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Filed pursuant to Rule 424(b)(3)
Registration No. 333-43060
PROSPECTUS
780,396 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, the
selling stockholders will bear the cost of all 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 November 14, 2000, the closing price of our Class A common
stock on the Nasdaq National Market was $1.6875 per share.
THIS INVESTMENT INVOLVES RISK. YOU SHOULD PURCHASE ONLY IF YOU CAN AFFORD A
COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
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 November 15, 2000
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TABLE OF CONTENTS
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Incorporation of Documents By Reference..................... 3
Where You Can Get More Information.......................... 4
Cautionary Statements Regarding Forward-Looking Statements.. 4
Prospectus Summary.......................................... 5
Risk Factors................................................ 7
Use of Proceeds............................................. 28
Description of Capital Stock................................ 28
Selling Stockholders........................................ 35
Plan of Distribution........................................ 35
Legal Matters............................................... 37
Experts..................................................... 37
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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.
INFORMATION CONTAINED ON OUR WEB SITES WILL NOT BE DEEMED TO BE PART OF THIS
PROSPECTUS.
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, June 30, 2000 and September 30, 2000;
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- Our Current Reports on Form 8-K dated November 3, 2000, October 27, 2000,
September 25, 2000, March 28, 2000 (as amended on Form 8-K/A dated May 26,
2000), February 11, 2000 (as amended on Form 8-K/A dated April 24, 2000),
January 24, 2000 and January 6, 2000; and
- Our Proxy Statement filed on April 18, 2000.
WHERE YOU CAN GET MORE INFORMATION
We have filed a registration statement with the Securities and Exchange
Commission to register the 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, carriers, Internet Service Providers (ISPs) and Web sites. We offer
our messaging services to both the business and consumer markets. We recently
announced our intention to sell all assets not related to our core outsourced
messaging business, including our advertising network business, our Asia.com,
Inc. and India.com, Inc. subsidiaries and our portfolio of category-defining
domain names, and to focus exclusively on our core outsourced messaging
business.
BUSINESS MESSAGING SERVICES
We provide businesses with email service, Internet facsimile transmission
services and collaboration services. Our email services include services that
permit email systems to connect to the Internet, email hosting services and
email monitoring services. Our email monitoring services include virus scanning,
attachment control, spam control, legal disclaimers and other legends affixed to
outgoing emails and real time Web-based reporting. Our fax services include
email to fax, fax to email, enhanced fax and broadcast fax. Our collaboration
services include web-hosted services and on-premise software solutions for group
calendaring, group scheduling, project management and document sharing. We earn
revenues in the business market on a usage or per seat basis.
PERSONAL COMMUNICATION SERVICES
In the consumer market, we currently provide Web-based email services, or
WebMail, to ISPs including several of the world's top ISPs, and we partner with
top branded Web sites to provide WebMail services to their users. In addition,
we serve the consumer market directly through our flagship site at www.mail.com.
Our basic consumer email services are free to our members. A consumer can become
a member of Mail.com by signing up for our email service at any of our partners'
Web sites or our own Web sites. We currently earn revenues in the consumer
market from a combination of:
- advertising related sales, including permission marketing and
e-commerce promotion and
- subscription services, such as a service that allows members to purchase
increased storage capacity for their emails.
As part of our strategy to focus exclusively on our outsourced messaging
business, we have retained SG Cowen to sell the advertising network business. If
we sell the advertising network business, we plan to continue to offer Web-based
email services to ISPs and Web sites but do not expect that we will offer
advertising network services.
WORLD.COM, INC.
In March 2000, we formed WORLD.com, Inc. to focus on developing our extensive
portfolio of Internet domain names into major Web properties to serve the
worldwide business-to-business and
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business-to-consumer marketplace, beginning with Asia.com and India.com. In
connection with the formation of Asia.com, Inc., we acquired eLong.com, Inc.,
which through its wholly-owned subsidiary operates the Web site www.elong.com in
the Peoples' Republic of China. Other properties from our portfolio of over
1,000 domains include Europe.com, USA.com, Japan.com, lawyer.com and doctor.com.
WORLD.com is headquartered in New York, New York. As indicated above, we intend
to sell all of these assets.
We are a Delaware corporation. Our principal executive offices are located at
11 Broadway, 6th Floor, New York, NY 10004. Our phone number is (212) 425-4200.
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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, WE ARE INVOLVED IN A NEW AND UNPROVEN
INDUSTRY AND HAVE DETERMINED TO FOCUS ON OUR CORE OUTSOURCED MESSAGING BUSINESS.
We have only a limited operating history upon which you can evaluate our
business and our prospects. We have offered a commercial email service since
November 1996 under the name iName. We changed our company name to Mail.com,
Inc. in January 1999. In February 2000, we acquired NetMoves Corporation, a
provider of a variety of Internet document delivery services to businesses. In
March 2000, we formed WORLD.com to develop and operate our domain name
properties as independent Web sites. We recently announced our intention to
focus exclusively on our outsourced messaging business and to sell all assets
not related to this business. Our success will depend in part upon the
development of a viable market for fee-based Internet messaging and
collaboration services and outsourcing, our ability to compete successfully in
those markets and our ability to successfully sell our non-core assets on
favorable terms. For the reasons discussed in more detail below, there are
substantial obstacles to our achieving and sustaining profitability.
WE HAVE INCURRED LOSSES SINCE INCEPTION AND EXPECT TO INCUR SUBSTANTIAL LOSSES
IN THE FUTURE.
We have generated only limited revenues to date. We have not achieved
profitability in any period, and we may not be able to achieve or sustain
profitability. We incurred a net loss attributable to common stockholders of
$143.7 million for the nine months ended September 30, 2000. We had an
accumulated deficit of $221.3 million as of September 30, 2000. We expect to
continue to incur substantial net losses and negative operating cash flow for
the foreseeable future. We have begun and may continue to significantly increase
our operating expenses in anticipation of future growth. We intend to expand our
sales and marketing operations, upgrade and enhance our technology, continue our
international expansion, and improve and expand our management information and
other internal systems. We intend to continue to make strategic acquisitions and
investments, which may result in significant amortization of goodwill and other
expenses. We are making these expenditures in anticipation of higher revenues,
but there will be a delay in realizing higher revenues even if we are
successful. If we do not succeed in substantially increasing our revenues, our
losses will continue indefinitely and will increase.
IF WE ARE UNABLE TO RAISE NECESSARY CAPITAL IN THE FUTURE, WE MAY BE UNABLE TO
FUND NECESSARY EXPENDITURES.
We anticipate the need to raise additional capital in the future. However, we
may not be able to raise on terms favorable to us, or at all, amounts necessary
to fund our anticipated expenditures or future expansion, develop new or
enhanced services, respond to competitive pressures, promote our brand name or
acquire complementary businesses, technologies or services. Some of our
stockholders have registration rights that could interfere with our ability to
raise needed capital.
If we raise additional funds by issuing equity securities, stockholders may
experience dilution of their ownership interest. Moreover, we could issue
preferred stock that has rights senior to those of the Class A common stock. If
we raise funds by issuing debt, our lenders may place limitations on our
operations, including our ability to pay dividends.
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WE INTEND TO SELL ALL OF OUR ASSETS NOT RELATED TO OUR CORE OUTSOURCED MESSAGING
BUSINESS BUT MAY EXPERIENCE DIFFICULTY COMPLETING ANY OR ALL OF SUCH SALES ON
FAVORABLE TERMS OR AT ALL.
We recently announced our intention to sell all of our non-core assets,
including our advertising network business, our Asia.com, Inc. and India.com,
Inc. subsidiaries and our portfolio of Internet domain names. We cannot assure
you that we will be able to sell all or any of these assets on favorable terms
or at all. We also cannot assure you as to the timing or the terms and
conditions of the sale of any of these assets or the form or amount of
consideration (if any) that may be received. The realizable value of these
assets may ultimately prove to be less than the carrying value currently
reflected in our consolidated financial statements. Moreover, if the sales are
not successfully completed, the market price of our common stock may decline to
the extent that the current market price reflects a market assumption that such
sales will be successfully completed. To the extent that we receive non-cash
consideration in any of these sales, we may not be able to liquidate this
consideration or otherwise turn it into cash for a period of time after we
receive it or at all.
WE INTEND TO CONTINUE TO ACQUIRE, OR MAKE STRATEGIC INVESTMENTS IN, OTHER
BUSINESSES AND ACQUIRE OR LICENSE TECHNOLOGY AND OTHER ASSETS AND WE MAY HAVE
DIFFICULTY INTEGRATING THESE BUSINESSES OR GENERATING AN ACCEPTABLE RETURN.
We have completed a number of acquisitions and strategic investments since
our initial public offering. For example, we acquired NetMoves Corporation, a
provider of a variety of Internet document delivery services to businesses, and
The Allegro Group, Inc., a provider of email and email related services, such as
virus blocking and content screening, to businesses. We also made two
investments in 3Cube, Inc., a company specializing in Internet fax and other
technology, and acquired TCOM, Inc., a software technology consulting firm, and
Lansoft U.S.A., Inc., a provider of email management, e-commerce and Web hosting
services to businesses. We also recently acquired technology related assets from
IntraACTIVE, Inc. (now named Bantu, Inc.) and made a strategic investment in
Bantu and committed to make additional investments in them. We will continue our
efforts to acquire or make strategic investments in businesses and to acquire or
license technology and other assets, and any of these acquisitions may be
material to us. We cannot assure you that acquisition or licensing opportunities
will continue to be available on terms acceptable to us or at all. Such
acquisitions involve risks, including:
- inability to raise the required capital;
- difficulty in assimilating the acquired operations and personnel;
- inability to retain any acquired member or customer accounts;
- disruption of our ongoing business;
- the need for additional capital to fund losses of acquired
businesses;
- inability to successfully incorporate acquired technology into our service
offerings and maintain uniform standards, controls, procedures and
policies; and
- lack of the necessary experience to enter new markets.
We may not successfully overcome problems encountered in connection with
potential acquisitions. In addition, an acquisition could materially impair our
operating results by diluting our stockholders' equity, causing us to incur
additional debt or requiring us to amortize acquisition expenses and acquired
assets.
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THE ISSUANCE OF OUR CONVERTIBLE SUBORDINATED NOTES SIGNIFICANTLY INCREASED OUR
LEVERAGE.
In January 2000, we issued $100 million of convertible subordinated notes due
2005. The sale of our convertible notes has increased our debt as a percentage
of total capitalization. We may incur substantial additional indebtedness in the
future. The level of our indebtedness, among other things, could (1) make it
difficult for us to make payments on our convertible notes, (2) make it
difficult to obtain any necessary financing in the future for working capital,
capital expenditures, debt service requirements or other purposes, (3) limit our
flexibility in planning for, or reacting to changes in, our business, and (4)
make us more vulnerable in the event of a downturn in our business.
WE MAY BE UNABLE TO PAY DEBT SERVICE ON OUR CONVERTIBLE NOTES AND OTHER
OBLIGATIONS.
We had an operating loss and negative cash flow during the nine months ended
September 30, 2000 and 1999 and expect to incur substantial losses and negative
cash flows for the foreseeable future. Accordingly, cash generated by our
operations would have been insufficient to pay the amount of interest payable
annually on our convertible notes. We cannot assure you that we will be able to
pay interest and other amounts due on our convertible notes on the scheduled
dates or at all. If our cash flow and cash balances are inadequate to meet our
obligations, we could face substantial liquidity problems. We cannot assure you
that our proposed sale of our non-core assets will not negatively impact our
cash flow available to service the notes. If we are unable to generate
sufficient cash flow or otherwise obtain funds necessary to make required
payments, or if we otherwise fail to comply with any covenants in our
indebtedness, we would be in default under these obligations, which would permit
these lenders to accelerate the maturity of the obligations and could cause
defaults under our indebtedness. Any such default could have a material adverse
effect on our business, results of operations and financial condition. We cannot
assure you that we would be able to repay amounts due on our convertible notes
if payment of the convertible notes were accelerated following the occurrence of
an event of default under, or certain other events specified in, the indenture
for the convertible notes, including any deemed sale of all or substantially all
of our assets.
WEBMAIL AND INTERNET MESSAGING AND COLLABORATION SERVICES OUTSOURCING MAY NOT
PROVE TO BE VIABLE BUSINESSES.
We operate in an industry that is only beginning to develop. Our success will
depend on the development of viable markets for the outsourcing of messaging and
collaboration services to businesses, Web sites, ISPs and other organizations.
Our success will also require the widespread acceptance by consumers of Webmail.
For a number of reasons, each of these developments is somewhat speculative:
There are significant obstacles to the development of a sizable market for
Internet messaging and collaboration services outsourcing. Outsourcing is one of
the principal methods by which we will attempt to reach the size we believe is
necessary to be successful. Security and the reliability of the Internet,
however, are likely to be of concern to Web sites, ISPs, schools, businesses and
organizations deciding whether to outsource their email or fax services or to
continue to provide it themselves. These concerns are likely to be particularly
strong at larger businesses, which are better able to afford the costs of
maintaining their own systems. We provide a range of email and fax services to
businesses and organizations. We currently generate revenues in the business
market primarily from email service fees related to our email system connection
services, email monitoring services and fax transmission services. While we
intend to focus exclusively on our outsourced messaging services, we cannot be
sure that we will be able to expand our business customer base, attract
additional customers in other segments or acquire a sufficient base of customers
for whom we would provide hosting and other outsourced services. In addition,
the sales cycle for hosting services is lengthy and could delay our ability to
generate revenues in the business email services market. As part of our business
strategy, we plan to offer additional outsourced messaging and other
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services to existing customers. We cannot assure you that these customers will
purchase these services or will purchase them at prices that we wish to charge.
Furthermore, we may not be able to generate significant additional revenues by
providing our outsourced email and collaboration services to businesses.
Standards for pricing in the business email and collaboration services market
are not yet well defined and some businesses, schools and other organizations
may not be willing to pay the fees we wish to charge. We cannot assure you that
the fees we intend to charge will be sufficient to offset the related costs of
providing these services.
Consumers may not be willing to use Webmail in large numbers. As a Web-based
messaging service, Webmail is subject to the same concerns and shortcomings as
the Internet itself. Concerns about the security of information carried over the
Internet and stored on central computer systems could inhibit consumer
acceptance of Webmail. Moreover, Webmail can only function as effectively as the
Web itself. If traffic on the Web does not move quickly or Internet access is
impeded, consumers are less likely to use Webmail. Consumers may also react
negatively to the relatively new concept of an advertising supported email
service. Our business will suffer if public perception of our service or of
Webmail in general is unfavorable. Articles and reviews published in popular
publications relating to computers and the Internet have a great deal of impact
on public opinion within our markets, and an article or review unfavorable to
Webmail or to our service specifically could slow or prevent broad market
acceptance. Similarly, if employers in large numbers implement policies or
software designed to restrict access to Webmail, Webmail is much less likely to
gain popular acceptance.
There are even greater uncertainties about our ability to successfully market
premium Webmail services. Consumers have generally been very reluctant to pay
for services provided over the Internet. In August 1999, we discontinued
charging our members for virtually all of our premium domain names. Moreover, if
our competitors choose to provide POP3 access, greater storage capacity or other
services without charge or as part of a bundled offering, we may be forced to do
the same.
WE MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF FLUCTUATIONS IN OUR QUARTERLY
OPERATING RESULTS, WHICH WOULD CAUSE OUR STOCK PRICE TO DECLINE.
Although we intend to steadily increase our spending and investment to
support our planned growth, our revenues (and some of our costs) will be much
less predictable. This is likely to result in significant fluctuations in our
quarterly results, and to limit the value of quarter-to-quarter comparisons.
Because of our limited operating history, the emerging nature of our industry
and our planned sale of our non-core assets, we anticipate that securities
analysts will have difficulty in accurately forecasting our results. It is
likely that our operating results in some quarters will be below market
expectations. In this event, the price of our Class A common stock is likely to
decline.
The following are among the factors that could cause significant fluctuations
in our operating results:
- incurrence of other cash and non-cash accounting charges, including
charges resulting from acquisitions;
- non-cash charges associated with repriced stock options;
- system outages, delays in obtaining new equipment or problems with
planned upgrades;
- disruption or impairment of the Internet;
- demand for outsourced messaging services;
- attracting and retaining customers and maintaining customer
satisfaction;
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- introduction of new or enhanced services by us or our competitors;
- changes in our pricing policy or that of our competitors;
- changes in governmental regulation of the Internet and messaging in
particular; and
- general economic and market conditions.
Other such factors in our non-core businesses include:
- incurrence of additional expenditures without receipt of offsetting
revenues as a result of the development of our domain name
properties;
- delay or cancellation of even a small number of advertising
contracts;
- expiration or termination of partnerships with Web sites or ISPs, which
can result from mergers or other strategic combinations as Internet
businesses continue to consolidate; and
- seasonality in the demand for advertising, or changes in our own
advertising rates or advertising rates in general, both on and off the
Internet.
WE EXPECT SIGNIFICANT STOCK BASED COMPENSATION CHARGES RELATED TO REPRICED
OPTIONS.
In light of the decline in our stock price and in an effort to retain our
employee base, on November 14, 2000, the Company offered to certain of its
employees, officers and directors, other than Gerald Gorman, the right to
reprice certain outstanding stock options to an exercise price equal to the
closing price of the Company's Class A common stock on NASDAQ on November 14,
2000. Options to purchase an aggregate of up to 9,000,000 shares are subject to
repricing. The repriced options will vest at the same rate that they would have
vested under their original terms except that shares issuable upon exercise of
these options may not be sold until after November 14, 2001. In March 2000,
Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion No. 25" ("Interpretation"). Among other issues,
this Interpretation clarifies (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. As a result, under the Interpretation, stock options repriced after
December 15, 1998 are subject to variable plan accounting treatment. This
guidance requires the Company to remeasure compensation cost for outstanding
repriced options each reporting period based on changes in the market value of
the underlying common stock. Depending upon movements in the market value of the
Company's common stock, this accounting treatment may result in significant non
cash compensation charges in future periods.
SEVERAL OF OUR COMPETITORS HAVE SUBSTANTIALLY GREATER RESOURCES, LONGER
OPERATING HISTORIES, LARGER CUSTOMER BASES AND BROADER PRODUCT OFFERINGS.
Our business is, and we believe will continue to be, intensely competitive.
In offering email services to businesses, schools and other organizations, we
compete with MCI Mail, USA.NET, Critical Path and others. Our current and
prospective competitors in the facsimile transmission services market generally
fall into the following groups: telecommunication companies, such as AT&T,
WorldCom, Sprint, the regional Bell operating companies and telecommunications
resellers, ISPs, such as UUnet and NETCOM On-Line Communications Services, Inc.,
on-line services providers, such as Microsoft and America Online and direct fax
delivery competitors, including Premiere Document Distribution (formerly Xpedite
Systems, Inc.) and IDT Corporation. In offering outsourced Webmail services to
Web sites and ISPs, we compete with email service providers such as USA.NET,
Inc., Critical Path, Inc. and CommTouch Software, Ltd. In offering Webmail
services directly to consumers, our and our partners' competitors include such
large and established companies as Microsoft, America Online, Yahoo!,
Excite@Home, Disney (which owns the GO Network) and Lycos. Microsoft offers free
Webmail through its Hotmail Web site, and has dominant market share with over 40
million emailboxes according to Microsoft. See "Business - Competition."
Some of our competitors provide a variety of Web-based services such as
Internet access, browser software, homepage design and Web site hosting, in
addition to email. The ability of these competitors to offer a broader suite of
complementary services may give them a considerable advantage over us.
The level of competition is likely to increase as current competitors
increase the sophistication of their offerings and as new participants enter the
market. In the future, as we expand our service offerings, we expect to
encounter increased competition in the development and delivery of these
services. Further, some of our competitors may offer services for which we now
charge our members at or below cost or for free. If our competitors choose to
offer premium or other services at or below cost or for free, we may be forced
to do the same for our comparable services. If this occurs, our ability to
generate revenues from our subscription services would be materially impaired.
In addition, new technologies and the expansion of
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existing technologies may increase competitive pressures on us. We may not be
able to compete successfully against our current or future competitors.
TO GENERATE INCREASED REVENUES FROM OUR CONSUMER SERVICES, WE WILL HAVE TO
SUBSTANTIALLY INCREASE THE NUMBER OF OUR MEMBERS, WHICH WILL BE DIFFICULT TO
ACCOMPLISH.
To achieve our objective of generating revenues through our consumer email
services, we will have to retain our existing members and acquire a large number
of new members. We have relied upon strategic alliances with third party Web
sites to attract the majority of our current members.
We believe that our success in our consumer business will partially depend on
our ability to maintain our current alliances and to enter into new ones with
Web sites and ISPs on acceptable terms. We believe, however, that the
opportunity to form alliances with third party Web sites that are capable of
producing a substantial number of new members is diminishing. Many third party
Web sites that we have identified as potential sources for significant
quantities of new members already offer their visitors an email service similar
to ours. We cannot assure you that we will be able to enter into successful
alliances with third party Web sites or ISPs on acceptable terms or at all.
OUR CONTRACTS WITH OUR WEB SITE AND ISP PARTNERS REQUIRE US TO INCUR SUBSTANTIAL
EXPENSES.
In nearly all cases our Web site and ISP partners do not pay us to provide
our services. We bear the costs of providing our services. We currently generate
revenues by selling subscription services to our members and by selling
advertising space to advertisers who want to target these members. We pay the
partner a share of the revenues we generate. In addition, a number of our
contracts have required us to pay significant fees or to make minimum payments
to the partner without regard to the revenues we realize. If we are unable to
generate sufficient revenues at our partner sites, these fees and minimum
payments can cause the partner's effective share of our revenues to approach or
exceed 100%. We intend to reduce or eliminate the payment of these fees or
minimum payments made without regard to the revenues realized. We cannot assure
you that we will be able to renew partner contracts on the basis of reducing or
eliminating these payments or if renewed that the revised terms of such
contracts will be favorable to us.
THE FAILURE TO RENEW OUR PARTNER CONTRACTS, WHICH HAVE LIMITED TERMS, CAN RESULT
IN THE LOSS OF MEMBERS AND IMPAIR OUR CREDIBILITY.
Our partner contracts generally have one or two year terms. A partner can
decide not to renew at the end of the term for a variety of reasons, including
dissatisfaction with our service, a desire to switch to one of our outsourcing
competitors, or a decision to provide email service themselves. Partners can
also choose not to renew our contract because they have entered into a merger or
other strategic relationship with another company that can provide email
service. This last factor is becoming increasingly common in light of the
consolidation taking place among Web sites, ISPs and other Internet-related
businesses. For example, XOOM combined with Snap, which is jointly owned by CNET
and NBC Multimedia, to create a new Internet services company named NBC
Internet, Inc., or NBCi. XOOM offers a free email service at its xoom.com Web
site. We cannot assure you that these partners will not seek to terminate their
contractual relationships with us. A partner may also fail to renew our contract
with it because we decide not to continue making payments to it without regard
to the revenue that we generate from their site. The loss of a partner can be
very disruptive for us for a number of reasons:
We may lose a substantial number of members. When members register for our
service at a partner's Web site, the default domain name members use for their
email address is typically a domain name that is owned by the partner. As of
September 30, 2000, we estimate that approximately 28% of our established
emailboxes have email addresses at partner-owned domain names. Upon expiration,
most partners can
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require us to relinquish existing members with addresses at partner-owned domain
names. Even those members who have selected addresses using our domain names may
find it more convenient to switch to whatever replacement email service may be
available at the partner's site. The loss of members due to expiration or
non-renewal of partner contracts may materially reduce our revenues. Moreover,
as of September 30, 2000, we estimate that approximately 16% of our emailboxes
established are at the email.com domain. If CNET and NBCi exercise their rights
to terminate our agreement, which includes the right to terminate for
convenience after May 13, 2001, we would be obligated to transfer the email.com
domain name and related member information to them. If CNET and NBCi terminate
for convenience, they would be obligated to pay us the greater of $5.0 million
or 120% of the fair market value of the email.com user data based on the
projected economic benefit of the users and either return to us the shares that
we issued to them for the establishment of emailboxes or pay us the then fair
market value of these shares. If CNET and NBCi terminate for other reasons, the
amount of compensation they must pay to us varies depending on the reason for
termination. NBC Multimedia may elect to exercise similar rights relating to
email.com emailboxes established through their sites under our agreement with
them.
Losing relationships with prominent partners can impair our credibility with
other partners and with advertisers. We believe that partnerships with Web sites
and ISPs that have prominent brand names help give us credibility with other
partners and with advertisers. The loss of our better-known Web site and ISP
partners could damage our reputation and adversely affect the advertising,
direct marketing, e-commerce and subscription rates we charge.
BECAUSE WE ARE DEPENDENT ON A SMALL NUMBER OF PARTNER SITES FOR A SUBSTANTIAL
PERCENTAGE OF OUR ANTICIPATED NEW MEMBERS, A DISRUPTION IN OUR RELATIONSHIP WITH
ANY OF THESE PARTNERS OR A DECREASE IN TRAFFIC AT ANY OF THESE SITES COULD
REDUCE OUR SUBSCRIPTION REVENUES AND ADVERTISING RELATED REVENUES.
Most of our partner sites, including most of those with well-known brand
names, do not generate significant numbers of new emailboxes. The following four
partners accounted for 38% of our new emailboxes established in September 2000:
<TABLE>
<CAPTION>
PERCENTAGE
OF NEW DATE THAT OUR
E-MAILBOXES CONTRACT WITH
IN THE PARTNER
PARTNER SEPTEMBER 2000 EXPIRES
------- -------------- --------------
<S> <C> <C>
Juno................................. 13% December 2001
NBCi................................. 9% *
iWon................................. 9% Expired
EarthLink............................ 7% April 2001
</TABLE>
* NBCi may terminate its contracts for convenience after May 13, 2001.
If any of the Web sites operated by these parties were to experience lower
than anticipated traffic, or if our relationships with any of these parties were
disrupted for any reason, our revenues could decrease and the growth of our
business would be impeded. Lower than anticipated traffic could result in
decreased advertising related revenues because those revenues are in part
dependent on the number of members and the level of member usage. Our contract
with iWon will not renew upon expiration.
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OUR RAPID EXPANSION IS STRAINING OUR EXISTING RESOURCES, AND IF WE ARE NOT ABLE
TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS AND OPERATING RESULTS WILL
SUFFER.
We have aggressively expanded our operations in anticipation of an increasing
number of strategic alliances and a corresponding increase in the number of
members as well as development of our business customer base. We have entered
into agreements with additional partners and have upgraded our email services.
We have also developed the technology and infrastructure to offer a range of
services in the business Internet messaging and collaboration services market.
This expansion has placed, and we expect it to continue to place, a significant
strain on our managerial, operational and financial resources. If we cannot
manage our growth effectively, our business and operating results will suffer.
IT IS DIFFICULT TO RETAIN KEY PERSONNEL AND ATTRACT ADDITIONAL QUALIFIED
EMPLOYEES IN OUR BUSINESS AND THE LOSS OF KEY PERSONNEL AND THE BURDEN OF
ATTRACTING ADDITIONAL QUALIFIED EMPLOYEES MAY IMPEDE THE OPERATION AND GROWTH OF
OUR BUSINESS AND CAUSE OUR REVENUES TO DECLINE.
Our future success depends to a significant extent on the continued service
of our key technical, sales and senior management personnel, but they have no
contractual obligation to remain with us. In particular, our success depends on
the continued service of Gerald Gorman, our Chairman, Thomas Murawski, our Chief
Executive Officer, Brad Schrader, our President, Debra McClister, our Executive
Vice President and Chief Financial Officer, and Sam Kline, our Chief Operating
Officer. The loss of the services of Messrs. Gorman, Murawski, Schrader or Kline
or of Ms. McClister, or several other key employees, would impede the operation
and growth of our business. The success of our non-core businesses depends on
the continued services of Gary Millin, Chief Executive Officer of World.com, and
Courtney Nichols, President of Mail.com Personal Communications Services.
To manage our existing business and handle any future growth, we will have to
attract, retain and motivate additional highly skilled employees. In particular,
we will need to hire and retain qualified salespeople if we are to meet our
sales goals. We will also need to hire and retain additional experienced and
skilled technical personnel in order to meet the increasing technical demands of
our expanding business. Competition for employees in Internet-related businesses
is intense. We have in the past experienced, and expect to continue to
experience, difficulty in hiring and retaining employees with appropriate
qualifications. If we are unable to do so, our management may not be able to
effectively manage our business, exploit opportunities and respond to
competitive challenges.
OUR BUSINESS IS HEAVILY DEPENDENT ON TECHNOLOGY, INCLUDING TECHNOLOGY THAT HAS
NOT YET BEEN PROVEN RELIABLE AT HIGH TRAFFIC LEVELS AND TECHNOLOGY THAT WE DO
NOT CONTROL.
The performance of our computer systems is critical to the quality of service
we are able to provide to our members and to our business customers. If our
services are unavailable or fail to perform to their satisfaction, they may
cease using our service. Reduced use of our service decreases our revenues by
decreasing the advertising space that we have available to sell. In addition,
our agreements with several of our partners establish minimum performance
standards. If we fail to meet these standards, our partners could terminate
their relationships with us and assert claims for monetary damages.
WE NEED TO UPGRADE OUR COMPUTER SYSTEMS TO ACCOMMODATE INCREASES IN EMAIL AND
FAX TRAFFIC AND TO ACCOMMODATE INCREASES IN THE USAGE OF OUR COLLABORATION
SERVICES, BUT WE MAY NOT BE ABLE TO DO SO WHILE MAINTAINING OUR CURRENT LEVEL OF
SERVICE, OR AT ALL.
We must continue to expand and adapt our computer systems as the number of
members and customers and the amount of information they wish to transmit
increases and as their requirements change, and as we develop our business
messaging and collaboration services. Because we have only been providing our
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services for a limited time, and because our computer systems have not been
tested at greater capacities, we cannot guarantee the ability of our computer
systems to connect and manage a substantially larger number of members or meet
the needs of business customers at high transmission speeds. If we cannot
provide the necessary service while maintaining expected performance, our
business would suffer and our ability to generate revenues through our services
would be impaired.
The expansion and adaptation of our computer systems will require substantial
financial, operational and managerial resources. We may not be able to
accurately project the timing of increases in email traffic or other customer
requirements. In addition, the very process of upgrading our computer systems is
likely to cause service disruptions. This is because we will have to take
various elements of the network out of service in order to install some
upgrades.
OUR COMPUTER SYSTEMS MAY FAIL AND INTERRUPT OUR SERVICE.
Our members and customers have in the past experienced interruptions in our
services. We believe that these interruptions will continue to occur from time
to time. These interruptions are due to hardware failures, unsolicited bulk
emails that overload our system and other computer system failures. In
particular, we have experienced outages and delays in email delivery and access
to our email service related to disk failures, the implementation of changes to
our computer system, insufficient storage capacity and other problems. These
failures have resulted and may continue to result in significant disruptions to
our service. Although we plan to install backup computers and implement
procedures to reduce the impact of future malfunctions in these systems, the
presence of these and other single points of failure in our network increases
the risk of service interruptions. Some aspects of our computer systems are not
redundant. These include our member database system and our email storage
system, which stores emails and other data for our members. In addition,
substantially all of our computer and communications systems relating to our
email services are currently located in our primary data centers in Manhattan,
Edison, New Jersey and Dayton, Ohio. We currently do not have alternate sites
from which we could conduct operations in the event of a disaster. Our computer
and communications hardware is vulnerable to damage or interruption from fire,
flood, earthquake, power loss, telecommunications failure and similar events.
Our services would be suspended for a significant period of time if any of our
primary data centers was severely damaged or destroyed. We might also lose
stored emails and other member or customer files, causing significant member
dissatisfaction and possibly giving rise to claims for monetary damages.
OUR SERVICES WILL BECOME LESS DESIRABLE OR OBSOLETE IF WE ARE UNABLE TO KEEP UP
WITH THE RAPID CHANGES CHARACTERISTIC OF OUR BUSINESS.
Our success will depend on our ability to enhance our existing services and
to introduce new services in order to adapt to rapidly changing technologies,
industry standards and customer demands. To compete successfully, we will have
to accurately anticipate changes in business and consumer demand and add new
features to our services very rapidly. We also have to regularly upgrade our
software to ensure that it remains compatible with the wide and changing variety
of Web browsers and other software used by our members and business customers.
For example, our system currently cannot properly receive files sent using some
third party email programs. We may not be able to integrate the necessary
technology into our computer systems on a timely basis or without degrading the
performance of our existing services. We cannot be sure that, once integrated,
new technology will function as expected. Delays in introducing effective new
services could cause existing and potential members to forego use of our
services and to use instead those of our competitors.
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<PAGE> 16
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO PROVIDE ADEQUATE SECURITY FOR OUR
SERVICE, OR IF OUR SERVICE IS IMPAIRED BY SECURITY MEASURES IMPOSED BY THIRD
PARTIES.
Security is a critical issue for any online service, and presents a number of
challenges for us.
If we are unable to maintain the security of our service, our reputation and
our ability to attract and retain business customers and members may suffer, and
we may be exposed to liability. Third parties may attempt to breach our security
or that of our business customers whose networks we may maintain or for whom we
provide services to or that of our members. If they are successful, they could
obtain information that is sensitive or confidential to a business customer or
otherwise disrupt a business customer's operations or obtain our members'
confidential information, including our members' profiles, passwords, financial
account information, credit card numbers, stored email or other personal
information. Our business customers or members may assert claims for money
damages for any breach in our security and any breach could harm our reputation.
Our computers are vulnerable to computer viruses, physical or electronic
break-ins and similar incursions, which could lead to interruptions, delays or
loss of data. We expect to expend significant capital and other resources to
license or create encryption and other technologies to protect against security
breaches or to alleviate problems caused by any breach. Nevertheless, these
measures may prove ineffective. Our failure to prevent security breaches may
expose us to liability and may adversely affect our ability to attract and
retain members and develop our business market.
Security measures taken by others may interfere with the efficient operation
of our service, which may harm our reputation, adversely impact our ability to
attract and retain members and impede the delivery of advertisements from which
we currently generate revenues. "Firewalls" and similar network security
software employed by many ISPs, employers and schools can interfere with the
operation of our Webmail service, including denying our members access to their
email accounts. Similarly, in their efforts to filter out unsolicited bulk
emails, Web sites, ISPs and other organizations may block email from all or some
of our members.
OUR DEPENDENCE ON LICENSED TECHNOLOGY EXPOSES US TO THE RISK THAT WE MAY NOT BE
ABLE TO INTEGRATE OUR TECHNOLOGY, WHICH MAY RESULT IN LESS DEVELOPMENT OF OUR
OWN TECHNOLOGY AND MAY INCREASE OUR COSTS.
We license a significant amount of technology from third parties, including
technology related to our Web servers, email monitoring services, billing
processes, database and Internet fax services. We anticipate that we will need
to license additional technology to remain competitive. We may not be able to
license these technologies on commercially reasonable terms or at all.
Third-party licenses expose us to increased risks, including risks relating to
the integration of new technology, the diversion of resources from the
development of our own proprietary technology, a greater need to generate
revenues sufficient to offset associated license costs, and the possible
termination of or failure to renew an important license by the third-party
licensor.
IF THE INTERNET AND OTHER THIRD-PARTY NETWORKS ON WHICH WE DEPEND TO DELIVER OUR
SERVICES BECOME INEFFECTIVE AS A MEANS OF TRANSMITTING DATA, THE BENEFITS OF OUR
SERVICE MAY BE SEVERELY UNDERMINED.
Our business depends on the effectiveness of the Internet as a means of
transmitting data. The recent growth in the use of the Internet has caused
frequent interruptions and delays in accessing and transmitting data over the
Internet. Any deterioration in the performance of the Internet as a whole could
undermine the benefits of our services. Therefore, our success depends on
improvements being made to the entire Internet infrastructure to alleviate
overloading and congestion. We also depend on telecommunications network
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<PAGE> 17
suppliers such as MFS, BBN Planet and UUNET to transmit and receive email
messages on behalf of our members and our business customers. We are also
affected by service outages at our partners' Web sites. If service at a
partner's site is unavailable for a period of time, we will be unable to sign up
new members and generate page views and revenue at that site during the outage.
GERALD GORMAN CONTROLS MAIL.COM AND WILL BE ABLE TO PREVENT A CHANGE OF CONTROL.
Gerald Gorman, our Chairman, beneficially owned as of September 30, 2000
Class A and Class B common stock representing approximately 67.06% of the voting
power of our outstanding common stock. Each share of Class B common stock
entitles the holder to 10 votes on any matter submitted to the stockholders. As
a result of his share ownership, Mr. Gorman will be able to determine the
outcome of all matters requiring stockholder approval, including the election of
directors, amendment of our charter and approval of significant corporate
transactions. Mr. Gorman will be in a position to prevent a change in control of
Mail.com even if the other stockholders were in favor of the transaction.
Mail.com and Mr. Gorman have agreed to permit our stockholders who formerly
held our preferred stock to designate a total of three members of our board of
directors.
Our charter contains provisions that could deter or make more expensive a
takeover of Mail.com. These provisions include the ability to issue "blank
check" preferred stock without stockholder approval.
OUR GOAL OF BUILDING BRAND IDENTITY IS LIKELY TO BE DIFFICULT AND expensive.
We believe that a quality brand identity will be essential if we are to
develop our business services market and increase membership traffic on our
sites and revenues. We do not have experience with some of the types of
marketing that we are currently using. If our marketing efforts cost more than
anticipated or if we cannot increase our brand awareness, our losses will
increase and our ability to succeed will be seriously impeded.
OUR EXPANSION INTO INTERNATIONAL MARKETS IS SUBJECT TO SIGNIFICANT RISKS AND OUR
LOSSES MAY INCREASE AND OUR OPERATING RESULTS MAY SUFFER IF OUR REVENUES FROM
INTERNATIONAL OPERATIONS DO NOT EXCEED THE COSTS OF THOSE OPERATIONS.
We intend to continue to expand into international markets and to expend
significant financial and managerial resources to do so. We have limited
experience in international operations and may not be able to compete
effectively in international markets. If our revenues from international
operations do not exceed the expense of establishing and maintaining these
operations, our losses will increase and our operating results will suffer. We
face significant risks inherent in conducting business internationally, such as:
- uncertain demand in foreign markets for email outsourcing, Webmail
advertising, direct marketing and e-commerce;
- difficulties and costs of staffing and managing international
operations;
- differing technology standards;
- difficulties in collecting accounts receivable and longer collection
periods;
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- economic instability and fluctuations in currency exchange rates and
imposition of currency exchange controls;
- potentially adverse tax consequences;
- regulatory limitations on the activities in which we can engage and
foreign ownership limitations on our ability to hold an interest in
entities through which we wish to conduct business, and
- political instability, unexpected changes in regulatory requirements, and
reduced protection for intellectual property rights in some countries.
REGULATION OF EMAIL AND INTERNET USE IS EVOLVING AND MAY ADVERSELY IMPACT OUR
BUSINESS.
There are currently few laws or regulations that specifically regulate
activity on the Internet. However, laws and regulations may be adopted in the
future that address issues such as user privacy, pricing, and the
characteristics and quality of products and services. For example, the
Telecommunications Act of 1996 restricts the types of information and content
transmitted over the Internet. Several telecommunications companies have
petitioned the FCC to regulate ISPs and online service providers in a manner
similar to long distance telephone carriers and to impose access fees on these
companies. This could increase the cost of transmitting data over the Internet.
Any new laws or regulations relating to the Internet could adversely affect our
business.
Moreover, the extent to which existing laws relating to issues such as
property ownership, pornography, libel and personal privacy are applicable to
the Internet is uncertain. We could face liability for defamation, copyright,
patent or trademark infringement and other claims based on the content of the
email transmitted over our system. We do not and cannot screen all the content
generated and received by our members. Some foreign governments, such as
Germany, have enforced laws and regulations related to content distributed over
the Internet that are more strict than those currently in place in the United
States. We may be subject to legal proceedings and damage claims if we are found
to have violated laws relating to email content.
We are subject to regulation by various state public service and public
utility commissions and by various international regulatory authorities with
respect to our fax services. We are licensed by the FCC as an authorized
telecommunications company and are classified as a "non-dominant interexchange
carrier." Generally, the FCC has chosen not to exercise its statutory power to
closely regulate the charges or practices of non-dominant carriers.
Nevertheless, the FCC acts upon complaints against such carriers for failure to
comply with statutory obligations or with the FCC's rules, regulations and
policies. The FCC also has the power to impose more stringent regulatory
requirements on us and to change its regulatory classification. There can be no
assurance that the FCC will not change its regulatory classification or
otherwise subject us to more burdensome regulatory requirements.
On August 7, 1997, the FCC issued new rules which may significantly reduce
the cost of international calls originating in the United States. Such rules are
scheduled to be phased in over a five-year period starting on January 1, 1998.
To the extent that these new regulations are implemented and result in
reductions in the cost of international calls originating in the United States,
we will face increased competition for our international fax services which may
have a material adverse effect on our business, financial condition or results
in operations.
In connection with the deployment of Internet-capable nodes in countries
throughout the world, we are required to satisfy a variety of foreign regulatory
requirements. We intend to explore and seek to comply with these requirements on
a country-by-country basis as the deployment of Internet-capable facsimile nodes
continues. There can be no assurance that we will be able to satisfy the
regulatory requirements in
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each of the countries currently targeted for node deployment, and the failure to
satisfy such requirements may prevent us from installing Internet-capable
facsimile nodes in such countries. The failure to deploy a number of such nodes
could have a material adverse effect on its business, operating results and
financial condition.
Our facsimile nodes and our faxLauncher service utilize encryption technology
in connection with the routing of customer documents through the Internet. The
export of such encryption technology is regulated by the United States
government. We have authority for the export of such encryption technology other
than to Cuba, Iran, Iraq, Libya, North Korea, and Rwanda. Nevertheless, there
can be no assurance that such authority will not be revoked or modified at any
time for any particular jurisdiction or in general. In addition, there can be no
assurance that such export controls, either in their current form or as may be
subsequently enacted, will not limit our ability to distribute our services
outside of the United States or electronically. While we take precautions
against unlawful exportation of our software, the global nature of the Internet
makes it virtually impossible to effectively control the distribution of our
services. Moreover, future Federal or state legislation or regulation may
further limit levels of encryption or authentication technology. Any such export
restrictions, the unlawful exportation of our services, or new legislation or
regulation could have a material adverse effect on our business, financial
condition and results of operations.
The legal structure and scope of operations of our subsidiaries in some
foreign countries may be subject to restrictions which could result in severe
limits to our ability to conduct business in these countries and this could have
a material adverse effect on our financial position, results of operations and
cash flows. We have formed WORLD.com, Inc. for the purpose of developing our
portfolio of domain names, including Asia.com and India.com. In connection with
the formation of Asia.com, Inc., we acquired eLong.com, Inc. which operates
through its wholly-owned subsidiary the Web site www.elong.com in the Peoples
Republic of China or the PRC. We have also announced that we intend to expand
our Internet messaging business in international markets. To the extent that we
develop and operate web sites or offer Internet messaging services in foreign
countries, we will be subject to the laws and regulations of these countries.
The laws and regulations relating to the Internet in many countries are evolving
and in many cases are unclear as to their application. For example, in India,
the PRC and other countries we may be subject to licensing requirements with
respect to the Internet activities in which we propose to engage and we may also
be subject to foreign ownership limitations or other approval requirements that
preclude our ownership interests or limit our ownership interests to up to 49%
of the entities through which we propose to conduct any regulated activities. If
these limitations apply to our activities, including our activities conducted
through our subsidiaries, our opportunities to generate revenue will be reduced,
our ability to compete successfully in these markets will be adversely affected,
our ability to raise capital in the private and public markets may be adversely
affected and the value of our investments and acquisitions in these markets may
decline. Moreover, to the extent we are limited in our ability to engage in
certain activities or are required to contract for these services from a
licensed or authorized third party, our costs of providing our services will
increase and our ability to generate profits may be adversely affected.
OUR INTELLECTUAL PROPERTY RIGHTS ARE CRITICAL TO OUR SUCCESS, BUT MAY BE
DIFFICULT TO PROTECT.
We regard our copyrights, service marks, trademarks, trade secrets, domain
names and similar intellectual property as critical to our success. We rely on
trademark and copyright law, trade secret protection and confidentiality and/or
license agreements with our employees, members, strategic partners and others to
protect our proprietary rights. Despite our precautions, unauthorized third
parties may improperly obtain and use information that we regard as proprietary.
Third parties may submit false registration data attempting to transfer key
domain names to their control. Our failure to pay annual registration fees for
key domain names may result in the loss of these domains to third parties. Third
parties have challenged our rights to use some of our domain names, and we
expect that they will continue to do so.
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The status of United States patent protection for software products is not
well defined and will evolve as additional patents are granted. We do not know
if our current or future patent applications will be issued with the scope of
the claims we seek, if at all. Current United States law does not adequately
protect our database of member contact and demographic information. In addition,
the laws of some foreign countries do not protect proprietary rights to the same
extent as do the laws of the United States. Our means of protecting our
proprietary rights in the United States or abroad may not be adequate and
competitors may independently develop similar technology.
Third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. In addition, other parties have asserted and may in
the future assert infringement claims against us. We cannot be certain that our
services do not infringe issued patents. Because patent applications in the
United States are not publicly disclosed until the patent is issued,
applications may have been filed which relate to our services.
We have been and may continue to be subject to legal proceedings and claims
from time to time in the ordinary course of our business, including claims
related to the use of our domain names and claims of alleged infringement of the
trademarks and other intellectual property rights of third parties. Third
parties have challenged our rights to register and use some of our domain names
based on trademark principles and on the recently enacted Anticybersquatting
Consumer Protection Act. As domain names become more valuable to businesses and
other persons, we expect that third parties will continue to challenge some of
our domain names and that the number of these challenges may increase. In
addition, the existing or future laws of some countries, in particular countries
in Europe, may limit or prohibit our ability to use in those countries or
elsewhere some of our geographic names that contain the names of a city in those
countries or the name of those countries. Intellectual property litigation is
expensive and time-consuming and could divert management's attention away from
running our business.
THE SUCCESS OF OUR GLOBAL OPERATIONS IS SUBJECT TO SPECIAL RISKS AND COSTS.
We have begun, and intend to continue, to expand our operations outside of
the United States. This international expansion will require significant
management attention and financial resources. We face substantial risks in doing
business globally, including unexpected changes in regulatory requirements,
export restrictions, difficulties in staffing and managing foreign operations,
difficulties in protecting intellectual property rights, problems in collecting
accounts receivable, political instability, fluctuations in currency exchange
rates and exchange rate controls, difficulties in enforcing contracts and
potentially adverse consequences. In addition, as described elsewhere in this
prospectus, governments in foreign jurisdictions may regulate the Internet or
other online services in such areas as content, privacy, network security,
encryption or distribution, which may also affect our ability to conduct
business internationally.
A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK MAY COME ONTO THE MARKET IN THE FUTURE,
WHICH COULD DEPRESS OUR STOCK PRICE.
Sales of a substantial number of shares of our common stock in the public
market could cause the market price of our Class A common stock to decline. As
of September 30, 2000, we had an aggregate of 61,616,196 shares of Class A and
Class B common stock and options to purchase 14,512,529 and warrants to purchase
1,231,233 shares of Class A common stock outstanding. As of such date,
approximately 52,657,495 shares of Class A common stock and Class B common stock
were freely tradable, in some cases subject to the volume and manner of sale
limitations contained in Rule 144. As of such date, approximately 8,958,701
shares of Class A common stock will become available for sale at various later
dates upon the expiration of one-year holding periods or upon the expiration of
any other applicable restrictions on resale. We are likely to issue large
amounts of additional Class A common stock, which may also be sold and which
could adversely affect the price of our stock.
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As of September 30, 2000 the holders of up to 21,211,911 shares of Class A
common stock, had the right, subject to various conditions, to require us to
file registration statements covering their shares, or to include their shares
in registration statements that we may file for ourselves or for other
stockholders, including the shelf registration statement we are required to file
with respect to our convertible notes. By exercising their registration rights
and selling a large number of shares, these holders could cause the price of the
Class A common stock to fall. An undetermined number of these shares have been
sold publicly pursuant to Rule 144.
OUR STOCK PRICE HAS BEEN VOLATILE AND WE EXPECT THAT IT WILL CONTINUE TO BE
VOLATILE.
Our stock price has been volatile since our initial public offering and we
expect that it will continue to be volatile. As discussed above, our financial
results are difficult to predict and could fluctuate significantly. In addition,
the market prices of securities of Internet-related companies have been highly
volatile. A stock's price is often influenced by rapidly changing perceptions
about the future of the Internet or the results of other Internet or technology
companies, rather than specific developments relating to the issuer of that
particular stock. As a result of volatility in our stock price, a securities
class action may be brought against us. Class-action litigation could result in
substantial costs and divert our management's attention and resources.
WE INTEND TO SELL OUR ADVERTISING NETWORK BUSINESS. UNTIL A SALE OR OTHER
DISPOSITION IS COMPLETED, THE FOLLOWING RISKS WILL CONTINUE TO APPLY TO THESE
OPERATIONS:
WE HAVE ONLY LIMITED INFORMATION ABOUT OUR MEMBERS AND THEIR USAGE, WHICH MAY
LIMIT OUR POTENTIAL REVENUES.
Our ability to generate revenue from advertising related sales is directly
related to our members' activity levels and the quality of our demographic data.
To be successful in our advertising network business, we will have to increase
members' usage of our service. We are subject to several constraints that will
limit our ability to maximize the value of our member base:
We believe that most of our members do not use their emailboxes regularly,
and many do not use them at all. We believe that a substantial majority of our
members do not access their emailboxes regularly or at all. Moreover, we believe
that many of our emailboxes that are accessed were first established during a
recent period prior to access. We expect our proportion of active members to
decrease as our total number of established emailboxes increases. On an ongoing
basis, we believe that a significant number of members will cease using our
service each month. We cannot assure you that we will be able to add enough new
members to compensate for this anticipated loss of usage.
We have only a limited ability to generate advertising revenues from
forwarding and POP3 accounts, which represent a significant percentage of our
emailboxes. Members who choose our forwarding service or subscribe to our POP3
service do not need to come to our partners' or our Web sites to access their
email. Therefore, we do not deliver Web-based advertisements to these members.
Forwarding and POP3 accounts represented approximately 23% of our total
emailboxes as of September 30, 2000, and 10% of the emailboxes that were
established during September 2000. If a disproportionate percentage of members
choose either of these options, it will adversely affect our ability to generate
advertising related revenues.
Our database contains inaccuracies that could reduce the value of our
information. Although we attempt to collect basic demographic information about
members at the time they establish their accounts, we do not verify the accuracy
of this information. Moreover, even if the information is correct when we
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receive it, members may move, change jobs or die without our knowledge. As a
result, our database contains inaccuracies that could make our information less
appealing to advertisers.
We do not know how many members have established multiple emailboxes. Because
we do not charge for our basic service, individuals can easily establish
multiple emailboxes. This makes it impossible for us to determine the number of
separate individuals registering for our service, which may reduce the
advertising rates we can command.
EMAIL ADVERTISING MAY NOT PROVE TO BE VIABLE BUSINESSES.
The email advertising industry is only beginning to develop. The success of
our advertising network business will depend on the development of viable
markets for email advertising. For a number of reasons, this development is
somewhat speculative:
The market for email advertising is only beginning to develop and the
effectiveness of this form of advertising is unproven. Even if Webmail proves to
be popular, we will still need large numbers of advertisers to purchase space on
our Webmail service. We currently do not sell advertisements in connection with
our business email services.
Because we, and our competitors, have only recently begun to offer email
advertising, our potential advertising customers have little or no experience
with this medium. We do not yet have enough experience to demonstrate the
effectiveness of this form of advertising. As a result, those customers willing
to try email advertising are likely to allocate only a limited portion of their
advertising budgets. If early customers do not find email advertising to be
effective for promoting their products and services, the market for our products
will be unlikely to develop. Prices for banner advertisements on the Internet
have begun to fall, in part because of diminishing "click" or response rates.
Advertisers are also requesting fewer "cost per thousand advertisements" pricing
arrangements and more "cost per click" pricing, which could effectively lower
advertising rates.
There are currently no standards for measuring the effectiveness of Webmail
advertising. Standard measurements may need to be developed to support and
promote Webmail advertising as a significant advertising medium. Our advertising
customers may refuse to accept our own measurements or third-party measurements
of advertisement delivery, which would adversely affect our ability to generate
advertising related revenues.
Filtering software could prevent us from delivering advertising. Inexpensive
software programs are available which limit or prevent the delivery of
advertising to a user's computer. The widespread adoption of this software would
seriously threaten the commercial viability of email advertising and our ability
to generate advertising revenues.
THERE ARE SIGNIFICANT OBSTACLES TO OUR ABILITY TO INCREASE ADVERTISING REVENUES.
Our success in our advertising network business will largely depend on our
ability to substantially increase our advertising related revenues, which we
currently generate only in connection with our consumer services. Several
factors will make it very difficult for us to achieve this objective:
Our contracts with our advertisers typically have terms of only one or two
months, and we may be unable to renew these contracts. For the nine months ended
September 30, 2000 and 1999, revenues from our five largest advertisers
accounted for an aggregate of 8% and 36%, respectively, of our revenues. Our
future success will depend upon our ability to retain these advertisers, to
generate significant revenues from new advertisers and to reduce our reliance on
any single advertiser. Our existing contracts with advertisers
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generally have terms of only one or two months and we may be unable to renew
them. The loss of one of our major advertisers or our inability to attract new
advertisers would cause our revenues to decline.
We may not be able to sell as much advertising on a "cost per thousand" basis
or to charge as much under this type of arrangement as we have in the past. To
date, we have generated a significant portion of our advertising revenues on a
"cost per thousand" basis. These agreements require the advertiser to pay us a
fixed fee for every 1,000 advertisements that we deliver to our members. We
believe that this type of agreement is the most effective for us, but we may not
be able to charge as much for these agreements, or to continue to sell as much
advertising on this basis, in the future.
We face greater risks when selling advertising on a "cost per action" basis.
The two types of "cost per action" contracts are "cost per click" and "cost per
conversion." In cost per click contracts, an advertiser agrees to pay us a fee
for each occasion on which a member "clicks" on the advertisement. Cost per
conversion contracts provide that we receive a fee only when a member both
"clicks" on the advertisement and proceeds to purchase an item, order a catalog
or take some other step specified by the advertiser. In general, these
arrangements do not yield as much revenue for us for each advertisement that we
deliver to our members. Moreover, cost per conversion contracts present
additional risks for us because we have no control over the advertiser's ability
to convert a "click" into a sale or other action. We also must rely on the
advertiser to report to us the number of conversions. These reports may not be
accurate, and they may not be timely, both of which can adversely affect our
revenues. Notwithstanding these risks, we may have to sell more of our
advertising on a cost per click or cost per conversion basis in the future.
IF THE THIRD PARTY THAT WE DEPEND ON FOR THE ACTUAL DELIVERY OF THE
ADVERTISEMENTS WE SELL EXPERIENCES TECHNICAL DIFFICULTIES OR OTHERWISE FAILS TO
PERFORM, OUR REVENUES FROM ADVERTISING MAY BE ADVERSELY AFFECTED.
We contract with DoubleClick, Inc. to deliver the advertisements that we sell
and that appear on our Web pages and on the Web pages of our partners. If
DoubleClick experiences technical difficulties or otherwise fails to perform,
our revenues from advertising may be adversely affected. Furthermore,
DoubleClick may not have the same priorities for technology development as we do
and this may limit our ability to improve our delivery of advertising for our
specific needs.
WE FACE INTENSE COMPETITION IN OUR NON-CORE BUSINESSES.
The email advertising business is, and we believe will continue to be,
intensely competitive. Some of our competitors are include large and established
companies with more resources than us. We compete for advertisers with
DoubleClick, 24/7 Media and other Internet advertising networks. We also compete
for advertisers with other Internet publishers as well as traditional media such
as television, radio, print and outdoor advertising. In addition, some
competitors who have other sources of revenue do not, or in the future may not,
place advertising on their Webmail pages. Consumers may prefer a service that
does not include advertisements. Also, some of our competitors may offer
advertisement-free email on a subscription basis or for free, which could
adversely affect our ability to attract and retain members unless we do the
same. We may not be able to compete successfully against our current or future
competitors in the email advertising business.
Also, our domain properties developed by WORLD.com compete with the major
business and consumer portals and other providers of Internet services in the
markets in which they operate.
WE INTEND TO SELL OUR ASIA.COM, INC. AND INDIA.COM, INC. SUBSIDIARIES AND
OUR PORTFOLIO OF DOMAIN NAMES. UNTIL A SALE OR OTHER DISPOSITION IS
COMPLETED, THE FOLLOWING SPECIAL RISKS WILL CONTINUE TO APPLY TO THESE
OPERATIONS:
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THE LIMITED INSTALLED PERSONAL COMPUTER BASE AND HIGH COST OF ACCESSING THE
INTERNET IN CHINA AND INDIA LIMITS THE POOL OF POTENTIAL CUSTOMERS FOR ASIA.COM
AND INDIA.COM.
The market penetration rates of personal computers and on-line access in
China and India are far lower than such rates in the United States. Alternate
methods of obtaining access to the Internet, such as through cable television
modems or set-top boxes for televisions, are currently unavailable in India and
China. There can be no assurance that the number or penetration rate of personal
computers in China and India will increase rapidly or at all or that alternate
means of accessing the Internet will develop and become widely available in
China and India.
Our growth is limited by the cost to Chinese and Indian consumers of
obtaining the hardware, software and communications links necessary to connect
to the Internet in China and India. If the overall costs required to access the
Internet do not significantly decrease, most of China's and India's population
will not be able to afford to use our services. The failure of a significant
number of additional Chinese and Indian consumers to obtain affordable access to
the Internet would make it very difficult to execute our business plan.
We believe that wireless access to the Internet through a variety of
hand-held and other devices such as mobile phones will become increasingly
important in Asia. Accordingly, our Asia.com subsidiary has made wireless
Internet services for businesses an important part of its business focus. We
cannot assure you that wireless access to the Internet will in fact develop and
reach wide use and acceptance in Asia as we expect.
WE ARE RELYING ON ELECTRONIC COMMERCE AS A SIGNIFICANT PART OF WORLD.COM'S
FUTURE REVENUE, BUT THE INTERNET HAS NOT YET BEEN PROVEN AS AN EFFECTIVE
COMMERCE MEDIUM IN CHINA AND INDIA.
WORLD.com's revenue growth depends in part on the increasing acceptance and
use of electronic commerce in China and India. The Internet may not become a
viable commercial marketplace in Asia for various reasons, many of which are
beyond our control, including:
- inexperience with the Internet as a sales and distribution channel;
- inadequate development of the necessary infrastructure to facilitate
electronic commerce;
- concerns about security, reliability, cost, ease of deployment,
administration and quality of service associated with conducting business
over the Internet; and
- inexperience with credit card usage or with other means of electronic
payment.
UNDERDEVELOPED TELECOMMUNICATIONS INFRASTRUCTURE AND UNCLEAR TELECOMMUNICATIONS
REGULATIONS HAVE LIMITED AND MAY CONTINUE TO LIMIT THE GROWTH OF THE INTERNET
MARKET IN CHINA AND INDIA.
The telecommunications infrastructure in China and India is not well
developed. The underdeveloped Internet infrastructure in China and India has
limited the growth of Internet usage there. If the necessary Internet
infrastructure is not developed, or is not developed on a timely basis, future
growth of the Internet in China and India will be limited and our business could
be harmed.
On September 25, 2000, the Chinese government promulgated PRC
Telecommunication Regulations ("Telecom Regulations"). The Telecom Regulations
define two types of telecommunication business, basic telecommunication business
and value-added telecommunication business. The Telecom Regulations also provide
that the State Council will promulgate separate rules to regulate foreign
entities'
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investment and operation of telecommunication business in China. We cannot
predict the effect of the new laws and regulations to be promulgated by the
State Council in this regard.
OUR ASIA.COM BUSINESS MAY BE ADVERSELY AFFECTED BY CHINESE GOVERNMENT REGULATION
OF INTERNET COMPANIES.
China has recently begun to regulate its Internet sector by making
pronouncements or enacting regulations regarding the legality of foreign
investment in the Chinese Internet sector, the existence and enforcement of
content restrictions on the Internet and the availability of securities
offerings by companies operating in the Chinese Internet sector. There are
substantial uncertainties regarding the proper interpretation of current and
future Chinese Internet laws and regulations.
Issues, risks and uncertainties relating to Chinese government regulation of
the Chinese Internet sector include the following:
A prohibition of foreign investment in businesses providing value-added
telecommunication services, including computer information services or
electronic mail box services, may be applied to Internet businesses such as
ours. Some officials of the Chinese Ministry of Information and Industry, or
MII, have taken the position that foreign investment in the Internet sector is
prohibited.
The MII has also stated recently that it intends to adopt new laws or
regulations governing foreign investment in the Chinese Internet sector in the
near future. If these new laws or regulations forbid foreign investment in the
Internet sector, our business in China will be severely impaired.
On September 25, 2000, the Chinese government promulgated Administrative
Measures on Internet Information Services ("Administrative Measures"). The
Administrative Measures require commercial Internet information service
providers to apply for an Internet information service value-added
telecommunication business license from the telecommunication administration
authority to be able to engage in Internet information service businesses and
activities in China. The Administrative Measures also provide that any initial
public offering and listing project or any equity or contractual joint venture
project with foreign investors by a commercial Internet information service
provider requires a prior consent from the central information industry
authority. It remains uncertain what percentage will be allowed for foreign
investment in the Internet information service business under existing laws and
regulations. We operate our business in China through our subsidiaries, and are
currently in the process of applying for an Internet information service
value-added telecommunication business license. We cannot predict whether this
application will be successful.
Under the agreement reached in November 1999 between China and the United
States concerning the United States' support of China's entry into the World
Trade Organization, or WTO, foreign investment in Chinese Internet services will
be liberalized to allow for 30% foreign ownership in key telecommunication
services, including Chinese Internet ventures, for the first year after China's
entry into the WTO (subject to certain geographic limitations), 49% in the
second year (with expanded geographic coverage) and 50% thereafter (with no
geographic limitations). The implementation of this agreement is subject to
approval by the U.S. Congress, China's completion of bilateral negotiations with
other WTO members, the multilateral negotiation of China's accession protocol
with the WTO and the completion of China's own domestic procedures for
accession. Within the United States, China's WTO accession faces opposition from
trade unions, environmentalists and human rights organization.
The MII has also stated recently that the activities of Internet content
providers are also subject to regulation by various Chinese government
authorities, depending on the specific activities conducted by the Internet
content provider. Various government authorities have stated publicly that they
are in the process of
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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.
The Indian government is attempting to liberalize this sector and has enacted
or is currently considering enacting new legislation in that regard. For
example, Press Note No. 7 (2000 series) dated July 14, 2000, permits 100%
foreign investment in business-to-business e-commerce companies, subject
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to the condition that "such investing companies" divest 26% of their equity in
favor of the Indian public in five years, if "these companies" are listed in
other parts of the world. It remains unclear as to whether the referenced
listing is of the Indian subsidiary or of the investor company. For retail
e-commerce companies, 51% foreign equity investment is permitted. Press Note No.
8 (2000 series) dated August 29, 2000, removes the earlier restriction on
automatic approvals in cases where a foreign investor had a previous or existing
joint venture or technology transfer/trade mark agreements in the same or allied
field in India for all proposals relating to information technology.
In the telecom sector, the present cap on foreign equity is 49% and a license
is required to provide such services. However, the license required for ISPs has
been waived until October 31, 2003. Also, in Press Note No. 9 (2000 series)
dated September 8, 2000 the Indian government recently permitted 100% foreign
direct investment in relation to certain activities including:
- ISPs not providing gateways (applicable both for satellite and
submarine cables);
- Infrastructure providers providing dark fiber (IP category 1);
- Electronic mail; and
- Voice mail.
However, the above activities are still subject to the 26% divestment rule,
certain security restrictions and other regulations.
The government has also recently passed the Information Technology Act, 2000
which focuses on recognizing and regulating electronic transactions and records,
affecting:
- authentication of digital records;
- legal recognition of electronic records and digital signatures;
- attribution, acknowledgment and dispatch of electronic records;
- secure electronic records and digital signatures; and
- regulation of certifying authorities.
More legislation that is presently being discussed is a draft Information
Communication and Entertainment Bill, 2000 ("ICE Bill") that would govern the
rapid convergence of broadcasting, telecommunications and information
technologies. The ICE Bill contemplates the establishment of a Communication
Commission to license and regulate the provision of network facilities, network
services, application services or content application services and ownership of
wireless apparatus.
It is unclear how the ICE Bill, if enacted, or any of the legislation
previously discussed, will affect India.com's business and operations. Further,
political instability could halt or delay the liberalization of the Indian
economy and adversely affect business and economic conditions in India generally
and our business in particular. Although during the past decade, the government
of India has pursued policies of economic liberalization, including
significantly relaxing restrictions on the private sector and further reforms
are still expected under the current policy to promote the information
technology and software industries, political uncertainty still exists and a
significant change in India's economic liberalization and
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deregulation policies could adversely affect business and economic conditions in
India generally and our India.com business in particular.
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 September 30, 2000, we had 51,616,196 shares of Class A common stock
outstanding held of record by approximately 374 stockholders and 10,000,000
shares of Class B common stock outstanding held entirely by Gerald Gorman, our
Chairman.
All of the issued and outstanding shares of our Class A common stock are
fully paid and nonassessable. Except as described below, the issued and
outstanding shares of our Class A common stock and Class B common stock
generally have identical rights. In addition, under our amended and restated
certificate of incorporation, as amended, holders of Class A common stock have
no preemptive or other subscription rights to purchase shares of our stock, nor
are they entitled to the benefits of any redemption or sinking fund provisions.
VOTING RIGHTS
The holders of our Class A common stock are entitled to one vote per share on
all matters to be voted on by stockholders generally, including the election of
directors. The holder of our Class B common stock is entitled to ten votes per
share on all matters to be voted on by stockholders generally, including the
election of directors. In addition to any class vote that may be required under
law or our amended and restated certificate of incorporation, as amended, all
classes of capital stock entitled to vote generally on any matter vote together
as a single class. There are no cumulative voting rights. Accordingly, holders
of a majority of the total votes entitled to vote in an election of directors
will be able to elect all of the directors standing for election.
Please see "Risk Factors - Gerald Gorman controls Mail.com and will be able
to prevent a change of control."
LIQUIDATION PREFERENCES
If we are liquidated, dissolved or wound up, the holders of our Class A
common stock and Class B common stock will be entitled to receive distributions
only after satisfaction of all liabilities and the prior rights of any
outstanding class of preferred stock. If we are liquidated, dissolved or wound
up, our assets
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legally available after satisfaction of all of our liabilities shall be
distributed to the holders of our Class A common stock and Class B common stock
pro rata based on the respective numbers of shares of Class A common stock held
by these holders or issuable to them upon conversion of Class B common stock.
CONVERSION RIGHTS/MANDATORY CONVERSION
Holders of our Class A common stock have no conversion rights. Holders of our
Class B common stock may convert each share into one share of Class A common
stock. In addition, the holder of Class B common stock has contractually agreed
with the former holders of Class C preferred stock and Class E preferred stock
and some former holders of Class A preferred stock that he will not transfer his
shares of Class B common stock in the form of Class B common stock unless such
holders have had the opportunity within specified time periods to dispose of
their shares of Class A common stock issuable upon conversion of their preferred
stock at specified prices. As a result, until this condition has been satisfied
or the former holders of a majority in interest of each class of preferred stock
otherwise consent in writing, the holder of Class B common stock must convert
shares of Class B common stock into shares of Class A common stock prior to
transfer.
DIVIDENDS
The holders of both classes of our common stock are entitled to receive equal
non-cumulative dividends when and as declared from time to time by the board of
directors, subject to any preferential dividend rights of any outstanding
preferred stock.
PREFERRED STOCK
Under our amended and restated certificate of incorporation, as amended, the
board of directors is authorized, without further stockholder approval, to issue
up to 60,000,000 shares of preferred stock in one or more classes or series. The
board also has the authority to fix or alter the designations, preferences,
rights and any qualifications, limitations or restrictions of the shares of each
such class or series, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences. Preferred stock could
thus be issued quickly with terms that could delay or prevent a change of
control of Mail.com or make removal of management more difficult. Additionally,
the issuance of preferred stock may decrease the market price of our Class A
common stock and may adversely affect the voting and other rights of the holders
of our Class A common stock. Currently, we do not have any preferred stock
outstanding and have no plans to create or issue any shares of any new class or
series of preferred stock.
WARRANTS/OPTIONS
Under an engagement letter dated March 2, 1998 between PaineWebber
Incorporated and Mail.com and entered into in connection with the private
placement of our Class C preferred stock, we issued to PaineWebber Incorporated
warrants to purchase 143,484 shares of our Class A common stock and we issued to
a former employee of PaineWebber Incorporated warrants to purchase 35,872 shares
of our Class A common stock. These warrants are exercisable at an exercise price
of $3.50 per share and expire July 31, 2003. The warrants are entitled to
anti-dilution adjustment in the event of stock splits, stock dividends, stock
distributions or combinations.
Under our letter agreement with AT&T dated May 26, 1999, we issued warrants
to purchase 1,000,000 shares of our Class A common stock at an exercise price of
$11.00 per share. AT&T may exercise the warrants at any time on or before
December 31, 2000. AT&T may not sell or otherwise transfer to a third party the
warrants or the shares issuable upon exercise of the warrants until May 26,
2004. If AT&T does not exercise the warrants on or before December 31, 2000, the
warrants will expire
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and be cancelled.
REGISTRATION RIGHTS
PREFERRED STOCKHOLDERS
The stockholders who formerly held shares of our Class A preferred stock,
other than Lycos, and the stockholders who formerly held shares of our Class C
and Class E preferred stock are entitled to various registration rights with
respect to their shares of Class A common stock issued upon conversion of each
class of preferred stock.
- Demand registration rights. The holders of a majority of our shares issued
upon conversion of our Class A preferred stock and the holders of a
majority of the shares issued upon conversion of our Class C preferred
stock, voting as separate classes, have the right to demand that we
register their shares of Class A common stock under the Securities Act.
The stockholders who formerly held shares of our Class A preferred stock
may exercise their demand registration rights up to three times, and the
stockholders who formerly held shares of our Class C preferred stock may
exercise their demand registration right once. In addition, the holders of
20% or more of the shares issued upon conversion of our Class E preferred
stock may demand that we register their shares of Class A common stock
under the Securities Act. If 30% or more of the shares registered in any
Class C or Class E demand registration are shares requested to be
registered by Lycos, then the former holders of each of our Class C and
Class E preferred stock have the right to a second demand registration.
- Piggyback registration rights. The stockholders who formerly held shares
of our Class A, Class C and Class E preferred stock can request to have
their shares registered under the Securities Act any time we file a
registration statement to register any of our securities for our own
account or for the account of any of our stockholders in connection with
an underwritten public offering. The number of times such rights may be
exercised is unlimited, but the number of shares that can be registered at
any one time is subject to limitations that any underwriters may impose.
- S-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
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impose.
CNET AND NBC MULTIMEDIA
We granted registration rights to CNET and NBC Multimedia with respect to the
shares of our Class A common stock issued upon exercise of their warrants. The
holder or holders of a majority of the shares of Class A common stock issued
upon exercise of their warrants may require us to effect one registration under
the Securities Act. If 30% or more of the shares to be registered in that demand
registration are shares requested to be registered by Lycos, then the holders
have the right to a second demand registration.
The holder or holders of a majority of shares of our Class A common stock
issued upon exercise of the CNET and NBC Multimedia warrants have the right to
have their shares of Class A common stock registered under the Securities Act
any time we file a registration statement to register any of our securities for
our own account or for the account of any of our stockholders in connection with
an underwritten public offering.
The holder or holders of a majority of shares of our Class A common stock
issued upon exercise of the CNET and NBC Multimedia warrants have the right to
have their shares of Class A common stock registered on Form S-3. The number of
times this registration right may be exercised is unlimited, but we are required
to file only one Form S-3 in any twelve-month period.
These registration rights will terminate 30 months from the closing of our
initial public offering, which occurred on June 23, 1999.
3CUBE, INC.
In connection with our investments in 3Cube, Inc. we granted 3Cube
registration rights. We agreed to register on Form S-3 the shares of our Class A
common stock that we issued in June 2000. 3Cube has the right to have its other
shares of our Class A common stock registered under the Securities Act any time
we file a registration statement to register any of our securities for our own
account or for the account of any of our stockholders in connection with an
underwritten public offering. The number of times these piggyback rights may be
exercised is unlimited, but the number of shares that can be registered at any
one time is subject to limitations that any underwriters may impose.
BANTU, INC.
In connection with our investment in Bantu, Inc., we agreed to register on
Form S-3 the shares of our Class A common stock issued or issuable to Bantu,
Inc.
BULLETN.NET, INC.
In connection with our investment in BulletN.net, Inc., we agreed to register
on Form S-3 the shares of our Class A common stock issued to BulletN.net, Inc.
Our filing of the registration statement in which this prospectus is included is
intended to satisfy this obligation.
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
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issued to Edd Helms Group. Our filing of the registration statement in which
this prospectus is included is intended to satisfy this obligation.
MADISON AVENUE TECHNOLOGY GROUP, INC.
In connection with our investment in Madison Avenue Technology Group, Inc. we
agreed to register on Form S-3 the shares of our Class A common stock issued to
Madison Avenue Technology Group, Inc. Our filing of the registration statement
in which this prospectus is included is intended to satisfy this obligation.
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. Our filing of the registration statement in which this
prospectus is included is intended to satisfy this obligation.
STD, INC.
In connection with our investment in STD, Inc.(doing business as Software
Tool and Die), we granted registration rights to STD. Holders of a majority of
the shares of our Class A common stock issued to STD have the right to require
us to have their shares registered on Form S-3. Prior to effectiveness of such
registration statement, STD has the right to have its shares of our Class A
common stock registered under the Securities Act any time we file a registration
statement to register any of our shares of capital stock for our account or the
account of any of our stockholders in connection with an underwritten public
offering. The number of times these piggyback rights may be exercised is
unlimited, but the number of shares that can be registered at any one time is
subject to limitations that the underwriters may impose.
ELONG.COM, INC.
In connection with our acquisition of eLong.com, Inc., we granted
registration rights to former stockholders of eLong. The holders of a majority
of the shares of our Class A common stock issued in connection with this
acquisition have a one-time right to have their shares registered on Form S-3 on
or after January 1, 2001.
HUELINK CORPORATION LIMITED
In connection with our acquisition of Huelink Corporation Limited, we granted
registration rights to Aligned Investments Limited, the former principal
shareholder of Huelink. Holders of a majority of the subject shares have a
one-time right to have their shares registered on Form S-3. Prior to the
effectiveness of such registration statement, Aligned has the right to have the
subject shares registered under the Securities Act any time we file a
registration statement to register any of our shares of capital stock for our
account or the account of any of our stockholders in connection with an
underwritten public offering. The number of times these piggyback rights may be
exercised is unlimited, but the number of shares that can be registered at any
time is subject to limitations that the underwriters may impose.
NETMOVES WARRANTS
In connection with our acquisition of NetMoves, we assumed registration
rights obligations with respect to shares underlying certain outstanding
warrants of NetMoves that we assumed. Under a warrant
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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 connection with a public offering. The number of
times the piggyback rights may be exercised is unlimited, but the number of
shares that may be included at any time is subject to limitations that the
underwriters may impose.
OTHER REGISTRATION RIGHTS
In connection with our acquisition of a domain name, we granted registration
rights to an individual. We are required to register on Form S-3 all of the
shares of our Class A common stock issued to this individual.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND OUR
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED, AND BYLAWS
We are subject to the provisions of Section 203 of the General Corporation
Law of the State of Delaware. Generally, Section 203 prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the time of the
transaction in which the person became an interested stockholder, unless the
interested stockholder attained that status with the approval of the board of
directors or unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of a corporation's
voting stock. This statute could prohibit or delay the accomplishment of mergers
or other takeovers or changes in control with respect to Mail.com and,
accordingly, may discourage attempts to acquire Mail.com.
In addition, provisions of the amended and restated certificate, as amended,
and bylaws, which provisions are summarized in the following paragraphs, may be
deemed to have an anti-takeover effect. These provisions may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider to
be in its best interests, including those attempts that might result in a
premium over the market price for the shares held by stockholders.
BOARD OF DIRECTORS VACANCIES. Our bylaws authorize the board of directors to
fill vacant directorships or increase the size of the board of directors. This
may prevent a stockholder from removing incumbent directors and simultaneously
gaining control of the board of directors by filling the resulting vacancies
created by such removal with its own nominees.
SPECIAL MEETINGS OF STOCKHOLDERS. Our bylaws provide that special meetings of
stockholders of Mail.com may be called at any time by the Chairman of the board,
the Vice Chairman of the board, if any, the President, if any, or the board of
directors. Written notice of the meeting must be given not less than
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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 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 BulletN.net and Madison
Avenue Technology Group, our acquisition of a telephone number from Edd Helms
Group and our Web site development contract with Sapient. 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 as indicated in the
table or the footnotes thereto. 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 61,616,196 shares of Class A common
stock and Class B common stock outstanding on September 30, 2000.
<TABLE>
<CAPTION>
Number of Number of Number of Percentage of
Shares Shares Offered Shares to be Shares to be
Beneficially by this Held After Held After
Selling Shareholder Owned Prospectus(1) Offering Offering
------------------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
BulletN.net, Inc.(2) 364,431 364,431 0 *
Edd Helms Group, 13,750 13,750 0 *
Inc.
Madison Avenue 102,215 102,215 0 *
Technology Group,
Inc(3)
Sapient 300,000(5) 300,000(5) 0 *
Corporation(4)
</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) In July 2000, we entered into a strategic agreement with BulletN.net to
enable our users to receive and send email messages and notifications
wirelessly and to allow BulletN.net's users to sign up for our instant
messaging services.
(3) In July 2000, we entered into a preferred list hosting agreement with
Madison Avenue Technology Group that appointed us as a preferred reseller
of CheetahMail's list host management services.
(4) In April 2000, we entered into a Web site development contract with
Sapient.
(5) The maximum number of shares issuable under the Convertible Promissory
Note.
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 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 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.
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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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