<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended October 31, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-22846
CMG INFORMATION SERVICES, INC.
------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2921333
(State or other jurisdiction of (I.R.S. Employer Identificati on No.)
incorporation or organization)
100 BRICKSTONE SQUARE, FIRST FLOOR 01810
ANDOVER, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
(978) 684-3600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
Yes X No
--------- --------
Number of shares outstanding of the issuer's common stock,
as of December 9, 1997
COMMON STOCK, PAR VALUE $.01 PER SHARE 9,761,801
-------------------------------------- ----------------------------
Class Number of shares outstanding
<PAGE>
CMG INFORMATION SERVICES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
October 31, 1997 and July 31, 1997 3
Consolidated Statements of Operations
Three months ended October 31, 1997 and 1996 4
Consolidated Statements of Cash Flows
Three months ended October 31, 1997 and 1996 5
Notes to Interim Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
Exhibit 11 16
</TABLE>
Page 2
<PAGE>
CMG INFORMATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
October 31, July 31,
1997 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 57,246 $ 59,762
Available-for-sale securities 1,200 5,945
Accounts receivable, trade, less allowance for doubtful accounts 21,383 19,869
License fees receivable 10,102 9,066
Prepaid expenses 7,474 6,174
Other current assets 5,706 5,875
-------- --------
Total current assets 103,111 106,691
Property and equipment, net 11,193 11,144
Investments in affiliates 11,146 9,160
Cost in excess of net assets of subsidiaries acquired, net of accumulated
amortization 17,208 17,109
Other assets 4,105 4,250
-------- --------
$146,763 $148,354
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 12,494 $ 22,494
Current installments of long-term debt 3,414 3,221
Accounts payable 13,013 9,959
Accrued expenses 18,482 18,341
Deferred revenues 16,713 13,680
Other current liabilities 1,294 442
-------- --------
Total current liabilities 65,410 68,137
Long term debt, less current installments 8,660 9,550
Long-term deferred revenues 3,375 5,100
Deferred income taxes 7,616 8,481
Other long term liabilities 3,006 2,119
Minority interest 26,680 25,519
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 5,000,000 shares; none issued -- --
Common stock, $.01 par value. Authorized 40,000,000 shares; issued 9,722,390
shares at October 31, 1997 and 9,659,543 shares at July 31, 1997 97 97
Additional paid-in capital 17,614 16,879
Net unrealized gain on available-for-sale securities -- 852
Retained earnings 14,305 11,620
-------- --------
Total stockholders' equity 32,016 29,448
-------- --------
$146,763 $148,354
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 3
<PAGE>
CMG INFORMATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended October 31,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Net revenues $ 25,135 $ 10,640
Operating expenses:
Cost of revenues 15,259 5,366
Research and development 6,174 4,965
In-process research and development -- 1,312
Selling 11,040 9,206
General and administrative 4,901 4,240
--------- --------
Total operating expenses 37,374 25,089
--------- --------
Operating loss (12,239) (14,449)
--------- --------
Other income (deductions):
Interest income 843 962
Interest expense (770) (38)
Gain on sale of data warehouse product rights 8,437 --
Gain on sale of Lycos, Inc. common stock 6,324 --
Gain on sale of Premiere Technologies, Inc. common stock 4,174 --
Loss on stock issuance by subsidiary (94) --
Gain on sale of investment in TeleT Communications -- 3,616
Equity in losses of affiliates (1,529) (1,008)
Minority interest (28) 2,422
--------- --------
17,357 5,954
--------- --------
Income (loss) before income taxes 5,118 (8,495)
Income tax expense (benefit) 2,433 (1,098)
--------- --------
Net income (loss) $ 2,685 $ (7,397)
========= ========
Primary earnings (loss) per share $0.24 $(0.81)
========= ========
Fully diluted earnings (loss) per share $0.24 $(0.81)
========= ========
Weighted average common and dilutive common equivalent shares
outstanding:
Primary 10,316 9,167
========= ========
Fully diluted 10,320 9,167
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 4
<PAGE>
CMG INFORMATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended October 31,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,685 $ (7,397)
Adjustments to reconcile net income (loss) to net cash used for
operating activities:
Depreciation and amortization 1,644 1,105
Deferred income taxes (1,183) (1,572)
Gain on sale of data warehouse product rights (8,437) --
Gain on sale of Lycos, Inc. common stock (6,324) --
Gain on sale of Premiere Technologies, Inc. common stock (4,174) --
Loss on issuance of stock by subsidiary 94 --
Gain on sale of investment in TeleT Communications -- (3,616)
Equity in losses of affiliates 1,529 1,008
Minority interest 28 (2,422)
In-process research and development -- 1,312
Changes in operating assets and liabilities, excluding effects of
acquired companies:
Accounts and license fees receivable (1,900) 223
Prepaid expenses and other current assets (2,907) (490)
Accounts payable and accrued expenses 1,601 1,282
Deferred revenues 1,308 (425)
Refundable and accrued income taxes, net 3,672 455
Other assets and liabilities (6) 384
-------- --------
Net cash used for operating activities (12,370) (10,153)
-------- --------
Cash flows from investing activities:
Additions to property and equipment (2,017) (1,703)
Proceeds from sale of data warehouse product rights 9,543 --
Proceeds from sale of Lycos, Inc. common stock 7,149 --
Proceeds from sale of Premiere Technologies, Inc. common stock 7,555 --
Investments in affiliates and acquisitions of subsidiaries (3,516) (13,848)
Proceeds from maturities of available-for-sale securities -- 9,519
Proceeds from sale of investment in TeleT Communications -- 550
Other (126) (456)
-------- --------
Net cash provided by (used for) investing activities 18,588 (5,938)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of notes payable and long-term debt -- 7,030
Repayments of notes payable and long-term debt (10,697) --
Sale of common stock, net 425 61
Purchase of treasury stock -- (836)
Proceeds from issuance of stock by subsidiary 477 --
Other 1,061 138
-------- --------
Net cash provided by (used for) financing activities (8,734) 6,393
-------- --------
Net decrease in cash and cash equivalents (2,516) (9,698)
Cash and cash equivalents at beginning of period 59,762 63,387
-------- --------
Cash and cash equivalents at end of period $ 57,246 $ 53,689
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 5
<PAGE>
CMG INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by the
Company in accordance with generally accepted accounting principles. In the
opinion of management, the accompanying consolidated financial statements
contain all adjustments, consisting only of those of a normal recurring nature,
necessary for a fair presentation of the Company's financial position, results
of operations and cash flows at the dates and for the periods indicated. While
the Company believes that the disclosures presented are adequate to make the
information not misleading, these consolidated financial statements should be
read in conjunction with the audited financial statements and related notes for
the year ended July 31, 1997 which are contained in the Company's Annual Report
on Form 10-K. The results for the three month period ended October 31, 1997 are
not necessarily indicative of the results to be expected for the full fiscal
year. Certain prior year amounts in the consolidated financial statements have
been reclassified in accordance with generally accepted accounting principles to
conform with current year presentation.
B. SALE OF ENGAGE DATA WAREHOUSE PRODUCTS AND RESTRUCTURING OF ENGAGE
TECHNOLOGIES
From its inception in August, 1995, through July 31, 1997, the Company's wholly-
owned subsidiary, Engage Technologies, Inc. (Engage) focused on providing
traditional mailing list maintenance and database services (through its ListLab
division), and on developing data mining, querying, analysis and targeting
software products for use in large database applications. As such, the results
of Engage's operations were classified in the Company's list and database
services segment through July 31, 1997. During the first quarter of fiscal
1998, Engage sold certain rights to its Engage.Fusion(TM) and
Engage.Discover(TM) data warehouse products to Red Brick Systems, Inc. (Red
Brick) for $9.5 million and 238,160 shares of Red Brick common stock, and
recorded a pretax gain of $8,437,000 on the sale. These highly advanced
products had been developed to accelerate the design and creation of very large
data warehouses and perform high-end data query and analysis. Engage retained
the exclusive right to sell Engage.Fusion and Engage.Discover to interactive
media markets as part of its Engage Product Suite. Additionally, during the
first quarter of fiscal year 1998, Engage transferred its ListLab division to
the Company's recently formed subsidiary, CMG Direct Corporation. With the sale
of these rights and transfer of its ListLab division, Engage has narrowed its
focus to the Internet software solutions market, where it seeks to help
companies individually distinguish, understand and interact with anonymous
prospects and customers in personalized marketing, sales, and service
relationships via the Internet. As a result of this repositioning, beginning in
fiscal year 1998, the operating results of Engage are now classified in the
Company's investment and development segment.
The 238,160 shares of Red Brick common stock received from the sale of Engage's
data warehouse products are subject to a one year restriction on
transferability, and have been classified in available-for-sale securities, with
a carrying value of $1,200,000, net of market value discount to reflect the
holding period requirement. The estimated fair value of these shares
approximates their carrying value as of October 31, 1997.
C. ACQUISITIONS AND INVESTMENTS
During the first quarter of fiscal year 1998, the Company, through its limited
partnership subsidiary, CMG@Ventures, L.P. and its limited liability company
subsidiary, CMG@Ventures II LLC, (collectively CMG@Ventures) invested a total of
$3,016,000 to acquire an initial 11% minority ownership interest in Chemdex
Corporation (Chemdex), a developer of an online marketplace for life science
products, an initial 22% interest in Speech Machines plc (Speech Machines), a
developer of productivity-enhancing technologies using advanced speech
recognition applications, and to participate in a follow on equity round of
financing raised by GeoCities. The Company's investment in Chemdex is carried
at cost in CMG's financial statements and its investment in Speech Machines is
accounted for under the equity method. The GeoCities financing round included
participation from outside investors, and afterwards, the Company's ownership in
GeoCities remained unchanged at 41%. Also in the first quarter of fiscal year
1998, the Company, through CMG@Ventures, exercised 96,000 Lycos options for an
investment of $192,000, and provided $500,000 of bridge loan financing to
Parable, LLC. CMG had initially purchased its 96,000 Lycos options in October,
1996 for $456,000.
Page 6
<PAGE>
CMG INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
D. SALES OF LYCOS AND PREMIERE TECHNOLOGIES STOCK
During the first quarter of fiscal year 1998, CMG@Ventures, L.P. distributed
300,000 of its shares of Lycos, Inc. (Lycos) common stock to the Company, and
121,235 shares to CMG@Ventures profit partners. In September, 1997 the Company
filed with the SEC on Form 144 to sell its 300,000 shares of Lycos stock on the
open market, and sold 219,900 of its Lycos shares through October 31, 1997. As
a result of the sale, the Company received proceeds of $7,149,000, and
recognized a pretax gain of $6,324,000, reported net of the associated interest
attributed to CMG@Ventures' profit partners, reflected as "Gain on sale of
Lycos, Inc. common stock."
During the first quarter of fiscal year 1998, CMG@Ventures, L.P. distributed
224,795 of its shares of Premiere Technologies, Inc.( Premiere) common stock to
the Company, and allocated 58,538 Premiere shares to CMG@Ventures profit
partners. The Company sold its 224,795 shares during the first quarter for
proceeds of $7,555,000, realizing a net gain of $4,174,000 on the sale.
E. EARNINGS (LOSS) PER SHARE
Net income (loss) per common share is computed based upon the weighted average
number of common and common equivalent shares outstanding during each period.
Common equivalent shares, using the treasury stock method, are included in the
per share calculations only when the effect of their inclusion would be
dilutive. Accordingly, since the Company reported a net loss during the first
quarter of fiscal 1997, common equivalent shares have not been included in the
calculation of weighted average shares outstanding for the three month period
ending October 31, 1996. Common stock equivalent shares consist of stock
options.
If a subsidiary has dilutive warrants or options outstanding, the Company's
earnings per share is computed by first deducting from net earnings the income
attributable to the potential exercise stock options or warrants of the
subsidiary. This amount is then divided by the weighted average number of the
Company's common and common equivalent shares outstanding during the period.
F. SEGMENT INFORMATION
The Company's operations are classified in three primary business segments: (i)
lists and database services, (ii) fulfillment services and (iii) investment and
development. Summarized financial information by business segment is as
follows:
<TABLE>
<CAPTION>
Three months ended October 31,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Net revenues:
Lists and database services $ 2,540,000 $ 3,100,000
Fulfillment services 12,024,000 3,544,000
Investment and development 10,571,000 3,996,000
------------ ------------
$ 25,135,000 $ 10,640,000
============ ============
Operating income (loss):
Lists and database services $ (41,000) $ (1,423,000)
Fulfillment services 1,061,000 585,000
Investment and development (13,259,000) (13,611,000)
------------ ------------
$(12,239,000) $(14,449,000)
============ ============
</TABLE>
Page 7
<PAGE>
CMG INFORMATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
G. CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
Three months ended October 31,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash paid during the period for:
Interest $ 717 $ 69
===== =====
Income taxes $ 83 $ 16
===== =====
</TABLE>
H. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share", which establishes and simplifies standards for computing
and presenting earnings per share. SFAS No. 128 replaces primary and fully
diluted earnings per share with basic and diluted earnings per share. SFAS No.
128 will be effective for the Company's second quarter of fiscal 1998, and
requires restatement of all previously reported earnings per share data that are
presented. Early adoption of this statement is not permitted. The Company has
not yet evaluated the impact of adopting SFAS No. 128.
I. SUBSEQUENT EVENTS
Subsequent to October 31, 1997 the Company filed with the SEC on Form 144 its
intent to sell up to an additional 400,000 shares of Lycos stock on the open
market. Additionally, subsequent to October 31, 1997 the Company distributed
216,034 Lycos shares to the profit partners of CMG@Ventures, L.P. Through the
subsequent sale and distribution of Lycos shares, the Company's ownership
percentage in Lycos has been reduced from just in excess of 50% at October 31,
1997, to below 50% beginning in November, 1997. As such, beginning in November,
1997, the Company will account for its remaining investment in Lycos under the
equity method of accounting, rather than the consolidation method. Prior to
these events, the operating results of Lycos were consolidated within the
operating results of the Company's investment and development segment, and the
assets and liabilities of Lycos were consolidated with those of CMG's other
majority owned subsidiaries in the Company's consolidated balance sheets. The
Company's historical quarterly consolidated operating results for the fiscal
year ended July 31, 1997 and the fiscal quarter ended October 31, 1997 included
Lycos sales and operating losses as follows:
(in thousands)
<TABLE>
<CAPTION>
Fiscal Quarter ended
---------------------------------------------------------------
Oct. 31, Jan. 31, Apr. Jul. 31, Oct. 31,
1996 1997 30,1997 1997 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues $3,663 $5,004 $ 5,853 $ 7,753 $9,303
======= ======= ======= ======= ======
Operating loss $(3,341) $(2,553) $(1,753) $(1,102) $ (433)
======= ======= ======= ======= ======
</TABLE>
The Company's historical consolidated Balance Sheets as of July 31, 1997 and
October 31, 1997 included Lycos current assets and liabilities and total assets
and liabilities as follows:
<TABLE>
<CAPTION>
Jul. 31, Oct. 31,
1997 1997
----------- -----------
<S> <C> <C>
Current assets $60,745 $63,935
======= =======
Total assets $65,419 $67,694
======= =======
Current liabilities $22,615 $25,822
======= =======
Total liabilities $27,772 $29,259
======= =======
</TABLE>
Subsequent to October 31, 1997, on December 8, 1997, the Company announced that
Intel Corporation has agreed to purchase a 4.9 percent ownership in CMG, subject
to certain customary terms and conditions, and that the two companies intend to
explore business opportunities to collaborate in the future.
Page 8
<PAGE>
CMG INFORMATION SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The matters discussed in this report contain forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in this
section and elsewhere in this report, and the risks discussed in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section included in the Company's Annual Report on Form 10-K for the
year ended July 31, 1997.
SALES OF LYCOS STOCK SUBSEQUENT TO OCTOBER 31, 1997
During the first fiscal quarter ended October 31, 1997 the Company filed with
the SEC on Form 144 to sell up to 300,000 shares of Lycos stock on the open
market, of which 219,900 shares were then sold. Subsequent to October 31,
1997 the Company filed with the SEC on Form 144 to sell up to an additional
400,000 shares of Lycos stock on the open market. Additionally, subsequent to
October 31, 1997 the Company distributed 216,034 Lycos shares to the profit
partners of CMG@Ventures, L.P. Through the subsequent sale and distribution of
Lycos shares, the Company's ownership percentage in Lycos has been reduced from
just in excess of 50% at October 31, 1997, to below 50% beginning in November,
1997. As such, beginning in November, 1997, the Company will account for its
remaining investment in Lycos under the equity method of accounting, rather than
the consolidation method. Prior to these events, the operating results of Lycos
were consolidated within the operating results of the Company's investment and
development segment, and the assets and liabilities of Lycos were consolidated
with those of CMG's other majority owned subsidiaries in the Company's
consolidated balance sheets. The Company's historical quarterly consolidated
operating results for the fiscal year ended July 31, 1997 and the fiscal quarter
ended October 31, 1997 included Lycos sales and operating losses as follows:
(in thousands)
<TABLE>
<CAPTION>
Fiscal Quarter ended
---------------------------------------------------------------
Oct. 31, Jan. 31, Apr. Jul. 31, Oct. 31,
1996 1997 30,1997 1997 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues $ 3,663 $ 5,004 $ 5,853 $ 7,753 $9,303
======= ======= ======= ======= ======
Operating loss $(3,341) $(2,553) $(1,753) $(1,102) $ (433)
======= ======= ======= ======= ======
</TABLE>
The Company's historical consolidated Balance Sheets as of July 31, 1997 and
October 31, 1997 included Lycos current assets and liabilities and total assets
and liabilities as follows:
<TABLE>
<CAPTION>
Jul. 31, Oct. 31,
1997 1997
----------- -----------
<S> <C> <C>
Current assets $60,745 $63,935
======= =======
Total assets $65,419 $67,694
======= =======
Current liabilities $22,615 $25,822
======= =======
Total liabilities $27,772 $29,259
======= =======
</TABLE>
SALE OF ENGAGE DATA WAREHOUSE PRODUCTS AND RESTRUCTURING OF ENGAGE TECHNOLOGIES
From its inception in August, 1995, through July 31, 1997, the Company's
wholly-owned subsidiary, Engage Technologies, Inc. (Engage) focused on providing
traditional mailing list maintenance and database services (through its ListLab
division), and on developing data mining, querying, analysis and targeting
software products for use in large database applications. As such, the results
of Engage's operations were classified in the Company's list and database
services segment. During the first quarter of fiscal 1998, Engage sold certain
rights to its Engage.Fusion(TM) and Engage.Discover(TM) data warehouse products
to Red Brick Systems, Inc. (Red Brick) for $9.5 million and 238,160 shares of
Red Brick common stock. These highly advanced products had been developed to
accelerate the design and creation of very large data warehouses and perform
high-end data query and analysis. Engage retained the exclusive right to sell
Engage.Fusion and Engage.Discover to interactive media markets as part of its
Engage Product Suite. Additionally, during the first quarter of fiscal year
1998, Engage transferred its ListLab division to the Company's recently formed
subsidiary, CMG Direct
Page 9
<PAGE>
CMG INFORMATION SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Corporation. With the sale of these rights and transfer of its ListLab
division, Engage has narrowed its focus to the Internet software solutions
market, where it seeks to help companies individually distinguish, understand
and interact with anonymous prospects and customers in personalized marketing,
sales, and service relationships via the Internet. As a result of this
repositioning, beginning in fiscal year 1998, the operating results of Engage
are now classified in the Company's investment and development segment.
THREE MONTHS ENDED OCTOBER 31, 1997 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1996
Net revenues for the quarter ended October 31, 1997 increased $14,495,000,
or 136%, to $25,135,000 from $10,640,000 for the quarter ended October 31, 1996.
The increase was largely attributable to an increase of $8,480,000 in net
revenues for the Company's fulfillment services segment, reflecting the
acquisition of Pacific Direct Marketing Corporation (Pacific Link) on October
24, 1996. Additionally, net revenues in the Company's investment and
development segment increased $6,575,000 primarily reflecting increased sales by
the Company's subsidiary, Lycos, Inc. (Lycos). Lycos net revenues for the
quarter ended October 31, 1997 were $9,303,000. Net revenues in the Company's
lists and database services segment decreased by $560,000, primarily reflecting
reduced sales from a material customer. With the change in the Company's method
for accounting for Lycos from consolidation to equity method, net revenues as
reported in the Company's Consolidated Statements of Operations are expected to
decline significantly in the near future. However, the Company believes that its
portfolio of companies will continue to develop and introduce their products
commercially, actively pursue increased revenues from new and existing
customers, and look to expand into new market opportunities during fiscal 1998.
Therefore, absent the impact of the change in accounting for Lycos, the Company
expects to report future revenue growth.
Cost of revenues increased $9,893,000, or 184%, to $15,259,000 in the
first quarter of fiscal 1998 from $5,366,000 for the corresponding period in
fiscal 1997, reflecting an increase of $6,922,000 in the fulfillment services
segment resulting from higher revenues, and an increase of $3,115,000 in the
investment and development segment, primarily resulting from higher revenues and
the commencement of operations at the Company's Navisite, Planet Direct and
ADSmart subsidiaries. The start up of Internet operations at Navisite, Planet
Direct and ADSmart, with minimal revenues during early stages, is the primary
reason cost of revenues as a percentage of revenues in the investment and
development segment increased from 36% in the first quarter of fiscal 1997 to
43% in the first quarter of fiscal 1998. In the fulfillment services segment,
cost of revenues as a percentage of net revenues increased to 76% in the first
quarter of fiscal 1998 from 62% in the first quarter of fiscal 1997, due to a
shift in mix of services, primarily associated with the acquisition of Pacific
Link. Compared with the first quarter of fiscal year 1997, cost of revenues as
a percentage of net revenues in the lists and database services segment
increased to 62% from 56% as the result of spreading fixed costs, such as
facilities and equipment costs, over a lower revenue base.
Research and development expenses increased $1,209,000, or 24%, to
$6,174,000 in the quarter ended October 31, 1997 from $4,965,000 in the prior
year's first quarter. In the investment and development segment, research and
development expenses increased $2,346,000, primarily reflecting the continuation
of product development and enhancement activities at all of the Company's
Internet investments and the addition of Engage to this segment. Such increases
were somewhat offset by reductions associated with NetCarta Corporation,
FreeMark, and GeoCities, whose results were included within the Company's
consolidated statements of operations during the first quarter of fiscal year
1997, but not included in fiscal year 1998 due to the sale of NetCarta to
Microsoft in January, 1997, the discontinuance of operations at FreeMark in
December, 1996, and the reduction in the Company's ownership in GeoCities to
below 50%, resulting in a change in the Company's method of accounting for
GeoCities from consolidation to equity method beginning in January, 1997.
Research and development expenses decreased $1,118,000 in the lists and database
services segment reflecting the removal of Engage from this segment. In
addition, the Company recorded $1,312,000 of in-process research and development
expenses related to the investments in Parable LLC (Parable) and Silknet
Software, Inc. (Silknet) during the first quarter of fiscal 1997. Of the
Page 10
<PAGE>
CMG INFORMATION SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
CMG@Ventures investments made during the first quarter of fiscal year 1998, the
acquisition accounting and valuation for one investment of $1 million may result
in a significant portion of the purchase price being identified as in-process
research and development, which will be charged to operating results in the
second quarter when the amount is determined. The Company anticipates it will
continue to devote substantial resources to product development and that, absent
the impact of the Company's change in accounting for its investment in Lycos
beginning in November, 1997, these costs may substantially increase in future
periods.
Selling expenses increased $1,834,000, or 20% to $11,040,000 in the first
quarter ended October 31, 1997 from $9,206,000 for the corresponding period in
fiscal 1997. This increase was primarily attributable to a $1,697,000 increase
in the Company's investment and development segment, primarily reflecting the
sales and marketing efforts related to several product launches, continued
growth of sales and marketing infrastructures, and the addition of Engage to
this segment. Such increases were somewhat offset by reductions associated with
NetCarta Corporation, FreeMark, and GeoCities, whose results were included
within the Company's consolidated statements of operations during the first
quarter of fiscal year 1997, but not included in fiscal year 1998. Selling
expenses in the fulfillment services segment increased by $446,000 in comparison
with last year's first quarter due to the acquisition of Pacific Link, and
selling expenses in the lists and database services segment decreased by
$309,000 versus the first quarter of fiscal 1997, reflecting the removal of
Engage from this segment. Selling expenses decreased as a percentage of net
revenues to 44% in the first quarter of fiscal 1998 from 87% for the
corresponding period in fiscal 1997, primarily reflecting the impact of
increased revenues. As the Company's subsidiaries continue to introduce new
products and expand sales, the Company expects to incur significant promotional
expenses, as well as expenses related to the hiring of additional sales and
marketing personnel and increased advertising expenses, and anticipates that,
absent the impact of the Company's change in accounting for its investment in
Lycos beginning in November, 1997, these costs will substantially increase in
future periods.
General and administrative expenses increased $661,000, or 16%, to
$4,901,000 in the first quarter of fiscal 1998 from $4,240,000 for the
corresponding period in fiscal 1997. The investment and development segment
experienced an increase of $377,000, primarily due to the building of management
infrastructures in several of the Company's Internet investments and the
addition of Engage to this segment. Such increases were somewhat offset by
reductions associated with NetCarta Corporation, FreeMark, and GeoCities, whose
results were included within the Company's consolidated statements of operations
during the first quarter of fiscal year 1997, but not included in the first
quarter of fiscal year 1998. General and administrative expenses in the
fulfillment services segment increased by $655,000 in comparison with last
year's first quarter, largely due to the acquisition of Pacific Link, and
general and administrative expenses in the lists and database services segment
decreased by $371,000 versus the first quarter of fiscal 1997, reflecting the
removal of Engage from this segment. General and administrative expenses
decreased as a percentage of net sales to 20% in the first quarter of fiscal
1998 from 40% in the first quarter of fiscal 1997, primarily reflecting the
impact of increased revenues. Absent the impact of the Company's change in
accounting for its investment in Lycos beginning in November, 1997, the Company
anticipates that its general and administrative expenses will continue to
increase significantly as the Company's subsidiaries, particularly in the
investment and development segment, continue to grow and expand their
administrative staffs and infrastructures.
Gain on sale of data warehouse product rights occurred when the
Company's subsidiary, Engage, sold certain rights to its Engage.Fusion(TM) and
Engage.Discover(TM) data warehouse products to Red Brick Systems, Inc. (Red
Brick) for $9.5 million and 238,160 shares of Red Brick common stock. Gain on
sale of Lycos, Inc. common stock reflects the Company's net gain realized on the
sale of 219,900 shares of Lycos stock. Gain on sale of Premiere Technologies,
Inc. common stock reflects the Company's net gain realized on the sale of
224,795 shares of Premiere Technologies, Inc. stock. Interest expense increased
$732,000 compared with the first quarter of fiscal 1997, primarily due to
borrowings incurred to finance the Company's acquisition of Pacific Link on
October 24, 1996, and interest expense related to the Company's $10 million
collateralized corporate note payable to a bank which was issued in January
1997.
Page 11
<PAGE>
CMG INFORMATION SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Equity in losses of affiliates resulted from the Company's minority
ownership in certain investments which are accounted for under the equity
method. Under the equity method of accounting, the Company's proportionate
share of each affiliate's operating losses and amortization of the Company's net
excess investment over its equity in each affiliate's net assets is included in
equity in losses of affiliates. Equity in losses of affiliates for the quarter
ended October 31, 1997 include the results from the Company's minority ownership
in Ikonic Interactive, Inc. , Parable, Silknet, GeoCities, Reel.com, and Speech
Machines. Equity in losses of affiliates for the quarter ended October 31, 1996
included the results from the Company's minority ownership in TeleT, Vicinity
Corporation, Ikonic Interactive, Inc., Parable, and Silknet. The Company
expects its portfolio companies to continue to invest in development of their
products and services, and to recognize operating losses, which will result in
future charges recorded by the Company to reflect its proportionate share of
such losses.
Minority interest decreased to ($28,000) in the first quarter of fiscal
1998 from $2,422,000 in the corresponding period of fiscal 1997, primarily
reflecting the improvement in Lycos results from a net loss of $2,759,000 for
the first quarter of fiscal year 1997, to net income of $107,000 for the first
quarter of fiscal year 1998, and the impact associated with FreeMark, and
GeoCities, whose results were included within the Company's consolidated
statements of operations during the first quarter of fiscal year 1997, but not
included in fiscal year 1998.
Income tax expense in the first quarter of fiscal 1998 was $2,433,000.
Exclusive of taxes provided for significant, unusual or extraordinary items that
will be reported separately, the Company provides for income taxes on a year to
date basis at an effective rate based upon its estimate of full year earnings.
In determining the Company's effective rate for the first quarter of fiscal
1998, gain on sale of data warehouse product rights, gain on sale of Lycos, Inc.
common stock, and gain on sale of Premiere Technologies, Inc. common stock were
excluded.
Page 12
<PAGE>
CMG INFORMATION SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Working capital at October 31, 1997 decreased to $37.7 million compared
to $38.6 million at July 31, 1997. The Company's principal sources of capital
during the first quarter of fiscal 1998 were $9,543,000 received from the sale
of Engage's data warehouse product rights, $7,149,000 received from the sale of
219,900 shares of Lycos stock, and $7,555,000 received from the sale of 224,795
shares of Premiere stock. The Company's principal uses of capital during the
first quarter of fiscal 1998 were $12,370,000 for funding of operations,
primarily those of start-up activities in the Company's investment and
development segment, $10,697,000 for net repayments of lines of credit and long-
term debt, $3,516,000 for investments in or bridge loans to Chemdex, Speech
Machines, GeoCities and Parable, and $2,017,000 for purchases of property and
equipment. With the change in the Company's method for accounting for Lycos from
consolidation to equity method, working capital as reflected in the Company's
Consolidated Balance Sheets will no longer include Lycos' working capital. The
Company's working capital at October 31, 1997 of $37.7 million included Lycos
working capital of $38.1 million.
The Company's credit agreements include a $10 million corporate line
which expires on May 14, 1998 and had an outstanding balance of $1 million at
October 31, 1997, and a $4.5 million line available to SalesLink, which expires
on October 1, 1998 and had an outstanding balance of $1,494,000 at October 31,
1997.
Subsequent to October 31, 1997 the Company filed with the SEC on Form
144 to sell up to an additional 400,000 shares of Lycos stock on the open
market. Additionally, subsequent to October 31, 1997 the Company distributed
216,034 shares to the profit partners of CMG@Ventures, L.P. Through the
subsequent sale and distribution of Lycos shares, the Company's ownership
percentage in Lycos has been reduced from just in excess of 50% at October 31,
1997, to below 50% beginning in November, 1997. As such, beginning in November,
1997, the Company will account for its remaining investment in Lycos under the
equity method of accounting, rather than the consolidation method.
On December 8, 1997, the Company announced that Intel Corporation has
agreed to purchase a 4.9 percent ownership in CMG, subject to certain customary
terms and conditions, and that the two companies intend to explore business
opportunities to collaborate in the future.
The Company intends to continue to fund existing and future Internet and
interactive media investment and development efforts, and to actively seek new
CMG@Ventures investment opportunities. The Company believes that existing
working capital, available borrowings under the Company's corporate line of
credit, cash proceeds from the sale of Lycos stock and proceeds from the sale of
previously unissued stock to Intel Corporation will be sufficient to fund its
operations, investments and capital expenditures for the foreseeable future.
Should additional capital be needed to fund future investment and acquisition
activity, the Company may seek to raise additional capital through public or
private offerings of the Company's or its subsidiaries' stock, or through debt
financings.
Page 13
<PAGE>
CMG INFORMATION SERVICES, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
---------------------------------
(A) Exhibits
The following exhibits are filed herewith or incorporated by reference
pursuant to Rule 12b-32 under the Securities Exchange Act of 1934:
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE METHOD OF FILING
- ----------- ------ ----------------
<S> <C> <C>
3 (i) (1) Amendment to the Restated Certificate of Incorporated by reference to Exhibit 3
Incorporation (i) (1) to the Registrant's quarterly
report on Form 10-Q for the quarter ended
April 30, 1996
3 (i) (2) Restated Certificate of Incorporation Incorporated by reference from
REgistration Statement on Form S-1, as
amended, filed on November 10, 1993
(Registration No. 33-71518)
3 (ii) Restated By-Laws Incorporated by reference from
Registration Statement on Form S-1, as
amended, filed on November 10, 1993
(Registration No. 33-71518)
10.1 1995 Employee Stock Purchase Plan, as amended Filed herewith.
10.2 1986 Stock Option Plan, as amended Filed herewith.
10.3 1995 Stock Option Plan for Non - Employee Filed herewith.
Directors, as amended
4 Specimen stock certificate representing Incorporated by reference from
the common stock Registration Statement on Form S-1, as
amended, filed on November 10, 1993
(Registration No. 33-71518)
11 Statement re computation of per share earnings Filed herewith.
27.1 Restated Financial Data Schedule Filed herewith.
for the three months ended October 31, 1996
27.2 Financial Data Schedule Filed herewith.
for the three months ended October 31, 1997
</TABLE>
(B) Reports on Form 8-K.
<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 thereunto duly authorized.
CMG Information Services, Inc.
By: /s/ Andrew J. Hajducky III
--------------------------
Date: December 15, 1997 Andrew J. Hajducky III, CPA
Chief Financial Officer
<PAGE>
Exhibit 10.1
CMG INFORMATION SERVICES, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
AS ADOPTED OCTOBER 4, 1994
Approved by the Stockholders on December 6, 1994
1. Purpose. This CMG Information Services, Inc. 1995 Employee Stock Purchase
-------
Plan ("the Plan") is intended to encourage and assist employees of CMG
Information Services, Inc. (the "Corporation") and the employees of any present
or future designated subsidiaries of the Corporation in acquiring a stock
ownership interest in the Corporation. The Plan is intended to be an Employee
Stock Purchase Plan under, and complying with, the terms and conditions of
Section 423 of the Internal Revenue Code.
2. Stock Subject to the Plan. Subject to adjustment pursuant to Section 12 of
-------------------------
the Plan, the aggregate number of shares of Common Stock (the "shares") which
may be sold under this Plan and under the Corporation's 1986 Stock Option Plan,
pursuant to the exercise of non-transferable options granted under this Plan to
participating employees is 2,250,000. The shares may be authorized but
unissued, or reacquired, shares of Common Stock of the Corporation, $0.01 par
value per share. The Corporation during the term of the Plan shall at all times
reserve and keep available such number of shares as shall be sufficient to
satisfy the requirements of the Plan.
3. Quarterly Periods. As used herein the term "quarterly period" shall mean
-----------------
the three month period beginning on the first day of the first month of each of
the Corporation's fiscal quarters and ending on the last day of the last month
of each of the Corporation's fiscal quarters, with the first quarterly period
beginning February 1, 1995, and ending April 30, 1995.
4. Eligibility. Any employee who has completed six full months of employment
-----------
with the Corporation or any of its present or future designated subsidiaries
(except (a) any employee who directly or by attribution owns stock possessing 5%
or more of the total combined voting power or value of all classes of stock of
the Corporation or any subsidiary of the Corporation at the start of any
quarterly period, or (b) those employees whose customary employment is 20 hours
or less per week, or (c) those employees whose customary employment is for not
more than five months in any calendar year), is eligible to become a member of
the Plan on the first day of the quarterly period following the completion of
six full months of employment, and no one else. Any subsidiary of the
Corporation including future subsidiaries may or may not be designated by the
1
<PAGE>
Board of Directors of the Corporation as a corporation whose employees may
participate in the Plan as provided above.
For purposes of the Plan, "subsidiary" shall mean a corporation of which
not less than fifty percent (50%) of the voting shares are held by the
Corporation or a subsidiary of the Corporation.
5. Joining the Plan. Any eligible employee's participation in the Plan shall
----------------
be effective as of the first day of the quarterly period following the day on
which the employee completes, signs and returns to the Corporation a Stock
Purchase Plan Application and Payroll Deduction Authorization form indicating
his or her acceptance of and agreement to the Plan and indicating the employee's
standing level of contribution to the Plan in accordance with Paragraph 6 below.
Membership of any employee in the Plan is entirely voluntary. Except as
provided in Paragraph 4, all employees who elect to participate in the Plan
shall have the same rights and privileges.
Any employee participating in this Plan or receiving shares of Common Stock
hereunder shall have no rights with respect to continuation of employment with
the Corporation or any subsidiary, nor with respect to continuation of any
particular Corporation business, policy or product, including this Plan.
6. Member's Contributions. Any employee electing to participate in the Plan
----------------------
must authorize a whole percentage (not less than 1% nor more than 10%) or a
whole dollar amount (not less than $10.00) of the employee's regular pay to be
deducted by the Corporation from the employee's regular pay during each
quarterly period, provided that in no event may such percentage or amount result
in total deductions of less than $100.00 per quarterly period for such employee.
Notwithstanding the foregoing, no employee shall be entitled to purchase
shares of stock under the Plan with an aggregate fair market value (determined
at date of grant) exceeding $5,000 per each quarterly period; and furthermore,
no employee shall be permitted to purchase shares of Common Stock under all the
employee stock purchase plans of the Corporation and its related corporations at
a rate which exceeds $25,000 in fair market value of such stock (determined at
the time the options are granted) for each calendar year in which any such
option granted to such employee is outstanding at any time.
An employee may elect to have amounts deducted from his or her pay, as
described above, by delivering to the Corporation a Stock Purchase Plan
Application and Payroll Deduction Authorization form stating the percentage or
amount to be deducted. If an employee has not filed such a standing election at
least seven days prior to the commencement date of a quarterly period, he or she
will be deemed to have elected not to have any of his or her pay withheld.
Deductions may be increased or decreased during a quarterly period by filing a
new standing election, which will be effective during the first full pay period
subsequent to its filing and processing.
2
<PAGE>
No member will be permitted to make contributions for any period during
which he or she is not receiving pay from the Corporation or one of its present
for future designated subsidiaries.
7. Issuance of Shares. On the last trading day of each quarterly period so
------------------
long as the Plan shall remain in effect, and provided the member has not before
that date advised the Corporation that he or she elects to withdraw his or her
entire account, the Corporation shall apply the funds in the member's account as
of that date to the purchase of authorized but unissued, or reacquired, shares
of its Common Stock in units of one share or multiples thereof.
The cost to each member for the shares so purchased shall be eighty-five
percent (85%) of the lower of the fair market value of the Common Stock on the
first trading day of the quarterly period (the "date of grant") or the fair
market value of the Common Stock on the last trading day of the quarterly period
(the "date of exercise"), determined as follows:
(1) The fair market value of the shares on the date of the grant shall
be the mean between the average bid and ask prices of the stock in the
over-the-counter market as quoted on the National Association of Securities
Dealers Automatic Quotation System (NASDAQ), or if its stock is a National
Market System security the last reported sales price of the stock, or if
the stock is traded on one or more securities exchanges the average of the
closing prices on all such exchanges on the date of grant; and
(2) The fair market value of the shares on the date of exercise shall
be the mean between the average bid and ask prices of the stock in the
over-the-counter market as quoted on the National Association of Securities
Dealers Automatic Quotation System (NASDAQ), or if its stock is a National
Market System security the last reported sales price of the stock, or if
the stock is traded on one or more securities exchanges the average of the
closing prices on all such exchanges on the date of exercise.
Any moneys remaining in such member's account equaling less than the sum
required to purchase one share, or moneys remaining in such member's account by
reason of application of the provisions of the next paragraph hereof shall,
unless otherwise requested by the member, be held in the member's account for
use during the next quarterly period. Any moneys remaining in such member's
account by reason of his or her prior election to withdraw his or her entire
account shall be disbursed to the employee within 30 days following such
election. The Corporation shall as expeditiously as possible after the last day
of each quarterly period issue to the member entitled thereto the certificate
evidencing the shares issuable to him or her as provided herein.
Notwithstanding anything above to the contrary, (a) if the number of shares
members desire to purchase at the end of any quarterly period exceeds the number
of shares then available under the Plan, the shares available shall be allocated
among such members in proportion to their contributions during the quarterly
period (but no fractional shares shall be issued); and (b) no funds in an
employee's account shall be applied to the purchase of shares and no shares
3
<PAGE>
hereunder shall be issued unless such shares are covered by an effective
registration statement under the Securities Act of 1933, as amended, or by an
exemption therefrom.
8. Termination of Membership. A member's membership in the Plan will be
-------------------------
terminated when the member (a) voluntarily elects to withdraw his or her entire
account, (b) resigns or is discharged from the Corporation or one of its present
or future subsidiaries, (c) dies, or (d) does not receive pay from the
Corporation or one of its present or future subsidiaries for twelve (12)
consecutive months, unless this period is due to an illness, injury or for other
reasons approved by the persons or person appointed by the Corporation to
administer the Plan as provided in Paragraph 10 below. Upon termination of
membership, the terminated member shall not be entitled to rejoin the Plan until
the first day of the quarterly period immediately following the quarterly period
in which the termination occurs. Upon termination of membership, the member
shall be entitled to the amount of his or her individual account within thirty
(30) days after termination.
9. Beneficiary. Each member may file a written designation of a beneficiary
-----------
who is to receive any shares of Common Stock credited to such member's account
under the Plan in the event of the death of such member prior to delivery to
such member of the certificates of such shares. Such designation may be changed
by the member at any time by written notice received by the Corporation.
Upon the death of a member his or her account shall be paid or distributed
to the beneficiary or beneficiaries designated by such member, or in the absence
of such designation, to the executor or administrator of his or her estate, and
in either event the Corporation shall not be under any further liability to
anyone. If more than one beneficiary is designated, each beneficiary shall
receive an equal portion of the account unless the member indicates to the
contrary in his or her designation, provided that the Corporation may in its
sole discretion make distributions in such form as will avoid the creation of
fractional shares.
10. Administration of the Plan. The Plan shall be administered by such
--------------------------
officers or other employees of the Corporation as the Board of Directors of the
Corporation may from time to time select, and the persons so selected shall be
responsible for the administration of the Plan. All terms of the Plan shall be
subject to interpretation by the Compensation Committee of the Board of
Directors whose decision shall be final and binding on all parties. All costs
and expenses incurred in administering the Plan shall be paid by the
Corporation.
11. Modification and Termination. The Corporation expects to continue the Plan
----------------------------
until such time as the shares reserved for issuance under the Plan have been
sold. The Corporation reserves, however, the right to amend, alter or terminate
the Plan in its discretion. Upon termination, each member shall be entitled to
the amount of his or her individual account within thirty (30) days after
termination.
12. Adjustments upon Changes in Capitalization. Appropriate and proportionate
------------------------------------------
adjustments shall be made in the number and class of shares of stock subject to
this Plan, and to the rights
4
<PAGE>
granted hereunder and the prices applicable to such rights, in the event of a
stock dividend, stock split, reverse stock split, recapitalization,
reorganization, merger, consolidation, acquisition, separation or the like
change in the capital structure of the Corporation.
13. Transferability of Rights. No rights of any employee under this Plan shall
-------------------------
be transferable by him or her, by operation of law or otherwise, except to the
extent that a member is permitted to designate a beneficiary or beneficiaries as
herein above provided, and except to the extent permitted by will or the laws of
descent and distribution if no such beneficiary be designated.
14. Participation in Other Plans. Nothing herein contained shall affect an
----------------------------
employee's right to participate in and receive benefits under and in accordance
with the then current provisions of any pension, insurance or other employee
welfare plan or programs of the Corporation.
15. Applicable Law. The interpretation, performance and enforcement of this
--------------
Plan shall be governed by the laws of the Commonwealth of Massachusetts.
16. Effective Date of Plan; Shareholder Approval. The Plan was effective on
--------------------------------------------
February 1, 1995. The Corporation's obligation to offer, sell or deliver shares
under the Plan is subject to any governmental approval required in connection
with the authorized issuance or sale of such shares and is further subject to
the determination by the Corporation that is has complied with all applicable
securities laws.
17. Legend Conditions. The shares of Common Stock to be issued pursuant to the
-----------------
provisions of this Plan shall have endorsed upon their face the following:
(1) Any legend imposed as a condition of qualification by the
Massachusetts Securities Commissioner, if required;
(2) Unless the shares to be issued under this Plan have been registered
under the Securities Act of 1933 the following additional legend shall
be placed on all certificates:
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The shares have been
acquired for investment and may not be pledged or hypothecated, and
may not be sold or transferred in the absence of an effective
Registration Statement for the shares under the Securities Act of 1933
or an opinion of counsel to the Corporation that registration is not
required under said Act.
I certify that set forth above is a true, complete and correct copy of the
CMG Information Services 1995 Employee Stock Purchase Plan as in effect on the
date hereof.
5
<PAGE>
Date: December 6, 1995 William Williams II
----------------------- --------------------------------------
William Williams II, Assistant Secretary
6
<PAGE>
Exhibit 10.2
CMG INFORMATION SERVICES, INC.
1986 STOCK OPTION PLAN, AS AMENDED BY THE BOARD OF DIRECTORS
------------------------------------------------------------
ON SEPTEMBER 24, 1997
---------------------
Article 1 - Purpose
- -------------------
This 1986 Stock Option Plan (the "Plan") is intended to provide incentives
to individuals that CMG Information Services, Inc. (the "Company") believes may
play a significant role in the future success of the Company and its present and
future subsidiaries (as defined in Section 424(f) of the Internal Revenue Code
of 1986, as amended (the "Code")) and Affiliates (as defined below) by providing
them with opportunities to purchase stock in the Company pursuant to the
exercise of options. The Company intends certain options granted under the Plan
which are designated as incentive stock options to be "incentive stock options"
complying with, and subject to, the terms and conditions of Section 422 of the
Code; and with respect to those incentive stock options this Plan shall be
interpreted in accordance with that section of the Code, as amended, and the
rules and regulations promulgated from time to time thereunder. Stock options
granted hereunder which do not comply with Section 422 of the Code or are
otherwise intended to be non-qualified stock options shall be designated as non-
qualified stock options. "Affiliate" means any business entity in which the
Company owns directly or indirectly 50% or more of the total voting power or has
a significant financial interest as determined by the Committee (as defined
below).
Article 2 - Administration of the Plan
- --------------------------------------
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors (the "Board") of the Company. The
Committee shall consist solely of two or more members of the Board who are
"Outside Directors" as defined in the Code. The Board may remove members from
the Committee at any time with or without cause, or may add members to the
Committee. Vacancies on the Committee, howsoever caused, shall be filled by the
Board. Acts by a majority of the Committee at a meeting, or acts approved in
writing by all the members of the Committee, shall be the valid acts of the
Committee. Subject to the terms of the Plan, and subject to such overall
policies with respect thereto as may be established from time to time by the
Board, the Committee shall have authority to determine the time or times at
which options shall be granted, the persons to whom options shall be granted,
the number of shares covered by each option, the price per share specified in
each option, the time or times when each option or portions or installments of
each option shall become exercisable and the duration of the exercise period or
periods thereof, the conditions for the exercise of each option or portions or
installments of each option or for acceleration of the exercise date or dates of
each option or portions or installments thereof, or for the cancellation or
termination of each option or portions or installments thereof, and all other
terms and provisions of each option and each instrument by which each option
shall be evidenced.
<PAGE>
All determinations and interpretations made by the Committee with respect
to the Plan and each option granted thereunder shall be binding and conclusive
on all interested parties unless otherwise determined by the Board. The
Committee may from time to time adopt such rules and regulations for carrying
out the Plan as it may determine in its sole discretion. No member of the Board
or the Committee shall be liable with respect to any action or determination
made in good faith regarding the Plan or any option granted under it.
Article 3 - Eligible Persons
- ----------------------------
Options may be granted to any individual that the Company deems appropriate
subject to the restriction that incentive stock options may only be granted to
employees. The granting of any option to a person shall neither entitle such
person to, nor disqualify him from, participation in any other grant of options
pursuant to this Plan or any other plan. Directors who are not employees of the
Company or its subsidiaries shall not be eligible to receive options under this
Plan.
Article 4 - Stock
- -----------------
The stock subject to the options granted hereunder shall be shares of the
Company's authorized but unissued shares of Common Stock, par value $0.01 per
share, or shares of Common Stock reacquired by the Company including shares
purchased in the open market ("Common Stock"). The maximum number of shares
which are hereby reserved for issuance and may be issued pursuant to this Plan
is 2,250,000 less such number of shares as may from time to time be issued
pursuant to the CMG Information Services, Inc. 1995 Employee Stock Purchase
Plan, subject to adjustment as provided in Article 13. In the event any option
granted under the Plan shall expire, terminate or be cancelled for any reason
without having been exercised in full, or shall cease for any reason to be
exercisable in whole or in part, the unpurchased shares subject thereto, to the
extent the option ceases to be exercisable, shall again be available under the
Plan.
Article 5 - Grant of Options
- ----------------------------
Options may be granted to eligible persons in such number and at such times
during the term of the Plan as the Committee shall determine.
The maximum number of shares of Common Stock subject to options that may be
granted to any eligible person in the aggregate in any calendar year shall not
exceed 200,000 shares, subject to adjustment as provided in Article 13.
-2-
<PAGE>
Article 6 - Minimum Price of Options
- ------------------------------------
The price per share specified in each option granted under the Plan shall
in no event be less than 100% (110% in the case of an incentive stock option
granted to a 10% shareholder as defined in Section 422(b)(6) and related
sections of the Code) of the fair market value per share of Common Stock on the
date the option is granted. Fair market value shall be determined by the
Committee in good faith in accordance with applicable regulations under the
Code. If there is a public market for the Common Stock of the Company, fair
market value shall be the last closing price before or on the valuation date, or
the mean between the highest and lowest quoted selling prices in the market
before or on the valuation date, or an average of such prices, all as the
Committee in its sole discretion shall determine.
Article 7 - Duration of Options
- -------------------------------
Subject to earlier termination as provided in Articles 9 and 10, each
option shall expire on the date specified by the Committee, but in the case of
incentive stock options such expiration date shall be not more than ten years
(five years in the case of an incentive stock option granted to a 10%
shareholder as defined in Section 422(b)(6) and related sections of the Code)
from its date of grant. The Committee may extend the term of any previously
granted option provided that if such option is an incentive stock option it must
expire not more than ten or five years from its original date of grant as
provided above.
Article 8 - Exercise of Options
- -------------------------------
Subject to the provisions of Articles 9 through 12, each option granted
under the Plan shall be exercisable as follows:
A. The option shall either be fully exercisable at the time of grant or
shall become exercisable in such installments or portions and at such
time or times or upon the happening of such conditions as the
Committee may determine. The installments or portions may be
cumulative or noncumulative as the Committee may determine.
B. Once all or any installment or portion of any option becomes
exercisable it shall remain exercisable until cancellation thereof or
until expiration or termination of the option, unless otherwise
specified by the Committee.
C. Each option may be exercised from time to time, in whole or in part,
up to the total number of shares with respect to which it is then
exercisable.
D. The date of exercise of any option or any portion or installment of
any option may be accelerated by fulfillment of such conditions as the
Committee may determine. Furthermore, the Committee shall have the
right to accelerate the date of exercise of any option or any portion
or installment thereof for any reason.
-3-
<PAGE>
E. The aggregate fair market value (determined at the time the option is
granted) of the Common Stock with respect to which incentive stock
options granted after December 31, 1986, are exercisable for the first
time by an optionee during any calendar year (under all incentive
stock option plans of the company and its parent and subsidiary
corporations) shall not exceed $100,000.
Article 9 - Termination of Relationship
- ---------------------------------------
If an optionee's employment or consulting relationship with the Company or
any subsidiary or Affiliate is terminated for any reason other than death,
disability (within the meaning of Section 22(e)(3) of the Code), or termination
for cause, his options may be exercised to the extent they were exercisable on
the date of such termination, but no further installments or portions of such
options will become exercisable (unless otherwise determined by the Committee)
and each such option shall terminate on the date one month following the date of
such termination (but not later than its specified expiration date). The
aforesaid one month period may be extended by the Committee in its sole
discretion up to the expiration date of each such option in the case of non-
qualified stock options. If an optionee's employment or consulting relationship
with the Company or any subsidiary or Affiliate is terminated for cause (as
defined by the Committee in its sole discretion), all his options shall
terminate immediately and be of no further force or effect. Whether authorized
leaves of absence or absence on military or governmental service may constitute
termination for purposes of the Plan shall be conclusively determined by the
Committee. Nothing in the Plan or in any option granted hereunder shall be
deemed to give any optionee the right to continue his employment or consulting
relationship with the Company or any of its subsidiaries or Affiliates or shall
be deemed to interfere in any way with the right of the Company or any
subsidiary or Affiliate to terminate any optionee's employment or consulting
relationship at any time and for any reason. Options granted under the Plan
shall not be affected by any change of employment or consulting relationship
among the Company and its subsidiaries or Affiliates (as determined by the
Committee) so long as the optionee continues to be an employee or consultant of
the Company or one of its subsidiaries or Affiliates.
Article 10 - Disability; Death
- ------------------------------
If an optionee becomes disabled (within the meaning of Section 22(e)(3) of
the Code), his options may be exercised to the extent they were exercisable on
the date he ceased to have an employment or consulting relationship with the
Company or any subsidiary or Affiliate, but no further installments or portions
of such options will become exercisable (unless otherwise determined by the
Committee) and each such option shall terminate on the date one month following
the date of such cessation (but not later than its specified expiration date).
The aforesaid one month period may be extended by the Committee in its sole
discretion up to an additional eleven months in the case of incentive stock
options and up to the expiration date of each such option in the case of non-
qualified stock options.
If an optionee dies while he has an employment or consulting relationship
with the Company or any subsidiary or Affiliate or during the one month (or
extended) periods referred
-4-
<PAGE>
to in Article 9 or referred to above in this Article 10, his options may be
exercised to the extent they were exercisable on the date of his death, by his
estate, or duly appointed representative, or beneficiary who acquires the
options by will or by the laws of descent and distribution, but no further
installments or portions of such options will become exercisable and each such
option shall terminate on the date one year following the date of the optionee's
death (but not later than its specified expiration date).
Article 11 - Assignability
- --------------------------
Except to the extent otherwise set forth in the applicable option agreement
or other instrument evidencing the option, no option shall be assignable or
transferable by the optionee except by will or by the laws of descent and
distribution, and during the lifetime of the optionee each option shall be
exercisable only by him.
Article 12 - Terms and Conditions of Options
- --------------------------------------------
Options shall be evidenced by instruments (which need not be identical) in
such forms as the Committee may from time to time approve. Such instruments
shall conform to the terms and conditions set forth in Article 6 through 11 and
may contain such other provisions not inconsistent with the Plan, including
restrictions on transfer, stock repurchase restrictions, forfeiture
restrictions, cancellation restrictions and other restrictions applicable to
shares of Common Stock issuable upon exercise of options granted under the Plan,
as the Committee deems advisable provided such provisions would not cause any
incentive stock option to fail to qualify as an incentive stock option under
Section 422 of the Code. Common Stock issuable upon the exercise of options
granted to persons subject to Section 16 of the Securities Exchange Act of 1934
(the "1934 Act") may not be disposed of within six months following date of
grant of such options. Options granted to persons subject to Section 16 of the
1934 Act may contain additional restrictions necessary to comply with Rule 16b-3
promulgated pursuant to the 1934 Act. The Company shall not be obligated to
deliver any shares unless and until, in the opinion of the Company's counsel,
all applicable Federal and state laws and regulations have been complied with,
nor, in the event the outstanding Common Stock is at the time listed upon any
stock exchange, unless and until the shares to be delivered have been listed, or
authorized to be added to the list upon official notice of issuance, upon such
exchange, nor unless and until all other legal matters in connection with the
issuance and delivery of shares have been approved by the Company's counsel.
Without limiting the generality of the foregoing, the Company may require from
the optionee such investment representation or such agreement, if any, as
counsel for the Company may consider necessary in order to comply with the
Securities Act of 1933. The Company shall use its best efforts to effect any
such compliance and listing, and the optionee shall take any action reasonably
requested by the Company in this regard.
Options may be granted hereunder (the "CMG Options") in tandem with options
granted under a subsidiary's or Affiliate's stock option plan (the
"Subsidiary/Affiliate Options") with the condition that to the extent that a
tandem Subsidiary/Affiliate Option is exercised the corresponding tandem CMG
Option (or corresponding installment or portion thereof) shall be automatically
cancelled and to the extent that a tandem CMG Option is exercised the
-5-
<PAGE>
corresponding tandem Subsidiary/Affiliate Option (or corresponding installment
or portion thereof) shall be automatically cancelled.
Article 13 - Adjustments
- ------------------------
Upon the happening of the following described events, an optionee's rights
under options granted hereunder shall be adjusted as hereinafter provided:
A. In the event shares of Common Stock of the Company shall be subdivided
or combined into a greater or smaller number of shares or if, upon a
merger, consolidation, reorganization, split-up, liquidation,
combination, recapitalization or the like of the Company, the shares
of the Company's Common Stock shall be exchanged for other securities
of the Company or of another corporation, each optionee shall be
entitled, subject to the conditions herein stated and to the terms and
conditions of each individual option, to purchase such number of
shares of Common Stock or amount of other securities of the Company or
such other corporation as were exchangeable for the number of shares
of Common Stock of the Company which such optionee would have been
entitled to purchase except for such action, and appropriate
adjustments shall be made in the purchase price per share to reflect
such subdivision, combination, or exchange; and
B. In the event the Company shall issue any of its shares as a stock
dividend upon or with respect to the shares of stock of the class
which shall at the time be subject to option hereunder, each optionee
upon exercising such an option shall be entitled to receive (for the
purchase price paid upon such exercise) the shares as to which he is
exercising his option and, in addition thereto (at no additional
cost), such number of shares of the class or classes in which such
stock dividend or stock dividends were declared or paid, and such
amount of cash in lieu of fractional shares, as he would have received
if he had been the holder of the shares as to which he is exercising
his option at all times between the date of the granting of such
option and the date of its exercise.
Upon the happening of any of the foregoing events, the class and aggregate
number of shares set forth in Article 4 hereof which are reserved for issuance
pursuant to the Plan or are subject to options which have heretofore been or may
hereafter be granted under the Plan shall also be appropriately adjusted to
reflect the events specified in paragraphs A and B above.
The Committee shall determine the adjustments to be made under this Article
13, and its determination shall be conclusive and binding on all interested
parties.
Article 14 - Exercise of Options
- --------------------------------
An option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal office address, identifying the
option being exercised, specifying the number of shares as to which such option
is being exercised and accompanied by full
-6-
<PAGE>
payment of the purchase price therefor either (1) in United States Dollars, in
cash or by certified or bank check, or (2) with the approval of the Committee
(which it may grant or withhold in its sole discretion), in shares of Common
Stock of the Company owned by the optionee having a fair market value (as
defined in Article 6 and determined on the business day immediately preceding
the day on which the option is exercised) equal to, or a fraction of a shares
less than, such purchase price (together with cash or certified or bank check
equal in value to such fraction of a share), or (3) in a combination of such
Common Stock (with the approval of the Committee) and cash or check. Unless the
Committee otherwise determines the holder of an option shall have no rights of a
shareholder with respect to the shares covered by his option until the date of
issuance of a stock certificate to him for such shares. Unless the Committee
otherwise determines no adjustment will be made for cash dividends or similar
rights for which the record date occurs after the exercise of the option but
prior to the date such stock certificate is issued. In no case may a fraction
of a share be purchased or issued under the Plan.
Article 15 - Termination and Amendments to Plan
- -----------------------------------------------
The Plan was adopted by the Board on May 2, 1986; and became effective on
that date subject to approval by the holders of a majority of the outstanding
shares of voting stock of the Company, which occurred on May 12, 1986. The Plan
as originally adopted expired on May 1, 1996 (except as to options outstanding
on that date). The Plan was extended to December 6, 2004, by the Board of
Directors of the Company on July 29, 1994, subject to approval by the
stockholders at the Annual Meeting of Stockholders of the Company to be held on
December 6, 1994. Subject to such approval, the Plan shall expire on December
6, 2004 (except as to options outstanding on that date). Options may be granted
under the Plan prior to the date of shareholder approval of the Plan (or
approval of the extension of the Plan), but such options shall be granted
subject to such approval. The Board may terminate or amend the Plan in any
respect at any time, except that, without the approval of the shareholders (a)
the total number of shares that may be issued under the Plan may not be
increased (except by adjustment pursuant to Article 13); (b) the provisions of
Article 3, regarding eligibility, may not be modified; (c) the provisions of
Article 6, regarding the exercise price at which shares may be offered pursuant
to options, may not be modified (except by adjustment pursuant to Article 13);
(d) the expiration date of the Plan may not be extended; and (e) the benefits
accruing to participants under the Plan may not be materially increased. No
action of the Board or shareholders, however, may, without the consent of an
optionee, substantially impair his rights under any option previously granted to
him; and no amendment may cause any incentive stock options previously granted
or to be granted under the Plan to cease to qualify as incentive stock options
in accordance with the terms and conditions of the Plan.
Article 16 - Governmental Regulation
- ------------------------------------
The Plan and the grant and exercise of options thereunder, and the
Company's obligation to sell and deliver shares of the Company's Common Stock
under such options, shall be subject to all applicable laws (including tax
laws), rules and regulations.
- 7 -
<PAGE>
Article 17 - Withholding Taxes
- ------------------------------
At any time when an optionee is required to pay to the Company an amount to
be withheld under applicable income tax laws upon the exercise of a non-
qualified stock option, the optionee may satisfy this obligation (to the extent
of the minimum amount required to be withheld) in whole or in part by electing
(the "Election") to have the Company withhold from the distribution of shares of
Common Stock, a number of shares of Common Stock having a value equal to the
amount required to be withheld. The value of the shares to be withheld shall be
based on the fair market value of the Common Stock on the Tax Date. Any
fractional share amount left over after satisfying the withholding requirement
must be paid to the optionee in cash. "Tax Date" means the date on which the
amount of tax to be withheld with respect to the exercise of the non-qualified
stock option is determined.
Each such election must be made prior to the Tax Date. The Committee may
disapprove the Election, may suspend or terminate the right to make an Election,
or may provide with respect to any non-qualified option that right to make an
Election shall not apply to such option. An Election is irrevocable.
- 8 -
<PAGE>
Exhibit 10.3
CMG INFORMATION SERVICES, INC.
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Adopted by the Directors on May 31, 1995
----------------------------------------
Approved by the Stockholders on December 6, 1995
------------------------------------------------
1. Purpose
-------
The purpose of the CMG Information 1995 Stock Option Plan for Non-Employee
Directors (the "Plan") is to attract and retain the services of experienced and
knowledgeable Directors of CMG Information Services, Inc. (the "Corporation")
for the benefit of the Corporation and its stockholders and to provide
additional incentives for such Directors to continue to work for the best
interests of the Corporation and its stockholders through continuing ownership
of its Common Stock.
2. Shares Subject to the Plan
--------------------------
The total number of shares of Common Stock, par value $.01 per share
("Shares"), of the Corporation which may be issued pursuant to options granted
under the Plan shall not exceed 141,000 in the aggregate, subject to adjustment
in accordance with Section 10 hereof. Shares for which options have been
granted pursuant to the Plan, but which options have lapsed or otherwise
terminated or been canceled to any extent prior to full exercise, shall become
available for additional options granted under the Plan. One Hundred Forty-one
Thousand (141,000) Shares are hereby reserved for issuance upon the exercise of
options granted under the Plan.
<PAGE>
3. Administration of Plan
----------------------
The Plan shall be administered by the Board of Directors. A majority of
the Directors acting upon a particular matter shall have no direct personal
interest in the option or matter with which they are concerned. The Board of
Directors shall appoint a person (the "Plan Administrator") to keep records of
all elections of Directors and the grant, vesting and exercise of all options,
and the sale or other disposition of all Shares acquired pursuant to such
exercise.
The Board of Directors shall have no authority, discretion or power (i) to
select the participants who will receive options (except to the extent that the
Board initially elects a Director to the Board), or (ii) to set the number of
Shares to be covered by each option, or (iii) to set the exercise price or the
vesting schedule or the period within which options may be exercised, or (iv) to
alter any other terms or conditions specified herein, except in the sense of
administering the Plan subject to the express provisions of the Plan and except
in accordance with Section 15. Subject to the foregoing limitations, the Board
of Directors may (i) construe the respective stock option grants and the Plan
and make all other determinations necessary or advisable for administering the
Plan, (ii) correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any stock option grant in the manner and to the
extent that the Board shall deem expedient to carry it into effect, and (iii)
constitute and appoint a person or persons selected by them to execute and
deliver in the name and on behalf of the Corporation all such grants,
agreements, instruments and other documents. It is the intent of this Plan that
it operate in all events subject to approval of the Plan by the stockholders of
the Corporation and that the granting and vesting of such options be automatic
in accordance with the terms of this Plan for each non-employee Director,
subject to the authority, discretion or power of the stockholders to fail to
elect an optionee to
- 2 -
<PAGE>
the Board of Directors of the Corporation, or to remove an optionee from the
Board of Directors of the Corporation, or to amend or terminate this Plan.
4. Eligibility; Grant of Options
-----------------------------
A. Directors Serving Continuously for at Least Five Years on the Date of
---------------------------------------------------------------------
Adoption of the Plan by the Board of Directors
----------------------------------------------
Each Director of the Corporation who (i) is a Director of the Corporation
when the Plan is first adopted by the Board of Directors; (ii) has
completed at least five years of continuous service on the Board of
Directors; (iii) is not otherwise an employee of the Corporation or any of
its subsidiaries or affiliates; and (iv) is not an affiliate, as such term
is defined under Rule 144(a)(1) as promulgated under the Securities Act of
1933 as now in force or hereafter amended, of an institutional investor
which owns shares of Common Stock of the Corporation (an "Affiliated
Director"), shall be granted an option on the date the Plan is adopted by
the Board of Directors to acquire 23,500 Shares under the Plan, contingent
upon approval of the Plan by the stockholders at the 1995 Annual Meeting of
Stockholders.
B. Directors First Elected After the Date of Adoption of the Plan by the Board
---------------------------------------------------------------------------
of Directors or After Stockholder Approval
------------------------------------------
Each director of the Corporation who (i) is elected a Director of the
Corporation for the first time either by the Board of Directors or by the
stockholders, after the Plan is first adopted by the Board of Directors or
approved by the stockholders; (ii) is not otherwise an employee of the
Corporation or any of its subsidiaries or affiliates, and (iii) is not an
Affiliated Director, shall be granted an option on the date of such initial
- 3 -
<PAGE>
election to the Board of Directors, to acquire 23,500 Shares under the
Plan, contingent upon approval of the Plan by the stockholders at the 1995
Annual Meeting of Stockholders.
C. Affiliated Directors Who Cease to be Affiliated Directors
---------------------------------------------------------
Each Director of the Corporation who (i) is not otherwise an employee of
the Corporation or any of its subsidiaries or affiliates; and (ii) is an
Affiliated Director who ceases to be an Affiliated Director, shall be
granted an option on the date such Director ceases to be an Affiliated
Director, to acquire 23,500 shares under the Plan.
5. Option Grant
------------
Each option granted under the Plan shall be a Non-Qualified Stock Option
and shall be evidenced by a Grant of Option duly executed on behalf of the
Corporation which options may but need not be identical and shall comply with
and be subject to the terms and conditions of the Plan.
6. Option Exercise Price
---------------------
The option exercise price for an option granted under the Plan shall be the
fair market value of the Shares covered by the option at the time the option is
granted. Fair market value shall be the last reported sales price per share of
the Corporation's Common Stock on the date the option is granted as reported in
the over-the-counter market or, if not so quoted, on the principal national
securities exchange on which the Common Stock is then listed. The option
exercise price shall be subject to adjustment in accordance with Section 10
hereof.
- 4 -
<PAGE>
7. Time and Manner of Exercise of Options
--------------------------------------
Options granted under the Plan shall become exercisable in five cumulative
20% installments of 4,700 Shares each, the first installment becoming
exercisable immediately after the first Annual Meeting of Stockholders (i)
following the date of grant or (ii) commensurate with the date of grant if the
optionee first becomes a Director by vote of the stockholders at an Annual
Meeting of Stockholders (assuming in all instances approval of the Plan by the
stockholders), and each further 20% installment of 4,700 Shares each becoming
exercisable one at a time immediately after each Annual Meeting of Stockholders
thereafter, provided such optionee continues in office as a Director at such
time, and provided, however, that no option shall be exercisable after ten years
from the date on which it was granted. Options granted hereunder and Common
Stock issuable upon the exercise of options may not be disposed of within six
months following the later of the date of grant or date of approval of the Plan
by the stockholders.
To the extent that the right to exercise an option has accrued and is in
effect, the option may be exercised in full at one time or in part from time to
time, by giving written notice, signed by the person or persons exercising the
option, to the Corporation, stating the number of Shares with respect to which
the option is being exercised, accompanied by payment in full for such Shares.
Payment shall be in whole or in part (i) by shares of Common Stock of the
Corporation already owned for a period of at least six months by the person
exercising the option, valued at fair market value as defined above on the
business day immediately prior to the date of exercise, or (ii) by check, or
both.
- 5 -
<PAGE>
8. Term of Options
---------------
Each option shall expire ten years from the date of the granting thereof,
but shall be subject to earlier termination as herein provided.
In the event that an optionee ceases to be a Director of the Corporation
for any reason whatsoever, the option granted to such optionee may be exercised
by him (but only to the extent that under Section 7 the right to exercise the
option has accrued and is in effect on the date he ceases to be a Director), at
any time prior to the date six months (12 months if the optionee dies while a
Director), after the date such optionee ceases to be a Director of the
Corporation, or prior to the date on which the option expires, whichever is
earlier.
9. Options Not Transferable
------------------------
Except to the extent otherwise set forth in the applicable option agreement
evidencing the option, the right of an optionee to exercise an option granted to
him under the Plan and any interest therein or in the Shares received upon
exercise shall not be assignable or transferable by such optionee in any respect
otherwise than by will or the laws of descent and distribution, and any such
option shall be exercisable during the lifetime of such optionee only by him.
Any option granted under the Plan shall become null and void and shall be
without further force or effect upon the bankruptcy of the optionee, or upon any
attempted assignment or transfer of such option or any interest therein (except
as provided in the preceding sentence), including, without limitation, any
purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, attachment, trustee process or similar
process, whether legal or equitable with respect to such option or any interest
therein.
- 6 -
<PAGE>
10. Adjustments Upon Changes in Capitalization
------------------------------------------
In the event that the outstanding shares of the Common Stock of the
Corporation are changed into or exchanged for a different number or kind of
shares or other securities of the Corporation or of another corporation by
reason of any reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares or dividends payable in
capital stock, appropriate adjustment shall be made in the number and kind of
shares as to which outstanding options, or portions thereof then unexercised
shall be exercisable, to the end that the proportionate interest of the optionee
shall be maintained as before the occurrence of such event; such adjustment in
outstanding options shall be made without change in the total price applicable
to the unexercised portion of such options and with a corresponding adjustment
in the option price per share.
11. Restrictions on Issuance of Shares
----------------------------------
The Corporation may delay the issuance of Shares covered by the exercise of
any option and the delivery of a certificate for such Shares until one of the
following conditions shall be satisfied:
(i) the Shares with respect to which an option has been exercised are
at the time of the issuance of such Shares effectively registered under
applicable federal and state securities laws now in force or hereafter
amended; or
(ii) counsel for the Corporation shall have given an opinion, which
opinion shall not be unreasonably conditioned or withheld, that such Shares
are exempt from registration under applicable federal and state securities
laws now in force or hereafter amended.
- 7 -
<PAGE>
The Corporation shall use its best efforts to bring about compliance with
the above conditions within a reasonable time following exercise, except that
the Corporation shall be under no obligation to cause a registration statement
or a post effective amendment to any registration statement to be prepared at
its expense solely for the purpose of covering the issuance of Shares in respect
of which any option may be exercised.
12. Purchase for Investment: Rights of Holder on Subsequent Registration
---------------------------------------------------------------------
Unless the Shares to be issued upon exercise of an option granted under the
Plan have been effectively registered under the Securities Act of 1933 as now in
force or hereafter amended, the Corporation shall be under no obligation to
issue any Shares covered by any option unless the person who exercises such
option, in whole or in part, shall give a written representation and undertaking
to the Corporation which is satisfactory in form and scope to counsel to the
Corporation and upon which, in the opinion of such counsel, the Corporation may
reasonably rely, that he is acquiring the Shares issued to him pursuant to such
exercise of the option for his own account as an investment and not with a view
to, or for sale in connection with, the distribution of any such Shares, and
that he will make no transfer of the same except in compliance with any rules
and regulations in force at the time of such transfer under the Securities Act
of 1933, as amended, or any other applicable law, and that if Shares are issued
without such registration a legend to this effect may be endorsed upon the
securities so issued.
13. Effective Date
--------------
This Plan was effective on May 31, 1995.
- 8 -
<PAGE>
14. Expenses of the Plan
--------------------
All costs and expenses of the adoption and administration of the Plan shall
be borne by the Corporation, and none of such expenses shall be charged to any
optionee.
15. Termination and Amendment of Plan
---------------------------------
Unless sooner terminated as herein provided, or extended with the approval
of the stockholders of the Corporation, the Plan shall terminate on May 31,
2005, except as to options granted prior to that date. The Board of Directors
may at any time terminate the Plan or make such modifications or amendments
thereto as it deems advisable; provided, however, that except as provided in
Section 10 the Board of Directors may not, without the approval of the
stockholders of the Corporation, (i) increase materially the benefits accruing
to participants hereunder, (ii) increase the maximum aggregate number of shares
for which options may be granted under the Plan or the number of shares for
which an option may be granted to any optionee, (iii) modify the provisions of
Section 4 regarding eligibility, (iv) extend the expiration date of the Plan, or
(v) modify the provisions of Section 6 regarding the exercise price.
Termination of any modification or amendment of the Plan shall not, without the
consent of an optionee, materially adversely affect his rights under an option
previously granted to him.
A true Copy.
ATTEST:
Date: December 6, 1995 /s/ William Williams II
----------------------------------------
William Williams II, Assistant Secretary
- 9 -
<PAGE>
EXHIBIT 11
CMG INFORMATION SERVICES, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended October 31,
--------------------------------------
1997 1996
------------------ ------------------
Primary:
- --------
<S> <C> <C>
Net income (loss) $ 2,685 $(7,397)
Net effect of income attributable to subsidiary stock options (237) --
------- -------
Net income (loss) $ 2,448 $(7,397)
======= =======
Weighted average common and common equivalent shares outstanding:
Shares outstanding at the beginning of the period 9,660 9,167
Weighted average shares issued during the period 19 4
Weighted average treasury stock acquired during the period -- (4)
Weighted average common stock equivalents 637 --
------- -------
Weighted average common and common equivalent shares outstanding 10,316 9,167
======= =======
Primary net income (loss) per share $0.24 $(0.81)
======= =======
Fully Diluted:
- --------------
Net income (loss) $ 2,685 $(7,397)
Net effect of income attributable to subsidiary stock options (237) --
------- -------
Net income (loss) $ 2,448 $(7,397)
======= =======
Weighted average common and common equivalent shares outstanding:
Shares outstanding at the beginning of the period 9,660 9,167
Weighted average shares issued during the period 19 4
Weighted average treasury stock acquired during the period -- (4)
Weighted average common stock equivalents 641 --
------- -------
Weighted average common and common equivalent shares outstanding 10,320 9,167
======= =======
Fully diluted net income (loss) per share $0.24 $(0.81)
======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS OF CMG INFORMATION SERVICES, INC. FOR THE
QUARTER ENDED OCTOBER 31, 1996, AS SET FORTH IN ITS FORM 10-Q FOR SUCH QUARTER
AND FOR THE QUARTER ENDED OCTOBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-31-1996<F1>
<CASH> 53,689
<SECURITIES> 7,630
<RECEIVABLES> 15,041
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 81,610
<PP&E> 10,101
<DEPRECIATION> 0
<TOTAL-ASSETS> 119,258
<CURRENT-LIABILITIES> 27,391
<BONDS> 0
0
0
<COMMON> 92
<OTHER-SE> 45,804
<TOTAL-LIABILITY-AND-EQUITY> 119,258
<SALES> 10,640
<TOTAL-REVENUES> 10,640
<CGS> 5,366
<TOTAL-COSTS> 5,366
<OTHER-EXPENSES> 19,723
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> (8,495)
<INCOME-TAX> (1,098)
<INCOME-CONTINUING> (7,397)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,397)
<EPS-PRIMARY> (0.81)
<EPS-DILUTED> (0.81)
<FN>
<F1>RESTATEMENT REFLECTED HEREIN IS THE RESULT OF RECLASSIFICATION TO PRIOR
PERIOD'S FINANCIAL STATEMENTS TO CONFORM TO THE CURRENT PERIOD PRESENTATION.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF CMG
INFORMATION SERVICES, INC. FOR THE QUARTER ENDED OCTOBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 57,246
<SECURITIES> 1,200
<RECEIVABLES> 21,383
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 103,111
<PP&E> 11,193
<DEPRECIATION> 0
<TOTAL-ASSETS> 146,763
<CURRENT-LIABILITIES> 65,410
<BONDS> 0
0
0
<COMMON> 97
<OTHER-SE> 31,919
<TOTAL-LIABILITY-AND-EQUITY> 146,763
<SALES> 25,135
<TOTAL-REVENUES> 25,135
<CGS> 15,259
<TOTAL-COSTS> 15,259
<OTHER-EXPENSES> 22,115
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 770
<INCOME-PRETAX> 5,118
<INCOME-TAX> 2,433
<INCOME-CONTINUING> 2,685
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,685
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
