PROSPECTUS FILING PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-85989
1,106,094 SHARES OF COMMON STOCK
LYCOS, INC.
You should consider carefully the risk factors beginning on page 4 of
this Prospectus before purchasing any of the shares of Lycos common stock
offered by this Prospectus.
The Selling Stockholders identified on page 13 of this Prospectus are
offering these shares of common stock. For additional information on the methods
of sale, you should refer to the section entitled "Plan of Distribution" on page
14. We will not receive any portion of the proceeds from the sale of these
shares. This offering is not being underwritten. The Selling Stockholders may
offer the shares from time to time through public or private transactions, on or
off the United States exchanges, at prevailing market prices, or at privately
negotiated prices.
The shares were issued pursuant to the exemption from the
registration requirements set forth in Section 4(2) of the Securities Act of
1933, as amended. Lycos' common stock is listed on the Nasdaq National Stock
Market under the ticker symbol "LCOS." On July 26, 1999, the closing price of
one share of Lycos common stock on the Nasdaq National Stock Market was $44.094
per share.
Neither the SEC nor any state securities commission has approved
these securities or determined that this Prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The information in this Prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the SEC is effective. This Prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 8, 1999
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TABLE OF CONTENTS
PAGE
THE COMPANY.............................................................3
FORWARD LOOKING INFORMATION.............................................3
RISK FACTORS............................................................4
USE OF PROCEEDS........................................................13
SELLING STOCKHOLDERS...................................................13
PLAN OF DISTRIBUTION...................................................14
LEGAL MATTERS..........................................................15
EXPERTS................................................................15
WHERE YOU CAN FIND MORE INFORMATION....................................15
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THE COMPANY
Lycos, "Your Personal Internet Guide," is a "New Generation Online
Service" that offers a network of globally branded media properties and
aggregated content distributed primarily through the World Wide Web. Under the
"Lycos Network" brand, the Company provides guides to online content, aggregated
third party content, Web search and directory services and community and
personalization features. The Company seeks to draw a large number of viewers to
its Websites by providing a one-stop destination for identifying, selecting and
accessing resources, services, content and information on the Web.
On July 27, 1999, the Company acquired Internet Music Distribution,
Inc. in exchange for (i) the issuance of approximately 1,092,232 shares of
Common Stock, (ii) the assumption of deferred compensation liabilities of
Internet Music that Lycos satisfied by the issuance of approximately 5,059
shares of common stock, and (iii) payment of an outstanding liability of
Internet Music which Lycos satisfied by the issuance of approximately 8,803
shares of common stock. Internet Music is a provider of digital content delivery
systems including Sonique(TM), an audio player that downloads various music and
audio formats such as MP3 from the Internet. Sonique(TM) is available for
download from www.sonique.com and www.lycos.com. Internet Music has offices in
San Francisco, California and Campbell, California and Bozeman, Montana.
The Company is a Delaware corporation incorporated in June 1995. The
Company's principal executive offices are located at 400-2 Totten Pond Road,
Waltham, Massachusetts 02451, and its telephone number is (781) 370-2700.
FORWARD-LOOKING INFORMATION
This Prospectus includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934 including, in particular, the
statements about our plans, strategies and prospects under the heading "Risk
Factors." Although we believe that our plans, intentions and expectations
reflected in or suggested by such forward-looking statements are reasonable, we
can give no assurance that such plans, intentions or expectations will be
achieved. Important factors that could cause actual results to differ materially
from the forward-looking statements we make in this Prospectus are set forth
below and elsewhere in this Prospectus.
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RISK FACTORS
WE HAVE A LIMITED OPERATING HISTORY.
We have a limited operating history for you to use in evaluating our
prospects. We generated revenues of $56.1 million for the fiscal year ended July
31, 1998 and revenues of $135.5 million for the fiscal year ended July 31, 1999.
Due to our limited operating history, you should not take the recent revenue
growth as indicative of the rate of growth, if any, that you can expect in the
future. You should consider the risks, expenses and difficulties frequently
encountered by companies in their early stages of development, particularly
companies operating in new and rapidly evolving markets such as ourselves. We
may not successfully address these risks.
As a strategic response to a changing competitive environment, we may
choose to make pricing, service or marketing decisions or acquisitions that
would adversely impact our operations and therefore our profitability. Due to
the nascent nature of the Internet industry, we believe that period-to-period
comparisons of our operating results are not meaningful and that you should not
rely upon them as an indication of our future performance.
WE HAVE A HISTORY OF SIGNIFICANT LOSSES.
We have incurred significant losses since our inception and may incur
losses in the future. As of July 31, 1998, we had an accumulated deficit of
$40.3 million. Although we were profitable in the six months ended January 31,
1998, we reported a loss of $0.46 per share for the year ended July 31, 1998,
representing a $0.06 loss per share before amortization and one-time acquisition
related charges. We may not sustain revenue growth or return to profitability in
the future. As of July 31, 1999, we had an accumulated deficit of $92.3 million.
We reported a loss of $0.60 per share for the year ended July 31, 1999. We
currently expect that our operating expenses will continue to increase
significantly as our sales and marketing operations are expanded and as we fund
further product development and acquire complementary products and technologies.
Our potential inability to keep short-term expense levels in line with revenues
could adversely affect our financial results for any given quarter. It is
possible that in some future quarter our operating results may be below the
expectations of analysts and investors which could reduce the price of our
common stock.
OUR OPERATING RESULTS CAN BE AFFECTED BY SEASONALITY.
We have experienced, and expect to continue to experience, seasonality
in our business. Historically, users have made a smaller number of visits to our
Websites and the Websites of our partners during the summer and the year-end
vacation and holiday periods when usage of the Web and our services typically
declines.
OUR STOCK PRICE IS VOLATILE AND IS AFFECTED BY FACTORS RELATING TO THE INTERNET
INDUSTRY.
The price of our common stock has been, and may continue to be,
subject to wide fluctuations in response to any of the following events:
o quarterly variations in results of operations;
o announcements of new technological innovations or new products and media
properties by us or our competitors;
o changes in financial estimates and recommendations by securities analysts;
o the operating and stock price performance of other companies that investors
may deem comparable to us; and
o news relating to trends in our markets.
The stock market in general, and the market prices for Internet-related
companies in particular, also have experienced extreme volatility that often
has been unrelated to the operating performance of such companies. These
broad market and industry fluctuations may adversely affect the price of our
common stock regardless of our operating performance. Additionally,
fluctuations in the market price of our common stock could result in
stockholder lawsuits, which potentially could impair our business.
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WE MAY NOT BE ABLE TO MAINTAIN ADVERTISING REVENUES IF THE INTERNET IS NOT
ADOPTED AS AN ADVERTISING MEDIUM.
We earn a significant portion of our revenues by selling advertisements
on our Websites. For the fiscal year ended July 31, 1999, advertising
revenues represented approximately 70% of our total revenues. We will not be
able to sustain or increase our advertising revenues if the Internet does not
develop into an attractive and sustainable advertising medium. For example,
users may purchase "filter" software programs that limit or remove
advertising from the Web user's desktop. The widespread adoption of this
software by users could negatively impact the use of advertising on the Web.
It is also difficult to predict which method of pricing will be adopted by
the industry or advertisers. For example, our advertising revenues could
decrease if advertising rates are based on the number of users who access the
advertiser's Website from one of our network Websites or seek additional
information about a product or service by "clicking" on the advertisement,
rather than rates being based solely on the number of times an advertisement
is displayed. Our strategy is to continue to develop advertising and other
methods of generating revenues through the use of our products and services.
In order to maintain and increase advertising revenues, we must develop a
large base of users of our products and services processing demographic
characteristics attractive to advertisers. Additionally, we may be required
to expand our advertising sales force.
WE MAY NOT BE ABLE TO DELIVER OR MEASURE THE DELIVERY OF ADVERTISEMENTS
RELIABLY.
The process of reliably delivering and tracking advertising placement
within large Websites like our Website is an increasingly important and
complex task, and currently available software programs and other tracing
methods are rapidly evolving. We license an advertising management system
from a third-party. To the extent that we encounter system failures or
material difficulties in the operation of this system, or such software fails
to keep pace with our informational needs, we could be unable to deliver and
track advertising placements reliably on our network of Websites. Any
extended failure of, or other material difficulties with, our advertising
management system may require us to provide free advertising to our
customers. In addition, advertising clients may not advertise on our Websites
or may pay less for advertising if they do not perceive our measurements to
be accurate or reliable.
WE MAY INCUR COSTS IN CONNECTION WITH OUR ARRANGEMENTS WITH ADVERTISERS AND
SPONSORS.
We sell advertising space on our Websites and allow third-parties to
provide sponsored services and placements on our Websites under agreements
with advertisers and sponsors which expose us to potentially significant
financial risks. In connection with these arrangements, we provide, and
sometimes guarantee, a minimum number of times that an advertisement is
displayed or a minimum number of user requests for additional information
made by clicking on the advertisement or promotional hyperlink. We may
receive sponsorship fees as well as a portion of transaction revenues
received by these third-party sponsors from users originated through our
Websites. These sponsorship arrangements expose us to potentially significant
financial risks, including the risk that we may fail to deliver the required
number of advertisement displays or user requests for additional information.
In the event that we fail to deliver these minimums, the parties typically
either decrease the fees payable to us or we provide the sponsorship services
to the sponsor for free for a limited "make good" period. Our contracts with
advertisers and sponsors typically have short terms and are terminable on
relatively short notice. Third-party sponsors may not renew the sponsorship
agreements upon termination. Some of these arrangements also require us to
integrate sponsors' content with our services. We must dedicate resources and
significant programming and design efforts to accomplish this integration. We
may not be able to attract additional sponsors or renew existing sponsorship
agreements when they terminate. In addition, we have granted exclusivity
provisions to some of our sponsors, and may in the future grant additional
exclusivity provisions. These exclusivity provisions may prevent us for the
duration of these exclusivity agreements from accepting advertising or
sponsorship agreements within a particular subject matter in our Websites or
across our entire service network.
WE DEPEND ON THIRD PARTY RELATIONSHIPS FOR DISTRIBUTION AND CONTENT OF OUR
WEBSITES.
We depend on a number of third party relationships to attract users to
our Websites and consequently to generate revenues. We require those
third-parties to provide users with access to our products and services. If
we are unable to attract users to our
Websites, advertising revenues could be impaired, advertisers and sponsors
may terminate their agreements with us, advertisers may not be willing to pay
as much as they currently pay to appear on our network and we may be required
to supply our services under agreements with advertisers for free.
Browser Services Provided by Netscape and Microsoft.
We depend on arrangements relating to the positioning of our products
and services on Web browsers, such as those offered by Netscape and
Microsoft. If a Web browser grants an exclusive arrangement for positioning
on its Web browser to our competitors, then our business may be impaired.
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Although our agreements with each of Microsoft and Netscape may be
terminated only under particular circumstances, if we are unable to continue
as a premier provider for either Microsoft or Netscape, our Websites could
lose a material portion of our users, the level of use on competing services
could substantially increase and our Websites could otherwise become less
attractive to advertisers, resulting in harm to our revenues.
Other Third Party Relationships.
We depend on Website operators that provide links to our Websites or
otherwise use our services to create traffic on these Websites. For certain
elements of our properties, we license technology and related databases from
third parties, including telephone directories, e-mail, chat, street mapping
and other similar services. We believe that certain of our third party
relationships are important to our ability to attract traffic and
advertisers. Any errors, failures or delays experienced in connection with
these third party technologies and information services could alienate our
users and adversely affect our brand and our business. Although we view these
relationships as important, most of our arrangements do not include minimum
commitments to use our services or to provide access or links to our products
or services in the future, are not exclusive and generally have a term of
only one to three years. In addition, our partners may not regard their
relationship with us to be as important to their own respective businesses
and operations. Such partners may reassess their commitment to our products
or services at any time in the future, or may develop their own competitive
products or services. Our existing relationships may not result in sustained
business partnerships, successful product or service offerings or the
generation of significant revenues for us. The failure of one or more of our
partnering relationships to achieve or maintain market acceptance or
commercial success, or the termination of one or more successful partnering
relationships could have a material adverse effect on our business.
Content
We rely on content developed by third parties. We license various
technologies, databases and services, including chat, street mapping, stock
quotes and similar services, from third parties in connection with the
operation of our Websites. We believe that third party content is an
important element in attracting users to our Websites. Failure of these third
party content providers to develop and maintain high quality products and
services could impair our ability to attract users and advertisers.
WE FACE RISKS RELATING TO THE LIQUIDITY OF OUR CUSTOMERS.
The Internet as a commercial endeavor has been in existence for a short
period of time. The costs of establishing a Website are low, and new online
service providers, content providers and advertisers are launched regularly.
Many of our advertisers and electronic commerce sponsors were funded with
venture capital and other forms of financing before they proved to be
successful. Those companies that are unable to prove themselves successful
before they have spent their initial funding may find it difficult or
impossible to secure additional funding and, therefore, difficult to pay
amounts due to us. Our profitability could be decreased if any of our
advertisers or electronic commerce sponsors fail to pay amounts due on a
timely basis.
WE COMPETE WITH A VARIETY OF COMPETITORS BOTH TO ATTRACT INTERNET USERS TO
VISIT OUR WEBSITES AND TO ATTRACT ADVERTISERS AND SPONSORS TO PLACE CONTENT
ON OUR WEBSITES.
The market for Internet products and services, including those which we
offer to Internet users, is highly competitive. We compete with our providers
both to attract Internet users and to attract advertisers and sponsors. A
number of companies offer competitive products in our target markets. For
example, we compete with search program services that allow a user to search
the databases maintained by us and our competitors simultaneously. We also
compete indirectly with database vendors that offer information search and
retrieval capabilities with their core database products. Our community-based
Websites, Tripod and Angelfire.com, compete with other community-based
Websites, including Yahoo!'s Geocities.com.
Additional competition may come from a variety of companies that have
announced their intention to offer services similar to those currently
offered by us. For example, many large media companies have announced that
they are contemplating developing Internet navigation services and are
attempting to become "gateway" or "portal" sites through which users may
enter the Web, similar to the sites maintained by us and our competitors. If
these companies develop these "portal" sites, we could lose a substantial
portion of our users. These competitors could take actions that make it more
difficult for viewers to find and use our products and services.
Additionally, companies may acquire our competitors, as in America Online's
recent acquisition of Netscape, or may enter into joint ventures and/or
licensing arrangements involving our competitors.
A number of companies offering Internet products and services,
including our direct competitors, recently have begun to integrate multiple
features within their products and services, including search and retrieval
features. For example, the web browsers offered by Netscape and Microsoft,
which are the two most widely-used browsers and substantial sources of users
for us, may
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incorporate and promote information search and retrieval capabilities in
future releases or upgrades. This integration of search and retrieval
capabilities could make it more difficult for Internet viewers to find and to
use our products and services.
We also compete with traditional off-line media, including print and
television, for a share of advertising budgets.
If our competitors become more successful than us in attracting users,
then our attractiveness to advertisers will be diminished. We believe that
the principal competitive factors in attracting users include:
o name recognition;
o distribution arrangements;
o performance;
o ease of use;
o a variety of value-added services;
o the ability to continually improve and upgrade products and services; and
o quality of support.
We receive a majority of our revenue from selling advertising space on
our Websites and allowing third parties to provide sponsored services and
placements on our Websites under sponsorship agreements with us. There is
intense competition based on price in the sale of advertising on the Internet
which makes it difficult to project future advertising revenues.
We may not be able to compete successfully against our current or
future competitors. Although we believe that the Internet market will provide
opportunities for more than one supplier of products and services similar to
ours, it is possible that a single supplier may dominate one or more market
segments.
WE ARE UNCERTAIN WHETHER OUR PRODUCTS AND SERVICES WILL BE ACCEPTED BY THE
MARKET.
The market for our products and services has only recently begun to
develop and is rapidly evolving. An increasing number of market entrants have
introduced or developed products and services for use on the Internet. Our
market depends on the increased use of the Internet for information
publication and distribution and for commerce. Additionally, this market
depends on the development of the Internet as an advertising medium. Our
future operating results will depend upon:
o the growth of the Internet advertising and commerce markets;
o the successful implementation of our advertising program; and
o our ability to establish electronic commerce and licensing relationships
and other strategic alliances.
We cannot assure you:
o that the Internet advertising or commerce market will develop as an
attractive and sustainable medium;
o that we will achieve or sustain market acceptance of its products and
services; or
o that we will be able to execute our business plan successfully.
As is typical in the case of a new and rapidly evolving industry, demand and
market acceptance for recently introduced products and services are very
uncertain. The industry is young and has few proven products. Moreover,
critical issues concerning the commercial use of the Internet (including
security, reliability, cost, ease of use and access, quality of service and
acceptance of advertising and electronic commerce) remain unresolved. Such
issues may impact the growth of the Internet, the placement of advertisements
on the Internet or the growth of the Internet as a means of electronic
commerce. Our business would likely be impaired if:
o commercial use of the Internet does not grow;
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o the Internet does not develop as an attractive medium for advertising;
o electronic commerce does not develop; or
o the Internet infrastructure does not effectively support growth that may
occur.
Because the market for our products and services is new and evolving, it is
difficult to predict the size of this market and the growth rate, if any. We
cannot assure you that the market for our products and services will develop
or that there will be a demand for our products or services. Our business may
not be profitable if:
o the market fails to develop;
o the market develops more slowly than expected;
o the market becomes saturated with competitors; or
o our products and services do not achieve or sustain market acceptance.
WE DEPEND ON THE CONTINUED DEVELOPMENT OF THE INTERNET'S INFRASTRUCTURE.
The use of our products and services depends in large part upon the
development by others of an infrastructure for providing Internet access and
services. The Internet may not develop the infrastructure, such as a reliable
network backbone, or high speed modems, necessary to meet demand. Because
global commerce and online exchange of information on the Internet and other
similar open wide-area networks are new and evolving, it is difficult to
predict whether the Internet will prove to be a profitable marketplace. The
Internet may not prove to be a viable commercial marketplace for a number of
reasons, including lack of acceptable security technologies.
In addition, the Internet infrastructure may not continue to be able to
support the demands placed upon it by significant growth in the number of
users and the level of use. The performance or reliability of the Internet
may be reduced by this continued growth. In addition, the Internet could lose
its commercial viability due to delays in the development or adoption of new
standards and protocols (for example, the next generation Internet Protocol)
to handle increased levels of Internet activity. We cannot assure you that
the infrastructure or complementary services necessary to make the Internet a
viable commercial marketplace will be developed. Even if such infrastructure
and services are developed, the Internet may not become a viable commercial
marketplace for products and services such as those offered by us. In
particular, the Internet has only recently become a medium for advertising
and electronic commerce. If the necessary infrastructure or complementary
services or facilities are not developed, or if the Internet does not become
a popular commercial marketplace or a platform for advertising and electronic
commerce, we may not be profitable.
OUR SOFTWARE AND HARDWARE MAY FACE CAPACITY CONSTRAINTS OR SYSTEMS FAILURE.
A key element of our strategy is to generate a high volume of users of
our products and services. Accordingly, the performance of our products and
services and of third party service providers, including Web browsers and
Internet and online service providers, is critical to our reputation, our
ability to attract advertisers to our Websites and the market acceptance of
these products and services. Any system failure that may cause interruptions
in the availability of or increase response time for our products and
services could result in fewer users on our Websites. If such interruptions
or increases are sustained or repeated, they could reduce the attractiveness
of our products and services to advertisers and partners. An increase in the
volume of searches conducted through our products and services could strain
the capacity of the software or hardware we use or the capacity of our
network infrastructure. This strain could lead to slower response time or
system failures. Any failure to expand the capacity of our hardware or
network infrastructure on a timely basis or on commercially reasonable terms
could diminish our business. In addition, as the number of Web pages and
users increases, our products and services may not be able to increase
proportionately.
We are dependent on hardware suppliers for prompt delivery, installation
and service of servers and other equipment and services used to provide its
products and services. Substantially all of our hardware operations are
located at our computer facility in Pittsburgh, Pennsylvania and at the
computer facility sites of Exodus Communications in Santa Clara, California
and Waltham, Massachusetts. We also outsource a portion of our hardware
operations to third parties. A system failure at any of these locations may
harm the performance of our products and services. This system is vulnerable
to damage from fire, floods, earthquakes, power loss, telecommunications
failures, break-ins and similar events. Despite the implementation of network
security measures, our servers are also vulnerable to computer viruses,
break-ins and similar disruptive problems. Computer viruses, break-ins or
other problems caused by third parties
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could lead to interruptions, delays or halts in service to users of our
products and services. The occurrence of any of these risks could harm our
business.
WE NEED TO KEEP PACE WITH TECHNOLOGICAL CHANGE AND NEW PRODUCTS.
The market for Internet products and services is characterized by rapidly
changing technology, evolving industry standards and customer demands, and
frequent new product introductions and enhancements. These market
characteristics are exacerbated by the emerging nature of this market and the
fact that many companies are expected to introduce new competitive Internet
products in the near future. To be successful, we must continually improve
the performance, features and reliability of our search and navigation
services. In addition, a key element of our business strategy is the
development, introduction and integration of new products that capitalize on
the increasing use of the Internet. We cannot assure you that we will be
successful in developing or integrating such products or services or that
such products and services will meet with market acceptance. In addition, new
product releases by us may contain undetected errors that require significant
design modifications, resulting in a loss of customer confidence in our
products and services and, consequently, viewer support, which will diminish
the use of our products and services.
WE FACE RISKS ASSOCIATED WITH BRAND DEVELOPMENT.
We believe that establishing and maintaining the "Lycos Network" brand is
crucial to the continued expansion and attraction of our Internet audience.
We believe that the importance of brand recognition will increase in the
future due to the growing number of Internet sites. Promotion and enhancement
of the "Lycos Network" brand will depend largely on our ability to provide
consistently high-quality products and services. The "Lycos Network" brand
could be impaired if:
o we do not provide consistently high-quality products and services;
o consumers do not believe that our products and services are of high
quality;
o consumers do not use new products and services which we introduce; or
o our new business ventures are not favorably received by consumers.
Any of the above would decrease the attractiveness of our consumers to
advertisers.
WE FACE RISKS ASSOCIATED WITH RECENT ACQUISITIONS AND INVESTMENTS.
We have completed acquisitions of companies, technologies and assets
that complement our business. We may not be able to identify additional suitable
acquisition candidates available for sale at reasonable prices or to complete
any desired acquisitions. In addition, we may not be able to successfully
integrate any or all of the businesses we have recently acquired (including
Wired and Internet Music) into our operations. In connection with future
acquisitions, we may have to:
o issue equity securities, which would decrease the ownership interest of
all our stockholders;
o incur additional debt;
o write-off in-process research and development or software acquisition and
development costs; and/or
o amortize goodwill and other intangible assets.
Acquisitions involve numerous additional risks, including difficulties
in the assimilation of the operations, services, products and personnel of the
acquired company. Our systems, procedures or controls may not be able to support
increased operations resulting from acquisitions. In addition, acquisitions
divert management's attention from other business concerns. We also encounter
risks by entering markets in which we have little or no experience. Problems
with an acquired business could impair our performance. We have, in general,
made investments in companies involved in the development of technologies or
services that are complementary or related to our operations. We may make such
investments in the future. In addition, we invested in companies that are in an
early stage of development and may be expected to incur substantial losses. We
cannot assure you that any investments in such companies will result in any
return, nor can there be any assurance as to the timing of any such return. We
may lose our entire investment.
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WE FACE RISKS ASSOCIATED WITH LITIGATION
We are subject to several purported class action lawsuits. The
complaints allege, among other claims, violations of the United States federal
securities law through alleged misrepresentations relating to our agreement to
enter into an announced transaction with USA Networks, Inc. and certain
affiliated companies. Each complaint seeks an unspecified award of damages. For
a more detailed description of these suits, we recommend you review Lycos'
quarterly report on Form 10-Q for the quarter ended April 30, 1999.
WE FACE RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION.
International sales, primarily from licensing our products and
services, accounted for less than 10% of our revenues for the fiscal year ended
July 31, 1998 and less than 10% of our revenues for the fiscal year ended July
31, 1999. As part of our business strategy, we plan to expand our products and
services into international markets. Most recently, we have expanded our search
services by entering into a joint venture with Mirae in Korea. In marketing our
products and services internationally, however, we will face new competitors. In
addition, international markets will require us to create localized versions of
our products and services. We cannot assure you that we will be successful in
creating localized versions of its products and services or marketing or
distributing our products abroad. Even if we are successful, our international
revenues may not offset the expense of establishing and maintaining
international operations. To date, we have limited experience in marketing and
distributing our products internationally. Additional difficulties and risks
inherent in doing business on an international level include:
o export controls relating to technology, tariffs and other trade barriers;
o protection of intellectual property rights;
o political instability; and
o fluctuations in currency exchange rates.
WE ARE DEPENDENT ON INTELLECTUAL PROPERTY AND OUR METHODS OF PROTECTING OUR
INTELLECTUAL PROPERTY MAY NOT BE ADEQUATE.
Our success depends significantly upon our proprietary technology. If
we are unable to use our technology and to keep others from using it, then we
may not be profitable. We currently rely on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect our proprietary rights. We have registered and applied for
registration of certain service marks and trademarks, and will continue to
evaluate the registration of additional service marks and trademarks, as
appropriate. In addition, Carnegie Mellon University has licensed a patent
issued in the United States relating to our search and indexing technology to us
on a perpetual basis. Other parties may challenge this patent. If such
challenges are brought, the patent may be invalidated. We also cannot assure you
that we will develop proprietary products or technologies that are patentable,
that any issued patent will provide us with any competitive advantages or will
not be challenged by third parties, or that the patents of others will not have
a material adverse effect on our ability to do business. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects
of our products or services or to obtain and use information that we regard as
proprietary. The laws of some foreign countries do not protect proprietary
rights to as great an extent as do the laws of the United States. We do not
currently have any patents or patent applications pending in any foreign
country. Our means of protecting our proprietary rights may not be adequate.
Additionally, our competitors may independently develop similar technology,
duplicate our products or design around our intellectual property rights.
WE MAY BECOME INVOLVED IN INTELLECTUAL PROPERTY LITIGATION WHICH COULD IMPAIR
OUR ABILITY TO CONDUCT OUR BUSINESS.
There have been substantial amounts of litigation in the computer
industry regarding intellectual property rights. We may become involved in
claims and counterclaims with third parties regarding infringement with respect
to current or future products or trademarks or other proprietary rights. Any
such claims or counterclaims could impair our business because they could:
o be time-consuming;
o result in costly litigation;
o divert management's attention;
o cause product release delays; or
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o require us to redesign our products or require us to enter into royalty or
licensing agreements.
INTERNET SECURITY CONCERNS COULD HINDER COMMERCIAL TRANSACTIONS CONDUCTED
OVER THE INTERNET.
The need to transmit confidential information over the Internet has been
a significant barrier to commercial transactions conducted over the Internet
and communications over the Web. Any well-publicized compromise of security
could deter more people from using the Web or from using it to conduct
transactions that involve transmitting confidential information, like stock
trades or purchases of goods or services. Because many of our advertisers
seek to advertise on our Websites to encourage people to use the Web to
purchase goods or services, our business could be adversely affected by
security violations of our Websites or our commerce partners' Websites. We
may also incur significant costs to protect against the threat of security
violations or to alleviate problems caused by these violations.
WE ARE SUBJECT TO CONCERNS REGARDING PRIVACY OF PERSONAL INFORMATION ABOUT
USERS OF OUR PRODUCTS AND SERVICES.
We maintain a privacy policy with respect to our Websites. Our policy is
not to disclose willfully any individually identifiable information about any
user of our products or services to a third party without the user's consent.
This policy and user choices regarding the dissemination of personal
information collected on our Websites, which may include personal
identification information, demographic profile data, user preferences and
Website behavioral data, are accessible to users of our personalized services
when they initially register. Despite this policy, however, if third persons
were able to penetrate our network security or otherwise misappropriate
users' personal information, we could be subject to liability claims. These
could include claims for unauthorized purchases, impersonation or other
similar fraud claims, as well as claims for other misuses of personal
information, for example for unauthorized marketing purposes. These claims
could result in litigation. In addition, the Federal Trade Commission and
several states have been investigating some Internet companies regarding
their use of personal information, and we could incur additional expenses if
new regulations regarding the use of personal information are introduced or
if they chose to investigate our privacy practices.
WE MAY FACE POTENTIAL GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES WHICH
MAY IMPAIR OUR BUSINESS.
We are not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally. There are
currently few laws or regulations directly applicable to access to or
commerce on the Web. However, due to the increasing popularity and use of the
Web, it is possible that a number of laws and regulations may be adopted with
respect to issues such as user privacy, pricing and characteristics and
quality of products and services. The adoption of laws or regulations may
decrease the growth of the Web. Any such decrease could in turn decrease the
demand for our services and products or increase our cost of doing business.
Due to the global nature of the Web, it is possible that, although
transmission of our services originate from our operations centers in New
Jersey, Pennsylvania, California and Massachusetts, the governments of other
states and foreign countries may attempt to regulate our transmissions or to
prosecute us for violations of their laws. Violations of local laws may be
alleged or charged by state or foreign governments. We may unintentionally
violate such laws and such laws may be modified or new laws enacted in the
future. It is also possible that states or foreign countries may seek to
impose sales taxes on out of state companies that engage in commerce over the
Internet. In the event that states or foreign countries succeed in imposing
sales or other taxes on Internet commerce, the growth of the use of the
Internet for commerce could slow substantially.
WE MAY BE LIABLE FOR INFORMATION RETRIEVED FROM THE INTERNET.
Because material may be downloaded by the online or Internet services
operated or facilitated by either us or the Internet access providers with
which we have relationships, and be subsequently distributed to others, it is
possible that claims will be made against us on the basis of defamation,
negligence, copyright or trademark infringement or other theories based on
the nature and content of such materials. Such claims could be based on us
providing access to obscene, lascivious or indecent information. Although we
carry insurance, our insurance may not cover potential claims of this type,
or may not be adequate to indemnify us for all types of liability that may be
imposed. Any imposition of liability that is not covered by insurance or is
in excess of insurance coverage could impair our business.
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<PAGE>
WE NEED TO MANAGE OUR GROWTH BY IMPLEMENTING THE PROPER INFRASTRUCTURE.
Rapid execution is necessary for us to successfully offer our products
and services and implement our business plan in a rapidly evolving market.
Such execution requires an effective planning and management process. Our
rapid growth strains our managerial and operational resources. To manage this
growth, we must continue to implement and improve our operational and
financial systems. Additionally, we must expand, train and manage our
employee base. Further, we will be required to manage multiple relationships
with various customers and other third parties. We cannot assure you that it
has made adequate allowances for the costs and risks associated with this
expansion and transition. Our systems, procedures or controls may not be
adequate to support our operations. Our management may not achieve the rapid
execution necessary to offer successfully our products and services and to
implement our business plan. Our future operating results will also depend on
factors, such as the ability to expand our advertising sales and business
development organizations and to expand our support organization along with
the growth of our business. If we are unable to manage growth effectively,
then our business could be materially adversely affected.
WE ARE DEPENDANT ON KEY PERSONNEL.
Our performance is substantially dependent on the performance of our
executive officers and key employees, most of whom have worked together for
only a short period of time. We do not have in place key person life
insurance policies on any of our employees. The loss of the services of any
of our executive officers or other key employees could impair our business
and prospects. We depend upon our ability to attract, retain and motivate
skilled technical and managerial personnel. Our future success also depends
on our continuing ability to identify, hire, train and retain other highly
qualified technical and managerial personnel. Competition for such personnel
is intense, and we may not be able to attract, hire, assimilate or retain
other highly qualified technical and managerial personnel in the future.
OUR SYSTEMS MAY EXPERIENCE DIFFICULTIES RELATED TO YEAR 2000 PROBLEMS.
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field and cannot
distinguish 21st century dates from 20th century dates. These date code
fields will need to distinguish 21st century dates from 20th century dates
and, as a result, many companies' software and computer systems may need to
be upgraded or replaced in order to comply with such "Year 2000"
requirements.
We have evaluated the Year 2000 readiness of our hardware and software
products, the information technology systems used in our operations and other
related systems such as building security and voice mail. Our evaluation
covered the following phases: (i) identification of all hardware and software
products and information technology systems, (ii) assessment of repair or
replacement requirements; (iii) repair or replacement; (iv) testing; (v)
implementation; and (vi) creation of contingency plans in the event of Year
2000 failures. The initial evaluation was completed in 1998. Based on this
evaluation and subsequent, ongoing third party review of our systems, we
believe we are Year 2000 compliant.
However, the assessment of whether a complete system or device in which a
product is embedded will operate correctly for an end-user depends in large
part on the Year 2000 compliance of the product or system's other components,
many of which are supplied by other third parties. The supplier of our
current financial and accounting software has informed us that their software
is Year 2000 compliant. Further, we rely both domestically and
internationally upon various vendors, governmental agencies, utility
companies, telecommunications service companies, delivery service companies
and other service providers who are outside of our control. We cannot assure
you that these parties will not suffer a Year 2000 business disruption, which
could have a material adverse effect on our financial condition and results
of operations.
To date, we have incurred expenditures totaling approximately $300,000 in
connection with identifying and evaluating Year 2000 compliance issues.
We have not developed a Year 2000-specific contingency plan. If Year 2000
compliance issues are discovered, we then will evaluate the need for
contingency plans relating to such issues.
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<PAGE>
USE OF PROCEEDS
Lycos will not receive any of the proceeds from the sale of these shares
of common stock. All proceeds from the sale of these shares of common stock
will be for the account of the Selling Stockholders, as described below. See
"Selling Stockholders" and "Plan of Distribution" described below.
SELLING STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus, the
name of each of the Selling Stockholders, the number of shares that each such
Selling Stockholder owns as of such date, the number of shares owned by each
Selling Stockholder that may be offered for sale from time to time by this
Prospectus, and the number of shares to be held by each such Selling
Stockholder assuming the sale of all of the shares offered hereby. Except as
indicated, none of the Selling Stockholders has held any position or office
(other than a non-officer employment relationship) or had a material
relationship with Lycos or any of its affiliates within the past three years
other than as a result of the ownership of Lycos' common stock. Lycos may
amend or supplement this Prospectus from time to time to update the
disclosure set forth herein.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED(1)(2)(3) SHARES WHICH OWNED AFTER
PRIOR TO OFFERING MAY BE SOLD OFFERING(1)(2)(3)(4)
---------------- PURSUANT TO ----------------
SELLING STOCKHOLDER NUMBER PERCENT THIS PROSPECTUS NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
Al-Riaz Adatia.............................. 313,189 * 313,189 -- *
Michael Downing............................. 39,658 * 39,658 -- *
Global Asset Capital, LLC................... 60,679 * 60,679 -- *
Pol Llovet.................................. 11,715 * 11,715 -- *
Ian Lyman................................... 112,435 * 112,435 -- *
Andrew McCann............................... 112,460 * 112,460 -- *
Tony Million................................ 33,591 * 33,591 -- *
MR2V, LLC................................... 11,032 * 11,032 -- *
Perkins Coie LLP............................ 8,803 * 8,803 -- *
Tina Sabich................................. 22,396 * 22,396 -- *
David Touve................................. 5,516 * 5,516 -- *
Riaz Valani (5)............................. 324,379 * 324,379 -- *
Tabreez Verjee (6).......................... 160,302 * 160,302 -- *
Nicholas Vinen.............................. 11,297 * 11,297 -- *
</TABLE>
* Less than 1.0%.
(1) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as
amended, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rule, beneficial
ownership includes any shares as to which the individual has sole or
shared voting power or investment power and also any shares which the
individual has the right to acquire within sixty (60) days of the date
of this Prospectus through the exercise of any stock option or other
right. Unless otherwise indicated in the footnotes, each person
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<PAGE>
has sole voting and investment power (or shares such powers with his or
her spouse) with respect to the shares shown as beneficially owned.
(2) Includes an aggregate of 436,887 shares of Common Stock beneficially
owned by the Selling Stockholders that have been deposited in escrow
funds pursuant to the Merger Agreement to secure the respective
indemnification obligations of the Selling Stockholders thereunder.
These escrowed shares will be fully released from escrow on July 27,
2000 only to the extent that no claims have been made against the
escrowed shares. The escrowed shares may not be sold by the Selling
Stockholders prior to July 27, 2000.
(3) Includes an aggregate of 436,887 shares of Common Stock beneficially
owned by the Selling Stockholders that have been deposited in escrow
with the Company and are subject to forfeiture upon the occurrence of
certain events.
(4) Assumes that each Selling Stockholder will sell all of the shares set
forth above under "Shares Which May Be Sold Pursuant to This
Prospectus." There can be no assurance that the Selling Stockholders
will sell all or any of the shares offered hereunder.
(5) Includes 60,679 shares of Common Stock owned by Global Asset Capital,
LLC, which Mr. Valani may be deemed to own beneficially by virtue of
his position as a Principal of Global Asset Capital, LLC. Mr. Valani
maintains his principal business address at 101 California Street
#3050, San Francisco, California 94111.
(6) Includes 60,679 shares of Common Stock owned by Global Asset Capital,
LLC, which Mr. Verjee may be deemed to own beneficially by virtue of
his position as a Principal of Global Asset Capital, LLC. Mr. Verjee
maintains his principal business address at 101 California Street
#3050, San Francisco, California 94111.
PLAN OF DISTRIBUTION
The shares of common stock covered by this Prospectus may be offered
and sold from time to time by the Selling Stockholders, including donees,
transferees, pledgees or other successors in interest that receive such
shares as a gift, partnership distribution or other non-sale related
transfer. The Selling Stockholders will act independently of us in making
decisions with respect to the timing, manner and size of each sale. The
Selling Stockholders may sell the shares being offered hereby on the Nasdaq
National Market, or otherwise, at prices and under terms then prevailing or
at prices related to the then current market price or at negotiated prices.
The shares may be sold by one or more of the following means of distribution:
(a) a block trade in which the broker-dealer so engaged will attempt to sell
shares as agent, but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker-dealer as
principal and resale by such broker-dealer for its own account pursuant to
this Prospectus; (c) an over-the-counter distribution in accordance with the
rules of the Nasdaq National Market; (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (e) in privately
negotiated transactions. To the extent required, this Prospectus may be
amended and supplemented from time to time to describe a specific plan of
distribution. In connection with distributions of the shares or otherwise,
the Selling Stockholders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with such
transactions, broker-dealers or other financial institutions may engage in
short sales of our common stock in the course of hedging the positions they
assume with the Selling Stockholders. The Selling Stockholders may also sell
our common stock short and redeliver the shares to close out such short
positions. The Selling Stockholders may also enter into option or other
transactions with broker-dealers or other financial institutions which
require the delivery to such broker-dealer or other financial institution of
shares offered hereby, which Shares such broker-dealer or other financial
institution may resell pursuant to this Prospectus (as supplemented or
amended to reflect such transaction). The Selling Stockholders may also
pledge shares to a broker-dealer or other financial institution, and, upon a
default, such broker-dealer or other financial institution, may effect sales
of the pledged shares pursuant to this Prospectus (as supplemented or amended
to reflect such transaction). In addition, any shares that qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
Prospectus.
In effecting sales, brokers, dealers or agents engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate.
Brokers, dealers or agents may receive commissions, discounts or concessions
from the Selling Stockholders in amounts to be negotiated prior to the sale.
Such brokers or dealers and any other participating brokers or dealers may be
deemed to be "underwriters" within the meaning of the Securities Act in
connection with such sales, and any such commissions, discounts or
concessions may be deemed to be underwriting discounts or commissions under
the Securities Act. The Company will pay all expenses incident to the
offering and sale of the shares to the public other than any commissions and
discounts of underwriters, dealers or agents and any transfer taxes.
In order to comply with the securities laws of certain states, if
applicable, the shares must be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been
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<PAGE>
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied
with.
We have advised the Selling Stockholders that the anti-manipulation
rules of Regulation M under the Securities Exchange Act of 1934 may apply to
sales of shares in the market and to the activities of the Selling
Stockholders and their affiliates. In addition, Lycos will make copies of
this Prospectus available to the Selling Stockholders and has informed them
of the need for delivery of copies of this Prospectus to purchasers at or
prior to the time of any sale of the shares offered hereby. The Selling
Stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
At the time a particular offer of shares is made, if required, a
Prospectus Supplement will be distributed that will set forth the number of
shares being offered and the terms of the offering, including the name of any
underwriter, dealer or agent, the purchase price paid by any underwriter, any
discount, commission and other item constituting compensation, any discount,
commission or concession allowed or reallowed or paid to any dealer, and the
proposed selling price to the public. There can be no assurance that the
Selling Stockholders will sell all or any of the shares.
We have agreed with the Selling Stockholders to keep the Registration
Statement of which this Prospectus constitutes a part effective until the
first to occur of (i) the date the distribution described in the Registration
Statement is complete and (ii) the first anniversary of the closing of the
acquisition of Internet Music. Lycos intends to de-register any of the shares
not sold by the Selling Stockholders at the end of such one year period;
however, it is anticipated that at such time any unsold shares may be freely
tradeable subject to compliance with Rule 144 of the Securities Act.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon by
Hutchins, Wheeler & Dittmar, A Professional Corporation, Boston,
Massachusetts, counsel to Lycos.
EXPERTS
The (i) consolidated financial statements of Lycos, Inc. at July 31,
1998, 1997 and 1996 and for each of the years in the three year period ended
July 31, 1998 and for the period from inception (June 1, 1995) to July 31,
1995, incorporated in this Prospectus by reference to the Company's Annual
Report on Form 10-K/A for the year ended July 31, 1998, (ii) the consolidated
balance sheets of Wired Ventures, Inc. and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statement of operations and
comprehensive income (loss), minority interest and stockholders' (deficit)
equity and cash flows for each of the years in the three-year period ended
December 31, 1998, which report appears in the Form 8-K of Lycos dated July
15, 1999, and (iii) the financial statements of Tripod, Inc. at October 31,
1997 and December 31, 1996 and for the ten months ended October 31, 1997 and
the year ended December 31, 1996, incorporated in this Prospectus by
reference to the Company's Current Report on Form 8-K/A dated February 2,
1999, have been audited by KPMG LLP, independent auditors, as set forth in
their reports thereon included therein, and are incorporated herein by
reference in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The balance sheets of WiseWire as of May 31, 1997 and 1996 and the
statements of operations, stockholders' equity and cash flows for the year
ended May 31, 1997 and for the period from June 9, 1995 (inception) through
May 31, 1996, incorporated in this Prospectus by reference to the Company's
Current Report on Form 8-K/A dated February 2, 1999, have been audited by
Coopers & Lybrand L.L.P., independent public accountants, as stated in their
report thereon, which included an explanatory paragraph concerning WiseWire's
ability to continue as a going concern, and are incorporated herein by
reference in reliance upon such report given on the authority of that firm as
experts in accounting and auditing.
The financial statements of WhoWhere?, Inc. at December 31, 1997 and
1996 and for the period from inception (May 10, 1995) to December 31, 1995
and for each of the two years in the period ended December 31, 1997,
incorporated in this Prospectus by reference to the Company's Current Report
on Form 8-K/A dated October 27, 1998, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein,
and are incorporated herein by reference in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Lycos files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements
or other information Lycos files at the SEC's public reference rooms in
Washington, D.C., New York, New York
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<PAGE>
and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Lycos' SEC filings are also
available to the public from commercial document retrieval services and at
the Website maintained by the SEC at www.sec.gov.
Lycos has filed a registration statement to register with the SEC the
Lycos common stock listed in this Prospectus. This Prospectus is part of that
registration statement. As allowed by SEC rules, this Prospectus does not
contain all of the information you can find in the registration statement or
the exhibits to the registration statement.
Some of the important business and financial information that you may
want to consider is not included in this Prospectus, but rather is
"incorporated by reference" to documents that have been filed by Lycos with
the SEC. The information that is incorporated by reference consists of:
o Lycos' Annual Report on Form 10-K , for the fiscal year ended July
31, 1998, as filed on October 29, 1998; and on Form 10-K/A, for the
fiscal year ended July 31, 1998, filed on February 2, 1999 and April
16, 1999;
o Lycos' Quarterly Reports on Form 10-Q for the quarters ended October
31, 1998; January 31, 1999; and April 30, 1999;
o Lycos' Current Reports on Form 8-K filed on February 11, 1999;
February 26, 1999; May 14, 1999; July 15, 1999 and August 6, 1999, and
on Form 8-K/A filed on February 2, 1999;
o The description of Lycos' common stock contained in its Registration
Statement on Form 8-A, filed with the SEC on February 23, 1996; and
o All documents filed by Lycos under the Securities Exchange Act of
1934 (e.g., Forms 10-Q and 8-K) after the date of this Prospectus and
prior to the termination of this offering.
If there is any contrary information in a previously filed document that is
incorporated by reference, then you should rely on the information in this
Prospectus.
If you are a stockholder, you can obtain any of the documents
incorporated by reference through Lycos or the SEC. Documents incorporated by
reference are available from Lycos without charge, excluding all exhibits. You
may obtain documents incorporated by reference in this Prospectus by requesting
them in writing to the following address or by telephone:
Lycos, Inc.
Attention: Investor Relations
400-2 Totten Pond Road
Waltham, Massachusetts 02451
(718) 370-2700
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