<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
LYCOS, INCORPORATED
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[_] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
________________________________________________________________________
(3) Filing Party:
________________________________________________________________________
(4) Date Filed:
________________________________________________________________________
<PAGE>
LYCOS, INC.
1998 ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
The 1998 Annual Meeting of the Stockholders of Lycos, Inc. will be held on
Tuesday, December 22, 1998, at 2:00 p.m., Local Time, at the offices of Lycos,
Inc., 400-2 Totten Pond Road, Waltham, Massachusetts, for the following
purposes:
1. To elect two Directors, to serve for a term of three years as more fully
described in the accompanying Proxy Statement.
2. To consider and act upon a proposal to ratify, confirm and approve an
amendment to the Lycos, Inc. 1996 Stock Option Plan to increase the
number of shares reserved for grant thereunder from 6,400,000 to
12,400,000.
3. To consider and act upon a proposal to ratify, confirm and approve the
selection of KPMG Peat Marwick LLP as the independent certified public
accountants of the Company for fiscal year 1999.
4. To consider and act upon any other business which may properly come
before the meeting.
The Board of Directors has fixed the close of business on October 30, 1998,
as the record date for the meeting. All stockholders of record on that date
are entitled to notice of and to vote at the meeting.
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING IN PERSON.
By order of the Board of Directors
Edward M. Philip,
Chief Operating Officer,
Chief Financial Officer and
Secretary
Waltham, Massachusetts
November 24, 1998
<PAGE>
LYCOS, INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Lycos, Inc. (the "Company") for use at
the 1998 Annual Meeting of Stockholders to be held on Tuesday, December 22,
1998, at the time and place set forth in the notice of the meeting, and at any
adjournments thereof. The approximate date on which this Proxy Statement and
form of proxy are first being sent to stockholders is on or about November 24,
1998.
If the enclosed proxy is properly executed and returned, it will be voted in
the manner directed by the stockholder. If no instructions are specified with
respect to any particular matter to be acted upon, proxies will be voted in
favor thereof. Any person signing the enclosed form of proxy has the power to
revoke it by voting in person at the meeting, or by giving written notice of
revocation to the Secretary of the Company at any time before the proxy is
exercised.
The holders of a majority in interest of all Common Stock issued,
outstanding and entitled to vote are required to be present in person or be
represented by proxy at the meeting in order to constitute a quorum for the
transaction of business. The election of the nominee for Director will be
decided by majority vote. The affirmative vote of the holders of at least a
majority of the shares of Common Stock voting in person or by proxy at the
meeting are required to approve all other matters listed in the notice of the
meeting.
The Company will bear the cost of the solicitation. It is expected that the
solicitation will be made primarily by mail, but regular employees or
representatives of the Company (none of whom will receive any extra
compensation for their activities) may also solicit proxies by telephone,
telecopier and in person and arrange for brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy materials to
their principals at the expense of the Company.
The Company's principal executive offices are located at 400-2 Totten Pond
Road, Waltham, Massachusetts 02451-2000; the telephone number is (781) 370-
2700.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on October 30, 1998 are
entitled to notice of and to vote at the meeting. On that date, the Company
had outstanding and entitled to vote 42,645,090 shares of Common Stock, par
value $.01 per share ("Company's Common Stock" or "Common Stock"). Each
outstanding share of the Company's Common Stock entitles the record holder to
one vote. All share and option amounts stated herein are reflective of the 2
for 1 stock split payable August 25, 1998.
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, with each class as
nearly equal in number as possible. One class is elected each year for a term
of three years. It is proposed that the nominees listed below, whose terms
expire at this meeting, each be elected to serve a term of three years and
until his successor is duly elected and qualified or until he sooner dies,
resigns or is removed. The Company presently has a Board of Directors of five
members.
The persons named in the accompanying proxy will vote, unless authority is
withheld, for the election of the nominee named below. If such nominee should
become unavailable for election, which is not anticipated, the persons named
in the accompanying proxy will vote for such substitute as the Board of
Directors may recommend. The nominees are not related to any other executive
officer of the Company or its subsidiaries.
1
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY
YEAR FIRST OR PRINCIPAL
ELECTED A OCCUPATION DURING THE PAST
NAME OF DIRECTOR AGE DIRECTOR FIVE YEARS
---------------- --- ---------- --------------------------
<C> <C> <C> <S>
NOMINATED FOR A TERM ENDING IN 2001:
David S. Wetherell.................. 44 1995 David S. Wetherell has
served as a Director of
the Company since July
1995. Mr. Wetherell has
served as Chairman of the
Board, President, Chief
Executive Officer and
Secretary of CMG
Information Services, Inc.
("CMGI") since 1986 and as
a general partner of
CMG@Ventures, L.P., a
venture capital firm and a
significant stockholder of
the Company, and President
of CMG@Ventures, Inc., the
managing member of
CMG@Ventures, since
January 1995. He has
served as Chairman of the
Board, Chief Executive
Officer and Clerk of
SalesLink Corporation, a
literature fulfillment
business, since it was
formed in 1990. From 1982
until joining CMGI in
1986, Mr. Wetherell was a
co-founder and President
of Softrend, Inc., a
microcomputer software
publisher. Mr. Wetherell
is the founder of BookLink
Technologies, a CMGI
subsidiary which was sold
to America Online in 1994.
Mr. Wetherell received a
Bachelor of Science degree
in Mathematics and
Education from Ohio
Wesleyan University.
John M. Connors, Jr................. 56 1996 John M. Connors, Jr. has
served as a Director of
the Company since June
1996. Since 1995,
Mr. Connors has served as
Chairman of the Board of
Directors and, since 1968,
as Chief Executive Officer
of Hill, Holliday,
Connors, Cosmopulos, Inc.,
a leading full-service
marketing communications
company. Mr. Connors is
the Chairman of the Board
of Partners HealthCare
System, a member of the
Board of Trustees of
Boston College and a
member of the Board of
Directors of the John
Hancock Mutual Life
Insurance Company,
Geerlings and Wade, Inc.,
WellSpace, Inc., Saucony,
Inc., and Workgroup
Solutions. He is also past
Chairman of the Board of
The Wang Center for the
Performing Arts, and he
currently serves as a
member of the Board of
Directors of the Boys and
Girls Clubs of Boston.
Mr. Connors is a graduate
of Boston College.
SERVING A TERM ENDING IN 2000:
Daniel J. Nova...................... 37 1995 Daniel J. Nova has served
as a Director of the
Company since July 1995.
Mr. Nova has served as a
general partner of the
general partner of
Highland Capital Partners
III Limited Partnership, a
venture capital
partnership, since June
1996. Since June 1996,
Mr. Nova has also served
as a managing member of
the general partner of
Highland Entrepreneurs'
Fund III Limited
Partnership, a venture
capital partnership. From
January 1995 to July 1996,
Mr. Nova served as a
general partner of
CMG@Ventures, L.P.
("CMG@Ventures"), a
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY OR
YEAR FIRST PRINCIPAL
ELECTED A OCCUPATION DURING THE PAST FIVE
NAME OF DIRECTOR AGE DIRECTOR YEARS
---------------- --- ---------- -------------------------------
<C> <C> <C> <S>
venture capital firm and a
significant Stockholder of the
Company, and as Vice President
of CMG@Ventures, Inc., the
managing general partner of
CMG@Ventures. From June 1991 to
January 1995, Mr. Nova was a
senior associate at Summit
Partners, a venture capital
firm. From September 1989 to May
1991, Mr. Nova attended Harvard
Business School. From June 1983
to August 1989, Mr. Nova was
employed by Wang Laboratories, a
computer manufacturer, in
various sales and management
positions. Mr. Nova received a
Bachelor of Science degree with
honors in Computer Science and
Marketing from Boston College
and a Master in Business
Administration from Harvard
Business School.
Richard H. Sabot.............. 54 1998 Richard H. Sabot has served as
Director of the Company since
May 1998. Mr. Sabot currently
serves as Executive Vice
President of Tripod, Inc., a
wholly owned subsidiary of
Lycos, and has been with Tripod
since its inception in 1994. Mr.
Sabot is the John J. Gibson
Professor of Economics at
Williams College where he has
taught since 1984. Previous to
his tenure at Williams, Mr.
Sabot spent ten years at the
World Bank researching the role
of human capital accumulation in
the development process. Mr.
Sabot received an undergraduate
degree from the University of
Pennsylvania and a Doctorate of
Philosophy in Economics from
Oxford University in England.
SERVING A TERM ENDING IN 1999:
Robert J. Davis............... 42 1995 Robert J. Davis has served as
President, Chief Executive
Officer and Director of the
Company since its inception in
June 1995. From January 1993 to
June 1995, Mr. Davis served as
Vice President of Sales at
Cambex Corporation, a
manufacturer of computer-related
products. From January 1982 to
January 1993, Mr. Davis was
employed by Wang Laboratories, a
computer manufacturer, in
various sales and marketing
positions, including Director of
United States Commercial Sales
and Marketing and Director of
Worldwide Marketing. Mr. Davis
holds a Bachelor of Science
degree, with highest honors,
from Northeastern University and
a Master in Business
Administration from Babson
College.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DAVID S.
WETHERELL AND JOHN M. CONNORS, JR. TO THE BOARD OF DIRECTORS FOR A TERM OF
THREE YEARS.
3
<PAGE>
INFORMATION CONCERNING THE BOARD OF DIRECTORS
During fiscal 1998, there were six meetings of the Board of Directors of the
Company. Each of the Directors attended at least 75% of the aggregate of (i)
the total number of meetings of the Board of Directors during which they
served as Director and (ii) the total number of meetings held by committees of
the Board of Directors on which they served. The Board of Directors does not
have a Nominating Committee. None of the Directors received compensation for
serving as Directors of the Company, except that in 1996 Mr. Connors was
granted options to acquire 20,000 shares of Common Stock of the Company, and
in 1997 Mr. Connors and Mr. Nova were granted options to acquire 20,000 shares
each of Common Stock of the Company under the Company's Non-Employee Director
Stock Option Plan. Mr. Davis and Mr. Sabot received compensation as employees
of the Company.
The Board of Directors has a Compensation Committee whose present members
are Messrs. Connors, Nova and Wetherell. The Compensation Committee determines
the compensation to be paid to certain officers of the Company and administers
the Company's stock option plans. During fiscal 1998, there were four meetings
of the Compensation Committee.
The Company also has an Audit Committee whose present members are Messrs.
Connors, Nova and Wetherell. The Audit Committee reviews with the Company's
independent auditors the scope of the audit for the year, the results of the
audit when completed and the independent auditors' fee for services performed.
The Audit Committee also recommends independent auditors to the Board of
Directors and reviews with management various matters related to its internal
accounting controls. During fiscal 1998, there was one meeting of the Audit
Committee.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of October 30, 1998 (i) by each
person who is known by the Company to own beneficially more than five percent
(5%) of the Company's Common Stock, (ii) by each of the Company's directors,
(iii) by each of the Named Executive Officers (as defined elsewhere herein)
and (iv) by all directors and executive officers who served as directors or
executive officers at October 30, 1998 as a group. For purposes of this Proxy
Statement, beneficial ownership is defined in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934, as amended, and means generally the power
to vote or dispose of the securities, regardless of any economic interest
therein.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------- -------------------- ----------
<S> <C> <C>
CMG Information Services, Inc. (1)............. 9,568,791 22.3%
100 Brickstone Square
Andover, MA 01810
FMR Corp (2)................................... 3,097,660 7.2%
82 Devonshire Street
Boston, MA 02109
DIRECTORS
David S. Wetherell (3)......................... 264,520 *
c/o CMG Information Services, Inc.
100 Brickstone Square
Andover, MA 01810
Richard H. Sabot (4)........................... 142,505 *
c/o Lycos (Tripod)
160 Water Street
Williamstown, MA 01267
Daniel J. Nova (5)............................. 26,003 *
c/o Highland Capital
Two International Place
Floor 22
Boston, MA 02110
John M. Connors, Jr. (6)....................... 20,000 *
c/o Hill, Holliday, Connors, Cosmopulos, Inc.
200 Clarendon Street
Boston, MA 02116
Robert J. Davis (7)............................ 349,475 *
Edward M. Philip (8)........................... 108,496 *
David G. Peterson (9).......................... 40,000 *
Jan R. Horsfall (10)........................... 63,000 *
Jeffrey J. Crown (11).......................... 8,000 *
All executive officers and directors as a group
(12 persons) (12)............................. 10,677,179 24.4%
</TABLE>
- --------
* Less than 1%
(1) Includes 3,296,946 shares held by CMG@Ventures I, LLC, 2,511,578 shares
held by CMG@Ventures Capital Corporation, and 1,073,629 shares held by
CMG@Ventures Securities Corp. The remaining 2,686,638 shares are held by
CMG Information Services, Inc. (CMGI) directly. Each of CMG@Ventures I,
LLC, CMG@Ventures Capital Corporation, CMG@Ventures Securities Corp.,
Mr. Wetherell, Chairman of
5
<PAGE>
the Board, President, Chief Executive Officer and Secretary of CMGI and a
profit member of CMG@Ventures I, LLC and an on officer, director and a
greater than 10% stockholder of CMGI (the sole stockholder of CMG@Ventures,
Inc., which is the managing member of CMG@Ventures I, LLC), CMGI is also
the sole stockholder of CMG@Ventures Capital Corporation, which is the sole
stockholder of CMG@Ventures Securities Corp., also may be deemed to be a
beneficial owner of these 9,588,791 shares of Common Stock. CMGI, the sole
stockholder of CMG@Ventures I LLC, Inc., may be deemed to be the beneficial
owner of the 3,296,946 shares held by CMG@Ventures I LLC. Each of
CMG@Ventures, Inc., CMG@Ventures Capital Corporation, CMG@Ventures
Securities Corp., CMGI and Mr. Wetherell disclaims beneficial ownership
except to the extent of his or its pecuniary interest. Includes 849,344
shares of Common Stock which CMG@Ventures I, LLC has agreed to sell to the
Company upon the exercise of options granted under the Company's 1995 Stock
Option Plan.
(2) Based on information provided by FMR Corporation.
(3) Includes 13,950 shares held in Trust for the benefit of Mr. Wetherell's
children. Mr. Wetherell disclaims beneficial ownership of these 13,950
shares. Mr. Wetherell may be deemed to be the beneficial owner of the
3,296,946 shares of Common Stock held by CMG@Ventures I LLC, 2,511,578
shares held by CMG@Ventures Capital Corporation, 1,073,629 shares held by
CMG@Ventures Securities Corp., and 2,686,638 shares held by CMGI, by
virtue of his interest as a general partner of CMG@Ventures, his positions
as Chairman of the Board, President, Chief Executive Officer and Secretary
of CMGI and a profit member of CMG@Ventures I, LLC and an officer,
director and a greater than 10% stockholder of CMGI (sole stockholder of
CMG@Ventures, Inc., which is the managing member of CMG@Ventures I, LLC),
CMGI is also the sole stockholder of CMG@Ventures Capital Corporation,
which is the sole stockholder of CMG@Ventures Securities Corp., an
executive officer of CMGI and CMG@Ventures, Inc., as well as his
stockholder interest in CMGI. Mr. Wetherell disclaims beneficial ownership
of such shares except to the extent of his pecuniary interest.
(4) Includes 118,186 shares of Common Stock held by Mr. Sabot and options to
acquire 24,319 shares of Common Stock which are currently exercisable or
become exercisable within 60 days. In addition, Mr. Sabot holds options to
purchase 158,107 shares of Common Stock which become exercisable after
60 days.
(5) Includes 19,336 shares of Common Stock held by Mr. Nova and options to
acquire 6,667 shares of Common Stock which are currently exercisable or
become exercisable within 60 days. In addition, Mr. Nova holds options to
purchase 13,333 shares of Common Stock which become exercisable after 60
days.
(6) Represents options to acquire 20,000 shares of Common Stock which are
currently exercisable or become exercisable within 60 days. In addition,
Mr. Connors holds options to purchase 20,000 shares of Common Stock which
become exercisable after 60 days.
(7) Includes 2,875 shares of Common Stock held by Mr. Davis and options to
acquire 346,600 shares of Common Stock which are currently exercisable or
become exercisable within 60 days. In addition, Mr. Davis holds options to
purchase 566,400 shares of Common Stock which become exercisable after
60 days.
(8) Includes 3,743 shares of Common Stock held by Mr. Philip and options to
acquire 104,753 shares of Common Stock which are currently exercisable or
become exercisable within 60 days. In addition, Mr. Philip holds options
to purchase 435,951 shares of Common Stock which become exercisable after
60 days.
(9) Includes options to acquire 40,000 shares of Common Stock which are
currently exercisable or become exercisable within 60 days. In addition,
Mr. Peterson holds options to purchase 210,000 shares of Common Stock
which become exercisable after 60 days.
(10) Includes options to acquire 63,000 shares of Common Stock which are
currently exercisable or become exercisable within 60 days. In addition,
Mr. Horsfall holds options to purchase 190,000 shares of Common Stock
which become exercisable after 60 days.
6
<PAGE>
(11) Includes options to acquire 8,000 shares of Common Stock which are
currently exercisable or become exercisable within 60 days. In addition,
Mr. Crown holds options to purchase 178,000 shares of Common Stock which
become exercisable after 60 days.
(12) This amount is reflective of shares held by CMGI. In addition to the
shares listed, the executive officers of the Company hold options to
acquire an additional 2,282,091 shares of Common Stock.
7
<PAGE>
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Board of Directors has
furnished the following report on executive compensation.
The Company's executive compensation program is administered by the
Committee. The Committee, which is comprised of three independent directors,
establishes and administers the Company's executive compensation policies and
plans and administers the Company's stock option and other equity-related
employee compensation plans. The Committee considers internal and external
information in determining certain officers' compensation, including outside
survey data.
Compensation Philosophy
The Company's compensation policies for executive officers are based on the
belief that the interests of executives should be closely aligned with those
of the Company's shareholders. The compensation policies are designed to
achieve the following objectives:
. Offer compensation opportunities that attract highly qualified
executives, reward outstanding initiative and achievement, and retain
the leadership and skills necessary to build long-term shareholder
value.
. Maintain a significant portion of executives' total compensation at
risk, tied to both the annual and long-term financial performance of the
Company and the creation of shareholder value.
. Further the Company's short and long-term strategic goals and values by
aligning compensation with business objectives and individual
performance.
Compensation Program
The Company's executive compensation program has three major integrated
components, base salary, annual incentive awards, and long term incentives.
Base Salary. Base salary levels for executive officers are determined
annually by reviewing the competitive pay practices of Internet companies of
similar size and market capitalization, the skills, performance level, and
contribution to the business of individual executives, and the needs of the
Company. Overall, the Company believes that base salaries for its executive
officers are approximately competitive with median base salary levels for
similar positions in these Internet companies.
Annual Incentive Awards. The Company's executive officers are eligible to
receive annual cash bonus awards designed to motivate executives to attain
short-term and longer-term corporate and individual management goals. The
Committee establishes the annual incentive opportunity for each executive
officer in relation to his or her base salary. Awards under this program are
based on the attainment of specific Company performance measures established
by the Committee early in the fiscal year, and by the achievement of specified
individual objectives and the degree to which each executive officer
contributes to the overall success of the Company and the management team. For
1998, the formula for these bonuses was determined as a function of sales
growth and other individual objectives, thus establishing a direct link
between executive pay and the Company's growth. The Company's performance in
1998 achieved the objectives set by the Committee.
Long-Term Incentives. The Committee believes that stock options are an
excellent vehicle for compensating its officers and employees. The Company
provides long-term incentives through its 1995 and 1996 Stock Option Plans,
the purpose of which is to create a direct link between executive compensation
and increases in shareholder value. Stock options are granted at fair market
value and vest in installments, generally over five years. When determining
option awards for an executive officer, the Committee considers the
executive's current contribution to Company performance, the anticipated
contribution to meeting the Company's long-term strategic performance goals,
and industry practices and norms. Long-term incentives granted in prior years
and existing
8
<PAGE>
levels of stock ownership are also taken into consideration. Because the
receipt of value by an executive officer under a stock option is dependent
upon an increase in the price of the Company's Common Stock, this portion of
the executive's compensation is directly aligned with an increase in
shareholder value.
Chief Executive Officer Compensation
Mr. Davis' base salary, annual incentive award and long-term incentive
compensation are determined by the Committee based upon the same factors as
those employed by the Committee for executive officers generally. Mr. Davis'
current annual base salary is $170,000 subject to annual review and increase
by the Board of Directors of the Company. Mr. Davis was paid a discretionary
cash bonus of $80,000. In addition, Mr. Davis received a $450 per month
automobile allowance. During fiscal year 1998, Mr. Davis was granted options
to purchase 133,000 shares. Subsequent to July 31, 1998, Mr. Davis was granted
options to purchase an additional 150,000 shares. All of such options are
subject to a five year vesting schedule but become immediately vested in the
event of a change in control of the Company after which Mr. Davis is
terminated without cause or after which there is a substantive change in his
job title, responsibilities or location of employment or a reduction in his
compensation, unless agreed to by Mr. Davis.
Section 162(m) Limitation
Section 162(m) of the Internal Revenue Code limits the tax deduction to $1
million for compensation paid to certain executives of public companies.
Having considered the requirements of Section 162(m), the Committee believes
that grants made pursuant to the Company's 1995 and 1996 Stock Option Plans
meet the requirement that such grants be "performance based" and are,
therefore, exempt from the limitations on deductibility. Historically, the
combined salary and bonus of each executive officer has been well below the $1
million limit. The Committee's present intention is to comply with Section
162(m) unless the Committee feels that required changes would not be in the
best interest of the Company or its shareholders.
COMPENSATION COMMITTEE
John M. Connors, Jr.
Daniel J. Nova
David S. Wetherell
9
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
GENERAL
Messrs. Connors, Nova and Wetherell served as members of the Compensation
Committee during fiscal 1998. Neither Messrs. Connors, Nova nor Wetherell was
an officer or employee of the Company or any of its subsidiaries during fiscal
1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with CMGI.
Mr. Wetherell, Director of the Company, is a general partner of CMG@Ventures
and an executive officer of CMG@Ventures, Inc., the managing general partner
of CMG@Ventures. Mr. Wetherell is also Chairman, President and Chief Executive
Officer of CMGI, the sole shareholder of CMG@Ventures, Inc.
The Company has entered into strategic business partnerships with companies
which are controlled by CMGI, pursuant to which the Company and such entities
have agreed to develop certain products and technologies. The Company believes
that the terms of these license arrangements are representative of the terms
the Company would have received from unrelated third parties.
10
<PAGE>
PERFORMANCE GRAPH
The graph set forth below compares the change in the Company's cumulative
total stockholder return on its Common Stock (as measured by dividing (i) the
sum of (A) the cumulative amount of dividends for the period indicated,
assuming dividend reinvestment, and (B) the difference between the Company's
share price at the end of the period and April 2, 1996, the date of the
Company's initial public offering; by (ii) the share price at April 2, 1996)
with the cumulative total return of The NASDAQ Stock Market (U.S.) Index and
the cumulative total return of the H&Q Internet Index (assuming the investment
of $100 in the Company's Common Stock, the NASDAQ Stock Market (U.S.) Index
and the H&Q Internet Index on April 2, 1996, and reinvestment of all
dividends). The Company has paid no dividends to date.
[GRAPH APPEARS HERE]
[PLOT POINTS APPEAR ON NEXT PAGE]
11
<PAGE>
<TABLE>
<CAPTION>
ACTUAL
4/2/96 4/30/96 5/31/96 6/28/96 7/31/96 8/30/96 9/30/96 10/31/96 11/29/96 12/31/96
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LYCOS, INC. 8.00 8.75 7.68 5.56 2.96 3.37 5.93 5.06 5.81 5.25
NASDAQ 1,111.29 1,190.58 1,243.44 1,185.02 1,080.60 1,141.50 1,226.89 1,221.51 1,292.61 1,291.03
H&Q Internet Index 89.44 102.97 107.69 98.48 79.04 82.81 91.46 83.80 89.04 84.26
<CAPTION>
1/31/97 2/28/97 3/31/97 4/30/97 5/30/97 6/30/97 7/31/97 8/29/97 9/30/97 10/31/97
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LYCOS, INC. 8.43 9.37 7.03 6.43 7.25 6.37 9.43 15.65 17.00 13.06
NASDAQ 1,379.85 1,309.00 1,221.70 1,260.76 1,400.32 1,442.07 1,593.81 1,587.32 1,685.69 1,593.60
H&Q Internet Index 85.24 72.38 66.80 69.83 83.71 83.17 95.80 97.20 110.11 106.61
<CAPTION>
11/28/97 12/31/97 1/30/98 2/27/98 3/31/98 4/30/98 5/29/98 6/30/98 7/31/98
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LYCOS, INC. 15.28 20.68 19.09 20.62 22.12 30.90 26.51 37.68 28.56
NASDAQ 1,600.55 1,570.35 1,619.35 1,770.50 1,835.68 1,868.41 1,778.88 1,894.74 1,872.38
H&Q Internet Index 105.14 113.08 114.41 137.12 151.03 160.38 146.29 189.70 171.82
</TABLE>
<TABLE>
<CAPTION>
INDEXED
4/2/96 4/30/96 5/31/96 6/28/96 7/31/96 8/30/96 9/30/96 10/31/96 11/29/96 12/31/96
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LYCOS, INC. 100.00 109.37 96.10 69.53 37.11 42.18 74.22 63.28 72.66 65.62
NASDAQ 100.00 107.13 111.89 106.63 97.23 102.71 110.40 109.91 116.31 116.17
H&Q Internet Index 100.00 115.12 120.40 110.10 88.37 92.58 102.25 93.69 99.55 94.20
<CAPTION>
1/31/97 2/28/97 3/31/97 4/30/97 5/30/97 6/30/97 7/31/97 8/29/97 9/30/97 10/31/97
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LYCOS, INC. 105.47 117.18 87.88 80.47 90.62 79.68 117.97 195.70 212.50 163.28
NASDAQ 124.16 117.79 109.93 113.45 126.00 129.76 143.42 142.83 151.68 143.40
H&Q Internet Index 95.30 80.92 74.68 78.07 93.59 92.99 107.11 108.67 123.11 119.19
<CAPTION>
11/28/97 12/31/97 1/30/98 2/27/98 3/31/98 4/30/98 5/29/98 6/30/98 7/31/98
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LYCOS, INC. 191.01 258.60 238.67 257.81 276.56 386.32 331.45 471.10 357.03
NASDAQ 144.02 141.30 145.71 159.31 165.18 168.13 160.07 170.49 168.48
H&Q Internet Index 117.55 126.43 127.91 153.30 168.86 179.31 163.56 212.09 192.10
</TABLE>
12
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and each of the Company's four
most highly compensated executive officers (other than the Chief Executive
Officer) whose total annual salary and bonus exceeded $100,000 for all
services rendered in all capacities to the Company and its subsidiaries for
the Company's fiscal year ended July 31, 1998 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
-------------------- ------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) OPTIONS # COMPENSATION($)
- ------------------ ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Robert J. Davis......... 1998 170,000 80,000 133,000 7,022(1)
President and Chief 1997 170,000 128,750 50,000 10,741(2)
Executive Officer 1996 110,000 150,000 400,000 6,238(3)
Edward M. Philip........ 1998 150,000 62,500 133,000 1,369(4)
Chief Operating 1997 150,000 50,000 154,344 4,750(5)
Officer, Chief 1996 80,000(9) 31,000 271,704(8) 9,921(6)
Financial Officer and
Secretary
David G. Peterson....... 1998 137,000 74,000 20,000 1,586(4)
Vice President of Sales 1997 92,500(9) 46,000 220,000 1,000(5)
Jan R. Horsfall......... 1998 162,000 33,500 20,000 3,472(4)
Vice President of 1997 103,000(9) 51,000 220,000 22,208(7)
Marketing
Jeffrey J. Crown........ 1998 156,000 40,000 20,000 2,940(4)
Vice President of 1997 93,500 49,000 160,000 7,511(5)
Business Development 1996 37,500(9) 9,000 20,000 442(5)
</TABLE>
- --------
(1) Consists of a $5,450 auto allowance and $1,572 contributed by the Company
pursuant to the Lycos, Inc. Retirement Savings Plan--401(k) (the "Lycos
401(k) Plan").
(2) Consists of a $5,400 auto allowance and $5,341 contributed by the Company
pursuant to the CMG, Inc. Retirement Savings Plan--401(k) (the "CMG 401(k)
Plan").
(3) Consists of payments for medical benefits.
(4) Consists of amounts contributed by the Company pursuant to the Lycos
401(k) Plan.
(5) Consists of amounts contributed by the Company pursuant to the CMG 401(k)
Plan.
(6) Consists of payments for reimbursement of relocation expenses.
(7) Consists of $2,850 contributed by the Company pursuant to the 401(k) Plan
and $19,358 for reimbursement of relocation expenses.
(8) Includes options that were granted and subsequently terminated in exchange
for the grant of options having an exercise price above fair market value
on the date of grant and a new vesting period.
(9) Compensation amount based on amount actually earned for period.
On July 31, 1998, the number of remaining shares of Common Stock held by the
Named Executive Officers that had not vested and the value of such stock at
that date (at the market price of $28.563 per share) was as follows: Mr. Davis
453,000 shares (valued at $12,939,039); Mr. Philip 386,892 (valued at
$11,050,796); Mr. Peterson 196,000 (valued at $5,598,348); Mr. Horsfall
196,000 (valued at $5,598,348); Mr. Crown 160,000 (valued at $4,570,080).
13
<PAGE>
GRANTS OF STOCK OPTIONS
The following table sets forth certain information with respect to
individual grants of stock options to the Named Executive Officers during the
fiscal year ended July 31, 1998.
1998 OPTION GRANTS(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------
POTENTIAL REALIZATION VALUE
AT ASSUMED ANNUAL RATES OF
% OF TOTAL STOCK PRICE APPRECIATION
OPTIONS GRANTED FOR OPTION TERM(2)
OPTION TO EMPLOYEES EXERCISE EXPIRATION ---------------------------
NAME GRANTS IN1998 PRICE(1) DATE 5% 10%
- ---- ------- --------------- -------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Davis......... 133,000 3.7% $9.00 8/01/07 $ 752,787 $ 1,907,710
Edward M. Philip........ 133,000 3.7% $9.00 8/01/07 $ 752,787 $ 1,907,710
David G. Peterson....... 20,000 * $9.00 8/01/07 $ 113,201 $ 286,874
Jan R. Horsfall......... 20,000 * $9.00 8/01/07 $ 113,201 $ 286,874
Jeffrey J. Crown........ 20,000 * $9.00 8/01/07 $ 113,201 $ 286,874
</TABLE>
- --------
* Less than 1%
(1) The exercise price of the option represented the fair market value of the
Common Stock on the date of grant.
(2) Potential gains are net of exercise price, but before taxes associated
with exercise. These amounts represent certain assumed rates of
appreciation only, based on the Securities and Exchange Commission rules.
Actual gains, if any, on stock option exercises are dependent on the
future performance of the Common Stock, the timing of such exercises and
the option holder's continued employment through the vesting period. The
amounts reflected in this table may not accurately reflect or predict the
actual value of the stock options.
STOCK OPTION EXERCISES AND JULY 31, 1998 STOCK OPTION VALUES
Set forth in the table below is information concerning the value realized
upon stock option exercises during fiscal year 1998 as well as the value of
stock options held at July 31, 1998 by the Named Executive Officers of the
Company.
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND OPTION VALUES AS OF JULY 31, 1998
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT JULY 31, 1998 JULY 31, 1998(1)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Davis......... 380,000 $10,124,262 310,000 453,000 $7,673,167 $10,857,187
Edward M. Philip........ 114,000 $ 3,040,475 3,812 386,892 $ 87,677 $ 9,199,459
David G. Peterson....... 40,000 $ 740,531 4,000 196,000 $ 91,502 $ 4,529,348
Jan R. Horsfall......... 17,000 $ 483,875 27,000 196,000 $ 610,326 $ 4,477,348
Jeffrey J. Crown........ 36,000 $ 1,001,492 -- 160,000 -- $ 3,664,340
</TABLE>
- --------
(1) The amounts set forth represent the difference, if positive, between the
fair market value of the Common Stock underlying the options at July 31,
1998 ($28.563 per share) and the exercise price of the options, multiplied
by the applicable number of options.
14
<PAGE>
APPROVAL OF AMENDMENT OF THE LYCOS, INC. 1996 STOCK OPTION PLAN
GENERAL
The Lycos, Inc. 1996 Stock Option Plan (the "1996 Plan") was adopted by the
Board of Directors and approved by the Company's shareholders in February
1996. The purpose of the 1996 Plan is to attract and retain key employees and
consultants of the Company, to provide an incentive for them to achieve long-
range performance goals, and to enable them to participate in the long-term
growth of the Company. Under the 1996 Plan, incentive stock options may be
granted to employees and officers of the Company or any subsidiary and non-
qualified stock options may be granted to consultants, employees and officers
of the Company or any subsidiary.
PROPOSED AMENDMENT TO THE 1996 PLAN
The Board of Directors has adopted an amendment to the 1996 Plan, subject to
approval by the shareholders, to increase the aggregate number of shares that
may be subject to grants thereunder from 6,400,000 to 12,400,000 in order to
ensure that a sufficient number of shares are available for issuance in the
future. In addition, the amendment to the 1996 Plan provides that, effective
August 1, 1999 and each August 1 thereafter during the term of the 1996 Plan,
the number of shares of Common Stock available for grants of stock options
shall be increased automatically by an amount equal to 5% of the total number
of issued and outstanding shares of Common Stock (including shares held in
treasury) as of the close of business on July 31, of the preceding month,
provided that the maximum cumulative number of shares of Common Stock
available for grants of incentive stock options under the 1996 Plan may not
exceed 5,000,000 shares. The Board of Directors has adopted the amendment to
the 1996 Plan to further the growth and financial success of the Company by
aligning the personal interests of employees (through the ownership of Common
Stock) with those of the shareholders of the Company. The Board of Directors
believes that the increase in the number of shares that may be subject to
option grants under the 1996 Plan will enhance the ability of the Company to
attract, retain, compensate and motivate key employees, and that the adoption
of the amendment will be important to the future success of the Company.
Set forth below is a summary of the principal provisions of the 1996 Plan, a
copy of which may be obtained from the Secretary of the Company upon request.
The affirmative vote of the holders of at least a majority of the Common Stock
voting in person or by proxy at the meeting will be required for the approval
of the amendment to the 1996 Plan.
ADMINISTRATION
The 1996 Plan is administered by the Compensation Committee of the Board of
Directors, subject to the supervision and control of the entire Board. The
members of the Compensation Committee are appointed by the Board of Directors
and the Board may from time to time appoint a member or members of the
Compensation Committee in substitution for or in addition to the member or
members then in office and may fill vacancies on the Compensation Committee
however caused. The present members of the Compensation Committee are Messrs.
Connors, Nova and Wetherell.
ELIGIBILITY
Subject to the provisions of the 1996 Plan, the Compensation Committee has
the authority to select optionees and to determine the terms of the options
granted, including (i) the number of shares subject to each option, (ii) when
the option becomes exercisable, (iii) the exercise price of the option, (iv)
the duration of the option (which in the case of an incentive stock option
granted to employees or officers holding 10% or more of the voting stock of
the Company cannot be in excess of five years), and (v) the time, manner and
form of payment upon exercise of an option.
In determining the eligibility of an individual to be granted an option, as
well as in determining the number of shares to be optioned to any individual,
the Compensation Committee takes into account the position and
15
<PAGE>
responsibilities of the individual being considered, the nature and value to
the Company or its subsidiaries of the individual's service and
accomplishments, his or her present and potential contribution to the success
of the Company or its subsidiaries, and such other factors as the Compensation
Committee deems relevant.
TERMS OF OPTIONS
Options granted under the 1996 Plan are exercisable at such times and during
such period as is set forth in the option agreement, but can not have a term
in excess of ten years from the date of grant. The Compensation Committee is
entitled to accelerate the date of exercise of any installment of any option,
except that without the consent of the optionee, the Compensation Committee
shall not accelerate the exercise date of any installment of any incentive
stock option if such acceleration would violate the annual vesting limitation
contained in Section 422(d) of the Internal Revenue Code of 1986, as amended
(the "Code"). The option agreement may contain such provisions and conditions
as may be determined by the Compensation Committee. The option exercise price
for options designated as non-qualified stock options granted under the 1996
Plan as determined by the Compensation Committee, but in no event may be less
than par value of the Common Stock. The option exercise price for incentive
stock options granted under the 1996 Plan shall be no less than fair market
value of the Common Stock of the Company at the time the option is granted and
no less than 110% of fair market value in the case of employees or officers
holding 10% or more of the voting stock of the Company. Options granted under
the 1996 Plan may provide for the payment of the exercise price by delivery of
cash or a check payable to the Company or shares of Common Stock of the
Company owned by the optionee having a fair market value equal in amount to
the exercise price of the options being exercised, or any combination thereof.
The maximum number of shares of Common Stock with respect to which an option
or options may be granted to any employee in any one calendar year shall not
exceed 500,000 shares.
An option is not transferable by the optionee except by will or by the laws
of descent and distribution. Options are exercisable only while the optionee
remains in the employ of the Company or for a period of time thereafter. If an
optionee becomes disabled or dies while in the employ of the Company, the
option is exercisable prior to the last day of the sixth or twelfth month,
respectively, following the date of termination of employment. If the optionee
leaves the employ of the Company for any other reason, the option is
exercisable for only 90 days following the date of termination of employment;
provided that the Compensation Committee may extend this period to up to six
months following the date of termination. Options which are exercisable
following termination of employment are exercisable only to the extent that
the optionee was entitled to exercise such options on the date of such
termination.
TERMINATION OR AMENDMENT OF THE 1996 PLAN
Unless sooner terminated, the 1996 Plan shall terminate in February 2006,
ten years from the date upon which the 1996 Plan was adopted by the Board of
Directors of the Company. The Board of Directors may at any time terminate the
1996 Plan or make such modification or amendment as it deems advisable;
provided, however, that the Board of Directors may not, without shareholder
approval, increase the maximum number of shares for which options may be
granted or change the designation of the class of persons eligible to receive
options under the 1996 Plan or make any other change in the 1996 Plan which
requires shareholder approval under applicable law or regulations. The
Compensation Committee may terminate, amend or modify any outstanding option
without the consent of the option holder, provided however that, without the
consent of the optionee, the Compensation Committee shall not change the
number of shares subject to an option, or the exercise price or term thereof.
RECAPITALIZATION; REORGANIZATION; CHANGE OF CONTROL
The 1996 plan provides that the number and kind of shares as to which
options may be granted thereunder and as to which outstanding options then
unexercised shall be exercisable shall be adjusted to prevent dilution in the
event of any reorganization or recapitalization (other than as the result of
an Acquisition, as such term is hereinafter defined), reclassification, stock
subdivision, combination of shares or dividends payable in capital
16
<PAGE>
stock. If the Company is to be consolidated with or acquired by another entity
in a merger or in a sale of all or substantially all of the Company's assets
or otherwise (an "Acquisition"), the Compensation Committee or the Board of
Directors of any entity assuming the obligations of the Company (the
"Successor Board"), shall, as to outstanding options, either (i) make
appropriate provision for the continuation of such options by substituting on
an equitable basis for the shares then subject to such options the
consideration payable with respect to the outstanding shares of Common Stock
in connection with the Acquisition, (ii) upon written notice to the optionees,
provide that all options must be exercised (to the extent then exercisable)
within a specified number of days of the date of such notice, at the end of
which period the options shall terminate, or (iii) terminate all options in
exchange for a cash payment equal to the excess of the fair market value of
the shares subject to such options (to the extent then exercisable) over the
exercise price thereof.
Upon dissolution or liquidation of the Company, all options granted under
the 1996 Plan shall terminate.
TAX EFFECTS OF PARTICIPATION IN THE 1996 PLAN
Incentive Stock Options. Except as provided below with respect to the
alternative minimum tax, the optionee will not recognize taxable income upon
the grant or exercise of an incentive stock option. In addition, if the
optionee holds the shares received pursuant to the exercise of the option for
more than one year after the date of transfer of stock to the optionee upon
exercise of the option and for more than two years after the option is
granted, the optionee will recognize long-term capital gain or loss upon the
disposition of the stock measured by the difference between the option
exercise price and the amount received for such shares upon disposition.
In the event that the optionee disposes of the stock prior to the expiration
of the required holding periods (a "disqualifying disposition"), the optionee
generally will recognize ordinary income to the extent of the lesser of (i)
the fair market value of the stock at the time of exercise over the exercise
price, or (ii) the amount received for the stock upon disposition over the
exercise price. The basis in the stock acquired upon exercise of the option
will equal the amount of income recognized by the optionee plus the option
exercise price. Upon eventual disposition of the stock, the optionee will
recognize long-term or short-term capital gain or loss, depending on the
holding period of the stock and the difference between the amount realized by
the optionee upon disposition of the stock and his basis in the stock.
For alternative minimum tax purposes, the excess of the fair market value of
stock on the date of the exercise of the incentive stock option over the
exercise price of the option is included in alternative minimum taxable income
for alternative minimum tax purposes. If the alternative minimum tax does
apply to the optionee, an alternative minimum tax credit may reduce the
regular tax upon eventual disposition of the stock.
The Company will not be allowed an income tax deduction upon the grant or
exercise of an incentive stock option. Upon a disqualifying disposition of
shares by the optionee acquired upon exercise of the incentive stock option,
the Company will be allowed a deduction in an amount equal to the ordinary
income recognized by the optionee.
Under proposed regulations issued by the Internal Revenue Service, the
exercise of an option with previously acquired stock of the Company will be
treated as, in effect, two separate transactions. Pursuant to Section 1036 of
the Code, the first transaction will be a tax-free exchange of the previously
acquired shares for the same number of new shares. The new shares will retain
the basis and, except, as provided below, the holding periods of the
previously acquired shares. The second transaction will be the issuance of
additional new shares having a value equal to the difference between the
aggregate fair market value of all of the new shares being acquired and the
aggregate option exercise price for those shares. Because the exercise of an
incentive stock option does not result in the recognition by the optionee of
income, this issuance will also be tax-free (unless the alternative minimum
tax applies, as described above). The optionee's basis in these additional
shares will be zero and the optionee's holding period for these shares will
commence on the date on which the shares are transferred. For purposes of the
one and two-year holding period requirements which must be met for favorable
incentive stock option tax treatment to apply, the holding periods of
previously acquired shares are disregarded.
17
<PAGE>
Non-Qualified Stock Options. As in the case of incentive stock options, no
income is recognized by the optionee on the grant of a non-qualified stock
option. On the exercise by an optionee of a non-qualified option, generally
the excess of the fair market value of the stock when the option is exercised
over its cost to the optionee will be (a) taxable to the optionee as ordinary
income and (b) generally deductible for income tax purposes by the Company.
The optionee's tax basis in his stock will equal his cost for the stock plus
the amount of ordinary income he had to recognize with respect to the non-
qualified stock option.
The Internal Revenue Service will treat the exercise of a non-qualified
stock option with already owned stock of the Company as two transactions.
First, there will be a tax-free exchange of the old shares for a like number
of new shares under Section 1036 of the Code, with the exchanged shares
retaining the basis and holding periods of the old shares. Second, there will
be an issuance of additional new shares representing the spread between the
fair market value of all the new shares (including the exchanged shares and
the additional new shares) and the aggregate option price therefor. The fair
market value of the additional new shares will be taxable as ordinary income
to the employee under Section 83 of the Code. The additional new shares will
have a basis equal to the fair market value of the additional new shares.
Accordingly, upon a subsequent disposition of stock acquired upon the
exercise of a non-qualified option, the optionee will recognize short-term or
long-term capital gain or loss, depending upon the holding period of the stock
equal to the difference between the amount realized upon disposition of the
stock by the optionee and his basis in the stock.
NEW PLAN BENEFITS
It is not possible to state the persons who will receive stock options under
the 1996 Plan in the future, nor the amount of options which will be granted
thereunder. The following table provides information as to options granted
under the 1996 Plan during fiscal 1998.
<TABLE>
<CAPTION>
DOLLAR NUMBER
NAME VALUE OF UNITS
---- ------ ---------
<S> <C> <C>
Robert J. Davis............................................ (1) 133,000
Edward M. Philip........................................... (1) 133,000
David Peterson............................................. (1) 20,000
Jan R. Horsfall............................................ (1) 20,000
Jeffrey Crown.............................................. (1) 20,000
Executive Officers as a Group.............................. (1) 506,000
Non-Executive Officer Employee Group....................... (1) 2,878,900
</TABLE>
- --------
(1) The dollar value of options is equal to the difference between the
exercise price of the options granted and the fair market value of the
Company's Common Stock at the date of exercise. Accordingly, such dollar
value is not readily ascertainable.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF AMENDMENTS TO THE
LYCOS, INC. 1996 STOCK OPTION PLAN.
18
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed KPMG Peat Marwick LLP as independent
certified public accountants to audit the consolidated financial statements of
the Company and its subsidiaries for the fiscal year ending July 31, 1998.
KPMG Peat Marwick LLP has served as independent accountants since 1995 to
audit the financial statements of the Company.
A representative of KPMG Peat Marwick LLP is expected to be present at the
Annual Meeting and will have the opportunity to make a statement if he or she
so desires and to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF KPMG PEAT
MARWICK LLP AS THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS OF THE COMPANY FOR
FISCAL YEAR 1999.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons owning more than 10% of the outstanding
Common Stock of the Company to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
greater than 10% holders of Common Stock of the Company are required by
Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on copies of such forms furnished as provided above, management
believes that through the date hereof all Section 16(a) filing requirements
applicable to its officers, directors and owners of greater than 10% of its
Common Stock were complied with, except that Daniel J. Nova failed to timely
file a Form 4 to report the sale of shares in March 1998, which form was
subsequently filed in May 1998.
TIME FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Under regulations adopted by the Securities and Exchange Commission, any
proposal submitted for inclusion in the Company's Proxy Statement relating to
the Annual Meeting of Stockholders to be held in 1999 must be received at the
Company's principal executive offices in Framingham, Massachusetts on or
before July 18, 1999. Receipt by the Company of any such proposal from a
qualified stockholder in a timely manner will not ensure its inclusion in the
proxy material because there are other requirements in the proxy rules for
such inclusions.
In addition to the Securities and Exchange Commission requirements regarding
stockholder proposals, the Company's By-laws contain provisions regarding
matters to be brought before stockholder meetings. If such matters are to be
included in the Company's proxy statement and form of proxy, notice thereof
must be delivered to the Company in accordance with the Securities and
Exchange Commission requirements set forth in the paragraph above. If such
matters are not to be included in the Company's proxy statement and form of
proxy, notice of them must be given by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Company on or before September
19, 1999.
OTHER MATTERS
Management knows of no matters which may properly be and are likely to be
brought before the meeting other than the matters discussed herein. However,
if any other matters properly come before the meeting, the persons named in
the enclosed proxy will vote in accordance with their best judgment.
The cost of this solicitation will be borne by the Company. It is expected
that the solicitation will be made primarily by mail, but regular employees or
representatives of the Company (none of whom will receive any extra
compensation for their activities) may also solicit proxies by telephone,
telecopier and in person and arrange for brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy material to
their principals at the expense of the Company.
19
<PAGE>
10-K REPORT
THE COMPANY WILL PROVIDE EACH BENEFICIAL OWNER OF ITS SECURITIES WITH A COPY
OF AN ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND
SCHEDULES THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR THE COMPANY'S MOST RECENT FISCAL YEAR, WITHOUT CHARGE, UPON
RECEIPT OF A WRITTEN REQUEST FROM SUCH PERSON. SUCH REQUEST SHOULD BE SENT TO
JUSTINE ALONZO, LYCOS, INC., 400-2 TOTTEN POND ROAD, WALTHAM, MA 02451-2000.
VOTING PROXIES
The Board of Directors recommends an affirmative vote on all proposals
specified. Proxies will be voted as specified. If signed proxies are returned
without specifying an affirmative or negative vote on any proposal, the shares
represented by such proxies will be voted in favor of the Board of Directors'
recommendations.
By order of the Board of Directors
EDWARD M. PHILIP,
Chief Operating Officer,
Chief Financial Officer and
Secretary
November 24, 1998
20
<PAGE>
LYCIS-PS-98
<PAGE>
PROXY
LYCOS, INC.
1998 ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 22, 1998
The undersigned hereby appoints Robert J. Davis and Edward M. Philip, and each
of them, with full power of substitution, attorneys and proxies to vote all
shares of stock the undersigned is entitled to vote at the 1998 Annual Meeting
of Stockholders of LYCOS, INC. to be held December 22, 1998, at 2:00 p.m., at
the offices of Lycos, Inc., 400-2 Totten Pond Road, Waltham, Massachusetts and
at any adjournments thereof, with all powers which the undersigned would possess
if personally present, upon such business as may properly come before the
meeting, as set forth on the reverse side, hereby revoking any proxy heretofore
given. This proxy is solicited on behalf of the Board of Directors. Shares will
be voted as specified. If no specification is made, the shares represented will
be voted FOR the election of the directors as set forth in the Proxy Statement
and FOR proposals 2 and 3. The Board of Directors recommends a vote FOR the
following matters described in the Proxy Statement for the meeting.
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PLEASE DATE AND SIGN THIS PROXY IN THE SPACE PROVIDED AND RETURN IT IN THE
ENCLOSED ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON.
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Please sign exactly as your name(s) appear(s) hereon. When shares are held by
more than one person, all persons should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized partner.
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HAS YOUR ADDRESS CHANGED? DO YOU HAVE COMMENTS?
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<PAGE>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
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LYCOS, INC.
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Mark box at right if you plan to attend the meeting. [ ]
Mark box at right if address change or comment has [ ]
been noted on the reverse side of this card.
RECORD DATE SHARES:
1. Election of two Directors to serve for a FOR ALL WITH- FOR ALL
term of three years. NOMINEES HOLD EXCEPT
DAVID S. WETHERELL [ ] [ ] [ ]
JOHN M. CONNORS, JR.
NOTE: If you do not wish your shares voted
"For" a particular nominee, mark the "For
All Except" box and strike a line through
the name of the nominee. Your shares will
be voted for the remaining nominee.
2. Proposal to ratify, confirm and approve an FOR AGAINST ABSTAIN
amendment to the Lycos, Inc. 1996 Stock
Option Plan to increase the number of shares [ ] [ ] [ ]
reserved for grant thereunder from 6,400,000
12,400,000.
3. Proposal to ratify, confirm and approve the FOR AGAINST ABSTAIN
selection of KPMG Peat Marwick LLP as the
independent certified public accountants of [ ] [ ] [ ]
the Corporation for fiscal year 1999.
4. In their discretion, the proxies are authorized to vote upon other business
as may properly come before the meeting, all as set out in the Notice and
Proxy Statement relating to the meeting, receipt of which is hereby
acknowledged.
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Please be sure to sign and date this Proxy. Date
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- ------Stockholder sign here---------------------------Co-owner sign here--------
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DETACH CARD DETACH CARD
LYCOS, INC.
Dear Lycos Stockholder:
Enclosed please find your proxy materials for the Annual Meeting of
Stockholders, to be held on Tuesday, December 22, 1998, at 2:00 P.M., at the
offices of the Company, 400-2 Totten Pond Road, Waltham, Massachusetts.
Please sign, date and return your proxy card in the enclosed envelope as soon as
possible.
Your vote counts! Thank you in advance for your prompt consideration of these
matters.
Lycos, Inc.
