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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-26371
MAIL.COM, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
DELAWARE 13-3787073
(State or other jurisdiction (I.R.S. Employer Identification)
of incorporation or organization)
11 Broadway, New York, NY 10004
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(Address of Principal Executive Office) (Zip Code)
(212) 425-4200
(Registrant's Telephone Number Including Area Code)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Common stock outstanding at October 29, 1999: 34,856,571 Shares of Class A
common stock and 10,000,000 shares of Class B common stock.
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MAIL.COM, INC.
SEPTEMBER 30, 1999
FORM 10-Q
INDEX
Page
Number
------
PART I: Financial Information
Item 1: Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of
September 30, 1999 (unaudited) and December 31, 1998 .... 2
Unaudited Condensed Consolidated Statements of Operations
for the three and nine months ended September 30,
1999 and 1998 ........................................... 3
Unaudited Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1999 and 1998 ... 4
Notes to Unaudited Interim Condensed Consolidated
Financial Statements .................................... 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 15
Item 3: Qualitative and Quantitative Disclosure about Market Risk .... 37
PART II: Other Information
Item 2: Changes in Securities and Use of Proceeds .................... 37
Item 6: Exhibits and Reports on Form 8-K ............................. 38
Item 7: Signatures ................................................... 39
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ITEM 1 Condensed Consolidated Financial Statements
MAIL.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except par value)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 53,469 $ 8,414
Accounts receivable, net 2,400 702
Prepaid expenses and other current assets 1,290 223
Receivable from sale leaseback -- 631
--------- --------
Total current assets 57,159 9,970
Property and equipment, net 26,035 4,341
Domain assets, net 4,145 1,010
Partner advances 19,842 4,715
Investments 5,854 250
Goodwill and other intangible assets, net 19,352 --
Restricted investment 1,000 --
Other 380 58
--------- --------
Total assets $ 133,767 $ 20,344
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 8,028 $ 1,753
Accrued expenses 6,322 1,588
Current portion of capital lease obligations 3,866 479
Current portion of domain asset purchase obligations 268 169
Deferred revenue 914 824
Other current liabilities 2,988 81
--------- --------
Total current liabilities 22,386 4,894
Capital lease obligations, less current portion 9,094 1,437
Domain asset purchase obligations, less current portion 184 217
Deferred revenue 953 1,081
Redeemable convertible preferred stock, $0.01 par value; Class C - 12,000,000
shares authorized; 0 and 3,776,558 shares issued and outstanding at September
30, 1999 and December 31,1998, respectively, with an aggregate liquidation
preference of $0 and $13,048 as of September 30, 1999 and
December 31, 1998, respectively -- 13,048
Stockholders' equity (deficit):
Convertible preferred stock $0.01 par value; 60,000,000 shares authorized: Class
A -- 12,000,000 shares authorized; 0 and 6,185,000 shares issued and
outstanding at September 30, 1999 and December 31, 1998, respectively, with
an aggregate liquidation preference of $0 and $7,648 at September 30,
1999 and December 31, 1998, respectively -- 62
Common stock, $0.01 par value; 130,000,000 shares authorized
Class A -- 120,000,000 shares authorized; 34,363,152 and 5,931,405 shares issued
and outstanding at September 30, 1999 and December 31, 1998, respectively 344 59
Class B -- 10,000,000 shares authorized, issued and outstanding at September 30, 1999
and December 31,1998; with an aggregate liquidation preference of $1,000,000 100 100
Additional paid in capital 146,386 16,537
Subscriptions receivable -- (1)
Deferred compensation (1,316) (1,025)
Accumulated deficit (47,006) (16,065)
Other comprehensive income 2,642 --
--------- --------
Total stockholders' equity (deficit) 101,150 (333)
--------- --------
Commitments and contingencies
Total liabilities and stockholders' equity (deficit) $ 133,767 $ 20,344
========= ========
</TABLE>
See accompanying notes to interim condensed consolidated financial statements.
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MAIL.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 3,350 $ 273 $ 6,593 $ 492
------------ ------------ ------------ ------------
Operating expenses:
Cost of revenues 4,199 801 7,720 1,745
Sales and marketing 9,587 1,347 17,083 2,140
General and administrative 3,208 965 7,207 1,730
Product development 1,921 490 4,643 986
Amortization of goodwill 725 -- 725 --
Write-off of acquired in-process
technology 900 -- 900 --
------------ ------------ ------------ ------------
Total operating expenses 20,540 3,603 38,278 6,601
Loss from operations (17,190) (3,330) (31,685) (6,109)
Other income (expense):
Gain on sale of investment -- -- -- 438
Other income 795 107 1,098 141
Interest expense (177) (24) (355) (57)
------------ ------------ ------------ ------------
Total other income, net 618 83 743 522
------------ ------------ ------------ ------------
Net loss (16,572) (3,247) (30,942) (5,587)
Cumulative dividends on settlement of
contingent obligations to preferred
stockholders -- -- (14,556) --
------------ ------------ ------------ ------------
Net loss attributable to common
stockholders $ (16,572) $ (3,247) $ (45,498) $ (5,587)
============ ============ ============ ============
Basic and diluted net loss per
common share $ (0.38) $ (0.22) $ (1.69) $ (0.39)
============ ============ ============ ============
Weighted average basic and diluted shares
outstanding 43,594,410 14,473,766 26,891,270 14,229,114
============ ============ ============ ============
</TABLE>
See accompanying notes to interim condensed consolidated financial statements.
3
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MAIL.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(30,942) $ (5,587)
Adjustments to reconcile net loss to net cash used in
operating activities:
Non-cash charges related to partner agreements and vendor services agreements 6,227 633
Depreciation and amortization of fixed assets 2,962 709
Goodwill amortization 725 --
Amortization of warrants 499 --
Amortization of domain assets 563 145
Amortization of deferred compensation 350 --
Write-off of contract 500 --
Provision for doubtful accounts 156 --
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable (1,854) (357)
Prepaid expenses and other current assets (1,067) 32
Other assets (322) (75)
Accounts payable 6,275 958
Accrued expenses 4,734 156
Deferred revenue 38 724
Other liabilities 2,907 --
-------- --------
Net cash used in operating activities (8,249) (2,662)
-------- --------
Cash flows from investing activities:
Purchases of domain assets (943) (338)
Proceeds from sale leaseback 3,917 513
Purchase of restricted investment (1,000) --
Investment (1,000) --
Purchases of property and equipment (16,562) (2,416)
Cash paid for acquisition, net of cash acquired (3,175) --
-------- --------
Net cash used in investing activities (18,763) (2,241)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of Class A, C and E preferred stock 15,165 16,797
Net proceeds from issuance of Class A common stock related
to initial public offering and over allotment 49,876 --
Proceeds from issuance of Class A common stock in connection
with the exercise of warrants and options 7,890 --
Payments under capital lease obligations (735) (259)
Due to officer -- (200)
Payments under domain asset purchase obligations (129) (10)
-------- --------
Net cash provided by financing activities 72,067 16,328
-------- --------
Net increase in cash and cash equivalents 45,055 11,425
Cash and cash equivalents at beginning of the period 8,414 910
-------- --------
Cash and cash equivalents at the end of the period $ 53,469 $ 12,335
======== ========
</TABLE>
4
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Supplemental disclosure of non-cash information:
During the nine-month periods ended September 30, 1999 and 1998, the
Company paid approximately $355 thousand and $87 thousand,
respectively, for interest.
Non-cash investing activities:
During the nine-month period ended September 30, 1999, the Company
purchased domain assets with 355,000 shares of Class A common
stock. This transaction resulted in a non-cash investing
activity of $2.6 million.
During the nine-month periods ended September 30, 1999 and 1998, the
Company issued 3,130,324 and 126,874 shares, respectively, of
its common stock in connection with some of its Mail.com
partner agreements and vendor services agreements. These
transactions resulted in non-cash investing activities of
approximately $21 million and $590 thousand for the nine month
periods ended September 30, 1999 and 1998, respectively.
Non-cash financing activities:
The Company entered into various capital leases for computer equipment.
These capital lease obligations resulted in non-cash financing
activities aggregating $11.5 million and $1.5 million for the
nine-month periods ended September 30, 1999 and 1998,
respectively.
The Company is obligated under various agreements to pay for domain
assets it has purchased. These obligations resulted in
non-cash financing activities aggregating $195 thousand and $0
for the nine-month periods ended September 30, 1999 and 1998,
respectively.
During the nine months ended September 30, 1999 the Company purchased
an equity interest in an internet company by issuing 80,083
shares of Class A common stock. This transaction resulted in
a non-cash financing activity of $2.0 million.
See accompanying notes to condensed consolidated interim financial statements.
5
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MAIL.COM, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(A) SUMMARY OF OPERATIONS
Mail.com, Inc. (the "Company" or "Mail.com") is a global provider of
free and pay email services and functions to consumers, ISP's, Web sites and
businesses. The Company provides Web users with its email messaging services
primarily through its own Web sites and its network of third party Web site
partners ("Mail.com Partners"). The Company generates the majority of its
revenues from advertising related sales, including direct marketing and
e-commerce promotion. The Company also generates revenues in consumer markets
from subscription services, such as increased storage capacity. The Company has
assembled a portfolio of approximately 1,200 domain names.
The Company also provides businesses with Internet email message
management services. This includes Internet email network integration services,
email hosting services and email message management services, including virus
scanning, attachment control, spam control, legal disclaimers and real time
Web-based reporting.
In addition to providing email services, Mail.com provides domain name
trading services through its Best Domains Web site. Best Domains is a trading
site for domain names on the Internet.
(B) UNAUDITED INTERIM FINANCIAL INFORMATION
The interim condensed consolidated financial statements as of September
30, 1999 and for the three and nine months ended September 30, 1999 have been
prepared by the Company and are unaudited. In the opinion of management, the
unaudited interim condensed consolidated financial statements have been prepared
on the same basis as the annual financial statements and reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the financial position of Mail.com as of September 30, 1999 and
the results of operations and cash flows for the interim periods ended September
30, 1999 and 1998. The financial data and other information disclosed in these
notes to the condensed consolidated financial statements related to these
periods are unaudited. The results of operations for any interim period are not
necessarily indicative of the results of operations for any other future interim
period or for a full fiscal year. The balance sheet at December 31, 1998 has
been derived from audited financial statements at that date.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission's rules and regulations. It is suggested that these unaudited interim
financial statements be read in conjunction with the Company's audited financial
statements and notes thereto for the year ended December 31, 1998 as included in
the Company's Registration Statement on Form S-1 filed with the Securities and
Exchange Commission in June 1999.
(C) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(D) PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of
Mail.com and its wholly-owned subsidiary. The Company's unaudited interim
condensed consolidated financial statements as of September 30, 1999 and
for the three and nine month periods ended September 30, 1999 include the
consolidated accounts of its wholly-owned subsidiary, The Allegro Group, Inc
("Allegro"), from August 20,1999 (date of acquisition). All intercompany
balances and transactions have been eliminated in consolidation.
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(E) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid securities, with original
maturities of three months or less when acquired, to be cash equivalents.
(F) LETTER OF CREDIT AND RESTRICTED CASH
On September 30, 1999, the Company established a $1 million letter of
credit ("LOC") with a bank to secure obligations under an office space lease.
The LOC expires on January 31, 2001 and will automatically renew for additional
periods of one year but not beyond January 31, 2006. The bank may choose not to
extend the LOC by notifying the Company not less than 30 days but not more than
60 days prior to an expiry date. The Company is required to maintain a $1
million balance on deposit with the bank in an interest bearing account, which
is included in restricted investments in the consolidated balance sheet. Through
September 30, 1999 there were no drawings under the LOC.
(G) DOMAIN ASSETS AND REGISTRATION FEES
A domain name is the part of an email address that comes after the @
sign (for example, if [email protected] is the email address then "mail.com"
is the domain name). Domain assets represent the purchase of domain names and
are amortized using the straight-line method over their economic useful lives,
which has been estimated to be five years. Domain assets are stated at cost.
Domain assets acquired in exchange for future payment obligations are stated at
the net present value of such payments using a discount rate of 8.5%. The
associated payment obligation is also recorded at the net present value of the
payment obligations. Payment terms vary from two to seven years. Amortization of
domain assets is charged to cost of revenues. The Company's policy is to
evaluate its domain assets prior to paying its annual registration renewal fees.
Any impairment is charged to cost of revenues. Retirements, sales and disposals
of domain assets are recorded by removing the cost and accumulated amortization
with the resulting amount charged to cost of revenues.
The Company pays domain name registration fees in advance to InterNIC,
a cooperative activity between the US government and Network Solutions, Inc.,
which is the national registry for domain names in the US. Payment of these fees
ensures legal ownership and registration of domain names. The initial
registration period is for a two-year period with subsequent one-year renewal
periods. These costs are deferred and amortized over the related registration
period.
(H) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets are stated net of accumulated
amortization of $725 thousand at September 30, 1999. Goodwill and other
intangible assets are being amortized on a straight-line basis over their
expected period of benefit of three years (see note 2).
(I) REVENUE RECOGNITION
The Company's revenues are derived principally from the sale of banner
advertisements and electronic message management services. Other advertising
revenue sources include up-front placement fees and promotions. The Company's
advertising products currently consist of banner advertisements that appear on
pages within the Company's properties, promotional sponsorships that are
typically focused on a particular event and merchant buttons on targeted
advertising inventory encouraging users to complete a transaction. Advertising
was a new source of revenue in 1998. Previously, the main source of revenue was
subscription services. For the three and nine months ended September 30, 1999,
revenue from advertising approximated $2.5 million and $5.3 million, as compared
to $188 thousand and $225 thousand in the comparable periods during 1998.
Advertising revenue is recognized as impressions are delivered providing
collection is probable. Up-front placement fees represent funds received upon
commencement of the contract. Such fees are recorded as deferred revenue and
amortized ratably to revenue over the term of the contract.
The Company attempts to sell all available advertising space through a
combination of advertisements that are sold on either a cost per thousand
("CPM") basis whereby the advertiser pays an agreed upon amount for each
thousand advertisements or on a cost per action basis whereby revenue is
generated only if the member responds to
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the advertisement with an action such as by "clicking" on the advertisement or
purchasing the product advertised. In a CPM based advertising contract, revenue
is recognized ratably as advertisements or impressions are delivered. In a cost
per action contract, revenue is recognized as members "click" or otherwise
respond to the advertisement. In instances where revenue is the result of a
purchase by a member, revenue is recognized after the item is purchased based
upon notification from the vendor.
The Company trades advertisements on its Web properties in exchange for
advertisements on the Internet sites of other companies. Barter revenues and
expenses are recorded at the fair market value of services provided or received,
whichever is more determinable in the circumstances. Revenue from barter
transactions is recognized as income when advertisements are delivered on the
Company's Web properties. Barter expense is recognized when the Company's
advertisements are run on other companies' Web sites, which is typically in the
same period when the barter revenue is recognized. Barter revenues were
approximately $107 thousand and $361 thousand, and barter expenses were
approximately $91 thousand and $303 thousand, respectively, during the three and
nine months ended September 30, 1999, as compared to $35 thousand and $47
thousand in barter revenue and $71 thousand and $83 thousand in barter expenses
in the comparable periods in 1998.
The Company also provides businesses with Internet email message
management services. This includes Internet email network integration
services, email hosting services and email message management services,
including virus scanning, attachment control, spam control, legal disclaimers
and real time Web-based reporting. Revenue from services is recognized as the
services are performed. Business messaging revenues for the three and nine
months ended September 30, 1999 was $569 thousand. There were no business
messaging revenues for the three months and nine months ended September 30,
1998.
Subscription services are deferred and recognized ratably over the term
of the subscription periods of one, two and five years as well as eight years
for its lifetime subscriptions. Commencing March 10, 1999, the Company no longer
offers lifetime memberships and only offers monthly and annual subscriptions.
Deferred revenues principally consist of subscription fees received from members
for use of the Company's premium email services. The Company is obligated to
provide any enhancements or upgrades it develops and other support in accordance
with the terms of the applicable Mail.com Partner agreements. Revenues from
email subscriptions were approximately $160 thousand and $434 thousand for the
three and nine months ended September 30, 1999, respectively, and approximately
$77 thousand and $187 thousand for the three months and nine months ended
September 30, 1998, respectively.
Revenues from the sale of domain names are recognized at the time when
the ownership of the domain name is transferred provided that no significant
Company obligation remains and collection of the resulting receivable is
probable. Revenues from the sale of domain names and other related services were
approximately $164 thousand and $289 thousand for the three and nine months
ended September 30, 1999, respectively, and approximately $8 thousand and $80
thousand for the three and nine months ended September 30, 1998, respectively.
(J) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist of cash and cash equivalents
and accounts receivable. At December 31, 1998 and September 30, 1999, the fair
value of these instruments approximated their financial statement carrying
amount because of the short-term maturity of these instruments. Substantially
all of the Company's cash equivalents were invested in money market accounts.
The Company has not experienced any significant credit loss to date. One
advertiser accounted for approximately 11% and 10% of our total revenue for the
three- and nine-month periods ended September 30, 1999. Revenues from the
Company's five largest advertisers accounted for an aggregate of 36% and 35% of
our total revenues for the nine month periods ended September 30, 1999 and
September 30, 1998, respectively.
(K) BASIC AND DILUTED NET LOSS PER SHARE
Loss per share is presented in accordance with the provisions of SFAS
No. 128, "Earnings Per Share", and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98. Under SFAS No. 128, basic Earnings per Share ("EPS")
excludes dilution for common stock equivalents and is computed by dividing
income or loss available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
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were exercised or converted into common stock and resulted in the issuance of
common stock. Diluted net loss per share is equal to basic loss per share since
all common stock equivalents are anti-dilutive for each of the periods
presented. Diluted net loss per common share for the three and nine months ended
September 30, 1999 and 1998 does not include the effects of options to purchase
9,132,501 and 5,956,261 shares of common stock, respectively; 1,218,899 and
199,356 common stock warrants, respectively; and 0, and 9,961,558 of convertible
preferred shares, respectively.
Net loss attributable to common stockholders for the nine month period
ended September 30, 1999 gives effect to $14.6 million of cumulative dividends
on the settlement of contingent obligations to preferred stockholders on the
date of the June 1999 initial public offering.
(L) STOCK SPLIT
Effective September 30, 1998, the Company authorized and implemented a
2 for 1 stock split of all preferred and common stock. Accordingly, all shares
and per share amounts in the accompanying financial statements have been
restated to effect the stock split.
(M) COMPREHENSIVE INCOME
In 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS
No. 130 requires the Company to report in its financial statements, in addition
to its net income (loss), comprehensive income (loss) which includes all changes
in equity during a period from non-owner sources, including foreign currency
items, minimum pension liability adjustments and unrealized gains and losses on
investments in debt and equity securities. The Company recorded approximately
$2.6 million pertaining to the net unrealized gains on investments that are
available for sale during the nine months ended September 30, 1999.
(N) RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 provides guidance for
determining whether computer software is internal-use software and guidance on
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. The Company adopted SOP 98-1 in 1999 and
its effect is not significant.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and for hedging
activities. In June 1999, SFAS No. 137 was issued which delayed the effective
date of SFAS No. 133. SFAS No. 137 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company does not expect this
statement to affect it, as it does not have any derivative instruments or
hedging activities
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosure About Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the way that public enterprises report
information about operating segments. It also establishes standards for related
disclosures about products, and services, geographic area and major customers.
The Company has determined that it does not have any separately reportable
segments.
(N) RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current presentation.
(2) ACQUISITION OF ALLEGRO
Mail.com acquired The Allegro Group, Inc. ("Allegro"), for
approximately $20.4 million including acquisition costs pursuant to the terms of
an Agreement and Plan of Merger dated August 20, 1999 (the "Merger
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Agreement"), among Mail.com, AG Acquisition Corp., a wholly-owned subsidiary
of Mail.com ("Acquisition Corp."), Allegro and the shareholders of Allegro.
Pursuant to the terms of the Merger Agreement, Allegro merged with and into
Acquisition Corp. and became a wholly owned subsidiary of Mail.com. The
acquisition was accounted for as a purchase business combination. The
consideration payable by Mail.com in connection with the acquisition of
Allegro consisted of the following: approximately $3.2 million in cash and
1,102,973 shares of Mail.com's Class A common stock valued at approximately
$17.1 million. The Company also incurred acquisition costs of approximately
$150 thousand. In addition, one-time signing bonuses of $800 thousand, which
is included in the operating expenses in the statement of operations, were
paid to employees of Allegro who were not shareholders of Allegro pursuant to
employment agreements entered into with them upon the closing date. In
connection with their employment agreements with Mail.com, Mail.com also
granted options to Allegro employees to purchase approximately 625,000 shares
of Mail.com common stock at an exercise price of $16.00 per share, the then
fair value. These options vest quarterly over four year's subject to
continued employment.
Mail.com may be obligated to pay additional consideration (the "Contingent
Consideration") upon completion of its audited financial statements for the year
ended December 31, 2000 based on the achievement of certain performance
standards for such year. The Contingent Consideration would consist of up to
$3.2 million payable in cash, additional bonus payments up to $800 thousand, and
up to $16.0 million payable in shares of Mail.com Class A common stock based on
the market value of such stock at the time of payment (but such market value
shall be deemed to be not less than $8.00 per share).
The consideration payable by Mail.com was determined as a result of negotiations
between Mail.com and Allegro. The number of shares of Mail.com Class A Common
Stock issued to Allegro shareholders, was determined based on the exchange rate
of 2,750.5561 of a share of Mail.com Class A Common Stock for each share of
Allegro common stock. Funds paid in connection with the acquisition of Allegro
were provided from Mail.com's cash on hand.
The Company has allocated a portion of the purchase price to the net book value
of the acquired assets and liabilities of Allegro as of the date of acquisition.
The excess of the purchase price over the net book value of the acquired assets
and liabilities of Allegro has been allocated to goodwill and other intangible
assets. Goodwill and other intangible assets will be amortized over a period of
three years, the expected period of benefit.
The valuation of the write-off of acquired in-process technology in the amount
of $900 thousand in connection with the acquisition of Allegro is based on an
independent appraisal which determined that the new versions of MailZone
technology acquired from Allegro had not been developed into the platform
required by the Company at the date of acquisition. As a result, the Company
will be required to expend significant capital expenditures to successfully
integrate and develop the new versions of the MailZone technology, for which
there is considerable risk that such technology will not be successfully
developed, and if such technology is not successfully developed, there will be
no alternative use for the technology. The MailZone technology is an enabling
technology for email communications and includes message management, license,
traffic and reporting. The Company's 1999 consolidated statements of operations
reflects a write-off of the amount of the purchase price allocated to acquired
in-process technology of $900 thousand.
Acquisition Net Tangible Intangibles/
Acquired Company Effective Date Costs Liabilities Goodwill
- ---------------- -------------- ----------- ------------ ------------
Allegro August 20, 1999 $150 $607 $20,077
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The following unaudited pro forma consolidated amounts give effect to the
acquisition as if it had occurred on January 1, 1998 by consolidating the
results of operations of Allegro with the results of Mail.com for the three and
nine months ended September 30, 1998 and 1999.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $ 3,987 $ 1,703 $ 9,565 $ 3,503
Net loss attributable to common stockholders (17,543) (4,867) (50,079) (12,256)
Basic and diluted net loss per common share (0.40) (0.31) (1.80) (0.80)
Weighted average shares used in net loss
per common share calculation (1) 44,205,481 15,576,739 27,828,595 15,332,087
</TABLE>
(1) The Company computes net loss per share in accordance with provisions of
FAS No. 128, "Earnings per Share". Basic net loss per share is computed by
dividing the net loss for the period by the weighted average number of common
shares outstanding during the period. The Weighted Average Common Shares used
to compute pro forma basic net loss per share includes the actual weighted
average common shares outstanding for the three and nine month periods ended
September 30, 1998 and 1999, respectively, plus the common shares issued in
connection with the acquisition of Allegro from January 1, 1998. The common
stock issued in connection with the acquisition of Allegro was 1,102,973
shares, which was adjusted for the weighted average period such shares were
considered to be outstanding during 1999. In addition, diluted net loss per
share is equal to basic net loss per share as common stock issuable upon
exercise of the Company's employee stock options and upon exercise of
outstanding warrants are not included because they are antidilutive. In
future periods, the weighted average shares used to compute diluted earnings
per share will include the incremental shares of common stock relating to
outstanding options and warrants to the extent such incremental shares are
dilutive.
The unaudited pro forma consolidated statements of operations are not
necessarily indicative of the operating results that would have been achieved
had the transactions been in effect as of the beginning of the periods presented
and should not be construed as being representative of future operating results.
(3) BALANCE SHEET COMPONENTS
Property and equipment, including equipment under capital leases, are
stated at cost and are summarized as follows, in thousands:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------- ------
(UNAUDITED)
<S> <C> <C>
Computer equipment and software, including amounts
related to capital leases of $13,892 and $2,352, respectively $29,522 $5,175
Furniture and fixtures .......................................... 254 39
Leasehold improvement ........................................... 118 24
------- ------
29,894 5,238
Less accumulated depreciation and amortization, including amounts
related to capital leases of $2,006 and $484, respectively ... 3,859 897
------- ------
Total ...................................................... $26,035 $4,341
======= ======
</TABLE>
During the nine months ended September 30, 1999, the Company
purchased approximately $3.7 million of computer equipment which was financed
through a periodic payment schedule. Amounts payable under such agreements
are included in other current liabilities.
Domain assets consist of the following, in thousands:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------ ------
(UNAUDITED)
<S> <C> <C>
Domain names ............................... $5,013 $1,315
11
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Less accumulated amortization .............. 868 305
------ ------
Domain assets, net ...................... $4,145 $1,010
====== ======
</TABLE>
In connection with acquisition of domain assets, the Company has entered into
various domain asset purchase agreements. In January 1999, the Company
purchased a domain name and Web site for 225,000 shares of Class A common
stock valued at $5.00 per share totaling $1.1 million. In the second quarter
of 1999, the Company issued 130,000 Class A common stock valued at $11.00 per
share plus $943 thousand and financed $200 thousand via a payment plan in
connection with its acquisition of domain name assets, for approximately $2.6
million in the aggregate. There were no domain name purchases in the third
quarter of 1999.
Goodwill and other intangible assets consists of the following, in thousands:
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------- ----------
(UNAUDITED)
Goodwill ................................ $ 18,496 $ --
Other intangible assets ................. 1,581 --
---------- ----------
20,077 --
Less accumulated amortization ........... 725 --
---------- ----------
Total .............................. $ 19,352 $ --
========== ==========
Accrued expenses consist of the following, in thousands:
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------- ----------
(UNAUDITED)
Payments due under partner contracts .... $ 1,050 $ 722
Professional services and consulting fees 1,053 128
Software obligations .................... 325 --
Payroll and related costs ............... 1,705 487
Advertising ............................. 1,071 --
Sales taxes ............................. 679 --
Other ................................... 439 251
---------- ----------
Total ................................ $ 6,322 $ 1,588
========== ==========
(4) INVESTMENTS
The Company has an investment in one of its Mail.com partners, and two other
Internet companies. During the nine months ended September 30, 1999, the
Company acquired an equity interest in 3Cube, Inc. Under the agreement, the
Company paid $1.0 million in cash and issued 80,083 of its Class A common
stock in exchange for 307,444 shares of 3Cube, Inc. convertible preferred
stock which represents an equity interest of less than 20% of 3Cube, Inc.
Investments which are not publicly traded are accounted for on the cost
basis, as the Company owns less than 20% of each company's stock. Such
investments are stated at the lower of cost or market value. Investments
which are publicly traded are treated as available-for-sale and are available
to support current operations or to take advantage of other investment
opportunities and are stated at their fair value based upon publicly
available market quotes. Unrealized gains and losses are computed on the
basis of specific identification and are included in stockholder's equity.
Investments, at cost $3,112
Investments available for sale, at cost 100
------
3,212
Unrealized appreciation 2,642
------
$5,854
======
12
<PAGE>
(5) PARTNER AGREEMENTS
The Company has entered into many partner agreements. Included in
these agreements are percentage of revenue sharing agreements, miscellaneous
fees and other customer acquisition costs with Mail.com Partners. The revenue
sharing agreements vary for each party but typically are based on selected
revenues, as defined, or on a per sign-up basis. As of September 30, 1999 and
December 31, 1998, the Company owes approximately $1.1 million and $722
thousand, respectively, to various Mail.com Partners under such agreements.
Such amounts are included in accrued expenses in the balance sheet.
The Company has issued stock to some of its Mail.com Partners and
capitalizes such issuances when the measurement date for such stock grants is
fixed and there is a sufficient disincentive to breach the contract in
accordance with Emerging Issues Task Force Abstract No. 96-18, "Accounting for
Equity Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." Such amounts are amortized ratably
over the length of the contract commencing on the site launch date.
In August 1998, the Company entered into a two-year agreement with CNN.
In consideration of the advertising, subscription and customer acquisition
opportunities, CNN received 253,532 shares of Class A common stock upon the
commencement of the contract at $3.50 per share, the fair market value of
Mail.com's common stock on the date of grant, or $887 thousand. CNN also has the
right to receive a portion of the Company's selected revenues under the
agreement, as defined. The value of the stock issuance has been recorded in the
balance sheet as partner advances and is amortized ratably to amortization
expense over the contract term. The launch of the services coincided with the
contract date.
In September 1998, the Company entered into an agreement with
GeoCities. In consideration of the advertising, subscription and customer
acquisition opportunities under this agreement, GeoCities received 1,000,000
shares of Class A common stock upon the commencement of the contract valued at
$3.50 per share, the fair market value of Mail.com's common stock on the date of
grant, or $3.5 million. The Company was also required to pay GeoCities $1.5
million in three installments, the first of which was paid in December 1998. The
value of the stock issuance and cash payments have been recorded in the 1998
balance sheet as partner advances and would have been amortized ratably to
amortization expense over the contract term commencing upon the launch of the
services under the agreement. After the Company entered into the agreement,
Yahoo! announced its agreement to acquire GeoCities. In May 1999, the Company
and GeoCities cancelled and rescinded their agreement. As a result of the
cancellation and rescission of the agreement, GeoCities retained the $500
thousand non-refundable fee that the Company paid under the contract, but
returned to the Company the 1,000,000 shares of Class A common stock issued to
them. Accordingly, the Company reversed the issuance of the 1,000,000 shares and
recorded the $500 thousand write-off in May 1999. In addition, the Company has
agreed to deliver advertisements over its network on behalf of GeoCities, and
GeoCities has agreed to pay the Company $125 thousand per month for sixteen
months, representing $2 million in the aggregate.
The Company issued an additional 577,628 and 485,616 shares of its
common stock at varying prices in 1998 and for the nine months ended September
30, 1999, respectively, in connection with certain strategic partnership
agreements. When stock issuances are either contingent upon the achievement of
certain targets or the measurement date is not fixed, the Company expenses the
issuance of such stock at the time such stock is issued or the targets are
achieved at the then fair market value of the Company's stock.
Prior to May 1, 1999, the Company was required to issue to CNET, Snap
and NBC Multimedia shares of its Class A common stock based on the number of
members who registered at their sites. On May 1, 1999, the Company entered into
an agreement to settle in full its contingent obligation to issue shares of
Class A common stock to CNET, Snap and NBC Mutlimedia as described above.
Pursuant to this agreement, the Company issued upon the closing of its initial
public offering in June 1999, 2,368,907 shares of Class A common stock at a
value of $7.00 per share in the aggregate to CNET and Snap and 210,000 shares of
Class A common stock at a value of $7.00 per share to NBC Multimedia. The
Company is capitalizing the issuance of these shares and is ratably amortizing
the amount over the period from the closing of the initial public offering (June
23, 1999) through May 2001.
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<PAGE>
Certain Mail.com Partner agreements require minimum cash payments which
aggregated $2.2 million, of which $674 thousand is due in 1999 and $1.5 million
is due in 2000. Additional amounts become payable to certain Mail.com partners
upon achieving varying member levels.
(6) LEASES
The Company sold certain assets for approximately $3.9 million, and
$513 thousand for the nine months ended September 30, 1999 and 1998,
respectively, and approximately $225 thousand and $367 thousand for the three
months ended September 30, 1999 and 1998, respectively. The assets were
leased back from the purchaser over 3-4 years. The Company also leases
facilities and certain equipment under agreements accounted for as either
capital or operating leases.
(7) CAPITAL STOCK
INITIAL PUBLIC OFFERING
On June 17, 1999, the Company completed its initial public offering,
which resulted in the issuance of 6,850,000 shares of its Class A common stock
at $7.00 per share and realized net proceeds of $43.2 million. On July 12, 1999,
the Company's underwriters exercised their over-allotment option for 1,027,500
additional shares of the Company's Class A common stock at $7.00 with the
Company receiving net proceeds of approximately $6.7 million.
CLASS E PREFERRED STOCK
In March 1999, the Company completed a private placement of 3.2 million
shares of Class E preferred stock at $5.00 per shares for net proceeds of
approximately $15.2 million. These shares automatically converted on a
one-for-one basis (before giving effect to the conversion price adjustment
described below) to an equivalent number of Class A common shares upon the
closing of the IPO. As a result of an adjustment to the conversion price made
immediately prior to the consummation of the IPO, the Class E shareholders
received an additional 166,424 shares of Class A common stock upon conversion of
the Class E preferred stock at the closing of the IPO.
CONVERSION
Upon the closing of the Company's initial public offering on June 23,
1999, 6,185,000 and 3,776,558 shares of Class A and C convertible preferred
stock, respectively, representing all of the outstanding shares of the
convertible preferred stock, automatically converted on a one-for-one basis into
9,961,558 shares of Class A common stock (before giving effect to the
adjustments described below). In addition, the 3.2 million Class E preferred
shares automatically converted into the same number of Class A common stock
(before giving effect to the adjustments described below). Further, the holders
of Class A, C and E preferred stock received an additional 968,800, 944,139 and
166,424, Class A common shares, respectively, upon conversion of such preferred
stock at the closing of the initial public offering.
(8) ATT WARRANT
Under a letter agreement dated May 26, 1999, AT&T Corp. ("AT&T") and
the Company agreed to negotiate in good faith to complete definitive agreements
to establish a strategic relationship. On July 26, 1999, both parties entered
into an interim agreement to provide e-mail services to select corporate IP
Services customers. The Company does not expect to generate significant revenues
under the July 26 interim agreement. The parties have not entered into a
definitive agreement and no assurance can be given that a definitive agreement
will be achieved. AT&T or the Company may terminate the May 26 letter agreement
without further liability at any time prior to the execution and delivery of a
definitive agreement. Under the letter agreement, the Company issued warrants to
purchase 1,000,000 shares of Class A common stock at $11.00 per share. AT&T may
exercise the warrants at any time on or before December 31, 2000 regardless of
whether the Company enters into a definitive agreement for the strategic
relationship. If under the proposed strategic relationship AT&T provides more
than 30,000 active emailboxes with the Company's managed messaging service on or
before December 31, 2000, AT&T may pay the exercise price of the warrants by
exchanging warrants in lieu of cash. AT&T may not sell or otherwise transfer to
a third party the warrants or the shares issuable upon exercise of the warrants
until the earlier of May 26, 2004, or the date that it provides more than 30,000
active emailboxes, if this date is
14
<PAGE>
on or before December 31, 2000. In addition, AT&T has agreed that it will not
sell or otherwise transfer the warrants or the Class A common stock for 180 days
after our initial public offering.
The Company has incurred non-cash accounting charges of
approximately $4.3 million in the aggregate as a result of the issuance of
these warrants. The Company has amortized $445 thousand in the third quarter
of 1999 and will continue to amortize these charges over the term of the
agreement entered into with AT&T. If the Company does not enter into a
definitive agreement, the remaining non-cash charges will be expensed in the
fiscal quarter in which both parties have ceased negotiations for the
proposed strategic relationship.
(9) CNET/NBC STOCK WARRANT
In 1998, the Company entered into a partner agreement with CNET, Inc.
which was amended shortly thereafter to include the newly formed Snap, LLC.
During March 1999, Snap assigned their rights to NBC Multimedia. As part of this
agreement, on November 6, 1998, warrants for an aggregate of 1,500,000 Class A
common shares were granted at an exercise price of the lesser of $5.00 per share
(the fair market value at the date of grant) or the IPO price. In March 1999,
CNET and NBC Multimedia exercised their warrants in accordance with this
agreement by placing the proceeds of $7.5 million in an escrow account. With the
closing of the initial public offering on June 23, 1999, funds from the exercise
of the warrants were disbursed to the Company and the shares of the Class A
common stock relating to the warrants were issued to CNET and NBC Multimedia.
(10) SUBSEQUENT EVENTS
On October 18, 1999, the Company acquired TCOM, Inc. ("TCOM"), a
leading software technology development firm, specializing in the design of
carrier class applications for the telecommunications and computer telephony
industries. The acquisition will be accounted for as a business combination.
The Company is not continuing the business operations of TCOM but rather is
making the acquisition in order to obtain technology and development
resources. The Company paid $2 million in cash and issued 439,832 shares of
Mail.com Class A common stock valued at approximately $6.1 million.
Mail.com may be obligated to pay additional consideration (the
"Contingent Consideration") based upon certain employment criteria over an
18-month period. The Contingent Consideration would consist of up to $1.0
million payable in cash and up to $2.75 million payable in shares of Mail.com
Class A common stock based on the market value of such stock at the time of
payment (but such market value shall be deemed to be not less than $4.00 per
share).
In October 1999, the Company acquired a domain name and Web portal for
$250 thousand in cash and 53,571 shares of Mail.com's Class A common stock
valued at approximately $750 thousand.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of
operations of Mail.com contains forward-looking statements relating to future
events and future performance of Mail.com within the meaning of section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Stockholders are cautioned that such
statements involve risks and uncertainties. Mail.com's actual results and timing
of certain events could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not
limited to, those set forth under "RISK FACTORS THAT MAY AFFECT FUTURE RESULTS"
and elsewhere in this report and in Mail.com's other public filings made with
the Securities and Exchange Commission.
OVERVIEW
Mail.com is a global provider of email services. We offer our email services to
both the consumer and business markets. Our basic consumer email services are
free to our members. We generate the majority of our revenues from our consumer
email services, primarily from advertising related sales, including direct
marketing and e-commerce promotion. We also generate revenues in the consumer
market from subscription services, such as increased storage
15
<PAGE>
capacity. In September 1999, we delivered approximately 170 million page views
and approximately 536 million advertisements in our consumer email services. We
also generate revenues in the business market primarily from Internet email
message management services, consisting of Internet email network integration
services, email hosting services and email message management services,
including virus scanning, attachment control, spam control, legal disclaimers
and real time Web-based reporting. As of September 30, 1999, we provided email
services for approximately 1,400 businesses.
Prior to 1998, we generated most of our revenues from subscription services and
trading of domain names. We collect subscriptions by charging members' credit
cards in advance, usually after a 30-day trial period. Until early this year, we
offered one-year, two-year, five-year and lifetime subscription periods. During
March 1999, we increased our subscription rates and began offering only monthly
and annual subscriptions. We record subscriptions as deferred revenues and
recognize the revenues ratably over the term of the subscription. We use an
eight-year amortization period for lifetime subscriptions. We recognize revenues
from the sale of domain names at the time of sale. We offer a 30-day trial
period for certain subscription services. We do not recognize any revenue during
such period. We provide pro rated refunds and chargebacks to subscription
members who elect to discontinue their service. The actual amount of refunds and
chargebacks approximated our expectations for all periods presented. In August
1999, in an effort to increase member sign ups and retention, we eliminated
subscription fees for most of our premium email addresses.
During 1998, our member base became large enough to provide a platform for
advertising related sales. During the first nine months of 1999, we generated
approximately 80% of our revenues from advertising related sales, 9% from
business messaging services and 7% from our subscription services. We expect
that advertising sales will continue to represent a majority of our revenues.
However, with our expansion into the business market, we expect that business
service revenues will represent an increasing percentage of our revenues.
We also generated a small portion of our revenues from the sale of domain
name assets and from email service outsourcing fees paid by Web sites.
We price advertisements based on a variety of factors, including whether the
advertising is targeted to a specific category of members or whether it is run
across our entire network. We attempt to sell all of our available advertising
space, or inventory, through a combination of advertisements that we sell on
either a "cost per thousand" or "CPM" basis, or a "cost per action" basis.
Advertising sales billed on a CPM basis require that the advertiser pay us an
agreed amount for each 1,000 advertisements delivered. We do not generate income
from advertising sales billed on a "cost per action" basis unless the member
responds to the advertisement with an action, such as by "clicking" on the
advertisement or purchasing the product advertised. In a CPM-based advertising
contract, we recognize revenues from advertising sales ratably as we deliver
individual advertisements or impressions. In a cost per action contract, we
recognize revenues as members "click" or otherwise respond to the advertisement.
In the case of contracts requiring actual sales of advertised items, we may
experience delays in recognizing revenues pending receipt of data from the
advertiser.
On some occasions, we have also received upfront "placement" fees from
advertising related to direct marketing and e-commerce promotion. These
arrangements give the customer the exclusive right to use our network to promote
goods or services within their category. These exclusive arrangements generally
last one year. We record placement fees as deferred revenues, and we recognize
the revenues ratably over the term of the agreement.
We also engage in barter transactions. Under these arrangements, we deliver
advertisements promoting a third party's goods and services in exchange for
their agreement to run advertisements promoting our Webmail service. The number
of advertisements that each party agrees to deliver, and hence the effective
CPM, may not be equal. We recognize barter revenues ratably as the third party's
advertisements are delivered to our members. We record cost of revenues ratably
as our advertisements are delivered by the third party. Although our revenues
and related costs of revenues will be equal at the conclusion of the barter
translation, the amounts may not be equal in any particular quarter. We record
barter revenues and expenses at the fair market value of either the services we
provide or of those we receive, whichever is more readily determinable under the
circumstances. Barter revenues were approximately 5.5% of total revenues for the
nine months ended September 30, 1999 as compared to 9.6% for the first nine
months of 1998. On an annual basis we anticipate that barter revenues will
remain below 10%, although the actual percentage may fluctuate in any given
quarter.
The Company also provides businesses with Internet email message management
services. This includes Internet email network integration services, email
hosting services and email message management services, including virus
16
<PAGE>
scanning, attachment control, spam control, legal disclaimers and real time
Web-based reporting. Revenue from services is recognized as the services are
performed. Business messaging revenues for both the three and nine months ended
September 30, 1999 were $569 thousand as compared with none in the prior year
periods.
In most of our contracts with our partners we provide the Webmail service at no
cost to the partner. In addition to assuming the costs to provide service, we
also pay out a percentage (generally up to 50%) of any advertising and
subscription revenues attributable to our Webmail service at the partner's site.
While most of our partners share in advertising and subscription revenues on a
quarterly basis during the contract term, some of our partners are compensated
or have the option to be compensated based on the number of member
registrations. These contracts call for us to pay an amount in cash for each
member registration or confirmed member registration at the partner's site. In
addition, under some of our contracts we pay our partners guaranteed minimum
amounts and/or upfront or scheduled payments, usually in the form of sponsorship
or license fees. Because we expect to retain at contract termination most of the
members that establish emailboxes, we account for both revenue sharing and per
member costs as customer acquisition costs. We record these costs as sales and
marketing expenses as we incur them.
Historically, some of our contracts have required us to issue shares of Class A
common stock on a contingent basis. The amount of stock we were required to
issue was usually based upon the number of member registrations during the
preceding quarter or upon the achievement of performance targets. We recorded
the non-cash expense as of the date we issued the stock or as of the date the
targets were achieved, at the then fair market value of our stock. These
expenses aggregated approximately $50 thousand and $2.5 million for the three
and nine months ended September 30, 1999, respectively, as compared to $487
thousand and $590 thousand, respectively, for the comparable periods in 1998.
Upon the closing of our initial public offering, we issued an aggregate of
2,368,907 shares of Class A common stock to CNET and Snap and 210,000 shares of
Class A common stock to NBC Multimedia to settle in full our contingent
obligation to issue shares to these parties.
Under an agreement with CNN we issued 253,532 shares of our Class A common stock
upon execution of the contract in August 1998. We agreed to issue the shares in
anticipation of CNN's fulfillment of promotional obligations under the contract.
We capitalized as a partner advance the market value of the stock we issued and
amortize that amount over the length of the contract. We recorded approximately
$184 thousand and $406 thousand of amortization expense for this agreement for
the three and nine months ended September 30, 1999, respectively, as compared to
$62 thousand for both the three and nine month periods ended September 30, 1998.
This amortization is included in sales and marketing expenses.
Under our agreement with GeoCities entered into in September 1998, GeoCities
received 1,000,000 shares of Class A common stock upon the commencement of the
contract in consideration of the advertising, subscription and customer
acquisition opportunities. In addition to our obligation to share revenue
generated from the partnership with GeoCities, we were required to pay GeoCities
$1.5 million in three installments, the first of which was paid in December
1998. On May 1, 1999, GeoCities and Mail.com agreed to cancel and rescind the
contract. Under this agreement, GeoCities retained the first $500 thousand
non-refundable payment that we paid to it under the original agreement and we
will not be required to pay the remaining $1 million. In addition, GeoCities
returned to us the 1,000,000 shares of Class A common stock issued to them. We
have also agreed to deliver advertisements over our network on behalf of
GeoCities for the sixteen-month period commencing May 1999. The total payments
by GeoCities for this advertising will be $125 thousand per month or $2 million
in the aggregate over the sixteen-month period. In the second quarter of 1999,
we reversed the issuance of shares and expensed the non-refundable fee
previously paid to GeoCities.
In 1998, we entered into a partner agreement with CNET, which was amended
shortly thereafter to include Snap, a newly formed entity. Under the agreement,
we were obligated to issue warrants for a total of 1.5 million shares of our
Class A common stock upon achievement of a member registration target. The
warrants were divided between CNET and Snap, and Snap subsequently assigned its
portion to NBC Multimedia. CNET and NBC Multimedia exercised their warrants
prior to our initial public offering, and upon the closing of our initial public
offering on June 23, 1999, $7.5 million was transferred from an escrow account
to our account and we issued the common stock to CNET and NBC Multimedia.
Under a letter agreement dated May 26, 1999, AT&T Corp. ("AT&T") and the Company
agreed to negotiate in good faith to complete definitive agreements to establish
a strategic relationship. On July 26, 1999, both parties entered into an interim
agreement to provide e-mail services to select corporate IP Services customers.
We do not expect to generate
17
<PAGE>
significant revenues under the July 26 interim agreement. The parties have not
entered into a definitive agreement to establish the proposed strategic
relationship and no assurance can be given that a definitive agreement will be
achieved. AT&T or the Company may terminate the May 26 letter agreement without
further liability at any time prior to execution and delivery of a definitive
agreement. Under the letter agreement, we issued warrants to purchase 1,000,000
shares of Class A common stock at $11.00 per share. AT&T may exercise the
warrants at any time on or before December 31, 2000 regardless of whether we
enter into a definitive agreement for the strategic relationship. If under the
proposed strategic relationship AT&T provides more than 30,000 active emailboxes
with our email outsourcing services on or before December 31, 2000, AT&T may pay
the exercise price of the warrants by exchanging warrants in lieu of cash. AT&T
may not sell or otherwise transfer to a third party the warrants or the shares
issuable upon exercise of the warrants until the earlier of May 26, 2004 or the
date that it provides more than 30,000 active emailboxes if this date is on or
before December 31, 2000. In addition, AT&T has agreed that it will not sell or
otherwise transfer the warrants or the Class A common stock for 180 days after
our initial public offering.
The Company has incurred non-cash accounting charges of approximately $4.3
million in the aggregate as a result of the issuance of these warrants. The
Company has amortized $445 thousand for the three and nine month periods ended
September 30, 1999 and will continue to amortize these charges over the term of
the interim agreement entered into with AT&T. If we do not enter into a
definitive agreement, the remaining non-cash charges will be expensed in the
fiscal quarter in which both parties have ceased negotiations for the proposed
strategic relationship.
On July 14, 1999, we purchased an equity interest in 3Cube, Inc. Under the
agreement, we paid $1.0 million in cash and issued 80,083 shares of our Class
A common stock in exchange for 307,444 shares of 3Cube, Inc. convertible
preferred stock which represents an equity interest of less than 20% of
3Cube, Inc. We recorded this transaction under the cost method. This
agreement also included a technology licensing arrangement, whereby 3Cube has
agreed to integrate its Internet facsimile technology into our email service
across our partner network.
On August 20, 1999, we acquired The Allegro Group, Inc. Pursuant to the terms of
the merger agreement, Allegro became a wholly owned subsidiary of Mail.com. In
connection with this acquisition, we paid approximately $3.2 million in cash and
issued 1,102,973 shares of our Class A common stock to the shareholders of
Allegro valued at $17.1 million. We also paid one-time signing bonuses of $800
thousand to employees of Allegro who were not shareholders of Allegro. We are
also obligated to pay additional amounts based upon Allegro's achievement of
specified revenue targets in 2000. This contingent payment would consist of up
to $3.2 million payable in cash, additional bonus payments of up to $800
thousand and up to $16.0 million payable in shares of our Class A common stock
based on the market value of the stock at the time of payment, up to a maximum
of 2,000,000 shares. This contingent payment would be made in 2001. In
connection with their employment agreements, we also granted options to Allegro
employees to purchase approximately 625,000 shares of our Class A common stock
at an exercise price of $16.00 per share. These options vest quarterly over four
year's subject to continued employment. This acquisition has been accounted for
as a purchase business combination.
The valuation of the write-off of acquired in-process technology in the amount
of $900 thousand in connection with the acquisition of Allegro is based on an
independent appraisal which determined that the new versions of MailZone
technology acquired from Allegro had not been developed into the platform
required by us at the date of acquisition. As a result, we will be required
to expend significant capital expenditures to successfully integrate and
develop the new versions of the MailZone technology, for which there is
considerable risk that such technology will not be successfully developed,
and if such technology is not successfully developed, there will be no
alternative use for the technology. The MailZone technology is an enabling
technology for email communications and includes message management, license,
traffic and reporting. Our 1999 consolidated statements of operations
reflect a one-time write-off of the amount of the purchase price allocated to
acquired in-process technology of $900 thousand.
On October 18, 1999, the Company acquired TCOM, Inc. ("TCOM"), a leading
software technology development firm, specializing in the design of carrier
class applications for the telecommunications and computer telephony
industries. The addition of TCOM will expand the Company's technical
expertise in delivering mission critical Internet messaging services.
The Company is not continuing the business operations of TCOM but rather
making the acquisition in order to obtain technology and development
resources. The Company paid $2 million in cash and 439,832 shares of
Mail.com Class A Common Stock valued at approximately $6.1 million.
Mail.com may be obligated to pay additional consideration (the "Contingent
Consideration") based upon the achievement of certain objectives over an
18-month period. The Contingent Consideration would consist of up to $1.0
million payable in cash and up to $2.75 million payable in shares of Mail.com
Class A common stock based on the market value of such stock at the time of
payment (but such market value shall be deemed to be not less than $4.00 per
share).
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Although we have experienced substantial growth in revenues in recent periods,
we have incurred substantial operating losses since inception and will incur
substantial losses for the foreseeable future. As of September 30, 1999, we had
an accumulated deficit of approximately $47 million. We intend to invest heavily
in sales and marketing and continued development and enhancements to our
computer systems and service offerings. Our prospects should be considered in
light of risks, expenses and difficulties encountered by companies in the early
stages of development, particularly companies in the rapidly evolving Internet
market. See "Risk Factors That May Affect Future Results."
We have recorded amortization of deferred compensation of approximately $274
thousand for the nine months ended September 30, 1999, in connection with the
grant of stock options to one of our officers. This deferral represents the
difference between the deemed fair value of our common stock for accounting
purposes and the exercise price of the options at the date of grant. This amount
is represented as a reduction of stockholders' equity and amortized over the
applicable vesting period of the applicable options, which typically range from
three to four years. Amortization of deferred stock compensation is charged to
sales and marketing expense on the statement of operations. We will amortize the
remaining deferred compensation of approximately $751 thousand through December
2001.
We have recorded amortization of deferred compensation of approximately $40
thousand for the quarter ended September 30, 1999 in connection with the grant
of 110,150 stock options to some employees. This deferral represents the
difference between the deemed fair value of our common stock for accounting
purposes, in this case $7.00-$11.00 per share, and the $5.00 per share exercise
price of the options at the date of grant. We will amortize the deferred
compensation over the four-year vesting period of the applicable options.
In light of the evolving nature of our business and our limited operating
history, we believe that period-to-period comparisons of our revenues and
operating results are not meaningful and should not be relied upon as
indications of future performance. We believe that advertising sales in
traditional media, such as television and radio, generally are lower in the
first calendar quarter. Our revenues are also affected by seasonal patterns in
advertising, which would become more noticeable if our revenue growth does not
continue at its recent rate. We do not believe that our historical growth rates
are indicative of future results.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUE
Revenues for the three and nine months ended September 30, 1999 were $3.4
million and $6.6 million, respectively, as compared to $273 thousand and $492
thousand, respectively, for the three and nine months ended September 30,
1998. These increases of $3.2 million and $6.1 million, respectively, were
due primarily to commencing advertising sales in the second half of 1998
coupled with the acquisition of Allegro in the third quarter of 1999. Our
members established approximately 2.0 million emailboxes during the third
quarter of 1999 and 4.3 million emailboxes for the first nine months of 1999,
as compared to 700 thousand emailboxes and 1.8 million emailboxes for the
three and nine months ending September 30, 1998, respectively. The cumulative
total of emailboxes established approximates 8.6 million as of September 30,
1999.
Advertising revenues for the three and nine months ended September 30, 1999 were
$2.5 million and $5.3 million, respectively, as compared to $188 thousand and
$225 thousand in the comparable periods during 1998. For the three and nine
months ended September 30, 1999, approximately 11.2% and 9.5%, respectively, of
our revenue came from one advertiser. Revenue for the Company's five largest
advertisers accounted for approximately 29% and 36% of our revenues for the
three and nine months ended September 30, 1999, respectively. For the three and
nine months ended September 30, 1999 approximately $107 thousand and $361
thousand, respectively, were barter revenues, as compared to $35 thousand and
$47 thousand in the comparable periods in 1998.
Business messaging revenue was $569 thousand for both the three and nine month
periods ended September 30,1999, as compared to none during the comparable
periods in 1998. Revenues from subscription services were $160 thousand and $434
thousand, respectively, for the three and nine months ended September 30, 1999,
an increase from $76 thousand and $187 thousand, respectively, for the three and
nine months ended September 30, 1998. Other revenue, primarily the sale or
leasing of domain names, was $164 thousand and $289 thousand, respectively, for
the three and nine months ended September 30, 1999 and $8 thousand and $80
thousand for the three and nine months ended 1998.
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OPERATING EXPENSES
COST OF REVENUES
Cost of revenues for the three and nine months ended September 30, 1999 were
$4.2 million and $7.7 million, respectively, as compared to $801 thousand and
$1.7 million, respectively, for the comparable periods in 1998. Cost of revenues
consists primarily of costs incurred in the delivery and support of our email
service, including depreciation of equipment used in our computer systems, the
cost of telecommunications service, and personnel costs associated with our
systems, databases and graphics. Cost of revenues also includes costs associated
with licensing third party network software. In addition, we report the cost of
barter trades, amortization of domain assets, and the cost of domain names that
have been sold in cost of revenues. During the first nine months of 1999, we
purchased significant amounts of capital equipment for our computer systems to
accommodate the current growth and anticipate the future growth of emailboxes.
During the three and nine month periods ended September 30, 1999, barter expense
was approximately $91 thousand and $303 thousand, respectively, as compared to
$71 thousand and $83 thousand in the prior year periods. We also substantially
increased headcount in the above groups during 1999. We anticipate continuing to
purchase significant amounts of hardware and software and to continue to hire
technical personnel.
SALES AND MARKETING EXPENSES
Sales and marketing expenses were $9.6 million and $17.1 million,
respectively, for the three and nine months ended September 30, 1999 as
compared to $1.3 million and $2.1 million, respectively, for the comparable
periods in 1998. The increase was primarily due to the expansion of our sales
and marketing efforts and the increase in partner agreements with third party
web sites. The largest component of sales and marketing expenses are customer
acquisition costs. The costs related to customer acquisitions through the
issuance of Class A common stock were none and approximately $2.5 million,
respectively, for the three and nine months ended September 30, 1999 as
compared to none for the comparable periods in 1998. There were no customer
acquisition costs through the issuance of stock for the three months ended
September 30, 1999 due to an amendment to the CNET, Snap and NBC agreement
signed during the second quarter of 1999, which eliminated the monthly
issuance of shares, but issued the remainder of the shares under the contract
simultaneously with the IPO. The associated value of these shares is being
amortized over the subsequent two-year period. We recorded approximately $2.3
million and $2.7 million of amortization expense in connection with the
issuance of these shares for the three and nine months ended September 30,
1999. The next largest cost is advertising expenses, which reflect the launch
of our advertising campaign to build our brand. The remainder of the costs in
this category relates to salaries and commissions for sales, marketing, and
business development personnel. We increased our sales and marketing efforts
throughout the first nine months of 1999 and expect sales and marketing
expenses to continue to increase as we continue to invest in sales and
marketing personnel, expand our partner network, and build our brand name.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $3.2 million and $7.2 million,
respectively, for the three and nine months ended September 30, 1999 as compared
to $965 thousand and $1.7 million, respectively, for the comparable periods in
1998. The third quarter of 1999 included increased personnel and related costs,
including recruiting fees, primarily due to an increase in the number of
employees, increasing customer service coverage to 24 hours per day, 7 days per
week, and increased facilities costs. General and administrative expenses
consist primarily of compensation and other employee costs not included in other
line items, as well as overhead expenses, customer support and bad debt expense.
We expect these expenses to continue to grow as necessary to support the growth
of our business and to operate as a public company.
PRODUCT DEVELOPMENT
Product development costs were $1.9 million and $4.6 million, respectively, for
the three and nine months ended September 30, 1999 as compared to $490 thousand
and $986 thousand, respectively, for the comparable periods in 1998. The
increase in expenses was primarily due to increased staffing and consulting
costs to add new features, design new services and redesign existing services.
During the nine month period ending September 30, 1999, a portion of the
consulting expenses were paid through the issuance of 55,000 shares of our Class
A common stock at $5 per share. Product development costs consist primarily of
salaries and consulting services. To date, we have
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expensed all of our product development costs as incurred. We need to continue
to invest in product development to attain our goals and as a result we expect
product development expenses to increase significantly.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS AND WRITE-OFF OF ACQUIRED
IN-PROCESS TECHNOLOGY
Amortization of goodwill and other intangible assets and the write-off of
acquired in-process technology resulted from the acquisition of Allegro.
Goodwill represents the excess of the purchase price over the fair market
value of the net assets acquired and is being amortized over a 3-year period.
Purchased in process technology was $900 thousand for both the three and nine
month periods ended September 30, 1999. Amortization of goodwill for both the
three and nine month periods ended September 30, 1999 was $725 thousand as
compared to none for the prior year periods.
OTHER INCOME (EXPENSE), NET
Other income (expense), net includes interest income from our cash investments,
gain on the sale of investments and interest expense related to our capital
lease obligations. Interest income of $795 thousand and $1.1 million for the
three and nine months ended September 30, 1999, respectively, increased from
$107 thousand and $141 thousand for the comparable periods in 1998 due to higher
cash balances after we completed a private placement of preferred stock in March
1999 and our Initial Public Offering in June 1999. In 1998, we realized a gain
of approximately $438 thousand when we sold shares of Lycos common stock. We
received the Lycos stock as consideration in March 1998 when Lycos exercised an
option to acquire our Class A preferred stock. We had granted Lycos the option
when we entered into a partner contract with them in October 1997. Interest
expense was $177 thousand and $355 thousand for the three and nine months ended
September 30, 1999, respectively, as compared to $24 thousand and $57 thousand,
respectively, for the comparable periods in 1998. The increase was due to
interest recorded on our capital lease obligations, as we continue to finance
our computer equipment purchases
PREFERRED STOCK DIVIDEND
Upon the closing of our initial public offering, we settled in full all of our
contingent obligations to issue additional shares of stock to our former
preferred stockholders by issuing 968,800, 944,139, and 166,424 shares of our
Class A common stock to stockholders who formerly held Classes A, C and E
preferred shares, respectively. Simultaneously, all outstanding shares of
preferred stock were converted on a one-for-one basis into shares of Class A
common stock.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have obtained financing through private placements of
equity securities, equipment leases, and more recently through our initial
public offering. In March 1999, we received net proceeds of $15.2 million from
the sale of Class E convertible preferred stock. In June 1999, we received net
proceeds of approximately $51.1 million from our initial public offering,
concurrent share issuance to CNET and NBC Multimedia for the exercise of their
warrants to purchase Class A common stock and from the exercise of some employee
stock options. In July 1999, we received an additional $6.7 million when the
underwriters exercised their over-allotment of shares.
Net cash used in operating activities was $8.2 million for the nine months ended
September 30, 1999 and $2.7 million for the comparable period in 1998. Cash used
in operating activities was impacted by the net loss from operations, offset in
part by increases in accounts payable and accrued expenses as well as non-cash
charges related to partner agreements and vendor services, and depreciation and
amortization of fixed assets.
Net cash used in investing activities was $18.8 million for the nine months
ended September 30, 1999 and $2.2 million for the comparable period in 1998. Net
cash used in investing activities consisted primarily of purchases of computer
equipment and for the purchase of Allegro, offset in part by the proceeds
received from the sale and leaseback of computer equipment. We expect that net
cash used in investing activities will increase as we acquire significant new
hardware and software in the future.
Net cash provided by financing activities was $72.1 million for the nine months
ended September 30, 1999 and $16.3 million for the comparable period in 1998.
During the nine months ended September 30, 1999, $57.8 million was received from
our initial public offering which includes $6.7 million from the exercise of the
underwriters over-allotment option, the exercise of Class A common stock
warrants from CNET and NBC Multimedia and from the
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exercise of some employee stock options. Additionally, $15.2 million was
received in net proceeds from the sale of Class E preferred stock. On July 14,
1999 we purchased an equity interest of less than 20% in 3Cube, Inc. Under the
agreement, we paid $1.0 million in cash and issued 80,083 shares of our Class A
common stock for 307,444 shares of 3Cube, Inc.
As of September 30, 1999 we had $53.5 million of cash and cash equivalents. Our
principal commitments consist of obligations under capital leases, domain asset
purchase obligations and commitments for capital expenditures. We believe that
the existing cash and cash equivalents will be sufficient to meet our working
capital and capital expenditure requirements for at least the next 12 months.
Our operating and investing activities may require us to obtain additional
equity or debt financing. In addition, we continue to evaluate potential
acquisitions of other businesses, products, and technologies on an ongoing
basis. In order to complete these potential acquisitions, we may need additional
equity or debt financing in the future. Sales of additional equity securities
could result in additional dilution to our stockholders.
At September 30, 1999, the Company had established a $1 million letter of credit
("LOC") with a bank to secure obligations under an office space lease. The LOC
expires on January 31, 2001 and will automatically renew for additional periods
of one year but not beyond January 31, 2006. The bank may choose not to extend
the LOC by notifying the Company not less than 30 days but not more than 60 days
prior to an expiry date. The Company is required to maintain a $1 million
balance on deposit with the bank in an interest bearing account, which is
included in restricted investments in the consolidated balance sheet. Through
September 30, 1999 there were no drawings under the LOC.
YEAR 2000 COMPLIANCE
Our business could suffer if the systems on which we are dependent to conduct
our operations are not Year 2000 compliant.
Our potential areas of exposure include:
o internal information technology, including computers and
software;
o non-information technology, including telephone systems and
other equipment that we use internally; and
o external, third party systems, particularly the systems that
comprise the Internet and those products and services that
allow our members to access the Internet.
We have completed our initial assessment of current Year 2000 compliance for
both our information and non-information technology. Based on our initial
assessment, we believe all non-information technology, including security and
phone systems, upon which we are materially dependent, is Year 2000 compliant.
We expect to resolve any Year 2000 compliance issues relating to information
technology that we use internally primarily through normal upgrades or, when
necessary, through replacement of existing software with Year 2000 compliant
products. We do not expect the cost of these upgrades or replacements to be
material to our financial position or results of operations. If our production
and operational facilities that support our own Web sites are not Year 2000
compliant, portions of our services may become unavailable. Our review of our
systems has shown that there is no single component that would make our services
totally unavailable. We intend to complete the testing of our technologies,
replacement or correction of our non-compliant technologies and testing of any
replacement or corrected technologies by December 31, 1999.
We estimate that our total cost to become Year 2000 compliant will not exceed
$200 thousand. We have allocated this amount as follows:
o $100 thousand for a test system that is independent of our
main production system;
o $50 thousand for unplanned hardware and software upgrades; and
o $50 thousand for unplanned consulting and software development
resources.
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We have not incurred any significant capital costs regarding Year 2000
compliance to date. Our Year 2000 budget constitutes less than 2% of our
overall information technology budget. Our Year 2000 compliance efforts have
not had a material impact on other information technology projects. We do not
expect the financial or resource requirements necessary to achieve compliance
to have a material impact on our financial condition or results of
operations. However, necessary upgrades and replacements may not be completed
on schedule or within estimated costs or may not successfully address our
Year 2000 compliance issues. We have not engaged any third parties to verify
the results of our assessments or our cost estimates.
We are unable to determine the extent to which the external, third
party systems on which our business depends may be prone to Year 2000 risks. In
the event that the Internet or widespread access to the Internet is compromised
because of Year 2000 problems, our services may not be available to or
accessible by our members. Our computer systems, and the systems of others that
we depend on, may not operate properly because of the Year 2000 problem. We are
in the process of seeking verification from our key Web site and ISP partners,
manufacturers and suppliers that they have either achieved or expect to achieve
Year 2000 compliance. As of September 30, 1999, we have received notification
from over 90% of our manufacturers and suppliers and approximately 30% of our
partners that they are either Year 2000 compliant or are taking necessary steps
to become Year 2000 compliant. Although partners have been slow to respond to
inquiries regarding Year 2000 compliance, our largest partners have responded.
These partners account for approximately 60% of the emailboxes established
through our partner network. We have not engaged any independent services to
verify and validate representations made by key Web sites and partners,
manufacturers and suppliers. We plan to monitor progress of these entities by
requesting periodic updates as they prepare for the arrival of the year 2000.
In the event that any of our partner sites are unable to operate due to
Year 2000 difficulties, we could with our partner's consent offer most of the
affected members the ability to bypass the partner site and access their
emailbox through one of our own sites.
We do not currently have a contingency plan to deal with the worst-case
scenario involving Year 2000-related failures of technologies on which we are
dependent. We intend to develop a plan for this scenario by December 15, 1999.
Our contingency plan will outline our plans and procedures for dealing with
unanticipated difficulties resulting from Year 2000 related failures. Potential
Year 2000 problems will vary in significance, ranging from minor software bugs
to network failures. Our services would not be available under our worst case
scenario, potentially resulting in loss of revenues and a decrease in the number
of new members. Although we do not anticipate the occurrence of this worst case
scenario, our contingency plan will include procedures to follow if it occurs.
If our present efforts to address the Year 2000 compliance issues are
not successful, or if partners, manufacturers, suppliers and other third parties
do not successfully address these issues, our business, operating results and
financial position could be materially and adversely affected.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 provides guidance for
determining whether computer software is internal-use software and guidance on
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. We adopted SOP 98-1 in 1999 and its
effect is not significant.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and for hedging
activities. During June 1999, SFAS No. 137 was issued which delayed the
effective date of SFAS No. 133. SFAS No. 137 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. We do not expect this
statement to affect us, as we do not have any derivative instruments or hedging
activities
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In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosure About Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the way that public enterprises report
information about operating segments. It also establishes standards for related
disclosures about products, and services, geographic area and major customers.
We have determined that we do not have any separately reportable segments.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
WE HAVE ONLY A LIMITED OPERATING HISTORY, AND WE ARE INVOLVED IN A NEW AND
UNPROVEN INDUSTRY.
We have only a limited operating history upon which you can evaluate our
business and our prospects. We have offered a commercial email service since
November 1996 under the name iName. We changed our company name to Mail.com,
Inc. in January 1999. Our success will depend first upon the development of a
viable market for email advertising and fee-based email outsourcing, and then
upon our ability to compete successfully in those markets. For the reasons
discussed in more detail below, there are substantial obstacles to our achieving
and sustaining profitability.
WE HAVE INCURRED LOSSES SINCE INCEPTION AND EXPECT TO INCUR SUBSTANTIAL LOSSES
IN THE FUTURE.
We have generated only limited revenues to date. We have not achieved
profitability in any period, and we may not be able to achieve or sustain
profitability. We incurred a net loss attributable to common stockholders of
$12.5 million for the year ended December 31, 1998 and $45.5 million for the
nine months ended September 30, 1999. We had an accumulated deficit of $47
million as of September 30, 1999.
We expect to continue to incur substantial net losses and negative operating
cash flow for the foreseeable future. We have begun and will continue to
significantly increase our operating expenses in anticipation of future growth.
We intend to expand our sales and marketing operations, upgrade and enhance our
technology, continue our international expansion, and improve and expand our
management information and other internal systems. We intend to make strategic
acquisitions and investments, which may result in significant amortization of
goodwill and other expenses. We are making these expenditures in anticipation of
higher revenues, but there will be a delay in realizing higher revenues even if
we are successful. If we do not succeed in substantially increasing our
revenues, our losses will continue indefinitely and will increase.
TO GENERATE INCREASED REVENUES WE WILL HAVE TO SUBSTANTIALLY INCREASE THE NUMBER
OF OUR MEMBERS, WHICH WILL BE DIFFICULT TO ACCOMPLISH.
To achieve our objective of generating advertising related revenues and
subscription revenues through our consumer email services, we will have to
retain our existing members and acquire a large number of new members.
We have relied upon strategic alliances with third party Web sites to
attract the majority of our current members. We believe that our success will
partially depend on our ability to maintain our current alliances and to enter
into new ones with Web sites and ISPs on acceptable terms. We believe, however,
that the opportunity to form alliances with third party Web sites that are
capable of producing a substantial number of new members is diminishing. Many
third party Web sites that we have identified as potential sources for
significant quantities of new members already offer their visitors an email
service similar to ours. We cannot assure you that we will be able to enter into
successful alliances with third party Web sites or ISPs on acceptable terms or
at all.
OUR CONTRACTS WITH OUR WEB SITE AND ISP PARTNERS REQUIRE US TO INCUR SUBSTANTIAL
EXPENSES.
o In nearly all cases our Web site and ISP partners do not pay
us to provide our services. We bear the costs of providing our
services. We generate revenues by selling advertising space to
advertisers who want to target our members and by selling
subscription services to these members. We pay the partner a
share of the revenues we generate. In addition, a number of
our contracts require us to pay significant fees or to make
minimum payments to the partner without regard to the revenues
we realize. If we are unable to generate sufficient revenues
at our partner sites, these fees and minimum payments can
cause the partner's effective share of our revenues to
approach or exceed 100%.
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WE HAVE ISSUED WARRANTS TO PURCHASE 1,000,000 SHARES OF OUR CLASS A
COMMON STOCK TO AT&T CORP. AS PART OF A PROPOSED STRATEGIC RELATIONSHIP WITH
THEM, BUT WE CANNOT ASSURE YOU THAT WE WILL ENTER INTO THE STRATEGIC
RELATIONSHIP.
Under a letter agreement with AT&T Corp. ("AT&T") dated May 26, 1999, we issued
warrants to purchase 1,000,000 shares of our Class A common stock at an exercise
price of $11.00 per share. AT&T may exercise the warrants at any time on or
before December 31, 2000 even if we do not enter into a strategic relationship
with them. We will incur non-cash accounting charges of approximately $4.3
million in the aggregate as a result of the issuance of these warrants. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Under the letter agreement, AT&T and Mail.com have agreed to
negotiate in good faith to establish a strategic relationship. On July 26, 1999,
we entered into an interim agreement to provide our email services as part of a
package of AT&T or third party branded communications services that AT&T may
offer to some of its small business customers. We do not expect to generate
significant revenues under the July 26 interim agreement. AT&T or the Company
may terminate the May 26 letter agreement without further liability at any time
prior to the execution and delivery of a definitive agreement establishing the
strategic relationship. We cannot assure you that we will be able to enter into
a definitive agreement to implement the proposed strategic relationship. AT&T
will be entitled to retain their warrants even if we do not enter into
definitive agreements.
THE FAILURE TO RENEW OUR PARTNER CONTRACTS, WHICH HAVE LIMITED TERMS, CAN RESULT
IN THE LOSS OF MEMBERS AND IMPAIR OUR CREDIBILITY.
Our partner contracts generally have one or two year terms. A partner can decide
not to renew at the end of the term for a variety of reasons, including
dissatisfaction with our service, a desire to switch to one of our outsourcing
competitors, or a decision to provide email service themselves. Partners can
also choose not to renew our contract because they have entered into a merger or
other strategic relationship with another company that can provide email
service. This last factor is becoming increasingly common in light of the
consolidation taking place among Web sites, ISPs and other Internet-related
businesses. For example, NBC Multimedia has entered into an agreement with Xoom
to create a new Internet services company. Under the terms of the agreement,
Xoom will merge with Snap, which is jointly owned by CNET and NBC Multimedia.
Xoom currently offers a free email service at its Xoom.com Web site. In
addition, EarthLink recently entered into an agreement to merge with MindSpring,
an ISP that offers its own email service. We cannot assure you that these
partners will not seek to terminate their contractual relationships with us. The
loss of a partner can be very disruptive for us for a number of reasons:
WE WILL LOSE A SUBSTANTIAL NUMBER OF MEMBERS. When members register for
our service at a partner's Web site, the default domain name members use for
their email address is typically a domain name that is owned by the partner. As
of September 30, 1999, we estimate that approximately 24% of our established
emailboxes have email addresses at partner-owned domain names. Upon expiration,
most partners can require us to relinquish existing members with addresses at
partner-owned domain names. Even those members who have selected addresses using
our domain names may find it more convenient to switch to whatever replacement
email service may be available at the partner's site. The loss of members due to
expiration or non-renewal of partner contracts may materially reduce our
revenues. Moreover, as of September 30, 1999, we estimate that approximately 18%
of our emailboxes established are at the email.com domain. If CNET and Snap
exercise their rights to terminate our agreement, which includes the right to
terminate for convenience after May 13, 2001, we would be obligated to transfer
the email.com domain name and related member information to them. If CNET and
Snap terminate for convenience, they would be obligated to pay us the greater of
$5 million or 120% of the fair market value of the email.com user data based on
the projected economic benefit of the users and either return to us the shares
that we issued to them for the establishment of emailboxes or pay us the then
fair market value of these shares. If CNET and Snap terminate for other reasons,
the amount of compensation they must pay to us varies depending on the reason
for termination. NBC Multimedia may elect to exercise similar rights relating to
email.com emailboxes established through their sites under our agreement with
them.
LOSING RELATIONSHIPS WITH PROMINENT PARTNERS CAN IMPAIR OUR CREDIBILITY
WITH ADVERTISERS AND OTHER PARTNERS. We believe that partnerships with Web sites
that have prominent brand names help give us credibility with other partners and
with advertisers. The loss of our better-known Web site partners could damage
our reputation and adversely affect the advertising, direct marketing,
e-commerce and subscription rates we charge.
SEVERAL OF OUR MOST SIGNIFICANT PARTNER CONTRACTS HAVE EXPIRED WHICH COULD
RESULT IN REDUCED ADVERTISING AND SUBSCRIPTION REVENUES.
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Any loss of members or decline in the number of page views arising out of the
expiration or termination of partner contracts could reduce our advertising and
subscription revenues.
Two of our most important Web site partnerships have been with Lycos and
AltaVista, which collectively have accounted for approximately 19% of the
emailboxes established through September 30, 1999, and for approximately 16% of
the total page views we delivered in September 1999. Our agreement with Lycos
expired on October 8, 1998, shortly after Lycos acquired WhoWhere, a competitor
that provides personal homepage and Webmail services. Our contract with
AltaVista expired on September 30, 1999. While we own the right to serve the
majority of the affected members after the expiration of these contracts, we
cannot be sure that these members will continue to use our service as actively
as they have in the past, if at all.
BECAUSE WE ARE DEPENDENT ON A SMALL NUMBER OF PARTNER SITES FOR A SUBSTANTIAL
PERCENTAGE OF OUR ANTICIPATED NEW MEMBERS, A DISRUPTION IN OUR RELATIONSHIP WITH
ANY OF THESE PARTNERS OR A DECREASE IN TRAFFIC AT ANY OF THESE SITES COULD
REDUCE OUR ADVERTISING RELATED REVENUES AND SUBSCRIPTION REVENUES.
Most of our partner sites, including most of those with well-known brand names,
do not generate significant numbers of new emailboxes. The following four
partners accounted for 39% of our new emailboxes established in September 1999:
DATE THAT OUR
PARTNER PERCENTAGE OF NEW CONTRACT WITH THE
EMAILBOXES IN SEPTEMBER 1999 PARTNER EXPIRES
---------------------------- -----------------
Snap..................... 12% *
AltaVista................ 11 September 1999
Prodigy.................. 10 February 2000
CNET..................... 6 *
* CNET and Snap may terminate their contracts for convenience after
May 13, 2001.
Our contract with AltaVista expired on September 30, 1999 and we discontinued
new sign ups at the AltaVista site as of October 6, 1999. Our contract with
Prodigy is automatically renewable for successive six-month terms unless either
party elects to terminate at least thirty days before the start of a new term.
If any of the Web sites operated by these parties were to experience
lower than anticipated traffic, or if our relationships with any of these
parties were disrupted for any reason, our revenues could decrease and the
growth of our business would be impeded. Lower than anticipated traffic could
result in decreased advertising related revenues because those revenues are in
part dependent on the number of members and the level of member usage.
WE HAVE ONLY LIMITED INFORMATION ABOUT OUR MEMBERS AND THEIR USAGE, WHICH MAY
REDUCE OUR POTENTIAL REVENUES.
Our ability to generate revenue from advertising related sales is
directly related to our members' activity levels and the quality of our
demographic data. To be successful, we will have to increase members' usage of
our service. We are subject to several constraints that will limit our ability
to maximize the value of our member base:
WE BELIEVE THAT MOST OF OUR MEMBERS DO NOT USE THEIR EMAILBOXES
REGULARLY, AND MANY DO NOT USE THEM AT ALL. We do not have the computer systems
necessary to regularly monitor emailbox usage by our members. Our most recent
information is for selected Web sites for the month of September 1999 and
excludes ISP members, email.com members, members who automatically forward their
email from their emailbox provided by Mail.com to another emailbox and members
that subscribe for our upgrade "POP3" access. In September 1999, no more than
30% of emailboxes in the sample were accessed by our members. We expect our
proportion of active members to decrease as our total number of established
emailboxes increases. On an ongoing basis, we believe that a significant number
of members will cease using our service each month. We cannot assure you that we
will be able to add enough new members to compensate for this anticipated loss
of usage.
WE HAVE ONLY A LIMITED ABILITY TO GENERATE ADVERTISING REVENUES FROM
FORWARDING AND POP3 ACCOUNTS, WHICH REPRESENT A SIGNIFICANT PERCENTAGE OF OUR
EMAILBOXES. Members who choose our forwarding service or subscribe to our
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POP3 service do not need to come to our partners' or our Web sites to access
their email. Therefore, we do not deliver Web-based advertisements to these
members. Forwarding and POP3 accounts represented approximately 38% of our total
emailboxes as of September 30, 1999, and 22% of the emailboxes that were
established during September 1999. If a disproportionate percentage of members
choose either of these options, it will adversely affect our ability to generate
advertising related revenues.
OUR DATABASE CONTAINS INACCURACIES THAT COULD REDUCE THE VALUE OF OUR
INFORMATION. Although we attempt to collect basic demographic information about
members at the time they establish their accounts, we do not verify the accuracy
of this information. Moreover, even if the information is correct when we
receive it, members may move, change jobs or die without our knowledge. As a
result, our database contains inaccuracies that could make our information less
appealing to advertisers.
WE DO NOT KNOW HOW MANY MEMBERS HAVE ESTABLISHED MULTIPLE EMAILBOXES. Because
we do not charge for our basic service, individuals can easily establish
multiple emailboxes. This makes it impossible for us to determine the number of
separate individuals registering for our service, which may reduce the
advertising rates we can command.
WEBMAIL, EMAIL ADVERTISING AND EMAIL OUTSOURCING MAY NOT PROVE TO BE VIABLE
BUSINESSES.
We operate in an industry that is only beginning to develop. Our success will
require the widespread acceptance by consumers of Webmail. We are also dependent
on the development of viable markets for email advertising and the outsourcing
of email services to businesses and other organizations. For a number of
reasons, each of these developments is somewhat speculative:
CONSUMERS MAY NOT BE WILLING TO USE WEBMAIL IN LARGE NUMBERS. As a Web-based
messaging service, Webmail is subject to the same concerns and shortcomings as
the Internet itself. Concerns about the security of information carried over the
Internet and stored on central computer systems could inhibit consumer
acceptance of Webmail. Moreover, Webmail can only function as effectively as the
Web itself. If traffic on the Web does not move quickly or Internet access is
impeded, consumers are less likely to use Webmail. Consumers may also react
negatively to the relatively new concept of advertising being included in their
email service. Our business will suffer if public perception of our service or
of Webmail in general is unfavorable. Articles and reviews published in popular
publications relating to computers and the Internet have a great deal of impact
on public opinion within our markets, and an article or review unfavorable to
Webmail or to our service specifically could slow or prevent broad market
acceptance. Similarly, if employers in large numbers implement policies or
software designed to restrict access to Webmail, Webmail is much less likely to
gain popular acceptance.
There are even greater uncertainties about our ability to successfully
market premium Webmail services. Consumers have generally been very reluctant to
pay for services provided over the Internet. In August 1999, we discontinued
charging our members for virtually all of our premium domain names. Moreover, if
our competitors choose to provide POP3 access, greater storage capacity or other
services without charge or as part of a bundled offering, we may be forced to do
the same.
THERE ARE SIGNIFICANT OBSTACLES TO THE DEVELOPMENT OF A SIZABLE MARKET
FOR EMAIL OUTSOURCING. Outsourcing is one of the principal methods by which we
will attempt to reach the size we believe is necessary to be successful.
Security and the reliability of the Internet, however, are likely to be of
concern to Web sites, ISPs, schools, businesses and organizations deciding
whether to outsource their email or to continue to provide it themselves. These
concerns are likely to be particularly strong at larger businesses, which are
better able to afford the costs of maintaining their own systems. Although we
have begun to provide our email services to businesses and organizations, we
cannot be sure that we will be able to expand our business customer base,
attract additional customers in other segments or acquire a sufficient base of
customers for whom we provide hosting services. In addition, we may not be able
to generate significant additional revenues by providing our email services to
businesses. Standards for pricing in the business email services market are not
yet well defined and some businesses, schools and other organizations may not be
willing to pay the fees we charge. We cannot assure you that the fees we are
able to charge will be sufficient to offset the related costs of providing these
services.
THE MARKET FOR EMAIL ADVERTISING IS ONLY BEGINNING TO DEVELOP AND THE
EFFECTIVENESS OF THIS FORM OF ADVERTISING IS UNPROVEN. Even if Webmail proves to
be popular, we will still need large numbers of advertisers to purchase space on
our Webmail service. We currently do not sell advertisements in connection with
our business email services.
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Because we, and our competitors, have only recently begun to offer email
advertising, our potential advertising customers have little or no experience
with this medium. We do not yet have enough experience to demonstrate the
effectiveness of this form of advertising. As a result, those customers willing
to try email advertising are likely to allocate only a limited portion of their
advertising budgets. If early customers do not find email advertising to be
effective for promoting their products and services, the market for our products
will be unlikely to develop. Prices for banner advertisements on the Internet
may fall, in part because of diminishing "click" or response rates. Advertisers
may also request fewer "cost per thousand advertisements" pricing arrangements
and more "cost per click" pricing, which would effectively lower advertising
rates.
THERE ARE CURRENTLY NO STANDARDS FOR MEASURING THE EFFECTIVENESS OF
WEBMAIL ADVERTISING. Standard measurements may need to be developed to support
and promote Webmail advertising as a significant advertising medium. Our
advertising customers may refuse to accept our own measurements or third-party
measurements of advertisement delivery, which would adversely affect our ability
to generate advertising related revenues.
FILTERING SOFTWARE COULD PREVENT US FROM DELIVERING ADVERTISING. Inexpensive
software programs are available which limit or prevent the delivery of
advertising to a user's computer. The widespread adoption of this software would
seriously threaten the commercial viability of email advertising and our ability
to generate advertising revenues.
THERE ARE SIGNIFICANT OBSTACLES TO OUR ABILITY TO INCREASE ADVERTISING REVENUES.
Our success will largely depend on our ability to substantially increase our
advertising related revenues, which we currently generate only in connection
with our consumer services. Several factors will make it very difficult for us
to achieve this objective:
A LIMITED NUMBER OF ADVERTISERS ACCOUNT FOR A HIGH PERCENTAGE OF OUR
REVENUES, OUR CONTRACTS WITH OUR ADVERTISERS TYPICALLY HAVE TERMS OF ONLY ONE OR
TWO MONTHS, AND WE MAY BE UNABLE TO RENEW THESE CONTRACTS. We are dependent on a
limited number of advertisers to derive a substantial portion of our revenues.
For the nine-month periods ended September 30, 1999 and 1998, approximately 7%
and 12%, respectively, of our total revenues were attributable to N2K/Music
Boulevard, which recently merged with CDnow, Inc. and is not presently one of
our advertisers. For the nine-month periods ended September 30, 1999 and 1998,
revenues from our five largest advertisers accounted for an aggregate of 36% and
35%, respectively, of our revenues. Our future success will depend upon our
ability to retain these advertisers, to generate significant revenues from new
advertisers and to reduce our reliance on any single advertiser. Our existing
contracts with advertisers generally have terms of only one or two months and we
may be unable to renew them. The loss of one of our major advertisers or our
inability to attract new advertisers would cause our revenues to decline.
ADVERTISEMENTS DELIVERED ON OUR WEBMAIL SERVICE HAVE LOW "CLICK RATES",
WHICH COULD ADVERSELY AFFECT OUR REVENUES. Only a small percentage of our
members "click" on the advertisements we deliver with their Webmail. Because we
do not control the creative elements of the advertisements, we have very little
ability to increase our click rate. Continued low click rates could reduce the
amounts advertisers will be willing to pay us.
WE MAY NOT BE ABLE TO SELL AS MUCH ADVERTISING ON A "COST PER THOUSAND"
BASIS OR TO CHARGE AS MUCH UNDER THIS TYPE OF ARRANGEMENT AS WE HAVE IN THE
PAST. To date, we have generated a significant portion of our advertising
revenues on a "cost per thousand" basis. These agreements require the advertiser
to pay us a fixed fee for every 1,000 advertisements that we deliver to our
members. We believe that this type of agreement is the most effective for us,
but we may not be able to charge as much for these agreements, or to continue to
sell as much advertising on this basis, in the future.
WE FACE GREATER RISKS WHEN SELLING ADVERTISING ON A "COST PER ACTION" BASIS.
The two types of "cost per action" contracts are "cost per click" and "cost per
conversion." In cost per click contracts, an advertiser agrees to pay us a fee
for each occasion on which a member "clicks" on the advertisement. Cost per
conversion contracts provide that we receive a fee only when a member both
"clicks" on the advertisement and proceeds to purchase an item, order a catalog
or take some other step specified by the advertiser. In general, these
arrangements do not yield as much revenue for us for each advertisement that we
deliver to our members. Moreover, cost per conversion contracts present
additional risks for us because we have no control over the advertiser's ability
to convert a "click" into a sale or other action. We also must rely on the
advertiser to report to us the number of conversions. These reports may not be
accurate, and they
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may not be timely, both of which can adversely affect our revenues.
Notwithstanding these risks, we may have to sell more of our advertising on a
cost per click or cost per conversion basis in the future.
WE MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF FLUCTUATIONS IN OUR QUARTERLY
OPERATING RESULTS, WHICH WOULD CAUSE OUR STOCK PRICE TO DECLINE.
Although we intend to steadily increase our spending and investment to support
our planned growth, our revenues (and some of our costs) will be much less
predictable. This is likely to result in significant fluctuations in our
quarterly results, and to limit the value of quarter-to-quarter comparisons.
Because of our limited operating history and the emerging nature of our
industry, we anticipate that securities analysts will have difficulty in
accurately forecasting our results. It is likely that our operating results in
some quarters will be below market expectations. In this event, the price of our
Class A common stock is likely to decline.
The following are among the factors that could cause significant
fluctuations in our operating results:
o incurrence of a non-cash accounting charge of the remaining
unamortized portion of the approximately $4.3 million
originally capitalized from the issuance of warrants to AT&T
Corp. if we do not enter into a definitive agreement with AT&T
Corp. We would incur this charge in the fiscal quarter in
which both parties have ceased negotiations;
o delay or cancellation of even a small number of advertising
contracts;
o expiration or termination of partnerships with Web sites or
ISPs, which can result from mergers or other strategic
combinations as Internet businesses continue to consolidate;
o system outages, delays in obtaining new equipment or problems
with planned upgrades;
o disruption or impairment of the Internet;
o introduction of new or enhanced services by us or our
competitors;
o changes in our pricing policy or that of our competitors;
o seasonality in the demand for advertising, or changes in our
own advertising rates or advertising rates in general, both on
and off the Internet;
o changes in governmental regulation of the Internet and email
in particular; and
o general economic and market conditions, and particularly those
affecting email advertising.
SEVERAL OF OUR COMPETITORS HAVE SUBSTANTIALLY GREATER RESOURCES, LONGER
OPERATING HISTORIES, LARGER CUSTOMER BASES AND BROADER PRODUCT OFFERINGS.
Our business is, and we believe will continue to be, intensely competitive. Our
competitors with respect to email services include such large and established
companies as Microsoft, America Online, Yahoo!, Excite@Home, Disney (which owns
the GO Network) and Lycos. Microsoft offers free Webmail through its Hotmail Web
site, and has dominant market share with over 40 million emailboxes according to
Microsoft. We also compete for partners with email service providers such as
USA.NET, Inc., Critical Path, Inc. and CommTouch Software, Ltd. In offering
outsourcing services to businesses, schools and other organizations, we expect
to compete with MCI Mail, USA.NET and Critical Path. In addition, we compete for
advertisers with DoubleClick, 24/7 Media, and other Internet advertising
networks. We also compete for advertisers with other Internet publishers as well
as traditional media such as television, radio, print and outdoor advertising.
Some of our competitors provide a variety of Web-based services such as
Internet access, browser software, homepage design and Web site hosting, in
addition to email. The ability of these competitors to offer a broader suite of
complementary services may give them a considerable advantage over us. In
addition, some competitors who have
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other sources of revenue do not, or in the future may not, place advertising on
their Webmail pages. Consumers may prefer a service that does not include
advertisements.
The level of competition is likely to increase as current competitors
increase the sophistication of their offerings and as new participants enter the
market. In the future, as we expand our service offerings, we expect to
encounter increased competition in the development and delivery of these
services. Further, some of our competitors may offer services for which we now
charge our members at or below cost or for free. If our competitors choose to
offer premium or other services at or below cost or for free, we may be forced
to do the same for our comparable services. If this occurs, our ability to
generate revenues from our subscription services would be materially impaired.
Some of our competitors may offer advertisement-free email on a subscription
basis or for free, which could adversely affect our ability to attract and
retain members unless we do the same. In addition, new technologies and the
expansion of existing technologies may increase competitive pressures on us. We
may not be able to compete successfully against our current or future
competitors.
OUR RAPID EXPANSION IS STRAINING OUR EXISTING RESOURCES, AND IF WE ARE NOT ABLE
TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS AND OPERATING RESULTS WILL
SUFFER.
We have begun aggressively expanding our operations in anticipation of an
increasing number of strategic alliances and a corresponding increase in the
number of members as well as development of our business customer base. The
number of our employees increased from 29 on December 31, 1997 to 205 on
September 30, 1999, including the 23 former employees of Allegro whom we hired
in connection with the Allegro acquisition. We have entered into agreements with
additional partners and have upgraded our email services. In addition, we have
developed the technology and infrastructure to begin offering a range of
services in the business email services market. This expansion has placed, and
we expect it to continue to place, a significant strain on our managerial,
operational and financial resources. If we cannot manage our growth effectively,
our business and operating results will suffer.
IF WE ARE NOT ABLE TO IMPROVE OUR BILLING, MANAGEMENT INFORMATION AND OTHER
SYSTEMS, OUR REVENUES FROM SUBSCRIPTION SERVICES WILL DECLINE AND OUR MARKETING
EFFORTS WILL BE LESS EFFECTIVE.
We need to improve or replace our existing operational, customer service and
financial systems, procedures and controls.
THE LACK OF NECESSARY SYSTEMS TO REGULARLY MONITOR OUR MEMBERS' ACTIVITY LEVELS
MAY REDUCE THE EFFECTIVENESS OF OUR MARKETING EFFORTS. It is difficult for us to
regularly generate statistics such as the number of emailboxes that our members
access, and the pages they view, on a daily, weekly and monthly basis. Data of
this nature is of significant value to potential advertisers, and our inability
to provide this information reduces the effectiveness of our marketing efforts.
OUR SUBSCRIPTION BILLING SYSTEM IS INADEQUATE, AND IF WE ARE UNABLE TO
IMPLEMENT OUR NEW SYSTEM EFFECTIVELY, THE DEVELOPMENT OF OUR SUBSCRIPTION
SERVICES AS A SOURCE OF REVENUE WILL BE MATERIALLY COMPROMISED. Until March
1999, we did not request credit card information from new premium service
members at the time they registered, but sought instead to obtain billing
information upon expiration of a 30-day free trial period. This provided to be
unsuccessful, and consequently approximately 94% of our premium members received
subscription services for which they did not pay. Our new billing system has
been designed to require a member to supply credit card information at the time
of registration for subscription services. If our new billing system does not
significantly improve our ability to collect payments for subscription services,
the development of our subscription services as a source of revenue will be
materially compromised.
OUR MERCHANT BANK OR CREDIT CARD SERVICE PROVIDERS MAY CANCEL OUR
RIGHTS TO ACCEPT ON-LINE CREDIT CARD PAYMENTS, CAUSING A DECLINE IN OUR REVENUES
FROM SUBSCRIPTION SERVICES. Because of the anonymity the Internet affords its
users, there are a large number of fraudulent credit card transactions passed
through Internet billing systems. We have exceeded the level of credit card
chargebacks usually accepted by our merchant banks and credit card service
providers - VISA, MasterCard and American Express. We had to change merchant
banks once during the last 18 months as a result of this. Our new billing system
is designed to reduce fraud and the resulting chargebacks. Because the new
billing software is tightly integrated with a different merchant bank, we have
switched our merchant bank. This new bank may require us to maintain a reserve
account equal to a percentage of the monthly bank card sales drafts we submit.
We cannot be sure that our new billing system and the reserve account will fully
address the
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concerns of our merchant bank and credit card service providers. If any of our
credit card service providers cancelled our account we would expect a
significant reduction in subscription revenues. If our merchant bank cancelled
our account and we could not find a replacement merchant bank, it would be
difficult if not impossible to charge our users for subscription services.
IT IS DIFFICULT TO RETAIN KEY PERSONNEL AND ATTRACT ADDITIONAL QUALIFIED
EMPLOYEES IN OUR BUSINESS AND THE LOSS OF KEY PERSONNEL AND THE BURDEN OF
ATTRACTING ADDITIONAL QUALIFIED EMPLOYEES MAY IMPEDE THE OPERATION AND GROWTH OF
OUR BUSINESS AND CAUSE OUR REVENUES TO DECLINE.
Our future success depends to a significant extent on the continued service of
our key technical, sales and senior management personnel, but they have no
contractual obligation to remain with us. In particular, our success depends on
the continued service of Gerald Gorman, our Chairman and Chief Executive
Officer, Gary Millin, our President, Lon Otremba, our Chief Operating Officer,
Debra McClister, our Executive Vice President and Chief Financial Officer,
Charles Walden, our Executive Vice President, Technology and Aaron Fessler,
President of Allegro. The loss of the services of Messrs. Gorman, Millin,
Otremba, Walden, Fessler or of Ms. McClister, or several other key employees,
would impede the operation and growth of our business.
To manage our existing business and handle any future growth, we will have to
attract, retain and motivate additional highly skilled employees. In particular,
we will need to hire and retain qualified salespeople if we are to meet our
sales goals. We will also need to hire and retain additional experienced and
skilled technical personnel in order to meet the increasing technical demands of
our expanding business. Competition for employees in Internet-related businesses
is intense. We have in the past experienced, and expect to continue to
experience, difficulty in hiring and retaining employees with appropriate
qualifications. If we are unable to do so, our management may not be able to
effectively manage our business, exploit opportunities and respond to
competitive challenges.
OUR BUSINESS IS HEAVILY DEPENDENT ON TECHNOLOGY, INCLUDING TECHNOLOGY THAT HAS
NOT YET BEEN PROVEN RELIABLE AT HIGH TRAFFIC LEVELS AND TECHNOLOGY THAT WE DO
NOT CONTROL.
The performance of our computer systems is critical to the quality of service we
are able to provide to our members and to our business customers. If our
services are unavailable or fail to perform to their satisfaction, they may
cease using our service. Reduced use of our service decreases our revenues by
decreasing the advertising space that we have available to sell. In addition,
our agreements with several of our partners establish minimum performance
standards. If we fail to meet these standards, our partners could terminate
their relationships with us and assert claims for monetary damages.
WE NEED TO UPGRADE OUR COMPUTER SYSTEMS TO ACCOMMODATE INCREASES IN EMAIL
TRAFFIC, BUT WE MAY NOT BE ABLE TO DO SO WHILE MAINTAINING OUR CURRENT LEVEL OF
SERVICE, OR AT ALL.
We must continue to expand and adapt our computer systems as the number of
members and the amount of information they wish to transmit increases and as
their requirements change, and as we develop our business email services.
Because we have only been providing our services for a limited time, and because
our computer systems have not been tested at greater capacities, we cannot
guarantee the ability of our computer systems to connect and manage a
substantially larger number of members or meet the needs of business customers
at high transmission speeds. If we cannot provide the necessary service while
maintaining expected performance, our business would suffer and our ability to
generate revenues through our services would be impaired.
The expansion and adaptation of our computer systems will require
substantial financial, operational and managerial resources. We may not be able
to accurately project the timing of increases in email traffic or other customer
requirements. In addition, the very process of upgrading our computer systems is
likely to cause service disruptions. This is because we will have to take
various elements of the network out of service in order to install some
upgrades.
OUR COMPUTER SYSTEMS MAY FAIL AND INTERRUPT OUR SERVICE.
Our members have in the past experienced interruptions in our email service. We
believe that these interruptions will continue to occur from time to time. These
interruptions are due to hardware failures, unsolicited bulk emails that
overload our system and other computer system failures. These failures have
resulted and may continue to result in
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significant disruptions to our service. Although we plan to install backup
computers and implement procedures to reduce the impact of future malfunctions
in these systems, the presence of these and other single points of failure in
our network increases the risk of service interruptions. Some aspects of our
computer systems are not redundant. These include our member database system and
our email storage system, which stores emails and other data for our members. In
addition, substantially all of our computer and communications systems are
currently located in our primary data center in lower Manhattan. We currently do
not have an alternate site from which we could conduct operations in the event
of a disaster. Our computer and communications hardware is vulnerable to damage
or interruption from fire, flood, earthquake, power loss, telecommunications
failure and similar events. Our services would be suspended for a significant
period of time if our primary data center was severely damaged or destroyed. We
might also lose stored emails and other member files, causing significant member
dissatisfaction and possibly giving rise to claims for monetary damages.
Although we are in the process of building a secondary data center outside New
York City to address this contingency, that facility will not be operational in
the near future and may never be successfully deployed as a fully redundant
facility.
OUR SERVICES WILL BECOME LESS DESIRABLE OR OBSOLETE IF WE ARE UNABLE TO KEEP UP
WITH THE RAPID CHANGES CHARACTERISTIC OF OUR BUSINESS.
Our success will depend on our ability to enhance our existing services and to
introduce new services in order to adapt to rapidly changing technologies,
industry standards and customer demands. To compete successfully, we will have
to accurately anticipate changes in consumer and business demand and add new
features to our services very rapidly. We also have to regularly upgrade our
software to ensure that it remains compatible with the wide and changing variety
of Web browsers and other software used by our members and business customers.
For example, our system currently cannot properly receive files sent using some
third party email programs. We may not be able to integrate the necessary
technology into our computer systems on a timely basis or without degrading the
performance of our existing services. We cannot be sure that, once integrated,
new technology will function as expected. Delays in introducing effective new
services could cause existing and potential members to forego use of our
services and to use instead those of our competitors.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO PROVIDE ADEQUATE SECURITY FOR OUR
SERVICE, OR IF OUR SERVICE IS IMPAIRED BY SECURITY MEASURES IMPOSED BY THIRD
PARTIES.
Security is a critical issue for any online service, and presents a number of
challenges for us.
IF WE ARE UNABLE TO MAINTAIN THE SECURITY OF OUR SERVICE, OUR REPUTATION AND OUR
ABILITY TO ATTRACT AND RETAIN MEMBERS MAY SUFFER, AND WE MAY BE EXPOSED TO
LIABILITY. Third parties may attempt to breach our security or that of our
members or any business customers whose email networks we may maintain or for
whom we provide services. If they are successful, they could obtain our members'
confidential information, including our members' profiles, passwords, financial
account information, credit card numbers, stored email or other personal
information, or obtain information that is sensitive or confidential to a
business customer or otherwise disrupt a business customer's operations. Our
members or any business customers may assert claims for money damages for any
breach in our security and any breach could harm our reputation.
Our computers are vulnerable to computer viruses, physical or
electronic break-ins and similar incursions, which could lead to interruptions,
delays or loss of data. We expect to expend significant capital and other
resources to license or create encryption and other technologies to protect
against security breaches or to alleviate problems caused by any breach.
Nevertheless, these measures may prove ineffective. Our failure to prevent
security breaches may expose us to liability and may adversely affect our
ability to attract and retain members and develop our business market.
SECURITY MEASURES TAKEN BY OTHERS MAY INTERFERE WITH THE EFFICIENT
OPERATION OF OUR SERVICE, WHICH MAY HARM OUR REPUTATION, ADVERSELY IMPACT OUR
ABILITY TO ATTRACT AND RETAIN MEMBERS AND IMPEDE THE DELIVERY OF ADVERTISEMENTS
FROM WHICH WE GENERATE REVENUES. "Firewalls" and similar network security
software employed by many ISPs, employers and schools can interfere with the
operation of our Webmail service, including denying our members access to their
email accounts. Similarly, in their efforts to filter out unsolicited bulk
emails, ISPs and other organizations may block email from all or some of our
members.
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OUR DEPENDENCE ON LICENSED TECHNOLOGY EXPOSES US TO THE RISK THAT WE MAY NOT BE
ABLE TO INTEGRATE OUR TECHNOLOGY, WHICH MAY RESULT IN LESS DEVELOPMENT OF OUR
OWN TECHNOLOGY AND MAY INCREASE OUR COSTS.
We license a significant amount of technology from third parties, including
technology related to our Web servers, gateway services, billing processes,
database and planned Internet fax services. We anticipate that we will need to
license additional technology to remain competitive. We may not be able to
license these technologies on commercially reasonable terms or at all.
Third-party licenses expose us to increased risks, including risks relating to
the integration of new technology, the diversion of resources from the
development of our own proprietary technology, and a greater need to generate
revenues sufficient to offset associated license costs.
IF THE INTERNET AND OTHER THIRD-PARTY NETWORKS ON WHICH WE DEPEND TO DELIVER OUR
SERVICES BECOME INEFFECTIVE AS A MEANS OF TRANSMITTING DATA, THE BENEFITS OF OUR
SERVICE MAY BE SEVERELY UNDERMINED.
Our business depends on the effectiveness of the Internet as a means of
transmitting data. The recent growth in the use of the Internet has caused
frequent interruptions and delays in accessing and transmitting data over the
Internet. Any deterioration in the performance of the Internet as a whole could
undermine the benefits of our services. Therefore, our success depends on
improvements being made to the entire Internet infrastructure to alleviate
overloading and congestion. We also depend on telecommunications network
suppliers such as MFS, BBN Planet and UUNET to transmit and receive email
messages on behalf of our members and out business customers.
We are also affected by service outages at our partners' Web sites. If
service at a partner's site is unavailable for a period of time, we will be
unable to sign up new members and generate page views and revenue at that site
during the outage.
IF THE THIRD PARTY THAT WE DEPEND ON FOR THE ACTUAL DELIVERY OF THE
ADVERTISEMENTS WE SELL EXPERIENCES TECHNICAL DIFFICULTIES OR OTHERWISE FAILS TO
PERFORM, OUR REVENUES FROM ADVERTISING MAY BE ADVERSELY AFFECTED.
We contract with DoubleClick, Inc. to deliver the advertisements that we sell
and that appear on our Web pages and on the Web pages of our partners. If
DoubleClick experiences technical difficulties or otherwise fails to perform,
our revenues from advertising may be adversely affected. Furthermore,
DoubleClick may not have the same priorities for technology development as we do
and this may limit our ability to improve our delivery of advertising for our
specific needs.
OUR COMPUTER SYSTEMS, AND THE SYSTEMS OF OTHERS THAT WE DEPEND ON, MAY NOT
OPERATE PROPERLY BECAUSE OF THE YEAR 2000 PROBLEM.
We may have substantial exposure to the Year 2000 problem, both with our own
systems and with systems we do not control. The Year 2000 problem could
adversely affect our business and financial results. Many currently installed
computer systems and software products have been coded to accept or recognize
only two digit entries to define the applicable year. These systems may
erroneously recognize the year 2000 as the year 1900. This could result in major
failures or malfunctions.
This risk is particularly significant for our business. In addition to
relying on our internal computer equipment and software, we depend upon the
continued viability of many external systems, most importantly the Internet, in
order to make our services available to our members. We use the Internet to
deliver all of our services to our members and to transmit and receive their
email. Because no single entity or organization manages or controls the
Internet, we have no way to determine how many of the devices or systems that
contribute to the efficient transmission of data over the Internet may be prone
to the Year 2000 risk. If the performance or the availability of the Internet as
a data communications medium is compromised because of the Year 2000 problem,
our ability to deliver our services and to generate revenues would be adversely
affected even if our own internal systems are fully operational.
In addition, many of our members are dependent upon the availability of
our partners' Web sites in order to gain access to our services. While we are in
the process of identifying any potential Year 2000 problems at our partners'
sites, we cannot be sure that Year 2000 problems will not materialize at these
sites. Moreover, our members rely on a wide variety of hardware and software, as
well as numerous ISPs, in order to reach the Internet and our Web-based
services. If our members were unable to access our services because of Year 2000
problems associated with their own computers or their ISPs, our ability to
deliver our services and to generate revenues would be adversely affected.
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With respect to our internal systems, we are working with our hardware
and software vendors to identify any exposure to the Year 2000 problem. Although
we are seeking to identify and remediate all Year 2000 problems in our internal
systems by the end of this year, we cannot ensure that we will be successful in
this effort. Any significant Year 2000 problems in our internal systems will
harm our operations and increase our losses. Please see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
GERALD GORMAN CONTROLS MAIL.COM AND WILL BE ABLE TO PREVENT A CHANGE OF CONTROL.
Gerald Gorman, our Chairman and Chief Executive Officer, beneficially owned as
of September 30, 1999 Class A and Class B common stock representing
approximately 76% of the voting power of our outstanding common stock. Each
share of Class B common stock entitles the holder to 10 votes on any matter
submitted to the stockholders. As a result of his share ownership, Mr. Gorman
will be able to determine the outcome of all matters requiring stockholder
approval, including the election of directors, amendment of our charter and
approval of significant corporate transactions. Mr. Gorman will be in a position
to prevent a change in control of Mail.com even if the other stockholders were
in favor of the transaction.
Mail.com and Mr. Gorman have agreed to permit our stockholders who formerly held
our preferred stock to designate a total of three members of our board of
directors.
Our charter contains provisions that could deter or make more expensive a
takeover of Mail.com. These provisions include the ability to issue "blank
check" preferred stock without stockholder approval.
IT IS OUR INTENTION TO ACQUIRE OR MAKE STRATEGIC INVESTMENTS IN OTHER BUSINESSES
AND TO ACQUIRE OR LICENSE TECHNOLOGY AND OTHER ASSETS, AND WE MAY HAVE
DIFFICULTY INTEGRATING THESE BUSINESSES OR GENERATING AN ACCEPTABLE RETURN FROM
ACQUISITIONS.
We recently acquired The Allegro Group, Inc., a provider of email and email
related services, such as virus blocking and content screening, to businesses.
We also made an investment in 3Cube, Inc., a company specializing in Internet
fax technology. We will continue our efforts to acquire or make strategic
investments in businesses and to acquire or license technology and other assets,
and any of these acquisitions may be material to us. We cannot assure you that
acquisition or licensing opportunities will continue to be available on terms
acceptable to us or at all. Such acquisitions will involve risks, including:
o inability to raise the required capital;
o difficulty in assimilating the acquired operations and personnel;
o inability to retain any acquired member accounts;
o disruption of our ongoing business;
o inability to successfully incorporate acquired technology into
our service offerings and maintain uniform standards, controls,
procedures, and policies; and
o lack of the necessary experience to enter new markets.
We may not successfully overcome problems encountered in connection with
potential acquisitions. In addition, an acquisition could materially impair our
operating results by diluting our shareholders' equity, causing us to incur
additional debt, or requiring us to amortize acquisition expenses and acquired
assets.
OUR GOAL OF BUILDING BRAND IDENTITY IS LIKELY TO BE DIFFICULT AND EXPENSIVE.
We believe that a quality brand identity will be essential if we are to increase
membership, traffic on our sites and revenues, and to develop our business
services market. We intend to use a portion of the proceeds of the offering to
substantially increase our marketing budget as part of our efforts to continue
building the Mail.com brand. We do not have experience with some of the types of
marketing that we are currently using. If our marketing efforts cost more
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than anticipated or if we cannot increase our brand awareness, our losses will
increase and our ability to succeed will be seriously impeded.
OUR EXPANSION INTO INTERNATIONAL MARKETS IS SUBJECT TO SIGNIFICANT RISKS AND OUR
LOSSES MAY INCREASE AND OUR OPERATING RESULTS MAY SUFFER IF OUR REVENUES FROM
INTERNATIONAL OPERATIONS DO NOT EXCEED THE COSTS OF THOSE OPERATIONS.
We intend to continue to expand into international markets and to spend
significant financial and managerial resources to do so. We have limited
experience in international operations and may not be able to compete
effectively in international markets. If our revenues from international
operations do not exceed the expense of establishing and maintaining these
operations, our losses will increase and our operating results will suffer. We
face significant risks inherent in conducting business internationally, such as:
o uncertain demand in foreign markets for Webmail advertising,
direct marketing and e-commerce;
o difficulties and costs of staffing and managing international
operations;
o differing technology standards;
o difficulties in collecting accounts receivable and longer
collection periods;
o economic instability and fluctuations in currency exchange
rates and imposition of currency exchange controls;
o potentially adverse tax consequences; and
o political instability, unexpected changes in regulatory
requirements, and reduced protection for intellectual property
rights in some countries.
IF WE ARE UNABLE TO RAISE NECESSARY CAPITAL IN THE FUTURE, WE MAY BE UNABLE TO
FUND NECESSARY EXPENDITURES.
We anticipate the need to raise additional capital in the future. However, we
may not be able to raise on terms favorable to us, or at all, amounts necessary
to fund our planned expansion, develop new or enhanced services, respond to
competitive pressures, promote our brand name or acquire complementary
businesses, technologies or services. Some of our shareholders have registration
rights that could interfere with our ability to raise needed capital.
If we raise additional funds by issuing equity securities, stockholders may
experience dilution of their ownership interest. Moreover, we could issue
preferred stock that has rights senior to those of the Class A common stock. If
we raise funds by issuing debt, our lenders may place limitations on our
operations, including our ability to pay dividends.
REGULATION OF EMAIL AND INTERNET USE IS EVOLVING AND MAY ADVERSELY IMPACT OUR
BUSINESS.
There are currently few laws or regulations that specifically regulate activity
on the Internet. However, laws and regulations may be adopted in the future that
address issues such as user privacy, pricing, and the characteristics and
quality of products and services. For example, the Telecommunications Act of
1996 restricts the types of information and content transmitted over the
Internet. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate ISPs and online service providers in a
manner similar to long distance telephone carriers and to impose access fees on
these companies. This could increase the cost of transmitting data over the
Internet. Any new laws or regulations relating to the Internet could adversely
affect our business.
Moreover, the extent to which existing laws relating to issues such as
property ownership, pornography, libel and personal privacy are applicable to
the Internet is uncertain. We could face liability for defamation, copyright,
patent or trademark infringement and other claims based on the content of the
email transmitted over our system. We do not and cannot screen all the content
generated and received by our members. Some foreign governments, such as
Germany, have enforced laws and regulations related to content distributed over
the Internet that are more strict than
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those currently in place in the United States. We may be subject to legal
proceedings and damage claims if we are found to have violated laws relating to
email content.
OUR INTELLECTUAL PROPERTY RIGHTS ARE CRITICAL TO OUR SUCCESS, BUT MAY BE
DIFFICULT TO PROTECT.
We regard our copyrights, service marks, trademarks, trade secrets, domain names
and similar intellectual property as critical to our success. We rely on
trademark and copyright law, trade secret protection and confidentiality and/or
license agreements with our employees, members, strategic partners and others to
protect our proprietary rights. Despite our precautions, unauthorized third
parties may improperly obtain and use information that we regard as proprietary.
Third parties may submit false registration data attempting to transfer key
domain names to their control. Our failure to pay annual registration fees for
key domain names may result in the loss of these domains to third parties. Third
parties have challenged our rights to use some of our domain names, and we
expect that they will continue to do so.
The status of United States patent protection for software products is
not well defined and will evolve as additional patents are granted. We do not
know if our current or future patent applications will be issued with the scope
of the claims we seek, if at all. Current United States law does not adequately
protect our database of member contact and demographic information. In addition,
the laws of some foreign countries do not protect proprietary rights to the same
extent as do the laws of the United States. Our means of protecting our
proprietary rights in the United States or abroad may not be adequate and
competitors may independently develop similar technology.
Third parties may infringe or misappropriate our copyrights, trademarks
and similar proprietary rights. In addition, other parties may assert
infringement claims against us. We cannot be certain that our services do not
infringe issued patents. Because patent applications in the United States are
not publicly disclosed until the patent is issued, applications may have been
filed which relate to our services. We have been and may continue to be subject
to legal proceedings and claims from time to time in the ordinary course of our
business, including claims related to the use of our domain names and claims of
alleged infringement of the trademarks and other intellectual property rights of
third parties. Intellectual property litigation is expensive and time-consuming
and could divert management's attention away from running our business.
A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK MAY COME ONTO THE MARKET IN THE FUTURE,
WHICH COULD DEPRESS OUR STOCK PRICE.
Sales of a substantial number of shares of our common stock in the public
market could cause the market price of our Class A common stock to decline.
As of October 29, 1999, we had an aggregate of 44,856,571 shares of Class A
and Class B common stock and 9,559,917 options and 1,218,899 warrants to
purchase an aggregate of 10,778,816 shares of Class A common stock outstanding.
Substantially all the shares sold in our initial public offering are freely
tradable. 36,825,973 of the remaining 36,979,071 shares of Class A and Class
B common stock outstanding after this offering are subject to lock-up
agreements that restrict the sale of the shares for 180 days after June 17,
1999, the date of the original offering. Beginning December 15, 1999 (181
days after the date of the original offering), 31,604,139 shares will become
available for sale, including shares issuable upon the exercise of options
and upon the conversion of Class B common stock. The remaining shares will
become available at various later dates upon the expiration of one-year
holding periods or upon the expiration of any other applicable restrictions
on resale. We are likely to issue large amounts of additional Class A common
stock, which may also be sold and which could adversely affect the price of
our stock.
The holders of approximately 16,098,618 shares of Class A common stock have the
right, subject to conditions, to require us to file registration statements
covering their shares, or to include their shares in registration statements
that we may file for ourselves or for other stockholders. By exercising their
registration rights and selling a large number of shares, these holders could
cause the price of the Class A common stock to fall.
OUR STOCK PRICE HAS BEEN VOLATILE AND WE EXPECT THAT IT WILL CONTINUE TO BE
VOLATILE.
Our stock price has been volatile since our initial public offering and we
expect that it will continue to be volatile. As discussed above, our financial
results are difficult to predict and could fluctuate significantly. In addition,
the market prices of securities of Internet-related companies have been highly
volatile. A stock's price is often influenced by rapidly changing perceptions
about the future of the Internet or the results of other Internet or
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technology companies, rather than specific developments relating to the issuer
of that particular stock. As a result of volatility in our stock price, a
securities class action may be brought against us. Class-action litigation could
result in substantial costs and divert our management's attention and resources.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk. Mail.com's accounts receivables are subject, in the normal
course of business, to collection risks. Mail.com regularly assesses these risks
and has established policies and business practices to protect against the
adverse effects of collection risks. As a result, Mail.com does not anticipate
any material losses in this area.
Interest Rate Risk. Mail.com's investments are classified as cash and
cash equivalents with original maturities of three months or less. Therefore,
changes in the market's interest rates do not affect the value of the
investments as recorded by Mail.com.
PART II OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) RECENT SALES OF UNREGISTERED SECURITIES. During the three
months ended September 30, 1999, Mail.com issued Class A
common stock to third parties in connection with business
transactions or granted options to employees in reliance upon
the exemption from registration pursuant to Section 4(2) of
the Securities Act of 1933 and Rule 701 or Regulation S
promulgated thereunder in various transactions as follows:
On July 14, 1999, we issued 80,083 shares of Class A common
stock and paid $1 million to 3Cube, Inc. in exchange for
307,444 shares of 3Cube, Inc. convertible preferred stock.
On July 14, 1999, we issued 801 shares of Class A common stock
to a consultant in exchange for services rendered to Mail.com
in connection with the investment in 3Cube, Inc.
During the three months ended September 30, we issued 44,968
shares of Class A common stock to employees upon exercise of
options at a weighted average exercise price of $2.00 per
share.
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On August 18, 1999, we issued 3,334 shares of Class A common
stock to Snap! LLC in satisfaction of obligations owed to
Snap! LLC in connection with certain contractual arrangements
between Mail.com and Snap! LLC.
On August 20, 1999, we issued 1,102,973 shares of Class A
common stock to the shareholders of The Allegro Group, Inc. as
part of the purchase price for the acquisition of The Allegro
Group, Inc. by Mail.com.
During the three months ended September 30, 1999, Mail.com
granted options to employees to purchase an aggregate of
1,116,971 shares of Class A common stock at exercise prices
based upon the closing market prices on NASDAQ of the Class A
common stock on the respective dates of grant.
(d) USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES. On June 17,
1999, Mail.com consummated the initial public offering of 6,850,000 shares of
its common stock (the "Offering"). Gross proceeds to Mail.com from the
Offering were approximately $48.0 million, $3.4 million of which was applied
to the underwriting discount. Other expenses related to the offering totalled
$1.4 million. The net proceeds from the offering were approximately $43.2
million. On July 12, 1999 the Company's underwriters exercised their
over-allotment option for 1,027,500 additional shares of the Company's Class
A common stock at $7.00 with the Company receiving gross proceeds of
approximately $7.2 million, $500 thousand of which was applied to the
underwriting discount. Other expenses related to the exercise of the
over-allotment option were approximately $27 thousand. The net proceeds from
the exercise of the over-allotment option were approximately $6.7 million. A
portion of the total expenses were paid to Winthrop, Stimson, Putnam &
Roberts, Mail.com's counsel in connection with the Offering, for their legal
fees in connection with the Offering. David Ambrosia, Mail.com's Executive
Vice President and General Counsel, was a partner of Winthrop, Stimson,
Putnam & Roberts through June 1999.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
(10) Material Contracts
ii (D) Material Leases
(1) Sublease agreement between Mail.com and
Depository Trust Company
(2) Data Center office lease with AT&T
(3) Lease Agreement between Mail.com and
Forsythe/McArthur Associates
iii(A) Management Contracts and Compensation Plans
(1) Mail.com, Inc. Allegro Group Stock Option
Plan
(2) Mail.com, Inc. TCOM Stock Option Plan
(27.1) Financial Data Schedule
(b) Reports on Form 8-K- Mail.com filed one report on Form 8-K
during the three months ended September 30, 1999 (including
the related Form 8-KA filed on November 3, 1999).
-The report dated and filed August 23, 1999 reported
that the Company acquired the Allegro Group, Inc.
("Allegro") pursuant to the terms of an Agreement and
Plan of Merger dated August 20, 1999, among Mail.com,
AG Acquisition Corp, a wholly owned subsidiary of
Mail.com, Allegro and the shareholders of Allegro.
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ITEM 7: SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned thereto duly authorized.
Mail.com, Inc.
/s/ Debra McClister
-------------------------------------------
Debra McClister
Executive Vice President and Chief Financial Officer
Date: November 15, 1999
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Exhibit 10.iiD(1)
SUBLEASE
Between
THE DEPOSITORY TRUST COMPANY
as Sublessor
and
MAIL.COM, INC.
as Sublessee
Premises: Portion of 12th Floor
One Evertrust Plaza
Jersey City, New Jersey
<PAGE>
TABLE OF CONTENTS
Article PAGE
1. Demised Premises ...................................................... 1
2. Term .................................................................. 2
3. Rent .................................................................. 2
4. Use ................................................................... 4
5. Master Lease .......................................................... 5
6. Services .............................................................. 6
7. Electricity ........................................................... 7
8. Alterations and Repairs ............................................... 7
9. Insurance ............................................................. 8
10. Assignment, Subletting and Encumbrances ............................... 8
11. Time Limits ........................................................... 9
12. Remedies Cumulative ................................................... 9
13. Quiet Enjoyment ....................................................... 9
14. Release of Sublessor .................................................. 10
15. Surrender of Premises ................................................. 10
16. Parking Spaces ........................................................ 10
17. Notices ............................................................... 10
18. Landlord's Consent .................................................... 10
19. Broker ................................................................ 11
20. Waiver of Rights to Jury and Counterclaim ............................. 11
21. Security .............................................................. 11
22. Miscellaneous ......................................................... 12
Exhibit A - Master Lease
Exhibit B - Bill of Sale
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SUBLEASE
SUBLEASE, dated as of September 7, 1999 between THE DEPOSITORY TRUST
COMPANY ("Sublessor"), a New York limited purpose trust company having an office
at 55 Water Street, New York, N.Y. 10041 and MAIL.COM, INC. ("Sublessee"), a
Delaware corporation having an office at 11 Broadway, New York, N.Y. 10004.
W I T N E S S E T H:
WHEREAS, by Agreement of Lease dated January 1, 1996, between
Evergreen America Corporation ("Landlord"), as landlord, and Participants Trust
Company ("PTC"), as tenant, as amended by Amendment to Lease dated November 12,
1997 between the same parties (such lease, as amended, modified and renewed, is
hereinafter referred to as the "Master Lease"), Landlord leased to PTC certain
space on the 12th floor of the building ("Building") known as One Evertrust
Plaza, Jersey City, New Jersey, together with certain Parking Spaces (as defined
in Article 16), a true and complete copy of which Master Lease (with certain
financial terms and other provisions omitted) is annexed hereto as Exhibit A;
and
WHEREAS, by Agreement and Plan of Merger dated as of May 26, 1998
PTC was merged into and with DTC, and DTC is the tenant under the Master Lease;
and
WHEREAS, Sublessor desires to sublet to Sublessee, and Sublessee
desires to hire from Sublessor, the premises demised under the Master Lease upon
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
provided, Sublessor and Sublessee hereby agree as follows:
1. Demised Premises.
1.1 Sublessor hereby sublets to Sublessee, and Sublessee hereby
sublets and hires from Sublessor, the entire premises (the "Premises") on the
12th floor of the Building leased to Sublessor under the Master Lease, for the
sublease term hereinafter stated and for the Fixed Rent and Additional Rent
(both as hereinafter defined) hereinafter reserved, subject to all of the terms
and provisions hereinafter provided or incorporated in this Sublease by
reference.
1.2 Sublessee agrees to accept the Premises on the Commencement Date
(as hereinafter defined) in its "AS-IS" condition on the date thereof. Sublessor
has not made and does not make any representations or warranties as to the
physical condition of the Premises, or any other matter affecting or relating to
the Premises.
1.3 Any and all alterations to, work to be performed in or materials
to be supplied for the Premises shall be made, performed and supplied by and at
the sole cost and expense of Sublessee and in conformance with all of the terms
and provisions of this Sublease and the Master Lease.
1.4 On the Commencement Date, Sublessor in consideration of the sum
of Five Thousand and 00/100 ($5,000.00) Dollars, payable by Sublessee to
Sublessor on such date, shall deliver to Sublessee a bill of sale in the form of
Exhibit B hereto granting to Sublessee, subject to all the terms and provisions
of this Sublease and the Master Lease, all right, title and interest of
Sublessor in and to the equipment set forth in said Exhibit and (to the extent
the same are on the Premises on the Commencement Date) the furniture,
furnishings and other items listed in said Exhibit (all of the foregoing,
collectively, the "Equipment"). Sublessee has inspected the Equipment and is
satisfied therewith. Sublessor has not made and does not make any representation
or warranties as to the physical condition of the Equipment or as to whether the
same is in working order or is fit, suitable or usable for any purpose, and any
use of the Equipment made by Sublessee shall be at Sublessee's sole risk. Upon
the execution of this Sublease, Sublessor and Sublessee shall execute and
acknowledge a New Jersey Bulk Sales Tax return with respect to the Equipment,
and shall cause the same to be duly filed. Sublessee shall pay any sales tax
which may be due upon the transfer of the Equipment to Sublessee. Sublessee
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shall perform and comply with all of the terms and provisions of the Master
Lease regarding the Equipment.
2. Term.
2.1 The term ("Term") of this Sublease shall commence on the date
(the "Commencement Date") which shall be the later of (i) the date Sublessor
shall have obtained Landlord's written consent to this Sublease in accordance
with the provisions of Article 18 hereof, and (ii) September 20, 1999, and shall
expire on December 30, 2005, or such earlier date on which this Sublease may
expire or be cancelled or terminated pursuant to the terms hereof (the
"Expiration Date").
2.2 If the term of the Master Lease is terminated for any reason
prior to the Expiration Date, this Sublease shall thereupon be terminated ipso
facto without any liability of Sublessor to Sublessee by reason of such early
termination unless such termination results from a default by Sublessor under
the Lease. Sublessor expressly reserves all rights of Sublessor as tenant under
the Master Lease to terminate the Master Lease, including any right of
termination, by reason of casualty or any taking by right of eminent domain.
Except as otherwise expressly provided in this Sublease with respect to those
obligations of Sublessee and Sublessor which by their nature or under the
circumstances can only be, or under the provisions of this Sublease may be,
performed after the termination of this Sublease, the Term and estate granted
hereby shall end at noon on the date of termination of this Sublease as if such
date were the Expiration Date, and neither party shall have any further
obligation or liability to the other after such termination. Notwithstanding the
foregoing, any liability of Sublessee to make any payment under this Sublease,
whether of Fixed Rent, Additional Rent or otherwise, which shall have accrued
prior to the expiration or sooner termination of this Sublease, shall survive
the expiration or sooner termination of this Sublease.
2.3 Sublessee waives the right to recover any damages which may
result from Sublessor's failure to deliver possession of the Premises on the
Commencement Date. If Sublessor shall be unable to deliver possession of the
Premises on such scheduled date, and provided Sublessee is not responsible for
such inability to give possession, the Commencement Date shall be postponed
until Sublessor shall deliver possession of the Premises to Sublessee, and no
such failure to deliver possession on such scheduled date shall in any way
affect the validity of this Sublease or the obligations of Sublessee hereunder
or give rise to any claim for damages by Sublessee or claim for rescission of
this Sublease, nor shall the same in any way be construed to extend the Term.
2.4 The parties agree that this Article 2 constitutes an express
provision as to the time at which Sublessor shall deliver possession of the
Premises to Sublessee, and Sublessee hereby waives any rights to rescind this
Sublease which Sublessee might otherwise have.
3. Rent.
3.1 The rent ("Rent") reserved for the Term shall consist of the
following:
(a) annual fixed rent (the "Fixed Rent") at the rate of Five Hundred
Seven Thousand Two Hundred Seventy and 00/100 ($507,270.00) Dollars per annum
for the period commencing on the Commencement Date and ending on the Expiration
Date payable in equal monthly installments of $42,272.50 each in advance on the
first day of each calendar month during the Term, except that Fixed Rent for the
period ("Initial Period") commencing on the Commencement Date and ending on the
365th day following the Commencement Date, shall be payable upon the execution
hereof and except as provided in Section 3.5; and
(b) additional rent (the "Additional Rent") as follows:
(i) with respect to any comparative year (as defined in the
Master Lease) or portion thereof occurring during the Term, an
amount equal to the amount by which the Expense Payment (as
defined in the Master Lease) for such comparative year
(including advance monthly payments thereof) exceeds the
Expense Payment for calendar year 1999;
(ii) with respect to any calendar year or portion thereof
occurring during the Term, any and all other amounts, other
than annual Fixed Rent
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and Expense Payments, which are payable by Sublessor to
Landlord pursuant to the Master Lease for such calendar year,
including, without limitation, all Tax Payments (as defined in
the Master Lease) including advance monthly payments thereof,
rent for the Parking Spaces, the ESEG Charge, the A.C. Charge,
and the H. Charge as such terms are defined in the Master
Lease) and charges for access to additional condenser water,
and all amounts which are or may become payable by Sublessee
to Sublessor hereunder, or under the Master Lease, or which
are payable by reason of any act or omission of Sublessee.
Except as otherwise provided in this Sublease, the Additional
Rent shall be paid as follows: Sublessor shall furnish to
Sublessee copies of all statements and invoices received by
Sublessor from Landlord with respect to Tax Payments, Expense
Payments and other amounts payable under the Master Lease
(other than Fixed Rent). Each item of Additional Rent
hereunder shall be due and payable by Sublessee to Sublessor
on the date five (5) days before the date on which the
corresponding item is payable by Sublessor to Landlord under
the Master Lease; provided, however, that if Landlord agrees
to accept direct payment of any such Additional Rent from
Sublessee, Sublessee agrees to make such payment directly to
Landlord within the time period permitted under the Master
Lease. Sublessor shall have the same remedies with respect to
any default by Sublessee in the payment of Additional Rent as
are provided in this Sublease, the Master Lease or applicable
law with respect to any nonpayment of Fixed Rent.
3.2 Additional Rent payable pursuant to Section 3.l(b)(i) hereof for
any comparative year shall be payable in equal monthly installments during such
comparative year equal to the amounts by which the advance monthly installments
in respect of the Expense Payment required to be paid by Sublessor during such
comparative year pursuant to the Master Lease ("Estimated Expense installments")
exceed one-twelfth (1/12th) of the Expense Payment for calendar year 1999 (the
"Base Expense Payment"), each such installment of Additional Rent to be due and
payable at least five (5) days prior to the date when the corresponding
Estimated Expense Installment becomes due and payable pursuant to the Master
Lease. At such time as a final statement of the Expenses for a comparative year
is received from Landlord and an adjustment is made of any overpayment or
underpayment of the Expense Payment for such comparative year, Sublessor shall
give notice thereof to Sublessee, together with a copy of the statement received
from Landlord with respect thereto, which notice shall set forth the adjustment
to be made in respect of the payments of Additional Rent hereunder. Any
underpayment in such Additional Rent set forth in such notice shall be due and
payable by Sublessee to Sublessor within ten (10) days after receipt of such
notice. Any overpayment in such Additional Rent set forth in such notice shall
be credited against the next installment(s) of Fixed Rent becoming due
hereunder, or, in the case of the last comparative year, promptly refunded to
Sublessee.
Notwithstanding the foregoing provisions hereof, until such time as
Sublessor shall receive a final statement from Landlord as to the Expenses for
calendar year 1999 and the Base Expense Payment is finally determined by
Landlord and Sublessor, the monthly installments of Additional Rent payable by
Sublessee pursuant to Section 3.l(b)(i) in any comparative year shall be the
amounts by which the Estimated Expense Installments required to be paid during
such comparative year exceed the Estimated Expense Installments required to be
paid by Sublessor during calendar year 1999. At such time as Sublessor shall
receive a final statement from Landlord as to the Expenses for calendar year
1999 and the adjustment for such year are made, Sublessor shall give notice
thereof to Sublessee (together with a copy of the statement received by
Sublessor from Landlord with respect thereto), setting forth the Base Expense
Payment and the amount by which the payments of Additional Rent theretofore made
by Sublessee are less than or exceed the Additional Rent for such period. From
and after the date on which such notice is given to Sublessee, the monthly
installments of Additional Rent payable by Sublessee pursuant to Section
3.1(b)(i) shall be the amount by which the Master Lease Installments for any
comparative year exceed one twelfth (1/12th) of the Base Expense Payment as set
forth in such notice. Any underpayment of such Additional Rent set forth in such
notice shall be due and payable by Sublessee to Sublessor within ten (10) days
after receipt of such notice. Any overpayment of such Additional Rent set forth
in such notice shall be credited against the next installment(s) of Fixed Rent
next becoming due hereunder.
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3.3 Any Additional Rent with respect to periods that include any
portion of the term of this Sublease shall be apportioned based upon the ratio
of the number of days of the applicable period falling within the term of this
Sublease to the total number of days within the applicable period.
3.4 If as a result of proceedings instituted by Landlord to reduce
the assessed valuation of the property of which the Premises form a part, the
real estate taxes are reduced and Sublessor shall receive a refund or credit
from Landlord for any portion of a Tax Payment paid by Sublessee as Additional
Rent hereunder, Sublessor shall give notice thereof to Sublessee (accompanied by
a copy of the notice from Landlord) and the amount of such refund or credit of
Additional Rent as paid by Sublessee shall be credited against the next
installment(s) of Fixed Rent becoming due and payable hereunder (or if no
further installment of Fixed Rent shall be due hereunder, shall be promptly paid
to Sublessee), after first deducting therefrom any costs and expenses incurred
by Sublessor in connection therewith. If as a result of any such proceedings,
the Base Tax Payment is retroactively reduced or Sublessor shall receive a
refund or credit under the Master Lease in respect of the Base Tax Payment,
Sublessor shall give notice thereof to Sublessee (accompanied by a copy of the
notice from Landlord), and the Additional Rent payable by Sublessee pursuant to
Section 3.l(b)(i) hereof shall be retroactively adjusted to take into account
such reduction, refund or credit, and the amount of any underpayment in such
Additional Rent resulting from such adjustment shall be due and payable within
ten (10) days after notice thereof is given by Sublessor to Sublessee.
3.5 Provided that Sublessee is not in default hereunder beyond any
applicable grace period herein specified, Fixed Rent shall be abated for the
60-day period commencing on the day immediately following the expiration of the
Initial Period. If such 60-day period shall end on a day other than the last day
of a calendar month, the Fixed Rent for the balance of such month shall be
payable on the first day of the immediately succeeding month.
3.6 In the event this Sublease shall terminate prior to the
expiration of the Initial Period, by reason of the termination of the Master
Lease (other than a termination directly or indirectly arising from Sublessee's
failure to perform or observe any of its obligations hereunder) or pursuant to
any of the provisions hereof by reason of any loss or damage to the Premises or
the Building by fire or other cause or any taking by right of eminent domain,
Sublessor shall pay to Sublessee an amount equal to the product obtained by
multiplying the installment of Fixed Rent paid by Sublessee upon the execution
of this Sublease by a fraction, the numerator of which shall be the number of
days in the Initial Period remaining after the termination of this Sublease, and
the denominator of which shall be 365, provided Sublessee shall have performed
and observed all of its obligations hereunder and that no event of the type
described in Article 25 of the Master Lease, as incorporated herein by
reference, shall have occurred in respect of Sublessee.
3.7 The Fixed Rent and, except as otherwise specifically provided in
this Sublease, the Additional Rent, shall be paid by Sublessee to Sublessor at
the office of Sublessor set forth above or such other place as Sublessor may
designate in writing, without prior notice or demand therefor and without any
abatement, deduction or setoff except as expressly set forth herein.
3.8 Sublessee shall pay all Rent when due, in lawful money of the
United States which shall be legal tender for the payment of all debts, public
and private, at the time of payment.
4. Use.
4.1 Sub lessee may occupy and use the Premises only for general and
executive offices, including but not limited to a computer facility (and, in the
case of the Parking Spaces, for parking), and for no other purpose, provided
that any use of the Premises shall in all respects be only as permitted under
the terms and provisions of this Sublease and the Master Lease, including
Article 10 of the Master Lease and the rules and regulations under the Master
Lease, and any and all laws, statutes, ordinances, orders, regulations and
requirements of all federal, state and local governmental, public or
quasi-public authorities, whether now or hereafter in effect, which may be
applicable to or in any way affect the Building or the Premises or any part
thereof (collectively, "Legal Requirements"). Nothing herein contained shall be
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deemed to require Sublessee to comply with any terms and provisions of the
Sublease not included in Exhibit B.
4.2 Sublessee shall not, without the prior consent of Sublessor and
Landlord, do or permit anything to be done which may result in a violation of
the terms of this Sublease or the Master Lease or which may make Sublessor
liable for any damages, claims, fines, penalties, costs or expenses thereunder.
5. Master Lease.
5.1 This Sublease and all of Sublessee's rights hereunder are and
shall remain in all respects subject and subordinate to (i) all of the terms and
provisions of the Master Lease, a copy of which (except for the rent and certain
other provisions) has been delivered to Sublessee, (ii) any and all amendments
of the Master Lease or supplemental agreements relating thereto hereafter made
between Landlord and Sublessor (copies of which Sublessor agrees to deliver to
Sublessee except for the rent and certain other provisions which may be
contained therein), provided, however, that Sublessor shall not enter into any
such amendments or supplemental agreements that shall (1) adversely affect
Sublessee's rights hereunder, (2) increase Sublessee's obligations hereunder
beyond a de minimus extent, (3) decrease the size of the Premises, or (4)
shorten the term hereof (except as described in subsection 5.2 below) and (iii)
any and all matters to which the tenancy of Sublessor, as tenant under the
Master Lease, is or may be subordinate. Sublessee shall in no case have any
rights under this Sublease greater than Sublessor's rights as tenant under the
Master Lease. The foregoing provisions shall be self-operative and no further
instrument of subordination shall be necessary to effectuate such provisions
unless required by Landlord or Sublessor, in which event Sublessee shall, upon
demand by Landlord or Sublessor at any time and from time to time, execute,
acknowledge and deliver to Sublessor and Landlord any and all instruments that
Sublessor or Landlord may deem reasonably necessary or proper to confirm such
subordination of this Sublease, and the rights of Sublessee hereunder.
5.2 Sublessee acknowledges that in the event of a (i) termination of
the Master Lease for any reason, excluding an agreement between Sublessor and
Landlord terminating the Master Lease, or (ii) re-entry or dispossess by
Landlord under the Master Lease, Landlord may, at its option, take over all of
the right, title and interest of Sublessor hereunder and Sublessee agrees that
it shall, at Landlord's option, attorn to Landlord pursuant to the then
executory provisions of this Sublease, except that Landlord shall not (i) be
obligated to repair, replace, rebuild or restore the Building, or the Premises
in the event of damage or destruction, beyond such repair, replacement,
rebuilding or restoration as can reasonably be accomplished from the net
proceeds of insurance actually received by, or made available to it; (ii) be
liable for any previous act or omission by Sublessor; (iii) be subject to any
liability or offset which shall theretofore accrue to Sublessee against
Sublessor; (iv) be bound by any previous modification or extension of this
Sublease unless filed with it and made at arms length, in good faith and in the
honest exercise of reasonable business judgement; (v) be bound by any previous
pre-payment of more than one month's Fixed Rent or other charge, or (vi) be
bound by any cancellation or surrender of this Sublease or any eviction of
Sublessee by Sublessor unless made at arms length, in good faith and in the
honest exercise of reasonable business judgement.
5.3 Sublessee shall observe and perform for the benefit of Landlord
and Sublessor, each and every term, covenant, condition and agreement of the
Master Lease which Sublessor is required to observe or perform as tenant under
the Master Lease, except for the covenants of Sublessor to pay Landlord the
"Fixed Rent" (as such term is defined in the Master Lease), Expense Payments and
Tax Payments and except as such covenants, conditions and agreements are
modified hereby. Except as otherwise specifically provided in this Sublease, all
of the terms, covenants, conditions and agreements which Landlord or Sublessor
are required to observe or perform as parties to the Master Lease are hereby
incorporated herein by reference and deemed to constitute terms, covenants,
conditions and agreements which Sublessor and Sublessee are required to observe
or perform under this Sublease as if set forth herein at length, mutatis
mutandis; provided, however, that, except as provided below, for the purposes of
this Sublease, references in the Master Lease to (a) "Landlord" shall be deemed
to refer to Sublessor; provided, however, that "Landlord" shall not be deemed to
refer to Sublessor where the context requires "Landlord" to refer to Landlord
and not Sublessor, including, but not limited to, Sections 13.01 and 13.02,
Article 14, Sections 22.01, 22.03 and 22.05 (except that references to
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"Landlord" in Section 22.05 shall included both Landlord and Sublessor) and
Section 23.05; (b) "Tenant" shall be deemed to refer to Sublessee; (c) the term
"Fixed Rent" shall mean the Fixed Rent described in this Sublease, the term
"additional rent" shall mean the Additional Rent described in this Sublease and
the terms "rent", "rental", "Rent" or the plural of any of them shall mean the
Rent described in this Sublease; (d) the "Lease" shall be deemed to refer to
this Sublease; (e) "Demised Premises" shall be deemed to refer to the Premises,
(f) the terms "Commencement Date", "Expiration Date", and "Term" shall be deemed
to refer to the Commencement Date, Expiration Date and Term of this Sublease;
and (g) "Tenant's Property" shall include (except as otherwise provided in the
Master Lease) all fixtures, furnishings and equipment installed on the Premises
by or for the account of Sublessee as well as Sublessor, and (h) references to
Article 18 in Sections 34.01 and 25.02 shall be deemed references to Article 10
of the Sublease, and provided further that the following provisions shall not be
incorporated herein: Section 2.02, Article 3, Section 4.01, Article 5 (except
for the first sentence of Section 5.02 and except for Section 5.03), Articles 6
through 9, Articles 11 and 12, the last sentence of Section 14.01, Article 15,
Article 17, Article 18, Article 20, the last sentence of the first paragraph of
Section 22.03, Section 23.05, Section 31.01, Section 32.02 (except for the first
sentence thereof), Article 39, Article 40 and Article 41, and all references to
work performed pursuant to Article 3 and Exhibits A, B, C, C-1, C-2, D and E.
Sublessor may exercise all of the rights, powers, privileges and remedies
reserved to Landlord under the Master Lease as fully as if set forth herein at
length, including, without limitation, all rights and remedies arising out of or
with respect to any default by Sublessee in the payment of Rent hereunder or the
observance or performance of the terms, covenants, conditions and agreements of
this Sublease (including those portions of the Master Lease that are
incorporated herein). All references herein to a "default" by Sublessee shall
include the occurrence of any event described in Section 25.01 of the Master
Lease as herein incorporated by reference, in respect of Sublessee. All releases
and indemnities by Tenant provided in the Master Lease in favor of "Landlord"
shall apply to and inure to the benefit of both Sublessor and Landlord. In the
event of any inconsistency between the terms of this Sublease and the Master
Lease, the terms of this Sublease shall govern.
5.4 The consent or approval of Landlord shall be required in
connection with any act which requires the consent or approval of Landlord
pursuant to the terms of the Master Lease, notwithstanding that a particular
provision herein may not require Sublessor's consent or approval or states that
only Sublessor's consent or approval is required.
5.5 Sublessor hereby represents as of the date hereof that (i) the
Master Lease is in full force and effect and (ii) to the best of its knowledge
neither Sublessor nor Landlord is in default in the performance of any of the
terms of the Master Lease beyond applicable notice and cure periods.
6. Services.
6.1 Sublessee shall be entitled during the Term to receive all
services, utilities, repairs and facilities which Landlord is required to
provide. Notwithstanding anything to the contrary in this Sublease, Sublessor
shall have no liability of any nature whatsoever to Sublessee as a consequence
of the failure or delay on the part of Landlord in performing any or all of its
obligations under the Master Lease, unless such failure or delay is caused by
Sublessor, and under no circumstances shall Sublessee have any right to require
or obtain the performance by Sublessor of any obligations of Landlord under the
Master Lease or otherwise. Sublessee shall have the same rights as Sublessor
under the Master Lease with respect to Landlord's provision of services and
Sublessor's remedies if same are interrupted or suspended. Sublessee's
obligations under this Sublease shall not be impaired, nor shall the performance
thereof be excused, because of any failure or delay on the part of Landlord in
performing its obligations under the Master Lease except to the extent, and only
to such extent, that Sublessor's obligations under the Master Lease are excused
as a result of such failure or delay on the part of Landlord.
6.2 If Landlord shall default in any of its obligations to Sublessor
with respect to the Premises, Sublessor shall not, except as and to the extent
hereinafter set forth, be obligated to bring any action or proceeding or to take
any steps to enforce Sublessor's rights against Landlord. Sublessor shall
cooperate, at no cost to Sublessor, in seeking to obtain the performance of
Landlord pursuant to the Master Lease and, upon the written request of
Sublessee, shall make a demand upon Landlord to fulfill its obligations with
respect to the Premises. If following the making of such demand and the
expiration of any applicable grace period granted to Landlord under the Master
Lease, Landlord shall fail to perform its obligations
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under the Master Lease, then Sublessee shall have the right to take such action
against Landlord in its own name and, in connection therewith, all of the rights
of Sublessor under the Master Lease shall be and they hereby are conferred upon
and assigned to Sublessee, and Sublessee shall be subrogated to such rights to
the extent that the same shall apply to the Premises. If any such action against
Landlord in Sublessee's name is barred by reason of lack of privity,
non-assignability or otherwise, then provided Sublessee is not in default
hereunder beyond any applicable notice and/or grace period, Sublessor agrees
that Sublessee shall have the right, at its sole cost and expense, to bring such
action in Sublessor's name and Sublessor shall execute all documents and take
all such actions reasonably requested in connection therewith. In addition, to
the extent the Master Lease confers "self-help" rights upon Sublessor and there
is a reasonable basis for Sublessee to request Sublessor's exercise of such
rights, Sublessor shall exercise those rights for the benefit of Sublessee. Any
recovery obtained against Landlord in connection with Landlord's default under
the Master Lease or any abatement, credit, set-off or offset, to the extent it
relates to an obligation of Landlord which is, by the provisions of this
Sublease, intended to benefit Sublessee and/or the Premises, shall be the
property of Sublessee and Sublessee shall have the right to any such abatement,
credit, set-off or offset.
7. Electricity.
7.1 Sublessee shall comply with all of the obligations of Sublessor
under the Master Lease with respect to electricity for the Premises including,
but not limited to, the obligations under Section 1.02 and Article 7 of the
Master Lease.
7.2 Sublessee acknowledges that (i) Sublessor is not responsible for
providing or installing any equipment necessary for Sublessee's electrical
requirements, and (ii) Sublessor and Landlord shall have no liability to
Sublessee for any loss, damage or expense which Sublessee may sustain or incur
by reason of any change, failure, inadequacy or defect in the supply or
character of the electrical energy furnished to the Premises or if the quantity
or character of the electrical energy is no longer available or suitable for
Sublessee's requirements.
8. Alterations and Repairs.
8.1 Sublessee shall make no alterations, installations, additions
or improvements, including Sublessee' s initial leasehold improvements
(collectively, "Alterations") in or about the Premises without the prior written
consent of Sublessor and Landlord in each instance, which consent shall be
deemed given by Sublessor if and only if Landlord consents thereto without any
requirement that any such Alteration be removed at the expiration of the Term of
this Sublease. Any Alterations consented to or deemed consented to by Sublessor
shall be performed by Sublessee, at its sole cost and expense, and in compliance
with the following requirements:
(a) Sublessee, at its sole expense, shall comply with all of the
provisions of this Sublease and the Master Lease pertaining to the making of
Alterations, including, without limiting the generality of the foregoing, the
provisions requiring the prior written consent of Landlord before any
Alterations may be made in or about the Premises;
(b) Sublessee shall submit directly to Landlord for its prior
written approval all plans and specifications for such proposed Alterations to
the extent they are required under the Master Lease, together with the name of
the proposed contractor and all proposed subcontractors, and all other
documentation required to be submitted by Sublessor to Landlord under the Master
Lease in respect of such Alterations;
(c) Sublessee shall furnish Sublessor with certificates of insurance
as shall be reasonably satisfactory to Sublessor as to coverage and insurer (who
shall be licensed to do business in the State of New York), including, but not
limited to, liability, property damage, and worker's compensation insurance to
protect Sublessor, Landlord, their agents, employees, successors and assigns and
Sublessee during the period of the performance of such Alteration; and
(d) Sublessee, at its sole expense, shall obtain all municipal and
other governmental licenses, permits, authorizations, approvals and certificates
required in connection with such Alteration.
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8.2 Sublessor shall have no obligations whatsoever to make any
repairs or Alterations in the Premises to any systems serving the Premises or to
any equipment, fixtures or furnishing in the Premises, or to restore the
Premises in the event of a fire or other casualty therein or to perform any
other duty with respect to the Premises which Landlord is required to perform
pursuant to certain obligations which Landlord has to Sublessor under the Master
Lease. Sublessee shall look solely to Landlord for the making of any and all
repairs in the Premises and the performance of all such other work and
responsibilities and only to the extent required by the terms of the Master
Lease.
9. Insurance.
9.1 Sublessee, at Sublessee's sole expense, shall maintain and cause
its contractors and their subcontractors to maintain for the benefit of
Sublessee, Sublessor and Landlord such policies of insurance as are required by
the Master Lease and as are reasonably satisfactory to Sublessor as to coverage
and insurer (who shall be licensed to do business in the State of New Jersey),
provided that such insurance shall at a minimum include comprehensive general
liability insurance protecting and indemnifying Sublessor, Landlord and
Sublessee against any and all claims and liabilities for injury or damage to
persons or property or for the loss of time or of property occurring upon, in or
about the Premises, and the public portions of the Building, caused by or
resulting from or in connection with any act or omission of Sublessee,
Sublessee's employees, agents or invitees. Sublessee shall furnish to Sublessor
prior to the Commencement Date certificates of insurance designating Landlord,
Sublessor and Sublessee as the insureds evidencing such coverage.
9.2 Sublessee shall use its best efforts to cause all policies of
insurance covering Tenant's Property (as defined in Section 5.3 hereof) and any
other property and business interests of Sublessee (including, but not limited
to, casualty insurance and business interruption insurance) to contain a waiver
of subrogation against, or permission for release of liability of, both
Sublessor and Landlord in accordance with Section 16.04 of the Master Lease, and
Sublessor's release of liability pursuant to Section 16.05 of the Master Lease
shall apply to both Sublessor and Landlord. Sublessor shall use its best efforts
to cause all policies of insurance covering its interests in the Premises to
contain a waiver of subrogation against, or permission for release of liability
of, Sublessee.
10. Assignment, Subletting and Encumbrances.
10.1 Sublessee shall not sublease, mortgage, pledge or otherwise
encumber all or any part of the Premises, assign this Sublease (by operation of
law or otherwise) or permit the Premises to be used or occupied by anyone other
than Sublessee, without the prior written approval of Sublessor and Landlord in
each instance, which approval from Landlord and Sublessor may be granted or
withheld in their sole and absolute discretion. Any sublease, mortgage, pledge
or encumbrance or permission to use and occupy made without such consent shall
be null and void. Notwithstanding any consent to any such assignment or
subletting, the provisions of this subsection shall be applicable to each and
every subsequent assignment or subletting, and Sublessee shall not be released
from any of its obligations or liabilities hereunder.
10.2 If this Sublease be assigned or if the Premises or any part
thereof be further sublet or occupied by anybody other than Sublessee, Sublessor
may, after default by Sublessee, collect rent from the assignee, subtenant or
occupant, and, if Sublessor does so, it shall apply the net amount collected to
the Fixed Rent, Additional Rent and other charges herein reserved, but no such
assignment, subletting, occupancy or collection shall be deemed a waiver of
Sublessee's covenants under this Article 10, or the acceptance by Sublessor of
the assignee, subtenant or occupant as tenant hereunder or a release of
Sublessee from the further performance by Sublessee of any of the terms,
covenants and conditions of this Sublease on the part of Sublessee to be
performed hereunder.
10.3 Sublessee shall pay on demand the actual costs and expenses
reasonably incurred by Sublessor and Landlord, including, without limitation,
reasonable architect, engineer and attorneys' fees and disbursements in
connection with any proposed or actual assignment of this Sublease or subletting
of the Premises or any part thereof and the review and/or preparation of
documents in connection therewith.
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10.4 Notwithstanding the provisions of Section 10.1, Sublessor shall
not unreasonably withhold its consent to an assignment of this Sublease to a
corporation into which Sublessee herein named is merged or consolidated, or
which shall acquire all or substantially all of the assets of Sublessee (a
"Successor Sublessee") provided that (i) Sublessee shall not be in default
hereunder beyond any applicable grace period herein specified, (ii) the
Successor Sublessee shall have a net worth of not less than $20,000,000, (iii)
Landlord shall have consented to the assignment in writing, and (iv) the
Successor Sublessee shall execute and deliver to Sublessor an assumption
agreement in form and substance satisfactory to Sublessor assuming all
obligations of Sublessee under this Sublease.
11. Time Limits.
11.1 Except with respect to actions to be taken by Sublessee for
which shorter time limits are specifically set forth in this Sublease, which
time limits shall control for the purposes of this Sublease, the time limits
provided in those portions of the Master Lease that are incorporated herein for
the giving or making of any Notice (as hereinafter defined) by the tenant
thereunder to Landlord, the holder of any mortgage or any other party, or for
the performance of any act, condition or covenant by the tenant thereunder, or
for the exercise of any right, remedy or option by the tenant thereunder, are
changed for the purpose of incorporation into this Sublease, by shortening the
same in each instance by (i) ten (10) days with respect to all such periods of
sixty (60) or more days, (ii) seven (7) days with respect to all such periods of
thirty (30) or more days but less than sixty (60) days, (iii) five (5) days with
respect to all such periods of twenty (20) or more but less than thirty (30)
days and (iv) three (3) days with respect to all such periods of less than
twenty (20) days, provided, however, that in no event shall any such period be
shortened to less than five (5) days, so that any Notice may be given or made,
or any act, condition or covenant performed, or option hereunder exercised, by
Sublessee within the time limit relating thereto contained in the Master Lease.
11.2 Except with respect to actions to be taken by Sublessor for
which longer time limits are specifically set forth in this Sublease, which time
limits shall control for the purposes of this Sublease, the time limits provided
in the Master Lease for the giving or making of any Notice by Landlord or the
performance of any act, covenant or condition by Landlord for the exercise of
any right, remedy or option by Landlord thereunder are changed for the purposes
of this Sublease, by lengthening the same in each instance by (i) ten (10) days
with respect to all such periods of sixty (60) or more days (ii) seven (7) days
with respect to all such periods of thirty (30) or more but less than sixty (60)
days, (iii) five (5) days with respect to all such periods of twenty (20) or
more but less than thirty (30) days and (iv) three (3) days with respect to all
such periods of less than twenty (20) days so that any Notice may be given or
made, or any act, condition or covenant performed or option hereunder exercised
by Sublessor within the number of days respectively set forth above, after the
time limits relating thereto contained in the Master Lease.
12. Remedies Cumulative.
12.1 Each right and remedy of Sublessor under this Sublease shall be
cumulative and be in addition to every other right and remedy of Sublessor under
this Sublease and now or hereafter existing at law or in equity, by statute or
otherwise.
13. Quiet Enjoyment.
13.1 Sublessor covenants that, as long as Sublessee shall pay the
Fixed Rent and Additional Rent and all other amounts due hereunder and shall
duly observe, perform, and comply with all of the terms, covenants and
conditions of this Sublease on its part to be observed, performed or complied
with, Sublessee shall, subject to all of the terms of the Master Lease and this
Sublease, peaceably have, hold and enjoy the Premises during the Term without
molestation or hindrance by Sublessor, except as otherwise provided in Section
5.2 hereof. This covenant shall be construed as a covenant running with the
Land, and is not, nor shall it be construed as, a personal covenant of
Sublessor, except to the extent of Sublessor's interest in this Sublease and
only for so long as such interest shall continue. Accordingly, this covenant
shall bind and be enforceable against Sublessor or any successor to Sublessor's
interest, subject to the terms hereof, only for so long as Sublessor or any
successor to Sublessor's interest, respectively, shall be in possession and
shall be collecting Rent from Sublessee, but not thereafter.
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14. Release of Sublessor.
14.1 The term "Sublessor", as used in this Sublease shall be
limited to mean and include only the owner or owners at the time in question of
the tenant's interest under the Master Lease, and in the event of any transfer
or transfers of the tenant's interest in the Master Lease, Sublessor herein
named (and in case of any subsequent transfer or conveyance, the then transferor
of the tenant's interest in the Master Lease) shall be automatically freed and
relieved from and after the date of such transfer of all liability with respect
to the performance of any covenants or obligations on the part of Sublessor
contained in this Sublease thereafter to be performed.
15. Surrender of Premises.
15.1 Sublessee shall, no later than the termination of this Sublease
and in accordance with all of the terms of this Sublease and the Master Lease,
vacate and surrender to Sublessor the Premises, together with all Alterations,
in good order, condition and repair, reasonable wear and tear excepted and loss
by fire or other casualty excepted. As a material inducement to Sublessor
entering into this Sublease, Sublessee acknowledges and agrees that Sublessee
shall be solely responsible for any and all restoration obligations to the
Premises imposed upon the tenant under the Master Lease. Sublessee's obligation
to observe or perform this covenant shall survive the termination of this
Sublease.
16. Parking Spaces.
16.1 The provision of Section 1.01 of the Master Lease entitled
"Number of Parking Spaces" is not incorporated herein by reference pursuant to
Section 5.3 hereof. Pursuant to said Section 1.01, Sublessor has leased twenty
(20) exterior parking spaces from Landlord ("Parking Spaces"), which are hereby
subleased to Sublessee, subject to all applicable provisions of the Master
Lease, including Section 1.01 and Article 9 thereof. Sublessee shall pay to
Sublessor, as Additional Rent as provided in Section 3.1(b), all rentals from
time to time payable for the Parking Spaces pursuant to the Master Lease.
17. Notices.
17.1 All notices, consents, approvals or other communications
(collectively, a "Notice") required to be given under this Sublease or pursuant
to law shall be in writing and, unless otherwise required by law, shall be given
by registered or certified mail, return receipt requested, postage prepaid
(except for rent bills which may be sent by regular mail or hand delivery),
addressed:
(a) if to Sublessor, at Sublessor's address set forth in this
Sublease or at such other address as Sublessor may designate by Notice to
Sublessee, Attention: Mr. Anthony Savarese, Director of General Services, with a
copy to each of Carol A. Jameson, Esq., Associate Counsel, The Depository Trust
Company, 55 Water Street, 19th Floor, New York New York 10041 and Carlo R.
Caffuzzi, Esq., 100 Maiden Lane, Suite 1608, New York, N.Y. 10038.
(b) if to Sublessee, at Sublessee's address set forth in this
Sublease (except that after the Commencement Date Sublessee's address shall be
the Building), Attention: David Ambrosia, Esq. with a copy to Caroline Harcourt,
Esq., Winthrop, Stimson, Putnam & Roberts, One Battery Park Plaza, New York, NY
10004.
Either party may designate a new address to which Notices may be
sent by Notice to the other party. Any Notice given pursuant hereto shall be
deemed to have been received on the third day after the mailing thereof if
mailed in accordance with the terms hereof.
18. Landlord's Consent.
18.1 This Sublease shall be of no force or effect unless and until
Sublessor shall have obtained Landlord's consent to this Sublease. Sublessor
shall request such consent and provide such information as may be required under
the Master Lease promptly upon full execution hereof and Sublessee agrees to use
all reasonable efforts to assist Sublessor in obtaining such consent. If
Sublessor does not obtain such consent for any reason whatsoever within thirty
(30) days after the date hereof, then either Sublessor or Sublessee may elect to
cancel this Sublease by giving notice to the other within five (5) business days
after the
-10-
<PAGE>
expiration of said thirty (30)-day period, but prior to the obtaining of such
consent. If notice of cancellation has been given in accordance with the
provisions of this Section, then: (i) Sublessor shall not be obligated to take
any further action to obtain such consent, (ii) Sublessor shall promptly refund
any Rent or other sums paid by Sublessee upon the execution hereof in connection
with this Sublease, and shall return the Letter of Credit to Sublessee, and
(iii) this Sublease shall thereupon be deemed null and void and of no further
force and effect, and neither of the parties hereto shall have any rights or
claims against the other except as provided in Article 19.
19. Broker.
19.1 Sublessee and Sublessor represent and warrant to each other
that they have not dealt with any broker in connection with this Sublease other
than Cushman & Wakefield, Inc. and Newmark & Co. (collectively, the "Broker")
and that no broker or person other than the Broker had any part or was
instrumental in any way in bringing about this transaction. Sublessee and
Sublessor shall indemnify and hold each other harmless from and against any and
all loss, claims, liabilities, damages and expenses, including, without
limitation, attorneys' fees and expenses and court costs, arising out of or in
connection with any breach or alleged breach of the above representations or any
claim by any person or entity other than Broker for brokerage commissions or
other compensation in connection with the consummation of this Sublease. The
provisions of this Article shall survive the expiration or sooner termination of
this Sublease. Sublessor shall pay the Broker the brokerage commission due the
Broker in connection with this Sublease, if any.
20. Waiver of Rights to Jury and Counterclaim.
20.1 Sublessor and Sublessee each hereby waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties against the
other on any matters whatsoever arising out of or in any way connected with this
Sublease, the relationship of Sublessor and Sublessee, Sublessee's use or
occupancy of the Premises, and/or any claim of injury or damage, or for the
enforcement of any remedy under any statute, emergency or otherwise.
21. Security.
21.1 Simultaneously herewith, Sublessee has delivered to Sublessor
an irrevocable letter of credit (the "Original Letter of Credit") issued by a
bank satisfactory to Sublessor (the "Issuer") in the amount of One Million
Fourteen Thousand, Five Hundred Forty and 00/100 ($1,014,540.00) Dollars (the
"Required Amount"). The Original Letter of Credit and the Replacement Letter of
Credit (as hereinafter defined) are herein referred to as the "Letter of
Credit". If any default hereunder occurs and is not remedied within the
applicable grace period provided in this Sublease, or if the Issuer gives notice
to Sublessor that it does not intend to extend the expiry date of the Letter of
Credit beyond the then current expiry date of the Letter of Credit as therein
provided, Sublessor may draw the entire proceeds of the Letter of Credit and
apply the whole or any part of such proceeds to the payment of any Rent or any
other sum as to which Sublessee is in default, including any sum which Sublessor
may expend or may be required to expend by reason of Sublessee's default in
respect of any of the terms, covenants and conditions of this Sublease, and any
damages to which Sublessor is entitled pursuant to Article 27 of the Master
Lease, as incorporated herein by reference, without taking into consideration
any reduction of damages which might otherwise be applicable by reason of the
bankruptcy or insolvency of Sublessee. Sublessor may retain any of the proceeds
drawn under the Letter of Credit and not applied as hereinabove provided as
continued security for the faithful performance by Sublessee of the terms,
covenants and conditions of this Sublease.
21.2 Sublessee shall have the right at any time after the third
anniversary of the Commencement Date to deliver to Sublessor, in substitution
for the Original Letter of Credit, a new letter of credit in the amount of
$507,270.00 (which amount from and after the date of substitution shall be
deemed the Required Amount) issued by the Issuer and in the same form as the
Original Letter of Credit (the "Replacement Letter of credit"), provided that
(i) Sublessee shall not be in default hereunder beyond any applicable grace
period herein specified, (ii) the Original Letter of Credit shall not have been
drawn upon, and (iii) Sublessee shall have delivered to Sublessor Sublessee's
audited financial statements for the fiscal year of Sublessee last ending prior
to the date of such substitution, showing Sublessee's net worth to be not less
than
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<PAGE>
$20,000,000. Sublessee shall exercise such right by giving notice to Sublessor
accompanied by copies of the financial statements hereinabove mentioned. Within
thirty (30) days after receipt of such notice, provided the foregoing
requirements are satisfied, Sublessor shall deliver the Original Letter of
Credit to Sublessee, against delivery of the Replacement Letter of Credit to
Sublessor.
21.3 In the event that Sublessee shall fully and faithfully perform
and comply with all of the terms, covenants and conditions of this Sublease,
Sublessor shall execute and deliver to Sublessee a written consent to the
cancellation of the Letter of Credit and shall return the outstanding Letter of
Credit to Sublessee within thirty (30) days after the Expiration Date and
delivery of the Premises to Sublessor. In the event of a transfer of Sublessor's
interest under this Sublease, Sublessor shall have the right to transfer the
Letter of Credit to the transferee and upon such transfer, Sublessor shall
thereupon be released from all liability for the return of such Letter of Credit
and Sublessee agrees to look solely to the new sublessor for the return of said
Letter of Credit. It is agreed that the provisions hereof shall apply to every
transfer or assignment made of the Letter of Credit to a new sublessor.
Sublessee further covenants that it will not assign or encumber or attempt to
assign or encumber the Letter of Credit and that neither Sublessor nor its
successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.
21.4 If Sublessor applies or retains any part of the proceeds of the
Letter of Credit, Sublessee shall not be deemed to have cured the default which
gave rise to the application or retention of any part of the proceeds of the
Letter of Credit unless Sublessee shall have deposited with Sublessor, within
ten (10) days after demand therefor, the amount so applied or retained, so that
Sublessor shall have the Required Amount on deposit at all times during the
Term.
21.5 If Sublessor draws on the Letter of Credit by reason of receipt
of notice from Issuer that it does not intend to extend the expiry date of the
Letter of Credit beyond the then current expiry date of the Letter of Credit as
therein provided, Sublessor shall hold the proceeds thereof in excess of the
portion applied by Sublessor as provided in Section 21.1 as the security
hereunder and shall deposit the same into a separate interest-bearing bank
account. If Sublessee shall fully and faithfully perform and comply with all the
terms, covenants and conditions of this Sublease, such security shall be paid
over to Sublessee together with any interest earned thereon (less a 1% per annum
administrative fee) within thirty (30) days after the Expiration Date and
delivery of the Premises to Sublessor.
21.6 Any amount drawn by Sublessor on the Letter of Credit or held
pursuant to Section 21.5 shall not be limited by the application of ss.502(b)(6)
of the Bankruptcy Code, nor shall the draw of money so held by Sublessor be
treated as if it were a security deposit made by Sublessee of its own funds.
21.7 Provided that (i) Sublessee shall not be in default hereunder
beyond any applicable grace period herein specified, (ii) the Letter of Credit
shall not have been drawn upon, and (iii) Sublessee shall have a net worth at
such time of not less than $20,000,000, Sublessor shall return the Letter of
Credit to Sublessee upon its request made at any time after the fifth
anniversary of the Commencement Date.
22. Miscellaneous.
22.1 This Sublease shall be governed by and construed in accordance
with the laws of the State of New Jersey.
22.2 The section headings in this Sublease and the table of contents
are inserted only as a matter of convenience for reference and are not to be
given any effect in construing this Sublease.
22.3 If any of the provisions of this Sublease or the application
thereof to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Sublease, or the application of such
provision or provisions to persons or circumstances other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby, and
every provision of this Sublease shall be valid and enforceable to the fullest
extent permitted by law.
-12-
<PAGE>
22.4 All of the terms and provisions of this Sublease shall be
binding upon and inure to the benefit of the parties hereto and, subject to the
provisions of Article 10 hereof, their respective successors and assigns.
22.5 Sublessor has made no representations, warranties or covenants
to or with Sublessee with respect to the subject matter of this Sublease except
as expressly provided herein and all prior negotiations and agreements relating
thereto are merged into this Sublease. This Sublease may not be amended or
terminated, in whole or in part, nor may any of the provisions be waived, except
by a written instrument executed by the party against whom enforcement of such
amendment, termination or waiver is sought and unless the same is permitted
under the terms and provisions of the Master Lease.
22.6 Unless specifically provided herein, all capitalized terms used
in this Sublease which are defined in the Master Lease shall be deemed to have
the respective meanings set forth therein.
22.7 The submission by Sublessor to Sublessee of this Sublease in
draft form shall be deemed submitted solely for Sublessee's consideration and
not for acceptance and execution. Such submission shall have no binding force
and effect, shall not constitute an option for the leasing of the Premises, and
shall not confer any rights or impose any obligation upon either party. The
submission by Sublessor of this Sublease for execution by Sublessee and the
actual execution and delivery by Sublessee to Sublessor shall similarly have no
binding force and effect unless and until Sublessor and Sublessee shall have
executed this Sublease and a counterpart thereof shall have been delivered to
Sublessee.
22.8 Notwithstanding the foregoing or anything to the contrary
contained in this Sublease, Sublessor hereby authorizes Sublessee to request, in
Sublessor's name, directly from Landlord such additional services at the
Premises that Sublessee may require from time to time in the ordinary course of
business.
22.9 Sublessor and Sublessee each hereby represents and warrants
that it has the full right, power and authority to enter into and perform this
Sublease and that the person executing this Sublease on behalf of Sublessor and
Sublessee, respectively, is duly authorized to do so.
-13-
<PAGE>
IN WITNESS WHEREOF, Sublessor and Sublessee have executed this
Sublease as of the day and year first above written.
THE DEPOSITORY TRUST COMPANY,
as Sublessor
By: /s/ Dennis Dirks
------------------------------------
Title: President
MAIL.COM, INC.,
as Sublessee
By: /s/ Gary Millin
------------------------------------
Title: President
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<PAGE>
Exhibit 10iiD(2)
AT&T MA/GA Reference No.MA3986
AT&T Internet Services Contract #14110
Cover Page
- --------------------------------------------------------------------------------
CUSTOMER Legal Name
- --------------------------------------------------------------------------------
Mail.com
- --------------------------------------------------------------------------------
CUSTOMER Information
- --------------------------------------------------------------------------------
Address:
11 Broadway
6th Floor
New York, NY 10048
Telephone: 212-425-4200
- --------------------------------------------------------------------------------
AT&T Corp. ("AT&T")
- --------------------------------------------------------------------------------
AT&T Corp.
55 Corporate Drive
Room 32B15
Bridgewater, New Jersey 08807
- --------------------------------------------------------------------------------
AT&T Authorized Agent Info. (if applicable)
- --------------------------------------------------------------------------------
Name: (Agent Represenative)
Company Name: (Agent Company)
(Agent Address)
(City), (State) (ZIP)
Telephone: (Insert Phone Number)
Email: (Insert Agent E-mail)
Agent Code: (Insert Phone Number)
- --------------------------------------------------------------------------------
AT&T Sales Representative Name
- --------------------------------------------------------------------------------
Kurt Stein/Chris Street
Email: [email protected]/[email protected]
Telephone: 212-387-6241/617-859-1991
- --------------------------------------------------------------------------------
AT&T Sales Rep. Address
- --------------------------------------------------------------------------------
32 Avenue of Americas
New York, NY 10013-2412
Branch Manager: Carol Heller
Sales Strata: Growth
Sales Region: Eastern
- --------------------------------------------------------------------------------
This Attachment to the AT&T Master Agreement or General Agreement dated May 25,
1999 between Customer and AT&T Corp. ("Agreement") covers the below identified
AT&T Internet Services ("Services") and is an integral part of the Agreement.
This Attachment is effective when signed by Customer and accepted in writing by
AT&T ("Effective Date").
As of the Effective Date, the Services are as follows:
|_| AT&T Managed Internet Service
|_| AT&T IP Enhanced Fax Service
|_| AT&T Dedicated Hosting Service Level 1*
|_| AT&T DSL Internet Service
|_| AT&T SecureBuy(SM) Service*
|X| AT&T Dedicated Hosting Service Level 2*
|_| AT&T Business IP Dial Service
|_| AT&T Easy World Wide Web(R) Service (EW3 Basic)*
|_| AT&T interactiveAnswers(SM) Service*
|_| AT&T Virtual Private Network Service
|_| AT&T Easy World Wide Web(R) Service & AT&T Enhanced Web Development Package*
|_| AT&T Web Site Service eCommerce Suite*
|_| AT&T Asynchronous Service
|_| AT&T Automotive Network Services
|_| AT&T Concert InternetPlus Service
|_| AT&T Business Internet Service
|_| AT&T Private Label Dial ISP
|_| AT&T Private Label Virtual ISP
*These Services are ancillary to, and MUST be accompanied by, an AT&T Web Site
Services Attachment.
- --------------------------------------------------------------------------------
CUSTOMER'S SIGNATURE BELOW ACKNOWLEDGES THAT CUSTOMER HAS READ AND UNDERSTANDS
EACH OF THE TERMS AND CONDITIONS OF THIS ATTACHMENT AND AGREES TO BE BOUND BY
THEM.
- --------------------------------------------------------------------------------
CUSTOMER: Mail.com, Inc. AT&T CORP.
(Legal Name)
By: /s/ Bob Helfant By: /s/ Anthony Galluzzo
-------------------------------- -------------------------------------
(Authorized Signature) (Authorized Signature)
Bob Helfant Anthony Galluzzo
- ----------------------------------- ----------------------------------------
(Typed or Printed Name) (Typed or Printed Name)
SVP Contract Manager
- ----------------------------------- ----------------------------------------
(Title) (Title)
10/27/99 10/28/99
- ----------------------------------- ----------------------------------------
(Date) (Date)
AT&T PROPRIETARY coversig. doc
08.13.99
<PAGE>
Custom Terms/Mail.Com/DB AT&T MA Reference No. MA3986
AT&T Dedicated Hosting Service Level 2 Attachment
CT# 14110
- --------------------------------------------------------------------------------
Customer Name Service Period
Mail.com Twelve (12) months
- --------------------------------------------------------------------------------
1. INITIAL CONTRACT TERM, SERVICE PERIOD, AND BILLING
The Initial Contract Term begins on the Effective Date and, if applicable, ends
on the anniversary of the Implementation Date (as defined below) unless
terminated earlier in accordance with the provisions hereof. Charges for
Customer's early cancellation of service are set forth on the Price Sheet. After
the Initial Contract Term, this Attachment shall continue in effect until
terminated as set forth in the AT&T Web Site Services Attachment to which this
Attachment is appended; provided, however, that in the case of Collocated Web
Services (as defined below), this Attachment shall expire no later than the date
on which the Lease (as defined below) expires or is terminated unless the same
has been replaced with another Lease, and provided further that it is understood
that AT&T shall have no obligation to renew, extend, keep in effect or replace
the Lease. Billing, with respect to each site, begins as of the date of physical
completion of server deployment and connection of the server to AT&T's network
("Implementation Date"), regardless of when or whether the Customer's content
has been deployed. The Service Period begins on the Implementation Date.
2. ABSENCE OF SUPPORT FOR AUTHORING TOOLS OR CONTENT
Customer is solely responsible for creating, updating and maintaining the
Content. AT&T will not provide support for use of content authoring tools or
other support in connection with the Content of Customer's Web Site.
3. COLLOCATION SPACE
The services covered by this Attachment may involve the provision to Customer of
collocated web services ("Collocated Web Services"), which include a AT&T- or
Customer-owned server or other equipment that is to be collocated on AT&T's
premises and which may include use of third party software, hardware or other
third party services. The collocation space (the "Space"), which is in premises
that may be leased by AT&T, is described on Exhibit A. If Customer has elected
to do so, AT&T agrees to allow Customer to place certain equipment (the
"Equipment") as defined in Exhibit B, subject and subordinate to the terms and
provisions of the applicable lease or leases (the "Lease") between AT&T or its
Affiliates and the landlord or landlords of the Space. The Equipment shall be
approved by AT&T prior to installation in the Space and shall not exceed the
standard dimensions identified in the Price Sheet. Customer hereby accepts the
Space in its as is condition and acknowledges that AT&T has no obligation to
make alterations, improvements, additions, decorations or changes within the
leased premises, Space or any part thereof. In connection with the provision of
the Space, AT&T shall provide to Customer the installation services, remote hand
services and other space services set forth on Exhibit A hereto. In the event of
any taking by eminent domain or damage by fire or other casualty to the leased
premises or the Space, Customer shall acquiesce and be bound by any action taken
by or agreement entered into between AT&T or its Affiliates and the landlord or
landlords with respect thereto.
4. EQUIPMENT
All right, title and interest in all facilities and associated equipment
provided by either party shall at all times remain exclusively with such party.
Neither party shall create any liens or encumbrances with respect to such
facilities or equipment of the other party. Upon termination of Collocated Web
Services, Customer shall as promptly as possible and in any event within 60 days
of termination, release to AT&T all IP addresses provided by AT&T in connection
with the Collocated Web Services. Upon termination of this Attachment, Customer
shall leave the Space in as good condition (except for normal wear and tear) as
it was at the commencement of this Attachment, and shall remove its Equipment
and other property from the SpaceUpon sixty (60) days' prior written notice and
solely for the purposes of AT&T's convenience, AT&T may require Customer (at
AT&T's expense) to relocate the Equipment within the leased premises; provided,
however, that the site of relocation shall afford comparable environmental
conditions for the Equipment and comparable accessibility to the Equipment.
Otherwise, upon sixty (60) days' prior written notice or, in the event of an
emergency with as much notice as may be feasible, AT&T may require Customer, at
Customer's expense to relocate the Equipment within the leased premises,
provided, however, that the site of relocation shall afford comparable
environmental conditions for the Equipment and comparable accessibility to the
Equipment. AT&T shall use reasonable efforts to maintain the Collocated Web
Services in accordance with applicable performance standards therefor and to
obtain and keep in effect all rights of way required to provide the Collocated
Web Services. AT&T shall have no responsibility for the hardware maintenance and
repair of, or any liability of any kind with respect to, facilities and
equipment which it does not furnish, and may assess Customer its standard charge
for any false call outs.
5. INDEMNIFICATION
Without limitation of any other provision of the Agreement, Customer hereby
agrees to indemnify and hold harmless AT&T against any and all liabilities,
costs, expenses and claims relating to (i) Customers unlawful or improper use of
the Collocated Web Services, the Space or leased premises or the AT&T network,
(ii) Customers failure to comply with the terms and provisions of the Agreement,
including without limitation this Attachment, or (iii) property damage or
personal injury claims caused by Customer's acts or omissions or arising from
its operation of its Equipment or its use of the Space or the leased premises.
6. ACCESS
As part of the covered services, Customer is granted access into AT&T's Space.
Customer shall at all times use care when working in and around AT&T's or other
Customer's equipment. AT&T, at its sole reasonable discretion, may grant
Customer use of an access card. In the event such a card is lost or stolen,
Customer shall so report to AT&T as soon its loss is discovered. A lost or
stolen access card is replaceable upon payment of a replacement fee to AT&T.
7. INTERNET SERVER AVAILABILITY
Under the AT&T Internet Server Availability Guarantee Program, AT&T Level 2
Dedicated Hosting Service Customers have the confidence that their Web Site will
be accessible by end users of the global Internet, subject to the program rules
and regulations set forth below,
If an AT&T-hosted Customer reports that an end user has been unable to access
their Web Site due to the unavailability of the AT&T content hosting production
web server, the customer will be eligible to receive a credit against his/her
hosting Monthly Service Fee incurred during the affected month as specified
below, subject to the program rules and regulations set forth below.
Interruptions of 24 hours or less
--------------------------------------------
Interruption Length Credit
--------------------------------------------
Less than 4 hours none
--------------------------------------------
4 hours-7 hours 59 minutes 1/3 day
--------------------------------------------
8 hours-11 hours 59 minutes 1/2day
--------------------------------------------
12 hours-15 hours 59 minutes 2/3 day
--------------------------------------------
16 hours-24 hours one day
--------------------------------------------
Interruptions of over 24 hours -- Interruptions over 24 hours will be credited
1/6 day for each 4-hour period or periods or fraction thereof. No more than one
full day's credit will be allowed for any period of 24 hours.
Furthermore, Customer is being provided with the following limited guarantees
for power availability, climate control and network availability, subject to the
program rules and regulations set forth below and the attached Ready for
Business Limited Guarantee. If, during any thirty (30) day period, Customer
experiences an unscheduled outage of their electrical power greater than .001%
of the time or an unscheduled outage of their air conditioning greater than .01%
of the time, then, within 30 days of any such outage, Customer shall have a one
time right to terminate this Attachment by giving AT&T at least seven days
written notice of termination and payment of any charges (including installation
charges) incurred as of the termination date, but without payment of any
Termination Charges other than access facilities cancellation charges or other
charges incurred by AT&T as a result of such termination. In addition, in the
event that AT&T materially adversely modifies any of the limited guarantees in
Section 7, Customer shall have a one time right to terminate this Agreement
within the thirty (30) day period following receipt of notice of any such change
by giving AT&T seven (7) days' written notice of termination and payment of all
charges incurred as of the termination date, but without any termination
liability to AT&T other than access facilities cancellation charges incurred by
AT&T as a result of this termination
Program rules and regulations:
1. Claims may be made only by participating AT&T Hosting Service Customers.
2. An outage under this limited guarantee is defined as unscheduled
unavailability of an AT&T Hosting Server or unscheduled unavailability of
Customer's electricity or air conditioning and does not include outages
for scheduled periods of maintenance and upgrades. Notice of a scheduled
outage may be given by posting of the notice on the applicable customer
care website for the Service.
3. Web server availability only applies to content hosting servers used for
hosting Customer's Web Site. It does not apply to servers used to provide
services other than this Hosting Service, including without limitation
transaction service servers or AT&T Internet mail servers.
Page 1 of 4
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v.10.19.99 Custom Terms/Mail.Com/DB
<PAGE>
Custom Terms/Mail.Com/DB AT&T MA Reference No. _______
AT&T Dedicated Hosting Service Level 2 Attachment
4. AT&T must be notified in writing of a claim by a Customer within 10 days
of an occurrence of a possible Service outage. Customer claims must be
sent to the e-mail address [email protected] or as otherwise specified
in the web site provided by AT&T for customer support. All submitted
claims must include the date and time of the Service outage.
5. All claims are subject to review and verification by AT&T.
6. AT&T will be the sole party to verify and determine that an AT&T Hosting
Server or Customer's electricity or air conditioning experienced an
outage.
7. A Customer may only receive credits equal to up to one (1) month's AT&T
Hosting Service Fee during any calendar quarter. A Customer will not
receive a credit for AT&T Web Hosting Nonrecurring Charges, other
recurring monthly charges, or charges related to storage space and data
download by users.
8. AT&T reserves the right to change or modify the program rules and
regulations or discontinue this limited guarantee program at any time
without notice.
9. Credits are exclusive of any applicable taxes charged to Customer or
collected by AT&T.
These limited guarantees are subject to the applicable AT&T Hosting Service
terms and conditions set forth in the AT&T Web Site Services Attachment to which
this Attachment is appended.
8. General
A. In the event that AT&T changes the Service in any way that materially
decreases the level of Service available to Customer, Customer shall have a
one-time right to terminate this Attachment within the thirty (30) day period
following receipt of notice of such change by giving AT&T seven (7) days written
notice of termination and payment of all charges incurred as of the termination
date, but without any termination liability to AT&T, other than access
facilities cancellation charges incurred by AT&T as a result of this
termination.
B. This Agreement may not be assigned by either party without the prior written
consent of the other, except that either party may, without the other party's
consent, assign this Agreement or any Attachment to a present or future
Affiliate or successor and AT&T may assign its right to receive payments.
Customer will immediately notify AT&T of such assignment. AT&T may subcontract
work to be performed under this Agreement, but shall retain responsibility for
all such work. Customer shall have a one-time right within the thirty (30) day
period following receipt from AT&T of the notice of assignment to terminate this
Attachment by giving AT&T seven (7) days written notice of termination and
making payment of all charges incurred as of the termination date, but
termination liability to AT&T.
Page 2 of 4
AT&T PROPRIETARY
sa_host2.doc
v.10.19.99 Custom Terms/Mail.Com/DB
<PAGE>
Custom Terms/Mail.Com/DB AT&T MA Reference No. ________
AT&T Dedicated Hosting Service Level 2 Attachment
EXHIBIT A
REMOTE HANDS - TERMS OF SERVICE
1. Remote Hands Services.
Customer has, pursuant to this Attachment, located certain equipment on AT&T
premises (the "Premises"), and may from time to time request that AT&T perform
certain basic services with respect to such equipment. Such services (herein
referred to as "Remote Hands Services") offer an opportunity for the Customer to
avoid dispatching field services personnel for certain basic on-site activity.
2. Levels of Service.
Remote Hands Services include 3 levels of service, as follows:
Remote Hands Class A, provided at no additional cost, involves the most basic
activities of an on-site technician, performed with "eyes", "ears" and
"fingers", but without involvement of tools, equipment, physical labor, keyboard
or other data input. Examples of Class A service would include:
o pushing a button
o switching a toggle
o setting a dip switch
o power cycling (turning off and on) equipment
o securing cabling to connections
o observing, describing or reporting on indicator lights or display
information on machines or consoles
o basic observation and reporting on local environment in AT&T premises
Remote Hands Class B, provided in accordance with the fee(s) set forth in the
Price Schedule, involves all the services of Class A, plus some configuration or
running of certain basic operations pursuant to real-time instructions of
Customer. This level of service does not involve opening or moving equipment or
any direct hardware or software interaction. Examples of Class B services would
include:
o running single, built in diagnostic equipment
o typing commands on a keyboard console
o changing of pre-labeled tapes
o cable organization, ties or labeling
o modifying basic cable layout, such as Ethernet or FDDI connections
o re-labeling equipment
Remote Hands Class C, provided in accordance with the fee(s) set forth in the
Price Schedule, involves all the services of Class B, plus direct contact with
equipment configuration, including hardware and software interaction, provided
Customer provides accurate, understandable real-time instructions. Examples of
Class C services would include:
o installation of previously received equipment in existing track space
o replacing hardware components with spares or upgrades
o adding memory
o upgrading drive capacity by installation of new or additional disk
drives
AT&T shall, in its own reasonable discretion, determine the appropriate Level of
Remote Hands to which each service request applies.
Remote Hands Services may be purchased on a per hour basis as needed, or on a
monthly basis under contract. Customer will be billed for services rendered
along with Customers monthly service invoice
3. Request Procedure.
Customer shall initiate a Remote Hands Service request by following the
procedure set forth in the Configuration Review Form (CRF) provided to Customer,
as such procedure may be modified by notice to Customer by AT&T from time to
time. Each service request requires a separate initiation by the Customer, by
fax, e-mail or other writing if possible. Each request from a Customer which has
not elected a contract option shall require an original signed request from a
previously authorized Customer representative. In cases of emergency, a signed
facsimile transmission service request followed by a signed original is
acceptable. AT&T's technicians will use reasonable efforts to respond to a
Customer request for Remote Hands Service by telephone or electronic
communication within 30 minutes of receipt of the initial Customer's request.
AT&T's technician will assign a Trouble Ticket and will use reasonable efforts
to commence the rendering of the service within the time window specified below
from the point of assignment of the Trouble Ticket.
- --------------------------------------------------------------------------------
AT&T PREMISE SERVICE INITIATION WITHIN;
- --------------------------------------------------------------------------------
San Diego, 9850 Scranton Road 1 hr
- --------------------------------------------------------------------------------
New York, 67 Broad Street 1 hr
- --------------------------------------------------------------------------------
5. No Warranty/Limitation on Damages.
Customer acknowledges that AT&T will provide Remote Hands Services under
Customer's specific direction. AT&T DOES NOT OFFER OR PROVIDE (AND HEREBY
DISCLAIMS) ANY WARRANTY WITH RESPECT TO REMOTE HANDS SERVICES. NOTWITHSTANDING
ANYTHING CONTAINED IN THE AGREEMENT TO THE CONTRARY, THE REMOTE HANDS SERVICES
ARE PROVIDED ON AN "AS IS" BASIS. AT&T SHALL NOT BE LIABLE IN ANY WAY WHATSOEVER
FOR ANY DIRECT OR INDIRECT LOSS, COST OR DAMAGE CUSTOMER MAY INCUR IN CONNECTION
WITH AT&T PROVIDING OR FAILING TO PROVIDE THE REMOTE HANDS SERVICES TO CUSTOMER.
6. Indemnity
Customer will at all times defend, indemnify and hold harmless AT&T from and
against any and all damages, liabilities, losses, penalties, interest and other
expenses (including, without limitation, reasonable attorney's fees), whether or
not arising out of or relating to any third party claims, and regardless of the
form of action, whether in contract, tort, strict liability or otherwise,
concerning AT&T's provision of the Remote Hands Services to Customer
Page 3 of 4
AT&T PROPRIETARY
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<PAGE>
AT&T MA Reference No. ________
AT&T WEB SITE SERVICES
SERVICE ATTACHMENT
- --------------------------------------------------------------------------------
Customer Name: Mail.com
- --------------------------------------------------------------------------------
This Attachment consists of the following terms and conditions, and, as
applicable, the attached terms and conditions for AT&T Easy World Wide Web(R)
Service, AT&T Enhanced Web Development Package, AT&T Dedicated Hosting Service
Level 1, AT&T Dedicated Hosting Service Level 2, AT&T SecureBuy(SM) Service or
AT&T interactiveAnswers(SM) Service and the applicable Price Schedule(s)
(collectively, this "Attachment"). This Attachment, together with the AT&T
Master Agreement to which it is attached (the "Agreement"), sets forth the terms
and conditions pursuant to which AT&T will provide the Web Site Services which
Customer now orders or subsequently orders during the term of this Attachment.
1. PRICE SCHEDULES.
The current rates for the Web Site Services are set forth in the attached Price
Schedule(s). AT&T may change any of the Price Schedules at any time upon thirty
(30) days' prior notice to Customer.
2. CUSTOMER RIGHTS AND RESPONSIBILITIES
(a) Customer agrees that AT&T will not provide customer service for end users of
the Customers Web Site Services. Customer will have sole responsibility for
fulfillment of purchase orders and delivery of all products and services
purchased through the Web Sites. Customer will also have sole responsibility for
any collection activities relating to a purchaser's failure to make payment, and
complying with all applicable laws, including tax laws in any jurisdiction
associated with such sale.
(b) In the event that any virus or destructive element is found in or furnished
with any Content, Customer will use its best efforts, upon learning that such
situation exists, to immediately eliminate the virus or destructive element.
Customer will notify AT&T as to the existence of any such virus or destructive
element immediately upon discovery thereof, and AT&T will have the right to take
any steps it deems appropriate to eliminate the virus or destructive element and
to be reimbursed by Customer for its reasonable costs.
(c) As between AT&T and Customer, Customer will own all right, title and
interest in and to the Content, but specifically excluding any portion of the
Software and any copyright notices or Marks of AT&T which may be included or
embodied in the Content.
(d) For purposes of this Attachment, (i) "Web Sites" shall mean any Internet
sites for which any Web Site Services are being used hereunder, including,
without limitation, any Web Site containing a Service HyperLink (as defined
below) and (ii) "Content" shall be deemed to include the materials and
information to be made available or displayed (including, without limitation,
text, graphics, art, animation, software, photographs, video, music,
advertisements, other audio and visual assets) on or through the Web Sites,
including without limitation the contents of any third party contributions to
bulletin boards, chat forums, or other communications services, transaction
services, or information services incorporated into the Web Sites.
(e) Except to the extent required by law or expressly permitted in this
Attachment, CUSTOMER may not resell this Service.
3. CONTENT AND SERVICE USE.
Customer is responsible for its Content and that of any of its End Users'
(including any Content hosted by Customer or any End User on behalf of third
parties, irrespective of whether such hosting is permitted pursuant to this
Agreement). Customer acknowledges that it has read and agrees to be bound by
AT&T's Acceptable Use Policy ("AUP"). The AUP, as it may be revised from time to
time, is published at www.ipservices.att.com/policy.html or at such other
address as AT&T may specify by notice. The potential consequences of violating
the AUP are described in the AUP, but include filtering, blocking, or removing
Content, and suspension or termination of the Service. A violation of the AUP is
also a material breach of this Attachment.
4. DOMAIN NAME SERVICES
(a) Customer may, from time to time, request that AT&T submit to InterNIC or
another domain name registry, on Customer's behalf, domain name registration
applications (each, an "Application"), for domain names selected by the Customer
(each, a "Domain Name"). In the event that AT&T elects, in its sole discretion,
to perform such service, the Applications shall name AT&T as the Internet
Service Provider which will host such domain name. AT&T is not a domain name
registry. AT&T's charges for the Domain Name Management Services do not include
the domain name registry's fees. Customer shall be responsible for, and shall
promptly pay, all such fees.
(b) Customer represents and warrants that (i) all statements on the Application
are true and correct; (ii) none of the requested Domain Names or Customer's use
of any Domain Name will interfere with the rights of any third party, infringe
upon any trademark, service mark or other personal, moral or property right or
violate any of the other Standards; and (iii) Customer has a legitimate business
purpose for registering each Domain Name, which purpose relates to Customer's
purchase of AT&T Services.
(c) With respect to any Domain Name, AT&T may elect to terminate or suspend its
hosting of or provisioning of any DNS Services with respect to any or all of
Customer's Domain Names immediately upon written notice in the event that (i) an
Application is rejected; (ii) the Domain Name Registration is revoked or placed
on "hold" or assigned to a third party; or (iii) AT&T receives or becomes aware
of any complaints, conflicting claims or court orders regarding the Domain Name.
5. LIMITATION OF LIABILITY
(a) NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, AT&T DOMAIN NAME
SERVICES, AT&T INTERNET MAIL AND ALL RELATED SOFTWARE ARE PROVIDED ON AN "AS IS"
BASIS. AT&T SHALL NOT BE LIABLE IN ANY WAY WHATSOEVER FOR ANY DIRECT OR INDIRECT
LOSS, COST OR DAMAGE CUSTOMER MAY INCUR IN CONNECTION WITH CUSTOMER'S USE OF
SUCH SERVICES OR SOFTWARE OR AT&T PROVIDING OR FAILING TO PROVIDE SUCH SERVICES
OR SOFTWARE TO CUSTOMER. WITHOUT LIMITING THE FOREGOING, AT&T DOES NOT MAKE ANY
WARRANTIES REGARDING THE SUCCESSFUL REGISTRATION OF ANY DOMAIN NAME, THE TIME OF
SUBMISSION OF THE APPLICATION OR CUSTOMER'S RIGHT TO CONTINUED USE OF A DOMAIN
NAME AFTER REGISTRATION. AT&T IS NOT REQUIRED TO PARTICIPATE IN ANY DISPUTES
RELATING TO THE APPLICATION OR THE REGISTRATION OF ANY DOMAIN NAME
(b) IF ANY WEB SITE SERVICE FAILS TO PERFORM SUBSTANTIALLY IN CONFORMANCE WITH
ITS APPLICABLE PUBLISHED SPECIFICATIONS, AT&T MAY PROVIDE CUSTOMER A PRO-RATED
REFUND OR CREDIT OF THE CHARGE(S) APPLICABLE TO THE PORTION OF THE SERVICE THAT
PERFORMED IMPROPERLY OR FAILED TO PERFORM, SUBJECT, IN ALL CASES, TO ANY
EXCLUSIONS THAT MAY APPLY UNDER THIS ATTACHMENT OR THE AGREEMENT. AT&T'S ENTIRE
LIABILITY, AND CUSTOMER'S EXCLUSIVE REMEDY AGAINST AT&T, FOR ANY WEB SITE
SERVICE DEFECT OR FAILURE WILL BE LIMITED TO THE REMEDY SET FORTH IN THE
PRECEDING SENTENCE.
6. TERMINATION
Either party may terminate this Attachment or any Web Site Service provided
pursuant to this Attachment without cause upon thirty (30) days' written notice
to the other party, unless otherwise specifically set forth (i) in any attached
terms and conditions to this Attachment or (ii) in the Price Schedule at the
time the applicable Web Site Service is ordered by the Customer.
7. USE OF AT&T-PROPRIETARY IDENTIFIERS.
AT&T may make certain graphics or other visual cues, which may include trade
names, logos, trademarks, trade dress, service marks, symbols or other indicia
of origin (collectively, "Identifiers"), available to Customer for display or
authorized use on the Web Site, subject to these terms and conditions, and may
also provide to Customer instructions on how to display or use the Identifiers
and, if applicable, how to place them on the Web Sites. If AT&T makes any
Identifier available to Customer, AT&T grants to Customer a non-exclusive,
worldwide license to use such Identifier during the period that the Transaction
Service is made available to Customer, without modification, solely in
connection with the Transaction Service in accordance with AT&T's written
instructions. All use of each such Identifier shall inure to the benefit of AT&T
and shall not create any right, title or interest in it for Customer. AT&T owns
all right, title and interest in and to each Identifier. Customer agrees to
cooperate with AT&T in facilitating AT&T's monitoring and control of Customer's
use of each Identifier and to supply AT&T with samples of Customers use of it
upon request. No other use of any Identifier will be made by Customer for any
purpose without the prior written consent of AT&T. Customer agrees and
acknowledges that AT&T may place or may require Customer to place a disclaimer
on any Web Site Content that contains an Identifier, stating that AT&T does not
endorse any Content, product or service which is provided by any party other
than AT&T.
8. GENERAL
(a) AT&T's policy is to continually improve its products and services, and so
may from time to time change the Web Site Service as provided to Customer under
this Attachment.
(b) Notices to Customer under this Attachment may also be given electronically
to the e-mail address provided by the Customer to AT&T.
(c) Unless otherwise specifically set forth in this Attachment, AT&T does not
provide any web design or development services or other professional services as
part of the Web Site Services. Any web design and development services performed
in connection with the Web Site Services (whether such services are performed by
a member of the AT&T Creative Alliance Program or otherwise) are rendered by
independent entities having no affiliation with AT&T. Customer understands that
AT&T has no control over and shall have no responsibility or liability with
respect to such entities or the services they provide.
Page 1 of 1
AT&T PROPRIETARY
sa_wss.doc
v.05.19.99
<PAGE>
READY FOR BUSINESS
AT&T LIMITED GUARANTEE TO CUSTOMERS OF
AT&T MANAGED INTERNET SERVICE
AND VIRTUAL PRIVATE NETWORK SERVICE
Customers of the AT&T Managed Internet Service (MIS) or Virtual Private
Network Service (VPNS) who are provisioned on the AT&T IP Backbone are
provided guarantees of network availability, maximum delay, and maximum
packet loss, subject to program rules and regulations set forth below. If
a customer of either of the foregoing AT&T business services (the "Covered
Services") experiences a Network Outage of ten (10) minutes or more in any
calendar day, or if AT&T experiences in any calendar month a Network-wide
Delay of greater than 80 milliseconds or a Network-wide Packet Loss of 1%
or more, the customer will be eligible for a credit of one day's worth
(1/30th) of the customer's total monthly connection charge for that
Covered Service for each such incident, subject to the maximums specified
below. In addition, customers of the Covered Service that lease the
customer premises equipment (CPE) from AT&T under the Managed CPE Option
(included with MIS; available as an option with VPNS) are extended the
same limited guarantee and will receive the same credit for a Service
Outage to the CPE and to the dedicated access facility from their premises
to the AT&T Point of Presence.
Program Rules and Regulations:
1. Definitions:
"AT&T IP Backbone" is defined as the AT&T owned and operated Internet
Protocol (IP) infrastructure and consists of all AT&T Internet Service
Points of Presence ("POPs") in the forty-eight (48) continental United
States, the telecommunications equipment and facilities that interconnect
all wiring within them, and the physical plant that surrounds them. The
AT&T IP Backbone does not include CPE nor the dedicated access facility
connecting the customer's premises to the AT&T IP Backbone.
"Network-wide Delay" is defined as the average percentage for the applicable
calendar month, measured between all city pairs on the core AT&T IP
Backbone, of round trip delay time for transmissions solely among points
that are within the core AT&T IP Backbone, excluding delays relating to
scheduled periods of maintenance or upgrades.
"Network-wide Packet Loss" is defined as the average percentage for the
applicable calendar month, measured for all city pairs on the core AT&T IP
Backbone, of packets that are not successfully delivered for transmissions
1
<PAGE>
solely among points that are within the core AT&T IP Backbone, excluding
delivery failures that are not attributable to performance of the AT&T IP
Backbone or delivery failures relating to scheduled periods of maintenance
or upgrades.
An "Outage" is defined as either a Network Outage or a Service Outage.
A "Network Outage" is defined as any occurrence within the AT&T IP Backbone
that results in the inability of the AT&T IP Backbone to transmit IP
packets on behalf of the customer. A "Network Outage" does not include an
outage for scheduled periods of maintenance or upgrades.
A "Service Outage" is defined as any occurrence within the AT&T IP Backbone,
the dedicated access facility provided by AT&T, and/or the CPE leased from
AT&T that results in the inability of the customer to transmit IP packets.
A "Service Outage" does not include an outage for scheduled periods of
maintenance or upgrades. A Service Outage guarantee is only made available
to the subset of Covered Service customers that purchase the Managed CPE
Option (included with MIS; available as an option with VPNS) and lease the
CPE from AT&T.
2. The terms and conditions stated in this document will take effect 30 days
after customer's first use of the Covered Service.
3. Claims may be made only by customers who are provisioned on the AT&T IP
Backbone. In addition, for customers of the AT&T Virtual Private Network
Service, the limited guarantee with respect to Outages applies only for
dedicated access usage.
4. In the case of AT&T Managed Internet Service customers, the monthly
connection charge that will be the subject of the credit will be the
monthly charge for the Service "Package" (port and package components). In
the case of AT&T Virtual Private Network Service customers, the monthly
connection charge that will be the subject of the credit will be the
monthly charge for the PVC connection.
5. In any Calendar month, customer's credits with respect to any particular
site for an Outage, may not exceed five Outage incidents.
6. In any calendar year, customer's aggregated credits may not exceed one
month's connection charge for the Covered Service.
7. Except for the limited guarantees with respect to Network-wide Latency and
Network-wide Packet Loss, AT&T makes no claims regarding the
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<PAGE>
performance of the AT&T IP Backbone. The AT&T IP Backbone is considered
available for purposes of determining whether an Outage has occurred if it
can transmit IP packets.
8. The Service Outage guarantee includes CPE leased from AT&T and the
dedicated access facility provided by AT&T. (CPE is included in the
Service Outage guarantee only if it is leased from AT&T and the customer
uses the diagnostic modem and supplies the requisite POTS line for the
modem.) For AT&T customers who elect not to lease CPE from AT&T the
availability guarantee applies to the AT&T IP Backbone only.
9. This limited guarantee does not apply in the event of fire, explosion,
lightning, power surges or failures, strikes or labor disputes, water,
acts of god, the elements, war, civil disturbances, acts of civil or
military authorities, fuel or energy shortages, acts or omissions of
suppliers or other causes beyond AT&T's control, whether or not similar to
the foregoing.
10. Customer Point of Contact (CPOC) must notify AT&T immediately of a Network
Outage or a Service Outage via the applicable toll-free maintenance
number. AT&T Technical Support will investigate the reported outage and
assign a Trouble Ticket number. Credit request can be sent via an email
addressed to [email protected] or via U.S. Postal Mail to AT&T, 55 Corporate
Drive Bridgewater N.J. 08807, Room 31A70, Attn: Business IP SLA Manager
(Please include the Trouble Ticket number with your request). AT&T will
acknowledge all requests for credit within two (2) business days of
receipt and will inform customer via email or U.S. Postal Mail within ten
(10) days whether the request is approved or denied. Credits will appear
on the bill for the Covered Service no later than two (2) billing cycles
after credit approval.
11. All claims are subject to review and verification by AT&T.
12. AT&T will be the sole party to verify and determine whether a customer
experienced an Outage or whether AT&T has experienced a Network-wide Delay
or Network-wide Packet Loss percentage that is in excess of that specified
in these limited guarantees.
13. AT&T reserves the right to change or modify the program rules and
regulations or discontinue this limited guarantee program at any time
without notice.
14. Credits are exclusive of any applicable taxes charged to the customer or
collected by AT&T.
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<PAGE>
15. This limited guarantee is also subject to the Service Agreement for the
Covered Service.
(C) 1999 AT&T. All rights reserved.
4
<PAGE>
Exhibit 10iiD(3)
ORIGINAL
No. F38429
Dated: 08/10/99
MASTER LEASE AGREEMENT
This MASTER LEASE AGREEMENT (hereinafter called the "Master Agreement") is
entered into by and between Forsythe/McArthur Associates, Inc. corporation
(hereinafter called "Lessor"), having its principal place of business at 7500
Frontage Road Skokie, IL 60077
Mail.com, Inc. (hereinafter called "Lessee"), having a principal place of
business at 11 Broadway, Suite 660, New York, NY 10004
I. THE LEASE
1.1 Lease of Equipment. In accordance with the terms and conditions of this
Master Agreement, Lessor agrees to lease to Lessee. and Lessee agree to
lease from Lessor, the units of personal property (hereinafter
individually called a "Unit" and collectively called "Equipment")
described in supplement(s) which are executed pursuant to and incorporate
the terms of this Master Agreement (each hereinafter, a "Supplement").
Each Supplement shall constitute a separate, distinct, and independent
lease and contractual obligation of Lessee. The term "Lease" as used
hereinafter shall refer to an individual Supplement which incorporates the
terms of this Master Agreement. Lessor or its assignee shall retain the
full legal title to the Equipment, it being expressly agreed by both
parties that this Master Agreement and each Lease shall constitute an
agreement of lease only. Each Lease shall be binding upon Lessor and
Lessee from the date of acceptance and execution of the applicable
Supplement, by Lessor at its headquarters.
1.2 Term of Lease. The original term of lease for each Unit (hereinafter the
"Original Term") shall commence on the date specified in the applicable
Supplement and, subject to Section 2.5 below, shall terminate as specified
in such Supplement. No Lease may be canceled by Lessee for any reason
whatsoever.
1.3 Disclaimers; Warranties. LESSEE ACKNOWLEDGES AND AGREES THAT LESSOR MAKES
NO EXPRESS OR IMPLIED WARRANTIES ARISING OUT OF OR RELATED TO LESSEE'S USE
OR OPERATION OF THE EQUIPMENT. LESSOR EXPRESSLY DISCLAIMS THE IMPLIED
WARRANTIES OP MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE FOR THE
EQUIPMENT OR OTHER PRODUCTS, DOCUMENTATION AND SERVICES PROVIDED HEREIN.
IN NO EVENT SHALL LESSOR BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR ASSOCIATED WITH THE EQUIPMENT
OR THE LEASE THEREOF EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
1.4 Rental Payments. Lessee shall pay rental to Lessor for the Unit(s) in the
amounts and on the dates specified in the applicable Supplement. If any
rental or other amount due hereunder is not paid within five (15) days of
the due date thereof, Lessee shall pay to Lessor on demand, as additional
rental, interest thereon from the due data until payment at a rate equal
to the lesser of (i) eighteen (18%) per annum, or (ii) the maximum rate
permitted by law. All rental and other amounts payable by Lessee to Lessor
hereunder shall be paid to Lessor at the address specified above, or at
such other place as Lessor may designate in writing to Lessee. Time is of
the essence with respect to all of Lessee's obligations under any Lease.
1.5 Return of Equipment. Upon expiration of the Original Term, Lessee will
immediately return the Equipment to Lessor as provided in Section 2.3
below. Should Lessee not return the Equipment at the end of the Original
Term, the Equipment shall continue to be held and leased hereunder, and
the Lease shall thereupon be extended for successive three (3) month
terms, at the same monthly rental, subject to the right of either Lessee
or the Lessor to terminate the Lease upon ninety (90) days written notice,
whereupon the Lessee shall forthwith deliver the Equipment to the Lessor.
If Lessee falls to return the Equipment upon demand therefor by Lessor,
Lessee shall pay Lessor, as the reasonable measure of Lessor's damages,
the value, at replacement cast, of the Equipment so converted.
II. COVENANTS OF LESSEE
2.1 Payment of Rental and Other Monies. Each lease is a net lease and Lessee
acknowledges and agrees that Lessee's obligation to pay all rental and
other sums payable hereunder, and the rights of Lessor in and to such
payments, shall be absolute and unconditional and shall not be subject to
any abatement, reduction, setoff, counterclaim or other defense for any
reason whatsoever. It being the intent of Lessor, and an inducement to
Lessor, to enter into the Lease, to claim all available tax benefits of
ownership with respect to the Equipment, Lessee acknowledges and agrees
that (i) no right, tide or interest in the Equipment has been or is
intended to be passed to Lessee, other than the right to maintain
possession and use of the Equipment for the Original Term, conditional on
Lessee's performance of the terms and conditions of the Lease, (ii) Lessee
has not taken and will not at any time during the Original Term take any
action which shall cause Lessor to lose any tax benefits of ownership, and
(iii) the Stipulated Loss Values (defined in the applicable Lease) agreed
to under this Lease are intended to provide recovery by Lessor of such
lost tax benefits of ownership.
2.1.1 Acceptance of Equipment. Lessees acceptance of the Equipment shall be
conclusively and irrevocably evidenced by Lessee executing the Certificate
of Delivery and Acceptance and upon acceptance the Lease of such Equipment
shall be noncancellable for the Original Term unless otherwise agreed to
as writing by Lessor.
<PAGE>
2.12 Financial Statements. Law shall promptly furnish, or cause to be
furnished, to Lessor such financial or other statements respecting the
condition and operations of Lessee or respecting the Equipment as Lessor
may from time to time reasonably request.
2.13 Lessee Representations. Lessee hereby represents, warrants and covenants
that with respect to this Master Agreement and each Lease entered into
hereunder:
(a) The execution, delivery and performance thereof by the Lessee have
been duly authorized by all necessary corporate action;
(b) The individual executing such was duly authorized to do so;
(c) This Master Agreement and each Lease constitute the legal, valid and
binding obligations of the Lessee enforceable in accordance with the
respective terms.
DEFAULT AND REMEDIES
3.1 Events of Default. The occurrence of any of the following shall constitute
an Event of Default hereunder: (a) Lessee shall fail to pay on the due
date any rental or other payment due under any lease and such failure
shall not be cured within 10 days of notice thereof from Lessor to
Lessee. (b) any provision of this Master Agreement or any Lease or any
provision in any document provided by Lessee for this Master Agreement or
any Lease, or in any document furnished pursuant to the provisions hereof
or otherwise, shall prove to have been false or misleading in any material
respect as of the date when it was made, (c) Lessee shall fail to perform
any provision, covenant, condition or agreement made by it under this
Master Agreement or Lease, and such failure shall continue for twenty
days after notice thereof from Lessor to Lessee or (d) bankruptcy,
receivership, insolvency, reorganization, dissolution, liquidation, or
other similar proceedings shall be instituted by or against Lessee or all
or any part of its property under the Federal Bankruptcy Code or other law
of the United States or of any state law, and ii against Lessee it shall
consent thereto or shall rail to cause the same to be discharged within
twenty (20) days, or (e) Lessee shall default under any agreement with
respect to the purchase or installation of the Equipment, or (f) if Lessee
or any guarantor of Lessee's obligations hereunder shall default under any
other agreement with Lessor.
3.2 Remedies. If an Event of Default hereunder shall occur and be continuing,
Lessor may exercise any one or more of the following remedies: (a)
immediately terminate this Master Agreement and any or all Leases and
Lessee'. rights hereunder and thereunder, (b) proceed, by appropriate
court action or actions either at law or in equity, to enforce performance
by Lessee of the applicable covenants of the Lease or to recover damages
for the breach thereof, (c) by notice in writing to Lessee. recover all
amounts due on or before the date of the event of default, plus, as
liquidated damages for loss of a bargain and not as a penalty, accelerate,
and declare to be immediately due and payable all rentals and other sums
payable under any or all such Leases, without any presentment, demand,
protest or further notice (all of which hereby are expressly waived by
Lessee), whereupon the same shall be and become immediately due and
payable, and (d) personally, or by its agents take immediate possession of
the Equipment, or any part thereof, From Lessee and for such purpose,
enter upon Lessee's premises where any of the Equipment is located with or
without notice or process of law and free from all claims by Lessee. The
exercise of any of the foregoing remedies by Lessor shall not constitute a
termination of any Lease unless Lessor so notifies Lessee in writing. Upon
such an acceleration and declaration or other exercise of remedy, if
Lessee shall pay all amounts payable hereunder through the expiration of
the term and shall Cure any and all defaults Lessee shall be
entitled to use the equipment installed through the expiration of the term
on the terms and conditions set forth herein.
3.3 Disposition of Equipment. In the event Lessor repossess Equipment, Lessor
may (a) lease the Equipment, or any portion thereof, in such a manner, for
such time and upon such term(s) as Lessor may determine or (b) sell the
Equipment. or any portion thereof, at one or more public or private sales,
in such manner, and at such times and upon such terms as Lessor may
determine. In the event that Lessor leases any such Units, any rentals
received by Lessor for the Remaining Lease Term(s) (the period ending on
the date when the Original Term for the Unit(s) would have expired if an
Event of Default had not occurred) for such Units shall be applied to the
payment of (i) all costs and expenses (Including attorneys' fees)
incurred by Lessor in retaking possession of, and removing, storing,
repairing, refurbishing and leasing such Units, and (ii) the rentals for
the remainder of the Original Term and all other sums, including past due
rentals, remaining unpaid under the Lease. The balance of such rentals, if
any, shall be applied first to reimburse Lessee for any sums previously
paid by Lessee as liquidated damages, and any remaining amounts shall be
retained by Lessor. All rentals received by Lessor for the period
commencing after the expiration of the Remaining Lease Term(s) shall be
retained by Lessor. Lessee shall remain liable to Lessor to the extent
that the aggregate amount of the sums referred to in clause (i) and (ii)
above shall exceed the aggregate rentals received by Lessor under such
leases for the respective Remaining Lease Term(s) applicable to the Units
covered by such lease. In the event that Lessor shall sell or otherwise
dispose of (other than pursuant to a lease) any such Unit, the proceeds
thereof shall be applied to the payment of (i) all costs and expenses
(including reasonable attorneys' fees) incurred by Lessor in retaking
possession of, and removing, storing, repairing, refurbishing and selling
or otherwise disposing of such Unit(s), (ii) the rentals that either did
or would have accrued under the Lease but are unpaid up to the time of
such sale or other disposition, (iii) any and all other sums (other than
rentals) then owing to Lessor by Lessee under, and (iv) the Stipulated
Loss Value of such Unit(s) determined as of the date of such sales or
other disposition in accordance with the schedule set forth in the Lease
for such Unit(s). The balance of such proceeds, If any, shall be applied
first to reimburse Lessee for any sums previously paid by Lessee as
liquidated damages, and any remaining amounts shall be retained by Lessor.
Lessee shall remain liable to Lessor to the extent that the aggregate
amount of the sums referred to in clauses (I) through (iv) above shall
exceed the aggregate proceeds received by Lessor in connection with the
sale or disposition of the Equipment (other than pursuant to a lease).
IV. MISCELLANEOUS
4.1 Performance of Lessee's Obligations. Upon Lessee's failure to pay any sum
or perform any obligation hereunder when due, Lessor shall have the
option, but shall in no case be obligated, to pay such sum or perform such
obligation, whereupon such sum or the cost of such performance shall
immediately become due and payable as additional rent from Lessee to
Lessor with interest at the highest legal rate from the date payment or
performance was due.
4.2 Assignment. No right, obligation or interest of Lessee with respect to
this Master Agreement, any Lease or Equipment shall, without the prior
written consent of Lessor, be assignable by Lessee and any such purported
assignment shall be null and void. Lessor may, at anytime, without the
consent of Lessee, assign the Master Agreement and any Lease or any
interest herein or therein to any party. In the event of any assignment of
Lessor, the assignee shall have all of Lessor's rights hereunder, but none
of its obligations, and upon receipt by Lessee of written notice of any
such assignment, Lessee shall make all payments thereafter becoming due
under any assigned Lease to such assignee without regard to any set-off,
defense or counter claim that Lessee may have against Lessor.
<PAGE>
2.2 Use of Equipment. Lessee shall use the Equipment solely in the conduct of
its business, in a manner and for the use contemplated by the manufacturer
thereof, and in compliance with all laws, rules and regulations of every
governmental authority having jurisdiction over the Equipment and with the
provisions of all policies of insurance carried by Lessee pursuant to
Section 2.6 below; provided, however, Lessee shall have the right to allow
third parties, under Lessee's supervision, to use the Equipment, so long
as Lessee shall retain uninterrupted possession and control of the
Equipment. Lessee shall pay all costs, expenses, fees and charges incurred
in connection with the use and operation of the Equipment.
2.3 Delivery, Installation, Maintenance and Repair. Lessee shall be solely
responsible, at its own expense, for the delivery of the Equipment to
Lessee, the packing, rigging and delivery of the Equipment back to Lessor
upon expiration of the Original Term in good repair, condition, and
working order, ordinary wear and tear excepted, at the location(s) within
the continental United States specified by Lessor. Lessee is also solely
responsible for the installation, de-installation, maintenance and repair
of the Equipment. Lessee shall, at its expense, (a) keep the Equipment in
good repair, condition and working order, ordinary wear and tear excepted,
and (b) at the expiration of the Original Term or any renewal term have
the Equipment inspected and certified as acceptable for maintenance
service by the manufacturer. Lessor shall be entitled to inspect the
Equipment at Lessee's location at reasonable times.
2.4 Taxes. Lessee agrees to pay, and to indemnify and hold Lessor harmless
from, all license fees, assessments, and sales, use, property, excise and
other taxes and charges ("Imposts")(other than those measured by Lessor's
net income) now or hereafter imposed by any governmental body or agency
upon or with respect to (a) the Equipment or the possession, ownership,
use or operation thereof or (b) this Master Agreement, any Lease, or the
consummation of the transactions herein contemplated. All required
personal property tax returns relating to the Equipment shall be filed by
Lessee unless otherwise provided in writing. Lessee shall reimburse Lessor
promptly upon demand for the amount of any Imposts remitted by Lessor
which are required hereunder to be borne by Lessee.
2.5 Loss of Equipment. Lessee shall bear the entire risk of the Equipment
being lost, destroyed or otherwise rendered permanently unfit or
unavailable for use from any cause whatsoever (hereinafter called an
"Event of Loss") after its delivery to Lessee. If an Event of Loss shall
occur with respect to any Unit, Lessee shall promptly and fully notify
Lessor thereof. On the rental payment date following such notice Lessee
shall pay to Lessor an amount equal to the rental payment or payments due
and payable for such Unit on such date plus a sum equal to the Stipulated
Loss Value (as defined in the applicable Supplement) of such Unit as of
the date of such payment set forth in such Supplement. Upon the making of
such payment by Lessee regarding any Unit, the rental obligation for such
Unit shall cease, the Lease as to such Unit shall terminate and (except in
the case of loss, theft or complete destruction) Lessor shall be entitled
to recover possession of such Unit at Lessee's expense in accordance with
the provisions of Section 2.3 above. Provided that Lessor has received the
Stipulated Loss Value for any Unit, Lessee shall be entitled to the
proceeds of any recovery in respect of such Unit from insurance or
otherwise.
2.6 Insurance. Lessee shall obtain and maintain for the entire term of the
Lease, at its own expense, property damage and liability insurance and
insurance against loss or damage to the Equipment including , without
limitation, loss by fire (including so-called extended coverage), theft
and such other risks of loss as are required on the type of Equipment
leased hereunder and by businesses in which Lessee is engaged in such
amounts in such form and with such insurers as shall be satisfactory to
Lessor, provided however, that such insurance for lots or damage of any
Unit shall always be at a minimum, the amount of the Stipulated Loss Value
of such Unit. Each insurance policy will name Lessee as insured and Lessor
as an additional insured and loss payee thereof as Lessor's interests may
appear and shall provide that it may not be canceled or altered without at
least 30 days prior written notice to Lessor or its successors and
assigns. Lessee shall provide to Lessor a certificate of insurance as
evidence of insurance coverage prior to delivery of any Unit.
2.7 Indemnity. Lessee shall and does hereby indemnify Lessor and its
successors and assigns against, and hold Lessor and its successors and
assigns harmless from, any and all claims, demands, actions and suits,
proceedings, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, hereinafter ("Claims"), arising out of,
connected with or resulting from this Master Agreement, any Lease, or the
Equipment, including, without limitation, the selection, ownership,
control, maintenance, lease, purchase, delivery, possession, condition,
use, operation, or return of the Equipment. Except to the extent arising
out of Lessor's negligence, bad faith or willful misconduct. Lessee shall
give Lessor immediate notice of any Claim and Lessee shall satisfy, pay
and discharge any and all judgments and fines that may be recovered
against Lessor in connection with any such Claim. Lessor shall give Lessee
written notice of any such Claim of which Lessor has knowledge.
2.8 Possession; Assignment; Pledge. Without the prior written consent of
Lessor, which such consent as it pertains to subsections (a) and (d),
shall not be unreasonably withheld or delayed, Lessee shall not (a)
sublease the Equipment, or any part thereof, provided, that Lessee may,
without the prior written consent of Lessor, permit any parent or
subsidiary of Lessee to use the Equipment, or any part thereof, in the
ordinary course of its business, (b) assign, this Master Agreement or any
Lease or its interest hereunder or thereafter, (c) create or incur any
lien or encumbrance with respect to the Equipment, or any part thereof,
(d) move the Equipment, or any part thereof, or permit any of the
Equipment to be moved from the location at which it is first installed, or
(e) permit the Equipment, or any part thereof, to be removed outside the
continental limits of the United States.
2.9 Identification. At any time during the term of a Lease, Lessor may require
Lessee to legibly mark each Unit subject to such Lease in a reasonably
prominent location with a label, disc or other marking stating that the
Equipment is owned by Lessor.
2.10 Alterations or Modifications. Lessee shall not make any alternations of or
additions to the Equipment without the prior written consent of Lessor. At
any time during the Original Term, of any Lease there may be added to such
Lease additional Units of the same type as are rented thereunder for a
term equal to the remaining Original Term and, subject to the terms and
conditions hereof, at the rental rates applicable to such Equipment and
term in effect at the time the order is placed, provided that the order is
in writing and accepted by Lessor. Such acceptance shall be at the sole
discretion of Lessor. All additions, attachments or accessories to or
improvements to the Equipment shall immediately belong to and become
property of the Lessor unless, at the request of Lessor, such additions,
attachments or accessories to or improvements of the Equipment are removed
prior to the return of said Equipment by Lessee. Lessee shall be
responsible for the costs of such removal and shall restore the Equipment
to the same operating condition as when it became subject to the Lease.
2.11 Equipment to be Personal Property. Lessee agrees that the Equipment shall
be and remain personal property notwithstanding the manner in which it may
be attached or affixed to realty, and Lessee shall do all acts and enter
into all agreements necessary to ensure that the Equipment remains
personal property.
<PAGE>
4.3 Quiet Enjoyment. So long as Lessee shall not be in default hereunder and
Lessor continues to receive all rent and other sums payable by Lessee
hereunder in accordance with the terms hereof, neither Lessor nor its
assignee, shall interfere with Lessee's right of quiet enjoyment and use
of the Equipment.
4.4 Further Assurances. Lessee agrees that at any time, and from time to
time, after the execution and delivery of this Lease, it shall, upon the
request of Lessor, execute and deliver such further documents and do such
further acts and things as Lessor may reasonably request in order fully to
effect the purposes of this Lease including without limitation, the filing
of financial and confirmation statements. Lessee authorizes Lessor to file
a financing statement or any confirmation statements signed only by Lessor
in accordance with the Uniform Commercial Code or signed by Lessor as
Lessee's attorney in fact.
4.5 Rights, Remedies, Powers. Each and every right, remedy and power granted
to Lessor hereunder shall be cumulative and in addition to any other
right, remedy or power herein specifically granted or now or hereafter
existing in equity, at law, by virtue of statute or otherwise, and may be
exercised by Lessor from time to time concurrently or independently and as
often and in such order as Lessor may deem expedient. And any failure or
delay on the part of Lessor in exercising any such right, remedy or power,
or abandonment or discontinuance of steps to enforce the same, shall not
operate a waiver thereof or affect Lessor's right thereafter to exercise
the same, and any single or partial exercise of any such right, remedy or
power shall not preclude any other or further exercise thereof or the
exercise of any other right, remedy or power.
4.6 Notices. Any notice, request, demand, consent, approval or other
communication provided or permitted hereunder shall be in writing and
shall be conclusively deemed to have been received by a party hereto on
the day it is delivered to such party at its address set forth above (or
at such other address as such party shall specify to the other party in
writing), or if sent by registered or certified mail, return receipt
requested, on the third business day after the day on which mailed,
addressed to such party at such address.
4.7 Section Headings. Section headings are inserted for convenience only and
shall not affect any construction or interpretation of any Lease.
4.8. Binding Effect. Each Lease, subject to the provisions of Sections 2.8 and
4.3 hereof, shall be binding upon and shall inure to the benefit of the
respective successors and assigns of the Lessee and Lessor.
4.9 Governing Law. Each Lease shall be governed in all respects by the laws of
the Commonwealth of Massachusetts.
4.10 Entire Lease. Each Lease, consisting of the terms and conditions of this
Master Agreement, a Supplement, and any Amendments, Schedules or Riders to
either of them, constitutes the entire agreement between Lessor and
Lessee. No waiver, consent, modification or change of terms of this Lease
shall bind either party unless in writing signed by both parties, and then
such waiver, consent, modification or change shall be effective only in
the specific instance and for the specific purpose given. There are no
understandings, agreements, representations or warranties, express or
implied, not specified therein regarding any Lease or the Equipment leased
thereunder. Any terms and conditions of any purchase order or other
document (with the exception of Supplements) submitted by Lessee in
connection with any Lease which are in addition to or inconsistent with
the terms and conditions of such Lease will not he binding on Lessor and
will not apply to the Lease. LESSEE BY THE SIGNATURE BELOW OF ITS
AUTHORIZED REPRESENTATIVE ACKNOWLEDGES THAT IT HAS READ THIS MASTER
AGREEMENT, UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS TERMS AND
CONDITIONS WITH RESPECT TO ANY LEASE ENTERED INTO HEREUNDER.
SEE ADDENDUM NO. 1 TO MASTER EQUIPMENT LEASE AGREEMENT NO. F38429 DATED
08/10/99 ATTACHED HERETO AND MADE A PART HEREOF FOR ADDITIONAL TERMS AND
PROVISIONS.
ACCEPTED AND AGREED
FORSYTHE/McARTHUR ASSOCIATES, INC. MAIL.COM
BY: /s/ Gordon Decker BY: /s/ Debra McClister
-------------------------------- -------------------------------------
TITLE: President TITLE: EVP & CFO
----------------------------- ----------------------------------
<PAGE>
LEASE
SCHEDULE
[LOGO]FORSYTHE
McARTHUR
LEASE AGREEMENT NO. F38429 DATED August 10,1999.
SCHEDULE A DATED: August 10, 1999.
MINIMUM TERM: 36 months after the first day of the month following the
Commencement Date of the last item of Equipment.
LESSEE: MAIL.COM, INC.
EQUIPMENT LOCATION: 25 BROADWAY, NEW YORK, NY 10004.
COMMENCEMENT DATE: Upon installation of the Equipment.
MANUFACTURER: VARIOUS
Equipment Serial Monthly
Qty Type Model Description Number Rent
- --- ---- ----- ----------- ------ ----
2 3830-36 SYM 3830 36GB FRAME
48 3030-36M2 36GB INTERNAL DRIVES
(72.4GB USABLE RAID-1)
4 DP2-FCD2 2PORT MULTIMODE FIBRE
CHANNEL DIRECTOR
4 DP2 4PORT ULTRA SCSI
CHANNEL DIRECTOR
4 DP2-RLD4 4PORT REMOTELINK DRTR
8 MEM2-6144 6GB CACHE MEMORY
4 FC10M-50M 10METER FIBRE
CHANNEL CABLES
2 CFS-14 CELERRU CABINET
10 CDMS-2E4 2X QUAD ETHERNET
DATAMOVER
2 CCS3-6 CELERRA CONTROL STATION
10 CPS-UNIX.LIC CELERRA SW LICENSE
2 CPS-CSMUR-LIC CONTROL STATION
MGR SW
12 C12MIN-689 12M SCSI CABLE
2 EC-1000 CONNECTRIX CABINET
1 SP-1001 CONNECTRIX SERVICE
PROCESSOR KIT
2 ED-1032-325 CONNECTRIX
DIRECTOR 32 PORT
1 EM-1002 CONNECTRIX MGR SW
2 PM-1032 CONNECTRIX PRD MGR
40 FC30M-50M FIBER 30 CABLES
2 EDB-TJBR2 DB EDITION F/ORACLE
FOR 2SUN HOSTS AND SYMMETRIX 3930
EFS-SUN450 FOUNDATION SUITE BY
VERITAN FOR SUN 450
2 PS-LVL1-SRDF SRDF INSTALL
2 PS-LVL1-SYM PROF'L SERVICES
PLANNING, INSTALL, IMPLEMENTAT.
SYMM MGR.
INITIALS:
/s/ FMA
- -----
/s/ LESSEE
- -----
<PAGE>
[LOGO]
Mail.com, Inc.
Schedule A to Lease Agreement No. F38429
Equipment Serial Monthly
Qty Type Model Description Number Rent
- --- ---- ----- ----------- ------ ----
2 PS-LVL1-TIME PROF'L SERVICES
PLANNING, INSTALL, IMPLEMENTAT.
TIMEFINDER
2 PS-LVL1-PWP PROF'L SERVICES
PLANNING, INSTALL, IMPLEMENTAT.
POWERPATH
2 PS-CFS-PM PROF'L SERVICES
PLANNING, INSTALL, IMPLEMENTAT.
CELERRA
1 PS-BSN-PM PROF'L SERVICES
PLANNING, INSTALL, IMPLEMENTAT.
BSN
1 PSI-FPB-BC PROF'L SERVICES
PLANNING, INSTALL, IMPLEMENTAT.
BUSINESS CONTINUANCE
2 SYMMGR-BAS SYMM MANAGER BASE S/W
2 SYMMGR-DDR SYMMETRIX MGR SW
BASE COMPONENT
2 SYMMGR-CTL SYMMETRIX MGR
SW-CONTROL COMPONENT
2 SYMMGR-WLA SYMMETRIX MGR
SW-WORKLOAD ANALYZER COMPON.
2 POWERPATH-ENT SW FOR ENTERPRIS
CLASS SERVER
2 TF-OPEN TIMEFINDER SW FOR
OPEN SYSTEMS
2 SRDF-3800 SYMMETRIX REMOTE
DATE FACILITY
2 V-LOGTX-XS VOLUME LOGIX SW
3YEAR HARDWARE SUPPORT
3YEAR SOFTWARE SUPPORT
25 FIBRE CHANNEL HOST-BUS ADPTR
FOR SUN PCI BASED MACHINES
14 FC641063EMC FIBRE-CHANNEL HOSTBUS ADPTR
FOR SUN SBUS BASED MACHINES
Effective upon the Commencement Date
through the end of the 24th full month
of Minimum Term: $109,709.00
Effective from the first day of the
25th month through the end of the
Minimum Term and thereafter: $137,937.00
INITIALS:
/s/ FMA
- -----
/s/ LESSEE
- -----
2
<PAGE>
Mail.com, Inc.
Schedule A to Lease Agreement No. F38429
1. This Lease Schedule is contingent upon FMA's receipt of Master Equipment
Lease Agreement No. F38429 and related documentation to be returned to FMA
simultaneously with this Schedule properly executed by Lessee.
2. The Monthly Rent is based on Lessee assigning its on-order Equipment to
Forsythe/McArthur Associates, Inc., resulting in an FMA purchase price not
to exceed $3,600,000.00.
3. The Monthly Rent herein is subject to change if this contract is not
properly executed and received by FMA by Sept. 10, 1999, and the Equipment
is not delivered, installed and accepted by Lessee by October 31, 1999.
4. The term of this Lease shall commence on the date set forth hereinabove
and shall continue in force thereafter until the Lease is terminated by
either party upon not less than sixty (60) days prior written notice to
the other party; provided, however, that this Lease shall in no event be
terminated prior to the expiration of the minimum term specified herefor
("Minimum Term"), and that no notice of termination shall be effective if
given more than one hundred eighty (180) days before the date of
termination. Any notice of termination given by either party may not be
withdrawn without the written consent of the other party. Except as
otherwise expressly provided herein, each Lease is irrevocable for the
full term thereof and for the aggregate rental therein provided.
5. The terms and conditions of Lease Agreement No. F38429 are herein
incorporated by reference. In addition, it is agreed that the warranty
disclaimer set forth in the Lease Agreement shall apply to FMA's
affiliate, Forsythe Solutions Group, Inc.(FSG) to the extent that any of
the Equipment is supplied by FSG (Lessee shall nevertheless have the
benefit of all applicable manufacturer warranties).
6. Insurance Value: $3,600,000.00
FORSYTHE McARTHUR ASSOCIATES, INC. MAIL.COM, INC.
BY /s/ Gordon Decker BY /s/ Debra McClister
--------------------------------- --------------------------------------
An Authorized Signatory
NAME Gordon Decker NAME Debra McClister
------------------------------- ----------------------------------
TITLE Authorized Signatory TITLE EVP & CFO DATE 9/10/99
--------------------
DATE 8/12/99
-------
3
<PAGE>
ADDENDUM NO. I
TO MASTER EQUIPMENT LEASE AGREEMENT NO. F38429 ("MASTER LEASE")
DATED AS OF AUGUST 10, 1999
BY AND BETWEEN
FORSYTHE/McARTHUR ASSOCIATES, INC. ("FMA")
AND
MAIL.COM. INC. ("LESSEE")
The terms and provisions of the Master Lease are hereby amended as follows:
1. Section 1.1. Lease of Equipment: All references to the term "Supplement"
shall mean "Schedule" for all purposes hereinafter.
2. Section 1.5. Return of Equipment:
(a) Delete "expiration" and insert "termination" in lieu thereof.
(b) Delete "end" and insert "termination" in lieu thereof.
3. Section 2.3. Installation, Maintenance and Repair: In the first sentence,
delete "expiration" and insert "termination" in lieu thereof.
4. Section 2.4. Taxes:
(a) In the second sentence (fifth line), delete "filed by Lessee" and
insert "filed by Lessor" in lieu thereof.
(b) In the last line, after "amount of" insert "such taxes paid by
Lessor on behalf of Lessee and".
5. Section 4.4. Further Assurances: In the second line, after "further
documentation" insert "including without limitation a Certificate of
Incumbency".
6. Section 4.9. Governing Law: Delete "Commonwealth of Massachusetts" and
insert "State of Illinois" in lieu thereof.
7. The following sections are added to the end of the Agreement:
5.1.Option To Extend: Provided that no Event of Default exists under the
Lease, Lessee shall have the option to renew or extend the Lease of any or
all of the Equipment at the end of the Initial Term or any extension
thereof ("Extended Term") for an Extended Term of one year, two years or
three years. The Monthly Rental during any Extended Term shall be the Fair
Market Value rental for the Equipment at the commencement of any Extended
Term for the term chosen. Such option may be exercised by Lessee by giving
written notice to Lessor not less than sixty (60) days prior to the
expiration of the Initial Term or any Extended Term then in effect.
5.2.Option to Purchase: Provided that no Event of Default exists under the
Lease, the Lessee shall have the option to purchase any or all of the
Equipment at the expiration of the Initial Term or any Extended Term for a
purchase price equal to the Fair Marker Value of the Equipment at such
point in time plus any applicable taxes. Such option may be exercised by
Lessee by giving written notice to the Lessor not less than sixty (60)
days prior to the expiration of the Initial Lease Term or any Extended
Term then in effect. On the expiration date of the Initial Term or any
Extended Term, if Lessee has elected to purchase the Equipment, Lessee
shall purchase from Lessor, and Lessor shall sell to Lessee the
<PAGE>
Equipment on an AS IS, WHERE IS, BASIS except that Lessor shall warrant
title and that the equipment is free and clear of all liens and
encumbrances arising by or through the Lessor, except for taxes or other
impositions for which Lessee is obligated to pay under the Lease or
conversion to Purchase. Lessor shall provide Lessee with a Bill of Sale
following Lessee's request and the payment in full. Monthly lease payments
shall continue to accrue at the then current lease rate until the full
Purchase Price plus any and all tax is paid to Lessor.
5.3 Fair Market Value: Fair Market Value shall be determined on the basis
of and shall mean the amount which would be obtainable and paid in an arms
length transaction between an informed and willing buyer or lessee, as the
case may be, (other than lessee currently in possession) and an informed
and willing seller or lessor. If Lessor and Lessee can not agree upon the
Fair Market Value for the Equipment, the Fair Market Value shall be
determined on a delivered, retail, installed, in-place basis in accordance
with the following: Lessor and Lessee shall each obtain an appraisal of
the Equipment from an independent appraiser selected by each party. The
average of such two (2) appraisals shall be the Fair Market Value for the
Equipment. Notwithstanding the foregoing, if the two (2) appraisals vary
in value by more than fifteen percent (15%), than the two (2) appraisers
selected by Lessor and Lessee shall select a third independent appraiser
who will provide an appraisal of the Equipment. The results of the
appraisal of the third independent appraiser shall be the Fair Market
Value of the Equipment. The expense of such appraisals shall be borne
equally by Lessor and Lessee.
5.4 Prepayment: Provided that no Event of Default exists under the Lease,
with 90 days prior written notice, Lessee may prepay the remaining lease
payments owed and outstanding under the Lease discounted at the U.S.
Treasury Note Rate in effect on the Commencement Date for notes having a
maturity comparable to the remaining term of the Lease plus any applicable
pre-payment penalties. At such time as this has been done, Lessee may
exercise the Option to Purchase in Paragraph 5.2 above.
Except as specifically modified hereby, the terms and provisions of the Master
Lease shall remain in full force and effect.
Dated: August 10, 1999
ACCEPTED AND AGREED
FORSYTHE/McARTHUR ASSOCIATES, INC. MAIL.COM, INC.
BY: /s/ Gordon Decker BY: /s/ Debra McClister
-------------------------------- ------------------------------------
TITLE: President TITLE: EVP & CFO
----------------------------- ----------------------------------
<PAGE>
ADDENDUM NO. 1
TO EQUIPMENT SCHEDULE A,
DATED AUGUST 10, 1999
The following amendment is incorporated into and made a part of the attached
Equipment Schedule A to Master Lease Agreement No. F38429 ("Master Lease"),
dated August 10, 1999 between FORSYTHE/MCARTHUR ASSOCIATES, INC. ("Lessor") and
MAIL.COM, INC. ("Lessee"):
1. Option to Purchase. Provided that no Event of Default exists under the
Lease, the Lessee shall have the option to purchase the Equipment at the
expiration of the Initial Term or any Extended Term for a purchase price
equal to the lesser of (a) the Fair Market Value of the Equipment at such
point in time plus any applicable taxes or (b) thirty percent (30%) of the
hardware cost of the Equipment in the amount of $2,777,600.00 plus any
applicable taxes.
Except as expressly modified herein, the terms and provisions of the Schedule A
and the Master Lease, including the other terms and conditions for the option to
purchase, shall remain in full force and effect.
Dated: September 1, 1999
ACCEPTED AND AGREED
MAIL.COM, INC. FORSYTHE/McARTHUR ASSOCIATES, INC.
BY: /s/ Debra McClister BY: /s/ Gordon Decker
-------------------------------- -------------------------------------
TITLE: EVP & CFO TITLE: President
----------------------------- ----------------------------------
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform
Commercial Code and will remain effective, with certain exceptions, for 5 years
from date of filing.
- --------------------------------------------------------------------------------
A. NAME & TEL. # of CONTACT AT FILER (optional)
- --------------------------------------------------------------------------------
B. FILING OFFICE ACCT.# (optional)
- --------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
- --------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable): |_|LESSOR/LESSEE
|_|CONSIGNOR/CONSIGNEE
|_|NON-UCC FILING
- --------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b)
- --------------------------------------------------------------------------------
1a. ENTITY'S NAME
Mail.com, Inc.
-----------------------------------------------------------------------------
OR
1b. INDIVIDUAL'S LAST NAME
- --------------------------------------------------------------------------------
FIRST NAME
- --------------------------------------------------------------------------------
MIDDLE NAME
- --------------------------------------------------------------------------------
SUFFIX
- --------------------------------------------------------------------------------
1c. MAILING ADDRESS
11 Broadway Suite 660
- --------------------------------------------------------------------------------
CITY
New York
- --------------------------------------------------------------------------------
STATE
NY
- --------------------------------------------------------------------------------
COUNTRY
- --------------------------------------------------------------------------------
POSTAL CODE
10004
- --------------------------------------------------------------------------------
1d. S.S. OR TAX I.D.#
- --------------------------------------------------------------------------------
OPTIONAL ADD'NL INFO RE ENTITY DEBTOR
- --------------------------------------------------------------------------------
1e. TYPE OF ENTITY
- --------------------------------------------------------------------------------
1f. ENTITY'S STATE OR COUNTRY OF ORGANIZATION
- --------------------------------------------------------------------------------
1g. ENTITY'S ORGANIZATIONAL I.D.#, if any
|_|NONE
================================================================================
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME-insert only debtor name (2a or 2b)
2a. ENTITY'S NAME
-----------------------------------------------------------------------------
OR
2b. INDIVIDUAL'S LAST NAME
- --------------------------------------------------------------------------------
FIRST NAME
- --------------------------------------------------------------------------------
MIDDLE NAME
- --------------------------------------------------------------------------------
SUFFIX
- --------------------------------------------------------------------------------
2c. MAILING ADDRESS
- --------------------------------------------------------------------------------
CITY
- --------------------------------------------------------------------------------
STATE
- --------------------------------------------------------------------------------
COUNTRY
- --------------------------------------------------------------------------------
POSTAL CODE
- --------------------------------------------------------------------------------
2d. S.S. OR TAX I.D.#
- --------------------------------------------------------------------------------
OPTIONAL ADD'NL INFO RE ENTITY DEBTOR
- --------------------------------------------------------------------------------
2e. TYPE OF ENTITY
- --------------------------------------------------------------------------------
2f. ENTITY'S STATE OR COUNTRY OF ORGANIZATION
- --------------------------------------------------------------------------------
2g. ENTITY'S ORGANIZATIONAL I.D.#, if any
|_|NONE
================================================================================
3. SECURED PARTY'S (ORIGINAL S/P or ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME -
insert only one secured party name (3a or 3b)
3a. ENTITY'S NAME
Forsythe/McArthur Associates, Inc.
-----------------------------------------------------------------------------
OR
3b. INDIVIDUAL'S LAST NAME
- --------------------------------------------------------------------------------
FIRST NAME
- --------------------------------------------------------------------------------
MIDDLE NAME
- --------------------------------------------------------------------------------
SUFFIX
- --------------------------------------------------------------------------------
3c. MAILING ADDRESS
7500 Frontage Road
- --------------------------------------------------------------------------------
CITY
Skokie
- --------------------------------------------------------------------------------
STATE
IL
- --------------------------------------------------------------------------------
COUNTRY
- --------------------------------------------------------------------------------
POSTAL CODE
60077
================================================================================
4. This FINANCING STATEMENT covers the following types or items of property:
Computer, data processing, telecommunications and other equipment together
with all attachments, accessories, replacements, products and proceeds
thereof, from time to time leased by Lessor to Lessee pursuant to Master
Equipment Lease Agreement No. F38429 dated 8/10/99 and various Schedules
entered into pursuant thereto. This financing statement is filed for
informational purposes only and shall not of itself be a factor in
determining whether or not a lease is intended as security.
================================================================================
5. CHECK BOX
(if applicable)
|_| This FINANCING STATEMENT is signed by the Secured Party instead of
the Debtor to perfect a security interest (a) in collateral already
subject to a security interest in another jurisdiction when it was
brought into this state, or when the debtor's location was changed
to this state, or (b) in accordance with other statutory provisions
(additional data may be required)
================================================================================
6. REQUIRED SIGNATURE(S) Mail.com, Inc. /s/ Debra McClister
Forsythe/McArthur Associates, Inc.
- --------------------------------------------------------------------------------
7. If filed in Florida (check one)
|_| Documentary |_| Documentary stamp
stamp tax paid tax not applicable
================================================================================
8. |_| This FINANCING STATEMENT is to be filed (for record) (or recorded) in the
REAL ESTATE RECORDS
Attach Addendum (if applicable)
- --------------------------------------------------------------------------------
9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
[ADDITIONAL FEE]
(optional) |_|All Debtors |_|Debtor 1 |_|Debtor 2
================================================================================
(1) FILING OFFICER COPY - NATIONAL FINANCING STATEMENT (FORM UCC1) (TRANS) (REV.
12/18/95)
REORDER FROM
Registre, Inc.
514 PIERCE ST.
P.O. BOX 218
ANOKA, MN 55303
[ILLEGIBLE]
<PAGE>
Exhibit 10iiiA(1)
MAIL.COM, INC.
ALLEGRO GROUP STOCK OPTION PLAN
1. PURPOSE.
The purpose of the Mail.com, Inc. Allegro Group Stock Option Plan (the
"Plan") is to provide a means for Mail.com, Inc. (the "Company") to grant
non-qualified stock options to certain employees of The Allegro Group, Inc. as
required by Section 6.9 of the Agreement and Plan of Merger by and among
Mail.com, Inc., AG Acquisition Corp., The Allegro Group, Inc. and the
shareholders of The Allegro Group, Inc., dated as of August 20, 1999 (the
"Merger Agreement").
2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any regulations promulgated thereunder.
(c) "Committee" shall mean the committee described in Section
3.
(d) "Company" shall mean Mail.com, Inc., a Delaware
corporation, and any successor corporation.
(e) "Effective Date" shall mean the date on which the Merger
referred to in the Merger Agreement becomes effective.
(f) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(g) "Fair Market Value" means, as of any date, the value of
Stock or other property determined as follows:
(i) If the Stock is listed on any established stock
exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq
Stock Market, its Fair Market Value shall be the closing sales price
for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or system for the last market trading day prior
to the time of determination, as reported in THE WALL STREET JOURNAL or
such other source as the Committee deems reliable;
(ii) If the Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the
<PAGE>
high bid and low asked prices for the Stock on the last market trading
day prior to the day of determination; or
(iii) In the absence of an established market for the
Stock, or if Fair Market Value is in reference to property other than
Stock, the Fair Market Value thereof shall be determined in good faith
by the Committee.
(h) "Grantee" shall mean an employee of The Allegro Group,
Inc. to whom the Company has granted an Option under the terms of the Plan.
(i) "Merger Agreement" shall mean the Agreement and Plan of
Merger by and among Mail.com, Inc., AG Acquisition Corp., The Allegro Group,
Inc. and the shareholders of The Allegro Group, Inc., dated as of August 20,
1999.
(j) "Nonemployee Director" shall mean a director of the
Company who is a "nonemployee director" within the meaning of Rule 16b-3.
(k) "Option" shall mean a non-qualified stock option granted
under the Plan that is not intended to meet the requirements of Section 422 of
the Code.
(l) "Option Agreement" shall mean a written agreement between
the Company and a Grantee as described in Section 6.
(m) "Plan" shall mean this Mail.com, Inc. Allegro Group Stock
Option Plan, as amended from time to time.
(n) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, or any successor rule or regulation.
(o) "Stock" shall mean shares of Class A Common Stock, $.01
par value, of the Company or such other securities or property as may become
subject to Options pursuant to an adjustment made under Section 8.
(p) "Subsidiary" shall mean any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if each
of the corporations other than the last corporation in the unbroken chain owns
more than 50% of the total combined voting power of all classes of stock in one
of the other corporations in such chain.
3. ADMINISTRATION.
(a) The Plan shall be administered by a committee (the "Committee")
designated by the Board. The Committee shall consist of at least two directors
and may consist of the entire Board; PROVIDED, HOWEVER, that if the Committee
consists of less than the entire Board, each member shall be a Nonemployee
Director.
2
<PAGE>
(b) The Committee shall have plenary authority in its discretion,
subject only to the express provisions of the Plan:
(i) to select the Grantees, the number of shares of Stock
subject to each Option and terms of the Option granted to each Grantee
(including without limitation the period during which such Option can
be exercised and any restrictions on exercise), provided that, in
making its determination, the Committee shall consider the position and
responsibilities of the individual, the nature and value to the Company
of his or her services and accomplishments, the individual's present
and potential contribution to the success of the Company and any other
factors that the Committee may deem relevant.
(ii) to determine the dates of the Option grants;
(iii) to prescribe the form of the Option Agreements;
(iv) to adopt, amend and rescind rules and regulations for the
administration of the Plan and for its own acts and proceedings;
(v) to decide all questions and settle all controversies and
disputes of general applicability that may arise in connection with the
Plan; and
(vi) to modify or amend any outstanding Option as provided in
Section 7(h).
All decisions, determinations and interpretations with respect to the foregoing
matters shall be made by the Committee and shall be final and binding upon all
persons.
(c) DELEGATION. The Committee may delegate authority to an officer of
the Company to grant Options to Grantees who are not subject to the short-swing
profit rules of Section 16 of the Exchange Act, at the discretion of such
appointed officer; PROVIDED, HOWEVER, that the appointed officer shall have no
authority to grant Options in units greater than 80,000 without approval of the
Committee.
(d) EXCULPATION. No member of the Board or Committee shall be
personally liable for monetary damages for any action taken or any failure to
take any action in connection with the administration of the Plan or the
granting of Options under it unless such action or failure to take action
constitutes self-dealing, willful misconduct or recklessness; provided, however,
that the provisions of this subsection shall not apply to the responsibility or
liability of a director pursuant to any criminal statute or to the liability of
a director for the payment of taxes pursuant to local, state or federal law.
(e) INDEMNIFICATION. Each member of the Board or Committee shall be
entitled without further act on his part or her part to indemnity from the
Company to the fullest extent provided by applicable law and the Company's
Certificate of Incorporation or Bylaws in connection with or arising out of any
action, suit or proceeding with respect to the administration of the Plan or the
granting of Options under it in which he or she may be involved by reason of
being or having been a member of the Board or Committee at the time of the
action, suit or proceeding.
3
<PAGE>
4. EFFECTIVENESS AND TERMINATION OF THE PLAN.
The Plan shall become effective as of the Effective Date. Any Option
outstanding at the time of termination of the Plan shall remain in effect in
accordance with its terms and conditions and those of the Plan. The Plan shall
terminate on the earliest of:
(a) on the tenth anniversary of the Effective Date; or
(b) the date when all shares of Stock reserved for issuance under
Section 5 of the Plan shall have been acquired through exercise of Options
granted under the Plan; or
(c) such earlier date as the Board may determine.
5. THE STOCK.
The aggregate number of shares of Stock issuable under the Plan shall
be equal to the quotient of (A) $10,000,000 divided by (B) the last quoted sale
price for a share of Stock on the Nasdaq National Market on the Closing Date (as
defined in the Merger Agreement). The aggregate number of shares of Stock
issuable under the Plan may be set aside out of the authorized but unissued
shares of Stock not reserved for any other purpose, or out of shares of Stock
held in or acquired for the treasury of the Company.
6. OPTION AGREEMENT.
Each Grantee shall enter into an Option Agreement with the Company
setting forth the terms and conditions of the Option issued to the Grantee,
consistent with the Plan. The form of Option Agreement shall be established by
the Committee. No Grantee shall have rights in any Option unless and until an
Option Agreement is entered into with the Company.
7. TERMS AND CONDITIONS OF OPTIONS.
Options may be granted by the Committee at any time and from time to
time prior to the termination of the Plan. Except as hereinafter provided,
Options granted under the Plan shall be subject to the following terms and
conditions:
(a) GRANTEES. The Grantees shall be those employees of The Allegro
Group, Inc. as set forth on Schedule 6.9 to the Merger Agreement.
(b) PRICE. The exercise price of an Option granted pursuant to Section
6.9 of the Merger Agreement shall be equal to the last quoted sale price for a
share of Stock on the Nasdaq National Market on the date of grant. The exercise
price of any other Option granted under the Plan shall be no less than the Fair
Market Value of the Stock at the time the Option is granted.
4
<PAGE>
(c) PAYMENT FOR STOCK. The exercise price of an Option shall be paid in
full at the time of the exercise in (i) cash, or (ii) by certified check payable
to the Company, or (iii) by other mode of payment as the Committee may approve.
(d) DURATION AND EXERCISE OF OPTIONS. Options may be exercised for
terms of up to but not exceeding ten years from the date of grant. Subject to
the foregoing, Options shall be exercisable at the times and in the amounts (up
to the full amount thereof) determined by the Committee at the time of grant. If
an Option granted under the Plan is exercisable in installments the Committee
shall determine what events, if any, will make it subject to acceleration.
(e) TERMINATION OF SERVICES. Upon the termination of a Grantee's
services for the Company or its Subsidiaries for any reason, Options held by the
Grantee may only be exercised to the extent and during the period, if any, set
forth in the Option Agreement.
(f) TRANSFERABILITY OF OPTION. No Option shall be transferable except
by will or the laws of descent and distribution. An Option shall be exercisable
during the Grantee's lifetime only by the Grantee.
(g) MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the
terms and conditions and within the limitations of the Plan, the Committee may
modify, extend or renew outstanding Options granted under the Plan, or accept
the surrender of outstanding options (to the extent not theretofore exercised)
and authorize the granting of new Options in substitution thereof.
Notwithstanding the foregoing, however, no modification of an Option shall,
without the consent of the Grantee, alter or impair any rights or obligations
under any Option theretofore granted under the Plan.
(h) OTHER TERMS AND CONDITIONS. Option Agreements may contain any other
provision not inconsistent with the Plan that the Committee deems appropriate.
8. ADJUSTMENT FOR CHANGES IN THE STOCK.
(a) In the event the shares of Stock, as presently constituted, shall
be changed into or exchanged for a different number or kind of shares or other
securities of the Company (whether by reason of merger, consolidation,
recapitalization, reclassification, split, reverse split, combination of shares
or otherwise), then there shall be substituted for or added to each share of
Stock theretofore or thereafter subject to an Option the number and kind of
shares of capital stock or other securities into which each outstanding share of
Stock shall be changed, or for which each such share shall be exchanged, or to
which each such share shall be entitled, as the case may be. The price and other
terms of outstanding Options shall also be appropriately amended to reflect the
foregoing events. In the event there shall be any other change in the number or
kind of outstanding shares of the Stock, or of any capital stock or other
securities into which the Stock shall have been changed or for which it shall
have been exchanged, if the Committee shall, in its sole discretion, determine
that the change equitably requires an adjustment in any Option theretofore
granted or which may be granted under the Plan, then adjustments shall be made
in accordance with its determination.
5
<PAGE>
(b) Fractional shares resulting from any adjustment in Options pursuant
to this Section 8 may be settled in cash or otherwise as the Committee shall
determine. Notice of any adjustment shall be given by the Company to each holder
of an Option that shall have been so adjusted, and the adjustment (whether or
not notice is given) shall be effective and binding for all purposes of the
plan.
(c) Notwithstanding Section 8(a), the Committee shall have the power,
in the event of the disposition of all or substantially all of the assets of the
Company, or the dissolution of the Company, or the merger or consolidation of
the Company, or the making of a tender offer to purchase all or a substantial
portion of outstanding Stock of the Company, to amend all outstanding Options
(upon such conditions as it shall deem fit) to (i) permit the exercise of
Options prior to the effective date of the transaction and to terminate all
unexercised Options as of that date, or (ii) require the forfeiture of all
Options, provided the Company pays to each Grantee the excess of the Fair Market
Value of the Stock subject to the Option over the exercise price of the Option,
or (iii) make any other provisions that the Committee deems equitable.
9. AMENDMENT OF THE PLAN.
The Board may amend the Plan, may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Option in the
manner and to the extent deemed desirable to carry out the Plan without action
on the part of the stockholders of the Company.
10. INTERPRETATION AND CONSTRUCTION.
The interpretation and construction of any provision of the Plan by the
Committee shall be final, binding and conclusive for all purposes.
11. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Stock pursuant to
this Plan will be used for general corporate purposes.
12. NO OBLIGATION TO EXERCISE OPTION.
The granting of an Option shall impose no obligation upon the Grantee
to exercise an Option.
13. PLAN NOT A CONTRACT OF EMPLOYMENT.
Neither the Plan nor any Option Agreement is a contract of employment,
and the terms of employment of any Grantee shall not be affected in any way by
the Plan or related instruments except as specifically provided therein. The
establishment of the Plan shall not be construed as conferring any legal rights
upon any Grantee for a continuance of employment; nor shall it interfere with
the right of the Company (or its Subsidiary, if applicable) to discharge the
Grantee.
14. EXPENSE OF THE PLAN.
All of the expenses of administering the Plan shall be paid by the
Company.
6
<PAGE>
15. COMPLIANCE WITH APPLICABLE LAW.
Notwithstanding anything herein to the contrary, the Company shall not
be obligated to cause to be issued or delivered any certificates for shares of
Stock issuable upon exercise of an Option unless and until the Company is
advised by its counsel that the issuance and delivery of the certificates is in
compliance with all applicable laws, regulations of government authorities and
the requirements of any exchange upon which shares of Stock are traded. The
Company shall in no event be obligated to register any securities pursuant to
the Securities Act of 1933 (as now in effect or as hereafter amended) or to take
any other action in order to cause the issuance and delivery of certificates to
comply with any of those laws, regulations or requirements. The Committee may
require, as a condition of the issuance and delivery of certificates and in
order to ensure compliance with those laws, regulations and requirements, that
the Grantee make such covenants, agreements and representations as the
Committee, in its sole discretion, deems necessary or desirable. Each Option
shall be subject to the further requirement that if at any time the Committee
shall determine in its discretion that the listing or qualification of the
shares of Stock subject to the Option, under any securities exchange
requirements or under any applicable law, or the consent or approval of any
regulatory body, is necessary in connection with the granting of the Option or
the issuance of Stock thereunder, the Option may not be exercised in whole or in
part unless the listing, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
16. GOVERNING LAW.
Except to the extent preempted by federal law, this Plan shall be
construed and enforced in accordance with, and governed by, the laws of the
State of Delaware.
7
<PAGE>
Exhibit 10iiiA(2)
MAIL.COM, INC.
TCOM STOCK OPTION PLAN
1. PURPOSE.
The purpose of the Mail.com, Inc. TCOM Stock Option Plan (the "Plan")
is to provide a means for Mail.com, Inc. (the "Company") to grant non-qualified
stock options to certain employees of TCOM, Inc. as required by Section 6.9 of
the Agreement and Plan of Merger by and among Mail.com, Inc., TC Acquisition
Corp., TCOM, Inc. and the shareholders of TCOM, Inc., dated as of October 18,
1999 (the "Merger Agreement").
2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any regulations promulgated thereunder.
(c) "Committee" shall mean the committee described in Section
3.
(d) "Company" shall mean Mail.com, Inc., a Delaware
corporation, and any successor corporation.
(e) "Effective Date" shall mean the date on which the Merger
referred to in the Merger Agreement becomes effective.
(f) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(g) "Fair Market Value" means, as of any date, the value of
Stock or other property determined as follows:
(i) If the Stock is listed on any established stock
exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq
Stock Market, its Fair Market Value shall be the closing sales price
for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or system for the last market trading day prior
to the time of determination, as reported in THE WALL STREET JOURNAL or
such other source as the Committee deems reliable;
(ii) If the Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the high bid and low asked prices for
the Stock on the last market trading day prior to the day of
determination; or
<PAGE>
(iii) In the absence of an established market for the
Stock, or if Fair Market Value is in reference to property other than
Stock, the Fair Market Value thereof shall be determined in good faith
by the Committee.
(h) "Grantee" shall mean an employee of TCOM, Inc. to whom the
Company has granted an Option under the terms of the Plan.
(i) "Merger Agreement" shall mean the Agreement and Plan of
Merger by and among Mail.com, Inc., TC Acquisition Corp., TCOM, Inc. and the
shareholders of TCOM, Inc., dated as of August 20, 1999.
(j) "Nonemployee Director" shall mean a director of the
Company who is a "nonemployee director" within the meaning of Rule 16b-3.
(k) "Option" shall mean a non-qualified stock option granted
under the Plan that is not intended to meet the requirements of Section 422 of
the Code.
(l) "Option Agreement" shall mean a written agreement between
the Company and a Grantee as described in Section 6.
(m) "Plan" shall mean this Mail.com, Inc. TCOM Stock Option
Plan, as amended from time to time.
(n) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, or any successor rule or regulation.
(o) "Stock" shall mean shares of Class A Common Stock, $.01
par value, of the Company or such other securities or property as may become
subject to Options pursuant to an adjustment made under Section 8.
(p) "Subsidiary" shall mean any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if each
of the corporations other than the last corporation in the unbroken chain owns
more than 50% of the total combined voting power of all classes of stock in one
of the other corporations in such chain.
3. ADMINISTRATION.
(a) The Plan shall be administered by a committee (the "Committee")
designated by the Board. The Committee shall consist of at least two directors
and may consist of the entire Board; PROVIDED, HOWEVER, that if the Committee
consists of less than the entire Board, each member shall be a Nonemployee
Director.
(b) The Committee shall have plenary authority in its discretion,
subject only to the express provisions of the Plan:
2
<PAGE>
(i) to select the Grantees, the number of shares of Stock
subject to each Option and terms of the Option granted to each Grantee
(including without limitation the period during which such Option can
be exercised and any restrictions on exercise), provided that, in
making its determination, the Committee shall consider the position and
responsibilities of the individual, the nature and value to the Company
of his or her services and accomplishments, the individual's present
and potential contribution to the success of the Company and any other
factors that the Committee may deem relevant.
(ii) to determine the dates of the Option grants;
(iii) to prescribe the form of the Option Agreements;
(iv) to adopt, amend and rescind rules and regulations for the
administration of the Plan and for its own acts and proceedings;
(v) to decide all questions and settle all controversies and
disputes of general applicability that may arise in connection with the
Plan; and
(vi) to modify or amend any outstanding Option as provided in
Section 7(h).
All decisions, determinations and interpretations with respect to the foregoing
matters shall be made by the Committee and shall be final and binding upon all
persons.
(c) DELEGATION. The Committee may delegate authority to an officer of
the Company to grant Options to Grantees who are not subject to the short-swing
profit rules of Section 16 of the Exchange Act, at the discretion of such
appointed officer; PROVIDED, HOWEVER, that the appointed officer shall have no
authority to grant Options in units greater than 80,000 without approval of the
Committee.
(d) EXCULPATION. No member of the Board or Committee shall be
personally liable for monetary damages for any action taken or any failure to
take any action in connection with the administration of the Plan or the
granting of Options under it unless such action or failure to take action
constitutes self-dealing, willful misconduct or recklessness; provided, however,
that the provisions of this subsection shall not apply to the responsibility or
liability of a director pursuant to any criminal statute or to the liability of
a director for the payment of taxes pursuant to local, state or federal law.
(e) INDEMNIFICATION. Each member of the Board or Committee shall be
entitled without further act on his part or her part to indemnity from the
Company to the fullest extent provided by applicable law and the Company's
Certificate of Incorporation or Bylaws in connection with or arising out of any
action, suit or proceeding with respect to the administration of the Plan or the
granting of Options under it in which he or she may be involved by reason of
being or having been a member of the Board or Committee at the time of the
action, suit or proceeding.
4. EFFECTIVENESS AND TERMINATION OF THE PLAN.
3
<PAGE>
The Plan shall become effective as of the Effective Date. Any Option
outstanding at the time of termination of the Plan shall remain in effect in
accordance with its terms and conditions and those of the Plan. The Plan shall
terminate on the earliest of:
(a) on the tenth anniversary of the Effective Date; or
(b) the date when all shares of Stock reserved for issuance under
Section 5 of the Plan shall have been acquired through exercise of Options
granted under the Plan; or
(c) such earlier date as the Board may determine.
5. THE STOCK.
The aggregate number of shares of Stock issuable under the Plan shall
be equal to the quotient of (A) $6,000,000 divided by (B) the last quoted sale
price for a share of Stock on the Nasdaq National Market on the Closing Date (as
defined in the Merger Agreement). The aggregate number of shares of Stock
issuable under the Plan may be set aside out of the authorized but unissued
shares of Stock not reserved for any other purpose, or out of shares of Stock
held in or acquired for the treasury of the Company.
6. OPTION AGREEMENT.
Each Grantee shall enter into an Option Agreement with the Company
setting forth the terms and conditions of the Option issued to the Grantee,
consistent with the Plan. The form of Option Agreement shall be established by
the Committee. No Grantee shall have rights in any Option unless and until an
Option Agreement is entered into with the Company.
7. TERMS AND CONDITIONS OF OPTIONS.
Options may be granted by the Committee at any time and from time to
time prior to the termination of the Plan. Except as hereinafter provided,
Options granted under the Plan shall be subject to the following terms and
conditions:
(a) GRANTEES. The Grantees shall be those employees of TCOM, Inc. as
set forth on a letter from TCOM, Inc. to Mail.com on or prior to the date
hereof.
(b) PRICE. The exercise price of an Option granted pursuant to Section
6.9 of the Merger Agreement shall be equal to the last quoted sale price for a
share of Stock on the Nasdaq National Market on the date of grant. The exercise
price of any other Option granted under the Plan shall be no less than the Fair
Market Value of the Stock at the time the Option is granted.
(c) PAYMENT FOR STOCK. The exercise price of an Option shall be paid in
full at the time of the exercise in (i) cash, or (ii) by certified check payable
to the Company, or (iii) by other mode of payment as the Committee may approve.
4
<PAGE>
(d) DURATION AND EXERCISE OF OPTIONS. Options may be exercised for
terms of up to but not exceeding ten years from the date of grant. Subject to
the foregoing, Options shall be exercisable at the times and in the amounts (up
to the full amount thereof) determined by the Committee at the time of grant. If
an Option granted under the Plan is exercisable in installments the Committee
shall determine what events, if any, will make it subject to acceleration.
(e) TERMINATION OF SERVICES. Upon the termination of a Grantee's
services for the Company or its Subsidiaries for any reason, Options held by the
Grantee may only be exercised to the extent and during the period, if any, set
forth in the Option Agreement.
(f) TRANSFERABILITY OF OPTION. No Option shall be transferable except
by will or the laws of descent and distribution. An Option shall be exercisable
during the Grantee's lifetime only by the Grantee.
(g) MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the
terms and conditions and within the limitations of the Plan, the Committee may
modify, extend or renew outstanding Options granted under the Plan, or accept
the surrender of outstanding options (to the extent not theretofore exercised)
and authorize the granting of new Options in substitution thereof.
Notwithstanding the foregoing, however, no modification of an Option shall,
without the consent of the Grantee, alter or impair any rights or obligations
under any Option theretofore granted under the Plan.
(h) OTHER TERMS AND CONDITIONS. Option Agreements may contain any other
provision not inconsistent with the Plan that the Committee deems appropriate.
8. ADJUSTMENT FOR CHANGES IN THE STOCK.
(a) In the event the shares of Stock, as presently constituted, shall
be changed into or exchanged for a different number or kind of shares or other
securities of the Company (whether by reason of merger, consolidation,
recapitalization, reclassification, split, reverse split, combination of shares
or otherwise), then there shall be substituted for or added to each share of
Stock theretofore or thereafter subject to an Option the number and kind of
shares of capital stock or other securities into which each outstanding share of
Stock shall be changed, or for which each such share shall be exchanged, or to
which each such share shall be entitled, as the case may be. The price and other
terms of outstanding Options shall also be appropriately amended to reflect the
foregoing events. In the event there shall be any other change in the number or
kind of outstanding shares of the Stock, or of any capital stock or other
securities into which the Stock shall have been changed or for which it shall
have been exchanged, if the Committee shall, in its sole discretion, determine
that the change equitably requires an adjustment in any Option theretofore
granted or which may be granted under the Plan, then adjustments shall be made
in accordance with its determination.
(b) Fractional shares resulting from any adjustment in Options pursuant
to this Section 8 may be settled in cash or otherwise as the Committee shall
determine. Notice of any adjustment shall be given by the Company to each holder
of an Option that shall have been so adjusted, and
5
<PAGE>
the adjustment (whether or not notice is given) shall be effective and binding
for all purposes of the plan.
(c) Notwithstanding Section 8(a), the Committee shall have the power,
in the event of the disposition of all or substantially all of the assets of the
Company, or the dissolution of the Company, or the merger or consolidation of
the Company, or the making of a tender offer to purchase all or a substantial
portion of outstanding Stock of the Company, to amend all outstanding Options
(upon such conditions as it shall deem fit) to (i) permit the exercise of
Options prior to the effective date of the transaction and to terminate all
unexercised Options as of that date, or (ii) require the forfeiture of all
Options, provided the Company pays to each Grantee the excess of the Fair Market
Value of the Stock subject to the Option over the exercise price of the Option,
or (iii) make any other provisions that the Committee deems equitable.
9. AMENDMENT OF THE PLAN.
The Board may amend the Plan, may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Option in the
manner and to the extent deemed desirable to carry out the Plan without action
on the part of the stockholders of the Company.
10. INTERPRETATION AND CONSTRUCTION.
The interpretation and construction of any provision of the Plan by the
Committee shall be final, binding and conclusive for all purposes.
11. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Stock pursuant to
this Plan will be used for general corporate purposes.
12. NO OBLIGATION TO EXERCISE OPTION.
The granting of an Option shall impose no obligation upon the Grantee
to exercise an Option.
13. PLAN NOT A CONTRACT OF EMPLOYMENT.
Neither the Plan nor any Option Agreement is a contract of employment,
and the terms of employment of any Grantee shall not be affected in any way by
the Plan or related instruments except as specifically provided therein. The
establishment of the Plan shall not be construed as conferring any legal rights
upon any Grantee for a continuance of employment; nor shall it interfere with
the right of the Company (or its Subsidiary, if applicable) to discharge the
Grantee.
14. EXPENSE OF THE PLAN.
All of the expenses of administering the Plan shall be paid by the
Company.
6
<PAGE>
15. COMPLIANCE WITH APPLICABLE LAW.
Notwithstanding anything herein to the contrary, the Company shall not
be obligated to cause to be issued or delivered any certificates for shares of
Stock issuable upon exercise of an Option unless and until the Company is
advised by its counsel that the issuance and delivery of the certificates is in
compliance with all applicable laws, regulations of government authorities and
the requirements of any exchange upon which shares of Stock are traded. The
Company shall in no event be obligated to register any securities pursuant to
the Securities Act of 1933 (as now in effect or as hereafter amended) or to take
any other action in order to cause the issuance and delivery of certificates to
comply with any of those laws, regulations or requirements. The Committee may
require, as a condition of the issuance and delivery of certificates and in
order to ensure compliance with those laws, regulations and requirements, that
the Grantee make such covenants, agreements and representations as the
Committee, in its sole discretion, deems necessary or desirable. Each Option
shall be subject to the further requirement that if at any time the Committee
shall determine in its discretion that the listing or qualification of the
shares of Stock subject to the Option, under any securities exchange
requirements or under any applicable law, or the consent or approval of any
regulatory body, is necessary in connection with the granting of the Option or
the issuance of Stock thereunder, the Option may not be exercised in whole or in
part unless the listing, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
16. GOVERNING LAW.
Except to the extent preempted by federal law, this Plan shall be
construed and enforced in accordance with, and governed by, the laws of the
State of Delaware.
7
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