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As Filed Pursuant to Rule 424(b)(3)
Registration No. 333-41156
PROSPECTUS
1,985,180 SHARES
MAIL.COM, INC.
CLASS A COMMON STOCK
This prospectus relates to the offering of our Class A common stock held by
certain selling stockholders. The selling stockholders may sell the shares from
time to time. We will pay certain of the expenses of this offering; however,
except with respect to 185,686 of the shares covered by this prospectus,
Mail.com is not responsible for the cost of brokerage commissions and discounts.
We will not receive any proceeds from the sale of shares by the selling
stockholders.
The selling stockholders may offer and sell all the shares in the
over-the-counter market or on one or more exchanges. The selling stockholders
may sell the shares at the then prevailing market price for the shares or in
negotiated transactions.
Our Class A common stock is listed on the Nasdaq National Market under the
symbol "MAIL." On August 15, 2000, the closing price of our Class A common stock
on the Nasdaq National Market was $7.19 per share.
THIS INVESTMENT INVOLVES RISK. YOU SHOULD PURCHASE ONLY IF YOU CAN AFFORD A
COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
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.
The date of this prospectus is August 16, 2000
The information in this prospectus is not complete and may be changed. We may
not sell these securities until a registration statement relating to these
securities filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities, and it is not soliciting
an offer to buy these securities in any state where the offer or sale is not
permitted.
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TABLE OF CONTENTS
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Incorporation of Documents By Reference .............................. 2
Where You Can Get More Information ................................... 3
Cautionary Statements Regarding Forward-Looking Statements ........... 3
Prospectus Summary ................................................... 4
Risk Factors ......................................................... 6
Use of Proceeds ...................................................... 19
Description of Capital Stock ......................................... 19
Selling Stockholders ................................................. 26
Plan of Distribution ................................................. 26
Legal Matters ........................................................ 28
Experts .............................................................. 28
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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 stockholders are offering to sell, and
seeking offers to buy, the Class A common stock 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 Class A common stock.
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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 stockholders sell all of
the 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;
- Our Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 2000 and June 30, 2000;
- Our Current Reports on Form 8-K dated March 28, 2000 (as amended on
Form 8-K/A dated May
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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 Class A common stock that the selling stockholders
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, Internet Service Providers (ISPs), Web sites and direct to
consumers. We offer our messaging services to both the consumer and business
markets. Additionally, we have, through our newly-formed subsidiary, WORLD.com,
Inc., begun to develop domain names from among our extensive portfolio of
Internet domain names.
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.
CONSUMER MESSAGING SERVICES
In the consumer market, we 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 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.
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 which
will serve the worldwide business-to-business and 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.
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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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RISK FACTORS
Before you invest in our 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, AND WE ARE INVOLVED IN A NEW AND
UNPROVEN INDUSTRY.
We have only a limited operating history upon which you can evaluate our
business and our prospects. We have offered a commercial email service since
November 1996 under the name iName. We changed our company name to Mail.com,
Inc. in January 1999. In March 2000, we formed WORLD.com to develop and operate
our domain name properties as independent Web sites. Our success will depend in
part upon the development of a viable market for email advertising and
fee-based Internet messaging and collaboration services and outsourcing, and
upon our ability to compete successfully in those markets. Our success will
also depend on our ability to successfully develop and operate our domain name
properties under WORLD.com, beginning with Asia.com and India.com, and the
acceptance by businesses and consumers of the services offered at these Web
sites. 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
$90.4 million for the six months ended June 30, 2000. We had an accumulated
deficit of $153.5 million as of June 30, 2000. We expect to continue to incur
substantial net losses and negative operating cash flow for the foreseeable
future. We have begun and will continue to significantly increase our operating
expenses in anticipation of future growth. We intend to expand our sales and
marketing operations, upgrade and enhance our technology, continue our
international expansion, and improve and expand our management information and
other internal systems. We intend to 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 planned expansion, develop new or enhanced services, respond to
competitive pressures, promote our brand name or acquire complementary
businesses, technologies or services. Some of our stockholders have
registration rights that could interfere with our ability to raise needed
capital.
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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.
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 recently 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
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 eLong.com, Inc. and Huelink
Corporation Ltd. in connection with the formation of Asia.com, Inc. and Multiple
Zones in connection with the formation of India.com. 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,
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- 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.
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 six months
ended June 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. 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 the indenture for the convertible notes.
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 advertising related revenues and
subscription revenues through our consumer email services, we will have to
retain our existing members and acquire a large number of new members. We have
relied upon strategic alliances with third party Web sites to attract the
majority of our current members.
We believe that our success 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 generate
revenues by selling advertising space to advertisers who want to target our
members and by selling subscription services to these members. We pay the
partner a share of the revenues we generate. In addition, a number of our
contracts 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 recently 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 them because we decide not to continue making payments
to them 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 June 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 June 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 advertisers and other partners. We believe that partnerships with Web sites
that have prominent brand names help give us credibility with other partners and
with advertisers. The loss of our better-known Web site partners could damage
our reputation and adversely affect the advertising, direct marketing,
e-commerce and subscription rates we charge.
BECAUSE WE ARE DEPENDENT ON A SMALL NUMBER OF PARTNER SITES FOR A SUBSTANTIAL
PERCENTAGE OF OUR ANTICIPATED NEW MEMBERS, A DISRUPTION IN OUR RELATIONSHIP WITH
ANY OF THESE PARTNERS OR A DECREASE IN TRAFFIC AT ANY OF THESE SITES COULD
REDUCE OUR ADVERTISING RELATED REVENUES AND SUBSCRIPTION REVENUES.
Most of our partner sites, including most of those with well-known brand
names, do not generate significant numbers of new emailboxes. The following four
partners accounted for 34% of our new emailboxes established in June 2000:
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PERCENTAGE
OF NEW DATE THAT OUR
E-MAILBOXES CONTRACT WITH
IN THE PARTNER
PARTNER JUNE 2000 EXPIRES
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Juno.............................. 11% December 2001
Snap.............................. 10% *
Iwon.............................. 7% October 2000
EarthLink......................... 7% April 2001
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* Snap 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.
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, we will have to increase members' usage of
our service. We are subject to several constraints that will limit our ability
to maximize the value of our member base:
We believe that most of our members do not use their emailboxes
regularly, and many do not use them at all. We 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 25% of our total
emailboxes as of June 30, 2000, and 9% of the emailboxes that were established
during June 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.
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WEBMAIL, EMAIL ADVERTISING 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 require the widespread acceptance by consumers of Webmail. We are also
dependent on the development of viable markets for email advertising and the
outsourcing of email services to businesses and other organizations. For a
number of reasons, each of these developments is somewhat speculative:
Consumers may not be willing to use Webmail in large numbers. As a
Web-based messaging service, Webmail is subject to the same concerns and
shortcomings as the Internet itself. Concerns about the security of information
carried over the Internet and stored on central computer systems could inhibit
consumer acceptance of Webmail. Moreover, Webmail can only function as
effectively as the Web itself. If traffic on the Web does not move quickly or
Internet access is impeded, consumers are less likely to use Webmail. Consumers
may also react negatively to the relatively new concept of 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.
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. 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. Furthermore,
we may not be able to generate significant additional revenues by providing our
email services to businesses. Standards for pricing in the business email
services market are not yet well defined and some businesses, schools and other
organizations may not be willing to pay the fees we 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.
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
may fall, in part because of diminishing "click" or response rates. Advertisers
may also request fewer "cost per thousand advertisements" pricing arrangements
and more "cost per click" pricing, which could effectively lower advertising
rates.
There are currently no standards for measuring the effectiveness of
Webmail advertising. Standard measurements may need to be developed to support
and promote Webmail advertising as a significant advertising medium. Our
advertising customers may refuse to accept our own measurements or third-party
measurements of advertisement delivery, which would adversely affect our ability
to generate advertising related revenues.
Filtering software could prevent us from delivering advertising.
Inexpensive software programs are available which limit or prevent the delivery
of advertising to a user's computer. The widespread adoption of this software
would seriously threaten the commercial viability of email advertising and our
ability to generate advertising revenues.
THERE ARE SIGNIFICANT OBSTACLES TO OUR ABILITY TO INCREASE ADVERTISING REVENUES.
Our success will largely depend on our ability to substantially increase
our advertising related revenues, which we currently generate only in connection
with our consumer services. Several factors will make it very difficult for us
to achieve this objective:
A limited number of advertisers account for a high percentage of our
revenues, our contracts with our advertisers typically have terms of only one or
two months, and we may be unable to renew these contracts. We are dependent on a
limited number of advertisers to derive a substantial portion of our revenues.
For the six months ended June 30, 2000 and 1999, revenues from our five largest
advertisers accounted for an aggregate of 11% and 48%, 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.
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We may not be able to sell as much advertising on a "cost per thousand"
basis or to charge as much under this type of arrangement as we have in the
past. To date, we have generated a significant portion of our advertising
revenues on a "cost per thousand" basis. These agreements require the advertiser
to pay us a fixed fee for every 1,000 advertisements that we deliver to our
members. We believe that this type of agreement is the most effective for us,
but we may not be able to charge as much for these agreements, or to continue to
sell as much advertising on this basis, in the future.
We face greater risks when selling advertising on a "cost per action"
basis. The two types of "cost per action" contracts are "cost per click" and
"cost per conversion." In cost per click contracts, an advertiser agrees to pay
us a fee for each occasion on which a member "clicks" on the advertisement. Cost
per conversion contracts provide that we receive a fee only when a member both
"clicks" on the advertisement and proceeds to purchase an item, order a catalog
or take some other step specified by the advertiser. In general, these
arrangements do not yield as much revenue for us for each advertisement that we
deliver to our members. Moreover, cost per conversion contracts present
additional risks for us because we have no control over the advertiser's ability
to convert a "click" into a sale or other action. We also must rely on the
advertiser to report to us the number of conversions. These reports may not be
accurate, and they may not be timely, both of which can adversely affect our
revenues. Notwithstanding these risks, we may have to sell more of our
advertising on a cost per click or cost per conversion basis in the future.
WE MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF FLUCTUATIONS IN OUR QUARTERLY
OPERATING RESULTS, WHICH WOULD CAUSE OUR STOCK PRICE TO DECLINE.
Although we intend to steadily increase our spending and investment to
support our planned growth, our revenues (and some of our costs) will be much
less predictable. This is likely to result in significant fluctuations in our
quarterly results, and to limit the value of quarter-to-quarter comparisons.
Because of our limited operating history and the emerging nature of our
industry, we anticipate that securities analysts will have difficulty in
accurately forecasting our results. It is likely that our operating results in
some quarters will be below market expectations. In this event, the price of our
Class A common stock is likely to decline.
The following are among the factors that could cause significant
fluctuations in our operating results:
- incurrence of other cash and non-cash accounting charges,
including charges resulting from acquisitions;
- 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;
- system outages, delays in obtaining new equipment or problems with
planned upgrades;
- disruption or impairment of the Internet;
- introduction of new or enhanced services by us or our competitors;
- changes in our pricing policy or that of our competitors;
- seasonality in the demand for advertising, or changes in our own
advertising rates or advertising rates in general, both on and off
the Internet;
- changes in governmental regulation of the Internet and email in
particular; and
- general economic and market conditions, and particularly those
affecting email advertising.
SEVERAL OF OUR COMPETITORS HAVE SUBSTANTIALLY GREATER RESOURCES, LONGER
OPERATING HISTORIES, LARGER CUSTOMER BASES AND BROADER PRODUCT OFFERINGS.
Our business is, and we believe will continue to be, intensely
competitive. Our competitors with respect to email services include such large
and established companies as Microsoft, America Online, Yahoo!, Excite@Home,
Disney (which owns the GO Network) and Lycos. Microsoft offers free Webmail
through its Hotmail Web site, and has dominant market share with over 40 million
emailboxes according to Microsoft. We also compete for partners with email
service providers such as USA.NET, Inc., Critical Path, Inc. and CommTouch
Software, Ltd. In offering email services to businesses, schools and other
organizations, we expect to compete with MCI Mail, USA.NET and Critical Path.
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 addition,
we compete for advertisers with DoubleClick, 24/7 Media, and other Internet
advertising networks. We also compete for advertisers with other Internet
publishers as well as traditional media such as television, radio, print and
outdoor advertising. Our domain properties developed by WORLD.com will compete
with the major business and consumer portals and other providers of internet
services in the markets in which they operate. See "Business - Competition."
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Some of our competitors provide a variety of Web-based services such as
Internet access, browser software, homepage design and Web site hosting, in
addition to email. The ability of these competitors to offer a broader suite of
complementary services may give them a considerable advantage over us. In
addition, some competitors who have other sources of revenue do not, or in the
future may not, place advertising on their Webmail pages. Consumers may prefer a
service that does not include advertisements.
The level of competition is likely to increase as current competitors
increase the sophistication of their offerings and as new participants enter the
market. In the future, as we expand our service offerings, we expect to
encounter increased competition in the development and delivery of these
services. Further, some of our competitors may offer services for which we now
charge our members at or below cost or for free. If our competitors choose to
offer premium or other services at or below cost or for free, we may be forced
to do the same for our comparable services. If this occurs, our ability to
generate revenues from our subscription services would be materially impaired.
Some of our competitors may offer advertisement-free email on a subscription
basis or for free, which could adversely affect our ability to attract and
retain members unless we do the same. In addition, new technologies and the
expansion of existing technologies may increase competitive pressures on us. We
may not be able to compete successfully against our current or future
competitors.
OUR RAPID EXPANSION IS STRAINING OUR EXISTING RESOURCES, AND IF WE ARE NOT ABLE
TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS AND OPERATING RESULTS WILL
SUFFER.
We have begun aggressively expanding our operations in anticipation of an
increasing number of strategic alliances and a corresponding increase in the
number of members as well as development of our business customer base. We have
entered into agreements with additional partners and have upgraded our email
services. We have also developed the technology and infrastructure to begin
offering a range of services in the business Internet messaging and
collaboration services market. In addition, we have formed WORLD.com for the
purpose of developing our portfolio of domain names. 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 and Chief
Executive Officer, Gary Millin, CEO of WORLD.com, Lon Otremba, our President,
Debra McClister, our Executive Vice President and Chief Financial Officer, Sam
Kline, our Chief Operating Officer, Thomas Murawski, our Chief Executive
Officer, Mail.com Business Messaging Services, Inc. and Courtney Nichols,
General Manager Mail.com Consumer Messaging Services. The loss of the services
of Messrs. Gorman, Millin, Otremba, Kline, and Murawski or of Ms. McClister and
Ms. Nichols, or several other key employees, would impede the operation and
growth of our business.
To manage our existing business and handle any future growth, we will
have to attract, retain and motivate additional highly skilled employees. In
particular, we will need to hire and retain qualified salespeople if we are to
meet our sales goals. We will also need to hire and retain additional
experienced and skilled technical personnel in order to meet the increasing
technical demands of our expanding business. Competition for employees in
Internet-related businesses is intense. We have in the past experienced, and
expect to continue to experience, difficulty in hiring and retaining employees
with appropriate qualifications. If we are unable to do so, our management may
not be able to effectively manage our business, exploit opportunities and
respond to competitive challenges.
OUR BUSINESS IS HEAVILY DEPENDENT ON TECHNOLOGY, INCLUDING TECHNOLOGY THAT HAS
NOT YET BEEN PROVEN RELIABLE AT HIGH TRAFFIC LEVELS AND TECHNOLOGY THAT WE DO
NOT CONTROL.
The performance of our computer systems is critical to the quality of
service we are able to provide to our members and to our business customers. If
our services are unavailable or fail to perform to their satisfaction, they may
cease using our service. Reduced use of our service decreases our revenues by
decreasing the advertising space that we have available to sell. In addition,
our agreements with several of our partners establish minimum performance
standards. If we fail to meet these standards, our partners could terminate
their relationships with us and assert claims for monetary damages.
WE NEED TO UPGRADE OUR COMPUTER SYSTEMS TO ACCOMMODATE INCREASES IN EMAIL 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
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.
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Our members 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
and insufficient storage capacity. 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 either of our primary data centers was severely damaged or
destroyed. We might also lose stored emails and other member files, causing
significant member dissatisfaction and possibly giving rise to claims for
monetary damages.
OUR SERVICES WILL BECOME LESS DESIRABLE OR OBSOLETE IF WE ARE UNABLE TO KEEP UP
WITH THE RAPID CHANGES CHARACTERISTIC OF OUR BUSINESS.
Our success will depend on our ability to enhance our existing services
and to introduce new services in order to adapt to rapidly changing
technologies, industry standards and customer demands. To compete successfully,
we will have to accurately anticipate changes in consumer and business demand
and add new features to our services very rapidly. We also have to regularly
upgrade our software to ensure that it remains compatible with the wide and
changing variety of Web browsers and other software used by our members and
business customers. For example, our system currently cannot properly receive
files sent using some third party email programs. We may not be able to
integrate the necessary technology into our computer systems on a timely basis
or without degrading the performance of our existing services. We cannot be sure
that, once integrated, new technology will function as expected. Delays in
introducing effective new services could cause existing and potential members to
forego use of our services and to use instead those of our competitors.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO PROVIDE ADEQUATE SECURITY FOR OUR
SERVICE, OR IF OUR SERVICE IS IMPAIRED BY SECURITY MEASURES IMPOSED BY THIRD
PARTIES.
Security is a critical issue for any online service, and presents a
number of challenges for us.
If we are unable to maintain the security of our service, our reputation
and our ability to attract and retain members and business customers may suffer,
and we may be exposed to liability. Third parties may attempt to breach our
security or that of our members or any business customers whose networks we may
maintain or for whom we provide services. If they are successful, they could
obtain our members' confidential information, including our members' profiles,
passwords, financial account information, credit card numbers, stored email or
other personal information, or obtain information that is sensitive or
confidential to a business customer or otherwise disrupt a business customer's
operations. Our members or any business customers may assert claims for money
damages for any breach in our security and any breach could harm our reputation.
Our computers are vulnerable to computer viruses, physical or electronic
break-ins and similar incursions, which could lead to interruptions, delays or
loss of data. We expect to expend significant capital and other resources to
license or create encryption and other technologies to protect against security
breaches or to alleviate problems caused by any breach. Nevertheless, these
measures may prove ineffective. Our failure to prevent security breaches may
expose us to liability and may adversely affect our ability to attract and
retain members and develop our business market.
Security measures taken by others may interfere with the efficient
operation of our service, which may harm our reputation, adversely impact our
ability to attract and retain members and impede the delivery of advertisements
from which we generate revenues. "Firewalls" and similar network security
software employed by many ISPs, employers and schools can interfere with the
operation of our Webmail service, including denying our members access to their
email accounts. Similarly, in their efforts to filter out unsolicited bulk
emails, 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
suppliers such as MFS, BBN Planet and UUNET to transmit and receive email
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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.
IF THE THIRD PARTY THAT WE DEPEND ON FOR THE ACTUAL DELIVERY OF THE
ADVERTISEMENTS WE SELL EXPERIENCES TECHNICAL DIFFICULTIES OR OTHERWISE FAILS TO
PERFORM, OUR REVENUES FROM ADVERTISING MAY BE ADVERSELY AFFECTED.
We contract with DoubleClick, Inc. to deliver the advertisements that we
sell and that appear on our Web pages and on the Web pages of our partners. If
DoubleClick experiences technical difficulties or otherwise fails to perform,
our revenues from advertising may be adversely affected. Furthermore,
DoubleClick may not have the same priorities for technology development as we do
and this may limit our ability to improve our delivery of advertising for our
specific needs.
GERALD GORMAN CONTROLS MAIL.COM AND WILL BE ABLE TO PREVENT A CHANGE OF CONTROL.
Gerald Gorman, our Chairman and Chief Executive Officer, beneficially
owned as of June 30, 2000 Class A and Class B common stock representing
approximately 68.5% 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
increase membership, traffic on our sites and revenues, and to develop our
business services market. 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 Webmail advertising,
direct marketing and e-commerce;
- difficulties and costs of staffing and managing international
operations;
- differing technology standards;
- difficulties in collecting accounts receivable and longer
collection periods;
- economic instability and fluctuations in currency exchange rates
and imposition of currency exchange controls;
- potentially adverse tax consequences;
- 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.
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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 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 announced the formation of 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 eLong.com, Inc. or other
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.
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.
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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.
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 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 OUR FUTURE
REVENUE, BUT THE INTERNET HAS NOT YET BEEN PROVEN AS AN EFFECTIVE COMMERCE
MEDIUM IN CHINA AND INDIA.
Our 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:
- 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 HAS 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.
OUR ASIA.COM BUSINESS MAY BE ADVERSELY AFFECTED BY CHINESE GOVERNMENT REGULATION
OF INTERNET COMPANIES.
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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.
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.
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.
Political instability related to the formation of a new government in
India could halt or delay the liberalization of the Indian economy and adversely
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<PAGE> 18
affect business and economic conditions in India generally and our business in
particular. During the past decade, the government of India has pursued policies
of economic liberalization, including significantly relaxing restrictions on the
private sector. Nevertheless, the role of the Indian central and state
governments in the Indian economy has remained significant. The government of
India recently changed for the fifth time since 1996. 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.
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 June 30, 2000, we had an aggregate of 59,161,555 shares of Class A and Class
B common stock and 14,361,356 options and 1,251,233 warrants to purchase an
aggregate of 15,612,589 shares of Class A common stock outstanding. As of such
date, approximately 50,746,846 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 8,414,709
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.
As of June 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.
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USE OF PROCEEDS
The selling stockholders will receive all of the proceeds from the sale of
our Class A common stock under this prospectus. We will not receive any proceeds
from these sales.
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 June 30, 2000, we had 49,161,555 shares of Class A common stock
outstanding held of record by approximately 372 stockholders and 10,000,000
shares of Class B common stock outstanding held entirely by Gerald Gorman, our
Chairman and Chief Executive Officer.
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 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.
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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 does 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 and be cancelled.
REGISTRATION RIGHTS
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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-3 demand registration rights. The holders of at least a majority
of the shares issued upon conversion of each of our Class A
preferred stock and 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 impose.
CNET AND NBC MULTIMEDIA
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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. Our filing of the registration
statement in which this prospectus is included is intended to satisfy this
obligation. 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. Our filing of the registration statement in which this prospectus is
included is intended to satisfy this obligation.
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.
MADISON AVENUE TECHNOLOGY GROUP, INC.
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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. Our filing of the registration
statement in which this prospectus is included is intended to satisfy this
obligation. 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.
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
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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. Our
filing of the registration statement in which this prospectus is included is
intended to satisfy this obligation.
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 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
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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.
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SELLING STOCKHOLDERS
The shares offered hereby by the selling stockholders have been issued, or
are issuable, in connection with investments by us in Bantu, 3Cube and STD and
in connection with our purchase of a domain name from Elie Abouzakhm. Under the
terms of these transactions, we agreed to register the common stock received by
the selling stockholders. None of the selling stockholders has had a material
relationship with us during the past three years, except that (1) we have
received a technology license from 3Cube, Inc. that allows us to offer Web-based
and email to fax services across our network of Web sites and ISP partners and
our business customers, (2) concurrently with our investment in Bantu, we
purchased source code and entered into a related development agreement and (3)
Barry Shein, President of STD, is an advisor to our board of directors and we
have entered into an indemnification agreement with him to indemnify him from
liabilities arising out of his capacity as an advisor. The table below sets
forth information with respect to the beneficial ownership of our Class A common
stock by the selling stockholders immediately prior to this offering and as
adjusted to reflect the sale of shares of our Class A common stock in the
offering. All information with respect to the beneficial ownership has been
furnished by the respective selling stockholders. Percentages are based on the
49,161,555 shares of Class A common stock outstanding on June 30, 2000.
<TABLE>
<CAPTION>
Number of Shares Number of Shares to Percentage of Shares
Number of Shares Offered by this be Held After to be Held After
Selling Shareholder Beneficially Owned Prospectus(1) Offering Offering
------------------- ------------------ ------------- -------- --------
<S> <C> <C> <C> <C>
Bantu, Inc. 1,444,445(2) 1,444,445 0 *
3Cube, Inc. 335,132 255,049 80,083 *
STD, Inc. (3) 185,686 185,686 0 *
Elie Abouzakhm 110,000 100,000 10,000 *
</TABLE>
* Less than one percent
(1) This prospectus also will cover any additional shares of common stock that
become issuable as a result of a stock split, stock dividend or similar
transaction that results in an increase in the number of our outstanding
shares of common stock.
(2) Includes up to 888,889 shares that we have agreed to issue pursuant to a
common stock purchase agreement, subject only to the occurrence of
specified milestone events.
(3) Doing business as Software Tool and Die.
PLAN OF DISTRIBUTION
The selling stockholders may offer and sell the Class A common stock
covered by this prospectus from time to time. The selling stockholders'
pledgees, donees, transferees or other successors in interest that receive such
Class A common stock as a gift, partnership distribution or other non-sale
related transfer may likewise offer and sell Class A common stock from time to
time. The selling stockholders will act independently of us in making decisions
with respect to the timing, manner and size of each sale. The selling
stockholders may sell the Class A common stock on one or more exchanges,
including the Nasdaq National Market, or in the over-the-counter market or
otherwise, at prices and at terms then prevailing or at prices related to the
then current market prices or in negotiated transactions.
The selling stockholders may sell the Class A common stock by one or more
of the following means of distribution:
- a block trade in which the broker-dealer so engaged will attempt to
sell the shares as agent, but may purchase and resell a portion of
the block as principal to facilitate the transaction;
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- purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this prospectus; and
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers.
We may amend this prospectus from time to time to describe a specific plan
of distribution. In connection with distributions of the Class A common stock or
otherwise, the selling stockholders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with such
transactions, broker-dealers or other financial institutions may engage in short
sales of our Class A common stock in the course of hedging the positions they
assume with the selling stockholders. The selling stockholders may also sell our
Class A common stock short and redeliver the shares covered by this prospectus
to close out such short positions. The selling stockholders may also enter into
option or other transactions with broker-dealers or other financial institutions
which require the delivery to such broker-dealer or other financial institution
of the Class A common stock offered under this prospectus, which Class A common
stock such broker-dealer or other financial institution may resell pursuant to
this prospectus (as supplemented or amended to reflect such transaction). The
selling stockholders may also pledge the shares of Class A common stock
registered hereunder to a broker-dealer or other financial institution and, upon
a default, such broker-dealer or other financial institution may effect sales of
the pledged Class A common stock pursuant to this prospectus (as supplemented or
amended to reflect such transaction). In addition, the selling stockholders may
also sell the Class A common stock under Rule 144 rather than pursuant to this
prospectus if the shares so qualify for resale under Rule 144.
In effecting sales, brokers, dealers or agents engaged by the selling
stockholders may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
selling stockholders in amounts to be negotiated prior to the sale. Such brokers
or dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales, and any such commission, discount or concession may be deemed to be
underwriting discounts or commissions under the Securities Act. We will pay all
expenses incident to the offering and sale of the Class A common stock covered
by this prospectus to the public other than any commissions and discounts of
underwriters, dealers or agents and any transfer taxes. In the case of sales by
STD, Inc., we will pay any commissions and discounts of underwriters, dealers or
agents if the average sales price of the shares sold by STD, Inc. is below
$16.00 per share.
In order to comply with the securities laws of certain states, if
applicable, the Class A common stock will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states the Class A common stock may not be sold unless they have been registered
or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the shares may not simultaneously engage in
market-making activities with respect to our common stock for the applicable
period under Regulation M of the Exchange Act prior to the commencement of such
distribution. In addition and without limiting the foregoing, the selling
stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M, which provisions may limit the timing of purchases and sales of the shares by
the selling stockholders. All of the foregoing may affect the marketability of
the shares.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained or incorporated by reference
in this prospectus. You must not rely on any unauthorized information or
representations. This prospectus is an offer to sell only the shares offered by
this
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prospectus, but only under the circumstances and in jurisdictions where it is
lawful to do so. The information contained in this prospectus is current only as
of its date.
LEGAL MATTERS
The validity of the Class A common stock 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.
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