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Registration No. 333-______
As filed with the Securities and Exchange Commission on July 11, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MAIL.COM, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 13-3780773
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
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11 Broadway, 6th Floor
New York, NY 10004
(212) 425-4200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
David W. Ambrosia, Esq.
Executive Vice President and General Counsel
Mail.com, Inc.
11 Broadway, 6th Floor
New York, NY 10004
(212) 425-4200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Ronald A. Fleming, Jr., Esq.
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
(212) 858-1143
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Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this registration statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed
Title of each class Proposed maximum Amount of
of securities to be Amount to be maximum offering aggregate offering registration
registered registered price per unit price fee
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7.00% Convertible
Subordinated
Notes due 2005 $100,000,000 100% $100,000,000 $26,400
Class A common
stock, $0.01 par
value per share 5,277,044 (1) (2) (2) (2)
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(1) The notes are convertible into Class A common stock, $0.01 par value
per share, of Mail.com, Inc. Each note is initially convertible into
shares of Class A common stock at a conversion price of $18.95 per
share, subject to adjustment under certain circumstances. This
registration statement includes such additional shares of Class A
common stock as may be issuable pursuant to such adjustments.
(2) The shares of Class A common stock issued upon conversion of the
notes will be issued for no additional consideration, and therefore
no registration fee is required pursuant to Rule 457(i).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until a registration statement relating to these
securities filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities, and it is not soliciting
an offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED JULY 11, 2000
PROSPECTUS
$100,000,000
MAIL.COM, INC.
7.00% CONVERTIBLE SUBORDINATED NOTES DUE 2005
(AND SHARES OF CLASS A COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES)
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We issued the notes in a private placement in January 2000. This
prospectus will be used by selling securityholders to resell their notes and
the Class A common stock issuable upon conversion of their notes and we will
not receive any proceeds from sales that the selling securityholders make.
The notes are convertible prior to maturity into Class A common stock at
a conversion price of $18.95 per share, subject to adjustment in certain
events. We will pay interest on the notes on February 1 and August 1 of each
year, beginning on August 1, 2000. The notes will mature on February 1, 2005,
unless earlier converted or redeemed. The notes are not secured and are
subordinated in right of payment to all of our present and future senior
indebtedness. In addition, the notes will also be structurally subordinated to
the liabilities of our subsidiaries. You can find a more extensive description
of the notes beginning on page 34.
Mail.com may redeem some or all of the notes at any time under the
circumstances and at the prices described in this prospectus. If certain events
described in this prospectus occur, holders of the notes will have the right to
require Mail.com to repurchase the notes at a price equal to 100% of the
principal amount plus accrued interest.
The reported last sales price of our Class A common stock on the Nasdaq
National Market on July 10, 2000 was $6.38 per share. Our Class A common stock
is traded on the Nasdaq National Market under the symbol "MAIL."
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THIS INVESTMENT INVOLVES RISK. YOU SHOULD PURCHASE ONLY IF YOU CAN AFFORD A
COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
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The date of this prospectus is July , 2000
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TABLE OF CONTENTS
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Incorporation of Documents By Reference.................................................. 2
Where You Can Get More Information....................................................... 3
Cautionary Statements Regarding Forward-Looking Statements............................... 3
Prospectus Summary....................................................................... 4
Risk Factors............................................................................. 8
Use of Proceeds.......................................................................... 28
Ratio of Earnings to Fixed Charges....................................................... 28
Description of the notes................................................................. 29
Description of capital stock............................................................. 51
Certain United States Federal Income Tax Considerations.................................. 56
Selling Securityholders.................................................................. 62
Plan of Distribution..................................................................... 62
Legal Matters............................................................................ 63
Experts.................................................................................. 63
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling securityholders are offering to sell,
and seeking offers to buy, the notes and shares of Class A common stock
issuable upon conversion of the notes only in jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or the date of any sale of the notes and shares of Class A
common stock issuable upon conversion of the notes.
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INFORMATION CONTAINED ON OUR WEB SITES WILL NOT BE DEEMED TO BE PART OF THIS
PROSPECTUS.
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INCORPORATION OF DOCUMENTS BY REFERENCE
We furnish our stockholders with annual reports containing audited
financial statements and other appropriate reports. We also file annual,
quarterly and current reports, proxy statements and other information with the
Securities and Exchange Commission. Instead of repeating in this prospectus
information that we have already filed with the Securities and Exchange
Commission, rules of the Securities and Exchange Commission permit us to
"incorporate by reference" the information we file with them. These rules mean
that we can disclose important information to you by referring you to those
documents that we have previously filed with the Securities and Exchange
Commission. These documents are considered to be part of this prospectus. Any
documents that we file with the Securities and Exchange Commission in the
future will also be considered to be part of this prospectus and will
automatically update and supersede the information in this prospectus. We
incorporate by reference the documents listed below and any future filings we
make with the Securities and Exchange Commission under Sections 13(a), 13(c),
14, or 15(d) of the Securities Exchange Act of 1934 until the selling
securityholders sell all of the notes or the shares of Class A common stock
offered by this prospectus.
- Our Annual Report on Form 10-K for the fiscal year ended December
31, 1999, filed with the Commission on March 30, 2000;
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- Our Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2000;
- Our Current Reports on Form 8-K dated March 28, 2000 (as amended
on Form 8-K/A dated May 26, 2000), February 11, 2000 (as amended
on Form 8-K/A dated April 24, 2000), January 24, 2000 and January
6, 2000; and
- Our Proxy Statement filed on April 18, 2000.
WHERE YOU CAN GET MORE INFORMATION
We have filed a registration statement with the Securities and Exchange
Commission to register the notes and the Class A common stock issuable upon
conversion of the notes that the selling securityholders are offering to you.
This prospectus is part of that registration statement. As allowed by the
Securities and Exchange Commission's rules, we have not included in this
prospectus all of the information that is included in the registration
statement. At your oral or written request, we will provide to you, without
charge, a copy of the registration statement or any of the exhibits to the
registration statement not delivered with this prospectus. If you want more
information, write or call us at:
Mail.com, Inc.
11 Broadway, 6th Floor
New York, NY 10004
Telephone: (212) 425-4200
Attention: Chief Financial Officer
You may also obtain a copy of any filing we have made with the Securities
and Exchange Commission directly from the Securities and Exchange Commission.
You may either:
- read and copy reports, statements or other information we have
filed with the Securities and Exchange Commission at the
Securities and Exchange Commission's public reference room at 450
Fifth Street N.W., Washington, D.C.
- obtain copies of documents that we have filed with the Securities
and Exchange Commission on the Securities and Exchange
Commission's Internet web site at http://www.sec.gov.
You can get more information about the Securities and Exchange
Commission's public reference room by calling the Securities and Exchange
Commission at 1-800-SEC-0330.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
We make forward-looking statements within the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 throughout this
prospectus. These statements relate to our future plans, objectives,
expectations and intentions. These statements may be identified by the use of
words such as "expects," "anticipates," "intends," "believes," "estimates,"
"plans" and similar expressions. Our actual results could differ materially
from those discussed in these statements. Factors that could contribute to such
differences include, but are not limited to, those discussed in the "Risk
Factors" section of this prospectus.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere or incorporated
by reference in this prospectus. This is not intended to be a complete
description of the matters covered in this prospectus and is subject to and
qualified in its entirety by reference to the more detailed information and
financial statements, including the notes thereto, appearing elsewhere or
incorporated by reference in this prospectus.
OUR COMPANY
We are a leading global provider of Internet messaging services to
businesses, Internet Service Providers (ISPs), Web sites and direct to
consumers. We offer our messaging services to both the consumer and business
markets. Additionally, we have, through our newly-formed subsidiary, WORLD.com,
Inc., begun to develop domain names from among our extensive portfolio of
Internet domain names.
BUSINESS MESSAGING SERVICES
We provide businesses with email services, internet facsimile
transmission services and collaboration services. Our email services include
services that permit email systems to connect to the internet, email hosting
services and email monitoring services. Our email monitoring services include
virus scanning, attachment control, spam control, legal disclaimers and other
legends affixed to outgoing emails and real time Web-based reporting. Our fax
services include email to fax, fax to email, enhanced fax and broadcast fax. Our
collaboration services include Web-hosted services and on-premise software
solutions for group calendaring, group scheduling, project management and
document sharing. We earn revenues in the business market on a usage or per seat
basis.
CONSUMER MESSAGING SERVICES
In the consumer market, we provide Web-based email services, or WebMail,
to ISPs including several of the world's top ISPs, and we partner with top
branded Web sites to provide WebMail services to their users. In addition, we
serve the consumer market directly through our flagship site at www.mail.com.
Our basic consumer email services are free to our members. A consumer can become
a member of Mail.com by signing up for our email service at any of our partners'
Web sites or our own Web sites. We earn revenues in the consumer market from a
combination of:
- advertising related sales, including permission marketing and
e-commerce promotion and
- subscription services, such as a service that allows members to
purchase increased storage capacity for their emails.
WORLD.COM, INC.
In March 2000, we formed WORLD.com, Inc. to focus on developing our
extensive portfolio of Internet domain names into major Web properties which
will serve the worldwide business-to-business and business-to-consumer
marketplace, beginning with Asia.com and India.com. In connection with the
formation of Asia.com, Inc., we acquired eLong.com, Inc., which through its
wholly-owned subsidiary operates the Web site www.elong.com in the Peoples'
Republic of China. Other properties from our portfolio of over 1,000 domains
include Europe.com, USA.com, Japan.com, London.com, Paris.com, Rome.com,
lawyer.com and doctor.com. WORLD.com is headquartered in New York, New York.
We have a technology infrastructure of Internet Protocol, or IP, network
facilities in 20 key countries, have over 8,500 corporate customers worldwide
and have established more than 14.4 million e-mailboxes.
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We are a Delaware corporation. Our principal executive offices are
located at 11 Broadway, 6th Floor, New York, NY 10004. Our phone number is
(212) 425-4200.
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THE OFFERING
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Securities offered........................... $100,000,000 aggregate principal amount of our 7.00% convertible subordinated
notes due 2005 and shares of our Class A common stock issuable upon conversion
of the notes.
Maturity date................................ February 1, 2005, unless earlier redeemed, repurchased or converted.
Interest payment dates....................... February 1 and August 1 of each year, commencing on August 1, 2000.
Conversion.................................. The notes are convertible, unless previously redeemed or repurchased, at the
option of the holder at any time prior to maturity, into shares of our Class A
common stock at a conversion price of $18.95 per share, subject to adjustment in
certain events. See "Description of the notes - Conversion." The right to
convert notes that have been called for redemption will terminate at the close
of business on the business day immediately preceding the redemption day.
Provisional redemption...................... Prior to February 5, 2003, we may redeem the notes in a provisional redemption
at our option, in whole or in part, at any time or from time to time, at the
redemption prices set forth herein, plus accrued and unpaid interest to the
provisional redemption date, if the closing price of our Class A common stock
has equaled or exceeded specified percentages of the conversion price then
effect for at least 20 out of 30 consecutive days on which the Nasdaq National
Market is open for the transaction of business prior to the date of mailing of
the provisional redemption notice. Upon any provisional redemption, we will be
obligated to make an additional payment in an amount equal to the present value
of the aggregate value of the interest payments that would thereafter have been
payable on the notes from the provisional redemption date to, but excluding,
February 5, 2003. The present value will be calculated using the bond equivalent
yield on U.S. Treasury notes or bills having a term nearest in length to that of
the additional period as of the day immediately preceding the date on which we
mail a provisional redemption notice. See "Description of the notes --
Provisional redemption."
Optional redemption......................... On or after February 5, 2003, at any time or from time to time, the notes may be
redeemed at our option, in whole or in part, in cash at the redemption prices
set forth herein, plus accrued and unpaid interest to the date of redemption.
See "Description of the notes -- Optional redemption."
Mandatory redemption......................... None.
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Repurchase at the option of holders......... Upon the designated events described in the "Description of the notes" section
of this prospectus, holders of the notes will have the right, subject to certain
restrictions and conditions, to require us to purchase all or any part of their
notes at a purchase price equal to 100% of the principal amount of the notes,
plus accrued and unpaid interest to the date of the purchase. See "Description
of the notes -- Repurchase at the option of holders" and "Risk Factors -- Our
ability to repurchase notes if a designated event occurs is limited."
Ranking..................................... The notes are our general unsecured obligations and are junior in right of
payment to all of our existing and future senior debt. The notes are
structurally subordinated to all existing and future indebtedness and other
liabilities of our subsidiaries, meaning that creditors of our subsidiaries will
have a prior claim over holders of our notes with respect to assets of our
subsidiaries. The indenture related to the notes contains no limitation on the
incurrence of senior debt or other indebtedness and other liabilities by us or
our subsidiaries. See "Description of the notes -- Subordination of the notes."
Use of proceeds............................. We will receive none of the proceeds from the sale of the notes and the Class A
common stock offered in this prospectus.
Trading..................................... The notes have been designated for trading in the Portal Market(SM). However, any
notes sold under this prospectus will no longer trade in the Portal Market(SM).
Our Class A common stock is traded on the Nasdaq National Market under the
symbol "MAIL."
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RISK FACTORS
Before you invest in the notes or Class A common stock, you should
carefully consider the risks described below and the other information included
or incorporated by reference in this prospectus.
WE HAVE ONLY A LIMITED OPERATING HISTORY, AND WE ARE INVOLVED IN A NEW AND
UNPROVEN INDUSTRY.
We have only a limited operating history upon which you can evaluate our
business and our prospects. We have offered a commercial email service since
November 1996 under the name iName. We changed our company name to Mail.com,
Inc. in January 1999. In March 2000, we formed WORLD.com to develop and operate
our domain name properties as independent Web sites. Our success will depend in
part upon the development of a viable market for email advertising and
fee-based Internet messaging and collaboration services and outsourcing, and
upon our ability to compete successfully in those markets. Our success will also
depend on our ability to successfully develop and operate our domain name
properties under WORLD.com, beginning with Asia.com and India.com, and the
acceptance by businesses and consumers of the services offered at these Web
sites. For the reasons discussed in more detail below, there are substantial
obstacles to our achieving and sustaining profitability.
WE HAVE INCURRED LOSSES SINCE INCEPTION AND EXPECT TO INCUR SUBSTANTIAL LOSSES
IN THE FUTURE.
We have generated only limited revenues to date. We have not achieved
profitability in any period, and we may not be able to achieve or sustain
profitability. We incurred a net loss of $42.5 million for the quarter ended
March 31, 2000. We had an accumulated deficit of $105.6 million as of March 31,
2000. We expect to continue to incur substantial net losses and negative
operating cash flow for the foreseeable future. We have begun and will continue
to significantly increase our operating expenses in anticipation of future
growth. We intend to expand our sales and marketing operations, upgrade and
enhance our technology, continue our international expansion, and improve and
expand our management information and other internal systems. We intend to
continue to make strategic acquisitions and investments, which may result in
significant amortization of goodwill and other expenses. We are making these
expenditures in anticipation of higher revenues, but there will be a delay in
realizing higher revenues even if we are successful. If we do not succeed in
substantially increasing our revenues, our losses will continue indefinitely
and will increase.
IF WE ARE UNABLE TO RAISE NECESSARY CAPITAL IN THE FUTURE, WE MAY BE UNABLE TO
FUND NECESSARY EXPENDITURES.
We anticipate the need to raise additional capital in the future.
However, we may not be able to raise on terms favorable to us, or at all,
amounts necessary to fund our planned expansion, develop new or enhanced
services, respond to competitive pressures, promote our brand name or acquire
complementary businesses, technologies or services. Some of our stockholders
have registration rights that could interfere with our ability to raise needed
capital.
If we raise additional funds by issuing equity securities, stockholders
may experience dilution of their ownership interest. Moreover, we could issue
preferred stock that has rights senior to those of the Class A common stock. If
we raise funds by issuing debt, our lenders may place limitations on our
operations, including our ability to pay dividends.
WE INTEND TO CONTINUE TO ACQUIRE, OR MAKE STRATEGIC INVESTMENTS IN, OTHER
BUSINESSES AND ACQUIRE OR LICENSE TECHNOLOGY AND OTHER ASSETS AND WE MAY HAVE
DIFFICULTY INTEGRATING THESE BUSINESSES OR GENERATING AN ACCEPTABLE RETURN.
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We have completed a number of acquisitions and strategic investments
since our initial public offering. For example, we recently acquired NetMoves
Corporation, a provider of a variety of Internet document delivery services to
businesses, and The Allegro Group, Inc., a provider of email and email related
services, such as virus blocking and content screening, to businesses. We also
made two investments in 3Cube, Inc., a company specializing in Internet fax
technology, and acquired TCOM, Inc., a software technology consulting firm, and
Lansoft U.S.A., Inc., a provider of email management, e-commerce and Web
hosting services to businesses. We also recently acquired eLong.com, Inc. and
Huelink Corporation Ltd. in connection with the formation of Asia.com, Inc. and
Multiple Zones in connection with the formation of India.com. We 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.
THE ISSUANCE OF THE NOTES SIGNIFICANTLY INCREASED OUR LEVERAGE.
In January 2000, we issued $100 million of convertible subordinated notes
due 2005. The sale of the 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 the notes, (2) make it difficult for us 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 cannot
assure you that we will be able to meet our debt service obligations, including
our obligations under the notes.
WE MAY BE UNABLE TO PAY DEBT SERVICE ON THE CONVERTIBLE NOTES AND OTHER
OBLIGATIONS.
We had an operating loss and negative cash flow during the quarters ended
March 31, 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
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payable annually on the notes. We cannot assure you that we will be able to pay
interest and other amounts due on the notes on the scheduled dates or at all.
If our cash flow and cash balances are inadequate to meet our obligations, we
could face substantial liquidity problems. If we are unable to generate
sufficient cash flow or otherwise obtain funds necessary to make required
payments, or if we otherwise fail to comply with any covenants in our
indebtedness, we would be in default under these obligations, which would
permit these lenders to accelerate the maturity of the obligations and could
cause defaults under our indebtedness. Any such default could have a material
adverse effect on our business, results of operations and financial condition.
We cannot assure you that we would be able to repay amounts due on the notes if
payment of the notes were accelerated following the occurrence of an event of
default under the indenture for the notes.
TO GENERATE INCREASED REVENUES FROM OUR CONSUMER SERVICES, WE WILL HAVE TO
SUBSTANTIALLY INCREASE THE NUMBER OF OUR MEMBERS, WHICH WILL BE DIFFICULT TO
ACCOMPLISH.
To achieve our objective of generating advertising related revenues and
subscription revenues through our consumer email services, we will have to
retain our existing members and acquire a large number of new members. We have
relied upon strategic alliances with third party Web sites to attract the
majority of our current members.
We believe that our success in our consumer business will partially
depend on our ability to maintain our current alliances and to enter into new
ones with Web sites and ISPs on acceptable terms. We believe, however, that the
opportunity to form alliances with third party Web sites that are capable of
producing a substantial number of new members is diminishing. Many third party
Web sites that we have identified as potential sources for significant
quantities of new members already offer their visitors an email service similar
to ours. We cannot assure you that we will be able to enter into successful
alliances with third party Web sites or ISPs on acceptable terms or at all.
OUR CONTRACTS WITH OUR WEB SITE AND ISP PARTNERS REQUIRE US TO INCUR
SUBSTANTIAL EXPENSES.
In nearly all cases our Web site and ISP partners do not pay us to provide
our services. We bear the costs of providing our services. We generate revenues
by selling advertising space to advertisers who want to target our members and
by selling subscription services to these members. We pay the partner a share of
the revenues we generate. In addition, a number of our contracts have required
us to pay significant fees or to make minimum payments to the partner without
regard to the revenues we realize. If we are unable to generate sufficient
revenues at our partner sites, these fees and minimum payments can cause the
partner's effective share of our revenues to approach or exceed 100%. We intend
to reduce or eliminate the payment of these fees or minimum payments made
without regard to the revenues realized. We cannot assure you that we will be
able to renew partner contracts on the basis of reducing or eliminating these
payments or if renewed that the revised terms of such contracts will be
favorable to us.
THE FAILURE TO RENEW OUR PARTNER CONTRACTS, WHICH HAVE LIMITED TERMS, CAN
RESULT IN THE LOSS OF MEMBERS AND IMPAIR OUR CREDIBILITY.
Our partner contracts generally have one or two year terms. A partner can
decide not to renew at the end of the term for a variety of reasons, including
dissatisfaction with our service, a desire to switch to one of our outsourcing
competitors, or a decision to provide email service themselves. Partners can
also choose not to renew our contract because they have entered into a merger or
other strategic relationship with another company that can provide email
service. This last factor is becoming increasingly common in light of the
consolidation taking place among Web sites, ISPs and other Internet-related
businesses. For example, XOOM recently combined with Snap, which is jointly
owned by CNET and NBC Multimedia, to create a new Internet services company
named NBC Internet, Inc., or NBCi. XOOM offers a free email service at its
xoom.com Web site. We cannot assure you that these partners will not seek to
terminate their contractual relationships with us. A partner may also fail to
renew our contract with them because we decide not to continue making payments
to them without regard to the revenue that we generate from their site. The
loss of a partner can be very disruptive for us for a number of reasons:
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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 March 31, 2000, we estimate that approximately 28% of our established
e-mailboxes have email addresses at partner-owned domain names. Upon
expiration, most partners can require us to relinquish existing members with
addresses at partner-owned domain names. Even those members who have selected
addresses using our domain names may find it more convenient to switch to
whatever replacement email service may be available at the partner's site. The
loss of members due to expiration or non-renewal of partner contracts may
materially reduce our revenues. Moreover, as of March 31, 2000, we estimate
that approximately 17% of our e-mailboxes 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 e-mailboxes 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 e-mailboxes established through their sites under our agreement with
them.
Losing relationships with prominent partners can impair our credibility
with advertisers and other partners. We believe that partnerships with Web
sites that have prominent brand names help give us credibility with other
partners and with advertisers. The loss of our better-known Web site partners
could damage our reputation and adversely affect the advertising, direct
marketing, e-commerce and subscription rates we charge.
BECAUSE WE ARE DEPENDENT ON A SMALL NUMBER OF PARTNER SITES FOR A SUBSTANTIAL
PERCENTAGE OF OUR ANTICIPATED NEW MEMBERS, A DISRUPTION IN OUR RELATIONSHIP
WITH ANY OF THESE PARTNERS OR A DECREASE IN TRAFFIC AT ANY OF THESE SITES COULD
REDUCE OUR ADVERTISING RELATED REVENUES AND SUBSCRIPTION REVENUES.
Most of our partner sites, including most of those with well-known brand
names, do not generate significant numbers of new e-mailboxes. The following
four partners accounted for 34% of our new emailboxes established in May 2000:
<TABLE>
<CAPTION>
PERCENTAGE
OF NEW DATE THAT OUR
E-MAILBOXES CONTRACT WITH
IN THE PARTNER
PARTNER MAY 2000 EXPIRES
---------------- ---------------- -----------------
<S> <C> <C>
Snap................................................ 10% *
Juno................................................ 10% December 2001
iWon................................................ 7% October 2000
EarthLink........................................... 7% April 2001
</TABLE>
----------
* Snap may terminate its contracts for convenience after May 13, 2001.
If any of the Web sites operated by these parties were to experience
lower than anticipated traffic, or if our relationships with any of these
parties were disrupted for any reason, our revenues could decrease and the
growth of our business would be impeded. Lower than anticipated traffic could
result in decreased advertising related revenues because those revenues are in
part dependent on the number of members and the level of member usage.
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<PAGE> 14
WE HAVE ONLY LIMITED INFORMATION ABOUT OUR MEMBERS AND THEIR USAGE, WHICH MAY
LIMIT OUR POTENTIAL REVENUES.
Our ability to generate revenue from advertising related sales is
directly related to our members' activity levels and the quality of our
demographic data. To be successful, we will have to increase members' usage of
our service. We are subject to several constraints that will limit our ability
to maximize the value of our member base:
We believe that most of our members do not use their e-mailboxes regularly,
and many do not use them at all. We believe that a substantial majority of our
members do not access their e-mail boxes regularly or at all. Moreover, we
believe that many of our e-mailboxes 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 e-mailboxes 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
e-mailboxes. 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 29% of our total
e-mailboxes as of March 31, 2000, and 9% of the e-mailboxes that were
established during March 2000. If a disproportionate percentage of members
choose either of these options, it will adversely affect our ability to
generate advertising related revenues.
Our database contains inaccuracies that could reduce the value of our
information. Although we attempt to collect basic demographic information about
members at the time they establish their accounts, we do not verify the
accuracy of this information. Moreover, even if the information is correct when
we receive it, members may move, change jobs or die without our knowledge. As a
result, our database contains inaccuracies that could make our information less
appealing to advertisers.
We do not know how many members have established multiple e-mailboxes.
Because we do not charge for our basic service, individuals can easily
establish multiple e-mailboxes. This makes it impossible for us to determine
the number of separate individuals registering for our service, which may
reduce the advertising rates we can command.
WEBMAIL, EMAIL ADVERTISING AND INTERNET MESSAGING AND COLLABORATION
SERVICES OUTSOURCING MAY NOT PROVE TO BE VIABLE BUSINESSES.
We operate in an industry that is only beginning to develop. Our success
will require the widespread acceptance by consumers of Webmail. We are also
dependent on the development of viable markets for email advertising and the
outsourcing of email services to businesses and other organizations. For a
number of reasons, each of these developments is somewhat speculative:
Consumers may not be willing to use Webmail in large numbers. As a
Web-based messaging service, Webmail is subject to the same concerns and
shortcomings as the Internet itself. Concerns about the security of information
carried over the Internet and stored on central computer systems could inhibit
consumer acceptance of Webmail. Moreover, Webmail can only function as
effectively as the Web itself.
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<PAGE> 15
If traffic on the Web does not move quickly or Internet access is impeded,
consumers are less likely to use Webmail. Consumers may also react negatively
to the relatively new concept of an advertising supported email service. Our
business will suffer if public perception of our service or of Webmail in
general is unfavorable. Articles and reviews published in popular publications
relating to computers and the Internet have a great deal of impact on public
opinion within our markets, and an article or review unfavorable to Webmail or
to our service specifically could slow or prevent broad market acceptance.
Similarly, if employers in large numbers implement policies or software
designed to restrict access to Webmail, Webmail is much less likely to gain
popular acceptance.
There are even greater uncertainties about our ability to successfully
market premium Webmail services. Consumers have generally been very reluctant
to pay for services provided over the Internet. In August 1999, we discontinued
charging our members for virtually all of our premium domain names. Moreover,
if our competitors choose to provide POP3 access, greater storage capacity or
other services without charge or as part of a bundled offering, we may be
forced to do the same.
There are significant obstacles to the development of a sizable market for
internet messaging and collaboration services outsourcing. Outsourcing is one of
the principal methods by which we will attempt to reach the size we believe is
necessary to be successful. Security and the reliability of the Internet,
however, are likely to be of concern to Web sites, ISPs, schools, businesses and
organizations deciding whether to outsource their email or fax services or to
continue to provide it themselves. These concerns are likely to be particularly
strong at larger businesses, which are better able to afford the costs of
maintaining their own systems. We provide a range of email and fax services to
businesses and organizations. We currently generate revenues in the business
market primarily from email service fees related to our email system connection
services, email monitoring services and fax transmission services. We cannot be
sure that we will be able to expand our business customer base, attract
additional customers in other segments or acquire a sufficient base of customers
for whom we would provide hosting and other outsourced services. In addition,
the sales cycle for hosting services is lengthy and could delay our ability to
generate revenues in the business email services market. Furthermore, we may not
be able to generate significant additional revenues by providing our email
services to businesses. Standards for pricing in the business email services
market are not yet well defined and some businesses, schools and other
organizations may not be willing to pay the fees we wish to charge. We cannot
assure you that the fees we intend to charge will be sufficient to offset the
related costs of providing these services.
The market for email advertising is only beginning to develop and the
effectiveness of this form of advertising is unproven. Even if Webmail proves
to be popular, we will still need large numbers of advertisers to purchase
space on our Webmail service. We currently do not sell advertisements in
connection with our business email services.
Because we, and our competitors, have only recently begun to offer email
advertising, our potential advertising customers have little or no experience
with this medium. We do not yet have enough experience to demonstrate the
effectiveness of this form of advertising. As a result, those customers willing
to try email advertising are likely to allocate only a limited portion of their
advertising budgets. If early customers do not find email advertising to be
effective for promoting their products and services, the market for our
products will be unlikely to develop. Prices for banner advertisements on the
Internet may fall, in part because of diminishing "click" or response rates.
Advertisers may also request fewer "cost per thousand advertisements" pricing
arrangements and more "cost per click" pricing, which could effectively lower
advertising rates.
There are currently no standards for measuring the effectiveness of
Webmail advertising. Standard measurements may need to be developed to support
and promote Webmail advertising as a significant
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<PAGE> 16
advertising medium. Our advertising customers may refuse to accept our own
measurements or third-party measurements of advertisement delivery, which would
adversely affect our ability to generate advertising related revenues.
Filtering software could prevent us from delivering advertising.
Inexpensive software programs are available which limit or prevent the delivery
of advertising to a user's computer. The widespread adoption of this software
would seriously threaten the commercial viability of email advertising and our
ability to generate advertising revenues.
THERE ARE SIGNIFICANT OBSTACLES TO OUR ABILITY TO INCREASE ADVERTISING
REVENUES.
Our success will largely depend on our ability to substantially increase
our advertising related revenues, which we currently generate only in
connection with our consumer services. Several factors will make it very
difficult for us to achieve this objective:
A limited number of advertisers account for a high percentage of our
revenues, our contracts with our advertisers typically have terms of only one
or two months, and we may be unable to renew these contracts. We are dependent
on a limited number of advertisers to derive a substantial portion of our
revenues. For the quarters ended March 31, 2000 and 1999, revenues from our
five largest advertisers accounted for an aggregate of 11% and 51%,
respectively, of our revenues. Our future success will depend upon our ability
to retain these advertisers, to generate significant revenues from new
advertisers and to reduce our reliance on any single advertiser. Our existing
contracts with advertisers generally have terms of only one or two months and
we may be unable to renew them. The loss of one of our major advertisers or our
inability to attract new advertisers would cause our revenues to decline.
We may not be able to sell as much advertising on a "cost per thousand"
basis or to charge as much under this type of arrangement as we have in the
past. To date, we have generated a significant portion of our advertising
revenues on a "cost per thousand" basis. These agreements require the
advertiser to pay us a fixed fee for every 1,000 advertisements that we deliver
to our members. We believe that this type of agreement is the most effective
for us, but we may not be able to charge as much for these agreements, or to
continue to sell as much advertising on this basis, in the future.
We face greater risks when selling advertising on a "cost per action"
basis. The two types of "cost per action" contracts are "cost per click" and
"cost per conversion." In cost per click contracts, an advertiser agrees to pay
us a fee for each occasion on which a member "clicks" on the advertisement.
Cost per conversion contracts provide that we receive a fee only when a member
both "clicks" on the advertisement and proceeds to purchase an item, order a
catalog or take some other step specified by the advertiser. In general, these
arrangements do not yield as much revenue for us for each advertisement that we
deliver to our members. Moreover, cost per conversion contracts present
additional risks for us because we have no control over the advertiser's
ability to convert a "click" into a sale or other action. We also must rely on
the advertiser to report to us the number of conversions. These reports may not
be accurate, and they may not be timely, both of which can adversely affect our
revenues. Notwithstanding these risks, we may have to sell more of our
advertising on a cost per click or cost per conversion basis in the future.
WE MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF FLUCTUATIONS IN OUR
QUARTERLY OPERATING RESULTS, WHICH WOULD CAUSE OUR STOCK PRICE TO DECLINE.
Although we intend to steadily increase our spending and investment to
support our planned growth, our revenues (and some of our costs) will be much
less predictable. This is likely to result in significant fluctuations in our
quarterly results, and to limit the value of quarter-to-quarter comparisons.
Because of
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<PAGE> 17
our limited operating history and the emerging nature of our industry, we
anticipate that securities analysts will have difficulty in accurately
forecasting our results. It is likely that our operating results in some
quarters will be below market expectations. In this event, the price of our
Class A common stock is likely to decline.
The following are among the factors that could cause significant
fluctuations in our operating results:
- incurrence of other cash and non-cash accounting charges
resulting from acquisitions, including charges resulting from
acquisitions;
- incurrence of additional expenditures without receipt of
offsetting revenues as a result of the development of our domain
name properties;
- delay or cancellation of even a small number of advertising
contracts;
- expiration or termination of partnerships with Web sites or ISPs,
which can result from mergers or other strategic combinations as
Internet businesses continue to consolidate;
- system outages, delays in obtaining new equipment or problems
with planned upgrades;
- disruption or impairment of the Internet;
- introduction of new or enhanced services by us or our
competitors;
- changes in our pricing policy or that of our competitors;
- seasonality in the demand for advertising, or changes in our own
advertising rates or advertising rates in general, both on and
off the Internet;
- changes in governmental regulation of the Internet and email in
particular; and
- general economic and market conditions, and particularly those
affecting email advertising.
SEVERAL OF OUR COMPETITORS HAVE SUBSTANTIALLY GREATER RESOURCES, LONGER
OPERATING HISTORIES, LARGER CUSTOMER BASES AND BROADER PRODUCT OFFERINGS.
Our business is, and we believe will continue to be, intensely
competitive. Our competitors with respect to email services include such large
and established companies as Microsoft, America Online, Yahoo!, Excite@Home,
Disney (which owns the GO Network) and Lycos. Microsoft offers free Webmail
through its Hotmail Web site, and has dominant market share with over 40
million e-mailboxes according to Microsoft. We also compete for partners with
email service providers such as USA.NET, Inc., Critical Path, Inc. and
CommTouch Software, Ltd. In offering email services to businesses, schools and
other organizations, we expect to compete with MCI Mail, USA.NET and Critical
Path. Our current and prospective competitors in the facsimile transmission
services market generally fall into the following
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<PAGE> 18
groups: telecommunication companies, such as AT&T, WorldCom, Sprint, the
regional Bell operating companies and telecommunications resellers; ISPs, such
as Uunet and NETCOM On-Line Communications Services, Inc.; on-line services
providers, such as Microsoft and America Online and direct fax delivery
competitors, including Premiere Document Distribution (formerly Xpedite Systems,
Inc.) and IDT Corporation. In addition, we compete for advertisers with
DoubleClick, 24/7 Media, and other Internet advertising networks. We also
compete for advertisers with other Internet publishers as well as traditional
media such as television, radio, print and outdoor advertising. Our domain
properties developed by WORLD.com will compete with the major business and
consumer portals in the markets in which they operate. 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. In
addition, some competitors who have other sources of revenue do not, or in the
future may not, place advertising on their Webmail pages. Consumers may prefer
a service that does not include advertisements.
The level of competition is likely to increase as current competitors
increase the sophistication of their offerings and as new participants enter
the market. In the future, as we expand our service offerings, we expect to
encounter increased competition in the development and delivery of these
services. Further, some of our competitors may offer services for which we now
charge our members at or below cost or for free. If our competitors choose to
offer premium or other services at or below cost or for free, we may be forced
to do the same for our comparable services. If this occurs, our ability to
generate revenues from our subscription services would be materially impaired.
Some of our competitors may offer advertisement-free email on a subscription
basis or for free, which could adversely affect our ability to attract and
retain members unless we do the same. In addition, new technologies and the
expansion of existing technologies may increase competitive pressures on us. We
may not be able to compete successfully against our current or future
competitors.
OUR RAPID EXPANSION IS STRAINING OUR EXISTING RESOURCES, AND IF WE ARE NOT ABLE
TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS AND OPERATING RESULTS WILL
SUFFER.
We have begun aggressively expanding our operations in anticipation of an
increasing number of strategic alliances and a corresponding increase in the
number of members as well as development of our business customer base. We have
entered into agreements with additional partners and have upgraded our email
services. We have also developed the technology and infrastructure to begin
offering a range of services in the business internet messaging and
collaboration services market. In addition, we have formed WORLD.com for the
purpose of developing our portfolio of domain names. This expansion has placed,
and we expect it to continue to place, a significant strain on our managerial,
operational and financial resources. If we cannot manage our growth effectively,
our business and operating results will suffer.
IT IS DIFFICULT TO RETAIN KEY PERSONNEL AND ATTRACT ADDITIONAL QUALIFIED
EMPLOYEES IN OUR BUSINESS AND THE LOSS OF KEY PERSONNEL AND THE BURDEN OF
ATTRACTING ADDITIONAL QUALIFIED EMPLOYEES MAY IMPEDE THE OPERATION AND GROWTH
OF OUR BUSINESS AND CAUSE OUR REVENUES TO DECLINE.
Our future success depends to a significant extent on the continued
service of our key technical, sales and senior management personnel, but they
have no contractual obligation to remain with us. In particular, our success
depends on the continued service of Gerald Gorman, our Chairman and Chief
Executive Officer, Gary Millin, CEO of WORLD.com, Lon Otremba, our President,
Debra McClister, our Executive Vice President and Chief Financial Officer, Sam
Kline, our Chief Operating Officer, Thomas Murawski, our Chief Executive
Officer, Mail.com Business Messaging Services, Inc., and Aaron Fessler,
President of Allegro. The loss of the services of Messrs. Gorman, Millin,
Otremba, Kline, Murawski and
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<PAGE> 19
Fessler or of Ms. McClister, or several other key employees, would impede the
operation and growth of our business.
To manage our existing business and handle any future growth, we will
have to attract, retain and motivate additional highly skilled employees. In
particular, we will need to hire and retain qualified salespeople if we are to
meet our sales goals. We will also need to hire and retain additional
experienced and skilled technical personnel in order to meet the increasing
technical demands of our expanding business. Competition for employees in
Internet-related businesses is intense. We have in the past experienced, and
expect to continue to experience, difficulty in hiring and retaining employees
with appropriate qualifications. If we are unable to do so, our management may
not be able to effectively manage our business, exploit opportunities and
respond to competitive challenges.
OUR BUSINESS IS HEAVILY DEPENDENT ON TECHNOLOGY, INCLUDING TECHNOLOGY THAT HAS
NOT YET BEEN PROVEN RELIABLE AT HIGH TRAFFIC LEVELS AND TECHNOLOGY THAT WE DO
NOT CONTROL.
The performance of our computer systems is critical to the quality of
service we are able to provide to our members and to our business customers. If
our services are unavailable or fail to perform to their satisfaction, they may
cease using our service. Reduced use of our service decreases our revenues by
decreasing the advertising space that we have available to sell. In addition,
our agreements with several of our partners establish minimum performance
standards. If we fail to meet these standards, our partners could terminate
their relationships with us and assert claims for monetary damages.
WE NEED TO UPGRADE OUR COMPUTER SYSTEMS TO ACCOMMODATE INCREASES IN EMAIL AND
FAX TRAFFIC AND TO ACCOMMODATE INCREASES IN THE USAGE OF OUR COLLABORATION
SERVICES, BUT WE MAY NOT BE ABLE TO DO SO WHILE MAINTAINING OUR CURRENT
LEVEL OF SERVICE, OR AT ALL.
We must continue to expand and adapt our computer systems as the number
of members and customers and the amount of information they wish to transmit
increases and as their requirements change, and as we develop our business
messaging and collaboration services. Because we have only been providing our
services for a limited time, and because our computer systems have not been
tested at greater capacities, we cannot guarantee the ability of our computer
systems to connect and manage a substantially larger number of members or meet
the needs of business customers at high transmission speeds. If we cannot
provide the necessary service while maintaining expected performance, our
business would suffer and our ability to generate revenues through our services
would be impaired.
The expansion and adaptation of our computer systems will require
substantial financial, operational and managerial resources. We may not be able
to accurately project the timing of increases in email traffic or other
customer requirements. In addition, the very process of upgrading our computer
systems is likely to cause service disruptions. This is because we will have to
take various elements of the network out of service in order to install some
upgrades.
OUR COMPUTER SYSTEMS MAY FAIL AND INTERRUPT OUR SERVICE.
Our members have in the past experienced interruptions in our email
service. We believe that these interruptions will continue to occur from time
to time. These interruptions are due to hardware failures, unsolicited bulk
emails that overload our system and other computer system failures. In
particular, we have experienced outages and delays in email delivery and access
to our email service related to disk failures, the implementation of changes to
our computer system and insufficient storage capacity. These failures have
resulted and may continue to result in significant disruptions to our service.
Although we plan to install backup computers and implement procedures to reduce
the impact of future malfunctions in these systems, the presence of these and
other single points of failure in our network increases the risk of service
interruptions. Some aspects of our computer systems are not redundant. These
include our
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<PAGE> 20
member database system and our email storage system, which stores emails and
other data for our members. In addition, substantially all of our computer and
communications systems relating to our email services are currently located in
our primary data centers in Manhattan, Edison, New Jersey and Dayton, Ohio. We
currently do not have alternate sites from which we could conduct operations in
the event of a disaster. Our computer and communications hardware is vulnerable
to damage or interruption from fire, flood, earthquake, power loss,
telecommunications failure and similar events. Our services would be suspended
for a significant period of time if either of our primary data centers was
severely damaged or destroyed. We might also lose stored emails and other
member files, causing significant member dissatisfaction and possibly giving
rise to claims for monetary damages.
OUR SERVICES WILL BECOME LESS DESIRABLE OR OBSOLETE IF WE ARE UNABLE TO KEEP UP
WITH THE RAPID CHANGES CHARACTERISTIC OF OUR BUSINESS.
Our success will depend on our ability to enhance our existing services
and to introduce new services in order to adapt to rapidly changing
technologies, industry standards and customer demands. To compete successfully,
we will have to accurately anticipate changes in consumer and business demand
and add new features to our services very rapidly. We also have to regularly
upgrade our software to ensure that it remains compatible with the wide and
changing variety of Web browsers and other software used by our members and
business customers. For example, our system currently cannot properly receive
files sent using some third party email programs. We may not be able to
integrate the necessary technology into our computer systems on a timely basis
or without degrading the performance of our existing services. We cannot be
sure that, once integrated, new technology will function as expected. Delays in
introducing effective new services could cause existing and potential members
to forego use of our services and to use instead those of our competitors.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO PROVIDE ADEQUATE SECURITY FOR OUR
SERVICE, OR IF OUR SERVICE IS IMPAIRED BY SECURITY MEASURES IMPOSED BY THIRD
PARTIES.
Security is a critical issue for any online service, and presents a
number of challenges for us.
If we are unable to maintain the security of our service, our reputation
and our ability to attract and retain members and business customers may
suffer, and we may be exposed to liability. Third parties may attempt to breach
our security or that of our members or any business customers whose networks we
may maintain or for whom we provide services. If they are successful, they
could obtain our members' confidential information, including our members'
profiles, passwords, financial account information, credit card numbers, stored
email or other personal information, or obtain information that is sensitive or
confidential to a business customer or otherwise disrupt a business customer's
operations. Our members or any business customers may assert claims for money
damages for any breach in our security and any breach could harm our
reputation.
Our computers are vulnerable to computer viruses, physical or electronic
break-ins and similar incursions, which could lead to interruptions, delays or
loss of data. We expect to expend significant capital and other resources to
license or create encryption and other technologies to protect against security
breaches or to alleviate problems caused by any breach. Nevertheless, these
measures may prove ineffective. Our failure to prevent security breaches may
expose us to liability and may adversely affect our ability to attract and
retain members and develop our business market.
Security measures taken by others may interfere with the efficient
operation of our service, which may harm our reputation, adversely impact our
ability to attract and retain members and impede the delivery of advertisements
from which we generate revenues. "Firewalls" and similar network security
software employed by many ISPs, employers and schools can interfere with the
operation of our Webmail
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<PAGE> 21
service, including denying our members access to their email accounts.
Similarly, in their efforts to filter out unsolicited bulk emails, ISPs and
other organizations may block email from all or some of our members.
OUR DEPENDENCE ON LICENSED TECHNOLOGY EXPOSES US TO THE RISK THAT WE MAY NOT BE
ABLE TO INTEGRATE OUR TECHNOLOGY, WHICH MAY RESULT IN LESS DEVELOPMENT OF OUR
OWN TECHNOLOGY AND MAY INCREASE OUR COSTS.
We license a significant amount of technology from third parties,
including 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 important license by the third-party
licensor.
IF THE INTERNET AND OTHER THIRD-PARTY NETWORKS ON WHICH WE DEPEND TO DELIVER
OUR SERVICES BECOME INEFFECTIVE AS A MEANS OF TRANSMITTING DATA, THE BENEFITS
OF OUR SERVICE MAY BE SEVERELY UNDERMINED.
Our business depends on the effectiveness of the Internet as a means of
transmitting data. The recent growth in the use of the Internet has caused
frequent interruptions and delays in accessing and transmitting data over the
Internet. Any deterioration in the performance of the Internet as a whole could
undermine the benefits of our services. Therefore, our success depends on
improvements being made to the entire Internet infrastructure to alleviate
overloading and congestion. We also depend on telecommunications network
suppliers such as MFS, BBN Planet and UUNET to transmit and receive email
messages on behalf of our members and our business customers. We are also
affected by service outages at our partners' Web sites. If service at a
partner's site is unavailable for a period of time, we will be unable to sign
up new members and generate page views and revenue at that site during the
outage.
IF THE THIRD PARTY THAT WE DEPEND ON FOR THE ACTUAL DELIVERY OF THE
ADVERTISEMENTS WE SELL EXPERIENCES TECHNICAL DIFFICULTIES OR OTHERWISE FAILS TO
PERFORM, OUR REVENUES FROM ADVERTISING MAY BE ADVERSELY AFFECTED.
We contract with DoubleClick, Inc. to deliver the advertisements that we
sell and that appear on our Web pages and on the Web pages of our partners. If
DoubleClick experiences technical difficulties or otherwise fails to perform,
our revenues from advertising may be adversely affected. Furthermore,
DoubleClick may not have the same priorities for technology development as we
do and this may limit our ability to improve our delivery of advertising for
our specific needs.
GERALD GORMAN CONTROLS MAIL.COM AND WILL BE ABLE TO PREVENT A CHANGE OF
CONTROL.
Gerald Gorman, our Chairman and Chief Executive Officer, beneficially
owned as of June 30, 2000 Class A and Class B common stock representing
approximately 68.5% of the voting power of our outstanding common stock. Each
share of Class B common stock entitles the holder to 10 votes on any matter
submitted to the stockholders. As a result of his share ownership, Mr. Gorman
will be able to determine the outcome of all matters requiring stockholder
approval, including the election of directors, amendment of our charter and
approval of significant corporate transactions. Mr. Gorman will be in a position
to prevent a change in control of Mail.com even if the other stockholders were
in favor of the transaction.
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Mail.com and Mr. Gorman have agreed to permit our stockholders who
formerly held our preferred stock to designate a total of three members of our
board of directors.
Our charter contains provisions that could deter or make more expensive a
takeover of Mail.com. These provisions include the ability to issue "blank
check" preferred stock without stockholder approval.
OUR GOAL OF BUILDING BRAND IDENTITY IS LIKELY TO BE DIFFICULT AND EXPENSIVE.
We believe that a quality brand identity will be essential if we are to
increase membership, traffic on our sites and revenues, and to develop our
business services market. We do not have experience with some of the types of
marketing that we are currently using. If our marketing efforts cost more than
anticipated or if we cannot increase our brand awareness, our losses will
increase and our ability to succeed will be seriously impeded.
OUR EXPANSION INTO INTERNATIONAL MARKETS IS SUBJECT TO SIGNIFICANT RISKS AND OUR
LOSSES MAY INCREASE AND OUR OPERATING RESULTS MAY SUFFER IF OUR REVENUES FROM
INTERNATIONAL OPERATIONS DO NOT EXCEED THE COSTS OF THOSE OPERATIONS.
We intend to continue to expand into international markets and to expend
significant financial and managerial resources to do so. We have limited
experience in international operations and may not be able to compete
effectively in international markets. If our revenues from international
operations do not exceed the expense of establishing and maintaining these
operations, our losses will increase and our operating results will suffer. We
face significant risks inherent in conducting business internationally, such as:
- uncertain demand in foreign markets for Webmail advertising,
direct marketing and e-commerce;
- difficulties and costs of staffing and managing international
operations;
- differing technology standards;
- difficulties in collecting accounts receivable and longer
collection periods;
- economic instability and fluctuations in currency exchange rates
and imposition of currency exchange controls;
- potentially adverse tax consequences;
- regulatory limitations on the activities in which we can engage
and foreign ownership limitations on our ability to hold an
interest in entities through which we wish to conduct business,
and
- political instability, unexpected changes in regulatory
requirements, and reduced protection for intellectual property
rights in some countries.
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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 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
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in general. In addition, there can be no assurance that such export controls,
either in their current form or as may be subsequently enacted, will not limit
our ability to distribute our services outside of the United States or
electronically. While we take precautions against unlawful exportation of our
software, the global nature of the Internet makes it virtually impossible to
effectively control the distribution of our services. Moreover, future Federal
or state legislation or regulation may further limit levels of encryption or
authentication technology. Any such export restrictions, the unlawful
exportation of our services, or new legislation or regulation could have a
material adverse effect on our business, financial condition and results of
operations.
The legal structure and scope of operations of our subsidiaries in some
foreign countries may be subject to restrictions which could result in severe
limits to our ability to conduct business in these countries and this could have
a material adverse effect on our financial position, results of operations and
cash flows. We have announced the formation of WORLD.com, Inc. for the purpose
of developing our portfolio of domain names, including Asia.com and India.com.
In connection with the formation of Asia.com, Inc., we acquired eLong.com, Inc.
which operates through its wholly-owned subsidiary the Web site www.elong.com in
the Peoples Republic of China or the PRC. We have also announced that we intend
to expand our Internet messaging business in international markets. To the
extent that we develop and operate web sites or offer Internet messaging
services in foreign countries, we will be subject to the laws and regulations of
these countries. The laws and regulations relating to the Internet in many
countries are evolving and in many cases are unclear as to their application.
For example, in India, the PRC and other countries we may be subject to
licensing requirements with respect to the Internet activities in which we
propose to engage and we may also be subject to foreign ownership limitations or
other approval requirements that preclude our ownership interests or limit our
ownership interests to up to 49% of the entities through which we propose to
conduct any regulated activities. If these limitations apply to our activities,
including our activities conducted through eLong.com, Inc. or other
subsidiaries, our opportunities to generate revenue will be reduced, our ability
to compete successfully in these markets will be adversely affected, our
ability to raise capital in the private and public markets may be adversely
affected and the value of our investments and acquisitions in these markets may
decline. Moreover, to the extent we are limited in our ability to engage in
certain activities or are required to contract for these services from a
licensed or authorized third party, our costs of providing our services will
increase and our ability to generate profits may be adversely affected.
OUR INTELLECTUAL PROPERTY RIGHTS ARE CRITICAL TO OUR SUCCESS, BUT MAY BE
DIFFICULT TO PROTECT.
We regard our copyrights, service marks, trademarks, trade secrets,
domain names and similar intellectual property as critical to our success. We
rely on trademark and copyright law, trade secret protection and confidentiality
and/or license agreements with our employees, members, strategic partners and
others to protect our proprietary rights. Despite our precautions, unauthorized
third parties may improperly obtain and use information that we regard as
proprietary. Third parties may submit false registration data attempting to
transfer key domain names to their control. Our failure to pay annual
registration fees for key domain names may result in the loss of these domains
to third parties. Third parties have challenged our rights to use some of our
domain names, and we expect that they will continue to do so.
The status of United States patent protection for software products is
not well defined and will evolve as additional patents are granted. We do not
know if our current or future patent applications will be issued with the scope
of the claims we seek, if at all. Current United States law does not adequately
protect our database of member contact and demographic information. In addition,
the laws of some foreign countries do not protect proprietary rights to the same
extent as do the laws of the United States. Our means of protecting our
proprietary rights in the United States or abroad may not be adequate and
competitors may independently develop similar technology.
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Third parties may infringe or misappropriate our copyrights, trademarks
and similar proprietary rights. In addition, other parties may 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.
Intellectual property litigation is expensive and time-consuming and could
divert management's attention away from running our business.
THE SUCCESS OF OUR GLOBAL OPERATIONS IS SUBJECT TO SPECIAL RISKS AND COSTS.
We have begun, and intend to continue, to expand our operations outside of
the United States. This international expansion will require significant
management attention and financial resources. We face substantial risks in doing
business globally, including unexpected changes in regulatory requirements,
export restrictions, difficulties in staffing and managing foreign operations,
difficulties in protecting intellectual property rights, problems in collecting
accounts receivable, political instability, fluctuations in currency exchange
rates and exchange rate controls, difficulties in enforcing contracts and
potentially adverse consequences. In addition, as described elsewhere in this
prospectus, governments in foreign jurisdictions may regulate the Internet or
other online services in such areas as content, privacy, network security,
encryption or distribution, which may also affect our ability to conduct
business internationally.
THE LIMITED INSTALLED PERSONAL COMPUTER BASE AND HIGH COST OF ACCESSING THE
INTERNET IN CHINA AND INDIA LIMITS THE POOL OF POTENTIAL CUSTOMERS FOR ASIA.COM
AND INDIA.COM.
The market penetration rates of personal computers and on-line access in
China and India are far lower than such rates in the United States. Alternate
methods of obtaining access to the Internet, such as through cable television
modems or set-top boxes for televisions, are currently unavailable in India and
China. There can be no assurance that the number or penetration rate of personal
computers in China and India will increase rapidly or at all or that alternate
means of accessing the Internet will develop and become widely available in
China and India.
Our growth is limited by the cost to Chinese and Indian consumers of
obtaining the hardware, software and communications links necessary to connect
to the Internet in China and India. If the costs required to access the Internet
do not significantly decrease, most of China's and India's population will not
be able to afford to use our services. The failure of a significant number of
additional Chinese and Indian consumers to obtain affordable access to the
Internet would make it very difficult to execute our business plan.
WE ARE RELYING ON ELECTRONIC COMMERCE AS A SIGNIFICANT PART OF OUR FUTURE
REVENUE, BUT THE INTERNET HAS NOT YET BEEN PROVEN AS AN EFFECTIVE COMMERCE
MEDIUM IN CHINA AND INDIA.
Our revenue growth depends in part on the increasing acceptance and use
of electronic commerce in China and India. The Internet may not become a viable
commercial marketplace in Asia for various reasons, many of which are beyond our
control, including:
- inexperience with the Internet as a sales and distribution channel;
- inadequate development of the necessary infrastructure to facilitate
electronic commerce;
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- concerns about security, reliability, cost, ease of deployment,
administration and quality of service associated with conducting business
over the Internet; and
- inexperience with credit card usage or with other means of electronic
payment.
UNDERDEVELOPED TELECOMMUNICATIONS INFRASTRUCTURE HAS LIMITED AND MAY CONTINUE TO
LIMIT THE GROWTH OF THE INTERNET MARKET IN CHINA AND INDIA.
The telecommunications infrastructure in China and India is not well
developed. The underdeveloped Internet infrastructure in China and India has
limited the growth of Internet usage there. If the necessary Internet
infrastructure is not developed, or is not developed on a timely basis, future
growth of the Internet in China and India will be limited and our business could
be harmed.
OUR ASIA.COM BUSINESS MAY BE ADVERSELY AFFECTED BY CHINESE GOVERNMENT REGULATION
OF INTERNET COMPANIES.
China has recently begun to regulate its Internet sector by making
pronouncements or enacting regulations regarding the legality of foreign
investment in the Chinese Internet sector, the existence and enforcement of
content restrictions on the Internet and the availability of securities
offerings by companies operating in the Chinese Internet sector. There are
substantial uncertainties regarding the proper interpretation of current and
future Chinese Internet laws and regulations.
Issues, risks and uncertainties relating to Chinese government regulation
of the Chinese Internet sector include the following:
A prohibition of foreign investment in businesses providing value-added
telecommunication services, including computer information services or
electronic mail box services, may be applied to Internet businesses such as
ours. Some officials of the Chinese Ministry of Information and Industry, or
MII, have taken the position that foreign investment in the Internet sector is
prohibited.
The MII has also stated recently that it intends to adopt new laws or
regulations governing foreign investment in the Chinese Internet sector in the
near future. If these new laws or regulations forbid foreign investment in the
Internet sector, our business in China will be severely impaired.
Under the agreement reached in November 1999 between China and the
United States concerning the United States' support of China's entry into the
World Trade Organization, or WTO, foreign investment in Chinese Internet
services will be liberalized to allow for 30% foreign ownership in key
telecommunication services, including Chinese Internet ventures, in 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 U.S. Congress, China's completion of
bilateral negotiations with other WTO members, the multilateral negotiation of
China's accession protocol with the WTO and the completion of China's own
domestic procedures for accession. Within the United States, China's WTO
accession faces opposition from trade unions, environmentalists and human rights
organization.
The MII has also stated recently that the activities of Internet
content providers are also subject to regulation by various Chinese government
authorities, depending on the specific activities conducted by the Internet
content provider. Various government authorities have stated publicly that they
are in the process of preparing new laws and regulations that will govern these
activities. The areas of regulation may include online advertising and online
news reporting. In addition, the new laws and regulations may require various
Chinese government approvals for securities offerings by companies engaged in
the Internet sector in China.
The interpretation and application of existing Chinese laws and
regulations, the stated positions of the MII and the possible new laws or
regulations have created substantial uncertainties regarding the
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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 RISKS TO OUR
BUSINESS.
Political instability related to the formation of a new government in
India 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. During the past decade, the government of India has pursued policies
of economic liberalization, including significantly relaxing restrictions on the
private sector. Nevertheless, the role of the Indian central and state
governments in the Indian economy has remained significant. The government of
India recently changed for the fifth time since 1996. A significant change in
India's economic liberalization and deregulation policies could adversely affect
business and economic conditions in India generally and our India.com business
in particular.
A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK MAY COME ONTO THE MARKET IN THE FUTURE,
WHICH COULD DEPRESS OUR STOCK PRICE.
Sales of a substantial number of shares of our common stock in the public
market could cause the market price of our Class A common stock to decline. As
of June 30, 2000, we had an aggregate of 59,161,555 shares of Class A and Class
B common stock and 14,361,356 options and 1,251,233 warrants to purchase an
aggregate of 15,612,589 shares of Class A common stock outstanding. As of such
date, approximately 50,746,846 shares of Class A common stock and Class B common
stock were freely tradable, in some cases subject to the volume and manner of
sale limitations contained in Rule 144. As of such date, approximately 8,414,709
shares of Class A common stock will become available for sale at various later
dates upon the expiration of one-year holding periods or upon the expiration of
any other
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applicable restrictions on resale. We are likely to issue large amounts of
additional Class A common stock, which may also be sold and which could
adversely affect the price of our stock.
As of June 30, 2000 the holders of up to 21,211,911 shares of Class A
common stock, had the right, subject to various conditions, to require us to
file registration statements covering their shares, or to include their shares
in registration statements that we may file for ourselves or for other
stockholders, including the shelf registration statement we are required to file
with respect to the notes. By exercising their registration rights and selling a
large number of shares, these holders could cause the price of the Class A
common stock to fall. An undetermined number of these shares have been sold
publicly pursuant to Rule 144.
OUR STOCK PRICE HAS BEEN VOLATILE AND WE EXPECT THAT IT WILL CONTINUE TO BE
VOLATILE.
Our stock price has been volatile since our initial public offering and we
expect that it will continue to be volatile. As discussed above, our financial
results are difficult to predict and could fluctuate significantly. In addition,
the market prices of securities of Internet-related companies have been highly
volatile. A stock's price is often influenced by rapidly changing perceptions
about the future of the Internet or the results of other Internet or technology
companies, rather than specific developments relating to the issuer of that
particular stock. As a result of volatility in our stock price, a securities
class action may be brought against us. Class-action litigation could result in
substantial costs and divert our management's attention and resources.
THE NOTES ARE SUBORDINATED TO OUR SENIOR DEBT AND ALL THE OBLIGATIONS OF OUR
SUBSIDIARIES.
The notes are unsecured and subordinated in right of payment in full to all
of our existing and future senior debt and to all of our subsidiaries' debt. As
a result of such subordination, in the event of bankruptcy, liquidation or
reorganization of our company or upon acceleration of the notes due to an event
of default, there may not be sufficient assets remaining to pay amounts due on
any or all of the notes then outstanding. The notes also will be effectively
subordinated to the liabilities, including trade payables, of any of our
subsidiaries. The indenture does not prohibit or limit the incurrence of senior
debt or the incurrence of other indebtedness and other liabilities by us or any
subsidiary, and the incurrence of additional indebtedness and other liabilities
by us or any subsidiary could adversely affect our ability to pay our
obligations on the notes. As of March 31, 2000, we had approximately $22.2
million of indebtedness outstanding that would have constituted senior debt. As
of March 30, 2000, our subsidiaries had approximately $40.7 million of balance
sheet liabilities. See "Description of the notes - Subordination of the notes."
OUR ABILITY TO REPURCHASE NOTES IF A DESIGNATED EVENT OCCURS IS LIMITED.
Our ability to repurchase notes upon the occurrence of a designated event
(as defined in the indenture) is subject to limitations. If a designated event
occurred, we cannot assure you that we would have sufficient financial
resources, or would be able to arrange financing, to pay the repurchase price
for all notes tendered by holders. Our subsidiaries may be parties in the future
to credit agreements and other agreements relating to indebtedness (as defined
in the indenture) which contain restrictions on transferring funds sufficient to
permit us to effect a designated event payment (as defined in the indenture). In
addition, future credit agreements or other agreements relating to indebtedness
of ours (including senior debt) may contain prohibitions or restrictions on our
ability to effect a designated event payment. In the event a designated event
occurs at a time when such prohibitions or restrictions are in effect, we could
seek the consent of our lenders and lenders to our subsidiaries to enable us to
purchase notes or could attempt to refinance the borrowings that contain these
prohibitions or restrictions. If we do not obtain consents or repay these
borrowings, we will be effectively prohibited from purchasing notes. In
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that event, our failure to purchase tendered notes would constitute an event of
default under the indenture whether or not repurchase is permitted by the
subordination provisions of the indenture. Any such default may, in turn, cause
a default under our senior debt. Moreover, the occurrence of a change of control
may cause an event of default under our designated senior debt. As a result, in
such a case, any repurchase of the notes would, absent a waiver, be prohibited
under the subordination provisions of the indenture until the senior debt was
paid in full.
THERE HAS BEEN NO TRADING MARKET FOR THE NOTES AND THEIR RESALE IS RESTRICTED.
There has been no trading market for the notes. Although the initial
purchasers of the notes have advised us that they currently intend to make a
market in the notes, they are not obligated to do so and may discontinue market
making activities at any time without notice. In addition, their market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act. Moreover, a sufficient number of shares of our Class A common
stock may not be available to facilitate hedging transactions. Accordingly, we
cannot assure you that any market for the notes will develop or, if one does
develop, that it will be maintained. If an active market for the notes fails to
develop or be sustained, the trading price of the notes could be materially
adversely affected. The notes are eligible for trading on the Portal MarketSM,
however any notes sold under this prospectus will no longer trade in the Portal
MarketSM.
THE NOTES HAVE NOT BEEN RATED, WHICH POSES VARIOUS INVESTMENT RISKS.
The notes have not been rated. As a result, holders of the notes will bear
the risks associated with an investment in unrated debt. Historically, the
market for unrated debt has been subject to disruptions that have caused
substantial volatility in the prices of such securities and greatly reduced
liquidity. If the notes are traded, they may trade at a discount from their
initial offering price, depending upon prevailing interest rates, the market for
similar securities, our performance and certain other factors. The liquidity of,
and trading markets for, the notes may also be adversely affected by general
declines in the market for unrated debt. Such declines may adversely affect the
liquidity of, and trading markets for, the notes, independent of our financial
performance or our prospects. In addition, certain regulatory restrictions
prohibit certain types of financial institutions from investing in unrated debt,
which may further suppress demand for these securities. We cannot assure you
that the market for the notes will not be subject to similar disruptions. Any
such disruptions may have an adverse effect on holders of the notes.
WE MAY NOT BE ABLE TO DEDUCT THE INTEREST ON THE NOTES FOR U.S. FEDERAL INCOME
TAX PURPOSES.
Our interest deduction with respect to the notes may be disallowed to
the extent that the notes are treated as "corporate acquisition indebtedness"
under Section 279 of the Internal Revenue Code of 1986, as amended. Corporate
acquisition indebtedness includes subordinated convertible notes issued to
provide consideration for the acquisition of stock or a substantial amount of
the assets in another corporation if certain debt to equity or earnings ratios
are met. It is possible that the notes would be treated as corporate acquisition
indebtedness to the extent their proceeds were used to fund such acquisitions.
In that event, some or all of the deduction for interest paid on the notes could
be disallowed.
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USE OF PROCEEDS
The selling securityholders will receive all of the proceeds from the
sale of the notes under this prospectus and the Class A common stock issuable
upon conversion of the notes. We will not receive any proceeds from these sales.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is computed by dividing fixed
charges into earnings. Earnings is defined as pretax income from continuing
operations adjusted by adding fixed charges and excluding interest capitalized
during the period. Fixed charges means the total of interest expense and
amortization of financing costs, the estimated interest component of rental
expense on operating leases and preferred stock dividends.
The following table sets forth our deficiency of earnings to fixed charges
for each of the periods indicated.
<TABLE>
<CAPTION>
Year ended December 31, Three Months Three Months
------------------------------------------------------------- Ended Ended
1996 1997 1998 1999 March 31, 1999 March 31, 2000
-------- -------- -------- -------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Loss to Fixed
Charges(1)............$- $- $- $- $- $-
</TABLE>
--------------
(1) Earnings consist of income (loss) before provision for income taxes plus
fixed charges. Fixed charges consist of interest charges and amortization of
debt expense and discount or premium related to indebtedness, whether expensed
or capitalized, and that portion of rental expense we believe representative of
interest. As a result of the loss incurred for all periods presented, the ratio
coverage was less than 1:1 as Mail.com was unable to cover the indicated fixed
charges. Mail.com would have had to generate additional earnings of $540,000,
$3.0 million, $12.4 million and $60.7 million for the years ended December 31,
1996, 1997, 1998 and 1999 and $6.3 million and $40.5 million for the three
months ended March 31, 1999 and 2000, respectively to achieve and ratio coverage
of 1:1.
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DESCRIPTION OF THE NOTES
GENERAL
We issued the notes pursuant to an indenture dated as of January 26, 2000,
between Mail.com and American Stock Transfer and Trust Company, as trustee. The
following is a summary of certain provisions of the indenture and the
registration agreement between us and the initial purchasers of the notes, but
it is not complete and is qualified in its entirety by reference to the
indenture and the registration agreement, including the definitions in the
indenture of certain terms used in the following summary. Anyone who purchases
notes pursuant to this prospectus may obtain a copy of the indenture and the
registration agreement without charge by writing to Mail.com, Inc., 11 Broadway,
6th Floor, New York, New York 10004, Attention: Investor Relations. We defined
some of the terms used in the following summary below under "- Certain
definitions." For purposes of this section of the prospectus, references to us
are solely to Mail.com, Inc., a Delaware corporation, and not to any of our
subsidiaries.
The notes are our general unsecured obligations and are subordinated in
right of payment to all of our existing and future senior debt to the extent set
forth in the indenture. The indenture does not limit the amount of other
indebtedness or securities that we or any of our subsidiaries may issue. We
currently conduct our operations directly and through our subsidiaries.
Accordingly, we may in the future be dependent upon the cash flow of our
subsidiaries to meet some or all of our obligations, including our obligations
under the notes. As a result, the notes are effectively subordinated to all
existing and future indebtedness and other liabilities and commitments of such
subsidiaries. See "Risk Factors - The notes are subordinated to our senior debt
and all the obligations of our subsidiaries."
PRINCIPAL, MATURITY AND INTEREST
We issued the notes in an aggregate principal amount limited to
$100,000,000. The notes bear interest at 7% per annum and mature on February 1,
2005.
We will pay interest on the notes semiannually on February 1 and August 1
of each year, each an interest payment date, commencing on August 1, 2000, to
holders of record at the close of business on January 15 or July 15, each a
regular record date, immediately preceding such interest payment date. We will
compute interest on the basis of a 360-day year consisting of twelve 30-day
months. Interest on the notes will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from January 26, 2000.
If we do not comply with certain deadlines set forth in the registration
agreement with respect to the registration of the notes or the Class A common
stock issuable upon conversion of the notes for resale under a shelf
registration statement, we will pay additional interest, which we call
liquidated damages, to holders of the notes and/or the Class A common stock
issued upon conversion of the notes. See "- Registration of the notes" below.
Principal of, premium, if any, interest and liquidated damages, if any, on
the notes represented by the global note registered in the name of and held by
DTC or its nominee will be made to DTC or its nominee, as the case may be, as
the registered owner and holder of the global note. Payments, transfers,
exchanges and conversions relating to beneficial interests in notes issued in
book-entry form will be subject to the procedures applicable to the global note
described below. Principal of, premium, if any, interest and liquidated damages,
if any, on definitive notes will be payable at the office or agency of Mail.com
maintained for such purpose within The City of New York or, subject to
applicable laws and regulations, at the office of any paying agent, or, at our
option, payment of interest may be made by check mailed to the holders of the
definitive notes at their respective addresses set forth in the register of
holders of notes provided that interest and liquidated damages, if any, on the
global note may only be made in
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same day funds. Until otherwise designated by us, our office or agency in The
City of New York will be the office of the trustee maintained for such purpose.
The notes will be issued in registered form, without coupons, and in
denominations of $1,000 and integral multiples of $1,000.
If a payment date is not a business day at a place of payment, we may make
payment at that place on the next succeeding business day, and no interest shall
accrue for the intervening period.
We have initially appointed the trustee at its corporate trust office in
The City of New York as the paying agent and conversion agent. We time may
terminate the appointment of the paying agent or conversion agent at any time
and appoint additional or other paying agents and conversion agents, provided
that until the notes have been delivered to the trustee for cancellation, or
moneys sufficient to pay the principal of, premium, if any, interest and
liquidated damages, if any, on the notes have been made available for payment
and either paid or returned to us as provided in the indenture, the trustee will
maintain an office or agency in The City of New York for payments with respect
to the notes and for the surrender of notes for conversion. We will give notice
of any such termination or appointment and of any change in the office through
which the paying agent or conversion agent in accordance with "- Notices" below.
PROVISIONAL REDEMPTION
Prior to February 5, 2003, we may redeem the notes at our option, in whole
or in part (in any integral multiple of $1,000), at any time or from time to
time, upon not less than 30 nor more than 60 days' prior notice by mail, at the
following redemption prices (expressed as percentages of the principal amount),
plus accrued and unpaid interest and liquidated damages, if any, to the
provisional redemption date (subject to the right of holders of record on the
relevant record date to receive any such amounts due on an interest payment
date) if the closing price of the Class A common stock shall have equaled or
exceeded the following specified percentages of the conversion price then in
effect for at least 20 out of 30 consecutive days on which the Nasdaq National
Market is open for the transaction of business prior to the date of mailing of
the notice of provisional redemption. Such redemption price and percentage shall
be as indicated during the periods specified below:
<TABLE>
<CAPTION>
PERCENTAGE
OF CONVERSION
PERIOD REDEMPTION PRICE PRICE
------ ---------------- -----
<S> <C> <C>
January 26, 2000 through January 31,
2001............................. 107.00% 170%
February 1, 2001 through January 31,
2002............................. 105.60% 160%
February 1, 2002 through February 4,
2003............................. 104.20% 150%
</TABLE>
Upon any provisional redemption, we will be obligated to make an additional
payment in an amount equal to the present value of the aggregate value of the
interest payments that would thereafter have been payable on the notes from the
provisional redemption date to, but excluding, February 5, 2003. The present
value will be calculated using the bond equivalent yield on U.S. Treasury notes
or bills having a term nearest in length to that of the additional period as of
the day immediately preceding the date on which a notice of provisional
redemption is mailed.
OPTIONAL REDEMPTION
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<PAGE> 33
Except as described under "- Provisional redemption," the notes will not be
subject to redemption prior to February 5, 2003. On and after February 5, 2003,
we may redeem the notes at our option, in whole or in part (in any integral
multiple of $1,000) after giving not less than 30 nor more than 60 days' prior
notice by mail. We may redeem the notes at the following redemption prices
(expressed as percentages of the principal amount), in each case, together with
accrued interest and liquidated damages, if any, to, but excluding, the
redemption date, subject to the right of holders of record on the relevant
record date to receive interest and liquidated damages, if any, due on an
interest payment date. If we redeem the notes during the 12 month period
beginning on February 1 of the years indicated (February 5, in the case of 2003)
the redemption price shall be as indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2003............................................................................... 102.80%
2004............................................................................... 101.40%
</TABLE>
SELECTION AND NOTICE
If we are redeeming less than all of the notes, the trustee will select the
notes for redemption by complying with the requirements of the principal
national securities exchange, if any, on which the notes are listed, or, if the
notes are not so listed, on a pro rata basis, by lot or by such method as the
trustee shall deem fair and appropriate. We will not redeem in part notes of
$1,000 in principal amount or less. We will mail, or cause to be mailed, a
notice of redemption at least 30 but not more than 60 days before the redemption
date to each holder of notes to be redeemed at its registered address. If we are
redeeming any note in part only, the notice of redemption that relates to such
note shall state the portion of the principal amount thereof to be redeemed. If
any definitive note is to be redeemed in part only, we will issue, or cause to
be issued, a new note in principal amount equal to the unredeemed portion
thereof in the name of the holder thereof upon cancellation of the original
note. On and after the redemption date, interest and liquidated damages, if any,
will cease to accrue on notes or portions thereof called for redemption unless
we default in the payment of the redemption price for such notes on the
applicable redemption date.
MANDATORY REDEMPTION
We are not required to make mandatory redemption or sinking fund payments
with respect to the notes.
REPURCHASE AT THE OPTION OF HOLDERS
Upon the occurrence of a designated event, each holder of notes will have
the right, at the holder's option, to require us to repurchase all or any part,
in an integral multiple of $1,000, of such holder's notes pursuant to the
designated event offer described below at a purchase price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, thereon to the designated event payment date, subject to the
right of holders of record on the relevant record date to receive any such
amounts due on the relevant payment date.
Within 30 days following any designated event, we shall mail a notice to
each holder stating:
- that we are making the designated event offer pursuant to the
covenant described in this paragraph and that we will accept for
payment all notes that are tendered;
- the purchase price and the designated event payment date on which we
will purchase the notes, which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed;
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<PAGE> 34
- that any notes not tendered will continue to accrue interest and
liquidated damages, if applicable;
- that, unless we default in the payment of the designated event
payment, all notes accepted for payment pursuant to the designated
event offer will cease to accrue interest and liquidated damages, if
applicable, after the designated event payment date and will cease
to have conversion rights; and
- the procedures that the holders of notes must follow in order to
tender their notes (or portions thereof) for payment, and the
procedures that holders of notes must follow in order to withdraw an
election to tender notes (or portions thereof) for payment.
We will comply with the requirements of Rules 13e-4 and 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the notes in connection with a designated event.
On the designated event payment date, we will, to the extent lawful,
- accept for payment notes or portions thereof duly tendered pursuant
to the designated event offer,
- deposit with the trustee or a paying agent in immediately available
funds an amount equal to the designated event payment in respect of
all notes or portions thereof so tendered and
- deliver or cause to be delivered to the trustee the notes so
accepted together with an officers' certificate identifying the
notes or portions thereof tendered to us.
The paying agent shall promptly mail or deliver to each holder of notes so
accepted payment in an amount equal to the purchase price for such notes, and
the trustee shall promptly authenticate and mail or deliver to each holder a new
certificate representing a note equal in principal amount to any unpurchased
portion of the notes surrendered, if any; provided that each such new
certificate representing a note shall be in a principal amount of $1,000 or an
integral multiple thereof. We will publicly announce the results of the
designated event offer on or as soon as practicable after the designated event
payment date.
Except as described above with respect to a designated event, the indenture
does not contain any other provisions that permit the holders of the notes to
require that we repurchase or redeem the notes in the event of a takeover,
recapitalization or similar restructuring.
The designated event purchase feature of the notes may in certain
circumstances make more difficult or discourage a takeover of Mail.com, and,
thus, the removal of incumbent management. The designated event purchase
feature, however, is not the result of management's knowledge of any specific
effort to accumulate our capital stock or to obtain control of us by means of a
merger, tender offer, solicitation or otherwise, or part of a plan by management
to adopt a series of anti-takeover provisions. Instead, the designated event
purchase feature is a result of negotiations between us and the initial
purchasers of the notes. Management has no current intention to engage in a
transaction involving a designated event, although it is possible that we could
decide to do so in the future.
Subject to the limitations on mergers, consolidations and sales of assets
described herein, we could, in the future, enter into certain transactions,
including acquisitions, refinancings or other recapitalizations, that would not
constitute a designated event under the indenture, but that could increase the
amount of indebtedness (including senior debt) outstanding at such time or
otherwise affect our capital structure or credit ratings. The payment of the
designated event payment is subordinated to the prior payment of
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<PAGE> 35
senior debt as described under "Subordination of the notes" below.
Our ability to repurchase notes upon the occurrence of a designated event
may be limited. If a designated event occurred, we cannot assure you that we
would have sufficient financial resources, or would be able to arrange
financing, to pay the repurchase price for all notes tendered by holders
thereof. Our subsidiaries may be parties in the future to credit agreements and
other agreements relating to indebtedness which contain restrictions on
transferring funds sufficient to permit us to effect a designated event payment.
In addition, future credit agreements or other agreements relating to our
indebtedness (including additional senior debt), may contain prohibitions or
restrictions on our ability to effect a designated event payment. If a
designated event occurs at a time when such prohibitions or restrictions are in
effect, we could seek the consent of our lenders and lenders to our subsidiaries
to enable us to purchase notes or could attempt to refinance the borrowings that
contain such prohibitions or restrictions. If we do not obtain such consents or
repay such borrowings, we will be effectively prohibited from purchasing notes.
In such case, our failure to purchase tendered notes would constitute an event
of default under the indenture whether or not such repurchase is permitted by
the subordination provisions of the indenture. Any such default may, in turn,
cause a default under our senior debt. Moreover, the occurrence of a change of
control may cause an event of default under our designated senior debt. As a
result, in such a case, any repurchase of the notes would, absent a waiver, be
prohibited under the subordination provisions of the indenture until the senior
debt is paid in full. See "-Subordination of the notes" below and "Risk Factors
- The notes are subordinated to our senior debt and all the obligations of our
subsidiaries."
A designated event will be deemed to have occurred upon a change of
control or a termination of trading.
A change of control will be deemed to have occurred when:
- any "person" or "group" (as such terms are used in Section 13(d)
and 14(d) of the Exchange Act) other than one or more of the
Permitted Holders, as defined below, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act) of shares representing more than 50% of the combined voting
power of the then outstanding voting stock, defined as the
securities entitled to vote generally in elections of our
directors;
- we consolidate with or merge into any other corporation, or any
other corporation merges into us, and, in the case of any such
transaction, our outstanding Class A common stock is reclassified
into or exchanged for any other property or securities, unless our
stockholders immediately before such transaction own, directly or
indirectly immediately following such transaction, at least a
majority of the combined voting power of the then outstanding
voting securities entitled to vote generally in elections of
directors of the corporation resulting from such transaction in
substantially the same respective proportions as their ownership
of the voting stock immediately before such transaction;
- we or our subsidiaries, taken as a whole, sell, assign, convey,
transfer or lease all or substantially all of our assets or of us
and our subsidiaries, taken as a whole, as applicable (other than
to one or more of our wholly-owned subsidiaries);
- any time the continuing directors do not constitute a majority of
our board of directors (or, if applicable, our successor
corporation); or
- our stockholders shall have approved any plan of liquidation or
dissolution of Mail.com;
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<PAGE> 36
provided, however, that:
- a change of control shall not be deemed to have occurred if the
daily market price per share of the Class A common stock for any
five trading days within the period of 10 consecutive trading days
beginning immediately after the later of the change of control or
the public announcement of the change of control shall equal or
exceed 105% of the Conversion Price of the notes in effect on each
such trading day; provided further that if the change of control
results in the reclassification, conversion, exchange of
outstanding shares of our common stock, such 10 consecutive
trading day period shall be measured as ending immediately before
the change of control; and
- a change of control under the first three bullets above shall not
be deemed to have occurred if at least 90% of the consideration in
the change of control transaction consists of shares of capital
stock traded on a U.S. national securities exchange or quoted on
Nasdaq, and as a result of such transaction, the notes become
convertible solely into such capital stock.
The definition of change of control includes a phrase relating to the sale,
assignment, conveyance, transfer or lease of "all or substantially all" of our
assets. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of notes to require
us to repurchase such notes as a result of a sale, assignment, conveyance,
transfer or lease of less than all of our assets or of us and our subsidiaries,
taken as a whole, may be uncertain.
"permitted holders" means, collectively, Gerald Gorman and his estate,
spouse, legatees, heirs, ancestors and lineal descendants, the legal
representatives of any of the foregoing and the trustees of any bona fide trusts
of which one or more of the foregoing are the sole beneficiaries or the grantor,
or any corporation, trust, partnership or other entity of which one or more of
the foregoing "beneficially owns" (as defined in Rule 13d-3 under the Exchange
Act) at least 66 2/3% of the total voting power of such corporation, trust,
partnership or other entity.
"continuing directors" means, as of any date of determination, any member
of our Board of Directors who (i) was a member of our Board of Directors on the
date of the indenture or (ii) was nominated for election or elected to our Board
of Directors with the approval of a majority of the continuing directors who
were members of our Board of Directors at the time of such nomination or
election or (ii) was nominated for election or elected to our Board of Directors
with the approval of Gerald Gorman, provided that at the time of such nomination
or election Gerald Gorman owns shares representing more than 50% of the combined
voting power of the then outstanding voting stock.
A "termination of trading" will be deemed to have occurred if our Class A
common stock (or other securities into which the notes are then convertible) is
neither listed for trading on the New York Stock Exchange or another United
States national securities exchange nor approved for trading on the Nasdaq
National Market or other established automated over-the-counter trading market
in the United States.
REGISTRATION RIGHTS
Pursuant to a registration agreement for the benefit of the holders of the
notes and Class A common stock issued upon conversion of the notes, we:
- at our own cost, filed a shelf registration statement, of which
this prospectus is a part, with the Securities and Exchange
Commission with respect to resales of the notes and the Class A
common stock issuable upon conversion of the notes,
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<PAGE> 37
- agreed to use our best efforts to cause the shelf registration
statement to be declared effective under the Securities Act by
September 22, 2000 and
- agreed to keep the shelf registration statement continuously
effective under the Securities Act for a specified period of time.
Our obligation to keep the shelf registration statement continuously
effective under the Securities Act expires upon the earliest of
- January 26, 2002,
- the date on which the notes or the Class A common stock issuable
upon conversion thereof may be sold by persons not affiliated with
us pursuant to paragraph (k) of Rule 144 (or any successor
provision) promulgated by the Commission under the Securities Act,
- the date as of which all the notes or the Class A common stock
issuable upon conversion thereof have been sold pursuant to the
shelf registration statement and
- the date as of which all the notes or the Class A common stock
issuable upon conversion thereof have been transferred pursuant to
Rule 144 under the Securities Act (or any similar provision then
in force).
If the shelf registration statement ceases to be effective (without being
succeeded immediately by a replacement shelf registration statement filed and
declared effective) or cannot be used for the offer and sale of transfer
restricted securities described below for a period of time (including any
suspension period described below) that exceeds 120 days in the aggregate in any
12-month period during the period beginning on September 22, 2000 and ending on
or prior to the second anniversary of the January 26, 2002 (each of these events
is called a registration default), then we will pay liquidated damages to each
holder of transfer restricted securities which has complied with its obligations
under the registration agreement.
The amount of liquidated damages payable during any period in which a
registration default shall have occurred and be continuing is that amount which
is equal to one-quarter of one percent (25 basis points) per annum per $1,000
principal amount of notes or $2.50 per annum per 52.7704 shares of Class A
common stock (subject to adjustment in the event of a stock split, stock
recombination, stock dividend and the like) constituting transfer restricted
securities for the first 90 days during which a registration default has
occurred and is continuing and 50 basis points per annum per $1,000 principal
amount of notes or $5.00 per annum per 52.7704 shares of Class A common stock
(subject to adjustment as set forth above) constituting transfer restricted
securities for any additional days during which such registration default has
occurred and is continuing. We have agreed to pay all accrued liquidated damages
by wire transfer of immediately available funds or by federal funds check on
each damages payment date described in the registration agreement. Following the
cure of a registration default, liquidated damages will cease to accrue with
respect to such registration default.
"transfer restricted securities" means each note and any share of Class A
common stock issued upon conversion thereof until the date on which such note or
share, as the case may be:
- has been transferred pursuant to the Shelf Registration Statement
or another registration statement covering such note or share
which has been filed with the Commission pursuant to the
Securities
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<PAGE> 38
Act, in either case after such registration statement has become
effective under the Securities Act,
- has been transferred pursuant to Rule 144 under the Securities Act
(or any similar provision then in force), or
- may be sold or transferred pursuant to paragraph (k) of Rule 144
under the Securities Act (or any successor provision promulgated
by the Commission).
In the registration agreement, we also agreed to:
- provide or cause to be provided to each holder of the notes, or
the Class A common stock issuable upon conversion of the notes,
copies of the prospectus, which is a part of the shelf
registration statement,
- notify or cause to be notified to each such holder when the shelf
registration statement for the notes or the Class A common stock
issuable upon conversion of the notes has become effective and
take certain other actions as are required to permit unrestricted
resales of the notes or the Class A common stock issuable upon
conversion of the notes.
A holder of notes or the Class A common stock issuable upon conversion of
the notes that sells such securities pursuant to a shelf registration statement:
- will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers,
- will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and
- will be bound by the provisions of the registration agreement that
are applicable to such holder (including certain indemnification
and contribution rights or obligations).
We distributed a questionnaire to each beneficial holder of notes to
obtain certain information regarding such selling securityholders for inclusion
in the prospectus.
We will be permitted to suspend the use of the prospectus which is a part
of the shelf registration statement for a period not to exceed 60 days in any
three-month period or for three periods not to exceed an aggregate of 120 days
in any twelve-month period (any such period being referred to as a suspension
period) under certain circumstances relating to pending corporate developments,
public filings with the Commission and similar events. We will pay all expenses
of the shelf registration statement; provided however, that each holder shall
bear the expense of any broker's commission, agency fee or underwriter's
discount or commission.
CONVERSION
The holder of any note has the right, exercisable at any time between
April 25, 2000 and January 31, 2005, to convert the principal amount thereof (or
any portion thereof that is an integral multiple of $1,000) into shares of Class
A common stock at the conversion price of $18.95 per share, subject to
adjustment as described below. If we have called a note for redemption, the
conversion right will terminate at the close of business on the business day
immediately preceding the redemption date. Except as described below, no payment
or adjustment will be made on conversion of any notes for accrued and
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<PAGE> 39
unpaid interest or liquidated damages, if any, accrued thereon or for dividends
or distributions on, or liquidated damages, if any, attributable to, any Class A
common stock issued upon conversion of notes. If notes not called for redemption
and not required to be repurchased are converted after a regular record date for
the payment of interest and prior to the next succeeding interest payment date,
such notes must be accompanied by funds equal to the interest and liquidated
damages, if any, payable on such succeeding interest payment date on the
principal amount so converted. We will not issue fractional shares upon
conversion. Instead, we will make a cash adjustment for any fractional interest.
The owners of a note may exercise their right of conversion by delivering
to DTC the appropriate instruction form for conversion pursuant to DTC's
conversion program. In the case of conversions through Euroclear or Cedel Bank,
the owner shall deliver instructions in accordance with Euroclear's or Cedel
Bank's normal operating procedures when application has been made to make the
underlying Class A common stock eligible for trading on Cedel Bank or Euroclear.
To convert a note held in certificated form into shares of Class A common stock,
a holder must:
- complete and manually sign the conversion notice on the back of
the note (or complete and manually sign a facsimile thereof) and
deliver such notice to the trustee in New York, New York,
- surrender the note to the trustee in New York, New York,
- if required, furnish appropriate endorsements and transfer
documents,
- if required, pay all transfer or similar taxes, and
- if required, pay funds equal to interest and liquidated damages,
if any, payable on the next interest payment date.
Pursuant to the indenture, the date on which all of the foregoing
requirements have been satisfied is the date of surrender for conversion. Such
notice of conversion can be obtained from the trustee at its corporate trust
office or the office of the conversion agent.
As promptly as practicable on or after the conversion date, we will issue
and deliver to the trustee a certificate or certificates for the number of full
shares of Class A common stock issuable upon conversion, together with payment
in lieu of any fraction of a share in an amount determined as set forth below.
Such certificate or certificates will be sent by the trustee to the conversion
agent for delivery to the holder.
The Class A common stock issuable upon conversion of the notes will be
fully paid and nonassessable. Any note surrendered for conversion during the
period from the close of business on any regular record date to the opening of
business on the next succeeding interest payment date (except notes called for
redemption on a redemption date or to be repurchased on a designated event
payment date during such period) must be accompanied by payment of an amount
equal to the interest and liquidated damages, if any, payable on such interest
payment date on the principal amount of notes being surrendered for conversion.
In the case of any note which has been converted after any regular record date,
but on or before the next interest payment date, interest and liquidated
damages, if any, on such note shall be payable on such interest payment date
notwithstanding such conversion. Such interest and liquidated damages, if any,
shall be paid to the holder of such note on such regular record date. As a
result, a holder that surrenders notes for conversion on a date that is not an
interest payment date effectively will not receive any interest or liquidated
damages, if applicable, for the period from the interest payment date next
preceding the date of conversion to the date of conversion, even if the notes
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<PAGE> 40
have been called for redemption or repurchased pursuant to a designated event
offer (except for the payment of interest and liquidated damages, if any, on
notes called for redemption on a redemption date or to be repurchased on a
designated event payment date between a regular record date and the interest
payment date to which it relates). No other payment or adjustment for interest
or liquidated damages, or for any dividends in respect of Class A common stock,
will be made upon conversion. Holders of Class A common stock issued upon
conversion will not be entitled to receive any dividends payable to holders of
Class A common stock as of any record time before the close of business on the
conversion date.
A holder delivering a note for conversion will not be required to pay any
taxes or duties in respect of the issue or delivery of Class A common stock on
conversion. However, we shall not be required to pay any tax or duty that may be
payable in respect of any transfer involved in the issue or delivery of the
Class A common stock in a name other than that of the holder of the note.
Certificates representing shares of Class A common stock will not be issued or
delivered unless the person requesting such issue has paid to us the amount of
any such tax or duty or has established to our satisfaction that such tax or
duty has been paid.
We will adjust the conversion price upon the occurrence of certain
events, including:
- the issuance of shares of Class A common stock as a dividend or
distribution on the Class A common stock or any event treated as
such for U.S. federal income tax purposes;
- the subdivision, combination or reclassification of Class A common
stock;
- the issuance to all holders of Class A common stock of rights,
options or warrants which entitle them to subscribe for or
purchase Class A common stock (or securities convertible into
Class A common stock) at a price per share less than the then
current market price per share (determined as set forth below) of
such Class A common stock as of the record date for holders
entitled to receive such rights, options or warrants;
- the distribution of shares of capital stock of Mail.com (other
than those referred to in the first and third bullets above),
evidences of indebtedness or other assets (excluding dividends in
cash, except as described in the fifth bullet below, and excluding
distributions in connection with a consolidation, merger or
transfer of assets covered in the next paragraph) to all holders
of Class A common stock;
- the distribution, by dividend or otherwise, of cash to all holders
of Class A common stock in an aggregate amount that, together with
the aggregate of:
(1) any other distributions of cash that did not trigger a
conversion price adjustment to all holders of Class A
common stock within the 12 months preceding the date fixed
for determining the stockholders entitled to such
distribution and
(2) all excess payments in respect of each tender offer or
other negotiated transaction by us or any of our
subsidiaries for Class A common stock concluded within the
preceding 12 months not triggering a conversion price
adjustment, exceeds 12 1/2% of the product of the current
market price per share (determined as set forth below) on
the date fixed for the determination of stockholders
entitled to receive such distribution times the number of
shares of Class A common stock outstanding on such date;
- payment of an excess payment in respect of a tender offer or other
negotiated transaction by us or
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<PAGE> 41
any of our subsidiaries for Class A common stock, if the aggregate
amount of such excess payment, together with the aggregate amount
of
(1) cash distributions made within the preceding 12 months not
triggering a conversion price adjustment and
(2) all excess payments in respect of each tender offer or
other negotiated transaction by us or any of our
subsidiaries for Class A common stock concluded within the
preceding 12 months not triggering a conversion price
adjustment, exceeds 12 1/2% of the product of the current
market price per share (determined as set forth below) on
the expiration of such tender offer or the date of payment
of such negotiated transaction consideration times the
number of shares of Class A common stock outstanding on
such date; and
- the distribution to all holders of Class A common stock of rights,
options or warrants to subscribe for securities (other than those
securities referred to in the third bullet above).
In the event of a distribution to all or substantially all holders of
Class A common stock of rights to subscribe for additional shares of the our
capital stock (other than those securities referred to in the third bullet
above), we may, instead of making any adjustment in the conversion price, make
proper provision so that each holder of a note who converts such note after the
record date for such distribution and prior to the expiration or redemption of
such rights shall be entitled to receive upon such conversion, in addition to
shares of Class A common stock, an appropriate number of such rights. We will
not make an adjustment of the conversion price until cumulative adjustments
amount to one percent or more of the conversion price as last adjusted.
If we reclassify or change our outstanding Class A common stock or
consolidate with or merge into any person, continue in a new jurisdiction or
transfer or lease all or substantially all our assets, or are a party to a
merger that reclassifies or changes our outstanding Class A common stock, the
notes will become convertible into the kind and amount of securities, cash or
other assets which the holders of the notes would have owned immediately after
any such transaction if the holders had converted the notes immediately before
the effective date of such transaction.
The indenture also provides that if rights, warrants or options expire
unexercised, the conversion price shall be readjusted to take into account the
actual number of such warrants, rights or options which were exercised.
In the indenture, the "current market price" per share of Class A common
stock on any date shall be deemed to be the average of the daily market prices
for the shorter of
- 30 consecutive business days ending on the last full trading day
on the exchange or market referred to in determining such daily
market prices prior to the time of determination (as defined in
the indenture) or
- the period commencing on the date next succeeding the first public
announcement of the issuance of such rights or warrants or such
other distribution or such negotiated transaction through such
last full trading day prior to the time of determination.
"Excess payment" means the excess of (1) the aggregate of the cash and
fair market value (as determined our Board of Directors) of other consideration
paid by us or any of our subsidiaries with respect to the shares acquired in the
tender offer or other negotiated transaction over (2) the daily market price on
the trading day immediately following the completion of the tender offer or
other negotiated
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<PAGE> 42
transaction multiplied by the number of acquired shares.
We reserve the right to make such reductions in the conversion price in
addition to those required in the foregoing provisions as it considers to be
advisable in order that any event treated for United States federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
recipients.
We may from time to time decrease the conversion price by any amount for
any period of at least 20 days (which decrease is irrevocable during such
period), in which case we shall give at least 15 days' notice of such decrease,
if our Board of Directors has made a determination that such decrease would be
in our best interests, which determination shall be conclusive; provided however
that in no case shall we decrease the conversion price to less than 80% of the
current market price. No such decrease shall be taken into account for purposes
of determining whether the current market price of the Class A common stock
exceeds the conversion price, as defined below, by 105% in connection with an
event which otherwise would be a change of control.
If at any time we make a distribution of property to our shareholders
that would be taxable to such shareholders as a dividend for United States
federal income tax purposes, e.g., distributions of evidences of our
indebtedness or our assets, but generally not stock dividends on Class A common
stock or rights to subscribe for Class A common stock, and, pursuant to the
anti-dilution provisions of the indenture, the number of shares into which notes
are convertible is increased, such increase may be deemed for United States
federal income tax purposes to be the payment of a taxable dividend to holders
of notes. See "Certain United States Federal Income Tax Considerations."
SUBORDINATION OF THE NOTES
The notes are our general unsecured obligations, are subordinated in
right of payment to all of our existing and future senior debt and rank pari
passu in right of payment with all of our other existing and future debt and
other liabilities that are not subordinated by their express terms to the notes.
In addition, the notes are effectively subordinated to all debt and other
liabilities of our subsidiaries. As of March 31, 2000, we had approximately
$22.2 million of debt that would have constituted senior debt and our
subsidiaries had approximately $40.7 million of balance sheet liabilities. The
indenture does not restrict the amount of senior debt or other indebtedness that
we or any of our subsidiaries may incur. See "Risk Factors - The notes are
subordinated to our senior debt and all the obligations of our subsidiaries."
The payment of the principal of, interest (including liquidated damages,
if any) on or any other amounts due on the notes is subordinated in right of
payment to the prior payment in full of all of our senior debt. No payment on
account of principal of, redemption of, interest (including liquidated damages,
if any) on or any other amounts due on the notes, including, without limitation,
any payments on a designated event offer, and no redemption, purchase or other
acquisition of the notes may be made unless:
- full payment of amounts then due on all senior debt has been made
or duly provided for pursuant to the terms of the instrument
governing such senior debt, and
- at the time for, or immediately after giving effect to, any such
payment, redemption, purchase or other acquisition, there shall
not exist under any senior debt or any agreement pursuant to which
any senior debt has been issued any default which shall not have
been cured or waived and which shall have resulted in the full
amount of such senior debt being declared due and payable.
In addition, the indenture provides that if any of the holders of any issue of
designated senior debt provide us and the trustee with a payment blockage notice
that a default has occurred, giving the holders of such
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designated senior debt the right to accelerate the maturity thereof, we will
make no payment on account of principal, redemption, interest, liquidated
damages, if any, or any other amounts due on the notes and we will make no
purchase, redemption or other acquisition of the notes during the payment
blockage period commencing on the date the payment blockage notice is received
and ending on the earlier of:
- the date on which such event of default shall have been cured or
waived and
- 180 days from the date the payment blockage notice is received.
Notwithstanding the foregoing (but subject to the provisions contained in the
first and second sentences of this paragraph), unless the holders of such
designated senior debt or the representative of such holder shall have
accelerated the maturity of such designated senior debt, we may resume payments
on the notes after the end of such payment blockage period. Not more than one
payment blockage notice may be given in any consecutive 365-day period,
irrespective of the number of defaults with respect to senior debt during such
period.
Upon any distribution of our assets in connection with any dissolution,
winding-up, liquidation or reorganization of Mail.com, we must pay in full all
senior debt before the holders of the notes are entitled to any payments
whatsoever, other than payments of junior securities.
If payment of the notes is accelerated because of an event of default, we
shall give prompt written notice to the holders of senior debt or to the
trustee(s) for such senior debt of the acceleration. We may not pay the notes
until five business days after such notice is given and, thereafter, may pay the
notes only if the subordination provisions of the indenture otherwise permit
payment at that time. As a result of these subordination provisions, in the
event of our insolvency, holders of the notes may recover ratably less than our
general creditors.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The indenture provides that we may not consolidate or merge with or into
any person (whether or not Mail.com is the surviving corporation), continue in a
new jurisdiction, or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of our properties or assets unless
- (a) Mail.com is the surviving or continuing corporation or (b) the
person formed by or surviving any such consolidation or merger (if
other than Mail.com) or the person which acquires by sale,
assignment, transfer, lease, conveyance or other disposition our
properties and assets is a corporation organized or existing under
the laws of the United States, any state thereof or the District
of Columbia;
- the entity or person formed by or surviving any such consolidation
or merger (if other than Mail.com) or the person to which such
sale, assignment, transfer, lease, conveyance or other disposition
will have been made assumes all our obligations, pursuant to a
supplemental indenture in a form reasonably satisfactory to the
trustee, under the notes and the indenture;
- the sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of our properties or
assets shall be as an entirety or virtually as an entirety to one
person and such person shall have assumed all our obligations,
pursuant to a supplemental indenture in a form reasonably
satisfactory to the trustee, under the notes and the indenture;
- immediately after such transaction, no default or event of default
exists; and
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- we or such person shall have delivered to the trustee an officers'
certificate and an opinion of counsel, each stating that such
transaction and the supplemental indenture comply with the indenture
and that all conditions precedent in the indenture relating to such
transaction have been satisfied.
A consolidation or merger may be a taxable event to holders of the notes,
in which case holders of the notes may recognize taxable gain or loss in respect
of the notes and, after such consolidation or merger, the notes may be subject
to the rules dealing with original issue discount (which can result in a holder
recognizing ordinary income prior to the receipt of cash attributable to such
income).
REPORTS
Whether or not required by the rules and regulations of the Commission, so
long as any notes are outstanding, we will file with the Commission and furnish
to the trustee and the holders of notes all quarterly and annual financial
information (without exhibits) required to be contained in a filing with the
Commission on Forms 10-Q and 10-K, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual consolidated financial statements only, a report thereon by our
independent auditors. We shall not be required to file any report or other
information with the Commission if the Commission does not permit such filing.
EVENTS OF DEFAULT AND REMEDIES
The indenture provides that each of the following constitutes an event of
default:
- default for 30 days in the payment when due of interest on or
liquidated damages with respect to the notes;
- default in payment when due of principal on the notes;
- our failure to commence a designated event offer within 30 days of
our knowledge of a designated event or to pay when due the
repurchase price of any notes required to be repurchased pursuant to
the provisions described under "Repurchase at the option of
holders";
- our failure to perform or comply with the provisions described under
"Merger, consolidation or sale of assets";
- our failure for 60 days after the receipt of written notice to
comply with other covenants and agreements contained in the
indenture or the notes;
- default under any credit agreement, mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by us or
any of our subsidiaries (or the payment of which is guaranteed by us
or any of our subsidiaries), whether such indebtedness or guarantee
now exists or is created after the date on which the notes are first
authenticated and issued, which default (a) is caused by a failure
to pay when due principal or interest on such indebtedness within
the grace period provided in such indebtedness (which failure
continues beyond any applicable grace period) (a payment default) or
(b) results in the acceleration of such indebtedness prior to its
express maturity (without such acceleration being rescinded or
annulled) and, in each case, the principal amount of any such
indebtedness, together with the principal amount of any other such
indebtedness under which
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there has been a payment default or the maturity of which has been
so accelerated, aggregates $15 million or more;
- failure by us or any subsidiary of ours to pay final non-appealable
judgments (other than any judgment as to which a reputable insurance
company has accepted full liability) aggregating in excess of $15
million, which judgments are not stayed, bonded or discharged within
60 days after their entry; and
- certain events of bankruptcy or insolvency with respect to us or any
of our material subsidiaries.
If any event of default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding notes may
declare all the notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an event of default arising from certain events of
bankruptcy or insolvency with respect to us, all outstanding notes will become
due and payable without further action or notice. Holders of the notes may not
enforce the indenture or the notes except as provided in the indenture. Subject
to certain limitations, holders of a majority in principal amount of the then
outstanding notes may direct the trustee in its exercise of any trust or power.
The trustee may withhold from holders of the notes notice of any continuing
default or event of default (except a default or event of default relating to
the payment of principal, premium, if any, interest or liquidated damages, if
applicable, including a designated event payment) if it determines that
withholding notice is in their interest.
By notice to the trustee, the holders of a majority in aggregate principal
amount of the notes then outstanding may, on behalf of the holders of all of the
notes, waive any existing default or event of default and its consequences under
the indenture except a continuing default or event of default in the payment of
the designated event payment or interest (including liquidated damages, if
applicable) on, or the principal of or premium on, the notes.
We are required to deliver to the trustee annually a statement regarding
compliance with the indenture, and we are required, upon becoming aware of any
default or event of default, to deliver to the trustee a statement specifying
such default or event of default.
BOOK-ENTRY; DELIVERY AND FORM; GLOBAL NOTE
Notes sold in the United States or in offshore transactions in reliance on
Regulation S will be represented by one or more global notes in definitive,
fully-registered form without interest coupons. The global note will be
deposited with the trustee as custodian for DTC and registered in the name of a
nominee of DTC in New York, New York for the accounts of participants in DTC.
Investors may hold their interests in the global note directly through DTC
if they are DTC participants, or indirectly through organizations that are DTC
participants.
Investors who purchase notes in offshore transactions in reliance on
Regulation S under the Securities Act may hold their interests in the global
note directly through Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System and Cedel Bank, societe anonyme, if
they are participants in such systems, or indirectly through organizations that
are participants in such systems. Euroclear and Cedel Bank will hold interests
in the global note on behalf of their participants through their respective
depositaries, which in turn will hold such interests in the global note in
customers' securities accounts in the depositaries' names on the books of DTC.
Citibank, N.A., will act initially as depositary for Cedel Bank, and The Chase
Manhattan Bank will act initially as depositary for Euroclear.
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Notes originally purchased by or transferred to institutional "accredited
investors" (as defined Rules 501(a)(1), (2), (3) or (7) under the Securities
Act) that are not QIBs will be issued and physically delivered in fully
registered, definitive form and may not be represented by interests in the
global note. Otherwise, except in the limited circumstances described below,
holders of notes represented by interests in the global note will not be
entitled to receive definitive notes.
Upon transfer of a definitive note to a QIB in an offshore transaction
pursuant to Rule 904 of Regulation S, the definitive note will be exchanged for
an interest in the global note, and the transferee will be required to hold its
interest through a participant in DTC, Euroclear or Cedel Bank, as applicable.
Upon transfer of beneficial ownership in a global note to an institutional
accredited investor, such beneficial interest will be exchanged for a definitive
note. All transfers described in this paragraph will be subject to certain
instructions set forth in the indenture, including requirements for the delivery
of certain certificates and other documents.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of institutions that have accounts with DTC, called participants, and
to facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers (which may include the initial purchasers of the notes), banks, trust
companies, clearing corporations and certain other organizations. Certain of
such participants, or their representatives, together with other entities, own
DTC. Indirect access to DTC's book-entry system is also available to others such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, whether directly or indirectly.
Ownership of beneficial interests in the global note will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in the global note will be shown on, and the transfer of
those ownership interests will be effected only through, records maintained by
DTC (with respect to participants' interests) and such participants (with
respect to the owners of beneficial interests in the global note other than
participants).
So long as DTC or its nominee is the registered holder and owner of the
global note, DTC or such nominee, as the case may be, will be considered the
sole legal owner of the notes represented by the global note for all purposes
under the indenture and the notes. Except as set forth above and below, owners
of beneficial interests in the global note will not be entitled to receive
definitive notes and will not be considered to be the owners or holders of any
notes under the global note. We understand that under existing industry
practice, in the event an owner of a beneficial interest in the global note
desires to take any action that DTC, as the holder of the global note, is
entitled to take, DTC would authorize the participants to take such action, and
that participants would authorize beneficial owners owning through such
participants to take such action or would otherwise act upon the instructions of
beneficial owners owning through them. No beneficial owner of an interest in the
global note will be able to transfer the interest except in accordance with
DTC's applicable procedures, in addition to those provided for under the
indenture and, if applicable, those of Euroclear and Cedel Bank.
Payments of the principal of, and interest and liquidated damages, if any,
on, the notes represented by the global note registered in the name of and held
by DTC or its nominee will be made to DTC or its nominee, as the case may be, as
the registered owner and holder of the global note.
We expect that DTC or its nominee, upon receipt of any payment of
principal or interest and
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liquidated damages, if any, in respect of the global note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the global note as
shown on the records of DTC or its nominee. We also expect that payments by
participants to owners of beneficial interests in the global note held through
such participants will be governed by standing instructions and customary
practices as is now the case with securities held for accounts of customers
registered in the names of nominees for such customers. Such payments, however,
will be the responsibility of such participants and indirect participants, and
neither we, the trustee nor any paying agent will have any responsibility or
liability for any aspect of the records relating to, or payments made on account
of, beneficial ownership interests in the global note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between DTC and its
participants or the relationship between such participants and the owners of
beneficial interests in the global note and we and the trustee may conclusively
rely on, and shall be protected in relying on, instructions from DTC for all
purposes.
Unless and until it is exchanged in whole or in part for definitive notes
in definitive form, the global note may not be transferred except as a whole by
DTC to a nominee of DTC or by a nominee of DTC to DTC (or a successor of DTC) or
another nominee of DTC.
Transfers of beneficial ownerships in the global note between participants
in DTC will be effected in the ordinary way in accordance with DTC rules and
will be settled in same-day funds. Transfers between participants in Euroclear
and Cedel Bank will be effected in the ordinary way in accordance with their
respective rules and operating procedures. If a holder requires physical
delivery of a definitive note for any reason, including to sell notes to persons
in jurisdictions which require such delivery of such notes or to pledge such
notes, such holder must transfer its interest in the global note in accordance
with the normal procedures of DTC and the procedures set forth in the indenture.
Cross-market transfers between DTC, on the one hand, and directly or
indirectly through Euroclear or Cedel Bank participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of Euroclear or Cedel
Bank, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Cedel Bank, as the case may be, by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (Brussels
time). Euroclear or Cedel Bank, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by delivering
or receiving interests in the global note in DTC, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to DTC. Euroclear participants and Cedel Bank participants may not
deliver instructions directly to the depositaries for Euroclear or Cedel Bank.
Because of time zone differences, the securities account of a Euroclear or
Cedel Bank participant purchasing an interest in the global note from a DTC
participant will be credited during the securities settlement processing day
(which must be a business day for Euroclear or Cedel Bank, as the case may be)
immediately following the DTC settlement date, and such credit of any
transactions interests in the global note settled during such processing day
will be reported to the relevant Euroclear or Cedel Bank participant on such
day. Cash received in Euroclear or Cedel Bank as a result of sales of interests
in the global note by or through a Euroclear or Cedel Bank participant to a DTC
participant will be received with value on the DTC settlement date, but will be
available in the relevant Euroclear or Cedel Bank cash account only as of the
business day following settlement in DTC.
We expect that DTC will take any action permitted to be taken by a holder
of notes (including the presentation of notes for exchange as described below)
only at the direction of one or more participants to whose account with DTC
interests in the global note is credited and only in respect of such portion of
the
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aggregate principal amount of the notes as to which such participant or
participants has or have given such direction. However, if there is an event of
default under the notes, DTC will exchange the global note for definitive notes,
which it will distribute to its participants.
Although we expect that DTC, Euroclear and Cedel Bank will agree to the
foregoing procedures in order to facilitate transfers of interests in the global
note among participants of DTC, Euroclear, and Cedel Bank, DTC, Euroclear and
Cedel Bank are under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither we nor
the trustee will have any responsibility for the performance by DTC, Euroclear
or Cedel Bank or their participants or indirect participants of their respective
obligations under the rules and procedures governing their operations including
maintaining, supervising or reviewing the records relating to, or payments on
account of, beneficial ownership interests in the global note.
If DTC is at any time unwilling to continue as a depositary for the global
note and a successor depositary is not appointed by us within 90 days, we will
issue definitive notes in exchange for the global note.
TRANSFER AND EXCHANGE
We have initially appointed the trustee as registrar in New York, New
York. We reserve the right to vary or terminate the appointment of the registrar
or to appoint additional or other registrars or to approve any change in the
office through which the registrar acts.
A holder may transfer or exchange notes in accordance with the indenture.
The registrar may require a holder, among other things, to furnish appropriate
endorsements and transfer documents and pay any taxes and fees required by law
or permitted by the indenture. We are not required to exchange or register the
transfer of any note selected for redemption. Also, we are not required to
exchange or register the transfer of any note for a period of 15 days before the
mailing of a notice of redemption of notes to be redeemed.
We will treat the registered holder of a note as the owner of the note for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the indenture or the
notes may be amended or supplemented with the consent of the holders of at least
a majority in principal amount of the then outstanding notes (including consents
obtained in connection with a tender offer or exchange offer for notes), and any
existing default or compliance with any provision of the indenture or the notes
may be waived with the consent of the holders of a majority in principal amount
of the then outstanding notes (including consents obtained in connection with a
tender offer or exchange offer for notes).
Without the consent of each holder affected, an amendment, supplement or
waiver may not (with respect to any notes held by a nonconsenting holder of
notes):
- reduce the amount of notes whose holders must consent to an
amendment, supplement or waiver;
- reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes;
- reduce the rate of or change the time for payment of interest on any
note;
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- waive a default in the payment of a designated event payment or
principal of, or interest, liquidated damages, if any, or premium,
if any, on, any notes (except a rescission of acceleration of the
notes by the holders of at least a majority in aggregate principal
amount of the notes and a waiver of the payment default that
resulted from such acceleration);
- make any note payable in money other than that stated in the notes;
- make any change in the provisions of the indenture relating to
waivers of past defaults or the rights of holders of notes to
receive payments of principal of, or interest, liquidated damages,
if any, or premium, if any, on, the notes;
- waive a redemption or repurchase payment with respect to any note;
- impair the right to convert the notes into shares of Class A common
stock;
- modify the conversion or subordination provisions of the indenture
in a manner adverse to the holders of the notes;
- make any change in the foregoing amendment and waiver provisions;
- at any time after a change of control has occurred, modify the
provisions with respect to the repurchase right of the holders in a
manner adverse to the holders or
- impair the right to institute suit for the enforcement of any
payment on or with respect to any note.
Notwithstanding the foregoing, without the consent of any holder of notes,
we and the trustee may amend or supplement the indenture or the notes:
- to cure any ambiguity, defect or inconsistency, to provide for
uncertificated notes in addition to or in place of definitive notes;
- to provide for the succession of another person to us and the
assumption by such successor to our covenants and obligations under
the indenture;
- to evidence and provide for the acceptance of the appointment under
the indenture of a successor trustee;
- to make any change that would provide any additional rights or
benefits to the holders of the notes or that does not adversely
affect the legal rights under the indenture of any such holder;
- to make provisions with respect to the conversion rights of holders
of notes in the event of a consolidation, merger, continuation or
sale of assets as required by the indenture; or
- to comply with requirements of the Commission in order to qualify,
or maintain the qualifications of, the indenture under the Trust
Indenture Act.
NOTICES
We shall give or cause to be given notices to holders of the notes by mail
to the addresses of such
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holders as they appear in the register for the notes. The notices will be deemed
to have been given on the date of such mailing or on the date of the first such
publication, as the case may be.
GOVERNING LAW
The indenture, the notes and the registration agreement are governed by
and construed in accordance with the laws of the State of New York, United
States of America.
CONCERNING THE TRUSTEE
The indenture contains certain limitations on the rights of the trustee,
if it becomes a creditor of ours, to obtain payment of claims in certain cases,
or to realize on certain property received in respect of any such claim as
security or otherwise. Subject to the Trust Indenture Act, the trustee will be
permitted to engage in other transactions; however, if the trustee acquires any
conflicting interest, as described in the Trust Indenture Act, it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The holders of a majority in principal amount of the outstanding notes
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the trustee, subject to certain
exceptions. The indenture provides that, in case an event of default occurs
(which has not been cured), the trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in the conduct of such
person's own affairs. Subject to such provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any holder of notes, unless such holder shall have offered to the
trustee security and indemnity reasonably satisfactory to it against any loss,
liability or expense.
REPLACEMENT OF NOTES
Notes that become mutilated, destroyed, stolen or lost will be replaced by
us at the expense of the holder upon delivery to the trustee of the mutilated
notes or evidence of the loss, theft or destruction thereof satisfactory to us
and the trustee. In the case of a lost, stolen or destroyed note, indemnity
satisfactory to the trustee and us may be required at the expense of the holder
of such note before a replacement note will be issued.
PAYMENT OF STAMP AND OTHER TAXES
We are required to pay all stamp and similar duties, if any, which may be
imposed by the United States or any political subdivision thereof or taxing
authority thereof or therein with respect to the issuance of the notes. We will
not be required to make any payment with respect to any other tax, assessment or
governmental charge imposed by any government or any political subdivision
thereof or taxing authority thereof or therein.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"business day" means any day that is not a legal holiday.
"capital stock" means any and all shares, interests, participations,
rights or other equivalents
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(however designated) of equity interests in any entity, including, without
limitation, corporate stock and partnership interests.
"default" means any event that is or, with the passage of time or the
giving of notice or both, would be an event of default (as defined in the
indenture).
"designated senior debt" means
- any senior debt which, as of the date of the indenture, has an
aggregate principal amount outstanding of at least $15 million and
- any senior debt which, at the date of determination, has an
aggregate principal amount outstanding of, or commitments to lend up
to, at least $15 million and is specifically designated by us in the
instrument evidencing or governing such senior debt as "designated
senior debt" for purposes of the indenture.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect from time to time.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
indebtedness.
"indebtedness" means, with respect to any person, all obligations, whether
or not contingent, of such person
- (a) for borrowed money (including, but not limited to, any
indebtedness secured by a security interest, mortgage or other lien
on the assets of such person which is (1) given to secure all or
part of the purchase price of property subject thereto, whether
given to the vendor of such property or to another, or (2) existing
on property at the time of acquisition thereof), (b) evidenced by a
note, debenture, bond or other written instrument, (c) under a lease
required to be capitalized on the balance sheet of the lessee under
GAAP or under any lease or related document (including a purchase
agreement) which provides that such person is contractually
obligated to purchase or to cause a third party to purchase such
leased property, (d) in respect of letters of credit, bank
guarantees or bankers' acceptances (including reimbursement
obligations with respect to any of the foregoing), (e) with respect
to indebtedness secured by a mortgage, pledge, lien, encumbrance,
charge or adverse claim affecting title or resulting in an
encumbrance to which the property or assets of such person are
subject, whether or not the obligation secured thereby shall have
been assumed or guaranteed by or shall otherwise be such person's
legal liability, (f) in respect of the balance of the deferred and
unpaid purchase price of any property or assets and (g) under
interest rate or currency swap agreements, cap, floor and collar
agreements, spot and forward contracts and similar agreements and
arrangements;
- with respect to any obligation of others of the type described in
the first bullet above or under the third bullet below assumed by or
guaranteed in any manner by such person or in effect guaranteed by
such person through an agreement to purchase (including, without
limitation, "take or pay" and similar arrangements), contingent or
otherwise (and the obligations of such person under any
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such assumptions, guarantees or other such arrangements); and
- any and all deferrals, renewals, extensions, refinancings and
refundings of, or amendments, modifications or supplements to, any
of the foregoing.
"junior securities" means securities of Mail.com as reorganized or
readjusted or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided for in the indenture with respect to the notes, to the payment in full
without diminution or modification by such plan of all senior debt.
"legal holiday" means a Saturday, a Sunday or a day on which banking
institutions in the State of New York are not required to be open. If a payment
date is a legal holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a legal holiday, and no interest shall
accrue for the intervening period. If any other operative date for purposes of
the indenture shall occur on a legal holiday then for all purposes the next
succeeding day that is not a legal holiday shall be such operative date.
"material subsidiary" means any subsidiary of ours which at the date of
determination a "significant subsidiary" as defined in Rule 1-02(w) of
Regulation S-X under the Securities Act and the Exchange Act (as such Regulation
is in effect on the date hereof).
"obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages, and other liabilities payable under
the documentation governing any indebtedness.
"person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, limited
liability company or government or any agency or political subdivision thereof.
"representative" means the trustee, agent or representative (if any) for
an issue of senior debt.
"senior debt" means the principal of, premium, if any, interest on and
other amounts due on indebtedness of ours, whether outstanding on the date of
the indenture or thereafter created, incurred, assumed or guaranteed by us
(including all deferrals, renewals, extensions, refinancings and refundings of,
or amendments, modifications or supplements to, any of the foregoing), unless,
in the instrument creating or evidencing such indebtedness or pursuant to which
such indebtedness is outstanding, it is expressly provided that such
indebtedness is not senior in right of payment to the notes. Senior debt
includes, with respect to the obligations described above, interest accruing,
pursuant to the terms of such senior debt, on or after the filing of any
petition in bankruptcy or for reorganization relating to Mail.com, whether or
not post-filing interest is allowed in such proceeding, at the rate specified in
the instrument governing the relevant obligation. Notwithstanding anything to
the contrary in the foregoing, senior debt shall not include:
- indebtedness of or amounts owed by us for compensation to employees,
or for goods, services or materials purchased in the ordinary course
of business;
- indebtedness of ours to a subsidiary of ours; or
- any liability for federal, state, local or other taxes owed or owing
by us.
"subsidiary" of a person means any corporation, association or other
business entity of which more
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than 50% of the total voting power of shares of capital stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that person or one or more of the subsidiaries of
that person or a combination thereof.
DESCRIPTION OF CAPITAL STOCK
The following descriptions of our capital stock and the relevant
provisions of our amended and restated certificate of incorporation, as amended,
and bylaws are summaries and are qualified by reference to our amended and
restated certificate of incorporation, as amended, and our bylaws.
We are authorized to issue up to 150,000,000 shares of Class A common
stock, par value $.01 per share, 10,000,000 shares of Class B common stock, par
value $.01 per share, and 60,000,000 shares of preferred stock, par value $.01
per share.
COMMON STOCK
As of June 30, 2000, we had 49,161,555 shares of Class A common stock
outstanding held of record by approximately 372 stockholders and 10,000,000
shares of Class B common stock outstanding held entirely by Gerald Gorman, our
Chairman and Chief Executive Officer.
All of the issued and outstanding shares of our Class A common stock are
fully paid and nonassessable. Except as described below, the issued and
outstanding shares of our Class A common stock and Class B common stock
generally have identical rights. In addition, under our amended and restated
certificate of incorporation, as amended, holders of Class A common stock have
no preemptive or other subscription rights to purchase shares of our stock, nor
are they entitled to the benefits of any redemption or sinking fund provisions.
VOTING RIGHTS
The holders of our Class A common stock are entitled to one vote per share
on all matters to be voted on by stockholders generally, including the election
of directors. The holder of our Class B common stock is entitled to ten votes
per share on all matters to be voted on by stockholders generally, including the
election of directors. In addition to any class vote that may be required under
law or our amended and restated certificate of incorporation, as amended, all
classes of capital stock entitled to vote generally on any matter vote together
as a single class. There are no cumulative voting rights. Accordingly, holders
of a majority of the total votes entitled to vote in an election of directors
will be able to elect all of the directors standing for election.
Please see "Risk Factors - Gerald Gorman controls Mail.com and will be
able to prevent a change of control."
LIQUIDATION PREFERENCES
If we are liquidated, dissolved or wound up, the holders of our Class A
common stock and Class B common stock will be entitled to receive distributions
only after satisfaction of all liabilities and the prior rights of any
outstanding class of preferred stock. If we are liquidated, dissolved or wound
up, our assets legally available after satisfaction of all of our liabilities
shall be distributed to the holders of our Class A common stock and Class B
common stock pro rata based on the respective numbers of shares of Class A
common stock held by these holders or issuable to them upon conversion of Class
B common stock.
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CONVERSION RIGHTS/MANDATORY CONVERSION
Holders of our Class A common stock have no conversion rights. Holders of
our Class B common stock may convert each share into one share of Class A common
stock. In addition, each share of our Class B common stock will automatically
convert into one share of our Class A common stock upon a sale or other transfer
by Gerald Gorman to any person or entity other than entities controlled by Mr.
Gorman.
DIVIDENDS
The holders of both classes of our common stock are entitled to receive
equal non-cumulative dividends when and as declared from time to time by the
board of directors, subject to any preferential dividend rights of any
outstanding preferred stock.
PREFERRED STOCK
Under our amended and restated certificate of incorporation, as amended,
the board of directors is authorized, without further stockholder approval, to
issue up to 60,000,000 shares of preferred stock in one or more classes or
series. The board also has the authority to fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such class or series, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences.
Preferred stock could thus be issued quickly with terms that could delay or
prevent a change of control of Mail.com or make removal of management more
difficult. Additionally, the issuance of preferred stock may decrease the market
price of our Class A common stock and may adversely affect the voting and other
rights of the holders of our Class A common stock. Currently, we does not have
any preferred stock outstanding and have no plans to create or issue any shares
of any new class or series of preferred stock.
WARRANTS/OPTIONS
Under an engagement letter dated March 2, 1998 between PaineWebber
Incorporated and Mail.com and entered into in connection with the private
placement of our Class C preferred stock, we issued to PaineWebber Incorporated
warrants to purchase 143,484 shares of our Class A common stock and we issued to
a former employee of PaineWebber Incorporated warrants to purchase 35,872 shares
of our Class A common stock. These warrants are exercisable at an exercise price
of $3.50 per share and expire July 31, 2003. The warrants are entitled to
anti-dilution adjustment in the event of stock splits, stock dividends, stock
distributions or combinations.
Under our letter agreement with AT&T dated May 26, 1999, we issued
warrants to purchase 1,000,000 shares of our Class A common stock at an exercise
price of $11.00 per share. AT&T may exercise the warrants at any time on or
before December 31, 2000. AT&T may not sell or otherwise transfer to a third
party the warrants or the shares issuable upon exercise of the warrants until
May 26, 2004. If AT&T does not exercise the warrants on or before December 31,
2000, the warrants will expire and be cancelled.
REGISTRATION RIGHTS
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
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class of preferred stock.
- Demand registration rights. The holders of a majority of our shares
issued upon conversion of our Class A preferred stock and the
holders of a majority of the shares issued upon conversion of our
Class C preferred stock, voting as separate classes, have the right
to demand that we register their shares of Class A common stock
under the Securities Act. The stockholders who formerly held shares
of our Class A preferred stock may exercise their demand
registration rights up to three times, and the stockholders who
formerly held shares of our Class C preferred stock may exercise
their demand registration right once. In addition, the holders of
20% or more of the shares issued upon conversion of our Class E
preferred stock may demand that we register their shares of Class A
common stock under the Securities Act. If 30% or more of the shares
registered in any Class C or Class E demand registration are shares
requested to be registered by Lycos, then the former holders of each
of our Class C and Class E preferred stock have the right to a
second demand registration.
- Piggyback registration rights. The stockholders who formerly held
shares of our Class A, Class C and Class E preferred stock can
request to have their shares registered under the Securities Act any
time we file a registration statement to register any of our
securities for our own account or for the account of any of our
stockholders in connection with an underwritten public offering. The
number of times such rights may be exercised is unlimited, but the
number of shares that can be registered at any one time is subject
to limitations that any underwriters may impose.
- S-3 demand registration rights. The holders of at least a majority
of the shares issued upon conversion of each of our Class A
preferred stock and Class C preferred stock have the right to have
their shares of Class A common stock registered under the Securities
Act on Form S-3. The holders of at least 25% of the shares issued
upon conversion of our Class E preferred stock also have the right
to demand a Form S-3. The number of times these Form S-3
registration rights may be exercised is unlimited, but we are
required to file only one Form S-3 in any twelve-month period.
In the case of the stockholders who formerly held shares of our Class A
preferred stock, their registration rights will terminate on June 23, 2004, five
years from the closing of our initial public offering. In the case of the
stockholders who formerly held shares of our Class C and Class E preferred
stock, their registration rights will terminate on December 23, 2001, 30 months
from the closing of our initial public offering.
LYCOS
Lycos has the right to have its shares of our Class A common stock
registered any time we file a registration statement for any of our securities
for our own account or the account of any of our directors, officers or 5%
stockholders. The number of times Lycos may exercise its right is unlimited, but
the number of shares that can be registered at any one time is subject to
limitations that any underwriters may impose.
CNET AND NBC MULTIMEDIA
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
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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. 3Cube 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 securities for our own account or for the
account of any of our stockholders. The number of times these piggyback rights
may be exercised is unlimited, but the number of shares that can be registered
at any one time is subject to limitations that any underwriters may impose.
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.
STD, INC.
In connection with our investment in STD, Inc., 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
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In connection with our acquisition of Huelink Corporation Limited, we
granted registration rights to Aligned Investments Limited, the former principal
shareholder of Huelink. Holders of a majority of the subject shares have a
one-time right to have their shares registered on Form S-3. Prior to the
effectiveness of such registration statement, Aligned has the right to have the
subject shares registered under the Securities Act any time we file a
registration statement to register any of our shares of capital stock for our
account or the account of any of our stockholders in connection with an
underwritten public offering. The number of times these piggyback rights may be
exercised is unlimited, but the number of shares that can be registered at any
time is subject to limitations that the underwriters may impose.
NETMOVES WARRANTS
In connection with our acquisition of NetMoves, we assumed registration
rights obligations with respect to shares underlying certain outstanding
warrants of NetMoves that we assumed. Under a warrant held by The Tail Wind Fund
Ltd. representing the right to purchase 24,860 shares of our Class A common
stock, we are obligated to register on Form S-3 the shares issuable upon
exercise of the warrant. Tail Wind also has the right to have the shares
underlying the warrant, and not included in an effective registration statement,
registered under the Securities Act any time we file a registration statement to
register any of our shares for our account or for any stockholders in connection
with a public offering. The number of times these piggyback rights may be
exercised is unlimited, but the number of shares that can be registered at any
time is subject to limitations that the underwriters may impose.
Under warrants held by Comdisco representing the right to purchase an
aggregate of 17,540 shares of our Class A common stock, we are obligated to
effect up to two registrations relating to the shares underlying such warrants.
In addition, Comdisco has the right to have the shares underlying the warrants
included any time we file a registration statement for our account or for the
account of any stockholder in 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 and
bylaws, which provisions are
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summarized in the following paragraphs, may be deemed to have an anti-takeover
effect. These provisions may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might consider to be in its best interests, including
those attempts that might result in a premium over the market price for the
shares held by stockholders.
BOARD OF DIRECTORS VACANCIES. Our bylaws authorize the board of directors
to fill vacant directorships or increase the size of the board of directors.
This may prevent a stockholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
resulting vacancies created by such removal with its own nominees.
SPECIAL MEETINGS OF STOCKHOLDERS. Our bylaws provide that special meetings
of stockholders of Mail.com may be called at any time by the Chairman of the
board, the Vice Chairman of the board, if any, the President, if any, or the
board of directors. Written notice of the meeting must be given not less than 10
nor more than 60 days before the date of the meeting.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of our
common stock and preferred stock are available for future issuance without
stockholder approval, subject to the limitations imposed by The Nasdaq National
Market. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of authorized
but unissued and unreserved common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of Mail.com by means of a
proxy contest, tender offer, merger or otherwise.
The General Corporation Law of the State of Delaware provides generally
that, in addition to the approval of the board of directors, the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation unless a corporation's
certificate of incorporation requires a greater percentage.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our Class A common stock is American
Stock Transfer and Trust Company.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain U.S. Federal income tax
considerations to holders of the notes. This discussion is based upon the
Internal Revenue Code of 1986, as amended (the Code), U.S. Treasury Regulations,
Internal Revenue Service (IRS) rulings and judicial decisions currently in
effect, all of which are subject to change (possibly with retroactive effect) or
different interpretations. We have not obtained, nor do we intend to obtain, a
ruling from the IRS with respect to the U.S. Federal income tax consequences of
acquiring or holding notes or shares of Class A common stock issuable upon
conversion of the notes, and we cannot assure you that the IRS will not
challenge one or more of the tax consequences described herein.
This discussion does not deal with all aspects of U.S. Federal income
taxation that may be relevant to holders of the notes or Class A common stock
and does not deal with tax consequences arising under the laws of any foreign,
state or local jurisdiction or with any estate or gift tax considerations. This
discussion is for general information purposes only, and does not purport to
address all of the tax consequences that may be relevant to particular holders
in light of their personal circumstances (for example, persons subject to the
alternative minimum tax or persons who hold the notes or Class A common stock as
part of a hedging or conversion transaction or as part of a straddle or persons
deemed to sell notes or Class A
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common stock under the constructive sale provisions of the Code), or to certain
types of holders (such as certain financial institutions, insurance companies,
tax-exempt entities or dealers in securities) that may be subject to special
rules. This discussion only applies to holders that purchase notes in the
initial offering and that hold the notes and any Class A common stock received
upon conversion thereof as capital assets under Section 1221 of the Code, and
this discussion assumes that the notes are properly characterized as debt
instruments for U.S. Federal income tax purposes.
For the purpose of this discussion, a "U.S. Holder" refers to any holder
that is:
- a citizen or resident of the United States,
- a corporation or other entity treated as a corporation for U.S.
Federal income tax purposes created or organized in the United
States or any state thereof or the District of Columbia,
- an estate the income of which is included in income for U.S. Federal
income tax purposes regardless of its source or
- a trust subject to primary supervision by a court in the United
States and control by one or more U.S. persons.
In the case of a partnership that holds notes or Class A common stock, any
partner described in the four bullets above generally is also a U.S. Holder. A
"Non-U.S. Holder" is a holder, generally including any partner in a partnership
that holds notes or Class A common stock, that is not a U.S. Holder.
PROSPECTIVE HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING CONVERSION OF THE NOTES, AND THE EFFECT THAT
THEIR PARTICULAR CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS
INTEREST ON NOTES
Stated interest on the notes generally will be taxable to a U.S. Holder as
ordinary income at the time that such interest is accrued or received in
accordance with the holder's regular method of accounting for tax purposes.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The registration of the notes pursuant to our obligations under
"Description of the notes - Registration of the notes" will not constitute a
taxable event for U.S. Federal income tax purposes, will not affect a U.S.
Holder's tax basis in the notes, and a U.S. Holder's holding period for the
registered notes will include the holding period such U.S. Holder had in the
notes before such notes were registered.
We intend to take the position that the possibility that holders of notes
will be paid liquidated damages due to the occurrence of a registration default
should not cause the notes to be issued with original issue discount. U.S.
Holders should consult their own tax advisors regarding the possible payment of
liquidated damages.
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ADJUSTMENTS TO CONVERSION PRICE
The conversion price of the notes is subject to adjustment under certain
circumstances, as described under "Description of the notes Conversion." Section
305 of the Code and the Treasury Regulations issued thereunder may treat the
holders of the notes as having received a constructive distribution, resulting
in dividend treatment (as described below) to the extent of our current or
accumulated earnings and profits, if, and to the extent that, certain
adjustments in the conversion price (or certain other corporate transactions)
increase the proportionate interest of a holder of notes in the fully diluted
Class A common stock (particularly an adjustment to reflect a taxable dividend
to holders of Class A common stock), whether or not such holder ever exercises
its conversion privilege. Moreover, if there is not a full adjustment to the
conversion ratio of the notes to reflect a stock dividend or other event
increasing the proportionate interest of the holders of outstanding Class A
common stock in our assets or earnings and profits, then such increase in the
proportionate interest of the holders of the Class A common stock generally will
be treated as a distribution to such holders, taxable as a dividend (as
described below) to the extent of our current or accumulated earnings and
profits.
SALE, EXCHANGE, REDEMPTION OR RETIREMENT OF NOTES
In general, a U.S. Holder of notes will recognize gain or loss upon the
sale, exchange, redemption, retirement or other disposition of the notes (other
than a conversion into Class A common stock) measured by the difference between:
- the amount realized (except to the extent attributable to accrued
but unpaid interest) and
- the U.S. Holder's adjusted tax basis in the notes. A holder's tax
basis in the notes generally will equal the cost of the notes to the
holder.
Any such gain or loss recognized on the sale, exchange, redemption, retirement
or other disposition of a note should be capital gain or loss, and generally
will be long-term capital gain or loss if the note has been held for more than
one year at the time of the disposition.
CONVERSIONS OF NOTES INTO CLASS A COMMON STOCK
In general, a holder of notes will not recognize gain or loss on
the conversion of the notes into shares of Class A common stock, except upon the
receipt of cash in lieu of a fractional share. The holder's tax basis in the
shares of Class A common stock received upon conversion of the notes will equal
the holder's aggregate basis in the notes exchanged therefor (less any portion
thereof allocable to a fractional share). The holding period of the shares of
Class A common stock received by the holder upon conversion of notes generally
will include the period during which the holder held the notes prior to
conversion. Cash received in lieu of a fractional share of Class A common stock
should be treated as a payment in exchange for such fractional share (rather
than a dividend). Gain or loss recognized on the receipt of cash paid in lieu of
a fractional share generally will equal the difference between the amount of
cash received and the tax basis allocable to the fractional share. Any such gain
or loss should be capital gain or loss, and generally will be long-term capital
gain or loss if the notes were held for more than one year at the time of
conversion.
THE CLASS A COMMON STOCK
Distributions, if any, paid or deemed paid on the Class A common stock
after a conversion (or deemed distributions on the notes as described above
under "-Adjustments to Conversion Price"), to the extent made from our current
or accumulated earnings and profits, as determined for U.S. Federal income
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tax purposes, will be included in a U.S. Holder's income as ordinary income
(subject to a possible dividends received deduction in the case of corporate
U.S. Holders) as they are paid. To the extent any distributions or deemed
distributions exceed our current or accumulated earnings and profits, such
distributions will be treated as a nontaxable return of capital, reducing the
holder's basis in the Class A common stock (or notes). Any such distribution in
excess of the U.S. Holder's basis in the Class A common stock (or notes) will be
treated as capital gain.
Gain or loss realized on the sale or exchange of Class A common stock will
equal the difference between
- the amount realized on such sale or exchange and
- the holders' adjusted tax basis in such Class A common stock.
Such gain or loss will generally be long-term capital gain or loss if the holder
has held or is deemed to have held (e.g., by reason of ownership of the notes)
the Class A common stock for more than one year.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
INTEREST ON NOTES
Generally, stated interest (including any liquidated damages) paid on the
notes to a Non-U.S. Holder will not be subject to U.S. Federal income tax if:
- such interest is not effectively connected with the conduct of a
trade or business within the United States by such Non-U.S. Holder,
- the Non-U.S. Holder does not actually or constructively own 10% or
more of the total voting power of all classes of our stock entitled
to vote,
- the Non-U.S. Holder is not a "controlled foreign corporation" with
respect to which we are a "related person" within the meaning of the
Code,
- the beneficial owner of the notes is not a bank whose receipt of
interest on a note is described in Section 881(c)(3)(A) of the Code,
and
- the beneficial owner of the note, under penalty of perjury,
certifies to the payor that the owner is not a U.S. person and such
certificate provides the owner's name and address.
If certain requirements are satisfied, the certification described above may be
provided by a securities clearing organization, a bank, or other financial
institution that holds customers' securities in the ordinary course of its trade
or business. For purposes of the 10% ownership test in the second bullet, above,
a Non-U.S. Holder of notes is deemed to own constructively the Class A common
stock into which such notes are convertible.
A Non-U.S. Holder that is not exempt from tax under these rules generally
will be subject to U.S. Federal income tax withholding at a rate of 30% unless:
- the interest is effectively connected with the conduct of a U.S.
trade or business, in which case the interest will be subject to
U.S. Federal income tax on a net income basis as applicable to U.S.
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Holders generally (unless an applicable tax treaty provides
otherwise), or
- an applicable income tax treaty provides for a lower rate of, or
exemption from, withholding tax. In the case of a Non-U.S. Holder
that is a corporation and that receives interest that is effectively
connected with a U.S. trade or business, such income may also be
subject to the branch profits tax (which is generally imposed on a
foreign corporation on the actual or deemed repatriation from the
United States of earnings and profits attributable to a U.S. trade
or business) at a 30% rate.
The branch profits tax may not apply (or may apply at a reduced rate) if a
recipient is a qualified resident of a country with which the United States has
an income tax treaty.
To claim the benefit of a tax treaty or to claim exemption from
withholding because interest received is effectively connected with a U.S. trade
or business, the Non-U.S. Holder must provide the appropriate, properly executed
IRS form prior to the payment of interest. These forms must be periodically
updated. Also, under recently finalized U.S. Treasury regulations, a Non-U.S.
Holder who is claiming the benefits of a treaty may be required to obtain a U.S.
taxpayer identification number and to provide certain documentary evidence
issued by foreign governmental authorities to prove residence in the foreign
country. Certain special procedures are provided in the new regulations for
payments through qualified intermediaries.
SALE, EXCHANGE OR REDEMPTION OF NOTES OR SHARES OF CLASS A COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. Federal income tax
on gain recognized upon the sale or other disposition of notes or shares of
Class A common stock received in exchange therefor unless:
- the gain is effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder (unless an
applicable tax treaty provides otherwise) or
- in the case of a Non-U.S. Holder who is a nonresident alien
individual, such Non-U.S. Holder is present in the United States for
183 or more days in the taxable year and certain other conditions
are met.
CONVERSION OF NOTES
A Non-U.S. Holder generally will not be subject to U.S. Federal income tax
on the conversion of a note into shares of Class A common stock. However, to the
extent a Non-U.S. Holder receives cash in lieu of a fractional share upon
conversion, any gain upon the receipt of cash would be subject to the rules
described above regarding the sale or exchange of Class A common stock.
DIVIDENDS ON SHARES OF CLASS A COMMON STOCK
Generally, any distribution paid, or deemed paid, on shares of Class A
common stock (including a deemed distribution on the notes described above under
"Certain Federal Income Tax Consequences Applicable to U.S. Holders -
Adjustments to Conversion Price") to a Non-U.S. Holder will be subject to U.S.
Federal income tax withholding at a rate of 30% unless
- the dividend is effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder, in which
case the dividend will be subject to the U.S. Federal income tax on
net income basis that applies to U.S. Holders generally (as
described above) and,
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<PAGE> 63
with respect to corporate Non-U.S. Holders under certain
circumstances, the branch profits tax, or
- an applicable income tax treaty provides for a lower rate of
withholding tax. A Non-U.S. Holder may be required to satisfy
certain certification requirements in order to claim a reduction of
or exemption from withholding under the foregoing rules.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. HOLDERS
Information reporting and backup withholding may apply to payments of
principal, interest, premium or dividends on or the proceeds from the sale or
other disposition of the notes or Class A common stock with respect to certain
noncorporate U.S. Holders. Such a U.S. Holder generally will be subject to
backup withholding at a rate of 31% unless the U.S. Holder provides his or her
correct taxpayer identification number and certain other information, certified
under penalties of perjury, to the payor, or otherwise establishes an exemption
from backup withholding. Any amount withheld under backup withholding is
allowable as a credit against the U.S. Holder's Federal income tax liability,
provided the proper information is provided to the IRS.
NON-U.S. HOLDERS
Generally, information reporting will apply to payments of interest and/or
premium (if any) on the notes or dividends on the Class A common stock, and
backup withholding at a rate of 31% may apply, unless the payee certifies that
it is not a U.S. person or otherwise establishes an exemption. In addition,
information reporting and backup withholding will apply to payments of principal
on the notes unless the payee certifies that it is not a U.S. person or
otherwise establishes an exemption.
The payment of the proceeds of the disposition of notes or Class A common
stock to or through the U.S. office of a U.S. or foreign broker will be subject
to information reporting and possible backup withholding unless the Non-U.S.
Holder certifies as to its Non-U.S. Holder status or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. person or that the conditions of any other exemption are not,
in fact, satisfied. The proceeds of the disposition by a Non-U.S. Holder of
notes or Class A common stock to or through a foreign office of a broker
generally will not be subject to information reporting or backup withholding.
However, if the broker is a U.S. person, a controlled foreign corporation for
U.S. tax purposes, or a foreign person 50% or more of whose gross income from
all sources for certain periods is from activities that are effectively
connected with a U.S. trade or business, information reporting generally will
apply unless the broker has documentary evidence as to the Non-U.S. Holder's
foreign status and has no actual knowledge to the contrary.
NEW WITHHOLDING REGULATIONS
The recently finalized withholding regulations referred to above (the New
Regulations) make certain modifications to the withholding and information
reporting rules described above. The New Regulations attempt to unify
certification requirements and modify reliance standards. The New Regulations
will generally be effective for payments made after December 31, 2000, subject
to certain transition rules. Prospective holders are urged to consult their own
tax advisors regarding the New Regulations.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY,
EACH PROSPECTIVE HOLDER SHOULD CONSULT ITS OWN TAX ADVISER AS TO THE PARTICULAR
TAX CONSEQUENCES TO IT OF PURCHASING,
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<PAGE> 64
HOLDING AND DISPOSING OF OR CONVERTING THE NOTES AND THE COMMON STOCK, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY
PROPOSED CHANGES IN APPLICABLE LAWS.
SELLING SECURITYHOLDERS
We initially issued the notes to initial purchasers who then sold the notes
in transactions exempt from the registration requirements of the Securities Act
to "qualified institutional buyers" (as defined in Rule 144A under the
Securities Act) or other institutional "accredited investors" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act). The selling
securityholders (which term includes their transferees, pledgees, donees or
their successors) may from time to time offer and sell pursuant to this
prospectus any or all of the notes and Class A common stock issued upon
conversion of the notes.
Prior to any use of this prospectus in connection with an offering of the
notes or the Class A common stock issued upon conversion of the notes, this
prospectus will be supplemented to set forth the name and number of shares
beneficially owned by the selling securityholder intending to sell the notes or
Class A common stock and the number of notes or shares of Class A common stock
to be offered. The prospectus supplement will also disclose whether any selling
securityholder selling in connection with the prospectus supplement has held any
position or office with, been employed by or otherwise has had a material
relationship with us or any of our affiliates during the three years prior to
the date of the prospectus supplement.
PLAN OF DISTRIBUTION
The selling securityholders intend to distribute the notes and the shares
of Class A common stock issuable upon conversion of the notes from time to time
only as follows (if at all):
- to or through underwriters, brokers or dealers
- directly to one or more other purchasers
- through agents on a best-efforts basis
- otherwise through a combination of any such methods of sale.
The notes and the shares of Class A common stock issuable upon conversion
of the notes may be sold from time to time:
- in one or more transactions at a fixed price or prices, which may be
changed
- at market prices prevailing at the time of sale
- at prices related to such prevailing market prices
- at varying prices determined at the time of sale
- at negotiated prices
Such sales may be effected in transactions (which may involve crosses or
block transactions):
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- on any national securities exchange or quotation service on which the
notes or our Class A common stock may be listed or quoted at the time
of sale
- in the over-the-counter market
- in transactions otherwise than on such exchanges or services or in the
over-the-counter market
- through the writing of options.
In connection with sales of the notes or Class A common stock or otherwise,
the selling securityholder may enter into hedging transactions with
brokers-dealers or others, which may in turn engage in short sales of the notes
or our Class A common stock in the course of hedging the positions they assume.
The selling securityholder may also sell notes or Class A common stock short and
deliver notes or Class A common stock to close out such short positions, or loan
or pledge notes or Class A common stock to brokers-dealers or others that in
turn may sell such securities. The selling securityholder may pledge or grant a
security interest in some or all of the notes or Class A common stock issued
upon conversion of the notes owned by it and, if it defaults in the performance
of its secured obligations, the pledgees or secured parties may offer and sell
the notes or the Class A common stock from time to time pursuant to this
prospectus. The selling securityholder also may transfer and donate notes or
shares of Class A common stock issuable upon conversion of the notes in other
circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling securityholders for purposes of the
prospectus. The selling securityholder may sell short the Class A common stock
and may deliver this prospectus in connection with such short sales and use the
shares of Class A common stock covered by the prospectus to cover such short
sales.
LEGAL MATTERS
The validity of the notes and the shares of Class A common stock issuable
upon conversion of the notes offered in this prospectus has been passed upon by
David Ambrosia, our General Counsel. As of the date hereof, Mr. Ambrosia owned
4,475 shares of our Class A common stock and held options to purchase 308,030
shares of our Class A common stock.
EXPERTS
Our consolidated financial statements appearing in our Annual Report (Form
10-K) for the year ended December 31, 1999 have been audited by KPMG LLP,
independent accountants, as set forth in their report thereon incorporated
herein by reference. Such consolidated financial statements are incorporated by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Asia.com, Inc. (formerly
eLong.com, Inc.) (a development stage enterprise) incorporated in this
prospectus by reference to Mail.com's Amendment to Current Report on Form 8-K/A,
dated May 26, 2000, have been audited by KPMG, independent public accountants,
as indicated in their report with respect thereto and have been incorporated by
reference herein in reliance upon the authority of said firm as experts in
accounting and auditing. Our report dated May 24, 2000, contains an emphasis
paragraph that states the group's operations are subject to extensive regulation
and supervision by the People's Republic of China ("PRC") government. The laws
and regulations pertaining to Internet content provider businesses in the PRC
are evolving and may be subject to change.
The financial statements of NetMoves Corporation (formerly FaxSav
Incorporated) incorporated in this prospectus by reference to Mail.com's
Amendment to Current Report on Form 8-K/A, dated April 24, 2000, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
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<PAGE> 66
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
<S> <C>
Registration fee $26,400
Accounting fees and expenses 7,500
Legal fees and expenses 15,000
Miscellaneous expenses 1,100
----------
Total: $50,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of Delaware General Corporation Law empowers the Company to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit, or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe that such person's conduct was
unlawful. The termination of any cause of action, suit or proceeding by
judgment, order, settlement, conviction, or upon plea of nolo contendre or its
equivalent, does not, of itself, create a presumption that such person did not
act in good faith and in a manner that such person reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
As permitted by Section 145 of the Delaware General Corporation Law,
the registrant's amended and restated certificate of incorporation, as amended
provides that a director of the Company will not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director, except for any breach of the director's duty of loyalty to the
Company or its stockholders; for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law; for the unlawful
payment of dividends or unlawful stock repurchases under Section 174 of the
Delaware General Corporation Law; or for any transaction from which the director
derived an improper personal benefit.
The bylaws of the Company provide that the Company shall indemnify
directors, officers and employees for such liabilities in such manner, under
such circumstances and to such extent as permitted by Section 145 of the
Delaware General Corporation Law, as now enacted or hereafter amended and that
the Company shall advance all reasonable costs and expenses (including
attorney's fees) incurred in defending any action, suit or proceeding to all
persons entitled to such indemnification, all in the manner, under the
circumstances and to the extent permitted by Section 145 of the Delaware General
Corporation Law, as now enacted or hereafter amended.
The Company has entered into indemnity agreements with each of its
directors and executive officers to give them additional contractual assurances
regarding the scope of the indemnification described above and to provide
additional procedural protections. In addition, the Company has obtained
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directors' and officers' insurance providing indemnification for directors,
officers and key employees for various liabilities.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the certificate of incorporation. The registrant is
not aware of any threatened litigation or proceeding that may result in a claim
for such indemnification.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
4.1 Indenture dated as of January 26, 2000 by and between Mail.com, Inc.
and American Stock Transfer & Trust Company, as Trustee. (Incorporated
by reference to Exhibit 10.55 of Mail.com, Inc.'s Post-Effective
Amendment No. 1 to Form S-4 Registration Statement (File No. 333-94807)
filed on February 3, 2000).
4.2 Form of 7.00% Convertible Subordinated Note due 2005 (included in
Exhibit 4.1).
4.3 Registration Agreement dated as of January 26, 2000 by and between
Mail.com, Inc., Salomon Smith Barney Inc., PaineWebber Incorporated, SG
Cowen Securities Corporation and Sands Brothers & Co., Ltd.
(Incorporated by reference to Exhibit 10.56 of Mail.com, Inc.'s
Post-Effective Amendment No. 1 to Form S-4 Registration Statement
(File No. 333-94807) filed on February 3, 2000).
5 Opinion of David W. Ambrosia.
12 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG LLP.
23.2 Consent of KPMG.
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of David W. Ambrosia (included in Exhibit 5).
24 Power of Attorney (set forth on signature page hereof).
25 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of 25 American Stock Transfer &
Trust Company, as trustee under the indenture.
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made of the
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securities registered hereby, a post-effective amendment to this
registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in this registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in this registration
statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in this
registration statement or any material change to such information
in this registration statement;
provided, however, that the undertakings set forth in paragraphs (i) and
(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of
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appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time
it was effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be initial bona fide offering
thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on July 11, 2000.
Mail.com, Inc.
By /s/ Lon Otremba
-------------------
Lon Otremba
President
POWER OF ATTORNEY
We, the undersigned officers and directors of Mail.com, Inc., hereby
severally and individually constitute and appoint Lon Otremba and David
Ambrosia, and each of them, the true and lawful attorneys-in-fact and agents of
each of us to execute in the name, place and stead of each of us (individually
and in any capacity stated below) (1) any and all amendments (including
post-effective amendments) to this registration statement, and to file the same,
with all exhibits thereto, and other documents or instruments necessary or
advisable in connection therewith, and (2) a registration statement, and any and
all amendments thereto, relating to the offering covered hereby filed pursuant
to Rule 462(b) under the Securities Act of 1933, with the Securities and
Exchange Commission, each of said attorneys-in-fact and agents to have the power
to act with or without the others and to have full power and authority to do and
perform in the name and on behalf of each of the undersigned every act
whatsoever necessary or advisable to be done in and about the premises, as fully
to all intents and purposes as any of the undersigned might or could do in
person, and we hereby ratify and confirm our signatures as they may be signed by
our said attorneys-in-fact and agents or each of them to any and all such
amendments and instruments.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Gerald Gorman Chairman and Chief Executive Officer July 11, 2000
--------------------------------- and Director (principal executive
(Gerald Gorman) officer)
/s/ Gary Millin Director July 11, 2000
---------------------------------
(Gary Millin)
/s/ Debra McClisiter Executive Vice President and Chief July 11, 2000
--------------------------------- Financial Officer (principal
(Debra McClister) accounting and financial officer)
/s/ Jack Kuehler Director July 11, 2000
---------------------------------
</TABLE>
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<TABLE>
<S> <C> <C>
(Jack Kuehler)
/s/ William Donaldson Director July 11, 2000
---------------------------------
(William Donaldson)
/s/ Stephen Ketchum Director July 11, 2000
---------------------------------
(Stephen Ketchum)
</TABLE>
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<PAGE> 72
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
4.1 Indenture dated as of January 26, 2000 by and between Mail.com, Inc. and American Stock
Transfer & Trust Company, as Trustee. (Incorporated by reference to Exhibit 10.55 of
Mail.com, Inc.'s Post-Effective Amendment No. 1 to Form S-4 Registration Statement
(File No. 333-94807) filed on February 3, 2000).
4.2 Form of 7.00% Convertible Subordinated Note due 2005 (included in Exhibit 4.1).
4.3 Registration Agreement dated as of January 26, 2000 by and between Mail.com,
Inc., Salomon Smith Barney Inc., PaineWebber Incorporated, SG Cowen Securities
Corporation and Sands Brothers & Co., Ltd. (Incorporated by reference to Exhibit 10.56
of Mail.com, Inc.'s Post-Effective Amendment No. 1 to Form S-4 Registration Statement
(File No. 333-94807) filed on February 3, 2000).
5 Opinion of David W. Ambrosia.
12 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG LLP.
23.2 Consent of KPMG.
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of David W. Ambrosia (included in Exhibit 5).
24 Power of Attorney (set forth on signature page hereof).
25 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of
American Stock Transfer & Trust Company, as trustee under the indenture.
</TABLE>
II-7
