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Filed pursuant to Rule 424(b)(3)
Registration No. 333-41154
PROSPECTUS
$100,000,000
MAIL.COM, INC.
7.00% CONVERTIBLE SUBORDINATED NOTES DUE 2005
(AND SHARES OF CLASS A COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES)
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We issued the notes in a private placement in January 2000. This prospectus
will be used by selling securityholders to resell their notes and the Class A
common stock issuable upon conversion of their notes and we will not receive any
proceeds from sales that the selling securityholders make.
The notes are convertible prior to maturity into Class A common stock at a
conversion price of $18.95 per share, subject to adjustment in certain events.
We will pay interest on the notes on February 1 and August 1 of each year,
beginning on August 1, 2000. The notes will mature on February 1, 2005, unless
earlier converted or redeemed. The notes are not secured and are subordinated in
right of payment to all of our present and future senior indebtedness. In
addition, the notes will also be structurally subordinated to the liabilities of
our subsidiaries. You can find a more extensive description of the notes
beginning on page 33.
Mail.com may redeem some or all of the notes at any time under the
circumstances and at the prices described in this prospectus. If certain events
described in this prospectus occur, holders of the notes will have the right to
require Mail.com to repurchase the notes at a price equal to 100% of the
principal amount plus accrued interest.
The reported last sales price of our Class A common stock on the Nasdaq
National Market on November 14, 2000 was $1.6875 per share. Our Class A common
stock is traded on the Nasdaq National Market under the symbol "MAIL."
THIS INVESTMENT INVOLVES RISK. YOU SHOULD PURCHASE ONLY IF YOU CAN AFFORD A
COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON PAGE 9.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is November 15, 2000
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TABLE OF CONTENTS
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PAGE
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Incorporation of Documents By Reference ................................... 3
Where You Can Get More Information ........................................ 4
Cautionary Statements Regarding Forward-Looking Statements ................ 4
Prospectus Summary ........................................................ 5
Risk Factors .............................................................. 9
Use of Proceeds ........................................................... 32
Ratio of Earnings to Fixed Charges ........................................ 32
Description of the notes .................................................. 33
Description of capital stock .............................................. 55
Certain United States Federal Income Tax Considerations ................... 61
Selling Securityholders ................................................... 67
Plan of Distribution ...................................................... 69
Legal Matters ............................................................. 70
Experts ................................................................... 70
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You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. The selling securityholders are offering to sell,
and seeking offers to buy, the notes and shares of Class A common stock issuable
upon conversion of the notes only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or the date of any sale of the notes and shares of Class A common
stock issuable upon conversion of the notes.
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INFORMATION CONTAINED ON OUR WEB SITES WILL NOT BE
DEEMED TO BE PART OF THIS PROSPECTUS.
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INCORPORATION OF DOCUMENTS BY REFERENCE
We furnish our stockholders with annual reports containing audited financial
statements and other appropriate reports. We also file annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission. Instead of repeating in this prospectus information that we
have already filed with the Securities and Exchange Commission, rules of the
Securities and Exchange Commission permit us to "incorporate by reference" the
information we file with them. These rules mean that we can disclose important
information to you by referring you to those documents that we have previously
filed with the Securities and Exchange Commission. These documents are
considered to be part of this prospectus. Any documents that we file with the
Securities and Exchange Commission in the future will also be considered to be
part of this prospectus and will automatically update and supersede the
information in this prospectus. We incorporate by reference the documents listed
below and any future filings we make with the Securities and Exchange Commission
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until the selling securityholders sell all of the notes or the shares of Class A
common stock offered by this prospectus.
- Our Annual Report on Form 10-K for the fiscal year ended December 31,
1999, filed with the Commission on March 30, 2000;
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- Our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
2000, June 30, 2000 and September 30, 2000;
- Our Current Reports on Form 8-K dated November 3, 2000, October 27, 2000,
September 25, 2000, March 28, 2000 (as amended on Form 8-K/A dated May 26,
2000), February 11, 2000 (as amended on Form 8-K/A dated April 24, 2000),
January 24, 2000 and January 6, 2000; and
- Our Proxy Statement filed on April 18, 2000. .
WHERE YOU CAN GET MORE INFORMATION
We have filed a registration statement with the Securities and Exchange
Commission to register the notes and the Class A common stock issuable upon
conversion of the notes that the selling securityholders are offering to you.
This prospectus is part of that registration statement. As allowed by the
Securities and Exchange Commission's rules, we have not included in this
prospectus all of the information that is included in the registration
statement. At your oral or written request, we will provide to you, without
charge, a copy of the registration statement or any of the exhibits to the
registration statement not delivered with this prospectus. If you want more
information, write or call us at:
Mail.com, Inc.
11 Broadway, 6th Floor
New York, NY 10004
Telephone: (212) 425-4200
Attention: Investor Relations
You may also obtain a copy of any filing we have made with the Securities and
Exchange Commission directly from the Securities and Exchange Commission. You
may either:
- read and copy reports, statements or other information we have filed with
the Securities and Exchange Commission at the Securities and Exchange
Commission's public reference room at 450 Fifth Street N.W., Washington,
D.C.
- obtain copies of documents that we have filed with the Securities and
Exchange Commission on the Securities and Exchange Commission's Internet
web site at http://www.sec.gov.
You can get more information about the Securities and Exchange Commission's
public reference room by calling the Securities and Exchange Commission at
1-800-SEC-0330.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
We make forward-looking statements within the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 throughout this prospectus.
These statements relate to our future plans, objectives, expectations and
intentions. These statements may be identified by the use of words such as
"expects," "anticipates," "intends," "believes," "estimates," "plans" and
similar expressions. Our actual results could differ materially from those
discussed in these statements. Factors that could contribute to such differences
include, but are not limited to, those discussed in the "Risk Factors" section
of this prospectus.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere or incorporated by
reference in this prospectus. This is not intended to be a complete description
of the matters covered in this prospectus and is subject to and qualified in its
entirety by reference to the more detailed information and financial statements,
including the notes thereto, appearing elsewhere or incorporated by reference in
this prospectus.
OUR COMPANY
We are a leading global provider of Internet messaging services to
businesses, carriers, Internet Service Providers (ISPs) and Web sites. We offer
our messaging services to both the business and consumer markets. We recently
announced our intention to sell all assets not related to our core outsourced
messaging business, including our advertising network business, our Asia.com,
Inc. and India.com, Inc. subsidiaries and our portfolio of category-defining
domain names, and to focus exclusively on our core outsourced messaging
business.
BUSINESS MESSAGING SERVICES
We provide businesses with email service, Internet facsimile transmission
services and collaboration services. Our email services include services that
permit email systems to connect to the Internet, email hosting services and
email monitoring services. Our email monitoring services include virus scanning,
attachment control, spam control, legal disclaimers and other legends affixed to
outgoing emails and real time Web-based reporting. Our fax services include
email to fax, fax to email, enhanced fax and broadcast fax. Our collaboration
services include web-hosted services and on-premise software solutions for group
calendaring, group scheduling, project management and document sharing. We earn
revenues in the business market on a usage or per seat basis.
PERSONAL COMMUNICATION SERVICES
In the consumer market, we currently provide Web-based email services, or
WebMail, to ISPs including several of the world's top ISPs, and we partner with
top branded Web sites to provide WebMail services to their users. In addition,
we serve the consumer market directly through our flagship site at www.mail.com.
Our basic consumer email services are free to our members. A consumer can become
a member of Mail.com by signing up for our email service at any of our partners'
Web sites or our own Web sites. We currently earn revenues in the consumer
market from a combination of:
- advertising related sales, including permission marketing and e-commerce
promotion and
- subscription services, such as a service that allows members to purchase
increased storage capacity for their emails.
As part of our strategy to focus exclusively on our outsourced messaging
business, we have retained SG Cowen to sell the advertising network business. If
we sell the advertising network business, we plan to continue to offer Web-based
email services to ISPs and Web sites but do not expect that we will offer
advertising network services.
WORLD.COM, INC.
In March 2000, we formed WORLD.com, Inc. to focus on developing our extensive
portfolio of Internet domain names into major Web properties to serve the
worldwide business-to-business and
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business-to-consumer marketplace, beginning with Asia.com and India.com. In
connection with the formation of Asia.com, Inc., we acquired eLong.com, Inc.,
which through its wholly-owned subsidiary operates the Web site www.elong.com in
the Peoples' Republic of China. Other properties from our portfolio of over
1,000 domains include Europe.com, USA.com, Japan.com, lawyer.com and doctor.com.
WORLD.com is headquartered in New York, New York. As indicated above, we intend
to sell all of these assets.
We are a Delaware corporation. Our principal executive offices are located at
11 Broadway, 6th Floor, New York, NY 10004. Our phone number is (212) 425-4200.
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THE OFFERING
Securities offered............... $100,000,000 aggregate principal amount of
our 7.00% convertible subordinated notes due
2005 and shares of our Class A common stock
issuable upon conversion of the notes.
Maturity date.................... February 1, 2005, unless earlier redeemed,
repurchased or converted.
Interest payment dates........... February 1 and August 1 of each year,
commencing on August 1, 2000.
Conversion....................... The notes are convertible, unless previously
redeemed or repurchased, at the option of
the holder at any time prior to maturity,
into shares of our Class A common stock at a
conversion price of $18.95 per share,
subject to adjustment in certain events. See
"Description of the notes - Conversion." The
right to convert notes that have been called
for redemption will terminate at the close
of business on the business day immediately
preceding the redemption day.
Provisional redemption........... Prior to February 5, 2003, we may redeem the
notes in a provisional redemption at our
option, in whole or in part, at any time or
from time to time, at the redemption prices
set forth herein, plus accrued and unpaid
interest to the provisional redemption date,
if the closing price of our Class A common
stock has equaled or exceeded specified
percentages of the conversion price then
effect for at least 20 out of 30 consecutive
days on which the Nasdaq National Market is
open for the transaction of business prior
to the date of mailing of the provisional
redemption notice. Upon any provisional
redemption, we will be obligated to make an
additional payment in an amount equal to the
present value of the aggregate value of the
interest payments that would thereafter have
been payable on the notes from the
provisional redemption date to, but
excluding, February 5, 2003. The present
value will be calculated using the bond
equivalent yield on U.S. Treasury notes or
bills having a term nearest in length to
that of the additional period as of the day
immediately preceding the date on which we
mail a provisional redemption notice. See
"Description of the notes -- Provisional
redemption."
Optional redemption.............. On or after February 5, 2003, at any time or
from time to time, the notes may be redeemed
at our option, in whole or in part, in cash
at the redemption prices set forth herein,
plus accrued and unpaid interest to the date
of redemption. See "Description of the notes
-- Optional redemption."
Mandatory redemption............. None.
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Repurchase at the option
of holders .................... Upon the designated events described in the
"Description of the notes" section of this
prospectus, holders of the notes will have
the right, subject to certain restrictions
and conditions, to require us to purchase
all or any part of their notes at a
purchase price equal to 100% of the
principal amount of the notes, plus accrued
and unpaid interest to the date of the
purchase. See "Description of the notes --
Repurchase at the option of holders" and
"Risk Factors -- Our ability to repurchase
notes if a designated event occurs is
limited."
Ranking.......................... The notes are our general unsecured
obligations and are junior in right of
payment to all of our existing and future
senior debt. The notes are structurally
subordinated to all existing and future
indebtedness and other liabilities of our
subsidiaries, meaning that creditors of our
subsidiaries will have a prior claim over
holders of our notes with respect to assets
of our subsidiaries. The indenture related
to the notes contains no limitation on the
incurrence of senior debt or other
indebtedness and other liabilities by us or
our subsidiaries. See "Description of the
notes -- Subordination of the notes."
Use of proceeds.................. We will receive none of the proceeds from
the sale of the notes and the Class A common
stock offered in this prospectus.
Trading.......................... The notes have been designated for trading
in the Portal Market(SM). However, any notes
sold under this prospectus will no longer
trade in the Portal Market(SM). Our Class A
common stock is traded on the Nasdaq
National Market under the symbol "MAIL."
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RISK FACTORS
Before you invest in the notes or Class A common stock, you should carefully
consider the risks described below and the other information included or
incorporated by reference in this prospectus.
WE HAVE ONLY A LIMITED OPERATING HISTORY, WE ARE INVOLVED IN A NEW AND UNPROVEN
INDUSTRY AND HAVE DETERMINED TO FOCUS ON OUR CORE OUTSOURCED MESSAGING BUSINESS.
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. In February 2000, we acquired NetMoves Corporation, a
provider of a variety of Internet document delivery services to businesses. In
March 2000, we formed WORLD.com to develop and operate our domain name
properties as independent Web sites. We recently announced our intention to
focus exclusively on our outsourced messaging business and to sell all assets
not related to this business. Our success will depend in part upon the
development of a viable market for fee-based Internet messaging and
collaboration services and outsourcing, our ability to compete successfully in
those markets and our ability to successfully sell our non-core assets on
favorable terms. For the reasons discussed in more detail below, there are
substantial obstacles to our achieving and sustaining profitability.
WE HAVE INCURRED LOSSES SINCE INCEPTION AND EXPECT TO INCUR SUBSTANTIAL LOSSES
IN THE FUTURE.
We have generated only limited revenues to date. We have not achieved
profitability in any period, and we may not be able to achieve or sustain
profitability. We incurred a net loss attributable to common stockholders of
$143.7 million for the nine months ended September 30, 2000. We had an
accumulated deficit of $221.3 million as of September 30, 2000. We expect to
continue to incur substantial net losses and negative operating cash flow for
the foreseeable future. We have begun and may continue to significantly increase
our operating expenses in anticipation of future growth. We intend to expand our
sales and marketing operations, upgrade and enhance our technology, continue our
international expansion, and improve and expand our management information and
other internal systems. We intend to continue to make strategic acquisitions and
investments, which may result in significant amortization of goodwill and other
expenses. We are making these expenditures in anticipation of higher revenues,
but there will be a delay in realizing higher revenues even if we are
successful. If we do not succeed in substantially increasing our revenues, our
losses will continue indefinitely and will increase.
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 anticipated expenditures or future expansion, develop new or
enhanced services, respond to competitive pressures, promote our brand name or
acquire complementary businesses, technologies or services. Some of our
stockholders 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.
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WE INTEND TO SELL ALL OF OUR ASSETS NOT RELATED TO OUR CORE OUTSOURCED MESSAGING
BUSINESS BUT MAY EXPERIENCE DIFFICULTY COMPLETING ANY OR ALL OF SUCH SALES ON
FAVORABLE TERMS OR AT ALL.
We recently announced our intention to sell all of our non-core assets,
including our advertising network business, our Asia.com, Inc. and India.com,
Inc. subsidiaries and our portfolio of Internet domain names. We cannot assure
you that we will be able to sell all or any of these assets on favorable terms
or at all. We also cannot assure you as to the timing or the terms and
conditions of the sale of any of these assets or the form or amount of
consideration (if any) that may be received. The realizable value of these
assets may ultimately prove to be less than the carrying value currently
reflected in our consolidated financial statements. Moreover, if the sales are
not successfully completed, the market price of our common stock may decline to
the extent that the current market price reflects a market assumption that such
sales will be successfully completed. To the extent that we receive non-cash
consideration in any of these sales, we may not be able to liquidate this
consideration or otherwise turn it into cash for a period of time after we
receive it or at all.
WE INTEND TO CONTINUE TO ACQUIRE, OR MAKE STRATEGIC INVESTMENTS IN, OTHER
BUSINESSES AND ACQUIRE OR LICENSE TECHNOLOGY AND OTHER ASSETS AND WE MAY HAVE
DIFFICULTY INTEGRATING THESE BUSINESSES OR GENERATING AN ACCEPTABLE RETURN.
We have completed a number of acquisitions and strategic investments since
our initial public offering. For example, we acquired NetMoves Corporation, a
provider of a variety of Internet document delivery services to businesses, and
The Allegro Group, Inc., a provider of email and email related services, such as
virus blocking and content screening, to businesses. We also made two
investments in 3Cube, Inc., a company specializing in Internet fax and other
technology, and acquired TCOM, Inc., a software technology consulting firm, and
Lansoft U.S.A., Inc., a provider of email management, e-commerce and Web hosting
services to businesses. We also recently acquired technology related assets from
IntraACTIVE, Inc. (now named Bantu, Inc.) and made a strategic investment in
Bantu and committed to make additional investments in them. We will continue our
efforts to acquire or make strategic investments in businesses and to acquire or
license technology and other assets, and any of these acquisitions may be
material to us. We cannot assure you that acquisition or licensing opportunities
will continue to be available on terms acceptable to us or at all. Such
acquisitions involve risks, including:
- inability to raise the required capital;
- difficulty in assimilating the acquired operations and personnel;
- inability to retain any acquired member or customer accounts;
- disruption of our ongoing business;
- the need for additional capital to fund losses of acquired businesses;
- inability to successfully incorporate acquired technology into our service
offerings and maintain uniform standards, controls, procedures and
policies; and
- lack of the necessary experience to enter new markets.
We may not successfully overcome problems encountered in connection with
potential acquisitions. In addition, an acquisition could materially impair our
operating results by diluting our stockholders' equity, causing us to incur
additional debt or requiring us to amortize acquisition expenses and acquired
assets.
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THE ISSUANCE OF OUR CONVERTIBLE SUBORDINATED NOTES SIGNIFICANTLY INCREASED OUR
LEVERAGE.
In January 2000, we issued $100 million of convertible subordinated notes due
2005. The sale of our convertible notes has increased our debt as a percentage
of total capitalization. We may incur substantial additional indebtedness in the
future. The level of our indebtedness, among other things, could (1) make it
difficult for us to make payments on our convertible notes, (2) make it
difficult to obtain any necessary financing in the future for working capital,
capital expenditures, debt service requirements or other purposes, (3) limit our
flexibility in planning for, or reacting to changes in, our business, and (4)
make us more vulnerable in the event of a downturn in our business.
WE MAY BE UNABLE TO PAY DEBT SERVICE ON OUR CONVERTIBLE NOTES AND OTHER
OBLIGATIONS.
We had an operating loss and negative cash flow during the nine months ended
September 30, 2000 and 1999 and expect to incur substantial losses and negative
cash flows for the foreseeable future. Accordingly, cash generated by our
operations would have been insufficient to pay the amount of interest payable
annually on our convertible notes. We cannot assure you that we will be able to
pay interest and other amounts due on our convertible notes on the scheduled
dates or at all. If our cash flow and cash balances are inadequate to meet our
obligations, we could face substantial liquidity problems. We cannot assure you
that our proposed sale of our non-core assets will not negatively impact our
cash flow available to service the notes. If we are unable to generate
sufficient cash flow or otherwise obtain funds necessary to make required
payments, or if we otherwise fail to comply with any covenants in our
indebtedness, we would be in default under these obligations, which would permit
these lenders to accelerate the maturity of the obligations and could cause
defaults under our indebtedness. Any such default could have a material adverse
effect on our business, results of operations and financial condition. We cannot
assure you that we would be able to repay amounts due on our convertible notes
if payment of the convertible notes were accelerated following the occurrence of
an event of default under, or certain other events specified in, the indenture
for the convertible notes, including any deemed sale of all or substantially all
of our assets.
WEBMAIL AND INTERNET MESSAGING AND COLLABORATION SERVICES OUTSOURCING MAY NOT
PROVE TO BE VIABLE BUSINESSES.
We operate in an industry that is only beginning to develop. Our success will
depend on the development of viable markets for the outsourcing of messaging and
collaboration services to businesses, Web sites, ISPs and other organizations.
Our success will also require the widespread acceptance by consumers of Webmail.
For a number of reasons, each of these developments is somewhat speculative:
There are significant obstacles to the development of a sizable market for
Internet messaging and collaboration services outsourcing. Outsourcing is one of
the principal methods by which we will attempt to reach the size we believe is
necessary to be successful. Security and the reliability of the Internet,
however, are likely to be of concern to Web sites, ISPs, schools, businesses and
organizations deciding whether to outsource their email or fax services 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. We provide a range of email and fax services to
businesses and organizations. We currently generate revenues in the business
market primarily from email service fees related to our email system connection
services, email monitoring services and fax transmission services. While we
intend to focus exclusively on our outsourced messaging services, we cannot be
sure that we will be able to expand our business customer base, attract
additional customers in other segments or acquire a sufficient base of customers
for whom we would provide hosting and other outsourced services. In addition,
the sales cycle for hosting services is lengthy and could delay our ability to
generate revenues in the business email services market. As part of our business
strategy, we plan to offer additional outsourced messaging and other
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services to existing customers. We cannot assure you that these customers will
purchase these services or will purchase them at prices that we wish to charge.
Furthermore, we may not be able to generate significant additional revenues by
providing our outsourced email and collaboration services to businesses.
Standards for pricing in the business email and collaboration services market
are not yet well defined and some businesses, schools and other organizations
may not be willing to pay the fees we wish to charge. We cannot assure you that
the fees we intend to charge will be sufficient to offset the related costs of
providing these services.
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 an advertising supported email
service. Our business will suffer if public perception of our service or of
Webmail in general is unfavorable. Articles and reviews published in popular
publications relating to computers and the Internet have a great deal of impact
on public opinion within our markets, and an article or review unfavorable to
Webmail or to our service specifically could slow or prevent broad market
acceptance. Similarly, if employers in large numbers implement policies or
software designed to restrict access to Webmail, Webmail is much less likely to
gain popular acceptance.
There are even greater uncertainties about our ability to successfully market
premium Webmail services. Consumers have generally been very reluctant to pay
for services provided over the Internet. In August 1999, we discontinued
charging our members for virtually all of our premium domain names. Moreover, if
our competitors choose to provide POP3 access, greater storage capacity or other
services without charge or as part of a bundled offering, we may be forced to do
the same.
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, the emerging nature of our industry
and our planned sale of our non-core assets, 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:
- incurrence of other cash and non-cash accounting charges, including
charges resulting from acquisitions;
- non-cash charges associated with repriced stock options;
- system outages, delays in obtaining new equipment or problems with planned
upgrades;
- disruption or impairment of the Internet;
- demand for outsourced messaging services;
- attracting and retaining customers and maintaining customer satisfaction;
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- introduction of new or enhanced services by us or our competitors;
- changes in our pricing policy or that of our competitors;
- changes in governmental regulation of the Internet and messaging in
particular; and
- general economic and market conditions.
Other such factors in our non-core businesses include:
- incurrence of additional expenditures without receipt of offsetting
revenues as a result of the development of our domain name properties;
- delay or cancellation of even a small number of advertising contracts;
- expiration or termination of partnerships with Web sites or ISPs, which
can result from mergers or other strategic combinations as Internet
businesses continue to consolidate; and
- seasonality in the demand for advertising, or changes in our own
advertising rates or advertising rates in general, both on and off the
Internet.
WE EXPECT SIGNIFICANT STOCK BASED COMPENSATION CHARGES RELATED TO REPRICED
OPTIONS.
In light of the decline in our stock price and in an effort to retain our
employee base, on November 14, 2000, the Company offered to certain of its
employees, officers and directors, other than Gerald Gorman, the right to
reprice certain outstanding stock options to an exercise price equal to the
closing price of the Company's Class A common stock on NASDAQ on November 14,
2000. Options to purchase an aggregate of up to 9,000,000 shares are subject to
repricing. The repriced options will vest at the same rate that they would have
vested under their original terms except that shares issuable upon exercise of
these options may not be sold until after November 14, 2001. In March 2000,
Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion No. 25" ("Interpretation"). Among other issues,
this Interpretation clarifies (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. As a result, under the Interpretation, stock options repriced after
December 15, 1998 are subject to variable plan accounting treatment. This
guidance requires the Company to remeasure compensation cost for outstanding
repriced options each reporting period based on changes in the market value of
the underlying common stock. Depending upon movements in the market value of the
Company's common stock, this accounting treatment may result in significant non
cash compensation charges in future periods.
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.
In offering email services to businesses, schools and other organizations, we
compete with MCI Mail, USA.NET, Critical Path and others. Our current and
prospective competitors in the facsimile transmission services market generally
fall into the following groups: telecommunication companies, such as AT&T,
WorldCom, Sprint, the regional Bell operating companies and telecommunications
resellers, ISPs, such as UUnet and NETCOM On-Line Communications Services, Inc.,
on-line services providers, such as Microsoft and America Online and direct fax
delivery competitors, including Premiere Document Distribution (formerly Xpedite
Systems, Inc.) and IDT Corporation. In offering outsourced Webmail services to
Web sites and ISPs, we compete with email service providers such as USA.NET,
Inc., Critical Path, Inc. and CommTouch Software, Ltd. In offering Webmail
services directly to consumers, our and our partners' competitors include such
large and established companies as Microsoft, America Online, Yahoo!,
Excite@Home, Disney (which owns the GO Network) and Lycos. Microsoft offers free
Webmail through its Hotmail Web site, and has dominant market share with over 40
million emailboxes according to Microsoft. See "Business - Competition."
Some of our competitors provide a variety of Web-based services such as
Internet access, browser software, homepage design and Web site hosting, in
addition to email. The ability of these competitors to offer a broader suite of
complementary services may give them a considerable advantage over us.
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.
In addition, new technologies and the expansion of
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existing technologies may increase competitive pressures on us. We may not be
able to compete successfully against our current or future competitors.
TO GENERATE INCREASED REVENUES FROM OUR CONSUMER SERVICES, WE WILL HAVE TO
SUBSTANTIALLY INCREASE THE NUMBER OF OUR MEMBERS, WHICH WILL BE DIFFICULT TO
ACCOMPLISH.
To achieve our objective of generating revenues through our consumer email
services, we will have to retain our existing members and acquire a large number
of new members. We have relied upon strategic alliances with third party Web
sites to attract the majority of our current members.
We believe that our success in our consumer business 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 currently generate
revenues by selling subscription services to our members and by selling
advertising space to advertisers who want to target these members. We pay the
partner a share of the revenues we generate. In addition, a number of our
contracts have required 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%. We intend to reduce or eliminate the payment of these fees or
minimum payments made without regard to the revenues realized. We cannot assure
you that we will be able to renew partner contracts on the basis of reducing or
eliminating these payments or if renewed that the revised terms of such
contracts will be favorable to us.
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, XOOM combined with Snap, which is jointly owned by CNET
and NBC Multimedia, to create a new Internet services company named NBC
Internet, Inc., or NBCi. XOOM 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. A partner may also fail to renew our contract
with it because we decide not to continue making payments to it without regard
to the revenue that we generate from their site. The loss of a partner can be
very disruptive for us for a number of reasons:
We may lose a substantial number of members. When members register for our
service at a partner's Web site, the default domain name members use for their
email address is typically a domain name that is owned by the partner. As of
September 30, 2000, we estimate that approximately 28% of our established
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emailboxes have email addresses at partner-owned domain names. Upon expiration,
most partners can require us to relinquish existing members with addresses at
partner-owned domain names. Even those members who have selected addresses using
our domain names may find it more convenient to switch to whatever replacement
email service may be available at the partner's site. The loss of members due to
expiration or non-renewal of partner contracts may materially reduce our
revenues. Moreover, as of September 30, 2000, we estimate that approximately 16%
of our emailboxes established are at the email.com domain. If CNET and NBCi
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
NBCi terminate for convenience, they would be obligated to pay us the greater of
$5.0 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 NBCi 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
other partners and with advertisers. We believe that partnerships with Web sites
and ISPs that have prominent brand names help give us credibility with other
partners and with advertisers. The loss of our better-known Web site and ISP
partners could damage our reputation and adversely affect the advertising,
direct marketing, e-commerce and subscription rates we charge.
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 SUBSCRIPTION REVENUES AND ADVERTISING RELATED REVENUES.
Most of our partner sites, including most of those with well-known brand
names, do not generate significant numbers of new emailboxes. The following four
partners accounted for 38% of our new emailboxes established in September 2000:
<TABLE>
<CAPTION>
PERCENTAGE
OF NEW DATE THAT OUR
E-MAILBOXES CONTRACT WITH
IN THE PARTNER
PARTNER SEPTEMBER 2000 EXPIRES
------- -------------- -------
<S> <C> <C>
Juno................................. 13% December 2001
NBCi................................. 9% *
iWon................................. 9% Expired
EarthLink............................ 7% April 2001
</TABLE>
* NBCi may terminate its contracts for convenience after May 13, 2001.
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 contract
with iWon will not renew upon expiration.
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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 aggressively expanded our operations in anticipation of an increasing
number of strategic alliances and a corresponding increase in the number of
members as well as development of our business customer base. We have entered
into agreements with additional partners and have upgraded our email services.
We have also developed the technology and infrastructure to offer a range of
services in the business Internet messaging and collaboration services market.
This expansion has placed, and we expect it to continue to place, a significant
strain on our managerial, operational and financial resources. If we cannot
manage our growth effectively, our business and operating results will suffer.
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, Thomas Murawski, our Chief
Executive Officer, Brad Schrader, our President, Debra McClister, our Executive
Vice President and Chief Financial Officer, and Sam Kline, our Chief Operating
Officer. The loss of the services of Messrs. Gorman, Murawski, Schrader or Kline
or of Ms. McClister, or several other key employees, would impede the operation
and growth of our business. The success of our non-core businesses depends on
the continued services of Gary Millin, Chief Executive Officer of World.com, and
Courtney Nichols, President of Mail.com Personal Communications Services.
To manage our existing business and handle any future growth, we will have to
attract, retain and motivate additional highly skilled employees. In particular,
we will need to hire and retain qualified salespeople if we are to meet our
sales goals. We will also need to hire and retain additional experienced and
skilled technical personnel in order to meet the increasing technical demands of
our expanding business. Competition for employees in Internet-related businesses
is intense. We have in the past experienced, and expect to continue to
experience, difficulty in hiring and retaining employees with appropriate
qualifications. If we are unable to do so, our management may not be able to
effectively manage our business, exploit opportunities and respond to
competitive challenges.
OUR BUSINESS IS HEAVILY DEPENDENT ON TECHNOLOGY, INCLUDING TECHNOLOGY THAT HAS
NOT YET BEEN PROVEN RELIABLE AT HIGH TRAFFIC LEVELS AND TECHNOLOGY THAT WE DO
NOT CONTROL.
The performance of our computer systems is critical to the quality of service
we are able to provide to our members and to our business customers. If our
services are unavailable or fail to perform to their satisfaction, they may
cease using our service. Reduced use of our service decreases our revenues by
decreasing the advertising space that we have available to sell. In addition,
our agreements with several of our partners establish minimum performance
standards. If we fail to meet these standards, our partners could terminate
their relationships with us and assert claims for monetary damages.
WE NEED TO UPGRADE OUR COMPUTER SYSTEMS TO ACCOMMODATE INCREASES IN EMAIL AND
FAX TRAFFIC AND TO ACCOMMODATE INCREASES IN THE USAGE OF OUR COLLABORATION
SERVICES, 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 customers and the amount of information they wish to transmit
increases and as their requirements change, and as we develop our business
messaging and collaboration services. Because we have only been providing our
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services for a limited time, and because our computer systems have not been
tested at greater capacities, we cannot guarantee the ability of our computer
systems to connect and manage a substantially larger number of members or meet
the needs of business customers at high transmission speeds. If we cannot
provide the necessary service while maintaining expected performance, our
business would suffer and our ability to generate revenues through our services
would be impaired.
The expansion and adaptation of our computer systems will require substantial
financial, operational and managerial resources. We may not be able to
accurately project the timing of increases in email traffic or other customer
requirements. In addition, the very process of upgrading our computer systems is
likely to cause service disruptions. This is because we will have to take
various elements of the network out of service in order to install some
upgrades.
OUR COMPUTER SYSTEMS MAY FAIL AND INTERRUPT OUR SERVICE.
Our members and customers have in the past experienced interruptions in our
services. 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. In
particular, we have experienced outages and delays in email delivery and access
to our email service related to disk failures, the implementation of changes to
our computer system, insufficient storage capacity and other problems. These
failures have resulted and may continue to result in significant disruptions to
our service. Although we plan to install backup computers and implement
procedures to reduce the impact of future malfunctions in these systems, the
presence of these and other single points of failure in our network increases
the risk of service interruptions. Some aspects of our computer systems are not
redundant. These include our member database system and our email storage
system, which stores emails and other data for our members. In addition,
substantially all of our computer and communications systems relating to our
email services are currently located in our primary data centers in Manhattan,
Edison, New Jersey and Dayton, Ohio. We currently do not have alternate sites
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 any of our
primary data centers was severely damaged or destroyed. We might also lose
stored emails and other member or customer files, causing significant member
dissatisfaction and possibly giving rise to claims for monetary damages.
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 business and 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 and business customers.
For example, our system currently cannot properly receive files sent using some
third party email programs. We may not be able to integrate the necessary
technology into our computer systems on a timely basis or without degrading the
performance of our existing services. We cannot be sure that, once integrated,
new technology will function as expected. Delays in introducing effective new
services could cause existing and potential members to forego use of our
services and to use instead those of our competitors.
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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 business customers and members may suffer, and
we may be exposed to liability. Third parties may attempt to breach our security
or that of our business customers whose networks we may maintain or for whom we
provide services to or that of our members. If they are successful, they could
obtain information that is sensitive or confidential to a business customer or
otherwise disrupt a business customer's operations or obtain our members'
confidential information, including our members' profiles, passwords, financial
account information, credit card numbers, stored email or other personal
information. Our business customers or 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 and develop our business market.
Security measures taken by others may interfere with the efficient operation
of our service, which may harm our reputation, adversely impact our ability to
attract and retain members and impede the delivery of advertisements from which
we currently 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, Web sites, 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
technology related to our Web servers, email monitoring services, billing
processes, database and Internet fax services. We anticipate that we will need
to license additional technology to remain competitive. We may not be able to
license these technologies on commercially reasonable terms or at all.
Third-party licenses expose us to increased risks, including risks relating to
the integration of new technology, the diversion of resources from the
development of our own proprietary technology, a greater need to generate
revenues sufficient to offset associated license costs, and the possible
termination of or failure to renew an important license by the third-party
licensor.
IF THE INTERNET AND OTHER THIRD-PARTY NETWORKS ON WHICH WE DEPEND TO DELIVER OUR
SERVICES BECOME INEFFECTIVE AS A MEANS OF TRANSMITTING DATA, THE BENEFITS OF OUR
SERVICE MAY BE SEVERELY UNDERMINED.
Our business depends on the effectiveness of the Internet as a means of
transmitting data. The recent growth in the use of the Internet has caused
frequent interruptions and delays in accessing and transmitting data over the
Internet. Any deterioration in the performance of the Internet as a whole could
undermine the benefits of our services. Therefore, our success depends on
improvements being made to the entire Internet infrastructure to alleviate
overloading and congestion. We also depend on telecommunications network
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suppliers such as MFS, BBN Planet and UUNET to transmit and receive email
messages on behalf of our members and our business customers. We are also
affected by service outages at our partners' Web sites. If service at a
partner's site is unavailable for a period of time, we will be unable to sign up
new members and generate page views and revenue at that site during the outage.
GERALD GORMAN CONTROLS MAIL.COM AND WILL BE ABLE TO PREVENT A CHANGE OF CONTROL.
Gerald Gorman, our Chairman, beneficially owned as of September 30, 2000
Class A and Class B common stock representing approximately 67.06% of the voting
power of our outstanding common stock. Each share of Class B common stock
entitles the holder to 10 votes on any matter submitted to the stockholders. As
a result of his share ownership, Mr. Gorman will be able to determine the
outcome of all matters requiring stockholder approval, including the election of
directors, amendment of our charter and approval of significant corporate
transactions. Mr. Gorman will be in a position to prevent a change in control of
Mail.com even if the other stockholders were in favor of the transaction.
Mail.com and Mr. Gorman have agreed to permit our stockholders who formerly
held our preferred stock to designate a total of three members of our board of
directors.
Our charter contains provisions that could deter or make more expensive a
takeover of Mail.com. These provisions include the ability to issue "blank
check" preferred stock without stockholder approval.
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
develop our business services market and increase membership traffic on our
sites and revenues. We do not have experience with some of the types of
marketing that we are currently using. 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 expend
significant financial and managerial resources to do so. We have limited
experience in international operations and may not be able to compete
effectively in international markets. If our revenues from international
operations do not exceed the expense of establishing and maintaining these
operations, our losses will increase and our operating results will suffer. We
face significant risks inherent in conducting business internationally, such as:
- uncertain demand in foreign markets for email outsourcing, Webmail
advertising, direct marketing and e-commerce;
- difficulties and costs of staffing and managing international operations;
- differing technology standards;
- difficulties in collecting accounts receivable and longer collection
periods;
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- economic instability and fluctuations in currency exchange rates and
imposition of currency exchange controls;
- potentially adverse tax consequences;
- regulatory limitations on the activities in which we can engage and
foreign ownership limitations on our ability to hold an interest in
entities through which we wish to conduct business, and
- political instability, unexpected changes in regulatory requirements, and
reduced protection for intellectual property rights in some countries.
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 FCC 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.
We are subject to regulation by various state public service and public
utility commissions and by various international regulatory authorities with
respect to our fax services. We are licensed by the FCC as an authorized
telecommunications company and are classified as a "non-dominant interexchange
carrier." Generally, the FCC has chosen not to exercise its statutory power to
closely regulate the charges or practices of non-dominant carriers.
Nevertheless, the FCC acts upon complaints against such carriers for failure to
comply with statutory obligations or with the FCC's rules, regulations and
policies. The FCC also has the power to impose more stringent regulatory
requirements on us and to change its regulatory classification. There can be no
assurance that the FCC will not change its regulatory classification or
otherwise subject us to more burdensome regulatory requirements.
On August 7, 1997, the FCC issued new rules which may significantly reduce
the cost of international calls originating in the United States. Such rules are
scheduled to be phased in over a five-year period starting on January 1, 1998.
To the extent that these new regulations are implemented and result in
reductions in the cost of international calls originating in the United States,
we will face increased competition for our international fax services which may
have a material adverse effect on our business, financial condition or results
in operations.
In connection with the deployment of Internet-capable nodes in countries
throughout the world, we are required to satisfy a variety of foreign regulatory
requirements. We intend to explore and seek to comply with these requirements on
a country-by-country basis as the deployment of Internet-capable facsimile nodes
continues. There can be no assurance that we will be able to satisfy the
regulatory requirements in
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each of the countries currently targeted for node deployment, and the failure to
satisfy such requirements may prevent us from installing Internet-capable
facsimile nodes in such countries. The failure to deploy a number of such nodes
could have a material adverse effect on its business, operating results and
financial condition.
Our facsimile nodes and our faxLauncher service utilize encryption technology
in connection with the routing of customer documents through the Internet. The
export of such encryption technology is regulated by the United States
government. We have authority for the export of such encryption technology other
than to Cuba, Iran, Iraq, Libya, North Korea, and Rwanda. Nevertheless, there
can be no assurance that such authority will not be revoked or modified at any
time for any particular jurisdiction or in general. In addition, there can be no
assurance that such export controls, either in their current form or as may be
subsequently enacted, will not limit our ability to distribute our services
outside of the United States or electronically. While we take precautions
against unlawful exportation of our software, the global nature of the Internet
makes it virtually impossible to effectively control the distribution of our
services. Moreover, future Federal or state legislation or regulation may
further limit levels of encryption or authentication technology. Any such export
restrictions, the unlawful exportation of our services, or new legislation or
regulation could have a material adverse effect on our business, financial
condition and results of operations.
The legal structure and scope of operations of our subsidiaries in some
foreign countries may be subject to restrictions which could result in severe
limits to our ability to conduct business in these countries and this could have
a material adverse effect on our financial position, results of operations and
cash flows. We have formed WORLD.com, Inc. for the purpose of developing our
portfolio of domain names, including Asia.com and India.com. In connection with
the formation of Asia.com, Inc., we acquired eLong.com, Inc. which operates
through its wholly-owned subsidiary the Web site www.elong.com in the Peoples
Republic of China or the PRC. We have also announced that we intend to expand
our Internet messaging business in international markets. To the extent that we
develop and operate web sites or offer Internet messaging services in foreign
countries, we will be subject to the laws and regulations of these countries.
The laws and regulations relating to the Internet in many countries are evolving
and in many cases are unclear as to their application. For example, in India,
the PRC and other countries we may be subject to licensing requirements with
respect to the Internet activities in which we propose to engage and we may also
be subject to foreign ownership limitations or other approval requirements that
preclude our ownership interests or limit our ownership interests to up to 49%
of the entities through which we propose to conduct any regulated activities. If
these limitations apply to our activities, including our activities conducted
through our subsidiaries, our opportunities to generate revenue will be reduced,
our ability to compete successfully in these markets will be adversely affected,
our ability to raise capital in the private and public markets may be adversely
affected and the value of our investments and acquisitions in these markets may
decline. Moreover, to the extent we are limited in our ability to engage in
certain activities or are required to contract for these services from a
licensed or authorized third party, our costs of providing our services will
increase and our ability to generate profits may be adversely affected.
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.
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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 have asserted and may in
the future assert infringement claims against us. We cannot be certain that our
services do not infringe issued patents. Because patent applications in the
United States are not publicly disclosed until the patent is issued,
applications may have been filed which relate to our services.
We have been and may continue to be subject to legal proceedings and claims
from time to time in the ordinary course of our business, including claims
related to the use of our domain names and claims of alleged infringement of the
trademarks and other intellectual property rights of third parties. Third
parties have challenged our rights to register and use some of our domain names
based on trademark principles and on the recently enacted Anticybersquatting
Consumer Protection Act. As domain names become more valuable to businesses and
other persons, we expect that third parties will continue to challenge some of
our domain names and that the number of these challenges may increase. In
addition, the existing or future laws of some countries, in particular countries
in Europe, may limit or prohibit our ability to use in those countries or
elsewhere some of our geographic names that contain the names of a city in those
countries or the name of those countries. Intellectual property litigation is
expensive and time-consuming and could divert management's attention away from
running our business.
THE SUCCESS OF OUR GLOBAL OPERATIONS IS SUBJECT TO SPECIAL RISKS AND COSTS.
We have begun, and intend to continue, to expand our operations outside of
the United States. This international expansion will require significant
management attention and financial resources. We face substantial risks in doing
business globally, including unexpected changes in regulatory requirements,
export restrictions, difficulties in staffing and managing foreign operations,
difficulties in protecting intellectual property rights, problems in collecting
accounts receivable, political instability, fluctuations in currency exchange
rates and exchange rate controls, difficulties in enforcing contracts and
potentially adverse consequences. In addition, as described elsewhere in this
prospectus, governments in foreign jurisdictions may regulate the Internet or
other online services in such areas as content, privacy, network security,
encryption or distribution, which may also affect our ability to conduct
business internationally.
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 September 30, 2000, we had an aggregate of 61,616,196 shares of Class A and
Class B common stock and options to purchase 14,512,529 and warrants to purchase
1,231,233 shares of Class A common stock outstanding. As of such date,
approximately 52,657,495 shares of Class A common stock and Class B common stock
were freely tradable, in some cases subject to the volume and manner of sale
limitations contained in Rule 144. As of such date, approximately 8,958,701
shares of Class A common stock will become available for sale 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.
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As of September 30, 2000 the holders of up to 21,211,911 shares of Class A
common stock, had the right, subject to various 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, including the shelf registration statement we are required to file
with respect to our convertible notes. 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. An undetermined number of these shares have been
sold publicly pursuant to Rule 144.
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. As a result of volatility in our stock price, a securities
class action may be brought against us. Class-action litigation could result in
substantial costs and divert our management's attention and resources.
THE NOTES ARE SUBORDINATED TO OUR SENIOR DEBT AND ALL THE OBLIGATIONS OF OUR
SUBSIDIARIES.
The notes are unsecured and subordinated in right of payment in full to all
of our existing and future senior debt and to all of our subsidiaries' debt. As
a result of such subordination, in the event of bankruptcy, liquidation or
reorganization of our company or upon acceleration of the notes due to an event
of default, there may not be sufficient assets remaining to pay amounts due on
any or all of the notes then outstanding. The notes also will be effectively
subordinated to the liabilities, including trade payables, of any of our
subsidiaries. The indenture does not prohibit or limit the incurrence of senior
debt or the incurrence of other indebtedness and other liabilities by us or any
subsidiary, and the incurrence of additional indebtedness and other liabilities
by us or any subsidiary could adversely affect our ability to pay our
obligations on the notes. As of March 31, 2000, we had approximately $22.2
million of indebtedness outstanding that would have constituted senior debt. As
of March 30, 2000, our subsidiaries had approximately $40.7 million of balance
sheet liabilities. See "Description of the notes - Subordination of the notes."
OUR ABILITY TO REPURCHASE NOTES IF A DESIGNATED EVENT OCCURS IS LIMITED.
Our ability to repurchase notes upon the occurrence of a designated event (as
defined in the indenture) is subject to limitations. If a designated event
occurred, we cannot assure you that we would have sufficient financial
resources, or would be able to arrange financing, to pay the repurchase price
for all notes tendered by holders. Our subsidiaries may be parties in the future
to credit agreements and other agreements relating to indebtedness (as defined
in the indenture) which contain restrictions on transferring funds sufficient to
permit us to effect a designated event payment (as defined in the indenture). In
addition, future credit agreements or other agreements relating to indebtedness
of ours (including senior debt) may contain prohibitions or restrictions on our
ability to effect a designated event payment. In the event a designated event
occurs at a time when such prohibitions or restrictions are in effect, we could
seek the consent of our lenders and lenders to our subsidiaries to enable us to
purchase notes or could attempt to refinance the borrowings that contain these
prohibitions or restrictions. If we do not obtain consents or repay these
borrowings, we will be effectively prohibited from purchasing notes. In that
event, our failure to purchase tendered notes would constitute an event of
default under the indenture whether or not repurchase is permitted by the
subordination provisions of the indenture. Any such default
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<PAGE> 24
may, in turn, cause a default under our senior debt. Moreover, the occurrence of
a change of control may cause an event of default under our designated senior
debt. As a result, in such a case, any repurchase of the notes would, absent a
waiver, be prohibited under the subordination provisions of the indenture until
the senior debt was paid in full.
THERE HAS BEEN NO TRADING MARKET FOR THE NOTES AND THEIR RESALE IS RESTRICTED.
There has been no trading market for the notes. Although the initial
purchasers of the notes have advised us that they currently intend to make a
market in the notes, they are not obligated to do so and may discontinue market
making activities at any time without notice. In addition, their market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act. Moreover, a sufficient number of shares of our Class A common
stock may not be available to facilitate hedging transactions. Accordingly, we
cannot assure you that any market for the notes will develop or, if one does
develop, that it will be maintained. If an active market for the notes fails to
develop or be sustained, the trading price of the notes could be materially
adversely affected. The notes are eligible for trading on the Portal Market(SM),
however any notes sold under this prospectus will no longer trade in the Portal
Market(SM).
THE NOTES HAVE NOT BEEN RATED, WHICH POSES VARIOUS INVESTMENT RISKS.
The notes have not been rated. As a result, holders of the notes will bear
the risks associated with an investment in unrated debt. Historically, the
market for unrated debt has been subject to disruptions that have caused
substantial volatility in the prices of such securities and greatly reduced
liquidity. If the notes are traded, they may trade at a discount from their
initial offering price, depending upon prevailing interest rates, the market for
similar securities, our performance and certain other factors. The liquidity of,
and trading markets for, the notes may also be adversely affected by general
declines in the market for unrated debt. Such declines may adversely affect the
liquidity of, and trading markets for, the notes, independent of our financial
performance or our prospects. In addition, certain regulatory restrictions
prohibit certain types of financial institutions from investing in unrated debt,
which may further suppress demand for these securities. We cannot assure you
that the market for the notes will not be subject to similar disruptions. Any
such disruptions may have an adverse effect on holders of the notes.
WE MAY NOT BE ABLE TO DEDUCT THE INTEREST ON THE NOTES FOR U.S. FEDERAL INCOME
TAX PURPOSES.
Our interest deduction with respect to the notes may be disallowed to the
extent that the notes are treated as "corporate acquisition indebtedness" under
Section 279 of the Internal Revenue Code of 1986, as amended. Corporate
acquisition indebtedness includes subordinated convertible notes issued to
provide consideration for the acquisition of stock or a substantial amount of
the assets in another corporation if certain debt to equity or earnings ratios
are met. It is possible that the notes would be treated as corporate acquisition
indebtedness to the extent their proceeds were used to fund such acquisitions.
In that event, some or all of the deduction for interest paid on the notes could
be disallowed.
WE INTEND TO SELL OUR ADVERTISING NETWORK BUSINESS. UNTIL A SALE OR OTHER
DISPOSITION IS COMPLETED, THE FOLLOWING RISKS WILL CONTINUE TO APPLY TO THESE
OPERATIONS:
WE HAVE ONLY LIMITED INFORMATION ABOUT OUR MEMBERS AND THEIR USAGE, WHICH MAY
LIMIT 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 in our advertising network business, we
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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 believe that a substantial majority of our
members do not access their emailboxes regularly or at all. Moreover, we believe
that many of our emailboxes that are accessed were first established during a
recent period prior to access. 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 23% of our total
emailboxes as of September 30, 2000, and 10% of the emailboxes that were
established during September 2000. If a disproportionate percentage of members
choose either of these options, it will adversely affect our ability to generate
advertising related revenues.
Our database contains inaccuracies that could reduce the value of our
information. Although we attempt to collect basic demographic information about
members at the time they establish their accounts, we do not verify the accuracy
of this information. Moreover, even if the information is correct when we
receive it, members may move, change jobs or die without our knowledge. As a
result, our database contains inaccuracies that could make our information less
appealing to advertisers.
We do not know how many members have established multiple emailboxes. Because
we do not charge for our basic service, individuals can easily establish
multiple emailboxes. This makes it impossible for us to determine the number of
separate individuals registering for our service, which may reduce the
advertising rates we can command.
EMAIL ADVERTISING MAY NOT PROVE TO BE VIABLE BUSINESSES.
The email advertising industry is only beginning to develop. The success of
our advertising network business will depend on the development of viable
markets for email advertising. For a number of reasons, this development is
somewhat speculative:
The market for email advertising is only beginning to develop and the
effectiveness of this form of advertising is unproven. Even if Webmail proves to
be popular, we will still need large numbers of advertisers to purchase space on
our Webmail service. We currently do not sell advertisements in connection with
our business email services.
Because we, and our competitors, have only recently begun to offer email
advertising, our potential advertising customers have little or no experience
with this medium. We do not yet have enough experience to demonstrate the
effectiveness of this form of advertising. As a result, those customers willing
to try email advertising are likely to allocate only a limited portion of their
advertising budgets. If early customers do not find email advertising to be
effective for promoting their products and services, the market for our products
will be unlikely to develop. Prices for banner advertisements on the Internet
have begun to fall, in part because of diminishing "click" or response rates.
Advertisers are also requesting fewer "cost per thousand advertisements" pricing
arrangements and more "cost per click" pricing, which could effectively lower
advertising rates.
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There are currently no standards for measuring the effectiveness of Webmail
advertising. Standard measurements may need to be developed to support and
promote Webmail advertising as a significant advertising medium. Our advertising
customers may refuse to accept our own measurements or third-party measurements
of advertisement delivery, which would adversely affect our ability to generate
advertising related revenues.
Filtering software could prevent us from delivering advertising. Inexpensive
software programs are available which limit or prevent the delivery of
advertising to a user's computer. The widespread adoption of this software would
seriously threaten the commercial viability of email advertising and our ability
to generate advertising revenues.
THERE ARE SIGNIFICANT OBSTACLES TO OUR ABILITY TO INCREASE ADVERTISING REVENUES.
Our success in our advertising network business will largely depend on our
ability to substantially increase our advertising related revenues, which we
currently generate only in connection with our consumer services. Several
factors will make it very difficult for us to achieve this objective:
Our contracts with our advertisers typically have terms of only one or two
months, and we may be unable to renew these contracts. For the nine months ended
September 30, 2000 and 1999, revenues from our five largest advertisers
accounted for an aggregate of 8% and 36%, respectively, of our revenues. Our
future success will depend upon our ability to retain these advertisers, to
generate significant revenues from new advertisers and to reduce our reliance on
any single advertiser. Our existing contracts with advertisers generally have
terms of only one or two months and we may be unable to renew them. The loss of
one of our major advertisers or our inability to attract new advertisers would
cause our revenues to decline.
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.
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,
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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 FACE INTENSE COMPETITION IN OUR NON-CORE BUSINESSES.
The email advertising business is, and we believe will continue to be,
intensely competitive. Some of our competitors are include large and established
companies with more resources than us. 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. 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. Also, 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. We may not be able to compete successfully against our current or future
competitors in the email advertising business.
Also, our domain properties developed by WORLD.com compete with the major
business and consumer portals and other providers of Internet services in the
markets in which they operate.
WE INTEND TO SELL OUR ASIA.COM, INC. AND INDIA.COM, INC. SUBSIDIARIES AND OUR
PORTFOLIO OF DOMAIN NAMES. UNTIL A SALE OR OTHER DISPOSITION IS COMPLETED, THE
FOLLOWING SPECIAL RISKS WILL CONTINUE TO APPLY TO THESE OPERATIONS:
THE LIMITED INSTALLED PERSONAL COMPUTER BASE AND HIGH COST OF ACCESSING THE
INTERNET IN CHINA AND INDIA LIMITS THE POOL OF POTENTIAL CUSTOMERS FOR ASIA.COM
AND INDIA.COM.
The market penetration rates of personal computers and on-line access in
China and India are far lower than such rates in the United States. Alternate
methods of obtaining access to the Internet, such as through cable television
modems or set-top boxes for televisions, are currently unavailable in India and
China. There can be no assurance that the number or penetration rate of personal
computers in China and India will increase rapidly or at all or that alternate
means of accessing the Internet will develop and become widely available in
China and India.
Our growth is limited by the cost to Chinese and Indian consumers of
obtaining the hardware, software and communications links necessary to connect
to the Internet in China and India. If the overall costs required to access the
Internet do not significantly decrease, most of China's and India's population
will not be able to afford to use our services. The failure of a significant
number of additional Chinese and Indian consumers to obtain affordable access to
the Internet would make it very difficult to execute our business plan.
We believe that wireless access to the Internet through a variety of
hand-held and other devices such as mobile phones will become increasingly
important in Asia. Accordingly, our Asia.com subsidiary has made wireless
Internet services for businesses an important part of its business focus. We
cannot assure you that wireless access to the Internet will in fact develop and
reach wide use and acceptance in Asia as we expect.
WE ARE RELYING ON ELECTRONIC COMMERCE AS A SIGNIFICANT PART OF WORLD.COM'S
FUTURE REVENUE, BUT THE INTERNET HAS NOT YET BEEN PROVEN AS AN EFFECTIVE
COMMERCE MEDIUM IN CHINA AND INDIA.
WORLD.com's revenue growth depends in part on the increasing acceptance and
use of electronic commerce in China and India. The Internet may not become a
viable commercial marketplace in Asia for various reasons, many of which are
beyond our control, including:
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- inexperience with the Internet as a sales and distribution channel;
- inadequate development of the necessary infrastructure to facilitate
electronic commerce;
- concerns about security, reliability, cost, ease of deployment,
administration and quality of service associated with conducting business
over the Internet; and
- inexperience with credit card usage or with other means of electronic
payment.
UNDERDEVELOPED TELECOMMUNICATIONS INFRASTRUCTURE AND UNCLEAR TELECOMMUNICATIONS
REGULATIONS HAVE LIMITED AND MAY CONTINUE TO LIMIT THE GROWTH OF THE INTERNET
MARKET IN CHINA AND INDIA.
The telecommunications infrastructure in China and India is not well
developed. The underdeveloped Internet infrastructure in China and India has
limited the growth of Internet usage there. If the necessary Internet
infrastructure is not developed, or is not developed on a timely basis, future
growth of the Internet in China and India will be limited and our business could
be harmed.
On September 25, 2000, the Chinese government promulgated PRC
Telecommunication Regulations ("Telecom Regulations"). The Telecom Regulations
define two types of telecommunication business, basic telecommunication business
and value-added telecommunication business. The Telecom Regulations also provide
that the State Council will promulgate separate rules to regulate foreign
entities' investment and operation of telecommunication business in China. We
cannot predict the effect of the new laws and regulations to be promulgated by
the State Council in this regard.
OUR ASIA.COM BUSINESS MAY BE ADVERSELY AFFECTED BY CHINESE GOVERNMENT REGULATION
OF INTERNET COMPANIES.
China has recently begun to regulate its Internet sector by making
pronouncements or enacting regulations regarding the legality of foreign
investment in the Chinese Internet sector, the existence and enforcement of
content restrictions on the Internet and the availability of securities
offerings by companies operating in the Chinese Internet sector. There are
substantial uncertainties regarding the proper interpretation of current and
future Chinese Internet laws and regulations.
Issues, risks and uncertainties relating to Chinese government regulation of
the Chinese Internet sector include the following:
A prohibition of foreign investment in businesses providing value-added
telecommunication services, including computer information services or
electronic mail box services, may be applied to Internet businesses such as
ours. Some officials of the Chinese Ministry of Information and Industry, or
MII, have taken the position that foreign investment in the Internet sector is
prohibited.
The MII has also stated recently that it intends to adopt new laws or
regulations governing foreign investment in the Chinese Internet sector in the
near future. If these new laws or regulations forbid foreign investment in the
Internet sector, our business in China will be severely impaired.
On September 25, 2000, the Chinese government promulgated Administrative
Measures on Internet Information Services ("Administrative Measures"). The
Administrative Measures require commercial Internet information service
providers to apply for an Internet information service value-added
telecommunication business license from the telecommunication administration
authority to be able to
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engage in Internet information service businesses and activities in China. The
Administrative Measures also provide that any initial public offering and
listing project or any equity or contractual joint venture project with foreign
investors by a commercial Internet information service provider requires a prior
consent from the central information industry authority. It remains uncertain
what percentage will be allowed for foreign investment in the Internet
information service business under existing laws and regulations. We operate our
business in China through our subsidiaries, and are currently in the process of
applying for an Internet information service value-added telecommunication
business license. We cannot predict whether this application will be successful.
Under the agreement reached in November 1999 between China and the United
States concerning the United States' support of China's entry into the World
Trade Organization, or WTO, foreign investment in Chinese Internet services will
be liberalized to allow for 30% foreign ownership in key telecommunication
services, including Chinese Internet ventures, for the first year after China's
entry into the WTO (subject to certain geographic limitations), 49% in the
second year (with expanded geographic coverage) and 50% thereafter (with no
geographic limitations). The implementation of this agreement is subject to
approval by the U.S. Congress, China's completion of bilateral negotiations with
other WTO members, the multilateral negotiation of China's accession protocol
with the WTO and the completion of China's own domestic procedures for
accession. Within the United States, China's WTO accession faces opposition from
trade unions, environmentalists and human rights organization.
The MII has also stated recently that the activities of Internet content
providers are also subject to regulation by various Chinese government
authorities, depending on the specific activities conducted by the Internet
content provider. Various government authorities have stated publicly that they
are in the process of preparing new laws and regulations that will govern these
activities. The areas of regulation may include online advertising and online
news reporting. In addition, the new laws and regulations may require various
Chinese government approvals for securities offerings by companies engaged in
the Internet sector in China.
The interpretation and application of existing Chinese laws and regulations,
the stated positions of the MII and the possible new laws or regulations have
created substantial uncertainties regarding the legality of existing and future
foreign investments in, and the businesses and activities of, Chinese Internet
businesses, including our Asia.com business.
Accordingly, it is possible that the relevant Chinese authorities could, at
any time, assert that any portion or all of Asia.com's existing or future
ownership structure and businesses violates Chinese laws and regulations. It is
also possible that the new laws or regulations governing the Chinese Internet
sector that may be adopted in the future will prohibit or restrict foreign
investment in, or other aspects of, any of Asia.com's current or proposed
businesses and operations. In addition, these new laws and regulations may be
retroactively applied to Asia.com.
If Asia.com is found to be in violation of any existing or future Chinese
laws or regulations, the relevant Chinese authorities would have broad
discretion in dealing with such a violation, including, without limitation, the
following:
- levying fines;
- revoking our business license;
- requiring us to restructure our ownership structure or operations; and
- requiring us to discontinue any portion or all of our Internet business.
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EVEN IF ASIA.COM COMPLIES WITH CHINESE GOVERNMENTAL REGULATIONS, THE CHINESE
GOVERNMENT MAY PREVENT US FROM DISTRIBUTING, AND WE MAY BE SUBJECT TO LIABILITY
FOR, CONTENT THAT IT BELIEVES IS INAPPROPRIATE.
China has enacted regulations governing Internet access and the distribution
of news and other information. Even if we comply with Chinese governmental
regulations relating to licensing and foreign investment prohibitions, if the
Chinese government takes any action to limit or prohibit the distribution of
information through our network or to limit or regulate any current or future
content or services available to users on our network, our Asia.com business
would be harmed.
SOME OF OUR OPERATIONS ARE BASED IN INDIA, WHICH PRESENTS SPECIAL REGULATORY AND
OTHER RISKS TO OUR BUSINESS.
India has also recently begun to regulate its Internet sector by making
pronouncements or enacting regulations regarding various Internet activities in
India and the legality of foreign investment in the Indian Internet sector.
There are substantial uncertainties regarding the proper interpretation of
current and future Indian Internet laws and regulations. Issues, risks and
uncertainties relating to Indian government regulation of the Indian Internet
sector include risks similar to those in China, in particular with respect to
limitations on foreign investment.
The Indian government is attempting to liberalize this sector and has enacted
or is currently considering enacting new legislation in that regard. For
example, Press Note No. 7 (2000 series) dated July 14, 2000, permits 100%
foreign investment in business-to-business e-commerce companies, subject to the
condition that "such investing companies" divest 26% of their equity in favor of
the Indian public in five years, if "these companies" are listed in other parts
of the world. It remains unclear as to whether the referenced listing is of the
Indian subsidiary or of the investor company. For retail e-commerce companies,
51% foreign equity investment is permitted. Press Note No. 8 (2000 series) dated
August 29, 2000, removes the earlier restriction on automatic approvals in cases
where a foreign investor had a previous or existing joint venture or technology
transfer/trade mark agreements in the same or allied field in India for all
proposals relating to information technology.
In the telecom sector, the present cap on foreign equity is 49% and a license
is required to provide such services. However, the license required for ISPs has
been waived until October 31, 2003. Also, in Press Note No. 9 (2000 series)
dated September 8, 2000 the Indian government recently permitted 100% foreign
direct investment in relation to certain activities including:
- ISPs not providing gateways (applicable both for satellite and submarine
cables);
- Infrastructure providers providing dark fiber (IP category 1);
- Electronic mail; and
- Voice mail.
However, the above activities are still subject to the 26% divestment rule,
certain security restrictions and other regulations.
The government has also recently passed the Information Technology Act, 2000
which focuses on recognizing and regulating electronic transactions and records,
affecting:
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- authentication of digital records;
- legal recognition of electronic records and digital signatures;
- attribution, acknowledgment and dispatch of electronic records;
- secure electronic records and digital signatures; and
- regulation of certifying authorities.
More legislation that is presently being discussed is a draft Information
Communication and Entertainment Bill, 2000 ("ICE Bill") that would govern the
rapid convergence of broadcasting, telecommunications and information
technologies. The ICE Bill contemplates the establishment of a Communication
Commission to license and regulate the provision of network facilities, network
services, application services or content application services and ownership of
wireless apparatus.
It is unclear how the ICE Bill, if enacted, or any of the legislation
previously discussed, will affect India.com's business and operations. Further,
political instability could halt or delay the liberalization of the Indian
economy and adversely affect business and economic conditions in India generally
and our business in particular. Although during the past decade, the government
of India has pursued policies of economic liberalization, including
significantly relaxing restrictions on the private sector and further reforms
are still expected under the current policy to promote the information
technology and software industries, political uncertainty still exists and a
significant change in India's economic liberalization and deregulation policies
could adversely affect business and economic conditions in India generally and
our India.com business in particular.
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USE OF PROCEEDS
The selling securityholders will receive all of the proceeds from the sale of
the notes under this prospectus and the Class A common stock issuable upon
conversion of the notes. We will not receive any proceeds from these sales.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings. Earnings is defined as pretax income from continuing operations
adjusted by adding fixed charges and excluding interest capitalized during the
period. Fixed charges means the total of interest expense and amortization of
financing costs, the estimated interest component of rental expense on operating
leases and preferred stock dividends.
The following table sets forth our deficiency of earnings to fixed charges
for each of the periods indicated.
<TABLE>
<CAPTION>
Year ended December 31, Six Months Six Months
-------------------------------------- Ended Ended
1996 1997 1998 1999 June 30, 1999 June 30, 2000
------ ------ ------ ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Loss to
Fixed Charges(1) ...... $-- $-- $-- $-- $-- $--
</TABLE>
---------------
(1) Earnings consist of income (loss) before provision for income taxes plus
fixed charges. Fixed charges consist of interest charges and amortization of
debt expense and discount or premium related to indebtedness, whether expensed
or capitalized, and that portion of rental expense we believe representative of
interest. As a result of the loss incurred for all periods presented, the ratio
coverage was less than 1:1 as Mail.com was unable to cover the indicated fixed
charges. Mail.com would have had to generate additional earnings of $0.5
million, $3.0 million, $12.5 million and $61.6 million for the years ended
December 31, 1996, 1997, 1998 and 1999 and $14.4 million and $90.4 million for
the six months ended June 30, 1999 and 2000, respectively to achieve and ratio
coverage of 1:1.
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<PAGE> 33
DESCRIPTION OF THE NOTES
GENERAL
We issued the notes pursuant to an indenture dated as of January 26, 2000,
between Mail.com and American Stock Transfer and Trust Company, as trustee. The
following is a summary of certain provisions of the indenture and the
registration agreement between us and the initial purchasers of the notes, but
it is not complete and is qualified in its entirety by reference to the
indenture and the registration agreement, including the definitions in the
indenture of certain terms used in the following summary. Anyone who purchases
notes pursuant to this prospectus may obtain a copy of the indenture and the
registration agreement without charge by writing to Mail.com, Inc., 11 Broadway,
6th Floor, New York, New York 10004, Attention: Investor Relations. We defined
some of the terms used in the following summary below under " - Certain
definitions." For purposes of this section of the prospectus, references to us
are solely to Mail.com, Inc., a Delaware corporation, and not to any of our
subsidiaries.
The notes are our general unsecured obligations and are subordinated in right
of payment to all of our existing and future senior debt to the extent set forth
in the indenture. The indenture does not limit the amount of other indebtedness
or securities that we or any of our subsidiaries may issue. We currently conduct
our operations directly and through our subsidiaries. Accordingly, we may in the
future be dependent upon the cash flow of our subsidiaries to meet some or all
of our obligations, including our obligations under the notes. As a result, the
notes are effectively subordinated to all existing and future indebtedness and
other liabilities and commitments of such subsidiaries. See "Risk Factors - The
notes are subordinated to our senior debt and all the obligations of our
subsidiaries."
PRINCIPAL, MATURITY AND INTEREST
We issued the notes in an aggregate principal amount limited to $100,000,000.
The notes bear interest at 7% per annum and mature on February 1, 2005.
We will pay interest on the notes semiannually on February 1 and August 1 of
each year, each an interest payment date, commencing on August 1, 2000, to
holders of record at the close of business on January 15 or July 15, each a
regular record date, immediately preceding such interest payment date. We will
compute interest on the basis of a 360-day year consisting of twelve 30-day
months. Interest on the notes will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from January 26, 2000.
If we do not comply with certain deadlines set forth in the registration
agreement with respect to the registration of the notes or the Class A common
stock issuable upon conversion of the notes for resale under a shelf
registration statement, we will pay additional interest, which we call
liquidated damages, to holders of the notes and/or the Class A common stock
issued upon conversion of the notes. See " - Registration of the notes" below.
Principal of, premium, if any, interest and liquidated damages, if any, on
the notes represented by the global note registered in the name of and held by
DTC or its nominee will be made to DTC or its nominee, as the case may be, as
the registered owner and holder of the global note. Payments, transfers,
exchanges and conversions relating to beneficial interests in notes issued in
book-entry form will be subject to the procedures applicable to the global note
described below. Principal of, premium, if any, interest and liquidated damages,
if any, on definitive notes will be payable at the office or agency of Mail.com
maintained for such purpose within The City of New York or, subject to
applicable laws and regulations, at the office of any paying agent, or, at our
option, payment of interest may be made by check mailed to the holders of the
definitive notes at their respective addresses set forth in the register of
holders of notes provided that interest and liquidated damages, if any, on the
global note may only be made in
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<PAGE> 34
same day funds. Until otherwise designated by us, our office or agency in The
City of New York will be the office of the trustee maintained for such purpose.
The notes will be issued in registered form, without coupons, and in
denominations of $1,000 and integral multiples of $1,000.
If a payment date is not a business day at a place of payment, we may make
payment at that place on the next succeeding business day, and no interest shall
accrue for the intervening period.
We have initially appointed the trustee at its corporate trust office in The
City of New York as the paying agent and conversion agent. We time may terminate
the appointment of the paying agent or conversion agent at any time and appoint
additional or other paying agents and conversion agents, provided that until the
notes have been delivered to the trustee for cancellation, or moneys sufficient
to pay the principal of, premium, if any, interest and liquidated damages, if
any, on the notes have been made available for payment and either paid or
returned to us as provided in the indenture, the trustee will maintain an office
or agency in The City of New York for payments with respect to the notes and for
the surrender of notes for conversion. We will give notice of any such
termination or appointment and of any change in the office through which the
paying agent or conversion agent in accordance with " - Notices" below.
PROVISIONAL REDEMPTION
Prior to February 5, 2003, we may redeem the notes at our option, in whole or
in part (in any integral multiple of $1,000), at any time or from time to time,
upon not less than 30 nor more than 60 days' prior notice by mail, at the
following redemption prices (expressed as percentages of the principal amount),
plus accrued and unpaid interest and liquidated damages, if any, to the
provisional redemption date (subject to the right of holders of record on the
relevant record date to receive any such amounts due on an interest payment
date) if the closing price of the Class A common stock shall have equaled or
exceeded the following specified percentages of the conversion price then in
effect for at least 20 out of 30 consecutive days on which the Nasdaq National
Market is open for the transaction of business prior to the date of mailing of
the notice of provisional redemption. Such redemption price and percentage shall
be as indicated during the periods specified below:
<TABLE>
<CAPTION>
PERCENTAGE
OF CONVERSION
PERIOD REDEMPTION PRICE PRICE
------ ---------------- -----
<S> <C> <C>
January 26, 2000 through
January 31, 2001 ..... 107.00% 170%
February 1, 2001 through
January 31, 2002 ..... 105.60% 160%
February 1, 2002 through
February 4, 2003 ..... 104.20% 150%
</TABLE>
Upon any provisional redemption, we will be obligated to make an additional
payment in an amount equal to the present value of the aggregate value of the
interest payments that would thereafter have been payable on the notes from the
provisional redemption date to, but excluding, February 5, 2003. The present
value will be calculated using the bond equivalent yield on U.S. Treasury notes
or bills having a term nearest in length to that of the additional period as of
the day immediately preceding the date on which a notice of provisional
redemption is mailed.
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<PAGE> 35
OPTIONAL REDEMPTION
Except as described under " - Provisional redemption," the notes will not be
subject to redemption prior to February 5, 2003. On and after February 5, 2003,
we may redeem the notes at our option, in whole or in part (in any integral
multiple of $1,000) after giving not less than 30 nor more than 60 days' prior
notice by mail. We may redeem the notes at the following redemption prices
(expressed as percentages of the principal amount), in each case, together with
accrued interest and liquidated damages, if any, to, but excluding, the
redemption date, subject to the right of holders of record on the relevant
record date to receive interest and liquidated damages, if any, due on an
interest payment date. If we redeem the notes during the 12 month period
beginning on February 1 of the years indicated (February 5, in the case of 2003)
the redemption price shall be as indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2003..................................................... 102.80%
2004..................................................... 101.40%
</TABLE>
SELECTION AND NOTICE
If we are redeeming less than all of the notes, the trustee will select the
notes for redemption by complying with the requirements of the principal
national securities exchange, if any, on which the notes are listed, or, if the
notes are not so listed, on a pro rata basis, by lot or by such method as the
trustee shall deem fair and appropriate. We will not redeem in part notes of
$1,000 in principal amount or less. We will mail, or cause to be mailed, a
notice of redemption at least 30 but not more than 60 days before the redemption
date to each holder of notes to be redeemed at its registered address. If we are
redeeming any note in part only, the notice of redemption that relates to such
note shall state the portion of the principal amount thereof to be redeemed. If
any definitive note is to be redeemed in part only, we will issue, or cause to
be issued, a new note in principal amount equal to the unredeemed portion
thereof in the name of the holder thereof upon cancellation of the original
note. On and after the redemption date, interest and liquidated damages, if any,
will cease to accrue on notes or portions thereof called for redemption unless
we default in the payment of the redemption price for such notes on the
applicable redemption date.
MANDATORY REDEMPTION
We are not required to make mandatory redemption or sinking fund payments
with respect to the notes.
REPURCHASE AT THE OPTION OF HOLDERS
Upon the occurrence of a designated event, each holder of notes will have the
right, at the holder's option, to require us to repurchase all or any part, in
an integral multiple of $1,000, of such holder's notes pursuant to the
designated event offer described below at a purchase price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, thereon to the designated event payment date, subject to the
right of holders of record on the relevant record date to receive any such
amounts due on the relevant payment date.
Within 30 days following any designated event, we shall mail a notice to each
holder stating:
- that we are making the designated event offer pursuant to the covenant
described in this paragraph and that we will accept for payment all notes
that are tendered;
- the purchase price and the designated event payment date on which we will
purchase the notes,
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<PAGE> 36
which shall be no earlier than 30 days nor later than 60 days from the
date such notice is mailed;
- that any notes not tendered will continue to accrue interest and
liquidated damages, if applicable;
- that, unless we default in the payment of the designated event payment,
all notes accepted for payment pursuant to the designated event offer will
cease to accrue interest and liquidated damages, if applicable, after the
designated event payment date and will cease to have conversion rights;
and
- the procedures that the holders of notes must follow in order to tender
their notes (or portions thereof) for payment, and the procedures that
holders of notes must follow in order to withdraw an election to tender
notes (or portions thereof) for payment.
We will comply with the requirements of Rules 13e-4 and 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the notes in connection with a designated event.
On the designated event payment date, we will, to the extent lawful,
- accept for payment notes or portions thereof duly tendered pursuant to the
designated event offer,
- deposit with the trustee or a paying agent in immediately available funds
an amount equal to the designated event payment in respect of all notes or
portions thereof so tendered and
- deliver or cause to be delivered to the trustee the notes so accepted
together with an officers' certificate identifying the notes or portions
thereof tendered to us.
The paying agent shall promptly mail or deliver to each holder of notes so
accepted payment in an amount equal to the purchase price for such notes, and
the trustee shall promptly authenticate and mail or deliver to each holder a new
certificate representing a note equal in principal amount to any unpurchased
portion of the notes surrendered, if any; provided that each such new
certificate representing a note shall be in a principal amount of $1,000 or an
integral multiple thereof. We will publicly announce the results of the
designated event offer on or as soon as practicable after the designated event
payment date.
Except as described above with respect to a designated event, the indenture
does not contain any other provisions that permit the holders of the notes to
require that we repurchase or redeem the notes in the event of a takeover,
recapitalization or similar restructuring.
The designated event purchase feature of the notes may in certain
circumstances make more difficult or discourage a takeover of Mail.com, and,
thus, the removal of incumbent management. The designated event purchase
feature, however, is not the result of management's knowledge of any specific
effort to accumulate our capital stock or to obtain control of us by means of a
merger, tender offer, solicitation or otherwise, or part of a plan by management
to adopt a series of anti-takeover provisions. Instead, the designated event
purchase feature is a result of negotiations between us and the initial
purchasers of the notes. Management has no current intention to engage in a
transaction involving a designated event, although it is possible that we could
decide to do so in the future.
Subject to the limitations on mergers, consolidations and sales of assets
described herein, we could, in the future, enter into certain transactions,
including acquisitions, refinancings or other recapitalizations, that would not
constitute a designated event under the indenture, but that could increase the
amount of
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<PAGE> 37
indebtedness (including senior debt) outstanding at such time or otherwise
affect our capital structure or credit ratings. The payment of the designated
event payment is subordinated to the prior payment of senior debt as described
under " - Subordination of the notes" below.
Our ability to repurchase notes upon the occurrence of a designated event may
be limited. If a designated event occurred, we cannot assure you that we would
have sufficient financial resources, or would be able to arrange financing, to
pay the repurchase price for all notes tendered by holders thereof. Our
subsidiaries may be parties in the future to credit agreements and other
agreements relating to indebtedness which contain restrictions on transferring
funds sufficient to permit us to effect a designated event payment. In addition,
future credit agreements or other agreements relating to our indebtedness
(including additional senior debt), may contain prohibitions or restrictions on
our ability to effect a designated event payment. If a designated event occurs
at a time when such prohibitions or restrictions are in effect, we could seek
the consent of our lenders and lenders to our subsidiaries to enable us to
purchase notes or could attempt to refinance the borrowings that contain such
prohibitions or restrictions. If we do not obtain such consents or repay such
borrowings, we will be effectively prohibited from purchasing notes. In such
case, our failure to purchase tendered notes would constitute an event of
default under the indenture whether or not such repurchase is permitted by the
subordination provisions of the indenture. Any such default may, in turn, cause
a default under our senior debt. Moreover, the occurrence of a change of control
may cause an event of default under our designated senior debt. As a result, in
such a case, any repurchase of the notes would, absent a waiver, be prohibited
under the subordination provisions of the indenture until the senior debt is
paid in full. See " - Subordination of the notes" below and "Risk Factors - The
notes are subordinated to our senior debt and all the obligations of our
subsidiaries."
A designated event will be deemed to have occurred upon a change of control
or a termination of trading.
A change of control will be deemed to have occurred when:
- any "person" or "group" (as such terms are used in Section 13(d) and 14(d)
of the Exchange Act) other than one or more of the Permitted Holders, as
defined below, is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act) of shares representing more than
50% of the combined voting power of the then outstanding voting stock,
defined as the securities entitled to vote generally in elections of our
directors;
- we consolidate with or merge into any other corporation, or any other
corporation merges into us, and, in the case of any such transaction, our
outstanding Class A common stock is reclassified into or exchanged for any
other property or securities, unless our stockholders immediately before
such transaction own, directly or indirectly immediately following such
transaction, at least a majority of the combined voting power of the then
outstanding voting securities entitled to vote generally in elections of
directors of the corporation resulting from such transaction in
substantially the same respective proportions as their ownership of the
voting stock immediately before such transaction;
- we or our subsidiaries, taken as a whole, sell, assign, convey, transfer
or lease all or substantially all of our assets or of us and our
subsidiaries, taken as a whole, as applicable (other than to one or more
of our wholly-owned subsidiaries);
- any time the continuing directors do not constitute a majority of our
board of directors (or, if applicable, our successor corporation); or
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<PAGE> 38
- our stockholders shall have approved any plan of liquidation or
dissolution of Mail.com;
provided, however, that:
- a change of control shall not be deemed to have occurred if the daily
market price per share of the Class A common stock for any five trading
days within the period of 10 consecutive trading days beginning
immediately after the later of the change of control or the public
announcement of the change of control shall equal or exceed 105% of the
Conversion Price of the notes in effect on each such trading day; provided
further that if the change of control results in the reclassification,
conversion, exchange of outstanding shares of our common stock, such 10
consecutive trading day period shall be measured as ending immediately
before the change of control; and
- a change of control under the first three bullets above shall not be
deemed to have occurred if at least 90% of the consideration in the change
of control transaction consists of shares of capital stock traded on a
U.S. national securities exchange or quoted on Nasdaq, and as a result of
such transaction, the notes become convertible solely into such capital
stock.
The definition of change of control includes a phrase relating to the sale,
assignment, conveyance, transfer or lease of "all or substantially all" of our
assets. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of notes to require
us to repurchase such notes as a result of a sale, assignment, conveyance,
transfer or lease of less than all of our assets or of us and our subsidiaries,
taken as a whole, may be uncertain.
"permitted holders" means, collectively, Gerald Gorman and his estate,
spouse, legatees, heirs, ancestors and lineal descendants, the legal
representatives of any of the foregoing and the trustees of any bona fide trusts
of which one or more of the foregoing are the sole beneficiaries or the grantor,
or any corporation, trust, partnership or other entity of which one or more of
the foregoing "beneficially owns" (as defined in Rule 13d-3 under the Exchange
Act) at least 66 2/3% of the total voting power of such corporation, trust,
partnership or other entity.
"continuing directors" means, as of any date of determination, any member of
our Board of Directors who (i) was a member of our Board of Directors on the
date of the indenture or (ii) was nominated for election or elected to our Board
of Directors with the approval of a majority of the continuing directors who
were members of our Board of Directors at the time of such nomination or
election or (ii) was nominated for election or elected to our Board of Directors
with the approval of Gerald Gorman, provided that at the time of such nomination
or election Gerald Gorman owns shares representing more than 50% of the combined
voting power of the then outstanding voting stock.
A "termination of trading" will be deemed to have occurred if our Class A
common stock (or other securities into which the notes are then convertible) is
neither listed for trading on the New York Stock Exchange or another United
States national securities exchange nor approved for trading on the Nasdaq
National Market or other established automated over-the-counter trading market
in the United States.
REGISTRATION RIGHTS
Pursuant to a registration agreement for the benefit of the holders of the
notes and Class A common stock issued upon conversion of the notes, we:
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<PAGE> 39
- at our own cost, filed a shelf registration statement, of which this
prospectus is a part, with the Securities and Exchange Commission with
respect to resales of the notes and the Class A common stock issuable upon
conversion of the notes,
- agreed to use our best efforts to cause the shelf registration statement
to be declared effective under the Securities Act by September 22, 2000
and
- agreed to keep the shelf registration statement continuously effective
under the Securities Act for a specified period of time.
Our obligation to keep the shelf registration statement continuously
effective under the Securities Act expires upon the earliest of
- January 26, 2002,
- the date on which the notes or the Class A common stock issuable upon
conversion thereof may be sold by persons not affiliated with us pursuant
to paragraph (k) of Rule 144 (or any successor provision) promulgated by
the Commission under the Securities Act,
- the date as of which all the notes or the Class A common stock issuable
upon conversion thereof have been sold pursuant to the shelf registration
statement and
- the date as of which all the notes or the Class A common stock issuable
upon conversion thereof have been transferred pursuant to Rule 144 under
the Securities Act (or any similar provision then in force).
If the shelf registration statement ceases to be effective (without being
succeeded immediately by a replacement shelf registration statement filed and
declared effective) or cannot be used for the offer and sale of transfer
restricted securities described below for a period of time (including any
suspension period described below) that exceeds 120 days in the aggregate in any
12-month period during the period beginning on September 22, 2000 and ending on
or prior to the second anniversary of the January 26, 2002 (each of these events
is called a registration default), then we will pay liquidated damages to each
holder of transfer restricted securities which has complied with its obligations
under the registration agreement.
The amount of liquidated damages payable during any period in which a
registration default shall have occurred and be continuing is that amount which
is equal to one-quarter of one percent (25 basis points) per annum per $1,000
principal amount of notes or $2.50 per annum per 52.7704 shares of Class A
common stock (subject to adjustment in the event of a stock split, stock
recombination, stock dividend and the like) constituting transfer restricted
securities for the first 90 days during which a registration default has
occurred and is continuing and 50 basis points per annum per $1,000 principal
amount of notes or $5.00 per annum per 52.7704 shares of Class A common stock
(subject to adjustment as set forth above) constituting transfer restricted
securities for any additional days during which such registration default has
occurred and is continuing. We have agreed to pay all accrued liquidated damages
by wire transfer of immediately available funds or by federal funds check on
each damages payment date described in the registration agreement. Following the
cure of a registration default, liquidated damages will cease to accrue with
respect to such registration default.
"transfer restricted securities" means each note and any share of Class A
common stock issued upon conversion thereof until the date on which such note or
share, as the case may be:
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<PAGE> 40
- has been transferred pursuant to the Shelf Registration Statement or
another registration statement covering such note or share which has been
filed with the Commission pursuant to the Securities Act, in either case
after such registration statement has become effective under the
Securities Act,
- has been transferred pursuant to Rule 144 under the Securities Act (or any
similar provision then in force), or
- may be sold or transferred pursuant to paragraph (k) of Rule 144 under the
Securities Act (or any successor provision promulgated by the Commission).
In the registration agreement, we also agreed to:
- provide or cause to be provided to each holder of the notes, or the Class
A common stock issuable upon conversion of the notes, copies of the
prospectus, which is a part of the shelf registration statement,
- notify or cause to be notified to each such holder when the shelf
registration statement for the notes or the Class A common stock issuable
upon conversion of the notes has become effective and take certain other
actions as are required to permit unrestricted resales of the notes or the
Class A common stock issuable upon conversion of the notes.
A holder of notes or the Class A common stock issuable upon conversion of the
notes that sells such securities pursuant to a shelf registration statement:
- will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers,
- will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales and
- will be bound by the provisions of the registration agreement that are
applicable to such holder (including certain indemnification and
contribution rights or obligations).
We distributed a questionnaire to each beneficial holder of notes to obtain
certain information regarding such selling securityholders for inclusion in the
prospectus.
We will be permitted to suspend the use of the prospectus which is a part of
the shelf registration statement for a period not to exceed 60 days in any
three-month period or for three periods not to exceed an aggregate of 120 days
in any twelve-month period (any such period being referred to as a suspension
period) under certain circumstances relating to pending corporate developments,
public filings with the Commission and similar events. We will pay all expenses
of the shelf registration statement; provided however, that each holder shall
bear the expense of any broker's commission, agency fee or underwriter's
discount or commission.
CONVERSION
The holder of any note has the right, exercisable at any time between April
25, 2000 and January 31, 2005, to convert the principal amount thereof (or any
portion thereof that is an integral multiple of $1,000) into shares of Class A
common stock at the conversion price of $18.95 per share, subject to
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<PAGE> 41
adjustment as described below. If we have called a note for redemption, the
conversion right will terminate at the close of business on the business day
immediately preceding the redemption date. Except as described below, no payment
or adjustment will be made on conversion of any notes for accrued and unpaid
interest or liquidated damages, if any, accrued thereon or for dividends or
distributions on, or liquidated damages, if any, attributable to, any Class A
common stock issued upon conversion of notes. If notes not called for redemption
and not required to be repurchased are converted after a regular record date for
the payment of interest and prior to the next succeeding interest payment date,
such notes must be accompanied by funds equal to the interest and liquidated
damages, if any, payable on such succeeding interest payment date on the
principal amount so converted. We will not issue fractional shares upon
conversion. Instead, we will make a cash adjustment for any fractional interest.
The owners of a note may exercise their right of conversion by delivering to
DTC the appropriate instruction form for conversion pursuant to DTC's conversion
program. In the case of conversions through Euroclear or Cedel Bank, the owner
shall deliver instructions in accordance with Euroclear's or Cedel Bank's normal
operating procedures when application has been made to make the underlying Class
A common stock eligible for trading on Cedel Bank or Euroclear. To convert a
note held in certificated form into shares of Class A common stock, a holder
must:
- complete and manually sign the conversion notice on the back of the note
(or complete and manually sign a facsimile thereof) and deliver such
notice to the trustee in New York, New York,
- surrender the note to the trustee in New York, New York,
- if required, furnish appropriate endorsements and transfer documents,
- if required, pay all transfer or similar taxes, and
- if required, pay funds equal to interest and liquidated damages, if any,
payable on the next interest payment date.
Pursuant to the indenture, the date on which all of the foregoing
requirements have been satisfied is the date of surrender for conversion. Such
notice of conversion can be obtained from the trustee at its corporate trust
office or the office of the conversion agent.
As promptly as practicable on or after the conversion date, we will issue and
deliver to the trustee a certificate or certificates for the number of full
shares of Class A common stock issuable upon conversion, together with payment
in lieu of any fraction of a share in an amount determined as set forth below.
Such certificate or certificates will be sent by the trustee to the conversion
agent for delivery to the holder.
The Class A common stock issuable upon conversion of the notes will be fully
paid and nonassessable. Any note surrendered for conversion during the period
from the close of business on any regular record date to the opening of business
on the next succeeding interest payment date (except notes called for redemption
on a redemption date or to be repurchased on a designated event payment date
during such period) must be accompanied by payment of an amount equal to the
interest and liquidated damages, if any, payable on such interest payment date
on the principal amount of notes being surrendered for conversion. In the case
of any note which has been converted after any regular record date, but on or
before the next interest payment date, interest and liquidated damages, if any,
on such note shall be payable on such interest payment date notwithstanding such
conversion. Such interest and liquidated damages, if any, shall be paid to the
holder of such note on such regular record date. As a
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<PAGE> 42
result, a holder that surrenders notes for conversion on a date that is not an
interest payment date effectively will not receive any interest or liquidated
damages, if applicable, for the period from the interest payment date next
preceding the date of conversion to the date of conversion, even if the notes
have been called for redemption or repurchased pursuant to a designated event
offer (except for the payment of interest and liquidated damages, if any, on
notes called for redemption on a redemption date or to be repurchased on a
designated event payment date between a regular record date and the interest
payment date to which it relates). No other payment or adjustment for interest
or liquidated damages, or for any dividends in respect of Class A common stock,
will be made upon conversion. Holders of Class A common stock issued upon
conversion will not be entitled to receive any dividends payable to holders of
Class A common stock as of any record time before the close of business on the
conversion date.
A holder delivering a note for conversion will not be required to pay any
taxes or duties in respect of the issue or delivery of Class A common stock on
conversion. However, we shall not be required to pay any tax or duty that may be
payable in respect of any transfer involved in the issue or delivery of the
Class A common stock in a name other than that of the holder of the note.
Certificates representing shares of Class A common stock will not be issued or
delivered unless the person requesting such issue has paid to us the amount of
any such tax or duty or has established to our satisfaction that such tax or
duty has been paid.
We will adjust the conversion price upon the occurrence of certain events,
including:
- the issuance of shares of Class A common stock as a dividend or
distribution on the Class A common stock or any event treated as such for
U.S. federal income tax purposes;
- the subdivision, combination or reclassification of Class A common stock;
- the issuance to all holders of Class A common stock of rights, options or
warrants which entitle them to subscribe for or purchase Class A common
stock (or securities convertible into Class A common stock) at a price per
share less than the then current market price per share (determined as set
forth below) of such Class A common stock as of the record date for
holders entitled to receive such rights, options or warrants;
- the distribution of shares of capital stock of Mail.com (other than those
referred to in the first and third bullets above), evidences of
indebtedness or other assets (excluding dividends in cash, except as
described in the fifth bullet below, and excluding distributions in
connection with a consolidation, merger or transfer of assets covered in
the next paragraph) to all holders of Class A common stock;
- the distribution, by dividend or otherwise, of cash to all holders of
Class A common stock in an aggregate amount that, together with the
aggregate of:
(1) any other distributions of cash that did not trigger a conversion
price adjustment to all holders of Class A common stock within the 12
months preceding the date fixed for determining the stockholders
entitled to such distribution and
(2) all excess payments in respect of each tender offer or other
negotiated transaction by us or any of our subsidiaries for Class A
common stock concluded within the preceding 12 months not triggering a
conversion price adjustment, exceeds 12-1/2% of the product of the
current market price per share (determined as set forth below) on the
date fixed for the determination of stockholders entitled to receive
such distribution times the number of shares of Class A
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common stock outstanding on such date;
- payment of an excess payment in respect of a tender offer or other
negotiated transaction by us or any of our subsidiaries for Class A common
stock, if the aggregate amount of such excess payment, together with the
aggregate amount of
(1) cash distributions made within the preceding 12 months not triggering
a conversion price adjustment and
(2) all excess payments in respect of each tender offer or other
negotiated transaction by us or any of our subsidiaries for Class A
common stock concluded within the preceding 12 months not triggering a
conversion price adjustment, exceeds 12-1/2% of the product of the
current market price per share (determined as set forth below) on the
expiration of such tender offer or the date of payment of such
negotiated transaction consideration times the number of shares of
Class A common stock outstanding on such date; and
- the distribution to all holders of Class A common stock of rights, options
or warrants to subscribe for securities (other than those securities
referred to in the third bullet above).
In the event of a distribution to all or substantially all holders of Class A
common stock of rights to subscribe for additional shares of the our capital
stock (other than those securities referred to in the third bullet above), we
may, instead of making any adjustment in the conversion price, make proper
provision so that each holder of a note who converts such note after the record
date for such distribution and prior to the expiration or redemption of such
rights shall be entitled to receive upon such conversion, in addition to shares
of Class A common stock, an appropriate number of such rights. We will not make
an adjustment of the conversion price until cumulative adjustments amount to one
percent or more of the conversion price as last adjusted.
If we reclassify or change our outstanding Class A common stock or
consolidate with or merge into any person, continue in a new jurisdiction or
transfer or lease all or substantially all our assets, or are a party to a
merger that reclassifies or changes our outstanding Class A common stock, the
notes will become convertible into the kind and amount of securities, cash or
other assets which the holders of the notes would have owned immediately after
any such transaction if the holders had converted the notes immediately before
the effective date of such transaction.
The indenture also provides that if rights, warrants or options expire
unexercised, the conversion price shall be readjusted to take into account the
actual number of such warrants, rights or options which were exercised.
In the indenture, the "current market price" per share of Class A common
stock on any date shall be deemed to be the average of the daily market prices
for the shorter of
- 30 consecutive business days ending on the last full trading day on the
exchange or market referred to in determining such daily market prices
prior to the time of determination (as defined in the indenture) or
- the period commencing on the date next succeeding the first public
announcement of the issuance of such rights or warrants or such other
distribution or such negotiated transaction through such last full trading
day prior to the time of determination.
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"Excess payment" means the excess of (1) the aggregate of the cash and fair
market value (as determined our Board of Directors) of other consideration paid
by us or any of our subsidiaries with respect to the shares acquired in the
tender offer or other negotiated transaction over (2) the daily market price on
the trading day immediately following the completion of the tender offer or
other negotiated transaction multiplied by the number of acquired shares.
We reserve the right to make such reductions in the conversion price in
addition to those required in the foregoing provisions as it considers to be
advisable in order that any event treated for United States federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
recipients.
We may from time to time decrease the conversion price by any amount for any
period of at least 20 days (which decrease is irrevocable during such period),
in which case we shall give at least 15 days' notice of such decrease, if our
Board of Directors has made a determination that such decrease would be in our
best interests, which determination shall be conclusive; provided however that
in no case shall we decrease the conversion price to less than 80% of the
current market price. No such decrease shall be taken into account for purposes
of determining whether the current market price of the Class A common stock
exceeds the conversion price, as defined below, by 105% in connection with an
event which otherwise would be a change of control.
If at any time we make a distribution of property to our shareholders that
would be taxable to such shareholders as a dividend for United States federal
income tax purposes, e.g., distributions of evidences of our indebtedness or our
assets, but generally not stock dividends on Class A common stock or rights to
subscribe for Class A common stock, and, pursuant to the anti-dilution
provisions of the indenture, the number of shares into which notes are
convertible is increased, such increase may be deemed for United States federal
income tax purposes to be the payment of a taxable dividend to holders of notes.
See "Certain United States Federal Income Tax Considerations."
SUBORDINATION OF THE NOTES
The notes are our general unsecured obligations, are subordinated in right of
payment to all of our existing and future senior debt and rank pari passu in
right of payment with all of our other existing and future debt and other
liabilities that are not subordinated by their express terms to the notes. In
addition, the notes are effectively subordinated to all debt and other
liabilities of our subsidiaries. As of March 31, 2000, we had approximately
$22.2 million of debt that would have constituted senior debt and our
subsidiaries had approximately $40.7 million of balance sheet liabilities. The
indenture does not restrict the amount of senior debt or other indebtedness that
we or any of our subsidiaries may incur. See "Risk Factors - The notes are
subordinated to our senior debt and all the obligations of our subsidiaries."
The payment of the principal of, interest (including liquidated damages, if
any) on or any other amounts due on the notes is subordinated in right of
payment to the prior payment in full of all of our senior debt. No payment on
account of principal of, redemption of, interest (including liquidated damages,
if any) on or any other amounts due on the notes, including, without limitation,
any payments on a designated event offer, and no redemption, purchase or other
acquisition of the notes may be made unless:
- full payment of amounts then due on all senior debt has been made or duly
provided for pursuant to the terms of the instrument governing such senior
debt, and
- at the time for, or immediately after giving effect to, any such payment,
redemption, purchase or other acquisition, there shall not exist under any
senior debt or any agreement pursuant to which any senior debt has been
issued any default which shall not have been cured or waived and which
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shall have resulted in the full amount of such senior debt being declared
due and payable.
In addition, the indenture provides that if any of the holders of any issue of
designated senior debt provide us and the trustee with a payment blockage notice
that a default has occurred, giving the holders of such designated senior debt
the right to accelerate the maturity thereof, we will make no payment on account
of principal, redemption, interest, liquidated damages, if any, or any other
amounts due on the notes and we will make no purchase, redemption or other
acquisition of the notes during the payment blockage period commencing on the
date the payment blockage notice is received and ending on the earlier of:
- the date on which such event of default shall have been cured or waived
and
- 180 days from the date the payment blockage notice is received.
Notwithstanding the foregoing (but subject to the provisions contained in the
first and second sentences of this paragraph), unless the holders of such
designated senior debt or the representative of such holder shall have
accelerated the maturity of such designated senior debt, we may resume payments
on the notes after the end of such payment blockage period. Not more than one
payment blockage notice may be given in any consecutive 365-day period,
irrespective of the number of defaults with respect to senior debt during such
period.
Upon any distribution of our assets in connection with any dissolution,
winding-up, liquidation or reorganization of Mail.com, we must pay in full all
senior debt before the holders of the notes are entitled to any payments
whatsoever, other than payments of junior securities.
If payment of the notes is accelerated because of an event of default, we
shall give prompt written notice to the holders of senior debt or to the
trustee(s) for such senior debt of the acceleration. We may not pay the notes
until five business days after such notice is given and, thereafter, may pay the
notes only if the subordination provisions of the indenture otherwise permit
payment at that time. As a result of these subordination provisions, in the
event of our insolvency, holders of the notes may recover ratably less than our
general creditors.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The indenture provides that we may not consolidate or merge with or into any
person (whether or not Mail.com is the surviving corporation), continue in a new
jurisdiction, or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of our properties or assets unless
- (a) Mail.com is the surviving or continuing corporation or (b) the person
formed by or surviving any such consolidation or merger (if other than
Mail.com) or the person which acquires by sale, assignment, transfer,
lease, conveyance or other disposition our properties and assets is a
corporation organized or existing under the laws of the United States, any
state thereof or the District of Columbia;
- the entity or person formed by or surviving any such consolidation or
merger (if other than Mail.com) or the person to which such sale,
assignment, transfer, lease, conveyance or other disposition will have
been made assumes all our obligations, pursuant to a supplemental
indenture in a form reasonably satisfactory to the trustee, under the
notes and the indenture;
- the sale, assignment, transfer, lease, conveyance or other disposition of
all or substantially all of our properties or assets shall be as an
entirety or virtually as an entirety to one person and such
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person shall have assumed all our obligations, pursuant to a supplemental
indenture in a form reasonably satisfactory to the trustee, under the
notes and the indenture;
- immediately after such transaction, no default or event of default exists;
and
- we or such person shall have delivered to the trustee an officers'
certificate and an opinion of counsel, each stating that such transaction
and the supplemental indenture comply with the indenture and that all
conditions precedent in the indenture relating to such transaction have
been satisfied.
A consolidation or merger may be a taxable event to holders of the notes, in
which case holders of the notes may recognize taxable gain or loss in respect of
the notes and, after such consolidation or merger, the notes may be subject to
the rules dealing with original issue discount (which can result in a holder
recognizing ordinary income prior to the receipt of cash attributable to such
income).
REPORTS
Whether or not required by the rules and regulations of the Commission, so
long as any notes are outstanding, we will file with the Commission and furnish
to the trustee and the holders of notes all quarterly and annual financial
information (without exhibits) required to be contained in a filing with the
Commission on Forms 10-Q and 10-K, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual consolidated financial statements only, a report thereon by our
independent auditors. We shall not be required to file any report or other
information with the Commission if the Commission does not permit such filing.
EVENTS OF DEFAULT AND REMEDIES
The indenture provides that each of the following constitutes an event of
default:
- default for 30 days in the payment when due of interest on or liquidated
damages with respect to the notes;
- default in payment when due of principal on the notes;
- our failure to commence a designated event offer within 30 days of our
knowledge of a designated event or to pay when due the repurchase price of
any notes required to be repurchased pursuant to the provisions described
under "Repurchase at the option of holders";
- our failure to perform or comply with the provisions described under
"Merger, consolidation or sale of assets";
- our failure for 60 days after the receipt of written notice to comply with
other covenants and agreements contained in the indenture or the notes;
- default under any credit agreement, mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed by us or any of our
subsidiaries (or the payment of which is guaranteed by us or any of our
subsidiaries), whether such indebtedness or guarantee now exists or is
created after the date on which the notes are first authenticated and
issued, which default (a) is caused by a failure to pay when due principal
or interest on such indebtedness within the grace period provided in such
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indebtedness (which failure continues beyond any applicable grace period)
(a payment default) or (b) results in the acceleration of such
indebtedness prior to its express maturity (without such acceleration
being rescinded or annulled) and, in each case, the principal amount of
any such indebtedness, together with the principal amount of any other
such indebtedness under which there has been a payment default or the
maturity of which has been so accelerated, aggregates $15 million or more;
- failure by us or any subsidiary of ours to pay final non-appealable
judgments (other than any judgment as to which a reputable insurance
company has accepted full liability) aggregating in excess of $15 million,
which judgments are not stayed, bonded or discharged within 60 days after
their entry; and
- certain events of bankruptcy or insolvency with respect to us or any of
our material subsidiaries.
If any event of default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the then outstanding notes may declare
all the notes to be due and payable immediately. Notwithstanding the foregoing,
in the case of an event of default arising from certain events of bankruptcy or
insolvency with respect to us, all outstanding notes will become due and payable
without further action or notice. Holders of the notes may not enforce the
indenture or the notes except as provided in the indenture. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
notes may direct the trustee in its exercise of any trust or power. The trustee
may withhold from holders of the notes notice of any continuing default or event
of default (except a default or event of default relating to the payment of
principal, premium, if any, interest or liquidated damages, if applicable,
including a designated event payment) if it determines that withholding notice
is in their interest.
By notice to the trustee, the holders of a majority in aggregate principal
amount of the notes then outstanding may, on behalf of the holders of all of the
notes, waive any existing default or event of default and its consequences under
the indenture except a continuing default or event of default in the payment of
the designated event payment or interest (including liquidated damages, if
applicable) on, or the principal of or premium on, the notes.
We are required to deliver to the trustee annually a statement regarding
compliance with the indenture, and we are required, upon becoming aware of any
default or event of default, to deliver to the trustee a statement specifying
such default or event of default.
BOOK-ENTRY; DELIVERY AND FORM; GLOBAL NOTE
Notes sold in the United States or in offshore transactions in reliance on
Regulation S will be represented by one or more global notes in definitive,
fully-registered form without interest coupons. The global note will be
deposited with the trustee as custodian for DTC and registered in the name of a
nominee of DTC in New York, New York for the accounts of participants in DTC.
Investors may hold their interests in the global note directly through DTC if
they are DTC participants, or indirectly through organizations that are DTC
participants.
Investors who purchase notes in offshore transactions in reliance on
Regulation S under the Securities Act may hold their interests in the global
note directly through Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System and Cedel Bank, societe anonyme, if
they are participants in such systems, or indirectly through organizations that
are participants in such systems. Euroclear and Cedel Bank will hold interests
in the global note on behalf of their participants through
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their respective depositaries, which in turn will hold such interests in the
global note in customers' securities accounts in the depositaries' names on the
books of DTC. Citibank, N.A., will act initially as depositary for Cedel Bank,
and The Chase Manhattan Bank will act initially as depositary for Euroclear.
Notes originally purchased by or transferred to institutional "accredited
investors" (as defined Rules 501(a)(1), (2), (3) or (7) under the Securities
Act) that are not QIBs will be issued and physically delivered in fully
registered, definitive form and may not be represented by interests in the
global note. Otherwise, except in the limited circumstances described below,
holders of notes represented by interests in the global note will not be
entitled to receive definitive notes.
Upon transfer of a definitive note to a QIB in an offshore transaction
pursuant to Rule 904 of Regulation S, the definitive note will be exchanged for
an interest in the global note, and the transferee will be required to hold its
interest through a participant in DTC, Euroclear or Cedel Bank, as applicable.
Upon transfer of beneficial ownership in a global note to an institutional
accredited investor, such beneficial interest will be exchanged for a definitive
note. All transfers described in this paragraph will be subject to certain
instructions set forth in the indenture, including requirements for the delivery
of certain certificates and other documents.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of institutions that have accounts with DTC, called participants, and
to facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers (which may include the initial purchasers of the notes), banks, trust
companies, clearing corporations and certain other organizations. Certain of
such participants, or their representatives, together with other entities, own
DTC. Indirect access to DTC's book-entry system is also available to others such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, whether directly or indirectly.
Ownership of beneficial interests in the global note will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in the global note will be shown on, and the transfer of
those ownership interests will be effected only through, records maintained by
DTC (with respect to participants' interests) and such participants (with
respect to the owners of beneficial interests in the global note other than
participants).
So long as DTC or its nominee is the registered holder and owner of the
global note, DTC or such nominee, as the case may be, will be considered the
sole legal owner of the notes represented by the global note for all purposes
under the indenture and the notes. Except as set forth above and below, owners
of beneficial interests in the global note will not be entitled to receive
definitive notes and will not be considered to be the owners or holders of any
notes under the global note. We understand that under existing industry
practice, in the event an owner of a beneficial interest in the global note
desires to take any action that DTC, as the holder of the global note, is
entitled to take, DTC would authorize the participants to take such action, and
that participants would authorize beneficial owners owning through such
participants to take such action or would otherwise act upon the instructions of
beneficial owners owning through them. No beneficial owner of an interest in the
global note will be able to transfer the interest except in accordance with
DTC's applicable procedures, in addition to those provided for under the
indenture and, if applicable, those of Euroclear and Cedel Bank.
Payments of the principal of, and interest and liquidated damages, if any,
on, the notes represented by the
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global note registered in the name of and held by DTC or its nominee will be
made to DTC or its nominee, as the case may be, as the registered owner and
holder of the global note.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest and liquidated damages, if any, in respect of the global note, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the global note as
shown on the records of DTC or its nominee. We also expect that payments by
participants to owners of beneficial interests in the global note held through
such participants will be governed by standing instructions and customary
practices as is now the case with securities held for accounts of customers
registered in the names of nominees for such customers. Such payments, however,
will be the responsibility of such participants and indirect participants, and
neither we, the trustee nor any paying agent will have any responsibility or
liability for any aspect of the records relating to, or payments made on account
of, beneficial ownership interests in the global note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between DTC and its
participants or the relationship between such participants and the owners of
beneficial interests in the global note and we and the trustee may conclusively
rely on, and shall be protected in relying on, instructions from DTC for all
purposes.
Unless and until it is exchanged in whole or in part for definitive notes in
definitive form, the global note may not be transferred except as a whole by DTC
to a nominee of DTC or by a nominee of DTC to DTC (or a successor of DTC) or
another nominee of DTC.
Transfers of beneficial ownerships in the global note between participants in
DTC will be effected in the ordinary way in accordance with DTC rules and will
be settled in same-day funds. Transfers between participants in Euroclear and
Cedel Bank will be effected in the ordinary way in accordance with their
respective rules and operating procedures. If a holder requires physical
delivery of a definitive note for any reason, including to sell notes to persons
in jurisdictions which require such delivery of such notes or to pledge such
notes, such holder must transfer its interest in the global note in accordance
with the normal procedures of DTC and the procedures set forth in the indenture.
Cross-market transfers between DTC, on the one hand, and directly or
indirectly through Euroclear or Cedel Bank participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of Euroclear or Cedel
Bank, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Cedel Bank, as the case may be, by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (Brussels
time). Euroclear or Cedel Bank, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by delivering
or receiving interests in the global note in DTC, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to DTC. Euroclear participants and Cedel Bank participants may not
deliver instructions directly to the depositaries for Euroclear or Cedel Bank.
Because of time zone differences, the securities account of a Euroclear or
Cedel Bank participant purchasing an interest in the global note from a DTC
participant will be credited during the securities settlement processing day
(which must be a business day for Euroclear or Cedel Bank, as the case may be)
immediately following the DTC settlement date, and such credit of any
transactions interests in the global note settled during such processing day
will be reported to the relevant Euroclear or Cedel Bank participant on such
day. Cash received in Euroclear or Cedel Bank as a result of sales of interests
in the global note by or through a Euroclear or Cedel Bank participant to a DTC
participant will be received with value on the DTC settlement date, but will be
available in the relevant Euroclear or Cedel Bank cash account only as of the
business day following settlement in DTC.
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We expect that DTC will take any action permitted to be taken by a holder of
notes (including the presentation of notes for exchange as described below) only
at the direction of one or more participants to whose account with DTC interests
in the global note is credited and only in respect of such portion of the
aggregate principal amount of the notes as to which such participant or
participants has or have given such direction. However, if there is an event of
default under the notes, DTC will exchange the global note for definitive notes,
which it will distribute to its participants.
Although we expect that DTC, Euroclear and Cedel Bank will agree to the
foregoing procedures in order to facilitate transfers of interests in the global
note among participants of DTC, Euroclear, and Cedel Bank, DTC, Euroclear and
Cedel Bank are under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither we nor
the trustee will have any responsibility for the performance by DTC, Euroclear
or Cedel Bank or their participants or indirect participants of their respective
obligations under the rules and procedures governing their operations including
maintaining, supervising or reviewing the records relating to, or payments on
account of, beneficial ownership interests in the global note.
If DTC is at any time unwilling to continue as a depositary for the global
note and a successor depositary is not appointed by us within 90 days, we will
issue definitive notes in exchange for the global note.
TRANSFER AND EXCHANGE
We have initially appointed the trustee as registrar in New York, New York.
We reserve the right to vary or terminate the appointment of the registrar or to
appoint additional or other registrars or to approve any change in the office
through which the registrar acts.
A holder may transfer or exchange notes in accordance with the indenture. The
registrar may require a holder, among other things, to furnish appropriate
endorsements and transfer documents and pay any taxes and fees required by law
or permitted by the indenture. We are not required to exchange or register the
transfer of any note selected for redemption. Also, we are not required to
exchange or register the transfer of any note for a period of 15 days before the
mailing of a notice of redemption of notes to be redeemed.
We will treat the registered holder of a note as the owner of the note for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the indenture or the
notes may be amended or supplemented with the consent of the holders of at least
a majority in principal amount of the then outstanding notes (including consents
obtained in connection with a tender offer or exchange offer for notes), and any
existing default or compliance with any provision of the indenture or the notes
may be waived with the consent of the holders of a majority in principal amount
of the then outstanding notes (including consents obtained in connection with a
tender offer or exchange offer for notes).
Without the consent of each holder affected, an amendment, supplement or
waiver may not (with respect to any notes held by a nonconsenting holder of
notes):
- reduce the amount of notes whose holders must consent to an amendment,
supplement or waiver;
- reduce the principal of or change the fixed maturity of any note or alter
the provisions with
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respect to the redemption of the notes;
- reduce the rate of or change the time for payment of interest on any note;
- waive a default in the payment of a designated event payment or principal
of, or interest, liquidated damages, if any, or premium, if any, on, any
notes (except a rescission of acceleration of the notes by the holders of
at least a majority in aggregate principal amount of the notes and a
waiver of the payment default that resulted from such acceleration);
- make any note payable in money other than that stated in the notes;
- make any change in the provisions of the indenture relating to waivers of
past defaults or the rights of holders of notes to receive payments of
principal of, or interest, liquidated damages, if any, or premium, if any,
on, the notes;
- waive a redemption or repurchase payment with respect to any note;
- impair the right to convert the notes into shares of Class A common stock;
- modify the conversion or subordination provisions of the indenture in a
manner adverse to the holders of the notes;
- make any change in the foregoing amendment and waiver provisions;
- at any time after a change of control has occurred, modify the provisions
with respect to the repurchase right of the holders in a manner adverse to
the holders or
- impair the right to institute suit for the enforcement of any payment on
or with respect to any note.
Notwithstanding the foregoing, without the consent of any holder of notes, we
and the trustee may amend or supplement the indenture or the notes:
- to cure any ambiguity, defect or inconsistency, to provide for
uncertificated notes in addition to or in place of definitive notes;
- to provide for the succession of another person to us and the assumption
by such successor to our covenants and obligations under the indenture;
- to evidence and provide for the acceptance of the appointment under the
indenture of a successor trustee;
- to make any change that would provide any additional rights or benefits to
the holders of the notes or that does not adversely affect the legal
rights under the indenture of any such holder;
- to make provisions with respect to the conversion rights of holders of
notes in the event of a consolidation, merger, continuation or sale of
assets as required by the indenture; or
- to comply with requirements of the Commission in order to qualify, or
maintain the qualifications of, the indenture under the Trust Indenture
Act.
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NOTICES
We shall give or cause to be given notices to holders of the notes by mail to
the addresses of such holders as they appear in the register for the notes. The
notices will be deemed to have been given on the date of such mailing or on the
date of the first such publication, as the case may be.
GOVERNING LAW
The indenture, the notes and the registration agreement are governed by and
construed in accordance with the laws of the State of New York, United States of
America.
CONCERNING THE TRUSTEE
The indenture contains certain limitations on the rights of the trustee, if
it becomes a creditor of ours, to obtain payment of claims in certain cases, or
to realize on certain property received in respect of any such claim as security
or otherwise. Subject to the Trust Indenture Act, the trustee will be permitted
to engage in other transactions; however, if the trustee acquires any
conflicting interest, as described in the Trust Indenture Act, it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The holders of a majority in principal amount of the outstanding notes have
the right to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the trustee, subject to certain exceptions.
The indenture provides that, in case an event of default occurs (which has not
been cured), the trustee will be required, in the exercise of its power, to use
the degree of care of a prudent person in the conduct of such person's own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holder of notes, unless such holder shall have offered to the trustee security
and indemnity reasonably satisfactory to it against any loss, liability or
expense.
REPLACEMENT OF NOTES
Notes that become mutilated, destroyed, stolen or lost will be replaced by us
at the expense of the holder upon delivery to the trustee of the mutilated notes
or evidence of the loss, theft or destruction thereof satisfactory to us and the
trustee. In the case of a lost, stolen or destroyed note, indemnity satisfactory
to the trustee and us may be required at the expense of the holder of such note
before a replacement note will be issued.
PAYMENT OF STAMP AND OTHER TAXES
We are required to pay all stamp and similar duties, if any, which may be
imposed by the United States or any political subdivision thereof or taxing
authority thereof or therein with respect to the issuance of the notes. We will
not be required to make any payment with respect to any other tax, assessment or
governmental charge imposed by any government or any political subdivision
thereof or taxing authority thereof or therein.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference is
made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
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"business day" means any day that is not a legal holiday.
"capital stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of equity interests in any entity,
including, without limitation, corporate stock and partnership interests.
"default" means any event that is or, with the passage of time or the giving
of notice or both, would be an event of default (as defined in the indenture).
"designated senior debt" means
- any senior debt which, as of the date of the indenture, has an aggregate
principal amount outstanding of at least $15 million and
- any senior debt which, at the date of determination, has an aggregate
principal amount outstanding of, or commitments to lend up to, at least
$15 million and is specifically designated by us in the instrument
evidencing or governing such senior debt as "designated senior debt" for
purposes of the indenture.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect from time to time.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
indebtedness.
"indebtedness" means, with respect to any person, all obligations, whether or
not contingent, of such person
- (a) for borrowed money (including, but not limited to, any indebtedness
secured by a security interest, mortgage or other lien on the assets of
such person which is (1) given to secure all or part of the purchase price
of property subject thereto, whether given to the vendor of such property
or to another, or (2) existing on property at the time of acquisition
thereof), (b) evidenced by a note, debenture, bond or other written
instrument, (c) under a lease required to be capitalized on the balance
sheet of the lessee under GAAP or under any lease or related document
(including a purchase agreement) which provides that such person is
contractually obligated to purchase or to cause a third party to purchase
such leased property, (d) in respect of letters of credit, bank guarantees
or bankers' acceptances (including reimbursement obligations with respect
to any of the foregoing), (e) with respect to indebtedness secured by a
mortgage, pledge, lien, encumbrance, charge or adverse claim affecting
title or resulting in an encumbrance to which the property or assets of
such person are subject, whether or not the obligation secured thereby
shall have been assumed or guaranteed by or shall otherwise be such
person's legal liability, (f) in respect of the balance of the deferred
and unpaid purchase price of any property or assets and (g) under interest
rate or currency swap agreements, cap, floor and collar agreements, spot
and forward contracts and similar agreements and arrangements;
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- with respect to any obligation of others of the type described in the
first bullet above or under the third bullet below assumed by or
guaranteed in any manner by such person or in effect guaranteed by such
person through an agreement to purchase (including, without limitation,
"take or pay" and similar arrangements), contingent or otherwise (and the
obligations of such person under any such assumptions, guarantees or other
such arrangements); and
- any and all deferrals, renewals, extensions, refinancings and refundings
of, or amendments, modifications or supplements to, any of the foregoing.
"junior securities" means securities of Mail.com as reorganized or readjusted
or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided for in the indenture with respect to the notes, to the payment in full
without diminution or modification by such plan of all senior debt.
"legal holiday" means a Saturday, a Sunday or a day on which banking
institutions in the State of New York are not required to be open. If a payment
date is a legal holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a legal holiday, and no interest shall
accrue for the intervening period. If any other operative date for purposes of
the indenture shall occur on a legal holiday then for all purposes the next
succeeding day that is not a legal holiday shall be such operative date.
"material subsidiary" means any subsidiary of ours which at the date of
determination a "significant subsidiary" as defined in Rule 1-02(w) of
Regulation S-X under the Securities Act and the Exchange Act (as such Regulation
is in effect on the date hereof).
"obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages, and other liabilities payable under
the documentation governing any indebtedness.
"person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, limited
liability company or government or any agency or political subdivision thereof.
"representative" means the trustee, agent or representative (if any) for an
issue of senior debt.
"senior debt" means the principal of, premium, if any, interest on and other
amounts due on indebtedness of ours, whether outstanding on the date of the
indenture or thereafter created, incurred, assumed or guaranteed by us
(including all deferrals, renewals, extensions, refinancings and refundings of,
or amendments, modifications or supplements to, any of the foregoing), unless,
in the instrument creating or evidencing such indebtedness or pursuant to which
such indebtedness is outstanding, it is expressly provided that such
indebtedness is not senior in right of payment to the notes. Senior debt
includes, with respect to the obligations described above, interest accruing,
pursuant to the terms of such senior debt, on or after the filing of any
petition in bankruptcy or for reorganization relating to Mail.com, whether or
not post-filing interest is allowed in such proceeding, at the rate specified in
the instrument governing the relevant obligation. Notwithstanding anything to
the contrary in the foregoing, senior debt shall not include:
- indebtedness of or amounts owed by us for compensation to employees, or
for goods, services or materials purchased in the ordinary course of
business;
- indebtedness of ours to a subsidiary of ours; or
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- any liability for federal, state, local or other taxes owed or owing by
us.
"subsidiary" of a person means any corporation, association or other business
entity of which more than 50% of the total voting power of shares of capital
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that person or one or more of the
subsidiaries of that person or a combination thereof.
DESCRIPTION OF CAPITAL STOCK
The following descriptions of our capital stock and the relevant provisions
of our amended and restated certificate of incorporation, as amended, and bylaws
are summaries and are qualified by reference to our amended and restated
certificate of incorporation, as amended, and our bylaws.
We are authorized to issue up to 150,000,000 shares of Class A common stock,
par value $.01 per share, 10,000,000 shares of Class B common stock, par value
$.01 per share, and 60,000,000 shares of preferred stock, par value $.01 per
share.
COMMON STOCK
As of September 30, 2000, we had 51,616,196 shares of Class A common stock
outstanding held of record by approximately 374 stockholders and 10,000,000
shares of Class B common stock outstanding held entirely by Gerald Gorman, our
Chairman.
All of the issued and outstanding shares of our Class A common stock are
fully paid and nonassessable. Except as described below, the issued and
outstanding shares of our Class A common stock and Class B common stock
generally have identical rights. In addition, under our amended and restated
certificate of incorporation, as amended, holders of Class A common stock have
no preemptive or other subscription rights to purchase shares of our stock, nor
are they entitled to the benefits of any redemption or sinking fund provisions.
VOTING RIGHTS
The holders of our Class A common stock are entitled to one vote per share on
all matters to be voted on by stockholders generally, including the election of
directors. The holder of our Class B common stock is entitled to ten votes per
share on all matters to be voted on by stockholders generally, including the
election of directors. In addition to any class vote that may be required under
law or our amended and restated certificate of incorporation, as amended, all
classes of capital stock entitled to vote generally on any matter vote together
as a single class. There are no cumulative voting rights. Accordingly, holders
of a majority of the total votes entitled to vote in an election of directors
will be able to elect all of the directors standing for election.
Please see "Risk Factors - Gerald Gorman controls Mail.com and will be able
to prevent a change of control."
LIQUIDATION PREFERENCES
If we are liquidated, dissolved or wound up, the holders of our Class A
common stock and Class B common stock will be entitled to receive distributions
only after satisfaction of all liabilities and the prior rights of any
outstanding class of preferred stock. If we are liquidated, dissolved or wound
up, our assets
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legally available after satisfaction of all of our liabilities shall be
distributed to the holders of our Class A common stock and Class B common stock
pro rata based on the respective numbers of shares of Class A common stock held
by these holders or issuable to them upon conversion of Class B common stock.
CONVERSION RIGHTS/MANDATORY CONVERSION
Holders of our Class A common stock have no conversion rights. Holders of our
Class B common stock may convert each share into one share of Class A common
stock. In addition, the holder of Class B common stock has contractually agreed
with the former holders of Class C preferred stock and Class E preferred stock
and some former holders of Class A preferred stock that he will not transfer his
shares of Class B common stock in the form of Class B common stock unless such
holders have had the opportunity within specified time periods to dispose of
their shares of Class A common stock issuable upon conversion of their preferred
stock at specified prices. As a result, until this condition has been satisfied
or the former holders of a majority in interest of each class of preferred stock
otherwise consent in writing, the holder of Class B common stock must convert
shares of Class B common stock into shares of Class A common stock prior to
transfer.
DIVIDENDS
The holders of both classes of our common stock are entitled to receive equal
non-cumulative dividends when and as declared from time to time by the board of
directors, subject to any preferential dividend rights of any outstanding
preferred stock.
PREFERRED STOCK
Under our amended and restated certificate of incorporation, as amended, the
board of directors is authorized, without further stockholder approval, to issue
up to 60,000,000 shares of preferred stock in one or more classes or series. The
board also has the authority to fix or alter the designations, preferences,
rights and any qualifications, limitations or restrictions of the shares of each
such class or series, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences. Preferred stock could
thus be issued quickly with terms that could delay or prevent a change of
control of Mail.com or make removal of management more difficult. Additionally,
the issuance of preferred stock may decrease the market price of our Class A
common stock and may adversely affect the voting and other rights of the holders
of our Class A common stock. Currently, we do not have any preferred stock
outstanding and have no plans to create or issue any shares of any new class or
series of preferred stock.
WARRANTS/OPTIONS
Under an engagement letter dated March 2, 1998 between PaineWebber
Incorporated and Mail.com and entered into in connection with the private
placement of our Class C preferred stock, we issued to PaineWebber Incorporated
warrants to purchase 143,484 shares of our Class A common stock and we issued to
a former employee of PaineWebber Incorporated warrants to purchase 35,872 shares
of our Class A common stock. These warrants are exercisable at an exercise price
of $3.50 per share and expire July 31, 2003. The warrants are entitled to
anti-dilution adjustment in the event of stock splits, stock dividends, stock
distributions or combinations.
Under our letter agreement with AT&T dated May 26, 1999, we issued warrants
to purchase 1,000,000 shares of our Class A common stock at an exercise price of
$11.00 per share. AT&T may exercise the warrants at any time on or before
December 31, 2000. AT&T may not sell or otherwise transfer to a third party the
warrants or the shares issuable upon exercise of the warrants until May 26,
2004. If AT&T does not exercise the warrants on or before December 31, 2000, the
warrants will expire
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and be cancelled.
REGISTRATION RIGHTS
PREFERRED STOCKHOLDERS
The stockholders who formerly held shares of our Class A preferred stock,
other than Lycos, and the stockholders who formerly held shares of our Class C
and Class E preferred stock are entitled to various registration rights with
respect to their shares of Class A common stock issued upon conversion of each
class of preferred stock.
Demand registration rights. The holders of a majority of our shares issued
upon conversion of our Class A preferred stock and the holders of a
majority of the shares issued upon conversion of our Class C preferred
stock, voting as separate classes, have the right to demand that we
register their shares of Class A common stock under the Securities Act.
The stockholders who formerly held shares of our Class A preferred stock
may exercise their demand registration rights up to three times, and the
stockholders who formerly held shares of our Class C preferred stock may
exercise their demand registration right once. In addition, the holders of
20% or more of the shares issued upon conversion of our Class E preferred
stock may demand that we register their shares of Class A common stock
under the Securities Act. If 30% or more of the shares registered in any
Class C or Class E demand registration are shares requested to be
registered by Lycos, then the former holders of each of our Class C and
Class E preferred stock have the right to a second demand registration.
Piggyback registration rights. The stockholders who formerly held shares of
our Class A, Class C and Class E preferred stock can request to have their
shares registered under the Securities Act any time we file a registration
statement to register any of our securities for our own account or for the
account of any of our stockholders in connection with an underwritten
public offering. The number of times such rights may be exercised is
unlimited, but the number of shares that can be registered at any one time
is subject to limitations that any underwriters may impose.
S-3demand registration rights. The holders of at least a majority of the
shares issued upon conversion of each of our Class A preferred stock and
Class C preferred stock have the right to have their shares of Class A
common stock registered under the Securities Act on Form S-3. The holders
of at least 25% of the shares issued upon conversion of our Class E
preferred stock also have the right to demand a Form S-3. The number of
times these Form S-3 registration rights may be exercised is unlimited,
but we are required to file only one Form S-3 in any twelve-month period.
In the case of the stockholders who formerly held shares of our Class A
preferred stock, their registration rights will terminate on June 23, 2004, five
years from the closing of our initial public offering. In the case of the
stockholders who formerly held shares of our Class C and Class E preferred
stock, their registration rights will terminate on December 23, 2001, 30 months
from the closing of our initial public offering.
LYCOS
Lycos has the right to have its shares of our Class A common stock registered
any time we file a registration statement for any of our securities for our own
account or the account of any of our directors, officers or 5% stockholders. The
number of times Lycos may exercise its right is unlimited, but the number of
shares that can be registered at any one time is subject to limitations that any
underwriters may
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impose.
CNET AND NBC MULTIMEDIA
We granted registration rights to CNET and NBC Multimedia with respect to the
shares of our Class A common stock issued upon exercise of their warrants. The
holder or holders of a majority of the shares of Class A common stock issued
upon exercise of their warrants may require us to effect one registration under
the Securities Act. If 30% or more of the shares to be registered in that demand
registration are shares requested to be registered by Lycos, then the holders
have the right to a second demand registration.
The holder or holders of a majority of shares of our Class A common stock
issued upon exercise of the CNET and NBC Multimedia warrants have the right to
have their shares of Class A common stock registered under the Securities Act
any time we file a registration statement to register any of our securities for
our own account or for the account of any of our stockholders in connection with
an underwritten public offering.
The holder or holders of a majority of shares of our Class A common stock
issued upon exercise of the CNET and NBC Multimedia warrants have the right to
have their shares of Class A common stock registered on Form S-3. The number of
times this registration right may be exercised is unlimited, but we are required
to file only one Form S-3 in any twelve-month period.
These registration rights will terminate 30 months from the closing of our
initial public offering, which occurred on June 23, 1999.
3CUBE, INC.
In connection with our investments in 3Cube, Inc. we granted 3Cube
registration rights. We agreed to register on Form S-3 the shares of our Class A
common stock that we issued in June 2000. 3Cube has the right to have its other
shares of our Class A common stock registered under the Securities Act any time
we file a registration statement to register any of our securities for our own
account or for the account of any of our stockholders in connection with an
underwritten public offering. The number of times these piggyback rights may be
exercised is unlimited, but the number of shares that can be registered at any
one time is subject to limitations that any underwriters may impose.
BANTU, INC.
In connection with our investment in Bantu, Inc., we agreed to register on
Form S-3 the shares of our Class A common stock issued or issuable to Bantu,
Inc..
BULLETN.NET, INC.
In connection with our investment in BulletN.net, Inc., we agreed to register
on Form S-3 the shares of our Class A common stock issued to BulletN.net, Inc.
EDD HELMS GROUP, INC.
In connection with our acquisition of a telephone number, we granted
registration rights to Edd Helms, Group, Inc. We are required to register on
Form S-3 all of the shares of our Class A common stock issued to Edd Helms
Group.
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MADISON AVENUE TECHNOLOGY GROUP, INC.
In connection with our investment in Madison Avenue Technology Group, Inc. we
agreed to register on Form S-3 the shares of our Class A common stock issued to
Madison Avenue Technology Group, Inc.
SAPIENT CORPORATION
In connection with our Web site development contract with Sapient
Corporation, we agreed to register on Form S-3 the shares of our Class A common
stock issuable to Sapient upon conversion of a Convertible Promissory Note
issuable to Sapient.
STD, INC.
In connection with our investment in STD, Inc. (doing business as Software
Tool and Die), we granted registration rights to STD. Holders of a majority of
the shares of our Class A common stock issued to STD have the right to require
us to have their shares registered on Form S-3. Prior to effectiveness of such
registration statement, STD has the right to have its shares of our Class A
common stock registered under the Securities Act any time we file a registration
statement to register any of our shares of capital stock for our account or the
account of any of our stockholders in connection with an underwritten public
offering. The number of times these piggyback rights may be exercised is
unlimited, but the number of shares that can be registered at any one time is
subject to limitations that the underwriters may impose.
ELONG.COM, INC.
In connection with our acquisition of eLong.com, Inc., we granted
registration rights to former stockholders of eLong. The holders of a majority
of the shares of our Class A common stock issued in connection with this
acquisition have a one-time right to have their shares registered on Form S-3 on
or after January 1, 2001.
HUELINK CORPORATION LIMITED
In connection with our acquisition of Huelink Corporation Limited, we granted
registration rights to Aligned Investments Limited, the former principal
shareholder of Huelink. Holders of a majority of the subject shares have a
one-time right to have their shares registered on Form S-3. Prior to the
effectiveness of such registration statement, Aligned has the right to have the
subject shares registered under the Securities Act any time we file a
registration statement to register any of our shares of capital stock for our
account or the account of any of our stockholders in connection with an
underwritten public offering. The number of times these piggyback rights may be
exercised is unlimited, but the number of shares that can be registered at any
time is subject to limitations that the underwriters may impose.
NETMOVES WARRANTS
In connection with our acquisition of NetMoves, we assumed registration
rights obligations with respect to shares underlying certain outstanding
warrants of NetMoves that we assumed. Under a warrant held by The Tail Wind Fund
Ltd. representing the right to purchase 24,860 shares of our Class A common
stock, we are obligated to register on Form S-3 the shares issuable upon
exercise of the warrant. Tail Wind also has the right to have the shares
underlying the warrant, and not included in an effective registration statement,
registered under the Securities Act any time we file a registration statement to
register any of our shares for our account or for any stockholders in connection
with a public offering. The number of times these piggyback rights may be
exercised is unlimited, but the number of shares that can be registered at any
time is subject to limitations that the underwriters may impose.
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Under warrants held by Comdisco representing the right to purchase an
aggregate of 17,540 shares of our Class A common stock, we are obligated to
effect up to two registrations relating to the shares underlying such warrants.
In addition, Comdisco has the right to have the shares underlying the warrants
included any time we file a registration statement for our account or for the
account of any stockholder in connection with a public offering. The number of
times the piggyback rights may be exercised is unlimited, but the number of
shares that may be included at any time is subject to limitations that the
underwriters may impose.
OTHER REGISTRATION RIGHTS
In connection with our acquisition of a domain name, we granted registration
rights to an individual. We are required to register on Form S-3 all of the
shares of our Class A common stock issued to this individual.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND OUR AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED, AND BYLAWS
We are subject to the provisions of Section 203 of the General Corporation
Law of the State of Delaware. Generally, Section 203 prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the time of the
transaction in which the person became an interested stockholder, unless the
interested stockholder attained that status with the approval of the board of
directors or unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of a corporation's
voting stock. This statute could prohibit or delay the accomplishment of mergers
or other takeovers or changes in control with respect to Mail.com and,
accordingly, may discourage attempts to acquire Mail.com.
In addition, provisions of the amended and restated certificate, as amended,
and bylaws, which provisions are summarized in the following paragraphs, may be
deemed to have an anti-takeover effect. These provisions may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider to
be in its best interests, including those attempts that might result in a
premium over the market price for the shares held by stockholders.
BOARD OF DIRECTORS VACANCIES. Our bylaws authorize the board of directors to
fill vacant directorships or increase the size of the board of directors. This
may prevent a stockholder from removing incumbent directors and simultaneously
gaining control of the board of directors by filling the resulting vacancies
created by such removal with its own nominees.
SPECIAL MEETINGS OF STOCKHOLDERS. Our bylaws provide that special meetings of
stockholders of Mail.com may be called at any time by the Chairman of the board,
the Vice Chairman of the board, if any, the President, if any, or the board of
directors. Written notice of the meeting must be given not less than 10 nor more
than 60 days before the date of the meeting.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of our
common stock and preferred stock are available for future issuance without
stockholder approval, subject to the limitations imposed by The Nasdaq National
Market. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of authorized
but unissued and unreserved common stock and
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preferred stock could render more difficult or discourage an attempt to obtain
control of Mail.com by means of a proxy contest, tender offer, merger or
otherwise.
The General Corporation Law of the State of Delaware provides generally that,
in addition to the approval of the board of directors, the affirmative vote of a
majority of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation unless a corporation's certificate of
incorporation requires a greater percentage.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our Class A common stock is American
Stock Transfer and Trust Company.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain U.S. Federal income tax
considerations to holders of the notes. This discussion is based upon the
Internal Revenue Code of 1986, as amended (the Code), U.S. Treasury Regulations,
Internal Revenue Service (IRS) rulings and judicial decisions currently in
effect, all of which are subject to change (possibly with retroactive effect) or
different interpretations. We have not obtained, nor do we intend to obtain, a
ruling from the IRS with respect to the U.S. Federal income tax consequences of
acquiring or holding notes or shares of Class A common stock issuable upon
conversion of the notes, and we cannot assure you that the IRS will not
challenge one or more of the tax consequences described herein.
This discussion does not deal with all aspects of U.S. Federal income
taxation that may be relevant to holders of the notes or Class A common stock
and does not deal with tax consequences arising under the laws of any foreign,
state or local jurisdiction or with any estate or gift tax considerations. This
discussion is for general information purposes only, and does not purport to
address all of the tax consequences that may be relevant to particular holders
in light of their personal circumstances (for example, persons subject to the
alternative minimum tax or persons who hold the notes or Class A common stock as
part of a hedging or conversion transaction or as part of a straddle or persons
deemed to sell notes or Class A common stock under the constructive sale
provisions of the Code), or to certain types of holders (such as certain
financial institutions, insurance companies, tax-exempt entities or dealers in
securities) that may be subject to special rules. This discussion only applies
to holders that purchase notes in the initial offering and that hold the notes
and any Class A common stock received upon conversion thereof as capital assets
under Section 1221 of the Code, and this discussion assumes that the notes are
properly characterized as debt instruments for U.S. Federal income tax purposes.
For the purpose of this discussion, a "U.S. Holder" refers to any holder that
is:
- a citizen or resident of the United States,
- a corporation or other entity treated as a corporation for U.S. Federal
income tax purposes created or organized in the United States or any state
thereof or the District of Columbia,
- an estate the income of which is included in income for U.S. Federal
income tax purposes regardless of its source or
- a trust subject to primary supervision by a court in the United States and
control by one or more U.S. persons.
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In the case of a partnership that holds notes or Class A common stock, any
partner described in the four bullets above generally is also a U.S. Holder. A
"Non-U.S. Holder" is a holder, generally including any partner in a partnership
that holds notes or Class A common stock, that is not a U.S. Holder.
PROSPECTIVE HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING CONVERSION OF THE NOTES, AND THE EFFECT THAT
THEIR PARTICULAR CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS
INTEREST ON NOTES
Stated interest on the notes generally will be taxable to a U.S. Holder as
ordinary income at the time that such interest is accrued or received in
accordance with the holder's regular method of accounting for tax purposes.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The registration of the notes pursuant to our obligations under "Description
of the notes - Registration of the notes" will not constitute a taxable event
for U.S. Federal income tax purposes, will not affect a U.S. Holder's tax basis
in the notes, and a U.S. Holder's holding period for the registered notes will
include the holding period such U.S. Holder had in the notes before such notes
were registered.
We intend to take the position that the possibility that holders of notes
will be paid liquidated damages due to the occurrence of a registration default
should not cause the notes to be issued with original issue discount. U.S.
Holders should consult their own tax advisors regarding the possible payment of
liquidated damages.
ADJUSTMENTS TO CONVERSION PRICE
The conversion price of the notes is subject to adjustment under certain
circumstances, as described under "Description of the notes - Conversion."
Section 305 of the Code and the Treasury Regulations issued thereunder may treat
the holders of the notes as having received a constructive distribution,
resulting in dividend treatment (as described below) to the extent of our
current or accumulated earnings and profits, if, and to the extent that, certain
adjustments in the conversion price (or certain other corporate transactions)
increase the proportionate interest of a holder of notes in the fully diluted
Class A common stock (particularly an adjustment to reflect a taxable dividend
to holders of Class A common stock), whether or not such holder ever exercises
its conversion privilege. Moreover, if there is not a full adjustment to the
conversion ratio of the notes to reflect a stock dividend or other event
increasing the proportionate interest of the holders of outstanding Class A
common stock in our assets or earnings and profits, then such increase in the
proportionate interest of the holders of the Class A common stock generally will
be treated as a distribution to such holders, taxable as a dividend (as
described below) to the extent of our current or accumulated earnings and
profits.
SALE, EXCHANGE, REDEMPTION OR RETIREMENT OF NOTES
In general, a U.S. Holder of notes will recognize gain or loss upon the sale,
exchange, redemption, retirement or other disposition of the notes (other than a
conversion into Class A common stock)
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measured by the difference between:
- the amount realized (except to the extent attributable to accrued but
unpaid interest) and
- the U.S. Holder's adjusted tax basis in the notes. A holder's tax basis in
the notes generally will equal the cost of the notes to the holder.
Any such gain or loss recognized on the sale, exchange, redemption, retirement
or other disposition of a note should be capital gain or loss, and generally
will be long-term capital gain or loss if the note has been held for more than
one year at the time of the disposition.
CONVERSIONS OF NOTES INTO CLASS A COMMON STOCK
In general, a holder of notes will not recognize gain or loss on the
conversion of the notes into shares of Class A common stock, except upon the
receipt of cash in lieu of a fractional share. The holder's tax basis in the
shares of Class A common stock received upon conversion of the notes will equal
the holder's aggregate basis in the notes exchanged therefor (less any portion
thereof allocable to a fractional share). The holding period of the shares of
Class A common stock received by the holder upon conversion of notes generally
will include the period during which the holder held the notes prior to
conversion. Cash received in lieu of a fractional share of Class A common stock
should be treated as a payment in exchange for such fractional share (rather
than a dividend). Gain or loss recognized on the receipt of cash paid in lieu of
a fractional share generally will equal the difference between the amount of
cash received and the tax basis allocable to the fractional share. Any such gain
or loss should be capital gain or loss, and generally will be long-term capital
gain or loss if the notes were held for more than one year at the time of
conversion.
THE CLASS A COMMON STOCK
Distributions, if any, paid or deemed paid on the Class A common stock after
a conversion (or deemed distributions on the notes as described above under " -
Adjustments to Conversion Price"), to the extent made from our current or
accumulated earnings and profits, as determined for U.S. Federal income tax
purposes, will be included in a U.S. Holder's income as ordinary income (subject
to a possible dividends received deduction in the case of corporate U.S.
Holders) as they are paid. To the extent any distributions or deemed
distributions exceed our current or accumulated earnings and profits, such
distributions will be treated as a nontaxable return of capital, reducing the
holder's basis in the Class A common stock (or notes). Any such distribution in
excess of the U.S. Holder's basis in the Class A common stock (or notes) will be
treated as capital gain.
Gain or loss realized on the sale or exchange of Class A common stock will
equal the difference between
- the amount realized on such sale or exchange and
- the holders' adjusted tax basis in such Class A common stock.
Such gain or loss will generally be long-term capital gain or loss if the holder
has held or is deemed to have held (e.g., by reason of ownership of the notes)
the Class A common stock for more than one year.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
INTEREST ON NOTES
Generally, stated interest (including any liquidated damages) paid on the
notes to a Non-U.S. Holder will not be subject to U.S. Federal income tax if:
- such interest is not effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Holder,
- the Non-U.S. Holder does not actually or constructively own 10% or more of
the total voting power of all classes of our stock entitled to vote,
- the Non-U.S. Holder is not a "controlled foreign corporation" with respect
to which we are a "related person" within the meaning of the Code,
- the beneficial owner of the notes is not a bank whose receipt of interest
on a note is described in Section 881(c)(3)(A) of the Code, and
- the beneficial owner of the note, under penalty of perjury, certifies to
the payor that the owner is not a U.S. person and such certificate
provides the owner's name and address.
If certain requirements are satisfied, the certification described above may be
provided by a securities clearing organization, a bank, or other financial
institution that holds customers' securities in the ordinary course of its trade
or business. For purposes of the 10% ownership test in the second bullet, above,
a Non-U.S. Holder of notes is deemed to own constructively the Class A common
stock into which such notes are convertible.
A Non-U.S. Holder that is not exempt from tax under these rules generally
will be subject to U.S. Federal income tax withholding at a rate of 30% unless:
- the interest is effectively connected with the conduct of a U.S. trade or
business, in which case the interest will be subject to U.S. Federal
income tax on a net income basis as applicable to U.S. Holders generally
(unless an applicable tax treaty provides otherwise), or
- an applicable income tax treaty provides for a lower rate of, or exemption
from, withholding tax. In the case of a Non-U.S. Holder that is a
corporation and that receives interest that is effectively connected with
a U.S. trade or business, such income may also be subject to the branch
profits tax (which is generally imposed on a foreign corporation on the
actual or deemed repatriation from the United States of earnings and
profits attributable to a U.S. trade or business) at a 30% rate.
The branch profits tax may not apply (or may apply at a reduced rate) if a
recipient is a qualified resident of a country with which the United States has
an income tax treaty.
To claim the benefit of a tax treaty or to claim exemption from withholding
because interest received is effectively connected with a U.S. trade or
business, the Non-U.S. Holder must provide the appropriate, properly executed
IRS form prior to the payment of interest. These forms must be periodically
updated. Also, under recently finalized U.S. Treasury regulations, a Non-U.S.
Holder who is claiming the benefits of a treaty may be required to obtain a U.S.
taxpayer identification number and to provide certain documentary evidence
issued by foreign governmental authorities to prove residence in the foreign
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country. Certain special procedures are provided in the new regulations for
payments through qualified intermediaries.
SALE, EXCHANGE OR REDEMPTION OF NOTES OR SHARES OF CLASS A COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. Federal income tax on
gain recognized upon the sale or other disposition of notes or shares of Class A
common stock received in exchange therefor unless:
- the gain is effectively connected with the conduct of a trade or business
within the United States by the Non-U.S. Holder (unless an applicable tax
treaty provides otherwise) or
- in the case of a Non-U.S. Holder who is a nonresident alien individual,
such Non-U.S. Holder is present in the United States for 183 or more days
in the taxable year and certain other conditions are met.
CONVERSION OF NOTES
A Non-U.S. Holder generally will not be subject to U.S. Federal income tax on
the conversion of a note into shares of Class A common stock. However, to the
extent a Non-U.S. Holder receives cash in lieu of a fractional share upon
conversion, any gain upon the receipt of cash would be subject to the rules
described above regarding the sale or exchange of Class A common stock.
DIVIDENDS ON SHARES OF CLASS A COMMON STOCK
Generally, any distribution paid, or deemed paid, on shares of Class A common
stock (including a deemed distribution on the notes described above under
"Certain Federal Income Tax Consequences Applicable to U.S. Holders -
Adjustments to Conversion Price") to a Non-U.S. Holder will be subject to U.S.
Federal income tax withholding at a rate of 30% unless
- the dividend is effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder, in which case
the dividend will be subject to the U.S. Federal income tax on net income
basis that applies to U.S. Holders generally (as described above) and,
with respect to corporate Non-U.S. Holders under certain circumstances,
the branch profits tax, or
- an applicable income tax treaty provides for a lower rate of withholding
tax. A Non-U.S. Holder may be required to satisfy certain certification
requirements in order to claim a reduction of or exemption from
withholding under the foregoing rules.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. HOLDERS
Information reporting and backup withholding may apply to payments of
principal, interest, premium or dividends on or the proceeds from the sale or
other disposition of the notes or Class A common stock with respect to certain
noncorporate U.S. Holders. Such a U.S. Holder generally will be subject to
backup withholding at a rate of 31% unless the U.S. Holder provides his or her
correct taxpayer identification number and certain other information, certified
under penalties of perjury, to the payor, or otherwise establishes an exemption
from backup withholding. Any amount withheld under backup withholding is
allowable as a credit against the U.S. Holder's Federal income tax liability,
provided the proper
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information is provided to the IRS.
NON-U.S. HOLDERS
Generally, information reporting will apply to payments of interest and/or
premium (if any) on the notes or dividends on the Class A common stock, and
backup withholding at a rate of 31% may apply, unless the payee certifies that
it is not a U.S. person or otherwise establishes an exemption. In addition,
information reporting and backup withholding will apply to payments of principal
on the notes unless the payee certifies that it is not a U.S. person or
otherwise establishes an exemption.
The payment of the proceeds of the disposition of notes or Class A common
stock to or through the U.S. office of a U.S. or foreign broker will be subject
to information reporting and possible backup withholding unless the Non-U.S.
Holder certifies as to its Non-U.S. Holder status or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. person or that the conditions of any other exemption are not,
in fact, satisfied. The proceeds of the disposition by a Non-U.S. Holder of
notes or Class A common stock to or through a foreign office of a broker
generally will not be subject to information reporting or backup withholding.
However, if the broker is a U.S. person, a controlled foreign corporation for
U.S. tax purposes, or a foreign person 50% or more of whose gross income from
all sources for certain periods is from activities that are effectively
connected with a U.S. trade or business, information reporting generally will
apply unless the broker has documentary evidence as to the Non-U.S. Holder's
foreign status and has no actual knowledge to the contrary.
NEW WITHHOLDING REGULATIONS
The recently finalized withholding regulations referred to above (the New
Regulations) make certain modifications to the withholding and information
reporting rules described above. The New Regulations attempt to unify
certification requirements and modify reliance standards. The New Regulations
will generally be effective for payments made after December 31, 2000, subject
to certain transition rules. Prospective holders are urged to consult their own
tax advisors regarding the New Regulations.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY,
EACH PROSPECTIVE HOLDER SHOULD CONSULT ITS OWN TAX ADVISER AS TO THE PARTICULAR
TAX CONSEQUENCES TO IT OF PURCHASING, HOLDING AND DISPOSING OF OR CONVERTING THE
NOTES AND THE COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
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SELLING SECURITYHOLDERS
<TABLE>
<CAPTION>
PRINCIPAL PERCENTAGE
AMOUNT OF SHARES OF OF CLASS A
NOTES CLASS A COMMON
BENEFICIALLY PERCENTAGE COMMON STOCK STOCK
NAME OF SELLING OWNED THAT OF NOTES THAT MAY BE OUTSTANDING
SECURITYHOLDER MAY BE SOLD OUTSTANDING SOLD (1) (2)
<S> <C> <C> <C> <C>
AIG SoundShore Holdings Ltd..... 3,250,000 3.25% 171,503 *
AIG SoundShore Opportunity
Holding Fund Ltd. .............. 2,125,000 2.13% 112,137 *
BankAmerica Pension Plan ....... 3,200,000 3.20% 168,865 *
BNP Arbitrage SNC .............. 3,750,000 3.75% 197,889 *
BNP Cooper Neff Convertible
Strategies Fund, L.P. .......... 250,000 * 13,192 *
Circlet (IMA) Limited .......... 2,985,000 2.99% 157,519 *
Consulting Group Capital
Market Funds ................... 275,000 * 14,511 *
Deutsche Bank Securities ....... 18,750,000 18.75% 989,445 1.88%
Evergreen Income & Growth
Fund ........................... 4,000,000 4.00% 211,081 *
Evergreen Masters Fund ......... 420,000 * 22,163 *
Evergreen Variable Annuity
Masters Fund ................... 40,000 * 2,110 *
Fidelity Financial Trust:
Fidelity Convertible
Securities Fund ................ 1,740,000 * 91,820 *
General Motors Welfare
Benefit Trust (ST-VEBA) ........ 630,000 * 33,245 *
Jackson Investment Fund Ltd..... 10,000 * 527 *
JMG Capital Partners, LP. ...... 6,008,000 6.01% 317,044 *
JMG Triton Offshore Fund, Ltd... 11,257,000 11.26% 594,036 1.14%
Lincoln National
Convertible Securities Fund .... 3,500,000 3.50% 184,696 *
Narragansett I, LP. ............ 292,500 * 15,435 *
Narragansett Offshore, Ltd...... 207,500 * 10,949 *
Nelson Partners Ltd. ........... 90,000 * 4,749 *
Newberg Family Trust UTA
UTD 12-18-90 ................... 500,000 * 26,385 *
Peoples Benefit Life
Insurance Company .............. 1,000,000 1.00% 52,770 *
Peoples Benefit Life
Insurance Company TEAMSTERS .... 11,900,000 11.90% 627,968 1.20%
Retail Clerks Pension Trust #2.. 3,000,000 3.00% 158,311 *
</TABLE>
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<TABLE>
<CAPTION>
PRINCIPAL PERCENTAGE
AMOUNT OF SHARES OF OF CLASS A
NOTES CLASS A COMMON
BENEFICIALLY PERCENTAGE COMMON STOCK STOCK
NAME OF SELLING OWNED THAT OF NOTES THAT MAY BE OUTSTANDING
SECURITYHOLDER MAY BE SOLD OUTSTANDING SOLD (1) (2)
<S> <C> <C> <C> <C>
Salomon Smith Barney Inc. (3).. 9,770,000 9.77% 515,567 *
St. Albans Partners Ltd. ...... 3,000,000 3.00% 158,311 *
Woodmont Investments Limited... 500,000 * 26,385 *
Yield Strategies Fund I, LP.... 2,000,000 2.00% 105,540 *
Any other holder of Notes
or future transferee,
pledgee, donee or
successor of any
holder(4)(5) .................. 5,550,000 5.55% 292,875 *
</TABLE>
--------------------
* Less than 1%.
(1) Assumes conversion of all of the holder's notes at a conversion price of
$18.95 per share of Class A common stock. However, this conversion price
will be subject to adjustment as described under "Description of the notes -
Conversion." As a result, the amount of Class A common stock issuable upon
conversion of the notes may increase or decrease in the future. Fractional
shares will not be issued upon conversion of the notes. Cash will be paid
instead of any fractional shares.
(2) As of September 30, 2000 there were 51,616,196 shares of our Class A common
stock outstanding. In accordance with the rules of the SEC, the percentage
of Class A common stock outstanding owned by each selling securityholder is
calculated as follows: (a) the numerator is the number of shares of Class A
common stock held by that selling securityholder upon conversion of all
notes owned by that selling securityholder and (b) the denominator includes
the number of shares of Class A common stock outstanding and the number of
shares of Class A common stock held by that selling securityholder upon
conversion of all notes owned by that selling securityholder.
(3) Salomon Smith Barney has in the past provided us with investment banking and
investment advisory services, including acting as a lead initial purchaser
in the original offering of the notes. Salomon Smith Barney received only
customary fees for providing us these services
(4) Information about other selling security holders will be set forth in
prospectus supplements, if required.
(5) Assumes that any other holders of notes, or any future transferees,
pledgees, donees or successors of or from any such other holders of notes,
do not beneficially own any Class A common stock other than the Class A
common stock issuable upon conversion of the notes at the initial conversion
rate.
We prepared this table based on the information supplied to us by the
selling securityholders named in the table.
The selling securityholders listed in the above table may have sold or
transferred, in transactions exempt from the registration requirements of the
Securities Act, some or all of their notes since the date on which the
information in the above table is presented. Information about the selling
securityholders may change from over time. Any changed information will be set
forth in prospectus supplements.
Because the selling securityholders may offer all or some of their notes or
the underlying Class A common stock from time to time, we cannot estimate the
amount of the notes or underlying Class A common stock that will be held by the
selling securityholders upon the termination of any particular offering. See
"Plan of Distribution."
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PLAN OF DISTRIBUTION
The selling securityholders intend to distribute the notes and the shares of
Class A common stock issuable upon conversion of the notes from time to time
only as follows (if at all):
- to or through underwriters, brokers or dealers
- directly to one or more other purchasers
through agents on a best-efforts basis
- otherwise through a combination of any such methods of sale.
The notes and the shares of Class A common stock issuable upon conversion of
the notes may be sold from time to time:
- in one or more transactions at a fixed price or prices, which may be
changed
- at market prices prevailing at the time of sale
- at prices related to such prevailing market prices
- at varying prices determined at the time of sale
- at negotiated prices
Such sales may be effected in transactions (which may involve crosses or
block transactions):
- on any national securities exchange or quotation service on which the
notes or our Class A common stock may be listed or quoted at the time of sale
- in the over-the-counter market
- in transactions otherwise than on such exchanges or services or in the
over-the-counter market
- through the writing of options.
In connection with sales of the notes or Class A common stock or otherwise,
the selling securityholder may enter into hedging transactions with
brokers-dealers or others, which may in turn engage in short sales of the notes
or our Class A common stock in the course of hedging the positions they assume.
The selling securityholder may also sell notes or Class A common stock short and
deliver notes or Class A common stock to close out such short positions, or loan
or pledge notes or Class A common stock to brokers-dealers or others that in
turn may sell such securities. The selling securityholder may pledge or grant a
security interest in some or all of the notes or Class A common stock issued
upon conversion of the notes owned by it and, if it defaults in the performance
of its secured obligations, the pledgees or secured parties may offer and sell
the notes or the Class A common stock from time to time pursuant to this
prospectus. The selling securityholder also may transfer and donate notes or
shares of Class A common stock issuable upon conversion of the notes in other
circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling securityholders for purposes of the
prospectus. The selling securityholder may sell short the Class A common stock
and may deliver this prospectus in connection with such short sales and use the
shares of Class A common stock
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covered by the prospectus to cover such short sales.
LEGAL MATTERS
The validity of the notes and the shares of Class A common stock issuable
upon conversion of the notes offered in this prospectus has been passed upon by
David Ambrosia, our General Counsel. As of the date hereof, Mr. Ambrosia owned
4,475 shares of our Class A common stock and held options to purchase 308,030
shares of our Class A common stock.
EXPERTS
Our consolidated financial statements appearing in our Annual Report (Form
10-K) for the year ended December 31, 1999 have been audited by KPMG LLP,
independent accountants, as set forth in their report thereon incorporated
herein by reference. Such consolidated financial statements are incorporated by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Asia.com, Inc. (formerly eLong.com,
Inc.) (a development stage enterprise) incorporated in this prospectus by
reference to Mail.com's Amendment to Current Report on Form 8-K/A, dated May 26,
2000, have been audited by KPMG, independent public accountants, as indicated in
their report with respect thereto and have been incorporated by reference herein
in reliance upon the authority of said firm as experts in accounting and
auditing. Our report dated May 24, 2000, contains an emphasis paragraph that
states the group's operations are subject to extensive regulation and
supervision by the People's Republic of China ("PRC") government. The laws and
regulations pertaining to Internet content provider businesses in the PRC are
evolving and may be subject to change.
The financial statements of NetMoves Corporation (formerly FaxSav
Incorporated) incorporated in this prospectus by reference to Mail.com's
Amendment to Current Report on Form 8-K/A, dated April 24, 2000, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
70
