<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant -
Check the appropriate box:
<TABLE>
<S> <C>
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
CMGI, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
CMGI, INC.
100 BRICKSTONE SQUARE
ANDOVER, MASSACHUSETTS 01810
November 17, 2000
Dear CMGI Stockholder:
You are cordially invited to attend the 2000 Annual Meeting of Stockholders
(the "Meeting") of CMGI, Inc., which will be held at The Westin Copley Place,
10 Huntington Avenue, Boston, Massachusetts 02116, on Wednesday, December 20,
2000, at 12:00 p.m. local time. I look forward to greeting as many of our
stockholders as possible.
Details of the business to be conducted at the Meeting are given in the
attached Notice of Annual Meeting and Proxy Statement.
Whether or not you plan to attend the Meeting, it is important that your
shares be represented and voted at the Meeting. Therefore, I urge you to sign
and date the enclosed proxy card and promptly return it in the enclosed
envelope so that your shares will be represented at the Meeting.
Alternatively, you may also vote your shares over the Internet or by
telephone. Please refer to the enclosed proxy card for detailed instructions.
If you so desire, you may withdraw your proxy and vote in person at the
Meeting.
We look forward to meeting those of you who will be able to attend the
Meeting.
Sincerely,
/s/ David S. Wetherell
David S. Wetherell
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
CMGI, INC.
100 BRICKSTONE SQUARE
ANDOVER, MASSACHUSETTS 01810
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD WEDNESDAY, DECEMBER 20, 2000
----------------
To the Stockholders of CMGI, Inc.:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders (the
"Meeting") of CMGI, Inc. (the "Company") will be held at The Westin Copley
Place, 10 Huntington Avenue, Boston, Massachusetts 02116, on Wednesday,
December 20, 2000, at 12:00 p.m. local time, for the following purposes:
1. To elect one Class I Director.
2. To approve the Company's 2000 Stock Incentive Plan.
3. To ratify the appointment of KPMG LLP as the Company's independent
auditors for the current fiscal year.
4. To transact such other business, if any, as may properly come before the
Meeting or any adjournments thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.
Only stockholders of record at the close of business on Friday, November 3,
2000 are entitled to notice of, and to vote at, the Meeting and any
adjournments thereof. A copy of the Company's Annual Report to Stockholders
for the fiscal year ended July 31, 2000, which contains consolidated financial
statements and other information of interest to stockholders, accompanies this
Notice and Proxy Statement. All stockholders are cordially invited to attend
the Meeting.
By Order of the Board of Directors,
/s/ David S. Wetherell,
David S. Wetherell, Secretary
Andover, Massachusetts
November 17, 2000
Admission to the Meeting will be on a first-come, first-served basis and an
admission ticket and picture identification will be required to enter the
Meeting. Each stockholder will be entitled to bring a guest to the Meeting.
For stockholders of record, an admission ticket is attached to the proxy card
sent with this Notice and Proxy Statement. Stockholders holding stock in bank
or brokerage accounts can obtain an admission ticket in advance by sending a
written request, along with proof of ownership of shares (such as a brokerage
statement), to the Company's Director of Investor Relations at CMGI, Inc., 100
Brickstone Square, Andover, Massachusetts 01810. An individual arriving
without an admission ticket will not be admitted unless it can be verified
that the individual is a CMGI stockholder. Cameras, cell phones, recording
equipment and other electronic devices will not be permitted at the Meeting.
Whether or not you expect to attend the Meeting, you are urged to sign, date
and complete the enclosed proxy card and return it in the accompanying
envelope. No postage is required if mailed in the United States. You may also
vote over the Internet or by telephone using the instructions on the enclosed
proxy card. Any stockholder attending the Meeting may vote in person even if
that stockholder has returned a proxy card.
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY
CARD AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE. NO POSTAGE NEED
BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
ALTERNATIVELY, PLEASE VOTE OVER THE INTERNET OR BY TELEPHONE BY FOLLOWING
THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD.
<PAGE>
CMGI, INC.
100 BRICKSTONE SQUARE
ANDOVER, MASSACHUSETTS 01810
----------------
PROXY STATEMENT
For the Annual Meeting of Stockholders
To Be Held on December 20, 2000
----------------
General
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of CMGI, Inc., a Delaware corporation (the
"Company"), for use at the Company's 2000 Annual Meeting of Stockholders (the
"Meeting"), which will be held at The Westin Copley Place, 10 Huntington
Avenue, Boston, Massachusetts 02116, on Wednesday, December 20, 2000, at 12:00
p.m. local time, and at any meeting following adjournment thereof. The Notice
of Annual Meeting, this Proxy Statement, the accompanying proxy card and the
Company's Annual Report to Stockholders for the year ended July 31, 2000 are
being mailed to stockholders on or about November 17, 2000. The Company's
principal executive offices are located at 100 Brickstone Square, Andover,
Massachusetts 01810 and its telephone number is (978) 684-3600.
All share numbers and share prices provided in this Proxy Statement have
been adjusted to reflect all stock splits effected prior to the date hereof.
Solicitation
The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company.
Copies of solicitation materials will be furnished to brokerage houses,
nominees, fiduciaries and custodians to forward to beneficial owners of Common
Stock held in their names. In addition, the Company will reimburse brokerage
firms and other persons representing beneficial owners of stock for their
reasonable expenses in forwarding solicitation materials to such beneficial
owners. In addition to original solicitation of proxies by mail, the Company's
directors, officers and other employees may, without additional compensation,
solicit proxies by telephone, facsimile, electronic communication and personal
interviews.
Record Date, Outstanding Shares and Voting Rights
The Board of Directors has fixed Friday, November 3, 2000 as the record date
for determining holders of the Company's Common Stock, $.01 par value per
share (the "Common Stock"), who are entitled to vote at the Meeting. As of
November 3, 2000, the Company had 319,002,257 shares of Common Stock
outstanding and entitled to be voted. Each share of Common Stock entitles the
record holder to one vote on each matter to be voted upon at the Meeting. A
majority of the shares of Common Stock issued and outstanding and entitled to
vote at the Meeting will constitute a quorum at the Meeting. Votes withheld,
abstentions and broker non-votes shall be counted for purposes of determining
the presence or absence of a quorum for the transaction of business at the
Meeting.
The affirmative vote of the holders of a plurality of the votes cast at the
Meeting is required for the election of directors. The affirmative vote of the
holders of a majority of the shares of Common Stock present or represented by
proxy and voting on the matter is required to approve the 2000 Stock Incentive
Plan and to ratify the appointment of the Company's independent auditors.
Shares which abstain from voting on a particular matter, and shares held in
"street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter ("broker non-votes"), will not be counted as votes in favor of such
matter, and will also not be
<PAGE>
counted as votes cast or shares voting on such matter. Accordingly,
abstentions and broker non-votes will have no effect on the voting for the
election of directors, which requires the affirmative vote of a plurality of
the votes cast or shares voting on the matter. In addition, abstentions and
broker non-votes will have no effect on the voting on the remaining matters to
be voted on at the Meeting, each of which requires the affirmative vote of a
majority of the votes cast or shares voting on the matter.
Stockholders may vote by any one of the following means:
. By mail;
. By telephone;
. Over the Internet; or
. In person, at the Meeting.
To vote by mail, sign, date and complete the enclosed proxy card and return
it in the enclosed envelope. No postage is necessary if the proxy card is
mailed in the United States. Instructions for voting by telephone or over the
Internet can be found on your proxy card. If you hold your shares through a
bank, broker or other nominee, they will give you separate instructions for
voting your shares.
Revocability of Proxy and Voting of Shares
Any stockholder giving a proxy has the power to revoke it at any time before
it is exercised. The proxy may be revoked by filing with the Secretary of the
Company, at the principal executive offices of the Company, 100 Brickstone
Square, Andover, Massachusetts 01810, an instrument of revocation or a duly
executed proxy bearing a later date. The proxy may also be revoked by
attending the Meeting and voting in person. If not revoked, the proxy will be
voted at the Meeting in accordance with the stockholder's instructions
indicated on the proxy card. If no instructions are indicated, the proxy will
be voted:
. FOR the election of the Class I Director nominee named herein;
. FOR the approval of the Company's 2000 Stock Incentive Plan;
. FOR the ratification of the appointment of KPMG LLP as the Company's
independent auditors for the current fiscal year; and
. In accordance with the judgment of the proxy holders as to any other
matter that may be properly brought before the Meeting or any
adjournments thereof.
2
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of September 30,
2000, with respect to the beneficial ownership of shares of Common Stock by
(i) each person known to the Company to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) the directors of the Company, (iii)
the Chief Executive Officer and the four other most highly compensated
executive officers who were serving as executive officers on July 31, 2000
(the "Named Executive Officers") and (iv) all executive officers and directors
of the Company, as a group.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership(1)
---------------------------
Number of Percent of
Name and Address of Beneficial Owner Shares Class (2)
------------------------------------ -------------- ------------
<S> <C> <C>
5% Stockholders
Compaq Computer Corporation(3).................... 42,052,204 13.2%
Directors
David S. Wetherell(4)............................. 36,167,899 11.2%
William H. Berkman(5)............................. 25,066 *
Craig D. Goldman(6)............................... 137,849 *
Avram Miller(7)................................... 188,261 *
Robert J. Ranalli(8).............................. 208,655 *
Harold F. Enright, Jr............................. -- --
Other Named Executive Officers
Andrew J. Hajducky III(9)......................... 514,815 *
Rodney W. Schrock(10)............................. 62,499 *
David S. Andonian(11)............................. 723,885 *
Paul L. Schaut(12)................................ 34,918 *
All executive officers and directors, as a group
(13 persons)(13)................................. 38,379,824 11.9%
</TABLE>
--------
*Less than 1%
(1) The number of shares beneficially owned by each director, executive
officer and stockholder is determined under rules promulgated by the
Securities and Exchange Commission, and the information is not
necessarily indicative of beneficial ownership for any other purpose.
Under such rules, beneficial ownership includes any shares as to which
the individual has sole or shared voting power or investment power and
also any shares which the individual has the right to acquire within 60
days after September 30, 2000 through the exercise of any stock option or
other right ("Presently Exercisable Options"). The inclusion herein of
such shares, however, does not constitute an admission that the named
stockholder is a direct or indirect beneficial owner of such shares.
Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power (or shares such power with his or
her spouse) with respect to all shares of capital stock listed as owned
by such person or entity.
(2) Number of shares deemed outstanding includes 318,446,297 shares of Common
Stock as of September 30, 2000, plus any shares subject to Presently
Exercisable Options held by the person in question.
(3) Based on the information provided by Compaq Computer Corporation
("Compaq") to the Company. The address of Compaq is 20555 State Highway
249--M/C 110701, Houston, TX 77380.
(4) Includes 3,259,275 shares which may be acquired by Mr. Wetherell pursuant
to Presently Exercisable Options. Also includes (i) 16,932,672 shares
held by a limited liability company of which Mr. Wetherell owns a
membership interest and which is managed by a limited liability company
of which Mr. Wetherell is a manager and (ii) 434,988 shares held by Mr.
Wetherell and his wife as trustees for the David S. Wetherell Charitable
Trust, for a total of 17,367,660 shares with respect to which Mr.
Wetherell disclaims beneficial ownership. Mr. Wetherell's address is c/o
CMGI, Inc., 100 Brickstone Square, Andover, MA 01810. Mr. Wetherell also
owns 46,000 shares of common stock of Engage, Inc. ("Engage"), a
subsidiary of the Company, which shares represent less than 1% of the
voting power of the outstanding capital stock of Engage.
3
<PAGE>
(5) Consists of shares which may be acquired by Mr. Berkman pursuant to
Presently Exercisable Options.
(6) Consists of shares which may be acquired by Mr. Goldman pursuant to
Presently Exercisable Options. Mr. Goldman is also deemed the beneficial
owner of (i) 15,416 shares of common stock of SalesLink Corporation
("SalesLink"), a subsidiary of the Company, (ii) 40,000 shares of common
stock of NaviSite, Inc. ("NaviSite"), a subsidiary of the Company, and
(iii) 133,333 shares of common stock of Engage, all of which shares may
be acquired by Mr. Goldman pursuant to Presently Exercisable Options.
These shares represent less than 1% of the voting power of the
outstanding capital stock of SalesLink, NaviSite and Engage,
respectively. Mr. Goldman has determined not to stand for re-election to
the Board of Directors of the Company.
(7) Consists of shares which may be acquired by Mr. Miller pursuant to
Presently Exercisable Options. Mr. Miller is also deemed the beneficial
owner of (i) 45,702 shares of common stock of AltaVista Company
("AltaVista"), a subsidiary of the Company, (ii) 27,345 shares of common
stock of iCast Corporation ("iCast"), a subsidiary of the Company, and
(iii) 218,749 shares of common stock of Signatures SNI, Inc.
("Signatures"), an indirect subsidiary of the Company, all of which
shares may be acquired by Mr. Miller pursuant to Presently Exercisable
Options. These shares represent less than 1% of the voting power of the
outstanding capital stock of AltaVista, iCast and Signatures,
respectively.
(8) Includes 188,655 shares which may be acquired by Mr. Ranalli pursuant to
Presently Exercisable Options. Mr. Ranalli is also deemed the beneficial
owner of 10,000 shares of common stock of MyWay.com Corporation
("MyWay"), a subsidiary of the Company, including 5,000 shares of common
stock of MyWay which may be acquired by Mr. Ranalli pursuant to Presently
Exercisable Options. Mr. Ranalli is also deemed the beneficial owner of
45,702 shares of common stock of AltaVista, including 32,702 shares of
common stock of AltaVista which may be acquired by Mr. Ranalli pursuant
to Presently Exercisable Options. Mr. Ranalli also owns 10,000 shares of
common stock of Engage. These shares represent less than 1% of the voting
power of the outstanding capital stock of MyWay, AltaVista and Engage,
respectively.
(9) Includes 353,311 shares which may be acquired by Mr. Hajducky pursuant to
Presently Exercisable Options. Mr. Hajducky also owns 20,000 shares of
common stock of Engage, which shares represent less than 1% of the voting
power of the outstanding capital stock of Engage.
(10) Consists of shares which may be acquired by Mr. Schrock pursuant to
Presently Exercisable Options. Mr. Schrock is also deemed the beneficial
owner of 379,166 shares of common stock of AltaVista, all of which shares
may be acquired by Mr. Schrock pursuant to Presently Exercisable Options.
These shares represent less than 1% of the voting power of the
outstanding capital stock of AltaVista. Mr. Schrock also owns 5,000
shares of common stock of Engage, which shares represent less than 1% of
the voting power of the outstanding capital stock of Engage. Mr. Schrock
is the former President and Chief Executive Officer of AltaVista,
following his resignation in October 2000.
(11) Includes 722,913 shares which may be acquired by Mr. Andonian pursuant to
Presently Exercisable Options. Mr. Andonian is also deemed the beneficial
owner of (i) 74,496 shares of common stock of Engage, (ii) 18,229 shares
of common stock of NaviSite, (iii) 18,750 shares of common stock of
MyWay, and (iv) 9,375 shares of common stock of NaviPath, Inc.
("NaviPath"), a subsidiary of the Company, all of which shares may be
acquired by Mr. Andonian pursuant to Presently Exercisable Options. These
shares represent less than 1% of the voting power of the outstanding
capital stock of Engage, NaviSite, MyWay and NaviPath, respectively.
(12) Consists of shares which may be acquired by Mr. Schaut pursuant to
Presently Exercisable Options. Mr. Schaut is also deemed the beneficial
owner of 1,138,300 shares of common stock of Engage, including 583,332
shares of common stock of Engage which may be acquired by Mr. Schaut
pursuant to Presently Exercisable Options. These shares represent less
than 1% of the voting power of the outstanding capital stock of Engage.
Mr. Schaut is the former President and Chief Executive Officer of Engage,
following his resignation in November 2000.
(13) Includes 5,243,170 shares which may be acquired pursuant to Presently
Exercisable Options. Also includes the shares beneficially owned by Mr.
Wetherell described in note 4 above. Hans G. Hawrysz, Executive Vice
President, Strategy and Planning of the Company, also owns (i) 250,000
shares of common stock of
4
<PAGE>
MyWay and (ii) 2,000 shares of common stock of Engage, which shares
represent less than 1% of the voting power of the outstanding capital
stock of MyWay and Engage, respectively. Joel B. Rosen, President and
Chief Executive Officer of NaviSite, is also deemed the beneficial owner
of 398,880 shares of common stock of NaviSite, including 392,880 shares of
common stock of NaviSite which may be acquired by Mr. Rosen pursuant to
Presently Exercisable Options. These shares represent less than 1% of the
voting power of the outstanding capital stock of NaviSite. Richard F.
Torre, President and Chief Executive Officer of SalesLink, is also deemed
the beneficial owner of 326,250 shares of common stock of SalesLink, which
shares may be acquired by Mr. Torre pursuant to Presently Exercisable
Options. These shares represent approximately 1.9% of the voting power of
the outstanding capital stock of SalesLink.
PROPOSAL I
ELECTION OF DIRECTORS
The current Board has six members and is divided into three classes. A class
of directors is elected each year for a three-year term. The current term of
the Company's Class I Directors will expire at this Meeting. The nominee for
Class I Director is Harold F. Enright, Jr. Mr. Enright currently serves as
Class I Director of the Company and is available for re-election as Class I
Director. Craig D. Goldman, a current Class I Director, has determined not to
stand for re-election. Following the Meeting, it is expected that the Board
will pass a resolution to reduce the size of the Board from six to five
members. In addition, J. Otis Winters resigned as a Class I Director in
October 2000 for personal reasons. The Class I Director elected at this
Meeting will serve for a term of three years which will expire at the
Company's 2003 Annual Meeting of Stockholders and until his successor is
elected and qualified. The persons named as proxies will vote for Harold F.
Enright, Jr. for election to the Board as Class I Director unless the proxy
card is marked otherwise.
Mr. Enright has indicated his willingness to serve, if elected; however, if
he should be unable to serve, the persons named as proxies may vote the proxy
for a substitute nominee. The Board has no reason to believe that Mr. Enright
will be unable to serve if elected.
The Board of Directors recommends that the stockholders vote FOR the Nominee
listed below.
Biographical and certain other information concerning the directors of the
Company and the nominee for director is set forth below:
Class I Director Nominee for Election for a Three-Year Term Expiring at the
2003 Annual Meeting
Harold F. Enright, Jr., age 63. Mr. Enright has served as a director of the
Company since June 2000. Mr. Enright has served as Vice President of Business
Development of Compaq since July 1998. From July 1993 to July 1998, Mr.
Enright served as Vice President of Business Development for Digital Equipment
Corporation. Mr. Enright serves on the Board of Directors of the Company as
the designee of Compaq. Mr. Enright also serves on the Board of Directors of
divine interVentures, inc. See "Additional Information--Certain Relationships
and Related Transactions."
Class II Directors Continuing in Office until the 2001 Annual Meeting
William H. Berkman, age 35. Mr. Berkman has served as a director of the
Company since June 1998. Since January 2000, Mr. Berkman has been Managing
Partner of Associated Group, LLC, an enterprise primarily engaged in the
communications and technology market segments. Previously, Mr. Berkman was
President of Microwave Services, Inc., an affiliate of The Associated Group,
Inc. which founded Teligent, Inc., a full service, facilities-based
communications company utilizing point-to-point and point-to-multipoint
wireless technologies. Mr. Berkman also serves on the Boards of Directors of
Liberty Satellite & Technology, Inc. and Centerpoint Broadband Technologies,
Inc.
5
<PAGE>
Avram Miller, age 55. Mr. Miller has served as a director of the Company
since April 1999. Mr. Miller is currently a strategy and business development
consultant. From September 1984 to April 1999, he was employed by Intel
Corporation in various capacities, including most recently as Vice President
and Director of Corporate Business Development. Mr. Miller also serves on the
Boards of Directors of Pacific Century CyberWorks Limited and World Online
N.V.
Class III Directors Continuing in Office until the 2002 Annual Meeting
David S. Wetherell, age 46. Mr. Wetherell has served as Chairman of the
Board, President, Chief Executive Officer and Secretary of the Company since
1986. Mr. Wetherell also serves on the Boards of Directors of Engage and
NaviSite.
Robert J. Ranalli, age 63. Mr. Ranalli has served as a director of the
Company since June 1998. From March 1994 until his retirement in September
1994, Mr. Ranalli served as President of AT&T Multimedia Services, a division
of AT&T Corp. Mr. Ranalli served as President of AT&T Consumer Communications
Services, Inc. and Chairman of the Board of AT&T Universal Card Services Corp.
and AT&T Transtech Corp. from 1990 to 1994.
Board and Committee Meetings
During the fiscal year ended July 31, 2000 ("fiscal 2000"), the Board of
Directors held 32 meetings (including by telephone conference). During fiscal
2000, all directors attended at least 75% of the meetings of the Board and of
the committees on which they served.
The Board of Directors has an Audit Committee, which assists the Board of
Directors in fulfilling its responsibilities to stockholders concerning the
Company's financial reporting and internal controls, and facilitates open
communication among the Audit Committee, Board of Directors, outside auditors
and management. The Audit Committee discusses with management and the outside
auditors the financial information developed by the Company, the Company's
systems of internal controls and the Company's audit process. The Audit
Committee recommends to the Board each fiscal year the independent auditors
who will audit the books of the Company for that year. The independent
auditors meet with the Audit Committee (both with and without the presence of
the Company's management) to review and discuss various matters pertaining to
the audit, including the Company's financial statements, the report of the
independent auditors on the results, scope and terms of their work, and their
recommendations concerning the financial practices, controls, procedures and
policies employed by the Company. The Board of Directors has adopted a written
charter for the Audit Committee. The Audit Committee consists of Messrs.
Goldman, Ranalli (Chairman) and Miller, each of whom is independent as defined
under Rule 4200(a)(14) of the National Association of Securities Dealers'
listing standards. The Audit Committee met three times during fiscal 2000.
The Board of Directors has a Human Resources and Compensation Committee,
which administers the Company's 2000 Stock Incentive Plan, 1986 Stock Option
Plan and 1995 Employee Stock Purchase Plan, as well as the Company's cash
incentive plans and performance-based stock options. The Human Resources and
Compensation Committee approves salaries, bonuses and other compensation
arrangements and policies for the Company's officers, including the chief
executive officer. The Human Resources and Compensation Committee consists of
Messrs. Berkman, Goldman and Miller (Chairman). The Human Resources and
Compensation Committee met eight times during fiscal 2000.
The Board of Directors has a Governance Committee, which makes
recommendations to the Board of Directors concerning all facets of the
director-nominee selection process. Stockholders wishing to propose director
candidates for consideration by the Governance Committee may do so by writing
to the Secretary of the Company and providing information specified in the
Company's By-Laws, including the candidate's name, biographical data and
qualifications. The Company's By-Laws set forth further requirements for
stockholders wishing to nominate director candidates for consideration by
stockholders including, among other things, that a
6
<PAGE>
stockholder must give timely written notice of an intent to make such a
nomination to the Secretary of the Company. See "Proposals of Stockholders for
2001 Annual Meeting." The Governance Committee consists of Messrs. Goldman
(Chairman), Enright and Ranalli. The Governance Committee did not meet during
fiscal 2000, as its functions were carried out by the full Board during such
period.
PROPOSAL 2
APPROVAL OF 2000 STOCK INCENTIVE PLAN
On October 18, 2000, the Board of Directors adopted, subject to stockholder
approval, the 2000 Stock Incentive Plan (the "2000 Plan"), pursuant to which
15,500,000 shares of Common Stock are reserved for issuance (subject to
adjustment in the event of stock splits and other similar events). The 2000
Plan is intended to replace the Company's 1986 Stock Option Plan (the "1986
Plan"). The Board of Directors has adopted the 2000 Plan because it believes
that the number of shares currently available for grant under the 1986 Plan
will not be sufficient to satisfy the Company's future incentive compensation
needs. As of September 15, 2000, there were approximately 4.45 million shares
available for grant under the 1986 Plan. Upon the approval by the stockholders
of the 2000 Plan, no further option grants shall be made under the 1986 Plan.
However, all then-outstanding options under the 1986 Plan shall remain in
effect.
Summary of the 2000 Plan
The principal provisions of the 2000 Plan are summarized below. The summary
is qualified in its entirety by reference to the 2000 Plan.
Description of Awards
The 2000 Plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended,
and any regulations promulgated thereunder (the "Code"), nonstatutory stock
options and restricted stock awards (collectively "Awards").
Incentive Stock Options and Nonstatutory Stock Options. Optionees receive
the right to purchase a specified number of shares of Common Stock at a
specified option price and subject to such other terms and conditions as are
specified in connection with the option grant. Options may be granted at an
exercise price which may be less than, equal to or greater than the fair
market value of the Common Stock on the date of grant. Under present law,
however, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the Common
Stock on the date of grant (or less than 110% of the fair market value in the
case of incentive stock options granted to optionees holding more than 10% of
the voting power of the Company or any of its subsidiaries). Options intended
to qualify as incentive stock options may not be granted for a term in excess
of ten years (or five years in the case of incentive stock options granted to
optionees holding more than 10% of the voting power of the Company or any of
its subsidiaries). The 2000 Plan permits the Board to determine the manner of
payment of the exercise price of options, including through payment by cash,
check or in connection with a "cashless exercise" through a broker, by
surrender to the Company of shares of Common Stock, by delivery to the Company
of a promissory note, or by any other lawful means.
Restricted Stock Awards. Restricted stock awards entitle recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares from the recipient in the event that the
conditions specified in the applicable Award are not satisfied prior to the
end of the applicable restriction period established for such Award.
Eligibility To Receive Awards
Officers, directors, employees, consultants and advisors of the Company, any
of the Company's present or future parent or subsidiary corporations (as
defined in Sections 424(e) or (f) of the Code), and any other business venture
(including, without limitation, joint venture or limited liability company) in
which the Company has a
7
<PAGE>
significant interest, as determined by the Board of Directors, are eligible to
be granted Awards under the 2000 Plan. Under present law, however, incentive
stock options may only be granted to employees of the Company and its present
and future parent and subsidiary corporations (as defined in Sections 424(e)
or (f) of the Code). The maximum number of shares with respect to which Awards
may be granted to any participant under the 2000 Plan may not exceed 5,000,000
shares per calendar year, subject to approval and proportionate adjustments in
the event of a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split or other similar transaction.
As of October 31, 2000, the Company had approximately 5,880 employees and
five non-employee directors, all of whom were eligible to participate in the
2000 Plan. The number of individuals receiving awards varies from year to year
depending on various factors, such as the number of promotions and the
Company's hiring needs during the year, and thus the Company cannot now
determine award recipients. No options or awards have been granted yet under
the 2000 Plan.
On November 3, 2000, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $21.94.
Administration
The 2000 Plan is administered by the Board of Directors. The Board has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the 2000 Plan and to interpret the provisions of the
2000 Plan. Pursuant to the terms of the 2000 Plan, the Board of Directors may
delegate authority under the 2000 Plan to one or more committees of the Board.
The Board has authorized the Human Resources and Compensation Committee to
administer certain aspects of the 2000 Plan, including the granting of options
to executive officers. Subject to any applicable limitations contained in the
2000 Plan, the Board of Directors, the Human Resources and Compensation
Committee, or any other committee to whom the Board delegates authority, as
the case may be, selects the recipients of Awards and determines (i) the
number of shares of Common Stock covered by options and the dates upon which
such options become exercisable, (ii) the exercise price of options, (iii) the
duration of options, and (iv) the number of shares of Common Stock subject to
any restricted stock awards and the terms and conditions of such awards,
including conditions for repurchase, issue price and repurchase price. If the
Company undertakes any merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, reverse stock split or other
similar transaction, appropriate and proportionate adjustments shall be made
to (i) the number and class of securities reserved for issuance under the
plan, (ii) the number, kind and exercise price of the securities underlying
options outstanding at the time of such occurrence, and (iii) the repurchase
price of each outstanding restricted stock award.
Except as otherwise provided in the applicable option agreement, all options
granted under the plan shall not be transferable other than by will or the
laws of descent and distribution.
In the event of a merger or other acquisition event, the Board of Directors
is required to provide for outstanding options to be assumed or substituted
for, by the acquiring or succeeding corporation. If the acquiring or
succeeding corporation does not agree to assume, or substitute for, such
options, then the Board of Directors shall provide (i) that all options will
become exercisable in full prior to the acquisition event and will terminate
immediately prior to the consummation of such acquisition event or (ii) for
cash payment in exchange for such options.
If any Award expires or is terminated, surrendered, canceled or forfeited,
the unused shares of Common Stock covered by such Award will again be
available for grant under the 2000 Plan subject, however, in the case of
incentive stock options to any limitations under the Code.
8
<PAGE>
Amendment or Termination
No Award may be made under the 2000 Plan after October 18, 2010, but Awards
previously granted may extend beyond that date. The Board of Directors may at
any time amend, suspend or terminate the 2000 Plan, except that after the date
of such amendment no Award intended to comply with Section 162(m) of the Code
shall become exercisable, realizable or vested unless and until such amendment
shall have been approved by the Company's stockholders if necessary under
Section 162(m).
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to Awards granted under
the 2000 Plan and with respect to the sale of common stock acquired under the
2000 Plan.
The grant of an Award under the 2000 Plan will have no tax consequences to
the Company. Moreover, in general, neither the exercise of an incentive stock
option nor the sale of any Common Stock acquired under the 2000 Plan will have
any tax consequences to the Company. The Company generally will be entitled to
a business-expense deduction, however, with respect to any ordinary
compensation income recognized by a participant under the 2000 Plan, including
in connection with a restricted stock award or as a result of the exercise of
a nonstatutory stock option or a Disqualifying Disposition (as defined below).
Any such deduction will be subject to the limitations of Section 162(m) of the
Code.
Incentive Stock Options. In general, a participant will not recognize
taxable income upon the grant or exercise of an incentive stock option.
Instead, a participant will recognize taxable income with respect to an
incentive stock option only upon the sale of Common Stock acquired through the
exercise of the option ("ISO Stock"). The exercise of an incentive stock
option, however, may subject the participant to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least
two years from the date the option was granted (the "Grant Date") and one year
from the date the option was exercised (the "Exercise Date"), then the
participant will recognize long-term capital gain in an amount equal to the
excess of the sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior to
having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of
the gain recognized by the participant will be ordinary compensation income
and the remaining gain, if any, will be a capital gain. This capital gain will
be a long-term capital gain if the participant has held the ISO Stock for more
than one year prior to the date of sale.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss in an amount equal to the excess of
the exercise price over the sale price of the ISO Stock. This capital loss
will be a long-term capital loss if the participant has held the ISO Stock for
more than one year prior to the date of sale.
Nonstatutory Stock Options. As in the case of an incentive stock option, a
participant will not recognize taxable income upon the grant of a nonstatutory
stock option. Unlike the case of an incentive stock option, however, a
participant who exercises a nonstatutory stock option generally will recognize
ordinary compensation income in an amount equal to the excess of the fair
market value of the common stock acquired through the exercise of the option
("NSO Stock") on the Exercise Date over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will
9
<PAGE>
recognize capital gain or loss in an amount equal to the difference between
the sale price of the NSO Stock and the participant's tax basis in the NSO
Stock. This capital gain or loss will be a long-term capital gain or loss if
the participant has held the NSO Stock for more than one year prior to the
date of the sale.
Restricted Stock Awards. A participant will not recognize taxable income
upon the grant of a restricted stock award, unless the participant makes an
election under Section 83(b) of the Code (a "Section 83(b) Election"). If the
participant makes a Section 83(b) Election within 30 days of the date of the
grant, then the participant will recognize ordinary compensation income, for
the year in which the Award is granted, in an amount equal to the difference
between the fair market value of the Common Stock at the time the Award is
granted and the purchase price paid for the common stock. If a Section 83(b)
Election is not made, then the participant will recognize ordinary
compensation income, at the time that the forfeiture provisions or
restrictions on transfer lapse, in an amount equal to the difference between
the fair market value of the Common Stock at the time of such lapse and the
original purchase price paid for the Common Stock. The participant will have a
tax basis in the Common Stock acquired equal to the sum of the price paid and
the amount of ordinary compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock award, the participant will recognize a capital gain or loss equal to
the difference between the sale price of the Common Stock and the
participant's basis in the Common Stock. This capital gain or loss will be a
long-term capital gain or loss if the shares are held for more than one year.
The Board of Directors recommends that the stockholders vote FOR the
adoption of the 2000 Plan.
PROPOSAL 3
RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has appointed KPMG LLP, independent auditors, to
audit the Company's consolidated financial statements for the fiscal year
ending July 31, 2001, and recommends that the stockholders vote for
ratification of such appointment. If the stockholders do not ratify the
selection of KPMG LLP as the Company's independent auditors, the selection of
such auditors will be reconsidered by the Board of Directors. A representative
of KPMG LLP, which served as the Company's auditors in fiscal 2000, is
expected to be present at the Meeting to be available to respond to
appropriate questions from stockholders and to make a statement if he or she
desires to do so.
The Board of Directors recommends that the stockholders vote FOR the
ratification of KPMG LLP to serve as the Company's independent auditors for
the current fiscal year.
ADDITIONAL INFORMATION
Management
Officers are elected annually by the Board and serve at the discretion of
the Board. Set forth below is information regarding the current executive
officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
David S. Wetherell...... 46 Chairman of the Board of Directors, President,
Chief Executive Officer and Secretary
Andrew J. Hajducky III.. 46 Executive Vice President, Chief Financial Officer
and Treasurer
David S. Andonian....... 43 President, Corporate Development
Hans G. Hawrysz......... 52 Executive Vice President, Strategy and Planning
Joel B. Rosen........... 43 President and Chief Executive Officer, NaviSite
Richard F. Torre........ 50 President and Chief Executive Officer, SalesLink
</TABLE>
10
<PAGE>
David S. Wetherell has served as Chairman of the Board, President, Chief
Executive Officer and Secretary of the Company since 1986. Mr. Wetherell also
serves on the Boards of Directors of Engage and NaviSite.
Andrew J. Hajducky III has served as Executive Vice President, Chief
Financial Officer and Treasurer of the Company since October 1995. From 1990
until joining the Company, he was a partner with the public accounting firm of
Ernst & Young LLP. Mr. Hajducky also serves on the Boards of Directors of
Engage and NaviSite.
David S. Andonian has served as President, Corporate Development of the
Company since August 1999. From December 1997 until July 1999, Mr. Andonian
served as President, Internet Group of the Company. Mr. Andonian served as
Vice President of Worldwide Marketing of PictureTel Corporation from January
1996 until November 1997. Prior to that, Mr. Andonian held the position of
Vice President of Worldwide Marketing and Brand Management at IBM.
Hans G. Hawrysz has served as Executive Vice President, Strategy and
Planning, of the Company since January 1999. From January 1997 until January
1999, Mr. Hawrysz served as the President and Chief Executive Officer of
MyWay. From April 1992 to January 1997, Mr. Hawrysz was Executive Vice
President of AT&T Universal Card Services.
Joel B. Rosen has served as the President and Chief Executive Officer of
NaviSite since April 1999. From January 1996 to August 1998, Mr. Rosen served
as Executive Vice President of Aspen Technology, Inc., an enterprise software
and services provider. From August 1988 to January 1996, Mr. Rosen held
several management positions within Aspen Technology, including Director of
Marketing, Vice President of Marketing and Senior Vice President of Marketing
and New Businesses.
Richard F. Torre has served as President of SalesLink since 1990. In 1996,
Mr. Torre was named Chief Executive Officer of SalesLink. From 1990 until
1996, Mr. Torre also served as Chief Operating Officer of SalesLink.
There are no family relationships between any director, executive officer or
person nominated or chosen by the Company to become a director or executive
officer of the Company.
Director Compensation
All of the directors of the Company receive reimbursement of expenses
incurred with respect to attendance at meetings of the Board and meetings of
committees of the Board.
1999 Stock Option Plan for Non-Employee Directors
The Company's 1999 Stock Option Plan for Non-Employee Directors (the
"Director Plan") was originally adopted by the Board of Directors on October
20, 1999 and approved by the stockholders of the Company on December 17, 1999.
All directors of the Company are eligible to receive nonstatutory stock
options to purchase shares of Common Stock under the Director Plan, except for
any director who (i) is an employee of the Company or any of its subsidiaries
or affiliates or (ii) unless otherwise determined by the Board, is an
affiliate, employee or designee of an institutional or corporate investor in
the Company (an "Affiliated Director").
Each eligible director who is elected to the Board for the first time will
be granted an option to acquire 96,000 shares of Common Stock (the "Initial
Option"). Each Affiliated Director who ceases to be an Affiliated Director and
is not otherwise an employee of the Company or any of its subsidiaries or
affiliates will be granted, on the date such director ceases to be an
Affiliated Director but remains as a member of the Board of Directors, an
Initial Option to acquire 96,000 shares of Common Stock under the Director
Plan. Each Initial Option will vest and become exercisable as to 1/48th of the
number of shares of Common Stock originally subject to the option on each
monthly anniversary of the date of grant, provided that the optionee serves as
a director on such monthly anniversary date.
11
<PAGE>
On each anniversary of the grant of the Initial Option, each eligible
director will automatically be granted an option to purchase 24,000 shares of
Common Stock (an "Annual Option"), provided that such eligible director serves
as a director on the applicable anniversary date. In addition, each eligible
director who received an option under the Company's 1995 Stock Option Plan for
Non-Employee Directors will receive an Annual Option on the second anniversary
of the date on which such option was granted (or, if later, the date of
approval of the Director Plan by the stockholders of the Company), and on each
subsequent anniversary date thereof, provided that the optionee serves as a
director on the applicable anniversary date. Each Annual Option will vest and
become exercisable on a monthly basis as to 1/12th of the number of shares
originally subject to the option commencing on the 37th month after the grant
date, provided that the optionee then serves as a director on such monthly
anniversary date.
The option exercise price per share for each option granted under the
Director Plan shall equal the closing price of the Common Stock on the Nasdaq
National Market on the date of grant. Except as otherwise provided in the
applicable option agreement, each option granted under the Director Plan shall
terminate, and may no longer be exercised, on the date ten years after the
date of grant of such option.
On December 17, 1999, Mr. Goldman was granted an Annual Option under the
Director Plan to purchase 24,000 shares of Common Stock at an exercise price
of $105.91 per share. On June 8, 2000, Messrs. Berkman and Ranalli were each
granted an Annual Option under the Director Plan to purchase 24,000 shares of
Common Stock at an exercise price of $60.44 per share. On June 19, 2000, Mr.
Goldman was granted an Annual Option under the Director Plan to purchase
24,000 shares of Common Stock at an exercise price of $53.88 per share.
12
<PAGE>
Executive Compensation
Summary Compensation
The following table provides certain summary information with respect to the
compensation earned by each of the Named Executive Officers for the fiscal
years ended July 31, 1998, 1999 and 2000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-
Annual Compensation Term Compensation
------------------------------------- ---------------------
Awards
---------------------
Securities Securities
Other Annual Underlying Underlying All Other
Name and Principal Compensation CMGI Subsidiary Compensation
Position Year Salary($)(1) Bonus($)(1) ($)(2) Options Options ($)(3)
------------------ ---- ------------ ----------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
David S. Wetherell(4)... 2000 $530,000 $481,400 $211,474(5) 3,500,000 -- $3,500
Chairman, President and
Chief 1999 238,542 189,100 131,161(6) -- -- 3,333
Executive Officer 1998 180,250 75,000 -- -- -- 3,647
Andrew J. Hajducky
III(7)................. 2000 341,000 338,695 77,580(8) 300,000 -- 3,890
Executive Vice
President, 1999 282,833 98,000 -- 240,000 -- 4,485
Chief Financial Officer
and 1998 154,976 50,000 -- 480,000 -- 3,121
Treasurer
Rodney W. Schrock(9).... 2000 355,900 76,781 103,049(10) 215,000 325,000(11) 3,500
Former President and
Chief Executive Officer
of AltaVista
David S. Andonian(12)... 2000 250,000 100,000 -- 250,000 -- 3,119
President, Corporate
Development
Paul L. Schaut(13)...... 2000 240,000 110,000 -- -- -- 1,400
Former President and
Chief 1999 168,364 60,000 -- 36,000 800,000(14) 1,383
Executive Officer of
Engage 1998 109,375 37,500 -- 160,000 1,200,000(14) --
</TABLE>
--------
(1) Salary and bonus are reported in the year earned even if not actually
paid until the following year. Any compensation that was deferred at the
Named Executive Officer's election is included in the salary or bonus
column for the year in which it was earned.
(2) Includes perquisites and personal benefits where such perquisites and
benefits exceed the lesser of $50,000 or 10% of the officer's total
annual salary and bonus for the year. Any related disclosure in the
footnotes addresses only those perquisites and benefits received that
exceed 25% of the total perquisites and benefits reported for the officer
for the year.
(3) Amounts set forth in this column represent employer 401(k) plan cash
contributions.
(4) Mr. Wetherell has certain direct compensatory interests in the
CMG@Ventures I and CMG@Ventures II venture capital funds and certain
indirect compensatory interests in the @Ventures III venture capital
funds. For a discussion of such interests, see "Certain Relationships and
Related Transactions."
(5) Of this amount, $190,829 represents certain professional service fees
paid by the Company on behalf of Mr. Wetherell and $20,645 represents
income attributable to Mr. Wetherell for an automobile leased by the
Company.
(6) Of this amount, $113,465 represents certain professional service fees
paid by the Company on behalf of Mr. Wetherell.
(7) Mr. Hajducky has certain direct compensatory interests in the
CMG@Ventures I and CMG@Ventures II venture capital funds and certain
indirect compensatory interests in the @Ventures III venture capital
funds. For a discussion of such interests, see "Certain Relationships and
Related Transactions."
13
<PAGE>
(8) Of this amount, $65,810 represents certain professional service fees paid
by the Company on behalf of Mr. Hajducky and $11,770 represents income
attributable to Mr. Hajducky for an automobile leased by the Company.
(9) Mr. Schrock became an executive officer of the Company in August 1999
upon the Company's acquisition of AltaVista. Mr. Schrock resigned as
President and Chief Executive Officer of AltaVista in October 2000.
(10) Represents relocation expenses reimbursed by the Company.
(11) Amount reflects option to purchase shares of common stock of AltaVista
awarded to Mr. Schrock during the fiscal year indicated.
(12) Mr. Andonian became an executive officer of the Company in December 1999.
(13) Mr. Schaut resigned as President and Chief Executive Officer of Engage in
November 2000.
(14) Amounts reflect options to purchase common stock of Engage awarded to Mr.
Schaut during the fiscal year indicated.
Option Grants In Fiscal Year 2000
The following table sets forth information concerning grants of options to
purchase shares of Common Stock of the Company and shares of common stock of
subsidiaries of the Company made to each Named Executive Officer during the
fiscal year ended July 31, 2000. No stock appreciation rights were granted
during fiscal 2000.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------
Potential Realizable
Percentage Of Value At Assumed
Number Of Total Options Annual Rates of Stock
Securities Granted To Price Appreciation for
Company Underlying Employees In Exercise Option Term ($)(4)
Granting Options Fiscal Price Per Expiration ------------------------
Name Option Granted (1) 2000(%)(2) Share($)(3) Date 5% 10%
---- --------- ----------- ------------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
David S. Wetherell...... CMGI 300,000 2.0% $42.75 9/14/04 $ 3,543,311 $ 7,829,791
CMGI 3,200,000 21.2 56.13 5/17/05 49,620,169 109,647,596
Andrew J. Hajducky III.. CMGI 200,000 1.3 42.75 9/14/04 2,362,207 5,219,860
CMGI 100,000 0.7 39.44 7/24/05 1,089,654 2,407,851
Rodney W. Schrock....... CMGI 200,000 1.3 42.66 8/17/04 2,357,234 5,208,871
CMGI 15,000 0.0 39.44 7/24/05 163,448 361,178
AltaVista 325,000 2.0 14.20 1/27/05 1,275,039 2,871,504
David S. Andonian....... CMGI 150,000 1.0 42.75 9/14/04 1,771,656 3,914,895
CMGI 100,000 0.6 39.44 7/24/05 1,089,654 2,407,851
</TABLE>
--------
(1) Options vest as to 25% of the shares on the first anniversary of the date
of grant and thereafter in equal monthly installments over the next 36
months.
(2) CMGI granted options to employees covering an aggregate of 15,089,824
shares of Common Stock during fiscal 2000, which amount includes options
covering an aggregate of 1,619,449 shares granted in substitution of
options granted by companies acquired by CMGI. In addition, CMGI assumed
options covering an additional 8,637,150 shares of Common Stock in
connection with acquisitions.
(3) The exercise price per share of each option was determined to be equal to
the fair market value per share of the underlying stock on the date of
grant.
(4) Amounts reported in these columns represent hypothetical amounts that may
be realized upon exercise of the options immediately prior to the
expiration of their term assuming the specified compounded rates of
appreciation (5% and 10%) on the underlying common stock over the term of
the options. These numbers are calculated based on rules promulgated by
the Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth. Actual gains, if any, on stock
option exercises and Common Stock and subsidiary common stock holdings are
dependent on the timing of such exercise and the future performance of the
underlying common stock. There can be no assurance that the rates of
appreciation assumed in this table can be achieved or that the amounts
reflected will be received by the option holder.
14
<PAGE>
2000 Aggregated Option Exercises and Fiscal Year-End Option Values
The following table sets forth information with respect to stock options
exercised by the Named Executive Officers during the fiscal year ended July
31, 2000 and stock options held as of July 31, 2000 by each Named Executive
Officer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number Of
Securities
Underlying
Shares Unexercised Options Value Of Unexercised In-
Company Acquired Value At July 31, 2000 The-Money Options At
Granting On Realized Exercisable / July 31, 2000 Exercisable
Name Option Exercise ($)(1) Unexercisable / Unexercisable ($)(2)
---- --------- --------- ------------ --------------------- --------------------------
<S> <C> <C> <C> <C> <C>
David S. Wetherell...... CMGI 2,400,000 $102,499,920 2,691,776 / 5,420,000 $101,503,374 / $72,400,704
Andrew J. Hajducky III.. CMGI 85,000 6,421,223 338,997 / 596,003 12,386,644 / 10,372,098
Rodney W. Schrock....... CMGI 84,474 7,006,104 -- / 215,000 -- / --
AltaVista -- -- 325,000 / 1,137,500 2,427,750 / 6,069,375
David S. Andonian....... CMGI 152,500 15,153,017 535,831 / 881,669 19,365,961 / 22,829,130
Engage -- -- 65,983 / 36,185 594,668 / 326,115
NaviSite -- -- 16,145 / 8,855 653,517 / 358,433
NaviPath -- -- 8,072 / 4,428 105,340 / 57,785
MyWay -- -- 16,145 / 8,855 30,030 / 16,470
Paul L. Schaut.......... CMGI 41,248 5,067,677 18,584 / 69,502 662,197 / 2,477,067
Engage 50,000 739,125 466,665 / 983,335 3,043,530 / 5,727,595
</TABLE>
--------
(1) With respect to CMGI and Engage options, the value realized is based on
the difference between the option exercise price of such options and the
closing price of the underlying common stock on the Nasdaq National Market
on the date of exercise.
(2) With respect to CMGI, Engage and NaviSite options, the value of the
unexercised in-the-money options is based on the difference between the
closing price of the underlying common stock on the Nasdaq National Market
on July 31, 2000, which closing price was $37.88 for CMGI, $9.13 for
Engage and $40.56 for NaviSite, and the applicable option exercise prices.
With respect to the AltaVista options, the value of the unexercised in-
the-money options is based on the difference between $14.20, which was the
approximate fair market value per share of the AltaVista common stock on
July 31, 2000, as determined by an independent valuation consultant and
approved by the AltaVista Board of Directors, and the applicable option
exercise prices. With respect to the NaviPath options, the value of the
unexercised in-the-money options is based on the difference between
$13.13, which was the approximate fair market value per share of the
NaviPath common stock on July 31, 2000, as preliminarily determined by an
independent valuation consultant, and the applicable option exercise
prices. With respect to the MyWay options, the value of the unexercised
in-the-money options is based on the difference between $2.86, which was
the approximate fair market value per share of the MyWay common stock on
July 31, 2000, as preliminarily determined by an independent valuation
consultant, and the applicable option exercise prices.
Human Resources and Compensation Committee Report
The Human Resources and Compensation Committee of the Board of Directors
(the "Compensation Committee") consists of three directors who are not
employees of the Company. The Compensation Committee regularly reviews and
approves generally all compensation and fringe benefit programs of the Company
and also reviews and determines the actual compensation of the Company's
executive officers, as well as all stock option grants, performance-based
stock options and cash incentive awards to all key employees. The Compensation
Committee also reviews and makes recommendations to the Board on policies and
programs for
15
<PAGE>
the development of management personnel and management structure and
organization. The Compensation Committee reviews and administers the Company's
2000 Stock Incentive Plan, 1986 Stock Option Plan and 1995 Employee Stock
Purchase Plan. The Compensation Committee reviews executive compensation
reports prepared by independent organizations in order to evaluate the
appropriateness of its executive compensation program.
The Compensation Committee uses its base salary and incentive bonus program
for the Company's executive officers in order to enhance short-term
profitability and stockholder value and uses stock options, performance-based
stock options and long-term cash incentive awards to enhance long-term growth
in profitability, return on equity and stockholder value. In order to meet
these objectives, the Compensation Committee first sets base salaries for the
Company's executive officers for each fiscal year based on a review of average
base salaries among competitive peer groups and then sets target incentive
bonus awards comprising varying percentages of total target compensation
depending on the position being reviewed.
The Compensation Committee reviews the Company's annual performance plan for
the ensuing fiscal year and sets specific incentive target bonus awards which
are directly linked to the short-term financial performance of the Company as
a whole. The executive officers of the Company then have an opportunity to
earn a 25% payout of their individual target bonuses in each fiscal quarter
provided that the Company meets or exceeds its performance plan for that
quarter. These quarterly bonuses are prorated to the extent that the Company
achieves a portion of its performance plan. If the full amount of the
quarterly bonuses is not earned in a fiscal quarter, the executive officers
have an opportunity to improve performance and thereby to earn retroactively
the full amount of the target quarterly bonuses to the extent not earned in
prior quarters. The annual performance plan is based on operating income
before extraordinary gains and losses and before taxes. The Compensation
Committee has complete discretionary authority to award full bonuses or
special bonuses for special achievements.
The Compensation Committee also grants stock options to executive officers
and other key employees of the Company and its subsidiaries in order to focus
the efforts of these employees on the long-term enhancement of profitability
and stockholder value.
With respect to the Chief Executive Officer of the Company, the Compensation
Committee has utilized a base salary and incentive bonus, with the bonus being
based on individual performance with respect to each fiscal year. In November
1993, the Company entered into an Employment Agreement with Mr. Wetherell and
in connection therewith issued to him a stock option for the purchase of
4,800,000 shares of Common Stock of the Company. See "Employment Agreements
and Severance and Change of Control Arrangements." On September 14, 1999, the
Compensation Committee granted Mr. Wetherell an option to purchase 300,000
shares of Common Stock at an exercise price of $42.75 per share as part of the
Company's annual option reload program. On May 17, 2000, as an incentive for
Mr. Wetherell to continue providing the Company with first-class leadership
and to guide the Company towards strengthening its position as the leading
global Internet operating and development company, the Compensation Committee
granted Mr. Wetherell an additional stock option to purchase 3,200,000 shares
of Common Stock at an exercise price of $56.13 per share.
For a discussion of the Company's @Ventures Internet investment and
development entities, and the interests of Messrs. Wetherell and Hajducky
therein, see "Certain Relationships and Related Transactions."
Section 162(m) of the Code generally disallows a tax deduction to public
companies for compensation over $1,000,000 paid to its chief executive officer
and four other most highly compensated officers. Qualifying performance-based
compensation will not be subject to the deduction limit if certain
requirements are met. The Company has limited the number of shares subject to
stock options which may be granted to Company employees in a manner that
complies with the performance-based requirements of Section 162(m). While the
Compensation Committee does not currently intend to qualify its annual cash
incentive awards as a performance-based plan, it will continue to monitor the
impact of Section 162(m) on the Company.
16
<PAGE>
The Compensation Committee believes that the foregoing combination of base
salaries, incentive bonuses, stock options, performance-based stock options
and long-term cash incentives have helped develop a senior management group
dedicated to achieving significant improvement in both the short-term and
long-term financial performance of the Company.
HUMAN RESOURCES AND COMPENSATION
COMMITTEE
Avram Miller, Chairman
William H. Berkman
Craig D. Goldman
Audit Committee Report
The Audit Committee of the Board of Directors (the "Audit Committee") has
reviewed and discussed the Company's audited financial statements for fiscal
2000 with the Company's management. The Audit Committee has discussed with
KPMG LLP, the Company's independent auditors, the matters required to be
discussed by Statement on Auditing Standards No. 61. The Audit Committee has
received the written disclosures and the letter from KPMG required by
Independence Standards Board Standard No. 1 and has discussed with KPMG its
independence. Based on the review and discussions described above, among other
things, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's Annual Report on
Form 10-K for fiscal 2000.
AUDIT COMMITTEE
Robert J. Ranalli, Chairman
Craig D. Goldman
Avram Miller
The foregoing Audit Committee Report shall not be deemed to be incorporated
by reference into any of the Company's previous or future filings with the
Securities and Exchange Commission, except as otherwise explicitly specified
by the Company in any such filing.
Certain Relationships and Related Transactions
The Company has several Internet investment and development entities in
which the Company's interests are reflected principally through its ownership
of CMG@Ventures Capital Corp. and CMG@Ventures, Inc., wholly owned
subsidiaries of the Company. CMG@Ventures Capital Corp. and CMG@Ventures, Inc.
are entitled to (i) an interest ranging from approximately 77.5% to 80% of the
net capital gains realized by CMG@Ventures I, LLC (which percentage varies
depending on the date on which the investment generating the particular net
capital gain was made) and (ii) approximately 80% of the net capital gains
realized by CMG@Ventures II, LLC. CMG@Ventures Capital Corp. is entitled (x)
through its ownership of an interest in @Ventures Partners III, LLC, the
general partner of @Ventures III, L.P. and @Ventures Foreign Fund III, L.P.,
to approximately 2% of the net capital gains realized by @Ventures III, L.P.
and @Ventures Foreign Fund III, L.P., and (y) to approximately 80% of the net
capital gains realized by CMG @Ventures III, LLC.
In April 1995, the Company formed the first of its Internet investment and
development entities, CMG@Ventures, L.P., a Delaware limited partnership. In
February 1998, CMG@Ventures, L.P. was reorganized as a limited liability
company under the name CMG@Ventures I, LLC ("CMG@Ventures I"). In October
1996, the Company formed a second Internet investment and development entity,
CMG@Ventures II, LLC ("CMG@Ventures II"), a Delaware limited liability
company. The purpose of both CMG@Ventures I and CMG@Ventures II is to invest
in securities of companies seeking to further the commercialization of the
Internet and other interactive media.
17
<PAGE>
Mr. Wetherell is a profit member (as defined in the limited liability
company agreement) of CMG@Ventures I, and in that capacity owns an
approximately 8.5% carried interest in the net realized gains (as defined in
the limited liability company agreement) of CMG@Ventures I. Mr. Wetherell's
interest in CMG@Ventures I vests over 40 calendar quarters, with 3.75% of his
interest vesting in each of the first 20 quarters and 1.25% of his interest
vesting in each of the remaining 20 quarters. Mr. Wetherell is a managing
member of CMG@Ventures II and in that capacity owns a 7.75% carried interest
in the net realized gains (as defined in the operating agreement) of
CMG@Ventures II. Mr. Wetherell's interest in CMG@Ventures II vests over 20
calendar quarters, with 5% of the total interest becoming vested in each
quarter.
Mr. Hajducky is a profit member of CMG@Ventures I, and in that capacity owns
an approximately 0.5% carried interest in the net realized gains of
CMG@Ventures I. Mr. Hajducky's interest in CMG@Ventures I vests over 40
calendar quarters, with 3.75% of his interest vesting in each of the first 20
quarters and 1.25% of his interest vesting in each of the remaining 20
quarters. Mr. Hajducky is a managing member of CMG@Ventures II and in that
capacity owns a 0.5% carried interest in the net realized gains of
CMG@Ventures II. Mr. Hajducky's interest in CMG@Ventures II vests over 20
calendar quarters, with 5% of the total interest becoming vested in each
quarter.
From August 1, 1999 through October 31, 2000, CMG@Ventures I and
CMG@Ventures II allocated the following shares of common stock to the accounts
of Messrs. Wetherell and Hajducky:
<TABLE>
<CAPTION>
Number of Number of
Shares Shares
Allocated to Allocated to Entity
Mr. Wetherell's Mr. Hajducky's Date of Allocating
Company Name Account Account Allocation Shares
------------ --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Amazon.com, Inc......... 8,496 548 November 1999 CMG@Ventures II
Critical Path, Inc...... 127,469 8,223 November 1999 CMG@Ventures II
Silknet Software, Inc.
(A).................... 208,203 13,432 November 1999 CMG@Ventures II
Hollywood Entertainment
Corporation............ 155,021 10,001 January 2000 CMG@Ventures II
Ventro Corporation
(formerly Chemdex
Corporation)........... 206,839 13,345 February 2000 CMG@Ventures II
marchFIRST, Inc......... 905 53 August 2000 CMG@Ventures I
Lycos, Inc.............. 48,858 2,847 September 2000 CMG@Ventures I
Vicinity Corporation.... 3,104 200 September 2000 CMG@Ventures II
Vicinity Corporation.... 448,797 26,151 October 2000 CMG@Ventures I
</TABLE>
--------
(A) Silknet Software, Inc. was acquired by Kana Communications, Inc. in April
2000 in a merger in which each share of common stock of Silknet Software,
Inc. converted into 1.66 shares of common stock of Kana Communications,
Inc.
During fiscal 2000, cash of $146,109 and $9,426 was allocated to the
accounts of Messrs. Wetherell and Hajducky, respectively, in their capacity as
profit members of CMG@Ventures II.
18
<PAGE>
From August 1, 1999 through October 31, 2000, Messrs. Wetherell and Hajducky
received the following distributions of their previously allocated shares of
common stock from CMG@Ventures I and CMG@Ventures II:
<TABLE>
<CAPTION>
Number of Number of
Shares Shares Entity
Distributed to Distributed to Date of Distributing
Company Name Mr. Wetherell Mr. Hajducky Distribution Shares
------------ -------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Yahoo!, Inc. ........... 69,612 2,028 December 1999 CMG@Ventures I
Amazon.com, Inc. ....... 21,083 1,358 January 2000 CMG@Ventures II
Critical Path, Inc. .... 82,855 5,345 January 2000 CMG@Ventures II
Yahoo!, Inc. ........... 2,570 166 January 2000 CMG@Ventures II
Hollywood Entertainment
Corporation............ 100,764 6,501 February 2000 CMG@Ventures II
Lycos, Inc. ............ 547,375 31,891 February 2000 CMG@Ventures I
PTEK Holdings, Inc.
(formerly Premiere
Technologies, Inc.).... 4,186 244 February 2000 CMG@Ventures I
Yahoo!, Inc. ........... 46,407 4,057 April 2000 CMG@Ventures I
Yahoo!, Inc. ........... 5,138 331 April 2000 CMG@Ventures II
Kana Communications,
Inc. .................. 276,494 17,838 July 2000 CMG@Ventures II
Lycos, Inc. ............ 98,681 12,659 October 2000 CMG@Ventures I
PTEK Holdings, Inc. .... 1,395 146 October 2000 CMG@Ventures I
Yahoo!, Inc. ........... 11,601 2,028 October 2000 CMG@Ventures I
</TABLE>
In October 1999, Messrs. Wetherell and Hajducky received distributions of
their previously allocated options to purchase 72,436 and 3,722 shares,
respectively, of Yahoo!, Inc. common stock at a purchase price per share of
$0.654.
During fiscal 2000, Mr. Wetherell received distributions of $8,849 and
$94,971 of his previously allocated cash amounts from CMG@Ventures I and
CMG@Ventures II, respectively. During fiscal 2000, Mr. Hajducky received
distributions of $516 and $6,127 of his previously allocated cash amounts from
CMG@Ventures I and CMG@Ventures II, respectively. In October 2000, Messrs.
Wetherell and Hajducky received distributions of $2,950 and $309,
respectively, of their previously allocated cash amounts from CMG@Ventures I.
During fiscal 2000, Mr. Wetherell received a distribution of $26,270 of the
amount allocated to his account pursuant to the CMG@Ventures, Inc. Deferred
Compensation Plan. Such amount had been allocated to the account of Mr.
Wetherell during fiscal year 1997 in his capacity as a profit member of
CMG@Ventures I.
During fiscal year 1999, the Company formed the @Ventures III venture
capital funds to invest in emerging Internet service and technology companies.
Messrs. Wetherell and Hajducky each have indirect compensatory interests in
the funds. The @Ventures III funds consist of three funds that generally
invest together in each portfolio company according to stated percentages: (i)
@Ventures III, L.P. (with total committed capital of approximately $168.0
million); (ii) @Ventures Foreign Fund III, L.P. (with total committed capital
of approximately $50.5 million); and (iii) CMG@Ventures III, LLC (with total
committed capital of approximately $56.0 million, all of which is from
CMG@Ventures Capital Corp.). Each of the three funds is managed by @Ventures
Partners III, LLC, which is entitled to approximately 20% of the cumulative
net realized gains from the funds. Mr. Wetherell is a voting managing member
of @Ventures Partners III, LLC, and Mr. Hajducky is a nonvoting managing
member of @Ventures Partners III, LLC. Messrs. Wetherell and Hajducky are
entitled to approximately 25.3% and 6.3%, respectively, of all amounts
distributed by the funds to @Ventures Partners III, LLC. Messrs. Wetherell's
and Hajducky's interests in @Ventures Partners III, LLC are subject to vesting
over 20 calendar quarters commencing with the date of formation of @Ventures
Partners III, LLC. The other members of @Ventures Partners III, LLC consist of
(i) individuals who provide management services to the funds and (ii)
CMG@Ventures Capital Corp., a direct wholly owned subsidiary of the Company,
which has a 10% interest in all of the amounts distributed by @Ventures
Partners III, LLC.
19
<PAGE>
@Ventures Investors, LLC is required to co-invest with the other @Ventures
III funds. @Ventures Investors, LLC invests 2.0% of the aggregate amount to be
invested by the three funds and @Ventures Investors, LLC in each portfolio
company investment. Mr. Wetherell has an approximately 24.8% interest in
@Ventures Investors, LLC, and Mr. Hajducky has an approximately 6.2% interest.
Messrs. Wetherell's and Hajducky's future rights to participate in investments
of @Ventures Investors, LLC are contingent upon their continued involvement
with the @Ventures III funds, the Company, or any affiliates of either.
From August 1, 1999 through October 31, 2000, @Ventures Partners III, LLC
and @Ventures Investors, LLC allocated the following shares of common stock to
the accounts of Messrs. Wetherell and Hajducky:
<TABLE>
<CAPTION>
Number of Number of
Shares Shares
Allocated to Allocated to
Mr. Wetherell's Mr. Hajducky's Date of
Company Name Account Account Allocation Entity Allocating Shares
------------ --------------- -------------- -------------- ---------------------------
<S> <C> <C> <C> <C>
Ventro Corporation...... 187,535 46,903 June 2000 @Ventures Partners III, LLC
Ventro Corporation...... 25,540 6,386 September 2000 @Ventures Investors, LLC
Yahoo!, Inc............. 4,900 1,225 October 2000 @Ventures Partners III, LLC
Yahoo!, Inc............. 2,299 574 October 2000 @Ventures Investors, LLC
</TABLE>
From August 1, 1999 through October 31, 2000, Messrs. Wetherell and Hajducky
received the following distributions of their previously allocated shares of
common stock from @Ventures Partners III, LLC and @Ventures Investors, LLC:
<TABLE>
<CAPTION>
Number of Number of
Shares Shares
Distributed to Distributed to
Company Name Mr. Wetherell Mr. Hajducky Date of Distribution Entity Distributing Shares
------------ -------------- -------------- -------------------- ---------------------------
<S> <C> <C> <C> <C>
Ventro Corporation...... 75,014 18,761 June 2000 @Ventures Partners III, LLC
Ventro Corporation...... 25,540 6,386 September 2000 @Ventures Investors, LLC
Yahoo!, Inc............. 1,960 490 October 2000 @Ventures Partners III, LLC
Yahoo!, Inc............. 2,299 574 October 2000 @Ventures Investors, LLC
</TABLE>
@Ventures Management, LLC was formed in May 1998 to provide management
services to investment funds, including: CMG @Ventures I, LLC; CMG @Ventures
II, LLC; @Ventures III, L.P; @Ventures Foreign Fund III, L.P; and CMG
@Ventures III, LLC. @Ventures Management, LLC receives annual management fees
from each of @Ventures III, L.P., @Ventures Foreign Fund III, L.P. and CMG
@Ventures III, LLC equal to approximately 2% of the capital committed to such
fund. Mr. Wetherell is a voting member of @Ventures Management, LLC. Mr.
Wetherell has an approximately 28% interest in the net income of @Ventures
Management, LLC. Mr. Hajducky is a nonvoting member of @Ventures Management,
LLC. Mr. Hajducky has an approximately 7% interest in the net income of
@Ventures Management, LLC.
During fiscal 2000, Messrs. Wetherell and Hajducky received cash
distributions of $712,300 and $189,300, respectively, in their capacities as
members of @Ventures Management LLC.
On August 18, 1999, the Company consummated the transactions contemplated by
the Purchase and Contribution Agreement dated as of June 29, 1999 by and among
the Company, Compaq, Digital Equipment Corporation ("Digital"), AltaVista
Company, a wholly owned subsidiary of Digital ("AV"), and Zoom Newco Inc., a
wholly owned subsidiary of the Company ("Newco") (as amended, the "Purchase
and Contribution Agreement"). Pursuant to the Purchase and Contribution
Agreement: (i) Compaq and Digital transferred to the Company all of the
outstanding capital stock of Shopping.com, a California corporation, and 51.6%
of the outstanding capital stock of Zip2Corp., a California corporation
("Zip2") (collectively, the "Digital Assets"), in exchange for promissory
notes of the Company in the aggregate principal amount of $220 million, (ii)
the
20
<PAGE>
Company contributed the Digital Assets, 37,989,950 shares of Common Stock of
the Company and 18,090.45 shares of Series D Preferred Stock of the Company to
Newco, and Newco issued 105,943,651 shares of Newco Common Stock to the
Company, (iii) Compaq and Digital contributed certain assets and liabilities
(including the remaining outstanding shares of Zip2) constituting the AV
division of Digital to Newco and sold certain assets and liabilities to
Newco's indirect subsidiary Kasempa Limited, an Irish single member private
company, in exchange for 37,989,950 shares of Common Stock of the Company,
18,090.45 shares of Series D Preferred Stock of the Company and 24,056,349
shares of Newco Common Stock and (iv) Newco changed its corporate name to
AltaVista Company ("AltaVista").
As a result of the transactions contemplated by the Purchase and
Contribution Agreement, AltaVista (formerly Newco) acquired the assets and
liabilities constituting the AV division of Digital, the Company was issued
105,943,651 shares (81.5%) of AltaVista Common Stock and Digital was issued
the remaining 24,056,349 shares (18.5%) of outstanding AltaVista Common Stock.
On October 28, 1999, the 18,090.45 shares of Series D Preferred Stock held by
Compaq/Digital converted into 3,618,090 shares of Common Stock.
The promissory notes of the Company issued to Compaq and Digital are due on
August 18, 2002. Interest on the notes, at a rate of 10.5% per annum, is due
and payable semiannually on each February 18 and August 18 until the notes are
paid in full. Any principal and interest on the notes is payable, at the
option of the Company, in cash, marketable securities (as defined in the
notes) or any combination thereof. On February 18, 2000, the Company made
payments in the aggregate amount of $11.6 million to Compaq in satisfaction of
interest due and payable on the notes. On August 18, 2000, the Company issued
an aggregate of 312,547 shares of Common Stock to Compaq in satisfaction of
interest due and payable on the notes.
Pursuant to the terms of the Purchase and Contribution Agreement, so long as
Compaq owns at least 5% of the issued and outstanding stock of the Company,
Compaq shall have the right to designate a member of the Board of Directors of
the Company. Mr. Enright, Vice President of Corporate Development of Compaq,
currently serves on the Board as the designee of Compaq.
In connection with the AltaVista acquisition, the Company and Compaq entered
into a strategic business agreement pursuant to which each party agreed to
promote and purchase, in some cases, the products or services of the other.
These arrangements include (i) the payment of fees by the Company to Compaq
for certain Internet traffic directed by Compaq to designated web sites of the
Company or its subsidiaries, (ii) an agreement by the Company to spend a
specified portion of its information technology budget on products or services
offered by Compaq that meet the Company's requirements, (iii) an agreement
between the Company and Compaq to provide one another its services and/or
products on terms equal to its most favorable then-offered pricing terms, and
(iv) an agreement to create a joint marketing fund for marketing activities
which promote the parties' strategic relationship, products and services. In
fiscal 2000, the Company made payments totaling approximately $61 million
pursuant to the strategic business agreement for directed traffic and products
and services from Compaq.
AltaVista has issued a convertible demand note to Compaq as payment for all
debt incurred by AltaVista to Compaq. Under the note, debt accrues interest at
a rate of 7% per year, compounded monthly until the day Compaq elects to
convert the debt into shares of Series A Convertible Preferred Stock of
AltaVista. Each share of Series A Convertible Preferred Stock of AltaVista is
currently convertible into thirteen shares of common stock of AltaVista. As of
October 31, 2000, Compaq owned 98,694.9 shares of Series A Convertible
Preferred Stock, convertible into 1,283,033 shares of AltaVista common stock.
As of October 31, 2000, AltaVista owed Compaq $2.9 million under the note, and
Compaq has the right to provide AltaVista with additional convertible debt
financing in the future based on the amount of funding provided by the Company
and the percentage ownership of AltaVista by the Company and Compaq at the end
of each quarter. Any future funding provided by Compaq is convertible into
shares of Series A Convertible Preferred Stock of AltaVista.
In August 1999, AltaVista and Compaq entered into a Customer Services
Software Product Services Agreement. Compaq agreed to supply level 1 software
support services to purchasers of AltaVista's software, and Compaq agreed to
pay AltaVista a portion of the fees received for subscription services plus
$50,000 per quarter for AltaVista's provision of level 2 and 3 support.
Through October 31, 2000, AltaVista had received approximately $160,000 under
the agreement.
21
<PAGE>
In November 1999, AltaVista entered into a Master Lease and Financing
Agreement with Compaq Financial Services Corporation ("Compaq Financial"), a
subsidiary of Compaq. Pursuant to the agreement, Compaq Financial may lease
equipment and computer software programs to AltaVista and provide financing
for license fees related to computer software programs and other services. As
of October 31, 2000, AltaVista's outstanding balance under the agreement was
approximately $31.7 million. In May 2000, AltaVista entered into an addendum
to the Master Lease and Financing Agreement pursuant to which Compaq Financial
has agreed to lease equipment and computer software programs to AltaVista in
the United Kingdom. As of October 31, 2000, AltaVista's outstanding balance
under the addendum was approximately $3.9 million.
In December 1999, AltaVista and Compaq entered into a Business Partner
Agreement pursuant to which Compaq agreed to resell AltaVista's search
technology. Through October 31, 2000, AltaVista had received approximately
$614,000 under the agreement.
In July 1999, Engage sold 1,876,000 shares of its common stock to Compaq in
exchange for approximately $13 million.
In January 2000, in connection with the acquisition by MyWay of Zip2 from
AltaVista, Compaq acquired an aggregate of 4,402,719 shares of common stock of
MyWay (representing an approximate 6.6% interest in MyWay) in exchange for
Compaq's ownership interest in Zip2.
In April 2000, CMGion, a subsidiary of the Company, sold 457,142 shares of
its Series C Convertible Preferred Stock (representing an approximate 4.4%
interest in CMGion) to Compaq in exchange for approximately $20 million.
In April 2000, NaviPath sold 225,394 shares of its Series C Convertible
Preferred Stock (representing an approximate 0.6% interest in NaviPath) to
Compaq in exchange for approximately $3 million.
In June 2000, the Company acquired an approximate 33% ownership interest in
Freeup LLC ("Freeup"), a new joint venture company that expects to provide
online productivity services to support the IT function and IT professionals
and employees of corporations and enterprises. Pursuant to the terms of the
acquisition agreement, the Company, among other things, (i) issued and sold
42,230 shares of its Common Stock to Compaq for an aggregate purchase price of
$3,000,000, (ii) issued and sold 61,234 shares of its Common Stock to CPCG
Holdings, Inc., a wholly owned subsidiary of Compaq ("CPCG"), in exchange for
certain of the outstanding membership interests in Freeup then held by CPCG,
and (iii) paid $6,000,000 to Freeup for additional membership interests in
Freeup. Subsequently, in August 2000, the Company's ownership interest in
Freeup increased to approximately 41% when, pursuant to the terms of the
acquisition agreement, the Company (i) issued and sold 28,153 shares of its
Common Stock to Compaq for an aggregate purchase price of $2,000,000 and (ii)
paid $4,000,000 to Freeup for additional membership interests in Freeup.
In June 2000, Engage sold 1,665,278 shares of its common stock to Compaq in
exchange for approximately $25 million.
In July 2000, Engage entered into a Software Distribution Agreement with
Compaq, pursuant to which Compaq has agreed to market and distribute certain
software products and technology of Engage on a worldwide basis. The agreement
has a one-year term and is renewable on an annual basis. In the fourth quarter
of fiscal 2000, Engage recorded approximately $13.2 million of software
revenue under the agreement.
During fiscal 2000, AltaVista made payments totaling approximately $125,000
to Boduck Motor Sports, LLC, a limited liability company controlled by Mr.
Hajducky, for sponsorship and advertising fees related to a racecar owned by
such entity.
22
<PAGE>
Stock Performance Graph
The graph below compares the cumulative total stockholder return of the
Company's Common Stock from July 31, 1995 through July 31, 2000 with the
cumulative total return of the Nasdaq Stock Market Index (U.S.) and the Nasdaq
Computer and Data Processing Services Index during the same period. Management
cautions that the stock price performance shown in the graph below should not
be considered indicative of potential future stock performance.
[GRAPH]
<TABLE>
<CAPTION>
Cumulative Total Return
-----------------------------------------------------------
July 1995 July 1996 July 1997 July 1998 July 1999 July 2000
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CMGI, Inc............... $100 $120 $193 $1,606 $8,693 $7,143
Nasdaq Stock Market
Index (U.S.)........... 100 109 161 189 271 385
Nasdaq Computer and Data
Processing Services
Index.................. 100 112 175 231 345 467
</TABLE>
The graph shown above assumes that $100 was invested in the Company's Common
Stock and in each index on July 31, 1995. In addition, the total returns for
the Company's Common Stock and the indexes used assume the reinvestment of all
dividends. On July 31, 1997, the Company paid a dividend of one share of the
common stock of Lycos for every 64 shares of the Company's Common Stock held.
On July 31, 1997, the closing price for a share of the common stock of Lycos
was $4.71875. The graph assumes that the Lycos common stock received as a
dividend was sold on the date received and that the proceeds of such sale, as
well as the proceeds for the fractional shares of Lycos, were used to purchase
additional shares of the Company's Common Stock on July 31, 1997. Fractional
shares of Lycos common stock were paid out on July 31, 1997 based upon the
closing price of the Lycos common stock on June 5, 1997.
23
<PAGE>
Employment Agreements and Severance and Change of Control Arrangements
The Company is a party to an Employment Agreement, dated as of November 9,
1993, as amended, with David S. Wetherell, providing for the employment of Mr.
Wetherell as President and Chief Executive Officer of the Company. The
agreement provides for a term of employment through July 31, 2003 and a
minimum annual base salary that is currently $530,000. The agreement also
provides for annual incentive awards in amounts to be determined by the
Compensation Committee, participation in all benefits made available to senior
executives generally and salary continuation for the shorter of two years or
the remaining term of the agreement in the event (i) Mr. Wetherell terminates
his employment following a Change of Control of the Company (as defined), or
(ii) Mr. Wetherell's employment is terminated by the Company other than for
Cause (as defined); except that the two-year limit shall not apply in either
event if the Company has achieved certain specified performance goals. The
minimum annual base salary may be increased from time to time at the
discretion of the Compensation Committee; provided that it may not thereafter
be reduced without Mr. Wetherell's consent except as part of a general
reduction in executive salaries. The agreement contains non-competition
covenants in favor of the Company through July 31, 2005.
Pursuant to the employment agreement, on November 9, 1993, Mr. Wetherell was
also granted a non-qualified stock option under the Company's 1986 Stock
Option Plan to purchase 4,800,000 shares of Common Stock at an exercise price
of $0.165 per share. The option becomes exercisable in ten annual installments
of 480,000 shares each, beginning on November 1, 1994, and ending on November
1, 2003, but only if and to the extent that the Company meets certain
performance goals as determined by the Compensation Committee. In any event,
the option becomes exercisable in full (to the extent not previously
exercisable) on November 1, 2003. In the event Mr. Wetherell terminates his
employment following a Change of Control of the Company, a percentage of all
remaining installments of his stock option would become exercisable, equal to
the percentage of installments that had previously become exercisable. In the
event Mr. Wetherell's employment is terminated by the Company other than for
Cause, a percentage of up to three remaining installments of his stock option
would become exercisable, equal to the percentage of installments that had
previously become exercisable.
Any compensation payable under the employment agreement to Mr. Wetherell
contingent on a Change of Control of the Company which qualifies as a
"parachute payment" under Section 280G of the Internal Revenue Code of 1986,
as amended, shall be limited to the maximum amount that may be paid to him
without any part of such compensation being deemed an excess parachute payment
under the Code.
The Limited Liability Company Agreement of CMG@Ventures I, LLC provides
that, upon a change of control (as defined), each profit member, including
Messrs. Wetherell and Hajducky, may elect, within two months of the date of
the change of control, to have CMG@Ventures I, LLC repurchase all, and not
less than all, of the interest in CMG@Ventures I, LLC held by such profit
member at the fair market value of such interest as determined by an
independent appraisal pursuant to a procedure set forth in the Limited
Liability Company Agreement. A change of control is defined to mean, among
other things, a change of control of the Company (i) which has not been
approved by a majority of all of the members of the Board of Directors of the
Company, or (ii) which has been approved by a majority of all the members of
the Board of Directors of the Company but which has not been approved by a
majority in interest of the profit members of CMG@Ventures I, LLC and which is
likely by its terms to have a material adverse effect upon the business and
prospects of CMG@Ventures I, LLC and which change of control in either event
is of a nature that would be required to be reported in response to Items 6(e)
or 14(i), (iv) or (v) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), provided
that, in the case of a change of control reportable under Item 6(e), such
change of control involves the acquisition by any "person" (as such term in
used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act, but expressly
excluding Mr. Wetherell) of beneficial ownership, directly or indirectly, of
securities or interests in the Company which represent more than 30% of the
combined voting power of the Company's outstanding securities.
24
<PAGE>
The Operating Agreement of CMG@Ventures II, LLC provides that, upon a change
of control (as defined), each managing member, including Messrs. Wetherell and
Hajducky, may elect, within two months of the date of the change of control,
to have CMG@Ventures II, LLC repurchase all, and not less than all, of the
interest in CMG@Ventures II, LLC held by such managing member at the fair
market value of such interest as determined by an independent appraisal
pursuant to a procedure set forth in the Operating Agreement. A change of
control is defined to mean, among other things, a change of control of the
Company (i) which has not been approved by a majority of all of the members of
the Board of Directors of the Company, or (ii) which has been approved by a
majority of all the members of the Board of Directors of the Company but which
has not been approved by a majority in interest of the members of CMG@Ventures
II, LLC and which is likely by its terms to have a material adverse effect
upon the business and prospects of CMG@Ventures II, LLC and which change of
control in either event is of a nature that would be required to be reported
in response to Items 6(e) or 14(i), (iv) or (v) of Schedule 14A of Regulation
14A promulgated under the Exchange Act, provided that, in the case of a change
of control reportable under Item 6(e), such change of control involves the
acquisition by any "person" (as such term in used in Sections 13(d)(3) and
14(d)(2) of the Exchange Act, but expressly excluding Mr. Wetherell) of
beneficial ownership, directly or indirectly, of securities or interests in
the Company which represent more than 30% of the combined voting power of the
Company's outstanding securities.
Mr. Rosen has an agreement that provides in the event that there is a change
of control of the Company or NaviSite during his employment, after which he is
terminated without cause or after which there is a substantive change in his
job title, responsibilities or location of employment or a reduction in his
compensation, then all of his outstanding options to purchase shares of common
stock of the Company and NaviSite shall immediately become fully vested.
Mr. Schaut and Engage have entered into an Executive Retention Agreement,
dated as of October 10, 2000, that provides in the event that his employment
is terminated by Engage other than for Cause (as defined) or by Mr. Schaut for
Good Reason (as defined), then Engage shall pay Mr. Schaut a severance payment
equal to his then-current annual base salary, payable in 24 semi-monthly
installments. In addition, the vesting of all then-outstanding options to
purchase shares of Engage common stock shall be accelerated by one year. The
agreement has an initial term that expires on July 31, 2001 and shall be
renewable by Engage for one additional year thereafter. Mr. Schaut resigned as
President and Chief Executive Officer of Engage in November 2000.
Mr. Schrock and AltaVista have entered into a Transition Agreement and
Release, dated as of October 17, 2000, in connection with Mr. Schrock's
resignation as President and Chief Executive Officer of AltaVista. Pursuant to
the agreement, Mr. Schrock agreed to become an advisor to the AltaVista
through April 16, 2001, and will continue to receive his current base salary
and medical and dental insurance benefits through such date. In addition,
AltaVista agreed to make mortgage subsidy payments to Mr. Schrock of
approximately $68,000 and waived Mr. Schrock's obligation to repay his
relocation expenses in connection with his move from Houston to the Palo Alto
area.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who beneficially own more than ten percent of
a registered class of the Company's equity securities, to file reports of
beneficial ownership and changes in beneficial ownership with the Securities
and Exchange Commission.
Except as described below, and based solely on its review of the copies of
such forms received or written representations from certain reporting persons,
the Company believes that, during fiscal 2000, its officers, directors and
ten-percent stockholders complied with all applicable Section 16(a) filing
requirements applicable to such individuals.
Mr. Torre reported the exercise of options for 12,000 shares of Common Stock
on January 6, 2000 and the exercise of options for 4,000 shares of Common
Stock on January 14, 2000 and the subsequent sales of such shares on such
dates on a Form 4 filed on March 9, 2000.
25
<PAGE>
Mr. Schaut reported the exercise of options for 10,000 shares of Common
Stock and the subsequent sale of such shares on April 14, 2000 on a Form 4
filed on June 9, 2000.
Annual Report on Form 10-K
The Company's Annual Report on Form 10-K for the year ended July 31, 2000 is
available without charge upon request from the Company. Requests for copies of
the Annual Report on Form 10-K should be sent to the Company's Director of
Investor Relations at CMGI, Inc., 100 Brickstone Square, Andover,
Massachusetts 01810.
Other Matters
The Board does not know of any other matter which may come before the
Meeting. If any other matters are properly presented to the Meeting, it is the
intention of the persons named as proxies in the accompanying proxy card to
vote, or otherwise to act, in accordance with their best judgment on such
matters.
The Board hopes that stockholders will attend the Meeting. Whether or not
you plan to attend, you are urged to sign, date and complete the enclosed
proxy card and return it in the accompanying envelope. A prompt response will
greatly facilitate arrangements for the Meeting, and your cooperation will be
appreciated. Stockholders who attend the Meeting may vote their shares even
though they have sent in their proxies.
Proposals of Stockholders for 2001 Annual Meeting
Any proposal that a stockholder of the Company wishes to be considered for
inclusion in the Company's proxy statement and proxy card for the Company's
2001 Annual Meeting of Stockholders (the "2001 Annual Meeting") must be
submitted to the Secretary of the Company at its offices, 100 Brickstone
Square, Andover, Massachusetts 01810, no later than July 22, 2001. In
addition, such proposals must comply with the requirements of Rule 14a-8 under
the Exchange Act.
If a stockholder of the Company wishes to present a proposal before the 2001
Annual Meeting, but does not wish to have the proposal considered for
inclusion in the Company's proxy statement and proxy card, such stockholder
must also give written notice to the Secretary of the Company at the address
noted above. The Secretary must receive such notice no later than July 22,
2001. If a stockholder fails to provide timely notice of a proposal to be
presented at the 2001 Annual Meeting, the proxies designated by the Board of
Directors of the Company will have discretionary authority to vote on any such
proposal.
By Order of the Board of Directors,
/s/ David S. Wetherell
David S. Wetherell, Secretary
Andover, Massachusetts
November 17, 2000
26
<PAGE>
APPENDIX I
CMGI, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 20, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY
The undersigned, having received notice of the Annual Meeting of
Stockholders and the Board of Directors' proxy statement therefor, and revoking
all prior proxies, hereby appoint(s) David S. Wetherell, Andrew J. Hajducky III
and William Williams II, and each of them, attorneys or attorney of the
undersigned (with full power of substitution in them and each of them) for and
in the name(s) of the undersigned to attend the Annual Meeting of Stockholders
of CMGI, INC. (the "Company") to be held at The Westin Copley Place, 10
Huntington Avenue, Boston, Massachusetts 02116, on Wednesday, December 20, 2000,
at 12:00 p.m. local time, and any adjournments thereof, and there to vote and
act upon the following matters proposed by the Company in respect of all shares
of stock of the Company which the undersigned may be entitled to vote or act
upon, with all the powers the undersigned would possess if personally present.
None of the following proposals is conditioned upon the approval of any other
proposal.
In their discretion, the proxy holders are authorized to vote upon such other
matters as may properly come before the meeting or any adjournments thereof. The
shares represented by this proxy will be voted as directed by the undersigned.
IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY ELECTION TO OFFICE OR PROPOSAL,
THIS PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS. Attendance of
the undersigned at the meeting or at any adjournment thereof will not be deemed
to revoke this proxy unless the undersigned shall revoke this proxy in writing.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO COMPLETE,
DATE AND SIGN THIS PROXY AND RETURN IT IN THE ACCOMPANYING ENVELOPE.
A VOTE "FOR" THE DIRECTOR NOMINEE AND A VOTE "FOR" EACH OF PROPOSALS 2 AND 3 ARE
RECOMMENDED BY THE BOARD OF DIRECTORS.
--------------------------------------------------------------------------------
Note: Please sign exactly as name appears hereon. When shares are held by joint
owners, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by authorized officer, giving full title. If a
partnership, please sign in partnership name by authorized person, giving full
title.
--------------------------------------------------------------------------------
<PAGE>
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
------------------------------ ------------------------------------
------------------------------ ------------------------------------
------------------------------ ------------------------------------
DETACH CARD DETACH CARD
Admission Ticket
This is your admission ticket for you and a guest to attend the Annual Meeting
of Stockholders of CMGI, Inc. to be held on Wednesday, December 20, 2000, at
12:00 p.m. local time at the The Westin Copley Place, 10 Huntington Avenue,
Boston, Massachusetts 02116. Please detach and present this ticket and picture
identification for admission to the meeting.
Stockholders and guests must have a ticket for admission to the meeting. This
ticket is non-transferable.
PLEASE DETACH AND PRESENT THIS TICKET AND PICTURE IDENTIFICATION FOR
ADMISSION TO THE ANNUAL MEETING
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
------------------------------------------------------------------------
CMGI, INC.
------------------------------------------------------------------------
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO OTHER INDICATION IS MADE, THE PROXIES SHALL
VOTE "FOR" THE DIRECTOR NOMINEE AND "FOR" EACH OF PROPOSALS 2 AND 3.
CONTROL NUMBER:
RECORD DATE SHARES:
Please be sure to sign and date this Proxy. Date _______________________
--------------------------- --------------------------------
Stockholder sign here Co-owner sign here
1. To elect the following nominee for Class I Director to serve for the
ensuing three years:
For Withhold
-2-
<PAGE>
Harold F. Enright, Jr. [ ] [ ]
2. To approve the Company's 2000 Stock Incentive Plan.
For [ ] Against [ ] Abstain [ ]
3. To ratify the appointment of KPMG LLP as the Company's independent auditors
for the current fiscal year.
For [ ] Against [ ] Abstain [ ]
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY ADJOURNMENT THEREOF.
Mark box at right if address change or comment has
been noted on the reverse side of this card. [ ]
Mark box at right if you plan to attend the
Annual Meeting. [ ]
DETACH CARD DETACH CARD
--------------------------------------------------------------------------------
VOTE BY TELEPHONE
--------------------------------------------------------------------------------
Follow these four easy steps:
1. Read the accompanying Proxy Statement and this Proxy Card.
2. Call the toll-free number 1-877-PRX-VOTE (1-877-779-8683).
3. Enter your Control Number located on your Proxy Card.
4. Follow the recorded instructions.
YOUR VOTE IS IMPORTANT!
Call 1-877-PRX-VOTE anytime!
--------------------------------------------------------------------------------
VOTE BY INTERNET
--------------------------------------------------------------------------------
Follow these four easy steps:
1. Read the accompanying Proxy Statement and this Proxy Card.
2. Go to the Website http://www.eproxyvote.com/cmgi.
3. Enter your Control Number located on your Proxy Card.
-3-
<PAGE>
4. Follow the instructions provided.
YOUR VOTE IS IMPORTANT!
Go to http://www.eproxyvote.com/cmgi anytime!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET
-4-
<PAGE>
APPENDIX II
CMGI, INC.
2000 STOCK INCENTIVE PLAN
-------------------------
1. Purpose
-------
The purpose of this 2000 Stock Incentive Plan (the "Plan") of CMGI, Inc., a
Delaware corporation (the "Company"), is to advance the interests of the
Company's stockholders by enhancing the Company's ability to attract, retain and
motivate persons who make (or are expected to make) important contributions to
the Company by providing such persons with equity ownership opportunities and
performance-based incentives and thereby better aligning the interests of such
persons with those of the Company's stockholders. Except where the context
otherwise requires, the term "Company" shall include any of the Company's
present or future parent or subsidiary corporations as defined in Sections
424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code"), and any other business venture
(including, without limitation, joint venture or limited liability company) in
which the Company has a significant interest, as determined by the Board of
Directors of the Company (the "Board").
2. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options or restricted stock awards (each, an "Award")
under the Plan. Each person who has been granted an Award under the Plan shall
be deemed a "Participant."
3. Administration and Delegation
-----------------------------
(a) Administration by Board of Directors. The Plan will be administered by
------------------------------------
the Board. The Board shall have authority to grant Awards and to adopt, amend
and repeal such administrative rules, guidelines and practices relating to the
Plan as it shall deem advisable. The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it shall deem expedient to carry the Plan into effect and it
shall be the sole and final judge of such expediency. All decisions by the Board
shall be made in the Board's sole discretion and shall be final and binding on
all persons having or claiming any interest in the Plan or in any Award. No
director or person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination relating to or under the Plan made in
good faith.
(b) Appointment of Committees. To the extent permitted by applicable law,
-------------------------
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board to the
extent that the Board's powers or authority under the Plan have been delegated
to such Committee.
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<PAGE>
4. Stock Available for Awards
--------------------------
(a) Number of Shares. Subject to adjustment under Section 7, Awards may be
----------------
made under the Plan for up to 15,500,000 shares of common stock, $0.01 par value
per share, of the Company (the "Common Stock"). If (i) any Award expires or is
terminated, surrendered or canceled without having been fully exercised, (ii)
any Award is forfeited in whole or in part, (iii) any Award results in any
shares of Common Stock not being issued or (iv) the shares of Common Stock
issued pursuant to any Award are repurchased by the Company (including without
limitation shares of Common Stock issued upon exercise of an Option (as
hereinafter defined) that are subsequently repurchased by the Company pursuant
to a contractual repurchase right or otherwise), the unused shares of Common
Stock covered by such Award shall again be available for the grant of Awards
under the Plan, subject, however, in the case of Incentive Stock Options (as
hereinafter defined), to any limitations under the Code. Shares issued under the
Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 7, the
---------------------
maximum number of shares of Common Stock with respect to which Awards may be
granted to any Participant under the Plan shall be 5,000,000 per calendar year.
The per-Participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code ("Section 162(m)").
5. Stock Options
-------------
(a) General. The Board may grant options to purchase Common Stock (each, an
-------
"Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option."
(b) Incentive Stock Options. An Option that the Board intends to be an
-----------------------
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
--------------
time each Option is granted and specify it in the applicable instrument
evidencing the grant of the Option.
(d) Duration of Options. Each Option shall be exercisable at such times and
-------------------
subject to such terms and conditions as the Board may specify in the applicable
instrument evidencing the grant of the Option.
(e) Exercise of Option. Options may be exercised by delivery to the Company
------------------
of a written notice of exercise signed by the proper person or by any other form
of notice (including
-2-
<PAGE>
electronic notice) approved by the Board together with payment in full as
specified in Section 5(f) for the number of shares for which the Option is
exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
---------------------
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise provide
in an instrument evidencing the grant of an Option, by (i) delivery of an
irrevocable and unconditional undertaking by a creditworthy broker to deliver
promptly to the Company sufficient funds to pay the exercise price and any
required tax withholding or (ii) delivery by the Participant to the Company of a
copy of irrevocable and unconditional instructions to a creditworthy broker to
deliver promptly to the Company cash or a check sufficient to pay the exercise
price and any required tax withholding;
(3) except as the Board may, in its sole discretion, otherwise provide
in an instrument evidencing the grant of an Option, when the Common Stock is
registered under the Securities Exchange Act of 1934 (the "Exchange Act"), by
delivery of shares of Common Stock owned by the Participant valued at their fair
market value as determined by (or in a manner approved by) the Board in good
faith ("Fair Market Value"), provided (i) such method of payment is then
permitted under applicable law and (ii) such Common Stock, if acquired directly
from the Company, was owned by the Participant at least six months prior to such
delivery;
(4) to the extent permitted by the Board, in its sole discretion, by
(i) delivery of a full recourse promissory note of the Participant to the
Company on terms determined by the Board, or (ii) payment of such other lawful
consideration as the Board may determine; or
(5) by any combination of the above-permitted forms of payment.
(g) Substitute Options. In connection with a merger or consolidation of an
------------------
entity with and into the Company or the acquisition by the Company of property
or stock of an entity, the Board may grant Options in substitution for any
options or other stock or stock-based awards granted by such entity or an
affiliate thereof. Substitute Options may be granted on such terms as the Board
deems appropriate in the circumstances, notwithstanding any limitations on
Options contained in the other sections of this Section 5 or in Section 2
hereof.
6. Restricted Stock
----------------
(a) Grants. The Board may grant Awards entitling Participants to acquire
------
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the Participant in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
-3-
<PAGE>
(b) Terms and Conditions. The Board shall determine the terms and
--------------------
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any.
(c) Stock Certificates. Any stock certificates issued in respect of a
------------------
Restricted Stock Award shall be registered in the name of the Participant and,
unless otherwise determined by the Board, deposited by the Participant, together
with a stock power endorsed in blank, with the Company (or its designee). At the
expiration of the applicable restriction periods, the Company (or such designee)
shall deliver the certificates no longer subject to such restrictions to the
Participant or if the Participant has died, to the beneficiary designated, in a
manner determined by the Board, by a Participant to receive amounts due or
exercise rights of the Participant in the event of the Participant's death (the
"Designated Beneficiary"). In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's estate.
7. Adjustments for Changes in Common Stock and Certain Other Events
----------------------------------------------------------------
(a) Changes in Capitalization. In the event of any stock split, reverse
-------------------------
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, and (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award shall be appropriately adjusted by the Company (or
substituted Awards may be made, if applicable) to the extent the Board shall
determine, in good faith, that such an adjustment (or substitution) is necessary
and appropriate. If this Section 7(a) applies and Section 7(c) also applies to
any event, Section 7(c) shall be applicable to such event, and this Section 7(a)
shall not be applicable.
(b) Liquidation or Dissolution. In the event of a proposed liquidation or
--------------------------
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least ten business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award granted under the Plan at the time of
the grant of such Award.
(c) Reorganization Events
---------------------
(1) Definition. A "Reorganization Event" shall mean: (a) any merger or
----------
consolidation of the Company with or into another entity as a result of which
the Common Stock is converted into or exchanged for the right to receive cash,
securities or other property or (b) any exchange of shares of the Company for
cash, securities or other property pursuant to a share exchange transaction;
provided, however, that, unless the Board determines otherwise, a
"Reorganization Event" shall not include a sale, transfer or other disposition
of all or substantially all of the capital stock, assets, properties or business
of the Company (by way of merger, consolidation, reorganization,
recapitalization, sale of assets, stock purchase,
-4-
<PAGE>
contribution or other similar transaction) that involves the Company, on the one
hand, and any Company Subsidiary (as defined below), on the other hand. "Company
Subsidiary" shall mean any corporation or other entity that is controlled,
directly or indirectly, by the Company.
(2) Consequences of a Reorganization Event on Options. Upon the
-------------------------------------------------
occurrence of a Reorganization Event, or the execution by the Company of any
agreement with respect to a Reorganization Event, the Board shall provide that
all outstanding Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof). For purposes hereof, an Option shall be considered to be assumed if,
following consummation of the Reorganization Event, the Option confers the right
to purchase, for each share of Common Stock subject to the Option immediately
prior to the consummation of the Reorganization Event, the consideration
(whether cash, securities or other property) received as a result of the
Reorganization Event by holders of Common Stock for each share of Common Stock
held immediately prior to the consummation of the Reorganization Event (and if
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding shares of Common Stock);
provided, however, that if the consideration received as a result of the
Reorganization Event is not solely common stock of the acquiring or succeeding
corporation (or an affiliate thereof), the Company may, with the consent of the
acquiring or succeeding corporation, provide for the consideration to be
received upon the exercise of Options to consist solely of common stock of the
acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair
market value to the per share consideration received by holders of outstanding
shares of Common Stock as a result of the Reorganization Event.
Notwithstanding the foregoing, if the acquiring or succeeding corporation
(or an affiliate thereof) does not agree to assume, or substitute for, such
Options, then the Board shall, upon written notice to the Participants, provide
that all Options will become exercisable in full as of a specified time prior to
the Reorganization Event and will terminate immediately prior to the
consummation of such Reorganization Event, except to the extent exercised by the
Participants before the consummation of such Reorganization Event; provided,
however, that in the event of a Reorganization Event under the terms of which
holders of Common Stock will receive upon consummation thereof a cash payment
for each share of Common Stock surrendered pursuant to such Reorganization Event
(the "Acquisition Price"), then the Board may instead provide that all
outstanding Options shall terminate upon consummation of such Reorganization
Event and that each Participant shall receive, in exchange therefor, a cash
payment equal to the amount (if any) by which (A) the Acquisition Price
multiplied by the number of shares of Common Stock subject to such outstanding
Options (whether or not then exercisable), exceeds (B) the aggregate exercise
price of such Options. To the extent all or any portion of an Option becomes
exercisable solely as a result of the first sentence of this paragraph, upon
exercise of such Option the Participant shall receive shares subject to a right
of repurchase by the Company or its successor at the Option exercise price. Such
repurchase right (1) shall lapse at the same rate as the Option would have
become exercisable under its terms and (2) shall not apply to any shares subject
to the Option that were exercisable under its terms without regard to the first
sentence of this paragraph.
If any Option provides that it may be exercised for shares of Common Stock
which remain subject to a repurchase right in favor of the Company, upon the
occurrence of a
-5-
<PAGE>
Reorganization Event, any shares of restricted stock received upon exercise of
such Option prior to such Reorganization Event shall be treated in accordance
with Section 7(c)(3) as if they were a Restricted Stock Award.
(3) Consequences of a Reorganization Event on Restricted Stock Awards.
-----------------------------------------------------------------
Upon the occurrence of a Reorganization Event, the repurchase and other rights
of the Company under each outstanding Restricted Stock Award shall inure to the
benefit of the Company's successor and shall apply to the cash, securities or
other property which the Common Stock was converted into or exchanged for
pursuant to such Reorganization Event in the same manner and to the same extent
as they applied to the Common Stock subject to such Restricted Stock Award.
8. General Provisions Applicable to Awards
---------------------------------------
(a) Transferability of Awards. Except as the Board may otherwise determine
-------------------------
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award shall be evidenced in such form (written,
-------------
electronic or otherwise) as the Board shall determine. Each Award may contain
terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each Award
----------------
may be made alone or in addition or in relation to any other Award. The terms of
each Award need not be identical, and the Board need not treat Participants
uniformly.
(d) Termination of Status. The Board shall determine the effect on an Award
---------------------
of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Withholding. Each Participant shall pay to the Company, or make
-----------
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may satisfy such tax obligations in whole or in part by delivery of
shares of Common Stock, including shares retained from the Award creating the
tax obligation, valued at their Fair Market Value; provided, however, that the
total tax withholding where stock is being used to satisfy such tax obligations
cannot exceed the Company's minimum statutory withholding obligations (based on
minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes, that are applicable to such supplemental taxable
income). The Company may, to the extent permitted by law, deduct any such tax
obligations from any payment of any kind otherwise due to a Participant.
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<PAGE>
(f) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) Acceleration. The Board may at any time provide that any Award shall
------------
become immediately exercisable in full or in part, free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
9. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any claim
--------------------------------------
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(c) Effective Date and Term of Plan. The Plan shall become effective on the
-------------------------------
date on which it is adopted by the Board, but no Award granted to a Participant
that is intended to comply with Section 162(m) shall become exercisable, vested
or realizable, as applicable to such Award, unless and until the Plan has been
approved by the Company's stockholders to the extent
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<PAGE>
stockholder approval is required by Section 162(m) in the manner required under
Section 162(m) (including the vote required under Section 162(m)). No Awards
shall be granted under the Plan after the completion of ten years from the
earlier of (i) the date on which the Plan was adopted by the Board or (ii) the
date the Plan was approved by the Company's stockholders, but Awards previously
granted may extend beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
-----------------
or any portion thereof at any time, provided that to the extent required by
Section 162(m), no Award granted to a Participant that is intended to comply
with Section 162(m) after the date of such amendment shall become exercisable,
realizable or vested, as applicable to such Award, unless and until such
amendment shall have been approved by the Company's stockholders as required by
Section 162(m) (including the vote required under Section 162(m)).
(e) Governing Law. The provisions of the Plan and all Awards made hereunder
-------------
shall be governed by and interpreted in accordance with the laws of the State of
Delaware, without regard to any applicable conflicts of law.
* * * * *
<PAGE>
APPENDIX III
CMGI, INC.
CHARTER OF THE
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
PURPOSE:
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The Audit Committee shall assist the Board of Directors in fulfilling its
responsibilities to stockholders concerning the Company's financial reporting
and internal controls, and shall facilitate open communication among the Audit
Committee, Board of Directors, outside auditors and management. The Audit
Committee shall discuss with management and the outside auditor the financial
information developed by the Company, the Company's systems of internal controls
and the Company's audit process.
The Audit Committee shall discharge its responsibilities, and shall assess
the information provided by the Company's management and the outside auditor, in
accordance with its business judgment. The responsibilities set forth herein do
not reflect or create any duty or obligation of the Audit Committee to plan,
conduct, oversee or determine the appropriate scope of any audit, or to
determine that the Company's financial statements are complete, accurate, fairly
presented, or in accordance with Generally Accepted Accounting Principles or
applicable law. In exercising its business judgment, the Audit Committee may
rely on the information and advice provided by the Company's management and/or
its outside auditor.
COMMITTEE MEMBERSHIP:
--------------------
The Audit Committee shall consist of at least three members, comprised
solely of "independent directors," each of whom shall be able to read and
understand fundamental financial statements, including a company's balance
sheet, income statement and cash flow statement or will be able to do so within
a reasonable time after his or her appointment to the Audit Committee.
Additionally, at least one member of the Audit Committee shall have past
employment experience in finance or accounting, requisite professional
certification in accounting, or any comparable experience or background which
results in the individual's financial sophistication, including being or having
been a chief executive officer, chief financial officer or other senior officer
with financial oversight responsibilities. A Chairperson and the Committee
members shall be elected annually by the affirmative vote of at least a majority
of the Board of Directors.
"Independent director" shall mean a person other than an officer or
employee of the Company or its subsidiaries or any other individual having a
relationship which, in the opinion of
<PAGE>
the Board of Directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. The following
persons shall NOT be considered independent directors:
(a) a director who is employed by the Company or any of its affiliates for
the current year or during any of the past three years;
(b) a director who received any compensation from the Company or any of
its affiliates in excess of $60,000 during the previous fiscal year,
other than compensation for Board service, benefits under a
tax-qualified plan, or non-discretionary compensation;
(c) a director who is a member of the immediate family of an individual
who is, or has been in any of the past three years, employed by the
Company or any of its affiliates as an executive officer. Immediate
family includes a person's spouse, parents, children, siblings,
mother-in-law, father-in-law, brother-in-law, sister-in-law,
son-in-law, daughter-in-law, and anyone who resides in such person's
home;
(d) a director who is a partner in, or a controlling shareholder or an
executive officer of, any for-profit business organization to which
the Company made, or from which the Company received, payments (other
than those arising solely from investments in the Company's
securities) that exceed 5% of the Company's or business organization's
consolidated gross revenues for that year, or $200,000, whichever is
more, in any of the past three years; and
(e) a director who is employed as an executive of another entity where any
of the Company's executives serve on that entity's compensation
committee.
Under exceptional and limited circumstances, one director who is not an
independent director, and who is not a Company employee or an immediate family
member of a Company employee, may serve on the Audit Committee if the Board of
Directors determines that such director's membership on the Audit Committee is
required by the best interests of the Company and its stockholders, and
discloses in the next annual proxy statement after such determination the nature
of the relationship and the reasons for the determination.
MEETINGS, QUORUM AND VOTING:
---------------------------
Meetings of the Audit Committee may be held by telephone conference call or
similar equipment by means of which all persons participating in the meeting can
hear each other. The Chairperson of the Audit Committee shall prepare and
circulate to the other members an agenda in advance of each meeting. At the
meetings of the Audit Committee, the presence of a majority of all members shall
be necessary to constitute a quorum for the transaction of business, and the
affirmative vote of a majority of all members shall be necessary to take any
action. The Audit
<PAGE>
Committee shall keep regular minutes of its proceedings and shall report the
same to the next meeting of the Board of Directors.
RESOURCES AND AUTHORITY:
-----------------------
The Audit Committee shall be provided with the necessary resources,
including staff and administrative support, by the Company to effectively
discharge its duties and responsibilities hereunder and as assigned by the Board
of Directors. The Audit Committee shall have direct access to the outside
auditors and management of the Company. The Audit Committee may incur
expenditures, including for the retention of independent counsel, accountants,
consultants or others, to assist it in fulfilling its duties and
responsibilities.
DUTIES AND RESPONSIBILITIES:
---------------------------
1. The Audit Committee shall meet at least four times each year and shall call
special meetings as circumstances require. The Audit Committee may ask
members of the Company's management or others to attend the meetings (or
portions thereof) and to provide pertinent information as necessary. At
least annually, the Audit Committee shall meet privately with (i) the
Company's outside auditor, (ii) the Company's chief financial officer,
(iii) the Company's controller, and (iv) the Company's most senior other
person, if any, responsible for the internal audit activities. The Audit
Committee may also consult with the Company's General Counsel and outside
counsel on an as-needed basis.
2. The Audit Committee annually shall review, evaluate and make a
recommendation to the Board concerning the selection of an outside auditor
and independence of the auditor. The Board shall have the authority to
nominate the outside auditor to be proposed for stockholder approval, and,
where appropriate, to replace the auditor. The outside auditor shall be
accountable to the Board and the Audit Committee as representatives of the
Company's stockholders.
3. The Audit Committee shall be responsible for ensuring its annual receipt
from the outside auditor of a formal written statement delineating all
relationships between the auditor and the Company, consistent with
Independence Standards Board Standard No. 1.
4. The Audit Committee annually shall discuss with the outside auditor its
independence, and shall actively engage in a dialogue with the auditor with
respect to any disclosed relationships or services that may impact the
objectivity and independence of the auditor. The Audit Committee shall also
be responsible for taking, or recommending that the full Board take,
appropriate action to oversee the independence of the outside auditor.
5. The Audit Committee shall monitor, in consultation with management and the
outside auditor, the financial reporting process and management's system of
internal controls designed to provide reasonable assurance as to the
integrity, objectivity, consistency and fair presentation of the Company's
financial statements. The Audit Committee shall
<PAGE>
consider the outside auditor's judgments about the quality and
appropriateness of the accounting principles applied by the Company in its
financial reporting. The Company's internal audit function shall be
responsible to senior management, but have a direct reporting
responsibility to the Board of Directors through the Audit Committee. The
Audit Committee shall review significant reports prepared by the internal
audit function together with management's response and follow-up to such
reports.
6. Prior to the release of annual earnings, the Audit Committee shall review
the scope and results of the annual audit with the outside auditor and
discuss with the Company's management the Company's audited financial
statements.
7. Before the beginning of each fiscal year, the Audit Committee shall review
management's plans for engaging the outside auditor to perform management
services during the coming year, considering the types of services that may
be rendered and the proposed fees.
8. The Audit Committee shall encourage the outside auditor to report to the
Committee or its Chairperson any significant risks it believes should be
brought to the attention of the Audit Committee, regardless of whether such
risks are reportable to the public under applicable legal and financial
accounting standards. The Audit Committee shall act in accordance with
Section 10A of the Securities Exchange Act of 1934, as amended.
9. The Audit Committee shall review with management and the outside auditor
the auditor's assessment of the Company's internal controls.
10. The Audit Committee shall discuss with management and the outside auditor
the adequacy of controls surrounding electronic data processing and
computer security.
11. The Audit Committee shall prepare the report required by Item 306 of
Regulation S-K.
12. The Audit Committee shall discuss with the outside auditor the matters
about which Statement on Auditing Standards No. 61 ("SAS 61") requires
discussion, including (i) methods used to account for significant unusual
transactions, (ii) the effect of significant accounting policies in
controversial or emerging areas for which there is a lack of authoritative
guidance or consensus, (iii) the process used by management in formulating
particularly sensitive accounting estimates, and (iv) the basis for the
auditor's conclusions regarding the reasonableness of these estimates and
disagreements with management over the application of accounting
principles.
13. The Audit Committee shall annually inform the outside auditor, the
Company's chief financial officer, the Company's controller, and the
Company's most senior other person, if any, responsible for the internal
audit activities, that they should promptly contact the Audit Committee or
its Chairperson about any significant issue or disagreement concerning the
Company's accounting practices or financial statements that is not resolved
to their satisfaction.
<PAGE>
14. The Audit Committee shall direct the outside auditor to use its best
efforts to perform all reviews of interim financial information prior to
disclosure by the Company of such information, and to discuss promptly with
the Chairperson of the Audit Committee and the Company's chief financial
officer any matters identified in connection with such review. The Audit
Committee shall review with management and the outside auditor the interim
financial information prior to disclosure and discuss any significant
changes to the Company's accounting principles and any items required to be
communicated by the outside auditors in accordance with SAS 61.
15. The Audit Committee shall direct management to advise the Audit Committee
in the event that the Company proposes to disclose interim financial
information prior to completion of review by the outside auditor.
16. Based upon its discharge of its responsibilities hereunder and any other
information, discussion or communication that the Audit Committee deems
relevant, the Audit Committee shall consider whether it will recommend to
the Board of Directors that the Company's audited financial statements be
included in the Company's annual report on Form 10-K.
17. The Audit Committee annually shall review and assess the adequacy of the
Company's financial and accounting personnel succession plan.
18. The Audit Committee annually shall review the Company's policies and
procedures and audit results associated with the Company's directors' and
officers' expense accounts and perquisites. The Audit Committee shall
annually review a summary of any related party transactions and potential
conflicts of interest of the directors and officers of the Company.
19. The Audit Committee shall review and reassess the adequacy of this charter
at least annually. The Audit Committee shall submit this charter to the
Board of Directors for approval and file it with the Securities and
Exchange Commission in accordance with Regulation 14A.
