<PAGE>
As filed with the Securities and Exchange Commission on August 12, 1999.
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CMGI, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2921333
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
100 BRICKSTONE SQUARE, ANDOVER, MASSACHUSETTS 01810; (978) 684-3600
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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DAVID S. WETHERELL
President, Chairman of the Board, and Chief Executive Officer
CMGI, Inc.
100 Brickstone Square
Andover, Massachusetts 01810
(978) 684-3600
(Name, address, including zip code,
and telephone number, including area code, of agent for service)
WILLIAM WILLIAMS II, ESQ.
MARC A. RUBENSTEIN, ESQ.
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
(617) 573-0100
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Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
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If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Proposed maximum Proposed
Title of each class of securities Amount to be offering price per maximum aggregate Amount of
to be registered registered share(1) offering price (1) registration fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value 360,532 shares $73.25 $26,408,969 $7,342
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, and
based on the average of the high and low prices for the common stock
reported on the Nasdaq National Market on August 9, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 12, 1999
100 Brickstone Square
Andover, Massachusetts 01810
(978) 684-3600
CMGI, INC.
360,532 SHARES
COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"CMGI." On August 9, 1999, the last reported per share sale price of our common
stock was $73.25.
We issued and sold the 360,532 shares of our common stock described in this
prospectus to the selling stockholders in connection with the purchase of a
majority of the common stock of Internet Profiles Corporation from the selling
stockholders by us and Engage Technologies, Inc., a majority owned subsidiary of
ours, on April 7, 1999. Under the terms of an agreement entered into in
connection with the purchase, the selling stockholders may sell 180,266 shares
after October 4, 1999, and 95,456 shares after April 2, 2000. The remaining
84,810 of the shares that we issued and sold are in escrow and cannot be sold by
the selling stockholders until they are released from escrow. Subject to claims
made against the selling stockholders under the escrow agreement, up to 42,405
of the shares held in escrow may be released from escrow on April 7, 2000 and up
to another 42,405 shares may be released on April 7, 2001.
These shares of common stock will be offered by the selling stockholders
named in this prospectus, who will receive all of the proceeds from any sales.
The selling stockholders may sell the shares of common stock at various times,
subject to the restrictions discussed above, and in various types of
transactions, including sales in the open market, sales in negotiated
transactions and sales by a combination of these methods. Shares may be sold at
the market price of the common stock at the time of a sale, at prices relating
to the market price over a period of time, or at prices negotiated with the
buyers of shares. More detailed information concerning the distribution of the
shares is contained in the section of this prospectus entitled "Plan of
Distribution" which begins on page 17.
The selling stockholders will pay all brokerage fees and commissions and
similar sale-related expenses. We are paying expenses relating to the
registration of the shares with the Securities and Exchange Commission.
BUYING SHARES OF OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 2 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF SHARES OF OUR
COMMON STOCK.
----------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDER MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SEC IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALES IS NOT PERMITTED.
----------------------------
THE DATE OF THIS PROSPECTUS IS __________ __, 1999.
<PAGE>
RISK FACTORS
If you purchase shares of our common stock, you will take on financial risk. In
deciding whether to invest, you should carefully consider the following factors,
the information contained in this prospectus and the other information to which
we have referred you.
It is especially important to keep these risk factors in mind when you read
forward-looking statements. These are statements that relate to future periods
and include statements about our:
. expected operating results
. market opportunities
. acquisition opportunities
. ability to compete, and
. stock price.
Generally, the words "anticipates," "believes," "expects," "intends," and
similar expressions identify such forward-looking statements. Forward-looking
statements involve risks and uncertainties, and our actual results could differ
materially from the results discussed in the forward-looking statements because
of these and other factors.
Forward-looking statements are current only as of the date of this prospectus.
We do not have any obligation to inform you if forward-looking statements, or
the circumstances they are based on, change.
WE MAY NOT HAVE OPERATING INCOME OR NET INCOME IN THE FUTURE
Recently we have had significant operating losses. We may never have operating
income in the future. During the year ended July 31, 1998 we had an operating
loss of approximately $70 million. During the year ended July 31, 1997 we had
an operating loss of approximately $41 million. Similarly, during the nine
months ended April 30, 1999, we had operating losses of approximately $75
million.
For the year ended July 31, 1997 we had a net loss of approximately $22 million.
The net income for the year ended July 31, 1998 was approximately $32 million.
We may not have net income in the future. If we continue to have net losses, we
may not have enough money to grow our business in the future.
WE MAY HAVE PROBLEMS RAISING MONEY WE NEED IN THE FUTURE
In recent years, our operating losses have been partially covered by profits we
have made by selling some of our stock in other companies in which we invested
in the past. This source of money may not be sufficient for us in the future.
In the future we may need to obtain money from other sources outside of our
company. If we find that we need money from outside sources there is no
guarantee that any of the outside sources will provide us with the needed money.
In addition, even if we are able to find outside sources which will provide us
with the money we need, in order to raise this money we may be required to issue
securities with better rights than the rights of our common stock or we may be
required to take other actions which lessen the value of our common stock,
including borrowing money on terms that are not favorable to us.
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CURRENTLY OUR SUCCESS DEPENDS IN LARGE PART ON A SINGLE CUSTOMER AND LOSS OF
THAT CUSTOMER COULD SIGNIFICANTLY DAMAGE OUR BUSINESS
During the year ended July 31, 1998, a very large portion of our revenues came
from a small group of our customers. During the year ended July 31, 1998, sales
to our largest customer, Cisco Systems, Inc., accounted for 47% of our total
revenues and 61% of our revenues from our fulfillment services business.
Although we are always trying to sell to more customers, we think that for the
foreseeable future a large portion of our operating revenues will continue to
come from sales to a small number of customers. We do not have any agreements
with Cisco which obligate Cisco to buy a minimum amount of products from us or
to buy any particular products or services only from us instead of from our
competitors. We would lose significant amounts of revenue if Cisco or any of
our other major customers were to:
. order less from us,
. change to another supplier,
. experience financial or other difficulties, or
. delay paying or fail to pay amounts they owe us.
OUR FUTURE SUCCESS DEPENDS GREATLY ON MORE PEOPLE AND BUSINESSES USING THE
INTERNET IN THE FUTURE
Our future success depends greatly on more people and businesses using the
Internet for advertising, marketing, providing services, and conducting business
in the future. Right now, commercial use of the Internet is at an early stage of
development. It is unclear how popular various uses of the Internet will be in
the future. People are unsure how effective advertising on the Internet is in
generating business when compared to more traditional types of advertising such
as print, television, and radio. A further uncertainty is whether the physical
networks and other products and services necessary to support increases in the
number of users of the Internet will be available in the future. Because a
significant portion of our business is dependent on the success of our Internet
operating company subsidiaries, if commercial use of the Internet does not grow
in the future for any reason our business will suffer. Furthermore, even if use
of the Internet grows, people and businesses using the Internet may not be
interested in our products and services.
WE MAY INCUR SIGNIFICANT COSTS TO AVOID INVESTMENT COMPANY STATUS AND WE MAY
SUFFER ADVERSE CONSEQUENCES IF WE ARE DEEMED AN INVESTMENT COMPANY
Certain strategic equity positions taken by us and our CMG@Ventures
subsidiaries, CMG@Ventures I, LLC, CMG@Ventures II, LLC, and CMG@Ventures III,
LLC, in other businesses may be considered "investment securities" under the
Investment Company Act of 1940. Generally, any company that owns investment
securities with a value exceeding 40% of its total assets (excluding cash items
and government securities) is an "investment company" subject to registration
under, and compliance with, the 1940 Act unless a particular exemption or safe
harbor applies. As a result of dramatic and broad-based appreciation in the
market values of Internet-related businesses, the value of investment securities
held by us may have exceeded the threshold under the 40% test on October 31,
1998 and at times since that date. Rule 3a-2 under the 1940 Act, however,
provides that notwithstanding a company's ownership of investment securities
with a value in excess of 40% of its total assets, such a company will not be
deemed an investment company for a one-year period, provided that such company
has a bona fide intent to be primarily engaged in a business other than that of
investing or trading in securities and such intent is evidenced by (i) the
company's business activities and (ii) a resolution of its Board of Directors.
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Our Board of Directors has adopted such a resolution stating that we are, and
intend to continue to be, primarily engaged in providing fulfillment services
and operating the businesses conducted by our majority and wholly-owned
subsidiaries that are developing a broad array of Internet technologies and
services. Our Board further directed us to reduce the percentage of our total
assets comprised of investment securities to below the 40% threshold before the
expiration of the one-year period under Rule 3a-2 on October 31, 1999. We may
accomplish this by selling investment securities or increasing our other assets.
As a result, we may be obligated to dispose of assets sooner than we otherwise
would at prices which could be lower than they otherwise might be. As a result,
anticipated synergies between our core businesses and disposed assets may never
arise. We will also incur tax liabilities in connection with any asset
dispositions. In addition, we may be forced to forego an opportunity to
purchase an investment security that would be important to our core operating
strategy. Accordingly, the investment security dispositions and asset purchases
may harm our business and results of operations.
Upon completion of our purchase of the AltaVista division of Digital Equipment
Corporation pursuant to the agreement we entered into on June 29, 1999 with
Compaq Computer Corporation and Digital Equipment Corporation, we expect to fall
under the 40% threshold. However, the purchase of AltaVista may never be
consummated or may be consummated after October 31, 1999, resulting in our
potentially being over the 40% threshold at the expiration of the one-year
period under Rule 3a-2 on October 31, 1999. Even if the purchase of Alta Vista
is consummated before October 31, 1999, changes in the value of our total assets
and/or changes in the values of investment securities could result in our
exceeding the 40% threshold despite the purchase of Alta Vista. Regardless of
the 40% test, we could also be deemed an investment company if we were judged to
be or to hold ourselves out as being primarily engaged in the business of
investing, reinvesting, or trading in securities.
If we fail to comply with the requirements of Rule 3a-2 or are for any other
reason deemed an investment company, we would be in violation of the 1940 Act
and we would be prohibited from engaging in business or selling our securities
and could be subject to civil and criminal actions for doing so. In addition,
our contracts would be voidable and a court could appoint a receiver to take
control of us and liquidate our business. Therefore, our failure to comply with
Rule 3a-2 and our classification as an investment company for this or any other
reason would harm our business and results of operations.
WE DEPEND ON CERTAIN IMPORTANT EMPLOYEES AND IF ANY OF THOSE EMPLOYEES LEFT OUR
BUSINESS WOULD SUFFER
Our performance is substantially dependent on the performance of our executive
officers and other key employees, particularly David S. Wetherell, our Chairman,
President, and Chief Executive Officer, and Andrew J. Hajducky III, our Chief
Financial Officer and Treasurer. The familiarity of these individuals with the
Internet industry makes them especially valuable to our success. In addition,
our future success is dependent on our ability to attract, train, retain, and
motivate high quality personnel, especially our management team. The loss of
the services of any of our executive officers or key employees would harm our
business. Our future success also depends on our continuing ability to attract,
train, retain, and motivate other highly qualified technical and managerial
personnel. Competition for such personnel is intense, and we may not be able to
attract, train, retain or motivate other highly qualified technical and
managerial personnel in the future.
GROWING CONCERNS ABOUT THE USE OF "COOKIES" AND DATA COLLECTION MAY LIMIT OUR
ABILITY TO DEVELOP USER PROFILES
Web sites typically place small files of information commonly known as "cookies"
on a user's hard drive, generally without the user's knowledge or consent.
Cookie information is passed to the Web site through the Internet user's browser
software. Our technology currently uses cookies to collect information about an
Internet user's movement through the Internet. Most currently available Internet
browsers allow users to modify their browser settings to prevent cookies from
being stored on their hard drive, and a small minority of users are currently
choosing to do so. Users can also delete cookies from their hard drive at any
time.
Some Internet commentators and privacy advocates have suggested limiting or
eliminating the use of cookies. The effectiveness of our technology could be
limited by any reduction or limitation in the use of cookies.
If the use or effectiveness of cookies is limited, we would likely have to
switch to other technology that allows us to gather demographic and behavioral
information. While such technology currently exists, it is substantially less
effective than cookies. Replacement of cookies could require significant
reengineering time and resources, might not be completed in time to avoid
negative consequences to our business, financial condition or results of
operations, and might not be commercially feasible.
In addition, privacy concerns may cause some Web users to be less likely to
subscribe to certain of our services. If enough Web users choose not to use such
services, our ability to sell certain of our services would be adversely
affected. This would, in turn, have a material adverse effect on our business,
financial condition of results of operations.
4
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WE MAY BE NEGATIVELY AFFECTED BY FUTURE GOVERNMENT REGULATION AFFECTING THE
INTERNET
With the exception of regulations applicable to businesses generally, we are not
currently subject to direct regulation by any government agency. Due to
increasing popularity and use of the Internet, however, it is possible that a
number of laws may be adopted with respect to the Internet in the future,
covering issues such as:
. user privacy,
. pricing of goods and services offered, and
. types of products and services offered.
An example of the kind of laws which may be adopted to cover use of the Internet
is the Telecommunications Act of 1996. The Telecommunications Act prohibited the
transmission over the Internet of certain types of information. Although the
Telecommunications Act was held unconstitutional, similar laws may be enacted in
the future. Other nations, including Germany, have taken similar actions to
restrict the free flow of information deemed to be objectionable on the
Internet. In addition, certain telecommunications carriers continue to advocate
that telecommunications over the Internet should be regulated by the Federal
Communications Commission in the same manner as other telecommunications
services. These telecommunications carriers want to see the government
eliminate the current exemption from payment of telecommunications access
charges for Internet service providers.
If the government adopts any additional laws or regulations covering use of the
Internet, such actions could decrease the growth of the Internet. Any such
reduction in the growth of the Internet may reduce demand for our goods and
services and raise the cost to us of producing our goods and services.
Finally, our sales of goods and services may be reduced and the costs to us of
producing these goods and services may be increased if existing U.S. state and
federal laws and foreign laws governing issues such as commerce, taxation,
property ownership, defamation, and personal privacy are increasingly applied to
the Internet.
RAPID CHANGE IN TECHNOLOGY AND DISTRIBUTION CHANNELS RELATED TO THE INTERNET MAY
LEAVE US BEHIND IF WE ARE UNABLE TO ADAPT
The markets for our Internet products and services are characterized by:
. rapidly changing technology,
. evolving industry standards,
. frequent new product and service introductions,
. shifting distribution channels, and
. changing customer demands.
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Our future success will depend on our ability to adapt to this rapidly evolving
marketplace. We may not be able to adequately adapt our products and services or
to acquire new products and services that can compete successfully. We may not
be able to establish and maintain effective distribution channels for our
products and services. If we are unable to offer competitive products and
services and maintain effective distribution channels, we will sell fewer
products and services and lose revenue. In addition, in order for us to respond
to the rapid technological changes occurring in Internet products and services,
we may have to spend substantial amounts of money, and there is no guarantee
that such expenditures will yield a positive investment return.
WE ARE SUBJECT TO INTENSE COMPETITION
The market for Internet products and services is already highly competitive.
Exacerbating this situation is the fact that the market for Internet products
and services lacks significant barriers to entry, making it relatively easy for
new businesses to enter this market. Competition in the market for Internet
products and services may intensify in the future. Numerous well-established
companies and smaller entrepreneurial companies are focusing significant
resources on developing and marketing products and services that will compete
with our products and services. In addition, many of our current and potential
competitors have greater financial, technical, operational, and marketing
resources than us. We may not be able to compete successfully against these
competitors in selling our goods and services. Competitive pressures may also
force prices for Internet goods and services down and such price reductions
likely would reduce our revenues.
OUR STRATEGY OF EXPANDING OUR BUSINESS THROUGH ACQUISITIONS OF OTHER BUSINESSES
AND TECHNOLOGIES PRESENTS SPECIAL RISKS TO US
We intend to continue to expand through the acquisition of businesses,
technologies, products, and services from other businesses. Acquisitions involve
a number of special problems, including:
. difficulty integrating acquired technologies, operations, and personnel
with the existing business,
. diversion of management attention in connection with both negotiating
the acquisitions and integrating the assets,
. strain on managerial and operational resources as management tries to
oversee larger operations,
. exposure to unforeseen liabilities of acquired companies,
. potential issuance of securities in connection with the acquisition
which securities lessen the rights of currently outstanding securities,
. incurrence of additional debt,
. the write-off of in-process research and development of software
acquisition and development costs, and
. the amortization of goodwill and other intangible assets.
We may not be able to successfully address these problems. Our future operating
results will depend to a significant degree on our ability to successfully
manage growth and integrate acquisitions. Furthermore, many of our investments
are in early-stage companies, with limited operating histories and limited or no
revenues. We may not be able to successfully develop these young companies.
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OUR STRATEGY OF SELLING ASSETS OF, OR INVESTMENTS IN, OUR ACQUIRED AND DEVELOPED
COMPANIES PRESENTS CERTAIN RISKS
A significant element of our business plan involves selling, in public or
private offerings, certain companies or portions of the companies we have
acquired and developed. Market and other conditions largely beyond our control
affect:
. our ability to engage in such sales,
. the timing of such sales, and
. the amount of proceeds from such sales.
As a result, we may not be able to sell certain companies or portions of the
companies we have acquired and developed in the future or, if we are able to
sell, we may not be able to sell at favorable prices. If we are unable to sell
certain portfolio companies or portions of our portfolio companies at favorable
prices our future operating results and business would be harmed.
THE VALUE OF OUR BUSINESS MAY FLUCTUATE DUE TO THE FLUCTUATING VALUE OF CERTAIN
STOCK ASSETS WE HOLD
A portion of our assets includes the equity securities of both publicly traded
and non-publicly traded companies. Such assets include a large number of shares
of common stock of Engage Technologies, Inc., Lycos, Inc., Yahoo!, Hollywood
Entertainment Corporation, Chemdex Corporation and Silknet Software, Inc., which
are publicly traded companies. Fluctuations in the market price and valuations
of the securities we hold in these and other companies are dependent on market
and other conditions that are beyond our control. Fluctuations in the market
price and valuations of the securities we hold in other companies may result in
fluctuations of the market price of our stock.
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MANAGING OUR GROWTH PLACES STRAINS ON US
Our growth has placed, and is expected to continue to place, a significant
strain on our managerial, operational, and financial resources. Further, as the
number of our users, advertisers and other business partners grows, we will be
required to manage multiple relationships with various customers, strategic
partners and other third parties. These requirements will be expanded in the
event of our further growth or in the event of further increases in the number
of our strategic and sponsorship relationships. Our business systems,
procedures, and controls may not be adequate to support our operations in the
future. If our growth continues, our management may not be able to achieve the
rapid execution necessary to successfully offer our products and services and
implement our business plan. Our future revenues and operating results will
also depend on our ability to expand our sales and marketing organization and
expand our support organization commensurate with the growth of our business and
the Internet.
OUR FUTURE SUCCESS IS DEPENDENT ON OUR ABILITY TO DEVELOP AND MAINTAIN POSITIVE
BRAND NAME AWARENESS
We believe that establishing and maintaining our brand names is a crucial aspect
of our effort to continue to expand our Internet business and attract new
customers. We think the importance of brand name recognition will increase in
the future due to the growing number of Internet companies which will need to
differentiate themselves. Promotion and enhancement of our brand names will
depend largely on our ability to provide consistently high-quality products and
services and, if we are unable to provide high-quality products and services,
the value of our brand name will suffer. If consumers do not perceive our
existing products and services to be of high quality, or if we introduce new
products and services or enter into new business ventures that are not favorably
received by consumers, the value of the our brand names could be diminished and
our business may be hurt.
WE DEPEND ON RELATIONSHIPS WITH THIRD PARTIES FOR OUR SUCCESS
We are currently, and expect to be in the future, dependent on our relationships
with a number of third parties. These relationships include arrangements
relating to the creation of traffic on Internet web sites which are affiliated
with us and the resulting generation of advertising and commerce-related
revenue. If these affiliated web sites terminate or fail to renew their
relationships with us on reasonable terms it could harm our business.
WE ARE ALSO DEPENDENT ON RELATIONSHIPS WITH ADVERTISERS, SPONSORS AND PARTNERS.
MOST OF THESE ARRANGEMENTS:
. do not require minimum commitments to use our services,
. are often not exclusive, and
. are often short-term or may be terminated at the convenience of the
other party.
There is a risk that these third parties may:
. not regard their relationship with us as important to their own
respective businesses and operations,
. reassess their commitment to us in the future, or
. develop their own competitive services or products.
There is no assurance that the services and products of the third parties with
which we deal will achieve market acceptance or commercial success. As a result
there is no guarantee that our existing relationships with these parties will
result in sustained or successful business partnerships or significant revenues
for us.
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OUR QUARTERLY RESULTS MAY FLUCTUATE WIDELY
Our operating results have fluctuated widely on a quarterly basis during the
last several years, and we expect to experience significant fluctuations in
future quarterly operating results. Many factors, some of which are beyond our
control, have contributed to these quarterly fluctuations in the past and may do
so in the future including:
. demand for our products and services,
. incurrence of costs associated with our acquisitions, sales of assets
and investments,
. timing of sales of assets,
. market acceptance of new products and services,
. specific economic conditions in the Internet and direct marketing
industries, and
. general economic conditions.
The emerging nature of commercial use of the Internet makes predictions
concerning our future revenues difficult. We believe that period-to-period
comparisons of our results of operations will not necessarily be meaningful and
should not be relied upon as indicative of our future performance. It is also
possible that in some future quarters our operating results will be below the
expectations of securities analysts and investors. In such circumstances, the
price of our stock may decline.
THE PRICE OF OUR STOCK HAS BEEN VOLATILE
The market price of our stock has been, and is likely to continue to be,
volatile, experiencing wide fluctuations. Such fluctuations may be triggered
by:
. differences between our actual or forecasted operating results and the
expectations of securities analysts and investors, announcements
regarding our products, services, or technologies,
. announcements regarding the products, services or technologies of our
competitors,
. developments relating to our patents or proprietary rights,
. specific conditions in the Internet industry or the market for the stock
of Internet related companies,
. general market conditions, and
. other factors.
In recent years the stock market has experienced significant price and volume
fluctuations which have particularly impacted the market prices of equity
securities of many companies providing Internet-related products and services.
Some of these fluctuations appear unrelated or disproportionate to the operating
performance of such companies. Future market movements may adversely affect the
market price of our stock.
WE FACE SECURITY RISKS
The secure transmission of confidential information over public
telecommunications facilities is a significant barrier to electronic commerce
and communications on the Internet. Many factors may cause compromises or
breaches of the security systems used by us or other Internet sites to protect
proprietary information, including:
. advances in computer and software functionality, or
. new discoveries in the field of cryptography.
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A compromise of security on the Internet would have a negative effect on the use
of the Internet for commerce and communications. This in turn would have a
negative effect on our business. A party who is able to circumvent our security
measures could misappropriate our proprietary information or cause interruptions
in our operations. Protecting against the threat of such security breaches or
alleviating problems caused by such breaches may require us to expend
significant capital and other resources. When our activities and the activities
of our customers and sponsors involve the storage and transmission of
proprietary information, such as credit card numbers, security breaches may
expose us to a risk of loss or litigation and possible liability. There is no
guarantee that our security measures will prevent security breaches.
OUR OWNERSHIP IS CONCENTRATED
David S. Wetherell, our Chairman, President, and Chief Executive Officer,
beneficially owned approximately 17.9% of our outstanding common stock as of
June 30, 1999. As a result, Mr. Wetherell possesses significant influence over
us on matters including the election of our directors. The concentration of our
share ownership may:
. delay or prevent a change in our control,
. impede a merger, consolidation, takeover, or other business combination
involving us, or
. discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of us.
OUR BUSINESS WILL SUFFER IF ANY OF OUR PRODUCTS OR SYSTEMS, OR THE PRODUCTS OR
SYSTEMS OF THIRD PARTIES ON WHOM WE RELY, FAIL TO BE YEAR 2000 COMPLIANT
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. We are in the process of evaluating the Year 2000 compliance of
our products and services. We are 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 our building security and voice mail
systems.
Our Year 2000 project plan is coordinated by a committee that reports to senior
management, as well as to our Board of Directors on a periodic basis. Our Year
2000 readiness efforts consist of the following four phases:
(1) Identification of all software products, information technology systems and
non-information technology systems we offer or use. We have substantially
completed this phase for our existing systems.
(2) Testing and assessment of these products and systems to determine repair or
replacement requirements for each. We have substantially completed this phase
for our existing systems.
(3) Repair or replacement of products and systems where required to achieve Year
2000 compliance. We expect to substantially complete this phase by September
1999 for our existing business-critical systems.
(4) Creation of contingency plans in the event of Year 2000 failures. We have
substantially completed our Year 2000 contingency plan. The plan will continue
to be updated to reflect changes in business procedures and processes.
10
<PAGE>
Companies that we have acquired after May 1, 1999 are in varying stages of
completion of the four phases described above. We currently expect to
substantially complete all phases of the Year 2000 readiness efforts for the
existing business-critical systems of these companies by October 31, 1999.
Through July 31, 1999, we have incurred expenditures of approximately $3 million
in connection with Year 2000 readiness efforts. Current cost estimates to
complete our Year 2000 readiness efforts are in the range of an additional $1.5
million to $2.0 million. There is no assurance that our Year 2000 costs will not
exceed these estimated amounts.
Our subsidiary, NaviSite, is a hosting and application management services
provider that relies on its network infrastructure to provide its services. We
rely on NaviSite for network connectivity and hosting of servers for many of
our majority-owned subsidiaries. NaviSite faces risks from customer-provided
hardware and software that is hosted in its data centers that in many cases have
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, we can not assure you 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 our subsidiaries. These potential
Year 2000 complications could disrupt operations and have a material adverse
impact on our financial condition and operating results.
Our business model includes expansion through the acquisition of businesses,
technologies, products, and services from other businesses. As we continue to
expand in this manner throughout calendar 1999, the scope and cost estimates of
our Year 2000 efforts may increase substantially.
Our failure to resolve Year 2000 issues with respect to our products and
services could damage our business and revenues and result in liability on our
part for such failure. Our business and its prospects may be permanently
affected by either the liability we incur to third parties or the negative
impact on our business reputation. We also rely upon various vendors, utility
companies, telecommunications service companies, delivery service companies and
other service providers who are outside of our control. There is 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 we use in our business fails to operate properly with
regard to the Year 2000 we may need to incur significant unanticipated expenses
to remedy any such problems.
WE RELY ON NAVISITE FOR NETWORK CONNECTIVITY
We, and many of our wholly-owned subsidiaries, rely on NaviSite for network
connectivity and hosting of servers. If NaviSite were unable to perform such
services our internal business operations may be interrupted and the ability of
our wholly-owned subsidiaries to provide services to customers could also be
interrupted. Such interruptions could have an adverse impact on our and our
subsidiaries' business and revenues.
OUR SUCCESS DEPENDS ON THE INTERNET'S INFRASTRUCTURE
The success of commercial use of the Internet depends in large part upon the
development and maintenance of the Internet's infrastructure, including the
development of complementary products such as high speed modems. The number of
users of the Internet and the amount of traffic on the Internet has grown
significantly, and it is expected they will continue to grow. To the extent the
numbers of users of the Internet and the amount of traffic on the Internet
continue to increase there will be greater demands placed on the Internet's
infrastructure. The Internet infrastructure may not be able to support the
demands placed on it by this continued growth without the performance or
reliability of the Internet being decreased. Any outages or delays in services
using the Internet could lower the level of Internet usage. In addition, the
infrastructure and complementary products and services necessary to make the
Internet a viable commercial marketplace may not develop. If usage of the
Internet is curtailed due to infrastructure constraints or lack of complementary
products, we expect an adverse impact on our business and revenues. Even if
such infrastructure and complementary products and services do develop, there is
no guarantee that the Internet will become a viable commercial marketplace for
products and services such as those we offer.
11
<PAGE>
THE SUCCESS OF OUR GLOBAL OPERATIONS IS SUBJECT TO SPECIAL RISKS AND COSTS
We have begun, and intend to continue, to expand our operations outside of the
United States. This foreign expansion will require significant management
attention and financial resources. Our ability to expand offerings of our
products and services internationally will be limited by the general acceptance
of the Internet and intranets in other countries. In addition, we have only
limited experience in such international activities. Accordingly, we expect to
commit substantial time and development resources to customizing our products
and services for selected international markets and to developing international
sales and support channels. These efforts may not be successful.
International operations are subject to a number of risks and costs including:
. customizing products and services for international markets,
. multiple and conflicting regulations regarding communications, use of
data, and control of Internet access,
. longer payment cycles,
. unexpected changes in regulatory requirements, import and export
restrictions, and tariffs,
. greater difficulty or delay in accounts receivable collection,
. potentially adverse tax consequences,
. the burden of complying with a variety of laws outside the United
States,
. the impact of possible recessionary environments in economies outside
the United States,
. the difficulty of enforcing intellectual property rights, and
. political and economic instability.
As a further risk of operating internationally, we expect that our export sales
will be denominated predominantly in United States dollars. An increase in the
value of the United States dollar relative to other currencies could make our
products and services more expensive and, therefore, potentially less
competitive in international markets. As we increase our international sales,
our total revenues may also be affected to a greater extent by seasonal
fluctuations resulting from lower sales that typically occur during the summer
months in Europe and other parts of the world.
OUR SUCCESS DEPENDS ON OUR PROPRIETARY RIGHTS AND OUR ABILITY TO PROTECT THEM
Our success depends in part on our proprietary technology and our ability to
protect such technology under applicable patent, trademark, copyright and trade
secret laws. We seek to protect the intellectual property rights underlying our
products and services by filing applications and registrations, as appropriate,
and through our agreements with our employees, suppliers, customers and
partners. However, the measures we have adopted to protect our proprietary
technology may not prevent infringement or misappropriation of our technology.
A further risk is introduced by the fact that many legal standards relating to
the validity, enforceability and scope of protection of certain proprietary
rights in the context of the Internet industry currently are not resolved.
We license certain components of our products and services from third parties.
Our failure to maintain such licenses, or to find replacement components in a
timely and cost effective manner, may damage our business and results of
operations. From time to time we have been, and we expect to continue to be,
subject to claims in the ordinary course of our business, including claims of
our alleged infringement of the intellectual property rights of third parties.
Any such claims could damage our business and results of operations by:
. subjecting us to significant liability for damages,
. resulting in invalidation of our proprietary rights,
. being time-consuming and expensive to defend even if such claims are not
meritorious, and
. resulting in the diversion of management time and attention.
12
<PAGE>
WE MAY HAVE LIABILITY FOR INFORMATION RETRIEVED FROM THE INTERNET
Because materials may be downloaded from the Internet and subsequently
distributed to others, there is a potential that claims may be made against us
for defamation, negligence, copyright or trademark infringement, personal
injury, or other theories based on the nature, content, publication and
distribution of such materials.
CERTAIN ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND BYLAWS MAY DISCOURAGE
TRANSACTIONS WHICH OFFER A PREMIUM TO OUR STOCKHOLDERS
Certain provisions of our Certificate of Incorporation and our By-laws may have
the effect of discouraging a third party from making an acquisition proposal for
us and thereby inhibit a change in control of us in circumstances that could
give our stockholders the opportunity to realize a premium over the then
prevailing market price of their stock. Such provisions may also adversely
affect the market price for our stock. In addition, the classification of our
Board of Directors into three classes may have the effect of delaying a change
in our control.
THE COMPANY
We develop and operate Internet and direct marketing companies and take
strategic equity positions in related businesses focused on the Internet.
A more complete description of our business and our recent activities can be
found in the documents described in "WHERE YOU CAN FIND MORE INFORMATION." All
common share amounts referred to in this prospectus have been adjusted to
reflect a two-for-one split of our common stock paid in the form of a 100% stock
dividend on May 27, 1999.
RECENT DEVELOPMENTS
On July 20, 1999, Engage Technologies, Inc., a majority owned subsidiary of
ours, offered 6,000,000 shares of its common stock in an underwritten initial
public offering, of which 600,000 shares were reserved for sale to our
stockholders. Prior to the closing of the Engage offering, we owned
approximately 94% of the outstanding common stock of Engage. We currently own
approximately 79% of the outstanding common stock of Engage and continue to
control Engage. We expect to record a gain on the issuance of stock by Engage in
its initial public offering during our fiscal year ended July 31, 1999,
representing the increase in the book value of our net equity in Engage as a
result of the initial public offering.
On July 22, 1999, NaviSite, Inc., a majority owned subsidiary of ours, filed a
registration statement with the United States Securities and Exchange Commission
proposing to offer shares of its common stock valued at $70,000,000 in an
underwritten initial public offering. Currently we own indirectly through a
majority-owned subsidiary of ours, securities convertible into approximately 89%
of the outstanding common stock of NaviSite, assuming the conversion into common
stock of all of the outstanding shares of convertible preferred stock of
Navisite. We will own a majority of the outstanding common stock of NaviSite
upon completion of the Navisite offering.
On July 27, 1999, Chemdex Corporation completed its initial public offering at
a price of $15 per share. Our subsidiary, CMG@Ventures II LLC currently holds
approximately 2.7 million shares of Chemdex Corporation common stock, which it
acquired at an average cost of $1.80 per share. Subsequent to this offering our
investment in Chemdex Corporation, which had previously been carried at cost,
will be reflected as "available-for-sale securities" carried at fair market
value in our consolidated balance sheet.
13
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares being sold by the
selling stockholders.
THE SELLING STOCKHOLDERS
The selling stockholders are former holders of equity securities of Internet
Profiles Corporation. The shares offered hereby were issued to the selling
stockholders in connection with the purchase of a majority of the common stock
of Internet Profiles Corporation from the selling stockholders by us and Engage
Technologies, Inc., one of our majority owned subsidiaries, on April 7, 1999.
The following table sets forth the name and number of shares of our common stock
beneficially owned by each of the selling shareholders, of which an aggregate of
360,532 shares may be offered pursuant to this prospectus. The table has been
prepared on the basis of the information furnished to us by or on behalf of the
selling stockholders. As of August 9, 1999, there were approximately
95.6 million shares of our common stock outstanding.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES NUMBER OF SHARES
BENEFICIALLY SHARES BEING BENEFICIALLY
OWNED BEFORE OFFERED UNDER THIS OWNED AFTER THE
SELLING STOCKHOLDERS (1) THE OFFERING PROSPECTUS (1) OFFERING (2) (3)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Anderson Living Trust 2,184 2,184 0
Anvest, L.P. 3,416 3,416 0
Ariel Poler (8) 6,674 6,674 0
Barbara Gore 412 412 0
Benjamin E. Godley 36 36 0
Bradley Rode (9) 17,942 17,942 0
Charles Askanas 306 306 0
Comdisco, Inc. 2,478 2,478 0
David Carlick (11) 826 826 0
David Golob 126 126 0
David L. Anderson 542 542 0
David Tillinghast 474 474 0
Dylan Poler 16 16 0
Eriberto R. Scocimara GST U/A 12-21-92 414 414 0
Foundation Capital Entrepreneurs Fund, L.L.C. (12) 9,390 9,390 0
Foundation Capital, L.P. (12) 84,516 84,516 0
Frida Alter 454 454 0
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES NUMBER OF SHARES
BENEFICIALLY SHARES BEING BENEFICIALLY
OWNED BEFORE OFFERED UNDER THIS OWNED AFTER THE
SELLING STOCKHOLDERS (1) THE OFFERING PROSPECTUS (1) OFFERING (2) (3)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
G. Leonard Baker, Jr. 3,652 3,652 0
Gannett International Communications, Inc. 8,904 8,904 0
Genstar Investment Corporation 1,334 1,334 0
Gregory L. Waldorf 164 164 0
Hewlett-Packard Company 1,744 1,744 0
Homer Luther, Jr. 7,536 120 7,416
Information Associates, C.V. (12) 1,996 1,996 0
Information Associates, L.P. (12) 72,610 72,610 0
Intel Corporation 5,572 5,572 0
Interpublic Group of Companies (12) 13,778 13,778 0
ITOCHU Corporation 2,228 2,228 0
ITOCHU Technology, Inc. 556 556 0
James C. Gaither 156 156 0
James L. Brock 42 42 0
John E. Maxfield 70 70 0
John Garner 20 20 0
John Kremer 100 100 0
John R. Mackall 120 120 0
John Steinhart 34 34 0
Jon Bode (6) 126 126 0
Katharine N. Wang 8 8 0
Kevin Doerr 64 64 0
Kevin Poler 16 16 0
Leonard J. Washington II 36 36 0
Marc Kenig 42 42 0
Mark Ashida (10) 1,630 1,630 0
Maximillian Pollak 26 26 0
Michael L. Connell 8 8 0
Nielsen Media Research, Inc. 17,468 17,468 0
Noel Poler 34 34 0
Olivia V. Dillan 102 102 0
Patrizia Owen (5) 1,932 1,882 50
Paul M. and Marsha R. Wythes, Trustees of the Wythes 960 960
Living Trust dated 7/21/87
Paul M. Norwood 20 20 0
R. Alan Chase 1,486 1,486 0
Robert Spoer 170 170 0
Robert T. & Sherry Y. Artemenko 120 120 0
Ronald Perkins 512 512 0
Saunders Holdings, L.P. 2,488 2,488 0
Seth M. Skolnik 84 84 0
SOFTBANK Ventures, Inc. 24,854 24,854 0
Stanford University 362 362 0
Stu Berman 120 120 0
Sutter Hill Ventures, a California Limited 42,148 42,148 0
Partnership
Tak Woon Yan 136 136 0
Tench Coxe (11) 1,502 1,502 0
The Hearst Corporation (12) 10,632 10,632 0
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES NUMBER OF SHARES
BENEFICIALLY SHARES BEING BENEFICIALLY
OWNED BEFORE OFFERED UNDER THIS OWNED AFTER THE
SELLING STOCKHOLDERS (1) THE OFFERING PROSPECTUS (1) OFFERING (2) (3)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Timothy M. Haley and Ethna C. McGourty, Trustees of 90 90 0
the Haley-McGourty Family Trust U/D/T dated
September 27, 1996
Todd McIntyre 120 120 0
Tow Partners, a California Limited Partnership 1,804 1,804 0
Trevor Blumenau 306 306 0
Webster Augustine III 152 152 0
Wells Fargo, Trustee SHV M/P/T FBO Tench Coxe 2,044 2,044 0
Wells Fargo, Trustee SHV M/P/T FBO William H. 1,148 1,148 0
Younger, Jr.
William H. Younger, Jr. 836 836 0
William H. Younger, Jr., Trustee, The Younger Living 3,090 3,090 0
Trust
William Matthews (7) 260 260 0
William Sahlman 90 90 0
Zuleima Aguilar 80 80 0
Totals 367,928 360,462 (4) 7,466
</TABLE>
_______________________
(1) This Registration Statement shall also cover any additional shares of
common stock which become issuable in connection with the shares registered
for sale hereby as a result of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt
of consideration which results in an increase in the number of outstanding
shares of our common stock.
(2) The numbers in these columns assume that the selling stockholders will sell
all of the common stock offered for sale under this prospectus and will
make no other purchases or sales of our common stock. There can be no
assurance that the selling stockholders will sell all or any part of the
shares offered under this prospectus.
(3) Each of the selling stockholders' percentage ownership of our common stock
after the offering is less than 1%.
(4) Due to truncating fractional shares that the selling stockholders
beneficially own and that are currently in escrow, 70 shares out of the
360,532 shares being registered in this Registration Statement are not
reflected in the table.
(5) Ms. Owen served as Vice President of Finance of Internet Profiles
Corporation from August 1997 to July 1999.
(6) Mr. Bode served as the Chief Financial Officer of Internet Profiles
Corporation January 1996 to July 1997.
(7) Mr. Matthews is the current Executive Director of Sales of Internet
Profiles Corporation.
(8) Mr. Poler was the founder of and Chairman of the Board of Directors of
Internet Profiles Corporation and, from May 1996 to January 1998 he served
as a member of the Board of Directors.
(9) Mr. Rode served as President and Chief Executive Officer of Internet
Profiles Corporation from February 1997 to May 1999, and as an advisor to
Engage Technologies, Inc. until June 1999.
(10) Mr. Ashida served as President and Chief Executive Officer of Internet
Profiles Corporation from January 1996 to January 1997.
(11) Messrs. Coxe and Carlick served as members of the Board of Directors of
Internet Profiles Corporation until April 1999.
(12) Each of (a) Foundation Capital L.P and Foundation Capital Entrepreneurs
Fund, L.L.C., (b) Hearst Corporation, (c) Interpublic Group of Companies
and (d) Information Associates, C.V. and Information Associates, L.P., had
the right to elect one member to the Board of Directors of Internet
Profiles Corporation. Such right to elect a director terminated upon
consummation of the acquisition of Internet Profiles Corporation by us and
Engage Technologies, Inc. and such directors are no longer members of the
Board of Directors of Internet Profiles Corporation.
16
<PAGE>
PLAN OF DISTRIBUTION
We issued 360,532 shares of our common stock to the selling stockholders in
connection with our purchase of their stock in Internet Profiles Corporation.
84,810 of the shares are in escrow and cannot be sold by the selling
stockholders pursuant to an Escrow Agreement among us, Engage Technologies,
Inc., the selling stockholders, and the escrow agent in connection with our
purchase of Internet Profiles Corporation common stock. Subject to claims made
against the selling stockholders under the escrow agreement by us or Engage
Technologies, Inc., up to 42,405 shares held in escrow may be released from
escrow on April 7, 2000 and up to another 42,405 shares may be released on April
7, 2001. Of the shares that are not in escrow, 180,266 shares may be sold after
October 4, 1999 and 95,456 shares may be sold after April 2, 2000 pursuant to an
Investment Representation and Lockup Agreement between us and the selling
stockholders in connection with our purchase of Internet Profiles Corporation
common stock. This prospectus relates to the offer and sale of the shares of our
common stock received by such selling stockholders. The shares of common stock
offered hereby may be sold from time to time, subject to the lockup and escrow
discussed above, by the selling stockholders, or by their pledgees, donees,
distributees, transferees or other successors-in-interest.
The selling stockholders or their respective pledgees, donees, transferees, or
other successors in interest may sell the shares offered hereby from time to
time, subject to the lockup and escrow, in one or more transactions (which may
involve block transactions) on the Nasdaq National Market or on any other market
on which our common stock may from time to time be trading, in privately-
negotiated transactions, through the writing of options on the shares, short
sales or any combination thereof. The sale price to the public may be the
market price for our common stock prevailing at the time of sale, a price
related to such prevailing market price, at negotiated prices or such other
price as the selling stockholders determine from time to time. The shares may
also be sold pursuant to Rule 144 under the Securities Act. The selling
stockholders shall have the sole discretion not to accept any purchase offer or
make any sale of shares if they deem the purchase price to be unsatisfactory at
any particular time.
The selling stockholders or their respective pledgees, donees, transferees, or
other successors in interest, may also sell the shares, subject to the lockup
and escrow, directly to market makers acting as principals and/or broker-dealers
acting as agents for themselves or their customers. Such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the selling stockholders and/or the purchasers of shares for whom such broker-
dealers may act as agents or to whom they sell as principal, or both (which
compensation as to a particular broker-dealer might be in excess of customary
commissions). Market makers and block purchasers purchasing the shares will do
so for their own account and at their own risk. It is possible that a selling
stockholder will attempt to sell shares of common stock in block transactions to
market makers or other purchasers at a price per share which may be below the
then market price. There can be no assurance that all or any part of the shares
offered hereby will be issued to, or sold by, the selling stockholders. The
selling stockholders and any brokers, dealers, or agents, upon effecting the
sale of any of the shares offered hereby, may be deemed "underwriters" as that
term is defined under the Securities Act or the Exchange Act, or the rules and
regulations thereunder.
The selling stockholders, alternatively, may sell all or any part of the shares,
subject to the lockup or escrow, offered hereby through an underwriter. No
selling stockholder has entered into any agreement with a prospective
underwriter and there is no assurance that any such agreement will be entered
into. If a selling stockholder enters into such an agreement or agreements, the
relevant details will be set forth in a supplement or revision to this
prospectus.
To the extent required, we will amend or supplement this prospectus to disclose
material arrangements regarding the plan of distribution.
17
<PAGE>
To comply with the securities laws of certain jurisdictions, the shares offered
by this prospectus may need to be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers.
Under applicable rules and regulations under the Securities Exchange Act of
1934, any person engaged in a distribution of the shares of common stock covered
by this prospectus may be limited in its ability to engage in market activities
with respect to such shares. The selling stockholders, for example, will be
subject to applicable provisions of the Securities Exchange Act of 1934 and the
rules and regulations under it, including, without limitation, Regulation M,
which provisions may restrict certain activities of the selling stockholders and
limit the timing of purchases and sales of any shares of common stock by the
selling stockholder. Furthermore, under Regulation M, persons engaged in a
distribution of securities are prohibited from simultaneously engaging in market
making and certain other activities with respect to such securities for a
specified period of time prior to the commencement of such distributions,
subject to specified exceptions or exemptions. The foregoing may affect the
marketability of the shares offered by this prospectus.
We have agreed to pay certain expenses of the offering and issuance of the
shares covered by this prospectus, including the printing, legal and accounting
expenses we incur and the registration and filing fees imposed by the SEC or the
Nasdaq National Market. We have also agreed to indemnify the selling
stockholders against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended. We will not pay brokerage commissions or
taxes associated with sales by the selling stockholders.
The selling stockholders have agreed to suspend sales upon notification that
certain actions, such as amending or supplementing this prospectus, are required
in order to comply with federal or state securities laws.
LEGAL MATTERS
Palmer & Dodge LLP, Boston, Massachusetts, our counsel, is giving us an opinion
on the validity of the shares of our common stock covered by this prospectus.
William Williams II, our Vice President and General Counsel, is currently Of
Counsel and was formerly a partner with Palmer & Dodge LLP. He owns 20,000
shares of our common stock and is the sole trustee of a trust for the benefit of
Mr. Wetherell's children, which trust has a 10.54% non-voting membership
interest in a limited liability company that holds 8,466,336 shares of our
common stock.
EXPERTS
The consolidated financial statements of CMGI, Inc. as of July 31, 1998 and
1997, and for each of the years in the three-year period ended July 31, 1998
have been incorporated by reference herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon authority of said firm as experts in
accounting and auditing.
The financial statements of AltaVista for each of the years in the three-year
period ended December 31, 1998, the financial statements of Zip2 for each of the
years in the three-year period ended December 31, 1998, and the financial
statements of Shopping.com for each of the years in the two-year period ended
January 31, 1999, have been incorporated by reference herein in reliance upon
the reports of PricewaterhouseCoopers LLP, independent accountants, given the
authority of said firm as experts in auditing and accounting. The financial
statements of Shopping.com as of the year ended January 31, 1997, have been
incorporated by reference herein in reliance upon the report of Singer Lewak
Greenbaum & Goldstein LLP, independent certified public accountants, upon the
authority of said firm as experts in accounting and auditing.
18
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and special reports, proxy statements, and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
on the SEC's Website at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" information from other documents
that we file with them, which means that we can disclose important information
by referring to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 prior to the sale of all the shares covered by this
prospectus:
. Annual Report on Form 10-K, as amended, for the year ended July 31,
1998;
. Quarterly Reports on Form 10-Q, as amended, for the quarters ended
October 31, 1998 and January 31, 1999, and quarterly report on Form 10-Q
for the quarter ended April 30, 1999;
. Current Reports on Form 8-K filed with the SEC on January 7, 1999,
May 7, 1999, July 7, 1999, July 14, 1999 and August 12, 1999; and
. The description of our common stock contained in our Registration
Statement on Form 8-A, filed with the SEC on January 6, 1994.
You may request a copy of these filings, at no cost, by writing or telephoning
us using the following contact information:
Catherine Taylor
Director, Investor Relations
CMGI, Inc.
100 Brickstone Square
First Floor
Andover, MA 01810
(978) 684-3600
You should rely only on the information incorporated by reference or provided in
this prospectus or any supplement. We have not authorized anyone else to
provide you with different information. You should not assume that the
information in this prospectus or any supplement is accurate as of any date
other than the date on the front of those documents.
19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses in connection with the offering of the Shares will be borne by the
registrant and are estimated as follows:
SEC Registration Fee................. $ 7,342.00 (1)
Legal fees and expenses.............. 20,000.00 (2)
Accounting fees and expenses......... 10,000.00
----------
Total............................. $37,342.00
(1) Pursuant to Rule 457(c) promulgated by the Commission under the Securities
Act, the registration fee was calculated based upon the average of the high and
low price per share of the Company's common stock, as reported by the Nasdaq
National Market, on August 9, 1999, and the conversion ratio in effect on that
date.
(2) Excludes legal fees incurred in connection with the Stock Purchase of
Internet Profiles Corporation.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law grants the Registrant the
power to indemnify each person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative by reason of the fact
that he is or was a director, officer, employee or agent of the Registrant, or
is or was serving at the request of the Registrant as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust, or
other enterprise, against expenses (including attorneys' fees), judgements,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Registrant, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, provided, however, no
indemnification shall be made in connection with any proceeding brought by or in
the right of the Registrant where the person involved is adjudged to be liable
to the Registrant except to the extent approved by a court. Article VII of the
Registrant's Restated By-laws provides that the Registrant shall, to the fullest
extent permitted by applicable law, indemnify each person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit, or proceeding by reason of the fact that he is or was, or has
agreed to become, a director or officer of the Registrant, or is or was serving
at the written request of the Registrant, as a director, officer or trustee of,
or in a similar capacity with, another corporation, partnership, joint venture,
trust, or other enterprise. The indemnification provided for in Article VII is
expressly not exclusive of any other rights to which those seeking
indemnification may be entitled under any law, agreement, or vote of
stockholders or disinterested directors or otherwise, and shall inure to the
benefit of the heirs, executors, and administrators of such persons. Article
VII also provides that the Registrant shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Registrant, or is or was serving at the request of the
Registrant, as a director, trustee, partner, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against any liability asserted against and incurred by such person in any such
capacity.
II-1
<PAGE>
Pursuant to Section 102(b)(7) of the Delaware General Corporation Laws, Article
EIGHTH of the Registrant's Restated Certificate of Incorporation eliminates a
director's personal liability for monetary damages to the Registrant and its
stockholders for breaches of fiduciary duty as a director, except in
circumstances involving a breach of a director's duty of loyalty to the
Registrant or its stockholders, acts, or omissions not in good faith,
intentional misconduct, knowing violations of the law, self-dealing, or the
unlawful payment of dividends or repurchase of stock.
The Registrant maintains an insurance policy on behalf of itself and its
subsidiaries, and on behalf of the Directors and officers thereof, covering
certain liabilities which may arise as a result of the actions of the Directors
and officers.
The Registrant has entered into agreements with all of its Directors affirming
the Registrant's obligation to indemnify them to the fullest extent permitted by
law and providing various other protections.
ITEM 16. EXHIBITS
See Exhibit Index immediately following the signature page hereof.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 of 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions referred to in Item 15 hereof, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Andover, the Commonwealth of Massachusetts, on
August 12, 1999.
CMGI, INC.
By: /s/ Andrew J. Hajducky III
--------------------------
Andrew J. Hajducky III, CPA
Chief Financial Officer and Treasurer
POWER OF ATTORNEY
We, the undersigned officers and directors of CMGI, Inc., hereby severally
constitute and appoint David S. Wetherell and Andrew J. Hajducky III, and each
of them singly, our true and lawful attorneys, with full power to them in any
and all capacities, to sign any amendments to this Registration Statement on
Form S-3 (including any Pre- and Post-Effective Amendments), and any related
Rule 462(b) registration statement or amendment thereto, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated as of August 12, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ David S. Wetherell President, Chairman of the Board
- -------------------------------- and Chief Executive Officer
David S. Wetherell (Principal Executive Officer)
/s/ Andrew J. Hajducky III Chief Financial Officer
- -------------------------------- and Treasurer (Principal
Andrew J. Hajducky III, CPA Financial Officer and Principal
Accounting Officer)
/s/ William H. Berkman Director
- --------------------------------
William H. Berkman
/s/ Craig D. Goldman Director
- --------------------------------
Craig D. Goldman
/s/ Avram Miller Director
- --------------------------------
Avram Miller
/s/ Robert J. Ranalli Director
- --------------------------------
Robert J. Ranalli
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------ -----------
<C> <S>
4.1 Restated Certificate of Incorporation of the Registrant.
Filed herewith.
4.2 Restated By-Laws. Filed as Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1, filed on November 10, 1993
(No. 33-71518), and incorporated herein by reference.
5.1 Opinion of Palmer & Dodge LLP. Filed herewith.
23.1 Consent of KPMG LLP, independent accountants to the registrant.
Filed herewith.
23.2 Consent of Palmer & Dodge LLP (contained in Exhibit 5.1).
23.3 Consent of PricewaterhouseCoopers LLP (AltaVista, Zip2 and
Shopping.com) independent accountants, filed herewith.
23.4 Consent of Singer Lewak Greenbaum & Goldstein LLP (Shopping.com)
independent auditors, filed herewith.
24.1 Power of Attorney (included on the signature page of this
Registration Statement).
</TABLE>
<PAGE>
EXHIBIT 4.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
CMG INFORMATION SERVICES, INC.
CMG INFORMATION SERVICES, INC. (the "Corporation"), a corporation organized and
existing under and by virtue of the Delaware General Corporation Law, does
hereby certify that the Board of Directors of the Corporation, by a resolution
adopted at a meeting of the Board of Directors on November 8, 1993, and by a
written consent of the stockholders of the Corporation dated November 8,1993,
approved and adopted, pursuant to Section 242 of the Delaware General
Corporation Law, this Restated Certificate of Incorporation, which restates,
integrates and amends the Certificate of Incorporation of the Corporation in its
entirety pursuant to Section 245 of the Delaware General Corporation Law.
Written notice of the adoption of this Restated Certificate of Incorporation has
been given as provided by Section 228 of the General Corporation Law of the
State of Delaware to every stockholder entitled to such notice. The Certificate
of Incorporation of the Corporation was originally filed with the Secretary of
State of Delaware on May 5, 1986, under the name CMG Holdings, Inc. The full
text of the Restated Certificate of Incorporation is set forth below:
FIRST: The name of the Corporation is CMG Information Services, Inc.
SECOND: The registered office of the Corporation in the State of Delaware
is located at 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
FOURTH: The aggregate number of shares of all classes of stock which the
Corporation is authorized to issue is fifteen million (15,000,000) shares of
which five million (5,000,000) shall be shares of Preferred Stock, par value
$.01 per share, (the "Preferred Stock") and ten million (10,000,000) shall be
shares of Common Stock, par value $.01 per share (the "Common Stock").
On the effective date of this Restated Certificate of Incorporation, each issued
share of the Corporation's Series A Convertible Preferred Stock, par value $1.00
per share, outstanding as of said effective date, shall without any action on
the part of the holders thereof, be reclassified and changed into one fully paid
and nonassessable share of the Corporation's Preferred Stock, par value $.01 per
share, subject to all powers, designations, preferences and relative,
participating, optional or other special rights of such Preferred Stock as set
forth in Section 3 hereof.
<PAGE>
Any and all such shares issued for which the full consideration has been paid or
delivered, shall be deemed fully paid stock and the holder of such shares shall
not be liable for any further call or assessment or any other payment thereon.
No holder of any of the shares of any class of stock of the Corporation, whether
now or hereafter authorized or issued, shall be entitled as of right to purchase
or subscribe for (i) any unissued stock of any class whatsoever of stock of the
Corporation, or (ii) any new or additional share of any class whatsoever of
stock of the Corporation to be issued by reason of any increase of the
authorized stock of the Corporation, or of any class of such stock, or (iii)
bonds, certificates of indebtedness, debentures or other securities convertible
into stock of any class of the Corporation or carrying any right to purchase
stock of any class of the Corporation, but any such unissued stock, or
additionally authorized issue of any stock, or other securities convertible into
stock of the Corporation may be issued and disposed of pursuant to a resolution
or resolutions of the Board of Directors to such persons, firms, corporations,
associations or other entities and upon such terms as may be deemed advisable by
the Board of Directors in the exercise of its sole discretion.
SECTION 1. COMMON STOCK.
- -------------------------
The powers, preferences, rights, qualifications, limitations and restrictions
relating to the Common Stock are as follows:
(a) The Common Stock is junior to the Preferred Stock and is subject to all
the powers, rights, privileges, preferences and priorities of the Preferred
Stock designated herein or in any resolution or resolutions adopted by the
Board of Directors pursuant to authority expressly vested in it by the
provisions of Section 2 of this Article FOURTH.
(b) The Common Stock shall have voting rights for the election of directors
and for all other purposes (subject to the powers, rights, privileges,
preferences and priorities of the Preferred Stock as provided above), each
holder of Common Stock being entitled to one vote for each share thereof
held by such holder, except as otherwise required by law.
SECTION 2. PREFERRED STOCK.
- ----------------------------
The Board of Directors is expressly authorized to provide for the issuance of
all or any part of the shares of the Preferred Stock in one or more classes or
series, and to fix for each such class or series such voting powers, full or
limited or fractional or no voting powers, and such distinctive designations,
preferences and relative, participating, optional or other special rights, and
such qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors in
its sole discretion providing for the issuance of such class or series and as
may be permitted by the Delaware General Corporation Law including, without
limitation, the authority to determine with respect to the shares of any such
class or series (i) whether such shares shall be redeemable, and, if so, the
terms and conditions of such redemption, whether for cash, property or rights,
including securities of any other corporation, and whether at the option of
either the Corporation or the holder or both, including
2
<PAGE>
the date or dates or the event or events upon or after which they shall be
redeemable, and the amount per share payable in case of redemption, which amount
may vary under different conditions and at different redemption dates; (ii)
whether such shares shall be entitled to receive dividends (which may be
cumulative or noncumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or an other series; (iii) the rights of
such shares in the event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, and the relative rights of priority, if any, of
payment of such shares, (iv) whether such shares shall be convertible into, or
exchangeable for, shares of any other class or classes of stock, or of any other
series of the same or any other class or classes of stock whether at the option
of either the Corporation or the holder or both, and, if so, the terms and
conditions of such conversion, including provision for adjustment of the
conversion rate in such events as the Board of Directors shall determine; (v)
whether the class or series shall have a sinking fund for the redemption or
purchase of such shares, and, if so, the terms and amount of such sinking fund,
or (vi) provisions as to any other voting, optional, and/or special or relative
rights, preferences, limitations, or restrictions; and (vii) the number of
shares and designation of such class or series.
SECTION 3. SERIES A CONVERTIBLE PREFERRED STOCK.
- -------------------------------------------------
CMG INFORMATION SERVICES, INC., a Delaware corporation (the "Corporation" or the
"Company"), pursuant to authority conferred on the Board of Directors of the
Corporation by the Certificate of Incorporation and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, certifies that the Board of Directors of the Corporation, by unanimous
consent dated May 5, 1986, has duly adopted the following resolution providing
for the establishment and issuance of a series of Preferred Stock to be
designated "Series A Convertible Preferred Stock" and to consist of 250 shares
as follows:
RESOLVED: that, pursuant to the authority expressly granted and vested in
the Board of Directors of this Corporation in accordance with the
provisions of its Certificate of Incorporation, a series of Preferred Stock
of the Corporation hereby is established, consisting of 250 shares, to be
designated "Series A Convertible Preferred Stock" (hereinafter "Series A
Preferred Stock"); the Board of Directors be and hereby is authorized to
issue such shares of Series A Preferred Stock from time to time and for
such consideration and on such terms as the Board of Directors shall
determine, and subject to the limitations provided by law and by the
Certificate of Incorporation, the powers, designations, preferences and
relative, participating, optional or other special rights of, and the
qualifications, limitations or restrictions upon, the Series A Preferred
Stock shall be as follows:
1. DESIGNATION. This series of Preferred Stock, $.01 par value per share,
------------
shall be designated the "Series A Convertible Preferred Stock" (hereinafter
"Series A Preferred Stock").
2. DIVIDENDS. When, as and if declared by the Board of Directors, the holders
----------
of the outstanding shares of Series A Preferred Stock shall be entitled to
receive out of funds legally
3
<PAGE>
available therefor dividends payable at the discretion of the Board of
Directors. Notwithstanding the foregoing, dividends shall be declared and set
aside for any shares of the Series A Preferred Stock in the event that the Board
of Directors of the Company shall declare a dividend payable upon the then
outstanding shares of the Common Stock, $.01 par value (the "Common Stock"), of
the Company in which event the holders of the Series A Preferred Stock shall be
entitled to the amount of dividends per share of Series A Preferred Stock as
would be declared payable on the largest number of whole shares of Common Stock
into which each share of Series A Preferred Stock held by each holder thereof
could be converted pursuant to the provisions of Section 5 hereof, such number
determined as of the record date for the determination of holders of Common
Stock entitled to received such dividend.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
----------------------------------------
(a) In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, holders of each share of Series
A Preferred Stock shall be entitled to be paid first out of the assets of
the Company available for distribution to holders of the Company's capital
stock of all classes, whether such assets are capital, surplus, or
earnings, before any sums shall be paid or any assets distributed among the
holders of shares of Common Stock, an amount equal to the greater of (i)
$1,000 per share of Series A Preferred Stock plus all accrued and unpaid
dividends thereon, whether or not earned or declared, up to and including
the date full payment, shall be tendered to the holders of the Series A
Preferred Stock with respect to such liquidation, dissolution or winding
up, or (ii) such amount per share of Series A Preferred Stock as would have
been payable had each such share plus all accrued and unpaid dividends
thereon, whether or not earned or declared, up to and including the date of
full payment, been converted to Common Stock immediately prior to such
event of liquidation, dissolution or winding up pursuant to the provisions
of Section 5 hereof; before any sums shall be paid or any assets
distributed among the holders of the shares of Common Stock. If the assets
of the Company shall be insufficient to permit the payment in full to the
holders of the Series A Preferred Stock of the amount thus distributable,
then the entire assets of the Company available for such distribution shall
be distributed ratably among the holders of the Series A Preferred Stock.
After such payment shall have been made in full to the holders of the
Series A Preferred Stock or funds necessary for such payment shall have
been set aside by the Company in trust for the account of holders of the
Series A Preferred Stock so as to be available for such payment, holders of
the Series A Preferred Stock shall be entitled to no further participation
in the distribution of the assets of the Company and shall have no further
rights of conversion, and the remaining assets available for distribution
shall be distributed ratably among the holders of the Common Stock.
(b) A consolidation or merger of the Company or a sale of all or
substantially all of the assets of the Company shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Company within
the meaning of this Section 3; provided however, that each holder of Series
-------- -------
A Preferred Stock shall have the right to elect the benefits of the
provisions of Section 5(h) hereof in lieu of receiving payment in
liquidation, dissolution or winding up of the Company pursuant to this
Section 3. Each holder of Series A Preferred Stock shall notify the Company
in advance of its election to obtain the benefits
4
<PAGE>
of this Section 3(b) or of Section 5(h), which notification shall be given
not later than a date specified in writing to each holder by the Company to
be three (3) days or fewer prior to the effective date of such
consolidation, merger or sale. If a holder fails to make any election, he
shall be deemed to have elected the benefits of this Section 3(b).
(c) Whenever the distribution provided for herein shall be paid in property
other than cash, the value of such distribution shall be the fair market
value of such property as determined in good faith by the Board of
Directors of the Company.
4. VOTING POWER. Except as otherwise expressly provided in Section 8 hereof,
-------------
or as required by law, each holder of Series A Preferred Stock shall be entitled
to vote on all matters and shall be entitled to that number of votes equal to
the largest number of whole shares of Common Stock into which such holder's
shares of Series A Preferred Stock could be converted, pursuant to the
provisions of Section 5 hereof (taking into account all accrued and unpaid
dividends, if any, and interest with respect to such Series A Preferred Stock),
at the record date for the determination of shareholders entitled to vote on
such matter or, if no such record date is established, at the date such vote is
taken or any written consent of shareholders is solicited. Except as otherwise
expressly provided herein or as required by law, the holders of shares of Series
A Preferred Stock and Common Stock shall be entitled to vote together as a class
on all matters.
5. CONVERSION RIGHTS. The holders of the Series A Preferred Stock shall have
------------------
the following conversion rights:
(a) GENERAL.
--------------
(i) Subject to and in compliance with the provisions of this Section
5, any shares of the Series A Preferred Stock and, at the option of
the holder, all accrued and unpaid dividends thereon, whether or not
earned or declared, up to and including the date of conversion, may,
at the option of the holder, be converted at any time or from time to
time into fully-paid and nonassessable shares (calculated as to each
conversion to the largest whole share) of Common Stock. The number of
shares of Common Stock to which a holder of Series A Preferred Stock
shall be entitled upon conversion shall be the product obtained by
multiplying the Applicable Conversion Rate (determined as provided in
Section 5(c)) by the number of shares of Series A Preferred Stock
being converted.
(ii) Notwithstanding the foregoing, the holders of Series A Preferred
Stock shall have the right to convert all or any portion of any
accrued but unpaid dividends hereunder into shares of Common Stock at
any time upon written notice to the Company. The number of shares of
Common Stock issuable upon any such conversion shall be the number of
shares equal to the amount of the accrued but unpaid dividends and
interest being so converted divided by the Applicable Conversion Value
then in effect, determined in accordance with Section 5 hereof. Upon
receipt of any such notice, the Company shall promptly issue a
certificate in the name of the holder of Series A Preferred Stock for
the number of shares of Common Stock so issuable, together with a
check representing cash in lieu of any fractional share.
5
<PAGE>
(b) CONVERSION FOLLOWING UNDERWRITTEN PUBLIC OFFERING.
-------------------------------------------------------
(i) All outstanding shares of Series A Preferred Stock and, at the
option of the holder, all accrued and unpaid dividends thereon,
whether or nor earned or declared, up to and including the date of
conversion, shall, at the option of the Company and upon the closing
of an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended,
covering the offering and sale of Common Stock for the account of the
Company in which the Common Stock is sold at a price to the public of
not less than $3.85 per share as of the date of this Restated
Certificate of Incorporation (such amount to be equitably adjusted
whenever there shall occur a stock split, combination,
reclassification or other similar event affecting the Common Stock)
and in which the aggregate gross proceeds to the Company exceed
$7,000,000, be converted automatically into the number of shares of
Common Stock to which a holder of Series A Preferred Stock shall be
entitled upon conversion pursuant to Section 5(a) hereof without any
further action by such holders and whether or not the certificates
representing such shares are surrendered to the Company or its
transfer agent for the Common Stock.
(ii) Upon the occurrence of the conversion specified in Section
5(b)(i), the holders of such Series A Preferred Stock shall surrender
the certificates representing such shares at the office of the Company
or of its transfer agent for the Common Stock. Thereupon, there shall
be issued and delivered to such holder a certificate or certificates
for the number of shares of Common Stock into which the shares of the
Series A Preferred Stock surrendered were convertible on the date on
which such conversion occurred. The Company shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon
such conversion unless certificates evidencing such shares of the
Series A Preferred Stock being converted are either delivered to the
Company or any such transfer agent or the holder notifies the Company
or any such transfer agent that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the
Company to indemnify the Company from any loss incurred by it in
connection therewith. In addition, the Company may, if the Board of
Directors deems it reasonably necessary, require the holder to post a
bond in connection with such indemnity agreement.
(c) APPLICABLE CONVERSION RATE. The conversion rate in effect at any time
-------------------------------
(the "Applicable Conversion Rate") shall be the quotient obtained by
dividing the sum of (i) $1,000 and (ii) at the election of the holder, an
amount equal to the amount of accrued and unpaid dividends per share of
Series A Preferred Stock, whether or not earned or declared, as well as all
accrued and unpaid interest thereon, by the Applicable Conversion Value,
calculated as provided in Section 5(d).
6
<PAGE>
(d) APPLICABLE CONVERSION VALUE. The Applicable Conversion Value in effect
--------------------------------
from time to time, except as adjusted in accordance with Section 5(e)
hereof, shall be $0.389423 as of the date of this Restated Certificate of
Incorporation.
(e) ADJUSTMENTS TO APPLICABLE CONVERSION VALUE.
------------------------------------------------
(i) UPON SALES OF COMMON STOCK. If the Company shall while there are
-------------------------------
any shares of Series A Preferred Stock outstanding, issue or sell
shares of its Common Stock without consideration or at a price per
share less than the Applicable Conversion Value in effect immediately
prior to such issuance or sale, then in each such case such Applicable
Conversion Value upon each such issuance or sale, except as
hereinafter provided, shall be adjusted to an amount determined by
multiplying the Applicable Conversion Value by a fraction:
(A) the numerator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock, plus (b) the number of shares
of Common Stock which the net aggregate consideration received by
the Corporation for the total number of such additional shares of
Common Stock so issued would purchase at the Applicable Conversion
Value, and
(B) the denominator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock, plus (b) the number of such
additional shares of Common Stock so issued.
The Corporation's issuance of up to an aggregate of 569,933 shares of Common
Stock (as adjusted as of the date of this Restated Certificate of
Incorporation), or options exercisable therefor, pursuant to any stock purchase
or stock option plan or other employee incentive program approved by the Board
of Directors to the corporation's employees, directors, officers or consultants
shall not be deemed an issuance of additional shares of Common Stock and shall
have no effect on the calculations contemplated by this Section 5(e).
For the purposes of this Section 5(e), the issuance of any warrants, options,
subscriptions or purchase rights with respect to shares of Common Stock and the
issuance of any securities convertible into or exchangeable for shares of Common
Stock (or the issuance of any warrants, options or any rights with respect to
such convertible or exchangeable securities) shall be deemed an issuance at such
time of such Common Stock if the Net Consideration Per Share (as hereinafter
determined) which may be received by the Company for such Common Stock shall be
less than the Applicable Conversion Value at the time of such issuance. Any
obligation, agreement or understanding to issue warrants, options, subscriptions
or purchase rights at any time in the future shall be deemed to be an issuance
at any time such obligation, agreement or undertaking is made or arises. No
adjustment of the Applicable Conversion Value shall be made
7
<PAGE>
under this Section 5(e) upon the issuance of any shares of Common Stock which
are issued pursuant to the exercise of any warrants, options, subscriptions or
purchase rights or pursuant to the exercise of any conversion or exchange rights
in any convertible securities if any adjustment shall previously have been made
upon the issuance of any such warrants, options or subscriptions or purchase
rights or upon the issuance of any convertible securities (or upon the issuance
of any warrants, options or any rights therefor) as above provided. Any
adjustment of the Applicable Conversion Value with respect to this paragraph
which relates to warrants, options, subscriptions or purchase rights with
respect to shares of Common Stock shall be disregarded if, as, and when all of
such warrants, options, subscriptions or purchase rights expire or are canceled
without being exercised, so that the Applicable Conversion Value effective
immediately upon such cancellation or expiration shall be equal to the
Applicable Conversion Value in effect at the time of the issuance of the expired
or canceled warrants, options, subscriptions or purchase rights, with such
additional adjustments as would have been made to that Applicable Conversion
Value had the expired or canceled warrants, options, subscriptions or purchase
rights not been issued. For purposes of this paragraph, the "Net Consideration
Per Share" which may be received by the Company shall be determined as follows:
(A) The "Net Consideration Per Share" shall mean the amount equal
to the total amount of consideration, if any, received by the
Company for the issuance of such warrants, options, subscriptions
or other purchase rights or convertible or exchangeable
securities, plus the minimum amount of consideration, if any,
payable to the Company upon exercise or conversion thereof,
divided by the aggregate number of shares of Common Stock that
would be issued if all such warrants, options, subscriptions or
other purchase rights or convertible or exchangeable securities
were exercised, exchanged or converted.
(B) The "Net Consideration Per Share" which may be received by the
Company shall be determined in each instance as of the date of
issuance of warrants, options, subscriptions or other purchase
rights or convertible or exchangeable securities without giving
effect to any possible future price adjustments or rate
adjustments which may be applicable with respect to such warrants,
options, subscriptions or other purchase rights or convertible or
exchangeable securities.
For purposes of this Section 5(e), if a part or all of the consideration
received by the Company in connection with the issuance of shares of the Common
Stock or the issuance of any of the securities described in this Section 5(e)
consists of property other than cash, the Company at its expense will promptly
cause independent public accountants of recognized standing selected by the
Company to value such property, whereupon such value shall be given to such
consideration and shall be recorded on the books of the Company with respect to
receipt of such property.
This Section 5(e) shall not apply under any of the circumstances which would
constitute an Extraordinary Common Stock Event (as hereinafter defined in
Section 5(e)(ii)).
8
<PAGE>
(ii) Upon the happening of an Extraordinary Common Stock Event (as
hereinafter defined), the Applicable Conversion Value (and all other
conversion values set forth in paragraph (e)(i) above) shall,
simultaneously with the happening of such Extraordinary Common Stock
Event, be adjusted by multiplying the then effective Applicable
Conversion Value by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such
Extraordinary Common Stock Event and the denominator of which shall be
the number of shares of Common Stock outstanding immediately after
such Extraordinary Common Stock event, and the product so obtained
shall thereafter be the Applicable Conversion Value. The Applicable
Conversion Value, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive Extraordinary Common Stock
Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the issue of additional shares
of the Common Stock as a dividend or other distribution on outstanding Common
Stock, (ii) subdivision of outstanding shares of Common Stock into a greater
number of shares of the Common Stock, or (iii) combination of outstanding shares
of the Common Stock into a smaller number of shares of the Common Stock.
(f) DIVIDENDS. In the event the Company shall make or issue, or fix a
--------------
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the
Company other than shares of Common Stock or in assets (excluding cash
dividends or distributions), then and in each such event provisions shall
be made so that the holders of Series A Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the number of securities or such other assets of the
Company which they would have received had their Series A Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the daze of such event to and including
the Conversion Date (as that term is hereafter defined in Section 5(j)),
retained such securities or such other assets receivable by them us
aforesaid during such period, giving application to all adjustments called
for during such period under this Section 5 with respect to the rights of
the holders of the Series A Preferred Stock.
(g) RECAPITALIZATION OR RECLASSIFICATION. If the Common Stock issuable
-----------------------------------------
upon the conversion of the Series A Preferred Stock shall be changed into
the same or different number of shares of any class or classes of stock of
the Corporation, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend
provided for elsewhere in this Section 5, or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 5),
then and in each such event the holder of each share of Series A Preferred
Stock shall have the right thereafter to convert such share into the kind
and amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification or other change by holders of
the number of shares of Common Stock into which such share of Series A
Preferred Stock might have been converted (taking into account all accrued
and unpaid dividends and interest with respect to such Series A Preferred
Stock) immediately prior to such reorganization, reclassification or
change, all subject to further adjustment as provided herein.
9
<PAGE>
(h) CAPITAL REORGANIZATION, MERGER OR SALE OF ASSETS. If at any time or
-----------------------------------------------------
from time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, reclassification or exchange
of shares provided for elsewhere in this Section 5) or a merger or
consolidation of the Company with or into another corporation, or the sale
of all or substantially all of the Company's properties and assets to any
other person, then, as a part of such reorganization, merger, consolidation
or sale, provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon conversion of
the Series A Preferred Stock, the number of shares of stock or other
securities or property of the Company, or of the successor corporation
resulting from such merger, consolidation or sale, to which a holder of
Common Stock issuable upon conversion would have been entitled on such
capital reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions
of this Section 5 with respect to the rights of the holders of the Series A
Preferred Stock after the reorganization, merger, consolidation or sale to
the end that the provisions of this Section 5 (including adjustment of the
Applicable Conversion Value then in effect and the number of shares
purchasable upon conversion of the Series A Preferred Stock) shall be
applicable after that event in as nearly equivalent a manner as may be
practicable.
Each holder of Series A Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the Company, or the sale of all or
substantially all its assets and properties as such events are more fully set
forth in the first paragraph of this Section 5(h), shall have the option of
electing treatment of his shares of Series A Preferred Stock under either this
Section 5(h) or Section 3(b) hereof, notice of which election shall be submitted
in writing to the Company at its principal offices no later than five (5) days
before the effective date of such event.
(i) ACCOUNTANT'S CERTIFICATE AS TO ADJUSTMENTS. In each case of an
-----------------------------------------------
adjustment or readjustment of the Applicable Conversion Rate, the Company
will furnish each holder of Series A Preferred Stock with a certificate,
prepared by its chief financial officer showing such adjustment or
readjustment, and stating in detail the acts upon which such adjustment or
readjustment is based. Upon the request of any holder, the Company will
cause its independent public accountants to confirm the accuracy of such
adjustment or readjustment.
(j) EXERCISE OF CONVERSION PRIVILEGE. To exercise his conversion privilege,
-------------------------------------
a holder of Series A Preferred Stock shall surrender the certificate or
certificates representing the shares being converted to the Company at its
principal office, and shall give written notice to the Company at that
office that such holder elects to convert such shares. Such notice shall
also state the name or names (with address or addresses) in which the
certificate or certificates for shares of Common Stock issuable upon such
10
<PAGE>
conversion shall be issued. The certificate or certificates for shares of
Series A Preferred Stock surrendered for conversion shall be accompanied by
proper assignment thereof to the Company or in blank. The date when such
written notice is received by the Company, together with the certificate or
certificates representing the shares of Series A Preferred Stock being
converted, shall be the "Conversion Date". As promptly as practicable after
the Conversion Date, the Company shall issue and shall deliver to the
holder of the shares of Series A Preferred Stock being converted, or on its
written order, such certificate or certificates as it may request for the
number of whole shares of Common Stock issuable upon the conversion of such
shares of Series A Preferred Stock in accordance with the provisions of
this Section 5, cash in the amount of all accrued and unpaid dividends on
such shares of Series A Preferred Stock, whether or not earned or declared,
up to and including the Conversion Date, and cash, as provided in Section
5(k), in respect of any fraction of a share of Common Stock issuable upon
such conversion. Such conversion shall be deemed to have been effected
immediately prior to the close of business on the Conversion Dare, and at
such time the rights of the holder as holder of the converted shares of
Series A Preferred Stock shall cease and the person or persons in whose
name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Common Stock represented
thereby.
(k) CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares of
--------------------------------------
Common Stock or scrip representing fractional shares shall be issued upon
the conversion of shares of Series A Preferred Stock. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of Series A Preferred Stock, the Company shall pay to the holder
of the shares of Series A Preferred Stock which were converted a cash
adjustment in respect of such fractional shares in an amount equal to the
same fraction of the market price per share of the Common Stock (as
determined in a reasonable manner prescribed by the Board of Directors) at
the close of business on the Conversion Date. The determination as to
whether or not any fractional shares are issuable shall be based upon the
total number of shares of Series A Preferred Stock being converted at any
one time by any holder thereof; not upon each share of Series A Preferred
Stock being converted.
(l) PARTIAL CONVERSION. In the event some but not all of the shares of
-----------------------
Series A Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Company shall execute and
deliver to or on the order of the holder, at the expense of the Company, a
new certificate representing the number of shares of Series A Preferred
Stock which were not converted.
(m) RESERVATION OF COMMON STOCK. The Company shall at all times reserve
--------------------------------
and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of
the Series A Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock, and if at any
11
<PAGE>
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock, the Company shall take such corporate action as
may be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
6. MANDATORY REDEMPTION.
----------------------
(a) Beginning on April 30, 1992 and on the 30th day of April in each year
thereafter (the "Redemption Date"), the Company shall redeem twenty-five
percent (25%) of all of the shares of Series A Preferred Stock outstanding
on May 7,1986 (or such later date as shall be the date of original issuance
of the Series A Preferred Stock); provided, however, that the Company's
redemption obligation shall be reduced by the number of shares of Series A
Preferred Stock that have been converted prior to any such Redemption Date,
and such reduction shall apply first to the Redemption Date immediately
following such conversion and thereafter any balance shall apply to any
Subsequent Redemption Dates. The redemption price for each share of Series
A Preferred Stock redeemed pursuant to this Section 6 shall be $1,000 per
share of Series A Preferred Stock plus all accrued and unpaid dividends on
such share, whether or not earned or declared as well as all accrued and
unpaid interest thereon, up to and including the date fixed for redemption
(the "Redemption Price"). Each redemption of Series A Preferred Stock shall
be made so that the number of shares of Series A Preferred Stock held by
each registered owner shall be reduced in an amount which shall bear the
same ratio to the total number of shares of Series A Preferred Stock then
held by such registered owner bears to the aggregate number of shares of
Series A Preferred Stock then outstanding.
(b) The Redemption Price set forth in this Section 6 shall be subject to
equitable adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Series A Preferred
Stock.
(c) At least 45 days before any Redemption Date pursuant to Section 6(a),
written notice (hereinafter referred to as the "Redemption Notice") shall
be mailed, postage prepaid, to each holder of record of the Series A
Preferred Stock which is to be redeemed, at its address shown on the
records of the Company, provided, however, that the giving of such
Redemption Notice shall not affect the conversion rights of such holder
pursuant to Section 5 hereof; provided, further, that the Company's failure
to give such Redemption Notice shall in no way affect its obligation to
redeem the shares of Series A Preferred Stock as provided in Sections 6(a)
or 6(b) hereof. The Redemption Notice shall contain the following
information:
(i) The number of shares of Series A Preferred Stock held by the
holder which shall be redeemed by the Company and the total number of
shares of Series A Preferred Stock held by all holders to be so
redeemed,
(ii) The Redemption Date and the applicable Redemption Price, and
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<PAGE>
(iii) That the holder is to surrender to the Company, at the place
designated therein, its certificate or certificates representing the
shares of Series A Preferred Stock to be redeemed.
(d) Each holder of shares of Series A Preferred Stock to be redeemed shall
surrender the certificate or certificates representing such shares to the
Company at the place designated in the Redemption Notice, and thereupon the
applicable Redemption Price for such shares as set forth in this Section 6
shall be paid to the order of the person whose name appears on such
certificate or certificates and each surrendered certificate shall be
canceled and retired.
(e) If any shares of Series A Preferred Stock are not redeemed solely
because a holder fails to surrender the certificate or certificates
representing such shares pursuant to Section 6(e) hereof then, from and
after the Redemption Date, such shares of Series A Preferred Stock
thereupon subject to redemption shall not be entitled to any further
accrual of any dividends pursuant to Section 2 hereof or to the conversion
provisions set forth in Section 5 hereof.
7. NO REISSUANCE OF SERIES A PREFERRED STOCK. No share or shares of Series A
- ----------------------------------------------
Preferred Stock acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Company shall be
authorized to issue. The Company may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Series A Preferred Stock accordingly.
8. RESTRICTIONS AND LIMITATIONS.
-----------------------------
(a) Except as expressly provided herein or as required by law, so long as
any shares of the Series A Preferred Stock remain outstanding, the Company
shall not, and shall not permit any subsidiary (which shall mean any
corporation or trust of which the Company directly or indirectly owns at
the time all of the outstanding shares of every class of such corporation
or trust other than directors' qualifying shares) to, without the vote or
written consent by the holders of at least a majority of the then
outstanding shares of the Series A Preferred Stock, each share of Series A
Preferred Stock to be entitled to one vote in each instance:
(i) Redeem, purchase or otherwise acquire for value (or pay in) to or
set aside for a sinking fund for such purpose), any share or shares of
Series A Preferred Stock;
(ii) Authorize or issue, or obligate itself to authorize or issue, any
other equity security senior to or on a parity with the Series A
Preferred Stock as to liquidation preferences, conversion rights,
voting rights or otherwise; or
(iii) Effect any sale, lease, assignment, transfer or other
conveyance of all or substantially all of the assets of the Company or
any subsidiary thereof, or any consolidation or merger involving the
Company or any subsidiary thereof or any reclassification or other
change of stock, or any recapitalization or any dissolution,
liquidation or winding up of the Company.
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<PAGE>
(b) The Company shall not amend its Certificate of Incorporation without
the approval by vote or written consent by the holders of at least a
majority of the then outstanding shares of Series A Preferred Stock, each
share of Series A Preferred Stock to be entitled to one vote in each
instance, if such amendment would change any of the rights, preferences,
privileges of or limitations provided for herein for the benefit of any
shares of Series A Preferred Stock. Without limiting the generality of the
next preceding sentence, the Company will not amend its Certificate of
Incorporation without the approval by the holders of at least a majority of
the then outstanding shares of Series A Preferred Stock if such amendment
would:
(i) Change the relative seniority rights of the holders of Series A
Preferred Stock as to the payment of dividends in relation to the
holders of any other capital stock of the Company; or
(ii) Reduce the amount payable to the holders of Series A Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the Company, or change the relative seniority of the
liquidation preferences of the holders of Series A Preferred Stock to
the rights upon liquidation of the holders of any other capital stock
of the Company or change the dividend rights of the holders of Series
A Preferred Stock; or
(iii) Cancel or modify the conversion rights of the holders of Series
A Preferred Stock provided for in Section 5 herein
9. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of
- ------------------------------
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of the Series A Preferred Stock set forth herein, but will at
all times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holders of the Series A Preferred Stock against dilution or
other impairment. Without limiting the generality of the foregoing, the Company
(a) will not increase the par value of any shares of stock receivable on the
conversion of the Series A Preferred Stock above the amount payable therefor on
such conversion, (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable shares of stock on the conversion of all Series A Preferred
Stock from time to time outstanding, (c) will not issue any capital stock of any
class which is preferred as to dividends or as to the distribution of assets
upon voluntary or involuntary dissolution, liquidation or winding up of the
Company, unless the rights of the holders thereof shall be limited to a fixed
sum or percentage of par value in respect of participation in dividends and in
any such distribution of assets, and (d) will not transfer all or substantially
all of its properties and assets to any other person (corporate or otherwise),
or consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not the surviving
person), unless such other person shall expressly assume in writing and will be
bound by all the terms of the Series A Preferred Stock set forth herein.
14
<PAGE>
10. NOTICES OF RECORD DATE. In the event of
-----------------------------------------
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company; or any transfer of all or substantially all
of the assets of the Company to any other corporation, or any other entity
or person, or
(c) any voluntary or involuntary dissolution, liquidation or winding up of
the Company,
then and in each such event the Company shall mail or cause to be mailed to each
holder of Series A Preferred Stock a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and a description of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, (iii) the time, if any, that is to be fixed, as to when the
holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification.,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed at least 30 days prior to the date
specified in such notice on which such action is to be taken.
SECTION 4. SHARES ENTITLES TO MORE OR LESS THAN ONE VOTE.
- ----------------------------------------------------------
If any class or series of the Corporation's capital stock shall be entitled to
more or less than one vote per share, on any matter, every reference in this
Restated Certificate of Incorporation or in any resolution or resolutions
adopted by the Board of Directors pursuant to authority expressly vested in it
by the provisions of Section 2 of this Article FOURTH with respect to the
Preferred Stock or in any relevant provision of law or in any rule or
regulation, to a majority or other proportion of stock shall be deemed to refer
to such majority or other proportion of the votes of such stock.
SECTION 5. AMENDMENT.
- ----------------------
Notwithstanding anything contained in this Restated Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 75 percent of
the Voting Stock, voting together as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with, Section 2 of this Article
FOURTH. For the purposes of this Restated Certificate of Incorporation, "Voting
Stock" shall mean the outstanding shares or capital stock of the Corporation
entitled to vote generally in the election of directors.
15
<PAGE>
FIFTH: In furtherance of, and not in limitation of, the powers conferred by
statute, the Board of Directors is expressly authorized and empowered:
(a) to manage, or direct the management of, the business and affairs of the
Corporation and to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject, nevertheless, to
the provisions of the Delaware General Corporation Law, this Restated
Certificate of Incorporation and the By-Laws of the Corporation; and
(b) from time to time to determine to what extent, and at what times and
places, and under what conditions and regulations, the accounts and books
of the Corporation, or any of them, shall be open to inspection by
stockholders; and no stockholder shall have any right to inspect any
account, book or document of the Corporation except as conferred by
applicable law.
The Corporation may in its By-Laws confer powers upon the Board of Directors in
addition to the foregoing and in addition to the powers and authorities
expressly conferred upon the Board of Directors by applicable law.
Notwithstanding anything contained in this Restated Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 75 percent of
the Voting Stock, voting together as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with, this Article FIFTH.
SIXTH: Subject to the rights of the holders of any class or series of stock
having a preference expressly vested in it by the provisions of Section 2 of
Article FOURTH with respect to the Preferred Stock:
(a) any action required or permitted to be taken by the stockholders of
the Corporation must be effected only at a duly called annual or special
meeting of stockholders of the Corporation and may not, after the
effective date of this Restated Certificate of Incorporation, be effected
by any consent in writing of such stockholders;
(b) special meetings of the stockholders of the Corporation may be called
only (i) by the Chairman of the Board of Directors, (ii) pursuant to a
resolution approved by a majority of the Whole Board (as hereinafter
defined), or (iii) pursuant to a written request of the holders of 20% of
the Voting Stock; and
(c) the business permitted to be conducted at any special meeting of the
stockholders is limited to the business brought before the meeting (i) by
the Chairman of the Board of Directors, or (ii) at the request of a
majority of the Whole Board, or (iii) as specified in the written request
of the holders of 20% of the Voting Stock.
Advance notice of the business to be brought by stockholders before an annual
meeting shall be given by such stockholders in the manner provided in the By-
Laws of the Corporation.
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<PAGE>
Notwithstanding anything contained in this Restated Certificate of Incorporation
to the contrary, the affirmative vote of at least 75 percent of the Voting
Stock, voting together as a single class, shall be required to amend, repeal, or
adopt any provision inconsistent with, this Article SIXTH. For the purposes of
this Restated Certificate of Incorporation, "Whole Board" shall mean the total
number of Directors which the Corporation would have if there were no vacancies.
SEVENTH:
- --------
SECTION 1. NUMBER, ELECTION AND TERMS OF DIRECTORS.
- ----------------------------------------------------
Subject to the rights of the holders of any class or series of stock having a
preference expressly vested in it by the provisions of Section 2 of Article
FOURTH with respect to the Preferred Stock, the number of Directors of the
Corporation shall be fixed by the By-Laws of the Corporation and may be
increased or decreased from time to time in such a manner as may be prescribed
by the By-Laws, but in no case shall the number be less than three nor more than
fifteen.
The Directors shall be divided into three classes, as nearly equal in number as
possible. One class of Directors (`Class I") has been initially elected for a
term expiring at the annual meeting of stockholders to be held in 1994, another
class ("Class II") has been initially elected for a term expiring at the annual
meeting of stockholders to be held in 1995, and another class ("Class III") has
been initially elected for a term expiring at the annual meeting of stockholders
to be held in 1996 with members of each class to hold office until their
successors are elected and qualified. At each succeeding annual meeting of the
stockholders of the Corporation, the successors of the class of Directors whose
term expires at that meeting shall be elected by plurality vote of all votes
cast at such meeting to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election.
SECTION 2. STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES.
- ----------------------------------------------------------
Advance notice of stockholder nominations for the election of Directors shall be
given by such stockholders in the manner provided in the By-Laws of the
Corporation.
SECTION 3. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
- ------------------------------------------------------
Subject to the rights of the holders of any class or series of stock having a
preference expressly vested in it by the provisions of Section 2 of Article
FOURTH with respect to the Preferred Stock, newly created directorships
resulting from any increase in the number of directors and any vacancy on the
Board of Directors resulting from death, resignation, disqualification, removal
or other cause shall be filled solely by the affirmative vote of a majority of
the remaining Directors then in office, even though less than a quorum of the
Board of Directors, or by a sole remaining Director. Any Director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been elected and qualified. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of an incumbent Director.
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SECTION 4. REMOVAL OF DIRECTORS.
- ---------------------------------
Subject to the rights of the holders of any class or series of stock having a
preference expressly vested in it by the provisions of Section 2 of Article
FOURTH with respect to the Preferred Stock, any Director may be removed from
office only by the stockholders in the manner provided in this Section 4 of
Article SEVENTH. At any annual meeting of the stockholders of the Corporation
or at any special meeting of the stockholders of the Corporation, the notice of
which shall state that the removal of a Director or Directors is among the
purpose of the meeting, the affirmative vote of the holders of at least 75
percent of the Voting Stock, voting together as a single class, may remove such
Director or Directors. In any vote required by or provided for in this Article
SEVENTH, each share of Voting Stock shall have the number of votes granted to it
generally in the election of Directors.
SECTION 5. AMENDMENT.
- ----------------------
Notwithstanding anything contained in this Restated Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 75 percent of
the Voting Stock, voting together as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with, this Article SEVENTH.
EIGHTH: No Director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director; provided, however, that a Director of the Corporation shall
be liable (i) for breach of the Director's duty of loyalty to the Corporation or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, (iii) to the extent provided
under Section 174 of the Delaware General Corporation Law, relating to
prohibited dividends or distributions or the repurchase or redemption of stock,
or (iv) for any transaction from which the Director derives an improper personal
benefit. If the Delaware General Corporation Law is hereafter amended to permit
further limitation on or elimination of the personal liability of the
Corporation's Directors for breach of fiduciary duty, then a Director of the
Corporation shall be exempt from such liability for any such breach to the
fullest extent permitted by the Delaware General Corporation Law as so amended
from time to time. Any repeal or modification of the foregoing provisions of
this Article EIGHTH, or the adoption of any provision inconsistent herewith,
shall not adversely affect any right or protection of a Director of the
Corporation hereunder in respect of any act or omission of such Director
occurring prior to such repeal, modification or adoption of an inconsistent
provision.
Notwithstanding anything contained in this Restated Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 75 percent of
the Voting Stock, voting together as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with, this Article EIGHTH.
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<PAGE>
NINTH: The Corporation shall indemnify, defend and hold harmless any person who
was or is a party, or is threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, investigative or other, including appeals, by reason of the fact
that he or she is or was a Director or officer of the Corporation, or is or was
serving at the express written request of the Corporation as a Director,
trustee, partner, officer, employee or agent of any corporation, partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, to the fullest extent authorized by Section 145 of the
Delaware General Corporation Law, as amended from time to time, against all
expenses, liabilities and losses (including attorneys' fees, judgments, fines.
ERISA excise taxes and penalties, and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith;
provided, however, that, except with respect to proceedings seeking to enforce
the rights to indemnification granted herein, the Corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if the proceeding (or part thereof) was
specifically authorized by the Board of Directors of the Corporation. Without
limiting the generality or the effect of the foregoing, the Corporation may
enter into one or more agreements with any person which provide for
indemnification on greater or different than that provided in this Article
NINTH. Any repeal or modification of the provisions of this Article NINTH, or
the adoption of any provision inconsistent herewith, shall not adversely affect
any right or protection existing hereunder immediately prior to such repeal,
modification or adoption of an inconsistent provision. Notwithstanding the
foregoing, all indemnification provided for in this Article NINTH shall not be
deemed exclusive of any other rights to which those entitled to receive
indemnification or reimbursement hereunder may be entitled under any By-Law of
the Corporation agreement, vote of stockholders or Directors or otherwise.
Notwithstanding anything contained in this Restated Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 75 percent of
the Voting Stock, voting together as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with, this Article NINTH.
TENTH: The Board of Directors of the Corporation, in determining whether the
interests of the Corporation, its subsidiaries and its stockholders will be
served by any offer of another person to (i) make a tender or exchange offer for
any equity security of the Corporation or any subsidiary of the Corporation,
(ii) merge or consolidate the Corporation or any of its subsidiaries with or
into another corporation, or (iii) purchase or otherwise acquire all or
substantially all of the properties and assets of the Corporation or any of its
subsidiaries, may take into account factors in addition to potential economic
benefits to stockholders. Such factors may include, without limitation, (a)
comparison of the proposed consideration to be received by stockholders, in
relation to the then current market price of the capital stock, to the estimated
current value of the Corporation or any of its subsidiaries in a freely
negotiated transaction, and to the estimated future value of the Corporation or
any of its subsidiaries as an independent entity; (b) the impact of such a
transaction on the customers and employees of the Corporation or any of its
subsidiaries, and its effect on the communities in which the Corporation or any
of its subsidiaries operates; and (c) the ability of the Corporation or any of
its subsidiaries to fulfill its objectives and obligations under applicable
statutes and regulations.
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<PAGE>
The terms "offer" as used in this Article TENTH includes every offer to buy or
acquire, solicitation of an offer to sell, tender offer for, or request or
invitation for tender of, a security or interest in a security for value.
Notwithstanding anything contained in this Restated Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 75 percent of
the Voting Stock, voting together as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with, this Article TENTH.
ELEVENTH: The Corporation may not purchase any shares of its stock from any
person, entity or group that beneficially owns 5% or more of the Voting Stock at
a price exceeding the average closing price for the twenty trading business days
prior to the purchase date, unless a majority of the Corporation's Disinterested
Stockholders (as hereinafter defined) approve the transaction. The restrictions
on purchases by the Corporation set forth in this Article ELEVENTH do not apply
(i) to any offer to purchase shares of a class of the Corporation's stock which
is made on the same terms and conditions to all holders of that class of stock,
or (ii) to any purchase of stock owned by such a 5% stockholder occurring more
than two years after such stockholder's last acquisition of the Corporation's
stock, or (iii) to any purchase of the Corporation's stock in accordance with
the terms of any stock option or employee benefit plan, or (iv) to any purchase
at prevailing market prices pursuant to a stock purchase program.
For purposes of this Article ELEVENTH, the term "Disinterested Stockholders"
means those holders each of whom owns less than 5% of the Voting Stock.
Notwithstanding anything contained in this Restated Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 75 percent of
the Voting Stock voting together as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with, this Article ELEVENTH.
TWELFTH: Any vote or votes authorizing liquidation of the Corporation or
proceedings for its dissolution may provide, subject to the rights of creditors
and the rights expressly provided for particular classes or series of stock for
the distribution pro rata among the stockholders of the Corporation of the
assets of the Corporation, wholly or in part in kind, whether such assets be in
cash or other property,, and may authorize the Board of Directors of the
Corporation to determine the valuation of the different assets of the
Corporation for the purpose of such liquidation and may divide or authorize the
Board of Directors to divide such assets or any part thereof among the
stockholders of the Corporation, in such manner that every stockholder will
receive a proportionate amount in value (determined as aforesaid) of cash or
property of the Corporation upon such liquidation or dissolution even though
each stockholder may not receive a strictly proportionate part of each such
asset.
THIRTEENTH: No contract or transaction between the Corporation and one or more
of its Directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its Directors or officers are directors, officers or partners, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the Director or officer is present at or participates in the meeting of
the Board of Directors, or Committee thereof, which authorizes the contract or
transaction, or solely because his, her or their votes are counted for such
purpose, if:
20
<PAGE>
(a) the material facts as to his, her or their interest and as to the
contract or transaction are disclosed or are known to the Board of
Directors or the Committee thereof, and the Board of Directors or Committee
thereof, in good faith authorizes the contract or transaction by a vote
sufficient for such purpose without counting the vote of the interested
Director or Directors, even though the disinterested Directors be less than
a quorum, or
(b) the material facts as to his, her or their interest and as to the
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(c) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
Committee thereof, or the stockholders.
Interested Directors shall be counted in determining the presence of a quorum at
a meeting of the Board of Directors, or of a Committee thereof which authorizes
such contract or transaction. No Director or officer shall be liable to account
to the Corporation for any profit realized by him or her from or through such
contract or transaction solely by reason of the fact that he or she or any other
corporation, partnership, association, or other organization in which he or she
is a director or officer, or has a financial interest, was interested in such
contract or transaction.
FOURTEENTH: BUSINESS COMBINATIONS.
- -----------------------------------
Section 1. HIGHER VOTE FOR BUSINESS COMBINATIONS.
---------------------------------------
In addition to any affirmative vote required by law or by this Restated
Certificate of Incorporation, unless a Business Combination (as defined below)
shall have been approved by the affirmative vote of not less than a majority of
the Whole Board, any Business Combination shall require the affirmative vote of
the holders of record of outstanding shares representing at least seventy-five
percent (75%) of the Voting Stock, voting together as a single class. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or in any
agreement with any national securities exchange or otherwise.
SECTION 2. NO EFFECT ON FIDUCIARY OBLIGATIONS.
- -----------------------------------------------
Nothing contained in this provision shall be construed to relieve the members of
the Board of Directors from any fiduciary obligations imposed by law.
SECTION 3. DEFINITION.
- -----------------------
For purposes of this Article FOURTEENTH "Business Combination" means:
(a) any merger or consolidation of the Corporation or any subsidiary; or
21
<PAGE>
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) of all or more
than ten percent (10%) of the total assets of the Corporation or any
subsidiary, as of the end of such corporation's recent fiscal year ending
prior to the time the determination is made; or
(c) the issuance or transfer by the Corporation or any subsidiary (in one
transaction or a series of transactions) of any securities of the
Corporation or any subsidiary; or
(d) the adoption of any plan or proposal for the liquidation or dissolution
of the Corporation, or any spin-off or split-up of any kind of the
Corporation or any subsidiary; or
(e) any reclassification of securities (including any reverse stock split),
or recapitalization of the Corporation, or any merger or consolidation of
the Corporation with any subsidiary or any other transaction which has the
effect, directly or indirectly, of increasing the percentage of the
outstanding shares of (i) any class of equity securities of the Corporation
or any subsidiary, or (ii) any class of securities of the Corporation or
any subsidiary convertible into equity securities of the Corporation or any
subsidiary; or
(f) any agreement, contract or other arrangement providing for any one or
more of the actions specified in clauses (a) through (e) of Section 3 of
this Article FOURTEENTH.
SECTION 4. SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW.
- ----------------------------------------------------------------
Nothing in this Article FOURTEENTH or elsewhere in this Restated Certificate of
Incorporation shall be construed as a waiver of any rights of the Corporation to
the provisions of Section 203 of the Delaware General Corporation Law dealing
with business combinations with interested stockholders; and the Corporation
hereby claims the full benefit of all such provisions or any other similar
provisions heretofore or hereafter enacted as part of the Delaware General
Corporation Law to the fullest extent in addition to the provisions of this
Article FOURTEENTH.
SECTION 5. AMENDMENT.
- ----------------------
Notwithstanding anything contained in this Restated Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 75 percent of
the Voting Stock, voting together as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with, this Article FOURTEENTH.
FIFTEENTH: The By-Laws of the Corporation may be amended, altered, changed or
repealed, and a provision or provisions inconsistent with the provisions of the
By-Laws as they exist from time to time may be adopted, only by the majority
vote of the Whole Board or by the affirmative vote of the holders of at least 75
percent of the Voting Stock, voting together as a single class.
Notwithstanding anything contained in this Restated Certificate of incorporation
to the contrary, the affirmative vote of the holders of at least 75 percent of
the Voting Stock, voting together as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with, this Article FIFTEENTH.
22
<PAGE>
SIXTEENTH: The provisions of Section 2 of Article FOURTH and the provisions of
Articles FIFTH, SIXTH, SEVENTH, EIGHTH, NINTH, TENTH, ELEVENTH, FOURTEENTH,
FIFTEENTH and this Article SIXTEENTH, shall not be amended, altered, changed or
repealed, and no provision inconsistent with any of them shall be adopted,
except by the affirmative vote of the holders of at least seventy-five percent
(75%) of the Voting Stock, voting together as a single class. The Corporation
reserves the right to amend, alter, change or repeal any other provision
contained in this Restated Certificate of Incorporation in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders are
granted subject to this reservation.
This Restated Certificate of Incorporation was duly adopted in accordance with
the applicable provisions of Sections 242, 245 and 228 of the Delaware General
Corporation Law.
IN WITNESS WHEREOF, CMG Information Services, Inc. has caused its corporation
seal to be affixed hereto and this Certificate to be signed by David S.
Wetherell, its President, and attested by William Willams, II, its Assistant
Secretary this 8th day of November, 1993.
CMG INFORMATION SERVICES, INC.
By: /s/ David S. Wetherell
--------------------------
David S. Wetherell, President
ATTEST:
By: /s/ William Williams II
William Williams II, Assistant Secretary
[Corporate Seal]
23
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
CMG INFORMATION SERVICES, INC.
CMG INFORMATION SERVICES, INC. a corporation organized and existing under the
laws of the State of Delaware, does hereby certify as follows:
FIRST: That the Board of Directors of said Corporation by unanimous vote
pursuant to Section 141 of the General Corporation Law of Delaware adopted a
resolution proposing and declaring advisable the following amendment to the
Restated Certificate of Incorporation of the Corporation and directing that said
amendment be submitted to the stockholders for their review and consent:
VOTED: That the Board of Directors of CMG Information Services, Inc.
hereby approves and declares advisable an amendment to the
Restated Certificate of Incorporation of this Corporation as
follows:
That ARTICLE FOURTH (a) of the Restated Certificate of
Incorporation of this Corporation be and it is hereby amended to
increase the number of authorized shares of capital stock of the
Corporation from 15,000,000 to 45,000,000 so that said ARTICLE
FOURTH (a) shall be and read
as follows:
FOURTH. (a) The total number of shares of capital stock which the
Corporation is authorized to issue is 45,000,000, of which
40,000,000 shares shall be common stock, par value $.01 per share
("Common Stock") and 5,000,000 shares shall be preferred stock,
par value $.01 per share ("Preferred Stock").
and further,
VOTED: That the foregoing amendment to the Restated Certificate of
Incorporation of this Corporation be submitted to the stockholders
of this Corporation for their approval at the 1996 Special Meeting
of Stockholders.
SECOND: That thereafter, pursuant to the resolution of the Board of
Directors, the 1996 Special Meeting of the Stockholders of the
Corporation was duly called and held, upon notice in accordance
with Section 222 of the General Corporation Law of Delaware, at
which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General
Corporation law of Delaware.
24
<PAGE>
FOURTH: That the capital of the Corporation shall not be reduced under or
by reason of the aforesaid amendment.
IN WITNESS WHEREOF, CMG INFORMATION SERVICES, INC. has caused this Certificate
to be signed by David S. Wetherell, its President, and William Williams II, its
Assistant Secretary, this 22nd day of March, 1996.
(SEAL) CMG INFORMATION SERVICES, INC.
By: /s/ David S. Wetherell
--------------------------
David S. Wetherell, President
ATTEST: /s/ William Williams II
William Williams II, Assistant Secretary
25
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
CMG INFORMATION SERVICES, INC.
CMG INFORMATION SERVICES, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), does hereby certify as
follows:
FIRST: That the Board of Directors of said Corporation by unanimous vote
pursuant to Section 141 of the General Corporation Law of Delaware adopted
resolutions proposing and declaring advisable the following amendments to the
Restated Certificate of Incorporation of the Corporation and directing that said
amendments be submitted to the stockholders of the Corporation for their review
and consent:
VOTED: That the Board of Directors of CMG Information Services, Inc.
hereby approves and declares advisable an amendment to the
Restated Certificate of Incorporation of this Corporation as
follows:
That ARTICLE FIRST of the Restated Certificate of Incorporation
of this Corporation be and it is hereby amended to change the
name of the Corporation from CMG Information Services, Inc. to
CMGI, Inc. so that said ARTICLE FIRST shall be and read as
follows:
FIRST: The name of the Corporation is CMGI, Inc. and further,
VOTED: That the Board of Directors of CMG Information Services, Inc.
hereby approves and declares advisable an amendment to the
Restated Certificate of Incorporation of this Corporation as
follows:
That ARTICLE FOURTH (a) of the Restated Certificate of
Incorporation of this Corporation be and it is hereby amended to
increase the authorized shares of capital stock of the
Corporation from 45,000,000 to 105,000,000 so that said ARTICLE
FOURTH (a) shall be and read as follows:
FOURTH: (a) The total number of shares of capital stock which the
Corporation is authorized to issue is one hundred and five
million (105,000,000) shares of which one hundred million
(100,000,000) shares shall be common stock, par value $0.01 per
share ("Common Stock") and 5,000,000 shares shall be preferred
stock, par value $0.01 per share ("Preferred Stock"). and
further,
VOTED: That the foregoing amendments to the Restated Certificate of
Incorporation of this Corporation are advisable and in the best
interest of the Corporation and that they be submitted to the
stockholders of this Corporation for their consideration and
approval at the 1998 Annual Meeting of Stockholders.
26
<PAGE>
SECOND: That thereafter, pursuant to the resolution of the Board of
Directors, the 1998 Annual Meeting of Stockholders of the
Corporation was duly called and held, upon notice in accordance
with Section 222 of the General Corporation Law of Delaware, at
which meeting the necessary number of shares as required by
statute were voted in favor of the amendments.
THIRD: That the aforesaid amendments were duly adopted in accordance with
the applicable provisions of Section 242 of the General
Corporation Law of Delaware.
FOURTH: That the capital of the Corporation shall not be reduced under or
by reason of the aforesaid amendments.
[The remainder of this page intentionally left blank.]
27
<PAGE>
IN WITNESS WHEREOF, CMG INFORMATION SERVICES, INC. has caused this Certificate
to be signed by David S. Wetherell, its President, and William Williams II, its
Assistant Secretary, this 17th day of December, 1998.
CMG INFORMATION SERVICES, INC.
By: /s/ David S. Wetherell
--------------------------
David S. Wetherell, President
ATTEST: /s/ William Williams II
William Williams II,
Assistant Secretary
28
<PAGE>
CERTIFICATE OF
DESIGNATIONS, PREFERENCES, AND RIGHTS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
CMGI, INC.
(Pursuant to Section 151 of the
Delaware Corporation Law)
CMGI, INC., a corporation organized and existing under the Delaware General
Corporation Law (the "CORPORATION"), hereby certifies that the following
resolutions were adopted by the Board of Directors of the Corporation on
December 17, 1998 pursuant to authority of the Board of Directors as required by
Section 151(g) of the Delaware Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the Board of
Directors of this Corporation (the "BOARD OF DIRECTORS" or the "BOARD") in
accordance with the provisions of its Articles of Incorporation, the Board of
Directors hereby authorizes a series of the Corporation's previously authorized
Preferred Stock, par value $.01 per share (the "PREFERRED STOCK"), and hereby
states the designation and number of shares, and fixes the relative rights,
preferences, privileges, powers and restrictions thereof as follows:
Series B Convertible Preferred Stock:
I. DESIGNATION AND AMOUNT
-------------------------
The designation of this series, which consists of 50,000 shares of Preferred
Stock, is Series B Convertible Preferred Stock (the "SERIES B PREFERRED STOCK")
and the stated value shall be One Thousand Dollars ($1,000) per share (the
"STATED VALUE").
II. RANK
---------
The Series B Preferred Stock shall rank (i) prior to the Corporation's common
stock, par value $.01 per share (the "COMMON STOCK"); (ii) prior to any class or
series of capital stock of the Corporation hereafter created (unless, with the
consent of the holders of Series B Preferred Stock obtained in accordance with
Article X hereof, such class or series of capital stock specifically, by its
terms, ranks senior to or pari passu with the Series B Preferred Stock)
----------
(collectively, with the Common Stock, "JUNIOR SECURITIES"); (iii) pari passu
----------
with any class or series of capital stock of the Corporation hereafter created
(with the consent of the holders of Series B Preferred Stock obtained in
accordance with Article X hereof) specifically ranking, by its terms, on parity
with the Series B Preferred Stock ("PARI PASSU SECURITIES"); and (iv) junior
----------
to any class or series of capital stock of the Corporation hereafter created
(with the consent of the holders of Series B Preferred Stock obtained in
accordance with Article X hereof) specifically ranking, by its terms, senior to
the Series B Preferred Stock ("SENIOR SECURITIES"), in each case as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
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<PAGE>
III. DIVIDENDS
--------------
The Series B Preferred Stock shall not bear any dividends. Except as provided
below, in no event, so long as any Series B Preferred Stock shall remain
outstanding, shall any dividend whatsoever be declared or paid upon, nor shall
any distribution be made upon, any Junior Securities, nor shall any shares of
Junior Securities be purchased or redeemed by the Corporation nor shall any
moneys be paid to or made available for a sinking fund for the purchase or
redemption of any Junior Securities (other than a distribution of Junior
Securities), without, in each such case, the written consent of the holders of a
majority of the outstanding shares of Series B Preferred Stock, voting together
as a class. Notwithstanding the foregoing, the Corporation may (i) declare or
pay upon any Junior Securities any dividend payable in equity interests of a
subsidiary of the Corporation; provided that, the holders of the Series
-------------
B Preferred Stock then outstanding shall have first received, or simultaneously
received, a like distribution on each outstanding share of Series B Preferred
Stock, based on the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible on the record date for such distribution
(without regard to any limitations on conversion and based upon the then
prevailing Conversion Price (as defined below) using the record date as the
Conversion Date (as defined below)) or (ii) redeem shares of Common Stock which
had been issued as restricted stock pursuant to a stock option plan approved by
the stockholders of the Corporation.
IV. LIQUIDATION PREFERENCE
---------------------------
A. LIQUIDATION EVENT. If the Corporation shall commence a voluntary case under
------------------
the Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"LIQUIDATION EVENT"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation (other than Senior Securities) upon
liquidation, dissolution or winding up unless prior thereto, the holders of
shares of Series B Preferred Stock, subject to Article VI, shall have received
the Liquidation Preference (as defined in Article IV.C) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Series B Preferred Stock and
holders of Pari Passu Securities (including any
----------
30
<PAGE>
dividends or distribution paid
on any Pari Passu Securities after the date of filing of this Certificate
of Designation) shall be insufficient to permit the payment to such holders of
the preferential amounts payable thereon, then the entire assets and funds of
the Corporation legally available for distribution to the Series B Preferred
Stock and the Pari Passu Securities shall be distributed ratably among such
----------
shares in proportion to the ratio that the Liquidation Preference payable on
each such share bears to the aggregate liquidation preference payable on all
such shares. Any prior dividends or distribution made after the date of filing
of this Certificate of Designation shall offset, dollar for dollar, the amount
payable to the class or series to which such distribution was made.
B. CERTAIN ACTS DEEMED LIQUIDATION EVENT. At the option of the holders of a
--------------------------------------
majority-in-interest of the then outstanding shares of Series B Preferred Stock,
the sale, conveyance or disposition of all or substantially all of the assets of
the Corporation, the effectuation by the Corporation of a transaction or series
of related transactions in which more than 50% of the voting power of the
Corporation is disposed of, or the consolidation, merger or other business
combination of the Corporation with or into any other Person (as defined below)
or Persons when the Corporation is not the survivor shall either: (i) be deemed
to be a liquidation, dissolution or winding up of the Corporation pursuant to
which the Corporation shall be required to distribute upon consummation of and
as a condition to such transaction an amount equal to the sum of (a)118% of the
Stated Value plus (b) four percent (4%) per annum of such Stated Value for the
period beginning on the date of issuance of the Series B Preferred Stock (the
"ISSUE DATE") and ending on the date of final distribution to the holder thereof
(prorated for any portion of such period) with respect to each outstanding share
of Series B Preferred Stock or (ii) be treated pursuant to Article VI.C(b)
hereof. "PERSON" shall mean any individual, corporation, limited liability
company, partnership, association, trust or other entity or organization.
C. LIQUIDATION PREFERENCE. For purposes hereof, the "LIQUIDATION PREFERENCE"
-----------------------
with respect to a share of the Series B Preferred Stock shall mean an amount
equal to the sum of (i) the Stated Value thereof plus (ii) and amount equal to
four percent (4%) per annum of such Stated Value for the period beginning on the
Issue Date and ending on the date of final distribution to the holder thereof
(prorated for any portion of such period). The liquidation preference with
respect to any Pari Passu Securities shall be as set forth in the Certificate of
----------
Designation filed in respect thereof.
V. REDEMPTION
-------------
A. MANDATORY REDEMPTION. If any of the following events (each, a "MANDATORY
----------------------
REDEMPTION EVENT") shall occur:
(i) The Corporation fails to issue shares of Common Stock to the
holders of Series B Preferred Stock upon exercise by the holders of
their conversion rights in accordance with the terms of this
Certificate of Designation (for a period of at least sixty (60) days
if such failure is solely as a result of the circumstances governed by
the second paragraph of Article VI.E below and the Corporation is
31
<PAGE>
using its best efforts to authorize a sufficient number of shares of
Common Stock as soon as practicable), fails to transfer or to cause
its transfer agent to transfer (electronically or in certificated
form) any certificate for shares of Common Stock issued to the holders
upon conversion of the Series B Preferred Stock as and when required
by this Certificate of Designation or the Registration Rights
Agreement, dated as of December 21, 1998, by and among the Corporation
and the other signatories thereto (the "REGISTRATION RIGHTS
AGREEMENT"), fails to remove any restrictive legend (or to withdraw
any stop transfer instructions in respect thereof) on any certificate
or any shares of Common Stock issued to the holders of Series B
Preferred Stock upon conversion of the Series B Preferred Stock as and
when required by this Certificate of Designation, the Securities
Purchase Agreement dated as of December 21, 1998, by and between the
Corporation and the other signatories thereto (the "PURCHASE
AGREEMENT") or the Registration Rights Agreement, or fails to fulfill
its obligations pursuant to Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5
of the Purchase Agreement (or makes any announcement, statement or
threat that it does not intend to honor the obligations described in
this paragraph) and any such failure shall continue uncured (or any
announcement, statement or threat not to honor its obligations shall
not be rescinded in writing) for ten (10) business days after the
Corporation shall have been notified thereof in writing by any holder
of Series B Preferred Stock;
(ii) The Corporation fails to obtain effectiveness with the Securities
and Exchange Commission (the "SEC") prior to May 22, 1999 of the
Registration Statement (as defined in the Registration Rights
Agreement) required to be filed pursuant to Section 2(a) of the
Registration Rights Agreement, or fails to obtain the effectiveness of
any additional Registration Statement (required pursuant to Section
3(b) of the Registration Rights Agreement) within one hundred fifty
(150) days after the date the Corporation reasonably first determined
(or reasonably should have determined) the need therefor, or any such
Registration Statement, after its initial effectiveness, lapses in
effect or sales of all of the Registrable Securities (as defined in
the Registration Rights Agreement) otherwise cannot be made thereunder
(whether by reason of the Corporation's failure to amend or supplement
the prospectus included therein in accordance with the Registration
Rights Agreement, the Corporation's failure to file and obtain
effectiveness with the SEC of an additional Registration Statement
required pursuant to Section 3(b) of the Registration Rights Agreement
or otherwise) for more than thirty (30) consecutive days or more than
sixty (60) days in any twelve (12) month period after such
Registration Statement becomes effective;
(iii) The Corporation or any "significant subsidiary" as such term is defined
in Rule 1-02(w) of Regulation S-X promulgated under the Securities Act of 1933,
as amended (a "SIGNIFICANT SUBSIDIARY") of the Corporation shall make an
assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for all or substantially all of
its property or business; or such a receiver or trustee shall otherwise be
appointed;
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(iv) Bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the
Corporation or any Significant Subsidiary of the Corporation;
(v) The Corporation shall fail to maintain the listing of the Common
Stock on the Nasdaq National Market ("NASDAQ"), the Nasdaq SmallCap
Market ("NASDAQ SMALLCAP"), the New York Stock Exchange ("NYSE") or
the American Stock Exchange ("AMEX"); or
(vi) The Corporation (a) files a notification of registration under
the Investment Company Act of 1940 (the "40 ACT"); (b) files a
registration statement relating to its shares of Common Stock (or any
other equity security) on Forms N-1A or N-2 or any other form
prescribed for use by investment companies under regulations
promulgated by the SEC; (c) is informed by the staff of the SEC's
Division of Investment Management that (1) the staff will not support
the Corporation's application for an order of exemption filed pursuant
to Section 3(b)(2) under the 40 Act, or (2) the staff will not agree
to recommend to the SEC that it extend the period of time under the
statute during which the Corporation is exempted from the 40 Act;
provided that the Corporation has failed, within forty-five (45) days
-------------
of such event, to reduce the amount of its "investment securities" (as
defined in Section 3(a)(2) of the 40 Act) to less than 40% of its
total assets or to have such staff position withdrawn or does not, at
the time of such event, qualify for the exception provided by Rule 3a-
2 promulgated under the 40 Act; (d) is named in a complaint, filed by
the SEC, seeking to compel the Corporation to register under the 40
Act; provided such complaint remains undismissed for a period of
--------
forty-five (45) days; or (e) is named in a complaint filed by or on
behalf of the Corporation or any shareholder or group of shareholders
thereof, where any one count thereof avers or alleges that the
Corporation is an Investment Company required to register under the 40
Act; provided such complaint remains undismissed for a period
--------
of forty-five (45) days, then, upon the occurrence and during the
continuation of any Mandatory Redemption Event specified in
subparagraphs (i), (ii), (v) or (vi), at the option of the holders of
at least 50% of the then outstanding shares of Series B Preferred
Stock by written notice (the "MANDATORY REDEMPTION NOTICE") to the
Corporation of such Mandatory Redemption Event, or upon the occurrence
of any Mandatory Redemption Event specified in subparagraphs (iii) or
(iv), the Corporation shall purchase each holder's shares of Series B
Preferred Stock for an amount per share equal to the greater of (1)
the sum of (a) Mandatory Redemption Percentage (as defined below)
multiplied by the Stated Value of the shares to be redeemed plus (b)
an amount equal to four percent (4%) per annum of such Stated Value
for the period beginning on the Issue Date and ending on the date of
payment of the Mandatory Redemption Amount (the "MANDATORY REDEMPTION
DATE"), and (2) the "PARITY VALUE" of the shares to be redeemed, where
parity value means the product of (a) the highest number of shares of
Common Stock issuable upon conversion of such shares in accordance
with Article VI below (without giving any effect to any limitations on
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<PAGE>
conversions of shares contained herein, and treating the Trading Day
(as defined in Article VI.B) immediately preceding the Mandatory
Redemption Date as the "CONVERSION DATE" (as defined in Article
VI.B(a)) for purposes of determining the lowest applicable Conversion
Price, unless the Mandatory Redemption Event arises as a result of a
breach in respect of a specific Conversion Date in which case such
Conversion Date shall be the Conversion Date), multiplied by (b) the
highest Closing Price (as defined below) for the Common Stock during
the period beginning on the date of first occurrence of the Mandatory
Redemption Event and ending one day prior to the Mandatory Redemption
Date (the greater of such amounts being referred to as the "MANDATORY
REDEMPTION AMOUNT"). "MANDATORY REDEMPTION PERCENTAGE" means 115% for
purposes of subparagraphs (iii) and (iv) above, 118% for purposes of
subparagraphs (ii) and (v) above and 120% for all other purposes.
"CLOSING PRICE," as of any date, means the last sale price of the
Common Stock on Nasdaq as reported by Bloomberg Financial Markets or
an equivalent reliable reporting service mutually acceptable to and
hereafter designated by the holders of a majority in interest of the
shares of Series B Preferred Stock and the Corporation ("BLOOMBERG")
or, if Nasdaq is not the principal trading market for such security,
the last sale price of such security on the principal securities
exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last sale
price of such security in the over-the- counter market on the
electronic bulletin board for such security as reported by Bloomberg,
or, if no last sale price of such security is available in the over-
the-counter market on the electronic bulletin board for such security
or in any of the foregoing manners, the average of the bid prices of
any market makers for such security that are listed in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Price
cannot be calculated for such security on such date in the manner
provided above, the Closing Price shall be the fair market value as
mutually determined by the Corporation and the holders of a majority
in interest of shares of Series B Preferred Stock being converted for
which the calculation of the Closing Price is required in order to
determine the Conversion Price of such Series B Preferred Stock.
B. TRADING MARKET REDEMPTION. If the Series B Preferred Stock ceases to be
--------------------------
convertible by any holder as a result of the limitations described in Article
VI.A(c) below (a "TRADING MARKET REDEMPTION EVENT"), and the Corporation has not
prior to, or within forty-five (45) days of, the date that such Trading Market
Redemption Event arises, (i) obtained the Stockholder Approval (as defined in
Article VI.A(c)) or (ii) eliminated any prohibitions under applicable law or the
rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Corporation or any
of its securities on the Corporation's ability to issue shares of Common Stock
in excess of the Maximum Share Amount (as defined in Article VI.A(c)), then the
Corporation shall be obligated to redeem immediately all of the then outstanding
Series B Preferred Stock, in accordance with this Article V.B. An irrevocable
redemption notice (the "TRADING MARKET REDEMPTION NOTICE") shall be delivered
promptly to the holders of Series B Preferred Stock at their registered address
appearing on the records of the Corporation and shall state (i)
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<PAGE>
that the Maximum Share Amount (as defined in Article VI.A) has been issued upon
exercise of the Series B Preferred Stock, (ii) that the Corporation is obligated
to redeem all of the outstanding Series B Preferred Stock and (iii) the
Mandatory Redemption Date, which shall be a date within five (5) business days
of the earlier of (a) the date of the Redemption Notice or (b) the date on which
the holders of the Series B Preferred Stock notify the Corporation of the
occurrence of a Trading Market Redemption Event. On the Mandatory Redemption
Date, the Corporation shall make payment of the Mandatory Redemption Amount (as
defined in Article V.A above) in cash.
C. OPTIONAL REDEMPTION. Notwithstanding anything to the contrary contained in
--------------------
this Article V, so long as (i) no Mandatory Redemption Event or Trading Market
Redemption Event shall have occurred and be continuing, (ii) any Registration
Statement required to be filed and be effective pursuant to the Registration
Rights Agreement is then in effect and has been in effect and sales of all of
the Registrable Securities (as defined in the Registration Rights Agreement) can
be made thereunder for at least twenty (20) days prior to the Optional
Redemption Date (as defined below) and (iii) the Corporation has a sufficient
number of authorized shares of Common Stock reserved for issuance upon full
conversion of the Series B Preferred Stock, then at any time after December 21,
1999, on any day on which, and for a period of ten (10) consecutive Trading Days
prior thereto, the Closing Bid Price (as defined in Article VI.B(a)) is less
than $73.00 (as adjusted for stock splits, stock dividends and similar events,
the "REDEMPTION THRESHOLD"), the Corporation shall have the right, exercisable
on not less than fifteen (15) Trading Days prior written notice to the holders
of Series B Preferred Stock (which notice may not be sent to the holders of the
Series B Preferred Stock until the Corporation is permitted to redeem the Series
B Preferred Stock pursuant to this Article V.C), to redeem all of the
outstanding shares of Series B Preferred Stock in accordance with this Article
V. Any notice of redemption hereunder (an "OPTIONAL REDEMPTION") shall be
delivered to the holders of Series B Preferred Stock at their registered
addresses appearing on the books and records of the Corporation and shall state
(1) that the Corporation is exercising its right to redeem all of the
outstanding shares of Series B Preferred Stock and (2) the date of redemption
(the "OPTIONAL REDEMPTION NOTICE"). On the date fixed for redemption (the
"OPTIONAL REDEMPTION DATE"), the Corporation shall make payment of the Optional
Redemption Amount (as defined below) to or upon the order of the holders as
specified by the holders in writing to the Corporation at least one (1) business
day prior to the Optional Redemption Date. If the Corporation exercises its
right to redeem the Series B Preferred Stock, the Corporation shall make payment
to the holders of an amount in cash (the "OPTIONAL REDEMPTION AMOUNT") equal to
the sum of (i) 115% multiplied by the Stated Value of the shares of Series B
Preferred Stock to be redeemed and (ii) an amount equal to four percent (4%) per
annum of such Stated Value for the period beginning on the Issue Date and ending
on the Optional Redemption Date, for each share of Series B Preferred Stock then
held. Notwithstanding notice of an Optional Redemption, the holders shall at all
times prior to the Optional Redemption Date maintain the right to convert all or
any shares of Series B Preferred Stock in accordance with Article VI and any
shares of Series B Preferred Stock so converted after receipt of an Optional
Redemption Notice and prior to the Optional Redemption Date set forth in such
notice and payment of the aggregate Optional Redemption Amount shall be deducted
from the shares of Series B Preferred Stock which are otherwise subject to
redemption pursuant to such notice. If the Corporation delivers an Optional
Redemption Notice and fails to pay the Optional
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<PAGE>
Redemption Amount due to the holders of the Series B Preferred Stock within two
(2) business days following the Optional Redemption Date, the Corporation shall
forever forfeit its right to redeem the Series B Preferred Stock pursuant to
this Article V.C. On the Optional Redemption Date, against delivery of the
Optional Redemption Amount, the holders of such redeemed shares of Series B
Preferred Stock shall surrender the certificates representing such shares of
Series B Preferred Stock in escrow to counsel designated by such holders with
such shares to be released to the Corporation by such counsel upon receipt of
the Optional Redemption Amount by such holders.
D. REDEMPTION IN LIEU OF AUTOMATIC CONVERSION. Notwithstanding anything to the
-------------------------------------------
contrary contained in this Article V and subject to the terms of this Article
V.D, if on the Automatic Conversion Date (as defined in Article VIII) the
Corporation is unable to issue shares of Common Stock upon conversion of the
Series B Preferred Stock as a result of the Cap Amount being issued, the
Corporation shall, in lieu of issuing shares of Common Stock to the holders upon
Automatic Conversion in accordance with the terms of Article VIII below, redeem
all of such shares of Series B Preferred Stock which the Corporation is unable
to convert as a result of the Cap Amount being issued for an amount in cash
equal to the sum of (i) the Stated Value of the shares of Series B Preferred
Stock to be redeemed and (ii) an amount equal to four (4%) per annum of such
Stated Value beginning on the Issue Date and ending on the Automated Conversion
Date, for each share of Series B Preferred Stock being redeemed (the "REDEMPTION
IN LIEU OF AUTOMATIC CONVERSION AMOUNT"). The Corporation shall effect a
redemption pursuant to this Article V.D. by sending written notice to the
holders of the Series B Preferred Stock at least fifteen (15) Trading Days prior
to the Automatic Conversion Date of its election to redeem the shares of Series
B Preferred Stock eligible for redemption pursuant to this Article V.D. (the
"REDEMPTION IN LIEU OF AUTOMATIC CONVERSION NOTICE").
E. QUALIFIED PUBLIC OFFERING REDEMPTION. Notwithstanding anything to the
-------------------------------------
contrary contained in this Article V, so long as (i) no Mandatory Redemption
Event or Trading Market Redemption Event shall have occurred and be continuing,
(ii) any Registration Statement required to be filed and to be effective
pursuant to the Registration Rights Agreement is then in effect and has been in
effect and sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement) can be made thereunder for at least twenty (20)
days prior to the date the Qualified Public Offering Redemption Notice (as
defined below) is sent and at all times through and including the Qualified
Public Offering Redemption Date (as defined below) and (iii) the Corporation has
a sufficient number of authorized shares of Common Stock reserved for issuance
upon full conversion of the Series B Preferred Stock, then at any time after the
Issue Date, if the underwriters in such Qualified Public Offering (as defined in
the Registration Rights Agreement) so request, the Corporation shall have the
right, exercisable on not less than fifteen (15) Trading Days prior written
notice to the holders of Series B Preferred Stock, to redeem all of the
outstanding shares of Series B Preferred Stock in accordance with this Article
V. Any notice of redemption hereunder (a "QUALIFIED PUBLIC OFFERING REDEMPTION")
shall be delivered to the holders of Series B Preferred Stock at their
registered addresses appearing on the books and records of the Corporation and
shall state (1) that the Corporation is exercising its right to redeem all of
the outstanding shares of Series B Preferred Stock and (2) the date of
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<PAGE>
redemption which shall be the date of the consummation of the Qualified Public
Offering (the "QUALIFIED PUBLIC OFFERING REDEMPTION NOTICE"). On the date of
consummation of the Qualified Public Offering (the "QUALIFIED PUBLIC OFFERING
REDEMPTION DATE"), the Corporation shall make payment of the Qualified Public
Offering Redemption Amount (as defined below) to or upon the order of the
holders as specified by the holders in writing to the Corporation at least one
(1) business day prior to the Qualified Public Offering Redemption Date. If the
Corporation exercises its right to redeem the Series B Preferred Stock, the
Corporation shall make payment to the holders of an amount in cash (the
"QUALIFIED PUBLIC OFFERING REDEMPTION AMOUNT") equal to the sum of (i) 118%
multiplied by the Stated Value of the shares of Series B Preferred Stock to be
redeemed and (ii) an amount equal to four percent (4%) per annum of such Stated
Value for the period beginning on the Issue Date and ending on the Qualified
Public Offering Redemption Date, for each share of Series B Preferred Stock then
held. Notwithstanding notice of an Qualified Public Offering Redemption, the
holders shall at all times prior to the Qualified Public Offering Redemption
Date maintain the right to convert all or any shares of Series B Preferred Stock
in accordance with Article VI and any shares of Series B Preferred Stock so
converted after receipt of an Qualified Public Offering Redemption Notice and
prior to the Qualified Public Offering Redemption Date set forth in such notice
and payment of the aggregate Qualified Public Offering Redemption Amount shall
be deducted from the shares of Series B Preferred Stock which are otherwise
subject to redemption pursuant to such notice. If the Corporation delivers an
Qualified Public Offering Redemption Notice and fails to pay the Qualified
Public Offering Redemption Amount due to the holders of the Series B Preferred
Stock within two (2) business days following the Qualified Public Offering
Redemption Date, the Corporation shall forever forfeit its right to redeem the
Series B Preferred Stock pursuant to this Article V.E. On the Qualified Public
Offering Redemption Date, against delivery of the Qualified Public Offering
Redemption Amount, the holders of such redeemed shares of Series B Preferred
Stock shall surrender the certificates representing such shares of Series B
Preferred Stock in escrow to counsel designated by such holders with such
shares to be released to the Corporation by such counsel upon receipt of the
Qualified Public Offering Redemption Amount by such holders.
F. FAILURE TO PAY REDEMPTION AMOUNTS. In the case of a Mandatory Redemption
----------------------------------
Event or the delivery of an Optional Redemption Notice, Redemption In Lieu of
Automatic Conversion Notice or a Qualified Public Offering Redemption Notice, if
the Corporation fails to pay the Mandatory Redemption Amount, Optional
Redemption Amount, Redemption In Lieu of Automatic Conversion Amount or
Qualified Public Offering Redemption Amount, as applicable, within five (5)
business days of written notice that such amount is due and payable, then
(assuming there are sufficient authorized shares) in addition to all other
available remedies, each holder of Series B Preferred Stock shall have the right
at any time, so long as the Mandatory Redemption Event continues, or at any time
after delivery of an Optional Redemption Notice, Redemption In Lieu of Automatic
Conversion Notice or a Qualified Public Offering Redemption Notice, to require
the Corporation, upon written notice, to immediately issue (in accordance with
and subject to the terms of Article VI below), in lieu of the Mandatory
Redemption Amount, Optional Redemption Amount, Redemption In Lieu of Automatic
Conversion Amount or Qualified Public Offering Redemption Amount, as applicable,
the number of shares of Common Stock of the Corporation equal to such applicable
redemption amount divided by any Conversion Price, as chosen in the sole
discretion of the holder of Series B Preferred Stock, in effect from the
37
<PAGE>
date of the Mandatory Redemption Event (or the date of delivery of an Optional
Redemption Notice, Redemption In Lieu of Automatic Conversion Notice or a
Qualified Public Offering Redemption Notice) until the date such holder elects
to exercise its rights pursuant to this Article V.E.
VI. CONVERSION AT THE OPTION OF THE HOLDER
------------------------------------------
A. OPTIONAL CONVERSION
-------------------
(a) CONVERSION AMOUNT. Each holder of shares of Series B Preferred Stock
----------------------
may, at its option at any time and from time to time, upon surrender of the
certificates therefor, convert any or all of its shares of Series B Preferred
Stock into Common Stock as set forth below (an "OPTIONAL CONVERSION"). Each
share of Series B Preferred Stock shall be convertible into such number of fully
paid and nonassessable shares of Common Stock as such Common Stock exists on the
Issue Date, or any other shares of capital stock or other securities of the
Corporation into which such Common Stock is thereafter changed or reclassified,
as is determined by dividing (1) the sum of (a) the Stated Value thereof plus
(b) the Premium Amount (as defined below), by (2) the then effective Conversion
Price (as defined below); provided, however, that in no event (other than
-----------------
pursuant to the Automatic Conversion (as defined in Article VII)) shall a holder
of shares of Series B Preferred Stock be entitled to convert any such shares in
excess of that number of shares upon conversion of which the sum of (x) the
number of shares of Common Stock beneficially owned by the holder and its
affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unconverted portion of the shares of Series B
Preferred Stock or the unexercised or unconverted portion of any other
securities of the Corporation subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (y) the number of shares of
Common Stock issuable upon the conversion of the shares of Series B Preferred
Stock with respect to which the determination of this proviso is being made,
would result in beneficial ownership by a holder and such holder's affiliates of
more than 4.9% of the outstanding shares of Common Stock. For purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided
in clause (x) of such proviso. The "PREMIUM AMOUNT" means the product of the
Stated Value, multiplied by .04, multiplied by (N/365), where "N" equals the
number of days elapsed from the Issue Date to and including the Conversion Date
(as defined in Article VI.B).
(b) LIMITATION OF NUMBER OF SHARES OF COMMON STOCK TO BE ISSUED.
-----------------------------------------------------------------------
Subject to waiver by the Corporation, the maximum number of shares of Common
Stock to be issued upon conversion of the Series B Preferred Stock shall be
1,041,667 shares (as adjusted for stock splits, stock dividends and similar
events, the "CAP AMOUNT"). If the Corporation has issued a number of shares of
Common Stock upon conversion of the Series B Preferred Stock equal to the Cap
Amount, unless the Corporation waives the limitations set forth in this Article
VI.A(b) and issues shares of Common Stock upon conversion of the Series B
Preferred Stock in excess of the Cap Amount, on the Automatic Conversion Date
(as defined in Article VIII) the Corporation shall be required to redeem the
outstanding shares Series B Preferred Stock in accordance with Article V.D.
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<PAGE>
(c) TRADING MARKET LIMITATION. Unless (i) permitted by the applicable
--------------------------
rules and regulations of the principal securities market on which the
Common Stock is listed or traded or (ii) the Corporation has obtained
approval of the issuance of the Common Stock upon conversion of the Series
B Preferred Stock in accordance with applicable law and the rules and
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Corporation or any
of its securities (the "STOCKHOLDER APPROVAL"), in no event shall the total
number of shares of Common Stock issued upon conversion of the Series B
Preferred Stock (including any shares of capital stock or rights to acquire
shares of capital stock issued by the Corporation which are aggregated or
integrated with the Common Stock issued or issuable upon conversion of the
Series B Preferred Stock for purposes of any such rule or regulation)
exceed the maximum number of shares of Common Stock that the Corporation
can so issue pursuant to any rule of the principal United States securities
market on which the Common Stock trades (including Rule 4460(i) of the
Nasdaq Stock Market or any successor rule)(the "MAXIMUM SHARE AMOUNT")
which, as of the Issue Date, shall be 4,614,296 (19.99% of the total shares
of Common Stock outstanding on the Issue Date), subject to equitable
adjustments from time to time for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the
Common Stock occurring after the Issue Date. With respect to each holder of
Series B Preferred Stock, the Maximum Share Amount shall refer to such
holder's pro rata share thereof determined in accordance with Article XI
below. In the event that (a) the aggregate number of shares of Common Stock
actually issued upon conversion of the Series B Preferred Stock represents
at least twenty percent (20%) of the Maximum Share Amount and (b) the sum
of (x) the aggregate number of shares of Common Stock actually issued upon
conversion of the outstanding Series B Preferred Stock plus (y) the
aggregate number of shares of Common Stock that remain issuable upon
conversion of Series B Preferred Stock at the then effective Conversion
Price, represents at least one hundred percent (100%) of the Maximum Share
Amount (the "TRIGGERING EVENT"), the Corporation will use its best efforts
to seek and obtain Stockholder Approval (or obtain such other relief as
will allow conversions hereunder in excess of the Maximum Share Amount) as
soon as practicable following the Triggering Event.
B. CONVERSION PRICE.
-----------------
(a) CALCULATION OF CONVERSION PRICE. Subject to subparagraph (b) below,
--------------------------------
the "CONVERSION PRICE" shall be (i) prior to the earliest of (A) December
22, 1999, (B) the date the Corporation makes a public announcement that it
intends to merge or consolidate with any other corporation (other than a
merger in which the Corporation is the continuing Corporation and the
capital stock of the Corporation remains unchanged) or sell or transfer
substantially all of the assets of the Corporation, (C) the date any
person, group or entity (including the Corporation) publicly announces a
tender offer to purchase 50% or more of the Corporation's Common Stock (or
any other takeover scheme), (D) the date there is a material adverse change
in the business, operations,
39
<PAGE>
assets, financial condition or prospects of the Corporation or its subsidiaries,
taken as a whole or (E) the occurrence of any Mandatory Redemption Event or
after delivery of any Qualified Public Offering Redemption Notice by the
Corporation (the earliest of such dates being hereafter referred to as the
"MARKET PRICE TRIGGER DATE"), the Fixed Conversion Price and (ii) beginning
on the Market Price Trigger Date, the lesser of the Market Price and the
Fixed Conversion Price; provided, however, that in the event the Market
-----------------
Price Trigger Date arises as a result of the delivery of a Qualified Public
Offering Redemption Notice prior to December 22, 1999, then, during the
period beginning on the date the Qualified Public Offering Redemption
Notice is delivered to the holders of the Series B Preferred Stock and
ending on the earlier of (x) the Qualified Public Offering Redemption Date
and (y) December 21, 1999, the average Conversion Price for the shares of
Series B Preferred Stock converted during such period shall be no less than
the price of the Common Stock offered in the Qualified Public Offering
(with an adjustment to be made after the consummation of the Qualified
Public Offering, if necessary, in the number of shares of Common Stock
issued upon conversion of the Series B Preferred Stock by the Corporation
and the holders of the Series B Preferred Stock who have converted during
such period). The Conversion Price shall be subject to adjustments pursuant
to the provisions of Article VI.C below. "MARKET PRICE" shall mean the
average of the Closing Bid Prices for any three (3) consecutive Trading
Days (the "MARKET PRICE DAYS") during the ten (10) Trading Day period
ending one (1) Trading Day prior to the date (the "CONVERSION DATE") the
Notice of Conversion (as defined in Article VI.E) is sent by a holder to
the Corporation via facsimile (the "PRICING PERIOD"). The Market Price Days
shall be designated by the converting holder at the time of conversion
(from among the days comprising the Pricing Period) and such designation
shall be set forth in the Conversion Notice. "FIXED CONVERSION PRICE" shall
mean $104.00. "CLOSING BID PRICE" means, for any security as of any date,
the closing bid price on Nasdaq as reported by Bloomberg or, if Nasdaq is
not the principal trading market for such security, the closing bid price
of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the closing bid price of such security in the over-
the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price of such security is
available in the over-the-counter market on the electronic bulletin board
for such security or in any of the foregoing manners, the average of the
bid prices of any market makers for such security that are listed in the
"pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date in the manner
provided above, the Closing Bid Price shall be the fair market value as
mutually determined by the Corporation and the holders of a majority in
interest of shares of Series B Preferred Stock being converted for which
the calculation of the Closing Bid Price is required in order to determine
the Conversion Price of such Series B Preferred Stock. "TRADING DAY" shall
mean any day on which the Common Stock is traded for any period on Nasdaq,
or on the principal securities exchange or other securities market on which
the Common Stock is then being traded.
(b) CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS. Notwithstanding anything
-------------------------------------------------
contained in subparagraph (a) of this Paragraph B to the contrary, in the
event
40
<PAGE>
the Corporation (i) makes a public announcement that it intends to
consolidate or merge with any other corporation (other than a merger in
which the Corporation is the surviving or continuing corporation and its
capital stock is unchanged) or sell or transfer all or substantially all of
the assets of the Corporation or (ii) any person, group or entity (including
the Corporation) publicly announces a tender offer to purchase 50% or more
of the Corporation's Common Stock (or any other takeover scheme) (the date
of the announcement referred to in clause (i) or (ii) is hereinafter
referred to as the "Announcement Date"), then the Conversion Price shall,
effective upon the Announcement Date and continuing through the Adjusted
Conversion Price Termination Date (as defined below), be equal to the lower
of (x) the Conversion Price which would have been applicable for an Optional
Conversion occurring on the Announcement Date and (y) the Conversion Price
that would otherwise be in effect. From and after the Adjusted Conversion
Price Termination Date, the Conversion Price shall be determined as set
forth in subparagraph (a) of this Article VI.B. For purposes hereof,
"ADJUSTED CONVERSION PRICE TERMINATION DATE" shall mean, with respect to any
proposed transaction or tender offer (or takeover scheme) for which a public
announcement as contemplated by this subparagraph (b) has been made, the
date upon which the Corporation (in the case of clause (i) above) or the
person, group or entity (in the case of clause (ii) above) consummates or
publicly announces the termination or abandonment of the proposed
transaction or tender offer (or takeover scheme) which caused this
subparagraph (b) to become operative.
C. ADJUSTMENTS TO CONVERSION PRICE.
----------------------------------
The Conversion Price shall be subject to adjustment from time to time as
follows:
(a) ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK SPLIT, STOCK
--------------------------------------------------------
DIVIDEND, ETC. If at any time when Series B Preferred Stock is issued and
--------------
outstanding, the number of outstanding shares of Common Stock is increased
or decreased by a stock split, stock dividend, combination,
reclassification, rights offering below the Trading Price (as defined below)
to all holders of Common Stock or other similar event, which event shall
have taken place during the reference period for determination of the
Conversion Price for any Optional Conversion or Automatic Conversion of the
Series B Preferred Stock, then the Conversion Price shall be calculated
giving appropriate effect to the stock split, stock dividend, combination,
reclassification or other similar event. In such event, the Corporation
shall notify the Transfer Agent of such change on or before the effective
date thereof. "TRADING PRICE," which shall be measured as of the record date
in respect of the rights offering, means (i) the average of the last
reported sale prices for the shares of Common Stock on Nasdaq as reported by
Bloomberg, as applicable, for the five (5) Trading Days immediately
preceding such date, or (ii) if Nasdaq is not the principal trading market
for the shares of Common Stock, the average of the last reported sale prices
on the principal trading market for the Common Stock during the same period
as reported by Bloomberg, or (iii) if market value cannot be calculated as
of such date on any of the foregoing bases, the Trading Price shall be the
fair market value as reasonably determined in good faith by (a) the Board of
Directors of the Corporation or, (b) at the option of a majority-in-interest
of the holders of the outstanding Series B Preferred Stock by an independent
investment bank of nationally recognized standing in the valuation of
businesses similar to the business of the Corporation.
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<PAGE>
(b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any time
--------------------------------------------------
when Series B Preferred Stock is issued and outstanding and prior to the
conversion of all Series B Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or
other similar event, as a result of which shares of Common Stock of the
Corporation shall be changed into the same or a different number of shares
of another class or classes of stock or securities of the Corporation or
another entity, or in case of any sale or conveyance of all or substantially
all of the assets of the Corporation other than in connection with a plan of
complete liquidation of the Corporation, then the holders of Series B
Preferred Stock shall thereafter have the right to receive upon conversion
of the Series B Preferred Stock, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock, securities or
assets which the holders of Series B Preferred Stock would have been
entitled to receive in such transaction had the Series B Preferred Stock
been converted in full immediately prior to such transaction (without regard
to any limitations on conversion contained herein), and in any such case
appropriate provisions shall be made with respect to the rights and
interests of the holders of Series B Preferred Stock to the end that the
provisions hereof (including, without limitation, provisions for adjustment
of the Conversion Price and of the number of shares of Common Stock issuable
upon conversion of the Series B Preferred Stock) shall thereafter be
applicable, as nearly as may be practicable in relation to any securities or
assets thereafter deliverable upon the conversion of Series B Preferred
Stock. The Corporation shall not effect any transaction described in this
subsection (b) unless (a) it first gives, to the extent practical, thirty
(30) days' prior written notice (but in any event at least fifteen (15)
business days prior written notice) of the record date of the special
meeting of stockholders to approve, or if there is no such record date, the
consummation of, such merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event or sale of assets
(during which time the holders of Series B Preferred Stock shall be entitled
to convert the Series B Preferred Stock) and (b) the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligations of this subsection (b). The above provisions shall similarly
apply to successive consolidations, mergers, sales, transfers or share
exchanges.
(c) ADJUSTMENT FOR UNDERWRITERS' LOCK-UP. In the event the holders
------------------------------------------
of Series B Preferred Stock are required to enter into a Lock-Up Agreement
(as defined in Section 4(f) of the Registration Rights Agreement), from the
beginning of such Underwriters' Lock-Up Period (as defined in Section 4(f)
of the Registration Rights Agreement) until the fifth (5th) Trading Day
following the last day of such Underwriters' Lock-Up Period, the Conversion
Price shall not exceed the lesser of (i) the Fixed Conversion Price and (ii)
the Market Price in effect one (1) Trading Day prior to the beginning of
such Underwriters' Lock-Up Period.
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(d) ADJUSTMENT DUE TO DISTRIBUTION. Subject to Article III, if
------------------------------------
the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a dividend,
stock repurchase, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's shareholders in cash or shares
(or rights to acquire shares) of capital stock of a subsidiary (i.e., a
spin-off)) (a "DISTRIBUTION"), then the holders of Series B Preferred Stock
shall be entitled, upon any conversion of shares of Series B Preferred Stock
after the date of record for determining shareholders entitled to such
Distribution, to receive the amount of such assets which would have been
payable to the holder with respect to the shares of Common Stock issuable
upon such conversion had such holder been the holder of such shares of
Common Stock on the record date for the determination of shareholders
entitled to such Distribution.
(e) PURCHASE RIGHTS. Subject to Article III, if at any time when any
---------------------
Series B Preferred Stock is issued and outstanding, the Corporation issues
any convertible securities or rights to purchase stock, warrants, securities
or other property (the "PURCHASE RIGHTS") pro rata to the record holders of
any class of Common Stock, then the holders of Series B Preferred Stock will
be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Series B Preferred Stock (without regard to any
limitations on conversion contained herein) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record
holders of Common Stock are to be determined for the grant, issue or sale of
such Purchase Rights.
(f) ADJUSTMENT FOR RESTRICTED PERIODS. In the event that (i) the
---------------------------------------
Corporation fails to obtain effectiveness with the Securities and Exchange
Commission of any Registration Statement (as defined in the Registration
Rights Agreement) required to be filed pursuant to the Registration Rights
Agreement on or prior to the date on which such Registration Statement is
required to become effective pursuant to the terms of the Registration
Rights Agreement, or (ii) any such Registration Statement lapses in effect,
or sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement) otherwise cannot be made thereunder, whether
by reason of the Corporation's failure or inability to amend or supplement
the prospectus (the "PROSPECTUS") included therein in accordance with the
Registration Rights Agreement or otherwise, after such Registration
Statement becomes effective (including, without limitation, during an
Allowed Delay (as defined in Section 3(f) of the Registration Rights
Agreement), then, if any holder of Series B Preferred Stock elects to
convert the shares of Series B Preferred Stock held by such holder into
Common Stock at any time during the period beginning on the first day of
the Restricted Period (as defined below) and ending one (1) Trading Day
after the end of such Restricted Period, at the election of each holder of
Series B Preferred Stock, the Pricing Period shall be comprised of, (x) in
the case of an event described in clause (i), the ten (10) Trading Days
preceding the date on which such Registration Statement is required to
become effective pursuant to
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<PAGE>
the terms of the Registration Rights Agreement plus all Trading Days through
and including the third (3rd) Trading Day following the actual date of
effectiveness of the Registration Statement; and (y) in the case of an event
described in clause (ii), the ten (10) Trading Days preceding the date on
which the holder of the Series B Preferred Stock is first notified that
sales may not be made under the Prospectus, plus all Trading Days through
and including the third (3rd) Trading Day following the date on which the
Holder is first notified that such sales may again be made under the
Prospectus (such periods described in clauses (x) and (y) shall be referred
to as the "RESTRICTED PERIODS"). If a holder of Series B Preferred Stock
determines that sales may not be made pursuant to the Prospectus (whether by
reason of the Corporation's failure or inability to amend or supplement the
Prospectus or otherwise) it shall so notify the Corporation in writing and,
unless the Corporation provides such holder with a written opinion of the
Corporation's counsel to the contrary, such determination shall be binding
for purposes of this paragraph.
(g) NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
---------------------------
readjustment of the Conversion Price pursuant to this Article VI.C, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each holder of Series B Preferred
Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any
holder of Series B Preferred Stock, furnish to such holder a like
certificate setting forth (i) such adjustment or readjustment, (ii) the
Conversion Price at the time in effect and (iii) the number of shares of
Common Stock and the amount, if any, of other securities or property which
at the time would be received upon conversion of a share of Series B
Preferred Stock.
D. MECHANICS OF CONVERSION. In order to convert Series B Preferred Stock into
------------------------
full shares of Common Stock, a holder of Series B Preferred Stock shall: (i)
submit a copy of the fully executed notice of conversion in the form attached
hereto as Exhibit A ("NOTICE OF CONVERSION") to the Corporation by facsimile
dispatched on the Conversion Date (or by other means resulting in, or reasonably
expected to result in, notice to the Corporation on the Conversion Date) at the
office of the Corporation or its designated Transfer Agent for the Series B
Preferred Stock that the holder elects to convert the same, which notice shall
specify the number of shares of Series B Preferred Stock to be converted, the
applicable Conversion Price and a calculation of the number of shares of Common
Stock issuable upon such conversion (together with a copy of the first page of
each certificate to be converted) prior to Midnight, New York City time (the
"CONVERSION NOTICE DEADLINE") on the date of conversion specified on the Notice
of Conversion; and (ii) surrender the original certificates representing the
Series B Preferred Stock being converted (the "PREFERRED STOCK CERTIFICATES"),
duly endorsed, along with a copy of the Notice of Conversion to the office of
the Corporation or the Transfer Agent for the Series B Preferred Stock as soon
as practicable thereafter. The Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such
conversion, unless either the Preferred Stock Certificates are delivered to the
Corporation or its Transfer Agent as provided above, or the holder notifies the
Corporation or its
44
<PAGE>
Transfer Agent that such certificates have been lost, stolen or destroyed
(subject to the requirements of subparagraph (a) below). In the case of a
dispute as to the calculation of the Conversion Price, the Corporation shall
promptly issue such number of shares of Common Stock that are not disputed in
accordance with subparagraph (b) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two (2)
business days of receipt of the Notice of Conversion. The accountant shall audit
the calculations and notify the Corporation and the holder of the results no
later than 48 hours from the time it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive absent manifest error.
(a) LOST OR STOLEN CERTIFICATES. Upon receipt by the Corporation of
---------------------------------
evidence of the loss, theft, destruction or mutilation of any Preferred
Stock Certificates representing shares of Series B Preferred Stock, and (in
the case of loss, theft or destruction) of indemnity reasonably satisfactory
to the Corporation, and upon surrender and cancellation of the Preferred
Stock Certificate(s), if mutilated, the Corporation shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date.
(b) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon the surrender of
----------------------------------------------
certificates as described above together with a Notice of Conversion, the
Corporation shall issue and, within two (2) business days after such
surrender (or, in the case of lost, stolen or destroyed certificates, after
provision of agreement and indemnification pursuant to subparagraph (a)
above) (the "DELIVERY PERIOD"), deliver (or cause its Transfer Agent to so
issue and deliver) in accordance with the terms hereof and the Purchase
Agreement (including, without limitation, in accordance with the
requirements of Section 2(g) of the Purchase Agreement) to or upon the order
of the holder (i) that number of shares of Common Stock for the portion of
the shares of Series B Preferred Stock converted as shall be determined in
accordance herewith and (ii) a certificate representing the balance of the
shares of Series B Preferred Stock not converted, if any. In addition to any
other remedies available to the holder, including actual damages and/or
equitable relief, the Corporation shall pay to a holder $2,000 per day in
cash for each day beyond a two (2) day grace period following the Delivery
Period that the Corporation fails to deliver Common Stock (a "DELIVERY
DEFAULT") issuable upon surrender of shares of Series B Preferred Stock with
a Notice of Conversion until such time as the Corporation has delivered all
such Common Stock (the "DELIVERY DEFAULT PAYMENTS"). Such Delivery Default
Payments shall be paid to such holder by the fifth day of the month
following the month in which it has accrued or, at the option of the holder
(by written notice to the Corporation by the first day of the month
following the month in which it has accrued), shall be convertible into
Common Stock in accordance with the terms of this Article VI. In lieu of
delivering physical certificates representing the Common Stock issuable upon
conversion, provided the Corporation's Transfer Agent is participating in
the Depository Trust Company ("DTC") Fast Automated Securities Transfer
("FAST") program, upon request of the holder and its compliance with the
provisions contained in Article VI.A and in this Article VI.D, the
Corporation shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to the
holder by crediting the account of holder's Prime Broker with DTC through
its Deposit Withdrawal Agent Commission ("DWAC") system. The time periods
for delivery and penalties described in the immediately preceding paragraph
shall apply to the electronic transmittals described herein.
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<PAGE>
(c) CASH IN LIEU OF FRACTIONAL SHARES. If any conversion of Series B
---------------------------------------
Preferred Stock would result in a fractional share of Common Stock or the
right to acquire a fractional share of Common Stock, the Corporation shall
pay to the holder of such fractional share, cash in lieu of such fractional
share in an amount equal to such fraction multiplied by the Closing Price of
the Common Stock on the Conversion Date.
(d) CONVERSION DATE. The "CONVERSION DATE" shall be the date
---------------------
specified in the Notice of Conversion, provided that the Notice of
Conversion is submitted by facsimile (or by other means resulting in, or
reasonably expected to result in, notice) to the Corporation or its Transfer
Agent before Midnight, New York City time, on the Conversion Date. The
person or persons entitled to receive the shares of Common Stock issuable
upon conversion shall be treated for all purposes as the record holder or
holders of such securities as of the Conversion Date and all rights with
respect to the shares of Series B Preferred Stock surrendered shall
forthwith terminate except the right to receive the shares of Common Stock
or other securities or property issuable on such conversion and except that
the holders preferential rights as a holder of Series B Preferred Stock
shall survive to the extent the Corporation fails to deliver such
securities.
E. RESERVATION OF SHARES. A number of shares of the authorized but unissued
----------------------
Common Stock sufficient to provide for the conversion of the Series B Preferred
Stock outstanding (based on the lesser of the then current Market Price and the
Fixed Conversion Price) shall at all times be reserved by the Corporation, free
from preemptive rights, for such conversion or exercise. As of the date of
issuance of the Series B Preferred Stock, 2,083,332 authorized and unissued
shares of Common Stock have been duly reserved for issuance upon conversion of
the Series B Preferred Stock (the "RESERVED AMOUNT"). The Reserved Amount shall
be increased from time to time in accordance with the Company's obligations
pursuant to Section 4(h) of the Purchase Agreement. In addition, if the
Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series B Preferred Stock shall be convertible, the Corporation
shall at the same time also make proper provision so that thereafter there shall
be a sufficient number of shares of Common Stock authorized and reserved, free
from preemptive rights, for conversion of the outstanding Series B Preferred
Stock.
If at any time a holder of shares of Series B Preferred Stock submits a Notice
of Conversion, and the Corporation does not have sufficient authorized but
unissued shares of Common Stock available to effect such conversion in
accordance with the provisions of this Article VI (a "CONVERSION DEFAULT"),
subject to Article XI, the Corporation shall issue to the holder all of the
shares of Common Stock which are available to effect such conversion. The number
of shares of Series B Preferred Stock included in the Notice of Conversion which
exceeds the amount which is then convertible into available shares of Common
Stock (the "EXCESS
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<PAGE>
AMOUNT") shall, notwithstanding anything to the contrary contained herein, not
be convertible into Common Stock in accordance with the terms hereof until (and
at the holder's option at any time after) the date additional shares of Common
Stock are authorized by the Corporation to permit such conversion, at which time
the Conversion Price in respect thereof shall be the lesser of (i) the
Conversion Price on the Conversion Default Date (as defined below) and (ii) the
Conversion Price on the Conversion Date elected by the holder in respect
thereof. The Corporation shall use its best efforts to effect an increase in the
authorized number of shares of Common Stock as soon as possible following the
earlier of (i) such time that a holder of Series B Preferred Stock notifies the
Corporation or that the Corporation otherwise becomes aware that there are or
likely will be insufficient authorized and unissued shares to allow full
conversion thereof and (ii) a Conversion Default. In addition, the Corporation
shall pay to the holder payments ("CONVERSION DEFAULT PAYMENTS") for a
Conversion Default in the amount of (a) .24, multiplied by (b) the sum of the
Stated Value plus the Premium Amount per share of Series B Preferred Stock held
by such holder through the Authorization Date (as defined below), multiplied by
(c) (N/365), where N = the number of days from the day the holder submits a
Notice of Conversion giving rise to a Conversion Default (the "CONVERSION
DEFAULT DATE") to the date (the "AUTHORIZATION DATE") that the Corporation
authorizes a sufficient number of shares of Common Stock to effect conversion of
the full number of shares of Series B Preferred Stock. The Corporation shall
send notice to the holder of the authorization of additional shares of Common
Stock, the Authorization Date and the amount of holder's accrued Conversion
Default Payments. The accrued Conversion Default Payment for each calendar month
shall be paid in cash or shall be convertible into Common Stock at the
applicable Conversion Price, at the holder's option, as follows:
(a) In the event the holder elects to take such payment in cash, cash
payment shall be made to holder by the fifth day of the month following the
month in which it has accrued; and
(b) In the event the holder elects to take such payment in Common Stock,
the holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of Conversion) at any time after
the fifth day of the month following the month in which it has accrued in
accordance with the terms of this Article VI (so long as there is then a
sufficient number of authorized shares of Common Stock).
The holder's election shall be made in writing to the Borrower at any time prior
to 9:00 p.m, New York City Time, on the third (3rd) day of the month following
the month in which Conversion Default payments have accrued. If no election is
made, the holder shall be deemed to have elected to receive cash. Nothing herein
shall limit the holder's right to pursue actual damages (to the extent in excess
of the Conversion Default Payments) for the Corporation's failure to maintain a
sufficient number of authorized shares of Common Stock, and each holder shall
have the right to pursue all remedies available at law or in equity (including a
decree of specific performance and/or injunctive relief).
F. NOTICE OF CONVERSION PRICE ADJUSTMENTS. Upon the occurrence of each
---------------------------------------
adjustment or readjustment of the Conversion Price pursuant to this Article VI,
the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the
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<PAGE>
terms hereof and prepare and furnish to each holder of Series B Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
B Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustment or readjustment, (ii) the
Conversion Price at the time in effect and (iii) the number of shares of Common
Stock and the amount, if any, of other securities or property which at the time
would be received upon conversion of a share of Series B Preferred Stock.
G. STATUS AS STOCKHOLDERS. Upon submission of a Notice of Conversion by
-----------------------
a holder of Series B Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their issuance would exceed
such holder's allocated portion of the Reserved Amount or Maximum Share Amount)
shall be deemed converted into shares of Common Stock and (ii) the holder's
rights as a holder of such converted shares of Series B Preferred Stock shall
cease and terminate, excepting only the right to receive certificates for such
shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such holder because of a failure by the
Corporation to comply with the terms of this Certificate of Designation.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion of shares of
Series B Preferred Stock for any reason, then (unless the holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Corporation) the holder shall regain the rights of a holder of such shares of
Series B Preferred Stock with respect to such unconverted shares of Series B
Preferred Stock and the Corporation shall, as soon as practicable, return such
unconverted shares of Series B Preferred Stock to the holder or, if such shares
of Series B Preferred Stock have not been surrendered, adjust its records to
reflect that such shares of Series B Preferred Stock have not been converted. In
all cases, the holder shall retain all of its rights and remedies (including,
without limitation, (i) the right to receive Conversion Default Payments
pursuant to Article VI.E to the extent required thereby for such Conversion
Default and any subsequent Conversion Default and (ii) the right to have the
Conversion Price with respect to subsequent conversions determined in accordance
with Article VI.E.) for the Corporation's failure to convert the Series B
Preferred Stock.
VII CONVERSION BY THE CORPORATION
----------------------------------
Subject to the limitations on conversion set forth in Article VI.A(c) and so
long as (i) all of the shares of Common Stock issuable upon conversion of all
outstanding shares of Series B Preferred Stock are then (x) authorized and
reserved for issuance, (y) registered for re-sale under the 1933 Act by the
holders of the Series B Preferred Stock (or may otherwise be resold publicly
without restriction) and (z) eligible to be traded on Nasdaq, the NYSE, the AMEX
or Nasdaq SmallCap and (ii) there is not then a continuing Mandatory Redemption
Event or Trading Market Redemption Event, then, at any time after the one (1)
year anniversary of the date the Registration Statement required to be filed
pursuant to Section 2(a) of the Registration Rights Agreement is declared
effective by the SEC (subject to extension for each Trading Day following
effectiveness that sales of all of the Registrable Securities (as defined in the
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Registration Rights Agreement) cannot be made pursuant to the Registration
Statement (whether by reason of the Company's failure to properly supplement or
amend the prospectus included therein in accordance with the terms of the
Registration Rights Agreement, during an Allowed Delay or otherwise), if the
average Closing Bid Price of the Common Stock during any twenty (20) consecutive
Trading Day period is greater than 150% of the Fixed Conversion Price (a "FORCED
CONVERSION TRIGGER EVENT"), the Corporation shall have the right, exercisable on
not less than fifteen (15) Trading Days prior written notice (the "CORPORATION
CONVERSION NOTICE") to the holders of the Series B Preferred Stock (which notice
may not be sent to the holders of the Series B Preferred Stock until the
Corporation is permitted to convert the Series B Preferred Stock pursuant to
this Article VII but must be sent withing five (5) Trading Days of a Forced
Conversion Trigger Event), to convert all of the outstanding shares of Series B
Preferred Stock into shares of Common Stock in accordance with this Article VII
and Article VI; provided, however, that a Corporation Conversion shall not be
------------------
permitted if during the period beginning on the date the Corporation Conversion
Notice is delivered to the holders of the Series B Preferred Stock and ending on
the Trading Day prior to the Corporation Conversion Date the average Closing Bid
Price of the Common Stock for any five (5) consecutive Trading Days during such
period is not greater than 150% of the Fixed Conversion Price. Any conversion
hereunder (a "CORPORATION CONVERSION") shall be as of the date (the "CORPORATION
CONVERSION DATE") specified in the Corporation Conversion Notice (but in no
event prior to the fifteenth (15) trading day following the date of such
notice). The Corporation Conversion shall be delivered to the holders of Series
B Preferred Stock at their registered addresses appearing on the books and
records of the Corporation, which notice shall contain substantially the same
information as the Notice of Conversion described in Article VI.E. The
Corporation Conversion Date shall be the "Conversion Date" for purposes of
determining the Conversion Price and the time within which certificates
representing the Common Stock must be delivered to the holder upon a Corporation
Conversion.
VIII AUTOMATIC CONVERSION
--------------------------
Subject to the limitations on conversion set forth in Articles VI.A(b) and
VI.A(c) and so long as (i) all of the shares of Common Stock issuable upon
conversion of all outstanding shares of Series B Preferred Stock are then (x)
authorized and reserved for issuance, (y) registered for re-sale under the 1933
Act by the holders of the Series B Preferred Stock (or may otherwise be resold
publicly without restriction) and (z) eligible to be traded on Nasdaq, the NYSE,
the AMEX or Nasdaq SmallCap and (ii) there is not then a continuing Mandatory
Redemption Event or Trading Market Redemption Event, each share of Series B
Preferred Stock issued and outstanding on December 22, 2000 (the "AUTOMATIC
CONVERSION DATE"), automatically shall be converted into shares of Common Stock
on such date at the then effective Market Price in accordance with, and subject
to, the provisions of Article VI hereof (the "AUTOMATIC CONVERSION"). The
Automatic Conversion Date shall be delayed by one (1) Trading Day for each
Trading Day occurring prior thereto and prior to the full conversion of the
Series B Preferred Stock that (i) any Registration Statement required to be
filed and to be effective pursuant to the Registration Rights Agreement is not
effective or sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement) otherwise cannot be made thereunder (whether by
reason of the Company's failure to properly supplement or amend the
49
<PAGE>
prospectus included therein in accordance with the terms of the Registration
Rights Agreement or otherwise, including any Allowed Delays (as defined in
Section 3(f) of the Registration Rights Agreement), (ii) any Mandatory
Redemption Event (as defined in Article V.A) or Trading Market Redemption Event
exists, without regard to whether any cure periods shall have run, (iii) that
the Corporation is in breach of any of its obligations pursuant to Section 4(h)
of the Purchase Agreement or (iv) at the option of each holder of Series B
Preferred Stock, such holder is subject to a Lock-Up Agreement (as defined in
the Registration Rights Agreement). The Automatic Conversion Date shall be the
Conversion Date for purposes of determining the Conversion Price (using the
Market Price as the Conversion Price) and the time within which certificates
representing the Common Stock must be delivered to the holder.
IX VOTING RIGHTS
-----------------
The holders of the Series B Preferred Stock have no voting power whatsoever,
except as otherwise provided by the Delaware General Corporation Law ("DGCL"),
in this Article IX, and in Article X below.
Notwithstanding the above, the Corporation shall provide each holder of Series B
Preferred Stock with prior notification of any meeting of the shareholders (and
copies of proxy materials and other information sent to shareholders). In the
event of any taking by the Corporation of a record of its shareholders for the
purpose of determining shareholders who are entitled to receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the holders of the Series B
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least a majority of the shares of the Series B
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series B Preferred Stock
(except as otherwise may be required under the DGCL) shall constitute the
approval of such action by the class. To the extent that under the DGCL holders
of the Series B Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series B Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date for the
taking of such vote of shareholders as the date as of which the Conversion Price
is calculated. Holders of the Series B Preferred Stock shall be entitled to
notice of all shareholder meetings or written consents (and copies of proxy
materials and other information sent to shareholders) with respect to which they
50
<PAGE>
would be entitled to vote, which notice would be provided pursuant to the
Corporation's bylaws and the DGCL.
X PROTECTIVE PROVISIONS
------------------------
So long as shares of Series B Preferred Stock are outstanding, the Corporation
shall not, without first obtaining the approval (by vote or written consent, as
provided by the DGCL) of the holders of at least a majority of the then
outstanding shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series B
Preferred Stock or any capital stock of the Corporation so as to affect
adversely the Series B Preferred Stock;
(b) create any new class or series of capital stock having a preference
over the Series B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously
defined in Article II hereof, "SENIOR SECURITIES");
(c) create any new class or series of capital stock ranking pari passu
with the Series B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously
defined in Article II hereof, "PARI PASSU SECURITIES");
---------------------
(d) increase the authorized number of shares of Series B Preferred Stock;
(e) issue any Senior Securities or Pari Passu Securities;
(f) increase the par value of the Common Stock, or
(g) do any act or thing not authorized or contemplated by this Certificate
of Designation which would result in taxation of the holders of shares of
the Series B Preferred Stock under Section 305 of the Internal Revenue Code
of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event holders of at least a majority of the then outstanding shares of
Series B Preferred Stock agree to allow the Corporation to alter or change the
rights, preferences or privileges of the shares of Series B Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series B Preferred Stock,
then the Corporation will deliver notice of such approved change to the holders
of the Series B Preferred Stock that did not agree to such alteration or change
(the "DISSENTING HOLDERS") and Dissenting Holders shall have the right for a
period of thirty (30) days to convert pursuant to the terms of this Certificate
of Designation as they exist prior to such alteration or change or continue to
hold their shares of Series B Preferred Stock.
XII PRO RATA ALLOCATIONS
-------------------------
The Maximum Share Amount, the Cap Amount and the Reserved Amount (including any
increases thereto) shall be allocated by the Corporation pro rata among the
holders of Series B
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Preferred Stock based on the number of shares of Series B Preferred Stock issued
to each holder. Each increase to the Maximum Share Amount, the Cap Amount and
the Reserved Amount shall be allocated pro rata among the holders of Series B
Preferred Stock based on the number of shares of Series B Preferred Stock held
by each holder at the time of the increase in the Maximum Share Amount, the Cap
Amount or Reserved Amount. In the event a holder shall sell or otherwise
transfer any of such holder's shares of Series B Preferred Stock, each
transferee shall be allocated a pro rata portion of such transferor's Maximum
Share Amount, the Cap Amount and Reserved Amount. Any portion of the Maximum
Share Amount, the Cap Amount or Reserved Amount which remains allocated to any
person or entity which does not hold any Series B Preferred Stock shall be
allocated to the remaining holders of shares of Series B Preferred Stock, pro
rata based on the number of shares of Series B Preferred Stock then held by such
holders.
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the
Corporation this 22nd day of December, 1998.
CMGI, INC.
By: /s/Andrew J. Hajducky III
-------------------------
Andrew J. Hajducky III
Executive Vice President
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series B Preferred Stock)
The undersigned hereby irrevocably elects to convert ______ shares of Series B
Preferred Stock, represented by stock certificate No(s). __________ (the
"PREFERRED STOCK CERTIFICATES") into shares of common stock ("COMMON STOCK") of
CMGI, Inc., a Delaware corporation (the "CORPORATION") according to the
conditions of the Certificate of Designation of Series B Preferred Stock, as of
the date written below. If securities are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates. No fee will
be charged to the Holder for any conversion, except for transfer taxes, if any.
A copy of each Preferred Stock Certificate is attached hereto (or evidence of
loss, theft or destruction thereof).
The Corporation shall electronically transmit the Common Stock issuable pursuant
to this Notice of Conversion to the account of the undersigned or its nominee
with DTC through its Deposit Withdrawal Agent Commission system ("DWAC
Transfer").
Name of DTC Prime Broker:
- -------------------------
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Account Number:
- ----------------
In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Corporation issue a certificate or certificates for the
number of shares of Common Stock set forth above (which numbers are based
on the Holder's calculation attached hereto) in the name(s) specified
immediately below or, if additional space is necessary, on an attachment
hereto:
Name:
- ------
Address:
- ---------
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series B Preferred Stock shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "ACT"), or pursuant
to an exemption from registration under the Act.
Date of Conversion:
- -------------------
Market Price Days:
- ------------------
Applicable Conversion Price:
- ----------------------------
Number of Shares of
Common Stock to be Issued:
- --------------------------
Signature:
- ----------
Name:
- -----
Address:
- --------
*The Corporation is not required to issue shares of Common Stock until the
original Series B Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Designation for the number of business
days such issuance and delivery is late.
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CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
CMGI, INC.
CMGI, INC., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), does hereby certify as follows:
FIRST: That the Board of Directors of said Corporation by unanimous vote
pursuant to Section 141 of the General Corporation Law of Delaware adopted
resolutions proposing and declaring advisable the following amendment to the
Restated Certificate of Incorporation of the Corporation and directing that said
amendment be submitted to the stockholders of the Corporation for their review
and consent:
VOTED: That the Board of Directors of CMGI, Inc. hereby approves and
declares advisable an amendment to the Restated Certificate of
Incorporation of this Corporation as follows:
That ARTICLE FOURTH (a) of the Restated Certificate of
Incorporation of this Corporation be and it is hereby amended to
increase the authorized shares of capital stock of the Corporation
from 105,000,000 to 405,000,000 so that said ARTICLE FOURTH (a)
shall be and read as follows:
FOURTH: (a) The total number of shares of capital stock which the
Corporation is authorized to issue is four hundred five million
(405,000,000) shares of which four hundred million (400,000,000)
shares shall be common stock, par value $0.01 per share ("Common
Stock") and 5,000,000 shares shall be preferred stock, par value
$0.01 per share ("Preferred Stock"), and further,
VOTED: That the foregoing amendment to the Restated Certificate of
Incorporation of this Corporation is advisable and in the best
interest of the Corporation and that it be submitted to the
stockholders of this Corporation for their consideration and
approval at a Special Meeting of Stockholders to be held on May 13,
1999.
SECOND: That thereafter, pursuant to the resolution of the Board of
Directors, a Special Meeting of Stockholders was duly called and
held, upon notice in accordance with Section 222 of the General
Corporation Law of Delaware, at which meeting the necessary number
of shares as required by statute were voted in favor of the
amendment.
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THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General
Corporation Law of Delaware.
FOURTH: That the capital of the Corporation shall not be reduced under or
by reason of the aforesaid amendments.
[The remainder of this page intentionally left blank.]
55
<PAGE>
IN WITNESS WHEREOF, CMGI, INC. has caused this Certificate to be signed by
David S. Wetherell, its President, and William Williams II, its Assistant
Secretary, this 17th day of May, 1999.
CMGI, INC.
By: /s/ D S Wetherell
-----------------
David S. Wetherell, President
ATTEST: /s/ William Williams II
-----------------------
William Williams II,
Assistant Secretary
56
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CERTIFICATE OF
DESIGNATIONS, PREFERENCES, AND RIGHTS
of
SERIES C CONVERTIBLE PREFERRED STOCK
of
CMGI, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
CMGI, Inc. (the "Corporation"), a corporation organized and existing under the
Delaware General Corporation Law (the "DGCL") hereby certifies that the
following resolution was adopted by the Board of Directors of the Corporation on
June 24, 1999 pursuant to authority of the Board of Directors as required by
Section 151(g) of the DGCL:
RESOLVED, that pursuant to the authority granted to and vested in the Board of
Directors of this Corporation (the "Board of Directors") in accordance with the
provisions of its Amended and Restated Certificate of Incorporation, the Board
of Directors does hereby create, authorize and provide for the issuance of a
series of the Corporation's previously authorized Preferred Stock, par value
$0.01 per share (the "Preferred Stock"), and hereby states the number of shares
and the powers, designations, preferences and relative, participating, optional
or other rights or the qualifications, limitations or restrictions thereof are
as follows:
I. DESIGNATION AND AMOUNT
----------------------
The designation of this series is Series C Convertible Preferred Stock (the
"Series C Preferred Stock"). This series consists of three tranches of shares
totaling 375,000 shares as follows: "Tranche 1" consists of 125,000 shares;
"Tranche 2" consists of 125,000 shares; and "Tranche 3" consists of 125,000
shares (collectively, the "Tranches"). The initial stated value is $1,000 per
share of Series C Preferred Stock (the "Initial Stated Value Per Share"). Each
certificate representing Preferred Shares shall bear language designating the
Preferred Shares represented by such certificate as part of Tranche 1, Tranche 2
or Tranche 3.
II. RANK
----
The Series C Preferred Stock shall rank (i) prior to the Corporation's common
stock, par value $0.01 per share (the "Common Stock") and the Series D Preferred
Stock (as defined below); (ii) prior to any class or series of capital stock of
the Corporation hereafter created (unless, with the consent of the holders of
Series C Preferred Stock obtained in accordance with Article VII hereof, such
class or series of capital stock specifically, by its terms, ranks senior to or
pari passu with the Series C Preferred Stock) (collectively, with the Common
Stock, "Junior Securities"); (iii) junior to the Corporation's Series B
Convertible Preferred Stock, par value $0.01 per share
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("Series B Preferred Stock"); (iv) pari passu with any class or series of
capital stock of the Corporation hereafter created (with the consent of the
holders of Series C Preferred Stock obtained in accordance with Article VII
hereof) specifically ranking, by its terms, on parity with the Series C
Preferred Stock ("Pari Passu Securities"); and (v) junior to any class or series
of capital stock of the Corporation hereafter created (with the consent of the
holders of Series C Preferred Stock obtained in accordance with Article VII
hereof) specifically ranking, by its terms, senior to the Series C Preferred
Stock (the "Senior Securities"), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.
III. DIVIDENDS
---------
A. The holders of the Series C Preferred Stock shall be entitled to
receive when, as and if declared by the Board of Directors, out of funds legally
available therefor, dividends on the Series C Preferred Stock equal to two
percent (2.00%) of the Initial Stated Value Per Share payable at the
Corporation's option (i) in cash on each Semiannual Dividend Payment Date (as
defined below) or (ii) by an upward adjustment (each an "Adjustment,"
collectively, the "Adjustments") (a) to the Initial Stated Value Per Share on
the Initial Semiannual Dividend Payment Date and (b) to the Adjusted Stated
Value Per Share on each Semiannual Dividend Payment Date occurring after the
Initial Semiannual Dividend Payment Date. The Initial Stated Value per Share as
cumulatively adjusted shall be referred to as the "Adjusted Stated Value Per
Share." The Corporation shall provide written notice on the Semiannual Dividend
Record Date (as defined below) as to whether the Corporation elects to pay the
dividend in accordance with subclause (i) or subclause (ii) on each Semiannual
Dividend Payment Date; provided, however, if the Corporation elects to pay the
dividend in accordance with subclause (i) and such payment has not been credited
to the account of the record holder (pursuant to prior written instructions
furnished to the Corporation) within five (5) business days after the applicable
Semiannual Dividend Payment Date or the Corporation fails to give such notice on
the Semiannual Dividend Record Date, the Corporation shall be deemed to have
elected to pay the dividend in accordance with subclause (ii) and shall take all
appropriate action to pay such dividend in accordance with subclause (ii).
B. Dividends on the Series C Preferred Stock shall be cumulative and
shall accrue daily from the date of original issuance or the date that the
Corporation executes the Securities Purchase Agreement (as defined herein), if
earlier (the "Issue Date"). Dividends on the Series C Preferred Stock shall be
payable on June 30 and December 30 of each year (each such date being referred
to herein as a "Semiannual Dividend Payment Date"), commencing on December 30,
1999 (the "Initial Semiannual Dividend Payment") (and in the case of any accrued
but unpaid dividends, at such additional times and for such interim periods as
may be determined by the Board of Directors) to the holders of record as they
appear on the stock books of the transfer agent for the Corporation (the
"Transfer Agent") on such record dates, which shall be ten (10) business days
preceding each Semiannual Dividend Payment Date (each such date being referred
to herein as a "Semiannual Dividend Record Date"). The amount of dividends
payable per share of Series C Preferred Stock for each semiannual dividend
period shall be computed by multiplying the Initial Stated Value Per Share by
the annual dividend amount of two percent (2.00%) per share of Series C
Preferred Stock divided by two. The amount of dividends payable for the initial
dividend period and dividends payable for any other period that is shorter or
longer
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than a full semiannual dividend period shall be computed on the basis of a 360-
day year consisting of twelve 30-day months. Holders of shares of Series C
Preferred Stock shall not be entitled to receive any dividends, whether payable
in cash or otherwise, which are in excess of the cumulative dividends provided
for herein. Accrued but unpaid dividends shall not bear interest.
C. The Series C Preferred Stock shall rank, as to payment of
dividends, senior to the Common Stock and any other class or series of stock of
the Corporation which is not by its terms expressly made senior to, or on a
parity with, the Series C Preferred Stock as to dividends, except as provided in
Section (D) below.
D. Except as provided in this section (D), in no event, so long as
any shares of Series C Preferred Stock shall remain outstanding, shall any
dividend whatsoever be declared or paid upon, nor shall any distribution be made
upon, any Junior Securities, nor shall any shares of Junior Securities be
purchased or redeemed by the Corporation nor shall any moneys be paid to or made
available for a sinking fund for the purchase or redemption (collectively a
"Junior Securities Distribution") of any Junior Securities (other than a
distribution of Junior Securities), without the written consent of the holders
of a majority of outstanding shares of Series C Preferred Stock obtained in
accordance with Article VII. Notwithstanding the foregoing, the Corporation may
(i) make a Junior Securities Distribution (other than an extraordinary
distribution not made in the ordinary course of business) on its Series D
Preferred Stock (the "Series D Preferred Stock") issuable in connection with
that certain Purchase and Contribution Agreement, dated as of June 29, 1999, by
and among Compaq Computer Corporation ("Compaq"), a Delaware corporation,
Digital Equipment Corporation ("Digital"), a Massachusetts corporation and a
wholly owned subsidiary of Compaq, AltaVista Company, a Delaware corporation and
a wholly owned subsidiary of Digital, the Corporation and Xoom New Co Inc., a
Delaware corporation and a wholly owned subsidiary of the Corporation pursuant
to the terms and subject to the conditions of a Certificate of Designations,
Preferences and Rights in respect of the Series D Preferred Stock, in each case,
with no right of participation in such dividend or distribution by the holders
of Series C Preferred Stock notwithstanding this Section (D) and Article V.C(ii)
and (iii), (ii) declare or pay upon any Junior Securities any dividend payable
in equity interests of a subsidiary of the Corporation; provided that, the
holders of the Series C Preferred Stock then outstanding shall have first
received, or simultaneously received, a like distribution on each outstanding
share of Series C Preferred Stock, based on the number of shares of Common Stock
into which each share of Series C Preferred Stock is convertible on the record
date for such distribution (without regard to any limitations on conversion and
based upon the then Applicable Conversion Price (as defined below) using the
record date as the Conversion Date (as defined below)) or (iii) redeem shares of
Common Stock which had been issued as restricted stock pursuant to a stock
option plan approved by the stockholders of the Corporation. No dividends shall
be declared, set aside or paid in respect of shares of the Series C Preferred
Stock unless the Corporation complies with Section 170 and Section 173 of the
DGCL.
E. For purposes of the Series C Preferred Stock, the amount of
dividends which "accrue" on any share of Series C Preferred Stock as of any date
shall be calculated as the amount of any unpaid dividends accrued thereon to and
including the next preceding Semiannual Dividend Payment Date, plus an amount
calculated on the basis of the annual dividend rate fixed for the shares of
Series C Preferred Stock for the period after such next preceding Semiannual
Dividend Payment Date to and including the date as of which the calculation is
made.
59
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IV. LIQUIDATION PREFERENCE
----------------------
A. Liquidation Event. If the Corporation shall commence a voluntary
-----------------
case under the Federal bankruptcy laws or any other applicable Federal or state
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in an involuntary case under any law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or if a decree or order
for relief in respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the Federal bankruptcy
laws or any other applicable Federal or state bankruptcy, insolvency or similar
law resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days, or if the Corporation shall otherwise
liquidate, dissolve or wind up (each such event being considered a "Liquidation
Event"), no distribution shall be made to the holders of any shares of capital
stock of the Corporation (other than Series B Preferred Stock and Senior
Securities) upon liquidation, dissolution or winding up, unless prior thereto,
the holders of shares of Series C Preferred Stock, subject to Article V, shall
have received the Liquidation Preference (as defined in Article IV.C) with
respect to each share; provided, however, if upon the occurrence of a
Liquidation Event, the assets and funds available for distribution among the
holders of the Series C Preferred Stock and holders of Pari Passu Securities
(including any dividends or distribution payable on any shares of Series C
Preferred Stock and Pari Passu Securities after the date of filing of this
Certificate of Designation) shall be insufficient to permit the payment to such
holders of the preferential amounts payable thereon, then the entire assets and
funds of the Corporation legally available for distribution to the Series C
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate liquidation preference payable on all
such shares.
B. Certain Acts Deemed Liquidation Event. At the option of the
-------------------------------------
holders of at least two-thirds (2/3) of the outstanding shares of Series C
Preferred Stock, (i) the sale, conveyance or disposition of all or substantially
all of the assets of the Corporation, (ii) the effectuation by the Corporation
of a transaction or series of related transactions in which more than 50% of the
voting power of the Corporation is transferred or otherwise disposed of, unless,
as a result of such transaction, the Corporation has become a wholly owned
subsidiary of another corporation and at least fifty percent (50%) of the
beneficial ownership of such corporation immediately thereafter is held by
former stockholders of the Corporation or (iii) the consolidation, merger or
other business combination of the Corporation with or into any other Person (as
defined below) or Persons (other than (a) a consolidation, merger or other
business combination in which holders of the Corporation's voting power
immediately prior to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such entity or entities, including
pursuant to a
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<PAGE>
holding company merger effected under Section 251(g) of the DGCL or any
successor provision or (b) pursuant to a migratory merger effected solely for
the purpose of changing the jurisdiction of incorporation of the Corporation)
shall either: (x) be deemed to be a liquidation, dissolution or winding up of
the Corporation pursuant to which the Corporation shall be required to
distribute upon consummation of and as a condition to such transaction an amount
equal to the Liquidation Preference or (y) be treated pursuant to Article
V.C(ii) hereof. "Person" shall mean any individual, corporation, limited
liability company, partnership, joint venture, association, trust or other
entity or organization.
C. Liquidation Preference. For purposes hereof, the "Liquidation
----------------------
Preference" with respect to a share of Series C Preferred Stock shall mean an
amount equal to the sum of: (i) the Initial Stated Value Per Share; plus (ii)
all Adjustments plus; (iii) accrued but unpaid dividends with respect to which
no Adjustment has been made. The liquidation preference with respect to any Pari
Passu Securities shall be as set forth in the Certificate of Designations filed
in respect thereof.
V. CONVERSION
----------
A. Optional Conversion. Each holder of shares of Series C Preferred
-------------------
Stock may, at its option at any time and from time to time, upon surrender of
the certificates therefor, convert any or all of its shares of Series C
Preferred Stock into Common Stock as set forth below (an "Optional Conversion").
Each share of Series C Preferred Stock shall be convertible into such number of
fully paid and nonassessable shares of Common Stock as such Common Stock exists
on the Issue Date, or any other shares of capital stock or other securities of
the Corporation into which such Common Stock is thereafter changed or
reclassified, as is determined by dividing (i) the Liquidation Preference by
(ii) the then Applicable Conversion Price; provided, however, that in no event
(other than pursuant to the Automatic Conversion as defined in Section (G))
shall a holder of shares of Series C Preferred Stock be entitled to convert any
such shares in excess of that number of shares upon conversion of which the sum
of (a) the number of shares of Common Stock beneficially owned by the holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
shares of Series C Preferred Stock or the unexercised or unconverted portion of
any other securities of the Corporation subject to a limitation on conversion or
exercise analogous to the limitations contained herein) and (b) the number of
shares of Common Stock issuable upon the conversion of the shares of Series C
Preferred Stock with respect to which the determination of this proviso is being
made, would result in beneficial ownership by a holder and such holder's
affiliates of more than the Ownership Limitation Percentage (as defined below)
of the outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(a) of such proviso. For purposes of this Article V.A, "Ownership Limitation
Percentage" means (x) with respect to any shares of Series C Preferred Stock
which are held by any Person which holds shares of Series B Preferred Stock,
4.9%, and (y) with respect to any shares of Series C Preferred Stock which are
held by any Person which does not hold any shares of Series B Preferred Stock,
9.9%.
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B. Conversion Price. Subject to adjustment pursuant to section (C)
----------------
below, the "Applicable Conversion Price" for each Tranche shall be as follows:
(i) Each Tranche shall be convertible into Common Stock pursuant
to section (A) above at the Initial Conversion Price (as defined below)
until the conclusion of the pricing period in respect of a particular
Tranche. Thereafter, each Tranche shall be convertible into Common Stock
at, in the case of Tranche 1, the Tranche 1 Conversion Price (as defined
below), in the case of Tranche 2, the Tranche 2 Conversion Price (as
defined below), and, in the case of Tranche 3, the Tranche 3 Conversion
Price (as defined below). The "Initial Conversion Price" shall be one-
hundred fifty percent (150%) of the Closing Price, subject to adjustment as
provided in Article V.C.
The "Closing Price" shall be the average of the Closing Bid Prices (as
defined below) over the ten (10) consecutive Trading Days (as defined below)
ending on the Trading Day immediately preceding the Issue Date. "Closing Bid
Price" means, for the Common Stock, the closing bid price on the Nasdaq National
Market ("Nasdaq") as reported by Bloomberg Financial Services ("Bloomberg") or,
if Nasdaq is not the principal trading market for the Common Stock, the closing
bid price of the Common Stock on the principal securities exchange or trading
market where the Common Stock is listed or traded as reported by Bloomberg, or
if the foregoing do not apply, the closing bid price of the Common Stock in the
over-the-counter market on the electronic bulletin board for the Common Stock
as reported by Bloomberg, or, if no closing bid price of the Common Stock is
available in the over-the-counter market on the electronic bulletin board for
the Common Stock or in any of the foregoing manners, the average of the bid
prices of any market makers for the Common Stock that are listed in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot
be calculated for such security on such date in the manner provided above, the
Closing Bid Price shall be the fair market value as mutually determined by the
Board of Directors and the holders of a majority of outstanding shares of Series
C Preferred Stock being converted for which the calculation of the Closing Bid
Price is required in order to determine the Applicable Conversion Price of such
Series C Preferred Stock. "Trading Day" shall mean any day on which the Common
Stock is traded for any period on Nasdaq, or on the principal securities
exchange or other securities market on which the Common Stock is then being
traded.
(ii) The pricing period in respect of Tranche 1 (the "Tranche 1
Pricing Period") shall occur over the ten (10) consecutive Trading Days
beginning on the fifteenth (15th) calendar day after the Issue Date;
provided, however if such fifteenth (15th) calendar day is not a Trading
Day, the Tranche 1 Pricing Period shall begin on the next calendar day that
is a Trading Day. The "Tranche 1 Conversion Price" shall be equal to the
product of (a) the average of the Closing Bid Prices during the Tranche 1
Pricing Period (subject to adjustment for stock splits, stock dividends,
combinations or other similar transactions) and (b) 90.75%; provided,
however, in the event that the Tranche 1 Conversion Price as calculated
pursuant to this subsection exceeds the Initial Conversion Price, the
Tranche 1 Conversion Price shall be reduced so that it equals the Initial
Conversion Price (as defined in Article V.B(i)).
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(iii) The pricing period in respect of Tranche 2 (the "Tranche 2
Pricing Period") shall occur over the ten (10) consecutive Trading Days
beginning on the forty-fifth (45th) calendar day after the Issue Date;
provided, however if such forty-fifth (45th) calendar day is not a Trading
Day, the Tranche 2 Pricing Period shall begin on the next calendar day that
is a Trading Day. The "Tranche 2 Conversion Price" shall be equal to the
product of (a) the average of the Closing Bid Prices during the Tranche 2
Pricing Period (subject to adjustment for stock splits, stock dividends,
combinations or other similar transactions) and (b) 90.75%; provided,
however, in the event that the Tranche 2 Conversion Price as calculated
pursuant to this subsection exceeds the Initial Conversion Price, the
Tranche 2 Conversion Price shall be reduced so that it equals the Initial
Conversion Price (as defined in Article V.B(i)).
(iv) The pricing period in respect of Tranche 3 (the "Tranche 3
Pricing Period") shall occur over the ten (10) consecutive Trading Days
beginning on the seventy-fifth (75th) calendar day after the Issue Date;
provided, however if such seventy-fifth (75th) calendar day is not a
Trading Day, the Tranche 3 Pricing Period shall begin on the next calendar
day that is Trading Day. The "Tranche 3 Conversion Price" shall be equal to
the product of (a) the average of the Closing Bid Prices during the Tranche
3 Pricing Period (subject to adjustment for stock splits, stock dividends,
combinations or other similar transactions) and (b) 90.75%; provided,
however, in the event that the Tranche 3 Conversion Price as calculated
pursuant to this subsection exceeds the Initial Conversion Price, the
Tranche 3 Conversion Price shall be reduced so that it equals the Initial
Conversion Price (as defined in Article V.B(i)).
(v) Notwithstanding anything to the contrary in this Article V.B,
(a) each of the Tranche 1 Pricing Period, the Tranche 2 Pricing Period and
the Tranche 3 Pricing Period shall be extended by one (1) Trading Day for
each Trading Day (an "Excluded Trading Day") in such period that the Common
Stock is (1) traded on Nasdaq (or the principal securities exchange or
market on which the Common Stock is then traded) for less than 4 1/2 hours,
or (2) suspended from trading on Nasdaq (or the principal securities
exchange or market on which the Common Stock is then traded) during the
final hour of trading, and (b) each such Excluded Trading Day shall be
excluded from the calculation of the Applicable Conversion Price for such
pricing period.
C. Adjustments to Applicable Conversion Price. The Applicable
------------------------------------------
Conversion Price shall be subject to adjustment from time to time as follows:
(i) Adjustment to Applicable Conversion Price Due to Stock Split,
Stock Dividend, Etc. If at any time when Series C Preferred Stock is issued
and outstanding, the number of outstanding shares of Common Stock is
increased or decreased by a stock split, stock dividend, combination,
reclassification, rights offering below the Trading Price (as defined
below) to all holders of Common Stock or other similar event, then the
Applicable Conversion Price shall be adjusted to give appropriate effect to
the stock split, stock dividend, combination, reclassification or other
similar event. In such event, the Corporation shall notify the Transfer
Agent of such change on or before the effective date thereof. "Trading
Price," which shall be measured as of the date as of which the purchase
price is determined in the rights offering, means (a) the average of the
last reported sale prices for the shares of Common Stock on Nasdaq as
reported by Bloomberg, as applicable, for the five (5) Trading Days
immediately
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preceding such date, or (b) if Nasdaq is not the principal trading market
for the shares of Common Stock, the average of the last reported sale
prices on the principal trading market for the Common Stock during the same
period as reported by Bloomberg, or (c) if market value cannot be
calculated as of such date on any of the foregoing bases, the Trading Price
shall be the fair market value as reasonably determined in good faith by
(y) the Board of Directors or (z) at the option of a majority-in-interest
of the holders of the outstanding Series C Preferred Stock by an
independent investment bank of nationally recognized standing in the
valuation of businesses similar to the business of the Corporation.
(ii) Adjustment to Applicable Conversion Price Due to Merger,
--------------------------------------------------------
Consolidation, Etc. If at any time when Series C Preferred Stock is issued
-------------------
and outstanding, there shall be any merger, consolidation, share exchange,
recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock shall be changed into the same or a different
number of shares of another class or classes of stock or securities of the
Corporation or another Person, or in case of any sale or conveyance of all
or substantially all of the assets of the Corporation other than in
connection with a plan of complete liquidation of the Corporation (each a
"Change of Control Transaction"), then the holders of any Series C
Preferred Stock shall thereafter have the right to receive upon conversion
of the Series C Preferred Stock, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock, securities or
assets which the holders of Series C Preferred Stock would have been
entitled to receive in such transaction had the Series C Preferred Stock
been converted in full immediately prior to such transaction (without
regard to any limitations on conversion contained herein), and in any such
case appropriate provisions shall be made with respect to the rights and
interests of the holders of Series C Preferred Stock to the end that the
provisions hereof (including, without limitation, provisions for adjustment
of the Applicable Conversion Price and of the number of shares of Common
Stock issuable upon conversion of the Series C Preferred Stock) shall
thereafter be applicable, as nearly as may be practicable in relation to
any securities or assets thereafter deliverable upon the conversion of the
Series C Preferred Stock. The Corporation shall not effect any transaction
described in this subsection (ii) unless (a) it first gives, to the extent
practical, thirty (30) days' prior written notice (but in any event at
least ten (10) business days prior written notice) of the record date of
the special meeting of stockholders to approve, or if there is no such
record date, the consummation of, such merger, consolidation, share
exchange, recapitalization, reorganization or other similar event or sale
of assets (during which time the holders of Series C Preferred Stock shall
be entitled to convert the Series C Preferred Stock) and (b) the resulting
successor or acquiring Person (if not the Corporation) and, if an entity
different from the successor or acquiring entity, the entity whose capital
stock or assets the holders of the Common Stock are entitled to receive as
a result of such Change of Control Transaction, assumes by written
instrument the obligations of this Certificate of Designation including
this subsection (ii). The above provisions shall similarly apply to
successive mergers, consolidations, share exchanges, recapitalizations,
reorganizations or other similar events or sales of assets.
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(iii) Adjustment to Applicable Conversion Price Due to
------------------------------------------------
Distribution. Subject to the limitations of Article III.D, if the
------------
Corporation shall declare or make any distribution of its assets (or rights
to acquire its assets) to holders of Common Stock as a dividend, stock
repurchase, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's stockholders in cash or
shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e., a spin-off)) (a "Distribution"), the holders of outstanding Series C
Preferred Stock shall be entitled to receive, on the date that such
Distribution is made to the Corporation's stockholders, the amount of such
assets which such holder would have been entitled to receive if such holder
had held the number of shares of Common Stock issuable upon complete
conversion (based on a conversion price equal to the Modified Applicable
Conversion Price (as defined in this subsection)) of the Series C Preferred
Stock (without regard to any limitations on conversions contained herein)
immediately before the date on which a record is taken for the
determination of stockholders entitled to such Distribution, or, if no such
record is taken, the date as of which the record holders of Common Stock
are to be determined for the Distribution. For purposes of this Article
V.C(ii), "Modified Applicable Conversion Price" shall mean, with respect to
any Tranche, (a) with respect to any Distribution for which "ex-" trading
of the Common Stock with respect to such Distribution begins on a Trading
Day other than a Trading Day during the pricing period for such Tranche
described in Article V.B(ii), (iii) or (iv), as applicable (a "Pricing
Period"), the Applicable Conversion Price then in effect, or (b) with
respect to any Distribution for which "ex-" trading of the Common Stock
with respect to such Distribution begins on a Trading Day during the
Pricing Period for such Tranche, the product of (x) the average of the
Closing Bid Prices for each Trading Day during such Pricing Period which is
prior to the date that "ex-" trading of the Common Stock with respect to
such Distribution begins (subject to adjustment for stock splits, stock
dividends, combinations or other similar transactions), and (y) 90.75%;
provided, however, in the event that the Modified Applicable Conversion
Price calculated pursuant to the immediately preceding subclause (b)
exceeds the Initial Conversion Price, then the Modified Applicable
Conversion Price determined pursuant to the immediately preceding subclause
(b) shall be reduced to the Initial Conversion Price.
(iv) Adjustment to Applicable Conversion Price Due to Purchase
---------------------------------------------------------
Rights. Subject to the limitations of Article III.D, if at any time when
-------
any Series C Preferred Stock is outstanding, the Corporation issues any
convertible securities or rights to purchase stock, warrants, securities or
other property (the "Purchase Rights") pro rata to the record holders of
Common Stock, the holders of Series C Preferred Stock shall be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder would have been entitled to acquire if
such holder had held the number of shares of Common Stock issuable upon
complete conversion (based on a conversion price equal to the Modified
Applicable Conversion Price (as defined in this subsection)) of the Series
C Preferred Stock (without regard to any limitations on conversions
contained herein) immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock
are to be determined for the grant, issuance or sale of such Purchase
Rights. For purposes of this Article V.C(iv), "Modified Applicable
Conversion Price" shall mean, with respect to any Tranche, (a) with respect
to
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any Purchase Rights for which "ex-" trading of the Common Stock with
respect to such Purchase Rights begins on a Trading Day other than a
Trading Day during the Pricing Period for such Tranche, the Applicable
Conversion Price then in effect, or (b) with respect to any Purchase Rights
for which "ex-" trading of the Common Stock with respect to such Purchase
Rights begins on a Trading Day during the Pricing Period for such Tranche,
the product of (x) the average of the Closing Bid Prices for each day
during such Pricing Period which is prior to the date that "ex-" trading of
the Common Stock with respect to such Purchase Rights begins (subject to
adjustment for stock splits, stock dividends, combinations or other similar
transactions), and (y) 90.75%; provided, however, in the event that the
Modified Applicable Conversion Price determined pursuant to the immediately
preceding subclause (b) exceeds the Initial Conversion Price, then the
Modified Applicable Conversion Price calculated pursuant to the immediately
preceding subclause (b) shall be reduced to the Initial Conversion Price.
(v) Notice of Adjustments. Upon the occurrence of each
---------------------
adjustment or readjustment of the Applicable Conversion Price pursuant to
this Article V.C, the Corporation, at its expense, shall promptly compute
such adjustment or readjustment and prepare and furnish to each holder of
Series C Preferred Stock a certificate setting forth (a) such adjustment or
readjustment, (b) the Applicable Conversion Price, as adjusted, and (c) the
number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion
of a share of Series C Preferred Stock.
D. Mechanics of Conversion. In order to convert Series C Preferred
-----------------------
Stock into full shares of Common Stock, a holder of Series C Preferred Stock
shall: (1) submit a copy of the fully executed notice of conversion in the form
attached hereto as Exhibit A ("Notice of Conversion") by facsimile dispatched on
the Conversion Date (or by other means resulting in, or reasonably expected to
result in, notice to the Corporation on the Conversion Date) at the office of
the Corporation or its Transfer Agent that the holder elects to convert the
same, which notice shall specify the number of shares of each Tranche of Series
C Preferred Stock to be converted, the Applicable Conversion Price and a
calculation of the number of shares of Common Stock issuable upon such
conversion (together with a copy of the first page of each certificate to be
converted) prior to 6:00 p.m., New York City time (the "Conversion Notice
Deadline") on the date of conversion specified on the Notice of Conversion; and
(2) surrender the original certificates representing the shares of each Tranche
of Series C Preferred Stock being converted (the "Preferred Stock
Certificates"), duly endorsed, along with a copy of the Notice of Conversion to
the office of the Corporation or the Transfer Agent as soon as practicable
thereafter. The Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion, unless
either the Preferred Stock Certificates are delivered to the Corporation or its
Transfer Agent as provided above, or the holder notifies the Corporation or its
Transfer Agent that such certificates have been lost, stolen or destroyed
(subject to the requirements of subsection (i) below). In the case of a dispute
as to the calculation of the Applicable Conversion Price, the Corporation shall
promptly issue such number of shares of Common Stock that are not disputed in
accordance with subsection (ii) below. The Corporation shall submit the disputed
calculations to its outside accountant via facsimile within three (3) business
days of receipt of the Notice of Conversion. The accountant shall audit the
calculations and notify the Corporation and the holder of the results no later
than three (3) business days from the time it receives the disputed
calculations. The accountant's calculation shall be deemed conclusive absent
manifest error.
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(i) Lost or Stolen Certificates. Upon receipt by the Corporation
---------------------------
of evidence of the loss, theft, destruction or mutilation of any Preferred
Stock Certificates representing shares of Series C Preferred Stock, and (in
the case of loss, theft or destruction) of indemnity reasonably
satisfactory to the Corporation, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Corporation shall execute
and deliver new Preferred Stock Certificate(s) of like tenor and date.
(ii) Delivery of Common Stock upon Conversion. Upon the surrender
----------------------------------------
of Preferred Stock Certificates as described above together with a Notice
of Conversion, the Corporation shall issue and, within three (3) business
days after such surrender (or, in the case of lost, stolen or destroyed
certificates, after provision of agreement and indemnification pursuant to
subsection (i) above) (the "Delivery Period"), deliver (or cause its
Transfer Agent to so issue and deliver) in accordance with the terms hereof
and the Securities Purchase Agreement, dated June 28, 1999 by and among the
Corporation and the buyers named on the signature pages thereto (the
"Buyers") (the "Purchase Agreement") (including, without limitation, in
accordance with the requirements of Section 2(G) of the Purchase Agreement)
to or upon the order of the holder (1) that number of shares of Common
Stock for the portion of the shares of Series C Preferred Stock converted
as shall be determined in accordance herewith and (2) a certificate
representing the balance of the shares of Series C Preferred Stock not
converted, if any. In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion, provided the Transfer Agent is
participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of the holder and its compliance
with the provisions contained in Article V.A and in this Article V.D, the
Corporation shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to the
holder by crediting the account of the holder's prime broker with DTC
through its Deposit Withdrawal Agent commission system.
(iii) Cash in Lieu of Fractional Shares. If any conversion of
---------------------------------
Series C Preferred Stock would result in a fractional share of Common Stock
or the right to acquire a fractional share of Common Stock, the Corporation
shall pay to the holder of such fractional share, cash in lieu of such
fractional share in an amount equal to such fraction multiplied by the
Closing Bid Price on the Conversion Date.
(iv) Conversion Date. The "Conversion Date" shall be the date
---------------
specified in the Notice of Conversion, provided that the Notice of
Conversion is submitted by facsimile (or by other means resulting in, or
reasonably expected to result in, notice) to the Corporation or its
Transfer Agent before 6:00 p.m., New York City time, on the Conversion
Date. The person or persons entitled to receive the shares of Common Stock
issuable upon conversion shall be treated for all purposes as the record
holder or holders of such securities as of the Conversion Date and all
rights with respect to the shares of Series C Preferred Stock surrendered
shall forthwith terminate except the right to receive the shares of Common
Stock or other securities or property issuable on such conversion and
except that the holders preferential rights as a holder of Series C
Preferred Stock shall survive to the extent the Corporation fails to
deliver such securities.
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E. Reservation of Shares. The requisite number of shares of the
---------------------
authorized but unissued Common Stock sufficient to provide for the conversion of
the Series C Preferred Stock outstanding shall at all times be reserved by the
Corporation, free from preemptive rights. As of the date of issuance of the
Series C Preferred Stock, the requisite number of authorized and unissued shares
of Common Stock have been duly reserved for issuance upon conversion of the
Series C Preferred Stock (the "Reserved Amount"). The Reserved Amount shall be
increased from time to time in accordance with the Corporation's obligations
pursuant to Section 4(F) of the Purchase Agreement. In addition, if the
Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series C Preferred Stock shall be convertible, the Corporation
shall at the same time also make proper provision so that thereafter there shall
be a sufficient number of shares of Common Stock authorized and reserved, free
from preemptive rights, for conversion of the outstanding Series C Preferred
Stock.
F. Status as Stockholders. Upon receipt of a Notice of Conversion by
----------------------
the Corporation from a holder of Series C Preferred Stock in accordance with
subsection (ii) of section (D), (i) the shares covered thereby (other than the
shares, if any, which cannot be issued because their issuance would exceed the
Optional Conversion limitation proviso in section (A)) shall be deemed converted
into shares of Common Stock and (ii) the holder's rights as a holder of such
converted shares of Series C Preferred Stock shall cease and terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such holder because of a failure by the Corporation to comply with the terms
of this Certificate of Designation. Notwithstanding the foregoing, if a holder
has not received certificates for all shares of Common Stock prior to the tenth
(10th) business day after the expiration of the Delivery Period with respect to
a conversion of shares of Series C Preferred Stock for any reason, then (unless
the holder otherwise elects to retain its status as a holder of Common Stock by
so notifying the Corporation) the holder shall regain the rights of a holder of
such shares of Series C Preferred Stock with respect to such unconverted shares
of Series C Preferred Stock and the Corporation shall, as soon as practicable,
return such unconverted shares of Series C Preferred Stock to the holder or, if
such shares of Series C Preferred Stock have not been surrendered, adjust its
records to reflect that such shares of Series C Preferred Stock have not been
converted. In all cases, the holder shall retain all of its rights and remedies
at law and in equity.
G. Mandatory Conversion. So long as all of the shares of Common
--------------------
Stock issuable upon conversion of all outstanding shares of Series C Preferred
Stock are then (i) authorized and reserved for issuance, (ii) registered for
resale under the Securities Act of 1933, as amended (the "Securities Act"), by
the holders of the Series C Preferred Stock (or may otherwise be resold publicly
pursuant to Rule 144(k) under the Securities Act (or any successor provision)),
and (iii) eligible to be traded on Nasdaq, the New York Stock Exchange, Inc.
("NYSE"), the American Stock Exchange, Inc. ("AMEX"), or The Nasdaq SmallCap
Market ("Nasdaq SmallCap"), each share of Series C Preferred Stock issued and
outstanding on June 30, 2002 (the "Automatic Conversion Date"), automatically
shall be converted into shares of Common Stock on such date at the then
Mandatory Applicable Conversion Price (as defined
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below) in accordance with, and subject to, the provisions of this Article V (the
"Automatic Conversion"). The Automatic Conversion Date shall be delayed by one
(1) Trading Day for each Trading Day occurring prior thereto and prior to the
full conversion of the Series C Preferred Stock that (x) any Registration
Statement (as defined in the Registration Rights Agreement, dated June 28, 1999,
by and among the Corporation and the Buyers (the "Registration Rights
Agreement") required to be filed and to be effective pursuant to the
Registration Rights Agreement in accordance with its terms is not effective or
sales of all of the Registrable Securities (as defined in the Registration
Rights Agreement) otherwise cannot be made thereunder or pursuant to Rule 144
under the Securities Act (or any successor provision) or (y) at the option of
each holder of Series C Preferred Stock, such holder is subject to a Lock-Up
Agreement (as defined in the Registration Rights Agreement). The Automatic
Conversion Date shall be the effective date from which certificates representing
the Common Stock must be delivered to the holder pursuant to section (D) above.
The "Mandatory Applicable Conversion Price" shall be the average of the Closing
Bid Prices over the ten (10) consecutive Trading Days ending on the Trading Day
immediately preceding the Automatic Conversion Date.
H. No Reissuance of Series C Preferred Stock. Shares of Series C
-----------------------------------------
Preferred Stock which are converted into shares of Common Stock as provided
herein shall not be reissued.
VI. VOTING RIGHTS
-------------
The holders of the Series C Preferred Stock have no voting power whatsoever,
including with respect to the issuance of the Series D Preferred Stock except as
otherwise provided by the DGCL and the limited protective provisions in Article
VII below.
Notwithstanding the above, the Corporation shall provide each holder of Series C
Preferred Stock with prior notification of any meeting of the stockholders (and
copies of proxy materials and other information sent to stockholders). In the
event of any taking by the Corporation of a record of its stockholders for the
purpose of determining stockholders who are entitled to receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining stockholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or thirty (30) days prior to the transaction or event,
whichever is earlier), of the date on which any such record is to be taken for
the purpose of such dividend, distribution, right or other event.
To the extent that under the DGCL the vote of the holders of the Series C
Preferred Stock, voting separately as a class, is required to authorize a given
action of the Corporation, the affirmative vote or consent of the holders of at
least a majority of outstanding shares of the Series C Preferred Stock
represented at a duly held meeting at which a quorum is present or by written
consent of a majority of outstanding shares of Series C Preferred Stock (except
as otherwise may be required under the DGCL) shall constitute the approval of
such action by the holders. To the extent that under the DGCL the holders of
the Series C Preferred Stock are entitled to vote on a
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matter with holders of Common Stock, voting together as one class, each share of
Series C Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of stockholders as the date as of which
the Applicable Conversion Price is calculated.
VII. PROTECTIVE PROVISIONS
---------------------
So long as shares of Series C Preferred Stock are outstanding, the Corporation
shall not, without first obtaining the approval (by vote or written consent, as
provided by the DGCL) of the holders of at least a majority of the outstanding
shares of Series C Preferred Stock:
A. alter or change the rights, preferences or privileges (provided
that in the case of a Change of Control Transaction this subsection shall not
expand or otherwise grant additional voting rights to the holders of Series C
Preferred Stock, whether voting separately as a class or together with the
Common Stock, from the rights provided in the DGCL) of (i) the Series C
Preferred Stock or (ii) any capital stock of the Corporation so as to affect
adversely the Series C Preferred Stock;
B. create any new class or series of capital stock having a
preference over the Series C Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation;
C. create any new class or series of capital stock ranking pari
passu with the Series C Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article II hereof, "Pari Passu Securities");
D. increase the authorized number of shares of Series C Preferred
Stock;
E. issue any Senior Securities or Pari Passu Securities; or
F. increase the par value of the Common Stock.
In the event holders of at least a majority of outstanding shares of Series
C Preferred Stock agree to allow the Corporation to alter or change the
rights, preferences or privileges of the shares of Series C Preferred
Stock, pursuant to section (A) above, so as to affect adversely the Series
C Preferred Stock, the Corporation shall deliver notice of such approved
change to the holders of the Series C Preferred Stock that did not agree to
such alteration or change (the "Dissenting Holders") and Dissenting Holders
shall have the right for a period of ten (10) days to convert pursuant to
the terms of this Certificate of Designation as they exist prior to such
alteration or change or continue to hold their shares of Series C Preferred
Stock; provided that upon expiration of the above ten (10) day period, each
adversely affected holder shall deliver to the Corporation a certificate
signed by an officer or other responsible party of the holder acknowledging
that the Corporation altered or amended the Certificate of Designation in a
manner which affected adversely the rights, preferences and privileges of
the Series C Preferred Stock and that such holder elected not to exercise
their conversion rights as they existed prior to such alteration or
amendment during the ten (10) day period.
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VIII. MANDATORY REDEMPTION
--------------------
If any of the following events (each, a "Mandatory Redemption Event") shall
occur: (i) the Corporation fails to issue shares of Common Stock to any holder
of Series C Preferred Stock upon exercise by such holder of its conversion
rights in accordance with the terms of this Certificate of Designation, fails to
transfer (electronically or in certificated form) any certificate for shares of
Common Stock issued to the holders upon conversion of the Series C Preferred
Stock as and when required by this Certificate of Designation, the Registration
Rights Agreement or the Purchase Agreement, fails to remove any restrictive
legend (or to withdraw any stop transfer instructions in respect thereof) on any
certificate in respect of any shares of Common Stock issued to the holders of
Series C Preferred Stock upon conversion of the Series C Preferred Stock as and
when required by this Certificate of Designation, the Registration Rights
Agreement or the Purchase Agreement (or makes any announcement, statement or
threat that it does not intend to honor the obligations described in this
paragraph) and any such failure shall continue uncured (or any announcement,
statement or threat not to honor its obligations shall not be rescinded in
writing) for ten (10) business days after the Corporation shall have been
notified thereof in writing by any holder of the Series C Preferred Stock; (ii)
the Corporation or successor Person in a Change of Control Transaction ceases to
be a publicly traded corporation whose equity interest is listed for trading on
Nasdaq, Nasdaq Smallcap, NYSE or AMEX (a "Listed Company"); provided, however, a
holding company merger pursuant to Section 251(g) of the DGCL or any successor
provision in which a holding company is a Listed Company and the holders of
Series C Preferred Stock have the right to receive the publicly traded
securities of such Listed Company pursuant to Article V(C)(ii) hereof, shall not
trigger this mandatory redemption provision, or (iii) at any time after June 30,
2000, and through the expiration of the Registration Period (as defined in the
Registration Rights Agreement), sales of any Registrable Securities cannot be
made pursuant to an effective Registration Statement or pursuant to Rule 144
under the Securities Act, then (x) upon the occurrence and during the period of
any Mandatory Redemption Event specified in subsection (ii) or subsection (iii)
at the option of the holders of at least two-thirds (2/3) of the then
outstanding Series C Preferred Stock by written notice to the Corporation (in
each case, a "2/3 Mandatory Redemption Notice") of such Mandatory Redemption
Event, or (y) upon the occurrence and during the period of any Mandatory
Redemption Event specified in subsection (i), at the option of any holder of
outstanding Series C Preferred Stock by written notice (an "Individual Mandatory
Redemption Notice" and together with the (2/3) Mandatory Redemption Notice
collectively, the "Mandatory Redemption Notice") to the Corporation of such
Mandatory Redemption Event, the Corporation shall purchase within five (5)
business days of receipt of a Mandatory Redemption Notice by the Corporation,
such holder's shares of Series C Preferred Stock submitted for redemption
pursuant to a Mandatory Redemption Notice for an amount per share equal to the
Liquidation Preference on the date the Mandatory Redemption Notice is received
by the Corporation.
IX. REMEDIES
--------
The Corporation acknowledges that a breach by it of its obligations under this
Certificate of Designation will cause irreparable harm to each holder of Series
C Preferred Stock by vitiating the intent and purpose of the transactions
contemplated hereunder. Accordingly, the Corporation acknowledges that the
remedy at law for a breach of its obligations under this Certificate of
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Designation will be inadequate and agrees, in the event of a breach or
threatened breach by the Corporation of any of the provisions of this
Certificate of Designation that each holder of Series C Preferred Stock shall be
entitled, in addition to all other available remedies in law or in equity, to an
injunction or injunctions to prevent or cure any breaches of the provisions of
this Certificate of Designation, and to enforce specifically the terms and
provisions of this Certificate of Designation without the necessity of showing
economic loss and without any bond or other security being required.
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the
Corporation this 29th day of June, 1999.
CMGI, INC.
By: /s/ Andrew J. Hajducky III
--------------------------
Name: Andrew J. Hajducky III
Title: Executive Vice President, Chief
Financial Officer and Treasurer
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Exhibit A
---------
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series C Preferred Stock)
The undersigned (the "Holder") hereby irrevocably elects to convert ______
shares of Series C Preferred Stock, represented by stock certificate No(s).
__________ (the "Preferred Stock Certificates") into shares of common stock, par
value $0.01 per share (the "Common Stock") of CMGI, Inc., a Delaware corporation
(the "Corporation") according to the terms and conditions of the Certificate of
Designation of Series C Preferred Stock, as of the date written below. If
securities are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates. No fee will be charged to the Holder for
any conversion, except for transfer taxes, if any.
The Corporation shall electronically transmit the Common Stock issuable pursuant
to this Notice of Conversion to the account of the undersigned or its nominee
with The Depository Trust Company ("DTC") through its Deposit Withdrawal Agent
Commission system ("DWAC Transfer").
Name of DTC Prime Broker: ____________________________
Account Number: ______________________________________
[ ] In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Corporation issue a certificate or certificates for the
number of shares of Common Stock set forth above (which numbers are based
on the Holder's calculation attached hereto) in the name(s) specified
immediately below or, if additional space is necessary, on an attachment
hereto:
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Name: ____________________________
Address: _________________________
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion
of the Series C Preferred Stock shall be made pursuant to registration of
the securities under the Securities Act of 1933, as amended (the
"Securities Act"), or pursuant to an exemption from registration under the
Securities Act.
Date of Conversion: ______________________________________
Tranche of Preferred Stock: ______________________________
Applicable Conversion Price: ______________________________
Number of Shares of Common Stock to be Issued:
_______________________________
Signature:_____________________________
Name: _____________________________________
Address: _____________________________________
* The Corporation is not required to issue shares of Common Stock until
the original Series C Preferred Stock Certificate(s) (or evidence of loss,
theft or destruction thereof) to be converted are received by the
Corporation or its Transfer Agent. The Corporation shall issue and deliver
shares of Common Stock to the Holder or its designee not later than three
(3) business days following receipt of the original Preferred Stock
Certificate(s) to be converted.
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CERTIFICATE OF CORRECTION
TO THE
CERTIFICATE OF
DESIGNATIONS, PREFERENCES, AND RIGHTS
OF THE
SERIES C CONVERTIBLE PREFERRED STOCK
OF
CMGI, INC.
(Pursuant to Section 103(f) of the Delaware General Corporation Law)
CMGI, Inc. (the "Corporation"), a corporation organized and existing under the
Delaware General Corporation Law (the "DGCL") hereby certifies as follows:
FIRST: On June 29, 1999 the Corporation filed a Certificate of
Designations, Preferences, and Rights of Series C Convertible Preferred Stock
(the "Certificate") in which certain typographical errors set forth on pages 14
and 16 of the Certificate created an inaccurate record of the corporate action.
SECOND: Specifically, the date set forth in Article V.D(ii) of the
Certificate titled "Delivery of Common Stock upon Conversion" for the Securities
Purchase Agreement on line 7 of page 14 and the date set forth in Article V.G of
the Certificate titled "Mandatory Conversion" for the Registration Rights
Agreement on line 16 of page 16 should read, in each case, as corrected, June
29, 1999. Accordingly, the text of Article V.D(ii) of page 14 and Article V.G
of page 16 of the Certificate, respectively, shall be corrected to read in its
entirety as follows:
(ii) Delivery of Common Stock upon Conversion. Upon the
----------------------------------------
surrender of Preferred Stock Certificates as described above together with
a Notice of Conversion, the Corporation shall issue and, within three (3)
business days after such surrender (or, in the case of lost, stolen or
destroyed certificates, after provision of agreement and indemnification
pursuant to subsection (i) above) (the "Delivery Period"), deliver (or
cause its Transfer Agent to so issue and deliver) in accordance with the
terms hereof and the Securities Purchase Agreement, dated June 29, 1999 by
and among the Corporation and the buyers named on the signature pages
thereto (the "Buyers") (the "Purchase Agreement") (including, without
limitation, in accordance with the requirements of Section 2(G) of the
Purchase Agreement) to or upon the order of the holder (1) that number of
shares of Common Stock for the portion of the shares of Series C Preferred
Stock converted as shall be determined in accordance herewith and (2) a
certificate representing the balance of the shares of Series C Preferred
Stock not converted, if any. In lieu of delivering physical certificates
representing the Common Stock issuable upon conversion, provided the
Transfer Agent is participating in The Depository Trust Company ("DTC")
Fast Automated Securities Transfer program, upon request of the holder and
its compliance with the provisions contained in Article V.A and in this
Article V.D, the Corporation shall use its best efforts to cause its
Transfer Agent to electronically transmit the Common Stock issuable upon
conversion to the holder by crediting the account of the holder's prime
broker with DTC through its Deposit Withdrawal Agent Commission system.
75
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G. Mandatory Conversion. So long as all of the shares
--------------------
of Common Stock issuable upon conversion of all outstanding shares of
Series C Preferred Stock are then (i) authorized and reserved for issuance,
(ii) registered for resale under the Securities Act of 1933, as amended
(the "Securities Act"), by the holders of the Series C Preferred Stock (or
may otherwise be resold publicly pursuant to Rule 144(k) under the
Securities Act (or any successor provision)), and (iii) eligible to be
traded on Nasdaq, the New York Stock Exchange, Inc. ("NYSE"), the American
Stock Exchange, Inc. ("AMEX"), or The Nasdaq SmallCap Market ("Nasdaq
SmallCap"), each share of Series C Preferred Stock issued and outstanding
on June 30, 2002 (the "Automatic Conversion Date"), automatically shall be
converted into shares of Common Stock on such date at the then Mandatory
Applicable Conversion Price (as defined below) in accordance with, and
subject to, the provisions of this Article V (the "Automatic Conversion").
The Automatic Conversion Date shall be delayed by one (1) Trading Day for
each Trading Day occurring prior thereto and prior to the full conversion
of the Series C Preferred Stock that (x) any Registration Statement (as
defined in the Registration Rights Agreement, dated June 29, 1999, by and
among the Corporation and the Buyers (the "Registration Rights Agreement"))
required to be filed and to be effective pursuant to the Registration
Rights Agreement in accordance with its terms is not effective or sales of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) otherwise cannot be made thereunder or pursuant to Rule 144
under the Securities Act (or any successor provision) or (y) at the option
of each holder of Series C Preferred Stock, such holder is subject to a
Lock-Up Agreement (as defined in the Registration Rights Agreement). The
Automatic Conversion Date shall be the effective date from which
certificates representing the Common Stock must be delivered to the holder
pursuant to section (D) above. The "Mandatory Applicable Conversion Price"
shall be the average of the Closing Bid Prices over the ten (10)
consecutive Trading Days ending on the Trading Day immediately preceding
the Automatic Conversion Date.
THIRD: This Certificate of Correction was prepared and executed in
accordance with Section 103(f) of the DGCL.
IN WITNESS WHEREOF, the Corporation has caused this instrument to be
signed in its corporate name this 30th day of June, 1999.
CMGI, INC.
By: /s/ Andrew J. Hajducky III
--------------------------
Name: Andrew J. Hajducky III
Title: Executive Vice President, Chief
Financial Officer and Treasurer
76
<PAGE>
Exhibit 5.1
Palmer & Dodge LLP
One Beacon Street, Boston, MA 02108-3190
Telephone: (617) 573-0100 Facsimile: (617) 227-4420
August 11, 1999
CMGI, Inc.
100 Brickstone Square
Andover, MA 01810
We are rendering this opinion in connection with the Registration Statement on
Form S-3 (the "Registration Statement") filed by CMGI, Inc. (the "Company") with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, on or about the date hereof. The Registration Statement relates to the
registration of 360,532 shares (the "Shares") of the Company's Common Stock,
$0.01 par value per share, which may be offered for resale by certain
shareholders of the Company listed therein. We understand that the Shares are to
be offered and sold in the manner described in the Registration Statement.
We have acted as your counsel in connection with the preparation of the
Registration Statement and are familiar with the proceedings taken by the
Company in connection with the authorization and preparation for issuance of the
Shares. We have examined all such documents as we consider necessary to enable
us to render this opinion.
Based upon the foregoing, we are of the opinion that the Shares have been duly
authorized and issued and are fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under "Legal Matters."
Very truly yours,
/s/ Palmer & Dodge LLP
Palmer & Dodge LLP
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
CMGI, Inc.:
We consent to the incorporation by reference in the registration statement of
CMGI, Inc. (formerly CMG Information Services, Inc.) on Form S-3 with which this
consent is being filed, of our report dated September 22, 1998, except for Note
19 which is as of October 27, 1998, and except for the restatement referred to
in Notes 2, 3 and 14, as to which the date is May 7, 1999, with respect to the
consolidated balance sheets of CMGI, Inc. as of July 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended July 31,
1998, which report appears in the July 31, 1998 annual report on Form 10-K/A of
CMGI, Inc.
/s/ KPMG LLP
KPMG LLP
Boston, Massachusetts
August 11, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our reports dated as follows:
. June 29, 1999 relating to the financial statements of AltaVista,
. April 2, 1999 relating to the financial statements of Zip2 Corporation, and
. June 9, 1999, except as to Note 12, which is as of July 3, 1999, relating to
the financial statements of Shopping.com
which appear in the CMGI, Inc. Current Report on Form 8-K dated August 12, 1999.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
August 9, 1999
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement of CMGI, Inc. on Form S-3 of our report, dated June 17, 1997, except
for Note 6, for which the date is June 9, 1999, relating to the financial
statements of Shopping.com which appears in Form 8-K of CMGI, Inc. dated
August 12, 1999. We also consent to the reference to our Firm under the caption
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
August 11, 1999
