<PAGE>
As filed with the Securities and Exchange Commission on February 2, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
CMGI, INC.
(Exact name of registrant as specified in its charter)
----------------
Delaware 7331 04-2921333
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification Number)
of incorporation or Classification Code
organization) 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)
----------------
David S. Wetherell
Chairman of the Board, President 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)
----------------
Copies to:
Mark G. Borden, Esq. Jeffrey D. Saper, Esq.
Hale and Dorr LLP J. Robert Suffoletta., Esq.
60 State Street Wilson Sonsini Goodrich & Rosati, P.C.
Boston, Massachusetts 02109 650 Page Mill Road
Telephone: (617) 526-6000 Palo Alto, California 94306
Telecopy: (617) 526-5000 Telephone: (650) 493-9300
Telecopy: (650) 493-6811
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective and certain
other conditions under the Agreement and Plan of Merger and Reorganization are
met or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Proposed maximum
Title of each class of maximum aggregate Amount of
securities to be Amount to be offering price offering registration
registered registered(1) per share(2) price(2) fee(3)
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<S> <C> <C> <C> <C>
common stock, $.01 par
value per share....... 5,654,437 shares $26.16 $590,735,126.88 $155,954.07
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</TABLE>
(1) Based upon the estimated maximum number of shares of common stock of the
Registrant issuable in the merger described herein in respect of (a)
outstanding shares of yesmail.com, inc. common stock and (b) options and
warrants to acquire yesmail.com, inc. common stock.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rules 457(c) and 457(f) under the Securities Act of 1933, as
amended, and based upon the average of the high and low sale prices of
yesmail.com, inc. common stock as reported on the Nasdaq National Market on
January 31, 2000.
(3) Pursuant to Rule 457(b) under the Securities Act, $161,322.49 of the
registration fee was paid as of January 7, 2000 in connection with the
filing of preliminary proxy materials. Therefore, no registration fee is
payable upon the filing of this registration statement.
----------------
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.
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<PAGE>
yesmail.com, inc.
February 4, 2000
Dear yesmail.com, inc. stockholders:
I am writing to you today about our proposed merger with CMGI. This merger
will create a combined company offering a broad set of solutions for Internet
advertising and direct marketing.
In the merger, each share of yesmail.com, inc. ("yesmail") common stock will
be exchanged for 0.2504 shares of CMGI common stock. Based on the number of
shares of yesmail common stock and options and warrants to purchase yesmail
common stock outstanding as of January 27, 2000, CMGI expects to issue a total
of approximately 5,623,388 shares of CMGI common stock and options and warrants
to purchase shares of CMGI common stock in the merger. CMGI common stock is
traded on the Nasdaq National Market under the trading symbol "CMGI," and
closed at $115.44 per share on February 1, 2000. The merger is described more
fully in this proxy statement/prospectus.
You will be asked to vote upon the merger agreement with CMGI and the merger
at a special meeting of yesmail stockholders to be held on March 10, 2000 at
10:00 am, local time, at the Hyatt Deerfield Hotel, 1750 Lake Cook Road,
Deerfield, Illinois 60015. The merger cannot be consummated unless the holders
of a majority of the shares of yesmail common stock approve the merger. Only
stockholders who hold shares of yesmail common stock at the close of business
on January 27, 2000 will be entitled to vote at the special meeting.
We are very excited by the opportunities we envision for the combined
company. Your board of directors has determined that the terms and conditions
of the merger are fair to you and in your best interests, and has unanimously
recommended that you approve the merger agreement and the merger.
This proxy statement/prospectus provides detailed information about CMGI and
the merger. Please give all of this information your careful attention. In
particular, you should carefully consider the discussion in the section
entitled "Risk Factors" beginning on page 7 of this proxy statement/prospectus.
Your vote is very important regardless of the number of shares you own. To
vote your shares, you may use the enclosed proxy card or attend the special
stockholders meeting in person. To approve the merger agreement and the merger,
you MUST vote "FOR" the proposal by following the instructions stated on the
enclosed proxy card. If you do not vote at all, your non-vote will, in effect,
count as a vote against the merger agreement and the merger. We urge you to
vote FOR this proposal. The approval of this proposal is a necessary step in
the merger of yesmail and CMGI.
Sincerely,
/s/ David M. Tolmie
David M. Tolmie
Chief Executive Officer and President
This proxy statement/prospectus is being furnished to yesmail stockholders
in connection with the solicitation of proxies by yesmail's board of directors
for use at the special meeting of yesmail stockholders to be held at the Hyatt
Deerfield Hotel, 1750 Lake Cook Road, Deerfield, Illinois 60015, and at any
adjournment of the special meeting.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of this transaction
or the CMGI common stock to be issued in the merger, or determined that
this proxy statement/prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated February 2, 2000, and was
first mailed to yesmail stockholders on or about February 4, 2000.
<PAGE>
Sources of Additional Information
This proxy statement/prospectus incorporates important business and
financial information about CMGI that is not included or delivered with
this document. This information is available without charge to yesmail
stockholders upon written or oral request. Contact CMGI at 100 Brickstone
Square, Andover, Massachusetts 01810, Attention: Catherine Taylor,
Director of Investor Relations. CMGI's telephone number is (978) 684-3600.
To obtain timely delivery of requested documents prior to the special
meeting of yesmail stockholders, you must request them no later than March
3, 2000, which is five business days prior to the date of the special
meeting.
Also see "Where You Can Find More Information" on page 88 of this proxy
statement/prospectus.
<PAGE>
yesmail.com, inc.
565 Lakeview Parkway, Suite 135
Vernon Hills, Illinois 60061
(847) 918-9292
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 10, 2000
We will hold a special meeting of stockholders of yesmail at 10:00 am, local
time, on March 10, 2000 at the Hyatt Deerfield Hotel, 1750 Lake Cook Road,
Deerfield, Illinois 60015.
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger and Reorganization, dated as of December 14,
1999, by and among CMGI, Inc., Mars Acquisition, Inc. and yesmail.com,
inc., and the merger, under which yesmail will become a wholly owned
subsidiary of CMGI and each outstanding share of yesmail common stock will
be converted into the right to receive 0.2504 shares of CMGI common stock;
and
2. To transact such other matters which may properly come before the
special meeting or any and all adjournment(s) thereof.
Only yesmail stockholders of record at the close of business on January 27,
2000 are entitled to notice of and to vote at the special meeting or any
adjournment of the special meeting.
Your vote is important regardless of the number of shares you own. To ensure
that your shares are represented at the special meeting, we urge you to
complete, date and sign the enclosed proxy card and mail it promptly in the
enclosed postage-paid envelope whether or not you plan to attend the
special meeting in person. You may revoke your proxy in the manner described in
this proxy statement/ prospectus at any time before it has been voted at the
special meeting. You may vote in person at the special meeting even if you have
returned a proxy.
By Order of the Board of Directors
/s/ David B. Menzel
David B. Menzel
Secretary
<PAGE>
[CMGI LOGO] [YESMAIL LOGO]
CMGI, Inc. yesmail.com, inc.
100 Brickstone Square 565 Lakeview Parkway
Andover, Massachusetts 01810 Vernon Hills, Illinois 60061
Proxy Statement/Prospectus
This proxy statement/prospectus is the prospectus of CMGI, Inc. with respect
to the issuance by CMGI of approximately 5,623,388 shares of CMGI common stock
and options and warrants to purchase shares of CMGI common stock in connection
with the Agreement and Plan of Merger and Reorganization among CMGI, Mars
Acquisition, Inc., a wholly owned subsidiary of CMGI, and yesmail.com, inc. The
merger agreement provides for the merger of yesmail with Mars Acquisition, Inc.
Following the merger, yesmail will be a wholly owned subsidiary of CMGI.
This proxy statement/prospectus is the proxy statement of yesmail and is
being furnished to stockholders in connection with the special meeting of
yesmail stockholders to be held on March 10, 2000 at 10:00 am, local time, at
the Hyatt Deerfield Hotel, 1750 Lake Cook Road, Deerfield, Illinois 60015.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
disclosure document. Any representation to the contrary is a
criminal offense.
----------------
The date of this proxy statement/prospectus is February 2, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER................................... i
SUMMARY.................................................................. 1
RISK FACTORS............................................................. 7
Risks Relating to the Merger........................................... 7
Risks Relating to CMGI's Business...................................... 10
Risks Relating to Yesmail's Business................................... 16
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS............... 22
SELECTED HISTORICAL CONDENSED CONSOLIDATED AND UNAUDITED PRO FORMA
FINANCIAL INFORMATION................................................... 24
CMGI Selected Historical Condensed Consolidated Financial Information.. 24
Yesmail Selected Historical Condensed Consolidated Financial
Information........................................................... 25
Selected Unaudited Pro Forma Condensed Combined Financial Information.. 26
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET..................... 28
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS........... 29
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION............................................................. 31
CMGI AND YESMAIL SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION................................................... 34
COMPARATIVE PER SHARE DATA............................................... 35
MARKET PRICE INFORMATION................................................. 36
CMGI Market Price Information.......................................... 36
Yesmail Market Price Information....................................... 36
Recent Closing Prices.................................................. 37
Dividends.............................................................. 37
THE SPECIAL MEETING...................................................... 38
Date, Time and Place................................................... 38
Matters to be Considered at the Special Meeting........................ 38
Record Date............................................................ 38
Voting and Revocation of Proxies....................................... 38
Vote Required.......................................................... 39
Quorum; Abstentions and Broker Non-Votes............................... 39
You Do Not Have Appraisal Rights....................................... 39
Solicitation of Proxies and Expenses................................... 39
Board Recommendation................................................... 39
THE MERGER............................................................... 41
Background of the Merger............................................... 41
CMGI's Reasons for the Merger.......................................... 42
Yesmail's Reasons for the Merger; Recommendation of the Yesmail Board
of Directors.......................................................... 44
Opinion of Financial Advisor to Yesmail................................ 46
Interests of Financial Advisor to Yesmail in the Merger................ 50
Interests of Executive Officers and Directors of Yesmail in the
Merger................................................................ 51
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Treatment of Yesmail Common Stock....................................... 52
Accounting Treatment of the Merger...................................... 52
Regulatory Approvals.................................................... 52
Material United States Federal Income Tax Considerations................ 53
Nasdaq National Market Quotation........................................ 54
Resales of CMGI Common Stock Issued in Connection with the Merger;
Affiliate Agreements; Lock-up Agreements............................... 54
No Appraisal Rights..................................................... 55
Delisting and Deregistration of Yesmail's Common Stock Following the
Merger................................................................. 55
THE MERGER AGREEMENT...................................................... 56
General................................................................. 56
The Exchange Ratio and Treatment of Yesmail Common Stock................ 56
Treatment of Unvested Stock of Yesmail.................................. 56
Treatment of Yesmail Stock Options and Warrants......................... 56
Exchange of Certificates................................................ 57
Representations and Warranties.......................................... 57
Certain Covenants....................................................... 58
Conditions to Obligations to Effect the Merger.......................... 61
Termination; Expenses and Termination Fees.............................. 62
Amendment............................................................... 64
OTHER AGREEMENTS.......................................................... 65
Stock Option Agreement.................................................. 65
Stockholder Agreement................................................... 66
DESCRIPTION OF YESMAIL'S BUSINESS......................................... 67
The Yesmail Solution.................................................... 67
Yesmail Strategy........................................................ 67
Products and Services................................................... 68
Sales and Marketing .................................................... 70
Technology.............................................................. 71
Competition............................................................. 72
Intellectual Property Rights............................................ 73
Government Regulation................................................... 73
Employees............................................................... 74
Facilities.............................................................. 74
Legal Proceedings....................................................... 74
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 75
Overview................................................................ 75
Results of Operations................................................... 76
Liquidity and Capital Resources......................................... 78
Year 2000 Readiness Disclosure.......................................... 79
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT OF
YESMAIL................................................................. 80
COMPARISON OF STOCKHOLDER RIGHTS......................................... 82
Capitalization......................................................... 82
Voting Rights.......................................................... 82
Number and Classification of Directors................................. 83
Removal of Directors................................................... 83
Filling Vacancies on the Board of Directors............................ 83
Charter Amendments..................................................... 84
Amendments to By-Laws.................................................. 84
Notice of Stockholder Actions.......................................... 84
Right to Call Special Meeting of Stockholders.......................... 85
Dividends and Distributions............................................ 85
Redemption............................................................. 85
Liquidation............................................................ 86
STOCKHOLDER PROPOSALS.................................................... 87
LEGAL MATTERS............................................................ 87
EXPERTS.................................................................. 87
WHERE YOU CAN FIND MORE INFORMATION...................................... 88
</TABLE>
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF YESMAIL............................................. F-1
</TABLE>
<TABLE>
<S> <C>
INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF YESMAIL........................ S-1
</TABLE>
<TABLE>
<S> <C>
ANNEXES
</TABLE>
<TABLE>
<S> <C>
A. AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
Exhibit A Form of Company Stock Option Agreement
Exhibit B Form of Stockholder Agreement
Exhibit C Form of Stockholder Lock-ups
Exhibit D Form of Company Affiliate Letter
B. OPINION OF DEUTSCHE BANK SECURITIES INC.
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are the companies proposing to merge?
A: CMGI and yesmail are proposing to merge because we believe the resulting
combination will create a stronger, more competitive company capable of
achieving greater financial strength, operational efficiencies, earning
power and growth potential than either company would have on its own.
We believe that yesmail's technology will complement the technology of
CMGI's current network of Internet marketing and advertising companies,
which currently includes Engage Technologies, Inc., Flycast Communications
Corporation and Adsmart Corporation, and consequently strengthen CMGI's
position to offer a complete advertising network solution for both
advertisers and Web publishers. We also believe that yesmail will be able to
continue to expand its customer base by providing services to many of the
companies affiliated with CMGI.
Q: How will these two companies merge?
A: CMGI and yesmail will combine under a merger agreement providing that a
wholly owned subsidiary of CMGI will merge with and into yesmail, with
yesmail surviving the merger as a wholly owned subsidiary of CMGI.
Q: What will I receive in the merger?
A: If the merger is completed, you will receive 0.2504 shares of CMGI common
stock for each share of yesmail common stock that you own. CMGI will not
issue fractional shares of its common stock. Instead, you will receive
cash, without interest, based on the average of the last reported sales
prices of CMGI common stock on the Nasdaq National Market during the ten
consecutive trading days ending on and including the last trading day prior
to the day on which the merger is completed.
On December 14, 1999, the last full trading day before the public
announcement of the proposed merger, the last reported sale price of CMGI
common stock on the Nasdaq National Market was $102.88 per share, as
adjusted for the 2-for-1 stock split of CMGI common stock on January 11,
2000. On February 1, 2000, the most recent practicable date prior to the
printing of this proxy statement/prospectus, the last reported sale price of
CMGI common stock on the Nasdaq National Market was $115.44 per share.
Q: When do you expect to complete the merger of CMGI and yesmail?
A: We are working to complete the merger as quickly as possible. We expect to
complete the merger by the end of the first calendar quarter of 2000,
promptly following the special meeting. However, we cannot predict the
exact timing because the merger is subject to governmental and other
regulatory approvals. If necessary or desirable, CMGI and yesmail may agree
to complete the merger at a later date.
Q: What are the federal income tax consequences of the merger?
A: The merger is intended to qualify as a reorganization under the Internal
Revenue Code. Provided that the merger qualifies as a reorganization under
the Internal Revenue Code, no gain or loss will generally be recognized for
federal income tax purposes by CMGI, yesmail or the transitory subsidiary
as a result of the merger. Additionally, no gain or loss will be recognized
for federal income tax purposes by yesmail stockholders to the extent they
receive shares of CMGI common stock in exchange for yesmail common stock in
the merger. In general, however, yesmail stockholders will recognize
taxable income to the extent they receive cash in the merger. Yesmail
stockholders should consult their tax advisors for a full understanding of
the tax consequences of the merger.
Q: Who must approve the merger?
A: In addition to the approvals by the CMGI board of directors and the yesmail
board of directors, each of which has already been obtained, and
governmental and other regulatory approvals, the merger agreement and the
merger must be approved by yesmail stockholders.
Q: What stockholder vote is required to approve the merger agreement and the
merger?
A: A majority of the outstanding shares of yesmail common stock entitled to
vote constitutes a quorum for the yesmail special meeting. The affirmative
vote of the holders of at least a majority of the outstanding shares of
yesmail common stock is required to approve the merger agreement and the
merger.
i
<PAGE>
Q: Does the yesmail board of directors recommend approval of the merger
agreement and the merger?
A: Yes. After careful consideration, the yesmail board of directors
unanimously recommends that its stockholders vote in favor of the merger
agreement and the merger. For a more complete description of the
recommendation of the yesmail board of directors, see the section entitled
"The Merger--Yesmail's Reasons for the Merger; Recommendation of the
Yesmail Board of Directors" on page 44.
Q: What do I need to do now?
A: We urge you to read this proxy statement/ prospectus, including the annexes
and exhibits, carefully, and to consider how the merger will affect you as
a stockholder. You also may want to review the documents referenced under
"Where You Can Find More Information" on page 88.
Q: How do I vote?
A: You may indicate how you want to vote on your proxy card and then sign and
mail your proxy card in the enclosed return envelope as soon as possible so
that your shares will be represented at the yesmail special meeting. You
may also attend the special meeting and vote in person instead of
submitting a proxy.
If you fail either to return your proxy card or to vote in person at the
special meeting, or if you mark your proxy "abstain," the effect will be a
vote against the merger agreement and the merger. If you sign and send in
your proxy without indicating how you want to vote, your proxy will be
counted as a vote for the merger agreement and the merger unless your
shares are held in a brokerage account.
Q: If my shares are held in a brokerage account, will my broker vote my shares
for me?
A: Your broker cannot vote your shares without instructions from you on how to
vote. Therefore, it is important that you follow the directions provided by
your broker regarding how to instruct your broker to vote your shares. If
you fail to provide your broker with instructions, it will have the same
effect as a vote against the merger agreement and the merger.
Q: May I change my vote after I have mailed in my signed proxy card?
A: You may change your vote at any time before the vote takes place at the
yesmail special meeting. To do so, you may either complete and submit a
later dated proxy card or send a written notice stating that you would like
to revoke your proxy. In addition, you may attend the special meeting and
vote in person. However, if you elect to vote in person at the special
meeting and your shares are held by a broker, bank or other nominee, you
must bring to the special meeting a letter from the broker, bank or other
nominee confirming your beneficial ownership of the shares.
Q: When and where is the yesmail special meeting?
A: The special meeting of yesmail stockholders will be held at 10:00 a.m.,
local time, on March 10, 2000 at the Hyatt Deerfield Hotel, 1750 Lake Cook
Road, Deerfield, Illinois 60015.
Q: Should I send in my certificates now?
A: No. After we complete the merger, CMGI or its exchange agent will send
instructions to you explaining how to exchange your shares of yesmail
common stock for the appropriate number of shares of CMGI common stock.
Q: Who may I contact with any additional questions?
A: You may call James Carini, who handles investor relations for yesmail, at
(847) 918-6379.
Q: Are there any risks associated with the merger?
A: The merger does involve risks. For a discussion of risk factors that should
be considered in evaluating the merger, see "Risk Factors" beginning on
page 7.
ii
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" on page
88. We have included page references parenthetically to direct you to a more
complete description of the topics in this summary.
The Companies
CMGI, Inc.
100 Brickstone Square
Andover, Massachusetts 01810
(978) 684-3600
CMGI develops and operates Internet and fulfillment services companies.
CMGI's Internet strategy includes the internal development and operation of
majority-owned subsidiaries as well as taking strategic positions in other
Internet companies that have demonstrated synergies with CMGI's core
businesses. CMGI's strategy also envisions and promotes opportunities for
synergistic business relationships among the Internet companies within its
portfolio. In addition, CMGI provides fulfillment services through three wholly
owned subsidiaries, SalesLink Corporation, InSolutions Incorporated and On-
Demand Solutions, Inc. SalesLink's services are also provided through its
subsidiary, Pacific Direct Marketing Corporation. CMGI's fulfillment services
offerings include product and literature fulfillment, supply chain management,
telemarketing, and outsourced e-business program management. Other than
references to a specific CMGI subsidiary, any reference to CMGI includes its
subsidiaries.
yesmail.com, inc.
565 Lakeview Parkway
Vernon Hills, Illinois 60061
Yesmail is a leading provider of comprehensive permission email direct
marketing solutions. Yesmail delivers direct email marketing messages to
targeted individuals who have given yesmail or its network partners permission
to send them promotional email messages. Yesmail was incorporated in Delaware
in October 1998, and Superhighway Consulting, Inc., which yesmail merged with
in March 1999, was incorporated in Illinois in April 1995.
The Merger
Through the merger, yesmail will become a wholly owned subsidiary of CMGI.
Yesmail stockholders will receive CMGI common stock in exchange for their
shares of yesmail common stock. The merger agreement is attached to this proxy
statement/prospectus as Annex A. We urge you to read the merger agreement as it
is the legal document that governs the merger.
Vote Required
(Page 39)
Approval of the merger agreement and the merger requires the vote of a
majority of the outstanding shares of yesmail common stock. Yesmail directors
and executive officers and their respective affiliates held approximately 37.6%
of the outstanding shares of yesmail common stock on January 27, 2000.
Holders of yesmail common stock, who on January 27, 2000 collectively
beneficially held approximately 39.0% of the outstanding voting power of
yesmail, have already agreed to vote in favor of the merger agreement and the
merger.
Yesmail Recommendation to Stockholders
(Page 39)
The yesmail board of directors unanimously voted to approve the merger
agreement and the merger. The yesmail board of directors believes that the
merger is advisable and in your best interest and unanimously recommends that
you vote FOR the proposal to approve the merger agreement and the merger.
1
<PAGE>
What Holders of
Yesmail Common Stock Will Receive
(Page 56)
Each share of yesmail common stock will be exchanged for 0.2504 shares of
CMGI common stock.
CMGI will not issue fractional shares of CMGI common stock in connection
with the merger. Instead, CMGI will pay cash, without interest, for any
fractional shares.
Based on 20,324,094 shares of yesmail common stock outstanding on December
14, 1999, the day on which the merger agreement was entered into, CMGI
estimates that yesmail stockholders will receive approximately 5,089,153 shares
of CMGI common stock in the merger.
Conditions to the Merger
(Page 61)
The completion of the merger depends upon meeting a number of conditions,
including:
. the approval of yesmail stockholders;
. the expiration or termination of all applicable waiting periods, and any
extensions of these periods, under the Hart-Scott-Rodino Act;
. the approval of the listing on the Nasdaq National Market of the CMGI common
stock to be issued to yesmail stockholders in the merger;
. the receipt of legal opinions regarding the treatment of the merger as a
tax-free reorganization; and
. other customary contractual conditions specified in the merger agreement.
Certain of the conditions to the merger may be waived by the party entitled
to assert the condition.
No Solicitation by Yesmail
(Page 60)
With certain exceptions, including compliance with the Securities and
Exchange Commission's tender offer requirements, and subject to applicable
fiduciary duties of the yesmail board of directors to recommend a superior
proposal to yesmail stockholders, yesmail has agreed that neither it nor any of
its subsidiaries will (a) solicit, initiate or encourage any proposal that
might lead to an acquisition proposal, (b) enter into negotiations or
discussions concerning, or provide any information to a third party relating
to, any acquisition proposal or (c) agree to recommend any acquisition
proposal. Yesmail has further agreed to cause each of its officers, directors,
employees, financial advisors, representatives and agents, as well as the
officers, directors, employees, financial advisors, representatives and agents
of its subsidiaries, not to take any of these actions.
Termination of the Merger Agreement
(Page 62)
CMGI and yesmail can mutually agree to terminate the merger agreement
without completing the merger, and either CMGI or yesmail can terminate the
merger agreement upon the occurrence of a number of events, including if:
. the merger is not completed by June 30, 2000;
. a governmental entity issues a nonappealable final order that enjoins or
otherwise prohibits the merger;
. yesmail stockholders do not approve the merger agreement and the merger at
the special meeting of yesmail stockholders; or
. the other party breaches or fails to perform any material representation,
warranty, covenant or agreement in the merger agreement and fails to cure
the breach or to perform within 20 days of receiving notice of the breach.
In addition, CMGI can terminate the merger agreement upon the occurrence of
a number of events, including if:
. the yesmail board of directors fails to recommend approval of the merger
agreement and the merger to yesmail stockholders or withdraws or modifies
its recommendation;
. the yesmail board of directors approves or recommends to yesmail
stockholders an alternative transaction with a third party meeting the
requirements set forth in the merger agreement;
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. an alternative transaction is announced or otherwise publicly known and the
yesmail board of directors has either failed to recommend against acceptance
of it by yesmail stockholders within ten days of receiving a written request
from CMGI to do so or it has failed to reconfirm its approval of the merger
agreement and the merger within ten days of receiving a written request from
CMGI to do so; or
. a third party commences a tender offer or exchange offer for 20% or more of
the outstanding shares of yesmail common stock and the yesmail board of
directors either recommends that yesmail stockholders tender their shares in
the tender or exchange offer, or within ten days after the tender or
exchange offer is commenced, it fails to recommend against acceptance of the
offer or takes no position with respect to the acceptance of it.
In addition, yesmail can terminate the merger agreement if (a) it receives
an unsolicited acquisition proposal that the yesmail board of directors has
determined after consultation with its financial advisor is a superior
proposal, (b) it has complied with all of the provisions in the merger
agreement with respect to the nonsolicitation of acquisition proposals, (c) the
yesmail board of directors has determined in good faith after consultation with
its outside legal counsel that termination of the merger agreement is necessary
for the yesmail board of directors to fulfill its fiduciary duties under
applicable law and (d) yesmail, contemporaneously with, and as a condition to,
its termination of the merger agreement, pays CMGI the fee and expenses
provided for in the merger agreement.
Termination Fee
(Page 63)
Yesmail must pay CMGI a termination fee of $20 million if CMGI terminates
the merger agreement upon the occurrence of a number of events, including:
. the yesmail board of directors fails to recommend approval of the merger
agreement and the merger to yesmail stockholders or withdraws or modifies
its recommendation;
. the yesmail board of directors approves or recommends to yesmail
stockholders an alternative transaction with a third party meeting the
requirements set forth in the merger agreement;
. an alternative transaction is announced or otherwise publicly known and the
yesmail board of directors has either failed to recommend against acceptance
of it by yesmail stockholders within ten days of receiving a written request
from CMGI to do so or it has failed to reconfirm its approval of the merger
agreement and the merger within ten days of receiving a written request from
CMGI to do so;
. a third party commences a tender offer or exchange offer for 20% or more of
the outstanding shares of yesmail common stock and the yesmail board of
directors recommends that yesmail stockholders tender their shares in the
tender or exchange offer, or within ten days after the tender or exchange
offer is commenced, it fails to recommend against acceptance of the offer or
takes no position with respect to the acceptance of it;
. yesmail breaches the provisions in the merger agreement with respect to the
nonsolicitation of acquisition proposals or the holding of the special
meeting; or
. yesmail terminates the merger agreement upon receiving an unsolicited,
superior acquisition proposal.
Also, if CMGI or yesmail terminates the merger agreement as a result of
yesmail stockholders voting against the merger agreement and the merger at the
special meeting and, prior to such termination, a bona fide proposal for an
alternative transaction has been publicly announced, yesmail must pay a
termination fee of $10 million. In addition, if a definitive agreement with
respect to an alternative transaction is entered into or an alternative
transaction is completed within 12 months after such termination, yesmail must
pay CMGI an additional $10 million.
Additionally, yesmail must pay CMGI up to $500,000 as reimbursement for
expenses incurred by
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CMGI related to the merger if CMGI or yesmail terminates the merger agreement
in certain circumstances, including the failure of the merger to be completed
by June 30, 2000 because specified conditions to CMGI's obligation to effect
the merger have not been satisfied.
Stock Option Agreement
(Page 65)
In connection with the merger agreement, CMGI and yesmail entered into a
stock option agreement, dated as of December 14, 1999. The option agreement
grants CMGI the right to purchase up to 4,044,400 shares of yesmail common
stock, constituting approximately 19.9% of yesmail's outstanding common stock,
at $25.76 per share, subject to adjustment. However, CMGI may not exercise this
option to acquire more than 19.9% of the outstanding shares of yesmail common
stock. The option becomes exercisable only after the merger agreement is
terminated under specified circumstances, including if:
. the yesmail board of directors fails to recommend that yesmail stockholders
approve and adopt the merger agreement and the merger;
. the yesmail board of directors approves or recommends to yesmail
stockholders an alternative transaction with a third party meeting the
requirements set forth in the merger agreement;
. an alternative transaction is announced or otherwise publicly known and the
yesmail board of directors has either failed to recommend against acceptance
of it by yesmail stockholders within ten days of receiving a written request
from CMGI to do so or it has failed to reconfirm its approval of the merger
agreement and the merger within ten days of receiving a written request from
CMGI to do so;
. the yesmail board of directors recommends that yesmail stockholders tender
their shares in a tender or exchange offer commenced by a third party or
fails to recommend against it or takes no position with respect to
acceptance of it;
. yesmail breaches the provisions in the merger agreement with respect to the
nonsolicitation of acquisition proposals or the holding of the special
meeting; or
. yesmail terminates the merger agreement upon receiving an unsolicited,
superior acquisition proposal.
Once the option is exercisable, CMGI may exercise its option in whole or in
part, at any time or from time to time prior to its termination at the earliest
of:
. the effective time of the merger;
. termination of the merger agreement under circumstances which do not entitle
CMGI to receive a termination fee;
. the date on which the amount of cash received by CMGI as a termination fee
under the merger agreement and from sales of the shares of yesmail common
stock issuable upon exercise of the option exceeds $25 million; and
. 90 days after the date on which the merger agreement is terminated (this
period will be extended by 30 days if either CMGI cannot exercise its option
or yesmail cannot deliver the shares upon exercise because conditions to
yesmail's obligation to deliver the shares have not been met).
Opinion of Financial Advisor
(Page 46)
In deciding to approve the merger, the yesmail board of directors received
an opinion from its financial advisor, Deutsche Bank Securities, Inc.
("Deutsche Bank"), that the exchange ratio is fair, from a financial point of
view, to the holders of yesmail common stock. The full text of Deutsche Bank's
opinion is attached as Annex B to this proxy statement/prospectus and we urge
you to read it carefully in its entirety. Deutsche Bank's opinion is addressed
to the yesmail board of directors and does not constitute a recommendation to
any yesmail stockholder with respect to matters relating to the merger.
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Interests of Financial Advisor
(Page 50)
Pursuant to an engagement letter dated November 24, 1999, yesmail became
obligated to pay Deutsche Bank a $50,000 cash retainer upon engagement and a
fee of $750,000 upon announcement of the merger, which amount will be credited
against an aggregate cash fee of approximately $6.2 million due upon the
closing of the merger, based on the closing sale price of CMGI common stock on
January 28, 2000. The actual aggregate fee is based on a percentage of the
aggregate value of the transaction. Regardless of whether the merger is
consummated, yesmail has agreed to reimburse Deutsche Bank for reasonable fees
and disbursements of its counsel and reasonable travel and other out-of-pocket
expenses. Yesmail has also agreed to indemnify Deutsche Bank and certain
related persons to the full extent of the law against certain liabilities,
including liabilities under the federal securities laws, arising out of its
engagement or the merger.
Interests of Executive Officers and
Directors of Yesmail in the Merger
(Page 51)
In considering the recommendation of the yesmail board of directors, you
should be aware of the interests that yesmail executive officers and directors
have in the merger. These include the following:
. yesmail executive officers will receive retention and severance benefits;
. yesmail executive officers will have the benefit of accelerated vesting of
approximately 1,117,970 shares of restricted stock and options to acquire
yesmail common stock granted under yesmail's stock option plans, as
described below, in connection with the merger; and
. yesmail officers and directors have customary rights to indemnification
against specified liabilities.
In considering the fairness of the merger to yesmail stockholders, the
yesmail board of directors took into account these interests. These interests
are different from and in addition to your and their interests as stockholders.
Yesmail executive officers and directors have restricted stock and options to
acquire yesmail common stock that will be converted under the terms of
yesmail's stock option plans into restricted stock or options to acquire shares
of CMGI common stock. As of January 27, 2000, the executive officers and
directors of yesmail, and their respective affiliates, held restricted stock
and other options for an aggregate of 2,957,046 shares of yesmail common stock,
which restricted stock and options were vested with respect to 763,296 shares.
Assuming the merger is completed on March 10, 2000, these options and shares of
restricted stock will vest with respect to an additional 1,117,972 shares of
yesmail common stock upon completion of the merger. These options and shares of
restricted stock will be converted in the merger into options to acquire
approximately 279,940 shares of CMGI common stock. In addition, as of January
27, 2000, the record date, the executive officers and directors of yesmail, and
their respective affiliates, beneficially owned 7,651,042 shares of yesmail
common stock, of which 2,957,046 shares are subject to vesting. Assuming the
merger is completed on March 10, 2000, an additional 1,117,972 of these shares
will vest. These shares will be converted in the merger into approximately
279,940 shares of CMGI common stock.
Accounting Treatment
(Page 52)
CMGI will account for the merger using the purchase method of accounting,
which means that the assets and liabilities of yesmail, including intangible
assets, will be recorded at their fair value with the remaining purchase price
reflected as goodwill and the results of operations and cash flows of yesmail
will be included in CMGI's financial statements prospectively as of the
consummation of the merger.
Material United States Federal Income Tax Considerations
(Page 53)
We have structured the merger in order to qualify it as a reorganization
under the Internal Revenue Code. It is our intention that no gain or loss
generally will be recognized by yesmail stockholders for federal income tax
purposes on the exchange of shares of yesmail common stock solely for shares of
CMGI common stock.
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Tax matters are very complicated, and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your tax
advisor for a full understanding of the tax consequences of the merger to you.
Yesmail Stockholders Have No Appraisal Rights
(Page 55)
Under Delaware law, yesmail stockholders do not have appraisal rights.
Forward-Looking Statements May Prove Inaccurate
(Page 22)
We have made forward-looking statements in this proxy statement/prospectus
(and in documents that are incorporated by reference) that are subject to risks
and uncertainties. Forward-looking statements include the information
concerning possible or assumed future results of operations of CMGI. Also, when
we use words such as "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements. Stockholders should note
that many factors could affect the future financial results of CMGI and
yesmail, and could cause these results to differ materially from those
expressed in our forward-looking statements. These factors include the
following:
. the risk that CMGI encounters greater than expected costs and difficulties
related to combining yesmail technology with the technology of CMGI's
current network of Internet advertising companies;
. changes in laws or regulations, including increased government regulation of
the Internet, and privacy related issues;
. increased competitive pressures from the issuance of patents and other
intellectual property to competitors of CMGI and yesmail;
. the risk that CMGI will be unable to retain certain yesmail employees;
. the risk that CMGI will be unable to retain certain customers of yesmail who
may terminate their relationship with yesmail as a result of the merger
because they deem themselves competitors of CMGI; and
. the risk that our analyses of these risks and forces could be incorrect
and/or that the strategies developed to address them could be unsuccessful.
CMGI Market Price Information
(Page 36)
Shares of CMGI common stock are quoted on the Nasdaq National Market. On
December 14, 1999, the last full trading day prior to the public announcement
of the proposed merger, CMGI common stock closed at $102.88 per share as
adjusted for the 2-for-1 stock split of CMGI common stock on January 11, 2000.
On February 1, 2000, CMGI common stock closed at $115.44 per share.
Yesmail Market Price Information
(Page 36)
Shares of yesmail common stock are also quoted on the Nasdaq National
Market. On December 14, 1999, the last full trading day prior to the public
announcement of the proposed merger, yesmail common stock closed at $21.00 per
share. On February 1, 2000, yesmail common stock closed at $28.38 per share.
Recent Developments
On January 11, 2000, CMGI effected a 2-for-1 stock split payable to its
stockholders of record as of December 28, 1999. Unless otherwise indicated, all
financial information in this proxy statement/ prospectus has been adjusted to
reflect the 2-for-1 stock split.
On January 19, 2000, CMGI entered into an agreement with Engage
Technologies, Inc., a majority-owned subsidiary of CMGI, pursuant to which
Engage will acquire Flycast Communications Corporation and AdSmart Corporation
through the issuance of approximately 32 million shares of Engage common stock.
The transaction, which will be accounted for as a combination of entities under
common control, is subject to certain conditions and the approval of Engage
shareholders. The transaction is expected to be completed in May 2000.
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RISK FACTORS
You should carefully consider the following risk factors before you decide
whether to vote to approve and adopt the merger agreement and the merger. You
should also consider the other information in this proxy statement/prospectus
and the additional information in CMGI's other reports on file with the
Securities and Exchange Commission and in the other documents incorporated by
reference in this proxy statement/prospectus. See "Where You Can Find More
Information" on page 88.
Risks Relating to the Merger
CMGI's stock price is volatile and the value of CMGI common stock issued in
the merger will depend on its market price at the time of the merger, and no
adjustment will be made as a result of changes in the market price of CMGI's
common stock.
At the closing of the merger, each share of yesmail common stock will be
exchanged for 0.2504 shares of CMGI common stock. This exchange ratio will not
be adjusted for changes in the market price of CMGI common stock or of yesmail
common stock. In addition, neither CMGI nor yesmail may terminate or
renegotiate the merger agreement, and yesmail may not resolicit the vote of its
stockholders solely because of changes in the market price of CMGI common stock
or of yesmail common stock. Any reduction in CMGI's common stock price will
result in you receiving less value in the merger at closing. You will not know
the exact value of CMGI's common stock to be issued to you in the merger at the
time of the special meeting of yesmail stockholders.
The market price of CMGI's common stock, like that of the shares of many
other high technology and Internet companies, has been and may continue to be
volatile. For example, from January 4, 1999 to January 4, 2000, CMGI common
stock traded as high as $163.50 per share and as low as $13.53 per share.
Recently, the stock market in general and the shares of Internet companies
in particular have experienced significant price fluctuations. The market price
of CMGI's common stock may continue to fluctuate significantly in response to
various factors, including:
. quarterly variations in . announcements of mergers and
operating results or growth acquisitions and other actions
rates; by competitors;
. the announcement of . regulatory and judicial actions;
technological innovations;
. general economic conditions; and
. the introduction of new
products; . patents and other intellectual
property rights issued to
. changes in estimates by competitors of CMGI.
securities analysts;
. market conditions in the
industry;
. announcements of mergers and
acquisitions by CMGI;
CMGI may face challenges in integrating CMGI and yesmail and, as a result, may
not realize the expected benefits of the anticipated merger.
Integrating the operations and personnel of CMGI and yesmail will be a
complex process, and CMGI is uncertain that the integration will be completed
rapidly or will achieve the anticipated benefits of the merger. Since yesmail
is located in the Midwest, it will be more difficult to retain employees of
yesmail if, after the merger, some of the activities and management of yesmail
move from the Midwest to the East Coast. The successful integration of CMGI and
yesmail will require, among other things, integration of their finance, human
resources and sales and marketing groups and coordination of development
efforts. The diversion of the attention of CMGI's management and any
difficulties encountered in the process of combining the companies could cause
the disruption of, or a loss of momentum in, the activities of CMGI's business.
Further, the process of combining CMGI and yesmail could negatively affect
employee morale and the ability of CMGI to retain some of its key employees
after the merger.
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If CMGI does not successfully integrate yesmail or the merger's benefits do
not meet the expectations of financial or industry analysts, the market price
of CMGI common stock may decline.
The market price of CMGI common stock may decline as a result of the merger
if:
. the integration of CMGI and yesmail is unsuccessful;
. CMGI does not achieve the perceived benefits of the merger as rapidly as, or
to the extent, anticipated by financial or industry analysts; or
. the effect of the merger on CMGI's financial results is not consistent with
the expectations of financial or industry analysts.
If CMGI does not manage the integration of other acquired companies
successfully, it may be unable to achieve desired results.
As a part of its business strategy, CMGI may enter into additional business
combinations and acquisitions, such as AdForce, Inc., AdKnowledge Inc. and
Flycast Communications Corporation. Acquisitions are typically accompanied by a
number of risks, including:
. the difficulty of integrating the . the maintenance of uniform
operations and personnel of the standards, controls, procedures
acquired companies; and policies;
. the potential disruption of . the impairment of relationships
CMGI's ongoing business and with employees and customers as a
distraction of management; result of any integration of new
management personnel; and
. the difficulty of incorporating
acquired technology and rights . potential unknown liabilities
into CMGI's products and associated with acquired
services; businesses.
. unanticipated expenses related to
acquired technology and its
integration into existing
technology;
CMGI may not succeed in addressing these risks or any other problems
encountered in connection with these potential business combinations and
acquisitions, potentially disrupting CMGI's business and causing increased
losses.
Failure to complete the merger could negatively impact the market price of
yesmail common stock and yesmail's operating results.
If the merger is not completed for any reason, yesmail may be subject to a
number of material risks, including:
. yesmail may be required to pay CMGI a termination fee of up to $20 million
and/or reimburse CMGI for expenses of up to $500,000;
. yesmail stockholders may experience dilutive effects to their stock
ownership because yesmail granted CMGI an option to acquire up to 19.9% of
the outstanding shares of yesmail common stock, which may become
exercisable;
. the market price of yesmail common stock may decline to the extent that the
current market price of yesmail common stock reflects a market assumption
that the merger will be completed; and
. costs related to the merger, such as legal and accounting fees, must be paid
even if the merger is not completed.
If the merger is terminated and the yesmail board of directors seeks another
merger or business combination, you cannot be certain that yesmail will be able
to find a partner willing to pay an equivalent or more attractive price than
the price to be paid by CMGI in the merger. In addition, CMGI's option to
acquire
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up to 19.9% of the outstanding shares of yesmail common stock, which may become
exercisable upon termination of the merger agreement, may impede an alternative
merger or business combination. You should read more about this stock option
under "Other Agreements--Stock Option Agreement" on page 65.
Yesmail may not be able to enter into a merger or business combination with
another party at a favorable price because of restrictions in the merger
agreement.
While the merger agreement is in effect, subject to specified exceptions,
yesmail is prohibited from entering into or soliciting, initiating or
encouraging any inquiries or proposals that may lead to a proposal or offer for
a merger, consolidation, business combination, sale of substantial assets,
tender offer, sale of shares of capital stock or other similar transactions
with any person other than CMGI. As a result of this prohibition, yesmail may
not be able to enter into an alternative transaction at a favorable price.
Yesmail's officers and directors have conflicts of interest that may influence
them to support or approve the merger.
The directors and officers of yesmail participate in arrangements and have
continuing indemnification against liabilities that provide them with interests
in the merger that are different from, or in addition to, yours, including the
following:
. certain officers of yesmail are
. as of January 27, 2000, the entitled to certain benefits,
executive officers and directors including substantial severance
of yesmail owned stock, packages, under their employment
restricted stock or options to agreements with yesmail if their
purchase an aggregate of employment is terminated upon
2,957,046 shares of yesmail yesmail's change of control, such
common stock, of which 2,163,281 as in the merger;
are unvested. If the merger is
completed, approximately 234,376 . upon completion of the merger,
of the unvested options will CMGI and yesmail may enter into
accelerate and become immediately employment agreements with some
exercisable and approximately executive officers of yesmail;
883,596 of the unvested shares of and
restricted stock will become
vested;
. CMGI has agreed to cause the
surviving corporation in the
. directors and officers and their merger to indemnify each present
respective affiliates, and former yesmail officer and
representing a significant director against liabilities
percentage of yesmail arising out of such person's
stockholders, have agreed to vote services as an officer or
in favor of the merger agreement director. CMGI will cause the
and the merger; surviving corporation to maintain
officers' and directors'
liability insurance to cover any
such liabilities for the next six
years.
The directors and officers of yesmail may therefore have been more likely to
vote to approve the merger agreement and the merger than if they did not have
these interests. Yesmail stockholders should consider whether these interests
may have influenced these directors and officers to support or recommend the
merger. You should read more about these interests under "The Merger--Interests
of Executive Officers and Directors of Yesmail in the Merger" on page 51.
Uncertainties associated with the merger may cause yesmail to lose key
personnel.
Current and prospective yesmail employees may experience uncertainty about
their future roles with CMGI. This uncertainty may adversely affect yesmail's
ability to attract and retain key management, sales, marketing and technical
personnel.
Customers of CMGI and yesmail may delay or cancel orders as a result of
concerns over the merger.
The announcement and closing of the merger could cause customers and
potential customers of CMGI and yesmail to delay or cancel contracts for
services. In particular, customers could be concerned about future
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<PAGE>
service offerings and integration support of current services. Moreover, they
may terminate their relationship with yesmail because they deem themselves
competitors of CMGI. Such a delay or cancellation of orders could have a
material adverse effect on the business, results of operations and financial
condition of CMGI or yesmail.
Risks Relating to CMGI's Business
CMGI may not have operating income or net income in the future.
During the fiscal year ended July 31, 1999 and for the three months ended
October 31, 1999, CMGI had an operating loss of approximately $127 million and
$275 million, respectively. CMGI anticipates continuing to incur significant
operating expenses in the future including significant cost of revenues,
selling, general and administrative and amortization expenses. As a result,
CMGI expects to continue to incur operating losses and may not have enough
money to grow its business in the future.
CMGI may have problems raising the money it needs in the future.
In recent years, CMGI has financed its operating losses in part with profits
from selling some of the stock of companies in which it had invested. This
funding source may not be sufficient in the future, and CMGI may need to obtain
funding from outside sources. However, CMGI may not be able to obtain funding
from outside sources. In addition, even if CMGI finds outside funding sources,
CMGI may be required to issue to such outside sources securities with greater
rights than those currently possessed by holders of shares of CMGI common
stock. CMGI may also be required to take other actions which may lessen the
value of CMGI's common stock, including borrowing money on terms that are not
favorable to CMGI.
CMGI's success depends greatly on increased use of the Internet by businesses
and individuals.
CMGI's success depends greatly on increased use of the Internet for
advertising, marketing, providing services, and conducting business. Commercial
use of the Internet is currently at an early stage of development and the
future of the Internet is not clear. In addition, it is not clear how effective
advertising on the Internet will be in generating business as compared to more
traditional types of advertising such as print, television, and radio. Because
a significant portion of CMGI's business depends on CMGI's Internet operating
company subsidiaries, CMGI's business will suffer if commercial use of the
Internet fails to grow in the future.
CMGI may incur significant costs to avoid investment company status and may
suffer other adverse consequences if deemed to be an investment company.
CMGI may incur significant costs to avoid investment company status and may
suffer other adverse consequences if deemed to be an investment company under
the Investment Company Act of 1940. Some equity investments in other businesses
made by CMGI and its venture subsidiaries may constitute investment securities
under the 1940 Act. A company may be deemed to be an investment company if it
owns investment securities with a value exceeding 40% of its total assets,
subject to certain exclusions. Investment companies are subject to registration
under, and compliance with, the 1940 Act unless a particular exclusion or
Securities and Exchange Commission safe harbor applies. If CMGI were to be
deemed an investment company, it would become subject to the requirements of
the 1940 Act. As a consequence, CMGI would be prohibited from engaging in
business or issuing its securities as it has in the past and might be subject
to civil and criminal penalties for noncompliance. In addition, certain of
CMGI's contracts might be voidable, and a court-appointed receiver could take
control of CMGI and liquidate its business.
Although CMGI's investment securities currently comprise less than 40% of
its total assets, fluctuations in the value of these securities or of CMGI's
other assets may cause this limit to be exceeded. Unless an exclusion or safe
harbor were available to it, CMGI would have to attempt to reduce its
investment securities as a percentage of its total assets. This reduction can
be attempted in a number of ways, including the disposition of
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<PAGE>
investment securities and the acquisition of non-investment security assets. If
CMGI were required to sell investment securities, it may sell them sooner than
it otherwise would. These sales may be at depressed prices and CMGI may never
realize anticipated benefits from, or may incur losses on, these investments.
Some investments may not be sold due to contractual or legal restrictions or
the inability to locate a suitable buyer. Moreover, CMGI may incur tax
liabilities when it sells assets. CMGI may also be unable to purchase
additional investment securities that may be important to its operating
strategy. If CMGI decides to acquire non-investment security assets, it may not
be able to identify and acquire suitable assets and businesses.
CMGI depends on certain important employees, and the loss of any of those
employees may harm CMGI's business.
CMGI's performance is substantially dependent on the performance of its
executive officers and other key employees, in particular, David S. Wetherell,
its chairman, president, and chief executive officer, Andrew J. Hajducky III,
its executive vice president, chief financial officer and treasurer, and David
Andonian, its president, corporate development. The familiarity of these
individuals with the Internet industry makes them especially critical to CMGI's
success. In addition, CMGI's success is dependent on its ability to attract,
train, retain and motivate high quality personnel, especially for its
management team. The loss of the services of any of CMGI's executive officers
or key employees may harm its business. CMGI's success also depends on its
continuing ability to attract, train, retain, and motivate other highly
qualified technical and managerial personnel. Competition for such personnel is
intense.
In fiscal 1999 and the first three months of fiscal 2000, CMGI derived a
significant portion of its revenues from a small number of customers and loss
of any of those customers could significantly damage CMGI's business.
During the fiscal year ended July 31, 1999, sales to Cisco Systems, Inc.
accounted for 36% of CMGI's total revenues and 47% of CMGI's revenues from its
fulfillment services segment. During the three months ended October 31, 1999,
sales to Cisco accounted for 15.7% of CMGI's total revenues and 50.4% of CMGI's
revenues from its fulfillment services segment. CMGI currently does not have
any agreements with Cisco which obligate this customer to buy a minimum amount
of products from CMGI or to designate CMGI as its sole supplier of any
particular products or services. During the three months ended October 31,
1999, sales to DoubleClick, Inc. accounted for 16.6% of CMGI's total revenues
and 24.1% of CMGI's revenues from its Internet segment. CMGI believes that it
will continue to derive a significant portion of its operating revenues from
sales to a small number of customers.
CMGI's strategy of expanding its business through acquisitions of other
businesses and technologies presents special risks.
CMGI intends 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 . strain on managerial and
technologies, operations, and operational resources as
personnel with the existing management tries to oversee
business; larger operations;
. diversion of management attention . exposure to unforeseen
in connection with both liabilities of acquired
negotiating the acquisitions and companies; and
integrating the assets;
. the requirement to record
. potential issuance of securities additional future operating costs
in connection with the for the amortization of good will
acquisition, which securities and other intangible assets,
dilute the holders of CMGI's which amounts could be
currently outstanding securities; significant.
. the need to incur additional
debt;
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<PAGE>
CMGI may not be able to successfully address these problems. Moreover,
CMGI's future operating results will depend to a significant degree on its
ability to successfully manage growth and integrate acquisitions. In addition,
many of CMGI's investments are in early-stage companies with limited operating
histories and limited or no revenues. CMGI may not be able to successfully
develop these young companies.
Growing concerns about the use of "cookies" and data collection may limit
CMGI's 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. CMGI's technology currently uses cookies to collect
information about an Internet user's movement through the Internet. Most of the
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 currently choose 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, CMGI would likely
have to switch to other technology that allows it to gather demographic and
behavioral information. This could require significant reengineering time and
resources, might not be completed in time to avoid negative consequences to
CMGI's business, financial condition or results of operations, and might not be
possible at all.
If the United States or other governments regulate the Internet more closely,
CMGI's business may be harmed.
Because of the Internet's popularity and increasing use, new laws and
regulations may be adopted. These laws and regulations may cover issues such as
privacy, pricing, taxation and content. The enactment of any additional laws or
regulations may impede the growth of the Internet and CMGI's Internet-related
business and could place additional financial burdens on CMGI's business.
To succeed, CMGI must respond to the rapid changes in technology and
distribution channels related to the Internet.
The markets for CMGI's Internet products and services are characterized by:
. rapidly changing technology; . shifting distribution channels;
and
. evolving industry standards;
. changing customer demands.
. frequent new product and service
introductions;
CMGI's success will depend on its ability to adapt to this rapidly evolving
marketplace. CMGI may not be able to adequately adapt its products and services
or to acquire new products and services that can compete successfully. In
addition, CMGI may not be able to establish and maintain effective distribution
channels.
CMGI is subject to intense competition.
The market for Internet products and services is highly competitive.
Moreover, the market for Internet products and services lacks significant
barriers to entry, enabling new businesses to enter this market relatively
easily. 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 CMGI's products and
services. In addition, many of CMGI's current and potential competitors have
greater financial, technical, operational, and marketing resources. CMGI may
not be able to compete successfully against these competitors in selling its
goods and services. Competitive pressures may also force prices for Internet
goods and services down and such price reductions may reduce CMGI's revenues.
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CMGI's strategy of selling assets of or investments in the companies that CMGI
has acquired and developed presents risks.
One element of CMGI's business plan involves raising cash for working
capital for its Internet business by selling, in public or private offerings,
some of the companies, or portions of the companies, that it has acquired and
developed. Market and other conditions largely beyond CMGI's control affect:
. CMGI's ability to engage in such sales;
. the timing of such sales; and
. the amount of proceeds from such sales.
As a result, CMGI may not be able to sell some of these assets. In addition,
even if CMGI is able to sell, it may not be able to sell at favorable prices.
If CMGI is unable to sell these assets at favorable prices, its business will
be harmed.
The value of CMGI's business may fluctuate because the value of some of its
assets fluctuates.
A portion of CMGI's assets includes the equity securities of both publicly
traded and non-publicly traded companies. In particular, CMGI owns a
significant number of shares of common stock of Chemdex Corporation, Critical
Path, Inc., Engage Technologies, Inc., Hollywood Entertainment Corporation,
Lycos, Inc., MotherNature.com, Inc., NaviSite, Inc., Pacific Century CyberWorks
Limited, Silknet Software, Inc. and Yahoo!, Inc., which are publicly traded
companies. The market price and valuations of the securities that CMGI holds in
these and other companies may fluctuate due to market conditions and other
conditions over which CMGI has no control. Fluctuations in the market price and
valuations of the securities that CMGI holds in other companies may result in
fluctuations of the market price of CMGI's common stock and may reduce the
amount of working capital available to CMGI.
CMGI's growth places strains on its managerial, operational and financial
resources.
CMGI's rapid growth has placed, and is expected to continue to place, a
significant strain on its managerial, operational and financial resources.
Further, as the number of CMGI's users, advertisers and other business partners
grows, CMGI will be required to manage multiple relationships with various
customers, strategic partners and other third parties. Further growth of CMGI
or increase in the number of its strategic relationships will increase this
strain on CMGI's managerial, operational and financial resources, inhibiting
CMGI's ability to achieve the rapid execution necessary to successfully
implement its business plan. In addition, CMGI's future success will also
depend on its ability to expand its sales and marketing organization and its
support organization commensurate with the growth of CMGI's business and the
Internet.
CMGI must develop and maintain positive brand name awareness.
CMGI believes that establishing and maintaining its brand names is essential
to expanding its Internet business and attracting new customers. CMGI also
believes that the importance of brand name recognition will increase in the
future because of the growing number of Internet companies that will need to
differentiate themselves. Promotion and enhancement of CMGI's brand names will
depend largely on CMGI's ability to provide consistently high-quality products
and services. If CMGI is unable to provide high-quality products and services,
the value of its brand names may suffer.
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CMGI's quarterly results may fluctuate widely.
CMGI's operating results have fluctuated widely on a quarterly basis during
the last several years, and CMGI expects to experience significant fluctuation
in future quarterly operating results. Many factors, some of which are beyond
CMGI's control, have contributed to these quarterly fluctuations in the past
and may continue to do so. These factors include:
. specific economic conditions in
. demand for CMGI's products and the Internet and direct marketing
services; industries; and
. payment of costs associated with . general economic conditions.
CMGI's acquisitions, sales of
assets and investments;
. timing of sales of assets;
. market acceptance of new products
and services;
The emerging nature of the commercial uses of the Internet makes predictions
concerning CMGI's future revenues difficult. CMGI believes that period-to-
period comparisons of its results of operations will not necessarily be
meaningful and should not be relied upon as indicative of CMGI's future
performance. It is also possible that in some future fiscal quarters, CMGI's
operating results will be below the expectations of securities analysts and
investors. In such circumstances, the price of CMGI's common stock may decline.
The price of CMGI's common stock has been volatile.
The market price of CMGI's common stock has been, and is likely to continue
to be, volatile, experiencing wide fluctuations. 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 to be unrelated or disproportionate to the operating performance of such
companies. Future market movements may adversely affect the market price of
CMGI's common stock.
CMGI faces 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 CMGI or other Internet sites to
protect proprietary information, including advances in computer and software
functionality or new discoveries in the field of cryptography. A compromise of
security on the Internet would have a negative effect on the use of the
Internet for commerce and communications and could negatively impact CMGI's
business. Security breaches of the activities of CMGI, its customers and
sponsors involving the storage and transmission of proprietary information,
such as credit card numbers, may expose CMGI to a risk of loss or litigation
and possible liability. CMGI cannot assure you that its security measures will
prevent security breaches.
Ownership of CMGI is concentrated.
David S. Wetherell, CMGI's chairman, president, and chief executive officer,
beneficially owned approximately 14% of CMGI's outstanding common stock as of
January 5, 2000. As a result, Mr. Wetherell possesses significant influence
over CMGI on matters, including the election of directors. Additionally, Compaq
Computer Corporation and its wholly owned subsidiary, Digital Equipment
Corporation, owned approximately 16.5% of CMGI's outstanding common stock as of
January 5, 2000. The concentration of CMGI's share ownership may:
. delay or prevent a change in control of CMGI;
. impede a merger, consolidation, takeover or other business involving CMGI;
or
. discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of CMGI.
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CMGI's business will suffer if any of its products or systems, or the products
or systems of third parties on which CMGI relies, experience year 2000 related
problems.
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
need to accept four digit entries in order to distinguish 21st century dates
from 20th century dates. CMGI's products and systems and those of third parties
on whom CMGI relies may experience year 2000 related problems. If any equipment
or software used in CMGI's business causes year 2000 related problems, CMGI may
incur significant unanticipated expenses to remedy such problems.
As of December 31, 1999, CMGI estimates it has incurred approximately $7.0
million in connection with year 2000 readiness efforts. Because of CMGI's
recent acquisitions of a number of companies in varying stages of year 2000
compliance assessment, and unforeseeable year 2000 expenses, CMGI's year 2000
costs may exceed this estimate.
CMGI relies on NaviSite for network connectivity.
CMGI and many of its majority owned subsidiaries rely on NaviSite for
network connectivity and hosting of servers. If NaviSite fails to perform such
services, CMGI's internal business operations may be interrupted, and the
ability of CMGI's majority owned subsidiaries to provide services to customers
may also be interrupted. Such interruptions may have an adverse impact on the
business and revenues of CMGI and its majority owned subsidiaries.
The success of CMGI's global operations is subject to special risks and costs.
CMGI has begun, and intends to continue, to expand its operations outside of
the United States. This international expansion will require significant
management attention and financial resources. CMGI's ability to expand its
offerings of products and services internationally will be limited by the
general acceptance of the Internet and intranets in other countries. In
addition, CMGI has limited experience in such international activities.
Accordingly, CMGI expects to commit substantial time and development resources
to customizing its products and services for selected international markets and
to developing international sales and support channels.
CMGI expects that its export sales will be denominated predominantly in
United States dollars. As a result, an increase in the value of the United
States dollar relative to other currencies may make CMGI's products and
services more expensive and, therefore, potentially less competitive in
international markets. As CMGI increases its international sales, its 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.
CMGI could be subject to infringement claims.
From time to time, CMGI has been, and expects to continue to be, subject to
third party claims in the ordinary course of business, including claims of
alleged infringement of intellectual property rights by CMGI. Any such claims
may damage CMGI's business by:
. subjecting CMGI to significant liability for damages;
. resulting in invalidation of CMGI's proprietary rights;
. being time-consuming and expensive to defend even if such claims are not
meritorious; and
. resulting in the diversion of management's time and attention.
CMGI may have liability for information retrieved from the Internet.
Because materials may be downloaded from the Internet and subsequently
distributed to others, CMGI may be subject to claims for defamation,
negligence, copyright or trademark infringement, personal injury, or other
theories based on the nature, content, publication and distribution of such
materials.
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CMGI litigation.
Neil Braun, the former president of iCast Corporation, a majority owned
subsidiary of CMGI, filed a complaint in the United States District Court,
Southern District of New York, on December 22, 1999 against CMGI, iCast, and
David S. Wetherell, chief executive officer and chairman of CMGI, alleging
certain claims arising out of the termination of Mr. Braun's employment with
iCast. As set forth in the complaint, Mr. Braun is seeking, among other things,
monetary damages in excess of $50 million and specific performance of certain
contractual obligations that would require iCast to deliver to Mr. Braun an
equity interest in iCast. On January 31, 2000, an answer to the complaint was
filed on behalf of CMGI, iCast and Mr. Wetherell. CMGI plans to vigorously
defend against these claims. If CMGI does not prevail in this proceeding, the
outcome could adversely affect CMGI's financial condition and results of
operations.
Risks Relating to Yesmail's Business
Yesmail recently redirected its strategic focus and its recent operating
results are not comparable to its results for prior periods.
Yesmail was founded in 1995 as a supplier of a broad range of Internet
marketing services and in late 1998 redirected its strategic focus to
permission email. For the nine months ended September 30, 1999, permission
email marketing services represented 74% of yesmail's revenue, compared to 14%
in the nine months ended September 30, 1998. Accordingly, yesmail's operating
results since the end of 1998 are not comparable to its results for prior
periods. Yesmail cannot be certain that its business strategy will be
successful.
Yesmail has a history of losses and yesmail expects future losses.
Yesmail incurred net losses of $2.2 million from its inception through
December 31, 1998 and $10.4 million for the nine months ended September 30,
1999. As of September 30, 1999, yesmail had an accumulated deficit of $12.6
million. Yesmail expects to continue to incur net losses for the foreseeable
future and negative cash flow from operations through at least the year 2000.
Yesmail expects to significantly increase its operating expenses as a result
of expanding its sales and marketing, product development and administrative
operations and developing new strategic relationships to promote its future
growth. As a result, yesmail will need to generate significant revenues to meet
these increased expenses and to achieve profitability. If yesmail does achieve
profitability, yesmail cannot be certain that it can sustain or increase
profitability in the future.
Yesmail's future operating results may fluctuate significantly and remain
uncertain, which could negatively affect the value of your investment.
Yesmail's operating results are difficult to predict. Yesmail's future
quarterly operating results may fluctuate significantly and may not meet the
expectations of securities analysts or investors. If this occurs, the price of
yesmail common stock would likely decline, perhaps substantially. Factors that
may cause fluctuations of yesmail's operating results include the following:
. seasonality of direct marketing . competitive developments;
expenditures, which are typically
higher in the second and fourth . demand for advertising on the
quarters and lower in the first Internet;
and third quarters;
. changes in pricing policies and
. the level of market acceptance of resulting margins;
yesmail's products and services;
. changes in the growth rate of
. delays yesmail may encounter in Internet usage;
introducing new products and
services; . the growth rate of yesmail's
network affiliates;
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<PAGE>
. changes in the mix of products . costs related to acquisitions of
and services sold; technology or businesses; and
. changes in the mix of sales . economic conditions generally as
channels through which products well as those specific to the
and services are sold; Internet and related industries.
Yesmail expects that an increasing portion of its future revenues will be
derived from permission email marketing products and services. The volume and
timing of orders are difficult to predict because the market for yesmail's
products is in its infancy and the sales cycle may vary substantially from
customer to customer. Currently, yesmail's customer contracts are only for a
limited period of time, typically lasting only days or weeks, which makes
revenues in any quarter substantially dependent upon contracts entered into in
that quarter. Yesmail's customers can terminate their contracts with yesmail on
short notice without penalty. Moreover, yesmail's sales are expected to
fluctuate due to seasonal or cyclical marketing campaigns. Yesmail expects that
revenue growth in the first and third quarters of each year may be lower than
revenue growth in the second and fourth quarters of that and the preceding
year. Yesmail believes this trend may occur as a result of yesmail's customers'
annual budgetary, purchasing and sales cycles. In addition, yesmail's sales
cycle has varied from customer to customer and several customers have taken
many months to evaluate yesmail's services before making their purchase
decisions. To the extent significant revenues occur earlier than expected,
yesmail's operating results for later quarters may not compare favorably with
operating results from earlier quarters.
Yesmail's success depends upon broad market acceptance of permission email
marketing services and yesmail is uncertain if or when such market acceptance
will occur.
Yesmail does not know if its products and services will be successful. The
growth of the Internet remains fairly recent and advertising on the Internet
even more so. The Internet may not be accepted as a viable long-term commercial
marketplace and medium of commerce for a number of reasons, including
potentially inadequate development of necessary Internet infrastructure,
government regulation or delayed development of enabling technologies and
performance improvements. The market for permission email marketing services is
in its infancy, and yesmail is not certain whether its target customers will
widely adopt and deploy this technology. Even if they do so, they may not
choose yesmail's products for technical, cost, support or other reasons.
Adoption of permission email marketing services, particularly by those entities
that have historically relied upon traditional means of direct marketing, such
as telemarketing and direct mail, requires the broad acceptance of a new and
substantially different approach to direct marketing. Yesmail believes that the
promotion of the concept of permission email marketing will require it to
engage in an intensive marketing and sales effort to educate prospective
customers regarding the uses and benefits of yesmail's products and services.
Enterprises that have already invested substantial resources in other
advertising methods may be reluctant or slow to adopt yesmail's new approach.
Yesmail's future growth also depends on the commercial success of yesmail's
network and the products that comprise yesmail's network. These products
include eTrack, eCampaign, eManage and eTarget. If yesmail's customers do not
widely adopt and purchase its services, yesmail's business will suffer.
Furthermore, the Internet advertising and permission email services market is
characterized by rapid technological change, frequent new product
introductions, changes in customer requirements and evolving industry
standards. If yesmail is unable to develop and introduce products or
enhancements to its service offerings in a timely manner, yesmail may not be
able to successfully compete.
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<PAGE>
Competition in the market for Internet advertising and direct marketing is
intense and could adversely affect yesmail's business.
The market for Internet advertising and direct marketing is intensely
competitive, rapidly changing and highly fragmented. Yesmail expects that
competition will increase significantly in the near term because of the
attention the Internet has received as a means of advertising and direct
marketing and because there are no significant barriers to entry. Yesmail's
primary long-term competitors may not have entered the market yet because
yesmail's market is new. Competition could result in price reductions, changes
in the way services are priced, reduced gross margin and loss of market share,
any of which could cause yesmail's business to suffer.
Many of yesmail's current and potential competitors have greater name
recognition, longer operating histories, larger customer bases and
significantly greater financial, technical, marketing, public relations, sales,
distribution and other resources than yesmail does. Some of yesmail's potential
competitors are among the largest and most well-capitalized companies in the
world. In addition, some of yesmail's competitors may include website owners
who own permission email lists. Yesmail expects to face competition from these
and other competitors, including Internet portals, traditional list brokers,
banner advertising managers, independent list managers, incentive-based
subscriber lists and customer management and retention service companies.
Yesmail's failure to develop and maintain its sales, marketing and support
organization and relationships with its network partners and third party list
managers would limit yesmail's growth.
If yesmail fails to substantially develop its direct and indirect sales and
marketing operations and its relations with its network partners, yesmail's
growth will be limited. Yesmail's products and services require a sales effort
targeted at several people within yesmail's prospective customers. Yesmail has
recently expanded its direct sales force and plans to hire additional sales
personnel. Yesmail might not be able to hire, train or retain the kind and
number of sales and marketing personnel it is targeting because competition for
qualified sales and marketing personnel is intense. In addition, yesmail will
increasingly rely on advertising agencies and direct marketers to resell its
products and services. If yesmail does not effectively manage or grow its sales
and marketing channel, its business could suffer.
Yesmail must continue to maintain and expand relationships with network
partners who provide it with access to permission email lists. yesmail began to
enter into agreements with its network partners in the first quarter of 1999.
These contracts are generally for an initial term of one to three years, with
an automatic annual renewal. Pursuant to these contracts, yesmail provides its
network partners with resale and tracking services by selling direct marketers
access to its lists, and its network partners receive a percentage of yesmail's
revenue. Yesmail cannot be assured that the growth of its business as a result
of entering into these agreements will be sufficient to meet yesmail's
expectations for sales growth and profitability. In addition to yesmail's
network partners, yesmail has reseller arrangements with third party list
managers, under which they pay a fixed fee for the nonexclusive use of their
list for a specific campaign. These third party list managers are not
contractually obligated to provide yesmail with access to their lists. A
majority of the email addresses that yesmail has access to through its
proprietary list, its network partners and its list managers is currently
comprised of addresses from list managers. If yesmail fails to maintain or grow
its relationships with its network partners and third party list managers,
yesmail's business could suffer.
If yesmail is unable to manage its expected growth, yesmail's business will
suffer.
Yesmail's ability to successfully offer its products and services and
implement its business plan in the rapidly evolving market for permission email
marketing services requires an effective planning and management process.
Yesmail continues to increase the scope of its operations and has grown its
headcount substantially. These factors have placed, and yesmail's anticipated
future operations will continue to place, a significant strain on its
management systems and resources. Yesmail expects that it will need to continue
to improve its operational and financial and managerial controls and reporting
systems and procedures, and will need to continue to expand, train and manage
its work force.
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Yesmail runs the risk of system failure that could adversely affect its
business.
The continuing and uninterrupted performance of yesmail's network is
critical to its success. Direct marketers may become dissatisfied by any
system failure that interrupts yesmail's ability to provide services to them,
including failures affecting yesmail's ability to deliver marketing messages
quickly and accurately to the targeted audience. Sustained or repeated system
failures would reduce significantly the attractiveness of yesmail's solutions
to its customers. Yesmail's business would suffer by any damage or failure
that interrupts or delays its operations.
Yesmail's operations depend on its ability to protect its computer systems
against damage from a variety of sources, including telecommunications
failures, malicious human acts and natural disasters. Substantially all of
yesmail's operations and computer systems are located at a single leased
facility in Vernon Hills, Illinois. The occurrence of any of the above factors
affecting yesmail's ability to maintain uninterrupted system performance would
harm its business. Despite network security measures, yesmail's servers are
vulnerable to computer viruses and disruptions from unauthorized tampering
with its computer systems. Yesmail does not carry business interruption
insurance to compensate for losses that may occur as a result of any of these
events. Despite precautions, unanticipated problems affecting yesmail's
systems could cause interruptions in the delivery of yesmail's solutions in
the future. Yesmail's data storage centers incorporate redundant systems,
consisting of additional servers, but the primary system does not switch over
to the backup system automatically.
In addition, if yesmail's products and services or its customers are
affected by problems associated with inaccurate calculations with respect to
the year 2000, or if yesmail experiences reduced sales as potential customers
divert resources to effect their own year 2000 compliance, yesmail's business
will suffer. For a further discussion of year 2000 issues, please see
yesmail's "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Readiness Disclosure" of this proxy
statement/prospectus.
If yesmail is unable to adequately protect its intellectual property,
yesmail's business will suffer.
Yesmail's ability to successfully compete is substantially dependent upon
its internally developed technology, which yesmail protects through a
combination of copyright, trade secret and trademark law. yesmail has no
issued patents or patent applications pending. However, yesmail may not be
able to adequately protect its proprietary rights which may harm its business.
Unauthorized parties may attempt to copy or otherwise obtain and use yesmail's
products or technology. Policing unauthorized use of yesmail's products is
difficult, and yesmail cannot be certain that the steps it has taken will
prevent misappropriation of its technology, particularly in foreign countries
where the laws may not protect its proprietary rights as fully as in the
United States.
Yesmail's proprietary technology may be subject to infringement claims
which could harm its business.
There is a substantial risk of litigation regarding intellectual property
rights in yesmail's industry. A successful claim of product infringement
against yesmail and its failure or inability to license the infringed or
similar technology could harm yesmail's business. From time to time, third
parties have asserted and may assert exclusive patent, copyright, trademark
and other intellectual property rights to technologies and related standards
that are important to yesmail. Yesmail expects that its products may be
increasingly subject to third party infringement claims as the number of
competitors grows. Yesmail cannot be certain that third parties will not make
future claims of infringement against it with respect to its products and
technology. Any claims, with or without merit, could:
. be time consuming to defend; . result in an injunction which
would prohibit yesmail from
offering a particular product or
. result in costly litigation; service; or
. require yesmail to enter into
. divert management's attention and royalty or licensing agreements.
resources;
. delay deliveries of products and
services;
. require the payment of monetary
damages which may be tripled if
the infringement is found to be
willful;
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Royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all.
Yesmail's business would suffer if it is unable to successfully integrate
acquisitions of other companies or subscriber lists.
From time to time, yesmail expects to evaluate opportunities to grow through
acquisitions of, or investments in, complementary companies, products or
technologies. If yesmail acquires a company, it could have difficulty in
assimilating that company's personnel, operations, products or technology. In
addition, the key personnel of the acquired company may decide not to work for
yesmail. If yesmail makes acquisitions of products or technology, it could have
difficulty in assimilating the acquired technology or products into its
operations. These difficulties could disrupt yesmail's ongoing business,
distract its management and employees and increase its expenses. Moreover,
yesmail's profitability may suffer because of acquisition-related costs or
amortization costs for acquired goodwill and other intangible assets.
Furthermore, yesmail may have to incur debt or issue equity securities to pay
for any future acquisitions, the issuance of which could be dilutive to yesmail
or its existing stockholders. If yesmail is unable to successfully address any
of these risks, yesmail's business could be harmed.
The loss of any of yesmail's executive officers or key personnel would
likely have an adverse effect on yesmail's business.
Yesmail needs to hire a significant number of additional sales, support,
marketing and product development personnel to expand its business. If yesmail
fails to attract qualified personnel or retain current employees, its revenues
may not increase and could decline. Competition for these individuals is
intense, and yesmail may not be able to attract, assimilate or retain
additional highly qualified personnel in the future. Yesmail's future success
also depends upon the continued service of its executive officers and other key
sales, marketing and support personnel. In addition, yesmail's products and
technologies are complex and they are substantially dependent upon the
continued service of its existing engineering personnel. Not all of yesmail's
officers or key employees are bound by an employment agreement. Yesmail's
relationships with these officers and key employees are at will. Moreover,
yesmail does not have "key person" life insurance policies covering any of its
employees.
The failure of third parties to adequately provide required services and
software could harm yesmail's business.
Yesmail's business is dependent on third parties for:
. providing access to the Internet; . product development; and
. supporting yesmail's operations; . subscriber list management.
. computer programming;
In the event yesmail's arrangements with these parties are terminated or
these third parties do not adequately provide required services according to
yesmail's schedule, cost and capability expectations, yesmail's business could
suffer.
In addition, yesmail licenses technology that is incorporated into its
products from third parties. Any interruption in the supply or support of any
licensed software could disrupt yesmail's operations and delay its sales,
unless and until yesmail can replace the functionality provided by this
licensed software. Because yesmail's products incorporate software developed
and maintained by third parties, it depends on these third parties to deliver
and support reliable products, enhance its current products, develop new
products on a timely and cost-effective basis and respond to emerging industry
standards and other technological changes.
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Privacy concerns with respect to yesmail's products and services could
negatively affect yesmail's business.
Yesmail's technology collects and utilizes data derived from user activity
in the yesmail network. Yesmail's network enables the use of personal profiles,
in addition to other mechanisms, to deliver targeted marketing materials, to
help compile demographic information and to limit the frequency with which an
advertisement is shown to the user. The effectiveness of yesmail's technology
and the success of yesmail's business could be limited by any reduction or
limitation in the use of personal profiles. These personal profiles contain
bits of information keyed to a specific server, file pathway or directory
location that is stored in the user's hard drive. Personal profiles are placed
on the user's hard drive without the user's knowledge or consent, but can be
removed by the user at any time through the modification of the user's browser
settings. In addition, currently available applications can be configured to
prevent personal profiles from being stored on their hard drive. Some
commentators, privacy advocates and governmental bodies have suggested limiting
or eliminating the use of personal profiles. In the event this occurs,
yesmail's business would likely suffer.
Government regulation and legal uncertainties of doing business on the
Internet could negatively impact yesmail's business.
Laws and regulations that apply to Internet communications, commerce and
advertising are becoming more prevalent. These regulations could affect the
cost of communicating on the Internet and negatively affect and demand for
yesmail's direct marketing solutions or otherwise harm yesmail's business.
Recently, the United States Congress enacted Internet legislation regarding
children's privacy, copyright and taxation. A number of other laws and
regulations may be adopted covering issues such as user privacy, pricing,
acceptable content, taxation and quality of products and services. This
legislation could hinder growth in the use of the Internet generally and
decrease the acceptance of the Internet as a communications, commercial and
direct marketing medium. In addition, the growing use of the Internet has
burdened the existing telecommunications infrastructure and has caused
interruptions in the telephone service. Telephone carriers have petitioned the
government to regulate and impose fees on Internet service providers and online
service providers in a manner similar to long distance carriers. The European
Union recently adopted a directive addressing data privacy that may result in
limits on the collection and use of user information.
The laws governing the Internet remain largely unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws including those governing intellectual property,
privacy, libel and taxation apply to the Internet and Internet advertising. In
addition, the growth and development of the market for Internet commerce may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on companies conducting
business over the Internet. Yesmail's business could suffer with the adoption
or modification of laws or regulations relating to the Internet, or the
application of existing laws to the Internet.
Yesmail may face claims for activities of its customers which could harm
yesmail's business.
Yesmail's customers' promotion of their products and services may not comply
with federal, state and local laws. A wide variety of laws and regulations
govern the content of advertisements and regulate the sale of products and
services. There is also uncertainty as to the application of these laws to the
emerging world of advertising on the Internet. Yesmail cannot predict whether
its role in facilitating these marketing activities would expose it to
liability under these laws. Yesmail may face civil or criminal liability for
unlawful advertising or other activities of yesmail's customers. If yesmail is
exposed to this kind of liability, it could be required to pay substantial
fines or penalties, redesign its business methods, discontinue some of its
services or otherwise expend resources to avoid liability. Any costs incurred
as a result of that liability or asserted liability could harm yesmail's
business.
21
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
CMGI and yesmail believe this proxy statement/prospectus and the documents
incorporated by reference herein contain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements are subject to risks and uncertainties and are based on the beliefs
and assumptions of management of CMGI and yesmail, based on information
currently available to each company's management. When we use words such as
"believes," "expects," "anticipates," "intends," "plans," "estimates,"
"should," "likely," "potential" or similar expressions, we are making forward-
looking statements. Forward-looking statements include the information
concerning possible or assumed future results of operations of CMGI or yesmail
set forth under:
. "Summary," "Selected Historical Condensed Consolidated and Unaudited Pro
Forma Financial Information," "Risk Factors," "The Merger--Background of the
Merger," "The Merger--CMGI's Reasons for the Merger," "The Merger--Yesmail's
Reasons for the Merger; Recommendation of the Yesmail Board of Directors,"
"The Merger--Opinion of Financial Advisor to Yesmail," "Unaudited Pro Forma
Condensed Combined Financial Statements," "Description of Yesmail's
Business" and "Yesmail Management's Discussion and Analysis of Financial
Condition and Results of Operations;" and
. "Business" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in CMGI's Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q incorporated by reference into this proxy
statement/prospectus.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder values
of CMGI and/or yesmail may differ materially from those expressed in the
forward-looking statements. Many of the factors that will determine these
results and values are beyond our ability to control or predict. Stockholders
are cautioned not to put undue reliance on any forward-looking statements. For
those statements, we claim the protection of the safe harbor for forward-
looking statements contained in the Private Securities Litigation Reform Act of
1995.
For a discussion of some of the factors that may cause actual results to
differ materially from those suggested by the forward-looking statements,
please read carefully the information under "Risk Factors" beginning on page 7.
In addition to the risk factors and other important factors discussed elsewhere
in the documents which are incorporated by reference into this proxy
statement/prospectus, you should understand that the following important
factors could affect the future results of CMGI and could cause results to
differ materially from those suggested by the forward-looking statements:
. changes in United States and
. increased competitive pressures, global financial and equity
both domestically and markets, including significant
internationally, including interest rate fluctuations, which
pressures that result from the may increase the cost of external
issuance of patents or other financing for CMGI's operations,
intellectual property to and currency fluctuations, which
competitors of CMGI, which may may negatively impact CMGI's
affect sales of CMGI's services reportable income;
and impede CMGI's ability to
maintain its market share and . changes in laws or regulations,
pricing goals; including increased government
regulation of the Internet and
. changes in United States, global privacy related issues, third
or regional economic conditions party relations and approvals,
which may affect sales of CMGI's decisions of courts, regulators
products and services and and governmental bodies which may
increase costs associated with adversely affect CMGI's business
distributing such products; or ability to compete;
. CMGI may encounter greater than . CMGI may be unable to retain
expected costs and difficulties certain customers of yesmail who
related to combining yesmail's may terminate their relationship
technology with the technology of with yesmail as a result of the
CMGI's current network of merger because they deem
Internet marketing and themselves competitors of CMGI;
advertising companies; and
22
<PAGE>
. other risks and uncertainties as
may be detailed from time to time
in CMGI's public announcements
and Securities and Exchange
Commission filings.
This list of factors that may affect future performance and the accuracy of
forward-looking statements is illustrative, but by no means exhaustive.
Accordingly, all forward-looking statements should be evaluated with the
understanding of their inherent uncertainty.
23
<PAGE>
SELECTED HISTORICAL CONDENSED CONSOLIDATED AND
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following tables present selected historical condensed consolidated
financial information, selected unaudited pro forma condensed combined
financial information and comparative per share data for CMGI and yesmail. This
information has been derived from their respective financial statements and
notes, certain of which are included or incorporated by reference in this proxy
statement/prospectus.
CMGI Selected Historical Condensed Consolidated Financial Information
(In thousands, except per share data)
The following selected historical condensed consolidated financial
information should be read in conjunction with CMGI's consolidated financial
statements and related notes and with CMGI's "Management's Discussion and
Analysis of Financial Condition and Results of Operations" which are
incorporated by reference in this proxy statement/prospectus. The consolidated
statement of operations information for each of the years in the five year
period ended July 31, 1999, and the three month periods ended October 31, 1999
and 1998 and the consolidated balance sheet data as of July 31, 1999, 1998,
1997, 1996 and 1995 and October 31, 1999 and 1998 have been derived from CMGI's
consolidated financial statements. Historical results are not necessarily
indicative of the results to be expected in the future. No cash dividends have
been declared or paid on CMGI common stock.
<TABLE>
<CAPTION>
Unaudited
Three months ended
Fiscal Year ended July 31, October 31
------------------------------------------------ -------------------
1999 1998 1997 1996 1995 1999 1998
--------- -------- -------- -------- ------- --------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data
Net revenues............ $ 175,666 $ 81,916 $ 60,056 $ 17,735 $11,091 $ 123,731 $ 37,405
Cost of revenues........ 168,830 72,740 34,866 11,215 7,259 108,173 35,543
Research and development
expenses............... 22,253 19,108 17,767 5,412 -- 20,188 5,308
In-process research and
development expenses... 6,061 10,325 1,312 2,691 -- -- --
Selling, general and
administrative
expenses............... 89,071 46,909 45,777 16,812 2,722 99,858 14,573
Amortization of
intangible assets and
stock-based
compensation........... 16,110 3,093 1,254 -- -- 170,039 2,109
--------- -------- -------- -------- ------- --------- --------
Operating income
(loss)................. (126,659) (70,259) (40,920) (18,395) 1,110 (274,527) (20,128)
Interest income
(expense), net......... 269 (870) 1,749 2,691 225 171 (509)
Gains on issuance of
stock by subsidiaries
and affiliates......... 130,729 46,285 -- 19,575 -- 46,368 44,506
Other gains, net........ 758,312 96,562 27,140 30,049 4,781 48,349 44,094
Other income (expense),
net.................... (13,406) (12,899) (769) (746) (292) 21,492 (3,258)
Income tax benefit
(expense).............. (325,402) (31,555) (2,034) (17,566) (2,113) 40,735 (26,316)
--------- -------- -------- -------- ------- --------- --------
Income (loss) from
continuing operations.. 423,843 27,264 (14,834) 15,608 3,711 (117,412) 38,389
Discontinued operations,
net of income tax...... 52,397 4,640 (7,193) (1,286) 24,504 -- (131)
--------- -------- -------- -------- ------- --------- --------
Net income (loss)....... 476,240 31,904 (22,027) 14,322 28,215 (117,412) 38,258
Preferred stock
accretion.............. (1,662) -- -- -- -- (4,935) --
--------- -------- -------- -------- ------- --------- --------
Net income (loss)
available to common
stockholders........... $ 474,578 $ 31,904 $(22,027) $ 14,322 $28,215 $(122,347) $ 38,258
========= ======== ======== ======== ======= ========= ========
Diluted earnings (loss)
per share:
Income (loss) from
continuing operations.. $ 2.05 $ 0.15 $ (0.10) $ 0.10 $ 0.03 $ (0.54) $ 0.19
Discontinued
operations............. 0.25 0.03 (0.05) (0.01) 0.16
--------- -------- -------- -------- ------- --------- --------
Net income (loss)....... $ 2.30 $ 0.18 $ (0.15) $ 0.09 $ 0.19 $ (0.54) $ 0.19
========= ======== ======== ======== ======= ========= ========
Shares used in computing
diluted earnings (loss)
per share.............. 206,832 180,120 150,864 154,912 150,436 226,372 199,728
========= ======== ======== ======== ======= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Unaudited
July 31, October 31,
--------------------------------------------- -------------------
1999 1998 1997 1996 1995 1999 1998
---------- -------- -------- -------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data
Working capital......... $1,381,005 $ 12,784 $ 38,554 $ 72,009 $47,729 $1,681,638 $ 36,295
Total assets............ 2,404,594 259,818 146,248 106,105 77,803 5,431,682 348,546
Long-term obligations... 34,867 5,801 16,754 514 415 264,796 5,483
Redeemable preferred
stock.................. 411,283 -- -- -- -- 413,511 --
Stockholders' equity.... 1,062,461 133,136 29,448 53,992 55,490 3,439,895 172,801
</TABLE>
24
<PAGE>
Yesmail Selected Historical Condensed Consolidated Financial Information
(In thousands, except per share data)
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data for the period from
April 7, 1995 through December 31, 1995 and the selected consolidated balance
sheet data as of December 31, 1995 have been derived from yesmail's unaudited
financial statements. The selected consolidated statement of operations data
set forth below for the periods from January 1, 1996 to December 31, 1998 and
the selected consolidated balance sheet data as of December 31, 1998 have been
derived from yesmail's audited financial statements included elsewhere in this
proxy statement/prospectus. The selected consolidated results of operations
data for the nine months ended September 30, 1998 and 1999 and the selected
consolidated balance sheet data as of June 30, 1998 and 1999 are derived from
unaudited consolidated financial statements included elsewhere in this proxy
statement/prospectus that have been prepared on the same basis as the audited
consolidated financial statements and, in the opinion of yesmail's management,
contain all adjustments, consisting only of normal recurring adjustments
necessary for the fair presentation of our consolidated operating results for
such periods and its financial condition as of such date. The historical
results are not necessarily indicative of results to be expected for any future
period. The data has been derived from financial statements that have been
prepared in accordance with generally accepted accounting principles and should
be read in conjunction with the Consolidated Financial Statements and the Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included on page 75 of this proxy statement/prospectus.
<TABLE>
<CAPTION>
Unaudited
Period from
inception Unaudited
(April 7, Nine months ended
1995) through Year ended December 31, September 30,
December 31, -------------------------------- --------------------
1995 1996 1997 1998 1998 1999
------------- --------- --------- ---------- ---------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................. $ 13 $ 935 $ 2,468 $ 4,583 $ 3,172 $ 7,467
Cost of revenues......... -- 293 1,090 2,703 1,925 5,302
------ --------- --------- ---------- --------- ---------
Gross profit............. 13 642 1,378 1,880 1,247 2,165
Operating expenses:
Sales and marketing
expenses................ -- 292 960 1,751 1,019 6,586
General and
administrative
expenses................ 26 237 466 929 578 2,830
Research and development
costs................... -- 198 357 601 399 2,360
Stock based
compensation............ -- -- -- -- -- 695
------ --------- --------- ---------- --------- ---------
Total operating
expenses............... 26 727 1,783 3,281 1,996 12,471
------ --------- --------- ---------- --------- ---------
Loss from operations....... (13) (85) (405) (1,401) (749) (10,306)
Interest expense......... -- (4) (18) (45) (26) (123)
Other income (expense)... -- -- -- (250) -- --
Minority interest........ -- 9 9 (10) (20) (34)
------ --------- --------- ---------- --------- ---------
Net loss................. $ (13) $ (80) $ (414) $ (1,706) $ (795) $ (10,463)
====== ========= ========= ========== ========= =========
Basic and diluted net
loss per share (1)...... $ 0.00 $ (0.01) $ (0.05) $ (0.22) $ (.14) $ (1.02)
====== ========= ========= ========== ========= =========
Shares used in computing
basic and diluted net
loss per share(1)....... 4,630 7,723 7,649 7,636 5,746 10,291
====== ========= ========= ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Unaudited
December 31, September 30,
---------------------------- ----------------
1995 1996 1997 1998 1998 1999
---- ---- ------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents...... $ 10 $ 9 $ 2 $ 26 $ 86 $34,780
Working capital (deficit)...... 4 (52) (448) (2,262) (1,160) 29,412
Total assets................... 27 200 284 643 550 39,654
Capital lease obligations, less
current portion............... 12 18 153 109 689
Stockholders' equity
(deficit)..................... (13) (38) (347) (2,053) (1,107) 30,767
</TABLE>
- --------
(1) Computed by dividing loss attributable to common stockholders by shares
used in basic and diluted net loss per share. See Note 3 of Notes to
Consolidated Financial Statements for an explanation of the determination
of the number of shares used in computing basic and diluted net loss per
share.
25
<PAGE>
Selected Unaudited Pro Forma Condensed Combined Financial Information
On August 18, 1999, CMGI acquired an 81.495% equity stake in the former
AltaVista division of Digital Equipment Corporation, referred to as the
AltaVista Business, from Compaq Computer Corporation and its wholly-owned
subsidiary, Digital Equipment Corporation. Consideration for the acquisition
was valued at approximately $2.4 billion, including $4 million of direct costs
of the acquisition. The AltaVista Business includes the assets and liabilities
constituting the AltaVista Internet search service, referred to as AltaVista
Search, which was a division of Digital, and also includes former
Compaq/Digital wholly-owned subsidiaries Zip2 Corporation and Shopping.com. In
consideration for the acquisition, CMGI issued 37,989,950 shares of its common
stock valued at approximately $1.8 billion, 18,090.45 shares of its Series D
Preferred Stock (which were converted into 3,618,090 shares of CMGI common
stock in October 1999) valued at approximately $173 million and promissory
notes with an aggregate principal amount of $220 million. Additionally,
AltaVista Business and CMGI stock options issued in the transaction, valued at
approximately $175 million and $4 million, respectively, have been included in
CMGI's purchase consideration.
On January 14, 2000, CMGI acquired Flycast Communications Corporation for
consideration approximately valued at $903 million, consisting of:
approximately 14.5 million shares of CMGI common stock valued at approximately
$711 million, options and warrants to purchase CMGI common stock valued at
approximately $171 million and direct acquisition costs of approximately $21
million. The acquisition related costs consist primarily of investment banker,
legal and accounting fees incurred by CMGI in the acquisition of Flycast. On
January 19th, CMGI announced that it had entered into a definitive agreement to
sell Flycast and Adsmart, also a majority-owned subsidiary of CMGI, to Engage
Technologies, Inc., a majority-owned subsidiary of CMGI. The transaction is
expected to close in May 2000. Upon consummation of this sale, a portion of the
net assets of both Flycast and AdSmart will be attributed to the minority
interests of Engage Technologies, Inc.'s outside shareholders.
On December 14, 1999, CMGI entered into the merger agreement with yesmail
for consideration preliminarily valued at $671 million, consisting of: CMGI
common stock valued at approximately $555 million, options and warrants to
purchase CMGI common stock valued at approximately $110 million and estimated
direct acquisition costs of $6 million. Since the acquisition has not yet been
completed, the actual consideration for the acquisition of yesmail can not yet
be determined. For the purpose of the pro forma financial information included
herein, the number of shares of CMGI common stock assumed issued in the
acquisition of yesmail is approximately 5.1 million. This amount is based on
the number of shares of yesmail common stock outstanding as of December 14,
1999, the date the parties entered into the merger agreement. Similarly, the
estimated value of the options and warrants to purchase CMGI common stock to be
issued in the acquisition of yesmail is based on the outstanding options and
warrants to purchase yesmail common stock as of December 14, 1999. The actual
number of CMGI common shares, stock options and warrants to be issued will be
based on the actual outstanding yesmail common shares, stock options and
warrants as of the completion of the merger. The estimated acquisition related
costs consist primarily of investment banker, legal and accounting fees to be
incurred by CMGI directly related to the acquisition of yesmail.
The following pro forma unaudited combined condensed financial statements
give effect to CMGI's acquisitions of the AltaVista Business, Flycast and
yesmail, each of which have been or will be accounted for under the purchase
method of accounting. The unaudited pro forma condensed combined statements of
operations for the three months ended October 31, 1999 and the year ended July
31, 1999 give effect to the acquisitions of the AltaVista Business, Flycast and
yesmail by CMGI as if each had occurred on August 1, 1998. The pro forma
statement of operations for the three months ended October 31, 1999 is based on
historical results of operations of CMGI for the three months ended October 31,
1999 (which include the results of the AltaVista Business from August 19, 1999
through October 31, 1999), the historical results of operations of Flycast and
yesmail for the three months ended September 30, 1999 and the historical
results of operations for the AltaVista Business for the period from August 1,
1999 through August 18, 1999. The pro forma statement of operations for the
twelve months ended July 31, 1999 is based on historical results of
26
<PAGE>
operations of CMGI for the twelve months ended July 31, 1999, the historical
results of operations of Flycast and yesmail for the twelve months ended June
30, 1999 and the historical results of operations of the components of the
AltaVista Business as follows: the carve-out historical results of AltaVista
Search and the historical results of Zip2 Corporation for the twelve months
ended June 30, 1999 and the historical results of Shopping.com for the twelve
months ended July 31, 1999. The unaudited pro forma condensed combined balance
sheet as of October 31, 1999 gives effect to the acquisitions of Flycast and
yesmail as if these transactions had occurred on that date. The pro forma
balance sheet is based on the historical balance sheet of CMGI as of October
31, 1999 and the historical balance sheets of Flycast and yesmail as of
September 30, 1999. The following pro forma financial information, consisting
of the pro forma statements of operations, the pro forma balance sheet and the
accompanying notes, should be read in conjunction with and are qualified by the
historical financial statements and notes of CMGI, which are incorporated by
reference in this pro forma financial information.
The pro forma financial information is presented for illustrative purposes
only and is not necessarily indicative of the future financial position or
future results of operations of the consolidated company after the acquisitions
of the AltaVista Business, Flycast and yesmail, or of the financial position or
results of operations of the consolidated company that would have actually
occurred had the acquisitions of the AltaVista Business, Flycast and yesmail
been effected as of the dates described above.
27
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
October 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma Pro Forma
Adjustments Adjustments As
CMGI Flycast (A) Subtotal yesmail (A) Adjusted
---------- ------- ----------- ---------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash and cash
equivalents............ $ 705,001 $14,221 $ -- $ 719,222 $34,780 $ -- $ 754,002
Available-for-sale
securities............. 1,776,641 57,195 -- 1,833,836 -- -- 1,833,836
Other current assets.... 145,132 13,338 -- 158,470 2,831 -- 161,301
---------- ------- -------- ---------- ------- -------- ----------
Total current assets.. 2,626,774 84,754 -- 2,711,528 37,611 -- 2,749,139
Goodwill and other
intangible assets, net
of accumulated
amortization........... 2,512,031 -- 854,199 3,366,230 413 649,234 4,015,877
Other non-current
assets................. 292,877 9,921 -- 302,798 1,630 -- 304,428
---------- ------- -------- ---------- ------- -------- ----------
Total assets.......... $5,431,682 $94,675 $854,199 $6,380,556 $39,654 $649,234 $7,069,444
========== ======= ======== ========== ======= ======== ==========
Liabilities and
stockholders' equity
Deferred income taxes... $ 587,029 $ -- $ -- $ 587,029 $ -- $ -- $ 587,029
Other current
liabilities............ 358,107 18,461 45,000 421,568 8,199 15,000 444,767
---------- ------- -------- ---------- ------- -------- ----------
Total current
liabilities............ 945,136 18,461 45,000 1,008,597 8,199 15,000 1,031,796
Non-current
liabilities............ 280,040 3,413 -- 283,453 689 -- 284,142
Minority interest....... 353,100 -- -- 353,100 -- -- 353,100
Convertible, redeemable
preferred stock........ 413,511 -- -- 413,511 -- -- 413,511
Stockholders' equity.... 3,439,895 72,801 809,199 4,321,895 30,766 634,234 4,986,895
---------- ------- -------- ---------- ------- -------- ----------
Total liabilities and
stockholders'
equity............... $5,431,682 $94,675 $854,199 $6,380,556 $39,654 $649,234 $7,069,444
========== ======= ======== ========== ======= ======== ==========
</TABLE>
28
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Three Months Ended October 31, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
AltaVista
Business
(August 1, 1999 Pro Forma
through Pro Forma Pro Forma As
CMGI August 18, 1999) Flycast Adjustments Subtotal yesmail Adjustments Adjusted
--------- ---------------- ------- ----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues........... $ 123,731 $ 7,198 $12,531 $ -- $ 143,460 $ 3,825 $ -- $ 147,285
Operating expenses:
Cost of revenues...... 108,173 4,104 8,592 -- 120,869 2,824 -- 123,693
Research and
development.......... 20,188 1,891 2,576 -- 24,655 937 -- 25,592
Selling............... 72,501 7,361 5,981 -- 85,843 3,485 -- 89,328
General and
administrative....... 27,357 2,400 2,481 -- 32,238 1,009 -- 33,247
Amortization of
intangible assets and
stock-based
compensation......... 170,039 30,117 365 26,337 (B) 282,126 521 54,100 (J) 336,747
71,183 (C)
(15,915)(D)
--------- -------- ------- -------- --------- ------- -------- ---------
Total operating
expenses............. 398,258 45,873 19,995 81,605 545,731 8,776 54,100 608,607
--------- -------- ------- -------- --------- ------- -------- ---------
Operating loss......... (274,527) (38,675) (7,464) (81,605) (402,271) (4,951) (54,100) (461,322)
Other income (expense):
Interest income
(expense), net....... 171 (35) (309) (1,139)(E) (1,312) (37) -- (1,349)
Equity in losses of
affiliates........... (1,796) -- -- (1,796) -- -- (1,796)
Minority interest..... 23,288 -- -- 4,298 (F) 27,586 -- -- 27,586
Non-operating gains,
net.................. 94,717 -- -- 94,717 -- -- 94,717
--------- -------- ------- -------- --------- ------- -------- ---------
116,380 (35) (309) 3,159 119,195 (37) -- 119,158
--------- -------- ------- -------- --------- ------- -------- ---------
Loss from continuing
operations before
income taxes.......... (158,147) (38,710) (7,773) (78,446) (283,076) (4,988) (54,100) (342,164)
Income tax benefit..... (40,735) -- -- (17,545)(G) (58,280) -- (1,563)(K) (59,843)
--------- -------- ------- -------- --------- ------- -------- ---------
Loss from continuing
operations............ (117,412) (38,710) (7,773) (60,901) (224,796) (4,988) (52,537) (282,321)
Preferred stock
accretion and
amortization of
discount.............. (4,935) -- -- -- (4,935) -- -- (4,935)
--------- -------- ------- -------- --------- ------- -------- ---------
Loss from continuing
operations available
to common
stockholders.......... $(122,347) $(38,710) $(7,773) $(60,901) $(229,731) $(4,988) $(52,537) $(287,256)
========= ======== ======= ======== ========= ======= ======== =========
Basic loss from
continuing operations
per share............ $ (0.54) $ (0.91)(I) $ (1.12)
========= ========= =========
Diluted loss from
continuing operations
per share............ $ (0.54) $ (0.91)(I) $ (1.12)
========= ========= =========
Shares used in
computing loss from
continuing operations
per share:
Basic................. 226,372 251,354 (I) 256,443 (L)
========= ========= =========
Diluted............... 226,372 251,354 (I) 256,443 (L)
========= ========= =========
</TABLE>
29
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Twelve Months Ended July 31, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
AltaVista Pro Forma Pro Forma Pro Forma
CMGI Business Flycast Adjustments Subtotal yesmail Adjustments As Adjusted
--------- --------- -------- ----------- ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues.......... $ 175,666 $ 97,838 $ 18,596 $ -- $ 292,100 $ 6,179 $ -- $ 298,279
Operating expenses:
Cost of revenues..... 168,830 64,155 12,901 -- 245,886 4,038 -- 249,924
Research and
development......... 22,253 27,105 4,760 -- 54,118 1,747 -- 55,865
In-process research
and development..... 6,061 -- -- -- 6,061 -- -- 6,061
Selling.............. 45,505 79,210 12,309 -- 137,024 4,175 -- 141,199
General and
administrative...... 43,566 31,823 3,540 -- 78,929 2,331 -- 81,260
Amortization of
intangible assets
and stock-based
compensation........ 16,110 171,925 1,786 682,337 (B) 1,146,199 211 216,549 (J) 1,362,959
284,733 (C)
(10,692)(D)
--------- --------- -------- --------- ----------- ------- --------- -----------
Total operating
expenses............ 302,325 374,218 35,296 956,378 1,668,217 12,502 216,549 1,897,268
--------- --------- -------- --------- ----------- ------- --------- -----------
Operating loss........ (126,659) (276,380) (16,700) (956,378) (1,376,117) (6,323) (216,549) (1,598,989)
Other income
(expense):
Interest income
(expense), net...... 269 (7,555) (39) (23,100)(E) (30,425) (133) -- (30,558)
Equity in losses of
affiliates.......... (15,737) -- -- (15,737) -- -- (15,737)
Minority interest.... 2,331 -- -- 76,698 (F) 79,029 (35) -- 78,994
Non-operating gains,
net................. 889,041 -- -- 889,041 (230) -- 888,811
--------- --------- -------- --------- ----------- ------- --------- -----------
875,904 (7,555) (39) 53,598 921,908 (398) -- 921,510
--------- --------- -------- --------- ----------- ------- --------- -----------
Income (loss) from
continuing operations
before income taxes.. 749,245 (283,935) (16,739) (902,780) (454,209) (6,721) (216,549) (677,479)
Income tax expense
(benefit)............ 325,402 -- 2 (295,352)(G) 30,052 -- (2,279)(K) 27,773
--------- --------- -------- --------- ----------- ------- --------- -----------
Income (loss) from
continuing
operations........... 423,843 (283,935) (16,741) (607,428) (484,261) (6,721) (214,270) (705,252)
Preferred stock
accretion............ (1,662) -- (998) 998 (H) (1,662) -- -- (1,662)
--------- --------- -------- --------- ----------- ------- --------- -----------
Income (loss) from
continuing operations
available to common
stockholders......... $ 422,181 $(283,935) $(17,739) $(606,430) $ (485,923) $(6,721) $(214,270) $ (706,914)
========= ========= ======== ========= =========== ======= ========= ===========
Basic earnings (loss)
from continuing
operations per
share............... $ 2.26 $ (2.01)(I) $ (2.86)(L)
========= =========== ===========
Diluted earnings
(loss) from
continuing
operations per
share............... $ 2.05 $ (2.01)(I) $ (2.86)(L)
========= =========== ===========
Shares used in
computing earnings
(loss) from
continuing operations
per share:
Basic................ 186,532 241,938 (I) 247,027 (L)
========= =========== ===========
Diluted.............. 206,832 241,938 (I) 247,027 (L)
========= =========== ===========
</TABLE>
30
<PAGE>
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
(1) Pro Forma Adjustments and Assumptions
(A) CMGI completed its acquisition of an 81.495% equity stake in the
AltaVista Business for consideration valued at approximately $2.4 billion on
August 18, 1999. Accordingly, the assets and liabilities of the AltaVista
Business are included in CMGI's consolidated balance sheet as of October 31,
1999 and no pro forma adjustments are necessary to the pro forma balance sheet
related to the acquisition of the AltaVista Business. The following represents
the allocation of the purchase price for CMGI's acquisition of the AltaVista
Business over 81.495% of the fair values of the acquired assets and assumed
liabilities of the AltaVista Business as of August 18, 1999:
<TABLE>
<S> <C>
(in thousands)
Working capital deficit, including cash acquired............. $ (39,604)
Other non-current assets..................................... 62,979
Non-current liabilities...................................... (2,733)
Goodwill and other intangible assets......................... 2,368,129
----------
Purchase price............................................... $2,388,771
==========
</TABLE>
The purchase price allocation for the acquisition of the AltaVista Business
is preliminary and is subject to adjustment upon finalization of the purchase
accounting.
The pro forma financial information also reflects the acquisition of Flycast
for consideration approximately valued at $903 million.
The pro forma financial information also reflects the pending acquisition of
yesmail for consideration preliminarily valued at $671 million. Since the
acquisition has not yet been completed, the actual consideration for the
acquisition of yesmail can not yet be determined. For the purpose of the pro
forma financial information, the number of shares of CMGI common stock assumed
issued in the acquisition of yesmail is approximately 5.1 million. This amount
is based on the number of shares of yesmail common stock outstanding as of
December 14, 1999, the date the parties entered into the merger agreement.
Similarly, the estimated value of the options to purchase CMGI common stock to
be issued in the acquisition of yesmail is based on the outstanding options to
purchase yesmail common stock as of December 14, 1999. The actual number of
CMGI common shares, stock options and warrants to be issued will be based on
the actual outstanding yesmail common shares, stock options and warrants as of
the completion of the merger. The estimated acquisition related costs consist
primarily of investment banker, legal and accounting fees to be incurred
directly related to the acquisition of yesmail.
31
<PAGE>
The following represents the allocation of the purchase price for CMGI's
acquisition of Flycast and the allocation of the estimated purchase price for
CMGI's pending acquisition of yesmail over the historical net book values of
the acquired assets and assumed liabilities of Flycast and yesmail as of the
date of the pro forma balance sheet, and is for illustrative purposes only. The
actual purchase price allocations will be based on fair values of the acquired
assets and assumed liabilities as of the actual acquisition dates. Assuming the
transactions occurred on October 31, 1999, the allocations for the acquisition
of Flycast and yesmail would have been as follows:
<TABLE>
<CAPTION>
Flycast yesmail
(in thousands) -------- --------
<S> <C> <C>
Working capital, including cash acquired.............. $ 42,293 $ 20,412
Other non-current assets.............................. 9,921 1,630
Non-current liabilities............................... (3,413) (689)
Goodwill and other intangible assets.................. 854,199 649,647
-------- --------
Purchase price........................................ $903,000 $671,000
======== ========
</TABLE>
The pro forma adjustments reconcile the historical balance sheets of Flycast
and yesmail to the allocated purchase prices above and includes the accrual of
approximately $21.0 million and $6.0 million of estimated acquisition costs
incurred by CMGI related to the acquisitions of Flycast and yesmail,
respectively. Flycast working capital, including cash acquired, of $42.3
million is equal to the historical balance sheet amount less a pro forma
accrual of $24 million, representing the acquisition costs incurred directly by
Flycast. Yesmail working capital, including cash acquired, of $20.4 million is
equal to the historical balance sheet amount less a pro forma accrual of $9
million, representing the acquisition costs estimated to be incurred directly
by yesmail.
(B) The pro forma adjustments include an incremental $38.2 million and
$789.4 million in amortization of goodwill and other intangible assets (per the
allocation in "(A)" above) that would have been recorded during the three
months ended October 31, 1999 and the twelve months ended July 31, 1999 related
to the acquisition of the AltaVista Business. The amounts identified as
goodwill and other intangible assets in CMGI's acquisition of the AltaVista
Business are being amortized on a straight-line basis over a three-year period.
The adjustment amounts also include a net reduction of $11.9 million and $107.0
million in amortization of goodwill and other intangible assets for the three
months ended October 31, 1999 and the twelve months ended July 31, 1999,
respectively. These amounts relate to the reduction in historical amortization
expense to reflect only the 18.505% carry-over basis in the historical goodwill
and other intangible assets of the AltaVista Business. The historical financial
statements of the AltaVista Business represented in the pro forma statement of
operations include amortization of goodwill and other intangible assets
relating to Compaq's acquisition of Digital in June 1998 and Compaq/Digital's
acquisitions of Shopping.com and Zip2 Corporation in January 1999 and April
1999, respectively.
(C) The pro forma adjustments represent amortization of goodwill and other
intangible assets (per the allocation in "(A)" above) that would have been
recorded during the periods covered by the pro forma statements of operations
related to the acquisition of Flycast.
The pro forma adjustments are based on the assumption that the entire
amounts identified as goodwill and other intangible assets in CMGI's
acquisition of Flycast will be amortized on a straight-line basis over a three-
year period. The purchase price accounting, including the valuation of
intangible assets, is preliminary and is subject to adjustment upon
finalization of the purchase accounting. When the purchase accounting is
completed, certain amounts identified as intangible assets may be amortized
over periods other than the three-year period represented in the pro forma
statement of operations. Additionally, a portion of the purchase price may be
identified as in-process research and development. This amount, if any, will be
charged to operating results in CMGI's fiscal year 2000 financial statements
when the purchase accounting and valuation amounts are finalized. The pro forma
statements of operations do not give effect to any potential in-process
research and development charge related to the acquisition of Flycast.
(D) The pro forma adjustments relate to stock-based compensation charges
recorded in the historical financial statements of the AltaVista Business and
Flycast. The value of the stock options to which these
32
<PAGE>
charges related are included in the calculation of the purchase consideration.
Accordingly, on a pro forma basis, these expenses have been eliminated.
(E) The pro forma adjustments reflect the incremental interest expense that
would have been recorded by CMGI related to the $220 million of aggregate
principal amounts of notes payable issued in the acquisition of the AltaVista
Business. The notes bear interest at an annual rate of 10.5%.
(F) The pro forma adjustment reflects the 18.505% minority interest in the
results of operations of the AltaVista Business assuming that CMGI's
acquisition of 81.495% of the AltaVista Business occurred on August 1, 1998.
(G) The pro forma adjustments reflect the income tax benefit that would
have been recorded by CMGI in its consolidated statements of operations related
to the AltaVista Business' and Flycast's historical losses for the comparable
periods presented and the income tax effect, if any, of the other pre-tax pro
forma adjustments. The pro forma adjustments assume that CMGI would recognize a
federal tax benefit for the amortization of goodwill and other intangible
assets related to the acquisition of the AltaVista Business, but would not
recognize a federal tax benefit for the amortization of goodwill and other
intangible assets related to the acquisition of Flycast. The pro forma
adjustments also assume that CMGI would record a valuation allowance for all
state tax benefits associated with the AltaVista Business and Flycast. Actual
effective tax rates may differ from pro forma rates reflected in this pro forma
financial information.
(H) The pro forma adjustment reflects the elimination of preferred stock
accretion recorded in Flycast's historical financial statements. Assuming the
acquisition of Flycast occurred on August 1, 1998, the preferred stock, to
which this accretion relates, would not have been outstanding during the period
covered by the pro forma statement of operations.
(I) Since the pro forma statements of operations each result in a loss from
continuing operations, the pro forma basic and diluted loss from continuing
operations per common share are computed by dividing the loss from continuing
operations available to common stockholders by the weighted average number of
common shares outstanding. The calculations of the weighted average number of
common shares outstanding assume that the 37,889,950 shares of CMGI's common
stock issued in the acquisition of the AltaVista Business and the 14.5 million
shares of CMGI's common stock issued in the acquisition of Flycast were
outstanding for the entire period. The calculations of the weighted average
number of common shares outstanding also assume that the 18,090.45 shares of
CMGI's Series D preferred stock were converted into 3,618,090 shares of CMGI
common stock on October 11, 1998 (the 71st day after the assumed acquisition
date of August 1, 1998) and that such common shares were outstanding for the
entire period thereafter. The Series D preferred shares were converted into
common stock on October 28, 1999 (the 71st day after the actual acquisition
date of August 18, 1999).
(J) The pro forma adjustments represent amortization of goodwill and other
intangible assets (per the allocation in "(A)" above) that would have been
recorded during the periods covered by the pro forma statements of operations
related to the acquisition of yesmail.
The pro forma adjustments are based on the assumption that the entire
amounts identified as goodwill and other intangible assets in CMGI's
acquisition of yesmail will be amortized on a straight-line basis over a three-
year period. The valuation of the actual intangible assets will not be
completed until the acquisition of yesmail is complete. When completed, certain
amounts identified as intangible assets may be amortized over periods other
than the three-year period represented in the pro forma statement of
operations. Additionally, a portion of the purchase price may be identified as
in-process research and development. This amount, if any, will be charged to
operating results in CMGI's fiscal year 2000 financial statements when the
acquisition accounting and valuation amounts are finalized. The pro forma
statements of operations do not give effect to any potential in-process
research and development charge related to the acquisition of yesmail.
(K) The pro forma adjustments reflect the income tax benefit that would
have been recorded by CMGI in its consolidated statements of operations related
to yesmail's historical loss for the comparable periods presented and the
income tax effect, if any, of the other pre-tax pro forma adjustments. The pro
forma
33
<PAGE>
adjustments assume that CMGI would not recognize a federal tax benefit for the
amortization of goodwill and other intangible assets related to the acquisition
of yesmail. The pro forma adjustments also assume that CMGI would record a
valuation allowance for all state tax benefits associated with yesmail. Actual
effective tax rates may differ from pro forma rates reflected in this pro forma
financial information.
(L) Since the pro forma statements of operations each result in a loss from
continuing operations, the pro forma basic and diluted loss from continuing
operations per common share are computed by dividing the loss from continuing
operations available to common stockholders by the weighted average number of
common shares outstanding. The calculations of the weighted average number of
common shares outstanding assume that the 37,889,950 shares of CMGI's common
stock issued in the acquisition of the AltaVista Business, the 14.5 million
shares issued in the acquisition of Flycast and the 5.1 million shares of
CMGI's common stock estimated to be issued in the acquisition of yesmail, were
outstanding for the entire period. The calculations of the weighted average
number of common shares outstanding also assume that the 18,090.45 shares of
CMGI's Series D preferred stock were converted into 3,618,090 shares of CMGI
common stock on October 11, 1998 (the 71st day after the assumed acquisition
date of August 1, 1998) and that such common shares were outstanding for the
entire period thereafter. The Series D preferred shares were converted into
common stock on October 28, 1999 (the 71st day after the actual acquisition
date of August 18, 1999).
CMGI and yesmail
Selected Unaudited Pro Forma Condensed Combined Financial Information
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
October 31, 1999 July 31, 1999
---------------- -------------
<S> <C> <C>
Pro Forma Condensed Combined Statement of
Operations Data:
Net revenue.................................... $ 147,285 $ 298,279
Operating loss................................. (461,322) (1,598,989)
Loss from continuing operations available to
common stockholders........................... (287,256) (706,914)
Loss from continuing operations per share--
basic and diluted............................. (1.12) (2.86)
</TABLE>
<TABLE>
<CAPTION>
October 31, 1999
----------------
<S> <C>
Pro Forma Condensed Combined Balance Sheet Data:
Working capital.............................................. $1,717,343
Total assets................................................. 7,069,444
Long-term obligations and convertible, redeemable preferred
stock....................................................... 678,996
Stockholders' equity......................................... 4,986,895
</TABLE>
34
<PAGE>
COMPARATIVE PER SHARE DATA
The following table summarizes certain unaudited per share information for
CMGI and yesmail on a historical, pro forma combined and equivalent pro forma
combined basis. The following information should be read in conjunction with
the audited consolidated financial statements of CMGI and yesmail, the
unaudited interim consolidated financial statements of CMGI and yesmail, the
selected historical condensed consolidated financial data and the unaudited pro
forma condensed combined financial information included elsewhere or
incorporated by reference herein, including the forms 8-K and 8-K/A filed by
CMGI related to its August 18, 1999 acquisition of Alta Vista and its January
14, 2000 acquisition of Flycast. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the acquisitions of
Alta Vista, Flycast and yesmail had been consummated as of the beginning of the
respective periods presented, nor is it necessarily indicative of the future
operating results or financial position of the combined companies. The
historical book value per share is computed by dividing total stockholders'
equity by the number of common shares outstanding at the end of the period. The
pro forma per share loss from continuing operations is computed by dividing the
pro forma loss from continuing operations by the pro forma weighted average
number of shares outstanding. The pro forma combined book value per share is
computed by dividing total pro forma stockholders' equity by the pro forma
number of common shares outstanding at the end of the period. The yesmail
equivalent pro forma combined per share amounts are calculated by multiplying
the CMGI pro forma combined per share amounts by the common stock exchange
ratio of 0.2504.
<TABLE>
<CAPTION>
Three months
Year ended ended
July 31, 1999 October 31, 1999
------------- ----------------
CMGI
- ----
<S> <C> <C>
Historical Per Common Share Data:
Income from continuing operations--basic....... $ 2.26 $(0.54)
Income from continuing operations--diluted..... 2.05 (0.54)
Book value..................................... 5.56 14.50
Pro Forma Combined Per Common Share Data:
Loss from continuing operations--basic and
diluted....................................... $(2.86) $(1.12)
Book value..................................... 19.41
<CAPTION>
Yesmail
- -------
<S> <C> <C>
Historical Per Common Share Data:
Loss from continuing operations--basic and
diluted....................................... $(0.65) $(0.25)
Book value..................................... 0.07 1.48
Equivalent Pro Forma Combined Per Common Share
Data:
Loss from continuing operations--basic and
diluted....................................... $(0.72) $(0.28)
Book value..................................... 4.86
</TABLE>
35
<PAGE>
MARKET PRICE INFORMATION
CMGI Market Price Information
CMGI common stock has traded on the Nasdaq National Market under the symbol
"CMGI" since January 25, 1994.
The table below sets forth, for the periods indicated, the high and low sale
prices of CMGI common stock as reported on the Nasdaq National Market, as
adjusted for 2-for-1 stock splits effected on each of May 11, 1998, January 11,
1999, May 27, 1999 and January 11, 2000.
<TABLE>
<CAPTION>
CMGI
Common Stock
--------------
High Low
------- ------
<S> <C> <C>
Fiscal 1998
Quarter ended October 31, 1997.................................. $ 1.78 $ 0.92
Quarter ended January 31, 1998.................................. $ 2.32 $ 1.20
Quarter ended April 30, 1998.................................... $ 6.72 $ 2.29
Quarter ended July 31, 1998..................................... $ 11.47 $ 4.16
Fiscal 1999
Quarter ended October 31, 1998.................................. $ 11.25 $ 4.32
Quarter ended January 31, 1999.................................. $ 38.75 $ 7.27
Quarter ended April 30, 1999.................................... $ 82.50 $20.50
Quarter ended July 31, 1999..................................... $ 64.60 $35.75
Fiscal 2000
Quarter ended October 31, 1999.................................. $ 57.60 $33.13
Quarter ending January 31, 2000 (through January 28, 2000)...... $163.50 $50.63
</TABLE>
Yesmail Market Price Information
Yesmail common stock has traded on the Nasdaq National Market under the
symbol "YESM" since September 23, 1999, the date of yesmail's initial public
offering.
The table below sets forth, for the periods indicated, the high and low sale
prices per share of yesmail common stock as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
Yesmail
Common Stock
-------------
High Low
------ ------
<S> <C> <C>
Fiscal 1999
Quarter ended September 30, 1999................................. $19.63 $10.38
Quarter ending December 31, 1999................................. $34.38 $ 9.75
Fiscal 2000
Quarter ending March 31, 2000 (through January 28, 2000)......... $39.75 $25.88
</TABLE>
36
<PAGE>
Recent Closing Prices
The following table sets forth the closing prices per share of CMGI common
stock and yesmail common stock as reported on the Nasdaq National Market on (1)
December 14, 1999, the last full trading day prior to the public announcement
that CMGI and yesmail had entered into the merger agreement, and (2) February
1, 2000, the most recent practicable date prior to the printing of this proxy
statement/prospectus. This table also sets forth the equivalent price per share
of yesmail common stock on those dates. The equivalent price per share is equal
to the closing price of a share of CMGI common stock on that date multiplied by
0.2504, the number of shares of CMGI common stock to be issued in the merger in
exchange for each share of yesmail common stock.
<TABLE>
<CAPTION>
CMGI Yesmail Equivalent
Common Common per
Date Stock Stock Share Price
- ---- ------- ------- -----------
<S> <C> <C> <C>
December 14, 1999................................... $102.88 $21.00 $25.76
February 1, 2000.................................... $115.48 $28.38 $28.92
</TABLE>
Yesmail and CMGI believe that yesmail common stock presently trades on the
basis of the value of CMGI common stock expected to be issued in exchange for
the yesmail common stock in the merger, discounted primarily for the
uncertainties associated with the merger.
Yesmail stockholders are advised to obtain current market quotations for
CMGI common stock and yesmail common stock. No assurance can be given as to the
market prices of CMGI common stock or yesmail common stock at any time before
the consummation of the merger or as to the market price of CMGI common stock
at any time after the merger. Because the exchange ratio is fixed, the exchange
ratio will not be adjusted to compensate yesmail stockholders for decreases in
the market price of CMGI common stock which could occur before the merger
becomes effective. In the event the market price of CMGI common stock decreases
or increases prior to the consummation of the merger, the value of the CMGI
common stock to be received in the merger in exchange for yesmail common stock
would correspondingly decrease or increase.
Dividends
CMGI has never declared or paid cash dividends on its common stock. CMGI
currently intends to retain earnings, if any, to support its growth strategy
and does not anticipate paying cash dividends in the foreseeable future.
Payment of future dividends, if any, will be at the discretion of the CMGI
board of directors after taking into account various factors, including CMGI's
financial condition, operating results, current and anticipated cash needs and
plans for expansion.
Yesmail has never declared or paid cash dividends on its common stock.
Yesmail currently intends to retain all available funds and any future earnings
for use in the operation of its business and does not anticipate declaring or
paying any cash dividends for the foreseeable future.
37
<PAGE>
THE SPECIAL MEETING
We are furnishing this proxy statement/prospectus to holders of yesmail
common stock in connection with the solicitation of proxies by the yesmail
board of directors for use at the special meeting of yesmail stockholders to be
held on March 10, 2000, and any adjournment of the meeting.
This proxy statement/prospectus is first being mailed to yesmail
stockholders on or about February 4, 2000. This proxy statement/prospectus is
also furnished to yesmail stockholders as a prospectus in connection with the
issuance by CMGI of shares of CMGI common stock as contemplated by the merger
agreement.
Date, Time and Place
The special meeting will be held on March 10, 2000 at 10:00 a.m., local
time, at the Hyatt Deerfield Hotel, 1750 Lake Cook Road, Deerfield, Illinois
60015.
Matters to be Considered at the Special Meeting
At the special meeting of yesmail stockholders, and any adjournment of the
special meeting, yesmail stockholders will be asked:
. to consider and vote upon a proposal to approve and adopt the agreement and
plan of merger and reorganization, dated as of December 14, 1999, by and
among CMGI, Mars Acquisition, Inc. and yesmail, and their merger, under
which yesmail will become a wholly owned subsidiary of CMGI and each
outstanding share of yesmail common stock will be converted into the right
to receive 0.2504 shares of CMGI common stock; and
. to transact such other matters which may properly come before the special
meeting or any and all adjournment(s) thereof.
Record Date
Only stockholders of record of yesmail common stock at the close of business
on January 27, 2000 are entitled to notice of and to vote at the special
meeting.
Voting and Revocation of Proxies
We request that yesmail stockholders complete, date and sign the
accompanying proxy and promptly return it in the accompanying postage-paid
envelope to LaSalle Bank National Bank Association, Attention: Mark F. Rimkus,
or otherwise mail it to them at 135 S. LaSalle St. Rm. 1960, Chicago, IL 60603.
Brokers holding shares in "street name" may vote the shares only if the
beneficial stockholder provides instructions on how to vote. Brokers will
provide beneficial owners instructions on how to direct the brokers to vote the
shares. All properly executed proxies that yesmail receives prior to the vote
at the special meeting, and that are not revoked, will be voted in accordance
with the instructions indicated on the proxies. If no direction is indicated,
the proxies will be voted to approve the merger agreement and the merger. The
yesmail board of directors does not currently intend to bring any other
business before the special meeting and, so far as the yesmail board of
directors knows, no other matters are to be brought before the special meeting.
If other business properly comes before the special meeting or any adjournment,
the proxies will vote in accordance with yesmail's management's own judgment.
Yesmail stockholders may revoke their proxies at any time prior to its use:
. by delivering to the secretary of yesmail a signed notice of revocation or a
later-dated, signed proxy; or
. by attending the special meeting and voting in person.
Attendance at the special meeting is not sufficient to revoke a proxy.
38
<PAGE>
Vote Required
As of the close of business on January 27, 2000, the record date, there were
20,400,756 shares of yesmail common stock outstanding and entitled to vote. As
of the close of business on the record date, there were approximately 125
stockholders of record. The holders of a majority of the outstanding shares of
yesmail common stock must approve the merger agreement and the merger. Yesmail
stockholders have one vote per share of yesmail common stock owned on the
record date.
As of January 27, 2000, the directors and officers of yesmail and their
affiliates beneficially owned an aggregate of 7,651,042 shares of yesmail
common stock (excluding any shares issuable upon the exercise of options or
warrants) or approximately 37.6% of the shares of yesmail common stock
outstanding on that date. Certain directors, officers and their affiliates,
holding an aggregate of 7,849,061 shares of yesmail common stock, have agreed
to vote their shares in favor of the merger. See "The Merger--Interests of
Executive Officers and Directors of yesmail in the Merger" on page 51.
Quorum; Abstentions and Broker Non-Votes
The required quorum for the transaction of business at the special meeting
is a majority of the shares of yesmail common stock issued and outstanding on
the record date. Abstentions and broker non-votes each will be included in
determining the number of shares present and voting at the meeting for the
purpose of determining the presence of a quorum. Because approval of the merger
agreement and the consummation of the merger requires the affirmative vote of a
majority of the outstanding shares of yesmail common stock entitled to vote,
abstentions and broker non-votes will have the same effect as votes against the
merger agreement and the consummation of the merger. In addition, the failure
of a yesmail stockholder to return a proxy or vote in person will have the
effect of a vote against the approval of the merger agreement and the merger.
Brokers holding shares for beneficial owners cannot vote on the actions
proposed in this proxy statement/prospectus without the beneficial owners'
specific instructions. Accordingly, yesmail stockholders are urged to return
the enclosed proxy card marked to indicate their vote.
You Do Not Have Appraisal Rights
Holders of yesmail common stock are not entitled to appraisal rights with
respect to the merger.
Solicitation of Proxies and Expenses
In addition to solicitation by mail, the directors, officers and employees
of yesmail may solicit proxies from yesmail stockholders by telephone,
facsimile, email or in person. Brokerage houses, nominees, fiduciaries and
other custodians will be requested to forward proxy materials to beneficial
owners and will be reimbursed for their reasonable expenses incurred in sending
the proxy materials to beneficial owners. Yesmail will bear its own expenses in
connection with the solicitation of proxies for its special meeting of
stockholders, except that CMGI and yesmail each will pay one-half of all
printing and filing costs, fees and expenses, other than attorneys' fees,
incurred in connection with the registration statement, of which this proxy
statement/prospectus is a part.
Board Recommendation
The yesmail board of directors has determined that the merger agreement and
the merger are fair to, and in the best interests of, yesmail and its
stockholders. Accordingly, the yesmail board of directors has unanimously
approved the merger agreement and has unanimously recommended that the yesmail
stockholders vote for approval of the merger agreement and the merger. In
considering the recommendation of the yesmail board of directors, yesmail
stockholders should be aware that yesmail's directors and officers have
interests in the merger that are different from, or in addition to, those of
yesmail's other stockholders, and that CMGI has agreed to provide employment,
severance and/or indemnification arrangements to the directors and senior
officers of yesmail. See "The Merger--Interests of Executive Officers and
Directors of Yesmail in the Merger" on page 51.
39
<PAGE>
The matters to be considered at the special meeting are of great importance
to yesmail stockholders. Accordingly, yesmail stockholders are urged to read
and carefully consider the information presented in this proxy
statement/prospectus, and to complete, date, sign and promptly return the
enclosed proxy in the enclosed postage-paid envelope.
Yesmail stockholders should not send any stock certificates with their proxy
cards. A transmittal form with instructions for the surrender of yesmail common
stock certificates will be mailed to yesmail stockholders promptly after
completion of the merger. For more information regarding the procedures for
exchanging yesmail stock certificates for CMGI stock certificates, see "The
Merger Agreement--Exchange of Certificates" on page 57.
40
<PAGE>
THE MERGER
Background of the Merger
In early November 1999, David M. Tolmie, chief executive officer and
president of yesmail, and David B. Menzel, chief financial officer and vice
president, finance and administration of yesmail, met with representatives of
another internet advertising company to discuss possible reseller strategies
and relationships relative to their respective email businesses. These
discussions eventually led to consideration of the possibility of a merger of
yesmail and the other company.
On November 24, 1999, yesmail retained Deutsche Bank Securities, Inc. to act
as yesmail's financial advisor. During November and December 1999, executives
of yesmail continued discussions with this other party.
On December 3, 1999, Messrs. Tolmie and Menzel met with representatives of
CMGI to discuss a potential business combination. At this meeting, the parties
provided overviews of their companies and discussed mutual opportunities for
working together, including a possible acquisition of yesmail by CMGI. As a
result of the meeting, the parties agreed to continue discussions, schedule due
diligence regarding a potential transaction and entered into a mutual
confidentiality agreement.
On December 7, 1999, yesmail's executive management, a representative of
Deutsche Bank and representatives of Wilson Sonsini Goodrich & Rosati, counsel
to yesmail, met with representatives of the other company that had indicated
its interest in a possible acquisition of yesmail and with representatives of
such party's financial advisor. The purpose of this meeting was to conduct due
diligence and to discuss the respective parties' operations, technology and
business plans.
On December 8, 1999, yesmail's executive management team, a representative
of Deutsche Bank and representatives of Wilson Sonsini Goodrich & Rosati met
with representatives of CMGI and Goldman Sachs & Co., financial advisor to
CMGI. The purpose of this meeting was to conduct due diligence and to discuss
the parties' respective operations, technology and business plans.
On December 9, 1999, yesmail received an offer from the other interested
suitor to acquire yesmail. CMGI continued to express interest in acquiring
yesmail.
On December 9 and December 10, 1999, representatives of Hale and Dorr LLP,
legal counsel to CMGI, and KPMG, independent accountants for CMGI, conducted
detailed financial and legal due diligence regarding yesmail with
representatives of yesmail and Wilson Sonsini Goodrich & Rosati.
On December 10, 1999, yesmail received a verbal offer from CMGI to acquire
yesmail, subject to CMGI's completion of its due diligence review and the
approval of its board of directors. Discussions regarding the CMGI proposal
continued between executives of yesmail and CMGI and their respective financial
advisors over the next several days.
On December 10, 1999, the yesmail board of directors held a special meeting
to review discussions held with CMGI and the other company regarding the
possible acquisition of yesmail. Mr. Tolmie summarized the interactions with
the interested suitors. Legal counsel reviewed and commented upon the duties of
the board of directors in the context of a potential acquisition of yesmail.
Deutsche Bank described each suitor and presented financial analyses of
hypothetical combinations of yesmail with each suitor and its analysis of the
potential strategic effects of each such combination. Legal counsel advised the
yesmail board of directors on their responsibilities as board members with
regard to both the interests of yesmail stockholders and yesmail's long term
business strategy and answered questions regarding the acquisition process and
their fiduciary duties to yesmail stockholders. The yesmail board of directors
also considered that both CMGI and the other suitor were insisting upon a lock-
up arrangement as a condition to further negotiations. In particular, the
yesmail board of directors discussed the lock-up letter with CMGI by which
yesmail would agree that it would negotiate exclusively with CMGI until
December 25, 1999.
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On December 11 and 12, 1999, several discussions took place among
representatives of yesmail, Deutsche Bank and Goldman Sachs with respect to the
financial terms of an acquisition of yesmail by CMGI.
On December 12, 1999, the yesmail board of directors held another special
meeting. At the meeting, the yesmail board of directors discussed the economic
terms of the acquisition proposal from CMGI. Deutsche Bank outlined the
financial terms of the CMGI proposal and reviewed with the board CMGI's
organizational structure and its businesses. The board also received a report
on the due diligence review of CMGI that had been conducted.
On December 12, 1999, CMGI's legal counsel delivered draft merger agreement
documents to the CMGI board of directors. That evening the CMGI board of
directors held a special meeting to consider the proposed merger and the
related merger agreement and ancillary documents. Representatives of CMGI and
Goldman Sachs summarized their due diligence review, presented an analysis of
the valuation of yesmail and commented further on the potential synergies to be
realized by CMGI as a result of the proposed merger with yesmail. After an
extensive discussion, the CMGI board of directors approved the principal terms
of the merger agreement documents.
Over the next several days, negotiation of the terms of the merger agreement
and the related ancillary documents continued among yesmail, CMGI and their
respective legal counsel and financial advisors.
On December 13, 1999, representatives of CMGI and yesmail met at CMGI's
offices in Andover, Massachusetts to discuss issues regarding the potential
integration of operations of the companies and yesmail's financial and business
model. Representatives of Goldman Sachs also attended the meeting.
On December 14, 1999, the yesmail board of directors held a special meeting
to consider approval of the definitive merger agreement. Representatives of
Deutsche Bank presented their due diligence, reviewed and updated the financial
analysis it previously presented to the yesmail board of directors, presented
an analysis of the valuation of yesmail and CMGI and the value of the proposed
acquisition, and commented further on the financial aspects of the acquisition.
The yesmail board of directors held a comprehensive discussion of the terms of
the proposed merger, including the strategic benefits of the combination, the
exchange ratio and the stock option to be granted by yesmail to CMGI. The
representatives from Wilson Sonsini Goodrich & Rosati reviewed the principal
terms of the definitive merger agreement, advised the yesmail board of
directors of their fiduciary duties to the yesmail stockholders and noted that
the yesmail board of directors had considered other strategic alternatives that
were available to yesmail. The yesmail board of directors asked questions of
management, legal counsel and Deutsche Bank. Deutsche Bank delivered orally its
opinion that the exchange ratio is fair, from a financial point of view, to the
holders of yesmail common stock. After an extensive discussion of issues and
alternatives, the yesmail board of directors unanimously approved the final
terms of the definitive merger agreement and related ancillary agreements and
determined to recommend to the yesmail stockholders that they approve the
definitive merger agreement and the merger. The yesmail board of directors
authorized Mr. Tolmie to sign the definitive merger agreement and related
ancillary documents on behalf of yesmail. Following the resolution of all
remaining issues, the parties signed the definitive merger agreement.
Prior to the opening of the stock market on December 15, 1999, yesmail and
CMGI announced the transaction and hosted a joint conference call announcing
the merger.
CMGI's Reasons for the Merger
The CMGI board of directors unanimously concluded that the merger was fair
to, and in the best interests of, CMGI and its stockholders.
The decision by the CMGI board of directors was based on several potential
benefits of the merger that it believes will contribute to the success of
CMGI's family of Internet advertising companies. These potential benefits
include:
. adding and integrating yesmail to its family of Internet advertising
companies to offer Internet advertisers a complete spectrum of Internet
advertising solutions;
42
<PAGE>
. enhancing the functionality and performance of the Internet advertising
products offered by CMGI's family of Internet advertising companies with
yesmail's technology;
. increasing CMGI's customer base; and
. accelerating CMGI's growth rate.
The CMGI board of directors reviewed a number of factors in evaluating the
merger, including, but not limited to, the following:
. historical information concerning . the consideration yesmail
CMGI's and yesmail's respective stockholders will receive in the
business focus, financial merger in light of comparable
performance and condition, merger transactions;
operations, technology and
management; . the impact of the merger on
CMGI's customers and employees,
. CMGI management's view of the as well as CMGI's majority owned
financial condition, results of subsidiaries within the CMGI
operations and businesses of CMGI group of Internet companies;
and yesmail before and after
giving effect to the merger and . results of the due diligence
the determination by the CMGI investigation conducted by CMGI's
board of directors of the management, accountants and
merger's effect on stockholder counsel; and
value;
. the expectation that the merger
. current financial market will be accounted for as a
conditions and historical stock purchase for accounting purposes.
market prices, volatility and
trading information;
. the terms of the merger agreement;
The CMGI board of directors also identified and considered a number of
potentially negative factors in its deliberations concerning the merger,
including the following:
. the risk that the potential . loss of certain yesmail employees
benefits of the merger may not be if after the merger some of the
realized; activities and management of
yesmail moves from the Midwest to
. the possibility that the merger the East Coast; and
may not be consummated, even if
approved by the yesmail . other applicable risks described
stockholders; in this proxy
statement/prospectus under "Risk
. exposure to patents and other Factors" beginning on page 7.
intellectual property issued to
competitors of yesmail that may
restrict yesmail's ability to
conduct its business;
. loss of customers of yesmail who
may terminate their relationship
with yesmail as a result of the
merger because they deem
themselves competitors of CMGI;
The CMGI board of directors concluded, however, that, on balance, the
merger's potential benefits to CMGI and its stockholders outweighed the
associated risks. The discussion of the information and factors considered by
the CMGI board of directors is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the merger,
the CMGI board of directors did not find it practicable to, and did not
quantify or otherwise assign relative weight to, the specific factors
considered in reaching its determination.
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Yesmail's Reasons for the Merger; Recommendation of the Yesmail Board of
Directors
The yesmail board of directors has determined that the terms of the merger
and the merger agreement are fair to, and in the best interests of, yesmail and
its stockholders. Accordingly, the yesmail board of directors has approved the
merger agreement and the consummation of the merger and recommends that you
vote FOR approval of the merger agreement and the merger.
In reaching its decision, the yesmail board of directors identified several
potential benefits of the merger, the most important of which included:
. the merger will represent a . the potential to increase
significant step forward in yesmail's ability to compete
yesmail's strategy of becoming a effectively in a rapidly
leading provider of emerging industry;
comprehensive permission email
direct marketing solutions; . the exchange ratio's premium of
approximately 11.2% over the
. the expectation that the ratio of the closing price of
combination of yesmail's yesmail common stock divided by
expertise and products together the corresponding closing prices
with CMGI's breadth of Internet of CMGI common stock over the 30
advertising products and day trading period ending on
services, CMGI's greater size December 14, 1999;
and resources, and the
complementary nature of . the increased trading liquidity
yesmail's and CMGI's products for yesmail stockholders by
and services will provide receiving shares of CMGI common
opportunities to realize long- stock; and
term value to stockholders;
. the expectation that the merger
. the potentials for accelerating will be treated as a tax-free
new product development and reorganization to yesmail and
features for current and future its stockholders.
permission marketing;
. the greater opportunities for
yesmail to increase the number
of its network partners as well
as grow the yesmail network
through relationships with CMGI
affiliates and customers;
The decision of the yesmail board of directors to approve the merger
agreement and the merger was the result of its careful consideration of a range
of strategic alternatives, including potential business combinations and
relationships with CMGI and other companies in the pursuit of yesmail's long-
term business strategy. In reaching its decision to approve the merger, the
yesmail board of directors consulted with yesmail's senior management, as well
as its legal counsel, independent accountants and financial advisors. Among the
factors considered by the yesmail board of directors in its deliberations were
the following:
. the current and prospective . the complementary nature of the
economic and industry technology, products, services
environment in which yesmail and customer base of yesmail and
operates, including (a) the CMGI;
trend of consolidation in the
Internet advertising industry; . the consideration to be received
(b) the ability of larger by yesmail stockholders in the
industry participants to proposed merger and the
increase market share; and (c) relationship between the market
the trend of such companies value of the CMGI common stock
toward offering a more complete to be issued in exchange for the
spectrum of Internet advertising yesmail common stock and a
solutions; comparison of comparable merger
transactions;
. the historical information
concerning yesmail's, CMGI's and . the prospects of yesmail as an
certain other potential independent company;
acquirors' respective
businesses, prospects, financial . the potential for parties, other
performance and condition, than CMGI, to acquire or enter
operations, technologies, into strategic relationships
management and competitive with yesmail;
positions, including public
reports filed with the
Securities and Exchange
Commission;
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<PAGE>
. the comparison of financial . the fairness and reasonableness
conditions, results of operations to yesmail of the terms of the
and businesses of yesmail before merger agreement, stock option
and after giving effect to a agreement and related agreements,
merger; which were the product of arm's
length negotiations; and
. financial market conditions and
historical stock market prices, . the analysis prepared by Deutsche
volatility and trading Bank and presented to the yesmail
information; board of directors and the
opinion of Deutsche Bank, more
. the belief that the terms of the fully described in "The Merger--
merger agreement are reasonable; Opinion of Financial Advisor to
Yesmail," that as of the date of
. the impact of the merger on such opinion and based on and
yesmail's customers and subject to the assumptions made,
employees; matters considered and limits of
the review undertaken, the
. the results of the due diligence exchange ratio in the merger was
investigation of CMGI conducted fair, from a financial point of
by yesmail's management and view, to the holders of yesmail
financial advisors; common stock.
In particular, the yesmail board of directors considered: the stock option
granted to CMGI; the events triggering payment of the termination fee to CMGI;
the limitations of yesmail's ability to negotiate an alternative transaction
with other companies; and the potential effect of these provisions on yesmail
receiving alternative proposals that could be superior to the merger. Because
the yesmail board of directors reviewed its strategic alternatives prior to
entering into the merger agreement, and because these provisions were required
by CMGI in order for it to enter into the merger agreement, the yesmail board
of directors determined that the value for yesmail stockholders represented by
the merger justified these requirements.
The yesmail board of directors also identified and considered a number of
uncertainties and risks concerning the merger, including:
. the risk that the per share value . the risk that yesmail might
of the consideration to be suffer employee attrition or fail
received by yesmail stockholders to attract key personnel due to
might be significantly less than uncertainties associated with the
the price per share implied by merger;
the exchange ratio immediately
prior to the announcement of the . the risks that yesmail might face
merger because the exchange ratio if it remains independent;
will not be adjusted for changes
in the market price of either . the risk that if CMGI's stock
CMGI common stock or yesmail option becomes exercisable, it
common stock; could reduce the number of
potential acquirors; and
. the risk that the merger might
not be consummated; . the other applicable risks
described in this proxy
. the risk that the benefits sought statement/prospectus under "Risk
in the merger might not be Factors" beginning on page 7.
achieved;
. the difficulty of and risks
associated with the integration
of a different management and
organizational structure;
As a result of the foregoing considerations, the yesmail board of directors
determined that the potential advantages of the merger outweighed the benefits
of remaining as a separate company. The yesmail board of directors believes
that the combined company will have a greater opportunity than yesmail alone to
successfully compete in its industry.
In view of the variety of factors considered in connection with its
evaluation of the merger, the yesmail board of directors did not find it
practicable to, and accordingly did not, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, many of the factors
45
<PAGE>
contained elements which may have both a positive and negative effect on the
fairness of the merger. Except as described above, the yesmail board of
directors, as a whole, did not attempt to analyze each individual factor
separately to determine its impact on the fairness of the merger. Consequently
individual members of the yesmail board of directors may have given different
weight to different factors and may have viewed differently each factor's
effect on the fairness determination.
For the reasons discussed above, the yesmail board of directors has
unanimously approved the merger agreement and has determined that the merger is
advisable and fair to, and in the best interests of, yesmail and its
stockholders and unanimously recommends that yesmail stockholders vote for
approval of the merger agreement and the merger.
In considering the recommendation of the yesmail board of directors with
respect to the merger agreement and the merger, yesmail stockholders should be
aware that directors and officers of yesmail have interests in the merger that
are different from, or are in addition to, the interests of yesmail
stockholders generally. Please see "The Merger--Interests of Executive Officers
and Directors of Yesmail in the Merger" on page 51.
Opinion of Financial Advisor to Yesmail
Deutsche Bank Securities Inc. acted as financial advisor to yesmail in
connection with the merger. At the December 14, 1999 meeting of the yesmail
board of directors, Deutsche Bank delivered its oral opinion, subsequently
confirmed in writing as of the same date, to the yesmail board of directors to
the effect that, as of the date of such opinion, based upon and subject to the
assumptions made, matters considered and limits of the review undertaken by
Deutsche Bank, the exchange ratio was fair, from a financial point of view, to
yesmail stockholders.
The full text of Deutsche Bank's written opinion, dated December 14, 1999,
which sets forth, among other things, the assumptions made, matters considered
and limits on the review undertaken by Deutsche Bank in connection with the
opinion, is attached as Annex B to this proxy statement/prospectus and is
incorporated herein by reference. Yesmail stockholders are urged to read
Deutsche Bank's opinion in its entirety. The summary of the opinion of Deutsche
Bank set forth in this proxy statement/prospectus is qualified in its entirety
by reference to the full text of the opinion.
In connection with Deutsche Bank's role as financial advisor to yesmail, and
in arriving at its opinion, Deutsche Bank has, among other things, reviewed
certain publicly available financial information and other information
concerning yesmail and CMGI and certain internal analyses and other information
furnished to it by yesmail. Deutsche Bank also held discussions with the
members of the senior managements of yesmail and CMGI regarding the businesses
and prospects of their respective companies and the joint prospects of a
combined enterprise. In addition, Deutsche Bank:
. reviewed the reported prices and . reviewed the financial terms of
trading activity for the common selected recent business
stock of both yesmail and CMGI; combinations which it deemed
comparable in whole or in part;
. reviewed recent public research
analyst reports concerning CMGI; . reviewed the terms of a draft of
the merger agreement dated
. compared certain financial and December 14, 1999 and drafts of
stock market information for certain related documents dated
yesmail and CMGI with similar December 14, 1999; and
information for selected
companies whose securities are . performed such other studies and
publicly traded; analyses and considered such
other factors as it deemed
appropriate.
In preparing its opinion, Deutsche Bank did not assume responsibility for
the independent verification of, and did not independently verify, any
information, whether publicly available or furnished to it, concerning
46
<PAGE>
yesmail or CMGI, including, without limitation, any financial information,
forecasts or projections, considered in connection with the rendering of its
opinion. Accordingly, for purposes of its opinion, Deutsche Bank assumed and
relied upon the accuracy and completeness of all such information.
Deutsche Bank did not conduct a physical inspection of any of the properties
or assets, and did not prepare or obtain any independent evaluation or
appraisal of any of the assets or liabilities of yesmail or CMGI. With respect
to the financial forecasts and projections made available to Deutsche Bank and
used in its analysis, Deutsche Bank has assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of yesmail as to the matters covered thereby. In
rendering its opinion, Deutsche Bank expressed no view as to the reasonableness
of such forecasts and projections or the assumptions on which they are based.
Deutsche Bank was not provided with, and did not rely on, any forecasts or
projections concerning CMGI.
Deutsche Bank assumed for purposes of its analysis that the value of CMGI
common stock to be received by yesmail stockholders in the proposed merger is
equal to the closing trading price of CMGI common stock as of December 14,
1999, and Deutsche Bank expressed no opinion or view on the value of the CMGI
common stock. Deutsche Bank did not express any opinion as to the price at
which the shares of CMGI common stock that are to be issued pursuant to the
proposed merger will be traded in the future. The opinion of Deutsche Bank was
necessarily based upon information made available to it and economic, market
and other conditions in effect on the date of its opinion. Although subsequent
developments may affect its opinion, Deutsche Bank has assumed no obligation to
update, revise or reaffirm its opinion.
In rendering its opinion, Deutsche Bank assumed that, in all respects
material to its analysis:
. the representations and . in connection with obtaining any
warranties of yesmail, CMGI and necessary governmental,
the transitory subsidiary regulatory or other approvals
contained in the merger and consents, or any amendments,
agreement are true and correct; modifications or waivers to any
agreements, instruments or
. yesmail, CMGI and the transitory orders to which either yesmail
subsidiary will each perform all or CMGI is a party or by which
of the covenants and agreements it is bound, no limitations,
to be performed by it under the restrictions or conditions will
merger agreement; be imposed or amendments,
modifications or waivers made
. all conditions to the obligation that would have a material
of each of yesmail, CMGI and the adverse effect on yesmail or
transitory subsidiary to CMGI or materially reduce the
consummate the merger will be contemplated benefits of the
satisfied without any waiver merger to yesmail.
thereof;
. all material governmental,
regulatory or other approvals
and consents required in
connection with the consummation
of the merger will be obtained;
and
In addition, Deutsche Bank has been advised by yesmail, and accordingly has
assumed for purposes of its opinion, that the merger will be tax-free to each
of yesmail and CMGI and their respective stockholders and that the merger will
be accounted for as a purchase for accounting purposes.
Set forth below is a brief summary of some of the financial analyses
performed by Deutsche Bank in connection with its opinion and reviewed with the
yesmail board of directors at its meeting on December 14, 1999. These summaries
of financial analyses include information presented in a tabular format. In
order to understand fully the financial analyses used by Deutsche Bank, the
tables must be read with the text of each summary because the tables alone are
not a complete description of the financial analyses.
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<PAGE>
Historical Stock Performance
Deutsche Bank reviewed and analyzed recent and historical market prices and
trading volumes for CMGI common stock and yesmail common stock and compared
such market prices to certain stock market indices.
Analysis of Selected Publicly Traded Companies
Deutsche Bank compared certain financial information and commonly used
valuation measurements for yesmail to corresponding information and
measurements for a group of eleven publicly traded Internet advertising
companies (consisting of Digital Impact, DoubleClick, Exactis, FreeShop.com,
Lifeminders.com, MessageMedia, MyPoints.com, Netcentives, NetCreations, 24/7
Media and Webstakes.com, which we refer to as the selected companies). Such
financial information and valuation measurements included, among other things,
(1) common equity market valuation; (2) operating performance; (3) ratios of
enterprise value, defined as common equity market value as adjusted for debt
and cash, to revenues; and (4) ratios of enterprise value to gross profit. To
calculate the trading multiples for yesmail and the selected companies,
Deutsche Bank used publicly available information concerning historical and
projected financial performance, including published historical financial
information as well as revenue and earnings estimates reported by research
analysts who cover the selected companies.
The following table summarizes the multiples of enterprise value to revenues
and gross profit for yesmail (the enterprise value of yesmail being derived
from the exchange ratio and the market value of CMGI common stock on December
14, 1999) and the selected companies for the indicated periods.
<TABLE>
<CAPTION>
Selected Companies
----------------------------
Yesmail Mean Median Range
------- ----- ------ ---------------
<S> <C> <C> <C> <C>
Enterprise value to revenues
Trailing twelve months.................... 59.2x 79.5x 56.8x 28.3x to 156.6x
Calendar year 1999........................ 43.8x 40.3x 35.9x 18.3x to 68.3x
Calendar year 2000........................ 17.2x 19.9x 21.0x 6.8x to 30.5x
Enterprise value to gross profit
Calendar year 1999........................ 154.9x 71.1x 71.1x 70.4x to 71.7x
Calendar year 2000........................ 57.9x 33.2x 33.2x 31.4x to 35.1x
</TABLE>
None of the companies utilized as a comparison is identical to yesmail.
Accordingly, Deutsche Bank believes the analysis of publicly traded comparable
companies is not simply mathematical. Rather, it involves complex
considerations and qualitative judgments, reflected in Deutsche Bank's opinion,
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies.
Analysis of Selected Precedent Transactions
Deutsche Bank reviewed the financial terms, to the extent publicly
available, of eighteen proposed, pending or completed merger and acquisition
transactions since January 15, 1998 involving companies in the Internet
industry. We refer to these transactions as the selected transactions. Deutsche
Bank calculated various financial multiples and premiums over market value
based on certain publicly available information for each of the selected
transactions and compared them to corresponding financial multiples and
premiums over market value for the merger, based on the exchange ratio and the
per share market price of CMGI common stock on December 14, 1999. The
transactions reviewed were:
. the acquisition of USWeb/CKS by . the acquisition of Revnet
Whittman-Hart, announced Systems by MessageMedia, Inc.,
December 13, 1999; announced June 9, 1999;
. the acquisition of Opt-In . the acquisition of Excite, Inc.
Email.com by DoubleClick, Inc. by At Home Corporation,
announced December 1, 1999; announced January 19, 1999;
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<PAGE>
. the acquisition of Flycast . the acquisition of Netscape
Communications Corporation by Communications Corporation by
CMGI, Inc., announced September America Online, Inc., announced
30, 1999; November 24, 1998;
. the acquisition of AdKnowledge . the acquisition of LinkExchange
by Engage Technologies, by Microsoft Corporation,
announced September 24, 1999; announced November 5, 1998;
. the acquisition of AdForce, Inc. . the acquisition of Relevant
by CMGI, announced September 20, Knowledge by Media Metrix,
1999; announced November 5, 1998;
. the acquisition of ConsumerNet . the acquisition of Yoyodyne
by 24/7 Media Inc., announced entertainment by Yahoo! Inc.,
August 4, 1999; announced October 12, 1998;
. the acquisition of NetGravity by . the acquisition of CKS Group by
DoubleClick Inc., announced July USWeb Corporation, announced
13, 1999; September 2, 1998;
. the acquisition of DotOne Corp. . the acquisition of Tripod, Inc.
by Critical Path Inc., announced by Lycos, Inc., announced
June 14, 1999; February 3, 1998;
. the acquisition of Abacus Direct . the acquisition of MatchLogic,
Corp. by DoubleClick Inc., Inc. by Excite, Inc., announced
announced June 14, 1999; January 15, 1998.
The following table summarizes the calculations by Deutsche Bank of the
multiples of enterprise value to revenues for the merger (the enterprise value
of yesmail being derived from the exchange ratio and the market value of CMGI
common stock on December 14, 1999) and the selected transactions:
<TABLE>
<CAPTION>
Selected Companies
--------------------------
Yesmail Mean Median Range
--------------- ----- ------ -------------
<S> <C> <C> <C> <C>
Enterprise value to revenues
Trailing twelve months.............. 59.2x 26.4x 20.8x 1.9x to 63.7x
1 year forward...................... 43.8x (CY 1999) 15.9x 14.8x 1.8x to 30.1x
2 year forward...................... 17.2x (CY 2000) 9.8x 8.6x 1.4x to 23.3x
</TABLE>
All multiples for the selected transactions were based on public information
available at the time of announcement of such transaction, without taking into
account differing market and other conditions during the two-year period during
which the selected transactions occurred.
For the eight selected transactions in which the stock of the acquired
company was publicly traded (Whitman-Hart / USWeb/CKS, CMGI / Flycast
Communications, CMGI / AdForce, DoubleClick / NetGravity, DoubleClick / Abacus
Direct, At Home / Excite, America Online / Netscape and USWeb / CKS), Deutsche
Bank also calculated the premium of the exchange ratio at which such
transactions were announced or effected to each acquired company's average
exchange ratio for the one trading day and 15, 30 and 45 trading days prior to
the announcement of the transaction. This premium analysis is summarized in the
following table:
<TABLE>
<CAPTION>
Exchange ratio premium
---------------------------
CMGI/Yesmail Mean Median Range
------------ ----- ------ --------------
<S> <C> <C> <C> <C>
1 day average......................... 22.7% 24.3% 25.1% (4.3%) - 57.4%
15 day average........................ 19.7% 33.9% 30.7% 12.2% - 71.7%
30 day average........................ 11.2% 34.8% 41.6% 10.5% - 57.0%
45 day average........................ 11.7% 34.8% 28.9% 6.1% - 63.0%
</TABLE>
Because the reasons for, and circumstances surrounding, each of the selected
transactions analyzed were so diverse, and due to the inherent differences
between the operations and financial conditions of CMGI and yesmail and the
companies involved in the selected transactions, Deutsche Bank believes that a
comparable transaction analysis is not simply mathematical. Rather, it involves
complex considerations and qualitative
49
<PAGE>
judgments, reflected in Deutsche Bank's opinion, concerning differences between
the characteristics of the selected transactions and the merger that could
affect the value of the subject companies and businesses and CMGI and yesmail.
Pro Forma Combined Revenue Analysis
Deutsche Bank analyzed certain pro forma effects of the merger. Based on
such analysis, Deutsche Bank computed the resulting dilution to the combined
company's revenue per share estimate for the year ending December 31, 2000.
Deutsche Bank noted, based on public analysts' estimates of yesmail's and
CMGI's calendar year 2000 revenues, that the merger would be approximately 0.4%
accretive to the combined company's revenue per share for the calendar year
ending December 31, 2000.
The foregoing summary describes all analyses and factors that Deutsche Bank
deemed material in its presentation to the yesmail board of directors and in
preparing its opinion, but is not a comprehensive description of all analyses
performed and factors considered by Deutsche Bank in connection with preparing
its opinion. The preparation of a fairness opinion is a complex process
involving the application of subjective business judgment in determining the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances and, therefore, is not readily
susceptible to summary description. Deutsche Bank believes that its analyses
must be considered as a whole and that considering any portion of such analyses
and of the factors considered without considering all analyses and factors
could create a misleading view of the process underlying the opinion. In
arriving at its fairness determination, Deutsche Bank did not assign specific
weights to any particular analyses.
In conducting its analyses and arriving at its opinions, Deutsche Bank
utilized a variety of generally accepted valuation methods. The analyses were
prepared solely for the purpose of enabling Deutsche Bank to provide its
opinion to the yesmail board of directors as to the fairness of the exchange
ratio to the yesmail stockholders and do not purport to be appraisals of or
necessarily reflect the prices at which businesses or securities actually may
be sold, which are inherently subject to uncertainty. In connection with its
analyses, Deutsche Bank made, and was provided by yesmail management with,
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond Deustsche
Bank's, yesmail's and CMGI's control. Analyses based on estimates or forecasts
of future results are not necessarily indicative of actual past or future
values or results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
yesmail, CMGI or their respective advisors, none of yesmail, Deutsche Bank nor
any other person assumes responsibility if future results or actual values are
materially different from these forecasts or assumptions.
The terms of the merger were determined through negotiations between yesmail
and CMGI and were approved by the yesmail board of directors. Although Deutsche
Bank provided advice to yesmail during the course of these negotiations, the
decision to enter into the merger was solely that of the yesmail board of
directors. As described above, the opinion and presentation of Deutsche Bank to
the yesmail board of directors were only one of a number of factors taken into
consideration by the yesmail board of directors in making its determination to
approve the merger. Deutsche Bank's opinion was provided to the yesmail board
of directors to assist it in connection with its consideration of the merger
and does not constitute a recommendation to any holder of yesmail common stock
as to how to vote with respect to the merger.
Interests of Financial Advisor to Yesmail in the Merger
Yesmail selected Deutsche Bank Securities Inc. as its financial advisor in
connection with the merger based on Deutsche Bank's qualifications, reputation
and experience in mergers and acquisitions. Yesmail retained Deutsche Bank
pursuant to a letter agreement dated November 24, 1999, which we refer to as
the engagement letter. As compensation for Deutsche Bank's services in
connection with the merger, yesmail became obligated to pay Deutsche Bank a
$50,000 retainer upon engagement and a fee of $750,000 upon
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announcement of the merger, which amount will be credited against an aggregate
fee based on the aggregate consideration paid to yesmail's stockholders in the
merger, payable upon consummation of the merger. Based upon the closing price
of CMGI stock on January 28, 2000, such aggregate fee would equal approximately
$6.2 million. Regardless of whether the merger is consummated, yesmail has
agreed to reimburse Deutsche Bank for reasonable fees and disbursements of
Deutsche Bank's counsel and all of Deutsche Bank's reasonable travel and other
out-of-pocket expenses incurred in connection with the merger or otherwise
arising out of the retention of Deutsche Bank under the engagement letter.
Yesmail has also agreed to indemnify Deutsche Bank and certain related persons
to the full extent lawful against certain liabilities, including certain
liabilities under the federal securities laws arising out of its engagement or
the merger.
Deutsche Bank is an internationally recognized investment banking firm
experienced in providing advice in connection with mergers and acquisitions and
related transactions. Deutsche Bank Securities Inc. is an affiliate of Deutsche
Bank AG, and we refer to Deutsche Bank, Deutsche Bank AG and its affiliates
collectively as the DB Group. One or more members of the DB Group have, from
time to time, provided investment banking and other financial services to
yesmail or its affiliates for which such member has received compensation,
including the initial public offering of 3.4 million shares of yesmail common
stock on September 23, 1999. In the ordinary course of business, members of the
DB Group publish research reports regarding the Internet industry and the
business and services of publicly owned companies in the Internet industry.
Members of the DB Group may actively trade securities and other instruments and
obligations of yesmail and CMGI for their own account or the account of their
customers and, accordingly, may from time to time hold a long or short position
in such securities, instruments or obligations.
Interests of Executive Officers and Directors of Yesmail in the Merger
When considering the recommendation of the yesmail board of directors,
yesmail stockholders should be aware that the officers and directors of yesmail
have interests in the merger that differ from, or are in addition to, those of
yesmail stockholders. The yesmail board of directors was aware of these
potential conflicts and considered them in reaching its decision to approve the
merger agreement and recommend that yesmail stockholders vote for approval of
the merger agreement and the merger.
Yesmail Restricted Stock and Options Being Assumed by CMGI
As of January 27, 2000, yesmail's executive officers and directors, and
their respective affiliates, held 2,394,546 shares of restricted stock and
options to purchase 562,500 shares of yesmail common stock, at exercise prices
ranging from $1.60 to $9.87 per share, of which 2,095,228 shares of such
restricted stock and 525,000 options were unvested.
Director Options
In May 1999, yesmail granted each of its non-employee directors, Gian M.
Fulgoni and Robert W. Shaw, an option to purchase 75,000 shares of yesmail
common stock at an exercise price of $1.60 per share. These options will become
fully vested upon consummation of the merger.
Employment Agreements
In March 1999, yesmail entered into an employment agreement effective as of
January 1, 1999, with David M. Tolmie, its president and chief executive
officer, which entitles Mr. Tolmie to severance equal to $100,000 in the event
of his termination without cause by yesmail or its successor. In addition, the
agreement provides that, in the event that yesmail enters into a change of
control transaction, 100% of his unvested shares of yesmail restricted stock
will accelerate and become immediately vested upon the closing of a change of
control transaction. Notwithstanding that provision, Mr. Tolmie has entered
into an agreement with yesmail and CMGI providing that 75% of such restricted
stock will vest on the date of the closing of the merger and the remaining 25%
of such restricted stock will vest upon the earlier to occur of December 14,
2000 or his involuntary termination by yesmail.
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In April 1999, yesmail entered into an employment agreement with David B.
Menzel, its chief financial officer and executive vice president of finance and
administration, which entitles Mr. Menzel to severance equal to six months
salary and unpaid amounts of a special bonus in the event of his termination
without cause by yesmail or its successor. In addition, the agreement provides
that, in the event that yesmail enters into a change of control transaction,
100% of his unvested shares of yesmail restricted stock will accelerate and
become immediately vested upon the closing of this transaction. Notwithstanding
that provision, Mr. Menzel has entered into an agreement with yesmail and CMGI
providing that 75% of such restricted stock will vest on the date of the
closing of the merger and the remaining 25% of such restricted stock will vest
upon the earlier to occur of December 14, 2000 or his involuntary termination
by yesmail.
In 1999, yesmail entered into employment agreements with Mark D. Boyce, vice
president and chief operating officer, Peder J. Jungck, chief technology
officer, D. Todd Love, vice president, network development, Michael R.
Mooradian, vice president of sales and Anthony Priore, vice president,
marketing, which entitles each officer to continued salary and benefits for six
months in the event of termination without cause by yesmail or its successor.
In addition, these agreements provide that, in the event that yesmail enters
into a change of control transaction, 25% of the shares of restricted stock or
shares acquired or acquirable from the exercise of options granted to each
officer (in addition to any shares vested at such time) will accelerate and
become immediately vested upon the closing of a change of control transaction.
In addition, CMGI may offer extended severance benefits to certain officers
to induce them to continue employment following completion of the merger.
Pursuant to the merger agreement, CMGI has agreed to cause the surviving
corporation in the merger to indemnify each present and former yesmail officer
and director against liabilities arising out of such person's services as an
officer or director. CMGI will cause the surviving corporation to maintain
officers' and directors' liability insurance to cover any such liabilities for
six years.
As a result of the interests described above, these directors and executive
officers may have been more likely to approve the merger agreement and the
merger than yesmail stockholders generally.
Treatment of Yesmail Common Stock
In the merger, each share of yesmail common stock will be exchanged for
0.2504 shares of CMGI common stock.
Holders of yesmail common stock should not send their yesmail common stock
certificates at this time. Following the effective time of the merger, holders
of yesmail common stock will receive instructions for the surrender and
exchange of such stock certificates.
Accounting Treatment of the Merger
The merger will be accounted for by CMGI using the purchase method of
accounting for a business combination. Under this method of accounting, the
assets and liabilities of yesmail, including intangible assets, will be
recorded at their fair market values and included in the financial statements
of CMGI. The aggregate merger consideration will be allocated based on the fair
values of the assets acquired and the liabilities assumed. Any excess of cost
over the fair value of the net tangible assets acquired from yesmail will be
recorded as goodwill and other intangible assets and will be amortized by
charges to operations under generally accepted accounting principles. These
allocations will be made based upon valuations and other studies that have not
yet been finalized. The results of operations and cash flows of yesmail will be
included in CMGI's financial statements prospectively as of the consummation of
the merger.
Regulatory Approvals
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the
acquisition of shares of yesmail common stock in the merger by CMGI may not be
consummated until notifications have been furnished to the
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Federal Trade Commission and the Antitrust Division of the Department of
Justice and specified waiting period requirements have been satisfied. Yesmail
and CMGI each expect to file a pre-merger notification and report form with the
FTC and the Antitrust Division on or about January 31, 2000.
At any time before the effective time of the merger, the FTC, the Antitrust
Division or a private person or entity could seek under antitrust laws, among
other things, to enjoin the merger and, any time after the effective time of
the merger, to cause CMGI to divest itself, in whole or in part, of the
surviving corporation of the merger or of certain businesses conducted by the
surviving corporation. There can be no assurance that a challenge to the merger
will not be made or that, if such a challenge is made, CMGI will prevail.
Material United States Federal Income Tax Considerations
The discussion below summarizes certain material United States federal
income tax considerations generally applicable to United States holders of
yesmail common stock who, pursuant to the merger, exchange their yesmail common
stock solely for CMGI common stock. Consummation of the merger is conditioned
upon CMGI's receipt of an opinion from Hale and Dorr LLP (or Wilson Sonsini
Goodrich & Rosati, P.C. if Hale and Dorr LLP does not provide such an opinion)
and yesmail's receipt of an opinion from Wilson Sonsini Goodrich & Rosati, P.C.
(or Hale and Dorr LLP if Wilson Sonsini Goodrich & Rosati, P.C. does not
provide such an opinion) to the effect that the merger will qualify for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code. The discussion below assumes that the merger will be
treated in accordance with the opinions of Hale and Dorr LLP and Wilson Sonsini
Goodrich & Rosati, P.C. described in the preceding sentence, which are included
as exhibits 8.1 and 8.2 of the registration statement of which this proxy
statement/prospectus forms a part.
The discussion below and the opinions of Hale and Dorr LLP and Wilson
Sonsini Goodrich & Rosati, P.C. are based upon current provisions of the
Internal Revenue Code, currently applicable U.S. Treasury regulations
promulgated thereunder, and judicial and administrative decisions and rulings.
The opinions of Hale and Dorr LLP and Wilson Sonsini Goodrich & Rosati, P.C.
are subject to certain limitations and qualifications and are based on the
facts, representations and assumptions set forth or referred to in such
opinions, including representations contained in certificates executed by
officers of CMGI and yesmail. The opinions are not binding on the Internal
Revenue Service or the courts, and there can be no assurance that the Internal
Revenue Service or the courts will not take a contrary view. No ruling from the
Internal Revenue Service has been or will be sought. Future legislative,
judicial or administrative changes or interpretations could alter or modify the
statements and conclusions set forth herein, and any such changes or
interpretations could be retroactive and could affect the tax consequences of
the merger to CMGI, yesmail, or the stockholders of CMGI and yesmail.
The discussion below does not purport to deal with all aspects of federal
income taxation that may affect particular stockholders in light of their
individual circumstances, and is not intended for stockholders subject to
special treatment under federal income tax law. Stockholders subject to special
treatment include, but are not limited to, insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign persons,
stockholders who are subject to the alternative minimum tax provisions of the
Internal Revenue Code, stockholders who hold their stock as part of a hedge,
appreciated financial position, straddle or conversion transaction,
stockholders who do not hold their stock as capital assets and stockholders who
have acquired their stock upon the exercise of employee options or otherwise as
compensation. In addition, the discussion below and such opinions do not
consider the effect of any applicable state, local or foreign tax laws and
further do not consider any tax consequences of transactions effectuated prior
or subsequent to, or concurrently with, the merger, including without
limitation any transaction in which shares of yesmail common stock are acquired
or shares of CMGI common stock are disposed of, or the tax consequences of the
assumptions by CMGI of outstanding options and subscriptions to acquire yesmail
common stock.
Holders of yesmail common stock are urged to consult their tax advisors as
to the particular tax consequences to them of the transactions described in
this proxy statement/prospectus, including the applicability and effect of any
state, federal, local or foreign tax laws, and of changes in applicable tax
laws.
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In the opinion of Hale and Dorr LLP, counsel to CMGI, and in the opinion of
Wilson Sonsini Goodrich & Rosati, P.C., counsel to yesmail, the merger will
constitute a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code. Assuming the merger constitutes a reorganization,
subject to the limitations and qualifications referred to herein, the following
tax consequences will result:
. no gain or loss will be . the aggregate tax basis of the
recognized by CMGI, yesmail or CMGI common stock so received by
the transitory subsidiary solely yesmail stockholders in the
as a result of the merger; merger will be the same as the
aggregate tax basis of the
. no gain or loss will be yesmail common stock surrendered
recognized by the holders of in exchange, reduced by any tax
yesmail common stock upon the basis allocable to a fractional
receipt of CMGI common stock share for which cash is received;
solely in exchange for such and
yesmail common stock in the
merger, except to the extent of . the holding period with respect
cash received in lieu of to CMGI common stock received by
fractional shares; each yesmail stockholder in the
merger will include the holding
. cash payments received by holders period for the yesmail common
of yesmail common stock in lieu stock surrendered in exchange,
of a fractional share will result provided that the yesmail common
in capital gain (or loss) stock surrendered is held as a
measured by the difference capital asset at the effective
between the cash payment received time of the merger.
and the portion of the tax basis
in the shares of yesmail common
stock surrendered that is
allocable to such fractional
share. Such gain (or loss) will
be long-term capital gain (or
loss) if the shares of yesmail
common stock allocable to such
fractional share have been held
for more than one year at the
effective time of the merger;
A successful Internal Revenue Service challenge to the "reorganization"
status of the merger would result in a yesmail stockholder recognizing gain or
loss with respect to each share of yesmail common stock surrendered in the
merger equal to the difference between the yesmail stockholder's basis in such
share and the fair market value, as of the effective time of the merger, of the
CMGI common stock received in exchange. In such event, a yesmail stockholder's
aggregate tax basis in the CMGI common stock received would equal its fair
market value as of the effective time of the merger, and the yesmail
stockholder's holding period for such stock would begin the day after the
merger.
Nasdaq National Market Quotation
It is a condition to the closing of the merger that the shares of CMGI
common stock to be issued in the merger be listed on the Nasdaq National
Market. CMGI intends to file a notification form for listing of additional
shares promptly following the date of this proxy statement/prospectus.
Resales of CMGI Common Stock Issued in Connection with the Merger; Affiliate
Agreements; Lock-up Agreements
CMGI common stock issued in connection with the merger will be freely
transferable, except that shares of CMGI common stock received by persons who
are deemed to be "affiliates," as such term is defined in Rule 144 under the
Securities Act, of yesmail at the effective time of the merger may be resold by
them only in transactions permitted by the resale provisions of Rule 145 under
the Securities Act or as otherwise permitted under the Securities Act. Each
executive officer and director and those who may be an affiliate of yesmail is
expected to execute a written affiliate agreement providing, among other
things, that such person will not offer, sell, transfer or otherwise dispose of
any of the shares of CMGI common stock obtained as a result of the merger
except in compliance with the Securities Act and the related rules and
regulations.
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In addition, certain stockholders and optionholders of yesmail have agreed
to certain limitations with respect to the timing and the amount of the shares
of CMGI common stock that they may sell or transfer that they are to be issued
in connection with the merger.
No Appraisal Rights
Appraisal rights under Delaware law are not available to stockholders of a
Delaware corporation if:
. the securities of the corporation are listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc.; and
. the stockholders of the corporation are not required to accept in exchange
for their stock anything other than (a) stock in another corporation listed
on a national securities exchange or designated as a national market system
security on an interdealer quotation system by the NASD and (b) cash in lieu
of fractional shares.
Yesmail stockholders will not have appraisal rights under Delaware law with
respect to the merger because:
. yesmail common stock is traded on the Nasdaq National Market;
. yesmail stockholders are being offered shares of CMGI common stock which is
traded on the Nasdaq National Market; and
. yesmail stockholders are being offered cash in lieu of fractional shares.
Delisting and Deregistration of Yesmail's Common Stock Following the Merger
If the merger is consummated, yesmail's common stock will be delisted from
the Nasdaq National Market and will be deregistered under the Securities
Exchange Act of 1934, as amended.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement, stock option agreement and stockholder agreement, copies of which
are attached as Annex A to this proxy statement/prospectus and are incorporated
by reference into this summary. The summary descriptions are not complete and
are qualified in their entireties by reference to the merger agreement, the
stock option agreement and stockholder agreement. We urge all yesmail
stockholders to read these agreements for a more complete description of the
terms and conditions of the merger, the option granted to CMGI and related
matters.
General
Following the adoption of the merger agreement and approval of the merger by
yesmail stockholders and the satisfaction or waiver of the other conditions to
the merger, the transitory subsidiary, a wholly owned subsidiary of CMGI, will
merge into yesmail. Yesmail will survive the merger as a wholly owned
subsidiary of CMGI. If all conditions to the merger are satisfied or waived,
the merger will become effective at the time of the filing by the surviving
corporation of a duly executed certificate of merger with the Delaware
secretary of state.
The Exchange Ratio and Treatment of Yesmail Common Stock
At the effective time of the merger, generally, each issued and outstanding
share of yesmail common stock will be converted into the right to receive
0.2504 shares of CMGI common stock. However, any shares owned by yesmail and
any shares owned by CMGI or the transitory subsidiary will be cancelled without
conversion. CMGI will adjust the exchange ratio to reflect any
reclassification, stock split, stock dividend, reorganization or other similar
change with respect to CMGI common stock or yesmail common stock occurring
before the effective time of the merger.
Based on the exchange ratio of 0.2504, and based on the number of shares of
yesmail common stock and options and warrants to purchase yesmail common stock
outstanding as of January 27, 2000, a total of approximately 5,623,388 shares
of CMGI common stock and options and warrants to purchase shares of CMGI common
stock will be issued in the merger.
Treatment of Unvested Stock of Yesmail
At the effective time of the merger, each outstanding unvested share of
yesmail common stock granted by yesmail under any of its plans or arrangements
will be converted into unvested shares of CMGI common stock based on the
exchange ratio and will remain subject to the same terms, restrictions and
vesting schedules as were applicable prior to the effective time of the merger
unless otherwise agreed to by CMGI and the holder of such shares. CMGI will
assume any rights yesmail held prior to the effective time of the merger to
repurchase these unvested shares.
Treatment of Yesmail Stock Options and Warrants
At the effective time of the merger, CMGI will assume each outstanding
option, whether vested or unvested, and warrant to purchase shares of yesmail
common stock and convert them into options or warrants, as the case may be, to
purchase shares of CMGI common stock subject to the same terms and conditions
as were applicable prior to the effective time of the merger. The number of
shares of CMGI common stock issuable upon the exercise of such stock options
and warrants will be adjusted based on the exchange ratio. Any fractional
shares of CMGI common stock resulting from such adjustment will be rounded down
to the nearest whole number. The exercise price per share of CMGI common stock
issuable under each yesmail option and warrant will equal the aggregate
exercise price of the yesmail common stock purchasable under the yesmail option
or warrant divided by the number of whole shares of CMGI common stock the
optionholder or warrantholder is entitled to purchase based on the exchange
ratio. The exercise price will be rounded up to the nearest whole cent.
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CMGI will reserve for issuance a sufficient number of shares of its common
stock for delivery upon a yesmail optionholder's or warrantholder's exercise of
his or her option or warrant, as described above. After the effective time of
the merger, CMGI will file a registration statement on Form S-8 with respect to
the assumed yesmail stock options. During the period that any options remain
outstanding, CMGI will use its best efforts to maintain the effectiveness of
any registration statement on Form S-8.
Exchange of Certificates
Exchange Agent; Exchange Procedures; No Further Ownership Rights. As soon as
practicable after the effective time of the merger, CMGI's exchange agent will
mail to each record holder of yesmail common stock a letter of transmittal and
instructions for surrendering their certificates. Only those holders who
properly surrender their certificates in accordance with the instructions will
receive certificates representing shares of CMGI common stock, cash in lieu of
any fractional shares of CMGI common stock and any dividends or distributions
to which they are entitled. The surrendered certificates representing shares of
yesmail common stock will be cancelled. After the effective time of the merger,
each certificate representing shares of yesmail common stock that have not been
surrendered will only represent the right to receive (1) shares of CMGI common
stock, (2) cash in lieu of any fractional shares of CMGI common stock and (3)
dividends or distributions. Following the effective time of the merger, yesmail
will not register any transfers of yesmail common stock on its stock transfer
books.
No Fractional Shares. CMGI will not issue any fractional shares of CMGI
common stock in the merger. Instead, each holder of shares of yesmail common
stock exchanged in the merger who would otherwise be entitled to receive a
fraction of a share of CMGI common stock will receive cash, without interest,
in an amount equal to the fractional share multiplied by the average closing
price per share of CMGI common stock on the Nasdaq National Market during the
ten consecutive trading days ending on and including the trading day
immediately preceding the closing of the merger. As of the effective time of
the merger, CMGI will deposit with its exchange agent the shares of CMGI common
stock issuable in the merger and cash in an amount sufficient to make payments
in lieu of the issuance of any fractional shares.
Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the closing of the merger with respect to
shares of CMGI common stock will be paid to the holder of any unsurrendered
yesmail certificate and no cash payment in lieu of fractional shares will be
paid to any such holder until the holder surrenders its yesmail certificate in
accordance with the letter of transmittal. Upon surrender, CMGI will pay to the
recordholder of the certificate, without interest, the amount of cash payable
in lieu of fractional shares to which the holder is entitled and any dividends
or distributions with respect to the shares of CMGI common stock to which the
holder is entitled which have a record date after the closing date of the
merger but prior to the surrender of the certificate and a payment date after
the surrender of the certificate.
Lost Certificates. If any yesmail common stock certificate is lost, stolen
or destroyed, a yesmail stockholder must provide an appropriate affidavit of
that fact. CMGI may require a yesmail stockholder to deliver a bond as
indemnity against any claim that may be made against CMGI with respect to any
lost, stolen or destroyed certificate.
Holders of yesmail common stock should not send in their certificates until
they receive a letter of transmittal from the exchange agent.
Representations and Warranties
The merger agreement contains representations and warranties of CMGI,
yesmail and the transitory subsidiary. These relate to each company's:
. organization, existence, good . capitalization;
standing, corporate power and
similar corporate matters;
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. authorization, execution, . absence of conflicts, violations
delivery, required filings and and defaults under their
consents and performance and the corporate charters and by-laws
enforceability of the merger and other agreements and
agreement and related matters; documents;
. filings with the Securities and . absence of actions which may
Exchange Commission; jeopardize the tax-free nature
of the merger;
. financial statements;
. litigation; and
. the absence of certain changes
in their business; . accuracy of information provided
in connection with this proxy
statement/prospectus.
Yesmail also represented and warranted as to:
. required governmental and third- . compliance with laws;
party consents;
. intellectual property;
. subsidiaries;
. labor matters;
. the absence of undisclosed
liabilities; . environmental matters;
. brokers and related fees; . assets;
. the absence of restrictions on . transactions with affiliates;
its business activities;
. the actions by its board of
. owned and leased real directors that make Section 203
properties; of the Delaware General
Corporation Law statute
. taxes and tax returns; inapplicable to the proposed
merger; and
. employee benefit plans;
. material contracts;
. licenses and permits;
. insurance;
Certain Covenants
Conduct of Yesmail's Business Prior to the Merger. Except as contemplated by
the merger agreement, yesmail has agreed that it and its subsidiaries will
carry on their respective business in the ordinary course in substantially the
same manner as previously conducted. Specifically, yesmail has agreed that
neither it nor any of its subsidiaries will, without the prior written consent
of CMGI:
. year 2000 compliance.
. declare, set aside or pay any . issue, deliver, sell, grant,
dividends or other distributions pledge or otherwise dispose of
on its shares of capital stock; any shares of its capital stock
or other securities, except (1)
. split, combine or reclassify any pursuant to the exercise of
of its capital stock or outstanding options or warrants
authorize the issuance of any and (2) in connection with
other securities in substitution option grants to new employees
of its shares of capital stock; in accordance with the merger
agreement;
. with certain exceptions,
purchase, redeem or otherwise . except as provided in the merger
acquire any shares of its agreement, amend its charter or
capital stock or any rights to by-laws;
acquire shares of its capital
stock; . acquire any business,
corporation, partnership,
association, joint venture or
other business organization;
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. acquire any assets that are . make any capital expenditure in
material, in the aggregate, to excess of an amount as specified
yesmail and its subsidiaries, in, or otherwise consented to,
taken as a whole, except under the merger agreement;
purchases of inventory in the
ordinary course of business . change its accounting methods or
consistent with past practice; the assumptions underlying such
methods except as required by
. sell, lease, license, pledge, or generally accepted accounting
otherwise dispose of or encumber principles;
any assets or property, other
than in the ordinary course of . pay, discharge, settle or satisfy
business consistent with past any claim, liability or
practice; obligation other than (1) in the
ordinary course of business
. whether or not in the ordinary consistent with past practice or
course of business or consistent (2) as reserved against on
with past practice, sell or yesmail's most recent
dispose of any assets material to consolidated financial statements
yesmail and its subsidiaries, included in any filings with the
taken as a whole, including any Securities and Exchange
accounts, leases, contracts or Commission prior to December 14,
intellectual property or any 1999;
assets or the stock of any
subsidiaries, but excluding the . modify, amend or terminate any
sale of products and services in material contract or agreement or
the ordinary course of business knowingly waive, release or
consistent with past practice; assign any material rights or
claims, except in the ordinary
. adopt or implement any course of business;
stockholder rights plan;
. except for an unsolicited,
superior acquisition proposal, . enter into any material contract
enter into an agreement with or agreement except in the
respect to any merger, ordinary course of business
consolidation, liquidation or consistent with past practice;
business combination, or any
acquisition or disposition of all . license any material intellectual
or substantially all of the property rights to or from any
assets or securities of yesmail third party;
or any of its subsidiaries;
. except as required to comply with
. except as set forth below, create applicable law, plans or
or incur indebtedness other than agreements existing on
indebtedness which existed on the December 14, 1999, or as
unaudited balance sheet of contemplated by the merger
yesmail as of November 30, 1999, agreement, take any action with
or guarantee any such regard to any plans or agreements
indebtedness; related to employee matters
including, adopting or
. issue or sell any debt securities terminating any employee benefit
or warrants or other rights to plan or employment or severance
acquire any debt securities of arrangement, materially
yesmail or any of its increasing the compensation or
subsidiaries, guarantee any debt fringe benefits of, or pay any
securities of another person or bonus to, any director, officer
enter into any "keep well" or or key employee, or accelerating
other agreement to maintain any the payment or vesting of any
financial statement condition of compensation or benefits;
another person other than the
incurrence of accounts payable in . make or rescind any tax election
the ordinary course of business; or settle or comprise any tax
liability;
. make any loans, advances (other
than routine advances to yesmail . initiate, compromise or settle
employees in the ordinary course any material litigation or
of business consistent with past arbitration proceeding;
practice) or capital
contributions to, or investment . close any facility or office; and
in, any other person;
. take or agree to take any action
which would materially impair or
prevent the conditions of the
merger set forth in the merger
agreement from being satisfied.
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CMGI and yesmail have each agreed to use reasonable efforts to:
. take all appropriate action to consummate the transactions contemplated by
the merger agreement as promptly as practicable;
. obtain any consents, licenses, permits, waivers, approvals, authorizations
or orders from governmental entities or other third parties required in
connection with the transactions contemplated by the merger agreement; and
. make all necessary filings and submissions with respect to the transactions
contemplated by the merger agreement under federal and state securities
laws, antitrust laws and other applicable laws as promptly as practicable.
CMGI and yesmail have also each agreed to use reasonable efforts to obtain
any governmental clearances or approvals required under antitrust laws for the
closing of the merger. CMGI has the right to direct any governmental
proceedings or negotiations relating to those governmental clearances, provided
that yesmail has a reasonable opportunity to participate in the proceedings.
Neither CMGI nor any of its subsidiaries is required either to divest any of
its businesses, product lines or assets, or to take any other action that could
reasonably be expected to have a material adverse effect on CMGI or, if the
merger is consummated, CMGI as combined with yesmail, or to take any action
with respect to any government clearances or approvals if the Department of
Justice or the Federal Trade Commission authorizes its staff to seek a
preliminary injunction or restraining order to enjoin consummation of the
merger.
Yesmail is Restricted from Trying to Sell Itself to Another Party. Yesmail
has agreed that neither it nor any of its subsidiaries will, directly or
indirectly through their respective officers, directors, employees, financial
advisors or agents, (1) solicit, initiate, or encourage any proposal that could
reasonably be expected to lead to an acquisition proposal, (2) enter into
discussions or negotiations concerning, or provide any information relating to,
any acquisition proposal, or (3) agree to or recommend any acquisition
proposal. The merger agreement defines an acquisition proposal to mean a
proposal or offer for a merger, consolidation, business combination, sale of
substantial assets, tender offer, sale of shares of capital stock (excluding
sales pursuant to existing yesmail stock plans or warrants) or a similar
transaction involving yesmail or any of its subsidiaries.
However, yesmail and the yesmail board of directors may, so long as yesmail
has not breached the provisions in the merger agreement with respect to the
nonsolicitation of acquisition proposals and yesmail stockholders have not
already approved the adoption of the merger agreement:
. furnish information to, or enter into discussions or negotiations with, a
third party in connection with an unsolicited bona fide written acquisition
proposal or recommend an unsolicited bona fide written acquisition proposal
to yesmail stockholders, if and only to the extent that (1) the yesmail
board of directors believes in good faith after consultation with its
financial advisor that the acquisition proposal is reasonably capable of
being completed on the terms proposed and would, if consummated, result in a
transaction more favorable than the proposed merger, and the yesmail board
of directors determines in good faith after consultation with outside legal
counsel that such action is necessary in order for the yesmail board of
directors to fulfill its fiduciary duties, (2) prior to furnishing the
information to, or entering into discussions or negotiations with such a
third party, the yesmail board of directors receives from such third party
an executed confidentiality agreement no less favorable than the
confidentiality agreement between CMGI and yesmail, and (3) prior to
recommending a superior proposal or terminating the merger agreement in
connection with a superior proposal, yesmail gives CMGI at least five
business days' prior notice of its intent to do so in order to provide CMGI
an opportunity to make a counterproposal which yesmail and its advisors must
negotiate with CMGI during that period; or
. comply with Rule 14d-9 and Rule 14e-2 promulgated under the Exchange Act
with respect to such an acquisition proposal.
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Yesmail has agreed to notify CMGI in reasonable detail (orally and in
writing) within one business day of receipt of any acquisition proposal or
request for non-public information. Yesmail has agreed to continue to keep CMGI
promptly informed of any change in the status of any discussions or
negotiations and the terms being discussed or negotiated.
Director and Officer Indemnification. The merger agreement provides that for
a period of six years after the effective time of the merger, CMGI will cause
the surviving corporation to honor all of yesmail's obligations to indemnify
each present and former director and officer of yesmail against any costs or
expenses pertaining to matters existing or occurring at or prior to the
effective time of the merger. If the surviving corporation consolidates or
merges with another entity or transfers all or substantially all of its assets,
CMGI has agreed to either guaranty this indemnification obligation or cause
proper provision to be made for the assignment of this obligation to the
surviving corporation's successors.
Termination of Yesmail 401(k) Plan. Yesmail agreed to terminate its 401(k)
plan prior to the closing of the merger and not to establish another defined
contribution plan without CMGI's consent.
Conditions to Obligations to Effect the Merger
The obligations of CMGI and yesmail to effect the merger are subject to the
satisfaction or waiver of the following conditions:
. the yesmail stockholders must have approved and adopted the merger agreement
and the merger;
. the waiting period applicable to the consummation of the merger under the
Hart-Scott-Rodino Act must have expired or been terminated;
. the parties must have obtained all government authorizations and consents
other than those the failure of which to obtain is not reasonably likely to
have a material adverse effect on yesmail or CMGI;
. the registration statement, of which this proxy statement/prospectus is a
part, must have become effective and not be subject to any stop order or
other similar proceeding; and
. there must be no order, stay, decree, judgment or injunction, or statute,
rule or regulation in effect that makes the merger illegal.
In addition, the obligations of CMGI and the transitory subsidiary to effect
the merger are subject to the satisfaction or waiver of the following
conditions:
. the representations and . CMGI receives an opinion from its
warranties of yesmail in the counsel (or yesmail's counsel if
merger agreement must be true and CMGI's counsel does not provide
correct as of December 14, 1999, such an opinion) to the effect
the date of the merger agreement that the merger will be treated
and the closing date of the as a reorganization for federal
merger, unless the income tax purposes under Section
representations and warranties 368(a) of the Internal Revenue
are made as of another date, in Code;
which case they must be true and
correct as of such date, and, . yesmail obtains all required
with respect to the closing date third party consents; and
of the merger, except where the
failure to be true and correct . CMGI receives copies of the
has not had, and is not resignations of each yesmail
reasonably likely to have, a director.
material adverse effect on
yesmail;
. yesmail must have performed in
all material respects all
obligations required to be
performed by it under the merger
agreement at or prior to the
effective time of the merger;
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In addition, the obligation of yesmail to effect the merger is subject to
the satisfaction or waiver of the following conditions:
. the representations and warranties of CMGI and the transitory subsidiary in
the merger agreement must be true and correct as of December 14, 1999, the
date of the merger agreement and the closing date of the merger, unless the
representations and warranties are made as of another date, in which case
they must be true as of such date, and, with respect to the closing date of
the merger, except where the failure to be true and correct has not had, and
is not reasonably likely to have, a material adverse effect on CMGI;
. CMGI and the transitory subsidiary must have performed in all material
respects all obligations required to be performed by them under the merger
agreement at or prior to the effective time of the merger; and
. yesmail receives an opinion from its counsel (or from CMGI's counsel if
yesmail's counsel does not provide such an opinion) to the effect that the
merger will be treated as a reorganization for federal income tax purposes
under Section 368(a) of the Internal Revenue Code.
Termination; Expenses and Termination Fees
Termination
The merger agreement may be terminated by written notice by the terminating
party under the following circumstances at any time prior to the effective time
of the merger:
. by mutual written consent of the
parties;
. by CMGI if (1) the yesmail board
. by either CMGI or yesmail if the of directors fails to recommend
merger has not closed by June 30, approval of the merger agreement
2000, unless the delay was due to and the merger to yesmail
the terminating party's failure stockholders or withdraws or
to fulfill any obligation under modifies its recommendation; (2)
the merger agreement; the yesmail board of directors
approves or recommends to yesmail
. by either CMGI or yesmail if a stockholders an alternative
governmental entity issues a transaction, as described below;
nonappealable final order, decree (3) an alternative transaction
or ruling or taken any other has been announced or is
nonappealable final action, which otherwise publicly known and the
permanently restrains, enjoins or yesmail board of directors has
otherwise prohibits the merger; either failed to recommend
against acceptance of it by its
. by either CMGI or yesmail if the stockholders within ten days of
requisite vote of yesmail receiving a written request from
stockholders in favor of the CMGI to do so or it has failed to
merger agreement and the merger reconfirm its approval of the
(unless the terminating party is merger agreement and the merger
in breach of the merger within ten days of receiving a
agreement) is not obtained at the written request from CMGI to do
special meeting of stockholders; so; or (4) a third party, other
than CMGI or an affiliate of
. by CMGI or yesmail if there has CMGI, commences a tender offer or
been a breach of or failure to exchange offer for 20% or more of
perform any representation, the outstanding shares of yesmail
warranty, covenant or agreement common stock and the yesmail
in the merger agreement by the board of directors recommends
other party which causes that its stockholders tender
specified conditions to the their shares in the tender or
closing of the merger not to be exchange offer, or within ten
satisfied and which is not cured days after the tender or exchange
within 20 days after the offer is commenced, the yesmail
breaching party receives a board of directors fails to
written notice of the breach; recommend against acceptance of
the offer or takes no position
with respect to the acceptance of
the offer; or
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. by yesmail if (1) it has received an unsolicited acquisition proposal that
the yesmail board of directors believes in good faith after consultation
with its financial advisor is a superior proposal to the merger agreement,
(2) it has complied with the provisions of the merger agreement with respect
to the nonsolicitation of acquisition proposals, (3) its board of directors
has determined in good faith after consultation with its outside legal
counsel that termination of the merger agreement is necessary in order for
the yesmail board of directors to fulfill its fiduciary duties, and (4) it
pays to CMGI the specified termination fee and expenses.
An alternative transaction is defined in the merger agreement as:
. a transaction where a party other than CMGI or its affiliates acquires more
than 20% of the outstanding shares of yesmail common stock pursuant to a
tender offer or exchange offer or otherwise;
. a merger or other business combination in which a party other than CMGI or
its affiliates acquires more than 20% of the outstanding shares of yesmail
common stock or of the surviving entity;
. any transaction in which a party other than CMGI or its affiliates acquires
control of assets of yesmail having a fair market value equal to more than
20% of the fair market value of all yesmail assets immediately prior to such
transaction; or
. any public announcement by a party other than CMGI or its affiliates of a
proposal, plan or intention to enter into such a transaction.
If either CMGI or yesmail terminates the merger agreement because of any of
the reasons above, all obligations of the parties under the merger agreement
will terminate (with certain exceptions) and there will be no liability, except
for any liability for willful breaches of the merger agreement or the
provisions of the stock option agreement, on the part of CMGI, yesmail, the
transitory subsidiary or their respective officers, directors, stockholders or
affiliates. In addition, certain representations and warranties, as well as the
mutual confidentiality agreement dated December 3, 1999 between CMGI and
yesmail will survive any termination of the merger agreement.
In addition to any termination fee described below which may be due, yesmail
has agreed to pay up to a maximum of $500,000 to CMGI as reimbursement for its
fees and expenses paid in connection with the merger if the merger is not
consummated by June 30, 2000 because:
. CMGI terminates the merger agreement because the representations and
warranties of yesmail fail to be true and correct, except to the extent that
such failure has not had, and is not reasonably likely to have, a material
adverse effect on yesmail; or
. either CMGI or yesmail terminates the merger agreement because the requisite
vote of yesmail stockholders at the special meeting to approve the merger
agreement and the merger is not obtained and the merger agreement is
terminated under circumstances in which the termination fee described below
is not owed by yesmail to CMGI.
Expenses
Except as set forth in the previous section, CMGI and yesmail will pay their
own expenses incurred in connection with the merger. However, CMGI and yesmail
will share equally any expenses, other than attorney's fees, incurred with
respect to the printing and filing of this proxy statement/prospectus and the
registration statement of which this is a part.
Termination Fees
Yesmail agrees to pay CMGI a $20 million termination fee if the merger
agreement is terminated under the following circumstances:
. by CMGI because (1) the yesmail board of directors fails to recommend the
merger agreement and the merger to yesmail stockholders or withdraws or
modifies its recommendation; (2) the yesmail board of
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directors recommends to yesmail stockholders an alternative transaction; (3)
an alternative transaction is announced or otherwise publicly known and the
yesmail board of directors fails to recommend against acceptance of it by
yesmail stockholders within ten days of receiving a written request from
CMGI to do so or the yesmail board of directors fails to reconfirm its
approval of the merger agreement and the merger within ten days of receiving
a written request from CMGI to do so; or (4) a third party, other than CMGI
or an affiliate of CMGI, commences a tender offer or exchange offer for 20%
or more of the outstanding shares of yesmail common stock and the yesmail
board of directors recommends that yesmail stockholders tender their shares
in the tender or exchange offer, or within ten days after the tender or
exchange offer is commenced, the yesmail board of directors fails to
recommend against acceptance of the offer or takes no position with respect
to the acceptance of the offer;
. by CMGI because yesmail breaches the provisions in the merger agreement with
respect to nonsolicitation of acquisition proposals or it fails to call the
special meeting and to recommend the merger agreement and the merger to
yesmail stockholders; or
. by yesmail if (1) it has received an unsolicited acquisition proposal that
the yesmail board of directors believes in good faith, after consultation
with its financial advisor, is a superior proposal to the merger agreement,
(2) it has complied with the provisions of the merger agreement with respect
to nonsolicitation of acquisition proposals, and (3) its board of directors
has determined in good faith after consultation with its outside legal
counsel that termination of the merger agreement is necessary in order for
the yesmail board of directors to fulfill its fiduciary duties.
In addition, yesmail has agreed to pay CMGI a $10 million termination fee if
the merger agreement is terminated by either CMGI or yesmail because the
requisite vote of yesmail stockholders at the special meeting to approve the
merger agreement and the merger is not obtained and, at or prior to terminating
the agreement, an alternative transaction with respect to yesmail was publicly
announced. If such $10 million is due and yesmail enters into a definitive
agreement with respect to an alternative transaction, or an alternative
transaction is consummated within 12 months of the termination of the merger
agreement, then yesmail agrees to pay CMGI an additional $10 million. An
alternative transaction in the context of this paragraph is the acquisition, or
the public announcement of the intent to make an acquisition, by a party other
than CMGI or its affiliates, of more than 50% of the outstanding stock of
either yesmail or an entity surviving a combination with yesmail or more than
50% of yesmail's assets.
Amendment
Generally, the board of directors of each of CMGI and yesmail may amend the
merger agreement at any time prior to the effective time. However, after
stockholders of yesmail or the transitory subsidiary approve the merger
agreement and the merger, any amendment will be restricted by the Delaware
corporation statute. Amendments must be in writing and signed by all parties.
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OTHER AGREEMENTS
Stock Option Agreement
In connection with the merger agreement, CMGI and yesmail entered into a
stock option agreement, dated as of December 14, 1999, which is attached as
Exhibit A to Annex A of this proxy statement/prospectus. The option agreement
grants CMGI the right to purchase up to 4,044,400 shares of yesmail common
stock, constituting approximately 19.9% of yesmail's outstanding common stock,
at an exercise price of $25.76 per share, subject to adjustment. However, CMGI
may not exercise this option to acquire more than 19.9% of the outstanding
shares of the yesmail common stock. The option becomes exercisable after the
earliest to occur of the following:
. CMGI terminates the merger agreement because (1) the yesmail board of
directors fails to recommend the merger agreement and the merger to yesmail
stockholders or withdraws or modifies its recommendation; (2) the yesmail
board of directors recommends to yesmail stockholders an alternative
transaction; (3) an alternative transaction is announced or otherwise
publicly known and the yesmail board of directors fails to recommend against
acceptance of it to yesmail stockholders within ten days of receiving a
written request from CMGI to do so or the yesmail board of directors fails
to reconfirm its approval of the merger agreement and the merger within ten
days of receiving a written request from CMGI to do so; or (4) a third
party, other than CMGI or an affiliate of CMGI, commences a tender offer or
exchange offer for more than 20% of the outstanding shares of yesmail common
stock and the yesmail board of directors recommends that yesmail
stockholders tender their shares in the tender or exchange offer, or within
ten days after the tender or exchange offer is commenced, the yesmail board
of directors fails to recommend against acceptance of the offer or takes no
position with respect to the acceptance of the offer;
. CMGI terminates the merger agreement because yesmail breaches the provisions
in the merger agreement with respect to the nonsolicitation of acquisition
proposals or it fails to call the special meeting and to recommend the
merger agreement and the merger to yesmail stockholders; or
. yesmail terminates the merger agreement after (1) it has received an
unsolicited acquisition proposal that the yesmail board of directors
believes in good faith, after consultation with its financial advisor, is a
superior proposal to the merger agreement, (2) it has complied with the
provisions of the merger agreement with respect to the nonsolicitation of
acquisition proposals, (3) its board of directors has determined in good
faith after consultation with its outside legal counsel that termination of
the merger agreement is necessary in order for the yesmail board of
directors to fulfill its fiduciary duties, and (4) it pays to CMGI the
specified termination fee and expenses.
Once the option is exercisable, CMGI may exercise its option in whole or in
part, at any time or from time to time, prior to its termination at the
earliest of:
. the effective time of the merger;
. termination of the merger agreement under circumstances that do not entitle
CMGI to receive a fee;
. the date on which CMGI realizes a total profit of $25 million based on the
amount of cash received by CMGI as a result of the termination of the merger
agreement plus cash amounts CMGI receives from sales of the shares of
yesmail common stock issued to CMGI upon exercise of its option, less CMGI's
purchase price for such shares of yesmail common stock; and
. 90 days after the date on which the merger agreement is terminated, unless
CMGI cannot exercise its option or yesmail cannot deliver to CMGI the shares
of yesmail common stock purchased upon exercise of the option because
conditions to yesmail's obligation to deliver such shares of its common
stock have not been met, in which case the option will not expire until 30
days after such impediment to exercise has been removed.
At any time during which CMGI's option is exercisable, CMGI has the right to
cause yesmail to repurchase from CMGI all or any portion of CMGI's option (to
the extent not previously exercised) and the shares of yesmail common stock
that CMGI purchased by exercising its option. CMGI must give written notice to
yesmail of such demand for repurchase.
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The repurchase price for CMGI's option is the difference between the
market/tender offer price and the purchase price (if the market/tender offer
price is greater). The market/tender offer price is the greater of:
. the price per share of yesmail common stock offered pursuant to a tender or
exchange offer or an acquisition proposal that was made prior to and not
terminated or withdrawn as of the date on which CMGI gave notice of its
repurchase demand to yesmail; and
. the average of the closing price per share of yesmail common stock on the
Nasdaq National Market for the ten trading days immediately preceding the
notice date.
The purchase price is the product of the exercise price per share of yesmail
common stock and the number of shares of yesmail common stock purchasable
pursuant to the option for which CMGI is demanding repurchase.
The repurchase price for the shares of yesmail common stock that CMGI had
acquired by exercising its option is the product of:
. the number of such shares of yesmail common stock for which CMGI is
demanding repurchase; and
. the purchase price per share (plus the difference between the market/tender
offer price and the purchase price if the market/tender offer price is
greater) paid by CMGI for such shares of yesmail common stock.
In the event that yesmail is prohibited under applicable law or regulation,
or as a consequence of administrative policy, from repurchasing in full the
option or shares of yesmail common stock as demanded by CMGI, then yesmail must
immediately notify CMGI of the prohibition. In addition, within five business
days after each date on which yesmail is no longer so prohibited, yesmail must
deliver to CMGI that portion of the repurchase price. However, during the
prohibition period and so long as yesmail is using its best efforts to obtain
all required regulatory and legal approvals and to file any required notices as
promptly as practicable to accomplish such repurchase, CMGI may revoke its
notice demanding repurchase, in whole or to the extent of the prohibition. If
CMGI revokes its notice, yesmail must promptly deliver to CMGI the portion of
the repurchase price which yesmail is not prohibited from delivering and, as
appropriate:
. a new stock option agreement evidencing CMGI's right to purchase that number
of shares of yesmail common stock obtained by multiplying (1) the number of
shares of yesmail common stock for which the surrendered stock option
agreement was exercisable at the time of delivery of the notice by (2) a
fraction, the numerator of which is the repurchase price less the portion of
the repurchase price previously delivered to CMGI, and the denominator of
which is the repurchase price; and
. a certificate for the shares of yesmail common stock that yesmail is then so
prohibited from repurchasing.
Yesmail has agreed to file up to two registration statements within two
years following any purchase by CMGI of shares of yesmail common stock under
the option to register the resale by CMGI of those shares under applicable
federal and state securities laws.
Stockholder Agreement
As an inducement to CMGI to enter into the merger agreement, some of the
yesmail stockholders, who beneficially owned as of December 14, 1999 an
aggregate of 7,754,722 shares of yesmail common stock, entered into a
stockholder agreement with CMGI, dated as of December 14, 1999, which is
attached as Exhibit B to Annex A of this proxy statement/prospectus, agreeing
to vote their shares in favor of the merger agreement and the merger and
against specified alternative transactions. The stockholders retain the right
to vote their shares on all other matters.
The stockholders also appointed CMGI, or any nominee of CMGI, as their
lawful attorney and proxy with the limited right to vote each of the 7,754,722
shares of yesmail common stock at every yesmail stockholders meeting and every
written consent in lieu of such meeting, in favor of approval of the merger and
the merger agreement. The stockholder agreement terminates upon the earlier of
the merger becoming effective in accordance with the terms and provisions of
the merger agreement and the termination of the merger agreement.
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DESCRIPTION OF YESMAIL'S BUSINESS
The Yesmail Solution
Yesmail provides a comprehensive solution for permission email direct
marketing through the yesmail network. Through yesmail's network of direct
marketers, network partners and third party list managers, and members, yesmail
can direct a campaign to a targeted audience currently consisting of over 5
million self-selected individuals. Yesmail links each of the three
constituencies within its network with proprietary technology to target, track
and manage direct marketing campaigns over the Internet.
Benefits to Direct Marketers. Yesmail provides direct marketers with access
to a broad reach of Internet users who have given their permission to receive
promotional information in specific categories of interest. Yesmail enables
direct marketers to optimize the performance of their direct marketing
campaigns by reaching targeted audiences based on specific profiles and
response behaviors. In addition, yesmail provides direct marketers with
comprehensive real-time tracking and reporting services to monitor the
effectiveness of their campaign. Yesmail's proprietary products and services
enable direct marketers to deliver the right information to the right people at
the right time, resulting in a direct marketing campaign with a high return on
investment for the direct marketer.
Benefits to Network Partners. Yesmail's network partners are primarily Web
sites that have developed or are in the process of developing permission-based
email lists. Yesmail enables its network partners to generate additional
revenues from their Web site visitors and customers by providing access to
direct marketers, without the costs and challenges associated with building and
maintaining their own direct marketing sales forces and email direct marketing
technologies. Yesmail's network partners benefit from its proprietary
technology that tracks the responses of its list members, thereby enhancing the
value of its lists to direct marketers. Network partners also benefit from the
scale and reach of yesmail's network and the organization of all network
members into categories of interest and response rate histories.
Benefits to Members. Membership in My.Yesmail enables members to control the
flow of subscription information they receive via email. Yesmail members
benefit by receiving messages from merchandisers that are targeted to their
specific interests. These messages inform members about matters such as new
product offerings and special pricing promotions. Yesmail also provides these
members with the tools necessary to organize their email subscriptions and
permission lists, filter undesired promotional materials and control message
frequency. Yesmail believes that its ability to create a trusted brand name for
permission email messages will enable its members to have greater confidence in
the messages they receive.
Yesmail Strategy
Yesmail's objective is to be a leading provider of permission email direct
marketing. The key elements of yesmail's strategy are as follows:
Provide Effective Email Direct Marketing Programs. By combining proprietary
technology with the yesmail network, yesmail strives to enable direct marketers
to maximize the return on their investment. Yesmail intends to continue to
improve its ability to provide effective direct email campaigns to highly
targeted and responsive audiences. Yesmail provides a comprehensive permission
email direct marketing solution that enables marketers to cost-effectively
target an audience that has expressed a prior interest in receiving promotional
email messages on specific topics.
Maximize Targeted Reach Through a Permission-Based Network. Yesmail plans to
continue to expand its network of members who are permission-based, direct
email recipients because yesmail believes that major marketers value broad
reach through a single provider. Yesmail intends to expand the yesmail Network
through a variety of relationships with its network partners for whom yesmail
provides services, including permission list building, management and
reselling, and through an increase in the number of members in its own
proprietary list. Yesmail also intends to improve the depth and breadth of the
information yesmail manages with respect to these members, principally in the
area of compiling response histories.
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Expand Sales, Marketing and Client Services. Yesmail believes that effective
selling, marketing and client service are essential to expanding its business.
Yesmail plans to significantly increase the size of its direct sales force,
broaden its network partner development efforts and expand its advertising to
direct marketer clients and its advertising agencies. Yesmail intends to
continue to build on its expertise to provide permission email direct marketing
services to yesmail's direct marketer clients by leveraging its experienced
direct marketing staff. Yesmail also plans to continue to enhance its Web site
as a tool for marketing, customer service and campaign reporting.
Leverage Proprietary Technology. Yesmail intends to continue to develop,
acquire or license proprietary products and technology in such areas as message
targeting, response tracking, advanced messaging techniques, predictive buying
behavior and permission network development. Yesmail also plans to continue
using technology to deliver innovative products and services to its network
partners and to their members.
Build a Leading Brand. Yesmail believes that individuals will increasingly
seek to obtain more control over the marketing messages they receive. Yesmail
plans on leveraging its leadership position by closely associating the yesmail
brand with member-authorized messaging. Yesmail intends to implement its
strategy through a program that includes maintaining strict standards for
permission and privacy, supporting relevant industry initiatives and offering
member-oriented products for filtering and controlling their messages. Yesmail
believes that by providing individual members with products and services that
help them control and manage the messages they receive, it will build a
positive relationship with its members and a leading brand.
Products and Services
The yesmail network
The yesmail network is a comprehensive permission email marketing program,
comprised of three constituencies: direct marketers, network partners and third
party list managers, and members. Yesmail provides proprietary products,
technology, direct marketing expertise and a direct sales force to meet the
needs of these constituencies to effectively deliver permission email marketing
campaigns to a targeted audience. In the nine months ended September 30, 1999,
yesmail sent over 15.1 million permission email messages for over 180 direct
marketers.
Direct Marketers. Yesmail's customers include direct marketers whose
objective is to generate product sales from marketing campaigns that result in
a high return on investment. For the first nine months of 1999, revenues from
yesmail's largest customer, Fingerhut, represented 20.9% of revenues. In 1997
and 1998, no customer accounted for more than 10% of yesmail's revenues.
Yesmail initiates relationships with direct marketers principally through
its direct sales force and often work in conjunction with the direct marketers'
advertising or promotional agencies. Yesmail assigns a marketing account
executive to assist its direct marketer clients in executing permission email
campaigns and use its proprietary products to provide targeting, tracking and
reporting services. Yesmail's pricing is currently based on a cost per thousand
emails for each direct marketing message delivered. In the future, yesmail's
pricing practices may include performance-based measures such as cost per
response or revenue sharing.
Yesmail's permission email campaigns are developed and executed quickly,
often within one week. Permission email direct marketing response time is very
rapid compared to traditional direct marketing. Yesmail's direct marketer
clients frequently receive 75% of their responses within 48 to 72 hours of
delivery. Yesmail provides its direct marketers with relevant information
required to measure the results of their campaigns, including consumer
response, consumer activity on their Web sites, conversion to purchase and
campaign return on investment. Yesmail's current proprietary products as well
as products under development for direct marketers include:
. eTrack is a proprietary email response tracking, reporting and analysis
program which direct marketers can readily and transparently incorporate
into their Web pages to track individual responses from click through
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to as many as ten levels of response, including product purchase. Response
rates and return on investment calculations are reported real time to
yesmail's direct marketer clients through secure access to its Web site.
Historical responses to all campaigns are recorded in order to build
individual response data files for each permission list member.
. eCampaign is used to design and execute multi-tier direct marketing
campaigns with targeted promotional messages based on member responses to
prior messages.
. eTarget is designed to provide selection and sampling technology to match
yesmail's direct marketer client's message with the best targeted audience
from the yesmail Network. eTarget will also schedule the delivery of email
messages, collect payment information and automatically generate notices of
messaging status.
Yesmail's eTrack and eCampaign products were launched in April 1999 and
yesmail's eTarget product was launched in July 1999. Yesmail expects to
introduce ePredict by the end of the fourth quarter of 1999.
Yesmail Network. The yesmail network provides access to over 5 million
individuals who have given their permission to receive direct marketing
messages in specific categories of interest to them. Yesmail provides direct
marketers access to these individuals through its own proprietary list, lists
from its network partners, primarily Web sites that have developed or are in
the process of developing their own permission email lists, and third party
list managers. Yesmail's relationships with its network partners include
yesmail's exclusive management of its network partners' lists for which
yesmail pays its network partners a percentage of revenues derived from the
sale of these lists. Yesmail's network also includes re-seller arrangements
under which yesmail pays third party list managers a fixed fee for the
nonexclusive use of their list for a specific campaign. All network partners
and third party list managers must meet yesmail's consumer permission policy
requirements, which mandate that each list member has given prior permission
to receive promotional messages and has the ongoing opportunity to retract
their permission. Yesmail's objective is to increase the mix of its network
partners from lower margin reseller relationships to higher margin contractual
managed arrangements and yesmail's proprietary member base.
Yesmail's network partners use yesmail's products and services to generate
additional revenue from their existing email lists, but only with respect to
the members of their permission email lists who have given their prior
permission to receive emails. Yesmail's ePredict product is being designed to
enable yesmail's network partners to receive further revenues for those list
members who have a demonstrated history of responsiveness.
In the first quarter of 1999, yesmail began to enter into contracts to
exclusively build and manage permission email lists for its network partners.
These contracts are generally for an initial term of 1 to 3 years, with an
annual automatic renewal. Pursuant to these contracts, yesmail's network
partners share the revenues yesmail receives when they send promotional email
messages to persons on its permission lists. In addition, as part of yesmail's
contractual relationship, yesmail provides its network partners with the
following services: build and manage their permission members, convert general
lists to permission email lists, track historical responses, build databases
on each permission list member, and report and analyze network usage.
In addition to yesmail's network partners, yesmail has reseller
arrangements with third party list managers, under which it pays a fixed fee
for the nonexclusive use of their lists for specific campaigns. Participation
in the yesmail network provides yesmail's network partners and third party
list managers with the reach and visibility that are important to direct
marketers. By combining their permission email lists with those of other
network partners in the yesmail network, network partners can benefit from
increased reach, targeting and segmentation.
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Yesmail Members. The individuals, or yesmail members, who receive emails
from yesmail's direct marketers also benefit from the yesmail network because
yesmail enables them to control the email messages they receive. Yesmail
believes that by giving these members more control over their email boxes
yesmail can establish a beneficial relationship for all of the yesmail network
constituents. In May 1999, yesmail introduced two applications, My.Interests
and My.Profile, as part of the My.Yesmail suite of online applications in the
third quarter of 1999, yesmail plans to introduced two more applications,
My.Subscriptions and My.Events. These applications will provide yesmail members
with tools, to control the emails they receive, such as:
. My.Interests allows members to select from over 20 categories and over 250
subcategories. The My.Interests profile quickly and easily helps members
define what messages they do and do not want to receive.
. My.Profile is an application that enables yesmail's members to select and
edit the information categories and subcategories that suit their particular
interests. Members can control where information relating to each category
is sent, allowing them to receive emails related to their jobs at their
office email address and emails related to their hobbies at home.
. My.Subscriptions is being designed to assist members in managing the lists,
newsletters and sites to which they subscribe. My.Subscriptions software
also is being designed to help members process subscription cancellations.
. My.Events is being designed to remind members of birthdays, anniversaries,
holidays, business meetings or other events. Additionally, after the member
has set up their My.Events profile, yesmail's software is being designed to
automatically send them an email reminder of the event and include some
suggestions that might compliment their event. For example, a birthday
reminder might include a link to an online flower or greeting card merchant.
Sales and Marketing
Yesmail sells its services to direct marketers principally through yesmail's
direct sales force. As of September 30, 1999, yesmail had 32 direct sales
professionals in Chicago, Atlanta, Cincinnati, Los Angeles and San Francisco.
Yesmail plans to significantly increase the size of its sales force and open
additional offices over the next 12 months.
Yesmail's direct sales force consists of internal representatives and field
sales account executives. Yesmail's sales and marketing teams work together to
target prospective clients, focusing initially on industry sectors, individuals
and advertising agencies that are active users of Internet advertising and/or
direct marketing programs. A sales representative, in conjunction with a
marketing account executive, typically works with the key decision-makers and
advertising agencies for the prospective client. Yesmail's sales and marketing
personnel receive special training in direct marketing, interactive
advertising, direct response marketing and Internet advertising techniques.
Yesmail's marketing program is designed to build and promote the yesmail
brand and to generate qualified leads for the sales team. Yesmail does this
through an integrated business to business marketing program that includes
print advertising in marketing and Internet trade publications, permission
direct email, direct mail and banner advertising. Yesmail also promotes its
business through trade show participation, speaking engagements, yesmail's
weekly newsletter, WebPromote Weekly and other public relations programs.
Yesmail has implemented a program to build its brand name with individual
consumers. Yesmail's goal is to establish its brand as the recognized and
trusted provider of permission-based information direct to consumers' email
boxes. Yesmail is building its brand and its relationships with consumers
through special products, including My.Yesmail, which is distributed for free
through the yesmail.com Web site and yesmail's network affiliate partners.
Yesmail reinforces its brand name by having its name appear in the "from" line
in most of the permission direct email messages it sends for yesmail's direct
marketer clients.
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Technology
In offering permission email delivery services, yesmail employs advanced
custom software and hardware, combining internal expertise with industry-
standard technology to create a proprietary infrastructure.
Email Technology
Yesmail has developed a scalable proprietary email solution that can create
and deliver personalized emails to targeted members in multiple email formats
such as plain text, HTML and AOL-specific. Yesmail can also personalize the
content of the message specifically to each member. In addition to supporting
high levels of email output, yesmail also employs sophisticated automatic
routing of email they receive. Inbound traffic could include reports of
undeliverable email and confirmations of customer requests to be included or
excluded from an information service. Yesmail's solution allows for monitoring
of all stages of an email campaign as well as the recording of key statistics
regarding the campaign.
Tracking
Tracking is the mechanism by which yesmail records a history of events that
a member performs in response to yesmail's permission email campaign and
subsequent visits to the advertiser's Web site. Because the email yesmail sends
can be personalized, yesmail is able to embed unique elements in an email
message that allows its tracking technology to identify members even before
they click-through to the advertiser. Yesmail can record each action that the
member performs on an advertiser's Web site and are able to use this
information to help predict the behavior of those members with regard to new
advertising campaigns.
Sniffing
Sniffing is the mechanism by which yesmail gathers additional data on a
member through recording freely available user information, from sources such
as their browser, during viewing sessions of an advertiser's Web site. With
this technology, yesmail is able to gain additional information to help target
members, as well as improve the success rates of its campaigns. Yesmail uses
sniffing to learn what email client is being used, for identifying email format
capabilities such as plain text or HTML and identifying a member's location.
This is accomplished by looking up the Internet address assigned when they
connected to the Internet. Yesmail may also take this information and cross-
reference it with other databases, including third-party Internet resources,
and record the additional information in its databases for future targeting.
Security
Information recorded about members is not released to external parties.
Internally, the security and privacy of this information is guarded in several
ways. Yesmail's employees are on a network that is physically separate from the
network that sends the emails. Access to yesmail's databases and security
control points is limited to select members of yesmail's information technology
group. Each action by the member to request to be included or excluded from an
information service, to change list memberships, or to request pricing or other
key data points is tracked and maintained to provide an audit trail for
members, network partners and marketers in order to protect privacy and choice.
Yesmail's Web-based products utilize industry-standard secure user
authentication, and each function that is performed re-verifies security rights
each time it is employed. Yesmail employs a proprietary user account security
system to provide an additional level of security.
Data Centers and Network Access
Yesmail's computer servers are grouped into three task areas: emailing,
tracking and Web serving, and corporate email and connectivity. Each area is
independently connected to the Internet through separate CheckPoint Firewall-1
servers. This architecture ensures that yesmail's corporate functions remain
separate from mission-critical applications and Web server traffic, while still
providing backup options in case of system failure.
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Yesmail's data centers use Compaq Proliant servers running Windows NT and
Sun servers running the Solaris operating system. Yesmail uses Microsoft SQL
Server 7.0 for its transaction databases and Oracle for its financial
databases. Yesmail's products are built on three tiers of functionality: user
interface, execution of program code and access to stored database functions
and data. By separating these tiers, each element becomes reusable and scalable
to support growth.
Yesmail's Internet connectivity solution allows it to deliver emails to
several of the top members at a fraction of the normal delay of traditional
Internet connections without having to ever go through the backbone of the
Internet. Yesmail accomplishs this through multiple T-1 Internet connections
provided by Qwest Communications Corporation and Advanced Information Systems,
Inc. Yesmail employs sophisticated monitoring technology to tract the status of
its network, connectivity and throughput of its own network in addition to
those through which yesmail connects.
All of yesmail's systems are backed up on a regular schedule with onsite
copies in fireproof storage. Backups are regularly rotated to offsite secure
storage. Yesmail seeks to ensure the maximum uptime of its network through
backup electrical power systems, continuously updated and available backup hard
drive systems, computer parts that can be replaced without shutdown and
separate physical sites that can take over in the case of catastrophic failure.
Licensed Technology
Yesmail licenses technology from third parties that is incorporated into its
products. Specifically, yesmail has entered into a nonexclusive software
license agreement with Revnet Systems, Inc. relating to email delivery
technology. Under this agreement, yesmail is obligated to pay Revnet a fee of
$325,000 per year in addition to any service fees incurred during the term of
the agreement. The service fees under this license represent fees for
implementation and training services provided by Revnet. These fees are paid
monthly as incurred. As of September 30, 1999, yesmail has not incurred any of
these service fees and does not anticipate incurring any material service fees
under this license. This agreement is for an initial term of two years which
expires in March 2001.
Competition
Yesmail competes in the market for Internet advertising and email direct
marketing, which is intensely competitive and rapidly changing. This market is
highly fragmented with the largest companies accounting for only a small
portion of the market in 1998. Yesmail expects that competition will increase
significantly in the near-term because of the attention the Internet has
received as a means of advertising and direct marketing and because there are
no significant barriers of entry into the market. Yesmail's primary long-term
competitors may not have entered the market yet because yesmail's market is
new. Competition could result in price reductions, changes in the way services
are priced, reduced gross margin and loss of market share, any of which could
materially adversely affect yesmail's business.
Many of yesmail's current and potential competitors have greater name
recognition, longer operating histories, larger customer bases and
significantly greater financial, technical, marketing, public relations, sales,
distribution and other resources. Some of yesmail's potential competitors are
among the largest and most well-capitalized companies in the world. In
addition, some of yesmail's competitors may include Web site owners who choose
to manage their own permission email lists. Yesmail expects to face competition
from these and other competitors, including:
. independent list managers;
. Internet portals who offer direct
email services to their email . incentive-based subscriber lists
lists such as Excite and Yahoo!; such as MyPoints and Netcentives;
and
. traditional list brokers such as
American List Counsel and Venture . customer management and retention
Communications; service companies such as Digital
Impact and Post Communications.
. banner advertising managers such
as DoubleClick, 24/7 Media and
Flycast Communications;
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If one or more of yesmail's current or future competitors were to achieve
leading positions in the industry or if they were to expand relationships with
significantly larger companies through mergers, acquisitions or otherwise,
yesmail's business could be seriously harmed. In addition, potential
competitors may bundle or incorporate the functionality of yesmail's products
into their products in a manner that eliminates the need for yesmail's products
or discourages users from purchasing yesmail's products.
Intellectual Property Rights
Yesmail's success and ability to compete are substantially dependent upon
yesmail's technology and intellectual property. While yesmail relies on
copyright, trade secret and trademark law to protect its technology and
intellectual property, yesmail believes that factors such as the technological
and creative skills of its personnel, new product and service developments,
frequent product and service enhancements and reliable product and service
maintenance are more essential to establishing and maintaining an intellectual
property leadership position. Yesmail has no patents or patent applications
pending. Others may develop products and services that are similar or superior
to yesmail's.
Yesmail generally enters into confidentiality or license agreements with its
employees, consultants and corporate partners and generally controls access to
and distribution of its products, documentation and other proprietary
information. Despite yesmail's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use its
products, services or technology. Policing unauthorized use of yesmail's
proprietary information is difficult, and the steps yesmail has taken might not
prevent misappropriation of its technology, particularly in foreign countries
where the laws may not protect its proprietary rights as fully as do the laws
of the United States.
Yesmail's products and services operate in part by collecting and utilizing
data derived from user activity on the yesmail network. This information is
used to target marketing materials and to predict the performance of these
materials. This creates the potential for claims to be made against yesmail,
either directly or through contractual indemnification provisions with
customers, including negligence, copyright or trademark infringement, personal
injury, invasion of privacy or other legal theories. In addition, others may
claim rights to this information. It is also possible that if any such
information contains errors, third parties could make claims against Yesmail
for losses incurred in reliance on such information. Although yesmail carries
general liability insurance, its insurance may not cover potential claims of
this type or may not be adequate to indemnify it for all liability that may be
imposed.
Substantial litigation regarding intellectual property rights exists in the
technology industry. From time to time, third parties have asserted and may
assert exclusive patent, copyright, trademark and other intellectual property
rights to technologies and related standards that are important to yesmail.
Yesmail expects that it may increasingly be subject to infringement claims as
the number of competitors in yesmail's industry segments grows and the
functionality of products in different industry segments overlaps. In addition,
yesmail believes that many of its competitors have filed or intend to file
patent applications covering aspects of yesmail's technology that they may
claim yesmail's intellectual property infringes. Although yesmail has not been
party to any litigation asserting claims that allege infringement of
intellectual property rights, yesmail cannot assure you that it will not be a
party to litigation in the future. Any third party claims, with or without
merit, could be time-consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays or require
yesmail to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
yesmail, if at all. A successful claim of product infringement against yesmail
could harm its business.
Government Regulation
There is a growing body of laws and regulations applicable to access to or
commerce on the Internet. Due to the increasing popularity and use of the
Internet, it is likely that a growing number of laws and regulations will be
adopted at the international, federal, state and local level with respect to
the Internet or
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email direct marketing services covering issues such as user privacy, pricing,
content, copyrights, distribution, antitrust and characteristics and quality of
products and services. Further, the growth and development of the market for
email direct marketing may prompt calls for more stringent consumer protection
laws that may impose additional burdens on those companies conducting business
online. The adoption of any additional laws or regulations may impair the
growth of the Internet or email direct marketing, which could, in turn,
decrease the demand for yesmail's products and services and increase yesmail's
cost of doing business, or otherwise harm its business. Moreover, the
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. Any such new
legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to yesmail's business or the
application of existing laws and regulations to the Internet could harm
yesmail's business.
Legislation has recently been enacted in several states relating to the
sending of unsolicited emails, a practice commonly referred to as "spamming."
The federal government and several states, including New York, are considering,
or have considered, similar legislation. Although the provisions of these
current and contemplated laws vary, they generally limit or prohibit both the
transmission of unsolicited emails and the use of familiar spamming techniques
such as the use of forged or fraudulent routing and header information. Some
states, including California, require that unsolicited emails include opt-out
instructions and that senders of such emails honor any opt-out requests, a
requirement that is consistent with yesmail's own permission email policies.
Yesmail believes that its permission email system will not be affected by such
legislation because it does not send unsolicited messages and because yesmail's
current practices are intended to comply with current and proposed legislation.
However, there can be no assurance that such legislation or similar legislation
will not also affect permission email marketing in a way that could force
yesmail to change its business practices, particularly in light of the rapidly
evolving state of the law in this area. In such event, yesmail's business could
suffer.
Employees
As of September 30, 1999, yesmail had 118 employees, including 64 in sales
and marketing, 15 in general and administrative functions, 11 in operations and
28 in research and development. Yesmail is not subject to any collective
bargaining agreements and believes that its employee relations are good.
Competition for employees in yesmail's industry is intense and its future
success depends on its ability to attract, retain and motivate highly-skilled
employees.
Facilities
Yesmail's principal executive offices are located in Vernon Hills, Illinois,
where it leases approximately 8,700 square feet under the terms of a lease that
expires in October 2003. Yesmail also has regional business and sales offices
in the New York metropolitan area.
In November 1999, yesmail executed a seven year lease to rent 35,000 square
feet of office premises. The lease commences in March 2000 and terminates in
February 2007. The annual lease payments will gradually increase from
approximately $989,000 to $1,100,000 over the lease term. The lease may be
terminated prior to 2007 upon payment of an early termination fee.
Legal Proceedings
Yesmail is not aware of any pending legal proceedings against it that,
individually or in the aggregate, would have a material adverse effect on its
business, results of operations or financial conditions. Yesmail may in the
future be party to litigation arising in the course of its business, including
claims that yesmail allegedly infringes third-party trademarks and other
intellectual property rights. These claims, even if not meritorious, could
result in the expenditure of significant financial and managerial resources.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information, the discussion in this proxy
statement/prospectus contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements include, among others, those
statements including the words, "expects," "anticipates," "intends," "believes"
and similar language. Our actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to the risks discussed in the section titled "Risk
Factors" beginning on page 7.
Overview
Yesmail provides permission email direct marketing services. Yesmail was
founded in 1995 and yesmail was originally focused on providing a wide array of
Internet marketing services. From 1995 through 1997, the majority of yesmail's
revenue was derived from directory submission Internet services and business
advertising on the Internet.
After identifying the opportunity for permission email direct marketing,
yesmail began to refocus its strategy towards permission email in 1998. To
implement this permission email strategy, yesmail engaged a new executive
management team in late 1998 and early 1999. As a result of its new focus,
yesmail has built a network and developed reseller relationships which
collectively provide it with reach to over 7 million self-selected individuals,
who have given express permission to receive promotional messages via email on
specific categories of interest. Yesmail's current strategy is to focus
resources on its permission email business by continuing to build a network of
subscribers and its customer base. Yesmail's change in business focus has
resulted in permission email growing from approximately 25% of revenue in the
third quarter of 1998 to approximately 88% of revenue in the third quarter of
1999.
Yesmail derives revenue by charging fees for sending permission email
messages. Revenue is recognized when emails are sent to subscribers. Yesmail's
customers are primarily e-commerce companies and their interactive advertising
agencies.
Yesmail delivers email messages to members of the yesmail network,
consisting of yesmail's permission email lists and those of its network
partners, and permission email lists from third party list managers. Yesmail
pays its network partners or third party list managers either a percentage of
revenue derived from the delivery of email messages to members on the lists
they provide or a fixed fee. Substantially all of yesmail's customers purchase
permission email services under short-term contracts. Customers can therefore
terminate these contracts on short notice without penalty. Yesmail's revenues
would suffer if it were unable to secure new contracts from existing customers
or obtain new customers. Yesmail expects to continue to derive a substantial
majority of its revenues from short-term contracts.
Gross margins from permission email are lower than gross margins from the
other Internet marketing services. This is primarily attributable to higher
costs, as a percentage of revenue, associated with the re-sale of permission
email lists which are managed by third parties. As a result of its change in
focus to permission email, gross margin percentage declined for the nine month
period ended September 30, 1999, compared to 1998.
Yesmail has incurred significant losses since inception and as of September
30, 1999, had an accumulated deficit of $12.7 million. Yesmail expects to
increase spending on sales and marketing as it expands its sales force,
increases its subscriber base and promotes awareness of its brand. Yesmail also
expects substantially higher general and administrative and research and
development expenses as it expands its infrastructure to support expected
growth and as it continues to develop new products and enhancements to its
existing products. As a result of these increases, yesmail expects to incur
significant losses for the foreseeable future.
In view of the rapidly evolving nature of the yesmail business, its limited
operating history and its recent focus on permission email, yesmail believes
that period-to-period comparisons of revenue and operating results,
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including yesmail's gross margin and operating expenses as a percentage of
total revenues, are not meaningful and should not be relied upon as an
indication of future performance. Yesmail does not believe that its historical
growth rates are indicative of future results.
Results of Operations
Three and Nine Months Ended September 30, 1998 and 1999
Revenues. Yesmail's revenues consist of fees from providing Internet
marketing services, including the delivery of permission email direct marketing
messages to members in its network, as well as banner advertising and other
Internet marketing services. Total revenues were $1.1 million and $3.8 million
for the three months ended September 30, 1998 and 1999, respectively, and $3.2
million and $7.5 million for the nine months ended September 30, 1998 and 1999,
respectively. Permission email revenues were $278,000 and $3.4 million for the
three months ended September 30, 1998 and 1999, respectively, representing 25%
and 88% of total revenue in the respective periods. Permission e-mail revenues
were $454,000 and $5.6 million for the nine months ended September 30, 1998 and
1999, respectively, representing 14% and 74% of total revenue in the respective
periods. The increase in revenues was primarily due to the increased number of
permission email messages sent in addition to an increase in the number of
direct marketer clients to which yesmail provided permission email services.
Cost of Revenue. Cost of revenues consists of expenses related to providing
Internet marketing services and includes payments made to network partners and
third party list managers, fees for the placement of advertisements on third
party Web sites on behalf of others and personnel costs associated with
yesmail's Internet marketing services. Cost of revenues were $783,000 and $2.8
million for the three months ended September 30, 1998 and 1999, respectively.
Cost of revenues were $1.9 million and $5.3 million for the nine months ended
September 30, 1998 and 1999, respectively. The increase in cost of revenues was
primarily due to the increase in sales volume. Gross margins decreased from 30%
for the three months ended September 30, 1998 to 26% for the three months ended
September 30, 1999. Gross margins decreased from 39% for the nine months ended
September 30, 1998 to 29% for the nine months ended September 30, 1999. The
decrease was primarily a result of increased revenues associated with yesmail's
permission email strategy because payments made to third party list managers
are greater as a percentage of revenues than other costs of revenues.
Sales and Marketing. Sales and marketing expenses consist of personnel and
related costs for yesmail's direct sales force and marketing staff and
marketing programs, including trade shows, advertising and public relations.
Sales and marketing expenses were $342,000 and $3.5 million for the three
months ended September 30, 1998 and 1999, respectively. Sales and marketing
expenses were $1.0 million and $6.6 million for the nine months ended September
30, 1998 and 1999, respectively. The increases were primarily due to increases
in yesmail's direct sales force and increased marketing expenditures targeted
at building its permission email strategy. Yesmail expects sales and marketing
expenses will increase substantially in absolute dollars over the next year as
it hires additional sales and marketing personnel and initiates additional
marketing programs.
General and Administrative. General and administrative expenses consist
primarily of personnel and related costs for general corporate functions,
including finance, accounting, human resources, facilities and legal. General
and administrative expenses were $195,000 and $1.0 million for the three months
ended September 30, 1998 and 1999, respectively. General and administrative
expenses were $578,000 and $2.8 million for the nine months ended September
30,1998 and 1999, respectively. The increases were primarily due to increases
in the number of general and administrative personnel and increased legal and
accounting costs associated with yesmail's growth. Yesmail expects general and
administrative expenses to increase in absolute dollars in future periods as it
hires additional personnel and incurs additional costs related to the growth of
its business and its operations as a public company.
Research and Development. Research and development expenses consist
primarily of personnel, third party consulting fees, and related costs for its
product development and technology initiatives. To date, all
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research and development costs have been expensed as incurred. Research and
development expenses were $122,000 and $937,000 for the three months ended
September 30,1998 and 1999, respectively. Research and development expenses
were $399,000 and $2.4 million for the nine months ended September 30, 1998 and
1999, respectively. The increases were primarily due to increased research and
development personnel and consulting costs associated with the development of
its Web site and its products which enable the execution of our permission
email strategy. Yesmail believes significant investment in research and
development is essential to future success and expects that research and
development expenses will increase in absolute dollars in future periods.
Stock Based Compensation. Stock based compensation expenses consist of non-
cash stock compensation charges for stock options granted to employees,
consultants and warrants issued to service providers. Stock based compensation
was $0 and $484,000 for the three months ended September 30, 1998 and 1999,
respectively. Stock based compensation was $0 and $695,000 for the nine months
ended September 30, 1998 and 1999, respectively. The compensation charge
represents the excess of the fair market value of the options granted over
their exercise price. In addition, deferred compensation charges of $480,000
and $900,000 were recorded in the three month and nine month periods ended
September 30, 1999, respectively, resulting from options issued to employees
which vest over a four-year period. Deferred compensation will be charged to
stock based compensation expense over the vesting period.
Interest Expense. Interest expense consists of interest on capital lease and
debt obligations. Interest expense was $8,000 and $37,000 for the three months
ended September 30, 1998 and 1999, respectively. Interest expense was $27,000
and $123,000 for the nine months ended September 30, 1998 and 1999,
respectively. The increases were the result of increased borrowings associated
with our working capital facilities and borrowings under capital lease
facilities.
Income Taxes. No provision for federal or state income taxes was recorded as
yesmail incurred net operating losses since inception through September 30,
1999. As of December 31, 1998, yesmail had approximately $1.4 million of
federal and state net operating loss carry-forwards which expire in varying
amounts beginning in 2010. As a result of various equity transactions during
1999, yesmail believes that it may have undergone an "ownership change" as
defined in section 382 of the Internal Revenue Code. Accordingly, the
utilization of a portion of the net operating loss carry-forwards may be
limited. Due to the uncertainty regarding the ultimate utilization of the net
operating loss carry-forwards, yesmail has not recorded any benefit for losses
and a valuation allowance has been recorded for the entire amount of the net
deferred tax asset. In addition, sales of yesmail stock may further restrict
its ability to utilize net operating loss carry-forwards.
Years Ended December 31, 1996, 1997 and 1998
Revenues. Total revenues were $935,000, $2.5 million and $4.6 million for
the years ended December 31, 1996, 1997 and 1998, respectively. Permission
email revenues were $0, $95,000 and $968,000 for the respective periods. The
increase in revenues in 1998 compared to 1997 was primarily due to increases in
the number of advertising clients and the increased number of permission email
messages sent. The increase in revenues in 1997 compared to 1996 was primarily
attributable to increases in the number of direct marketing customers partially
offset by decreases in the number of Web development projects.
Cost of Revenues. Cost of revenues were $293,000, $1.1 million, and $2.7
million for the years ended December 31, 1996, 1997 and 1998, respectively. The
increase in 1998 compared to 1997 primarily resulted from increased sales
volumes, including payments to network partners and third party list managers.
The increase in cost of revenues in 1997 compared to 1996 was primarily due to
the increase in personnel costs.
Sales and Marketing. Sales and marketing expenses were $292,000, $960,000
and $1.8 million in 1996, 1997 and 1998, respectively. These increases were
primarily due to increases in the number of direct sales personnel and
increased marketing expenditures targeted at building its permission email
strategy.
General and Administrative. General and administrative expenses were
$237,000, $466,000 and $929,000 in 1996, 1997 and 1998, respectively. These
increases were due primarily to an increase in the number of general and
administrative personnel and increased legal and accounting costs.
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Research and Development. Research and development expenses were $199,000,
$357,000 and $601,000 in 1996, 1997 and 1998, respectively. The increase in
research and development expenses from 1997 to 1998 was primarily due to
increased personnel and consulting costs associated with the development of the
yesmail Web site and the building of the yesmail permission email strategy. The
increase in research and development expenses from 1996 to 1997 was primarily
due to increased personnel and consulting costs associated with banner
advertising services.
Interest Expense. Interest expense was approximately $4,000, $18,000 and
$45,000 in 1996, 1997 and 1998, respectively. These increases were the result
of increased borrowings to fund yesmail's working capital needs.
Other Expense. Other expense of $250,000 for the year ended December 31,1998
consists of the accrual of the costs related to a claim by a former employee.
In May 1999, this claim was settled for approximately $250,000.
Income Taxes. No provision for federal and state income taxes was recorded
as yesmail incurred net operating losses from inception through December 31,
1998. As of December 31, 1998, yesmail had approximately $1.4 million of
federal and state net operating loss carry-forwards which expire in varying
amounts beginning in 2010. As a result of various equity transactions during
1999, yesmail believes that it may have undergone an "ownership change" as
defined in section 382 of the Internal Revenue Code. Accordingly, the
utilization of a portion of the net operating loss carry-forwards may be
limited. Due to the uncertainty regarding the ultimate utilization of the net
operating loss carry-forwards, yesmail has not recorded any benefit for losses
and a valuation allowance has been recorded for the entire amount of the net
deferred tax asset. In addition, sales of yesmail's stock, including shares
sold in yesmail's initial public offering, may further restrict its ability to
utilize net operating loss carry-forwards.
Liquidity and Capital Resources
From inception to January 1999, yesmail primarily funded its growth through
short-term borrowings and capital leases. In January 1999, it completed a $1.0
million bridge financing, which was convertible into a series A preferred stock
at the lender's option. In March 1999, yesmail received $600,000 in advances
from three of its stockholders. In May 1999, yesmail completed a financing and
issued approximately 5.2 million shares of Series A preferred stock, including
shares issuable upon conversion of the $1.0 million bridge loan and shares
issued in exchange for the cancellation of the $600,000 in advances from its
stockholders, for gross proceeds of $9.0 million. In September 1999, yesmail
raised approximately $33.1 million of net proceeds through an initial public
offering of its common stock.
Net cash used in operating activities was $21,000 and $65,000 for the years
ended December 31, 1996 and 1997, respectively, primarily the result of net
losses of $80,000 and $414,000, which were partially offset by increases in
accounts payable and accrued expenses. Net cash provided by operating
activities was $935 for the year ended December 31, 1998, the result of a net
loss of $1.7 million, which was offset by increases in accounts payable and
accrued expenses. Net cash used in operating activities was $6.0 million for
the nine months ended September 30, 1999. The increase was primarily the result
of the net loss of $10.5 million, for the nine months ended September 30, 1999,
and the increases in accounts receivable and prepaid expenses. The increases in
accounts receivable were due to increases in revenue. These net losses and the
increases in accounts receivable and prepaid expenses were partially offset by
increases in accounts payable and accrued expenses.
Net cash used in investing activities was $45,000, $70,000 and $102,000 for
the years ended December 31, 1996, 1997 and 1998 respectively, and $1.6 million
for the nine months ended September 30, 1999. Cash used in investing activities
was primarily related to purchases of property and equipment.
Net cash provided by financing activities was $65,000, $127,000 and $126,000
for the years ended December 31, 1996, 1997 and 1998, respectively, and $42.4
million for the nine months ended September 30, 1999. Cash provided by
financing activities in 1997 and 1998 resulted from borrowings of short-term
debt, and
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was partially offset by payments of capital leases. Cash provided by financing
activities for the nine months ended September 30, 1999 resulted primarily from
the proceeds of yesmail's initial public offering and the issuance of preferred
stock.
Yesmail currently has commitments of approximately $2,000,000 related to
construction costs.
Yesmail believes that its cash resources and available credit facilities
will be sufficient to meet anticipated cash needs for working capital,
repayment of debt and capital expenditures for at least the next twelve months.
After that time, it may need additional capital. However, yesmail may need to
raise additional funds sooner to fund its planned expansion, to develop new or
enhanced products or services, to respond to competitive pressures or to make
acquisitions. Yesmail cannot be certain that additional financing will be
available to it on favorable terms. If adequate funds are not available on
acceptable terms, yesmail may not be able to continue or expand its business.
Year 2000 Readiness Disclosure
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. This could result in
system failures or miscalculations causing disruption of operations for any
company using such computer programs or hardware, including, among other
things, a temporary inability to process transactions, send or receive email
messages, send invoices or engage in normal business activities. As a result,
many companies' computer systems may need to be upgraded or replaced in order
to avoid "year 2000" issues.
Yesmail is a comparatively new enterprise, and, accordingly, the majority of
software and hardware it uses to manage its business has all been purchased or
developed by yesmail within the last 24 months. While this does not uniformly
protect it against year 2000 exposure, yesmail believes its exposure is limited
because the information technology, or IT, it uses to mange its business is not
based upon legacy hardware and software systems. Generally, hardware and
software design within the current decade and the past several years in
particular has given greater consideration to year 2000 issues. All of the
software code yesmail has internally developed to manage its network and
infrastructure, is written with four digits to define the applicable year.
As of January 5, 2000, yesmail has not experienced any year 2000 related
business interruptions, including its ability to process transactions, send or
receive email messages or invoices or engage in normal business activities.
Yesmail continues to rely on software and hardware developed by third
parties both for its network and internal information systems and third party
network infrastructure providers to gain access to the Internet. To date, no
third-party software or hardware utilized by yesmail has, to yesmail's
knowledge, resulted in any business interruptions related to year 2000
compliance. Yesmail intends to continue monitoring year 2000 compliance of its
key suppliers of hardware, networking equipment for its data centers and
providers of its key software applications.
As of December 31, 1999, yesmail had incurred approximately $105,000 in
expenses related to the year 2000 problem, and it anticipates that future costs
associated with year 2000 monitoring efforts will not exceed $50,000 in the
aggregate. However, if yesmail, third party providers of its hardware and
software or its third party network providers experience any year 2000 related
issues, the result could be lost revenues, increased operating costs, the loss
of customers and other business interruptions, any of which could harm its
business. Moreover, the failure to adequately address year 2000 compliance
issues in its products and systems could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time consuming to defend.
Yesmail will continue to engage in an ongoing year 2000 assessment but has
not yet identified any year 2000 issues or developed any contingency plans.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
AND MANAGEMENT OF YESMAIL
The following table sets forth information concerning the beneficial
ownership of common stock of yesmail as of December 31, 1999 for the following:
. each person or entity who is known by yesmail to own beneficially more than
5% of the outstanding shares of yesmail's common stock;
. each of yesmail's current directors; and
. all directors and executive officers of yesmail as a group.
The pre-merger percentage ownership (this does not include any accelerated
vesting of restricted stock or options) is based on 20,332,164 shares of
yesmail common stock outstanding as of December 31, 1999. All shares subject to
options and warrants exercisable within 60 days after December 31, 1999 are
deemed to be beneficially owned by the person or entity holding that option or
warrant and to be outstanding solely for calculating that person's or entity's
percentage ownership. Except as indicated by the notes to the following table,
the holders listed below will have sole voting power and investment power over
the shares beneficially held by them.
Except as otherwise noted, the address of each person listed in the table is
c/o yesmail.com, inc., 565 Lakeview Parkway, Vernon Hills, Illinois 60061.
Unless otherwise indicated below, the persons and entities names in the table
have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Shares Beneficially Percentage of Shares
Name and Address of Beneficial Owner Owned (17) Beneficially Owned (17)
- ------------------------------------ ------------------- -----------------------
<S> <C> <C>
Kenneth D. Wruk (1)................ 2,185,213 10.8%
Kevin Manley (2)................... 2,185,212 10.8
Michael A. Santer (3) (4).......... 1,778,029 8.8
Keith Speer (5).................... 1,480,304 7.3
John Weiss (6)..................... 1,480,304 7.3
David M. Tolmie (1) (7)............ 1,451,162 7.1
Platinum Venture Partners II, L.P.
(8)............................... 1,145,555 5.6
David Brewer (9) (10).............. 1,016,592 5.0
Aragon Ventures, LLC (11).......... 844,773 4.1
John G. Vandergrift................ 239,319 1.1
Gian Fulgoni (12) (13)............. 161,932 *
Alexander F. Hern (14)............. 718,483 3.5
Robert W. Shaw (15)(16)............ 76,023 *
All executive officers and
directors as a group (13 persons)
(17).............................. 7,651,042 37.6
</TABLE>
- --------
* Less than 1% of yesmail's outstanding common stock.
(1) Includes 688,889 shares held by Wruk Partners, L.P., a limited partnership
in which Mr. Wruk is the general partner.
(2) Includes 618,169 shares held by Manley Partners, L.P., a limited
partnership in which Mr. Manley is the general partner.
(3) Mr. Santer's address is c/o Platinum Venture Partners, 555 Twin Dolphin
Drive, Suite 400, Redwood City, California 94065.
(4) Includes 1,145,455 shares held by Platinum Venture Partners II, L.P. and
114,546 shares held by Webco & Co. Mr. Santer is a general partner of
Platinum Venture Partners II, L.P. and maintains control over Webco & Co.
and disclaims beneficial ownership of the shares held by these entities
except with respect to his pecuniary interest.
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(5) Includes 346,875 shares held by Speer Partners, L.P., a limited partnership
in which Mr. Speer is the general partner. Also includes 18,750 shares held
by Bartly J. Loethen, as trustee for the Linda Blue Dynasty Trust, an
irrevocable trust created by Mr. Speer. Mr. Speer disclaims beneficial
ownership of the shares held by the Linda Blue Dynasty Trust except with
respect to his pecuniary interest.
(6) Includes 356,250 shares held by JN Weiss Partners, L.P., a limited
partnership in which Mr. Weiss is the general partner.
(7) Includes 1,237,500 shares subject to yesmail.com's right of repurchase
during a vesting period of four years and accelerated vesting in some
circumstances. Also includes 18,750 shares held by David M. Tolmie Dynasty
Trust, an irrevocable trust created by Mr. Tolmie for the benefit of his
minor children. Mr. Tolmie disclaims beneficial ownership of the shares
held by the David M. Tolmie Dynasty Trust except with respect to his
pecuniary interest.
(8) Platinum Ventures Partners II, L.P.'s address is 555 Twin Dolphin Drive,
Suite 400, Redwood City, California 94065.
(9) Mr. Brewer's address is c/o Aragon Ventures, LLC, 301 University Avenue,
Suite 440, Palo Alto, California 94301.
(10) Includes 844,773 shares held by Aragon Ventures, LLC. Mr. Brewer is a
general partner of Aragon Ventures, LLC and disclaims beneficial ownership
of the shares held by this entity except with respect to his pecuniary
interest.
(11) Aragon Ventures, LLC's address is 301 University Avenue, Suite 440, Palo
Alto, California 94301.
(12) Mr. Fulgoni's address is c/o Lancaster Enterprises, 65 E. Bellevue,
Chicago, Illinois 60611.
(13) Includes 9,375 shares subject to options which are exercisable within 60
days of December 31, 1999.
(14) Mr. Hern's address is 4350 W. Cypress, Suite 440, Tampa, Florida 33607.
(15) Mr. Shaw's address is c/o US Web Corporation, #2 Harrison Street, Top
Floor, San Francisco, California 94105.
(16) Includes 9,375 shares subject to options which are exercisable within 60
days of December 31, 1999.
(17) Includes 2,394,546 shares subject to yesmail.com's right of repurchase
during a vesting period of four years and accelerated vesting in some
circumstances. Also includes 18,750 shares subject to options which are
exercisable within 60 days of December 31, 1999.
(18) Does not include any shares vesting at the effective time of the merger.
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COMPARISON OF STOCKHOLDER RIGHTS
Both CMGI and yesmail are corporations organized under the laws of Delaware
and are therefore subject to the Delaware General Corporation Laws ("DGCL").
However, there are differences in the charters and by-laws of CMGI and
yesmail. The following is a brief summary of certain differences between the
rights of yesmail stockholders and the rights of CMGI stockholders, and is
qualified in its entirety by reference to the relevant provisions of the
charter and by-laws of CMGI and yesmail. See "Where You Can Find More
Information" on page 88. Following the effective time of the merger, the
rights of former yesmail stockholders will be governed by the charter and by-
laws of CMGI.
Capitalization
CMGI. CMGI is authorized to issue 400,000,000 shares of common stock and
5,000,000 shares of preferred stock, of which 250 shares are designated Series
A convertible preferred stock, 50,000 shares are designated Series B preferred
stock and 375,000 shares have been designated as Series C preferred stock. The
CMGI board of directors has the authority, subject to certain stockholder
approval described below, to issue shares of authorized preferred stock from
time to time in one or more series and to fix the rights and preferences,
including voting rights, of each series of preferred stock, which rights and
preferences may be superior to that of CMGI common stock. On January 26, 2000,
CMGI had issued and outstanding:
. 265,342,554 shares of common stock;
. no shares of Series A preferred stock;
. 35,000 shares of Series B preferred stock (convertible into an aggregate of
approximately 2,812,391 shares of common stock as of January 3, 2000); and
. 375,000 shares of Series C preferred stock (convertible into an aggregate
of approximately 9,490,662 shares of common stock as of January 3, 2000).
The maximum number of shares of CMGI common stock into which shares of
Series B preferred stock may be converted is 8,333,336, subject to adjustment.
Yesmail. Yesmail is authorized to issue 60,000,000 shares of common stock
and 5,000,000 shares of preferred stock. Yesmail's board of directors has the
authority, without stockholder approval, to determine or alter the rights,
preferences, privileges and restrictions on any unissued shares of preferred
stock. On January 27, 2000, yesmail had issued and outstanding:
. 20,400,756 shares of common stock; and
. no shares of preferred stock.
Voting Rights
CMGI. Each holder of CMGI common stock is entitled one vote for each share.
Holders of each of Series B preferred stock and Series C preferred stock have
no voting power except as otherwise provided by the DGCL and the charter. On
such matters where the holders of each of Series B preferred stock and Series
C preferred stock have a right to vote with the holders of CMGI common stock,
they are entitled to vote their shares on an as converted basis.
CMGI's charter also gives the holders of each of Series B preferred stock
and Series C preferred stock the right to vote on enumerated actions that if
taken by CMGI would impair their rights, preferences and privileges.
Accordingly, CMGI must first obtain the affirmative vote or written consent of
the holders of a majority of the outstanding shares of such series of
preferred stock being adversely affected, before taking actions such as:
. changing the rights, preferences or privileges of such series of preferred
stock or any other capital stock of CMGI;
. increasing the number of authorized shares of such series of preferred
stock;
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. authorizing or issuing any new class or series of securities senior or
equal to such series of preferred stock; and
. increasing the par value of the CMGI common stock.
Yesmail. Each holder of yesmail common stock is entitled to one vote for
each share and may not cumulate votes for the election of directors.
Number and Classification of Directors
CMGI. CMGI's by-laws provide that its board of directors will consist of at
least three, but not more than 15, persons, and will designate the authorized
number of directors. CMGI's charter and by-laws provide for a classified board
of directors with three classes, each elected for a three year term,
consisting of as nearly an equal number of directors as possible. The
elections are staggered to provide for the election of a different class at
each annual meeting of the CMGI stockholders.
Yesmail. Yesmail's by-laws provide that the number of directors on its
board is to be set by resolution of the board. Currently, there are seven
directors. The board of directors is elected at yesmail's annual meeting and
holds office until the next annual meeting.
Removal of Directors
CMGI. Subject to the rights of holders of any class or series of CMGI
capital stock having a preference over the CMGI common stock, CMGI's charter
and by-laws provide that the CMGI stockholders may remove directors from
office at any annual or special meeting of the stockholders by the affirmative
vote of at least 75% of the outstanding shares of capital stock of CMGI
entitled to vote in an election of directors.
Yesmail. Yesmail's charter provides that yesmail stockholders may remove
directors from office at any time with cause by the affirmative vote of the
holders of at least a majority of the outstanding voting power of yesmail.
Directors may not be removed without cause.
Filling Vacancies on the Board of Directors
CMGI. CMGI's charter and by-laws provide that its board of directors may
fill a vacancy on the board, including a vacancy resulting from an increase in
the size of the board, by an affirmative vote of the majority of the directors
then in office, although less than a quorum, or by a sole remaining director,
except as may be required by law. A director so elected will hold office until
the next election of such director's class and until a successor is elected
and qualified. A decrease in the number of authorized directors will not
shorten an incumbent director's term.
Yesmail. Yesmail's by-laws provide that its board of directors may fill a
vacancy on the board, including a vacancy resulting from any increase in the
authorized number of directors, by an affirmative vote of the majority of the
directors then in office, although less than a quorum, or by a sole remaining
director.
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Charter Amendments
CMGI. CMGI's charter provides that the affirmative vote of at least 75% of
the shares of CMGI capital stock outstanding and entitled to vote is required
to amend, repeal or adopt a provision inconsistent with the following
provisions of the charter:
. restrictions on repurchases by
. stockholder action and special CMGI of shares of its capital
meetings of stockholders; stock from a holder who
beneficially owns more than 5% of
the outstanding shares of CMGI
capital stock entitled to vote in
the election of directors;
. the board's authority and powers,
including the authority to amend
the by-laws and provide for the
issuance of preferred stock
without stockholder approval;
. the requirement for a higher vote
of stockholders for business
combination proposals; and
. number, election and terms of
directors;
. CMGI's reservation of its right
. personal liability of directors; to amend, alter, change or repeal
any other provision of the
charter in the manner prescribed
by the DGCL.
. indemnification of directors and
officers;
. factors the board may consider in
determining tender offers or
offers relating to business
combinations or sale of assets;
In addition, any amendment to the charter that would adversely affect the
rights and preferences of each of Series B preferred stock and Series C
preferred stock must be approved by a majority of the outstanding shares of the
holders of the series being so affected.
Yesmail. Yesmail's charter provides that the charter may be amended or
provisions repealed as provided by the DGCL. Currently, this means that an
amendment to the charter requires the affirmative vote of a majority of the
outstanding stock entitled to vote.
Amendments to By-Laws
CMGI. CMGI's charter and by-laws provide that its board of directors may
amend the by-laws by a majority vote of the authorized number of directors. In
addition, CMGI's charter and by-laws provide that the CMGI stockholders may
amend the by-laws by an affirmative vote of 75% of the shares of CMGI capital
stock outstanding and entitled to vote in an election of directors, voting
together as a single class.
Yesmail. Yesmail's charter and by-laws provide that the board of directors
may make, alter or repeal the by-laws. In addition, yesmail's charter and by-
laws provide that the yesmail stockholders may amend the by-laws by an
affirmative vote of a majority of the shares of yesmail capital stock
outstanding and entitled to vote in an election of directors.
Notice of Stockholder Actions
CMGI. CMGI's by-laws provide that in order to nominate directors or bring
business before an annual meeting, stockholders must provide written notice to
the secretary of CMGI at least 120 days before the annual meeting date that was
stated in connection with the previous year's annual meeting. However, if CMGI
did not hold an annual meeting in the previous year or has changed the annual
meeting date by more than 30 days, then a stockholder must provide notice at
least 30 calendar days before the date on which the notice of the annual
meeting date is first mailed to stockholders.
Yesmail. Yesmail's by-laws provide that in order for a stockholder to
nominate directors or bring business before an annual meeting, the
stockholder's notice must be mailed to and received or otherwise delivered at
yesmail's offices not less than 90 days prior to the meeting. However, if less
than 100 days' notice or prior public disclosure of the date of the meeting is
given, then the stockholder's notice must be received not later than the close
of business on the tenth day following the day on which the notice of the date
of the meeting was mailed or public disclosure about the date of the meeting
was made.
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Right to Call Special Meeting of Stockholders
CMGI. CMGI's by-laws restrict the persons who may call a special meeting of
CMGI stockholders to the chairman of the board, the board of directors if
pursuant to a resolution approved by a majority of the total authorized number
of directors, or the CMGI stockholders if pursuant to a written request of the
holders of 20% of the shares outstanding and entitled to vote at an election of
directors. The business to be conducted at any special meeting of CMGI
stockholders is limited to the business brought before the meeting by such
persons.
Yesmail. Yesmail's charter restricts the persons who may call a special
meeting of yesmail stockholders to the board of directors, the chairman of the
board, the chief executive officer and the president.
Dividends and Distributions
CMGI. CMGI's charter provides that its board of directors, at its
discretion, may declare and pay dividends out of funds legally available for
dividends to the holders of CMGI common stock and Series C preferred stock.
Series B preferred stock does not bear any dividends. Series C preferred stock
ranks senior to CMGI common stock as to payment of dividends.
Holders of Series C preferred stock are entitled to receive cumulative
dividends equal to the annual dividend amount of 2% of its stated value
($1,000), payable semiannually, either in cash or, at CMGI's option, by an
upward adjustment to the stated value per share. In addition, in most
circumstances, restrictions apply on distributions made to a series or class of
CMGI securities junior in rank to each of Series B preferred stock and Series C
preferred stock. Accordingly, CMGI must obtain the written consent of the
holders of the majority of the outstanding shares of each of Series B preferred
stock and Series C preferred stock, each voting as a class, prior to making
such a junior security distribution.
Yesmail. The yesmail by-laws provide that the board of directors may declare
and pay dividends upon its shares, subject to any restrictions in the DGCL. The
DGCL provides that the yesmail board of directors, at its discretion, may
declare and pay dividends out of funds legally available to the holders of
yesmail common stock.
Redemption
CMGI. CMGI common stock is not subject to redemption.
CMGI must redeem shares of Series B preferred stock upon the occurrence of
circumstances specified in the charter, including CMGI's assignment of all or
substantially all its property or business for the benefit of its creditors and
the institution of bankruptcy, insolvency, reorganization or liquidation
proceedings by or against CMGI. In addition, holders of Series B preferred
stock have the right to cause CMGI to redeem their shares under specified
circumstances, including CMGI's failure either to issue shares of its common
stock upon the conversion by holders of shares of Series B preferred stock or
to maintain the listing of its common stock on the Nasdaq National Market. The
redemption price per share is the greater of a specified percentage of the
stated value ($1,000) of Series B preferred stock plus an amount equal to 4%
per annum of the stated value and the market price of CMGI common stock during
the period specified in CMGI's charter.
In addition, at any time after December 21, 1999, CMGI has the option to
redeem shares of Series B preferred stock in the event that the closing price
of CMGI common stock is less than $18.25 for a period of ten consecutive
trading days. In such an event, the redemption price per share is 115% of the
stated value plus an amount equal to 4% per annum of the stated value.
Holders of shares of Series C preferred stock have the right to cause CMGI
to redeem their shares upon the occurrence of events specified in the charter,
including CMGI's failure to issue shares of common stock upon conversion by
holders of shares of Series C preferred stock. The redemption price will be an
amount per share equal to the liquidation preference on the date of notice to
CMGI from the holder of Series C preferred stock demanding redemption.
Yesmail. Yesmail common stock is not subject to redemption.
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Liquidation
CMGI. In the event of any liquidation or dissolution of CMGI, holders of
CMGI capital stock are entitled to liquidation distributions. Series B
preferred stock ranks senior to Series C preferred stock which ranks senior to
CMGI common stock as to liquidation distributions.
Holders of Series B preferred stock are entitled to an amount per share
equal to the sum of the stated value plus an amount equal to 4% per annum of
the stated value for the period beginning on the issue date and ending on the
date of final distribution to the holder (prorated for any portion of such
period). CMGI's charter specifies corporate events, including a consolidation
or merger where CMGI is not the surviving corporation, that holders of Series B
preferred stock may elect to treat as a liquidation event and receive a
liquidation distribution equal to 118% of the stated value plus an amount equal
to 4% per annum of the stated value. Alternatively, holders of Series B
preferred stock may elect to have the conversion price for each share of Series
B preferred stock be adjusted accordingly. An affirmative vote of the holders
of a majority of the outstanding shares of Series B preferred stock is required
for either election.
Holders of Series C preferred stock are entitled to receive an amount per
share equal to the sum of the stated value, as adjusted, plus accrued but
unpaid dividends. CMGI's charter specifies corporate events, including a
consolidation or merger in which the CMGI stockholders do not own at least 50%
of the voting power of the acquiring company, that holders of Series C
preferred stock may elect either to treat as a liquidation event and receive a
liquidation distributions or to have the conversion price for each share of
Series C preferred stock be adjusted accordingly. An affirmative vote of the
holders of at least two-thirds of the outstanding shares of Series C preferred
stock is required for either election.
Yesmail. Yesmail's charter does not provide liquidation rights for any class
of yesmail capital stock.
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STOCKHOLDER PROPOSALS
Although it is expected that the closing of the merger with CMGI will occur
promptly after the stockholder's special meeting, in the event the closing of
the merger is delayed and yesmail is required to hold an annual meeting in
2000, it is expected that such annual meeting will be held on or about May 19,
2000. In such event, stockholder proposals for inclusion in the proxy material
for yesmail's 2000 annual meeting of stockholders should be submitted to the
secretary of yesmail in writing and received at the executive offices of
yesmail a reasonable time before yesmail begins to print and mail its proxy
materials for the 2000 annual meeting, which printing and mailing date is
expected to be on or about April 15, 2000. Such proposals must also have met
the other requirements of the rules of the Securities and Exchange Commission
relating to stockholder proposals and must have satisfied the notice procedures
for stockholder proposals set forth in the yesmail by-laws.
The yesmail by-laws require that for business to be properly brought before
a meeting called by a stockholder, the stockholder must have given timely
written notice thereof, specifying the name of the stockholder, the time of
such meeting and the general nature of the business proposed to be transacted,
and shall be delivered personally to or mailed and received by the secretary of
yesmail.
LEGAL MATTERS
The validity of the shares of CMGI common stock to be issued in connection
with the merger will be passed upon for CMGI by Hale and Dorr LLP.
EXPERTS
The consolidated financial statements and schedule of CMGI as of July 31,
1999 and 1998, and for each of the years in the three-year period ended July
31, 1999, have been incorporated by reference herein and elsewhere in this
proxy statement/prospectus 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 Company 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 upon 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.
The consolidated financial statements of Flycast Communications Corporation
as of December 31, 1997 and 1998 and for each of the three years in the three-
year period ended December 31, 1998, incorporated by reference in this proxy
statement/prospectus, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report incorporated by reference herein, and have
been so incorporated by reference in reliance on the report of such firm given
upon their authority as experts in accounting and auditing.
The consolidated financial statements of yesmail as of December 31, 1997 and
1998 and for each of the three years in the period ended December 31, 1998,
included in this proxy statement/prospectus have been audited by Arthur
Andersen LLP, independent certified public accountants, as stated in their
reports appearing herein and have been so included in reliance on the reports
of such firm given upon the authority of such firm as experts in accounting and
auditing.
87
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
CMGI and yesmail each files annual, quarterly and special reports, proxy
statement/prospectus and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
that CMGI or yesmail files at the Securities and Exchange Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Securities and Exchange
Commission filings are also available to the public from commercial document
retrieval services and at the web site maintained by the Securities and
Exchange Commission at http://www.sec.gov.
CMGI will file with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act of 1933 to register with the
Securities and Exchange Commission the CMGI common stock issuable pursuant to
the merger agreement. This proxy statement/prospectus does not contain all the
information you can find in the registration statement or the exhibits and
schedules to the registration statement. For further information with respect
to CMGI, yesmail and the CMGI common stock, please refer to the registration
statement, including the exhibits and schedules. You may inspect and copy the
registration statement, including the exhibits and schedules, as described
above. Statements contained in this proxy statement/prospectus about the
contents of any contract or other document are not necessarily complete, and
CMGI refers you, in each case, to the copy of such contract or other document
filed as an exhibit to the registration statement.
The Securities and Exchange Commission allows CMGI to "incorporate by
reference" information into this proxy statement/prospectus, which means that
CMGI can disclose important information to you by referring you to another
document filed separately with the Securities and Exchange Commission. The
information incorporated by reference is deemed to be part of this proxy
statement/prospectus, except for any information superseded by information in
this proxy statement/prospectus. This proxy statement/prospectus incorporates
by reference the documents set forth below that CMGI has previously filed with
the Securities and Exchange Commission. These documents contain important
information about CMGI and its finances that you should read.
<TABLE>
<CAPTION>
CMGI Securities and Exchange
Commission Filings (File No. 000-
23262) Period
--------------------------------- ------
<C> <S>
Annual Report on Form 10-K.......... Fiscal year ended July 31, 1999
Quarterly Report on Form 10-Q....... Fiscal quarter ended October 31, 1999
Current Reports on Form 8-K......... Filed on August 12, 1999, September 2,
1999, September 3, 1999, September 27,
1999, October 1, 1999, December 17, 1999
and January 24, 2000
Current Reports on Form 8-K/A....... Filed on November 1, 1999 (amending the
Current Report on Form 8-K filed on
September 2, 1999) and filed on
November 17, 1999 (further amending the
Current Report on Form 8-K filed on
September 2, 1999)
Registration Statement on Form 8-A.. Filed on January 11, 1994
</TABLE>
CMGI is also incorporating by reference additional documents that CMGI may
file with the Securities and Exchange Commission between the date of this proxy
statement/prospectus and the date of the special meeting of yesmail
stockholders.
CMGI has supplied all information contained or incorporated by reference in
this proxy statement/prospectus relating to CMGI, and yesmail has supplied all
information contained in this proxy statement/prospectus relating to yesmail.
88
<PAGE>
Documents incorporated by reference are available from CMGI without charge,
excluding all exhibits unless CMGI has specifically incorporated by reference
an exhibit in this proxy statement/prospectus. Stockholders may obtain
documents incorporated by reference in this proxy statement/prospectus from
CMGI by requesting them in writing or by telephone at the following address:
CMGI, Inc.
Attention: Catherine Taylor
Director of Investor Relations
100 Brickstone Square
Andover, MA 01810
Telephone: (978) 684-3600
Internet address: http://www.cmgi.com
If you would like to request documents from CMGI, please do so by March 3,
2000, to receive them before the yesmail special meeting.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus to vote on the merger agreement
and the merger. CMGI and yesmail have not authorized anyone to provide you with
information that is different from what is contained in this proxy
statement/prospectus. This proxy statement/prospectus is dated February 2,
2000. You should not assume that the information contained in this proxy
statement/prospectus is accurate as of any date other than February 2, 2000,
and neither the mailing of the proxy statement/prospectus to yesmail
stockholders nor the issuance of CMGI common stock in the merger shall create
any implication to the contrary.
89
<PAGE>
yesmail.com, inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Financial Statements:
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1997 and 1998.................................................... F-3
Consolidated Balance Sheets as of December 31, 1997 and 1998............ F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1996, 1997 and 1998................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998.................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
yesmail.com, inc.:
We have audited the accompanying consolidated balance sheets of yesmail.com,
inc. (a Delaware corporation) as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
yesmail.com, inc. as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 4, 1999
(except with respect to the matters discussed
in Note 11, as to which the date is
September 21, 1999)
F-2
<PAGE>
yesmail.com, inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1996 1997 1998
--------- ---------- -----------
<S> <C> <C> <C>
Revenues................................... $ 934,856 $2,468,022 $ 4,583,354
Cost of revenues........................... 292,776 1,089,585 2,702,872
--------- ---------- -----------
Gross profit............................. 642,080 1,378,437 1,880,482
--------- ---------- -----------
Operating expenses:
Sales and marketing expenses............. 291,999 959,813 1,751,208
General and administrative expenses...... 236,761 466,208 929,209
Research and development costs........... 198,548 357,068 600,848
--------- ---------- -----------
Total operating expenses............... 727,308 1,783,089 3,281,265
--------- ---------- -----------
Operating loss............................. (85,228) (404,652) (1,400,783)
Other expense:
Interest expense......................... (3,590) (18,098) (45,075)
Other.................................... -- -- (250,000)
--------- ---------- -----------
Total other expense.................... (3,590) (18,098) (295,075)
--------- ---------- -----------
Net loss before minority interest...... (88,818) (422,750) (1,695,858)
Minority interest.......................... 8,821 8,716 (10,547)
--------- ---------- -----------
Net loss............................... $ (79,997) $ (414,034) $(1,706,405)
========= ========== ===========
Net loss per share:
Basic and diluted........................ $ (0.01) $ (0.05) $ (0.22)
Weighted average shares--basic and
diluted................................. 7,723,237 7,649,480 7,636,098
========= ========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-3
<PAGE>
yesmail.com, inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
--------- -----------
<S> <C> <C>
Current assets:
Cash................................................. $ 1,841 $ 26,212
Accounts receivable, net of allowance of $26,000 and
$56,000............................................. 176,259 242,757
Deposits and prepaid expenses........................ 3,786 19,348
--------- -----------
Total current assets............................... 181,886 288,317
--------- -----------
Property and equipment, net............................ 101,640 353,871
--------- -----------
Intangible and other assets............................ 750 750
--------- -----------
Total assets....................................... $ 284,276 $ 642,938
========= ===========
Accounts payable..................................... $ 185,353 $ 1,391,509
Short-term debt...................................... 149,241 342,870
Due to related parties............................... 76,721 56,788
Obligations under capital leases, current portion.... 17,647 87,165
Accrued payroll and payroll related expenses......... 74,043 213,291
Deferred revenue..................................... 119,021 114,301
Accrued legal settlement............................. -- 250,000
Other current liabilities............................ 8,216 94,602
--------- -----------
Total current liabilities.......................... 630,242 2,550,526
--------- -----------
Obligations under capital leases, less current
portion............................................... 18,079 152,743
--------- -----------
Minority interest...................................... (17,537) (6,990)
Stockholders' equity (deficit):
Common stock, $.0001 par value; 22,500,000 shares
authorized;
8,333,333 shares issued............................. 833 833
Common stock in treasury, 497,685 and 833,333 in 1997
and 1998, respectively.............................. (602) (1,030)
Additional paid-in capital........................... 160,649 160,649
Accumulated deficit.................................. (507,388) (2,213,793)
--------- -----------
Total stockholders' deficit........................ (346,508) (2,053,341)
--------- -----------
Total liabilities and stockholders' deficit........ $ 284,276 $ 642,938
========= ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
<PAGE>
yesmail.com, inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY DEFICIT
<TABLE>
<CAPTION>
Common Stock Treasury Stock Additional
---------------- ---------------- Paid In Accumulated
Shares Amount Shares Amount Capital Deficit Total
--------- ------ -------- ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 4,629,629 $463 -- -- $ 537 $ (13,357) $ (12,357)
Stock awarded to
employees for
services............... 694,445 69 -- -- 38,931 -- 39,000
Stock split treated as a
dividend to
shareholders........... 3,009,259 301 -- -- (301) -- --
Treasury stock
purchase............... -- -- (925,926) (1,120) -- -- (1,120)
Distribution of minority
interest in subsidiary
to a third party....... -- -- -- -- 16,000 -- 16,000
Net loss................ -- -- -- -- -- (79,997) (79,997)
--------- ---- -------- ------ ------- ---------- ----------
Balance at December 31,
1996................... 8,333,333 833 (925,926) (1,120) 55,167 (93,354) (38,474)
Stock awarded to
employees by principal
stockholders........... -- -- -- -- 39,000 -- 39,000
Treasury stock awarded
to employees for
services............... -- -- 428,241 518 66,482 -- 67,000
Net loss................ -- -- -- -- -- (414,034) (414,034)
--------- ---- -------- ------ ------- ---------- ----------
Balance at December 31,
1997................... 8,333,333 833 (497,685) (602) 160,649 (507,388) (346,508)
Treasury stock
purchase............... -- -- (335,648) (428) -- -- (428)
Net loss................ -- -- -- -- -- (1,706,405) (1,706,405)
--------- ---- -------- ------ ------- ---------- ----------
Balance at December 31,
1998................... 8,333,333 833 (833,333) (1,030) 160,649 (2,213,793) (2,053,341)
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
yesmail.com, inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss................................... $ (79,997) $(414,034) $(1,706,405)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities--
Depreciation.............................. 16,015 49,443 101,783
Stock issuance for compensation........... 55,000 106,000 --
Minority interest......................... (8,821) (8,716) 10,547
Changes in operating assets and
liabilities--
Accounts receivable...................... (119,176) (48,142) (66,498)
Deposits and prepaid expenses............ (4,469) 668 (15,562)
Accounts payable and accrued expenses.... 108,125 143,123 1,681,790
Deferred revenue......................... 12,517 106,504 (4,720)
--------- --------- -----------
Net cash provided by (used in) operating
activities............................. (20,806) (65,154) 935
--------- --------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment........ (45,040) (69,639) (102,232)
--------- --------- -----------
Net cash used in investing activities... (45,040) (69,639) (102,232)
--------- --------- -----------
Cash Flows from Financing Activities:
Borrowings from related parties............ 66,110 -- --
Payment to related parties................. -- (12,878) (19,933)
Borrowings of short term debt.............. -- 263,561 312,259
Repayments of short term debt.............. -- (114,320) (118,630)
Repurchase of stock........................ (1,120) -- (428)
Principal payments under capital lease
obligations............................... (403) (8,935) (47,600)
--------- --------- -----------
Net cash provided by financing
activities............................. 64,587 127,428 125,668
--------- --------- -----------
Net Increase (Decrease) in Cash............. (1,259) (7,365) 24,371
Cash, beginning of year..................... 10,465 9,206 1,841
--------- --------- -----------
Cash, end of year........................... $ 9,206 $ 1,841 $ 26,212
========= ========= ===========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for interest... $ 3,590 $ 18,098 $ 45,075
========= ========= ===========
Noncash Transactions:
Equipment acquired under capital leases.... $ 12,237 $ 32,827 $ 251,782
========= ========= ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE>
yesmail.com, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The company and description of business
yesmail.com, inc. (the "Company") provides Internet marketing services to
companies that conduct part or all of their business through e-commerce. The
Company's services include targeted direct email campaigns to specific members
in the YesMail Network who have given express permission to receive direct
marketing messages in specific categories of interest. The Company also offers
a variety of services focused on delivering Internet users to a particular Web
site.
Superhighway Consulting, Inc. ("SCI", doing business as WebPromote) was
founded in 1995 and was merged with WP Holding, Inc. ("WP Holding") on March
29, 1999, in a stock for stock transaction (the "Merger"), with the SCI
stockholders receiving 80% of the outstanding shares of WP Holding. WP Holding
was organized as a Delaware corporation in October 1998 and five investors
purchased 5 million shares of common stock at par value on March 25, 1999. As
the SCI stockholders retained a controlling interest in the surviving entity
and WP Holding had no prior operations, the Company accounted for this merger
as a recapitalization. The shares of SCI have been retroactively adjusted as if
there had been an 11.57 for one stock-split.
In connection with the Merger, SCI and the stockholders of WP Holding
entered into a Founders' Agreement, which, among other things, gives the former
SCI stockholders the right to retain the first $16 million in value of the
Company upon subsequent sale or merger or the WP Holding stockholders' interest
in the first $16 million in value of the Company upon the Company's initial
public offering. In the case of an initial public offering, such payment shall
be made with a transfer of shares among the stockholders. The $16 million
represented the negotiated value of SCI as of the date of the Merger.
The financial statements reflect the historical accounts of SCI, with the
number of SCI shares retroactively adjusted to reflect the stock split referred
to above. On May 10, 1999, WP Holding changed its name to yesmail.com, inc.
Starting Point, L.L.C. ("Starting Point"), was incorporated by the Company
as a wholly-owned subsidiary in February 1996. Starting Point manages and
operates an Internet directory and search resource. Starting Point owns a list
of permission email addresses and sells Web site banner advertisements for its
Web site. In September 1996, the Company distributed a 30% interest to and
entered into an operating agreement with a third party retained to manage
Starting Point. This 30% ownership distribution resulted in a $16,000
compensation charge based on the fair market value of the 30% interest as
determined by the Board of Directors. In June 1999, the Company purchased the
30% minority ownership as further described in Note 11.
2. Liquidity and financing considerations
The Company has sustained net losses since its inception. The Company's
ability to meet its obligations in the ordinary course of business is dependent
upon its ability to establish profitable operations or to obtain additional
funding through public or private equity financing, collaborative or other
arrangements with corporate sources, and, ultimately, to establish profitable
operations.
The Company's operating plan is to rapidly expand its sales and marketing,
product development and administrative operations and to develop new strategic
relationships to promote the Company's future growth. This will likely result
in negative cash flow from operations at least through the year 2000. The
Company raised $9 million of equity capital in May 1999 (see Note 11), but will
likely need to raise additional capital prior to the end of 1999. As discussed
in Note 11, the Company is preparing for an initial public offering of stock.
In the opinion of management, alternative financing from new or existing
investors will be available to the Company if the initial public offering is
delayed or canceled.
F-7
<PAGE>
yesmail.com, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Summary of significant accounting policies
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany balances and transactions have
been eliminated in the consolidation process.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets or, for
leasehold improvements, the shorter of the lease term or the estimated useful
life of the asset, as follows:
<TABLE>
<S> <C>
Computer equipment................. 1-2 years
Computer software.................. 1-2 years
Telephone equipment................ 2-5 years
Furniture and fixtures............. 5-7 years
Leasehold improvements............. 1-5 years
</TABLE>
Maintenance and repairs are charged to expense as incurred and improvements
and betterments are capitalized. When assets are retired or otherwise disposed
of, the cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in the consolidated statement of operations
for the period in which it is realized.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred tax assets and liabilities are determined based on
temporary differences between the financial statement and tax bases of assets
and liabilities and net operating loss and credit carryforwards using enacted
tax rates in effect for the year in which the differences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized. A provision for income tax
expense is recognized for income taxes payable for the current period, plus the
net changes in deferred tax amounts.
Revenue recognition
The Company earns revenues from its customers by (i) charging fees for
sending targeted email to its owned and represented subscribers, (ii) placing
advertisements on Web sites and (iii) providing services to Web site owners.
Revenue is recognized when emails are transmitted to subscribers, as
advertisements are placed on Web sites, and when services are performed.
Deferred revenue represents liabilities for services not yet rendered or for
advertisements not yet placed.
F-8
<PAGE>
yesmail.com, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company becomes obligated to make payments to third-party Web sites,
which have contracted with the Company to be part of the yesmail network, in
the period the email messages are delivered. Such expenses are classified as
cost of revenues in the consolidated statements of operations.
Research and development costs
Costs incurred in the development of its Web site, products, and related
applications to be used in connection with the Company's services have been
expensed to operations as incurred through the year ended December 31, 1998. In
March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. The Company adopted SOP No. 98-1 on January 1, 1999.
As a result, the Company has continued to expense its development costs as
incurred as the rapid pace of technological change results in an estimated
useful life of such software of one year or less.
Advertising costs
Costs of developing the advertisements are expensed as incurred. Costs of
placing the media are expensed as the advertisements are run. Such costs are
included in sales and marketing on the consolidated statement of operations and
totaled approximately $199,000, $571,000 and $699,000, for the years ended
December 31, 1996, 1997 and 1998, respectively.
Goodwill and other intangibles
Goodwill and other intangible assets are stated at cost and amortized using
the straight-line method over the estimated economic useful life. The Company
continually evaluates whether subsequent events and circumstances have occurred
that indicate the remaining estimated useful life of goodwill or an intangible
asset may warrant revision, or that the remaining balance of goodwill or an
intangible asset may not be recoverable. The Company evaluates the
recoverability of goodwill and intangible assets by measuring the carrying
amount of the assets against the estimated undiscounted future cash flows
associated with them. At the time such evaluations indicate that the future
undiscounted cash flows of such assets are not sufficient to recover the
carrying value of such assets, the assets are adjusted to their fair values.
Financial instruments and concentration of risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash, accounts receivable, accounts
payable, short-term debt, obligations under capital leases and accrued
liabilities. At December 31, 1997 and 1998, the fair market value of these
instruments approximated their financial statement carrying amount because of
the short term maturity of these instruments. The Company does not require
collateral for accounts receivable, but does evaluate customer creditworthiness
and establish allowances as necessary based on management estimates of
collectibility. Two customers represented 36.3% of the revenues for the nine
months ended September 30, 1999 and 54.0% of the accounts receivable balance as
of September 30, 1999.
Impairment of long-lived assets and long-lived assets to be disposed of
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
F-9
<PAGE>
yesmail.com, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-based compensation
The Company accounts for stock-based compensation arrangements with
employees in accordance with provisions of Accounting Principles Board ("APB"),
Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with
the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation expense is based on the
difference, if any, on the measurement date, between the estimated fair value
of the Company's stock and the exercise price of options to purchase that stock
or price paid for shares of stock. For directors and consultants receiving
stock-based compensation, the Company complies with the provisions of SFAS No.
123.
Net loss per share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share." Under the provisions of SFAS No. 128, basic net loss per
share is computed by dividing the net loss for the period by the weighted
average number of common shares outstanding during the period. Diluted net loss
per share is computed by dividing the net loss for the period by the weighted
average number of common and common equivalent shares outstanding during the
period. However, the Company had securities outstanding which could potentially
dilute basic earnings per share in the future, but were excluded in the
computation of diluted net loss per share in the periods presented, as their
effect would have been antidilutive.
Other comprehensive income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Other comprehensive income, as defined, includes all changes in equity (net
assets) during a period from nonowner sources. To date, the Company has not had
any transactions that are required to be reported in comprehensive income.
Recently issued accounting pronouncements
In June 1997, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 establishes standards for the way companies report information
about operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The disclosures prescribed in SFAS No. 131 are effective
for the year ended December 31, 1998. The Company has determined that it does
not have any separately reportable business segments.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which defines derivatives, requires that
all derivatives be carried at fair value, and provides for hedge accounting
when certain conditions are met. SFAS No. 133 is effective for the Company in
2001. Although the Company has not fully assessed the implications of SFAS No.
133, the Company does not believe that the adoption of this statement will have
a material impact on the Company's financial position or results of operations.
4. Related-party transactions
The Company had amounts payable to certain stockholders for expenses
incurred on behalf of the Company in the amounts of $76,721 and $56,788 as of
December 31, 1997 and 1998, respectively. These amounts were fully paid by
January 1999.
F-10
<PAGE>
yesmail.com, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Subsequent to December 31, 1998, the Company obtained advances from certain
stockholders totaling $600,000. These advances have been classified as due to
related parties in the accompanying consolidated balance sheet. All advances
were converted to series A preferred stock on May 18, 1999 as described further
in Note 11.
Starting Point paid a management fee to its minority member for services
related to operating and managing the business. Management fees paid to the
minority member were $5,000, $22,500 and $81,000 for the years ended December
31, 1996, 1997 and 1998, respectively.
Certain stockholders personally guarantee a portion of the Company's short
term debt and certain equipment leases as further described in Notes 6 and 8.
As further described in Note 11, the Company entered into certain
transactions with employees and/or directors subsequent to December 31, 1998.
5. Property and equipment
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
Computer equipment..................................... $117,029 $268,384
Computer software...................................... 24,793 126,147
Telephone equipment.................................... 16,851 57,528
Furniture and fixtures................................. 10,878 10,878
Leasehold improvements................................. -- 60,628
-------- --------
169,551 523,565
Accumulated depreciation............................... (67,911) (169,694)
-------- --------
$101,640 $353,871
======== ========
</TABLE>
6. Short-term debt
The Company has lines of credit with two banks, providing for maximum
borrowings of $370,000 as of December 31, 1998. Interest rates ranged from
9.25% to 14.75%, with a weighted average rate of 9.37% as of December 31,1998.
One line of credit matures on July 15, 1999 and the other line of credit has no
expiration date. Outstanding borrowings under the lines of credit were $149,241
and $298,955, as of December 31, 1997 and 1998. Borrowings are personally
guaranteed by certain stockholders.
On March 12, 1998 the Company borrowed $50,000 from a bank at an interest
rate of 10.0% that matures on July 15, 1999. The balance of the note was
$43,915 as of December 31, 1998. The loan is collateralized by all of the
assets and property of the Company.
7. 401(k) savings plan
In September 1997, the Company established a 401(k) Savings Plan (the
"Plan") that covers substantially all employees. Under the Plan, employees are
permitted to contribute a portion of gross compensation not to exceed standard
limitations provided by the Internal Revenue Service. The Company maintains the
right to match employee contributions, but for the years ended December 31,
1997 and 1998, no Company matching contributions were made.
F-11
<PAGE>
yesmail.com, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Commitments and contingencies
Leases
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through the year 2003. Rent
expense amounted to approximately $19,000, $51,000 and $86,000 for the years
ended December 31, 1996, 1997 and 1998, respectively.
Future minimum lease payments under noncancelable capital leases and
operating leases as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
<S> <C> <C>
1999................................................... $112,683 $102,850
2000................................................... 74,916 105,935
2001................................................... 42,440 109,113
2002................................................... 39,601 103,091
2003................................................... 24,295 86,172
-------- --------
Total minimum lease payments........................... $293,935 $507,161
========
Less--Amount representing interest..................... (54,027)
--------
Present value of capital lease obligations............. 239,908
Less--Current portion.................................. (87,165)
--------
Long-term portion...................................... $152,743
========
</TABLE>
Litigation
In connection with the termination of employment of a stockholder, the
Company exercised its right to repurchase the stockholder's shares in
accordance with the Shareholders' Agreement described in Note 9. The former
stockholder has filed a lawsuit contesting the repurchase amount. During 1998,
the Company recorded a reserve of $250,000 in other expense in the accompanying
financial statements. Subsequent to year end, the case was settled for
approximately $250,000.
Additionally, the Company is, at times, subject to pending and threatened
legal actions and proceedings. After reviewing pending and threatened actions
and proceedings with counsel, management believes that the outcome of such
actions or proceedings is not expected to have a material adverse effect on the
financial position or results of operations of the Company.
9. Common stock
During 1996, a stock split, treated as a dividend of 3,009,259 shares, was
declared and distributed to the shareholders. Additionally, the Company issued
694,445 shares of common stock to employees for services. This issuance
resulted in a compensation charge of $39,000 based on the estimated fair market
value of the stock at the time of issuance.
In June 1997, the Company's Board of Directors authorized a four for one
stock split. In January 1998, the Board of Directors authorized a five hundred
for one stock split. In connection with the Merger, the financial statements
reflect an 11.57 for one stock split on March 29, 1999. The consolidated
financial statements have been restated to reflect these stock splits.
F-12
<PAGE>
yesmail.com, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During June 1997, two principal stockholders awarded 231,482 shares from
their holdings of common stock of the Company to employees. Additionally, the
Company granted stock awards from treasury stock to several employees in lieu
of cash compensation. In both instances, compensation expense was recorded for
the entire amount of the awards based upon the estimated fair value of the
stock at the time of the issuance.
In February 1999, the Company retired all treasury shares outstanding.
The stock of SCI, prior to the Merger, was subject to a Shareholders'
Agreement which gave SCI the right to repurchase the stock, at a formula price,
from stockholders who terminated employment with SCI. The Shareholders'
Agreement also gave SCI the right of first refusal to repurchase shares offered
to a third party. The Shareholders' Agreement was terminated in connection with
the Merger with WP Holding.
In 1996 and 1998, the Company repurchased 925,926 and 335,648 shares,
respectively, of common stock for the amounts of $1,120 and $428 from
terminated employees in accordance with a formula contained in the then
existing shareholders' agreement.
10. Income taxes
As of December 31, 1998, the Company had net operating loss carryforwards of
approximately $1,423,000, which begin to expire in the year 2010.
As a result of various equity transactions during 1999, the Company believes
that it may have undergone an "ownership change" as defined in section 382 of
the Internal Revenue Code. Accordingly, the utilization of a portion of the net
operating loss carryforwards may be limited. Due to the uncertainty regarding
the ultimate utilization of the net operating carryforwards, the Company has
not recorded any benefit for losses and a valuation allowance has been recorded
for the entire amount of the net deferred tax asset. In addition, sales of the
Company's stock, including shares sold in the Company's initial public
offering, may further restrict its ability to utilize its net operating loss
carryforwards.
The difference between the income tax benefit at the federal statutory rate
of 34% and the Company's effective tax rate is due primarily to recognition of
a full valuation allowance to offset the deferred tax assets.
The estimated tax effects of significant temporary difference and
carryforwards that give rise to deferred income tax assets as of December 31,
1998, are as follows:
<TABLE>
<S> <C>
Deferred income tax assets--
Net operating loss carryforwards............................. $ 554,787
Accrued liabilities and other................................ 453,448
----------
Gross deferred income tax assets........................... 1,008,235
Less: valuation allowance...................................... (839,316)
----------
Deferred income tax liabilities --
Deferred revenue............................................. (156,629)
Depreciation on property and equipment....................... (12,290)
----------
Gross deferred income tax liabilities...................... (168,919)
----------
Net deferred tax assets.................................... $ --
==========
</TABLE>
F-13
<PAGE>
yesmail.com, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has recorded a valuation allowance against gross deferred tax
assets due to uncertainties surrounding their realization. The amount of net
deferred tax assets considered realizable, however, could be increased in the
future if estimates of future taxable income are increased.
11. Subsequent events
Bridge loan/warrant
On December 28, 1998, the Company agreed to issue a warrant to a shareholder
in connection with a loan of $1.0 million ("Bridge Loan"), which was to be
converted into series A convertible preferred stock at the option of the
holder. The warrant was only exercisable upon an event of default. The bridge
loan which accrues interest at the prime rate (7.5%) matures upon the closing
of the private equity placement or upon event of default. No value was ascribed
to the warrant. The proceeds from the loan were received and the warrant was
issued in January 1999. On May 18, 1999, the loan was converted into 572,727
shares of series A convertible preferred stock in connection with the Company's
private equity placement (see Note 11) and the warrant was canceled.
Restricted common stock
In May, 1999, the Company issued an aggregate of 2,394,546 shares of
restricted common stock to officers for $1.60 per share. In the event of a
change of control (as defined in the Restricted Stock Purchase Agreement), 25%
of the shares purchased vest (in addition to any shares vested at such time).
In connection with such issuance, the officers paid for the stock by issuing
notes payable to the Company that are secured by the shares of the Company's
common stock purchased. The secured notes receivable bear interest at 5.22% per
annum with the entire principal balance of the note, together with all accrued
and unpaid interest, due and payable on the earlier of (a) the sale of the
underlying common stock, (b) May 10, 2008 or (c) termination of employment. The
Company has recourse against the signers of the notes for 75% of the principal
and all accrued interest. The notes receivable from the stockholders will be
reflected as a reduction of equity. The shares generally vest over a four-year
period; however, 900,000 shares vest seven months from the occurrence of an
initial public offering. The stock is restricted in that any unvested shares
are subject to repurchase rights by the Company upon the occurrence of certain
events or conditions, such as employment termination, at the original purchase
price.
Stock option plan
On April 1, 1999, the Company adopted the 1999 Stock Plan (the "Stock Plan")
which provides for the grant of up to 3,225,000 incentive or non-statutory
stock options or shares of restricted stock to employees, directors and
consultants ("Optionee") of the Company. On May 17, 1999, the Board of
Directors increased the number of authorized options to 3,675,000 and on July
13, 1999, the Board of Directors increased the number of authorized options to
4,425,000. Options granted under the Stock Plan generally vest ratably over a
period of four years and expire ten years from the date of grant. If an
Optionee ceases employment with or service to the Company ("Termination"), the
Optionee may exercise any vested option at the time of Termination within such
period of time specified in the option agreement. In the absence of a specified
time in the option agreement, the option remains exercisable for three months
following the Optionee's Termination. Unvested options revert to the Stock Plan
at the date of the Termination. If, after Termination, the Optionee does not
exercise the options within the time specified, the Option shall terminate and
the shares revert to the Stock Plan.
F-14
<PAGE>
yesmail.com, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock option activity
During 1999, the Company issued 243,750 incentive stock options and 663,750
non-qualified stock options. The Company believes the exercise price of these
stock options approximated or exceeded the fair value of its common stock. The
stock options vest over a two to four year period. Of these options issued,
30,000 options were issued to consultants in consideration for services
rendered and 18,750 options were issued as consideration for the purchase of
the minority interest in Starting Point, as discussed later in this Note. These
options vest on the date of grant. In addition, the Company issued stock to an
employee which is subject to performance and is forfeited if certain
performance measures are not met. The Company recorded an expense of
approximately $245,000 for the issuance of the performance options to the
employee and the issuance of options to the consultants. The performance
options were valued using the intrinsic value method at June 30, 1999. The
options issued to consultants and options issued as consideration for the
purchase of minority interest were valued using the Black-Scholes option
pricing model at the date of grant as is described in the additional stock plan
information below.
Deferred stock compensation
During June 1999, employees were granted options to purchase an aggregate of
93,750 shares of common stock. Giving effect to the Company's proposed initial
public offering, the deemed fair market value of the Company's common stock
exceeded the exercise price of the options granted. Total non-cash compensation
of approximately $420,000 related to these grants will be charged to operations
over the four-year vesting period. Non cash compensation expense totaling
approximately $9,000 has been recorded for the six months ended June 30, 1999
as a general and administrative expense.
A summary of the Company's stock option activity follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Balance, January 1, 1999......................... -- --
Granted.......................................... 907,500 $2.02
Forfeited........................................ (31,875) 1.60
--------- -----
Balance, June 30, 1999........................... 875,625 $2.04
=========
Available for grant at June 30, 1999............. 1,154,829
</TABLE>
The following table summarizes information about currently outstanding and
vested stock options at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Vested
----------------------------------------- ------------------------
Weighted
Average
Remaining Weighted Vested at Weighted
Range of Outstanding at Contractual Average June 30, Average
Exercise Price June 30, 1999 Life Exercise Price 1999 Exercise Price
-------------- -------------- ----------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$1.60 729,375 10 $1.60 33,750 $1.60
1.79 -- -- -- 18,750 1.79
3.20 60,000 10 3.20 -- --
9.87 33,750 10 9.87 -- --
------- ----- ------ -----
823,125 $2.06 52,500 $1.67
======= ===== ====== =====
</TABLE>
F-15
<PAGE>
yesmail.com, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Additional stock plan information
As discussed in Note 3, the Company accounts for its stock-based awards to
employees using the intrinsic value method in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees" and its related interpretations.
SFAS No. 123 "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net loss and loss per share had the Company adopted the
fair value method since the Company's inception. Under SFAS No. 123, the fair
value of stock-based awards to employees is calculated through the use of
option pricing models, even though such models were developed to estimate the
fair value of freely tradeable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option
awards.
The Company's calculations for employee grants were made using the Black-
Scholes option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1999
-------------
<S> <C>
Dividend yield................. None
Expected volatility............ 90%
Risk free interest rate........ 5.0%
Expected term, in years........ 10
</TABLE>
The weighted average fair value per option as of the date of grant for
options granted during 1999 was $2.24.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net income
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1999
-------------
<S> <C>
Loss attributable to common stockholders (in thousands):
As reported............................................... $(5,475)
Pro forma................................................. $(5,627)
Basic and diluted net loss per share:
As reported............................................... $ (0.60)
Pro forma................................................. $ (0.61)
</TABLE>
Convertible preferred stock
On May 18, 1999, the Company issued 5,154,548 shares of $.0001 par value
series A convertible preferred stock at $1.75 per share ("Subscription Price")
for gross proceeds of $9.0 million, including the $1 million Bridge Loan and
the $600,000 of stockholder advances previously received. The Bridge Loan and
stockholder advances were converted to 916,364 shares of preferred stock.
Each share of preferred stock is non-voting and convertible to one share of
common stock at any time, at the option of the holder and mandatorily upon an
initial public offering that exceeds a threshold, or sale of the business.
Dividends on the preferred stock are earned at a rate of $0.05 per share per
annum (approximating an
F-16
<PAGE>
yesmail.com, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8% yield), and are only payable upon certain dividend accrual events, such as a
sale. Holders of the preferred stock are entitled to a liquidation preference
in the event of any liquidation and such holders have the right to approve
certain transactions.
Acquisition of minority interest
In June 1999, the Company purchased the 30% ownership interest of Starting
Point from the minority interest shareholder for $477,000. The purchase price
included an initial cash payment of $150,000, an issuance of an $150,000 note
which accrues interest at a rate of 10% and is to be repaid one year from the
anniversary of the acquisition date and a grant of 18,750 options at an
exercise price of $1.79 which are fully vested on the date of grant. In
addition, the Company is required to make a contingency payment of a maximum of
$200,000 in the event that the options do not have a value of an amount
specified per the LLC Interest Purchase Agreement, no later than 180 days from
the acquisition date or upon sale of the Company. The Company recorded goodwill
of approximately $450,000 for the acquisition based on the difference between
the purchase price and the value of the 30% interest in the net assets acquired
at the time of the acquisition. The goodwill is being amortized over three
years. If a contingency payment becomes due, the Company intends to increase
goodwill for this amount and amortize it over the balance of the original
amortization period.
Initial public offering
On June 4, 1999, the Company's Board of Directors authorized the Company to
file a registration statement with the Securities and Exchange Commission for
the purpose of an initial public offering of the Company's common stock. Upon
the completion of this offering, if requirements set forth in its Certificate
of Incorporation are met, the Company's preferred stock will be converted into
5,154,548 shares of common stock, and all outstanding shares of preferred stock
will be canceled and retired.
Employee stock purchase plan
In July 1999, the Company adopted an employee stock purchase plan (the
"Purchase Plan") which provides employees with an opportunity to purchase
common stock through accumulated payroll deductions up to a maximum of $25,000
for all purchases within the same calendar year and up to a maximum of 2,000
shares for the first purchase period and a maximum of 1,000 shares for each
purchase period thereafter. Under the Purchase Plan, employees may purchase the
common stock at a price equal to 85% of the fair market value of the common
stock on the first or last day of the offering period, whichever is lower. This
Plan will become effective upon the closing of the initial public offering.
200,000 shares of common stock have been reserved for issuance under the
Purchase Plan (subject to an annual increase), none of which have been issued.
Reverse stock split
On July 13, 1999, the Company's Board of Directors approved a 3:8 reverse
stock split of the Company's outstanding shares of common stock and convertible
preferred stock which will become effective prior to the closing of the initial
public offering. All share and per share information included in these
financial statements have been retroactively adjusted to reflect this reverse
stock split.
F-17
<PAGE>
yesmail.com, inc.
INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999 (unaudited)........................................... S-2
Unaudited Condensed Consolidated Statements of Operations for the Three
Months and Nine Months Ended September 30, 1999 and September 30, 1998... S-3
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and September 30, 1998................... S-4
Notes to Unaudited Condensed Consolidated Financial Statements............ S-5
</TABLE>
S-1
<PAGE>
yesmail.com, inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Current Assets:
Cash.............................................. $ 34,779,978 $ 26,212
Accounts Receivable, net of allowance of $262,000
and $56,000...................................... 2,226,439 242,757
Deposit and prepaid expenses...................... 604,901 19,348
------------ -----------
Total current assets............................ 37,611,318 288,317
Property & Equipment, net....................... 1,614,767 353,871
Intangible and other assets, net of amortization
of $37,000 and $0.............................. 428,202 750
------------ -----------
Total Assets.................................... $ 39,654,287 $ 642,938
============ ===========
Liabilities:
Current Liabilities:
Accounts payable.................................. $ 3,987,577 $ 1,391,509
Short term debt................................... 223,955 342,870
Due to related party.............................. -- 56,788
Obligations under capital leases, current......... 497,917 87,165
Accrued payroll and payroll related expenses...... 1,316,441 213,291
Accrued professional expenses..................... 1,772,477 250,000
Accrued other..................................... 400,616 208,903
------------ -----------
Total current liabilities....................... 8,198,983 2,550,526
Obligations Under Capital Leases, less current
portion............................................ 688,718 152,743
Commitments And Contingencies
Minority Interest................................... -- (6,990)
Stockholders' Equity:
Common stock, $.0001 par value; 75,000,000 shares
authorized; 20,324,094 and 8,333,333 shares
issued and outstanding........................... 2,032 833
Common stock in treasury, no shares and 833,333
shares at cost................................... -- (1,030)
Additional paid-in capital........................ 44,510,954 160,649
Deferred Compensation............................. (1,069,462) --
Accumulated Deficit............................... (12,676,938) (2,213,793)
------------ -----------
Total stockholders' equity...................... 30,766,586 (2,053,341)
------------ -----------
Total liabilities and stockholders' equity...... $ 39,654,287 $ 642,938
============ ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements
S-2
<PAGE>
yesmail.com, inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
----------------------- ------------------------
1999 1998 1999 1998
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Revenues.................... $ 3,824,894 $1,125,774 $ 7,467,317 $3,172,263
Cost of Revenues............ 2,824,164 782,499 5,301,533 1,924,693
----------- ---------- ------------ ----------
Gross Profit................ 1,000,730 343,275 2,165,784 1,247,570
Operating Expenses
Sales and marketing
expenses................. 3,485,313 341,771 6,586,168 1,019,240
General and administrative
expenses................. 1,045,867 194,724 2,830,310 578,397
Research and development
costs.................... 937,143 122,398 2,360,312 398,842
Stock based compensation.. 483,594 -- 694,621 --
----------- ---------- ------------ ----------
Total operating
expenses............... 5,951,917 658,893 12,471,411 1,996,479
Operating loss.............. (4,951,187) (315,618) (10,305,627) (748,909)
Interest expense............ (37,156) (7,771) (123,162) (25,605)
Net loss before minority
interest................... (4,988,343) (323,389) (10,428,789) (774,514)
Minority Interest........... -- (11,139) (34,356) (20,200)
----------- ---------- ------------ ----------
Net loss.................... $(4,988,343) $ (334,528) $(10,463,145) $ (794,714)
=========== ========== ============ ==========
Net loss per share:
Basic and diluted......... $ (0.40) $ (0.18) $ (1.02) $ (0.14)
Weighted average shares-
basic and diluted........ 12,427,588 1,869,863 10,290,704 5,745,688
=========== ========== ============ ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements
S-3
<PAGE>
yesmail.com, inc.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months
Ended Nine Months
September Ended
30, September 30,
1999 1998
------------ -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss......................................... $(10,463,145) $(794,714)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization.................... 572,963 73,975
Stock based compensation......................... 956,127
Minority Interest................................ 34,356 11,139
Changes in operating assets and liabilities:
Accounts receivable............................ (1,983,682) (54,080)
Deposits and prepaid expenses.................. (585,553) (711)
Accounts payable and accrued expenses.......... 5,419,343 723,026
------------ ---------
Net cash used in operating activities........ (6,049,591) (41,365)
Cash Flows from Investing Activities:
Purchases of property and equipment.............. (1,447,671) (41,734)
Purchases of minority interest................... (150,000) --
------------ ---------
Net cash used in investing activities........ (1,597,671) (41,734)
Cash Flows from Financing Activities:
Payments to related parties...................... (56,788) (400)
Borrowings of short term debt.................... -- 196,219
Repayments of short term debt.................... (290,493)
Repurchase of stock.............................. (428)
Net Proceeds from Issuance of common stock....... 33,143,331 --
Proceeds from Issuance of preferred stock........ 8,950,000 --
Proceeds from Sale-leaseback..................... 745,715 --
Principal payments under capital lease
obligations..................................... (90,737) (29,553)
------------ ---------
Net cash provided by financing activities.... 42,401,028 165,838
------------ ---------
Net increase in cash............................... 34,753,766 82,739
Cash, beginning of period.......................... 26,212 1,841
------------ ---------
Cash, end of period................................ $ 34,779,978 $ 84,580
============ =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest......... $ 102,407 $ 25,605
============ =========
Noncash Transactions:
Equipment acquired under capital leases.......... $ 354,652 $ 158,733
Issuance of note payable for purchase of minority
interest........................................ $ 150,000 $ --
Issuance of warrants for common stock under
capital leases.................................. $ 56,614 $ --
Issuance of common stock options for purchase of
minority interest............................... $ 177,000 $ --
Note receivable from issuance of restricted
common stock.................................... $ 3,831,274 $ --
============ =========
</TABLE>
See notes to unaudited condensed consolidated financial statements
S-4
<PAGE>
yesmail.com, inc.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The company and description of business
yesmail.com, inc. (the "Company") provides Internet marketing services to
companies engaged in e-commerce. The Company's services include targeted direct
email campaigns to consumers who have given express permission to receive
direct marketing messages in specific categories of interest.
2. Summary of significant accounting policies
Basis of presentation
The unaudited condensed consolidated financial information of the Company
furnished herein reflects all adjustments, consisting only of normal recurring
adjustments, which in the opinion of management are necessary to fairly state
the Company's financial position, results of operations and cash flows for the
periods presented. The unaudited condensed consolidated financial information
of the Company should be read in conjunction with the audited financial
statements and notes thereto included in this proxy statement/prospectus. The
results of operations for the nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for any subsequent period
or for the entire year ending December 31, 1999.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission's rules and regulations.
Net loss per share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share." Under the provisions of SFAS No. 128, basic net loss per
share is computed by dividing the net loss for the period by the weighted
average number of common shares outstanding during the period. Diluted net loss
per share is computed by dividing the net loss for the period by the weighted
average number of common and common equivalent shares outstanding during the
period. However, the Company had securities outstanding which could potentially
dilute basic earnings per share in the future, but were excluded in the
computation of diluted net loss per share in the periods presented, as their
effect would have been antidilutive. Such outstanding securities consisted of
options to purchase 613,302 and 1,525,334 shares of common stock for the three
months and nine months ended September 30, 1999, respectively.
3. Short-term debt
The company currently has a line of credit with a bank providing for maximum
borrowings of $2,500,000. The line is not subject to any financial covenants,
is collateralized by all of the assets and property of the Company, and expires
on June 30, 2000. Interest rate on the line was 8.25% as of September 30, 1999.
There were no outstanding borrowings as of September 30, 1999.
4. Common Stock
On July 13, 1999, the Company's Board of Directors approved a 3 for 8
reverse stock split of the Company's outstanding shares of common stock and
convertible preferred stock. The reverse stock split became effective on
September 21, 1999. All share and per share information included in these
financial statements have been retroactively adjusted to reflect this reverse
stock split.
S-5
<PAGE>
yesmail.com, inc.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In September 1999, the Company sold 3.4 million shares of common stock at
$11 per share in an initial public offering. Upon closing of the initial public
offering, 5,154,548 preferred shares were converted to common stock.
5. Common Stock Warrants
In August 1999, the Company issued a warrant to a financing company in
conjunction with an executed lease agreement. The warrant to purchase 7,602
shares of common stock was exercisable immediately, at an exercise price of
$2.67 per share and expires on August 24, 2004. Using the Black-Scholes option
pricing model, the warrant was valued at $57,000.
In September 1999, the Company issued a warrant to a recruiting firm in
conjunction with the hiring of one of the Company's executives. The warrant to
purchase 17,969 shares of common stock was exercisable immediately, at an
exercise price of $8.99 per share and expires on September 12, 2006. Using the
Black-Scholes option pricing model, the warrant was valued at $70,000 and was
charged to stock based compensation expense.
6. Stock option activity
Issued options
During 1999, the Company issued incentive stock options to purchase an
aggregate of 459,375 shares of common stock and nonstatutory stock options to
purchase an aggregate of 1,443,193 shares of common stock. The stock options
generally vest over a period ranging from date of grant to a four-year period.
Of the nonstatutory stock options issued, 91,318 were issued to consultants in
consideration for services and 18,750 options were issued as consideration for
the purchase of the minority interest in Starting Point. In addition, the
Company issued nonstatutory stock options to an employee, which is subject to
performance and is forfeited if certain performance measures are not achieved.
During the nine months ended September 30, 1999, the Company recorded stock
based compensation expense of approximately $839,000 related to the issuance of
the performance based options granted to the employee and the issuance of
options to the consultants. The performance based options were valued using the
intrinsic value method at September 30, 1999. The options issued to consultants
and options issued as consideration for the purchase of minority interest were
valued using the Black-Scholes option pricing model.
Deferred stock compensation
For the nine months ended September 30, 1999, employees were granted options
to purchase an aggregate of 969,375 shares of common stock. The deemed fair
market value of the Company's common stock exceeded the exercise price of the
options granted. Total non-cash compensation of approximately $1.1 million
related to these grants will be charged to operations over the four-year
vesting period. Non-cash compensation expense relating to these grants totaling
approximately $51,000 has been recorded during the nine months ended September
30, 1999 as a stock based compensation expense.
7. Subsequent events
Warrant
In October 1999, the Company issued a warrant in connection with an
agreement. The warrant to purchase 100,000 shares of common stock at an
exercise price of $11 per share, is exercisable immediately and expires in
September 2005.
S-6
<PAGE>
yesmail.com, inc.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Yesmail's principal executive offices are located in Vernon Hills, Illinois,
where it leases approximately 8,700 square feet under the terms of a lease that
expires in October 2003. Yesmail also has regional business and sales offices
in the New York metropolitan area.
In November 1999, the Company executed a seven year lease to rent 35,000
square feet of office premises in Chicago. The lease commences in March 2000
and terminates in February 2007. The annual lease payments will gradually
increase from approximately $989,000 to $1,100,000 over the lease term. The
lease may be terminated prior to 2007 upon payment of an early termination fee.
In December 1999, the Company signed commitments to spend approximately
$2,000,000 in office construction related expenditures prior to occupying the
Chicago office premises in March 2000.
On December 14, 1999, the Company announced that it had signed a definitive
agreement to be acquired by CMGI, Inc., in a stock-for-stock merger. Under the
terms of the agreement, CMGI will issue .1252 CMGI shares for every share of
yesmail.com stock. Closing of the merger is subject to customary conditions,
including formal approval by our shareholders. It is anticipated that the
transaction will close in March 2000. A significant percentage of our
shareholders have agreed to the vote in favor of the merger. We expect to incur
additional financial advisor accounting and legal fees estimated to be between
$500,000 and $800,000 contingent upon completion of the acquisition. This range
is a preliminary estimate only and is, therefore, subject to change.
S-7
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
CMGI, Inc.,
Mars Acquisition, Inc.
and
yesmail.com, inc.
Dated as of December 14, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<C> <S> <C>
ARTICLE I THE MERGER...................................................... A-1
1.1 Effective Time of the Merger..................................... A-1
1.2 Closing.......................................................... A-2
1.3 Effects of the Merger............................................ A-2
1.4 Directors........................................................ A-2
ARTICLE II CONVERSION OF SECURITIES....................................... A-2
2.1 Conversion of Capital Stock...................................... A-2
2.2 Exchange of Certificates......................................... A-3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. A-5
3.1 Organization, Standing and Power; Subsidiaries................... A-5
3.2 Capitalization................................................... A-6
3.3 Authority; No Conflict; Required Filings and Consents............ A-7
3.4 SEC Filings; Financial Statements................................ A-8
3.5 No Undisclosed Liabilities....................................... A-9
3.6 Absence of Certain Changes or Events............................. A-9
3.7 Taxes............................................................ A-9
3.8 Owned and Leased Real Properties................................. A-10
3.9 Intellectual Property............................................ A-11
3.10 Agreements, Contracts and Commitments............................ A-11
3.11 Litigation....................................................... A-12
3.12 Environmental Matters............................................ A-12
3.13 Employee Benefit Plans........................................... A-13
3.14 Compliance With Laws............................................. A-14
3.15 Permits.......................................................... A-15
3.16 Registration Statement; Proxy Statement/Prospectus............... A-15
3.17 Labor Matters.................................................... A-15
3.18 Insurance........................................................ A-15
3.19 Business Activity Restrictions................................... A-15
3.20 Year 2000 Compliance............................................. A-15
3.21 Assets........................................................... A-16
3.22 Opinion of Financial Advisor..................................... A-16
3.23 Section 203 of the DGCL Not Applicable........................... A-16
3.24 Tax Matters...................................................... A-17
3.25 Transactions with Affiliates..................................... A-17
3.26 Brokers; Schedule of Fees and Expenses........................... A-17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE TRANSITORY
SUBSIDIARY..................................................... A-17
4.1 Organization, Standing and Power................................. A-17
4.2 Capitalization................................................... A-17
4.3 Authority; No Conflict; Required Filings and Consents............ A-18
4.4 SEC Filings; Financial Statements................................ A-18
4.5 Absence of Certain Changes or Events............................. A-19
4.6 Tax Matters...................................................... A-19
4.7 Registration Statement; Proxy Statement/Prospectus............... A-19
4.8 Litigation....................................................... A-19
4.9 Operations of the Transitory Subsidiary.......................... A-19
</TABLE>
i
<PAGE>
<TABLE>
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Page
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ARTICLE V CONDUCT OF BUSINESS........................................... A-20
5.1 Covenants of the Company....................................... A-20
5.2 Cooperation.................................................... A-22
5.3 Confidentiality................................................ A-22
ARTICLE VI ADDITIONAL AGREEMENTS........................................ A-22
6.1 No Solicitation................................................ A-22
6.2 Proxy Statement/Prospectus; Registration Statement............. A-23
6.3 Nasdaq Quotation............................................... A-24
6.4 Access to Information.......................................... A-24
6.5 Stockholders Meeting........................................... A-24
6.6 Legal Conditions to the Merger................................. A-25
6.7 Public Disclosure.............................................. A-26
6.8 Tax-Free Reorganization........................................ A-26
6.9 Affiliate Agreements........................................... A-26
6.10 Nasdaq National Market Listing................................. A-26
6.11 Company Stock Plans and the Company Warrants................... A-26
6.12 Stockholder Litigation......................................... A-27
6.13 Indemnification................................................ A-27
6.14 Termination of Company 401(k) Plan............................. A-28
ARTICLE VII CONDITIONS TO MERGER........................................ A-28
7.1 Conditions to Each Party's Obligation To Effect the Merger..... A-28
Additional Conditions to Obligations of the Buyer and the
7.2 Transitory Subsidiary.......................................... A-28
7.3 Additional Conditions to Obligations of the Company............ A-29
ARTICLE VIII TERMINATION AND AMENDMENT.................................. A-29
8.1 Termination.................................................... A-29
8.2 Effect of Termination.......................................... A-30
8.3 Fees and Expenses.............................................. A-31
8.4 Amendment...................................................... A-32
8.5 Extension; Waiver.............................................. A-32
ARTICLE IX MISCELLANEOUS................................................ A-32
9.1 Nonsurvival of Representations and Warranties.................. A-32
9.2 Notices........................................................ A-32
9.3 Entire Agreement............................................... A-33
9.4 No Third Party Beneficiaries................................... A-33
9.5 Assignment..................................................... A-33
9.6 Severability................................................... A-33
9.7 Counterparts and Signature..................................... A-33
9.8 Interpretation................................................. A-34
9.9 Governing Law.................................................. A-34
9.10 Remedies....................................................... A-34
9.11 Waiver of Jury Trial........................................... A-34
9.12 Forum.......................................................... A-34
</TABLE>
EXHIBITS
<TABLE>
<C> <S>
Exhibit A Form of Company Stock Option Agreement
Exhibit B Form of Stockholder Agreement
Exhibit C Forms of Stockholder Lock-up Agreements
Exhibit D Form of Company Affiliate Agreement
</TABLE>
ii
<PAGE>
TABLES OF DEFINED TERMS
<TABLE>
<CAPTION>
Cross Reference
Terms in Agreement
----- ---------------
<S> <C>
Acquisition Proposal Section 6.1(a)
Affiliate Section 6.9
Affiliate Agreement Section 6.9
Agreement Preamble
Alternative Transaction Section 8.3(e)
Antitrust Laws Section 6.6(b)
Antitrust Order Section 6.6(b)
Buyer Preamble
Buyer Balance Sheet Section 4.4(b)
Buyer Common Stock Section 2.1(c)
Buyer Disclosure Schedule Article IV
Buyer Material Adverse Effect Section 4.1
Buyer Preferred Stock Section 4.2
Buyer SEC Reports Section 4.4(a)
Certificates Section 2.2(b)
Closing Section 1.2
Closing Date Section 1.2
Code Preamble
Company Preamble
Company Balance Sheet Section 3.4(b)
Company Common Stock Section 2.1(b)
Company Disclosure Schedule Article III
Company Employee Plans Section 3.13(a)
Company Intellectual Property Rights Section 3.9(a)
Company Leases Section 3.8(b)
Company Material Adverse Effect Section 3.1
Company Material Contracts Section 3.10
Company Meeting Section 3.16
Company Permits Section 3.15
Company Preferred Stock Section 3.2(a)
Company Products Section 3.20(b)
Company SEC Reports Section 3.4(a)
Company Stock Options Section 3.2(b)
Company Stock Option Agreement Preamble
Company Stock Plans Section 3.2(b)
Company Systems Section 3.20(b)
Company Voting Proposal Section 6.5(a)
Company Warrants Section 3.2(b)
Confidentiality Agreement Section 5.3
Constituent Corporations Section 1.3
DGCL Section 1.1
Effective Time Section 1.1
Employee Benefit Plans Section 3.13(a)
Environmental Law Section 3.12(b)
ERISA Affiliate Section 3.13(a)
ERISA Section 3.13(a)
Exchange Agent Section 2.2(a)
Exchange Fund Section 2.2(a)
Exchange Act Section 3.3(c)
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Cross Reference
Terms in Agreement
----- ---------------
<S> <C>
Exchange Ratio Section 2.1(c)
Governmental Entity Section 3.3(c)
Hazardous Substance Section 3.12(c)
HSR Act Section 3.3(c)
Indemnified Parties Section 6.13
Liens Section 3.22
Lock-up Agreement Preamble
Merger Preamble
Outside Date Section 8.1(b)
Proxy Statement Section 3.16
Registration Statement Section 3.16
Rule 145 Section 6.10
SEC Section 3.3(c)
Securities Act Section 3.4(a)
Stockholder Agreements Preamble
Subsidiary Section 3.1
Superior Proposal Section 6.1(a)
Surviving Corporation Section 1.3
Tax Returns Section 3.7(a)
Taxes Section 3.7(a)
Third Party Section 8.3(e)
Transitory Subsidiary Preamble
Year 2000 Compliant Section 3.20
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this "Agreement"),
dated as of December 14, 1999, is by and among CMGI, Inc., a Delaware
corporation (the "Buyer"), Mars Acquisition, Inc., a Delaware corporation and a
wholly owned subsidiary of Buyer (the "Transitory Subsidiary"), and
yesmail.com, inc., a Delaware corporation (the "Company").
WHEREAS, the Boards of Directors of the Buyer and the Company have approved
and declared advisable this Agreement and the Merger (as defined below);
WHEREAS, the combination of the Buyer and the Company shall be effected by
the terms of this Agreement through a merger of the Transitory Subsidiary into
the Company, as a result of which the stockholders of the Company will become
stockholders of the Buyer (the "Merger");
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the Buyer's willingness to enter into this
Agreement, the Company has entered into a Stock Option Agreement dated as of
the date of this Agreement and attached hereto as Exhibit A (the "Company Stock
Option Agreement"), pursuant to which the Company granted the Buyer an option
to purchase shares of common stock of the Company under certain circumstances;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the Buyer's willingness to enter into this
Agreement, certain stockholders of the Company have entered into a Stockholder
Agreement dated as of the date of this Agreement in the form attached as
Exhibit B (the "Stockholder Agreement"), pursuant to which such stockholders
have agreed, inter alia, to give the Buyer a proxy to vote all of the shares of
capital stock of the Company that such stockholders own for certain limited
purposes;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the Buyer's willingness to enter into this
Agreement, certain stockholders and employees of the Company have entered into
Stockholder Lock-Up Agreements in the forms attached hereto as Exhibits C-1, C-
2 and C-3 (the "Lock-Up Agreements"), pursuant to which such parties have
agreed to certain restrictions relating to the disposition of Buyer Common
Stock following the Effective Time (as defined in Section 1.1); and
WHEREAS, for U.S. federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
Buyer, the Transitory Subsidiary and the Company agree as follows:
ARTICLE I
THE MERGER
1.1 Effective Time of the Merger. Subject to the provisions of this
Agreement, prior to the Closing (as defined in Section 1.2), the Buyer shall
prepare, and on the Closing Date (as defined in Section 1.2) or as soon as
practicable thereafter the Buyer shall cause to be filed with the Secretary of
State of the State of Delaware, a certificate of merger (the "Certificate of
Merger") in such form as is required by, and executed by the Surviving
Corporation (as defined in Section 1.3) in accordance with, the relevant
provisions of the General Corporation Law of the State of Delaware ("DGCL") and
shall make all other filings or recordings required under the DGCL. The Merger
shall become effective upon the filing of the Certificate of Merger with the
A-1
<PAGE>
Secretary of State of the State of Delaware or at such later time as is
established by the Buyer and the Company and set forth in the Certificate of
Merger (the "Effective Time").
1.2 Closing. The closing of the Merger (the "Closing") shall take place at
10:00 a.m., Boston time, on a date to be specified by the Buyer and the Company
(the "Closing Date"), which shall be no later than the second business day
after satisfaction or waiver of the conditions set forth in Article VII (other
than delivery of items to be delivered at the Closing and other than
satisfaction of those conditions that by their nature are to be satisfied at
the Closing, but subject to the delivery of such items and the satisfaction or
waiver of such conditions at the Closing), at the offices of Hale and Dorr LLP,
60 State Street, Boston, Massachusetts, unless another date, place or time is
agreed to in writing by the Buyer and the Company.
1.3 Effects of the Merger. At the Effective Time (i) the separate existence
of the Transitory Subsidiary shall cease and the Transitory Subsidiary shall be
merged with and into the Company (the Transitory Subsidiary and the Company are
sometimes referred to below as the "Constituent Corporations" and the Company
following the Merger is sometimes referred to below as the "Surviving
Corporation"), (ii) the Certificate of Incorporation of the Company shall be
amended so that Article FOURTH of such Certificate of Incorporation reads in
its entirety as follows: "The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 1,000, all of which
shall consist of common stock, $.01 par value per share," and, as so amended,
such Certificate of Incorporation shall be the Certificate of Incorporation of
the Surviving Corporation, and (iii) the By-laws of the Transitory Subsidiary
as in effect immediately prior to the Effective Time shall be the By-laws of
the Surviving Corporation. The Merger shall have the effects set forth in
Section 259 of the DGCL.
1.4 Directors. The directors of the Transitory Subsidiary immediately prior
to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation.
ARTICLE II
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of the
capital stock of the Company or capital stock of the Transitory Subsidiary:
(a) Capital Stock of the Transitory Subsidiary. Each issued and
outstanding share of the capital stock of the Transitory Subsidiary shall
be converted into and become one fully paid and nonassessable share of
common stock, $.01 par value per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Buyer-Owned Stock. All shares of
common stock, $.0001 par value per share, of the Company ("Company Common
Stock") that are owned by the Company and any shares of Company Common
Stock owned by the Buyer or the Transitory Subsidiary shall be canceled and
shall cease to exist and no stock of the Buyer or other consideration shall
be delivered in exchange therefor.
(c) Exchange Ratio for Company Common Stock. Subject to Section 2.2,
each share of Company Common Stock (other than shares to be canceled in
accordance with Section 2.1(b)) issued and outstanding immediately before
the Effective Time shall be automatically converted into the right to
receive 0.1252 shares (the "Exchange Ratio") of common stock, $.01 par
value per share, of the Buyer ("Buyer Common Stock"). As of the Effective
Time, all such shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled, and each holder of a
certificate representing any such shares of Company Common Stock shall
cease to have any rights with respect thereto, except the
A-2
<PAGE>
right to receive the shares of Buyer Common Stock and any cash in lieu of
fractional shares of Buyer Common Stock to be issued or paid in
consideration therefor upon surrender of such certificate in accordance
with Section 2.2, without interest.
(d) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted
to reflect fully the effect of any reclassification, stock split, reverse
split, stock dividend (including any dividend or distribution of securities
convertible into Buyer Common Stock or Company Common Stock),
reorganization, recapitalization or other like change with respect to Buyer
Common Stock or Company Common Stock occurring after the date hereof and
prior to the Effective Time.
(e) Unvested Stock. At the Effective Time, any unvested shares of
Company Common Stock awarded to employees, directors or consultants
pursuant to any of the Company's plans or arrangements and outstanding
immediately prior to the Effective Time shall be converted to unvested
shares of Buyer Common Stock in accordance with the Exchange Ratio and
shall remain subject to the same terms, restrictions and vesting schedule
(including acceleration provisions) as in effect immediately prior to the
Effective Time, except as otherwise agreed by Buyer and the holder thereof.
All outstanding rights which the Company may hold immediately prior to the
Effective Time to repurchase unvested shares of Company Common Stock shall
be assigned to the Buyer in the Merger and shall thereafter be exercisable
by Buyer upon the same terms and conditions in effect immediately prior to
the Effective Time, except that the shares purchasable pursuant to such
rights and the purchase price payable per share shall be adjusted to
reflect the Exchange Ratio. The Buyer shall take all steps necessary to
cause the foregoing provisions of this Section 2.1(e) to occur.
(f) Treatment of Company Options and Company Warrants. Outstanding
Company Stock Options and Company Warrants (in each case as defined in
Section 3.2(b)) shall be treated following the Effective Time in the manner
set forth in Section 6.11.
2.2 Exchange of Certificates. The procedures for exchanging outstanding
shares of Company Common Stock for Buyer Common Stock pursuant to the Merger
are as follows:
(a) Exchange Agent. As of the Effective Time, the Buyer shall deposit
with a bank or trust company designated by the Buyer (the "Exchange
Agent"), for the benefit of the holders of shares of the Company Common
Stock, for exchange in accordance with this Section 2.2, through the
Exchange Agent, (i) certificates representing the shares of Buyer Common
Stock (such shares of Buyer Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund") issuable pursuant to Section 2.1 in exchange for
outstanding shares of the Company Common Stock, (ii) cash in an amount
sufficient to make payments required pursuant to Section 2.2(e), and (iii)
any dividends or distributions to which holders of Certificates (as defined
below) may be entitled pursuant to Section 2.2(c)
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of the Company Common Stock (the
"Certificates") whose shares were converted pursuant to Section 2.1 into
the right to receive shares of Buyer Common Stock (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as the Buyer may reasonably specify) and (ii) instructions
for effecting the surrender of the Certificates in exchange for
certificates representing shares of Buyer Common Stock (plus cash in lieu
of fractional shares, if any, of Buyer Common Stock and any dividends or
distributions as provided below). Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by the Buyer, together with such letter of transmittal, duly
executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall be entitled to receive
in exchange therefor a certificate representing that
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<PAGE>
number of whole shares of Buyer Common Stock which such holder has the
right to receive pursuant to the provisions of this Article II with respect
to the shares of Company Common Stock represented by such Certificate plus
cash in lieu of fractional shares pursuant to Section 2.2(e) and any
dividends or distributions pursuant to Section 2.2(c), and the Certificate
so surrendered shall immediately be canceled. In the event of a transfer of
ownership of Company Common Stock which is not registered in the transfer
records of the Company, a certificate representing the proper number of
shares of Buyer Common Stock plus cash in lieu of fractional shares
pursuant to Section 2.2(e) and any dividends or distributions pursuant to
Section 2.2(c) may be issued and paid to a person other than the person in
whose name the Certificate so surrender is registered, if such Certificate
is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable
stock transfer taxes have been paid. Until surrendered as contemplated by
this Section 2.2, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender
the certificate representing shares of Buyer Common Stock plus cash in lieu
of fractional shares pursuant to Section 2.2(e) and any dividends or
distributions pursuant to Section 2.2(c) as contemplated by this Section
2.2.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect
to Buyer Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to
Section 2.2(e) until the holder of record of such Certificate shall
surrender such Certificate as contemplated by Section 2.2(b). Subject to
the effect of applicable laws, following surrender of any such Certificate,
there shall be issued and paid to the record holder of the Certificate, (i)
certificates representing whole shares of Buyer Common Stock issued in
exchange therefor, without interest, (ii) at the time of such surrender,
the amount of any cash payable in lieu of a fractional share of Buyer
Common Stock to which such holder is entitled pursuant to Section 2.2(e)
and the amount of dividends or other distributions with a record date after
the Effective Time previously paid with respect to such whole shares of
Buyer Common Stock, and (iii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective
Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of Buyer Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares of
Buyer Common Stock issued upon the surrender for exchange of Certificates
in accordance with the terms hereof (including any cash or other
distributions paid pursuant to Sections 2.2(c) or 2.2(e)) shall be deemed
to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock, and from and after the Effective Time there
shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or
the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article II.
(e) No Fractional Shares. No certificate or scrip representing
fractional shares of Buyer Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any other rights of a stockholder
of the Buyer. Notwithstanding any other provision of this Agreement, each
holder of shares of Company Common Stock exchanged pursuant to the Merger
who would otherwise have been entitled to receive a fraction of a share of
Buyer Common Stock (after taking into account all Certificates delivered by
such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of Buyer Common Stock
multiplied by the average of the last reported sales prices of the Buyer
Common Stock on the Nasdaq National Market during the ten (10) consecutive
trading days ending on and including the last trading day prior to the
Effective Time.
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<PAGE>
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for 180 days after
the Effective Time shall be delivered to the Buyer, upon demand, and any
holder of the Certificates who has not previously complied with this
Section 2.2 shall thereafter look only to the Buyer, for payment of its
claim for Buyer Common Stock, any cash in lieu of fractional shares of
Buyer Common Stock and any dividends or distributions with respect to Buyer
Common Stock.
(g) No Liability. To the extent permitted by applicable law, none of the
Buyer, the Transitory Subsidiary, the Company, the Surviving Corporation or
the Exchange Agent shall be liable to any holder of shares of Company
Common Stock or Buyer Common Stock, as the case may be, for such shares (or
dividends or distributions with respect thereto) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law. If any Certificate shall not have been surrendered prior to one year
after the Effective Time (or immediately prior to such earlier date on
which any shares of Buyer Common Stock, and any cash payable to the holder
of such Certificate pursuant to this Article II or any dividends or
distributions payable to the holder of such Certificate would otherwise
escheat to or become the property of any Governmental Entity (as defined in
Section 3.3(c))), any such shares of Buyer Common Stock or cash, dividends
or distributions in respect of such Certificate shall, to the extent
permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person
previously entitled thereto.
(h) Withholding Rights. Each of the Buyer and the Surviving Corporation
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company
Common Stock such amounts as it is required to deduct and withhold with
respect to the making of such payment under the Code, or any other
applicable provision of law. To the extent that amounts are so withheld by
the Surviving Corporation or the Buyer, as the case may be, such withheld
amounts shall be treated for all purposes of this Agreement as having been
paid to the holder of the shares of Company Common Stock in respect of
which such deduction and withholding was made by the Surviving Corporation
or the Buyer, as the case may be.
(i) Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required
by the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Certificate the shares of Buyer Common Stock and any
cash in lieu of fractional shares, and unpaid dividends and distributions
on shares of Buyer Common Stock deliverable in respect thereof pursuant to
this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer and the Transitory
Subsidiary that the statements contained in this Article III are true and
correct, except as set forth herein or in the disclosure schedule delivered by
the Company to the Buyer on or before the date of this Agreement (the "Company
Disclosure Schedule").
3.1 Organization, Standing and Power; Subsidiaries.
(a) Each of the Company and its Subsidiaries (as defined below) is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate
power and authority to own, lease and operate its properties and assets and to
carry on its business as now
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being conducted and as proposed to be conducted, and is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified, individually or in the aggregate,
would be reasonably likely to have a material adverse effect on the business,
properties, financial condition, results of operations or prospects of the
Company and its Subsidiaries, taken as a whole, or to have a material adverse
effect on the ability of the Company to consummate the transactions
contemplated by this Agreement, the Stockholder Agreement or the Company Stock
Option Agreement other than any effect (a) resulting from or arising out of the
public announcement of this Agreement or any of the transactions contemplated
hereby, (b) attributable to any legal action or proceeding brought by or on
behalf of stockholders of the Company alleging that the Board of Directors of
the Company breached its fiduciary duties in connection with its approval of
the Merger, this Agreement or the transactions contemplated hereby, or (c)
arising or resulting from general industry, economic or stock market conditions
that affect the Company in a manner not disproportionate to the manner in which
such conditions affect other companies in the technology sector (a "Company
Material Adverse Effect").
(b) Except as set forth in the Company SEC Reports (as defined in Section
3.4) filed prior to the date of this Agreement, neither the Company nor any of
its Subsidiaries directly or indirectly owns any equity, membership,
partnership or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity, membership, partnership or similar
interest in, any corporation, partnership, joint venture, limited liability
company or other business association or entity, whether incorporated or
unincorporated. As used in this Agreement, the word "Subsidiary" means, with
respect to a party, any corporation, partnership, joint venture, limited
liability company or other business association or entity, whether incorporated
or unincorporated, of which (i) such party or any other Subsidiary of such
party is a general partner (excluding partnerships, the general partnership
interests of which held by such party and/or one or more of its Subsidiaries do
not have a majority of the voting interest in such partnership), (ii) such
party and/or one or more of its Subsidiaries holds voting power to elect a
majority of the board of directors or other governing body performing similar
functions, or (iii) such party and/or one or more of its Subsidiaries, directly
or indirectly, owns or controls more than 50% of the equity, membership,
partnership or similar interests.
(c) The Company has delivered or made available to the Buyer complete and
accurate copies of the Certificate of Incorporation and By-laws of the Company
and of the charter, by-laws or other organizational documents of each
Subsidiary of the Company.
3.2 Capitalization.
(a) The authorized capital stock of the Company consists of 60,000,000
shares of Company Common Stock and 5,000,000 shares of preferred stock, $.0001
par value per share ("Company Preferred Stock"). As of the close of business on
December 14, 1999, (i) 20,324,094 shares of Company Common Stock were issued
and outstanding, (ii) no shares of Company Common Stock were held in the
treasury of the Company or by Subsidiaries of the Company, and (iii) no shares
of the Company Preferred Stock were issued and outstanding.
(b) Section 3.2(b) of the Company Disclosure Schedule lists the number of
shares of Company Common Stock reserved for future issuance pursuant to stock
options granted and outstanding as of the date of this Agreement and the plans
(if any) under which such options were granted (collectively, the "Company
Stock Plans") and sets forth a complete and accurate list of all holders of
outstanding options to purchase shares of Company Common Stock (such
outstanding options, the "Company Stock Options"), indicating the number of
shares of Company Common Stock subject to each Company Stock Option, and the
exercise price, the date of grant, vesting schedule and the expiration date
thereof. Section 3.2 of the Company Disclosure Schedule shows the number of
shares of Company Common Stock reserved for future issuance pursuant to
warrants or other outstanding rights to purchase shares of Company Common Stock
outstanding as of the date of this Agreement (such outstanding warrants or
other rights, the "Company Warrants") and the agreement or other document under
which such Company Warrants were granted and sets forth a complete and accurate
list of all holders of Company Warrants indicating the number and type of
shares of Company Common Stock subject to each Company Warrant, and the
exercise price, the date of grant and the expiration date thereof. Except (x)
as set
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forth in this Section 3.2 and (y) as reserved for future grants under Company
Stock Plans, (i) there are no equity securities of any class of the Company or
any of its Subsidiaries, or any security exchangeable into or exercisable for
such equity securities, issued, reserved for issuance or outstanding and (ii)
there are no options, warrants, equity securities, calls, rights, commitments
or agreements of any character to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries is bound
obligating the Company or any of its Subsidiaries to issue, transfer, deliver
or sell, or cause to be issued, transferred, delivered or sold, additional
shares of capital stock of the Company or any of its Subsidiaries or any
security or rights convertible into or exchangeable or exercisable for any such
shares, or obligating the Company or any of its Subsidiaries to grant, extend,
accelerate the vesting of, otherwise modify or amend or enter into any such
option, warrant, equity security, call, right, commitment or agreement. Neither
the Company nor any of its Subsidiaries has issued and outstanding any stock
appreciation rights, phantom stock, performance based rights or similar rights
or obligations. To the knowledge of the Company, other than the Stockholder
Agreements, there are no agreements or understandings with respect to the
voting (including voting trusts and proxies) or sale or transfer (including
agreements imposing transfer restrictions) of any shares of capital stock of
the Company or any of its Subsidiaries.
(c) All outstanding shares of Company Common Stock are, and all shares of
Company Common Stock subject to issuance as specified above, upon issuance on
the terms and conditions specified in the instruments pursuant to which they
are issuable, will be, duly authorized, validly issued, fully paid and
nonassessable and not subject to or issued in violation of any purchase option,
call option, right of first refusal, preemptive right, subscription right or
any similar right under any provision of the DGCL, the Company's Certificate of
Incorporation or By-laws or any agreement to which the Company is a party or is
otherwise bound. There are no obligations, contingent or otherwise, of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any shares of the Company Common Stock or the capital stock of the Company or
any of its Subsidiaries or to provide funds to or make any material investment
(in the form of a loan, capital contribution or otherwise) in the Company or
any Subsidiary of the Company or any other entity, other than guarantees of
bank obligations of Subsidiaries of the Company entered into in the ordinary
course of business.
(d) All of the outstanding shares of capital stock of each of the Company's
Subsidiaries are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights and all such shares (other than directors' qualifying
shares in the case of non-U.S. Subsidiaries, all of which the Company has the
power to cause to be transferred for no or nominal consideration to the Buyer
or the Buyer's designee) are owned, of record and beneficially, by the Company
or another Subsidiary of the Company free and clear of all security interests,
liens, claims, pledges, agreements, limitations in the Company's voting rights,
charges or other encumbrances of any nature.
(e) No consent of the holders of Company Stock Options is required in
connection with the conversion of such options contemplated by Section 6.11.
3.3 Authority; No Conflict; Required Filings and Consents.
(a) The Company has all requisite corporate power and authority to enter
into this Agreement and the Company Stock Option Agreement and to consummate
the transactions contemplated by this Agreement and the Company Stock Option
Agreement. The execution and delivery of this Agreement and the Company Stock
Option Agreement and the consummation of the transactions contemplated by this
Agreement and the Company Stock Option Agreement by the Company have been duly
authorized by all necessary corporate action on the part of the Company,
subject only to the approval of the Merger by the Company's stockholders under
the DGCL. This Agreement and the Company Stock Option Agreement have been duly
executed and delivered by the Company and constitute valid and binding
obligations of the Company, enforceable in accordance with their respective
terms.
(b) The execution and delivery of this Agreement and the Company Stock
Option Agreement by the Company does not, and the consummation of the
transactions contemplated by this Agreement and the
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Company Stock Option Agreement will not, (i) conflict with, or result in any
violation or breach of, any provision of the Certificate of Incorporation or
By-laws of the Company or the charter, by-laws, or other organizational
document of any Subsidiary of the Company, (ii) conflict with, or result in any
violation or breach of, or constitute (with or without notice or lapse of time,
or both) a default (or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any material benefit) under, or
require a consent or waiver under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract or other
agreement, instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound, or (iii) subject to compliance with the requirements
specified in clauses (i), (ii), (iii), (iv) and (v) of Section 3.3(c), conflict
with or violate any permit, concession, franchise, license, judgment,
injunction, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or any of its or their
properties or assets, except in the case of clauses (ii) and (iii) of this
Section 3.3(b) for any such conflicts, violations, breaches, defaults,
terminations, cancellations, accelerations or losses which, individually or in
the aggregate, are not reasonably likely to have a Company Material Adverse
Effect.
(c) No consent, approval, license, permit, order or authorization of, or,
registration, declaration, notice or filing with, any court, arbitrational
tribunal, administrative agency or commission or other governmental or
regulatory authority or agency (a "Governmental Entity") is required by or with
respect to the Company or any of its Subsidiaries in connection with the
execution and delivery of this Agreement and the Company Stock Option Agreement
by the Company or the consummation of the transactions contemplated by this
Agreement or the Company Stock Option Agreement, except for (i) the filing of a
pre-merger notification report under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (ii) the filing of the
Certificate of Merger with the Delaware Secretary of State, (iii) the filing of
the Proxy Statement (as defined in Section 3.16 below) with the Securities and
Exchange Commission (the "SEC") in accordance with the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), (iv) the filing of such reports or
schedules under Section 13 of the Exchange Act as may be required in connection
with this Agreement and the transactions contemplated hereby and (v) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws except where
the failure to obtain any such consent, approval, order, authorization,
registration, declaration or filing would not have a Company Material Adverse
Effect.
(d) The affirmative vote of the holders of a majority of the outstanding
shares of Company Common Stock on the record date for the Company Meeting (as
defined below) is the only vote of the holders of any class or series of the
Company's capital stock or other securities necessary to adopt this Agreement.
There are no bonds, debentures, notes or other indebtedness of the Company
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which stockholders of the Company
may vote.
3.4 SEC Filings; Financial Statements.
(a) The Company has filed and made available to the Buyer all forms, reports
and other documents required to be filed by the Company with the SEC since its
inception. All such required forms, reports and other documents (including
those that the Company may file after the date hereof until the Closing)
together with any amendments thereto are referred to herein as the "Company SEC
Reports." The Company SEC Reports (i) were or will be filed on a timely basis,
(ii) were or will be prepared in compliance in all material respects with the
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Company SEC Reports, and
(iii) did not or will not at the time they were or are filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated in such Company SEC Reports or necessary in order to make the statements
in such Company SEC Reports, in the light of the circumstances under which they
were made, not misleading. No Subsidiary of the Company is required to file any
forms, reports or other documents with the SEC.
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(b) Each of the consolidated financial statements (including, in each case,
any related notes and schedules) contained or to be contained in the Company
SEC Reports (i) complied or will comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, (ii) were or will be prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes to such financial statements or, in the case of unaudited statements,
as permitted by the SEC on Form 10-Q under the Exchange Act) and (iii) fairly
presented or will fairly present the consolidated financial position of the
Company and its Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods indicated,
consistent with the books and records of the Company and its Subsidiaries,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected to
be material in amount. The unaudited balance sheet of the Company as of
September 30, 1999 is referred to herein as the "Company Balance Sheet."
3.5 No Undisclosed Liabilities. Except as disclosed in the Company SEC
Reports filed prior to the date of this Agreement, and except for normal or
recurring liabilities incurred since the date of the Company Balance Sheet in
the ordinary course of business consistent with past practices, the Company and
its Subsidiaries do not have any liabilities, either accrued, contingent or
otherwise (whether or not required to be reflected in financial statements in
accordance with United States generally accepted accounting principles), and
whether due or to become due, which, individually or in the aggregate, are
reasonably likely to have a Company Material Adverse Effect.
3.6 Absence of Certain Changes or Events. Except as disclosed in the Company
SEC Reports filed prior to the date of this Agreement, since the date of the
Company Balance Sheet, the Company and its Subsidiaries have conducted their
respective businesses only in the ordinary course and in a manner consistent
with past practice and, since such date, there has not been (i) any event,
change or development in the business, properties, financial condition, results
of operations or prospects of the Company and its Subsidiaries, taken as a
whole, which, individually or in the aggregate, has had, or is reasonably
likely to have, a Company Material Adverse Effect; or (ii) except as disclosed
pursuant to this Agreement (including the Company Disclosure Schedule) any
other action or event that would have required the consent of the Buyer
pursuant to Section 5.1 of this Agreement had such action or event occurred
after the date of this Agreement.
3.7 Taxes.
(a) The Company and each of its Subsidiaries has filed all Tax Returns (as
defined below) that it was required to file, and all such Tax Returns were
correct and complete except for any errors or omissions which are not,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect. The Company and each of its Subsidiaries has paid on a timely
basis all Taxes (as defined below) that are shown to be due on any such Tax
Returns. The unpaid Taxes of the Company and its Subsidiaries for Tax periods
through the date of the Company Balance Sheet do not exceed the accruals and
reserves for Taxes set forth on the Company Balance Sheet exclusive of any
accruals and reserves for "deferred taxes" or similar items that reflect timing
differences between Tax and financial accounting principles. All Taxes that the
Company or any of its Subsidiaries is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Entity. For purposes of this Agreement,
(i) "Taxes" means all taxes, charges, fees, levies or other similar assessments
or liabilities, including income, gross receipts, ad valorem, premium, value-
added, excise, real property, personal property, sales, use, services,
transfer, withholding, employment, payroll and franchise taxes imposed by the
United States of America or any state, local or foreign government, or any
agency thereof, or other political subdivision of the United States or any such
government, and any interest, fines, penalties, assessments or additions to tax
resulting from, attributable to or incurred in connection with any tax or any
contest or dispute thereof and (ii) "Tax Returns" means all reports, returns,
declarations, statements or other information required to be supplied to a
taxing authority in connection with Taxes.
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(b) The Company has delivered to the Buyer correct and complete copies of
all federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by the Company or any of its
Subsidiaries since inception. The federal income Tax Returns of the Company and
each of its Subsidiaries have been audited by the Internal Revenue Service or
are closed by the applicable statute of limitations for all taxable years
through the taxable year specified in Section 3.7(b) of the Company Disclosure
Schedule. The Company has made available to the Buyer correct and complete
copies of all other Tax Returns of the Company and its Subsidiaries together
with all related examination reports and statements of deficiency for all
periods. No examination or audit of any Tax Return of the Company or any of its
Subsidiaries by any Governmental Entity is currently in progress or, to the
knowledge of the Company, threatened or contemplated. Neither the Company nor
any of its Subsidiaries has been informed by any Governmental Entity that the
Governmental Entity believes that the Company or any of its Subsidiaries was
required to file any Tax Return that was not filed. Neither the Company nor any
of its Subsidiaries has waived any statute of limitations with respect to Taxes
or agreed to an extension of time with respect to a Tax assessment or
deficiency.
(c) Neither the Company nor any of its Subsidiaries: (i) is a "consenting
corporation" within the meaning of Section 341(f) of the Code, and none of the
assets of the Company or its Subsidiaries are subject to an election under
Section 341(f) of the Code; (ii) has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (iii) has
made any payments, is obligated to make any payments, or is a party to any
agreement that could obligate it to make any payments that may be treated as an
"excess parachute payment" under Section 280G of the Code; (iv) has any actual
or potential liability for any Taxes of any person (other than the Company and
its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of law in any jurisdiction), or as a transferee or successor, by
contract, or otherwise; or (v) is or has been required to make a basis
reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury
Regulation Section 1.337(d)-2(b).
(d) None of the assets of the Company or any of its Subsidiaries: (i) is
property that is required to be treated as being owned by any other person
pursuant to the provisions of former Section 168(f)(8) of the Code; (ii) is
"tax-exempt use property" within the meaning of Section 168(h) of the Code; or
(iii) directly or indirectly secures any debt the interest on which is tax
exempt under Section 103(a) of the Code.
(e) Neither the Company nor any of its Subsidiaries has undergone, or will
undergo as a result of the transactions contemplated by the Agreement, a change
in its method of accounting resulting in an adjustment to its taxable income
pursuant to Section 481(h) of the Code.
(f) Neither the Company nor any of its Subsidiaries (i) is or has ever been
a member of a group of corporations with which it has filed (or been required
to file) consolidated, combined or unitary Tax Returns, other than a group of
which only the Company and its Subsidiaries are or were members or (ii) is a
party to or bound by any Tax indemnity, Tax sharing or Tax allocation
agreement.
3.8 Owned and Leased Real Properties.
(a) The Company does not own and has never owned any real property.
(b) The Company has provided to the Buyer a complete and accurate list of
all real property leased by the Company or its Subsidiaries (collectively
"Company Leases") and the location of the premises. The Company is not in
default in any material respect under any of the Company Leases. Each of the
Company Leases is in full force and effect and will not cease to be in full
force and effect as a result of the transactions contemplated by this
Agreement.
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3.9 Intellectual Property.
(a) The Company and its Subsidiaries exclusively own, or are licensed or
otherwise possess legally enforceable rights to use, without any obligation to
make any fixed or contingent payments, including any royalty payments, all
patents, trademarks, trade names, domain names, service marks and copyrights,
any applications for and registrations of such patents, trademarks, trade
names, domain names, service marks and copyrights, and all processes, formulae,
methods, schematics, technology, know-how, computer software programs or
applications and tangible or intangible proprietary information or material
that are used or necessary to conduct the business of the Company and its
Subsidiaries as currently conducted (the "Company Intellectual Property
Rights").
(b) The execution and delivery of this Agreement and consummation of the
Merger will not result in the breach of, or create on behalf of any third party
the right to terminate or modify, any material license, sublicense or other
agreement relating to the Company Intellectual Property Rights, or any license,
sublicense and other agreement as to which the Company or any of its
Subsidiaries is a party and pursuant to which the Company or any of its
Subsidiaries is authorized to use any third party patents, trademarks,
copyrights or trade secrets (the "Company Third Party Intellectual Property
Rights"), including software that is used in the manufacture of, incorporated
in, or forms a part of any product or service sold or expected to be sold by
the Company or any of its Subsidiaries.
(c) All patents, registered trademarks, service marks and copyrights which
are held by the Company or any of its Subsidiaries and which are material to
the business of the Company and its Subsidiaries, taken as a whole, are valid
and subsisting. The Company and its Subsidiaries have taken reasonable measures
to protect the proprietary nature of the Company Intellectual Property Rights
that are material to the business of the Company and its Subsidiaries, taken as
a whole, and to maintain in confidence all trade secrets and confidential
information owned or used by the Company or any of its Subsidiaries and that
are material to the business of the Company and its Subsidiaries, taken as a
whole. To the knowledge of the Company, no other person or entity is
infringing, violating or misappropriating any of the Company Intellectual
Property Rights. None of the activities or business previously or currently
conducted by the Company or any of the Subsidiaries infringes, violates or
constitutes a misappropriation of, any patents, trademarks, trade names,
service marks and copyrights, any applications for and registrations of such
patents, trademarks, trade names, service marks and copyrights, and all
processes, formulae, methods, schematics, technology, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material of any other person or entity except for any
infringement, violation or misappropriation that would not have a Company
Material Adverse Effect. Neither the Company nor any of its Subsidiaries has
received any complaint, claim or notice alleging any such infringement,
violation or misappropriation.
3.10 Agreements, Contracts and Commitments.
(a) Section 3.10(a) of the Company Disclosure Schedule sets forth a list of
all contracts, agreements and commitments, written or oral ("Contracts"), of
the following categories to which the Company or any of its Subsidiaries is a
party or by which any of them is bound ("Company Material Contracts"):
(i) Contracts under which the Company or any Subsidiary licenses any
Company Intellectual Property Rights to a third party, other than to
customers in the ordinary course of business;
(ii) Contracts under which the Company or any Subsidiary licenses any
material item of intellectual property from a third party;
(iii) Contracts with any Affiliate of the Company;
(iv) Contracts for the acquisition, sale or disposition of any material
assets of the Company or any of its Subsidiaries outside the ordinary
course of business;
(v) any Contract not disclosed in a Company SEC Report that is a
material contract (as defined in Item 601(b)(10) of Regulation S-K of the
SEC);
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(vi) any Contract under which a third party would be entitled to receive
a license or any other right to intellectual property of the Buyer or any
of Buyer's affiliates (as defined in Rule 405 under the Securities Act),
other than the Surviving Corporation, following the Closing, and
(vii) any Contract that would require Buyer to register any shares of
Buyer Common Stock under the Securities Act after the Closing.
(b) Each Company Material Contract has not expired by its terms and is in
full force and effect. Neither the Company nor any of its Subsidiaries is in
violation of or in default under (nor does there exist any condition which,
upon the passage of time or the giving of notice or both, would cause such a
violation of or default under) any Company Material Contract or any other loan
or credit agreement, note, bond, mortgage, indenture, lease, permit,
concession, franchise, license or other contract, arrangement or understanding
to which it is a party or by which it or any of its properties or assets is
bound, except for violations or defaults which, individually or in the
aggregate, have not resulted in, and are not reasonably likely to result in, a
Company Material Adverse Effect.
3.11 Litigation. Except as disclosed in the Company SEC Reports filed prior
to the date of this Agreement, there is no action, suit, proceeding, claim,
arbitration or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries which,
individually or in the aggregate, has had, or is reasonably likely to have, a
Company Material Adverse Effect. There are no judgments, orders or decrees
outstanding against the Company.
3.12 Environmental Matters.
(a) Except as disclosed in the Company SEC Reports filed prior to the date
of this Agreement and except for such matters which, individually or in the
aggregate, have not had, and are not reasonably likely to have a Company
Material Adverse Effect: (i) the Company and each of its Subsidiaries has
complied with, and is not in violation of, any applicable Environmental Laws
(as defined in Section 3.12(b)); (ii) the properties currently owned or
operated by the Company and its Subsidiaries (including soils, groundwater,
surface water, buildings or other structures) are not contaminated with any
Hazardous Substances (as defined in Section 3.12(c)); (iii) the properties
formerly owned or operated by the Company or any of its Subsidiaries were not
contaminated with Hazardous Substances prior to or during the period of
ownership or operation by the Company or any of its Subsidiaries; (iv) neither
the Company nor its Subsidiaries are subject to liability for any Hazardous
Substance disposal or contamination on the property of any third party; (v)
neither the Company nor any of its Subsidiaries have released any Hazardous
Substance to the environment; (vi) neither the Company nor any of its
Subsidiaries has received any notice, demand, letter, claim or request for
information alleging that the Company or any of its Subsidiaries may be in
violation of, liable under or have obligations under any Environmental Law;
(vii) neither the Company nor any of its Subsidiaries is subject to any orders,
decrees, injunctions or other arrangements with any Governmental Entity or is
subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances; and
(viii) there are no circumstances or conditions involving the Company or any of
its Subsidiaries that could reasonably be expected to result in any claims,
liability, obligations, investigations, costs or restrictions on the ownership,
use or transfer of any property of the Company or any of its Subsidiaries
pursuant to any Environmental Law.
(b) For purposes of this Agreement, "Environmental Law" means any law,
regulation, order, decree, permit, authorization, opinion, common law or agency
requirement of any jurisdiction relating to: (A) the protection, investigation
or restoration of the environment, human health and safety, or natural
resources, (B) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance or (C) noise, odor, wetlands, pollution,
contamination or any injury or threat of injury to persons or property.
(c) For purposes of this Agreement, "Hazardous Substance" means any
substance that is: (A) listed, classified, regulated or which falls within the
definition of a "hazardous substance" or "hazardous material" pursuant to any
Environmental Law; (B) any petroleum product or by-product, asbestos-containing
material,
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lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or (C) any other substance which is the subject of
regulatory action by any Governmental Entity pursuant to any Environmental Law.
(d) Section 3.12(d) of the Company Disclosure Schedule sets forth a complete
and accurate list of all documents (whether in hard copy or electronic form)
that contain any environmental reports, investigations and audits relating to
premises currently or previously owned or operated by the Company or any of its
Subsidiaries (whether conducted by or on behalf of the Company or one of its
Subsidiaries or a third party, and whether done at the initiative of the
Company or one of its Subsidiaries or directed by a Governmental Entity or
other third party) which were issued or conducted during the past five years
and of which the Company has possession. A complete and accurate copy of each
such document has been provided to the Buyer.
3.13 Employee Benefit Plans.
(a) Section 3.13(a) of the Company Disclosure Schedule sets forth a complete
and accurate list of all Employee Benefit Plans (as defined below) maintained,
or contributed to, by the Company, any Subsidiary of the Company or any ERISA
Affiliate (as defined below), or with respect to which the Company or any
Subsidiary has or may have any actual or contingent liabilities (together, the
"Company Employee Plans"). For purposes of this Agreement, the following terms
shall have the following meanings: (i) "Employee Benefit Plan" means any
"employee pension benefit plan" (as defined in Section 3(2) of ERISA), any
"employee welfare benefit plan" (as defined in Section 3(1) of ERISA), and any
other plan, agreement or arrangement involving direct or indirect compensation
or fringe benefits, including without limitation insurance coverage, severance
benefits, disability benefits, deferred compensation, bonuses, stock options,
stock purchase, phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement compensation; (ii) "ERISA" means the Employee
Retirement Income Security Act of 1974, as amended; and (iii) "ERISA Affiliate"
means any entity which is, or at any applicable time was, a member of (1) a
controlled group of corporations (as defined in Section 414(b) of the Code),
(2) a group of trades or businesses under common control (as defined in Section
414(c) of the Code), or (3) an affiliated service group (as defined under
Section 414(m) of the Code or the regulations under Section 414(o) of the
Code), any of which includes or included the Company or a Subsidiary.
(b) With respect to each Company Employee Plan, the Company has furnished to
the Buyer, a complete and accurate copy of (i) such Company Employee Plan (or a
written summary of any unwritten plan), (ii) the most recent annual report
(Form 5500, 5500C or 5500R) filed with the IRS, if any, required under ERISA or
the Code, (iii) each trust agreement, group annuity contract and summary plan
description, if any, required under ERISA relating to such Company Employee
Plan and (iv) reports, if any, regarding the satisfaction of the
nondiscrimination requirements of Sections 401(a)(4), 401(k), 401(m) and 410(b)
of the Code for the last plan year.
(c) Each Company Employee Plan has been administered in all material
respects in accordance with its terms and each of the Company, the Company's
Subsidiaries and their ERISA Affiliates has in all material respects met its
obligations with respect to such Company Employee Plan and has made all
required contributions thereto. With respect to the Company Employee Plans, no
event has occurred, and to the knowledge of the Company, there exists no
condition or set of circumstances in connection with which the Company or any
of its Subsidiaries could be subject to (i) any liability under ERISA, the Code
or any other applicable law which, individually or in the aggregate, is
reasonably likely to have a Company Material Adverse Effect; or (ii) any
contractual indemnification or contribution obligation protecting any
fiduciary, insurer or service provider with respect to any Company Employee
Plan.
(d) With respect to the Company Employee Plans, there are no funded benefit
obligations for which contributions have not been made or properly accrued and
there are no unfunded benefit obligations (other than routine claims for
benefits) which have not been accounted for by reserves, or otherwise properly
footnoted in
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accordance with United States generally accepted accounting principles, on the
financial statements of the Company.
(e) All the Company Employee Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Company Employee Plans are
qualified and the plans and trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, no
such determination letter has been revoked and revocation has not been
threatened, and no such Company Employee Plan has been amended or operated
since the date of its most recent determination letter or application therefor
in any respect, and no act or omission has occurred, that would adversely
affect its qualification or materially increase its cost.
(f) Neither the Company, any Subsidiary of the Company nor any ERISA
Affiliate has (i) ever maintained a Company Employee Plan which was ever
subject to Section 412 of the Code or Title IV of ERISA or (ii) ever been
obligated to contribute to, or otherwise has any liability with respect to, a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA). No Company
Employee Plan is funded by, associated with or related to a "voluntary
employee's beneficiary association" within the meaning of Section 501(c)(9) of
the Code.
(g) Each Company Employee Plan is amendable and terminable unilaterally by
the Company at any time without any material liability to the Company as a
result thereof and no Company Employee Plan, plan documentation or agreement,
summary plan description or other written communication distributed generally
to employees by its terms prohibits the Company from amending or terminating
any such Company Employee Plan.
(h) Except as disclosed in Section 3.10(h) of the Company Disclosure
Schedule or the Company SEC Reports filed prior to the date of this Agreement,
neither the Company nor any of its Subsidiaries is a party to any (i) agreement
with any stockholders, director, executive officer or other key employee of the
Company or any of its Subsidiaries (A) the benefits of which are contingent, or
the terms of which are materially altered, upon the occurrence of a transaction
involving the Company or any of its Subsidiaries of the nature of any of the
transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from the Company or any of its Subsidiaries that
may be subject to the tax imposed by Section 4999 of the Code or included in
the determination of such person's "parachute payment" under Section 280G of
the Code; and (iii) agreement or plan binding the Company or any of its
Subsidiaries, including any stock option plan, stock appreciation right plan,
restricted stock plan, stock purchase plan, severance benefit plan, or Company
Employee Plan, any of the benefits of which will be increased, or the vesting
of the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
(i) Except as disclosed in Section 3.13(i) of the Company Disclosure
Schedule: (i) no claims (other than claims for benefits payable in the normal
operation of the Company Employee Plans) are outstanding with respect to any
Company Employee Plan; (ii) there are no pending nor, to the Company's
knowledge, threatened legal proceedings with respect to any Company Employee
Plan; and (iii) no Company Employee Plan is the subject of an examination by
any governmental authority or of any government-sponsored amnesty, voluntary
compliance or similar program.
3.14 Compliance With Laws. The Company and each of its Subsidiaries has
complied with, is not in violation of, and has not received any notice alleging
any violation with respect to, any applicable provisions of any statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its properties or assets, except for failures to comply or
violations which, individually or in the aggregate, have not had, and are not
reasonably likely to have, a Company Material Adverse Effect.
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3.15 Permits. The Company and each of its Subsidiaries have all permits,
licenses and franchises from Governmental Entities required to conduct their
businesses as now being conducted or as presently contemplated to be conducted
(the "Company Permits"), except for such permits, licenses and franchises the
absence of which, individually or in the aggregate, have not resulted in, and
are not reasonably likely to result in, a Company Material Adverse Effect. The
Company and its Subsidiaries are in compliance, in all material respects, with
the terms of the Company Permits.
3.16 Registration Statement; Proxy Statement/Prospectus. The information to
be supplied by the Company for inclusion in the registration statement on Form
S-4 pursuant to which shares of Buyer Common Stock issued in connection with
the Merger will be registered under the Securities Act (the "Registration
Statement"), shall not at the time the Registration Statement is declared
effective by the SEC contain any untrue statement of a material fact or omit to
state any material fact required to be stated in the Registration Statement or
necessary in order to make the statements in the Registration Statement, in
light of the circumstances under which they were made, not misleading. The
information to be supplied by the Company for inclusion in the proxy
statement/prospectus (the "Proxy Statement") to be sent to the stockholders of
the Company in connection with the meeting of the Company's stockholders to
consider this Agreement and the Merger (the "Company Meeting") shall not, on
the date the Proxy Statement is first mailed to stockholders of the Company, at
the time of the Company Meeting and at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
shall be made, is false or misleading with respect to any material fact, or
omit to state any material fact necessary in order to make the statements made
in the Proxy Statement not false or misleading; or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of proxies for the Company Meeting which has become
false or misleading. If at any time prior to the Effective Time any event
relating to the Company or any of its Affiliates, officers or directors should
be discovered by the Company which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, the Company
shall promptly inform the Buyer.
3.17 Labor Matters. Neither the Company nor any of its Subsidiaries is a
party to or otherwise bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization.
Neither the Company nor any of its Subsidiaries is the subject of any
proceeding asserting that the Company or any of its Subsidiaries has committed
an unfair labor practice or is seeking to compel it to bargain with any labor
union or labor organization, nor is there pending or, to the knowledge of the
Company, threatened, any labor strike, dispute, walkout, work stoppage, slow-
down or lockout involving the Company or any of its Subsidiaries.
3.18 Insurance. Each of the Company and its Subsidiaries maintains insurance
policies with reputable insurance carriers against all risks of a character and
in such amounts as are usually insured against by similarly situated companies
in the same or similar businesses.
3.19 Business Activity Restrictions. There is no non-competition or other
similar agreement, commitment, judgment, injunction or order to which the
Company or any Subsidiary of the Company is a party or subject to that has or
could reasonably be expected to have the effect of prohibiting or impairing the
conduct of the business by the Company in any material respect. The Company has
not entered into any agreement under which it is restricted in any material
respect from selling, licensing or otherwise distributing any of its technology
or products, or providing services to, customers or potential customers or any
class of customers, in any geographic area, during any period of time or any
segment of the market or line of business.
3.20 Year 2000 Compliance.
(a) The Company has conducted "year 2000" audits with respect to (i) all of
the Company's internal systems used in the business or operations of the
Company, including, without limitation, computer hardware systems, software
applications, firmware, equipment firmware and other embedded systems, and (ii)
the software, hardware, firmware and other technology which constitute part of
the products and services marketed
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or sold by the Company or licensed by the Company to third parties. The
Company has obtained "year 2000" certificates with respect to all material
third-party systems used in connection with the business or operations of the
Company.
(b) All of (i) the Company's material internal systems used in the business
or operations of the Company, including, without limitation, computer hardware
systems, software applications, firmware, equipment containing embedded
microchips and other embedded systems (the "Company Systems"), and (ii) the
software, hardware, firmware and other technology which constitute part of the
products and services marketed or sold by the Company or licensed by the
Company to third parties (the "Company Products") are Year 2000 Compliant.
(c) The Company has no knowledge of any failure to be Year 2000 Compliant
of any material third-party system used in connection with the business or
operations of the Company.
(d) For purposes of this Agreement, "Year 2000 Compliant" means that the
applicable system or item:
(i) accurately receives, records, stores, provides, recognizes and
processes all date and time data from, during, into and between the
twentieth and twenty-first centuries, the years 1999 and 2000 and all leap
years;
(ii) accurately performs all date-dependent calculations and operations
(including, without limitation, mathematical operations, sorting, comparing
and reporting) from, during, into and between the twentieth and twenty-
first centuries, the years 1999 and 2000 and all leap years; and
(iii) does not malfunction, cease to function or provide invalid or
incorrect results as a result of (x) the change of years from 1999 to 2000
or from 2000 to 2001, (y) date data, including date data which represents
or references different centuries, different dates during 1999 and 2000, or
more than one century or (z) the occurrence of any particular date;
in each case without human intervention, other than original data entry;
provided, in each case, that all applications, hardware and other systems used
in conjunction with such system or item which are not owned or licensed by the
Company correctly exchange date data with or provide data to such system or
item.
(e) The Company has not provided any guarantee or warranty for any product
sold or licensed, or service provided, by the Company to the effect that such
product or service (i) complies with or accounts for the fact of the arrival
of the year 2000, (ii) will not be adversely affected with respect to
functionality, interoperability, performance or volume capacity (including,
without limitation, the processing and reporting of data) by virtue of the
arrival of the year 2000 or (iii) is otherwise Year 2000 Compliant.
3.21 Assets. Each of the Company and its Subsidiaries owns or leases all
tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted. All of such tangible
assets which are owned, are owned free and clear of all mortgages, security
interest, pledges, liens and encumbrances ("Liens") except for (i) Liens which
are disclosed in the Company SEC Reports filed prior to the date of this
Agreement and (ii) other Liens which, individually and in the aggregate, do
not materially interfere with the ability of the Company or its Subsidiaries
to conduct their business as currently conducted and as presently proposed to
be conducted and have not resulted in, and are not reasonably likely to result
in, a Company Material Adverse Effect. The tangible assets of the Company and
its Subsidiaries, taken as a whole, are free from material defects, have been
maintained in accordance with normal industry practice, are in good operating
condition and repair (subject to normal wear and tear) and are suitable for
the purpose for which they are presently used.
3.22 Opinion of Financial Advisor. The financial advisor of the Company,
Deutsche Bank Securities, Inc., has delivered to the Company an opinion dated
the date of this Agreement to the effect, as of such date, that the Exchange
Ratio is fair to the holders of the Company Common Stock from a financial
point of view.
3.23 Section 203 of the DGCL Not Applicable. The Board of Directors of the
Company has taken all actions necessary so that the restrictions contained in
Section 203 of the DGCL applicable to a "business
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combination" (as defined in Section 203) will not apply to the execution,
delivery or performance of this Agreement, the Company Stock Option Agreement,
the Stockholder Agreements or the consummation of the Merger or the other
transactions contemplated by this Agreement, the Company Stock Option Agreement
or the Stockholder Agreements.
3.24 Tax Matters. To the Company's knowledge, after consulting with its
independent auditors, neither the Company nor any of its Affiliates has taken
or agreed to take any action which would prevent the Merger from constituting a
transaction qualifying as a reorganization under Section 368(a) of the Code.
3.25 Transactions with Affiliates. Except as disclosed in the Company SEC
Reports filed prior to the date of this Agreement, neither the Company nor any
of its Subsidiaries has entered into any transaction with any director, officer
or other affiliate of the Company or any of its Subsidiaries or any transaction
that would be subject to proxy statement disclosure pursuant to Item 404 of
Regulation S-K.
3.26 Brokers; Schedule of Fees and Expenses.
(a) No agent, broker, investment banker, financial advisor or other firm or
person is or will be entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with any of the transactions
contemplated by this Agreement, except Deutsche Bank Securities, Inc., whose
fees and expense will be paid by the Company. The Company has delivered to the
Buyer a complete and accurate copy of all agreements pursuant to which Deutsche
Bank Securities, Inc., is entitled to any fees and expenses in connection with
any of the transactions contemplated by this Agreement.
(b) Section 3.27(b) of the Company Disclosure Schedule sets forth a complete
and accurate list of the estimated fees and expenses incurred and to be
incurred by the Company and any of its Subsidiaries in connection with this
Agreement and the transactions contemplated by this Agreement (including the
fees and expenses of Deutsche Bank Securities, Inc., and of the Company's legal
counsel and accountants).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE
TRANSITORY SUBSIDIARY
The Buyer and the Transitory Subsidiary represent and warrant to the Company
that the statements contained in this Article IV are true and correct, except
as set forth herein or in the disclosure schedule delivered by the Buyer to the
Company on or before the date of this Agreement (the "Buyer Disclosure
Schedule").
4.1 Organization, Standing and Power. Each of the Buyer and the Transitory
Subsidiary and the Buyer's other Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, has all requisite corporate power and authority to own, lease
and operate its properties and assets and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified, individually or in the aggregate, would be
reasonably likely to have a material adverse effect on the business,
properties, financial condition, results of operations or prospects of the
Buyer and its Subsidiaries, taken as a whole, or to have a material adverse
effect on the ability of the Buyer to consummate the transactions contemplated
by this Agreement (a "Buyer Material Adverse Effect").
4.2 Capitalization. The authorized capital stock of the Buyer consists of
400,000,000 shares of Buyer Common Stock and 5,000,000 shares of preferred
stock, $.01 par value per share (the "Buyer Preferred Stock"), of which (i) 250
shares are designated Series A Preferred Stock, (ii) 50,000 shares are
designated Series B Preferred Stock, (iii) 375,000 shares are designated Series
C Preferred Stock and (iv) 18,090.45 shares are designated Series D Preferred
Stock. As of the close of business on December 10, 1999, 122,970,601 shares of
Buyer Common Stock were issued and outstanding, and (i) no shares of Series A
Preferred Stock, (ii) 35,000
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shares of Series B Preferred Stock (convertible into an aggregate of 1,398,230
shares of Buyer Common Stock), (iii) 375,000 shares of Series C Preferred Stock
(convertible into an aggregate of 3,925,674 shares of Buyer Common Stock), and
(iv) no shares of Series D Preferred Stock were issued and outstanding. All
outstanding shares of Buyer Common Stock are, and all shares of Buyer Common
Stock subject to issuance as specified above, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be, duly authorized, validly issued, fully paid and nonassessable. All of
the shares of Buyer Common Stock issuable pursuant to Section 2.1(c) in
connection with the Merger, when issued in accordance with this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable.
4.3 Authority; No Conflict; Required Filings and Consents.
(a) Each of the Buyer and the Transitory Subsidiary has all requisite
corporate power and authority to enter into this Agreement and to consummate
the transactions contemplated by this Agreement. The execution and delivery of
this Agreement and the consummation of the transactions contemplated by this
Agreement by the Buyer and the Transitory Subsidiary have been duly authorized
by all necessary corporate action on the part of each of the Buyer and the
Transitory Subsidiary, including the approval of the Merger by the Buyer in its
capacity as sole stockholder of the Transitory Subsidiary. This Agreement has
been duly executed and delivered by each of the Buyer and the Transitory
Subsidiary and constitutes the valid and binding obligation of each of the
Buyer and the Transitory Subsidiary, enforceable in accordance with its terms.
(b) The execution and delivery of this Agreement by each of the Buyer and
the Transitory Subsidiary does not, and the consummation of the transactions
contemplated by this Agreement will not, (i) conflict with, or result in any
violation or breach of, any provision of the Certificate of Incorporation or
By-laws of the Buyer or the Transitory Subsidiary, (ii) conflict with, or
result in any violation or breach of, or constitute (with or without notice or
lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under, or require a consent or waiver under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract or
other agreement, instrument or obligation to which the Buyer or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound, or (iii) subject to compliance with the requirements
specified in clause (i), (ii), (iii), (iv), (v) and (vi) of Section 4.3(c),
conflict with or violate any permit, concession, franchise, license, judgment,
injunction, order, decree, statute, law, ordinance, rule or regulation
applicable to the Buyer or any of its Subsidiaries or any of its or their
properties or assets, except in the case of (ii) and (iii) for any such
conflicts, violations, breaches, defaults, terminations, cancellations or
accelerations which, individually or in the aggregate, are not reasonably
likely to have a Buyer Material Adverse Effect.
(c) No consent, approval, license, permit, order or authorization of, or
registration, declaration, notice or filing with, any Governmental Entity is
required by or with respect to the Buyer or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by the Buyer or
the Transitory Subsidiary or the consummation of the transactions contemplated
by this Agreement, except for (i) the filing of a pre-merger notification
report under the HSR Act, (ii) the filing of the Certificate of Merger with the
Delaware Secretary of State, (iii) the filing of the Registration Statement
with the SEC in accordance with the Securities Act, (iv) the filings of such
reports or schedules under Section 13 of the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated hereby, (v)
such consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under applicable state securities laws and (vi)
the filing with the Nasdaq National Market of a Notification Form for Listing
of Additional Shares with respect to the Buyer Common Stock issuable in
connection with the Merger.
4.4 SEC Filings; Financial Statements.
(a) The Buyer has filed and made available to the Company all forms, reports
and other documents required to be filed by the Buyer with the SEC since June
1, 1998. All such required forms, reports and other documents (including those
that the Buyer may file after the date hereof until the Closing) are referred
to herein as the "Buyer SEC Reports." The Buyer SEC Reports (i) were or will be
filed on a timely basis, (ii) were or
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will be prepared in compliance in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such Buyer
SEC Reports, and (iii) did not or will not at the time they were or are filed
contain any untrue statement of a material fact or omit to state a material
fact required to be stated in such Buyer SEC Reports or necessary in order to
make the statements in such Buyer SEC Reports, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each case,
any related notes and schedules) contained or to be contained in the Buyer SEC
Reports (i) complied or will comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, (ii) were or will be prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
to such financial statements or, in the case of unaudited statements, as
permitted by the SEC on Form 10-Q under the Exchange Act) and (iii) fairly
presented or will fairly present the consolidated financial position of the
Buyer and its Subsidiaries as of the dates and the consolidated results of its
operations and cash flows for the periods indicated, consistent with the books
and records of the Buyer and its Subsidiaries, except that the unaudited
interim financial statements were or are subject to normal and recurring year-
end adjustments which were not or are not expected to be material in amount.
The audited balance sheet of the Buyer as of July 31, 1999 is referred to
herein as the "Buyer Balance Sheet."
4.5 Absence of Certain Changes or Events. Except as disclosed in the Buyer
SEC Reports filed prior to the date of this Agreement, since the date of the
Buyer Balance Sheet, there has not been any event, change or development in the
business, properties, financial condition, results of operations or prospects
of the Buyer and its Subsidiaries, taken as a whole, which has had, or is
reasonably likely to have, a Buyer Material Adverse Effect.
4.6 Tax Matters. To the Buyer's knowledge, after consulting with its
independent auditors, neither the Buyer nor any of its Affiliates has taken or
agreed to take any action which would prevent the Merger from constituting a
transaction qualifying as a reorganization under Section 368(a) of the Code.
4.7 Registration Statement; Proxy Statement/Prospectus. The information in
the Registration Statement (except for information supplied by the Company for
inclusion in the Registration Statement, as to which the Buyer makes no
representation and which shall not constitute part of the Buyer SEC Reports for
purposes of this Agreement) shall not at the time the Registration Statement is
declared effective by the SEC contain any untrue statement of a material fact
or omit to state any material fact required to be stated in the Registration
Statement or necessary in order to make the statements in the Registration
Statement, in light of the circumstances under which they were made, not
misleading. If at any time prior to the Effective Time any event relating to
the Buyer or any of its Affiliates, officers or directors should be discovered
by the Buyer which should be set forth in an amendment to the Registration
Statement, the Buyer shall promptly inform the Company.
4.8 Litigation. Except as disclosed in the Buyer SEC Reports filed prior to
the date of this Agreement, there is no action, suit, proceeding, claim,
arbitration or investigation pending or, to the knowledge of the Buyer,
threatened against or affecting the Buyer or any of its Subsidiaries which,
individually or in the aggregate, has had, or is reasonably likely to have, a
Buyer Material Adverse Effect. There are no material judgments, orders or
decrees outstanding against the Buyer.
4.9 Operations of the Transitory Subsidiary. The Transitory Subsidiary has
engaged in no business activities other than as contemplated by this Agreement
and has conducted its operations only as contemplated by this Agreement.
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ARTICLE V
CONDUCT OF BUSINESS
5.1 Covenants of the Company. Except as expressly provided herein or as
consented to in writing by the Buyer, from and after the date of this Agreement
until the earlier of the termination of this Agreement in accordance with its
terms or the Effective Time, the Company shall, and shall cause each of its
Subsidiaries to, act and carry on its business in the usual, regular and
ordinary course in substantially the same manner as previously conducted, and
use all reasonable efforts, consistent with past practices, to maintain and
preserve its and each Subsidiary's business organization, assets and
properties, keep available the services of its present officers and employees
and preserve its advantageous business relationships with customers, suppliers,
distributors and others having business dealings with it to the end that its
goodwill and ongoing business shall be unimpaired at the Effective Time.
Without limiting the generality of the foregoing, from and after the date of
this Agreement until the earlier of the termination of this Agreement in
accordance with its terms or the Effective Time, the Company shall not, and
shall not permit any of its Subsidiaries to, directly or indirectly, do any of
the following without the prior written consent of the Buyer:
(a) (A) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, securities or other property) in respect
of, any of its capital stock (other than dividends and distributions by a
direct or indirect wholly owned subsidiary of the Company to its parent);
(B) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution of shares of its capital stock; or (C) purchase, redeem or
otherwise acquire any shares of its capital stock or any other securities
thereof or any rights, warrants or options to acquire any such shares or
other securities (other than repurchases at cost from employees upon
termination of their employment);
(b) issue, deliver, sell, grant, pledge or otherwise dispose of or
encumber any shares of its capital stock, any other voting securities or
any securities convertible into or exchangeable for, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible or exchangeable securities (other than the issuance of shares
of Company Common Stock upon the exercise of Company Options or Company
Warrants outstanding on the date of this Agreement in accordance with their
present terms), except for option grants to new employees in an aggregate
amount not to exceed 200,000 shares of Company Common Stock ("Permitted
Options");
(c) amend its certificate of incorporation, by-laws or other comparable
charter or organizational documents, except as expressly provided by this
Agreement;
(d) acquire (A) by merging or consolidating with, or by purchasing a
substantial portion of the assets or any stock of, or by any other manner,
any business or any corporation, partnership, joint venture, limited
liability company, association or other business organization or division
thereof or (B) any assets that are material, in the aggregate, to the
Company and the Subsidiaries, taken as a whole, except purchases of
inventory in the ordinary course of business consistent with past practice;
(e) except in the ordinary course of business consistent with past
practice, sell, lease, license, pledge, or otherwise dispose of or encumber
any properties or assets of the Company or of any of its Subsidiaries;
(f) whether or not in the ordinary course of business or consistent with
past practice, sell or dispose of any assets material to the Company and
its Subsidiaries, taken as a whole (including any accounts, leases,
contracts or intellectual property or any assets or the stock of any
Subsidiaries, but excluding the sale of products and services in the
ordinary course of business consistent with past practice);
(g) adopt or implement any stockholder rights plan;
(h) except as permitted by Section 6.1, enter into an agreement with
respect to any merger, consolidation, liquidation or business combination,
or any acquisition or disposition of all or substantially all of the assets
or securities of the Company or any of its Subsidiaries;
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(i) (A) incur or suffer to exist any indebtedness for borrowed money
other than such indebtedness which existed as of November 30, 1999 as
reflected on the Company Balance Sheet or guarantee any such indebtedness
of another person, (B) issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Company or any of its
Subsidiaries, guarantee any debt securities of another person, enter into
any "keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, other than the incurrence of
accounts payable in the ordinary course of business, or (C) make any loans,
advances (other than routine advances to employees of the company in the
ordinary course of business consistent with past practice) or capital
contributions to, or investment in, any other person;
(j) make any capital expenditures or expenditures for property, plant or
equipment, except consistent with the capital budget shown on Section
5.1(j) of the Company Disclosure Schedule;
(k) make any changes in accounting methods, principles or practices,
except insofar as may have been required by a change in United States
generally accepted accounting principles or, except as so required, change
any assumption underlying, or method of calculating, any bad debt,
contingency or other reserve;
(l) (A) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of the Company included in the Company SEC Reports filed
prior to the date of this Agreement (to the extent so reflected or reserved
against) or incurred thereafter in the ordinary course of business
consistent with past practice, or (B) except as permitted under Section
6.1, waive any material benefits of any confidentiality, standstill or
similar agreements to which the Company or any of its Subsidiaries is a
party;
(m) except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which the Company or any of
its Subsidiaries is party, or knowingly waive, release or assign any
material rights or claims (including any write-off or other compromise of
any accounts receivable of the Company or any of its Subsidiaries);
(n) (A) except in the ordinary course of business consistent with past
practice, enter into any material contract or agreement or (B) license any
material intellectual property rights to or from any third party;
(o) except as required to comply with applicable law or agreements,
plans or arrangements existing on the date hereof or as contemplated by
this Agreement or disclosed on Section 5.1(o) of the Company Disclosure
Schedule, (A) adopt, enter into, terminate or amend any employment,
severance or similar agreement or benefit plan for the benefit or welfare
of any current or former director, officer or employee or any collective
bargaining agreement, (B) increase in any material respect the compensation
or fringe benefits of, or pay any bonus to, any director, officer or key
employee, (C) accelerate the payment, right to payment or vesting of any
compensation or benefits, including any outstanding options or restricted
stock awards, (D) pay any material benefit not provided for as of the date
of this Agreement under any benefit plan, (E) grant any awards under any
bonus, incentive, performance or other compensation plan or arrangement or
benefit plan (including the grant of stock options, stock appreciation
rights, stock based or stock related awards, performance units or
restricted stock, or the removal of existing restrictions in any benefit
plans or agreements or awards made thereunder) except for the grant of
Permitted Options, or (F) take any action other than in the ordinary course
of business consistent with past practice to fund or in any other way
secure the payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or benefit plan;
(p) make or rescind any Tax election, settle or compromise any Tax
liability or amend any Tax return;
(q) initiate, compromise or settle any material litigation or
arbitration proceeding;
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(r) close any facility or office;
(s) invest funds in debt securities or other instruments maturing more
than 90 days after the date of investment; or
(t) authorize any of, or commit or agree, in writing or otherwise, to
take any of, the foregoing actions or any action which would materially
impair or prevent the occurrence of any conditions of Article VII hereof.
5.2 Cooperation. Subject to compliance with applicable law, from and after
the date of this Agreement and continuing until the earlier of the termination
of this Agreement in accordance with its terms or the Effective Time, the
Company and each of its Subsidiaries shall make its officers available to
confer on a regular and frequent basis with one or more representatives of the
Buyer to report on the general status of ongoing operations and shall promptly
provide the Buyer or its counsel with copies of all filings made by such party
with any Governmental Entity in connection with this Agreement, the Merger and
the transactions contemplated hereby.
5.3 Confidentiality. The parties acknowledge that the Buyer and the Company
have previously executed a Mutual Confidentiality Agreement, dated as of
December 3, 1999 (the "Confidentiality Agreement"), which Confidentiality
Agreement will continue in full force and effect in accordance with its terms,
except as expressly modified herein.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 No Solicitation.
(a) From and after the date of this Agreement until the earlier of the
termination of this Agreement in accordance with its terms or the Effective
Time, the Company and its Subsidiaries shall not, directly or indirectly,
through any officer, director, employee, financial advisor, representative or
agent (i) solicit, initiate, or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, a proposal or offer for
a merger, consolidation, business combination, sale of substantial assets,
tender offer, sale of shares of capital stock (excluding sales pursuant to
existing Company Stock Plans or pursuant to the Company Warrants) or similar
transaction involving the Company or any of its Subsidiaries, other than the
transactions contemplated by this Agreement (any of the foregoing inquiries or
proposals being referred to in this Agreement as an "Acquisition Proposal"),
(ii) engage in negotiations or discussions concerning, or provide any
information to any person or entity relating to, any Acquisition Proposal, or
(iii) agree to or recommend any Acquisition Proposal; provided, however, that,
if the Company has not breached this Section 6.1, nothing contained in this
Agreement shall prevent the Company or its Board of Directors, prior to the
adoption of this Agreement by the stockholders of the Company, from:
(A) furnishing information to, or entering into discussions or
negotiations with, any person or entity in connection with an unsolicited
bona fide written Acquisition Proposal by such person or entity or
recommending an unsolicited bona fide written Acquisition Proposal to the
stockholders of the Company, if and only to the extent that
(1) the Board of Directors of the Company believes in good faith
(after consultation with its financial advisor) that such Acquisition
Proposal is reasonably capable of being completed on the terms proposed
and would, if consummated, result in a transaction more favorable than
the transaction contemplated by this Agreement (any such more favorable
Acquisition Proposal being referred to in this Agreement as a "Superior
Proposal") and the Company's Board of Directors determines in good
faith after consultation with outside legal counsel that such action is
necessary for such Board of Directors to fulfill its fiduciary duties,
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(2) prior to furnishing such non-public information to, or entering
into discussions or negotiations with, such person or entity, such
Board of Directors receives from such person or entity an executed
confidentiality agreement with terms no less favorable to such party
than those contained in the Confidentiality Agreement, and
(3) prior to recommending a Superior Proposal or terminating this
Agreement in respect thereof, the Company shall provide the Buyer with
at least five business days' prior notice of its proposal to do so,
during which time the Buyer may make, and in such event the Company
shall consider, a counterproposal to such Superior Proposal, and the
Company shall itself and shall cause its financial and legal advisors
to negotiate with the Buyer with respect to the terms and conditions of
such counterproposal; or
(B) complying with Rule 14d-9 and 14e-2 promulgated under the Exchange
Act with regard to an Acquisition Proposal; provided, however, that neither
the Company nor its Board of Directors shall, except as permitted by
paragraph (A) of this section, propose to approve or recommend an
Acquisition Proposal.
(b) The Company will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore of the nature
described in Section 6.1(a) and will use reasonable efforts to obtain the
return of any confidential information furnished to any such parties.
(c) The Company shall notify the Buyer immediately (but in any event, within
one (1) business day) after receipt by the Company (or its advisors) of any
Acquisition Proposal or any request for nonpublic information in connection
with an Acquisition Proposal or for access to the properties, books or records
of the Company by any person or entity that informs the Company that it is
considering making, or has made, an Acquisition Proposal. Such notice shall be
made orally and in writing and shall indicate in reasonable detail the identity
of the offer and the terms and conditions of such proposal, inquiry or contact.
The Company shall continue to keep the Buyer promptly informed of any change in
the status of any such discussions or negotiations and the terms being
discussed or negotiated.
(d) Nothing in this Section 6.1 shall (i) permit the Company to terminate
this Agreement (except as specifically provided in Section 8.1 hereof), or (ii)
permit the Company to enter into any agreement with respect to an Acquisition
Proposal during the term of this Agreement (other than a confidentiality
agreement of the type referred to in Section 6.1(a) above).
(e) Without limiting the foregoing, it is understood that any violation of
the restrictions set forth in this Section 6.1 by any director or officer of
the Company or any of its Subsidiaries or any investment banker, financial
advisor, attorney, accountant or other representative of the Company or any of
its Subsidiaries shall be deemed to be a breached of this Section 6.1 by the
Company.
6.2 Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practicable after the execution of this Agreement, the
Buyer and the Company shall prepare and the Company shall file with the SEC the
Proxy Statement, and the Buyer shall prepare and file with the SEC the
Registration Statement, in which the Proxy Statement will be included as a
prospectus, provided that the Buyer may delay the filing of the Registration
Statement until approval of the Proxy Statement by the SEC. The Buyer and the
Company shall use reasonable efforts to cause the Registration Statement to
become effective as soon after such filing as practicable. Each of the Buyer
and the Company will respond to any comments of the SEC and will use its
respective reasonable efforts to have the Proxy Statement cleared by the SEC
and the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filings and the Company will cause the Proxy
Statement and the prospectus contained within the Registration Statement to be
mailed to its stockholders at the earliest practicable time after both the
Proxy Statement is cleared by the SEC and the Registration Statement is
declared effective under the Securities Act. Each of the Buyer and the Company
will notify the other promptly upon the receipt of any comments from the SEC or
its staff or any other government officials and of any request by the SEC or
its staff or any
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other government officials for amendments or supplements to the Registration
Statement, the Proxy Statement or any filing pursuant to Section 6.2(b) or for
additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the other
hand, with respect to the Registration Statement, the Proxy Statement, the
Merger or any filing pursuant to Section 6.2(b). Each of the Buyer and the
Company will cause all documents that it is responsible for filing with the SEC
or other regulatory authorities under this Section 6.2 to comply in all
material respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is required
to be set forth in an amendment or supplement to the Proxy Statement, the
Registration Statement or any filing pursuant to Section 6.2(b), the Buyer or
the Company, as the case may be, will promptly inform the other of such
occurrence and cooperate in filing with the SEC or its staff or any other
government officials, and/or mailing to stockholders of the Company, such
amendment or supplement.
(b) The Buyer and the Company shall make all necessary filings with respect
to the Merger under the Securities Act, the Exchange Act, applicable state blue
sky laws and the rules and regulations thereunder.
6.3 Nasdaq Quotation. The Company agrees to continue the quotation of the
Company Common Stock on the Nasdaq National Market during the term of this
Agreement.
6.4 Access to Information. The Company shall (and shall cause each of its
Subsidiaries to) afford to the Buyer's officers, employees, accountants,
counsel and other representatives, reasonable access, during normal business
hours during the period prior to the Effective Time, to all its properties,
books, contracts, commitments, personnel and records and, during such period,
the Company shall (and shall cause each of its Subsidiaries to) furnish
promptly to the Buyer (a) a copy of each report, schedule, registration
statement and other document filed or received by it during such period
pursuant to the requirements of federal or state securities laws and (b) all
other information concerning its business, properties, assets and personnel as
the Buyer may reasonably request. Unless otherwise required by law, the Buyer
will hold any such information which is nonpublic in confidence in accordance
with the Confidentiality Agreement. No information or knowledge obtained in any
investigation pursuant to this Section or otherwise shall affect or be deemed
to modify any representation or warranty contained in this Agreement or the
conditions to the obligations of the parties to consummate the Merger.
6.5 Stockholders Meeting.
(a) The Company, acting through its Board of Directors, shall, subject to
and according to applicable law and its Certificate of Incorporation and By-
laws, promptly and duly call, give notice of, convene and hold as soon as
practicable following the date on which the Registration Statement becomes
effective the Company Meeting for the purpose of voting to approve and adopt
this Agreement and the Merger (the "Company Voting Proposal"). The Board of
Directors of the Company shall (i) recommend approval and adoption of the
Company Voting Proposal by the stockholders of the Company and include in the
Proxy Statement such recommendation and (ii) take all reasonable and lawful
action to solicit and obtain such approval; provided, however, that the Board
of Directors of the Company may withdraw such recommendation if (but only if)
such Board of Directors has received a Superior Proposal and after consultation
with its outside legal counsel determines that it is required, in order to
fulfill its fiduciary duties under applicable law, to recommend such Superior
Proposal to the stockholders of the Company and (iii) the Company has complied
with the provisions of Section 6.1.
(b) The Company shall call and hold the Company Meeting for the purpose of
voting upon the adoption of this Agreement and the Merger whether its Board of
Directors at any time subsequent to the date hereof determines that this
Agreement is no longer advisable and withdraws, or proposes publicly to
withdraw, its approval or recommendation of this Agreement or the Merger, or
approves or recommends, or proposes publicly to approve or recommend, any
Superior Proposal.
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6.6 Legal Conditions to the Merger.
(a) Subject to the terms hereof, the Company and the Buyer shall each use
its reasonable efforts to (i) take, or cause to be taken, all actions, and do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective the transactions contemplated hereby as promptly as practicable, (ii)
obtain from any Governmental Entity or any other third party any consents,
licenses, permits, waivers, approvals, authorizations, or orders required to be
obtained or made by the Company or the Buyer or any of their Subsidiaries in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby, (iii) as promptly as
practicable, make all necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Merger required under (A)
the Securities Act and the Exchange Act, and any other applicable federal or
state securities laws, (B) the HSR Act and any related governmental request
thereunder, and (C) any other applicable law and (iv) execute or deliver any
additional instruments necessary to consummate the transactions contemplated
by, and to fully carry out the purposes of, this Agreement. The Company and the
Buyer shall cooperate with each other in connection with the making of all such
filings, including providing copies of all such documents to the non-filing
party and its advisors prior to filing and, if requested, to accept all
reasonable additions, deletions or changes suggested in connection therewith.
The Company and the Buyer shall use their respective reasonable efforts to
furnish to each other all information required for any application or other
filing to be made pursuant to the rules and regulations of any applicable law
(including all information required to be included in the Proxy Statement and
the Registration Statement) in connection with the transactions contemplated by
this Agreement.
(b) Subject to the terms hereof, the Buyer and the Company agree, and shall
cause each of their respective Subsidiaries, to cooperate and to use their
respective reasonable efforts to obtain any government clearances or approvals
required for Closing under the HSR Act, the Sherman Act, as amended, the
Clayton Act, as amended, the Federal Trade Commission Act, as amended, and any
other federal, state or foreign law or, regulation or decree designed to
prohibit, restrict or regulate actions for the purpose or effect of
monopolization or restraint of trade (collectively "Antitrust Laws"), to
respond to any government requests for information under any Antitrust Law, and
to contest and resist any action, including any legislative, administrative or
judicial action, and to have vacated, lifted, reversed or overturned any
decree, judgment, injunction or other order (whether temporary, preliminary or
permanent) (an "Antitrust Order") that restricts, prevents or prohibits the
consummation of the Merger or any other transactions contemplated by this
Agreement under any Antitrust Law. The parties hereto will consult and
cooperate with one another, and consider in good faith the views of one
another, in connection with any analyses, appearances, presentations,
memoranda, briefs, arguments, opinions and proposals made or submitted by or on
behalf of any party hereto in connection with proceedings under or relating to
any Antitrust Law. The Buyer shall be entitled to direct any proceedings or
negotiations with any Governmental Entity relating to any of the foregoing,
provided that it shall afford the Company a reasonable opportunity to
participate therein. Notwithstanding anything to the contrary in this Section,
neither the Buyer nor any of its Subsidiaries shall be required to (i) divest
any of their respective businesses, product lines or assets, or to take or
agree to take any other action or agree to any limitation, that could
reasonably be expected to have a material adverse effect on the Buyer or on the
Buyer combined with the Company after the Effective Time or (ii) take any
action under this Section if the United States Department of Justice or the
United States Federal Trade Commission authorizes its staff to seek a
preliminary injunction or restraining order to enjoin consummation of the
Merger.
(c) Each of the Company and the Buyer shall give (or shall cause their
respective Subsidiaries to give) any notices to third parties, and use, and
cause their respective Subsidiaries to use, their reasonable efforts to obtain
any third party consents related to or required in connection with the Merger
that are (A) necessary to consummate the transactions contemplated hereby, (B)
disclosed or required to be disclosed in the Company Disclosure Schedule or the
Buyer Disclosure Schedule, as the case may be, or (C) required to prevent a
Company Material Adverse Effect or a Buyer Material Adverse Effect from
occurring prior to or after the Effective Time.
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6.7 Public Disclosure. The Buyer and the Company shall each use its
reasonable efforts to consult with the other before issuing any press release
or otherwise making any public statement with respect to the Merger or this
Agreement and shall not issue any such press release or make any such public
statement prior to using such efforts, except as may be required by law.
6.8 Tax-Free Reorganization. The Buyer and the Company shall each use its
reasonable efforts to cause the Merger to be treated as a reorganization within
the meaning of Section 368(a) of the Code. The parties hereto hereby adopt this
Agreement as a plan of reorganization.
6.9 Affiliate Agreements. Upon the execution of this Agreement, the Company
will provide the Buyer with a list of those persons who are, in the Company's
reasonable judgment, "affiliates" of the Company, within the meaning of Rule
145 (each such person who is an "affiliate" of the Company within the meaning
of Rule 145 is referred to as an "Affiliate") promulgated under the Securities
Act ("Rule 145"). The Company shall provide to the Buyer such information and
documents as the Buyer shall reasonably request for purposes of reviewing such
list and shall notify the Buyer in writing regarding any change in the identity
of its Affiliates prior to the Closing Date. The Company shall use its
reasonable efforts to deliver or cause to be delivered to the Buyer prior to
the mailing of the Proxy Statement from each of its Affiliates, an executed
Affiliate Agreement, in substantially the form appended hereto as Exhibit D
(the "Affiliate Agreement").
6.10 Nasdaq National Market Listing. The Buyer shall file with the Nasdaq
National Market a Notification Form for Listing of Additional Shares with
respect to the Buyer Common Stock issuable in connection with the Merger.
6.11 Company Stock Plans and the Company Warrants.
(a) At the Effective Time, each outstanding Company Stock Option under
Company Stock Plans, whether vested or unvested, shall be deemed to constitute
an option to acquire, on the same terms and conditions as were applicable under
the Company Stock Option immediately prior to the Effective Time, the same
number of shares of Buyer Common Stock as the holder of the Company Stock
Option would have been entitled to receive pursuant to the Merger had such
holder exercised such option in full immediately prior to the Effective Time
(rounded down to the nearest whole number), at a price per share (rounded up to
the nearest whole cent) equal to (y) the aggregate exercise price for the
shares of Company Common Stock purchasable pursuant to the Company Stock Option
immediately prior to the Effective Time divided by (z) the number of full
shares of Buyer Common Stock deemed purchasable pursuant to the Company Stock
Option in accordance with the foregoing.
(b) As soon as practicable after the Effective Time, the Buyer shall deliver
to the participants in the Company Stock Plans appropriate notice setting forth
such participants' rights pursuant thereto and the grants pursuant to the
Company Stock Plans shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section after giving effect to the
Merger).
(c) The Buyer shall take all corporate action necessary for the assumption
of the Company Stock Plans, including the reservation for issuance of a
sufficient number of shares of Buyer Common Stock for delivery under the
Company Stock Plans assumed in accordance with this Section. As soon as
practicable after the Effective Time, the Buyer shall file a registration
statement on Form S-8 (or any successor form) or another appropriate form with
respect to the shares of Buyer Common Stock subject to the Company Stock
Options and shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options remain outstanding. It is intended that the Company Stock Options
assumed by Buyer shall qualify following the Effective Time as incentive stock
options (as defined in Section 422 of the Code) to the extent the Company Stock
Options qualified as incentive stock options immediately prior to the Effective
Time and this Section 6.11 shall be construed consistent with such intent.
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(d) The Board of Directors of the Company shall, prior to or as of the
Effective Time, take all necessary actions, pursuant to and in accordance with
the terms of Company Stock Plans and the instruments evidencing the Company
Stock Options, to provide for the conversion of the Company Stock Options into
options to acquire Buyer Common Stock in accordance with this Section, and that
no consent of the holders of the Company Stock Options is required in
connection with such conversion.
(e) At the Effective Time, by virtue of the Merger, each Company Warrant
outstanding immediately prior to the Effective Time shall be automatically
assumed by Buyer and converted into a warrant to acquire, on the same terms and
conditions as were applicable under such Company Warrant, the same number of
shares of Buyer Common Stock (rounded down to the nearest whole share) as the
holder of such Company Warrant would have been entitled to receive pursuant to
the Merger had such holder exercised such Company Warrant in full immediately
prior to the Effective Time, at a price per share (rounded up to the nearest
whole cent) of Buyer Common Stock equal to (A) the aggregate exercise price for
the shares of Company Common Stock otherwise purchasable pursuant to such
Company Warrant divided by (B) the aggregate number of shares of Buyer Common
Stock deemed purchasable pursuant to such Company Warrant (each, as so
adjusted, an "Adjusted Warrant"). Prior to the Effective Time, Buyer shall take
all necessary actions for the assumption of the Company Warrants and their
conversion into Adjusted Warrants, including the reservation, issuance and
quotation of Buyer Common Stock in a number at least equal to the number of
shares of Buyer Common Stock that will be subject to the Adjusted Warrants.
(f) The Company shall terminate its Employee Stock Purchase Plan and the
then current offering period thereunder prior to the Effective Time so that no
rights or options under such Plan can be issued or exercised after the
Effective Time.
6.12 Stockholder Litigation. Until the earlier of the termination of this
Agreement in accordance with its terms or the Effective Time, the Company shall
give the Buyer the opportunity to participate in the defense or settlement of
any stockholder litigation against the Company or its Board of Directors
relating to this Agreement or any of the transactions contemplated by this
Agreement, and shall not settle any such litigation without the Buyer's prior
written consent, which will not be unreasonably withheld or delayed.
6.13 Indemnification.
(a) From and after the Effective Time, the Buyer shall, to the fullest
extent permitted by law, cause the Surviving Corporation, for a period of six
years from the Effective Time, to honor all of the Company's obligations to
indemnify and hold harmless each present and former director and officer of the
Company (the "Indemnified Parties"), against any costs or expenses (including
attorneys' fees), judgments, fines, losses, claims, damages, liabilities or
amounts paid in settlement incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the extent that such obligations to indemnify and
hold harmless exist on the date of this Agreement.
(b) In the event the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person in a single transaction or a series of transactions, then, and in
each such case, Buyer will either guaranty the indemnification obligations
referred to in this Section 6.13 or will make or cause to be made proper
provision so that the successors and assigns of the Surviving Corporation
assume the indemnification obligations described herein for the benefit of the
Indemnified Parties.
(c) The provisions of this Section 6.13 are (i) intended to be for the
benefit of, and will be enforceable by, each of the Indemnified Parties and
(ii) in addition to, and not in substitution for, any other rights to
indemnification or contribution that any such person may have by contract or
otherwise.
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6.14 Termination of Company 401(k) Plan. Prior to the Closing, the Company
shall terminate the Company 401(k) Plan, and shall not thereafter establish or
maintain another defined contribution plan without the consent of the Buyer.
ARTICLE VII
CONDITIONS TO MERGER
7.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The Company Voting Proposal shall have been
approved and adopted at the Company Meeting, at which a quorum is present,
by the affirmative vote of the holders of a majority of the shares of the
Company Common Stock outstanding on the record date for the Company
Meeting.
(b) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(c) Governmental Approvals. Other than the filings provided for by
Section 1.1, all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by,
any Governmental Entity, the failure of which to file, obtain or occur is
reasonably likely to have a Buyer Material Adverse Effect or a Company
Material Adverse Effect shall have been filed, been obtained or occurred.
(d) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order.
(e) No Injunctions. No Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any order,
executive order, stay, decree, judgment or injunction (each an "Order") or
statute, rule or regulation which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger.
7.2 Additional Conditions to Obligations of the Buyer and the Transitory
Subsidiary. The obligations of the Buyer and the Transitory Subsidiary to
effect the Merger are subject to the satisfaction of each of the following
additional conditions, any of which may be waived in writing exclusively by the
Buyer and the Transitory Subsidiary:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement shall be true and correct (i) as
of the date of this Agreement (except to the extent such representations
and warranties are specifically made as of a particular date, in which case
such representations and warranties shall be true and correct as of such
date) and (ii) as of the Closing Date as though made on and as of the
Closing Date (except (x) to the extent such representations and warranties
are specifically made as of a particular date, in which case such
representations and warranties shall be true and correct as of such date,
(y) for changes contemplated by this Agreement and (z) where the failures
to be true and correct (without regard to any materiality, Company Material
Adverse Effect or knowledge qualifications contained therein), individually
or in the aggregate, have not had, and are not reasonably likely to have, a
Company Material Adverse Effect); and the Buyer shall have received a
certificate signed on behalf of the Company by the chief executive officer
and the chief financial officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date; and the Buyer
shall have received a certificate signed on behalf of the Company by the
chief executive officer and the chief financial officer of the Company to
such effect.
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(c) Tax Opinion. The Buyer shall have received a written opinion from
Hale and Dorr LLP, counsel to the Buyer, to the effect that the Merger will
be treated for federal income tax purposes as a tax-free reorganization
within the meaning of Section 368(a) of the Code; provided that if Hale and
Dorr LLP does not render such opinion, this condition shall nonetheless be
deemed satisfied if Wilson Sonsini Goodrich & Rosati, P.C. renders such
opinion to the Buyer (it being agreed that the Buyer and the Company shall
each provide reasonable cooperation, including making reasonable
representations, to Hale and Dorr LLP or Wilson Sonsini Goodrich & Rosati,
P.C. as the case may be, to enable them to render such opinion).
(d) Third Party Consents. The Company shall have obtained all consents
and approvals of third parties referred to in Section 7.2(d) of the Company
Disclosure Schedule.
(e) Resignations. The Buyer shall have received copies of the
resignations, effective as of the Effective Time, of each director of the
Company and its Subsidiaries.
7.3 Additional Conditions to Obligations of the Company. The obligation of
the Company to effect the Merger is subject to the satisfaction of each of the
following additional conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations and Warranties. The representations and warranties
of the Buyer and the Transitory Subsidiary set forth in this Agreement
shall be true and correct (i) as of the date of this Agreement (except to
the extent such representations are specifically made as of a particular
date, in which case such representations and warranties shall be true and
correct as of such date) and (ii) as of the Closing Date as though made on
and as of the Closing Date (except (x) to the extent such representations
and warranties are specifically made as of a particular date, in which case
such representations and warranties shall be true and correct as of such
date, (y) for changes contemplated by this Agreement and (z) where the
failures to be true and correct (without regard to any materiality, Buyer
Material Adverse Effect or knowledge qualifications contained therein),
individually or in the aggregate, have not had, and are not reasonably
likely to have, a Buyer Material Adverse Effect); and the Company shall
have received a certificate signed on behalf of the Buyer by the chief
executive officer or the chief financial officer of the Buyer to such
effect.
(b) Performance of Obligations of the Buyer and the Transitory
Subsidiary. The Buyer and Sub shall have performed in all material respects
all obligations required to be performed by them under this Agreement at or
prior to the Closing Date, and the Company shall have received a
certificate signed on behalf of the Buyer by the chief executive officer or
the chief financial officer of the Buyer to such effect.
(c) Tax Opinion. The Company shall have received the opinion of Wilson
Sonsini Goodrich & Rosati, P.C., counsel to the Company, to the effect that
the Merger will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Code; provided
that if Wilson Sonsini Goodrich & Rosati, P.C. does not render such
opinion, this condition shall nonetheless be deemed satisfied if Hale and
Dorr LLP renders such opinion to the Company (it being agreed that the
Buyer and the Company shall each provide reasonable cooperation, including
making reasonable representations, to Wilson Sonsini Goodrich & Rosati,
P.C. or Hale and Dorr LLP, as the case may be, to enable them to render
such opinion).
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time (with respect to Sections 8.1(b) through 8.1(g), by written
notice by the terminating party to the other party), whether before or, subject
to the terms hereof, after adoption of this Agreement by the stockholders of
the Company or the stockholder of the Transitory Subsidiary:
(a) by mutual written consent of the Buyer, Transitory Subsidiary and
the Company; or
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(b) by either the Buyer or the Company if the Merger shall not have been
consummated by June 30, 2000 (the "Outside Date") (provided that the right
to terminate this Agreement under this Section 8.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been a principal cause of or resulted in the failure of the
Merger to occur on or before such date); or
(c) by either the Buyer or the Company if a Governmental Entity of
competent jurisdiction shall have issued a nonappealable final order,
decree or ruling or taken any other nonappealable final action, in each
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger; or
(d) by either the Buyer or the Company if at the Company Meeting
(including any adjournment or postponement), the requisite vote of the
stockholders of the Company in favor of the Company Voting Proposal shall
not have been obtained (provided that the right to terminate this Agreement
under this Section 8.1(d) shall not be available to any party seeking
termination who at the time is in breach of or has failed to fulfill its
obligations under this Agreement); or
(e) by the Buyer, if: (i) the Board of Directors of the Company shall
have failed to recommend approval of the Company Voting Proposal in the
Proxy Statement or shall have withdrawn or modified its recommendation of
the Company Voting Proposal; (ii) the Board of Directors of the Company
shall have approved or recommended to the stockholders of the Company an
Alternative Transaction (as defined in Section 8.3(e)); (iii) an
Alternative Transaction shall have been announced or otherwise publicly
known and the Board of Directors of the Company shall have (A) failed to
recommend against acceptance of such Alternative Transaction by its
stockholders within ten (10) days of delivery of a written request from the
Buyer for such action or (B) failed to reconfirm its approval and
recommendation of this Agreement and the transactions contemplated hereby
within ten (10) days of delivery of a written request from the Buyer for
such action or (iv) a tender offer or exchange offer for 20% or more of the
outstanding shares of the Company Common Stock is commenced (other than by
the Buyer or an Affiliate of the Buyer) and the Board of Directors of the
Company recommends that the stockholders of the Company tender their shares
in such tender or exchange offer or, within ten (10) days after such tender
or exchange offer, fails to recommend against acceptance of such offer or
takes no position with respect to the acceptance thereof; or
(f) by either the Buyer or the Company, if there has been a breach or
failure to perform of any representation, warranty, covenant or agreement
on the part of the other party set forth in this Agreement, which breach or
failure to perform (i) causes the conditions set forth in Section 7.2(a) or
7.2(b) (in the case of termination by the Buyer) or Section 7.3(a) or
7.3(b) (in the case of termination by the Company) not to be satisfied, and
(ii) shall not have been cured within 20 days following receipt by the
breaching party or party failing to perform written notice of such breach
from the other party; or
(g) by the Company if (i) the Company after the date hereof has received
an unsolicited Acquisition Proposal that its Board of Directors has
determined after consultation with its financial advisor is a Superior
Proposal, (ii) the Company has complied with all of the provisions of
Section 6.1(a)(A), (iii) the Board of Directors of the Company has
determined in good faith after consultation with its outside legal counsel
that termination of this Agreement is necessary for such Board of Directors
to fulfill with its fiduciary duties under applicable law, and (iv) the
Company, contemporaneously with, and as a condition to, its termination of
this Agreement, pays to Buyer the fee and expenses provided for in Section
8.3.
8.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 8.1, this Agreement shall immediately become void and there
shall be no liability or obligation on the part of the Buyer, the Company, the
Transitory Subsidiary or their respective officers, directors, stockholders or
Affiliates, except as set forth in Sections 3.26, 5.3, 8.3 and Article IX;
provided that any such termination shall not relieve any party from liability
for any willful breach of this Agreement (which includes without limitation the
making of any representation or warranty by a party in this Agreement that the
party knew was not true and accurate when made) and the provisions of the
Company Stock Option Agreement, Sections 3.26, 5.3, 8.3 and Article IX of this
Agreement and the Confidentiality Agreement shall remain in full force and
effect and survive any termination of this Agreement.
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8.3 Fees and Expenses.
(a) Except as set forth in this Section 8.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such fees and expenses, whether or not the
Merger is consummated; provided however, that the Company and the Buyer shall
share equally all fees and expenses, other than attorneys' fees, incurred with
respect to the printing and filing of the Proxy Statement (including any
related preliminary materials) and the Registration Statement and any
amendments or supplements thereto.
(b) The Company shall pay the Buyer up to $500,000 as reimbursement for
expenses of the Buyer actually incurred relating to the transactions
contemplated by this Agreement prior to termination (including, but not limited
to, fees and expenses of the Buyer's counsel, accountants and financial
advisors, but excluding any discretionary fees paid to such financial
advisors), upon the termination of this Agreement by the Buyer pursuant to
Section 8.1(b) as a result of the failure to satisfy the condition set forth in
Section 7.2(a); or by the Buyer or the Company pursuant to Section 8.1(d) under
circumstances in which no fee is payable to Buyer under Section 8.3(c).
(c) The Company shall pay the Buyer a termination fee of $20,000,000 upon
the earliest to occur of the following events:
(i) the termination of this Agreement by the Buyer pursuant to Section
8.1(e); or
(ii) the termination of this Agreement by the Buyer pursuant to Section
8.1(f) as a result of a breach of the provisions of Section 6.1 or 6.5; or
(iii) the termination of this Agreement by the Company pursuant to
Section 8.1(g).
If the Buyer or the Company terminates this Agreement pursuant to Section
8.1(d) and, at or prior to such termination a bona fide proposal for an
Alternative Transaction with respect to the Company shall have been publicly
announced, the Company shall pay to the Buyer, upon such termination, a
termination fee of $10,000,000. If such fee shall have become payable to the
Buyer pursuant to the preceding sentence and, within 12 months after such
termination, the Company shall enter into a definitive agreement with respect
to an Alternative Transaction or an Alternative Transaction involving the
Company shall be consummated, the Company shall pay to the Buyer an additional
fee of $10,000,000 upon the execution and delivery of such definitive agreement
or consummation, as the case may be.
(d) If one party fails to promptly pay to the other any expense
reimbursement or fee due hereunder, the defaulting party shall pay the costs
and expenses (including legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to collect
payment, together with interest on the amount of any unpaid fee at the publicly
announced prime rate of Fleet Bank, N.A. plus five percent per annum,
compounded quarterly, from the date such expense reimbursement or fee was
required to be paid.
(e) As used in this Agreement, "Alternative Transaction" means either (i) a
transaction pursuant to which any person (or group of persons) other than the
Buyer or its affiliates (a "Third Party"), acquires more than 20% of the
outstanding shares of the Company Common Stock pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger or other business combination
involving the Company pursuant to which any Third Party acquires more than 20%
of the outstanding shares of Company Common Stock or of the entity surviving
such merger or business combination, (iii) any other transaction pursuant to
which any Third Party acquires control of assets (including for this purpose
the outstanding equity securities of Subsidiaries of the Company, and the
entity surviving any merger or business combination including any of them) of
the Company having a fair market value equal to more than 20% of the fair
market value of all the assets of the Company immediately prior to such
transaction, or (iv) any public announcement by a Third Party of a proposal,
plan or intention to do any of the foregoing or any agreement to engage in any
of the foregoing; provided, however, that all references in this subsection (e)
to "20%" shall mean "50%" for purposes of the second paragraph of Section
8.3(c).
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8.4 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of the Company or the Transitory Subsidiary, but, after any
such approval, no amendment shall be made which by law requires further
approval by such stockholders without such further approval. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
8.5 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective Boards of Directors,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto and (iii) waive compliance with any of
the agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
9.1 Nonsurvival of Representations and Warranties. The respective
representations and warranties of the Company, the Buyer and the Transitory
Subsidiary contained in this Agreement or in any instrument delivered pursuant
to this Agreement shall expire with, and be terminated and extinguished upon,
the Effective Time.
9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly delivered (i) four business days after being
sent by registered or certified mail, return receipt requested, postage
prepaid, or (ii) one business day after being sent for next business day
delivery, fees prepaid, via a reputable nationwide overnight courier service,
in each case to the intended recipient as set forth below:
(a) if to the Buyer or Transitory Subsidiary, to
CMGI, Inc.
100 Brickstone Square
Andover, MA 01810
Attn: General Counsel
Telecopy: (978) 684-3814
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attn: Mark G. Borden, Esq.
Telecopy: (617) 526-5000
(b) if to the Company, to
yesmail.com, inc.
565 Lakeview Parkway
Suite 135
Vernon Hills, IL 60061
Attn: President
Telecopy: (847) 918-9296
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<PAGE>
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304
Attn: Jeffrey D. Saper, Esq.
Telecopy: (650) 493-6811
Any party may give any notice or other communication hereunder using any
other means (including personal delivery, messenger service, telecopy, telex,
ordinary mail or electronic mail), but no such notice or other communication
shall be deemed to have been duly given unless and until it actually is
received by the party for whom it is intended. Any party may change the address
to which notices and other communications hereunder are to be delivered by
giving the other parties notice in the manner herein set forth.
9.3 Entire Agreement. This Agreement (including the Schedules and Exhibits
hereto and the documents and instruments referred to herein that are to be
delivered at the Closing) constitutes the entire agreement among the parties
hereto and supersedes any prior understandings, agreements or representations
by or among the parties hereto, or any of them, written or oral, with respect
to the subject matter hereof; provided that the Confidentiality Agreement shall
remain in effect in accordance with its terms.
9.4 No Third Party Beneficiaries. Except as provided in Section 6.13, this
Agreement is not intended, and shall not be deemed, to confer any rights or
remedies upon any person other than the parties hereto and their respective
successors and permitted assigns, to create any agreement of employment with
any person or to otherwise create any third-party beneficiary hereto.
9.5 Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement may be assigned or delegated, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of the other parties, and any such assignment without
such prior written consent shall be null and void, except that the Buyer and/or
the Transitory Subsidiary may assign this Agreement to any direct or indirect
wholly owned Subsidiary of the Buyer without consent of the Company, provided
that the Buyer shall remain liable for all of its obligations under this
Agreement. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by, the parties hereto and
their respective successors and permitted assigns.
9.6 Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties agree hereto that the court making such
determination shall have the power to limit the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified. In the event
such court does not exercise the power granted to it in the prior sentence, the
parties hereto agree to replace such invalid or unenforceable term or provision
with a valid and enforceable term or provision that will achieve, to the extent
possible, the economic, business and other purposes of such invalid or
unenforceable term.
9.7 Counterparts and Signature. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties hereto and
delivered to
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the other parties, it being understood that all parties need not sign the same
counterpart. This Agreement may be executed and delivered by facsimile
transmission.
9.8 Interpretation. When reference is made in this Agreement to an Article
or a Section, such reference shall be to an Article or Section of this
Agreement, unless otherwise indicated. The table of contents, table of defined
terms and headings contained in this Agreement are for convenience of reference
only and shall not affect in any way the meaning or interpretation of this
Agreement. The language used in this Agreement shall be deemed to be the
language chosen by the parties hereto to express their mutual intent, and no
rule of strict construction shall be applied against any party. Whenever the
context may require, any pronouns used in this Agreement shall include the
corresponding masculine, feminine or neuter forms, and the singular form of
nouns and pronouns shall include the plural, and vice versa. Any reference to
any federal, state, local or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Whenever the words "include", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation".
9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdiction) that would cause the application of laws
of any jurisdictions other than those of the State of Delaware.
9.10 Remedies. Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof this being in addition to any other remedy to
which they are entitled at law or in equity.
9.11 Waiver of Jury Trial. EACH OF THE BUYER, THE TRANSITORY SUBSIDIARY AND
THE COMPANY HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THE ACTIONS OF THE BUYER, THE TRANSITORY SUBSIDIARY OR
THE COMPANY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT OF
THIS AGREEMENT.
9.12 Forum. Each of the parties hereto (i) consents to submit itself to the
personal jurisdiction of any Federal court located in the State of Delaware or
any Delaware state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement, (ii) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court, and (iii) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal court sitting
in the State of Delaware or a Delaware state court.
[Signature Page to follow]
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<PAGE>
IN WITNESS WHEREOF, the Buyer, the Transitory Subsidiary and the Company
have caused this Agreement to be signed by their respective officers thereunto
duly authorized as of the date first written above.
CMGI, Inc.
/s/ Andrew J. Hajducky III
By: _________________________________
Title: Executive Vice President,
CFO and Treasurer
MARS ACQUISITION, INC.
/s/ Andrew J. Hajducky III
By: _________________________________
Title: Executive Vice President
and Treasurer
yesmail.com, inc.
/s/ David M. Tolmie
By: _________________________________
Title: CEO
[Signature Page to Agreement and Plan of Merger and Reorganization]
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<PAGE>
Exhibit A to Annex A
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of December 14, 1999 (the "Agreement"),
between CMGI, Inc., a Delaware corporation (the "Grantee"), and yesmail.com,
inc., a Delaware corporation (the "Grantor").
WHEREAS, the Grantee, the Grantor and Mars Acquisition, Inc., a wholly owned
subsidiary of the Grantee ("Newco"), are entering into an Agreement and Plan of
Merger and Reorganization, dated as of the date hereof (the "Merger
Agreement"), which provides, among other things, for the merger (the "Merger")
of Newco with and into the Grantor;
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, the Grantee has required that the Grantor grant to the Grantee an
option to purchase the shares of Common Stock of the Grantor (the "Common
Stock") covered hereby, upon the terms and subject to the conditions hereof;
and
WHEREAS, in order to induce the Grantee to enter into the Merger Agreement,
the Grantor is willing to grant the Grantee the requested option.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. The Option; Exercise; Adjustments; Termination.
(a) Contemporaneously herewith the Grantee, Newco and the Grantor are
entering into the Merger Agreement. Subject to the other terms and
conditions set forth herein, the Grantor hereby grants to the Grantee an
irrevocable option (the "Option") to purchase up to 4,044,400 shares of
Common Stock (the "Shares") at a cash purchase price equal to $25.76 per
Share (the "Purchase Price"); provided, however, that the number of shares
issuable to Buyer pursuant hereto shall not exceed 19.9% of the outstanding
shares of Common Stock. The Option may be exercised by the Grantee, in
whole or in part, at any time, or from time to time, after the earliest of
(i) the termination of the Merger Agreement by Buyer under Section 8.1(e)
of the Merger Agreement, (ii) the termination of the Merger Agreement by
Buyer under Section 8.1(f) of the Merger Agreement as a result of a breach
of Section 6.1 or 6.5 of the Merger Agreement, or (iii) the termination of
the Merger Agreement by the Company pursuant to Section 8.1(g) of the
Merger Agreement.
(b) In the event of any change in the number of issued and outstanding
shares of Common Stock by reason of any reclassification, stock dividend,
stock split, split-up, recapitalization, merger or other change in the
corporate or capital structure of the Grantor, the number of Shares subject
to the Option and the purchase price per Share shall be appropriately
adjusted to restore the Grantee to its rights hereunder.
(c) In the event the Grantee wishes to exercise the Option, the Grantee
shall send a written notice to the Grantor (the "Exercise Notice")
specifying a date (subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act")) not later
than 10 business days and not earlier than the next business day following
the date such notice is given for the closing of such purchase.
(d) The right to exercise the Option shall terminate at the earliest of
(i) the Effective Time (as defined in the Merger Agreement), (ii) the
termination of the Merger Agreement pursuant to circumstances under which
the Grantee is not entitled to receive a fee pursuant to Section 8.3 of the
Merger Agreement, (iii) the date on which Grantee realizes a Total Profit
equal to the Profit Limit (as such terms are defined in Section 8) and (iv)
90 days after the date (the "Merger Termination Date") on which the Merger
Agreement is terminated (the date referred to in clause (iv) being
hereinafter referred to as the "Option Expiration Date"); provided that if
the Option cannot be exercised or the Shares cannot be delivered to Grantee
upon such exercise because the conditions set forth in Section 2(a) or
Section 2(b) hereof have not yet been satisfied, the Option Expiration Date
shall be extended until 30 days after such impediment to exercise has been
removed.
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<PAGE>
2. Conditions to Delivery of Shares. The Grantor's obligation to deliver
Shares upon exercise of the Option is subject only to the conditions that:
(a) No preliminary or permanent injunction or other order issued by any
federal or state court of competent jurisdiction in the United States
prohibiting the delivery of the Shares shall be in effect; and
(b) Any applicable waiting periods under the HSR Act shall have expired
or been terminated.
3. The Closing.
(a) Any closing hereunder shall take place on the date specified by the
Grantee in its Exercise Notice at 9:00 A.M., local time, at the offices of
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts, or, if the
conditions set forth in Section 2(a) or 2(b) have not then been satisfied,
on the second business day following the satisfaction of such conditions,
or at such other time and place as the parties hereto may agree (the
"Closing Date"). On the Closing Date, the Grantor will deliver to the
Grantee a certificate or certificates, duly endorsed (or accompanied by
duly executed stock powers), representing the Shares in the denominations
designated by the Grantee in its Exercise Notice and the Grantee will
purchase such Shares from the Grantor at the price per Share equal to the
Purchase Price. Any payment made by the Grantee to the Grantor, or by the
Grantor to the Grantee, pursuant to this Agreement shall be made by
certified or official bank check or by wire transfer of federal funds to a
bank designated by the party receiving such funds.
(b) The certificates representing the Shares may bear an appropriate
legend relating to the fact that such Shares have not been registered under
the Securities Act of 1933, as amended (the "Securities Act").
4. Representations and Warranties of the Grantor. The Grantor represents
and warrants to the Grantee that: (a) the Grantor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to enter into and
perform this Agreement; (b) the execution and delivery of this Agreement by the
Grantor and the consummation by it of the transactions contemplated hereby have
been duly authorized by the Board of Directors of the Grantor and this
Agreement has been duly executed and delivered by a duly authorized officer of
the Grantor and constitutes a valid and binding obligation of the Grantor,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles; (c) the Grantor has taken all necessary corporate action to
authorize and reserve the Shares issuable upon exercise of the Option and the
Shares, when issued and delivered by the Grantor upon exercise of the Option,
will be duly authorized, validly issued, fully paid and non-assessable and free
of any lien, security interest or other adverse claim and free of any
preemptive rights; (d) except as otherwise required by the HSR Act, the
execution and delivery of this Agreement by the Grantor and the consummation by
it of the transactions contemplated hereby do not require the consent, waiver,
approval or authorization of or any filing with any person or public authority
and will not violate, require a consent or waiver under, result in a breach of
or the acceleration of any obligation under, or constitute a default under, any
provision of any certificate or articles of incorporation or by-law, indenture,
mortgage, lien, lease, agreement, contract, instrument, order, law, rule,
regulation, stock market rule, judgment, ordinance, decree or restriction by
which the Grantor or any of its subsidiaries or any of their respective
properties or assets is bound; and (e) no "fair price", "moratorium", "control
share acquisition" or other form of anti-takeover statute or regulation is or
shall be applicable to the acquisition of Shares pursuant to this Agreement.
5. Representations and Warranties of the Grantee. The Grantee represents
and warrants to the Grantor that: (a) the execution and delivery of this
Agreement by the Grantee and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Grantee and this Agreement has been duly executed and
delivered by a duly authorized officer of the Grantee and will constitute a
valid and binding obligation of Grantee; and (b) the Grantee is acquiring the
Option and, if and when it exercises the Option, will be acquiring the Shares
issuable upon the exercise thereof for its own account and not with a view to
distribution or resale in any manner which would be in violation of the
Securities Act.
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6. Listing of Shares; HSR Act Filings; Governmental Consents. Subject to
applicable law and the rules and regulations of the Nasdaq National Market, the
Grantor shall (i) promptly file a notice to list the Shares on the Nasdaq
National Market and (ii) make, as promptly as practicable, all necessary
filings by the Grantor under the HSR Act and use its best efforts to obtain all
necessary approvals thereunder as promptly as practicable; provided, however,
that if the Grantor is unable to effect such listing on the Nasdaq National
Market by the Closing Date, the Grantor will nevertheless be obligated to
deliver the Shares upon the Closing Date. Each of the parties hereto will use
its best efforts to obtain consents of all third parties and governmental
authorities, if any, necessary to the consummation of the transactions
contemplated.
7. Registration Rights.
(a) In the event that the Grantee shall desire to sell any of the Shares
within two years after the purchase of such Shares pursuant hereto, and
such sale requires, in the opinion of counsel to the Grantee, which opinion
shall be reasonably satisfactory to the Grantor and its counsel,
registration of such Shares under the Securities Act, the Grantor will
cooperate with the Grantee and any underwriters in registering such Shares
for resale, including, without limitation, promptly filing a registration
statement which complies with the requirements of applicable federal and
state securities laws and entering into an underwriting agreement with such
underwriters upon such terms and conditions as are customarily contained in
underwriting agreements with respect to secondary distributions; provided
that the Grantor shall not be required to have declared effective more than
two registration statements hereunder and shall be entitled to delay the
filing or effectiveness of any registration statement for up to 120 days if
the offering would, in the judgment of the Board of Directors of the
Grantor, require premature disclosure of any material corporate development
or otherwise interfere with or adversely affect any pending or proposed
offering of securities of the Grantor or any other material transaction
involving the Grantor.
(b) If the Common Stock is registered pursuant to the provisions of this
Section 7, the Grantor agrees (i) to furnish copies of the registration
statement and the prospectus relating to the Shares covered thereby in such
numbers as the Grantee may from time to time reasonably request and (ii) if
any event shall occur as a result of which it becomes necessary to amend or
supplement any registration statement or prospectus, to prepare and file
under the applicable securities laws such amendments and supplements as may
be necessary to keep available for at least 90 days a prospectus covering
the Common Stock meeting the requirements of such securities laws, and to
furnish to the Grantee such numbers of copies of the registration statement
and prospectus as amended or supplemented as may reasonably be requested.
The Grantor shall bear the cost of the registration, including, but not
limited to, all registration and filing fees, printing expenses, and fees
and disbursements of counsel and accountants for the Grantor, except that
the Grantee shall pay the fees and disbursements of its counsel and the
underwriting fees and selling commissions applicable to the Shares sold by
the Grantee. The Grantor shall indemnify and hold harmless Grantee, its
affiliates and its officers and directors from and against any and all
losses, claims, damages, liabilities and expenses arising out of or based
upon any statements contained in, omissions or alleged omissions from, each
registration statement filed pursuant to this paragraph; provided, however,
that this provision does not apply to any loss, liability, claim, damage or
expense to the extent it arises out of any statement or omission made in
reliance upon and in conformity with written information furnished to the
Grantor by the Grantee, its affiliates or its officers expressly for use in
any registration statement (or any amendment thereto) or any preliminary
prospectus filed pursuant to this paragraph. The Grantor shall also
indemnify and hold harmless each underwriter and each person who controls
any underwriter within the meaning of either the Securities Act or the
Securities Exchange Act of 1934 against any and all losses, claims,
damages, liabilities and expenses arising out of or based upon any
statements contained in, omissions or alleged omissions from, each
registration statement filed pursuant to this paragraph; provided, however,
that this provision does not apply to any loss, liability, claim, damage or
expense to the extent it arises out of any statement or omission made in
reliance upon and in conformity with written information furnished to the
Grantor by the underwriters expressly for use in any registration statement
(or any amendment thereto) or any preliminary prospectus filed pursuant to
this paragraph.
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8. Profit Limitation.
(a) Notwithstanding any other provision of this Agreement, in no event
shall the Grantee's Total Profit (as hereinafter defined) exceed $25
million (the "Profit Limit") and, if it otherwise would exceed such amount,
the Grantee, at its sole election, shall either (i) deliver to the Grantor
for cancellation Shares previously purchased by Grantee, (ii) pay cash to
the Grantor, (iii) receive a smaller termination fee under Section 8.3 of
the Merger Agreement or (iv) undertake any combination thereof, so that
Grantee's Total Profit shall not exceed the Profit Limit after taking into
account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, the Option
may not be exercised for a number of Shares as would, as of the date of the
Exercise Notice, result in a Notional Total Profit (as defined below) of
more than the Profit Limit and, if exercise of the Option otherwise would
exceed the Profit Limit, the Grantee, at its discretion, may increase the
Purchase Price for that number of Shares set forth in the Exercise Notice
so that the Notional Total Profit shall not exceed the Profit Limit;
provided, that nothing in this sentence shall restrict any exercise of the
Option permitted hereby on any subsequent date at the Purchase Price set
forth in Section 1(a) hereof.
(c) As used herein, the term "Total Profit" shall mean the aggregate
amount (before taxes) of the following: (i) the amount of cash received by
Grantee pursuant to Section 8.3(c) of the Merger Agreement, and (ii) (x)
the cash amounts (net of customary brokerage commissions paid in connection
with the transaction) received by Grantee pursuant to the sale of Shares
(or any other securities into which such Shares are converted or exchanged)
to any unaffiliated party, less (y) the Grantee's purchase price for such
Shares.
(d) As used herein, the term "Notional Total Profit" with respect to any
number of Shares as to which Grantee may propose to exercise the Option
shall be the Total Profit determined as of the date of the Exercise Notice
assuming that the Option were exercised on such date for such number of
Shares and assuming that such Shares, together with all other Shares held
by Grantee and its affiliates as of such date, were sold for cash at the
closing market price for the Common Stock as of the close of business on
the preceding trading day (less customary brokerage commissions).
9. Put.
(a) At any time prior to the Option Expiration Date (the "Repurchase
Period"), upon demand by the Grantee, the Grantee shall have the right to
sell to the Grantor (or any successor entity thereof), and Grantor (or such
successor entity), shall be obligated to repurchase from the Grantee (the
"Put"), all or any portion of the Option, to the extent not previously
exercised, at the price set forth in subparagraph (i) below, and/or all or
any portion of the Shares purchased by the Grantee pursuant thereto, at a
price set forth in subparagraph (ii) below:
(i) the difference between the "Market/Tender Offer Price" for
shares of Common Stock as of the date (the "Notice Date") notice of
exercise of the Put is given to the other party (defined as the greater
of (A) the price per share offered as of the Notice Date pursuant to
any tender or exchange offer or other Acquisition Proposal which was
made prior to the Notice Date and not terminated or withdrawn as of the
Notice Date (the "Tender Price") or (B) the average of the closing
prices of shares of Common Stock on the Nasdaq National Market for the
ten (10) trading days immediately preceding the Notice Date (the
"Market Price")), and the Purchase Price multiplied by the number of
Shares purchasable pursuant to the Option (or portion thereof with
respect to which the Grantee is exercising its rights under this
Section 9), but only if the Market/Tender Offer Price is greater than
the Purchase Price; and
(ii) the Purchase Price paid by the Grantee for the Shares acquired
pursuant to the Option plus the difference between the Market/Tender
Offer Price and the Purchase Price, but only if the Market/Tender Offer
Price is greater than the Purchase Price, multiplied by the number of
Shares so purchased.
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(b) In the event Grantee exercises its rights under this Section 9, the
Grantor shall, within ten business days of the Notice Date, pay the
required amount (the "Repurchase Price") to the Grantee in immediately
available funds and the Grantee shall surrender to the Grantor the Option
or the certificates evidencing the Shares purchased by the Grantee pursuant
thereto, and the Grantee shall represent and warrant that it owns such
shares and that such shares are then free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever, other than any
of the same created by the Grantor or its affiliates.
(c) To the extent that the Grantor is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing
the Option and/or Shares in full, the Grantor shall immediately so notify
the Grantee and thereafter deliver or cause to be delivered, from time to
time, to the Grantee the portion of the Repurchase Price that it is no
longer prohibited from delivering within five business days after the date
on which the Grantor is no longer so prohibited; provided that, if the
Grantor at any time after delivery of a notice of exercise of the Put
pursuant to Section 9(a) is prohibited under applicable law or regulation,
or as a consequence of administrative policy, from delivering to the
Grantee the Repurchase Price in full (and the Grantor hereby undertakes to
use its best efforts to obtain all required regulatory and legal approvals
and to file any required notices as promptly as practicable in order to
accomplish such repurchase), the Grantee may revoke its notice of the
exercise of the Put whether in whole or to the extent of the prohibition,
whereupon, in the latter case, the Grantor shall promptly (1) deliver to
the Grantee that portion of the Repurchase Price that the Grantor is not
prohibited from delivering and (2) deliver to the Grantee as appropriate,
(A) a new Agreement evidencing the right of the Grantee to purchase that
number of shares of Common Stock obtained by multiplying the number of
shares of Common Stock for which the surrendered Agreement was exercisable
at the time of delivery of the notice of exercise of the Put by a fraction,
the numerator of which is the Repurchase Price less the portion of the
Repurchase Price previously delivered to the Grantee and the denominator of
which is the Repurchase Price, and/or (B), a certificate for the Shares the
Grantor is then so prohibited from repurchasing.
10. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement, except as otherwise specifically provided
herein.
11. Specific Performance. The Grantor acknowledges that if the Grantor fails
to perform any of its obligations under this Agreement, immediate and
irreparable harm or injury would be caused to the Grantee for which money
damages would not be an adequate remedy. In such event, the Grantor agrees that
the Grantee shall have the right, in addition to any other rights it may have,
to specific performance of this Agreement. Accordingly, if the Grantee should
institute an action or proceeding seeking specific enforcement of the
provisions hereof, the Grantor hereby waives the claim or defense that the
Grantee has an adequate remedy at law and hereby agrees not to assert in any
such action or proceeding the claim or defense that such a remedy at law
exists. The Grantor further agrees to waive any requirements for the securing
or posting of any bond in connection with obtaining any such equitable relief.
12. Notice. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given and made if in writing and if
served by personal delivery upon the party for whom it is intended or delivered
by registered or certified mail, return receipt requested, or if sent by
facsimile transmission, upon receipt of oral confirmation that such
transmission has been received, to the person at the address set forth below,
or such other address as may be designated in writing hereafter, in the same
manner, by such person:
If to the Grantor:
yesmail.com, inc.
565 Lakeview Parkway
Suite 135
Vernon Hills, IL 60061
Attn: President
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With a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304
Attn: Jeffrey D. Saper, Esq.
If to the Grantee:
CMGI, Inc.
100 Brickstone Square
Andover, MA 01810
Attn: General Counsel
With a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attn: Mark G. Borden, Esq.
13. Parties in Interest. Nothing in this Agreement, express or implied, is
intended to confer upon any person other than the Grantor or the Grantee, or
their successors or assigns, any rights or remedies under or by reason of this
Agreement.
14. Entire Agreement; Amendments. This Agreement, together with the Merger
Agreement and the other documents referred to therein, contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements and understandings,
oral or written, with respect to such transactions. The terms of this Agreement
may be amended, modified or waived only by an agreement in writing signed by
the party against whom such amendment, modification or waiver is sought to be
enforced.
15. Assignment. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
party hereto, except that the Grantee may assign its rights and obligations
hereunder to any direct or indirect wholly-owned subsidiary of the Grantee
(provided that such assignment shall not relieve the Grantee of its obligations
hereunder if such transferee does not perform such obligations).
16. Headings. The section headings herein are for convenience only and shall
not affect the construction of this Agreement.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (regardless of the laws that
might otherwise govern under applicable Delaware principles of conflicts of
law).
19. Survival. All representations and warranties contained in this Agreement
shall survive delivery of and payment for the Shares.
20. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
[Signature Page to follow]
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<PAGE>
IN WITNESS WHEREOF, the Grantee and the Grantor have caused this Agreement
to be duly executed and delivered on the day and year first above written.
yesmail.com, inc.
By: _________________________________
Title: CEO
CMGI, INC.
By: _________________________________
Title: Executive Vice President,
CFO and Treasurer
[Signature Page to Stock Option Agreement]
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Exhibit B to Annex A
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT, dated as of December 14, 1999 (this "Agreement"),
among the stockholders listed on the signature page(s) hereto (collectively,
"Stockholders" and each individually, a "Stockholder"), yesmail.com, inc., a
Delaware corporation (the "Company") and CMGI, Inc., a Delaware corporation
("Acquiror"). Capitalized terms used and not otherwise defined herein shall
have the respective meanings assigned to them in the Merger Agreement referred
to below .
WHEREAS, as of the date hereof, the Stockholders collectively own of record
and beneficially shares of capital stock of the Company, as set forth on
Schedule I hereto (such shares, or any other voting or equity of securities of
the Company hereafter acquired by any Stockholder prior to the termination of
this Agreement, being referred to herein collectively as the "Shares");
WHEREAS, concurrently with the execution of this Agreement, Acquiror and the
Company are entering into an Agreement and Plan of Merger and Reorganization,
dated as of the date hereof (the "Merger Agreement"), pursuant to which, upon
the terms and subject to the conditions thereof, a subsidiary of Buyer will be
merged with and into the Company, and the Company will be the surviving
corporation (the "Merger"); and
WHEREAS, as a condition to the willingness of Acquiror to enter into the
Merger Agreement, Acquiror has required that the Stockholders agree, and in
order to induce Acquiror to enter into the Merger Agreement, the Stockholders
are willing to agree to vote in favor of adopting the Merger Agreement and
approving the Merger, upon the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereby agree, severally and not jointly, as follows:
Section 1. Voting of Shares.
(a) Each Stockholder covenants and agrees that until the termination of
this Agreement in accordance with the terms hereof, at the Company Meeting
or any other meeting of the stockholders of the Company, however called,
and in any action by written consent of the stockholders of the Company,
such Stockholder will vote, or cause to be voted, all of his, her or its
respective Shares (a) in favor of adoption of the Merger Agreement and
approval of the Merger contemplated by the Merger Agreement, as the Merger
Agreement may be modified or amended from time to time in a manner not
adverse to the Stockholders, and (b) against any other Alternative
Transaction.
(b) Each Stockholder hereby irrevocably grants to, and appoints,
Acquiror, and any individual designated in writing by it, and each of them
individually, as its proxy and attorney-in-fact (with full power of
substitution), for and in its name, place and stead, to vote his, her or
its Shares at any meeting of the stockholders of the Company called with
respect to any of the matters specified in, and in accordance and
consistent with this Section 1. Each Stockholder understands and
acknowledges that Acquiror is entering into the Merger Agreement in
reliance upon the Stockholder's execution and delivery of this Agreement.
Each Stockholder hereby affirms that the irrevocable proxy set forth in
this Section 1(b) is given in connection with the execution of the Merger
Agreement, and that such irrevocable proxy is given to secure the
performance of the duties of such Stockholder under this Agreement. Except
as otherwise provided for herein, each Stockholder hereby (i) affirms that
the irrevocable proxy is coupled with an interest and may under no
circumstances be revoked, (ii) ratifies and confirms all that the proxies
appointed hereunder may lawfully do or cause to be done by virtue hereof
and (iii) affirms that such irrevocable proxy is executed and intended to
be irrevocable in accordance with the provisions of Section 212(e) of the
Delaware General Corporation Law. Notwithstanding any other provisions of
this Agreement, the irrevocable proxy granted hereunder shall automatically
terminate upon the termination of this Agreement.
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Section 2. Transfer of Shares.
(a) Each Stockholder covenants and agrees that such Stockholder will not
directly or indirectly, (a) sell, assign, transfer (including by merger,
testamentary disposition, interspousal disposition pursuant to a domestic
relations proceeding or otherwise by operation of law), pledge, encumber or
otherwise dispose of any of the Shares, (b) deposit any of the Shares into
a voting trust or enter into a voting agreement or arrangement with respect
to the Shares or grant any proxy or power of attorney with respect thereto
which is inconsistent with this Agreement or (c) enter into any contract,
option or other arrangement or undertaking with respect to the direct or
indirect sale, assignment, transfer (including by merger, testamentary
disposition, interspousal disposition pursuant to a domestic relations
proceeding or otherwise by operation of law) or other disposition of any
Shares.
Section 3. Representations and Warranties of the Stockholders. Each
Stockholder on its own behalf hereby severally represents and warrants to
Acquiror with respect to itself and its, his or her ownership of the Shares as
follows:
(a) Ownership of Shares. On the date hereof, the Shares are owned
beneficially by Stockholder or its nominee. Stockholder has sole voting
power, without restrictions, with respect to all of the Shares.
(b) Power, Binding Agreement. Stockholder has the legal capacity, power
and authority to enter into and perform all of its obligations, under this
Agreement. The execution, delivery and performance of this Agreement by
Stockholder will not violate any material agreement to which Stockholder is
a party, including, without limitation, any voting agreement, stockholders'
agreement, partnership agreement or voting trust. This Agreement has been
duly and validly executed and delivered by Stockholder and constitutes a
valid and binding obligation of Stockholder, enforceable against
Stockholder in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(c) No Conflicts. The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby will not,
conflict with or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under, any provision of any loan or credit agreement,
note, bond, mortgage, indenture, lease, or other agreement, instrument,
permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Stockholder or any of its
properties or assets, other than such conflicts, violations or defaults or
terminations, cancellations or accelerations which individually or in the
aggregate do not materially impair the ability of Stockholder to perform
its obligations hereunder.
Section 4. No Solicitation. Prior to the termination of this Agreement in
accordance with its terms, each Stockholder agrees, in its individual capacity
as a stockholder of the Company, that (i) it will not, nor will it authorize or
permit any of its employees, agents and representatives to, directly or
indirectly, (a) initiate, solicit or encourage any inquiries or the making of
any Acquisition Proposal (as defined in the Merger Agreement), (b) enter into
any agreement with respect to any Acquisition Proposal, or (c) participate in
any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal, and (ii) it will notify Acquiror
as soon as possible if any such inquiries or proposals are received by, any
information or documents is requested from, or any negotiations or discussions
are sought to be initiated or continued with, it or any of its affiliates in
its individual capacity.
Section 5. Termination. This Agreement shall terminate upon the earliest to
occur of (i) the Effective Time (as such term is defined in the Merger
Agreement) or (ii) any termination of the Merger Agreement in accordance with
the terms thereof; provided that no such termination shall relieve any party of
liability for a willful breach hereof prior to termination.
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Section 6. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
Section 7. Fiduciary Duties. Each Stockholder is signing this Agreement
solely in such Stockholder's capacity as an owner of his, her or its respective
Shares, and nothing herein shall prohibit, prevent or preclude such Stockholder
from taking or not taking any action in his or her capacity as an officer or
director of the Company, to the extent permitted by the Merger Agreement.
Section 8. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, both written and oral, between the parties
with respect thereto. This Agreement may not be amended, modified or
rescinded except by an instrument in writing signed by each of the parties
hereto.
(b) If any term or other provision of this Agreement is invalid, illegal
or incapable of being enforced by any rule of law, or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain
in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in a mutually acceptable manner
in order that the terms of this Agreement remain as originally contemplated
to the fullest extent possible.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to the principles of
conflicts of law thereof.
(d) This Agreement may be executed in counterparts, each of which shall
be deemed an original and all of which together shall constitute one and
the same instrument.
[Signature page to follow]
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed individually or by its respective duly authorized officer as of the
date first written above.
CMGI, INC.
By: _________________________________
Name: Andrew J. Hajducky III
Title: Executive Vice President,
CFO and Treasurer
yesmail.com.inc.
By: _________________________________
Name: Kenneth D. Wruk
Title: Chairman
[Remainder of Page Intentionally Left Blank]
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[Signature Page to Stockholder Agreement]
STOCKHOLDERS:
-------------------------------------
Signature
-------------------------------------
Print Name
-------------------------------------
Signature
-------------------------------------
Print Name
-------------------------------------
Signature
-------------------------------------
Print Name
-------------------------------------
Signature
-------------------------------------
Print Name
-------------------------------------
Signature
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Exhibit C-1 to Annex A
STOCKHOLDER LOCK-UP AGREEMENT
CMGI, Inc.
100 Brickstone Square
Andover, MA 01810
Attn: General Counsel
Ladies and Gentlemen:
Pursuant to the terms of an Agreement and Plan of Merger and Reorganization
dated as of December 14, 1999 (the "Agreement") between CMGI, Inc., a Delaware
corporation ("Acquiror"), a subsidiary of Acquiror and yesmail.com, inc., a
Delaware corporation (the "Company"), the undersigned will receive shares of
common stock, $.01 par value per share, of Acquiror (the "Shares"), in exchange
for shares of common stock of the Company owned by the undersigned.
In order to induce Acquiror to enter into the Agreement, the undersigned
hereby agrees as follows:
1. Until the date that is five (5) months after the Closing (as defined in
the Agreement), the undersigned will not sell, offer to sell, contract to sell,
sell any option or contract for the sale or purchase of, lend, enter into any
swap or other arrangement that transfers to another any of the economic
consequences of ownership of, or otherwise dispose of (collectively,
"transfer") more than one-tenth ( 1/10) of the Shares in any one day.
Notwithstanding the foregoing, however, if the undersigned is a corporation,
partnership or limited liability company, the undersigned shall not be
restricted from distributing any or all of the Shares to its shareholders,
partners or members and the subsequent Transfers of Shares by such
shareholders, partners or members.
2. The undersigned acknowledges that the Acquiror may impose stock transfer
restrictions on the Shares to enforce the provisions of this Agreement.
Very truly yours,
_____________________________________
Name
By: _________________________________
Signature
Date: _______________________________
AGREED TO:
CMGI, Inc.
By: _________________________________
Name: _______________________________
Title: ______________________________
C-1
<PAGE>
Exhibit C-2 to Annex A
EMPLOYEE LOCK-UP AGREEMENT
CMGI, Inc.
100 Brickstone Square
Andover, MA 01810
Ladies and Gentlemen:
Pursuant to the terms of an Agreement and Plan of Merger and Reorganization
dated as of December 14, 1999 (the "Agreement") between CMGI, Inc., a Delaware
corporation ("Acquiror"), a subsidiary of Acquiror and yesmail.com, inc., a
Delaware corporation (the "Company"), I will receive shares of common stock,
$.01 par value per share, of Acquiror (the "Shares"), in exchange for shares of
common stock of the Company owned by me.
In order to induce Acquiror to enter into the Agreement, I hereby agree as
follows:
1. I will not sell, offer to sell, contract to sell, sell any option or
contract for the sale or purchase of, lend, enter into any swap or other
arrangement that transfers to another any of the economic consequences of
ownership of, or otherwise dispose of (collectively, "Transfer"), any of the
Shares, except as follows: commencing on the day that is one day after the date
which is the six month anniversary of the Closing (as defined in the
Agreement), I may sell all of my Shares but no more than one-tenth ( 1/10) of
the Shares, in any one day.
2. I acknowledge that the Acquiror may impose stock transfer restrictions on
the Shares to enforce the provisions of this Agreement.
Very truly yours,
_____________________________________
Name
By: _________________________________
Signature
Date: _______________________________
AGREED TO:
CMGI, Inc.
By: _________________________________
Name: _______________________________
Title: ______________________________
C-2
<PAGE>
Exhibit C-3 to Annex A
EXECUTIVE LOCK-UP AGREEMENT
CMGI, Inc.
Ladies and Gentlemen:
Pursuant to the terms of an Agreement and Plan of Merger and Reorganization
dated as of December 14, 1999 (the "Agreement") by and among CMGI, Inc., a
Delaware corporation ("Acquiror"), a subsidiary of Acquiror and yesmail.com,
inc., a Delaware corporation (the "Company"), I will receive shares of common
stock, $.01 par value per share, of Acquiror (the "Shares"), in exchange for
shares of common stock of the Company owned by me.
In order to induce Acquiror to enter into the Agreement, I hereby agree as
follows:
1. I will not sell, offer to sell, contract to sell, sell any option or
contract for the sale or purchase of, lend, enter into any swap or other
arrangement that transfers to another any of the economic consequences of
ownership of, or otherwise dispose of (collectively, "Transfer"), any of the
Shares, except as follows: (i) I may Transfer one-sixth ( 1/6) of the Shares
during the six month period commencing on the date of the Closing (as defined
in the Agreement) and (ii) commencing on the day that is one day after the date
which is the six month anniversary of the Closing, I may Transfer the remainder
of my shares, but no more than one-tenth ( 1/10) of the Shares on any one day.
2. I acknowledge that the Acquiror may impose stock transfer restrictions on
the Shares to enforce the provisions of this Agreement.
Very truly yours,
_____________________________________
Name of Stockholder
By: _________________________________
Signature
Date: _______________________________
AGREED TO:
CMGI, Inc.
By: _________________________________
C-3
<PAGE>
Exhibit D to Annex A
FORM OF COMPANY AFFILIATE LETTER
CMGI, Inc. 100
Brickstone Square
Andover, MA 01810
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to be
an "affiliate" of yesmail.com, Inc., a Delaware corporation (the "Company"), as
the term "affiliate" is defined for purposes of paragraphs (c) and (d) of Rule
145 of the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). Pursuant to the terms of the Agreement and
Plan of Merger and Reorganization, dated as of December 14, 1999 (the
"Agreement"), between CMGI, Inc., a Delaware corporation ("Acquiror"), a
subsidiary of Acquiror ("Sub") and the Company, Sub will be merged with and
into the Company (the "Merger") and the Company will be the surviving
corporation.
As a result of the Merger, I may receive shares of common stock, par value
$.01 per share, of Acquiror (the "Acquiror Common Stock") in exchange for
shares owned by me of common stock of the Company ("Company Common Stock").
1. Compliance with the Act. I represent, warrant and covenant to Acquiror
that in the event I receive any Acquiror Common Stock as a result of the
Merger:
(a) I shall not make any sale, transfer or other disposition of the
Acquiror Common Stock in violation of the Act or the Rules and Regulations.
(b) I have been advised that the issuance of Acquiror Common Stock to me
pursuant to the Merger will be registered with the Commission under the Act
on a Registration Statement on Form S-4. However, I have also been advised
that, since at the time the Merger is submitted for a vote of the
stockholders of the Company, I may be deemed to have been an affiliate of
the Company and the distribution by me of the Acquiror Common Stock has not
been registered under the Act, I may not sell, transfer or otherwise
dispose of the Acquiror Common Stock issued to me in the Merger unless (i)
such sale, transfer or other disposition as been registered under the Act,
(ii) such sale, transfer or disposition is made in conformity with Rule 145
promulgated by the Commission under the Act, or (iii) in the opinion of
counsel reasonably acceptable to Acquiror, or pursuant to a "no action"
letter obtained by the undersigned from the staff of the Commission, such
sale, transfer or other disposition is otherwise exempt from registration
under the Act.
(c) I understand that Acquiror is under no obligation to register the
sale, transfer or disposition of the Acquiror Common Stock by me or on my
behalf under the Act.
(d) I also understand that stop transfer instructions will be given to
the Acquiror's transfer agent with respect to the Acquiror Common Stock and
that there will be placed on the Certificates for the Acquiror Common Stock
issued to me, or any substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT, DATED
DECEMBER , 1999 BETWEEN THE REGISTERED HOLDER HEREOF AND CMGI, INC., A
COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF CMGI,
INC."
D-1
<PAGE>
(e) I also understand that unless the transfer by me of my Acquiror
Common Stock has been registered under the Act or is a sale made in
conformity with the provisions of Rule 145, Acquiror reserves the right to
put the following legend on the certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF
1933."
It is understood and agreed that the legends set forth in paragraphs E and F
above shall be removed by delivery of substitute certificates without such
legend if such legend is not required for purposes of the Act or this
Agreement.
It is understood and agreed that such legends and the stop orders referred
to above will be removed if (i) one year shall have elapsed from the date the
undersigned acquired the Acquiror Common Stock received in the Merger and the
provisions of Rule 145(d)(2) are then available to the undersigned, (ii) two
years shall have elapsed from the date the undersigned acquired Acquiror Common
Stock received in the Merger and the provisions of Rule 145(d)(3) are then
available to the undersigned, or (iii) Acquiror has received either an opinion
of counsel, which opinion and counsel shall be reasonably satisfactory to
Acquiror, or a "no action" letter obtained by the undersigned from the staff of
the Commission, to the effect that the restrictions imposed by Rule 145 under
the Act no longer apply to the undersigned.
2. Certain Tax Matters. The undersigned does not intend to take a position
on any federal or state income tax return that is inconsistent with the
treatment of the Merger as a tax-free reorganization for federal or state
income tax purposes.
Very truly yours,
_____________________________________
Signature
_____________________________________
Print Name
Accepted this day of
December, 1999 by
CMGI, INC.
By: _________________________________
Name: _______________________________
Title: ______________________________
D-2
<PAGE>
Annex B
December 14, 1999
Board of Directors
yesmail.com, inc.
565 Lakeview Parkway, Suite 135
Vernon Hills, IL 60061
Gentlemen:
Deutsche Bank Securities Inc. ("Deutsche Bank") has acted as financial advisor
to yesmail.com, inc. ("yesmail") in connection with the proposed merger of Mars
Acquisition, Inc. ("Sub"), a wholly owned subsidiary of CMGI, Inc. ("CMGI"),
and yesmail pursuant to the Agreement and Plan of Merger, dated as of December
14, 1999, among yesmail, CMGI and Sub (the "Merger Agreement"), which provides,
among other things, for the merger of the Sub with and into yesmail (the
"Transaction"), as a result of which yesmail will become a wholly owned
subsidiary of CMGI. As set forth more fully in the Merger Agreement, as a
result of the Transaction, each share of the Common Stock, par value $.0001 per
share, of yesmail ("yesmail Common Stock") not owned directly or indirectly by
yesmail or CMGI will be converted into the right to receive 0.1252 shares (the
"Exchange Ratio") of Common Stock, par value $.01 per share, of CMGI ("CMGI
Common Stock"). The terms and conditions of the Transaction are more fully set
forth in the Merger Agreement.
You have requested Deutsche Bank's opinion, as investment bankers, as to the
fairness, from a financial point of view, of the Exchange Ratio to the holders
of yesmail Common Stock.
In connection with Deutsche Bank's role as financial advisor to yesmail, and in
arriving at its opinion, Deutsche Bank has reviewed certain publicly available
financial and other information concerning yesmail and CMGI and certain
internal analyses and other information furnished to it by yesmail and CMGI.
Deutsche Bank has also held discussions with members of the senior managements
of yesmail and CMGI regarding the businesses and prospects of their respective
companies and the joint prospects of a combined company. In addition, Deutsche
Bank has (i) reviewed the reported prices and trading activity for yesmail
Common Stock and CMGI Common Stock, (ii) reviewed recent public research
analyst reports concerning CMGI, (iii) compared certain financial and stock
market information for yesmail and CMGI with similar information for certain
companies whose securities are publicly traded, (iv) reviewed the financial
terms of certain recent business combinations which it deemed comparable in
whole or in part, (v) reviewed the terms of a draft of the Merger Agreement
dated December 14, 1999 and drafts of certain related documents dated December
14, 1999, and (vi) performed such other studies and analyses and considered
such other factors as it deemed appropriate.
Deutsche Bank has not assumed responsibility for independent verification of,
and has not independently verified, any information, whether publicly available
or furnished to it, concerning yesmail or CMGI, including, without limitation,
any financial information, forecasts or projections considered in connection
with the rendering of its opinion. Accordingly, for purposes of its opinion,
Deutsche Bank has assumed and relied upon the accuracy and completeness of all
such information, and Deutsche Bank has not conducted a physical inspection of
any of the properties or assets, and has not prepared or obtained any
independent evaluation or appraisal of any of the assets or liabilities, of
yesmail or CMGI. With respect to the financial forecasts and projections made
available to Deutsche Bank and used in its analyses, Deutsche Bank has assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of yesmail as to the
matters covered thereby. In rendering its opinion, Deutsche Bank expresses no
view as to the reasonableness of such forecasts and projections or the
assumptions on which they are based. Deutsche Bank was not provided with, and
did not rely on, any forecasts or projections concerning CMGI. Deutsche Bank
has assumed with your consent for purposes of its analysis that the value of
the CMGI Common Stock to be received by stockholders of yesmail in the proposed
Transaction is equal to the closing
<PAGE>
trading price of the CMGI Common Stock as of December 14, 1999, and Deutsche
Bank expresses no opinion or view on the value of the CMGI Common Stock.
Deutsche Bank does not express any opinion as to the price at which the shares
of CMGI Common Stock that are to be issued pursuant to the proposed Transaction
will be traded in the future. Deutsche Bank's opinion is necessarily based upon
economic, market and other conditions as in effect on, and the information made
available to it as of, the date hereof. Although subsequent developments may
affect this opinion, Deutsche Bank assumes no obligation to update, revise or
reaffirm this opinion.
For purposes of rendering its opinion, Deutsche Bank has assumed that, in all
respects material to its analysis, the representations and warranties of
yesmail, CMGI and Sub contained in the Merger Agreement are true and correct,
yesmail, CMGI and Sub each will perform all of the covenants and agreements to
be performed by it under the Merger Agreement and all conditions to the
obligations of each of yesmail, CMGI and Sub to consummate the Transaction will
be satisfied without any waiver thereof. Deutsche Bank has also assumed that
all material governmental, regulatory or other approvals and consents required
in connection with the consummation of the Transaction will be obtained and
that in connection with obtaining any necessary governmental, regulatory or
other approvals and consents, or any amendments, modifications or waivers to
any agreements, instruments or orders to which either yesmail or CMGI is a
party or is subject or by which it is bound, no limitations, restrictions or
conditions will be imposed or amendments, modifications or waivers made that
would have a material adverse effect on yesmail or CMGI or materially reduce
the contemplated benefits of the Transaction to yesmail. In addition, you have
informed Deutsche Bank, and accordingly for purposes of rendering its opinion
Deutsche Bank has assumed, that the Transaction will be tax-free to each of
yesmail and CMGI and their respective stockholders and that the Transaction
will be accounted for as a purchase.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of yesmail and is not a recommendation to the stockholders of yesmail
to approve the Transaction. This opinion is limited to the fairness, from a
financial point of view, to yesmail of the Exchange Ratio, and Deutsche Bank
expresses no opinion as to the merits of the underlying decision by yesmail to
engage in the Transaction.
Deutsche Bank will be paid a fee for its services as financial advisor to
yesmail in connection with the Transaction, a substantial portion of which is
contingent upon consummation of the Transaction. Deutsche Bank is an affiliate
of Deutsche Bank AG (together with its affiliates, the "DB Group"). One or more
members of the DB Group have, from time to time, provided investment banking
and other financial services to yesmail or its affiliates for which such member
has received compensation, including the initial public offering of yesmail. In
the ordinary course of business, members of the DB Group publish research
reports regarding the internet industry and the business and services of
publicly owned companies in the internet industry. In the ordinary course of
business, members of the DB Group may actively trade in the securities and
other instruments and obligations of yesmail and CMGI for their own accounts
and for the accounts of their customers. Accordingly, the DB Group may at any
time hold a long or short position in such securities, instruments and
obligations.
This opinion may not be published or otherwise used or referred to, nor shall
any public reference to Deutsche Bank be made, without the prior written
consent of Deutsche Bank. Deutsche Bank hereby consents, however, to the
inclusion of this opinion in its entirety as an exhibit to any proxy or
registration statement distributed to the shareholders of yesmail in connection
with the approval of the proposed Transaction and to any description of, or
reference to, this opinion therein in form and substance acceptable to Deutsche
Bank and its legal counsel.
Based upon and subject to the foregoing, it is Deutsche Bank's opinion as
investment bankers that the Exchange Ratio is fair, from a financial point of
view, to the holders of yesmail Common Stock.
Very truly yours,
/s/ Deutsche Bank Securities Inc.
DEUTSCHE BANK SECURITIES INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. 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), judgments, 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 NINTH of the Registrant's Restated Certificate of
Incorporation and Article VII of the Registrant's Restated By-laws provide 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 each of Article NINTH and
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.
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 or
which involve intentional misconduct or knowing violation 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 certain
of 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.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<C> <S>
2.1(1) Agreement and Plan of Merger and Reorganization, dated as of December
14, 1999, by and among the Registrant, Mars Acquisition, Inc. and
yesmail.com, inc.
3.1(2) Restated Certificate of Incorporation of the Registrant.
3.2(3) Certificate of Designations, Preferences and Rights of Series D
Preferred Stock of the Registrant.
3.3(4) Restated By-laws of the Registrant, as amended.
4.1(5) Specimen stock certificate representing common stock, $.01 par value
per share, of the Registrant.
4.2(6) Stock Option Agreement, dated as of December 14, 1999, between the
Registrant and yesmail.com, inc.
4.3(6) Stockholder Agreement, dated as of December 14, 1999, by and among the
Registrant and each of the stockholders of yesmail.com, inc. named
therein.
5.1 Opinion of Hale and Dorr LLP.
8.1 Opinion of Hale and Dorr LLP as to tax matters.
8.2 Opinion of Wilson Sonsini Goodrich & Rosati, P.C. as to tax matters.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Hale and Dorr LLP (included in Exhibit 5.1).
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit
8.2).
23.3 Consent of KPMG LLP.
23.4 Consent of Deloitte & Touche LLP.
23.5 Consent of Deutsche Bank Securities Inc.
23.6 Consent of PricewaterhouseCoopers LLP.
23.7 Consent of Singer Lewak Greenbaum & Goldstein LLP.
23.8 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included in the signature page of this Registration
Statement).
99.1(7) Opinion of Deutsche Bank Securities Inc.
99.2 Form of Proxy Card of yesmail.com, inc.
</TABLE>
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(1) Attached as Annex A to the Proxy Statement/Prospectus, which is part of
this Registration Statement.
(2) Incorporated by reference from the Registrant's Registration Statement on
Form S-3 (File No. 333-85047) filed on August 12, 1999.
(3) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on September 2, 1999.
(4) Incorporated by reference from the Registrant's Registration Statement on
Form S-4 (File No. 333-92607) filed on December 3, 1999.
(5) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1999.
(6) Attached as an Exhibit to the Agreement and Plan of Merger and
Reorganization attached as Annex A to the Proxy Statement/Prospectus, which
is part of this Registration Statement.
(7) Attached as Annex B to the Proxy Statement/Prospectus, which is part of
this Registration Statement.
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are not applicable, and, therefore, have been
omitted.
Item 22. 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, as amended (the "Securities Act").
II-2
<PAGE>
(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.
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
(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 Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (and where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act), that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
C. The Registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to this Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, 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.
D. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with
II-3
<PAGE>
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 Securities Act and will be
governed by the final adjudication of such issue.
E. The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11, or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This included information contained in documents filed
subsequent to the effective date of this Registration Statement through the
date of responding to the request.
F. The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved herein, that was not the subject of and included in the
Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Andover, Commonwealth of
Massachusetts on the 2nd day of February, 2000.
CMGI, INC.
/s/ Andrew J. Hajducky III
By: _________________________________
Andrew J. Hajducky III
Chief Financial Officer and
Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below on this Registration Statement hereby constitutes and appoints David S.
Wetherell and Andrew J. Hajducky III, their true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for them and in
their name, place and stead, in any and all capacities (unless revoked in
writing) to sign any and all amendments to this Registration Statement to which
this power of attorney is attached, including any post-effective amendments as
well as any related registration statement (or amendment thereto) filed in
reliance upon Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting to such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
connection therewith, as fully to all intents and purposes as they might and
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
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 and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David S. Wetherell Chairman of the Board, February 2, 2000
______________________________________ President, Chief
David S. Wetherell Executive Officer and
Director (Principal
Executive Officer)
/s/ Andrew J. Hajducky III Chief Financial Officer February 2, 2000
______________________________________ and Treasurer (Principal
Andrew J. Hajducky III Financial and Accounting
Officer)
/s/ William H. Berkman Director February 2, 2000
______________________________________
William H. Berkman
Director
______________________________________
Craig D. Goldman
/s/ Avram Miller Director February 2, 2000
______________________________________
Avram Miller
/s/ Robert J. Ranalli Director February 2, 2000
______________________________________
Robert J. Ranalli
/s/ William D. Strecker Director February 2, 2000
______________________________________
William D. Strecker
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1(1) Agreement and Plan of Merger and Reorganization, dated as of December
14, 1999, by and among the Registrant, Mars Acquisition, Inc. and
yesmail.com, inc.
3.1(2) Restated Certificate of Incorporation of the Registrant.
3.2(3) Certificate of Designations, Preferences and Rights of Series D
Preferred Stock of the Registrant.
3.3(4) Restated By-laws of the Registrant, as amended.
4.1(5) Specimen stock certificate representing common stock, $.01 par value
per share, of the Registrant.
4.2(6) Stock Option Agreement, dated as of December 14, 1999, between the
Registrant and yesmail.com, inc.
4.3(6) Stockholder Agreement, dated as of December 14, 1999, by and among the
Registrant and each of the stockholders of yesmail.com, inc. named
therein.
5.1 Opinion of Hale and Dorr LLP.
8.1 Opinion of Hale and Dorr LLP as to tax matters.
8.2 Opinion of Wilson Sonsini Goodrich & Rosati, P.C. as to tax matters.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Hale and Dorr LLP (included in Exhibit 5.1).
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit
8.2).
23.3 Consent of KPMG LLP.
23.4 Consent of Deloitte & Touche LLP.
23.5 Consent of Deutsche Bank Securities Inc.
23.6 Consent of PricewaterhouseCoopers LLP.
23.7 Consent of Singer Lewak Greenbaum & Goldstein LLP.
23.8 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included in the signature page of this Registration
Statement).
99.1(7) Opinion of Deutsche Bank Securities Inc.
99.2 Form of Proxy Card of yesmail.com, inc.
</TABLE>
- --------
(1) Attached as Annex A to the Proxy Statement/Prospectus, which is part of
this Registration Statement.
(2) Incorporated by reference from the Registrant's Registration Statement on
Form S-3 (File No. 333-85047) filed on August 12, 1999.
(3) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on September 2, 1999.
(4) Incorporated by reference from the Registrant's Registration Statement on
Form S-4 (File No. 333-92607) filed on December 3, 1999.
(5) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1999.
(6) Attached as an Exhibit to the Agreement and Plan of Merger and
Reorganization attached as Annex A to the Proxy Statement/Prospectus, which
is part of this Registration Statement.
(7) Attached as Annex B to the Proxy Statement/Prospectus, which is part of
this Registration Statement.
<PAGE>
HALE AND DORR LLP
Counsellors at Law
60 State Street
Boston, Massachusetts 02109
617-526-6000 . FAX 617-526-5000
EXHIBIT 5.1
January 31, 2000
CMGI, Inc.
100 Brickstone Square
Andover, Massachusetts 01810
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration Statement
on Form S-4 (File No. 333- ) (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), for the registration of 5,673,468
shares of Common Stock, $.01 par value per share (the "Shares"), of CMGI, Inc.,
a Delaware corporation (the "Buyer").
The Shares are to be issued by the Buyer pursuant to an amended and restated
agreement and plan of merger and reorganization (the "Merger Agreement")
entered into by and among the Buyer, Mars Acquisition, Inc., a Delaware
corporation and a wholly owned subsidiary of the Buyer (the "Transitory
Subsidiary"), and yesmail.com, inc., a Delaware corporation (the "Company").
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to such terms as in the Merger Agreement.
We are acting as counsel for the Buyer and the Transitory Subsidiary in
connection with the issuance by the Buyer of the Shares. We have examined
signed copies of the Registration Statement as filed with the Commission. We
have also examined and relied upon the Merger Agreement, minutes of meetings of
the stockholders and the Board of Directors of the Buyer as provided to us by
the Buyer, stock record books of the Buyer as provided to us by the Buyer, the
Certificate of Incorporation and By-Laws of the Buyer, each as restated and/or
amended to date, and such other documents as we have deemed necessary for
purposes of rendering the opinions hereinafter set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents
submitted to us as copies, the authenticity of the originals of such latter
documents and the legal competence of all signatories to such documents.
We assume that the appropriate action will be taken, prior to the offer and
sale of the Shares in accordance with the Merger Agreement, to register and
qualify the Shares for sale under all applicable state securities or "blue sky"
laws.
We express no opinion herein as to the laws of any state or jurisdiction
other than the state laws of the Commonwealth of Massachusetts, the Delaware
General Corporation Law statute and the federal laws of the United States of
America. To the extent that any other laws govern the matters as to which we
are opining herein, we have assumed that such laws are identical to the state
laws of the Commonwealth of Massachusetts, and we are expressing no opinion
herein as to whether such assumption is reasonable or correct.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized for issuance and, when the Shares are issued
and paid for in accordance with the terms and conditions of the Merger
Agreement, the Shares will be validly issued, fully paid and nonassessable.
<PAGE>
CMGI, Inc.
January 31, 2000
Page 2
It is understood that this opinion is to be used only in connection with the
offer and sale of the Shares while the Registration Statement is in effect.
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters. This opinion
is based upon currently existing statutes, rules, regulations and judicial
decisions, and we disclaim any obligation to advise you of any change in any of
these sources of law or subsequent legal or factual developments which might
affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Proxy Statement/Prospectus under the caption
"Legal Matters." In giving such consent, we do not hereby admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission.
Very truly yours,
/s/ Hale and Dorr LLP
HALE AND DORR LLP
<PAGE>
HALE AND DORR LLP
C O U N S E L L O R S A T L A W
60 STATE STREET, BOSTON, MASSACHUSETTS 02109
617-526-6000 . FAX 617-526-5000
Exhibit 8.1
January 31, 2000
CMGI, Inc.
100 Brickstone Square
Andover, MA 01810
Re: Merger Pursuant to Agreement and Plan of Merger and Reorganization
by and Among CMGI, Inc., Mars Acquisition, Inc., and yesmail.com, inc.
---------------------------------------------------------------------
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement (the "Registration Statement") on Form S-4, which
includes the Joint Proxy Statement and Prospectus relating to the Agreement and
Plan of Merger and Reorganization dated as of December 14, 1999 (the "Merger
Agreement"), by and among CMGI, Inc., a Delaware corporation ("Buyer"), Mars
Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of Buyer
("Transitory Subsidiary"), and yesmail.com, inc., a Delaware corporation
("Company"). Pursuant to the Merger Agreement, Transitory Subsidiary will merge
with and into Company (the "Merger"). Except as otherwise provided, capitalized
terms not defined herein have the meanings set forth in the Merger Agreement and
the exhibits thereto or in the letters delivered to Hale and Dorr LLP by Buyer
and Company containing certain representations of Buyer and Company relevant to
this opinion (the "Representation Letters"). All section references, unless
otherwise indicated, are to the United States Internal Revenue Code of 1986, as
amended (the "Code").
In our capacity as counsel to Buyer in the Merger, and for purposes of
rendering this opinion, we have examined and relied upon the Registration
Statement, the Merger Agreement and the exhibits thereto, the Representation
Letters, and such other documents as we considered relevant to our analysis. In
our examination of documents, we have assumed the authenticity of original
documents, the accuracy of copies, the genuineness of signatures, and the legal
capacity of signatories.
HALE AND DORR LLP INCLUDES PROFESSIONAL CORPORATIONS
*BROBECK HALE AND DORR INTERNATIONAL (AN INDEPENDENT JOINT VENTURE LAW FIRM)
- --------------------------------------------------------------------------------
WASHINGTON, DC BOSTON, MA LONDON, UK*
<PAGE>
CMGI, Inc.
January 31, 2000
Page 2
We have assumed that all parties to the Merger Agreement and to any other
documents examined by us have acted, and will act, in accordance with the terms
of such Merger Agreement and documents and that the Merger will be consummated
at the Effective Time pursuant to the terms and conditions set forth in the
Merger Agreement without the waiver or modification of any such terms and
conditions. Furthermore, we have assumed that all representations contained in
the Merger Agreement, as well as those representations contained in the
Representation Letters, are, and at the Effective Time will be, true and
complete in all material respects, and that any representation made in any of
the documents referred to herein "to the best of the knowledge and belief" (or
similar qualification) of any person or party is, and at the Effective Time will
be, correct without such qualification. We have also assumed that as to all
matters for which a person or entity has represented that such person or entity
is not a party to, does not have, or is not aware of, any plan, intention,
understanding, or agreement, there is no such plan, intention, understanding, or
agreement. We have not attempted to verify independently such representations,
but in the course of our representation, nothing has come to our attention that
would cause us to question the accuracy thereof.
The conclusions expressed herein represent our judgment as to the proper
treatment of certain aspects of the Merger under the income tax laws of the
United States based upon the Code, Treasury Regulations, case law, and rulings
and other pronouncements of the Internal Revenue Service (the "IRS") as in
effect on the date of this opinion. No assurances can be given that such laws
will not be amended or otherwise changed prior to the Effective Time, or at any
other time, or that such changes will not affect the conclusions expressed
herein. Nevertheless, we undertake no responsibility to advise you of any
developments after the Effective Time in the application or interpretation of
the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinion will not be challenged by the IRS or rejected by a
court.
This opinion addresses only the specific United States federal income tax
consequence of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use, or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger).
On the basis of, and subject to, the foregoing, and in reliance upon the
representations and assumptions described above, we are of the opinion that the
Merger will constitute a reorganization within the meaning of Section 368(a).
<PAGE>
CMGI, Inc.
January 31, 2000
Page 3
No opinion is expressed as to any federal income tax consequence of the
Merger except as specifically set forth herein, and this opinion may not be
relied upon except with respect to the consequence specifically discussed
herein. No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement or to any transaction whatsoever (including
the Merger) if all the transactions described in the Merger Agreement are not
consummated in accordance with the terms thereof. In the event that any one of
the statements, representations, warranties, or assumptions upon which we have
relied to issue this opinion is incorrect, our opinion might be adversely
affected and may not be relied upon.
This opinion is intended solely for the purpose of inclusion as an exhibit
to the Registration Statement. It may not be relied upon for any other purpose
or by any other person or entity, other than you, and may not be made available
to any other person or entity without our prior written consent. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name in the Registration
Statement in connection with references to this opinion and the tax consequences
of the Merger. In giving this consent, however, we do not hereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
/s/ Hale and Dorr LLP
Hale and Dorr LLP
<PAGE>
EXHIBIT 8.2
January 31, 2000
yesmail.com, inc.
565 Lakeview Parkway, Suite 135
Vernon Hills, Illinois 60061
Re: Merger Pursuant to Agreement and Plan of Merger by and Among CMGI,
Inc., Mars Acquisition, Inc., and yesmail.com, inc.
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement (the "Registration Statement") on Form S-4, which
includes the Joint Proxy Statement and Prospectus relating to the Agreement and
Plan of Merger and Reorganization dated as of December 14, 1999 (the "Merger
Agreement"), by and among CMGI, Inc., a Delaware corporation ("Buyer"), Mars
Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of Buyer
("Transitory Subsidiary"), and yesmail.com, inc., a Delaware corporation
("Company"). Pursuant to the Merger Agreement, Transitory Subsidiary will merge
with and into Company (the "Merger"). Except as otherwise provided, capitalized
terms not defined herein have the meanings set forth in the Merger Agreement and
the exhibits thereto or in the letters delivered to us by Buyer and Company
containing certain representations of Buyer and Company relevant to this opinion
(the "Representation Letters"). All Section references, unless otherwise
indicated, are to the United States Internal Revenue Code of 1986, as amended
(the "Code").
In our capacity as counsel to Company in the Merger, and for purposes of
rendering this opinion, we have examined and relied upon the Registration
Statement, the Merger Agreement and the exhibits thereto, the Representation
Letters, and such other documents as we considered relevant to our analysis. In
our examination of documents, we have assumed the authenticity of original
documents, the accuracy of copies, the genuineness of signatures, and the legal
capacity of signatories.
We have assumed that all parties to the Merger Agreement and to any other
documents examined by us have acted, and will act, in accordance with the terms
of such Merger Agreement and documents and that the Merger will be consummated
at the Effective Time pursuant to the terms and conditions set forth in the
Merger Agreement without the waiver or modification of any such terms and
conditions. Furthermore, we have assumed that all representations contained in
the Merger Agreement, as well as those representations contained in the
Representation Letters, are, and at the Effective Time will be, true and
complete in all material respects, and that any representation made in any of
the documents referred to herein "to the best of the knowledge and belief" (or
<PAGE>
yesmail.com, inc.
January 31, 2000
Page 2
similar qualification) of any person or party is correct without such
qualification. We have also assumed that as to all matters for which a person
or entity has represented that such person or entity is not a party to, does not
have, or is not aware of, any plan, intention, understanding, or agreement,
there is no such plan, intention, understanding, or agreement. We have not
attempted to verify independently such representations, but in the course of our
representation, nothing has come to our attention that would cause us to
question the accuracy thereof.
The conclusions expressed herein represent our judgment as to the proper
treatment of certain aspects of the Merger under the income tax laws of the
United States based upon the Code, Treasury Regulations, case law, and rulings
and other pronouncements of the Internal Revenue Service (the "IRS") as in
effect on the date of this opinion. No assurances can be given that such laws
will not be amended or otherwise changed prior to the Effective Time, or at any
other time, or that such changes will not affect the conclusions expressed
herein. Nevertheless, we undertake no responsibility to advise you or your
shareholders of any developments after the Effective Time in the application or
interpretation of the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinion will not be challenged by the IRS or rejected by a
court.
This opinion addresses only the specific United States federal income tax
consequence of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use, or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger). We
express no opinion regarding the tax consequences of the Merger to shareholders
of Company that are subject to special tax rules (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
persons, stockholders who own their stock as part of a hedge, appreciated
financial position, straddle or conversion transaction, stockholders who do not
own their stock as a capital asset and stockholders who have acquired their
stock upon the exercise of employee options or otherwise as compensation), and
we express no opinion regarding the tax consequences of the Merger arising in
connection with the ownership of options or warrants for Company stock.
On the basis of, and subject to, the foregoing, and in reliance upon the
representations and assumptions described above, we are of the opinion that the
Merger will constitute a reorganization within the meaning of Section 368(a).
No opinion is expressed as to any federal income tax consequence of the
Merger except as specifically set forth herein, and this opinion may not be
relied upon except with respect to the consequence specifically discussed
herein. No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement or to any transaction whatsoever (including
the
<PAGE>
yesmail.com, inc.
January 31, 2000
Page 3
Merger) if all the transactions described in the Merger Agreement are not
consummated in accordance with the terms thereof. In the event that any one of
the statements, representations, warranties, or assumptions upon which we have
relied to issue this opinion is incorrect, our opinion might be adversely
affected and may not be relied upon.
This opinion is intended solely for the purpose of inclusion as an exhibit
to the Registration Statement. It may not be relied upon for any other purpose
or by any other person or entity, other than you and your shareholders, and may
not be made available to any other person or entity without our prior written
consent. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name in the
Registration Statement in connection with references to this opinion and the tax
consequences of the Merger. In giving this consent, however, we do not hereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ WILSON SONSINI GOODRICH & ROSATI
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
Subsidiaries Of CMGI, Inc.
as of January 28, 2000
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Name Jurisdiction of Organization
- ---- ----------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C>
1ClickBrands, LLC DE
- ---------------------------------------------------------------------------------------------------------
1stUp.com Corporation DE
- ---------------------------------------------------------------------------------------------------------
Activate.Net Corporation WA
- ---------------------------------------------------------------------------------------------------------
Activerse, Inc. DE
- ---------------------------------------------------------------------------------------------------------
AdForce, Inc. DE
- ---------------------------------------------------------------------------------------------------------
AdKnowledge, Inc. CA
- ---------------------------------------------------------------------------------------------------------
Focalink Communications, Inc. CA
- ---------------------------------------------------------------------------------------------------------
ADSmart Corporation DE
- ---------------------------------------------------------------------------------------------------------
Alta Vista Company DE
- ---------------------------------------------------------------------------------------------------------
Shopping.com CA
- ---------------------------------------------------------------------------------------------------------
Zip2 Corporation CA
- ---------------------------------------------------------------------------------------------------------
Shopping.com Europe B .V Netherlands
- ---------------------------------------------------------------------------------------------------------
Blaxxun Interactive, Inc. DE
- ---------------------------------------------------------------------------------------------------------
Blaxxun A.G. Germany
- ---------------------------------------------------------------------------------------------------------
Cha! Technologies Services, Inc. DE
- ---------------------------------------------------------------------------------------------------------
Clara Vista Corporation VA
- ---------------------------------------------------------------------------------------------------------
CMG Securities Corporation MA
- ---------------------------------------------------------------------------------------------------------
CMG@Ventures Capital Corporation DE
- ---------------------------------------------------------------------------------------------------------
CMG@Ventures I, LLC DE
- ---------------------------------------------------------------------------------------------------------
CMG@Ventures II, LLC DE
- ---------------------------------------------------------------------------------------------------------
CMG@Ventures III, LLC DE
- ---------------------------------------------------------------------------------------------------------
CMG@Ventures Securities Corporation DE
- ---------------------------------------------------------------------------------------------------------
CMG@Ventures, Inc. DE
- ---------------------------------------------------------------------------------------------------------
CMGI Solutions, Inc. DE
- ---------------------------------------------------------------------------------------------------------
CMGI Systems Corporation DE
- ---------------------------------------------------------------------------------------------------------
Engage Technologies, Inc. DE
- ---------------------------------------------------------------------------------------------------------
Engage Technologies Limited (UK) England
- ---------------------------------------------------------------------------------------------------------
Engage Technologies GmbH Germany
- ---------------------------------------------------------------------------------------------------------
Flycast Communications Corporation DE
- ---------------------------------------------------------------------------------------------------------
IAtlas Corporation DE
- ---------------------------------------------------------------------------------------------------------
Icast Corporation DE
- ---------------------------------------------------------------------------------------------------------
Signatures SNI, Inc. DE
- ---------------------------------------------------------------------------------------------------------
Signatures Network, Inc. DE
- ---------------------------------------------------------------------------------------------------------
InSolutions, Incorporated DE
- ---------------------------------------------------------------------------------------------------------
Magnitude Network, Inc. DE
- ---------------------------------------------------------------------------------------------------------
Maktar Limited Ireland
- ---------------------------------------------------------------------------------------------------------
Lippri Limited Ireland
- ---------------------------------------------------------------------------------------------------------
CMGI (UK) Limited England
- ---------------------------------------------------------------------------------------------------------
MyWay.com DE
- ---------------------------------------------------------------------------------------------------------
Nascent Technologies, Inc. VA
- ---------------------------------------------------------------------------------------------------------
NaviNet, Inc. DE
- ---------------------------------------------------------------------------------------------------------
NaviSite, Inc. DE
- ---------------------------------------------------------------------------------------------------------
Servercast Communications, L.L.C. DE
- ---------------------------------------------------------------------------------------------------------
NetWright, L.L.C. MA
- ---------------------------------------------------------------------------------------------------------
On-Demand Solutions, Inc. MA
- ---------------------------------------------------------------------------------------------------------
SalesLink Corporation DE
- ---------------------------------------------------------------------------------------------------------
Pacific Direct Marketing Corporation CA
- ---------------------------------------------------------------------------------------------------------
SalesLink Mexico Holding Corp DE
- ---------------------------------------------------------------------------------------------------------
SalesLink de Mexico S.A.deC.V. Mexico
- ---------------------------------------------------------------------------------------------------------
Tribal Voice, Inc. DE
- ---------------------------------------------------------------------------------------------------------
ZineZone.com DE
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
CMGI, Inc.
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the Prospectus.
/s/ KPMG LLP
KPMG LLP
Boston, Massachusetts
January 31, 2000
<PAGE>
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement on
Form S-4 of CMGI, Inc. of our report dated October 18, 1999 relating to the
consolidated financial statements of Flycast Communications Corporation as of
December 31, 1997 and 1998, and for each of the three years in the period ended
December 31, 1998, appearing in the Current Report on Form 8-K of CMGI, Inc.
dated December 17, 1999.
We also consent to the reference to us under the heading "Experts" in the proxy
statement/prospectus, which is a part of this Registration Statement.
/s/ Deloitte & Touche LLP
San Jose, California
January 27, 2000
<PAGE>
EXHIBIT 23.5
CONSENT OF DEUTSCHE BANK SECURITIES INC.
We hereby consent to (i) the inclusion of our opinion letter, dated December
14, 1999, to the Board of Directors of yesmail.com, inc. as Annex B to the
Proxy Statement/Prospectus forming part of this Registration Statement on Form
S-4, and (ii) references made to our firm and such opinion in such Proxy
Statement/Prospectus under the captions entitled "Summary--Opinion of Financial
Advisor," "Summary--Interests of Financial Advisor," "The Merger--Background of
the Merger," "The Merger--Yesmail's Reasons for the Merger; Recommendation of
the Yesmail Board of Directors," "The Merger--Opinion of Financial Advisor to
Yesmail," and "The Merger--Interests of Financial Advisor to Yesmail in the
Merger." In giving such consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission promulgated thereunder, and we do not admit that we are
experts with respect to any part of the Registration Statement within the
meaning of the term "expert" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
DEUTSCHE BANK SECURITIES INC.
By: /s/ Karl Will
----------------------------------
Name: Karl Will
Title: Managing Director
January 28, 2000
<PAGE>
Exhibit 23.6
Consent of Independent Accountants
----------------------------------
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 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 June 29, 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
February 1, 2000
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement of CMGI, Inc. on Form S-4 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 appear in the Form 8-K of CMGI, Inc. dated June
29, 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
January 27, 2000
<PAGE>
Exhibit 23.8
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our reports of yesmail.com, inc. included in or made a part of this
Registration Statement in yesmail.com, inc.'s Form S-4 and to all references to
our Firm included in this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 31, 2000
<PAGE>
-- --
yesmail.com, inc.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. 0
[ ]
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL.
1. Proposal to approve and adopt the Agreement and Plan of Merger and
Reorganization, dated as of December 14, 1999, by and among CMGI, Inc.,
Mars Acquisition, Inc., a wholly owned subsidiary of CMGI, and yesmail.com,
inc., and the Merger.
For Against Abstain
0 0 0
2. and, in their discretion, upon such other matter or matters which may
properly come before the Special Meeting or any and all or adjournment(s)
thereof.
For Against Abstain
0 0 0
This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his, her or its name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If a
corporation, please sign in full corporate name by an authorized officer. If a
partnership, please sign in partnership name by an authorized person. If
shares are held by joint tenants or as community property, both should sign.
Dated: , 2000
------------------------------------------------------------
Signature(s)
-------------------------------------------------------------------
- -------------------------------------------------------------------------------
PLEASE MARK, DATE AND RETURN THIS PROXY PROMPTLY.
- -------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
yesmail.com, inc.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of yesmail.com, inc., a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement/Prospectus, each dated as of February 2, 2000, and hereby
appoints David M. Tolmie and David B. Menzel, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution and resubstitution,
on behalf and in the name of the undersigned, to represent the undersigned at
the Special Meeting of Stockholders of yesmail.com, inc. to be held on March
10, 2000, at 10:00 a.m., local time, at the Hyatt Deerfield Hotel, 1750 Lake
Cook Road, Deerfield, Illinois 60015, and at any and all adjournment(s)
thereof, and to vote all shares of common stock which the undersigned would be
entitled to vote, if then and there personally present, on the matters set
forth on the reverse side.
Both of such attorneys or substitutes as shall be present and shall act at
said meeting or any and all adjournment(s) thereof (or if only one shall be
present and acting, then that one) shall have and may exercise all of the
powers of said attorneys-in-fact hereunder.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF
MERGER AND REORGANIZATION, DATED AS OF DECEMBER 14, 1999, BY AND AMONG CMGI,
INC., MARS ACQUISITION, INC., A WHOLLY OWNED SUBSIDIARY OF CMGI, AND
YESMAIL.COM, INC., AND THE MERGER, AND, AS SAID PROXIES DEEM ADVISABLE, ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING.
(Continued and to be Signed and Dated on Reverse Side)
