<PAGE>
As filed with the Securities and Exchange Commission on February 28, 2000.
Registration No. 333-93533
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment
No. 3 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
Register.com, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 7379 11-3239091
<S> <C> <C>
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification number)
</TABLE>
---------------
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 Four Times Square
1633 Broadway, 47th Floor New York, NY 10036
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>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==============================================================================================
Proposed Maximum
Title of Each Class of Aggregate Amount of
Securities to be Registered Offering Price (1) Registration Fee (2)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
Common stock, par value $0.0001 per share ...... $97,750,000 $25,806
==============================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o).
(2) Previously paid.
---------------
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.
================================================================================
<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 February 28, 2000
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
Register.com, Inc.
5,000,000 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 $15.00 and
$17.00 per share.
We have applied 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 8.
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 $ $
Proceeds, before expenses, to selling
stockholders $ $
The underwriters have the right to purchase up to an additional 750,000 shares
from us and the selling stockholders at the public offering price within 30
days from the date of this prospectus to cover over-allotments. We will not
receive any of the proceeds from the sale of shares by the selling
stockholders.
Deutsche Banc Alex. Brown Thomas Weisel Partners LLC
Legg Mason Wood Walker
Incorporated
Wit SoundView _________
The date of this prospectus is , 2000.
<PAGE>
[Inside Front Cover]
Internet screen shot of Register.com home page.
"Value-Added Products and Services" above six button links for online products
and services featured on the Register.com website.
"Co-Branded Websites" above the register.com and Net Objects logo taken from a
co-branded website.
<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 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 registering
a domain name is one of the first steps for individuals and businesses seeking
to establish an online identity. We believe that we offer a quick and
user-friendly registration process and responsive and reliable customer
support. We also offer a suite of value-added products and services targeted to
assist our customers in developing and maintaining their online identities,
including:
<TABLE>
<CAPTION>
Products and Services Products and Services
Provided by Us Provided by Others
<S> <C>
o domain name forwarding, which o email
allows customers to forward traffic
from their domain names to other
Internet addresses
o maintaining, storing and connecting
o real-time domain name management, websites to the Internet, also
which allows customers to view known as web hosting
online and change, on an
instantaneous basis, domain name o website-creation tools
information
</TABLE>
Our goal is to become a one-stop resource through which our customers will
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 domains directly on
behalf of customers. For the three months ended December 31, 1999, we
registered approximately 308,000 domain names in these domains, representing an
increase of 94% over the approximately 159,000 domain names we registered in
these domains for the three months ended September 30, 1999.
We face a number of risks that you should consider before you decide to
buy our common stock. These risks, which are set forth in greater detail in
"Risk Factors," include, among other things, that we have never been profitable
and anticipate incurring additional losses in the foreseeable future; that our
accumulated losses totaled $12.2 million as of December 31, 1999 and that,
following the consummation of the offering, our existing stockholders will hold
approximately 84% of our outstanding common stock and will be able to control
the election of directors and all other matters requiring stockholder approval.
In addition, we face substantial competition from Network Solutions in
particular and in the industry in general. Based on its press release dated
February 10, 2000, Network Solutions registered 1.6 million net new
registrations in the .com, .net and .org domains for the three
3
<PAGE>
months ended December 31, 1999, representing approximately 71% of new
registrations in these domains for the period. As of February 26, 2000, Network
Solutions and 27 other registrars, not including us, were registering domain
names in these domains. An additional 62 registrars have been accredited to
register but are not yet registering domain names, and 18 registrars have
qualified to register domain names but have not yet signed the agreements
required for registering domain names, in the .com, .net and .org domains.
We derive our revenues from domain name registration fees, online products
and services and advertising. Our net revenues increased 137% from $2.2 million
for the three months ended September 30, 1999 to $5.2 million for the three
months ended December 31, 1999. Our cost of revenues increased 51% from $1.1
million for the three months ended September 30, 1999 to $1.7 million for the
three months ended December 31, 1999. Our net loss decreased 61% from $2.5
million for the three months ended September 30, 1999 to $1.0 million for the
three months ended December 31, 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 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, based on our internal calculations.
Our Solution
Registration Services. Our core expertise is providing domain name
registration services. Domain names are generally classified according to
industry custom either as "generic" for the .com, .net, .org, .gov, .edu and
.mil domains or as "country code" if they are associated with a particular
country. In addition, the domain name system is organized according to industry
custom by levels so that, for example, in the domain name mybrand.com, .com is
the top level domain and mybrand is the second level domain. We register domain
names in the .com, .net and .org generic domains and are able to register
domain names in over 140 country code domains, of which 26 may currently be
registered directly through our www.register.com website.
In addition, through a dedicated team of account managers, our Corporate
Services department which targets the needs of corporate customers provides
domain name registration and other services, 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.
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
4
<PAGE>
directly to our customers through our www.register.com website as well as
through our Corporate Services department. 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. A co-brand network participant offers our domain name
registration services through a website similar in appearance to our
www.register.com website, but branded with the participant's and our logos. A
customer typically accesses a co-brand website through the participant's home
page. A co-brand website also typically provides links back to the
participant's website to facilitate the sale of products and services by the
participant. A private label network participant offers our domain name
registration and other services through a website of its own design but the
actual domain name registrations are processed through our systems. Private
label websites may also include the language "powered by register.com."
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, including website applications
that enable electronic commerce and other business services;
o enhancing awareness of our brand;
o extending our distribution channels;
o expanding our Corporate Services department;
o pursuing strategic acquisitions;
o offering names in additional 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 23, 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.
5
<PAGE>
The Offering
<TABLE>
<CAPTION>
<S> <C>
Common stock offered by Register.com ...................... 5,000,000 shares
Common stock to be outstanding after the offering ......... 30,759,380 shares
Use of proceeds ........................................... We plan to use the proceeds from
this offering for marketing, capital
expenditures, working capital,
acquisitions, strategic investments and
general corporate purposes. Please
see "Use of Proceeds."
Proposed Nasdaq National Market symbol .................... RCOM
</TABLE>
The foregoing information is based on the shares outstanding as of
December 31, 1999. The total number of shares of common stock that we assume
will be outstanding after the offering excludes:
o 1,750 shares of common stock issued upon the exercise of stock options
between January 1, 2000 and February 28, 2000.
o 4,353,286 shares of common stock issuable upon the exercise of stock
options outstanding as of February 28, 2000, with a weighted average
exercise price of $7.50 per share;
o 594,396 shares of common stock issuable upon exercise of stock options
outstanding as of February 28, 2000, with an exercise price equal to the
initial public offering price of our common stock;
o 4,185,568 shares of common stock available for issuance under our stock
option plans for options not yet granted;
o 350,000 shares reserved for issuance under our employee stock purchase
plan; and
o 6,155,675 shares of common stock issuable upon exercise of outstanding
warrants with a weighted average exercise price of $1.50 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.
All share numbers in this prospectus have been adjusted to reflect
3.5-for-1 stock splits of our common stock and preferred stock effected in
January 2000 as stock dividends.
6
<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 1999
-------------- ---------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues ..................... $ 87,696 $ 868,018 $ 713,263 $ 1,319,359 $ 9,644,552
Gross profit ..................... 75,297 525,878 521,724 858,207 6,562,053
Operating expenses:
Sales and marketing ............ 166,330 935,495 366,975 863,720 7,149,693
Research and development ....... 102,901 390,814 71,471 276,687 1,767,158
General and administrative
(exclusive of non-cash
compensation ) ................ 94,704 743,609 263,017 795,425 2,380,190
Non-cash compensation .......... -- -- -- 149,682 4,929,200
---------- ------------ ---------- ------------ ------------
Total operating expenses ...... 363,935 2,069,918 701,463 2,085,514 16,226,241
Net loss ......................... $ (288,638) $ (1,714,076) $ (205,526) $ (1,160,748) $ (8,776,918)
========== ============ ========== ============ ============
Basic and diluted net loss per
share .......................... $ (0.07) $ (0.26) $ (0.02) $ (0.07) $ (0.46)
========== ============ ========== ============ ============
Weighted average common
shares used in basic and
diluted net loss per share ..... 4,429,859 6,633,905 8,884,709 15,697,013 19,117,027
========== ============ ========== ============ ============
Pro forma basic and diluted net
loss per share ................. $ (0.40)
============
Weighted average shares used
in pro forma basic and
diluted net loss per share ..... 22,112,252
============
</TABLE>
The following table is a summary of our balance sheet at December 31,
1999. The pro forma data give effect to the conversion of each outstanding
share of preferred stock into one share of common stock and the pro forma as
adjusted data reflect the sale of 5,000,000 shares of common stock offered
hereby at an assumed initial public offering price of $16.00 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses payable by us.
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------------- -------------- ---------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ......... $40,944,122 $40,944,122 $114,144,122
Working capital ................... 29,813,357 29,813,357 103,013,357
Total assets ...................... 68,336,046 68,336,046 141,146,046
Total deferred revenue ............ 32,101,232 32,101,232 32,101,232
Total liabilities ................. 46,423,191 46,423,191 46,033,191
Stockholders' equity .............. 21,912,855 21,912,855 95,112,855
</TABLE>
7
<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 as a
domain name registrar 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 company operating in a newly competitive
and rapidly evolving industry, we face risks and uncertainties relating to our
ability to implement our business plan successfully. 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 incurred net losses of approximately
$1.2 million for the year ended December 31, 1998 and $8.8 million for the year
ended December 31, 1999. As of December 31, 1999, our accumulated losses
totaled $12.2 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 1999, we expect to incur additional
losses for the foreseeable future, primarily due to an increase in our
marketing expenses to build our brand, which we expect to exceed $25.0 million
in 2000, and our capital expenditures, which we expect to exceed $10.0 million
in 2000. These losses are expected to increase significantly from current
levels, which in turn will increase our accumulated losses. We cannot assure
you that we will become profitable or, if we become profitable, that we will be
able to sustain or increase our profitability in the future.
Our earnings will decrease because of stock-based compensation that we have
incurred.
Non-cash compensation expenses are related to grants of common stock, stock
options and warrants made to employees, directors, consultants and vendors. In
1999, we recorded a $4.9 million non-cash compensation charge. Based principally
on grants of common stock, stock options and warrants made to date, we will
record approximately $6.4 million of non-cash compensation through 2003 as
follows: $2.2 million in 2000, $1.8 million in each of 2001 and 2002 and
$639,000 in 2003. These charges will reduce our earnings in future periods.
8
<PAGE>
We cannot predict with any certainty the effect that new governmental and
regulatory policies, or industry reactions to those policies, will have on our
business.
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. We cannot assure you that any future measures adopted by
the Department of Commerce or ICANN will benefit us or that they will not
materially harm 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. We face significant
competition from Network Solutions as we seek to increase our overall share of
the market for domain name registration services, and we cannot assure you that
we will be able to maintain or improve our competitive position. Based on its
press release dated February 10, 2000, Network Solutions registered 1.6 million
net new registrations in the .com, .net and .org domains for the three months
ended December 31, 1999, representing approximately 71% of all new registrations
for the period. For a more detailed discussion of the introduction of
competition into the domain name registration services industry, see "Business--
Administration of the Internet; Government Regulation and Legal Uncertainties."
Network Solutions' exclusive control over the registry for the .com, .net
and .org domains has given it an advantage over all competitive registrars.
The Internet domain name registration system is composed of two principal
functions: registry and registrar. Registries maintain the database that
contain names registered within the top level domains and their corresponding
Internet protocol addresses. Registrars act as intermediaries between the
registry and individuals and businesses, referred to as registrants, seeking to
register domain names. 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. Registrars other than Network Solutions are known in
the industry as "competitive registrars." As the exclusive registry for these
domains, Network Solutions receives from us, and every other competitive
registrar, $6 per domain name per year. Although registry fees
9
<PAGE>
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.
If Network Solutions sells the registry for the .com, .net and .org
domains and uses the proceeds to fund its registrar business or related product
and service offerings, it will have a substantial competitive advantage over
all competitive registrars.
The agreements among Network Solutions, ICANN and the U.S. Department of
Commerce 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 the use of these proceeds to finance Network Solutions' registrar
business 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.
Competition in the domain name registration services industry will
intensify as the number of entrants into the market increases.
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. As of February 26, 2000, ICANN had
accredited 91 competitive registrars, including us, to register domain names in
the .com, .net and .org domains. As of February 26, 2000, 27 of these
competitive registrars were registering domain names, and the other 62, while
accredited, had not begun registering domain names, in the .com, .net and .org
domains. An additional 18 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 that are 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.
We face competition from other competitive registrars and others in the
domain name registration industry who may have longer operating histories,
greater name recognition or greater resources.
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 market position 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. Also, as a result of increased competition, our
period-over-period growth rates may decline.
10
<PAGE>
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 Network Solutions, and its ability to adapt to an
expanding market for domain name registrations. As of February 26, 2000, there
were 29 registrars, including us and Network Solutions, registering domain names
through the Shared Registration System. The 62 other accredited registrars and
the 18 registrars that have qualified for accreditation but not yet signed the
requisite agreements 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.
Our business will be materially harmed if in the future the administration and
operation of the Internet no longer relies upon the existing domain name
system.
The Internet is expected to continue to develop at a rapid rate. This
development may include changes in the administration or operation of the
Internet, which could include the creation and institution of alternate systems
for directing Internet traffic without the use of the existing domain name
system. While we are not aware of any alternative systems currently in use or
being developed widespread acceptance of any 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.
Competition in the domain name registration industry could force us to reduce
our prices for our products and services and would negatively impact our
results of operations.
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 results of operations.
If our customers do not renew their domain name registrations through us, and
we fail to replace their business or develop alternative sources of revenue,
our business, financial condition and results of operations would be materially
adversely affected.
The growth of our business depends in part on our customers' renewal of
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.
If we fail to become accredited to offer domain names in additional generic top
level domains that may be introduced, or our customers turn to other registrars
for these registration needs, our business, financial condition and results of
operations would be materially adversely affected.
ICANN or another approving entity may introduce new generic top level
domains, such as .web, .firm and .store. We cannot assure you that, if
introduced, we will be accredited to offer
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registrations in these domains or that customers will rely on us to provide
registration services within any new generic top level domains. Our business,
financial condition and results of operations would be materially adversely
affected if substantial numbers of our customers turn 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.
If our customers do not find our expanded product and service offerings
appealing, among other things, we may remain dependent on domain name
registrations as a primary source of revenue and our net revenues may fall
below anticipated levels.
Part of our long-term strategy includes diversifying our revenue base by
offering value-added products and services, including website applications that
enable electronic commerce and other business services, to our customers. We
expect to incur significant costs in acquiring, developing and marketing these
new products and services. Domain name registration services generated
approximately 46% of our net revenues during the year ended December 31, 1999
and we expect it to account for an increasing percentage of our revenues in
future periods. If we fail to offer products and services that meet our
customers' needs, or our customers elect not to purchase our products and
services, our anticipated net revenues may fall below expectations, we may not
generate sufficient revenue to offset these related costs and we will remain
dependent on domain name registrations as a primary source of revenue.
Our failure to establish and maintain online business relationships that
generate a significant amount of traffic could limit the growth of our
business.
We expect that in the future approximately 15% of our customers will
purchase their domain name registrations through our network of co-brand and
private label websites comprising our indirect distribution channel. We
currently have contractual agreements with participants in this network, and 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
network relationships and our net revenues may decrease or not grow. In
addition, we plan to expand our network of co-brand and private label websites.
Our net revenues may suffer if we fail to expand or maintain our network or if
our network does not result in a number of new customers sufficient to justify
the cost.
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 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, 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. In 1999, our number of full-time employees grew from
approximately 33 to approximately 122. 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
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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 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, our business may be harmed.
Our success depends in large part on the contributions of our senior
management team and technology personnel and in particular Richard D. Forman,
our President and Chief Executive Officer. 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. In addition,
although we maintain employment agreements with Mr. Forman and Jack S. Levy,
our General Counsel, we have not in the past executed, and do not have any
current plans to execute, employment agreements with our other employees. As a
result, we may be unable to retain our employees or attract, integrate, train
and retain other highly qualified employees in the future. 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 will suffer if we fail to build awareness of our brand name.
Building recognition of our brand is critical to attracting additional
traffic and customers to our website, new business alliances, acquisition
candidates, advertisers and employees. 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 advertising and promotional programs and activities. These
expenditures may not result in an increase in net revenues sufficient 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
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:
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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 make suitable acquisitions and strategic investments, our
long-term growth strategy could be impeded.
Our long-term growth strategy includes identifying and, from time to time,
acquiring or investing in suitable candidates on acceptable terms. In
particular, we intend to acquire or make strategic investments in providers of
product offerings that complement our business and other companies in the
domain name registration industry. 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 long-term growth strategy 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.
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 currently have agreements with approximately ten
international ISPs who
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participate in our network of co-brand websites. In order to increase our
product and service offerings in the growing international Internet market, we
intend to increase the number of our business alliances with non-U.S. ISPs and
pursue the creation of local language websites. This international expansion
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. As we expand into
international markets, we anticipate facing the following challenges:
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; and
o fluctuations in currency exchange rates.
If we fail to comply with the regulations of the country code registries or are
unable to register domain names with those registries, our business would be
materially adversely affected.
Each of the country code registries requires 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 will likely prohibit us from registering or
continuing to register names in their country codes. Further, in most cases,
our rights to provide country code domain name registration services are not
governed by written contract. In the case of our written contracts, there is
uncertainty as to what law may govern. As a result, we cannot be certain that
we will continue to be able to register domain names in the country code
domains we currently offer. Any restrictions on our ability to offer 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 cease operations or otherwise fail to process
registrations or related information accurately, we would be unable to honor
our subscriptions relating to those country codes.
Country code registries may be administered by the host country,
entrepreneurs or other third parties. If these registry businesses cease
operations or otherwise fail to process domain name registrations or the
related information in country code domains, we would be unable to honor the
subscriptions of registrants who have registered, or are in the process of
registering, domain names in the applicable country code domain. If we are
unable to honor a substantial number of subscriptions for our customers for any
reason, our business, financial condition and results of operations would be
materially adversely affected.
We are restricted from entering into agreements with web-hosting service
providers as a result of an agreement we have with Concentric Network
Corporation.
As part of our marketing and distribution agreement with Concentric
Network Corporation, we have agreed that no more than three service providers,
one of which must be
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Concentric, may market, advertise or otherwise promote their web-hosting
services on our website. This agreement expires on December 31, 2000 and may be
renewed by the parties for an additional year. Accordingly, we are severely
restricted in our ability to enter agreements with other providers of these
services.
We cannot assure you that our standard registration agreement will be
enforceable.
All of our customers must execute our standard registration agreement as
part of the process of registering a domain name. This agreement contains a
number of provisions intended to limit our potential liability arising from our
registration of domain names for our customers including liability resulting
from our failure to register or maintain domain names. As most of our customers
register their domain names online, execution of the registration agreement by
these customers occurs electronically. If a court were to find that our
registration agreement is unenforceable, we could be subject to liability that
could have a materially adverse effect on our business, financial condition or
results of operations.
If we fail to register or maintain the domain names that we process on behalf
of our customers, we may become the subject of negative publicity, which could
have a material adverse effect on our business.
Clerical errors or systems failures, including failures of the Shared
Registration System, could result in our failure to properly register or to
maintain the registration of domain names that we process on behalf of our
customers. If we fail to properly register or to maintain the registration of
our customers' domain names, we could become the subject of negative publicity,
which could have a material adverse effect on our business.
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, including software and applications and trademarks, and other
intellectual property to the extent that protection is sought or secured at
all. We do not have 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
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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 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
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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.
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 business alliances may become dissatisfied
with our products and services due to interruptions in access to our website.
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. We have conducted planned site
outages and experienced unplanned site outages with minimal impact on our
business. Currently, our systems operate, on average, at approximately 50%
capacity. If we were to experience a substantial increase in traffic and fail
to increase our capacity, our customers would experience slower response times
or disruptions in service. Our customers, advertisers and business 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 and could
cause our customers, advertisers and business alliances to switch to another
domain name registration service provider.
Our customers, advertisers and business alliances may become dissatisfied
with our products and services due to interruptions in our access to the Shared
Registration System or country code registries.
We depend on the Shared Registration System and country code registries to
register domain names on behalf of our customers. We have in the past
experienced problems with the Shared Registration System, including outages,
particularly during its implementation phase. Any significant outages in the
Shared Registration System or country code registries would prevent us from
delivering or delay our delivery of our services to our customers. Prolonged or
repeated interruptions in our access to the Shared Registration System or
country code registries could cause our customers, advertisers and business
alliances to switch to another domain name registration service provider.
Delays or systems failures unrelated to our systems could harm our
business.
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,
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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.
Our business would be materially harmed if our computer systems become
damaged.
Our network and communications systems are located at Exodus
Communications' hosting facility in Jersey City, New Jersey and Globix
Corporation's hosting facility in New York, New York. We are currently adding
network capacity to our systems located at Globix Corporation's New York, New
York hosting facility to make our systems geographically redundant. Although we
plan to complete this project by the end of the second quarter of 2000, we
cannot assure you that our systems will be geographically redundant by this
time. 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 damage to our systems would have a
material adverse effect on our business, financial condition and results of
operations.
Our ability to deliver our products and services and our financial condition
depend on our ability to license third-party software, systems and related
services on reasonable terms from reliable parties.
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.
Failure by our third-party provider of credit card processing services to
process payments in a timely fashion will have a negative effect on our
business.
Under the terms of our accreditation agreement with ICANN, we are required
to obtain a reasonable assurance of payment of registration fees prior to
registering or renewing domain names. To satisfy this requirement, we have
engaged Cybersource to process credit card payments for our individual
customers. Therefore, if Cybersource or its system fails for any reason to
process credit card payments in a timely fashion, we may not be in compliance
with ICANN's requirement and as a result may not be allowed to process domain
name registrations. In addition, the domain name reservation process will be
delayed and customers may be unable to obtain their desired domain name.
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;
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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 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 32% of our net revenues for the year ended December 31, 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 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. 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;
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o pricing controls;
o characteristics and quality of products and services;
o consumer protection;
o cross-border commerce;
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
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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 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 $73.2
million, assuming an initial public offering price of $16.00 per share after
deducting underwriting discounts and estimated offering expenses. Other than
our 2000 marketing and capital expenditure plans, 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 principal stockholders own enough of our
shares to control Register.com, which will limit your ability to influence
corporate matters.
Our directors, executive officers and principal stockholders currently
beneficially own approximately 88.5% of our common stock and, after the
offering, will beneficially own approximately 78.2% 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 January 31, 2000, from time to time after
this offering, a total of 26,880 and 23,245,177 shares of common stock may be
sold in the public market by existing stockholders 90 days and 180 days,
respectively, after the date of this prospectus, subject to applicable volume
and other limitations imposed under federal securities laws. The 180-day
restriction on resales is the result of lock-up agreements with our
underwriters for this offering. Deutsche Bank Securities may release, in its
sole discretion, all or any portion of the securities subject to the 180-day
lock-up agreements prior to the expiration of their term. Deutsche Bank
Securities may waive these restrictions at our request or upon the request of a
stockholder. In evaluating whether to grant such a request, Deutsche Bank
Securities may consider a number of factors with a view toward maintaining an
orderly market for, and minimizing volatility in the market price of, our
common stock. These factors include, among others, the number of shares
involved, recent trading volume and prices of the stock, the length of time
before the lock-up expires and the reasons for, and the timing of, the request.
In addition, existing stockholders owning an aggregate of 29,894,846
shares of common stock and common stock issuable upon the exercise of
outstanding options and warrants have
22
<PAGE>
the right to require us to register their shares under the Securities Act. If
we register these shares, they can be sold in the public market. 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, our
amended and restated bylaws and Delaware law could delay or prevent a change of
control or change in management that would provide stockholders with a premium
to the market price of their common stock. The authorization of undesignated
preferred stock, for example, 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.
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
$13.19 per share, based on an assumed initial offering price of $16.00. 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.
23
<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 $73.2 million, assuming an
initial public offering price of $16.00 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 $76.3 million.
We plan to use the proceeds from this offering for marketing, capital
expenditures, working capital, acquisitions, strategic investments (where we
acquire less than a controlling interest) in companies whose businesses,
products or services complement our own and general corporate purposes. We
intend to spend over $25.0 million in 2000 on advertising and promotional
programs and activities and over $10.0 million in 2000 for capital
expenditures, including expenditures for servers, co-location equipment and
other hardware and software necessary to support our registration systems. As
of the date of this prospectus, we have not made any other specific expenditure
plans with respect to the proceeds of this offering. Therefore, we cannot
specify with certainty the particular uses for the remaining 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. In
addition, as part of our overall acquisition and investment strategy, we are
currently engaged in discussions with respect to a possible $3.5 million equity
investment in a developer of website applications.
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.
24
<PAGE>
CAPITALIZATION
The following table shows our capitalization as of December 31, 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
$16.00 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>
December 31, 1999
----------------------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
--------------- --------------- ----------------
<S> <C> <C> <C>
Capital lease obligations ...................... $ 33,825 $ 33,825 $ 33,825
----------- ----------- -----------
Stockholders' equity:
Preferred Stock, $.0001 par value; 5,000,000
shares authorized:
Series A Convertible Preferred Stock;
5,000,000 shares authorized; 4,694,333
shares issued and outstanding (actual);
no shares issued or outstanding (pro
forma and pro forma as adjusted) .......... 469 -- --
Common Stock, $.0001 par value;
60,000,000 shares authorized; 21,065,047
shares issued and outstanding (actual);
25,759,380 shares issued and outstanding
(pro forma); 30,759,380 shares issued and
outstanding (pro forma as adjusted) ......... 2,106 2,575 3,075
Additional paid-in capital ................... 36,709,821 36,709,821 109,909,321
Unearned compensation ........................ (2,647,770) (2,647,770) (2,647,770)
Accumulated deficit .......................... (12,151,771) (12,151,771) (12,151,771)
----------- ----------- -----------
Total stockholders' equity .................. 21,912,855 21,912,855 95,112,855
----------- ----------- -----------
Total capitalization ...................... $21,946,680 $21,946,680 $95,146,680
=========== =========== ===========
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999. It does
not include:
o 1,750 shares of common stock issued upon the exercise of stock options
between January 1, 2000 and February 28, 2000;
o 4,353,286 shares of common stock issuable upon the exercise of stock
options outstanding as of February 28, 2000, with a weighted average
exercise price of $7.50 per share;
o 594,396 shares of common stock issuable upon the exercise of stock
options outstanding as of February 28, 2000, with an exercise price equal
to the initial offering price of our common stock;
o 4,185,568 shares of common stock available for issuance under our stock
option plans for options not yet granted;
o 350,000 shares reserved for issuance under our employee stock purchase
plan; and
o 6,155,675 shares of common stock issuable upon exercise of outstanding
warrants with a weighted average exercise price of $1.50 per share.
25
<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 December 31, 1999 was $12.9
million or $0.50 per share, based on 25,759,380 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 December 31,
1999 would be $86.5 million or $2.81 per share or if the underwriters exercise
their over-allotment option in full, $89.6 million or $2.90 per share. This
represents an immediate increase in pro forma net tangible book value of $2.31
per share to existing stockholders or $2.40 per share if the underwriters
exercise their over-allotment option in full, and an immediate dilution of
$13.19 per share or, if the underwriters exercise their over-allotment option
in full, $13.10 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 ........................... $ 16.00
Pro forma net tangible book value per share at December 31, 1999 .......... $ 0.50
Increase in pro forma net tangible book value per share attributable to
this offering ........................................................... 2.31
------
Pro forma net tangible book value per share after this offering ........... 2.81
-------
Dilution per share to new investors ....................................... $ 13.19
=======
</TABLE>
The following table shows on a pro forma basis at December 31, 1999, after
giving effect to the conversion of all outstanding shares of our preferred
stock into an aggregate of 4,694,333 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>
Existing stockholders (1) ......... 25,759,380 83.7% $ 28,809,799 26.5% $ 1.12
New investors ..................... 5,000,000 16.3 80,000,000 73.5 16.00
---------- ----- ------------ -----
Total (1) ....................... 30,759,380 100.0% $108,809,799 100.0%
========== ===== ============ =====
</TABLE>
If the underwriters exercise their over-allotment option in full, the
number of shares of common stock held by existing stockholders will be reduced
to 25,231,659 or 81.4% of the total number of shares of common stock to be
outstanding after this offering. The average price per share for existing
stockholders would increase to $1.14. In addition, the number of shares of
common stock held by new investors will be increased to 5,750,000, or 18.6% of
the total number of shares of common stock to be outstanding after this
offering.
- -------------
(1) The above information is based on shares outstanding as of December 31,
1999. It excludes:
o 1,750 shares of common stock issued upon the exercise of stock options
between January 1, 2000 and February 28, 2000;
o 4,353,286 shares of common stock issuable upon the exercise of stock
options outstanding as of February 28, 2000, with a weighted average
exercise price of $7.50 per share;
26
<PAGE>
o 594,396 shares of common stock issuable upon the exercise of stock
options outstanding as of February 28, 2000, with an exercise price equal
to the initial offering price of our common stock.
o 4,185,568 shares of common stock available for issuance under our stock
option plans for options not yet granted;
o 350,000 shares reserved for issuance under our employee stock purchase
plan; and
o 6,155,675 shares of common stock issuable upon exercise of outstanding
warrants with a weighted average exercise price of $1.50 per share.
To the extent that any of these stock options or warrants are exercised,
new investors will experience further dilution.
27
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data below as of December 31, 1998 and 1999 and for
the years ended December 31, 1997, 1998 and 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 as of December 31, 1997 have been derived from our audited financial
statements not included in this prospectus. The selected financial data below
as of and for the years ended December 31, 1995 and 1996 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 1999
------------- --------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues ......................... $ 87,696 $ 868,018 $ 713,263 $ 1,319,359 $ 9,644,552
Cost of revenues ..................... 12,399 342,140 191,539 461,152 3,082,499
---------- ------------ ---------- ------------ ------------
Gross profit ......................... 75,297 525,878 521,724 858,207 6,562,053
Operating expenses:
Sales and marketing ................ 166,330 935,495 366,975 863,720 7,149,693
Research and development ........... 102,901 390,814 71,471 276,687 1,767,158
General and administrative
(exclusive of non-cash
compensation) ..................... 94,704 743,609 263,017 795,425 2,380,190
Non-cash compensation .............. -- -- -- 149,682 4,929,200
---------- ------------ ---------- ------------ ------------
Total operating expenses ........... 363,935 2,069,918 701,463 2,085,514 16,226,241
---------- ------------ ---------- ------------ ------------
Loss from operations ................. (288,638) (1,544,040) (179,739) (1,227,307) (9,664,188)
Other income (expenses), net ......... -- (170,036) (25,787) 66,559 887,270
---------- ------------ ---------- ------------ ------------
Net loss ............................. $ (288,638) $ (1,714,076) $ (205,526) $ (1,160,748) $ (8,776,918)
========== ============ ========== ============ ============
Basic and diluted net loss per
share .............................. $ (0.07) $ (0.26) $ (0.02) $ (0.07) $ (0.46)
========== ============ ========== ============ ============
Weighted average shares used
in basic and diluted net loss
per share .......................... 4,429,859 6,633,905 8,884,709 15,697,013 19,117,027
========== ============ ========== ============ ============
Pro forma basic and diluted net
loss per share ..................... $ (0.40)
============
Weighted average shares used
in pro forma basic and
diluted net loss per share ......... 22,112,252
============
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ------------- --------------- ------------- --------------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents .............. $226,995 $ 21,074 $ 60,845 $1,284,684 $40,944,122
Working capital (deficiency) ........... 179,345 (949,383) (1,131,173) 569,616 29,813,357
Total assets ........................... 260,002 141,774 180,786 1,611,025 68,336,046
Total deferred revenues ................ -- -- 32,038 113,527 32,101,232
Total liabilities ...................... 147,451 1,002,920 1,243,457 788,245 46,423,191
Stockholders' equity (deficit) ......... 112,551 (861,146) (1,062,671) 822,780 21,912,855
</TABLE>
28
<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 provider of Internet domain name registration services worldwide.
Domain names serve as part of the infrastructure for Internet communications
and registering a domain name is one of the first steps for individuals and
businesses seeking to establish an online identity. We believe that we offer a
quick and user-friendly registration process and responsive and reliable
customer support. We also offer a suite of value-added products and services
targeted to assist our customers in developing and maintaining their online
identities, including:
Products and Services Products and Services
Provided by Us Provided by Others
o domain name forwarding o email
o web hosting
o real-time domain name management, o website-creation tools
Our goal is to become a one-stop resource through which our customers will
establish, maintain and enhance their presence on the Internet.
We are the successor by merger to Forman Interactive Corp. Forman
Interactive commenced operations in 1994 as 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
reduced by referral commissions and a provision for credit card chargebacks. We
currently earn registration fees in connection with new registrations and
transferred registrations. We pay referral 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. From
June 1999 until January 14, 2000, we offered 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. As of January 15, 2000, we have supplemented
our registration period offerings to include one-, five- and ten-year
registration periods for both initial and renewal domain name registrations in
the .com, .net, and .org domains. For our .com, .net and .org domain names, we
currently charge $35 for a one-year registration, $70 for a two-year
registration, $159 for a five-year registration and $299 for a ten-year
registration. For our country code domains, we currently charge approximately
$40 to $299 for one- or two-year registrations. We intend to charge the same
rates for renewals as we do for corresponding initial registration periods.
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.
29
<PAGE>
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 Services department,
we establish lines of credit based on credit worthiness, thereby reasonably
assuring payment.
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 have shifted our business model, and have chosen to direct our
resources, toward our domain name registration business and not toward our own
web-hosting business. As such, while we continue to offer our own web-hosting
services, we do not actively promote this service and, therefore, do not
anticipate significant revenue growth from our own web-hosting service in
future periods. We intend, however, to continue actively promoting web-hosting
services provided by third parties.
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 paid a $9 per year registry fee for each .com, .net and
.org domain name registration. This fee has been 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,
30
<PAGE>
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. In addition to the $4.9 million non-cash compensation
charge taken in 1999, we will be recording $2.2 million in non-cash
compensation charges in 2000, $1.8 million in each of 2001 and 2002, and
$639,000 in 2003. These charges primarily relate to the issuance through
February 2000 of employee stock options having exercise prices below fair
market value on the date of grant.
Net Losses
We have incurred annual and quarterly losses from our operations since our
inception, and we expect to incur operating losses on both an annual and
quarterly basis for the foreseeable future. We have incurred significant net
losses in the past and expect these losses to continue to increase from current
levels as we grow our business by hiring additional employees, increasing our
marketing expenses to build our brand and increasing our capital expenditures.
We incurred net losses of $8.8 million in 1999, $1.2 million in 1998 and
$206,000 in 1997. We intend to spend over $25 million in 2000 on advertising
and promotional programs and approximately $10 million in capital expenditures.
Furthermore, given the rapidly evolving nature of our business and our limited
operating history as a competitive registrar, our operating results are
difficult to forecast, and period-to-period comparisons of our operating
results will not be meaningful and should not be relied upon as an indication
of future performance. Due to these and other factors, many of which are
outside our control, quarterly operating results may fluctuate significantly in
the future.
Results of Operations
Because 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 1998 against 1999 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 December 31,
-----------------------------------
1997 1998 1999
---------- ---------- ---------
<S> <C> <C> <C>
Net revenues ........................... 100% 100% 100%
Cost of revenues ....................... 27 35 32
--- --- ---
Gross profit ........................... 73 65 68
--- --- ---
Operating expenses
Sales and marketing ................. 51 66 74
Research and development ............ 10 21 18
General and administrative (exclusive
of non-cash compensation) ......... 37 60 25
Non-cash compensation ............... -- 11 51
--- --- ---
Total operating expenses ............... 98 158 168
--- --- ---
Loss from operations ................... (25) (93) (100)
Other income (expenses), net ........... (4) 5 9
--- --- ---
Net loss ............................... (29)% (88)% (91)%
=== === ===
</TABLE>
31
<PAGE>
Years Ended December 31, 1998 and 1999
Net Revenues
Total net revenues increased from $1.3 million for 1998 to $9.6 million
for 1999.
Domain Name Registrations. Revenues from domain name registrations
increased from $37,000 for 1998 to $4.5 million for 1999. Domain name
registrations represented 3% of 1998 net revenues and 46% of 1999 net revenues.
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 in 1998 while deferred revenue was $32.1 million in 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 91% from $1.1 million in 1998 to $2.1 million for 1999 primarily from
increased sales of web hosting provided through our servers. Online products
and services represented 87% of 1998 net revenues and 22% of 1999 net revenues.
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.
Advertising. Revenues from advertising increased from $133,000 for 1998 to
$3.1 million for 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. Advertising represented 10% of 1998 net revenues and 32%
of 1999 net revenues. 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 from $461,000 for 1998 to $3.1 million
for 1999.
Cost of Domain Name Registrations. Cost of domain name registrations
increased from $19,000 for 1998 to $2.5 million for 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 24% from $442,000 for 1998 to $548,000 for 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 $2.1 million for 1998 to $16.2
million for 1999.
Sales and Marketing. Sales and marketing expenses increased from $864,000
for 1998 to $7.1 million for 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
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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
$277,000 for 1998 to $1.8 million for 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
from $795,000 for 1998 to $2.4 million for 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.
Non-cash Compensation. Non-cash compensation expenses increased from
$150,000 for 1998 to $4.9 million for 1999. The increase in non-cash
compensation 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. Non-cash compensation expense
included $18,000 in 1998 and $329,000 in 1999 of amortization of deferred
compensation related to employee stock options. Amortization of deferred
compensation primarily related to employee stock options issued through February
2000 will be $2.2 million in 2000, $1.8 million in each of 2001 and 2002, and
$639,000 in 2003.
Other Income (Expenses), Net.
Other income (expenses), net consists primarily of interest income net of
interest expense. Other income (expenses), net increased from $67,000 for 1998
to $887,000 for 1999. The increase was primarily from interest earned on our
cash balance as a result of our equity financings and cash provided by
operations.
Net Loss
Net loss increased $7.6 million to $8.8 million in 1999 from $1.2 million
in 1998.
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 and represented 3% of 1998 net revenues.
Online Products and Services. Revenues from online products and services
increased 54% from $713,000 for 1997 to $1.1 million for 1998. Online products
and services represented 100% of 1997 net revenues and 87% of 1998 net
revenues. The increase in net revenues from 1997 to 1998 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 and represented 10% of 1998 net revenues.
The increase in net revenues from 1997 to 1998 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.
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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 were $150,000 for 1998, which was primarily from
our issuance of non-plan options at exercise prices below fair market value.
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.
Net Loss
Net loss increased $1.0 million to $1.2 million in 1998 from $200,000 in
1997.
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 December 31, 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.
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<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
----------- ------------ --------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Net revenues .............................. $ 747 $ 1,521 $ 2,187 $ 5,189
Cost of revenues .......................... 92 233 1,097 1,661
-------- -------- -------- --------
Gross profit .............................. 655 1,288 1,090 3,528
-------- -------- -------- --------
Operating expenses
Sales and marketing .................... 720 998 2,898 2,534
Research and development ............... 267 357 470 673
General and administrative (exclusive of
non-cash compensation) ............... 202 199 553 1,426
Non-cash compensation .................. 586 3,945 41 357
-------- -------- -------- --------
Total operating expenses .................. 1,775 5,499 3,962 4,990
-------- -------- -------- --------
Loss from operations ...................... (1,120) (4,211) (2,872) (1,462)
Other income (expenses), net .............. 13 71 336 468
-------- -------- -------- --------
Net loss .................................. $ (1,107) $ (4,140) $ (2,536) $ (994)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
----------- ---------- --------------- -------------
<S> <C> <C> <C> <C>
Net revenues .............................. 100% 100% 100% 100%
Cost of revenues .......................... 12 15 50 32
--- --- --- ---
Gross profit .............................. 88 85 50 68
--- --- --- ---
Operating expenses
Sales and marketing .................... 96 66 133 49
Research and development ............... 36 24 21 13
General and administrative (exclusive of
non-cash compensation) ............... 27 13 25 27
Non-cash compensation .................. 79 259 2 7
--- --- --- ---
Total operating expenses .................. 238 362 181 96
--- --- --- ---
Loss from operations ...................... (150) (277) (131) (28)
Other income (expenses), net .............. 2 5 15 9
---- ---- ---- ---
Net loss .................................. (148)% (272)% (116)% (19)%
==== ==== ==== ===
</TABLE>
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 1999 totaled approximately $28.8
million. At December 31, 1999, we had $40.9 million of cash.
Our business generated $22.4 million of cash from operations during 1999.
This cash generated from operations was primarily due to increased domain name
registrations. Net cash
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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 $7.7 million, $267,000 and
$16,000 for 1999, 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 $24.9 million, $2.2 million and $178,000 in cash from
financing activities for 1999, 1998 and 1997, respectively. For 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 or other
long-term obligations, 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 intend to spend over $25.0 million in 2000 on advertising and
promotional programs and over $10.0 million on capital expenditures in 2000, and
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. We currently have no plans to conduct an additional equity offering
following our initial public offering in 2000. However, we may be required to
raise additional funds in 2000 if our business plans change. In addition, after
2000, to the extent we require additional funds to support our operations,
acquisitions or investments or the expansion of our business, we may need to
sell additional equity, issue debt or convertible securities, obtain credit
facilities or obtain other sources of funding. Additional financing may not be
available when needed or, if available financing may not be on terms favorable
to us. If additional funds are raised through the issuance of equity securities,
our existing stockholders may experience significant dilution.
Additionally, if we are unsuccessful in completing our offering, we believe
that by reducing the anticipated marketing expenses, capital expenditures and
headcount, we will have sufficient cash to fund operations for the next 12
months. By reducing these planned areas of spending, however, we will
significantly limit our ability to grow.
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.
In December 1999, the staff of the Securities and Exchange Commission
released Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition."
SAB 101 provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. The additional guidance provided by SAB 101
had no effect on our financial statements.
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BUSINESS
Overview
We are a provider of Internet domain name registration services worldwide.
Domain names serve as part of the infrastructure for Internet communications
and registering a domain name is one of the first steps for individuals and
businesses seeking to establish an online identity. We believe that we offer a
quick and user-friendly registration process and responsive and reliable
customer support. We also offer a suite of value-added products and services
targeted to assist our customers in developing and maintaining their online
identities, including:
Products and Services Products and Services
Provided by Us Provided by Others
o domain name forwarding o email
o real-time domain name management, o web hosting
o website-creation tools
Our goal is to become a one-stop resource through which our customers
establish, maintain and enhance their presence on the Internet.
We offer our products and services directly through our www.register.com
website and through our Corporate Services department, 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 business
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 December 31, 1999,
were approximately $5.2 million, representing a 137% increase over the three
months ended September 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 December 31, 1999, we
registered approximately 308,000 new domain names in the .com, .net and .org
domains, representing an increase of 94% from the approximately, 159,000 domain
names we registered in the same domains for the three months ended September
30, 1999. During December 1999, we registered approximately 144,000 domain
names in the .com, .net and .org domains, representing a 252% 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,
based on our internal calculations, 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.
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
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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 in the early stages of establishing their Internet
identities 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 would appreciate the
convenience of being able to purchase 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 $3.4 billion in 1999 to approximately $10.8
billion in 2003.
Domain Name Registration System
The domain name system is organized according to industry custom by
levels, 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, such as
.co.uk and org.uk for the United Kingdom and .md for Moldova representing over
190 countries. 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. Currently, 75
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 .com, .net and .org 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 1998, ICANN 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 February 24,
2000, there were 91 ICANN-accredited registrars, including Network Solutions.
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Of these, only 27 are connected to the Shared Registration System, and the
remaining accredited registrars are still in the development phase with respect
to offering registration services. An additional 18 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,
based on our internal calculations, 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. The following industry statistics related to domain
name registrations are based on information contained in press releases issued
by Network Solutions. Approximately 90% of all generic top level domains domain
names were registered in the 18 months ended December 31, 1999 and over 80%
were registered in the 12 months ended December 31, 1999. During the 12 months
ended December 31, 1999, a total of approximately 7.4 million new domain names
in the .com, .net and .org domains were registered, an increase of 290% 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.
The Register.com Solution
We offer products and services 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:
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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 in the .com, .net and .org domains
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, including advertisers. These products and services
include real-time domain management, web hosting, comprehensive email services,
domain name forwarding, trademark protection services, multi-year registration
and one-step registration for current users. 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 Services account managers. We also
offer domain name registration services indirectly through our network of
co-brand and private label websites. This network currently consists of over
290 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, including website applications that enable electronic
commerce and other business 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 business alliances, develop new applications and website
features and invest in our technologies. We believe that these 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.
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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 Services Department. We will expand our Corporate
Services department by offering new products and services and by increasing our
targeted marketing to our potential customers. Our dedicated Corporate Services
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 international trademark infringement
notification and account consolidation and billing.
Pursuing Strategic Acquisitions and Investments. 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. For example, we recently made a
strategic investment of approximately 10% of the equity of GreatDomains.com
Inc., which provides a secondary market for companies and individuals to buy
and sell domain names, as well as brokerage and escrow services for these
names.
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 over 140 country code domains,
of which 26 may currently be registered through our www.register.com website.
As of January 15, 2000 we have supplemented our registration period offerings
to include one-, five- and ten-year registration periods for both the initial
and renewal domain name registration in the .com, .net and .org domains. For
our .com, .net and .org domain names, we currently charge $35 for a one-year
registration, $70 for a two-year registration, $159 for a five-year
registration and $299 for a ten-year registration. For our country code domain
names, we currently charge approximately $40 to $299 for one- or two-year
registrations. We intend to charge the same rates for renewals as we do for
corresponding initial registration periods. We provide the following basic
products and services, for no additional fee, together with our registration
services:
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o FirstStepSite. Since February 9, 2000, we have provided new and existing
customers who have registered domain names through us the ability to
create a three-page website and post it on the Internet. Customers can
select from a multitude of layouts, themes and colors and also upload
images to customize their FirstStepSites.
o FutureSite. For customers who do not take advantage of FirstStepSite, we
provide 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."
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.
o One-Step Registration. We provide our existing users the ability to
register additional domain names through a one-step registration process
using Domain Manager.
Corporate Services. Through our Corporate Services department, we offer:
o Multiple Domain Registrations. We register large numbers of domain names,
typically greater than 30 per customer.
o International Brand Protection. We are able to register domain names in
over 140 country code domains, 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
including advertisers. 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
Concentric Network Corporation and advertisers.
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.
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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.
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 believe that
we provide our customers quick, easy-to-use, value-added and flexible solutions
across both of our distribution channels. In 1999, our direct distribution
channels accounted for approximately 90% of our revenue and our indirect
distribution channels accounted for approximately 10% of our revenue.
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 Services department.
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 Services. We launched this service to meet the needs of our
corporate customers. Many companies currently rely on internal brand
managers and attorneys to register domain names related to their
trademarks and brand names. We believe that we can provide these services
more efficiently through our dedicated team of account managers.
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. We currently have over 290 participants in our network
of co-brand and private label websites of which approximately 11 are private
label and the remaining are co-brand participants. Because our first private
label websites went live only recently, through December 31, 1999, over 95% of
our revenues derived from our indirect network have come from 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. Private label
websites may also include the language "powered by register.com." We also
offer our private label participants a range of billing, notification and
customer support options.
International. Our direct and indirect distribution channels are
accessible through Internet access worldwide. We currently offer our customers
the ability to register domain names in over 140 country code domains and have
over ten co-brand network participants with principal places of business
outside the United States.
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.
From September through December 1999, we sponsored two telephone surveys
of males aged 25-49 to measure brand awareness in the domain name registration
services industry. The surveys were conducted by Data Development Corporation,
a marketing research firm specializing in customized research. The results of
the surveys 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.
Business Alliances
We seek to enter into business alliances to expand our business. These
alliances are important sources for new customer opportunities, brand building,
revenue growth and increasing our product and service offerings.
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 December 31, 1999, our advertising revenues
increased by 131% over the prior
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three-month period ended September 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 are located at Exodus Communications'
hosting facility in Jersey City, New Jersey and Globix Corporation's hosting
facility in New York, New York. We are currently adding network capacity to our
systems located at the Globix facility to make our systems geographically
redundant. 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. 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.
In 1997, 1998 and 1999, we spent $71,000, $277,000 and $1.8 million,
respectively, on our research and development activities.
Historical Operations
We are the successor by merger to Forman Interactive Corp. Forman
Interactive commenced operations in 1994 as a developer of electronic commerce
software and began offering web hosting and related products and services in
1997. Forman Interactive's principal software product was Internet Creator, a
website management software program. We have not
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sold Internet Creator since October 1998 and ceased distributing it to our
web-hosting customers at no cost in spring 1999. We continue to operate our
web-hosting service. However, since its development is not part of our business
strategy, we are not actively promoting this service. In February 1998, we
began to distribute domain names, in most cases without charge and in a few
cases on commission basis when we distributed domain names 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.
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 domain names registered in 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 in the .com, .net and .org domains 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. As of February 26, 2000, 91
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
until November 30, 2003. 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 the agreement for the purchaser of the registry operations
will be extended for an additional four years until November 30, 2007. These
agreements provide that:
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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 domain
name registered in a generic top level domain is $6 per year during the
term of the agreement;
o the registry for the .com, .net and .org domain names will no longer
limit registrations to an initial period of two years. Since January 15,
2000, the registry has accepted domain name registrations in the .com,
.net and .org domains 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 on December 1, 1999, we implemented the Uniform Domain Name Dispute
Resolution Policy as approved by ICANN.
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:
o pricing controls;
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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 February 26,
2000, Network Solutions and 27 other registrars, not including us, were
registering domain names in the .com, .net and .org domains. An additional 62
registrars have been accredited by ICANN but are not yet registering domain
names, and 18 registrars have qualified to register domain names in these
domains but have not yet signed the agreements required for registering domain
names in these domains. 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 strategic
relationships to offer products and services similar to those that we now
provide,
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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
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.
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Employees
As of February 28, 2000, we had approximately 150 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
one year.
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 ................ 30 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 .................... 30 General Counsel and Secretary
Lauren M. Gaviser ............... 29 Director of Strategic Initiatives
Gerhard Karba ................... 43 Director of Development
Niles H. Cohen (1)(2) ........... 39 Director
Peter A. Forman ................. 38 Director
Mark S. Hoffman (1)(2) .......... 38 Director
Samantha McCuen (2) ............. 31 Director
Reginald Van Lee ................ 41 Director
</TABLE>
- -------------
(1) Member of compensation committee.
(2) Member of audit 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.
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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 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., a wholesale consumer
products manufacturer. Mr. Forman is the brother of the Company's President and
Chief Executive Officer, Richard D. Forman. 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 is a
director of several privately held companies, including C3i, Inc., Show
Digital, Inc., Berdy Medical Systems, Inc. and comstar.net, inc. 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 has served as one of our Directors since January 2000.
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 was nominated and elected in accordance with our
Stockholders Agreement, as amended, and will hold office until the next annual
meeting of our stockholders. The Stockholders Agreement will terminate upon the
consummation of this offering in accordance with its terms.
The Stockholders Agreement 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 Dan B. Levine, subject to their collectively owning a specified
minimum percentage of our shares and rights to acquire our shares. Richard
D. Forman, Peter A. Forman and Reggie Van Lee serve as the directors
designated by this group.
o One director nominee designated by Capital Express, LLC, subject to its
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, LLC.
o One director nominee designated by Internet Web Builders, LLC, subject to
its 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, LLC. Internet Web Builders, LLC does
not have a designee currently serving on the board.
o One director nominee designated by Palisade Private Partnership, LP,
subject to its 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, LP. Palisade Private
Partnership, LP 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.
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In January 2000, Internet Web Builders, LLC forfeited its right under the
Stockholders Agreement to designate a board member. The board position is
currently vacant and consistent with the Stockholders Agreement, is expected to
be filled by the remaining directors in office following the consummation of
our initial public offering.
Executive Officers
Our executive officers are elected by our board of directors on an annual
basis and serve until the next annual meeting of the board or until their
successors have been duly elected and qualified.
Board Observers
In connection with Internet Web Builder, LLC's forfeiture of its right to
designate a board member, we granted Kenneth Greif, the managing member of
Internet Web Builders, LLC, the non-transferrable right to attend meetings of
the board of directors as a non-voting observer, except in limited contexts.
Mr. Greif's observer rights will terminate on the earliest of:
o 18 months after the consummation of our initial public offering;
o the closing of a merger or acquisition in which we do not survive the
transaction or our stockholders immediately prior to the transaction own
less than 50% of the surviving company's voting securities;
o the date upon which Mr. Greif no longer beneficially owns at least 5% of
our outstanding securities; or
o the date upon which Mr. Greif sends us a certified letter indicating his
intention to terminate his observer rights.
In December 1997, we borrowed an aggregate of $80,000 at an annual rate of
10% from Kenneth Greif. In connection with this transaction, we issued 11,200
shares of our common stock to Mr. Greif for no additional consideration. We
repaid this loan in January 1998.
Board Committees
Audit Committee. The audit committee reports 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. The current members of the audit committee
are Mark S. Hoffman, Niles H. Cohen and Samantha McCuen.
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 S. Hoffman and Niles H. Cohen. Prior to the consummation of this
offering, Mr. Forman will step down from the compensation committee and will be
replaced by Reginald Van Lee.
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
unaffiliated directors, an annual fee of $4,000. Our other directors do not
receive compensation for their services as members of our
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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, is entitled to receive
options to purchase 35,000 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 becoming a director and the remaining
50% will vest on the second anniversary. In addition, in consideration for
consulting services that Mr. Van Lee will provide to us, we have granted to him
options to purchase an additional 9,450 shares of our common stock, with an
exercise price equal to the initial public offering price and a vesting schedule
identical to the vesting schedule for his other options.
Each future unaffiliated director, upon becoming a director, will receive
a grant of options to purchase 35,000 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.
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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,
our President and Chief Executive Officer and Jack S. Levy, our General
Counsel.
Richard D. Forman.
Mr. Forman's employment agreement with us became effective as of February
27, 2000 and has an initial term of 42 months, with automatic renewal for
successive one-year terms unless we or Mr. Forman give notice of cancellation
at least 90 days prior to the expiration of the agreement. The agreement
entitles Mr. Forman to receive a base salary of $200,000 per year,
discretionary annual bonuses and fringe benefits such as medical and dental
coverage, short and long term disability and life insurance.
In addition, we granted Mr. Forman stock options under our 2000 Stock
Incentive Plan to purchase up to 525,000 shares of common stock, of which:
o options to purchase 175,000 shares will have an exercise price equal to
110% of the initial public offering price;
o options to purchase 175,000 shares will have an exercise price equal to
140% of the initial public offering price; and
o options to purchase 175,000 shares will have an exercise price equal to
160% of the initial public offering price.
These stock options are to vest in equal monthly amounts over a 42-month
period, as long as Mr. Forman is employed by us. The options with an exercise
price equal to 110% of the initial public offering price will vest first, over
a 14-month period beginning on the date of the grant; the options with an
exercise price equal to 140% of the initial public offering price will vest
over the following 14 months; and the option with an exercise price equal to
160% of the initial public offering price will vest over the remaining 14
months of the 42-month period.
The vesting of Mr. Forman's stock option will accelerate in full upon the
termination of Mr. Forman's employ by us without cause or by him for good
reason. In addition, if his employment is terminated without cause or for good
reason, Mr. Forman will be entitled to a lump-sum severance payment in an
amount equal to one month's base multiplied by the number of months remaining
in the contract term or 12 months, whichever number is greater. He would also
be entitled to medical and dental benefits for himself and his eligible
dependents under COBRA for a period of 18 months following the date of
termination. Mr. Forman is also entitled to an additional payment in order to
compensate him for any "golden parachute" excise tax that he incurs as a result
of receiving the severance payments and benefits provided for in the employment
agreement.
In addition, if Mr. Forman's employment is terminated without cause or for
good reason, or due to his death or disability, he will be entitled to any
earned but unpaid salary, as well as accrued but unused vacation, any unpaid
bonus accrued prior to the date of termination, a pro rata bonus for the year
in which the termination occurs, reimbursement for business expenses and any
payments or benefits due under our policies or benefit plans. Mr. Forman may
terminate his employment upon one month's written notice to us.
Mr. Forman is prohibited under his employment agreement from using or
disclosing any of our confidential information at any time in the future and
has assigned to us all rights to any inventions he develops during his
employment that pertain to our business or that are
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developed during work time or using our material or facilities. Mr. Forman is
also prohibited from competing with us or soliciting any of our customers or
employees during his employment and for a period of one year thereafter.
In connection with Mr. Forman's prior employment agreement with us, he
received options to purchase up to 1,750,000 shares of common stock, of which:
o options to purchase 525,000 shares have an exercise price of $0.17 per
share;
o options to purchase 350,000 shares have an exercise price of $0.46 per
share;
o options to purchase 350,000 shares have an exercise price of $0.86 per
share; and
o options to purchase 525,000 shares have an exercise price of $1.71 per
share.
All of Mr. Forman's options under his prior employment agreement are fully
vested and are exercisable at any time prior to January 4, 2003.
Jack S. Levy.
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 122,500 shares
of our common stock at an exercise price of $1.43 per share. These options vest
beginning on January 11, 2000 in 41 monthly installments of 2,916 shares and a
final monthly installment of 2,944 shares.
We also granted Mr. Levy options to purchase 52,500 shares of our common
stock. The exercise price per share for these options will equal the initial
public offering price. These options vest on a monthly basis for a period of 42
months, beginning on 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 52,500 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.
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Executive Compensation
The following table sets forth the total compensation paid or accrued for
the years ended December 31, 1999 and 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 1999 exceeded $100,000. We refer
to the Chief Executive Officer and these other officers as named executive
officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------ -------------
Securities
Underlying
Name and Principal Position Year Salary($) Bonus($) Options (#)
- ----------------------------------------------- ------ ----------- ---------- -------------
<S> <C> <C> <C> <C>
Richard D. Forman ............................. 1999 $162,737 $30,000 --
Chief Executive Officer and President ......... 1998 114,462 20,000 1,750,000
Alan G. Breitman (1) .......................... 1999 97,019 60,000 175,000
Vice President Finance and Treasurer .......... 1998 10,096 -- --
Sascha A. Mornell (2) ......................... 1999 102,000 50,000 17,500
Vice President Marketing ...................... 1998 47,500 -- 210,000
Robert D. Gardos (3) .......................... 1999 88,538 50,000 105,000
Vice President Technology ..................... 1998 45,923 -- 105,000
</TABLE>
(1) Alan G. Breitman started with us in November 1998.
(2) Sascha A. Mornell started with us in May 1998.
(3) Robert D. Gardos started with us in June 1998.
Option Grants in Last Fiscal Year
The following table sets forth grants of stock options for the year ended
December 31, 1999 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 1,063,510 shares of common stock granted under our
plans.
<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>
Alan G. Breitman .......... 105,000 10% 0.86 2/1/2009 $67,500 $156,514 $318,514
70,000 7% 1.43 5/1/2009 78,800 191,246 363,761
Sascha A. Mornell ......... 17,500 2% 0.86 6/1/2009 29,700 57,812 100,940
Robert D. Gardos .......... 35,000 3% 1.14 1/1/2009 2,500 29,228 70,234
35,000 3% 1.43 5/1/2009 20,000 64,023 131,562
35,000 3% 1.43 6/1/2009 39,400 95,623 181,881
</TABLE>
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Aggregated Option Exercises in the Year Ended December 31, 1999 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, 1999. There was no public
trading market for the common stock as of December 31, 1999. Accordingly, the
values set forth below have been calculated on the basis of an assumed initial
public offering price of $16.00 per share, less the applicable exercise price
per share, multiplied by the number of shares underlying the options.
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End at Fiscal Year End ($)
------------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Richard D. Forman ......... 1,750,000 -- $26,550,000 --
Alan G. Brietman .......... 39,584 135,416 591,794 $2,018,206
Sascha A. Mornell ......... 109,375 118,125 1,693,750 1,826,250
Robert D. Gardos .......... 74,583 135,417 1,139,278 2,030,722
</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 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 Corp., adopted our 1997 Stock
Option Plan in December 1997. We assumed the 1997 plan in our merger with
Forman Interactive. A total of 1,750,000 shares of common stock have been
authorized for issuance under the plan. As of December 31, 1999, options to
purchase an aggregate of 1,726,935 shares of common stock were outstanding
under the plan, and an aggregate of 23,065 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.
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1999 Stock Option Plan.
In April 1999, our board of directors adopted our 1999 Stock Option Plan,
which was approved by our stockholders in January 2000. A total of 2,275,000
shares of common stock have been authorized for issuance under the plan, and no
more than 1,750,000 shares may be issued under the plan to any one individual.
As of December 31, 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.
2000 Stock Incentive Plan.
In January 2000, our board of directors adopted and our stockholders
approved our 2000 Stock Incentive Plan. Our 2000 Stock Incentive Plan is
intended to serve as the successor equity incentive program to our 1997 Stock
Option Plan and our 1999 Stock Option Plan. Outstanding options under the
predecessor plans will be incorporated into the 2000 Stock Incentive Plan upon
the consummation of this offering, and the incorporated options will continue
to be governed by their existing terms.
We have authorized the issuance of up to 7,350,000 shares of common stock
under the 2000 Stock Incentive Plan. This share reserve consists of the shares
issuable under the predecessor plans on the effective date of the 2000 Stock
Incentive Plan plus an additional increase of 3,500,000 shares. The share
reserve will automatically be increased on the first trading day of January of
each calendar year, beginning in January 2001, by a number of shares equal to
2% of the total number of shares of common stock outstanding on the last
trading day of the prior calendar year, but no such annual increase will exceed
1,750,000 shares. In no event may any one participant receive option grants or
direct stock issuances for more than 1,750,000 shares in the aggregate per
calendar year.
Except as otherwise noted below, the outstanding options under the
predecessor plans contain substantially the same terms and conditions
summarized below for the discretionary option grant program under the 2000
Stock Incentive Plan. The 2000 Stock Incentive Plan has five separate programs:
o the discretionary option grant program under which eligible individuals
in our employ or service (including officers, non-employee board members
and consultants) may be granted options to purchase shares of our common
stock;
o the stock issuance program under which such individuals may be issued
shares of common stock directly, through the purchase of such shares or
as a bonus tied to the performance of services;
o the salary investment option grant program under which executive officers
and other highly compensated employees may elect to apply a portion of
their base salary to the acquisition of special below-market stock option
grants;
o the automatic option grant program under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members; and
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o the director fee option grant program under which non-employee board
members may elect to apply a portion of their retainer fee to the
acquisition of special below-market stock option grants.
The discretionary option grant and stock issuance programs will be
administered by our compensation committee. This committee will determine which
eligible individuals are to receive option grants or stock issuances, the time
or times when the option grants or stock issuances will be made, the number of
shares subject to each grant or issuance, exercise or purchase price for each
grant or issuance (which may be less than, equal to or greater than the fair
market value of the shares), the status of any granted option as either an
incentive stock option or a non-statutory stock option under the federal tax
laws, the vesting schedule to be in effect for the option grant or stock
issuance and the maximum term for which any granted option is to remain
outstanding. The committee will also select the executive officers and other
highly compensated employees who may participate in the salary investment
option grant program in the event that the program is activated for one or more
calendar years. Neither the compensation committee nor the board will exercise
any administrative discretion with respect to option grants made under the
salary investment option grant program or under the automatic option grant
program or director fee option grant program for the non-employee board
members.
The exercise price for the options may be paid in cash or in shares of our
common stock valued at fair market value on the exercise date. The option may
also be exercised through a same-day sale program without any cash outlay by
the optionee. In addition, the compensation committee may allow a participant
to pay the option exercise price or direct issue price and any associated
withholding taxes incurred in connection with the acquisition of shares with a
full-recourse, interest-bearing promissory note.
If we are acquired, each outstanding option under the discretionary option
grant program that is not to be assumed by the successor corporation or
otherwise continued will automatically accelerate in full, and all unvested
shares under the discretionary option grant and stock issuance programs will
immediately vest, except to the extent the repurchase rights with respect to
those shares are to be assigned to the successor corporation or otherwise
continued in effect. The compensation committee may grant options and issue
shares that will accelerate
o in connection with an acquisition even if the options are assumed and
repurchase rights are assigned;
o in connection with a hostile change in control (effected through a
successful tender offer for more than 50% of our outstanding voting stock
or by proxy contest for the election of board members); or
o upon a termination of the individual's service following a change in
control or hostile takeover.
If we are acquired, options currently outstanding under the 1997 and 1999
plans may be assumed by the successor corporation or the options may terminate.
The compensation committee may provide for acceleration of any options that
terminate in connection with the acquisition. These options are not by their
terms subject to acceleration in connection with any other change in control or
hostile takeover.
Stock appreciation rights may be issued under the discretionary option
grant program that will permit holders to elect to surrender their outstanding
options for an appreciation distribution from us equal to the fair market value
of the vested shares subject to the surrendered option less the aggregate
exercise price payable for the shares. This appreciation distribution may be
made in cash or in shares of common stock. There are currently no outstanding
stock appreciation rights under the predecessor plans.
The compensation committee has the authority to cancel outstanding options
under the discretionary option grant program, including options incorporated
from the predecessor plans, in return for the grant of new options for option
shares with an exercise price per share based upon the fair market value of the
common stock on the new grant date.
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If the compensation committee elects to activate the salary investment
option grant program for one or more calendar years, each of our executive
officers and other highly compensated employee selected for participation may
elect to reduce his or her base salary for that calendar year by a specified
dollar amount not less than $10,000 nor more than $50,000. In return, the
individual will automatically be granted, on the first trading day in the
calendar year for which the salary reduction is to be in effect, a
non-statutory option to purchase that number of shares of common stock
determined by dividing the salary reduction amount by two-thirds of the fair
market value per share of our common stock on the grant date. The option
exercise price will be equal to one-third of the fair market value of the
option shares on the grant date. As a result, the fair market value of the
option shares on the grant date less the exercise price payable for those
shares will be equal to the salary reduction amount. The option will become
exercisable in a series of 12 equal monthly installments over the calendar year
for which the salary reduction is to be in effect and will be subject to full
and immediate vesting in the event of our acquisition or change in control.
Under the automatic option grant program, each individual who first joins
the board on or after January 26, 2000, and who is not an employee board member
or an affiliate or representative of a beneficial owner of 3% or more of our
common stock, will automatically be granted an option for 35,000 shares of our
common stock at the time of his or her commencement of board service, unless
the individual has previously been in our employ. In addition, each individual
who continues to serve as a non-employee board member after an annual
stockholders meeting will receive an option grant to purchase 5,250 shares of
common stock on the date of the annual stockholders meeting beginning with the
first annual stockholders meeting held after the initial 35,000-share grant
under the automatic option grant program is fully vested. Each automatic grant
will have an exercise price equal to the fair market value per share of our
common stock on the grant date and will have a maximum term of 10 years,
subject to earlier termination following the optionee's cessation of board
service. Each option will be immediately exercisable, subject to our right to
repurchase any unvested shares, at the original exercise price, at the time of
the board member's cessation of service. Each 35,000-share option grant will
vest, and the repurchase right will lapse, in a series of two equal successive
annual installments upon the optionee's completion of each year of board
service over the two-year period measured from the grant date. Each 5,250-share
option grant will vest, and the repurchase right will lapse, upon the
optionee's completion of one year of board service measured from the grant
date. However, each such outstanding option will immediately vest upon a change
in control, a hostile takeover or the death or disability of the optionee while
serving as a board member.
If the director fee option grant program is put into effect in the future,
then each non-employee board member may elect to apply all or a portion of any
cash retainer fee for the year to the acquisition of a below-market option
grant. The option grant will automatically be made on the first trading day in
January in the year for which the non-employee board member would otherwise be
paid the cash retainer fee in the absence of his or her election. The option
will have an exercise price per share equal to one-third of the fair market
value of the option shares on the grant date, and the number of shares subject
to the option will be determined by dividing the amount of the retainer fee
applied to the program by two-thirds of the fair market value per share of our
common stock on the grant date. As a result, the fair market value of the
option shares on the grant date less the exercise price payable for those
shares will be equal to the portion of the retainer fee applied to that option.
The option will become exercisable in a series of 12 equal monthly installments
over the calendar year for which the election is in effect. However, the option
will become immediately exercisable for all the option shares upon the death or
disability of the optionee while serving as a board member.
Limited stock appreciation rights will automatically be included as part
of each grant made under the automatic option grant and salary investment
option grant programs and may
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<PAGE>
be granted to one or more officers as part of their option grants under the
discretionary option grant program. Options with such a limited stock
appreciation right may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock. In
return for the surrendered option, the optionee will be entitled to a cash
distribution from us in an amount per surrendered option share equal to the
highest price per share of common stock paid in connection with the tender
offer less the exercise price payable for such share.
The board may amend or modify the 2000 Stock Incentive Plan at any time,
subject to any required stockholder approval. The 2000 Stock Incentive Plan
will terminate no later than January 25, 2010.
Employee Stock Purchase Plan.
Our Employee Stock Purchase Plan was adopted by the board and approved by
the stockholders on January 26, 2000. The plan will become effective
immediately upon the execution of the underwriting agreement for this offering.
The plan is designed to allow our eligible employees and participating
subsidiaries, if any, to purchase shares of our common stock, at semi-annual
intervals, through their periodic payroll deductions. A total of 350,000 shares
of our common stock will initially be authorized for issuance under the plan.
The share reserve will automatically increase on the first trading day of
January each year beginning in January 2001, by 0.25% of the total shares of
common stock outstanding on the last trading day of the prior calendar year,
but no such annual increase will exceed 140,000 shares. In no event may any
participant purchase more than 700 shares, nor may all participants in the
aggregate purchase more than 122,500 shares on any one semi-annual purchase
date.
The plan will have a series of successive offering periods, each with a
maximum duration of 24 months, except that the initial offering period will
begin on the date that the underwriting agreement is executed in connection
with this offering and will end on the last business day in April 2002. The
next offering period will begin on the first business day in May 2002, and
subsequent offering periods will be set by the compensation committee. Shares
will be purchased for the participants semi-annually during the offering
period. The first purchase date will occur on October 31, 2000. If the fair
market value of our common stock on any semi-annual purchase date is less than
the fair market value on the first day of the offering period, then the current
offering period will automatically end and a new offering period will begin,
based on the lower fair market value.
Individuals who are eligible employees on the start date of any offering
period may enter the plan on that start date or on any subsequent semi-annual
entry date. Individuals who become eligible employees after the start date of
the offering period may join the plan on any subsequent semi-annual entry date
within that period.
A participant may contribute up to 10% of his or her cash compensation
through payroll deductions and the accumulated payroll deductions will be
applied to the purchase of shares on the participant's behalf on each
semi-annual purchase date. The purchase price per share will be 85% of the
lower of the fair market value of our common stock on the participant's entry
date into the offering period or the fair market value on the semi-annual
purchase date.
Generally, the board may at any time amend or modify the plan. The plan
will terminate no later than the last business day in April 2010.
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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 $0.24 per share as follows:
Value of
Underlying Shares
Common Stock Net of Exercise Price
Name of Investor Underlying Warrants at $16.00 per share
- --------------------------- --------------------- ----------------------
Richard D. Forman ......... 156,244 $2,462,405
Peter A. Forman ........... 156,244 2,462,405
Dan B. Levine ............. 99,278 1,564,621
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 D. Forman and Peter A. Forman
warrants to purchase 472,500 shares of our common stock at an exercise price of
$0.17 per share. In January 1998, each forfeited accrued but unpaid
compensation in order to effect a cashless conversion of these warrants. The
aggregate value of these shares based on an assumed initial public offering
price of $16.00 per share would be $15,120,000.
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 11,200 shares of our common stock
to Mr. Greif for no additional consideration. The value of these shares based
on an assumed initial public offering price of $16.00 per share would be
$179,200. We repaid this loan in January 1998.
Also, in January 1998, we sold 2,800,000 shares of our common stock at a
price of $0.36 per share to Internet Web Builders, LLC for a purchase price of
$1.0 million. The aggregate value of these shares based on an assumed initial
public offering price of $16.00 per share would be $44,800,000. Concurrently
with the closing of this transaction, we issued warrants to purchase up to an
aggregate of 2,450,001 shares of our common stock based upon our reaching
specified revenue targets at an exercise price of $0.36 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 2,450,001 and to increase
the exercise price to $0.97 per share. These warrants were issued on a pro rata
basis to the stockholders immediately prior to the Internet Web Builders
investment as follows:
<TABLE>
<CAPTION>
Value of
Underlying Shares
Common Stock Net of Exercise Price
Name of Investor Underlying Warrants at $16.00 per share
- ---------------- --------------------- ----------------------
<S> <C> <C>
Richard D. Forman ............ 699,717 $10,516,747
Peter A. Forman .............. 548,247 8,240,152
Dan B. Levine ................ 283,798 4,265,484
Capital Express, LLC ......... 918,239 13,801,132
</TABLE>
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 350,000 shares of our common
stock, at exercise prices of $0.36 for 50%
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<PAGE>
of the shares and $0.86 for the remaining shares. The aggregate value of the
shares underlying these warrants, net of the exercise price, based on an
assumed initial public offering price of $16.00 per share, would be
$10,773,000. 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 3,640,000 shares of our common stock at a purchase
price of $0.36 per share. The aggregate value of these shares based on an
assumed initial public offering price of $16.00 per share would be $58,240,000.
Of these, our directors, executive officers, stockholders beneficially owning
5% or more in the aggregate of our common stock and Melvin Forman, an immediate
family member of two of our directors, purchased shares as follows:
Value of Shares
Name of Investor Common Stock at $16.00 per share
- ---------------- -------------- --------------------
Richard D. Forman ............. 308,000 $ 4,928,000
Peter A. Forman ............... 308,000 4,928,000
Capital Express, LLC .......... 140,000 2,240,000
Internet Web Builders ......... 1,764,000 28,224,000
Melvin Forman ................. 280,000 4,480,000
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 221,669 shares of our common stock, at exercise prices of $0.36 for
50% of the shares and $0.86 for the remaining shares. The aggregate value of
the shares underlying these warrants, net of the exercise price, based on an
assumed initial public offering price of $16.00 per share, would be $6,822,972.
In March 1999, we issued 1,499,999 shares of our Exchangeable Preferred
Stock to Palisade Private Partnership, L.P. at a purchase price of $2.00 per
share. These shares were automatically converted to common stock on August 15,
1999, in accordance with their terms. The value of these shares based on an
assumed initial public offering price of $16.00 per share would be $23,999,984.
In addition, we entered into a service agreement with Palisade Private
Partnership, LP, whereby Palisade agreed to provide us six months of financial
and strategic advisory services in exchange for a warrant to purchase 420,000
shares of our common stock at a price of $2.14 per share. The aggregate value of
the shares underlying these warrants, net of the exercise price, based on an
assumed initial public offering price of $16.00 per share, would be $5,821,200.
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 2,041,666 shares of our common stock to Staples, Inc.
at a price of $3.43 per share. The value of these shares based on an assumed
initial public offering price of $16.00 per share would be $32,666,656. In
connection with the transaction, we issued to Staples warrants to purchase up
to 700,000 shares of our common stock at an exercise price of $0.0029. The
aggregate value of the shares underlying these warrants, net of the exercise
price, based on an assumed initial public offering price of $16.00 per share,
would be $11,197,970.
From June 1999 through July 1999, we sold 4,694,333 shares of our Series A
Convertible Preferred Stock at a purchase price of $3.43 per share. The value
of these shares based on an assumed initial public offering price of $16.00 per
share would be $75,109,328. In connection with these transaction, we issued
warrants to purchase 938,888 shares of our common stock, each at an exercise
price of $3.43 per share. The aggregate value of the shares underlying these
warrants, net of the exercise price, based on an assumed initial public
offering price of $16.00 per share, would be $11,801,822. Of these, our
directors, officers and stockholders beneficially owning 5% or more in the
aggregate of our common stock purchased shares and were issued warrants as
follows:
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<PAGE>
<TABLE>
<CAPTION>
Aggregate Value
of Securities
Series A Convertible Common Stock Net of Exercise Price
Name of Investor Preferred Stock Underlying Warrants at $16.00 per share
- ---------------- ---------------------- --------------------- ----------------------
<S> <C> <C> <C>
Richard D. Forman ....................... 1,460 291 $ 27,018
Peter A. Forman ......................... 4,893 980 90,607
Dan B. Levine ........................... 459 95 8,538
Alan G. Breitman ........................ 15,585 2,919 286,052
Concentric Network Corporation .......... 1,458,335 291,669 26,999,639
Internet Web Builders, LLC .............. 6,934 1,386 128,366
Sandler Capital IV FTE Partners L.P. 381,500 76,300 7,063,091
Sandler Capital Management .............. 145,835 29,169 2,700,014
Sandler Capital IV Partners L.P. ........ 931,000 186,200 17,236,534
Staples, Inc. ........................... 120,659 24,136 2,233,934
</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.
Related Party Transactions
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, consisting of $1.1 million in
cash and warrants to purchase 494,449 shares of our common stock at an exercise
price of $4.08 per share. The aggregate value of the shares underlying these
warrants, net of the exercise price, based on an assumed initial public
offering price of $16.00 per share, would be $5,893,832. In addition, we
granted Legg Mason piggyback registration rights with respect to the common
stock issuable upon exercise of their warrants. We also agreed that Legg Mason
could be included as a managing underwriter in connection with our initial
public offering.
In May 1999, we entered into a cooperative 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.
In addition, the agreement restricts us from entering into similar marketing
agreements with entities that derive more than 20% of their revenue from the
sale of office supplies. The initial term of the agreement ends on May 31,
2002, but automatically renews for consecutive one-year terms unless terminated
by either party upon 60 days' written notice.
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. Concentric has agreed to purchase
advertising space on our website through December, 2000, at a rate of $100,000
per month, and for the seven months commencing March 2000 at a rate of $100,000
per month, plus an additional $800,000 for the period from September to
December 2000. In addition, Concentric has agreed to pay us a $75 commission
for each of our customers who use Concentric's services. We pay Concentric
$41,666.67 per month under the agreement for co-branded marketing programs. We
also pay Concentric a commission not to exceed 20% of the net revenue generated
by new registrations originating from Concentric based upon the volume of these
new registrations. The term of our agreement with Concentric expires on
December 31, 2000.
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<PAGE>
Registration Rights Agreement
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, Inc. and the purchasers of
our Series A Preferred Stock. This Registration Rights Agreement amends and
restates the 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."
Stockholders 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. In addition,
the Stockholders Agreement, which will terminate upon the consummation of our
initial public offering, provides that 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 $3.43 per
share of common stock, with adjustments for stock splits, dividends and similar
events.
The Stockholders Agreement also requires the stockholders to vote all of
their voting stock, subject among other things to minimum stock holding
requirements, in favor of
o three directors designated by Richard D. Forman, Peter A. Forman and Dan
B. Levine;
o one director designated by Capital Express, LLC;
o one director designated by Internet Web Builders, LLC;
o one director designated by Palisade Private Partnership, L.P; and
o one director designated by the holders of at least 50% of the outstanding
Series A Preferred Stock.
In February 2000, Internet Web Builders, LLC agreed to forfeit its right
to designate a board member. In connection with this agreement, we granted
Kenneth Greif, the managing member of Internet Web Builders, LLC, the right to
attend meetings of the board of directors as a non-voting observer, except in
limited contexts. Mr. Greif's observer right is non-transferrable and will
expire upon the earliest of:
o 18 months after the consummation of our initial public offering;
o the closing of a merger or acquisition in which we do not survive the
transaction or our stockholders immediately prior to the transaction own
less than 50% of the surviving company's voting securities;
o the date upon which Mr. Greif no longer beneficially owns at least 5% of
our outstanding securities; or
o the date upon which Mr. Greif sends us a certified letter indicating his
intention to terminate his observer rights.
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<PAGE>
Transactions Between Principal Stockholders
In February 2000, Capital Express, LLC entered into an agreement to sell
to Staples, Inc. warrants to purchase 918,239 shares of our common stock with
an exercise price of $0.97 per share. Niles H. Cohen, one of our directors, is
the managing member of Capital Express, LLC. The purchase price per warrant
will equal the initial public offering price per share of our common stock less
the exercise price. The aggregate value of the shares underlying these
warrants, based on an assumed initial public offering price of $16.00 per
share, would be $13,801,133. The sale price of the warrants will be at a price
less than the deemed fair value of the warrants, as calculated using the
Black-Scholes model. As a result, we will record approximately $400,000 of
expense related to this transaction in the first quarter of 2000.
On February 28, 2000 Staples also entered into an agreement with Richard
D. Forman, our President, Chief Executive Officer and the chairman of our board
of directors, to purchase 75,000 shares of common stock at a purchase price per
share equal to the initial public offering price per share of our common stock.
The aggregate value of these shares, based on an assumed initial public
offering price of $16.00 per share, would be $1,200,000. As part of the same
agreement, Staples has agreed with Palisade Private Partnership, L.P., to
purchase an additional 75,000 shares of our common stock at a purchase price
per share equal to the initial public offering price per share of our common
stock. Mark S. Hoffman, one of our current directors, is a member of Palisade
Private Holdings, LLC, the General Partner of Palisade Private Partnership L.P.
The aggregate value of these shares based on an assumed initial public offering
price of $16.00, would be $1,200,000.
Each of these Staples transactions will be consummated on the day after
the date on which the registration statement for this offering becomes
effective. Staples, Inc. has entered into two lock-up and voting agreements
with us, which generally require Staples not to transfer or otherwise dispose
of any of our securities for a period of one year following the date of our
initial public offering, unless the initial public offering is not consummated
by May 2000 or if the transfer is to an affiliate of Staples. As a condition of
any transfer, the transferee must agree to receive and hold the securities
subject to the lock-up and voting agreement. In addition, the agreements
provide that, for as long as Staples beneficially owns more than 5% of our
outstanding voting securities, Staples must not vote against any matter put
before our stockholders if the holders of at least a majority of our voting
securities, excluding Staples, have voted in favor of the matter, with limited
exceptions.
Other Transactions
From inception until May 1998, we utilized office space and received
administrative services from Ben Forman & Sons, Inc. for which we paid $18,682
in 1997 and $577 in 1999. 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.
We pay $500 per month to one of Lease On Line, Inc.'s employees for
facilities management services provided to us. We have also issued options to
purchase 5,000 shares of our common stock to this employee. 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."
In addition, in consideration for consulting services that Mr. Van Lee will
provide to us, we have issued him options to purchase an additional 9,450
shares of our common stock, with an exercise price equal to the initial public
offering price and a vesting schedule identical to the vesting schedule for his
other options.
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 any of our officers, directors, principal stockholders and their affiliates
will be approved by a majority of the independent and disinterested
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<PAGE>
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 Officer 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 31, 1999, we have granted warrants to
purchase an aggregate of 31,500 shares to the members of the Board of Advisors,
at exercise prices ranging from $0.43 to $2.86 per share.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of February 3, 2000, 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, each named executive officer, all of our
directors and executive officers as a group and each selling stockholder.
Unless otherwise indicated, the address of each officer, director and principal
stockholder listed below is c/o Register.com, Inc., 575 Eighth Avenue, 11th
Floor, New York, New York 10018.
As of February 3, 2000, we had 25,761,130 shares of common stock
outstanding, assuming the conversion of all outstanding shares of Series A
Convertible Preferred Stock. The following table gives effect to the shares of
common stock issuable within 60 days of February 3, 2000 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>
Shares Beneficially
Owned Before Percentage
the Offering of Shares
----------------------- Beneficially Owned
Number Percent After the Offering
------------ --------- --------------------
<S> <C> <C> <C>
Executive Officers and
Directors
Richard D. Forman (1)(2) ......... 6,009,391 21.3% 17.9%
Peter A. Forman (3) .............. 3,774,149 14.3 12.0
Mark S. Hoffman (4)(5) ........... 1,919,999 7.3 5.9
Niles H. Cohen (6)(7) ............ 5,154,358 19.2 13.6
Samantha McCuen (8) .............. 1,575,000 5.8 4.9
Reginald Van Lee ................. -- -- --
All directors and executive
officers as a group (12
persons) (2)(7)(8) .............. 18,923,115 61.3 51.0
Principal Stockholders
Kenneth Greif (9) ................ 5,263,385 19.7 16.7
Capital Express, LLC (7)(10) 4,932,689 18.5 13.0
Internet Web Builders,
LLC (9)(11) ..................... 4,564,000 17.7 14.8
Staples, Inc. (7)(12) ............ 2,886,461 10.9 12.9
Palisade Private Partnership
LP (13) ......................... 1,919,999 7.3 5.9
Concentric Network
Corporation (7)(14) ............. 1,750,004 6.7 5.6
Sandler Capital Entities (15)..... 1,575,000 5.8 4.9
Other Selling
Stockholders
Hikari Tsushin Inc. (16) ......... 700,004 2.7 2.3
Dawn Patrick (17) ................ 175,000 0.7 0.6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned After the
Offering Assuming
Over-Allotment Option
Number of Shares is Exercised in Full
Subject to ------------------------
Over-Allotment Option Number Percent
----------------------- ------------ ----------
<S> <C> <C> <C>
Executive Officers and
Directors
Richard D. Forman (1)(2) ......... 300,470 5,633,921 16.6%
Peter A. Forman (3) .............. -- 3,774,149 11.7
Mark S. Hoffman (4)(5) ........... 96,000 1,748,999 5.5
Niles H. Cohen (6)(7) ............ -- 4,236,121 13.3
Samantha McCuen (8) .............. -- 1,575,000 4.7
Reginald Van Lee ................. -- -- --
All directors and executive
officers as a group (12
persons) (2)(7)(8) .............. 396,470 18,526,645 49.6
Principal Stockholders
Kenneth Greif (9) ................ -- 5,263,385 16.3
Capital Express, LLC (7)(10) -- 4,014,450 12.7
Internet Web Builders,
LLC (9)(11) ..................... -- 4,564,000 14.4
Staples, Inc. (7)(12) ............ -- 3,954,700 11.9
Palisade Private Partnership
LP (13) ......................... 96,000 1,748,999 5.5
Concentric Network
Corporation (7)(14) ............. 87,501 1,662,503 5.2
Sandler Capital Entities (15)..... -- 1,575,000 4.7
Other Selling
Stockholders
Hikari Tsushin Inc. (16) ......... 35,000 665,004 2.1
Dawn Patrick (17) ................ 8,750 166,250 0.5
</TABLE>
- -------------
(1) Includes 3,521,583 shares of common stock held by RDF Ventures LLC, 37,800
shares of common stock held by the RDF 1999 Family Trust, warrants to
purchase 699,717 shares of common stock at an exercise price of $0.97 per
share, warrants to purchase 291 shares of common stock at an exercise
price of $3.43 per share and currently exercisable options to purchase
1,750,000 shares of common stock at a weighted average price of $0.83 per
share.
(2) Post-offering columns reflect the sale to Staples, Inc. of 75,000 shares
of common stock, upon the exercise of options which is expected to occur
on the day after the registration statement relating to our initial public
offering becomes effective.
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<PAGE>
(3) Includes 350,000 shares of common stock held by Forman Capital Partners I,
LP, warrants to purchase 548,247 shares of common stock at an exercise
price of $0.97 per share and warrants to purchase 980 shares of common
stock at an exercise price of $3.43 per share.
(4) Includes 1,499,999 shares of common stock owned by Palisade Private
Partnership LP and a warrant to purchase 420,000 shares of common stock at
an exercise price of $2.14 per share. 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.
(5) Post-offering columns reflect the sale to Staples, Inc. of 75,000 shares of
common stock, expected to occur on the day after the registration statement
relating to our initial public offering becomes effective.
(6) Includes warrants to purchase 110,835 shares of common stock at an
exercise price of $0.36 per share and warrants to purchase 110,835 shares
of common stock at an exercise price of $0.86 per share. Also includes
4,014,451 shares of common stock owned by Capital Express, LLC and
warrants to purchase 918,239 shares of common stock at an exercise price
of $0.97 per share 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.
(7) Post-offering columns reflect the sale by Capital Express, LLC to Staples,
Inc. of warrants to purchase 918,239 shares of common stock, which is
expected to occur on the day after the registration statement relating to
our initial public offering becomes effective.
(8) Includes 931,000 shares of common stock and warrants to purchase 186,200
shares of common stock at an exercise price of $3.43 per share owned by
Sandler Capital IV Partners, LP; 381,500 shares of common stock and
warrants to purchase 76,300 shares of common stock at an exercise price of
$3.43 per share owned by Sandler Capital IV FTE Partners, LP and 145,835
shares of common stock and a warrant to purchase 29,169 shares of common
stock at an exercise price of $3.43 per share owned by Sandler Capital
Management. The post-offering columns also reflect the sale on February 3,
2000 by Sandler Capital Management to Wheatley Partners II of 145,835
shares of common stock and warrants to purchase 29,169 shares of common
stock. 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.
(9) Includes warrants to purchase 277,085 shares of common stock at an exercise
price of $0.36 per share, 249,085 shares of common stock at an exercise
price of $0.86 per share, 153,696 shares of common stock at an exercise
price of $0.97 per share and warrants to purchase 1,386 shares of common
stock at an exercise price of $3.43 per share. Mr. Greif disclaims
beneficial ownership of an aggregate of 218,750 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 4,564,000
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.
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<PAGE>
(10) Includes warrants to purchase 918,239 shares of common stock at an
exercise price of $0.97 per share. The address of Capital Express, LLC is
1100 Valleybrook Avenue, Lyndhurst, New Jersey 07071.
(11) The address of Internet Web Builders, LLC is 1270 Avenue of the Americas,
Suite 1905, New York, New York 10019.
(12) Includes warrants to purchase 700,000 shares of common stock at an
exercise price of $.0029 per share and 24,136 shares of common stock at an
exercise price of $3.43 per share. The address of Staples, Inc. is 500
Staples Drive, Framingham, Massachusetts 01702.
(13) Includes warrants to purchase 420,000 shares of common stock at an
exercise price of $2.14 per share. The address of Palisade Private
Partnership LP is One Bridge Plaza, Fort Lee, New Jersey 07024.
(14) Includes warrants to purchase 291,669 shares of common stock at an
exercise price of $3.43 per share. The address of Concentric Network
Corporation is 1400 Parkmoor Avenue, San Jose, California 95126.
(15) Includes 931,000 shares of common stock and warrants to purchase 186,200
shares of common stock at an exercise price of $3.43 per share owned by
Sandler Capital IV Partners, LP; 381,500 shares of common stock and
warrants to purchase 76,300 shares of common stock at an exercise price of
$3.43 per share owned by Sandler Capital IV FTE Partners, LP and 145,835
shares of common stock and warrants to purchase 29,169 shares of common
stock at an exercise price of $3.43 per share owned by Sandler Capital
Management. The post-offering columns also reflect the sale on February 3,
2000 by Sandler Capital Management to Wheatley Partners II of 145,835
shares of common stock and warrants to purchase 29,169 shares of common
stock. The address of the Sandler Capital Entities is 767 Fifth Avenue,
45th Floor, New York, New York 10153.
(16) The address of Hikari Tsushin Inc. is 1285 Avenue of the Americas, 35th
Floor, New York, New York 10019.
(17) The address of Dawn Patrick is 1237 Knickerbocker Avenue, Mamaroneck, New
York 10543.
72
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 31, 1999, there were 25,759,380 shares of common stock
outstanding held of record by 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 for the payment
of dividends, 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 4,694,333 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 of preferred stock, 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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<PAGE>
Warrants
As of December 31, 1999, there were warrants outstanding to purchase a
total of 6,155,675 shares of common stock, including:
Shares Issuable Exercise Price
Upon Exercise Per Share Expiration Date
- ----------------- --------------- ----------------
350,000 $ 0.36 January 2003
350,000 0.86 January 2003
2,397,501 0.97 June 2005
221,669 0.36 May 2003
221,669 0.86 May 2003
3,500 0.43 September 2008
29,999 0.57 February 2009
5,250 0.57 March 2009
420,000 2.14 February 2004
185,490 4.08 March 2004
700,000 0.0029 May 2002
5,250 1.43 May 2009
308,959 4.08 May 2004
5,250 1.57 June 2009
938,888 3.43 June 2004
12,250 2.86 November 2009
The warrants are subject to customary adjustments for stock splits,
mergers, reclassification and similar transactions.
Options
Options to purchase a total of 7,350,000 shares of common stock may be
granted under our stock option plans. This share reserve will automatically be
increased on the first trading day of January of each calendar year, beginning
in January 2001, by a number of shares equal to 2% of the total number of
shares of common stock outstanding on the last trading day of the prior
calendar year, but no such annual increase will exceed 1,750,000 shares. As of
December 31, 1999, there were outstanding options to purchase a total of
1,492,435 shares of common stock. In addition, as of December 31, 1999, there
were outstanding non-plan options to purchase 1,785,000 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 consummation of this
offering, the holders of 29,894,846 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. Although
the Company has permitted the selling stockholders to include shares of common
stock in this offering in connection with the underwriters' over-allotment
option, piggyback registration rights to include shares in this offering have
been waived.
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<PAGE>
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. In addition, we have a right,
exercisable only once in any 12-month period, to defer or delay the
registration process for a period of up to 90 days if our board of directors
determines that registration would not be in our best interests at that time.
We also have the right not to effect a demand registration within 180 days
after the effective date of any prior underwritten registration of our common
stock. 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:
75
<PAGE>
o not earlier than 120 days prior to the annual meeting of stockholders;
and
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 American Stock
Transfer and Trust Company.
Listing
We have applied to have our common stock approved for quotation on The
Nasdaq National Market under the trading symbol "RCOM."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices of our common stock. Upon the
consummation of this offering, we will have outstanding an aggregate of
30,761,132 shares of our common stock, based on the number of shares
outstanding at January 31, 2000 and assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options and warrants. 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:
<TABLE>
<CAPTION>
Number of
Shares Date
- ------------------ -----------------------------------------------------------
<S> <C>
5,000,000 After the date of this prospectus, freely tradeable shares
sold in this offering.
26,880 After 90 days from the date of this prospectus, shares
eligible for resale under Rule 144 (subject in some cases
to volume restrictions).
23,245,177 After 180 days from the date of this prospectus, the
180-day lock-up will be released and these shares will be
eligible for sale in the public market under Rule 144
(subject in some cases to volume restrictions), Rule
144(k) or Rule 701.
2,312,325 After one year from the date of the effectiveness of the
registration statement relating to our initial public
offering, these shares, which are held by Staples, will be
eligible for sale in the public market under Rule 144
(subject to volume restrictions).
</TABLE>
The remaining 176,750 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 and executive officers and stockholders beneficially
owning at least 95% of our common stock prior to the offering have signed
lock-up agreements with the underwriters, which generally require them not to
transfer or otherwise 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. Deutsche Bank Securities may waive, in its
sole discretion, these lock-up restrictions. See "Underwriting--Lock-up." In
addition, Staples, Inc. has executed a lock-up with us, which generally
requires it not to transfer or otherwise dispose of any of our securities for a
period of one year following the date of our initial public offering, unless
the initial public offering is not consummated by May 2000 or if the transfer
is to an affiliate of Staples.
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 307,611 shares immediately after the offering, or the average
weekly trading volume of the common stock on the Nasdaq National Market during
the four
77
<PAGE>
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.
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 29,894,846 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 11,243,435 shares of common stock reserved for issuance
under our stock option plans and employee stock purchase 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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<PAGE>
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 SoundView Technology Group, Inc. 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 .........
SoundView Technology Group, Inc. .............
----------
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 the
underwriting commitments of the nondefaulting underwriters may be increased or
the underwriting agreement may be terminated depending upon the amount of
shares of common stock that the defaulting underwriter was to have purchased.
We have agreed to indemnify the underwriters against liabilities,
including liabilities under the Securities Act, liabilities arising from
breaches of representations and warranties contained in the underwriting
agreement, and liabilities incurred in connection with the directed share
program referred to below, 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:
o the representations and warranties made by us to the underwriters being
true;
o there being no change in the financial markets; and
o our delivering customary closing documents to the underwriters, including
opinions of counsel.
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 115 filed public offerings of equity securities, of which 82 have
been completed, and has acted as a syndicate member in an additional 56 public
offerings of equity securities. Thomas Weisel Partners LLC does not
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<PAGE>
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.
Robert H. Lessin, Co-Chief Executive Officer of Wit SoundView's affiliate,
Wit Capital Corporation serves as a member of our Board of Advisors and
received warrants to purchase 5,250 shares of our common stock as consideration
for his services. In addition to his option and warrant holdings, Mr. Lessin
owned 746,666 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 SoundView's affiliate, Wit Capital Corporation. In
addition, other dealers purchasing shares from Wit SoundView in this offering
have agreed to make a prospectus in electronic format available on websites
maintained by each of these dealers. Other than the prospectus in electronic
form, the information on Wit Capital Corporation's website and any information
contained on any other website maintained by Wit Capital Corporation is not
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 494,449 shares of
our common stock at a price of $4.08 per share 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 underwriting discount is equal to the initial public
offering price per share less the amount paid to us per share and is intended
to be 7% of the initial public offering price. The underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share of common
stock on sales to 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>
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<PAGE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $1.2 million and are payable by us.
Over-allotment Option
We and the selling stockholders have granted an option to the
underwriters, exercisable for 30 days after the date of this prospectus, to
purchase up to an aggregate of 750,000 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 the conditions stated above, 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.
Reserved Shares
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to approximately 7.5% of the shares offered hereby to
be sold to some of our directors, officers, employees, business associates and
family members of these 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. Reserved shares will not be
subject to a lock-up except as may be required by the Conduct Rules of the
National Association of Securities Dealers. These rules will require that some
purchasers of reserved shares be subject to three-month lock-ups if they are
affiliated with or associated with NASD members or if they or members of their
immediate families hold senior positions at financial institutions.
Lock-up
We and our executive officers and directors and stockholders beneficially
owning at least 95% in the aggregate of our common stock prior to the offering,
including all principal stockholders, have agreed that subject to limited
exceptions, without the prior written consent of Deutsche Bank Securities Inc.
for a period of 180 days after the date of this prospectus, will not directly
or indirectly:
o offer, sell or otherwise dispose of or transfer any shares of our common
stock or securities convertible into or exchangeable or exercisable for
our common stock, 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 the economic
benefit of ownership of our common stock.
Deutsche Bank Securities Inc. may waive, in its sole discretion, these
lock-up restrictions.
Nasdaq National Market Quotation
We have applied 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 primary factors to be
considered in determining the initial public offering price will include:
o prevailing market conditions;
o the valuation multiples of publicly traded companies that the
representatives believe are comparable to us;
o our recent historical financial information;
81
<PAGE>
o our prospects; and
o an assessment of our management.
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 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 31, 1999 held
warrants to purchase 5,250 shares of common stock.
EXPERTS
The financial statements as of December 31, 1998 and 1999, and for each of
the three years in the period ended December 31, 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.
82
<PAGE>
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.
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.
83
<PAGE>
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, 1998 and 1999 ...................................... F-3
Statements of Operations for the years ended December 31, 1997, 1998 and 1999 ..... F-4
Statements of Stockholders' (Deficit) Equity for the years ended December 31, 1997,
1998 and 1999 .................................................................... F-5
Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999 ..... F-6
Notes to Financial Statements ..................................................... F-7
</TABLE>
F-1
<PAGE>
Report of 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, 1998 and 1999, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 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
January 31, 2000
F-2
<PAGE>
Register.com, Inc.
Balance Sheet
<TABLE>
<CAPTION>
Pro Forma
December 31,
--------------------------------- December 31,
1998 1999 1999
-------------- ---------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents ........................................ $ 1,284,648 $ 40,944,122 $ 40,944,122
Short-term investments ........................................... -- 4,723,050 4,723,050
Accounts receivable, less allowance of $65,947 and $314,516,
respectively ................................................... 67,509 2,516,186 2,516,186
Prepaid domain name registry fees ................................ -- 4,954,730 4,954,730
Deferred tax asset ............................................... -- 8,578,045 8,578,045
Deferred offering costs .......................................... -- 390,000 390,000
Other current assets ............................................. 3,925 195,196 195,196
------------ ------------- -------------
Total current assets .......................................... 1,356,082 62,301,329 62,301,329
Fixed assets, net ................................................. 224,300 2,458,386 2,458,386
Prepaid domain name registry fees, net of current portion ......... -- 3,576,331 3,576,331
Other assets ...................................................... 30,643 -- --
------------ ------------- -------------
Total assets .................................................. $ 1,611,025 $ 68,336,046 $ 68,336,046
============ ============= =============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses ............................ $ 610,474 $ 8,513,079 $ 8,513,079
Income taxes payable ............................................. -- 5,608,198 5,608,198
Deferred revenue, net ............................................ 113,527 18,193,871 18,193,871
Capital lease obligations, current portion ....................... 10,425 5,967 5,967
Notes payable .................................................... 52,040 -- --
Other current liabilities ........................................ -- 166,857 166,857
------------ ------------- -------------
Total current liabilities ..................................... 786,466 32,487,972 32,487,972
------------ ------------- -------------
Deferred revenue, net of current portion .......................... -- 13,907,361 13,907,361
Capital lease obligations, net of current portion ................. 1,779 27,858 27,858
------------ ------------- -------------
Total liabilities ............................................. 788,245 46,423,191 46,423,191
------------ ------------- -------------
Commitments and contingencies
Stockholders' equity
Preferred stock -- $.0001 par value, 5,000,000 shares authorized;
Series A convertible preferred; none issued and outstanding at
December 31, 1997 and 1998, 4,694,333 issued and outstanding
at December 31, 1999 and none issued and outstanding pro
forma (liquidation preference of $16,094,844) .................. -- 469 --
Common stock -- $.0001 par value, 60,000,000 shares authorized;
17,295,882, and 21,065,047 shares issued and outstanding at
December 31, 1998 and 1999, respectively, 25,759,380 issued
and outstanding pro forma ...................................... 1,729 2,106 2,575
Additional paid-in capital ....................................... 4,301,871 36,709,821 36,709,821
Unearned compensation ............................................ (105,967) (2,647,770) (2,647,770)
Accumulated deficit .............................................. (3,374,853) (12,151,771) (12,151,771)
------------ ------------- -------------
Total stockholders' equity .................................... 822,780 21,912,855 21,912,855
------------ ------------- -------------
Total liabilities and stockholders' equity .................... $ 1,611,025 $ 68,336,046 $ 68,336,046
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Register.com, Inc.
Statement of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
<S> <C> <C> <C>
1997 1998 1999
---- ---- ----
Net revenues .............................................. $ 713,263 $ 1,319,359 $ 9,644,552
Cost of revenues .......................................... 191,539 461,152 3,082,499
---------- ------------ ------------
Gross profit ........................................... 521,724 858,207 6,562,053
---------- ------------ ------------
Operating costs and expenses
Sales and marketing ...................................... 366,975 863,720 7,149,693
Research and development ................................. 71,471 276,687 1,767,158
General and administrative (exclusive of non-cash
compensation) .......................................... 263,017 795,425 2,380,190
Non-cash compensation .................................... -- 149,682 4,929,200
---------- ------------ ------------
Total operating cost and expenses ...................... 701,463 2,085,514 16,226,241
---------- ------------ ------------
Loss from operations ...................................... (179,739) (1,227,307) (9,664,188)
Other income (expenses), net .............................. (25,787) 66,559 887,270
---------- ------------ ------------
Net loss ............................................... $ (205,526) $ (1,160,748) $ (8,776,918)
========== ============ ============
Basic and diluted net loss per share ................... $ (.02) $ (.07) $ (.46)
========== ============ ============
Weighted average common shares used in basic
and diluted net loss per share ........................ 8,884,709 15,697,013 19,117,027
========== ============ ============
Pro forma basic and diluted net loss per share
(unaudited) .............................................. $ (.40)
============
Weighted average common shares used in pro forma
basic and diluted net loss per share (unaudited) ......... 22,112,252
============
</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 .................... -- $ -- -- $ -- 8,884,218 $ 888
Issuance of common
stock in
connection with
notes payable .......... -- -- -- -- 11,200 1
Net loss ................ -- -- -- -- -- --
-- ------- -- ----- --------- ------
Balance at December
31, 1997 ................ -- -- -- -- 8,895,418 889
Issuance of common
stock in exchange
for accrued
compensation ........... -- -- -- -- 945,000 95
Exercise of warrants
issued in
connection with
stockholder loans ...... -- -- -- -- 411,766 41
Conversion of
stockholder note
payable ................ -- -- -- -- 123,529 12
Sale of common
stock .................. -- -- -- -- 6,906,666 691
Issuance of common
stock in exchange
for services ........... -- -- -- -- 13,503 1
Issuance of common
stock warrants for
services ............... -- -- -- -- -- --
Issuance of
compensatory
stock options .......... -- -- -- -- -- --
Amortization of
unearned
compensation ........... -- -- -- -- -- --
Net loss ................ -- -- -- -- -- --
-- ------- -- ----- --------- ------
Balance at December
31, 1998 ................ -- -- -- -- 17,295,882 1,729
Sale of exchangeable
preferred stock ........ 1,499,999 150 -- -- -- --
Sale and issuance of
common stock and
warrants ............... -- -- -- -- 2,041,666 204
Sale and issuance of
series A
convertible
preferred stock and
warrants ............... -- -- 4,694,333 469 -- --
Conversion of
exchangeable
preferred stock to
common stock ........... (1,499,999) (150) -- -- 1,499,999 150
Issuance of common
stock warrants for
services ............... -- -- -- -- -- --
Issuance of
compensatory
stock options .......... -- -- -- -- -- --
Amortization of
unearned
compensation ........... -- -- -- -- -- --
Modification of
common stock
warrants ............... -- -- -- -- -- --
Exercise of employee
stock options .......... -- -- -- -- 175,000 18
Exercise of warrants..... -- -- -- -- 52,500 5
Net loss ................ -- -- -- -- -- --
---------- ------- --------- ----- ---------- ------
Balance at December
31, 1999 ................ -- $ -- 4,694,333 $ 469 21,065,047 $2,106
========== ======= ========= ===== ========== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Additional
Paid-in Unearned Accumulated
Capital Compensation Deficit Total
-------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1,
1997 .................... $ 1,146,546 $ -- $ (2,008,579) $ (861,145)
Issuance of common
stock in
connection with
notes payable .......... 3,999 -- -- 4,000
Net loss ................ -- -- (205,526) (205,526)
------------ ------------- -------------- ------------
Balance at December
31, 1997 ................ 1,150,545 -- (2,214,105) (1,062,671)
Issuance of common
stock in exchange
for accrued
compensation ........... 261,571 -- -- 261,666
Exercise of warrants
issued in
connection with
stockholder loans ...... 99,959 -- -- 100,000
Conversion of
stockholder note
payable ................ 44,107 -- -- 44,119
Sale of common
stock .................. 2,490,041 -- -- 2,490,732
Issuance of common
stock in exchange
for services ........... 5,786 -- -- 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 ................ 4,301,871 (105,967) (3,374,853) 822,780
Sale of exchangeable
preferred stock ........ 2,840,625 -- -- 2,840,775
Sale and issuance of
common stock and
warrants ............... 6,693,293 -- -- 6,693,497
Sale and issuance of
series A
convertible
preferred stock and
warrants ............... 15,289,552 -- -- 15,290,021
Conversion of
exchangeable
preferred stock to
common stock ........... -- -- -- --
Issuance of common
stock warrants for
services ............... 721,858 -- -- 721,858
Issuance of
compensatory
stock options .......... 2,871,145 (2,871,145) -- --
Amortization of
unearned
compensation ........... -- 329,342 -- 329,342
Modification of
common stock
warrants ............... 3,878,000 -- -- 3,878,000
Exercise of employee
stock options .......... 62,482 -- -- 62,500
Exercise of warrants..... 50,995 -- -- 51,000
Net loss ................ -- -- (8,776,918) (8,776,918)
------------ ------------- -------------- ------------
Balance at December
31, 1999 ................ $ 36,709,821 $ (2,647,770) $ (12,151,771) $ 21,912,855
============ ============= ============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Register.com, Inc.
Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1997 1998 1999
--------------- ----------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss .......................................... $ (205,526) $ (1,160,748) $ (8,776,918)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities
Deferred revenues .............................. (20,568) 81,489 31,987,705
Depreciation and amortization .................. 41,182 121,474 347,860
Compensatory stock options and
warrants expense ............................. 4,000 163,797 4,929,200
Deferred income taxes .......................... -- -- (8,578,045)
Changes in assets and liabilities affecting
operating cash flows
Accounts receivable ............................. (5,348) (54,605) (2,448,677)
Prepaid domain name registry fees ............... -- -- (8,531,061)
Other current assets ............................ (17,239) 22,404 (191,271)
Other assets .................................... -- (28,375) 30,643
Accounts payable and accrued expenses 80,711 161,747 2,764,386
Accrued registry fees ........................... -- -- 3,175,982
Accrued advertising ............................. -- -- 1,962,235
Income taxes payable ............................ -- -- 5,608,198
Other current liabilities ....................... -- -- 166,857
----------- ------------- ------------
Net cash provided by (used in)
operating activities ......................... (122,788) (692,817) 22,447,094
----------- ------------- ------------
Cash flows from investing activities
Purchases of fixed assets ......................... (15,578) (267,330) (2,543,715)
Deferred offering costs ........................... -- -- (390,000)
Purchases of investments .......................... -- -- (4,723,050)
----------- ------------- ------------
Net cash used in investing activities .......... (15,578) (267,330) (7,656,765)
----------- ------------- ------------
Cash flows from financing activities
Proceeds from notes payable ....................... 358,040 -- --
Repayment of notes payable ........................ (162,000) (286,000) (52,040)
Net proceeds from issuance of common
stock and warrants .............................. -- 2,490,732 6,806,999
Net proceeds from issuance of preferred
stock and warrants .............................. -- -- 18,130,796
Principal payments on capital lease
obligations ..................................... (17,903) (20,782) (16,610)
----------- ------------- ------------
Net cash provided by financing
activities ................................... 178,137 2,183,950 24,869,145
----------- ------------- ------------
Net increase in cash and cash equivalents .......... 39,771 1,223,803 39,659,474
Cash and cash equivalents at beginning of
period ............................................ 21,074 60,845 1,284,648
----------- ------------- ------------
Cash and cash equivalents at end of period ......... $ 60,845 $ 1,284,648 $ 40,944,122
=========== ============= ============
Supplemental disclosure of cash flow
information
Cash paid for interest ............................ $ 21,912 $ 14,510 $ 6,008
Cash paid for income taxes ........................ $ -- $ -- $ 2,969,847
</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.
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.
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.
Stock Split
In January 2000, the Company effected a 3.5 to 1 stock split. All common
and preferred shares, options, warrants and related per-share data reflected in
the accompanying financial statements and notes thereto have been adjusted to
give retroactive effect to the stock split.
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 $6,700,000 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.
F-7
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
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 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. If such assets are
considered impaired, the amount of the impairment loss recognized is measured
as the amount by which the carrying value of the asset exceeds the fair value
of the asset, fair value being determined based upon discounted cash flows or
appraised values, depending on the nature of the asset. 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. Referral
commissions earned by our private label and co-brand partners are 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 represent amounts paid to the registry
for .com, .net and .org 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.
F-8
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
Deferred offering costs
In connection with the Company's proposed initial public offering ("IPO"),
the Company has incurred certain costs which have been deferred. In the event
the proposed IPO is not consummated, the deferred offering costs will be
expensed.
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 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 $4,089,000 for the years ended December 31, 1997, 1998, and 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 December 31, 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.
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 year ended December 31, 1999 does not
include the effect of 4,694,333 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, 1998 and 1999 does not include 35,000,
2,530,850 and 3,277,435, respectively, of stock options outstanding with
exercise prices ranging from $.17 to $1.71 per share because their effects are
anti-dilutive. Additionally, diluted net loss per share for the years ended
December 31, 1997, 1998 and 1999 excludes 1,480,295, 3,596,839, and 6,155,675,
respectively, of common shares issuable upon the exercise of outstanding
warrants, with exercise prices ranging from $.01 to $4.08 per share because
their effects are anti-dilutive.
Pro forma information (unaudited)
The pro forma balance sheet at December 31, 1999 reflects the automatic
conversion of 4,694,333 shares of the Series A Convertible Preferred Stock into
4,694,333 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, 1998 or 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 establishes standards for related disclosures
about products and services, geographic areas and
F-10
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
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.
In December 1999, the Staff of the Securities and Exchange Commission
released Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition".
SAB 101 provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. The additional guidance provided by SAB 101
had no effect on the Company's financial statements.
3. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1999
------------- -------------
<S> <C> <C>
Computer equipment ...................................... $ 307,052 $2,060,848
Furniture and fixtures .................................. 46,341 93,865
Office equipment ........................................ 59,404 148,287
Leasehold improvements .................................. -- 691,743
---------- ----------
412,797 2,994,743
Less: accumulated depreciation and amortization ......... (188,497) (536,357)
---------- ----------
Total fixed assets ................................. $ 224,300 $2,458,386
========== ==========
</TABLE>
Included in office equipment is $97,675 of assets under capital lease at
December 31, 1999. Accumulated amortization of such assets amounted to $63,454
at December 31, 1999.
4. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
December 31,
---------------------------
1998 1999
----------- -------------
Trade accounts payable ............ $334,023 $ 458,226
Accrued payroll ................... 32,361 664,377
Accrued registry fees ............. -- 3,175,982
Provision for chargebacks ......... -- 894,095
Accrued advertising ............... -- 1,962,235
Accrued professional fees ......... -- 990,500
Other ............................. 244,090 367,664
-------- ----------
$610,474 $8,513,079
======== ==========
F-11
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
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 11,200 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, 1998, the Company was indebted to a bank on notes
aggregating $52,040. 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 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 411,766 shares of common stock at $.24 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 123,529 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, 1998, and 1999,
respectively.
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.
Common Stock
In January and May 1998, the Company completed private placements of an
aggregate of 6,440,000 shares of common stock at $.36 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 1,143,338
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 2,450,001 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).
F-12
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
In June 1998, the Company completed a private placement of 466,666 shares
of common stock at $.43 per share, providing proceeds of $200,000.
In May 1999, the Company completed a private placement of 2,041,666 shares
of its common stock and a warrant to acquire 700,000 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 $6,693,497. Until such
time as the Company consummates its initial public offering, the Company must
obtain the written consent of the investor prior to entering into a merger,
consolidation or sale of substantially all of its assets at a price of less
than $3.43 per share. 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 308,959 shares of common stock at an exercise
price of $4.08 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 16,485,308 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 1,499,999
shares of exchangeable preferred stock at a price of $2.00 per share, providing
proceeds, net of expenses, of $2,840,775. The Company also issued the investor
warrants to acquire 420,000 shares of common stock at an exercise price of
$2.14 per share in exchange for financial consulting services (Note 8). In
addition, the Company issued the placement agent in the offering warrants to
acquire 185,490 shares of common stock at an exercise price of $4.08 per share
(Note 8). On August 15, 1999, the Exchangeable Preferred Stock automatically
converted into 1,499,999 shares of common stock.
Series A Convertible Preferred Stock
In June and July 1999, the Company completed a private placement of
4,694,333 shares of its Series A Convertible Preferred Stock (the "Series A
Stock") at $3.43 per share, providing proceeds, net of offering expenses, of
$15,290,021. In addition, the Company also issued the investors warrants to
acquire an aggregate of 938,888 shares of common stock at an exercise price of
$3.43 per share (Note 8). Additionally, the Company entered into a marketing
and distribution agreement with one investor who purchased 1,405,835 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
F-13
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
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
$5.14 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 $3.43 per share, plus any declared but
unpaid dividends.
8. Warrants
In September 1996, the Company issued warrants to acquire an aggregate of
945,000 shares of common stock at $.17 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 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.
In January and April 1998, and in connection with a private placement of
common stock, the Company issued warrants to acquire 571,669 shares of common
stock at an exercise price of $.36 per share and warrants to acquire 571,669
shares of common stock at an exercise price of $.86 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, 2,450,001 shares of its common stock at $.36 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 2,450,001, and (iii) increase the
exercise price to $.97 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 December 1999, warrants to acquire 52,500 shares of common
stock were exercised, providing gross proceeds of $51,000.
In September 1998, the Company issued warrants to acquire an aggregate of
3,500 shares of common stock to consultants at an exercise price of $.43 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
F-14
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
the investor warrants to acquire 420,000 shares of common stock at an exercise
price of $2.14 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
700,000 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 45,749 shares of common stock to consultants at
exercise prices ranging from $.57 to $1.57 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 494,449 shares of common stock at an exercise price of $4.08 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 938,888 shares of common stock at an exercise price of
$3.43 per share. The warrants are exercisable through June 2004.
In November 1999, the Company issued warrants to acquire 12,250 shares of
common stock to a consultant at an exercise price of $2.86 per share. The
Company has recorded the estimated fair value of the warrants, in the amount of
$151,928, at the time of grant as consulting expense. The warrants are
exercisable through November 2009.
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 December 31, 1999:
Shares Issuable Exercise Price
Issuance Date Expiration Date Upon Exercise Per Share
- ---------------- ----------------- ----------------- ---------------
January 1998 January 2003 350,000 $ .36
January 1998 January 2003 350,000 $ .86
January 1998 June 2005 2,397,501 $ .97
April 1998 May 2003 221,669 $ .36
April 1998 May 2003 221,669 $ .86
September 1998 September 2008 3,500 $ .43
February 1999 February 2009 29,999 $ .57
March 1999 March 2009 5,250 $ .57
March 1999 February 2004 420,000 $ 2.14
March 1999 March 2004 185,490 $ 4.08
May 1999 May 2002 700,000 $ .01
May 1999 May 2009 5,250 $ 1.43
May 1999 May 2004 308,959 $ 4.08
June 1999 June 2009 5,250 $ 1.57
June 1999 June 2004 938,888 $ 3.43
November 1999 November 2009 12,250 $ 2.86
--------- ------
Total shares and average exercise 6,155,675 $ 1.50
========= ======
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 1,750,000
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") 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 2,275,000 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.
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:
Weighted-
Average
Number Exercise
of Shares Price
------------- ----------
Outstanding at December 31, 1996 ........... -- $ --
Granted .................................. 35,000 .17
Exercised ................................ -- --
Forfeited ................................ -- --
------ -----
Outstanding at December 31, 1997 ........... 35,000 .17
Granted .................................. 745,850 .42
Exercised ................................ -- --
Forfeited ................................ (35,000) .17
------- -----
Outstanding at December 31, 1998 ........... 745,850 .42
Granted .................................. 1,063,510 1.28
Exercised ................................ (175,000) .36
Forfeited ................................ (141,925) 1.12
--------- -----
Outstanding at December 31, 1999 ........... 1,492,435 $ 1.01
========= ======
Options available for future grant ......... 2,357,565
=========
The following table summarizes information about options outstanding under
the 1997 and 1999 Plans at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- ----------------------------
Weighted-
Number Average Weighted- Number Weighted
Outstanding at Remaining Average Exercisable at Average
Exercise December 31, Contractual Exercise December 31, Exercise
Price 1999 Life (Years) Price 1999 Price
- -------------- ---------------- -------------- ----------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
$ .17-$.43 428,750 8.4 $ .35 218,750 $ .35
$ .50-$.86 339,850 9.0 $ .71 112,613 $ .75
$1.00-$1.43 723,835 9.6 $ 1.41 117,843 $ 1.40
------- --- ------ ------- ------
1,492,435 9.1 $ 1.01 449,206 $ .72
========= === ====== ======= ======
</TABLE>
In January 1998, the Company granted an aggregate of 1,750,000 non-plan
options to an officer and principal stockholder of the Company. 525,000 of such
options have an exercise price of $.17 per share and vested immediately. The
remaining 1,225,000 of such options vest over a period of 24 months and have
the following exercise prices: 350,000 are exercisable at $.46 per share,
350,000 are exercisable at $.86 per share and the remaining 525,000 are
exercisable at $1.71 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.
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,
--------------------------------------------------
1997 1998 1999
-------------- ---------------- ----------------
<S> <C> <C> <C>
Net loss
As reported ........................... $ (205,526) $ (1,160,748) $ (8,776,918)
Pro forma ............................. $ (205,526) $ (1,164,635) $ (8,828,475)
Net loss per share
As reported-basic and diluted ......... $ (0.08) $ (0.26) $ (0.46)
Pro forma basic and diluted ........... $ (0.08) $ (0.26) $ (0.46)
</TABLE>
The fair value of each option grant to employees 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,
1998 and 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%
In October 1998, the Company granted non-plan options to acquire 35,000
shares of the Company's common stock at exercise prices ranging from $.17 to
$.36 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 options and warrants (Note 8) granted to non-employees
is estimated using the Black-Scholes option-pricing model. 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 to non-employees made in 1998 and 1999 were
as follows: risk free interest rate of 6.1% and 5.5%, respectively; expected
lives of 5 to 10 years based upon the term of the option or warrant; expected
dividends of 0% for each year; and a volatility of 100% for each year.
The following table is a summary of the weighted average exercise price
and grant date fair values of options and warrants granted to employees and
consultants during the years ended December 31, 1997, 1998 and 1999:
F-18
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
<TABLE>
<CAPTION>
1997 1998 1999
---------------------- ----------------------- -----------------------
Exercise Fair Exercise Fair Exercise Fair
Price Value Price Value Price Value
---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Options granted to employees
and consultants:
Exercise price less than fair
value of stock on date of
grant ............................. $-- $-- $ 0.27 $ 0.29 $ 1.28 $ 3.10
Exercise price equal to fair value
of stock on date of grant ......... 0.17 0.09 0.40 0.01 -- --
Exercise price greater than fair
value of stock on date of
grant ............................. -- -- 1.11 -- -- --
Warrant grants to employees and
consultants for services:
Exercise price less than fair
value of stock on date of
grant ............................. $-- $-- $ 0.43 $ 0.74 $ 1.22 $ 3.93
Exercise price equal to fair value
of stock on date of grant ......... -- -- 0.35 0.16 -- --
Exercise price greater than fair
value of stock on date of
grant ............................. -- -- -- -- 2.14 1.17
</TABLE>
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 executive officer. These expenses aggregated
approximately $18,682 and $577 in 1997 and 1998, respectively. Included in
accounts payable are approximately $4,890 due to the aforementioned related
party at December 31, 1998.
Concentric Network Corporation
In June 1999, the Company entered into a one-year marketing and
distribution agreement with Concentric Network 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 1,405,835 shares of the Company's Series A
Convertible Preferred Stock (Note 7). In December 1999, Concentric agreed to
purchase additional advertising on our website for seven months commencing in
March 2000 at a value of $100,000 per month.
F-19
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
11. Income Taxes
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
$11,921,024 at December 31, 1997, 1998 and 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 $3,342,979 at December 31, 1997, 1998, and 1999, respectively,
to offset the deferred tax benefit amount.
The provision for income taxes for the years ended December 31, 1997,
1998, and 1999 consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1998 1999
------ ------ ---------------
<S> <C> <C> <C>
Current:
Federal ................................ $-- $-- $5,210,244
State .................................. -- -- 3,367,801
--- --- ----------
Total current .......................... -- -- 8,578,045
--- --- ----------
Deferred:
Federal ................................ -- -- (5,210,244)
State .................................. -- -- (3,367,801)
--- --- ----------
Total deferred ......................... -- -- (8,578,045)
--- --- ----------
Total provision for income taxes ......... $-- $-- $ --
=== === ==========
</TABLE>
F-20
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
The components of the net deferred tax asset as of December 31, 1997,
1998, and 1999 consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1997 1998 1999
------------- --------------- ---------------
<S> <C> <C> <C>
Deferred tax assets:
Operating loss carryforward ............... $ 538,957 $ 982,066 $ --
Allowance for doubtful accounts ........... 24,703 29,620 144,070
Accrued expenses .......................... 124,139 121,137 472,264
Stock compensation ........................ -- -- 547,551
Deferred revenue .......................... 14,444 50,990 14,704,541
---------- ------------ ------------
Total deferred tax assets .............. 702,243 1,183,813 15,868,426
Deferred tax liabilities:
Prepaid domain name registry fees ......... -- -- 3,907,804
Depreciation and amortization ............. -- (22,931) 39,598
---------- ------------ ------------
Total deferred tax liabilities ......... -- (22,931) 3,947,402
Net deferred tax asset ...................... 702,243 1,206,744 11,921,024
Less: valuation allowance ................... (702,243) (1,206,744) (3,342,979)
---------- ------------ ------------
Deferred tax asset .......................... $ -- $ -- $ 8,578,045
========== ============ ============
</TABLE>
The financial statement income tax provision differs from income taxes
determined by applying the statutory Federal income tax rate to the financial
statement net loss for the years ended December 31, 1997, 1998, and 1999 as a
result of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Tax benefit at Federal statutory rate ....................... (34.0)% (34.0)% (35.0)%
State income tax benefit, net of Federal tax charge ......... ( 7.1) ( 8.0) (11.8)
Non-deductible compensation expenses ........................ -- .1 15.5
Valuation allowance ......................................... 41.1 41.9 31.3
----- ----- -----
--% --% --%
====== ====== ======
</TABLE>
F-21
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
12. Commitments
Operating and Capital leases
The Company leases office facilities and equipment under operating leases
expiring through 2009. The Company also leases telephone and other office
equipment under capital leases expiring through 2004. Future minimum lease
payments due under noncancellable operating leases and capital leases were as
follows:
<TABLE>
<CAPTION>
Operating Capital
------------- ------------
<S> <C> <C>
Year ending December 31,
2000 .................................................... $ 269,076 $ 10,704
2001 .................................................... 332,072 10,704
2002 .................................................... 342,084 10,704
2003 .................................................... 352,295 10,704
2004 .................................................... 367,864 3,568
Thereafter .............................................. 1,977,959 --
---------- ---------
Total minimum lease payments ......................... $3,641,350 46,384
==========
Less: amount representing interest ........................ (12,559)
---------
Present value of future minimum lease payments ............ 33,825
Less: current portion ..................................... (5,967)
---------
Capital lease obligations, net of current portion ......... $ 27,858
=========
</TABLE>
Rent expense for the years ended December 31, 1997, 1998, and 1999 was
approximately $14,000, $43,000 and $220,000, respectively.
Employment agreements
In the normal course of business, the Company has entered into two
employment agreements with its 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 December 31,
2000 and 2001 are approximately $1,800,000 (including $250,000 to Concentric --
Note 10) and $750,000, 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 January 2000, the Company's stockholders approved the 2000 Stock
Incentive Plan (the "2000 Plan"). The 2000 Plan will serve as the successor to
the 1997 and the 1999 Plans.
F-22
<PAGE>
Register.com, Inc.
Notes to Financial Statements -- (Continued)
All outstanding options under the 1997 and 1999 Plans will be incorporated into
the 2000 Plan, and no further option grants would be made under the predecessor
plan. The maximum aggregate number of shares reserved for issuance under the
2000 Plan is 7,350,000. All non-employee board members who first join the board
on or after January 26, 2000 will automatically be granted an option to acquire
35,000 shares of common stock, which will vest over two years. In addition,
each non-employee board member will receive an annual option grant to purchase
5,250 shares of common stock, which will vest over one year, after the initial
grant of 35,000 is fully vested.
In January 2000, the Company's stockholders approved the Employee Stock
Purchase Plan (the "ESPP"). The ESPP is intended to qualify under Section 423
of the Code in order to provide employees of the Company with an opportunity to
purchase Common Stock through payroll deductions. An aggregate of 350,000
shares have been reserved for issuance under the ESPP, plus an annual increase
on the first trading day of each calendar year, beginning in 2001, equal to the
lessor of (i) .25% of the outstanding shares on such date or (ii) 140,000
shares.
In January 2000, the Company filed an amendment to its certificate of
incorporation to increase the authorized shares of Common Stock to 60,000,000.
In January 2000, the Company granted options to acquire an aggregate of
1,075,851 shares of common stock to employees at $12.86 per share. During the
first quarter of 2000, the Company will record approximately $3,400,000 of
unearned compensation based upon the difference between the fair value of the
common stock on the date of grant and the exercise price of the options. The
unearned compensation will be amortized over the 42 month vesting period of the
options.
In January 2000, Concentric agreed to purchase an additional $800,000 of
advertising space on our website for the period from September to December
2000.
Unaudited
In February 2000, the Company entered into an employment agreement with
its chief executive officer ("CEO") for a period of 42 months. Under the terms
of the agreement, the CEO is to receive minimum annual compensation of $200,000
per year and options to purchase 525,000 shares of common stock. 175,000 of
such options will be exercisable at 110% of the IPO price, an additional
175,000 of such options will be exercisable at 140% of the IPO price and the
remaining 175,000 options will be exercisable at 160% of the IPO price. The
options will vest in equal installments over 42 months.
In February 2000, the Company purchased 476,784 shares of Series A
Convertible Preferred Stock and warrants to acquire an additional 95,357 shares
of Series A Convertible Preferred Stock of Great Domains.com, Inc. ("Great
Domains"), representing approximately 10% of the outstanding voting stock of
Great Domains, for $2,500,000.
In February 2000, the Company granted options to acquire 594,396 shares of
common stock to employees at the IPO price per share.
In February 2000, a principal stockholder of the Company entered into an
agreement to sell warrants to acquire an aggregate of 918,239 shares of the
Company's common stock to a second principal stockholder. The sale price of the
warrants will be at a price less than the deemed fair value of the warrants as
calculated using the Black-Scholes Model. As a result the Company will record
approximately $400,000 of expense related to this transaction in the first
quarter of 2000.
F-23
<PAGE>
[Inside Back Cover]
The words "Register..." "...your family" "...your business" "...your brand"
appearing from top to bottom on the page.
Next to "your family" is a picture of a young boy holding a drawing with the tag
line "I registered my imagination" and www.emmettsworld.com underneath.
Next to "your business" is a picture of a man holding a diamond necklace with
two security guards behind him with the tag line "I registered my rocks" and
www.auctionjeweler.com underneath.
Next to "your business" is a picture of a man sitting on cardboard boxes with
the tag line "I registered my brand" and www.staples.com underneath.
"The above are reproductions of advertisements for our domain name registration
services." appears at the bottom of the page.
<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 .......................... 3
Risk Factors ................................ 8
Use of Proceeds ............................. 23
Dividend Policy ............................. 23
Capitalization .............................. 25
Dilution .................................... 26
Selected Financial Data ..................... 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 29
Business .................................... 37
Management .................................. 51
Certain Relationships and Related
Transactions ............................. 64
Principal and Selling Stockholders .......... 70
Description of Capital Stock ................ 73
Shares Eligible for Future Sale ............. 77
Underwriting ................................ 79
Legal Matters ............................... 82
Experts ..................................... 82
Where You Can Find Additional
Information .............................. 83
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>
[GRAPHIC OMITTED]
5,000,000 Shares
Common Stock
Deutsche Banc Alex. Brown
Thomas Weisel Partners LLC
Legg Mason Wood Walker
Incorporated
WitSoundView
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 ................................... $ 25,806
NASD fee ............................................... 10,275
NASDAQ listing fee ..................................... 95,000
Legal fees and expenses ................................ 450,000
Accounting fees and expenses ........................... 325,000
Printing expenses ...................................... 225,000
Blue sky fees and expenses ............................. 5,000
Transfer Agent and Registrar fees and expenses ......... 3,500
Miscellaneous .......................................... 60,419
----------
Total .............................................. $1,200,000
==========
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 11,200 shares of common stock
to Kenneth Greif, the managing member of Internet Web Builders LLC, one
of its stockholders.
(2) From January 1997 through December 1997, the Registrant granted
employees options to purchase 35,000 shares of common stock at a
weighted average exercise price of $0.17.
(3) In January and May 1998, the Registrant issued an aggregate of
6,440,000 shares of common stock to Internet Web Builders LLC, Capital
Express LLC, Richard D. Forman and Peter A Forman, at a purchase price
of $0.36 per share, with proceeds, net of offering expenses, of
$2,290,732. In connection with these transactions, the Registrant
issued to Niles H. Cohen and Zachary Prenskey warrants to acquire an
aggregate of 571,669 shares of common stock at an exercise price of
$0.36 per share and 571,669 shares of common stock at an exercise price
of $0.86 per share. The Registrant also issued to Richard D. Forman,
Peter A. Forman, Dan B. Levine and Capital Express LLC, stockholders of
record prior to the private placement, warrants to purchase 2,450,001
shares of its common stock at an exercise price of $0.36 per share.
These warrants were modified in June 1999 to increase the exercise
price to $0.97 per share.
(4) In June 1998, the Registrant issued 446,666 shares of common stock to
a RHL Investors LLC at a purchase price of $0.43 per share, with
proceeds of $200,000.
(5) In August 1998, the Registrant issued 13,503 shares of common stock to
James Krantz, a consultant, in consideration for services.
(6) In September 1998, the Registrant issued to Steve Klebe, a consultant,
warrants to purchase an aggregate of 3,500 shares of common stock at an
exercise price of $0.43 per share.
(7) From January 1998 through December 1998, the Registrant granted
employees options to purchase 745,850 shares of common stock at a
weighted average exercise price of $0.41.
(8) In March 1999, the Registrant issued 1,499,999 shares of exchangeable
preferred stock to Palisade Private Partnership, LP at a price of $2.00
per share, with proceeds, net of expenses, of $2,840,775. The
Registrant also issued warrants to purchase 420,000 shares of common
stock at an exercise price of $2.14 per share to Palisade Private
Partnership, LP for financial advisory services.
(9) In May 1999, the Registrant issued 2,041,666 shares of its common
stock to Staples, Inc. at a purchase price of $3.43 per share for an
aggregate purchase price of $6,999,996. In connection with the
transaction, the Registrant also issued warrants to purchase 700,000
shares of common stock at an exercise price of $.0029 per share.
II-2
<PAGE>
(10) In June and July 1999, the Registrant issued 4,694,333 shares of its
Series A Convertible Preferred Stock to Bayview Investors Ltd.,
Bessemer Venture Partners IV L.P., Bessec Ventures IV L.P., Staples,
Inc., Concentric Network Corporation, Sandler Capital Partners IV
L.P., Sandler Capital IV FTE Partners, L.P., Sandler Capital
Management, Hikari Tsushin Inc., Irwin Leiber, Barry Rubenstein,
Richard A. Forman, Alan G. Breitman, Brian L. Greenspun Separate
Property Trust, Internet Web Builders LLC, Peter D. Forman, and Dan B.
Levine, at a price of $3.43 per share, with proceeds, net of offering
expenses, of $15,290,021. In connection with the transaction, the
Registrant also issued warrants to acquire an aggregate of 938,888
shares of common stock at an exercise price of $3.43 per share.
(11) In February 1999, the Registrant issued to Terrence Kaliner, a
consultant, a warrant to purchase 29,999 shares of common stock at an
exercise price of $0.57 per share. In March 1999, the Registrant
issued to Robert Lessin, a consultant, a warrant to purchase 5,250
shares of common stock at $0.57 per share. In May 1999, the Registrant
issued to Peter Varava, a consultant, a warrant to purchase 5,250
shares at an exercise price of $1.43 per share. In June 1999, the
Registrant issued to Stuart Levi, a consultant, a warrant to purchase
5,250 shares of common stock at an exercise price of $1.57 per share.
In November 1999, the Registrant issued to Peter Varvara, a
consultant, a warrant to purchase 12,250 shares of common stock at an
exercise price of $2.86 per share.
(12) From January 1999 through December 1999, the Registrant granted
employees options to purchase 1,063,510 shares of common stock at a
weighted average exercise price of $1.28.
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 494,449 shares of common stock at
an exercise price of $4.08 per share.
The issuances of the above securities were issued in transactions exempt
from registration under the Securities Act in reliance upon 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. The issuances
in Items 8, 9 and 10 and the issuance to Internet Web Builders, LLC in Item 3
were issued in transactions exempt from registration under the Securities Act
in reliance upon Section 506 of Regulation D.
All share numbers in this registration statement have been adjusted to
reflect a 3.5-for-one stock split of our common stock that was effectd in
January 2000 in the form of a stock dividend.
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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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.
4.6.1+ Form of warrant to purchase common stock issued to Series A Convertible
Preferred Stockholders.
4.6.2+ Warrant to purchase common stock issued to Staples, Inc.
4.6.3+ Warrant to purchase common stock issued to Palisade Private Partnership, LP.
4.6.4+ Form of warrant to purchase common stock issued to Niles H. Cohen and
Zachary Prensky.
4.6.5+ Form of Amended and Restated Common Stock Purchase Warrant -- Series A
issued to Richard D. Forman, Peter A. Forman, Dan Levine and Capital Express
LLC.
4.6.6+ Warrants to purchase common stock issued to Legg Mason Wood Walker,
Incorporated.
4.6.7+ Form of warrant to purchase common stock issued to consultants.
4.6.8+ Warrant to purchase common stock issued to Terrence Kaliner.
4.7.1+ Employee Stock Option Certificate issued to Richard D. Forman.
4.7.2+ Stock Option Certificate issued to Pondfield Associates, Inc.
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.
10.6+ 2000 Stock Incentive Plan.
10.7+ Employee Stock Purchase Plan.
10.8+ Employment Agreement, dated November 15, 1995, with Richard D. Forman.
10.8.2 Employment Agreement, dated February 27, 2000, with Richard D. Forman.
10.9+ Employment Agreement with Jack S. Levy.
10.10 Marketing Agreement, dated as of May 21, 1999, with Staples, Inc.
10.11 Joint Marketing and Distribution Agreement, dated as of June 25, 1999, with
Concentric Network Corporation.
10.12.1 Lock Up and Voting Agreement, dated February 2, 2000, by and between
Register.com, Inc. and Staples, Inc.
10.12.2 Lock Up and Voting Agreement, dated February 28, 2000, by and between
Register.com, Inc. and Staples, Inc.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 + Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1 + Powers of attorney.
24.2 + Power of attorney of Reginald Van Lee.
27.1 + Financial Data Schedule.
</TABLE>
- -------------
+ Previously filed.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Page Number Description
<S> <C>
S-1 Report of Independent Accountants on Financial Statement Schedule
S-2 Schedule II -- Valuation and Qualifying Accounts
</TABLE>
II-4
<PAGE>
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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on this 28th day of February, 2000.
REGISTER.COM, INC.
By: /s/ Richard D. Forman
--------------------------------
Richard D. Forman
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the registration statement has been signed by the following persons in
the capacities indicated on February 28, 2000:
<TABLE>
<CAPTION>
Signature Title(s)
--------- --------
<S> <C>
/s/ Richard D. Forman President, Chief Executive Officer and
- ------------------------------------- Director (Principal Executive Officer)
Richard D. Forman
*
- ------------------------------------- Vice President of Finance and Accounting
Alan G. Breitman (Principal Accounting and Financial Officer)
*
- -------------------------------------
Peter A. Forman Director
*
- -------------------------------------
Niles H. Cohen Director
*
- -------------------------------------
Samantha McCuen Director
*
- -------------------------------------
Mark S. Hoffman Director
*
- -------------------------------------
Reginald Van Lee Director
*By: /s/ Richard D. Forman
- -------------------------------------
Richard D. Forman
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors
of Register.com, Inc.
Our audits of the financial statements referred to in our report dated January
31, 2000 appearing in the prospectus constituting part of this Registration
Statement on Form S-1 of Register.com, Inc. also included an audit of the
financial statement schedule listed in Part II herein. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
financial statements.
PricewaterhouseCoopers LLP
New York, New York
January 31, 2000
S-1
<PAGE>
Schedule II -- Valuation and Qualifying 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 year ended December 31, 1999:
Provision for doubtful accounts ......... $65,947 $536,585 $288,016 $314,516
======= ======== ======== ========
</TABLE>
S-2
<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.
4.6.1+ Form of warrant to purchase common stock issued to Series A Convertible
Preferred Stockholders.
4.6.2+ Warrant to purchase common stock issued to Staples, Inc.
4.6.3+ Warrant to purchase common stock issued to Palisade Private Partnership,
LP.
4.6.4+ Form of warrant to purchase common stock issued to Niles H. Cohen and
Zachary Prensky.
4.6.5+ Form of Amended and Restated Common Stock Purchase Warrant -- Series
A issued to Richard D. Forman, Peter A. Forman, Dan Levine and Capital
Express LLC.
4.6.6+ Warrants to purchase common stock issued to Legg Mason Wood Walker,
Incorporated.
4.6.7+ Form of warrant to purchase common stock issued to consultants.
4.6.8+ Warrant to purchase common stock issued to Terrence Kaliner.
4.7.1+ Employee Stock Option Certificate issued to Richard D. Forman.
4.7.2+ Stock Option Certificate issued to Pondfield Associates, Inc.
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.
10.6+ 2000 Stock Incentive Plan.
10.7+ Employee Stock Purchase Plan.
10.8+ Employment Agreement, dated November 15, 1995, with Richard D.
Forman.
10.8.2 Employment Agreement, dated February 27, 2000, with Richard D. Forman.
10.9+ Employment Agreement with Jack S. Levy.
10.10 Marketing Agreement, dated as of May 21, 1999, with Staples, Inc.
10.11 Joint Marketing and Distribution Agreement, dated as of June 25, 1999, with
Concentric Network Corporation.
10.12.1 Lock Up and Voting Agreement, dated February 2, 2000, by and between
Register.com, Inc. and Staples, Inc.
10.12.2 Lock Up and Voting Agreement, dated February 28, 2000, by and between
Register.com, Inc. and Staples, Inc.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 + Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1 + Powers of attorney.
24.2 + Power of attorney of Reginald Van Lee.
27.1 + Financial Data Schedule.
</TABLE>
- -------------
+ Previously filed.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
EXHIBITS
TO
Amendment No. 3
TO
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
REGISTER.COM, INC.
(Exact name of registrant as specified in charter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
______________ Shares
REGISTER.COM, INC.
Common Stock
($.0001 Par Value)
UNDERWRITING AGREEMENT
_______________, 2000
Deutsche Bank Securities Inc.
Thomas Weisel Partners LLC
Legg Mason Wood Walker, Incorporated
SoundView Technology Group, Inc.
As Representatives of the
Several Underwriters
c/o Deutsche Bank Securities Inc.
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Register.com, Inc., a Delaware corporation (the "Company"),
proposes to sell to the several underwriters (the "Underwriters") named in
Schedule I hereto, for whom you are acting as representatives (the
"Representatives"), an aggregate of _______ shares (the "Firm Shares") of the
Company's Common Stock, $_____ par value (the "Common Stock"). The respective
amounts of the Firm Shares to be so purchased by the several Underwriters are
set forth opposite their names in Schedule I hereto. The Company and the selling
stockholders named in Schedule II hereto (the "Selling Stockholders") also
propose to sell at the Underwriters' option (the "Over-Allotment Option") an
aggregate of up to _______ additional shares of the Company's Common Stock (the
"Option Shares") as set forth below.
As the Representatives, you have advised the Company and the
Selling Stockholders (a) that you are authorized to enter into this Agreement on
1
<PAGE>
behalf of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm
Shares set forth opposite their respective names in Schedule I, plus their pro
rata portion of the Option Shares if you elect to exercise the Over-Allotment
Option in whole or in part for the accounts of the several Underwriters. The
Firm Shares and the Option Shares (to the extent the aforementioned option is
exercised) are herein collectively called the "Shares."
As part of the offering of [ ] Firm Shares contemplated by
this Agreement, Deutsche Bank Securities Inc. ("Deutsche Bank") has agreed to
reserve out of the Firm Shares set forth opposite its name on Schedule I hereto,
up to [ ] Shares, for sale to certain directors, officers, employees, business
associates and related persons of the Company (collectively, the
"Participants"), as set forth in the Prospectus in the section entitled
"Underwriting" (the "Directed Share Program"). The Firm Shares to be sold by
Deutsche Bank pursuant to the Directed Share Program (the "Directed Shares")
will be sold by Deutsche Bank pursuant to this Agreement at the public offering
price. Any Directed Shares not orally con firmed for purchase by any
Participants by the end of the first business day after the date on which this
Agreement is executed will be offered to the public by Deutsche Bank as set
forth in the Prospectus.
In consideration of the mutual agreements contained herein and
of the interests of the parties in the transactions contemplated hereby, the
parties hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants to each of the
Underwriters as follows:
(a) A registration statement on Form S-1 (File No. 333-93533)
with respect to the Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commis sion. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such
2
<PAGE>
registration statement, together with any registration statement filed by the
Company pursuant to Rule 462 (b) of the Act, herein referred to as the
"Registration Statement," which shall be deemed to include all information
omitted therefrom in reliance upon Rule 430A and contained in the Prospectus
referred to below, has become effective under the Act; no post-effective
amendment to the Registration Statement has been filed as of the date of this
Agreement; and no stop order suspend ing the effectiveness of the Registration
Statement has been issued and no proceed ing for that purpose has been initiated
or, to the best of the Company's knowledge, threatened by the Commission.
"Prospectus" means the form of prospectus first filed with the Commission
pursuant to Rule 424(b). Each preliminary prospectus included in the
Registration Statement prior to the time it becomes effective is herein referred
to as a "Preliminary Prospectus."
(b) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement. The Company has
no direct or indirect subsidiaries. The Company is duly qualified to transact
business in all jurisdictions in which the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company or to prevent the consummation of the transactions contemplated
hereby (a "Material Adverse Effect").
(c) The outstanding shares of capital stock, including the
Common Stock and Preferred Stock, par value $0.0001 per share (the "Preferred
Stock"), of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; the Shares to be issued and sold by the Company
have been duly authorized and when issued and paid for as contemplated herein
will be validly issued, fully paid and non-assessable; and no preemptive rights
of stockholders exist with respect to any of the Shares or the issue and sale
thereof that have not been waived, complied with or terminated as of the date of
this Agreement. Neither the filing of the Registration Statement nor the
offering or sale of the Shares as contem plated by this Agreement gives rise to
any rights, other than those which have been waived or satisfied, for or
relating to the registration of any shares of Common Stock.
3
<PAGE>
(d) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the Shares
conform to the description thereof contained in the Registration Statement in
all material respects.
(e) The Commission has not issued an order preventing or
suspending the use of any Preliminary Prospectus or Prospectus relating to the
proposed offering of the Shares nor, to the Company's best knowledge, instituted
proceedings for that purpose. The Registration Statement contains, and the
Prospectus and any amend ments or supplements thereto will contain, all
statements which are required to be stated therein by, and, in all material
respects, conforms and will conform, to the requirements of the Act and the
Rules and Regulations. The Registration Statement, in the form in which it
became effective, and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amend ment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Represen tatives, specifically for use
in the preparation thereof.
(f) The financial statements of the Company with related
notes and schedules as set forth in the Registration Statement, present fairly
the financial position and the results of operations and cash flows of the
Company, at the indi cated dates and for the indicated periods. Such financial
statements and related schedules have been prepared in accordance with generally
accepted principles of accounting, consistently applied throughout the periods
involved, except as disclosed therein, and all adjustments necessary for a fair
presentation of such results for such periods have been made. The summary
financial and statistical data included in the Registration Statement present
fairly the information shown therein and such data have been compiled on a basis
consistent with the financial statements presented therein and the books and
records of the company.
(g) PricewaterhouseCoopers LLP, who have certified certain of
the financial statements filed with the Commission as part of the Registration
Statement,
4
<PAGE>
are independent public accountants as required by the Act and the Rules and
Regulations.
(h) Except as described in the Prospectus, there is no action,
suit, claim or proceeding pending or, to the knowledge of the Company,
threatened against the Company before any court or administrative agency or
otherwise which if determined adversely to the Company might have a Material
Adverse Effect.
(i) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements (or as described in
the Registration Statement) herein above described, subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except those reflected in
such financial statements (or as described in the Registration Statement) or
which are not material in amount. The Company occupies its leased properties
under valid and binding leases conforming in all material respects to the
description thereof set forth in the Registration Statement.
(j) The Company has filed all Federal, state, local and
foreign tax returns which have been required to be filed and have paid all taxes
indicated by said returns and all assessments received by them to the extent
that such taxes have become due and are not being contested in good faith. All
tax liabilities have been adequately provided for in the financial statements of
the Company, and the Com pany does not know of any actual or proposed additional
material tax assessments.
(k) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented, there
has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company, whether or not occurring in the
ordinary course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered into
by the Company, other than transactions in the ordinary course of business and
changes and transactions described in the Registration Statement, as it may be
amended or supplemented. The Company has no material contingent obligations
which are not disclosed in the Company's financial statements which are included
in the Registration Statement.
(l) The Company is not nor with the giving of notice or lapse
of time or both, would it be, in violation of or in default under its Amended
and Restated Certificate of Incorporation or Amended and Restated Bylaws or
under any agree ment, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its properties, is
bound and which default could reasonably be expected to result in a Material
Adverse Effect. The execution and delivery of this Agreement and the
consummation of the transactions herein contem plated and the Company's 3.5
- -for- 1 stock split in the form of a stock dividend described in the Prospectus
and the conversion of the Series A Convertible Preferred Stock (such stock split
and conversion is herein called the "Split and Conversion") and the fulfillment
of the terms hereof do not and will not conflict with or result in a breach or
violation of any of the terms or provisions of, or (with the giving of notice,
the passage of time or both) constitute a default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which the Company is
a party, or of the Amended and Restated Certificate of Incorporation, as amended
or Amended and Restated Bylaws of the Company or any order, rule or regulation
applicable to the Company of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
(n) The Company owns or has the right to use adequate patents,
patent rights, licenses, copyrights, know how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks, trade names or other intellectual
property (collectively, "Intellectual Property") necessary to carry on the
business now operated by them and, as described in the Prospectus, proposed to
be operated by them, except where the failure to own or have the right to use
such Intellectual Property would not result in a Material Adverse Effect, and
the Company has not received any notice nor is it otherwise aware of any
infringement of or conflict with asserted rights of others with respect to any
Intellectual Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company therein, and which infringement or conflict (if the subject of any
unfavorable decision, ruling or finding) or invalidity or inade quacy, singly or
in the aggregate, could reasonably be expected to result in a Material Adverse
Effect; and the Company knows of no material infringement by others of any
Intellectual Property owned by or licensed to the Company.
(o) Neither the Company, nor to the Company's knowledge, any
of its affiliates, has taken or may take, directly or indirectly, any action
<PAGE>
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares. The Company acknowledges that the Underwriters may engage in passive
market making transactions in the Shares on The Nasdaq National Market in
accordance with Regulation M under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
(p) The Company is not, and upon the issuance and sale of the
Shares as contemplated by this Agreement and the application of the net proceeds
therefrom as described in the Prospectus will not be, an "investment company"
within the meaning of such term under the Investment Company Act of 1940, (as
amended, the "1940 Act") and the rules and regulations of the Commission
thereunder.
(q) The Company makes and keeps accurate books and records
reflecting its assets and maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(r) The Company carries, or is covered by, insurance in such
amounts and covering such risks as it reasonably believes to be adequate for the
conduct of its business and the value of its properties.
(s) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under
5
<PAGE>
(i) Title IV of ERISA with respect to termination of, or withdrawal from, any
"pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of
1986, as amended, including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the Company would
have any liability that is intended to be qualified under Section 401 (a) of the
Code is so qualified in all material respects and nothing has occurred, whether
by action or by failure to act, which would cause the loss of such
qualification.
(t) To the Company's knowledge, there are no affiliations or
associa tions between any member of the NASD and any of the Company's officers,
directors or securityholders, except as set forth in the Registration Statement.
(u) No labor dispute with the employees of the Company exists
or, to the knowledge of the Company, is threatened that is reasonably likely to
have a Material Adverse Effect.
(v) The Shares have been approved for listing subject to
notice of issuance on The Nasdaq National Market.
(w) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings which have not been satisfied or waived
between the Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Act.
(x) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person that
would give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with this
offering of the Shares.
(y) The Company possesses all material certificates,
authorities or permits issued by appropriate governmental agencies or bodies
necessary to conduct the business now operated by it and has not received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit
6
<PAGE>
that, if determined adversely to the Company, would individually or in the
aggregate be reasonably likely to have a Material Adverse Effect.
(z) The Company is currently conducting its businesses as
described in the Prospectus.
[(aa) There is no relationship, direct or indirect, that
exists between or among the Company on the one had, and the directors, officers,
stockholders, customers or suppliers of the Company on the other hand, of a
character required to be described in the Registration Statement or Prospectus
which is not described as required under the Act.]
(bb) The Company has not distributed and will not distribute
any offering material in connection with the offering and sale of the Shares
other than the Registration Statement, a Preliminary Prospectus, the Prospectus
and other material, if any, permitted by the Act.
(cc) In connection with the Directed Share Program, (i) the
Company has not offered or sold, and will not offer or sell, any Shares to any
person outside of the United States; (ii) the Company has not distributed and
will not distribute the Prospectus or the Preliminary Prospectus outside of the
United States; and (iii) the Company has not caused and will not cause any other
person to make any such offer, sale or distribution outside of the United
States.
(dd) The Company has not offered, or caused the Underwriters
to offer, Shares to any person pursuant to the Directed Share Program with the
specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business with the
Company, or (ii) a trade journalist or publication to write or publish favorable
information about the Com pany or its products.
(ee) This Agreement has been duly authorized, executed and
deliv ered by the Company.
(ff) The Company has reviewed its operations and has polled
all of its significant software vendors to evaluate the extent to which the
business or opera tions of the Company have been or will be affected by the Year
2000 Problem. As a result of such review, except as described in the Prospectus,
the Company has no reason to believe, and does not believe, that the Year 2000
Problem will have a
7
<PAGE>
Material Adverse Effect or result in any material disruption of the Company's
business or operations. The "Year 2000 Problem" as used herein means any signifi
cant risk that computer hardware or software used in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data or in the operation of mechanical or electrical systems of
any kind will not, in the case of dates or time periods occurring after December
31, 1999, function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING
STOCKHOLDERS
Each Selling Stockholder listed on Schedule II, severally and not
jointly, represents and warrants to each Underwriter and the Company that:
(a) Such Selling Stockholder has, and on the Option Closing
Date will have, full right, power and authority to enter into this Agreement and
to sell, assign, transfer and deliver the Option Shares to be sold by such
Selling Stockholder hereunder. This Agreement and the Power of Attorney attached
hereto as Exhibit A (the "Power of Attorney") have been duly authorized,
executed and delivered by such Selling Stockholder, constitute the valid and
binding agreements of such Selling Stockholder, enforceable against such Selling
Stockholder in accordance with their respective terms, subject, as to
enforcement, to applicable bankruptcy, insolvency, reorganization and moratorium
laws and other laws relating to or affecting the enforcement of creditors'
rights generally and to general equitable principles and except as the
enforcement of rights to indemnity and contribution under this Agree ment may be
limited under applicable securities laws or the public policy underlying such
laws.
(b) Such Selling Stockholder will convey good and valid title
to the Shares to be delivered by such Selling Stockholder hereunder, free and
clear of allliens, encumbrances, equities and claims whatsoever. Certificates
in negotiable form for the aggregate number of Shares to be sold by such Selling
Stockholder have been placed in custody, under a Custody Agreement with [ ] as
custodian in substantially the form attached hereto as Exhibit B (the "Custody
Agreement").
(c) The information with respect to such Selling Stockholder
included in the Registration Statement and the Prospectus under the captions
"Principal and Selling Stockholders" does not contain any untrue statement of a
material fact or
8
<PAGE>
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(d) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by such Selling
Stockholder of the transaction contemplated herein, except such as may have been
obtained under the Act or otherwise and such as may be required under state
securi ties or the "Blue Sky" laws.
(e) The execution and delivery by such Selling Stockholder of,
and the performance by such Selling Stockholder of its obligations under, this
Agreement will not (with or without the giving of notice or the passage of time
or both) (i) conflict with any term or provision of such Selling Stockholder's
articles of incorpo ration or bylaws or other organizational documents, as
amended (if such Selling Stockholder is a corporation, limited liability
company, partnership or other entity), (ii) result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or instrument
to which the Selling Stockholder is a party or to which its properties or assets
is subject or (iii) conflict with or violate any law, statute, rule or
regulation or any order, judgment or decree of any court or governmental agency
or body having jurisdiction over such Selling Stockholder or any of such Selling
Stockholder's properties or assets.
(f) Such Selling Stockholder has not (i) taken, directly or
indirectly, any action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Shares or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased or paid anyone any compensation for soliciting purchases of, the
Shares or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(g) Such statements in the Registration Statement, the
Prospectus or any post-effective amendment or supplement thereto made in
reliance upon and in conformity with written information furnished to the
Company by such Selling Stockholder expressly for use therein will (when they
become effective or are filed with the Commission, as the case may be) conform
in all material respects to the requirements of the Act and the rules and
regulations promulgated thereunder and
9
<PAGE>
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
3. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES
----------------------------------------------
AND OPTION SHARES.
-----------------
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set forth, the
Company agrees to sell to the Underwriters and each Underwriter agrees,
severally and not jointly, to purchase, at a price of $__ per share, the number
of Firm Shares set forth opposite the name of each Underwriter in Schedule I
hereof, subject to adjustments in accordance with Section 11 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be
made in same day funds against delivery of certificates therefor to the
Representatives for the several accounts of the Underwriters. Such delivery is
to be made through the facilities of The Depository Trust Company, New York, New
York at 10:00 a.m., New York time, on the third business day after the date of
this Agreement or at such other time and date not later than five business days
thereafter as you and the Company shall agree upon, such time and date being
herein referred to as the "Closing Date." (As used herein, "business day" means
a day on which the New York Stock Exchange is open for trading and on which
banks in New York are open for business and are not permitted by law or
executive order to be closed, it being understood that, in the event that this
Agreement is signed after 4:30 p.m., the first business day after the date of
this Agreement shall be the day after the date of this Agreement.) To the extent
the Firm Shares are represented by physical certificates, the certificates for
the Firm Shares will be delivered in such denominations and in such
registrations as the Representatives request in writing not later than the
second full business day prior to the Closing Date, and will be made available
for inspection by the Representatives at least one full business day prior to
the Closing Date.
(c) In the event and to the extent that the Underwriters shall
exercise the election to purchase Option Shares as provided below, each Selling
Stockholder agrees, severally and not jointly, to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from each of the Selling Stockholders, at a price of $__ per share,
that portion of the number of Option Shares as to which such election shall have
been exercised. (If the Underwriter's exercise the Over-Allotment Option for
less than the total number of Option Shares, the
10
<PAGE>
number of Option Shares to be sold by each of the Selling Stockholders shall be
reduced on a pro rata basis.)
(d) The Company and each Selling Stockholder, severally and
not jointly, hereby grants to the Underwriters the right to purchase at their
election up to an aggregate of the number of Option Shares set forth opposite
their respective names as set forth in Schedule II attached hereto, at $__ per
share, for the sole purpose of covering overallotments in the sale of the Firm
Shares. Any such election to purchase Option Shares may be exercised only by
written notice from the Repre sentatives to the Company and the agent(s) for the
Selling Stockholders, given prior to the Closing Date or within a period of 30
calendar days after the date of this Agreement, setting forth the aggregate
number of Option Shares to be purchased, the names and denominations in which
the Option Shares are to be registered and the time and date on which such
Option Shares are to be delivered.
(e) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, in the event that the Underwriters elect to exercise their option to
purchase Option Shares in an amount in excess of ____ Option Shares (the
aggregate number of Shares which the Selling Stockholders have agreed to sell),
the Company hereby grants an option to the several Underwriters to purchase up
to _______ Option Shares at the price per share as set forth in the first
paragraph of this Section 3. The option granted hereby may be exercised as set
forth in this Section 3.
(f) The time and date at which certificates for Option Shares
are to be delivered shall be determined by the Representatives but shall not be
earlier than three nor later than 10 full business days after the exercise of
such option, nor in any event prior to the Closing Date (such time and date
being herein referred to as the "Option Closing Date"). If the date of exercise
of the option is before the Closing Date, the notice of exercise shall be given
at least one full business day prior to the Closing Date and shall set the
Closing Date as the Option Closing Date. The number of Option Shares to be
purchased by each Underwriter shall be in the same propor tion to the total
number of Option Shares being purchased as the number of Firm Shares purchased
by such Underwriter bears to the total number of Firm Shares purchased, adjusted
by you in such a manner as to avoid fractional shares. The option with respect
to the Option Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters. You, as
Representatives of the several Underwriters, may cancel such option at any time
prior to its expiration by giving written notice of such cancellation to the
Company
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and the Selling Stockholders. To the extent, if any, that the Over-Allotment
Option is exercised, payment for the Option Shares shall be made on the Option
Closing Date in Federal (same day) funds drawn to the order of the respective
Selling Stockholders and/or the Company, as the case may be.
4. OFFERING BY THE UNDERWRITERS.
----------------------------
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the public at
the initial public offering price set forth in the Prospectus. The
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option Shares
are purchased pursuant to Section 3 hereof, the Under writers will offer them to
the public on the foregoing terms.
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the Shares in
accordance with a Master Agreement Among Underwriters entered into by you and
the several other Under writers.
5. COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the several
Under writers that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Repre sentatives containing information previously omitted at
the time of effectiveness of the Registration Statement in reliance on Rule 430A
of the Rules and Regulations and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance, in all material respects, with the Rules and Regulations and (C)
file on a timely basis all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission subsequent to
the date of the Prospectus and prior to the termination of the offering of the
Shares by the Underwriters.
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(b) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto shall
have become effective, (B) of receipt of any comments from the Commission, (C)
of any request of the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, and (D) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the use of the Prospectus or of the institution of
any proceedings for that purpose. The Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending the use of
the Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeav oring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdic tion where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other docu ments, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Represen tatives, will deliver from time to time, as many copies of any
Preliminary Prospectus as the Representatives may reasonably request. The
Company will deliver to, or upon the order of, the Representatives during the
period when delivery of a Prospec tus is required under the Act, as many copies
of the Prospectus in final form, or as thereafter amended or supplemented, as
the Representatives may reasonably request. The Company will deliver to the
Representatives at or before the Closing Date, four signed copies of the
Registration Statement and all amendments thereto including all exhibits filed
therewith, and will deliver to the Representatives such number of copies of the
Registration Statement (including such number of copies of the exhibits filed
therewith that may reasonably be requested), and of all amendments thereto, as
the Representatives may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Exchange Act, and the rules and regulations of the
Commission thereunder, so as to permit the completion of the distribution of the
Shares as contemplated in this Agreement and the Prospectus. If during the
period in which a
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prospectus is required by law to be delivered by an Underwriter or dealer, any
event shall occur as a result of which, in the judgment of the Company or in the
reasonable opinion of the Underwriters, it becomes necessary to amend or
supplement the Prospectus in order to make the statements therein, in the light
of the circumstances existing at the time the Prospectus is delivered to a
purchaser, not misleading, or, if it is necessary at any time to amend or
supplement the Prospectus to comply with any law, in all material respects, the
Company promptly will so notify the Representa tives and will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law, in
all material respects. The Company will furnish without charge to the
Underwriters and any dealer required to so deliver a prospectus as many copies
of the post-effective amendment to the Registration Statement and the amended or
supplemented Prospec tus complying with Section 10(a)(3) of the Act as they may
reasonably request.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the requirements
of Section 11 (a) of the Act and Rule 158 of the Rules and Regulations.
(g) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock or of other securities that represent the right to receive Common Stock or
the right to receive securities convertible into or exchangeable or exercisable
for shares of Common Stock (or any agreement for such) will be made for a period
of 180 days after the date of this Agreement, directly or indirectly, by the
Company otherwise than hereunder or with the prior written consent of Deutsche
Bank (except for the grant of options pursuant to employee stock option plans
that are in existence on the date hereof and described in the Prospectus),
except that the Company may without such consent issue shares upon the exercise
of options outstanding on the date of this Agreement pursuant to the Company's
stock option or stock purchase plans or as consideration for acquisitions or in
connection with strategic investment or corporate relationships, provided that
any shares so is sued cannot be offered, sold or otherwise disposed of by the
recipient thereof during the 180-day period referred to above.
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(h) The Company will use its best efforts to have the Shares,
subject to notice of issuance, approved for quotation on The Nasdaq National
Market.
(i) The Company has caused each officer, each director and
substantially all of the securityholders of the Company to furnish to the
Representatives, on or prior to the date of this agreement, a letter or letters,
in form and substance satisfactory to the Underwriters, pursuant to which each
such person shall agree not to offer, sell, sell short or otherwise dispose of
any shares of Common Stock of the Company or other capital stock of the Company,
or any other securities convertible, exchangeable or exercisable for Common
Shares or derivative of Common Shares owned by such person or request the
registration for the offer or sale of any of the foregoing (or as to which such
person has the right to direct the disposition of) for a period of 180 days
after the date of this Agreement, directly or indirectly, except with the prior
written consent of Deutsche Bank or as contemplated in such letters (the "Lockup
Agreements").
(j) During a period of three years from the effective date of
the Registration Statement, to furnish to the Representatives copies of all
reports or other communications (financial or other) furnished to stockholders,
and to deliver to the Representatives (i) as soon as they are available, copies
of any reports and financial statements furnished to or filed with the
Commission or any national securities exchange on which any class of securities
of the Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as the Representatives may from
time to time reasonably request (such financial statements to be on a
consolidated basis to the extent the accounts of the Company are consolidated in
reports furnished to its stockholders generally or to the Commission).
(k) If the Company elects to rely upon Rule 462(b), the
Company shall file as promptly as practicable a Rule 462(b) Registration
Statement with the Commission in compliance with Rule 462(b), and the Company
shall at the time of filing either pay to the Commission the filing fee for the
Rule 462(b) Registration Statement or give irrevocable instructions for the
payment of such fee pursuant to Rule 111(b) under the Act.
(l) The Company shall apply the net proceeds of its sale of
the Shares as set forth in the Prospectus and shall include in reports filed
with the Commission such information with respect to the sale of the Shares and
the application of the proceeds therefrom as may be required in accordance with
Rule 463 under the Act.
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(m) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a manner as
would require the Company to register as an investment company under the 1940
Act.
(n) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
for the Common Stock.
(o) In connection with the Directed Share Program, to help
ensure that the Directed Shares will be restricted, to the extent required by
the NASD or the NASD rules and regulations, including but not limited to, the
"Free-Riding and Withholding" Interpretation, from sale, transfer, assignment,
pledge or hypothecation for a period of three months following the date of the
effectiveness of the Registra tion Statement, at the request of Deutsche Bank,
the Company will direct the transfer agent to place stop transfer restrictions
upon the securities of those Partici pants notified for the Company by Deutsche
Bank for such period of time Deutsche Bank.
(p) The Company will not (i) take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company or (ii) sell, bid for, purchase or pay
anyone any compensation for soliciting purchases of, the Shares.
6. COVENANTS OF SELLING STOCKHOLDERS.
---------------------------------
Each Selling Stockholder agrees with the several Underwriters
as follows:
(a) Such Selling Stockholder will cooperate to the extent
reasonably necessary to cause the Registration Statement or any post-effective
amendment thereto to become effective at the earliest possible time.
(b) Such Selling Stockholder will use such Selling
Stockholder's reasonable best efforts to do or perform all things required to be
done or performed by it prior to the Closing Date to satisfy all conditions
precedent to the delivery of the Shares.
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<PAGE>
(c) Except for the sale of Option Shares, such Selling
Stockholder will not offer, sell, contract to sell or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any interests therein, or
any securities convertible into, or exchangeable for, shares of Stock or rights
to acquire the same, (i) except as permitted under the terms of the agreement
specified in Section 5(j) ("Lock-up Agreement"), or (ii) if such Selling
Stockholder shall not have executed a Lock-up Agreement, prior to the expiration
of the Lock-up Period without the prior written consent of the Deutsche Bank.
(d) Such Selling Stockholder will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabili zation or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares in violation of the Exchange Act or
any applicable rules of The Nasdaq National Market.
(e) Each Selling Stockholder agrees to notify the Underwriters
promptly of any information that comes to such Selling Stockholder's attention
that would cause such Selling Stockholder to have reason to believe that his,
her or its representations, warranties and statements in this Agreement are not
accurate in all material respects.
(f) Except as herein contemplated with respect to the Shares
to be included in the Registration Statement, each Selling Stockholder agrees to
waive any registration rights to which such Selling Stockholder may be entitled
in connection with the public offering herein contemplated.
7. COSTS AND EXPENSES.
------------------
The Company will pay all costs, expenses and fees incident to
the performance of the obligations of the Company under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company; the cost of printing and delivering to, or as reasonably requested by,
the Underwriters copies of the Registration Statement, Preliminary Prospectuses,
the Prospectus, this Agree ment, the Underwriters' Selling Memorandum, the
Underwriters' Invitation Letter, the Listing Application, the Blue Sky Survey
and any supplements or amendments thereto; the filing fees and expenses
(including legal fees and disbursements) incident to securing any required
review by the NASD of the terms of the sale of the Shares; the Listing Fee of
The Nasdaq National Market; the expenses, including the fees and
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disbursements of counsel for the Underwriters, incurred in connection with the
qualification of the Shares under State securities or Blue Sky laws; the cost of
preparing stock certificates; and the fees and disbursements of the transfer
agent and registrar. The Company also agrees to pay all costs and expenses of
the Underwrit ers, including the reasonable fees and disbursements of counsel
for the Underwriters, incurred in connection with the Directed Share Program.
The Company shall not, however, be required to pay for any of the Underwriters
expenses (other than those related to qualification under NASD regulation and
State securities or Blue Sky laws) except that, if this Agreement shall not be
consummated because the conditions in Section 6 hereof are not satisfied, or
because this Agreement is terminated by the Representatives pursuant to Section
13 hereof, or by reason of any failure, refusal or inability on the part of the
Company to perform any undertaking or satisfy any condition of this Agreement or
to comply with any of the terms hereof on its part to be performed, unless such
failure to satisfy said condition or to comply with said terms be due to the
default or omission of any Underwriter, then the Company shall reimburse the
several Underwriters for reasonable out-of-pocket expenses, including fees and
disbursements of counsel, reasonably incurred in connection with investigat ing,
marketing and proposing to market the Shares or in contemplation of performing
their obligations hereunder; but the Company shall not in any event be liable to
any of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Shares. The Company also agrees to pay the
reasonable fees and disbursements of one counsel for all Selling Stockholders
(the "Selling Stockholders' Counsel"). Each Selling Stockholder shall pay the
costs and expenses incident to the performance by it of its obligations
hereunder and in connection with the offer, sale and delivery of the shares to
be sold by it, including any stock transfer taxes payable upon the sale of the
shares to the Underwriters, the fees and expenses of any counsel, other than
Selling Stockholders' Counsel, retained by it and the underwriting discounts and
commissions payable to the Underwriters.
8. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
----------------------------------------------
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Option Shares, if any, on the Option
Closing Date are subject to the accuracy, as of the Closing Date or the Option
Closing Date, as the case may be, of the representations and warranties of the
Company and the Selling Stockholders contained herein, as the case may be, and
to the performance by the Company and the Selling Stockholders of its covenants
and obligations hereun der and to the following additional conditions:
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(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and
any request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that purpose
shall have been taken or, to the knowledge of the Company, shall be contemplated
by the Commission and no injunction, restraining order, or order of any nature
by a Federal or state court of competent jurisdiction shall have been issued as
of the Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing
Date and on the Option Closing Date, in the event the Over-Allotment Option is
exercised, the opinion of Brobeck, Phleger & Harrison LLP, counsel for the
Company, dated the Closing Date or the Option Closing Date, as the case may be,
addressed to the Underwriters (and stating that it may be relied upon by counsel
to the Underwriters), in form and substance reasonably satisfactory to the
Representatives, to the effect set forth in Exhibit 8(b) to this Agreement.
(c) The Selling Stockholders shall have furnished to you the
opinion of Loeb & Loeb or of such counsel to the Selling Stockholders as shall
be reasonably satisfactory to Skadden, Arps, Slate, Meagher & Flom LLP
("Skadden, Arps"), counsel for the Underwriters, dated Closing Date and the
Option Closing Date, to the effect set forth in Exhibit 8(c) to this Agreement.
(d) The Representatives shall have received from Skadden,
Arps, counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, with respect to the valid existence and
good standing of the Company, the validity of the Shares being delivered, the
Registration Statement, the Prospectus, and other related matters as the
Representatives may reasonably request, and the Company shall have furnished to
Skadden, Arps such documents as they request for the purpose of enabling them to
pass upon such matters.
(e) The Representatives shall have received, on the Closing
Date and the Option Closing Date, in the event the Over-Allotment Option is
exercised, a letter dated the date hereof, the Closing Date or the Option
Closing Date, as the case
19
<PAGE>
may be, in form and substance satisfactory to you, of PricewaterhouseCoopers LLP
confirming that they are independent public accountants within the meaning of
the Act and the applicable published Rules and Regulations thereunder and
stating that in their opinion the financial statements and schedules examined by
them and included in the Registration Statement comply in form in all material
respects with the applicable accounting requirements of the Act and the related
published Rules and Regulations; and containing such other statements and
information as is ordi narily included in accountants' "comfort letters" to
Underwriters with respect to the financial statements and certain financial and
statistical information contained in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing
Date and the Option Closing Date, in the event the Over-Allotment Option is
exercised, a certificate or certificates of the Chief Executive Officer and the
principal financial officer of the Company to the effect that, as of the Closing
Date or the Option Closing Date, as the case may be, each of them severally
represents as follows:
(1) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness of the
Registrations Statement has been issued, and no proceedings for such
purpose have been taken or are, to his knowledge, contemplated by the
Commission;
(2) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing
Date or the Option Closing Date, as the case may be;
(3) The Company has performed, in all material
respects, all covenants and agreements and satisfied all conditions
contained in this Agreement required to be performed or satisfied by
the Company as of the Closing Date or the Option Closing Date, as the
case may be;
(4) He carefully examined the Registration Statement
and the Prospectus and, in his opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration
Statement were true and correct in all material respects, and such
Registration Statement and Prospectus did not omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, in the case of the Prospectus, in
light of the circumstances under which they were made, and since the
effective date of the Registration Statement, no event has
20
<PAGE>
occurred which is required to be set forth in a supplement to or an
amend ment of the Prospectus which has not been so set forth in such
supplement or amendment; and
(5) Since the respective dates as of which
information is given in the Registration Statement and Prospectus,
there has not been any material adverse change or any development
involving a prospective material adverse change in or affecting the
earnings, business, management, proper ties, assets, rights,
operations, condition (financial or otherwise) or prospects of the
Company, whether or not arising in the ordinary course of business.
(g) The Representatives shall have received on the Option
Closing Date, a certificate or certificates of the Selling Stockholders to the
effect that, as of the Option Closing Date, each of them generally represents
that the representations and warranties of the Selling Stockholders contained n
Section 1 hereof are true and correct as of the Option Closing Date.
(h) The Company and the Selling Stockholders shall have
furnished to the Representatives such further certificates and documents
confirming the representations and warranties, covenants and conditions
contained herein and related matters as the Representatives may reasonably have
requested.
(i) The Firm Shares and Option Shares, if any, have been ap
proved for quotation, subject to official notice of issuance, on The Nasdaq
National Market.
(j) The Lockup Agreements described in Section 5 (j) are in
full force and effect.
(k) The Company shall have effected the Split and Conversion.
(l) The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if they are
in all material respects reasonably satisfactory to the Representatives and to
Skadden, Arps, counsel for the Underwriters.
(m) If any of the conditions hereinabove provided for in this
Section 8 shall not have been fulfilled when and as required by this Agreement
to be ful filled, the obligations of the Underwriters hereunder may be
terminated by the
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Representatives by notifying the Company and the Selling Stockholders of such
termination in writing or by telegram at or prior to the Closing Date or the
Option Closing Date, as the case may be.
In such event, the Company, the Selling Stockholders and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 7 and 10 hereof).
9. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY AND
SELLING STOCKHOLDERS.
The obligations of the Company and the Selling Stockholders to
sell and deliver the portion of the Shares required to be delivered as and when
specified in this Agreement are subject to the conditions that at the Closing
Date or the Option Closing Date, as the case may be, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and be in
effect or proceedings therefor initiated or threatened.
10. INDEMNIFICATION.
---------------
(a) The Company agrees:
(1) to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the
meaning of the Act and each Selling Stockholder and their
representative heirs and assigns, directors, officers and each person
who controls such persons within the meaning of the Act, against any
losses, claims, damages or liabilities to which such Underwriter or any
such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabili ties (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto, (ii) the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, in the case of the Prospectus, in light of the
circumstances in which they were made, or (iii) any alleged act or
failure to act by any Underwriter in connection with, or relating in
any manner to, the Shares or the offering contemplated hereby, and
which is included as part of or referred to in any loss, claim, damage,
liability or
22
<PAGE>
action arising out of or based upon matters covered by clause (i) or
(ii) above (provided, that the Company shall not be liable under this
clause (iii) to the extent that it is determined in a final judgment by
a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its
gross negligence or willful misconduct); provided, however, that the
Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement, or omission or alleged
omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to
the Company by or through the Representatives specifically for use in
the preparation thereof, as set forth in Section 15 hereof and;
provided further, that with respect to any untrue statement or omission
of a material fact made in any Preliminary Prospectus, the indemnity
agreement contained in this Section 10(a) shall not inure to the
benefit of any Underwriter from whom the person asserting any such
loss, claim, damage or liability purchased the securities concerned, to
the extent that any such loss, claim, damage or liability of such
Underwriter occurs under the circumstance where it shall have been
determined by a court of competent jurisdiction by final and
nonappealable judgment (unless the Company and the Underwriter other
wise agree) that (w) the Company had previously furnished copies of
the Prospectus to the Representatives or the Selling Stockholders, as
applicable, (x) delivery of the Prospectus was required by the Act to
be made to such person, (y) the untrue statement or omission of a
material fact contained in the Preliminary Prospectus was corrected in
the Prospectus and (z) there was not sent or given to such person, at
or prior to the written confirmation of the sale of such securities to
such person, a copy of the Prospectus.
(2) to reimburse each Underwriter and each such
control ling person upon demand for any legal or other out-of-pocket
expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss,
claim, damage or liability, action or proceeding or in responding to a
subpoena or governmental inquiry related to the offering of the Shares,
whether or not such Underwriter or controlling person is a party to any
action or proceeding. In the event that it is finally judicially
determined (unless the Company and the Underwriter otherwise agree)
that the Underwriters were not entitled to receive payments
23
<PAGE>
for legal and other expenses pursuant to this subparagraph, the
Underwriters will promptly return all sums that had been advanced
pursuant hereto.
(b) The Company will indemnify and hold harmless Deutsche Bank
against any losses, claims, damages or liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) (i) that arises out of or
is based upon any untrue statement or alleged untrue statement of any material
fact contained in the prospectus wrapper material prepared by or with the
consent of the Company for distribution in foreign jurisdictions in connection
with the Directed Share Program attached to the Prospectus or Preliminary
Prospectus or any amendment or supplement thereto or caused by any omission of
or alleged omission to state in the Prospectus or Prelimi nary Prospectus or any
amendment or supplement thereto, a material fact required to be stated therein
or necessary to make the statements therein not misleading, (ii) caused by the
failure of any Participant to pay for and accept delivery of the Shares that,
immediately following the effectiveness of the Registration Statement, were
subject to a properly confirmed agreement to purchase, or (iii) related to,
arising out of, or in connection with the Directed Share Program; provided that
the Company shall not be responsible under this Section 10(b) for any losses,
claims, damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross negligence of
Deutsche Bank.
(c) Each Selling Stockholder will, severally but not jointly,
indemnify and hold harmless the Company and each Underwriter against any
losses, claims, damages or liabilities to which the Company, Underwriter or
controlling person may become subject under the Act, the Exchange Act, or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) (i) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or (ii) arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, in each case only to
the extent that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by any Selling Stockholder specifi cally
for use therein; and, subject to the limitation set forth immediately preceding
this clause, will reimburse, as incurred, any legal or other expenses reasonably
incurred by the Company or Underwriter or controlling person in connection with
investigating or defending any such action or claim as such expenses are
incurred;
24
<PAGE>
provided, however, that with respect to any untrue statement or omission of a
material fact made in any Preliminary Prospectus, the indemnity agreement con
tained in this Section 10(c) shall not inure to the benefit of any Underwriter
from whom the person asserting any such loss, claim, damage or liability
purchased the securities concerned, to the extent that any such loss, claim,
damage or liability of such Underwriter occurs under the circumstance where it
shall have been determined by a court of competent jurisdiction by final and
nonappealable judgment that (w) the Company had previously furnished copies of
the Prospectus to the Representatives, (x) delivery of the Prospectus was
required by the Act to be made to such person, (y) the untrue statement or
omission of a material fact contained in the Preliminary Prospectus was
corrected in the Prospectus and (z) there was not sent or given to such person,
at or prior to the written confirmation of the sale of such securities to such
person, a copy of the Prospectus; provided further, that each Selling Stock
holder shall not be liable under this Section 10 for any amounts in excess of
the product of the purchase price per share set forth in Section 3 hereof and
the number of shares being sold by such Selling Stockholder hereunder.
(d) Each Underwriter severally and not jointly will indemnify
and hold harmless the Company, each Selling Stockholder (and its heirs, and
assigns), each of their respective directors, and each of the Company's officers
and each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities to which the Company or any
such director, officer, or controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Prelimi nary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances under
which they were made; and will reimburse any legal or other expenses reasonably
incurred by the Company, such Selling Stockholder (and its heirs, and assigns)
or any such director, officer, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the prepara tion thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(e) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 10, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 10(a), (b), (c) or (d) shall be
available to any party who shall fail to give notice as provided in this Section
10(e) if the party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was materially prejudiced by the
failure to give such notice, but the failure to give such notice shall not
relieve the indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of the provisions of Section 10(a), (b), (c) or (d). In case any such proceeding
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commence ment thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party and
shall pay as incurred the reasonably fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified party shall
have the right to retain its own counsel at its own expense. Notwithstand ing
the foregoing, the indemnifying party shall pay as incurred (or within 30 days
of presentation) the reasonable fees and expenses of the counsel retained by the
indem nified party in the event (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel, (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them or (iii) the indemnifying party shall have
failed to assume the defense and employ counsel acceptable to the indemnified
party within a reasonable period of time after notice of commencement of the
action. It is understood that the indemni fying party shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by you in the case
of parties indemnified pursuant to Section 10(a) and by the Company in the case
of parties indemnified pursuant to Section 10(b), (c) or (d).
25
<PAGE>
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. In addition, the indemnifying party will not,
without the prior written consent of the indemnified party, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action or proceeding of which indemnification may be sought hereunder (whether
or not any indemnified party is an actual or potential party to such claim,
action or proceeding) unless such settlement, compromise or consent (i) includes
an unconditional release of each indemnified party from all liability arising
out of such claim, action or proceeding and (ii) does not include a statement as
to or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(f) If the indemnification provided for in this Section 10 is
unavail able to or insufficient to hold harmless an indemnified party under
Section 10(a), (b), (c) or (d) above in respect of any losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company, the
Selling Stockholders, and the Underwriters, respectively, from the offering of
the Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company, the Selling Stockholders, and the
Underwriter, respectively, in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company, the Selling
Stockholders, and the Underwriters shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deduct ing expenses)
received by the Company and the Selling Stockholders bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged
26
<PAGE>
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, the Selling
Stockhold ers, or the Underwriters and the parties' relative intent, knowledge,
access to informa tion and opportunity to correct or prevent such statement or
omission.
The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
Section 10(f) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 10(f). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 10(f) shall be
deemed to include any legal or other expenses reason ably incurred by such
indemnified party in connection with investigating or defend ing any such action
or claim. Notwithstanding the provisions of this subsection (f), (x) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter, (y) no Selling Stockholder shall be required to contribute any
amount in excess of the product of the purchase price per share set forth in
Section 3 hereof and the number of shares being sold by such Selling Stockholder
hereunder, and (z) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11 (f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
(g) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this Section
10 hereby consents to the jurisdiction of any court having jurisdiction over any
other contribut ing party, agrees that process issuing from such court may be
served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
(h) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 10 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribu tion agreements contained in this Section 10 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force
27
<PAGE>
and effect, regardless of (x) any investigation made by or on behalf of any
Under writer or any person controlling any Underwriter, the Company, its
directors or officers or any persons controlling the Company, or Selling
Stockholders or any persons controlling the Selling Stockholders (y) acceptance
of any Shares and payment therefor hereunder, and (z) any termination of this
Agreement. A successor to any Underwriter, to the Company, its directors or
officers, or any person control ling the Company, or Selling Stockholders or any
persons controlling the Selling Stockholders shall be entitled to the benefits
of the indemnity, contribution and reimbursement agreements contained in this
Section 10.
11. DEFAULT BY UNDERWRITERS.
-----------------------
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company or the Selling Stockholders, as the case
maybe, such amounts as may be agreed upon and upon the terms set forth herein,
the Firm Shares or Option Shares, as the case may be, which the defaulting
Underwriter or Underwriters failed to purchase. If during such 36 hours you, as
such Representatives, shall not have procured such other Underwriters, or any
others, to purchase the Firm Shares or Option Shares, as the case may be, agreed
to be purchased by the defaulting Underwriter or Underwrit ers, then (a) if the
aggregate number of shares with respect to which such default shall occur does
not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the other Underwriters shall be obligated, severally, in proportion to
the respective numbers of Firm Shares or Option Shares, as the case may be,
which they are obligated to purchase hereunder, to purchase the Firm Shares or
Option Shares, as the case may be, which such defaulting Underwriter or Under
writers failed to purchase, or (b) if the aggregate number of shares of Firm
Shares or Option Shares, as the case may be, with respect to which such default
shall occur exceeds 10% of the Firm Shares or Option Shares, as the case may be,
covered hereby, the Company or you as the Representatives of the Underwriters
will have the right, by written notice given within the next 36-hour period to
the parties to this Agreement, to terminate this Agreement without liability on
the part of the non defaulting Underwriters or of the Company except to the
extent provided in Section 10 hereof. In the event of a default by any
Underwriter or Underwriters, as set forth in this Section 11, the Closing Date
or Option Closing Date, as the case may be, may
28
<PAGE>
be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 11
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
12. NOTICES.
-------
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows:
(a) If to the Underwriters, to Deutsche Bank Securities Inc.,
One South Street, Baltimore, Maryland 21202, Attention: [Registration
Department]; with a copy to Skadden, Arps, Slate, Meagher & Flom LLP, Four Times
Square, New York, New York, Attention: Stacy J. Kanter, fax no.: 212 735 2000;
and
(b) If to the Company, to Register.com, Inc., 575 Eighth
Avenue, 11th Floor, New York, New York 10018, Attention: Jack S. Levy, General
Counsel, fax no.: 212 629 9309; with a copy to Brobeck, Phleger & Harrison LLP,
1633 Broad way, 47th Floor, New York, New York 10019, Attention: Scott L.
Kaufman, fax no.: 212 586 7878; and
(c) If to the Selling Stockholder with a copy to Loeb & Loeb,
345 Park Avenue, 18th Floor, New York, New York 10154, Attn: David Schaefer, fax
no.: 212 407 4990.
13. TERMINATION.
-----------
(a) This Agreement may be terminated by you by notice to the
Company at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
earnings, busi ness, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company, whether or not
arising in the ordinary course of business, (ii) any outbreak or escalation of
hostilities or declaration of war or national emergency or other national or
international calamity or crisis or change
29
<PAGE>
in economic or political conditions if the effect of such outbreak, escalation,
declara tion, emergency, calamity, crisis or change on the financial markets of
the United States would, in your reasonable judgment, make it impracticable or
inadvisable to market the Shares or to enforce contracts for the sale of the
Shares, or (iii) suspension of trading in securities generally on the New York
Stock Exchange or the American Stock Exchange or limitation on prices (other
than limitations on hours or numbers of days of trading) for securities on
either such Exchange, (iv) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects or
may materially and adversely affect the business or operations of the Company,
(v) declaration of a banking moratorium by United States or New York State
authorities, (vi) any downgrading, or placement on any watch list for possible
downgrading, in the rating of the Company's debt securities, if any, by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Exchange Act); (vii) the suspension of trading of the
Com pany's common stock by The Nasdaq National Market, the Commission, or any
other governmental authority or, (viii) the taking of any action by any
governmental body or agency in respect of its monetary or fiscal affairs which
in your reasonable opinion has a material adverse effect on the securities
markets in the United States; or
(b) This Agreement may otherwise be terminated as provided in
Sections 8 and 11 of this Agreement.
14. SUCCESSORS.
----------
This Agreement has been and is made solely for the benefit of
the Underwriters, the Company, the Selling Stockholders and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and control ling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
15. INFORMATION PROVIDED BY UNDERWRITERS AND SELL
---------------------------------------------
ING STOCKHOLDERS.
- ----------------
(a) The Company and the Underwriters acknowledge and agree
that the only information furnished or to be furnished by any Underwriter to the
Com pany for inclusion in any Prospectus or the Registration Statement consists
of the
30
<PAGE>
following information, furnished by the Representatives on behalf of the
Underwrit ers to the Company, set forth under the caption "Underwriting" in the
Prospectus: (i) the list of Underwriters, (ii) the fifth and sixth paragraphs,
and the first sentence in the seventh paragraph under the table listing the
Underwriters, (iii) the first para graph under the subheading "Commissions and
Discounts," (iv) the fourth paragraph under the subheading "Nasdaq National
Market Quotation," and (v) all of the paragraphs under the subheading "Price
Stabilization, Short Positions and Penalty Bids."
(b) The Company and the Selling Stockholders acknowledge and
agree that the only information furnished or to b furnished by any Selling Stock
holder to the Company for inclusion in any Prospectus or the Registration
Statement consists of the information as to the number of Option Shares such
Selling Stock holder has a greed to sell as set forth under the caption
"Principal and Selling Stockholder."
16. MISCELLANEOUS.
-------------
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers, or by or on behalf of the Selling stockholders (and
their heirs on and assigns) or their directors or officers and (c) delivery of
and payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
31
<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
REGISTER.COM, INC.
By:
-------------------------------
Name:
Title:
SELLING STOCKHOLDERS,
Listed on Schedule II
By:
-------------------------------
Attorney-in-fact
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
DEUTSCHE BANK SECURITIES INC.
THOMAS WEISEL PARTNERS LLC
LEGG MASON WOOD WALKER, INCORPORATED
SOUNDVIEW TECHNOLOGY GROUP, INC.
As Representatives of the several
Underwriters listed on Schedule I
By: DEUTSCHE BANK SECURITIES INC.
By:
- -------------------------------
Name:
Title:
32
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
Deutsche Bank Securities Inc.
Thomas Weisel Partners, LLC
Legg Mason Wood Walker, Incorporated
SoundView Technology Group, Inc.
----------
Total
----------
33
<PAGE>
SCHEDULE II
LIST OF SELLING STOCKHOLDERS
Stockholder Number of Shares Entitled to Sell
Richard D. Forman 300,470
Mark S. Hoffman 96,000
Concentric Network Corporation 87,501
Hikari Tsushin Inc. 35,000
Dawn Patrick 8,750
34
<PAGE>
NUMBER register SHARES
.com(TM)
RC
Register.com, Inc. SEE REVERSE FOR
COMMON STOCK CERTAIN DEFINITIONS
Common Stock
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 75914G 10 1
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
$0.0001 PAR VALUE EACH OF
------ Register.com, Inc. ------
transferable on the books of the Corporation by the holder hereof in person or
by a duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ Jack Levy REGISTER.COM, INC. /s/ Richard D. Forman
- ---------------------- CORPORATE ---------------------
SECRETARY SEAL CHAIRMAN AND CHIEF
1999 EXECUTIVE OFFICER
DELAWARE
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NY)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT-________Custodian__________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as tenants Act______________
in common State
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received,____________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated:______________________
_______________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE(S) _______________________________________________________________
GUARANTEED THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), made and entered into this
27th day of February, 2000, by and between Register.com, Inc., a Delaware
corporation (the "Company"), and Richard D. Forman (the "Executive").
W I T N E S S E T H
WHEREAS, the Company has a need for the Executive's personal services
in an executive capacity; and
WHEREAS, the Executive possesses the necessary strategic, financial,
planning, operational and managerial skills necessary to fulfill those needs;
and
WHEREAS, the Executive and the Company desire to enter into a formal
employment agreement to fully recognize the contributions of the Executive to
the Company and to assure continuous harmonious performance of the affairs of
the Company.
NOW, THEREFORE, in consideration of the mutual promises, terms,
provisions, and conditions contained herein, the parties agree as follows:
1. Position.
The Company hereby agrees to continue to employ the Executive
to serve in the role of Chief Executive Officer of the Company, subject to the
limitations set forth herein. As such, the Executive shall be responsible for,
and have the authority with regard to, all duties and responsibilities
commensurate with his position subject to the authority of the Board of
Directors of the Company (the "Board"). The Executive accepts such employment
upon the terms and conditions set forth herein, and further agrees to perform
the duties generally associated with his position, as well as such other duties
commensurate with his position as Chief Executive Officer as may be reasonably
assigned by the Board. The Executive shall, at all times during the Term, report
directly to the Board. The Executive shall perform his duties with reasonable
diligence and faithfulness and shall devote his full business time (excluding
periods of vacation and sick leave) and attention to such duties, provided the
foregoing will not prevent the Executive from (i) participating in charitable,
civic, educational, professional, community or industry affairs or serving on
the board of directors of other companies, (ii) managing his and his family's
personal passive investments (iii) continuing to perform services in any
capacity for Lease on Line, Inc. or managing real estate in the New York City
area, provided that these activities do not materially interfere with the
performance of the Executive's duties and responsibilities hereunder.
The Board shall, in good faith, consider the Executive's
advice and recommendations, if any, in connection with any appointments or
nominations to the Board. For so long as the Executive remains Chief Executive
Officer of the Company, the Board will nominate Executive for membership to the
Board and, if elected, Executive shall serve in such capacity without additional
consideration.
<PAGE>
2. Term of Employment and Renewal.
The term of Executive's employment under this Agreement will
commence on the date of this Agreement (the "Effective Date"). Subject to the
provisions of Section 11 of this Agreement, the term of Executive's employment
hereunder shall be for an initial term of forty two (42) months from the
Effective Date (the "Initial Term"). The Initial Term of this Agreement shall be
automatically extended for successive one (1) year periods (each a "Renewal
Period") unless the Company or the Executive gives written notice to the other
at least ninety (90) days prior to the expiration of the Initial Term, or a
Renewal Period, of such party's election not to extend this Agreement.
References herein to the "Term" shall mean the Initial Term as it may be so
extended by one or more Renewal Periods. The last day of the Term is the
"Expiration Date."
3. Compensation and Benefits.
(a) Salary. Commencing on the Effective Date, the Company agrees to
pay the Executive a base salary at an annual rate of Two Hundred Thousand
Dollars ($200,000), payable in such installments as is the policy of the Company
(as increased from time to time, the "Salary"), but no less frequently than
monthly. Thereafter, the Board shall determine appropriate increases to
Executive's Salary but in no event shall diminish the amount of Executive's
Salary.
(b) Bonus. The Executive shall be eligible to receive annual
bonuses, at the discretion of the Board, provided that the structure and
potential amount of the bonus shall be no less favorable than that offered to
other senior executives at the Company.
(c) Benefits. The Executive shall be entitled to participate in all
employee benefit plans which the Company provides or may establish from time to
time for the benefit of its employees, including, without limitation, group
life, medical, surgical, dental and other health insurance, short and long-term
disability, deferred compensation, profit-sharing, vacation and similar plans,
under the terms and conditions of the applicable plans and/or policies; provided
that the Executive shall be entitled to life insurance and long term disability
benefits no less than the level of benefits in effect on the date immediately
preceding the Effective Date. The Company may purchase one or more "key man"
insurance policies on the Executive's life, each of which will be payable to and
owned by the Company. The Company, in its sole discretion, may select the amount
and type of key man life insurance purchased, and the Executive will have no
interest in any such policy. The Executive will cooperate with the Company in
securing this key man insurance, by submitting to all required medical
examinations, supplying all information and executing all documents required in
order for the Company to secure the insurance.
(d) Stock Options.
(i) At the time of the pricing of an initial public offering of
the Company's stock (the "IPO"), the Compensation Committee of the Board shall
grant the Executive, pursuant to the Company's 2000 Stock Option/Stock Issuance
Plan, and under the terms and conditions set forth in the Company's standard
Notice Of Grant of Stock Options, and the exhibits thereto, an option to
purchase a total of five hundred twenty-five thousand (525,000) shares of the
Company's common
2
<PAGE>
stock (the "Option Shares") at the following purchase prices: (a) as to one
hundred seventy-five thousand (175,000) of the Option Shares, a price equal to
ten percent above the IPO price (the "10% Shares"); (b) as to one hundred
seventy-five thousand (175,000) of the Option Shares, a price equal to forty
percent above the IPO price (the "40% Shares"); and (c) as to one hundred
seventy-five thousand (175,000) of the Option Shares, a price equal to sixty
percent above the IPO price (the "60% Shares"). This stock option (the "Stock
Option") shall vest and become exercisable over a forty-two (42) month period,
as long as the Executive is employed by the Company, in the following manner: as
to the 10% Shares, over a fourteen (14) month period beginning on the date of
the grant (the "Grant Date") at a rate of one fourteenth of the 10% Shares per
month; once the Stock Option is fully vested as to the 10% Shares, the Stock
Option shall vest and become exercisable as to the 40% Shares over a fourteen
(14) month period at a rate of one fourteenth of the 40% Shares per month; and
once the Stock Option is fully vested as to the 40% Shares, the Stock Option
shall vest and become exercisable as to the 60% Shares over a fourteen (14)
month period at a rate of one fourteenth of the 60% Shares per month. The Stock
Option shall immediately vest and become fully exercisable upon the termination
of the Executive's employment without Cause or for Good Reason. The Stock Option
shall, to the maximum extent permitted by applicable law, be designated as an
incentive stock option within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") and to the extent not allowable, the Stock
Option shall be a non-qualified stock option. The Executive shall be permitted
to transfer any non-qualified stock option to his immediate family members,
trusts (the beneficiaries of which are exclusively such family members), family
partnerships or, subject to the approval of the Compensation Committee of the
Board, other persons.
(ii) In addition to the option grants described herein, at the
sole discretion of the Compensation Committee of the Board, the Executive shall
be eligible for additional annual grants of stock options.
(e) Expenses. The Company shall pay or reimburse the Executive for
all reasonable out-of-pocket expenses actually incurred by him during the Term
in performing services hereunder, provided that the Executive properly accounts
for such expenses in accordance with the Company's policies.
(f) Vacation. The Executive shall be entitled to an annual paid
vacation in accordance with the Company's policy applicable to senior
executives, but in no event less than four (4) weeks per calendar year (as
prorated for partial years) and which may be accrued from year-to-year, if not
used, up to a maximum of six (6) weeks, which vacation may be taken at such
times as the Executive elects with due regard to the needs of the Company.
(g) Perquisites. The Company shall provide to the Executive, at the
Company's cost, all perquisites which other senior executives of the Company are
entitled to receive and, at a minimum, all perquisites that the Executive is
receiving as of the Effective Date.
(h) Tax and Financial Planning. The Company shall reimburse the
Executive for reasonable expenses incurred by the Executive in connection with
obtaining professional tax and financial planning advice.
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4. Confidentiality, Disclosure of Information.
(a) The Executive recognizes and acknowledges that the Executive has
had and will have access to Confidential Information (as defined below) relating
to the business or interests of the Company or of persons with whom the Company
may have business relationships. Except as permitted herein, the Executive will
not during the Term, or at any time thereafter, use or disclose any Confidential
Information of the Company (except as required by applicable law or in
connection with the performance of the Executive's duties and responsibilities
hereunder). The term "Confidential Information" means information relating to
the Company's business affairs, proprietary technology, trade secrets, patented
processes, research and development data, know-how, market studies and
forecasts, competitive analyses, pricing policies, employee lists, employment
agreements (other than this Agreement), personnel policies, the substance of
agreements with customers, suppliers and others, marketing arrangements,
customer lists, commercial arrangements or any other information relating to the
Company's business that is not generally known to the public or to actual or
potential competitors of the Company (other than through a breach of this
Agreement). This obligation shall continue until such Confidential Information
becomes publicly available or known in the Company's industry, other than
pursuant to a breach of this Section 4 by the Executive, regardless of whether
the Executive continues to be employed by the Company.
(b) It is further agreed and understood by and between the parties
to this Agreement that all "Company Materials," which include, but are not
limited to, computers, computer software, computer disks, tapes, printouts,
source, HTML and other code, flowcharts, schematics, designs, graphics,
drawings, photographs, charts, graphs, notebooks, customer lists, sound
recordings, other tangible or intangible manifestation of content, and all other
documents whether printed, typewritten, handwritten, electronic, or stored on
computer disks, tapes, hard drives, or any other tangible medium, as well as
samples, prototypes, models, products and the like, shall be the exclusive
property of the Company and, upon termination of Executive's employment with the
Company (or, in the event that the Executive continues as director of the
Company, upon ceasing to be a director of the Company), and/or upon the request
of the Company, all Company Materials, including copies thereof, as well as all
other Company property then in the Executive's possession or control, shall be
returned to and left with the Company. Notwithstanding the foregoing, the
Executive may retain (i) a copy of his rolodex and similar phone or electronic
directories (collectively, the "Rolodex") to the extent such Rolodex does not
contain information other than name, address, telephone number and similar
information, (ii) copies of such other books and marketing materials used by the
Executive in the performance of his duties hereunder, and (iii) any computers
used by the Executive in the performance of his duties hereunder, provided that
the Company shall retain sole ownership of the original Rolodex, books and
marketing materials, and provided that the Executive provides the Company with
all business-related data stored on such computer(s).
5. Inventions Discovered by Executive.
The Executive shall promptly disclose to the Company any
invention, improvement, discovery, process, formula, or method or other
intellectual property, whether or not patentable or copyrightable (collectively,
"Inventions"), conceived or first reduced to practice by the Executive, either
alone or jointly with others, while performing services hereunder (or, if based
on any Confidential Information, at any time after the Term), (a) which pertain
to any line of business activity of the Company, whether then conducted or then
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being actively planned by the Company, with which the Executive was or is
involved, (b) which is developed using time, material or facilities of the
Company, whether or not during working hours or on the Company premises, or (c)
which directly relates to any of the Executive's work during the Term, whether
or not during normal working hours. The Executive hereby assigns to the Company
all of the Executive's right, title and interest in and to any such Inventions.
During and after the Term, the Executive shall execute any documents necessary
to perfect the assignment of such Inventions to the Company and to enable the
Company to apply for, obtain and enforce patents, trademarks and copyrights in
any and all countries on such Inventions, including, without limitation, the
execution of any instruments and the giving of evidence and testimony, without
further compensation beyond the Executive's agreed compensation during the
course of the Executive's employment. Without limiting the foregoing, the
Executive further acknowledges that all original works of authorship by the
Executive, whether created alone or jointly with others, related to the
Executive's employment with the Company and which are protectable by copyright,
are "works made for hire" within the meaning of the United States Copyright Act,
17 U.S.C. ss. 101, as amended, and the copyright of which shall be owned solely,
completely and exclusively by the Company. If any Invention is considered to be
work not included in the categories of work covered by the United States
Copyright Act, 17 U.S.C. ss. 101, as amended, such work is hereby assigned or
transferred completely and exclusively to the Company. The Executive hereby
irrevocably designates counsel to the Company as the Executive's agent and
attorney-in-fact to do all lawful acts necessary to apply for and obtain patents
and copyrights and to enforce the Company's rights under this Section. This
Section 5 shall survive the termination of this Agreement. Any assignment of
copyright hereunder includes all rights of paternity, integrity, disclosure and
withdrawal and any other rights that may be known as or referred to as "moral
rights" (collectively "Moral Rights"). To the extent such Moral Rights cannot be
assigned under applicable law and to the extent the following is allowed by the
laws in the various countries where Moral Rights exist, the Executive hereby
waives such Moral Rights and consents to any action of the Company that would
violate such Moral Rights in the absence of such consent. The Executive agrees
to confirm any such waivers and consents from time to time as requested by the
Company.
6. Non-Competition and Non-Solicitation.
The Executive acknowledges that the Company has invested
substantial time, money and resources in the development and retention of its
Inventions, Confidential Information (including trade secrets), customers,
accounts and business partners, and further acknowledges that during the course
of the Executive's employment with the Company the Executive has had and will
have access to the Company's Inventions and Confidential Information (including
trade secrets), and will be introduced to existing and prospective customers,
accounts and business partners of the Company. The Executive acknowledges and
agrees that any and all "goodwill" associated with any existing or prospective
customer, account or business partner belongs exclusively to the Company,
including, but not limited to, any goodwill created as a result of direct or
indirect contacts or relationships between the Executive and any existing or
prospective customers, accounts or business partners. Additionally, the parties
acknowledge and agree that Executive possesses skills that are special, unique
or extraordinary and that the value of the Company depends upon his use of such
skills on its behalf.
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In recognition of this, the Executive covenants and agrees that:
(a) During the Term, and for a period of one (1) year thereafter,
the Executive may not, without the prior written consent of the Board, (whether
as an employee, agent, servant, owner, partner, consultant, independent
contractor, representative, stockholder or in any other capacity whatsoever):
(i) conduct any business with any customer of the Company on behalf of any
entity or person other than the Company (including the Executive) if such
business is competitive with the products or services offered by the Company, or
(ii) perform any work competitive in any way with the products or services
offered or planned to be brought to market by the Company during the Term or
within one (1) year thereafter, on behalf of any entity or person other than the
Company (including the Executive), provided that nothing herein shall prohibit
the Executive from owning up to 5% of the securities of any company or venture
fund, mutual fund or other similar investment vehicle as to which the Executive
does not control or influence investment decisions, and provided that nothing
herein shall prohibit the Executive from making other personal investments that
otherwise might violate this sub-Section with the prior approval of the Board.
(b) During the Term, (except as requested in connection with the
performance of the Executive's duties and responsibilities hereunder), and for a
period of one (1) year thereafter, the Executive may not entice, solicit or
encourage any Company employee to leave the employ of the Company or any
independent contractor to sever its engagement with the Company, absent prior
written consent to do so from the Board.
(c) During the Term, and for a period of one (1) year thereafter,
except in the good faith performance of his duties hereunder, the Executive may
not, directly or indirectly, entice, solicit or encourage any customer or
prospective customer of the Company to cease doing business with the Company, or
reduce its relationship with the Company or refrain from establishing or
expanding a relationship with the Company.
7. Domain Name Registration Policy. The Executive must receive approval
of the Board promptly following his registration of any domain name (other than
if the Company is the registrant), such approval not to be unreasonably
withheld. Should the Board decline to approve such registration, the Executive
shall dispose of such domain registration rights as directed by the Board. At
the time such approval is sought, the Executive must submit a signed written
statement agreeing to the following:
(a) The domain name being registered was thought of independently
and not conceived of or recommended, directly or indirectly, by any customer,
employee, consultant, director or partner of the Company other than the
Executive.
(b) The domain name does not infringe on the legal rights of any
third party nor does it fall within the category of abusive registration
(cybersquatting) in that: (1) the domain name is identical or similar to a trade
or service mark; (2) the holder of the domain name has no rights or legitimate
interests in respect to the domain name; or (3) the domain name has been
registered and used in bad faith (bad faith is defined to include: an offer to
sell the name, an attempt to confuse the complainant's customers, or an attempt
to disrupt the complainant's business).
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(c) The Executive cannot sell, license, transfer or negotiate the
sale, license or transfer of this domain name for a period of ninety (90) days
following registration of the name.
8. Non Disparagement. The Executive agrees that, except in the good
faith performance of his duties, at all times during the Term, and any
additional periods during which he serves as an employee, consultant or director
of the Company, the Executive will not make any public statement that is
disparaging about the Company, or any of its officers or directors, including,
but not limited to, any statement that disparages the products, services,
finances, financial condition, capabilities or other aspect of the business of
the Company. The Company likewise agrees that, during the Term, and any
additional periods during which the Executive serves as an employee, consultant
or director of the Company, it will not issue any formal public statement, and
none of its executive officers or directors will make any public statement, that
is disparaging of the Executive.
9. Provisions Necessary and Reasonable.
The Executive agrees that (i) the provisions of Sections 4, 5,
6 and 7 of this Agreement are necessary and reasonable to protect the Company's
Confidential Information, Inventions, and goodwill; (ii) the specific temporal,
geographic and substantive provisions set forth in Section 6 of this Agreement
are reasonable and necessary to protect the Company's business interests; and
(iii) in the event of any breach of any of the covenants set forth herein, the
Company would suffer substantial irreparable harm and would not have an adequate
remedy at law for such breach. In recognition of the foregoing, the Executive
agrees that in the event of a breach or threatened breach of any of these
covenants, in addition to such other remedies as the Company may have at law,
without posting any bond or security, the Company shall be entitled to seek and
obtain equitable relief, in the form of specific performance, and/or temporary,
preliminary or permanent injunctive relief, or any other equitable remedy which
then may be available. The seeking of such injunction or order shall not affect
the Company's right to seek and obtain damages or other equitable relief on
account of any such actual or threatened breach.
(a) If any of the covenants contained in Sections 4, 5, 6 and 7
hereof, or any part thereof, are hereafter construed to be invalid or
unenforceable, the same shall not affect the remainder of the covenant or
covenants, which shall be given full effect without regard to the invalid
portions.
(b) If any of the covenants contained in Sections 4, 5, 6 and 7
hereof, or any part thereof, are held to be unenforceable by a court of
competent jurisdiction because of the temporal or geographic scope of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the power to reduce the duration and/or geographic
area of such provision and, in its reduced form, such provision shall be
enforceable.
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10. Representations Regarding Prior Work and Legal Obligations.
(a) The Executive represents that the Executive has no agreement or
other legal obligation with any prior employer, or any other person or entity,
that restricts the Executive's ability to accept employment with, or to perform
any function for, the Company.
(b) The Executive has been advised by the Company that at no time
should the Executive divulge to or use for the benefit of the Company any trade
secret or confidential or proprietary information of any previous employer nor
shall the Company require the Executive to divulge any such information. The
Executive expressly acknowledges that the Executive has not divulged or used any
such information for the benefit of the Company.
11. Termination and Severance.
Notwithstanding the provisions of Section 2 of this Agreement,
the Executive's employment hereunder may terminate under the following
circumstances:
(a) Termination by the Company for Cause. The Company may terminate
this Agreement for Cause at any time, within ninety (90) days of the Board's
discovery of the Cause event, upon written notice to the Executive setting forth
in reasonable detail the nature of such Cause. For purposes of this Agreement,
Cause is defined as (i) the Executive's willful and material breach of the terms
of this Agreement, unless any such breach is susceptible to cure and is
corrected within thirty (30) days following written notice by the Company
specifying the details thereof; (ii) the Executive's conviction of any felony;
or (iii) gross negligence or willful misconduct by the Executive having a
material adverse impact on the Company; (iv) the Executive's willful refusal to
attempt to perform his job duties (other than due to Disability, as defined
below, or an approved leave) after his receipt of written notice from the Board.
Upon the termination for Cause of the Executive's employment, the Company shall
have no further obligation or liability to the Executive other than for unpaid
Salary earned under this Agreement prior to the date of termination, and any
accrued but unused vacation.
(b) Termination by the Company Without Cause. The Executive's
employment hereunder may be terminated without Cause by the Company upon written
notice to the Executive, provided, however, that if the Company terminates the
Executive's employment without Cause, or the Executive terminates his employment
for Good Reason, as defined below, the Company shall pay or provide the
Executive with: (i) unpaid Salary earned under this Agreement prior to the date
of termination and any accrued but unused vacation; (ii) any unpaid bonus
accrued with respect to the fiscal year ending on or preceding the date of
termination; (iii) a pro-rata bonus equal to the amount the Executive would have
received if employment continued (without any discretionary cutback) multiplied
by a fraction where the numerator is the number of days in each respective bonus
period prior to the Executive's termination and the denominator is the number of
days in the bonus period; (iv) reimbursement for any unreimbursed business
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expenses incurred by the Executive through the date of termination; (v) any
payments or benefits due under Company policies or benefit plans (collectively,
(i) through (v), "Accrued Obligations"); (vi) all stock option or equity grants
to the Executive shall vest in full so as to become fully exercisable and shall
remain exercisable for five (5) years following the date of termination; (vii)
on or within five (5) business days following the date of termination, a lump
sum cash payment equal to the product of (A) one twelfth (1/12th) of the
Executive's Salary (or, if improperly reduced, required to be in effect) and (B)
the number of months remaining in the Term or twelve (12) months, whichever is
greater; and (viii) medical and dental benefits for the Executive (and eligible
dependents) under COBRA upon the same terms and conditions in effect on the date
of termination for the eighteen (18) month period following the date of
termination, provided that, to the extent the Executive incurs tax that he would
not have incurred as an active employee as a result of the aforementioned
coverage or the benefits provided hereunder, the Executive shall receive from
the Company an additional payment in the amount necessary so that the Executive
will have no additional cost for receiving such items or any additional payment.
As a condition of receiving severance benefits pursuant to this Agreement, the
Executive shall execute and deliver to the Company prior to his receipt of such
benefits a general release substantially in the form attached hereto as Exhibit
B.
(c) Termination by the Executive. The Executive may terminate his
employment hereunder upon one (1) month's written notice to the Company,
provided, however, that the Company may pay the Executive his Salary in lieu of
any part of such notice. The Executive may also terminate his employment
hereunder for "Good Reason," within ninety (90) days of the occurrence of any of
the following events (i) a material breach of this Agreement by the Company,
including, but not limited to, any reduction of any part of the Executive's
compensation (including Salary and bonus) or benefits or any failure to timely
pay any part of the Executive's compensation (including Salary and bonus) or to
provide the benefits contemplated herein; (ii) a change in the Executive's
reporting relationship so that he no longer reports directly to the Board; (iii)
a relocation of the Executive's worksite to a location 35 miles or more from its
then-current location; (iv) any reduction or diminution (except temporarily
during any period of physical or mental impairment) in the Executive's titles,
positions, authorities, duties or responsibilities with the Company including,
but not limited to, any assignment to the Executive of duties or
responsibilities not commensurate with his position; (v) the failure for any
reason of the Compensation Committee of the Board to grant the Stock Option on
the terms set forth in this Agreement; or (viii) the failure of the Company to
obtain and deliver to the Executive a satisfactory written agreement from any
successor to the Company to assume and agree to perform this Agreement. The
Executive shall give the Company thirty (30) days' written notice and
opportunity to cure prior to any termination for Good Reason based on the
grounds specified herein.
(d) Death. In the event of the Executive's death during the Term of
this Agreement, the Executive's employment hereunder shall immediately and
automatically terminate, and the Company shall have no further obligation or
duty to the Executive or his estate or beneficiaries other than the Accrued
Obligations.
(e) Disability. The Company may terminate the Executive's employment
hereunder, upon written notice to the Executive, in the event that the Executive
becomes disabled during the Term through any condition of either a physical or
psychological nature and, as a result, is, with reasonable accommodation, unable
to perform the essential functions of the services contemplated hereunder for
(a) a period of ninety (90) consecutive days, or (b) for shorter periods
aggregating one hundred twenty (120) days during any twelve (12) month period
during the Term. Any such termination shall become effective upon mailing or
hand delivery of notice while Executive continues to be unable to perform the
essential functions of the services contemplated hereunder that the Company has
elected its right to terminate under this subsection 11(e), and the Company
shall have no further obligation or duty to the Executive other than for the
Accrued Obligations. For purposes of determining the Executive's entitlement to
the benefits provided for in this sub-Section only, the existence or
nonexistence of a disability shall be determined by a physician to be selected
by the Executive and the Company in good faith.
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(f) Effect of Non-Renewal. In the event that the Company gives
notice of its election not to extend the Term of the Agreement for a Renewal
Period pursuant to Section 2 above, the Company shall continue to pay the
Executive full compensation as defined in Section 3 of this Agreement from the
date the Executive receives such notice through the Expiration Date, shall
provide the Executive the Accrued Obligations and shall have no other
obligations to the Executive.
(g) No Mitigation/No Offset. The Executive shall not be required to
seek other employment or otherwise mitigate the value of any severance benefits
contemplated by this Agreement, nor shall any such benefits be reduced by any
earnings or benefits that Executive may receive from any other source or by any
damages claimed by the Company (other than for agreed-upon debts or for damages
arising out of embezzlement or similar malfeasance by the Executive).
(h) Excise Tax. In the event that the Executive becomes entitled to
payments and/or benefits which would constitute "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, the provisions of Exhibit A shall
apply.
12. Choice of Law.
The Executive acknowledges that a substantial portion of the
Company's business is based out of and directed from the State of New York. The
Executive also acknowledges that during the course of the Executive's employment
with the Company the Executive will have substantial contacts with New York.
The validity, interpretation and performance of this Agreement
shall be governed by, and construed in accordance with, the internal law of New
York, without giving effect to conflict of law principles. Both parties agree
that the exclusive venue for any action, demand, claim or counterclaim relating
to the terms and provisions of Sections 4, 5, 6 and 7 of this Agreement, or to
their breach, shall be in the state or federal courts located in the State and
City of New York and that such courts shall have personal jurisdiction over the
parties to this Agreement.
13. Miscellaneous.
(a) Assignment. The Executive acknowledges and agrees that the
rights and obligations of the Company under this Agreement may be assigned by
the Company to any successors in interest but not otherwise, provided such
successor in interest assumes all of the obligations hereunder of the Company in
a writing delivered to the Executive and otherwise complies with the provisions
hereof with regard to such assumption. The Executive further acknowledges and
agrees that this Agreement is personal to the Executive and that the Executive
may not assign any rights or obligations hereunder.
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(b) Withholding. All Salary and bonus payments required to be made
by the Company to the Executive under this Agreement shall be subject to
withholding taxes, social security and other payroll deductions in accordance
with the Company's policies applicable to employees of the Company at the
Executive's level.
(c) Entire Agreement. This Agreement and the Notice of Grant of
Stock Options set forth the entire agreement between the parties on the subject
matter contained herein and supersede any prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of the
Executive's employment including, but not limited to, the prior written
employment agreement between the parties, dated November 15, 1995, as amended.
(d) Amendments. Any attempted modification of this Agreement will
not be effective unless signed by an officer of the Company and the Executive.
(e) Waiver of Breach. The Executive understands that a breach of any
provision of this Agreement may only be waived by an officer of the Company. The
waiver by the Company of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach.
(f) Severability. If any provision of this Agreement should, for any
reason, be held invalid or unenforceable in any respect by a court of competent
jurisdiction, then the remainder of this Agreement, and the application of such
provision in circumstances other than those as to which it is so declared
invalid or unenforceable, shall not be affected thereby, and each such provision
of this Agreement shall be valid and enforceable to the fullest extent permitted
by law.
(g) Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be effective when
delivered by private messenger, private overnight mail service, or facsimile as
follows (or to such other address as either party shall designate by notice in
writing to the other in accordance herewith):
If to the Company:
575 Eighth Avenue, 11th Floor
New York, NY 10018
With a copy to:
Brobeck, Phleger & Harrison LLP
1633 Broadway, 47th Floor
New York, New York 10019
Attn: Alexander D. Lynch
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If to the Executive:
575 Eighth Avenue
New York, NY 10018
(h) Survival. The Executive and the Company agree that certain
provisions of this Agreement shall survive the expiration or termination of this
Agreement and the termination of the Executive's employment with the Company.
Such provisions shall be limited to those within this Agreement which, by their
express and implied terms, obligate either party to perform beyond the
termination of the Executive's employment or termination of this Agreement.
(i) Arbitration of Disputes. Any controversy or claim arising out of
this Agreement or any aspect of the Executive's relationship with the Company
including the cessation thereof (other than disputes with respect to alleged
violations of the covenants contained in Sections 4, 5, 6 or 7 hereof, which
shall be resolved as set forth in Section 12 hereof) shall be resolved
exclusively by arbitration in accordance with the then existing National Rules
for the Resolution of Employment Disputes of the American Arbitration
Association, in New York, New York, and judgment upon the award rendered may be
entered in any court having jurisdiction thereof. The Company shall pay all
costs of the American Arbitration Association and the arbitrator. The parties
agree that the award of the arbitrator shall be final and binding.
(j) Legal Fees.
(i) The judge or arbitrator in any proceeding or arbitration
arising out of this Agreement may award the prevailing party such party's
reasonable legal fees and costs.
(ii) The Company shall pay the legal fees and costs incurred by
the Executive in connection with the negotiation and preparation of this
Agreement upon the presentation of invoices in appropriate form.
(k) Rights of Other Individuals. This Agreement confers rights
solely on the Executive and the Company. This Agreement is not a benefit plan
and confers no rights on any individual or entity other than the undersigned.
(l) Headings. The parties acknowledge that the headings in this
Agreement are for convenience of reference only and shall not control or affect
the meaning or construction of this Agreement.
(m) Advice of Counsel. The Executive and the Company hereby
acknowledge that each party has had adequate opportunity to review this
Agreement, to obtain the advice of counsel with respect to this Agreement, and
to reflect upon and consider the terms and conditions of this Agreement. The
parties further acknowledge that each party fully understands the terms of this
Agreement and has voluntarily executed this Agreement.
(n) Insurance. The Company will cover the Executive under directors'
and officers' liability insurance in the same amount and to the same extent as
the Company covers its other officers and directors.
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IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the day and year set forth below.
EXECUTIVE REGISTER.COM, INC.
/s/ Richard D. Forman By: /s/ Jack Levy
- ------------------------ --------------------------------
RICHARD D. FORMAN JACK LEVY
Title: General Counsel and Secretary
-----------------------------
Dated: February 27, 2000 Dated: February 27, 2000
------------------ ----------------------------
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EXHIBIT A
GOLDEN PARACHUTE PROVISIONS
(a) In the event that the Executive shall become entitled to payments
and/or benefits provided by this Agreement or any other amounts in the "nature
of compensation" (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any person whose actions result
in a change of ownership or effective control covered by Section 280G(b)(2) of
the Code or any person affiliated with the Company or such person) as a result
of such change in ownership or effective control (collectively the "Company
Payments"), and such Company Payments will be subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Code (and any similar tax that may
hereafter be imposed by any taxing authority) the Company shall pay to the
Executive at the time specified in paragraph (d) below an additional amount (the
"Gross-up Payment") such that the net amount retained by the Executive, after
deduction of any Excise Tax on the Company Payments and any U.S. federal, state,
and for local income or payroll tax upon the Gross-up Payment provided for by
this paragraph (a), but before deduction for any U.S. federal, state, and local
income or payroll tax on the Company Payments, shall be equal to the Company
Payments.
(b) For purposes of determining whether any of the Company Payments and
Gross-up Payments (collectively the "Total Payments") will be subject to the
Excise Tax and the amount of such Excise Tax, the Total Payments shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and all "parachute payments" in excess of the "base amount" (as defined
under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise
Tax, unless and except to the extent that, in the opinion of the Company's
indepen-dent certified public accountants appointed prior to any change in
ownership (as defined under Section 280G(b)(2) of the Code) or tax counsel
selected by such accountants (the "Accountants") such Total Payments (in whole
or in part) either do not constitute "parachute payments," represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the "base amount" or are otherwise not
subject to the Excise Tax, and the value of any non-cash benefits or any
deferred payment or benefit shall be determined by the Accountants in accordance
with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Gross-up Payment, the
Executive shall be deemed to pay U.S. federal income taxes at the highest
marginal rate of U.S. federal income taxation in the calendar year in which the
Gross-up Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the Executive's residence
for the calendar year in which the Company Payment is to be made, net of the
maximum reduction in U.S. federal income taxes which could be obtained from
deduction of such state and local taxes if paid in such year. In the event that
the Excise Tax is subsequently determined by the Accountants to be less than the
amount taken into account hereunder at the time the Gross-up Payment is made,
the Executive shall repay to the Company, at the time that the amount of such
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reduction in Excise Tax is finally determined, the portion of the prior Gross-up
Payment attributable to such reduction (plus the portion of the Gross-up Payment
attributable to the Excise Tax and U.S. federal, state and local income tax
imposed on the portion of the Gross-up Payment being repaid by the Executive if
such repayment results in a reduction in Excise Tax or a U.S. federal, state and
local income tax deduction), plus interest on the amount of such repayment at
the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the
foregoing, in the event any portion of the Gross-up Payment to be refunded to
the Company has been paid to any U.S. federal, state and local tax authority,
repayment thereof (and related amounts) shall not be required until actual
refund or credit of such portion has been made to the Executive, and interest
payable to the Company shall not exceed the interest received or credited to the
Executive by such tax authority for the period it held such portion. The
Executive and the Company shall mutually agree upon the course of action to be
pursued (and the method of allocating the expense thereof) if the Executive's
claim for refund or credit is denied.
(d) In the event that the Excise Tax is later determined by the
Accountant or the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Gross-up Payment is made (including by reason
of any payment the existence or amount of which cannot be determined at the time
of the Gross-up Payment), the Company shall make an additional Gross-up Payment
in respect of such excess (plus any interest or penalties payable with respect
to such excess) at the time that the amount of such excess is finally
determined.
(e) The Gross-up Payment or portion thereof provided for in paragraph
(c) above shall be paid not later than the thirtieth (30th) day following an
event occurring which subjects the Executive to the Excise Tax; provided,
however, that if the amount of such Gross-up Payment or portion thereof cannot
be finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the
Accountant, of the minimum amount of such payments and shall pay the remainder
of such payments (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code), subject to further payments pursuant to paragraph
(c) hereof, as soon as the amount thereof can reasonably be determined, but in
no event later than the ninetieth (90th) day after the occurrence of the event
subjecting the Executive to the Excise Tax. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) day after demand by the Company (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code).
(f) In the event of any controversy with the Internal Revenue Service
(or other taxing authority) with regard to the Excise Tax, the Executive shall
permit the Company to control issues related to the Excise Tax (at its expense),
provided that such issues do not potentially materially adversely affect the
Executive, but the Executive shall control any other issues. In the event the
issues are interrelated, the Executive and the Company shall in good faith
cooperate so as not to jeopardize resolution of either issue, but if the parties
cannot agree the Executive shall make the final determination with regard to the
issues. In the event of any conference with any taxing authority as to the
Excise Tax or associated income taxes, the Executive shall permit the
representative of the Company to accompany the Executive, and the Executive and
the Executive's representative shall cooperate with the Company and its
representative.
(g) The Company shall be responsible for all charges of the Accountant.
(h) The Company and the Executive shall promptly deliver to each other
copies of any written communications, and summaries of any verbal
communications, with any taxing authority regarding the Excise Tax covered by
this Appendix A.
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EXHIBIT B
SEPARATION AGREEMENT
AND GENERAL RELEASE
This Separation Agreement and General Release ("Agreement") is made and
entered into this ____ day of _____, _____, by and between [COMPANY NAME]
(hereinafter the "Company" or "Employer") and [EMPLOYEE NAME] ("Employee")
(hereinafter collectively referred to as the "Parties"), and is made and entered
into with reference to the following facts.
RECITALS
WHEREAS, Employee was hired by the Company on or about ________, as a
____________; and
WHEREAS, the Company and Employee have agreed to terminate their
employment relationship effective ______, ____; and
WHEREAS, the Parties each desire to resolve any potential disputes
which exist or may exist arising out of Employee's employment with the Company
and/or the termination thereof.
NOW THEREFORE, in consideration of the covenants and promises contained
herein, the Parties hereto agree as follows:
AGREEMENT
1. Agreement By the Company. In exchange for Employee's agreement to be
bound by the terms of this entire Agreement, including but not limited to the
Release of Claims in paragraph 3, the Company agrees to provide Employee with
[INSERT CONSIDERATION AS PROVIDED FOR IN PARAGRAPH 11 OF THE EMPLOYMENT
AGREEMENT].
Employee acknowledges that, absent this Agreement, s/he has no legal,
contractual or other entitlement to the consideration set forth in this
paragraph and that the amount set forth in this paragraph constitute valid and
sufficient consideration for Employee's release of claims and other obligations
set forth herein.
2. Release of Claims. Employee hereby expressly waives, releases,
acquits and forever discharges the Company and its divisions, subsidiaries,
affiliates, parents, related entities, partners, officers, directors,
shareholders, investors, executives, managers, employees, agents, attorneys,
representatives, successors and assigns (hereinafter collectively referred to as
"Releasees"), from any and all claims, demands, and causes of action which
Employee has or claims to have, whether known or unknown, of whatever nature,
which exist or may exist on Employee's behalf from the beginning of time up to
and including the date of this Agreement. As used in this paragraph, "claims,"
"demands," and "causes of action" include, but are not limited to, claims based
on contract, whether express or implied, fraud, stock fraud, defamation,
wrongful termination, estoppel, equity, tort, retaliation, intellectual
property, personal injury, spoliation of evidence, emotional distress, public
policy, wage and hour law, statute or common law, claims for severance pay,
claims related to stock options and/or fringe benefits, claims for attorneys'
fees, vacation pay, debts, accounts, compensatory damages, punitive or exemplary
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damages, liquidated damages, and any and all claims arising under any federal,
state, or local statute, law, or ordinance prohibiting discrimination on account
of race, color, sex, age, religion, sexual orientation, disability or national
origin, including but not limited to, the New York State Human Rights Law, the
Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964
as amended, the Americans with Disabilities Act, the Family and Medical Leave
Act or the Employee Retirement Income Security Act. This release shall not be
effective as to any claims, demands or causes of action arising out of acts or
omissions occurring after the date of execution of this Agreement or based on
any indemnification rights of the Executive under the Company's certificate of
incorporation, by-laws or under applicable law.
3. Acceptance of Agreement/[Revocation]. This Agreement was received by
Employee on ______, ____. Employee may accept this Agreement by returning a
signed original to the Company. This Agreement shall be withdrawn if not
accepted in the above manner on or before _______.
4. New York Law Applies. This Agreement, in all respects, shall be
interpreted, enforced and governed by and under the laws of the State of New
York. Any and all actions relating to this Agreement shall be filed and
maintained in the federal and/or state courts located in the State and County of
New York, and the parties consent to the jurisdiction of such courts. In any
action arising out of this Agreement, or involving claims barred by this
Agreement, the prevailing party shall be entitled to recover all costs of suit,
including reasonable attorneys' fees.
5. Voluntary Agreement. EMPLOYEE UNDERSTANDS AND AGREES THAT S/HE MAY
BE WAIVING SIGNIFICANT LEGAL RIGHTS BY SIGNING THIS AGREEMENT, AND REPRESENTS
THAT S/HE HAS ENTERED INTO THIS AGREEMENT KNOWINGLY AND VOLUNTARILY, WITH A FULL
UNDERSTANDING OF AND IN AGREEMENT WITH ALL OF ITS TERMS.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the dates provided below.
DATED: _____________________, ____ [COMPANY NAME]
By: __________________________
Its: __________________________
DATED: _____________________, ____ [EMPLOYEE NAME]
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MARKETING AGREEMENT ("Services Agreement")
THIS AGREEMENT, dated as of May 21, 1999, is made and entered into by
and between FORMAN INTERACTIVE CORP., a New York corporation with its office at
134 Fifth Avenue, 3rd Floor, New York, New York 10011 ("Register.com"), and
STAPLES, INC., a Delaware corporation with its principal offices located at 500
Staples Drive, Framingham, Massachusetts 01701 ("Staples").
WHEREAS, Register.com engages in the business of domain name
registration and registrar services on the Internet ("Services");
WHEREAS, Staples and, through its web site, Staples.com, are engaged in
the business of selling Office Supplies (as defined in Section 2 below);
WHEREAS, all mentions of Permanent ("permanent" or "Permanent")
placement in the Marketing Agreement in Exhibit A attached hereto shall remain
only in effect during the duration of this Agreement;
WHEREAS, Staples and Register.com desire to enter into this Agreement
whereby Register.com will be the exclusive provider of Internet domain name
registrar and registration Services on Staples.com's web site as set forth in
this Agreement, and Staples will be the exclusive provider of Office Supplies
that are advertised or promoted on Register.com's web site as set forth in this
Agreement;
NOW, THEREFORE, in consideration of mutual promises and covenants of
the parties hereinafter set forth, the receipt and sufficiency of which are
hereby acknowledged, Register.com and Staples mutually agree as follows:
1. Grant of Exclusive Rights to Register.com. During the Term (as defined in
Section 4 below), Staples grants to Register.com the exclusive right to market
and solicit the Services across all of Staples' branded properties, including,
but not limited to, Staples.com's web site and the Staples retail stores.
Staples shall promote and advertise the Services in the scope and manner
specified in Exhibit A attached hereto. In furtherance of, but in no way
limiting, the foregoing, Staples covenants and agrees that, during the Term, it
will not enter into any agreement with any company engaged in the business of
registration Services whereby such company shall have the right to (i) advertise
such Services on Staples.com web site or in Staples' retail stores in any manner
whatsoever, or (ii) form a partnership, strategic or otherwise, with Staples.com
or with Staples. During the Term, Staples shall not enter any marketing
agreements similar to those described herein with any entity whose primary
(greater than 50% of revenues) lines of business include domain name registrar
and registration services, including but not limited to, Network Solutions, Inc.
and any subsidiaries or affiliates thereof.
2. Grant of Exclusive Rights to Staples. During the Term, Register.com grants to
Staples the exclusive right to market and solicit Office Supplies on
Register.com's web site. Register.com shall promote and advertise such Office
Supplies in the scope and manner specified in Exhibit A attached hereto. In
furtherance of, but in no way limiting, the foregoing, Register.com covenants
and agrees that, during the Term, it will not enter into any agreement with any
company engaged in the business of Office Supplies whereby such company shall
have the right to (i) advertise on Register.com's web site in any manner
whatsoever or (ii) provide Office Supplies to Register.com's customers. During
the Term, Register.com shall not enter any marketing agreements similar to those
described herein with any entity that derives more than 20% of its revenues from
sales of Office Supplies. For purposes of this Agreement, the term "Office
Supplies" means office supplies other than computer equipment, business services
(including, but not limited to, printing services), software, furniture, and
business machines. Prohibited companies include, but are not limited to, Online
Office Supplies, Megadepot, OfficeMax, Office Depot and any subsidiaries or
affiliates thereof.
3. Promotion. During the Term, Staples and Register.com agree to promote each
other's services and products as provided on Exhibit A attached hereto.
<PAGE>
4. Term. The Term of this Agreement shall commence on June 1, 1999 and shall
continue until May 31, 2002. The initial Term of this Agreement shall
automatically be extended for additional, consecutive one (1) year periods,
unless either party gives written notice to the other party at least sixty (60)
days prior to the expiration of the then-current Term of its intention not to
extend such Term.
5. Notices. Any notice required to be given by a party hereunder shall be given
in writing and delivered personally or shall be sent by certified mail, return
receipt requested, to the other party at the addresses hereinabove set forth or
at such other addresses as a party hereunder may hereafter notify the other of
in such manner. Any notices sent by certified mail shall be deemed given on the
day such notice is mailed.
6. Assignment. All of the terms of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. No party may assign this Agreement or any of its rights,
interests or obligations hereunder without the written consent of the other
party hereto.
7. Governing Law. This Agreement shall be construed according to the laws of the
State of New York and all actions and disputes hereunder shall be brought in the
state or federal courts of New York.
8. Agency. Except as Staples may be specifically authorized in writing by
Register.com, nothing herein contained shall be construed as authorizing Staples
to bind Register.com in any way nor as constituting Staples an agent or
representative of Register.com. Except as Register.com may be specifically
authorized in writing by Staples, nothing herein contained shall be construed as
authorizing Register.com to bind Staples in any way nor as constituting
Register.com as an agent or representative of Staples.
9. Entire Agreement. This Agreement, including the Exhibits referred to herein
and attached hereto, constitutes and contains the entire understanding between
the parties hereto with respect to the subject matter hereof, supersedes the
Investment and Marketing Agreement dated May 17, 1999, between the parties
(including Exhibit B thereto) to the extent such Agreement (including Exhibit B
thereto) affects the subject matter hereof, and cannot be amended, modified or
waived except in writing signed by the parties hereto.
10. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same Agreement.
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11. Indemnification by Register.com. Register.com represents that it has full
authority to enter into this Agreement and to perform its obligations hereunder.
Register.com further represents that it has the right to publish the contents of
any promotions or advertisements provided by Register.com to Staples for
promotion or advertisement hereunder, without infringement of any rights of any
third party. Register.com shall, at its own expense, indemnify, defend and hold
harmless Staples, its employees, representatives, agents and affiliates
(including, without limitation, Staples.com) from and against any liabilities
resulting from or arising out of any claim, suit, action, or other proceeding
alleging that the content provided by Register.com to Staples hereunder,
including, without limitation, any material, data, or product produced or
provided by Register.com or any material presented on any site on the Internet,
which is material produced, maintained, or published by Register.com, infringes
in any manner any intellectual property right of any third party or contains any
material or information that is unlawful, obscene, defamatory, libelous,
slanderous, or that otherwise violates any rights of any person, including,
without limitation, rights of publicity, privacy or personality, or advertises
an illegal product or service, or has otherwise resulted in any tort, injury,
damage or harm to any person or entity. Register.com will pay any and all costs,
damages, and expenses, including, but not limited to, reasonable attorneys' fees
and costs awarded against or otherwise incurred by Staples in connection with or
arising from any such claim, suit, action or proceeding. It is understood and
agreed that Staples does not intend and will not be required to edit or review
for accuracy or appropriateness the content of any material provided by
Register.com to Staples hereunder. Register.com agrees that is does not have any
right, title or interest, and agrees that it will not claim any, in or to the
name "Staples" or any other names, trademarks, logos or other indicia owned or
controlled by Staples, Inc., its subsidiaries and affiliates (the "Staples
Marks"). Register.com acknowledges that this Agreement does not create or vest
in Register.com any right, title or interest in the Staples Marks. Whenever
Register.com uses any Staples Marks in connection with the promotional
activities, Register.com shall clearly and prominently indicate Staples'
ownership of the Staples Marks in a form designated by Staples. All uses of the
Staples Marks shall inure to the benefit of Staples. This Section 11 shall
survive termination of this Agreement.
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12. Indemnification by Staples. Staples represents that it has full authority to
enter into this Agreement and to perform its obligations hereunder. Staples
further represents that it has the right to publish the contents of any
promotions or advertisements provided by Staples to Register.com for promotion
or advertisement hereunder, without infringement of any rights of any third
party. Staples shall, at its own expense, indemnify, defend and hold harmless
Register.com, its employees, representatives, agents and affiliates, harmless
from and against any liabilities resulting from or arising out of any claim,
suit, action, or other proceeding alleging that the content provided by Staples
to Register.com hereunder, including, without limitation, any material, data, or
product produced or provided by Staples or any material presented on any site on
the Internet, which is material produced, maintained, or published by Staples,
infringes in any manner any intellectual property right of any third party or
contains any material or information that is unlawful, obscene, defamatory,
libelous, slanderous, or that otherwise violates any rights of any person,
including, without limitation, rights of publicity, privacy or personality, or
advertises an illegal product or service, or has otherwise resulted in any tort,
injury, damage or harm to any person or entity. Staples will pay any and all
costs, damages, and expenses, including, but not limited to, reasonable
attorneys' fees and costs awarded against or otherwise incurred by Register.com
in connection with or arising from any such claim, suit, action or proceeding.
It is understood and agreed that Register.com does not intend and will not be
required to edit or review for accuracy or appropriateness the content of any
material provided by Staples to Register.com hereunder. Staples agrees that is
does not have any right, title or interest, and agrees that it will not claim
any, in or to the name "Register.com" or any other names, trademarks, logos or
other indicia owned or controlled by Forman Interactive Corp., its subsidiaries
and affiliates (the Forman Marks). Staples acknowledges that this Agreement does
not create or vest in Staples any right, title or interest in the Forman Marks.
Whenever Staples uses any Forman Marks in connection with the promotional
activities, Staples shall clearly and prominently indicate Register.com's
ownership of the Forman Marks in a form designated by Register.com. All uses of
the Forman Marks shall inure to the benefit of Register.com. This Section 12
shall survive termination of this Agreement.
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13. Default. Either party may be declared in default of the Agreement if
(i) it breaches any material provision hereof and fails,
within thirty (30) days after receipt of notice of default, to
correct such default or to commence corrective action
reasonably acceptable to the other party and proceed with due
diligence to completion; or
(ii) it becomes insolvent, makes an assignment for the benefit
of creditors, a receiver is appointed or a petition for
bankruptcy is filed with respect to it and such proceeding is
not dismissed within sixty (60) days.
In the event of a default by any party as set forth above, the non-defaulting
party may then terminate this Agreement immediately and pursue all other
available remedies. In the event of a termination by Register.com because of a
material breach of Section 3 hereof by Staples in accordance with the provisions
of clause (i) above, then, as its sole and exclusive remedy, Register.com shall
be entitled to recover from Staples liquidated damages in the amount of $2.4
million. The right to receive and the receipt of such liquidated damages shall
in no way limit the rights of Register.com under Section 12 or the right of
Register.com to pursue all available remedies for a breach of any provision of
this Agreement other than a breach of Section 3.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
FORMAN INTERACTIVE CORP.:
By: /s/ Richard D. Forman
--------------------------------
Name: Richard D. Forman
Title: President
STAPLES, INC.:
By: /s/ Thomas Stemberg
--------------------------------
Name:
Title:
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Exhibit A.
Marketing Agreement
Register.com Will Perform the Following:
300,000 monthly banners(468 x 60)impressions provided by Staples to be run on
the register Web Site;
One Staples branded permanent and fixed button and up to two (2) lines of text
in the Business Resource section of the register Web Site;
One permanent and fixed Staples branded button on the left-hand tool bar, "below
the fold";
One "opt-out" email opportunity in which new customers will be given the choice
to receive a specific Staple's offer via email. This opt-out opportunity is
currently located for all new users between Steps 3 and 4 of the register Web
Site;
Staples will be included, both text and logo, on the Partners Page of the
register Web Site.
Staples Will Perform the Following:
A Register.com branded permanent and fixed text and graphic link, possibly with
a dialog box (minimum of 88x31) on the home page of Staples Web Site;
A Register.com permanent and fixed text link and graphic link (minimum of 88x31)
along with a dialog box for domain name selection in the business section of
Staples Web Site, with placement to be included above the fold, in a manner no
less prominent than any other company in the Staples Web Site business center;
300,000 monthly banners (154 x 84) impressions provided by register.com and to
be run on Staples Web Site;
Staples will include a promotional offer from register.com in emails to new and
existing customers of Staples, with a minimum delivery to at least 50,000
customers per month;
Staples will include register.com as a strategic partner in mentions of
partnerships in a manner no less prominent than any other strategic partner
wherever Staple's mentions their strategic partnerships;
Staples will give away mousepads with the register.com logo to all new
Staples.com customers as a part of the standard welcome package. Staples and
register.com will share the expenses resulting from the manufacturing of this
item. Staples will take responsibility for all costs incurred in distributing
this product;
Staples will include a promotional offer from register.com in no less than
250,000 (per quarter) brochures about getting a domain name and starting an
Internet business at least one point of distribution in each Staples store.
Staples will provide Register.com with accurate forecast regarding the number of
brochures required for all of Staples retail locations. This brochure will
feature Register.com's services and be co-branded register.com/staples. Staples
will design the brochure utilizing Register.com's content. Staples and
register.com will share the expenses for development and printing costs. In the
event that Staples and Register.com determine it to be appropriate to broaden
the selection of products and services in the brochure to include those of other
vendors, Register.com's share of the costs will be reduced proportionately;
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Staples will include register.com on each Call Center "wait" tape, the tape
Staples' customers hear when they call in to the service Center with questions
and wait for a customer service representative. This message will run in
rotation with other messages no less than two weeks per calendar quarter.
Register.com will provide input into the content of the text for this message;
Staples will produce and distribute the recording;
Staples will include register.com in no less than 250,000 (per quarter) mail
order and in- store catalogues as either a "blow-in" or "onsert". Register.com
will provide creative and cover printing costs; Staples will produce and
distribute materials;
Staples will use reasonable commercial efforts to cross-promote the Register.com
Services with the sale of computer software, including, but not limited to
intent browsers. Register.com will provide the text and logo and cover the
printing expenses; Staples will distribute all materials;
Staples will include register.com in credit card statement or other direct
mailing inserts to its customer base when appropriate. Staples will include
register.com in no less than 300,000 statements or direct mailing inserts per
year. Register.com will provide the text and logo and cover the printing
expenses; Staples will distribute the inserts;
Staples will include register.com in all international expansion efforts when
applicable;
Staples will include a promotional offer from register.com including two (2)
lines of text, a logo (if possible) and a hot link to a co-branded domain name
registration page on 20%
7
<PAGE>
of all email order confirmations to customers who are buying supplies at Staples
Web Site;
Staples will use reasonable commercial efforts to leverage its buying position
with OEM software suppliers to include Register.com as part of the software
package or in joint promotional activities.
Staples and Register.com will mutually determine and provide for co-promotion of
other parties' services as follows:
Staples and Register.com will use their future and existing marketing
relationships in order to help promote the sale of the other parties products
and services in a commercially reasonable manner.
To the extent that both parties believe that the specific programs listed above
are not performing on a commercially reasonable or acceptable basis both
parities will use commercially reasonable efforts to develop substitute programs
of comparable value. This analysis will be performed on a quarterly basis after
an initial three (3) month period.
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Look and Feel:
All promotional and marketing materials, look, feel and/or user interface or
other content (including without limitation any banner advertising) must be
approved by both parties in writing. In the event either party substantially
changes its look, feel and/or user interface, it will use its reasonable efforts
to provide the other party with substantially similar promotion and
representation as indicated in this Exhibit A; provided that the other party
shall have the right to approve, in its sole discretion, such altered promotion
and representation.
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JOINT MARKETING AND DISTRIBUTION AGREEMENT
This JOINT MARKETING AND DISTRIBUTION AGREEMENT ("Agreement") is
executed as of June 25, 1999, by and between CONCENTRIC NETWORK CORPORATION
("Concentric"), a Delaware corporation with its principal offices at 1400
Parkmoor Avenue, San Jose, CA 95126, and register.com, Inc. ("register.com"), a
Delaware corporation with its principal offices at 575 Eighth Avenue, 11th
Floor, New York, NY 10018. Concentric and register.com, and their respective
successors and permitted assigns, are sometimes individually referred to herein
as a "Party" or collectively as the "Parties."
RECITALS
WHEREAS, Concentric currently supplies Internet access, web hosting,
e-commerce and domain name registration services to consumers and business
customers;
WHEREAS, register.com currently provides domain name registration,
e-mail and web hosting services to consumers and business customers, and sells
advertising space to companies interested in reaching visitors to web sites
owned and operated by register.com;
WHEREAS, Concentric and register.com desire to enter into an agreement
to offer certain Concentric web hosting and e-commerce services to
register.com's customers, to make register.com's domain registration services
available to Concentric's web hosting customers and OEM partners, and to
cooperate in certain other business opportunities that may further the interests
of both Parties;
WHEREAS, Concentric has agreed to invest (the "Investment") $5 million
in register.com by participating in register.com's current round of venture
capital financing, which is currently expected to close on or about June 25
under the terms set forth in that Letter of Intent, dated June 2, 1999 between
Sandler Capital Partners IV, L.P., Sandler Capital Partners IV FTE, L.P. and
register.com.
NOW, THEREFORE, in consideration of the promises, conditions and mutual
covenants set forth below, the adequacy of which is hereby acknowledged, the
Parties agree as follows:
AGREEMENT
1. DEFINITIONS
1.1. "Web Hosting" shall mean the hosting of Internet web sites for
customers on a web server dedicated to a given customer or on one or
more web servers shared among multiple customers. Web Hosting shall
not mean any e-commerce services except for E-Commerce (as defined in
Section 1.2 below).
1.2. "E-Commerce" shall mean any product catalog, shopping cart and/or
transaction processing server-side technology closely integrated
together and sold solely in connection with Web Hosting services.
1.3. "Private Label" shall mean services that are provided by a Party but
marketed and sold under a name and product brand that is not owned or
controlled by such Party.
1.4. "Domain Registration" shall mean the process through which a unique
Internet domain name is selected and submitted to a designated domain
name registry.
1.5. "DNS" shall mean Domain Name Server, the primary database with which a
given registered domain name is associated.
1.6. "Web Properties" shall mean any and all publicly available Internet
web sites located at the domain "register.com", or any other domain
owned, operated and maintained by register.com, or its successors or
assigns, in each case used for Domain Registration.
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1.7. "Concentric Offers" shall mean advertising and promotional materials
that are presented to potential customers that may be interested in
purchasing Web Hosting and/or E-Commerce services.
1.8. "Net New Registrant" shall mean a completed Domain Registration
including payment for the newly registered domain name.
1.9. "Concentric Opportunities" shall mean Net New Registrants made
available to Concentric solely for the benefit of Concentric and
solely for Web Hosting and/or E-Commerce opportunities.
1.10. "Above the Fold" shall mean Internet web site content that is visible
in its entirety above the bottom edge of the browser window when a
standard 800x600 computer display is employed.
1.11. "Net Registration Revenue" shall pertain only to gTLD Names and shall
mean the amount charged customers for Domain Registration less the
amount paid to third party domain registries, less other expenses
directly and solely attributable to functioning as a designated domain
name registrar or reseller, less industry and regulatory fees, and
less any applicable taxes (excluding any income tax paid by
register.com).
1.12. "gTLD Names" shall mean only those domain names registered under the
generic top level domains of .com, .net, and .org.
1.13. "Joint Customer" shall mean a Net New Registrant that purchases Web
Hosting or E-Commerce services from Concentric.
2. MARKETING OF CONCENTRIC SERVICES
2.1. Limited Exclusivity. During the Term (as defined in Section 6.1.5
below), Concentric shall be one (1) of no more than three (3)
Web-Hosting or E-Commerce service providers that are marketed,
advertised, or otherwise promoted on the Web Properties. The
appearance of all Concentric Offers referred to throughout this
Agreement shall have an appearance, size, and placement, taken as
whole, no less favorable in all material respect than any other Web
Hosting or E-commerce service provider present on the Web Properties.
In the event of any conflict between the immediately preceding
sentence and the terms and conditions of Sections 2.2 and 2.3,
Sections 2.2 and 2.3 shall govern.
2.2. Placement. During the Term, Concentric Offers shall receive prominent
placement on the Web Properties. The content of the Concentric Offers
shall be at Concentric's sole cost and expense and shall be subject to
the prior approval of register.com, which approval shall not be
unreasonably withheld. The placement of the Concentric Offers on the
Web Properties shall be subject to the conditions set forth in
Sections 2.2.1 to 2.2.4 below.
2.2.1. Concentric Offers shall be presented Above the Fold for those
customers selecting the "Business Resources" or the "Web
Hosting" buttons on the navigation toolbar used throughout the
Web Properties and reproduced in Exhibit A and on the
"FutureSite" page reproduced in Exhibit B. Register.com will
ensure that end-users receive an aggregate total of no less
than 8,000,000 impressions per month of the "Business
Resources" and "Web Hosting" buttons. In no case will the
Concentric Offers be more than one (1) hyperlink away from any
"Business Resources" or "Web Hosting" button presented on the
Web Properties.
2.2.2. Concentric Offers shall be presented via banner advertisements
throughout the Web Properties. Register.com will ensure that
end-users will receive an aggregate total of no less than
250,000 Above the Fold impressions per month of the banner
advertisements. These banner advertisements will hyperlink
directly to a URL owned, operated and maintained by Concentric.
2.2.3. Concentric Offers shall be made prominently visible to the
guaranteed minimum number of Concentric Opportunities as set
forth in Exhibit C. Concentric Offers shall at no time during
the Term be presented to less than one-third (33.3%) of Net New
Registrants. The Concentric Offers relevant to this Section
2.2.3 shall hyperlink directly to a URL owned, operated, and
maintained by Concentric.
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2.2.4. Notwithstanding the forgoing, Concentric shall receive placement
throughout the Web Properties no less favorable than the placement received by
any other Web Hosting or E-commerce service provider.
2.3. Web Site Content. Content of the Concentric Offers shall comply with
the register.com Advertising Guidelines set forth in Exhibit F.
Concentric and register.com acknowledge the goal of converting at
least 5% of Concentric Opportunities into Web Hosting and/or
E-Commerce customers and will use commercially reasonable efforts to
cooperate to improve the Domain Registration process such that this
goal can be achieved. However, at no time will register.com be
required to change the Domain Registration process to the commercial
detriment of its business nor required to obtain or maintain a 5%
conversion rate for the Concentric Opportunities. Notwithstanding the
foregoing, the following efforts shall be undertaken:
2.3.1. After the Launch Date (as defined in Section 6.1.2),
register.com shall present to new domain name registrants on
the Web Properties a survey that has been amended to include an
offer to each prospective customer during the Term to receive
additional information on Web Hosting and E-Commerce services.
2.3.2. During the Term, register.com will place banner advertisements
for Concentric Offers Above the Fold on no less than 75% of
register.com's Domain Registration web pages.
2.3.3. For thirty (30) days following the Launch Date, the last page
of the register.com Domain Registration process shall be in
form and content substantially similar to the layout described
in Exhibit E and shall include a Concentric Offer. A display of
this Concentric Offer to a Net New Registrant will constitute
the creation of a Concentric Opportunity. Following the
expiration of the initial thirty-day period following the
Launch Date, the obligations of Section 2.3.4 below shall
prevail.
2.3.4. Within thirty (30) days of the Launch Date, Concentric and
register.com shall jointly determine if modifications to the
last page of the Domain Registration process will be necessary
in order to help achieve the targeted 5% conversion rate
described in Section 2.3 above. In addition, at least once
during each ninety (90) day period during the Term,
register.com shall consider, in good faith, recommendations by
Concentric to modify the last page of the register.com Domain
Registration process. If during the Term register.com and
Concentric identify mutually agreeable changes to the last page
of the Domain Registration process, then register.com shall
implement such changes within ten (10) business days of their
mutual agreement. If at any time during the Term register.com
and Concentric cannot reach mutual agreement on the form and
content of the last page of the Domain Registration process,
then the version of such page that was most recently mutually
agreeable shall be presented to Net New Registrants and
register.com and Concentric shall continue to negotiate in good
faith until mutual agreement can be reached.
2.3.5. During the Term, register.com shall consider in good faith
recommendations by Concentric with respect to the Domain
Registration process, with the objective of improving the Web
Hosting services purchase rate for Net New Registrants.
2.4. Marketing Rights. Register.com shall provide to Concentric all
relevant collected information on "Concentric Targets." The parties
shall determine a mutually agreeable list of relevant information that
shall be provided to Concentric by register.com. For the purposes of
this Section 2.4, "Concentric Targets" shall mean at least one-third
(33.3%)of end-users that (a) complete the survey described in Section
2.3.1 and (b) either (1) indicate an interest in receiving additional
information on Web Hosting and E-Commerce services or (2) do not
object to their names being provided to third party organizations for
the purposes of marketing. Register.com shall deliver such customer
information on Concentric Targets within a commercially reasonable
period following presentation of a Concentric Offer to the Net New
Registrant at the end of the Domain Registration process. Register.com
acknowledges the goal of providing Concentric with such information on
Concentric Targets in real-time or near real-time. Concentric may, at
its sole discretion, contact Concentric Targets for the purposes of
selling and marketing its services. Concentric will not resell or
distribute the information on Concentric Targets to any third parties
or use such information in violation of any applicable law.
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2.5. Customer Ownership. Upon a Joint Customer's purchase of Web Hosting or
E-commerce services, Concentric may, at it's sole discretion, require
that the domain for that Joint Customer be transferred from
register.com's DNS to Concentric's DNS. The following obligations
regarding Joint Customers shall apply:
2.5.1. At no time shall register.com intentionally contact a Joint
Customer for the purposes of marketing or selling Web Hosting
or E-commerce services, nor shall register.com sell or
otherwise distribute information on a Joint Customer to
companies that register.com knows to be engaged, directly or
indirectly, in marketing or selling Web Hosting or E-Commerce
services.
2.5.2. Notwithstanding the restrictions created in Section 2.5.1,
register.com may distribute information on a Joint Customer to
either of the two (2) other Web Hosting and E-commerce service
providers allowable under this Agreement if and only if the
Joint Customer is not presented a Concentric Offer after the
completion of another Domain Registration process.
2.5.3. If and when register.com has developed and deployed the
technology, systems and processes to suppress the presentation
of competing Web Hosting or E-commerce offers to Joint
Customers, the rights granted to register.com under Section
2.5.2 shall be terminated.
2.5.4. Should register.com discover that it has unintentionally
contacted a Joint Customer or unknowingly distributed
information on a Joint Customer in violation of Section 2.5.1,
register.com shall inform Concentric within ten (10) days of
such contact or distribution.
2.5.5. Concentric and register.com shall meet no less than quarterly
during the Term to determine and implement a mutually agreeable
plan for marketing to Joint Customers services that do not fall
under the definitions of Domain Registration, Web Hosting, or
E-commerce provided in this Agreement.
2.6. Market Development Funds. During the Initial Term (as defined in
Section 6.1.3 below), register.com shall pay to Concentric a market
development fund in the amount of $41,666.67 per month to be spent by
Concentric for co-branded marketing programs designed and implemented
by Concentric and approved by register.com, which approval shall not
be unreasonably withheld or delayed, to increase the size of the
market for Domain Registration, Web Hosting and E-Commerce services.
To the extent that either Concentric or register.com are able to
track, in a mutually agreeable manner, the leads created by the
co-branded marketing programs, such leads shall be counted toward the
guaranteed minimum Concentric Opportunities as per Section 2.8.
Concentric and register.com will use reasonable efforts to track such
leads. Such amount shall be paid to Concentric by register.com on the
fifteenth day of every month during the Initial Term following
Concentric's delivery of an invoice. If such payment is not made
timely, register.com will pay a late fee equal to 1.5% for each month
or portion thereof until all past-due obligations are paid. Within
fifteen (15) days of the Effective Date(as defined in Section 6.1.1
below), Concentric and register.com shall agree in writing as to the
form of the co-branded marketing programs that shall benefit both
Parties in an equitable manner. As requested in writing by
register.com no more than once per month during the Term, Concentric
shall provide to register.com evidence that demonstrates that the
market development fund is being spent by Concentric in accordance
with the co-branded marketing programs described in the previous
sentence.
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2.7. Integration Requirements. By the Launch Date, Concentric and
register.com shall have completed the integration of the register.com
Web Properties and Domain Registration process with the Concentric Web
Hosting and E-commerce services such that all obligations of this
Section 2 can be fulfilled. This integration shall include, but shall
not be limited to, (a) methods to transfer domains from register.com's
DNS to Concentric's DNS in a timely and mechanized manner should
Concentric decide, in its sole discretion, to require such a transfer
and (b) methods to ensure the timely transfer of customer information
as required by Section 2.4.
2.8. Performance. During the first month of the Initial Term, register.com
will ensure that at least 16,667 Concentric Opportunities are created.
The sole evidence of register.com's fulfillment of the obligations of
this Section 2.8 is the presentation of the Concentric Offers
described in Sections 2.2.3 and 2.3.3. In each subsequent monthly
period of the Initial Term, the number of Concentric Opportunities
will increase by 10%, such that the number of Concentric
Opportunities meets or exceeds the monthly minimums established in
Exhibit C.
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2.9. Reporting. During the Term, register.com shall provide to Concentric
monthly reports on the number of impressions of all Concentric Offers.
During the Term, register.com shall provide to Concentric weekly
reports on the relative click through rates for each unique Concentric
banner advertisement. During the Term, Concentric shall provide to
register.com monthly reports for all hosting subscriptions that
Concentric can attribute to the creation of a Concentric Opportunity.
so that register.com will have the necessary information to see which
subscribers have paid and which have discontinued the Concentric
hosting service. In addition, Concentric shall use commercially
reasonable efforts to provide to register.com information on the
number hosting subscriptions generated by Concentric's marketing
presence on the Web Properties.
2.10. Without limiting the foregoing, register.com reserves the right at any
time and from time to time to amend, supplement or otherwise modify
the design, "look and feel," layout, content, architecture and
navigational flow of the Web Properties.
3. DISTRIBUTION OF REGISTER.COM SERVICES
3.1. Concentric-Branded Hosting Services. Following the Launch Date,
Concentric shall use register.com as the exclusive third-party gTLD
Name Domain Registration service for its Concentric-branded
Web-Hosting and E-Commerce services. The register.com logo will be
prominently displayed on the domain registration page of Concentric's
Web-Hosting and E-commerce products and on all pages relating directly
to gTLD Name Domain Registration. A "domain registration" button will
be present on the "www.cnchost.com" web page, or its equivalent. The
button shall hyperlink directly to Concentric's domain registration
page, which co-branded page shall be designed by Concentric with
consultation from register.com. Concentric shall consider in good
faith recommendations by register.com to modify such co-branded page.
Concentric's obligations under this Section 3.1 shall be relieved if
Concentric chooses to use register.com's Private Label Domain
Registration services as described in Section 3.3 below.
3.2. Private Label Hosting Services. To the extent Concentric is able to
use a third party Domain Registration service for its Private Label
Web Hosting and E-commerce services, Concentric shall use register.com
as the exclusive third-party gTLD Name Domain Registration service for
Private Label services sold under contracts entered into by Concentric
after the Launch Date of this Agreement. Concentric shall use
commercially reasonable efforts to secure register.com as the
exclusive gTLD Name Domain Registration service used by Concentric's
existing Private Label customers. If Concentric cannot secure
exclusive arrangements for future or existing Private Label customers,
it shall use commercially reasonable efforts to secure a non-exclusive
arrangement for register.com.
3.3. Private Label Registration Services. If following the Effective Date,
Concentric elects to use a Private Label Domain Registration service,
Concentric will use register.com's Private Label gTLD Name Domain
Registration services. Register.com shall receive co-branding on the
primary Domain Registration web page used by Concentric for such
Private Label gTLD Name Domain Registration services. Register.com
shall provide Private Label Domain Registration services that are at
competitive prices, terms and conditions. If such competitive prices,
terms and conditions are not made available by register.com to
Concentric in any instance, Concentric shall provide register.com with
a right of "last refusal".
3.4. Performance Metrics. If during the Term any customer purchasing
Concentric's Web Hosting service is unable to complete the Domain
Registration process for gTLD Names within seventy-two (72) hours of
the customer's first attempt to do so, Concentric may provide written
notification to register.com that describes the performance problem.
Register.com shall have thirty (30) days following such notification
to remedy the Domain Registration process. The Domain Registration
process shall be considered remedied when any customer purchasing
Concentric's Web Hosting service is able to complete the Domain
Registration process within a period of time that is within 20% of the
"Industry Standard Registration Time" as calculated using the methods
described in Exhibit H. If register.com does not remedy the Domain
Registration process within thirty (30) days of Concentric's initial
notification, then Concentric's obligations under this Section 3 to
use register.com as the exclusive third party gTLD Name Domain
Registration service shall be terminated. If during the Initial Term
or during the Renewal Term Concentric provides, under the rights
created by this Section 3.4, three (3) written notifications to
register.com, then Concentric's obligations under this Section 3 to
use register.com as the exclusive third party gTLD Name Domain
Registration service shall be terminated.
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4. COMPENSATION AND FEES
4.1. Minimum Payment. Concentric will pay to register.com a fee of $100,000
per month for the Initial Term (as defined in Section 6.1.3 below).
This fee will be paid by Concentric to register.com within fifteen
(15) days of the beginning of each monthly period during the Initial
Term. If such payment is not made timely, Concentric will pay a late
fee equal to 1.5% for each month or portion thereof until all past-due
obligations are paid.
4.2. Incentive Payment. Concentric will pay to register.com $75 for each
Concentric Opportunity that becomes a "Qualified Concentric Customer".
For the purposes of this Section 4.2, a Qualified Concentric Customer
shall mean a Web Hosting or E-Commerce customer that meets all of the
following conditions: (a) is identified as a Concentric Opportunity
responding to a Concentric Offer; (b) purchases a fee-bearing account
of the type that incurs a monthly charge; (c) successfully completes
two (2) billing cycles with Concentric, and; (d) is not among the
first 5% of all Concentric Opportunities that purchase Web Hosting
or E-Commerce services from Concentric in a given month. Concentric
will make this incentive payment to register.com on the fifteenth day
of each month following the conversion of the customer to a Qualified
Concentric Customer. If such payment is not made timely, Concentric
will pay a late fee equal to 1.5% for each month or portion thereof
until all past-due obligations are paid.
4.3. Registration Commissions. Register.com will pay to Concentric a
one-time commission for all Net New Registrants originated by
Concentric, fulfilled by register.com, and that register gTLD Names.
The commission paid by register.com to Concentric shall be 15% of the
Net Registration Revenue or shall adhere to the commission schedule in
Exhibit G, whichever amount is greater for a given volume of
registered domains. Register.com shall make this commission payment on
the fifteenth day of each month following the month during which the
Domain Registration process is completed by the Net New Registrant. If
such payment is not made timely, register.com will pay a late fee
equal to 1.5% for each month or portion thereof until all past-due
obligations are paid. For the duration of the Term, the commission
schedule presented in Exhibit G may be substituted, at Concentric's
sole discretion, for the commission schedule typically offered by
register.com to other companies.
4.4. Audit. (a) Upon fifteen (15) business days prior notice to one Party,
the other Party may have access to the other Party's relevant
databases and records to conduct an audit for the sole purpose of
verifying the commissions and incentive payments due hereunder, as the
case may be. Each Party shall grant the other such access for a
maximum of two (2) requests during each of the Initial Term and, if
applicable, the Renewal Term (as defined in Section 6.1.4 below).
Audits shall be conducted during regular business hours and shall not
unreasonably interfere with normal business. Such audit shall be
solely at the auditing Party's expense. However, if the audited Party
has either overcharged or underpaid the auditing Party by more than
five percent (5%) for the time period subject to audit, then the
audited Party shall pay the reasonable expenses of such audit. The
findings of any audit conducted under this Section 4.4 shall be
subject to the confidentiality requirements of Section 8.
5. OTHER SERVICE AGREEMENTS
5.1. Domain Parking. During the Term, Register.com will provide a domain
parking service for all Net New Registrants whereby any domain not
explicitly moved elsewhere will be associated with the DNS of
register.com. During the Term, Register.com will not offer domain
parking to any other company.
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5.2. SiteAmerica Divestiture If during the Term, register.com decides to
divest the Web Hosting customer accounts served by the SiteAmerica
shared hosting platform, which platform currently owned and operated
by register.com, it shall provide to Concentric written notice of such
decision. Concentric shall have the right to be the first party to
negoitate with register.com for the proposed purchase of the
SiteAmerica customer accounts. If the Parties do not reach agreement
on the price, terms and conditions of such purchase within twenty (20)
business days of register.com's written notice to Concentric, then
register.com shall have the right to divest the Site America customer
accounts third party. However, if the price to be paid for the
accounts by third party is equivalent to or less than the Concentric's
last written offer to purchase the accounts, Concentric shall have the
right and the obligation to purchase the accounts at the price
described in the last written offer to register.com. Any such customer
account purchase agreement will be subject to a definitive written
agreement containing reasonably customary terms and conditions for
agreements of that type and that is executed and delivered by both
Parties.
5.3. Server Co-Location. If at any time during the Term, register.com
decides to open another server hosting facility in the United States
or another country served by Concentric, register.com will use
Concentric's server co-location facilities. Concentric shall provide
such server co-location services that are at competitive prices, terms
and conditions. If such competitive prices, terms and conditions are
not made available by Concentric to register.com, register.com's
obligations under this Section 5.4 to use Concentric's co-location
services are relieved.
5.4. Reselling of Private Label Web Hosting Services. Register.com shall
have the right to resell under a Private Label Concentric's Web
Hosting and E-commerce services integrated with register.com's Domain
Registration service. Register.com will be subject to all prices,
terms and conditions of Concentric's master-reseller agreement for Web
Hosting and E-commerce services, attached hereto in Exhibit D.
6. TERM AND TERMINATION
6.1. Term Definitions. The following definitions shall be used in this
Section 6 and throughout the Agreement to govern the term of this
Agreement and any termination thereof.
6.1.1. "Effective Date" shall mean the date that the Investment is
consummated.
6.1.2. "Launch Date" shall mean the first day of the month following
the month during which Concentric and register.com complete the
integration of the register.com Web Properties and Domain
Registration process with Concentric Web Hosting and E-Commerce
services such that all obligations of Section 2 of this
Agreement can be fulfilled, or such other date as mutually
agreed to by the Parties.
6.1.3. "Initial Term" shall mean the period commencing on the Launch
Date and continuing for a period of twelve (12) months.
6.1.4. "Renewal Term" shall mean the period commencing on the
termination of the Initial Term and continuing for a period of
twelve months.
6.1.5. "Term" shall mean the period encompassing both periods of the
Initial Term and the Renewal Term.
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6.2. Term. This Agreement shall be effective on the Effective Date and
shall continue until the expiration of the Initial Term, unless sooner
terminated in accordance with Section 6.3 or extended in accordance
with Section 6.5. If the Investment is not consummated on or before
June 30, 1999, this Agreement shall be null and void as though never
executed and delivered by the Parties.
6.3. Termination for Cause. In addition to any other rights and/or remedies
that either Party may have under the circumstances, all of which are
expressly reserved, either Party may terminate this Agreement if:
6.3.1. The other Party is in material breach of any warranty,
representation, term, condition or covenant of this Agreement
and, if such breach is curable, fails to cure that breach
within thirty (30) days after written notice thereof (except
that all payment defaults shall be cured within five (5) days
without the need for written notice), or;
6.3.2. The other Party makes any assignment for the benefit of
creditors or similar transfer; or suffers or permits the
commencement of any form of insolvency or bankruptcy
proceeding; or has any petition under any bankruptcy law filed
against it, which petition is not dismissed within (60) days of
such filing; or has a trustee or receiver appointed for its
business assets or any part thereof.
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6.3.3. Register.com fails to achieve the minimum commitments for
Concentric Opportunities established in Section 2.8 and Exhibit
C for two (2) consecutive monthly periods.
6.4. Effect of Termination. The termination or expiration of this Agreement
shall have no effect upon any other then-current written agreements
between the Parties unless such other agreements expressly provide
otherwise. Following the expiration or termination of this Agreement,
Sections 1,2.5 (except for Section 2.5.5), 4.4, 8, 9, 10, 11, and 12
shall survive, except that the provisions of Section 2.5 shall not
survive beyond one year after the termination of this Agreement. In
addition, the financial obligations created under Sections 4.1, 4.2,
and 4.3 and accrued through the date of termination shall survive
until all amounts due either Party at the time of termination of the
Agreement are paid in full.
6.5. Extension. No earlier than 60 days and no later than 30 days prior to
the end of the Initial Term, Concentric shall have the right to renew
the agreement for the Renewal Term at revised prices, terms and
conditions, taken as a whole which shall be no less favorable, in all
material respects, than prices, terms and conditions agreed to with
any Web Hosting or E-Commerce service provider.
7. MOST FAVORED NATION PROVISION
If during the Term, register.com enters into an agreement that provides any
pricing, terms or conditions to another one of the three third-party Web
Hosting or E-Commerce providers allowable under this agreement that, when
taken as a whole, are materially more favorable than those offered to
Concentric in this Agreement, then register.com shall amend this Agreement in
writing within five (5) days to provide Concentric with prices, terms and
conditions that, when taken as a whole, are equivalent or more favorable than
those offered to the other provider.
8. CONFIDENTIALITY AND PUBLICITY
8.1. Confidentiality. The Parties acknowledge and agree that the terms and
conditions of the Non-Disclosure Agreement dated March 22, 1999 (the
"NDA"), entered into by and between the Parties are incorporated into
this Agreement and that all the terms of this Agreement and all
discussions and negotiations related thereto and all information
exchanged pursuant hereto are considered Confidential Information as
defined in the NDA. In the event that any of the incorporated terms of
the NDA are inconsistent with or conflict with this Agreement, then
the terms of this Agreement shall prevail. The customer information
provided to Concentric under Section 2.4 will not be subject to the
terms of the NDA, but instead will be governed by Section 2.4.
8.2. Press Releases. Concentric and register.com will issue a joint press
release announcing their commercial and financial relationship at
least fourteen (14) days prior to any similar press release by
register.com in conjunction with another Web Hosting or E-Commerce
provider. At no time will either Party issue any press release or make
any public announcement(s) relating in anyway whatsoever to this
Agreement or the relationship established by this Agreement without
the express prior written consent of the other Party, except as
required by law.
9. REPRESENTATIONS AND WARRANTIES
9.1. General. Each Party represents and warrants that: (a) it has the right
and authority to enter into this and to fully perform its obligations
hereunder; (b) the services and goods it provides do not infringe upon
the intellectual property rights of any third party; and (c) by
entering into this Agreement, it will not violate, conflict with or
result in a material default under any other contract, agreement,
indenture, decree, judgment, undertaking, conveyance, lien or
encumbrance to which it is a party or by which it or any of its
property is or may become subject or bound.
9.2. Legal Authorization. Each Party represents and warrants to the other
Party that it will, at its own expense, make, obtain, and maintain in
force at all times during the term, all applicable filings,
registrations, reports, licenses, permits and authorizations in order
for it to operate to perform its obligations under this Agreement.
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9.3. Legal Compliance. Both Parties represent and warrant that they will,
at their own expense comply with all laws, regulations and other legal
requirements that apply to them and this Agreement, including
copyright, privacy and communications decency laws. Both Parties
represent and warrant that no consent, approval or authorization of or
designation, declaration or filing with any governmental authority is
required in connection with the valid execution, delivery and
performance of this Agreement.
9.4. Y2K Compliance. Register.com hereby represents and warrants to
Concentric that the hardware and software that comprise register.com
Domain Registration services and all related products provided
pursuant to this Agreement are, and will at all times remain "Year
2000 Compliant" defined herein as the ability to: (a) correctly handle
date information needed for the December 31, 1999 to January 1, 2000
date change; (b) function properly without changes in operation
resulting from the advent of the new century assuming correct
configuration; (c) where appropriate, respond to two digit date input
in a way that resolves the ambiguity as to century in a disclosed,
defined and predetermined manner; (d) if the date elements in
interfaces and data storage specify the century, store and provide
output of date information in ways that are unambiguous as to century;
and (e) recognize year 2000 as a leap year.
9.5. EXCEPT FOR THE WARRANTIES SET FORTH IN THIS SECTION 9 NEITHER PARTY
MAKES ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY, TITLE, AND FITNESS FOR A PARTICULAR PURPOSE.
CONCENTRIC EXPRESSLY DISCLAIMS ANY WARRANTY THAT ACCESS TO OR USE OF
THE CONCENTRIC WEB HOSTING OR E-COMMERCE SERVICES WILL BE
UNINTERRUPTED OR ERROR-FREE. REGISTER.COM EXPRESSLY DISCLAIMS ANY
WARRANTY THAT ACCESS TO OR USE OF REGISTER.COM'S DOMAIN REGISTRATION
SERVICES WILL BE UNINTERRUPTED OR ERROR-FREE.
10. INDEMNIFICATION
A party ("Indemnifying Party") shall, at its expense and the request of the
other party ("Indemnified Party"), defend any third-party claim or action
brought against the Indemnified Party, to the extent it is based upon a
breach of any representation or warranty of the Indemnifying Party in
Section 9 (collectively, "Indemnified Claims"). The Indemnified Party shall
promptly notify the Indemnifying Party in writing, specifying the nature of
the action and the total monetary amount sought or other such relief as is
sought therein. The Indemnified Party shall cooperate with the Indemnifying
Party at the Indemnifying Party's expense in all reasonable respects in
connection with the defense of any such action. The Indemnifying Party may
upon written notice to the Indemnified Party undertake to control and
conduct all proceedings or negotiations in connection therewith, assume and
control the defense thereof, and if it so undertakes, it shall also
undertake all other required steps or proceedings to settle or defend any
such action, including the employment of counsel which shall be reasonably
satisfactory to the Indemnified Party, and payment of all reasonably
incurred expenses. The Indemnified Party shall have the right to employ
separate counsel to provide input into the defense, at Indemnified Party's
own cost. The Indemnifying Party shall reimburse the Indemnified Party upon
demand for any payments made or loss suffered by it at any time after the
date of tender, based upon the judgment of any court of competent
jurisdiction or pursuant to a bona fide compromise or settlement of claims,
demands, or actions, in respect to any damages to which the foregoing
relates. The Indemnifying Party shall not settle any claim or action under
this Section 10 on the Indemnified Party's behalf without first obtaining
the Indemnified Party's written permission, which permission shall not be
unreasonably withheld or delayed, and the Indemnifying Party shall indemnify
and hold the Indemnified Party harmless from and against any costs, damages
and fees reasonably incurred by Indemnified Party, including but not limited
to fees of attorneys and other professionals, that are attributable to such
Indemnified Claims. The Indemnified Party shall provide the Indemnifying
Party reasonably prompt notice in writing of any such Indemnified Claims and
provide the Indemnifying Party with reasonable information and assistance,
at the Indemnifying Party's expense, to help the Indemnifying Party to
defend such Indemnified Claims.
11
<PAGE>
11. LIMITATION OF LIABILITIES
NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR (A) ANY AMOUNT IN EXCESS OF
THE AMOUNTS PAYABLE UNDER SECTION 4; OR (B) ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES, ARISING OUT OF OR RELATED TO
THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS
PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND THE LIKE,
EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THIS
SECTION SHALL NOT APPLY TO EITHER PARTY'S (X) CONFIDENTIALITY OBLIGATIONS
UNDER SECTION 8; (Y) BREACH OF ITS REPRESENTATIONS, WARRANTIES AND COVENANTS
UNDER SECTION 12.3; AND (Z) INDEMNIFICATION OBLIGATIONS UNDER SECTION 10.
12. GENERAL PROVISIONS
12.1. Assignment. Neither Party may assign this Agreement or any rights
and/or obligations hereunder without the other Party's prior written
approval, which shall not be unreasonably withheld or delayed;
however, either party may, without the other Party's approval, assign
all its rights and obligations to an entity that either is an
affiliate or an unaffiliated party that agrees in writing to be bound
in connection with a merger, acquisition, or sale of all or
substantially all of such Party's assets. Any attempted assignment,
sub-license, transfer, encumbrance, or other disposal without such
consent shall be void and shall constitute a material default and
breach of this Agreement
12.2. Proprietary Rights. The Parties agree that Concentric and/or its
suppliers shall retain all right, title, and interest in Concentric's
Web Hosting and E-Commerce services and any and all content,
technology, and materials delivered by Concentric to register.com
pursuant to this Agreement. The Parties further agree that
register.com and/or its suppliers shall retain all right, title and
interest in register.com's Domain Registration services and any and
all content, technology, and materials delivered by register.com to
Concentric pursuant to this Agreement. Neither party shall have any
rights to any materials, content or technology provided by the other
party hereunder except as specifically provided in this Agreement and
shall not alter, modify, copy, edit, format, translate, create
derivative works of or otherwise use any materials, content or
technology provided by the other party except as explicitly provided
herein or approved in advance in writing by the other Party.
12.3. Each Party shall remain the owner of all right, title and interest in
and to its trademarks, service marks, logos and tradenames, content
and web sites, and no right, title in or to such is conveyed to the
other Party by this Agreement. Each Party will comply with all
reasonable guidelines and directions of the other Party with respect
to the use of the other Party's trademarks, service marks, logos and
tradenames. All goodwill arising out of a Party's use of the other
Party's trademarks, service marks, logos and tradenames will inure
solely to the benefit of the other Party. Each Party reserves the
right to update, alter, modify and delete the content of its
respective web sites and it respective trademarks, service marks,
logos and tradenames at will, from time to time, and without notice to
or permission of the other Party.
12.3.1. Register.com may use the Concentric logo solely for the
purposes of fulfilling the obligations of Section 2 of this
Agreement. Register.com shall fully correct and remedy any
deficiencies in its use of the Concentric logo, upon
reasonable notice from Concentric. Concentric shall have the
sole right to and at its sole discretion may commence,
prosecute or defend, and control any action concerning the
Concentric logo.
12.3.2. Concentric may use the register.com logo solely for the
purposes of fulfilling the obligations of Section 3 of this
Agreement. Concentric shall fully correct and remedy any
deficiencies in its use of the register.com logo, upon
reasonable notice from register.com. Register.com shall have
the sole right to and at its sole discretion may commence,
prosecute or defend, and control any action concerning the
register.com logo.
12
<PAGE>
12.4. Independent Contractors. The Parties are independent contractors with
respect to each other, and nothing in this Agreement shall be
construed as creating an employer-employee relationship, a
partnership, agency relationship or a joint venture between the
Parties
12.5. Third Party Beneficiaries. Except as specifically provided herein,
this Agreement does not provide and shall not be construed to provide
third parties, including any customer, with any remedy, claim, and
cause of action or privilege. The Parties specifically acknowledge and
agree that Concentric's operating subsidiaries are intended third
party beneficiaries of the rights under this Agreement; provided
however, that such third party beneficiaries shall agree in writing to
be bound by the terms of this Agreement.
12.6. Expenses. Each Party shall pay all costs and expenses that it incurs
with respect to the negotiation, execution, delivery and performance
of this Agreement.
12.7. Governing Law. This Agreement is to be construed in accordance with
and governed by the internal laws of the State of New York without
giving effect to choice of law. Any dispute or claim arising out of or
in connection with this Agreement or the performance, breach or
termination thereof, shall be finally settled by binding arbitration
in New York City, New York under the Rules of Arbitration of the
American Arbitration Association by an arbitrator appointed in
accordance with those rules. Judgment on the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
Notwithstanding the foregoing, either party may apply to any court of
competent jurisdiction for injunctive relief without breach of this
arbitration provision. If any legal action or other legal proceeding
(including arbitration) relating to the transactions under this
Agreement or the enforcement of any provision of this Agreement is
brought against any Party hereto, the prevailing Party shall be
entitled to recover reasonable attorneys' fees, costs and
disbursements
12.8. Force Majeure. Neither Party shall be responsible for any failure to
perform any obligation or provide service hereunder because of any (i)
act of God, (ii) war, riot or civil commotion, (iii) governmental acts
or directives, (iv) strikes, work stoppage, or equipment or facilities
shortages not in the reasonable control of either Party, or (v) other
similar force beyond such Party's reasonable control.
12.9. Severability. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, each party agrees that such
provision 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.
12.10. Notices. All notices and requests in connection with this Agreement
shall be given in writing and shall be deemed given as of the day
they are received if received by noon on a business day in the city
of receipt (otherwise on the next business day) either by messenger,
delivery service, or in the United States of America mail, postage
prepaid, certified or registered, return receipt requested, and
addressed as follows:
TO CONCENTRIC TO REGISTER.COM
Concentric Network Corporation Register.com, Inc.
1400 Parkmoor Avenue 575 Eighth Avenue, 11th Floor
San Jose, CA 95126 New York City, NY 10018
Phone: 408.817.2800 Phone: 212.798.9100
Fax: 408.817.2810 Fax: 212.594.9448
Attention: James Isaacs Attention: Alan Breitman
or to such other address a Party may designate pursuant to this
notice provision.
12.11. Entire Agreement. This Agreement, which includes the Exhibits and
other agreements expressly referenced herein, including the NDA,
constitutes the entire agreement between the parties concerning the
subject matter hereof and with the exception of the NDA, supersedes
any prior agreements, representations, statements, negotiations,
understandings, proposals or undertakings, oral or written, with
respect to the subject matter expressly set forth herein. The
headings contained in this Agreement are for convenience of reference
only, shall not be deemed to be a part of this Agreement and shall
not be referred to in connection with the construction or
interpretation of this Agreement. Any amendment or supplement to this
Agreement shall be in writing and duly executed by both parties.
13
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date
written above in the first sentence of this Agreement.
<TABLE>
<CAPTION>
CONCENTRIC NETWORK CORPORATION FORMAN INTERACTIVE CORP.
<S> <C>
/s/ John Peters /s/ Richard D. Forman
- -------------------------------------------------- -------------------------------------------------
By (Sign) By (Sign)
John Peters Richard D. Forman
- -------------------------------------------------- -------------------------------------------------
Name (Print) Name (Print)
E.V.P. President and C.E.O.
- -------------------------------------------------- -------------------------------------------------
Title Title
06/25/1999 06/25/1999
- -------------------------------------------------- -------------------------------------------------
Date Date
</TABLE>
<PAGE>
EXHIBIT A
[GRAPHIC: Screen shot of register.com homepage.]
<PAGE>
EXHIBIT B
[GRAPHIC: Screen shot of register.com web page for websites under construction,
including statement: "Coming Soon! You have reached my future website. We
recently registered our domain name at. . . register.com the first step on the
web."]
<PAGE>
EXHIBIT C
Guaranteed Monthly Minimums for the Duration of this Agreement:
Minimum
Concentric
Month Opportunities
----- -------------
1 16,667
2 18,333
3 20,167
4 22,183
5 24,402
6 26,842
7 29,526
8 32,479
9 35,726
10 39,299
11 43,229
12 47,552
<PAGE>
EXHIBIT D
[Standard Concentric Reseller Agreement Attached Hereto, for reference only]
<PAGE>
EXHIBIT E
Sample Proposed Concentric Offer for last page of Domain Registration Process:
[GRAPHIC: Screen shot of register.com Business Resources page.]
<PAGE>
EXHIBIT F
[Standard register.com Advertising Terms and Conditions
Attached Hereto, for reference only]
<PAGE>
EXHIBIT G
Commission Schedule for Origination of Net New Registrants
regs./mo. Comm. %
0-500 10%
501-1000 12.50%
1001-2500 15%
2501+ 20%
This commission schedule is subject to change by register.com with written
notification to Concentric.
<PAGE>
EXHIBIT H
Calculation of "Industry Standard Registration Time"
Industry Standard Registration Time shall be calculated, by a third-party
mutually agreeable to both Parties, as follows:
1) The top five (5) companies registering gTLD Names are identified by the
number of domains registered in the month during which Concentric provided
register.com with written notification of register.com's performance
problem as described in Section 3.4.
2) The time required to complete the Domain Registration process is gathered
for a typical customer of each of the top five companies identified in Step
1 above.
3) The Industry Standard Registration Time shall be the median of the five (5)
registration times gathered in Step 2 above.
<PAGE>
Lock Up and Voting Agreement
This is a Lock Up and Voting Agreement dated February 2, 2000, by and between
Register.com, Inc., a Delaware corporation ("Register"), and Staples, Inc., a
Delaware corporation ("Staples").
Background
Staples holds 2,041,666 shares of Register's Common Stock, $0.0001 par value per
share ("Common Stock"), 120,659 shares of Register's Series A Convertible
Preferred Stock, $0.0001 par value per share ("Series A Preferred"), a warrant
to purchase 700,000 shares of Common Stock (the "Common Warrant") and additional
warrants to purchase 24,136 shares of Common Stock (the "Series A Warrants"). In
addition, Staples has agreed to purchase, from another Register shareholder, a
warrant to acquire an additional 918,239 shares of Common Stock upon Register's
initial public offering (the "Additional Warrant"). The share numbers above give
effect to Register's recent 3.5 for 1 stock split, effected as a stock dividend.
Agreement
In consideration of the mutual promises and covenants contained herein and for
other good and valuable consideration, receipt and sufficiency of which is
hereby acknowledged, the undersigned agree as follows:
1. Restriction on Transfer. Without the prior written consent of Register
which shall not unreasonably be withheld, Staples shall not at any time
before the Transfer Date (as defined below) sell, transfer or otherwise
dispose of any shares of Common Stock or Series A Preferred, the Common
Warrant, the Series A Warrants or the Additional Warrant or the shares
underlying any of the foregoing, or any other securities issued by Register
now held or hereafter acquired by Staples. For purposes of this Agreement,
the term "Transfer Date" shall mean the first anniversary of the effective
date for Register's registration statement for its initial public offering
(the "Registration Statement"). This provision and the restrictions on
transfer contained herein shall terminate in the event that such effective
date does not occur on or before May 31, 2000. Notwithstanding the
foregoing, Staples may transfer any or all of such securities to entities
controlling, controlled by or under common control with Staples; provided,
however, that in any such case it shall be a condition to the transfer that
the transferee execute an agreement stating that the transferee is
receiving and holding the securities subject to the provisions of this
Agreement, and there shall be no further transfer of such securities except
in accordance with this Agreement.
<PAGE>
2. Voting. So long as Staples holds more than 5% of the voting power
represented by Register's outstanding shares of Common Stock, Series A
Preferred or other voting securities, Staples shall not vote against any
matter put before the shareholders of Register for approval where holders
of at least a majority of the voting securities of Register, excluding all
shares held by Staples, entitled to vote thereon, and that are present or
represented by proxy, vote in favor of the proposal, (or in the case of a
written consent of the shareholders without a meeting, where holders of a
majority of the voting securities of Register, excluding all shares held by
Staples, entitled to express consent with respect thereto, consent to such
proposal) except for any action or proposal that would adversely affect
Staples' rights, preferences or privileges as a shareholder in a manner
different from those of other shareholders.
3. Registration Rights. The shares of Common Stock which Staples may acquire
upon exercise of the Additional Warrant shall constitute Registrable
Securities (as defined in the Rights Agreement) for purposes of the
Registration Rights Agreement dated June 30, 1999, by and among Register,
Staples and other investors (the "Rights Agreement"), and Staples shall
have all rights under that agreement with respect to such shares as if they
had been held by Staples and subject to the agreement from the date
thereof.
4. Other. This Agreement shall be governed by the laws of the State of New
York. This Agreement shall not be amended except with the prior written
consent of the parties hereto. This Agreement constitutes the full and
entire understanding and agreement of the parties with regard to the
subject hereof.
In witness whereof, the parties have executed this Agreement as of the date
first set forth above.
REGISTER.COM, INC. STAPLES, INC.
By: /s/ Jack Levy By: /s/ Thomas Stemberg
----------------------- -----------------
Name: Jack Levy Name: Thomas Stemberg
Title: General Counsel and Secretary Title: CEO
<PAGE>
Lock Up and Voting Agreement
This is a Lock Up and Voting Agreement dated February 28, 2000, by and between
Register.com, Inc., a Delaware corporation ("Register"), and Staples, Inc., a
Delaware corporation ("Staples").
Background
Staples holds 2,041,666 shares of Register's Common Stock, $0.0001 par value per
share ("Common Stock"), 120,659 shares of Register's Series A Convertible
Preferred Stock, $0.0001 par value per share ("Series A Preferred"), a warrant
to purchase 700,000 shares of Common Stock (the "Common Warrant") and additional
warrants to purchase 24,136 shares of Common Stock (the "Series A Warrants"). In
addition, Staples has agreed to purchase, from another Register shareholder, a
warrant to acquire an additional 918,239 shares of Common Stock upon Register's
initial public offering (the "Cap Ex Warrant"). Further, Staples has agreed to
purchase, from two other Register shareholders (i) 75,000 additional shares of
Common Stock of Register (the "Forman Stock"), and (ii) 75,000 additional shares
of Common Stock of Register (the "Palisade Stock"), upon Register's initial
public offering. The share numbers above give effect to Register's recent 3.5
for 1 stock split, effected as a stock dividend.
Agreement
In consideration of the mutual promises and covenants contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned hereby agree as follows:
1. Restriction on Transfer. Without the prior written consent of Register,
which shall not unreasonably be withheld, Staples shall not at any time
before the Transfer Date (as defined below) sell, transfer or otherwise
dispose of any shares of Common Stock or Series A Preferred, the Common
Warrant, the Series A Warrants, the Cap Ex Warrant, the Forman Stock or the
Palisade Stock, or the shares underlying any of the foregoing, or any other
securities issued by Register now held or hereafter acquired by Staples.
For purposes of this Agreement, the term "Transfer Date" shall mean the
first anniversary of the effective date for Register's registration
statement for its initial public offering (the "Registration Statement").
This provision and the restrictions on transfer contained herein shall
terminate in the event that such effective date does not occur on or before
May 31, 2000. Notwithstanding the foregoing, Staples may transfer any or
all of such securities to entities controlling, controlled by or under
common control with Staples; provided, however, that in any such case it
shall be a condition to the transfer that the transferee execute an
agreement stating that the transferee is receiving and holding the
securities subject to the provisions of this Agreement, and there shall be
no further transfer of such securities except in accordance with this
Agreement.
2. Voting. So long as Staples holds more than 5% of the voting power
represented by Register's outstanding shares of Common Stock, Series A
Preferred or other voting securities, Staples shall not vote against any
matter put before the shareholders of Register for approval where holders
of at least a majority of the voting securities of Register, excluding all
shares held by Staples, entitled to vote thereon, and that are present or
represented by proxy, vote in favor of the proposal (or in the case of a
written consent of the shareholders without a meeting, where holders of a
majority of the voting securities of Register, excluding all shares held by
Staples, entitled to express consent with respect thereto, consent to such
proposal), except for any action or proposal that would adversely affect
Staples' rights, preferences or privileges as a shareholder in a manner
different from those of other shareholders.
<PAGE>
3. Registration Rights. The Forman Stock and the Palisade Stock shall
constitute Registrable Securities (as defined in the Rights Agreement) for
purposes of the Registration Rights Agreement dated June 30, 1999, by and
among Register, Staples and the other investors party thereto (the "Rights
Agreement"), and Staples shall have all rights under that agreement with
respect to such shares as if they had been held by Staples and subject to
the agreement from the date thereof.
4. Other. This Agreement shall be governed by the laws of the State of New
York. This Agreement shall not be amended except with the prior written
consent of the parties hereto. This Agreement constitutes the full and
entire understanding and agreement of the parties with regard to the
subject hereof. This Agreement may be executed in counterparts.
In witness whereof, the parties have executed this Agreement as of the date
first set forth above.
REGISTER.COM, INC. STAPLES, INC.
By: /s/ Jack Levy By: /s/ Jack VanWoerkom
------------------------ -----------------------------
Name: Jack Levy Name: Jack VanWoerkom
---------------------- ---------------------------
Title: General Counsel and Title: Senior Vice President and
Secretary General Counsel
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated January 31, 2000 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
February 28, 2000
