<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, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-23262
CMGI, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2921333
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 BRICKSTONE SQUARE 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 10, 1999
Common Stock, par value $0.01 per share 122,970,601
---------------------------------------- -----------
Class Number of shares outstanding
<PAGE>
CMGI, 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, 1999 and July 31, 1999 3
Consolidated Statements of Operations
Three months ended October 31, 1999 and 1998 4
Consolidated Statements of Cash Flows
Three months ended October 31, 1999 and 1998 5
Notes to Interim Consolidated Financial Statements 6-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 22-23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURE 25
</TABLE>
Page 2
<PAGE>
CMGI, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(in thousands, except share and per share amounts) October 31, July 31,
------------ ------------
1999 1999
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 705,001 $ 468,912
Available-for-sale securities 1,776,641 1,532,327
Accounts receivable, trade, less allowance for doubtful accounts 98,418 41,794
Inventories 17,650 8,367
Prepaid expenses and other current assets 29,064 5,934
---------- ----------
Total current assets 2,626,774 2,057,334
---------- ----------
Property and equipment, net 99,335 24,832
Investments in affiliates 65,524 44,623
Goodwill and other intangible assets, net of accumulated amortization 2,512,031 149,703
Other assets 128,018 128,102
---------- ----------
$5,431,682 $2,404,594
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 20,000 $ 20,000
Current installments of long-term debt 16,485 5,258
Accounts payable and accrued expenses 200,635 74,371
Accrued income taxes 37,057 11,777
Deferred income taxes 587,029 508,348
Deferred revenues 22,900 6,726
Other current liabilities 61,030 49,849
---------- ----------
Total current liabilities 945,136 676,329
---------- ----------
Long-term debt, less current installments 234,163 15,060
Long-term deferred revenues 1,468 1,509
Deferred income taxes 15,244 35,140
Other long-term liabilities 29,165 18,298
Minority interest 353,100 184,514
Commitments and contingencies
Preferred stock, $0.01 par value. Authorized 5,000,000 shares; issued 35,000 shares Series B
convertible, redeemable preferred stock at October 31, 1999, conversion premium at 4% per annum
and issued 375,000 Series C convertible, redeemable preferred stock at October 31, 1999, dividend
at 2% per annum; both carried at liquidation value 413,511 411,283
Stockholders' equity:
Common stock, $0.01 par value per share. Authorized 400,000,000 shares; issued and outstanding
118,666,917 shares at October 31, 1999 and 95,584,140 shares at July 31, 1999 1,187 956
Additional paid-in capital 2,513,652 235,229
Deferred compensation (32,925) (180)
Retained earnings 395,755 518,102
---------- ----------
2,877,669 754,107
Accumulated other comprehensive income 562,226 308,354
---------- ----------
Total stockholders' equity 3,439,895 1,062,461
---------- ----------
$5,431,682 $2,404,594
========== ==========
</TABLE>
see accompanying notes to consolidated financial statements
Page 3
<PAGE>
CMGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
Three months ended October 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net revenues $ 123,731 $ 37,405
Operating expenses:
Cost of revenues 108,173 35,543
Research and development 20,188 5,308
Selling 72,501 8,224
General and administrative 27,357 6,349
Amortization of intangible assets and stock-based compensation 170,039 2,109
--------- --------
Total operating expenses 398,258 57,533
--------- --------
Operating loss (274,527) (20,128)
--------- --------
Other income (deductions):
Interest income 5,871 559
Interest expense (5,700) (1,068)
Gain on issuance of stock by subsidiaries and affiliates 46,368 44,506
Other gains, net 48,349 44,094
Equity in losses of affiliates (1,796) (3,359)
Minority interest 23,288 101
--------- --------
116,380 84,833
--------- --------
Income (loss) from continuing operations before income taxes (158,147) 64,705
Income tax expense (benefit) (40,735) 26,316
--------- --------
Income (loss) from continuing operations (117,412) 38,389
Discontinued operations, net of income taxes:
Loss from operations of lists and database services segment -- (131)
--------- --------
Net income (loss) (117,412) 38,258
Preferred stock accretion and amortization of discount (4,935) --
--------- --------
Net income (loss) available to common stockholders $(122,347) $ 38,258
========= ========
Basic earnings per share:
Income (loss) from continuing operations available to common stockholders $(1.08) $0.42
Loss from discontinued operations of lists and database services segment -- --
--------- --------
Net income (loss) available to common stockholders $(1.08) $0.42
========= ========
Diluted earnings per share:
Income (loss) from continuing operations available to common stockholders $(1.08) $0.38
Loss from discontinued operations of lists and database services segment -- --
--------- --------
Net income (loss) available to common stockholders $(1.08) $0.38
========= ========
Weighted average shares outstanding:
Basic 113,186 92,164
========= ========
Diluted 113,186 99,864
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 4
<PAGE>
CMGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
(in thousands) Three months ended October 31,
--------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $(117,412) $ 38,389
Adjustments to reconcile income (loss) from continuing operations to
net cash used for continuing operations:
Depreciation and amortization 175,430 2,809
Deferred income taxes (118,918) 29,196
Non-operating gains, net (94,717) (88,600)
Equity in losses of affiliates 1,796 3,359
Minority interest (23,288) (101)
Changes in operating assets and liabilities, excluding effects of
acquired companies:
Trade accounts receivable (18,821) (4,871)
Inventories (2,454) (1,297)
Prepaid expenses (10,953) 68
Accounts payable and accrued expenses 16,254 7,764
Deferred revenues 7,316 5,360
Refundable and accrued income taxes, net 25,280 (12,075)
Tax benefit from exercise of stock options 48,802 558
Other assets and liabilities (5,218) (167)
--------- --------
Net cash used for operating activities of continuing operations (116,903) (19,608)
Net cash used for operating activities of discontinued operations -- (617)
--------- --------
Net cash used for operating activities (116,903) (20,225)
--------- --------
Cash flows from investing activities:
Additions to property and equipment- continuing operations (23,185) (2,177)
Additions to property and equipment- discontinued operations -- (5)
Purchase of available-for-sale securities (6,500) (31,123)
Proceeds from sale of Yahoo!, Inc. common stock 291,069 --
Proceeds from sale of Lycos, Inc. common stock -- 2,520
Investments in affiliates (11,129) (4,827)
Net cash acquired through acquisitions of subsidiaries 23,425 --
Other -- 1,793
--------- --------
Net cash provided by (used for) investing activities 273,680 (33,819)
--------- --------
Cash flows from financing activities:
Net repayments of notes payable -- (2,856)
Repayments of long-term debt (887) --
Net proceeds from issuance of common stock 5,569 261
Net proceeds from issuance of stock by subsidiaries 69,567 1,945
Other 5,063 (204)
--------- --------
Net cash provided by (used for) financing activities 79,312 (854)
--------- --------
Net increase (decrease) in cash and cash equivalents 236,089 (54,898)
Cash and cash equivalents at beginning of period 468,912 61,537
--------- --------
Cash and cash equivalents at end of period $ 705,001 $ 6,639
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 5
<PAGE>
CMGI, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by CMGI,
Inc. ("CMGI" or "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, 1999 which
are contained in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission ("the SEC") on October 29, 1999. The results
for the three months ended October 31, 1999 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. OTHER GAINS, NET
In October 1999, the Company sold 1,640,000 shares of Yahoo! common stock on the
open market. As a result of the sale, the Company received proceeds of $291.1
million, and recognized a pre-tax gain of $48.3 million. In August 1998, the
Company's subsidiary, CMG@Ventures II, LLC (CMG@Ventures II) converted its
holdings in Sage Enterprises, Inc. (Sage Enterprises) into shares of Amazon.com,
Inc. (Amazon.com) common stock as part of a merger wherein Amazon.com acquired
Sage Enterprises. The Company recorded a pre-tax gain of $19,057,000 on the
conversion of its investment in Sage Enterprises during the fiscal quarter ended
October 31, 1998. Such gain was recorded net of the 20% interest attributable
to CMG@Ventures II's profit members. In October 1998, CMG@Ventures II's holdings
in Reel.com, Inc. (Reel.com) were converted into shares of Hollywood
Entertainment Corporation (Hollywood Entertainment) as part of a merger wherein
Hollywood Entertainment acquired Reel.com. The Company recorded a pre-tax gain
of $23,158,000 on the conversion of its investment in Reel.com during the fiscal
quarter ended October 31, 1998. The gain was reported net of the 20% interest
attributable to CMG@Ventures II's profit members.
C. GAIN ON STOCK ISSUANCES BY SUBSIDIARIES AND AFFILIATES
In October 1999, the Company's affiliate, NaviSite, commenced its initial public
offering of common stock, issuing approximately 5.5 million shares at a price of
$14.00 per share, which raised $69.6 million in net proceeds during the first
fiscal quarter for NaviSite. As a result of the initial public offering, the
Company's ownership interest in NaviSite was reduced from approximately 89.6% to
approximately 71.8%. The Company recorded a pre-tax gain of $46.4 million
during the first quarter of fiscal year 2000 as a result of the initial public
offering. The pre-tax gain represents the increase in the book value of the
Company's net equity in NaviSite as a result of NaviSite's stock issuance.
In August 1998, the Company's affiliate, GeoCities, completed its initial
public offering of common stock, issuing approximately 5.5 million shares at a
price of $17.00 per share, which raised $84.5 million in net proceeds for
GeoCities. The Company recorded a pre-tax gain of $24,132,000 on the issuance
of stock by GeoCities during the fiscal quarter ended October 31, 1998,
representing the increase in the book value of the Company's net equity in
GeoCities, primarily as a result of the initial public offering. The Company
also recorded a pre-tax gain of $20,374,000 in the first quarter of fiscal 1999
resulting from the issuance of stock by Lycos. The gain for the quarter was
primarily related to the issuance of 4.1 million shares by Lycos during August
1998 in its acquisition of WhoWhere? Inc., net of the impact of an in-process
research and development charge recorded by Lycos related to the acquisition.
Page 6
<PAGE>
CMGI, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
D. ACQUISITIONS AND INVESTMENTS
In August 1999, CMGI completed its acquisition of 81.5% of AltaVista Company
(AltaVista), a web portal that integrates proprietary Internet technology and
services to deliver relevant results for both individuals and Web-based
businesses, for 18,994,975 CMGI common shares valued at approximately $1.816
billion, 18,090.45 shares of the Company's Series D preferred stock, which were
converted into approximately 1,809,045 million shares of CMGI common stock in
October 1999 valued at approximately $173 million, three-year notes totaling
$220 million and the exchange of CMGI and subsidiary stock options for AltaVista
stock options. The AltaVista acquisition included the assets and liabilities
constituting the AltaVista Internet search service and also included former
Compaq subsidiaries Zip2 Corporation and Shopping.com. The shares issued by the
Company in connection with the AltaVista acquisition are not registered under
the Securities Act of 1933 and are subject to restrictions on transferability
for a period of one year from the date of issuance. The total purchase price for
AltaVista was valued at approximately $2.4 billion, including costs of
acquisition of $4 million. The value of the Company's shares included in the
purchase price was recorded net of a weighted average 10% market value discount
to reflect the restrictions on transferability.
During the first quarter of fiscal year 2000, the Company also completed its
acquisitions of Cha! Technologies Services, Inc. (Cha! Technologies), iAtlas,
Inc. (iAtlas) and Signatures SNI, Inc. (Signatures Network) for combined
consideration of approximately $64 million in CMGI stock, convertible notes,
cash and commitments to fund a total of approximately $113 million in operating
capital.
The acquisitions during the first quarter of fiscal 2000 have been accounted for
using the purchase method, and, accordingly, the purchase prices have been
allocated to the assets purchased and liabilities assumed based upon their fair
values at the date of acquisition. Goodwill and other intangibles, totaling $2.2
billion were recorded related to acquisitions, and are being amortized on a
straight-line basis over three years. The acquired companies are included in the
Company's consolidated financial statements from the dates of acquisition.
The purchase price for each of the above acquisitions was allocated as follows:
<TABLE>
<CAPTION>
(in thousands) AltaVista Others Total
------------------ ----------------- -----------------
<S> <C> <C> <C>
Working capital, including cash
(cash overdraft) acquired $ (39,604) $ 8,313 $ (31,291)
Property, plant and equipment 44,460 1,257 45,717
Other assets (liabilities), net 15,786 20,622 36,408
Goodwill 2,199,426 35,331 2,234,963
Developed technology 128,128 -- 128,128
Other identifiable intangible assets 40,575 -- 40,575
---------- ------- ----------
Purchase price $2,388,771 $65,729 $2,454,500
========== ======= ==========
</TABLE>
The above allocation of the AltaVista purchase price, represents the Company's
81.495% interest in the fair values of the acquired underlying assets and
liabilities of AltaVista. The purchase price allocations for each of the
acquisitions which consummated during the first quarter of fiscal year 2000 are
preliminary and are subject to adjustment upon finalization of the purchase
accounting.
On October 29, 1999, CMGI purchased 250,000 shares of Akamai Technologies common
stock at a cost of $26 per share. During the first quarter of fiscal year 2000,
the Company, through its limited liability company subsidiary, CMG@Ventures III,
LLC, acquired initial or follow-on minority ownership interests in eleven
Internet companies for an aggregate total of approximately $10.6 million.
Page 7
<PAGE>
CMGI, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
E. SEGMENT INFORMATION
In 1999, the Company adopted SFAS No. 131, which requires the reporting of
segment information using the "management approach" versus the "industry
approach" previously required. Based on the information provided to the
Company's chief operating decision maker for purposes of making decisions about
allocating resources and assessing performance, the Company's continuing
operations have been classified in two primary business segments, (i) Internet
and (ii) fulfillment services. The Internet segment focuses on strategic
Internet opportunities afforded by the Internet and interactive media markets.
The fulfillment services segment provides product and literature fulfillment and
supply chain management, telemarketing, and outsourced e-business program
management services. During the quarter ended October 31, 1999, one customer
accounted for 24% of the net revenues of the Internet segment. Also included in
Internet segment revenues in the quarter was approximately $12 million recorded
by the Company related to the completion of a large order for the sale of
computer equipment purchased by a subsidiary from Compaq Computer Corporation
(Compaq), an affiliate, and sold to Free PC, a subsidiary investee. Summarized
financial information by business segment for continuing operations is as
follows:
<TABLE>
<CAPTION>
(in thousands) Three months ended October 31,
-----------------------------
1999 1998
---------- ---------
<S> <C> <C>
Net revenues:
Internet $ 85,102 $ 4,912
Fulfillment services 38,629 32,493
---------- ---------
$ 123,731 $ 37,405
========== =========
Operating income (loss):
Internet $ (277,367) $ (20,385)
Fulfillment services 2,840 257
---------- ---------
$ (274,527) $ (20,128)
========== =========
</TABLE>
All of the acquisitions during the first quarter of fiscal year 2000 and the
increase in the value of the available-for-sale securities relate to the
Internet segment and are the primary reasons for the increase in the net assets
of the Company. Other gains, net, minority interest and equity in losses of
affiliates as reported in the Consolidated Statements of Operations for the
quarters ended October 31, 1999 and 1998 relate to the Internet segment. All
intercompany transactions have been eliminated, and intersegment revenues are
not significant.
F. BORROWING ARRANGEMENTS
In conjunction with its acquisition of AltaVista, the Company issued three year
notes totaling $220 million to Compaq and Digital Equipment Corporation
(Digital), a wholly-owned subsidiary of Compaq, due August 18, 2002. Interest on
each note, at a rate of 10.5% per annum, is due and payable semiannually on each
February 18 and August 18 until the note is paid in full. Principal and interest
payments due on the notes are payable, at the option of CMGI, in cash,
marketable securities (as defined in the note) or any combination thereof.
Page 8
<PAGE>
CMGI, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
G. EARNINGS PER SHARE
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". Basic
earnings per share is computed based on the weighted average number of common
shares outstanding during the period. The dilutive effect of common stock
equivalents and convertible preferred stock is included in the calculation of
diluted earnings per share only when the effect of their inclusion would be
dilutive. The effect of convertible preferred stock using the "if-converted"
method and the dilutive effect of common stock equivalents were anti-dilutive
for the three month period ended October 31, 1999 and, therefore, have been
excluded from the calculation of diluted earnings per share.
If a subsidiary has dilutive stock options or warrants outstanding, diluted
earnings per share is computed by first deducting from income (loss) from
continuing operations, the income attributable to the potential exercise of the
dilutive stock options or warrants of the subsidiary. The effect of income
attributable to dilutive subsidiary stock equivalents was immaterial for the
three months ended October 31, 1999 and 1998.
The reconciliation of the denominators of the basic and diluted earnings (loss)
per share computations for the Company's reported net income (loss) is as
follows:
<TABLE>
<CAPTION>
Three months ended October 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Weighted average number of common shares outstanding - basic 113,186 92,164
Weighted average number of dilutive common stock equivalents -- 7,700
outstanding ----------------- ----------------
Shares used in computing diluted earnings (loss) per share 113,186 99,864
================= ================
</TABLE>
H. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, are as follows:
<TABLE>
<CAPTION>
Three months ended October 31,
--------------------------------------
(in thousands) 1999 1998
------------------ ------------------
<S> <C> <C>
Net income (loss) $(117,412) $38,258
Net unrealized holding gain (loss) arising during period 282,313 (89)
Less: reclassification adjustment for gain realized in net income (loss) (28,441) --
--------- -------
Comprehensive income (loss) $ 136,460 $38,169
========= =======
</TABLE>
Page 9
<PAGE>
CMGI, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
I. CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
(in thousands) Three months ended October 31,
------------------------------
1999 1998
---------- -----------
<S> <C> <C>
Cash paid during the period for:
Interest $ 947 $ 868
====== ======
Income taxes $2,962 $8,567
====== ======
</TABLE>
Substantially all of the consideration for acquisitions of businesses by the
Company, or its subsidiaries, during fiscal 2000 included the issuance of shares
of the Company's and the issuance of seller's notes.
J. AVAILABLE-FOR-SALE SECURITIES
At October 31, 1999, available-for-sale securities consist of common stock
investments, carried at fair value and based on quoted market prices, net of a
market value discount to reflect any remaining restrictions on transferability.
Available-for-sale securities at October 31, 1999 primarily consisted of
approximately: 3.0 million shares of Yahoo! Inc. valued at $535 million, 13.0
million shares of Lycos Inc. valued at $693 million, 2.8 million shares of
Silknet Software, Inc. (Silknet) valued at $220 million, 4.7 million shares of
Hollywood Entertainment valued at $67 million, 2.7 million shares of Chemdex
Corporation (Chemdex) valued at $100 million, 1.6 million shares of Critical
Path, Inc. (Critical Path) valued at $75 million and 250,000 shares of Akamai
Technologies, Inc. (Akamai) valued at $36 million. Shares of publicly traded
companies held by CMG@Ventures I and II which have been allocated to
CMG@Ventures I's and II's profit members have been classified in other non-
current assets in the accompanying Consolidated Balance Sheet and valued at
carrying value as of the date of allocation. Certain shares included in
available-for-sale securities at October 31, 1999 may be required to be
allocated to CMG@Ventures I's and II's profit members in the future. A net
unrealized holding gain of $562 million, net of deferred income taxes of $394
million, has been reflected in the equity section of the consolidated balance
sheet based on the change in market value of the available-for-sale securities
from dates of acquisition to October 31, 1999.
Page 10
<PAGE>
CMGI, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
K. NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC"), issued Statement of
Position (SOP) 98-1, "Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use". SOP 98-1 requires the capitalization of various
internal costs related to the implementation of computer software obtained for
internal use. The Company has adopted this standard in the first quarter of
fiscal year 2000. The adoption of SOP 98-1 did not have a material impact on its
financial position or its results of operations.
In April 1998, AcSEC issued SOP 98-5, "Reporting Costs of Start-Up Activities".
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
Start-up activities are broadly defined as those one-time activities related to
opening a new facility, introducing a new product or service, conducting
business in a new territory, conducting business with a new class of customer,
commencing some new operation or organizing a new entity. SOP 98-5 is effective
for the Company's fiscal 2000 financial statements. The adoption did not have a
material impact on its financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. SFAS 133
requires the recognition of all derivatives as either assets or liabilities in
the statement of financial position and the measurement of those instruments at
fair value. The Company is required to adopt this standard in the first quarter
of fiscal year 2001 pursuant to SFAS No. 137 (issued in June 1999), which delays
the adoption of SFAS 133 until that time. The Company expects that the adoption
of SFAS 133 will not have a material impact on the its financial position or its
results of operations.
In November 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 100, "Restructuring and Impairment Charges." In
December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 100 expresses the views of the SEC staff regarding the
accounting for and disclosure of certain expenses not commonly reported in
connection with exit activities and business combinations. This includes the
accrual of exit and employee termination costs and the recognition of impairment
charges. SAB No. 101 expresses the views of the SEC staff in applying generally
accepted accounting principles to certain revenue recognition issues. Although
the Company is still in the process of analyzing the impact of SAB No. 100 and
SAB No. 101, if any, the Company expects that there will be no material impact
on its financial position or its results of operations.
L. PENDING ACQUISITIONS
On September 20, 1999, CMGI announced that it had signed a definitive agreement
to acquire AdForce, Inc. (Nasdaq: ADFC), a provider of products and services
that allow advertisers and publishers to target, deliver, measure and analize
Internet advertising programs, in a stock-for-stock merger valued at
approximately $500 million. Under the terms of the agreement, CMGI will issue
0.262 CMGI shares for every share of AdForce held on the closing date of the
transaction. Closing of the merger is subject to customary conditions, including
approval by AdForce stockholders, and is expected in January 2000.
On September 30, 1999, CMGI announced a definitive agreement to acquire Flycast
Communications Corporation (Nasdaq: FCST), a provider of web-based direct
response advertising solutions, in a stock-for-stock merger. Under the terms of
the agreement, CMGI will issue 0.4738 CMGI shares for every share of Flycast
held on the closing date of the transaction. Closing of the merger is subject
to customary conditions, including approval by Flycast stockholders, and is
expected in January 2000.
Page 11
<PAGE>
CMGI, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
M. SUBSEQUENT EVENTS
Subsequent to October 31, 1999, the Company completed the acquisitions of
1stUp.com Corporation, Activate.net Corporation, Clara Vista Corporation and
Tribal Voice, Inc. for combined total consideration of approximately $200
million in CMGI stock. 1stUp.com is an Internet technology company that
provides solutions that enable businesses to offer advertising, sponsorship, and
e-commerce supported Internet access to their customers. Activate.net provides
business-to-business broadcast communications on the Internet. Clara Vista is
an information systems consulting and integration company specializing in
analysis, design, and development of Internet/intranet/extranet business
applications. Tribal Voice is a provider of instant messaging, interactive
communications software and online community solutions.
Subsequent to October 31,1999, the Company sold 1,060,000 shares of its Yahoo!
stock and 260,000 shares of its Open Market stock for total proceeds of
approximately $240 million and $9.1 million, respectively.
On November 18, 1999, the underwriters of NaviSite's initial public offering
exercised their over-allotment option in full to purchase an additional 825,000
shares of common stock at $14 per share, resulting in approximately $10.4
million in net proceeds to NaviSite.
On November 29, 1999, AltaVista announced it had agreed to acquire Raging Bull
in a stock-for-stock exchange of privately held shares of each company. (CMGI
owns approximately 82% of AltaVista and CMG@Ventures III owns approximately 10%
of Raging Bull's outstanding shares on a fully diluted basis.)
On November 29, 1999, the Company and Pacific Century CyberWorks Limited
("PCCW"), a company listed on The Stock Exchange of Hong Kong, completed their
previously agreed to exchange of stock. The Company received 448,347,107 shares
of PCCW stock in exchange for 4,057,971 shares of the Company's common stock .
The PCCW shares acquired will be accounted for as available for sale securities
as of the date of acquisition and will be carried at fair value and based on
quoted market prices, net of a market value discount to reflect any remaining
restrictions on transferability.
On September 23, 1999, CMGI signed a definitive agreement to acquire AdKnowledge
Inc., a provider of Web marketing management services focused on the needs of
online marketers and agencies, in a transaction valued at approximately $193
million. Under the terms of the merger and contribution agreement, CMGI
acquired control of AdKnowledge through the issuance of approximately $170
million of CMGI common stock on November 30, 1999. The second step of the
acquisition, the contribution of AdKnowledge shares held by AdKnowledge
shareholders, including CMGI, to Engage in exchange for approximately $193
million of Engage common stock, is expected to close shortly. Upon completion of
the transaction, AdKnowledge will be a wholly owned subsidiary of Engage. The
transaction is subject to certain conditions including approval by Engage
stockholders.
On December 10, 1999, MotherNature.com completed its initial public offering at
a price of $13 per share. CMG@Ventures II currently holds 1.2 million shares of
MotherNature.com common stock which it acquired at an average cost of $3.23 per
share. On November 4, 1999, Tickets.com, Inc. commenced its IPO. (CMG@Ventures
II, LLC currently holds approximately 700,000 shares of Tickets.com common
stock.)
On November 22, 1999, the Company announced the launch of the CMGI @Ventures B2B
Fund, a new venture fund to be focused exclusively on business-to-business
Internet venture capital investments. The fund is expected to reach up to $1
billion in capital and will have CMGI as its sole limited investor. The Company
expects to raise capital for the new fund through the sale of marketable
securities, the issuance and sale of Company securities, borrowings or otherwise
from outside sources, or a combination of the foregoing. There can be no
assurance that the Company will be able to raise sufficient funds for the CMGI
@Ventures B2B Fund or raise such funds on terms that are favorable to the
Company.
On December 15, 1999, CMGI announced a definitive agreement to acquire
yesmail.com (NASDAQ: YESM), a leading outsourcer of permission email marketing
technologies and services, in a stock-for-stock merger transaction. Under the
terms of the merger agreement, CMGI will issue .1252 CMGI shares for every share
of yesmail.com held on the closing date of the transaction. Closing of the
transaction is subject to customary regulatory approvals, including formal
approval by yesmail.com shareholders, and is expected in March 2000.
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<PAGE>
CMGI, 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 within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and Section 27A of the Securities Act of 1933, as amended, that involve risks
and uncertainties. All statements other than statements of historical
information provided herein may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes", "anticipates", "plans",
"expects" and similar expressions are intended to identify forward-looking
statements. 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, the risks discussed in the "Factors That May Affect Future Results"
section included in the Company's Annual Report on Form 10K filed with the SEC
on October 29, 1999, and the risks discussed in the Company's other filings with
the SEC. These risks and uncertainties could cause actual results to differ
materially from those reflected in the forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis, judgment, belief or expectation only as of the
date hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof.
BASIS OF PRESENTATION
Certain amounts for prior periods in the accompanying consolidated financial
statements, and in the discussion below have been reclassified to conform with
current period presentations.
THREE MONTHS ENDED OCTOBER 31, 1999 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1998
Net revenues for the quarter ended October 31, 1999 increased $86,326,000,
or 231%, to $123,731,000 from $37,405,000 for the quarter ended October 31,
1998. The increase was largely attributable to an increase of $80,190,000 in
net revenues for the Company's Internet segment due to the acquisitions of
AltaVista and Signatures Network during the first quarter of fiscal 2000, the
acquisitions of I/PRO and 2CAN during the third quarter of fiscal 1999, and
increased net revenues from Engage, NaviSite and Adsmart. Included in Internet
segment revenues in the quarter was approximately $12 million recorded by
AltaVista's Shopping.com subsidiary related to the completion of a large order
for the sale of computer equipment purchased by Shopping.com from Compaq
Computer and sold to FreePC, an AltaVista investee. Additionally, net revenues
in the Company's fulfillment services segment increased $6,136,000 primarily
reflecting increased volume of turnkey business from Cisco and growth in
Internet related fulfillment business, including the completion of an
approximate $4.3 million special project order from JuniorNet, a leading Web
destination for children, during the first quarter of fiscal 2000. 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 2000. Additionally, the Company has signed agreements to acquire several
additional Internet companies, including 1stUp.com, Activate.Net Corporation,
AdForce, Inc., AdKnowledge, Inc., Flycast Communications Corporation, and Tribal
Voice, Inc. The 1stUp.com Corporation, Activate.Net Corporation, AdKnowledge,
Inc. and Tribal Voice, Inc. acquisitions have closed subsequent to October 31,
1999. The AdForce, Inc. and Flycast Communications Corporation acquisitions
remain subject to customary closing conditions, including regulatory approval
and target company stockholder approval. Therefore, as a result of both
increased revenues from existing companies and incremental revenues from new
acquisitions, the Company expects to report future revenue growth.
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<PAGE>
CMGI, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Cost of revenues increased $72,630,000 or 204%, to $108,173,000 in the
first quarter of fiscal 2000 from $35,543,000 for the corresponding period in
fiscal 1999, reflecting increases of $1,506,000 and $71,124,000 in the
fulfillment services and Internet segments, respectively. Cost of revenues
increased in the fulfillment services segment primarily as a result of higher
revenues. Internet segment cost of revenues increases were primarily
attributable to higher revenues as a result of the acquisitions of AltaVista and
Signatures Network during the first quarter of fiscal 2000, the acquisitions of
I/PRO and 2CAN during the third quarter of fiscal 1999, commencement of
operations by NaviNet, and the acceleration of operations for other subsidiaries
within the segment. Cost of revenues as a percentage of revenues in the Internet
segment decreased to 92% in the first quarter of fiscal 2000 from 145% in the
prior year, primarily as a result of the acquisitions of AltaVista and
Signatures Network. Fulfillment services segment cost of revenues as a
percentage of net revenues decreased to 77% in the first quarter of fiscal 2000
from 88% in the first quarter of fiscal 1999, primarily reflecting increased
operating efficiencies related to turnkey operations.
Research and development expenses increased $14,880,000, or 280%, to
$20,188,000 in the quarter ended October 31, 1999 from $5,308,000 in the prior
year's first quarter. All research and development expenses in both periods
were within the Internet segment. The increase as compared to the prior year
was primarily due to the acquisition of AltaVista and the increased development
efforts at Engage, iCast, Cha! Technologies and MyWay.com. The Company
anticipates it will continue to devote substantial resources to product
development and that these costs may substantially increase in future periods.
Selling expenses increased $64,277,000 or 782% to $72,501,000 in the first
quarter ended October 31, 1999 from $8,224,000 for the corresponding period in
fiscal 1999, primarily reflecting a $64,659,000 increase in the Internet
segment. The increased costs in the Internet segment are primarily due to the
acquisitions of AltaVista and Signatures Network during the first quarter of
fiscal 2000, the acquisitions of I/PRO and 2CAN during the third quarter of
fiscal 1999 and the continued growth of sales and marketing efforts at various
other CMGI subsidiaries related to product launches and infrastructure. Selling
expenses in the fulfillment services segment decreased by $382,000 in comparison
with last year's first quarter due primarily to headcount reductions. Selling
expenses increased as a percentage of net revenues to 59% in the first quarter
of fiscal 2000 from 22% for the corresponding period in fiscal 1999, primarily
reflecting the impact of the acquisition of AltaVista, including the impact of
AltaVista advertising costs in support of the launch of its new media and
commerce network, and the expansion of sales and marketing efforts related to
product launches and infrastructure. 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 these costs will substantially increase in future periods.
General and administrative expenses increased $21,008,000, or 331%, to
$27,357,000 in the first quarter of fiscal 2000 from $6,349,000 for the
corresponding period in fiscal 1999. The Internet segment experienced an
increase of $18,600,000, primarily due to the acquisitions of AltaVista and
Signatures Network during the first quarter of fiscal 2000, the acquisitions of
I/PRO and 2CAN during the third quarter of fiscal 1999 and the building of
management infrastructures in several of the Company's Internet investments.
General and administrative expenses in the fulfillment services segment
increased by $2,408,000 in comparison with last year's first quarter, largely
due to and the building of management infrastructure. General and
administrative expenses increased as a percentage of net revenues to 22% in the
first quarter of fiscal 2000 from 17% in the first quarter of fiscal 1999. The
Company anticipates that its general and administrative expenses will continue
to increase significantly as the Company adds newly acquired subsidiaries and as
existing subsidiaries continue to grow and expand their administrative staffs
and infrastructures.
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<PAGE>
CMGI, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Amortization of intangible assets and stock-based compensation increased
$167,930,000, or 7,963%, to $170,039,000 in the first quarter of fiscal 2000
from $2,109,000 for the corresponding period in fiscal 1999, reflecting a
$167,909,000 increase in the Internet segment, primarily due to the acquisitions
of AltaVista and Signatures Network during the first quarter of fiscal 2000 and
the acquisitions of I/PRO and 2CAN during the third quarter of fiscal 1999.
Amortization of intangibles in the fulfillment services segment was flat as
compared to last year's fiscal first quarter. The Company anticipates that its
amortization of intangibles expense will continue to increase significantly as
the Company and its subsidiaries continue to acquire new companies in the
future.
Gain on issuance of stock by subsidiaries and affiliates in the first
quarter of fiscal 2000 reflects the pre-tax gain of $46,432,000 on the issuance
of stock by NaviSite in its initial public offering. Gains on issuance of stock
by subsidiaries and affiliates for the quarter ended October 31, 1998 includes a
$20,374,000 gain on issuance of stock by Lycos and a $24,132,000 gain on
issuance of stock by GeoCities. The first quarter fiscal 1999 gain on stock
issuance by Lycos resulted primarily from the issuance of stock by Lycos for its
acquisition of WhoWhere? Gain on stock issuance by GeoCities in fiscal 1999
arose as a result of the sale of stock by GeoCities in its initial public
offering in August 1998.
Other gains, net in the first quarter of fiscal 2000 reflects a pre-tax
gain of $48,349,000 on the sale of 1,640,000 shares of Yahoo! common stock.
Fiscal 1999 other gains, net includes a $23,158,000 gain on sale of investment
in Reel.com, Inc.,a $19,057,000 gain on sale of investment in Sage Enterprises,
Inc. and a $1,879,000 gain on sale of Lycos, Inc. common stock.
Minority interest increased to $23,288,000 in the first quarter of fiscal
2000 from $101,000 in the first quarter of fiscal 1999, primarily reflecting
minority interest in net losses of five subsidiaries during the first
quarter of fiscal 2000, including Alta Vista, Blaxxun, Engage, NaviSite and
Signatures Network.
Interest income increased $5,312,000, to $5,871,000 in the first quarter of
fiscal 2000 from $559,000 in the first quarter of fiscal 1999, reflecting
increased income associated with higher average cash equivalent balances
compared with the prior year. Interest expense increased $4,632,000, to
$5,700,000 in the first fiscal quarter of fiscal 2000 from $1,068,000 in fiscal
1999 primarily due to the accrual of interest on notes issued to Compaq and
Digital in connection with the acquisition of AltaVista.
Equity in losses of affiliates resulted from the Company's minority
ownership in certain investments that 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, 1999 includes the results from the Company's minority ownership in
ThingWorld.com, WebCT, and Engage Technologies Japan, Inc. Equity in losses of
affiliates for the quarter ended October 31, 1998 include the results from the
Company's minority ownership in Lycos, GeoCities, ThingWorld.com, Silknet,
Speech Machines, MotherNature.com and Magnitude Network. 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.
Income tax benefit recorded in the first quarter of fiscal 2000 was
$40,735,000. 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 2000, gains on stock issuances by subsidiaries and
affiliates and other gains, net were excluded.
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<PAGE>
CMGI, 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, 1999 increased to $1.7 billion compared to
$1.4 billion at July 31, 1999. Approximately $236 million of the net increase in
working capital is attributable to increased cash and cash equivalents. The
Company's principal sources of capital during the first three months of fiscal
2000 were from sales of Yahoo! common stock and from net proceeds from issuances
of common stock, primarily by NaviSite in its initial public offering. The
Company's principal uses of capital during the first three months of fiscal 2000
were $117 million for funding of operations, primarily those of start-up
activities in the Company's Internet segment, and $23 million for purchases of
property and equipment.
On October 22, 1999, NaviSite commenced its initial public offering at $14
per share, raising $69.6 million, net of issuance and other costs. In November
1999, NaviSite raised an additional $10.4 million pursuant to the exercise of
the underwriters' over-allotment option. CMGI currently owns 19.5 million shares
of NaviSite common stock. In October 1999 the Company sold 1,640,000 shares of
Yahoo! common stock and received total proceeds of $291 million.
In conjunction with its acquisition of AltaVista, the Company issued three
year $220 million notes payable to Compaq and Digital due August 18, 2002.
Interest on the notes, at a rate of 10.5% per annum, is due and payable
semiannually on each February 18 and August 18 until the notes are paid in full.
Principal and interest due on these notes are payable, at the option of CMGI, in
cash, marketable securities (as defined in the notes) or any combination
thereof.
In August 1999, CMGI completed its acquisition of 81.5% of AltaVista
Company (AltaVista), a web portal that integrates proprietary Internet
technology and services to deliver relevant results for both individuals and
Web-based businesses, for 18,994,975 CMGI common shares valued at approximately
$1.816 billion, 18,090.45 of the Company's Series D preferred stock, which was
converted into approximately 1,809,045 million shares of CMGI common stock in
October 1999 valued at approximately $173 million, three-year notes totaling
$220 million and the exchange of the Company's stock options for AltaVista stock
options. The AltaVista acquisition included the assets and liabilities
constituting the AltaVista Internet search service and also included former
Compaq subsidiaries Zip2 Corporation and Shopping.com. The shares issued by the
Company in connection with the AltaVista acquisition are not registered under
the Securities Act of 1933 and are subject to restrictions on transferability
for a period of one year from the date of issuance. The total purchase price
for AltaVista was valued at approximately $2.4 billion, including costs of
acquisition of $4 million. The purchase price allocations for each of the
acquisitions which consummated during the first quarter of fiscal year 2000 are
preliminary and are subject to adjustment upon finalization of the purchase
accounting.
During the first quarter of fiscal year 2000, the Company also completed
its acquisitions of Cha! Technologies, iAtlas Inc. and Signatures for a combined
consideration of approximately $64 million in CMGI stock and convertible notes
and commitments to fund a total of approximately $113 million in operating
capital.
During the first quarter of fiscal year 2000, the Company, through its
limited liability company subsidiary, CMG@Ventures III, LLC, acquired initial or
follow-on minority ownership interests in eleven Internet companies for
aggregate consideration of approximately $10.6 million.
Page 16
<PAGE>
CMGI, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
On November 22, 1999, the Company announced the launch of the CMGI
@Ventures B2B Fund, a new venture fund to be focused exclusively on business-to-
business Internet venture capital investments. The fund is expected to reach up
to $1 billion in capital and will have CMGI as its sole limited investor. The
Company expects to raise capital for the new fund through the sale of marketable
securities, the issuance and sale of Company securities, borrowings or otherwise
from outside sources, or a combination of the foregoing. There can be no
assurance that the Company will be able to raise sufficient funds for the CMGI
@Ventures B2B Fund or raise such funds on terms that are favorable to the
Company.
On September 20, 1999, CMGI announced that it had signed a definitive
agreement to acquire AdForce, Inc. (Nasdaq: ADFC), a provider of products and
services that allow advertisers and publishers to target, deliver, measure and
analize Internet advertising programs, in a stock-for-stock merger valued at
approximately $500 million. Under the terms of the agreement, CMGI will issue
0.262 CMGI shares for every share of AdForce held on the closing date of the
transaction. Closing of the merger is subject to customary conditions, including
approval by AdForce stockholders, and is expected in January 2000.
On September 30, 1999, CMGI announced a definitive agreement to acquire
Flycast Communications Corporation (Nasdaq: FCST), a provider of web-based
direct response advertising solutions, in a stock-for-stock merger. Under the
terms of the agreement, CMGI will issue 0.4738 CMGI shares for every share of
Flycast held on the closing date of the transaction. Closing of the merger is
subject to customary conditions, including approval by Flycast stockholders, and
is expected in January 2000.
Subsequent to October 31,1999, the Company completed the acquisitions of
1stUp.com Corporation, Activate.net Corporation, Clara Vista Corporation and
Tribal Voice, Inc. for combined total consideration of approximately $200
million in CMGI stock. 1stUp.com is an Internet technology company that
provides solutions that enable businesses to offer advertising, sponsorship, and
e-commerce supported Internet access to their customers. Activate.net provides
business-to-business broadcast communications on the Internet. Clara Vista is
an information systems consulting and integration company specializing in
analysis, design, and development of Internet/intranet/extranet business
applications. Tribal Voice is a provider of instant messaging, interactive
communications software and online community solutions.
Subsequent to October 31,1999, the Company sold 1,060,000 shares of its
Yahoo! stock and 260,000 shares of its Open Market stock for total proceeds of
approximately $240 million and $9.1 million, respectively.
On November 29, 1999, AltaVista announced it had agreed to acquire Raging
Bull in a stock-for-stock exchange of privately held shares of each company.
(CMGI owns approximately 82% of AltaVista and CMG@Ventures III owns
approximately 10% of Raging Bull's outstanding shares on a fully diluted basis.)
On November 29, 1999, the Company and PCCW, a company listed on The Stock
Exchange of Hong Kong, completed their previously agreed to exchange of stock.
The Company received 448,347,107 shares of PCCW stock in exchange for 4,057,971
shares of the Company's common stock. The PCCW shares acquired will be accounted
for as available for sale securities as of the date of acquisition and will be
carried at fair value and based on quoted market prices, net of a market value
discount to reflect any remaining restrictions on transferability.
On September 23, 1999, CMGI signed a definitive agreement to acquire
AdKnowledge Inc., a provider of Web marketing management services focused on the
needs of online marketers and agencies, in a transaction valued at approximately
$193 million. Under the terms of the merger and contribution agreement, CMGI
acquired control of AdKnowledge through the issuance of approximately $170
million of CMGI common stock on November 30, 1999. The second step of the
acquisition, the contribution of AdKnowledge shares held by AdKnowledge
shareholders, including CMGI, to Engage in exchange for approximately $193
million of Engage common stock, is expected to close shortly. Upon completion of
the transaction, AdKnowledge will be a wholly owned subsidiary of Engage. The
transaction is subject to certain conditions including approval by Engage
stockholders.
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<PAGE>
CMGI, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
On December 10, 1999, MotherNature.com completed its initial public
offering at a price of $13 per share. CMG@Ventures II currently holds 1.2
million shares of MotherNature.com common stock which it acquired at an average
cost of $3.23 per share. On November 4, 1999, Tickets.com, Inc. commenced its
IPO. (CMG@Ventures II, LLC currently holds approximately 700,000 shares of
Tickets.com common stock.)
On December 15, 1999, CMGI announced a definitive merger agreement to
acquire yesmail.com (Nasdaq: YESM), a leading outsourcer of permission email
marketing technologies and services, in a stock-for-stock merger transaction.
Under the terms of the merger agreement, CMGI will issue .1252 CMGI shares for
every share of yesmail.com held on the closing date of the transaction. Closing
of the transaction is subject to customary regulatory approvals, including
formal approval by yesmail.com shareholders, and is expected in March 2000.
The Company intends to continue to fund existing and future Internet
efforts, acquire additional companies for cash, stock, or other consideration
and to actively seek new CMG@Ventures investment opportunities. Similar to
CMGI's current Internet subsidiaries, future Internet company acquisitions will
likely be in early stages of business development and therefore are expected to
require additional cash funding by the Company to fund their operations. The
Company believes that existing working capital and the availability of
available-for-sale securities which could be sold or posted as additional
collateral for additional loans, will be sufficient to fund its operations,
investments and capital expenditures for the foreseeable future. Additionally,
the Company may also choose to raise additional capital through private
placements. 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 financing. There can be no assurance, however, that the Company
will be able to raise additional capital on terms that are favorable to the
Company.
Page 18
<PAGE>
CMGI, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, many companies will need to update or replace
their software and computer systems in order to comply with such "Year 2000"
requirements. The Company is in the process of evaluating the Year 2000
compliance of its products and services. The Company is also evaluating the
Year 2000 compliance of third party equipment and software that we use in both
information technology and non-information technology applications in our
business. Examples of non-information technology systems include the building
security and voice mail systems.
The Company confronts the Year 2000 problem in several contexts:
Facilities and Services
Many of the Company's subsidiaries rely on its network infrastructure,
software and hardware. Certain subsidiaries also offer computer-related
services, and because of the business-critical nature of many customers'
applications, the Company's risk of lawsuits related to Year 2000 issues could
be greater than that of companies in some other industries.
The Company's subsidiary, NaviSite, is a hosting and application
management services provider that relies on its network infrastructure to
provide its services. The Company relies on NaviSite for network connectivity
and hosting of servers for many of its majority-owned subsidiaries. NaviSite
faces risks from customer-provided hardware and software that is hosted in its
data centers that in many cases has been customized by outside service providers
or customer personnel. While NaviSite informs its customers that they are
responsible for the Year 2000 compliance of their hosted hardware and software,
the Company can not assure that NaviSite's customers will take the steps
necessary to achieve Year 2000 compliance. Remote users, including customers,
also connect to NaviSite's networks. These remote users' networks may be
impacted by Year 2000 complications, which could affect NaviSite's internal
structure and ability to provide service to its customers, including CMGI's
subsidiaries. These potential Year 2000 complications could disrupt operations
and have a material adverse impact on the Company's financial condition and
operating results.
The Company continues to conduct awareness campaigns as needed, update
inventory and conduct Year 2000 assessment on an ongoing basis as new computer
systems and software products are integrated into the Company's operations. The
Company intends to continue this ongoing inventory and assessment process
through at least December 31, 2000.
Customers
The Company also faces risks from computer systems and application software
that certain of the Company's subsidiaries are in the business of selling and
servicing. In addition, in the event that a significant number of the Company's
customers experience Year 2000-related problems, whether due to the Company's
products or not, demand for technical support and assistance may increase
dramatically. In this case, the Company's costs for providing technical support
may rise and the quality of service or the Company's ability to manage incoming
requests may be impaired.
Page 19
<PAGE>
CMGI, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Suppliers
In addition, the Company depends on software and hardware supplied by
numerous vendors to provide certain applications and management services, rental
services and consulting services. The Company is currently seeking assurances
from its existing vendors that their products are Year 2000 compliant, and the
Company requires that all new software application providers certify that they
are Year 2000 compliant before the Company enters into agreements with them.
However, because in most cases the Company does not independently verify the
Year 2000 compliance of vendors' products, the Company cannot assure that these
vendors' guarantees are true or sufficient or that the Company will not
encounter Year 2000 compliance problems involving their products. The Company
cannot assure that it will be able to provide its services and maintain its
operations if it is unable to obtain products, services or systems that are Year
2000 compliant when it needs them. In addition, if vendors and service
providers cannot deliver their products because of their own Year 2000
compliance problems or as a result of systemic failures such as power outages
relating to the Year 2000, the Company could experience increased operating
costs and lost revenue.
The Year 2000 project plan is coordinated by a committee that reports to
senior management, as well as to the Board of Directors on a periodic basis.
The Year 2000 readiness efforts consist of the following four phases:
(1) Identification of all software products, information technology
systems and non-information technology systems the Company offers or
uses. The Company has substantially completed this phase for its
existing systems.
(2) Testing and assessment of these products and systems to determine
repair or replacement requirements for each. The Company has
substantially completed this phase for existing systems.
(3) Repair or replacement of products and systems, where required, to
achieve Year 2000 compliance. The Company has substantially completed
this phase for its existing business-critical systems.
(4) Creation of contingency plans in the event of Year 2000 failures. The
Company has substantially completed its Year 2000 contingency plan.
The plan will continue to be updated to reflect changes in business
procedures and processes.
Companies that the Company has acquired subsequent to December 1, 1999 are
in varying stages of completion of the four phases above. The Company does not
anticipate that these new acquisitions will experience any Y2K issues.
Through October 31, 1999, the Company has incurred expenditures of
approximately $4.8 million in connection with Year 2000 readiness efforts.
Current cost estimates to complete the Year 2000 readiness efforts are in the
range of an additional $1.5 million to $2.0 million. There can be no assurance
that the Year 2000 costs will not exceed these estimated amounts.
The Company's business model includes expansion through the acquisition of
businesses, technologies, products and services from other businesses. As the
Company continues to expand in this manner throughout calendar 1999, the scope
and cost estimates of CMGI's Year 2000 efforts may increase substantially.
The Company's failure to resolve Year 2000 issues with respect to its
products and services could damage its business and revenues and result in
liability on its part for such failure. The Company's business and its prospects
may be permanently affected by either the liability it incurs to third parties
or the negative impact on its business reputation. The Company also relies upon
various vendors, utility companies, telecommunications service companies,
delivery service companies and other service providers who are outside of its
control. There can be no assurance that such companies will not suffer a Year
2000 business disruption, which could harm our business and financial condition.
Furthermore, if third-party equipment or software used in its business fails to
operate properly with regard to the Year 2000, the Company may need to incur
significant unanticipated expenses to remedy any such problems.
Page 20
<PAGE>
CMGI, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION (CONTINUED)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-----------------------------------------------------------
The Company is exposed to equity price risks on the marketable portion of
its equity securities. The Company's available-for-sale securities at October
31, 1999 include strategic equity positions in the Internet industry sector,
including Lycos, Inc., Critical Path, Chemdex, Amazon.com, Inc. and Open Market,
Inc.,Yahoo! Inc., Silknet Software, Inc., Hollywood Entertainment, and Akamai
Technologies, Inc. many of which have experienced significant historical
volatility in their stock prices. The Company typically does not attempt to
reduce or eliminate its market exposure on these securities. A 20% adverse
change in equity prices, based on a sensitivity analysis of the Company's
available-for-sale securities portfolio as of October 31, 1999, would result in
an approximate $355 million decrease in the fair value of the Company's
available-for-sale securities.
The carrying values of financial instruments including cash and cash
equivalents, accounts receivable, accounts payable and notes payable,
approximate fair value because of the short maturity of these instruments. The
carrying value of long-term debt approximates its fair value, as estimated by
using discounted future cash flows based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
The Company uses derivative financial instruments primarily to reduce
exposure to adverse fluctuations in interest rates on its borrowing
arrangements. The Company does not enter into derivative financial instruments
for trading purposes. As a matter of policy all derivative positions are used
to reduce risk by hedging underlying economic exposure. The derivatives the
Company uses are straightforward instruments with liquid markets. At October
31, 1999, the Company was primarily exposed to the London Interbank Offered Rate
(LIBOR) interest rate on the outstanding borrowings under its line of credit and
other bank borrowing arrangements.
The Company has historically had very low exposure to changes in foreign
currency exchange rates, and as such, has not used derivative financial
instruments to manage foreign currency fluctuation risk. As the Company expands
globally, the risk of foreign currency exchange rate fluctuation may
dramatically increase. Therefore, in the future, the Company may consider
utilizing derivative instruments to mitigate such risks.
Page 21
<PAGE>
CMGI, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
AltaVista Company
- -----------------
On August 18, 1999, the Company consummated the transactions contemplated by the
Purchase and Contribution Agreement dated as of June 29, 1999 by and among
itself, Compaq Computer Corporation ("Compaq"), Digital Equipment Corporation, a
wholly owned subsidiary of Compaq ("Digital"), AltaVista Company, a wholly owned
subsidiary of Digital ("AltaVista"), and Zoom Newco Inc., a wholly owned
subsidiary of the Company ("Newco") (as amended, the "Purchase and Contribution
Agreement").
Pursuant to the Purchase and Contribution Agreement: (1) Compaq and Digital
transferred to the Company all of the outstanding capital stock of Shopping.com,
a California corporation, and 51.6% of the outstanding capital stock of
Zip2Corp., a California corporation ("Zip2") (collectively, the "Digital
Assets"), in exchange for promissory notes of the Company in the aggregate
principal amount of $220 million, (2) the Company contributed the Digital
Assets, 18,994,975 shares of Common Stock and 18,090.45 shares of Series D
Preferred Stock to Newco, and Newco issued 81,495,016 shares of Newco Common
Stock to the Company, (3) Compaq and Digital contributed certain assets and
liabilities (including the remaining outstanding shares of Zip2) constituting
the AltaVista division of Digital to Newco and sold certain assets and
liabilities to Newco's indirect subsidiary Kasempa Limited, an Irish single
member private company, in exchange for the 18,994,975 shares of Company Common
Stock, the 18,090.45 shares of Company Series D Preferred Stock and 18,504,884
shares of Newco Common Stock, and (4) Newco changed its corporate name to
AltaVista Company ("AV"). The shares of Common Stock and the shares of Series D
Preferred Stock were issued and sold in reliance on Section 4(2) of the
Securities Act of 1933, as amended, as a sale by the Company not involving a
public offering. No underwriters were involved with the issuance and sale of the
shares of Common Stock and the shares of Series D Preferred Stock.
As a result of the transactions contemplated by the Purchase and Contribution
Agreement, AV (formerly Newco) acquired the assets and liabilities constituting
the AltaVista division of Digital, the Company was issued 81,495,116 shares
(81.5%) of AV Common Stock and Digital was issued the remaining 18,504,884
shares (18.5%) of outstanding AV Common Stock.
The 18,090.45 shares of Series D Preferred Stock issued to Digital had a stated
value of $180,000,000 and were converted into 1,809,045 shares of Company Common
Stock on October 28, 1999.
Signatures SNI, Inc.
- --------------------
On September 1, 1999, the Company acquired approximately 81% of the outstanding
stock of Signatures SNI, Inc., a Delaware corporation ("Signatures"). Pursuant
to the terms of the acquisition agreement, the Company issued an aggregate of
364,610 shares of Common Stock to stockholders of Signatures in exchange for the
Signatures stock. The shares of the Company's Common Stock were issued and sold
to the stockholders of Signatures in reliance on Section 4(2) of the Securities
Act of 1933, as amended, as a sale by the Company not involving a public
offering. No underwriters were involved with the issuance and sale of the shares
of Common Stock.
Cha! Technologies Services, Inc.
- --------------------------------
On September 15, 1999, the Company acquired approximately 58% of the outstanding
stock of cha! Technologies Services, Inc., a Delaware corporation ("cha!").
Pursuant to the terms of the acquisition agreement, the Company issued a series
of convertible notes to stockholders of cha! in exchange for the cha! stock. The
notes are convertible on September 15, 2000 into an aggregate of 148,508 shares
of the Company's Common Stock. The notes were issued and sold to the
stockholders of cha! in reliance on Section 4(2) of the Securities Act of 1933,
as amended, as a sale by the Company not involving a public offering. No
underwriters were involved with the issuance and sale of the notes.
Page 22
<PAGE>
CMGI, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION (CONTINUED)
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (CONTINUED)
-----------------------------------------------------
iAtlas, Inc.
- ------------
On September 28, 1999, the Company acquired all of the outstanding stock of
iAtlas, Inc., a Delaware corporation ("iAtlas"). Pursuant to the terms of the
acquisition agreement, the Company issued an aggregate of 303,749 shares of
Common Stock to stockholders of iAtlas in exchange for the iAtlas stock. The
shares of Common Stock were issued and sold to the stockholders of iAtlas in
reliance on Section 4(2) of the Securities Act of 1933, as amended, as a sale by
the Company not involving a public offering. No underwriters were involved with
the issuance and sale of the shares of Common Stock.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On October 28, 1999, the Company held a Special Meeting of Stockholders to vote
upon a proposal to approve the conversion into Common Stock of all outstanding
shares of the Company's Series D Preferred Stock issued to Digital in connection
with the Company's acquisition of the AltaVista business (the "AltaVista
Business") from Compaq and Digital. On September 16, 1999, the record date for
determination of stockholders entitled to vote at the Special Meeting, there
were outstanding and entitled to vote 116,148,257 shares of Common Stock and
18,090.45 shares of Series D Preferred Stock. Each share of Common Stock and
Series D Preferred Stock was entitled to one vote at the Special Meeting. The
results of the voting at the Special Meeting are as follows:
<TABLE>
<CAPTION>
COMMON STOCK:
<S> <C>
FOR 40,271,453
AGAINST 228,912
ABSTAIN 19,187,497
NON-VOTES 0
SERIES D PREFERRED STOCK:
FOR 0
AGAINST 0
ABSTAIN 18,090.45
NON-VOTES 0
</TABLE>
Page 23
<PAGE>
CMGI, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibits listed in the Exhibit Index immediately preceding
such Exhibits are filed as part of or are included in this Quarterly
Report on Form 10-Q.
(b) Reports on Form 8-K
On August 12, 1999, the Company filed a Current Report on Form 8-K
dated June 29, 1999 to report under Item 5 (Other Events) certain
historical financial information of AltaVista Company, the AltaVista
Business, Zip2 Corporation and Shopping.com. The following financial
statements were filed with such report:
Audited financial statements of AltaVista as of and for the years
ended December 31, 1996, 1997 and 1998 and unaudited financial
statements of the AltaVista Business as of March 31, 1999 and for the
three months ended March 31, 1999 and 1998.
Audited financial statements of Zip2 Corporation as of and for
the years ended December 31, 1996, 1997 and 1998 and unaudited
financial statements of Zip2 Corporation as of March 31, 1999 for the
three months ended March 31, 1999 and 1998.
Audited financial statements of Shopping.com as of and for the
years ended January 31, 1999, 1998 and 1997.
On September 2, 1999, the Company filed a Current Report on Form
8-K dated August 18, 1999 to report under Item 2 (Acquisition or
Disposition of Assets) the consummation of the transactions
contemplated by the Purchase and Contribution Agreement dated as of
June 29,1999 by and among the Company, Zoom Newco, Inc., Compaq,
Digital and AltaVista Company. No financial statements were filed
with such report.
On September 3, 1999, the Company filed a Current Report on Form
8-K dated September 3, 1999 to report under Item 5 (Other Events) the
financial results of operations of NaviSite, Inc. for the fiscal year
ended July 31, 1999. The following financial statements were
incorporated by reference into such report:
Consolidated Statements of Operations of NaviSite, Inc. for the
years ended July 31, 1997, 1998 and 1999.
On September 27, 1999, the Company filed a Current Report on Form
8-K dated September 20, 1999 to report under Item 5 (Other Events) the
execution of the Agreement and Plan of Merger by and among the
Company, a wholly owned subsidiary of the Company and AdForce, Inc.
No financial statements were filed with such report.
On October 1, 1999, the Company filed a Current Report on Form 8-
K dated September 23, 1999 to report under Item 5 (Other Events) (i)
the execution of the Agreement and Plan of Merger and Contribution by
and among the Company, a wholly owned subsidiary of the Company,
Engage Technologies, Inc. and AdKnowledge Inc., (ii) the execution of
the Share Exchange Agreement by and between the Company and Pacific
Century CyberWorks Limited, (iii) the Company's financial results for
the fourth quarter ended July 31, 1999, and (iv) the execution of the
Agreement and Plan of Merger by and among the Company, a wholly owned
subsidiary of the Company and Flycast Communications Corporation. No
financial statements were filed with such report.
Page 24
<PAGE>
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.
CMGI, Inc.
By: /s/ Andrew J. Hajducky III
--------------------------
Date: December 15, 1999 Andrew J. Hajducky III, CPA
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
Page 25
<PAGE>
EXHIBIT INDEX
Item Description
2.1 Agreement and Plan of Merger, dated as of September 29, 1999, by and
among the Registrant, Freemont Corporation and Flycast Communications
Corporation is incorporated by reference to Annex A to the Proxy
Statement/Prospectus which is part of the Registrant's Registration
Statement on Form S-4 (File No. 333-92107).
2.2 Amended and Restated Agreement and Plan of Merger, dated as of September
20, 1999, by and among the Registrant, Artichoke Corp. and AdForce, Inc.
is incorporated by reference to Annex A to the Proxy
Statement/Prospectus which is part of the Registrant's Registration
Statement on Form S-4 (File No. 333-92139).
3.1 Restated By-Laws of the Registrant, as amended, are incorporated by
reference to Exhibit 3.3 of the Registrant's Registration Statement on
Form S-4 (File No. 333-92107).
10.1 Share Exchange Agreement, dated as of September 22, 1999, by and between
the Registrant and Pacific Century CyberWorks Limited.
10.2 Registration Rights Agreement, dated as of November 29, 1999, by and
between the Registrant and Pacific Century CyberWorks Limited.
10.3 1999 Stock Option Plan for Non-Employee Directors is incorporated herein
by reference to Appendix II to the Registrant's Definitive Schedule 14A
filed November 17, 1999.
10.4 1995 Stock Option Plan for Non-Employee Directors, as amended, is
incorporated herein by reference to Appendix III to the Registrant's
Definitive Schedule 14A filed November 17, 1999.
10.5 1986 Stock Option Plan, as amended, is incorporated herein by reference
to Appendix IV to the Registrant's Definitive Schedule 14A filed
November 17, 1999.
10.6 Amendment No. 2 to Lease, dated as of November 12, 1999, between the
Registrant and Andover Mills Realty Limited Partnership for premises
located at 100 Brickstone Square, Andover, Massachusetts.
10.7 Lease Agreement by and between Carolina Blackhawk, LLC and Engage
Technologies, Inc. dated October 1999, is incorporated herein by
reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q for the
quarter ended October 31, 1999 of Engage Technologies, Inc. (File No.
000-26671).
27.1 Financial Data Schedule for the three months ended October 31, 1999.
Page 26
<PAGE>
EXHIBIT 10.1
Dated September 22, 1999
Pacific Century CyberWorks Limited
and
CMGI, Inc.
SHARE EXCHANGE AGREEMENT
<PAGE>
THIS AGREEMENT is made on the 22nd day of September 1999
BETWEEN:
(1) Pacific Century CyberWorks Limited, a company incorporated in Hong Kong
with registered number 69030 whose registered office is at 38/F, Citibank
Tower, Citibank Plaza, 3 Garden Road, Central, Hong Kong ("PCCW"); and
(2) CMGI, Inc., a company incorporated in Delaware, the United States of
America whose principal office is at 100 Brickstone Square, First Floor,
Andover, Massachusetts ("CMGI").
WHEREAS:
(A) PCCW is a public company incorporated in Hong Kong. The issued ordinary
shares of HK$0.05 in the capital of PCCW are listed on the Stock Exchange
(as hereinafter defined).
(B) CMGI is a public company incorporated in Delaware. The issued shares of
common stock, par value $.01 per share, of CMGI are listed on Nasdaq (as
hereinafter defined).
(C) PCCW and CMGI have mutually agreed that CMGI shall issue and sell to PCCW
the CMGI Shares (as hereinafter defined) and PCCW shall allot and issue to
CMGI the PCCW Shares (as hereinafter defined) upon the terms and subject to
the conditions set out in this Agreement.
NOW IT IS HEREBY AGREED as follows:
1. Interpretation
--------------
1.1 In this Agreement where the context so admits the following words and
expressions shall have the following meanings:
"Business Day" a day on which banks are generally open for business in
Hong Kong and New York City;
<PAGE>
"CMGI Shares" 4,057,971 new shares of common stock, par value
US$0.01, of CMGI;
"CMGI Warranties" the representations, warranties and undertakings
under Clause 7;
"CMGI's Solicitors" CMS Cameron McKenna, 5th Floor, Tower One, Lippo
Centre, 89 Queensway, Hong Kong.
"Companies Ordinance" the Companies Ordinance (Chapter 32 of the Laws of
Hong Kong);
"Completion" completion of the transaction contemplated herein
pursuant to Clause 5;
"Completion Date" the third Business Day after the date of the later
of the notices to be given by PCCW or CMGI pursuant
to Clause 4.4 (or such later date as to which the
Parties may agree in writing);
"Conditions" the conditions set out in Clause 4.1;
"CT" The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801.
"Hong Kong" the Hong Kong Special Administrative Region of the
People's Republic of China;
"Listing Rules" at any given time, the Rules Governing the Listing
of Securities on the Stock Exchange in the form in
force at that time;
"Long Stop Date" November 30, 1999 or such later date as to which the
Parties may agree writing;
"Nasdaq" The Nasdaq National Market;
"Parties" named parties to this Agreement, and "Party" means
either of them;
<PAGE>
"PCCW Shares" 448,347,107 new ordinary shares of HK$.05 each in
the capital of PCCW, credited as fully paid;
"PCCW Warranties" the representations, warranties and undertakings
under Clause 8;
"PCCW's Solicitors" Baker & McKenzie, 14th Floor, Hutchison House, 10
Harcourt Road, Hong Kong;
"PCGH" Pacific Century Group Holdings Limited, a
corporation organized under the laws of the Cayman
Islands;
"PCRD" Pacific Century Regional Developments Limited, a
corporation organized under the laws of Singapore;
and
"Stock Exchange" The Stock Exchange of Hong Kong Limited.
1.2 A reference to any given Clause is to the clause of this Agreement with the
corresponding numerical or other designation.
1.3 The expressions "CMGI" and "PCCW" shall, where the context permits, include
their respective successors and permitted assigns.
2. Allotment, Issuance and Subscription of Shares
----------------------------------------------
Subject to satisfaction of the Conditions, on Completion, (a) PCCW agrees
to purchase, and CMGI agrees to sell and issue to PCCW, the CMGI Shares,
and (b) CMGI agrees to subscribe and PCCW agrees to allot and issue, the
PCCW Shares.
3. Consideration
-------------
The total stated consideration for the CMGI Shares shall be US$350,000,000
(three hundred and fifty million United States dollars) to be satisfied by
the allotment and issuance to CMGI of the PCCW Shares as provided in this
Agreement.
<PAGE>
4. Conditions
----------
4.1 Completion shall be conditional on the fulfillment of each of the following
conditions:
(a) the Listing Committee of the Stock Exchange having granted (either
unconditionally or subject only to conditions to which neither PCCW
nor CMGI reasonably objects) listing of and permission to deal in the
PCCW Shares;
(b) the PCCW Warranties having remained true and accurate and not
misleading at all times up to and as at Completion (except to the
extent that a PCCW Warranty was by its terms made as of a specific
date, in which case Completion shall be conditional on such PCCW
Warranty having been true at such date);
(c) the performance of, or compliance with, all agreements, obligations
and conditions contained in this Agreement that are required to be
performed or complied with by PCCW and all the approvals and consents
necessary to complete the share exchange described herein (including
any consents of governmental or regulatory authorities and any
requisite approvals from the shareholders of PCCW and PCRD, if
applicable, with respect to the allotment and issuance of the PCCW
Shares by PCCW and the purchase of the CMGI Shares by PCCW) having
been obtained by PCCW;
(d) the delivery by PCCW to CMGI of a certificate executed by an executive
officer of PCCW, dated the Completion Date, to the effect that the
Conditions specified in Clauses 4.1 (b) and (c) have been satisfied;
(e) the CMGI Shares having been approved for listing on Nasdaq;
(f) the CMGI Warranties having remained true and accurate and not
misleading at all times up to and as at Completion (except to the
extent that a CMGI Warranty was by its terms made as of a specific
date, in which case Completion shall be conditional on such CMGI
Warranty having been true at such date);
(g) the performance of, or compliance with, all agreements, obligations
and conditions contained in this Agreement that are required to be
<PAGE>
performed or complied with by CMGI and all the approvals and consents
necessary to complete the share exchange described herein (including
any consents of governmental or regulatory authorities) having been
obtained by CMGI;
(h) the delivery by CMGI to PCCW of a certificate executed by an executive
officer of CMGI, dated the Completion Date, to the effect that the
Conditions specified in Clauses 4.1 (f) and (g) have been satisfied;
and
(i) the expiration or early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), if applicable.
4.2 PCCW may waive all or any of the Conditions set out in Clauses 4.1(f) to
(h) at any time by notice in writing to CMGI.
4.3 CMGI may waive all or any of the Conditions set out in Clauses 4.1(b) to
(d) at any time by notice in writing to PCCW.
4.4 PCCW shall inform CMGI of the fulfillment of all the Conditions set out in
Clauses 4.1(a), (c) and (i) within one (1) Business Day of the fulfillment of
the last of such Conditions, and CMGI shall inform PCCW of the fulfillment of
all the Conditions set out in Clauses 4.1(e), (g) and (i) within one (1)
Business Day of the fulfillment of the last of such Conditions.
4.5 This Agreement may be terminated by written consent of both Parties, or if
any of the Conditions set out in Clause 4.1 is not fulfilled (or waived by PCCW
in accordance with Clause 4.2 or waived by CMGI in accordance with Clause 4.3)
on or before 12:00 noon on the Long Stop Date. In the event of a termination,
this Agreement (except for Clauses 9, 10, and 11 and this Clause 4) will
terminate and become null and void and the Parties hereto will be released from
all their respective obligations hereunder (except for Clauses 9, 10, and 11 and
this Clause 4), except for the liabilities for any antecedent breaches hereof.
5. Completion
----------
5.1 Completion shall take place at the offices of PCCW's Solicitors or such
other place as the Parties may agree on or before the Completion Date.
<PAGE>
5.2 Subject to Clause 4, completion of this Agreement shall take place at 12:00
noon on the Completion Date at which:
(a) CMGI shall:
(i) issue and sell all the CMGI Shares to PCCW (or such other persons
as PCCW may nominate) credited as fully paid; and
(ii) deliver or caused to be delivered to PCCW:
(aa) certified copies of Board resolutions of the CMGI Board of
Directors approving and authorizing the execution and
completion of this Agreement and the issuance and sale of
the CMGI Shares to PCCW (or such other persons as PCCW may
nominate);
(ab) duly issued stock certificate(s) in the name of PCCW (or
such other persons as PCCW may nominate) in respect of the
CMGI Shares;
(ac) a receipt for the PCCW Shares received by CMGI at
Completion; and
(ad) all other documents required to be delivered by CMGI at or
prior to Completion.
(b) PCCW shall:
(i) allot and issue the PCCW Shares to CMGI (or such other persons as
CMGI may nominate) credited as fully paid; and
(ii) deliver or caused to be delivered to CMGI:
(aa) certified copies of resolutions of the PCCW Board of
Directors approving and authorizing the execution and
completion of this Agreement and the allotment and issuance
of the PCCW Shares to CMGI (or such other persons as CMGI
may nominate);
(ab) certified copies of the resolutions or written approval of
the shareholders of PCCW and PCRD, if applicable,
<PAGE>
approving the allotment and issuance of the PCCW Shares to
CMGI (or such other persons as CMGI may nominate);
(ac) duly issued share certificates in the name of CMGI (or such
other persons as CMGI may nominate) in respect of the PCCW
Shares;
(ad) a receipt for the CMGI Shares received by PCCW at
Completion; and
(ae) all other documents required to be delivered by PCCW at or
prior to Completion.
6. Further Obligations of the Parties
----------------------------------
6.1 Each of the Parties shall use its reasonable best efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other Party in doing, all things necessary, proper or
advisable to consummate, as promptly as possible, the transactions
contemplated by this Agreement, including, without limitation, that:
(a) CMGI shall use its reasonable best efforts to assist PCCW in all its
negotiations and exchanges of correspondence in relation to the
transactions referred to herein with the Stock Exchange and other
relevant authorities in Hong Kong;
(b) CMGI shall use its reasonable best efforts to provide PCCW with such
information as the Stock Exchange may require for the purpose of
obtaining their clearance of any announcement or circular required in
connection with this Agreement;
(c) PCCW shall use its reasonable best efforts to prepare all necessary
documentation and to convene all necessary meetings of shareholders
(with recommendations in favor as appropriate) in connection with
obtaining the approval of shareholders to the allotment and issuance
of the PCCW Shares and the purchase of the CMGI Shares by PCCW in
accordance with all necessary Hong Kong legal and Stock Exchange
requirements;
<PAGE>
(d) PCCW shall use its reasonable best efforts to obtain at its own cost
the admission by the Stock Exchange of the PCCW Shares to the Official
List of the Stock Exchange; and
(e) PCCW shall cause this Agreement to be duly delivered to the Registrar
of Companies for registration pursuant to Section 45 of the Companies
Ordinance.
6.2 Each Party hereby agrees that, for a period of three years after the
Completion Date, it will not, and will cause each of its affiliates not to,
directly or indirectly, except as expressly requested by the other Party,
(a) solicit, seek or offer to effect, or actually effect, negotiate with,
or make or participate in any statement or proposal, whether written or
oral, either alone or in concert with others, to the Board of Directors of
the other Party, to any director or officer of the other Party or to any
stockholder of the other Party or make or participate in any public
announcement or proposal or offer whatsoever (including, but not limited to
any "solicitation" of "proxies" as such terms are defined or used in
Regulation 14A of the Exchange Act) with respect to, (i) any form of
business combination or similar transaction, including without limitation,
a merger, tender or exchange offer, purchase of stock or assets or
liquidation of the other Party's assets, (ii) any form of restructuring or
similar transaction with respect to such Party, (iii) any proposal to seek
representation on the Board of Directors of the other Party or otherwise to
seek control of the Board of Directors of the other Party, (b) purchase any
securities that would result in the increase of its level of beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of
1934, as amended) of securities of the other Party in excess of the number
of shares beneficially owned by such Party as of the Completion Date (such
number of shares, as adjusted for stock splits, stock dividends, and
similar events, the "Beneficial Ownership Threshold") or any rights to
acquire any securities in excess of the Beneficial Ownership Threshold, (c)
request the other Party to waive, amend or terminate the provisions of this
paragraph, or (d) instigate, encourage, or assist any third party to do any
of the foregoing.
6.3 Each Party shall, for so long as it maintains beneficial ownership of
securities of the other Party in excess of 75% of such Party's Beneficial
Ownership Threshold, have the right to appoint a representative, reasonably
acceptable to the other Party, to attend all meetings of the other Party's Board
of Directors, whether in person, by telephonic conference or otherwise, which
representative shall have the right to observe and participate in discussions
and activities of the other Party's Board of Directors, except that the
representative shall not have any right to vote as a member of
<PAGE>
the other Party's Board of Directors. Such representative shall be entitled to
receive the same notice of meetings and materials or information relating to
meetings as are provided to all members of the Board of Directors. Each Party
shall be entitled to recuse the other Party's representative from portions of
any of the meetings of such Party's Board of Directors and to redact portions of
Board of Directors materials delivered to the other Party's representative (i)
where and to the extent that a majority of such Party's Board of Directors
(without the other Party's representative present) determines a conflict of
interest between such Party and the other Party is present (but not where the
conflict is a conflict that is present for stockholders generally) and (ii) if,
in the opinion of such Party's counsel, attendance at such meeting or access to
such information could adversely effect the attorney-client privilege between
such Party and its counsel. So long as Mr. Avram Miller is a member of the Board
of Directors of PCCW, PCCW's obligations under this Clause shall be deemed to be
satisfied. Nothing in this Agreement shall obligate Mr. Miller, in his capacity
as a Representative of CMGI on the Board of Directors of PCCW, to act in a
manner that he considers to be inconsistent with his duty as a member of the
Board of Directors of PCCW to preserve the confidentiality of corporate
information.
6.4 For so long as any Party beneficially owns securities of the other Party in
an amount equal to its Beneficial Ownership Threshold, such Party shall have the
right to discuss the affairs, finances and accounts of the other Party or any of
its subsidiaries with its Chief Executive Officer, and to review such
information as is reasonably requested, including any information required for
the timely preparation of financial statements; provided, however, that the
other Party shall not be obligated under this Clause with respect to information
which the Board of Directors of the other Party determines in good faith is
confidential and should not, therefore, be disclosed or is required to be
withheld in order to comply with the requirements of any regulatory authority or
applicable law.
6.5 Each Party agrees that for a period of three years after receipt of the
information (a) all information received by it pursuant to Clause 6.4 and (b)
any other information that is disclosed by the other Party to it and is
identified by the other Party as being confidential or proprietary, shall be
considered confidential information. Each Party further agrees that it shall
hold all such confidential information in confidence and shall not disclose any
such confidential information to any third party except as required by law,
regulation (including the Listing Rules) or applicable process, provided that to
the extent possible the other Party shall have been provided with reasonable
notice and the opportunity to seek a protective order to the extent possible
prior to such disclosure, other than its counsel or accountants nor shall it use
such confidential information for any purpose other than its investment in the
other Party; provided, however, that the foregoing obligation to hold in
confidence and not to dis-
<PAGE>
close confidential information shall not apply to any information that (1) was
known to the public prior to disclosure by the other Party, (2) becomes known to
the public through no fault of such Party, (3) is disclosed to such Party on a
non-confidential basis by a third party having a legal right to make such
disclosure or (4) is independently developed by such Party.
6.6 Each Party agrees that for a period of three years after the Completion
Date, it will not, directly or indirectly, solicit for employment or hire any
officer, director or employee of the other Party or any of its subsidiaries or
divisions with whom such Party has had contact or who became known to it in
connection with its consideration of the transaction contemplated hereby, except
that such Party shall not be precluded from hiring any such employee who (i)
initiates discussions regarding such employment without any direct or indirect
solicitation by such Party, or (ii) has been terminated by the other Party or
its subsidiaries prior to commencement of employment discussions with such
Party. A solicitation shall not be deemed a breach of this Agreement if (a) the
personnel who perform such solicitation have no access to or knowledge of any
proprietary or confidential information of the other Party or of this Agreement
and (b) none of the soliciting Party's personnel who have access to or knowledge
of any proprietary or confidential information of the other Party or of this
Agreement have actual knowledge of such solicitation. The term "solicit for
employment" shall not be deemed to include general solicitations of employment
not specifically directed towards employees of a Party.
6.7 Each of CMGI and PCCW shall not sell, dispose of or otherwise transfer any
of the PCCW Shares or the CMGI Shares, as the case may be, for a period of three
years from the Completion Date unless (a) the sale, disposition or transfer is
made to an entity that is a wholly-owned subsidiary, direct or indirect, of such
Party and such entity has signed an agreement acceding to the obligations of the
initial Parties to this Agreement, or (b) prior written consent has been
obtained from the other Party. In the event a Party effects a sale, disposition
or transfer to an entity pursuant to subclause (a) of the preceding sentence
and, subsequent thereto, the entity ceases to be a wholly-owned subsidiary of
such Party, all necessary steps shall be taken to transfer as soon as
practicable the PCCW Shares or CMGI Shares, as the case may be, held by the
entity to such Party or to an entity that is a wholly-owned subsidiary of such
Party.
6.8 From and after the Completion Date, PCCW shall promptly provide CMGI with
any information reasonably requested by CMGI to enable CMGI or any of its
affiliates to prepare its tax returns (including the making of any elections)
and make any determinations with respect to taxes.
<PAGE>
6.9 Each of CMGI and PCCW shall use its best efforts within 30 days after the
date hereof or as soon as practicable thereafter, to file or cause to be filed,
and share equally the filing fee for, the notification and report forms required
under the HSR Act, if any are required, and to make promptly any required
submissions under the HSR Act, including any response to any request for
additional information, with respect to the transactions contemplated by this
Agreement.
7. Representations, Warranties and Undertakings of CMGI
----------------------------------------------------
7.1 CMGI hereby represents, warrants and undertakes to PCCW (to the intent that
the provisions of this Clause shall continue to have full force and effect
notwithstanding Completion) as follows:
(a) Organization, Good Standing and Qualification. CMGI is a corporation
duly organized, validly existing and in good standing under the laws
of Delaware. CMGI has all requisite corporate power and authority to
own and operate its properties and assets, to execute and deliver this
Agreement, to issue, sell and deliver the CMGI Shares, to carry out
the provisions of this Agreement and to carry on its business as
presently conducted and as presently proposed to be conducted. CMGI is
duly qualified and is authorized to do business and is in good
standing as a foreign corporation in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased)
makes such qualification necessary, except for those jurisdictions in
which failure to do so could not have, individually or in the
aggregate, a Material Adverse Effect (as defined herein) on CMGI. For
purposes of this Agreement, with respect to either Party, a "Material
Adverse Effect" shall mean a material adverse effect on the business,
assets, financial condition or operations of the Party and its
subsidiaries, taken as a whole.
(b) Subsidiaries. Set forth on Schedule 1 hereto, is a list of all
entities in which CMGI beneficially owns, directly or indirectly, 50%
or more of the outstanding stock or other equity interests
(collectively, the "CMGI Subsidiaries") as of September 22, 1999. Each
CMGI Subsidiary has been duly organized and is validly existing under
the laws of its jurisdiction of organization, is not in liquidation or
receivership, and has the power and authority (corporate or other) to
own its properties and conduct its business as described in the SEC
Documents (as defined below); and each CMGI Subsidiary is duly
qualified to do business as a foreign corporation in all other
jurisdictions in which its
<PAGE>
ownership or lease of property or the conduct of its business requires
such qualification, other than where the failure to be so qualified
would not individually or in the aggregate have a Material Adverse
Effect on CMGI. All of the issued and outstanding capital stock of
each CMGI Subsidiary has been duly authorized and validly issued and
is fully paid and nonassessable; and the capital stock or equity
interests of each CMGI Subsidiary owned by CMGI, directly or through
subsidiaries, is owned free from liens, encumbrances and defects other
than as set forth in the SEC Documents or which would not have a
Material Adverse Effect on CMGI.
(c) Validly Issued Shares. When issued in compliance with the provisions
of this Agreement, the CMGI Shares will be validly issued, fully paid
and nonassessable, will rank pari passu in all respects with all
existing issued common stock, par value $0.01 (the "Common Stock"), of
CMGI and will be free of any restrictions, limits, claims, liens or
other encumbrances; provided, however, that the CMGI Shares may be
subject to restrictions on transfer under state and/or federal
securities laws as set forth herein or as otherwise required by such
laws at the time a transfer is proposed.
(d) Authorization; Binding Obligations. All actions on the part of CMGI
and its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the
performance of all obligations of CMGI hereunder and the
authorization, sale, issuance and delivery of the CMGI Shares pursuant
hereto have been taken or will be taken prior to Completion, including
any actions required to comply with the HSR Act, if applicable. This
Agreement has been duly executed and delivered by CMGI, and (assuming
the due authorization, execution and delivery hereof by PCCW) this
Agreement is a valid and binding obligation of CMGI enforceable in
accordance with its terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights and (b)
general principles of equity that restrict the availability of
equitable remedies. The sale of the CMGI Shares is not subject to any
preemptive or similar rights or rights of first refusal that have not
been properly waived or complied with.
(e) Capitalization. The authorized capital stock of CMGI consists of
400,000,000 shares of Common Stock and 5,000,000 shares of pre-
<PAGE>
ferred stock, $.01 par value per share (the "Preferred Stock"), of
which (i) 250 shares have been designated Series A Convertible
Preferred Stock, (ii) 50,000 shares have been designated Series B
Convertible Preferred Stock, (iii) 375,000 shares have been designated
as Series C Convertible Preferred Stock and (iv) 18,090.45 shares have
been designated as Series D Preferred Stock. As of the close of
business on September 20, 1999, 116,177,788 shares of Common Stock
were issued and outstanding, and (i) no shares of Series A Preferred
Stock, (ii) 35,000 shares of Series B Preferred Stock (convertible
into an aggregate of 1,384,538 shares of Common Stock), (iii) 375,000
shares of Series C Preferred Stock (convertible into an aggregate of
3,925,674 shares of Common Stock), and (iv) 18,090.45 shares of Series
D Preferred Stock (convertible into an aggregate of 1,809,045 shares
of Common Stock) were issued and outstanding. All outstanding shares
of Common Stock are, and all shares of Common Stock subject to
issuance upon conversion of outstanding shares of Preferred Stock will
be, upon issuance, duly authorized, validly issued, fully paid and
nonassessable. Except as disclosed to PCCW, as set forth above or as
described or expressly contemplated by the SEC Documents (as defined
herein), as of September 20, 1999 there were no outstanding rights
(including without limitation, preemptive rights) warrants or options
to acquire, or instruments convertible into or exchangeable for, any
material number of shares of common stock or any other class of shares
or equity interest in CMGI or any of its subsidiaries, or any
contract, commitment, agreement, understanding or arrangement of any
kind relating to the issuance of any material number of shares of
common stock of CMGI or any subsidiary, any such convertible or
exchangeable securities or any such rights, warrants or options.
(f) Consents and Approvals; No Violations. Except for the filings,
permits, authorizations, consents and approvals as may be required
under federal and/or state securities laws, applicable stock exchange
regulations and, if applicable, the HSR Act none of the execution,
delivery or performance of this Agreement by CMGI, the consummation by
CMGI of the transactions contemplated hereby or compliance by CMGI
with any of the provisions hereof will (a) conflict with or result in
any breach of any provision of the certificate of incorporation or by-
laws of CMGI, (b) require any filing with, or permit, authorization,
consent or approval of, any governmental entity, (c) result in a
violation or breach of, or constitute (with or without due notice or
lapse of
<PAGE>
time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which CMGI or
any of its material subsidiaries is a party or by which any of them or
any of their respective properties or assets may be bound, or (d)
violate any order, writ, injunction, decree, statute, rule or
regulation applicable to CMGI, any of its material subsidiaries or any
of their properties or assets, excluding from the foregoing clauses
(b), (c) and (d) such violations, breaches or defaults which would
not, individually or in the aggregate, have a material adverse effect
on CMGI's ability to consummate the transactions.
(g) SEC Documents. CMGI has furnished or made available to PCCW, prior to
the date hereof, copies of its Annual Report on Form 10-K for the
fiscal year ended July 31, 1998 ("Form 10-K"), its Quarterly Reports
on Form 10-Q for the fiscal quarters ended October 31, 1998, January
31, 1999 and April 30, 1999 (the "Form 10-Qs"), the Current Reports on
Form 8-K filed since July 31, 1998 (the "Form 8-Ks"), and all other
registration statements, reports and proxy statements filed by CMGI
with the Securities and Exchange Commission ("SEC") on or after July
31, 1998 (the Form 10-K, the Form 10-Qs, the Form 8-Ks and such
registration statements, reports and proxy statements, are
collectively referred to herein as the "SEC Documents"). Each of the
SEC Documents, as of its respective date (or if amended or superseded
by a filing prior to the date of this Agreement, then on the date of
such filing), did not, and each of the registration statements,
reports and proxy statements filed by CMGI with the SEC after the date
hereof and prior to the Completion will not, as of the date thereof
(or if amended or superseded by a filing prior to the date of the
Completion, then on the date of such filing), contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading. CMGI is
not a party to any material contract, agreement or other arrangement
which was required to have been filed as an exhibit to the SEC
Documents that is not so filed.
(h) Financial Statements. CMGI has furnished or made available to PCCW
copies of its audited financial statements (the "Audited Financial
Statements") for the fiscal year ended July 31, 1998, and its
unaudited financial statements for the nine-month period ended April
30,
<PAGE>
1999 (the "Balance Sheet Date"). Since the Balance Sheet Date, CMGI
has duly filed with the SEC all registration statements, reports and
proxy statements required to be filed by it under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the
Securities Act of 1933, as amended (the "Securities Act"). The audited
and unaudited consolidated financial statements of CMGI included in
the SEC Documents filed prior to the date hereof fairly present, in
conformity with United States generally accepted accounting principles
("GAAP") (except as permitted by Form 10-Q) applied on a consistent
basis (except as may be indicated in the notes thereto), the
consolidated financial position of CMGI and its consolidated
subsidiaries as at the dates thereof and the consolidated results of
their operations and cash flows for the periods then ended (subject to
normal year end audit adjustments in the case of unaudited interim
financial statements).
(i) Absence of Certain Changes. Since the Balance Sheet Date and other
than in the ordinary course, there has not been: (i) any declaration,
setting aside or payment of any dividend or other distribution of the
assets of CMGI with respect to any shares of capital stock of CMGI or
any repurchase, redemption or other acquisition by CMGI or any CMGI
Subsidiary of a material number of the outstanding shares of CMGI's
capital stock; (ii) any damage, destruction or loss, whether or not
covered by insurance, except for such occurrences that have not
resulted, and are not expected to result in a Material Adverse Effect
on CMGI; (iii) any waiver by CMGI or any CMGI Subsidiary of a valuable
right or of a material debt owed to it, except for such waivers that
have not resulted and are not expected to result, in a Material
Adverse Effect on CMGI; (iv) any material change or amendment to, or
any waiver of any material rights under a material contract or
arrangement by which CMGI or any CMGI Subsidiary or any of their,
respective, assets or properties is bound or subject, except for
changes, amendments, or waivers that are expressly provided for or
disclosed in this Agreement or that have not resulted, and are not
expected to result, in a Material Adverse Effect on CMGI; (v) any
material change by CMGI in its accounting principles, methods or
practices or in the manner it keeps its accounting books and records,
except any such change required by a change in GAAP; or (vi) any other
event or condition of any character, except for such events and
conditions described in the SEC Documents or that have not resulted,
and
<PAGE>
are not expected to result, either individually or collectively, in a
Material Adverse Effect on CMGI.
(j) Approval for Listing. On or prior to Completion, the CMGI Shares shall
have been approved for listing on the Nasdaq.
(k) Legends. CMGI agrees that the certificates for the PCCW Shares shall
bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO RESTRICTIONS ON TRANSFER
CONTAINED IN THE SHARE EXCHANGE AGREEMENT
DATED SEPTEMBER 22, 1999, BETWEEN THE
COMPANY AND CMGI, INC., A COPY OF WHICH IS
ON FILE WITH THE COMPANY.
8. Representations, Warranties and Undertakings of PCCW
----------------------------------------------------
8.1 PCCW hereby represents, warrants and undertakes to CMGI (to the intent
that the provisions of this Clause shall continue to have full force and
effect notwithstanding Completion) that:
(a) Organization, Good Standing and Qualification. PCCW is a corporation
duly organized and validly existing under the laws of Hong Kong and is
not in liquidation or receivership. PCCW has all requisite corporate
power and authority to own and operate its properties and assets, to
execute and deliver this Agreement, to allot and issue the PCCW Shares
subject to the terms and conditions of this Agreement, to carry out
the provisions of this Agreement and to carry on its business as
presently conducted and as presently proposed to be conducted. The
memorandum of association and articles of association of PCCW comply
with the requirements of applicable Hong Kong law and are in full
force and effect. PCCW is duly qualified and is authorized to do
business and is in good standing as a foreign corporation in all
jurisdictions in which the nature of its activities and of its
properties (both owned and leased) makes such qualification necessary,
except for those jurisdictions in which failure to do so could not
have a Material Adverse Effect on PCCW.
<PAGE>
(b) Subsidiaries. Set forth on Schedule 2 hereto, is a list of all entities in
which PCCW beneficially owns, directly or indirectly, 50% or more of the
outstanding stock or other equity interests (collectively, the "PCCW
Subsidiaries") as of September 22, 1999. Each subsidiary of PCCW has been
duly incorporated and is validly existing under the laws of the
jurisdiction of its incorporation, is not in liquidation or receivership,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Offering Document (as defined
herein); and each subsidiary of PCCW is duly qualified to do business as a
foreign corporation in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification other than where the failure to be so qualified would not
individually or in the aggregate have a Material Adverse Effect on PCCW;
all of the issued and outstanding capital stock of each subsidiary of PCCW
has been duly authorized and validly issued and credited as fully paid; and
the capital stock of each subsidiary owned by PCCW, directly or through
subsidiaries, is owned free from liens, encumbrances and defects other than
as set forth in the Offering Document or which would not have a Material
Adverse Effect on PCCW.
(c) Validly Issued Shares. When issued in compliance with the provisions of
this Agreement, the PCCW Shares will be validly issued and credited as
fully paid, will rank pari passu in all respects with all existing issued
ordinary shares of PCCW and will be free of any restrictions, limits,
claims, liens or other encumbrances; provided, however, that the PCCW
Shares may be subject to restrictions on transfer under Hong Kong
securities laws or Stock Exchange regulations as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.
(d) Authorization; Binding Obligations. All actions on the part of PCCW and
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all
obligations of PCCW hereunder and the authorization, allotment and issuance
and delivery of the PCCW Shares pursuant hereto has been taken or will be
taken prior to Completion, including any actions required to comply with
the HSR Act, if applicable. This Agreement has been duly executed and
delivered by PCCW, and (assuming the due authorization, execution and
delivery hereof by CMGI) this
<PAGE>
Agreement is a valid and binding obligation of PCCW enforceable in
accordance with its terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights and (b) general principles of
equity that restrict the availability of equitable remedies. The issuance
of the PCCW Shares is not subject to any preemptive or similar rights or
rights of first refusal that have not been properly waived or complied
with.
(e) Capitalization. The issued share capital of PCCW as of the date of the
Offering Document is as set forth in the Offering Document under the
headings "Capitalization" and "Description of Ordinary Shares". The shares
constituting the issued share capital of PCCW have been duly authorized and
validly issued, are credited as fully paid and are not subject to
preemptive or similar rights. As of the date of the Offering Circular and
except (i) as described or expressly contemplated by the Offering Document
(including footnotes to the financial statements and tables contained
therein) and (ii) 207,904,000 ordinary shares issuable upon the exercise of
options granted to employees pursuant to PCCW's share option scheme,
referred to in the Offering Document, there are no outstanding rights
(including without limitation, preemptive rights) warrants or options to
acquire, or instruments convertible into or exchangeable for, any material
number of ordinary shares or any other class of shares or equity interest
in PCCW or any of its subsidiaries, or any contract, commitment, agreement,
understanding or arrangement of any kind relating to the issuance of any
material number of shares of PCCW or any subsidiary, any such convertible
or exchangeable securities or any such rights, warrants or options.
(f) Consents and Approvals; No Violations. Except for the filings, permits,
authorizations, consents and approvals as may be required under the HSR
Act, if applicable, and applicable Stock Exchange regulations and Section
45 of the Companies Ordinance, including without limitation the requisite
approval by the shareholders of PCCW and PCRD, if applicable, of the
transactions contemplated hereby, none of the execution, delivery or
performance of this Agreement by PCCW, the consummation by PCCW of the
transactions contemplated hereby or compliance by PCCW with any of the
provisions hereof will (a) conflict with or result in any breach of any
provision of the certificate of incorporation or memorandum and articles of
association of
<PAGE>
PCCW, (b) require any filing with, or permit, authorization, consent or
approval of, any governmental entity, (c) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which PCCW or any of its material
subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound, or (d) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to PCCW, any of
its material subsidiaries or any of their properties or assets, excluding
from the foregoing clauses (b), (c) and (d) such violations, breaches or
defaults which would not, individually or in the aggregate, have a material
adverse effect on PCCW's ability to consummate the transactions. PCRD, a
shareholder of PCCW holding at least a majority of the outstanding ordinary
shares of PCCW and PCGH, a shareholder of PCRD holding, indirectly, at
least a majority of the outstanding ordinary shares of PCRD, have agreed to
enter into an irrevocable undertaking substantially in the form attached
hereto as Exhibit B, pursuant to which they undertake to vote in favor of
the transactions contemplated hereby, such vote being sufficient to ensure
the approval of those transactions.
(g) The Offering Documents. The Preliminary Offering Circular, at September
15, 1999 (the "Offering Document"), a copy of which has been provided to
CMGI by PCCW, did not as of the date thereof contain any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(h) Financial Statements. The historical consolidated financial statements
included in the Offering Document present fairly the financial positions of
Pacific Convergence Corporation Ltd. ("PCC") and PCCW Properties Limited
("PCCW Properties") and their subsidiaries, have been prepared in
conformity with the generally accepted accounting principles in Hong Kong
applied on a consistent basis and fairly present the combined financial
condition and results of operations of PCC and PCCW at the dates and for
the periods presented; and the assumptions used in preparing the pro forma
financial statements included in the Offering Document provide a reasonable
basis for presenting the significant effects directly attributable to the
trans-
<PAGE>
actions or events described therein, the related pro forma adjustments give
appropriate effect to those assumptions, and the pro forma columns therein
reflect the proper application of those adjustments to the corresponding
historical or pro forma financial statement amounts.
(i) Absence of Certain Changes. Since the date of the Offering Document and
other than in connection with acquisitions in the ordinary course of
business, neither PCCW nor any of its subsidiaries has (i) entered into or
assumed any material contract, (ii) incurred, assumed or acquired any
material liability (including contingent liability) or other obligation or
(iii) acquired or disposed of or agreed to acquire or dispose of any
business or any other material asset that are not described in the Offering
Document. Except as disclosed in the Offering Document and other than in
connection with acquisitions in the ordinary course of business, in the
case of PCC, since March 31, 1999, and in the case of PCCW Properties,
since August 3, 1999, there has not been any change that would have a
material adverse effect on the business, assets, financial condition or
operations of PCC and its subsidiary taken as a whole, or of PCCW
Properties and its subsidiaries, taken as a whole, and, except as disclosed
in or contemplated by the Offering Document, there has been no dividend or
distribution of any kind declared, paid or made by PCCW on any class of its
capital stock.
(j) Hong Kong Withholding Taxes. Except as disclosed in the Offering Document,
under current laws and regulations of Hong Kong and any political subdivision
thereof, all dividends and other distributions declared and payable on the PCCW
Shares may be paid by PCCW to the holder thereof in Hong Kong dollars that may
be converted into foreign currency and freely transferred out of Hong Kong and
all such payments made to holders thereof who are non-residents of Hong Kong
will not be subject to income, withholding or other taxes under laws and
regulations of Hong Kong or any political subdivision or taxing authority
thereof or therein and will otherwise be free and clear of any other tax, duty,
withholding or deduction in Hong Kong or any political subdivision or taxing
authority thereof or therein and without the necessity of obtaining any
governmental authorization in Hong Kong or any political subdivision or taxing
authority thereof or therein.
(k) No Liability. Upon issuance of the PCCW Shares to CMGI, CMGI shall not be
subject to any liability in respect of any liability of PCCW by virtue only of
its holding of any such PCCW Shares.
<PAGE>
(l) Approval for Listing. On or prior to Completion, the PCCW Shares shall have
been approved for listing on the Stock Exchange.
(m) Purchase for Own Account. The CMGI Shares are being acquired for investment
for PCCW's own account, not as a nominee or agent, and not with a view to the
public resale or distribution thereof within the meaning of the Securities Act,
and PCCW has no present intention of selling, granting any participation in, or
otherwise distributing the same. PCCW also represents that it has not been
formed for the specific purpose of acquiring the CMGI Shares.
(n) Investment Experience. PCCW understands that the purchase of the CMGI
Shares involves substantial risk. PCCW has experience as an investor in
securities of companies and acknowledges that it is able to fend for itself, can
bear the economic risk of its investment in the CMGI Shares and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of this investment in the CMGI Shares and
protecting its own interests in connection with this investment.
(o) Accredited Investor Status. PCCW is an "accredited investor" within the
meaning of Regulation D promulgated under the Securities Act.
(p) Restricted Securities. PCCW hereby acknowledges and agrees with CMGI that
the CMGI Shares have not been registered under the Securities Act and may not be
offered or sold except pursuant to registration statement or to an exemption
from the registration requirements of the Securities Act, PCCW further agrees
that it has not entered and will not enter into any contractual arrangement with
respect to the distribution or delivery of the CMGI Shares, other than (i)
pursuant to a Registration Rights Agreement to be entered into by the Parties
substantially on the terms set forth in Exhibit A hereto, (ii) pursuant to Rule
144 under the Securities Act or (iii) pursuant to any transaction that does not
require registration under the Securities Act. PCCW is familiar with Rule 144
under the Securities Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
(q) Legends. PCCW agrees that the certificates for the CMGI Shares shall bear
the following legend:
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR WITH ANY STATE
SECURITIES COMMISSION, AND MAY NOT BE
TRANSFERRED OR DISPOSED OF BY THE HOLDER
IN THE ABSENCE OF A REGISTRATION STATEMENT
WHICH IS EFFECTIVE UNDER THE SECURITIES
ACT OF 1933 AND APPLICABLE STATE LAWS AND
RULES, OR, UNLESS, IMMEDIATELY PRIOR TO
THE TIME SET FOR TRANSFER, SUCH TRANSFER
MAY BE EFFECTED WITHOUT VIOLATION OF THE
SECURITIES ACT OF 1933 AND OTHER
APPLICABLE STATE LAWS AND RULES. THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON TRANSFER
CONTAINED IN THE SHARE EXCHANGE AGREEMENT
DATED SEPTEMBER 22, 1999, BETWEEN THE
COMPANY AND PACIFIC CENTURY CYBERWORKS
LIMITED, A COPY OF WHICH IS ON FILE WITH
THE COMPANY.
In addition, PCCW agrees that in the event CMGI reasonably believes
that PCCW has failed to comply with the terms of this Agreement or the
requirements of the Securities Act, CMGI may place stop transfer
orders with its transfer agents with respect to such certificates.
The appropriate portion of the legend and the stop transfer orders
will be removed promptly upon delivery to CMGI of such satisfactory
evidence as reasonably may be required by CMGI, that such legend or
stop orders are not required to ensure compliance with the Securities
Act.
9. Restriction on Announcements and Disclosure
-------------------------------------------
9.1 Subject as provided in Clause 9.2, neither Party shall make any public
announcement in relation to the transactions contemplated hereby without having
consulted with the other Party.
<PAGE>
9.2 This Clause shall not apply to any announcement required to be made
pursuant to the Listing Rules as to the contents of which the Party making the
same shall have consulted with the other Party and obtained approval from the
Stock Exchange as may be required.
10. Miscellaneous
-------------
10.1 Each Party shall pay its own costs and expenses incurred in connection
with the preparation, negotiation and settlement of this Agreement.
10.2 All fees and duties (if any) relating to the issue of the CMGI Shares
shall be borne by CMGI. Capital duty and all other fees and duties (if any)
relating to the issue of the PCCW Shares shall be borne by PCCW.
10.3 Any notice, demand or other communication given or made under this
Agreement shall be in writing and delivered or sent to the relevant Party at its
address or facsimile number set out below (or such other address or facsimile
number as the addressee has by five (5) days' prior written notice specified to
the other Party):
To CMGI: CMGI, Inc.
100 Brickstone Square, First Floor
Andover, Massachusetts 01810
Facsimile no.: (978) 684-3601
Attention: William Williams, II
With copies to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071
Facsimile no.: (312) 687-5600
Attention: Michael V. Gisser
and CMS Cameron McKenna
5/th/ Floor, Tower One
Lippo Centre
89 Queensway
Hong Kong
Facsimile no.: (852) 2845-3575
Attention: Julian A. Ogley
<PAGE>
To PCCW: Pacific Century CyberWorks Limited
38/F, Citibank Tower
Citibank Plaza
3 Garden Road
Central, Hong Kong
Facsimile no.: (852) 2514-8609
Attention: Chief Financial Officer
With copies to: Baker & McKenzie
14/th/ Floor, Hutchinson House
10 Harcourt Road
Hong Kong
Facsimile no.: (852) 2845-0476
Attention: Christopher Buchan
and Winnie Siu Morrison
101 College Road
London SE21 7HN
Facsimile no: 44-181-693-6388
Any notice, demand or other communication so addressed to the relevant
Party shall be deemed to have been delivered: (a) if given or made by
letter, when actually delivered to the relevant address; and (b) if given
or made by facsimile, when transmitted, subject to machine-printed
confirmation of receipt being received by the sender.
10.4 Each Party undertakes to the other Party to execute or procure to be
executed all such documents and to do or procure to be done all such other
acts and things as may be reasonable and necessary to give both Parties the
full benefit of this Agreement.
10.5 This Agreement shall be binding on and inure solely to the benefit of CMGI
and PCCW and their respective successors and assigns. Neither Party shall
assign any of its rights hereunder without the prior consent of the other
Party, which consent shall not be unreasonably withheld.
10.6 The exercise of or failure to exercise any right or remedy of any breach of
this Agreement shall not, except as provided herein, constitute a waiver by
such Party of any other right or remedy it may have in respect of that
breach.
<PAGE>
10.7 Any right or remedy conferred by this Agreement on any Party for breach of
this Agreement by the other Party (including without limitation the breach
of any representations and warranties) shall be in addition and without
prejudice to all other rights and remedies available to it in respect of
that breach.
10.8 Any provision of this Agreement which is capable of being performed after
Completion but which has not been fully and completely performed at or
before Completion and all representations and warranties and other
undertakings contained in or entered into pursuant to this Agreement shall
remain in full force and effect notwithstanding Completion.
10.9 This Agreement constitutes the entire agreement between the Parties with
respect to its subject matter (neither Party having relied on any
representation or warranty made by the other Party which is not contained
in this Agreement) and no variation of this Agreement shall be effective
unless made in writing and signed by all of the Parties.
10.10 This Agreement supersedes all and any previous agreements, arrangements or
understanding between the Parties relating to the matters referred to in
this Agreement and all such previous agreements, arrangements or
understanding (if any) shall cease to have any effect from the date
hereof.
10.11 If at any time any provision of this Agreement is or becomes illegal, void
or unenforceable in any respect, the remaining provisions hereof shall in
no way be affected or impaired thereby.
11. Governing Law and Jurisdiction
------------------------------
This Agreement shall be governed by and construed in accordance with the
laws of Hong Kong and each Party hereby irrevocably submits to the non-
exclusive jurisdiction of the courts of Hong Kong and the federal and
state courts of the State of Delaware, United States of America as regards
any claim or matter arising under this Agreement. CMGI hereby irrevocably
appoints CMGI's Solicitors as its agent to receive and acknowledge on its
behalf service of any writ, summons, order, judgment or other notice of
legal process in Hong Kong arising out of or in connection with this
Agreement. If for any reason CMGI's Solicitors (or their successors) no
longer serve as agent of CMGI for this purpose, CMGI shall promptly
appoint a successor agent satisfactory to PCCW, notify PCCW of the change
and deliver to PCCW a copy of the new process agent's acceptance of
appointment provided that until PCCW receives such notification, it shall
be entitled to treat the agent named
<PAGE>
above (or their said successors) as CMGI's agent for the purposes of this
Clause. CMGI agrees that any such legal process shall be sufficiently
served on it if delivered to the relevant agent for service at its address
for the time being in Hong Kong whether or not such agent gives notice
thereof to it. PCCW hereby agrees to irrevocably appoint CT to receive on
its behalf service of process in respect of any suit, action or proceeding
in any Delaware State or Federal court sitting in Delaware arising out of
or in connection with this Agreement and agrees to pay all fees charged by
CT for representation as registered agent. If for any reason CT (or its
successor) no longer serves as agent of PCCW for this purpose, PCCW shall
promptly appoint a successor agent satisfactory to CMGI, notify CMGI of the
change and deliver to CMGI copy of the new process agent's acceptance of
appointment provided that until CMGI receives such notification, it shall
be entitled to treat the agent named above (or its said successors) as
PCCW's agent for the purposes of this Clause. PCCW agrees that any such
legal process shall be sufficiently served on it if delivered to the
relevant agent for service at its address for the time being in Delaware
whether or not such agent gives notice thereof to it.
<PAGE>
IN WITNESS WHEREOF this Agreement has been executed on the day and year first
above written.
SIGNED by )
)
)
/s/ Richard Li )
- --------------------------------
Name: Richard Li )
Title: Chief Executive Officer )
for and on behalf of )
Pacific Century )
CyberWorks Limited )
in the presence of: )
)
)
/s/ David Andonian )
- --------------------------------
SIGNED by )
)
)
/s/ David S. Wetherell )
- --------------------------------
Name: David S. Wetherell )
Title: Chief Executive Officer )
for and on behalf of )
CMGI, Inc. )
in the presence of: )
)
)
/s/ [illegible] )
- --------------------------------
<PAGE>
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of November 29, 1999, by and among CMGI, INC., a company
incorporated in Delaware, the United States of America (the "Company"), and the
party from time to time executing a signature page hereto (the "Investor").
WHEREAS, pursuant to a Share Exchange Agreement (the "Share Exchange
Agreement"), dated September 22, 1999, the Company will issue shares of its
common stock, par value US$0.01 per share;
WHEREAS, in the Share Exchange Agreement, the Company has agreed to
provide the registration rights set forth in this Agreement; and
WHEREAS, the execution and delivery of this Agreement is a condition
to Completion (as defined in the Share Exchange Agreement).
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
Section 1. Definitions.
As used in this Agreement, the following terms shall have the meanings
set forth below:
"Charter" means the Certificate of Incorporation of the Company, as
amended from time to time.
"Commission" means the United States Securities and Exchange
Commission or any other United States Federal agency at the time administering
the Securities Act.
"Common Stock" means the Company's common stock, par value US$0.01 per
share, or any other shares of capital stock or other securities of the Company
into which such shares of Common Stock shall be reclassified or changed,
including, by reason of a merger, consolidation, reorganization or
recapitalization. If the Common Stock has been so reclassified or changed, or
if the Company pays a dividend or makes a distribution on the Common Stock in
shares of capital stock, or subdivides (or combines) its outstanding shares of
Common Stock into a greater (or smaller) number of shares of Common Stock, a
share of Common Stock shall be deemed to be such number of shares of stock and
amount of other securities to which a holder of a share of Common Stock
outstanding immediately prior to
<PAGE>
such change, reclassification, exchange, dividend, distribution, subdivision or
combination would be entitled.
"Delay Period" has the meaning set forth in Section 2(d) of this
Agreement.
"Demand Notice" has the meaning set forth in Section 2(a) of this
Agreement.
"Demand Registration" has the meaning set forth in Section 2(a) of
this Agreement.
"Effectiveness Period" has the meaning set forth in Section 2(d) of
this Agreement.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"Holder" means a person who owns Registrable Securities and is either
(i) an Investor or a Permitted Transferee of an Investor that has agreed to be
bound by the terms of this Agreement as if such Person were an Investor, (ii)
upon the death of any Holder, the executor of the estate of such Holder or such
Holder's heirs, devisees, legatees or assigns or (iii) upon the disability of
any Holder, any guardian or conservator of such Holder.
"Interruption Period" has the meaning set forth in Section 5(o) of
this Agreement.
"Losses" has the meaning set forth in Section 7(a) of this Agreement.
"Misstatement/Omission" has the meaning set forth in Section 7(a) of
this Agreement.
"NASD" means the National Association of Securities Dealers, Inc.
"Other Security Holders" has the meaning set forth in Section 2(b) of
this Agreement.
"Permitted Transferee" means any Person to whom the rights under this
Agreement have been assigned in accordance with the provisions of the Share
Exchange Agreement and Section 11(d) hereof.
"Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency, limited liability company
or any other entity, whether acting in an individual, fiduciary or other
capacity.
"Piggyback Registration" has the meaning set forth in Section 3(a) of
this Agreement.
<PAGE>
"Registrable Securities" means (i) the shares of Common Stock issued
to the Investor pursuant to the Share Exchange Agreement, and (ii) any Common
Stock issued or issuable with respect to such Common Stock referred to above by
way of stock dividends or stock splits or in connection with a combination of
shares, recapitalization, merger, consolidation, or other reorganization or
otherwise. As to any particular Registrable Securities, such securities will
cease to be Registrable Securities when (i) they have been distributed to the
public pursuant to an offering registered under the Securities Act, (ii) they
have been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, (iii) they are eligible for immediate sale
pursuant to Rule 144(k) under the Securities Act or (iv) they have been sold to
any Person to whom the rights under this Agreement are not assigned in
accordance with this Agreement.
"Registration Statement" means any registration statement under the
Securities Act of the Company that covers any of the Registrable Securities
pursuant to the provisions of this Agreement, including the related prospectus
and any information deemed to be a part of such prospectus pursuant to Rule 430A
under the Securities Act, all amendments and supplements to such registration
statement or prospectus, including pre- and post-effective amendments (including
any registration statement filed pursuant to Rule 462(b) under the Securities
Act), all exhibits thereto and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
"Required Investors" means Holders of at least 50% of the aggregate
amount of all Registrable Securities outstanding.
"Securities Act" means the United States Securities Act of 1933, as
amended, or any similar United States Federal statute, and the rules and
regulations of the Commission promulgated thereunder.
Unless otherwise stated, other capitalized terms contained herein have
the meanings set forth in the Share Exchange Agreement.
Section 2. Demand Registrations.
(a) The Holders shall have the right, commencing on the date on which
PCCW and its direct and indirect subsidiaries shall be permitted to sell Common
Stock without the restrictions imposed by Section 6.7 of the Share Exchange
Agreement by written notice (the "Demand Notice") given to the Company, to
request the Company to register under and in accordance with the provisions of
the Securities Act all or part of the Registrable Securities designated by such
Holders (a "Demand Registration"). Upon receipt of any such Demand Notice from
any Holder, the Company will promptly notify all other Holders of the receipt of
such Demand Notice and allow them the opportunity to include Registrable
Securities held by them in the proposed registration by submitting their own
Demand Notice. Notwithstanding anything herein to the contrary, the Company
shall not be required to honor a request for a Demand Registration if the
Company has not received Demand Notices from the Required Investors. The Company
shall not be required to register any Registrable Securities under this Section
2 unless the approximate aggregate offering price of the Registrable Securities
included in such Demand Notices shall be at least US$25 million.
<PAGE>
(b) Subject to paragraph (a) above, as soon as practicable, but in
any event within 20 days of the date on which the Company first receives a
Demand Notice pursuant to Section 2(a) hereof, the Company shall file with the
Commission a Registration Statement on the appropriate form for the registration
and sale of the total number of Registrable Securities specified in such Demand
Notice in accordance with the intended method or methods of distribution
specified by the Holders in such Demand Notice. Subject to paragraph (h) below,
the Company may include in such registration other securities for sale for its
own account or for the account of any other holders of Common Stock ("Other
Security Holders"). The Company shall use reasonable best efforts to cause such
Registration Statement to be declared effective by the Commission as soon as
reasonably practicable. Notwithstanding the foregoing, the Company shall not be
obligated to file a Registration Statement pursuant to this Section 2(b):
(1) if Form S-3 (or any successor form with substantially the
same disclosure requirements) is not available for such offering by the
Holders; or
(2) if the Company has, within the six month period preceding
the date of such request, already effected a registration under the
Securities Act, other than a registration from which Registrable Securities
of Holders have been excluded (with respect to all or any portion of the
Registrable Securities requested by included in such registration) pursuant
to the provisions of Section 3 hereof.
(c) Subject to Section 2(d), upon the occurrence of any event that
would cause the Registration Statement (A) to contain a material misstatement or
omission or (B) to be not effective and usable for resale of Registrable
Securities during the period that such Registration Statement is required to be
effective and usable, the Company shall file an amendment to the Registration
Statement as soon as reasonably practicable, in the case of clause (A),
correcting any such misstatement or omission and, in the case of either clause
(A) or (B), use reasonable best efforts to cause such amendment to be declared
effective and such Registration Statement to become usable as soon as reasonably
practicable thereafter.
(d) The Company agrees to use reasonable best efforts to keep any
Registration Statement filed pursuant to this Section 2 continuously effective
and usable for the sale of Registrable Securities until the earlier of (i) 120
days from the date on which the Commission declares such Registration Statement
effective, or (ii) the date on which all the Registrable Securities covered by
such Registration Statement have been sold pursuant to such Registration
Statement. Notwithstanding the foregoing, the Company shall have the right to
delay the filing of any Registration Statement otherwise required to be prepared
and filed by the Company pursuant to this Section 2, or to suspend the use of
any Registration Statement, for a period not in excess of 90 days (a "Delay
Period") if the Company shall furnish to the Holders whose Registrable
Securities are included in such Registration Statement, a certificate signed by
the President or Chief Executive Officer of the Company stating that, in the
good faith judgment of the Board of Directors of the Company, it would be
materially detrimental to the Company and its stockholders for such Holders to
continue to make sales thereunder, provided, that the 120 day period set forth
in clause (i) above shall be ex-
<PAGE>
tended by an amount of time equal to any Delay Period which interrupts such 120
period. The Company may not utilize this right more than once in any twelve (12)
month period.
(e) The Company shall not enter into any agreement granting any Other
Security Holder piggyback rights to include such Other Security Holder's
securities in any registration in which the Holders have the right to include
Registrable Securities on a priority basis more favorable to such Other Security
Holder than is provided to the Holders pursuant to Section 3(b).
(f) Holders of a majority in number of the Registrable Securities to
be included in a Demand Registration pursuant to this Section 2 may, at any time
prior to the effective date of the Registration Statement in respect thereof,
revoke such request by providing a written notice to the Company to such effect.
(g) Preemption of Demand Registration. Notwithstanding anything to
---------------------------------
the contrary contained herein, after receiving a written request for a Demand
Registration, the Company may elect to effect an underwritten primary
registration in lieu of the Demand Registration if the Company's Board of
Directors believes that such primary registration would be in the best interests
of the Company. If the Company so elects to effect a primary registration, the
Company shall give prompt written notice (which shall be given not later than 20
days after the date of the Demand Notice) to all holders of the Registrable
Securities of its intention to effect such a registration and shall afford the
holders of the Registrable Securities the rights contained in Section 3 with
respect to Piggyback Registrations. In the event that the Company so elects to
effect a primary registration after receiving a request for a Demand
Registration, the Company shall use reasonable best efforts to have the
Registration Statement declared effective by the Commission as soon as
reasonably practicable. In addition, the request for a Demand Registration shall
be deemed to have been withdrawn and such primary registration shall not be
deemed to be a Demand Registration.
(h) Priority in Cutback. If a Demand Registration is an underwritten
-------------------
offering and includes securities for sale by the Company, and the managing
underwriter (such underwriters to be chosen by the Holders included in such
registration, subject to the Company's reasonable approval) advises the Company,
in writing, that, in its good faith judgment, the number of securities requested
to be included in such registration exceeds the number which can be sold in such
offering without materially and adversely affecting the marketability of the
offering, then the Company will include in any such registration the maximum
number of shares which the managing underwriter advises the Company can be sold
in such offering allocated as follows: first the Registrable Securities
-----
requested to be included in such registration by the Holders, pro rata on the
--- ----
basis of the number of Registrable Securities requested to be included by such
Holders, second the securities requested to be included in such registration by
------
the Company for its own account, and third the securities requested to be
-----
included in such registration by the Company for the account of Other Security
Holders.
<PAGE>
Section 3. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register
------------------
any of its equity securities under the Securities Act (other than a registration
on Form S-4 relating solely to a transaction described in Rule 145 of the
Securities Act or a registration on Form S-8 or any successor forms thereto),
whether or not for sale for its own account, the Company will give prompt
written notice of such proposed filing to all Holders at least 30 days before
the anticipated filing date. Such notice shall offer such Holders the
opportunity to register such amount of Registrable Securities as they shall
request (a "Piggyback Registration"). Subject to Sections 3(b) and 3(c) hereof,
the Company shall include in each such Piggyback Registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 20 days after such notice has been given by the Holders
to the Company. If the Registration Statement relating to the Piggyback
Registration is to cover an underwritten offering, such Registrable Securities
shall be included in the underwriting on the same terms and conditions as the
securities otherwise being sold through the underwriters. Each Holder shall be
permitted to withdraw all or part of the Registrable Securities from a Piggyback
Registration at any time prior to the effective time of such Piggyback
Registration.
(b) Priority on Primary Registrations. If a Piggyback Registration
---------------------------------
is an underwritten primary registration on behalf of the Company, by or through
one or more underwriters of recognized standing and the managing underwriters
advise the Company in writing that in their good faith judgment the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without materially and adversely affecting
the marketability of the offering, then the Company will include in the
Registration Statement relating to such registration (i) first, the securities
the Company proposes to sell, and (ii) second, the Registrable Securities
requested to be included in such registration by the Holders and the securities
requested to be included in such registration by any Other Security Holders that
have requested inclusion of their securities, on a pro rata basis, based on the
amount of Common Stock requested to be included therein.
(c) Priority on Secondary Registrations. If a Piggyback Registration
-----------------------------------
is an underwritten secondary registration on behalf of Other Security Holders,
by or through one or more underwriters of recognized standing and the managing
underwriter(s) advise the Company in writing that in their good faith judgment
the number of securities requested to be included in such registration exceeds
the number which can be sold in such offering without materially and adversely
affecting the marketability of the offering, the Company will include in such
registration, the securities owned by such Other Security Holders and the
Registrable Securities requested to be included in such registration by the
Holders thereof, reduced, in each case, on a pro rata basis, based on the amount
of Common Stock requested to be included therein.
Section 4. Hold-back Agreements.
(a) The Company agrees (i) if so required by the managing underwriter
of an underwritten offering effected pursuant to a Registration under Section 2
or 3 hereof, not to effect any public or private sale or distribution of
securities of the same type (including
<PAGE>
any underlying securities) as the Registrable Securities included in such
underwritten registration, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to the pricing of
such offering and until the earlier of (A) the end of the 180-day period
beginning on the date of pricing of such offering (except as part of such
underwritten offering and except pursuant to registrations on Form S-4 or Form
S-8 (or any successor form to such Form)), unless the managing underwriter for
such offering otherwise agrees, and (B) the abandonment of such offering, and
(ii) to use reasonable best efforts to cause each holder of securities of the
same type as the securities included in such underwritten offering, or any
securities convertible into or exchangeable or exercisable for such securities,
in each case purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to agree not to effect
any public or private sale or distribution or otherwise dispose (including sales
pursuant to Rule 144 under the Securities Act) of any such securities during
such period (except as part of such underwritten registration, if otherwise
permitted), unless the managing underwriter for such offering otherwise agrees.
(b) If the Company registers securities of the Company in connection
with an underwritten public offering of Common Stock solely by the Company, the
Holders, if so requested by the managing underwriter of such underwritten
offering, agree not to effect any public sale or distribution of any of the
Registrable Securities, including any sale pursuant to Rule 144 under the
Securities Act (other than as a part of such underwritten public offering)
without the consent of the Company or such managing underwriter during the
period commencing on a date specified by the underwriter, such date not to
exceed seven days prior to the effective date of such registration statement,
and ending on the earlier of (A) 180 days after the pricing of such offering,
(B) the abandonment of such offering and (C) the first date on which the Company
or any affiliate or executive officer of the Company is permitted to sell shares
of Common Stock of the Company.
Section 5. Registration Procedures.
Whenever the Company is required to register Registrable Securities
pursuant to Section 2 or 3 hereof, the Company will use reasonable best efforts
to effect the registration to permit the sale of such Registrable Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company will as expeditiously as possible:
(a) prepare and file with the Commission a Registration Statement
with respect to such Registrable Securities as prescribed by Section 2 or 3 on a
form available for the sale of the Registrable Securities by the holders thereof
in accordance with the intended method or methods of distribution thereof and
use reasonable best efforts to cause each such Registration Statement to become
and remain effective within the time periods and otherwise as provided herein;
(b) prepare and file with the Commission such amendments, (including
post-effective amendments) to the Registration Statement and such supplements to
the Prospectus as may be necessary to keep such Registration Statement effective
and to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement until such
time as all of such securities have been
<PAGE>
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof set forth in such Registration Statement;
(c) furnish to each selling Holder of Registrable Securities covered
by a Registration Statement and to each underwriter, if any, such number of
copies of such Registration Statement, each amendment and post-effective
amendment thereto, the Prospectus included in such Registration Statement
(including each preliminary prospectus and any supplement to such Prospectus and
any other prospectus filed under Rule 424 of the Securities Act), in each case
including all exhibits, and such other documents as such Holder may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Holder or to be disposed of by such underwriter (the Company
hereby consenting to the use in accordance with all applicable law of each such
Registration Statement (or amendment or post-effective amendment thereto) and
each such Prospectus (or preliminary prospectus or supplement thereto) by each
such Holder and the underwriters, if any, in connection with the offering and
sale of the Registrable Securities covered by such Registration Statement or
Prospectus);
(d) use reasonable best efforts to register or qualify and, if
applicable, to cooperate with the selling Holders, the underwriters, if any, and
their respective counsel in connection with the registration or qualification
(or exemption from such registration or qualification) of, the Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as any selling Holder or managing underwriters (if any) shall
reasonably request, to keep each such registration or qualification (or
exemption therefrom) effective during the period such Registration Statement is
required to be kept effective and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Securities covered by the applicable Registration Statement; provided, that the
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph or (ii) consent to general service of process or taxation in any such
jurisdiction where it is not so subject;
(e) use reasonable best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which securities of the
same class as the Registrable Securities are then listed and, if not so listed,
to be listed on the NASD automated quotation system and, if listed on the NASD
automated quotation system, use reasonable best efforts to secure designation of
all such Registrable Securities covered by such Registration Statement as a
NASDAQ Security within the meaning of Rule 11Aa3-l under the Exchange Act or,
failing that, to secure NASDAQ authorization for such Registrable Securities
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register as such with respect to such Registrable
Securities with the NASD;
(f) provide a transfer agent and registrar for all such Registrable
Securities and a CUSIP number for all such Registrable Securities not later than
the effective date of such Registration Statement;
(g) comply with all applicable rules and regulations of the
Commission, and make available to its security holders an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 45 days after the end of any 12-month period (or 90
<PAGE>
days after the end of any 12-month period if such period is a fiscal year) (or
in each case within such extended period of time as may be permitted by the
Commission for filing the applicable report with the Commission) (i) commencing
at the end of any fiscal quarter in which Registrable Securities are sold to
underwriters in an underwritten offering or (ii) if not sold to underwriters in
such an offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of a Registration Statement, which earnings
statement shall cover said 12-month periods;
(h) use reasonable best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or suspending the
qualification (or exemption from qualification) of any of the Registrable
Securities included therein for sale in any jurisdiction, and, in the event of
the issuance of any stop order suspending the effectiveness of a Registration
Statement, or of any order suspending the qualification of any Registrable
Securities included in such Registration Statement for sale in any jurisdiction,
the Company will use reasonable best efforts promptly to obtain the withdrawal
of such order at the earliest possible moment;
(i) obtain "cold comfort" letters and updates thereof (which letters
and updates (in form, scope and substance) shall be reasonably satisfactory to
the managing underwriters, if any, and the Holders) from the independent
certified public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company or of
any business acquired by the Company for which financial statements and
financial data are, or are required to be, included in the Registration
Statement), addressed to each of the underwriters, if any, and each selling
Holder of Registrable Securities, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings and such other matters as the
underwriters, if any, or the Holders of a majority of the Registrable Securities
being sold may reasonably request;
(j) obtain opinions of independent counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and the Holders of
a majority of the Registrable Securities being sold), addressed to each selling
Holder and each of the underwriters, if any, covering the matters customarily
covered in opinions of issuer's counsel requested in underwritten offerings,
such as the effectiveness of the Registration Statement and such other matters
as may be requested by such counsel and underwriters, if any;
(k) promptly notify the selling Holders and the managing
underwriters, if any, and confirm such notice in writing.
(1) when a Prospectus or any supplement or post-effective
amendment to such Prospectus has been filed, and, with respect to a
Registration Statement or any post-effective amendment thereto, when the
same has become effective,
(2) of any request by the Commission or any other Federal or
state governmental authority for amendments or supplements to a
Registration Statement or related Prospectus or for additional information,
<PAGE>
(3) of the issuance by the Commission of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any Prospectus or the initiation of any
proceedings by any Person for that purpose,
(4) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of a Registration Statement or any of the Registrable
Securities for offer or sale under the securities or blue sky laws of any
jurisdiction, or the contemplation, initiation or threatening, of any
proceeding for such purpose, and
(5) of the happening of any event or the existence of any facts
that make any statement made in such Registration Statement or Prospectus
untrue in any material respect or that require the making of any changes in
such Registration Statement or Prospectus so that it will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made (in the case of
any Prospectus), not misleading (which notice shall be accompanied by an
instruction to the selling Holders and the managing underwriters, if any,
to suspend the use of the Prospectus until the requisite changes have been
made);
(l) if requested by the managing underwriters, if any, or a Holder of
Registrable Securities being sold, promptly incorporate in a prospectus,
supplement or post-effective amendment such information as the managing
underwriters, if any, and the Holders of a majority of the Registrable
Securities being sold reasonably request to be included therein relating to the
sale of the Registrable Securities, including, without limitation, information
with respect to the number of shares of Registrable Securities being sold to
underwriters, the purchase price being paid therefor by such underwriters and
with respect to any other terms of the underwritten offering of the Registrable
Securities to be sold in such offering, and make all required filings of such
prospectus, supplement or post-effective amendment promptly following
notification of the matters to be incorporated in such supplement or post-
effective amendment;
(m) if requested, furnish to each selling Holder of Registrable
Securities and the managing underwriter, without charge, at least one signed
copy of the Registration Statement;
(n) as promptly as practicable upon the occurrence of any event
contemplated by clause 5(k)(5) above, prepare a supplement or post-effective
amendment to the Registration Statement or the Prospectus, or any document
incorporated therein by reference, or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Securities being
sold hereunder, the Prospectus will not contain an untrue statement of a
material fact or an omission to state a material fact required to be stated in a
Registration Statement or Prospectus or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and
<PAGE>
(o) if such offering is an underwritten offering, enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in underwritten offerings) and take all such other appropriate and
reasonable actions requested by the Holders owning a majority of the Registrable
Securities being sold in connection therewith or by the managing underwriters
(including cooperating in reasonable marketing efforts, including participation
by senior executives of the Company in any "roadshow" or similar meeting with
potential investors) in order to expedite or facilitate the disposition of such
Registrable Securities, and in such connection, provide indemnification
provisions and procedures substantially to the effect set forth in Section 7
hereof with respect to all parties to be indemnified pursuant to said Section.
The above shall be done at each closing under such underwriting or similar
agreement, or as and to the extent required thereunder.
Each Holder agrees by acquisition of such Registrable Securities that,
upon receipt of written notice from the Company of the happening of any event of
the kind described in Section 5(k), such Holder will forthwith discontinue
disposition of such Registrable Securities covered by such Registration
Statement until such Holder's receipt of the copies of the supplemented or
amended Registration Statement contemplated by Section 5(n), or until it is
advised in writing by the Company that the use of the applicable Prospectus may
be resumed, and has received copies of any additional or supplemental filings
that are incorporated or deemed to be incorporated by reference in such
prospectus (such period during which disposition is discontinued being an
"Interruption Period"), and, if so directed by the Company, such Holder will
deliver to the Company all copies of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice.
Section 6. Registration Expenses.
The Company shall bear all expenses incurred in connection with the
registration or attempted registration of the Registrable Securities pursuant to
Sections 2 and 3 of this Agreement as provided herein. Such expenses shall
include, without limitation, all printing, legal and accounting expenses
incurred by the Company and all registration and filing fees imposed by the
Commission, any state securities commission or the New York Stock Exchange or,
if the Common Stock is not then listed on the New York Stock Exchange, the
principal national securities exchange or national market system on which the
Common Stock is then traded or quoted. Notwithstanding the foregoing sentence,
Holders shall be responsible for any pro rata share of brokerage or underwriting
commissions and taxes of any kind (including, without limitation, transfer
taxes) with respect to any disposition, sale or transfer of Registrable
Securities and for any legal, accounting and other expenses incurred by them in
connection with any Registration Statement.
<PAGE>
Section 7. Indemnification.
(a) Indemnification by the Company. The Company agrees to
------------------------------
indemnify, to the fullest extent permitted by law, each Holder, each affiliate
of a Holder and each officer, director, employee, counsel, agent or
representative of such Holder and its affiliates and each Person who controls
any such Person (within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act) against, and hold it and them harmless from,
all losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys' fees and disbursements) and expenses,
including expenses of investigation (collectively, "Losses") arising out of,
caused by or based upon any untrue or alleged untrue statement of material fact
contained in any Registration Statement, or any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading (a "Misstatement/Omission"), or any violation
or alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law, or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law, except that the Company shall
not be liable insofar as such Misstatement/Omission or violation is made in
reliance upon and in conformity with information furnished in writing to the
Company by such Holder expressly for use therein; provided, further that the
Company shall not be liable for a Holder's failure to deliver or cause to be
delivered (to the extent such delivery is required under the Securities Act) the
Prospectus contained in the Registration Statement, furnished to it by the
Company at or prior to the time such action is required by the Securities Act to
the person claiming a Misstatement/Omission if such Misstatement/Omission was
corrected in such Registration Statement. In connection with an underwritten
offering, the Company will indemnify such underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, their officers and directors and each Person who controls such
underwriters (within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Holders. This indemnity shall be in
addition to any other indemnification arrangements to which the Company may
otherwise be party. Notwithstanding the foregoing, the indemnity contained in
this section shall not apply to amounts paid in settlement of any such Losses if
such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such Losses to the extent that they arise out of or are based upon
a Misstatement/Omission included in reliance upon and in conformity with written
information furnished expressly for use in connection with such Registration
Statement by such Holder (or any partner, officer, director, underwriter or
controlling person of such Holder).
(b) Indemnification by the Holders. In connection with any
------------------------------
Registration Statement in which a Holder is participating, each such Holder
agrees to indemnify, to the fullest extent permitted by law the Company and each
affiliate, employee, counsel, agent, representative, director or officer of the
Company and each Person who controls the Company (within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act) against, and
hold it harmless from, any Losses arising out of or based upon (i) any
Misstatement/Omission contained in the Registration Statement, if and to the
extent that such Misstatement/Omission arose out of or was based upon
information furnished in writing by such Holder for use therein, or (ii) the
failure by the Holder to deliver or cause to be deliv-
<PAGE>
ered (to the extent such delivery is required under the Securities Act) the
Prospectus contained in the Registration Statement, furnished to it by the
Company at or prior to the time such action is required by the Securities Act to
the person claiming a Misstatement/Omission if such Misstatement/Omission was
corrected in such Registration Statement. Notwithstanding the foregoing, the
obligation to indemnify will be individual (several and not joint) to each
Holder and will be limited to the net amount of proceeds (net of payment of all
expenses) received by such Holder from the sale of Registrable Securities
pursuant to such Registration Statement giving rise to such indemnification
obligation.
(c) Conduct of Indemnification Proceedings. In case any action,
--------------------------------------
claim or proceeding shall be brought against any Person entitled to
indemnification hereunder, such indemnified party shall promptly notify each
indemnifying party in writing, and such indemnifying party shall assume the
defense thereof, including the employment of one counsel reasonably satisfactory
to such indemnified party and payment of all fees and expenses incurred in
connection with the defense thereof. The failure to so notify such indemnifying
party shall relieve such indemnifying party of its indemnification obligations
to such indemnified party to the extent that such failure to notify prejudiced
such indemnifying party. Each indemnified party shall have the right to employ
separate counsel in such action, claim or proceeding and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of each indemnified party unless: (i) such indemnifying party has agreed
to pay such expenses; (ii) such indemnifying party has failed promptly to assume
the defense and employ counsel reasonably satisfactory to such indemnified
party; or (iii) the named parties to any such action, claim or proceeding
(including any impleaded parties) include both such indemnified party and such
indemnifying party or an affiliate or controlling person of such indemnifying
party, and such indemnified party shall have been advised in writing by counsel
that either (x) there may be one or more legal defenses available to it which
are different from or in addition to those available to such indemnifying party
or such affiliate or controlling person or (y) a conflict of interest may exist
if such counsel represents such indemnified party and such indemnifying party or
its affiliate or controlling person; provided, however, that such indemnifying
party shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
responsible hereunder for the fees and expenses of more than one separate firm
of attorneys (in addition to any local counsel), which counsel shall be
designated by such indemnified party.
No indemnifying party shall be liable for any settlement effected
without its written consent (which consent may not be unreasonably withheld).
Each indemnifying party agrees, jointly and severally, that it will not, without
the indemnified party's prior written consent, consent to entry of any judgment
or settle or compromise any pending or threatened claim, action or proceeding in
respect of which indemnification or contribution may be sought hereunder unless
the foregoing contains an unconditional release, in form and substance
reasonably satisfactory to the indemnified parties, of the indemnified parties
from all liability and obligation arising therefrom. The indemnifying party's
liability to any such indemnified party hereunder shall not be extinguished
solely because any other indemnified party is not entitled to indemnity
hereunder.
<PAGE>
(d) Survival. The indemnification provided for under this
--------
Agreement will (i) remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling Person of such indemnified party, (ii) survive the
transfer of securities and (iii) survive the termination of this Agreement.
(e) Right to Contribution. If the indemnification provided for in
---------------------
this Section 7 is unavailable to, or insufficient to hold harmless, an
indemnified party under Section 7(a) or Section 7(b) above in respect of any
Losses referred to in such Sections, then each applicable indemnifying party
shall have an obligation to contribute to the amount paid or payable by such
indemnified party as a result of such Losses in such proportion as is
appropriate to reflect the relative fault of the Company, on the one hand, and
of the Holder, on the other, in connection with the Misstatement/Omission which
resulted in such Losses, taking into account any other relevant equitable
considerations. The amount paid or payable by a party as a result of the Losses
referred to above shall be deemed to include, subject to the limitations set
forth in Section 7(c) above, any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation, lawsuit or legal or
administrative action or proceeding.
The relative fault of the Company, on the one hand, and of the Holder,
on the other, shall be determined by reference to, among other things, whether
the relevant Misstatement/Omission relates to information supplied by the
Company or by the Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such Misstatement/Omission.
The Company and each Holder agree that it would not be just and
equitable if contribution pursuant to this Section 7(e) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above. Notwithstanding the
provisions of this Section 7(e), a Holder shall not be required to contribute
any amount in excess of the amount by which (i) the amount (net of payment of
all expenses) at which the securities that were sold by such Holder and
distributed to the public were offered to the public exceeds (ii) the amount of
any damages which such Holder has otherwise been required to pay by reason of
such Misstatement/Omission.
No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
Section 8. Rules 144 and 144A.
The Company shall timely file the reports required to be filed by it
under the Securities Act and the Exchange Act (including but not limited to the
reports under Sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c) of Rule 144 adopted by the Commission under the Securities Act)
and the rules and regulations adopted by the Commission thereunder (or, if the
Company is not required to file such reports, it will, upon the request of any
holder of Registrable Securities, make publicly available other information) and
will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the ex-
<PAGE>
emptions provided by (a) Rule 144 and Rule 144A under the Securities Act, as
such Rules may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission.
Section 9. Underwritten Registrations.
No Person may participate in any registration hereunder which is
underwritten unless such Person (i) agrees to sell such Person's securities on
the basis provided in any underwriting arrangements approved by the Person or
Persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, customary indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements; provided, that no Holder included in any underwritten
registration shall be required to make any representations or warranties to the
Company or the underwriters other than representations and warranties regarding
such Holder and such Holder's intended method of distribution.
Section 10. Covenants of Holders.
Each of the Holders hereby agrees (a) to cooperate with the Company
and to furnish to the Company all such information in connection with the
preparation of the Registration Statement and any filings with any state
securities commissions as the Company may reasonably request, (b) to the extent
required by the Securities Act, to deliver or cause delivery of the prospectus
contained in the Registration Statement, any amendment or supplement thereto, to
any purchaser of the Registrable Securities covered by the Registration
Statement from the Holder and (c) to notify the Company within three months
after any sale of Registrable Securities by such Holder or, in the case of a
sale of all or substantially all of the Registrable Securities owned by a
Holder, within ten days after such sale.
Section 11. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter
--------------------------
enter into any agreement with respect to its securities which is inconsistent
with, adversely effects or violates the rights granted to the Holders in this
Agreement.
(b) Remedies. Any Person having rights under any provision of this
--------
Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights provided in the Share Exchange Agreement or granted by
law. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and hereby
agree to waive the defense in any action for specific performance or injunctive
relief that a remedy at law would be adequate. Accordingly, any party may in its
sole discretion apply to any court of law or equity of competent jurisdiction
(without posting any bond or other security) for specific performance and for
other injunctive relief in order to enforce or prevent violation of the
provisions of this Agreement.
(c) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement, including the provisions of this sentence, may be
<PAGE>
amended, modified, supplemented or waived only upon the prior written consent of
the Company and Holders of a majority of the outstanding Registrable Securities.
(d) Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the successors and assigns of the Company. This
Agreement may only be assigned by any Holder to any other Holder, unless
otherwise consented to by the Company (such consent not to be unreasonably
withheld) and any other attempted assignment hereof by any Holder will be void
and of no effect and shall terminate all obligations of the Company hereunder
with respect to such Holder. None of the rights of any Investor or Holder may be
assigned other than to a Holder who agrees in writing to be bound by this
Agreement. No rights under this Agreement may be assigned to any Person if the
sale of Registrable Securities to such Person is prohibited under the Share
Exchange Agreement or if such Person is a competitor of the Company. The Company
shall be given written notice by the transferring Investor or Holder at the time
of the transfer stating the name and address of the transferee and identifying
the Registrable Securities transferred, provided, that failure to give such
-------- ----
notice shall not affect the validity of such transfer or assignment.
(e) Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected, it being intended that the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts, any one of which need not contain the signatures of more than one
party, but each of which when so executed shall be deemed to be an original and
all such counterparts taken together shall constitute one and the same
Agreement.
(g) Descriptive Headings: Interpretation. The descriptive headings
------------------------------------
of this Agreement are inserted for convenience of reference only and shall not
limit or otherwise affect the meaning hereof. The use of the word "including" in
this Agreement shall be by way of example rather than by limitation.
(h) Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable air courier guaranteeing
overnight delivery (charges prepaid), mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid or sent by
telecopier. Such notices, demands and other communications shall be sent to each
Investor at the address indicated below such Investor's name on the signature
pages to the Share Exchange Agreement and to the Company at the address
indicated below:
<PAGE>
CMGI, Inc.
100 Brickstone Square, First Floor
Andover, Massachusetts 01810
USA
(978) 684-3601 (fax)
Attn: William Williams II
with a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
USA
(213) 687-5600 (fax)
Attention: Michael V. Gisser
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party. Any
notice, demand or other communication given hereunder will be deemed to have
been given as of the date so delivered; as of the first business day after being
delivered to an overnight air courier guaranteeing overnight delivery; on the
fifth business day after being mailed; or when transmission completed, if
telecopied; as the case may be.
(i) GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT SHALL
-----------------------------------------
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS. EACH OF THE PARTIES HEREBY IRREVOCABLY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF ANY MASSACHUSETTS STATE COURT SITTING IN THE CITY
OF BOSTON OR ANY FEDERAL COURT SITTING IN THE CITY OF BOSTON IN RESPECT OF ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE
REGISTRABLE SECURITIES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS.
EACH PARTY AGREES THAT IT WILL NOT COMMENCE ANY SUCH SUIT, ACTION OR PROCEEDING
IN ANY OTHER JURISDICTION. EACH PARTY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(j) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
<PAGE>
IN WITNESS WHEREOF the parties hereto have or have caused this
Registration Rights Agreement to be duly executed as of the date first above
written.
THE COMPANY:
CMGI, INC.
By: /s/ David S. Wetherell
------------------------------
Name: David S. Wetherell
Title: President and Chief Executive Officer
THE INVESTOR:
PACIFIC CENTURY CYBERWORKS LIMITED
By: /s/ Peter Anthony Allen
-----------------------------
Address for notices:
-------------------
Pacific Century CyberWorks Limited
38/F, Citibank Tower
Citibank Plaza
3 Garden Road
Central, Hong Kong
Facsimile no.: (852) 2514-8609
Attention: Chief Financial Officer
With a copy (which shall not constitute notice) to:
Baker & McKenzie
14/th/ Floor, Hutchinson House
10 Harcourt Road
Hong Kong
Facsimile no: (852) 2845-0476
Attention: Christopher Buchan
<PAGE>
EXHIBIT 10.6
AMENDMENT #2 TO LEASE
---------------------
1. Parties.
- ----------
This Amendment, dated as of November 12, 1999, is between Andover Mills
Realty Limited Partnership ("Landlord") and CMGI, Inc., ("Tenant").
2. Recitals.
- -----------
2.1. Landlord and Tenant have entered into a Lease, dated as of April 12,
1999, for space in Brickstone Square in Andover, Massachusetts (as amended, the
"Lease"). Unless otherwise defined, terms used in this Amendment have the same
meanings as those used in the Lease.
2.2 Tenant wishes to exercise its second, third and fourth Expansion
Options. The Expansion Spaces to be provided by Landlord for the second, third
and fourth Expansion Options (the "Second Expansion Space," the "Third Expansion
Space" and the "Fourth Expansion Space," respectively) are agreed to contain
29,186 s.f., 37,100 s.f. and 29,186 s.f., respectively, of rentable area and are
located on the 2nd Floor, the 3rd Floor and the 3rd Floor, respectively, of the
Building as shown in Exhibit "B-3" attached hereto.
2.3 The parties also wish to confirm the dates that Tenant received
delivery of vacant possession of certain areas of the Premises and the Rent
Commencement Dates for those areas, and to allow Tenant to exercise certain of
its rights with respect to the Additional Signs earlier than previously provided
in the Lease.
2.4 To accomplish these and other matters, for Ten Dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which is
acknowledged, the parties agree and the Lease is amended as follows,
notwithstanding anything to the contrary:
3. Amendments.
----------
3.1 Tenant hereby exercises its second, third and fourth Expansion
Options, and confirms receipt of vacant possession of the Second Expansion
Space, the Third Expansion Space and the Fourth Expansion Space on the date of
this Amendment. In addition: (a) the Expansion Space for the second, third and
fourth Expansion Options will be the Second, Third and Fourth Expansion Space,
respectively; (b) the term of the Lease will begin for (and the Premises will
include) the Second, Third and Fourth Expansion Space as of the date of this
Amendment, and the total agreed rentable area of the Premises, including the
Second, Third and Fourth Expansion Space, the Initial Space, the Additional
Space and the First Expansion Space, is now 306,569 s.f.; (c) notwithstanding
Section 28.2(b) of the Lease to the contrary, the Rent Commencement Date for the
Second Expansion Space will occur on the earlier of the date that Tenant
occupies that particular space to conduct business, or December 15, 1999, and
the Rent Commencement Date for the Third and Fourth Expansion Space will be
October 1, 2000; and (e) on the Rent Commencement Date for the Second Expansion
Space, Tenant's Percentage will be increased by 3.10%, and on the Rent
Commencement Date for the Third and Fourth Expansion Space (i.e., October 1,
2000), Tenant's Percentage will be increased by 7.05% (assuming no additional
space is leased, as of October 1, 2000 Tenant's Percentage will be 32.60%).
3.3 Landlord will provide the inducement payments to Tenant for the
Second, Third and Fourth Expansion Space in accordance with Section 26 of the
Lease. Tenant will begin to pay for utilities for each Expansion Space as of
the date that vacant possession of that Expansion Space is delivered to Tenant.
3.4 The parties also confirm: (a) that Tenant received delivery of vacant
possession of the following portions of the Premises on the following dates:
Additional Space A - August 1, 1999; Additional Space B - September 1, 1999; and
the First Expansion Space - September 1, 1999, and (b) the Rent Commencement
Date occurred for the following portions of the Premises on the following dates:
Additional Space A - October 1, 1999; Additional Space B - October 15, 1999; and
the First Expansion Space - November 1, 1999.
<PAGE>
3.5 Tenant represents and warrants that, other than the Broker (which is
Tenant's sole agent for these purposes), it has not dealt with or engaged any
broker, agent, finder or similar party in connection with this transaction or
its lease of the Second, Third or Fourth Expansion Spaces.
3.6 The agreements set forth in the Recitals in Section 2 above are
incorporated herein and are confirmed by the parties.
3.7 On request of either party, both parties will promptly execute and
deliver written confirmations of the following dates: the date that vacant
possession of any particular space is delivered to Tenant; and the Rent
Commencement Date for that space. A party's failure to execute or deliver such a
written confirmation will not alter the actual date(s) for which confirmation
was requested.
3.8 In Section 11(e)(ii) of the Lease, the language "(ii) if Tenant
validly exercises all of its Expansion Options and leases all of the Expansion
Space (i.e., while Tenant is leasing the Initial Space, the Additional Space and
all of the Expansion Space)," is deleted and the following is substituted in its
place:
"(ii) while Tenant is leasing the Initial Space, the Additional Space and
the First, Second, Third and Fourth Expansion Spaces,"
4. No Other Changes.
----------------
The Lease is in full force and effect, and except as set forth above the
Lease remains unchanged.
IN WITNESS WHEREOF, intending to be legally bound, the parties have
executed this Amendment #2 under seal as of the date first set forth above.
ANDOVER MILLS REALTY LIMITED PARTNERSHIP, a
Massachusetts limited partnership
By: Brickstone Square Realty, Inc., a Massachusetts
corporation, general partner
WITNESS:
/s/ Carolyn Grover By: /s/ Martin Spagat
- ---------------------------- -------------------
Name Printed: Carolyn Grover Name: Martin Spagat
Title: Vice President
Authorized Signature
WITNESS: CMGI, INC., a Delaware corporation
By: /s/ Andrew J. Hajducky, III
----------------------------
Name Printed: Name: Andrew J. Hajducky, III
Title: CFO
Authorized Signature
<PAGE>
Exhibit "B-3"
PREMISES
"SECOND EXPANSION SPACE"
BUILDING 100
SECOND FLOOR
[Floor Plan of Second Expansion Space]
<PAGE>
Exhibit "B-3"
PREMISES
"THIRD EXPANSION SPACE"
AND
"FOURTH EXPANSION SPACE"
BUILDING 100
THIRD FLOOR
[Floor Plans of Third Expansion Space and Fourth Expansion Space]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF CMGI, INC. FOR THE QUARTER ENDED OCTOBER
31, 1999 AS SET FORTH IN ITS FORM 10-Q FOR SUCH QUARTER AND FOR THE QUARTER
ENDED OCTOBER 31, 1998 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-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 705,001
<SECURITIES> 1,776,641
<RECEIVABLES> 98,418
<ALLOWANCES> 0
<INVENTORY> 17,650
<CURRENT-ASSETS> 2,626,774
<PP&E> 99,335
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,431,682
<CURRENT-LIABILITIES> 945,136
<BONDS> 0
413,511
0
<COMMON> 1,187
<OTHER-SE> 3,438,708
<TOTAL-LIABILITY-AND-EQUITY> 5,431,682
<SALES> 123,731
<TOTAL-REVENUES> 123,731
<CGS> 108,173
<TOTAL-COSTS> 108,173
<OTHER-EXPENSES> 290,085
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5700
<INCOME-PRETAX> (158,147)
<INCOME-TAX> (40,735)
<INCOME-CONTINUING> (117,412)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (117,412)
<EPS-BASIC> (1.08)
<EPS-DILUTED> (1.08)
</TABLE>
