<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 15, 1999
REGISTRATION NO. 333-74353
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
MAIL.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7310 13-3787073
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
11 BROADWAY, 6(TH) FLOOR
NEW YORK, NY 10004
(212) 425-4200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
GARY MILLIN
PRESIDENT
MAIL.COM, INC.
11 BROADWAY
NEW YORK, NY 10004
(212) 425-4200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
RONALD A. FLEMING, JR., ESQ. MARC S. ROSENBERG, ESQ.
WINTHROP, STIMSON, PUTNAM & ROBERTS CRAVATH, SWAINE & MOORE
ONE BATTERY PARK PLAZA WORLDWIDE PLAZA
24 WHITEHALL STREET 825 EIGHTH AVENUE
NEW YORK, NY 10004-1490 NEW YORK, NY 10019-7575
(212) 858-1000 (212) 474-1000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 15, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
[LOGO]
6,850,000 SHARES
MAIL.COM, INC.
CLASS A COMMON STOCK
$ PER SHARE
---------
We are selling 6,850,000 shares of Class A common stock. The underwriters
named in this prospectus may purchase up to 1,027,500 additional shares of our
Class A common stock to cover over-allotments.
This is an initial public offering of Class A common stock. Mail.com
currently expects the initial public offering price to be between $10.00 and
$12.00 per share. Our Class A common stock has been approved for quotation on
the Nasdaq National Market under the symbol "MAIL".
--------------
INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------- --------------
<S> <C> <C>
Initial Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Mail.com (before expenses) $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about ,
1999.
--------------
SALOMON SMITH BARNEY
PAINEWEBBER INCORPORATED
SG COWEN
THE UNDERSIGNED ARE FACILITATING INTERNET DISTRIBUTION.
WIT CAPITAL CORPORATION DLJDIRECT INC.
, 1999
<PAGE>
Description of graphics on inside front, gatefold and back inside cover pages of
prospectus:
Inside Front Cover:
The caption above the Mail.com logo reads:
"Powered by" underlined by an
arrow pointing to the left sidebar.
[Mail.com Logo]
The caption underneath Mail.com Logo in the middle right side of the page reads:
"The Internet Messaging Company"
The left sidebar of the page depicts the logos of 23 Mail.com partners within a
vertical rectangular box.
Gatefold:
The background of these pages is dark and contains a muted listing of Mail.com's
domain names listed in a linear fashion across the page. Certain domain names
are highlighted. The pictures on these pages depict a Mail.com or email.com
user's inbox as it appears when accessed through the CNN Interactive, Snap and
Prodigy Internet Web sites. Across the top of the screens are ad banners for e
card and Bell Atlantic. There is text in boxes that points to either the CNN
Interactive, Snap or Prodigy Internet pages describing different aspects of
Mail.com's services.
I. A screenshot of Mail.com's email service for CNN is located on the left side
of the gatefold.
Below the CNN Interactive screenshot are three boxes containing text which
reads:
Top Box:
"Mail.com offers advertising opportunities across our network of partner sites,
including sites in news, business, sports, entertainment, teens and technology.
We can target advertising to our members based on the demographic information
that our members provide."
Center Box:
"Members can choose our free email service or can upgrade to one of our premium
services for a fee" (referring to MailPRO).
Bottom Box:
"Members can read and write emails, set-up their own address book, and
change their personal email settings."
II. A screenshot of Mail.com's email service for Snap which is branded
"email.com" is located in the middle of the gatefold.
Above the screenshot of the email service for Snap is a box containing text that
reads:
"Web sites such as CBS SportsLine, CNET, CNN, GTE, NHL, Prodigy, and Snap offer
their users a free email service provided by Mail.com."
Inside the screenshot of the email service for Snap is an email from one member
to another that reads:
"Matt,
Do you have another email address?
Check this out. . . . I'm not tied to my company's email system. I've got a
Webmail account from Snap that I can access from any computer with a web
browser. (and it's free!)
Hey, are we still getting together with the gang from Nashville tonight?
Email me back with the time and the place.
- --Jill
<PAGE>
Below the Snap screenshot is a box containing text that reads:
"Members can send and receive email from any computer with an Internet
connection and a Web browser."
III. Screenshot of Mail.com's email service for Prodigy is located on the right
side of the gatefold.
Below the Prodigy Internet screenshot is a box containing text which reads:
"Members who opt-in to the Bargain Hunter program identify areas of interest
from categories that include entertainment, finance and technology and receive
special offers and information from Mail.com advertisers" (referring to Bargain
Hunter service).
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
MAIL.COM HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
MAIL.COM IS NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER
IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 2
Risk Factors............................................................................................... 8
Use of Proceeds............................................................................................ 25
Dividend Policy............................................................................................ 25
Capitalization............................................................................................. 26
Dilution................................................................................................... 28
Selected Financial Data.................................................................................... 29
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 31
Business................................................................................................... 43
Management................................................................................................. 60
Certain Transactions....................................................................................... 70
Principal Stockholders..................................................................................... 75
Description of Capital Stock............................................................................... 78
Shares Eligible For Future Sale............................................................................ 84
Certain U.S. Tax Consequences to Non-U.S. Holders.......................................................... 86
Underwriting............................................................................................... 89
Legal Matters.............................................................................................. 92
Experts.................................................................................................... 92
Where You Can Find More Information........................................................................ 92
Index to Financial Statements.............................................................................. F-1
</TABLE>
------------------------
Until , 1999, all dealers that buy, sell or trade the Class A
common stock, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
1
<PAGE>
PROSPECTUS SUMMARY
OUR COMPANY
Mail.com is a global provider of email services. At the end of 1998, we were
the sixth largest provider of emailboxes in the world, according to numbers
compiled by ELECTRONIC MAIL & MESSAGING SYSTEMS for its quarterly emailbox
census. Our basic email services are free to our members. Anyone can become a
member of Mail.com by signing up for our email service at any of our partners'
Web sites or our own Web sites. We generate revenues primarily from advertising
related sales, including direct marketing and e-commerce promotion. We also
generate revenue from subscription services, such as increased storage capacity
and premium email addresses. A premium email address is an address that a member
may use only by paying a subscription fee. We also intend to generate revenues
from organizations by providing them email services for a fee, an arrangement
commonly known as email service outsourcing. In April 1999, we delivered over 90
million email messages to our members and delivered approximately 190 million
advertisements.
In addition to traditional email service, we offer our members Web-based
email, also known as Webmail. The majority of our members choose our Webmail
service. Webmail has several benefits when compared to traditional email.
Traditional email users generally access their email only through their own
individual computer. Webmail allows users to access their email through any
computer or other device that has a Web browser with access to the Internet.
Webmail users do not need to install or set up email software. Members obtain a
permanent email address that they can keep even if they switch jobs, change
their Internet service provider (commonly referred to as an ISP) or graduate
from school. We offer a large selection of easy-to-remember, personalized email
addresses such as @mail.com, @email.com, @doctor.com, @lawyer.com, @USA.com and
@Asia.com from our portfolio of approximately 1,200 domain names. The domain
name is the part of an email address that comes after the @ symbol.
OUR PARTNERS
We have grown our member base by signing up members in partnership with
third party Web sites and at our own Web sites. As of May 25, 1999, we offered
our email service through 42 Web sites under our partners' and our own brand
names, including Web sites owned by Alloy Online, CBS SportsLine, CNET, CNN,
InfoSpace.com, Lexis-Nexis, Paramount, Snap, Standard & Poor's and Time Warner.
By offering email services to their visitors, our Web site partners seek to
increase their number of users, increase traffic, build user loyalty, collect
user demographic information and generate incremental revenues. We recently
launched an initiative which gives members access to their existing ISP email
accounts through their ISP's Web site. We launched this service in February 1999
with Prodigy and have entered into contracts with Cable & Wireless, EarthLink
and GTE. By offering our service to their customers, our ISP partners seek to
increase user satisfaction, reduce telecommunications and customer support costs
and generate a new revenue stream.
OUR OPPORTUNITY
Email is becoming an increasingly important means of communication, with
both the number of email users and usage levels per individual projected to
increase significantly. According to ELECTRONIC MAIL & MESSAGING SYSTEMS, the
total number of emailboxes increased from approximately 198 million at the end
of 1997 to approximately 325 million at the end of 1998. We believe Webmail
accounts are a rapidly growing category of emailboxes. Forrester Research
projects that daily global Internet email traffic will increase from 100 million
email messages per day in 1996 to 1.5 billion per day in 2002. We believe that
as the complexity and usage of email increases, there will be an increasing
desire on the part of Web sites, ISPs, small businesses and educational
institutions to outsource their email to third parties.
2
<PAGE>
We believe that email has several benefits as an advertising, direct
marketing and e-commerce medium. While members are using our email service on
one of our partner's Web sites or one of our own Web sites, we can display
advertising and make offers to them. Our members identify themselves every time
they sign in to use their email. Therefore, we can direct specific
advertisements to our members based on the demographic information they supply
when they establish their emailboxes. Since we commenced delivering
advertisements in 1998, approximately 100 companies have advertised on our email
network. Jupiter Communication projects that Internet advertising expenditures
will grow from $1.9 billion in 1998 to $7.7 billion in 2002.
OUR STRATEGY
We seek to strengthen our position as a global provider of email services.
In particular, we plan to:
- build our member base
- increase member usage
- increase our advertising related revenue opportunities, including direct
marketing and e-commerce promotion
- expand subscription, outsourcing and other revenue opportunities
- enter additional market segments
We are exploring possible acquisitions and other strategic relationships and
expect to do so on an ongoing basis. At any given time, we may be in discussions
or negotiations regarding these opportunities. We may acquire technology or
other assets to enhance our email services or acquire additional domain names to
augment our existing portfolio.
RISK FACTORS
We operate in a new industry and our business involves a high degree of
risk. The principal risks are described under "Risk Factors." Among these are
the following:
- we have only a limited operating history
- we have incurred losses since inception and expect to continue to incur
substantial losses
- we must substantially increase the number of our members, which will be
difficult to accomplish
- Webmail, email advertising and email outsourcing may not prove to be
viable businesses
- several of our competitors have substantially greater resources, longer
operating histories, larger customer bases and broader product offerings
OUR BACKGROUND
We commenced operations in 1996 and launched our first commercial email
service in November 1996 under the name iName, Inc. We changed our name in
January 1999 to Mail.com, Inc. and began branding our services as Mail.com at
our partners' and our own Web sites. In May 1999 we commenced our email service
at www.mail.com. Our principal offices are located at 11 Broadway, New York, New
York 10004 and our phone number is (212) 425-4200. INFORMATION CONTAINED ON OUR
WEB SITES DOES NOT CONSTITUTE PART OF THIS PROSPECTUS.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A common stock offered.... 6,850,000 shares
Common stock to be outstanding
after the offering
Class A..................... 32,082,322 shares
Class B..................... 10,000,000 shares
Total..................... 42,082,322 shares
Use of Proceeds................. Expand our computer systems, develop Web
site and ISP partnerships, expand sales
and marketing programs, hire personnel,
finance potential acquisitions and fund
other general corporate purposes. See "Use
of Proceeds."
Proposed Nasdaq National Market
Symbol......................... "MAIL"
</TABLE>
Each share of our Class B common stock is entitled to 10 votes per share.
After the offering, Gerald Gorman, our Chairman and Chief Executive Officer,
will retain control of Mail.com through beneficial ownership of approximately
77.3% of the total voting power of our outstanding common stock. See "Principal
Stockholders" and "Description of Capital Stock."
SHARES ISSUABLE AFTER THE OFFERING
You should be aware that we are permitted, and in some cases obligated, to
issue shares of common stock in addition to the common stock expected to be
outstanding after the offering. Also, we expect that we will continue to issue
shares of capital stock when we enter into strategic and commercial
relationships or when we acquire technology or other assets. If and when we
issue these shares, the percentage of common stock you own will be diluted.
The following is a summary of additional shares of common stock that are
issuable upon the exercise of options and warrants or to our partners after the
offering:
- approximately 8.1 million shares are issuable upon the exercise of
outstanding options at a weighted average exercise price of $2.81 per
share and 2.0 million options are available for future awards;
- under a letter agreement with AT&T Corp. dated May 26, 1999, we issued
warrants to purchase 1,000,000 shares of Class A common stock at an
exercise price of $11.00 per share as part of a proposed strategic
relationship. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources";
- 217,999 shares are issuable upon the exercise of outstanding warrants,
excluding the AT&T Corp. warrants, at a weighted average exercise price of
$3.66 per share;
- under two of our partner contracts, we will issue shares of Class A common
stock to our partners upon achievement of specified milestones or for
member registrations. See "Risk Factors--Our contracts with our Web site
partners require us to incur substantial expenses"; and
- under a non-binding commitment letter with B.A.K. Jina International,
Inc., we agreed to issue 80,083 shares of our Class A common stock and to
pay $1,000,000 in cash in exchange for shares of their capital stock. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
4
<PAGE>
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS:
(1) REFLECTS THE AUTOMATIC CONVERSION UPON THE CLOSING OF THIS OFFERING OF
ALL OUTSTANDING SHARES OF CONVERTIBLE PREFERRED STOCK, ON A ONE-FOR-ONE
BASIS, INTO 13,161,558 SHARES OF OUR CLASS A COMMON STOCK;
(2) REFLECTS THE ISSUANCE UPON THE CLOSING OF THIS OFFERING OF AN AGGREGATE
OF 2,079,378 SHARES OF OUR CLASS A COMMON STOCK IN FULL SETTLEMENT OF OUR
CONTINGENT OBLIGATIONS TO ISSUE ADDITIONAL EQUITY TO PREFERRED
STOCKHOLDERS;
(3) REFLECTS THE ISSUANCE UPON THE CLOSING OF THIS OFFERING OF AN AGGREGATE
OF 1,500,000 SHARES OF OUR CLASS A COMMON STOCK TO CNET AND NBC
MULTIMEDIA UPON THE EXERCISE OF WARRANTS AT AN ASSUMED EXERCISE PRICE
EQUAL TO $5.00 PER SHARE FOR PROCEEDS OF $7.5 MILLION;
(4) REFLECTS THE ISSUANCE UPON THE CLOSING OF THIS OFFERING OF AN AGGREGATE
OF 2,368,907 SHARES OF OUR CLASS A COMMON STOCK TO CNET AND SNAP AND
210,000 SHARES OF OUR CLASS A COMMON STOCK TO NBC MULTIMEDIA IN FULL
SETTLEMENT OF OUR CONTINGENT OBLIGATIONS TO ISSUE ADDITIONAL SHARES OF
CLASS A COMMON STOCK TO THEM;
(5) REFLECTS THE RETURN OF 1,000,000 SHARES OF OUR CLASS A COMMON STOCK
ORIGINALLY ISSUED AT A VALUE OF $3.50 PER SHARE FROM GEOCITIES AND THE
WRITE-OFF OF A $500,000 NON-REFUNDABLE FEE PAID TO GEOCITIES. THESE
TRANSACTIONS RELATE TO THE CANCELLATION AND RESCISSION OF OUR ORIGINAL
CONTRACT AND THE ENTRY INTO A NEW ADVERTISING AGREEMENT; AND
(6) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
5
<PAGE>
SUMMARY FINANCIAL DATA
The following table presents our summary financial data. You should read
this information together with our financial statements and related notes
beginning on page F-1 of this prospectus and the information under "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The following data is presented:
- - on an actual basis;
- - on a pro forma basis to give effect to:
- the automatic conversion upon the closing of this offering of all
outstanding shares of convertible preferred stock, on a one-for-one basis,
into 13,161,558 shares of our Class A common stock;
- the issuance upon the closing of this offering of an aggregate of
2,079,378 shares of our Class A common stock in full settlement of our
contingent obligations to issue additional equity to preferred
stockholders. We will account for the issuance of these additional Class A
common shares as a non-cash dividend to our preferred stockholders. For
purposes of the pro forma data, we have calculated the amount of the
dividend based on an assumed initial public offering price of $11.00 per
share. The actual amount of the dividend will be determined using the
actual initial public offering price;
- the issuance upon the closing of this offering of an aggregate of
1,500,000 shares of our Class A common stock to CNET and NBC Multimedia
upon the exercise of warrants at an assumed exercise price equal to $5.00
per share for proceeds of $7.5 million;
- the issuance upon the closing of this offering of an aggregate of
2,368,907 shares of our Class A common stock to CNET and Snap and 210,000
shares of our Class A common stock to NBC Multimedia in full settlement of
our contingent obligations to issue additional Class A common stock to
them. We will capitalize the issuance of those shares and ratably amortize
the amount over the period from the date of the offering through May 2001.
For purposes of the pro forma data, we have calculated the amount of the
settlement based on an assumed initial public offering price of $11.00 per
share. The actual amount of the settlement will be determined using the
actual initial public offering price; and
- the return of 1,000,000 shares of our Class A common stock originally
issued at a value of $3.50 per share from GeoCities and the write-off of a
$500,000 non-refundable fee paid to GeoCities. These transactions relate
to the cancellation and rescission of our original contract and the entry
into a new advertising agreement.
- - on a pro forma as adjusted basis to give effect to the sale of, and the
application of the net proceeds from, 6,850,000 shares of Class A common stock
in this offering, assuming an initial public offering price of $11.00 per
share.
6
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------------- ------------- -------------- ------------- --------------
STATEMENT OF OPERATIONS DATA:
Revenues........................... $ 19,015 $ 173,234 $ 1,494,762 $ 80,413 $ 1,185,939
Operating expenses:
Cost of revenues................. 187,890 1,081,848 2,890,582 351,665 1,477,690
Sales and marketing.............. 65,096 930,420 6,679,478 272,650 3,590,636
General and administrative....... 221,932 862,028 3,482,097 275,206 1,364,898
Product development.............. 93,698 296,140 1,573,465 218,292 1,176,959
------------- ------------- -------------- ------------- --------------
Total operating expenses..... 568,616 3,170,436 14,625,622 1,117,813 7,610,183
------------- ------------- -------------- ------------- --------------
Loss from operations............... (549,601) (2,997,202) (13,130,860) (1,037,400) (6,424,244)
Other income (expense):
Gain on sale of investment....... -- -- 438,000 -- --
Interest income.................. 6,869 36,264 277,164 6,905 114,904
Interest expense................. (1,980) (34,815) (109,187) (13,368) (98,723)
------------- ------------- -------------- ------------- --------------
Total other income (expense),
net........................ 4,889 1,449 605,977 (6,463) 16,181
------------- ------------- -------------- ------------- --------------
Net loss........................... $ (544,712) $ (2,995,753) $ (12,524,883) $ (1,043,863) $ (6,408,063)
------------- ------------- -------------- ------------- --------------
------------- ------------- -------------- ------------- --------------
Basic and diluted net loss per
common share..................... $ (0.04) $ (0.21) $ (0.86) $ (0.07) $ (0.39)
------------- ------------- -------------- ------------- --------------
------------- ------------- -------------- ------------- --------------
Weighted average basic and diluted
shares outstanding............... 13,725,278 14,097,500 14,607,915 14,100,244 16,468,221
------------- ------------- -------------- ------------- --------------
------------- ------------- -------------- ------------- --------------
Pro forma:
Pro forma net loss................. $ (13,024,883) $ (6,908,063)
Cumulative dividends on settlement
of contingent obligations to
preferred stockholders........... (22,873,162) (22,873,162)
-------------- --------------
Net loss attributable to common
stockholders..................... $ (35,898,045) $ (29,781,225)
-------------- --------------
-------------- --------------
Basic and diluted net loss per
common share..................... $ (1.09) $ (0.86)
-------------- --------------
-------------- --------------
Shares used in pro forma basic and
diluted net loss per common share
calculation...................... 32,927,758 34,788,064
-------------- --------------
-------------- --------------
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
--------------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------- --------------
BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 20,136,543 $ 27,636,543 $ 96,612,043
Working capital.................................................... 14,621,821 22,121,821 91,097,321
Total assets....................................................... 37,111,583 68,979,549 137,955,049
Domain asset purchase obligations, less current portion............ 190,355 190,355 190,355
Deferred revenue, current and long-term portion.................... 2,496,750 2,496,750 2,496,750
Capital lease obligations, less current portion.................... 2,506,645 2,506,645 2,506,645
Redeemable convertible preferred stock............................. 13,047,650 -- --
Total stockholders' equity......................................... 12,282,531 57,198,147 126,173,647
</TABLE>
7
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. The principal risks are
described below. You should carefully consider these risks before deciding to
invest in our Class A common stock. Our business, operating results and
financial condition could be adversely affected by any of the following risks.
The trading price of our Class A common stock could decline due to any of these
risks, and you could lose all or part of your investment. You should also refer
to the other information contained in this prospectus, including our financial
statements and the related notes.
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 then upon our ability to compete
successfully in that market. 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 of approximately $12.5 million for the
year ended December 31, 1998 and $6.4 million for the three months ended March
31, 1999. We also had negative cash flow from operations of approximately $4.8
million for 1998 and $1.8 million for the three months ended March 31, 1999. We
had an accumulated deficit of approximately $22.5 million as of March 31, 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 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, 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 PARTNERS REQUIRE US TO INCUR SUBSTANTIAL
EXPENSES.
In nearly all cases our Web site 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 our members. We pay the partner a share of
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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%. In some cases we pay
our partners in shares of our Class A common stock. We will have to account for
these stock issuances at the fair market value on the date of issuance, which
may result in substantial sales and marketing charges in particular quarters.
The following contracts involve minimum payments or payments in the form of
stock.
- CBS SportsLine has the option of receiving its revenue share or $4.00 for
each confirmed signup at its Web site. In addition, we must pay
sponsorship fees totaling $450,000, $100,000 of which we paid when we
signed the contract. We are paying the remaining $350,000 in quarterly
installments of $50,000 and have paid $50,000 through March 31, 1999.
- We issued an aggregate of 253,532 shares of our Class A common stock to
CNN Interactive and CNN/SI when we executed the contract. In addition, we
pay them the greater of their revenue share or $4.00 for each confirmed
signup at their Web sites. We must also pay quarterly sponsorship fees up
to a maximum of $2,000,000 during the term of the contract, of which we
have paid $240,000 through March 31, 1999.
- AltaVista has the option to receive its revenue share or $1.00 in cash
plus 0.25 shares of our Class A common stock for each confirmed member
registration through June 30, 1999. At AltaVista's request, we are
discussing with them extending the expiration date for up to 120 days
after June 30, 1999. If we agree to extend the expiration date, the
consideration that we must pay for member registrations beyond the current
expiration date of June 30, 1999 may change.
- After we executed our contract with RemarQ in October 1998, we made a cash
payment of $75,000 and issued to RemarQ 30,000 shares of our Class A
common stock as an initial payment. We also have a contingent obligation
to make additional cash payments up to a maximum of $400,000 and to issue
up to a maximum of 160,000 additional shares of our Class A common stock
based upon the number of active members that they generate. The initial
term of this agreement expires in August 1999. As of March 31, 1999, we
have not paid any cash and have not issued any shares of our Class A
common stock under this contingent obligation.
- We have guaranteed NHL Interactive CyberEnterprises (NHL.com) a minimum
revenue share of $50,000 per year. Our current agreement expires in May
2000.
- Our agreement with NBC Multimedia requires us to pay them $200,000 in
installments once our email service has been launched at their sites. We
launched our service on May 12, 1999.
- Our original agreements with CNET, Snap and NBC Multimedia obligated us to
issue shares of our Class A common stock on a quarterly basis contingent
upon the number of member registrations at their Web sites. Upon the
closing of this offering, we will issue an aggregate of 2,578,907 shares
of our Class A common stock to CNET, Snap and NBC Multimedia in full
settlement of our contingent obligation to issue additional shares.
- We made a $500,000 non-refundable payment and issued 1,000,000 shares of
our Class A common stock to GeoCities in connection with a contract to
offer our email service at GeoCities' Web site. As a result of the
cancellation and rescission of this contract, in the second quarter of
1999 we will reverse the issuance of 1,000,000 shares of our Class A
common stock originally issued at a value of $3.50 per share that were
returned to us and we will write off the $500,000 non-refundable payment.
We cannot predict whether future relationships, or renewals of existing
relationships, will be more expensive than the arrangements we have entered into
to date.
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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. 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 Corp. 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 $4.4 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--Liquidity and Capital Resources." Under the letter
agreement, AT&T Corp. and Mail.com have agreed to negotiate in good faith to
establish a strategic relationship. AT&T Corp. or Mail.com may terminate the
letter agreement without further liability if we do not enter into definitive
agreements on or before July 15, 1999. We cannot assure you that we will be able
to enter into definitive agreements to implement the proposed strategic
relationship. AT&T Corp. 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 announced on May 10, 1999, that it
reached 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. 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 May
31, 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 May 31, 1999, we estimate that approximately 17% 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.
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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 OR WILL SOON
TERMINATE, WHICH COULD RESULT IN REDUCED ADVERTISING AND SUBSCRIPTION REVENUES.
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 23% of the
emailboxes established through May 31, 1999, and for approximately 25% of the
total page views we delivered in May 1999. Our agreement with Lycos expired on
October 8, 1998, shortly after Lycos acquired WhoWhere, a competitor that
provides personal homepage and Webmail services. Compaq, which owns the
AltaVista Web site, recently entered into a strategic relationship with
Microsoft. AltaVista will offer Microsoft's Hotmail Webmail service starting in
July 1999, after our contract with AltaVista expires. While we will continue to
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.
On September 10, 1998, we entered into a contract with GeoCities to offer
our email services on GeoCities' Web site. Our service has not been launched on
this Web site. Yahoo! recently announced its agreement to acquire GeoCities.
Yahoo! has its own email service called Yahoo! Mail. Following the announcement
of the acquisition of GeoCities by Yahoo!, we entered into an agreement with
GeoCities to cancel and rescind our existing contract. Prior to cancellation and
rescission of the contract, we incurred significant development and launch costs
to meet our commitments under the contract.
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 five
partners accounted for 47% of our new emailboxes established in May 1999:
<TABLE>
<CAPTION>
DATE THAT OUR
PERCENTAGE OF NEW CONTRACT WITH THE
PARTNER EMAILBOXES IN MARCH 1999 PARTNER EXPIRES
- ----------------------------------------------- ----------------------------- ------------------
<S> <C> <C>
Snap........................................... 20% *
CNET........................................... 10 *
Prodigy........................................ 7 February 2000
AltaVista...................................... 7 June 1999
CNN............................................ 3 August 2000
</TABLE>
- ------------------------
* CNET and Snap may terminate their contracts for convenience after May 13,
2001. See "Certain Transactions--Agreements with CNET, Snap and NBC
Multimedia."
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Our contract with AltaVista expires on June 30, 1999. At AltaVista's
request, we are discussing with them extending the expiration date for up to to
120 days after June 30, 1999. Our contracts with Prodigy and Alloy Online are
automatically renewable for successive six month and one year terms,
respectively, unless either party elects to terminate at least thirty days or
sixty days, respectively, 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.
OUR RECENT SUBSCRIPTION RATE INCREASES AND NEW BILLING SYSTEM ARE LIKELY TO
RESULT IN THE LOSS OF MEMBERS AND A REDUCTION IN USAGE BY MEMBERS, THEREBY
REDUCING OUR POTENTIAL ADVERTISING REVENUES.
On March 10, 1999, we increased our subscription rates for our premium email
services. As a result of these rate increases, we anticipate that some of our
existing premium members may not renew their subscriptions and that a lower
percentage of new members will register for our premium services. We are also in
the process of installing a new billing system designed to collect and verify
credit card information from premium users at the time they register for our
services. In the past we did not seek this information until after a 30-day
trial period had expired, and in most instances did not terminate services to
premium members who did not pay for our services. With the introduction of our
new billing system, we have begun terminating premium services to members who do
not pay for these services. This will not reduce our subscription revenues, but
it will reduce usage by those members and thereby reduce our potential
advertising revenues.
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. Our most recent information is for selected
Web sites for the two weeks ended January 24, 1999, and excludes 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.
During that period, no more than 30% of the emailboxes in the sample were
accessed by our members. Moreover, approximately one-third of those emailboxes
that were accessed were first established during the two week period. 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 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 45% of our total
emailboxes as of May 31, 1999, and 27% of the emailboxes that were established
during May 1999. If a disproportionate percentage of members
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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 intend to 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 outsourcing email and
email advertising. 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. Moreover, if our competitors choose
to provide POP3 access, premium names 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 and businesses 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.
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 with consumers and outsourcing customers, we will still need large
numbers of advertisers to purchase space on our Webmail service. 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
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services, the market for our products will be unlikely to develop. Recent
reports have indicated that prices for banner advertisements on the Internet
have begun to fall, in part because of diminishing "click" or response rates.
Advertisers have also begun to request fewer "cost per thousand advertisements"
pricing arrangements and more "cost per click" pricing, which effectively lowers
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. 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.
In 1998 and for the three month period ended March 31, 1999, approximately 31%
and 32%, respectively, of our revenues were attributable to N2K/Music Boulevard,
which recently merged with CDnow, Inc., and revenues from our five largest
advertisers accounted for an aggregate of 44% and 51%, 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
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<PAGE>
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 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:
- payments to our Web site partners in the form of stock that we will be
required to value at then-current market prices;
- incurrence of a non-cash accounting charge of approximately $4.4 million
if we do not enter into definitive agreements with AT&T Corp. We would
incur this charge in the fiscal quarter in which both parties have ceased
negotiations;
- delay or cancellation of even a small number of advertising contracts;
- 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;
- system outages, delays in obtaining new equipment or problems with planned
upgrades;
- disruption or impairment of the Internet;
- introduction of new or enhanced services by us or our competitors;
- changes in our pricing policy or that of our competitors;
- seasonality in the demand for advertising, or changes in our own
advertising rates or advertising rates in general, both on and off the
Internet;
- changes in governmental regulation of the Internet and email in
particular; and
- 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 40 million emailboxes
according to Microsoft. 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.
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Some of our competitors provide a variety of Web-based services such as
Internet access, browser software, homepage design, hosting and calendars, 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 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.
For more information, please see "Business--Competition."
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. The number of our employees increased from 29 on December 31,
1997 to 103 on March 31, 1999. 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. We cannot
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 proved 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, but we are still in the process of
installing the system. 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.
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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 are also in the process of
changing our merchant bank. Initially, this new bank will require us to maintain
a reserve account equal to 5% 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 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 Chief Financial Officer, and Charles Walden, our Executive
Vice President, Technology. The loss of the services of Messrs. Gorman, Millin,
Otremba or Walden, 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. 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. If our service is unavailable or
fails to perform to our members' 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. 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 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.
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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 significant disruptions to our service.
During the two week period from March 23, 1999 through April 5, 1999, for
example, we experienced a series of service outages that affected a significant
number of our members. Two of these outages, the longest of which was
approximately 13 hours, were attributable to computer equipment failures in our
member database system and our email storage system. 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 plan to build 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 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. 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
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security or that of our members. 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. Our members 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.
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.
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
our Web server and encryption technology. 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.
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. We are investigating delivering advertisements ourselves using
software licensed from a third party. We do not currently know whether we will
switch our advertising delivery process. If we switch, we may experience
problems in making the transition and the new software may not function as we
expect.
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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 are 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.
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 WILL CONTINUE TO CONTROL MAIL.COM AFTER THIS OFFERING AND WILL BE
ABLE TO PREVENT A CHANGE OF CONTROL.
After this offering, Gerald Gorman, our Chairman and Chief Executive
Officer, will beneficially own Class A and Class B common stock representing
approximately 77.3% 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.
For more information on these matters, please see "Certain
Transactions--Agreements with Stockholders," "Principal Stockholders" and
"Description of Capital Stock."
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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 will attempt to acquire or make strategic investments in businesses and
to acquire or license technology and other assets. 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:
- inability to raise the required capital;
- difficulty in assimilating the acquired operations and personnel;
- inability to retain any acquired member accounts;
- disruption of our ongoing business;
- inability to successfully incorporate acquired technology into our service
offerings and maintain uniform standards, controls, procedures, and
policies; and
- 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. We intend to use a
portion of the proceeds of the offering to substantially increase our marketing
budget as part of our efforts to build the Mail.com brand. We do not have
experience with some of the types of marketing that we are contemplating. If our
marketing efforts cost more than anticipated or if we cannot increase our brand
awareness, our losses will increase and our ability to succeed will be seriously
impeded. Please see "Use of Proceeds."
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:
- uncertain demand in foreign markets for Webmail advertising, direct
marketing and e-commerce;
- difficulties and costs of staffing and managing international operations;
- differing technology standards;
- difficulties in collecting accounts receivable and longer collection
periods;
- economic instability and fluctuations in currency exchange rates and
imposition of currency exchange controls;
- potentially adverse tax consequences; and
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- political instability, unexpected changes in regulatory requirements, and
reduced protection for intellectual property rights in some countries.
WE WILL HAVE BROAD DISCRETION WITH RESPECT TO THE USE OF THE PROCEEDS FROM THIS
OFFERING.
As of the date of this prospectus, we cannot specify the particular uses for
the net proceeds we will receive from the offering. If our management does not
apply these funds effectively, our revenues could decrease and our stock price
could fall. Please see "Use of Proceeds."
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.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Certain Transactions--Agreements with Stockholders" and
"Description of Capital Stock."
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 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
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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. Although we have not received notice of any alleged
infringement, 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 following this offering could cause the market price of our Class A
common stock to decline. After this offering, we will have an aggregate of
42,082,322 shares of Class A and Class B common stock and 8,094,766 options and
1,217,999 warrants to purchase an aggregate of 9,312,765 shares of Class A
common stock outstanding. Except for up to 685,000 shares to be sold through our
directed share program, all the shares sold in this offering will be freely
tradable immediately after this offering. All shares sold under the directed
share program will be subject to lock-up agreements that prohibit the sale of
the shares for 30 days after the date of this prospectus. 35,079,224 of the
remaining 35,232,322 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 the date of this prospectus. Beginning
, 1999 (181 days after the date of this prospectus), 31,157,489 shares will
become available for sale, including shares issuable upon the exercise of
options or the conversion of Class B common stock. The remaining 6,842,170
shares will become available at various later dates upon the expiration of
one-year holding periods. 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. See "--Our contracts with our Web site partners require
us to incur substantial expenses" and "--Investors in this offering will suffer
immediate and substantial dilution, and they will experience more dilution in
the future because of additional stock issuances."
The holders of approximately 16,018,535 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. For more information on
these registration rights, please see "Description of Capital
Stock--Registration Rights."
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INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION, AND
THEY WILL EXPERIENCE MORE DILUTION IN THE FUTURE BECAUSE OF ADDITIONAL STOCK
ISSUANCES.
We expect the initial public offering price to be substantially higher than
the pro forma net tangible book value per share of our Class A common stock.
Purchasers in this offering will experience immediate dilution of $8.03
(assuming a public offering price of $11.00 per share). For more information,
please see "Dilution."
Several of our existing agreements with Web site partners provide for the
issuance of substantial numbers of additional shares. We also have 8,094,766
outstanding vested and unvested employee stock options and 1,217,999 warrants to
purchase an aggregate of 9,312,765 shares of Class A common stock. We have made
a number of Internet-related asset acquisitions using stock and options to pay
part or all of the purchase price. In the future, we expect to continue to issue
shares and options, particularly in connection with our efforts to attract,
retain and motivate qualified personnel and in connection with acquisitions and
the establishment of commercial and strategic relationships. We may also issue
additional shares or options to attract or retain Web site or ISP partners. We
anticipate that the number of shares involved in these arrangements will be
substantial.
For more information about our existing commitments to issue Class A common
stock, please see "--Our contracts with our Web site partners require us to
incur substantial expenses" and "Management--Compensation."
BECAUSE WE DO NOT INTEND TO PAY ANY CASH DIVIDENDS ON OUR CLASS A COMMON STOCK,
HOLDERS OF OUR CLASS A COMMON STOCK WILL NOT BE ABLE TO RECEIVE A RETURN ON
THEIR SHARES UNLESS THEY SELL THEM.
We have never paid or declared any cash dividends on our Class A common
stock or other securities and intend to retain any future earnings to finance
the development and expansion of our business. We do not anticipate paying any
cash dividends on our Class A common stock in the foreseeable future. Unless we
pay dividends, our shareholders will not be able to receive a return on their
shares unless they sell them. See "Dividend Policy."
IT IS DIFFICULT TO PREDICT WHETHER A MARKET FOR OUR STOCK WILL DEVELOP, AND OUR
STOCK PRICE IS LIKELY TO BE VOLATILE.
We cannot predict the extent to which investor interest in Mail.com will
lead to the development of a trading market or how liquid that market might
become. 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 technology companies, rather than specific
developments relating to the issuer of that particular stock. If our stock price
is volatile, 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.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives,
expectations and intentions. These statements may be identified by the use of
words such as "expects," "anticipates," "intends," "plans" and similar
expressions. Our actual results could differ materially from those discussed in
these statements. Factors that could contribute to such differences include, but
are not limited to, those discussed above and elsewhere in this prospectus.
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 6,850,000 shares of
Class A common stock in the offering will be approximately $69.0 million,
assuming an initial public offering price of $11.00 per share and after
deducting the estimated underwriting discounts and estimated offering expenses.
If the underwriters' over-allotment option is exercised in full, we estimate
that our net proceeds will be approximately $79.5 million. The principal
purposes of the offering are to obtain additional capital, create a public
market for our Class A common stock and facilitate our future access to the
public capital markets.
Except as described below, we have no current specific plans for the net
proceeds from this offering. We generally intend to use the proceeds of this
offering to:
- expand our computer systems;
- develop Web site and ISP partnerships;
- expand sales and marketing activities;
- hire personnel;
- finance potential acquisitions; and
- fund other general corporate purposes.
Other than as described below, we have not yet determined the actual
expected expenditures and thus cannot estimate the amounts to be used for each
purpose discussed above. The amounts and timing of these expenditures will vary
significantly depending on a number of factors, including, but not limited to,
the amount of cash generated by our operations and the market response to the
introduction of any new service offerings. Accordingly, we will have broad
discretion in the application of proceeds.
We expect to use a portion of the net proceeds of this offering to acquire
or invest in businesses, products, services or technologies complementary to our
current business, through mergers, acquisitions, joint ventures or otherwise.
Under a non-binding commitment letter we have agreed to issue 80,083 shares of
our Class A common stock and to pay $1,000,000 in cash in exchange for shares of
the capital stock of B.A.K. Jina International, Inc.
We intend to invest the net proceeds of this offering in short-term,
interest-bearing investment grade securities pending the foregoing uses.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
finance the expansion of our business.
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CAPITALIZATION
The following table presents the capitalization of Mail.com as of March 31,
1999:
- - on an actual basis;
- - on a pro forma basis to give effect to:
- the automatic conversion upon the closing of this offering of all
outstanding shares of convertible preferred stock, on a one-for-one basis,
into 13,161,558 shares of our Class A common stock;
- the issuance upon the closing of this offering of an aggregate of
2,079,378 shares of our Class A common stock in full settlement of our
contingent obligations to issue additional equity to preferred
stockholders. We will account for the issuance of these additional Class A
common shares as a non-cash dividend to our preferred stockholders. For
purposes of the pro forma data, we have calculated the amount of the
dividend based on a value of $11.00 per common share, which is the assumed
initial public offering price. The actual amount of the dividend will be
determined using the actual initial public offering price;
- the issuance upon the closing of this offering of an aggregate of
1,500,000 shares of our Class A common stock to CNET and NBC Multimedia
upon the exercise of warrants at an assumed exercise price equal to $5.00
per share for proceeds of $7.5 million;
- the issuance upon the closing of this offering of an aggregate of
2,368,907 shares of our Class A common stock to CNET and Snap and 210,000
shares of our Class A common stock to NBC Multimedia in full settlement of
our contingent obligations to issue additional Class A common stock to
them. We will capitalize the issuance of those shares and ratably amortize
the amount over the period from the date of the offering through May 2001.
For purposes of the pro forma data, we have calculated the amount of the
settlement based on an assumed initial public offering price of $11.00 per
share. The actual amount of the settlement will be determined using the
actual initial public offering price; and
- reflects the return of 1,000,000 shares of our Class A common stock
originally issued at a value of $3.50 per share from GeoCities and the
write-off of a $500,000 non-refundable fee paid to GeoCities. These
transactions relate to the cancellation and rescission of our original
contract and the entry into a new advertising agreement.
- - on a pro forma as adjusted basis to give effect to the sale of, and the
application of the net proceeds from, 6,850,000 shares of Class A common stock
in this offering, assuming an initial public offering price of $11.00 per
share.
26
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
Cash and cash equivalents................................................ $20,136,543 $27,636,543 $96,612,043
----------- ----------- -----------
----------- ----------- -----------
Domain asset purchase obligations, excluding current portion............. $ 190,355 $ 190,355 $ 190,355
Obligations under capital leases, excluding current portion.............. 2,506,645 2,506,645 2,506,645
Redeemable convertible preferred stock, Class C, $0.01 par value;
12,000,000 shares authorized, 3,776,558 shares issued and outstanding
actual; no shares issued and outstanding pro forma and pro forma as
adjusted............................................................... 13,047,650 -- --
Stockholders' equity:
Convertible preferred stock, Class A, D, and E, $0.01 par value;
48,000,000 shares authorized, 9,385,000 shares issued and outstanding
actual; no shares issued and outstanding, pro forma and pro forma as
adjusted............................................................... 93,850 -- --
Common stock, Class A and B, $0.01 par value; 130,000,000 shares
authorized, 16,682,481 shares issued and outstanding actual; 35,004,922
shares issued and outstanding pro forma; and 41,854,922 shares issued
and outstanding pro forma as adjusted.................................. 166,825 350,051 418,551
Additional paid in capital............................................... 35,640,616 103,868,605 172,775,605
Subscription receivable.................................................. (210,950) (210,950) (210,950)
Deferred compensation.................................................... (934,399) (934,399) (934,399)
Accumulated deficit...................................................... (22,473,411) (45,875,160) (45,875,160)
----------- ----------- -----------
Total stockholders' equity............................................... 12,282,531 57,198,147 126,173,647
----------- ----------- -----------
Total capitalization..................................................... $28,027,181 $59,895,147 $128,870,647
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The foregoing table assumes no exercise of any stock options or warrants
outstanding as of March 31, 1999 (except the pro forma data, which assumes the
exercise of the warrants held by CNET and NBC Multimedia). Mail.com expects that
there will be 32,082,322 shares of Class A common stock and 10,000,000 shares of
Class B common stock outstanding after the offering. The foregoing number of
shares of Class A common stock includes, in addition to the adjustments
described above, shares issued upon option and warrant exercises that occurred
after March 31, 1999. After the closing of this offering, no shares of
convertible preferred stock will be issued and outstanding. As of March 31,
1999, there were options outstanding to purchase a total of 7.5 million shares
of Class A common stock with a weighted average exercise price of $2.29 per
share and 209,539 shares of Class A common stock were reserved for issuance upon
exercise of outstanding warrants (excluding the warrants held by CNET and NBC
Multimedia) at a weighted average exercise price of $3.36 per share. In
addition, after March 31, 1999, we issued warrants to AT&T Corp. for the
purchase of 1,000,000 shares of Class A common stock at an exercise price of
$11.00 per share, warrants to outside consultants for the purchase of 8,460
shares of Class A common stock at an exercise price of $11.00 per share and
granted 546,800 options to purchase Class A common stock to employees at a
weighted average exercise price of $10.07 per share. To the extent that any of
these options or warrants are exercised, there will be further dilution to new
investors. See "The Offering--Shares Issuable After The Offering" and the notes
to our financial statements.
27
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was approximately
$55,165,972, or $1.58 per share of common stock. Pro forma net tangible book
value per share is determined by dividing the amount of our pro forma total
tangible assets less total liabilities by the pro forma number of shares of
common stock outstanding at that date. Dilution in net tangible book value per
share represents the difference between the amount per share paid by purchasers
of shares of Class A common stock in this offering and the pro forma net
tangible book value per share of common stock immediately after the completion
of this offering. After giving effect to the issuance and sale of the 6,850,000
shares of Class A common stock in this offering (at an assumed initial public
offering price of $11.00 per share and after deducting estimated underwriting
discounts and estimated offering expenses), our pro forma net tangible book
value as of March 31, 1999 would have been $124,141,472, or $2.97 per share.
This represents an immediate increase in pro forma net tangible book value of
$1.39 per share to existing stockholders and an immediate dilution of $8.03 per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......................... $ 11.00
Pro forma net tangible book value per share at March 31, 1999 $ 1.58
Increase in pro forma net tangible book value per share attributable
to new investors.................................................. 1.39
---------
Pro forma net tangible book value per share after offering 2.97
---------
Dilution per share to new investors..................................... $ 8.03
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 1999,
the differences between the total number of shares of Class A and Class B common
stock purchased from Mail.com and the total consideration paid and the average
price per share paid by existing stockholders and new investors purchasing
shares of Class A common stock in this offering based upon an assumed initial
public offering price of $11.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE
PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- -------------- ----------- ------------
Existing stockholders........................... 35,004,922 83.6% $ 37,515,000 33.2% $ 1.07
New investors................................... 6,850,000 16.4 75,350,000 66.8 11.00
------------- ----- -------------- -----
Total..................................... 41,854,922 100.0% $ 112,865,000 100.0%
------------- ----- -------------- -----
------------- ----- -------------- -----
</TABLE>
The foregoing discussion and tables assume no exercise of any stock options
or warrants outstanding as of March 31, 1999 except the warrants held by CNET
and NBC Multimedia. As of March 31, 1999, there were options outstanding to
purchase a total of 7.5 million shares of Class A common stock with a weighted
average exercise price of $2.29 per share and 209,539 shares of common stock
were reserved for issuance upon exercise of outstanding warrants (excluding the
warrants held by CNET and NBC Multimedia) at a weighted average exercise price
of $3.36 per share. In addition, after March 31, 1999, we issued warrants to
AT&T Corp. for the purchase of 1,000,000 shares of Class A common stock at an
exercise price of $11.00 per share, warrants to outside consultants for the
purchase of 8,460 shares of Class A common stock at an exercise price of $11.00
per share and granted 546,800 options to purchase Class A common stock to
employees at a weighted average exercise price of $10.07 per share. To the
extent that any of these options or warrants are exercised, there will be
further dilution to new investors. See "The Offering--Shares Issuable After The
Offering" and the notes to our financial statements.
28
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth our selected financial data. You should read
this information together with our financial statements and the notes to those
statements beginning on page F-1 of this prospectus and the information under
"Summary Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The following data is presented:
- - on an actual basis;
- - on a pro forma basis to give effect to:
- the automatic conversion upon the closing of this offering of all
outstanding shares of convertible preferred stock, on a one-for-one basis,
into 13,161,558 shares of our Class A common stock;
- the issuance upon the closing of this offering of an aggregate of
2,079,378 shares of our Class A common stock in the aggregate in full
settlement of our contingent obligations to issue additional equity to
preferred stockholders. We will account for the issuance of these
additional Class A common shares as a non-cash dividend to our preferred
stockholders. For purposes of the pro forma data, we have calculated the
amount of the dividend based on a value of $11.00 per common share, which
is the assumed initial public offering price. The actual amount of the
dividend will be determined using the actual initial public offering
price;
- the issuance upon the closing of this offering of an aggregate of
1,500,000 shares of our Class A common stock to CNET and NBC Multimedia
upon the exercise of warrants at an assumed exercise price equal to $5.00
per share for proceeds of $7.5 million;
- the issuance upon the closing of this offering of an aggregate of
2,368,907 shares of our Class A common stock to CNET and Snap and 210,000
shares of our Class A common stock to NBC Multimedia in full settlement of
our contingent obligations to issue additional Class A common stock to
them. We will capitalize the issuance of those shares and ratably amortize
the amount over the period from the date of the offering through May 2001.
For purposes of the pro forma data, we have calculated the amount of the
settlement based on an assumed initial public offering price of $11.00 per
share. The actual amount of the settlement will be determined using the
actual initial public offering price; and
- the return of 1,000,000 shares of our Class A common stock originally
issued at a value of $3.50 per share from GeoCities and the write-off of a
$500,000 non-refundable fee paid to GeoCities. These transactions relate
to the cancellation and rescission of our original contract and the entry
into a new advertising agreement;
- - on a pro forma as adjusted basis to give effect to the sale of, and the
application of the net proceeds from, 6,850,000 shares of Class A common stock
in this offering, assuming an initial public offering price of $11.00 per
share.
29
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------------- ------------- -------------- ------------- --------------
STATEMENT OF OPERATIONS DATA:
Revenues........................... $ 19,015 $ 173,234 $ 1,494,762 $ 80,413 $ 1,185,939
Operating expenses:
Cost of revenues................. 187,890 1,081,848 2,890,582 351,665 1,477,690
Sales and marketing.............. 65,096 930,420 6,679,478 272,650 3,590,636
General and administrative....... 221,932 862,028 3,482,097 275,206 1,364,898
Product development.............. 93,698 296,140 1,573,465 218,292 1,176,959
------------- ------------- -------------- ------------- --------------
Total operating expenses..... 568,616 3,170,436 14,625,622 1,117,813 7,610,183
------------- ------------- -------------- ------------- --------------
Loss from operations............... (549,601) (2,997,202) (13,130,860) (1,037,400) (6,424,244)
Other income (expense):
Gain on sale of investment....... -- -- 438,000 -- --
Interest income.................. 6,869 36,264 277,164 6,905 114,904
Interest expense................. (1,980) (34,815) (109,187) (13,368) (98,723)
------------- ------------- -------------- ------------- --------------
Total other income (expense),
net........................ 4,889 1,449 605,977 (6,463) 16,181
------------- ------------- -------------- ------------- --------------
Net loss........................... $ (544,712) $ (2,995,753) $ (12,524,883) $ (1,043,863) $ (6,408,063)
------------- ------------- -------------- ------------- --------------
------------- ------------- -------------- ------------- --------------
Basic and diluted net loss per
common share..................... $ (0.04) $ (0.21) $ (0.86) $ (0.07) $ (0.39)
------------- ------------- -------------- ------------- --------------
------------- ------------- -------------- ------------- --------------
Weighted average basic and diluted
shares outstanding............... 13,725,278 14,097,500 14,607,915 14,100,244 16,468,221
------------- ------------- -------------- ------------- --------------
------------- ------------- -------------- ------------- --------------
Pro forma:
Pro forma net loss................. $ (13,024,883) $ (6,908,063)
Cumulative dividends on settlement
of contingent obligations to
preferred stockholders........... (22,873,162) (22,873,162)
-------------- --------------
Net loss attributable to common
stockholders..................... $ (35,898,045) $ (29,781,225)
-------------- --------------
-------------- --------------
Basic and diluted net loss per
common share..................... $ (1.09) $ (0.86)
-------------- --------------
-------------- --------------
Shares used in pro forma basic and
diluted net loss per common share
calculation...................... 32,927,758 34,788,064
-------------- --------------
-------------- --------------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31, 1999
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA
1996 1997 1998 ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- ----------- ---------- ---------- -----------
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 128,277 $ 909,718 $ 8,414,352 $20,136,543 $27,636,543 $96,612,043
Working capital (deficiency)....... 37,743 (190,963) 5,075,870 14,621,821 22,121,821 91,097,321
Total assets....................... 665,855 2,645,854 20,344,488 37,111,583 68,979,549 137,955,049
Domain asset purchase obligations,
less current portion............. -- 150,155 216,886 190,355 190,355 190,355
Deferred revenue, current and long-
term portion..................... 6,289 329,187 1,904,645 2,496,750 2,496,750 2,496,750
Capital lease obligations, less
current portion.................. 146,186 568,728 1,437,731 2,506,645 2,506,645 2,506,645
Redeemable convertible preferred
stock............................ -- -- 13,047,650 13,047,650 -- --
Total stockholders' equity
(deficit)........................ 370,288 566,915 (332,643) 12,282,531 57,198,147 126,173,647
</TABLE>
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH OUR
FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
Mail.com is a global provider of email services. Our basic email services
are free to our members. We generate revenues primarily from advertising related
sales, including direct marketing and e-commerce promotion. We also generate
revenues from subscription services, such as premium email addresses and
increased storage capacity, and from email service outsourcing fees. In April
1999, we delivered over 90 million email messages to our members and delivered
approximately 190 million advertisements.
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 recently, 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.
During 1998, our member base became large enough to provide a platform for
advertising related sales. We generated 75% of our revenues during 1998 from
advertising related sales and 19% from our subscription services. We expect that
most of our revenues will be derived from these sources in the future. We also
generated a small portion of our revenues from the sale of domain name assets
and from email service outsourcing fees. Although revenues from email
outsourcing fees have been insignificant to date, we will seek to increase these
revenues in the future.
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
31
<PAGE>
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 transaction, 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 11% of revenues for the year ended December 31, 1998,
approximately 10% of revenues in the fourth quarter of 1998 and approximately
12% of revenues for the first quarter of 1999. On an annual basis, we anticipate
that barter revenues will remain below 10%, although the actual percentage may
fluctuate in any given quarter.
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 and/or
shares of our Class A common stock 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.
Because some of our contracts require us to issue shares of Class A common
stock on a contingent basis, we could experience substantial fluctuations in our
quarterly earnings. The amount of stock we are required to issue is usually
based upon the number of member registrations during the preceding quarter or
upon the achievement of performance targets. We record the non-cash expense as
of the date we issue the stock or as of the date the targets are achieved, at
the then fair market value of our stock. These expenses aggregated approximately
$3,017,000 and $2,358,000 for the year ended December 31, 1998 and for the three
months ended March 31, 1999, respectively. On April 30, 1999, we entered into an
agreement to settle in full a contingent obligation to issue shares of Class A
common stock to CNET, Snap and NBC Multimedia. Under this settlement, we will
issue upon the closing of this offering 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. As required by our contract with AltaVista, we expect to
issue additional shares of our Class A common stock for the second quarter of
1999. In addition, we have a contingent obligation to issue additional shares to
RemarQ during 1999. See "Risk Factors--Our contracts with our Web site partners
require us to incur substantial expenses" and "--We may fail to meet market
expectations because of fluctuations in our quarterly operating results, which
would cause our stock price to decline."
Under an agreement with CNN we issued shares of our Class A common stock
upon execution of the contract. 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 then amortize
that amount over the length of the contract. We recorded approximately $173,000
and $111,000 of amortization expense for this agreement in 1998 and for the
three months ended March 31, 1999, respectively. 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 and, as a result, we will not be providing email
32
<PAGE>
services to GeoCities. Under this agreement, GeoCities will retain the
non-refundable fee that we paid to it under the agreement and we will not be
required to pay the remaining $1 million. In addition, GeoCities will return 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 $125,000 per month or $2,000,000 in the aggregate over
the sixteen month period. In the second quarter of 1999, we will reverse the
issuance of shares and expense 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. On November 6, 1998, our partners achieved their
target and became entitled to the warrants. The warrants have an exercise price
of the lower of $5.00 or the per share price in an initial public offering of
our stock. CNET and NBC Multimedia have exercised their warrants, and funds for
the payment of the exercise price have been deposited into escrow. Upon
consummation of this offering, funds sufficient to pay the exercise price will
be released to us, and we will issue the shares to CNET and NBC Multimedia.
Although we have experienced substantial growth in revenues in recent
periods, we have incurred substantial operating losses since our inception and
we expect to incur substantial operating losses for the foreseeable future. As
of December 31, 1998 and March 31, 1999, we had an accumulated deficit of
approximately $16.1 million and $22.5 million, respectively. 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."
We have recorded deferred compensation of approximately $1.0 million and
$0.9 million for the year ended December 31, 1998 and for the three months ended
March 31, 1999, respectively, 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 three year vesting period of the
applicable options. Amortization of deferred stock compensation is charged to
sales and marketing expense on the statement of operations. Amortization of the
deferred compensation was approximately $71,000 and $91,000 for the year ended
December 31, 1998 and the three months ended March 31, 1999, respectively. We
will amortize the remaining deferred compensation of approximately $934,000 as
of March 31, 1999 over the remaining vesting period of approximately 3 years.
We have recorded additional deferred compensation of approximately $511,000
in April 1999 in connection with the grant of 85,150 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 $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.
33
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
REVENUES
Revenues increased approximately $1.1 million, from approximately $80,000
for the three months ended March 31, 1998 to approximately $1.2 million for the
three months ended March 31, 1999. The increase was due primarily to our
commencing advertising sales in July 1998. These sales became possible because
of the growth in our number of emailboxes. Our members established approximately
0.5 million emailboxes from January 1, 1998 through March 31, 1998 and
approximately 1 million emailboxes during the three months ended March 31, 1999.
This brings us to a cumulative total of 5 million emailboxes. See "Risk
Factors--We have only limited information about our members and their usage,
which may reduce our potential revenues." Revenues for the three months ended
March 31, 1998 and 1999 included approximately $10,000 and $1.0 million of
advertising revenues, respectively. For the three months ended March 31, 1999,
approximately $376,000 was attributable to one customer, N2K/Music Boulevard,
which recently merged with CDnow, Inc., of which approximately $103,000 was
barter revenue. Total barter revenues for the three months ended March 31, 1999
were approximately $143,000. Our revenues from subscriptions increased $87,000,
from approximately $41,000 for the three months ended March 31, 1998 to
approximately $128,000 for the three months ended March 31, 1999. Other revenue,
primarily the sale of domain names, increased $22,000, from approximately
$29,000 for the three months ended March 31, 1998 to approximately $51,000 for
the three months ended March 31, 1999.
In the three months ended March 31, 1999, revenues from members acquired
through the Lycos and AltaVista Web sites accounted for approximately 29% of our
revenue. Our agreement with Lycos expired on October 8, 1998, and our agreement
with AltaVista expires on June 30, 1999. As of February 1999, we no longer
register new members through the Lycos Web site. However, we retain the members
who have previously signed up at this site under our domain names. Upon
termination of the AltaVista agreement, we will retain all the members
registered at that site. While these contracts either have or will soon expire,
we expect that we will continue to serve the majority of the affected members.
See "Risk Factors--Several of our most significant partner contracts have
expired or will soon terminate, which could result in reduced advertising and
subscription revenues."
OPERATING EXPENSES
COST OF REVENUES
Cost of revenues increased $1.1 million, from approximately $352,000 for the
three months ended March 31, 1998 to approximately $1.5 million for the three
months ended March 31, 1999. 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 three months ended March 31,
1999, we purchased significant amounts of capital equipment for our computer
systems to accommodate the growth in the number of emailboxes. As a result,
depreciation expense increased significantly during this period. During the
three months ended March 31, 1998 and 1999, barter expense was $0 and $124,000,
respectively. Also, we substantially increased headcount in the above groups
during this period. We anticipate continuing to purchase significant amounts of
hardware and software and to continue to hire technical personnel.
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SALES AND MARKETING EXPENSES
Sales and marketing expenses increased $3.3 million, from approximately
$273,000 for the three months ended March 31, 1998 to approximately $3.6 million
for the three months ended March 31, 1999. The increase was due primarily to the
expansion of our sales and marketing efforts and the establishment of partner
agreements with third party Web sites. The primary component of sales and
marketing expenses is customer acquisition costs. The costs related to customer
acquisitions paid in cash were approximately $407,000 for the three months ended
March 31, 1999 and approximately $123,000 for the three months ended March 31,
1998. The costs related to customer acquisitions through the issuance of Class A
common stock were approximately $2,247,000 for the three months ended March 31,
1999 and zero for the three months ended March 31, 1998. We also recorded
approximately $111,000 in amortization of partner advances for the three months
ended March 31, 1999 and zero for the three months ended March 31, 1998. The
remainder of the costs in this category relate to salaries and commissions for
sales, marketing, and business development personnel, as well as marketing
promotions and advertising. We continued to increase our sales and marketing
efforts through 1998 and for the three months ended March 31, 1999. We expect
sales and marketing expenses 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 increased $1.1 million, from
approximately $275,000 for the three months ended March 31, 1998 to
approximately $1.4 million for the three months ended March 31, 1999. The
increase was primarily due to increases in the number of personnel to support
and grow our business, increasing customer service coverage to 24 hours per day,
7 days per week and increased facilities space. 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 increased $1.0 million, from approximately
$218,000 for the three months ended March 31, 1998 to approximately $1.2 million
for the three months ended March 31, 1999. The increase in expenses was due to
increased staffing, the costs of adding new features to our services, designing
new services and redesigning existing services. Product development expenses
consist primarily of salaries and consulting expenses. During the three months
ended March 31, 1999, a portion of consulting expenses was paid through the
issuance of 55,000 shares of our Class A common stock, the cost of which was
expensed. These expenses relate to the development of new services and the
enhancement of existing ones. To date, we have 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.
INTEREST INCOME (EXPENSE)
Interest income increased $108,000, from approximately $7,000 for the three
months ended March 31, 1998 to approximately $115,000 for the three months ended
March 31, 1999. The increase was due to higher cash balances as a result of
completing private placements of preferred stock in July and August of 1998 and
March of 1999. Interest expense increased $86,000, from approximately $13,000
for the three months ended March 31, 1998 to approximately $99,000 for the three
months ended March 31, 1999. The increase was due to interest recorded on our
capital lease obligations, as we continue to finance our computer equipment
purchases.
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YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
Our financial statements as of December 31, 1994 and 1995 and for the period
from August 1, 1994 through December 31, 1995 reflect only immaterial
transactions. These activities have been included in the 1996 financial
statements to facilitate presentation.
REVENUES
Revenues increased $1.3 million, from approximately $173,000 in 1997 to
approximately $1.5 million in 1998. The increase was primarily due to
advertising sales which we initiated in July 1998. These sales became possible
because of the growth in our number of emailboxes. We experienced an increase of
approximately 3 million emailboxes during 1998 to an aggregate of approximately
4 million. See "Risk Factors--We have only limited information about our members
and their usage, which may reduce our potential revenues." Revenues for 1998
included approximately $1.1 million of advertising revenue. Of this revenue,
approximately $461,000 was attributable to one customer, N2K/Music Boulevard,
which recently merged with CDnow, Inc. This amount included barter revenues of
approximately $162,000, representing all of our barter revenues for the year.
Our revenues from subscriptions increased $225,000, from approximately $61,000
in 1997 to approximately $285,000 in 1998. Other revenue, primarily the sale of
domain names, decreased $20,000, from approximately $112,000 in 1997 to
approximately $93,000 in 1998.
We launched our commercial email service in 1996 and had only $19,000 in
revenues in this period. These consisted of $2,000 from subscription services
and $17,000 from the sale of domain names.
OPERATING EXPENSES
COST OF REVENUES
Cost of revenues increased $1.8 million, from approximately $1.1 million in
1997 to approximately $2.9 million in 1998. Depreciation expense increased
significantly during the second half of the year due to increased capital
expenditures. At the same time, we substantially increased headcount in the
relevant groups in the second half of the year. Barter expense was $0 and
$233,000 in 1997 and 1998, respectively.
Cost of revenues increased $912,000, from approximately $188,000 in 1996 to
approximately $1.1 million in 1997. The increase was due primarily to increased
depreciation expense, personnel costs and amortization of domain names. There
were no barter expenses in 1996 or 1997.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased $5.8 million, from approximately
$930,000 in 1997 to approximately $6.7 million in 1998. We increased our sales
and marketing efforts in the latter part of 1997 and continued to increase these
efforts through 1998. The costs related to customer acquisitions paid in cash
increased $1.1 million, from approximately $631,000 in 1997 to approximately
$1.7 million in 1998. The costs related to customer acquisitions through the
issuance of Class A common stock were approximately $3.0 million in 1998. We did
not issue shares related to customer acquisitions before 1998. We also recorded
$173,000 in amortization of partner advances in 1998. There were no partner
advances before 1998.
In 1997, sales and marketing expenses increased $865,000, from approximately
$65,000 in 1996 when we started conducting business to approximately $930,000.
During 1997, we entered into several partner relationships and began incurring
customer acquisition costs.
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GENERAL AND ADMINISTRATIVE
General and administrative expenses increased $2.6 million, from
approximately $862,000 in 1997 to approximately $3.5 million in 1998. The
increase was primarily due to increases in the number of personnel and personnel
related costs, increasing customer service coverage to 24 hours per day, 7 days
per week and expansion of facilities.
General and administrative expenses increased $640,000, from approximately
$222,000 in 1996 to approximately $862,000 in 1997 as our business started to
grow. The increase was due primarily to increases in personnel, recruiting and
consulting expenses.
PRODUCT DEVELOPMENT
Product development costs increased $1.3 million, from approximately
$296,000 in 1997 to approximately $1.6 million in 1998. The increase was due to
increased staffing, the costs of adding new features to our services, designing
new services and redesigning existing services.
Product development costs increased $202,000, from approximately $94,000 in
1996 to approximately $296,000 in 1997. This increase was also due to increased
staffing and consulting expenses and depreciation.
OTHER INCOME (EXPENSE)
Interest income increased $241,000, from approximately $36,000 in 1997 to
approximately $277,000 in 1998. The increase was due to higher cash balances
after we completed private placements of preferred stock in May and December of
1997 and January, July and August of 1998. In 1998, we realized a gain of
approximately $438,000 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 of
approximately $109,000 in 1998 consists of interest recorded on our capital
lease obligations.
Interest income increased $29,000, from $7,000 in 1996 to $36,000 in 1997.
The increase was due primarily to higher cash balances after we completed
private placements of preferred stock in May and December of 1997. Interest
expense on capital leases increased $33,000, from $2,000 in 1996 to $35,000 in
1997, as we continued to finance our computer equipment purchases.
QUARTERLY RESULTS OF OPERATIONS DATA
The following table presents unaudited quarterly statements of operations
for each of the four quarters in 1998 and for the quarter ended March 31, 1999.
We have prepared this data on substantially the same basis as the audited
financial statements appearing elsewhere in this prospectus. We believe this
data includes all necessary adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation. You should read the quarterly
data together with the financial statements and the notes to those statements
appearing elsewhere in this prospectus. The results of operations for any
quarter are not necessarily indicative of the results of operations for any
future period. We expect that our quarterly revenues may fluctuate
significantly. See "Risk Factors--We may fail to meet market expectations
because of fluctuations in our quarterly operating results, which would cause
our stock price to decline." 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 will become more noticeable if our revenue growth does not continue at its
recent rate.
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------
MARCH 31, 1998 JUNE 30, 1998 SEPTEMBER 30, 1998 DECEMBER 31, 1998 MARCH 31, 1999
-------------- ------------- ------------------ ----------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................. $ 80,413 $ 139,094 $ 272,636 $ 1,002,619 $ 1,185,939
Operating expenses:
Cost of revenues.......... 351,665 592,677 800,728 1,145,512 1,477,690
Sales and marketing....... 272,650 520,139 1,347,342 4,539,347 3,590,636
General and
administrative.......... 275,206 489,082 960,093 1,757,716 1,364,898
Product development....... 218,292 277,750 489,723 587,700 1,176,959
-------------- ------------- ------------------ ----------------- --------------
Total operating
expenses............ 1,117,813 1,879,648 3,597,886 8,030,275 7,610,183
-------------- ------------- ------------------ ----------------- --------------
Loss from operations...... (1,037,400) (1,740,554) (3,325,250) (7,027,656) (6,424,244)
Other income (expense):
Gain on sale of
investment.............. -- 438,000 -- -- --
Interest income........... 6,905 26,475 107,437 136,347 114,904
Interest expense.......... (13,368) (20,265) (29,199) (46,355) (98,723)
-------------- ------------- ------------------ ----------------- --------------
Total other income
(expense), net.......... (6,463) 444,210 78,238 89,992 16,181
-------------- ------------- ------------------ ----------------- --------------
Net loss.................. $ (1,043,863) $ (1,296,344) $ (3,247,012) $ (6,937,664) $ (6,408,063)
-------------- ------------- ------------------ ----------------- --------------
-------------- ------------- ------------------ ----------------- --------------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have obtained financing through private placements
of equity securities and through equipment leases. To date, we have raised
approximately $37.5 million through the sale of common and preferred stock,
including the most recent sale of Class E convertible preferred stock for $16
million in March 1999. This amount also includes $4.4 million received from the
sale of Lycos common stock that we received in exchange for the issuance of our
Class A preferred stock. Upon completion of this offering we will receive $7.5
million from CNET and NBC Multimedia in payment for the exercise of their
warrants to purchase Class A common stock. As of March 31, 1999, we had
approximately $20.1 million in cash and cash equivalents. We have had
significant negative cash flows from operating activities for each fiscal and
quarterly period to date. Net cash used in operating activities was
approximately $439,000 for 1996, approximately $1.8 million for 1997,
approximately $4.8 million for 1998 and approximately $676,000 and $1.8 million
for the three months ended March 31, 1998 and 1999, respectively. Cash used in
operating activities consisted mostly of net operating losses, decreased by
issuances of stock for member acquisitions, non-cash compensation and
depreciation and amortization.
Net cash used in investing activities was approximately $135,000, $489,000
and $3.9 million for the years ended December 31, 1996, 1997, and 1998,
respectively, and approximately $125,000 and $1.4 million for the three months
ended March 31, 1998 and 1999, respectively. Net cash used in investing
activities consisted primarily of purchases of computer equipment and domain
name assets. Net cash provided by investing activities resulted from the sale
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.
We have entered into various capital leases for computer equipment. These
capital lease obligations resulted in non-cash financing activities aggregating
approximately $211,000, $750,000 and $1.4 million in 1996, 1997, and 1998,
respectively, and approximately $146,000 and $1.5 million for the three months
ended March 31, 1998 and 1999, respectively. The capital leases are with various
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institutions and have terms ranging from three to five years. The weighted
average interest rate under the leases was approximately 11.5% in 1998.
In May 1999, we entered into a $1.1 million equipment financing agreement.
This agreement requires 42 monthly payments of approximately $30,000. We made
the first payment in June 1999.
We have entered into various arrangements in connection with our domain name
assets. The obligations resulted in non-cash financing activities aggregating
approximately $227,000 and $169,000 in 1997 and 1998, respectively and
approximately $0 for the first quarter of 1999. These agreements have terms
ranging from two to seven years.
Our net cash provided by financing activities was approximately $700,000,
$3.0 million and $16.2 million during 1996, 1997 and 1998, respectively, and
$14.9 million for the first quarter of 1999. The principal component in 1996 was
the net proceeds from the issuance of Class A and B common stock to our
founders. The main component in 1997 was the proceeds from Class A preferred
stock. In 1998 the main components were the proceeds from Class A and C
preferred stock. In the first quarter of 1999, the main component was the
proceeds from the Class E preferred stock.
In April 1999, we purchased domain names which required cash payments of
$880,000. Of this amount, we paid $530,000 in May 1999 and we will pay the
remaining balance over the next 9 months. We also issued 130,000 shares of our
Class A common stock as consideration for these purchases.
On May 12, 1999, we entered into a non-binding commitment letter with B.A.K.
Jina International, Inc. to establish a strategic and commercial relationship.
B.A.K. Jina International, Inc. does business under the name Technology
Workshop. Under the agreement, we would pay $1,000,000 in cash and issue 80,083
shares of our Class A common stock in exchange for a less than 20% equity
interest in B.A.K. Jina International, Inc. We will assume that the value of the
shares of our Class A common stock that we issue to them is equal to the fair
value of our shares on the earlier of the date of issuance or the date on which
we enter into a binding commitment to issue the shares. We also agreed to
establish a technology licensing arrangement. Under this arrangement, B.A.K.
Jina International, Inc. would integrate its Internet facsimile technology in
our email service across our partner network. If requested by them, we would
provide our Webmail services on their Web site.
Under a letter agreement dated May 26, 1999, AT&T Corp. and Mail.com have
agreed to negotiate in good faith to complete definitive agreements to establish
a strategic relationship. Under the strategic relationship, AT&T Corp. would
offer Mail.com's email outsourcing services to AT&T Corp.'s new and existing
corporate customers who purchase Internet connection services from AT&T Corp.
subject to any conditions that may be included in the definitive agreements.
Mail.com's services would not contain any advertising or promotional messages.
Mail.com would agree not to integrate or customize its email outsourcing
technology for these services with any third party until December 31, 1999.
Mail.com would retain the right during this period, however, to distribute its
non-customized services to corporate customers both under its own brand name and
other parties' brand names if these other parties do not need to integrate or
customize Mail.com's technology. At AT&T Corp.'s request, Mail.com would also
agree to work with AT&T Corp. on a preferred basis to develop and integrate
technologies for services such as email, voicemail, telephony, paging and voice
conferencing. AT&T Corp. or Mail.com may terminate the letter agreement without
further liability if definitive agreements are not entered into on or before
July 15, 1999. Under the letter agreement, we issued warrants to purchase
1,000,000 shares of our Class A common stock at $11.00 per share. AT&T Corp. may
exercise the warrants at any time on or before December 31, 2000 regardless of
whether we enter into definitive agreements for the strategic relationship. We
will incur non-cash accounting charges of approximately $4.4 million in the
aggregate as a result of the issuance of these warrants. We will amortize these
charges over the term of any definitive agreement entered into with AT&T Corp.
If we do not enter into a definitive agreement, the non-cash charges will be
expensed in the fiscal quarter in which both parties have ceased negotiations
for the proposed strategic relationship.
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We believe that the net proceeds from the offering and the exercise of the
warrants held by CNET and NBC Multimedia, together with our 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.
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:
- internal information technology, including computers and software;
- non-information technology, including telephone systems and other
equipment that we use internally; and
- 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 October 1, 1999.
We estimate that our total cost to become Year 2000 compliant will not
exceed $200,000. We have allocated this amount as follows:
- $100,000 for a test system that is independent of our main production
system;
- $50,000 for unplanned hardware and software upgrades; and
- $50,000 for unplanned consulting and software development resources.
We have not incurred any capital costs regarding Year 2000 compliance to
date. We have focused our efforts on research and planning. As such, our
$200,000 budget, which has been allocated from existing funds, is still fully
available. 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
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to the Internet is compromised because of Year 2000 problems, our services may
not be available to or accessible by our members. See "Risk Factors--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
April 30, 1999, we have received notification from over 90% of our manufacturers
and suppliers and approximately 10% of our partners that they are either Year
2000 compliant or are taking necessary steps to become Year 2000 compliant. We
expect to receive certifications from the remaining manufacturers, suppliers and
partners by June 30, 1999. To the extent that vendors fail to provide
certification that they are Year 2000 compliant by July 31, 1999, we will
reevaluate our relationships. 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 October 1, 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.
We adopted the provisions of Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" in 1998. SFAS No. 130 requires us to
report in our financial statements, in addition to our net income (loss),
comprehensive income (loss). Comprehensive income or loss 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. There were no differences between our
comprehensive loss and net loss as reported.
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.
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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. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. We do not expect this statement to affect us, as
we do not have any derivative instruments or hedging activities.
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BUSINESS
Mail.com is a global provider of email services. At the end of 1998, we were
the sixth largest provider of emailboxes in the world, according to numbers
compiled by ELECTRONIC MAIL & MESSAGING SYSTEMS for its quarterly emailbox
census. Our basic email services are free to our members. We generate revenues
primarily from advertising related sales, including direct marketing and
e-commerce promotion. We also generate revenue from subscription services, such
as premium email addresses and increased storage capacity, and from email
service outsourcing fees. In April 1999, we delivered over 90 million email
messages to our members and delivered approximately 190 million advertisements.
INDUSTRY BACKGROUND
Use of the Internet and Internet related applications is growing rapidly.
The International Data Corporation (IDC) projects that the number of Web users
will increase from 142 million worldwide at the end of 1998 to 502 million by
the end of 2003.
GROWTH OF EMAIL
Email is becoming an increasingly important means of communication, with
both the number of email users and usage levels per individual projected to
increase significantly. Email has the highest usage of any service on the
Internet. In an October 1998 Jupiter Communications/NFO Interactive survey,
approximately 93% of respondents reported using email regularly. According to
the Jupiter/ NFO survey, there are over three times as many online users who
regularly use email as there are viewing or creating a personal homepage,
visiting a sports, music or games related site, or participating in online chat.
At the end of 1998, there were approximately 325 million emailboxes worldwide,
an increase of 64% from a year before according to a study by ELECTRONIC MAIL &
MESSAGING SYSTEMS. Forrester Research projects that daily global Internet email
traffic will increase from 100 million messages per day in 1996 to 1.5 billion
messages per day in 2002.
We believe the growth in email usage reflects several advantages over
traditional methods of communication. An email is easier to send than printed
correspondence and typically arrives in minutes. Email is easily distributed and
forwarded to many recipients or distributed to mailing lists. The electronic
format of email offers electronic filing, searching and editing capabilities not
generally available for faxes, voicemail and other forms of communications.
Email also allows for computer file attachments, permitting the recipient to
open and use files if they have the appropriate application software. In
addition, email can be integrated with other applications such as automated
scheduling, document sharing, and messaging applications such as email-to-fax
and email-to-pager.
We believe that Webmail accounts are a rapidly growing category of
emailboxes. According to ELECTRONIC MAIL & MESSAGING SYSTEMS, the number of
Webmail accounts increased from 2.4 million at the end of 1996 to 82.7 million
at the end of 1998. Webmail allows users to access their email through any
computer or other device that has a Web browser and access to the Internet. The
feature email users request most is universal access to their email services,
according to a survey conducted by Jupiter Communications/NFO Interactive.
EMERGENCE OF THIRD PARTY EMAIL SERVICE PROVIDERS
The email industry is highly fragmented with large numbers of ISPs,
businesses and schools maintaining their own systems. We believe that as the
complexity and usage of email increases there will be an increasing desire on
the part of Web sites, ISPs, small businesses and educational institutions to
outsource their email to third parties. We believe our economies of scale,
flexible technology platform and email focus will enable us to offer these
market segments an attractive outsourcing alternative, both domestically and
internationally.
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Prior to 1996, nearly all email services were provided directly by users'
employers, schools or ISPs. The emergence of Webmail has given third party
providers the ability to provide email services to any user with access to the
Web. This permits the development of large third-party email providers that
often have economy of scale advantages over traditional email providers,
including:
- the ability to spread costs of developing specialized email products and
services over large numbers of users;
- the ability to service many customer locations from one or more large
centralized data centers;
- sufficient global traffic to warrant 24 hour customer support and system
maintenance staff;
- volume purchasing of hardware, software, telecommunications and other
services;
- sufficient user base to attract general interest advertisers as well as
specialized advertisers seeking users in specific demographic targets; and
- sufficient user base to develop direct marketing and e-commerce
opportunities.
ADVERTISING, DIRECT MARKETING AND E-COMMERCE ON THE INTERNET
The Web is emerging as an attractive new medium for advertisers, offering
the ability to target advertising more effectively than many traditional media.
Jupiter Communications projects that the amount of advertising dollars spent on
the Internet is expected to increase from approximately $1.9 billion in 1998 to
$7.7 billion by 2002, a compound annual growth rate of 42%. By advertising on
the Web, advertisers have the ability to target their messages to specific
groups of consumers. The Web also allows advertisers to measure the number of
times that a particular advertisement has been presented and the responses to
the advertisement.
We also believe that the Web improves advertisers' direct marketing efforts,
which have been traditionally conducted through direct mail and telemarketing.
The interactive nature of the Web gives advertisers the potential to establish
dialogues and one-to-one relationships with potential consumers. Advertisers can
then make highly targeted product offers to consumers at the point of sale over
the Web at lower costs.
We believe that the growth in Web users and usage and the increasing
potential for e-commerce will continue to create growth in Web advertising and
direct marketing. The Web is becoming a vehicle for e-commerce, since online
purchases of goods and services can be less expensive and more convenient than
traditional transactions. We believe that as the volume of e-commerce
transactions expands, retailers will offer a greater variety of products and
services over the Web. Forrester Research has estimated that online sales for
retail goods other than automobiles totaled $4.8 billion in 1998 and projects
that these sales will increase to $50.2 billion in 2002.
BUSINESS STRATEGY
As a global provider of email services, we seek to grow our member base and
increase usage of our services by expanding our partner network, developing the
Mail.com brand and adding additional features to our services. We believe this
will provide us with greater advertising and other revenue opportunities and
economies of scale. Our strategies include:
- BUILDING OUR MEMBER BASE. We intend to add new members by expanding our
partner network to include additional Web sites and ISPs. We plan to use a
portion of the proceeds of this offering to launch marketing, promotional
and communications programs in an attempt to increase our brand
recognition, and to attract new partners and members. We will also seek to
acquire businesses with established user bases to which we can offer our
services.
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- INCREASING MEMBER USAGE. We believe that adding features to our services
will increase member usage and generate more page views and revenue
opportunities. For example, in 1999 we plan to introduce a spell checker
and integrated personal calendars with "to do" lists and event reminders.
We also plan to expand our portfolio of domain names from which members
can select their email addresses. We are designing our technology to be
the foundation for additional messaging services. Our long-term objective
is to become a member's communications portal on the Web by combining
email, fax, voicemail, calendars, address books and related tools into one
fully-integrated service.
- INCREASING OUR ADVERTISING RELATED REVENUE OPPORTUNITIES, INCLUDING DIRECT
MARKETING AND E-COMMERCE PROMOTION. As our number of active members
grows, we will seek to increase our advertising revenues by using the
demographic data we collect to offer advertisers access to larger and
increasingly segmented pools of members who fit their desired criteria. We
plan to offer advertisers a broader array of advertising formats and
tools. Examples include custom mailings to members who have requested
special advertiser offers and instant member polls regarding their planned
purchases, brand preferences, price sensitivity and other areas of
interest to our sponsors. We also intend to continue to develop additional
e-commerce relationships.
- EXPANDING SUBSCRIPTION, OUTSOURCING AND OTHER REVENUE OPPORTUNITIES. We
plan to offer additional premium services during 1999. MailPro, introduced
in March 1999, provides members with larger email storage and attachment
capacity and priority customer support. MailFax will permit faxing through
the Internet. We have designed our new subscription system to permit us to
add additional Internet messaging and related services on a regular basis.
In the fourth quarter of 1998, we started requiring fees from select Web
sites seeking our email services and intend to continue this practice in
the future where appropriate.
- ENTERING ADDITIONAL MARKET SEGMENTS. We also plan to offer outsourced
email services to small businesses, colleges and other organizations. In
addition, we plan to expand our international member base by adding
additional international partners and by providing new features such as
email language translation. We plan to add foreign language sites in
addition to the German, Italian, Spanish, French, Dutch and Japanese sites
we offer today. We will also continue to seek to acquire strategic
businesses and technology that will help us serve these markets.
OUR SERVICES
We offer our members traditional email services and Webmail services. The
majority of our members use our Webmail services. Webmail differs from
traditional email in several respects. Traditional email services are typically
provided by ISPs, employers and schools as part of a larger offering, usually
including Internet access. Traditional email users generally download their
email from their ISP or other source to their own computer. The user then reads
their email using a program provided by the ISP or a commercial program such as
Eudora, Microsoft Outlook or Netscape Messenger.
Our members sign up for our free Webmail services at one of our partners' or
our own Web sites. After a brief sign-up procedure, which includes providing
selected demographic data, a member selects an email address and establishes a
password. Our members are not required to install or set up any email software
on their computers. In order to access and read their email, our members can
visit the site at which they established service using any computer or other
device with Web access and a Web browser, such as Microsoft Internet Explorer or
Netscape Navigator. In addition, members store their email, address books,
folders and other data on our computers, rather than on the individual computer
they used for a particular visit. With our basic service, members perform all
their email tasks while on line and connected to the Web.
We have recently begun to offer a service which gives members access to
their existing ISP email accounts from any computer or other device with a Web
browser and access to the Internet. Customers of ISPs that offer our service can
access their ISP email by going to their ISP's Web site and signing in using
their existing ISP email address and password.
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We have developed a broad array of services to provide Internet messaging
capabilities. All of our services share a common foundation of technology,
features and applications. The primary services are described below.
<TABLE>
<CAPTION>
BASIC FREE SERVICES
<S> <C>
Universal access Universal access to all email sending and receiving
capabilities, including reply, forward, attachments, address
book, and storage folders, from any computer or other device
with a Web browser and access to the Internet. This permits
members to read and send email when they are away from home,
school or work. Universal access also allows for permanent
email addresses. Our members keep their email addresses even
if they change ISPs, leave school or switch jobs.
Email forwarding Set an account to forward email to any emailbox anywhere in
the world.
External mail collection Consolidate mail from up to five emailboxes into one Webmail
account. This feature permits a member with multiple
emailboxes to manage their email without having to check all
their emailboxes on a regular basis. Mail collection will
not work with any third party account that is protected by a
"firewall" or similar software that prevents us from
accessing the account. Many ISPs, schools and businesses use
software of this nature.
Multiple accounts Create separate email accounts for different family members
or colleagues even if they have only one Internet account.
Storage capacity Includes up to four megabytes of storage on our system.
Privacy Messages are stored centrally on Mail.com's system and are
accessed only after a password is verified. With traditional
email, messages are downloaded onto a user's computer, where
they could potentially be viewed by others who have access
to the computer.
Spam blocking Using proprietary software, we attempt to block unsolicited
bulk email (spam) from members' accounts.
PREMIUM PAY SERVICES
MailPro Increased storage capacity above the current limit of four
megabytes of data. Increased ability to send and receive
larger file attachments above the current limit of 500
kilobytes of data. Priority customer service.
Premium address Members can select a personalized email address from a list
of unique domain names owned either by us or by one of our
partners. Such popular email addresses include
@bruinsfan.com and @startrek.com.
Post Office Protocol The ability to download email to a computer, including a
("POP3") access laptop or other portable device. The member can then read
their email while offline, such as when traveling or
commuting, using an email program such as Microsoft Outlook,
Eudora or Netscape Messenger. This also permits members to
save telephone and ISP charges.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
OTHER SERVICES SCHEDULED TO LAUNCH IN 1999
Web-based calendar Universal access to manage calendar, address book and
(free service) electronic reminders of appointments, birthdays and
anniversaries.
MailFax (pay service) Send faxes through one universally accessible Web site.
</TABLE>
PORTFOLIO OF DOMAIN NAMES
We have a portfolio of approximately 1,200 domain names in a variety of
categories including professions, business, entertainment, places and sports. We
offer a portion of these domain names to our members as choices for email
addresses. Some domain names are offered for free to members and some are
offered on a subscription basis. On certain sites, members are offered one free
choice and on other sites members are offered multiple free and pay domain
names, up to a maximum of 300 domain names at a site. Often the free default
domain name offered on a partner's site is owned by the partner, along with a
few other domain names, and the rest are controlled by us. We do not offer the
same selection of domain names at all of our sites. We either own the domain
names in our portfolio or have the right to use them to offer email services. We
pay a royalty to the sellers or owners of approximately 10 domain names. Also,
we are required to pay to a third party 30% of the proceeds from the sale of any
of approximately 150 domain names.
We may also offer our domain names in the future as personalized addresses
for member homepages. Many of these domain names also present potential business
opportunities as independent Web sites. For example, we have licensed the domain
names London.com, Britain.com and England.com as Web site addresses for Web
sites being developed by the London Tourist Board. We have also entered into an
agreement with Southam, Inc., the parent of THE DAILY TELEGRAPH, a large English
daily newspaper, to offer email services to their newspaper readers using the
domain name London.com. We intend to acquire more domain names to appeal to
additional segments of users.
Below is a sample of our domain names by category.
<TABLE>
<S> <C> <C> <C>
- --------------------- --------------------- --------------------- ---------------------
MAIL PLACES PROFESSION AFFINITY
Mail.com USA.com Doctor.com SPORTS
Email.com Asia.com Lawyer.com Fan.com
Webmail.com Europe.com Engineer.com Footballmail.com
Post.com India.com Accountant.com Hockeymail.com
Faxmail.com London.com Consultant.com MUSIC
Schoolmail.com Rome.com Teacher.com Bluesfan.com
Workmail.com Madrid.com Journalist.com Jazzfan.com
</TABLE>
DISTRIBUTION NETWORK
We have built our member base by signing up members in partnership with
third party Web sites and ISPs as well as by signing up members directly through
our own Web sites. We generally share a portion of our revenues with our
partners in exchange for their making our service available to their users.
WEBMAIL FOR OUR WEB SITE PARTNERS
One of our core strategies since inception has been to offer our email
service in partnership with third party Web sites. These partner sites attract a
large number of visitors and provide a cost-effective way for us to rapidly add
new members to our service. We believe that when we launched our email service
for InfoSpace in 1996, we became the first party to outsource email for a Web
site. Since then we have built our partner network and as of May 25, 1999 we
offered our email service through 42 Web sites in diverse categories such as
technology, media, sports, entertainment and business.
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We enable our partners to offer Webmail without having to incur the expense
of developing and maintaining the necessary technology and infrastructure. We
provide the technology development, manage the hardware infrastructure, and
provide customer support. Since our technology allows for flexibility in the
design of Web pages, we can allow our partners to customize the look and feel of
the user interface to provide a better integration between the partner's Web
site and our email service.
By offering our Webmail service to their visitors, Web site partners seek to
increase the traffic at their site because they expect that visitors will return
to the site to check their email. By attaching customized tag lines to outgoing
emails that identify the partner's Web site, we believe our service can enhance
a partner's branding efforts. We believe that our selection of personalized
domain names can also help increase user loyalty if users choose an email
address that relates to the Web site's content. In addition, the demographic
data that we request at sign up can help a partner learn about its user base and
give the partner access to information that might otherwise be difficult to
obtain.
WEBMAIL FOR ISPS
During the second half of 1998, we used our expertise in outsourcing email
for Web sites to develop a proprietary Webmail service for the ISP marketplace.
In February 1999, we launched our service with Prodigy and have entered into
contracts with Cable & Wireless, EarthLink and GTE. Additionally, we entered
into an agreement with RemarQ, an outsourcer of newsreader services to
approximately 900 ISPs. RemarQ will seek to distribute our Webmail service to
their ISP customers in return for a share of the revenue generated.
According to ELECTRONIC MAIL & MESSAGING SYSTEMS, there were approximately
42 million emailboxes provided by ISPs worldwide at the end of 1998. We believe
that our Webmail service significantly enhances ISP email services by providing
their email users with universal email access.
ISP partners can offer their users Webmail without the cost of developing or
maintaining technology, infrastructure or customer support. As with our Web site
partners, ISPs seek to increase user loyalty and to generate additional
revenues. Additionally, ISPs may benefit from lower network costs. With Web
access to their ISP email accounts, users can more easily access their ISP email
during the workday. This may help ISPs lower network costs by shifting some user
demand away from peak evening times, when users are at home, resulting in a more
even distribution of usage throughout the day.
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As of May 25, 1999, our Web site and ISP partners and the Web site addresses
through which members could access our services were as follows.
<TABLE>
<CAPTION>
PARTNER ADDRESS DESCRIPTION
- ----------------------------- ----------------------------- -----------------------------
BUSINESS
<S> <C> <C>
CNN www.cnn.com World news
Lexis-Nexis www.lexis.com/xchange Legal content
Martindale-Hubbell www.martindale.com Legal content
SmartResume www.smartresume.net Career services
Standard & Poor's www.personalwealth.com Financial information
TECHNOLOGY PUBLISHERS
CMP Media www.techweb.com Technology
CNET www.cnet.com, www.news.com, Technology content and
www.download.com services
IDG www.idg.net International technology
content
MEDIA
Barbour/Langley www.cops.com COPS television show
NBC www.nbc.com National and affiliate TV
Paramount Entertainment www.startrek.com Online home of Star Trek
Rolling Stone, Tunes.com email.rollingstone.com Music industry content
Time Warner www.time.com General interest
E-COMMERCE
Alloy Online www.alloyonline.com Teen shopping catalog
Call Sciences www.istc.org International student travel
Club VDO www.vdo.net/clubvdo Streaming video
INTERNATIONAL
Lycos/Bertelsmann www.lycos.co.uk, British, Dutch, French,
www.lycos.nl, German, Italian and
www.lycos.fr, www.lycos.de, Spanish portal sites
www.lycos.it, www.es.lycos.de
G.r.R. Home Net to be launched Japanese portal
Futebol www.futeboltotal.com Brazilian soccer
Basis Technologies www.nichibei.net Japanese Webmail
Southam/Hollinger Digital www.canada.com Canadian portal
Southam/Daily Telegraph www.ukmax.com British newspaper
Associated New Media to be launched British portal
INTERNET
AltaVista www.altavista.com Portal
InfoSpace.com www.infospace.com Directory services
RemarQ www.remarq.com Newsgroup service
Snap www.snap.com Portal
INTERNET SERVICE PROVIDERS
Cable & Wireless to be launched Internet service provider
EarthLink to be launched Internet service provider
GTE www.gte.net (Webmail in Internet service provider
service; ISP service to be
launched)
Prodigy www.prodigy.com Internet service provider
SPORTS
CBS SportsLine www.sportsline.com Sports content
CNN/SI www.cnnsi.com Sports content
Denver Broncos www.denverbroncos.com Team site
FANSonly.com www.fansonly.com, College sports content
www.calbears.com,
www.goducks.com
NHL www.nhl.com Professional hockey
Philadelphia Eagles www.eaglesnet.com Team site
</TABLE>
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PARTNER ECONOMICS
While each Web site and ISP partner contract is different, contracts
typically run one to two years in length. In addition to assuming all costs
associated with providing the email service, we typically pay out a percentage
(generally up to 50%) of any advertising and subscription revenues attributable
to our Webmail service at the partner's site. Under some of our revenue-sharing
arrangements, our partners are entitled to receive guaranteed minimum amounts,
most often based upon the number of member registrations processed during the
applicable pay period. In addition, several contracts with specific promotional
commitments from our partners require us to pay upfront or scheduled fees. More
recently we have entered into contracts where we collect a fee for providing our
service. We currently have three such contracts.
We generally manage and sell the advertising on the Web sites. Under some of
our contracts, our partners assume responsibility for managing advertising sales
and pay us a percentage of the advertising revenues. A number of our partners do
not permit us to place advertisements in our email service at their site unless
we also place those advertisements throughout our network, which prevents us
from specifically targeting members who use those particular sites.
Members are generally given a choice of domain names when registering for
our service at a partner site. Typically, the free default domain name offered
on a partner's site is owned by the partner and the other selections are owned
by us. As of May 31, 1999, we estimate that approximately 24% of our total
emailboxes established, including emailboxes established by members that have
signed up at our own Web sites, have email addresses at partner-owned domains.
As of May 31, 1999, we estimate that approximately 17% of our total emailboxes
established are at the email.com domain. See "Risk Factors--The failure to renew
our partner contracts, which have limited terms, can result in the loss of
members and impair our credibility."
Upon expiration, a small number of contracts obligate us to relinquish
existing members with addresses at partner-owned domains, but most require us to
continue providing service to those members until the partner elects to
designate an alternative provider or provide service itself. By contrast, we
generally retain the member accounts with addresses at domains owned by us.
Thus, we can continue our efforts to generate revenues from these retained
accounts even if our partners choose not to extend or renew their contracts with
us. After their contract ends, many of our partners will have the option to
maintain a way for members who registered for our service to continue signing in
at their site. See "Risk Factors--Our contracts with our Web site partners
require us to incur substantial expenses;--The failure to renew our partner
contracts, which have limited terms, can result in the loss of members and
impair our credibility; and--Several of our most significant partner contracts
have expired or will soon terminate."
MAIL.COM BRANDED EMAIL
In addition to offering Webmail services through our partners, members can
sign up directly at our own Web sites. Since November 1996, members have
accessed www.iName.com to sign up for service. iName is short for "Internet
Name" and was the name of our company until January 1999, when we changed our
name to Mail.com, Inc. Beginning in May 1999, members can sign up for service at
www.Mail.com. In addition, we offer email service through other Web sites owned
by us, including www.USA.com.
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<PAGE>
REVENUES
We seek to generate revenues from advertising related sales, subscription
services and other revenue sources. Other sources include revenue from the sale
of domain names and revenue from email service outsourcing fees. The following
table presents our approximate revenues across these categories.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------- THREE MONTHS ENDED
MARCH 31,
1996 1997 1998 --------------------
-------------------- -------------------- --------------------- 1998
--------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advertising related $ -- -- $ -- -- $1,117,000 75% $ 10,000 13%
Subscription services 2,000 10% 61,000 35% 285,000 19 41,000 51
Other 17,000 90 112,000 65 93,000 6 29,000 36
--------- --- --------- --- ---------- --- --------- ---
Total Revenues $ 19,000 100% $ 173,000 100% $1,495,000 100% $ 80,000 100%
--------- --- --------- --- ---------- --- --------- ---
--------- --- --------- --- ---------- --- --------- ---
<CAPTION>
----------------------
<S> <C> <C>
Advertising related $1,007,000 85%
Subscription services 128,000 11
Other 51,000 4
----------- ---
Total Revenues $1,186,000 100%
----------- ---
----------- ---
</TABLE>
ADVERTISING RELATED SALES
Most of our revenues are generated from advertising related sales. We can
deliver advertisements to our members when they access our email service to read
and write messages and perform other email functions. Every page viewed during
an email session has the capability to carry one or more advertisements. These
may be in the form of a banner, typically across the top of each page, or
smaller rectangular buttons and portals, typically located in the left margin of
the Web pages. We currently do not deliver Web-based advertisements to our email
forwarding and POP3 service members. We sell to advertisers, direct marketers
and their agencies through our own sales force. Advertisers pay us based upon a
variety of delivery measurements. They pay us either a fixed amount for every
1,000 advertisements that we deliver to our members, or an amount for each time
one of our members clicks on their advertisement or responds to an offer. We
believe that our Webmail service has several benefits as an advertising vehicle
including:
- LOW COST CONTENT THAT IS MEANINGFUL TO OUR MEMBERS--The content of our Web
pages consists primarily of emails written by our members or their
friends, family and colleagues. Therefore, unlike online publishers, we do
not incur the cost of hiring writers or paying for content that is typical
of online publishers. Because most of our content is written specifically
for our members by their friends, family and colleagues, it is important
to them and it is likely that they will read it.
- DEMOGRAPHIC COLLECTION CAPABILITY--When members sign up for email accounts
we request, but do not verify, demographic data such as:
<TABLE>
<S> <C> <C> <C>
Zip code or postal code Date of birth Income range
Gender Occupation Street address
</TABLE>
- EFFECTIVE TARGETING--Since members must log in and thus identify
themselves in order to use the service, we can direct advertising to
individual members on every page they view after signing in. This enables
us to target advertising to individual members based on the demographic
data we have collected. As our member base grows, we can more finely
target using more demographic variables and still have target groups that
are large enough to be valuable to our advertisers.
- NETWORK SALES--Since our advertising opportunities are generated by
members across many partner Web sites as well as our own Web sites, we can
sell this space as an advertising network. Our advertising network
includes several recognizable brand name sites that advertisers
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<PAGE>
recognize and trust. Our advertisers can purchase targeted advertising
directed to members across our advertising network by making a single
purchase of advertising space from Mail.com.
We can also deliver advertisements to our members through our BARGAIN HUNTER
direct marketing program. Under this program, members can identify categories of
products and services of interest to them and request that notices be sent to
their emailbox about special opportunities, information and offers from
companies in those categories. Current categories include:
<TABLE>
<S> <C> <C> <C> <C> <C>
technology software sports finance family/kids
hardware entertainment shopping auto home
</TABLE>
We send messages and special offers on behalf of our advertisers, who pay
for one-time access to the list. Our mailing list is an "opt-in" list in that
members must affirmatively check a box to indicate interest. We believe email
"opt-in" lists generally command higher advertising rates than "opt-out" lists.
We also generate advertising related revenues by facilitating transactions
for third party e-commerce sites. Examples include the promotion of CD sales for
N2K/Music Boulevard, which recently merged with CDnow, Inc., the promotion of
video tape sales for BigStar, and the promotion of credit cards for First USA.
To date, our e-commerce partners have paid upfront fees to secure exclusive
promotional rights within their product categories on the Mail.com network. They
also may pay acquisition fees on a per customer basis or commissions on the sale
of products or services. The agreements we have entered into so far typically
run from six months to three years in length.
We believe that over time we may choose to sell products other than email
services directly to our members. We believe that e-commerce is a natural
supplement to our service. Through March 1999, approximately 40,000 members have
provided us credit card information for subscription services. We expect this
number to grow as we offer more subscription services to a larger membership
base. Once we have collected a member's credit card information and billing
address, subsequent purchases should be greatly simplified. A portion of the
proceeds from this offering may be used to expand our staff to manage in-house
and third party e-commerce opportunities.
Since we commenced delivering advertisements in 1998, approximately 100
companies have advertised on our network. Selected advertisers included:
<TABLE>
<S> <C> <C> <C> <C> <C>
BonusMail GMER H&R Block MiningCo.com N2K/Music Boulevard
CMP Media GoTo.com Infobeat MSN.com Spree.com
First USA GTE iVillage Netscape Uproar
</TABLE>
SUBSCRIPTION SERVICES
While the majority of our members sign up for free service, we also generate
revenues from upgraded email services. Until March 10, 1999, we charged $14.95,
$23.95, $36.95 and $49.95 for one-year, two-year, five-year and lifetime
subscriptions to our premium names, and we charged $23.95, $37.95, $59.95, and
$79.95 for one-year, two-year, five-year and lifetime subscriptions to our POP3
service. Commencing March 10, 1999, we changed our rates to $2.95 per month or
$29.95 for a one-year subscription to our premium names and $3.95 per month or
$39.95 for a one-year subscription to our POP3 service. We started offering
MailPro on March 10, 1999. We charge $2.95 per month or $29.95 for a one-year
subscription to our MailPro service.
Historically, we offered members a free one month trial for premium
services, without collecting credit card information in advance. At the end of
the trial period, we had great difficulty collecting the necessary billing
information, and as a result a substantial majority of premium members did not
pay for their services. In addition, for those members who did provide credit
card information, we
52
<PAGE>
experienced a high fraud rate because of limitations in our billing technology.
We are currently installing the Portal billing system and have begun requiring
credit card information at the time a member signs up for a subscription
service. We believe our new billing system will improve our tracking, reporting,
and fraud identification abilities, as well as allow us to terminate unpaid
premium member services. See "Risk Factors--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."
OTHER REVENUE SOURCES
To date, our other revenue sources have represented a small portion of total
revenues. We have generated other revenue primarily from the sale of domain
names.
We are also positioning Mail.com to take advantage of email service
outsourcing revenue opportunities. We believe that organizations, particularly
small businesses and schools, will increasingly seek to outsource their email
requirements. We believe that we will have the scale to provide these
organizations with better service at a lower cost than they could provide
themselves. We do, however, expect that it will be more difficult to enter into
outsourcing agreements with schools and small businesses than it has been with
Web sites. This is because schools and small businesses may already have
established internal networks on which they are dependent and may have higher
security concerns.
MARKETING
We market to members, partners and advertisers. Our primary marketing
objectives are to:
- drive new signups
- promote higher usage
- build our brand
- recruit new partners
- support advertising sales
We have marketed to potential and existing members primarily through our
partner Web sites. At our partner Web sites we use a combination of buttons,
links, sign-up portals and banners to promote our email service. We intend to
use welcome emails and regular communications with our members to promote new
features, special offers and contests and provide a mechanism for customer
feedback.
An important brand-building vehicle, "Powered by Mail.com", is displayed on
the Webmail interface across our partner Web sites. We also intend to use
Web-based and traditional advertising to build the Mail.com brand and to acquire
new members.
We use business-to-business print and online advertising to help attract new
Web site and ISP partners and retain existing relationships. We also plan to
direct market to ISPs, small businesses and educational institutions using both
online and traditional methods of direct marketing, such as telemarketing and
mailings, to support our sales efforts.
We engage in trade advertising and participate in trade shows to attract new
advertisers. In addition, we use targeted sales materials and direct marketing
efforts to promote our network to potential advertisers.
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<PAGE>
CUSTOMER SUPPORT
Our members are very valuable to us and to our partners. Our goal is to
provide quality customer support through our online support areas on our Web
sites and through a dedicated customer support team. During March 1999, the
average response time for all non-billing inquiries was less than two hours. We
believe this positions us as a leader in Internet customer support. Only
approximately 7% of Web sites surveyed in a February 1999 Jupiter Communications
report were able to respond to customer queries within 24 hours with a
personalized, signed message.
ONLINE SUPPORT
We have created and frequently update an online searchable knowledge base
with over 400 Web pages that allows members to find the answers to many of their
questions about our services. Members can find answers by viewing our frequently
asked questions or through the use of our full text search function. We have
also developed a facility to enable members to help themselves with requests for
forgotten passwords. We believe that approximately 80% of our members who seek
our help are able to find answers using our online support area and without
having to contact our customer service department.
CUSTOMER SUPPORT TEAM
Our customer service department is available by email or telephone 24 hours
a day, seven days a week and is staffed by experienced technical support
engineers and customer service representatives. We do not currently offer a toll
free number for customer support. Both phone and email interactions with
customers are randomly monitored to ensure consistent quality and accuracy. The
majority of customers who contact our customer service department use the
customer service request form on our Web site or send us an email. When members
submit a request electronically, they receive a confirmation email with a
tracking number. Our customized email-tracking system allows us to access a full
history of each customer service request, prioritize issues based on customer
status, classify issues based on the topic and route issues to customer service
representatives depending upon the particular type of issue.
TECHNOLOGY
Our Webmail technology has evolved rapidly since we commenced commercial
operations. Our hardware network has grown from one computer at the end of June
1996 to approximately 250 computers at the end of March 1999. These computers
run an extensive library of proprietary software we have developed to provide
member and partner services. Currently, we are focused on building an integrated
hardware and software network that is reliable and can be expanded to support
tens of millions of members. We cannot be sure that our technology will operate
adequately at these levels.
HARDWARE NETWORK
Our hardware network is designed to provide high availability and
performance and to accommodate rapid growth of our member base. The six primary
elements of our hardware infrastructure are:
- Mail transfer machines: Redundant banks of computers receive, transfer and
send email on behalf of our members.
- Web page servers: Redundant banks of computers generate customized Webmail
pages for each member and partner.
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- Database machines: Member account data is stored in disk storage arrays.
The data is managed using database software.
- Email storage: Members' email messages are stored separately from their
account data in disk storage arrays.
- Bill presentment servers: Redundant computers run the secure on-line
billing system.
- Data network: Our computer network uses high speed routers and switches
and is connected to the Internet through high capacity links from BBN
Planet, MFS and UUNET.
For our core infrastructure, we use industrial grade hardware from leading
manufacturers. Generally, our hardware infrastructure is built using redundant
components. However, some components, including the database and email storage
machines, are not currently redundant. A failure of any of these components
could disrupt our service until a replacement component is received and
installed. We have experienced service outages resulting from failures in these
systems. We plan to install additional computer hardware to reduce the impact of
any future computer system failures. Our member account data is saved to tape
and stored off site on a daily basis. Our member emails are stored on redundant
hard drives within our email storage machines in case a hard drive should fail.
However, we cannot be sure that we will be able to restore member data in the
event of a hardware failure or that a restoration can be completed on a timely
basis. See "Risk Factors--Our computer systems may fail and interrupt our
service."
SOFTWARE
No commercial software is available to adequately meet the demands of our
large member base and diverse partner network. As a result, we have developed a
substantial amount of software internally and will attempt to develop additional
software. Where available, we use software from off-the-shelf software suppliers
such as Oracle. Examples of our software related developments include:
- Webmail technology which offers improved response times to members and
gives us the ability to deploy new features in less time.
- A customizable Webmail interface that integrates with the technology and
branding of our partners' Web sites. This allows members a more seamless
experience in signing in and navigating.
- A design for secure email. We have applied for a related patent.
DATA CENTER
Our computers are located in Telehouse International's commercial data
center housed in the building adjacent to our headquarters in lower Manhattan.
Telehouse provides 24-hour security, fire protection, computer-grade air
handling and backup power sources. We intend to establish a second data center
outside of New York City. When completed, this data center will provide
additional capacity and will serve as a backup site in the event of an emergency
at our primary data center.
OPERATIONS
Our operations group monitors our sites 24 hours a day, seven days a week.
Systems operators use automated monitoring tools to continuously test site
performance and repeatedly perform manual checks of major functions.
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UNSOLICITED BULK EMAIL (SPAM)
Unsolicited bulk email, or spam as it is often called, is a significant
problem for any provider of email services. To address this chronic problem, we
have developed proprietary software and have implemented internal procedures for
detecting and terminating accounts engaged in this activity. We have full time
staff dedicated to the detection and reduction of spam.
SECURITY
While no computer system is impenetrable, our system is designed to guard
against intruders who might seek to either damage or slow our service, or gain
access to our users' accounts or information. We have also implemented automated
monitors that are designed to provide an early warning if attempts are made to
breach our systems.
COMPETITION
We compete for members, partners and advertisers.
Members typically receive an emailbox from their employer, school or an ISP
such as AOL, Excite@Home or Microsoft's MSN network. In addition, they can
subscribe to email services at most of the major Web sites. The leading sites
offering email services include Microsoft's MSN network, which claims to have 40
million Web-based emailboxes at its Hotmail site, Yahoo!, Excite, Disney's GO
Network, which includes InfoSeek, and the Lycos Network. Alternatively, members
can sign up for email services through Web sites that have partnered with our
outsourcing competitors. For example, Netscape offers email at its Web site
outsourced from USA.NET. Microsoft and Netscape have modified their browsers to
promote their email offerings to users, and Compaq and other major PC
manufacturers now include keyboard buttons linking users directly to their email
offerings. Users that do not have Internet access can also receive free email
services from Juno Online Services. Our success in attracting members over these
competitors is highly dependent on our partners' level of visitor traffic and
their commitment to promoting our email service.
We compete for Web site and ISP partners with USA.NET, Bigfoot, CommTouch,
Critical Path and Lycos' WhoWhere subsidiary. In offering outsourcing services
to business customers, schools and other organizations, we expect to compete
with AT&T Mail, MCI Mail and Fabrik and major ISPs such as Netcom. In addition,
companies such as Software.com, Microsoft, Netscape, Lotus, Oracle and Sun
Microsystems are currently offering email software products that would permit
potential partners to provide their own email services, as opposed to through an
outsourcer. Success in attracting new partners and outsourcing customers is
dependent on scale, ability to rapidly deploy services, partner portfolio, and
pricing structure. Some potential partners and outsourcing customers may elect
not to outsource for other strategic reasons such as a need for direct control
over the user experience or a desire to integrate their email service with other
service offerings.
We compete for Internet advertising revenues with large Web publishers and
Web portals, such as America Online, Excite@Home, Lycos, Yahoo!, Disney's GO
Network and Microsoft. Further, we compete with a variety of Internet
advertising networks, including DoubleClick and 24/7 Media. We also encounter
competition from a number of other sources, including advertising agencies and
other companies that facilitate Internet advertising. We also compete with
traditional advertising media, such as print, radio, television and outdoor
advertising for a share of advertisers' total advertising budgets.
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. Many of our current and potential competitors have longer operating
histories, larger
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customer bases, greater brand recognition and significantly greater financial,
marketing and other resources than we do. Some of our competitors have the
ability to bundle a variety of Web-based services such as Internet access,
browser software, homepage design, hosting and calendars in addition to email
services. The ability of these competitors to offer a suite of services may give
them an advantage over us. Smaller companies may enter into strategic or
commercial relationships with larger, more established and well financed
companies. For example, Hotmail was acquired by Microsoft, and WhoWhere was
recently acquired by Lycos. Further, some of our competitors may offer services
similar to ours at a lower price or for free. In addition, new technologies and
the expansion of existing technologies may increase competitive pressures on us.
We cannot be sure that we will be able to compete successfully against our
current or future competitors or that competition will not have a material
adverse effect on our business, results of operations and financial condition.
See "Risk Factors--Several of our competitors have substantially greater
resources, longer operating histories, larger customer bases and broader product
offerings."
INTELLECTUAL PROPERTY
Our intellectual property is among our most valued assets. We protect our
intellectual property, technology and trade secrets primarily through
copyrights, trademarks, trade secret laws, restrictions on disclosure and other
methods. Parties with whom we discuss, or to whom we show, proprietary aspects
of our technology, including employees and consultants, are required to sign
confidentiality and non-disclosure agreements. If we fail to protect our
intellectual property effectively, our business, operating results and financial
condition may suffer. In addition, litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others.
We have developed proprietary technology to offer our email services and to
allow us to deliver specific advertisements targeted to members based upon
demographic data that we have collected. We restrict access to and distribution
of our technology. We do not presently license our technology to third parties.
Notwithstanding these protections, there is a risk that a third party could
copy or otherwise obtain and use our technology or trade secrets without
authorization. In addition, others may independently develop substantially
equivalent technology. The precautions we take may not prevent misappropriation
or infringement of our technology.
We jointly own our member database with our respective partners. This
database includes contact and demographic information submitted by our members
when they sign up for email service. Any third parties receiving member contact
and demographic information are required to sign confidentiality, non-disclosure
and use restriction agreements, committing them to adhere to our privacy policy
and prohibiting them from using the contact and demographic information in any
way except as we expressly specify. In the absence of these agreements, current
law provides inadequate protection. As a result, we will have difficulty
protecting our rights if any of the information contained in our member database
is pirated or obtained by an unauthorized party.
In July 1998, we submitted a provisional application to the U.S. Patent and
Trademark Office for a secure email system. We conduct an ongoing review of all
of our proprietary technology to determine whether other aspects of our
technology should be patented. We have a registered trademark for iName, our
predecessor company name. In January 1999, we filed a trademark application with
the U.S. Patent and Trademark Office for Mail.com.
We own or have the rights to approximately 1,200 Internet domain names,
approximately 600 of which we currently use to provide email addresses to our
members. All of our domain names are registered with Network Solutions, Inc.
under a registration agreement which is renewed annually for a
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fee of $35.00 per domain name. We try to review all domain names to ensure that
they are not subject to claims of ownership and other legal challenges by
holders of any trademarks. Our rights to our domain names have been challenged
by third parties in the past and we expect they will be challenged in the
future. We will seek to protect by all appropriate means our rights to our
domain names.
We incorporate licensed, third-party technology in some of our services. In
these license agreements, the licensors have generally agreed to defend,
indemnify and hold us harmless with respect to any claim by a third party that
the licensed software infringes any patent or other proprietary right. The
outcome of any litigation between these licensors and a third party or between
us and a third party may lead to our having to pay royalties for which we are
not indemnified or for which such indemnification is insufficient, or we may not
be able to obtain additional licenses on commercially reasonable terms, if at
all. In the future, we may seek to license additional technology to incorporate
in our services. The loss of or inability to obtain or maintain any necessary
technology licenses could result in delays in introduction of new services or
curtailment of existing services, which could have a material adverse effect on
our business, results of operations and financial condition.
To the extent that we license any of our content from third parties, our
exposure to copyright infringement actions may increase because we must rely
upon these third parties for information as to the origin and ownership of the
licensed content. We generally obtain representations as to the origins and
ownership of any licensed content and indemnification to cover breaches of any
representations. However, such representations may be inaccurate or any
indemnification may be insufficient to provide adequate compensation for any
breach of these representations.
We cannot assure you that infringement or other claims will not be asserted
or prosecuted against us in the future or that any future assertions or
prosecutions will not materially adversely affect our business, results of
operations and financial condition. It is also possible that claims could be
asserted against us because of the content of emails sent over our system. Any
of these claims, with or without merit, could be time-consuming, result in
costly litigation and diversion of technical and management personnel or require
us to develop non-infringing technology or enter into royalty or licensing
agreements. Any royalty or licensing agreements, if required, may not be
available on terms acceptable to us, if at all. In the event of a successful
claim of infringement against us and our failure or inability to develop
non-infringing technology or license the infringed or similar technology on a
timely basis, our business, results of operations and financial condition could
be materially adversely affected.
MAIL.COM EMPLOYEES
As of May 31, 1999, there were 125 people dedicated full-time to our
business. Of these personnel, 58 persons worked in technology, product
development and Web production; 18 persons worked in sales, marketing and
business development; 16 persons worked in customer support; 28 persons worked
in operations and administration; and 5 persons were executives. We have never
had a work stoppage and no personnel are represented under collective bargaining
agreements. We consider our employee relations to be good.
We believe that our future success will depend in part on our continued
ability to attract, integrate, retain and motivate highly qualified sales,
technical, and managerial personnel, and upon the continued service of our
senior management and key sales and technical personnel. To help us retain our
personnel, all of our full-time employees have received stock option grants. To
increase our geographic reach and ability to attract talented employees, we have
opened a technology office in Morristown, New Jersey and a sales office in San
Francisco, California. None of our personnel are bound by employment agreements
that prevent them from terminating their relationship at any time for any
reason.
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Competition for qualified personnel is intense, and we may not be successful
in attracting, integrating, retaining and motivating a sufficient number of
qualified personnel to conduct our business in the future. See "Risk
Factors--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."
FACILITIES
Our headquarters are located in leased space at 11 Broadway in lower
Manhattan consisting of approximately 19,200 square feet. We have approximately
two years remaining on our original five-year lease which ends June 30, 2001. We
have a one-time option to terminate the lease in September 1999. We have leased
an additional 2,576 square feet on the second floor beginning May 1, 1999 and an
additional 5,494 square feet on the second floor beginning September 1, 1999. We
believe there is enough vacant space available in our building and the
neighboring area for us to expand our operations as necessary. Our landlord is
entitled to relocate us to a similar space for any reason upon 60 days written
notice. Our landlord may cancel our lease upon 90 days written notice if it
plans to demolish our building.
We have an additional technology development team located in approximately
2,400 square feet of leased space in Morristown, New Jersey. We have a
three-year lease that ends on September 14, 2001 and we have the right to
terminate this lease at any time after the first year with three months notice.
In addition we have an advertising sales team in approximately 800 square
feet of leased space in San Francisco, California.
Our data center is housed in approximately 1,200 square feet of space leased
from Telehouse International, a commercial data center in lower Manhattan.
Telehouse provides 24 hour security, fire protection, computer grade air
handling, and backup power facilities. Under its current terms, the lease
covering this facility terminates on June 14, 2001.
We have leased 560 square feet at Exodus Communications, Inc. in Jersey
City, New Jersey that we plan to use as an additional data center. Exodus
provides 24 hour security, fire protection, computer grade air handling and
backup power facilities.
LEGAL PROCEEDINGS
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of business. These include
claims of alleged infringement of third-party trademarks, copyrights, domain
names and other similar proprietary rights. These claims, even if not
meritorious, could require us to expend significant financial and managerial
resources. We believe that there are no claims or actions pending or threatened
against us that will have a material adverse effect on our business, results of
operations or financial condition.
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MANAGEMENT
The following table identifies the executive officers and directors of
Mail.com:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Gerald Gorman....................... 44 Chairman and Chief Executive Officer
Gary Millin......................... 29 President, Director
Lon Otremba......................... 42 Chief Operating Officer, Director
Charles Walden...................... 45 Executive Vice President, Technology, Director
Debra McClister..................... 44 Executive Vice President, Chief Financial Officer
David Ambrosia...................... 42 Executive Vice President, General Counsel
William Donaldson................... 66 Director
Stephen Ketchum..................... 37 Director
Jack Kuehler........................ 65 Director
John Whitman........................ 54 Director
</TABLE>
The following table identifies other key employees of Mail.com:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Michael Agesen...................... 36 Vice President, Business Development
Catherine Billon.................... 34 Vice President, Marketing and Partner Development
Courtney Nichols.................... 28 Vice President, Advertising Sales
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
GERALD GORMAN--CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Mr. Gorman has served as our Chairman since founding our company in December
1995 and as our Chief Executive Officer since February 1997. Prior to founding
Mail.com, Mr. Gorman spent 12 years in the Investment Banking Division of
Donaldson, Lufkin & Jenrette Securities Corporation where he founded and managed
the Satellite Financing Group. Mr. Gorman also held positions at General
Electric Capital Corporation from 1983 to 1985 and at Utah International from
1982 to 1983. Mr. Gorman received his Bachelor of Mechanical Engineering degree
from Melbourne University and his M.B.A. from Columbia University.
GARY MILLIN--PRESIDENT, DIRECTOR
Mr. Millin has served as our President and as a member of our board of
directors since founding our company in December 1995. Prior to founding
Mail.com, Mr. Millin spent three years at the venture capital firm Consumer
Venture Partners (CVP) from 1991 to 1994. Mr. Millin received his B.S. in
Economics from the Wharton School and his M.B.A. from Harvard Business School,
where he was a Baker Scholar.
LON OTREMBA--CHIEF OPERATING OFFICER, DIRECTOR
Mr. Otremba has served as our Chief Operating Officer and as a member of our
board of directors since October 1997. Prior to joining Mail.com, Mr. Otremba
served as Executive Vice President, Network Sales at CNET from July 1994 to
August 1997. Prior to joining CNET, Mr. Otremba served as Associate Publisher of
PC MAGAZINE from 1991 to 1993. He also held positions at CMP Media from 1987 to
1990, Lebhar-Friedman from 1982 to 1987 and Procter & Gamble from 1980 to 1981.
Mr. Otremba received his B.A. in Economics from Michigan State University.
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CHARLES WALDEN--EXECUTIVE VICE PRESIDENT, TECHNOLOGY, DIRECTOR
Mr. Walden has served as our Executive Vice President of Technology and as a
member of our board of directors since February 1998. Before joining Mail.com,
Mr. Walden worked for Dialogic Corporation from 1985 to 1997 in several
capacities, including Director of Software Development, Vice President of
Engineering and, during his last two years, as Chief Technical Officer. Mr.
Walden received his B.A. in Computer Science from the University of Texas at
Austin.
DEBRA MCCLISTER--EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Ms. McClister has served as our Executive Vice President and Chief Financial
Officer since July 1998. Prior to joining Mail.com, Ms. McClister held a variety
of executive positions at Philips Media, and most recently served as Chief
Operating Officer of Philips Media Software from 1996 to 1997. She was the
Senior Vice President and Chief Financial Officer for Philips Media, North
America from 1995 to 1996, Corporate Vice President and Controller for Philips
Electronics, North America from 1988 to 1995 and she held various positions at
Philips Electronics from 1984 to 1988. Ms. McClister also worked in financial
management for Hitachi America from 1981 to 1984. Ms. McClister received her
B.S. in Commerce from Rider University and is a Certified Public Accountant.
DAVID AMBROSIA--EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
Mr. Ambrosia joined Mail.com as our Executive Vice President and General
Counsel in May 1999. Prior to joining Mail.com, Mr. Ambrosia was engaged in the
private practice of law in the field of corporate law with an emphasis on
securities offerings and mergers and acquisitions. From January 1990 through
June 1999, he was a partner at Winthrop, Stimson, Putnam & Roberts. From
September 1982 until December 1989, he was an associate at Winthrop, Stimson,
Putnam & Roberts. Mr. Ambrosia received his B.S. from the School of Industrial
and Labor Relations at Cornell University, his M.B.A. from the Johnson Graduate
School of Management at Cornell University and his J.D. from the Cornell Law
School.
WILLIAM DONALDSON--DIRECTOR
Mr. Donaldson has been a member of our board of directors since April 1998.
Mr. Donaldson serves as Senior Advisor to Donaldson, Lufkin & Jenrette, Inc.,
which he co-founded in 1959, serving as its Chief Executive Officer until 1973.
From 1991 to 1995, he was Chairman and Chief Executive Officer of the New York
Stock Exchange. He founded the private investment firm Donaldson Enterprises in
1981 and served as its Chairman until 1990. In 1975, Mr. Donaldson was named
founding Dean and Professor of Management at the Yale Management School and in
1973 he was appointed U.S. Undersecretary of State and subsequently served as
Counsel to Vice President Nelson Rockefeller. Mr. Donaldson is a director of
Aetna, Inc., the Philip Morris Companies and Bright Horizons Family Solutions.
He received his B.A. from Yale University and his M.B.A. with distinction from
the Harvard Business School.
STEPHEN KETCHUM--DIRECTOR
Mr. Ketchum has been a member of our board of directors since May 1997. Mr.
Ketchum is a Senior Vice President of Donaldson, Lufkin, & Jenrette Securities
Corporation's Satellite Financing Group. Prior to joining Donaldson, Lufkin &
Jenrette Securities Corporation in 1990, Mr. Ketchum was employed at Dean Witter
Reynolds. Mr. Ketchum serves on the board of Manufacturer's Services Limited, a
contract manufacturing company based in Boston. Mr. Ketchum received his B.A. in
Finance and Marketing from New England College and his M.B.A. from the Harvard
Business School.
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JACK KUEHLER--DIRECTOR
Mr. Kuehler has been a member of our board of directors since April 1998.
Mr. Kuehler retired in August 1993 as Vice Chairman and a director of
International Business Machines Corporation, having held various positions since
joining IBM in 1958. Prior to his appointment as Vice Chairman of IBM in January
1993, Mr. Kuehler served as President from 1989 to 1993 and as Executive Vice
President from 1987 to 1988. Mr. Kuehler is a director of Aetna, Inc., In Focus
Systems, Inc., Olin Corporation and The Parsons Corporation. He is a member of
the National Academy of Engineering, a fellow of the Institute of Electrical and
Electronics Engineers, Inc. and a fellow of the American Academy of Arts and
Sciences.
JOHN WHITMAN--DIRECTOR
Mr. Whitman has been a member of our board of directors since July 1998. Mr.
Whitman has been a Managing Partner of Sycamore Ventures since 1995. Prior to
joining Sycamore, Mr. Whitman was an advisor to several organizations, including
the Ford Motor Company, AT&T Venture Corp., Coopers & Lybrand, the United States
Agency for International Development, and Prudential Securities Inc. From 1987
through 1990, Mr. Whitman was Chairman and Chief Executive Officer of
Prudential-Bache Interfunding Inc., and from 1972 to 1987 he held various
positions at Citicorp and Citicorp Venture Capital, Ltd. Mr. Whitman sits on the
boards of directors of Comprehensive Automotive Recycling Services Inc., Wilson
Haas Beverages, MacDonald Communications Corp., and Global Household Brands, and
serves as a member of the merchant banking firm Cross Border L.L.C. and as a
member of the Investment Committee of Spartek Emerging Opportunities of India
Fund. Mr. Whitman received his B.A. from Yale University and his M.B.A. from the
Harvard Business School.
KEY EMPLOYEES
MICHAEL AGESEN--VICE PRESIDENT, BUSINESS DEVELOPMENT
Mr. Agesen, our Vice President of Business Development, has been with us
since November 1998. Prior to joining Mail.com, Mr. Agesen was Vice President of
Affiliate Development at Snap from March 1997 to November 1998. Mr. Agesen was
Vice President of Licensing and Business Development at CNET from December 1995
until March 1997. From 1992 to 1995, Mr. Agesen was Product Marketing Manager
for AT&T WorldNet and AT&T Consumer Interactive Services. Mr. Agesen received
his B.A. from the University of Virginia.
CATHERINE BILLON--VICE PRESIDENT, MARKETING AND PARTNER DEVELOPMENT
Ms. Billon, our Vice President of Marketing and Partner Development, has
been with us since October 1998. Prior to joining Mail.com, Ms. Billon was Vice
President of International Sales and Marketing at the Discovery Channel from
1993 to 1998. Ms. Billon worked in the consumer marketing group at TIME magazine
from 1989 to 1993. Ms. Billon worked at Columbia TriStar International Video
from 1988 to 1989 and at the National Geographic Society from 1985 to 1987. Ms.
Billon received her B.A. in International Relations from Brown University, and
her M.B.A. from Columbia University.
COURTNEY NICHOLS--VICE PRESIDENT, ADVERTISING SALES
Ms. Nichols, our Vice President of Advertising Sales, has been with us since
February 1998. Prior to joining Mail.com, Ms. Nichols was a Sales Manager for
CNET from January 1997 to January 1998. From 1995 to 1997, she served as
Director of Sales at Interactive Imaginations, now 24/7 Media. From 1993 to
1995, she served as a liaison to General Motors' board of directors and worked
in GM's Treasurer's Office. Ms. Nichols received her B.A. from Davidson College.
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DIRECTOR TERMS
Members of the board of directors, other than the members of the initial
board of directors, shall be elected at the annual meeting of stockholders and
shall hold office until their successor is elected and qualified or until their
earlier resignation or removal.
BOARD COMMITTEES
The compensation committee is currently composed of three outside directors:
William Donaldson, Stephen Ketchum and John Whitman. Under agreements with
stockholders who formerly held shares of our Class A and Class C preferred
stock, we are required to elect at least two non-management directors to the
three person compensation committee.
The members of the audit committee of the board of directors are Stephen
Ketchum, John Whitman and Gary Millin. The audit commitee will review, act on
and report to the board of directors with respect to various auditing and
accounting matters, including the recommendation of Mail.com's auditors, the
scope of the annual audits, fees to be paid to the auditors, the performance of
Mail.com's independent auditors and the accounting practices of Mail.com.
DIRECTOR COMPENSATION
Other than reimbursing directors for customary and reasonable expenses of
attending board of directors or committee meetings, Mail.com does not currently
compensate directors who are part of the management team. However, in 1997 and
1998, two outside, non-management directors were granted options as compensation
for their serving as board members. In 1997, Mr. Donaldson and Mr. Kuehler were
each granted options to purchase 100,000 shares of Class A common stock at an
exercise price of $1.00, vesting monthly for one year, from May 1997 through May
1998. In May 1998, these two directors were each granted options to purchase
25,000 shares of Class A common stock at an exercise price of $3.50, vesting
monthly for one year, from May 1998 to May 1999. On March 1, 1999, four outside,
non-management directors were granted options for their service. Mr. Kuehler and
Mr. Donaldson were each granted options to purchase 20,000 shares of Class A
common stock at an exercise price of $5.00 per share, vesting on a monthly basis
for one year from May 1999 through May 2000. Mr. Ketchum and Mr. Whitman were
each granted options to purchase 10,000 shares of Class A common stock at $5.00
per share, vesting on a monthly basis for one year from March 1999 through March
2000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mail.com's compensation committee is comprised of three non-management
directors. All decisions relating to the compensation of Mail.com's executive
officers are made by the compensation committee and Gerald Gorman.
EMPLOYMENT, SEVERANCE AND OTHER ARRANGEMENTS
Mail.com's current employment agreement with Gerald Gorman is dated April 1,
1999. The agreement provides that Mr. Gorman is to receive a base salary of
$200,000 per year. Mr. Gorman's base salary and bonus amount are adjustable on
an annual basis at the sole discretion of the compensation committee.
Additionally, the agreement provides that after Mr. Gorman leaves our employ, he
will not work for a competitor during the two year period following his
employment or disclose any of our confidential information.
Mail.com's current employment agreement with Gary Millin is dated April 1,
1999. Under this agreement, Mr. Millin receives an annual base salary of
$130,000. Mr. Millin's base salary and bonus amount are adjustable in the sole
discretion of our Chief Executive Officer and the compensation
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committee. Additionally, the agreement provides that after Mr. Millin leaves our
employ, he will not work for a competitor during the two year period following
his employment or disclose any of our confidential information.
Mail.com's current employment agreement with Lon Otremba is dated April 1,
1999. The agreement provides that Mr. Otremba will receive an annual base salary
of $200,000 and a bonus of up to 30% of his base salary. Under his initial
employment agreement with us, dated September 24, 1997, Mr. Otremba was granted
an initial option of acquiring 473,200 shares of our Class A common stock, which
vest quarterly over the first three years of his employment and are exercisable
at the price of $2.00 per share. The initial agreement also provided for the
grant of additional contingent options, which were linked to advertising
revenues that we recognized through 1998, granting Mr. Otremba options to
purchase up to 402,975 shares of our Class A common stock at $2.00 per share.
These additional options vest quarterly over three years from the date of grant.
Finally, the current agreement provides that after Mr. Otremba leaves our
employ, he will not work for a competitor during the two year period following
his employment or disclose any of our confidential information.
Mail.com's current employment agreement with Debra McClister is dated April
1, 1999. The agreement provides that Ms. McClister will receive an annual base
salary of $180,000 which will be reviewed each year, and an annual bonus between
15%-45% of base annual salary. Under Ms. McClister's initial employment
agreement with us, dated June 29, 1998, she was granted an option to purchase
200,000 shares of our Class A common stock at an exercise price of $3.50 upon
the commencement of her employment. In accordance with the initial agreement, we
granted Ms. McClister an additional option to purchase 40,000 shares at an
exercise price of $3.50 per share on September 14, 1998 for achievement of a
specified objective. Under the initial agreement, Ms. McClister waived her
salary until October 19, 1998 in return for receiving options to purchase 90,000
shares of our Class A common stock, which were granted at an exercise price of
$3.50 per share and vest quarterly over 4 years. The current agreement also
provides that in the event that Mail.com is sold to a third party, Ms.
McClister's options will be converted into options to acquire the third party's
stock, with an equivalent value and the same remaining vesting period as her
Mail.com options. In the event that Ms. McClister's position at Mail.com is
eliminated, replaced or taken over by the third party in connection with an
acquisition, merger or transfer of a majority interest, we will attempt to offer
Ms. McClister a comparable senior management position with the same
compensation, commuting and travel requirements. In the event that such a
position is not offered to Ms. McClister, she will be entitled to a severance
package comprised of (a) six months base salary, (b) annual bonus pro rated for
the portion of the year worked and (c) immediate vesting of 50% of her remaining
unvested options. Additionally, her current employment agreement provides that
after Ms. McClister leaves our employ, she will not work for a competitor during
the two year period following her employment or disclose any of our confidential
information.
Mail.com's employment agreement with David Ambrosia is dated May 19, 1999.
The agreement provides that Mr. Ambrosia will receive an annual base salary of
$180,000 which will be reviewed each year, and an annual bonus between 15%-30%
of base annual salary. Mr. Ambrosia was granted options to purchase 250,000
shares of our Class A common stock at an exercise price equal to the lower of
$11.00 per share and the initial public offering price which vest quarterly over
three years. If an acquisition, merger, consolidation or transfer of control
occurs, Mr. Ambrosia is entitled to severance and other arrangements, including
rights similar to those contained in Ms. McClister's agreement. Additionally,
Mr. Ambrosia's employment agreement provides that after he leaves our employ, he
will not work for a competitor during the two year period following his
employment or disclose any confidential information.
Mail.com's employment agreement with Charles Walden is dated February 4,
1999. The agreement provides that Mr. Walden will receive an annual base salary
of $160,000. In addition to his base salary, Mr. Walden is eligible for
incentive compensation, which together with his salary, are to be determined
64
<PAGE>
and reviewed by the Chief Executive Officer and the compensation committee. In
lieu of cash salary and bonus in 1998, Mr. Walden received an option grant on
January 1, 1998 of 285,000 shares and a second option grant on February 16, 1998
of 395,200 shares, each granted at the fair market value of the common stock at
the date of grant. Mr. Walden's current employment agreement with us provides
that after he leaves our employ, he will not work for a competitor during the
two year period following his employment or disclose any of our confidential
information.
EXECUTIVE COMPENSATION
The following table presents certain summary information concerning the
compensation awarded to, earned by, or paid for services rendered to us in all
capacities during the year ended December 31, 1998, by our Chief Executive
Officer and each of the other executive officers whose salary and bonus exceeded
$100,000 in 1998 (collectively, the "Named Executive Officers"). No executive
who would otherwise have been included in this table on the basis of salary and
bonus earned for 1998 has resigned or otherwise terminated employment during
1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY OPTIONS(1)
- ----------------------------------------------------------------------------------- ---------- -------------
<S> <C> <C>
Gerald Gorman,..................................................................... $ 200,000 23,720
Chairman and Chief Executive Officer
Gary Millin,....................................................................... 130,000 29,267
President
Lon Otremba,....................................................................... 180,000 420,107
Chief Operating Officer
Charles Walden,.................................................................... 0 680,200
Executive Vice President, Technology
Debra McClister,................................................................... 37,461(2) 340,573
Executive Vice President and Chief Financial Officer
</TABLE>
- ------------------------
(1) Includes annual bonus compensation earned for the year ended December 31,
1998 and foregone at the election of the Named Executive officers and
instead paid in the form of stock options as follows: Mr. Gorman, 19,920
options; Mr. Millin, 20,267 options; Mr. Otremba, 15,932 options; and Ms.
McClister, 10,573 options. Mr. Walden waived cash salary and bonus for his
first year of employment with us and in return received an option grant on
January 1, 1998 for 285,000 shares and a second option grant on February 16,
1998 for 395,200 shares, each of which was granted at the fair market value
of common stock at the date of grant.
(2) Salary did not commence until October 19, 1998.
65
<PAGE>
OPTION GRANTS IN FISCAL YEAR
The following table provides certain information regarding stock options
granted to the Named Executive Officers during the year ended December 31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE MARKET OPTION TERMS(1)
OPTIONS TO EMPLOYEES IN PRICE PER PRICE PER EXPIRATION ------------------------
NAME GRANTED (#) FISCAL YEAR (%) SHARE SHARE DATE 0% 5%
- ------------------------- ----------- --------------- ----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gerald Gorman............ 3,800 0.1% $ 3.50 $ 3.50 1/31/08 $ -- $ 8,360
Gary Millin.............. 9,000 0.3 3.50 3.50 1/31/08 -- 19,800
Lon Otremba.............. 1,200 0.0 3.50 3.50 1/31/08 -- 2,640
10,114(2) 0.3 2.00 3.50 6/28/08 15,172 37,421
18,590(2) 0.6 2.00 3.50 7/30/08 27,885 68,783
46,312(2) 1.5 2.00 3.50 8/30/08 69,467 171,354
82,161(2) 2.7 2.00 5.00 9/29/08 246,483 504,468
208,446(2) 6.8 2.00 5.00 10/30/08 625,337 1,279,858
24,402(2) 0.8 2.00 5.00 11/29/08 73,205 149,828
12,950(2) 0.4 2.00 5.00 12/30/08 38,850 79,513
Charles Walden........... 285,000(3) 9.2 2.00 2.00 12/31/08 -- 359,100
395,200(4) 12.8 3.50 3.50 2/15/08 -- 869,440
Debra McClister.......... 290,000 9.4 3.50 3.50 6/27/08 -- 638,000
40,000 1.3 3.50 3.50 9/13/08 -- 88,000
<CAPTION>
NAME 10%
- ------------------------- ------------
<S> <C>
Gerald Gorman............ $ 21,204
Gary Millin.............. 50,220
Lon Otremba.............. 6,696
71,607
131,617
327,888
901,306
2,286,652
267,689
142,061
Charles Walden........... 909,150
2,205,216
Debra McClister.......... 1,618,200
223,200
</TABLE>
- ------------------------
Unless otherwise noted all options vest quarterly over four years.
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted based upon the
fair market value on the date of grant. These assumptions are not intended
to forecast future appreciation of our stock price. The amounts reflected in
the table may not necessarily be achieved.
(2) Options vest in equal installments over 12 calendar quarters.
(3) Options vest in equal installments over 13 calendar quarters.
(4) Options vest biweekly in 52 equal installments.
66
<PAGE>
FISCAL YEAR-END OPTION VALUES
The following table indicates for each of the Named Executive Officers the
number and year-end value of exercisable and unexercisable options for the year
ended December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ------------ -------------
Gerald Gorman............................................ 363,450 162,850 $ 1,682,675 $ 779,275
Gary Millin.............................................. 387,500 160,500 1,661,500 709,500
Lon Otremba.............................................. 273,037 664,418 818,661 1,988,304
Charles Walden........................................... 262,492 417,708 525,276 922,524
Debra McClister.......................................... 38,750 291,250 58,125 436,875
</TABLE>
- ------------------------
(1) All amounts reflected were determined using a December 31, 1998 price of
$5.00 per share.
EMPLOYEE BENEFIT PLANS
Mail.com's board of directors adopted the Mail.com 1996 Stock Option Plan on
March 16, 1996, the Mail.com 1997 Stock Option Plan on May 1, 1997 and the
Mail.com 1998 Stock Option Plan on October 5, 1998, and each has been
subsequently approved by our stockholders. Mail.com's board of directors also
adopted the Mail.com 1999 Stock Option Plan on April 21, 1999. This will be
approved by our stockholders prior to the closing of this offering. The
principal provisions of the plans are summarized below. This summary is
qualified in its entirety by reference to the provisions of each of the plans.
PURPOSE
The purpose of the plans is to grant incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code and non-qualified stock
options as a means to provide an incentive to our selected directors, officers,
employees and consultants to acquire a proprietary interest in Mail.com, to
continue in their positions with us and to increase their efforts on our behalf.
ADMINISTRATION
The plans are administered by the board or a committee appointed by the
board. Under the plans, the plan administrator has the authority to, among other
things: (a) select the eligible persons to whom options will be granted, (b)
determine the size, type and the terms of each option granted, (c) adopt, amend
and rescind rules and regulations for the administration of the plans, and (d)
decide all questions and settle all controversies and disputes of general
applicability that may arise in connection with the plans.
SHARES AVAILABLE FOR ISSUANCE
A maximum of 1,000,000, 3,500,000 and 1,500,000 shares of Mail.com's Class A
common stock is available for issuance under the 1996 plan, the 1997 plan and
the 1998 plan, respectively. 2,500,000 shares of Class A common stock have been
authorized for issuance under the 1999 plan. Outstanding options under the
previous plan(s) will be incorporated into the 1999 plan upon the date of this
offering, and no further option grants will be made under the previous plan(s).
The incorporated options will continue to be governed by their existing terms,
unless the plan administrator elects to extend one or more features of the 1999
plan to those options.
67
<PAGE>
The maximum number of shares underlying options granted to any individual
within a calendar year under the 1999 plan is 1,000,000. In the event of any
changes in the number or kind of outstanding shares of stock by reason of
merger, consolidation, recapitalization, reclassification, split, reverse split,
combination of shares or otherwise, the plan administrator may make equitable
adjustments to the price and other terms of any option previously granted or
which may be granted under the plans.
OPTIONS
Each option granted under the plans will be evidenced by an agreement that
states the terms and conditions of the grant. The exercise price of an option
granted under any of the plans shall not be less than 100% of the fair market
value of the stock at the time of grant (110% in the case of an incentive stock
option granted to any person who possesses more than 10% of the total combined
voting power of all classes of our capital stock). Each option granted under the
plans will be exercisable at the times and in the amounts determined by the plan
administrator at the time of grant. In addition, the plan administrator, in its
discretion, may accelerate the exercisability of any option outstanding under
any of the plans. The exercise price of an option is payable in cash unless
otherwise approved by the plan administrator.
Options granted under the plans are not transferable except by will or the
laws of descent and distribution and are only exercisable by the grantee during
the grantee's lifetime. Each option shall terminate at the time determined by
the plan administrator provided that the term may not exceed ten years from the
date of grant (five years in the case of an incentive stock option granted to a
ten percent stockholder). However, the plan administrator may, subject to the
limitations of the plans, modify, extend or renew outstanding options granted
under the plans, or accept the surrender of outstanding unexercised options and
authorize the grant of substitute options.
AMENDMENTS AND TERMINATION
The plans will terminate on the earliest of (a) March 15, 2006 for the 1996
plan, April 23, 2007 for the 1997 plan, October 4, 2008 for the 1998 plan and
May 1, 2009 for the 1999 plan, (b) the date when all shares of stock reserved
for issuance under each plan have been acquired through the exercise of options
granted under each plan or (c) any earlier date as may be determined by
Mail.com's board of directors. Subject to limitations, Mail.com's board of
directors may amend each plan, correct any defect, supply any omission or
reconcile any inconsistency in the plans. None of these modifications shall
alter or adversely impair any rights or obligations under any option previously
granted under the plans, except with the consent of the grantee.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is generally a summary of the principal United
States federal income tax consequences under current federal income tax laws
relating to grants or awards to employees under the plans. This summary is not
intended to be exhaustive and, among other things, does not describe state,
local or foreign income tax or other tax consequences.
A grantee will not recognize any taxable income upon the grant of a
non-qualified option and Mail.com will not be entitled to a tax deduction with
respect to the grant. Generally, upon exercise of a non-qualified option, the
excess of the fair market value of stock on the date of exercise over the
exercise price will be taxable as ordinary income to the grantee. If Mail.com
complies with applicable withholding requirements, we will be entitled to a tax
deduction in the same amount and at the same time as the grantee recognizes
ordinary income subject to any deduction limitation under Section 162(m) of the
Internal Revenue Code. The subsequent disposition of shares acquired upon the
exercise of a nonqualified stock option will ordinarily result in capital gain
or loss.
68
<PAGE>
Subject to the discussion below, a grantee will not recognize taxable income
at the time of grant or exercise of an incentive stock option and we will not be
entitled to a tax deduction with respect to the grant or exercise. However, the
exercise of an incentive stock option may result in an alternative minimum tax
liability for the grantee.
Generally, if a grantee has held shares acquired upon the exercise of an
incentive stock option for at least one year after the date of exercise and for
at least two years after the date of grant of the incentive stock option, upon
disposition of the shares by the grantee, the difference, if any, between the
sales price of the shares and the exercise price will be treated as long-term
capital gain or loss to the grantee. Generally, upon a sale or other disposition
of shares acquired upon the exercise of an incentive stock option within one
year after the date of exercise or within two years after the date of grant of
the incentive stock option (a "disqualifying disposition"), any excess of the
fair market value of the shares at the time of exercise of the option over the
exercise price of the option will constitute ordinary income to the grantee. Any
excess of the amount realized by the holder on the disqualifying disposition
over the fair market value of the shares on the date of exercise will generally
be capital gain. Subject to any deduction limitation under Section 162(m) of the
Internal Revenue Code, Mail.com will be entitled to a deduction equal to the
amount of the ordinary income recognized by the holder.
If a non-qualified or incentive stock option is exercised through the use of
shares previously owned by the holder, this exercise generally will not be
considered a taxable disposition of the previously owned shares and thus no gain
or loss will be recognized with respect to these shares upon exercise. However,
if the option is an incentive stock option, and the previously owned shares were
acquired on the exercise of an incentive stock option and the holding period
requirement for those shares is not satisfied at the time they are used to
exercise the option, this use will constitute a disqualifying disposition of the
previously owned shares resulting in the recognition of ordinary income in the
amount described above.
69
<PAGE>
CERTAIN TRANSACTIONS
FOUNDER TRANSACTIONS
In March 1996, we sold a total of 10,000,000 shares of Class B common stock
at $0.10 per share for $1,000,000 to Gerald Gorman, our Chairman and Chief
Executive Officer. Concurrently, we sold an aggregate of 2,422,500 shares of
Class A common stock at $0.005 per share for $12,113. Among the purchasers were
Gerald Gorman, our Chief Executive Officer (1,092,500 shares for $5,463), Gary
Millin, our President (1,160,000 shares for $5,800) and Anthony Millin, the
brother of Gary Millin (100,000 shares for $500). We also sold an aggregate of
100,000 shares of Class A preferred stock at $0.005 per share for $500 to
various individuals including Gary Millin (80,000 shares for $400).
We issued to Michael Gorman, the brother of Gerald Gorman, in consideration
of employment services rendered to us, options to purchase 30,000 shares of
Class A common stock in 1996 at an exercise price of $.50 per share, options to
purchase 48,750 shares of Class A common stock in 1997 at an exercise price of
$1.00 per share, options to purchase 30,000 shares of Class A common stock in
1997 at an exercise price of $2.00 per share and options to purchase 11,250
shares of Class A common stock in 1998 at an exercise price of $3.50 per share.
All of these options were granted with an exercise price equal to the fair
market value of our Class A common stock on the date of grant.
PREFERRED FINANCINGS
We used the funds raised in each of the preferred stock financings described
below:
- to expand our business operations, including acquiring additional hardware
to satisfy increased demand;
- to hire additional personnel;
- to provide additional services; and
- for other general corporate purposes related to the expansion of our
business.
All of the outstanding shares of Class A, Class C and Class E preferred
stock will automatically convert into Class A common stock upon the consummation
of this offering on a one-for-one basis before giving effect to the settlements
described below.
CLASS A PREFERRED FINANCING
On May 27, 1997 and December 17, 1997, we issued an aggregate of 3,460,000
shares of Class A preferred stock at $1.00 per share for an aggregate amount of
$3,290,000 in cash and $170,000 in the form of equity securities and services by
outside vendors. Among the purchasers were Gerald Gorman, our Chairman and Chief
Executive Officer (400,000 shares for cash and equity securities of
InfoSpace.com valued at $400,000 in total), and William Donaldson (100,000
shares for $100,000), Stephen Ketchum (225,000 shares for $225,000) and Jack
Kuehler (100,000 shares for $100,000), each of whom is a director of Mail.com.
CLASS A PREFERRED STOCK ISSUANCE OBLIGATION SETTLEMENT
Prior to being amended, the Class A preferred stock purchase agreement dated
May 27, 1997, the purchase and sale agreement dated December 17, 1997 and the
purchase and sale agreement dated January 5, 1998 obligated us to issue
additional shares of Class A preferred stock to the purchasers if they were not
provided with an opportunity to dispose of shares of Class A preferred stock at
specified minimum prices.
We have since amended these agreements to provide that if we consummate an
initial public offering on or before July 31, 1999, then we will issue an
aggregate of 968,800 shares of Class A common stock to be divided on a pro rata
basis among the purchasers. This amendment settles in full our contingent
obligations to issue additional shares described above.
70
<PAGE>
As a result of the Class A preferred stock contingent issuance obligation
settlement, the following persons will receive upon closing of this offering an
issuance of shares of Class A common stock in the following amounts: Gerald
Gorman, our Chairman and Chief Executive Officer (112,000 shares), and William
Donaldson (28,000 shares), Stephen Ketchum (63,000 shares) and Jack Kuehler
(28,000 shares), each of whom is a director of Mail.com.
CLASS C PREFERRED FINANCING
On July 31, 1998 and August 31, 1998, we issued an aggregate of 3,776,558
units, with each unit consisting of one share of Class C preferred stock and
detachable warrants to purchase .35 shares of Class C preferred stock at an
exercise price equal to the Class C conversion price as defined in our amended
and restated certificate of incorporation, for a price per unit of $3.50. The
aggregate amount of this financing was $13,218,000. Among the purchasers were
John Whitman, one of our directors (7,200 shares, 2,520 warrants for $25,200),
and The Whitman Children Irrevocable Trust (7,200 shares, 2,520 warrants for
$25,200). Also, CitiGrowth Fund II Offshore, L.P. and CG Asian-American Fund,
L.P., limited partnerships indirectly controlled by entities in which Mr.
Whitman holds a minority interest, purchased 1,099,200 shares and 384,720
warrants in the aggregate for a total purchase price of $3,847,200. Mr. Whitman
also has the power to vote or dispose of an additional 311,700 shares and
109,095 warrants purchased in this financing for $1,090,950.
CLASS C PREFERRED STOCK ISSUANCE OBLIGATION SETTLEMENT
Prior to being amended, our amended and restated certificate of
incorporation provided for a reduction in the conversion price of the Class C
preferred stock if the holders of Class C preferred stock were not provided with
an opportunity to dispose of the Class C shares at specified minimum prices.
We have since amended our amended and restated certificate of incorporation
to provide that, if we consummate an initial public offering on or before July
31, 1999, the holders of Class C preferred shares will receive a one time
reduction in the Class C conversion price from $3.50 per share to $2.80. This
amendment settles in full our contingent obligation to issue additional shares
described above and permits the Class C holders to receive an additional 944,139
shares of Class A common stock upon conversion of their preferred shares, which
will occur automatically upon the closing of this offering. Also, upon the
closing of this offering, the warrants to purchase 1,321,778 shares of Class C
preferred stock will be cancelled and returned to Mail.com.
As a result of the Class C preferred stock contingent issuance obligation
settlement, Mr. Whitman and the persons or entities listed below will receive
upon the closing of this offering an aggregate issuance of 356,400 shares of
Class A common stock in the amounts listed. As indicated below, Mr. Whitman has
the power to vote or dispose of these shares or holds an interest in the
entities that control the owners of these shares.
<TABLE>
<CAPTION>
SHARES OF CLASS
A
COMMON STOCK
----------------
<S> <C>
John Whitman(1)................................................................................. 79,800
The Whitman Children Irrevocable Trust(2)....................................................... 1,800
CitiGrowth Fund II Offshore, L.P.(3)............................................................ 137,400
CG Asian-American Fund, L.P.(3)................................................................. 137,400
-------
Total................................................................................. 356,400
</TABLE>
- ------------------------
(1) Includes 78,000 shares owned by other persons and over which Mr. Whitman has
the power to vote or to direct the disposition.
(2) The Whitman Children Irrevocable Trust is a trust for the benefit of Mr.
Whitman's children and Mr. Whitman has the power to vote or dispose of these
shares.
(3) Mr. Whitman holds a minority interest in the entities that control these
limited partnerships.
71
<PAGE>
CLASS E PREFERRED FINANCING
On March 10, 1999, we issued an aggregate of 3,200,000 shares of Class E
preferred stock at $5.00 per share. The aggregate amount of this financing was
$16,000,000. Among the purchasers were John Whitman, one of our directors (3,000
shares for $15,000), and The Whitman Children Irrevocable Trust (1,000 shares
for $5,000), Gerald Gorman, our Chairman and Chief Executive Officer (35,000
shares for $175,000), Lon Otremba, our Chief Operating Officer and one of our
directors (50,000 shares for $250,000), Stephen Ketchum, one of our directors
(10,000 shares for $50,000), and Debra McClister, our Chief Financial Officer
(40,000 shares for $200,000). Also, CitiGrowth Fund II Offshore, L.P. and CG
Asian-American Fund, L.P., limited partnerships indirectly controlled by
entities in which Mr. Whitman holds a minority interest, purchased 76,880 shares
in the aggregate for $384,400. Mr. Whitman also has the power to vote or dispose
of an additional 33,820 shares purchased in this financing for $169,100.
CLASS E PREFERRED STOCK ISSUANCE OBLIGATION SETTLEMENT
Immediately before consummation of this offering, the Class E preferred
stock conversion price will be reduced based upon the amount of additional
shares of Class A common stock issuable as a result of the settlements of our
contingent obligations to issue additional shares of Class A and Class C
preferred stock described above. We anticipate that an additional 166,439 shares
of Class A common stock will be issuable upon conversion of the Class E
preferred stock as a result of this adjustment to the Class E preferred stock
conversion price. This adjustment in the conversion price constitutes full
settlement of our contingent obligations to issue additional shares to the
purchasers of our Class E preferred stock.
As a result of the Class E preferred stock contingent issuance obligation
settlement, the officers and directors of Mail.com and the other persons and
entities listed below will receive upon the closing of this offering an issuance
of shares of Class A common stock in the amounts listed. As indicated below, Mr.
Whitman has the power to vote or dispose of the shares, or has an interest in
the entities that control the owners of the shares, held by the persons listed
below other than Messrs. Gorman, Otremba and Ketchum and Ms. McClister.
<TABLE>
<CAPTION>
SHARES OF CLASS
A
COMMON STOCK
----------------
<S> <C>
Gerald Gorman................................................................................... 1,820
Lon Otremba..................................................................................... 2,601
Debra McClister................................................................................. 2,080
Stephen Ketchum................................................................................. 520
John Whitman(1)................................................................................. 1,915
The Whitman Children Irrevocable Trust(2)....................................................... 52
CitiGrowth Fund II Offshore, L.P.(3)............................................................ 1,999
CG Asian-American Fund, L.P.(3)................................................................. 1,999
-------
Total................................................................................. 12,986
</TABLE>
- ------------------------
(1) Includes 1,759 shares owned by other persons and over which Mr. Whitman has
the power to vote or to direct the disposition.
(2) The Whitman Children Irrevocable Trust is a trust for the benefit of Mr.
Whitman's children and Mr. Whitman has the power to vote or dispose of these
shares.
(3) Mr. Whitman holds a minority interest in the entities that control these
limited partnerships.
AGREEMENTS WITH STOCKHOLDERS
Holders of our Class A common stock who were formerly holders of our Class
A, Class C and Class E preferred stock and purchased their preferred stock in
the offerings described above are parties
72
<PAGE>
to stock purchase and investor agreements with us and other stockholders. These
agreements entitle them to a number of rights, including the following:
- REGISTRATION RIGHTS. We have granted registration rights to holders of our
Class A common stock who were formerly holders of our Class A, Class C and
Class E preferred stock. See "Description of Capital Stock--Registration
Rights."
- RIGHT TO NOMINATE THREE MEMBERS OF THE BOARD OF DIRECTORS. Subject to
minimum ownership levels and other conditions, holders of our Class A
common stock who previously held our Class A, Class C and Class E
preferred stock purchased in the financings described above, voting as
separate groups, have the right to nominate one director each to our board
of directors. In the event that these groups fail to maintain minimum
ownership levels, they will have the right to have an observer attend all
board of directors meetings in a nonvoting capacity. We have also granted
U.S. Information Technology Financing, L.P. and the Encompass Group, Inc.,
holders of Class E preferred stock, the right to jointly appoint one
observer to attend all board of directors meetings in a nonvoting
capacity.
- CONTROLLING STOCKHOLDER AGREEMENT NOT TO SELL HIS SHARES OF CLASS B COMMON
STOCK. Gerald Gorman, our controlling stockholder, has agreed not to sell
his shares of Class B common stock until the holders of our Class A common
stock who formerly held Class A, Class C and Class E preferred stock have
had an opportunity to sell their shares of Class A common stock at
specified prices.
- RIGHT TO PARTICIPATE IN PROPOSED SALE OF STOCK BY CONTROLLING
STOCKHOLDER. Subject to exceptions, Mr. Gerald Gorman, our controlling
stockholder, has granted the holders of our Class A common stock who
formerly held Class A, Class C and Class E preferred stock purchased in
the financings described above the right to sell their shares of Class A
common stock along with Mr. Gorman's shares, in any transaction in which
Mr. Gorman proposes to transfer his shares of our stock to a third party
at the same price and upon the same terms and conditions as Mr. Gorman.
- RIGHT OF CONTROLLING STOCKHOLDER TO COMPEL SOME OF OUR CLASS A COMMON
STOCKHOLDERS TO SELL THEIR SHARES OF OUR STOCK. Mr. Gorman, our
controlling stockholder, has the right to require the holders of our Class
A common stock who formerly held Class A, Class C and Class E preferred
stock purchased in the financings described above to sell their shares of
Class A common stock to a third party to whom Mr. Gorman proposes to sell
his common stock at the same price as and in the same proportion as Mr.
Gorman is selling his common stock.
- RIGHTS TO INFORMATION. We may be required to provide to selected holders
of Class A common stock who formerly held shares of our Class A, Class C
or Class E preferred stock purchased in the financings described above,
audited annual financial statements and unaudited quarterly financial
statements.
AGREEMENTS WITH CNET, SNAP AND NBC MULTIMEDIA
The following summary of the material terms of our agreements with CNET,
Snap and NBC Multimedia is qualified by reference to the actual agreements,
which we have filed as exhibits to the registration statement of which this
prospectus is a part.
In May of 1998, we entered into an agreement with CNET under which we agreed
to offer our email service at their Web site through the domain "email.com". Our
agreement originally obligated us to issue shares of our Class A common stock to
CNET for each new emailbox established through their site, up to a maximum of
four million "email.com" emailboxes. We have issued a total of 352,257 shares
for emailboxes created through the first quarter of 1999. Once four million
email.com emailboxes have been established (including those established at the
Snap and NBC Multimedia sites), we will be required to pay CNET a portion of our
profits attributable to each new emailbox established through their site. If
CNET exercises their rights to terminate our agreement, which includes the right
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to terminate for their own convenience at any time after May 13, 2001, we would
be obligated to transfer the email.com domain and related member information to
them. If CNET terminates 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 those shares. If CNET terminates for other
reasons, the amount of compensation they must pay us varies depending on the
reason for termination.
In February 1999, we entered into a similar agreement with NBC Multimedia
under which we agreed to offer our email service at their Web sites through the
email.com domain. Upon launch of our email service in May 1999, we became
obligated to make non-refundable installment payments totaling $200,000. In
addition, our agreement obligates us to issue shares of our Class A common stock
to NBC Multimedia. We guaranteed them a minimum of 210,000 shares, and we were
originally obligated to issue shares for each new emailbox established through
their sites, up to a maximum of four million email.com emailboxes (including
those established through the CNET and Snap sites). Because our service was
first launched in May of this year, we did not issue any shares through the
first quarter of 1999. In addition, once four million email.com emailboxes have
been established (including those established through the CNET and Snap sites),
we will be required to pay NBC Multimedia a portion of our profits attributable
to each new emailbox established through their sites. If NBC Multimedia
exercises their rights to terminate our agreement, which includes the right to
terminate for their own convenience at any time after May 12, 2001, we would be
obligated to transfer the applicable member information to them. In return, NBC
Multimedia would be obligated to compensate us in an amount based upon their
reason for termination.
NBC Multimedia and CNET commenced a joint venture to operate Snap. On June
18, 1998, Snap became an independent party to the CNET agreement described above
and is subject to substantially the same terms and conditions. Under the
agreement, we have issued 568,836 shares of Class A common stock to Snap for
emailboxes established through the first quarter of 1999.
Under our agreement with CNET and Snap, which subsequently assigned its
rights to NBC Multimedia, we were obligated to grant warrants to purchase our
Class A common stock upon the achievement of a specified number of emailboxes.
In March 1999, we satisfied our obligations by issuing warrants to CNET and NBC
Multimedia for purchase of 990,000 and 510,000 shares, respectively, of our
Class A common stock. The warrant exercise price is equal to the lower of $5.00
or the price per share in an initial public offering offering of our stock. CNET
and NBC Multimedia have exercised their warrants and deposited funds for the
payment of the exercise price into escrow. Upon consummation of this offering,
funds sufficient to pay the exercise price will be released to us, and we will
issue the shares to CNET and NBC Multimedia.
Under an investor's rights agreement dated March 1, 1999 by and among
Mail.com, CNET and NBC Multimedia, we have granted to CNET and NBC Multimedia
registration rights. See "Description of Capital Stock--Registration Rights".
Also under an agreement between CNET and Mail.com, we granted CNET the right to
nominate a director to our Board of Directors. CNET has since waived its right
to nominate a director.
On May 1, 1999, we entered into an agreement to settle in full the
contingent obligation to issue shares of Class A common stock to CNET, Snap and
NBC Multimedia for emailboxes established. Under this settlement, we will issue
upon the closing of this offering 2,368,907 shares of our Class A common stock
in the aggregate to CNET and Snap and 210,000 shares of our Class A common stock
to NBC Multimedia. CNET and Snap have not yet agreed upon the allocation of the
shares. We are still obligated to share profits with these partners as described
above.
EMPLOYMENT RELATED AGREEMENTS
For information regarding the grant of stock options to executive officers
and directors, see "Management--Director Compensation," "--Executive
Compensation," "--Employee Benefit Plans" and "Principal Stockholders."
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PRINCIPAL STOCKHOLDERS
The following table provides information with respect to the beneficial
ownership of our common stock as of May 31, 1999 and as adjusted to reflect the
sale of the shares of common stock in this offering, for:
- each person who we know beneficially owns more than 5% of our Class A
common stock;
- each of our directors, including our Chairman and Chief Executive Officer;
- our four most highly compensated executive officers, other than our Chief
Executive Officer, who were serving as executive officers at the end of
1998; and
- all of our executive officers and directors as a group.
For purposes of this table, a person, entity or group is deemed to have
"beneficial ownership" of any shares of Class A common stock, including shares
subject to options, warrants or conversion rights, which the person, entity or
group has the right to acquire within 60 days after the date of this prospectus.
Unless otherwise noted below, the persons and entities named in the table have
sole voting and sole investment power with respect to all shares beneficially
owned, subject to community property laws where applicable.
For purposes of calculating the percentage of outstanding shares or voting
power held by each person named below, any shares which that person has the
right to acquire within 60 days after the date of this prospectus are deemed to
be outstanding, but shares which may similarly be acquired by other persons are
deemed not to be outstanding.
The number of shares of Class A common stock for purposes of calculating the
percentages reflects the issuance of 968,800 shares issued in settlement of the
Class A preferred stock contingent issuance obligation, the issuance of an
additional 944,139 shares of Class A common stock in settlement of the Class C
preferred stock contingent issuance obligation and the issuance of an additional
166,439 shares of Class A common stock in settlement of the Class E preferred
stock contingent issuance obligation. See "Certain Transactions".
The total number of shares of Class A common stock for purposes of
calculating the percentages of Class A common stock beneficially owned includes
10,000,000 shares of Class A common stock into which the 10,000,000 shares of
Class B common stock are convertible.
The total number of votes for purposes of calculating the percentage of
total voting power includes the voting power of 10,000,000 shares of Class B
common stock owned by Gerald Gorman. Each share of Class B common stock entitles
Mr. Gorman to ten votes.
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<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
CLASS PERCENTAGE OF CLASS A COMMON
A COMMON STOCK BENEFICIALLY OWNED PERCENTAGE OF
STOCK -------------------------------- TOTAL VOTING
BENEFICIALLY AFTER POWER AFTER
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING OFFERING THE OFFERING
- ------------------------------------------------- -------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
Gerald Gorman.................................... 12,070,240(1) 33.8% 28.4% 77.3%
Lycos, Inc....................................... 2,000,000 5.7 4.8 1.5
500 Old Connecticut Path
Framingham, MA 01701-4576
John Whitman..................................... 1,911,833(2) 5.4 4.6 1.5
Gary Millin...................................... 1,687,588 4.7 4.0 1.3
Lon Otremba...................................... 649,181 1.8 1.5 *
Charles Walden................................... 420,338 1.2 1.0 *
Stephen Ketchum.................................. 307,687 * * *
William Donaldson................................ 261,333 * * *
Jack Kuehler..................................... 261,333 * * *
Debra McClister.................................. 133,837 * * *
All directors and executive officers as a group
(10 persons)................................... 17,703,370 47.4 40.1 80.3
CNET............................................. 4,279,995(3) 12.1 10.2 3.2
150 Chestnut Street
San Francisco, CA 94111
NBC Multimedia................................... 3,657,743(4) 10.4 8.7 2.8
30 Rockefeller Plaza
New York, NY 10112
</TABLE>
- ------------------------
* Represents beneficial ownership or voting power of less than 1%.
(1) Includes 10,000,000 shares of Class A common stock issuable upon conversion,
on a one for one basis, of Class B common stock.
(2) In addition to the shares owned by Mr. Whitman directly, includes 10,053
shares owned by The Whitman Children Irrevocable Trust, a trust for the
benefit of Mr. Whitman's children, 727,469 shares owned by CitiGrowth Fund
II Offshore, L.P. and 727,469 shares owned by CG Asian-American Fund, L.P.,
limited partnerships controlled by entities in which Mr. Whitman has a
controlling interest, and 425,977 shares owned by other persons and over
which Mr. Whitman exercises the power to vote or direct the disposition.
(3) Includes 568,836 shares of Class A common stock owned by Snap. Also includes
the 2,368,907 shares to be issued to CNET and Snap in settlement of our
contingent obligation to them. Because of CNET's ownership interest in Snap
and its interest in the 2,368,907 shares, CNET could be deemed to share the
power to direct the voting or disposition of and therefore to beneficially
own the shares owned by Snap and the 2,368,907 shares. CNET disclaims
beneficial ownership of all shares owned by Snap.
(4) Includes 568,836 shares of Class A common stock owned by Snap. Also includes
the 2,368,907 shares to be issued to CNET and Snap in settlement of our
contingent obligation to them. Because of NBC Multimedia's ownership
interest in Snap, NBC Multimedia could be deemed to share the
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power to direct the voting or disposition of and therefore to beneficially
own the shares owned by Snap and the 2,368,907 shares. NBC Multimedia
disclaims beneficial ownership of all shares owned by Snap. NBC Multimedia
is a wholly owned subsidiary of National Broadcasting Company, Inc., which
is an indirect wholly owned subsidiary of General Electric Company. National
Broadcasting Company, Inc. and General Electric Company and other
subsidiaries of General Electric Company may be deemed to be beneficial
owners of the shares deemed beneficially owned by NBC Multimedia.
The following table sets forth the number of shares of Class A common stock
included in the table above that are issuable upon the exercise of options
exercisable within 60 days of May 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF CLASS
NAME OF BENEFICIAL OWNER A COMMON STOCK
- -------------------------------------------------------------------------------------- --------------------------
<S> <C>
Gerald Gorman......................................................................... 428,920
John Whitman.......................................................................... 4,167
Gary Millin........................................................................... 447,588
Lon Otremba........................................................................... 446,580
Charles Walden........................................................................ 420,338
Stephen Ketchum....................................................................... 4,167
William Donaldson..................................................................... 128,333
Jack Kuehler.......................................................................... 128,333
Debra McClister....................................................................... 86,757
</TABLE>
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DESCRIPTION OF CAPITAL STOCK
The following descriptions of our capital stock and the relevant provisions
of our amended and restated certificate of incorporation and our bylaws are
summaries and are qualified by reference to our amended and restated certificate
of incorporation and our bylaws, which are included as exhibits to the
registration statement of which this prospectus is a part.
We are authorized to issue up to 120,000,000 shares of Class A common stock,
par value $.01 per share, 10,000,000 shares of Class B common stock, par value
$.01 per share, and 60,000,000 shares of preferred stock, par value $.01 per
share.
The following summary of our capital stock assumes the conversion of all
currently outstanding preferred stock upon consummation of this offering.
COMMON STOCK
As of May 31, 1999, we had 5,912,479 shares of Class A common stock
outstanding held of record by 44 stockholders and 10,000,000 shares of Class B
common stock outstanding held entirely by Gerald Gorman, our Chairman and Chief
Executive Officer. Based upon the number of shares outstanding as of that date
and giving effect to the issuance of an aggregate of 26,169,843 shares of Class
A common stock to reflect:
- the offering;
- the conversion of all outstanding preferred stock;
- the settlement of our contingent obligations to issue additional equity to
our stockholders who formerly held shares of our preferred stock and to
CNET, Snap and NBC Multimedia; and
- the exercise of the CNET and NBC Multimedia warrants.
there will be approximately 32,082,322 shares of Class A common stock
outstanding upon the closing of this offering.
All of the issued and outstanding shares of Class A common stock and the
shares of Class A common stock to be issued in this offering are or will be
fully paid and nonassessable. Except as described below, the issued and
outstanding shares of Class A common stock and Class B common stock will
generally have identical rights. In addition, under our amended and restated
certificate of incorporation, holders of Class A common stock have no preemptive
or other subscription rights to purchase shares of our stock, nor are they
entitled to the benefits of any redemption or sinking fund provisions.
VOTING RIGHTS
The holders of Class A common stock are entitled to one vote per share on
all matters to be voted on by stockholders generally, including the election of
directors. The holder of Class B common stock is entitled to ten votes per share
on all matters to be voted on by stockholders generally, including the election
of directors. In addition to any class vote that may be required under law or
our amended and restated certificate of incorporation, all classes of capital
stock entitled to vote generally on any matter shall vote together as a single
class. There are no cumulative voting rights. Accordingly, holders of a majority
of the total votes entitled to vote in an election of directors will be able to
elect all of the directors standing for election. See "Risk Factors--Gerald
Gorman will continue to control Mail.com after this offering and will be able to
prevent a change of control."
LIQUIDATION PREFERENCES
If we are liquidated, dissolved or wound up, the holders of Class A common
stock and Class B common stock will be entitled to receive distributions only
after satisfaction of all liabilities and the prior rights of any outstanding
class of preferred stock. If we are liquidated, dissolved or wound up, our
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assets legally available after satisfaction of all of our liabilities shall be
distributed to the holders of Class A common stock and Class B common stock pro
rata based on the respective numbers of shares of Class A common stock held by
these holders or issuable to them upon conversion of Class B common stock.
CONVERSION RIGHTS/MANDATORY CONVERSION
Holders of Class A common stock have no conversion rights. Holders of Class
B common stock may convert each share into one share of Class A common stock. In
addition, each share of Class B common stock will automatically convert into one
share of Class A common stock upon a sale or other transfer by Gerald Gorman to
any person or entity other than entities controlled by Mr. Gorman.
DIVIDENDS
The holders of both classes of common stock are entitled to receive equal
non-cumulative dividends when and as declared from time to time by the board of
directors, subject to any preferential dividend rights of any outstanding
preferred stock.
PREFERRED STOCK
Under our amended and restated certificate of incorporation, the board of
directors is authorized, without further stockholder approval, to issue up to
60,000,000 shares of preferred stock in one or more classes or series. The board
also has the authority to fix or alter the designations, preferences, rights and
any qualifications, limitations or restrictions of the shares of each such class
or series, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences. Preferred stock could thus be issued
quickly with terms that could delay or prevent a change in control of our
company or make removal of management more difficult. Additionally, the issuance
of preferred stock may decrease the market price of the Class A common stock and
may adversely affect the voting and other rights of the holders of Class A
common stock. As of the closing of this offering, we will not have any preferred
stock outstanding. We currently have no plans to create or issue any shares of
any new class or series of preferred stock.
WARRANTS/OPTIONS
Under an engagement letter dated March 2, 1998 between PaineWebber
Incorporated and us and entered into in connection with the private placement of
the Class C preferred stock, we issued to PaineWebber warrants to purchase
143,484 shares of Class A common stock and we issued to a former employee of
PaineWebber Incorporated, now employed by Salomon Smith Barney Inc., warrants to
purchase 35,872 shares of Class A common stock. These warrants are exercisable
at an exercise price of $3.50 per share and expire July 31, 2003. The warrants
are entitled to anti-dilution adjustment in the event of stock splits, stock
dividends, stock distributions or combinations.
Under our agreement with CNET and Snap, which subsequently assigned its
rights to NBC Multimedia, we issued as of March 1, 1999, warrants to purchase
990,000 shares of Class A common stock to CNET and warrants to purchase 510,000
shares of Class A common stock to NBC Multimedia. CNET and NBC Multimedia have
each exercised these warrants in full and have deposited the aggregate exercise
price in escrow. The warrant exercise price is the lesser of $5.00 per share and
the initial public offering price in this offering. The issuance of the shares
of Class A common stock to CNET and NBC Multimedia as a result of the exercise
of these warrants and the payment of the exercise price to us is subject to the
consummation of the offering.
Under our letter agreement with AT&T Corp. 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 Corp. may exercise the warrants at any time on
or before December 31, 2000. If under our proposed strategic relationship AT&T
Corp. provides more than 30,000 active emailboxes with our managed messaging
service on or before December 31, 2000, AT&T Corp. may pay the exercise price of
the warrants by
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exchanging warrants in lieu of cash. For this purpose, the value of the warrants
used to pay the exercise price will be the difference between the exercise price
and the market value of our Class A common stock at the time of exercise. AT&T
Corp. 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 upon which it has provided more than 30,000 active emailboxes if
this date is on or before December 31, 2000. In addition, AT&T Corp. 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.
REGISTRATION RIGHTS
PREFERRED STOCKHOLDERS
The stockholders who formerly held shares of Class A preferred stock, other
than Lycos, and the stockholders who formerly held shares of Class C and Class E
preferred stock are entitled to various registration rights with respect to
their shares of Class A common stock issued upon conversion of each class of
preferred stock.
- DEMAND REGISTRATION RIGHTS. The holders of a majority of the shares issued
upon conversion of our Class A preferred stock and the holders of a
majority of the shares issued upon conversion of our Class C preferred
stock, voting as separate classes, have the right to demand that we
register their shares under the Securities Act. The stockholders who
formerly held shares of our Class A preferred stock may exercise their
demand registration rights up to three times, and the stockholders who
formerly held shares of our Class C preferred stock may exercise their
demand registration right once. In addition, the holders of 20% or more of
the shares issued upon conversion of Class E preferred stock may demand
that we register their shares under the Securities Act. If 30% or more of
the shares registered in any Class C or Class E demand registration are
shares requested to be registered by Lycos, then the former holders of
each of our Class C and Class E preferred stock have the right to a second
demand registration.
- PIGGYBACK REGISTRATION RIGHTS. The stockholders who formerly held shares
of our Class A, Class C and Class E preferred stock can request to have
their shares registered under the Securities Act any time we file a
registration statement to register any of our securities for our own
account or for the account of any of our stockholders. The number of times
such rights may be exercised is unlimited, but the number of shares that
can be registered at any one time is subject to limitations that any
underwriters may impose.
- S-3 DEMAND REGISTRATION RIGHTS. The holders of at least a majority of the
shares issued upon conversion of each of our Class A preferred stock and
our Class C preferred stock have the right to have their shares registered
under the Securities Act on Form S-3 once we become eligible. The holders
of at least 25% of the shares issued upon conversion of the Class E
preferred stock also have the right to demand a Form S-3 registration once
we become eligible. The number of times these Form S-3 registration rights
may be exercised is unlimited, but we are required to file only one Form
S-3 in any twelve-month period.
In the case of the stockholders who formerly held shares of our Class A
preferred stock, their registration rights will terminate five years from the
closing of this offering. In the case of the stockholders who formerly held
shares of our Class C and Class E preferred stock, their registration rights
will terminate 30 months from the closing of this offering.
LYCOS
Lycos has the right to have its shares of our Class A common stock
registered any time we file a registration statement for any of our securities
for our own account or the account of any of our stockholders. The number of
times Lycos may exercise its right is unlimited, but the number of shares that
can be registered at any one time is subject to limitations that any
underwriters may impose.
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CNET AND NBC MULTIMEDIA
We granted registration rights to CNET and NBC Multimedia with respect to
the shares of Class A common stock issued upon exercise of their warrants. The
holder or holders of a majority of the Class A common shares issued upon
exercise of their warrants may require us to effect one registration under the
Securities Act. If 30% or more of the shares to be registered in that demand
registration are shares requested to be registered by Lycos, then the holders
have the right to a second demand registration.
The holder or holders of a majority of the Class A common shares issued upon
exercise of the CNET and NBC Multimedia warrants have the right to have their
Class A common shares registered under the Securities Act any time we file a
registration statement to register any of our securities for our own account or
for the account of any of our stockholders. The number of times these piggyback
rights may be exercised is unlimited, but the number of shares that can be
registered at any one time is subject to limitations that any underwriters may
impose.
The holder or holders of a majority of the Class A common shares issued upon
exercise of the CNET and NBC Multimedia warrants have the right to have their
Class A common shares registered on Form S-3 once we become eligible. The number
of times this registration right may be exercised is unlimited, but we are
required to file only one Form S-3 in any twelve-month period.
These registration rights will terminate 30 months from the closing of this
offering.
AT&T CORP.
We have agreed to grant AT&T Corp. registration rights for the shares of our
Class A common stock issuable upon exercise of their warrants. The registration
rights will be available only if AT&T Corp. provides us with more than 30,000
active emailboxes with our managed messaging service on or before December 31,
2000. The registration rights are substantially similar to the rights that we
granted to NBC Multimedia and CNET. If we enter into definitive agreements with
AT&T Corp. for our proposed strategic relationship, we have also agreed to
permit them to designate one observer at meetings of our board of directors.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND MAIL.COM'S
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
Mail.com is subject to the provisions of Section 203 of the Delaware General
Corporation Law. Generally, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the interested
stockholder attained that status with the approval of the board of directors or
unless the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of a corporation's voting stock. This
statute could prohibit or delay the accomplishment of mergers or other takeovers
or changes in control with respect to Mail.com and, accordingly, may discourage
attempts to acquire Mail.com.
In addition, provisions of the amended and restated certificate and bylaws,
which provisions will be in effect upon the closing of the offering and are
summarized in the following paragraphs, may be deemed to have an anti-takeover
effect. These provisions may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might consider to be in its best interests, including
those attempts that might result in a premium over the market price for the
shares held by stockholders.
BOARD OF DIRECTORS VACANCIES. Our bylaws authorize the board of directors
to fill vacant directorships or increase the size of the board of directors.
This may prevent a stockholder from
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removing incumbent directors and simultaneously gaining control of the board of
directors by filling the resulting vacancies created by such removal with its
own nominees.
SPECIAL MEETINGS OF STOCKHOLDERS. Our bylaws provide that special meetings
of stockholders of Mail.com may be called only by the Chairman or a Co-Chairman,
if any, the Vice Chairman, if any, the President or a majority of the board of
directors.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to the limitations imposed by the Nasdaq National
Market. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of authorized
but unissued and unreserved common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of Mail.com by means of a
proxy contest, tender offer, merger or otherwise.
The Delaware General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation, or bylaws, unless a
corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our amended and restated certificate of incorporation includes a provision
that eliminates the personal liability of our directors and executive officers
for monetary damages for breach of fiduciary duty as a director or executive
officer, except:
- for any breach of the director's or executive officer's duty of loyalty to
Mail.com or our stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- for unlawful dividends and stock purchases under section 174 of the
Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law, subject to very limited exceptions;
- we may indemnify our other employees and agents to the same extent that we
indemnify our officers and directors, unless otherwise required by law,
our amended and restated certificate of incorporation, our bylaws or
agreements; and
- we must advance expenses, as incurred, to our directors and executive
officers in connection with any legal proceeding to the fullest extent
permitted by Delaware law, subject to limited exceptions.
Mail.com has entered into indemnity agreements with each of our directors
and executive officers to give them additional contractual assurances regarding
the scope of the indemnification described above and to provide additional
procedural protections. In addition, we have obtained directors' and officers'
insurance providing indemnification for our directors, officers and key
employees for various liabilities. We believe that these indemnification
provisions and agreements are necessary to attract and retain qualified
directors and officers.
The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duty. These
provisions may also have the effect of reducing the likelihood of stockholder
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derivative litigation against directors and officers, even though a derivative
action, if successful, might otherwise benefit us and our stockholders.
Furthermore, a stockholder's investment may be adversely affected to the extent
we pay the costs of settlement and damage awards against directors and officers
under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees for which indemnification is sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our Class A common stock is Continental
Stock Transfer & Trust Company, New York, New York.
LISTING
Our Class A common stock has been approved for quotation on the Nasdaq
National Market under the trading symbol "MAIL."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our Class A
common stock, and no predictions can be made regarding the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price prevailing from time to time. As described below, only a limited
number of shares will be available for sale shortly after this offering due to
contractual and legal restrictions on resale. Nevertheless, sales of substantial
amounts of our Class A common stock in the public market after the restrictions
lapse or are waived could adversely affect the prevailing market price.
Upon completion of this offering, we expect to have 42,082,322 shares of
Class A and Class B common stock outstanding (assuming no exercise of the
underwriters' over-allotment option). As of May 31, 1999, we had granted stock
options to employees and directors for the purchase of an aggregate of 8,094,766
shares of Class A common stock. As of May 31, 1999, we also had outstanding
warrants to purchase 217,999 shares of Class A common stock (excluding the
shares of Class A common stock issuable upon exercise of the CNET, NBC
Multimedia and AT&T Corp. warrants). The shares of Class A common stock being
sold hereby (other than shares held by our "affiliates" as defined in the
Securities Act and other than 685,000 shares sold pursuant to the directed share
program) will be freely tradable without restriction or registration under the
Securities Act. All remaining shares were issued and sold by us in private
transactions and are restricted shares under Rule 144. These shares are eligible
for public sale only if registered under the Securities Act or sold in
accordance with Rules 144, 144(k) or 701 thereunder.
Shareholders who purchase shares of Class A common stock in this offering
under the directed share program have agreed that they will not sell these
shares for a period of 30 days from the date of this prospectus. After the
expiration of this lockup period, those shares (other than those held by
officers and directors, who are subject to 180 day lockups) will be freely
tradeable without restriction or registration under the Securities Act.
Shareholders owning in the aggregate 35,079,224 shares of Class A common
stock (including 10,000,000 shares issuable upon conversion of our Class B
common stock) have agreed they will not sell any Class A common stock owned by
them without the prior written consent of Salomon Smith Barney Inc. for a period
of 180 days from the date of this prospectus. Following the expiration of this
lockup period, approximately 31,604,139 shares of Class A common stock,
including shares issuable upon the exercise of options or the conversion of
Class B common stock, will be available for sale in the public market subject to
compliance with Rules 144, 144(k) or 701. See "Underwriting." AT&T Corp. has
agreed that it will not sell or otherwise transfer to a third party its warrants
or the shares issuable upon exercise of its warrants until the earlier of May
26, 2004 or the date that it provides more than 30,000 active emailboxes with
our managed messaging service if this date is on or before December 31, 2000. In
addition, AT&T Corp. has agreed that it will not sell or otherwise transfer the
warrants or the Class A common stock for 180 days after the date of this
prospectus.
Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from us by our employees, directors, officers,
consultants or advisers prior to the closing of this offering, under written
compensatory benefit plans or written contracts relating to the compensation of
such persons. In addition, the Securities and Exchange Commission has indicated
that Rule 701 will apply to stock options granted by us before this offering,
along with the shares acquired upon exercise of such options. Securities issued
in reliance on Rule 701 are deemed to be restricted shares and, beginning 90
days after the date of this prospectus (unless subject to the lockup period
described above), may be sold by persons other than affiliates subject only to
the manner of sale provisions of Rule 144. Affiliates under Rule 144 may sell
their shares without complying with the two-year minimum holding period
requirements.
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<PAGE>
In general, under Rule 144 a person (or persons whose shares are required to
be aggregated) who owns shares that were acquired from the issuer or an
affiliate of the issuer, directly or indirectly, at least one year prior to the
proposed sale, is entitled to sell, within any three-month period commencing 90
days after the date of this prospectus, a number of shares that does not exceed
the greater of (1) 1% of the then outstanding shares of common stock
(approximately 420,823 shares immediately after the offering) or (2) the average
weekly trading volume in the common stock during the four calendar weeks
preceding the date on which a notice of sale is filed, subject to additional
publication and notification requirements. In addition, if the shares were
acquired from the issuer or an affiliate of the issuer at least 2 years prior to
the proposed sale, a person who is not deemed to have been an affiliate of
Mail.com at any time during the preceding 90 days would be entitled to sell
their shares under Rule 144(k) without regard to the volume limits described
above.
We intend to file a registration statement under the Securities Act covering
the shares of Class A common stock reserved for issuance under our stock option
plans and other options issued to employees, directors and consultants. This
registration statement is expected to be filed soon after the date of this
prospectus and will automatically become effective upon filing. Accordingly,
shares registered under this registration statement will be available for sale
in the open market, unless subject to vesting or contractual restrictions.
In addition, after this offering, the holders of approximately 16,015,936
shares of Class A common stock will have rights to cause us to register the sale
of their shares under the Securities Act. Also, AT&T Corp. will have the right
to cause us to register the 1,000,000 shares of Class A common stock issuable
upon exercise of their warrants. Registration of these shares under the
Securities Act would result in their shares becoming freely tradeable without
restriction under the Securities Act (except for shares purchased by our
affiliates) immediately upon the effectiveness of a registration statement. See
"Description of Capital Stock--Registration Rights."
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<PAGE>
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
Following is a general discussion of the material U.S. federal income and
estate tax consequences of the ownership and disposition of the Class A common
stock applicable to non-U.S. holders of Class A common stock. For purposes of
this discussion, a non-U.S. holder is any holder of Class A common stock that,
for U.S. federal income tax purposes, is not a U.S. person (as defined below).
This discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant in light of a non-U.S. holder's particular facts
and circumstances, such as being a U.S. expatriate, and does not address any tax
consequences arising under the laws of any state, local or non-U.S. taxing
jurisdiction. Furthermore, the following discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended, and administrative
and judicial interpretations thereof, all as in effect on the date hereof, and
all of which are subject to change, possibly with retroactive effect. Mail.com
has not and will not seek a ruling from the Internal Revenue Service with
respect to the U.S. federal income and estate tax consequences described below,
and as a result, there can be no assurance that the Internal Revenue Service
will not disagree with or challenge any of the conclusions set forth in this
discussion.
For purposes of this discussion, the term U.S. person means:
- a citizen or resident of the United States;
- a corporation, partnership or other entity created or organized in the
United States or under the laws of the United States or any political
subdivision thereof;
- an estate whose income is included in gross income for U.S. federal income
tax purposes regardless of its source; or
- a trust whose administration is subject to the primary supervision of a
U.S. court and which has one or more U.S. persons who have the authority
to control all substantial decisions of the trust.
DIVIDENDS
A dividend paid to a non-U.S. holder generally will be subject to U.S.
withholding tax either at a rate of 30% of the gross amount of the dividend or
such lower rate as may be specified by an applicable income tax treaty.
Dividends received by a non-U.S. holder that are effectively connected with a
U.S. trade or business conducted by the non-U.S. holder are exempt from that
withholding tax. However, those effectively connected dividends, net of certain
deductions and credits, are taxed at the same graduated rates applicable to U.S.
persons.
In addition to the graduated tax described above, dividends received by a
corporate non-U.S. holder that are effectively connected with a U.S. trade or
business of the corporate non-U.S. holder may also be subject to a branch
profits tax at a rate of 30% or such lower rate as may be specified by an
applicable income tax treaty.
A non-U.S. holder that is eligible for a reduced rate of withholding tax
pursuant to an applicable income tax treaty may be required to submit
documentation to avail itself of that treaty and may be able to obtain a refund
of any excess amounts withheld by Mail.com by filing an appropriate claim for
refund with the Internal Revenue Service.
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<PAGE>
GAIN ON DISPOSITION OF CLASS A COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
on any gain realized upon the sale or other disposition of Class A common stock
unless:
- the gain is effectively connected with a U.S. trade or business of the
non-U.S. holder (which gain, in the case of a corporate non-U.S. holder,
must also be taken into account for branch profits tax purposes);
- the non-U.S. holder is an individual who holds his or her Class A common
stock as a capital asset (generally, an asset held for investment
purposes) and who is present in the United States for a period or periods
aggregating 183 days or more during the calendar year in which the sale or
disposition occurs and certain other conditions are met; or
- Mail.com is or has been a "United States real property holding
corporation" for U.S. federal income tax purposes at any time within the
shorter of the five-year period preceding the disposition or the holder's
holding period for its Class A common stock. Mail.com believes that it is
not and does not believe that it will become a "United States real
property holding corporation" for U.S. federal income tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, Mail.com would be required to report annually to the Internal
Revenue Service the amount of dividends, if any, paid on the Class A common
stock, the name and address of the recipient, and the amount, if any, of tax
withheld. A similar report would be sent to the recipient. Pursuant to
applicable income tax treaties or other agreements, the Internal Revenue Service
may make its reports available to tax authorities in the recipient's country of
residence.
Dividends paid to a non-U.S. holder at an address within the United States
may be subject to backup withholding at a rate of 31% if the non-U.S. holder
fails to establish that it is entitled to an exemption or to provide a correct
taxpayer identification number and other information to the payer. Backup
withholding will generally not apply to dividends paid to non-U.S. holders at an
address outside the United States on or prior to December 31, 2000 unless the
payer has knowledge that the payee is a U.S. person. Under recently finalized
Treasury Regulations regarding withholding and information reporting, payment of
dividends to non-U.S. holders at an address outside the United States after
December 31, 2000 may be subject to backup withholding at a rate of 31% unless
such Non-U.S. Holder satisfies various certification requirements.
Under current treasury regulations, the payment of the proceeds of the
disposition of Class A common stock to or through the U.S. office of a broker is
subject to information reporting and backup withholding at a rate of 31% unless
the holder certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Generally, the payment of the proceeds of the
disposition by a non-U.S. holder of Class A common stock outside the United
States to or through a foreign office of a broker will not be subject to backup
withholding but will be subject to information reporting requirements if the
broker is:
- a U.S. person;
- a "controlled foreign corporation" for U.S. federal income tax purposes;
or
- a foreign person 50% or more of whose gross income for certain periods is
from the conduct of a U.S. trade or business
unless the broker has documentary evidence in its files of the holders' non-U.S.
status and certain other conditions are met, or the non-U.S. holder otherwise
establishes an exemption. Neither backup withholding nor information reporting
generally will apply to a payment of the proceeds of a
87
<PAGE>
disposition of Class A common stock by or through a foreign office of a foreign
broker not subject to the preceding sentence.
In general, the recently finalized treasury regulations, described above, do
not significantly alter substantive withholding and information reporting
requirements but would alter procedures for claiming benefits of an income tax
treaty and change the certifications procedures relating to the receipt by
intermediaries of payments on behalf of the beneficial owner of shares of Class
A common stock. Non-U.S. holders should consult their tax advisors regarding the
effect, if any, of those final treasury regulations on an investment in the
Class A common stock. Those final treasury regulations are generally effective
for payments made after December 31, 2000.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service.
ESTATE TAX
An individual non-U.S. holder who owns Class A common stock at the time of
his or her death or had made certain lifetime transfers of an interest in Class
A common stock will be required to include the value of that Class A common
stock in his or her gross estate for U.S. federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
THE FOREGOING DISCUSSION IS A SUMMARY OF THE PRINCIPAL U.S. FEDERAL INCOME
AND ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER DISPOSITION OF CLASS
A COMMON STOCK BY NON-U.S. HOLDERS. ACCORDINGLY, INVESTORS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THE INCOME AND ESTATE TAX CONSEQUENCES OF
THE OWNERSHIP AND DISPOSITION OF CLASS A COMMON STOCK, INCLUDING THE APPLICATION
AND EFFECT OF THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING
JURISDICTION.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus, each underwriter named below has severally
agreed to purchase, and Mail.com has agreed to sell to each underwriter, the
number of shares set forth opposite the name of each underwriter.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Salomon Smith Barney Inc.........................................................
PaineWebber Incorporated.........................................................
SG Cowen Securities Corporation..................................................
Wit Capital Corporation..........................................................
DLJdirect Inc....................................................................
----------
Total............................................................................ 6,850,000
----------
----------
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of various legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.
The underwriters, for whom Salomon Smith Barney Inc., PaineWebber
Incorporated and SG Cowen Securities Corporation are acting as representatives,
propose to offer some of the shares directly to the public at the public
offering price listed on the cover page of this prospectus and some of the
shares to various dealers at the public offering price less a concession not in
excess of $ per share. The underwriters may allow, and these dealers may
reallow, a concession not in excess of $ per share on sales to other
dealers. If all of the shares are not sold at the initial offering price, the
representatives may change the public offering price and the other selling
terms. The representatives have advised us that the underwriters do not intend
to confirm any sales to any accounts over which they exercise discretionary
authority.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to 1,027,500 additional shares of
Class A common stock at the public offering price less the underwriting
discount. The underwriters may exercise their option solely for the purpose of
covering over-allotments, if any, in connection with this offering. To the
extent this option is exercised, each underwriter will be obligated, subject to
various conditions, to purchase a number of additional shares approximately
proportionate to its initial purchase commitment.
At our request, the underwriters will reserve up to approximately 685,000
shares of Class A common stock to be sold, at the initial public offering price,
to directors, officers and employees of Mail.com, and their friends and family
members, who will agree to hold their shares for at least 30 days after the date
of this prospectus. This directed share program will be administered by Salomon
Smith Barney Inc. The number of shares of common stock available for sale to the
general public will be reduced to the extent these individuals purchase reserved
shares. Any reserved shares which are not so purchased will be offered by the
underwriters to the general public on the same basis as the other shares offered
hereby.
Mail.com, our officers and directors, and other stockholders have agreed
that, for a period of 180 days from the date of this prospectus, they will not,
without the prior written consent of Salomon
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Smith Barney Inc., dispose of or hedge any Class A common stock, except for
shares acquired in the public market following the offering by persons other
than our officers and directors, of Mail.com or any securities convertible into
or exchangeable for Class A common stock. Salomon Smith Barney Inc. in its sole
discretion may release any of the securities subject to these lock-up agreements
at any time without notice.
Prior to this offering, there has been no public market for the Class A
common stock. Consequently, the initial public offering price for the shares was
determined by negotiations between us and the representatives. Among the factors
considered in determining the initial public offering price were our record of
operations, our current financial condition, our future prospects, our markets,
the economic conditions in and future prospects for the industry in which we
compete, our management, and currently prevailing general conditions in the
equity securities markets, including current market valuations of publicly
traded companies considered comparable to Mail.com. We cannot assure you,
however, that the prices at which the shares will sell in the public market
after this offering will not be lower than the price at which they are sold by
the underwriters or that an active trading market in the Class A common stock
will develop and continue after this offering.
Our Class A common stock has been approved for quotation on the Nasdaq
National Market under the symbol "MAIL".
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by Mail.com in connection with this offering. These
amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares of Class A common stock to
cover over-allotments.
<TABLE>
<CAPTION>
PAID BY MAIL.COM
-------------------------
<S> <C> <C>
FULL
NO EXERCISE EXERCISE
----------- ------------
Per share.......................................................... $ $
Total.............................................................. $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of the
underwriters, may over-allot, or engage in syndicate covering transactions,
stabilizing transactions and penalty bids. Over-allotment involves syndicate
sales of Class A common stock in excess of the number of shares to be purchased
by the underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the Class A common stock in
the open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of bids or purchases
of Class A common stock made for the purpose of preventing or retarding a
decline in the market price of the Class A common stock while the offering is in
progress. Penalty bids permit the underwriters to reclaim a selling concession
from a syndicate member when Salomon Smith Barney Inc., in covering syndicate
short positions or making stabilizing purchases, repurchases shares originally
sold by that syndicate member. These activities may cause the price of the Class
A common stock to be higher than the price that otherwise would exist in the
open market in the absence of these transactions. These transactions may be
effected on the Nasdaq National Market or in the over-the-counter market, or
otherwise and, if commenced, may be discontinued at any time.
An electronic prospectus is being made available on Web sites maintained by
Wit Capital Corporation and DLJdirect. The representatives have agreed to
allocate shares, including shares to be purchased by DLJdirect for our
member appreciation share purchase program, to these underwriters for sale to
their brokerage account holders. Other than the prospectus in electronic format,
any information on their Web sites relating to this offering is not part of this
prospectus and has not been approved or endorsed by us or any underwriter and
should not be relied upon by prospective investors.
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<PAGE>
For purposes of this offering, we have established with DLJdirect the
Mail.com member appreciation share purchase program. Under this program, members
who have established an online account with DLJdirect will have an opportunity
to purchase shares in this offering on a first-come, first-served basis, subject
to an allocation of 100 shares per member and limited by the total number of
shares made available to DLJdirect by the representatives. Even if our members
submit timely indications of interest and comply with other procedures as may be
required by DLJdirect, we cannot guarantee that any of our members will receive
an allocation of shares in this offering.
Because persons associated with entities controlled by Donaldson, Lufkin &
Jenrette, Inc. beneficially own more than 10% of the preferred stock outstanding
prior to the closing of this offering, DLJdirect, a subsidiary of Donaldson,
Lufkin and Jenrette, Inc., may be deemed to have a "conflict of interest" with
us under Rule 2720 of the Conduct Rules of the National Association of
Securities Dealers. When a NASD member with a "conflict of interest"
participates as an underwriter in a public offering, Rule 2720 states that the
public offering price per share can be no higher than that recommended by a
"qualified independent underwriter" meeting specified standards. In accordance
with this rule, Salomon Smith Barney Inc. has assumed the responsibilities of
acting as a qualified independent underwriter. In its role as a qualified
independent underwriter, Salomon Smith Barney Inc. has performed a due diligence
investigation and participated in the preparation of this prospectus and the
registration statement of which this prospectus is a part.
Salomon Smith Barney Inc. and PaineWebber Incorporated have performed
investment banking and advisory services for us from time to time for which they
have received customary compensation and reimbursement of expenses. Among other
services, they acted as our placement agents in connection with the private
placement of Class E preferred stock in March 1999, and PaineWebber Incorporated
acted as private placement agent in connection with the private placement of
Class C preferred stock in July and August of 1998. In the private placement of
our Class C preferred stock, we granted PaineWebber Incorporated a "right of
first refusal" to serve as co-advisor, co-placement agent or co-managing
underwriter with respect to securities offerings or specified financings that we
may wish to undertake through August 31, 2000. The representatives may, from
time to time, engage in transactions with and perform services for us in the
ordinary course of our business.
DLJdirect has entered into a marketing agreement with us to promote their
online financial services. We have agreed to run their advertisements and engage
in other forms of promotion and will be compensated for our efforts according to
the number of online brokerage account applications that our members submit to
DLJdirect.
Nine individuals who are associated with some of the underwriters in this
offering purchased an aggregate of 103,626 shares of Class E preferred stock in
March 1999. Under the NASD's rules, these shares could be deemed to be
underwriting compensation received in connection with the offering. Accordingly,
these holders have agreed for a period of one year following the date of this
prospectus not to sell, transfer, assign, pledge or hypothecate the Class A
common stock they will receive upon conversion of their Class E preferred stock,
including the additional shares resulting from the settlement of the Class E
preferred stock issuance obligation, other than to any NASD member participating
in the offering or an officer or partner of such an NASD member. As purchasers
of Class E preferred stock, these individuals have demand and piggyback
registration rights with respect to the shares of Class A common stock they will
own upon the closing of this offering.
We have agreed to indemnify the underwriters against various liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
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<PAGE>
LEGAL MATTERS
The validity of the shares of Class A common stock offered hereby will be
passed upon for Mail.com by Winthrop, Stimson, Putnam & Roberts, New York, New
York. David Ambrosia, who became our Executive Vice President and General
Counsel on May 18, 1999, was a partner in Winthrop, Stimson, Putnam & Roberts
through June 1999. Other legal matters in connection with this offering will be
passed upon for the underwriters by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The financial statements of Mail.com, Inc. as of December 31, 1997 and 1998
and for each of the years in the three year period ended December 31, 1998
included in this prospectus have been so included in reliance on the report of
KPMG LLP, independent accountants, appearing elsewhere herein, upon authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the Class A common stock offered hereby.
This prospectus, which constitutes a part of the registration statement, does
not contain all of the information provided in the registration statement or the
exhibits and schedules which are part of the registration statement. For further
information with respect to Mail.com and the Class A common stock, reference is
made to the registration statement and the related exhibits and schedules. You
may read and copy any document we file at the SEC's public reference rooms in
Washington, DC, New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings will also be available to the public from the SEC's Web site at
http://www.sec.gov.
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MAIL.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999 (unaudited)............................. F-3
Statements of Operations for the years ended December 31, 1996, 1997 and 1998, and for the three months
ended March 31, 1998 (unaudited) and March 31, 1999 (unaudited).......................................... F-4
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1996, 1997 and 1998, and for
the three months ended March 31, 1999 (unaudited)........................................................ F-5
Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998, and for the three months
ended March 31, 1998 (unaudited) and March 31, 1999 (unaudited).......................................... F-7
Notes to Financial Statements.............................................................................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Mail.com, Inc.:
We have audited the accompanying balance sheets of Mail.com, Inc. as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mail.com, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
March 19, 1999
F-2
<PAGE>
MAIL.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------------- MARCH 31, (SEE NOTE 1 (B))
1997 1998 1999 MARCH 31, 1999
---------- ---------- ----------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 909,718 $8,414,352 2$0,136,543 $27,636,543
Accounts receivable, net of allowance for doubtful accounts
of $92,401 and $127,400 as of December 31, 1998 and as of
March 31, 1999, respectively............................. -- 702,065 1,417,374 1,417,374
Prepaid expenses and other current assets.................. 36,676 222,577 1,031,820 1,031,820
Receivable from sale leaseback............................. -- 631,003 -- --
---------- ---------- ----------- -----------------
Total current assets..................................... 946,394 9,969,997 22,585,737 30,085,737
---------- ---------- ----------- -----------------
Property and equipment, net.................................. 928,028 4,341,107 7,316,557 7,316,557
Domain assets, net........................................... 651,468 1,010,416 2,032,175 2,032,175
Partner advances............................................. -- 4,714,821 4,603,902 28,971,868
Investments in affiliated companies.......................... 100,000 250,000 250,000 250,000
Other........................................................ 19,964 58,147 323,212 323,212
---------- ---------- ----------- -----------------
Total assets............................................. $2,645,854 $20,344,488 3$7,111,583 $68,979,549
---------- ---------- ----------- -----------------
---------- ---------- ----------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................... $ 66,725 $1,753,582 $2,658,001 $ 2,658,001
Accrued expenses........................................... 320,930 1,181,613 2,529,108 2,529,108
Accrued payroll and other related costs.................... 140,047 486,981 517,911 517,911
Current portion of capital lease obligations............... 240,513 479,461 714,050 714,050
Current portion of domain asset purchase obligations....... 62,654 168,582 168,582 168,582
Due to officer............................................. 200,000 -- -- --
Deferred revenue........................................... 106,488 823,908 1,376,264 1,376,264
---------- ---------- ----------- -----------------
Total current liabilities................................ 1,137,357 4,894,127 7,963,916 7,963,916
---------- ---------- ----------- -----------------
Capital lease obligations, less current portion.............. 568,728 1,437,731 2,506,645 2,506,645
Domain asset purchase obligation, less current portion....... 150,155 216,886 190,355 190,355
Deferred revenue............................................. 222,699 1,080,737 1,120,486 1,120,486
Redeemable convertible preferred stock, $0.01 par value;
Class C-- 12,000,000 shares authorized; 3,776,558 shares
issued and outstanding at December 31, 1998 and March 31,
1999, with an aggregate liquidation preference of
$13,047,650; no shares issued and outstanding pro forma
(unaudited)................................................ -- 13,047,650 13,047,650 --
Stockholders' equity (deficit):
Convertible preferred stock, $0.01 par value; 60,000,000
shares authorized:
Class A--12,000,000 shares authorized; 4,185,000, 6,185,000
and 6,185,000 shares issued and outstanding at December
31, 1997 and 1998, and at March 31, 1999, respectively,
with an aggregate liquidation preference of $2,932,580,
$7,647,580 and $7,647,580 at December 31, 1997 and 1998,
and at March 31, 1999, respectively; no shares issued and
outstanding pro forma (unaudited)........................ 41,850 61,850 61,850 --
Class D--10,000,000 shares authorized; no shares issued and
outstanding.............................................. -- -- --
Class E--10,000,000 shares authorized; 0, 0 and 3,200,000
shares issued and outstanding at December 31, 1997 and
1998, and at March 31, 1999, respectively, with an
aggregate liquidation preference of $16,000,000 at March
31, 1999; no shares issued and outstanding pro forma
(unaudited).............................................. -- -- 32,000 --
Common stock, $0.01 par value; 130,000,000 shares authorized:
Class A--120,000,000 shares authorized; 4,097,500,
5,931,405 and 6,682,481 shares issued and outstanding at
December 31, 1997 and 1998, and March 31, 1999,
respectively; 25,004,922 issued and outstanding pro forma
(unaudited).............................................. 40,975 59,314 66,825 250,051
Class B--10,000,000 shares authorized, issued and
outstanding at December 31, 1997 and 1998 and March 31,
1999; with an aggregate liquidation preference of
$1,000,000............................................... 100,000 100,000 100,000 100,000
Additional paid-in capital................................... 4,652,168 16,537,440 35,640,616 103,868,605
Subscriptions receivable..................................... (727,613) (500) (210,950) (210,950)
Deferred compensation........................................ -- (1,025,399) (934,399) (934,399)
Accumulated deficit.......................................... (3,540,465) (16,065,348) (22,473,411) (45,875,160)
---------- ---------- ----------- -----------------
Total stockholders' equity (deficit)..................... 566,915 (332,643) 12,282,531 57,198,147
---------- ---------- ----------- -----------------
Commitments and contingencies
Total liabilities and stockholders' equity (deficit)..... $2,645,854 $20,344,488 3$7,111,583 $68,979,549
---------- ---------- ----------- -----------------
---------- ---------- ----------- -----------------
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
MAIL.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- -------------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................. $ 19,015 $ 173,234 $ 1,494,762 $ 80,413 $ 1,185,939
---------- ---------- ----------- ----------- ------------
Operating expenses:
Cost of revenues........ 187,890 1,081,848 2,890,582 351,665 1,477,690
Sales and marketing..... 65,096 930,420 6,679,478 272,650 3,590,636
General and
administrative........ 221,932 862,028 3,482,097 275,206 1,364,898
Product development..... 93,698 296,140 1,573,465 218,292 1,176,959
---------- ---------- ----------- ----------- ------------
Total operating
expenses............ 568,616 3,170,436 14,625,622 1,117,813 7,610,183
---------- ---------- ----------- ----------- ------------
Loss from
operations.......... (549,601) (2,997,202) (13,130,860) (1,037,400) (6,424,244)
---------- ---------- ----------- ----------- ------------
Other income (expense):
Gain on sale of
investment............ -- -- 438,000 -- --
Interest income......... 6,869 36,264 277,164 6,905 114,904
Interest expense........ (1,980) (34,815) (109,187) (13,368) (98,723)
---------- ---------- ----------- ----------- ------------
Total other income
(expense), net...... 4,889 1,449 605,977 (6,463) 16,181
---------- ---------- ----------- ----------- ------------
Net loss.................. $ (544,712) $(2,995,753) $(12,524,883) $(1,043,863) $ (6,408,063)
---------- ---------- ----------- ----------- ------------
---------- ---------- ----------- ----------- ------------
Basic and diluted net loss
per share............... $ (0.04) $ (0.21) $ (0.86) $ (0.07) $ (0.39)
---------- ---------- ----------- ----------- ------------
---------- ---------- ----------- ----------- ------------
Weighted-average basic and
diluted shares
outstanding............. 13,725,278 14,097,500 14,607,915 14,100,244 16,468,221
---------- ---------- ----------- ----------- ------------
---------- ---------- ----------- ----------- ------------
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
MAIL.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CLASS A PREFERRED CLASS A COMMON CLASS B COMMON
STOCK STOCK STOCK ADDITIONAL
---------------------- ---------------------- -------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ----------- --------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995......... -- $ -- -- $ -- $ $ --
Issuance of Class A common stock to
founders........................... -- -- 2,422,500 24,225 -- -- (12,112)
Issuance of Class B common stock to
founder............................ -- -- -- -- 10,000,000 100,000 900,000
Issuance of Class A preferred stock
to founders........................ 100,000 1,000 -- -- -- -- (500)
Domain assets purchased in exchange
for Class A preferred stock........ 225,000 2,250 -- -- -- -- 20,330
Domain assets purchased in exchange
for Class A common stock........... -- -- 1,675,000 16,750 -- 160,670
Issuance of Class A preferred stock
for cash........................... 400,000 4,000 -- -- -- -- 161,000
Net loss............................. -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- --------- ----------
Balance at December 31, 1996......... 725,000 7,250 4,097,500 40,975 10,000,000 100,000 1,229,388
Payment of founder's Class B common
stock subscription receivable...... -- -- -- -- -- -- --
Issuance of Class A preferred stock
in exchange for asset.............. 100,000 1,000 -- -- -- -- 99,000
Issuance of Class A preferred stock,
net of $54,640 issuance costs...... 3,290,000 32,900 -- -- -- -- 3,202,480
Issuance of Class A preferred stock
in exchange for services........... 70,000 700 -- -- -- -- 69,300
Issuance of options and warrants in
connection with partner and
consultant agreements.............. -- -- -- -- -- -- 52,000
Net loss............................. -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- --------- ----------
Balance at December 31, 1997......... 4,185,000 41,850 4,097,500 40,975 10,000,000 100,000 4,652,168
Issuance of Class A common stock to
vendor............................. -- -- 2,745 27 -- -- 5,461
Issuance of Class A common stock in
connection with partner
agreements......................... -- -- 1,831,160 18,312 -- -- 7,213,105
Proceeds from stock subscriptions
receivable......................... -- -- -- -- -- -- --
Issuance of Class A preferred stock
as a result of options exercised,
net of $226,696 issuance costs..... 2,000,000 20,000 -- -- -- -- 3,753,304
Issuance of warrants for Class A
common stock....................... -- -- -- -- -- -- 129,675
Issuance of warants in connection
with Class C redeemable convertible
preferred stock.................... -- -- -- -- -- -- 169,943
Offering costs in connection with
Class C redeemable convertible
preferred stock.................... -- -- -- -- -- -- (853,575)
Issuance of stock options to
officer............................ -- -- -- -- -- -- 1,096,399
Amortization of deferred compensation -- -- -- -- -- -- --
Issuance of stock options to
partner............................ -- -- -- -- -- -- 370,960
Net loss............................. -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- --------- ----------
Balance at December 31, 1998......... 6,185,000 $ 61,850 5,931,405 $ 59,314 10,000,000 $ 100,000 $16,537,440
--------- ----------- --------- ----------- --------- --------- ----------
--------- ----------- --------- ----------- --------- --------- ----------
<CAPTION>
TOTAL
STOCKHOLDERS'
SUBSCRIPTIONS DEFERRED ACCUMULATED EQUITY
RECEIVABLE COMPENSATION DEFICIT (DEFICIT)
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995......... $ -- -- $ -- $ --
Issuance of Class A common stock to
founders........................... (12,113) -- -- --
Issuance of Class B common stock to
founder............................ (450,000) -- -- 550,000
Issuance of Class A preferred stock
to founders........................ (500) -- -- --
Domain assets purchased in exchange
for Class A preferred stock........ -- -- -- 22,580
Domain assets purchased in exchange
for Class A common stock........... -- 177,420
Issuance of Class A preferred stock
for cash........................... -- -- -- 165,000
Net loss............................. -- -- (544,712) (544,712)
------------ ------------- ------------ -------------
Balance at December 31, 1996......... (462,613) -- (544,712) 370,288
Payment of founder's Class B common
stock subscription receivable...... 450,000 -- -- 450,000
Issuance of Class A preferred stock
in exchange for asset.............. -- -- -- 100,000
Issuance of Class A preferred stock,
net of $54,640 issuance costs...... (715,000) -- -- 2,520,380
Issuance of Class A preferred stock
in exchange for services........... -- -- -- 70,000
Issuance of options and warrants in
connection with partner and
consultant agreements.............. -- -- -- 52,000
Net loss............................. -- -- (2,995,753) (2,995,753)
------------ ------------- ------------ -------------
Balance at December 31, 1997......... (727,613) -- (3,540,465) 566,915
Issuance of Class A common stock to
vendor............................. -- -- -- 5,488
Issuance of Class A common stock in
connection with partner
agreements......................... -- -- -- 7,231,417
Proceeds from stock subscriptions
receivable......................... 727,113 -- -- 727,113
Issuance of Class A preferred stock
as a result of options exercised,
net of $226,696 issuance costs..... -- -- -- 3,773,304
Issuance of warrants for Class A
common stock....................... -- -- -- 129,675
Issuance of warants in connection
with Class C redeemable convertible
preferred stock.................... -- -- -- 169,943
Offering costs in connection with
Class C redeemable convertible
preferred stock.................... -- -- -- (853,575)
Issuance of stock options to
officer............................ -- (1,096,399) -- --
Amortization of deferred compensation -- 71,000 -- 71,000
Issuance of stock options to
partner............................ -- -- -- 370,960
Net loss............................. -- -- (12,524,883) (12,524,883)
------------ ------------- ------------ -------------
Balance at December 31, 1998......... $ (500) $(1,025,399) ($16,065,348) $ (332,643)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
MAIL.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CLASS A PREFERRED CLASS E PREFERRED CLASS A COMMON STOCK CLASS B COMMON STOCK
STOCK STOCK ADDITIONAL
---------------------- ---------------------- ---------------------- -------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ----------- --------- ----------- --------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1998............ 6,185,000 $ 61,850 -- $ -- 5,931,405 $ 59,314 10,000,000 $ 100,000 $16,537,440
Issuance of Class E
preferred stock net
of issuance costs of
$834,605
(unaudited)......... -- -- 3,200,000 32,000 -- -- -- -- 15,133,395
Purchase of domain
name (unaudited).... -- -- -- -- 225,000 2,250 -- -- 1,122,750
Issuance of Class A
common stock in
connection with
partner agreements
(unaudited)......... -- -- -- -- 471,076 4,711 -- -- 2,350,669
Issuance of stock
options to
consultant in lieu
of services
(unaudited)......... -- -- -- -- -- -- -- -- 8,992
Issuance of Class A
common stock to
vendor
(unaudited)......... -- -- -- -- 55,000 550 -- -- 274,450
Issuance of warrants
to vendor
(unaudited)......... -- -- -- -- -- -- -- -- 1,970
Amortization of
deferred
compensation........ -- -- -- -- -- -- -- -- --
Proceeds from stock
subscription
receivable
(unaudited)......... -- -- -- -- -- -- -- -- --
Issuance of employee
stock options....... -- -- -- -- -- -- -- -- 210,950
Net loss for three
months ended March
31, 1999
(unaudited)......... -- -- -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- --------- --------- ----------
Balance at March 31,
1999 (unaudited).... 6,185,000 $ 61,850 3,200,000 $ 32,000 6,682,481 $ 66,825 10,000,000 $ 100,000 $35,640,616
--------- ----------- --------- ----------- --------- ----------- --------- --------- ----------
--------- ----------- --------- ----------- --------- ----------- --------- --------- ----------
<CAPTION>
TOTAL
STOCKHOLDERS'
SUBSCRIPTIONS DEFERRED ACCUMULATED EQUITY
RECEIVABLE COMPENSATION DEFICIT (DEFICIT)
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December
31, 1998............ $ (500) $(1,025,399) ($16,065,348) $ (332,643)
Issuance of Class E
preferred stock net
of issuance costs of
$834,605
(unaudited)......... -- -- -- 15,165,395
Purchase of domain
name (unaudited).... -- -- -- 1,125,000
Issuance of Class A
common stock in
connection with
partner agreements
(unaudited)......... -- -- -- 2,355,380
Issuance of stock
options to
consultant in lieu
of services
(unaudited)......... -- -- -- 8,992
Issuance of Class A
common stock to
vendor
(unaudited)......... -- 275,000
Issuance of warrants
to vendor
(unaudited)......... -- -- -- 1,970
Amortization of
deferred
compensation........ -- 91,000 -- 91,000
Proceeds from stock
subscription
receivable
(unaudited)......... 500 -- -- 500
Issuance of employee
stock options....... (210,950) -- -- --
Net loss for three
months ended March
31, 1999
(unaudited)......... -- -- (6,408,063) (6,408,063)
------------ ------------- ------------ ------------
Balance at March 31,
1999 (unaudited).... $ (210,950) $ (934,399) ($22,473,411) $12,282,531
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
MAIL.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------ --------------------------
1996 1997 1998 1998 1999
--------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(544,712) $(2,995,753) $(12,524,883) $ (1,043,863) $ (6,408,063)
Adjustments to reconcile net loss to net cash used in
operating activities:
Non-cash charges related to partner agreements.......... -- -- 3,017,083 128,858 2,742,300
Non-cash compensation................................... -- 122,000 520,579 -- 10,962
Depreciation and amortization........................... 15,826 162,449 897,340 192,340 538,130
Amortization of domain assets........................... 25,351 126,340 206,426 44,459 103,240
Amortization of deferred compensation................... -- -- 71,000 -- 91,000
Write-off of property and equipment..................... -- 84,000 -- -- --
Provision for doubtful accounts......................... -- -- 92,401 -- 38,089
Changes in operating assets and liabilities:
Accounts receivable................................... -- -- (794,466) -- (753,398)
Prepaid expenses and other current assets............. (34,309) (10,887) (185,901) 34,228 (476,095)
Partner advances...................................... -- -- (500,000) -- --
Other assets.......................................... 1,378 (8,727) (35,987) (52,032) (598,212)
Accounts payable...................................... -- 66,725 1,686,857 65,327 904,419
Accrued expenses...................................... 62,316 258,614 860,683 (118,053) 1,347,495
Accrued payroll and other related costs............... 28,436 111,611 346,934 (98,902) 30,930
Deferred revenue...................................... 6,289 322,898 1,575,458 171,491 592,104
--------- ----------- ------------ ------------ ------------
Net cash used in operating activities............... (439,425) (1,760,730) (4,766,476) (676,147) (1,837,099)
--------- ----------- ------------ ------------ ------------
Cash flows from investing activities:
Purchases of domain assets.............................. (60,133) (334,312) (384,791) (92,697) --
Loan-related party...................................... (50,788) -- -- -- --
Repayment of loan-related party......................... 20,000 30,788 -- -- --
Proceeds from sale leaseback............................ 37,534 709,874 642,847 146,345 2,145,383
Purchases of property and equipment..................... (81,237) (895,689) (4,187,607) (178,420) (3,513,580)
--------- ----------- ------------ ------------ ------------
Net cash used in investing activities............... (134,624) (489,339) (3,929,551) (124,772) (1,368,197)
--------- ----------- ------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of Class A, C and E preferred
stock................................................. 165,000 2,520,380 16,682,379 585,634 15,164,895
Net proceeds from issuance of Class A and B common
stock................................................. 550,000 450,000 12,113 -- --
Payments under capital lease obligations................ (12,674) (138,870) (283,711) (138,757) (210,877)
Due to officer.......................................... -- 200,000 (200,000) -- --
Payments under domain asset purchase obligations........ -- -- (10,120) (10,120) (26,531)
--------- ----------- ------------ ------------ ------------
Net cash provided by financing activities........... 702,326 3,031,510 16,200,661 436,757 14,927,487
--------- ----------- ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents....................................... 128,277 781,441 7,504,634 (364,162) 11,722,191
Cash and cash equivalents at beginning of the period.... -- 128,277 909,718 909,718 8,414,352
--------- ----------- ------------ ------------ ------------
Cash and cash equivalents at the end of the period...... $ 128,277 $ 909,718 $ 8,414,352 $ 545,556 $ 20,136,543
--------- ----------- ------------ ------------ ------------
--------- ----------- ------------ ------------ ------------
Supplemental disclosure of non-cash information:
During the years ended December 31, 1996, 1997 and 1998, and during the three month periods ended March 31, 1998 and 1999,
the Company paid approximately $2,000, $35,000, $85,000, $13,000 and $45,000 respectively, for interest.
Non-cash investing activities:
During the year ended December 31, 1996, the Company purchased domain assets in exchange for the issuance of Class A
preferred and common stock. The transaction resulted in a non-cash investing activity of $200,000.
During the year ended December 31, 1996, the Company issued 100,000 shares of Class A preferred stock in exchange for
stock. The transaction resulted in a non-cash investing activity of $100,000.
During the year ending December 31, 1998, and the three month periods ending March 31, 1998 and 1999, the Company
issued 1,831,160, 0 and 471,076, respectively, shares of its common stock in connection with some of its Mail.com
partner agreements. These transactions resulted in a non-cash investing activity of approximately $7,196,000, 0 and
2,355,000 for the year ending December 31, 1998 and the three month periods March 31, 1998 and 1999, 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 $211,200, $749,585, $1,391,662, $146,345 and $1,514,380 for the years ended
December 31, 1996, 1997, and 1998, and for the three month periods ended March 31, 1998 and 1999, respectively.
The Company is obligated under various agreements to purchase domain assets. These obligations resulted in non-cash
financing activities aggregating $226,585, $169,003, $0 and $0 for the years ended December 31, 1997 and 1998, and for
the three month periods ended March 31, 1998 and 1999, respectively.
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(A) SUMMARY OF OPERATIONS
Mail.com, Inc. (the "Company" or "Mail.com"), formerly known as iName, Inc.,
is a provider of free and pay email services and functions to Web users. 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 revenues primarily from advertising related
sales, including direct marketing and e-commerce promotions and from premium
services offered on a subscription basis. The Company has assembled a portfolio
of approximately 1,200 domain names.
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.
The Company was incorporated in the State of Delaware on August 1, 1994
(inception), however, the business commenced operations in 1996 and launched its
first commercial email service in November 1996. The Company's financial
statements as of December 31, 1994 and 1995 and for the period from August 1,
1994 through December 31, 1995 reflect immaterial transactions. Accordingly, the
Company's results of operations for the period from August 1, 1994 through
December 31, 1995 have been combined with the Company's results of operations
for the year ended December 31, 1996 to facilitate presentation due to the
limited activity during the earlier period. During 1994 and 1995, the Company
only incurred expenses which resulted in a reported net loss of approximately
$6,000 and $3,000, respectively.
Inherent in the Company's business are various risks and uncertainties,
including its limited operating history, historical operating losses, dependence
upon strategic alliances, and the limited history of Web-based email and email
advertising. The Company's future success will be dependent upon its ability to
create and deliver effective and competitive email services, the acceptance of
the Internet and Web-based email as a medium for advertising, and the Company's
ability to develop and provide new services that meet members' changing
requirements, including the effective use of leading technologies, to continue
to enhance its current services, and to influence and respond to emerging
industry standards and other technological changes on a timely and
cost-effective basis.
(B) INITIAL PUBLIC OFFERING AND PRO FORMA BALANCE SHEET--UNAUDITED
In March 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission ("SEC") that
would permit the Company to sell shares of its Class A common stock in
connection with a proposed initial public offering ("IPO").
The accompanying pro forma balance sheet as of March 31, 1999 gives effect
to (i) the issuance, at the closing of the offering, of an aggregate of 1.5
million shares of Class A common stock to CNET and NBC Multimedia, at a purchase
price equal to the lower of $5 per warrant or the price per share in an initial
public offering, for proceeds of $7.5 million; (ii) the automatic conversion on
a one-for-one basis of all outstanding shares of convertible preferred stock
into 13,161,558 shares of Class A common stock upon the closing of this
offering; (iii) the issuance upon the closing of this offering of 2,368,907
shares of Class A common stock in the aggregate to CNET and Snap, and 210,000
shares of Class A common stock to NBC Multimedia, both at the IPO price which is
assumed to be $11 per share, in full settlement of the contingent obligations to
issue additional shares of Class A common stock to them;
F-8
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and (iv) the return of 1,000,000 shares of Class A common stock originally
issued at $3.50 per share from GeoCities and the write-off of a $500,000
non-refundable fee paid to GeoCities both of which were done in connection with
cancelling and rescinding the old contract and entering into a new advertising
agreement; and (v) the issuance of 2,079,378 shares of Class A common stock at
the closing of the offering, in full settlement of the Company's contingent
obligations to issue additional equity securities to its preferred stockholders.
Such issuances of Class A common shares at the closing of this offering will be
recorded as a non-cash dividend to the Company's preferred stockholders. For
purposes of the pro forma balance sheet, the amount of the dividend is based on
a value of $11 per common share, which is the mid point of the offering range in
the IPO. The actual amount of the dividend will be determined using the initial
public offering price upon consummation of the offering.
(C) UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial statements of the Company as of March 31, 1999, and
for the three months ended March 31, 1998 and 1999, are unaudited. 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 rules and regulations of the SEC relating
to interim financial statements. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the financial position and the results of its operations and its
cash flows have been included in such unaudited financial statements. The
results of operations for the three months ended March 31, 1998 and 1999 are not
necessarily indicative of the results to be expected for the entire year.
(D) 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.
(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. Cash equivalents
at December 31, 1997 and 1998 and March 31, 1999 were approximately $773,000,
$7,727,000 and $19,952,219, respectively.
(F) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the related assets,
generally ranging from three to five years. Property and equipment under capital
leases are stated at the present value of minimum lease payments and are
amortized using the straight-line method over the shorter of the lease term or
the estimated useful lives of the assets. Leasehold improvements are amortized
using the straight-line method over the estimated useful lives of the assets or
the term of the lease, whichever is shorter.
F-9
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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 (see note 2). 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) IMPAIRMENT OF LONG-LIVED ASSETS
Periodically, management determines whether any property and equipment or
any other assets have been impaired based on the criteria established in SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of." During 1997, the Company made an adjustment of
$84,000 to reduce the carrying value of a computer system deemed to be impaired.
(I) INCOME TAXES
Income taxes are accounted for under the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in results of operations in the period that
the tax change occurs. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
(J) REVENUE RECOGNITION
The Company's revenues are derived principally from the sale of banner
advertisements. 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.
F-10
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising was a new source of revenue in 1998. Previously, the main source of
revenue was subscription services. For the year ended December 31, 1998 and for
the three months ended March 31, 1998 and 1999, revenue from advertising related
sales approximated $1,117,000, $10,000 and $1,007,000, respectively. Up-front
placement fees represent funds received from direct marketers and e-commerce
companies upon commencement of the contract. Such fees are recorded as deferred
revenues 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 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. If the advertising
impressions are received from the customer prior to the Company delivering the
advertising impressions a liability is recorded, and if the Company delivers the
advertising impressions to the other companies' Web sites prior to receiving the
advertising impressions a prepaid expense is recorded. As of December 31, 1998
and March 31, 1999, the Company has recorded a liability of approximately
$71,000 and $51,000, respectively, for barter advertising to be delivered.
Barter revenues and expenses were approximately $162,000 and $233,000,
respectively, during 1998. Barter revenues and expenses were approximately $0
and $0; and $143,000 and $124,000 for the three months ended March 31, 1998 and
1999, respectively.
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. The eight year amortization period for lifetime
subscriptions is based on the weighted-average expected usage period of a
lifetime member. Commencing March 10, 1999, the Company no longer offers
lifetime memberships and only offers monthly and annual subscriptions. The
Company offers 30-day trial periods for certain subscription services. The
Company only recognizes revenue after the 30-day trial period. 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. For the years ended
December 31, 1996, 1997 and 1998, and for the three months ended March 31, 1998
and 1999, revenues from email subscriptions were approximately $2,000, $61,000,
$285,000, $41,000 and $128,000, respectively. The Company provides an allowance
for credit card chargebacks and refunds on its subscription services based upon
historical experience. The Company
F-11
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
provides pro rated refunds and chargebacks to subscription members who elect to
discontinue their service. The actual amount of refunds and chargebacks
approximated management's expectations for all periods presented.
The Company has entered into certain partner agreements whereby the Company
compensates its partners based upon a percentage of net revenues generated by
the Company on its partners' email Web sites. The Company's partner payments are
included as a component of sales and marketing expenses.
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 email outsourcing are recognized as the service is performed based
upon the monthly fees charged to its customers. For the years ended December 31,
1996, 1997, and 1998, and for the three month periods ended March 31, 1998 and
1999, revenues from the sale of domain names and email outsourcing fees were
approximately $17,000, $112,000, $93,000, $29,000 and $51,000, respectively.
(K) PRODUCT DEVELOPMENT COSTS
Product development costs consist principally of salaries and related costs,
which are charged to expense as incurred.
(L) SALES AND MARKETING COSTS
Marketing expense includes the costs to acquire and retain subscribers,
advertising and other general sales and marketing costs. Sales and marketing
costs include expenses related to customer acquisitions of approximately
$631,000 and $1,709,000 in cash and approximately $0 and $3,017,000 in common
stock issuances during 1997 and 1998, respectively, and approximately $123,000
and $407,000 in cash and approximately $0 and $2,247,000 in common stock for the
three month periods ended March 31, 1998 and 1999, respectively.
The Company expenses the cost of advertising and promoting its services as
incurred. Such costs are included in sales and marketing and totaled
approximately $2,000, $8,000, and $300,000 and $7,473 and $188,824 for the years
ending December 31, 1996, 1997, and 1998 and for the three month periods ended
March 31, 1998 and 1999, respectively.
(M) 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, 1997 and 1998, 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
31% and 32% of the Company's revenues and 36% and 22% of accounts receivable in
1998 and for the three months ended March 31, 1999, respectively. Revenues from
the Company's five largest advertisers accounted for an aggregate of 44% of the
Company's
F-12
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
revenues in 1998, and 100% and 51% of the Company's revenues for the three
months ended March 31, 1998 and 1999, respectively. No single customer exceeded
10% of either revenue or accounts receivable in either 1997 or 1996.
(N) STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation arrangements in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of Accounting Principle Board ("APB") Opinion No. 25 and provide pro
forma net earnings (loss) disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
(O) 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. SFAS No. 128 replaced the presentation of primary
and fully diluted earnings (loss) per share (EPS), with a presentation of basic
EPS and diluted EPS. Under SFAS No. 128, basic EPS excludes dilution for common
stock equivalents and is computed by dividing income or loss available to common
shareholders 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 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 years ended December 31, 1996,
1997 and 1998, and for the three months ended March 31, 1998 and 1999, does not
include the effects of employee options to purchase 2,195,770, 3,901,321,
6,656,297, 5,016,452 and 7,547,967 shares of common stock, respectively, 0,
20,000, 3,021,134, 20,000 and 3,031,317 common stock warrants, respectively,
4,185,000, 6,185,000, 13,161,558, 6,185,000 and 13,161,558 shares of convertible
preferred stock on an "as if" converted basis, respectively, and 0, 0,
2,085,120, 0 and 2,079,378 shares of Class A, C and E convertible preferred
stock issued upon the revised provisions of such agreements as the effect of
their inclusion is anti-dilutive during each period.
(P) 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 share
and per share amounts in the accompanying financial statements have been
retroactively restated to effect the stock split.
F-13
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(Q) 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")." SOP 98-1 provides guidance
for determining whether computer software is internal-use software and 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 the
first quarter of 1999, the effect of which was insignificant.
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income" in 1998. 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, as applicable,
foreign currency items, minimum pension liability adjustments and unrealized
gains and losses on certain investments in debt and equity securities. There
were no differences between the Company's comprehensive loss and its net loss as
reported.
In June 1997, the FASB 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 areas and major customers. The Company has determined that it does
not have any separately reportable segments.
In June 1998, the FASB 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. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
This statement is not expected to effect the Company, as the Company currently
does not have any derivative instruments or hedging activities.
F-14
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(2) BALANCE SHEET COMPONENTS
Property and equipment, including equipment under capital leases, are stated
at cost and are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- ------------
<S> <C> <C> <C>
1997 1998 1999
------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software, including amounts
related to capital leases of $960,785, $2,352,447
and $3,866,828, respectively...................... $ 1,091,579 $ 5,174,889 $ 8,675,623
Furniture and fixtures.............................. 14,724 38,769 45,283
Leasehold improvement............................... -- 24,050 30,392
------------ ------------ ------------
1,106,303 5,237,708 8,751,298
Less accumulated depreciation and amortization,
including amounts related to capital leases of
$159,517, $484,841 and $697,677, respectively..... 178,275 896,601 1,434,741
------------ ------------ ------------
Total........................................... $ 928,028 $ 4,341,107 $ 7,316,557
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Domain assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ ------------
<S> <C> <C> <C>
1997 1998 1999
---------- ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
Domain names.......................................... $ 755,565 $ 1,314,908 $ 2,439,908
Less accumulated amortization......................... 104,097 304,492 407,733
---------- ------------ ------------
Domain assets, net................................ $ 651,468 $ 1,010,416 $ 2,032,175
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
F-15
<PAGE>
Inside Back Cover:
A similar background to the gatefold with Mail.com's muted domain names arranged
in a linear fashion with certain domain names highlighted.
In the center of the page is a depiction of a Mail.com user's Inbox as it
appears on the user's computer screen. On the left side of the screen is the
Mail.com toolbar which enables the user to navigate the servicces provided by
Mail.com's Web-based email. At the top of the screen is an ad banner for
uBid.com. In the user's Inbox the following letter is viewed:
"To: [email protected]
From: [email protected]
Hi Sandy:
I want to let you know that I have a new email service provided by Mail.com. My
email address is [email protected]. This is a Web-based email service which means
that I can access my email from any computer that has a Web browser connected to
the Internet. This is different from traditional email where I generally have to
access my email through my own individual computer. Please use this address to
send me email as I can now read my email from home and work. Also I will be sure
to check my email while on vacation next week. I know a cybercafe in Paris that
has computers with Internet access : -)
See you soon,
Bill"
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6,850,000 SHARES
MAIL.COM, INC.
CLASS A COMMON STOCK
[LOGO]
------------------
P R O S P E C T U S
, 1 9 9 9
------------------
SALOMON SMITH BARNEY
PAINEWEBBER INCORPORATED
SG COWEN
---------------
THE UNDERSIGNED ARE FACILITATING INTERNET DISTRIBUTION.
WIT CAPITAL CORPORATION
DLJDIRECT Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the registrant in connection with the sale and distribution of the securities
being registered hereby, other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee, the National Association of Securities Dealers, Inc. filing fee and the
Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
PAYABLE BY
REGISTRANT
------------
<S> <C>
SEC registration fee................................................................................ $ 24,090
National Association of Securities Dealers, Inc. filing fee......................................... 9,165
Nasdaq National Market Listing Fee.................................................................. 95,000
Accounting fees and expenses........................................................................ 300,000
Legal fees and expenses............................................................................. 400,000
Printing and engraving expenses..................................................................... 275,000
Blue Sky fees and expenses.......................................................................... 1,000
Registrar and Transfer Agent's fees................................................................. 3,000
Miscellaneous fees and expenses..................................................................... 40,000
------------
Total............................................................................................... $ 1,147,255
------------
------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The registrant's amended and restated certificate of incorporation in effect
as of the date hereof provides that, except to the extent prohibited by the
Delaware General Corporation Law, as amended (the "DGCL"), the registrant's
directors shall not be personally liable to the registrant or its stockholders
for monetary damages for any breach of fiduciary duty as directors of the
registrant. Under the DGCL, the directors have a fiduciary duty to the
registrant which is not eliminated by this provision of the certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the registrant, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by the DGCL. This provision
also does not affect the directors' responsibilities under any other laws, such
as the Federal securities laws or state or Federal environmental laws. The
registrant owns liability insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the registrant may fully indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding
II-1
<PAGE>
(whether civil, criminal, administrative or investigative) by reason of the fact
that such person is or was a director or officer of the registrant, or is or was
serving at the request of the registrant as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the certificate. The registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
COMMON STOCK AND PREFERRED STOCK. The registrant from time to time has
issued both common and preferred stock to investors, consultants and other third
parties in connection with business transactions in reliance upon exemption from
registration pursuant to Section 4(2) of the Securities Act of 1933 and Rule 701
or Regulation S promulgated thereunder.
In March 1996, the registrant sold a total of 10,000,000 shares of Class B
common stock at $0.10 per share for $1,000,000 to Gerald Gorman, one of our
founders. Concurrently, the registrant sold an aggregate of 2,422,500 shares of
Class A common stock at $0.005 per share for $12,113. Among the purchasers were
Gerald Gorman, our Chief Executive Officer (1,092,500 shares for $5,463), Gary
Millin, our President (1,220,000 shares for $5,800), Anthony Millin, the brother
of Gary Millin (100,000 shares for $500) and Bob Helfant, our Senior Vice
President (10,000 shares for $50). We also sold an aggregate of 100,000 shares
of Class A preferred stock at $0.005 per share for $500 to Gary Millin (80,000
for $400) and Jean Brodsky (20,000 for $100).
In June 1996, the registrant sold 1,675,000 shares of Class A common stock
and 225,000 shares of Class A preferred stock at $0.10 per share for both which
was the fair value of the stock at that time to Eric Woodward and David
Milligan, in exchange for various domain names and the Vanity Mail Web site,
valued in the aggregate at $200,000.
In October 1996, the registrant sold 400,000 shares of Class A preferred
stock to Naveen Jain for $165,000 at $0.41 per share.
On May 27, 1997 and December 17, 1997 the registrant sold an aggregate of
3,460,000 shares of Class A preferred stock at $1.00 per share, of which
$3,290,000 was received in cash and $170,000 in contributions in the form of
equity securities and services performed by outside vendors. Gerald Gorman, the
Chairman and Chief Executive Officer of the registrant, purchased 112,000 shares
of Class A preferred stock in this offering, contributing cash and 66,666 shares
of equity securities of InfoSpace.com. In addition, William Donaldson (28,000
shares), Stephen Ketchum (63,000 shares), and Jack Kuehler (28,000 shares), each
a director of the registrant, purchased securities in this offering for cash.
Immediately before the consummation of this offering, additional shares of Class
A common stock will be issued in settlement of our contingent obligation to
issue shares to our holders of Class A preferred stock.
In May 1997, the registrant granted warrants to purchase 20,000 shares of
Class A common stock at an exercise price of $1.00 per share to Barry Layne
expiring on May 15, 2007, which purchase price was paid by performance of
services.
In October 1997, the registrant entered into a partner agreement with Lycos,
Inc. As part of this agreement, a stock option for 2,000,000 Class A preferred
shares was granted at an exercise price of $2.00 per share, the fair market
value at the date of grant. The registrant recorded compensation expense of
$52,000, based upon the fair market value of the stock option. In March 1998,
Lycos exercised its option in accordance with this agreement whereby the
registrant received 100,062 shares of
II-2
<PAGE>
Lycos stock valued at $39.98 per share on the closing date, which the registrant
sold over the next week for proceeds totaling approximately $4.4 million.
In January 1998, the registrant sold 2,745 shares of Class A common stock
for $2.00 per share to Mr. F. Connolly.
On July 31, 1998 and August 31, 1998, the registrant sold an aggregate of
3,776,558 units with each unit consisting of one share of Class C preferred
stock, and detachable warrants to purchase .35 shares of Class C preferred stock
at an exercise price equal to the Class C conversion price, for a price per unit
of $3.50 or $13,218,000 in the aggregate. Purchasers of Class C preferred stock
in this offering included John Whitman, one of our directors (7,200 shares,
2,250 warrants for $25,200), and The Whitman Children Irrevocable Trust (7,200
shares, 2,520 warrants for $7,203.50). Also, Citi Growth Fund II, Offshore L.P.
and CG Asian-American Fund L.P., limited partnerships indirectly controlled by
entities in which Mr. Whitman holds a minority interest, purchased 1,099,200
shares and 384,720 warrants in the aggregate for a total purchase price of
$3,847,200. Immediately before the consummation of this offering, the conversion
price of the Class C preferred stock will be reduced to $2.80 per share and the
warrants will be cancelled. See "Certain Transactions."
In August 1998, the registrant issued 253,532 shares of Class A common stock
valued at $3.50 per share to CNN in performance of obligations pursuant to our
contract dated August 10, 1998.
In June, September and December of 1998, and March of 1999 the registrant
issued 97,611 shares (52,725 shares in 1998 and 44,886 shares in the first
quarter of 1999) of Class A common stock valued at $3.50 and $5.00 per share to
AltaVista for confirmed member registrations, pursuant to the contract dated
July 1, 1998 in performance of the registrant's obligations.
In September 1998, the registrant issued 1,000,000 shares of Class A common
stock to GeoCities valued at $3.50 per share pursuant to a contract dated
September 10, 1998. We subsequently entered into an agreement rescinding the
issuance of these shares. See "Risk Factors--Several of our most significant
partner contracts have expired or will soon terminate."
Beginning September 1998, the registrant has issued 352,257 shares (242,982
shares in 1998 and 109,275 shares in the first quarter of 1999) of Class A
common stock valued at $5.00 per share to CNET. Additionally, the registrant
issued 568,837 shares (251,921 shares in 1998 and 316,915 shares in the first
quarter of 1999) of Class A common stock to Snap valued at $5.00 per share. Both
of these issuances were made in performance of the registrant's obligations
under contracts dated May 13, 1998 as amended.
In December 1998, the registrant issued 30,000 shares of Class A common
stock valued at $5.00 per share to RemarQ pursuant to our contract dated January
1, 1999 in consideration of promoting our services.
In January 1999, the registrant issued 225,000 shares of Class A common
stock valued at $5.00 per share to Lansoft pursuant to our contract January 26,
1999 in consideration of the domain name "USA.com."
Under the CNET and NBC Multimedia agreements, we were obligated to grant
options upon the achievement of a specified number of emailboxes. In March 1999,
to satisfy our obligation to issue these options, we issued warrants to CNET and
NBC Multimedia for purchase of 990,000 and 510,000 shares, respectively, of our
Class A common stock. The exercise price under the warrants is equal to the
lower of $5.00 or the price per share in an initial public offering offering of
our stock. CNET and NBC Multimedia have exercised their warrants and deposited
funds for the payment of the exercise price into escrow. Upon consummation of
this offering, funds sufficient to pay the exercise price will be released to
us, and we will issue the shares to CNET and NBC.
On March 10, 1999, Mail.com sold an aggregate of 3,200,000 shares of Class E
preferred stock of the registrant at $5.00 per share. The $16 million purchase
price was paid in cash. Purchasers of Class E preferred stock in this offering
include John R. Whitman, a director of the registrant, and The
II-3
<PAGE>
Whitman Children Irrevocable Trust, Gerald Gorman, the Chairman and Chief
Executive Officer of the registrant, Stephen Ketchum, a director of the
registrant, Debra L. McClister, the Chief Financial Officer of the registrant
and Lon Otremba, Chief Operating Officer of the registrant. Immediately before
the consummation of the offering, the Class E preferred stock conversion price
will be reduced. See "Certain Transactions--Class E Preferred Stock Issuance
Obligation Settlement."
On March 15, 1999, we granted 55,000 shares of Class A common stock to Basis
Technology and some of their employees as consideration for consulting services
performed by them.
During April 1999, ten former employees exercised stock options with
exercise prices ranging from $0.20 to $3.50 per share to purchase 54,302 shares
of Class A common stock.
On April 27, 1999, Mail.com agreed to issue 115,000 shares of Class A common
stock at $11.00 per share as a portion of the purchase price for the Paris.com
domain name.
On April 30, 1999, we granted 15,000 shares of Class A common stock to Mojam
Media at $11.00 per share as a portion of the purchase price for the
Calendar.com domain name.
On April 30, 1999, Mail.com entered into an agreement to settle in full its
contingent obligations to issue additional shares of Class A common stock to
CNET, Snap and NBC Multimedia. Under this settlement, Mail.com will issue upon
the closing of this offering 2,368,907 shares of Class A common stock in the
aggregate to CNET and Snap and 210,000 shares of Class A common stock to NBC
Multimedia.
On May 12, 1999, we entered into a non-binding commitment letter with B.A.K.
Jina International, Inc. to establish a strategic and commercial relationship.
Under the agreement, we would pay $1,000,000 in cash and issue 80,083 shares of
our Class A common stock in exchange for a less than 20% equity interest in
B.A.K. Jina International, Inc. We will assume that the value of the shares of
our Class A common stock that we issue to them is equal to the fair value of our
shares on the date of issuance or on the date on which we enter into a binding
commitment to issue the shares. The parties also expressed the intention to
enter into a technology licensing arrangement.
Under our letter agreement with AT&T Corp. 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 Corp. may exercise the warrants at any time on
or before December 31, 2000.
WARRANTS. The registrant from time to time has granted warrants to
investors, consultants and other third parties in connection with business
transactions in reliance upon exemption from registration pursuant to Section
4(2) of the Securities Act of 1933.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- -----------
<S> <C> <C>
January 1, 1996 to December 31, 1996....................................................... -- --
January 1, 1997 to December 31, 1997....................................................... 2,020,000 $ 1.99
January 1, 1998 to December 31, 1998....................................................... 1,679,356 $ 4.84
January 1, 1999 to May 31, 1999............................................................ 1,018,643 $ 10.95
</TABLE>
II-4
<PAGE>
OPTIONS. The registrant from time to time has granted stock options to
employees and directors in reliance upon exemption from registration pursuant to
either (i) Section 4(2) of the Securities Act of 1933, as amended, or (ii) Rule
701 promulgated under the Securities Act of 1933, as amended.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- -----------
<S> <C> <C>
January 1, 1996 to December 31, 1996....................................................... 2,195,770 $ 0.27
January 1, 1997 to December 31, 1997....................................................... 2,176,130 $ 1.85
January 1, 1998 to December 31, 1998....................................................... 3,086,885 $ 3.17
January 1, 1999 to May 31, 1999............................................................ 1,453,845 $ 6.91
</TABLE>
The above securities were offered and sold by the registrant in reliance
upon exemptions from registration pursuant to either (i) Section 4(2) of the
Securities Act of 1933, as amended, as transactions not involving any public
offering, or (ii) Rule 701 promulgated under the Securities Act of 1933, as
amended. No underwriters were involved in connection with the sales of
securities referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation.
3.2** Bylaws.
4.1** Specimen common stock certificate.
5.1 Opinion of Winthrop, Stimson, Putnam & Roberts re: validity of the securities.
10.1** Employment Agreement between Mail.com and Gerald Gorman dated April 1, 1999.
10.2** Employment Agreement between Mail.com and Gary Millin dated April 1, 1999.
10.3** Employment Agreement between Mail.com and Lon Otremba dated April 1, 1999.
10.4** Employment Agreement between Mail.com and Debra McClister dated April 1, 1999.
10.5** Employment Agreement between Mail.com and Charles Walden dated February 4, 1999.
10.6** Employment Agreement between Mail.com and David Ambrosia dated May 19, 1999.
10.7** Stock Option Agreement between Mail.com and Charles Walden dated January 1, 1998.
10.8** Stock Option Agreement between Mail.com and Gary Millin dated December 31, 1996.
10.9** Stock Option Agreement between Mail.com and Gary Millin dated June 1, 1996.
10.10** Stock Option Agreement between Mail.com and Gary Millin dated February 1, 1997.
10.11** Stock Option Agreement between Mail.com and Gerald Gorman dated December 31, 1996.
10.12** Stock Option Agreement between Mail.com and Gerald Gorman dated June 1, 1996.
10.13** Stock Option Agreement between Mail.com and Lon Otremba dated June 30, 1999.
10.14** 1996 Employee Stock Option Plan.
10.15** 1997 Employee Stock Option Plan.
10.16** 1998 Employee Stock Option Plan.
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
10.17** 1999 Employee Stock Option Plan.
10.18** Lease between Mail.com and Braun Management and six amendments thereto, the most
recent dated May 21, 1998.
10.19** Lease between Mail.com and Spitfire Marketing Systems Inc. dated August 14, 1998.
10.20** Space License Agreement and three amendments thereto between Mail.com and Telehouse
International Corporation of America, Inc., the most recent amendment dated March 9,
1999.
10.21** Lease between Mail.com and 55 Madison Associates dated September 15, 1998.
10.22** Lease Agreement between Mail.com and the Leastec Sylvan Credit dated June 20, 1996.
10.23** Master Lease Agreement between Mail.com and RCC dated July 17, 1998.
10.24** Lease Agreement between Mail.com and Pacific Atlantic Systems Leasing, dated January
22, 1999.
10.25** Class A Preferred Stock Purchase Agreement dated May 27, 1997.
10.26** Waiver, Consent and Amendment to Class A Preferred Stock Purchase Agreement and
Investors' Rights Agreement, dated July 31, 1998.
10.27** Accession Agreement among Mail.com and Primus Capital Fund IV Limited Partnership
and the Primus Executive Fund Limited Partnership dated August 31, 1998.
10.28** Letter Agreement among Gerald Gorman, Primus Capital Fund Limited Partnership and
the Primus Executive Fund Limited Partnership dated August 31, 1998.
10.29** Class E Preferred Stock Investors' Rights Agreement dated March 10, 1999.
10.30** Observer Rights Agreement among the Company, Primus, et. al., and Sycamore Ventures
dated August 31, 1998.
10.31** Investors' Rights Agreement between NBC Multimedia, Inc., CNET, Inc. and Mail.com,
Inc. dated March 1, 1999.
10.32** Lycos Term Sheet Agreement dated October 8, 1997 and the amendments thereto.
10.33** CNET Warrants dated March 1, 1999.
10.34** NBC Multimedia Warrants dated March 1, 1999.
10.35** Stock Purchase Agreement between Mail.com and CNN Interactive dated July 7, 1998.
10.36**+ Agreement between CNET, Inc., and Mail.com, Inc. dated May 13, 1998.
10.37** Letter Agreement between CNET, Inc., Snap Internet Portal Service and Mail.com, Inc.
dated as of June 16, 1998.
10.38** Letter Agreement between CNET, Inc., Snap Internet Portal Service, NBC Multimedia,
Inc. and Mail.com, Inc. dated as of February 8, 1999.
10.39**+ Agreement between NBC Multimedia, Inc. and Mail.com, Inc. dated February 8, 1998.
10.40**+ Marketing Agreement between DLJdirect, Inc. and Mail.com, Inc. dated March 26, 1999.
10.41 Equipment Financing Agreement between Pentech Financial Services, Inc. and Mail.com
dated May 1, 1999.
10.42 AT&T Corp. Warrant dated May 26, 1999.
10.43 Investor Rights Agreement between Mail.com, Inc. and AT&T Corp. dated May 26, 1999.
</TABLE>
II-6
<PAGE>
<TABLE>
<C> <S>
23.1 Consent of KPMG LLP.
23.2 Consent of Winthrop, Stimson, Putnam & Roberts (included in Exhibit 5.1).
23.3** Consent of Electronic Mail & Messaging Systems.
23.4** Consent of Forrester Research, Inc.
23.5** Consent of Jupiter Communications.
23.6** Consent of International Data Corporation.
23.7** Consent of Electronic Mail & Messaging Systems.
24.1** Powers of Attorney (See Signature Page on Page II-7).
27.1** Financial Data Schedule
</TABLE>
- ------------------------
** Filed previously.
+ Confidential treatment has been requested for portions of this exhibit.
(b) Financial Statement Schedules.
None.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424 (b)(1) or
(4), or 497(h) under the Securities Act of 1933, shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 3 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized in The
City of New York, State of New York, on this 15th day of June, 1999.
MAIL.COM, INC.
By: /s/ GARY MILLIN
-----------------------------------------
Name: Gary Millin
Title: President
II-8
<PAGE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to the Registration Statement has been signed by the following
persons in the capacities indicated on June , 1999:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* Chairman & Chief Executive
- ------------------------------ Officer, Director June , 1999
Gerald Gorman
/s/ GARY MILLIN President, Director
- ------------------------------ June , 1999
Gary Millin
* Chief Operating Officer,
- ------------------------------ Director June , 1999
Lon Otremba
Executive Vice President &
* Chief Financial Officer
- ------------------------------ (principal accounting and June , 1999
Debra L. McClister financial officer)
* Executive Vice President,
- ------------------------------ Technology, Director June , 1999
Charles Walden
* Executive Vice President,
- ------------------------------ General Counsel June , 1999
David W. Ambrosia
* Director
- ------------------------------ June , 1999
William J. Donaldson
<TABLE>
<S> <C> <C>
*By: /s/ GARY MILLIN
--------------------------------------
Gary Millin ATTORNEY-IN-FACT
</TABLE>
II-9
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation.
3.2** Bylaws.
4.1** Specimen common stock certificate.
5.1 Opinion of Winthrop, Stimson, Putnam & Roberts re: validity of the securities.
10.1** Employment Agreement between Mail.com and Gerald Gorman dated April 1, 1999.
10.2** Employment Agreement between Mail.com and Gary Millin dated April 1, 1999.
10.3** Employment Agreement between Mail.com and Lon Otremba dated April 1, 1999.
10.4** Employment Agreement between Mail.com and Debra McClister dated April 1, 1999.
10.5** Employment Agreement between Mail.com and Charles Walden dated February 4, 1999.
10.6** Employment Agreement between Mail.com and David Ambrosia dated May 19, 1999.
10.7** Stock Option Agreement between Mail.com and Charles Walden dated January 1, 1998.
10.8** Stock Option Agreement between Mail.com and Gary Millin dated December 31, 1996.
10.9** Stock Option Agreement between Mail.com and Gary Millin dated June 1, 1996.
10.10** Stock Option Agreement between Mail.com and Gary Millin dated February 1, 1997.
10.11** Stock Option Agreement between Mail.com and Gerald Gorman dated December 31, 1996.
10.12** Stock Option Agreement between Mail.com and Gerald Gorman dated June 1, 1996.
10.13** Stock Option Agreement between Mail.com and Lon Otremba dated June 30, 1999.
10.14** 1996 Employee Stock Option Plan.
10.15** 1997 Employee Stock Option Plan.
10.16** 1998 Employee Stock Option Plan.
10.17** 1999 Employee Stock Option Plan.
10.18** Lease between Mail.com and Braun Management and six amendments thereto, the most recent dated
May 21, 1998.
10.19** Lease between Mail.com and Spitfire Marketing Systems Inc. dated August 14, 1998.
10.20** Space License Agreement and three amendments thereto between Mail.com and Telehouse
International Corporation of America, Inc., the most recent amendment dated March 9, 1999.
10.21** Lease between Mail.com and 55 Madison Associates dated September 15, 1998.
10.22** Lease Agreement between Mail.com and the Leastec Sylvan Credit dated June 20, 1996.
10.23** Master Lease Agreement between Mail.com and RCC dated July 17, 1998.
10.24** Lease Agreement between Mail.com and Pacific Atlantic Systems Leasing, dated January 22, 1999.
10.25** Class A Preferred Stock Purchase Agreement dated May 27, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
10.26** Waiver, Consent and Amendment to Class A Preferred Stock Purchase Agreement and Investors'
Rights Agreement, dated July 31, 1998.
10.27** Accession Agreement among Mail.com and Primus Capital Fund IV Limited Partnership and the Primus
Executive Fund Limited Partnership dated August 31, 1998.
10.28** Letter Agreement among Gerald Gorman, Primus Capital Fund Limited Partnership and the Primus
Executive Fund Limited Partnership dated August 31, 1998.
10.29** Class E Preferred Stock Investors' Rights Agreement dated March 10, 1999.
10.30** Observer Rights Agreement among the Company, Primus, et. al., and Sycamore Ventures dated August
31, 1998.
10.31** Investors' Rights Agreement between NBC Multimedia, Inc., CNET, Inc. and Mail.com, Inc. dated
March 1, 1999.
10.32** Lycos Term Sheet Agreement dated October 8, 1997 and the amendments thereto.
10.33** CNET Warrants dated March 1, 1999.
10.34** NBC Multimedia Warrants dated March 1, 1999.
10.35** Stock Purchase Agreement between Mail.com and CNN Interactive dated July 7, 1998.
10.36**+ Agreement between CNET, Inc., and Mail.com, Inc. dated May 13, 1998.
10.37** Letter Agreement between CNET, Inc., Snap Internet Portal Service and Mail.com, Inc. dated as of
June 16, 1998.
10.38** Letter Agreement between CNET, Inc., Snap Internet Portal Service, NBC Multimedia, Inc. and
Mail.com, Inc. dated as of February 8, 1999.
10.39**+ Agreement between NBC Multimedia, Inc. and Mail.com, Inc. dated February 8, 1998.
10.40**+ Marketing Agreement between DLJdirect, Inc. and Mail.com, Inc. dated March 26, 1999.
10.41 Equipment Financing Agreement between Pentech Financial Services, Inc. and Mail.com dated May 1,
1999.
10.42 AT&T Corp. Warrant dated May 26, 1999.
10.43 Investor Rights Agreement between Mail.com, Inc. and AT&T Corp. dated May 26, 1999.
23.1 Consent of KPMG LLP.
23.2 Consent of Winthrop, Stimson, Putnam & Roberts (included in Exhibit 5.1).
23.3** Consent of Electronic Mail & Messaging Systems.
23.4** Consent of Forrester Research, Inc.
23.5** Consent of Jupiter Communications.
23.6** Consent of International Data Corporation.
23.7** Consent of Electronic Mail & Messaging Systems.
24.1** Powers of Attorney (See Signature Page on Page II-7).
27.1** Financial Data Schedule.
</TABLE>
** Filed previously.
+ Confidential treatment has been requested for portions of this exhibit.
<PAGE>
EXHIBIT 1.1
Mail.com, Inc.
6,850,000 Shares (1)
Common Stock
($.01 par value)
Underwriting Agreement
New York, New York
June [ ], 1999
Salomon Smith Barney Inc.
PaineWebber Incorporated
SG Cowen Securities Corporation
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Mail.com, Inc., a corporation organized under the laws of Delaware (the
"Company"), proposes to sell to the several underwriters named in Schedule I
hereto (the "Underwriters"), for whom you (the "Representatives") are acting as
representatives, 6,850,000 shares of Common Stock, $.01 par value ("Common
Stock") of the Company (said shares to be issued and sold by the Company being
hereinafter called the "Underwritten Securities"). The Company also proposes to
grant to the Underwriters an option to purchase up to 1,027,500 additional
shares of Common Stock to cover over-allotments (the "Option Securities"; the
Option Securities, together with the Underwritten Securities, being hereinafter
called the "Securities"). To the extent there are no additional Underwriters
listed on Schedule I other than you, the term Representatives as used herein
shall mean you, as Underwriters, and the terms Representatives and Underwriters
shall mean either the singular or plural as the context requires. Certain terms
used herein are defined in Section 17 hereof.
As part of the offering contemplated by this Agreement, Salomon Smith Barney
Inc. has agreed to reserve out of the Securities set forth opposite its name on
Schedule I to this Agreement, up to 685,000 shares, for sale to the Company's
employees, officers, and directors and other parties associated with the Company
(collectively, "Participants"), as set forth in the Prospectus under the heading
"Underwriting" (the "Directed Share Program"). The Securities to be sold by
Salomon Smith Barney Inc. pursuant to the Directed Share Program (the "Directed
Shares") will be sold by Salomon Smith Barney Inc. pursuant to this Agreement at
the public offering price. Any Directed Shares not orally confirmed for purchase
by any Participants by the end of the business day on which this Agreement is
executed will be offered to the public by Salomon Smith Barney Inc. as set forth
in the Prospectus.
1. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to,
and agrees with, each Underwriter as set forth below in this Section 1.
(a) The Company has prepared and filed with the Commission a
registration statement (file number 333-74353) on Form S-1, including a
related preliminary prospectus, for registration under the Act of the
offering and sale of the Securities. The Company may have filed one or more
- ------------------------
(1) Plus an option to purchase from the Company up to 1,027,500 additional
Securities to cover
over-allotments.
<PAGE>
amendments thereto, including a related preliminary prospectus, each of
which has previously been furnished to you. The Company will next file with
the Commission either (1) prior to the Effective Date of such registration
statement, a further amendment to such registration statement (including the
form of final prospectus) or (2) after the Effective Date of such
registration statement, a final prospectus in accordance with Rules 430A and
424(b). In the case of clause (2), the Company has included in such
registration statement, as amended at the Effective Date, all information
(other than Rule 430A Information) required by the Act and the rules
thereunder to be included in such registration statement and the Prospectus.
As filed, such amendment and form of final prospectus, or such final
prospectus, shall contain all Rule 430A Information, together with all other
such required information, and, except to the extent the Representatives
shall agree in writing to a modification, shall be in all substantive
respects in the form furnished to you prior to the Execution Time or, to the
extent not completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you, prior to the
Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement did or will, and
when the Prospectus is first filed (if required) in accordance with Rule
424(b) and on the Closing Date (as defined herein) and on any date on which
Option Securities are purchased, if such date is not the Closing Date (a
"settlement date"), the Prospectus (and any supplements thereto) will,
comply in all material respects with the applicable requirements of the Act
and the rules thereunder; on the Effective Date and at the Execution Time,
the Registration Statement did not or will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading;
and, on the Effective Date, the Prospectus, if not filed pursuant to Rule
424(b), will not, and on the date of any filing pursuant to Rule 424(b) and
on the Closing Date and any settlement date, the Prospectus (together with
any supplement thereto) will not, include any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that the Company makes no
representations or warranties as to the information contained in or omitted
from the Registration Statement, or the Prospectus (or any supplement
thereto) in reliance upon and in conformity with information furnished in
writing to the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion in the Registration Statement or
the Prospectus (or any supplement thereto).
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction in which it
is chartered or organized with full corporate power and authority to own or
lease, as the case may be, and to operate its properties and conduct its
business as described in the Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing under the laws of
each jurisdiction which requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
condition (financial or otherwise), earnings, business or prospects of the
Company.
(d) The Company's authorized equity capitalization is as set forth in
the Prospectus; the capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectus; the
outstanding shares of Common Stock have been duly and validly authorized and
issued and are fully paid and nonassessable; the Securities have been duly
and validly authorized, and, when issued and delivered to and paid for by
the Underwriters pursuant to this Agreement, will be fully paid and
nonassessable; the Securities are duly listed, and admitted and authorized
for trading, subject to official notice of issuance and evidence of
satisfactory distribution, on the Nasdaq National Market; the certificates
for the Securities are in valid and sufficient form; the holders of
outstanding shares of capital stock of the Company are not entitled
2
<PAGE>
to preemptive or other rights to subscribe for the Securities; and, except
as set forth in the Prospectus, no options, warrants or other rights to
purchase, agreements or other obligations to issue, or rights to convert any
obligations into or exchange any securities for, shares of capital stock of
or ownership interests in the Company are outstanding.
(e) There is no franchise, contract or other document of a character
required to be described in the Registration Statement or Prospectus, or to
be filed as an exhibit thereto, which is not described or filed as required.
(f) This Agreement has been duly authorized, executed and delivered by
the Company and constitutes a binding obligation of the Company enforceable
in accordance with its terms.
(g) The Company is not and, after giving effect to the offering and sale
of the Securities and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" as defined in the
Investment Company Act of 1940, as amended.
(h) No consent, approval, authorization, filing with or order of any
court or governmental agency or body is required in connection with the
transactions contemplated herein, except such as have been obtained under
the Act and such as may be required under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the
Securities by the Underwriters in the manner contemplated herein and in the
Prospectus.
(i) Neither the issue and sale of the Securities nor the consummation of
any other of the transactions herein contemplated nor the fulfillment of the
terms hereof will conflict with, result in a breach or violation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company pursuant to (i) the charter or by-laws of the Company, (ii) the
terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which the Company is a party or bound or to which
its property is subject, or (iii) any statute, law, rule, regulation,
judgment, order or decree applicable to the Company of any court, regulatory
body, administrative agency, governmental body, arbitrator or other
authority having jurisdiction over the Company or any of its properties.
(j) Except as disclosed in the Registration Statement, no holders of
securities of the Company have rights to the registration of such securities
under the Registration Statement.
(k) The historical financial statements and schedules of the Company
included in the Prospectus and the Registration Statement present fairly in
all material respects the financial condition, results of operations and
cash flows of the Company as of the dates and for the periods indicated,
comply as to form with the applicable accounting requirements of the Act and
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except as otherwise noted therein). The selected financial data set forth
under the caption "Selected Financial Data" in the Prospectus and
Registration Statement fairly present, on the basis stated in the Prospectus
and the Registration Statement, the information included therein. The pro
forma financial information included in the Prospectus and the Registration
Statement is based on assumptions that provide a reasonable basis for
presenting the significant effects directly attributable to the transactions
and events described therein, the related pro forma adjustments give
appropriate effect to those assumptions, and the pro forma adjustments
reflect the proper application of those adjustments to the historical
financial statement amounts in the pro forma financial statements included
in the Prospectus and the Registration Statement.
(l) No action, suit or proceeding by or before any court or governmental
agency, authority or body or any arbitrator involving the Company or its
property is pending or, to the best knowledge of the Company, threatened
that (i) could reasonably be expected to have a material adverse effect
3
<PAGE>
on the performance of this Agreement or the consummation of any of the
transactions contemplated hereby or (ii) could reasonably be expected to
have a material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company, whether or not
arising from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any supplement
thereto).
(m) The Company owns or leases all such properties as are necessary to
the conduct of its operations as presently conducted.
(n) The Company is not in violation or default of (i) any provision of
its charter or bylaws, (ii) in any material respect, the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or instrument
to which it is a party or bound or to which its property is subject, or
(iii) in any material respect, any statute, law, rule, regulation, judgment,
order or decree of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over
the Company or any of its properties, as applicable.
(o) KPMG LLP, who have certified certain financial statements of the
Company and delivered their report with respect to the audited financial
statements and schedules included in the Prospectus, are independent public
accountants with respect to the Company within the meaning of the Act and
the applicable published rules and regulations thereunder.
(p) There are no transfer taxes or other similar fees or charges under
Federal law or the laws of any state, or any political subdivision thereof,
required to be paid in connection with the execution and delivery of this
Agreement or the issuance by the Company or sale by the Company of the
Securities.
(q) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure so to file would not have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company, whether or not
arising from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any supplement
thereto)) and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any of the
foregoing is due and payable, except for any such assessment, fine or
penalty that is currently being contested in good faith or as would not have
a material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company, whether or not
arising from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any supplement
thereto).
(r) No labor problem or dispute with the employees of the Company exists
or is threatened or imminent, and the Company is not aware of any existing
or imminent labor disturbance by the employees of any of its principal
suppliers, contractors or customers, that could have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company, whether or not arising from
transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto).
(s) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which it is engaged; all policies
of insurance and fidelity or surety bonds insuring the Company or its
businesses, assets, employees, officers and directors are in full force and
effect; the Company is in compliance with the terms of such policies and
instruments in all material respects; and there are no claims by the Company
under any such policy or instrument as to which any insurance company is
denying liability or defending under a reservation of rights clause; and the
Company has no
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reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its business at a cost
that would not have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company,
whether or not arising from transactions in the ordinary course of business,
except as set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(t) The Company possesses all licenses, certificates, permits and other
authorizations issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct its businesses, and the Company
has not received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company,
whether or not arising from transactions in the ordinary course of business,
except as set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(u) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(v) The Company has not taken, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities.
(w) The Company is (i) in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"),
(ii) has received and is in compliance with all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
its businesses and (iii) has not received notice of any actual or potential
liability for the investigation or remediation of any disposal or release of
hazardous or toxic substances or wastes, pollutants or contaminants, except
where such non-compliance with Environmental Laws, failure to receive
required permits, licenses or other approvals, or liability would not,
individually or in the aggregate, have a material adverse change in the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto). Except as set forth in the
Prospectus, the Company has not been named as a "potentially responsible
party" under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended.
(x) The Company has reasonably concluded that any costs and liabilities
arising out of the effect of any Environmental Laws on the business,
operations or properties of the Company (including, without limitation, any
capital or operating expenditures required for cleanup, closure of
properties or compliance with Environmental Laws, or any permit, license or
approval, any constraints on operating activities and any potential
liabilities to third parties) would not, singly or in the aggregate, have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company, whether or not
arising from
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transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto).
(y) The Company has fulfilled its obligations, if any, under the minimum
funding standards of Section 302 of the United States Employee Retirement
Income Security Act of 1974 ("ERISA") and the regulations and published
interpretations thereunder with respect to each "plan" (as defined in
Section 3(3) of ERISA and such regulations and published interpretations) in
which employees of the Company are eligible to participate and each such
plan is in compliance in all material respects with the presently applicable
provisions of ERISA and such regulations and published interpretations. The
Company has not incurred any unpaid liability to the Pension Benefit
Guaranty Corporation (other than for the payment of premiums in the ordinary
course) or to any such plan under Title IV of ERISA.
(z) The Company owns, possesses, licenses or has other rights to use, on
reasonable terms, all patents, patent applications, trade and service marks,
trade and service mark registrations, trade names, domain names, member
database information (as described in the Prospectus), copyrights, licenses,
inventions, trade secrets, technology, know-how and other intellectual
property (collectively, the "Intellectual Property") necessary for the
conduct of the Company's business as now conducted or as proposed in the
Prospectus to be conducted. Except as set forth in the Prospectus (a) to the
Company's best knowledge, there are no rights of third parties to any such
Intellectual Property which, if exercised or enforced, would have a material
adverse effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company; (b) to the Company's best
knowledge, there is no material infringement by third parties of any such
Intellectual Property; (c) there is no pending or, to the Company's best
knowledge, threatened action, suit, proceeding or claim by others
challenging the Company's rights in or to any such Intellectual Property
which would have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company, and
the Company is unaware of any facts which would form a reasonable basis for
any such claim; (d) to the Company's best knowledge, there is no pending or
threatened action, suit, proceeding or claim by others challenging the
validity or scope of any such Intellectual Property which would have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company, and the Company
is unaware of any facts which would form a reasonable basis for any such
claim; (e) there is no pending or, to the Company's knowledge, threatened
action, suit, proceeding or claim by others that the Company infringes or
otherwise violates any patent, trademark, copyright, trade secret or other
proprietary rights of others which would have a material adverse effect on
the condition (financial or otherwise), prospects, earnings, business or
properties of the Company, and the Company is unaware of any other fact
which would form a reasonable basis for any such claim; (f) there is no U.S.
patent or published U.S. patent application which contains claims that
dominate or may dominate any Intellectual Property described in the
Prospectus as being owned by or licensed to the Company or that interferes
with the issued or pending claims of any such Intellectual Property; and (g)
there is no prior act of which the Company is aware that may render any U.S.
patent held by the Company invalid or any U.S. patent application held by
the Company unpatentable which has not been disclosed to the U.S. Patent and
Trademark Office.
a. The statements contained in the Prospectus under the captions
"Business--Intellectual Property," insofar as such statements summarize
legal matters, agreements, documents, or proceedings discussed therein,
are accurate and fair summaries of such legal matters, agreements,
documents or proceedings.
b. The Company is implementing a comprehensive, detailed program to
analyze and address the risk that the computer hardware and software used
by it may be unable to recognize and properly execute date-sensitive
functions involving certain dates prior to and
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any dates after December 31, 1999 (the "Year 2000 Problem"), and
reasonably believes that such risk will be remedied on a timely basis
without material expense and will not have a material adverse effect upon
the financial condition and results of operations of the Company; and the
Company believes, after due inquiry, that each partner or ISP Web site
(as described in the Prospectus), supplier, vendor, customer or financial
service organization used or serviced by the Company has remedied or will
remedy on a timely basis the Year 2000 Problem, except to the extent that
a failure to remedy by any such partner or ISP Web site, supplier,
vendor, customer or financial service organization would not have a
material adverse effect on the Company. The Company is in compliance with
the Commission's staff legal bulletin No. 5 dated January 12, 1998
related to Year 2000 compliance, as amended to date.
Any certificate signed by any officer of the Company and delivered to the
Representatives or counsel for the Underwriters pursuant to this Agreement shall
be deemed a representation and warranty by the Company, as to matters covered
thereby, to each Underwriter.
Furthermore, the Company represents and warrants to each Underwriter that
(i) the Registration Statement, the Prospectus and any preliminary prospectus
comply, and any further amendments or supplements thereto will comply, with any
applicable laws or regulations of foreign jurisdictions in which the Prospectus
or any preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and that (ii) no
authorization, approval, consent, license, order, registration or qualification
of or with any government, governmental instrumentality or court, other than
such as have been obtained, is necessary under the securities laws and
regulations of foreign jurisdictions in which the Directed Shares are offered
outside the United States.
2. PURCHASE AND SALE. (a) Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to each Underwriter, and each Underwriter agrees, severally and
not jointly, to purchase from the Company, at a purchase price of $[ ] per
share, the amount of the Underwritten Securities set forth opposite such
Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option to the several Underwriters to purchase, severally and not jointly, up to
1,027,500 Option Securities at the same purchase price per share as the
Underwriters shall pay for the Underwritten Securities. Said option may be
exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or in part
at any time (but not more than once) on or before the 30th day after the date of
the Prospectus upon written or telegraphic notice by the Representatives to the
Company setting forth the number of shares of the Option Securities as to which
the several Underwriters are exercising the option and the settlement date. The
number of Option Securities to be purchased by each Underwriter shall be the
same percentage of the total number of shares of the Option Securities to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Securities, subject to such adjustments as you in your absolute
discretion shall make to eliminate any fractional shares.
3. DELIVERY AND PAYMENT. Delivery of and payment for the Underwritten
Securities and the Option Securities (if the option provided for in Section 2(b)
hereof shall have been exercised on or before the third Business Day prior to
the Closing Date) shall be made at 10:00 AM, New York City time, on
, 1999, or at such time on such later date not more than three
Business Days after the foregoing date as the Representatives shall designate,
which date and time may be postponed by agreement among the Representatives and
the Company or as provided in Section 9 hereof (such date and time of delivery
and payment for the Securities being herein called the "Closing Date"). Delivery
of the Securities shall be made to the Representatives for the respective
accounts of the
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several Underwriters against payment by the several Underwriters through the
Representatives of the respective aggregate purchase prices of the Securities
being sold by the Company to or upon the order of the Company by wire transfer
payable in same-day funds to an account specified by the Company. Delivery of
the Underwritten Securities and the Option Securities shall be made through the
facilities of The Depository Trust Company unless the Representatives shall
otherwise instruct.
If the option provided for in Section 2(b) hereof is exercised after the
third Business Day prior to the Closing Date, the Company will deliver the
Option Securities (at the expense of the Company) to the Representatives, at 388
Greenwich Street, New York, New York, on the date specified by the
Representatives (which shall be within three Business Days after exercise of
said option) for the respective accounts of the several Underwriters, against
payment by the several Underwriters through the Representatives of the purchase
price thereof to or upon the order of the Company by wire transfer payable in
same-day funds to an account specified by the Company. If settlement for the
Option Securities occurs after the Closing Date, the Company will deliver to the
Representatives on the settlement date for the Option Securities, and the
obligation of the Underwriters to purchase the Option Securities shall be
conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered on
the Closing Date pursuant to Section 6 hereof.
4. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
5. AGREEMENTS. The Company agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereof, to become effective. Prior to the termination of the offering of
the Securities, the Company will not file any amendment of the Registration
Statement or supplement to the Prospectus or any Rule 462(b) Registration
Statement unless the Company has furnished you a copy for your review prior
to filing and will not file any such proposed amendment or supplement to
which you reasonably object. Subject to the foregoing sentence, if the
Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectus is otherwise required under Rule 424(b),
the Company will cause the Prospectus, properly completed, and any
supplement thereto to be filed with the Commission pursuant to the
applicable paragraph of Rule 424(b) within the time period prescribed and
will provide evidence satisfactory to the Representatives of such timely
filing. The Company will promptly advise the Representatives (1) when the
Registration Statement, if not effective at the Execution Time, shall have
become effective, (2) when the Prospectus, and any supplement thereto, shall
have been filed (if required) with the Commission pursuant to Rule 424(b) or
when any Rule 462(b) Registration Statement shall have been filed with the
Commission, (3) when, prior to termination of the offering of the
Securities, any amendment to the Registration Statement shall have been
filed or become effective, (4) of any request by the Commission or its staff
for any amendment of the Registration Statement, or any Rule 462(b)
Registration Statement, or for any supplement to the Prospectus or for any
additional information, (5) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (6) of the
receipt by the Company of any notification with respect to the suspension of
the qualification of the Securities for sale in any jurisdiction or the
institution or threatening of any proceeding for such purpose. The Company
will use its best efforts to prevent the issuance of any such stop order or
the suspension of any such qualification and, if issued, to obtain as soon
as possible the withdrawal thereof.
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(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus as then supplemented would include any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under which they were
made not misleading, or if it shall be necessary to amend the Registration
Statement or supplement the Prospectus to comply with the Act or the rules
thereunder, the Company promptly will (1) notify the Representatives of any
such event, (2) prepare and file with the Commission, subject to the second
sentence of paragraph (i)(a) of this Section 5, an amendment or supplement
which will correct such statement or omission or effect such compliance and
(3) supply any supplemented Prospectus to you in such quantities as you may
reasonably request.
(c) As soon as practicable, the Company will make generally available to
its security holders and to the Representatives an earnings statement or
statements of the Company which will satisfy the provisions of Section 11(a)
of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Representatives and counsel for the
Underwriters signed copies of the Registration Statement (including exhibits
thereto) and to each other Underwriter a copy of the Registration Statement
(without exhibits thereto) and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Act, as many copies of each
Preliminary Prospectus and the Prospectus and any supplement thereto as the
Representatives may reasonably request.
(e) The Company will arrange, if necessary, for the qualification of the
Securities for sale under the laws of such jurisdictions as the
Representatives may designate and will maintain such qualifications in
effect so long as required for the distribution of the Securities; provided
that in no event shall the Company be obligated to qualify to do business in
any jurisdiction where it is not now so qualified or to take any action that
would subject it to service of process in suits, other than those arising
out of the offering or sale of the Securities, in any jurisdiction where it
is not now so subject.
(f) The Company will not, without the prior written consent of Salomon
Smith Barney Inc., offer, sell, contract to sell, pledge or otherwise
dispose of, (or enter into any transaction which is designed to, or might
reasonably be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise) by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, including the filing (or participation in the filing) of a
registration statement with the Commission in respect of, or establish or
increase a put equivalent position or liquidate or decrease a call
equivalent position within the meaning of Section 16 of the Exchange Act,
any other shares of Common Stock or any securities convertible into, or
exercisable, or exchangeable for, shares of Common Stock; or publicly
announce an intention to effect any such transaction, for a period of 180
days after the date of the Underwriting Agreement, provided, however, that
the Company may issue and sell Common Stock pursuant to any employee stock
option plan, stock ownership plan or dividend reinvestment plan of the
Company in effect at the Execution Time, the Company may issue Common Stock
pursuant to the terms in effect at the Execution Time of such partner
contracts as described in the Prospectus and the Company may issue Common
Stock issuable upon the conversion of securities or the exercise of warrants
outstanding at the Execution Time.
(g) The Company will not take, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities.
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(h) The Company agrees to pay the costs and expenses relating to the
following matters: (i) the preparation, printing or reproduction and filing
with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each Preliminary Prospectus, the
Prospectus, and each amendment or supplement to any of them; (ii) the
printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the
Registration Statement, each Preliminary Prospectus, the Prospectus, and all
amendments or supplements to any of them, as may, in each case, be
reasonably requested for use in connection with the offering and sale of the
Securities; (iii) the preparation, printing, authentication, issuance and
delivery of certificates for the Securities, including any stamp or transfer
taxes in connection with the original issuance and sale of the Securities;
(iv) the printing (or reproduction) and delivery of all documents printed
(or reproduced) and delivered in connection with the offering of the
Securities; (v) the registration of the Securities under the Exchange Act
and the listing of the Securities on the Nasdaq National Market; (vi) any
registration or qualification of the Securities for offer and sale under the
securities or blue sky laws of the several states (including filing fees and
the reasonable fees and expenses of counsel for the Underwriters relating to
such registration and qualification); (vii) any filings required to be made
with the National Association of Securities Dealers, Inc. (including filing
fees and the reasonable fees and expenses of counsel for the Underwriters
relating to such filings); (viii) the transportation and other expenses
incurred by or on behalf of Company representatives in connection with
presentations to prospective purchasers of the Securities; (ix) the fees and
expenses of the Company's accountants and the fees and expenses of counsel
(including local and special counsel) for the Company; and (x) all other
costs and expenses incident to the performance by the Company of its
obligations hereunder.
(i) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required by
the National Association of Securities Dealers, Inc. (the "NASD") or the
NASD rules from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of the effectiveness of the
Registration Statement. Salomon Smith Barney Inc. will notify the Company as
to which Participants will need to be so restricted. The Company will direct
the transfer restrictions upon such period of time.
(j) The Company will pay all fees and disbursements of counsel incurred
by the Underwriters in connection with the Directed Share Program and stamp
duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program.
(k) Furthermore, the Company covenants with each of the Underwriters
that the Company will comply with all applicable securities and other
applicable laws, rules and regulations in each foreign jurisdiction in which
the Directed Shares are offered in connection with the Directed Share
Program.
6. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of
the Underwriters to purchase the Underwritten Securities and the Option
Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as of
the Execution Time, the Closing Date and any settlement date pursuant to Section
3 hereof, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to the
Execution Time, unless the Representatives agree in writing to a later time,
the Registration Statement will become effective not later than (i) 6:00 PM
New York City time on the date of determination of the public offering
price, if such determination occurred at or prior to 3:00 PM New York City
time on such
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date or (ii) 9:30 AM on the Business Day following the day on which the
public offering price was determined, if such determination occurred after
3:00 PM New York City time on such date; if filing of the Prospectus, or any
supplement thereto, is required pursuant to Rule 424(b), the Prospectus, and
any such supplement, will be filed in the manner and within the time period
required by Rule 424(b); and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for
that purpose shall have been instituted or threatened.
(b) The Company shall have requested and caused Winthrop, Stimson,
Putnam and Roberts, counsel for the Company, to have furnished to the
Representatives their opinion, dated the Closing Date and addressed to the
Representatives, to the effect that:
(i) the Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction in
which it is chartered or organized, with full corporate power and
authority to own or lease, as the case may be, and to operate its
properties and conduct its business as described in the Prospectus, and
is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such
qualification except where the failure to be so qualified would not have
a material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company;
(ii) the Company's authorized equity capitalization is as set forth
in the Prospectus; the capital stock of the Company conforms in all
material respects to the description thereof contained in the Prospectus;
the outstanding shares of Common Stock have been duly and validly
authorized and issued and, assuming receipt by the Company of the
consideration payable for the issuance thereof, are fully paid and
nonassessable; the Securities being sold hereunder by the Company have
been duly and validly authorized, and, when issued and delivered to and
paid for by the Underwriters pursuant to this Agreement, will be fully
paid and nonassessable; the Securities being sold hereunder by the
Company are duly listed, and admitted and authorized for trading, subject
to official notice of issuance and evidence of satisfactory distribution,
on the Nasdaq National Market; the certificates for the Securities are in
valid and sufficient form; the holders of outstanding shares of capital
stock of the Company are not entitled to statutory preemptive or, to the
knowledge of such counsel, other rights to subscribe for the Securities;
(iii) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or its property of a character required to be disclosed in the
Registration Statement which is not adequately disclosed in the
Prospectus, and, to the knowledge of such counsel, there is no franchise,
contract or other document of a character required to be described in the
Registration Statement or Prospectus, or to be filed as an exhibit
thereto, which is not described or filed as required;
(iv) the Registration Statement has become effective under the Act;
any required filing of the Prospectus, and any supplements thereto,
pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); to the knowledge of such counsel, no stop
order suspending the effectiveness of the Registration Statement has been
issued, no proceedings for that purpose have been instituted or
threatened and the Registration Statement and the Prospectus (other than
the financial statements and other statistical and financial information
contained therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the applicable
requirements of the Act and the rules thereunder; and such counsel has no
reason to believe that on the Effective Date or at the Execution Time the
Registration Statement contained any untrue statement of
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a material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not misleading
or that the Prospectus as of its date and on the Closing Date included or
includes any untrue statement of a material fact or omitted or omits to
state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading (in each case, other than the financial statements and other
statistical and financial information contained therein, as to which such
counsel need express no opinion);
(v) this Agreement has been duly authorized, executed and delivered
by the Company;
(vi) the Company is not and, after giving effect to the offering and
sale of the Securities and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as
defined in the Investment Company Act of 1940;
(vii) no consent, approval, authorization, filing with or order of
any New York, Delaware or federal court or governmental agency or body is
required in connection with the transactions contemplated herein, except
such as have been obtained under the Act and such as may be required
under the blue sky laws of any jurisdiction in connection with the
purchase and distribution of the Securities by the Underwriters in the
manner contemplated in this Agreement and in the Prospectus and such
other approvals (specified in such opinion) as have been obtained;
(viii) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated nor the
fulfillment of the terms hereof will conflict with, result in a breach or
violation of or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to, (i) the charter or by-laws
of the Company, (ii) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument known to such
counsel to which the Company is a party or bound or to which its property
is subject, (iii) any statute, law, rule or regulation applicable to the
Company, or (iv) any judgment, order or decree known to such counsel
applicable to the Company of any court, regulatory body, administrative
agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its properties; and
(ix) except as disclosed in the Registration Statement and to the
knowledge of such counsel, no holders of securities of the Company have
rights to the registration of such securities under the Registration
Statement.
In rendering such opinion, such counsel may rely (A) as to matters involving
the application of laws of any jurisdiction other than the State of Delaware or
the Federal laws of the United States, to the extent they deem proper and
specified in such opinion, upon the opinion of other counsel of good standing
whom they believe to be reliable and who are satisfactory to counsel for the
Underwriters and (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.
References to the Prospectus in this paragraph (b) include any supplements
thereto at the Closing Date.
(c) The Representatives shall have received from Cravath, Swaine &
Moore, counsel for the Underwriters, such opinion or opinions, dated the
Closing Date and addressed to the Representatives, with respect to the
issuance and sale of the Securities, the Registration Statement, the
Prospectus (together with any supplement thereto) and other related matters
as the Representatives may reasonably require, and the Company shall have
furnished to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(d) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting
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officer of the Company, dated the Closing Date, to the effect that the
signers of such certificate have carefully examined the Registration
Statement, the Prospectus, any supplements to the Prospectus and this
Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of the
Closing Date with the same effect as if made on the Closing Date and the
Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the Company's knowledge, threatened; and
(iii) since the date of the most recent financial statements included
in the Prospectus (exclusive of any supplement thereto), there has been
no material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company, whether or
not arising from transactions in the ordinary course of business, except
as set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(e) The Company shall have requested and caused KPMG LLP to have
furnished to the Representatives letters, at the Execution Time and at the
Closing Date, dated respectively as of the Execution Time and as of the
Closing Date, in form and substance satisfactory to the Representatives,
confirming that they are independent accountants within the meaning of the
Act and the applicable rules and regulations adopted by the Commission
thereunder and that they have performed a review of the unaudited interim
financial information of the Company for the three-month period ended March
31, 1999 and as at March 31, 1999, in accordance with Statement on Auditing
Standards No. 71, and stating in effect that:
(i) in their opinion the audited financial statements and financial
statement schedules included in the Registration Statement and the
Prospectus and reported on by them comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related rules and regulations adopted by the Commission;
(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company; their limited review, in
accordance with standards established under Statement on Auditing
Standards No. 71, of the unaudited interim financial information for the
three-month period ended March 31, 1999, and as at March 31, 1999, as
indicated in their report dated , 1999; carrying out certain
specified procedures (but not an examination in accordance with generally
accepted auditing standards) which would not necessarily reveal matters
of significance with respect to the comments set forth in such letter; a
reading of the minutes of the meetings of the stockholders, directors and
audit and compensation committees of the Company; and inquiries of
certain officials of the Company who have responsibility for financial
and accounting matters of the Company as to transactions and events
subsequent to December 31, 1998, nothing came to their attention which
caused them to believe that:
(1) any unaudited financial statements included in the
Registration Statement and the Prospectus do not comply as to form in
all material respects with applicable accounting requirements of the
Act and with the related rules and regulations adopted by the
Commission with respect to registration statements on Form S-1; and
said unaudited financial statements are not in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements included in the Registration Statement and the Prospectus;
(2) with respect to the period subsequent to March 31, 1999,
there were any changes, at a specified date not more than five days
prior to the date of the letter, in the
13
<PAGE>
long-term debt of the Company or capital stock of the Company or
decreases in the stockholders' equity of the Company as compared with
the amounts shown on the March 31, 1999 balance sheet included in the
Registration Statement and the Prospectus, or for the period from
April 1, 1999 to such specified date there were, as compared with the
corresponding period in the preceding quarter, any decrease in
revenues or any increase in the total or per share amount of net loss
of the Company, except in all instances for changes, decreases or
increases set forth in such letter, in which case the letter shall be
accompanied by an explanation by the Company as to the significance
thereof unless said explanation is not deemed necessary by the
Representatives;
(3) the information included in the Registration Statement and
Prospectus in response to Regulation S-K, Item 301 (Selected
Financial Data), Item 302 (Supplementary Financial Information) and
Item 402 (Executive Compensation) is not in conformity with the
applicable disclosure requirements of Regulation S-K;
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the general
accounting records of the Company) set forth in the Registration
Statement and the Prospectus, including the information set forth under
the captions "Management's Discussion and Analysis and Financial
Condition and Results of Operations", "Selected Financial Data",
"Prospectus Summary--Summary Financial Data", "Capitalization",
"Dilution", "Business" and "Risk Factors" in the Prospectus, agrees with
the accounting records of the Company, excluding any questions of legal
interpretation; and
(iv) on the basis of a reading of the pro forma balance sheet column
in the financial statements included in the Registration Statement and
the Prospectus; carrying out certain specified procedures; inquiries of
certain officials of the Company who have responsibility for financial
and accounting matters; and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical amounts in the
pro forma balance sheet column, nothing came to their attention which
caused them to believe that the pro forma balance sheet column does not
comply as to form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts in
the compilation of such pro forma balance sheet column.
References to the Prospectus in this paragraph (e) include any supplement
thereto at the date of the letter.
(f) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto),
there shall not have been (i) any change or decrease specified in the letter
or letters referred to in paragraph (e) of this Section 6 or (ii) any
change, or any development involving a prospective change, in or affecting
the condition (financial or otherwise), earnings, business or properties of
the Company, whether or not arising from transactions in the ordinary course
of business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto) the effect of which, in any case
referred to in clause (i) or (ii) above, is, in the sole reasonable judgment
of the Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the Registration Statement (exclusive of any amendment
thereof) and the Prospectus (exclusive of any supplement thereto).
(g) Prior to the Closing Date, the Company shall have furnished to the
Representatives such further information, certificates and documents as the
Representatives may reasonably request.
14
<PAGE>
(h) The Securities shall have been listed and admitted and authorized
for trading on the Nasdaq National Market, and satisfactory evidence of such
actions shall have been provided to the Representatives.
(i) At the Execution Time, the Company shall have furnished to the
Representatives a letter substantially in the form of Exhibit A hereto from
each officer, director and, as requested by the Representatives, from such
other stockholders of the Company, addressed to the Representatives.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Representatives. Notice of such
cancelation shall be given to the Company in writing or by telephone or
facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be delivered
at the office of Cravath, Swaine & Moore, counsel for the Underwriters, at 825
Eighth Avenue, New York, New York, on the Closing Date.
7. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the sale of the Securities
provided for herein is not consummated because any condition to the obligations
of the Underwriters set forth in Section 6 hereof is not satisfied, because of
any termination pursuant to Section 10 hereof or because of any refusal,
inability or failure on the part of the Company to perform any agreement herein
or comply with any provision hereof other than by reason of a default by any of
the Underwriters, the Company will reimburse the Underwriters severally through
Salomon Smith Barney on demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the proposed purchase and sale of the Securities.
15
<PAGE>
8. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless each Underwriter, the directors, officers, employees and
agents of each Underwriter and each person who controls any Underwriter within
the meaning of either the Act or the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the registration statement for the registration of the
Securities as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or the Prospectus (if used within the period set forth in
Section 5(d) hereof), or in any amendment thereof or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and agrees to reimburse each such indemnified
party, as incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any Underwriter through the Representatives specifically for inclusion therein;
and provided further, that with respect to any untrue statement or omission of
material fact made in any Preliminary Prospectus, the indemnity agreement
contained in this Section 8(a) shall not inure to the benefit of any Underwriter
from whom the person asserting any such loss, claim, damage or liability
purchased the securities concerned, to the extent that any such loss, claim,
damage or liability of such Underwriter occurs under the circumstance where it
shall have been determined by a court of competent jurisdiction by final and
nonappealable judgment that (w) the Company had previously furnished copies of
the Prospectus to the Representatives, (x) delivery of the Prospectus was
required by the Act to be made to such person, (y) the untrue statement or
omission of a material fact contained in the Preliminary Prospectus was
corrected in the Prospectus and (z) there was not sent or given to such person,
at or prior to the written confirmation of the sale of such securities to such
person, a copy of the Prospectus. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) The Company agrees to indemnify and hold harmless Salomon Smith Barney
Inc., the directors, officers, employees and agents of Salomon Smith Barney Inc.
and each person, who controls Salomon Smith Barney Inc. within the meaning of
either the Act or the Exchange Act ("Salomon Smith Barney Entities"), against
any and all losses, claims, damages and liabilities to which they may become
subject under any applicable laws or regulations of foreign jurisdictions where
the Directed Shares have been offered or sold, the Act, the Exchange Act or
other Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims damages or liabilities (or actions in respect
thereof) (i) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any supplement or prospectus
wrapper material prepared by or with the consent of the Company for distribution
in foreign jurisdictions in connection with the Directed Share Program attached
to the Prospectus or any preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement therein, when considered
in conjunction with the Prospectus or any applicable preliminary prospectus, not
misleading; (ii) caused by the failure of any Participant to pay for and accept
delivery of the securities which immediately following the Effective Date of the
Registration Statement, were subject to a properly confirmed agreement to
purchase; or (iii) related to, arising out of, or in connection with the
Directed Share Program, provided that, the Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by
16
<PAGE>
or on behalf of Salmon Smith Barney Inc. specifically for inclusion therein.
Notwithstanding the foregoing, with respect to any untrue statement or omission
of material fact made in any such supplement or prospectus wrapper material, the
indemnity agreement contained in this Section 8(b) shall not inure to the
benefit of any of the Salomon Smith Barney Entities from whom the person
asserting any such loss, claim, damage or liability purchased the securities
concerned, to the extent that any such loss, claim, damage or liability of such
Salomon Smith Barney Entity occurs under the circumstance where it shall have
been determined by a court of competent jurisdiction by final and nonappealable
judgment that (w) the Company had previously furnished copies of an amended or
supplemented supplement or prospectus wrapper material to the Salomon Smith
Barney Entities (x) delivery of such supplement or prospectus wrapper material,
as so amended or supplemented, was required by law to be made to such person,
(y) the untrue statement or omission of a material fact contained in the
supplement or prospectus wrapper material was corrected in such supplement or
prospectus wrapper material as so amended or supplemented and (z) there was not
sent or given to such person, at or prior to the written confirmation of the
sale of such securities to such person, a copy of such supplement or prospectus
wrapper material as so amended or supplemented.
(c) Each Underwriter severally and not jointly agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who signs the
Registration Statement, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, to the same extent as the
foregoing indemnity to each Underwriter, but only with reference to written
information relating to such Underwriter furnished to the Company by or on
behalf of such Underwriter through the Representatives specifically for
inclusion in the documents referred to in the foregoing indemnity. This
indemnity agreement will be in addition to any liability which any Underwriter
may otherwise have. The Company acknowledges that the statements set forth in
the last paragraph of the cover page regarding delivery of the Securities, the
legend in block capital letters on page [ ] related to stabilization, syndicate
covering transactions and penalty bids and, under the heading "Underwriting",
(i) the list of underwriters and their respective participation in the sale of
the Securities, (ii) the sentences related to concessions and reallowances and
(iii) the paragraph related to stabilization, syndicate covering transactions
and penalty bids in any Preliminary Prospectus and the Prospectus constitute the
only information furnished in writing by or on behalf of the several
Underwriters for inclusion in any Preliminary Prospectus or the Prospectus.
(d) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a), (b) or (c) above unless and to the extent it did
not otherwise learn of such action and such failure results in the forfeiture by
the indemnifying party of substantial rights and defenses and (ii) will not, in
any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligation provided in
paragraph (a), (b) or (c) above. The indemnifying party shall be entitled to
appoint counsel of the indemnifying party's choice at the indemnifying party's
expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
PROVIDED, HOWEVER, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it
17
<PAGE>
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution of
such action or (iv) the indemnifying party shall authorize the indemnified party
to employ separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding. Notwithstanding anything
contained herein to the contrary, if indemnity may be sought pursuant to Section
8(b) hereof in respect of such action or proceeding, then in addition to such
separate firm for the indemnified parties, the indemnifying party shall be
liable for the reasonable fees and expenses of not more than one separate firm
(in addition to any local counsel) for Salomon Smith Barney Inc., the directors,
officers, employees and agents of Salomon Smith Barney Inc., and all persons, if
any, who control Salomon Smith Barney Inc. within the meaning of either the Act
or the Exchange Act for the defense of any losses, claims, damages or
liabilities arising out of the Directed Share Program.
(e) In the event that the indemnity provided in paragraph (a), (b), (c) or
(f) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Underwriters severally
agree to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which the Company
and one or more of the Underwriters may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and by the Underwriters on the other from the offering of the Securities;
PROVIDED, HOWEVER, that in no case shall (i) any Underwriter (except as may be
provided in any agreement among underwriters relating to the offering of the
Securities) be responsible for any amount in excess of the underwriting discount
or commission applicable to the Securities purchased by such Underwriter
hereunder or (ii) Salomon Smith Barney (the "Independent Underwriter") in its
capacity as "qualified independent underwriter" (within the meaning of National
Association of Securities Dealers, Inc. Conduct Rule 2720) be responsible for
any amount in excess of the compensation received by the Independent Underwriter
for acting in such capacity. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the Company and the
Underwriters severally shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on the one hand and of the Underwriters on the other in connection with
the statements or omissions which resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Company shall be
deemed to be equal to the total net proceeds from the offering (before deducting
expenses) received by it, and benefits received by the Underwriters shall be
deemed to be equal to the total underwriting discounts and commissions, in each
case as set forth on the cover page of the Prospectus. Benefits received by the
Independent Underwriter in its capacity as "qualified independent underwriter"
shall be deemed to be equal to the compensation received by the Independent
Underwriter for acting in such capacity. Relative fault shall be determined by
reference to, among other things, whether any untrue or any alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information provided by the Company on the one hand or
the Underwriters on the other, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Company and the Underwriters agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (e), no person guilty of fraudulent misrepresentation (within the
meaning
18
<PAGE>
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 8, each person who controls an Underwriter within the meaning of either
the Act or the Exchange Act and each director, officer, employee and agent of an
Underwriter shall have the same rights to contribution as such Underwriter, and
each person who controls the Company within the meaning of either the Act or the
Exchange Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the applicable terms and
conditions of this paragraph (e).
(f) Without limitation of and in addition to its obligations under the other
paragraphs of this Section 8, the Company agrees to indemnify and hold harmless
the Independent Underwriter, its directors, officers, employees and agents and
each person who controls the Independent Underwriter within the meaning of
either the Act or the Exchange Act against any and all losses, claims, damages
or liabilities, joint or several, to which they or any of them may become
subject, insofar as such losses, claims, damages or liabilities (or action in
respect thereof) arise out of or are based upon the Independent Underwriter's
acting as a "qualified independent underwriter" (within the meaning of National
Association of Securities Dealers, Inc. Conduct Rule 2720) in connection with
the offering contemplated by this Agreement, and agrees to reimburse each such
indemnified party, as incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case to the extent that any loss, claim, damage or
liability results from the gross negligence or willful misconduct of the
Independent Underwriter.
9. DEFAULT BY AN UNDERWRITER. If any one or more Underwriters shall fail
to purchase and pay for any of the Securities agreed to be purchased by such
Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; PROVIDED, HOWEVER, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter or
the Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
five Business Days, as the Representatives shall determine in order that the
required changes in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Underwriter of its liability, if any, to
the Company and any nondefaulting Underwriter for damages occasioned by its
default hereunder.
10. TERMINATION. This Agreement shall be subject to termination in the
absolute discretion of the Representatives, by notice given to the Company prior
to delivery of and payment for the Securities, if at any time prior to such time
(i) trading in the Company's Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally on
the New York Stock Exchange or the Nasdaq National Market shall have been
suspended or limited or minimum prices shall have been established on either of
such Exchanges, (ii) a banking moratorium shall have been declared either by
Federal or New York State authorities or (iii) there shall have occurred any
outbreak or escalation of hostilities, declaration by the United States of a
national emergency or war, or other calamity or crisis the effect of which on
financial markets is such as to make it, in the sole
19
<PAGE>
judgment of the Representatives, impractical or inadvisable to proceed with the
offering or delivery of the Securities as contemplated by the Prospectus
(exclusive of any supplement thereto).
11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective agreements,
representations, warranties, indemnities and other statements of the Company or
its officers and of the Underwriters set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of any Underwriter or the Company or any of the officers,
directors, employees, agents or controlling persons referred to in Section 8
hereof, and will survive delivery of and payment for the Securities. The
provisions of Sections 7 and 8 hereof shall survive the termination or
cancelation of this Agreement.
12. NOTICES. All communications hereunder will be in writing and effective
only on receipt, and, if sent to the Representatives, will be mailed, delivered
or telefaxed to the Salomon Smith Barney Inc. General Counsel (fax no.: (212)
816-7912) and confirmed to the General Counsel, Salomon Smith Barney Inc., at
388 Greenwich Street, New York, New York, 10013, Attention: General Counsel; or,
if sent to the Company, will be mailed, delivered or telefaxed to David W.
Ambrosia, Esq. (fax no.: (212) 425-3487), Mail.com, Inc., 11 Broadway, New York,
New York 10004, with a copy to Ronald Fleming, Esq. (fax no.: (212) 858-1500) at
Winthrop, Stimson, Putnam and Roberts, at One Battery Park Plaza, New York, New
York, 10004.
13. SUCCESSORS. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers,
directors, employees, agents and controlling persons referred to in Section 8
hereof, and no other person will have any right or obligation hereunder.
14. APPLICABLE LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed within the State of New York.
15. COUNTERPARTS. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. HEADINGS. The section headings used herein are for convenience only
and shall not affect the construction hereof.
17. DEFINITIONS. The terms which follow, when used in this Agreement,
shall have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions or trust companies are
authorized or obligated by law to close in New York City.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the Registration
Statement, any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or become effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto.
20
<PAGE>
"Preliminary Prospectus" shall mean any preliminary prospectus referred
to in paragraph 1(a) above and any preliminary prospectus included in the
Registration Statement at the Effective Date that omits Rule 430A
Information.
"Prospectus" shall mean the prospectus relating to the Securities that
is first filed pursuant to Rule 424(b) after the Execution Time or, if no
filing pursuant to Rule 424(b) is required, shall mean the form of final
prospectus relating to the Securities included in the Registration Statement
at the Effective Date.
"Registration Statement" shall mean the registration statement referred
to in paragraph 1(a) above, including exhibits and financial statements, as
amended at the Execution Time (or, if not effective at the Execution Time,
in the form in which it shall become effective) and, in the event any
post-effective amendment thereto or any Rule 462(b) Registration Statement
becomes effective prior to the Closing Date, shall also mean such
registration statement as so amended or such Rule 462(b) Registration
Statement, as the case may be. Such term shall include any Rule 430A
Information deemed to be included therein at the Effective Date as provided
by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the
Act.
"Rule 430A Information" shall mean information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration statement
and any amendments thereto filed pursuant to Rule 462(b) relating to the
offering covered by the registration statement referred to in Section 1(a)
hereof.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement among the Company
and the several Underwriters.
Very truly yours,
MAIL.COM, INC.
By:
---------------------------------------------------------------------------
Name:
Title:
21
<PAGE>
The foregoing Agreement is hereby confirmed and accepted as of the date
first above written.
SALOMON SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
SG COWEN SECURITIES CORPORATION
By: Salomon Smith Barney Inc.
By:
---------------------------------------------------------------------------
Name:
Title:
For themselves and the other several Underwriters named in Schedule I to the
foregoing Agreement.
22
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITTEN SECURITIES
UNDERWRITERS TO BE PURCHASED
- -------------------------------------------------------------------------------------- --------------------------
<S> <C>
Salomon Smith Barney Inc. ............................................................
PaineWebber Incorporated..............................................................
SG Cowen Securities Corporation.......................................................
Wit Capital Corporation...............................................................
DLJdirect, Inc........................................................................
--------------------------
Total...............................................................................
--------------------------
--------------------------
</TABLE>
<PAGE>
Exhibit 5.1
WINTHROP, STIMSON, PUTNAM & ROBERTS
One Battery Park Plaza
New York, New York
Tel: (212) 858-1000
Fax: (212) 858-1500
June 15, 1999
Mail.com, Inc.
11 Broadway, 6th Floor
New York, New York 10004
Re: Registration Statement on Form S-1
---------------------------------------
Ladies and Gentlemen:
We are acting as counsel for Mail.com, Inc., a Delaware corporation (the
"Company"), in connection with the registration under the Securities Act of
1933, as amended, of 7,877,500 shares of Class A Common Stock, par value
$0.01 per share (the "Class A Common Stock"), of the Company (including
1,027,500 shares subject to the underwriters' over-allotment option) to be
offered and sold by the Company. In this regard we have participated in the
preparation of a Registration Statement on Form S-1 relating to such
7,877,500 shares of Class A Common Stock. (Such Registration Statement, as
amended, and including any registration statement related thereto and filed
pursuant to Rule 462(b) under the Securities Act (a "Rule 462(b) registration
statement") is herein referred to as the "Registration Statement.")
We are of the opinion that the shares of Class A Common Stock to be
offered and sold by the Company have been duly authorized and, when issued
and sold by the Company in the manner described in the Registration Statement
and in accordance with the resolutions adopted by the Board of Directors of
the Company, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.
Very truly yours,
/s/ Winthrop, Stimson, Putnam & Roberts
<PAGE>
10.41
PENTECH FINANCIAL SERVICES, INC.
EQUIPMENT FINANCING AGREEMENT
EFA #200251
THIS EQUIPMENT FINANCING AGREEMENT ("agreement") is dated as of the date set
forth at the foot hereof and is between Pentech Financial Services, Inc., a
California corporation ("Secured Party") and the debtor designated at the foot
hereof ("Debtor").
1. EQUIPMENT; SECURITY INTEREST. The terms and conditions of this agreement
cover each item of machinery, equipment and other property (individually an
"Item" or "Item of Equipment" and collectively the "Equipment") described in a
schedule now or hereafter executed by the parties hereto and made a part hereof
(individually a "Schedule" and collectively the "Schedules"). Debtor hereby
grants Secured Party a security interest in and to all Debtor's right, title
and interest in and to the Equipment under the Uniform Commercial Code, such
grant with respect to an Item of Equipment to be as of Debtor's execution of a
related equipment financing commitment referencing this agreement or, if Debtor
then has no interest in such Item, as of such subsequent time as Debtor acquires
an interest in the Item. Such security interest is granted by Debtor to secure
performance by Debtor of Debtor's obligations to Secured Party hereunder and
under any other agreements under which Debtor has or may hereafter have
obligations to Secured Party. Debtor will ensure that such security interest
will be and remain a sole and valid first lien security interest subject only to
the lien of current taxes and assessments not in default but only if such taxes
are entitled to priority as a matter of law.
2. DEBTOR'S OBLIGATIONS. The obligations of Debtor under this agreement
respecting an Item of Equipment, except the obligation to pay installment
payments with respect thereto which will commence as set forth in paragraph 3
below, commence upon the grant to Secured Party of a security interest in the
Item. Debtor's obligations hereunder with respect to an Item of Equipment and
Secured Party's security interest therein will continue until payment of all
amounts due, and performance of all terms and conditions required, hereunder
with respect thereto; provided, however, that if this agreement is then in
default said obligations and security interest will continue during the
continuance of said default. Upon termination of Secured Party's security
interest in an Item of Equipment, Secured Party will execute such release of
interest with respect thereto as Debtor reasonably requests
3. INSTALLMENT PAYMENTS AND OTHER PAYMENTS. Debtor will repay advances Secured
Party makes on account of the Equipment together with interest in installment
payments in the amounts and at the times set forth in the Schedules, whether or
not Secured Party has rendered an invoice therefor, at the office of Secured
Party set forth at the foot hereof, or to such person and/or at such other place
as Secured Party may from time to time designate on notice to Debtor. Any other
amounts required to be paid Secured Party by Debtor hereunder are due upon
Debtor's receipt of Secured Party's invoice therefor and will be payable as
directed in the invoice. Payments under this agreement may be applied to
Debtor's then accrued obligations to Secured Party in such order as Secured
Party may choose.
4. NET AGREEMENT; NO OFFSET; SURVIVAL. This agreement is a net agreement, and
Debtor will not be entitled to any abatement of installment payments or other
payments due hereunder or any reduction thereof under any circumstances or for
any reason whatsoever. Debtor hereby waives any and all existing and future
claims, as offsets, against any installment payments or other payments due
hereunder and agrees to pay the installment payments and other amounts due
hereunder as and when due regardless of any offset or claim which may be
asserted by Debtor or on its behalf. The obligations and liabilities of Debtor
hereunder will survive the termination of this agreement.
5. FINANCING AGREEMENT. THIS AGREEMENT IS SOLELY A FINANCING AGREEMENT. DEBTOR
ACKNOWLEDGES THAT THE EQUIPMENT HAS OR WILL HAVE BEEN SELECTED AND ACQUIRED
SOLELY BY DEBTOR FOR DEBTOR'S PURPOSES, THAT SECURED PARTY IS NOT AND WILL NOT
BE THE VENDOR OF ANY EQUIPMENT AND THAT SECURED PARTY HAS NOT MADE AND WILL NOT
MAKE ANY AGREEMENT, REPRESENTATION OR WARRANTY WITH RESPECT TO THE
MERCHANTABILITY, CONDITION, QUALIFICATION OR FITNESS FOR A PARTICULAR PURPOSE OR
VALUE OF THE EQUIPMENT OR ANY OTHER MATTER WITH RESPECT THERETO IN ANY RESPECT
WHATSOEVER.
6. NO AGENCY. DEBTOR ACKNOWLEDGES THAT NO AGENT OF THE MANUFACTURER OR OTHER
SUPPLIER OF AN ITEM OF EQUIPMENT OR OF ANY FINANCIAL INTERMEDIARY IN CONNECTION
WITH THIS AGREEMENT IS AN AGENT OF SECURED PARTY. SECURED PARTY IS NOT BOUND BY
A REPRESENTATION OF ANY SUCH PARTY AND AS CONTEMPLATED IN PARAGRAPH 27 BELOW,
THE ENTIRE AGREEMENT OF SECURED PARTY AND DEBTOR CONCERNING THE FINANCING OF THE
EQUIPMENT IS CONTAINED IN THIS AGREEMENT AS IT MAY BE AMENDED AS PROVIDED IN
THAT PARAGRAPH.
7. ACCEPTANCE. Execution by Debtor and Secured Party of a Schedule covering the
Equipment or any Items thereof will conclusively establish that such Equipment
has been included under and will be subject to all the terms and conditions of
this agreement. If Debtor has not furnished Secured Party with a Schedule by the
earlier of fourteen (14) days after receipt thereof or expiration of the
commitment period act forth in the applicable equipment financing commitment,
Secured Party may terminate its obligation to advance funds as to the applicable
Equipment.
8. LOCATION; INSPECTION; USE. Debtor will keep, or in the case of motor
vehicles, permanently garage and not remove from the United States, as
appropriate, each Item of Equipment in Debtor's possession and control at the
Equipment Location designated in the applicable Schedule, or at such other
location to which such Item of Equipment may have been moved with the prior
written consent of Secured Party. Whenever requested by Secured Party, Debtor
will advise Secured Party as to the exact location of an Item of Equipment.
Secured Party will have the right to inspect the Equipment and observe its use
during normal business hours and to enter into and upon the premises where the
Equipment may be located for such purpose. The Equipment will at all times be
used solely for commercial or business purposes and operated in a careful and
proper manner and in compliance with all applicable laws, ordinances, rules and
regulations, all conditions and requirements of the policy or policies of
insurance required to be carried by Debtor under the terms of this agreement and
all manufacturer's instructions and warranty requirements. Any modifications or
additions to the Equipment required by any such governmental edict or insurance
policy will be promptly made by Debtor.
9. ALTERATIONS; SECURITY INTEREST COVERAGE. Without the prior written consent of
Secured Party, Debtor will not make any alterations, additions or improvements
to any Item of Equipment which detract from its economic value or functional
utility, except as may be required pursuant to paragraph 8 above. Secured
Party's security interest in the Equipment will include all modifications and
additions thereto and replacements and substitutions therefor, in whole or in
part. Such reference to replacements and substitutions will not grant Debtor
greater rights to replace or substitute than are provided in paragraph 11 below
or as may be allowed upon the prior written consent of Secured Party.
<PAGE>
10. MAINTENANCE. Debtor will maintain the Equipment in good repair, condition
and working order. Debtor also will cause each Item of Equipment for which a
service contract is generally available to be covered by such a contract which
provides coverages typical as to property of the type involved and is issued by
a competent servicing entity.
11. LOSS AND DAMAGE; CASUALTY VALUE. In the event of the loss of, theft of,
requisition of, damage to or destruction of an Item of Equipment ("Casualty
Occurrence") Debtor will give Secured Party prompt notice thereof and will
thereafter place such Item in good repair, condition and working order;
provided, however, that if such Item is determined by Secured Party to be lost,
stolen, destroyed or damaged beyond repair, is requisitioned or suffers a
constructive total loss as defined in any applicable insurance policy carried by
Debtor in accordance with paragraph 14 below, Debtor, at Secured Party's option,
will (a) replace the Item with like equipment in good repair, condition and
working order whereupon such replacement equipment will be deemed such Item for
all purposes hereof or (b) pay Secured Party the "Casualty Value" of such Item
which will equal the total of (i) all installment payments and other amounts due
with respect to such item from Debtor to Secured Party at the time of such
payment and (ii) each future installment payment due with respect to such Item
with each such payment other than any final uneven payment discounted at eight
percent (8%) per annum simple interest from the date due to the date of such
payment. Any final uneven payment will be due without discount. The discounting
contemplated in this paragraph will be in accordance with the Financial Compound
Interest and Annuity Tables, Sixth Edition published by the Financial Publishing
Company. Upon such replacement or payment, as appropriate, this agreement and
Secured Party's security interest will terminate with, and only with, respect to
the Item of Equipment so replaced or as to which such payment is made in
accordance with paragraph 2 above.
12. TITLING; REGISTRATION. Each Item of Equipment subject to title registration
laws will at all times be titled and/or registered by Debtor as Secured Party's
agent and attorney-in-fact with full power and authority to register (but
without power to affect title to) the Equipment in such manner and in such
jurisdiction or jurisdictions as Secured Party directs. Debtor will promptly
notify Secured Party of any necessary or advisable retitling and/or
reregistration of an Item of Equipment in a jurisdiction other than one in which
such Item is then titled and/or registered. Any and all documents of title will
be furnished or caused to be furnished Secured Party by Debtor within sixty (60)
days of the date any titling or registering or retitling or reregistering, as
appropriate, is directed by Secured Party.
13. TAXES. Debtor will make all filings as to and pay when due all personal
property and other ad valorem taxes and all other taxes, fees, charges and
assessments based on the ownership or use of the Equipment and will pay as
directed by Secured Party or reimburse Secured Party for all taxes, including,
but not limited to, gross receipts taxes (exclusive of federal and state taxes
based on Secured Party's net income, unless such net income taxes are in
substitution for or relieve Debtor from any taxes which Debtor would otherwise
be obligated to pay under the terms of this paragraph 13), fees, charges and
assessments whatsoever, however designated, whether based on the installment
payments or other amounts due hereunder, levied, assessed or imposed upon the
Equipment or otherwise related hereto or to the Equipment, now or hereafter
levied, assessed or imposed under the authority of a federal, state or local
taxing jurisdiction, regardless of when and by whom payable. Filings with
respect to such other amounts will, at Secured Party's option, be made by
Secured Party or by Debtor as directed by Secured Party.
14. INSURANCE. Debtor will procure and continuously maintain all risk insurance
against loss of or damage to the Equipment from any cause whatsoever for not
less than the full replacement value thereof naming Secured Party as Loss Payee.
Such insurance must be in a form and with companies approved by Secured Party,
must provide at least thirty (30) days advance written notice to Secured Party
of cancellation, change or modification in any term, condition or amount of
protection provided therein, must provide full breach of warranty protection and
must provide that the coverage is "primary coverage" (does not require
contribution from any other applicable coverage). Debtor will provide Secured
Party with an original policy or certificate evidencing such insurance. In the
event of an assignment of this agreement by Secured Party of which Debtor has
notice, Debtor will cause such insurance to provide the same protection to the
assignee as its interest may appear. The proceeds of such insurance, at the
option of Secured Party or such assignee, as appropriate, will be applied toward
(a) the repair or replacement of the appropriate Item or Items of Equipment, (b)
payment of the Casualty Value thereof or (c) payment of, or as provision for,
satisfaction of any other accrued obligations of Debtor hereunder. Debtor hereby
appoints Secured Party as Debtor's attorney-in-fact with full power and
authority to do all things, including, but not limited to, making claims,
receiving payments and endorsing documents, checks or drafts, necessary to
secure payments due under any policy contemplated hereby on account of a
Casualty Occurrence. Debtor and Secured Party contemplate that the jurisdictions
where the Equipment will be located will not impose any liability upon Secured
Party for personal injury and/or property damage resulting out of the
possession, use, operation or condition of the Equipment. In the event Secured
Party determines that such is not or may not be the case with respect to a given
jurisdiction, Debtor will provide Secured Party with public liability and
property damage coverage applicable to the Equipment in such amounts and in such
form as Secured Party requires.
15. SECURED PARTY'S PAYMENT. If Debtor fails to pay any amounts due hereunder or
to perform any of its other obligations under this agreement, Secured Party may,
at its option, but without any obligation to do so, pay such amounts or perform
such obligations, and Debtor will reimburse Secured Party the amount of such
payment or cost of such performance.
16. INDEMNITY. Debtor does hereby assume liability for and does agree to
indemnify, defend, protect, save and keep harmless Secured Party from and
against any and all liabilities, losses, damages, penalties, claims, actions,
suits, costs, expenses and disbursements, including court costs and legal
expenses, of whatever kind and nature, imposed on, incurred by or asserted
against Secured Party (whether or not also indemnified against by any other
person) in any way relating to or arising out of this agreement or the
manufacture, financing, ownership, delivery, possession, use, operation,
condition or disposition of the Equipment by Secured Party or Debtor, including,
without limitation, any claim alleging latent and other defects, whether or not
discoverable by Secured Party or Debtor, and any other claim arising out of
strict liability in tort, whether or not in either instance relating to an event
occurring while Debtor remains obligated under this agreement, and any claim for
patent, trademark or copyright infringement. Debtor agrees to give Secured Party
and Secured Party agrees to give Debtor notice of any claim or liability hereby
indemnified against promptly following learning thereof.
17. DEFAULT. Any of the following will constitute an event of default here
under: (a) Debtor's failure to pay when due any installment payment or other
amount due hereunder, which failure continues for ten (10) days after the due
date thereof; (b) Debtor's default in performing any other obligation, term or
condition of this agreement or any other agreement between Debtor and Secured
Party or default under any further agreement providing security for the
performance by Debtor of its obligations hereunder, provided such default has
continued for more than twenty (20) days, except as provided in (c) and (d)
hereinbelow, or, without limiting the generality of subparagraph (I)
hereinbelow, default under any lease or any mortgage or other instrument
contemplating the provision of financial accommodation applicable to the real
estate where an Item of Equipment is located; (c) any writ or order of
attachment or execution or other legal process being levied on or charged
against any Item of Equipment and not being released or satisfied within ten
(10) days; (d) Debtor's failure to comply with its obligations under paragraph
14 above or any transfer by Debtor in violation of paragraph 21 below; (e) a
non-appealable judgement for the payment of money in excess of $100,000 being
rendered by a court of record against Debtor which Debtor does not discharge or
make provision for discharge in accordance with the terms thereof within ninety
(90) days from the date of entry thereof; (1) death or judicial declaration of
incompetency of Debtor, if an individual; (g) the filing by Debtor of a petition
under the Bankruptcy Act or any amendment thereto or under any other insolvency
law or law providing for the relief of debtors, including, without limitation, a
<PAGE>
petition for reorganization, arrangement or extension, or the commission by
Debtor of an act of bankruptcy; (h) the filing against Debtor of any such
petition not dismissed or permanently stayed within thirty (30) days of the
filing thereof; (i) the voluntary or involuntary making of an assignment of
substantial portion of its assets by Debtor for the benefit of creditors,
appointment of a receiver or trustee for Debtor or for any of Debtor's assets,
institution by or against Debtor or any other type of insolvency proceeding
(under the Bankruptcy Code or otherwise) or of any formal or informal proceeding
for dissolution, liquidation, settlement of claims against or winding up of the
affairs of Debtor, Debtor's cessation of business activities or the making by
Debtor of a transfer of all or a material portion of Debtor's assets or
inventory not in the ordinary course of business; 6) the occurrence of any event
described in parts (e), (f), (g), (h) or (i) hereinabove with respect to any
guarantor or other party liable for payment or performance of this agreement;
(k) any certificate, statement, representation, warranty or audit heretofore or
hereafter furnished with respect hereto by or on behalf of Debtor or any
guarantor or other party liable for payment or performance of this agreement
proving to have been false in any material respect at the time as of which the
facts therein set forth were stated or certified or having omitted any
substantial contingent or unliquidated liability or claim against Debtor or any
such guarantor or other party; (l) breach by Debtor of any lease or agreement
providing financial accommodation under which Debtor or its property is bound or
(m) a transfer of effective control of Debtor, if an organization.
18. REMEDIES. Upon the occurrence of an event of default, Secured Party will
have the rights, options, duties and remedies of a secured party, and Debtor
will have the rights and duties of a debtor, under the Uniform Commercial Code
(regardless of whether such Code or a law similar thereto has been enacted in a
jurisdiction wherein the rights or remedies are asserted) and, without limiting
the foregoing, Secured Party may exercise any one or more of the following
remedies: (a) declare the Casualty Value or such lesser amount as may be set by
law immediately due and payable with respect to any or all Items of Equipment
without notice or demand to Debtor; (b) sue from time to time for and recover
all installment payments and other payments then accrued and which accrue during
the pendency of such action with respect to any or all Items of Equipment; (c)
take possession of and, if deemed appropriate, render unusable any or all Items
of Equipment, without demand or notice, wherever same may be located, without
any court order or other process of law and without liability for any damages
occasioned by such taking of possession and remove, keep and store the same or
use and operate or lease the same until sold; (d) require Debtor to assemble any
or all Items of Equipment at the Equipment Location therefor, such location to
which such Equipment may have been moved with the written consent of Secured
Party or such other location in reasonable proximity to either of the foregoing
as Secured Party designates; (e) upon ten days notice to Debtor or such other
notice as may be required by law, sell or otherwise dispose of any Item of
Equipment, whether or not in Secured Party's possession, in a commercially
reasonable manner at public or private sale at any place deemed appropriate and
apply the net proceeds of such sale, after deducting all costs of such sale,
including, but not limited to, costs of transportation, repossession, storage,
refurbishing, advertising and broker's fees, to the obligations of Debtor to
Secured Party hereunder or otherwise, with Debtor remaining liable for any
deficiency and with any excess being returned to Debtor; (f) upon thirty (30)
days notice to Debtor, retain any repossessed or assembled Items of Equipment as
Secured Party's own property in full satisfaction of Debtor's liability for the
installment payments due hereunder with respect thereto, provided that Debtor
will have the right to redeem such Items by payment in full of its obligations
to Secured Party hereunder or otherwise or to require Secured Party to sell or
otherwise dispose of such Items in the manner set forth in subparagraph (e)
hereinabove upon notice to Secured Party within such thirty (30) day period or
(g) utilize any other remedy available to Secured Party under the Uniform
Commercial Code or similar provision of law or otherwise at law or in equity.
No right or remedy conferred herein is exclusive of any other right or remedy
conferred herein or by law, but all such remedies are cumulative of every other
right or remedy conferred hereunder or at law or in equity, by statute or
otherwise, and may be exercised concurrently or separately from time to time.
Any sale contemplated by subparagraph (e) of this paragraph 18 may be adjourned
from time to time by announcement at the time and place appointed for such sale,
or for any such adjourned sale, without further published notice, and Secured
Party may bid and become the purchaser at any such sale. Any sale of an Item of
Equipment, whether under said subparagraph or by virtue of judicial proceedings,
will operate to divest all right, title, interest, claim and demand whatsoever,
either at law or in equity, of Debtor in and to said Item and will be a
perpetual bar to any claim against such Item, both at law and in equity, against
Debtor and all persons claiming by, through or under Debtor.
19. DISCONTINUANCE OF REMEDIES. If Secured Party proceeds to enforce any right
under this agreement and such proceedings are discontinued or abandoned for any
reason or are determined adversely, then and in every such case Debtor and
Secured Party will be restored to their former positions and rights thereunder.
20. SECURED PARTY'S EXPENSES. Debtor will pay Secured Party all costs and
expenses, including reasonable attorney's fees and court costs and sales costs
not offset against sales proceeds under paragraph 18 above, incurred by Secured
Party in exercising any of its rights or remedies hereunder or enforcing any of
the terms, conditions or provisions hereof. This obligation includes the payment
or reimbursement of all such amounts whether an action is ultimately filed and
whether an action filed is ultimately dismissed.
21. ASSIGNMENT. Without the prior written consent of Secured Party, Debtor will
not sell, lease, pledge or hypothecate, except as provided in this agreement, an
Item of Equipment or any interest therein or assign, transfer, pledge or
hypothecate this agreement or any interest in this agreement or permit the
Equipment to be subject to any lien, charge or encumbrance of any nature except
the security interest of Secured Party contemplated hereby. Debtor's interest
herein is not assignable and will not be assigned or transferred by operation of
law. Consent to any of the foregoing prohibited acts applies only in the given
instance and is not a consent to any subsequent like act by Debtor or any
person.
All rights of Secured Party hereunder may be assigned pledged, mortgaged,
transferred or otherwise disposed of, either in whole or in part, without notice
to Debtor but always, however, subject to the rights of Debtor under this
agreement. If Debtor is given notice of any such assignment, Debtor will
acknowledge receipt thereof in writing. In the event Secured Party assigns this
agreement or the installment payments due or to become due hereunder or any
other interest herein, whether as security for any of its indebtedness or
otherwise, no breach or default by Secured Party hereunder or pursuant to any
other agreement between Secured Party and Debtor, should there be one, will
excuse performance by Debtor of any provision hereof, it being understood that
in the event of such default or breach by Secured Party that Debtor will pursue
any rights on account thereof solely against Secured Party. No such assignee,
unless such assignee agrees in writing, will be obligated to perform any duty,
covenant or condition required to be performed by Secured Party in connection
with this agreement.
Subject always to the foregoing, this agreement insures to the benefit of, and
is binding upon, the heirs, legatees, personal representatives, successors and
assigns of the parties hereto.
22. MARKINGS; PERSONAL PROPERTY. If Secured Party supplies Debtor with labels,
plates, decals or other markings stating that Secured Party has an interest in
the Equipment, Debtor will affix and keep the same prominently displayed on the
Equipment or will otherwise make the Equipment or its then location or
locations, as appropriate, at Secured Party's request to indicate Secured
Party's security interest in the Equipment. The Equipment is, and at all times
will remain, personal property notwithstanding that the Equipment or any Item
thereof may now be, or hereafter become, in any manner affixed or attached to,
or embedded in, or permanently resting upon real property or any improvement
thereof or attached in any manner to what is permanent as by means of cement,
plaster, nails, bolts, screws or otherwise. If requested by Secured Party,
Debtor will obtain
<PAGE>
and deliver to Secured Party waivers of interest or liens in recordable form
satisfactory to Secured Party from all persons claiming any interest in the real
property on which an Item of Equipment is or is to be installed or located.
23. LATE CHARGE. If Debtor fails to pay any installment payment or any other sum
to be paid by Debtor to Secured Party within seven (7) days of when due, Debtor
will pay to Secured Party (a) Secured Party's collection costs paid third
parties relevant to the collection thereof and (b) interest of such unpaid
installment or other amount at the rate of eighteen percent (18%) per annum, or
at such greater or lesser contract rate as may be applicable, computed from the
date due to the date paid.
24. NON-WAIVER. No covenant or condition of this agreement can be waived except
by the written consent of Secured Party. Forbearance or indulgence by Secured
Party in regard to any breach hereunder will not constitute a waiver of the
related covenant or condition to be performed by Debtor.
25. ADDITIONAL DOCUMENTS. In connection with and in order to perfect and
evidence the security interest in the Equipment granted Secured Party hereunder
Debtor will execute and deliver to Secured Party such financing statements and
similar documents as Secured Party requests. Debtor authorizes Secured Party
where permitted by law to make filings of such financing statements without
Debtor's signature. Debtor further will furnish Secured Party (a) a fiscal year
end financial statement including balance sheet and profit and loss statement
within ninety (90) days of the close of each fiscal year, (b) any other
information normally provided by Debtor to the public and (c) such other
financial data or information relative to this agreement and the Equipment,
including, without limitation, copies of vendor proposals and purchase orders
and agreements, listings of serial numbers or other identification data and
confirmations of such information, as Secured Party may from time to time
reasonably request. Debtor will procure and/or execute, have executed,
acknowledge, have acknowledged, deliver to Secured Party, record and file such
other documents and showings as Secured Party deems necessary or desirable to
protect its interest in and rights under this agreement and interest in the
Equipment. Debtor will pay as directed by Secured Party or reimburse Secured
Party for all filing, search, title report, legal and other fees incurred by
Secured Party in connection with any documents to be provided by Debtor pursuant
to this paragraph or paragraph 22 and any further similar documents Secured
Party may procure.
26. DEBTOR'S WARRANTIES. Debtor certifies and warrants that the financial data
and other information which Debtor has submitted, or will submit, to Secured
Party in connection with this agreement is, or will be at time of delivery, as
appropriate, a true and complete statement of the matters therein contained.
Debtor further certifies and warrants that (a) this agreement has been duly
authorized by Debtor and when executed and delivered by the person signing on
behalf of Debtor below will constitute the legal, valid and binding obligation,
contract and agreement of Debtor enforceable against Debtor in accordance with
its respective terms; (b) this agreement and each and every showing provided by
or on behalf of Debtor in connection herewith may be relied upon by Secured
Party in accordance with the terms thereof notwithstanding the failure of Debtor
or other applicable party to ensure proper attestation thereto, whether by
absence of a seal or acknowledgment or otherwise; (c) Debtor has the right,
power and authority to grant a security interest in the Equipment to Secured
Party for the uses and purposes herein set forth and (d) each Item of Equipment
will, at the time such Item becomes subject hereto, be in good repair, condition
and working order.
27. ENTIRE AGREEMENT. This instrument constitutes the entire agreement between
Secured Party and Debtor amid will not be amended, altered or changed except by
a written agreement signed by the parties.
28. NOTICES. Notices under this agreement must be in writing and must be mailed
by United States mail, certified mail with return receipt requested, duly
addressed, with postage prepaid, to the party involved at its respective address
set forth at the foot hereof or at such other address as such party may provide
on notice to the other from time to time. Notices will be effective when
deposited. Each party will promptly notify the other of any change in the first
party's address.
29. GENDER; NUMBER; JOINT AND SEVERAL LIABILITY. Whenever the context of this
agreement requires, the neuter gender includes the feminine or masculine and the
singular number includes the plural; and whenever the words "Secured Party" are
used herein, they include all assignees of Secured Party, it being understood
that specific reference to "assignee" in paragraph 14 above is for further
emphasis. If there is more than one Debtor named in this agreement, the
liability of each will be joint and several.
30. TITLES. The titles to the paragraphs of this agreement are solely for the
convenience of the parties and are not an aid in the interpretation of the
instrument.
31. GOVERNING LAW; VENUE. This agreement will be governed and construed in
accordance with the law of the State of California. Venue for any action
related to this agreement will be in an appropriate court in Santa Clara County,
California, to which Debtor consents, or in another court selected by Secured
Party which has jurisdiction over the parties. In the event any provision hereof
is declared invalid, such provision will be deemed severable from the remaining
provisions of this agreement which will remain in full force and effect.
32. TIME. Time is of the essence of this agreement and each and all of its
provisions.
IN WITNESS WHEREOF, the undersigned have executed this agreement as of
May 1, 1999.
- -----------
(date)
PENTECH FINANCIAL SERVICES, INC., MAIL.COM, INC.,
a California corporation a Delaware corporation (Debtor)
(Secured Party)
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
------------------- -------------------
(Title) President (Title) EVP & CFO
---------------- ----------------
Address: 310 West Hamilton Ave #202 Address: 11 Broadway, Suite 660
Campbell, CA. 95008 New York, NY 10004
<PAGE>
PENTECH FINANCIAL SERVICES, INC.
EQUIPMENT FINANCING COMMITMENT
EFA No 200251
Subject to the terms set forth in this commitment, the following equipment
financing transaction is agreed to by the undersigned Debtor and PENTECH
FINANCIAL SERVICES, INC., a California corporation ("Secured Party") in
connection with the terms of the Equipment Financing Agreement herein
referenced (the "Agreement").
Equipment Financing Agreement: Dated as of May 1, 1999
Equipment (all Equipment to be acceptable to Secured Party)
Commitment Amount: $1,500,000.00
Installment Payments: 42 payments of 2.805% of
advance payable monthly in advance, plus a final
payment equal to 12% of the advance.
First and last such payments are due at time of
scheduling.
Commitment Expiration Date: March 15, 2000. As
more fully explained below, Secured Party has no
obligation to make any advance with respect to
Equipment not covered by a Schedule to the
Agreement executed by Secured Party and Debtor
on or prior to this date.
Debtor will comply with, procure, execute and/or have executed, acknowledge,
have acknowledged, deliver to Secured Party, record and file any documents set
forth in Exhibit A or accompanying this commitment. The form, substance and
sufficiency of all documents and showings employed in documenting the
contemplated financing transaction must be acceptable to Secured Party and its
counsel. Debtor will do likewise as to such further documents and showings as
Secured Party and its counsel may now or hereafter deem reasonably necessary or
advisable to protect Secured Party's rights under the Agreement and interest in
the Equipment. Debtor will pay as directed by Secured Party or reimburse Secured
Party for all searches, filings, title reports, attorney's services and other
charges incurred by Secured Party in connection with all such documents and
showings and any similar documents and showings Secured Party may procure.
Secured Party may, at its option, terminate its obligations to Debtor hereunder
with respect to any and all unscheduled Items of Equipment: (a) at or subsequent
to the Commitment Expiration Date, (b) upon the advent of a material adverse
change in Debtor's financial condition or Debtor's probable ability to perform
its obligations under the Agreement, (c) if the Agreement or any other agreement
under which Debtor has obligations to Secured Party is in default or an event
which with the giving of notice or lapse of time or both would constitute such a
default has occurred and is continuing or (d) with respect to which more than
fifteen percent (15%) would be advanced for shipping costs, installation charges
and design costs by giving Debtor written notice of such termination.
ACCEPTED AND AGREED to as of May 1, 1999
PENTECH FINANCIAL SERVICES, INC., MAIL.COM, INC.,
a California corporation a Delaware corporation
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
------------------- -------------------
(Title) President (Title) EVP & CFO
---------------- ----------------
Address: 310 WEST HAMILTON AVE Address: 11 BROADWAY, SUITE 660
CAMPBELL, CA. 95008 NEW YORK, NY 10004
<PAGE>
THE WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE LAW. THE WARRANTS HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE, DISPOSED OF IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE WARRANTS UNDER THE
ACT OR AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION AS EVIDENCED BY AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED AS TO SUCH OFFER, SALE, TRANSFER, PLEDGE, HYPOTHECATION OR DISPOSITION.
THE STOCK TRANSFER AGENT, IF ANY, OF THE COMPANY WILL BE ORDERED TO EFFECTUATE
TRANSFERS OF THE WARRANTS ONLY IN ACCORDANCE WITH THE ABOVE RESTRICTIONS.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS PROVIDED IN THAT CERTAIN INVESTOR RIGHTS AGREEMENT DATED AS OF MAY
26, 1999, AMONG THE COMPANY, THE CONTROLLING STOCKHOLDER AND THE WARRANTHOLDER
(AS SUCH TERMS ARE DEFINED THEREIN), A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY. ANY TRANSFER IN VIOLATION OF THAT AGREEMENT IS
INVALID. BY ITS ACQUISITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE, THE
HOLDER HEREOF AGREES TO BE BOUND BY THE TERMS AND CONDITIONS OF SUCH AGREEMENT.
MAIL.COM, INC.
WARRANTS TO PURCHASE CLASS A COMMON STOCK
<TABLE>
<S> <C>
Initial Warrantholder: AT&T Corp.
55 Corporate Drive
Bridgewater, NJ 08807
No. of Shares of Class A Common Stock
to be issued upon exercise in full: 1,000,000
</TABLE>
FOR VALUE RECEIVED, Mail.com, Inc., a Delaware corporation (the
"Company"), promises to issue to the Initial Warrantholder, its nominees,
successors or assigns (the "Warrantholder") ONE MILLION (1,000,000)
nonassessable shares (the "Shares") of the Company's Class A Common Stock, par
value $.01 per share (the "Common Stock"), as may be adjusted pursuant to the
terms hereof, at any time on or prior to the Expiration Date (as defined herein)
upon payment by the Warrantholder to the Company of the purchase price per share
in the amount of Eleven dollars ($11.00), as may be adjusted pursuant to the
terms hereof (the "Warrant Exercise Price"), and to deliver to the Warrantholder
a certificate or certificates representing the Shares purchased. The
Warrantholder shall have the right to exercise this
<PAGE>
warrant (the "Warrant") in whole or in part at any time or times on or prior to
the Expiration Date.
SECTION 1. (a) DEFINITIONS. The following terms as used in this
certificate shall have the following meanings:
"Common Stock" has the meaning set forth in the first paragraph hereof.
"Expiration Date" means December 31, 2000.
"Investor Rights Agreement" means the Investor Rights Agreement dated
as of May 26, 1999, among the Company, the Controlling Stockholder and the
Warrantholder.
"Letter Agreement" means that certain Letter Agreement executed and
delivered by the Company and the Initial Warrantholder dated May 26, 1999.
"Market Price" means:
(i) the average of the daily closing sales prices of the
Common Stock on the national securities exchange on which the Common Stock may
at the time be listed, or, if there shall have been no sales on any such
exchange on any day, the average of the reported bid and asked prices on all
such exchanges at the end of such day, in each case over the twenty trading days
immediately before the date of determination of Market Price, or
(ii) if on any date of determintion of Market Price, the
Common Stock shall not be listed on a national securities exchange, the average
of the closing sales price on the NASDAQ Stock Market, or, if there shall have
been no sales on the NASDAQ Stock Market on any day, the average of the reported
bid and asked prices on the NASDAQ Stock Market at the end of such day, in each
case over the twenty trading days immediately before the date of determination
of Market Price, or
(iii) if the Common Stock is not listed on any national
securities exchange or quoted on the NASDAQ Stock Market, the "Market Price"
shall be deemed to be the fair value thereof as reasonably determined in good
faith by the Company's Board of Directors as of the date which is within 15 days
of the date as of which the determination is to be made unless the Warrantholder
requests that the Company obtain an opinion of an internationally recognized
investment banking firm chosen by the Company (who shall bear the expense) and
reasonably acceptable to the Warrantholder in which event the Market Price shall
be determined by such investment banking firm..
"Warrants" means the warrants represented by this certificate.
(b) OTHER DEFINITIONAL PROVISIONS.
2
<PAGE>
(i) Except as otherwise specified herein, all references
herein (A) to any person other than the Company, shall be deemed to include such
person's successors and assigns, (B) to the Company shall be deemed to include
the Company's successors and (C) to any applicable law defined or referred to
herein, shall be to such applicable law as the same may have been or may be
amended or supplemented from time to time.
(ii) When used in this certificate, the words "herein",
"hereof" and "hereunder", and words of similar import, shall refer to this
certificate as a whole and not to any provision of this certificate, and the
words "Section" and "Exhibit" shall refer to Sections of, and Exhibits to, this
certificate unless otherwise specified. Whenever the context so requires the
neuter gender includes the masculine or feminine, and the singular number
includes the plural, and vice versa.
SECTION 2. COVENANTS OF THE COMPANY. The Company will at all times
reserve and keep available out of its authorized shares of Common Stock or its
treasury shares, solely for the purpose of issuing upon the exercise of the
Warrants as herein provided, such number of shares of Common Stock as shall then
be issuable upon the exercise of the Warrants. The Company covenants that all
shares of Common Stock which shall be so issued shall, upon issuance in
accordance with the terms hereof, be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.
SECTION 3. EXERCISE OF WARRANTS; LEGENDS; WARRANTHOLDER
REPRESENTATIONS.(a) In order to exercise the Warrants, the Warrantholder shall
deliver to the Company (i) a written notice of such holder's election to
exercise Warrants, in the form of the Subscription Notice attached as Exhibit A
hereto, which notice shall specify the number of shares of Common Stock to be
purchased and (ii) payment in cash or by a certified or cashier's check to the
Company of an amount equal to the Warrant Exercise Price multiplied by the
number of Shares as to which the Warrant is being exercised or, when the holder
hereof shall elect to exercise its rights under Section 3(b) hereof, Warrants
having a value determined in accordance with Section 3(b) equal to the aggregate
exercise price, and (iii) the surrender of this certificate, properly endorsed,
at the principal office of the Company, 11 Broadway, Suite 660, New York, New
York 10004 (or at such other agency or office of the Company as the Company may
designate by notice to the holder hereof). The exercise of the Warrants shall be
deemed to be a representation by the Warrantholder that the Shares are being
purchased for its own account and not with a view to the distribution thereof.
After receipt of written notice and upon the payment of the Purchase Price to
the Company by the Warrantholder, the Company shall as promptly as practicable
execute or cause to be executed and delivered to such holder a certificate or
certificates representing the aggregate number of Shares purchased. If the
Warrants shall have been exercised only in part, the Company shall also deliver
a new certificate evidencing the unexercised Warrants of like tenor evidencing
the rights of such holder to purchase the remaining Shares called for by such
Warrants.
(b) From and after the Minimum Mailbox Date (as such term is defined in
the Letter Agreement), which date must occur on or before December 31, 2000 for
the rights under this
3
<PAGE>
Section 3(b) to be effective, in lieu of the Warrantholder exercising the
Warrants (or any portion of the Warrants) for cash, the Warrantholder may, in
connection with such exercise, elect to satisfy the Warrant Exercise Price by
exchanging solely the Warrants represented by this certificate (or a portion
thereof) and shall receive for this certificate (or a portion thereof) a number
of Shares equal to the product of (i) the number of Shares issuable upon such
exercise (or, if only a portion of such Warrant is being exercised, issuable
upon the exercise of such portion) multiplied by (ii) a fraction, the numerator
of which is the Market Price per share of the Common Stock at the time of such
exercise minus the Warrant Exercise Price per share of the Common Stock at the
time of such exercise, and the denominator of which is the Market Price per
share of the Common Stock at the time of such exercise, such number of shares so
issuable upon such exercise to be rounded up or down to the nearest whole number
of Shares.
(c) The Warrantholder understands that the certificates evidencing the
Shares shall bear the following legends:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares have been
acquired not with a view to distribution and may not be offered, sold,
transferred, pledged, or hypothecated in the absence of an effective
registration statement for the shares under the Act and under any
applicable state securities laws, or an exemption therefrom evidenced
by an opinion of counsel reasonably satisfactory to the Company that
such registration is not required as to such sale or offer, except that
no such opinion shall be required in connection with a sale pursuant to
Rule 144 or Rule 144A under the Securities Act of 1933. The stock
transfer agent has been ordered to effectuate transfers of this
certificate only in accordance with the above instruction."
"The shares represented by this certificate are subject to the
terms and conditions provided in that certain Investor Rights Agreement
dated as of May 26, 1999, among the Company, the Controlling
Stockholder and the Warrantholder (as such terms are defined therein),
a copy of which is on file with the Secretary of the Company. Any
transfer in violation of that agreement is invalid. By its acquisition
of the shares represented by this certificate, the holder hereof agrees
to be bound by the terms and conditions of such agreement."
(d) The Warrantholder has made, either alone or together with its
advisors, such independent investigation of the Company, its management and
related matters as it deems to be, or such advisors have advised to be,
necessary or advisable in connection with an investment in the Company through
the transactions contemplated by the Letter Agreement and the Warrants; and it
and its advisors have received all information and data that it and its advisors
believe to be necessary in order to reach an informed decision as to the
advisability of an investment in the Warrants and the Shares pursuant to the
transactions contemplated by the Letter Agreement. The Warrantholder has
completed to its satisfaction such independent investigation of the books and
records of the Company and understands the nature of the potential risks and
potential rewards of its ownership interest in the Company in each case, as it
deems to be, or such advisors have advised to be necessary in order to reach an
informed decision as to the advisability of an
4
<PAGE>
investment in the Warrants and the Shares pursuant to the transaction
contemplated by the Letter Agreement. The Warrantholder is a sophisticated
investor with investment experience in the area of venture capital and, in the
event of any liquidation or winding up of the Company, has the ability to bear
complete loss of its investment.
SECTION 4. ADJUSTMENTS. The number of shares of Common Stock
deliverable upon exercise of the Warrants shall be subject to adjustment from
time to time as follows:
(a) In the event the Company shall (i) take a record of the holders of
Common Stock for the purpose of entitling them to receive a dividend payable in
shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares, or (iv) issue by reclassification of its
Common Stock any shares of the Company of any class or series, the Warrantholder
shall thereafter be entitled to receive upon the exercise of Warrants the number
of shares of Common Stock which the Warrantholder would have owned or have been
entitled to receive had the Warrants been exercised immediately prior to the
happening of such event, such adjustment to become effective immediately after
the opening of business on the day following such record date or the day upon
which such subdivision, combination or reclassification becomes effective. Upon
any adjustment in the number of Shares issuable upon exercise of Warrants under
this Section 4(a), the Warrant Exercise Price shall be appropriately adjusted.
(b) In the event that the Company takes a record of holders of Common
Stock for the purpose of entitling them to receive a dividend (other than
ordinary cash dividends pursuant to a dividend policy adopted by the Board of
Directors of the Company and dividends described in Section 4(a)) and the
Warrantholder thereafter exercises the purchase rights hereunder, such
Warrantholder shall be entitled to receive upon such exercise, in addition to
the shares of Common Stock deliverable to the Warrantholder in accordance with
the provisions hereof, the amount of the dividend as the Warrantholder would
have been entitled to receive if the Warrantholder had converted immediately
prior to the taking of such record.
(c) No adjustment in the number of shares purchasable upon exercise of
this Warrant shall be required unless such adjustment would require an increase
or decrease of at least one-tenth of a share in the number of shares for which
this Warrant is exercisable; provided, however, that any adjustment which by
reason hereof is not required to be made shall be carried forward and taken into
account in any subsequent adjustment.
(d) No fractional shares of Common Stock shall be issued upon exercise
of this Warrant, but, instead, to the extent that any fraction of a share would
otherwise be issuable, the Purchase Price shall be proportionately reduced.
SECTION 5. NOTICE OF ADJUSTMENT. Upon any event requiring an adjustment
of the number of Shares exercisable by the Warrants, then and in each such case
the Company shall promptly give written notice thereof to the Warrantholder,
which notice shall specify the number of Shares issuable upon exercise of the
Warrants and the adjusted Warrant Exercise Price after
5
<PAGE>
giving effect to such adjustment and shall set forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
SECTION 6. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any capital reorganization or reclassification of the capital stock of
the Company, or any consolidation or merger of the Company with another Company,
or the sale of all or substantially all of its assets to another Company shall
be effected, then as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions shall be made
whereby the Warrantholder shall thereafter have the right to receive at any time
or times on or prior to the Expiration Date upon the basis and upon the terms
and conditions specified herein and in lieu of the shares of Common Stock of the
Company immediately theretofore receivable upon the exercise of the Warrants,
such shares of stock, securities or assets as may be issued or, payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such stock immediately theretofore
receivable upon the exercise of the Warrants had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case, appropriate provision shall be made with respect to the rights and
interests of the Warrantholder to the end that the provisions hereof shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of the
Warrants.
SECTION 7. EXCHANGE OF WARRANTS. This certificate is exchangeable upon
the surrender hereof by the holder at such office or agency of the Company, for
a new certificate of like tenor representing in the aggregate the right to
subscribe for and purchase the number of Shares which may be subscribed for and
purchased hereunder from time to time after giving effect to all the provisions
hereof, each of such new certificates to represent the right to subscribe for
and purchase such number of Shares as shall be designated by said holder hereof
at the time of such surrender.
SECTION 8. LOST, STOLEN, MUTILATED OR DESTROYED. If this certificate is
lost, stolen, mutilated or destroyed, the Company shall, on such terms as to
indemnity or otherwise as it may in its reasonable discretion impose (which
shall, in the case of a mutilated certificate, include the surrender thereof),
issue a new certificate of like denomination and tenor as the certificate so
lost, stolen, mutilated or destroyed. Any such new certificate shall constitute
an original contractual obligation of the Company, whether or not the allegedly
lost, stolen, mutilated or destroyed certificate shall be at any time
enforceable by anyone.
SECTION 9. NOTICE. All notices and other communications under
this certificate shall (a) be in writing (which shall include communications by
telecopy), (b) be (i) sent by registered or certified mail, postage prepaid,
return receipt requested, (ii) sent by telecopier, or (iii) delivered by hand,
(c) be given at the following respective addresses and telecopier numbers and to
the attention of the following persons:
6
<PAGE>
(i) if to the Company, to it at:
Mail.com, Inc.
11 Broadway, Suite 660
New York, NY 10007
Attention: Gary Millin, President
Telephone No.: (212) 425-4200
Telecopier No.: (212) 425-3487
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, NY 10004
Attention: Ronald Fleming, Esq.
Telephone No.: (212) 858-1000
Telecopier No.: (212) 858-1500
(ii) if to the holder, to it at:
AT&T Corp.
55 Corporate Drive
Bridgewater, NJ 08807
Attention: Sanford S. Brown
Telephone No.: (908) 658-2500
Telecopier No.: (908) 658-7709
with a copy to:
AT&T Corp.
295 North Maple Avenue
Basking Ridge, NJ 07920
Attention: Marilyn Wasser
Vice President-Law and Secretary
Telephone No.: (908) 221-6600
Telecopier No.: (908) 221-6618
or at such other address or telecopier number or to the attention of such other
person as the party to whom such information pertains may hereafter specify for
the purpose in a notice to the other, and (d) be effective or deemed delivered
or furnished (i) if given by mail, on the fifth business day after such
communication is deposited in the mail, addressed as above provided, (ii) if
given by telecopier, when such communication is transmitted to the appropriate
number determined as
7
<PAGE>
above provided in this Section 9 and the appropriate answer back is received or
receipt is otherwise acknowledged, and (iii) if given by hand delivery, when
left at the address of the addressee addressed as above provided.
SECTION 10. AMENDMENT AND WAIVER. No failure or delay on the part of
the Warrantholder in exercising any right, power or remedy under this
certificate shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies provided for in this certificate are cumulative and are not exclusive
of any remedies that may be available to the holder of the Warrants at law, in
equity or otherwise.
SECTION 11. REMEDIES. The Company stipulates that the remedies at law
of the Warrantholder in the event of any default or threatened default by the
Company in the performance of or compliance with any terms hereof are not and
will not be adequate and that, to the fullest extent permitted by law, such
terms may be specifically enforced by a decree for the specific performance of
any agreement contained in this certificate or by an injunction against a
violation of any of the terms hereof.
SECTION 12. SUCCESSORS AND ASSIGNS. The Warrants and the rights
evidenced hereby shall inure to the benefit of and be binding upon the
successors and assigns of the Company and the Warrantholder, to the extent
provided herein, and shall be enforceable by such Warrantholder. Notwithstanding
anything herein to the contrary but subject to the restrictions contained herein
and in the Investors Rights Agreement, the Warrants and the rights evidenced
hereby are assignable in whole or in part by the Warrantholder.
SECTION 13. MODIFICATION AND SEVERABILITY. If, in any action before any
court or agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any provision is unenforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions hereof, but this certificate shall be construed as if such
unenforceable provision had never been contained herein.
SECTION 14. GOVERNING LAW. This certificate shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to conflicts of laws principals thereof.
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this certificate to be
executed by its duly authorized officers as of the 26th day of May, 1999.
MAIL.COM, INC.
/s/ Gary Millin
---------------------------------------
By: Gary Millin
Title: President
ATTEST:
/s/ Gerald Gorman
- ----------------------------------
By: Gerald Gorman
Title: Secretary
<PAGE>
EXHIBIT A TO
WARRANT CERTIFICATE
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH
REGISTERED HOLDER DESIRES TO EXERCISE WARRANTS
MAIL.COM, INC.
The undersigned hereby exercises the right to purchase ______________
of the Shares covered by the certificate evidencing the Warrants in accordance
with the terms and conditions thereof at the Warrant Exercise Price of Eleven
dollars ($11.00) per Share and herewith makes payment of $__________, the
aggregate Warrant Exercise Price of such Shares (subject to adjustment as
provided in the certificate evidencing the Warrants) in full, or tenders solely
the Warrant certificate, or applicable portion thereof, in full satisfaction of
the Warrant Exercise Price upon the terms and conditions set forth in the
certificate evidencing the Warrants.
WARRANTHOLDER
---------------------------------------
By:
Title:
Total No. of Shares
Being Purchased:
-----------------------
Dated:
-------------------------
<PAGE>
INVESTOR RIGHTS AGREEMENT
INVESTOR RIGHTS AGREEMENT, dated as of the 26th day of May 1999, among
Mail.com, Inc., a Delaware corporation (the "Company"), doing business at
11 Broadway, Suite 660, New York, New York 10004, Gerald Gorman, residing at
415 Bernardsville Road, Mendham, New Jersey, in his capacities as holder of
voting capital stock of the Company and controlling Stockholder (the
"Controlling Stockholder"), and AT&T Corp., a New York corporation and its
nominees, successors and permitted assigns (the "Warrantholder"). The
Company, the Controlling Stockholder and the Warrantholder are collectively
referred to as the "Parties."
WHEREAS, the Company has issued Warrants to the Warrantholder as
represented by the certificate of Warrants to Purchase Capital Stock dated as of
the date hereof (the "Warrant Certificate"); and
WHEREAS, in order to induce the Warrantholder to take delivery of the
Warrant Certificate and to induce the Company to issue the Warrant Certificate,
the Warrantholder, the Company and the Controlling Stockholder agree that this
Agreement shall govern the rights of the Warrantholder, the Company and the
Controlling Stockholder with respect to the subject matter set forth herein and
in connection with the terms and provisions as set forth herein;
NOW, THEREFORE, in consideration of the promises and mutual agreements
hereinafter contained, the Parties do hereby agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
Section 1.1 DEFINITIONS. The following terms, as used herein, shall
have the following meanings:
"Act" means the Securities Act of 1933, as amended.
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such Person.
"Agreement" means this Agreement, as the same may be amended or
supplemented from time to time in accordance with the terms hereof.
"Class A Common Stock" means the shares of Class A Common Stock that
the Company is authorized to issue by way of the Company's Amended and Restated
Certificate of Incorporation, and amendments thereto.
"Class B Common Stock" means the shares of Class B Common Stock that
the Company is authorized to issue by way of the Company's Amended and Restated
Certificate of Incorporation, and amendments thereto.
<PAGE>
"Company Stock" means any shares of any class of authorized capital
stock in the Company.
"Confidential Information" means any information concerning the
businesses and affairs of the Company that is not generally available to the
public.
"Incidental Registration" has the meaning set forth in Section 2.1.1.
of this Agreement.
"Indemnified Party" and "Indemnifying Party" has the meaning set forth
in Section 2.6. of this Agreement.
"Initial Registration Date" means the Minimum Mailbox Date (as defined
in the Letter Agreement) provided that the Initial Registration Date shall occur
only if the Minimum Mailbox Date occurs prior to December 31, 2000.
"Letter Agreement" means that certain Letter Agreement executed and
delivered by the Company and the Warrantholder dated May 26, 1999.
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Registrable Securities" means (i) the Class A Common Stock issuable or
issued upon exercise of the Warrants (it being understood that if any of the
Warrants expire, in whole or in part, unexercised upon the Expiration Date as
defined in the Warrant Certificate, then the Class A Common Stock that is no
longer issuable as a result of such expiration shall not be deemed to be
Registrable Securities), (ii) any Class A Common Stock of the Company issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security that is issued as) a dividend or other distribution with respect to, or
in exchange for or in replacement of the securities referenced in clause (i) and
(ii), and (iii) any other shares of capital stock of the Company into or for
which the securities referenced in clause (i) and (ii) may be converted into or
exchanged pursuant to a recapitalization or reclassification of the Company's
capital stock.
"Third Party" means, with respect to the Warrantholder, a party other
than the Warrantholder and its wholly-owned Affiliates.
"SEC" means the Securities and Exchange Commission.
"Warrant Demand Registration" has the meaning set forth in Section
2.1.3. of this Agreement.
"Warrantholder" has the meaning set forth in the preface above.
2
<PAGE>
"Warrants" means the rights to purchase One Million (1,000,000) shares
of Class A Common Stock by the Warrantholder as represented by the Warrant
Certificate, as the same may be amended.
Section 1.2 OTHER TERMS. Other terms may be defined elsewhere in the
text of this Agreement and, unless otherwise indicated, shall have such meaning
throughout this Agreement.
Section 1.3 OTHER DEFINITIONAL PROVISIONS. The words "herein,"
"hereof," "hereto" and "hereunder" and words of similar import, when used in
this Agreement, shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. The terms defined in the singular shall
have a comparable meaning when used in the plural, and vice versa, and in such
gender, as the sense and circumstances require.
ARTICLE II
REGISTRATION RIGHTS
The Company and the Warrantholder covenant and agree as follows:
Section 2.1 REGISTRATION
2.1.1. INCIDENTAL REGISTRATION. If at any time after the
Initial Registration Date, the Company proposes to register any Company Stock
under the Act for its own account or for the account of any of its stockholders,
in connection with an underwritten public offering of such Company Stock, on a
form that would also permit registration of the Registrable Securities, the
Company shall, each such time, give the Warrantholder not less than twenty (20)
days written notice of such proposed registration (the "Incidental
Registration"). Upon the written request of the Warrantholder, given within
twenty (20) days after receipt of any such notice from the Company, the Company
shall, subject to Section 2.1.2., cause to be included in such registration all
of the Registrable Securities the Warrantholder requests be registered in such
registration. There shall be no restriction with respect to the number of times
the Warrantholder may request such Incidental Registration.
2.1.2. PRO RATA INCIDENTAL REGISTRATION OF COMPANY STOCK. If
the managing underwriter of any offering described in the first sentence of
Section 2.1.1. determines that the number of shares proposed to be sold by the
Company or by other stockholders of Company Stock is greater than the number of
shares that the underwriter believes feasible to sell at the time, at the price
and upon the terms approved by the Company, then the number of shares of Company
Stock that the underwriter believes may be sold shall be allocated for inclusion
in the registration statement in the following order of priority: (A) Company
Stock sold for the account of any holders of the Company's securities if the
registration was initiated by such holders pursuant to contractual demand
registration rights and Company Stock sold for the account of Lycos, Inc.
("Lycos"), pursuant to contractual incidental registration rights that permit it
to participate in such an offering on a pro rata basis with such holders, pro
rata among such holders and Lycos according to the number of shares requested to
be registered by such holders and Lycos; (B) Company Stock sold for the account
of the Company; and (C) pro rata among any
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other holders of securities of the Company exercising contractual incidental
registration rights (other than holders described in clause (A) above if
pursuant to a demand right and other than Lycos as described in clause (A)
above) and the Warrantholder according to the number of shares requested to be
registered by such other holders and the Warrantholder; provided, however, that
(1) as between the Company, on the one hand, and the Warrantholder and other
holders referred to in clause (C) above, on the other hand, at least ten percent
(10%) of the Warrantholder's Registrable Securities and of such other holders'
registrable securities requested to be included shall be included in such
underwriting (other than the initial underwriting); and (2) the right of such
other holders and the Warrantholder to participate in the offering shall have
priority over Class A Common Stock held by employees of the Company and Class B
Common Stock held by employees of the Company. If the Warrantholder disapproves
of the terms of the underwriting (including the number of Registrable Securities
to be included), it may elect to withdraw therefrom by written notice to the
Company and the managing underwriter; provided, however, the election to
withdraw occurs within ten (10) days after the Warrantholder receives notice of
the terms of the underwriting.
2.1.3. DEMAND REGISTRATION. On or after the Initial
Registration Date, but in no event prior to 180 days after the effective date of
a registration statement filed by the Company in connection with an initial
public offering of any Company Stock or other securities under the Act, then,
upon written request of the Warrantholder that the Company effect the
registration under the Act of all or a portion of the Registrable Securities and
specifying the intended method of disposition thereof, the Company shall, within
fifteen (15) days after the Company has received such written notice, promptly
commence and use its best efforts to consummate the registration under the Act
of the Registrable Securities, or such portion thereof, and of all other stock
or securities which the Company has been requested to register by any other
holder of the Company's securities that is entitled to include securities in
such registration (the "Warrant Demand Registration"); provided, however, that
(1) the Warrantholder shall be entitled to request only one (1) Warrant Demand
Registration, provided that either (a) the Registrable Securities requested to
be included in such Warrant Demand Registration constitute at least twenty
percent (20%) of the total number of Registrable Securities issued hereunder or
(b) the anticipated gross receipts (before underwriters discounts and
commissions and costs of such registration) from the offering exceed ten million
dollars ($10,000,000), (2) a registration will not count as the permitted
Warrant Demand Registration until it has become effective, (3) the Company may
delay the filing of a registration statement under the Act as required by this
Section 2.1.3. for a period of up to sixty (60) days after the request of the
Warrantholder if the Board of Directors of the Company determines in good faith
that such Warrant Demand Registration would be materially adverse to the
interests of the Company, and in such event, the Warrantholder will be entitled
to withdraw such request and such Warrant Demand Registration will not be
counted as the Warrant Demand Registration hereunder (provided, however, that
the Company shall not use this right more than once in any one hundred eighty
(180) day period) and (4) the Company will not be required to effect a Warrant
Demand Registration within six (6) months after the effective date of a
registration in which Registrable Securities of the Warrantholder were included
pursuant to Section 2.1.1. In the event that the Warrantholder exercises the
demand registration right hereunder, and shares requested to be registered by
Lycos in connection therewith are included in such registration on a pro rata
basis with the Warrantholder's Registrable Securities,
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pursuant to section 11 of the letter agreement between Lycos and the Company
dated March 9, 1998 or otherwise, account for thirty percent (30%) or more of
the shares offered in such registered offering, then the Warrantholder shall
have the right to one (1) additional Warrant Demand Registration hereunder. If
the managing underwriter in connection with a Warrant Demand Registration
determines prior to the effectiveness of the registration statement that the
Warrantholder will be unable to sell at least 85% of the Registrable Securities
that the Warrantholder initially requested to be included in such registration
statement, then the Warrantholder may elect to withdraw the request prior to the
effectiveness of such registration statement and such Warrant Demand
Registration will not be counted as the Warrant Demand Registration hereunder.
2.1.4. PRO RATA DEMAND REGISTRATION OF COMPANY STOCK. (a) In
the event a Warrant Demand Registration is initiated subsequent to the initial
public offering of any Company Stock or other securities under the Act and such
Demand Registration is an underwritten offering, and the managing underwriter
advises the Warrantholder and the Company in writing that in the underwriter's
opinion the number of shares requested to be included exceeds the number that
can be sold in such offering, then the number of shares of Company Stock that
the underwriter believes may be sold shall be allocated for inclusion in the
registration statement in the following order of priority: (A) shares requested
to be included by the Warrantholder, together with the shares requested to be
included by Lycos to the extent Lycos is entitled to participate in such
offering on a pro rata basis with the Warrantholder, as applicable, pursuant to
contractual incidental registration rights, that in the opinion of such
underwriter can be sold prior to the inclusion of any securities of any other
security holder of the Company; provided that, if the managing underwriter
advises the Company in writing that in its opinion the aggregate number of
shares requested for inclusion by the Warrantholder, together with such shares
of Lycos, exceeds the number of such shares that can be sold in such offering,
then the Company shall include in the registration statement only such number of
shares, pro rata among the Warrantholder and Lycos, based upon the number of
shares requested to be registered by the Warrantholder and Lycos, which in the
opinion of such underwriter can be sold; (B) shares sold for the account of the
Company; and (C) pro rata among any other holders of securities of the Company
exercising contractual incidental registration rights other than any holders
whose shares are included pursuant to clause (A) above.
(b) If the Warrantholder makes a written request to exercise
rights to a Warrant Demand Registration under Section 2.1.3. prior to any other
holder of securities making a written request to exercise contractual rights to
a demand registration, then the registration following from such request shall
be a Warrant Demand Registration. If any other holder of securities makes a
written request to exercise contractual rights to a demand registration prior to
the Warrantholder making a written request to exercise rights to a Warrant
Demand Registration under Section 2.1.3., then the registration following from
such request shall not be a Warrant Demand Registration.
2.1.5. FORM S-3 DEMAND REGISTRATION RIGHTS. From and after the
Initial Registration Date, if at any time the Warrantholder holding in the
aggregate greater than fifty percent (50%) of the Registrable Securities
requests that the Company effect a Form S-3
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registration under the Act of all or a portion of the Registrable Securities,
the Company shall, within fifteen (15) days after the Company has received such
written notice, promptly commence and use its best efforts to consummate the
Form S-3 registration of the Registrable Securities under the Act; provided,
however, (A) the aggregate fair market value of the Registrable Securities
requested to be registered shall be greater than two million dollars
($2,000,000), (B) the Company shall only be required to file one Form S-3
registration every twelve (12) months, and (C) the Warrantholder who requests
that the Company effect a Form S-3 registration shall not be required to
participate in such Form S-3 registration.
2.1.6. BENEFIT OF MORE FAVORABLE RIGHTS. If at any time
registration rights are granted with respect to Company Stock or capital stock
of any Affiliate of the Company which are on terms more favorable to the holders
of such securities with respect to any material terms applicable thereto
including, without limitation, the number of times or the circumstances under
which such rights may be exercised, the expenses to be paid by the Company or
any Affiliate of the Company in connection therewith or the duration of the
availability of such rights, the Company agrees that such more favorable terms
will be exercisable by the Warrantholder automatically and without further
action by the Company. The Company covenants to give written notice to the
Warrantholder not less than ten (10) days in advance of the granting of
registration rights with respect to Company Stock or capital stock of any
Affiliate of the Company.
2.1.7. TERMINATION OF REGISTRATION RIGHTS. Upon the date which
is thirty (30) months following a firm commitment underwritten public offering
pursuant to a registration statement under the Act, with gross proceeds of not
less than twenty million dollars ($20,000,000) (a "Qualified Offering"), then
the Warrantholder shall not be entitled to exercise any right provided for in
this Section 2.1.
Section 2.2 OBLIGATIONS OF THE COMPANY. Where required under Section
2.1. to use its best efforts to effect the registration of any of the
Registrable Securities, the Company shall, as expeditiously as reasonably
possible,
2.2.1. Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective and, upon the request of the
holders of a majority of the Registrable Securities, keep such registration
statement effective for up to one hundred twenty (120) days;
2.2.2. Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to comply with the provisions of the Act with
respect to the disposition of all securities covered by such registration;
2.2.3. Furnish to the Warrantholder such numbers of copies of
such registration statement and prospectus, including any preliminary
prospectus, in conformity with the requirements of the Act, and such other
documents as the Warrantholder may reasonably request in order to facilitate the
disposition of the Registrable Securities;
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2.2.4. Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably appropriate for the
distribution of the securities covered by the registration statement; and
2.2.5. Otherwise comply with all applicable rules and
regulations of the SEC.
Section 2.3 FURNISH INFORMATION. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to Section 2 that the
Warrantholder shall furnish to the Company such information regarding the
Warrantholder, the Registrable Securities held by the Warrantholder, and the
intended method of disposition thereof as the Company or its appointed agents
shall reasonably request and as shall be required in connection with the action
to be taken by the Company.
Section 2.4 REGISTRATION EXPENSES. In the case of any registration
effected pursuant to Section 2, the Company shall bear all registration and
qualification fees and expenses, and all costs and disbursements of counsel for
the Company; provided, however, that (A) each Warrantholder shall bear the fees
and costs of the Warrantholder's own counsel and all underwriting discounts and
commissions with respect to the Registrable Securities sold by it, and (B) the
Company shall not be required to pay for any expenses of any Warrant Demand
Registration begun if the registration request is subsequently withdrawn at the
request of the Warrantholder (in which case the Warrantholder shall bear such
expenses); provided that, if the Warrantholder elects to engage counsel other
than counsel for the Company in connection with a Warrant Demand Registration,
the Company shall bear the fees and expenses, and all costs and disbursements of
one firm to act as such counsel up to a maximum aggregate amount of fifteen
thousand dollars ($15,000).
Section 2.5 SELECTION OF UNDERWRITERS.
2.5.1. COMPANY SELECTION. If a registration pursuant to
Section 2.1.1. of this Agreement involves an underwritten offering, the Company
shall have the right to select the investment bankers and managers to administer
the offering. The Company shall not be required under Section 2.1.1. to register
the Warrants in such registration unless the Warrantholder accepts the terms of
the underwriting as agreed upon between the Company and the underwriter.
2.5.2. WARRANTHOLDER'S SELECTION. If a registration pursuant
to Section 2.1.3. or 2.1.5. involves an underwritten offering, then the
Warrantholder shall have the right to select the investment bankers and managers
to administer the offering; provided, however, that the selection of such
investment bankers and managers shall be subject to the approval of the Company,
such approval not to be unreasonably withheld.
Section 2.6 INDEMNIFICATION. If any Registrable Securities are
included in a registration statement pursuant to this Section 2, then,
2.6.1. To the extent permitted by law, the Company shall
indemnify and hold harmless the Warrantholder, agents for the
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Warrantholder, any underwriter for the Warrantholder, and each Person, if any,
who controls such Person within the meaning of the Act, against any losses,
claims, damages or liabilities, joint or several, to which they may become
subject under the Act or otherwise, insofar as such losses, claims, damages, or
liabilities arise out of any untrue statement or alleged untrue statement of
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained in the registration
statement, or any amendments or supplements to the registration statement, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein, or necessary to make the
statements therein not misleading, and will reimburse the Warrantholder, the
agents for the Warrantholder, such underwriter, or controlling Person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or omission based upon and in conformity with written
information furnished to the Company by an instrument duly executed by the
Warrantholder or underwriter and stated to be specifically for use therein.
2.6.2. To the extent permitted by law, the Warrantholder shall
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed such registration statement, and any underwriter for
the Company against any losses, claims, damages or liabilities to which the
Company or any such director, officer, or underwriter may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained in the registration
statement or any amendments or supplements to the registration statement, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the statement
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in such registration statement, preliminary prospectus, or
amendments or supplement thereto, in reliance upon and in conformity with
written information furnished by the Warrantholder duly executed and stated to
be expressly for use therein, and the Warrantholder will reimburse any legal or
other expenses reasonably incurred by the Company or any such director, officer,
controlling Person, or underwriter in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, that the
Warrantholder's liability under this Section 2.6.2. shall not exceed the amount
of the gross proceeds of the offering of the Warrantholder's Registrable
Securities included therein.
2.6.3. Each party entitled to indemnification (the
"Indemnified Party") shall give notice to the party required to provide
indemnification ("Indemnifying Party") promptly after such Indemnified Party has
knowledge of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party (at its expense) to assume the defense of any such claim or
any litigation resulting therefrom; provided, however, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be reasonably satisfactory to the Indemnified Party, and the Indemnified
Party may participate in such defense at such party's expense; provided,
further, that the failure by any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 2.6., except to
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the extent that the failure results in an omission of actual notice to the
Indemnifying Party and such Indemnifying Party is damaged solely as a result of
the failure to give notice; provided, further, that a refusal to permit the
Indemnifying Party to conduct such defenses by such counsel shall relieve such
Indemnifying Party of its obligations under this Section 2.6 to the extent that
such refusal results in such Indemnifying Party being damaged. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to the entry of any judgment or enter
into any settlement that does not include as an unconditional term the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability with respect to such claim or litigation.
Section 2.7 REPORTS UNDER THE SECURITIES EXCHANGE ACT OF 1934. With a
view toward making available to the Warrantholder the benefits of SEC Rule 144
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit the Warrantholder to sell its Registrable Securities to the
public without registration or pursuant to a registration on Form S-3, the
Company agrees to:
(i) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after
ninety (90) days after the effective date of the first registration
statement filed by the Company for the offering of its shares to the
general public;
(ii) take such action, including the voluntary
registration of its common stock under Section 12 of the Securities
Exchange Act of 1934, as is necessary to enable the holders of
Registrable Securities to utilize Form S-3 for the sale of their
shares, such action to be taken as soon as practicable after the end of
the fiscal year in which the first registration statement filed by the
Company for the offering of its shares to the general public is
declared effective;
(iii) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the
Securities Exchange Act of 1934; and
(iv) furnish to any holder of the Registrable Securities,
so long as the holder of the Registrable Securities owns any shares,
forthwith upon request (i) a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time
after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the
Securities Exchange Act of 1934 (at any time after it has become
subject to such reporting requirements), or as to its qualification
that it qualifies as a registrant whose shares may be resold pursuant
to Form S-3 (at any time after it so qualifies), (ii) a copy of the
most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing any holder of
Registrable Securities of any rule or regulation of the SEC which
permits the selling of any such shares without registration or pursuant
to such form.
Section 2.8 RESTRICTIONS ON TRANSFER; LOCK-UP PERIOD. The
Warrantholder agrees that it shall not sell or otherwise transfer any Warrants
or Registrable Securities to a Third Party until
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after the earlier of (i) the Initial Registration Date, and (ii) May 26, 2004.
Notwithstanding the foregoing, the Warrantholder agrees that it shall not sell
or otherwise transfer any Warrants or Registrable Securities or any securities
of the same or similar class as securities being registered by the Company prior
to the date which is immediately following the one hundred eighty (180) day
period (the "Registration Lock-Up Period") after the effective date of a
registration statement filed by the Company; provided, however, that, (A) such
Registration Lock-Up Period shall be applicable only to the first registration
statement of the Company that covers shares of the Company to be sold to the
public in an underwritten offering, (B) the holders of Class B Common Stock and
the holders of at least ninety percent (90%) of Class A Common Stock are subject
to identical or substantially similar lock-up periods and (C) all officers and
directors of the Company and all other persons with registration rights are
subject to substantially similar lock-up periods. Notwithstanding the foregoing
sentence, the Warrants and the Registrable Securities may be transferred to a
wholly-owned Affiliate of AT&T Corp. provided that any such transfer shall not
be deemed to be a permitted transfer if at any time after such transfer and
during the period in which the restrictions contained in the foregoing sentence
are still in effect such Affiliate or the AT&T IP Value Added Services Division
is no longer a wholly-owned Affiliate of AT&T Corp. As a condition to any
transfer to an Affiliate, such Affiliate shall become a party to this Agreement
and shall agree in writing to be bound by the terms and conditions hereof
(including this Section 2.8). Notwithstanding anything to the contrary set forth
herein, the terms of this Section 2.8 (other than the first sentence of this
Section 2.8) may not be amended or modified, directly or indirectly, without the
express written consent of each holder of Registrable Securities detrimentally
affected by such amendment or modification and any such amendment or
modification made without such holder's consent shall not be applicable to that
holder.
Section 2.9 TRANSFER OF REGISTRATION RIGHTS. The registration rights
of the Warrantholder under this Section 2 may be assigned and transferred (i) by
the Warrantholder to any Affiliate of the Warrantholder to whom any of the
shares owned by the Warrantholder are transferred, and (ii) by the Warrantholder
to any permitted transferee who acquires at least five thousand (5,000)
Registrable Securities (adjusted to reflect subsequent stock splits,
combinations, stock dividends and recapitalizations); provided, however, that
the Company is given written notice by the Warrantholder at the time of such
assignment and transfer stating the name and address of the transferee and
identifying the securities with respect to which the rights under this Section 2
are being assigned and transferred. For the purposes of this Section 2.9, a
change in control of an Affiliate of the Warrantholder holding shares entitling
such Affiliate to the registration rights hereunder, such that such Affiliate is
subsequent to such change of control no longer an Affiliate of the
Warrantholder, shall be deemed an attempted transfer of the Warrants and the
Registrable Securities and the registration rights hereunder and such former
Affiliate of the Warrantholder shall not be entitled to such registration rights
except to the extent such transfer would be permitted under clause (ii) above.
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ARTICLE III
MISCELLANEOUS
Section 3.1 DESIGNATION OF OBSERVER. The Board of Directors of the
Company shall, by way of written consent in lieu of a meeting or otherwise,
resolve to permit and the Controlling Stockholder shall take any action
necessary to permit the Warrantholder to designate one observer to attend all
meetings of the Company's Board of Directors in a nonvoting observer capacity
commencing on the date the definitive agreements are executed and delivered
pursuant to the Letter Agreement until the expiration of such rights as set
forth below; provided, however, that (i) such representative shall agree to hold
in confidence all Confidential Information concerning the Company furnished to
such representative in connection with any such meeting of the Board of
Directors and (ii) the Company reserves the right to withhold any information
and to exclude such representative from any meeting or portion thereof if access
to such information or attendance at such meeting would reasonably be expected
to adversely affect the attorney-client privilege between the Company and its
counsel or would result in disclosure of trade secrets to such observer. The
Company's obligations and the Warrantholder's rights under this Section 3.1
shall terminate upon the earlier of (i) the termination of the term of the
definitive agreements executed and delivered pursuant to the Letter Agreement,
(ii) the sale by the Warrantholder of at least 50% of the shares of Class A
Common Stock issuable upon exercise of the Warrants, (iii) such date as the
Initial Warrantholder discontinues promoting the Company's managed messaging
outsourcing services, and (iv) such date as the IP Value Added Services Division
of the Initial Warrantholder enters into a managed messaging agreement with, or
acquires a majority interest in, a direct competitor of the Company.
Section 3.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and permitted assigns of the
Parties (including permitted transferees of any shares of Registrable
Securities); provided that the Warrantholder's rights to sell or transfer the
Warrants or the Registrable Securities or any securities of the same or similar
class as the securities being registered by the Company is subject to the
restrictions contained in Section 2.8 and the Warrantholder's rights to assign
it registration rights hereunder are subject to the restrictions contained in
Section 2.9. Nothing in this Agreement is intended to confer upon any party
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations or liability under or by reason of this Agreement,
except as expressly provided in this Agreement.
Section 3.3 NOTICES. All notices and other communications under this
Agreement shall (a) be in writing (which shall include communications by
telecopy), (b) be (i) sent by registered or certified mail, postage prepaid,
return receipt requested, (ii) sent by telecopier, or (iii) delivered by hand,
(c) be given at the following respective addresses and telecopier numbers and to
the attention of the following persons:
(i) If to the Company, to it at:
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Mail.com, Inc.
11 Broadway, Suite 660
New York, NY 10004
Attention: Gary Millin, President
Telephone No.: (212) 425-4200
Telecopier No.: (212) 425-3487
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, NY 10004
Attention: Ronald Fleming, Esq.
Telephone No.: (212) 858-1000
Telecopier No.: (212) 858-1500
(ii) if to the Warrantholder, to it at:
AT&T Corp.
55 Corporate Drive
Bridgewater, NJ 08807
Attention: Sanford S. Brown
Telephone No.: (908) 658-2500
Telecopier No.: (908) 658-7709
with a copy to:
AT&T Corp.
295 North Maple Avenue
Basking Ridge, NJ 07920
Attention: Marilyn Wasser
Vice President-Law and Secretary
Telephone No.: 908-221-6600
Telecopier No.: 908-221-6618
or at such other address or telecopier number or to the attention of such other
person as the party to whom such information pertains may hereafter specify for
the purpose in a notice to the other, and (d) be effective or deemed delivered
or furnished (i) if given by mail, on the fifth business day after such
communication is deposited in the mail, addressed as above provided, (ii) if
given by telecopier, when such communication is transmitted to the appropriate
number determined as above provided in this Section 3.3 and the appropriate
answer back is received or receipt is
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otherwise acknowledged, and (iii) if given by hand delivery, when left at the
address of the addressee addressed as above provided. The foregoing addresses
may be changed by notices given in the manner set forth in this section.
Section 3.4 GOVERNING LAW; FORUM AND CONSENT TO JURISDICTION.
(a) GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and governed by, the laws of the State of New York without
giving effect to the principles of the conflict of laws thereof.
(b) FORUM AND CONSENT TO JURISDICTION. Each party hereto submits to
the nonexclusive jurisdiction of the courts of the State of New York and the
federal courts of the United States of America located in such state solely
in respect of the interpretation and enforcement of the provisions of this
Agreement, and the other instruments, agreements and documents to be
delivered pursuant hereto, and hereby waives, and agrees not to assert, as a
defense in any action, suit or proceeding for the interpretation or
enforcement of this Agreement or any of such instruments, agreements and
documents, that it is not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in said courts or that
this Agreement or any of such other instruments, agreements and documents may
not be enforced in or by said courts or that its property is exempt or immune
from execution, that the suit, action or proceeding is brought in an
inconvenient forum, or that the venue of the suit, action or proceeding is
improper. Each party hereto agrees that service of process may be made upon
it by service upon CT Corporation System ("CT") at its office in New York
City in any such action, suit or proceeding against such party with respect
to this Agreement or any other agreements relating hereto, and hereby
irrevocably designates and appoints CT as its authorized agent upon which
process may be served in any such action, suit or proceeding, it being
understood that such appointment and designation shall become effective
without any further action on the part of any party. Service of process upon
such authorized agent shall be deemed, in every respect, effective service of
process upon the applicable party. If CT ceases to maintain an office in New
York City, then each party shall appoint another agent for service of process
in the State of New York acceptable to the others. A copy of any complaint or
other item served pursuant to this Section shall also be sent at the same
time to the party or parties designated for notice at the addresses and in
the manner specified in Section 3.3. Each party hereto agrees that final
judgment (with all right of appeal having expired or been waived) against it
in any such action, suit or proceeding shall be conclusive and that each
party is entitled to enforce such judgment in any other jurisdiction by suit
on the judgment, a certified or exemplified copy of which shall be conclusive
evidence of the fact and amount of indebtedness arising from such judgment.
Section 3.5 WAIVERS; AMENDMENTS. The waiver by the undersigned of any
of the provisions of this Agreement or the Warrant Certificate shall not operate
or be construed as a waiver of any subsequent breach. This Agreement or the
Warrant Certificate may be amended, and any provision of this Agreement may be
waived, only by a written amendment executed by (i) the Company and (ii) in the
case of any amendment affecting the rights or obligations of the Warrantholder,
the holders of a majority in interest of the outstanding Warrants issued to the
Warrantholder or stock issuable upon exercise of such Warrants. Notwithstanding
the foregoing,
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the Company will provide the Warrantholder with written notice and sufficient
information, sufficiently far in advance of a date a decision is required, to
enable the Warrantholder to make an informed and considered decision with
respect to any proposed amendment, waiver or consent in respect of any of the
provisions hereof. The Company will not, directly or indirectly, pay or cause to
be paid any remuneration, whether by way of supplemental or additional interest,
fee or otherwise, to any holder of capital stock of the Company as consideration
for or as an inducement to the entering into by any such holder of any waiver or
amendment to any of the terms and provisions of this Agreement, unless prior to
the payment of any remuneration to any holder of capital stock of the Company,
the Warrantholder shall, ratably, have been offered the opportunity to provide
any such waiver or amendment upon the same financial terms and conditions
(including but not limited to the time specified by which a consent to such
waiver or amendment must be given) as any holder of capital stock who has
consented to the waiver or amendment of any of the terms of this Agreement. No
waiver or amendment of the provisions in the preceding sentence shall be
effective with respect to any Warrantholder unless consented to in writing by
such Warrantholder.
Section 3.6 HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect the construction
and interpretation of this Agreement
Section 3.7 SEVERABILITY. The invalidity of all or any part of any
section of this Agreement shall not render invalid the remainder of such
section. If any provision of this Agreement is so broad as to be unenforceable,
such provision shall be interpreted to be only so broad as is enforceable.
Section 3.8 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument. This Agreement may contain more
than one counterpart of the signature page and may be executed by the affixing
of the signatures of each of the Parties to one of these counterpart signature
pages. All of the counterpart signature pages shall be read as though one, and
they shall have the same force and effect as though all of the signers had
signed a single signature page.
Section 3.9 AGGREGATION OF STOCK. All shares of Registrable Securities
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
Section 3.10 ENTIRE AGREEMENT. This Agreement and the Warrant
Certificate contain the entire agreement of the Parties. The Parties are not
bound by any oral statements that are made outside of this Agreement.
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WHEREAS, the Parties have executed this Agreement as of the date first
above written:
MAIL.COM, INC.
/s/ Gary Millin
---------------------------------------
By: Gary Millin
Title: President
AT&T CORP., as Warrantholder
/s/ Sanford S. Brown
---------------------------------------
By: Sanford S. Brown
Title: V.P. IP Value Added Services
/s/ Gerald Gorman
---------------------------------------
Gerald Gorman, as Controlling
Stockholder
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Mail.com, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
New York, New York
June 15, 1999
