<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): December 22, 1999
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Engage Technologies, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
000-26671 04-3281378
- ------------------------ ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
100 Brickstone Square
Andover, Massachusetts 01810
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(978) 684-3884
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(Registrant's Telephone Number, Including Area Code)
________________________________________________________
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On December 22, 1999, Engage Technologies, Inc., a Delaware
corporation ("Registrant"), completed its acquisition of AdKnowledge Inc., a
California corporation ("AdKnowledge"), a provider of products and services
which allow online marketers and ad agencies to plan, target, serve, track and
analyze advertising campaigns. Previously, on September 23, 1999, the
Registrant, CMGI, Inc., a Delaware corporation and the majority stockholder of
Registrant ("CMGI"), AK Acquisition Corp., a California corporation and a
wholly-owned subsidiary of CMGI ("Transitory Sub"), AdKnowledge, and Steve
Findley, John Mracek and Kevin Wandryk (collectively, the "Shareholder
Representative") executed an Agreement and Plan of Merger and Contribution (the
"Merger Agreement"). Upon the completion of the transactions contemplated by the
Merger Agreement, AdKnowledge became a wholly-owned subsidiary of Registrant.
Specifically, the Merger Agreement contemplated:
First, a merger of Transitory Sub with and into AdKnowledge, with
AdKnowledge being the surviving corporation (the "Surviving Corporation"). In
this merger, all the AdKnowledge preferred shareholders received CMGI common
stock and a new class of AdKnowledge common stock ("Surviving Corporation Common
Stock"), and all common shareholders of AdKnowledge received shares of Surviving
Corporation Common Stock. Upon completion of this merger on November 30, 1999,
CMGI owned approximately 88% of the Surviving Corporation Common Stock.
Second, CMGI and other shareholders of Surviving Corporation
contributed their Surviving Corporation Common Stock to Registrant in exchange
for approximately 4.9 million shares of Registrant's common stock (the
"Contribution"). The Registrant issued common stock from its authorized but
unissued capital stock.
Third, Registrant consummated a California short-form merger (the
"Short-Form Merger") between Surviving Corporation and a wholly-owned subsidiary
of Registrant ("Engage Sub"), pursuant to which Engage Sub merged with and into
Surviving Corporation, with Surviving Corporation being the surviving
corporation in such merger. Any remaining holders of Surviving Corporation
Common Stock received Registrant's common stock in this merger.
Total purchase consideration is valued at approximately $159 million,
including $3.8 million in direct acquisition costs and less cash acquired of
$4.9 million. In connection with the contribution and the Short-Form Merger, the
Registrant issued approximately 4.9 million shares of its common stock to CMGI
for CMGI's 88% interest in Suriviving Corporation and approximately 253,000
shares of its common stock directly to shareholders of Surviving Corporation,
valued at approximately $142.4 million in the aggregate. Additionally, stock
options to acquire Registrant's common stock issued in the contribution, valued
at approximately $18 million, have been included in the purchase consideration.
Contingent consideration, comprised of approximately 414,000 shares of
CMGI common stock (adjusted for stock splits), has been placed in escrow (the
"Escrow Shares") to satisfy certain performance goals and indemnifications. The
value of the Escrow Shares has not been reflected in the aggregate purchase
consideration and will be recorded as additional purchase price at then-fair
value upon the attainment of certain performance goals measured through November
30, 2000. The Registrant issued approximately 558,000 of its common shares to
CMGI in consideration for the Escrow Shares. No value has been ascribed to the
value of these shares. If the performance goals are met and the Escrow Shares
are released to the AdKnowledge shareholders, the Registrant will record the
fair value of the CMGI shares issued to AdKnowledge shareholders on the release
date as additional purchase price. Any difference in the fair value of the
Registrant shares at the release date compared to the value of the Escrow Shares
will be recorded as a capital transaction between entities under common control.
Under the terms of an Intercompany Agreement between the Registrant and CMGI, in
the event that any Escrow Shares are returned to CMGI, CMGI shall pay the
Registrant, in cash or other property, a sum equal to the value of the returned
Escrow Shares.
These transactions were intended to be tax free under Section 368(a)
and Section 351 of the Internal Revenue Code of 1986, as amended, and to be
accounted for as a purchase.
On December 22, 1999, Registrant announced the closing of the
Contribution.
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial statements of AdKnowledge (incorporated by reference from
the Registrant's definitive proxy statement filed with the Securities and
Exchange Commission on November 19, 1999.)
(b) Pro forma financial information.
(i) Summary
(ii) Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
October 31, 1999
(iii) Notes to Unaudited Pro Forma Condensed Consolidated Balance
Sheet as of October 31, 1999
(iv) Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the year ended July 31, 1999 and the three months
ended October 31, 1999.
(v) Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations for the year ended July 31, 1999 and the three
months ended October 31, 1999.
(c) Exhibits.
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23. Consent of PricewaterhouseCoopers LLP
99.1 Agreement and Plan of Merger and Contribution, dated September
23, 1999, by and among the Registrant, CMGI, Transitory Sub, AdKnowledge and
the Shareholder Representative (incorporated by reference from the Registrant's
Form 10-Q filed on December 15, 1999 with the Securities and Exchange
Commission.)
99.2 Press release of the Registrant (incorporated by reference from
the Registrant's Form 8-K filed with the Securities and Exchange Commission on
January 6, 2000).
<PAGE>
Engage Technologies, Inc.
Unaudited Pro Forma Condensed Consolidated Financial Data
In April 1999, the Registrant acquired Internet Profiles Corporation ("I/PRO"),
a provider of Web-site traffic measurement and audit services, for approximately
$32,651,000, including acquisition costs of $244,000. The purchase price
consisted of $1,563,000 in net cash, $20,907,000 in CMGI common stock and
$10,181,000 in Registrant's common stock and options. In addition, CMGI,
Registrant's parent corporation, must pay up to $3,000,000 to the former I/PRO
stockholders if stated performance goals are met by I/PRO one year after the
closing. The Registrant must reimburse CMGI for any payment, due under stated
performance goals, in cash or by issuance of shares of Registrant's Series C
convertible preferred stock at its then fair market value, at CMGI's election.
Any additional payments will be treated as additional purchase price.
The unaudited Pro Forma Condensed Consolidated Balance Sheet at October 31, 1999
gives pro forma effect to the acquisition of AdKnowledge as if it had occurred
as of October 31, 1999 (based on the AdKnowledge balance sheet as of September
30, 1999).
The unaudited Pro Forma Condensed Consolidated Statements of Operations of the
Registrant for the year ended July 31, 1999 give pro forma effect to the
acquisition of I/PRO, AdKnowledge and the related financing of both acquisitions
as if each had occurred as of August 1, 1998.
The results of operations of the Registrant for the fiscal year ended July 31,
1999 have been combined with the results of operations of I/PRO for the eight
months ended March 31, 1999 (the results of operations of I/PRO for April 1999
through July 1999 are included in the Consolidated Statement of Operations of
the Registrant), and the results of operations of AdKnowledge for the twelve
months ended June 30, 1999. In addition, the results of operations of the
Registrant for the three months ended October 31, 1999 have been combined with
the results of operations of AdKnowledge for the three months ended September
30, 1999.
The Registrant has accounted for these acquisitions under the purchase method of
accounting. The total cost of businesses acquired, including related fees and
expenses, is allocated to the underlying tangible and intangible assets acquired
and liabilities assumed based on their respective fair values.
The unaudited Pro Forma Financial Information is not necessarily indicative of
the results of operations or financial position of the Registrant had the
transactions assumed therein occurred, nor are they necessarily indicative of
the results of operations which may be expected to occur in the future.
Furthermore, the unaudited Pro Forma Financial Information is based on
assumptions that the Registrant believes are reasonable and should be read in
conjunction with the Registrant's 10K, 10Q, and Definitive Proxy statement
previously filed.
<PAGE>
ENGAGE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of October 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro forma Pro forma
Engage AdKnowledge (a) Adjustments as Adjusted
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................ $ 46,134 $ 4,916 $ -- $ 51,050
Available-for-sale securities........................ 55,066 1,018 56,084
Accounts receivable, net of allowance for
doubtful accounts.................................... 6,927 1,580 8,507
Prepaid expenses..................................... 1,129 1,142 (562)(b)
(53)(d) 1,656
-------------- -------------- -------------- ------------
Total current assets.......................... 109,256 8,656 (615) 117,297
-------------- -------------- -------------- ------------
Other long-term assets.................................. 5,330 6,225 (1,160)(b)
42 (a) 10,437
Intangible assets, net.................................. 38,887 1,817 161,072 (a)
(1,817)(a) 199,959
-------------- -------------- -------------- ------------
Total assets.................................. $ 153,473 $ 16,698 $ 157,522 $ 327,693
============== ============== ============== ============
Liabilities and Stockholders' Equity
Current liabilities:
Due to CMGI and affiliates........................... $ 1,314 $ -- $ -- $ 1,314
Other current liabilities............................ 14,647 7,196 3,795 (c) 25,638
-------------- -------------- -------------- -----------
Total current liabilities...................... 15,961 7,196 3,795 26,952
-------------- -------------- -------------- -----------
Long-term liabilities................................... 1,524 5,263 6,787
Stockholders' equity
Preferred stock...................................... -- 27,474 (27,474)(a) --
Common Stock......................................... 487 8,046 (8,046)(a)
46 (a) 533
Warrants............................................. -- 2,252 (2,252)(a) --
Notes receivable from stockholders................... -- (42) 42 (a) --
Additional paid-in capital........................... 207,015 -- 160,237 (a) 367,252
Deferred compensation................................ (2,249) (5,444) 5,444 (a) (2,249)
Accumulated other comprehensive loss................. (238) (1) 1 (a) (238)
Accumulated deficit.................................. (69,027) (28,046) 28,046 (a)
(2,317)(a) (71,344)
-------------- -------------- -------------- ------------
Total stockholders' equity.................... 135,988 4,239 153,727 293,954
-------------- -------------- -------------- ------------
$ 153,473 $ 16,698 $ 157,522 $ 327,693
============== ============== ============== ============
</TABLE>
<PAGE>
Notes to the Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
October 31, 1999
(a) The following represents the allocation of the purchase price over the
historical net book values of the acquired assets and liabilities of
AdKnowledge at September 30, 1999 and is for illustrative purposes only.
The actual purchase price allocation will be based on fair values of the
acquired assets and liabilities as of the acquisition date (November 30,
1999). Assuming the transaction occurred October 31, 1999, the allocation
would have been as follows (in thousands):
Working capital deficit, net of cash acquired of $4,916 $ (4,071)
In-process research and development 2,317
Property plant and equipment 4,325
Other assets 782
Long term liabilities (5,263)
Goodwill and other intangible assets 161,072
---------
Purchase price, net of cash acquired $ 159,162
=========
Contingent consideration, comprised of approximately 414,000 shares of CMGI
common stock (adjusted for stock splits), has been placed in escrow (the
"Escrow Shares") to satisfy certain performance goals and indemnifications.
The value of the Escrow Shares has not been reflected in the aggregate
purchase consideration and will be recorded as additional purchase price at
then-fair value upon the attainment of certain performance goals measured
through November 30, 2000. The Registrant issued approximately 558,000 of
its common shares to CMGI in consideration for the Escrow Shares. No value
has been ascribed to the value of these shares. If the performance goals
are met and the Escrow Shares are released to the AdKnowledge shareholders,
the Registrant will record the fair value of the CMGI shares issued to
AdKnowledge shareholders on the release date as additional purchase price.
Any difference in the fair value of the Registrant shares at the release
date compared to the value of the Escrow Shares will be recorded as a
capital transaction between entities under common control. Under the terms
of an Intercompany Agreement between the Registrant and CMGI, in the event
that any Escrow Shares are returned to CMGI, CMGI shall pay the Registrant,
in cash or other property, a sum equal to the value of the returned Escrow
Shares.
(b) Reflects the write off of deferred debt issuance costs associated with the
fair value of AdKnowledge warrants issued in conjunction with debt and
capital lease arrangements and other fees paid to reflect the fair value of
debt assumed.
(c) Reflects the accrual of estimated direct costs of acquisition incurred by
the Registrant in the closing of the Contribution and the Short-Form
Merger, including investment banker, legal and accounting fees.
(d) Reflects the write off of non refundable fees paid by AdKnowledge to secure
additional borrowing ability that will not be utilized by the Registrant.
<PAGE>
ENGAGE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended July 31, 1999 and the three months ended October 31, 1999
<TABLE>
<CAPTION>
Year ended July 31, 1999
------------------------
(a) Pro Forma
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Engage I/PRO AdKnowledge Adjustments Total
------ ----- ----------- ----------- -----
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Revenue:
Product revenue........................................ $14,167 $3,902 $2,986 $ - $ 21,055
Services and support revenue........................... 1,856 - - - 1,856
------- ------ ------ ------ --------
Total revenue.................................... 16,023 3,902 2,986 - 22,911
------- ------ ------ ------ --------
Cost of revenue:
Cost of product revenue................................ 3,494 2,658 4,190 988 (b) 11,330
Cost of services and support revenue................... 5,957 - - - 5,957
------- ------ ------ ------ ---------
Total cost of revenue............................ 9,451 2,658 4,190 988 17,287
------- ------ ------ ------ ---------
Gross (loss) margin.............................. 6,572 1,244 (1,204) (988) 5,624
------- ------ ------ ------ ---------
Operating expenses:
In-process research and development.................... 4,500 - - (4,500)(c) -
Research and development............................... 8,699 1,775 4,531 - 15,005
Selling and marketing.................................. 12,776 2,499 3,797 - 19,072
General and administrative............................. 4,115 2,323 2,149 - 8,587
Stock based compensation............................... 5,829 - 633 - 6,462
Amortization of goodwill and other intangibles......... 1,455 - 765 55,650 (d) 57,870
------- ------ ------ ------- ---------
Total operating expenses......................... 37,374 6,597 11,875 51,150 106,996
------- ------ ------ ------- ---------
Loss from operations..................................... (30,802) (5,353) (13,079) (52,138) (101,372)
------- ------ ------ ------- ---------
Other income (expense):
Equity in loss of joint venture........................ (723) - - - (723)
Other income (expense), net............................ (478) 428 (228) 129 (e) (149)
------- ------ ------ ------- ---------
Net loss................................................. $(32,003) $(4,925) $(13,307) $(52,009) $(102,244)
======= ====== ======== ======== =========
Pro forma basic and diluted net loss per share ($0.89) $ (2.32)
------- ---------
Pro forma weighted average number of basic
and diluted shares outstanding 35,931 44,085
======= =========
<CAPTION>
Three Months Ended October 31, 1999
-----------------------------------
Pro Forma
---------
Engage AdKnowledge Adjustments Total
------ ----------- ----------- -----
(in thousands except per share data)
<S> <C> <C> <C> <C>
Revenue:
Product revenue........................................ $ 6,816 $1,806 $ - $ 8,622
Services and support revenue........................... 1,486 - - 1,486
-------- ------ -------- --------
Total revenue.................................... 8,302 1,806 - 10,108
-------- ------ -------- --------
Cost of revenue:
Cost of product revenue................................ 3,188 1,700 147 (b) 5,035
Cost of services and support revenue................... 1,162 - - 1,162
-------- ------ -------- --------
Total cost of revenue............................ 4,350 1,700 147 6,197
-------- ------ -------- --------
Gross (loss) margin.............................. 3,952 106 (147) 3,911
-------- ------ -------- --------
Operating expenses:
In-process research and development.................... - - - -
Research and development............................... 3,293 2,498 - 5,791
Selling and marketing.................................. 8,031 1,094 - 9,125
General and administrative............................. 1,815 2,221 - 4,036
Stock based compensation............................... 2,283 389 - 2,672
Amortization of goodwill and other intangibles......... 102 191 13,085 (d) 13,378
-------- ------ -------- --------
Total operating expenses......................... 15,524 6,393 13,085 35,002
-------- ------ -------- --------
Loss from operations.................................... (11,572) (6,287) (13,232) (31,091)
Other income (expense):
Equity in loss of joint venture....................... (326) - - (326)
Other income (expense), net........................... 1,352 (188) 88 (e) 1,252
-------- ------ -------- --------
Net loss................................................. $(10,546) $(6,475) $(13,144) $(30,165)
======== ====== ======== ========
Pro forma basic and diluted net loss per share $ (0.22) $ (0.57)
-------- --------
Pro forma weighted average number of basic
and diluted shares outstanding 48,690 53,300
======== ========
</TABLE>
<PAGE>
Notes to the Unaudited Pro Forma Condensed Consolidated Statements of Operations
(a) Reflects the pre-acquisition results of I/PRO for the period August 1, 1998
through March 31, 1999, the pre-acquisition period for which I/PRO results
were not consolidated with the Registrant.
(b) For the year ended July 31, 1999, reflects additional amortization expense
of developed technology acquired in the purchase of I/PRO ($400) and
AdKnowledge and additional amortization for just AdKnowledge for the three
months ended October 31, 1999. Developed technology is being amortized over
five years for I/PRO and three years for AdKnowledge, both using the
straight-line method.
(c) Adjustment to in-process research and development reflects the elimination
of $4.5 million expensed to in-process research and development "IPRD"
related to the acquisition of I/PRO in April 1999. The $2.3 million
expensed to IPRD for the AdKnowledge acquisition has not been eliminated
herein as the IPRD charge is non-recurring and will be reflected in the
Registrant's Statement of Operations for the quarter ended January 31,
2000.
(d) Reflects additional goodwill and other intangible asset amortization
expense related to the acquisition of AdKnowledge and I/PRO ($3,312 for the
year ended July 31, 1999), net of amortization expense recorded in the pre-
acquisition financial statements of AdKnowledge. Amortization periods for
goodwill and other intangible assets are as follows (in years):
I/PRO AdKnowledge
----- -----------
Goodwill 5 3
Workforce 2 3
Tradename 5 3
Database of cookies n/a 3
(e) Reflects a reduction in interest expense related to i) $33 for the year
ended July 31, 1999 for I/PRO borrowings that would have been settled by
I/PRO had the acquisition been consummated at the beginning of the period
presented and ii) interest expense recorded by AdKnowledge related to the
amortization of debt issuance costs.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: March 3, 2000 ENGAGE TECHNOLOGIES, INC.
(Registrant)
By: /s/ Paul L. Schaut
------------------------------------
Paul L. Schaut
President and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
23 Consent of PricewaterhouseCoopers LLP
99.1 Agreement and Plan of Merger and Contribution, dated
September 23, 1999, by and among the Registrant, CMGI, Transitory Sub,
AdKnowledge and the Shareholder Representative (incorporated by reference from
the Registrant's Form 10-Q filed on December 15, 1999 with the Securities and
Exchange Commission.)
99.2 Press release of the Registrant (incorporated by reference from
the Registrant's Form 8-K filed on January 6, 2000 with the Securities and
Exchange Commission).
<PAGE>
Exhibit 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-83245, 333-93151 and 333-93153) of Engage
Technologies, Inc. of our report dated June 25, 1999 relating to the financial
statements of AdKnowledge Inc., which appears in the Engage Technologies, Inc.
definitive proxy statement filed with the Securities and Exchange Commission on
November 19, 1999.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 2, 2000
