<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 25, 1999
REGISTRATION NO. 333-74353
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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 MAY 25, 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 10.
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
[email protected]"
<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.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 3
Risk Factors............................................................................................... 9
Use of Proceeds............................................................................................ 26
Dividend Policy............................................................................................ 26
Capitalization............................................................................................. 27
Dilution................................................................................................... 29
Selected Financial Data.................................................................................... 30
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 32
Business................................................................................................... 43
Management................................................................................................. 60
Certain Transactions....................................................................................... 70
Principal Stockholders..................................................................................... 75
Description of Capital Stock............................................................................... 78
Shares Eligible For Future Sale............................................................................ 83
Underwriting............................................................................................... 85
Legal Matters.............................................................................................. 87
Experts.................................................................................................... 87
Where You Can Find More Information........................................................................ 88
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.
2
<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.
3
<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.
4
<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..................... 32,039,224 shares
Class B..................... 10,000,000 shares
Total..................... 42,039,224 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
77.1% 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 7.6 million shares are issuable upon the exercise of
outstanding options at a weighted average exercise price of $2.34 per
share and 2.5 million options are available for future awards;
- 209,539 shares are issuable upon the exercise of outstanding warrants at a
weighted average exercise price of $3.36 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";
- 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"; and
- under a non-binding commitment letter with PeopleLink, Inc., we agreed to
issue 5,684 shares of our Class A common stock and to pay $1,500,000 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."
5
<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 2,081,977 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.
6
<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
2,081,977 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.
7
<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........... (22,901,749) (22,901,749)
-------------- --------------
Net loss attributable to common
stockholders..................... $ (35,926,632) $ (29,809,812)
-------------- --------------
-------------- --------------
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...................... 32,930,357 34,790,663
-------------- --------------
-------------- --------------
</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>
8
<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.
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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 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.
- 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.
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We cannot predict whether future relationships, or renewals of existing
relationships, will be more expensive than the arrangements we have entered into
to date.
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
April 30, 1999, we estimate that approximately 24% of our established emailboxes
have email addresses at partner-owned domain names. Upon expiration, most
partners can require us to relinquish existing members with addresses at
partner-owned domain names. Even those members who have selected addresses using
our domain names may find it more convenient to switch to whatever replacement
email service may be available at the partner's site. The loss of members due to
expiration or non-renewal of partner contracts may materially reduce our
revenues. Moreover, as of April 30, 1999, we estimate that approximately 16% of
our emailboxes established are at the email.com domain. If CNET and Snap
exercise their rights to terminate our agreement, which includes the right to
terminate for convenience after May 13, 2001, we would be obligated to transfer
the email.com domain name and related member information to them. If CNET and
Snap terminate for convenience, they would be obligated to pay us the greater of
$5 million or 120% of the fair market value of the email.com user data based on
the projected economic benefit of the users and either return to us the shares
that we issued to them for the establishment of emailboxes or pay us the then
fair market value of these shares. If CNET and Snap terminate for other reasons,
the amount of compensation they must pay to us varies depending on the reason
for termination. NBC Multimedia may elect to exercise similar rights relating to
email.com emailboxes established through their sites under our agreement with
them.
LOSING RELATIONSHIPS WITH PROMINENT PARTNERS CAN IMPAIR OUR CREDIBILITY WITH
ADVERTISERS AND OTHER PARTNERS. We believe that partnerships with Web sites
that have prominent brand names help give us credibility with other partners and
with advertisers. The loss of our better-known Web site partners could damage
our reputation and adversely affect the advertising, direct marketing,
e-commerce and subscription rates we charge.
SEVERAL OF OUR MOST SIGNIFICANT PARTNER CONTRACTS HAVE EXPIRED 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.
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Two of our most important Web site partnerships have been with Lycos and
AltaVista, which collectively have accounted for approximately 25% of the
emailboxes established through April 30, 1999, and for approximately 26% of the
total page views we delivered in April 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 62% of our new emailboxes established in March 1999:
<TABLE>
<CAPTION>
DATE THAT OUR
PERCENTAGE OF NEW CONTRACT WITH THE
PARTNER EMAILBOXES IN MARCH 1999 PARTNER EXPIRES
- ----------------------------------------------- ----------------------------- ------------------
<S> <C> <C>
Snap........................................... 22% *
Prodigy........................................ 13 February 2000
AltaVista...................................... 11 June 1999
CNET........................................... 11 *
Alloy Online................................... 5 December 1999
</TABLE>
- ------------------------
* CNET and Snap may terminate their contracts for convenience after May 13,
2001. See "Certain Transactions--Agreements with CNET, Snap and NBC
Multimedia."
Our contract with AltaVista will not be extended when it expires on 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.
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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 46% of our total
emailboxes as of April 30, 1999, and 26% of the emailboxes that were established
during April 1999. If a disproportionate percentage of members choose either of
these options, it will adversely affect our ability to generate advertising
related revenues.
OUR DATABASE CONTAINS INACCURACIES THAT COULD REDUCE THE VALUE OF OUR
INFORMATION. Although we attempt to collect basic demographic information about
members at the time they establish their accounts, we do not verify the accuracy
of this information. Moreover, even if the information is correct when we
receive it, members may move, change jobs or die without our knowledge. As a
result, our database contains inaccuracies that could make our information less
appealing to advertisers.
WE DO NOT KNOW HOW MANY MEMBERS HAVE ESTABLISHED MULTIPLE EMAILBOXES.
Because we do not charge for our basic service, individuals can easily establish
multiple emailboxes. This makes it impossible for
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<PAGE>
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 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
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<PAGE>
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
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.
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<PAGE>
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;
- 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, @Home, Yahoo!, Excite,
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.
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.
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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.
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
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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 77.1% 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
42,039,224 shares of Class A and Class B common stock and 7,593,815 options and
209,539 warrants to purchase an aggregate of 7,803,354 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 35,189,224 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 7,593,815
outstanding vested and unvested employee stock options and 209,539 warrants to
purchase an aggregate of 7,803,354 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 separate non-binding commitment letters 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.; and
- issue 5,684 shares of our Class A common stock and to pay $1,500,000 in
cash in exchange for shares of the capital stock of PeopleLink, 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
2,081,977 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.
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<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 32,039,224 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. 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>
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 6,850,00
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 78.5% $ 37,515,000 33.2% $ 1.07
New investors................................... 6,850,000 21.5 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. 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.
29
<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
2,081,977 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.
30
<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........... (22,901,749) (22,901,749)
-------------- --------------
Net loss attributable to common
stockholders..................... $ (35,926,632) $ (29,809,812)
-------------- --------------
-------------- --------------
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...................... 32,930,357 34,790,663
-------------- --------------
-------------- --------------
</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>
31
<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
32
<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 14% 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
33
<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.
34
<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.
35
<PAGE>
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 products. 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. This represents 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.
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
$680,000. 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.
On May 17, 1999, we entered into a non-binding commitment letter with
PeopleLink, Inc. to establish a strategic and commercial relationship. Under the
agreement, we would pay $1,500,000 in cash and issue 5,684 shares of our Class A
common stock in exchange for a less than 20% equity interest in PeopleLink, 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. Under this agreement PeopleLink and we would integrate and
co-market PeopleLink's and our services across all of PeopleLink's and our
partner networks. PeopleLink would agree that, for a fixed term, Mail.com will
be the exclusive Web based email service offered and marketed through the Web
site www.peoplelink.com.
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:
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- 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 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.
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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.
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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<PAGE>
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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<PAGE>
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 April 30, 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 April 30, 1999, we estimate that approximately 16% 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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, 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>
1999
----------------------
$ %
<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
site 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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<PAGE>
- 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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<PAGE>
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, @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, 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 March 31, 1999, there were 103 people dedicated full-time to our
business. Of these personnel, 42 persons worked in technology, product
development and Web production; 20 persons worked in sales, marketing and
business development; 13 persons worked in customer support; 23 persons worked
in operations and administration; and 5 persons are executives. We have never
had a work stoppage and no personnel are represented under collective bargain
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.
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
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 until May
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 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 will be
appointed prior to the closing of this offering and 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
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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 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) 1.6 2.00 3.50 8/30/08 69,467 171,354
82,161(2) 2.8 2.00 5.00 9/29/08 246,483 504,468
208,446(2) 7.0 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) 9.6 2.00 2.00 12/31/08 -- 359,100
395,200(4) 13.3 3.50 3.50 2/15/08 -- 869,440
Debra McClister.......... 290,000 9.7 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 equal installments over 52 weeks.
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<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.
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<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 in 1997 at an exercise price of $1.00 per share, options
to purchase 30,000 shares in 1997 at an exercise price of $2.00 per share and
options to purchase 11,750 shares 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.
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<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
$7,203.50). 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.
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<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 169,038 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.
<TABLE>
<CAPTION>
SHARES OF CLASS
A
COMMON STOCK
----------------
<S> <C>
Gerald Gorman................................................................................... 2,377
Lon Otremba..................................................................................... 2,641
Stephen Ketchum................................................................................. 528
John Whitman(1)................................................................................. 1,575
The Whitman Children Irrevocable Trust(2)....................................................... 53
CitiGrowth Fund II Offshore, L.P.(3)............................................................ 2,029
CG Asian-American Fund, L.P.(3)................................................................. 2,029
-------
Total................................................................................. 11,602
</TABLE>
- ------------------------
(1) Includes 1,417 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
73
<PAGE>
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 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.
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 mailboxes 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 April 30, 1999 and as adjusted to reflect
the sale of the shares of common stock in this offering, for:
- each person who we know owns beneficially 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
169,038 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.................................... 12,065,815(1) 33.9% 28.4% 77.1%
Lycos, Inc....................................... 2,000,000 5.7 4.8 1.5
500 Old Connecticut Path
Framingham, MA 01701-4576
John Whitman..................................... 1,911,092(2) 5.4 4.6 1.5
Gary Millin...................................... 1,698,006 4.8 4.0 1.3
Lon Otremba...................................... 585,334 1.6 1.3 *
Charles Walden................................... 444,015 1.2 1.1 *
Stephen Ketchum.................................. 243,861 * * *
William Donaldson................................ 231,667 * * *
Jack Kuehler..................................... 231,667 * * *
Debra McClister.................................. 119,226 * * *
All directors and executive officers as a group
(9 persons).................................... 17,530,683 47.1 39.8 80.2
CNET............................................. 4,279,995(3) 12.2 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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<PAGE>
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 April 30, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF CLASS
NAME OF BENEFICIAL OWNER A COMMON STOCK
- -------------------------------------------------------------------------------------- --------------------------
<S> <C>
Gerald Gorman......................................................................... 413,938
John Whitman.......................................................................... 3,333
Gary Millin........................................................................... 435,606
Lon Otremba........................................................................... 382,693
Charles Walden........................................................................ 444,015
Stephen Ketchum....................................................................... 3,333
William Donaldson..................................................................... 126,667
Jack Kuehler.......................................................................... 126,667
Debra McClister....................................................................... 72,113
</TABLE>
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<PAGE>
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 April 30, 1999, we had 6,866,783 shares of Class A common stock
outstanding held of record by 31 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 25,172,441 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;
- the exercise of the CNET and NBC Multimedia warrants; and
- the return of 1,000,000 shares of our Class A common stock from GeoCities;
there will be approximately 32,039,224 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
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<PAGE>
prior rights of any outstanding class of preferred stock. If we are liquidated,
dissolved or wound up, our 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, now employed by Salomon Smith Barney, 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.
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<PAGE>
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.
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.
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<PAGE>
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.
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 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.
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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
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 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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<PAGE>
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 42,039,224 shares of
Class A and Class B common stock outstanding (assuming no exercise of the
underwriters' over-allotment option). As of April 30, 1999, we had granted stock
options to employees and directors for the purchase of an aggregate of 7,648,117
shares of Class A common stock. As of April 30, 1999, we also had outstanding
warrants to purchase 209,539 shares of Class A common stock (excluding the
shares of Class A common stock issuable upon exercise of the CNET and NBC
Multimedia 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 31,157,489 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."
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.
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 420,392 shares immediately
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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 16,018,535
shares of Class A common stock will have rights to cause us to register the sale
of their shares under the Securities Act. 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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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 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 our 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
85
<PAGE>
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.
86
<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 has assumed the responsibilities of acting
as a qualified independent underwriter. In its role as a qualified independent
underwriter, Salomon Smith Barney 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 and PaineWebber 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 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 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.
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.
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. 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.
87
<PAGE>
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.
88
<PAGE>
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 2,081,977 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 $2,358,000 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 3,029,537 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 2,081,977 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>
In connection with acquisition of domain assets, the Company has entered
into various domain asset purchase agreements. Principal payments in connection
with domain asset purchase obligations are due as follows: approximately
$169,000 in 1999, $116,000 in 2000, $17,000 in 2001, $21,000 in 2002, $16,000 in
2003, $21,000 in 2004 and $25,000 in 2005. In January 1999, the Company
purchased the domain name "USA.com" from Lansoft for 225,000 shares of Class A
common stock valued at $5.00 per share totalling $1,125,000. In April 1999, the
Company issued 130,000 common shares valued at $11.00 per share plus $880,000 in
connection with its acquisition of domain name assets, for approximately $2.3
million in the aggregate.
F-15
<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 (CONTINUED)
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ ------------
<S> <C> <C> <C>
1997 1998 1999
---------- ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
Partner payments due.................................. $ 27,979 $ 721,587 $ 397,627
Professional services and consulting fees............. 138,066 128,118 1,647,076
Sales commissions..................................... -- 20,500 23,417
Travel and entertainment.............................. 30,000 77,825 48,728
Other................................................. 124,885 233,583 412,260
---------- ------------ ------------
Total............................................. $ 320,930 $ 1,181,613 $ 2,529,108
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
(3) PARTNER AGREEMENTS
Throughout 1998, the Company entered into many new Mail.com Partner
agreements. Included in these agreements are some percentage of revenue sharing
agreements, miscellaneous fees and other customer acquisition costs with
Mail.com Partners. The revenue sharing agreements vary for each party but
typically are based on selected revenues, as defined, or on a per sign-up basis.
As of December 31, 1998 and March 31, 1999, the Company owes approximately
$722,000 and $398,000, respectively to various Mail.com Partners under such
agreements. Such amounts are included in accrued expenses in the balance sheet.
The Company has issued stock to some of its Mail.com Partners and
capitalizes such issuances when the measurement date for such stock grants is
fixed and there is a sufficient disincentive to breach the contract in
accordance with Emerging Issues Task Force Abstract No. 96-18, "Accounting for
Equity Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." Such amounts are amortized ratably
over the length of the contract commencing on the site launch date.
In August 1998, the Company entered into a two year agreement with CNN. In
consideration of the advertising, subscription and customer acquisition
opportunities, CNN received 253,532 shares of Class A common stock upon the
commencement of the contract at $3.50 per share, the fair market value of
Mail.com's common stock on the date of grant, or $887,362. CNN also has the
right to receive a portion of the Company's selected revenues under the
agreement, as defined. The value of the stock issuance has been recorded in the
1998 balance sheet as partner advances and is amortized ratably to amortization
expense over the contract term. The launch of the services coincided with the
contract date. The Company recorded approximately $173,000 and $111,000 of
amortization expense in 1998 and for the three months ended March 31, 1999,
respectively, for this agreement. The Company shall also pay quarterly
sponsorship fees up to a maximum of $2 million during the term of the contract
of which $240,000 has been paid through March 31, 1999.
In September 1998, the Company entered into a minimum two year agreement
with GeoCities with an automatic one year renewal at the Company's option if
GeoCities has not delivered a specified number of sign-ups and two additional
one year renewals subject to approval by both parties. In consideration of the
advertising, subscription and customer acquisition opportunities, GeoCities
F-16
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(3) PARTNER AGREEMENTS (CONTINUED)
received 1,000,000 shares of Class A common stock upon the commencement of the
contract valued at $3.50 per share, the fair market value of Mail.com's common
stock on the date of grant, or $3,500,000. The Company was also required to pay
GeoCities $1.5 million in three installments, the first of which was paid in
December 1998. GeoCities also had the right to receive a portion of the
Company's selected revenues under the agreement, as defined. The value of the
stock issuance and cash payments have been recorded in the 1998 balance sheet as
partner advances and would have been amortized ratably to amortization expense
over the contract term commencing upon the launch of the services. Yahoo!
recently announced its agreement to acquire GeoCities. The acquisition is
expected to close by May 1999.
In May 1999, the Company and GeoCities cancelled and rescinded their
agreement and agreed to abandon their joint efforts. As a result of the
cancellation and rescission of the agreement, GeoCities will retain the $500,000
non-refundable fee that the Company paid under the contract, but will return to
the Company the 1,000,000 shares of Class A common stock issued to them.
Accordingly, the Company will reverse the issuance of 1,000,000 shares and will
record the $500,000 write-off in the second quarter of 1999. Accordingly, such
events were given pro forma effect as of March 31, 1999 (see note 1(b)). In
addition, the Company has agreed to deliver advertisements over its network on
behalf of GeoCities and GeoCities has agreed to pay $125,000 per month for
sixteen months, representing $2,000,000 in the aggregate.
The Company issued an additional 577,628 (Alta Vista -- 29,528 shares at
$3.50 per share, 23,197 at $5.00 per share, totaling $220,000, CNET/Snap --
494,903 at $5.00 per share, totaling $2,474,000 and RemarQ -- 30,000 shares at
$5.00 per share, totaling $150,000) and 471,076 (Alta Vista -- 44,886 shares at
$5.00 per share, totaling $224,000 and CNET/Snap -- 426,190 shares at $5.00 per
share, totaling $2,023,000) shares of its common stock at varying prices in 1998
and for the three months ended March 31, 1999, respectively, in connection with
certain strategic partnership agreements. When stock issuances are either
contingent upon the achievement of certain targets or the measurement date is
not fixed, the Company expenses the issuance of such stock at the time such
stock is issued or the targets are achieved at the then fair market value of the
Company's stock. Such amounts aggregated approximately $2,844,000 and $2,247,000
for the year ended December 31, 1998 and for the three months ended March 31,
1999, respectively, and are included in sales and marketing expenses in the
statement of operations.
The Company's partnership agreement with Lycos expired on October 8, 1998,
shortly after Lycos acquired WhoWhere, a competitor which provides personal
homepage and Webmail services. Compaq, which owns the AltaVista Web site,
recently entered into a strategic relationship with Microsoft. As part of that
relationship, AltaVista agreed to offer Microsoft's Hotmail Webmail service
starting in July 1999, after the Company's contract with AltaVista expires.
While the Company will continue to own the right to serve the majority of the
affected members after the expiration of these contracts, it cannot be sure that
these members will continue to use its service as actively as the members have
in the past, if at all.
Prior to May 1, 1999, the Company was required to issue to CNET, Snap and
NBC Multimedia an aggregate of 1.25 shares of its Class A common stock for each
member who registers at their sites through December 31, 1999, up to a maximum
of two million members. The Company was also
F-17
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(3) PARTNER AGREEMENTS (CONTINUED)
required to issue 0.5 shares of its Class A common stock for each subsequent
registration until December 31, 2000, subject to a maximum of four million
members (including members who registered prior to December 31, 1999). The
Company had guaranteed NBC Multimedia a minimum of 210,000 shares of Class A
common stock if they launch the Company's services.
On May 1, 1999, the Company entered into an agreement to settle in full its
contingent obligation to issue shares of Class A common stock to CNET, Snap and
NBC Multimedia as described above. Under this settlement, the Company will issue
upon the closing of the 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. The Company 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.
The following are contracts that require substantial minimum payments and/or
payments in the form of stock contingent upon the occurrence of certain events.
The issuance of such shares of Class A common stock will be accounted for at its
fair market value on the date of issuance:
- CBS SportsLine has the option of receiving its revenue share or $4.00 for
each confirmed signup at its Web site through June 30, 2000. In addition,
the Company must pay sponsorship fees totaling $450,000, $100,000 of which
the Company paid upon signing the contract. The Company shall pay the
remaining $350,000 in quarterly installments of $50,000 and has paid
$50,000 through March 31, 1999.
- The Company guaranteed Time Warner a minimum revenue share of $62,500 per
quarter. The current agreement with Time Warner expired in December 1998.
A new agreement has been entered into that does not require any guaranteed
payments.
- An agreement with NBC Multimedia requires the Company to pay $200,000 in
installments following the launch of service which occurred in May 1999.
- The Company guaranteed NHL Interactive CyberEnterprises (NHL.com) a
minimum revenue share of $50,000 per year. The current agreement expires
in May 2000.
- AltaVista has the option of receiving its revenue share or $1.00 in cash
plus 0.25 shares of the Company's Class A common stock for each confirmed
member registration at their Web site through June 30, 1999.
- In October 1998, the Company made a cash payment of $75,000 to RemarQ and
issued 30,000 shares of Class A common stock. The Company has 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 its 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, the Company has not paid any cash and has not issued any shares of
Class A common stock under this contingent obligation.
F-18
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(3) PARTNER AGREEMENTS (CONTINUED)
Certain Mail.com Partner agreements require minimum cash and/or equity
payments which aggregated $3.7 million of which $2.2 million is due in 1999 and
$1.5 million is due in 2000. Additional amounts become payable to certain
Mail.com Partners upon achieving varying member levels.
(4) INVESTMENTS IN AFFILIATED COMPANIES
The Company has a minor investment in two of its Mail.com Partners, a white
page directory Web site and an Internet Service Provider. The investments are
accounted for on the cost basis as the Company owns less than 20% of each
company's stock and are stated at the lower of cost or market value (see Note
12).
(5) LEASES
The Company sold certain assets for approximately $710,000 and $1,276,000 in
1997 and 1998, respectively, and approximately $26,000 and $0 for the three
months ended March 31, 1998 and 1999, respectively. The assets were leased back
from the purchaser over 4-5 years. The Company recognized a $8,000 loss in 1998
in connection with the sale-leaseback. The Company had not received
approximately $633,000 from such sales as of December 31, 1998. The Company
leases facilities and certain equipment under agreements accounted for as
operating leases. These leases generally require the Company to pay all
executory costs such as maintenance and insurance. Rental expense for operating
leases for the years ending December 31, 1996, 1997, and 1998 and for the three
months ended March 31, 1998 and 1999 were approximately $21,000, $70,900,
$380,100, $44,000 and $192,000, respectively.
The Company's lease obligations are collateralized by certain assets at
December 31, 1998. Future minimum lease payments under non-cancelable operating
leases (with initial or remaining lease terms
F-19
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(5) LEASES (CONTINUED)
in excess of one year) and future minimum capital lease payments as of December
31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
- -------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
1999.......................................................... $ 714,952 $ 626,974
2000.......................................................... 659,274 625,471
2001.......................................................... 522,164 337,920
2002.......................................................... 378,783 3,203
2003.......................................................... 327,927 --
Later years through 2005...................................... 15,227 --
------------- ---------------
Total minimum lease payments.............................. 2,618,327 $ 1,593,568
---------------
---------------
Less estimated executory costs................................ 67,857
-------------
Net minimum lease payments................................ 2,550,470
Less amount representing interest (at a weighted-average
interest rate of 11.5%)..................................... 633,278
-------------
Present value of net minimum capital lease payments........... 1,917,192
Less current portion of obligations under capital leases...... 479,461
-------------
Obligations under capital leases, excluding current portion... $ 1,437,731
-------------
-------------
</TABLE>
(6) CAPITAL STOCK
AUTHORIZED SHARES
During 1997, the Company amended and restated its certificate of
incorporation. As a result, the total number of shares which the Company was
authorized to issue was 54,000,000 shares: 32,000,000 of these shares were Class
A Common Stock, 10,000,000 shares were Class B Common Stock and 12,000,000
shares were Class A Preferred Stock, all classes having a par value of $0.01.
On October 1, 1998, the Company amended and restated its certificate of
incorporation, to increase the number of authorized shares to 104,000,000,
consisting of 60,000,000 and 10,000,000 shares of Class A and Class B Common
Stock, respectively; and 12,000,000, 12,000,000 and 10,000,000 shares of Class
A, C, and D Preferred Stock respectively; (collectively "Preferred Stock"), all
classes with a par value of $0.01 per share.
In March 1999, the Company amended and restated its certificate of
incorporation; to increase the number of authorized shares to 190,000,000
consisting of 120,000,000 and 10,000,000 shares of Class A and Class B common
stock, respectively; and 12,000,000, 12,000,000, 10,000,000 and 10,000,000
shares of Class A, C, D and E Preferred Stock respectively; and 16,000,000
undesignated Preferred shares (collectively "Preferred Stock"), all classes with
a par value of $0.01 per share.
F-20
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(6) CAPITAL STOCK (CONTINUED)
COMMON STOCK
During 1996, the Company issued 2,422,500 shares of Class A common stock (at
$0.005 per share) and 10,000,000 shares of Class B common stock (at $0.10 per
share) to its founders in exchange for $1,012,113, comprised of $550,000 in cash
and $462,113 in stock subscriptions receivable of which $450,000 was paid during
1997 and $12,113 was paid in 1998. Also during 1996, the Company issued
1,675,000 shares of Class A common stock (at approximately $0.10 per share) in
connection with a domain asset purchase agreement. During 1998, Mail.com issued
1,831,160 shares of its Class A common stock to various Mail.com Partners (see
note 3).
CONVERTIBLE PREFERRED STOCK
CLASS A PREFERRED STOCK
In May 1997, the Company completed a private placement of 3,460,000 shares
of Class A Preferred Stock at $1.00 per share for an aggregate price of
$3,460,000, of which $2,575,000 was received in cash, $715,000 in stock
subscriptions receivable (all of which was paid during the first quarter of
1998) and $170,000 was contributed in the form of equity securities and
services. The sale of securities was done in three stages. Proceeds were held in
escrow and released upon meeting certain milestones, namely: 1) $50,000 of
receipts in subscription revenue, and 2) $50,000 of receipts in banner
advertising and other revenues (excluding subscriptions). These milestones were
met during 1997 and all proceeds were released from escrow prior to the end of
1997.
Each share of Class A preferred stock shall automatically be converted into
one share of Class A common stock immediately upon an underwritten initial
public offering equal to or greater than $20,000,000 of company stock at an
offering price of $5 per share or greater (adjusted to reflect subsequent stock
splits, combinations, stock dividends, and recapitalizations).
At the earlier of 30 months or the sale of all or substantially all of the
assets or stock of the Company, each purchaser shall be issued additional Class
A preferred stock, without paying additional consideration, so that, after
giving effect to such issuance, the effective price of all issued shares shall
be reduced as follows: the adjusted share price shall be the greater of 1)
$0.50; or 2) 10% of the highest price per share offered to the purchasers in any
public or private sale to a third party, in which the purchasers declined an
opportunity to sell their shares; or 3) 10% of the price per share in a Company
sale. However, in no event shall the adjusted share price exceed $1.00 per
share.
During March 1999, with the consent of the Class A preferred shareholders,
the Company agreed to eliminate in full the Class A contingent additional stock
issuance obligation described above in exchange for giving the existing Class A
preferred shareholders 968,800 shares of Class A Common shares on an as if
converted basis, provided the Company completes an IPO before July 31, 1999.
Provided the IPO price is greater than $5 per share, the Class A preferred
shares will automatically convert into the same number of Class A common stock
upon the closing of the IPO.
REDEEMABLE CLASS C PREFERRED STOCK
In July and August 1998, a private placement of 3,776,558 Class C preferred
shares with detachable warrants at a combined offering price of $3.50 per share
($3.455 per preferred C share and
F-21
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(6) CAPITAL STOCK (CONTINUED)
$0.12857 per warrant with each share having 0.35 warrants) was completed for
approximately $13,218,000. Such stock is redeemable at the option of the holders
in three equal annual installments commencing five years from the date of
purchase.
All of the preferred shares will automatically convert into one share of
Class A common stock in the event the Company closes a firm commitment for an
underwritten initial public offering with gross proceeds of at least $20,000,000
at an offering price per share of at least 200% of the then applicable
conversion price (adjusted for splits, dividends, etc.).
In the event that the Company does not provide the Class C preferred
shareholders with an offer to purchase their shares for a cash price equal to or
greater than 3.0 times the combined offering price within 24 months of the date
of purchase (such period to be extended to 30 months in the event the Company
has completed a qualified offering within 24 months from the date of purchase)
the stock price will be reduced ratably to a floor of $2.00 per share through
the issuance of additional shares.
During March 1999, with the consent of the Class C preferred shareholders,
the Company agreed to revise the Class C conversion price from $3.50 to $2.80 in
exchange for eliminating in full the Class C additional contingent stock
issuance obligation provisions described above. This revision will equate to an
additional 944,139 shares of Class A common stock being issued to the Class C
preferred shareholders upon the closing of the IPO. Such shares will be issued
upon the closing of the IPO.
CONVERSION
If the IPO is consummated under the terms currently anticipated, upon the
closing 6,185,000 and 3,776,558 shares of Class A and C convertible preferred
stock, respectively, on a one-for-one basis representing all of the outstanding
shares of the convertible preferred stock, shall automatically convert into
9,961,558 shares of Class A common stock. In addition, the 3.2 million Class E
Preferred shares will automatically convert into the same number of Class A
common stock upon closing of the IPO. Further, the Class A, C and E preferred
shares additional contingent stock issuance obligation provisions provide for
the issuance of 968,800, 944,139 and 169,038, Class A common shares,
respectively, which will all be issued upon the closing of the IPO.
WARRANTS
As part of the Private Placement of Class C preferred shares in July and
August 1998, 1,321,778 detachable warrants were also issued for proceeds of
$169,943 at a value of $0.12857 per warrant. The Company has the right to
repurchase the warrants, or a portion of the warrants, at a price of $0.005 per
warrant if: 1) the holders of Class C preferred Stock are offered an opportunity
to sell their stock at a price of $10.50 per share or greater within 24 months
after the closing date, or 30 months after the closing date if the Company has
completed a qualified offering; or 2) the Company has net revenues, as defined,
during the 12 month period beginning the month after closing date in an amount
equal to or greater than $35,000,000. If net revenues during that period are
greater than $25,000,000 but less than $35,000,000, the Company will be entitled
to repurchase a pro-rata portion of the warrants. The warrants may be exercised
in the event that they are not repurchased within the 24 or 30 month period, or
immediately before a merger, consolidation, sale of all or most of the assets of
the Company, or a liquidation or dissolution of the Company. In connection with
the March 1999 Class C additional
F-22
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(6) CAPITAL STOCK (CONTINUED)
contingent stock issuance obligation settlement described above, all such
warrants shall be cancelled upon the closing of the IPO.
In 1997, the Company issued warrants to purchase 20,000 shares of Class A
Common Stock at an exercise price of $1.00 per share to a consultant. These
warrants are exercisable for a period of 10 years. The Company recorded
compensation expense of $4,000 in connection with the issuance of these warrants
using a Black Scholes pricing model.
In addition, warrants were also issued in July and August 1998 to purchase
179,356 shares of Class A common stock at an exercise price of $3.50 per share.
The Company recorded offering costs of $129,675 in connection with the issuance
of these warrants using a Black Scholes pricing model. The terms of these
warrants are substantially identical to the terms of the warrants issued with
the Class C preferred stock, except for the additional contingent stock issuance
obligation, anti-dilution provisions, registration rights and cashless exercise.
These warrants are exercisable for a period of five years.
In the three months ended March 31, 1999, the Company issued 10,183 warrants
to a consultant and a vendor at exercise prices ranging from $5.00 to $6.00 per
share exercise price. The Company recognized approximately $11,000 of expense
using a Black Scholes pricing model.
CLASS D PREFERRED STOCK
In July 1998, the Company authorized 10,000,000 of shares Class D preferred
stock (after giving effect to the October 2, 1998, 2-for 1 stock split),
however, no shares have been issued to date.
CLASS E PREFERRED STOCK
In March 1999, the Company completed a private placement of 3.2 million
shares of Class E preferred stock at $5.00 per shares for net proceeds of
approximately $15,200,000. These shares will automatically convert on a
one-for-one basis to an equivalent number of Class A common shares upon the
closing of the IPO. These shares also include the additional contingent stock
issuance obligation provision similar to the Class A and C preferred share
obligation whereby the Class E shareholders will receive an additional 169,038
shares of Class A common stock upon the closing of the IPO.
UNDESIGNATED PREFERRED SHARES
The Company is authorized, without further stockholder approval, to issue
authorized but unissued shares of preferred stock in one or more classes or
series. 16,000,000 authorized shares of undesignated preferred stock were
available for creation and issuance in this manner.
VOTING RIGHTS
Each share of Class A common stock and Class A, C and E preferred stock
shall have one vote per share. Each share of Class B common stock shall have ten
votes per share.
LIQUIDATION PREFERENCE
In the event of any liquidation or winding up of the Company, holders of the
Class A, C and E preferred stock and the Class B common stock will be entitled,
on a pro rata basis, in preference to the
F-23
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(6) CAPITAL STOCK (CONTINUED)
holders of the Class A common stock, an amount equal to the applicable purchase
price per share plus any accrued but unpaid dividends.
The following summarizes the Company's preferred stock liquidation
preferences:
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK COMMON STOCK
CLASS E CLASS C CLASS A CLASS B
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Number of shares................................ -- -- 400,000 10,000,000
Price per share................................. -- -- $ 0.41 $ 0.10
-------------- -------------- -------------- --------------
Total consideration............................. -- -- $ 165,000 $ 1,000,000
Issuance of stock in exchange of domain
assets........................................ -- -- 22,580 --
Subscription receivable......................... -- -- -- $ (450,000)
Liquidation value at December 31, 1996.......... -- -- $ 187,580 $ 550,000
-------------- -------------- -------------- --------------
Number of shares................................ -- -- 3,290,000 --
Price per share................................. -- -- $1.00 --
-------------- -------------- -------------- --------------
Total consideration(1).......................... -- -- $ 3,290,000 --
Subscription receivable......................... -- -- $ (715,000) $ 450,000
Issuance of preferred stock in exchange for
asset......................................... -- -- 100,000 --
Issuance of stock for services.................. -- -- 70,000 --
-------------- -------------- -------------- --------------
Liquidation value at December 31, 1997.......... -- -- $ 2,932,580 $ 1,000,000
-------------- -------------- -------------- --------------
Number of shares................................ -- 3,776,558 2,000,000 --
Price per share................................. -- $3.45 $2.00 --
-------------- -------------- -------------- --------------
Total consideration(2).......................... -- $ 13,047,650 $ 4,000,000 --
Subscription receivable......................... -- -- $ 715,000 --
-------------- -------------- -------------- --------------
Liquidation value at December 31, 1998.......... -- $ 13,047,650 $ 7,647,580 $ 1,000,000
-------------- -------------- -------------- --------------
Numbers of shares............................... 3,200,000 -- -- --
Price per share................................. $5.00 -- -- --
-------------- -------------- -------------- --------------
Total consideration(3).......................... $ 16,000,000 -- -- --
-------------- -------------- -------------- --------------
Liquidation value at March 31, 1999............. $ 16,000,000 $ 13,047,650 $ 7,647,580 $ 1,000,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
- ------------------------
1. Excludes issuance costs of $54,640
2. Excludes issuance costs of $226,696 and $853,575, respectively
3. Excludes issuance costs of $834,605
F-24
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(7) CNET/SNAP STOCK WARRANT
In 1998, the Company entered into a partner agreement with CNET, Inc. which
was amended shortly thereafter to include the newly formed Snap, LLC. During
March 1999, Snap assigned their rights to NBC Multimedia. As part of this
agreement, on November 6, 1998, when 250,000 users completed subscriptions for
the Email.com service, warrants for an aggregate of 1,500,000 Class A common
shares were granted at an exercise price of the lesser of $5.00 per share (the
fair market value at the date of grant) or the IPO price. These warrants expire
on the earlier of (a) December 31, 1999 or (b) the closing of a firm commitment,
underwritten initial public offering of common stock by Mail.com. The Company
recorded a non-cash charge of approximately $371,000, based upon the fair market
value of the stock warrants, using a Black Scholes pricing model. Such amount is
included in sales and marketing in the 1998 statement of operations. In March
1999, CNET and NBC Multimedia exercised their warrants in accordance with this
agreement by placing the proceeds of $7.5 million in an escrow account. Upon the
closing of the IPO, funds from the exercise of the warrant in accordance with
the agreement will be disbursed to the Company and the shares of the Class A
common stock relating to the warrants will be issued to CNET and NBC Multimedia.
(8) LYCOS STOCK WARRANT
In October 1997, the Company entered into a partner agreement with Lycos,
Inc. As part of this agreement, a stock warrant 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 Company recorded a non-cash charge of $48,000,
based upon the fair market value of the stock warrant, using a Black Scholes
pricing model. In March 1998, Lycos exercised its warrant in accordance with
this agreement whereby the Company received 100,062 shares of Lycos stock valued
at $39.98 per share on the closing date, which the Company sold over the next
week for proceeds totaling approximately $4.4 million. The Company recognized a
gain of approximately $438,000 on such sale.
(9) STOCK OPTIONS
During 1996, the Company established the 1996 Stock Option Plan. Under the
Plan, the Board of Directors may issue incentive stock options or nonqualified
stock options to purchase up to 1,000,000 common shares.
In 1997, the 1997 Stock Option Plan was approved by the Board of Directors
and Shareholders and provided for the issuance of 3,500,000 options, including
both incentive stock and nonqualified stock options.
During 1998, the Board of Directors approved the 1998 Stock Option Plan
providing for the issuance of 1,500,000 options, including both incentive stock
and nonqualified stock options. Most options are granted at fair market value,
except as noted below, and are for periods not to exceed 10 years.
On April 21, 1999, the Board of Directors approved the 1999 Stock Option
Plan providing for the issuance of 2,500,000 options, including both incentive
stock and non-qualified stock options.
During 1998, 40,000 options were issued to a key executive at an exercise
price of $3.50 per share. Such options were contingent upon the executive
achieving a specified target. Such options were issued
F-25
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(9) STOCK OPTIONS (CONTINUED)
when the executive achieved a specific target at the then fair value of the
Company's common stock of $3.50 per share. Accordingly, no compensation expense
was recorded.
During 1998, 402,975 options were issued to a key executive at an exercise
price of $2.00 per share, all of which were granted in 1998. Such options were
outside of the Company's Stock Option Plans and contingent upon the Company
achieving specified advertising revenue targets, as defined. For the year ended
December 31, 1998, the Company recorded deferred compensation expense of
approximately $1.1 million in the aggregate in connection with these grants,
representing the difference between the deemed fair value of the Company's stock
at the date of each grant and the $2.00 per share exercise price of the related
options. This amount is presented as a reduction of stockholders' equity
(deficit) and amortized over the three year vesting period from the achievement
of the performance targets which was concurrent with each option grant. The
Company has amortized $71,000 and $91,000 of deferred compensation for the year
ended December 31, 1998 and the three months ended March 31, 1999, respectively.
The Company will amortize the remaining deferred compensation of approximately
$934,000 as of March 31, 1999 over the remaining vesting period.
For the year ended December 31, 1997 and 1998 and for three months ended
March 31, 1998 and 1999, the Company recorded compensation expense of
approximately $52,000, $442,000, $0 and $102,000, respectively, for stock option
and warrant issuances. Such amounts include the CNET and Lycos warrants (see
notes 7 and 8).
During March 1999, certain non-bonus eligible employees were permitted to
purchase 84,380 common stock options with an exercise price of $5.00 per share.
The employees were required to pay $2.50 per share in cash for these options,
however, the cash was not received until the second quarter of 1999.
The Company applies APB No. 25 and related interpretations in accounting for
its stock options issued to employees. Under APB 25, because the exercise price
of the Company's employee stock options equals the fair value of the underlying
common stock on the date of grant, no compensation cost has been recognized for
its stock option grants to employees and directors. Had compensation cost for
the Company's stock option grants been determined based on the fair value at the
grant date for awards consistent with the method of SFAS No. 123, the Company's
net loss would have increased the pro forma amounts for each year indicated
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
----------- ------------- --------------
Net loss:
As reported..................................... $ (544,712) $ (2,995,753) $ (12,524,883)
----------- ------------- --------------
----------- ------------- --------------
Pro forma....................................... $ (704,594) $ (3,594,618) $ (14,133,630)
----------- ------------- --------------
----------- ------------- --------------
Net loss per share:
As reported..................................... $ (0.04) $ (0.21) $ (0.86)
----------- ------------- --------------
----------- ------------- --------------
Pro forma....................................... $ (0.05) $ (0.25) $ (0.97)
----------- ------------- --------------
----------- ------------- --------------
</TABLE>
F-26
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(9) STOCK OPTIONS (CONTINUED)
The resulting effect on the pro forma net loss disclosed for the year ended
December 31, 1996, 1997 and 1998 is not likely to be representative of the
effects on the net loss on a pro forma basis in future years, because the pro
forma results include the impact of only one and two years respectively, of
grants and related vesting, while subsequent years will include additional
grants and vesting.
The fair value of each option grant is estimated on the date of grant using
the Black Scholes method option-pricing model with the following weighted
average assumptions used for grants in 1996, 1997, 1998: dividend yield of zero
(0%) percent, risk-free interest rate ranging from 5.81% to 6.89% and expected
life of 10 years. As permitted under the provisions of SFAS No. 123 and based on
the historical lack of a public market for the Company's stock, no factor for
volatility has been reflected in the option pricing calculation.
A summary of the Company's stock option activity and weighted average
exercise prices is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
THREE MONTHS ENDED
1996 1997 1998 MARCH 31, 1999
----------------------- ----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of period.......... -- -- 2,195,770 $ 0.27 3,901,321 $ 0.94 6,656,296 $ 1.93
---------- ---------- ---------- ----------
Options granted................ 2,195,770 $ 0.27 2,176,130 $ 1.85 3,086,884 $ 3.18 907,045 $ 5.00
Options canceled............... -- -- (470,579) $ 0.35 (331,909) $ 1.85 (15,375) $ 4.48
---------- ---------- ---------- ----------
Options outstanding at end of
period....................... 2,195,770 $ 0.27 3,901,321 $ 0.94 6,656,296 $ 1.93 7,547,966 $ 2.30
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Options exercisable at period
end.......................... 1,429,976 2,108,028 3,230,469 3,801,016
Weighted average fair value of
options granted during the
period....................... $ 0.12 $ 0.81 $ 1.48 $ 1.99
</TABLE>
F-27
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(9) STOCK OPTIONS (CONTINUED)
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------------------------------
RANGE OF AVERAGE WEIGHTED WEIGHTED
EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------- ----------- ------------------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
0$.10-$0.20... 920,256 7.55 $ 0.11 650,255 $ 0.11
0 $.50......... 906,440 7.95 $ 0.50 779,721 $ 0.50
1 $.00......... 896,260 8.25 $ 1.00 617,057 $ 1.00
2 $.00......... 1,859,827 8.95 $ 2.00 810,755 $ 2.00
3 $.50......... 1,795,013 9.36 $ 3.50 372,087 $ 3.50
5 $.00......... 278,500 9.85 $ 5.00 594 $ 5.00
----------- ----------
6,656,296 3,230,469
----------- ----------
----------- ----------
</TABLE>
(10) INCOME TAXES
There is no provision for federal, state or local income taxes for all
periods presented, since the Company has incurred losses since inception. At
December 31, 1998, the Company had approximately $12.7 million of federal net
operating loss carryforwards available to offset future taxable income. Such
carryforwards expire in various years through 2018. The Company has recorded a
full valuation allowance against its deferred tax assets since management
believes that, after considering all the available objective evidence, it is not
more likely than not that these assets will be realized. The tax effect of
temporary differences that give rise to significant portions of federal deferred
tax assets principally consists of the Company's net operating loss
carryforward.
Under Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"), the utilization of net operating loss carryforwards may be limited
under the change in stock ownership rules of the Code. The Company has not yet
determined whether an ownership change has occurred.
F-28
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(10) INCOME TAXES (CONTINUED)
The effects of temporary differences and tax loss carryforwards that give
rise to significant portions of federal deferred tax assets and deferred tax
liabilities at December 31, 1997 and 1998 are presented below.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1997 1998
------------- -------------
Deferred tax assets:
Net operating loss carryforwards................................ $ 1,490,625 $ 6,292,415
Deferred revenues............................................... 102,442 978,578
Accounts receivable principally due to allowance for doubtful
accounts...................................................... -- 42,504
Non-cash compensation........................................... -- 48,760
Other........................................................... 38,640 61,640
------------- -------------
Gross deferred tax assets................................... 1,631,707 7,423,897
Less: valuation allowance................................... (1,625,551) (7,373,334)
------------- -------------
Net deferred tax assets................................... 6,156 50,563
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation.............................................. (6,156) (50,563)
------------- -------------
Gross deferred tax liabilities.................................. (6,156) (50,563)
------------- -------------
$ -- $ --
------------- -------------
------------- -------------
</TABLE>
(11) VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS DEDUCTIONS/ BALANCE AT END
OF YEAR AND EXPENSES WRITE-OFFS OF PERIOD
----------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
For the year ended December 31, 1996:
Allowance for doubtful accounts....................... $ -- $ -- $ -- $ --
----------- --------------- ----------- --------------
----------- --------------- ----------- --------------
For the year ended December 31, 1997:
Allowance for doubtful accounts....................... $ -- $ -- $ -- $ --
----------- --------------- ----------- --------------
----------- --------------- ----------- --------------
For the year ended December 31, 1998:
Allowance for doubtful accounts....................... $ -- $ 92,401 $ 0 $ 92,401
----------- --------------- ----------- --------------
----------- --------------- ----------- --------------
For the three months ended March 31, 1999:
Allowance for doubtful accounts (unaudited)........... $ 92,401 $ 38,089 $ 3,090 $ 127,400
----------- --------------- ----------- --------------
----------- --------------- ----------- --------------
</TABLE>
F-29
<PAGE>
MAIL.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(12) SUBSEQUENT EVENTS--UNAUDITED
In February 1999, the Company entered into an agreement with a third party
vendor to provide bulk email to the Company's members for e-commerce
opportunities and Company updates. This agreement calls for a minimum payment of
approximately $2.1 million over the life of the agreement (nineteen months). In
March 1999, the Company also entered into a consulting contract with a third
party for services related to system performance, activitation and maintenance
of a partner email site. This agreement calls for the issuance of 55,000 shares
of Class A common stock valued at $5.00 per share. During the three months ended
March 31, 1999, the Company recorded $275,000 of expense in connection with this
consulting contract.
In April 1999, the Company issued 85,150 and 15,000 stock options to certain
employees at $5.00 and $11.00 per share, respectively. The fair value of the
Company's common stock on the dates of grant was $11 per share. Accordingly, the
Company will record deferred compensation in April 1999 of approximately
$511,000 in connection with the 85,150 options granted at $5.00 per share which
will be amortized over the 4 year vesting period of the applicable options.
Also, in April 1999, select employees exercised 54,302 stock options.
On May 12, 1999, the Company entered into a non-binding commitment letter
with B.A.K. Jina International, Inc. ("BAK") to establish a strategic and
commercial relationship. Pursuant to the agreement, the Company would pay
$1,000,000 in cash and issue 80,083 shares of its Class A common stock in
exchange for a less than 20% equity interest in BAK. The Company expects to
account for such investment under the cost method. The Company anticipates that
the value of its Class A common shares issued will be the fair value of its
common stock on the earlier of the date a binding agreement is signed or the
date of issuance of the shares.
On May 17, 1999, the Company entered into a non-binding commitment with
PeopleLink, Inc. ("PeopleLink") to establish a strategic and commercial
relationship. Pursuant to the agreement, the Company would pay $1,500,000 in
cash and issue 5,684 shares of its Class A common stock in exchange for a less
than 20% interest in PeopleLink. The Company expects to account for such
investment under the cost method. The Company anticipates that the value of its
Class A common shares issued will be the fair value of its common stock on the
earlier of the date a binding agreement is signed or the date of issuance of the
shares.
F-30
<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......................................... 8,000
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............................................................................................... $ 1,146,090
------------
------------
</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.
On May 17, 1999, we entered into a non-binding commitment letter with
PeopleLink,Inc. to establish a strategic and commercial relationship. Under the
agreement, we would pay $1,500,000 cash and issue 5,684 shares of our Class A
common stock in exchange for a less than 20% equity interest in PeopeLink, 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 the date on which we enter into a binding commitment to issue the shares. The
parties also expressed the intention to enter into a co-marketing agreement.
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 April 30, 1999.......................................................... 10,183 $ 5.50
</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 April 30, 1999.......................................................... 1,007,195 $ 5.09
</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 DLJ Direct, Inc. and Mail.com, Inc. dated March 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.
</TABLE>
II-6
<PAGE>
<TABLE>
<C> <S>
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>
* To be supplied by amendment.
** 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. 2 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 25th day of May, 1999.
MAIL.COM, INC.
By: /s/ GARY MILLIN
-----------------------------------------
Name: Gary Millin
Title: President
II-8
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and/or officers of Mail.com, Inc., (the
"Company") hereby severally constitute and appoint Gerald Gorman, Chairman and
Chief Executive Officer, and Gary Millin, President and each of them
individually, with full powers of substitution and resubstitution, our true and
lawful attorneys, with full powers to them and each of them to sign for us, in
our names and in the capacities indicated below, the Registration Statement on
Form S-1 filed with the Securities and Exchange Commission, and any and all
amendments to said Registration Statement (including post-effective amendments),
and any registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, in connection with the registration under
the Securities Act of 1933, as amended, of equity securities of the Company, and
to file or cause to be filed the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as each of them might
or could do in person, and hereby ratifying and confirming all that said
attorneys, and each of them, or their substitute or substitutes, shall do or
cause to be done by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities indicated on May 25th, 1999:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ GERALD GORMAN Chairman & Chief Executive
- ------------------------------ Officer, Director May 25th, 1999
Gerald Gorman
/s/ GARY MILLIN President, Director
- ------------------------------ May 25th, 1999
Gary Millin
/s/ LON OTREMBA Chief Operating Officer,
- ------------------------------ Director May 25th, 1999
Lon Otremba
Executive Vice President &
/s/ DEBRA L. MCCLISTER Chief Financial Officer
- ------------------------------ (principal accounting and May 25th, 1999
Debra L. McClister financial officer)
/s/ CHARLES WALDEN Executive Vice President,
- ------------------------------ Technology, Director May 25th, 1999
Charles Walden
/s/ DAVID W. AMBROSIA Executive Vice President,
- ------------------------------ General Counsel May 25th, 1999
David W. Ambrosia
/s/ WILLIAM J. DONALDSON Director
- ------------------------------ May 25th, 1999
William J. Donaldson
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 DLJ Direct, Inc. and Mail.com, Inc. dated March 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>
* To be supplied by amendment.
** Filed previously.
+ Confidential treatment has been requested for portions of this exhibit.
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
Agreement dated as of May 19, 1999 between Mail.com, Inc., a Delaware
corporation (hereinafter the "Company") and David Ambrosia (hereinafter the
"Employee").
I. EMPLOYMENT: Effective on the date hereof, the Company hereby agrees to
employ Employee upon the terms and conditions set forth in this
agreement, and Employee accepts employment by Company upon the terms
and conditions set forth in this Agreement (hereinafter the
"Agreement").
II.
A. DUTIES AND POSITION: The Company employs Mr. Ambrosia as Executive
Vice President and General Counsel. The Employee will have such duties
as assigned or delegated to the Employee by the Chairman and Chief
Executive Officer.
1. REMOTE EMPLOYMENT: The Company agrees that Employee may work
from its Morristown, NJ office up to one day per week.
B. EMPLOYMENT AT WILL: Employment of Employee by Company is "at will".
Either the Employee or the Company may terminate the employment
relationship for any reason at any time upon thirty (30) days prior
written notice to the other party, subject to the provisions of this
section B.
a. COMPENSATION UPON TERMINATION: Except as otherwise provided in
this section, the Employee's compensation, and any and all
other rights of the Employee under this Agreement will
terminate upon the occurrence of any of the following events:
i. upon the death of the Employee;
ii. upon the disability of the Employee immediately upon
notice from either party to the other. Disability
shall mean the inability of the Employee, with or
without a reasonable accommodation, to perform his
duties as a result of a physical or mental illness
for a period of three (3) consecutive months;
iii. for cause, immediately upon notice from the Company
to the Employee, or at such later time as such notice
may specify. Termination for cause shall mean (i) the
willful failure by the Employee to follow directions
communicated to him by the Chief Executive Officer;
(ii) the willful engaging by the Employee in conduct
which is materially injurious to the Company,
monetarily or otherwise; (iii) a conviction of, a
plea of NOLO CONTENDERE, a guilty plea or confession
by the Employee to an act of fraud, misappropriation
or embezzlement or to a felony; (iv) the Employee's
habitual drunkenness or use of illegal substances;
(v) the material breach by the Employee of this
Agreement; or (vi) an act of gross neglect or gross
misconduct which the Company deems to be good and
sufficient cause; or
iv. Upon the mutual consent of the Parties.
b. TERMINATION OF PAY: Effective upon the termination of the
Employee's employment, the Company will be obligated to pay
the Employee such compensation as is provided in this Section.
For purposes of this section, in the event of the Employee's
death, the Employee's designated beneficiary will be such
individual beneficiary or trust, located at such address, as
<PAGE>
the Employee may designate by notice to the Company from time
to time or, if the Employee fails to give notice to the
Company of such a beneficiary, the Employee's estate.
c. TERMINATION FOR CAUSE: If the Company terminates the
Employee's employment for cause, the Employee will be entitled
to receive his Salary only through the date such termination
is effective, but will not be entitled to any Incentive
Compensation for the Fiscal Year during which such termination
occurs or any subsequent Fiscal Year.
d. TERMINATION UPON DISABILITY: If the Employee's employment is
terminated by either party as a result of the Employee's
disability, the Company will pay the Employee his Salary
through the remainder of the calendar month during which such
termination is effective and for the lesser of (A) three
consecutive months thereafter, or (B) the difference between
disability insurance benefits and full salary for six months.
If the Employee's employment is terminated by either party as
a result of the Employee's disability and the number of vested
options is less than 100,000, then such additional number of
options shall automatically vest immediately before the date
of such termination such that the total number of options
vested is equal to 100,000.
e. TERMINATION UPON DEATH: If the Employee's employment is
terminated because of the Employee's death, the Employee will
be entitled to receive his Salary through the end of the
calendar month in which his death occurs and for three (3)
consecutive months thereafter. If the Employee's employment is
terminated by reason of death and the number of vested options
is less than 100,000, then such additional number of options
shall automatically vest immediately before the date of such
termination such that the total number of options vested is
equal to 100,000.
f. TERMINATION WITHOUT CAUSE. If the Company terminates the
Employee's employment without cause, the Employee will be
entitled to receive his Salary through the end of the week in
which written notice of termination occurred and for four (4)
consecutive weeks thereafter unless termination is the result
of an acquisition, merger, consolidaton or transfer of control
subject to paragraph i below. If the Company terminates the
Employee's employment without cause (other than in
circumstances subject to paragraph i below) or executive is
terminated by reason of death or disability and the number of
vested options is less than 100,000, then such additional
number of options shall automatically vest immediately before
the date of such termination such that the total number of
options vested is equal to 100,000.
g. TERMINATION UPON THE EMPLOYEE'S RESIGNATION. If the Employee
resigns his employment, the Employee will be entitled to
receive his Salary only through the date such termination is
effective, but will not be entitled to any Incentive
Compensation for the Fiscal Year during which such termination
occurs or any subsequent Fiscal Year.
h. SHARES AND OPTIONS TERMINATION PROVISION: Under all events of
termination above the options and shares on which the Employee
has vested prior to the date of Termination shall be the
property of the Employee in accordance with the terms of the
Stock Option Agreement and Plan and shall not be revoked.
i. TERMINATION IN THE EVENT OF ACQUISITION, MERGER, CONSOLIDATION
OR TRANSFER OF CONTROL: If the Company is sold to a third
party, all outstanding options that have not been exercised in
connection with such sale will be converted into options to
purchase common stock of the purchaser having the same
remaining vesting period and similar value as determined by a
qualified independent third party. If Employee's position as
Executive Vice President and General Counsel is eliminated ,
replaced or taken over while discussions regarding
acquisition, consolidation, merger or transfer of control are
ongoing or finalized, or at any time after completion of the
transaction during the remaining vesting period of the
options, Mail.com will attempt to offer a comparable senior
executive position in Mail.com or, if Mail.com's business has
been transferred, in the successor to Mail.com's
<PAGE>
business with the same compensation, commute (to executive's
current address) and travel requirements. In the event that
Mr.Ambrosia's position at Mail.com is eliminated, replaced or
taken over in connection with an acquisition, merger,
consolidation or transfer of control, we will attempt to offer
Mr. Ambrosia a comparable senior management position with the
same compensation, commuting and travel requirements. If an
acquisition, merger, consolidation or transfer of control
occurs and Mr. Ambrosia is offered a position, Mr. Ambrosia
may elect to have an additional number of options vest solely
for purposes of exercise upon the event so that the total
number of vested options is not less than 100,000. In this
case, the additional number of options vested shall be
exercised and the shares issued on exercise or the
consideration payable upon the event in exchange for the
shares issued on exercise shall vest over the same period of
time that the related options would have vested with such
options or consideration being the first of the unvested
options to vest. Notwithstanding the foregoing, Employee will
be entitled to utilize a mechanism such as cashless exercise
or sale of shares through the Company's or the third party's
broker in order to pay the applicable exercise price and
withholding taxes in connection with the exercise of such
additional options and the receipt of such consideration. If
such an alternative position is not offered or Employee's
employment is terminated at any time before such acquisition,
merger, consolidation or transfer of control or after such
acquisition, merger, consolidation or transfer of control
during the remaining vesting period, Employee will be entitled
to a severance package equal to (i) six months Base Salary,
(ii) annual cash bonus pro rated for the portion of the year
worked and severance period and at the bonus rate in the
previous calendar year (or 20% if within the first calendar
year) and (iii) immediate vesting of 50% of executive's
remaining unvested options and other consideration that is
subject to vesting as set forth above in this paragraph i.
Notwithstanding the foregoing, if such an acquisition, merger,
consolidation or transfer of control occurs, whether by sale
of assets or sale of stock, Employee may put all vested
options (to the extent that less than 80,000 options are
vested immediately prior to the date of such sale, such
additional number of options shall automatically vest such
that the number of options vested for this purpose shall equal
80,000) to Mail.com or the purchaser at a put price equal to
the lesser of (a) $5.00 per share and (b) the amount by which
the exercise price of the options exceeds $5.00.
For all purposes hereof, all shares, share amounts, option amounts,
exercise prices, put prices and similar amounts shall be
appropriately adjusted in the event of stock splits, stock
dividends, stock combinations, recapitalizations and similar
events.
C. FULL TIME EFFORTS: Employee will devote full time and attention to the
business of Company, and, during his employment, will not engage in
any other business activity, regardless of whether such activity is
pursued for profit, gain, or other pecuniary advantage, unless
Employee receives prior written approval from Company. Employee will
use his best efforts to promote the success of the Company's business,
and will cooperate fully with the Officers and Board of Directors in
the advancement of the best interests of the Company. However,
Employee is not prohibited from making personal investments in any
other businesses, so long as those investments do not require Employee
to participate in the operation of the companies in which he or she
invests, subject to the qualifications set forth in section C1.
1. QUALIFICATIONS: Nothing in this Agreement will prevent the
Employee from engaging in additional activities in connection with
personal investments and businesses that are not inconsistent with
and which do not detract from the Employee's duties under this
Agreement.
D. SALARY: The Employee shall be paid an annual salary of one hundred
eighty thousand dollars ($180,000) (the "Salary"), subject to
adjustment as provided below, which shall be payable in equal periodic
installments according to the Company's customary payroll practices,
but no less frequently than monthly, commencing on the Effective Date.
The Salary will be reviewed by the Chief Executive Officer and
Compensation Committee of the Board of Directors not less
<PAGE>
frequently than annually (from date of hire), and may be adjusted
upward or downward in their sole discretion.
E. INCENTIVE COMPENSATION: As additional compensation for the services to
be rendered by the Employee pursuant to this Agreement, the Employee
shall be entitled to receive a bonus with respect to each Fiscal Year,
ranging between 15% and 30% of Salary, payable in cash, on such date
as determined by the Compensation Committee of the Board of Directors,
and which amount shall be determined by the Chief Executive Officer
and approved by the Compensation Committee of the Board of Directors
(the "Incentive Compensation").
F. STOCK OPTIONS AND ADDITIONAL INCENTIVE COMPENSATION: The Company shall
grant to the Employee on the date hereof options to acquire 250,000
shares of Class A common stock at an exercise price equal to the
lesser of $11.00 per share and the price per share in the Company's
initial public offering (the "Exercise Price"). The options will
expire in 10 years and will vest quarterly in equal amounts over the
first three years, provided that additional options shall vest in
advance of this schedule under the circumstances described in Section
B hereof. The form of option agreement shall contain provisions to
facilitate the payment of the exercise price and withholding taxes
upon exercise, such as cashless exercise or sale of shares through the
Company's broker. In addition to the foregoing options and the
Incentive Compensation, the Company agrees to consider granting
additional options to the Employee in the future to purchase
additional shares of Class A Common Stock in the same manner as
additional grants may be given to other employees of the Company, i.e.
as part of a bonus, etc. Any additional option grants shall be
approved by the Compensation Committee of the Board of Directors.
G. EXERCISE OF OPTIONS: Each of the options may be exercised by the
Employee, in whole or in part, from time to time after the date
hereof, commencing and prior to the termination of the options in
accordance with the terms of the Stock Option Agreement.
H. BENEFITS: The Employee shall be entitled to participate in such
pension, profit sharing, bonus, life insurance, hospitalization, major
medical, and other employee benefit plans of the Company that may be
in effect from time to time, to the extent the Employee is eligible
under the terms of those plans (collectively, the "Benefits").
I. PAID TIME OFF: The Employee will be entitled to paid time off in
accordance with the provisions of the Company's Comprehensive Paid
Time Off Plan, but shall be eligible for a minimum of 3 weeks
vacation. The Employee will also be entitled to all company designated
holidays.
J. COMPANY RULES AND REGULATIONS: Employee agrees to review and abide by
all Company rules and regulations set forth in the Company Employee
Handbook, a copy of which shall be made available to Employee.
II. CONFIDENTIALITY: Company and its Affiliates hold certain trade, business,
and financial secrets in connection with the business. The nature of
services provided by the Company requires information to be handled in a
private, confidential manner. Throughout the Employee's employment there
may be disclosed to the Employee certain trade secrets, confidential
information and proprietary data.
A. EMPLOYEE CONFIDENTIALITY AGREEMENT: Employee agrees that all knowledge
and information Employee gains from the trade secrets, confidential
information and proprietary information, which are revealed to
Employee shall for all time be regarded as strictly confidential, are
and shall remain the sole and confidential property of the Company.
The Company shall be entitled to restrain Employee from disclosing any
trade secret or other confidential information, or from rendering any
services to any entity to whom this information has been or is
threatened to be disclosed. The right to an injunction is not
exclusive, and the Company may pursue any other remedies it has
against Employee for a breach or threatened breach of this condition,
including the recovery of damages. Employee will only reveal or
disclose the trade secrets to another person,
<PAGE>
firm, corporation, company or entity if the Company instructs Employee
to do so in writing. This secrecy protection will continue even after
Employee's dismissal by the Company. Employee acknowledges that if
Employee reveals the trade secrets to unauthorized persons Employee
may be penalized and sued for injunctive relief and money damages as
well as face possible criminal charges by Company.
B. CONFIDENTIALITY AFTER TERMINATION OF EMPLOYMENT: Employee agrees
that during and after termination of employment, Employee shall not use
for employee or others, or disclose or divulge to others, any trade
secrets, confidential information, or any other data of the Company in
violation of this agreement. Upon terminating employment with the
Company:
1. Employee shall return to the Company all documents and property
pertaining to the Company, including but not limited to: drawings,
blueprints, records, reports, manuals, correspondence, customer
lists, computer programs, inventions, and all other materials and
all copies thereof relating in any way to the Company's business,
or in any way obtained by Employee during employment. Employee
further agrees that Employee shall not retain any copies or
reproductions of the foregoing.
2. The Company may notify any future or prospective the Company of
this agreement.
C. DEFINITIONS: The definition of trade secrets, confidential information
and proprietary information includes but is not limited to:
1. TECHNICAL INFORMATION: Methods, processes, formulae, compositions,
systems, techniques, inventions, machines, computer programs and
research projects, unpatented inventions, designs, know-how, trade
secrets, technical information and data, specifications,
blueprints, transparencies, test data, and additions,
modifications, and improvements thereon which are revealed to
Employee.
2. GENERAL BUSINESS INFORMATION: Customer lists, pricing data,
sources of supply, marketing, production, or merchandising systems
or plans, documents, financial statements, quotes, correspondence.
3. "REDIRECT BUSINESS" shall mean any business based on or with a
focus on value-added email services or Email and URL, redirect
services, or that derives revenues from the sale of Email or URL
redirect services. Value added email services include but are not
limited to email to fax/pager technologies and email redirection
enhancements.
4. "BROKER/AGENT BUSINESS" shall mean any business that sells
Internet assets, including secondary domain name rights, and IP
address rights.
5. "NEW TLD BUSINESS" shall mean a business that registers new top
level domain names.
6. INDUSTRY SPECIFIC INFORMATION: Information regarding the Redirect
Business, the Broker/Agent Business, New TLD Business or the
Company's business methods. The Company's user payment data, user
demographic data, and user account information. The Company's
business policies, procedures, techniques, trade secrets, patents,
processes, formulas, research, intellectual property or other
knowledge developed by the Company.
7. OTHER MATERIALS: Information, including without limitation data
processing reports, customer sales analyses, invoices, price lists
or information, samples, any other materials, data or software of
any kind furnished to Employee by the Company or developed by
Employee on behalf of the Company or for the Company's use or
otherwise in connection with Employee's employment hereunder, or
any other data that could be used by third parties to the
disadvantage of the Company.
<PAGE>
III. INTELLECTUAL PROPERTY
A. AGREEMENT ON INVENTIONS AND PATENTS: Employee agrees that Employee
shall promptly provide the Company a complete record of any and all
inventions and improvements, whether patentable or not, which Employee,
solely or jointly, may conceive, make, or first disclose during said
employment. Employee agrees to the following:
1. Employee hereby grants, assigns and delivers to the Company, or
its nominee, Employee's entire right, title, and interest in and
to all inventions and improvements made, developed or created by
the Employee (whether at the request or the suggestion of the
Company or otherwise, whether alone or in conjunction with
others, and whether during working hours of work or otherwise)
during his employment with the Company that relate in any way to
the actual or anticipated business or activities of the Company,
or its Affiliates, or that are suggested by or result from any
task or work for or on behalf of the Company or its Affiliates,
together with any and all domestic and foreign patent rights in
such inventions and improvements. To assist the Company or its
nominee in securing patents thereto, Employee agrees promptly to
do all lawful and reasonable things both during and after
employment, without additional compensation, but at the Company's
expense.
2. Employee agrees that, upon accepting employment with any
organization in competition with the Company or its Affiliates
during a two year period following termination of employment
Employee shall notify the Company in writing within thirty days of
the name and address of such new company. Such notice is required
regardless of whether Employees believes they will be employed in
competition with the business of the Company.
3. Employee agrees to give the Company timely written notice of any
prior employment agreements or patent rights that may conflict
with the interests of the Company or its Affiliates.
B. AGREEMENT ON PROPRIETARY RIGHTS: Employee acknowledges that
Employee may have the Company and industry related ideas and
suggestions, which the Company may consider for commercial
exploitation. Employee understands that the Company cannot accept such
suggestions in confidence. Employee therefore agrees to submit any
suggestions to the Company under the following conditions:
1. The Company's review of Employee's suggestions is made only upon
Employee's request, and the Company accepts no responsibility for
holding any submitted information in confidence.
2. No obligation of any kind is assumed nor may be implied against
the Company unless or until Employee has entered into a formal
written contract with the Company pertaining to Employee's
submissions. In addition, any obligation shall be only such as is
expressed in writing.
3. Neither the Company nor any of its Affiliates shall have any
rights under any patents Employee now has nor may later obtain for
Employee's submissions covered by this Agreement, but, in
consideration of the Company examining and considering same,
Employee hereby releases the Company from any liability in
connection with Employee's submissions or from liability because
of the Company's use of Employee's submissions or of any portion
thereof, except such liability as may accrue under valid patents
now or hereafter issued.
4. Subject to these conditions, Employee certifies that no prior
disclosure to the Company or any of its Affiliates regarding
these submissions has been made and that the entire disclosure
now made by Employee to the Company is included with this
Agreement and submitted for retention by the Company. If, at any
time, Employee corresponds with or discuss submissions with an
officer, employee, agent or representative of the Company and, in
the course of such correspondence or discussion, makes any
additional disclosures regarding such submissions,
<PAGE>
Employee shall, upon request, furnish the Company an illustration
or a complete description, or both, of such additional
disclosure, so that it can be made a part of the permanent record
of the Company.
IV. NON-COMPETITION: Employee hereby acknowledges that the Company shall or may
in reliance of this agreement provide Employee access to trade secrets,
customers and accounts, and other confidential or propriety information,
and that this agreement is reasonably necessary to protect the Company.
A. NON-COMPETITION AGREEMENT: For good consideration and as an inducement
for the Company to employ Employee, Employee hereby agrees not to directly
or indirectly compete with the business of the Company during the period of
employment and for a period of two years thereafter following termination
of employment and notwithstanding the cause or reason for termination,
unless the Company ceases operations.
1. EXCEPTIONS: Any exceptions to this policy must be with the Company's
written prior consent. Employee acknowledges that money damages may not
be sufficient remedy for any breach of this agreement and agrees that
the Company will be entitled to seek specific performance and
injunctive or other equitable relief for any such breach.
2. DEFINITIONS: The term "not compete" shall mean that:
a. Employee shall not, on Employee's behalf or on behalf of any other
party, solicit or seek the business of any customer or account of
the Company existing during the term of employment and wherein
said solicitation involves a product and/or service substantially
similar to or competitive with any present or future product
and/or service of the Company.
b. Employee shall not directly or indirectly own, operate, consult to
or be employed by any firm in a business substantially similar to
or competitive with the present business of the Company or such
business activity in which the Company may engage during the term
of employment.
c. Employee shall not to be involved, directly or indirectly, in the
Redirect Business, the the Broker/Agent Business, New TLD
Business, and other new company businesses while employed by the
Company and will not be involved, directly or indirectly, nor have
a financial interest in, the Redirect Business, the Broker/Agent
Business, New TLD Business and other new company businesses.
d. Employee shall not directly or indirectly solicit the Company's
customers, vendors, subcontractors, or prospects with services or
products of the nature of those being sold by the Company.
V. CONFLICT OF INTEREST: Employee acknowledges that neither Employee, nor any
other business to which Employee may be associated, nor, to the best of
Employee's knowledge, any member of Employee's immediate family, has any
conflict between Employee's personal affairs or interests and the proper
performance of Employee's responsibilities for the Company that would
constitute a conflict of interest with the Company. Furthermore, Employee
declares that during employment, Employee shall continue to maintain avoid
any conflict with the Company's interests.
VI. DOMAIN NAME REGISTRATION: Employee agrees that while working for the
Company, Employee will give the Company the right of first refusal on any
Domain names that Employee intends on registering or purchasing. To the
extent that the Company does not act to register the Domain name then
Employee can register the Domain name after seven days from notifying the
Company of Employee's intent. Employee cannot use these Domain names for
any business while working for the Company and then is bound by the
non-compete restrictions.
VII. GENERAL CONTRACT TERMS
<PAGE>
A. SURVIVAL AND BREACH: Both parties recognize that the services to be
rendered under this Agreement by the Employee are special, unique and
extraordinary in character, and that in the event of a breach or a
threatened by Employee of the terms and conditions of the Agreement to
be performed by him, then the Company shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of
competent jurisdiction, either in law or in equity, to obtain damages
for any breach of this Agreement, or to enforce the specific
performance thereof by the Employee. Without limiting the generality
of the foregoing, the parties acknowledge that a breach by the
Employee of his obligations under Sections II, III or IV or would
cause the Company irreparable harm, that no adequate remedy at law
would be available in respect thereof and that therefore the Company
would be entitled to injunctive relief with respect thereto. Employee
affirms having the opportunity to fully discuss and negotiate the
covenants set forth in Sections II, III and IV and acknowledges
understanding and acceptance. If any part of this covenant is declared
invalid, then Employee agrees to be bound by a covenant as near to the
original as lawfully possible. The covenants set forth in Sections II,
III, and IV shall survive the term and termination of employment.
Employee shall further be liable for all costs of enforcement.
B. LIMITED EFFECT OF WAIVER OF BREACH BY THE COMPANY. If the Company
waives a breach of any provision of this agreement by Employee, that
waiver will not operate or be construed as a waiver of any succeeding
breach by Employee. No waiver of a right by the Company constitutes a
waiver of any other right of the Company, and temporary waiver by the
Company does not constitute a permanent waiver or any additional
temporary waiver.
C. EFFECT OF PRIOR AGREEMENT: This agreement supersedes any prior
agreement between the Company or any predecessor of the Company and
Employee, except that this Agreement shall not affect or operate to
reduce any benefit or compensation inuring to Employee of a kind
elsewhere provided and not expressly provided in this Agreement.
D. SETTLEMENT BY ARBITRATION: Any claim or controversy that arises out of
or relates to this Agreement, or the breach thereof, will be settled by
arbitration in the office nearest the Company in accordance with the
prevailing rules of the American Arbitration Association. Judgment upon
the award rendered may be entered in any court possessing jurisdiction
of arbitration awards. The Company shall be liable for all legal costs
of any such arbitration proceedings or legal proceedings relating to
this agreement.
E. SEVERABILITY: If for any reason any portion of this Agreement and the
covenants herein are declared invalid, this agreement and the covenants
herein shall continue in effect as if the invalid portion had never
been part hereof, and the other portions of this Agreement and the
covenants herein will remain in effect, insofar as is consistent with
the governing laws.
F. INDEMNIFICATION: The Company shall defend and hold harmless employee
from all actions against such employee that occur as a result of the
business operations.
G. INVALIDITY: If this agreement is held invalid or cannot be enforced,
then to the full extent permitted by the governing laws any prior
agreement between the Company (or any predecessor thereof) and Employee
will be deemed reinstated as if this Agreement had not been executed.
H. ASSUMPTION OF AGREEMENT: The rights and obligations under this
Agreement will inure to the benefit and be binding upon the parties,
their successors, heirs, assigns and personal representatives.
I. ORAL MODIFICATIONS NOT BINDING: This instrument is the entire
agreement. Oral changes will have no effect. This Agreement and the
covenants herein may be altered only by a written agreement signed by
the party against whom enforcement of any waiver, change, modification,
extension, or discharge is sought.
<PAGE>
J. GOVERNING LAW: This Agreement and the covenants herein shall be
governed and interpreted under the laws of the State of New York.
K. FULL DISCLOSURE: The Company and Employee know of no restrictions on
their ability to complete this Agreement
In Witness Whereof, the parties have executed this Agreement as of the
date first written above.
MAIL.COM, INC.
By
-----------------------
Gerald Gorman
Chairman and Chief
Executive Officer
EMPLOYEE
-----------------------
David Ambrosia
<PAGE>
Exhibit 10.36
Omitted information, for which "x" characters have been substituted herein,
has been omitted pursuant to a request for confidential treatment and such
information has been filed separately with the office of the Secretary of the
Securities and Exchange Commission.
C O N F I D E N T I A L
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AGREEMENT BETWEEN CNET: THE COMPUTER NETWORK AND GLOBECOMM, INC.
This agreement (the "Agreement") is made this 13th day of May, 1998 ("Effective
Date") by and between CNET, Inc., a Delaware corporation with its principal
place of business at 150 Chestnut St., San Francisco CA 94111 ("CNET"),
GlobeComm, Inc., a Delaware corporation having its principal place of business
at 11 Broadway, Suite 660, New York, NY 10004 (" iName").
1. OVERVIEW
1.1 CNET operates several technology-focused web sites (the
"Redball Sites") including but not limited to cnet.com,
news.com, download.com, shareware.com, browsers.com,
computers.com, search.com, and gamecenter.com. CNET also
operates a search/aggregation service called Snap! Online
("Snap") that exists in both a default version, currently
located at http://home.snap.com ("Default Snap Version"), as
well as Snap versions built for partners such as Sprint and
Compaq (collectively, "Partner Snap Versions"). The Redball
Sites and the Default Snap Version are referred to as the
"CNET Sites."
1.2 iName owns the URL email.com. iName will stop offering
email.com as a paid "vanity" email address to new users,
either directly or via iName partners, and will refund monies
already collected from existing users at the email.com domain
name provided such users request refunds. iName and CNET will
jointly develop a Snap-branded email service to be located at
http://www.email.com. ("EMAIL.COM"). iName will host, operate,
and maintain EMAIL.COM. CNET will promote EMAIL.COM, and point
to EMAIL.COM from the Redball Sites and the Default Snap
Version. iName will also develop co-branded versions of an
Email service for Snap partners as specified herein provided
the economic terms are acceptable to iName.
1.3 Up to a certain number of EMAIL.COM users ("Users"), iName
will retain all revenue generated from EMAIL.COM, and CNET
will receive equity in iName in return for driving new Users
to EMAIL.COM. Above such number of Users, iName and CNET will
share in the net profit generated by such additional Users.
iName will also grant CNET certain stock options and board
representation.
As of 05/14/99 Page 1 of 20
<PAGE>
C O N F I D E N T I A L
- --------------------------------------------------------------------------------
2.0 PRODUCT DEVELOPMENT
2.1 DEVELOPMENT OF EMAIL.COM. CNET and iName will cooperate in the
development of EMAIL.COM as follows:
2.1.1 The user interface, "look and feel", and flow of the
user experience within EMAIL.COM (collectively the
"User Interface") will be determined by CNET ,
subject to iName's reasonable technical guidelines
and restrictions. iName will implement the User
Interface at its own expense (except for adjustments
made by CNET through the API), with the exception of
graphical elements, which will be provided by CNET at
its own expense. CNET and iName will develop mutually
agreeable processes to make changes to the User
Interface on an on-going basis. As soon as possible,
iName will make available to CNET an API,
documentation, and training so that CNET can make
adjustments to the User Interface without iName's
assistance. The capabilities of such API will be
subject to iName's reasonable technical guidelines
and restrictions.
2.1.2 The User Interface will include the following
branding and attribution for iName: the Powered by
iName logo as updated from time to time to be placed
prominently on all pages of the EMAIL.COM site.
2.1.3 iName will work closely with CNET to ensure a
seamless user experience as Users travel between the
CNET Sites and the EMAIL.COM site.
2.2 FEATURE SET OF EMAIL.COM.
2.2.1 On the Launch Date, Users will be offered the
features described on Exhibit A, separated into
no-charge features and pay features as indicated.
2.2.2 Users of EMAIL.COM will be offered new features as
early as they become available to any other iName
user (whether a direct user or a user of an OEM
version of iName's services), on terms no less
favorable than those offered to other users of such
services on other iName partner sites (unless pricing
discounts are paid for by the partner) or on the
iName site directly. New features currently under
development include, but are not limited to, email
storage, email to fax, email to pager, email virus
scanning, email vacation notices, and ability to send
to multiple addresses. Pricing for any new features
and services will be mutually agreed upon prior to
making them available to Users. CNET may, in its sole
discretion, decline to offer a new feature or service
to its Users.
As of 05/14/99 Page 2 of 20
<PAGE>
C O N F I D E N T I A L
- --------------------------------------------------------------------------------
2.2.3 CNET and iName will jointly develop any required
integration or "middleware" software ("Integration
Software") that enables a visitor to a Redball Site
or Snap to (a) see whether s/he has email waiting,
(b) see the number of emails waiting, and (c) check
his or her mail (provided the User has selected a
web-based email service). The division of
responsibility for developing Integration Software
will be based on how closely tied a particular aspect
of integration is to each party's software systems,
and will be mutually agreed upon. CNET will also have
full access to a log-in portal which can be linked to
from any page or placed directly on any page allowing
Users to access their email service from any CNET
Site.
2.3 DEVELOPMENT OF EMAIL SERVICES FOR PARTNER SNAP VERSIONS. iName
will build co-branded Web sites offering email services
similar to EMAIL.COM ("Co-Branded Sites") for Partner Snap
Versions as requested by CNET and the applicable Snap partner
to the extent that the applicable Snap partner would rather
offer email services through Snap rather than directly with
iName. iName will build Co-Branded Sites within 30 days after
receiving a request from CNET with respect to a particular
Partner Snap Version and agreeing on the partnership economic
terms. Additional time may be taken to develop the Co-Branded
site if the Snap Partner is slow in providing feedback on the
Co-Branded Site or if additional custom work is required other
than what iName normally provides in a Co-Branded Site. The
specific Snap partners for whom Co-Branded Sites will be built
do not need to be determined by the launch date of EMAIL.COM
and can be added or changed at any time during the Term.
3. INAME COMMITMENTS:
3.1 OPERATION. iName will host, operate, and maintain EMAIL.COM.
iName will use commercially reasonable efforts to regularly
back-up and otherwise protect all User Data and iName Software
(as defined below) used in connection with EMAIL.COM.
3.2 CONTRACTUAL RESPONSIBILITY. iName shall enter into direct
contractual relationships with EMAIL.COM Users for the
provision of email services. iName shall be solely responsible
for the billing and collection of revenues. iName shall ensure
in its terms and conditions that Users understand that iName,
and not CNET, is responsible for all obligations with respect
to the maintenance of email addresses and for the support of
other EMAIL.COM services. CNET and iName will cooperate to
ensure consistency between these
As of 05/14/99 Page 3 of 20
<PAGE>
C O N F I D E N T I A L
- --------------------------------------------------------------------------------
contractual relationships and any applicable CNET end user
license agreements.
3.4 CUSTOMER SUPPORT. iName shall be solely responsible for
providing support services to Users and CNET personnel as
described in Exhibit B.
3.5 DEMOGRAPHIC DATA. At least monthly, iName shall provide CNET
with name, address and other registration information and
demographic data for each User that registers for email
services through EMAIL.COM (the "DEMOGRAPHIC Data"). At CNET's
request with reasonable notice, iName will add or remove
questions regarding demographics to the sign-up procedure
presented to Users.
DEMOGRAPHIC DATA Is a subset of data that iName has on the
EMAIL.COM users. User Data shall mean all the information that
iName has regarding the EMAIL.COM users that such Users have
given to iName including but not limited to the Demographic
Data, address book data, payment data, and emails stored data.
CNET must approve any disclosure of the User Data by iName to
any third party and any communications with or to Users
initiated by iName, except for (i) communications related
solely to member news and promotion of member services, (ii)
billing reminders and statements, (iii) email ads in incoming
User emails except for the advertiser exceptions in Section
5.3 and unless User has elected to upgrade service to
eliminate such ads and (iv) User-initiated customer support
issues. Nothing in the foregoing precludes iName from selling
targeted advertising to groups of Users based on User
demographic profiles for such groups. iName will adhere to
CNET's reasonable editorial/spamming standards and policies
with respect to the User Data.
3.6 SNAP LINKS. CNET will develop a customized version of Snap for
iName, and iName will place a launchpad for its customized
version of Snap on iName's primary email site. iName shall
place such launchpad as described in this Section within 90
days after the launch of EMAIL.COM. CNET will pay iName xx% of
the Net Revenue generated from this traffic. CNET and iName
will enter into a standard Snap distribution agreement to
govern the development, operation and promotion of this
customized version of Snap and the related revenue sharing
arrangements.
3.7 iName will refund any monies owed to current subscribers of
the email.com domain name for monies they have paid for use of
the email.com domain name as requested by users. iName will
take steps to remove the email.com domain name from the list
of addresses offered to new users who sign up for email
services on the iName site or the email sites of other iName
partners.
As of 05/14/99 Page 4 of 20
<PAGE>
C O N F I D E N T I A L
- --------------------------------------------------------------------------------
4.0 CNET COMMITMENTS
4.1 LINKS ON CNET SITES. CNET shall place a Prominent Link to
EMAIL.COM on the front page of the Default Snap Site and on
the navigation bars (or reasonable equivalent) of Redball
Sites other than Search.com accounting for at least 80% of the
traffic of all Redball Sites other than Search.com (measured
on a trailing three month basis) CNET shall place such
Prominent Link for a minimum of three years or until a total
of 4 million subscribers have signed up for EMAIL.COM service,
after which time CNET may provide these links at CNET's
discretion, provided that if the links are not provided then
CNET's right to collect Gross Profit from Excess Users as
described in Section 6.3 will terminate. Provided the 80%
criteria is met, CNET will not be required to display links to
EMAIL.COM in any situation where such links would be
prohibited by an agreement entered into in the ordinary course
of business between CNET and a third party. CNET will not have
links to the EMAIL.COM service on the Search.com site except
for typical banner ads rotated on the site unless both iName
and CNET mutually agree to have such links on the Search.com
site. Other than for agreements with Hotmail or its
successors, CNET will not promote or advertise competitor
email services during the first three years of the
relationship, but iName acknowledges that this limitation will
not prevent CNET from displaying promotions for companies that
own or are otherwise affiliated with competitive email
services, as long as such promotions do not relate to email
services. For the purpose of this section 4.1 a Prominent Link
is defined as a link equal or greater in prominence than the
average prominence CNET gives to its other services including
news.com, download.com, shareware.com, browsers.com,
computers.com, search.com, and gamecenter.com.
4.2 ALTERNATE LINKS AND PROMOTIONS. CNET, at its discretion, may
provide other links to EMAIL.COM and run promotions for
EMAIL.COM, including but not limited to contest prizes;
special events; ticket inserts; coupons; game announcements;
television, radio, newspaper and direct-mail advertising;
press releases; and/or user correspondence.
5.0 ECONOMIC TERMS
5.1 GENERAL. iName is responsible for all development, hosting,
operational, support and maintenance costs associated with the
operation of EMAIL.COM, including without limitation the
provision of email services to Users, procuring system
operating software and hardware, assuming all network and
bandwidth costs and providing customer support (online
support, telephone support and 7-day email support), except as
expressly provided in Section 2.1.1 with respect to graphic
elements of the User Interface and in Section 2.2.3 with
respect to the Integration Software.
As of 05/14/99 Page 5 of 20
<PAGE>
C O N F I D E N T I A L
- --------------------------------------------------------------------------------
5.2 PROMOTIONS. Except as otherwise provided below, iName will
retain all revenue from, and will manage the sales effort with
respect to, the following types of promotions related to
EMAIL.COM (the "Promotions"): (a) banner advertisements on
EMAIL.COM, (b) portals and other non-banner promotions on
EMAIL.COM, (c) banners, links and other advertising embedded
within User emails, and (d) subscription and pay services such
as POP mail, mail to fax, etc. CNET and iName will mutually
agree on the availability of and restrictions on Promotions
other than banner advertisements. In selling Promotions, iName
will comply with all of CNET's reasonable advertising
guidelines (including the prohibition on advertising for
pornographic sites and tobacco products). iName will make
reasonable efforts to sell the Promotions and will be
responsible for delivering the Promotions and for related
billing and collecting services. Notwithstanding the
foregoing, iName will cooperate with CNET in a commercially
reasonable manner with respect to any opportunities that CNET
may have to create or sell additional Promotions.
5.3 COMPETITIVE AD BLOCKING.
5.3.1 iName agrees not to display Promotions for any Users
signing up at the EMAIL.COM site for any technology
content competitors of CNET, including but not
limited to Ziff-Davis, CMP, IDG, and Wired.
5.3.2 iName agrees not to display Promotions for any Users
signing up at the EMAIL.COM site for any launchpad
competitors of Snap, including but not limited to
Yahoo, Excite, Infoseek, Lycos, Planet Direct,
Microsoft Start, Netscape Netcenter, AOL, Looksmart,
and HotBot.
5.4 RIGHT TO AUDIT. iName agrees to allow an independent auditor
selected by CNET to perform quarterly audits of iName's
records to determine compliance or non-compliance with iName's
obligations under this Agreement, provided that any
individuals conducting the audit and CNET agree not to not
disclose any confidential information revealed in the course
of the audit. Any audit shall be conducted during regular
business hours at iName's offices and shall not unreasonably
interfere with iName's business activities. Audits may be
performed no more frequently than quarterly and CNET shall
give iName at least thirty (30) days' prior written notice of
each audit.
6. EQUITY OWNERSHIP AND SALE OF THE COMPANY.
6.1 EQUITY OWNERSHIP. iName will grant CNET shares of iName's
Class A common stock (the "Common Stock") as follows:
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6.1.1 0.625 shares of Common Stock for each of the first
two million (2,000,000) Users who complete a
subscription to the EMAIL.COM service prior to
December 31, 1999; and
6.1.2 0.25 shares of Common Stock for each User who
completes a subscription to the EMAIL.COM service,
beginning with the number of Users subscribed under
section 6.1.1 and ending with User number four
million (4,000,000) or on December 31, 2000 whichever
comes first.
6.1.3 CNET and iName agree that if either party
subsequently desires to restructure the equity
allocation to achieve more favorable tax or
accounting treatment the other party will cooperate
in such restructuring provided its interests are not
materially adversely affected.
6.2 ISSUANCE OF SHARES. Within 30 days after the end of each month
during the Term, iName will deliver to CNET a certificate
evidencing the shares of Common Stock earned during such month
under Section 6.1, along with a statement showing the
calculation of such number. The parties acknowledge that the
valuation of the Common Stock to be issued under Section 6.1
is speculative and uncertain. Accordingly, the parties agree
that, absent other persuasive evidence of value, any Common
Stock issued under Section 6.1 during 1998 or 1999 will be
valued at eight dollars ($8.00) per share and any Common Stock
issued under Section 6.1 thereafter will be valued at ten
dollars ($10.00) per share. Any persuasive evidence of value
that changes the value of iName Common Stock either higher or
lower does not impact the share per sign-up payment described
in Section 6.1 or the option grant described in Section 6.4.
All shares of Common Stock issued to CNET pursuant to Section
6.1 are referred to as the "Earned Shares." Nothing in this
Agreement prohibits iName from issuing options or selling
stock at prices other than those above.
6.3 PAYMENTS TO CNET. iName will pay CNET xx% of the Profit earned
from EMAIL.COM as follows:
6.3.1 "Excess Users" are Users who subscribe for the
EMAIL.COM service except for Users for which CNET has
received shares in accordance with Section 6.1 and
except for Users signing up at the site during time
periods when CNET is not providing links as described
in Section 4.1.
6.3.2 "Sharing Percentage" for a particular month means the
number of Excess Users at the end of such month as a
percentage of the total number of Users at the end of
such month.
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6.3.3 "Total Revenue" means the total money collected by
iName from the EMAIL.COM service, including without
limitation any money collected from the Promotions,
less refunds.
6.3.4 "Allocated Expenses" means the expenses incurred by
iName to generate the Total Revenue, which includes
(i) any direct costs such as hardware, bandwidth, and
customer service and (ii) any pro rata allocation of
overhead items such as general and administrative
expenses, sales expenses, research and development,
marketing, depreciation and amortization, etc. which
reasonably benefited the Email.com service. Such pro
rata allocation of overhead items will be made in
proportion to the EMAIL.COM Users as a fraction of
the total iName users across its network of iName and
partner sites. CNET has the right to audit the
allocation of overhead items on an annual basis and
iName will reasonably adjust the allocation in
accordance with the audit.
6.3.5 The "Profit" earned from the Excess Users for a
particular month means (a) the Sharing Percentage for
such month, times (b) Total Revenue for such month
minus Allocated Expenses for such month.
6.3.6 Within 30 days after the end of each month during the
Term, iName will pay CNET xx% of the Profit earned
from Excess Users for such month, along with a
statement showing the calculation of such amount.
6.4 OPTION GRANT. Upon 250,000 Users completing subscriptions for
the Email.com Service, iName shall grant CNET an option to
purchase up to 750,000 additional shares of Common Stock at a
purchase price of eight dollars ($8.00) per share, if the
option is exercised on or prior to September 30, 1998, and ten
dollars ($10.00) per share thereafter. This option will expire
on the earlier of (a) December 31, 1999 or (b) the closing of
a firm commitment, underwritten public offering of Common
Stock by iName. In the event iName plans a public offering of
its stock, it will advise CNET no less than 30 days prior to
filing an S-1 with the SEC. CNET must decide if it plans to
exercise its option at least 7 days prior to the SEC filing,
in which case its payment will be placed into escrow pending
the closing of offering, and the option will be exercised at
such closing.
6.5 BOARD SEAT. As soon as CNET owns more than one million
(1,000,000) shares of iName Common Stock, CNET will be
entitled to designate one member of iName's Board of
Directors. Such right will terminate thereafter if (i) CNET
reduces its stock position to less than 500,000
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shares of iName stock, or (ii) CNET commences the development
of a competing email technology.
6.6 NOTICE OF FUNDRAISING ACTIVITIES. iName will notify CNET if it
intends to raise capital through the sale of equity or debt
securities. iName agrees to permit CNET to participate in any
such financing, pro rata to its then current stock holdings in
iName, so long as its payment is in the same form as the other
investors and subject to the prior consent of iName's existing
investors on the date of this Agreement (the "Existing
Investors"), to the extent the Existing Investors have the
right to require such consent, and subject to any rights of
first refusal in favor of the Existing Investors. iName will
not grant consent rights or rights of first refusal to any
investors other than the Existing Investors that are
inconsistent with CNET's rights under this paragraph.
6.7 NOTICE OF INTENT TO SELL INAME. iName will notify CNET if the
Board of Directors of iName elects to sell iName or if iName
receives an unsolicited offer to buy iName which the Board of
Directors of iName believes is reasonable.
7. TERM AND TERMINATION RIGHTS
7.1 TERM. The term of this Agreement (the "Term") will continue
until the Agreement is terminated in accordance with one of
the other provisions of this Section 7.
7.2 Termination by CNET for Cause. CNET shall have the right, in
addition and without prejudice to any other rights or
remedies, to terminate this Agreement as follows:
7.2.1 Immediately upon notice to iName, such notice to be
given no later than 30 days after expiration of the
cure period below, if iName commits any material
breach of this Agreement other than a breach as a
result of a force majeure event (i.e. outside of the
reasonable control of iName) and does not remedy such
breach, where such breach could be reasonably
remedied, within 30 days after receipt by iName of
notice specifying the breach and requiring its
remedy; or
7.2.2 Immediately upon notice to iName if (a) all or a
substantial portion of the assets of iName are
transferred to an assignee for the benefit of
creditors, to a receiver or to a trustee in
bankruptcy, (b) a proceeding is commenced by or
against iName for relief under bankruptcy or similar
laws and such proceeding is not dismissed within 60
days, or (c) iName is adjudged bankrupt; or
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7.2.3 Immediately upon notice to iName, such notice to be
given no later than 30 days after expiration of the
cure period below, if one of the following conditions
occurs and such condition is not cured within 30 days
after receipt by iName of notice specifying the
breach and requiring its remedy: (i) the
Unavailability of Email services through EMAIL.COM,
defined as the inability of Users to access the
member area of the EMAIL.COM site excluding scheduled
outages, exceeds 5% during any calendar month (or, if
in a cure period, time in a week); (ii) the Relative
EMAIL.COM Site Perfomance, defined as the ratio of
(a) time in the month (or, if in a cure period, time
in a week) that Users at EMAIL.COM are unable to
access the member area of EMAIL.COM and (b) time in
the month (or, if in a cure period, time in a week)
that all other members of iName partner email sites
are unable to access the member areas of those sites,
is less than 90%; or (iii) during any consecutive
three months (or, if in a cure period, one week), the
average response time to download the complete HTML
and graphics for the "check mail" page of the
EMAIL.COM web email client exceeds two times the
average download time for the equivalent page of the
top three providers of HTML mail, where (a) the top
three providers of HTML mail will be determined by
the number of users, (b) response time will be
measured by an independent third party such as
Keynote (or its equivalent), and (c)the test will be
based on the download of the same email; or
7.2.4 Immediately upon notice to iName if iName (a) has
publicly announced that it is discontinuing, or (b)
has discontinued for 30 consecutive days, its
business that is directed to the development, sale
and operation of Internet sites offering email
services.
7.3 CONSEQUENCES OF TERMINATION UNDER SECTION 7.2. If this
Agreement is terminated by CNET pursuant to Section 7.2, then:
7.3.1 iName will transfer all rights in the domain name
email.com to CNET.
7.3.2 iName will transfer all User Data for Users at the
email.com domain name (Email.com User Data), in a
format and on a timetable reasonably acceptable to
CNET, and all rights in the Email.com User Data and
such base of subscribed Users to CNET or to CNET's
designee. Following such transfer, CNET will have the
unrestricted right to use all Email.com User Data,
and iName will have no right to use any Email.com
User Data without CNET's express, written consent.
CNET will reimburse iName for its reasonable costs
related to transferring such Email.com User Data.
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7.3.3 iName will cooperate in good faith with CNET or its
designee to ensure an orderly and expeditious
transfer of Email.com User Data from iName to CNET or
its designee. CNET acknowledges that iName will not
be required to develop any new software code to
assist in the transfer process. Both parties
anticipate that the transfer will be completed, and
that CNET will be in a position to launch a successor
email service, within three months after termination
(the "Completed Transition"). Until the Completed
Transition, the terms of this Agreement, as then in
effect, will apply to the continued operation of the
EMAIL.COM site.
7.3.4 Within ten days after the Completed Transition, CNET
will comply with the one of the following two
paragraphs that provides the greatest value to iName
(iName and CNET acknowledge that this amount is
reasonable in liquidated damages and not as a penalty
in the event of termination under this section.):
7.3.4.1 pay iName an amount in cash equal to 100% of
the fair market value of the Email.com User
Data, based on the projected economic
benefit to iName of such Users for their
expected economic life, as determined, prior
to the transfer of the Email.com User Data,
by a reasonably qualified, independent third
party mutually acceptable to CNET and iName
(the "Appraised User Value"), or, at CNET's
option (but only if CNET is still a publicly
traded company), issue to iName CNET common
stock having a fair market value (based on
the average closing price over a ten day
period preceding the date of issuance) equal
to such amount; or
7.3.4.2 transfer back to iName all of the Earned
Shares for no consideration or, at CNET's
option, pay iName the fair market value of
the Earned Shares, as determined by a
reasonably qualified, independent third
party mutually acceptable to CNET and iName
(the "Appraised Stock Value").
7.3.5 CNET's option to acquire 750,000 shares of GlobeComm
stock will expire or be reversed if not exercised 1
month prior to CNET's notice of termination.
7.4 TERMINATION BY CNET UPON CHANGE IN CONTROL. CNET shall have
the right, in addition and without prejudice to any other
rights or remedies, to terminate this Agreement upon ten days'
notice to iName, which may be delivered at any time within
nine months after a controlling interest in iName is purchased
or otherwise transferred to any one or more of the
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following parties: Yahoo, Excite, Infoseek, Lycos, Planet
Direct, Microsoft, Netscape, AOL, Looksmart, HotBot,
Altavista, Ziff-Davis, CMP, IDG, or Wired or any of their
respective affiliates or successors.
7.5 CONSEQUENCES OF TERMINATION UNDER SECTION 7.4. If this
Agreement is terminated by CNET pursuant to Section 7.4, then:
7.5.1 iName will transfer all rights in the domain name
email.com to CNET.
7.5.2 iName will transfer all Email.com User Data, in a
format and on a timetable reasonably acceptable to
CNET, and all rights in the Email.com User Data and
such base of subscribed Users to CNET or to CNET's
designee. Following such transfer, CNET will have the
unrestricted right to use all Email.com User Data,
and iName will have no right to use any Email.com
User Data without CNET's express, written consent.
CNET will reimburse iName for its reasonable costs
related to transferring such Email.com User Data.
7.5.3 iName will cooperate in good faith with CNET or its
designee to ensure an orderly and expeditious
transfer of Email.com User Data from iName to CNET or
its designee. CNET acknowledges that iName will not
be required to develop any new software code to
assist in the transfer process. Both parties
anticipate that the Completed Transition will be
completed within three months after termination.
Until the Completed Transition, the terms of this
Agreement, as then in effect, will apply to the
continued operation of the EMAIL.COM site.
7.5.4 Within ten days after the Completed Transition, CNET
will pay iName $5 million for the email.com domain
name and CNET will comply with the one of the
following two paragraphs that provides the greatest
value to iName (iName and CNET acknowledge that this
amount is reasonable in liquidated damages and not as
a penalty in the event of termination under this
section.):
7.5.4.1 pay iName an amount in cash equal to 100% of
the Appraised User Value or, at CNET's
option (but only if CNET is still a
publicaly traded company), issue to iName
CNET common stock having a fair market value
(based on the average closing price over a
ten day period preceding the date of
issuance) equal to such amount; or
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7.5.4.2 transfer back to iName all of the Earned
Shares for no consideration or, at CNET's
option, pay iName the Appraised Stock Value
of the Earned Shares.
7.5.5 iName will have the right to terminate or reverse
CNET's option to acquire 750,000 shares of GlobeComm
if not exercised 1 month prior to CNET's notice of
termination.
7.6 TERMINATION BY CNET FOR CONVENIENCE. CNET shall have the right
to terminate this Agreement for any reason (or for no reason)
upon thirty days' notice to iName, which may be delivered at
any time after the third anniversary of the date of this
Agreement.
7.7 CONSEQUENCES OF TERMINATION UNDER SECTION 7.6. If this
Agreement is terminated by CNET pursuant to Section 7.6:
7.7.1 iName will transfer all rights in the domain name
email.com to CNET.
7.7.2 iName will transfer all Email.com User Data, in a
format and on a timetable reasonably acceptable to
CNET, and all rights in the Email.com User Data and
such base of subscribed Users to CNET or to CNET's
designee. Following such transfer, CNET will have the
unrestricted right to use all Email.com User Data,
and iName will have no right to use any Email.com
User Data without CNET's express, written consent.
CNET will reimburse iName for its reasonable costs
related to transferring such Email.com User Data
7.7.3 iName will cooperate in good faith with CNET or its
designee to ensure an orderly and expeditious
transfer of Email.com User Data from iName to CNET or
its designee. CNET acknowledges that iName will not
be required to develop any new software code to
assist in the transfer process. Both parties
anticipate that the Completed Transition will be
completed within three months after termination.
Until the Completed Transition, the terms of this
Agreement, as then in effect, will apply to the
continued operation of the EMAIL.COM site.
7.7.4 Within ten days after the Completed Transition, CNET
will:
7.7.4.1 pay iName an amount in cash equal to the
greater of $5 million or 120% of the
Appraised User Value or, at CNET's option
(but only if CNET is still a publically
traded company), issue to iName CNET common
stock having a fair market value (based on
the average closing
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price over a ten day period preceding the
date of issuance) equal to such amount
(iName and CNET acknowledge that this amount
is reasonable in liquidated damages and not
as a penalty in the event of termination
under this section.); and
7.7.4.2 transfer back to iName all of the Earned
Shares for no consideration or, at CNET's
option, pay iName the Appraised Stock Value
of the Earned Shares.
7.7.5 iName will have the right to terminate CNET's option
to acquire 750,000 shares of GlobeComm stock if not
exercised 1 month prior to CNET's notice of
termination.
7.8 TERMINATION BY INAME FOR CAUSE. iName shall have the right, in
addition and without prejudice to any other rights or
remedies, to terminate this Agreement as follows:
7.8.1 Immediately upon notice to CNET, such notice to be
given no later than 30 days after expiration of the
cure period below, if CNET commits any material
breach of this Agreement other than a breach as a
result of a force majeure event (i.e. outside of the
reasonable control of CNET) and does not remedy such
breach, where such breach could be reasonably
remedied, within 30 days after receipt by CNET of
notice specifying the breach and requiring its
remedy; or
7.8.2 Immediately upon notice to CNET if (a) all or a
substantial portion of the assets of CNET are
transferred to an assignee for the benefit of
creditors, to a receiver or to a trustee in
bankruptcy, (b) a proceeding is commenced by or
against CNET for relief under bankruptcy or similar
laws and such proceeding is not dismissed within 60
days, or (c) CNET is adjudged bankrupt.
7.9 CONSEQUENCES OF TERMINATION UNDER SECTION 7.8. If this
agreement is terminated by iName pursuant to Section 7.8, then
(a) iName will thereafter have exclusive right to all User
Data and the economic benefit of such Users for their economic
life, and the full ownership and right to use the URL
EMAIL.COM without any restriction; (b) CNET will transfer back
to iName all of the Earned Shares for no consideration; and
(c) iName will have the right to terminate or reverse CNET's
option to acquire 750,000 shares of GlobeComm stock if not
exercised 1 month prior to iName's notice of termination.
7.10 OWNERSHIP OF SOFTWARE UPON TERMINATION. Each party will retain
ownership of the software and User Interface designs it
develops, with the
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exception of Integration Software (as defined in Section
2.2.3), which both parties will have an unlimited license to
use and develop.
7.11 SOFTWARE ESCROW. At CNET's request, iName will deliver into
escrow a current copy of all software source code and
documentation used in connection with the operation and
maintenance of EMAIL.COM, excluding any software readily
available from third parties or developed and owned by CNET
(the "iName Software"). CNET will choose the escrow agent,
which must be reasonably acceptable to iName, and the
retention and release of the iName Software will be governed
by an escrow agreement reasonably acceptable to both parties.
The escrow agreement will provide for the release of the iName
Software from escrow to CNET upon termination of the Agreement
by CNET pursuant to Section 7.2 (Termination by CNET for
Cause) or if iName materially breaches its obligation to
cooperate with the transfer of Email.com User Data pursuant to
Sections 7.3.3, 7.5.3 or 7.7.3. Upon release, CNET will have a
royalty-free license solely to use the iName Software in
operating email services located at EMAIL.COM, and such
license will continue (a) for 12 months, if the termination
occurs pursuant to Section 7.2.1 (Termination for Breach) or
7.2.3 (Termination for Non-Performance), or (b) indefinitely,
if the termination occurs pursuant to Section 7.2.2
(Termination for Bankruptcy) or 7.2.4 (Termination for
Discontinuing). Following the initial creation of the escrow
for the iName Software, iName will update the escrowed source
code and documentation at least four times each year until
termination of the Agreement. CNET will pay the cost of
escrowing the iName Software hereunder.
8. MISCELLANEOUS.
8.1 TAG ALONG AND DRAG ALONG PROVISIONS : Until such time as iName
completes an initial public offering CNET will have the right
to tag along, on a pro rata basis in proportion to the shares
then owned by CNET, on any sales of iName equity securities by
the majority holders (any stock holder holding iName capital
stock greater than 10%) of iName. In the event iName wishes to
sell the majority of the iName stock it has the right to
require CNET to sell a pro rata share of its equity interests
in iName on the same terms as the sale of the majority stock.
8.2 PUBLICITY. Advance approval must be obtained by either party
from the other party prior to the dissemination of any pubic
relations information concerning any Information (as defined
below).
8.3 CONFIDENTIALITY. In the course of performing services pursuant
to this Agreement, iName and CNET will be given access to
certain confidential and/or proprietary information and trade
secrets relating to the other party's computer systems, World
Wide Web sites, publications, business operations, strategic
plans and other confidential matters, including the
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terms of this Agreement (the "Information"). Such Information
is of a highly sensitive nature, is a special, valuable and
unique asset of the businesses of CNET and iName,
respectively, and its improper use would be materially
damaging to CNET and iName, respectively. Each party and its
employees will hold in strict confidence and trust all data,
records and materials relating to or incorporating Information
owned by the other party and will not use Information owned by
the other party except as contemplated by this Agreement. Each
party will not disclose the Information to any of its
employees except those with a need to know for the purpose of
performing the above-referenced services.
8.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement, and supersedes any and all prior agreements,
between iName and CNET related to the subject matter of this
Agreement. This Agreement may be amended only by a writing
signed by both parties.
8.5 EXECUTION BY FACSIMILE. An executed copy of this Agreement
transmitted via facsimile by the executing party and received
via facsimile by the other party shall have the same legal
force as an executed original version of this Agreement.
8.6 REPRESENTATIONS AND WARRANTIES; INDEMNITIES
8.6.1 iName represents and warrants to CNET that it has all
necessary rights, including intellectual property
rights, to enter into and perform under this
Agreement and to operate EMAIL.COM as contemplated
hereby. iName shall indemnify, defend and hold CNET
harmless from any and all losses, claims, damages,
liabilities, costs and expenses (including reasonable
attorneys' fees) resulting from or arising out of (i)
any breach of this Agreement, including the foregoing
representations and warranties, (ii) iName's
publication or distribution of any content on
EMAIL.COM or the Co-Branded Sites, (iii) any claims
related to the provision of services by iName through
EMAIL.COM or the Co-Branded Sites, and (iv) any
claims of intellectual property infringement related
to the iName Software, EMAIL.COM or the Co-Branded
Sites. CNET shall notify iName promptly of any such
claim or litigation, and shall cooperate with iName
in every reasonable way, to facilitate the defense of
such claim or litigation. iName shall not be
responsible for attorneys' fees or settlements
incurred directly by CNET after CNET obtained
knowledge of iName's failure and before CNET notified
iName of same and gave iName reasonable time to
correct such failures where reasonably feasible.
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CNET represents and warrants to iName that it has all
necessary rights, including intellectual property
rights, to enter into and perform under this
Agreement. CNET will indemnify, defend and hold
harmless iName from any claims, losses, damages,
liabilities, costs and expenses (including reasonable
attorneys' fees) resulting from or arising out of (i)
any breach of this Agreement, including the foregoing
representations and warranties, or (ii) CNET's
publication or distribution of any content on the
CNET Sites. iName shall notify CNET promptly of any
such claim or litigation, and shall cooperate with
CNET in every reasonable way, to facilitate the
defense of such claim or litigation. CNET shall not
be responsible for attorneys' fees or settlements
incurred directly by iName after iName obtained
knowledge of CNET's failure and before iName notified
CNET of same and gave CNET reasonable time to correct
such failures where reasonably feasible.
8.6.2 CNET is acquiring the iName Common Stock for
investment only and not with a view towards,
intention of, or in connection with, any resale or
distribution of such Common Stock or any interest
therein.
8.6.3 CNET understands that the iName Common Stock to be
issued to it will not have been registered under the
Securities Act of 1933, as amended (the "Securities
Act"), or any state securities law by reason of
specific exemptions under the provisions thereof
which depend in part upon the other representations
and warranties made by CNET in this Agreement. CNET
understands that iName is relying upon CNET'
representation and warranties for the purpose of
determining whether this transaction meets the
requirements for such exemptions. CNET is an
"accredited investor" as defined in Rule 501
promulgated under the Securities Act.
8.6.4 CNET has made, either alone or together with its
advisors, such independent investigation of iName,
its management and related matters as CNET deems to
be, or such advisors have advised to be, necessary or
advisable in connection with an investment in the
iName Common Stock through the transactions
contemplated by this Agreement; and CNET and advisors
have received all information and data that CNET and
such advisors believe to be necessary in order to
reach an informed decision as to the advisability of
an investment in the iName Common Stock pursuant to
the transactions contemplated by this Agreement.
8.6.5 CNET understands that the iName Common will be
"restricted securities" under applicable federal
securities laws and that the Securities Act and the
rules of the Securities and Exchange
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Commission promulgated thereunder provide in
substance that CNET may dispose of such Common Stock
only pursuant to an effective registration statement
under the Securities Act or an exemption from
registration if available. CNET further understands
that iName has no obligation or intention to register
the sale of any of the Common Stock of the iName
Common Stock to be received by CNET in the
transactions contemplated hereby, or take any other
action so as to permit sales pursuant to, the
Securities Act. Accordingly, CNET understands that
CNET may dispose of such Common Stock only in
transactions which are of a type exempt from
registration under the Securities Act, including,
without limitation, a "private placement," in which
event the transferee will acquire such Common Stock
as "restricted securities" and subject to the same
limitations as in the hands of CNET. CNET further
understands that applicable state securities laws may
impose additional constraints upon the sale of
securities. As a consequence, CNET understands that
CNET may have to bear the economic risk of an
investment in the iName Common Stock to be received
by CNET pursuant to the transactions contemplated
hereby for an indefinite period of time.
8.6.6 The certificate(s) evidencing the iName Common Stock
to be issued pursuant to the transactions
contemplated hereby shall bear the following legend:
"The Common Stock represented by this certificate have not
been registered under the Securities Act of 1933, as amended,
or any state securities laws and may not be sold or
transferred in the absence of such registration or an
exemption therefrom under the Securities Act of 1933, as
amended, and applicable state securities laws."
"The shares represented by this certificate are subject to the
terms and conditions provided in an Agreement between CNET and
GlobeComm dated as of the Effective Date a copy of which is on
file with the Secretary of the Corporation. 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."
8.6.7 iName represents that the Earned Shares, when issued
in accordance with this Agreement, will be validly
issued, fully paid and nonassessable. iName further
represents that the information attached as Exhibit C
with respect to the capitalization of iName and the
current valuation of the Common Stock does not
include any misstatement of a
As of 05/14/99 Page 18 of 20
<PAGE>
C O N F I D E N T I A L
- --------------------------------------------------------------------------------
material fact or omit to state any material fact
necessary to make the statements therein not
misleading.
8.6.8 Except for the representations and warranties
contained herein, CNET makes no express or implied
representations or warranties.
8.7 EXCLUSION OF CONSEQUENTIAL DAMAGES. NEITHER PARTY WILL BE
LIABLE HEREUNDER FOR ANY INDIRECT, CONSEQUENTIAL OR PUNITIVE
DAMAGES RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY, REGARDLESS OF WHETHER SUCH PARTY HAS BEEN
INFORMED OF THE POSSIBILITY OF SUCH DAMAGES.
8.8 RELATIONSHIP. The relationship between CNET and iName created
by this Agreement is that of independent contractor. Nothing
in this Agreement shall be construed to make either party the
partner, agent, employee or representative of the other or
grant any third party any rights hereunder. Neither party has
authority to make any warranties or incur any liabilities or
obligations on behalf of or binding on the other party.
8.9 ASSIGNMENT. At some point during the Term, CNET may decide to
transfer its business operations and assets related to Snap to
a new entity. In such event, the new entity will be entitled
to all of CNET' s rights hereunder, and subject to CNET's
obligations, as they relate to Snap. iName may not assign this
Agreement without CNET's prior written approval, such approval
to not be unreasonably withheld or delayed.
8.10 APPLICABLE LAW. This Agreement will be construed in accordance
with and governed by the laws of the State of California,
without regard to principles of conflicts of law.
As of 05/14/99 Page 19 of 20
<PAGE>
C O N F I D E N T I A L
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the Effective Date.
GLOBECOMM, INC. CNET, INC.
By: /s/ Gary Millin By: /s/ Tom Melcher
------------------------------- -------------------------------
Name: Gary Millin Name: Tom Melcher
----------------------------- -----------------------------
Title: President Title: General Manager
---------------------------- ----------------------------
Date: 5/13/98 Date: 6/1/98
----------------------------- -----------------------------
As of 05/14/99 Page 20 of 20
<PAGE>
Exhibit 10.37
June 16, 1998
iName, Inc.
11 Broadway, Suite 660
New York, NY 10004
Attention: Gerry Gorman
RE: Agreement between CNET: The Computer Network ("CNET") and GlobeComm, Inc.,
which is now known as iName ("iName"), dated as of May 13, 1998 (the
"Agreement")
Dear Gerry:
As we have discussed, CNET and National Broadcasting Company, Inc. ("NBC") have
agreed to form a separate joint venture entity to operate the Snap! Internet
portal service ("Snap"), which is currently operated as a division of CNET.
Initially, the joint venture will be owned 81% by CNET and 19% by NBC
Multimedia, Inc., which is wholly-owned subsidiary of NBC, but NBC will have an
option to acquire majority ownership of the joint venture. Needless to say, we
are excited about our partnership with NBC and about the prospects for Snap
under its new ownership.
Legally, our transaction with NBC will involve the creation of a limited
liability company, Snap! LLC (the "LLC"), and a contribution of Snap assets from
CNET into the LLC. This transaction is expected to close on or around June 30,
1998 (the "Closing"). Because our Agreement with iName (which is referenced
above) relates both to Snap assets and to CNET assets that are not related to
Snap, it will be necessary to amend the Agreement in connection with the
Closing.
Accordingly, iName, CNET and the LLC hereby agree to amend the Agreement as set
forth below, effective upon the Closing. Capitalized terms used in this letter
that are not otherwise defined have the meanings given to such terms in the
Agreement.
1. The LLC will become a party to the Agreement, and references in the
Agreement to "CNET" will be deemed to refer to CNET and/or the LLC, as
appropriate based on their respective operations. Each of CNET and the LLC
will be severally liable for the obligations of "CNET" under the Agreement
to the extent applicable to their respective sites. For ease of
administration, the LLC will make all decisions and elections on behalf of
both CNET and the LLC, and iName may relay on any notice received from the
LLC, which will be binding on both CNET and the LLC.
2. Each User who first accesses EMAIL.COM through a link from any CNET Site
other than Snap will be tagged (using a method mutually agreeable to the
LLC and iName) as a "CNET User," and each User who first enters EMAIL.COM
through a link from any version of Snap will be tagged as a "Snap User."
3. Earned Shares of Common Stock issued pursuant to Section 6.1 of the
Agreement with respect to any month will be allocated between CNET and the
LLC based on the ratio of (a) CNET Users who subscribe to the EMAIL.COM
service during such month to (b) Snap Users who subscribe to the EMAIL.COM
service during such month.
4. Payments under Section 6.3.6 of the Agreement with respect to Profits from
Excess Users during any month will be allocated between CNET and the LLC
based on the ratio of (a) the Profit earned during such month from Excess
Users who are CNET Users to (b) the Profit earned during such month from
Excess Users who are Snap Users.
<PAGE>
June 16, 1998
Page 2
5. The option to purchase up to 750,000 additional shares of Common Stock
described in Section 6.4 of the Agreement will be allocated between CNET
and the LLC based on the ratio of (a) the number of CNET Users who are
among the first 4,000,000 Users to subscribe to the EMAIL.COM service to
(b) the number of Snap Users who are among the first 4,000,000 Users to
subscribe to the EMAIL.COM service, calculated as of the date of exercise
of such option
6. This letter constitutes an amendment to the Agreement to the extent
necessary to effectuate the foregoing. Except as otherwise expressly
provided in this letter, the Agreement will remain in full force and effect
in accordance with its terms.
The parties acknowledge and agree that it will be advisable to negotiate two
separate agreements, one between iName and CNET and the other between iName and
the LLC, as soon as reasonably practicable following the Closing, and the
parties agree to negotiate reasonably and in good faith with respect to such
agreements. The two new agreements will replace the existing Agreement (as
amended hereby) and will preserve the material business relationship
contemplated by the Agreement, while addressing in more detail the specific
allocation of rights and obligations (including without limitation termination
rights and obligations) between CNET and the LLC, as appropriate to reflect
their respective business operations and interests in subject matter of the
Agreement
Please sign this letter in the space provided below to indicate your agreement
with the foregoing and fax a copy of the signed letter to me at (415) 395-9330.
If you have any question, please do not hesitate to contact me at (415)
395-7805, extension 4144. We look forward to our continued business
relationship.
Very truly yours,
CNET, INC.
By:
------------------------------
Tom Melcher,
General Manager, Snap!
SNAP! LLC
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Consented and Agreed:
GLOBECOMM, INC.
By: /s/ G. Gorman
------------------------------
Name: G. Gorman
Title: Chairman
Date: 6/18/98
<PAGE>
Exhibit 10.38
February 8, 1999
Edmond Sanctis
Snap!
Tom Melcher
CNET: The Computer Network
Peg Murphy
NBC Multimedia, Inc.
Dear Edmond, Tom, and Peg:
RE: Agreement between CNET: The Computer Network ("CNET"), NBC
Multimedia, Inc. ("NBC"), Snap! Internet portal service
("Snap"), and Mail.com, Inc.("Mail.com"), dated as of
February 8, 1999 (the "Agreement")
As we have discussed, section 2.3 of the `Agreement between CNET: The
Computer Network and GlobeComm, Inc' dated May 13, 1998 ("Original Agreement")
(exhibit 1) provided for additional versions of email.com for Snap Partners to
the extent requested by Snap and such Snap Partner and to the extent all parties
involved agree on the partnership economic terms. Subsequent to the May 13, 1998
agreement Mail.com and CNET entered into an agreement to make Snap an
independent party to the May 13, 1998 agreement.
The terms of an Agreement between NBC and Mail.com dated December 23,
1998 provide that certain third party approvals may be required prior to
completing a formal agreement. The terms in this letter agreement describe the
terms by which Mail.com, Snap, CNET and NBC approve the Agreement between NBC
and Mail.com and terms by which all parties agree to make a version of email.com
for NBC-IN and NBC.com and detail the mechanism by which NBC.Com, Snap, and CNET
will launch the site (exhibit 2) and be allocated shares and profits from
email.com users.
1. Each User who first accesses the email.com service through a
link from any NBC.com and NBC-IN site will be tagged as an NBC.com or NBC-IN
user respectively (collectively "NBC User") (using a method which gives such
user a Partner ID), similar to the way email.com tags a user signing up from the
CNET Site or Snap Site as a CNET User or Snap User.
2. Earned Shares of Common Stock issued pursuant to Section 6.1
of the Original Agreement with respect to any month will be allocated between
CNET, Snap, and NBC based on the following ratios:
(i) CNET shall be allocated the amount based on the ratio
of CNET Users who subscribe to the EMAIL.COM service during
such month divided by the sum of CNET Users, Snap Users and
NBC Users that sign up during such month.
(ii) Snap shall be allocated the amount based on the ratio
of Snap Users who subscribe to the EMAIL.COM service during
such month divided by the sum of CNET Users, Snap Users and
NBC Users that sign up during such month.
<PAGE>
(iii) NBC shall be allocated the amount based on the ratio
of NBC Users who subscribe to the EMAIL.COM service during
such month divided by the sum of CNET Users, Snap Users and
NBC Users that sign up during such month.
(iv) Additional shares corresponding to other Users (as
used herein "Other Users" means Users not defined in paragraph
1) to be granted to CNET and Snap per the letter dated January
14 (Exhibit 3).
3. Payments under Section 6.3.6 of the Original Agreement with
respect to Profits from Excess Users during any month will be allocated between
CNET, Snap and NBC based on the ratio the Profit earned during such month from
Excess Users who are CNET Users, Snap Users and NBC Users as follows:
(i) CNET shall be allocated the amount based on the ratio
of CNET Excess Users who have subscribed to the EMAIL.COM at
the end of such month divided by the sum of CNET Excess Users,
Snap Excess Users and NBC Excess Users at such time.
(ii) Snap shall be allocated the amount based on the ratio
of Snap Excess Users who have subscribed to the EMAIL.COM at
the end of such month divided by the sum of CNET Excess Users,
Snap Excess Users and NBC Excess Users at such time.
(iii) NBC shall be allocated the amount based on the ratio
of NBC Excess Users who have subscribed to the EMAIL.COM at
the end of such month divided by the sum of CNET Excess Users,
Snap Excess Users and NBC Excess Users at such time.
(iv) Additional profits corresponding to other Excess
Others Users to be allocated to CNET and Snap per the letter
dated January 14 (Exhibit 3).
5. This letter constitutes an amendment to the Agreement to the
extent necessary to effectuate the foregoing. Except as otherwise expressly
provided in this letter, the Agreement will remain in full force and effect in
accordance with its terms.
All parties shall sign this letter in the space provided below to
indicate their agreement with the foregoing.
Very truly yours,
Mail.com, Inc.
By: /s/ Gary Millin
--------------------------------
Gary Millin
President
Consented and Agreed: Gary Millin
MAIL.COM, INC. CNET, INC.
By: /s/ Gary Millin By: /s/ Tom Melcher
-------------------------------- --------------------------------
Name: Gary Millin Name: Tom Melcher
------------------------------ ------------------------------
Title: President Title: EVP
----------------------------- -----------------------------
Date: 2/8/99 Date: 3/22/99
------------------------------ ------------------------------
SNAP! LLC NBC, INC.
By: /s/ Edmond Sanotis By: /s/ Robert Meyer
-------------------------------- --------------------------------
Name: Edmond Sanotis Name: Robert Meyer
------------------------------ ------------------------------
Title: C.O.O. Title: SVP
----------------------------- -----------------------------
Date: 4/30/99 Date: 2/16/99
------------------------------ ------------------------------
<PAGE>
Exhibit 1. Section 2.3 of the Agreement between CNET: The Computer Network and
GlobeComm, Inc.
AGREEMENT BETWEEN CNET: THE COMPUTER NETWORK AND GLOBECOMM, INC.
This agreement (the "Agreement") is made this 13th day of May, 1998 ("Effective
Date") by and between CNET, Inc., a Delaware corporation with its principal
place of business at 150 Chestnut St., San Francisco CA 94111 ("CNET"),
GlobeComm, Inc., a Delaware corporation having its principal place of business
at 11 Broadway, Suite 660, New York, NY 10004 (" Mail.com").
...2.3 DEVELOPMENT OF EMAIL SERVICES FOR PARTNER SNAP VERSIOns. Mail.com will
build co-branded Web sites offering email services similar to EMAIL.COM
("Co-Branded Sites") for Partner Snap Versions as requested by CNET and the
applicable Snap partner to the extent that the applicable Snap partner would
rather offer email services through Snap rather than directly with Mail.com.
Mail.com will build Co-Branded Sites within 30 days after receiving a request
from CNET with respect to a particular Partner Snap Version and agreeing on the
partnership economic terms. Additional time may be taken to develop the
Co-Branded site if the Snap Partner is slow in providing feedback on the
Co-Branded Site or if additional custom work is required other than what
Mail.com normally provides in a Co-Branded Site. The specific Snap partners for
whom Co-Branded Sites will be built do not need to be determined by the launch
date of EMAIL.COM and can be added or changed at any time during the Term.
<PAGE>
Exhibit 2: Launch Detail
The exisiting capability that Snap and Mail.com have for adding additional
versions of email.com including a version of email.com for NBC.com and NBC-IN
includes the following:
(i) Partner Group ID: Mail.com can tag a user that signs
up from NBC.com and NBC-IN as a NBC.com User and NBC-IN User
and will store such Partner Group ID along with the users
record.
(ii) Mail.com can report sign-ups by Partner Group ID so
that Snap, NBC.com, NBC-IN, and CNET will know how many
customers they signed up each month and in total.
(iii) Snap will control the first step of sign-up and each
member that signs up for and email.com email address from
NBC.com and NBC-IN will automatically become a member of Snap.
(iv) Depending on Snap, the first step of sign-up can have
some customized content depending on whether the user signed
up from NBC.com and NBC-IN.
(v) The branding of the NBC.com and NBC-IN email service
will be the email.com branding. NBC.com and NBC-IN will be
added as snap editions such that the Snap navigation bar links
on the NBC.com and NBC-IN email service will link back to the
appropriate NBC.com and NBC-IN edition.
After execution, Mail.com will put together a project plan to launch additional
capabilities that have been requested by NBC includes the following:
(i) Mail.com will develop a capability such that it can
track and report page views based on Partner Group ID in
addition to reporting sign-ups from Partner Group ID.
(ii) Mail.com will develop the capability such that after
a user logs into their email service, Mail.com can show an
additional graphic logo provided by NBC that can be branded
for NBC.com or NBC-IN based on the user's Partner Group ID.
This graphic can include a link chosen by NBC.
(iii) NBC has requested the ability to put graphic up on
the NBC.com and NBC-IN websites to the extent that an NBC.com
and NBC-IN user receives an email. This capability was
developed by Mail.com for Snap and is currently used by Snap.
There is a small amount of work which must be done by NBC to
offer this capability. Snap and Mail.com will work with NBC to
explain what needs to be done such that NBC can launch the
"you have mail" indicator. After NBC launches this indicator,
it will work on the NBC sites and the Snap sites for all users
of email.com regardless of where they originally signed up
from.
<PAGE>
Exhibit 10.39
Omitted information, for which "x" characters have been substituted herein,
has been omitted pursuant to a request for confidential treatment and such
information has been filed separately with the office of the Secretary of the
Securities and Exchange Commission.
NBC/MAIL.COM
AGREEMENT
This Agreement, dated as of February 8, 1998, is made and entered into between
Mail.com, Inc. ("Mail.com") and NBC Multimedia, Inc. ("NBC"). NBC and Mail.com
agree that this Agreement will serve as the binding agreement of the parties
with respect to the matters herein set forth, and the parties hereto will use
their good faith efforts to complete the issuance of the Common Stock (defined
in Section 4.2 below). This Agreement supercedes any prior Agreement and
understanding between the parties.
The following sets forth the general terms and conditions of the proposed
arrangement:
1. NBC.COM
a) FREE E-MAIL PROVIDER: Mail.com will be the provider of a free e-mail
("NBC email") service for NBC's NBC.com world wide web site and,
subject to the approval of Mail.com (which may be withheld in the sole
discretion of Mail.com), any other world wide web site operated or
controlled by NBC on which NBC chooses, in its sole discretion, to
place such services (collectively, "NBC.com").
b) INCLUSION OF MAIL.COM ON NBC.COM. The NBC email service will be located
on an independent world wide web site which will be created, maintained
and operated by Mail.com pursuant to the terms hereof. The base URL for
the location of such NBC email service shall be HTTP://WWW.EMAIL.COM
and may include other tags such that the appropriate NBC branding can
be displayed. The URL shall direct users to servers operated and
maintained by Mail.com during the term of the agreement for such
purposes but users shall have the ability to link back to NBC.com. The
site containing such NBC-branded services will be accessible through
both (i) above the fold links (i.e., on the first screen visible to
users) on the NBC.com home page for the first year of the NBC.com
Agreement and anywhere on the NBC.com home page thereafter (e.g., it
may be placed below the fold on the home page) and (ii) links (above
the fold for the first year of the NBC.com Agreement) on the home page
of any NBC.com entertainment show sub-sites on which NBC chooses, in
its sole discretion, to include the NBC e-mail service, and which is
acceptable to Mail.com
c) BRANDING. The site containing the NBC email service shall be branded
similar to Snap's email.com branding but shall also include a specific
NBC branded logo provided by NBC at NBC's sole discretion which shall
be linked back to the NBC site . The homepage of NBC.com will have a
"free email" button viewable in a 640 by 480 browser window, and
NBC.com shall also include free email as part of the navigation bar of
the site where appropriate. Upon clicking the free email link a user
will be sent to page with the branding of "NBC email by email.com". An
"email.com" logo mention will occur at the bottom of each page of the
NBC branded email site. The usage of the NBC email service provided by
Mail.com will be tracked by Mail.com for record keeping purposes and
such records will be made available to NBC upon its reasonable request.
Mail.com will provide NBC with a quarterly report of such usage which
report will contain data in the form reasonably agreed upon by the
parties. In addition, Mail.com will provide any other data and
statistics regarding usage and users of the NBC branded email area of
Mail.com which NBC reasonably requests from time to time, provided,
that NBC will make commercially reasonable efforts to make no more than
one such additional request for information per month. NBC also agrees
that at a minimum Mail.com will receive comparable or better branding
than other NBC partners providing comparable business terms.
d) GENERAL FEATURES: The NBC email service shall have have comparable
features that Mail.com makes makes available to any other Mail.com
customer or user from a comparable Mail.com partner, unless otherwise
agreed by Mail.com and NBC. NBC shall have final approval of all
aspects of the NBC email service.
e) UNIVERSAL REGISTRATION: In order to offer a universal service among all
NBC affiliated groups including, NBC.com, NBC-IN, NBC/Snap, all users
that sign up through NBC.com email or NBC-IN email will be
automatically registered for services at NBC/Snap. To provide this
level of functionality, Mail.com will control
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<PAGE>
the full email service except the first step of signup which will be
branded exactly the same as the rest of the NBC.com site but will be
hosted on NBC/Snap's server. Full universal registration includes the
ability for NBC to add "you have mail" icons on the NBC page to
indicate that an NBC.com User has received an email that they have not
yet moved from their mailbox into the web client or retrieved with
their POP client.
f) USAGE CONDITIONS: Use of the NBC email service by users of the NBC.com
site shall be subject to Mail.com's standard terms and conditions for
other Mail.com users, which terms and conditions shall be accessible by
hyperlink from one or more Email Pages and NBC's general standard terms
and conditions for NBC.com as well as any terms and conditions for use
of the NBC email which NBC may develop from time to time. The parties
agree that Mail.com will be responsible for affirmatively responding to
any complaints from NBC or elsewhere that a user is not in compliance
with all such terms and conditions, but NBC may, but shall not be
obligated to, respond to such a complaint and cause Mail.com to (i)
suspend any particular user's NBC email usage.
g) CUSTOMER SERVICE: Mail.com shall include an email link on one or more
of the Email Pages to Mail.com's customer service staff. Mail.com shall
use reasonable commercial efforts to respond to all customer service
inquiries promptly after receipt.
h) OPERATIONS, OWNERSHIP AND EXPLOITATION:
(1) Mail.com will designate an Mail.com contact whose function
will be to act as the Mail.com liaison with a member of NBC's
production team to be designated by NBC. The Mail.com liaison
will work with the NBC liaison to coordinate the production,
orchestration and hosting of the NBC e-mail service requested
by NBC hereunder.
(2) Except for the right to operate the NBC email site as
described herein, Mail.com will have no rights of any kind,
including intellectual property rights, in (i) any material,
including any text, graphics, audio, video, photos or
software, provided to Mail.com, or primarily created, by NBC
or its affiliates, licensers or suppliers (the "NBC Material")
or (ii) any material, including any text, graphics or story
ideas, concepts or characters, which is based upon, or derived
from, NBC Material (i.e., any "derivative" thereof).
(3) NBC acknowledges that Mail.com owns all title to and all
ownership rights to the underlying source code and object code
for the NBC email service. The NBC "look & feel" aspects of
the user interface of the NBC email site shall remain the sole
property of NBC. NBC shall retain all title to all other
aspects of the NBC email service that are created and/or
contributed by NBC that relate to the NBC "look and feel"
(e.g., the brand features) except any underlying source or
object code which is created and/or contributed by Mail.com in
order to utilize such NBC material for the purposes described
herein.
(i) REGISTRATIONS:
(1) PROCESS: All NBC email users who are 18 years of age or over
shall be required to register and to provide basic personal
information about themselves, including, at a minimum, name,
age, gender, email address and password themselves
("Registration Information"). Mail.com and NBC shall mutually
agree upon (i) all other aspects of the registration process
including how to handle users not 18 years or older and (ii)
whether any additional information will be requested from
users in connection therewith. Mail.com shall provide NBC, on
a quarterly basis, with updates which provide NBC with all
Registration Information collected by Mail.com during the past
quarter. All collection and use of any information from users
of the NBC email, whether through the registration process or
otherwise, shall be subject to a privacy policy to be mutually
agreed upon by NBC and Mail.com which privacy policy will, at
a minimum, inform users of how such Registration Information
may be used by the parties and will provide users with the
option of declining to receive any or all of the mailings or
other services offered by either party other than banner
advertising (the "Privacy Policy"). Each user shall be clearly
informed of the terms of the Privacy Policy during the
registration process. Neither
2
<PAGE>
party may use any Registration Information in any manner that
is not strictly in compliance with the terms of the Privacy
Policy.
(2) OWNERSHIP OF REGISTRATION INFORMATION: NBC and Mail.com shall
jointly own all Registration Information and other information
collected from users in connection with the registration
process for the NBC email described herein. Subject to (i) the
strict compliance with the terms of the Privacy Policy
mutually agreed to by NBC and Mail.com described above,
Mail.com shall be permitted to use such Registration
Information for the marketing and other purposes contemplated
by the NBC.com Agreement, provided that neither party shall
disclose or otherwise transfer the Registration Information,
other than in summary form if the Privacy Policy so permits,
to any third party which is not either an affiliate of or
controlled by such party. Mail.com will get prior written
approval from NBC for use of Registration Information outside
of what is contemplated by this Agreement
(j) ADVERTISING. Except as described below, Mail.com will be responsible
for selling all advertising on the site on which the NBC email service
is actually located. Mail.com will use best commercially reasonable
efforts to sell such advertising, and if any such inventory remains
unsold, then each party shall have the right to use one-third (1/3) of
such unsold inventory for its own purposes subject to the restrictions
described herein and the final one third (1/3) of such unsold inventory
shall be used to promote the NBC email service. NBC and Mail.com will
coordinate their advertising efforts so that they can avoid confusion
in the marketplace. Mail.com will (i) comply with all Mail.com
advertising standards as well as any and all relevant NBC Advertising
Standards, including any amendments thereto, (ii) not act as a
representative for NBC or any NBC content or property in the
advertising marketplace, (iii) not sell advertising appearing on the
co-branded site to any of the "Excluded Companies" described in Exhibit
A hereto, and (iv) not permit any such advertising to refer to, or
imply an endorsement of any kind by, NBC or any of NBC's properties,
talent or licensers. In addition, all such advertising will comply with
any applicable NBC guidelines regarding the use of intellectual
property related to any NBC television show or its talent's likenesses
and images and any other requirement related thereto. Notwithstanding
the foregoing, if Mail.com has excess inventory and NBC brings an
advertiser to Mail.com which advertiser purchases advertising in
connection with the NBC email service, then Mail.com shall pay NBC a
selling commission of xx% of the gross advertising revenue that
Mail.com collects in connection with such advertising; after NBC's
commission has been paid, Mail.com shall subtract an additional xxxx
percent (xx%) from such gross advertising revenues as its commission in
connection with creating, selling and fulfilling such advertising.
(k) DIRECT PROMOTION AND SPECIAL DELIVERY:
(1) DESCRIPTION. Mail.com has the ability to distribute (i)
promotional and other materials which are sent as email
messages directly to users' email folders ("Direct
Promotions") and (ii) special content that is delivered to
users' email boxes (e.g., newsletters) for those users that
elect to subscribe to such content ("Special Delivery
Services"). Any deliveries of Direct Promotions and Special
Delivery Services that Mail.com wishes to deliver to the users
of NBC email must be approved, in writing, in advance by NBC,
which will not be unreasonable withheld by NBC for any reason,
and must be conducted in compliance with the terms of the
Privacy Policy or Mail.com must communicate a customer support
or service message. Mail.com shall not (i) represent or imply
that any Direct Promotions or Special Delivery Services are
from NBC without NBC's prior approval or (ii) include any
content or promotion material from any of the Excluded
Companies in the Direct Promotions or Special Delivery
Services sent to the NBC email users. NBC acknowledges that
Mail.com shall have the sole right to sell any advertising or
promotions related to the Direct Promotions and Special
Delivery Services which Mail.com delivers as described above.
Notwithstanding the foregoing, Mail.com acknowledges that NBC
may independently offer and sell its own direct promotions and
special content services (e.g., a NBC newsletter or MSNBC news
briefs) via email to the users of the NBC email service and
Mail.com shall not share in any revenue collected in
connection therewith; provided, however, that in such
situations, Mail.com shall have no obligation to assist NBC in
such process in any way other than by removing any technical
restraints used by Mail.com which would prevent NBC from
conducting such activities (e.g., removing any "spam"
filters), unless NBC and Mail.com mutually agree to the
contrary.
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<PAGE>
(2) ADVERTISING RESTRICTIONS Mail.com will use best commercially
reasonable efforts to sell the relevant direct promotion and
advertising, and if any such inventory remains unsold, then
each party shall have the right to use one-third (1/3) of such
unsold inventory for its own purposes subject to the
restrictions described herein and the final one third (1/3) of
such unsold inventory shall be used to promote the NBC's email
service. NBC and Mail.com will coordinate their direct
promotion and advertising efforts so that they can avoid
confusion in the marketplace. Mail.com will (i) comply with
all Mail.com direct promotion and advertising standards as
well as any and all relevant NBC Advertising Standards,
including any amendments thereto, (ii) not act as a
representative for NBC or any NBC content or property in the
direct promotion or advertising marketplace, (iii) not sell
direct promotions or advertising appearing on the co-branded
site to any Excluded Companies, and (iv) not permit any such
direct promotion or advertising to refer to, or imply an
endorsement of any kind by, NBC or any of NBC's properties,
talent or licensers. In addition, all such direct promotion
and advertising will comply with any applicable NBC guidelines
regarding the use of intellectual property related to any NBC
television show or its talent's likenesses and images and any
other requirement related thereto.
(l) NBC.COM PROMOTION. NBC agrees to make good faith efforts to reference
the NBC email service available via NBC.com within appropriate NBC
on-air promotion of NBC.com. NBC will reference that NBC email is
powered by email.com but will not contain any Mail.com branding or
specific textual descriptions or acknowledge that Mail.com powers the
NBC email service. While it can make no assurances, NBC will use good
faith efforts to allocate such on-air promotion to prime-time, late
night, and Saturday morning programming. All on-air promotion, and the
nature thereof, shall be at NBC's sole discretion. NBC also agrees to
make commercially reasonable efforts to promote and market the NBC
email service when promoting and marketing the NBC.com site on-line or
in print. Such on-line and print promotions and marketing promotions
shall acknowledge that Mail.com's email.com powers the NBC email and
service. NBC agrees that it shall make commercially reasonable efforts
to cooperate with Mail.com concerning the nature of such on-line and
print promotions and marketing efforts, but NBC shall have the right of
final approval thereof. NBC also agrees that is will make commercially
reasonable efforts to adjust such on-line and print promotions, as well
as any on-air promotion which NBC chooses to run as described above,
based upon user response and to release them in a balanced quarterly
manner throughout the initial term of the NBC.com Agreement. NBC also
agrees that at a minimum Mail.com will receive comparable or better
promotion than other NBC partners providing comparable business terms.
NBC also agrees to provide at least three days notice to Mail.com prior
to any promotion in which a significant rise in email service signups
is expected.
(m) PUBLICITY. Upon completion of the definitive agreements contemplated
herein, NBC and Mail.com will issue a mutually agreeable joint press
release and any other mutually agreed upon promotional materials
regarding the relationship described in such agreements. Neither party
will make any press release or public statement about the transactions
described herein without the approval of the other party.
(n) EMAIL ADDRESS SELECTION. Users will be offered the email address choice
"email.com". In the event of expiration of this Agreement, Mail.com
shall stop offering services to new users at the Email Site but will
continue to support services for all users who signed-up during the
Term unless specified to the contrary in the Termination section 3.
2. INTERACTIVE NEIGHBORHOOD ("NBC-IN")
a) DESCRIPTION OF NBC-IN MAIL LOCAL SITE. NBC-IN will feature email.com as
a provider of NBC-IN email service. Users of web sites operated by
participating NBC Television Network affiliates (the "Affiliates") will
be provided with an NBC-IN menu that features a link through which
users will be able to access a customized and localized jump page
containing certain material which is relevant to such user and his
local area, including the branding of each user's relevant Affiliate,
and access to the NBC-IN email service (the "NBC-IN Mail Local Site").
Such NBC-IN Mail Local Site will be operated by Mail.com, provided that
such site will be surrounded by a frame which will be controlled by
NBC-IN. Within 90 days after launch, NBC-IN and Mail.com shall
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create a system whereby the NBC-IN Mail Local Site shall recognize the
affiliate via which the user reached the site.
b) NBC-IN BRANDING. The site containing the NBC-IN email service shall be
branded similar to Snap's email.com branding but shall also include a
specific NBC-IN branded logo provided by NBC-IN at NBC's sole
discretion which shall be linked back to the NBC-IN site. When the user
enters the NBC-IN Mail Local Site via NBC-IN, they will see NBC-IN
branding, including the appropriate NBC Affiliate brand and the NBC-IN
logo. This may be accomplished by a frameset at the bottom of the page
surrounding the email service or by a tag stored based on where the
user signed up from. The NBC-IN and Affiliate branding will travel with
the user as they go through the site and will link back to the NBC-IN
home page. A "email.com" logo mention will also occur at the bottom of
each page of the NBC-IN Mail Local Sites. All other co-branding design
decisions will be subject to the mutual agreement of the parties
c) GENERAL FEATURES: See 1(d) Above
d) USAGE CONDITIONS: See 1(e) Above
e) UNIVERSAL REGISTRATION: See 1(e) Above
f) CUSTOMER SERVICE: See 1(f) Above
g) OPERATIONS, OWNERSHIP AND EXPLOITATION: See 1(g) Above
h) REGISTRATIONS. See 1(h) Above.
i) AFFILIATE DISTRIBUTION. NBC will offer links to the NBC-IN Mail Local
Site to its Affiliates as part of the NBC-IN package. However, in some
instances such Affiliates may already have a relationship with an email
provider or choose not to accept the NBC-IN Mail Local Site. If this is
the case, NBC-IN may provide the NBC-IN service to the Affiliates
without a link to the NBC-IN Mail Local Site.
j) ADVERTISING. Except as described below, Mail.com will be responsible
for selling all advertising on the site on which the NBC email service
is actually located. Mail.com will use commercially reasonable efforts
to sell such advertising, and if any such inventory remains unsold,
then each party shall have the right to use one-third (1/3) of such
unsold inventory for its own purposes subject to the restrictions
described herein and the final one third (1/3) of such unsold inventory
shall be used to promote the NBC-IN Mail Local Sites. NBC and Mail.com
will coordinate their advertising efforts so that they can avoid
confusion in the marketplace. Mail.com will (i) comply with all
Mail.com advertising standards as well as any and all relevant NBC
Advertising Standards, including any amendments thereto, (ii) not act
as a representative for NBC-IN, the Affiliates or any NBC content or
property in the advertising marketplace, (iii) not sell advertising
appearing on the co-branded site to any of the Excluded Companies, and
(iv) not permit any such advertising to refer to, or imply an
endorsement of any kind by, NBC-IN, the Affiliates or any of NBC's
properties, talent or licensers. In addition, all such advertising will
comply with any applicable NBC guidelines regarding the use of
intellectual property related to any NBC television show or its
talent's likenesses and images and any other requirement related
thereto. Notwithstanding the foregoing, if Mail.com has excess
inventory and NBC-IN brings an advertiser to Mail.com which advertiser
purchases advertising in connection with the NBC-IN Mail Local Site,
then Mail.com shall pay NBC a selling commission of xx% of the gross
advertising revenue that Mail.com collects in connection with such
advertising; after NBC's commission has been paid, Mail.com shall
subtract an additional xxxx percent (xx%) from such gross advertising
revenues as its commission in connection with creating, selling and
fulfilling such advertising.
k) SALE OF DIRECT PROMOTIONS: See 1(j) above.
l) PAYMENT PROCESS: See 1(k) above.
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m) OTHER REVENUE. See 1(l) above.
n) TECHNOLOGY. Mail.com will insure that it can track usage of the NBC-IN
Mail Local Sites. Mail.com will provide NBC with a quarterly report of
such usage which report will contain data in the form reasonably agreed
upon by the parties. In addition, Mail.com will provide any other data
and statistics regarding usage and users of the NBC-IN Mail Local Sites
which NBC reasonably requests from time to time, provided, that NBC
will make commercially reasonable efforts to make no more than one such
additional request for information per month.
o) PUBLICITY. See 1(m) above.
p) NBC-IN ON-AIR PROMOTION. All Affiliates participating in NBC-IN will be
required to offer a minimum of 10 on-air promos concerning, or mentions
of, the URL address of its own world wide web site per week. NBC shall
provide Affiliates with appropriate "calls-to-action" examples to
enable such Affiliates to include NBC-IN information as part of such
promos or mentions. NBC-IN also agrees that at a minimum Mail.com will
receive comparable or better promotion than other NBC partners
providing comparable business terms. NBC-IN also agrees to provide at
least three days notice to Mail.com prior to any promotion in which a
significant rise in email service signups is expected.
q) NBC-IN ONLINE PROMOTION OF THE NBC-IN MAIL LOCAL SITE. A link to the
NBC-IN Mail Local Site will either appear on the NBC-IN navigation menu
which is provided to the Affiliates by NBC-IN or will be rotated into
the menu on an equal basis with other content providers, or otherwise
integrated into the affiliate site. A link to the NBC-IN Mail Local
Site will also appear on the main NBC-IN home page. Mail.com will
provide NBC-IN with regular information and marketing material
regarding Mail.com's email service which NBC-IN will provide to the
Affiliates for use by the Affiliates in their sole discretion if they
choose to promote the NBC-IN Mail Local Site in connection with their
own world wide web sites. NBC-IN also agrees to provide at least three
days notice to Mail.com prior to any promotion in which a significant
rise in email service signups is expected.
r) EMAIL ADDRESS SELECTION. See 1(n) above.
3. TERMS AND TERMINATION
3.1 TERM. The term of this Agreement (the "Term") will continue until the
Agreement is terminated in accordance with one of the other provisions
of this Section 3.
3.2 TERMINATION BY NBC FOR MAIL.COM DISCONTINUATION OF SERVICES OR
BANKRUPTCY. NBC shall have the right, in addition and without prejudice
to any other rights or remedies, to terminate this Agreement as
follows:
3.2.1 Immediately upon notice to Mail.com if (a) all or a
substantial portion of the assets of Mail.com are transferred
to an assignee for the benefit of creditors, to a receiver or
to a trustee in bankruptcy, (b) a proceeding is commenced by
or against Mail.com for relief under bankruptcy or similar
laws and such proceeding is not dismissed within 60 days, or
(c) Mail.com is adjudged bankrupt; or
3.2.2 Immediately upon notice to Mail.com if Mail.com (a) has
publicly announced that it is discontinuing, or (b) has
discontinued for 30 consecutive days, its business that is
directed to the development, sale and operation of Internet
sites offering email services.
3.3 CONSEQUENCES OF TERMINATION UNDER SECTION 3.2. If this Agreement is
terminated by NBC pursuant to Section 3.2, then:
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3.3.1 Mail.com will transfer all User Data for NBC Email Service
Users at the email.com domain name (NBC Email Service User
Data), in a format and on a timetable reasonably acceptable to
NBC, and all rights in the NBC Email Service User Data and
such base of subscribed Users to NBC or to NBC's designee.
Following such transfer, NBC will have the unrestricted right
to use all NBC Email Service User Data, and Mail.com will have
no right to use any NBC Email Service User Data without NBC's
express, written consent. Mail.com will incur the reasonable
costs of exporting the NBC Email Service User Data in a
readable format.
3.3.2 Mail.com will cooperate in good faith with NBC or its designee
to ensure an orderly and expeditious transfer of NBC Email
Service User Data from Mail.com to NBC or its designee. NBC
acknowledges that Mail.com will not be required to develop any
new software code to assist in the transfer process. Both
parties anticipate that the transfer will be completed, and
that NBC will be in a position to launch a successor email
service at a new NBC domain name, within three months after
termination (the "Completed Transition"). Until the Completed
Transition, the terms of this Agreement, as then in effect,
will apply to the continued operation of the NBC Email Service
site.
3.3.3 NBC will retain ownership of the up-front cash payment and all
of the Mail.com Common Stock received under this agreement.
Furthermore, NBC will thereafter have exclusive right to all
User Data and the economic benefit of such Users for their
economic life.
3.4 TERMINATION BY NBC FOR CAUSE. NBC shall have the right, in addition and
without prejudice to any other rights or remedies, to terminate this
Agreement as follows:
3.4.1 Immediately upon notice to Mail.com, such notice to be given
no later than 30 days after expiration of the cure period
below, if Mail.com commits any material breach of this
Agreement other than a breach as a result of a force majeure
event (i.e. outside of the reasonable control of Mail.com) and
does not remedy such breach, where such breach could be
reasonably remedied, within 30 days after receipt by Mail.com
of notice specifying the breach and requiring its remedy; or
3.4.2 Immediately upon notice to Mail.com, such notice to be given
no later than 30 days after expiration of the cure period
below, if one of the following conditions occurs and such
condition is not cured within 30 days after receipt by
Mail.com of notice specifying the breach and requiring its
remedy: (i) the Unavailability of Email services through NBC
Email Service, defined as the inability of Users to access the
member area of the NBC EMAIL SERVICE site excluding scheduled
outages, exceeds 5% during any calendar month (or, if in a
cure period, time in a week); (ii) the Relative NBC Email
Service Site Performance, defined as the ratio of (a) time in
the month (or, if in a cure period, time in a week) that Users
at NBC Email Service are unable to access the member area of
NBC Email Service and (b) time in the month (or, if in a cure
period, time in a week) that all other members of Mail.com
partner email sites are unable to access the member areas of
those sites, is less than 90%; or (iii) during any consecutive
three months (or, if in a cure period, one week), the average
response time to download the complete HTML and graphics for
the "check mail" page of the NBC Email Service web email
client exceeds two times the average download time for the
equivalent page of the top three providers of HTML mail, where
(a) the top three providers of HTML mail will be determined by
the number of users, (b) response time will be measured by an
independent third party such as Keynote (or its equivalent),
and (c) the test will be based on the download of the same
email.
3.5 CONSEQUENCES OF TERMINATION UNDER SECTION 3.4. If this Agreement is
terminated by NBC pursuant to Section 3.4, then:
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3.5.1 Mail.com will notify all NBC Users that they can (1) transfer
their service to a service provided by NBC at a NBC Domain
name or (2) continue with their email service provided by
Mail.com. Users will have three months to decide. For those
users that choose to continue with service provided by NBC,
Mail.com will transfer their User Data (NBC Email Service User
Data), in a format and on a timetable reasonably acceptable to
NBC, and all rights in such NBC Email Service User Data and
such base of subscribed Users to NBC or to NBC's designee.
Following such transfer, NBC will have the unrestricted right
to use such NBC Email Service User Data, and Mail.com will
have no right to use such NBC Email Service User Data without
NBC's express, written consent. Mail.com will incur the
reasonable costs of exporting the NBC Email Service User Data
in a readable format.
3.5.2 Mail.com will cooperate in good faith with NBC or its designee
to ensure an orderly and expeditious transfer of such NBC
Email Service User Data from Mail.com to NBC or its designee.
NBC acknowledges that Mail.com will not be required to develop
any new software code to assist in the transfer process. Both
parties anticipate that the transfer will be completed, and
that NBC will be in a position to launch a successor email
service, within three months after termination (the "Completed
Transition"). Until the Completed Transition, the terms of
this Agreement, as then in effect, will apply to the continued
operation of the NBC Email Service site.
3.5.3 Within ten days after the Completed Transition, NBC will
comply with the one of the following two paragraphs at NBC's
discretion (Mail.com and NBC acknowledge that this amount is
reasonable in liquidated damages and not as a penalty in the
event of termination under this section.):
3.5.3.1 pay Mail.com an amount in cash equal to 100% of the
fair market value of the NBC Email Service User Data
for the first 200,000 users transferred to NBC and
50% of the fair market value of the NBC Email Service
User Data for the post 200,000 users transferred to
NBC, based on the projected economic benefit to
Mail.com of such Users for their expected economic
life, as determined, prior to the transfer of the NBC
Email Service User Data, by a reasonably qualified,
independent third party mutually acceptable to NBC
and Mail.com (the "Appraised User Value"), or
3.5.3.2 transfer back to Mail.com all of the Mail.com Common
Stock received under this agreement for no
consideration or, at NBC's option, pay Mail.com the
fair market value of such shares, as determined by a
reasonably qualified, independent third party
mutually acceptable to NBC and Mail.com (the
"Appraised Stock Value"), or
3.5.3.3 NBC will not offer the users the option to transfer,
and Mail.com will retain exclusive right to all User
Data and the economic benefit of such Users for their
economic life. NBC will retain ownership of the full
amount of the up-front cash payment and a pro-rata
amount of all of the Mail.com Common Stock received
under this agreement. The pro-rata amount will be
based on the amount of months that the email service
was offered by NBC out of 24 months (i.e., if the
email service was offered for 16 months then NBC
would have to return 8 divided by 24 or one third of
the Mail.com Common Stock received.
3.6 TERMINATION BY NBC UPON CHANGE IN CONTROL. NBC shall have the right, in
addition and without prejudice to any other rights or remedies, to
terminate this Agreement upon ten days' notice to Mail.com, which may
be delivered at any time within nine months after a controlling
interest in Mail.com is purchased or otherwise transferred to any
Excluded Company or (ii) any company that intentionally and regularly
provides, or that any of its affiliates intentionally and regularly
provide, Adult Content to its users. For purposes hereof, the term
"Adult Content" shall mean any material which is pornographic or which
contains nudity, explicit sexual material or depiction's of sexual acts
any of which is beyond that normally broadcast over the NBC Television
Network.
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3.7 CONSEQUENCES OF TERMINATION UNDER SECTION 3.6. If this Agreement is
terminated by NBC pursuant to Section 3.6, then:
3.7.1 Mail.com will transfer all NBC Email Service User Data, in a
format and on a timetable reasonably acceptable to NBC, and
all rights in the NBC Email Service User Data and such base of
subscribed Users to NBC or to NBC's designee such that NBC can
continue the service at a NBC domain name. Following such
transfer, NBC will have the unrestricted right to use all NBC
Email Service User Data, and Mail.com will have no right to
use any NBC Email Service User Data without NBC's express,
written consent. Mail.com will incur the reasonable costs of
exporting the NBC Email Service User Data in a readable
format.
3.7.2 Mail.com will cooperate in good faith with NBC or its designee
to ensure an orderly and expeditious transfer of NBC Email
Service User Data from Mail.com to NBC or its designee. NBC
acknowledges that Mail.com will not be required to develop any
new software code to assist in the transfer process. Both
parties anticipate that the Completed Transition will be
completed within three months after termination. Until the
Completed Transition, the terms of this Agreement, as then in
effect, will apply to the continued operation of the NBC Email
Service site.
3.7.3 Within ten days after the Completed Transition, NBC will
comply with the one of the following three paragraphs at NBC's
discretion: (Mail.com and NBC acknowledge that this amount is
reasonable in liquidated damages and not as a penalty in the
event of termination under this section).:
3.7.3.1 pay Mail.com an amount in cash equal to 100% of the
fair market value of the NBC Email Service User Data
for the first 200,000 users transferred to NBC and
50% of the fair market value of the NBC Email Service
User Data for the post 200,000 users transferred to
NBC, based on the projected economic benefit to
Mail.com of such Users for their expected economic
life, as determined, prior to the transfer of the NBC
Email Service User Data, by a reasonably qualified,
independent third party mutually acceptable to NBC
and Mail.com (the "Appraised User Value"), or
3.3.7.3.2transfer back to Mail.com all of the Mail.com Common
Stock received under this agreement for no
consideration or, at NBC's option, pay Mail.com the
fair market value of such shares, as determined by a
reasonably qualified, independent third party
mutually acceptable to NBC and Mail.com (the
"Appraised Stock Value"), or
3.7.3.3 Mail.com will retain exclusive right to all User Data
and the economic benefit of such Users for their
economic life. NBC will retain ownership of the full
amount of the up-front cash payment and a pro-rata
amount of all of the Mail.com Common Stock received
under this agreement. The pro-rata amount will be
based on the amount of months that the email service
was offered by NBC out of 24 months (i.e., if the
email service was offered for 16 months then NBC
would have to return 8 divided by 24 or one third of
the Mail.com Common Stock received.
3.8 TERMINATION BY NBC FOR CONVENIENCE. Beginning two years after NBC has
offered the email service to its users, NBC shall have the right to
terminate this Agreement for any reason (or for no reason) upon thirty
days' notice to Mail.com.
3.9 CONSEQUENCES OF TERMINATION UNDER SECTION 3.8. If this Agreement is
terminated by NBC pursuant to Section 3.8:
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3.9.1 NBC can at its sole discretion choose one of the two following
alternatives:
3.9.1.1 NBC can choose to no longer provide email functionality
through its website. In such case the Agreement will
terminate. NBC will retain the up-front cash payment and the
Mail.com Common Stock received under this agreement. Mail.com
will continue to provide service to the users and Mail.com
will thereafter have exclusive right to all User Data and the
economic benefit of such Users for their economic life, or
3.9.1.2 NBC can choose to continue to provide email service to NBC
Users as follows:
Mail.com will transfer all NBC Email Service User Data, in a
format and on a timetable reasonably acceptable to NBC, and
all rights in the NBC Email Service User Data and such base of
subscribed Users to NBC or to NBC's designee such that NBC can
continue the service at a NBC domain name. Following such
transfer, NBC will have the unrestricted right to use all NBC
Email Service User Data, and Mail.com will have no right to
use any NBC Email Service User Data without NBC's express,
written consent. NBC will reimburse Mail.com for its
reasonable costs related to transferring such NBC Email
Service User Data.
Mail.com will cooperate in good faith with NBC or its designee
to ensure an orderly and expeditious transfer of NBC Email
Service User Data from Mail.com to NBC or its designee. NBC
acknowledges that Mail.com will not be required to develop any
new software code to assist in the transfer process. Both
parties anticipate that the Completed Transition will be
completed within three months after termination. Until the
Completed Transition, the terms of this Agreement, as then in
effect, will apply to the continued operation of the NBC Email
Service site.
Within ten days after the Completed Transition, NBC will:
3.9.1.2a pay Mail.com an amount in cash equal to the
Appraised User Value (Mail.com and NBC
acknowledge that this amount is reasonable
in liquidated damages and not as a penalty
in the event of termination under this
section.); and
3.9.1.2b transfer back to Mail.com all of the
Mail.com Common Stock received under this
agreement for no consideration or, at NBC's
option, pay Mail.com the Appraised Stock
Value of the such Shares.
3.10 TERMINATION BY MAIL.COM OR NBC UPON CHANGE IN CONTROL OF NBC.COM OR NBC
IN: Both parties shall have the right, in addition and without
prejudice to any other rights or remedies, to terminate this Agreement
upon ten days' notice to the other party, which may be delivered at any
time within nine months after a controlling interest in NBC.com of NBC
IN is purchased or otherwise transferred to another Company .
3.11 CONSEQUENCES OF TERMINATION UNDER SECTION 3.10: If this Agreement is
terminated by Mail.com pursuant to Section 3.10, then:
3.11.1 Mail.com will transfer all NBC Email Service User Data, in a
format and on a timetable reasonably acceptable to NBC, and
all rights in the NBC Email Service User Data and such base of
subscribed Users to NBC or to NBC's designee. Following such
transfer, NBC will have the unrestricted right to use all NBC
Email Service User Data, and Mail.com will have no right to
use any NBC Email Service User Data without NBC's express,
written consent. Mail.com will incur the reasonable costs of
exporting the NBC Email Service User Data in a readable
format.
3.11.2 Mail.com will cooperate in good faith with NBC or its designee
to ensure an orderly and expeditious transfer of NBC Email
Service User Data from Mail.com to NBC or its designee such
that NBC can continue the service at a NBC domain name. NBC
acknowledges that Mail.com
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will not be required to develop any new software code to
assist in the transfer process. Both parties anticipate that
the Completed Transition will be completed within three months
after termination. Until the Completed Transition, the terms
of this Agreement, as then in effect, will apply to the
continued operation of the NBC Email Service site.
3.11.3 Within ten days after the Completed Transition, NBC will
comply with the one of the following three paragraphs at NBC's
discretion: (Mail.com and NBC acknowledge that this amount is
reasonable in liquidated damages and not as a penalty in the
event of termination under this section).:
3.11.3.1 pay Mail.com an amount in cash equal to 100% of the
fair market value of the NBC Email Service User Data
for the first 200,000 users transferred to NBC and
50% of the fair market value of the NBC Email Service
User Data for the post 200,000 users transferred to
NBC, based on the projected economic benefit to
Mail.com of such Users for their expected economic
life, as determined, prior to the transfer of the NBC
Email Service User Data, by a reasonably qualified,
independent third party mutually acceptable to NBC
and Mail.com (the "Appraised User Value"), or
3.11.3.2 transfer back to Mail.com all of the Mail.com Common
Stock received under this agreement for no
consideration or, at NBC's option, pay Mail.com the
fair market value of such shares, as determined by a
reasonably qualified, independent third party
mutually acceptable to NBC and Mail.com (the
"Appraised Stock Value"), or
3.11.3.3 Mail.com will retain exclusive right to all User Data
and the economic benefit of such Users for their
economic life. NBC will retain ownership of the full
amount of the up-front cash payment and a pro-rata
amount of all of the Mail.com Common Stock received
under this agreement. The pro-rata amount will be
based on the amount of months that the email service
was offered by NBC out of 24 months (i.e., if the
email service was offered for 16 months then NBC
would have to return 8 divided by 24 or one third of
the Mail.com Common Stock received.
3.12 CONSEQUENCES OF TERMINATION UNDER SECTION 3.10: If this Agreement is
terminated by NBC pursuant to Section 3.10, then:
3.12.1 NBC can at its sole discretion choose one of the two following
alternatives:
3.12.1.1 NBC can choose to no longer provide email functionality
through its website or that of its new parent. In such case
the Agreement will terminate. Mail.com will continue to
provide service to the users and Mail.com will thereafter have
exclusive right to all User Data and the economic benefit of
such Users for their economic life. NBC will retain ownership
of the full amount of the up-front cash payment and a pro-rata
amount of all of the Mail.com Common Stock received under this
agreement. The pro-rata amount will be based on the amount of
months that the email service was offered by NBC out of 24
months (i.e., if the email service was offered for 16 months
then NBC would have to return 8 divided by 24 or one third of
the Mail.com Common Stock received., or
3.12.1.2 NBC can choose to continue to provide email service to NBC
Users as follows:
Mail.com will transfer all NBC Email Service User Data, in a
format and on a timetable reasonably acceptable to NBC, and
all rights in the NBC Email Service User Data and such base of
subscribed Users to NBC or to NBC's designee such that NBC can
continue the service at a NBC domain name. Following such
transfer, NBC will have the unrestricted right to use all NBC
Email Service User Data, and Mail.com will have no right to
use any NBC Email Service User
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Data without NBC's express, written consent. NBC will
reimburse Mail.com for its reasonable costs related to
transferring such NBC Email Service User Data.
Mail.com will cooperate in good faith with NBC or its designee
to ensure an orderly and expeditious transfer of NBC Email
Service User Data from Mail.com to NBC or its designee. NBC
acknowledges that Mail.com will not be required to develop any
new software code to assist in the transfer process. Both
parties anticipate that the Completed Transition will be
completed within three months after termination. Until the
Completed Transition, the terms of this Agreement, as then in
effect, will apply to the continued operation of the NBC Email
Service site.
Within ten days after the Completed Transition, NBC will:
3.12.1.2a pay Mail.com an amount in cash equal to the
Appraised User Value (Mail.com and NBC
acknowledge that this amount is reasonable
in liquidated damages and not as a penalty
in the event of termination under this
section.); and
3.12.1.2b transfer back to Mail.com all of the
Mail.com Common Stock received under this
agreement for no consideration or, at NBC's
option, pay Mail.com the Appraised Stock
Value of the such Shares.
3.13 TERMINATION BY MAIL.COM FOR CAUSE. Mail.com shall have the right, in
addition and without prejudice to any other rights or remedies, to
terminate this Agreement as follows:
3.13.1 Immediately upon notice to NBC, such notice to be given no
later than 30 days after expiration of the cure period below,
if NBC commits any material breach of this Agreement other
than a breach as a result of a force majeure event (i.e.
outside of the reasonable control of NBC) and does not remedy
such breach, where such breach could be reasonably remedied,
within 30 days after receipt by NBC of notice specifying the
breach and requiring its remedy; or
3.13.2 Immediately upon notice to NBC if (a) all or a substantial
portion of the assets of NBC are transferred to an assignee
for the benefit of creditors, to a receiver or to a trustee in
bankruptcy, (b) a proceeding is commenced by or against NBC
for relief under bankruptcy or similar laws and such
proceeding is not dismissed within 60 days, or (c) NBC is
adjudged bankrupt.
3.14 CONSEQUENCES OF TERMINATION UNDER SECTION 3.13. If this agreement is
terminated by Mail.com pursuant to Section 3.13.1 or 3.13.2, then NBC
will transfer back to Mail.com all of the Mail.com Common Stock
received under this agreement for no consideration or, at NBC's option,
pay Mail.com the Appraised Stock Value of the such Shares. In addition,
if this agreement is terminated by Mail.com pursuant to Section 3.13.1
then NBC will pay to Mail.com the amount received by NBC as Upfront
cash payment. Furthermore, Mail.com will thereafter have exclusive
right to all User Data and the economic benefit of such Users for their
economic life. NBC can require that such users log in to their email
service in the same manner as during the term of the agreement.
4 PAYMENT
4.1 CASH PAYMENT. In addition to the equity described below, Mail.com shall
pay a non-refundable $200,000 fee upon launch of NBC.com and NBC.-IN,
the payment shall be as follows: Mail.com shall pay to NBC.com a cash
fee of $125,000 payable in 12 monthly installments with $10,490 due on
the day of launch and then 11 installments of $10,410 due on a monthly
basis thereafter and Mail.com shall pay to NBC-IN a cash fee of $75,000
payable in 12 equal monthly installments with $6,250 due on the day of
launch and then 11 installments of $6,250 due on a monthly basis
thereafter.
12
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4.2 NBC.COM AND NBC-IN EQUITY: In consideration for the foregoing, NBC.com
and NBC-IN ("NBC Sites") will be granted a total of $1,050,000 worth of
the Mail.com's Class A Common Stock (the "Common Stock") issued at a
value of $5.00 per share as follows:
Mail.com will grant to the NBC Sites a minimum of 210,000 shares of stock. These
will be granted as follows: 110,000 upon launch, and then 12,500 per quarter for
the 8 quarters subsequent to launch. Shares will be split between NBC.com and
NBC-IN at NBC's discretion. Mail.com will provide detailed reporting such that
NBC will know where their sign-ups were derived.
The NBC Sites will be entitled to earn additional stock ownership in Mail.com or
interest in Users as follows: After the NBC Sites have qualified for 250,000
shares based on the Sign Up Share Allocation below, they will (a) earn
additional shares under the Sign Up Share Allocation (i)/(ii) below if still
applicable or (b) they will earn a 50% interest on such subsequent sign ups
("NBC Revenue Users" or "NBC Excess Users") as described below in Section 4.4,
to be decided at NBC's discretion upon qualifying for 250,000 shares.
(The "Sign Up Share Allocation"):
(i) for every new sign up at email.com through December 31, 1999
generated from Snap, NBC.com and NBC-IN, Mail.com will grant
1.25 shares to the respective party up to 2,000,000 such sign
ups,
(i) thereafter, for every new sign up at email.com through
December 31, 2000 generated from Snap, NBC.com and NBC-IN,
Mail.com will grant 0.50 shares to the respective party up to
4,000,000 cumulative sign ups.
(ii) These share amounts reflect Mail.coms 2:1 stock split on
October 2, 1998. All shares under this agreement will be
adjusted for all stock splits or reverse stock splits as they
occur.
4.4 PAYMENTS TO NBC. Mail.com will pay NBC xx% of the Profit earned from
the NBC Revenue Users as follows:
4.4.1 "NBC Sharing Percentage" for a particular quarter means the
number of NBC Revenue Users at the end of such quarter as a
percentage of the total number of NBC Users at the end of such
quarter.
4.4.2 "NBC Total Revenue" means the total money collected by
Mail.com from NBC users, including without limitation any
money collected from the promotions and subscriptions, less
refunds.
4.4.3 "NBC Allocated Expenses" means the expenses incurred by
Mail.com to generate the NBC Total Revenue, which includes (i)
any direct costs such as hardware, bandwidth, and customer
service and (ii) any pro rata allocation of overhead items
such as general and administrative expenses, sales expenses,
research and development, marketing, depreciation and
amortization, etc. which reasonably benefited the NBC service.
Such pro rata allocation of overhead items will be made in
proportion to the NBC Users as a fraction of the total
Mail.com users across its network of Mail.com and partner
sites. NBC has the right to audit the allocation of overhead
items on an annual basis and Mail.com will reasonably adjust
the allocation in accordance with the audit. The ratio of NBC
Allocated Expenses to NBC Total Revenue will not be less than
same ratio across Mail.com's other email partners including
NBC.
4.4.4 The "Profit" earned from the NBC Revenue Users for a
particular quarter means (a) the NBC Sharing Percentage for
such quarter, times (b) NBC Total Revenue for such quarter
minus NBC Allocated Expenses for such quarter
4.4.5 Within 30 days after the end of each quarter during the Term,
Mail.com will pay to NBC xx% of the Profit earned from NBC
Revenue Users for such quarter, along with a statement showing
the calculation of such amount.
4.4.6 Mail.com shall deliver revenue and sign-up reports to NBC such
that NBC can properly allocate shares and profits between
NBC.com and NBC-IN.
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<PAGE>
4.5 Upon reasonable prior written notice, NBC may cause an independent
certified public accountant to, inspect the records of Mail.com which
are reasonably related to the calculation of such payments during
Mail.com's normal business hours. The fees and expenses charged by any
certified public accountant which NBC chooses to hire in connection
with the inspection will be paid by NBC, unless the payments made to
NBC are determined to have been less than 90% of the payment owed to
NBC, in which case Mail.com will be responsible for the payment of the
reasonable fees and expenses for such inspection.
4.6 Shares of Common Stock issued in a private placement shall not be
subject to a lock-up of any kind except in the event of an IPO in which
case shares shall be subject to the usual 180 day underwriter lockup.
The issuance of any such shares issued pursuant to a private placement
shall be governed by the terms of a Stock Purchase Agreement to be
negotiated in good faith between the parties which will include
representations, warranties and covenants of the Company and grant
rights to NBC, including piggyback and S-3 registration rights and
financial information, at least as favorable as those provided to any
other investor of comparable size the Company (including, without
limitation, Snap LLC). If the parties cannot agree upon the final form
of a Stock Purchase Agreement within forty-five (45) days of the date
hereof, NBC shall have the option, which may be exercised in its sole
discretion, provided it has negotiated in good faith, of immediately
terminating this Agreement by providing the Company with written notice
of its decision.
5. MISCELLANEOUS.
a) This Agreement shall be governed by the laws of the state of
New York without reference to conflict of law principles. The parties
hereby submit to the jurisdiction of the federal and state courts
located in the County of New York, and any action or suit under this
Agreement shall only be brought by the parties in any federal or state
court with appropriate jurisdiction over the subject matter established
or settled in the County of New York.
b) It is expressly understood that this Agreement does not create
any partnership, joint venture or employment relationship between the
parties, that both parties are acting as independent contractors with
respect to each other, and that none of the employees of either party
shall be deemed to be employees of the other party for any purpose.
Neither party may not assign this Agreement or any right, interest or
benefit under this Agreement without the prior written consent of the
other party; provided that NBC may freely assign or transfer this
Agreement to any affiliate of NBC upon written notice to Mail.com. This
Agreement shall be fully binding upon, inure to the benefit of, and be
enforceable by and against the parties hereto and their respective
successors and assigns.
c) This Agreement may be executed in counterparts, each of which
shall constitute an original but all of which, when taken together,
shall constitute one agreement, and shall become effective when one or
more such counterparts have been signed by each of the parties and
delivered to the other party. No waiver or modification of any
provision of this Agreement shall be effective unless in writing and
signed by both parties. Any waiver by either party of any provision of
this Agreement shall not be construed as a waiver of any other
provision of this Agreement, nor shall such waiver operate as or be
construed as a waiver of such provision respecting any future event or
circumstance.
ACKNOWLEDGED AND AGREED:
NBC Multimedia, Inc. Mail.com, Inc.
/s/ Robert Meyers /s/ Gary Millin
- ---------------------------------- -----------------------------------
14
<PAGE>
Robert Meyers Gary Millin
- ---------------------------------- -----------------------------------
Name Name
Senior Vice President President
- ---------------------------------- -----------------------------------
Title Title
2/10/99 2/8/99
- ---------------------------------- -----------------------------------
Date Date
15
<PAGE>
EXHIBIT 10.40
Omitted information, for which "x" characters have been substituted herein,
has been omitted pursuant to a request for confidential treatment and such
information has been filed separately with the office of the Secretary of the
Securities and Exchange Commission.
MARKETING AGREEMENT
THIS AGREEMENT, made this 26th day of March, 1999, (the "Effective
Date") by and between Mail.com, Inc., a New York corporation having its
principal office at 11 Broadway, Suite 660, New York, New York 10004 (the
"Company") DLJ Direct, a Delaware limited liability company having its
principal address at Pershing Plaza, Jersey City, NJ 07399 ("DLJD") sometimes
referred to as the "Parties" and individually as a "Party."
Company agrees to promote DLJD's Online Financial Services to Company's
users ("Users") and deliver to DLJD applications for DLJD's Online Financial
Services ("Applications"), and DLJD agrees to pay Company for such
applications as set forth herein.
1.
2. OPT-IN LISTS. In order to aid in the collection of Applications, Company
shall, pursuant to its stated privacy policy, from time to time during
the period of this Agreement, provide DLJD with various Customer Data for
Company Customers who have given their express approval to release their
Customer Data via selection of an opt-in button or through other means to
DLJD ("the Opt-in Lists"). The Opt-in List provided by Company is and
shall remain the sole property of Company. DLJD agrees to abide by the
Company's Privacy Policy, posted at company's web site at www.mail.com
and at partner sites, and by Company's User Data Confidentiality,
Non-Discloser and Restricted Use Agreement attached hereto as Exhibit B.
3. COLLECTION OF APPLICATIONS BY DLJD. DLJD shall collect Applications in
accordance with the following provisions:
(a) Subject to subparagraph (b) of this Paragraph 3, DLJD shall, at its
own expense, design and develop such marketing, promotion and
solicitation materials as it deems appropriate to promote the
collection of Applications, and the Company shall endorse and
reasonably assist DLJD with the administration of such promotional
and solicitation activities. DLJD and the Company will jointly
schedule and direct the solicitation of Company Customers.
(b) DLJD shall submit to Company, for its prior approval, samples of all
marketing, promotional or solicitation materials, printed or
otherwise bearing the Company name or logo, which DLJD intends to
utilize to collect Applications from Company Customers. Company
shall review such materials and respond to DLJD's requests for
approval on a timely basis. Approval by Company of any marketing
materials submitted by DLJD for review shall not be unreasonably
withheld or delayed.
(c) DLJD shall have the right to select and promote the marketing and/or
solicitation efforts to be utilized for this Program, subject to the
approval of Company. DLJD shall have the right to change the
marketing and/or solicitation avenue at anytime in order to enhance
the Application rates.
4. FEES. During the term of this Agreement, DLJD shall pay to Company
certain Marketing Fees (the "Fees") as set forth in Exhibit "A" attached
hereto.
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<PAGE>
5. RECORDS.
(a) During the term of this Agreement, DLJD agrees that it will maintain
accurate records with respect to all Applications generated under
this Agreement. Such records shall be open for inspection by
representatives of Company at such reasonable times as shall be
agreed upon by DLJD, provided that any inspection shall be subject
to such security procedures as DLJD may reasonably impose and
subject to such limitations as may be required under applicable
rules, regulations or statutes governing the conduct of DLJD's
business.
(b) During the term of this Agreement, Company agrees that it shall keep
full and accurate books of account and copies of all documents and
other material related to Company's obligations to DLJD under this
Agreement at Company's principal office, including without
limitation the annual Impressions utilized during the Program.
Within thirty (30) days after DLJD's written request to Company,
DLJD, by its duly authorized agents and representatives, shall have
the right, upon reasonable notice to Company, to audit such books,
documents and other material from time to time and shall have access
thereto during ordinary business hours, and shall be at liberty to
make copies of such books, documents and other material, subject to
such security procedures as Company may reasonably impose and
subject to such limitations as may be required under applicable
rules, regulations or statutes governing the conduct of Company's
business.
6. RELATIONSHIP. Nothing in this Agreement is intended to or shall be
construed to constitute or establish an agency, joint venture,
partnership or fiduciary relationship between the Parties, and neither
Party shall have the right or authority to act for or on behalf of the
other Party.
7. CONFIDENTIALITY. The Parties acknowledge and agree that the terms of this
Agreement and all information provided to or in connection with either
Party's performance under this Agreement shall be considered confidential
and proprietary information ("Confidential Information") and shall not
be disclosed to any third party without the prior written consent of the
Party providing the Confidential Information ("Disclosing Party"), except
as necessary to comply with the Parties' legal obligations and other
financial reporting purposes.
8. TERM/TERMINATION. This Agreement shall be effective as of the date hereof
and shall continue for a period of three months, automatically renewing
as set forth in Exhibit A. The Agreement may terminated if there is a
material default by either Party in the performance of the terms and
conditions of this Agreement, and such default shall continue for a
period of thirty (30) days after receipt by the defaulting Party of
written notice thereof from the non-defaulting Party. This Agreement
shall terminate immediately if it is deemed by either party's counsel to
be in violation of any securities industry regulation or other law. In
this agreement, DLJD shall be entitled to a refund of such amounts that
reflect a pro rata share for the quarterly amount paid.
9. EXCLUSIVITY. During the term of this Agreement, DLJD shall have the
exclusive right to perform the Program, and Company agrees that during
the term hereof it shall not by itself or in conjunction with others,
directly or indirectly, or through any parent, affiliate or subsidiary,
offer, advertise or endorse, or enter into any agreement with others for
financial services similar to or directly competitive with those offered
by DLJD under the Program.
2
<PAGE>
10. NOTICES. Any and all notices or other communications required or permitted
under this Agreement shall be writing and shall be delivered either by
personal delivery, fax, by nationally recognized overnight courier
service; or by certified or registered mail, return receipt requested,
addressed as follows:
If to DLJD, to: DLJ Direct Inc.
One Pershing Plaza
Jersey City, NJ 07399
----------------------------------
If to Company, to: Attn: Tony Festa - Compliance
with copy to General Counsel
at same address
Mail.com, Inc.
11 Broadway, Suite 660
New York, New York 10004
add Fax #:
-----------------------
11. ENTIRE AGREEMENT/AMENDMENT. This Agreement, including exhibits,
constitutes the entire understanding between the Parties with respect to
the subject matter, and supersedes all prior written and oral proposals,
understandings, agreements and representations, all of which are merged
herein. No amendment or modification of this agreement shall be effective
unless it is in writing and executed by all of the Parties hereto.
12. NON-WAIVER OF DEFAULT. The failure of either Party to insist, in any one
or more instances, on the performance of any terms or conditions of this
Agreement shall not be construed as a waiver or relinquishment of any
rights granted hereunder or of the future performance of any such term or
condition, and the obligations of the non-performing Party with respect
thereto shall continue in full force and effect.
13. SEVERABILITY. In the event that any provision of this Agreement shall,
for any reason, be deemed to be invalid and unenforceable, the remaining
provisions of this Agreement shall remain in full force and effect.
14. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York without
regard to its conflict of law principles.
15. PLACEMENT: Exclusivity to the Mail.com user base on a site by site basis
(based on site partners' preexisting relationships).
A. Fixed Position
1) Above the fold placement of button/text link promoting
services appearing on every page of every web-based email
client across all partner sites
2) Guaranteed distribution upfront
3) Minimum quarterly impression guarantees
B. Banners
1) Banners are delivered dynamically on top of every page of
every web-based email client across all partner sites
2) Minimum quarterly impression guarantees
3) Minimum monthly Log out portal rotation. These ad units are
delivered dynamically on all logout pages and traditionally
generate a very high response percentage
C. Database Distribution
Monthly mailing to database to both general and financial
services categories
March 26, 1999
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the Effective Date.
DLJ DIRECT INC. MAIL, INC.
By: /s/ D. Benou Stiles By: /s/ Lon Otremha
---------------------------- ----------------------------
Name: D. Benou Stiles Name: Lon Otremha
-------------------------- ---------------------------
Title: SVP, Marketing Director Title: Chief Operating
------------------------- --------------------------
Date: 31 March, 1999 Date: 31/March/1999
--------------------------
March 26, 1999
4
<PAGE>
EXHIBIT A
PAYMENTS AND FEES
During the term of this Agreement and any renewal terms thereof, DLJD agrees
to pay to Company the Following Fees in conjunction with Company's obligation
to deliver Applications for Financial Services ("Applications") which is the
subject of this Agreement.
A. NON-REFUNDABLE PAYMENT(S): Within Thirty (30) days of the Effective
Date of this Agreement, and within thirty (30) days of subsequent
automatically renewing Contract Quarters as set forth below, DLJD shall pay
to the Company a non-refundable payment of $xxx,xxx (xxxx xxxxxxx xxxxxxx xxxx
xxxxxxxx) (the "Non-Refundable Payment").
B. GUARANTEED APPLICATIONS AND FEES:
1. GUARANTEED APPLICATIONS. During the 90-day period ("Contract
Quarter") of this Agreement, beginning March 26, 1999 and ending on
June 30, 1999, Company guarantees to deliver to DLJD a number of
Applications submitted by Company's customers per month ("Guaranteed
Applications") as set forth in the Guaranteed Quarterly Application
and Fee Schedule (the "Schedule");
2. APPLICATION FEES. DLJD shall pay Company the corresponding fee per
Application ("Application Fee") as set forth in the Schedule.
3. PREMIUM APPLICATION FEES. DLJD shall pay Company $xx per Application
delivered by Company for all applications delivered in excess of
x,xxx in any Contract Quarter.
4. PAYMENTS. DLJD shall submit payments for Application Fees and
Premium Application Fees on a monthly basis within thirty (30) days
of the last day of each calendar month during this Agreement.
5. AUTO-RENEWAL. Provided that Company has delivered, in the
immediately preceding Contract Quarter, at least xx% of the x,xxx
Guaranteed Applications set forth in the Schedule, DLJD's obligation
to pay corresponding Application Fees and Premium Application Fees,
and Company's obligation to deliver Guaranteed Applications, as set
forth in the Schedule, shall automatically renew for a subsequent
Contract Quarter up to a maximum of three additional Contract
Quarters, and DLJD shall pay Company an additional non-refundable
payment of $$xxx,xxx.xx (xxxx xxxxxxx xxxxxxx xxxx xxxxxxxx) within 30
days after the start of each such automatically renewed Contract
Quarter. The first day of the renewed Contract Quarter shall be the
day immediately following the last day of the prior Contract Quarter
set forth in the schedule, and the length of each period in the
Schedule for renewed Contract Quarters shall be equivalent to the
periods set forth in the Schedule. The Application Fees to be paid
by DLJD, and the Guaranteed Applications to be delivered by Company
will be the same as in the Schedule. (For purposes of illustration
only, if this Agreement is automatically renewed following the
initial Contract Quarter, the periods for the next renewed Contract
Quarter would be as follows: 7/1/99-7/31/99; 8/1/99-8/31/99;
9/1/99-9/31/99).
5
<PAGE>
6. MAKE GOOD. In the event that Company fails to deliver x,xxx
applications in any Contract Quarter, Company shall deliver to DLJD
the number of Applications short of x,xxx in addition to the
Applications Company is obligated to deliver subsequent to that
Contract Quarter.
7. RIGHT TO TERMINATE. In the event that Company fails to deliver to
DLJD at least xx% of the total quarterly Guaranteed Applications set
forth in the Schedule by the end of any Contract Quarter, DLJD shall
have the right to terminate this Agreement with no further
obligations to Company, and Company will be obligated to deliver
Make Goods as Set forth in Paragraph B.6.
8. REPORTS. Company shall provide DLJD with a report at the end of each
calendar month setting forth the amount of Applications delivered to
DLJD and Fees earned by Company during such calendar month.
GUARANTEED QUARTERLY APPLICATION AND FEE SCHEDULE
<TABLE>
<CAPTION>
Period Application Guaranteed Minimum Fees
Fee Applications
------ ----------- ------------ -------------
<S> <C> <C> <C>
4/1/99-4/30/99 $x.xx* xxxx $ x,xxx.xx
5/1/99-5/30/99 $x.xx* xxxx $ x,xxx.xx
6/1/99-6/30/99 $x.xx* xxxx $ x,xxx.xx
Total: xxxx $xx,xxx.xx
</TABLE>
*The Application Fee shall be $xx per Application delivered to DLJD for all
Applications delivered in excess of a total of x,xxx Applications per quarter.
6
<PAGE>
EXHIBIT B
USER DATA CONFIDENTIALITY, NON-DISCLOSER AND RESTRICTED USE AGREEMENT
DLJD AGREES TO ABIDE BY THE FOLLOWING RESTRICTIONS REGARDING ANY USER DATA
("USER DATA") PROVIDED BY COMPANY TO DLJD UNDER THIS AGREEMENT.
1. DLJD shall keep the User Data strictly confidential. DLJD shall not
under any circumstances sell, provide, disclose, rent, or distribute
the User Data to any party, including parties providing services to
DLJD, except as approved and authorized by Company or except as
required by law, court of competent jurisdiction or federal, state
or local government agency with jurisdiction over DLJD. DLJD shall
not use the User Data to send email or conventional mail to Users,
or to otherwise contact any User.
2. DLJD shall require any and all DLJD employees who have access to the
User Data to review and abide by this Company Confidentiality,
Non-Discloser and User Data Restriction Agreement.
3. Upon termination of this Agreement, DLJD shall return the User Data
to Company in the identical form in which it was provided to DLJD
except as required by law. DLJD shall destroy all versions of the
User Data in its possession which are maintained in any form or
medium whatsoever, including but not limited to electronic or print
versions. DLJD shall not replicate the User Data, or otherwise
create or maintain any other version of the User Data in any form or
medium whatsoever, including but not limited to electronic or print
versions.
4. DLJD agrees to abide by Company's Privacy Policy posted at Company's
web site.
7
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Mail.com, Inc.:
We consent of 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
May 25, 1999
<PAGE>
EXHIBIT 23.7
CONSENT OF ELECTRONIC MAIL & MESSAGING SYSTEMS
The Board of Directors
Mail.com Inc.:
We consent to the use of the following statement attributable to Electronic
Mail & Messaging Systems in the initial and final prospectus for the initial
public offering of Mail.com:
According to ELECTRONIC MAIL & MESSAGING SYSTEMS, there were approximately
42 million emailboxes provided by ISPs worldwide at the end of 1998.
Electronic Mail & Messaging Systems
By: /s/ Amy L. Fickling,
---------------------
Managing Editor
Date: 5/14/99
-------
