF AGREEMENT..........................................4
A. Accreditation.........................................................4
B. Registrar use of ICANN Name...........................................4
C. General Obligations of ICANN..........................................4
D. General Obligations of Registrar......................................4
E. Submission of SLD Holder Data to Registry.............................5
F. Public Access to Data on SLD Registrations............................6
G. Retention of SLD Holder and Registration Data.........................8
H. Rights in Data........................................................9
I. Data Escrow...........................................................9
J. Business Dealings, Including with SLD Holders.........................9
K. Domain-Name Dispute Resolution.......................................12
L. Accreditation Fees...................................................12
M. Specific Performance.................................................13
N. Termination of Agreement.............................................13
O. Term of Agreement; Renewal; Right to Substitute Updated Agreement....14
P. Resolution of Disputes Under this Agreement..........................14
Q. Limitations an Monetary Remedies for Violations of this Agreement....15
R. Handling by ICANN of Registrar-Supplied Data.........................15
S. Miscellaneous........................................................15
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This REGISTRAR ACCREDITATION AGREEMENT ("Agreement") is by and between the
Internet Corporation for Assigned Names and Numbers, a not-for-profit
corporation, and Register.com, Inc. ("Registrar"), a Delaware corporation, and
shall be deemed made on November 30, 1999 at Los Angeles, California, USA.
I. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
A. "Accredit" means to identify and set minimum standards for the per of
registration functions, to recognize persons or entities meeting those
standards, and to enter into an accreditation agreement that sets forth the
rules and procedures applicable to the provision of registration services.
<PAGE>
B. A "Consensus Policy"' is one adopted by ICANN as follows:
1. "Consensus policies" are those adopted based on a consensus among Internet
stakeholders represented in the ICANN process, as demonstrated by (1) the
adoption of the policy by the ICANN Board of Directors, (2) a recommendation
that the policy should be adopted, by at least a two-thirds vote of the
council of the ICANN Supporting Organization to which the matter is
delegated, and (3) a written report and supporting materials (which must
include all substantive submissions to the Supporting Organization relating
to the proposal) that (i) documents the extent of agreement and disagreement
among impacted groups, (ii) documents the outreach process used to seek to
achieve adequate representation of the views of groups that are likely to be
impacted, and (iii) documents the nature and intensity of reasoned support
and opposition to the proposed policy.
2. In the event that Registrar disputes the presence of such a consensus, it
shall seek review of that issue from an Independent Review Panel established
under ICANN's bylaws. Such review must be sought within fifteen working days
of publication of the Board's action adopting the policy. The decision of the
panel shall be based on the report and supporting materials required by
Section I.B.1 above. In the event that Registrar seeks review and the Panel
sustains the Board's determination that the policy is based on a consensus
among Internet stakeholders represented in the ICANN process, then Registrar
must implement such policy unless it promptly seeks and obtains a stay or
injunctive relief under Section II.P.
3. In the event, following a decision by the Independent Review Panel
convened under Section I.B.2 above, that Registrar still disputes the
presence of such a consensus, it may seek further review of that issue within
fifteen working days of publication of the decision in accordance with the
dispute-resolution procedures set forth in Section II.P below; provided,
however, that Registrar must continue to implement the policy unless it has
obtained a stay or injunctive relief under Section II.P or a final decision
is rendered in accordance with the provisions of Section II.P that relieves
Registrar of such obligation. The decision in any such further review shall
be based on the report and supporting materials required by Section I.B.1
above.
4. A policy adopted by the ICANN Board of Directors on a temporary basis,
without a prior recommendation by the council of an ICANN Supporting
Organization, shall also be considered to be a Consensus Policy if adopted by
the ICANN Board of Directors by a vote of at least two-thirds of its members,
and if immediate temporary adoption of a policy on the subject is necessary
to maintain the stability of the Internet or the operation of the domain name
system, and if the proposed policy is as narrowly tailored as feasible to
achieve those objectives. In adopting any policy under this provision, the
ICANN Board of Directors shall state the period of time for which the policy
is temporarily adopted and shall immediately refer the matter to the
appropriate Supporting Organization for its evaluation and review with a
detailed explanation of its reasons for adopting the temporary policy and why
the Board believes the policy should receive the consensus support of
Internet stakeholders. If the period of time for which the policy is adopted
exceeds 45 days, the Board shall reaffirm its temporary adoption every 45
days for a total period not to exceed 190 days, in order to maintain such
policy in effect until such time as it meets the standard set forth in
Section I.B.1. If the standard set forth in Section I.B.1 above is not met
within the temporary period set by* the Board, or the council of the
Supporting Organization to which it has been referred votes to reject the
temporary policy, it will no longer be a "Consensus Policy."
2
<PAGE>
5. For all purposes under this Agreement, the policies specifically
identified by ICANN on its website
(www.icann.org/gen=Vconsensus-policies.htm) at the date of this Agreement as
having been adopted by the ICANN Board of Directors before the date of this
Agreement shall be treated in the same manner and have the same effect as
"Consensus Policies" and accordingly shall not be subject to review under
Section I.B.2.
6. In the event that, at the time the ICANN Board adopts a policy under
Section I.B.1 during the term of this Agreement, ICANN does not have in place
an Independent Review Panel established under ICANN's bylaws, the
fifteen-working-day period allowed under Section I.B.2, to seek review shall
be extended until fifteen working days after ICANN does have such an,
Independent Review Panel in place and Registrar shall not be obligated to
comply with the policy in the interim.
C. "DNS" refers to the Internet domain-name system.
D. "ICANN" refers to the Internet Corporation for Assigned Names and Numbers, a
party to this Agreement.
E. An "ICANN-adopted policy" (and references to ICANN "adopt[ing]" a policy or
policies) refers to a Consensus Policy adopted by ICANN (i) in conformity with
applicable provisions of its articles of incorporation and bylaws and Section
II.C of this Agreement and (ii) of which Registrar has been given notice and a
reasonable period in which to comply.
F. "IP" means Internet Protocol.
G. "Personal Data" refers to data about any identified or identifiable natural
person.
H. The word "Registrar," when appearing with an initial capital letter, refers
to Register.com, Inc., a party to this Agreement.
I. The word "registrar," when appearing without an initial capital letter,
refers to a person or entity that contracts with SLD holders and a registry,
collecting registration data about the SLD holders and submitting zone file
information for entry in the registry database.
J. A "Registry" is the person(s) or entity(ies) then responsible, in accordance
with an agreement between ICANN and that person or entity (those persons or
entities) or, if that agreement is terminated or expires, in accordance with an
agreement between the US Government and that person or entity (those persons or
entities), for providing registry services.
K. An "SLD" is a second-level domain of the DNS.
L. An SLD registration is "sponsored" by the registrar that placed the record
associated with that registration into the registry. Sponsorship of a
registration may be changed at the express direction of the SLD holder or, in
the event a registrar loses accreditation, in accordance with then-current
ICANN-adopted policies.
3
<PAGE>
M. A "TLD"' is a top-level domain of the DNS.
II. TERMS AND CONDITIONS OF AGREEMENT
The parties agree as follows:
A. Accreditation. During the term of this Agreement, Registrar is hereby
accredited by ICANN to act as a registrar (including to insert and renew
registration of SLDs in the registry database) for the com, net and org TLDs.
B. Registrar use of ICANN Name. Registrar is hereby granted a non-exclusive
worldwide license to state during the term of this Agreement that it is
accredited by ICANN as a registrar in the com, net, and org TLDs. No other use
of ICANN's name is licensed hereby. This license may not be assigned or
sublicensed by Registrar.
C. General Obligations of ICANN. With respect to all matters that impact the
rights, obligations, or role of Registrar, ICANN shall during the Term of this
Agreement.
1. exercise its responsibilities in an open and transparent manner;
2. not unreasonably restrain competition and, to the extent feasible, promote
and encourage robust competition;
3. not apply standards, policies, procedures or practices arbitrarily,
unjustifiably, or inequitably and not single out Registrar for disparate
treatment unless justified by substantial and reasonable cause; and
4. ensure, through its reconsideration and independent review policies,
adequate appeal procedures for Registrar, to the extent it is adversely
affected by ICANN standards, policies, procedures or practices.
D. General Obligations of Registrar.
1. During the Term of this Agreement:
a. Registrar agrees that it will operate as a registrar for TLDs for which
it is accredited by ICANN in accordance with this Agreement;
b. Registrar shall comply, in such operations, with all ICANN-adopted
Policies insofar as they:
i. relate to one or more of the following: (A) issues for which uniform
or coordinated resolution is reasonably necessary to facilitate
interoperability, technical reliability and/or stable operation of the
Internet or domain-name system, (B) registrar policies reasonably
necessary to implement. Consensus Policies relating to the Registry, or
(C) resolution of disputes regarding the registration of domain names
(as opposed to the use of such domain names), and
4
<PAGE>
ii. do not unreasonably restrain competition.
2. To the extent that Consensus Policies are adopted in conformance with
Section II.C of this Agreement, the measures permissible under Section
II.D.1.b.i shall include, without limitation:
i. principles for allocation of SLD names (e.g.,
first-come/first-served, timely renewal, holding period after
expiration);
ii. prohibitions on warehousing of or speculation in domain names by
registrars;
iii. reservation of SLD names that may not be registered initially or
that may not be renewed due to reasons reasonably related to (a)
avoidance of confusion among or misleading of users, (b) intellectual
property, or (c) the technical management of the DNS or the Internet
(e.g., "example.com" and single-letter/digit names);
iv. the allocation among continuing registrars of the SLD names
sponsored in the registry by a registrar losing accreditation;
v. the transfer of registration data upon a change in registrar
sponsoring the registration; and
vi. dispute resolution policies that take into account the use of a
domain name.
vii. Nothing in this Section II.D shall limit or otherwise affect
Registrar's obligations as set forth elsewhere in this Agreement.
E. Submission of SLD Holder Data to Registry. During the term of this Agreement:
1. As part of its registration of SLDs in the com, net, and org TLDs,
Registrar shall submit to, or shall place in the registry database operated
by Registry the following data elements concerning SLD registrations that
Registrar processes:
a. The name of the SLD being registered;
b. The IP addresses of the primary nameserver and secondary nameserver(s)
for the SLD;
c. The corresponding names of those nameservers;
d. Unless automatically generated by the registry system, the identity of
the registrar;
e. Unless automatically generated by the registry system, the expiration
date of the registration; and
5
<PAGE>
f. Other data required as a result of further development of the registry
system by the Registry.
2. Within five (5) business days after receiving any updates from the SLD
holder to the data elements listed in Sections II.E.1.b and c for any SLD
registration Registrar sponsors, Registrar shall submit the updated data
elements to, or shall place those elements in the registry database operated
by Registry.
3. In order to allow reconstitution of the registry database in the event of
an otherwise unrecoverable technical failure or a change in the designated
Registry permitted by the contract Registry has with ICANN and/or the United
States Department of Commerce, within ten days of any such request by ICANN
Registrar shall submit an electronic database containing the data elements
listed in Sections II.F.1.a through d for all active records in the registry
sponsored by Registrar, in a format specified by ICANN, to the Registry for
the appropriate TLD.
F. Public Access to Data on SLD Registrations. During the term of this Agreement
1. At its expense, Registrar shall provide an interactive web page and a port
43 Whois service providing free public query-based access to up-to-date (i.e.
updated at least daily) data concerning all active SLD registrations
sponsored by Registrar in the registry for the .com, net,, and org TLDs. The
data accessible shall consist of elements that are designated from time to
time according to an ICANN-adopted policy. Until ICANN otherwise specifies by
means of an ICANN-adopted policy, this data shall consist of the following
elements as contained in Registrar's database:
a. The name of the SLD being registered and the TLD for which registration
is being requested;
b. The IP addresses of the primary nameserver and secondary nameserver(s)
for the SLD;
c. The corresponding names of those nameservers;
d. The identity of Registrar (which may be provided through Registrar's
website);
e. The original creation date of the registration;
f. The expiration date of the registration;
g. The name and postal address of the SLD holder;
h. The name, postal address, e-mail address, voice telephone number, and
(where available) fax number of the technical contact for the SLD; and
i. The name, postal address, e-mail address, voice telephone number, and
(where available) fax number of the administrative contact for the SLD.
6
<PAGE>
2. Upon receiving any updates to the data elements listed in Sections
II.F.1.b through d and f through i from the SLD holder, Registrar shall
promptly update its database used to provide the public access described in
Section II.F.1.
3. Registrar may subcontract its obligation to provide the public access
described in Section II.F.1 and the updating described in Section II.F.2,
provided that Registrar shall remain fully responsible for the proper
provision of the access and updating.
4. Registrar shall abide by any ICANN-adopted Policy that requires registrars
to cooperatively implement a distributed capability that provides query-based
Whois search functionality across all registrars. If the Whois service
implemented by registrars does not in a reasonable time provide reasonably
robust, reliable, and convenient access to accurate and up-to-date data, the
Registrar shall abide by any ICANN-adopted Policy requiring Registrar, if
reasonably determined by ICANN to be necessary (considering such
possibilities as remedial action by specific registrars), to supply data from
Registrar's database to facilitate the development of a centralized Whois
database for the purpose of providing comprehensive Registrar Whois search
capability
5. In providing query-based public access to registration data as required by
Sections II.F.1 and II.F.4, Registrar shall not impose terms and conditions
on use of the data provided except as permitted by an ICANN-adopted policy.
Unless and until ICANN adopts a different policy, Registrar shall permit use
of data it provides in response to queries for any lawful purposes except to:
(a) allow, enable, or otherwise support the transmission of mass unsolicited,
commercial advertising or solicitations via e-mail (spam); or (b) enable high
volume, automated, electronic processes that apply to Registrar (or its
systems).
6. In addition, Registrar shall provide third-party bulk access to the data
subject to public access under Section II.F.1 under the following terms and
conditions:
a. Registrar shall make a complete electronic copy of the data available
at least one time per week for download by third parties who have entered
into a bulk access agreement with Registrar.
b. Registrar may charge an annual fee, not to exceed US$ 10,000, for such
bulk access to the data.
c. Registrar's, access agreement shall require the third party to agree
not to use the data to allow, enable, or otherwise support the
transmission of mass unsolicited, commercial advertising or solicitations
via e-mail (spam).
d. Registrar's access agreement may require the third party to agree not
to use the data to enable high-volume, automated, electronic processes
that apply to Registrar (or its systems).
e. Registrar's access agreement may require the third party to agree not
to sell or redistribute the data except insofar as it has been
incorporated by the third party into a value-added product or service that
does not permit the extraction of a substantial portion of the bulk data
from the value-added product or service for use by other parties.
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f. Registrar may enable SLD holders who are individuals to elect not to
have Personal Data concerning their registrations available for bulk
access for marketing purposes based on Registrar's "Opt-Out" policy, and
if Registrar has such a policy Registrar shall require the third party to
abide by the terms of that Opt-Out policy; provided, however, that
Registrar nay not use such data subject to opt-out for marketing purposes
in its own value-added product or service.
7. Registrar's obligations under Section II.F.6 shall remain in effect until
the earlier of (a) replacement of this policy with a different ICANN-adopted
policy governing bulk access to the data subject to public access under
Section II.F.1, or (b) demonstration, to the satisfaction of the United
States Department of Commerce, that no individual or entity is able to
exercise market power with respect to registrations or with respect to
registration data used for development of value-added products and services
by third parties
8. To comply with applicable statutes and regulations and for other reasons,
ICANN may from time to time adopt policies establishing limits on the
Personal Data concerning SLD registrations that Registrar may make available
to the public through a public-access service described in this Section II.F
and on the manner in which Registrar may make them available. In the event
ICANN adopts any such policy, Registrar shall abide by it.
G. Retention of SLD Holder and Registration Data.
1. During the term of this Agreement, Registrar shall maintain its own
electronic database, as updated from time to time, containing data for each
active SLD registration sponsored by it in the registry for the com, met, and
org TLDs. The data for each such registration shall include the elements
listed in Sections II.F.1.a through i, as well as the name and (where
available) postal address, e-mail address, voice telephone number and fax
number of the billing contact.
2. During the term of this Agreement and for three years thereafter,
Registrar (itself or by its agent) shall maintain the following records
relating to its dealings with the Registry and SLD holders:
a. In electronic form, the submission date and time, and the content, of
all registration data (including updates) submitted in electronic form to
the Registry;
b. In electronic, paper, or microfilm form, all written communications
constituting registration applications, confirmations, modifications, or
terminations and related correspondence with actual SLD holders, including
registration contracts; and
c. In electronic form, records of the accounts of all SLD holders with
Registrar, including dates and amounts of all payments and refunds.
Registrar shall make these records available for inspection by MANN upon
reasonable notice. ICANN shall not disclose such records except as
expressly permitted by an ICANN-adopted policy.
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H. Rights in Data. Registrar disclaims all rights to exclusive ownership or use
of the data elements listed in Sections II.E.1.a through c for all SLD
registrations submitted by Registrar to, or sponsored by Registrar in, the
registry database for the cow, net, and org TLDs. Registrar does not disclaim
rights in the data elements listed in Sections II.E.1.d through f and II.F.1.d
through i concerning active SLD registrations sponsored by it in the registry
for the .com, net, and org TLDs, and agrees to grant non-exclusive, irrevocable,
royalty-free licenses to make use of and disclose the data elements listed in
Sections II.F.1.d through i for the purpose of providing a service (such as a
Whois service under Section II.F.4) providing interactive, querybased public
access. Upon a change in sponsorship from Registrar of any SLD registration in
the registry for the com, net, and org TLDs, Registrar acknowledges that the
registrar gaining sponsorship shall have the rights of an owner to the data
elements listed in Sections II.E.1.d and e and II.F.1.d through i concerning
that registration, with Registrar also retaining the rights of an owner in that
data. Nothing in this Section II.H prohibits Registrar from (1) restricting bulk
public access to data elements in a manner consistent with any ICANN-adopted
policies or (2) transferring rights it claims in data elements subject to the
provisions of this Section II.H.
I. Data Escrow. During the term of this Agreement, on a schedule, under the
terms, and in the format specified in the then-current ICANN-adopted policy on
registrar escrow requirements, Registrar shall submit an electronic copy of the
database described in Section II.G.1 to ICANN or, at Registrar's election and at
its expense, to a reputable escrow agent mutually approved by Registrar and
ICANN, such approval also not to be unreasonably withheld by either party. The
data shall be held under an agreement among Registrar, ICANN, and the escrow
agent (if any) providing that (1) the data shall be received and held in escrow,
with no use other than verification that the deposited data is complete and in
proper format, until released to ICANN; (2) the data shall be released from
escrow upon expiration without renewal or termination of this Agreement; and (3)
ICANN's rights under the escrow agreement shall be assigned with any assignment
of this Agreement. The escrow shall provide that in the event the escrow is
released under this Section II.I, ICANN (or its assignee) shall have a
non-exclusive, irrevocable, royalty-free license to exercise (only for
transitional purposes) or have exercised all rights necessary to provide
registrar services.
J. Business Dealings, Including with SLD Holders.
1. In the event ICANN adopts a policy supported by a consensus of
ICANN-accredited registrars establishing or approving a Code of Conduct for
such registrars, Registrar shall abide by that Code.
2. Registrar shall abide by applicable laws and governmental regulations.
3. Registrar shall not represent to any actual or potential SLD holder that
Registrar enjoys access to a registry for which Registrar is accredited that
is superior to that of any other registrar accredited for that registry.
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4. Registrar shall not activate any SLD registration unless and until it is
satisfied that it has received a reasonable assurance of payment of its
registration fee. For this purpose, a charge to a credit card, general
commercial terms extended to creditworthy customers, or other mechanism
providing a similar level of assurance of payment shall be sufficient,
provided that the obligation to pay becomes final and non-revocable by the
SLD holder upon activation of the registration.
5. Registrar shall register SLDs to SLD holders only for fixed periods. At
the conclusion of the registration period, failure by or on behalf of the SLD
holder to pay a renewal fee within the time specified in a second notice or
reminder shall, in the absence of extenuating circumstances, result in
cancellation of the registration. In the event that ICANN adopts a policy
concerning procedures for handling expiration of registrations, Registrar
shall abide by that policy.
6. Registrar shall not insert or renew any SLD name in any registry for which
Registrar is accredited by ICANN in a manner contrary to an ICANN-adopted
policy stating a list or specification of excluded SLD names that is in
effect at the time of insertion or renewal.
7. Registrar shall require all SLD holders to enter into an electronic or
paper registration agreement with Registrar including at least the following
provisions:
a. The SLD holder shall provide to Registrar accurate and reliable contact
details and promptly correct and update them during the term of the SLD
registration, including: the full name, postal address, e-mail address,
voice telephone number, and fax number if available of the SLID holder;
name of authorized person for contact purposes in the case of an SLD
holder that is an organization, association, or corporation; and the data
elements listed in Section II.F.1.B, c, and h through i above.
An SLD holder's willful provision of inaccurate or unreliable information,
its willful failure promptly to update information provided to Registrar,
or its failure to respond for over fifteen calendar days to inquiries by R
Registrar concerning the accuracy of contact details associated with the
SLD holder's registration shall constitute a material breach of the SLD
holder-registrar contract and be a basis for cancellation of the SLD
registration.
Any SLD holder that intends to license use of a domain name to a third
party is nonetheless the SLD holder of record and is responsible for
providing its own full contact information and for providing and updating
accurate technical and administrative contact information adequate to
facilitate timely resolution of any problems that arise in connection with
the SLD. An SLD holder licensing use 'of an SLD according to this
provision shall accept liability for harm caused by wrongful use of the
SLD, unless it promptly discloses the identity of the licensee to a party
providing the SLD holder reasonable evidence of actionable harm.
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b. Registrar shall provide notice to each new or renewed SLD holder
stating:
i. The purposes for which any Personal Data collected from the
applicant are intended;
ii. The intended recipients or categories of recipients of the data
(including the Registry and others who will receive the data from
Registry);
iii. Which data are obligatory and which data, if any, are voluntary;
and
iv. How the SLD holder or data subject can access and, if necessary,
rectify the data held about them.
c. The SLD holder shall consent to the data processing referred to in
Section II.J.7.b.
d. The SLD holder shall represent that notice has been provided equivalent
to that described in Section II.J.7.b. above to any third-party
individuals whose Personal Data are supplied to Registrar by the SLD
holder, and that the SLD holder has obtained consent equivalent to that
referred to in Section II.J.7.c of any such third-party individuals.
e. Registrar shall agree that it will not process the Personal Data
collected from the SLD holder in a way incompatible with the purposes and
other limitations about which it has provided notice to the SLD holder in
accordance with Section II.J.7.b, above.
f. Registrar shall agree that it will take reasonable precautions to
protect Personal Data from loss, misuse, unauthorized access or
disclosure, alteration, or destruction.
g. The SLD holder shall represent that, to the best of the SLD holder's
knowledge and belief, neither the registration of the SLD name nor the
manner in which it is directly or indirectly used infringes the legal
rights of a third party.
h. For the adjudication of disputes concerning or arising from use of the
SLD name, the SLD holder shall submit, without prejudice to other
potentially applicable jurisdictions, to the jurisdiction of the courts
(1) of the SLD holder's domicile and (2) where Registrar is located.
i. SLD holder shall agree that its registration of the SLD name shall be
subject to suspension, cancellation, or transfer pursuant to any
ICANN-adopted policy, or pursuant to any registrar or registry procedure
not inconsistent with an ICANN-adopted policy, (1) to correct mistakes by
Registrar or the Registry In registering the name or (2) for the
resolution of disputes concerning the SLD name.
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j. The SLD holder shall indemnify and hold harmless the Registry and its
directors, officers, employees, and agents from and against any and all
claims, damages, liabilities, costs, and expenses (including reasonable
legal fees and expenses) arising out of or related to the SLD holder's
domain name registration.
8. Registrar shall abide by any ICANN-adopted policies requiring reasonable
and commercially practicable (a) verification at the time of registration, of
contact information associated with an SLD registration sponsored by
Registrar or (b) periodic re-verification of such information. Registrar
shall, upon notification by any person of an inaccuracy in the contact
information associated with an SLD registration sponsored by Registrar, take
reasonable steps to investigate that claimed inaccuracy. In the event
Registrar learns of inaccurate contact information associated with an SLD
registration it sponsors, it shall take reasonable steps to correct that
inaccuracy.
9. Registrar shall abide by any ICANN-adopted policy prohibiting or
restricting warehousing of or speculation in domain names by registrars.
10. Registrar shall maintain in force commercial general liability insurance
with policy limits of at least US$500,000 covering liabilities arising from
Registrar's registrar business during the term of this Agreement.
11. Nothing in this Agreement prescribes or limits the amount Registrar may
charge SLD holders for registration of SLD names.
K. Domain-Name Dispute Resolution. During the term of this Agreement, Registrar
shall have in place a policy and procedure for resolution of disputes concerning
SLD names. In the event that ICANN adopts a policy or procedure for resolution
of disputes concerning SLD names that by its terms applies to Registrar,
Registrar shall adhere to the policy or procedure.
L. Accreditation Fees. As a condition of accreditation, Registrar shall pay
accreditation fees to ICANN. These fees consist of yearly and on-going
components.
1. The yearly component for the term of this Agreement shall be US $5,000.
Payment of the yearly component shall be due upon execution by Registrar of
this Agreement and upon each anniversary date after such execution during the
term of this Agreement (other than the expiration date).
2. Registrar shall pay the on-going component of Registrar accreditation fees
adopted by ICANN in accordance with the provisions of Section II.C above,
provided such fees are reasonably allocated among all registrars that
contract with ICANN and that any such fees must be expressly approved by
registrars accounting, in aggregate, for payment of two-thirds of all
registrar-level, fees. Registrar shall pay such fees in a timely manner for
so long as all material terms of this Agreement remain in full force and
effect, and notwithstanding the pendency of any dispute between Registrar and
ICANN.
3. On reasonable notice given by ICANN to Registrar, accountings submitted by
Registrar shall be subject to verification by an audit of Registrar's books
and records by an independent third-party that shall preserve the
confidentiality of such books and records (other than its findings as to the
accuracy of, and any necessary corrections to, the accountings).
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<PAGE>
M. Specific Performance. While this Agreement is in effect, either party may
seek specific performance of any provision of this Agreement in the manner
provided in Section II.P below, provided the party seeking such performance is
not in material breach of its obligations.
N. Termination of Agreement. This Agreement may be terminated before its
expiration by Registrar by giving ICANN thirty days written notice. It may be
terminated before its expiration by ICANN in any of the following circumstances:
1. There was a material misrepresentation, material inaccuracy, or materially
misleading statement in Registrar's application for accreditation or any
material accompanying the application.
2. Registrar:
a. is convicted of a felony or other serious offense related to financial
activities, or is judged by a court to have committed fraud or breach of
fiduciary duty, or is the subject of a judicial determination that ICANN
reasonably deems as the substantive equivalent of any of these; or
b. is disciplined by the government of its domicile for conduct involving
dishonesty or misuse of funds of others.
3. Any officer or director of Registrar is convicted of a felony or of a
misdemeanor related to financial activities, or is judged by a court to have
committed fraud or breach of fiduciary duty, or is the subject of a judicial
determination that ICANN deems as the substantive equivalent of any of these;
provided, such officer or director is not removed in such circumstances.
4. Registrar fails to cure any breach of this Agreement (other than a failure
to comply with a policy adopted by ICANN during the term of this Agreement as
to which Registrar is seeking, or still has time to seek, review under
Section I.B.2 of whether a consensus is present) within fifteen working days
after ICANN gives Registrar notice of the breach.
5. Registrar fails to comply with a ruling granting specific performance
under Sections II.M and II.P.
6. Registrar continues acting in a manner that ICANN has reasonably
determined endangers the stability or operational integrity of the Internet
after receiving three days notice of that determination.
7. Registrar becomes bankrupt or insolvent.
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This Agreement may be terminated in circumstances 1 through 6 above only upon
fifteen days written notice to Registrar (in the case of circumstance 4
occurring after Registrar's failure to cure), with Registrar being given an
opportunity during that time to initiate arbitration under Section II.P to
determine the appropriateness of termination under this Agreement. In the event
Registrar initiates litigation or arbitration concerning the appropriateness of
termination by ICANN, the termination shall be stayed an additional thirty days
to allow Registrar to obtain a stay of termination under Section II.P below. If
Registrar acts in a manner that ICANN reasonably determines endangers the
stability or operational integrity of the Internet and upon notice does not
immediately cure, ICANN may suspend this Agreement for five working days pending
ICANN's application for more extended specific performance or injunctive relief
under Section II.P. This Agreement may be terminated immediately upon notice to
Registrar in circumstance 7 above.
O. Term of Agreement; Renewal; Right to Substitute Updated Agreement. This
Agreement shall have an initial term until April 26, 2000, unless sooner
terminated. Thereafter, if Registrar seeks to continue its accreditation, it may
apply for renewed accreditation, and shall be entitled to renewal provided it
meets the ICANN-adopted policy on accreditation criteria then in effect, is in
compliance with its obligations under this Agreement, as amended, and agrees to
be bound by the then-current Registrar accreditation agreement (which may differ
from those of this Agreement) that ICANN adopts in accordance with Sections II.C
and II.D (as Section II.D may have been amended by an ICANN-adopted policy). In
connection with renewed accreditation, Registrar shall confirm its assent to the
terms and conditions of the such then-current Registrar accreditation agreement
by signing that accreditation agreement. In the event that, during the term of
this Agreement, ICANN posts on its web site an updated form of registrar
accreditation agreement applicable to accredited registrars in the com, met, or
org TLDs, Registrar (provided it has not received (1) a notice of breach that it
has not cured or (2) a notice of termination of this Agreement under Section
II.N above) may elect, by giving ICANN written notice, to enter an agreement in
the updated form in place of this Agreement. In the event of such election,
Registrar and ICANN shall promptly sign a new accreditation agreement that
contains the provisions of the updated form posted on the web site, with the
length of the term of the substituted agreement as stated in the updated form
posted on the web site, calculated as if it commenced on the date this Agreement
was made., and this Agreement will be deemed terminated.
P. Resolution of Disputes Under this Agreement. Disputes arising under or in
connection with this Agreement, including (1) disputes arising from ICANN's
failure to renew Registrar's accreditation and (2) requests for specific
performance, shall be resolved in a court of competent jurisdiction or, at the
election of either party, by an arbitration conducted as provided in this
Section II.P pursuant to the International Arbitration Rules of the American
Arbitration Association ("AAA"). The arbitration shall be conducted in English
and shall occur in Los Angeles County, California, USA. There shall be three
arbitrators: each party shall choose one arbitrator and, if those two
arbitrators do not agree on a third arbitrator, the third shall be chosen by the
AAA. The parties shall bear the costs of the arbitration in equal shares,
subject to the right of the arbitrators to reallocate the costs in their award
as provided in the AAA rules. The parties shall bear their own attorneys' fees
in connection with the arbitration, and the arbitrators may not reallocate the
attorneys' fees in conjunction with their award. The arbitrators shall render
their decision within ninety days of the conclusion of the arbitration hearing.
In the event Registrar initiates arbitration to contest the appropriateness of
termination of this Agreement by ICANN, Registrar may at the same time request
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that the arbitration panel stay the termination until the arbitration decision
is rendered, and that request shall have the effect of staying the termination
until the arbitration panel has granted an ICANN request for specific
performance and Registrar has failed to comply with such ruling. In the event
Registrar initiates arbitration to contest an Independent Review Panel's
decision under Section I.B.2 sustaining the Board's determination that a policy
is supported by consensus, Registrar may at the same time request that the
arbitration panel stay the requirement that it comply with the policy until the
arbitration decision is rendered, and that request shall have the effect of
staying the requirement until the decision or until the arbitration panel has
granted an ICANN request for lifting of the stay. In all litigation involving
ICANN concerning this Agreement (whether in a case where arbitration has not
been elected or to enforce an arbitration award), jurisdiction and exclusive
venue for such litigation shall be in a court located in Los Angeles,
California, USA; however, the parties shall also have the right to enforce a
judgment of such a court in any court of competent jurisdiction. For the purpose
of aiding the arbitration and/or preserving the rights of the parties during the
pendency of an arbitration, the parties shall have the right to seek temporary
or preliminary injunctive relief from the arbitration panel or in a court
located in Los Angeles, California, USA, which shall not be a waiver of this
arbitration agreement.
Q. Limitations an Monetary Remedies for Violations of this Agreement. ICANN's
aggregate monetary liability for violations of this Agreement shall not exceed
the amount of accreditation fees paid by Registrar to ICANN under Section ILL of
this Agreement. Registrar's monetary liability to ICANN for violations of this
Agreement shall be limited to accreditation fees owing to ICANN under this
Agreement. In no event shall either party be liable for special, indirect,
incidental, punitive, exemplary, or consequential damages for any violation of
this Agreement.
R. Handling by ICANN of Registrar-Supplied Data. Before receiving any Personal
Data from Registrar, ICANN shall specify to Registrar in writing the purposes
for and conditions under which ICANN intends to use the Personal Data. ICANN may
from time to time provide Registrar with a revised specification of such
purposes and conditions, which specification shall become effective no fewer
than thirty days after it is provided to Registrar. ICANN shall not use Personal
Data provided by Registrar for a purpose or under conditions inconsistent with
the specification in effect when the Personal Data were provided. ICANN shall
take reasonable steps to avoid uses of the Personal Data by third parties
inconsistent with the specification.
S. Miscellaneous.
1. Assignment. Either party may assign or transfer this Agreement only with
the prior written consent of the other party, which shall not be unreasonably
withheld, except that ICANN may, with the written approval of the United
States Department of Commerce, assign this agreement by giving Registrar
written notice of the assignment. In the event of assignment by ICANN, the
assignee may, with the approval of the United States Department of Commerce,
revise the definition of "Consensus Policy" to the extent necessary to meet
the organizational circumstances of the assignee, provided the revised
definition requires that Consensus Policies be based on a demonstrated
consensus of Internet stakeholders.
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2. No Third-Party Beneficiaries. This Agreement shall not be construed to
create any obligation by either ICANN or Registrar to any non-party to this
Agreement, including any SLD holder.
3. Notices, Designations, and Specifications. All notices to be given under
this Agreement shall be given in writing at the address of the appropriate
party as set forth below, unless that party has given a notice of change of
address in writing. Any notice required by this Agreement shall be deemed to
have been properly given when delivered in person, when sent by electronic
facsimile, or when scheduled for delivery by internationally recognized
courier service. Designations and specifications by ICANN under this
Agreement shall be effective when written notice of them is deemed given to
Registrar.
If to ICANN, addressed to:
Internet Corporation for Assigned Names and Numbers
Register Accreditation
4676 Admiralty Way, Suite 330
Marina Del Rey, California 90292
Telephone: 1/310/823-9358
Facsimile: 1/310/823-8649
If to Registrar, addressed to:
Register.com, Inc.
575 8th Avenue
11th Floor
New York, NY 10018,
Attention: Lauren Gaviser
Telephone Number: +1/212/798-9155
Facsimile Number: +1/212/594-9876
E-mail Address: [email protected]
With a copy to:
Stuart Levi, Esq.
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue, 30th Floor
New York, New York 10022
Telephone: +1/212/735-2750
Facsimile: +1/212/735-3694
E-mail Address: [email protected]
4. Dates and Times. All dates and times relevant to this Agreement or its
performance shall be computed based on the date and time observed in Los
Angeles, California USA.
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5. Language. All notices, designations, and specifications made under this
Agreement shall be in the English language.
6. Entire Agreement. Except for any written transition agreement that may be
executed concurrently herewith by both parties, this Agreement constitutes
the entire agreement of the parties hereto pertaining to the subject matter
hereof and supersedes all prior agreements, understandings, negotiations and
discussions, whether Oral or written, Of the parties.
7. Amendments and Waivers. No amendment, supplement, or modification of this
Agreement or any provision hereof shall be binding unless executed in writing
by both parties. No waiver of any provision of this Agreement shall be
binding unless evidenced by a writing signed by the party waiving compliance
with such provision. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof,
nor "I any such waiver constitute a continuing waiver unless otherwise
expressly provided.
8. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their duly authorized representatives.
INTERNET CORPORATION FOR ASSIGNED NAMES AND NUMBERS
By: /s/ Michael M. Roberts
---------------------------------------
Michael M. Roberts
President and CEO
REGISTER.COM, INC.
By: /s/ Richard D. Forman
---------------------------------------
President
17
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Registrar License And Agreement
This Registrar License and Agreement (the Agreement") is dated as of
December 13, 1999 ("Effective Date") by and between Network Solutions, Inc., a
Delaware corporation, with its principal place of business located at 505
Huntmar Park Drive, Herndon, Virginia 20170 ("NSI") or the "Registry"), and
Register.com, Inc., a Delaware corporation, with its principal place of
business located at 575 8th Avenue, 11th Floor, New York, New York 10018
("Registrar"). NSI and Registrar may be referred to individually as a "Party"
and collectively as the "Parties."
WHEREAS, multiple registrars will provide Internet domain name registration
services within the .com, org., and .net top-level domains wherein NSI operates
and maintains certain TLD servers and zone files ("Registry");
WHEREAS, Registrar wishes to register second-level domain names in the multiple
registrar system for the .com, .org, and .net TLDs.
NOW, THEREFORE, for and in consideration of the mutual promises, benefits, and
convenants contained herein and for other good and valuable consideration, the
receipt, adequacy, and sufficiency of which are hereby acknowledged, NSI and
Registrar, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS
1.1 "DNS" refers to the Internet domain name system.
1.2 "IP" means Internet Protocol.
1.3 An "SLD" is a second-level domain of the DNS.
1.4 The "System" refers to the multiple registrar system developed
by NSI for registration of second-level domain names in the .com, .org., and
.net TLDs.
1.5 A "TLD" is a top-level domain of the DNS.
1.6 The "Licensed Product" refers to the RRP, APIs, and software,
collectively.
2. OBLIGATIONS OF THE PARTIES
2.1 System Operation and Access. Throughout the Term of this
Agreement, NSI shall operate the System and provide Registrar with access to the
System enabling Registrar to transmit domain name registration information for
the .com, .org and .net TLDs to the System according to a protocol developed by
NSI and known as the Registry Registrar Protocol ("RRP").
2.2 Distribution of RRP, APIs and Software. No later than three
business days after the Effective Date of this Agreement, NSI shall provide to
Registrar (i) full documentation of the RRP, (ii) "C" and "Java" application
program interfaces (APIs") to the
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RRP with documentation, and (iii) reference client software ("Software") that
will enable Registrar to develop its system to register second-level domain
names through the System for the .com, .org and .net TLDs. If NSI elects to
modify or upgrade the APIs and/or RRP, NSI shall provide updated APIs to the RRP
with documentation and updated Software to Registrar promptly as such updates
become available.
2.3 New Architectural Features. NSI will use its best commercial
efforts to develop and implement two additional modifications to the Licensed
Product by January 15, 2000 as follows:
2.3.1 NSI will issue an upgrade to the Licensed Product hat
will enable a Registrar to accept initial domain name registrations or renewals
of a minimum of one year in length, or in multiples of one year increments.
2.3.2 NSI will issue an upgrade to the Licensed Product that
will enable registrars to accept the addition of one additional year to a
registrant's "current" registration period when a registrant changes from one
registrar to another.
In no event shall the total unexpired term of a registration exceed ten (10)
years.
Registrars will be able to offer these new features only for new registrations
or renewals occurring after the Upgrade is deployed. Both Upgrades will be
introduced into the Operational Test and Evaluation environment for testing
prior to deployment.
2.4 Registrar Responsibility for Customer Support. Registrar shall
be responsible for providing customer service (including domain name record
support), billing and technical support, and customer interface to accept
customer (the "SLD holder") orders.
2.5 Data Submission Requirements. As part of its registration of
all SLD registrations in the .com, .org and .net TLDs during the Term of this
Agreement, Registrar shall submit the following data elements using the RRP
concerning SLD registrations it processes:
2.5.1 The name of the SLD being registered;
2.5.2 The IP addresses of the primary nameserver and secondary
nameserver(s) for the SLD;
2.5.3 The corresponding host names of those nameservers;
2.5.4 Unless automatically generated by the registry system,
the identity of the registrar;
2.5.5 Unless automatically generated by the registry system,
the expiration date of the registration; and
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2.5.6 Other data required as a result of further development
of the registry system by the Registry.
2.6 License. Registrar grants NSI as Registry a non-exclusive
non-transferable limited license to the data elements of the SLD name
registered, the IP addresses of nameservers, and the identity of the registering
registrar for propagation of and the provision of authorized access to the TLD
zone files.
2.7 Registrar's Registration Agreement and Domain Name Dispute
Policy. Registrar shall have developed and employ in its domain name
registration business an electronic or paper registration agreement, including a
domain name dispute policy, a copy of which is attached to this Agreement as
Exhibit A (which may be amended from time to time by Registrar, provided a copy
is furnished to the Registry three (3) business days in advance of any such
amendment), to be entered into by Registrar with each SLD holder as a condition
of registration. Registrar shall include terms in its agreement with each SLD
holder that are consistent with Registrar's duties to NSI hereunder.
2.8 Secure Connection. Registrar agrees to develop and employ in
its domain name registration business all necessary technology and restrictions
to ensure that its connection to the System is secure. All data exchanged
between Registrar's system and the System shall be protected to avoid unintended
disclosure of information. Each RRP session shall be authenticated and encrypted
using two-way secure socket layer (`SSL") protocol. Registrar agrees to
authenticate every RRP client connection with the System using both an X.509
server certificate issued by a commercial Certification Authority identified by
the Registry and its Register password, which it shall disclose only to its
employees with a need to know. Registrar password has been compromised in any
way or if its server certificate has been revoked by the issuing Certification
Authority identified by the Registry and its Registrar password has been
compromised in any way or if its server certificate has been revoked by the
issuing Certification Authority or compromised in any way.
2.9 Domain Name Lookup Capability. Registrar agrees to employ in
its domain name registration business NSI's Registry domain name lookup
capability to determine if a requested domain name is available or currently
unavailable for registration.
2.10 Transfer of Sponsorship of Registrations. Registrar agrees to
implement transfers of SLD registrations from another registrar to Registrar and
vice versa pursuant to the Policy on Transfer of Sponsorship of Registrations
Between Registrars appended hereto as Exhibit B.
2.11 Time. Registrar agrees that in the event of any dispute
concerning the time of the entry of a domain name registration into the Registry
database, the time shown in the NSI Registry records shall control.
2.12 Compliance with Terms and Conditions. Registrar agrees to
comply with all other reasonable terms or conditions established from time to
time, to assure sound operation of the System, by NSI as Registry in a
non-arbitrary manner and applicable to all registrars, including NSI, and
consistent with NSI's Cooperative Agreement with the United
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States Government or NSI's Registry Agreement with the Internet Corporation for
Assigned Names and Numbers ("ICANN"), as applicable, upon NSI's notification to
Registrar of the establishment of those terms and conditions.
2.13 Resolution of Technical Problems. Registrar agrees to employ
necessary employees, contractors, or agents with sufficient technical training
and experience to respond to and fix all technical problems concerning the use
of the RRP and the APIs in conjunction with Registrar's systems. Registrar
agrees that in the event of significant degradation of the System or other
emergency, Network Solutions, as Registry, may, in its sole discretion,
temporarily suspend access to the System. Such temporary suspensions shall be
applied in a nonarbitrary manner and shall apply fairly to any registrar
similarly situated, including NSL.
2.14 Surety Instrument. During the Initial Term and any Renewal
Terms, Registrar shall have in place a performance bond, letter of credit or
equivalent instrument (the "Surety Instrument") from a surety acceptable to NSI,
in the amount of $100,000 U.S. dollars. The terms of the Surety Instrument shall
indemnify and hold harmless NSI and its employees, directors, officers,
representatives, agents and affiliates from all costs and damages (including
reasonable attorneys' fees) which it may suffer by reason of Registrar's failure
to indemnify NSI as provided in Section 6.16 by making payment(s) up to the full
amount of the bond within ten (10) days of NSI's having notified the surety of
its claims(s) of damages, having identified the basis for any such claim. NSI
shall not be entitled to payment under the Surety Instrument until such time as
it has certified that it has incurred expenses for which it is entitled to
reimbursement in accordance with the provisions of Section 6.16 of this
Agreement.
2.15 Prohibited Domain Name Registration. Registrar agrees to
comply with the policies of NSI as Registry that will be applicable to all
registrars and that will prohibit the registration of certain domain names in
the .com, .org and .net TLDs which are not allowed to be registered by statute
or regulation.
2.16 Indemnification Required of SLD Holders. Registrar shall
require each SLC holder to indemnify, defend and hold harmless NSI, and its
directors, officers, employees and agents form and against any and all claims,
damages, liabilities, costs and expenses, including reasonable legal fees and
expenses arising out of or relating to the SLD holder's domain name
registration.
3. LICENSE
3.1 License Grant. Subject to the terms and conditions of this
Agreement, NSI hereby grants Registrar and Registrar accepts a non-exclusive,
non-transferable, worldwide limited license to use for the Term and purposes of
this Agreement the RRP, APIs and Software, as well as updates and redesigns
thereof, to provide domain name registration services in the .com, .org and .net
TLDs only and for no other purpose. The RRP, APIs and Software, as well as
updates and redesigns thereof, will enable Registrar to register domain names
with the Registry on behalf of its SLD holders. Registrar, using the RRP, APIs
and Software, as well as updates and redesigns thereof, will be able to invoke
the following operations on the System: (i) check the availability of a domain
name, (ii) register a domain name, (iii) re-register a domain
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name, (iv) cancel the registration of a domain name it has registered, (v)
update the nameservers of a domain name, (vi) transfer a domain name from
another registrar to itself with proper authorization, (vii) query a domain name
registration record, (viii) register a nameserver, (ix) update the IP addresses
of a nameserver, (x) delete a nameserver, (xi) query a nameserver, and (xii)
establish and end an authenticated session.
3.2 Limitations on Use. Notwithstanding any other provisions in
this Agreement, except with the written consent of NSI, Registrar shall not: (i)
sublicense the RRP, APIs or Software or otherwise permit any use of the RRP,
APIs or Software by or for the benefit of any party other than Registrar, (ii)
publish, distribute or permit disclosure of the RRP, APIs or Software other than
to employees, contractors, and agents of Registrar for use in Registrar's domain
name registration business, (iii) decompile, reverse engineer, copy or
re-engineer the RRP, APIs or Software for any unauthorized purpose, or (iv) use
or permit use of the RRP, APIs or Software in violation of any federal, state or
local rule, regulation or law, or for any unlawful purpose.
Registrar agrees to employ the necessary measures to prevent its access to the
System granted hereunder from being used for (I) the transmission of
unsolicited, commercial e-mail (spam) to entities other than Registrar's
customers; (ii) high volume, automated, electronic processes that apply to NSI
for large numbers of domain names, except as reasonably necessary to register
domain names or modify existing registrations; or (iii) high volume, automated,
electronic, repetitive queries for the purpose of extracting data to be used for
Registrar's purposes, except as reasonably necessary to register domain names or
modify exiting registrations.
3.3 Changes to Licensed Materials. NSI may from time to time make
modifications to the RRP, APIs or Software licensed hereunder that will enhance
functionality or otherwise improve the System. NSI will provide Registrar with
at least sixty (60) days notice prior to the implementation of any material
changes to the RRP, APIs or software licensed hereunder.
4. SUPPORT SERVICES
4.1 Engineering Support. NSI agrees to provide Registrar with
reasonable engineering telephone support (between the hours of 9 a.m. to 5 p.m.
local Herndon, Virginia time or at such other times as may be mutually agreed
upon) to address engineering issues arising in connection with Registrar's use
of the System.
4.2 Customer Service Support. During the Term of this Agreement,
NSI will provide reasonable telephone and e-mail customer service support to
Registrar, not SLD holders or prospective customers of Registrar, for
non-technical issues solely relating to the System and its operation. NSI will
provide Registrar with a telephone number and e-mail address for such support
during implementation of the RRP, APIs and Software. First-level telephone
support will be available on a 7-day/24 hour basis. NSI will provide a web-based
customer service capability in the future and such web-based support will become
the primary method of customer service support to Registrar at such time.
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5. FEES
5.1 License Fee. As consideration for the license of the RRP, APIs
or Software, Registrar agrees to pay NSI on the Effective Date a non-refundable
one-time fee in the amount of $10,000 payable in United States dollars (the
"License Fee") and payable by check to Network Solutions, Inc., Attention:
Registry Accounts Receivable, 505 Huntmar Park Drive, Herndon, Virginia 20170 or
by wire transfer to Bank of America, for the credit of Network Solutions, Inc.,
Account #004112889843, ABA #051000017, Swift, NABKUS3ARIC. No later than three
(3) business days after either the receipt (and final settlement if payment by
check) of such License Fee, or the Effective Date of this Agreement, whichever
is later, NSI will provide the RRP, APIs and Software to Registrar.
5.2 Registration Fees.
(a) From the Effective Date of this Agreement through January
15, 2000, Registrar agrees to pay NSI the non-refundable amounts of $18 United
States dollars for each initial two-year domain name registration and $9 United
States dollars for each one-year domain name re-registration (collectively, the
"Registration Fees") registered by Registrar through the System.
(b) Thereafter, and for the balance of the term of this
Agreement, Registrar agrees to pay NSI the non-refundable amounts of $6 United
States dollars for each annual increment of an initial domain name registration
and $6 United States dollars for each annual increment of a domain name
re-registration (collectively, the "Registration Fees") registered through the
System.
(c) NSI reserves the right to adjust the Registration Fees
prospectively upon thirty (30) days prior notice to Registrar, provided that
such adjustments are consistent with NSI's Cooperative Agreement with the United
States Government or its Registry Agreement with ICANN, as applicable, and are
applicable to all registrars in the .com, .org and .net TLDs. NSI will invoice
Registrar monthly in arrears for each month's Registration Fees. All
Registration Fees are due immediately upon receipt of NSI's invoice pursuant to
a letter of credit, deposit account, or other acceptable credit terms agreed by
the Parties.
6. MISCELLANEOUS
6.1 Term of the Agreement and Termination.
(a) Term of the Agreement. The duties and obligations of the
Parties under this Agreement shall apply from the Effective Date through and
including the last day of the calendar month sixty (60) months from the
Effective Date (the "Initial Term"). Upon conclusion of the Initial Term, all
provisions of this Agreement will automatically renew for successive five (5)
year renewal periods until the Agreement has been terminated as provided herein,
Registrar elects not to renew, or NSI ceases to operate as the registry for the
.com, .org and .net TLDs. In the event that revisions to NSI's Registrar License
and Agreement are approved or adopted by the U.S. Department of Commerce, or
ICANN, as appropriate, Registrar will execute an amendment substituting the
revised agreement in place of this Agreement, or Registrar may, at its option
exercised within fifteen (15) days terminate this Agreement immediately by
giving written notice to NSI.
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(b) Termination For Cause. In the event that either Party
materially breaches any term of this Agreement including any of its
representations and warranties hereunder and such breach is not substantially
cured within thirty (30) calendar days after written notice thereof is given by
the other Party then the non-breaching Party may, by giving written notice
thereof to the other Party, terminate this Agreement as of the date specified in
such notice of termination.
(c) Termination at Option of Registrar. Registrar may
terminate this Agreement at any time by giving NSI thirty (30) days notice of
termination.
(d) Termination Upon Loss of Registrar's Accreditation. This
Agreement shall terminate in the event Registrar's accreditation by ICANN, or
its successor, is terminated or expires without renewal.
(e) Termination in the Event that Successor Registry is Named.
This Agreement shall terminate in the event that the U.S. Department of Commerce
or ICANN, as appropriate, designates another entity to serve as the registry for
the .com, .org and .net TLDs (the "Successor Registry").
(f) Termination in the Event of Bankruptcy. Either Party may
terminate this Agreement if the other Party is adjudged insolvent or bankrupt,
or if proceedings are instituted by or against a Party seeking relief,
reorganization or arrangement under any always relating to insolvency, or
seeking any assignment for the benefit of creditors, or seeking the appointment
of a receiver, liquidator or trustee of a Party's property or assets or the
liquidation, dissolution or winding up of a Party's business.
(g) Effect of Termination. Upon expiration of this Agreement,
NSI will complete the registration of all domain names processes by Registrar
prior to the date of such expiration or termination, provided that Registrar's
payments to NSI for Registration Fees are current and timely. Immediately upon
any expiration or termination of this Agreement, Registrar shall (i) transfer
its sponsorship of SLD name registrations to another licensed registrar(s) of
the Registry, in compliance with any procedures established or approved by the
U.S. Department of Commerce or ICANN, as appropriate, and (ii) either return to
NSI or certify to NSI the destruction of all data, software and documentation it
has received under this Agreement.
(h) Survival. In the event of termination of this Agreement,
the following shall survive: (i) Sections 2.6, 2.7, 6.1(g), 6.6, 6.7, 6.10,
6.12, 6.13, 6.14 and 6.16, (ii) the SLD holder's obligations to indemnify,
defend, and hold harmless NSL, as stated in Section 2.14 with respect to matters
arising during the term of this Agreement; and (iv) Registrar's payment
obligations as set forth in Section 5.2 with respect to initial registrations or
re-registrations during the term of this Agreement. Neither Party shall be
liable to the other for damages of any sort resulting solely from terminating
this Agreement in accordance with its terms but each Party shall be liable for
any damage arising from any breach by it of this Agreement.
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6.2 No Third Party Beneficiaries; Relationships of The Parties.
This Agreement does not provide and shall not be construed to provide third
parties (i.e., non-parties to this Agreement), including any SLD holder, with
any remedy claim, cause of action or privilege. Nothing in this Agreement shall
be construed as creating an employer-employee or agency relationship, a
partnership or a joint venture between the Parties.
6.3 Force Majeure. Neither Party shall be responsible for any
failure to perform any obligation or provide service hereunder because of any
Act of God, strike, work stoppage, governmental acts or directives, war, riot or
civil commotion, equipment or facilities shortages which are being experienced
by providers of telecommunications services generally, or other similar force
beyond such Party's reasonable control.
6.4 Further Assurance. Each Party hereto shall execute and/or
cause to be delivered to each other Party hereto such instruments and other
documents, and shall take such other actions, as such other Party may reasonably
request for the purpose of carrying out or evidencing any of the transactions
contemplated by this Agreement.
6.5 Amendment in Writing. Any amendment or supplement to this
Agreement shall be in writing and duly executed by both Parties.
6.6 Attorneys' Fees. If any legal action or other legal proceeding
(including arbitration) relating to the performance under this Agreement or the
enforcement of any provision of this Agreement is brought against either Party
hereto, the prevailing Party shall be entitled to recover reasonable attorneys'
fees, costs and disbursements (in addition to any other relief to which the
prevailing Party may be entitled).
6.7 Dispute Resolution; Choice of Law; Venue. The Parties shall
attempt to resolve any disputes between them prior to resorting to litigation.
This Agreement is to be construed in accordance with and governed by the
internal laws of the Commonwealth of Virginia, United States of America without
giving effect to any choice of law rule that would cause the application of the
laws of any jurisdiction other than the internal laws of the Commonwealth of
Virginia to the rights and duties of the Parties. Any legal action or other
legal proceedings relating to this Agreement or the enforcement of any provision
of this Agreement shall be brought or otherwise commenced in any state or
federal court located in the eastern district of the Commonwealth of Virginia.
Each Party to this Agreement expressly and irrevocably consents and submits to
the jurisdiction and venue of each state and federal court located in the
eastern district of the Commonwealth of Virginia (and each appellate court
located in the Commonwealth of Virginia) in connection with any such legal
proceedings.
6.8 Notices. Any notice or other communication required or
permitted to be delivered to any Party under this Agreement shall be in writing
and shall be deemed properly delivered, given and received when delivered (by
hand, by registered mail, by courier or express delivery service, by e-mail or
by telecopier during business hours) to the address or telecopier number set
forth beneath the name of such Party below, unless party has given a notice of a
change of address in writing:
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if to Registrar:
Register.Com, Inc.
575 8th Avenue, 11th Floor
New York, New York 10018
Attn: Lauren Gaviser
Telecopier: (212) 594-9876
Email: [email protected]
with a copy to:
Stuart Levi
Skadden, Arps, Slate, Meagher & Flora
919 Third Avenue, 36th Floor
New York, NY 10020
Telecopier: (212) 735-3684
if to NSI:
Network Solutions, Inc.
505 Huntmar Park Drive
Herdon, Virginia 20170
Attention: Director, Customer Affairs
Telecopier: +1 (703) 742-8706
E-mail: [email protected]
with a copy to:
General Counsel
505 Huntmar Park Drive
Herdon, Virginia 20170
Telecopier: +1(703) 742-0065
6.9 Assignment/Sublicense. Except as otherwise expressly provided
herein, the provisions of this Agreement shall inure to the benefit of and be
binding upon, the successors and permitted assigns of the Parties hereto.
Registrar shall not assign, sublicense or transfer its rights or obligations
under this Agreement to any third person without the prior written consent of
NSI.
6.10 Use of Confidential Information. The Parties' use and
disclosure of Confidential Information disclosed hereunder are subject to the
terms and conditions of the Parties' Confidentiality Agreement (Exhibit C) that
will be executed contemporaneously with this Agreement. Registrar agrees that
the RRP, APIs and Software are the Confidential Information of NSI.
6.11 Delays or Omissions; Waivers. No failure on the part of either
Party to exercise any power, right, privilege or remedy under this Agreement,
and no delay on the part of either Party in exercising any power, right,
privilege or remedy under this Agreement,
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shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise or waiver of any such power, right, privilege or
remedy; and no single or partial exercise of waiver of any such power, right,
privilege or remedy shall preclude any other or further exercise thereof or of
any other power, right, privilege or remedy. No Party shall be deemed to have
waived any claim arising out of this Agreement, or any power, right, privilege
or remedy under this Agreement, unless the waiver of such claim, power, right,
privilege or remedy is expressly set forth in a written instrument duly executed
and delivered on behalf of such Party; and any such waiver shall not be
applicable or have any effect except in the specific instance in which it is
given.
6.12 Limitation of Liability. IN NO EVENT WILL NSI BE LIABLE TO
REGISTRAR FOR ANY SPECIAL, INDIRECT, INCIDENTAL , PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES, OR ANY DAMAGES RESULTING FROM LOSS OF PROFITS, ARISING
OUT OF OR IN CONNECTION WITH THIS AGREEMENT, EVEN IF NSI HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
6.13 Construction. The Parties agree that any rule of construction
to the effect that ambiguities are to be resolved against the drafting Party
shall not be applied in the construction or interpretation of this Agreement.
6.14 Intellectual Property. Subject to Section 2.6 above, each
Party will continue to independently own its intellectual property, including
all patents, trademarks, trade names, service marks, copyrights, trade secrets,
proprietary processes and all other forms of intellectual property.
6.15 Representations and Warranties.
(a) Registrar. Registrar represents and warrants that: (1) it
is a corporation duly incorporated, validly existing and in good standing under
the law of the State of New York, (2) it has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement,
(3) it is, and during the Term of this Agreement will continue to be, accredited
by ICANN or its successor, pursuant to an accreditation agreement dated after
November 4, 1999, (4) the execution, performance and delivery of this Agreement
has been duly authorized by Registrar, (5) no further approval, authorization or
consent of any governmental or regulatory authority is required to be obtained
or made by Registrar in order for it to enter into and perform its obligations
under this Agreement, and (6) Registrar's Surety Instrument provided hereunder
is a valid and enforceable obligation of the surety named or such Surety
Instrument.
(b) NSI.NSI represents and warrants that: (1) it is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, (2) it has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement,
(3) the execution, performance and delivery of this Agreement has been duly
authorized by NSI, and (4) no further approval, authorization or consent of any
governmental or regulatory authority is required to be obtained or made by NSI
in order for it to enter into and perform its obligations under this Agreement.
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(c) Disclaimer of Warranties. The RRP, APIs and Software are
provided "as-is" and without any warranty of any kind. NSI EXPRESSLY DISCLAIMS
ALL WARRANTIES AND/OR CONDITIONS, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED
TO, THE IMPLIED WARRANTIES AND CONDITIONS OF MERCHANTABILITY OR SATISFACTORY
QUALITY AND FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT OF THIRD PARTY
RIGHTS. NSI DOES NOT WARRANT THAT THE FUNCTIONS CONTAINED IN THE RRP, APIs OR
SOFTWARE WILL MEET REGISTRAR'S REQUIREMENTS, OR THAT THE OPERATION OF THE RRP,
APIs OR SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE, OR THAT DEFECTS IN THE
RRP, APIs OR SOFTWARE WILL BE CORRECTED. FURTHERMORE, NSI DOES NOT WARRANT NOR
MAKE ANY REPRESENTATIONS REGARDING THE USE OR RESULTS OF THE RRP, APIs, SOFTWARE
OR RELATED DOCUMENTATION IN TERMS OF THEIR CORRECTNESS, ACCURACY, RELIABILITY,
OR OTHERWISE SHOULD THE RRP, APIs OR SOFTWARE PROVE DEFECTIVE, REGISTRAR ASSUMES
THE ENTIRE COST OF ALL NECESSARY SERVICING, REPAIR OR CORRECTION OF REGISTRAR'S
OWN SYSTEMS AND SOFTWARE.
6.16 Indemnification. Registrar, at its own expense and within
thirty (30) days of presentation of a demand by NSI under this paragraph, will
indemnify, defend and hold harmless NSI and its employees, directors, officers,
representatives, agents and affiliates, against any claim, suit, action, or
other proceeding brought against NSI or any affiliate of NSI based on or arising
from any claim or alleged claim (i) relating to any product or service of
Registrar; (ii) relating to any agreement, including Registrar's dispute policy,
with any SLD holder of Registrar; or (iii) relating to Registrar's domain name
registration business, including, but not limited to, Registrar's advertising,
domain name application process, systems and other processes, fees charged,
billing practices and customer service; provided, however, that in any such
case: (a) NSI provides Registrar with prompt notice of any such claim, and (b)
upon Registrar's written request, NSI will provide to Registrar all available
information and assistance reasonably necessary for Registrar to defend such
claim, provided that Registrar reimburses NSI for its actual and reasonable
costs. Registrar will not enter into any settlement or compromise of any such
indemnifiable claim without NSI's prior written consent, which consent shall not
be unreasonably withheld. Registrar will pay any and all cost, damages, and
expenses, including, but not limited to, reasonable attorneys' fees and costs
awarded against or otherwise incurred by NSI in connection with or arising from
any such indemnifiable claim, suit, action or proceeding.
6.17 Entire Agreement; Severability. This Agreement, which includes
Exhibits A, B and C, constitutes the entire agreement between the Parties
concerning the subject matter hereof and supersedes any prior agreements,
representations, statements, negotiations, understandings, proposals or
undertakings, oral or written, with respect to the subject matter expressly set
forth herein. If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, each Party agrees that such provisions shall be
enforced to the maximum extent permissible so as to effect the intent of the
Parties, and the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. If necessary to effect the intent of the Parties, the Parties shall
negotiate in good faith to amend this Agreement to replace the unenforceable
language with enforceable language that reflects such intent as closely as
possible.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth in the first paragraph hereof.
Network Solutions, Inc. [Registrar] Register.com, Inc.
By: /s/ Julie M. Nichols By: /s/ Richard D. Forman
----------------------------- --------------------------
Name: Julie M. Nichols Name: Richard D. Forman
Title: Director, Customer Affairs Title: President & CEO
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Exhibit A
Registrar's Dispute Policy
[To be supplied from time to time by Registrar]
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Uniform Domain Name Dispute Resolution Policy
(As Approved by ICANN on October 24, 1999)
1. Purpose. This Uniform Domain Name Dispute Resolution Policy (the "Policy")
has been adopted by the Internet Corporation for Assigned Names and Numbers
("ICANN"), is incorporated by reference into your Registration Agreement, and
sets forth the terms and conditions in connection with a dispute between you and
any party other than us (the registrar) over the registration and use of an
Internet domain name registered by you. Proceedings under Paragraph 4 of this
Policy will be conducted according to the Rules for Uniform Domain Name Dispute
Resolution Policy (the "Rules of Procedure"), which are available at
http://www.icann.org/udrp/udrp-rules-24oct99.htm, and the selected
administrative-dispute-resolution service provider's supplemental rules.
2. Your Representatives. By applying to register a domain name, or by asking us
to maintain or renew a domain name registration, you hereby represent and
warrant to us that (a) the statements that you made in your Registration
Agreement are complete and accurate; (b) to your knowledge, the registration of
the domain name will not infringe upon or otherwise violate the rights of any
third party; (c) you are not registering the domain name for an unlawful
purpose; and (d) you will not knowingly use the domain name in violation of any
applicable laws or regulations. It is your responsibility to determine whether
your domain name registration infringes or violates someone else's rights.
3. Cancellations, Transfers, and Changes. We will cancel, transfer or otherwise
make changes to domain name registrations under the following circumstances:
a. subject to the provisions of Paragraph 8, our receipt of written or
appropriate electronic instructions from you or your authorized agent to take
such action;
b. our receipt of an order from a court or arbitral tribunal, in each case of
competent jurisdiction, requiring such action; and/or
c. our receipt of a decision of an Administration Panel requiring such action in
any administrative proceeding to which you were a party and which was conducted
under this Policy or a later version of this Policy adopted by ICANN. (See
Paragraph 4(i) and (k) below.) We may also cancel, transfer or otherwise make
changes to a domain name registration in accordance with the terms of your
Registration Agreement or other legal requirements.
4. Mandatory Administrative Proceeding. This Paragraph sets forth the type of
disputes for which you are required to submit to a mandatory administrative
proceeding. These proceedings will be conducted before one of the
administrative-dispute-resolution service providers listed at
http://www.icann.org/udrp/approved-providers.htm (each, a "Provider").
a. Applicable Disputes. You are required to submit to a mandatory administrative
proceeding in the event that a third party (a "complainant") asserts to the
applicable Provider, in compliance with the Rules of Procedure, that (i) your
domain name is identical or confusingly similar to a trademark or service mark
in which the complainant has rights; and (ii) you have no rights to legitimate
interests in respect of the domain name; and (iii) your domain name has been
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registered and is being used in bad faith. In the administrative proceeding, the
complainant must prove that each of these three elements are present.
b. Evidence of Registration and Use in Bad Faith. For the purposes of Paragraph
4(a)(iii), the following circumstances, in particular but without limitation, if
found by the Panel to be present, shall be evidence of the registration and use
of a domain name in bad faith: (i) circumstances indicating that you have
registered or you have acquired the domain name primarily for the purpose of
selling, renting, or otherwise transferring the domain name registration to the
complainant who is the owner of the trademark or service mark or to a competitor
of that complainant, for valuable consideration in excess of your documented
out-of-pocket costs directly related to the domain name; or (ii) you have
registered the domain name in order to prevent the owner of the trademark or
service mark from reflecting the mark in a corresponding domain name, provided
that you have engaged in a pattern of such conduct; or (iii) you have registered
the domain name primarily for the purpose of disrupting the business of a
competitor; or (iv) by using the domain name, you have intentionally attempted
to attract, for commercial gain, Internet users to your web site or other
on-line location, by creating a likelihood of confusion with the complainant's
mark as to the source, sponsorship, affiliation, or endorsement of your web site
or location or of a product or service on your web site or location.
c. How to Demonstrate Your Rights to and Legitimate Interests in the Domain Name
in Responding to a Complaint. When you receive a complaint, you should refer to
Paragraph 5 of the Rules of Procedure in determining how your response should be
prepared. Any of the following circumstances, in particular but without
limitation, if found by the Panel to be proved based on its evaluation of all
evidence presented, shall demonstrate your rights or legitimate interests to the
domain name for purposes of Paragraph 4(a)(ii): (i) before any notice to you of
the dispute, your use of, or demonstrable preparations to use, the domain name
or a name corresponding to the domain name in connection with a bona fide
offering of goods or services; or (ii) you (as an individual, business, or other
organization) have been commonly known by the domain name, even if you have
acquired no trademark or service mark rights; or (iii) you are making a
legitimate noncommercial or fair use of the domain name, without intent for
commercial gain to misleadingly divert consumers or to tarnish the trademark or
service mark at issue.
d. Selection of Provider. The complainant shall select the Provider from among
those approved by ICANN by submitting the complaint to that Provider. The
selected Provider will administer the proceeding, except in cases of
consolidation as described in Paragraph 4(f).
e. Initiation of Proceeding and Process and Appointment of Administrative Panel.
The Rules of Procedure state the process for initiating and conducting a
proceeding and for appointing the panel that will decide the dispute (the
"Administrative Panel").
f. Consolidation. In the event of multiple disputes between you and a
complainant, either you or the complainant may petition to consolidate the
disputes before a single Administrative Panel. This petition shall be made to
the first Administrative Panel appointed to hear a pending dispute between the
parties. This Administrative Panel may consolidate before it any or all such
disputes in its sole discretion, provided that the disputes being consolidated
are governed by this Policy or a later version of this Policy adopted by ICANN.
Page 15 of 23
<PAGE>
g. Fees. All fees charged by a Provider in connection with any dispute before an
Administrative Panel pursuant to this Policy shall be paid by the complainant,
except in cases where you elect to expand the Administrative Panel from one to
three panelists as provided in Paragraph 5(b)(iv) of the Rules of Procedure, in
which case all fees will be split evenly by you and the complainant.
h. Our Involvement in Administrative Proceedings. We do not, and will not,
participate in the administration or conduct of any proceeding before an
Administrative Panel. In addition, we will not be liable as a result of any
decisions rendered by the Administrative Panel.
i. Remedies. The remedies available to a complainant pursuant to any proceeding
before an Administrative Panel shall be limited to requiring the cancellation of
your domain name or the transfer of your domain name registration to the
complainant.
j. Notification and Publication. The Provider shall notify us of any decision
made by an Administration Panel with respect to a domain name you have
registered with us. All decisions under this Policy will be published in full
over the Internet, except when an Administrative Panel determines in an
exceptional case to redact portions of its decision.
k. Availability of Court Proceedings. The mandatory administrative proceeding
requirements set forth in Paragraph 4 shall not prevent either you or the
complainant from submitting the dispute to a court of competent jurisdiction for
independent resolution before such mandatory administrative proceeding is
commenced or after such proceeding is concluded. If an Administrative Panel
decides that your domain name registration should be canceled or transferred, we
will wait ten (10) business days (as observed in the location of our principal
office) after we are informed by the applicable Provider of the Administrative
Panel's decision before implementing that decision. We will then implement the
decision unless we have received from you during that ten (10) business day
period official documentation (such as a copy of a complaint, file-stamped by
the clerk of the court) that you have commenced a lawsuit against the
complainant in a jurisdiction to which the complainant has submitted under
Paragraph 3(b)(xiii) of the Rules of Procedure. (In general, that jurisdiction
is either the location of our principal office or of your address as shown in
our Whois database. See Paragraphs 1 and 3(b)(xiii) of the Rules of Procedure
for details.) If we receive such documentation within the ten (10) business day
period, we will not implement the Administrative Panel's decision, and we will
take no further action, until we receive (i) evidence satisfactory to us of a
resolution between the parties; (ii) evidence satisfactory to us that your
lawsuit has been dismissed or withdrawn; or (iii) a copy of an order from such
court dismissing your lawsuit or ordering that you do not have the right to
continue to use your domain name.
5. All Other Disputes and Litigation. All other disputes between you and any
party other than us regarding your domain name registration that are not brought
pursuant to the mandatory administrative proceeding provisions of Paragraph 4
shall be resolved between you and such other party through any court,
arbitration or other proceeding that may be available.
6. Our Involvement in Disputes. We will not participate in any way in any
dispute between you and any party other than us regarding the registration and
use of your domain name. You shall not name us as a party or otherwise include
us in any such proceeding. In the event that we
Page 16 of 23
<PAGE>
are named as a party in any such proceeding, we reserve the right to raise any
and all defenses deemed appropriate, and to take any other action necessary to
defend ourselves.
7. Maintaining the Status Quo. We will not cancel, transfer, activate,
deactivate, or otherwise change the status of any domain name registration under
this Policy except as provided in Paragraph 3 above.
8. Transfers During a Dispute.
a. Transfers of a Domain Name to a New Holder. You may not transfer your domain
name registration to another holder (i) during a pending administrative
proceeding brought pursuant to Paragraph 4 or for a period of fifteen (15)
business days (as observed in the location of our principal place of business)
after such proceeding is concluded; or (ii) during a pending court proceeding or
arbitration commenced regarding your domain name unless the party to whom the
domain name registration is being transferred agrees, in writing, to be bound by
the decision of the court or arbitrator. We reserve the right to cancel any
transfer of a domain name registration to another holder that is made in
violation of this subparagraph.
b. Changing Registrars. You may not transfer your domain name registration to
another registrar during a pending administrative proceeding brought pursuant to
Paragraph 4 or for a period of fifteen (15) business days (as observed in the
location of our principal place of business) after such proceeding is concluded.
You may transfer administration of your domain name registration to another
registrar during a pending court action or arbitration, provided that the domain
name you have registered with us shall continue to be subject to the proceedings
commenced against you in accordance with the terms of this Policy. In the event
that you transfer a domain name registration to us during the pendency of a
court action or arbitration, such dispute shall remain subject to the domain
name dispute policy of the registrar from which the domain name registration was
transferred.
9. Policy Modifications. We reserve the right to modify this Policy at any time
with the permission of ICANN. WE will post our revised Policy at
http://www.register.com/new-dispute-policy at least thirty (30) calendar days
before it becomes effective. Unless this Policy has already been invoked by the
submission of a complaint to a Provider, in which event the version of the
Policy in effect at the time it was invoked will apply to you until the dispute
is over, all such changes will be binding upon you with respect to any domain
name registration dispute, whether the dispute arose before, on or after the
effective date of our change. In the event that you object to a change in this
Policy, your sole remedy is to cancel your domain name registration with us,
provided that you will not be entitled to a refund of any fees you paid to us.
The revised Policy will apply to you until you cancel your domain name
registration.
Page 17 of 23
<PAGE>
Exhibit B
Policy on Transfer of Sponsorship of Registrations Between Registrars
Registrar Requirements
The registration agreement between each Registrar and its SLD holder
shall include a provision explaining that an SLD holder will be
prohibited from changing its Registrar during the first 60 days after
initial registration of the domain name with the Registrar. Beginning
on the 61st day after the initial registration with the Registrar, the
procedures for change in sponsoring registrar set forth in this policy
shall apply. Enforcement shall be the responsibility of the Registrar
sponsoring the domain name registration.
For each instance where an SLD holder wants to change its Registrar for
an existing domain name (i.e., a domain name that appears in a
particular top-level domain zone file), the gaining Registrar shall:
1) Obtain express authorization from an individual who has the
apparent authority to legally bind the SLD holder (as
reflected in the database of the losing Registrar).
a) The form of the authorization is at the discretion of
each gaining Registrar.
b) The gaining Registrar shall retain a record of
reliable evidence of the authorization.
2) In those instances when the Registrar of record is being
changed simultaneously with a transfer of a domain name from
one party to another, the gaining Registrar shall also obtain
appropriate authorization for the transfer. Such authorization
shall include, but not be limited to, one of the following:
a) A bilateral agreement between the parties.
b) The final determination of a binding dispute
resolution body.
c) A court order.
3) Request, by the transmission of a "transfer" command as
specified in the Registry Registrar Protocol, that the
Registry database be changed to reflect the new Registrar.
a) Transmission of a "transfer" command constitutes a
representation on the part of the gaining Registrar
that:
(1) the requisite authorization has been
obtained from the SLD holder listed in the
database of the losing Registrar, and
(2) the losing Registrar will be provided with a
copy of the authorization if and when
requested.
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<PAGE>
In those instances when the Registrar of record denies the requested
change of Registrar, the Registrar of record shall notify the
prospective gaining Registrar that the request was denied and the
reason for the denial.
Instances when the requested change of sponsoring Registrar may be
denied include, but are not limited to:
1) Situations described in the Domain Name Dispute
Resolution Policy
2) A pending bankruptcy of the SLD Holder
3) Dispute over the identity of the SLD Holder
4) Request to transfer sponsorship occurs within the
first 60 days after the initial registration with the
Registrar
In all cases, the losing Registrar shall respond to the e-mail notice
regarding the "transfer" request within five (5) days. Failure to
respond will result in a default "approval" of the "transfer."
Registry Requirements.
Upon receipt of the "transfer command from the gaining Registrar, the
Registry will transmit an e-mail notification to both Registrars.
The Registry shall complete the "transfer" if either:
1) the losing Registrar expressly "approves" the
request, or
2) the Registry does not receive a response from the
losing Registrar within five (5) days.
When the Registry's database has been updated to reflect the change to
the gaining Registrar, the Registry will transmit an email notification
to both the Registrars.
Records of Registration.
Each SLD holder shall maintain its own records appropriate to document
and prove the initial domain name registration date, regardless of the
number of Registrars with which the SLD holder enters into a contract
for registration services.
Page 19 of 23
<PAGE>
Exhibit C
CONFIDENTIALITY AGREEMENT
THIS CONFIDENTIALITY AGREEMENT is entered into by and between Network
Solutions, Inc. ("NSI"), a Delaware corporation having its principal place of
business in Herndon, VA, and Register.com, Inc., a Delaware corporation having
its principal place of business in 575 8th Avenue, 11th Floor, New York, NY
10018 ("Registrar"), through their authorized representatives, and takes effect
on the date executed by the final party (the "Effective Date").
Under this Confidentiality Agreement ("Confidentiality Agreement"), the
Parties intend to disclose to one another information which they consider to be
valuable, proprietary, and confidential.
NOW, THEREFORE, the parties agree as follows:
1. Confidential Information
1.1. "Confidential Information", as used in this Confidentiality Agreement,
shall mean all information and materials including, without limitation, computer
software, data, information, databases, protocols, reference implementation and
documentation, and functional and interface specifications, provided by the
disclosing party to the receiving party under this Confidentiality Agreement and
marked or otherwise identified as Confidential, provided that if communication
is oral, the disclosing party will notify the receiving party in writing within
15 days of the disclosure.
2. Confidentiality Obligations
2.1. In consideration of the disclosure of Confidential Information, the
Parties agree that:
(a) The receiving party shall treat as strictly confidential, and use
all reasonable efforts to preserve the secrecy and confidentiality of,
all Confidential Information received from the disclosing party,
including implementing reasonable physical security measures and
operating procedures.
(b) The receiving party shall make no disclosures whatsoever of any
Confidential Information to others, provided however, that if the
receiving party is a corporation, partnership, or similar entity,
disclosure is permitted to the receiving party's officers, employees,
contractors and agents who have a demonstrable need to know such
Confidential Information, provided the receiving party shall advise
such personnel of the confidential nature of the Confidential
Information and of the procedures required to maintain the
confidentiality thereof, and shall require them to acknowledge in
writing that they have read, understand, and agree to be individually
bound by the terms of this Confidentiality Agreement.
Page 20 of 23
<PAGE>
(c) The receiving party shall not modify or remove any Confidential
legends and/or copyright notices appearing on any Confidential
Information.
2.2. The receiving party's duties under this section (2) shall expire five
(5) years after the information is received or earlier, upon written agreement
of the Parties.
3. Restrictions On Use
3.1. The receiving party agrees that it will use any Confidential
Information receive under this Confidentiality Agreement solely for the purpose
of providing domain name registration services as a registrar and for no other
purposes whatsoever.
3.2. No commercial use rights or any licenses under any patent, patent
application, copyright, trademark, know-how, trade secret, or any other NSI
proprietary rights are granted by the disclosing party to the receiving party by
this Confidentiality Agreement, or by any disclosure of any Confidential
Information to the receiving party under this Confidentiality Agreement.
3.3. The receiving party agrees not to prepare any derivative works based on
the Confidential Information.
3.4. The receiving party agrees that any Confidential Information which is
in the form of computer software, data and/or databases shall be used on a
computer system(s) that is owned or controlled by the receiving party.
4. Miscellaneous
4.1. This Confidentiality Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia and all applicable
federal laws. The Parties agree that, if a suit to enforce this Confidentiality
Agreement is brought in the U.S. Federal District Court for the Eastern District
of Virginia, they will be bound by any decision of the Court.
4.2. The obligations set forth in this Confidentiality Agreement shall be
continuing, provided, however, that this Confidentiality Agreement imposes no
obligation upon the Parties with respect to information that (a) is disclosed
with the disclosing party's prior written approval; or (b) is or has entered the
public domain through no fault of the receiving party; or (c) is known by the
receiving party prior to the time of disclosure; or (d) is independently
developed by the receiving party without use of the Confidential Information; or
(e) is made generally available by the disclosing party without restriction on
disclosure.
4.3. This Confidentiality Agreement may be terminated by either party upon
breach by the other party of any of its obligations hereunder and such breach is
not cured within three (3) calendar days after the allegedly breaching party is
notified by the disclosing party of the breach. In the event of any such
termination for breach, all Confidential Information in the possession of the
Parties shall be immediately returned to the disclosing party; the receiving
party shall provide full voluntary disclosure to the disclosing party of any and
all unauthorized disclosures and/or unauthorized uses of any Confidential
Information; and the obligations of Sections 2 and 3 hereof shall survive such
termination and remain in full force and effect. In the event that the Registrar
License and Agreement between the Parties is terminated, the Parties shall
immediately
Page 21 of 23
<PAGE>
return all Confidential Information to the disclosing party and the receiving
party shall remain subject to the obligations of Sections 2 and 3.
4.4. The terms and conditions of this Confidentiality Agreement shall inure
to the benefit of the Parties and their successors and assigns. The Parties'
obligations under this Confidentiality Agreement may not be assigned or
delegated.
4.5. The Parties agree that they shall be entitled to seek all available
legal and equitable remedies for the breach of this Confidentiality Agreement.
4.6. The terms and conditions of this Confidentiality Agreement may be
modified only in a writing signed by NSI and Registrar.
4.7. EXCEPT AS MAY OTHERWISE BE SET FORTH IN A SIGNED, WRITTEN AGREEMENT
BETWEEN THE PARTIES, THE PARTIES MAKE NO REPRESENTATIONS OR WARRANTIES,
EXPRESSED OR IMPLIED, AS TO THE ACCURACY, COMPLETENESS, CONDITION, SUITABILITY,
PERFORMANCE, FITNESS FOR A PARTICULAR PURPOSE, OR MERCHANTABILITY OF ANY
CONFIDENTIAL INFORMATION, AND THE PARTIES SHALL HAVE NO LIABILITY WHATSOEVER TO
ONE ANOTHER RESULTING FROM RECEIPT OR USE OF THE CONFIDENTIAL INFORMATION.
4.8. If any part of this Confidentiality Agreement is found invalid or
unenforceable, such part shall be deemed stricken herefrom and the Parties
agree: (a) to negotiate in good faith to amend this Confidentiality Agreement to
achieve as nearly as legally possible the purpose or effect as the stricken
part, and (b) that the remainder of this Confidentiality Agreement shall at all
times remain in full force and effect.
4.9. This Confidentiality Agreement contains the entire understanding and
agreement of the Parties relating to the subject matter hereof.
4.10. Any obligation imposed by this Confidentiality Agreement may be waived
in writing by the disclosing party. Any such waiver shall have a one-time effect
and shall not apply to any subsequent situation regardless of its similarity.
4.11. Neither Party has an obligation under this Confidentiality Agreement to
purchase, sell, or license any service or item from the other Party.
4.12. The Parties do not intend that any agency or partnership relationship
be created between them by this Confidentiality Agreement.
Page 22 of 23
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound, duly authorized
representatives of NSI and Registrar have executed this Confidentiality
Agreement in Virginia on the dates indicated below.
[Registrar] Register.com, Inc. Network Solutions, Inc. ("NSI")
By: /s/ By: /s/
---------------------------- ---------------------------------
Title: President & CEO Title: Director, Customer Affairs
Date: December 8, 1999 Date: 12/13/99
Page 23 of 23
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated December 17, 1999 relating to the financial statements and
financial statement schedule of Register.com, Inc., which appears in such
Registration Statement. We also consent to the references to us under the
headings "Experts" and "Selected Financial Data" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
New York, New York
December 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 1,284,648 33,514,527
<SECURITIES> 0 0
<RECEIVABLES> 133,456 1,460,228
<ALLOWANCES> (65,947) (205,833)
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,356,082 39,628,119
<PP&E> 412,797 2,472,860
<DEPRECIATION> (188,497) (464,944)
<TOTAL-ASSETS> 180,786 43,124,904
<CURRENT-LIABILITIES> 786,466 14,876,962
<BONDS> 0 0
0 0
0 134
<COMMON> 494 595
<OTHER-SE> 822,286 22,435,537
<TOTAL-LIABILITY-AND-EQUITY> 1,611,025 43,124,904
<SALES> 0 0
<TOTAL-REVENUES> 1,319,359 4,455,404
<CGS> 461,152 1,421,562
<TOTAL-COSTS> 2,085,514 11,235,972
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 66,559 419,066
<INCOME-PRETAX> (1,160,748) (7,783,064)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,160,748) (7,783,064)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,160,748) (7,783,064)
<EPS-BASIC> (.26) (1.48)
<EPS-DILUTED> (.26) (1.48)
</TABLE>
<PAGE>
Consent of Director Nominee
I, Reginald Van Lee, do hereby consent to be named as a Director
Nominee in the Registration Statement on Form S-1, and any and all amendments to
said registration statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, to be filed by Register.com, Inc. (the "Company") with the
Securities and Exchange Commission covering the offer and sale of common stock
for the account of the Company to the public.
Date: December 22, 1999 /s/ Reginald Van Lee
-------------------------
Reginald Van Lee
