SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number X-XXXXX
MAIL.COM, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
DELAWARE 13-3787073
(State or other jurisdiction (I.R.S. Employer Identification)
of incorporation or organization)
11 Broadway, New York, NY 10004
- --------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(212) 425-4200
(Registrant's Telephone Number Including Area Code)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |_| No |X|
Common stock outstanding at August 13, 1999: 33,255,943 Shares of Class A common
stock and 10,000,000 shares of Class B common stock.
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MAIL.COM, INC.
INDEX
Page
Number
------
PART I: Financial Information
Item 1: Condensed Financial Statements:
Condensed Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998.......................... 2
Unaudited Condensed Statements of Operations for the
three and six months ended June 30, 1999 and 1998.......... 3
Unaudited Condensed Statements of Cash Flows for
the six months ended June 30, 1999 and 1998................ 4
Notes to Unaudited Condensed Interim Financial
Statements............ .................................... 5-12
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................13-33
Item 3: Qualitative and Quantitative Disclosure about Market
Risk.................. 34
PART II: Other Information
Item 1: Legal Proceedings............................................. 35
Item 2: Changes in Securities and Use of Proceeds..................... 35
Item 3: Defaults upon Senior Securities............................... 35
Item 4: Submission of Matters to a Vote of Security Holders........... 35
Item 5: Other Information............................................. 35
Item 6: Exhibits and Reports on Form 8-K.............................. 35
Item 7: Signatures.................................................... 35
1
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Mail.com, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 65,407,151 $ 8,414,352
Accounts receivable, net 970,888 702,065
Prepaid expenses and other current assets 349,966 222,577
Receivable from sale leaseback -- 631,003
------------- -------------
Total current assets 66,728,005 9,969,997
Property and equipment, net 15,478,558 4,341,107
Domain assets, net 4,395,489 1,010,416
Partner advances 22,436,853 4,714,821
Investment in affiliated companies 250,000 250,000
Other 294,841 58,147
------------- -------------
Total assets $ 109,583,746 $ 20,344,488
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable 9,750,677 $ 1,753,582
Accrued expenses 2,431,759 1,181,613
Accrued payroll and other related costs 1,170,467 486,981
Current portion of capital lease obligations 1,335,933 479,461
Current portion of domain asset purchase obligations 365,092 168,582
Deferred revenue 902,737 823,908
------------- -------------
Total current liabilities 15,956,665 4,894,127
Capital lease obligations, less current portion 3,238,648 1,437,731
Domain asset purchase obligations, less current portion 187,530 216,886
Deferred revenue 1,035,466 1,080,737
Redeemable convertible preferred stock, $0.01 par value;
Class C - 12,000,000 shares authorized; 0 and 3,776,558
shares issued and outstanding at June 30, 1999 and
December 31,1998, respectively, with an aggregate
liquidation preference of $0 and $13,047,650 as of
June 30, 1999 and December 31, 1998, respectively -- 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; 0 and 6,185,000
shares issued and outstanding at June 30, 1999 and
December 31, 1998, respectively, with an aggregate
liquidation preference of $0 and $7,647,580 at
June 30, 1999 and December 31, 1998, respectively -- 61,850
Common stock, $0.01 par value; 130,000,000 shares authorized
Class A - 120,000,000 shares authorized; 32,103,528 and
5,931,405 shares issued and outstanding at June 30, 1999
and December 31, 1998, respectively 321,035 59,314
Class B - 10,000,000 shares authorized, issued and outstanding
at June 30, 1999 and December 31,1998; with an aggregate
liquidation preference of $1,000,000 100,000 100,000
Additional paid in capital 120,625,560 16,537,440
Stock subscriptions receivable -- (500)
Deferred compensation (1,447,244) (1,025,399)
Accumulated deficit (30,433,914) (16,065,348)
------------- -------------
Total stockholders' equity (deficit) 89,165,437 (332,643)
------------- -------------
Commitments and contingencies
Total liabilities and stockholders' equity (deficit) $ 109,583,746 $ 20,344,488
============= =============
</TABLE>
See accompanying notes to interim condensed financial statements.
2
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Mail.com, Inc.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 2,057,010 $ 139,094 $ 3,242,949 $ 219,507
Operating expenses:
Cost of revenues 2,178,518 592,677 3,656,208 944,342
Sales and marketing 3,905,787 520,139 7,496,423 792,789
General and administrative 2,634,048 489,082 3,998,946 764,288
Product development 1,409,561 277,750 2,586,520 496,042
------------ ------------ ------------ ------------
Total operating expenses 10,127,914 1,879,648 17,738,097 2,997,461
Loss from operations (8,070,904) (1,740,554) (14,495,148) (2,777,954)
Other income (expense):
Gain on sale of investment -- 438,000 -- 438,000
Other income 189,465 26,475 304,369 33,380
Interest expense (79,064) (20,265) (177,787) (33,633)
------------ ------------ ------------ ------------
Total other income, net 110,401 444,210 126,582 437,747
------------ ------------ ------------ ------------
Net loss (7,960,503) (1,296,344) (14,368,566) (2,340,207)
Cumulative dividends on settlement of
contingent obligations to preferred
stockholders 14,555,646 -- 14,555,646 --
------------ ------------ ------------ ------------
Net loss attributable to common stockholders $(22,516,149) $ (1,296,344) $(28,924,212) $ (2,340,207)
============ ============ ============ ============
Basic and diluted net loss per common share $ (1.09) $ (0.09) $ (1.56) $ (0.17)
============ ============ ============ ============
Weighted average basic and diluted shares
outstanding 20,605,412 14,110,087 18,531,509 14,105,165
============ ============ ============ ============
</TABLE>
See accompanying notes to interim condensed financial statements.
3
<PAGE>
Mail.com, Inc.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(14,368,566) $ (2,340,207)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Non-cash charges related to partner agreements
and vendor services 3,473,887 128,425
Non-cash compensation 34,238 --
Depreciation and amortization 981,690 405,570
Amortization of domain assets 312,957 90,068
Amortization of deferred compensation 218,258 --
Write-off of GeoCities contract 500,000 --
Provision for doubtful accounts 45,000 --
Changes in operating assets and liabilities:
Accounts receivable (313,823) (14,872)
Prepaid expenses and other current assets (127,389) 34,228
Other assets (236,694) (77,050)
Accounts payable 7,997,095 90,369
Accrued expenses 1,250,146 (109,491)
Accrued payroll and other related costs 683,486 (6,209)
Deferred revenue 78,829 387,229
------------ ------------
Net cash provided by (used in) operating activities 529,114 (1,411,940)
Cash flows from investing activities:
Purchases of domain assets (943,030) (182,697)
Proceeds from sale leaseback 3,691,536 146,345
Purchases of property and equipment (12,119,141) (1,196,240)
------------ ------------
Net cash used in investing activities (9,370,635) (1,232,592)
Cash flows from financing activities:
Net proceeds from issuance of Class A, C and E
preferred stock 15,164,895 4,715,479
Net proceeds from issuance of Class A common
stock related to initial public offering 43,212,245 --
Proceeds from issuance of Class A common stock in
connection with the exercise of warrants and options 7,889,680 --
Payments under capital lease obligations (403,144) (240,241)
Due to officer -- (200,000)
Payments under domain asset purchase obligations (29,356) (10,120)
------------ ------------
Net cash provided by financing activities 65,834,320 4,265,118
------------ ------------
Net increase in cash and cash equivalents 56,992,799 1,620,586
Cash and cash equivalents at beginning of the period 8,414,352 909,718
------------ ------------
Cash and cash equivalents at the end of the period $ 65,407,151 $ 2,530,304
============ ============
</TABLE>
Supplemental disclosure of non-cash information:
During the six month periods ending June 30, 1999 and 1998, the Company paid
approximately $178,000 and $33,000, respectively, for interest.
Non-cash investing activities:
During the six months ended June 30, 1999, the Company purchased domain
assets with 355,000 shares of Class A common stock. This action resulted
in a non-cash investing activity of $2,555,000.
During the six month periods ending June 30, 1999 and 1998, the Company
issued 3,126,189 and 29,528 shares, respectively, of its common stock in
connection with some of its Mail.com partner agreements and vendor
services. These transactions resulted in a non-cash investing activity of
approximately $20,910,000 and $103,000 for the six month periods June 30,
1999 and 1998, respectively.
Non-cash financing activities:
The Company entered into various capital leases for computer equipment.
These capital lease obligations resulted in non-cash financing activities
aggregating $3,061,000 and $247,000 for the six month periods ending June
30, 1999 and 1998, respectively.
The Company is obligated under various agreements to purchase domain assets.
These obligations resulted in non-cash financing activities aggregating
$197,000 and $0 for the six month periods ending June 30, 1999 and 1998,
respectively.
See accompanying notes to condensed interim financial statements.
4
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Mail.com, Inc.
Notes To Unaudited Condensed Financial Statements
(Unaudited)
(1) Summary of Operations and Significant Accounting Policies
(a) Summary of Operations
Mail.com, Inc. (the "Company" or "Mail.com") 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, direct response marketing and e-commerce
offerings 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.
(b) Initial Public Offering
On June 17, 1999, the Company completed its initial public offering, which
resulted in the issuance of 6,850,000 shares of its Class A common stock at
$7.00 per share and realized net proceeds of $43.2 million.
(c) Unaudited Interim Financial Information
The interim financial statements as of June 30, 1999 and for the three and
six months ended June 30, 1999 have been prepared by the Company and are
unaudited. In the opinion of management, the unaudited interim financial
statements have been prepared on the same basis as the annual financial
statements and reflect all adjustments, which include only normal recurring
adjustments, necessary to present fairly the financial position of Mail.com as
of June 30, 1999 and the results of its operations for the three and six months
ended June 30, 1999 and its cash flows for the six month periods ending June 30,
1999 and 1998. The financial data and other information disclosed in these notes
to the financial statements related to these periods are unaudited. The results
for the three and six month periods ended June 30, 1999 are not necessarily
indicative of the results to be expected for any
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subsequent quarters or the fiscal year ending December 31, 1999. The balance
sheet at December 31, 1998 has been derived from audited financial statements at
that date.
Certain information and note disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission's rules and regulations. It is suggested that these unaudited interim
financial statements be read in conjunction with the Company's audited financial
statements and notes thereto for the year ended December 31, 1998 as included in
the Company's Registration Statement on Form S-1 filed with the Securities and
Exchange Commission in June 1999.
(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.
(f) Domain Assets and Registration Fees
A domain name is the part of an email address that comes after the @ sign
(for example, if [email protected] is the email address then "mail.com" is the
domain name). Domain assets represent the purchase of domain names and are
amortized using the straight-line method over their economic useful lives, which
has been estimated to be five years. Domain assets are stated at cost. Domain
assets acquired in exchange for future payment obligations are stated at the net
present value of such payments using a discount rate of 8.5%. The associated
payment obligation is also recorded at the net present value of the payment
obligations . Payment terms vary from two to seven years. Amortization of domain
assets is charged to cost of revenues. The Company's policy is to evaluate its
domain assets prior to paying its annual registration renewal fees. Any
impairment is charged to cost of revenues. Retirements, sales and disposals of
domain assets are recorded by removing the cost and accumulated amortization
with the resulting amount charged to cost of revenues.
The Company pays domain name registration fees in advance to InterNIC, a
cooperative activity between the US government and Network Solutions, Inc.,
which is the national registry for domain names in the US. Payment of these fees
ensures legal ownership and registration of domain names. The initial
registration period is for a two year period with subsequent one year renewal
periods. These costs are deferred and amortized over the related registration
period.
(g) 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. Advertising was a new source of revenue in 1998. Previously, the
main source of revenue was subscription services. For the three and six months
ended June 30, 1999, revenue from advertising approximated $1.8 million and $2.8
million, respectively, while there was no advertising revenue in comparable
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periods during 1998. Advertising revenue is recognized as impressions are
delivered providing collection is probable. Up-front placement fees represent
funds received upon commencement of the contract. Such fees are recorded as
deferred revenue and amortized ratably to revenue over the term of the contract.
The Company attempts to sell all available advertising space through a
combination of advertisements that are sold on either a cost per thousand
("CPM") basis whereby the advertiser pays an agreed upon amount for each
thousand advertisements or on a cost per action basis whereby revenue is
generated only if the member responds to the advertisement with an action such
as by "clicking" on the advertisement or purchasing the product advertised. In a
CPM based advertising contract, revenue is recognized ratably as advertisements
or impressions are delivered. In a cost per action contract, revenue is
recognized as members "click" or otherwise respond to the advertisement. In
instances where revenue is the result of a purchase by a member, revenue is
recognized after the item is purchased based upon notification from the vendor.
The Company trades advertisements on its Web properties in exchange for
advertisements on the Internet sites of other companies. Barter revenues and
expenses are recorded at the fair market value of services provided or received,
whichever is more determinable in the circumstances. Revenue from barter
transactions is recognized as income when advertisements are delivered on the
Company's Web properties. Barter expense is recognized when the Company's
advertisements are run on other companies' Web sites, which is typically in the
same period when the barter revenue is recognized. Barter revenues and expenses
were approximately $111,000 and $87,000, and $255,000 and $212,000,
respectively, during the three and six months ended June 30, 1999, while there
was no barter revenue and expenses in comparable periods in 1998.
Subscriptions services are deferred and recognized ratably over the term
of the subscription periods of one, two and five years as well as eight years
for its lifetime subscriptions. Commencing March 10, 1999, the Company no longer
offers lifetime memberships and only offers monthly and annual subscriptions.
Deferred revenues principally consist of subscription fees received from members
for use of the Company's premium email services. The Company is obligated to
provide any enhancements or upgrades it develops and other support in accordance
with the terms of the applicable Mail.com Partner agreements. Revenues from
email subscriptions were approximately $146,000 and $274,000 for the three and
six months ended June 30, 1999, respectively, and approximately $69,000 and
$110,000 for the three months and six months ended June 30, 1998, respectively.
Revenues from the sale of domain names are recognized at the time when the
ownership of the domain name is transferred provided that no significant Company
obligation remains and collection of the resulting receivable is probable.
Revenues from the sale of domain names and other related services were
approximately $74,000 and $125,000 for the three and six months ended June 30,
1999, respectively, and approximately $44,000 and $73,000 for the three and six
months ended June 30, 1998, respectively.
(h) Financial Instruments and Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist of cash and cash equivalents and accounts
receivable. At December 31, 1998 and June 30, 1999, the fair value of these
instruments approximated their financial statement carrying amount because of
the short-term maturity of these instruments. Substantially all of the Company's
cash equivalents were invested in money market accounts. The Company has not
experienced any significant credit loss to date. One advertiser accounted for
13% of our revenue for the six months ended June 30, 1999. Revenues from the
Company's five largest advertisers accounted for an aggregate of 48% of our
revenues for the six months ended June 30, 1999. There was no advertising
revenue in the comparable period in 1998.
(i) 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
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income or loss available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock and resulted in the issuance of
common stock. Diluted net loss per share is equal to basic loss per share since
all common stock equivalents are anti-dilutive for each of the periods
presented. Diluted net loss per common share for the three and six months ended
June 30, 1999 and 1998 does not include the effects of options to purchase
8,185,921, 8,185,921, 6,223,428, and 6,223,428 shares of common stock,
respectively; 1,218,899, 1,218,899, 20,000, and 20,000 common stock warrants,
respectively; and 0, 0, 6,185,000, and 6,185,000 of convertible preferred
shares, respectively.
Net loss applicable to common stock for the three and six month periods
ended June 30, 1999 has been increased to give effect to $14,555,646 of
cumulative dividends on the settlement of contingent obligations to preferred
stockholders to the date of the June 1999 initial public offering.
(j) Stock Split
Effective September 30, 1998, the Company authorized and implemented a 2-1
stock split of all preferred and common stock.
Accordingly, all shares and per share amounts in the accompanying
financial statements have been restated to effect the stock split.
(k) Recent Accounting Pronouncements
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. During 1999 the Financial Accounting Standards Board
issued SFAS No. 137 which extends the effective date of SFAS No. 133. SFAS No.
137 is effective for all fiscal quarters of fiscal years beginning after June
15, 2000. We do not expect this statement to affect us, as we do not have any
derivative instruments or hedging activities.
(2) Balance Sheet Components
Property and equipment, including equipment under capital leases, are
stated at cost and are summarized as follows:
June 30, December 31,
-------- ------------
1999 1998
---- ----
(unaudited)
Computer equipment and software, including amounts
related to capital leases of $5,412,980 and
$2,352,447, respectively ......................... $17,220,100 $ 5,174,889
Furniture and fixtures ............................. 60,707 38,769
Leasehold improvement .............................. 76,042 24,050
----------- -----------
17,356,849 5,237,708
Less accumulated depreciation and
amortization, including amounts
related to capital leases of
$1,027,126 and $484,841, respectively ............ 1,878,291 896,601
----------- -----------
Total .......................................... $15,478,558 $ 4,341,107
=========== ===========
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Domain assets consist of the following:
June 30, December 31,
-------- ------------
1999 1998
---- ----
(unaudited)
Domain names ....................................... $ 5,012,938 $ 1,314,908
Less accumulated amortization ...................... 617,449 304,492
----------- -----------
Domain assets, net ............................. $ 4,395,489 $ 1,010,416
=========== ===========
In connection with acquisition of domain assets, the Company has entered into
various domain asset purchase agreements. 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 totaling $1,125,000. In the second quarter of
1999, the Company issued 130,000 common shares valued at $11.00 per share plus
$1,143,000 in connection with its acquisition of domain name assets, for
approximately $2.6 million in the aggregate.
Accrued expenses consist of the following:
June 30, December 31,
-------- ------------
1999 1998
---- ----
(unaudited)
Partner payments due ............................... $ 588,907 $ 721,587
Professional services and consulting fees .......... 1,037,265 128,118
Software obligation ................................ 362,500 --
Sales commissions .................................. 47,168 20,500
Travel and entertainment ........................... 76,961 77,825
Other .............................................. 318,958 233,583
----------- -----------
Total .......................................... $ 2,431,759 $ 1,181,613
=========== ===========
(3) Partner Agreements
The Company has entered into many partner agreements. Included in these
agreements are percentage of revenue sharing agreements, miscellaneous fees and
other customer acquisition costs with Mail.com Partners. The revenue sharing
agreements vary for each party but typically are based on selected revenues, as
defined, or on a per sign-up basis. As of June 30, 1999 and December 31, 1998,
the Company owes approximately $589,000 and $722,000, 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
balance sheet as partner advances and is amortized ratably to amortization
expense over the contract term. The launch of the services coincided with the
contract date.
In September 1998, the Company entered into an agreement with GeoCities.
In consideration of the advertising, subscription and customer acquisition
opportunities under this agreement, GeoCities received 1,000,000
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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. The
value of the stock issuance and cash payments have been recorded in the 1998
balance sheet as partner advances and would have been amortized ratably to
amortization expense over the contract term commencing upon the launch of the
services under the agreement. After the Company entered into the agreement,
Yahoo! announced its agreement to acquire GeoCities. In May 1999, the Company
and GeoCities cancelled and rescinded their agreement. As a result of the
cancellation and rescission of the agreement, GeoCities retained the $500,000
non-refundable fee that the Company paid under the contract, but returned to the
Company the 1,000,000 shares of Class A common stock issued to them.
Accordingly, the Company reversed the issuance of the 1,000,000 shares and
recorded the $500,000 write-off in May 1999. In addition, the Company has agreed
to deliver advertisements over its network on behalf of GeoCities, and GeoCities
has agreed to pay the Company $125,000 per month for sixteen months,
representing $2,000,000 in the aggregate.
The Company issued an additional 577,628 and 482,282 shares of its common
stock at varying prices in 1998 and for the six months ended June 30, 1999,
respectively, in connection with certain strategic partnership agreements. When
stock issuances are either contingent upon the achievement of certain targets or
the measurement date is not fixed, the Company expenses the issuance of such
stock at the time such stock is issued or the targets are achieved at the then
fair market value of the Company's stock.
Prior to May 1, 1999, the Company was required to issue to CNET, Snap and
NBC Multimedia shares of its Class A common stock based on the number of members
who registered at their sites. On May 1, 1999, the Company entered into an
agreement to settle in full its contingent obligation to issue shares of Class A
common stock to CNET, Snap and NBC Mutlimedia as described above. Pursuant to
this agreement, the Company issued upon the closing of the initial public
offering 2,368,907 shares of Class A common stock at a value of $7.00 per share
in the aggregate to CNET and Snap and 210,000 shares of Class A common stock at
a value of $7.00 per share to NBC Multimedia. The Company is capitalizing the
issuance of these shares and is ratably amortizing the amount over the period
from the closing of the initial public offering (June 23, 1999) through May
2001.
Certain Mail.com Partner agreements require minimum cash payments which
aggregated $4.6 million of which $1.6 million is due in 1999 and $3.0 million is
due in 2000. Additional amounts become payable to certain Mail.com Partners upon
achieving varying member levels.
(4) Leases
The Company sold certain assets for approximately $3,700,000, and $26,000
for the six months ended June 30, 1999 and 1998, respectively, and approximately
$1,500,000 and $0 for the three months ended June 30, 1999 and 1998,
respectively. The assets were leased back from the purchaser over 3-4 years. The
Company leases facilities and certain equipment under agreements accounted for
as operating leases.
(5) Capital Stock
Initial Public Offering
On June 17, 1999, the Company completed its initial public offering which
resulted in the issuance of 6,850,000 shares of its Class A common stock at
$7.00 per share and realized net proceeds of $43.2 million.
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 automatically converted on a one-for-one
basis (before giving effect to the conversion price adjustment described below)
to an equivalent number of Class A common shares upon the closing of the IPO. As
a result of an adjustment to the conversion price made immediately prior to the
consummation of the IPO, the Class E shareholders received an additional 166,439
shares of Class A common stock upon conversion of the Class E preferred stock at
the closing of the IPO.
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Conversion
Upon the closing of the Company's initial public offering on June 23,
1999, 6,185,000 and 3,776,558 shares of Class A and C convertible preferred
stock, respectively, representing all of the outstanding shares of the
convertible preferred stock, automatically converted on a one-for-one basis into
9,961,558 shares of Class A common stock (before giving effect to the
adjustments described below). In addition, the 3.2 million Class E preferred
shares automatically converted into the same number of Class A common stock
(before giving effect to the adjustments described below). Further, the holders
of Class A, C and E preferred stock received an additional 968,800, 944,139 and
166,439, Class A common shares, respectively, upon conversion of such preferred
stock at the closing of the initial public offering.
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(6) ATT Warrant
Under a letter agreement dated May 26, 1999, AT&T Corp. and the Company
have agreed to negotiate in good faith to complete definitive agreements to
establish a strategic relationship. On July 26, 1999, both parties entered into
an interim agreement to provide e-mail services to select corporate IP Services
customers. Both parties are working toward a definitive agreement that will
include additional corporate customers and a broader set of e-mail services.
Under the strategic relationship, AT&T Corp. would offer our email outsourcing
services to AT&T Corp.'s new and existing corporate customers who purchase
Internet connection services from AT&T Corp. subject to any conditions that may
be included in the definitive agreements. These services would not contain any
advertising or promotional messages. Mail.com would agree not to integrate or
customize its email outsourcing technology for these services with any third
party until December 31, 1999. Mail.com would retain the right during this
period, however, to distribute its non-customized services to corporate
customers both under its own brand name and other parties' brand names if these
other parties do not need to integrate or customize our technology. At AT&T
Corp.'s request, Mail.com would also agree to work with AT&T on a preferred
basis to develop and integrate technologies for services such as email,
voicemail, telephony, paging and voice conferencing. AT&T Corp. or the Company
may terminate the letter agreement without further liability if definitive
agreements are not entered into on or before August 31, 1999. Under the letter
agreement, the Company issued warrants to purchase 1,000,000 shares of Class A
common stock at $11.00 per share. AT&T Corp. may exercise the warrants at any
time on or before December 31, 2000 regardless of whether the Company enters
into definitive agreements for the strategic relationship. If under the proposed
strategic relationship AT&T Corp. provides more than 30,000 active emailboxes
with the Company's managed messaging service on or before December 31, 2000,
AT&T Corp. may pay the exercise price of the warrants by exchanging warrants in
lieu of cash. AT&T Corp. may not sell or otherwise transfer to a third party the
warrants or the shares issuable upon exercise of the warrants until the earlier
of May 26, 2004 or the date that it provides more than 30,000 active emailboxes
if this date is on or before December 31, 2000. In addition, AT&T Corp. has
agreed that it will not sell or otherwise transfer the warrants or the Class A
common stock for 180 days after our initial public offering.
The Company has incurred non-cash accounting charges of approximately $4.3
million in the aggregate as a result of the issuance of these warrants. The
Company will amortize these charges over the term of any definitive agreement
entered into with AT&T Corp. If the Company does not enter into a definitive
agreement, the non-cash charges will be expensed in the fiscal quarter in which
both parties have ceased negotiations for the proposed strategic relationship.
(7) CNET/NBC Stock Warrant
In 1998, the Company entered into a partner agreement with CNET, Inc.
which was amended shortly thereafter to include the newly formed Snap, LLC.
During March 1999, Snap assigned their rights to NBC Multimedia. As part of this
agreement, on November 6, 1998 , warrants for an aggregate of 1,500,000 Class A
common shares were granted at an exercise price of the lesser of $5.00 per share
(the fair market value at the date of grant) or the IPO price. In March 1999,
CNET and NBC Multimedia exercised their warrants in accordance with this
agreement by placing the proceeds of $7.5 million in an escrow account. With the
closing of the initial public offering on June 23, 1999, funds from the exercise
of the warrants were disbursed to the Company and the shares of the Class A
common stock relating to the warrants were issued to CNET and NBC Multimedia.
(8) Subsequent Events
On July 12, 1999, the Company's underwriters exercised their
over-allotment option of 1,027,500 additional shares of the Company's Class A
common stock at $7.00, which realized net proceeds of approximately $6.7 million
to the Company.
On July 14, 1999, the Company entered into an agreement with 3Cube, Inc.
(an email to fax technology company) to establish a strategic and commercial
relationship. Pursuant to the agreement, the Company paid $1 million in cash and
issued 80,083 shares of its Class A common stock in exchange for 136,720 shares
of 3Cube, Inc. Series A convertible preferred stock and 170,724 shares of Series
B convertible preferred stock, the aggregate of which represents less than 20%
of 3Cube, Inc. The Company recorded this transaction under the cost method.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of
operations of Mail.com contains forward-looking statements relating to future
events and future performance of Mail.com within the meaning of section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Stockholders are cautioned that such
statements involve risks and uncertainties. Mail.com's actual results and timing
of certain events could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not
limited to, those set forth under "RISK FACTORS THAT MAY AFFECT FUTURE RESULTS"
and elsewhere in this report and in Mail.com's other public filings made with
the Securities and Exchange Commission.
OVERVIEW
Mail.com is a global provider of email services. 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 increased storage capacity, and
from email service outsourcing fees. In June 1999, we delivered approximately
100 million email messages to our members and delivered approximately 300
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. During the first six months of 1999, we generated 88%
of our revenues from advertising related sales and 8% from our subscription
services. 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.
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The number of advertisements that each party agrees to deliver, and hence the
effective CPM, may not be equal. We recognize barter revenues ratably as the
third party's advertisements are delivered to our members. We record cost of
revenues ratably as our advertisements are delivered by the third party.
Although our revenues and related costs of revenues will be equal at the
conclusion of the barter translation, the amounts may not be equal in any
particular quarter. We record barter revenues and expenses at the fair market
value of either the services we provide or of those we receive, whichever is
more readily determinable under the circumstances. Barter revenues were
approximately 8% for the six months ended June 30, 1999 as compared to zero for
the first six months of 1998. On an annual basis we anticipate that barter
revenues will remain below 10%, although the actual percentage may fluctuate in
any given quarter.
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.
Historically, some of our contracts have required us to issue shares of Class A
common stock, 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 $117,000 and $2,364,000 for the three and six months
ended June 30,1999, respectively, while they were zero for the comparable
periods in 1998. The majority of these expenses and related contingency was with
our contracts with CNET, Snap, and NBC Multimedia. 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
issued upon the closing of our IPO 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.
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 amortize that
amount over the length of the contract. We recorded approximately $111,000 and
$222,000 of amortization expense for this agreement for the three and six months
ended June 30, 1999, respectively. There was no corresponding expense in 1998.
This amortization is included in sales and marketing expenses.
Under our agreement with GeoCities entered into in September 1998, GeoCities
received 1,000,000 shares of Class A common stock upon the commencement of the
contract in consideration of the advertising, subscription and customer
acquisition opportunities. In addition to our obligation to share revenue
generated from the partnership with GeoCities, we were required to pay GeoCities
$1.5 million in three installments, the first of which was paid in December
1998. On May 1, 1999, GeoCities and Mail.com agreed to cancel and rescind the
contract . Under this agreement, GeoCities retained the non-refundable fee that
we paid to it under the agreement and we are not required to pay the remaining
$1 million. In addition, GeoCities returned to us the 1,000,000 shares of Class
A common stock issued to them. We have also agreed to deliver advertisements
over our network on behalf of GeoCities for the sixteen-month period commencing
May 1999. The total payments by GeoCities for this advertising will be $125,000
per month or $2,000,000 in the aggregate over the sixteen-month period. In the
second quarter of 1999, we reversed the issuance of shares and expensed the
non-refundable fee previously paid to GeoCities.
In 1998, we entered into a partner agreement with CNET which was amended shortly
thereafter to include Snap, a newly formed entity. Under the agreement, we were
obligated to issue warrants for a total of 1.5 million shares of our Class A
common stock upon achievement of a member registration target. The warrants were
divided between CNET and Snap, and Snap subsequently assigned its portion to NBC
Multimedia. CNET and NBC Multimedia
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exercised their warrants prior to our initial public offering, and upon the
closing of our initial public offering on June 23, 1999, $7.5 million was
transferred from an escrow account to our account and we issued the common stock
to CNET and NBC Multimedia.
Under a letter agreement dated May 26, 1999, AT&T Corp. and the Company have
agreed to negotiate in good faith to complete definitive agreements to establish
a strategic relationship. On July 26, 1999, both parties entered into an interim
agreement to provide e-mail services to select corporate IP Services customers.
Both parties are working toward a definitive agreement that will include
additional corporate customers and a broader set of e-mail services. Under the
strategic relationship, AT&T Corp. would offer our email outsourcing services to
AT&T Corp.'s new and existing corporate customers who purchase Internet
connection services from AT&T Corp. subject to any conditions that may be
included in the definitive agreements. These services would not contain any
advertising or promotional messages. Mail.com would agree not to integrate or
customize its email outsourcing technology for these services with any third
party until December 31, 1999. Mail.com would retain the right during this
period, however, to distribute its non-customized services to corporate
customers both under its own brand name and other parties' brand names if these
other parties do not need to integrate or customize our technology. At AT&T
Corp.'s request, Mail.com would also agree to work with AT&T on a preferred
basis to develop and integrate technologies for services such as email,
voicemail, telephony, paging and voice conferencing. AT&T Corp. or the Company
may terminate the letter agreement without further liability if definitive
agreements are not entered into on or before August 31, 1999. Under the letter
agreement, the Company issued warrants to purchase 1,000,000 shares of Class A
common stock at $11.00 per share. AT&T Corp. may exercise the warrants at any
time on or before December 31, 2000 regardless of whether the Company enters
into definitive agreements for the strategic relationship. If under the proposed
strategic relationship AT&T Corp. provides more than 30,000 active emailboxes
with the Company's managed messaging service on or before December 31, 2000,
AT&T Corp. may pay the exercise price of the warrants by exchanging warrants in
lieu of cash. AT&T Corp. may not sell or otherwise transfer to a third party the
warrants or the shares issuable upon exercise of the warrants until the earlier
of May 26, 2004 or the date that it provides more than 30,000 active emailboxes
if this date is on or before December 31, 2000. In addition, AT&T Corp. has
agreed that it will not sell or otherwise transfer the warrants or the Class A
common stock for 180 days after our initial public offering.
The Company will incur non-cash accounting charges of approximately $4.3 million
in the aggregate as a result of the issuance of these warrants. The Company will
amortize these charges over the term of any definitive agreement entered into
with AT&T Corp. If the Company does not enter into a definitive agreement, the
non-cash charges will be expensed in the fiscal quarter in which both parties
have ceased negotiations for the proposed strategic relationship.
Although we have experienced substantial growth in revenues in recent periods,
we will incur substantial losses for the foreseeable future. As of June 30,
1999, we had an accumulated deficit of approximately $30.4 million. We intend to
invest heavily in sales and marketing and continued development and enhancements
to our computer systems and service offerings. Our prospects should be
considered in light of risks, expenses and difficulties encountered by companies
in the early stages of development, particularly companies in the rapidly
evolving internet market. See "Risk Factors That May Affect Future Results."
We have recorded amortization of deferred compensation of approximately $183,000
for the six months ended June 30, 1999, in connection with the grant of stock
options to one of our officers. This deferral represents the difference between
the deemed fair value of our common stock for accounting purposes and the
exercise price of the options at the date of grant. This amount is represented
as a reduction of stockholders' equity and amortized over the 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. We will
amortize the remaining deferred compensation over the remaining vesting period
of approximately two and one half years.
We have recorded additional deferred compensation of approximately $640,000 and
amortization of deferred compensation of approximately $35,000 in the second
quarter ended June 30, 1999 in connection with the grant of 110,150 stock
options to some employees. This deferral represents the difference between the
deemed fair value of our common stock for accounting purposes, in this case
$7.00-$11.00 per share, and the $5.00 per share exercise price of the options at
the date of grant. We will amortize the deferred compensation over the four-year
vesting period of the applicable options.
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In light of the evolving nature of our business and our limited operating
history, we believe that period-to-period comparisons of our revenues and
operating results are not meaningful and should not be relied upon as
indications of future performance. We believe that advertising sales in
traditional media, such as television and radio, generally are lower in the
first calendar quarter. Our revenues are also affected by seasonal patterns in
advertising, which would become more noticeable if our revenue growth does not
continue at its recent rate. We do not believe that our historical growth rates
are indicative of future results.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1999 and 1998
Revenue
Revenues for the three months and six months ended June 30, 1999 were $2.1
million and $3.2 million, respectively, as compared to $139,000 and $220,000,
respectively, for the three and six months ended June 30, 1998. These increases
of $2.0 million and $3.0 million, respectively, were due primarily to commencing
advertising sales in the second half of 1998. Our members established
approximately 1.3 million emailboxes during the second quarter of 1999 and 2.4
million for the first six months of 1999, as compared to 0.6 million and 1.2
million for the three and six months ending June 30, 1998, respectively. The
cumulative total of emailboxes established approximates 6.3 million as of June
30, 1999.
Advertising revenues for the three and six months ended June 30, 1999 were $1.8
million and $2.8 million, respectively, while there were no advertising revenues
in the comparable periods during 1998. For the three and six months ended June
30, 1999, approximately 15% and 13%, respectively, of our revenue came from one
advertiser. Revenue for the Company's five largest advertisers accounted for
approximately 54% and 48% of our revenues for the three and six months ended
June 30, 1999, respectively. For the three and six months ended June 30, 1999
approximately $111,000 and $255,000, respectively, were barter revenues, while
there was no barter revenue in comparable periods in 1998.
Our revenues from subscription services were $146,000 and $274,000,
respectively, for the three and six months ended June 30, 1999, an increase from
$69,000 and $110,000, respectively, for the three and six months ended June 30,
1998. Other revenue, primarily the sale or leasing of domain names, was $74,000
and $125,000, respectively, for the three and six months ended June 30, 1999 and
$77,000 and $110,000 for the three and six months ended 1998.
OPERATING EXPENSES
Cost of Revenues
Cost of revenues for the three and six months ended June 30, 1999 were $2.2
million and $3.7 million, respectively, as compared to $0.6 million and $0.9
million, respectively, for the comparable periods in 1998. Cost of revenues
consists primarily of costs incurred in the delivery and support of our email
service, including depreciation of equipment used in our computer systems, the
cost of telecommunications service, and personnel costs associated with our
systems, databases and graphics. Cost of revenues also includes costs associated
with licensing third party network software. In addition, we report the cost of
barter trades, amortization of domain assets, and the cost of domain names that
have been sold in cost of revenues. During the first six months of 1999,
especially in the second quarter, we purchased significant amounts of capital
equipment for our computer systems to accommodate the current growth and
anticipate the future growth of emailboxes. During the three and six months
ended June 30, 1999, barter expense was approximately $88,000 and $212,000,
respectively, while there is no barter expense in comparable periods in 1998. We
also substantially increased headcount in the above groups during 1999. We
anticipate continuing to purchase significant amounts of hardware and software
and to continue to hire technical personnel.
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Sales and Marketing Expenses
Sales and marketing expenses were $3.9 million and $7.5 million, respectively,
for the three and six months ended June 30, 1999 as compared to $0.5 and $0.8
million, respectively, for the comparable periods in 1998. The increase was
primarily due to the expansion of our sales and marketing efforts and the
increase in partner agreements with third party web sites. The largest component
of sales and marketing expenses are customer acquisition costs. The costs
related to customer acquisitions through the issuance of Class A common stock
were approximately $0.2 million and $2.4 million, respectively, for the three
and six months ended June 30, 1999 as compared to zero for the comparable
periods in 1998. Customer acquisition costs for the three months ended June 30,
1999 were significantly lower than the first quarter of 1999 due to an amendment
to the CNET, Snap and NBC agreement which eliminated the monthly issuance of
shares during the second quarter, but issued the remainder of the shares under
the contract simultaneously with the IPO. The associated value of these shares
are being amortized over the subsequent two year period. We recorded
approximately $0.4 million of amortization expense in connection with the
issuance of these shares for the six months ended June 30, 1999. The next
largest cost is advertising expenses, which reflect the launch of our
advertising campaign to build our brand. The remainder of the costs in this
category relate to salaries and commissions for sales, marketing, and business
development personnel. We increased our sales and marketing efforts throughout
the first half of 1999 and expect sales and marketing expenses to continue to
increase as we continue to invest in sales and marketing personnel, expand our
partner network, and build our brand name.
General and Administrative
General and administrative expenses were $2.6 million and $4.0 million,
respectively, for the three and six months ended June 30, 1999 as compared to
$0.5 million and 0.8 million, respectively, for the comparable periods in 1998.
Included in the second quarter 1999 expenses is the write-off of a $0.5 million
non-refundable fee paid to GeoCities resulting from the cancellation and
rescission of our original contract and the entry into a new advertising
agreement. The remainder of the increase was due to the increase in personnel
and related costs, increasing customer service coverage to 24 hours per day, 7
days per week, and increased facilities costs. General and administrative
expenses consist primarily of compensation and other employee costs not included
in other line items, as well as overhead expenses, customer support and bad debt
expense. We expect these expenses to continue to grow as necessary to support
the growth of our business and to operate as a public company.
Product Development
Product development costs were $1.4 million and $2.6 million, respectively, for
the three and six months ended June 30,1999 as compared to $0.3 million and $0.5
million, respectively, for the comparable periods in 1998. The increase in
expenses was primarily due to increased staffing and consulting costs to add new
features, design new services and redesign existing services. During the six
month period ending June 30, 1999, a portion of the consulting expenses were
paid through the issuance of 55,000 shares of our Class A common stock. Product
development costs consist primarily of salaries and consulting services. 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.
Other Income (Expense), Net
Other income (expense), net includes interest income from our cash investments,
gain on the sale of investments and interest expense related to our capital
lease obligations. Interest income of $0.2 million and $0.3 million for the
three and six months ended June 30, 1999, respectively, increased from $0.02
million and $0.03 million for the comparable periods in 1998 due to higher cash
balances after we completed a private placement of preferred stock in March 1999
and our Initial Public Offering in June 1999 . In 1998 we realized a gain of
approximately $0.4 million when we sold shares of Lycos common stock. We
received the Lycos stock as consideration in March 1998 when Lycos exercised an
option to acquire our Class A preferred stock. We had granted Lycos the option
when we entered into a partner contract with them in October 1997. Interest
expense was $0.1 million and $0.2 million for the three and six months ended
June 30, 1999, respectively, as compared to $0.02 million and $0.03 million,
respectively, for the comparable periods in 1998. The increase was due to
interest recorded on our capital lease obligations, as we continue to finance
our computer equipment purchases
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PREFERRED STOCK DIVIDEND
In March 1999, with the consent of the applicable preferred shareholders, the
Company agreed if the IPO was consummated under the terms anticipated, to
eliminate in full the contingent additional stock issuance obligations in
exchange for the issuance of 968,800, 944,139, and 166,439 Class A common shares
to shareholders who held Classes A, C and E preferred shares, respectively. This
exchange happened concurrently with the IPO. Simultaneously, all of the shares
of preferred stock were converted on a one-for-one basis to shares of Class A
common stock.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have obtained financing through private placements of
equity securities, equipment leases, and more recently through our initial
public offering. In March 1999, we received net proceeds of $15.1 million from
the sale of Class E convertible preferred stock. In June 1999, we received net
proceeds of approximately $51.1 million from our initial public offering,
concurrent share issuance to CNET and NBC Multimedia for the exercise of their
warrants to purchase Class A common stock and from the exercise of some employee
stock options. In July 1999, we received an additional $6.7 million when the
underwriters exercised their over-allotment of shares.
Net cash provided by (used in) operating activities was $529,000 for the six
months ended June 30, 1999 and ($1.4) million for the comparable periods in
1998. Cash provided from operating activities turned positive this quarter as we
increased accounts payable and accrued expenses, resulting primarily from
increased computer equipment and software purchases in the latter part of the
second quarter of 1999.
Net cash used in investing activities was $9.4 million for the six months ended
June 30, 1999 and $1.2 million for the comparable period in 1998. 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.
Net cash provided by financing activities was $65.8 million for the six months
ended June 30, 1999 and $4.3 million for the comparable period in 1998. During
the second quarter of 1999, $51.1 million was received from our initial public
offering,the exercise of Class A common stock warrants from CNET and NBC
Multimedia and from the exercise of some employee stock options. During the
first quarter of 1999 $15.2 million was received in net proceeds from the sale
of Class E preferred stock. During the six months ended 1998, $4.7 million was
received from the issuance of Class A preferred stock.
On July 14, 1999 we purchased an equity interest of less than 20% in 3Cube, Inc.
Under the agreement, we paid $1.0 million in cash and issued 80,083 shares of
our Class A common stock. This agreement also included a technology licensing
arrangement, whereby 3Cube would integrate its Internet facsimile technology in
our email service across our partner network. If requested by them, we will
provide our Webmail services on their Web site.
As of June 30, 1999 we had $65.4 million of cash and cash equivalents. Our
principal commitments consist of obligations under capital leases, domain asset
purchase obligations and commitments for capital expenditures. We believe that
the existing cash and cash equivalents will be sufficient to meet our working
capital and capital expenditure requirements for at least the next 12 months.
Our operating and investing activities may require us to obtain additional
equity or debt financing. In addition, we continue to evaluate potential
acquisitions of other businesses, products, and technologies on an ongoing
basis. In order to complete these potential acquisitions, we may need additional
equity or debt financing in the future. Sales of additional equity securities
could result in additional dilution to our stockholders.
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YEAR 2000 COMPLIANCE
Our business could suffer if the systems on which we are dependent to conduct
our operations are not Year 2000 compliant.
Our potential areas of exposure include:
o internal information technology, including computers and software;
o non-information technology, including telephone systems and other
equipment that we use internally; and
o external, third party systems, particularly the systems that
comprise the Internet and those products and services that allow our
members to access the Internet.
We have completed our initial assessment of current Year 2000 compliance for
both our information and non-information technology. Based on our initial
assessment, we believe all non-information technology, including security and
phone systems, upon which we are materially dependent, is Year 2000 compliant.
We expect to resolve any Year 2000 compliance issues relating to information
technology that we use internally primarily through normal upgrades or, when
necessary, through replacement of existing software with Year 2000 compliant
products. We do not expect the cost of these upgrades or replacements to be
material to our financial position or results of operations. If our production
and operational facilities that support our own Web sites are not Year 2000
compliant, portions of our services may become unavailable. Our review of our
systems has shown that there is no single component that would make our services
totally unavailable. We intend to complete the testing of our technologies,
replacement or correction of our non-compliant technologies and testing of any
replacement or corrected technologies by October 31, 1999.
We estimate that our total cost to become Year 2000 compliant will not exceed
$200,000. We have allocated this amount as follows:
o $100,000 for a test system that is independent of our main
production system;
o $50,000 for unplanned hardware and software upgrades; and
o $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 1% 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 July 31, 1999, we have received notification from
over 90% of our manufacturers and suppliers and approximately 20% of our
partners that they are either Year 2000 compliant or are taking necessary steps
to become Year 2000 compliant. Partners have been slow to respond to inquiries
regarding Year 2000 compliance. To the extent that
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partners fail to provide certification that they are Year 2000 compliant by
September 30, 1999, we will reevaluate our relationships. We have not engaged
any independent services to verify and validate representations made by key Web
sites and partners, manufacturers and suppliers. We plan to monitor progress of
these entities by requesting periodic updates as they prepare for the arrival of
the year 2000.
In the event that any of our partner sites are unable to operate due to Year
2000 difficulties, we could with our partner's consent offer most of the
affected members the ability to bypass the partner site and access their
emailbox through one of our own sites.
We do not currently have a contingency plan to deal with the worst-case scenario
involving Year 2000-related failures of technologies on which we are dependent.
We intend to develop a plan for this scenario by October 1, 1999. Our
contingency plan will outline our plans and procedures for dealing with
unanticipated difficulties resulting from Year 2000-related failures. Potential
Year 2000 problems will vary in significance, ranging from minor software bugs
to network failures. Our services would not be available under our worst case
scenario, potentially resulting in loss of revenues and a decrease in the number
of new members. Although we do not anticipate the occurrence of this worst case
scenario, our contingency plan will include procedures to follow if it occurs.
If our present efforts to address the Year 2000 compliance issues are not
successful, or if partners, manufacturers, suppliers and other third parties do
not successfully address these issues, our business, operating results and
financial position could be materially and adversely affected.
RECENT ACCOUNTING PRONOUNCEMENTS
In 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. During 1999 the Financial Accounting Standards Board
issued SFAS No. 137 which extends the effective date of SFAS No. 133. SFAS No.
137 is effective for all fiscal quarters of fiscal years beginning after June
15, 2000. We do not expect this statement to affect us, as we do not have any
derivative instruments or hedging activities.
RISKS FACTORS THAT MAY AFFECT FUTURE RESULTS
We have only a limited operating history, and we are involved in a new and
unproven industry.
We have only a limited operating history upon which you can evaluate our
business and our prospects. We have offered a commercial email service since
November 1996 under the name iName. We changed our company name to Mail.com,
Inc. in January 1999. Our success will depend first upon the development of a
viable market for email advertising and fee-based email outsourcing, and then
upon our ability to compete successfully in those markets. For the reasons
discussed in more detail below, there are substantial obstacles to our achieving
and sustaining profitability.
We have incurred losses since inception and expect to incur substantial losses
in the future.
We have generated only limited revenues to date. We have not achieved
profitability in any period, and we may not be able to achieve or sustain
profitability. We incurred a net loss of $12.5 million for the year ended
December 31, 1998 and $14.4 million for the six months ended June 30, 1999. We
had an accumulated deficit of $30.4 million as of June 30, 1999.
We expect to continue to incur substantial net losses and negative operating
cash flow for the foreseeable future. We have begun and will continue to
significantly increase our operating expenses in anticipation of future growth.
We intend to expand our sales and marketing operations, upgrade and enhance our
technology, continue our international expansion, and improve and expand our
management information and other internal systems. We 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.
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We have relied upon strategic alliances with third party Web sites to attract
the majority of our current members. We believe that our success will partially
depend on our ability to maintain our current alliances and to enter into new
ones with Web sites and ISPs on acceptable terms. We believe, however, that the
opportunity to form alliances with third party Web sites that are capable of
producing a substantial number of new members is diminishing. Many third party
Web sites that we have identified as potential sources for significant
quantities of new members already offer their visitors an email service similar
to ours. We cannot assure you that we will be able to enter into successful
alliances with third party Web sites or ISPs on acceptable terms or at all.
Our contracts with our Web site and ISP partners require us to incur substantial
expenses.
In nearly all cases our Web site and ISP partners do not pay us to provide our
services. We bear the costs of providing our services. We generate revenues by
selling advertising space to advertisers who want to target our members and our
ISP partners' members and by selling subscription services to these members. We
pay the partner a share of the revenues we generate. In addition, a number of
our contracts require us to pay significant fees or to make minimum payments to
the partner without regard to the revenues we realize. If we are unable to
generate sufficient revenues at our partner sites, these fees and minimum
payments can cause the partner's effective share of our revenues to approach or
exceed 100%. 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. We cannot predict whether future
relationships, or renewals of existing relationships, will be more expensive
than the arrangements we have entered into to date.
We have issued warrants to purchase 1,000,000 shares of our Class A common stock
to AT&T Corp. as part of a proposed strategic relationship with them, but we
cannot assure you that we will enter into the strategic relationship.
Under a letter agreement with AT&T Corp. dated May 26, 1999, we issued warrants
to purchase 1,000,000 shares of our Class A common stock at an exercise price of
$11.00 per share. AT&T Corp. may exercise the warrants at any time on or before
December 31, 2000 even if we do not enter into a strategic relationship with
them. We will incur non-cash accounting charges of approximately $4.3 million in
the aggregate as a result of the issuance of these warrants. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." Under
the letter agreement, AT&T Corp. and Mail.com have agreed to negotiate in good
faith to establish a strategic relationship. AT&T Corp. or Mail.com may
terminate the letter agreement without further liability if we do not enter into
definitive agreements on or before August 31, 1999. We cannot assure you that we
will be able to enter into definitive agreements to implement the proposed
strategic relationship. AT&T Corp. will be entitled to retain their warrants
even if we do not enter into definitive agreements.
The failure to renew our partner contracts, which have limited terms, can result
in the loss of members and impair our credibility.
Our partner contracts generally have one or two year terms. A partner can decide
not to renew at the end of the term for a variety of reasons, including
dissatisfaction with our service, a desire to switch to one of our outsourcing
competitors, or a decision to provide email service themselves. Partners can
also choose not to renew our contract because they have entered into a merger or
other strategic relationship with another company that can provide email
service. This last factor is becoming increasingly common in light of the
consolidation taking place among Web sites, ISPs and other Internet-related
businesses. For example, NBC Multimedia announced on May 10, 1999, that it
reached an agreement with Xoom to create a new Internet services company. Under
the terms of the agreement, Xoom will merge with Snap, which is jointly owned by
CNET and NBC Multimedia. Xoom currently offers a free email service at its
Xoom.com Web site. We cannot assure you that these partners will not seek to
terminate their contractual relationships with us. The loss of a partner can be
very disruptive for us for a number of reasons:
We will lose a substantial number of members. When members register for our
service at a partner's Web site, the default domain name members use for their
email address is typically a domain name that is owned by the partner. As of
June 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
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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 June 30, 1999, we estimate that approximately 18% of
our emailboxes established are at the email.com domain. If CNET and Snap
exercise their rights to terminate our agreement, which includes the right to
terminate for convenience after May 13, 2001, we would be obligated to transfer
the email.com domain name and related member information to them. If CNET and
Snap terminate for convenience, they would be obligated to pay us the greater of
$5 million or 120% of the fair market value of the email.com user data based on
the projected economic benefit of the users and either return to us the shares
that we issued to them for the establishment of emailboxes or pay us the then
fair market value of these shares. If CNET and Snap terminate for other reasons,
the amount of compensation they must pay to us varies depending on the reason
for termination. NBC Multimedia may elect to exercise similar rights relating to
email.com emailboxes established through their sites under our agreement with
them.
Losing relationships with prominent partners can impair our credibility with
advertisers and other partners. We believe that partnerships with Web sites that
have prominent brand names help give us credibility with other partners and with
advertisers. The loss of our better-known partners could damage our reputation
and adversely affect the advertising, direct marketing, e-commerce and
subscription rates we charge.
Several of our most significant partner contracts have expired or will soon
terminate, which could result in reduced advertising and subscription revenues.
Any loss of members or decline in the number of page views arising out of the
expiration or termination of partner contracts could reduce our advertising and
subscription revenues.
Two of our most important Web site partnerships have been with Lycos and
AltaVista, which collectively have accounted for approximately 22% of the
emailboxes established through June 30, 1999, and for approximately 20% of the
total page views we delivered in June 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
October 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.
Because we are dependent on a small number of partner sites for a substantial
percentage of our anticipated new members, a disruption in our relationship with
any of these partners or a decrease in traffic at any of these sites could
reduce our advertising related revenues and subscription revenues.
Most of our partner sites, including most of those with well known brand names,
do not generate significant numbers of new emailboxes. The following five
partners accounted for 47% of our new emailboxes established in June 1999:
Date that our
Percentage of New Contract with the
Partner Emailboxes in June 1999 Partner Expires
- ------- ----------------------- ---------------
Snap ............................. 20% *
CNET ............................. 10 *
Prodigy .......................... 7 February 2000
AltaVista ........................ 7 June 1999
Canada.com ....................... 3 April 2000
* CNET and Snap may terminate their contracts for convenience after May 13,
2001.
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Our original contract with AltaVista expired on June 30, 1999. At AltaVista's
request, we are discussing with them extending the expiration date for up to to
120 days after June 30, 1999. Our contracts with Prodigy and Canada.com are
automatically renewable for successive six month and one year terms,
respectively, unless either party elects to terminate at least thirty days or
sixty days, respectively, before the start of a new term.
If any of the Web sites operated by these parties were to experience lower than
anticipated traffic, or if our relationships with any of these parties were
disrupted for any reason, our revenues could decrease and the growth of our
business would be impeded. Lower than anticipated traffic could result in
decreased advertising related revenues because those revenues are in part
dependent on the number of members and the level of member usage.
Our recent subscription rate increases and new billing system are likely to
result in the loss of members and a reduction in usage by members, thereby
reducing our potential advertising revenues.
On March 10, 1999, we increased our subscription rates for our premium email
services. As a result of these rate increases, we anticipate that some of our
existing premium members may not renew their subscriptions and that a lower
percentage of new members will register for our premium services. We are also in
the process of installing a new billing system designed to collect and verify
credit card information from premium users at the time they register for our
services. In the past we did not seek this information until after a 30-day
trial period had expired, and in most instances did not terminate services to
premium members who did not pay for our services. With the introduction of our
new billing system, we have begun terminating premium services to members who do
not pay for these services. This will not reduce our subscription revenues, but
it will reduce usage by those members and thereby reduce our potential
advertising revenues.
We have only limited information about our members and their usage, which may
reduce our potential revenues.
Our ability to generate revenue from advertising related sales is directly
related to our members' activity levels and the quality of our demographic data.
To be successful, we will have to increase members' usage of our service. We are
subject to several constraints that will limit our ability to maximize the value
of our member base:
We believe that most of our members do not use their emailboxes regularly, and
many do not use them at all. We do not have the computer systems necessary to
regularly monitor emailbox usage. Our most recent information is for selected
Web sites for the two weeks ended January 24, 1999, and excludes members who
automatically forward their email from their emailbox provided by Mail.com to
another emailbox and members that subscribe for our upgrade "POP3" access.
During that period, no more than 30% of the emailboxes in the sample were
accessed by our members. Moreover, approximately one-third of those emailboxes
that were accessed were first established during the two week period. We expect
our proportion of active members to decrease as our total number of established
emailboxes increases. On an ongoing basis, we believe that a significant number
of members will cease using our service each month. We cannot assure you that we
will be able to add enough new members to compensate for this anticipated loss
of usage.
We have only a limited ability to generate advertising revenues from forwarding
and POP3 accounts, which represent a significant percentage of our emailboxes.
Members who choose our forwarding service or subscribe to our POP3 service do
not need to come to our partners' or our Web sites to access their email.
Therefore, we do not deliver Web-based advertisements to these members.
Forwarding and POP3 accounts represented approximately 43% of our total
emailboxes as of June 30, 1999, and 23% of the emailboxes that were established
during June 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.
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We do not know how many members have established multiple emailboxes. Because we
do not charge for our basic service, individuals can easily establish multiple
emailboxes. This makes it impossible for us to determine the number of separate
individuals registering for our service, which may reduce the advertising rates
we can command.
Webmail, email advertising and email outsourcing may not prove to be viable
businesses.
We intend to operate in an industry that is only beginning to develop. Our
success will require the widespread acceptance by consumers of Webmail. We are
also dependent on the development of viable markets for outsourcing email and
email advertising. For a number of reasons, each of these developments is
somewhat speculative:
Consumers may not be willing to use Webmail in large numbers. As a Web-based
messaging service, Webmail is subject to the same concerns and shortcomings as
the Internet itself. Concerns about the security of information carried over the
Internet and stored on central computer systems could inhibit consumer
acceptance of Webmail. Moreover, Webmail can only function as effectively as the
Web itself. If traffic on the Web does not move quickly or Internet access is
impeded, consumers are less likely to use Webmail. Consumers may also react
negatively to the relatively new concept of advertising being included in their
email service. Our business will suffer if public perception of our service or
of Webmail in general is unfavorable. Articles and reviews published in popular
publications relating to computers and the Internet have a great deal of impact
on public opinion within our markets, and an article or review unfavorable to
Webmail or to our service specifically could slow or prevent broad market
acceptance. Similarly, if employers in large numbers implement policies or
software designed to restrict access to Webmail, Webmail is much less likely to
gain popular acceptance.
There are even greater uncertainties about our ability to successfully market
premium Webmail services. Consumers have generally been very reluctant to pay
for services provided over the Internet. Moreover, if our competitors choose to
provide POP3 access 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 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.
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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.
For the six month period ended June 30, 1999, approximately 13% 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 48% 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.
We may fail to meet market expectations because of fluctuations in our quarterly
operating results, which would cause our stock price to decline.
Although we intend to steadily increase our spending and investment to support
our planned growth, our revenues (and some of our costs) will be much less
predictable. This is likely to result in significant fluctuations in our
quarterly results, and to limit the value of quarter-to-quarter comparisons.
Because of our limited operating history and the emerging nature of our
industry, we anticipate that securities analysts will have difficulty in
accurately forecasting our results. It is likely that our operating results in
some quarters will be below market expectations. In this event, the price of our
Class A common stock is likely to decline.
The following are among the factors that could cause significant
fluctuations in our operating results:
o payments to our Web site partners in the form of stock that we will
be required to value at then-current market prices;
o incurrence of a non-cash accounting charge of approximately $4.3
million if we do not enter into definitive agreements with AT&T
Corp. We would incur this charge in the fiscal quarter in which both
parties have ceased negotiations;
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o delay or cancellation of even a small number of advertising
contracts;
o expiration or termination of partnerships with Web sites or ISPs,
o which can result from mergers or other strategic combinations as
Internet businesses continue to consolidate;
o system outages, delays in obtaining new equipment or problems with
planned upgrades;
o disruption or impairment of the Internet;
o introduction of new or enhanced services by us or our competitors;
o changes in our pricing policy or that of our competitors;
o seasonality in the demand for advertising, or changes in our own
advertising rates or advertising rates in general, both on and off
the Internet;
o changes in governmental regulation of the Internet and email in
particular; and
o general economic and market conditions, and particularly those
affecting email advertising.
Several of our competitors have substantially greater resources, longer
operating histories, larger customer bases and broader product offerings.
Our business is, and we believe will continue to be, intensely competitive. Our
competitors with respect to email services include such large and established
companies as Microsoft, America Online, Yahoo!, Excite@Home, Disney (which owns
the GO Network) and Lycos. Microsoft offers free Webmail through its Hotmail Web
site, and has dominant market share with 40 million emailboxes according to
Microsoft. We also compete for partners with email service providers such as
USA.Net, Inc., Critical Path, Inc. and CommTouch Software Ltd. In 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.
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.
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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 153 on July 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 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.
27
<PAGE>
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.
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.
28
<PAGE>
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 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.
29
<PAGE>
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.
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 controls Mail.com and will be able to prevent a change of control.
Gerald Gorman, our Chairman and Chief Executive Officer, beneficially owned as
of July 31, 1999 Class A and Class B common stock representing approximately
77.0% 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.
30
<PAGE>
Mail.com and Mr. Gorman have agreed to permit our stockholders who formerly held
our preferred stock to designate a total of three members of our board of
directors.
Our charter contains provisions that could deter or make more expensive a
takeover of Mail.com. These provisions include the ability to issue "blank
check" preferred stock without stockholder approval.
It is our intention to acquire or make strategic investments in other businesses
and to acquire or license technology and other assets, and we may have
difficulty integrating these businesses or generating an acceptable return from
acquisitions.
We 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:
o inability to raise the required capital;
o difficulty in assimilating the acquired operations and personnel;
o inability to retain any acquired member accounts;
o disruption of our ongoing business;
o inability to successfully incorporate acquired technology into our
service offerings and maintain uniform standards, controls,
procedures, and policies; and
o lack of the necessary experience to enter new markets.
We may not successfully overcome problems encountered in connection with
potential acquisitions. In addition, an acquisition could materially impair our
operating results by diluting our shareholders' equity, causing us to incur
additional debt, or requiring us to amortize acquisition expenses and acquired
assets.
Our goal of building brand identity is likely to be difficult and expensive.
We believe that a quality brand identity will be essential if we are to increase
membership, traffic on our sites and revenues. 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.
Our expansion into international markets is subject to significant risks and our
losses may increase and our operating results may suffer if our revenues from
international operations do not exceed the costs of those operations.
We intend to continue to expand into international markets and to spend
significant financial and managerial resources to do so. We have limited
experience in international operations and may not be able to compete
effectively in international markets. If our revenues from international
operations do not exceed the expense of establishing and maintaining these
operations, our losses will increase and our operating results will suffer. We
face significant risks inherent in conducting business internationally, such as:
o uncertain demand in foreign markets for Webmail advertising, direct
marketing and e-commerce;
o difficulties and costs of staffing and managing international
operations;
o differing technology standards;
31
<PAGE>
o difficulties in collecting accounts receivable and longer collection
periods;
o economic instability and fluctuations in currency exchange rates and
imposition of currency exchange controls;
o potentially adverse tax consequences; and
o political instability, unexpected changes in regulatory
requirements, and reduced protection for intellectual property
rights in some countries.
If we are unable to raise necessary capital in the future, we may be unable to
fund necessary expenditures.
We anticipate the need to raise additional capital in the future. However, we
may not be able to raise on terms favorable to us, or at all, amounts necessary
to fund our planned expansion, develop new or enhanced services, respond to
competitive pressures, promote our brand name or acquire complementary
businesses, technologies or services. Some of our shareholders have registration
rights that could interfere with our ability to raise needed capital.
If we raise additional funds by issuing equity securities, stockholders may
experience dilution of their ownership interest. Moreover, we could issue
preferred stock that has rights senior to those of the Class A common stock. If
we raise funds by issuing debt, our lenders may place limitations on our
operations, including our ability to pay dividends.
Regulation of email and Internet use is evolving and may adversely impact our
business.
There are currently few laws or regulations that specifically regulate activity
on the Internet. However, laws and regulations may be adopted in the future that
address issues such as user privacy, pricing, and the characteristics and
quality of products and services. For example, the Telecommunications Act of
1996 restricts the types of information and content transmitted over the
Internet. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate ISPs and online service providers in a
manner similar to long distance telephone carriers and to impose access fees on
these companies. This could increase the cost of transmitting data over the
Internet. Any new laws or regulations relating to the Internet could adversely
affect our business.
Moreover, the extent to which existing laws relating to issues such as property
ownership, pornography, libel and personal privacy are applicable to the
Internet is uncertain. We could face liability for defamation, copyright, patent
or trademark infringement and other claims based on the content of the email
transmitted over our system. We do not and cannot screen all the content
generated and received by our members. Some foreign governments, such as
Germany, have enforced laws and regulations related to content distributed over
the Internet that are more strict than those currently in place in the United
States. We may be subject to legal proceedings and damage claims if we are found
to have violated laws relating to email content.
Our intellectual property rights are critical to our success, but may be
difficult to protect.
We regard our copyrights, service marks, trademarks, trade secrets, domain names
and similar intellectual property as critical to our success. We rely on
trademark and copyright law, trade secret protection and confidentiality and/or
license agreements with our employees, members, strategic partners and others to
protect our proprietary rights. Despite our precautions, unauthorized third
parties may improperly obtain and use information that we regard as proprietary.
Third parties may submit false registration data attempting to transfer key
domain names to their control. Our failure to pay annual registration fees for
key domain names may result in the loss of these domains to third parties. Third
parties have challenged our rights to use some of our domain names, and we
expect that they will continue to do so.
32
<PAGE>
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
could cause the market price of our Class A common stock to decline. As of
August 12, 1999, we had an aggregate of 43,255,943 shares of Class A and Class B
common stock and 8,748,322 options and 1,218,899 warrants to purchase an
aggregate of 9,967,221 shares of Class A common stock outstanding. Substantially
all the shares sold in our initial public offering is freely tradable.
35,225,345 of the remaining 35,378,443 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 December 15, 1999 (181 days after the date of this prospectus),
31,604,139 shares will become available for sale, including shares issuable upon
the exercise of options and upon the conversion of Class B common stock. The
remaining shares will become available at various later dates upon the
expiration of one-year holding periods or upon the expiration of any other
applicable restrictions on resale. We are likely to issue large amounts of
additional Class A common stock, which may also be sold and which could
adversely affect the price of our stock.
The holders of approximately 16,098,618 shares of Class A common stock have the
right, subject to conditions, to require us to file registration statements
covering their shares, or to include their shares in registration statements
that we may file for ourselves or for other stockholders. By exercising their
registration rights and selling a large number of shares, these holders could
cause the price of the Class A common stock to fall.
Our stock price has been volatile and we expect that it will continue to be
volatile.
Our stock price has been volatile since our initial public offering and we
expect that it will continue to be volatile. As discussed above, our financial
results are difficult to predict and could fluctuate significantly. In addition,
the market prices of securities of Internet-related companies have been highly
volatile. A stock's price is often influenced by rapidly changing perceptions
about the future of the Internet or the results of other Internet or 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.
33
<PAGE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk. Mail.com's accounts receivables are subject, in the normal
course of business, to collection risks. Mail.com regularly assesses these risks
and has established policies and business practices to protect against the
adverse effects of collection risks. As a result, Mail.com does not anticipate
any material losses in this area.
Interest Rate Risk. Mail.com's investments are classified as cash and cash
equivalents with original maturities of three months or less. Therefore, changes
in the market's interest rates do not affect the value of the investments as
recorded by Mail.com.
34
<PAGE>
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to our knowledge,
threatened against us.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) SALES OF UNREGISTERED SECURITIES.
None.
(b) USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES. On June 17, 1999,
Mail.com consummated the initial public offering of 6,850,000 shares of its
common stock (the "Offering"). Net proceeds to Mail.com from the Offering were
approximately $43.2 million.
During the three months ended June 30, 1999, Mail.com used none of the proceeds
from the Offering
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY SHAREHOLDERS
None.
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
27.1 Financial Data Schedule
99.1 Equipment Financing Lease - EMC Corporation
99.2 Equipment Financing Lease - Pentech Financial Services, Inc.
99.3 Equipment Financing Lease - Pentech Financial Services, Inc.
99.4 Investor Rights Agreement dated July 14, 1999 between
Mail.com, Inc. and 3Cube, Inc.
(b) Mail.com did not file any reports on Form 8-K during the three months
ended June 30, 1999.
ITEM 7: SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned thereto duly authorized.
Mail.com, Inc.
/s/ Debra McClister
------------------------------------
Debra McClister
Executive Vice President and Chief
Financial Officer
Date: August 16, 1999
35
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 65,407,151
<SECURITIES> 0
<RECEIVABLES> 1,199,161
<ALLOWANCES> (228,273)
<INVENTORY> 0
<CURRENT-ASSETS> 66,728,005
<PP&E> 17,356,849
<DEPRECIATION> (1,878,291)
<TOTAL-ASSETS> 109,583,746
<CURRENT-LIABILITIES> 15,956,665
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0
0
<COMMON> 421,035
<OTHER-SE> 88,744,402
<TOTAL-LIABILITY-AND-EQUITY> 109,583,746
<SALES> 3,242,949
<TOTAL-REVENUES> 3,242,949
<CGS> 3,656,208
<TOTAL-COSTS> 17,738,097
<OTHER-EXPENSES> 304,369
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 177,787
<INCOME-PRETAX> (14,368,566)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,368,566)
<DISCONTINUED> 0
<EXTRAORDINARY> (14,555,646)
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</TABLE>
ORIGINAL
EMC CORPORATION No. 11954
EMC^2
MASTER LEASE AGREEMENT
This MASTER LEASE AGREEMENT (hereinafter called the "Master Agreement") is
entered into by and between EMC Corporation, a Massachusetts corporation
(hereinafter called "Lessor"), having its principal place of business at 171
South Street, Hopkinton, MA 01748, and Mail.com, Inc. (hereinafter called
"Lessee"), having a principal place of business at 11 Broadway, Suite 660, New
York, NY 10004
I. THE LEASE
1.1 Lease of Equipment. In accordance with the terms and conditions of this
Master Agreement, Lessor agrees to lease to Lessee, and Lessee agrees to
lease from Lessor, the units of personal property (hereinafter
individually called a "Unit" and collectively called "Equipment")
described in supplement(s) which are executed pursuant to and incorporate
the terms of this Master Agreement (each hereinafter, a "Supplement").
Each Supplement shall constitute a separate, distinct, and independent
lease and contractual obligation of Lessee. The term "Lease" as used
hereinafter shall refer to an individual Supplement which incorporates the
terms of this Master Agreement. Lessor or its assignee shall retain the
full legal title to the Equipment, it being expressly agreed by both
parties that this Master Agreement and each Lease shall constitute an
agreement of lease only. Each Lease shall be binding upon Lessor and
Lessee from the date of acceptance and execution of the applicable
Supplement, by Lessor at its headquarters.
1.2 Term of Lease. The original term of lease for each Unit (hereinafter the
"Original Term") shall commence on the date specified in the applicable
Supplement and, subject to Section 2.5 below, shall terminate as specified
in such Supplement. No Lease may be canceled by Lessee for any reason
whatsoever.
1.3 Disclaimers; Warranties. LESSEE ACKNOWLEDGES AND AGREES THAT LESSOR MAKES
NO EXPRESS OR IMPLIED WARRANTIES ARISING OUT OF OR RELATED TO LESSEE'S USE
OR OPERATION OF THE EQUIPMENT. LESSOR EXPRESSLY DISCLAIMS THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE FOR THE
EQUIPMENT OR OTHER PRODUCTS, DOCUMENTATION AND SERVICES PROVIDED HEREIN.
IN NO EVENT SHALL LESSOR BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR ASSOCIATED WITH THE EQUIPMENT
OR THE LEASE THEREOF EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
1.4 Rental Payments. Lessee shall pay rental to Lessor for the Unit(s) in the
amounts and on the dates specified in the applicable Supplement. If any
rental or other amount due hereunder is not paid within five (1.5) of the
due date thereof, Lessee shall pay to Lessor on demand, as additional
rental, interest thereon from the due date until payment at a rate equal
to the lesser of (i) eighteen (18%) per annum, or (ii) the maximum rate
permitted by law. All rental and other amounts payable by Lessee to Lessor
hereunder shall be paid to Lessor at the address specified above, or at
such other place as Lessor may designate in writing to Lessee. Time is of
the essence with respect to all of Lessee's obligations under any Lease.
1.5 Return of Equipment. Upon expiration of the Original Term, Lessee will
immediately return the Equipment to Lessor as provided in Section 2.3
below. Should Lessee not return the Equipment at the end of the Original
Term, the Equipment shall continue to be held and leased hereunder, and
the Lease shall thereupon be extended for successive three (3) month
terms, at the same monthly rental, subject to the right of either Lessee
or the Lessor to terminate the Lease upon ninety (90) days written notice,
whereupon the Lessee shall forthwith deliver the Equipment to the Lessor.
If Lessee fails to return the Equipment upon demand therefor by Lessor,
Lessee shall pay Lessor, as the reasonable measure of Lessor's damages,
the value, at replacement cost, of the Equipment so converted.
II. COVENANTS OF LESSEE
2.1 Payment of Rental and Other Monies. Each lease is a net lease and Lessee
acknowledges and agrees that Lessee's obligation to pay all rental and
other sums payable hereunder, and the rights of Lessor in and to such
payments, shall be absolute and unconditional and shall not be subject to
any abatement, reduction, setoff, counterclaim or other defense for any
reason whatsoever. It being the intent of Lessor, and an inducement to
Lessor, to enter into the Lease, to claim all available tax benefits of
ownership with respect to the Equipment, Lessee acknowledges and agrees
that (i) no right, title or interest in the Equipment has been or is
intended to be passed to Lessee, other than the right to maintain
possession and use of the Equipment for the Original Term, conditioned on
Lessee's performance of the terms and conditions of the Lease, (ii) Lessee
has not taken and will not at any time during the Original Term take any
action which shall cause Lessor to lose any tax benefits of ownership, and
(iii) the Stipulated Loss Values (defined in the applicable Lease) agreed
to under this Lease are intended to provide recovery by Lessor of such
lost tax benefits of ownership.
2.1.1 Acceptance of Equipment. Lessee's acceptance of the Equipment shall be
conclusively and irrevocably evidenced by Lessee executing the Certificate
of Delivery and Acceptance and upon acceptance the Lease of such Equipment
shall be noncancellable for the Original Term unless otherwise agreed to
in writing by Lessor.
<PAGE>
2.2 Use of Equipment. Lessee shall use the Equipment solely in the conduct of
its business, in a manner and for the use contemplated by the manufacturer
thereof, and in compliance with all laws, rules and regulations of every
governmental authority having jurisdiction over the Equipment and with the
provisions of all policies of insurance carried by Lessee pursuant to
Section 2.6 below; provided, however, Lessee shall have the right to allow
third parties, under Lessee's supervision, to use the Equipment, so long
as Lessee shall retain uninterrupted possession and control of the
Equipment. Lessee shall pay all costs, expenses, fees and charges incurred
in connection with the use and operation of the Equipment.
2.3 Delivery, Installation, Maintenance and Repair. Lessee shall be solely
responsible, at its own expense, for the delivery of the Equipment to
Lessee, the packing, rigging and delivery of the Equipment back to Lessor
upon expiration of the Original Term in good repair, condition, and
working order, ordinary wear and tear excepted, at the location(s) within
the continental United States specified by Lessor. Lessee is also solely
responsible for the installation, de-installation, maintenance and repair
of the Equipment. Lessee shall, at its expense, (a) keep the Equipment in
good repair, condition and working order, ordinary wear and tear excepted,
and (b) at the expiration of the Original Term or any renewal term have
the Equipment inspected and certified as acceptable for maintenance
service by the manufacturer. Lessor shall be entitled to inspect the
Equipment at Lessee's location at reasonable times.
2.4 Taxes. Lessee agrees to pay, and to indemnify and hold Lessor harmless
from, all license fees, assessments, and sales, use, property, excise and
other taxes and charges ("Imposts") (other than those measured by Lessor's
net income) now or hereafter imposed by any governmental body or agency
upon or with respect to (a) the Equipment or the possession, ownership,
use or operation thereof or (b) this Master Agreement, any Lease, or the
consummation of the transactions herein contemplated. All required
personal property tax returns relating to the Equipment shall be filed by
Lessee unless otherwise provided in writing. Lessee shall reimburse Lessor
promptly upon demand for the amount of any Imposts remitted by Lessor
which are required hereunder to be borne by Lessee.
2.5 Loss of Equipment. Lessee shall bear the entire risk of the Equipment
being lost, destroyed or otherwise rendered permanently unfit or
unavailable for use from any cause whatsoever (hereinafter called an
"Event of Loss") after its delivery to Lessee. If an Event of Loss shall
occur with respect to any Unit, Lessee shall promptly and fully notify
Lessor thereof. On the rental payment date following such notice Lessee
shall pay to Lessor an amount equal to the rental payment or payments due
and payable for such Unit on such date plus a sum equal to the Stipulated
Loss Value (as defined in the applicable Supplement) of such Unit as of
the date of such payment set forth in such Supplement. Upon the making of
such payment by Lessee regarding any Unit, the rental obligation for such
Unit shall cease, the Lease as to such Unit shall terminate and (except in
the case of loss, theft or complete destruction) Lessor shall be entitled
to recover possession of such Unit at Lessee's expense in accordance with
the provisions of Section 2.3 above. Provided that Lessor has received the
Stipulated Loss Value for any Unit, Lessee shall be entitled to the
proceeds or any recovery in respect of such Unit from insurance or
otherwise.
2.6 Insurance. Lessee shall obtain and maintain for the entire term of the
Lease, at its own expense, property damage and liability insurance and
insurance against loss or damage to the Equipment including, without
limitation, loss by fire (including so-called extended coverage), theft
and such other risks of loss as are required on the type of Equipment
leased hereunder and by businesses in which Lessee is engaged in such
amounts in such form and with such insurers as shall be satisfactory to
Lessor, provided however, that such insurance for loss or damage of any
Unit shall always be at a minimum, the amount of the Stipulated Loss Value
of such Unit. Each insurance policy will name Lessee as insured and Lessor
as an additional insured and loss payee thereof as Lessor's interests may
appear and shall provide that it may not be canceled or altered without at
least 30 days prior written notice to Lessor or its successors and
assigns. Lessee shall provide to Lessor a certificate of insurance as
evidence of insurance coverage prior to delivery of any Unit.
2.7 Indemnity. Lessee shall and does hereby indemnify Lessor and its
successors and assigns against, and hold Lessor and its successors and
assigns harmless from, any and all claims, demands, actions and suits,
proceedings, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, hereinafter ("Claims"), arising out of,
connected with or resulting from this Master Agreement, any Lease, or the
Equipment, including, without limitation, the selection, ownership,
control, maintenance, lease, purchase, delivery, possession, condition,
use, operation, or return of the Equipment. Lessee shall give Lessor
immediate notice of any Claim and Lessee shall satisfy, pay and discharge
any and all judgments and fines that may be recovered against Lessor in
connection with any such Claim. Lessor shall give Lessee written notice of
any such Claim of which Lessor has knowledge. Except to the extent arising
out of Lessor's negligence, bad faith or willful misconduct.
2.8 Possession; Assignment; Pledge. Without the prior written consent of
Lessor, which such consent as it pertains to subsections (a) and (d),
shall not be unreasonably withheld or delayed, Lessee shall not (a)
sublease the Equipment, or any part thereof, provided, that Lessee may,
without the prior written consent of Lessor, permit any parent or
subsidiary of Lessee to use the Equipment, or any part thereof, in the
ordinary course of its business, (b) assign, this Master Agreement or any
Lease or its interest hereunder or thereafter, (c) create or incur any
lien or encumbrance with respect to the Equipment, or any part thereof,
(d) move the Equipment, or any part thereof, or permit any of the
Equipment to be moved from the location at which it is first installed, or
(e) permit the Equipment, or any part thereof, to be removed outside the
continental limits of the United States.
2.9 Identification. At any time during the term of a Lease, Lessor may require
Lessee to legibly mark each Unit subject to such Lease in a reasonably
prominent location with a label, disc or other marking stating that the
Equipment is owned by Lessor.
2.10 Alterations or Modifications. Lessee shall not make any alterations of or
additions to the Equipment without the prior written consent of Lessor. At
any time during the Original Term, of any Lease there may be added to
such Lease additional Units of the same type as are rented thereunder for
a term equal to the remaining Original Term and, subject to the terms and
conditions hereof, at the rental rates applicable to such Equipment and
term in effect at the time the order is placed, provided that the order is
in writing and accepted by Lessor. Such acceptance shall be at the sole
discretion of Lessor. All additions, attachments or accessories to or
improvements of the Equipment shall immediately belong to and become
property of the Lessor unless, at the request of Lessor, such additions,
attachments or accessories to or improvements of the Equipment are removed
prior to the return of said Equipment by Lessee. Lessee shall be
responsible for the costs of such removal and shall restore the Equipment
to the same operating condition as when it became subject to the Lease.
2.11 Equipment to be Personal Property. Lessee agrees that the Equipment shall
be and remain personal property notwithstanding the manner in which it may
be attached or affixed to realty, and Lessee shall do all acts and enter
into all agreements necessary to ensure that the Equipment remains
personal property.
<PAGE>
2.12 Financial Statements. Lessee shall promptly furnish, or cause to be
furnished, to Lessor such financial or other statements respecting the
condition and operations of Lessee or respecting the Equipment as Lessor
may from time to time reasonably request.
2.13 Lessee Representations. Lessee hereby represents, warrants and covenants
that with respect to this Master Agreement and each Lease entered into
hereunder:
(a) The execution, delivery and performance thereof by the Lessee have
been duly authorized by all necessary corporate action;
(b) The individual executing such was duly authorized to do so;
(c) This Master Agreement and each Lease constitute the legal, valid and
binding obligations of the Lessee enforceable in accordance with
their respective terms.
III. DEFAULT AND REMEDIES
3.1 Events of Default. The occurrence of any of the following shall constitute
an Event of Default hereunder: (a) Lessee shall fail to pay on the due
date any rental or other payment due under any lease and such failure
shall not be cured within 10 days after notice thereof from Lessor to
Lessee, (b) any provision of this Master Agreement or any Lease or any
provision in any document provided by Lessee for this Master Agreement or
any Lease, or in any document furnished pursuant to the provisions hereof
or otherwise, shall prove to have been false or misleading in any material
respect as of the date when it was made, (c) Lessee shall fail to perform
any provision, covenant, condition or agreement made by it under this
Master Agreement or Lease, and such failure shall continue for twenty (20)
days after notice thereof from Lessor to Lessee or (d) bankruptcy,
receivership, insolvency, reorganization, dissolution, liquidation, or
other similar proceedings shall be instituted by or against Lessee or all
or any part of its property under the Federal Bankruptcy Code or other law
of the United States or of any state law, and if against Lessee it shall
consent thereto or shall fail to cause the same to be discharged within
twenty (20) days, or (e) Lessee shall default under any agreement with
respect to the purchase or installation of the Equipment, or (f) if Lessee
or any guarantor of Lessee's obligations hereunder shall default under any
other agreement with Lessor.
3.2 Remedies. If an Event of Default hereunder shall occur and be continuing,
Lessor may exercise any one or more of the following remedies: (a)
immediately terminate this Master Agreement and any or all Leases and
Lessee's rights hereunder and thereunder, (b) proceed, by appropriate
court action or actions either at law or in equity, to enforce performance
by Lessee of the applicable covenants of the Lease or to recover damages
for the breach thereof, (c) by notice in writing to Lessee, recover all
amounts due on or before the date of the event of default, plus, as
liquidated damages for loss of a bargain and not as a penalty, accelerate,
and declare to be immediately due and payable all rentals and other sums
payable under any or all such Leases, without any presentment, demand,
protest or further notice (all of which hereby are expressly waived by
Lessee), whereupon the same shall be and become immediately due and
payable, and (d) personally, or by its agents take immediate possession of
the Equipment, or any part thereof, from Lessee and for such purpose,
enter upon Lessee's premises where any of the Equipment is located with or
without notice or process of law and free from all claims by Lessee. The
exercise of any of the foregoing remedies by Lessor shall not constitute a
termination of any Lease unless Lessor so notifies Lessee in writing. Upon
such an acceleration and declaration or other exercise of remedy, if
Lessee shall pay all amounts payable hereunder through the expiration of
the term and shall cure any and all defaults, Lessee shall be entitled to
keep the equipment installed through the expiration of the term on the
terms and conditions set forth herein.
3.3 Disposition of Equipment. In the event Lessor repossesses Equipment,
Lessor may (a) lease the Equipment, or any portion thereof, in such a
manner, for such time and upon such term(s) as Lessor may determine or (b)
sell the Equipment, or any portion thereof, at one or more public or
private sales, in such manner, and at such times and upon such terms as
Lessor may determine. In the event that Lessor leases any such Units, any
rentals received by Lessor for the Remaining Lease Term(s) (the period
ending on the date when the Original Term for the Unit(s) would have
expired if an Event of Default had not occurred) for such Units shall be
applied to the payment of (i) all costs and expenses (including attorneys'
fees) incurred by Lessor in retaking possession of, and removing, storing,
repairing, refurbishing and leasing such Units, and (ii) the rentals for
the remainder of the Original Term and all other sums, including past due
rentals, remaining unpaid under the Lease. The balance of such rentals, if
any, shall be applied first to reimburse Lessee for any sums previously
paid by Lessee as liquidated damages, and any remaining amounts shall be
retained by Lessor. All rentals received by Lessor for the period
commencing after the expiration of the Remaining Lease Term(s) shall be
retained by Lessor. Lessee shall remain liable to Lessor to the extent
that the aggregate amount of the sums referred to in clauses (i) and (ii)
above shall exceed the aggregate rentals received by Lessor under such
leases for the respective Remaining Lease Term(s) applicable to the Units
covered by such leases. In the event that Lessor shall sell or otherwise
dispose of (other than pursuant to a lease) any such Unit, the proceeds
thereof shall be applied to the payment of (i) all costs and expenses
(including reasonable attorneys' fees) incurred by Lessor in retaking
possession of, and removing, storing, repairing, refurbishing and selling
or otherwise disposing of such Unit(s), (ii) the rentals that either did
or would have accrued under the Lease but are unpaid up to the time of
such sale or other disposition, (iii) any and all other sums (other than
rentals) then owing to Lessor by Lessee under, and (iv) the Stipulated
Loss Value of such Unit(s) determined as of the date of such sales or
other disposition in accordance with the schedule set forth in the Lease
for such Unit(s). The balance of such proceeds, if any, shall be applied
first to reimburse Lessee for any sums previously paid by Lessee as
liquidated damages, and any remaining amounts shall be retained by Lessor.
Lessee shall remain liable to Lessor to the extent that the aggregate
amount of the sums referred to in clauses (i) through (iv) above shall
exceed the aggregate proceeds received by Lessor in connection with the
sale or disposition of the Equipment (other than pursuant to a lease).
4.1 Performance of Lessee's Obligations. Upon Lessee's failure to pay any sum
or perform any obligation hereunder when due, Lessor shall have the
option, but shall in no case be obligated, to pay such sum or perform such
obligation, whereupon such sum or the cost of such performance shall
immediately become due and payable as additional rent from Lessee to
Lessor with interest at the highest legal rate from the date payment or
performance was due.
4.2 Assignment. No right, obligation or interest of Lessee with respect to
this Master Agreement, any Lease or Equipment shall, without the prior
written consent of Lessor, be assignable by Lessee and any such purported
assignment shall be null and void. Lessor may, at anytime, without the
consent of Lessee, assign the Master Agreement and any Lease or any
interest herein or therein to any party. In the event of any assignment of
Lessor, the assignee shall have all of Lessor's rights hereunder, but none
of its obligations, and upon receipt by Lessee of written notice of any
such assignment, Lessee shall make all payments thereafter becoming due
under any assigned Lease to such assignee without regard to any set-off,
defense or counter claim that Lessee may have against Lessor.
<PAGE>
4.3 Quiet Enjoyment. So long as Lessee shall not be in default hereunder and
Lessor continues to receive all rent and other sums payable by Lessee
hereunder in accordance with the terms hereof, neither Lessor nor its
assignee, shall interfere with Lessee's right of quiet enjoyment and use
of the Equipment.
4.4 Further Assurances. Lessee agrees that at any time, and from time to time,
after the execution and delivery of this Lease, it shall, upon the request
of Lessor, execute and deliver such further documents and do such further
acts and things as Lessor may reasonably request in order fully to effect
the purposes of this Lease including without limitation, the filing of
financial and confirmation statements. Lessee authorizes Lessor to file a
financing statement or any confirmation statements signed only by Lessor
in accordance with the Uniform Commercial Code or signed by Lessor as
Lessee's attorney in fact.
4.5 Rights, Remedies, Powers. Each and every right, remedy and power granted
to Lessor hereunder shall be cumulative and in addition to any other
right, remedy or power herein specifically granted or now or hereafter
existing in equity, at law, by virtue of statute or otherwise, and may be
exercised by Lessor from time to time concurrently or independently and as
often and in such order as Lessor may deem expedient. And any failure or
delay on the part of Lessor in exercising any such right, remedy or power,
or abandonment or discontinuance of steps to enforce the same, shall not
operate as a waiver thereof or affect Lessor's right thereafter to
exercise the same, and any single or partial exercise of any such right,
remedy or power shall not preclude any other or further exercise thereof
or the exercise of any other right, remedy or power.
4.6 Notices. Any notice, request, demand, consent, approval or other
communication provided or permitted hereunder shall be in writing and
shall be conclusively deemed to have been received by a party hereto on
the day it is delivered to such party at its address set forth above (or
at such other address as such party shall specify to the other party in
writing), or if sent by registered or certified mall, return receipt
requested, on the third business day after the day on which mailed,
addressed to such party at such address.
4.7 Section Headings. Section headings are inserted for convenience only and
shall not affect any construction or interpretation of any Lease.
4.8 Binding Effect. Each Lease, subject to the provisions of Sections 2.8 and
4.3 hereof, shall be binding upon and shall inure to the benefit of the
respective successors and assigns of the Lessee and Lessor.
4.9 Governing Law. Each Lease shall be governed in all respects by the laws of
the Commonwealth of Massachusetts.
4.10 Entire Lease. Each Lease, consisting of the terms and conditions of this
Master Agreement, a Supplement, and any Amendments, Schedules or Riders to
either of them, constitutes the entire agreement between Lesser and
Lessee. No waiver, consent, modification or change of terms of this Lease
shall bind either party unless in writing signed by both parties, and then
such waiver, consent, modification or change shall be effective only in
the specific instance and for the specific purpose given. There are no
understandings, agreements, representations or warranties, express or
implied, not specified therein regarding any Lease or the Equipment leased
thereunder. Any terms and conditions of any purchase order or other
document (with the exception of Supplements) submitted by Lessee in
connection with any Lease which are in addition to or inconsistent with
the terms and conditions of such Lease will not be binding on Lessor and
will not apply to the Lease. LESSEE BY THE SIGNATURE BELOW OF ITS
AUTHORIZED REPRESENTATIVE ACKNOWLEDGES THAT IT HAS READ THIS MASTER
AGREEMENT, UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS TERMS AND
CONDITIONS WITH RESPECT TO ANY LEASE ENTERED INTO HEREUNDER.
LEASE ACCEPTED BY:
EMC CORPORATION, (Lessor) Mail.com, Inc. (Lessee)
BY: BY: /s/ Debra L. McClister
----------------------------- -----------------------------
TITLE: TITLE: EVP & CFO
-------------------------- --------------------------
<PAGE>
Addendum One
to
Master Lease Agreement No. 11954
between
Mail.com, Inc. and EMC Corporation
5.1 Option To Extend. Provided that no Event of Default exists under the Lease,
Lessee shall have the option to renew or extend the Lease of any or all of the
Equipment at the end of the Initial Term or any extension thereof ("Extended
Term") for an Extended Term of one year, two years or three years. The Monthly
Rental during any Extended Term shall be the Fair Market Value rental for the
Equipment at the commencement of any Extended Term for the term chosen. Such
option may be exercised by Lessee by giving written notice to Lessor not less
than sixty (60) days prior to the expiration of the Initial Term or any Extended
Term then in effect.
5.2 Option to Purchase. Provided that no Event of Default exists under the
Lease, the Lessee shall have the option to purchase any or all of the Equipment
at the expiration of the Initial Term or any Extended Term for a purchase price
equal to the Fair Market Value of the Equipment at such point in time. Such
option may be exercised by Lessee by giving written notice to the Lessor not
less than sixty (60) days prior to the expiration of the Initial Lease Term or
any Extended Term then in effect. On the expiration date of the Initial Term or
any Extended Term, if Lessee has elected to purchase the Equipment, Lessee shall
purchase from Lessor, and Lessor shall sell to Lessee the Equipment on an AS IS,
WHERE IS, BASIS except that Lessor shall warrant title and that the equipment is
free and clear of all liens and encumbrances arising by or through the Lessor,
except for taxes or other impositions for which Lessee is obligated to pay under
the Lease or conversion to Purchase. Lessor shall provide Lessee with a Bill of
Sale following the payment in full. Monthly lease payments shall continue to
accrue at the then current lease rate until the full Purchase Price plus any and
all tax is paid to Lessor.
5.3 Fair Market Value. Fair Market Value shall be determined on the basis of and
shall mean the amount which would be obtainable and paid in an arms length
transaction between an informed and willing buyer or lessee, as the case may be,
(other than lessee currently in possession) and an informed and willing seller
or lessor. If Lessor and Lessee can not agree upon the Fair Market Value for the
Equipment, the Fair Market Value shall be determined in accordance with the
following: Lessor and Lessee shall each obtain an appraisal of the Equipment
from an independent appraiser selected by each party. The average of such two
(2) appraisals shall be the Fair Market Value for the Equipment. Notwithstanding
the foregoing, if the two (2) appraisals vary in value by more than fifteen
percent (15%), than the two (2) appraisers selected by Lessor and Lessee shall
select a third independent appraiser who will provide an appraisal of the
Equipment. The results of the appraisal of the third independent appraiser shall
be the Fair Market Value of the Equipment. The expense of such appraisals shall
be borne equally by Lessor and Lessee.
5.4 Prepayment. Provided that no Event of Default exists under the Lease, Lessee
may prepay the remaining lease payments owed and outstanding under the lease
discounted by 5%. At such time as this has been done, Lessee may exercise the
Option to Purchase in Paragraph 5.2 above.
EMC Corporation (Lessor) Mail.com, Inc. (Lessee)
/s/ Debra L. McClister
- -------------------------------- --------------------------------
By By
Debra L. McClister
- -------------------------------- --------------------------------
Name Name
EVP & CFO
- -------------------------------- --------------------------------
Title Title
7/29/99
- -------------------------------- --------------------------------
Date Date
<PAGE>
EMC CORPORATION Supplement No. 1
EMC^2
MASTER LEASE AGREEMENT SUPPLEMENT
This Supplement to Master Lease Agreement Number 11954 (hereinafter called the
"Master Agreement") between Lessor and the Lessee whose name appears below,
together with the Master Agreement, constitutes a lease of the Equipment
described below (hereinafter, collectively, this "Lease"). All the terms and
conditions of the Master Agreement apply to this Lease with the same force and
effect as if all said terms and conditions were fully set forth herein and said
terms and conditions are incorporated herein and made part hereof by reference.
All capitalized terms not defined in this Supplement shall have the meanings
given such terms in the Master Agreement. It is the intent of the parties that
this Supplement be separately enforceable as a complete and independent lease,
independent of all other Supplements to the Lease.
Equipment Description:
<TABLE>
<CAPTION>
Original
Monthly Term Equipment
Item Qty. Equipment Rent (Mos.) Cost
- ---- ---- --------- ---- ------ ----
<S> <C> <C> <C> <C> <C>
1. 1 3930-36 Symmetrix Frame Step Payments: 36 $2,599,280.00
2. 32 3030-36M2 Months 1 - 12 @ $72,667.00 Included
3. 8 3030-18M2 Months 13 - 24 @ $72,905.00 Included
4. 4 DP2-FCD2 Months 25 - 36 @ $95,621.00 Included
5. 2 DP2-USD4SW Included Included
6. 1 MEM2-8192 Included Included
7. 8 FC10M-50M Included Included
8. 1 SYMMGR-PKG Included Included
9. 1 PWRPATHENT Included Included
10. 1 TF-OPEN Included Included
11. 2 EC-1000 Included Included
12. 1 SP-1001 Included Included
13. 4 ED-1032-32S Included Included
14. 1 EM-1002 Included Included
15. 4 PM-1032 Included Included
16. 4 V-LOGIX-X9 Included Included
17. 56 FC30M-50M Included Included
18. 1 PS-LVL1-SYM Included Included
19. 1 PS-LVL1-TIME Included Included
20. 1 PS-LVL1-PWP
</TABLE>
* The Anticipated Commencement Date is August 1, 1999.
* Includes 36 Months Hardware and Software Warranty.
Equipment Location: Exodus Communications, Internet Data Center,
Harborside Financial Center,
34 Exchange Place, Jersey City, NJ 07302-3885
Monthly Rent: The first payment of monthly rent is due and payable on the
Commencement Date. Subsequent payments of monthly rent are due and payable on
the same date of each succeeding month. The Lease Term for each Unit will
automatically extend for successive three (3) month periods after the expiration
of the original term in accordance with all the terms and conditions of this
Lease including the same monthly rent, until either party shall give the other
party at least sixty (60) days prior notice of its intent not to extend or renew
this Supplement.
SUPPLEMENT ACCEPTED BY:
EMC CORPORATION (Lessor) MAIL.COM, INC. (Lessee)
By: By: /s/ Debra L. McClister
---------------------------- ----------------------------
(Authorized Signature) (Authorized Signature)
Debra L. McClister EVP & CFO
- ------------------------------- -------------------------------
(Name/Title) (Name/Title)
7/29/99
- ------------------------------- -------------------------------
(Date) (Date)
(Continued on reverse)
<PAGE>
Addendum One
to
Lease Supplement No. 1
to Master Lease Agreement No. 11954
between
Mail.com, Inc. and EMC Corporation
Provided no event of default has occurred and is continuing to occur, at the end
of the initial non-cancellable term, Lessee shall have the option to exercise
the following options by providing Lessor with at least sixty (60) days prior
written notice of its intent to:
1. Purchase the equipment as listed on the above referenced Supplement for:
a. The then Fair Market Value according to the terms and conditions of the
Master Lease plus and applicable taxes.
or
b. A Fixed Purchase Option of sixteen percent (16%) of the original
Equipment Cost as shown on the above referenced Supplement, plus any applicable
taxes.
Monthly renewal lease payments will be due and payable under the original lease
until payment in full is received by Lessor for either Option a or b above.
EMC Corporation (Lessor) Mail.com, Inc. (Lessee)
/s/ Debra L. McClister
- -------------------------------- --------------------------------
By By
Debra L. McClister
- -------------------------------- --------------------------------
Name Name
EVP & CFO
- -------------------------------- --------------------------------
Title Title
7/29/99
- -------------------------------- --------------------------------
Date Date
<PAGE>
EMC CORPORATION Supplement No. 2
EMC^2
MASTER LEASE AGREEMENT SUPPLEMENT
This Supplement to Master Lease Agreement Number 11954 (hereinafter called the
"Master Agreement") between Lessor and the Lessee whose name appears below,
together with the Master Agreement, constitutes a lease of the Equipment
described below (hereinafter, collectively, this "Lease"). All the terms and
conditions of the Master Agreement apply to this Lease with the same force and
effect as if all said terms and conditions were fully set forth herein and said
terms and conditions are incorporated herein and made part hereof by reference.
All capitalized terms not defined in this Supplement shall have the meanings
given such terms in the Master Agreement. It is the intent of the parties that
this Supplement be separately enforceable as a complete and independent lease,
independent of all other Supplements to the Lease.
Equipment Description:
<TABLE>
<CAPTION>
Original
Monthly Term Equipment
Item Qty. Equipment Rent (Mos.) Cost
- ---- ---- --------- ---- ------ ----
<S> <C> <C> <C> <C> <C>
1. 1 3930-36 Symmetrix Frame Step Payments: 36 $2,230,065.00
2. 32 3030-36M2 Months 1 - 12 @ $61,810.00 Included
3. 8 3030-18M2 Months 13 - 24 @ $62,089.00 Included
4. 4 DP2-FCD2 Months 25 - 36 @ $77,885.00 Included
5. 2 DP2-USD4SW Included Included
6. 1 MEM2-8192 Included Included
7. 8 FC10M-50M Included Included
8. 1 SYMMGR-PKG Included Included
9. 1 PWRPATHENT Included Included
10. 1 TF-OPEN Included Included
11. 2 CFS-14 Included Included
12. 12 CDM5-2E4 Included Included
13. 2 CCS3-E Included Included
14. 12 CF2-UNIX-LIC Included Included
15. 2 CFS-CSMGR-LIC Included Included
16. 24 C12MINI68S Included Included
17. 1 PS-LVL1-SYM Included Included
18. 1 PS-LVL1-TIME Included Included
19. 1 PS-LVL1-PWP Included Included
20. 2 PS-CFS-PM Included Included
</TABLE>
* The Anticipated Commencement Date is August 1, 1999.
* Includes 36 Months Hardware and Software Warranty.
Equipment Location: Exodus Communications, Internet Data Center,
Harborside Financial Center,
34 Exchange Place, Jersey City, NJ 07302-3885
Monthly Rent: The first payment of monthly rent is due and payable on the
Commencement Date. Subsequent payments of monthly rent are due and payable on
the same date of each succeeding month. The Lease Term for each Unit will
automatically extend for successive three (3) month periods after the expiration
of the original term in accordance with all the terms and conditions of this
Lease including the same monthly rent, until either party shall give the other
party at least sixty (60) days prior notice of its intent not to extend or renew
this Supplement.
SUPPLEMENT ACCEPTED BY:
EMC CORPORATION (Lessor) MAIL.COM, INC. (Lessee)
By: By: /s/ Debra L. McClister
---------------------------- ----------------------------
(Authorized Signature) (Authorized Signature)
Debra L. McClister EVP & CFO
- ------------------------------- -------------------------------
(Name/Title) (Name/Title)
7/29/99
- ------------------------------- -------------------------------
(Date) (Date)
(Continued on reverse)
<PAGE>
Addendum One
to
Lease Supplement No. 2
to Master Lease Agreement No. 11954
between
Mail.com, Inc. and EMC Corporation
Provided no event of default has occurred and is continuing to occur, at the end
of the initial non-cancellable term, Lessee shall have the option to exercise
the following options by providing Lessor with at least sixty (60) days prior
written notice of its intent to:
1. Purchase the equipment as listed on the above referenced Supplement for:
a. The then Fair Market Value according to the terms and conditions of the
Master Lease plus and applicable taxes.
or
b. A Fixed Purchase Option of sixteen percent (16%) of the original
Equipment Cost as shown on the above referenced Supplement, plus any applicable
taxes.
Monthly renewal lease payments will be due and payable under the original lease
until payment in full is received by Lessor for either Option a or b above.
EMC Corporation (Lessor) Mail.com, Inc. (Lessee)
/s/ Debra L. McClister
- -------------------------------- --------------------------------
By By
Debra L. McClister
- -------------------------------- --------------------------------
Name Name
EVP & CFO
- -------------------------------- --------------------------------
Title Title
7/29/99
- -------------------------------- --------------------------------
Date Date
<PAGE>
EMC CORPORATION Supplement No. 3
EMC^2
MASTER LEASE AGREEMENT SUPPLEMENT
This Supplement to Master Lease Agreement Number 11954 (hereinafter called the
"Master Agreement") between Lessor and the Lessee whose name appears below,
together with the Master Agreement, constitutes a lease of the Equipment
described below (hereinafter, collectively, this "Lease"). All the terms and
conditions of the Master Agreement apply to this Lease with the same force and
effect as if all said terms and conditions were fully set forth herein and said
terms and conditions are incorporated herein and made part hereof by reference.
All capitalized terms not defined in this Supplement shall have the meanings
given such terms in the Master Agreement. It is the intent of the parties that
this Supplement be separately enforceable as a complete and independent lease,
independent of all other Supplements to the Lease.
Equipment Description:
<TABLE>
<CAPTION>
Original
Monthly Term Equipment
Item Qty. Equipment Rent (Mos.) Cost
- ---- ---- --------- ---- ------ ----
<S> <C> <C> <C> <C> <C>
1. 1 3930-36 Symmetrix Frame Step Payments: 36 $2,001,215.00
2. 32 3030-36M2 Months 1 - 12 @ $56,388.00 Included
3. 8 3030-18M2 Months 13 - 24 @ $56,784.00 Included
4. 4 DP2-FCD2 Months 25 - 36 @ $70,910.00 Included
5. 2 DP2-USD4SW Included Included
6. 1 MEM2-8192 Included Included
7. 8 FC10M-50M Included Included
8. 1 SYMMGR-PKG Included Included
9. 1 PWRPATHENT Included Included
10. 1 TF-OPEN Included Included
11. 1 PS-LVL1-SYM Included Included
12. 1 PS-LVL1-TIME Included Included
13. 1 PS-LVL1-PWP Included Included
14. 3 EDE-TIER3 Included Included
15. 6 EFS-TIER1 Included Included
</TABLE>
* The Anticipated Commencement Date is August 1, 1999.
* Includes 36 Months Hardware and Software Warranty.
Equipment Location: Exodus Communications, Internet Data Center,
Harborside Financial Center,
34 Exchange Place, Jersey City, NJ 07302-3885
Monthly Rent: The first payment of monthly rent is due and payable on the
Commencement Date. Subsequent payments of monthly rent are due and payable on
the same date of each succeeding month. The Lease Term for each Unit will
automatically extend for successive three (3) month periods after the expiration
of the original term in accordance with all the terms and conditions of this
Lease including the same monthly rent, until either party shall give the other
party at least sixty (60) days prior notice of its intent not to extend or renew
this Supplement.
SUPPLEMENT ACCEPTED BY:
EMC CORPORATION (Lessor) MAIL.COM, INC. (Lessee)
By: By: /s/ Debra L. McClister
---------------------------- ----------------------------
(Authorized Signature) (Authorized Signature)
EVP & CFO
- ------------------------------- -------------------------------
(Name/Title) (Name/Title)
7/29/99
- ------------------------------- -------------------------------
(Date) (Date)
(Continued on reverse)
<PAGE>
Addendum One
to
Lease Supplement No. 3
to Master Lease Agreement No. 11954
between
Mail.com, Inc. and EMC Corporation
Provided no event of default has occurred and is continuing to occur, at the end
of the initial non-cancellable term, Lessee shall have the option to exercise
the following options by providing Lessor with at least sixty (60) days prior
written notice of its intent to:
1. Purchase the equipment as listed on the above referenced Supplement for:
a. The then Fair Market Value according to the terms and conditions of the
Master Lease plus and applicable taxes.
or
b. A Fixed Purchase Option of sixteen percent (13%) of the original
Equipment Cost as shown on the above referenced Supplement, plus any applicable
taxes.
Monthly renewal lease payments will be due and payable under the original lease
until payment in full is received by Lessor for either Option a or b above.
EMC Corporation (Lessor) Mail.com, Inc. (Lessee)
/s/ Debra L. McClister
- -------------------------------- --------------------------------
By By
Debra L. McClister
- -------------------------------- --------------------------------
Name Name
EVP & CFO
- -------------------------------- --------------------------------
Title Title
7/29/99
- -------------------------------- --------------------------------
Date Date
<PAGE>
EMC CORPORATION Supplement No. 4
EMC^2
MASTER LEASE AGREEMENT SUPPLEMENT
This Supplement to Master Lease Agreement Number 11954 (hereinafter called the
"Master Agreement") between Lessor and the Lessee whose name appears below,
together with the Master Agreement, constitutes a lease of the Equipment
described below (hereinafter, collectively, this "Lease"). All the terms and
conditions of the Master Agreement apply to this Lease with the same force and
effect as if all said terms and conditions were fully set forth herein and said
terms and conditions are incorporated herein and made part hereof by reference.
All capitalized terms not defined in this Supplement shall have the meanings
given such terms in the Master Agreement. It is the intent of the parties that
this Supplement be separately enforceable as a complete and independent lease,
independent of all other Supplements to the Lease.
Equipment Description:
<TABLE>
<CAPTION>
Original
Monthly Term Equipment
Item Qty. Equipment Rent (Mos.) Cost
- ---- ---- --------- ---- ------ ----
<S> <C> <C> <C> <C> <C>
1. 1 3930-36 Symmetrix Frame Step Payments: 36 $1,552,596.00
2. 32 3030-36M2 Months 1 - 12 @ $41,638.00 Included
3. 8 3030-18M2 Months 13 - 24 @ $41,777.00 Included
4. 4 DP2-FCD2 Months 25 - 36 @ $55,903.00 Included
5. 2 DP2-USD4SW Included Included
6. 1 MEM2-8192 Included Included
7. 8 FC10M-50M Included Included
8. 1 SYMMGR-PKG Included Included
9. 1 PWRPATHENT Included Included
10. 1 TF-OPEN Included Included
11. 1 PS-LVL1-SYM Included Included
12. 1 PS-LVL1-TIME Included Included
13. 1 PS-LVL1-PWP Included Included
14. 1 LP-7000-E-N1 Included Included
15. 1 FC64-1063-EMC Included Included
</TABLE>
* The Anticipated Commencement Date is August 1, 1999.
* Includes 36 Months Hardware and Software Warranty.
Equipment Location: Exodus Communications, Internet Data Center,
Harborside Financial Center,
34 Exchange Place, Jersey City, NJ 07302-3885
Monthly Rent: The first payment of monthly rent is due and payable on the
Commencement Date. Subsequent payments of monthly rent are due and payable on
the same date of each succeeding month. The Lease Term for each Unit will
automatically extend for successive three (3) month periods after the expiration
of the original term in accordance with all the terms and conditions of this
Lease including the same monthly rent, until either party shall give the other
party at least sixty (60) days prior notice of its intent not to extend or renew
this Supplement.
SUPPLEMENT ACCEPTED BY:
EMC CORPORATION (Lessor) MAIL.COM, INC. (Lessee)
By: By: /s/ Debra L. McClister
---------------------------- ----------------------------
(Authorized Signature) (Authorized Signature)
Debra L. McClister EVP & CFO
- ------------------------------- -------------------------------
(Name/Title) (Name/Title)
7/29/99
- ------------------------------- -------------------------------
(Date) (Date)
(Continued on reverse)
<PAGE>
Addendum One
to
Lease Supplement No. 4
to Master Lease Agreement No. 11954
between
Mail.com, Inc. and EMC Corporation
Provided no event of default has occurred and is continuing to occur, at the end
of the initial non-cancellable term, Lessee shall have the option to exercise
the following options by providing Lessor with at least sixty (60) days prior
written notice of its intent to:
1. Purchase the equipment as listed on the above referenced Supplement for:
a. The then Fair Market Value according to the terms and conditions of the
Master Lease plus and applicable taxes.
or
b. A Fixed Purchase Option of sixteen percent (14.5%) of the original
Equipment Cost as shown on the above referenced Supplement, plus any applicable
taxes.
Monthly renewal lease payments will be due and payable under the original lease
until payment in full is received by Lessor for either Option a or b above.
EMC Corporation (Lessor) Mail.com, Inc. (Lessee)
/s/ Debra L. McClister
- -------------------------------- --------------------------------
By By
Debra L. McClister
- -------------------------------- --------------------------------
Name Name
EVP & CFO
- -------------------------------- --------------------------------
Title Title
7/29/99
- -------------------------------- --------------------------------
Date Date
<PAGE>
EMC^2
The Enterprise Storage Company
EMC CORPORATION
SOFTWARE LICENSE AGREEMENT
This Software License Agreement ("Agreement") dated the __________ day of
________________________ 199____, is between EMC Corporation, identified herein
as "EMC", and Mail.com, Inc. identified herein as "Customer". The parties hereby
agree to the following terms and conditions:
1. DEFINITIONS
Acceptance. Acceptance for Software shall occur seven (7) days after shipment of
such Software by EMC.
Core Software: EMC microcode and firmware that enable a Designated EMC System to
perform its basic storage functions. Core Software does not include any
Enterprise Storage Software.
Designated EMC System: The storage system owned by Customer at the Designated
Site identified by the serial number set forth on the storage system cabinet,
Designated Site: Customer's facility where the Host CPU or Designated EMC System
is located.
Enterprise Storage Software: Software separately identified by EMC other than
Core Software and Maintenance Aids, which consists of:
I. Host-based Software: Software that is licensed for use on one or more
Host CPUs, as designated by EMC.
II. Symmetrix-based Software: Software that is licensed for use on the
Designated EMC System and, if applicable, one or more Host CPUs, as designated
by EMC.
Host CPU: A central processing unit designated by Customer for operation with
the Designated EMC System.
Maintenance Aids: Hardware, software and other aids used by EMC in furnishing
Maintenance Services.
Maintenance Services: Maintenance services for Core Software and Enterprise
Storage Software provided under this Agreement.
Software: Core Software, Enterprise Storage Software and any other software
licensed by EMC to Customer. Software does not include Maintenance Aids.
Software Release: New revisions by EMC consisting of:
I. Maintenance Release: A new revision of Software that includes
corrections, updates and minor modifications to existing features.
II. New Release: A new revision of Software that expands or extends
currently existing features, functions or capabilities,
III. New Version: A new revision of Software that includes substantial new
features, functions or capabilities.
2. SOFTWARE LICENSE
(1). EMC grants to Customer a non-exclusive, non-transferable license to use the
Software solely in conjunction with the Designated EMC System or Host CPU, as
applicable, for which the Software was licensed, provided Customer pays all
applicable one-time and annual usage fees in accordance with the provisions of
this Agreement
(2). Customer shall not, without EMC's prior written consent, provide, disclose
or otherwise make available Software in any form to any person other than
Customer's employees, independent contractors or consultants, who shall use the
Software solely for Customer's internal business purposes in a manner consistent
with this Agreement. Customer shall be fully responsible to EMC for the actions
of its employees, independent contractors and consultants.
(3). Customer may make one copy of the Software for back-up and archival
purposes for use only in the case of a malfunction of Software, EMC Designated
System or Host CPU, as applicable.
(4). Customer may, only after written notice to EMC, change the location of a
Designated EMC System or Host CPU upon which the licensed Software is used to a
replacement location. If Customer moves the Software to another Designated EMC
System or Host CPU which has a different model number than the originally
Designated EMC System or Host CPU, Customer agrees to pay. if applicable, an
upgrade fee based on EMC's then-current price and upgrade policy and, at the
next support anniversary date, agrees to pay applicable fees based upon the
replacement model number.
(5). If Customer is granted a license to use Software in conjunction with a
Statement of Work (a "Project License"), Customer shall have a non-transferable
right to use the Software only for the purpose of conducting a specific project
under such Statement of Work. The Project License term shall be for one (1) year
or the completion of the project, whichever occurs first.
(6). Customer shall not use the Software on any device other than the Designated
EMC System or Host CPU, as applicable, except that the Enterprise Storage
Software may be temporarily transferred to a replacement Designated EMC System
or Host CPU, as applicable (and deleted from the original Designated EMC System
or Host CPU) if the Designated EMC System or Host CPU is inoperable due to
malfunction or Initiation of a disaster recovery program or if the Designated
EMC System or Host CPU is otherwise not able to use the Enterprise Storage
Software.
(7). Ownership: No title to, or ownership of, the Software is transferred to
Customer, and any references to "sale" or "purchase", with respect to the
Software, shall be deemed to mean "license on the terms contained in this
Agreement." Customer shall reproduce and include EMC's copyright and other
proprietary notices on and in any copies, including but not limited to partial,
physical or electronic pies of the Software. Neither Customer nor any of its
agents, independent contractors or consultants shall modify, enhance.
supplement, create derivative works from, reverse assemble, reverse engineer,
reverse compile or otherwise reduce the Software to human readable form without
EMC's prior written consent. If Customer requires access to the source code of
the Software in order to achieve interoperability of the Software with other
software in the European Union or Norway, Customer shall provide EMC with
written notice. EMC can then decide either: (i) to perform the work in order to
achieve such interoperability and charge EMC's then-current rates for such work
to Customer; or (ii) to permit Customer to reverse engineer parts of the
Software in order to obtain such source code, but only to the extent necessary
to achieve such interoperability. Customer shall promptly report to EMC any
violation of this clause and shall take such further steps as may be reasonably
requested by EMC to remedy any such violation and to prevent future violations.
(8). Secondary Purchaser: Unless the business is transferred or merged,
Customer's right to use the Software may not be assigned, sublicensed or
otherwise transferred; provided however, that if Customer sells or transfers the
Designated EMC System, EMC shall offer to license the Core Software and to
render Equipment and Core Software Maintenance Services to any bona fide end
user (hereinafter "Secondary Purchaser") to whom Customer has transferred the
Designated EMC System pursuant to EMC's then-current standard terms and
conditions, so long as such Secondary Purchaser is not deemed, in EMC's
reasonable discretion, to be a competitor of EMC's. Whenever the Core Software
is licensed to a Secondary Purchaser in accordance with this Paragraph, EMC
shall offer to provide de-installation services for Customer and re-installation
and certification for Equipment and Core Software Maintenance Services for the
Secondary Purchaser at EMC's then-current applicable fees.
(9). Software Releases: EMC shall provide Software Releases as part of
Maintenance Services. A Software Release does not include new Software products.
A Software Release is treated as Software and is covered by the license to the
original Software.
(10). Maintenance Aids: Maintenance Aids (including diagnostic tools) for aiding
the provision of Maintenance Services are owned by EMC and provided at
Customer's site for use by EMC's personnel. Customer agrees to use its best
efforts to prevent the unauthorized use or disclosure of Maintenance Aids.
Customer will not allow copies to be made of any Maintenance Aids. Customer
further agrees to allow EMC, upon reasonable notice, to enter the Designated
Site(s) to remove Maintenance Aids. Nothing hereunder grants to Customer a
license to make use of Maintenance Aids in any way.
3. PATENTS AND COPYRIGHTS
(1). If Customer notifies EMC promptly in writing of any action (and all prior
related claims) brought against Customer alleging that Customer's use of any
Software or its receipt of any Service infringes a valid patent or copyright,
EMC will defend that action at its expense and will pay the costs and damages
awarded against Customer in the action, provided (i) that EMC shall have sole
control of the defense of any such action and all negotiations for its
settlement or compromise and (ii) Customer provides all reasonable assistance
requested by EMC. If a permanent injunction is obtained in such action against
Customer's use or receipt of such Software or if in EMC's opinion such Software
is likely to become the subject of a permanent injunction, EMC will at its
option and expense either procure for Customer the right to continue using or
receiving such Software, replace or modify such Software so that it becomes
non-infringing or pay Customer a refund based on a straight line depreciation of
the price of such Software over five (5) years upon return of the Software to
EMC or refund the unused amounts paid to EMC for discontinued Maintenance
Services, as the case may be.
(2). EMC shall have no liability to Customer if the alleged infringement is
based on (i) use, sale or receipt of any of the Software in combination with
other equipment, software or services not sold to Customer by EMC; (ii) use of
any of the Software in a manner or for a purpose for which they were not
designed; (iii) use of the Software, when use of a Software Release which EMC
has made commercially available would have avoided such infringement; (iv) any
modification to any of the Software not made by EMC,
1
<PAGE>
or any modifications to any of the Software made by EMC pursuant to Customers
specific instructions; or (v) any intellectual property right owned or licensed
by Customer or any of its Affiliates
(3) THIS PATENTS AND COPYRIGHTS SECTION STATES EMC'S ENTIRE LIABILITY WITH
RESPECT TO ANY ALLEGED INFRINGEMENTS OF PATENTS, COPYRIGHTS AND OTHER
INTELLECTUAL PROPERTY RIGHTS BY THE SOFTWARE OR ANY PART OF THEM OR BY THEIR
OPERATION, USE OR RECEIPT.
4. WARRANTY
(1). Warranty for Software
(a). EMC warrants that the Core Software shall be free from material defects in
materials and workmanship and that the Core Software shall perform substantially
in accordance with EMC's written specifications for such Core Software for two
(2) years from Acceptance, under normal use and regular recommended service.
(b) EMC warrants that the Enterprise Storage Software shall, under normal use.
perform substantially in accordance with EMC's written specifications for such
Enterprise Storage Software. The warranty period for Enterprise Storage Software
shall be for a period of ninety (90) days from Acceptance.
(c). EMC's entire liability and Customers exclusive remedy under the above two
warranties described in the two preceding paragraphs shall be for EMC to use
reasonable efforts to remedy material defects covered by these warranties within
a reasonable period of time or, at EMC's option, either to replace the
non-conforming Software or to refund the amount paid by Customer for such
Software, as depreciated on a straight line basis over a five (5) year period
upon return of such Software to EMC. EMC does not warrant that the operation of
the Software will be uninterrupted or error free, or that all Software defects
can be corrected. Customer shall return the replaced Software to EMC upon EMC's
request.
(2). The warranties described above do not include efforts to remedy, repair or
replace as a result of: (i) accident or neglect; (ii) problems relating to or
residing in other hardware, software or services with which the Software is
used; (iii) installation of the Software not in accordance with EMC's
instructions or specifications; (iv) use of the Software in an environment, in a
manner or for a purpose for which it was not designed; and (v) installation,
modification, alteration or repair of the Equipment or the Software by anyone
other than EMC or its authorized representatives.
(3). Disclaimer of Warranties: EXCEPT AS EXPRESSLY STATED IN THIS WARRANTY
SECTION, EMC MAKES NO WARRANTIES, EXPRESS OR IMPLIED, WRITTEN OR ORAL, BY
OPERATION OF LAW OR OTHERWISE, OF ANY SOFTWARE FURNISHED UNDER OR IN CONNECTION
WITH THIS AGREEMENT. EMC DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, TITLE, OR NON-INFRINGEMENT AND THOSE ARISING
BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF DEALING OR USAGE OF TRADE.
5. MAINTENANCE SERVICES
(1). Warranty Period: Maintenance Services shall be provided at no additional
cost during the respective warranty periods for (i) Core Software and (ii)
licensed Enterprise Storage Software.
(2). Automatic Enrollment After the warranty period ends for Core Software,
Customer shall be automatically enrolled for continued Core Software Maintenance
Services for such Core Software and invoiced accordingly; provided Customer may
decline such automatic enrollment in writing sixty (60) days prior to the end of
the applicable warranty or continued support period. Customer shall be enrolled
for Enterprise Storage Software Maintenance Services for so long as Customer
maintains its right to use Enterprise Storage Software pursuant to this
Agreement.
(3). Support Procedures: Customer shall designate in writing a reasonable number
of authorized contacts, as determined by Customer and EMC ("Support Contacts),
who shall initially report problems and receive support from EMC hereunder. A
change to the authorized Support Contacts by Customer must be submitted in
writing to EMC by one of Customers duty authorized representatives.
(4). Continuous Support: Core Software Maintenance Services shall be subject to
the terms of this Agreement and shall include (a) EMC keeping the Core Software
in good operating condition in conformance with applicable specifications, which
includes remedial maintenance and the installation of engineering changes deemed
necessary by EMC; (b) 24-hour English-language help line service, seven days per
week, via telephone or other electronic media; (c) Maintenance Releases and New
Releases; (d) documentation updates, as they become available; and (e)
replacement of the Core Software at no charge if the media becomes destroyed or
damaged so that such Core Software becomes unusable.
(5). Non-continuous Support: In the event the Core Software was not maintained
by EMC immediately prior to Customers order, Core Software Maintenance Services
will commence upon EMC's certification that the Core Software is in good
operating condition. Efforts to make such a certification shall be at EMC's
then-current rates for such certification services. Customer shall also be
invoiced for all applicable fees.
(6) Enterprise Storage Software Support: Enterprise Storage Software Maintenance
Services shall be subject to the terms of this Agreement and shall include the
following: (a) 24-hour English-language help line service, seven days per week,
via telephone or other electronic media; (b) Software Release; (c) documentation
updates, as they become available; and (d) replacement of the Enterprise Storage
Software at no charge if the media becomes destroyed or damaged so that such
Software becomes unusable.
(7) Limitations On Maintenance Services And Warranties: EMC shall not be
required to support any releases of any Software other than the current release
and the immediately prior release of such Software.
6. TERMINATION
EMC shall have the right to terminate without liability any of Customers
licenses to the Software granted pursuant to this Agreement (a) if Customer
fails to comply with the terms and conditions of this Agreement and then fails
to cure such failure within thirty (30) days after receiving written notice
thereof from EMC, or (b) if Customer fails to pay applicable fees. Upon notice
of termination, Customer shall immediately cease to use all copies of the
terminated Software, and shall return or destroy, and certify destruction of,
the terminated Software and all portions and copies thereof.
7. DISCLAIMER AND LIMITATIONS OF LIABILITY
(1). EXCEPT AS IS PROVIDED IN THE PATENTS AND COPYRIGHTS SECTION OF THIS
AGREEMENT, EMC'S LIABILITY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT,
THE LICENSE OF SOFTWARE, THE PROVISION OF SERVICES AND THE USE, PERFORMANCE,
RECEIPT OR DISPOSITION OF SUCH SOFTWARE OR SERVICES, WHETHER BASED UPON
WARRANTY, CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE LESSER OF THE ACTUAL
AMOUNTS PAID BY CUSTOMER (OTHER THAN REIMBURSEMENT OF EMC'S EXPENSES) FOR SUCH
SOFTWARE AND/OR SERVICES DURING THE IMMEDIATELY PRECEDING 12 MONTH PERIOD OR ONE
MILLION US DOLLARS ($1,000,000). EMC'S LIABILITY FOR DAMAGES SHALL BE LIMITED TO
DAMAGES CAUSED BY EMC'S SOLE NEGLIGENCE, AND IS FURTHER LIMITED BY THE WARRANTY
SECTION OF THIS AGREEMENT. CUSTOMER WAIVES THE RIGHT TO BRING ANY CLAIM ARISING
OUT OF OR IN CONNECTION WITH THIS AGREEMENT MORE THAN EIGHTEEN MONTHS AFTER THE
CAUSE OF ACTION UPON WHICH THE CLAIM IS BASED.
(2). IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR SPECIAL,
INCIDENTAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES (INCLUDING, BUT NOT LIMITED TO,
LOSS OF PROFITS, LOSS OF DATA OR LOSS OF USE DAMAGES) ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES OR LOSSES.
8. GOVERNING LAW:
This Agreement shall be governed, interpreted and construed in accordance with
the laws of the Commonwealth of Massachusetts, U.S.A., excluding its conflict of
laws rules.
Signed by authorized representatives of both parties.
EMC Corporation
("EMC")
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Printed Name
- --------------------------------------------------------------------------------
Title
Mail.com, Inc.
- --------------------------------------------------------------------------------
("Customer")
/s/ Bob Helfant
- --------------------------------------------------------------------------------
Signature
Bob Helfant
- --------------------------------------------------------------------------------
Printed Name
SVP
- --------------------------------------------------------------------------------
Title
2
<PAGE>
[LETTERHEAD OF MAIL.COM]
June 4,1999
Terry Bock
Senior Account Manager
EMC Corporation
11 Penn Plaza, 11th Floor
New York, NY 10001
Dear Terry:
Please accept this letter our order for the configuration below.
Symmetrix Hardware
Qty. Model Description
---- ----- -----------
4 3930-36 Symmetrix ICDA 3930 36 GB Frame
128 3030-36M2 36 GB mirrored drives (72.4 GB usable RAID-1)
32 303 l-18M2 18 GB mirrored drives (32.2 GB usable RAID-1)
16 DP-FCD2-MM 2-Port Multi-Mode Fibre-Channel Director
8 DP-USD4SW 4-Pot Ultra-SCSI Channel Director
4 MEM2-8 192 8 GB Cache Memory
32 FClOM-5OM 10 Meter Fibre-Channel Cables
Investment: $3,742,096
Symmetrix Software
Qty. Model Description
---- ----- -----------
4 SYMMGR-BAS Symmetrix Manager Software-Base Component
4 SYMMGR-DDR Symmetrix Manager Software-Dynamic Disk Reallocation
4 SYMMOR-CTL Symmetrix Manager Software-Control Component
4 SYMMGR-WLA Symmetrix Manager Software-Workload Analyzer Component
4 POWERPATH-ENT Powerpath Software for Enterprise-Class Service
4 TF-OPEN Timefinder Software for Open Systems
Investment: $ 844,000
Enterprise Storage Network Solution
Qty. Model Description
---- ----- -----------
2 EC-l000 Connectrix Cabinet
1 SP-l00l Connectrix Service Processor Kit
4 ED-1032-325 Connectrix Director-32 Port
1 EM-1002 Connectrix Manager Software
4 PM-1032 Connectrix PRD MOR
4 V-LOGIX-X9 Volume Logix Software
56 FC3OM-50M Fiber 30M 50/125 Cable
Investment: 791,892
Celerra File Server
Qty. Model Description
---- ----- -----------
2 CFS-14 Celerra Cabinet
12 CDM5-2E4 2x Quad Ethernet Datamover
2 CCS3-E Celerra Control Station
12 CPS-UNIX-LIC Celerra SW License
2 CFS-CSMGR-LIC Control Station Manager SW
24 C12MI4-68S 12M SCSI Cable
Investment: 572,187
<PAGE>
Professional Services
<TABLE>
<CAPTION>
Qty. Model Description
---- ----- -----------
<S> <C> <C>
4 PS-LVLl-SYM Professional Services-Planning Install, Implementation-Symm Mgr.
4 PS-LVL1-TIME Professional Services-Planning, Install, Implementation-Timefinder
4 PS-LVL1-PWP Professional Services-Planning, Install, Implementation-Powerpath
2 PS-CFS-PM Professional Services-Planning, Install, Implementation-Celerra
1 PS-ESN-PM Professional Services-Planning, Install, Implementation-ESN
</TABLE>
Investment: $ 322,000
EMC Database Edition for Oracle by VERITAS
<TABLE>
<CAPTION>
Qty. Model Description
---- ----- -----------
<S> <C> <C>
3 EDE-TIER3 EMC DB Edition for Oracle for 2 Sun hosts and Symmetrix 3930
6 EFS-TIERl EMC Foundation Suite by Veritas for Sun 450
</TABLE>
Investment: $ 348,000
Fibre-Channel Host Bus Adapters
<TABLE>
<CAPTION>
Model Description Price (each) Qty Extended Price
----- ----------- ------------ --- --------------
<S> <C> <C> <C> <C>
LP-7000-E-NI Emulex Fibre-Channel Host-Bus adapter for $1,800 40 $72,000
Sun PCI-based machines
FC64-1063-EMC Jaycor Fibre-Channel Host-Bus adapter for $2,705 14 $37,870
Sun S-bus-based machines
</TABLE>
Pricing on both adapters indicated above includes a 3-year warranty.
Investment: $ 109,870
Support
3-year Hardware Support: $786,768
3-year Software Support: $866,343
Total 3-year Support Investment $1,653,111
Solution Summary
o Four Symmetrix 3930 Frames, with;
o 20 TB ICDA Capacity (scalable to 57 TB raw capacity)
o 32 GB Cache
o 32 Fibre-Channel Connections and 32 Ultra-SCSI connections
o 2 EMC Connectrix Systems with 128-port Enterprise Fibre-Channel
connectivity, Service Processor
o 2 EMC Celerra File Servers with:
o 12 Data Movers with 8 Ethernet interfaces each,
o Control Stations
o Symmetrix Manager (GUI Symmetrix Management) including Control, Dynamic
Disk Reallocator, and Workload Analyzer and Optimizer components, for Unix
or NT
o EMC Timefinder Software
o Powerpath software for 4 Sun 6000-class servers
o Connectrix Manager Software Suite
o Volume Logix Software
o Celerra Manager Software Suite
o EMC Database Edition for Oracle by Veritas Software for 6 Sun hosts.
o EMC Foundation Suite by Veritas for 6 Sun 450-class servers.
o Installation, Software Professional Services, Cables and related costs as
indicated.
o 3-year 24x7x365 Hardware/Software Support including remote support from
EMC's Worldwide Customer Service Center
<PAGE>
Please ship the configuration above no later than June 18th, 1999 to:
Exodus Communications
Internet Data Center
Harborside Financial Center
34 Exchange Place
Jersey City, NJ 07302-3885
Additional terms and conditions to this purchase are as follows:
- - Mail.com will lease the equipment as listed above thru EMC according to
the payment schedule detailed above.
- - Performance and acceptance criteria will be mutually agreed to by both EMC
and Mail.com prior to delivery of the above listed product
- - We agree to start good faith negotiations with EMC Corporation to
establish mutually agreeable terms and conditions based on EMC's standard
Customer Agreement, as attached. In the interim period, we agree that
EMC's Customer Agreement (with exception of Paragraphs 6E and 6G, which
will be superceded by the terms and conditions described in this order
letter) will control the purchase of the above Products. When a new
agreement has been signed by both parties, we agree that this new
agreement shall apply retroactively to cover this transaction. However, we
agree that the business terms describe here are now firm and not subject
to re-negotiation.
- - EMC agrees that pricing for Mail.com moving forward shall not exceed the
pricing extended at this time. Pricing for all hardware shall decrease by
3% quarterly starting July 1, 1999,
- - EMC will extend a tradeout credit of $l00,000 per 1 TB Raw Capacity for
currently deployed MTI equipment up to 8 TB and $250,000 per 1 TB Raw
Capacity for currently deployed Network Appliance Equipment up to 4 TB.
The minimum EMC purchase in conjunction with this credit must be 12 TB,
independent from this transaction, executed with the equipment returned to
EMC by December 31, 1999, and in accordance with the pricing detailed in
this agreement,
- - The proposed solution has the following scalability available within the
framework being delivered:
1. An additional 56 spare ports available on the Connectrix for
connectivity/growth which enables 42 additional hosts to be added at no
additional cost for connectivity.
2. An additional 96 drives (or up to 3456GB Capacity) can be added to each
Symmetrix 3930-36 unit for capacity expansion. The upgrade costs for these
are as follows:
<TABLE>
<CAPTION>
Drive Type Minimum Capacity Upgrade Upgrade Pricing Upgrade Unit to Full Capacity
---------- ------------------------ --------------- -----------------------------
<S> <C> <C> <C>
18GB 288GB $36,000 $432,000
36GB 566GB $57,600 * $345,600
</TABLE>
* Appropriate Cache Is Included
3. Each Symmetrix unit can also support an additional 8GB of cache memory.
The upgrade cost of this item is $120,000 per unit.
4. An additional (8) Datamovers can be added for each Celerra Subsystem
allowing a greater than 2x increase in scalability capability for
performance and connectivity within each footprint,
The upgrade cost for this upgrade (Per Datamover):
Product Unit Price
------- ----------
CDMS-2E4 $19,500
CFS-Unix $22,500
5. Each unit can be upgraded to be SRDF capable by supplying (at a cost not
to exceed as listed) the following components.
Product Qty Unit Price
------- --- ----------
SRDF-3930 1 $160,000
DP-RLD2 2 $ 22,500
Thank you for your consideration regarding this matter and please ship all the
above equipment to arrive no later than June 25, 1999.
Sincerely
/s/ Bob Helfant
Bob Helfant
Senior Vice President
<PAGE>
[LETTERHEAD OF MAIL.COM]
June 4,1999
Terry Bock
Senior Account Manager
EMC Corporation
11 Penn Plaza, 11th Floor
New York, NY 10001
Dear Terry:
Please accept this letter our order for the configuration below.
Symmetrix Hardware
Qty. Model Description
---- ----- -----------
4 3930-36 Symmetrix ICDA 3930 36 GB Frame
128 3030-36M2 36 GB mirrored drives (72.4 GB usable RAID-1)
32 303 l-18M2 18 GB mirrored drives (32.2 GB usable RAID-1)
16 DP-FCD2-MM 2-Port Multi-Mode Fibre-Channel Director
8 DP-USD4SW 4-Pot Ultra-SCSI Channel Director
4 MEM2-8 192 8 GB Cache Memory
32 FClOM-5OM 10 Meter Fibre-Channel Cables
Investment: $3,742,096
Symmetrix Software
Qty. Model Description
---- ----- -----------
4 SYMMGR-BAS Symmetrix Manager Software-Base Component
4 SYMMGR-DDR Symmetrix Manager Software-Dynamic Disk Reallocation
4 SYMMOR-CTL Symmetrix Manager Software-Control Component
4 SYMMGR-WLA Symmetrix Manager Software-Workload Analyzer Component
4 POWERPATH-ENT Powerpath Software for Enterprise-Class Service
4 TF-OPEN Timefinder Software for Open Systems
Investment: $ 844,000
Enterprise Storage Network Solution
Qty. Model Description
---- ----- -----------
2 EC-l000 Connectrix Cabinet
1 SP-l00l Connectrix Service Processor Kit
4 ED-1032-325 Connectrix Director-32 Port
1 EM-1002 Connectrix Manager Software
4 PM-1032 Connectrix PRD MOR
4 V-LOGIX-X9 Volume Logix Software
56 FC3OM-50M Fiber 30M 50/125 Cable
Investment: 791,892
Celerra File Server
Qty. Model Description
---- ----- -----------
2 CFS-14 Celerra Cabinet
12 CDM5-2E4 2x Quad Ethernet Datamover
2 CCS3-E Celerra Control Station
12 CPS-UNIX-LIC Celerra SW License
2 CFS-CSMGR-LIC Control Station Manager SW
24 C12MI4-68S 12M SCSI Cable
Investment: 572,187
<PAGE>
Professional Services
<TABLE>
<CAPTION>
Qty. Model Description
---- ----- -----------
<S> <C> <C>
4 PS-LVLl-SYM Professional Services-Planning Install, Implementation-Symm Mgr.
4 PS-LVL1-TIME Professional Services-Planning, Install, Implementation-Timefinder
4 PS-LVL1-PWP Professional Services-Planning, Install, Implementation-Powerpath
2 PS-CFS-PM Professional Services-Planning, Install, Implementation-Celerra
1 PS-ESN-PM Professional Services-Planning, Install, Implementation-ESN
</TABLE>
Investment: $ 322,000
EMC Database Edition for Oracle by VERITAS
<TABLE>
<CAPTION>
Qty. Model Description
---- ----- -----------
<S> <C> <C>
3 EDE-TIER3 EMC DB Edition for Oracle for 2 Sun hosts and Symmetrix 3930
6 EFS-TIERl EMC Foundation Suite by Veritas for Sun 450
</TABLE>
Investment: $ 348,000
Fibre-Channel Host Bus Adapters
<TABLE>
<CAPTION>
Model Description Price (each) Qty Extended Price
----- ----------- ------------ --- --------------
<S> <C> <C> <C> <C>
LP-7000-E-NI Emulex Fibre-Channel Host-Bus adapter for $1,800 40 $72,000
Sun PCI-based machines
FC64-1063-EMC Jaycor Fibre-Channel Host-Bus adapter for $2,705 14 $37,870
Sun S-bus-based machines
</TABLE>
Pricing on both adapters indicated above includes a 3-year warranty.
Investment: $ 109,870
Support
3-year Hardware Support: $786,768
3-year Software Support: $866,343
Total 3-year Support Investment $1,653,111
Solution Summary
o Four Symmetrix 3930 Frames, with;
o 20 TB ICDA Capacity (scalable to 57 TB raw capacity)
o 32 GB Cache
o 32 Fibre-Channel Connections and 32 Ultra-SCSI connections
o 2 EMC Connectrix Systems with 128-port Enterprise Fibre-Channel
connectivity, Service Processor
o 2 EMC Celerra File Servers with:
o 12 Data Movers with 8 Ethernet interfaces each,
o Control Stations
o Symmetrix Manager (GUI Symmetrix Management) including Control, Dynamic
Disk Reallocator, and Workload Analyzer and Optimizer components, for Unix
or NT
o EMC Timefinder Software
o Powerpath software for 4 Sun 6000-class servers
o Connectrix Manager Software Suite
o Volume Logix Software
o Celerra Manager Software Suite
o EMC Database Edition for Oracle by Veritas Software for 6 Sun hosts.
o EMC Foundation Suite by Veritas for 6 Sun 450-class servers.
o Installation, Software Professional Services, Cables and related costs as
indicated.
o 3-year 24x7x365 Hardware/Software Support including remote support from
EMC's Worldwide Customer Service Center
<PAGE>
Please ship the configuration above no later than June 18th, 1999 to:
Exodus Communications
Internet Data Center
Harborside Financial Center
34 Exchange Place
Jersey City, NJ 07302-3885
Additional terms and conditions to this purchase are as follows:
- - Mail.com will lease the equipment as listed above thru EMC according to
the payment schedule detailed above.
- - Performance and acceptance criteria will be mutually agreed to by both EMC
and Mail.com prior to delivery of the above listed product
- - We agree to start good faith negotiations with EMC Corporation to
establish mutually agreeable terms and conditions based on EMC's standard
Customer Agreement, as attached. In the interim period, we agree that
EMC's Customer Agreement (with exception of Paragraphs 6E and 6G, which
will be superceded by the terms and conditions described in this order
letter) will control the purchase of the above Products. When a new
agreement has been signed by both parties, we agree that this new
agreement shall apply retroactively to cover this transaction. However, we
agree that the business terms describe here are now firm and not subject
to re-negotiation.
- - EMC agrees that pricing for Mail.com moving forward shall not exceed the
pricing extended at this time. Pricing for all hardware shall decrease by
3% quarterly starting July 1, 1999,
- - EMC will extend a tradeout credit of $l00,000 per 1 TB Raw Capacity for
currently deployed MTI equipment up to 8 TB and $250,000 per 1 TB Raw
Capacity for currently deployed Network Appliance Equipment up to 4 TB.
The minimum EMC purchase in conjunction with this credit must be 12 TB,
independent from this transaction, executed with the equipment returned to
EMC by December 31, 1999, and in accordance with the pricing detailed in
this agreement,
- - The proposed solution has the following scalability available within the
framework being delivered:
1. An additional 56 spare ports available on the Connectrix for
connectivity/growth which enables 42 additional hosts to be added at no
additional cost for connectivity.
2. An additional 96 drives (or up to 3456GB Capacity) can be added to each
Symmetrix 3930-36 unit for capacity expansion. The upgrade costs for these
are as follows:
<TABLE>
<CAPTION>
Drive Type Minimum Capacity Upgrade Upgrade Pricing Upgrade Unit to Full Capacity
---------- ------------------------ --------------- -----------------------------
<S> <C> <C> <C>
18GB 288GB $36,000 $432,000
36GB 566GB $57,600 * $345,600
</TABLE>
* Appropriate Cache Is Included
3. Each Symmetrix unit can also support an additional 8GB of cache memory.
The upgrade cost of this item is $120,000 per unit.
4. An additional (8) Datamovers can be added for each Celerra Subsystem
allowing a greater than 2x increase in scalability capability for
performance and connectivity within each footprint,
The upgrade cost for this upgrade (Per Datamover):
Product Unit Price
------- ----------
CDMS-2E4 $19,500
CFS-Unix $22,500
5. Each unit can be upgraded to be SRDF capable by supplying (at a cost not
to exceed as listed) the following components.
Product Qty Unit Price
------- --- ----------
SRDF-3930 1 $160,000
DP-RLD2 2 $ 22,500
Thank you for your consideration regarding this matter and please ship all the
above equipment to arrive no later than June 25, 1999.
Sincerely
/s/ Bob Helfant
Bob Helfant
Senior Vice President
[LETTERHEAD OF PENTECH FINANCIAL SERVICES, INC.]
July 9, 1999
Ms. Debbie McClister
Executive Vice President
Chief Financial Officer
Mail.com, Inc.
11 Broadway, Suite 660
New York, NY 10004
Dear Ms. McClister:
Pentech Financial Services, Inc. is pleased to provide the following financing
proposal for your review and acceptance. This proposal is subject to (i) the
negotiation and preparation of documentation acceptable to Pentech and its
Counsel; (ii) the non-occurrence of any material adverse changes with respect to
the financial or business condition of Lessee; and (iii) the financing terms and
conditions set forth in this letter.
LESSOR: Pentech Financial Services, Inc., its successors
and assigns.
LESSEE: Mail.com, Inc.
AMOUNT: $5,000,000.00.
EQUIPMENT: The equipment may include: routers, computers,
servers, and other related equipment to be
approved by Lessor. A percentage equal to 20% of
the line amount (but not more than 25% of any
individual schedule) may be used for "soft cost"
exclusions listed below.
Exclusions: Custom use equipment, installation and
delivery costs, purchase tax, tooling equipment,
tenant improvements, software and items generally
considered fungible or expendable.
PAYMENT AND TERM: The lease and any schedule thereunder will be for
an initial term of forty-two (42) months ("Initial
Term"). The payment shall be .02775% of original
cost (the "Monthly Lease Rate Factor"), payable
monthly in advance, reflecting an annual Interest
rate of 9.366% for the monthly rents.
COMMENCEMENT DATE: The Commencement Date of each equipment schedule
will occur on the first day of the calendar month
following delivery and acceptance of the
equipment.
DELIVERY AND ACCEPTANCE: No later than July 31, 2000. Rent shall accrue
beginning on the date of acceptance of the
equipment at the daily equivalent of the lease
Rate Factor ("Interim Rent"). Interim Rent shall
be billed for the period from the date of
acceptance until the Commencement Date.
<PAGE>
RATE ADJUSTMENT: The Monthly Lease Rate Factor will be indexed to
the Thirty (30) day London Inter Bank Offer Rate
("LIBOR") (the "Index Instrument") currently
5.1875% (Wall Street Journal dated July 8, 1999).
The Monthly Lease Rate Factor shall be adjusted to
provide for any increase or decrease (limited to a
floor of 5.1875% and a cap of 8.1875%). At the
Commencement Date of each equipment schedule, the
Monthly Lease Rate Factor shall be fixed for the
Initial Term of such equipment schedule.
RESIDUAL OPTION: RESIDUAL Lessee shall purchase all but not less
than all of the equipment under any lease schedule
at a price equal to 12% of its original cost at
the end of the Initial Term ("the fair market
value").
TYPE OF CONTRACT: Master Lease Line. No individual schedule shall be
less than $100,000.00.
LEASE DEPOSIT: $50,000.00 to be applied proportionally to the
first rental payment of each equipment schedule
under the Master Lease Line, or applied to the
Master Lease and schedules thereunder as otherwise
agreed by both parties. The deposit shall be (1)
returned if a commitment is not issued by Lessor
within fifteen (15) business days following
receipt by Lessor of the signed proposal and all
due diligence material requested; or (2) retained
by Lessor if Lessee fails to accept a commitment
as substantially outlined herein. However it this
transaction is not funded because Lessee (a) fails
to execute final documents with Lessor, (b)
chooses not to use the committed loan amounts, or
(c) sustains a material adverse change in its
financial condition, Lessor shall retain the
commitment fee as compensation for expenses.
COST FOR LEGAL, For the account of the Lessee, not to exceed
APPRAISAL, DUE DILIGENCE, $5,000.00.
TITLE & LIEN SEARCH
UCC/RECORDING DOCUMENTATION
AND ANY SUCH SIMILAR
EXPENSE:
FIXED EXPENSES: This is a net lease transaction such that all
maintenance, insurance, property taxes,
installation, packing, transportation costs in and
out, and other items of similar nature are the
responsibility of the Lessee.
GENERAL CONDITIONS: Lessee shall provide to Lessor all due diligence
materials requested by Lessor, and approval of
this transaction shall be at the sole option of
Lessor after completion of its due diligence.
From the date of this proposal to the date of any
commencement, there shall not have occurred, in
the Lessor's sole discretion, any adverse changes
in the Lessees financial condition.
Lessor retains the right to delay or to cancel
lease funding commitments if such adverse changes
have, in Lessor's sole discretion, impacted
Lessee's credit capability.
Advance Rental - Last month's rent, payable upon
closing.
Page 2 of 4
<PAGE>
During the term of any schedule or supplement
under this Master Lease line, Lessor may publish,
for the purpose of its own advertising and
promotion only, via print and/or electronic media,
the name and the logo of Lessee, together with the
total amount of the Master Lease Line.
Lessee shall provide to Lessor during the term of
the lease quarterly unaudited financial
statements, including year-end audited financials
prepared by the Lessee's accounting firm according
to GAAP.
AVAILABILITY OF PROPOSAL: Five (5) days from date of receipt.
DOCUMENTATION: Lease documentation shall be provided by Lessor
upon acceptance of this proposal and credit
approval by Pentech Financial Services, Inc., its
successors and assigns.
CONTINGENCIES: This lease proposal is intended only to facilitate
documentation of an equipment lease. Each of the
following contingencies must be satisfied, as
determined by Lessor in its sole discretion,
before the final documents for an equipment lease
based on this proposal will be executed by Lessor.
Completion of final approval of credit and pricing
terms by Lessor is dependent upon Lessee providing
all due-diligence materials requested by Lessor,
including but not limited to the following:
a. Complete copy of the most recent business plan
of the Company including information on
management, director and investors, market,
product/services and financial strategy;
b. Any information available regarding equipment
to be financed (vendor, model, description, cost,
data sheets, projected delivery dates, or
technical data);
c. References. A fully completed Pentech Client
Profile including contact telephone numbers;
d. Two (2) complete sets of product literature,
press releases and other media material;
e. Audited financial statements for the latest
fiscal year end;
f. Most recent internally prepared financial
statements for the Company;
g. Copy of the Articles of Incorporation of the
Company
Page 3 of 4
<PAGE>
We appreciate the opportunity to serve your financial needs. Should you have any
questions please do not hesitate to call your Account Executive, Rip Miller. If
these terms meet with your approval, please sign and return the proposal with
the requested Deposit at your earliest convenience and we will commence the
approval and documentation process.
Very truly yours,
PENTECH FINANCIAL SERVICES, INC.
Benjamin E. Millerbis
President
Lessee/Borrower understands and approves the terms set forth in the proposal.
MAIL.COM, INC.
By /s/ Debra L. McClister
----------------------------------
Its EVP & CFO Dated: 7/99
--------------------------------- -------------------------------
Page 4 of 4
[LETTERHEAD OF PENTECH FINANCIAL SERVICES, INC.]
July 9, 1999
Ms. Debbie McClister
Executive Vice President
Chief Financial Officer
Mail.com, Inc.
11 Broadway, Suite 660
New York, NY 10004
Dear Ms. McClister:
Pentech Financial Services, Inc. is pleased to provide the following financing
proposal for your review and acceptance. This proposal 5 subject to (i) the
negotiation and preparation of documentation acceptable to Pentech and its
counsel; (ii) the non-occurrence of any material adverse changes with respect to
the financial or business condition of Lessee; and (iii) the financing terms and
conditions set forth in this letter.
LESSOR: Pentech Financial Services, Inc., its successors
and assigns.
LESSEE: Mail.com, Inc.
AMOUNT: $900,000.00
EQUIPMENT: Previously purchased equipment with the advance
rate based on the age of the invoice. An advance
rate of 50% for equipment invoices dated between
January 1,1998 and June 30, 1998. An advance rate
of 75% for equipment invoices dates between July
1, 1998 and December 31, 1998. An advance rate of
100% for equipment invoices dated between January
1,1999 and June 30, 1999. All equipment to be
approved by Lessor.
Exclusions: Custom use equipment, installation and
delivery costs, purchase tax, tooling equipment,
tenant improvements, software and items generally
considered fungible or expendable.
PAYMENT AND TERM: The lease and any schedule thereunder will be for
an initial term of thirty-six (36) months
("Initial Term"). The payment shall be 3.149%
(.03149) of original cost (the "Monthly Lease Rate
Factor"), payable monthly in advance, reflecting
an annual interest rate of 8.83% for the monthly
rents.
COMMENCEMENT DATE: The Commencement Date of each equipment schedule
will occur on the first day of the calendar month
following delivery and acceptance of the
equipment.
DELIVERY AND ACCEPTANCE: No later than July 31,1999. Rent shall accrue
beginning on the date of acceptance of the
equipment at the daily equivalent of the lease
Rate Factor ("Interim Rent"). Interim Rent shall
be billed for the period from the date of
acceptance until the Commencement Date.
<PAGE>
RATE ADJUSTMENT: The Monthly Lease Rate Factor will be indexed to
the Thirty (30) day London Inter Bank Offer Rate
("LIBOR") (the "Index Instrument") currently
5.1875% (Wall Street Journal dated July 8, 1999).
The Monthly Lease Rate Factor shall be adjusted to
provide for any increase or decrease (limited to a
floor of 5.1875% and a cap of 8.1875%) At the
Commencement Date of each equipment schedule, the
Monthly Lease Rate Factor shall be fixed for the
Initial Term of such equipment schedule.
RESIDUAL OPTION: Lessee shall purchase all but not less than all of
the equipment under any lease schedule at a price
equal to 12% of its original cost at the end of
the Initial Term ("the fair market value").
TYPE OF CONTRACT: Master Lease Line. No individual schedule shall be
less than $250,000.00.
LEASE DEPOSIT: $9,000.00 to be applied proportionally to the
first rental payment of each equipment schedule
under the Master Lease Line, or applied to the
Master Lease and schedules thereunder as otherwise
agreed by both parties. The deposit shall be (1)
returned if a commitment is not issued by Lessor
within fifteen (15) business days following
receipt by Lessor of the signed proposal and all
due diligence material requested; or (2) retained
by Lessor if Lessee fails to accept a commitment
as substantially outlined herein. However if this
transaction is not funded because Lessee (a) fails
to execute final documents with Lessor, (b)
chooses not to use the committed loan amounts, or
(c) sustains a material adverse change in its
financial condition, Lessor shall retain the
commitment fee as compensation for expenses.
COST FOR LEGAL, For the account of the Lessee, not to exceed
APPRAISAL, DUE $2,000.00.
DILIGENCE, TITLE & LIEN
SEARCH UCC/RECORDING
DOCUMENTATION AND ANY
SUCH SIMILAR EXPENSE:
FIXED EXPENSES: This is a net lease transaction such that all
maintenance, insurance, property taxes,
installation, packing, transportation costs in and
out, and other items of similar nature are the
responsibility of the Lessee.
GENERAL CONDITIONS: Lessee shall provide to Lessor all due diligence
materials requested by Lessor, and approval of
this transaction shall be at the sole option of
Lessor after completion of its due diligence.
From the date of this proposal to the date of any
commencement, there shall not have occurred, in
the Lessor's sole discretion, any adverse changes
in the Lessee's financial condition.
Lessor retains the right to delay or to cancel
lease funding commitments if such adverse changes
have, in Lessor's sole discretion, impacted
Lessee's credit capability.
Advance Rental - Last month's rent, payable upon
closing.
Page 2 of 4
<PAGE>
During the term of any schedule or supplement
under this Master Lease line, Lessor may publish,
for the purpose of its own advertising and
promotion only, via print and/or electronic media,
the name and the logo of Lessee, together with the
total amount of the Master Lease Line.
Lessee shall provide to Lessor during the term of
the lease quarterly unaudited financial
statements, including year-end audited financials
prepared by the Lessee's accounting firm according
to GAAP
AVAILABILITY OF PROPOSAL: Five (5) days from date of receipt.
DOCUMENTATION: Lease documentation shall be provided by Lessor
upon acceptance of this proposal and credit
approval by Pentech Financial Services, Inc., its
successors and assigns.
CONTINGENCIES: This lease proposal is intended only to facilitate
documentation of an equipment lease. Each of the
following contingencies must be satisfied, as
determined by Lessor in its sole discretion,
before the final documents for an equipment lease
based on this proposal will be executed by Lessor.
Completion of final approval of credit and pricing
terms by Lessor is dependent upon Lessee providing
all due-diligence materials requested by Lessor,
including but not limited to the following:
a. Complete copy of the most recent business plan
of the Company including information on
management, director and investors, market,
product/services and financial strategy;
b. Any information available regarding equipment
to be financed (vendor, model, description, cost,
data sheets, projected delivery dates, or
technical data);
c. References. A fully completed Pentech Client
Profile including contact telephone numbers;
d. Two (2) complete sets of product literature,
press releases and other media material;
e. Audited financial statements for the latest
fiscal year end;
f. Most recent internally prepared financial
statements for the Company;
g. Copy of the Articles of Incorporation of the
Company
Page 3 of 4
<PAGE>
We appreciate the opportunity to serve your financial needs. Should you have any
questions please do not hesitate to call your Account Executive, Rip Miller. If
these terms meet with your approval, please sign and return the proposal with
the requested Deposit at your earliest convenience and we will commence the
approval and documentation process.
Very truly yours,
PENTECH FINANCIAL SERVICES, INC.
Benjamin B. Millerbis
President
Lessee/Borrower understands and approves the terms set forth in the proposal.
MA1L.COM, INC.
By /s/ Debra L. McClister
---------------------------------
Its EVP & CEO Dated: 7/99
-------------------------------- ---------------------------------
Page 4 of 4
Exhibit 99.4
MAIL.COM INVESTOR RIGHTS AGREEMENT
MAIL.COM INVESTOR RIGHTS AGREEMENT, dated as of the 14th day of July,
1999, by and among 3CUBE, Inc., a Delaware corporation, doing business at 577
Airport Boulevard, Suite 180, Burlingame, CA 94010 (formerly known as B.A.K.
Jina International, Inc., doing business as Technology Workshop, and hereinafter
referred to as the "Purchaser"), and and Mail.com, Inc., a Delaware corporation,
doing business at 11 Broadway, Suite 660, New York, NY 10004 (the "Company").
The Company and the Purchaser are collectively referred to as the "Parties."
W I T N E S S E T H:
WHEREAS, the Company and the Purchaser are parties to a certain Stock
Purchase Agreement dated as of the date hereof (the "Stock Purchase Agreement");
and
WHEREAS, in order to induce the Parties to enter into the Stock Purchase
Agreement, the Purchaser and the Company agree that this Agreement shall govern
the rights of the Parties with respect to the subject matter set forth;
NOW, THEREFORE, in consideration of the promises and mutual agreements
hereinafter contained, the Parties do hereby agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
Section 1.1. Definitions. The following terms, as used herein, shall have
the following meanings:
"Act" means the Securities Act of 1933.
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such Person.
"Agreement" means this Agreement, as the same may be amended or
supplemented from time to time in accordance with the terms hereof.
"Company Stock" means any shares of any class of authorized capital stock
in the Company.
"Competitor" means any Person whose primary business is providing Internet
services similar to those provided by the Company.
"Incidental Registration" has the meaning set forth in Section 2.1.1. of
this Agreement.
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"Indemnified Party" and "Indemnifying Party" has the meaning set forth in
Section 2.6.3. of this Agreement.
"Party" has the meaning set forth in the preface to this Agreement.
"Person" means an individual, a partnership, a limited liability company,
a corporation, an association, a joint stock company, a trust, a joint venture,
an unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Purchaser" has the meaning set forth in the preface to this Agreement.
"Registrable Securities" means (i) the Class A Common Stock of the Company
issued to the Purchaser pursuant to the Stock Purchase Agreement; (ii) any Class
A Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security that is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of
the securities referenced in clause (i) above or this clause (ii); and (iii) any
other shares of capital stock of the Company into or for which the securities
referenced in clause (i) and (ii) may be converted into or exchanged pursuant to
a recapitalization or reclassification of the Company's capital stock.
"SEC" means the Securities and Exchange Commission.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (i) liens for taxes not yet due and
payable or for taxes that the taxpayer is contesting in good faith through
appropriate proceedings, (ii) purchase money liens securing rental payments
under capital lease arrangements, and (iii) liens, charges, encumbrances,
easements, rights-of-way, building and use restrictions, exceptions,
reservations and limitations that do not in any material respect adversely
detract from the value of the property subject thereto or materially impair the
operation of the Company.
"Stock Purchase Agreement" has the meaning set forth in the recitals to
this Agreement.
Section 1.2. Other Terms. Other terms may be defined elsewhere in the text
of this Agreement and, unless otherwise indicated, shall have such meaning
throughout this Agreement.
Section 1.3. Other Definitional Provisions. The words "herein," "hereof,"
"hereto" and "hereunder" and words of similar import, when used in this
Agreement, shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. The terms defined in the singular shall have a
comparable meaning when used in the plural, and vice versa, and in such gender,
as the sense and circumstances require.
ARTICLE II
REGISTRATION RIGHTS OF THE PURCHASER
The Company and the Purchaser covenant and agree as follows:
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Section 2.1. Registration 2.1.1. Incidental Registration. If at any time
the Company proposes to register any Company Stock under the Act for its
own account or for the account of any of its stockholders, in connection
with an underwritten public offering of such Company Stock, on a form that
would also permit registration of the Registrable Securities, the Company
shall, each such time, give the Purchaser not less than 20 days written
notice of such proposed registration (the "Purchaser Incidental
Registration"). Upon the written request of the Purchaser, given within 20
days after receipt of any such notice from the Company, the Company shall,
subject to Section 2.1.2., cause to be included in such registration all
of the Registrable Securities the Purchaser requests be registered in such
registration. There shall be no restriction with respect to the number of
times the Purchaser may request such Purchaser Incidental Registration.
2.1.2. Pro Rata Incidental Registration of Company Stock. If
the managing underwriter of any offering described in the first sentence
of Section 2.1.1. determines that the number of shares proposed to be sold
by the Company or by other stockholders of Company Stock is greater than
the number of shares that the underwriter believes feasible to sell at the
time, at the price and upon the terms approved by the Company, then the
number of shares of Company Stock that the underwriter believes may be
sold shall be allocated for inclusion in the registration statement in the
following order of priority: (A) Company Stock sold for the account of any
holders of the Company's securities if the registration was initiated by
such holders pursuant to contractual demand registration rights and
Company Stock sold for the account of Lycos, Inc. ("Lycos"), pursuant to
contractual incidental registration rights that permit it to participate
in such an offering on a pro rata basis with such holders, pro rata among
such holders and Lycos according to the number of shares requested to be
registered by such holders and Lycos; (B) Company Stock sold for the
account of the Company; and (C) pro rata among any other holders of
securities of the Company exercising contractual incidental registration
rights (other than holders described in clause (A) above if pursuant to a
demand right and other than Lycos as described in clause (A) above) and
the Purchaser according to the number of shares requested to be registered
by such other holders and the Purchaser; provided, however, that (1) as
between the Company, on the one hand, and the Purchaser and other holders
referred to in clause (C) above, on the other hand, at least 10% of the
Purchaser's Registrable Securities and of such other holders' registrable
securities requested to be included shall be included in such
underwriting; and (2) the right of such other holders and the Purchaser to
participate in the offering shall have priority over Class A Common Stock
held by employees of the Company and Class B Common Stock held by
employees of the Company. If the Purchaser disapproves of the terms of the
underwriting (including the number of Registrable Securities to be
included), it may elect to withdraw therefrom by written notice to the
Company and the managing underwriter; provided, however, the election to
withdraw occurs within 10 days after the Purchaser receives notice of the
terms of the underwriting.
2.1.3. Termination of Registration Rights. After such time
when the Purchaser becomes eligible to sell all of its Class A Common
Shares under Rule 144 of
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the Act within any 3 month period without volume limitations or under Rule
144(k) thereof, the Purchaser shall not be entitled to exercise any right
provided for in this Section 2.1 with respect to those shares eligible to
be sold.
Section 2.2. Obligations of the Company. Where required under
Section 2.1. to use its best efforts to effect the registration of any of the
Registrable Securities, the Company shall, as expeditiously as reasonably
possible,
2.2.1. Prepare and file with the SEC a registration statement
with respect to such Shares and use its best efforts to cause such
registration statement to become effective and, upon the request of the
holders of Company Stock who initiated the request for such registration
pursuant to contractual demand registration rights holding the minimum
percentage of Company Stock necessary to obtain such registration under
such rights, keep such registration statement effective for up to 120
days;
2.2.2. Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to comply with the provisions of
the Act with respect to the disposition of all securities covered by such
registration;
2.2.3. Furnish to the Purchaser such numbers of copies of such
registration statement and prospectus, including any preliminary
prospectus, in conformity with the requirements of the Act, and such other
documents as the Purchaser may reasonably request in order to facilitate
the disposition of any of its Registrable Securities;
2.2.4. Use its best efforts to register and qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be reasonably
appropriate for the distribution of the securities covered by the
registration statement; and
2.2.5. Otherwise comply with all applicable rules and
regulations of the SEC.
Section 2.3. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 2 that the
Purchaser shall furnish to the Company such information regarding the Purchaser,
the Registrable Securities held by the Purchaser, and the intended method of
disposition thereof as the Company or its appointed agents shall reasonably
request and as shall be required in connection with the action to be taken by
the Company.
Section 2.4. Registration Expenses. In the case of any registration
effected pursuant to Section 2, the Company shall bear all registration and
qualification fees and expenses, and all costs and disbursements of counsel for
the Company; provided, however, that the Purchaser shall bear the fees and costs
of the Purchaser's own counsel and all underwriting discounts and commissions
with respect to the Registrable Securities sold by it.
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Section 2.5. Selection of Underwriters. If a registration pursuant to
Section 2.1.1. of this Agreement involves an underwritten offering, the
Company shall have the right to select the investment bankers and managers
to administer the offering. The Company shall not be required under
Section 2.1.1. to register any of the Registrable Securities in such
registration unless the Purchaser accepts the terms of the underwriting as
agreed upon between the Company and the underwriter.
Section 2.6. Indemnification. If any Registrable Securities are included
in a registration statement pursuant to this Section 2, then,
2.6.1. To the extent permitted by law, the Company shall
indemnify and hold harmless the Purchaser, agents for the Purchaser, any
underwriter for the Purchaser, and each Person, if any, who controls such
Person within the meaning of the Act, against any losses, claims, damages
or liabilities, joint or several, to which they may become subject under
the Act or otherwise, insofar as such losses, claims, damages, or
liabilities arise out of any untrue statement or alleged untrue statement
of material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained in the registration
statement, or any amendments or supplements to the registration statement,
or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading, and will reimburse the
Purchaser, the agents for the Purchaser, such underwriter, or controlling
Person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or omission
based upon and in conformity with written information furnished to the
Company by an instrument duly executed by the Purchaser or underwriter and
stated to be specifically for use therein.
2.6.2. To the extent permitted by law, the Purchaser shall
indemnify and hold harmless the Company, each of its directors, officers,
controlling persons, agents, advisors, and any underwriter for the Company
against any losses, claims, damages or liabilities to which the Company or
any such director, officer, controlling person, agent, advisor or
underwriter may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities arise out of or are based upon
any untrue or alleged untrue statement of any material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained in the registration statement or any amendments or
supplements to the registration statement, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein
not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in such registration statement, preliminary prospectus,
or amendments or supplement thereto, in reliance upon and in conformity
with written information furnished by the Purchaser duly executed and
stated to be expressly for use therein, and the Purchaser will reimburse
any
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legal or other expenses reasonably incurred by the Company or any such
director, officer, controlling person, agent, advisor or underwriter in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, that the Purchaser's liability under this
Section 2.6.2. shall not exceed the amount of the gross proceeds of the
offering of the Purchaser's Registrable Securities included therein.
2.6.3. Each party entitled to indemnification (the
"Indemnified Party") shall give notice to the party required to provide
indemnification ("Indemnifying Party") promptly after such Indemnified
Party has knowledge of any claim as to which indemnity may be sought, and
shall permit the Indemnifying Party (at its expense) to assume the defense
of any such claim or any litigation resulting therefrom; provided,
however, that counsel for the Indemnifying Party, who shall conduct the
defense of such claim or litigation, shall be reasonably satisfactory to
the Indemnified Party, and the Indemnified Party may participate in such
defense at such party's expense; provided, further, that the failure by
any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Section 2.6., except
to the extent that the failure results in an omission of actual notice to
the Indemnifying Party and such Indemnifying Party is damaged solely as a
result of the failure to give notice; provided, further, that a refusal to
permit the Indemnifying Party to conduct such defense by such counsel
shall relieve such Indemnifying Party of its obligations under this
Section 2.6. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party,
consent to the entry of any judgment or enter into any settlement that
does not include as an unconditional term the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability with
respect to such claim or litigation.
Section 2.7. Reports Under the Securities Exchange Act of 1934. With a
view toward making available to the Purchaser the benefits of SEC Rule 144
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit the Purchaser to sell its Registrable Securities to the
public without registration, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its shares to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the Securities Exchange Act of 1934, as is
necessary to enable the Purchaser to utilize Form S-3 for the sale of its
shares, such action to be taken as soon as practicable after the end of the
fiscal year in which the first registration statement filed by the Company for
the offering of its shares to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Securities Exchange Act
of 1934 from and after the time that the Company becomes subject to such
reporting obligations; and
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(d) furnish to the Purchaser, so long as the Purchaser owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company), the Act and the Securities Exchange Act of 1934 (at any
time after it has become subject to such reporting requirements), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company and (iii) such other information as may be
reasonably requested in availing the Purchaser of any rule or regulation of the
SEC which permits the selling of any such shares without registration or
pursuant to such form.
Section 2.8. Lock-Up Period. The Purchaser agrees that it shall not sell
or otherwise transfer or dispose of any Registrable Securities until December
15, 1999; provided, however, that nothing contained herein shall prohibit any
holder of Company Stock from transferring any Registrable Securities to a trust
established for estate planning purposes or from transferring Registrable
Securities to a subsidiary of Purchaser. In furtherance hereof, the Purchaser
shall execute and deliver to the Company as of the date hereof the lockup letter
submitted by Salomon Smith Barney on behalf of the underwriters in connection
with the Company's initial public offering. Notwithstanding anything to the
contrary set forth herein, the terms of this Section 2.8 may not be amended or
modified, directly or indirectly, without the express written consent of the
Purchaser if such amendment or modification detrimentally affects the Purchaser.
Section 2.9. Transfer of Registration Rights. The registration rights of
the Purchaser under this Section 2 may be assigned and transferred (i) by the
Purchaser to any Affiliate of the Purchaser to whom any of the shares owned by
the Purchaser are transferred, and (ii) by the Purchaser to any transferee who
acquires at least 25,000 Registrable Securities (adjusted to reflect subsequent
stock splits, combinations, stock dividends and recapitalizations); provided,
however, that the Company is given written notice by the Purchaser at the time
of such assignment and transfer stating the name and address of the transferee
and identifying the securities with respect to which the rights under this
Section 2 are being assigned and transferred. For the purposes of this Section
2.9, a change in control of an Affiliate of the Purchaser holding shares
entitling such Affiliate to the registration rights hereunder, such that such
Affiliate is subsequent to such change of control no longer an Affiliate of the
Purchaser, shall be deemed an attempted transfer of the registration rights
hereunder and such former Affiliate of the Purchaser shall not be entitled to
such registration rights. From and after each transfer of Registrable Securities
in a manner that effects an assignment and transfer of registration rights
hereunder, all rights under this Section 2 of the Purchaser shall be exercised
by the holder of a majority in interest of the Registrable Securities.
Section 2.10. Confidentiality. Any information obtained from the Company
by the Purchaser, whether obtained in connection with the transactions
contemplated by the Stock Purchase Agreement, or otherwise, shall be maintained
confidential and not disclosed to any third party and used only for purposes of
monitoring and administering the Purchaser's investment in the Company or the
other transactions entered into in connection with the Stock Purchase Agreement;
provided, the Purchaser's obligation under this Agreement to hold all
information received from the Company shall not prohibit the Purchaser, as
applicable, from
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disclosing such information (i) if such information is public, (ii) to its board
of directors, investment advisers, attorneys, accountants, consultants and other
professionals to the extent necessary to obtain their services in connection
with the Purchaser's investment in the Company, provided that such persons shall
hold such information confidential, (iii) to any prospective purchaser of any
shares of the Company owned by the Purchaser as long as such prospective
purchaser agrees in writing to be bound by the confidentiality provisions of
this Agreement and so long as such prospective purchaser is not a Competitor of
the Company and does not hold shares of a Competitor of the Company (except that
such prospective purchaser may hold shares of a Competitor of the Company if it
is a passive investor with respect thereto (within the meaning of Rule 13d-1(c)
promulgated under the Securities Exchange Act), (iv) to any of such Purchaser's
Affiliates, provided that such Affiliates agree to hold such information
confidential as provided herein, or (v) to a regulatory body, stock exchange or
court having jurisdiction over the Purchaser or by court or administrative order
or as otherwise required by applicable law or regulation or listing or trading
agreement concerning the Purchaser, subject in each case to allowing the Company
to seek a protective order with respect to disclosure of any such information.
ARTICLE III
MISCELLANEOUS
Section 3.1. Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the Parties (including
permitted transferees of any Registrable Securities); provided that the
Purchaser's rights to sell, transfer or otherwise dispose of the Registrable
Securities is subject to the restrictions contained in Section 2.8 and the
Purchaser's rights to assign its registration rights hereunder are subject to
the restrictions contained in Section 2.9. Nothing in this Agreement is intended
to confer upon any party other than the Parties or their respective successors
and assigns any rights, remedies, obligations or liability under or by reason of
this Agreement, except as expressly provided in this Agreement.
Section 3.2. Notices. All notices hereunder shall be in writing and be
given by registered or certified mail, postage and registration fees prepaid, or
by overnight delivery, and shall be deemed given when so mailed as follows:
If to the Purchaser, to it at:
3CUBE, Inc.
577 Airport Boulevard, Suite 180
Burlingame, CA 94010
Attention: Igor Neyman, President
Fax: 650-373-2525
With a copy to:
Heller Ehrman White &McAuliffe
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4250 Executive Square
7th Floor
La Jolla, California 92037-9103
Attention: Alan Jacobs, Esq.
Fax: 858-450-8499
If to the Company, to it at:
Mail.com, Inc.
11 Broadway, Suite 660
New York, NY 10004
Attention: Gary Millin, President
Fax:
With a copy to:
Mail.com, Inc.
11 Broadway, Suite 660
New York, NY 10004
Attention: David W. Ambrosia, Executive Vice
President and General Counsel
Fax:
The foregoing addresses may be changed by notices given in the manner set forth
in this section.
Section 3.3. Governing Law; Forum and Consent to Jurisdiction.
This Agreement shall be construed and enforced in accordance with, and
governed by, the laws of the State of New York without giving effect to the
principles of the conflict of laws thereof.
Section 3.4. Waivers; Amendments. The waiver by the undersigned of any of
the provisions of this Agreement or the Stock Purchase Agreement shall not
operate or be construed as a waiver of any subsequent breach. This Agreement may
be amended, and any provision of this Agreement may be waived, only by a written
amendment executed by (i) the Company and (ii) the Purchaser. Notwithstanding
the foregoing, the Company will provide the Purchaser with written notice and
sufficient information, sufficiently far in advance of a date a decision is
required, to enable such Person to make an informed and considered decision with
respect to any proposed amendment, waiver or consent in respect of any of the
provisions hereof.
Section 3.5. Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect the construction and
interpretation of this Agreement
Section 3.6. Severability. The invalidity of all or any part of any
section of this Agreement shall not render invalid the remainder of such
section. If any provision of this
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Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
Section 3.7. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. This Agreement may contain more than one
counterpart of the signature page and may be executed by the affixing of the
signatures of each of the Parties to one of these counterpart signature pages.
All of the counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
Section 3.8. Aggregation of Stock. All Registrable Securities, as the case
may be, held or acquired by Affiliated entities shall be aggregated for the
purpose of determining the availability of any rights under this Agreement.
Section 3.9. Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement.
Section 3.10. Entire Agreement. This Agreement, the Stock Purchase
Agreement (including the 3CUBE Disclosure Schedule, the Mail.com Disclosure
Schedule and the Exhibits thereto), the 3Cube Investor Rights Agreement, the
Internet Facsimile Messaging Agreement and the System Integration, Consulting
and Continuing Support Agreement contain the entire agreement of the Parties
with respect to the subject matters set forth herein or therein and supercede
any prior written or oral agreements, undertakings or arrangements between the
parties hereto, including without limitation that certain Commitment Letter and
Term Sheet, dated May 14, 1999. The Parties are not bound by any oral statements
that are made outside of this Agreement.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
3CUBE, INC.
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Name: Igor Neyman
Title: President
MAIL.COM, INC.
----------------------------------------
Name:
Title:
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