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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Fiscal Year Ended July 31, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From________________ to ________________
Commission File 000-23262
CMGI, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-2921333
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
100 Brickstone Square 01810
Andover, Massachusetts
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (978) 684-3600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
Common Stock, $0.01 par value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The approximate aggregate market value of Common Stock held by non-affiliates of
the Registrant was $4,215,382,294 as of October 23, 2000.
On October 23, 2000, the Registrant had outstanding 318,919,613 shares of Common
Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement (the "Definitive Proxy Statement") to
be filed with the Securities and Exchange Commission relative to the Company's
2000 Annual Meeting of Stockholders are incorporated by reference into Part III
of this Report. Portions of Items 1 and 5 and Items 6, 7 and 8 are incorporated
by reference to the Company's 2000 Annual Report to Stockholders.
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT
FISCAL YEAR ENDED JULY 31, 2000
CMGI, INC.
PART I
Item Page
- - ----
1. Business............................................................................................. 2
2. Properties........................................................................................... 15
3. Legal Proceedings.................................................................................... 16
4. Submission of Matters to a Vote of Security Holders.................................................. 16
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters................................. 17
6. Selected Consolidated Financial Data.................................................................. 18
7. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 18
7A. Quantitative and Qualitative Disclosures About Market Risk............................................ 18
8. Financial Statements and Supplementary Data........................................................... 19
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................. 19
PART III
10. Directors and Executive Officers of the Registrant..................................................... 20
11. Executive Compensation................................................................................. 20
12. Security Ownership of Certain Beneficial Owners and Management......................................... 20
13. Certain Relationships and Related Transactions......................................................... 20
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................... 21
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects" and similar expressions are
intended to identify forward-looking statements. The important factors discussed
under the caption "Factors That May Affect Future Results" in the Company's 2000
Annual Report to Stockholders and incorporated herein by reference, among
others, could cause actual results to differ materially from those indicated by
forward-looking statements made herein and presented elsewhere by management.
Such forward-looking statements represent management's current expectations and
are inherently uncertain. Investors are warned that actual results may differ
from management's expectations.
1
PART I
ITEM 1. - BUSINESS
General
CMGI, Inc. and its consolidated subsidiaries, (CMGI or the Company)
develop and operate a network of Internet companies. CMGI is a Delaware
corporation. The Company previously operated under the name CMG Information
Services, Inc. and was incorporated in 1986.
The Company's subsidiaries have been classified in the following five
operating segments: i) Interactive Marketing, ii) eBusiness and Fulfillment,
iii) Search and Portals, iv) Infrastructure and Enabling Technologies, and v)
Internet Professional Services. CMGI also manages several venture capital funds
that focus on investing in companies involved in various aspects of the Internet
and technology. CMGI's business strategy includes the internal development and
operation of majority-owned subsidiaries as well as taking strategic positions
in other Internet companies that have demonstrated synergies with CMGI's core
businesses. The Company's strategy also envisions and promotes opportunities for
synergistic business relationships among its companies.
At July 31, 2000, CMGI's majority-owned subsidiaries by segment were:
The Company's Interactive Marketing segment subsidiaries provide a
portfolio of online marketing products including enterprise wide promotion
management, profiling and ad serving software, media, media management and
analytics and included AdForce, LLC (AdForce) which CMGI contributed to CMGion,
Inc. (CMGion) on October 11, 2000, Engage, Inc. (Engage) and yesmail.com, inc.
(yesmail.com). AdForce provides centralized advertising management services for
the Internet, wireless services and broadband services; Engage offers an array
of software products and services that enables marketers to identify and target
precise online audiences; yesmail.com provides comprehensive permission-based
email marketing technologies and services.
The eBusiness and Fulfillment segment subsidiaries provide services
across the entire ebusiness value chain to sell and deliver goods from the
manufacturer to the customer and included SalesLink Corporation (SalesLink) and
uBid, Inc. (uBid). SalesLink is a provider of integrated solutions for supply
chain management, end-to-end ebusiness and fulfillment services. uBid is a
business-to-consumer and business-to-business online auction marketplace.
The Search and Portals segment subsidiaries provide services and
content which connect Internet users to information and entertainment and
included AltaVista Company (AltaVista), iCAST Corporation (iCAST) and MyWay.com
Corporation (MyWay.com). AltaVista is an Internet search, news media and
commerce network that delivers personalized, relevant information and e-commerce
services to millions of users worldwide; iCAST is a multimedia online
entertainment community and personal publishing network; MyWay.com is a
developer and distributor of custom portal services.
The Infrastructure and Enabling Technologies segment subsidiaries
provide products and services essential to business operations on the Internet,
including outsourced managed applications, private-label Internet access and
technology platforms and included 1stUp.com Corporation (1stUp), Activate.net
Corporation (Activate), CMGion, Equilibrium Technologies, Inc. (Equilibrium),
ExchangePath, LLC (ExchangePath), NaviPath, Inc. (NaviPath, formerly NaviNet,
Inc.), NaviSite, Inc. (NaviSite) and Tribal Voice, Inc. (Tribal Voice) which
CMGI contributed to CMGion on September 15, 2000. 1stUp enables companies to
offer private-label Internet access services to their customers; Activate is a
provider of Internet broadcasting services to companies worldwide; CMGion is
planning to develop applications and services that will optimize the speed,
consistency and reliability of delivery of Internet content and commerce over
various access technologies; Equilibrium provides automated media infrastructure
solutions for the Internet; ExchangePath offers a multi-functional integrated
solution for online payment transactions; NaviPath provides private label
Internet access solutions through an integrated network and systems
architecture, enabling businesses to expand their reach to customers, employees
and partners; NaviSite, which completed its IPO during October 1999, provides
outsourced Web hosting and application services for companies conducting
mission-critical business on the Internet; Tribal Voice provides instant
messaging, time sensitive notification and online presence detection services.
The Internet Professional Services segment subsidiaries provide
applications strategy, development, design, and implementation services for
companies seeking to initiate, enhance or redirect their presence on the
Internet and included CMGI Solutions, Inc. (CMGI Solutions), Tallan, Inc.
(Tallan) and Clara Vista Corporation (Clara Vista). CMGI Solutions, Tallan and
Clara Vista provide ebusiness solutions utilizing flexible and scalable
applications, tools, platforms and languages.
In addition, the Company maintains investments in seven venture funds:
CMG@Ventures I, LLC (CMG@Ventures I), CMG@Ventures II, LLC (CMG@Ventures II);
CMG@Ventures III, LLC (CMG@Ventures III); CMG@Ventures Expansion, LLC
(CMG@Ventures Expansion); CMGI@Ventures IV, LLC (CMGI@Ventures IV);
CMGI@Ventures B2B, LLC (B2B Fund); and
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CMGI@Ventures Technology Fund, LLC (Tech Fund). The Company owns 100% of the
capital and is entitled to 77.5% to 80% of the net capital gains of these funds.
In September 2000, CMGI announced that it will be merging CMGI@Ventures IV, the
B2B Fund and the Tech Fund into a single evergreen fund called CMGI@Ventures IV,
LLC.
The Company has adopted a strategy of seeking opportunities to realize
gains through the selective sale of investments or having separate subsidiaries
or affiliates sell minority interests to outside investors. The Company believes
that this strategy provides the ability to increase stockholder value as well as
provide capital to support the growth in the Company's subsidiaries and
investments. The Company expects to continue to develop and refine the products
and services of its businesses, with the goal of increasing revenue as new
products are commercially introduced, and to continue to pursue the acquisition
of or the investment in additional companies.
Products and Services
Products and services of the Company's majority-owned subsidiaries as
of July 31, 2000 include the following:
Interactive Marketing
- - ---------------------
AdForce, LLC
AdForce is a provider of centralized online advertising services,
enabling publishers and advertisers to deliver their advertisements over the
Internet. Deploying advanced scalable technology, the AdForce service delivers
billions of impressions monthly for some of the Internet's most prominent
advertisers. AdForce provides a comprehensive suite of products, which enables
advertisers and publishers to target, deliver, measure and analyze Internet
advertising programs for the best results. On October 11, 2000, AdForce was
contributed to CMGion.
Engage, Inc.
Engage offers an array of marketing products, services and technologies
that enable Web publishers, advertisers and merchants to target and deliver
advertisements, content and e-commerce offerings to their audiences and to
measure their effectiveness.
Engage operates in three principal business segments: Engage Media, Engage
Media Management, and Engage Software and Consulting.
Engage Media is a global media network, which helps both business-to-
consumer and business-to-business marketers find their audiences on the
Internet. Engage Media provides a wide array of products and services designed
to help marketers make the best decisions to maximize their online marketing
results. The main product and service offerings include the following: Audience
Profiles, Optimized Run of Network, Engage ECHO, Targeted Content, Premium
Sites, B2B Web Advertising Network, LocalNet and Email.
Engage Media Management provides solutions that are designed to help
marketers execute, measure and optimize their Internet marketing campaigns. The
main product and service offerings include the following: The AdKnowledge System
and eAnalytics Additionally, Engage Media Management offers services that
provide Web site traffic measurement, analysis and verification of site traffic
and advertising results, as well as customized research services to better
understand site traffic patterns.
Engage Software and Consulting offers a range of software and services that
enable marketers, Web sites and merchants to manage promotional and advertising
campaigns across traditional and electronic media, and to target and deliver
advertisements, content and e-commerce offerings to their audiences. The main
product and service offerings include the following: ContentServer,
PromoPlanner, ProfileServer, AdManager, AdBureau, Professional Services, and
Maintain and Support Services.
yesmail.com, inc.
yesmail.com is an outsourcer of permission-based email marketing
technologies and services. yesmail.com provides a total customer value
management solution for its clients--from acquisition to retention and ongoing
relationship management. yesmail.com can target prospects, personalize messages,
deliver campaigns, track and analyze results and generate reports for marketers
in real time.
yesmail.com's proprietary direct marketing software, scalable
infrastructure and experienced strategists deliver a total outsourced solution
designed to maximize customer value for marketers.
3
eBusiness and Fulfillment
- - -------------------------
SalesLink Corporation
SalesLink provides product and literature fulfillment, inventory and
data warehouse management, supply chain management, closed-loop telemarketing,
and value added services for its clients' marketing or manufacturing programs,
primarily to high technology, biotechnology, financial services and health-care
markets.
Product and Literature Fulfillment. On behalf of its fulfillment
----------------------------------
clients, SalesLink receives orders for promotional literature and products and
"fulfills" them by assembling and shipping the items requested. Product and
literature fulfillment services begin with the receipt of orders by SalesLink's
inbound telemarketing staff via phone or electronic transmission directly into
SalesLink's computers. Orders are then generated and presented to the production
floor where fulfillment packages are assembled and shipped to either the end-
user or to a broker or distributor.
As adjunct services to fulfillment, SalesLink provides product and
literature inventory control and warehousing, offering its customer support and
management reports detailing orders, shipments, billings, back orders and
returns. SalesLink's telemarketing group offers comprehensive inbound business-
to-business telemarketing services to support its sales inquiry management and
order processing activities. Telemarketing services include lead qualification,
order processing fulfillment and marketing analysis. SalesLink also offers
outbound business telemarketing services that are tailored to an individual
client's needs.
Supply Chain Management. SalesLink's largest line of business is
-----------------------
supply-based management programs for clients in the high technology industry.
These programs are a form of outsourced manufacturing, in which clients retain
SalesLink to purchase components and manufacture customer bills of materials
into products that are either shipped to customers, channels of distribution, or
to the customer's factory for final manufacturing. These outsourced
manufacturing services primarily assist companies in the areas of accessory
kits, software, literature and promotional products and involve active supply
chain management and coordination of:
. CD-ROM, DVD and diskette replication
. Product packaging and assembly
. Internet and EDI enabled fulfillment
. Print management
. Electronic order processing and software distribution
. Inventory management
uBid, Inc.
uBid is a leading online auction marketplace that offers consumers and
small to mid-sized businesses the opportunity to "set the price" on a wide range
of brand name merchandise through live-action bidding using sophisticated
auction technology. uBid's Internet auctions feature a rotating selection of
over 8,500 products daily. Consumers can browse in more than 12 different
product categories, including: computers, consumer electronics, home and
leisure, sports and recreation, jewelry and gifts, apparel, appliances, art,
travel and events, home improvement products, monitors and printers, and off-
lease computer equipment. With more than one million registered users, uBid is
committed to providing all customers with the highest quality auction experience
on the Internet and offers supplier warranties on most consumer products.
In addition to uBid's core auction e-commerce site, uBid licenses the
uBid auction technology to various international and business-to-business
companies in exchange for a licensing fee and payments for future royalties from
auction sales. Through several co-branded auction sites, uBid constructs and
operates auction sites with third parties and provides uBid's auction
capabilities. These sites are co-branded under the uBid name and the name of the
third party.
Search and Portals
- - ------------------
AltaVista Company
AltaVista is a search, news media and commerce network that delivers
personalized, relevant information and e-commerce services to millions of users,
worldwide. With its patented technologies, international user base and
relationships with content and service providers, AltaVista seeks to provide a
single destination for its users' search, information, communication and
commerce needs on the Internet.
4
AltaVista combines search technology, timely media content, local content
and e-commerce offerings with a broad network of relationships with content and
service providers to supply its users with an easy-to-use tool for their
Internet navigation and commerce needs. AltaVista's Web sites offer users ways
to quickly, accurately and dynamically access the knowledge they seek. Based on
data generated internally as of September 2000, AltaVista performs an average of
more than 50 million search queries per day and has averaged monthly more than
65 million unique users worldwide.
Subsequent to the fiscal 2000 year end, AltaVista announced its new
business strategy that emphasizes and builds upon its leading position in search
services for Internet users, Web partners and enterprises globally.
iCAST Corporation
iCAST is a multimedia-rich, online entertainment company that enables self-
publishing within a personalized, community-oriented environment. iCAST provides
individuals with the tools to create, customize and share their personal
entertainment passions. It offers original, user-generated and syndicated audio
and video content, entertainment news, features and interviews, live and
archived events. The iCAST Web site features the iCASTER, an integrated media
player that supports audio, visual, instant messaging and chat. iCAST also is a
leading distributor, marketer and provider of licensed music entertainment
merchandise.
iCAST has strategic relationships with AltaVista, Compaq, Microsoft and
The Academy of Television Arts and Sciences.
MyWay.com Corporation
MyWay.com provides a Web portal that can be personalized to an
individual user's locality, interests and preferences, and customized for
distribution affiliates. Internet users reach MyWay.com at either the MyWay.com
URL or through an Internet Service Provider (ISP), or corporate affiliate in the
MyWay.com syndication network. MyWay.com believes that the resulting network-
wide viewership aggregated around channels of highly desirable, focused content
appeals to commerce partners and advertising sponsors.
The advanced customization technology developed by MyWay.com allows
rapid deployment of custom portal solutions. Each affiliate in the syndication
network distributes and promotes its own branded version of the service
customized for their audience's special interest. The custom branded portal and
content objects from MyWay.com are designed to enhance affiliates' brand equity
and extend their customer/member relationship online. The MyWay.com network
provides content, e-commerce and advertising partners with targeted audience
reach.
Infrastructure and Enabling Technologies
- - ----------------------------------------
1stUp.com Corporation
1stUp enables both online and offline brand names to offer private
label free and/or fee-based dial-up and broadband Internet access packages
through its reliable, nationwide ISP network.
As of September 2000, 1stUp's solutions supported over 130 different
partner-branded internet access services customers for several leading brand
names and over 5.5 million registered subscribers. 1stUp also develops
sophisticated advertising technology that enables advertisers to reach its large
base of registered subscribers with ads relevant to their interests and needs.
Activate.net Corporation
Activate is a provider of specialized infrastructure services for Web
casting audio and video content over the Internet. Activate provides a full-
range of Web casting solutions including event broadcasting, live 24X7
broadcasting for radio and television stations, and on-demand replay of audio
and video content to enhance any Web site. As a services company, Activate helps
businesses communicate their content and their message directly to their
audience.
Activate has invested in a state of the art digital broadcast
operations center which can acquire and convert audio and video signals into
Internet deliverable format. The digital broadcast operations center sends
thousands of signals to Activate's high capacity, distributed streaming network.
As a full solution provider, Activate acts as a private-label network
and Web casts in all major industry standard formats. Activate provides live Web
cast hosting and delivery for hundreds of radio and TV stations. Numerous
prominent broadcasters and Fortune 100 corporations are utilizing Activate's
private-label network and 24x7 live Web casting services for their broadcast
content.
5
CMGion, Inc.
CMGion is planning to develop an "infomediary" platform based on
integrated protocol, directory, and caching services that will enable next-
generation applications and services based on opt-in profiling.
Equilibrium Technologies, Inc.
Equilibrium is a provider of Web content infrastructure solutions. Its
products and services automate the creation, manipulation, dynamic delivery, and
personalization of media content over the Internet, with a focus on four
critical success factors for Web sites: user attraction, user retention, revenue
generation, and cost control.
ExchangePath, LLC
ExchangePath is a service provider that enables consumers to make and
track online payments through its multifunctional payment solution service.
Using ExchangePath's master Internet payment account (MIPA), users send, receive
and request money by email, and make online purchases from participating
merchants. ExchangePath's Partner Program serves the needs of portals, e-
commerce providers and financial services firms who seek competitive advantage
by offering customers new payment functionality using the latest value exchange
technologies.
NaviPath, Inc.
NaviPath provides high-performance private label Internet access
solutions that enable organizations to expand their customer and employee reach
without significant investment in infrastructure and technology. NaviPath has
built a proprietary network architecture, the NaviPath Technology Platform, that
it believes provides cost, quality and performance advantages over existing
dial-up access solutions. The NaviPath Technology Platform aggregates multiple
local calling areas into MegaPOPs, deploys advanced switch bypass technology to
eliminate busy signals due to voice switch congestion, and employs private
transit Internet connectivity to bypass congested public peering points on the
Internet. NaviPath's services include Internet connectivity, network management,
user authentication and customer support based on full 24x7 service and support
from its Network Management Center (NMC). The NMC provides second level support
for service requests and emergencies using an automated trouble ticket tracking
and escalation system.
NaviOne, NaviPath's flagship product, leverages the NaviPath Technology
Platform as well as NaviPath's systems infrastructure to provide high-
performance branded Internet access solutions for corporations, retail and
financial vertical markets, and affinity groups to manage customer relationships
via the Internet.
NaviSite, Inc.
NaviSite is a managed application hosting provider offering Web site
and application hosting and management services. NaviSite's service offerings
allow businesses to outsource the deployment, configuration, hosting, management
and support of their Web sites and Internet applications in a cost-effective and
rapid manner.
NaviSite's focus on enhanced management services, beyond basic co-
location services, allows NaviSite to meet the expanding needs of businesses as
their Web sites and Internet applications become more complex. NaviSite also
provides customers with access to NaviSite's state-of-the-art data centers and
the benefit of their direct private transit Internet connections to major
Internet backbone providers increasing reliability, availability and download
speeds. The scalability of NaviSite's infrastructure and cost-effectiveness of
their solutions allow NaviSite to offer a comprehensive suite of services to
meet the current and future hosting and management needs of their customers.
NaviSite's single point of problem resolution management, and comprehensive
service level agreements provide unprecedented levels of customer support.
. NaviSite's suite of service offerings includes:
. Web site and Internet application hosting, which includes access to
NaviSite's state-of-the-art data centers, bandwidth and basic back-up,
storage and monitoring services;
. Enhanced server management, which includes custom reporting, hardware
options, load balancing and mirroring, system security, advanced back-
up options, remote management and the services of NaviSite's business
solution managers;
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. Specialized application management, which includes management of e-
commerce and other sophisticated applications and their underlying
services, including ad-serving, a full spectrum of streaming production
and delivery services, database administration and management, and
transaction processing; and
. Application rentals and related consulting and other professional
services.
Tribal Voice, Inc.
Tribal Voice is a provider of co-branded instant messaging and
interactive communications solutions based on its PowWow technology. PowWow
includes a full range of Internet communications, including instant text
messaging, instant voice messaging, multi-user gaming, multi-user whiteboarding,
multi-user Web cruising and full duplex Internet telephony. In addition, PowWow
provides online presence detection and is designed to provide instant messaging
interoperability with @mobile's imessenger Service, AOL's Instant Messenger
(AIM) and Microsoft's MSN Messenger Service. On September 15, 2000, Tribal Voice
was contributed to CMGion.
Internet Professional Services
- - ------------------------------
CMGI Solutions, Inc.
CMGI Solutions designs and builds strategic ebusiness solutions for
Global 2000 corporations, utilizing the latest, most flexible and scalable
technologies available while emphasizing the right technologies for each
client's particular business requirements.
CMGI Solutions leverages the CMGI network of technology resources,
other best-of-breed technologies and CMGI's management expertise. CMGI Solutions
is constantly evaluating, experimenting with and re-using technologies in an
ever-widening array of applications. CMGI Solutions selects the best combination
of skills and technologies for each client.
CMGI@Ventures Funds
- - -------------------
The Company's first Internet venture fund, CMG@Ventures I was formed in
February 1996. The Company owns 100% of the capital and is entitled to
approximately 77.5% of the net profits of CMG@Ventures I. The Company's second
Internet venture fund, CMG@Ventures II, was formed during fiscal year 1997. The
Company owns 100% of the capital and is entitled to 80% of the net capital gains
of CMG@Ventures II.
CMGI formed the @Ventures III venture capital fund (@Ventures III Fund)
in August 1998. The @Ventures III Fund secured capital commitments from outside
investors and CMGI, to be invested in emerging Internet and technology
companies. 78.1% of amounts committed to the @Ventures III Fund are provided
through two entities, @Ventures III L.P. and @Ventures Foreign Fund III, L.P.
CMGI does not have a direct ownership interest in either of these entities, but
CMGI is entitled to 2% of the net capital gains realized by both entities.
Management of these entities is the responsibility of @Ventures Partners III,
LLC (@Ventures Partners III). The Company has committed to contribute up to $56
million to its limited liability company affiliate, CMG@Ventures III equal to
19.9% of total amounts committed to the @Ventures III Fund, of which
approximately $49.9 million has been funded as of July 31, 2000. CMG@Ventures
III will take strategic positions side by side with the @Ventures III Fund. CMGI
owns 100% of the capital and is entitled to 80% of the net capital gains
realized by CMG@Ventures III. @Ventures Partners III is entitled to the
remaining 20% of the net capital gains realized by CMG@Ventures III. The
remaining 2% committed to the @Ventures III Fund is provided by a fourth entity,
@Ventures Investors, LLC, in which CMGI has no ownership. During fiscal year
2000, CMGI formed an expansion fund to the @Ventures III Fund to provide follow-
on financing to existing @Ventures III Fund investee companies, pursuant to
which CMGI's commitment increased by $38.2 million through its limited liability
company affiliate CMG@Ventures Expansion of which approximately $9.3 million was
funded as of July 31, 2000.
In fiscal year 2000, CMGI announced the formation of three new venture
capital funds including: CMGI@Ventures IV B2B Fund and Tech Fund. CMGI owns 100%
of the capital and is entitled to 80% of the net profits realized by
CMGI@Ventures IV, the B2B Fund and the Tech Fund. In September 2000, CMGI
announced that it will be merging CMGI@Ventures IV, the B2B Fund and the Tech
Fund into CMGI@Ventures IV, LLC, a single evergreen fund. Approximately $221.2
million has been invested by these funds as of July 31, 2000. The Company
anticipates and promotes synergies between these strategic positions and CMGI's
core businesses, including speeding technological innovation and access to
markets.
7
At July 31, 2000, the CMGI@Ventures funds held investments in the
following privately held companies:
- - ------------------------------------------------------------------------------------------------------------------------------------
Ownership
Percentage of Initial
Outstanding Investment
Company Name Description of Business Shares Date
- - ------------------------------------------------------------------------------------------------------------------------------------
Alibris Online supplier of rare, used, hard-to-find books 13% Mar. 2000
- - ------------------------------------------------------------------------------------------------------------------------------------
AltaVista Company (formerly A free financial Web site that provides investors with
Raging Bull, Inc.) financial discussion and commentary along with free
real-time stock quotes. 1% Sept. 1998
- - ------------------------------------------------------------------------------------------------------------------------------------
AnswerLogic, Inc. Software company that delivers online question-answering
solutions for business. 29% Mar. 2000
- - ------------------------------------------------------------------------------------------------------------------------------------
Asimba, Inc. A content rich, personalized, online community for the
competitive and recreational sports market. 3% Oct. 1998
- - ------------------------------------------------------------------------------------------------------------------------------------
AuctionWatch.com, Inc. (formerly An online destination that aggregates auction-related
Omnibot) information, posts daily editorial content, and provides
value-added services to new and experienced buyers and
sellers in the auction process. 1% July 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
BizBuyer.com, Inc. An online business-to-business (B2B) marketplace where small to
mid-size businesses can put their product and service needs
out for bid and receive quotes from thousands of qualified 6% June 1999
vendors.
- - ------------------------------------------------------------------------------------------------------------------------------------
Blaxxun Interactive, Inc. Provides products and solutions for multimedia communication
on the Internet and intranets. 48% Aug. 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
Boatscape, Inc. Online destinations dedicated to providing information,
community, and commerce services to the recreational boater. 8% Sep. 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
CarParts.com, Inc. Provides consumers with a search capability to locate and
order online certain auto parts. 4% Mar. 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
Corrigo, Inc. Mobile Service Management Solution brings wireless + Web
technologies to organizations with large, mobile service and
field operations. 33% May 2000
- - ------------------------------------------------------------------------------------------------------------------------------------
CraftShop.com, Inc. Provides Website where creative people meet, share ideas,
research new projects as well as download free projects. 4% Aug. 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
Dejima, Inc. Created software architecture called AASAP, which enables
natural language command and control of Internet
applications and devices. 14% Apr. 2000
- - ------------------------------------------------------------------------------------------------------------------------------------
DialPad, Inc. Developed Internet's first free, Java based, Web-to-phone
telephone service. 19% Apr. 2000
- - ------------------------------------------------------------------------------------------------------------------------------------
DiamondBack Vision, Inc. To provide all Internet users a quality video viewing 15% Dec. 1999
experience.
- - ------------------------------------------------------------------------------------------------------------------------------------
Domania.com Provides methods by which the public can access public
information. 15% July 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
eCircles Corporation Provides a free service that allows for friends
and family to share information and coordinate
events on the World Wide Web. 6% Mar. 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
eGroups, Inc. (formerly Provides free email communities via the Internet, allowing
ONEList.com, Inc.) users to search for or subscribe to communities on different
topics or create their own community. 3% Dec. 1998
- - ------------------------------------------------------------------------------------------------------------------------------------
Ensera, Inc. (formerly Develops and markets scalable and reliable applications
EngineRoar.com, Inc.) designed for business enterprises in the automotive
collision repair marketplace. 6% Aug. 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
Exp.com, Inc. Provides an electronic marketplace for interactive advice
servicing a wide range of categories. 4% Mar. 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
Findlaw.com Internet portal for free, comprehensive information on law and
government. 5% Sep. 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
8
- - ------------------------------------------------------------------------------------------------------------------------------------
Ownership
Percentage of Initial
Outstanding Investment
Company Name Description of Business Shares Date
- - ------------------------------------------------------------------------------------------------------------------------------------
FoodBuy.com, Inc. Source of business and technology solutions for the
foodservice industry, creating an efficient marketplace
within the community of foodservice operators, distributors
and manufacturers. 22% Jan. 2000
- - ------------------------------------------------------------------------------------------------------------------------------------
Furniture.com, Inc. An e-commerce provider of a broad selection of furniture and
home furnishing accessories. 4% Dec. 1998
- - ------------------------------------------------------------------------------------------------------------------------------------
Gofish.com, Inc. Online content and commerce destination for the seafood
industry. 11% Feb. 2000
- - ------------------------------------------------------------------------------------------------------------------------------------
GX Media Comprehensive games portal and directory. 25% Jan. 2000
- - ------------------------------------------------------------------------------------------------------------------------------------
HotLinks Network, Inc. Operates a service that allows users to create personal Web
directories. 12% Dec. 1998
- - ------------------------------------------------------------------------------------------------------------------------------------
Idapta, Inc. (formerly Offers "market-making" technologies and services that
Intelligent/Digital, Inc.) facilitate real-time interaction and live trade between the
buying and selling communities in B2B marketplaces. 20% June 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
Industria Solutions, Inc. A B2B marketplace for process plant equipment. 12% Feb. 2000
- - ------------------------------------------------------------------------------------------------------------------------------------
IronMax.com, Inc. Internet based B2B marketplace for the construction equipment
industry. 18% Mar. 2000
- - ------------------------------------------------------------------------------------------------------------------------------------
KOZ.com, Inc. Helps media companies, such as newspapers and broadcasters,
strengthen their ties to their local communities by providing
value-added programs and services that simplify community
building on the World Wide Web. 8% May 1997
- - ------------------------------------------------------------------------------------------------------------------------------------
KnowledgeFirst, Inc. Provides financial and transactional services for financial
service providers, college students, graduate students, etc. 6% Sep. 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
MobileLogic, Inc. Provider of wireless solutions that help corporations improve
out-of-office productivity, reduce costs, increase revenues
and leverage current information technology. 10% Mar. 2000
- - ------------------------------------------------------------------------------------------------------------------------------------
Mondera.com Corp. Luxury e-tailor of certified fine diamonds, jewelry, watches
and luxury items from around the world. 4% Sep. 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
MyFamily.com, Inc (formerly A provider of community, content and commerce resources for
Ancestry.com, Inc.) families via the Internet. 7% Dec. 1998
- - ------------------------------------------------------------------------------------------------------------------------------------
NameTree, Inc. Builds enhanced DNS systems for the Internet. 20% July 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
NextMonet.com, Inc. An e-commerce site for purchasers of art, in the form of an
on-line art gallery. 10% Jan. 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
NextOffice.com, Inc. Online sales of comprehensive business furnishings and
distribution e-commerce service. 6% Dec. 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
Oncology.com, Inc. Leverages Internet technologies to improve the quality of
cancer care. 4% Dec. 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
OneCore Financial Network, Inc. Offers an integrated set of Web-based financial applications
targeted at small businesses. 7% Feb. 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
One Media Place (formerly Media exchange that leverages the power of the internet to
AdAuction) unite advertising professionals in one marketplace. 10% Mar. 2000
- - ------------------------------------------------------------------------------------------------------------------------------------
PlanetOutdoors.com, Inc. An e-commerce distributor of outdoor recreation and adventure
travel products. 5% July 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
Productopia, Inc. Provides product advice for consumers looking for information
and recommendations on what to buy and where they can find it. 7% May 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
Radiate, Inc. (formerly Aureate Provides software publishers with ad-supported distribution
Media Corporation) channels, services, and technology. 6% July 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
RealPulse.com, Inc. Web-enabled business operations platform (ASP + B2B Exchange)
serving the commercial real estate industry. 13% Jun. 2000
- - ------------------------------------------------------------------------------------------------------------------------------------
SnapFish.com Corp. Offers quality film developing, online picture sharing and
digital archiving of photos. 3% Nov. 1999
- - ------------------------------------------------------------------------------------------------------------------------------------
9
- - -----------------------------------------------------------------------------------------------------------------------------------
Ownership
Percentage of Initial
Outstanding Investment
Company Name Description of Business Shares Date
------------ ----------------------- ------ ----
- - -----------------------------------------------------------------------------------------------------------------------------------
Speech Machines plc An operator of Internet-based speech-to-text services. 19% Sept. 1997
- - -----------------------------------------------------------------------------------------------------------------------------------
SpotLife Inc. Provides online services which enables personal broadcasting
for the mainstream market. 4% Nov. 1999
- - -----------------------------------------------------------------------------------------------------------------------------------
The EC Company Provider of e-transaction processing and hosted B2B electronic
commerce services for small to mid-size businesses. 13% Mar. 2000
- - -----------------------------------------------------------------------------------------------------------------------------------
Thingworld.com, LLC (formerly Enables entertainment, music, sports, and consumer brand
Parable, LLC) companies to creatively manage and distribute their
properties online. 35% Aug. 1996
- - -----------------------------------------------------------------------------------------------------------------------------------
Tvisions, Inc. Provides a full suite of Internet design and development
services. 17% Apr. 2000
- - -----------------------------------------------------------------------------------------------------------------------------------
Vcommerce Corporation (formerly Provides an on-line retail hub that allows users to create a
Vstore.com) custom on-line store for at no cost. 1% July 1999
- - -----------------------------------------------------------------------------------------------------------------------------------
Virtual Ink Corporation A company focused on the development of Digital Meeting
Assistant (TM) (DMA) technologies. 7% Oct. 1998
- - -----------------------------------------------------------------------------------------------------------------------------------
Visto Corporation Provides Web-based personal information services. 9% June 1998
- - -----------------------------------------------------------------------------------------------------------------------------------
WebCT, Inc. (formerly Universal Provides a Web-based platform for teaching and learning in the
Learning Technology ) higher education marketplace. 22% July 1998
- - -----------------------------------------------------------------------------------------------------------------------------------
In addition, as of July 31, 2000 the Company's CMGI@Ventures funds held
securities of thirteen publicly traded companies including: Amazon.com, Inc.;
Critical Path, Inc.; eBay, Inc.; Hollywood Entertainment Corporation; Kana
Communications, Inc.; Lycos, Inc.; MarchFirst, Inc.; MotherNature.com, Inc.;
PTEK Holdings, Inc.; Tickets.com, Inc.; Ventro Corporation; Vicinity
Corporation; and Yahoo!, Inc.
Business Strategy
CMGI's business strategy is built on the following initiatives:
Continue to Create or Identify Companies with the Potential to Become
Market Leaders. As a result of its deep and broad experience in the Internet
market, CMGI believes that it has a competitive advantage in identifying
emerging market opportunities. CMGI seeks to capitalize on these opportunities
by pursuing a multi-faceted approach. Once CMGI identifies an emerging market
opportunity it typically seeks to incubate an operating company to serve that
need. CMGI also may acquire an existing company and reposition it to better
address the market need. In addition, because of CMGI's experience and its
strong brand name, it believes that it has a competitive advantage in attracting
and identifying opportunistic minority investments in emerging companies, which
it makes through its @Ventures funds. CMGI has acquired interests in companies
at all stages of development, including a number currently being internally
developed and several that have been harvested through initial public offerings
or sales.
Companies that CMGI has developed internally include Engage, which was
formed in 1995 in anticipation of the need for more effective targeting of
advertisements, content and e-commerce offerings through the Internet, and
NaviSite, which was formed in 1996 in anticipation of the need for Web site
hosting and managed services. CMGI is currently incubating other companies to
pursue selected
10
market opportunities. For example, NaviPath provides an access service that
enables any company to offer branded Internet service to its customers and
CMGion seeks to optimize delivery of Internet content over dial-up, broadband or
wireless connections to any Internet enabled device.
In those cases where CMGI believes that a leading market position can be
obtained by acquiring or combining existing companies, it pursues an acquisition
strategy. Since January 1, 1997, CMGI and its operating subsidiaries have made
approximately 30 acquisitions. For example, CMGI recently acquired Tallan, a
professional services firm, to expand the capabilities of CMGI Solutions.
Finally, when CMGI identifies existing companies it believes can achieve
leading positions in markets not core to its operating companies, it makes
minority investments through its CMGI@Ventures funds. For example, CMGI made
minority investments in GeoCities, Silknet and Ventro. CMGI believes that its
CMGI@Ventures investments enables CMGI to take advantage of business
opportunities in all segments of the Internet market and at the same time
provide CMGI with insights into emerging Internet trends. To the extent that
CMGI's minority investments are successful, they provide CMGI with additional
resources that can be used to help support its operating companies. CMGI plans
to continue its multi-faceted strategy so that it may take advantage of the
broad array of opportunities in the Internet market.
Global Delivery of Products and Services. CMGI intends to continue to
expand the global reach of its network companies to capitalize on the
significant growth of Internet usage outside the United States. CMGI's
globalization efforts have focused mostly on helping its network companies
expand into Europe and Asia and in developing regional partnerships to assist in
expanding distribution capabilities.
In Europe, CMGI has established facilities in London and Paris where its
operating and venture companies can share space and administrative services, and
it plans to establish similar facilities in cities throughout Europe. CMGI
expects that its operating and venture companies will be able to use these
facilities as a platform for the expansion of their products and services into
international markets.
CMGI's activity in Asia has focused on developing strategic relationships
with prominent local companies. For example, CMGI has strategic relationships in
Japan with Sumitomo Corporation, one of the world's leading traders and
distributors of commodities and industrial and consumer goods, and in Hong Kong
and other parts of Asia with Pacific Century CyberWorks, one of the largest
Asian Internet companies and recent acquirer of Hong Kong Telephone. CMGI seeks
to facilitate the entrance of its network companies into Asian markets by
leveraging its relationships with this local partner. CMGI believes that the
broad range of Internet assets included in its network of companies provides
CMGI with a strategic advantage when it seeks to establish relationships with
key Asian companies.
Promote Synergies and Collaboration Among Network Companies. CMGI
promotes collaboration among its network companies so that they can achieve
competitive advantages that they might not achieve on a stand-alone basis. CMGI
hosts regular conferences for executives of its network companies and weekly
meetings among the chief executive officers of its operating companies to
promote collaboration and the sharing of best practices. CMGI network companies
have access to the technologies and services of other CMGI-affiliated companies
that can be leveraged to improve operations. For example, uBid, Lycos and
AltaVista have partnered with 1stUp to provide free Internet access to their
users; iCAST is the provider of entertainment-related content for AltaVista; and
many network companies use Engage, NaviSite and CMGI Solutions for profiling,
Web hosting and consulting services. To encourage cooperation among its network
companies, senior executives of its private operating companies are granted
stock options in both CMGI and their company.
Increase Leadership Position in Direct Marketing. CMGI plans to continue to
develop solutions for the online marketing and advertising market. CMGI believes
that this market provides a large opportunity because the proportion of total
marketing and advertising dollars currently devoted to the Internet is
significantly lower than the proportion of time that consumers spend on the
Internet compared to viewing television and other traditional media. CMGI
believes that expenditures for online advertising and marketing will ultimately
become more aligned with the growth in viewing time on the Internet. CMGI is
well positioned to capitalize on this opportunity. Since its creation in 1995,
Engage has steadily expanded both its capabilities and audience-reach through
the acquisitions of Accipiter, I/PRO, AdKnowledge, Flycast, AdSmart,
MediaBridge, VBN and Space Asia. For the fiscal year ended July 31, 2000, the
number of ad impressions served by its marketing networks was approximately 35
billion. CMGI believes that Engage's targeting capabilities will enable CMGI to
continue to grow more rapidly than the overall Internet advertising market as
marketers seek to more efficiently reach their target audiences. In addition,
CMGI recently acquired yesmail.com and AdForce to offer a broader array of
products and services to this market. CMGI plans to continue to expand the scope
of the solutions offered by Engage, yesmail.com and AdForce so that it may
provide online marketers with flexibility in tailoring their online campaigns to
meet their particular marketing objectives.
11
Capitalize on Multi-bandwidth, Multi-device Communications Infrastructure.
CMGI is seeking to provide applications and services that will optimize the
speed, consistency and reliability of delivery of Internet content and commerce
over wireless, dial-up and broadband access technologies. Through its network of
companies, CMGI is seeking to position itself strategically to capitalize on the
proliferation of communications devices and access technologies. For example,
Activate provides Internet communications services through streaming media
technology, including broadcasting Wall Street analyst conference calls and
radio and television programming. In addition, as part of a significant new
initiative, CMGI recently formed a new company, called CMGion, with its partners
Compaq, Novell and Sun Microsystems. The strategy of CMGion is to develop
services that personalize and optimize the speed of content delivery across
various access technologies.
Aggressively Pursue Strategic Business Alliances. CMGI seeks to leverage
its network of CMGI companies to create a network of strategic alliances and
corporate partnerships. These alliances are designed to accelerate CMGI's
products and services into global market opportunities by providing
complementary distribution, technology, and/or content with the overall
objective of increasing the use of and demand for the products and services of
the CMGI network companies. For example, in connection with its acquisition of
AltaVista in August 1999, CMGI entered into a strategic alliance partnership
with Compaq Computer Corporation (Compaq). This partnership designates CMGI as a
"Premier Internet Technology" supplier to Compaq and is intended to create
mutually beneficial ways of bundling, distributing and promoting products and
services of CMGI network companies on Compaq products.
Organize Majority-Owned Holdings into Lines of Business, Support Focus on
Operating Profitability. CMGI has formally organized its majority-owned
operating companies and its venture capital affiliate into six lines of
business. These six lines of business include five operational disciplines -
Search and Portals; Infrastructure and Enabling Technologies; Internet
Professional Services; eBusiness and Fulfillment; and Interactive Marketing - as
well as CMGI's affiliated venture capital arm, CMGI @Ventures. Key objectives of
this effort include:
. Creation of an evolutionary operating model to support CMGI's growing
prominence as a leader in the global Internet marketplace while
increasing clarity among key audiences about the mission, focus, and
performance of CMGI's business strategy;
. Definition of the key market segments in which CMGI sees its greatest
opportunities for growth and profitability; o Expansion of global
strategic alliances and partnerships that will enable CMGI's operating
companies to enter new markets
. and more effectively deliver technology products and services to the
Global 2000; Extension of CMGI @Ventures' mission to invest in and
help accelerate promising emerging businesses which are complementary
to CMGI's strategic focus;
. Installment of an ongoing review process whereby CMGI will continually
evaluate and evolve its strategy, including the enhancement of
existing business lines and the creation of new operating lines
through potential consolidations, mergers or divestitures to keep pace
with technology innovation and emerging market opportunities;
. A focus on market segments in which CMGI can establish a clear
leadership position;
. A reduction of the operating companies existing today to an optimal
number of 5-10 in total; and,
. Improved financial performance including continued revenue growth, and
a significant reduction in cash flow requirements through improved
operating efficiencies, acquisitions, consolidations and divestitures.
12
Sales and Marketing
Each CMGI operating company maintains its own separate sales and marketing
staffs, enabling the sales personnel to develop strong customer relationships
and expertise in their respective areas. Each company has established their own
direct sales force experienced in each subsidiary's business to address the new
and evolving requirements of the Internet business arena. CMGI and its operating
companies believe that an experienced sales staff is critical to initiating and
maintaining customer relationships. CMGI markets itself through public
relations, its Web site, internally sponsored events and externally facing trade
shows. In addition, in certain instances, the Company has complemented these
activities by retaining advertising and public relations agencies.
The Company attends numerous trade shows in the Internet and high
technology markets, while further supplementing its efforts with space
advertising and product and services listings in appropriate directories. In
addition, the Company sponsors user group meetings for its customers, where new
products and services are highlighted.
Competition
The market for Internet products and services is rapidly evolving and
highly competitive. Although the Company believes that the diverse segments of
the Internet market will provide opportunities for more than one supplier of
products and services similar to those of the Company, it is possible that a
single supplier may dominate one or more market segments. The Company believes
the principal competitive factors in this market are name recognition,
performance, ease of use, variety of value-added services, functionality and
features, and quality of support. Competitors include a wide variety of
companies and organizations, including Internet software, content, service and
technology companies, telecommunication companies, cable companies and
equipment/technology suppliers. Some of the Company's existing competitors, as
well as a number of potential new competitors, have greater financial, technical
and marketing resources than the Company. The Company may also be affected by
competition from licensees of its products and technology. There can be no
assurance that the Company's competitors will not develop Internet products and
services that are superior to those of the Company or that achieve greater
market acceptance than the Company's offerings.
Major competitive issues that the Company faces, by line of business, are
as follows:
Interactive Marketing
- - ---------------------
Interactive Marketing includes, but is not limited to, providing a
portfolio of online marketing products including enterprise-wide promotion
management, profiling and ad serving software, media, media management and
analytics.
A number of the Company's current advertising customers, licensees and
partners have also established relationships with certain of the Company's
competitors, and future advertising customers, licensees and partners may
establish similar relationships. The Company competes with other Internet
advertising networks, including DoubleClick and 24/7 Media. It also competes
with large Web sites and Web portals, such as America Online, Excite@Home,
Microsoft and Yahoo for Internet advertising revenues. In addition, we compete
with traditional media, such as television, radio, cable and print for a share
of advertisers' total advertising budgets.
Interactive marketing continues to be a highly attractive space and CMGI
has a broad product and service coverage. Increasingly, marketers are looking
for solutions versus component products and services. Companies in this sector
are rapidly expanding their product offerings up and down the customer lifecycle
through investments in new products, partnerships and acquisitions.
eBusiness and Fulfillment
- - -------------------------
eBusiness and Fulfillment includes, but is not limited to, providing
services across the entire ebusiness value chain to sell and deliver goods from
the manufacturer to the customer.
CMGI's fulfillment services segment companies have several prominent
competitors for the fulfillment and supply chain management components of its
businesses, and also compete with the internal fulfillment and manufacturing
operations of customers themselves. The companies in this segment also compete
on the basis of pricing, geographic proximity to their clients and the speed and
accuracy with which orders are processed. In the more established ebusiness
segments, such as business-to-consumer and consumer-to-consumer e-commerce, the
market is consolidating around large established Internet players and
established click-and-mortar players.
Search and Portals
- - ------------------
Search and Portals includes, but are not limited to, providing services and
content which connect Internet users to information and entertainment.
13
The Companies search and portal segment faces intense competition, and CMGI
expects competition will continue to intensify. The market is subject to rapid
technological change and significantly affected by new product introductions and
other market activities of industry participants. The Company believes the
principal competitive factors in this market are name recognition, product
performance and functionality, ease of use. size of the Web index, the speed
with which search results return and the relevance of results, pricing and
quality of customer support. many of CMGI's current and potential competitors,
including America Online, Excite, Google, HotBot, Inktomi, Terra Lycos,
Microsoft Network, Northern Light and Yahoo!, have longer operating histories,
larger customer bases, greater brand name recognition, greater access to
proprietary content and significantly greater financial, marketing and other
resources.
Infrastructure and Enabling Technologies
- - ----------------------------------------
Infrastructure and Enabling Technologies includes, but are not limited to,
providing products and services essential to business operations on the
Internet, including outsourced management applications, private-label Internet
access and technology platforms.
The Company faces many large, established competitors, as well as small,
fast-growing competitors, in these markets. The primary markets that the Company
competes in include:
Streaming
There are many small, growing streaming service providers. CMGI's
competition is aggressively pursuing market share and building brand
awareness. Streaming pure-plays, software companies, managed service
providers, and data networking companies are competing in the emerging
streaming market.
Data Connectivity
Data connectivity is the largest segment of the Internet
infrastructure services market. The traditional telecom players, "mega
carriers", and the "next generation networks" all participate in multiple
connectivity segments. Competitors are aggressively building-out capacity
and pursuing revenue share. Both the mega carriers and next generation
networks are adding capacity. There is a trend towards increasing
outsourcing of data transmission management through guaranteed quality of
service agreements and an increasing ubiquity of higher-bandwidth
applications across all business types and consumer use.
Managed Services
To date, the Company has not expanded internationally in this area and
almost all major competitors are global. CMGI's strong position in the
managed hosting segment is threatened by many better-funded competitors
including the telecommunications companies.
Internet Professional Services
- - ------------------------------
Internet Professional Services include, but are not limited to, providing
applications strategy, development, design, and implementation services for
companies seeking to initiate, enhance or redirect their presence on the
Internet.
The Internet professional services market is large and growing. It is
increasingly difficult to differentiate product offerings. A group of five to
seven firms appear to be establishing competitive leadership. Non-Internet
professional services firms (software and product companies) and some middle
tier broad-base services firms may also compete in this market.
Research and Development
The Company develops and markets a variety of Internet related products and
services. These industries are characterized by rapid technological development.
The Company believes that its future success will depend in large part on its
ability to continue to enhance its existing products and services and to develop
other products and services, which complement existing ones. In order to respond
to rapidly changing competitive and technological conditions, the Company
expects to continue to incur significant research and development expenses
during the initial development phase of new products and services as well as on
an on-going basis.
During fiscal years 2000, 1999 and 1998, the Company expended $153,974,000,
$22,253,000 and $19,108,000, respectively, or 17.1%, 11.9% and 20.7%,
respectively, of net revenue, on research and development. In addition, during
fiscal years 2000, 1999 and 1998, the Company recognized $65,683,000, $6,061,000
and $10,325,000, respectively, of in-process research and development expenses
in connection with acquisitions of subsidiaries and investments in affiliates.
See further discussion of in-process research and development expenses in Item 7
below.
14
Intellectual Property and Proprietary Rights
The Company regards its software technologies and databases as
proprietary. The Company relies upon a combination of patent, trade secret,
copyright and trademark laws to protect its intellectual property. It has
entered into confidentiality agreements with its management and key employees
with respect to this software, and limits access to, and distribution of this,
and other proprietary information. However, the steps the Company takes to
protect its intellectual property may not be adequate to deter misappropriation
of the Company's proprietary information. In addition, the Company may be unable
to detect unauthorized uses of and take appropriate steps to enforce its
intellectual property rights.
Although senior management believes that the Company's services and
products do not infringe on the intellectual property rights of others, the
Company is subject to the risk that such a claim may be asserted in the future.
Employees
As of July 31, 2000, the Company employed a total of 5,718 persons on a
full-time basis. None of the Company's employees are represented by a labor
union. The Company believes that its relations with its employees are good.
Segment Information
Segment information is set forth in Note 3 of the Notes to Consolidated
Financial Statements referred to in Item 8(a) below and incorporated herein by
reference.
Significant Customers
Significant customers information is set forth under the heading
"Diversification of Risk" in Note 2 of the Notes to Consolidated Financial
Statements referred to in Item 8(a) below and incorporated herein by reference.
ITEM 2. - PROPERTIES
The location and general character of the Company's principal
properties by industry segment as of October 4, 2000 are as follows:
Interactive Marketing Segment
In its Interactive Marketing segment, the Company leases approximately
518,000 square feet of office, storage, production and assembly, sales and
marketing, and operations space, principally in California, Massachusetts,
Illinois, North Carolina and Europe under leases expiring from 2000 to 2010.
Approximately 73,000 square feet is sublet to third parties.
eBusiness and Fulfillment Segment
In its eBusiness and Fulfillment segment, the Company leases
approximately 1,357,000 square feet of office, storage, warehouse, production
and assembly, sales and marketing, and operations space, principally in
Massachusetts, Tennessee, California, Illinois and Mexico under leases expiring
from 2000 to 2013.
Search and Portals Segment
In its Search and Portals segment, the Company leases approximately
665,000 square feet of office, administrative, engineering, sales and marketing,
operations and data center space, principally in California, Massachusetts and
New York under leases expiring from 2000 to 2009. Approximately 24,000 square
feet is sublet to third parties.
Infrastructure and Enabling Technologies Segment
In its Infrastructure and Enabling Technologies segment, the Company
leases approximately 528,000 square feet of office, storage, production and
assembly, sales and marketing, data center and operations space, principally in
Massachusetts, California, Washington and Texas, under leases expiring from 2001
to 2011.
15
Internet Professional Services Segment
In its Internet Professional Services segment, the Company leases
approximately 87,000 square feet of office, storage, production and assembly,
sales and marketing, and operations space, principally in Connecticut, Virginia
and New York under leases expiring from 2000 to 2007.
Other
In addition, the Company leases approximately 334,500 square feet
principally in Massachusetts, California, Illinois and New York, under leases
expiring from 2002 to 2010. These facilities consist of executive office space
for the Company's corporate and venture capital line of business headquarters,
as well as administrative, engineering, sales and marketing, and operations
space.
ITEM 3. LEGAL PROCEEDINGS
On March 16, 2000, a derivative action was filed in the Court of
Chancery of the State of Delaware against the Company, Edward A. Bennett,
Christopher A. Evans, Craig D. Goldman, Andrew J. Hajducky III, Frederic D.
Rosen, Paul L. Schaut, David S. Wetherell and Engage, Inc. The complaint arose
out of the intended sale by CMGI of its subsidiaries, Flycast and Adsmart, to
Engage, as announced on or about January 20, 2000. The plaintiff alleged, inter
alia, that CMGI and the individual defendants violated their fiduciary duties,
duties of loyalty and good faith, and engaged in self-dealing with regard to the
transaction, which the complaint alleged is unfair to Engage. The complaint
requested, inter alia, that the court (1) enjoin the defendants from taking any
steps in furtherance of the transaction; (2) award recissory damages to Engage
and rescind the transaction if it is consummated; (3) direct the defendants to
account to Engage for its damages and CMGI's profits; and (4) award the
plaintiff her costs, disbursements and fees. On August 15, 2000, the plaintiff
filed a stipulation of dismissal without prejudice. On August 21, 2000, the
court endorsed the stipulation and dismissed the matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information required by this Item is set forth under Item 4 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30,
2000.
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market information is set forth in Note 19 of the Notes to Consolidated
Financial Statements referred to in Item 8(a) below and is incorporated herein
by reference.
On October 23, 2000, there were 4,534 holders of record of Common Stock
of the Company.
The Company has never declared or paid cash dividends on its common
stock. The Company currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors after taking into account various factors,
including the Company's financial condition, operating results, current and
anticipated cash needs and plans for expansion.
On January 18, 2000, the Company acquired all of the outstanding
membership interests of Green Witch, LLC, a California limited liability company
(Green Witch). Pursuant to the terms of the acquisition agreement, the Company,
among other things, agreed to issue up to an aggregate of 233,009 shares of
Common Stock to members of Green Witch in exchange for such membership
interests. The issuance of such shares of Common Stock is subject to the
satisfaction of certain terms and conditions contained in the acquisition
agreement. On June 23, 2000, the Company issued and sold an aggregate of 25,654
shares of Common Stock to former members of Green Witch and certain associated
parties in reliance on Section 4(2) of the Securities Act of 1933, as amended,
as a sale by the Company not involving a public offering. No underwriters were
involved with the issuance and sale of the shares of Common Stock.
On May 4, 2000, Comdisco, Inc. (Comdisco) exercised an outstanding
warrant for the purchase of shares of the Company's common stock on a net
issuance basis. Pursuant to the terms of the warrant, the Company issued an
aggregate of 63,642 shares of Common Stock to Comdisco. The shares of Common
Stock were issued and sold to Comdisco in reliance on Section 4(2) of the
Securities Act of 1933, as amended, as a sale by the Company not involving a
public offering. No underwriters were involved with the issuance and sale of the
shares of Common Stock. Also on May 4, 2000, Comdisco exercised an outstanding
warrant for the purchase of shares of the Company's common stock on a net
issuance basis. Pursuant to the terms of the warrant, the Company issued an
aggregate of 48,681 shares of Common Stock to Comdisco. The shares of Common
Stock were issued and sold to Comdisco in reliance on Section 4(2) of the
Securities Act of 1933, as amended, as a sale by the Company not involving a
public offering. No underwriters were involved with the issuance and sale of the
shares of Common Stock.
On May 19, 2000, the Company and Primedia, Inc., a Delaware corporation
(Primedia), completed an exchange of stock. The Company received 8,000,000
shares of Primedia stock in exchange for 1,532,567 shares of the Company's
common stock. The shares of Common Stock were issued and sold to Primedia in
reliance on Section 4(2) of the Securities Act of 1933, as amended, as a sale by
the Company not involving a public offering. No underwriters were involved with
the issuance and sale of the shares of Common Stock.
On June 9, 2000, the Company acquired an approximate 33% ownership
interest in Freeup LLC, a Delaware limited liability company ("Freeup").
Pursuant to the terms of the acquisition agreement, on such date the Company,
among other things, (i) issued and sold 42,230 shares of its Common Stock to
Compaq Computer Corporation, a Delaware corporation (Compaq), for an aggregate
purchase price of $3,000,000 and (ii) issued and sold 61,234 shares of its
Common Stock to CPCG Holdings, Inc., a Delaware corporation and a wholly owned
subsidiary of Compaq (CPCG), in exchange for certain of the outstanding
membership interests in Freeup then held by CPCG. The shares of Common Stock
were issued and sold to Compaq and CPCG in reliance on Section 4(2) of the
Securities Act of 1933, as amended, as a sale by the Company not involving a
public offering. No underwriters were involved with the issuance and sale of the
shares of Common Stock.
On June 15, 2000, the Company acquired all of the outstanding
membership interests of Shortbuzz.com LLC, a Delaware limited liability company
(Shortbuzz). Pursuant to the terms of the acquisition agreement, the Company,
among other things, agreed to issue up to an aggregate of 17,957 shares of
Common Stock to members of Shortbuzz in exchange for such membership interests.
The issuance of certain of such shares of Common Stock is subject to the
satisfaction of certain terms and conditions contained in the acquisition
agreement. The shares of Common Stock were, or are to be, issued and sold to the
members of Shortbuzz in reliance on Section 4(2) of the Securities Act of 1933,
as amended, as a sale by the Company not involving a public offering. No
underwriters were involved with the issuance and sale of the shares of Common
Stock.
On August 18, 2000, pursuant to the terms of a promissory note issued
by the Company on August 18, 1999 to Compaq in the original principal amount of
$82,000,000 in connection with the Company's acquisition of AltaVista Company,
the Company issued an aggregate of 116,495 shares of Common Stock to Compaq in
satisfaction of interest due and payable. The shares of Common Stock were issued
and sold to Compaq in reliance on Section 4(2) of the Securities Act of 1933, as
amended, as a sale by the Company not involving a public offering. No
underwriters were involved with the issuance and sale of the shares of Common
Stock. On August 18,
17
2000, pursuant to the terms of a promissory note issued by the Company on August
18, 1999 to Compaq in the original principal amount of $138,000,000 in
connection with the Company's acquisition of AltaVista Company, the Company
issued an aggregate of 196,052 shares of Common Stock to Compaq in satisfaction
of interest due and payable. The shares of Common Stock were issued and sold to
Compaq in reliance on Section 4(2) of the Securities Act of 1933, as amended, as
a sale by the Company not involving a public offering. No underwriters were
involved with the issuance and sale of the shares of Common Stock.
On July 18, 2000, pursuant to the terms of a Purchase Agreement dated
as of February 3, 2000, the Company and divine Interventures, inc., a Delaware
corporation (divine), completed an exchange of stock. The Company received
1,701,900 shares of divine common stock in exchange for 372,000 shares of the
Company's common stock. The shares of Common Stock were issued and sold to
divine in reliance on Section 4(2) of the Securities Act of 1933, as amended, as
a sale by the Company not involving a public offering. No underwriters were
involved with the issuance and sale of the shares of Common Stock.
ITEM 6. - SELECTED CONSOLIDATED FINANCIAL DATA
The information required by this Item is set forth under the caption
"Selected Consolidated Financial Data" appearing in the 2000 Annual Report to
Stockholders and is incorporated herein by reference and is filed herewith as
Exhibit 13.1.
ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing in the 2000 Annual Report to Stockholders, and is
incorporated herein by reference and is filed herewith as Exhibit 13.2.
ITEM 7A. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to equity price risks on the marketable portion
of its equity securities. The Company's available-for-sale securities at July
31, 2000 include equity positions in companies in the Internet industry sector,
many of which have experienced significant historical volatility in their stock
prices. The Company typically does not attempt to reduce or eliminate its market
exposure on these securities. A 20% adverse change in equity prices, based on a
sensitivity analysis of the Company's available-for-sale securities portfolio as
of July 31, 2000, would result in an approximate $319.0 million decrease in the
fair value of the Company's available-for-sale securities.
The carrying values of financial instruments including cash and cash
equivalents, accounts receivable, accounts payable and notes payable,
approximate fair value because of the short maturity of these instruments. The
carrying value of long-term debt approximates its fair value, as estimated by
using discounted future cash flows based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
The Company uses derivative financial instruments primarily to reduce
exposure to adverse fluctuations in interest rates on its borrowing
arrangements. The Company does not enter into derivative financial instruments
for trading purposes. As a matter of policy all derivative positions are used to
reduce risk by hedging underlying economic exposure. The derivatives the Company
uses are straightforward instruments with liquid markets. At July 31, 2000 the
Company was primarily exposed to the London Interbank Offered Rate (LIBOR)
interest rate on its bank borrowing arrangements. Information about the
Company's borrowing arrangements including principal amounts and related
interest rates appears in Note 12 of the Notes to Consolidated Financial
Statements referred to in Item 8(a) below and is incorporated herein by
reference.
The Company has historically had very low exposure to changes in
foreign currency exchange rates, and as such, has not used derivative financial
instruments to manage foreign currency fluctuation risk. As the Company expands
globally, the risk of foreign currency exchange rate fluctuation may
dramatically increase. Therefore, in the future, the Company may consider
utilizing derivative instruments to mitigate such risks.
18
ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The following consolidated financial statements of the Company and
independent auditors' report required by this Item are set forth in the 2000
Annual Report to Stockholders and are incorporated herein by reference and are
filed herewith as Exhibit 13.3:
- Consolidated Balance Sheets as of July 31, 2000 and 1999
- Consolidated Statements of Operations for the three years ended
July 31, 2000
- Consolidated Statements of Stockholders' Equity for the three
years ended July 31, 2000
- Consolidated Statements of Cash Flows for the three years ended
July 31, 2000
- Notes to
Consolidated Financial Statements- Independent Auditors' Report
(b) Selected Quarterly Financial Data (unaudited) is set forth in
Note 19 of the Notes to Consolidated Financial Statements referred to in Item 8
(a) above and is incorporated herein by reference.
ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
PART III
ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the portions of the Definitive Proxy
Statement entitled "Proposal 1--Election of Directors," "Additional
Information - Management," and "Additional Information - Section 16(a)
Beneficial Ownership Reporting Compliance."
ITEM 11. - EXECUTIVE COMPENSATION
Incorporated by reference to the portions of the Definitive Proxy
Statement entitled "Additional Information -- Executive Compensation,"
"Additional Information -- Director Compensation," "Additional Information --
Human Resources and Compensation Committee Report," "Additional Information --
Stock Performance Graph," and "Additional Information -- Employment Agreements
and Severance and Change of Control Arrangements."
ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the portion of the Definitive Proxy
Statement entitled "Security Ownership of Certain Beneficial Owners and
Management."
ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the portion of the Definitive Proxy
Statement entitled "Additional Information -- Certain Relationships and Related
Transactions."
20
PART IV
ITEM 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) Financial Statements, Financial Statement Schedule, and Exhibits
1. Financial Statements. The financial statements as set forth under Item
8 of this report on Form 10-K are incorporated herein by reference.
-Consolidated Balance Sheets as of July 31, 2000 and 1999
-Consolidated Statements of Operations for the three years ended
July 31, 2000, 1999 and 1998
-Consolidated Statements of Stockholders' Equity for the three
years ended July 31, 2000, 1999 and 1998 -
-Consolidated Statements of Cash Flows for the three years ended
July 31, 2000, 1999 and 1998
-Notes to Consolidated Financial Statements
-Independent Auditors' Report
2. Financial Statement Schedule. Financial Statement Schedule II of the
Company and the corresponding Report of Independent Auditors on
Financial Statement Schedule are included in this Report.
All other financial statement schedules have been omitted since they
are either not required, not applicable, or the information is
otherwise included.
3. Exhibits. The Exhibits listed in the Exhibit Index immediately
preceding such Exhibits are filed as part of this Annual Report on
Form 10-K.
(B) Reports on Form 8-K
On May 10, 2000, the Company filed a Current Report on Form 8-K dated April
28, 2000 to report under Item 2 (Acquisition or Disposition of Assets) the
acquisition by Engage, Inc. of Adsmart Corporation and Flycast Communications
Corporation from the Company. No financial statements were filed with such
report.
On May 25, 2000, the Company filed a Current Report on Form 8-K dated March
10, 2000 to report under Item 5 (Other Events) the acquisition by the Company of
yesmail.com, inc. and uBid, Inc. No financial statements were filed with such
report.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CMGI, INC.
Date: October 30, 2000 By: /s/ David S. Wetherell
----------------------
David S. Wetherell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been duly signed below by the following persons on behalf of the
Registrant and in the capacities and on the date set forth above.
Signature Title
- - --------- -----
/s/ David S. Wetherell Chairman of the Board, President,
- - ---------------------------- Chief Executive Officer and
David S. Wetherell Director (Principal Executive Officer)
/s/ Andrew J. Hajducky III Executive Vice President, Chief Financial Officer
- - ---------------------------- and Treasurer (Principal Financial and
Andrew J. Hajducky III, CPA Accounting Officer)
Director
- - ----------------------------
William H. Berkman
/s/ Harold F. Enright, Jr. Director
- - ----------------------------
Harold F. Enright, Jr.
/s/ Craig D. Goldman Director
- - ----------------------------
Craig D. Goldman
/s/ Avram Miller Director
- - ----------------------------
Avram Miller
/s/ Robert J. Ranalli Director
- - ----------------------------
Robert J. Ranalli
22
EXHIBIT INDEX
-------------
2.1 Purchase and Contribution Agreement, dated as of June 29, 1999, by and
among the Registrant, Compaq Computer Corporation, Digital Equipment
Corporation, AltaVista Company and Zoom Newco Inc. is incorporated
herein by reference to Exhibit 2.1 to the Registrant's Current Report
on Form 8-K dated August 18, 1999 (File No. 000-23262).
2.2 Amendment No. 1 to Purchase and Contribution Agreement, dated as of
August 18, 1999, by and among the Registrant, Compaq Computer
Corporation, Digital Equipment Corporation, AltaVista Company and Zoom
Newco Inc. is incorporated herein by reference to Exhibit 2.2 to the
Registrant's Current Report on Form 8-K dated August 18, 1999 (File
No. 000-23262).
2.3 Agreement and Plan of Merger, dated as of September 29, 1999, by and
among the Registrant, Freemont Corporation and Flycast Communications
Corporation is incorporated herein by reference to Annex A to the
Proxy Statement/Prospectus which is part of the Registrant's
Registration Statement on Form S-4 (File No. 333-92107).
2.4 Amended and Restated Agreement and Plan of Merger, dated as of
September 20, 1999, by and among the Registrant, Artichoke Corp. and
AdForce, Inc. is incorporated herein by reference to Annex A to the
Proxy Statement/Prospectus which is part of the Registrant's
Registration Statement on Form S-4 (File No. 333-92139).
2.5 Amendment No. 1 to Amended and Restated Agreement and Plan of Merger,
dated as of January 10, 2000, by and among the Registrant, Artichoke
Corp. and AdForce, Inc. is incorporated herein by reference to Exhibit
2.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended January 31, 2000 (File No. 000-23262).
2.6 Agreement and Plan of Merger and Reorganization, dated as of December
14, 1999, by and among the Registrant, Mars Acquisition, Inc. and
yesmail.com inc. is incorporated herein by reference to Annex A to the
Proxy Statement/Prospectus which is part of the Registrant's
Registration Statement on Form S-4 (File No. 333-95977).
2.7 Agreement and Plan of Merger and Contribution, dated January 19, 2000,
by and among the Registrant, Engage, Inc., Adsmart Corporation, Flycast
Communications Corporation and FCET Corp. is incorporated herein by
reference to Exhibit 10.1 to Engage's Quarterly Report on Form 10-Q for
the fiscal quarter ended January 31, 2000 (File No. 000-26671).
2.8 Agreement and Plan of Merger and Reorganization, dated as of February
9, 2000, by and among the Registrant, Senlix Corporation and uBid, Inc.
is incorporated by reference to Annex A to the Proxy
Statement/Prospectus which is part of the Registrant's Registration
Statement on Form S-4 (File No. 333-32158).
2.9 Agreement and Plan of Merger and Contribution by and among the
Registrant, Engage Technologies, Inc., AK Acquisition Corp. and
AdKnowledge Inc. dated as of September 23, 1999, as amended, is
incorporated herein by reference to Exhibit 10.1 to Engage's Quarterly
Report on Form 10-Q for the fiscal quarter ended October 31, 1999 (File
No. 000-26671).
3.1 Restated Certificate of Incorporation of the Registrant is incorporated
herein by reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-3 (File No. 333-85047).
3.2 Certificate of Designations, Preferences and Rights of Series D
Preferred Stock of the Registrant is incorporated herein by reference
to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated
August 18, 1999 (File No. 000-23262).
3.3 Amendment of Restated Certificate of Incorporation of the Registrant,
dated May 5, 2000 is incorporated herein by reference to Exhibit 3.1 to
the Registrant's Quarterly Report on From 10-Q for the fiscal quarter
ended April 30, 2000 (File No. 000-23262).
3.4 Restated By-Laws of the Registrant, as amended, are incorporated herein
by reference to Exhibit 3.3 of the Registrant's Registration Statement
on Form S-4 (File No. 333-92107).
4.1 Specimen stock certificate representing the Registrant's Common Stock
is incorporated herein by reference to Exhibit 4.1 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 31, 1999
(File No. 000-23262).
4.2 Promissory note, dated August 18, 1999, issued to Digital Equipment
Corporation, in the principal amount of $138,000,000 is incorporated
herein by reference to Exhibit 4.2 to the Registrant's Current Report
on Form 8-K dated August 18, 1999 (File No. 000-23262).
23
4.3 Promissory note, dated August 18, 1999, issued to Compaq Computer
Corporation, in the principal amount of $82,000,000 is incorporated
herein by reference to Exhibit 4.3 to the Registrant's Current Report
on Form 8-K dated August 18, 1999 (File No. 000-23262).
4.4 Form of senior indenture is incorporated herein by reference to Exhibit
4.1 to the Registrant's Registration Statement on Form S-3 (File No.
333-93005).
4.5 Form of subordinated indenture is incorporated herein by reference to
Exhibit 4.2 to the Registrant's Registration Statement on Form S-3
(File No. 333-93005).
10.1* 1986 Stock Option Plan, as amended, is incorporated herein by reference
to Appendix IV to the Registrant's Definitive Schedule 14A filed
November 17, 1999 (File No. 000-23262).
10.2* Amended and Restated 1995 Employee Stock Purchase Plan.
10.3* 1995 Stock Option Plan for Non-Employee Directors, as amended, is
incorporated herein by reference to Appendix III to the Registrant's
Definitive Schedule 14A filed November 17, 1999 (File No. 000-23262).
10.4* Amended and Restated 1999 Stock Option Plan for Non-Employee Directors
is incorporated herein by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended April 30,
2000 (File No. 000-23262).
10.5* CMGI and Participating Subsidiaries Deferred Compensation Plan, is
incorporated by reference to Exhibit 10.9 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended January 31, 1999 (File
No. 000-23262).
10.6* Employment Agreement, dated August 1, 1993, between the Registrant and
David S. Wetherell is incorporated herein by reference to Exhibit 10.10
of the Registrant's Registration Statement on Form S-1 (File No. 33-
71518).
10.7* Amendment No. 1 to Employment Agreement, dated January 20, 1994,
between the Registrant and David S. Wetherell is incorporated herein by
reference to Exhibit 10.18 of the Registrant's Registration Statement
on Form S-1 (File No. 33-71518).
10.8* Amendment No. 2 to Employment Agreement, dated October 25, 1996,
between the Registrant and David S. Wetherell is incorporated herein by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended October 31, 1996 (File No.
000-23262).
10.9* Form of Director Indemnification Agreement (executed by the Registrant
and each of David S. Wetherell, William H. Berkman, Harold F. Enright,
Jr., Craig D. Goldman, Avram Miller and Robert J. Ranalli) is
incorporated herein by reference to Exhibit 10.1 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 31, 1998
(File No. 000-23262).
10.10 Lease dated as of April 12, 1999 between Andover Mills Realty Limited
Partnership and the Registrant for premises located at 100 Brickstone
Square, Andover, Massachusetts is incorporated herein by reference to
Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31, 1999 (File No. 000-23262).
10.11 Amendment No. 1 to Lease dated as of July 19, 1999 between Andover
Mills Realty Limited Partnership and the Registrant for premises
located at 100 Brickstone Square, Andover, Massachusetts is
incorporated herein by reference to Exhibit 10.2 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 31, 1999
(File No. 000-23262).
10.12 Amendment No. 2 to Lease, dated as of November 12, 1999, between
Andover Mills Realty Limited Partnership and the Registrant for
premises located at 100 Brickstone Square, Andover, Massachusetts is
incorporated herein by reference to Exhibit 10.6 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended October 31,
1999 (File No. 000-23262).
10.13 Amendment No. 3 to Lease dated as of March 28, 2000 between Andover
Mills Realty Limited Partnership and the Registrant for premises
located at 100 Brickstone Square, Andover, Massachusetts.
10.14 Amendment No. 4 to Lease, dated as of May 11, 2000 between Andover
Mills Realty Limited Partnership and the Registrant for premises
located at 100 Brickstone Square, Andover, Massachusetts.
24
10.15 Lease Agreement by and between Carolina Blackhawk, LLC and Engage
Technologies, Inc. dated October 1999, is incorporated herein by
reference to Exhibit 10.3 to Engage's Quarterly Report on Form 10-Q for
the quarter ended October 31, 1999 (File No. 000-26671).
10.16 Lease Agreement by and between TST 555/575 Market, L.L.C. as landlord
and Engage, Inc. as tenant, dated December 22, 1999 is incorporated
herein by reference to Exhibit 10.2 to Engage's Quarterly Report on
Form 10-Q for the fiscal quarter ended January 31, 2000 (File No.
000-26671).
10.17 First Amendment to the Lease Agreement by and between TST 555/575
Market, L.L.C. as landlord and Engage as tenant, dated March 20, 2000
is incorporated herein by reference to Exhibit 10.4 to Engage's
Quarterly Report on Form 10-Q for the fiscal quarter ended April 30,
2000 (File No. 000-26671).
10.18 Lease dated as of September 13, 1999 between Arastradero Property and
AltaVista Company for premises located at 1070 Arastradero Road, Palo
Alto, California is incorporated herein by reference to Exhibit 10.3 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
July 31, 1999 (File No. 000-23262).
10.19 Indenture of Lease dated as of August 16, 1999, between 622 Building
Company LLC and iCAST, Inc. for premises located at 622 Third Avenue,
New York, New York is incorporated herein by reference to Exhibit 10.4
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended July 31, 1999 (File No. 000-23262).
10.20 Lease, dated January 6, 1998, between the Medford Nominee Trust and
SalesLink Corporation for premises located at 425 Medford Street,
Boston, Massachusetts is incorporated herein by reference to Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended April 30, 1998 (File No. 000-23262).
10.21 Lease, dated September 1, 1998, between Cabot Industrial Properties,
L.P. and SalesLink Corporation for premises at 6112 West 73rd Street,
Bedford Park, Illinois is incorporated herein by reference to Exhibit
10.6 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended July 31, 1999 (File No. 000-23262).
10.22 Lease, dated June 30, 1995, between Windy Pacific Partners and Pacific
Mailing Corporation for premises located at Lot #2, Dumbarton Business
Center, Central Ave., Newark, California is incorporated herein by
reference to Exhibit 10.7 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended July 31, 1999 (File No. 000-23262).
10.23 First Amendment to Lease Between Windy Pacific Partners and Pacific
Mailing Corporation, dated May 28, 1996 for premises located at Lot #2,
Dumbarton Business Center, Central Ave., Newark, California is
incorporated herein by reference to Exhibit 10.8 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 31, 1999
(File No. 000-23262).
10.24 Lease, dated July 30, 1995, between Windy Pacific Partners and Pacific
Mailing Corporation for premises located at Lot #3, Dumbarton Business
Center, Central Ave., Newark, California is incorporated herein by
reference to Exhibit 10.9 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended July 31, 1999 (File No. 000-23262).
10.25 First Amendment to Lease Between Windy Pacific Partners and Pacific
Mailing Corporation, dated December 22, 1995 for premises located at
Lot #3, Dumbarton Business Center, Central Ave., Newark, California is
incorporated herein by reference to Exhibit 10.10 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 31, 1999
(File No. 000-23262).
10.26 Second Amendment to Lease Between Windy Pacific Partners and Pacific
Mailing Corporation, dated May 28, 1996 for premises located at Lot #3,
Dumbarton Business Center, Central Ave., Newark, California is
incorporated herein by reference to Exhibit 10.11 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 31, 1999
(File No. 000-23262).
10.27 Third Amendment to Lease Between Windy Pacific Partners and Pacific
Mailing Corporation, dated September 25, 1996 for premises located at
Lot #3, Dumbarton Business Center, Central Ave., Newark, California is
incorporated herein by reference to Exhibit 10.12 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 31, 1999
(File No. 000-23262).
10.28 Lease, dated September 25, 1996, between Windy Pacific Partners and
Pacific Direct Marketing Corp. DBA Pacific Link for premises at Lot #4
Dumbarton Business Center, Central Ave., Newark, California is
incorporated herein by reference to Exhibit 10.13 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 31, 1999
(File No. 000-23262).
10.29 Capital & Counties plc and Engage Technologies Limited underlease,
dated April 27, 1999, is incorporated herein by reference to Exhibit
10.14 to Engage's Registration Statement on Form S-1 (File No.
333-78015).
25
10.30 Anthony & Co. Office Lease between Milkson Associates, LLC and
Accipiter, Inc., dated April 9, 1997 is incorporated herein by
reference to Exhibit 10.15 to Engage's Registration Statement on
Form S-1 (File No. 333-78015).
10.31 Amendment to Lease Agreement between Milkson Associates, LLC and
Accipiter, Inc. dated November 5, 1997 is incorporated herein by
reference to Exhibit 10.16 to Engage's Registration Statement on
Form S-1 (File No. 333-78015).
10.32 Lease dated as of March, 1997 by and between William J. Callahan and
William J. Callahan, Jr., as trustees of Andover Park Realty Trust, and
the Registrant is incorporated herein by reference to Exhibit 10.5 to
NaviSite's Registration Statement on Form S-1 (File No. 333-83501).
10.33 Lease dated as of May 14, 1999 by and between 400 River Limited
Partnership and NaviSite, Inc. is incorporated herein by reference to
Exhibit 10.6 to NaviSite's Registration Statement on Form S-1 (File No.
333-83501).
10.34 Lease made as of April 30, 1999 by and between CarrAmerica Realty
Corporation and NaviSite, Inc. is incorporated herein by reference to
Exhibit 10.7 to NaviSite's Registration Statement on Form S-1 (File No.
333-83501).
10.35 Lease made as of August 31, 2000 by and between Industrial Developments
International (Tennessee), L.P. and SalesLink Corporation for premises
located at 6100 Holmes Road, Suite 101, Memphis, Tennessee.
10.36 Lease dated March 14, 2000 by and between CMGI (UK) Limited and Britel
Fund Trustees Limited for premises (third floor) located at Prospect
House, 80 to 110 New Oxford Street London WC1.
10.37 Lease dated March 14, 2000 by and between CMGI (UK) Limited and Britel
Fund Trustees Limited for premises (fourth floor) located at Prospect
House, 80 to 110 New Oxford Street London WC1.
10.38 Lease dated March 14, 2000 by and between CMGI (UK) Limited and Britel
Fund Trustees Limited for premises (fifth floor) located at Prospect
House, 80 to 110 New Oxford Street London WC1.
10.39 Indenture of Lease made as of March 2000 by and between the Registrant
and 622 Building Company LLC for premises located at 622 Third Avenue,
New York, NY.
10.40 Lease dated as of February 4, 2000 by and between the Registrant and
TST 555/575 Market, L.L.C. for premises located at 575 Market Street,
San Francisco, California.
10.41 First Amendment to Lease dated as of February 29, 2000 by and between
the Registrant and TST 555/575 Market, L.L.C. for premises located at
575 Market Street, San Francisco, California.
10.42 Lease dated May 9, 2000 by and between CMGI (UK) Limited and SA
Daffodil for premises located at 43-45-47 Avenue de la Grande Armee,
22-24 rue Chalgrin, Paris, France.
10.43 Lease dated September 22, 2000 by and between CMGI (UK) Limited and
DIFA for premises located at Chilehaus, Fischertwiete 2, 20095 Hamburg.
10.44 Share Exchange Agreement, dated as of September 22, 1999, by and
between the Registrant and Pacific Century CyberWorks Limited is
incorporated herein by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended October 31,
1999 (File No. 000-23262).
10.45 Registration Rights Agreement, dated as of November 29, 1999, by and
between the Registrant and Pacific Century CyberWorks Limited is
incorporated herein by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended October 31,
1999 (File No. 000-23262).
10.46 Stock Purchase Agreement, dated as of June 19, 2000, by and among the
Registrant, Engage, Inc. and Compaq Computer Corporation is
incorporated herein by reference to Exhibit 1 to the Registrant's
Schedule 13D/A, dated June 19, 2000 (File No. 005-58487).
10.47 Common Stock Purchase Agreement, dated as of June 8, 2000, by and
between the Registrant and NaviSite, Inc. in incorporated herein by
reference to Exhibit 10.1 to NaviSite's Quarterly Report on Form 10-Q
for the fiscal quarter ended April 30, 2000 (File No. 000-27597).
26
10.48 Securities Purchase Agreement, dated December 21, 1998, by and among
the Registrant and RGC International Investors, LDC and RGC Investments
II, L.P. is incorporated herein by reference to Exhibit 99.1 to the
Registrant's Current Report on Form 8-K dated December 22, 1998 (File
No. 000-23262).
10.49 Registration Rights Agreement, dated December 21, 1998, by and among
the Registrant and RGC International Investors, LDC and RGC Investments
II, L.P. is incorporated herein by reference to Exhibit 99.2 to the
Registrant's Current Report on Form 8-K dated December 22, 1998 (File
No. 000-23262).
10.50 Securities Purchase Agreement, dated as of June 29, 1999, by and among
the Registrant and the investors named therein is incorporated herein
by reference to Exhibit 99.1 to the Registrant's Current Report on
Form 8-K dated June 29, 1999 (File No. 000-23262).
10.51 Registration Rights Agreement, dated as of June 29, 1999 by and among
the Registrant and the investors named therein is incorporated herein
by reference to Exhibit 99.2 to the Registrant's Current Report on
Form 8-K dated June 29, 1999 (File No. 000-23262).
10.52 CMG Stock Purchase Agreement, dated as of December 10, 1996 by and
between the Registrant and Microsoft Corporation is incorporated herein
by reference to Exhibit 99.1 to the Registrant's Current Report on Form
8-K dated January 31, 1997 (File No. 000-23262).
10.53 Common Stock Purchase Agreement dated as of December 19, 1997 by and
between the Registrant and Intel Corporation is incorporated herein by
reference to Exhibit 99.1 to the Registrant's Current Report on
Form 8-K dated December 19,1997 (File No. 000-23262).
10.54 Common Stock Purchase Agreement dated as of February 15, 1998 by and
between the Registrant and Sumitomo Corporation is incorporated herein
by reference to Exhibit 99.1 to the Registrant's Current Report on
Form 8-K dated February 27, 1998 (File No. 000-23262).
10.55* CMG @Ventures, Inc. Deferred Compensation Plan is incorporated herein
by reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended April 30, 1997 (File No.
000-23262).
10.56* CMG @Ventures I, LLC Limited Liability Company Agreement, dated
December 18, 1997 is incorporated herein by reference to Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended April 30, 1998 (File No. 000-23262).
10.57* CMG @Ventures II, LLC Operating Agreement, dated as of February 26,
1998 is incorporated herein by reference to Exhibit 10.69 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended July
31, 1998 (File No. 000-23262).
10.58* Summary of Management's Interests in the @Ventures III Venture Capital
Funds is incorporated herein by reference to Exhibit 10.45 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended July
31, 1999 (File No. 000-23262).
10.59* Limited Liability Company Agreement of CMG @Ventures III, LLC, dated
August 7, 1998 is incorporated herein by reference to Exhibit 10.46 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
July 31, 1999 (File No. 000-23262).
10.60* Agreement of Limited Partnership of @Ventures III, L.P., dated August
7, 1998 is incorporated herein by reference to Exhibit 10.47 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended July
31, 1999 (File No. 000-23262).
10.61* Amendment No. 1 to the Agreement of Limited Partnership of @Ventures
III, L.P., dated August 7, 1998 is incorporated herein by reference to
Exhibit 10.48 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31, 1999 (File No. 000-23262).
10.62* Agreement of Limited Partnership of @Ventures Foreign Fund III, L.P.,
dated December 22, 1998 is incorporated herein by reference to Exhibit
10.49 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended July 31, 1999 (File No. 000-23262).
10.63* Amendment No. 1 to the Agreement of Limited Partnership of @Ventures
Foreign Fund III, L.P., dated December 22, 1998 is incorporated herein
by reference to Exhibit 10.50 to the Registrant's Annual Report on Form
10-K for the fiscal year ended July 31, 1999 (File No. 000-23262).
27
10.64* Agreement of Limited Partnership of @Ventures Expansion Fund, L.P.,
dated as of February 25, 2000.
10.65* Agreement of Limited Partnership of @Ventures Foreign Expansion Fund,
L.P., dated as of March 8, 2000.
10.66* Limited Liability Company Agreement of @Ventures Expansion Partners,
LLC, dated as of February 10, 2000.
10.67* Limited Liability Company Agreement of CMG@Ventures Expansion, LLC,
dated as of February 10, 2000.
13.1 Portions of the Registrant's 2000 Annual Report to Stockholders
(Selected Consolidated Financial Data) (which is not deemed to be
"filed" except to the extent that portions thereof are expressly
incorporated by reference in this Annual Report on Form 10-K).
13.2 Portions of the Registrant's 2000 Annual Report to Stockholders (MD&A)
(which is not deemed to be "filed" except to the extent that portions
thereof are expressly incorporated by reference in this Annual Report
on Form 10-K).
13.3 Portions of the Registrant's 2000 Annual Report to Stockholders
(Audited Financial Statements) (which is not deemed to be "filed"
except to the extent that portions thereof are expressly incorporated
by reference in this Annual Report on Form 10-K).
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule for the fiscal years ended July 31, 2000
and 1999.
_______________
* Management contract or compensatory plan or arrangement filed in response
to Item 14(a)(3) of the instructions to Form 10-K.
28
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
CMGI, Inc.:
Under the date of September 21, 2000, except as to Note 20, which is as of
October 27, 2000, we reported on the consolidated balance sheets of CMGI, Inc.
and subsidiaries as of July 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended July 31, 2000, which are included in the
Form 10-K for the year ended July 31, 2000. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule of Valuation and Qualifying Accounts
in the Form 10-K. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG LLP
KPMG LLP
Boston, Massachusetts
September 21, 2000
29
CMGI, INC.
SCHEDULE II
Valuation and Qualifying Accounts
For the years ended July 31, 2000, 1999, 1998
Additions Deductions
---------------------------------------- ------------------------------------
Accounts Additions Deductions
Receivable, Charged to (Charged
Allowance for Balance at Costs and against (a) Balance at
Doubtful beginning of Expenses Accounts Deconsolidation / end
Accounts period Acquisitions (Bad Debt Expense) Receivable) Dispositions of period
-------- ------ ------------ ---------------- ---------- ------------ ---------
2000 $ 3,034,000 $ 12,168,000 $ 32,231,000 $ 12,650,000 $ 165,000 $34,618,000
1999 $ 900,000 $ 484,000 $ 2,528,000 $ 878,000 $ - $ 3,034,000
1998 $ 946,000 $ 264,000 $ 448,000 $ 99,000 $ 659,000 $ 900,000
(a) Amount of $165,000 in fiscal 2000 relates to the effect of the
deconsolidation of Blaxxun, Inc. on March 31, 2000. Amount of $659,000 in
fiscal 1998 relates to the effect of the deconsolidation of Lycos, Inc. on
November 1, 1997.
30