As filed with the Securities and
Exchange Commission on
January 4, 2000.
Registration No. 333-
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------------
LYCOS, INC.
(Exact name of registrant as specified in its charter)
--------------------------------------
DELAWARE 04-3277338
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
--------------------------------------
400-2 TOTTEN POND ROAD,
WALTHAM, MASSACHUSETTS 02451
(781) 370-2700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------------------------
ROBERT J. DAVIS
LYCOS, INC.
400-2 TOTTEN POND ROAD
WALTHAM, MASSACHUSETTS 02451
(781) 370-2700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------------------
COPY TO:
ROBERT A. KINDLER, ESQ.
CRAVATH, SWAINE & MOORE
WORLDWIDE PLAZA
825 EIGHTH AVENUE
NEW YORK, NY 10019
(212) 474-1640
--------------------------------------
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest investment plans, check the following box. [X]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities to be Amount to be Offering Price Per Aggregate Offering Registration
Registered Registered Share (1) Price(1) Fee(2)
- ---------------------------------------- ------------------------ ---------------------- ---------------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, par value .01 per share 3,605,044 $81.69 $294,496,044 $77,747
======================================== ======================== ====================== ====================== ================
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee, based
upon the average of the high and low prices of the Lycos' common stock as
reported on the Nasdaq National Market on December 29, 1999 in accordance
with Rule 457 under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF
<PAGE>
2
1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
- -------------------------------------------------------------------------------
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
Securities and Exchange Commission is effective. The prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
- -------------------------------------------------------------------------------
PROSPECTUS SUBJECT TO COMPLETION,
DATED JANUARY 4, 2000
-----------------------------------------
3,605,044 SHARES
LYCOS, INC.
COMMON STOCK
This prospectus relates to the public offering, which is not being
underwritten, of up to 3,605,044 shares of common stock, par value $0.01 per
share, of Lycos, Inc., which may be offered from time to time by stockholders
of Lycos or by donees, transferees or other successors in interest that
receive Lycos' shares as a gift or other non-sale related transfer. Lycos will
receive no part of the proceeds of such sales. The shares of Lycos common
stock described above were originally issued or reserved for issuance by Lycos
in connection with the acquisition by Lycos of Gamesville.com, Inc., a
Delaware corporation, pursuant to the Agreement and Plan of Merger dated as of
November 22, 1999 among Lycos, Barbados Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Lycos, and Gamesville.com. The
shares were issued pursuant to an exemption from the registration requirements
of the Securities Act of 1933 provided in Section 4(2) of the Securities Act.
The Shares are being registered pursuant to the Registration Rights Agreement
dated as of November 22, 1999 among Lycos and the selling stockholders
described below.
These shares may be offered by stockholders of Lycos from time to
time in one or more transactions as described under the "Plan of
Distribution". To the extent required, the number of shares to be sold, the
name of any selling stockholder(s), the purchase price, the name of any agent
or broker-dealer and any applicable commissions, discounts or other items
constituting compensation to such agent or broker-dealer with respect to a
particular offering will be set forth in a supplement or supplements to this
prospectus. The aggregate proceeds to any selling stockholder(s) from the sale
of the shares offered from time to time will be the purchase price of the
shares sold less commissions, discounts and other compensation, if any, paid
by such selling stockholder(s) to any agent or broker-dealer. The price at
which any of the shares may be sold, and the commissions, if any paid, in
connection with any sale, are unknown and may vary from transaction to
transaction. Lycos 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. See "Selling
Stockholder" and "Plan of Distribution."
Lycos' common stock is listed on the Nasdaq National Market under
the symbol "LCOS." On December 29, 1999, the last sale price of Lycos' common
stock was $84.75 per share.
------------------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. FOR MORE INFORMATION,
SEE "RISK FACTORS" ON PAGE 5.
The Securities and Exchange Commission may take the view that, under
certain circumstances, Lycos' stockholders and any broker-dealers or agents
that participate with such stockholders in the distribution of these
registered shares may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933. Commissions, discounts or concessions received by any
such broker-dealer or agent may be deemed to be underwriting commissions under
the Securities Act of 1933.
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 date of this prospectus is January [ ], 2000
<PAGE>
3
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 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, 1999, as filed on October 29, 1999;
o Lycos' Quarterly Report on Form 10-Q, for the quarter ended October
31, 1999, as filed on December 15, 1999;
o Lycos' Current Reports on Form 8-K filed on August 6, 1999 (as
amended on October 7, 1999), September 16, 1999 and December 21,
1999 (as amended on December 22, 1999 and January 4, 2000);
o The description of Lycos' common stock contained in its registration
statement on Form 8-A, filed with the SEC on February 23, 1996;
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
<PAGE>
4
THE COMPANY
Lycos is a global media company operating one of the Internet's
leading networks of separately branded websites. The Lycos Network is one of
the most visited online destinations in the world, attracting nearly one of
every two U.S. Internet users in November 1999. According to a Media Metrix
report, the Lycos Network of branded websites included four of the 20 most
popular U.S. sites on the Internet, and had over 29 million unique users in
November 1999. The Lycos Network enables users to quickly access and retrieve
information, communicate with other Internet users, easily establish online
communities and engage in commerce. Our popular websites provide a broad
offering of integrated content and services, attracting users into the Lycos
Network through multiple points of entry and creating a large and diverse
audience. While users typically access the Lycos Network for specific content
through one of our branded sites, they are encouraged to remain in the Lycos
Network by the breadth of our product offerings, and the easy navigation
possible amongst our sites.
We derive our revenues primarily from online advertising and
e-commerce. Demand for online advertising is expected to grow significantly in
the future. According to Forester Research, the market for online advertising
is expected to grow from $3.3 billion in 1999 to $33.1 billion by 2004. We
believe that we are well positioned to serve this market as the Lycos Network
provides advertisers a large and diverse audience and the ability to segment
and target that audience. The wide variety of content and services available
on the Lycos Network enables advertisers to focus their promotional efforts on
the Lycos Network sites most relevant to their product or service offerings.
The Lycos Network has attracted a wide variety of advertisers, including Dell,
Intel, Motorola, Johnson & Johnson, Macy's, OfficeMax and Sears.
The electronic commerce, or e-commerce, market is also projected to
experience significant growth. International Data Corporation projects that
e-commerce revenues will grow from $50.4 billion in 1998 to $1.3 trillion by
2003. We generate e-commerce revenue through two principal means. We integrate
product and service offerings from merchant partners directly into our search,
directory and community offerings on a topical basis. In addition, in October
1999, we launched our online marketplace, LYCOShop, providing users with a
seamless e-commerce experience that incorporates products from over 2,000
retailers, as well as classified advertising and auctions.
We expect that international users will become a substantial part of
the Internet user base in the future. According to International Data
Corporation, Web users outside th U.S. will increase from 79.4 million in 1998
to 325.5 million in 2003. We have broadened our offerings outside of the U.S.
by expanding into Latin America and by partnering with local media and
technology companies in Asia and Europe. We currently offer country-specific
versions of our Lycos search and navigation service and other selected network
services in Argentina, Belgium, Brazil, Chile, Denmark, France, Germany,
Ireland, Italy, Japan, Mexico, The Netherlands, Norway, Peru, Singapore, South
Korea, Spain, Sweden, Switzerland, the United Kingdom and Venezuela.
Our Strategy
Our goal is to be the most visited and utilized global online
destination. The essential elements of our strategy are to:
o expand the reach of the Lycos Network;
o increase the frequency and duration of user visits to the Lycos
Network;
o continue to provide comprehensive advertising solutions;
o provide a compelling e-commerce platform; and
o expand the global presence of the Lycos Network.
Recent Developments
As part of our strategy to continue to expand our product and service
offerings and audience reach, in December 1999, we completed the acquisitions
of Quote.com and Gamesville.com.
o Quote.com is a leading online provider of financial content and tools
to independent investors, including stock quotes, news and research
information. With this acquisition, Lycos advanced its presence in
the online financial industry, bringing an added dimension to the
Lycos user experience and a new branded point of entry into the Lycos
Network.
o Gamesville.com is a leading online gaming site that is now the
featured product offering on the Lycos Games WebGuide.
Gamesville.com's approach to interactive gaming allows thousands of
registered contestants to compete for cash and other prizes in live
card games, trivia quizzes and other traditional games such as bingo.
According to Media Metrix, in November 1999, the Gamesville.com site
ranked third among the top 500 U.S. websites based on average duration
per visit of approximately 15 minutes.
We were incorporated in Delaware in June 1995. Our principal executive
offices are located at 400-2 Totten Pond Road, Waltham, Massachusetts 02451,
and our telephone number is (781) 370-2700. We maintain a site on the Web at
www.lycos.com; however, the information found on our website is not part of
this prospectus.
<PAGE>
5
RISK FACTORS
The following risk factors should be considered in conjunction with
the other information included and incorporated by reference in this
prospectus before purchasing our common stock.
Our limited operating history makes it difficult to predict our performance.
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. We generated revenues of $56.0 million for the fiscal quarter ended
October 31, 1999. Due to our limited operating history, you should not take
the recent revenue growth as indicative of the rate of revenue 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, which
include:
o the ability to continue to develop and extend the Lycos brand;
o the ability to maintain and increase levels of traffic on our
websites;
o the ability to maintain a premier position on the America
Online/Netscape Web browser or to enter into additional distribution
relationships and strategic alliances;
o the ability to continue to develop or acquire content, features and
functionality for our services;
o the development of equal or superior services or products by
competitors;
o the failure of the market to adopt the Internet as an advertising or
commercial medium;
o the reduction in market prices for Internet-based advertising as a
result of competition or otherwise;
o the ability to effectively generate commerce-related revenues
through sponsored services and placements in our services; and
o the success in attracting, retaining and motivating qualified
personnel.
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 increase our losses.
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 October 31, 1999, we had an accumulated
deficit of $119.8 million. We reported a loss of $0.46 per share for the year
ended July 31, 1998 and a loss of $0.60 per share for the year ended July 31,
1999. We reported a loss per share of $0.29 for the fiscal quarter ended
October 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 periods.
<PAGE>
6
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 our 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.
Also, the stock market in general, and the market prices for
Internet-related companies in particular, have experienced extreme volatility
that often has been unrelated to the operating performance of these 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.
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 Web pages. For the fiscal year ended July 31, 1999,
advertising revenues represented approximately 69% of our total revenues and
for the fiscal quarter ended October 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, Internet
users may purchase "filter" software programs that limit or remove advertising
from the 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 with demographic characteristics attractive to
advertisers. Additionally, we may be required to expand our advertising sales
force, which would increase our costs.
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, high-traffic websites such as ours is an increasingly
important and complex task, and currently available software programs and
other tracking 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, we could be
unable to deliver banner advertisements and sponsorships through our 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 is
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. If we fail
to deliver these minimums, the fees payable to us may decline or we may be
required to provide 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
decide not to renew the sponsorship agreements upon expiration. Some of these
arrangements also require us
<PAGE>
7
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 on 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 the Lycos Network and we may be required to supply our services under
agreements with advertisers for free.
Browser services provided by AOL/Netscape.
We depend on our arrangement with AOL/Netscape relating to the
positioning of our products and services on the Netscape Web browser to create
traffic on our websites and consequently to generate revenues. If AOL/Netscape
or any other Web browser grants an exclusive arrangement for positioning on
its Web browser to our competitors, then our business may be impaired. In
addition, users have experienced difficulties due to browser failures
unrelated to our systems, products and services.
Although our agreements with AOL/Netscape may be terminated only
under particular circumstances, if we are unable to continue as a preferred
provider for AOL/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 become less attractive to advertisers, reducing 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. We license
some technology and related databases from third parties, including search,
telephone directories, chat, street mapping and other similar services. We
believe that many 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 Lycos' 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. Our 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. 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 collaborative
relationships, could adversely impact our ability to conduct our business.
Content.
We rely on content developed by third parties. 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 or our inability to enter into agreements
allowing our users to access this content could impair our ability to attract
users and advertisers.
We face risks relating to our customers' liquidity.
The Internet as a commercial endeavor has been in existence for a
relatively 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 losses could increase if any of our advertisers or
electronic commerce sponsors fails to pay amounts due on a timely basis.
<PAGE>
8
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 other
providers both to attract Internet users and to attract advertisers and
sponsors. 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.
Additional competition may come from a variety of companies that
have begun to offer or have announced their intention to offer services
similar to those currently offered by us. For example, many large media
companies have developed or acquired Internet navigation services and are
attempting to become "gateway" or "portal" sites through which users may
access the Internet, similar to the sites maintained by us and our
competitors. These entities may be able to utilize their substantial financial
resources and access to traditional media outlets to promote their competitive
businesses and access a substantial user base. Additionally, companies with
greater financial resources may acquire our competitors 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 browser offered by AOL/Netscape, which is a
substantial source of users for us, may 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 quality of content and commerce offerings;
o site performance;
o ease of use;
o features; 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,
and we may not be able to compete successfully against our current or future
competitors.
We may be subject to risks associated with e-commerce.
We believe that the portion of our business dedicated to e-commerce
will play a significant role in our future financial growth and development.
In order to support our electronic commerce initiative, we must rely on our
third party suppliers. The failure of our third party suppliers to provide
quality service to users of our websites, to deliver to our users on a timely
basis the products purchased on our websites, or to deliver satisfactory
products may result in user dissatisfaction, which may, in turn, cause users
to stop visiting our websites or using our services. In addition, to the
extent that we are an intermediary in electronic commerce transactions, it is
possible that users may involve us in claims associated with the sale of
goods, including claims relating to product liability and consumer protection.
In addition, we may suffer losses as a result of orders placed with fraudulent
credit card data, even though the consumer's payment for these orders has been
authorized by the associated financial institution.
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:
<PAGE>
9
o the growth of Internet advertising and commerce markets;
o the successful implementation of our advertising programs; and
o our ability to establish electronic commerce and licensing
relationships and other strategic alliances.
We cannot assure you that:
o the Internet advertising or commerce market will develop as an
attractive and sustainable medium;
o we will achieve or sustain market acceptance of our products
and services; or
o 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 Internet industry is young and has few proven products. In
addition, the current Internet infrastructure may not effectively support the
growth, if any, that may occur in the use of the Web. 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. These critical
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 systems may fail to function or may not have adequate capacity, which
could impair our ability to attract advertisers and users.
The satisfactory performance, reliability and availability of our
services and our network infrastructure are critical to attracting Internet
users and maintaining relationships with business customers and consumers.
System interruptions that result in the unavailability of sites or slower
response times for consumers would reduce the number of advertisements
purchased and reduce the attractiveness of our online services to business
customers and consumers. Any increase in system interruptions or slower
response times could adversely impact our ability to conduct our business. We
have experienced system interruptions in the past, and interruptions are
expected to occur from time to time in the future.
We are dependent on hardware suppliers for prompt delivery,
installation and service of servers and other equipment and services used to
provide our products and services. Substantially all of our computer systems
are located at the New Jersey, California and Massachusetts sites of Exodus
Communications. A system failure at any of these locations may harm the
performance of our products and services. This system and, as a result, our
business, is vulnerable to damage from fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events.
Any substantial increase in traffic on the Lycos Network or on any
of our websites will require us to expand and adapt our network
infrastructure. Our inability to add additional software and hardware to
accommodate increased traffic on the Lycos Network or on any of our websites
may cause unanticipated system disruptions and result in slower response
times. In addition, we currently depend on a limited number of suppliers for
certain key technologies used to roll out and manage the Lycos Network. We may
not be able to expand our network infrastructure on a timely basis to meet
increased demand and key technology suppliers may not continue to provide us
with products and services that meet our requirements.
We must be able to adapt to technological change and to develop new products
to remain competitive.
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 and services in the future. To be successful, we must continually
improve the performance, features and reliability of our products and
services. In addition, a key element of our business strategy is the
development, introduction and integration of new products and services that
take advantage of the increasing use of the Internet. We cannot assure you
that we will be successful in developing or integrating these products or
services or that they will meet with market acceptance. In addition, our new
product releases 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
<PAGE>
10
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.
The acquisitions and investments that we have made and may make in the future
may not be successful and may create unanticipated problems for us.
We have completed acquisitions of companies, technologies and assets
that we believe 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 into our operations. Future acquisitions could result in potentially
dilutive issuances of equity securities, the incurrence of debt and contingent
liabilities, amortization expenses and write-downs of acquired 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.
Acquisitions also 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 we believe are complementary or related to
our operations. We may make investments of this type in the future. We have
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 these companies will result in any return, nor can we provide
any assurance as to the timing of any return.
We face risks associated with litigation.
We are subject to several purported class action lawsuits. One of
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 and later terminated transaction with USA
Networks and certain affiliated companies. Each complaint seeks an unspecified
award of damages. We are also party to other lawsuits in the ordinary course
of our business. An adverse outcome in, or a decision to settle, these or
other lawsuits could result in significant costs to us. In addition, our
senior management may be required to devote substantial time to these lawsuits
which they could otherwise devote to our business. For a more detailed
description of these lawsuits, see "Business--Legal Proceedings."
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, 1999 and the fiscal quarter ended October 31, 1999. As part of
our business strategy, we have entered into joint ventures in Europe, Japan,
South Korea and Asia. We recently launched localized sites in South and
Central America.
We believe international expansion is important to our ability to
continue to grow and to market our products and services. In marketing our
products and services internationally, however, we will face new competitors.
In addition, our ability to enter international markets will be dependent upon
our ability to create localized versions of our products and services.
Furthermore, to the extent our various international operations are conducted
through joint ventures, our success will also depend to a significant extent
on the performance of our joint venture partners who generally are responsible
for day-to-day operations. We cannot assure you that we will be successful in
creating localized versions of our products and services, marketing or
distributing our products abroad, or that, if we are successful, our
international revenues will be adequate to offset the expense of establishing
and maintaining international operations. To date, we have limited experience
in marketing and distributing our products internationally.
There are difficulties and risks inherent in doing business on an
international level, such as:
o compliance with regulatory requirements and changes in those
requirements;
o trade barriers;
o uncertainty regarding protection of intellectual property
rights;
<PAGE>
11
o difficulties in staffing and managing international operations;
o longer payment cycles;
o problems in collecting accounts receivable;
o political instability;
o fluctuations in currency exchange rates; and
o potentially adverse tax consequences.
If one or more of these factors were to occur, our business and operating
results may suffer.
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.
We currently rely on a combination of patent, copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to
protect our proprietary rights. We generally enter into confidentiality
agreements with our employees, consultants and partners. 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 challenges are brought, the patent may be invalidated. Also,
we 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 impair 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.
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 has been substantial 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
infringement or other 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
o require us to redesign our products or require us to enter into
royalty or licensing agreements which may not be available on
terms acceptable to us, or at all.
We are subject to concerns regarding privacy of personal information about
users of our products and services.
We maintain a privacy policy which is displayed on each of 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. In addition, the Federal Trade Commission and several states have
been investigating some Internet companies regarding their use of personal
information. We could incur additional expenses if new
<PAGE>
12
regulations regarding the use of personal information are introduced, if our
privacy practices are investigated or if our privacy policies are viewed
unfavorably by users or potential users.
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 Internet. However, due to the increasing popularity and use
of the Internet, it is possible that a number of laws and regulations may be
adopted with respect to issues such as the protection of databases, user
privacy, pricing and characteristics and quality of products and services. For
example, as of April 2000, our LycosZone for Kids website will be subject to
federal regulation regarding child privacy. The adoption of laws or
regulations may decrease the growth of the Internet. This decrease could in
turn decrease the demand for our services and products or increase our costs
of doing business. Currently, with the acquisition of Gamesville.com, we offer
Lycos Network users a form of online interactive gaming which includes various
games where users compete without financial consideration for cash prizes. To
the extent these gaming activities become subject to future regulation, this
regulation could substantially restrict the online gaming activities we offer.
Due to the global nature of the Internet, it is possible that,
although transmission of our services originates from operations centers in
New Jersey, 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 these
laws and these 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 from Internet services operated
or facilitated by us 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 these materials. We could be held liable for information contained
on the Lycos Network which we have not generated or compiled. These claims
could be based on us providing access to obscene, lascivious, inaccurate, or
indecent information. Although we carry general liability 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. In addition, our provision of access to
Internet content or advertisements on the Lycos Network that users may find
objectionable could harm our reputation and reduce the value of our brand.
We may not be able to manage effectively the potential growth of our
businesses.
Our businesses have grown rapidly in recent periods. The growth of
these businesses has resulted, and, for us, is expected to result in growth in
employee levels, in the establishment of new offices and in increased
responsibility for both existing and new management personnel. In addition,
this growth has and will put additional pressure on existing operational,
financial and management information systems. To the extent we continue to
grow and do not manage this expansion successfully, we may be unsuccessful in
executing our strategy and operating our business.
We are dependent upon key senior management.
Our success depends to a significant degree upon the contributions
of our executive management team. The loss of the services of members of our
executive management team could adversely impact our business.
We must hire and retain skilled personnel to be successful.
Our success depends upon our ability to attract and retain highly
qualified management, technical and sales and marketing personnel. The process
of locating and hiring personnel with the combination of skills and attributes
required to carry out our strategy is often lengthy and intensely competitive.
The loss of the services of key personnel or the inability to attract
additional qualified personnel could adversely impact our business.
Our systems may experience difficulties related to Year 2000 computer
problems.
<PAGE>
13
The codes of many currently installed computer systems and software
products accept only two-digit entries in the date code field and cannot
distinguish 21st century dates from 20th century dates. Many companies'
software and computer systems, including ours and the companies we depend on,
may need to be upgraded or replaced so that they will be able to distinguish
21st century dates from 20th century dates in order to comply with Year 2000
requirements and therefore be Year 2000 compliant.
To the extent that we fail to identify and remedy any non-compliant
internal or external Year 2000 problems, or the Year 2000 phenomenon creates a
systemic failure beyond our control, like a prolonged telecommunications or
electrical failure or a prolonged failure of third-party software on which we
rely, we could be prevented from operating our business and permitting users
access to our websites.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
risks and uncertainties. These statements relate to future events or our
future financial performance and include statements about our plans,
objectives, products and services as well as our expectations and intentions.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of such
terms or other comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties and other factors,
including the risks outlined under "Risk Factors," that may cause our or our
industry's actual results, levels of activity, performance or achievements to
be materially different from any future results, levels or activity,
performance or achievements expressed or implied by any forward-looking
statements.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. We are under no duty to
update any of the forward-looking statements after the date of this prospectus
to conform these statements to actual results.
<PAGE>
14
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 Stockholder, as described below.
See "Selling Stockholder" and "Plan of Distribution" described below.
SELLING STOCKHOLDER
The following table sets forth, as of the date of this prospectus,
the name of the selling stockholders, the number of shares that the selling
stockholders own as of such date, the number of shares owned by the selling
stockholders that may be offered for sale from time to time by this
prospectus, and the number of shares to be held by the selling stockholders
assuming the sale of all of the shares offered hereby.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
(1)(2) SHARES BENEFICIALLY OWNED IF
PRIOR TO OFFERING ALL SHARES BEING REGISTERED
AND BEING HEREUNDER
REGISTERED FOR SALE ARE SOLD (1)(2)(3)
- ------------------------------------------ ------------------------------------------ ------------------------------------------
SELLING STOCKHOLDERS NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------ --------------------------------------------------------------------------------------
<S> <C> <C>
Chase Venture Capital Associates, L.P. 341,031 *
The Flatiron Fund 1998/99, LLC 85,258 *
Flatiron Associates, LLC 8,698 *
Softbank Technology Ventures IV, L.P. 334,619 *
Softbank Technology Advisors Fund,
L.P. 6,410 *
Highland Capital Partners IV Limited
Partnership 258,904 *
Highland Entrepreneur's Fund IV
Limited Partnership 10,786 *
General Catalyst, LLC 199,504 *
Gamesville Investors, LLC 55,935 *
The CIT Group/Equity Investments,
Inc. 8,698 *
David C. Bohnett Trust 10,951 *
Steve N. Kane 819,969 *
Stuart Roseman 911,077 *
John L. Furse 455,538 *
Steven N. Kane Irrevocable
Generation -Skipping Trust 91,107 *
David Shnaider 2,186 *
Lester Wunderman 4,373 *
* Less than 1.0%.
</TABLE>
(1) The number and percentage of shares beneficially owned is determined
in accordance with Rule 13d-3 of the Securities and Exchange Act of
1934, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under Rule 13d-3,
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 60 days
of the date of this prospectus through the exercise of any stock
option or other right.
<PAGE>
15
(2) Includes an aggregate of 306,520 shares of common stock beneficially
owned by the selling stockholders that have been deposited in an
escrow account pursuant to the Indemnification and Escrow Agreement
dated November 22, 1999 to indemnify Lycos against losses resulting
from breaches of the representations and warranties of
Gamesville.com set forth in the merger agreement. The escrowed
shares will be released from escrow on November 22, 2000 only to the
extent that no claims have been made by Lycos against the escrowed
shares.
(3) Assumes that the selling stockholders will sell all the shares set
forth above under "Shares Which May Be Sold Pursuant to This
Prospectus." There can be no assurance that the selling stockholder
will sell all or any of the shares offered hereunder.
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 or other non-sale related transfer. The selling stockholders will
act independently of Lycos in making decisions with respect to the timing,
manner and size of any sale. The selling stockholders may sell the shares 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 the 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 these transactions, broker-dealers or other financial
institutions may engage in short sales of Lycos common stock in the course of
hedging the positions they assume with the selling stockholders. The selling
stockholders may also sell Lycos common stock short and redeliver the shares
to close out such short positions. The selling stockholders also may enter
into option or other transactions with broker-dealers or other financial
institutions which require the delivery to the broker-dealer or other
financial institution of shares offered hereby, which shares the broker-dealer
or other financial institution may resell pursuant to this prospectus (as
supplemented or amended to reflect such transaction). The selling stockholders
also may pledge shares to a broker-dealer or other financial institution, and,
upon a default, the broker-dealer or other financial institution, may affect
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.
These brokers or dealers and any other participating brokers or dealers may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933
in connection with these sales, and any commissions, discounts or concessions
may be deemed to be underwriting discounts or commissions under the Securities
Act of 1933. Lycos 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 registered or qualified for sale
in the applicable state or an exemption from the registration or qualification
requirements is available and is complied with.
Lycos has advised the selling stockholders that the
anti-manipulation rules of Regulation M under the Securities and Exchange Act
of 1934 may apply to sales of shares in the market and to the activities of
the selling stockholders and their respective 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. 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 of 1933.
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
dealer or agent, 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. We cannot
assure you that the selling stockholders will sell all or any of the shares.
Lycos has agreed with the selling stockholders to keep the
registration statement of which this prospectus constitutes a part effective
until [ ], 2001. Lycos intends to de-register any of the shares not sold by
the selling stockholders by [ ], 2001.
<PAGE>
16
BUSINESS
Overview
Lycos is a global media company operating one of the Internet's leading
networks of separately branded websites. The Lycos Network is one of the most
visited online destinations in the world, reaching nearly one out of every two
U.S. Internet users in November 1999. According to a 1999 Media Metrix report,
our network of branded websites contained four of the twenty most visited U.S.
destinations on the Web. The Lycos Network enables users to quickly access and
retrieve information, communicate with other Internet users, easily establish
online communities and engage in commerce. Our popular websites provide a
broad offering of integrated content and services, attracting users into the
Lycos Network through multiple points of entry and creating a large and
diverse audience. During November 1999, we generated more than 2.5 billion
page views and, according to Media Metrix, reached more than 29 million unique
users.
The Lycos Network provides an attractive medium for advertisers, who can
tailor their offerings to reach our large and diverse audience by advertising
across the Lycos Network or toward narrower demographic segments by
advertising in a specific site or content area. The Lycos Network has
attracted a wide variety of advertisers, including Dell, Intel, Motorola,
Johnson & Johnson, Macy's, OfficeMax and Sears. Our large audience and
distinctly branded sites also appeal to large and small e-commerce merchants.
We facilitate e-commerce in two key ways. First, we integrate the product and
service offerings from merchant partners such as barnesandnoble.com directly
into our search, navigation and content offerings. Second, through our
recently established LYCOShop, we offer an online shopping marketplace that
enables users to easily purchase a broad variety of goods and services without
leaving our sites.
We use our recognized brands and Internet operating expertise to create
appealing country-specific content and service offerings for Internet users
around the world, either independently or through joint ventures with local
media and technology companies. We currently offer country-specific versions
of our Lycos search and navigation service and other selected network services
in Argentina, Belgium, Brazil, Chile, Denmark, France, Germany, Ireland,
Italy, Japan, Mexico, The Netherlands, Norway, Peru, Singapore, South Korea,
Spain, Sweden, Switzerland, the United Kingdom and Venezuela. Through the
expansion of the Lycos products and services into these markets, we believe we
have established our position as a global Internet leader.
The Lycos Network
The Lycos Network attracts a broad demographic base of Internet users
through independently branded websites, each of which seeks to address
different interests and needs. Although users typically access the Lycos
Network for specific content through one of our separately branded sites, they
are encouraged to remain in the Lycos Network by the breadth of our offerings
and the easy navigation amongst our sites. The Lycos Network is primarily
composed of the following websites:
LOGO lycos.com--a comprehensive portal which
offers search and directory accompanied
by deep vertical content.
LOGO hotbot.com--a sophisticated search
service that provides users the ability
to perform advanced Web searches.
LOGO tripod.com--a personal publishing
community, featuring quality
user-generated content created through
easy to use homepage building tools for
beginners and experienced users.
<PAGE>
17
LOGO angelfire.com--a personal publishing
community, similar to Tripod, but with a
focus on a younger age group.
LOGO whowhere.com--a home address, e-mail
address and telephone number directory
that assists users in locating
individuals worldwide.
LOGO mailcity.com--a Web- based e-mail
service that offers users a personalized
e-mail account accessible from any
computer with an Internet connection.
LOGO quote.com--a broad-bas financial site
that provides financial market data such
as stock and mutual fund quotes, news
and research.
LOGO sonique.com--a website featuring our
proprietary music player, which allows
our users to download and listen to
various audio formats.
LOGO gamesville.com--an interactive gaming
site featuring virtual card games,
trivia quizzes and traditional games
such as bingo.
LOGO Wired News--located at Wired.com--a
daily news service offering reporting
and analysis of technology trends.
LOGO LYCOShop--located at Shop.Lycos.com--an
online consumer marketplace offering
products from over 2,000 retailers.
We encourage users to remain within the Lycos Network through the use of
links, promotions, shared content and banner advertisements that feature other
Lycos properties. For example, when a user conducts a search using the
Lycos.com search service, we offer the user the opportunity to perform the
same search using our HotBot service with one click. Through integration and
cross-promotion of the Lycos Network of websites, we intend to increase the
frequency and length of user visits.
We believe that our network strategy enables Lycos to appeal to a large
and an increasingly diverse Internet audience. As a result, the Lycos Network
provides an attractive medium for advertisers who seek to perform broad or
targeted advertising as well as for online merchants. Between January 1998,
the month before Lycos formally launched its network strategy with its
acquisition of Tripod, and November 1999, Lycos' reach in the U.S. grew from
approximately 14% of home users and 22% of users at work to approximately 45%
of total U.S. online users, according to Media Metrix.
Strategy
Our objective is to be the most visited and utilized global online
destination. The essential elements of our strategy include:
<PAGE>
18
o Expand the Reach of the Lycos Network. We intend to continue to
increase the number of users of the Lycos Network through
partnerships and alliances, the expansion of existing and addition
of new brands, and by providing enhanced content and services to our
users. We will continue to enter into agreements to provide direct
access to our products and services through computer hardware and
software companies, such as IBM, Internet service providers (ISPs),
such as Juno, and providers of wireless and broadband
Internet access, such as Ericsson and RCN. We seek to aggressively
extend the recognition of the Lycos brand through online and
off-line advertising and promotional campaigns in order to broaden
the recognition of the various brands comprising the Lycos Network.
We will also continue to enhance and expand the breadth and scope of
our content, products and services to ensure that the Lycos Network
provides appealing content to attract and retain users.
o Increase the Frequency and Duration of User Visits to the Lycos
Network. We believe that we can increase the frequency and duration
of our users' visits to the Lycos Network by continually expanding
the content, features and functionality of our product offering. We
provide content and services through a variety of brands across the
Lycos Network in an easy to navigate format that enhances the user
experience and extends the duration of a user's visit to our sites.
Throughout the Lycos Network, we promote our sites through the use
of links, shared content and banner advertisements, making it easier
for users to access additional content, functions and features while
remaining within the Lycos Network.
o Continue to Provide Comprehensive Advertising Solutions. We believe
that our multi-brand strategy segments our user demographics more
effectively than a single brand strategy and provides an attractive
platform for measurable, targeted, cost-effective online
advertising. Not only do we provide advertisers with the ability to
target our large and diverse user base through network-wide
advertising, but advertisers can purchase site-based advertising on
the individual network sites, thus targeting the demographic group
that is specific to that site. We also assist our advertisers in
developing innovative ways to reach their target audiences online.
We design and offer customized packages that include the ability to
change advertisements quickly and frequently; to link a search
advertisement to a specific term or topic; to target advertisements
based on demographics, geographic location and topical categories;
and to track daily usage and other information.
o Provide a Compelling E-Commerce Platform. We believe that we are
well positioned to take advantage of the expected growth in the
purchase of goods and services through the Internet. We integrate
product and service offerings from merchant partners directly into
our search, directory and community offerings on a topical basis.
For example, through our arrangement with barnesandnoble.com, a user
who conducts a search on a particular topic is presented with a link
to the barnesandnoble.com website which contains a list of books on
the topic. In addition, LYCOShop provides buyers and sellers with a
seamless e-commerce experience, incorporating products from over
2,000 retailers as well as auctions and classified ads.
o Expand the Global Presence of the Lycos Network. The number of
Internet users outside of the U.S. is projected to grow rapidly over
the next several years. In order to take advantage of this growth,
we have extended the Lycos products and services to countries in
Europe and Asia by creating joint ventures with prominent local
media and technology companies. These joint ventures allow us to
reduce the costs and launch time associated with global expansion as
well as leverage our operational and brand strengths and the
promotional, marketing and sales strengths of our partners. We have
also recently expanded our presence to include Argentina, Brazil,
Chile, Colombia, Mexico, Peru and Venezuela. We expect to launch
additional sites in Asia, Europe and Latin America during calendar
year 2000.
Products and Services
Lycos offers a comprehensive suite of online products and services. Our
principal offerings are described below.
Premier Navigation Functionality
Lycos offers our users the ability to quickly and easily find and access
text, audio, video and other rich media content on the Web. Lycos' primary
navigation products include:
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Search. We offer two general search services--HotBot and Lycos
Search. HotBot is designed for a sophisticated user while Lycos Search appeals
to a mainstream user. Since many users enter the Internet through search
services, Lycos and HotBot generate a significant portion of the Lycos Network
traffic. HotBot has received many industry awards for its search service,
including "Best Search Engine" by US News & World Report (November 1999) and
"Editor's Choice Search Engine (1999)" by PC Magazine. In addition, in
December 1999 HotBot was selected as the favorite search service of Internet
users surveyed by the Wall Street Journal. We also offer our users Lycos Rich
Media Search, which enables them to find, download and listen to various
music, audio and video formats (such as MP3).
Guides and Directories. Lycos provides its users with an easy-to-use
framework to efficiently explore the Internet through a series of guides and
directories. Lycos' topic-based WebGuides provide categorized areas of
interest that enable users to browse through related information. In an
alliance with AOL, we also offer a version of the Open Directory which is a
collection of websites organized by volunteer editors who have significant
interest and expertise in the topics to which they contribute. The Open
Directory compiles highly relevant links in an easy to navigate database.
Reference Services. Lycos provides a suite of products for its users to
locate other individuals, businesses, products and places. WhoWhere?, a home
address, e-mail address and telephone number directory, assists users in
locating individuals worldwide. Other principal reference services offered by
Lycos include a yellow pages product, which allows users to locate businesses
throughout the United States by searching according to category, business
name, business address or keyword; Lycos Classifieds, which gives users a
convenient way to find where to buy and sell goods and services online; and
Lycos RoadMaps, which allows users to obtain driving directions and maps to
virtually any street address in the United States.
Content and Information Resources
Lycos provides a variety of content offerings throughout the Lycos
Network, such as:
Games. We recently acquired Gamesville.com, one of the leading
online gaming sites, that is now the featured product offering on the Lycos
Games WebGuide. According to Media Metrix, in November 1999, the
Gamesville.com site ranked third among the top 500 U.S. websites in average
usage at approximately 15 minutes per day. The Gamesville.com offering
supplements our existing menu of games which includes various board, card and
other traditional games. Gamesville.com offers users the opportunity to win
cash and other prizes competing in virtual card games, trivia quizzes and
other traditional games, such as bingo. There is no fee for playing these
games, and no money is wagered.
Music. Lycos has created a comprehensive group of products in the music
category, under the brand Lycos Music (music.lycos.com). These products
include an MP3 search engine, a 35 channel radio network broadcast over the
Internet, a catalog of sound files created by independent bands, and news and
information from Rolling Stone and Billboard magazines. We have augmented
these products with other relevant offerings, such as free homepages on which
artists can publish their songs and fans can publish fanpages, and our Sonique
music player, which allows users to download and listen to various music and
audio formats.
Personal Finance. Lycos recently acquired Quote.com, a leading personal
finance content site. Lycos provides users with finance and investing tools
through both its Quote.com site and through Lycos Investing
(lycos.investing.com). Quote.com and Lycos Investing provide users with stock
quotes, charts, news, research and analysis, as well as the ability to create
and maintain information on a personal portfolio of stocks, all without
charge. In addition, Quote.com offers users fee-based premium services,
including streaming real time stock quotes.
Kids. LycosZone (lycos.zone.com) provides a unique collection of
products, content and services for children. We believe LycosZone has rapidly
become one of the most popular websites targeted to children. The offerings
include age-specific games, educational tools and special sections for parents
and teachers. LycosZone provides links to a large number of national and local
educational and information resources geared to children of all ages.
LycosZone users are protected by our proprietary SearchGuard online filter,
which blocks out potentially inappropriate content.
Technology. Lycos offers daily, in-depth news and analysis of the
technology industry and its impact on business, culture and politics through
our Wired News and HotWired (hotwired.lycos.com) services. These services keep
users informed on the latest developments and trends across a broad range of
technology topics.
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In addition, our Webmonkey (webmonkey.com) offering provides a wide array of
tutorials on Web technology for both amateur and professional Website
developers.
Health. In collaboration with Healtheon/WebMD, Lycos Health WebGuide
(webmd.lycos.com) provides a comprehensive health resource. This WebGuide
provides medical reference tools and a full-range of information about healthy
living, including medical news, health tips, chats with medical experts and
specialized communities to help users stay informed about various health
issues.
Personalization
Through MyLycos, we provide users with the opportunity to personalize
their Lycos experience. MyLycos delivers a personalized version of the Lycos
service, including features such as news, weather, stock quotes, sports
scores, horoscopes, lottery results, local television listings and website
reviews, all tailored by each individual to his or her preferences. We believe
MyLycos provides a value-added service to our users that increases their
overall use and duration of visits to the Lycos Network.
Online Community Products
Lycos provides a number of services to allow its users to create and
actively manage communities around topics that interest them. Lycos believes
that users who become involved with Lycos online community products and
services are more likely to return to those sites in the future. Consequently,
Lycos seeks to develop an active, loyal user base by building significant
community features into the Lycos Network through the following online
products:
Personal Publishing. Through its Angelfire and Tripod services, which
together comprise one of the Web's largest online communities, Lycos offers
users the online publishing tools necessary to create and publish their own
personal homepages. The simplest pages can be created and published in
minutes, yet the tools provided allow a user, without any programming skills,
to create a "professional-looking" site that incorporates photos, images,
graphics, audio and video files, and a guestbook. Through what are commonly
known as "affiliate programs", users also can create links to e-commerce sites
and earn credit towards purchases by referring visitors to those e-commerce
sites.
Clubs. Lycos Clubs (clubs.lycos.com) offers users the ability to create
their own topic-based clubs enhanced by features such as instant messaging,
e-mail, paging, chat and photo albums that are seamlessly integrated into each
club. Instead of leaving a club to use these features, club members can
instantly communicate from within the club. A creator of a club can open the
club to the general public or can restrict access to a particular group of
users by requiring a password.
E-mail/Instant Messaging. Through our MailCity product, Lycos offers
users a free, personalized Web-based e-mail account which can be accessed from
any computer with an Internet connection. Since MailCity users do not need to
change their e-mail addresses when they move or change Internet service
providers, the same e-mail address can be used indefinitely. In addition, in
an alliance with AOL, we launched the Lycos Instant Messenger service
(messenger.lycos.com), enabling Lycos users to communicate instantly with each
other and with AOL members.
Chat and Bulletin Boards. Lycos offers users the opportunity to
participate in online chat sessions, in which users can interact, in real
time, with multiple users from all over the world. Lycos Chat (chat.lycos.com)
regularly features hosted chats with celebrities and experts on topics of
interest to Lycos users. Lycos Bulletin Board (boards.lycos.com) allows users
to post messages to existing message threads or create a new thread by posting
a message on a topic or topics of the user's choice.
Advertising Revenue
According to Forrester Research, worldwide online advertising revenue is
expected to grow from $3.3 billion in 1999 to $33.1 billion in 2004. The large
and diverse audience reach of the Lycos Network, combined with our ability to
segment and target that audience, provides advertisers with an attractive
platform to promote their goods and services. The wide variety of content and
services available on the Lycos Network enables advertisers to focus their
promotional efforts on the Lycos Network sites most relevant to their product
or service offerings. Lycos advises customers on advertisement placement and
design, enabling them to develop and
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monitor their advertisements for effectiveness. To facilitate these services,
Lycos provides advertisers with online reports showing impressions (an
impression is a one-on-one view of an advertisement by the end user) and the
number of times users "click through" an advertisement to visit the
advertiser's site.
We generate advertising revenue primarily by placing banner
advertisements and sponsorship links on the Web pages that are displayed on
the Lycos Network. From each advertisement, a viewer can link directly to the
advertiser's website, thus affording the advertiser the opportunity to
interact directly with a potential customer. Our advertising contracts
generally have a term of one to twelve months. Advertising contracts are sold
primarily as:
o a site-based or network-based contract under which a customer is
guaranteed a number of impressions placed throughout a particular
site or the entire Lycos Network; or
o contracts targeted to a particular audience or user, either in
connection with one of our topical WebGuides or in connection with
specified word searches (for example, when "automobile" is searched,
an automotive or car manufacturer advertisement appears).
We employ a direct sales force to address the new and evolving
requirements of the Internet advertising market. We have hired the majority of
our sales force from the advertising industry because we believe that an
experienced sales force is critical to initiate and maintain relationships
with advertisers and advertising agencies. Lycos employs advertising sales
personnel in Atlanta, Boston, Chicago, Dallas, Los Angeles, New York, Miami,
Philadelphia and San Francisco.
Electronic Commerce Revenue
International Data Corporation estimates that revenues from e-commerce
will grow from $50.4 billion in 1998 to $1.3 trillion in 2003. According to a
1999 study by CBS Marketwatch, 78% of all online users search and navigate the
Web for product and service information while 36% of all online users search
and navigate the Web with a specific intent to buy. With the Lycos Network
reaching nearly one out of two U.S. Internet users in November 1999, Lycos
represents an attractive e-commerce platform. Lycos provides opportunities for
our users to purchase products and services throughout the Lycos Network both
by integrating commerce opportunities into contextually relevant placements on
the Lycos Network sites and through our online marketplace, LYCOShop.
Lycos Network E-Commerce Activities
We believe that integrating e-commerce opportunities into the Lycos
Network search and navigation services provides an easy and useful shopping
experience for our users. Specifically, we integrate the opportunity to
purchase related products and services into the results of commerce-related
searches performed by our users. In addition, we provide certain merchant
partners with prominent positioning for their product or service offering in
appropriate sites within the Lycos Network. In return, Lycos generally
receives a fixed fee and a share of the related e-commerce revenue.
Our e-commerce agreements typically have one to three year terms. In some
instances, we have entered into exclusive sponsorship arrangements for certain
commercial categories. Our e-commerce relationships include agreements with
the following companies:
AT&T--provides Lycos users with an ability to purchase
telecommunication services over the Internet.
barnesandnoble.com--provides Lycos users with the opportunity to
purchase books throughout the Lycos Network.
First USA Bank--provides Lycos users with a wide range of online
banking products through its Wingspanbank.com online bank.
Fleet Credit Card Services--provides Lycos users with a Lycos
branded credit card.
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LYCOShop
In October 1999, we launched LYCOShop, an online marketplace
offering thousands of products and services from over 2,000 brand name
retailers and small specialty stores, including: Eddie Bauer; FogDog Sports;
REI; and The Gap. In addition to online retailing, LYCOShop also provides our
participating merchants and users with the ability to conduct online auctions
and list classified advertisements for products and services. LYCOShop
provides its users with valuable services, including product reviews and
search, navigation and community at each stage in the buying cycle so that
shoppers can research their buying options, discuss products and services with
other consumers and compare product and price features prior to making a
purchase. LYCOShop also provides shoppers the convenience of a "universal
shopping cart" which allows shoppers to purchase items from more than one
merchant within LYCOShop without having to re-register their personal
information (such as credit card and delivery information) with each merchant.
LYCOShop provides telephonic customer support to augment online support and
provides users with a rewards program to increase customer loyalty. During the
holiday season in 1999 (Thanksgiving to Christmas), the number of unique users
on LYCOShop was 450 percent greater than our shopping traffic during the same
period in 1998.
For participating merchants, LYCOShop features a sophisticated
store-building product that permits large and small retailers to create and
maintain online stores, accept credit card purchases, track sales, and also
sell their products through auctions and classifieds. Lycos generates revenue
from LYCOShop through merchant site hosting fees, slotting fees and by
charging merchants a percentage of each transaction's value. Our participating
merchants provide fulfillment and distribution services for LYCOShop.
Acquisitions and Strategic Alliances
We pursue acquisitions and alliances with strategic partners in order to
increase the number of visitors to the Lycos Network, the frequency with which
our users visit the Lycos Network and the amount of time they spend on the
Lycos Network each visit.
Recent Acquisitions
We have continued to expand our product and service offerings and
audience reach by acquiring businesses, technologies, content and services.
Since February 1998, we have completed eight acquisitions, including the
following acquisitions which we completed in December 1999:
o Quote.com. Quote.com provides information, tools and trading
capabilities to independent investors, including financial news,
stock quotes and research. Among the tools offered on the Quote.com
website are "QCharts", a Windows-based real-time market analysis and
transaction tool that gives users the ability to set up their own
"trading workstation" by enabling them to open multiple charts and
portfolio sheets all updating automatically in one window of their
computer screen. Quote.com significantly enhances Lycos' financial
content offering and provides Lycos with high-quality products,
content and functions in a widely used area within the Lycos Network.
o Gamesville.com. Gamesville.com is a leading interactive entertainment
community where members compete for prizes by playing multi-player
real-time games. The Gamesville.com acquisition complements Lycos'
strategic goal of keeping users in the Lycos Network for longer
periods of time. Additionally, because of the information that
Gamesville.com's users permit us to access through the registration
process, Gamesville.com delivers state-of-the-art, 1-to-1 targeted
database marketing solutions to brand name advertisers.
We continuously identify and evaluate potential acquisition candidates
and in many cases engage in discussions and negotiations regarding potential
acquisitions. We currently have no agreements with respect to any proposed
acquisitions.
Strategic Alliances
To increase traffic to the Lycos Network, enhance the functionality of
our products and services and extend the Lycos brand, we seek to enter into
strategic relationships with business partners who offer content,
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distribution and technology capabilities as well as marketing and
cross-promotional opportunities. To date, we have more than 250 alliances with
a variety of companies. Examples of our strategic alliances include:
Content
Healtheon/WebMD--Through our agreement with Healtheon/WebMD, we provide
our users a comprehensive suite of health-related information. This
information has been incorporated within the existing Lycos Network websites
and is co-branded with Healtheon/WebMD.
Rolling Stone--We have an agreement that allows us to incorporate content
from Rolling Stone, including artist reviews, into Lycos Music. This content
is co-branded, with both the Rolling Stone and Lycos brands prominently
featured.
Preview Travel--Preview Travel provides us with travel-related content
that is displayed on a co-branded version of the Preview Travel site, which is
linked to contextually relevant pages on the Lycos Network. This content
includes a "fare finder" and other information about travel deals, travel news
headlines and destination guides by location. Lycos users can complete all of
their travel plans through this co-branded Preview Travel site.
Distribution
Computer Manufacturers and Software Developers. Lycos' products and
services are a default offering on software such as IBM's Lotus Notes, and
hardware such as IBM's Aptiva and Thinkpad computers.
Internet Service Providers (ISPs)--We have agreements with a number of
ISPs, including Juno, RCN and Sprint Canada, under which Lycos is a default
offering on their homepages.
AOL/Netscape--Lycos has been designated as a "Premier Provider" of search
and navigation services accessible from the "Net Search" button on the Netscape
browser. AOL/Netscape will commit search exposures during the term of the
Netscape Agreement to Lycos' search services in exchange for a per-impression
payment by Lycos based on the actual number of exposures delivered to Lycos by
AOL/Netscape.
Technology
Fidelity--Under our agreement with Fidelity, we provide personalization
technology for their PowerStreet online trading initiative. In return, we
receive prominent mention in PowerStreet advertising and sponsorship by
Fidelity of our Quote.com website.
Fast Search & Transfer--We have an agreement with Fast Search and Transfer
that allows us access to their state-of-the-art MP3 music search technology. We
have incorporated this technology with our existing music content to provide
our users with the ability to find, listen to and discuss music. We have
recently entered into an agreement to invest in Fast Search & Transfer which is
expected to close in January 2000.
LYCOShop--We have entered into agreements with a number of companies,
including Open Market, Verio, Fairmarket, Frictionless Commerce,
NetPerceptions, ePinions and NetCentives, to use their underlying technology
for our LYCOShop e-commerce initiative. These technologies enable store
building, transaction processing, auctions, value-based comparisons, a
recommendation engine, product reviews and the Lycos Rewards program. Our
partners typically receive a commission from us on LYCOShop sales in exchange
for use of their technology.
Ericsson--We are currently developing, in conjunction with Ericsson,
wireless.lycos.com, a website that will enable subscribers to view content
through Short Message Service and Wireless Access Protocol cellular phones.
This service will be co-marketed with Ericsson to wireless carriers with the
goal of making it the default offering for mobile users by offering
personalized services such as stock quotes, news and messaging capabilities.
Strategic Investments
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Lycos has made direct strategic investments or received warrants in
privately-held Internet services companies whose products are integrated into
the Lycos Network. The companies in which we have made investments include:
o FairMarket, a provider of auctions to business merchants and Web
communities;
o Bidder's Edge, a provider of tools and services that enable online
auction users to easily and automatically find similar items from
multiple online auctions;
o Valent Software, a developer of software that powers online clubs;
o Frictionless Commerce, a developer of comparison shopping
technologies that take into account options such as price, product
features, brand reputation and delivery time; and
o iCOMS, a provider of engineering, operational and merchant support
for e-commerce services.
We have also made investments in Mail.com (which completed its initial
public offering in June 1999), PlanetAll (which was acquired by Amazon.com in
August 1998) and Wit Capital (which completed its initial public offering in
June 1999).
International Expansion
We believe the international markets will be a significant part of the
Internet base in the future. According to International Data Corporation,
Internet users outside the U.S. will increase from 79.4 million in 1998 to
325.5 million in 2003, a compound annual growth rate of approximately 33%. We
often seek to broaden our offerings of localized versions of our products and
services to users outside the United States by partnering with prominent local
media and technology companies. These arrangements are designed to leverage
our brands, technology and Internet operating expertise with their
promotional, marketing and sales strengths with the goal of reducing the time
to market and costs associated with our global expansion. In addition, our
partners provide local expertise and infrastructure, localized content and
financing.
We have established our position as a global Internet leader. We
currently offer 50 localized sites in 22 countries, primarily consisting of
localized versions of the Lycos search and navigation service, the Tripod
community service and the MailCity e-mail service. By creating sites in native
languages with local content and partnering with prominent local companies, we
believe that we can improve the experience for Internet users in their own
countries.
Our current international operations are:
Lycos Europe. In May 1997, we entered into a joint venture agreement
with Bertelsmann Internet Services to create localized versions of the
Lycos search and navigation service and the Tripod community site
throughout Europe. This joint venture, named Lycos Bertelsmann GmbH & Co.
KG, is owned 50% by Lycos and 50% by Bertelsmann Internet Group. Lycos
Bertelsmann currently operates localized versions of the Lycos.com and
Tripod sites in Belgium, Denmark, France, Germany, Ireland, Italy, The
Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom.
Lycos Japan. In March 1998, we established Lycos Japan KK as the
basis for a joint venture to promote and operate a Japanese version of the
Tripod and MailCity websites. Our joint venture partners are Sumitomo
Corporation, one of the largest companies in Japan, Internet Initiative
Japan, one of Japan's largest Internet service providers, and Kadokawa, a
major Japanese publisher. Lycos beneficially owns approximately 45% of the
joint venture.
Lycos Korea. In March 1999, we established Lycos Korea to promote
localized versions of the Lycos and Tripod websites. Our joint venture
partner is Mirae Corporation, a prominent South Korean high-technology
company. Lycos and Mirae each own 50% of the joint venture.
Lycos Asia. In September 1999, we established Lycos Asia to promote
localized versions of the Lycos and Tripod websites in more than 10
countries in Asia, including Singapore, China, Taiwan, Hong Kong, India
and Malaysia. Our joint venture partner is Singapore Telecommunications,
and we each own 50% of the joint venture. Lycos Singapore was launched in
December 1999 and both simplified and traditional Chinese language
services are expected to be launched in early 2000.
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Lycos Americas. In October 1999, we launched localized versions of
the Lycos and Tripod websites in Argentina, Brazil, Chile, Colombia,
Mexico, Peru and Venezuela as well as a United States-based Spanish
language version of the Lycos and Tripod websites. These sites are
currently owned entirely by us.
Lycos Ventures
In July 1999, we formed Lycos Ventures, a $75 million venture capital
fund, in conjunction with Bear Stearns, Mellon Ventures, Sumitomo Corporation,
Vulcan Ventures and others to make early stage investments in companies
involved in e-commerce, online media or Internet technology. We have committed
to invest up to $10 million of the $75 million fund. To date, this fund has
made investments in several companies, including LifeMinders, FogDog Sports,
Conducent Technologies, Tekmetrics and Planet Feedback.
Marketing and Branding
We support the Lycos Network globally through an integrated marketing and
branding strategy that includes advertising, public relations and promotions.
Our plan is designed to increase awareness of the Lycos brand, enhance loyalty
and increase usage of the Lycos Network. We believe that continuing to enhance
our brand name recognition is important to attract new users. We seek to
differentiate our offerings by giving them a personality, principally through
our mascot, "Lycos", the black Labrador retriever, and our "Go Get It" slogan.
Our advertising emphasizes that using the Lycos Network is fast, friendly and
fun. Our marketing efforts seek to create a Lycos brand that is consistent in
all of the countries in which we operate.
We advertise both online and through traditional media, such as broadcast
and cable television, local radio, consumer and trade magazines, newspapers
and billboards. We are also extending the Lycos brand name by promoting our
products and services through other media, such as books, movies and videos.
Our online advertising includes banner advertisements throughout the Lycos
Network and across many other sites on the Internet. In addition, we promote
each of the sites within the Lycos Network both by creating hyperlinks among
the member sites and through banner promotion within the Lycos Network. We
also promote the Lycos brand through non-traditional marketing channels,
including:
o professional sports sponsorships, such as sponsorships of a NASCAR
racing team, and an NFL and NHL team, Major League Indoor Soccer,
NCAA basketball games and an America's Cup yacht, and hosting special
event sites such as golf's 1999 USOpen.com and football's 1999
Superbowl.com; and
o co-branded and cross-promotions with various packaged good companies,
retail outlets and media companies such as Universal Studios, Pepsi
and Ticketmaster.
We also enter into strategic alliances with companies such as Fidelity
and Intel that include co-branded cross-promotions designed to generate
off-line media exposure.
Operations and Technology
We use a combination of proprietary and licensed technology to provide
our users with search and navigation services and capabilities that
differentiate the user experience of the Lycos Network from that of our
competitors. Our proprietary technologies include search technology, MyLycos
personal page, SearchGuard online filter, and Tripod and Angelfire personal
publishing tools. Through third parties, we license technologies such as
search, directory services, advertisement serving, commerce transaction
processing, online product reviews and value-based comparisons.
The Lycos search and indexing technology was originally developed at
Carnegie Mellon University. In June 1995, Lycos entered into a license
agreement with Carnegie Mellon University pursuant to which Carnegie Mellon
University granted Lycos a perpetual, worldwide right to use and sub-license
the Lycos search and indexing technology and other intellectual property
rights, including the "Lycos" trademark and the domain name lycos.com. CMU has
been issued a patent in the United States relating to Lycos' search and
indexing technology.
Most of our technological infrastructure operations are provided to us by
third parties. Exodus Communications hosts our servers and provides network
redundancy. Our outsourcing relationships have allowed us to grow quickly and
have reduced the costs associated with staffing and equipment.
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Research and Development
We focus our efforts both on developing our internal technologies and
integrating the technologies of our partners. We continue to develop
proprietary technologies that differentiate the Lycos user experience (such as
MyLycos), tools that strengthen the relationship between our sites (such as
universal registration) and methods of improving targeted advertising and
e-commerce on the Lycos Network. We are also working with partners to
distribute our content over broadband and wireless networks.
Competition
The market for Internet products and services, advertising and e-commerce
is highly competitive. Lycos believes the principal competitive factors in
this market are name recognition, quality of content and commerce offerings,
site performance, ease of use, features and quality of support.
A number of companies currently offer competitive products in our target
markets. The primary competitors of our products and services are other
companies providing online services and include About.com, Amazon.com, AOL,
Ask Jeeves, Buy.com, CMGi's AltaVista, Disney's GO Network, DealTime,
Excite@Home, FortuneCity, GoTo.com, Go2.net, Google, Infospace, Looksmart,
Microsoft's MSN, mySimon, NBCi (including Snap and Xoom), CBS StoreRunner,
theGlobe.com and Yahoo!. In addition, a number of companies offering Internet
products and services, including direct competitors of Lycos, recently have
begun to integrate multiple features within the products and services they
offer to consumers. These competitors have integrated competing products and
services through internal development, acquisitions, joint ventures and
licensing arrangements.
Employees
As of December 31, 1999, Lycos' U.S. operations employed 919 persons,
including 457 in sales and marketing, 357 in research and development, product
development and service operations and 105 in finance and administrative
functions. Lycos also employs 69 independent contractors for software
development, documentation, artistic design and editorial reviews. In
addition, our international joint ventures employ an additional 250 persons in
Europe and Asia. None of our employees is represented by a labor union and
Lycos considers its employee relations to be good.
Properties
Lycos' corporate headquarters is located in Waltham, Massachusetts. We
also have principal operating offices in New York City and San Francisco. We
also maintain sales offices in Atlanta, Boston, Chicago, Dallas, Los Angeles,
Miami, New York, Philadelphia and San Francisco. We expect that we will need
additional space as we continue to expand our business and believe that we
will be able to obtain additional space as needed on commercially reasonable
terms.
Lycos maintains substantially all of its computer systems in the
California, New Jersey and Massachusetts sites of Exodus Communications.
Lycos' operations are dependent in part upon its ability to protect its
operating systems against physical damage from fire, floods, earthquakes,
power loss, telecommunications failures, break-ins or other similar events.
Furthermore, despite the implementation of network security measures by Lycos,
its servers are also vulnerable to computer viruses, break-ins and similar
disruptive problems. The occurrence of any of these events could result in
interruptions, delays or cessations in service to users of our products and
services which could adversely impact our ability to operate our business.
Legal Proceedings
In February 1999, Lycos announced its intention to enter into a
transaction with USA Networks and certain affiliated companies pursuant to
which, among other things, Lycos would have been merged into a subsidiary of
USA Networks. In May 1999, the parties to the proposed transaction terminated
the proposed merger by mutual agreement.
Prior to the termination, eight purported class action lawsuits were
filed in the Court of Chancery for the State of Delaware in and for New Castle
County by shareholders of Lycos allegedly on behalf of all common
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stockholders of Lycos. The complaints requested, among other things, that the
proposed transaction be enjoined or that rescissionary damages be awarded to
the purported class and that plaintiffs be awarded all costs and fees,
including attorneys' fees. Since the proposed merger was terminated, the suits
have been inactive. We believe that the allegations in the complaints are
without merit and, as a result of the termination of the proposed merger, are
now moot.
Also prior to the termination of the proposed merger, certain purported
securities class action lawsuits were filed in the United States District
Court for the District of Massachusetts. The suits, which have since been
consolidated, allege, among other claims, violations of United States
securities laws through alleged misrepresentations and omissions relating to
the announced transaction with USA Networks. The consolidated complaint seeks
an unspecified award of damages. We believe that the allegations in the
consolidated complaint are without merit and intend to contest them
vigorously. On October 22, 1999, we filed a motion with the court to have the
lawsuit dismissed for failure to adequately allege violations of the
securities laws.
A former employee of Lycos has brought suit in Federal District Court in
California, seeking compensatory and punitive damages, unpaid and lost wages,
costs, attorneys' fees and prejudgment interest based on alleged gender
discrimination, harassment, retaliation, wrongful discharge, breach of implied
contract, fraud, and labor code violations. The matter is currently
scheduled for trial in March 2000. We believe that the allegations in the
complaint are without merit, and we have contested, and will continue to
contest, them vigorously.
In November 1999, AIWF Trust, a former shareholder of WiseWire
Corporation, filed a lawsuit in the Court of Common Pleas of Allegheny County,
Pennsylvania against WiseWire, representatives of former shareholders of
WiseWire, and Lycos, as WiseWire's alleged successor in interest. In this
lawsuit, AIWF Trust alleged that pursuant to a 1996 subscription agreement
between AIWF Trust and WiseWire, AIWF Trust was entitled to 2,500,000 million
shares of WiseWire common stock instead of the 25,000 shares it received. AIWF
Trust seeks the equivalent of 2,500,000 shares of WiseWire common stock in
Lycos common stock, which amounts to approximately 748,000 shares of Lycos
common stock. Lycos believes that the allegations in the complaint are without
merit and intends to contest them vigorously. In addition, Lycos has asserted a
claim against the escrow deposit created in connection with Lycos' acquisition
of WiseWire, which currently contains approximately 329,000 shares of Lycos
common stock.
<PAGE>
28
LEGAL MATTERS
The validity of the shares offered will be passed upon by Cravath,
Swaine & Moore, New York, New York, counsel to Lycos.
EXPERTS
The consolidated financial statements of Lycos at July 31, 1999,
1998 and 1997 and for each of the years in the three-year period ended July
31, 1999, incorporated in this prospectus by reference to Lycos' Annual Report
on Form 10-K for the year ended July 31, 1999 have been audited by KPMG 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.
<PAGE>
29
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Lycos will pay all expenses incident to the offering and sale to the
public of the shares being registered other than any commissions and discounts
of underwriters, dealers or agents and any transfer taxes. Such expenses are
set forth in the following table. All the amounts shown are estimates except
the Securities and Exchange Commission registration fee.
SEC registration fee .......................................... $ [ ]
NASDAQ National Market listing fee................................[ ]
Legal fees and expenses...........................................[ ]
Printing expenses.................................................[ ]
Miscellaneous expenses............................................[ ]
Total............................................................$[ ]
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law,
Lycos' Amended and Restated Certificate of Incorporation, as amended, includes
a provision that eliminates the personal liability of its directors for
monetary damages for breach or alleged breach of their duty of care. In
addition, the Delaware General Corporation Law and Lycos' Amended and Restated
By-laws provide for indemnification of Lycos' directors and officers for
liabilities and expenses that they may incur in such capacities. In general,
directors and officers are indemnified with respect to actions taken in good
faith in a manner reasonably believed to be in, or not opposed to, the best
interests of Lycos, and with respect to any criminal action or proceeding,
actions that the indemnitee has no reasonable choice to believe were unlawful.
Lycos has purchased insurance with respect to, among other things,
the liabilities that may arise under the provisions referred to above. The
directors and officers of Lycos also are insured against certain liabilities,
including certain liabilities arising under the Securities Act of 1933, as
amended, which might be incurred by them in such capacities and against which
they are not indemnified by Lycos.
Lycos has entered into separate indemnification agreements with its
directors and officers. The indemnification agreements create certain
indemnification obligations of Lycos in favor of the directors and officers
and, as permitted by applicable law, will clarify and expand the circumstances
under which a director or officer will be indemnified.
ITEM 16. EXHIBITS
*5.1 Opinion of Cravath, Swaine & Moore.
23.1 Consent of KPMG LLP, Independent Accountants.
23.2 Consent of Cravath, Swaine & Moore (included in Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
* To be filed as an Amendment to the Form S-3.
ITEM 17. UNDERTAKINGS
A. UNDERTAKING PURSUANT TO RULE 415
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this
registration statement to include any material information
with respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration statement;
<PAGE>
30
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and
the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of this offering.
<PAGE>
31
B. UNDERTAKING REGARDING FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT
DOCUMENTS BY REFERENCE
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities and Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
C. UNDERTAKING IN RESPECT OF INCORPORATED ANNUAL AND QUARTERLY REPORTS
The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report, to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X is not set forth in the prospectus,
to deliver, or cause to be delivered to each person to whom the prospectus is
sent or given, the latest quarterly report that is specifically incorporated
by reference in the prospectus to provide such interim financial information.
D. UNDERTAKING IN RESPECT OF INDEMNIFICATION
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
E. UNDERTAKING PURSUANT TO RULE 430a
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or
Rule 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared
effective.
(2) For the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
<PAGE>
32
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Waltham, Commonwealth of
Massachusetts, on this 4th day of January, 2000.
LYCOS, INC.
By:/s/ Robert J. Davis
--------------------------------
Robert J. Davis
President and Chief Executive Officer
<PAGE>
33
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Robert J. Davis and Edward M. Philip
and each of them, with the power to act without the other, as
attorneys-in-fact, each with the power of substitution and resubstitution, for
him or her in any and all capacities, to sign this Registration Statement and
any amendment or post-effective amendment to this Registration Statement, and
to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact, and each of them, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in
connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact or any of them, or their or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------ --------------------------------- ---------------
/s/ Robert J. Davis President, Chief Executive Officer January 4, 2000
- ------------------------ and Director (Principal Executive
Robert J. Davis Officer)
/s/ Edward M. Philip
- ------------------------ Chief Operating Officer, Chief January 4, 2000
Edward M. Philip Financial Officer and Secretary
(Principal Financial and Accounting
Officer)
/s/ John M. Connors, Jr.
- ------------------------ Director January 4, 2000
John M. Connors, Jr.
/s/ Richard H. Sabot
- ------------------------ Director January 4, 2000
Richard H. Sabot
/s/ Daniel J. Nova
- ------------------------ Director January 4, 2000
Daniel J. Nova
<PAGE>
34
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
*5.1 Opinion of Cravath, Swaine & Moore.
23.1 Consent of KPMG LLP, Independent Accountants.
23.2 Consent of Cravath, Swaine & Moore (included in Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
* To be filed as an Amendment to the Form S-3.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Lycos, Inc.:
We consent to the incorporation by reference in this registration statement on
Form S-3 of Lycos, Inc. of our reports, which appear in the annual report on
Form 10-K of Lycos, Inc. and on Form 8-K/A filed January 4, 2000, and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
--------------------------------
KPMG LLP
Boston, Massachusetts
January 4, 2000
