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, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From to
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Commission File 0-22846
CMG Information Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-2921333
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 01810
Brickstone Square Andover, Massachusetts (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (508) 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) (Name of each exchange on which registered)
Common Stock, $0.01 par value NASDAQ
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 aggregate market value of voting Common Stock held by non-affiliates of
the Registrant was $175,099,287 as of October 20, 1997. The Registrant does
not have any outstanding non-voting equity.
On October 20, 1997, the Registrant had outstanding 9,716,508 shares of voting
Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 Annual Report to Shareholders are incorporated by reference
into Parts I, II and IV of this Report. Portions of the definitive proxy
statement (the "Definitive Proxy Statement") to be filed with the Securities and
Exchange Commission relative to the Company's 1997 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Report.
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT
FISCAL YEAR ENDED JULY 31, 1997
CMG INFORMATION SERVICES, INC.
PART I
ITEM PAGE
- ------ ----
1. Business
General.............................................. 2
Direct Marketing Industry........................... 3
The Internet and World Wide Web..................... 3
Interactive Marketing Industry...................... 4
Products and Services............................... 4
Business Strategy................................... 10
Sales and Marketing................................. 11
Competition......................................... 12
Research and Development............................ 12
Intellectual Property and Proprietary Rights........ 12
Employees........................................... 13
Segment Information................................. 13
Significant Customers............................... 13
2. Properties................................................. 13
3. Legal Proceedings.......................................... 14
4. Submission of Matters to Vote of Security Holders.......... 14
PART II
5. Market for Registrant's Common Equity and Related
Stockholders Matters...................................... 14
6. Selected Consolidated Financial Data....................... 14
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 14
8. Financial Statements and Supplementary Data................ 14
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 15
PART III
10. Directors and Executive Officers of the Registrant......... 15
11. Executive Compensation..................................... 15
12. Security Ownership of Certain Beneficial Owners and
Management................................................ 15
13. Certain Relationships and Related Transactions............. 15
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K....................................... 15
1
This Report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject
to certain risks and uncertainties, including without limitation those discussed
in "Risk Factors that May Affect Future Results" section of Item 7 of this
Report. Such forward-looking statements speak only as of the date on which they
are made, and the Company cautions readers not to place undue reliance on such
statements.
PART I
ITEM 1. - BUSINESS
GENERAL
CMG Information Services, Inc. and its subsidiaries ("CMG" or the "Company")
is a direct marketing service provider that invests in, develops and integrates
advanced, Internet, interactive, and database management technologies. CMG
offers its clients a wide variety of direct marketing opportunities to choose
from, including: Internet and interactive media direct marketing software
technologies, product and literature fulfillment and turnkey outsourcing, sales
lead/ inquiry management, business-to-business telemarketing services, highly
segmented and accurate mailing lists, database management, design and
development capabilities, consultative list management and brokerage services.
The Company is advancing products and services that will both create and profit
from direct marketing opportunities on the Internet.
Direct marketing is the use of electronic interactive media, mail order,
telemarketing, and other methods of direct contact of targeted customers and
prospects to promote products and services. Direct marketing, unlike other forms
of advertising which are disseminated to a broad audience through print and
broadcast media, enables businesses to reallocate marketing and advertising
dollars to more effective forms of advertising sent directly to a defined set of
consumers. This defined set is identified through analysis and segmentation of
large amounts of data on past customers and future prospects. From this
information, specific targeted marketing strategies and personalized
communications can be generated which focus on those customers and prospects
who, according to their buying habits and customer profile, are most likely to
respond.
CMG's emergence into the direct marketing products and services arena is
being driven by the distinctive yet synergistic competencies of its operating
businesses.
CMG's three wholly owned start-up Internet companies, ADSmart Corporation
(ADSmart), InfoMation Publishing Corporation (InfoMation) and Planet Direct
Corporation (Planet Direct) are being developed to benefit from direct marketing
opportunities on the Internet by providing advertising services, personal
electronic newspapers and comprehensive Internet service content offerings.
The focus of CMG@Ventures, L.P. (which is being reorganized into
CMG@Ventures I LLC), CMG@Ventures, Inc. and CMG @Ventures II, LLC, (collectively
CMG@Ventures) is on strategic investment and development opportunities. Their
mission is to assist the commercialization of electronic content, products and
services via the Internet and interactive media. Drawing upon significant
investment resources, strong technical talent, and a management team steeped in
the Internet, CMG@Ventures currently holds thirteen strategic investments. In
addition, CMG recently formed NaviSite Internet Services Corporation (NaviSite)
to provide Web hosting and Internet server management.
As of July 31, 1997, CMG@Ventures had investments in three consolidated
subsidiaries: 53% owned Lycos, Inc. (Lycos), 92% owned Blaxxun Interactive, Inc.
(Blaxxun, formerly Black Sun Interactive, Inc.), and 53% owned Vicinity
Corporation (Vicinity). At July 31, 1997, CMG@Ventures also had minority
ownership positions in eight affiliates: 46% owned Parable, LLC (Parable), 41%
owned GeoCities, 37% owned Ikonic, Inc. (Ikonic), 31% owned Reel.com, LLC, 23%
owned Silknet Software, Inc. (Silknet), 15% owned KOZ, Inc., 15% owned Sage
Enterprises, and 9% owned Softway Systems, Inc. Subsequent to July 31, 1997 CMG
@Ventures acquired an additional minority ownership position in Speech Machines
plc. The Company is entitled to 77.5% of the net capital gains of CMG@Ventures,
L.P., and 80% of the net capital gains of CMG@Ventures II, LLC, and the
remaining 22.5% and 20% of the net capital gains, respectively, are attributable
to CMG@Ventures partners. Most of CMG@Ventures' investments are early stage
companies and there can be no assurance that their products or services will be
commercially successful.
CMG's subsidiary, SalesLink Corporation (SalesLink), along with its newly
acquired subsidiary, Pacific Direct Marketing Corporation (Pacific Link),
provides product and literature fulfillment and turnkey outsourcing, inventory
management, data warehouse management, sales lead/inquiry management, closed-
loop telemarketing, print-on-demand, and customized software solutions for
client's marketing or manufacturing programs, and Web fulfillment, primarily to
high-tech, financial-services, and health-care markets.
CMG's subsidiary, CMG Direct Corporation (CMG Direct) provides educational
and business-to-business publishers with comprehensive, highly segmented, and
accurate lists for direct marketing to millions of customers nationwide. CMG
Direct's services
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help publishers develop and implement effective direct marketing programs using
both conventional and on-line media. CMG believes that its databases of
university faculty and information-buyers make it a leading supplier of mailing
lists and related services to educational and professional publishers. The
Company's twenty years of experience supplying lists to the direct marketing
industry, together with its expertise in the use of computer technology to
develop, segment, enhance, maintain and market customer and prospect list
databases, permit the Company to offer its publisher clients a full range of
list services.
CMG's subsidiary, Engage Technologies, Inc. (Engage, formerly CMG Direct
Interactive Inc.) is at the forefront of leveraging its expertise in direct
marketing, database design/development and project management to invest in the
creation of new database management products and a suite of product and service
offerings that will enable sophisticated direct interactive marketing
environments. These new products will enable Engage to take advantage of the
demand for data management services created from the Internet and interactive
media, while continuing to grow and invest in its computer list services,
including list order fulfillment, merge/purge and other direct mail cost saving
services.
The Company has adopted a strategy of seeking opportunities to realize
significant 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 significantly
increase shareholder value as well as provide capital to support the growth in
the Company's subsidiaries and investments. Additionally, in fiscal year 1998,
the Company plans to continue to develop and refine the products and services of
its businesses, with the goal of significantly increasing revenue as new
products are commercially introduced, and will continue to pursue a strong pace
of investing in new Internet opportunities.
DIRECT MARKETING INDUSTRY
The use of direct marketing by businesses to target and communicate with
potential customers has increased due in part to the relative cost efficiency of
direct marketing as compared to other advertising methods, as well as the rapid
development of affordable computer technology. Prior to and during much of the
1970's, the costs associated with selling products and services either through
mass marketing or through personal sales calls were relatively low, while the
costs of database development were prohibitive for all but the largest
businesses. In the 1980's, the costs of developing and implementing computer
technologies to analyze and target potential customers declined while the costs
of traditional marketing increased significantly. In addition, concerns have
been raised about the efficacy of traditional forms of marketing. Direct
marketing remains one of the few advertising media allowing an accurate measure
of results through a review of response rates thereby increasing the
effectiveness of the selling effort.
The increasing popularity of direct marketing has created a substantial need
for comprehensive, current and accurate information to identify high probability
purchasers from the millions of consumers in North America. This information, if
properly packaged in a database with the appropriate software, can be used in
all aspects of direct marketing: market sizing, distribution channel selection
and balancing, sales lead generation, territorial resource allocation and
customer prioritization and qualification. In the absence of this information,
the selling process results in higher expense per sales contact and lost revenue
from unidentified customers. These factors have created increasing demand for
lower cost information regarding the identity, location and purchasing history
of potential customers. For many businesses, this information can be crucial to
their marketing success.
Direct marketers of information products, including book and magazine
publishers, financial institutions, seminar coordinators and professional
associations, generate significant demand for affordable, current, highly-
segmented mailing list databases, and mailing list database services. In
addition, these information product vendors have sought new ways to obtain value
from their customer databases by more effectively analyzing and/or selling their
customer and prospect lists.
THE INTERNET AND WORLD WIDE WEB
The Internet is a global collection of thousands of computer networks
interconnected to enable commercial organizations, educational institutions,
government agencies and individuals to communicate electronically, access and
share information and conduct business. While the Internet was historically used
by a limited number of academic institutions, defense contractors and government
agencies primarily for remote access to host computers and for sending and
receiving electronic mail, commercial organizations and individuals are
increasingly dominating the use of the Internet. Recent technological advances,
including increases in microprocessor speed and the development of easy-to-use
graphical user interfaces, combined with cultural and business changes, have led
to the Internet being integrated into the operations and strategies of
commercial organizations and the activities of individuals.
The rapid deployment of the World Wide Web (the Web) has introduced
fundamental and structural changes in the way information can be produced,
distributed and consumed, lowering the cost of publishing information and
extending its potential reach. Companies from many industries are publishing
product and company information or advertising materials, collecting customer
feedback and demographic information interactively, and offering their products
for sale on the Web. The structure of Web
3
documents allows an organization to publish significant quantities of product
information while simultaneously allowing each user to view selectively only
those elements of the information which are of particular interest. This
feature makes possible the dynamic tailoring of information delivery to each
user's interests in a cost effective and timely fashion. The Web, by
facilitating the publishing and exchange of information, is dramatically
increasing the amount of information available to users.
INTERACTIVE MARKETING INDUSTRY
Direct marketing is undergoing rapid, fundamental change, as customers'
needs evolve and technology advances. Marketing channels and media outlets are
expanding in number and diversifying in scope, and powerful database
technologies are able to target both broad markets and individual customers with
ever-greater precision.
The emergence of the Internet into homes and offices has provided direct
marketers with a powerful new distribution mechanism -interactive media.
Interactive marketing is a subset of direct marketing. It differentiates itself
from traditional direct marketing channels in that the consumer has flexibility
and control over what is being presented, when they view the products or
services and which types of products or services they are viewing.
In contrast to conventional media, the Internet offers capabilities to
target advertising to specific audiences, to measure the popularity of content,
to reach worldwide audiences cost-effectively and to create innovative and
interactive advertisements. By collecting customer feedback and demographic
information, advertisers can direct highly customized marketing campaigns at
defined targets. In addition, the Internet enables advertisers to transact with
prospective customers much more rapidly than with conventional media.
The Company believes that advertisers will seek to advertise on Web sites
that offer a high volume of traffic and feature flexible advertisement programs
capable of reaching targeted audiences. Likewise, the Company believes that as
advertisers increasingly embrace the Internet as an advertising vehicle, their
participation will subsidize in part the creation and expansion of the
information and resources available on the Web which in turn is expected to
stimulate further traffic flow. However, the Internet as an advertising medium
is still evolving and, consequently, advertisers seek demonstration of its
effectiveness as a media purchase. Due to the limited information and experience
on Web advertising and a general unfamiliarity with the concept of interactive
advertising, advertisers require assistance with the design and placement of
advertisements on the Internet.
Interactive marketing provides direct marketers with the ability to create
electronic databases of customer information. Using this information will enable
direct marketers to develop more effective advertising, make better decisions
about distribution methods and media selection and target customers more
effectively. The dialogue created between the marketer and the consumer through
interactive marketing creates advertising accountability, enabling marketers to
track advertisement interaction, anticipate consumer needs and make changes
immediately. It is expected that across scores of industries, the relationship
between marketers and consumers will soon be direct, and one-to-one. When that
day arrives, marketers will benefit from this newfound ability to establish
deep, intimate relationships with their customers.
PRODUCTS AND SERVICES
Internet Investments
Lycos, Inc.
Lycos, CMG's publicly traded subsidiary, is a free, global Internet
navigation and community network dedicated to helping on-line users locate,
retrieve and manage information tailored to their individual interests by
providing easy-to-use information tools. Lycos' comprehensive suite of products
and services enable users of the Internet to quickly, easily and accurately
identify, select and access the resources and information of interest to them.
Since its inception in June 1995, Lycos has rapidly expanded into a global
Internet resource with over 120 employees operating a service used daily by
millions of people throughout the world.
In connection with its incorporation in June 1995, Lycos entered into a
license agreement pursuant to which Carnegie Mellon University granted to Lycos
a perpetual, worldwide right to use and sub-license the Lycos search and
indexing technology and other intellectual property. Lycos features this
technology as the cornerstone of a suite of products that has transformed the
Lycos website into one of the Internet's premier destinations. Lycos, "Your
Personal Internet Guide", provides a variety of visually appealing products and
services free of charge to users, including: Web Search, Web Guides, Top 5%
Sites, Pictures & Sounds Search, Classifieds, Companies On-line, PeopleFind,
RoadMaps, News, StockFind, Chat, Email, CityGuides, Yellow Pages and Personal
Guide.
4
Lycos generates revenues primarily through three activities: (1) selling
advertisements and sponsorships on its services, (2) licensing its products and
technology to businesses to enhance their products and services on the Internet
and (3) leveraging Lycos' high volume of traffic into a electronic commerce
platform on which advertisers and on-line merchants reach their targeted
audiences. During fiscal 1997, advertising revenues represented approximately
78% of Lycos' total revenues. Advertising revenue is primarily generated by
placing advertisements on any of the Web pages that are displayed on Lycos'
multiple product offerings. Lycos' websites have become a widely accepted
advertising medium for the world's most prominent companies, including such
brands as: Disney, Dun & Bradstreet, Hilton, IBM, JC Penny and Visa.
For fiscal 1997, revenues from licensing arrangements represented 22% of
Lycos' total revenues. In most licensing arrangements, Lycos receives a license
fee, maintenance fees for product updates and, where applicable, a share of the
advertising revenues, subscription fees or product sales received by licensees.
Lycos' license agreements generally have terms of one to three years and Lycos
often co-brands its products with the products offered by the partner in order
to preserve and enhance Lycos brand recognition. Lycos has licensed its
technology and brand to numerous of partners including: Bertelsmann, Compuserve,
GTE, Microsoft, Prodigy, and Viacom.
Lycos also believes electronic commerce to be a natural extension of Lycos'
search and navigation services. Through electronic commerce, Lycos partners with
both on-line and offline merchants to integrate their products into the Lycos
service, making them available for sale to Lycos' users. In its electronic
commerce arrangements, Lycos generally receives a fixed fee and a share of the
proceeds from on-line sales. One of Lycos' most significant electronic commerce
partnership to date is with BarnesandNoble.com, Inc. The partnership is a
three-year agreement to integrate content and technology extensively throughout
the companies respective Web sites. Lycos offers BarnesandNoble.com visibility
among millions of users worldwide and provides fast and intuitive access to
BarnesandNoble.com's comprehensive on-line ordering capabilities.
A global Internet leader, Lycos provides localized versions of its search
and navigation service to countries throughout the world including: Germany,
France, UK, Switzerland, Sweden, Spain, Netherlands, Italy and Belgium. Lycos'
strategy with respect to international expansion is to partner with powerful
local companies whose content, distribution and local presence can be leveraged
with Lycos' technology and brand to create formidable strategic alliances. For
example, in May 1997, Lycos entering into a joint venture agreement with
Bertelsmann Internet Services to create localized versions of the Lycos search
and navigation service throughout Europe. The new company, named Lycos-
Bertelsmann, is owned 50% by Lycos and 50% by Bertelsmann and is scheduled
develop local Internet navigation centers serving a total of 37 Eastern and
Western European countries. Bertelsmann Internet Services, a subsidiary of
Bertelsmann AG (the world's third-largest media company), has committed to
provide $10M in start-up capital, infrastructure and employees for the venture
while Lycos will provide the core technology and strong brand name.
Planet Direct
Planet Direct is a personal Web service that features a new approach to
providing mainstream consumers with content that is both useful and personally
relevant.
Planet Direct provides a localized experience for more than 350 cities
across the country, seamlessly integrating brand-name content, enhanced links to
popular content sites, and other services. This content gives affiliated
Internet Service Providers (ISPs) the resources needed to compete successfully
with vertically oriented commercial online services.
Planet Direct's personal Web service is free to ISPs and their subscribers,
and is also directly accessible from the Web without disks or downloads. Planet
Direct seeks to generate revenues through advertising and commerce. Its
advertisers currently include American Express, Black and Decker, and Ziff
Davis, and revenues are shared with ISP partners.
The content provided by Planet Direct is presented intuitively, allowing
quick access to personal interests, and offering the functionality consumers
have come to expect of an online service. Featured materials include news,
sports, and entertainment information, chat and discussion, national yellow and
white pages, mapping and driving directions, and local and national weather
forecasts. Planet Direct has also provided several ways to express opinions,
inviting users to post and share ideas such as restaurant and theater reviews
and other commentaries.
In fiscal year 1997, Planet Direct launched its service to the mainstream
consumer audience, backed by a print advertising campaign in USA Today. Planet
Direct has registered more than 100,000 members, and now exceeds a million hits
per day to its personal Web service. In fiscal year 1997, Planet Direct also
established strategic content relationships with ZDNet, Paramount/Viacom,
CitySearch and The Mining Company.
5
ADSmart
Web publishers are seeking to develop the means to sell, schedule,
serve and track the highly targeted advertising that is so critical to their
profitability. Advertising agencies are looking for information and results to
understand and measure the role web advertising should play in meeting their
clients' marketing goals. ADSmart seeks to bridge the gap by drawing on the
combined targeting and tracking resources of CMG's core direct marketing
business and the Web advertising expertise of CMG portfolio companies. Using
its proprietary Ad Network Enabling software, ADSmart has automated the process
of matching audience characteristics required by a given advertising campaign
with specific articles or sections in Internet sites that belong to the
ADSmart.net Internet advertising network. Advertising images are delivered
automatically to the viewer's Internet browser, and post-delivery reporting and
billing processes are also carried out automatically.
When launched on January 27, 1997, ADSmart.net consisted of 8 sites, and
has grown to 75 sites at the end of fiscal year 1997. This translates into
advertisers being able to use our member sites to reach upwards of 2.7 million
unique Internet viewers per month, or 7 percent of all users of the Internet, up
from 1 percent in January. Premier sites in ADSmart.net include Planet Direct
and Vicinity Corporation's MapBlast.
ADSmart has opened ad sales offices in New York and San Francisco, and is
planning to open a Chicago office early in fiscal year 1998. To address the
international market, ADSmart expects to seek to work with strategic partners to
apply its technologies and specialized processes.
NaviSite
NaviSite provides hosting and Internet server management to companies that
depend on the Internet as a critical business tool.
In order to save money and to get better performance, security, and
availability, companies are outsourcing the management of a significant number
of the servers on the Internet. NaviSite's customers depend on some of the most
complex and demanding of these "server farms." NaviSite strives for maximum
availability, including redundant network access, backup power, and advanced
monitoring tools. NaviSite believes its network architecture and technical
methodology result in superior performance of the systems.
NaviSite's services include systems planning, deployment, operations, and
support. In addition, the company provides high-performance Internet access
bandwidth. NaviSite monitors and supports the network and its customers'
servers around the clock, and provides detailed reports to its customers
regarding performance, availability, and activity related to their Web sites.
NaviSite seeks to generate revenues primarily from monthly per-server management
fees, installation fees, and bandwidth usage charges.
In May, 1997, NaviSite completed a new, 6,000-square-foot Internet server
management center in Andover, Massachusetts, and in September 1997 completed a
second Internet server management center in Scotts Valley, California. NaviSite
began its efforts by deploying servers for CMG affiliate companies, and
officially launched the company, including a public news release, August, 1997.
InfoMation
InfoMation Publishing Corporation seeks to solve the problem of information
overload for companies, their employees, and their partners by building best-of-
breed knowledge management applications.
Companies suffering from information overload risk losing customers,
competitive information, relationships with key suppliers and partners,
effective decision-making, and ultimately, business. InfoMation seeks to solve
these costly problems with its flagship product, Echo. Echo is a Web-based
knowledge management application built with sophisticated agents and filters
that continually monitor and deliver fresh, targeted news and information. Echo
uses standard browsers to retrieve and integrate highly focused information from
a wide variety of sources, such as the Web, Lotus(TM) Domino(TM) databases and
other internal company resources, news feeds, and Internet news groups, to
create customized corporate intranet, Internet, and extranet solutions.
InfoMation is currently targeting customers in the insurance, automotive,
and aerospace/ defense markets, by providing a knowledge management solution
through a combination of direct sales and channel partnerships with key VARs,
system integrators, and consultants. InfoMation entered into partnerships with
key content providers during fiscal year 1997, including Financial Times
Information, Reuters, Information Inc., News Alert, Phillips Publishing
International, Inc., and Telecommunications Reports International, Inc. (TRI).
6
Looking forward, InfoMation expects to deliver knowledge management
applications to target markets and address client needs through a combination of
product solutions, customer support and training, and business partnerships. As
penetration is made into current target markets, InfoMation expects to address
additional markets that leverage the customer base.
Vicinity Corporation
Vicinity Corporation is a private-label provider of geographically enhanced
(GeoEnabled/TM/) technology, content, and services for Web publishers and
corporate Web sites. Vicinity's GeoEnabling services apply a spatial filter to
business listings, maps, and other data to give end users a local and
customizable view of information.
Vicinity licenses its services to leading Web search and directory
publishers, travel services, Yellow Pages providers, newspapers, and Fortune
1000 companies. These companies then brand the Vicinity services with their own
company and service names, their own graphical wrappers, and their own look.
Included in Vicinity's package of services are interactive maps and driving
directions of the United States, business directories, and business locators.
Among Vicinity's current customers are such leading Web sites as Yahoo!,
GTE SuperPages, Cnet, Travelocity, BizTravel.com, and GeoCities. An extensive
list of Fortune 1000 customers include Federal Express, Ford Motor Company,
Hewlett-Packard, Wells Fargo Bank, PetSmart, Marriott, Honda, Taco Bell and many
more.
Vicinity launched its "Vicinity Business Locator" product for the corporate
marketplace in September 1996. Vicinity also reached a renewed agreement with
Yahoo!, which signed a multi-year contract in June 1997 to license Vicinity's
Business Directory, Maps, and Driving Directions.
Blaxxun Interactive
Blaxxun interactive provides software infrastructure for 3D online
communities.
Blaxxun seeks to make online interaction not only interesting for visitors
and members, but also commercially successful for community operators. Blaxxun
licenses its products to corporate customers who want to operate an attractive
community site. In addition, Blaxxun provides complete solutions, based on its
technology platform. Together with partner companies, Blaxxun builds
environments, achieves integration with existing systems, and creates
applications in the community.
Designing software that emphasizes scalability, openness, and
customizability, Blaxxun is very actively involved in the development of 3D
interface standards. All Blaxxun products support open standards, such as VRML,
Java, and HTML. Blaxxun's product lines currently include Blaxxun Community
Server, a product for operation of shared environments, and Blaxxun Community
Clients, a family of clients that provide access to online communities. In
fiscal year 1997, Blaxxun continued development of its third generation of
products, which are scheduled for release in the near future.
Fulfillment Services
SalesLink
SalesLink, along with its newly acquired subsidiary, Pacific Link, provides
product and literature fulfillment and turnkey outsourcing, inventory
management, data warehouse management, sales lead/inquiry management, closed-
loop telemarketing, print-on-demand, and customized software solutions for
client's marketing or manufacturing programs, and Web fulfillment, primarily to
high-tech, financial-services, and health-care markets. SalesLink's largest
customer is Cisco Systems, Inc. (Cisco), which accounted for 47% of SalesLink's
fiscal year 1997 revenues.
Turnkey Outsourcing. SalesLink's major products include supply-based
management programs. Also known as "turnkey," these are a form of outsourced
manufacturing, in which SalesLink's clients retain the company to buy their
components and manufacture bills of materials into products that are either
shipped to customers, to channels of distribution, or to the factory for final
manufacturing.
Product and Literature Fulfillment. On behalf of its fulfillment clients,
SalesLink takes orders for promotional literature and products from its clients'
customers and prospects and "fulfills" the orders by assembling and shipping the
items requested. Depending on the client, the product or literature may be sent
directly to the end-user or to a broker or distributor. SalesLink's mutual fund
product and literature fulfillment services begin with the receipt of orders by
SalesLink's inbound telemarketing staff. Telemarketers answer calls by mutual
fund company name and key order requests into computers. Some clients
electronically transmit orders received by their own telemarketing staffs
directly into SalesLink's computers. Orders are then generated and
presented to the fulfillment production floor where fulfillment packages,
including mailing labels, are assembled and shipped. As
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necessary adjuncts to fulfillment services, SalesLink provides product and
literature inventory control and warehousing. SalesLink also offers customer
support and management reports detailing orders, shipments, billings, back
orders, and returns. In addition to mutual funds, SalesLink also provides
literature and product fulfillment to high technology, biotechnology and
consumer electronics businesses and provides print-on-demand and Web fulfillment
services.
Sales Lead/Inquiry Management. In sales lead/inquiry management, SalesLink
provides prospects with information about a product or service that one of
SalesLink's clients is marketing. In response, SalesLink receives sales
inquiries and maintains central customer databases of the names and addresses of
each person inquiring about the product. SalesLink's clients use the databases
for market research, sales follow-up and management reports. Depending on the
criteria supplied by the client, SalesLink eliminates non-productive leads,
distributes sales inquiries to the client's sales force and ships fulfillment
packages containing the client's literature or products. After the disposition
of the inquiry, SalesLink is able to produce reports allowing the client to
evaluate the effectiveness of the marketing program which generated the inquiry
and evaluate the performance of the client's sales force in handling the
inquiry.
Telemarketing. 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. Outbound telemarketing programs can be used to update
a client's existing database, survey possible markets or pre-qualify sales
leads.
SL Flagship proprietary software. SalesLink has evolved a number of new
products and services to further its strategy to diversify into new vertical
industry markets. Most notably, the business delivered its new SL Flagship
proprietary software and the supporting data warehouse architecture. The system
enables customers and client service personnel to instantly access, manipulate
and analyze response data about customers' prospects. With SL Flagship,
customers avoid the time and costs of extensive programming by making critical
marketing decisions using PC-based tools.
SalesLink seeks to grow in the future through gaining market share in its
existing markets, through acquisition, and through developing new IT based
products and services for its client base. While the Company is actively
pursuing increasing the number of fulfillment services customers, the Company
believes that its dependence on Cisco will continue for the forseeable future.
List and Database Services
CMG Lists
CMG Direct's principle products are mailing lists derived from its
databases and sold primarily to publishers. CMG Direct has three primary
mailing list databases, the College List, the Information Buyers List and the K-
12 List (formerly known as the ElHi List). The databases are highly segmented,
permitting CMG Direct to use its application software to extract specifically
defined lists of potential customers who are most likely to purchase products
advertised by CMG Direct's clients. CMG Direct is continually working to expand
the size and comprehensiveness of its database offerings based on the needs of
its clients and the availability of new lists.
CMG Direct is aware of only one other supplier of the faculty mailing lists
and two other suppliers of college and university administrator lists. In
addition, CMG Direct believes that it has identified virtually all North
American textbook publishers and that it supplies mailing lists derived from the
College List database to a majority of them. CMG Direct also believes that most
of the largest North American publishers of books for professionals contribute
their customer lists exclusively to the Information Buyers List database and
have agreed not to contribute their customer lists to any other book buyer
databases. The publishers also purchase mailing lists and list services from CMG
Direct. Accordingly, CMG Direct believes that the Information Buyers List
database and the College List database are the dominant databases of their kind
and that these databases make CMG Direct a leading supplier of mailing lists and
related services to educational and professional publishers.
The College List Database. The College List database, which CMG Direct
believes is the dominant list of its type, includes approximately 700,000 names
and addresses of college and university deans, administrators, faculty and
librarians at every college, university and junior college in North America. CMG
Direct classifies each course taught, and the faculty teaching it, into one of
approximately 4,000 subject codes, which permits CMG Direct to identify all
faculty teaching any particular course or subject and create lists identifying
the faculty so they can be targeted. The resulting lists are valuable to
publishers, as the classification system of specific subject codes permits them
to choose the professors most likely to select a given book for a course and
then to send promotional materials and/or a sample copy of the textbook to them.
In addition, the database classification system helps publishers identify areas
of study where new titles are needed and define the size of the potential
market.
8
The College List is compiled by CMG Direct from course schedules and other
source documents published by colleges and universities and is updated
continually for new semester information. CMG Direct augments the information
available from the schedules with school catalogs, supplemental questionnaires,
telephone calls and various other source documents collected from colleges and
universities.
The Information Buyers List Database. The Information Buyers List database
includes approximately 11 million names and addresses, as well as other
pertinent information, of professionals who purchase books, periodicals,
seminars and other information products through mail order. The Information
Buyers List is assembled from over 120 proprietary lists of over 100 publishers
and other organizations. Combining these separate customer lists into a single
database permits CMG Direct to offer its clients a larger group of potential
customers across a broader range of target categories than could be obtained
from any single list. In addition to its size and diversity, the database is
also valuable because it is limited primarily to those consumers who have
actually purchased through mail order and are therefore thought to be more
likely to do so in the future. The Information Buyers List is segmented under
the same 4,000 subject codes as the College List, plus additional consumer
oriented segmentation.
When a participant's customer list is added to the database, CMG Direct
uses its software to segment the list into the subject codes and to supplement
the database with information derived from the participant's customer list, such
as recency of purchase, gender and home or office address distinctions. This
classification system permits CMG Direct to identify professionals that have
purchased information products pertaining to any given subject and to create
lists identifying the purchasers so they can be targeted.
The lists derived from the Information Buyers List database are used by
publishers and other companies in the business-to -business and consumer
publishing direct mail markets. The high degree of segmentation of the database
enables CMG Direct to extract very specific, and thus, more responsive niches of
professionals with a demonstrated interest in purchasing very specific types of
information products. This level of selectivity also enables CMG Direct to
identify and build other valuable lists that are not obvious properties of the
individual component lists used by CMG Direct to maintain the database.
The Kindergarten through Grade Twelve List Database. In 1992 CMG Direct
introduced the Kindergarten through Grade Twelve or "K-12 List" database. This
database has been formerly referred to as the Elementary/High School or "ElHi
List" database. The Kindergarten through Grade Twelve List database consists of
more than 3.3 million names of teachers and administrators associated with
public elementary through high schools. This list also includes the names of
approximately 88,000 public elementary and high schools, approximately 15,500
public school district offices, approximately 16,200 public libraries and
approximately 150,000 administrators. The K-12 List is segmented into over 30
public school district demographic categories and is used by publishers of
textbooks, supplemental educational materials and magazines and school supply
distributors, among others. The K-12 List is compiled from federal, state and
local government files and the names of school administrators and staff are
developed through state directories, mailings and telephone surveys. This
database greatly enhances CMG Direct's ability to service its educational
publishing clients and builds on CMG Direct's reputation and distinctive
competence in the educational publishing industry.
List Management and Brokerage. CMG Direct provides list management and list
brokerage to businesses that use direct marketing to promote their products. As
a list manager, CMG Direct acts as the exclusive marketing agent for the mailing
lists of its list management clients. In conjunction with performing list
management services, CMG Direct also provides list brokerage. This Service
allows CMG Direct to be a single source for virtually any brokered list
requested by a customer and provides opportunity to generate additional sales of
CMG Direct's other products.
Database Services
Engage Technologies
Engage provides standards-based, enterprise-class software system solutions
that enable companies to individually distinguish, understand, and interact with
anonymous prospects and customers in personalized marketing, sales, and service
relationships via the Web.
The Engage Suite addresses the issue of how to determine what prospects and
customers visiting a Web site want. Using Engage's software solutions,
organizations can gather sophisticated marketing information to better
understand and accommodate individual visitor needs and interests. Engage
believes its approach to this challenge is unique in that it:
. Addresses the entire process of collecting, analyzing, and utilizing
visitor Web site data for real-time personalized interaction.
. Enables understanding of both registered and anonymous Web site visitors,
providing organizations with valuable marketing insight while ensuring
complete protection of individual privacy and identity.
. Transforms a Web presence from purely informational or "brochureware" into a
measurable relationship-marketing tool.
. Works with a company's existing Web site development tools and methodology.
9
In fiscal year 1997, Engage Technologies made its formal entrance into the
interactive marketing arena. Engage launched initial product offerings with a
national press and analyst tour, and gained industry analyst recognition as a
solutions provider in the personalization market.
The five products that comprise the current Engage Solutions Suite provide
for the collection, characterization, consolidation, clarification and
customization of both Web-derived and other data sources, thus delivering a
scalable and complete relationship marketing solution for the Web. The
offerings include:
Engage.Journal Web site visitor behavior monitoring across and within a
network of Web sites
Engage.Portrait Customizable Web site visitor registration
Engage.Discover Customizable Web site analysis and iterative querying against
Web site data*
Engage.Fusion Visitor profile generation*
Engage.Link An open interface to access visitor profiles for dynamic
content generation
* Subsequent to July 31, 1997, certain rights to these two products were sold to
Red Brick Systems Inc. Engage retains exclusive rights to sell them as part of
the Engage Suite.
ListLab
Most businesses do not have the technology or expertise to build, maintain
or enhance their mailing lists or databases in-house. Engage's subsidiary,
ListLab, offers these businesses a comprehensive service set including database
design, program specification, programming, testing, debugging and ongoing
maintenance and enhancement.
For clients that want to build a customer database, ListLab provides
database analysis, design, software development, testing, debugging, and
maintenance. Once the database software is completed, ListLab collects customer
and prospect data from its clients in a variety of forms for standardization and
inclusion into each client's customized database. This involves working in depth
with clients to discern their database maintenance, fulfillment and reporting
requirements, converting these requirements to computer program specifications,
and managing the project from start to finish.
Database management involves processing customer data, segmenting the
processed information to provide the level of detail and selectivity desired,
storing the information, and updating it to make it readily accessible for the
client's promotional, analytical and list rental activities. Lists may be
combined and enhanced with additional demographic information and other lists to
form databases which can be used as the basis of additional client promotions or
marketed to other list users.
If a client's mailing list is being combined with other lists or if a client
purchases several lists for a direct marketing campaign, the lists are often
combined into one master list. Typically, these lists will contain duplicate
names. ListLab's merge/purge (duplicate elimination) software recognizes and
eliminates duplicate names, thereby preventing duplicate mailings and, thus,
lowering client mailing costs. In addition, identifying these multiple prospects
enables the direct-response client to recognize the duplicate name as a multi-
buyer. ListLab also minimizes postal costs through postal pre-sorting, bar
coding and address standardization.
ListLab also offers private database management as a service for large
volume mailers who mail to the same target lists regularly. A private database
is a targeted collection of mailing lists that is used repeatedly by a
restricted group of mailers. Ordinarily, this type of mailer would have to
contact a list broker, order lists and perform a number of processing functions
for each mailing. A private database maintained and updated by ListLab provides
the mailer or group of mailers with a pool of mailing lists which have proven
effective for their mailing needs. Using the ListLab's services, the mailer can
perform research on the private database, select the names most likely to
respond and pay only for names used for targeting. Mailing costs are reduced,
lead times are shortened and the mailer gains more precise targeting capability.
BUSINESS STRATEGY
Each CMG business unit's mission is to become the predominant services
provider within its respective market niche. The critical success factors are:
understanding, developing and applying information technology to the Internet,
interactive media markets, and data access and software tools; narrowing market
focus while consummating strategic alliances to complement product and service
offerings; investing in strategic Internet or interactive media investments or
acquisitions and, most importantly, a continued understanding of customers'
needs.
10
With respect to the businesses of CMG, the Company will seek to expand its
participation in the direct marketing products and services, Internet,
interactive media industries, and increase market share. Key elements of this
strategy include:
Continue to enhance and expand the Company's products and services. The
Company has invested significant resources in new subsidiaries or investments
which seek to capitalize on opportunities surrounding the growth of the Internet
and the interactive marketing industry. The Company intends to continue to
pursue the growth and development of its technologies and services and continue
to introduce its products commercially. Additionally, the Company intends to
continue to evaluate new opportunities to further its investment in its direct
marketing strategy and also to seek out opportunities to realize significant
shareholder value through the sale of selected investments or technologies or
having separate subsidiaries sell a minority interest to outsiders.
Pursue innovative advertising solutions. The Company is actively seeking
to develop innovative ways for advertisers to reach their target audiences
through the Internet effectively. The Company designs and offers customized
packages which include the ability to change advertisements quickly and
frequently, to link a specific search term to an advertisement, to conduct
advertising test campaigns with rapid result delivery and to track daily usage
statistics. The Company is continuing its development of software that will
provide it with the ability to target ads based on demographics and usage
patterns.
Actively seek growth in the Company's fulfillment services segment. CMG
intends to pursue a strategy of growing its fulfillment services segment through
gaining market share in its existing markets, through acquisition, and through
developing new IT based products and services for its client base.
Augment database offerings. The Company has expended significant
resources to develop the most comprehensive and accurate databases of their kind
available to publishers. The Company believes that its College List database is
the dominant list of its kind and that the Information Buyers List database is
the only list of its kind, complemented by the ElHi list database, which was
successfully compiled in fiscal 1995 and is positioned to be cross sold to gain
market share. The Company intends to maintain or improve its market position by
expanding the number, size, nature, comprehensiveness and segmentation of its
database offerings.
Maintain focus on marketers of information-based products. Publishers are
among the largest users of direct marketing services. As society becomes more
information driven, the amount and value of business and educational information
sold by publishers will increase, as will the value of the effective direct
marketing of this information. The Company will continue to focus on the
publishing industry to participate in this growth.
Expand technological capabilities and computer services. The Company
believes that technological innovation will continue to increase the
effectiveness of direct marketing and the Internet. Accordingly, the Company is
increasing its technological capabilities through the enhancement of existing
software and the reengineering of the Company's proprietary database software.
This transition will give the Company's clients greater ability to access,
analyze and eventually update their own databases through the use of the
Company's computer services and software.
Cross-sell products and services. The Company is involved in many aspects of
the direct marketing sales cycle. The Company has experienced initial success in
increasing the number of products and services purchased by its existing clients
and intends to further this expansion .
SALES AND MARKETING
The Company markets its products and services through a marketing staff
using both telemarketing and direct sales. The Company maintains separate
marketing staffs for each product and service area, enabling the marketing
personnel to develop strong customer relationships and expertise in their
respective areas. The Company has established direct sales forces experienced in
the advertising business to address the new and evolving requirements of the
Internet advertising market. The Company believes that an experienced sales
staff is critical to initiating and maintaining relationships with advertisers
and advertising agencies and therefore has hired a significant portion of its
Internet advertising sales force from the advertising industry. The Company
advertises its products and services through direct mail, space advertising,
Internet banners, directory listings, trade shows and Company sponsored user
groups. In addition, in certain instances, the Company, has complemented the
activities of its direct sales force by retaining advertising sales agencies, to
serve as a sales representatives on a commission basis.
The Company attends numerous trade shows in the Internet, high technology,
direct marketing, mutual fund, book, and library markets, while further
supplementing its sales efforts with space advertising and product and services
listings in appropriate directories. In addition, the Company sponsors user
group meetings for its mutual fund clients and major list participants in the
Information Buyers List database, where new products and services are
highlighted.
11
The Company also conducts numerous mailings of list catalogs, flyers,
newsletters and other product information throughout the year to primarily book,
magazine, journal, newsletter and software publishers and resellers, seminar
companies, professional associations, business supply catalogers, consumer
electronic, high technology and financial service organizations.
COMPETITION
CMG's Internet investments compete in the electronic technology and Internet
service arenas which are comprised of numerous small and large companies
providing different new technologies, all with varying applications. The market
for Internet products and services is highly competitive. In addition, the
Company expects the market for Internet advertising, to the extent it further
develops, to be intensely 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. CMG's products and services
are being developed predominantly for direct marketing applications, on the
Internet or through interactive media. Competitors would include a wide variety
of companies and organizations, including Internet software, content, service
and technology companies, telecommunication companies, cable companies and
equipment/technology suppliers. In the future, the Company may encounter
competition from providers of Web browser software and other Internet products
and services that incorporate competing features into their offerings. Many of
the Company's existing competitors, as well as a number of potential new
competitors, have significantly 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. Moreover, 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 may also compete
with online services and other Web site operators as well as traditional off-
line media such as print and television for a share of advertisers' total
advertising budgets. There can be no assurance that the Company will be able to
compete successfully against its current or future competitors or that
competition will not have a material adverse effect on the Company's business,
results of operations and financial condition.
SalesLink has two prominent competitors, Harte-Hanks Direct Marketing, a
division of Harte-Hanks Communications, Inc. and Output Technologies, Inc., for
the mutual fund literature fulfillment component of its business, and also
competes with the internal fulfillment and manufacturing operations of
manufacturing and mutual fund companies themselves. SalesLink competes on the
basis of pricing, geographic proximity to its clients and the speed and accuracy
with which orders are processed. There are many businesses that compete with
SalesLink's other services.
CMG Direct competes on the basis of the accuracy, size, and
comprehensiveness of its principal databases: the College List and the
Information Buyers List. The Company believes that the College List is the
dominant database of its kind and has only one competitor, while the ElHi list
is a new product offering that will compete with the same competitor as the
College List. The Information Buyers List is also the dominant list of its
kind. ListLab's products and services compete with numerous other service
bureaus and compete on the basis of their effectiveness in processing customer
and prospect list databases for publishers.
RESEARCH AND DEVELOPMENT
The Company develops and markets a variety of Internet related products and
services, as well as a number of database software technologies. 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 1997 and 1996, the Company expended $25,058,000, and
$6,971,000, respectively, or 35.5% and 24.5%, respectively, of net sales, on
research and development. In addition, during fiscal years 1997 and 1996, the
Company recorded $1,312,000 and $2,691,000, respectively, of in-process research
and development expenses in connection with acquisitions of subsidiaries and
investments in affiliates. During fiscal year 1995, no amounts were expended for
research and development.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company regards its software technologies, databases and database
management software as proprietary. CMG's lists
12
are sold under terms and conditions which permit the Company's clients to use
the list for a single mailing only and prohibit the further use or resale of the
lists or the names included therein. The Company depends on trade secrets for
protection of its software. 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.
EMPLOYEES
As of July 31, 1997, the Company employed a total of 912 persons on a full-
time basis. In addition, depending on client demand, SalesLink utilizes manpower
agencies to contract between 75 and 150 persons on a temporary, part-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 in Note 2(r) of the Notes to
Consolidated Financial Statements referred to in Item 8(a) below and
incorporated herein by reference.
ITEM 2. - PROPERTIES
FACILITIES
The location and general character of the Company's principal properties by
industry segment as of July 31, 1997 are as follows:
Lists and Database Services and Corporate Headquarters
The Company leases approximately 34,000 square feet of executive office,
engineering, sales and operations space in Wilmington, Massachusetts, under a
lease which expires in 2000.
The Company also leases approximately 50,000 square feet of executive
office, engineering, sales and operations space in Andover, Massachusetts, under
a lease which expires in 2002. The Company's Corporate headquarters are housed
here.
In addition, the Company leases approximately 22,000 square feet of
executive office and computer operations space in Andover, Massachusetts, under
a lease which expires in 2007.
Additionally, the Company leases approximately 13,000 square feet which
houses a computer data center in Scotts Valley, California, under a lease
expiring in 2002.
On July 15, 1997, NetCore Systems, Inc. entered into a sublease agreement
with the Company to lease approximately 14,000 square feet of the Wilmington
space, under a sublease arrangement that expires in 2000.
Fulfillment Services
The Company's operations are conducted from an approximately 210,000 square
foot leased facility in Boston, Massachusetts. The lease for this facility
expires in 1998. In addition, the Company's west coast operations are conducted
from a leased facility containing approximately 202,000 and 39,000 square feet
in Newark, California. The leases for these facilities expire in 2011 and 1999,
respectively. Additionally, the Company leases an approximately 51,000 square
foot operating facility in Bedford Park, Illinois under a lease which expires in
1999.
Investment and Development
The Company leases an aggregate of 70,000 square feet of office,
engineering, sales and operations space in the following locations:
Massachusetts: Burlington and Framingham
13
New Hampshire: Lebanon
Pennsylvania: Pittsburgh
Georgia: Atlanta
New York: New York City
California: Menlo Park, Palo Alto and San Francisco
Germany: Munich
Leases for the above locations expire from 1997 to 2002.
This industry segment also shares a portion of the Company's Andover,
Massachusetts Corporate facility described above.
COMPUTER OPERATIONS
The Company's computer systems are primarily maintained at its Andover,
Massachusetts, Wilmington, Massachusetts, Boston, Massachusetts, Scotts Valley,
California, and Pittsburgh, Pennsylvania locations. The Company's operations are
dependent in part upon its ability to protect its operating systems against
physical damage from fire, floods, earthquakes, power loss, telecommunications
failures, break-ins and similar events. The Company does have a disaster
recovery plan in place, including relying on a combination of an outsourced
solution and a mirrored Web hosting facility arrangement. Despite the
implementation of network security measures by the Company, its servers are also
vulnerable to computer viruses, break-ins and similar disruptive problems. The
occurrence of any of these events could result in interruptions, delays or
cessations in service to users of the Company's products and services which
could have a material adverse effect on the Company's business, results of
operations and financial condition.
ITEM 3. - LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
ITEM 4. - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Report.
PART II
ITEM 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market information is set forth in Note 19 of the Notes to
Consolidated Financial Statements referred to in Item 8 (a) below and
incorporated herein by reference.
(b) On October 20, 1997, there were 165 holders of record of common
stock.
(c) The Company has never paid cash dividends on its common stock, and
the Company has no intention to pay cash dividends in the forseeable future.
ITEM 6. - SELECTED CONSOLIDATED FINANCIAL DATA
The information set forth on page 20 of the 1997 Annual Report to
Shareholders 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 set forth on pages 21-27 of the 1997 Annual Report to
Shareholders, referred to in Item 8(a) below, is incorporated herein by
reference and is filed herewith as Exhibit 13.2.
ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The following consolidated financial statements of the Company and
independent auditors' report set forth on pages 28-44 of the 1997 Annual Report
to Shareholders are incorporated herein by reference and are filed herewith as
Exhibit 13.3:
14
- Consolidated Balance Sheets as of July 31, 1997 and 1996
- Consolidated Statements of Operations for the three years ended
July 31, 1997
- Consolidated Statements of Stockholders' Equity for the three
years ended July 31, 1997
- Consolidated Statements of Cash Flows for the three years ended
July 31, 1997
- 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 incorporated herein by reference.
ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the portions of the Definitive Proxy
Statement entitled "Proposal 1--Election of Directors," "Additional
Information," and "Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 11. - EXECUTIVE COMPENSATION
Incorporated by reference from the portions of the Definitive Proxy
Statement entitled "Executive Compensation," and "Additional Information--
Compensation of Directors."
ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the portion of the Definitive Proxy
Statement entitled "Security Ownership by Management and Principal
Stockholders."
ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the portion of the Definitive Proxy
Statement entitled "Certain Relationships and Related Transactions."
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.
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 ommitted
since they are either not required, not applicable, or the
information is otherwise included.
3. Exhibits. The following Exhibits are required to be filed
with this Report by Item 14 and are incorporated by
reference to the source cited in the Exhibit Index below or
are filed herewith.
15
EXHIBIT INDEX
EXHIBIT NO. TITLE METHOD OF FILING
- ----------- ----- ----------------
3 (i) (1) Amendment to the Restated Certificate Incorporated by reference to Exhibit 3 (i) (1)
of Incorporation to the Registrant's quarterly report on Form
10-Q for the quarter ended April 30, 1996
3 (i) (2) Restated Certificate of Incorporation Incorporated by reference from Registration
Statement on Form S-1, as amended, filed on
November 10, 1993 (Registration No. 33-71518)
3 (ii) Restated By-Laws Incorporated by reference from Registration
Statement on Form S-1 as amended, filed on
November 10, 1993 (Registration No. 33-71518)
4 Specimen Stock Certificate representing the Incorporated by reference from
Common Stock Registration Statement on Form S-1, as
amended, filed on November 10, 1993
(Registration No. 33-71518)
10.01 Form of Indemnification Agreement Incorporated by reference from
between the Registrant and its Directors Registration Statement on Form S-1, as
amended, filed on November 10, 1993
(Registration No. 33-71518)
10.02 Lease, dated November 21, 1991, Incorporated by reference from
Between the Registrant and Registration Statement on Form S-1, as
Ballardvale Park Associates II amended, filed on November 10, 1993
Limited Partnership (Registration No. 33-71518)
10.03 Lease Agreement, dated September 2, 1992, Incorporated by reference from Registration
between SalesLink Corporation, the subsidiary Statement on Form S-1, as amended, filed on
of the Registrant, and American National Bank November 10, 1993 (Registration No. 33-71518)
& Trust Company of Chicago as Trustee under
Trust No. 1001971-01
10.04 Amendment to Lease, dated May 10, 1992, Incorporated by reference from Registration
between SalesLink Corporation, the subsidiary Statement on Form S-1, as amended, filed on
of the Registrant, and Drydock Associates November 10, 1993 (Registration No. 33-71518)
Limited Partnership
10.05 CMG/SalesLink Savings and Retirement Incorporated by reference from Registration
401(k) Plan Statement on Form S-1, as amended, filed on
November 10, 1993 (Registration No. 33-71518)
10.06* Employment Agreement, dated August 1, 1993, Incorporated by reference from Registration
between the Registrant and David S. Wetherell Statement on Form S-1, as amended, filed on
November 10, 1993 (Registration No. 33-71518)
10.07 Fulfillment and Inventory Management Incorporated by reference from Registration
Agreement between SalesLink Corporation, Statement on Form S-1, as amended, filed on
the subsidiary of the Registrant, and November 10, 1993 (Registration No. 33-71518)
MFS Financial Services, Inc.
10.08 Fulfillment and Mailing Agreement, Incorporated by reference from Registration
dated January 1, 1993, between SalesLink Statement on Form S-1, as amended, filed on
16
Corporation, the subsidiary of the Registrant, November 10, 1993 (Registration No. 33-71518)
and Kemper Financial Services, Inc.
10.09 Agreement, dated January 15, 1991, between Incorporated by reference from Registration
ListLab, a division of the Registrant, and Statement on Form S-1, as amended, filed on
Prentice-Hall, Business and Professional November 10, 1993 (Registration No. 33-71518)
Publishing Division
10.10 Account Indebtedness Letter Agreement, Incorporated by reference from Registration
dated as of November 9, 1993, between the Statement on Form S-1, as amended, filed on
Registrant and David S. Wetherell November 10, 1993 (Registration No. 33-71518)
10.11 Amendment to Account Indebtedness Letter Incorporated by reference from Registration
Agreement, dated as of January 10, 1994, Statement on Form S-1, as amended, filed on
between the Registrant and David S. Wetherell November 10, 1993 (Registration No. 33-71518)
10.12* Amendment No. 1 to the Employment Incorporated by reference from Registration
Agreement, dated January 20, 1994, between Statement on Form S-1, as amended, filed on
the Registrant and David S. Wetherell November 10, 1993 (Registration No. 33-71518)
10.13 Amendment No. 2 to Account Indebtedness Incorporated by reference from Registration
Letter Agreement, dated January 25, 1994 Statement on Form S-1, as amended, filed on
between the Registrant and David S. Wetherell November 10, 1993 (Registration No. 33-71518)
10.14 Extension Agreement dated August 4, 1995 Incorporated by reference to Exhibit 10.24 to
to Fulfillment and Mailing Agreement dated the Registrant's annual report on Form 10-K
January 1, 1993, between SalesLink Corporation for the year ended July 31, 1995
and Kemper Financial Services, Inc.
10.15 Fulfillment Master Purchase Agreement dated Incorporated by reference to Exhibit 10.25 to
March 28, 1994, between SalesLink Corporation the Registrant's annual report on Form 10-K
and Fidelity Investments Institutional Service for the year ended July 31, 1995
Company, Inc.
10.16 Literature Fulfillment Agreement dated Incorporated by reference to Exhibit 10.26 to
August 1, 1995, between SalesLink Corporation the Registrant's annual report on Form 10-K
and Vista Capital Management for the year ended July 31, 1995
10.17 License Agreement dated June 16, 1995, as Incorporated by reference to Exhibit 10.27 to
amended, between the Registrant, CMG@Ventures, the Registrant's annual report on Form 10-K
L.P., Carnegie Mellon University, and Lycos, Inc. for the year ended July 31, 1995
10.18 Agreement and Plan of Reorganization dated Incorporated by reference from Report on
as of November 8, 1994, as amended, among the Form 8-K as filed with the commission
Registrant, BookLink Technologies, Inc., 01/01/95 (File No. 0-22846)
America Online, Inc. and BLT Acquisition
Corporation
10.19* 1995 Employee Stock Purchase Plan Incorporated by reference to Exhibit 10.29 to
the Registrant's annual report on Form 10-K
for the year ended July 31, 1995.
10.20* 1986 Stock Option Plan, as amended Incorporated by reference to Exhibit 10.30 to
the Registrant's annual report on Form 10-K
for the year ended July 31, 1995.
10.21 Partnership Agreement by and among CMG- Incorporated by reference to Exhibit 10.32 to
@Ventures, Inc., CMG@Ventures Capital the Registrant's quarterly report on Form 10-Q
Corp., the Registrant and various Profit for the quarter ended January 31, 1996.
Partners
17
10.22 Master Agreement dated as of February 13, Incorporated by reference to Exhibit 10.33 to
1996 between BBN Corporation and the the Registrant's quarterly report on Form 10-Q
Registrant. for the quarter ended January 31, 1996.
10.23* 1995 Stock Option Plan for Non-Employee Incorporated by reference to Exhibit 10.34 to
Directors the Registrant's quarterly report on Form 10-Q
for the quarter ended January 31, 1996.
10.24 Amendments dated February 9, 1996 and Incorporated by reference to Exhibit 10.35 to
March 4, 1996 to License Agreement dated the Registrant's quarterly report on Form 10-Q
June 16, 1995, between the Registrant, CMG- or the quarter ended January 31, 1996.
@Ventures L.P., Carnegie Mellon University
and Lycos, Inc.
10.25 Sublease, dated September 26, 1996 between Incorporated by reference to Exhibit 10.1 to the
the Registrant and FTP Software, Inc. Registrant's quarterly report on Form 10-Q for
the quarter ended October 31, 1996.
10.26* Amendment No. 2 to Employment Agreement, Incorporated by reference to Exhibit 10.2 to the
dated October 25, 1996, between the Registrant's quarterly report on Form 10-Q for
Registrant and David S. Wetherell the quarter ended October 31, 1996.
10.27 Revolving Credit and Term Loan Agreement Incorporated by reference to Exhibit 10.3 to the
dated as of October 24, 1996, among SalesLink Registrant's quarterly report on Form 10-Q for
Corporation, the Registrant, Pacific Direct the quarter ended October 31, 1996.
Marketing Corp. and the First National
Bank of Boston
10.28 Revolving Credit Note of SalesLink Corporation, Incorporated by reference to Exhibit 10.4 to the
dated as of October 24, 1996, in the principal Registrant's quarterly report on Form 10-Q for
amount of $2,500,000 the quarter ended October 31, 1996.
10.29 Term Note of SalesLink Corporation, dated as of Incorporated by reference to Exhibit 10.5 to the
October 24, 1996, in the principal amount of Registrant's quarterly report on Form 10-Q for
$5,500,000 the quarter ended October 31, 1996.
10.30 Guaranty by Pacific Direct Marketing Corp. Incorporated by reference to Exhibit 10.6 to the
dated as of October 24, 1996 Registrant's quarterly report on Form 10-Q for
the quarter ended October 31, 1996.
10.31 Guaranty by the Registrant dated as of Incorporated by reference to Exhibit 10.7 to the
October 24, 1996 Registrant's quarterly report on Form 10-Q for
the quarter ended October 31, 1996.
10.32 Supplement #1 to Sublease, dated September 26, Incorporated by reference to Exhibit 10.1
1996 between the Registrant and FTP Software, to the Registrants quarterly report or Form 10Q
Inc. for the quarter ended January 31, 1997.
10.33 CMG Stock Purchase Agreement, dated as of Incorporated by reference to Exhibit 99.1 to
December 10, 1996 by and between the the Registrant's current report on Form 8-K
Registrant and Microsoft Corporation dated January 31, 1997, filed on February 14,
1997.
10.34 CMG @Ventures, Inc. Deferred Compensation Incorporated by reference to Exhibit 10.1 to the
Plan Registrants quarterly report on Form 10Q for the
quarter ended April 30, 1997.
18
10.35 Limited Liability Company Agreement for Filed herewith
CMG @Ventures, I, LLC
10.36 Stock Purchase Agreement dated as of October Incorporated by reference to Exhibit 2 to the
24, 1996, among SalesLink Corporation, CMG Registrant's report on Form 8-K as filed with
Information Services, Inc., Pacific Direct the commission 10/24/96 (File No. 0-22846)
Marketing Corp., d/b/a Pacific Link and all the
stockholders of Pacific Link. Pursant to Item
602(b)(2) of Regulation S-K, the schedules and
certain exhibits to the Stock Purchase Agreement
are omitted. A list of such schedules and
exhibits appears in the table of contents to the
Stock Purchase Agreement. The Registrant hereby
undertakes to furnish supplementally a copy of
any omitted schedule or exhibit to the Commission
upon request.
10.37 Warrant Purchase Agreement by and among Filed herewith
SalesLink Corporation and BankBoston, N.A.,
dated as of October 24, 1996.
10.38 Common Stock Purchase Warrant issued by Filed herewith
SalesLink Corporation to BankBoston, N.A.,
dated as of October 24, 1996.
10.39 ISDA Master Swap Agreement (the "Swap Filed herewith
Agreement"), dated as of January 14, 1997, by
and between CMG Information Services, Inc.
and The First National Bank of Boston (FNBB")
10.40 Confirmation and Schedule to Swap Agreement, Filed herewith
dated as of January 14, 1997, by and between
CMG Information Services, Inc. and FNBB.
10.41 ISDA Credit Support Annex, dated as of Filed herewith
January 14, 1997, by and between FNBB and
CMG Information Services, Inc.
10.42 Repurchase Agreement, dated as of January 14, Filed herewith
1997, by and between CMG @Ventures, L.P.
and the Long Lane Master Trust.
10.43 First Amendment and Waiver to Revolving Filed herewith
Credit and Term Loan Agreement by and among
the Registrant, Pacific Direct Marketing Corporation
and FNBB, dated March 14, 1997.
10.44 Assumption, Second Amendment and Filed herewith
Confirmation Agreement by and among SalesLink
Corporation and BankBoston, N.A., dated
July 11, 1997.
10.45 Term Note, dated March 14, 1997, between Filed herewith
SalesLink Corporation and Imperial Bank.
10.46 Amended and Restated Term Note, dated March Filed herewith
14, 1997, between SalesLink Corporation and
FNBB.
19
10.47 Second Amended and Restated Revolving Credit Filed herewith
Note, dated July 11, 1997, between SalesLink
Corporation and Imperial Bank.
10.48 Second Amended and Restated Revolving Credit Filed herewith
Note, dated July 11, 1997, between SalesLink
Corporation and BankBoston, N.A.
10.49 Revolving Credit Agreement, dated May 14, Filed herewith
1997, between the Registrant and BankBoston,
N.A.
10.50 Revolving Credit Note, dated May 14, 1997, Filed herewith
between the Registrant and BankBoston, NA.
11 Statement of Computation of Earnings Per Share Filed herewith
13.1 Selected Consolidated Financial Data Filed herewith
13.2 Management's Discussion and Analysis Filed herewith
of Financial Condition and Results of
Operations
13.3 Consolidated Financial Statements, Filed herewith
Supplementary Data, and Independent
Auditors' Report
21 Subsidiaries of the Registrant Filed herewith
23 Consent of Independent Auditors Filed herewith
27 Financial Data Schedule Filed herewith
* Management contracts and compensatory plans or arrangements.
(B) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fiscal quarter ended
July 31, 1997.
20
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors
CMG Information Services, Inc.:
Under date of September 19, 1997, we reported on the Consolidated Balance
Sheets of CMG Information Services, Inc. as of July 31, 1997 and 1996, 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, 1997, which
are included in the Form 10-K for the year ended July 31, 1997. 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 PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Boston, Massachusetts
September 19, 1997
21
CMG INFORMATION SERVICES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 31, 1995, 1996, 1997
ADDITIONS DEDUCTIONS
CHARGED TO (CHARGED
ACCOUNTS RECEIVABLE, BALANCE AT COSTS TO AGAINST BALANCE AT
ALLOWANCE FOR DOUBTFUL BEGINNING OF EXPENSES (BAD ACCOUNTS END
ACCOUNTS PERIOD ACQUISITIONS DEBT EXPENSE) RECEIVABLE) DISPOSITION OF PERIOD
- -------- ------ ------------ ------------- ----------- ----------- ---------
1995 $137,000 $ -- $ 60,000 $ 49,000 $ -- $ 148,000
1996 $148,000 $ -- $294,000 $ -- $ -- $ 442,000
1997 $442,000 $395,000 $442,000 $186,000 $10,000 $1,083,000
22
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.
CMG INFORMATION SERVICES, INC.
(Registrant)
Date: October 29, 1997
By: /s/ David S. Wetherell
-------------------------------
David S. Wetherell, President
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 Chief Financial Officer and
- ----------------------------- Treasurer (Principal Financial and
Andrew J. Hajducky III, CPA Accounting Officer)
/s/ John A. McMullen Director
- -----------------------------
John A. McMullen
/s/ Craig D. Goldman Director
- -----------------------------
Craig D. Goldman
23
Exhibit 10.35
CMG@VENTURES I, LLC
LIMITED LIABILITY COMPANY AGREEMENT
CMG@VENTURES I, LLC
LIMITED LIABILITY COMPANY AGREEMENT
TABLE OF CONTENTS
ARTICLE 1........................................ FORMATION, ETC. 2
---------------
Section 1.1 Formation.................................. 2
---------
Section 1.2 Filings.................................... 2
-------
Section 1.3 Name; Ownership of Property................ 2
---------------------------
Section 1.4 Offices.................................... 2
-------
Section 1.5 Duration................................... 3
--------
Section 1.6 Registered Agent........................... 3
----------------
Section 1.7 Purposes; Restructuring of Investments..... 3
--------------------------------------
Section 1.8 Qualification in Other Jurisdictions....... 4
------------------------------------
Section 1.9 Fiscal Year................................ 5
-----------
Section 1.10 Reliance by Third Parties.................. 5
-------------------------
ARTICLE 2...CAPITAL CONTRIBUTIONS; MEMBERS' ACCOUNTS; ALLOCATIONS 5
-----------------------------------------------------
Section 2.1 Capital Commitments........................ 5
-------------------
Section 2.2 Capital Contributions...................... 6
---------------------
Section 2.3 Capital Accounts........................... 7
----------------
Section 2.4 Capital Commitments Not Company Assets..... 8
--------------------------------------
Section 2.5 Net Operating Profits and Net Operating
---------------------------------------
Losses-Allocation.......................... 8
-----------------
Section 2.6 Capital Gains and Capital Losses with Respect
---------------------------------------------
to Portfolio Securities-Allocation......... 10
----------------------------------
Section 2.7 Special Allocation Rules................... 12
------------------------
Section 2.8 Tax Allocations; Income Tax Elections...... 14
-------------------------------------
Section 2.9 Modification of Capital Commitments........ 14
-----------------------------------
Section 2.10 Default in Capital Commitment.............. 15
-----------------------------
Section 2.11 Continuing Participation................... 17
------------------------
Section 2.12 Consent to Remedies........................ 19
-------------------
Section 2.13 In Kind Distributions...................... 20
---------------------
Section 2.14 In Kind Contributions; Managing Member
--------------------------------------
Investments................................ 20
-----------
ARTICLE 3...........................................PROFIT MEMBERS 20
--------------
Section 3.1 Profit Members; Rights Thereof............. 20
------------------------------
Section 3.2 Award and Vesting of Carried Interests..... 21
--------------------------------------
Section 3.3 Termination of Employment and Membership
----------------------------------------
Status .................................... 23
------
Section 3.4 Change of Control.......................... 25
-----------------
Section 3.5 No Recruitment or Solicitation............. 29
------------------------------
Section 3.6 Non-Disclosure and Invention Assignment
Agreement.................................. 29
---------
i
Section 3.7 Capital Accounts........................... 29
----------------
ARTICLE 4................... DISTRIBUTIONS; WITHHOLDING; VALUATION 30
-------------------------------------
Section 4.1 Withdrawal of Capital...................... 30
---------------------
Section 4.2 Distributions of Cash Flow................. 30
--------------------------
Section 4.3 Distributions of Capital Proceeds.......... 30
---------------------------------
Section 4.4 Additional Distribution Provisions......... 31
----------------------------------
Section 4.5 Other Distributions........................ 34
-------------------
Section 4.6 Withholding................................ 34
-----------
Section 4.7 No Restoration by the Managing Member...... 35
-------------------------------------
Section 4.8 Valuation.................................. 35
---------
ARTICLE 5......................... MANAGEMENT; PAYMENT OF EXPENSES 36
-------------------------------
Section 5.1 Description of Managing Member............. 36
------------------------------
Section 5.2 Management by the Managing Member.......... 36
---------------------------------
Section 5.3 Powers of Capital Investment Members....... 38
------------------------------------
Section 5.4 Fees and Expenses.......................... 39
-----------------
Section 5.5 The Advisory Committee..................... 40
----------------------
Section 5.6 Conflicts of Interest...................... 41
---------------------
ARTICLE 6............................. OTHER ACTIVITIES OF MEMBERS 42
---------------------------
Section 6.1 Commitment of Managing Member.............. 42
-----------------------------
Section 6.2 Agreements with Portfolio Companies........ 42
-----------------------------------
Section 6.3 Obligations and Opportunities for Members.. 43
-----------------------------------------
ARTICLE 7.........ADMISSIONS; ASSIGNMENTS; REMOVAL AND WITHDRAWALS 43
------------------------------------------------
Section 7.1 Admission of Additional Managing Member.... 43
---------------------------------------
Section 7.2 Admission of Additional Capital Investment
------------------------------------------
Members; Increase in Capital Commitments... 43
----------------------------------------
Section 7.3 Admission of Additional Profit Members..... 44
--------------------------------------
Section 7.4 Assignment of a Membership Interest........ 45
-----------------------------------
Section 7.5 Restrictions on Transfer.... 46
------------------------
Section 7.6 Removal or Withdrawal of Managing Member... 47
----------------------------------------
Section 7.7 Withdrawals of Capital Investment Members.. 48
-----------------------------------------
ARTICLE 8................... LIABILITY OF MEMBERS; INDEMNIFICATION 49
-------------------------------------
Section 8.1 Liability of Members....................... 49
--------------------
Section 8.2 Indemnification............................ 49
---------------
Section 8.3 Payment of Expenses........................ 50
-------------------
ARTICLE 9..................... ACCOUNTING FOR THE COMPANY; REPORTS 51
-----------------------------------
Section 9.1 Accounting for the Company................. 51
--------------------------
Section 9.2 Books and Records.......................... 51
-----------------
ii
Section 9.3 Reports to Members......................... 51
------------------
ARTICLE 10............................. DISSOLUTION AND WINDING UP 52
--------------------------
Section 10.1 Dissolution................................ 52
-----------
Section 10.2 Winding Up................................. 53
----------
Section 10.3 Final Distribution and Allocation.......... 54
---------------------------------
Section 10.4 Merger of Company into Another Entity...... 55
-------------------------------------
ARTICLE 11............................................ DEFINITIONS 55
-----------
ARTICLE 12.......................................... MISCELLANEOUS 62
-------------
Section 12.1 Registration of Securities................. 62
--------------------------
Section 12.2 Entire Agreement........................... 63
----------------
Section 12.3 Amendments................................. 63
----------
Section 12.4 Severability............................... 63
------------
Section 12.5 Notices.................................... 64
-------
Section 12.6 Heirs and Assigns; Execution............... 64
----------------------------
Section 12.7 Waiver of Partition........................ 64
-------------------
Section 12.8 Power of Attorney.......................... 64
-----------------
Section 12.9 Headings................................... 65
--------
Section 12.10 Further Actions............................ 65
---------------
Section 12.11 Gender, Etc. .............................. 65
------------
Section 12.12 Tax Matters Partner........................ 65
-------------------
Section 12.13 Certain ERISA Matters...................... 65
---------------------
Section 12.14 Applicable Law............................. 66
--------------
Section 12.15 Counterparts............................... 66
------------
iii
CMG@VENTURES I, LLC
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT is dated and is effective as of
the 23rd day of October, 1997 (the "Agreement"), by and among (i) the
undersigned Managing Member, CMG@VENTURES, INC., a Delaware corporation whose
address is set forth on Exhibit A attached hereto (together with any successor
or additional Managing Member who may hereafter be admitted to the Company as a
Managing Member and whose name, address, and signature, upon admittance, shall
be set forth on Exhibit A, hereinafter referred to as the "Managing Member" and
sometimes as a "Capital Member"), and (ii) the undersigned Capital Investment
Member, CMG@VENTURES CAPITAL CORP., a Delaware corporation whose address is set
forth on Exhibit A attached hereto (together with any successor or additional
Capital Investment Member who may hereafter be admitted to the Company as a
Capital Investment Member and whose name, address and signature, upon
admittance, shall be set forth on Exhibit A, hereinafter referred to as the
"Capital Investment Member" and sometimes as a "Capital Member"), and (iii) such
individuals as may now or hereafter be admitted to the Company as Profit Members
and whose names, addresses, and signatures are set forth on Exhibit A attached
hereto (together with any successor or additional Profit Member who may
hereafter be admitted to the Company (and whose name, address, and signature,
upon admittance, shall be set forth on Exhibit A), hereinafter referred to as
the "Profit Members"). The Managing Member and the Capital Investment Member are
also sometimes collectively referred to herein as the "Capital Members" and
individually as a "Capital Member." The Managing Member and the Capital
Investment Member and the Profit Members are sometimes collectively referred to
herein as the "Members" and individually as a "Member."
W I T N E S S E T H :
WHEREAS, the parties hereto desire to join together to form a limited
liability company known as "CMG@Ventures I, LLC" (the "Company") under and
pursuant to the Delaware Limited Liability Company Act, 6 Del C. Section 18.101
et seq., (as amended from time to time, the "Delaware Act");
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
of the parties hereto, and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, intending
to be legally bound, hereby agree as follows:
1.
FORMATION, ETC.
---------------
1.1 Formation.
---------
The undersigned parties hereby acknowledge that the term of the Company
shall commence on the date on which a Certificate of Formation is duly filed
pursuant to the Delaware Act which date is acknowledged to be October 23, 1997,
and shall continue until terminated in accordance with ARTICLE X.
1.2 Filings.
-------
The Managing Member shall file the Certificate of Formation and shall file
all amendments thereto in the office of the Secretary of State of the State of
Delaware and, so long as the Company shall exist as a Delaware limited liability
company, shall do all other acts and things requisite for the continuation of
the Company as a limited liability company pursuant to the Delaware Act.
1.3 Name; Ownership of Property.
---------------------------
The name of the Company is "CMG@Ventures I, LLC" All business of the
Company shall be conducted under such name, and title to all property, real,
personal, or mixed, owned by or leased to the Company, shall be held in such
name; except that certain Portfolio Securities may be owned by the Managing
Member in accordance with the terms and conditions of one or more agreements
between the Managing Member and the Company with respect to those Portfolio
Securities. The Company's business may also be conducted under any other name or
names deemed advisable by the Managing Member including, without limitation, the
name "@Ventures." The words "LLC" or "Limited Liability Company" or such other
designation as the Managing Member shall deem appropriate shall be included in
the name where necessary to comply with the applicable laws of any jurisdiction.
The Managing Member shall give prompt notice of any name change to each Member.
1.4 Offices.
-------
The principal office of the Managing Member shall be maintained at 100
Brickstone Square, 1st Floor, Andover, Massachusetts 01810, or at such other
location or locations as may from time to time be designated by the Managing
Member with prompt notice to each Member.
2
1.5 Duration.
--------
The term of the Company's existence shall continue through and terminate on
April 13, 2010, subject to earlier or later termination pursuant to the
provisions of ARTICLE X hereof. The term of the Company's existence may be
extended at the sole discretion of the Managing Member for one or more periods
of not less than three nor more than ten years each, depending on the maturity
of the Company's Investments and the amount of capital or capital calls
remaining to be invested or reinvested and the opportunities for investing or
reinvesting such capital or capital calls.
1.6 Registered Agent.
----------------
The Company shall maintain a registered agent and registered office in the
State of Delaware. The name and address of the registered agent of the Company
in the State of Delaware upon whom process may be served, and the address of the
registered office of the Company in the State of Delaware is The Corporation
Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. The Managing
Member may change the designated registered office or registered agent and upon
any such change shall give prompt notice to each Member of any change in the
registered office or agent of the Company.
1.7 Purposes; Restructuring of Investments.
--------------------------------------
(a) The Company is formed for the following purposes:
(i) to afford the Members the possibility of realizing income and
gains (A) from equity appreciation and other income, principally by means
of the Company's purchase, directly or through holding companies ("Holding
Companies"), of equity and equity-related securities, notes, debentures,
limited partnership interests, limited liability company interests, or
other equity or debt instruments or other interests or investments of any
nature whatsoever, including, without limitation, notes, debentures, and
common or preferred stock, (whether or not convertible or exchangeable),
and rights, options and warrants to purchase notes, debentures, and common
or preferred stock or other securities or debt instruments, or direct or
indirect interests in tangible or intangible assets of any kind whatsoever
(all of the foregoing being hereinafter referred to as "Investments" or as
"Securities"), in privately or publicly held or solely owned operating or
investment businesses or other entities or parts thereof or assets
(together with Holding Companies, the "Portfolio Companies") and (B) from
the management, ownership, supervision and disposition of such Portfolio
Companies;
3
(ii) pending utilization or disbursement of funds to purchase
securities of Portfolio Companies, to invest such funds in Temporary
Investments; and
(iii) to engage in any activities or transactions necessary or
desirable to accomplish the foregoing purposes and to do any other act or
thing, in the sole discretion of the Managing Member, incidental or
ancillary thereto.
(b) Except with the approval of seventy-five percent (75%) in interest of
the Capital Investment Members and seventy-five percent (75%) in interest of the
Profit Members:
(i) Unless the Managing Member determines it would otherwise be in
the best interests of the Company, the Company shall not alter or
restructure the Company's Investment in a Portfolio Company during the term
of the Company in a manner that the Managing Member determines may (or may
not) result in a distribution of cash to the Capital Investment Members or
to the Profit Members insufficient to pay any tax which those Capital
Investment Members or Profit Members would reasonably be expected to be
required to pay as a result of that alteration or restructuring;
(ii) The Company shall make no Investment in a Portfolio Company
unless (A) the assets of the Company (excluding payment for such
investment) are sufficient to pay or provide for all debts and liabilities
of the Company (including all contingent liabilities but excluding debts
and liabilities to which such payment is to be applied as specified in the
applicable Call Notice) and (B) to the best of the Managing Member's
knowledge, there are no other obligations against or liabilities of the
Company which would divert any amount paid by a Capital Investment Member
pursuant to the applicable Call Notice with respect to such Investment
other than the making of the applicable proposed Investment in the
Portfolio Company; and
(iii) The Company shall not acquire any shares of stock, stock
purchase warrants, stock options, limited partnership interests, and/or
other Securities if the acquisition and/or holding thereof would require
registration of the Company under the Investment Company Act, unless a
registration statement relating to the Company (or an exemption from such
registration) shall have become effective under the Investment Company Act.
1.8 Qualification in Other Jurisdictions.
------------------------------------
The Managing Member shall cause the Company and/or the Managing Member to
be qualified or registered under its own name or the Managing Member's name or
under an assumed or fictitious name pursuant to foreign limited company statutes
or similar laws in any jurisdiction in
4
which the Company owns property or transacts business if such qualification or
registration is necessary in order to protect the limited liability of the
Members or to permit the Company lawfully to own property or transact business
and shall cause the Company not to transact business in any such jurisdiction
until it is so qualified or registered. The Managing Member shall execute, file
and publish all such certificates, notices, statements or other instruments
necessary or desirable to permit the Company and the Managing Member to conduct
business as and through a limited liability company in all jurisdictions where
the Company elects to do business and to maintain the limited liability of the
Members.
1.9 Fiscal Year.
-----------
The fiscal year of the Company (the "Fiscal Year") for financial accounting
and for Federal income tax purposes shall end on July 31 of each year.
1.10 Reliance by Third Parties.
-------------------------
Persons and entities dealing with the Company are entitled to rely
conclusively upon the power and authority of the Managing Member as herein set
forth.
2.
CAPITAL CONTRIBUTIONS; MEMBERS' ACCOUNTS; ALLOCATIONS
-----------------------------------------------------
2.1 Capital Commitments.
-------------------
Subject to the provisions of Sections 2.9, 2.10 and 2.11, the Capital
Members hereby agree to make cash contributions to the capital of the Company up
to the total amount of twenty-two million dollars ($22,000,000) and in the
proportionate amounts set forth opposite the names of each of the Capital
Members on Exhibit A attached hereto for the purpose (and only for the purpose)
of funding the Company's Investments in Portfolio Companies. The amount of each
such commitment, less any portion of the commitment which is released or reduced
pursuant to Sections 2.9, 2.10 or 2.11 and plus any portion assumed pursuant to
Section 2.10, is referred to herein as a "Capital Commitment." Capital
Commitments shall not be assets of the Company until capital is contributed, and
then only to the extent of the aggregate capital so contributed. On any date
when a Capital Investment Member makes a contribution to the capital of the
Company, the Managing Member (or Managing Members if there be more than one)
shall contribute to the capital of the Company cash in such amount as is
sufficient to cause the Managing Member's Capital Contributions to equal 1% of
the sum of the Capital Contributions of all of the Capital Members.
5
Except as otherwise required by law or Section 10.3, the Managing Member shall
not be obligated to restore or contribute to the capital of the Company, all or
any portion of a negative balance in its Capital Account.
Each Capital Member shall have the option, but not the obligation, to
reinvest any Recovered Capital and any Net Realized Capital Gains or other
property distributed to such Capital Member, net of any taxes payable with
respect thereto, in the Company or in another limited liability company or
partnership managed by the Managing Member by notifying the Managing Member in
writing of the amount of such additional capital commitment whereupon such
capital commitment shall be added to the existing capital commitment (if any) of
such Capital Member in the Company or in the other company or partnership.
2.2 Capital Contributions.
---------------------
(a) The aggregate amount of capital contributed by a Capital Investment
Member pursuant to its Capital Commitment, less Returns of Capital as defined
below, is referred to herein as a "Capital Contribution." The Managing Member
shall call for payment of each Capital Investment Member's Capital Commitment
only as needed to fund the Company's prospective Investments in Portfolio
Companies and for no other purpose. All such calls shall be made in writing to
all Capital Investment Members pro rata in proportion to their respective
Capital Commitments and shall be made by separate notices (unless waived) ("Call
Notices") containing the information set forth in Section 2.2(b). The Managing
Member shall use its best efforts to deliver Call Notices (unless waived) to the
Capital Investment Members by telex, telecopier, cable or overnight courier not
less than thirty (30) days in advance of the date on which the installment
payable in response to such notice is due (the "Due Date"), and shall deliver
such notice (unless waived) in no event less than ten (10) Business Days before
the Due Date. All Capital Contributions shall be paid on or before their Due
Date. No Capital Commitment may be called after expiration of the Commitment
Period. Any Due Date in respect of which a Call Notice has been delivered may be
postponed by the Managing Member one or more times for an aggregate of up to
sixty (60) calendar days following the originally scheduled Due Date; provided
that if the sixtieth day after such originally scheduled Due Date shall not be a
Business Day, then such Due Date may be postponed until the next succeeding
Business Day. The Managing Member shall give prompt notice (unless waived) to
each Capital Investment Member, by telex, facsimile, telecopier, cable or
overnight courier, of any such postponement, whereupon such rescheduled Due Date
shall be the Due Date for purposes hereof. To the extent that the information
contained in the original Call Notice has materially changed, such notice of
postponement shall set forth such changes. All payments of the Capital
Investment Members hereunder shall be made to the Company by transfer by wire or
otherwise of federal funds or other immediately available funds (or by such
other means as the Managing Member may designate or approve) by 11:00 a.m.
Eastern time on the relevant Due Date to an account of the Company designated by
the Managing Member for such purpose. So far as practicable, Capital
Contributions shall be invested by the Managing Member in
6
Temporary Investments pending the purchase of Portfolio Securities. Any amounts
paid by a Capital Investment Member pursuant to a Call Notice for an Investment
in Portfolio Securities that does not take place within sixty (60) days of the
originally scheduled Due Date (or, if the sixtieth day after such Due Date is
not a Business Day, the next succeeding Business Day), shall, together with any
interest earned thereon, be refunded to such Capital Investment Member (a
"Return of Capital") at its request and such Capital Investment Member's Capital
Commitment remaining to be called shall be increased by the amount so refunded,
excluding such interest.
(b) Each Call Notice shall state the scheduled Due Date and specify:
(i) The aggregate amount of payments to be made on the Due Date;
(ii) The required payment to be made by the Capital Investment
Member to which the Call Notice is delivered;
(iii) The account to which such payment shall be paid; and
(iv) The anticipated nature and approximate timing of the Investment
in the Portfolio Company and the type and approximate amount of Portfolio
Securities to be acquired with such payment.
Within two Business Days after receiving any Call Notice, any Capital
Investment Member may request such additional information from the Managing
Member as is reasonably necessary to enable it (with the advice of its counsel)
to determine whether the particular investment by the Capital Investment Member
is prohibited as described in Section 2.11. Within two (2) Business Days
following its receipt of such request, the Managing Member shall make available
to such Capital Investment Member any such requested information that is in the
possession of, or may be acquired without undue hardship by, the Managing
Member.
(c) With respect to the Company's first acquisition of Portfolio
Securities, the Due Date for Capital Contributions shall be the closing date of
such acquisition.
(d) If a Capital Investment Member is excused from making a Capital
Contribution pursuant to Section 2.11 or defaults in the payment of a Capital
Contribution as contemplated in Section 2.10, the Managing Member shall
forthwith deliver a new Call Notice to the remaining Capital Investment Members
assessing them their pro rata portion of the amount of such Capital Contribution
remaining unpaid, payable on the Due Date of such Capital Contribution,
provided, however, that the Managing Member may in its discretion increase its
own Capital Contribution to furnish the additional funds to purchase such
Portfolio Securities that would have been purchased with such unpaid Capital
Contribution, which funds shall be returned to the Managing Member upon payment
of the Capital Contributions of the remaining Capital Investment Members to the
Company as provided above.
7
2.3 Capital Accounts.
----------------
(a) A capital account ("Capital Account") shall be established on the
books of the Company for each Capital Member in which there shall be recorded
each contribution of capital made by or for the account of such Capital Member
as of the date such contribution is made. Each Capital Member's Capital Account
shall be increased or decreased to reflect Capital Contributions, contributions
of Investments in Portfolio Securities held by the Managing Member, Returns of
Capital, allocations of Net Operating Profits, Net Operating Losses, Net
Realized Capital Gains and Net Realized Capital Losses and distributions of Cash
Flow and Capital Proceeds and Capital, and shall be otherwise adjusted in
accordance with Section 1.704-1(b)(2)(iv) of the Treasury Regulations provided
that such adjustment does not materially decrease the amount or defer the timing
of any distributions, including distributions upon liquidation, that the Capital
Members would otherwise be entitled to receive pursuant to this Agreement. No
Capital Member shall be required to reimburse the Company for any negative
balance in such Capital Member's Capital Account; provided, that each Capital
Member shall remain fully liable to make Capital Contributions to the extent of
such Capital Member's Capital Commitment, except as such Capital Commitment may
be reduced as provided herein.
(b) In the sole discretion of the Managing Member, the Company may
revalue its Investments and other assets and adjust the Members' Capital
Accounts in accordance with Section 4.8 and applicable generally accepted
accounting principles in connection with (i) a write-off of any Investment, (ii)
any acquisition of an interest or increase or decrease in an existing interest
or interests in the Company with respect to any new or existing Member, (iii)
any distribution by the Company to a Member of more than a de minimis amount of
property as consideration for the redemption of an interest in the Company, (iv)
the liquidation of the Company, (v) any contribution to the Company of an
Investment in a Portfolio Company held by the Managing Member, and (vi) such
other circumstances as are approved by the Managing Member and permitted by the
Treasury Regulations. All Capital Account adjustments made to reflect
revaluations of Investments pursuant to this Section 2.3(b), and all Capital
Account adjustments made subsequent thereto, shall comply with Treasury
Regulations Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(2)(iv)(g) and 1.704-
1(b)(4)(i), provided that such compliance shall not materially decrease the
amount or defer the timing of any distributions, including distributions payable
upon liquidation, that the Members would otherwise be entitled to pursuant to
this Agreement. Such adjustments shall simulate the manner in which Net Realized
Capital Gains or Net Realized Capital Losses, and Net Operating Profits or Net
Operating Losses, as the case may be, would be allocated among the Members if
the Company's Investments and other assets were then sold for their fair market
values and the proceeds of such sales were distributed to the Members pursuant
to ARTICLE IV.
2.4 Capital Commitments Not Company Assets.
--------------------------------------
8
At no time shall any portion of a Member's Capital Commitment be held out
by the Managing Member to any creditor of the Company or be reflected on any
balance sheet as an asset of the Company.
2.5 Net Operating Profits and Net Operating Losses-Allocation .
---------------------------------------------------------
(a) Prior to the allocation of any Net Realized Capital Gains or Net
Realized Capital Losses for each Fiscal Year as provided in Section 2.6 below,
Net Operating Profits, if any, of the Company for each Fiscal Year shall be
allocated to the Members as follows and in the following order of priority as of
the end of such Fiscal Year:
(i) First, so much of such Net Operating Profits for such Fiscal
Year as shall not exceed the Managing Member Loss, if any, as of the end
of the preceding Fiscal Year shall be allocated to the Managing Member to
cover part or all of such Managing Member Loss.
(ii) Second, so much of any remaining Net Operating Profits for such
Fiscal Year as shall not exceed the Capital Member Loss, if any, as of
the end of the preceding Fiscal Year shall be allocated to all of the
Capital Members in proportion to their Percentages in Interest as set
forth in Exhibit A.
(iii) Third, so much of any remaining Net Operating Profits for such
Fiscal Year as shall not exceed the Profit Member Loss, if any, as of the
end of the preceding Fiscal Year shall be allocated to the Profit Members
as a group to be further allocated pro rata according to such Profit
Members' Carried Interests as defined in Section 3.2 hereof and added to
their respective Capital Accounts to cover part or all of such Profit
Member Loss.
(iv) Fourth, the balance of any remaining Net Operating Profits, if
any, for such Fiscal Year shall be allocated as follows: (A) for Net
Operating Profits relating to Investments made on or prior to July 31,
1996 (including Follow-On Investments made after July 31, 1996), twenty-
two and one-half percent (22.5%) and for Net Operating Profits relating
to Investments made after July 31, 1996, twenty percent (20%) (the
"Profit Members Carried Interest Allocation") shall be allocated to the
Profit Members as a group to be further allocated pro rata according to
such Profit Members' Carried Interests as defined in Section 3.2 hereof
and added to their respective Capital Accounts, and (B) a percentage
equal to one hundred percent (100%) less the Profit Members Carried
Interest Allocation (the "Capital Members' Allocation") shall be
allocated to the Capital Members as a group to be further allocated pro
rata according to such Capital Members' Percentages in Interest as set
forth in Exhibit A, and added to their respective Capital Accounts.
9
(b) Prior to the allocation of any Net Realized Capital Gains or Net
Realized Capital Losses for each Fiscal Year as provided in Section 2.6 below,
Net Operating Losses, if any, of the Company for each Fiscal Year shall be
allocated to the Members as follows and in the following order of priority as of
the end of such Fiscal Year:
(i) First, such Net Operating Losses for such Fiscal Year shall be
allocated as follows: (A) for Net Operating Losses relating to
Investments made on or prior to July 31, 1996 (including Follow-On
Investments made after July 31, 1996), twenty-two and one-half percent
(22.5%) and for Net Operating Losses relating to Investments made after
July 31, 1996, twenty percent (20%) (the "Profit Members' Carried
Interest Allocation") of such Net Operating Losses (but not to exceed the
Profit Members' positive account balances, if any, existing in their
Capital Accounts as of the end of the preceding Fiscal Year) shall be
allocated to the Profit Members as a group as a Profit Member Loss to be
further allocated according to such Profit Members' respective Carried
Interests as defined in Section 3.2 hereof and debited pro rata to their
respective Capital Accounts, and (B) a percentage equal to one hundred
percent (100.0%) less the Profit Members Carried Interest Allocation (the
"Capital Members' Allocation") of such Net Operating Losses (but not to
exceed the excess of the Unrecovered Capital of the Capital Members over
the Capital Member Loss, if any, as of the end of the preceding Fiscal
Year) shall be allocated to all of the Capital Members as a Capital
Member Loss in proportion to their respective Percentages in Interest as
set forth in Exhibit A and debited to their respective Capital Accounts.
(ii) Second, the balance of such Net Operating Losses as shall
exceed (A) the positive account balances, if any, existing in the Profit
Members' Capital Accounts as of the end of the preceding Fiscal Year and
(B) the excess of the Unrecovered Capital of the Capital Members over the
Capital Member Loss, if any, as of the end of the preceding Fiscal Year,
shall be allocated to the Managing Member as a Managing Member Loss.
2.6 Capital Gains and Capital Losses with Respect to Portfolio
-----------------------------------------------------------
Securities-Allocation.
---------------------
(a) Following the allocation of any Net Operating Profits or Net
Operating Losses for each Fiscal Year as provided in Section 2.5 above, Net
Realized Capital Gains, if any, of the Company for each Fiscal Year shall be
allocated to the Members as follows and in the following order of priority as of
the end of such Fiscal Year:
(i) First, so much of such Net Realized Capital Gains for such
Fiscal Year as shall not exceed the Managing Member Loss, if any, as of
the end of the preceding Fiscal Year (as increased or decreased by the
allocation of any Net Operating Losses or Net Operating Profits for the
current Fiscal Year) shall be allocated to the Managing Member to cover
part or all of such Managing Member Loss.
10
(ii) Second, so much of any remaining Net Realized Capital Gains for
such Fiscal Year as shall not exceed the Capital Member Loss, if any, as
of the end of the preceding Fiscal Year (as increased or decreased by the
allocation of any Net Operating Losses or Net Operating Profits for the
current Fiscal Year) shall be allocated to all of the Capital Members in
proportion to their Percentages in Interest to cover part or all of such
Capital Member Loss.
(iii) Third, so much of any remaining Net Realized Capital Gains for
such Fiscal Year as shall not exceed the Profit Member Loss, if any, as
of the end of the preceding Fiscal Year (as increased or decreased by the
allocation of any Net Operating Losses or Net Operating Profits for the
current Fiscal Year) shall be allocated to the Profit Members as a group
to be further allocated pro rata according to such Profit Members'
Carried Interests as defined in Section 3.2 hereof and added to their
respective Capital Accounts to cover part or all of such Profit Member
Loss.
(iv) Fourth, the balance of such Net Realized Capital Gains, if any,
for such Fiscal Year shall be allocated as follows: (A) for Net Realized
Capital Gains relating to Investments made on or prior to July 31, 1996
(including Follow-On Investments made after July 31, 1996), twenty-two
and one-half percent (22.5%) and for Net Realized Capital Gains relating
to Investments made after July 31, 1996, twenty percent (20%) (the
"Profit Members Carried Interest Allocation") shall be allocated to the
Profit Members as a group to be further allocated pro rata according to
such Profit Members' Carried Interests as defined in Section 3.2 hereof
and added to their respective Capital Accounts, and (B) a percentage
equal to one hundred percent (100.0%) less the Profit Members Carried
Interest Allocation (the "Capital Members' Allocation") shall be
allocated pro rata to the Capital Members as a group to be further
allocated according to such Capital Members' Percentages in Interest as
set forth in Exhibit A, and added to their respective Capital Accounts.
(b) Following the allocation of any Net Operating Profits or Net
Operating Losses for each Fiscal Year as provided in Section 2.5 above, Net
Realized Capital Losses, if any, of the Company for each Fiscal Year shall be
allocated to the Members as follows and in the following order of priority as of
the end of such Fiscal Year:
(i) First, such Net Realized Capital Losses for such Fiscal Year
shall be allocated as follows: (A) for Net Realized Capital Losses
relating to investments made on or prior to July 31, 1996 (including
Follow-On Investments made after July 31, 1996), twenty-two and one-half
percent (22.5%) and for Net Realized Capital Losses relating to
Investments made after July 31, 1996, twenty percent (20%) (the "Profit
Members Carried Interest Allocation") of such Net Realized Capital Losses
(but not to exceed the Profit Members' positive account balances, if any,
existing in their Capital Accounts as of the end
11
of the preceding Fiscal Year as increased or decreased by the allocation
of any Net Operating Losses or Net Operating Profits for the current
Fiscal Year) shall be allocated to the Profit Members as a group as a
Profit Member Loss to be further allocated according to such Profit
Members' respective Carried Interests as defined in Section 3.2 hereof
and debited pro rata to their respective Capital Accounts, and (B) a
percentage equal to one hundred percent (100.0%) less the Profit Members
Carried Interest Allocation (the "Capital Members' Allocation") of such
Net Realized Capital Losses (but not to exceed the excess of the
Unrecovered Capital of the Capital Members over the Capital Member Loss,
if any, as of the end of the preceding Fiscal Year as increased or
decreased by the allocation of any Net Operating Losses or Net Operating
Profits for the current Fiscal Year) shall be allocated to all of the
Capital Members as a Capital Member Loss in proportion to their
respective Percentages in Interest as set forth in Exhibit A and debited
to their respective Capital Accounts.
(ii) Second, the balance of such Net Realized Capital Losses as
shall exceed (A) the positive account balances, if any, existing in the
Profit Members' Capital Accounts as of the end of the preceding Fiscal
Year and (B) the excess of the Unrecovered Capital of the Capital Members
over the Capital Member Loss, if any, as of the end of the preceding
Fiscal Year, shall be allocated to the Managing Member as a Managing
Member Loss.
2.7 Special Allocation Rules.
------------------------
(a) Qualified Income Offset. In the event that any Member unexpectedly
-----------------------
receives any adjustment, allocation, or distribution described in
Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4),(5) or (6) which
causes it to have an Adjusted Capital Account Deficit, items of Company
income and gain (including gross income) shall, before any other
allocations are made pursuant to this ARTICLE II, be specially allocated
to such Member in an amount and manner sufficient to eliminate, to the
extent required by the Treasury Regulations, such Member's Adjusted
Capital Account Deficit as quickly as possible, provided that an
allocation pursuant to this Section 2.7 shall be made to a Member only if
and to the extent that such Member would have an Adjusted Capital Account
Deficit after all other allocations provided for in this ARTICLE II have
been tentatively made as if this Section 2.7 were not in this Agreement.
This Section 2.7 is intended to be a "qualified income offset" as defined
in Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted and applied consistently therewith.
(b) Minimum Gain Chargebacks. The Managing Member shall make such
------------------------
allocations of items of income and gain as are necessary to comply with
the "minimum gain chargeback" provisions of Section 1.704-2(f) of the
Treasury Regulations or any successor provisions thereto.
12
(c) Member Non-Recourse Deductions. The Managing Member shall make such
------------------------------
allocations of "partner non-recourse deductions" of the Company, as
defined in Section 1.704-2(b)(4) of the Treasury Regulations or any
successor provisions thereto, as are necessary to comply with Section
1.704-2(i) of the Treasury Regulations or any successor provisions
thereto.
(d) Curative Allocations. The allocations set forth in Sections 2.7(a),
--------------------
2.7(b) and 2.7(c) hereof (the "Regulatory Allocations") are intended to
comply with certain requirements of Section 1.704-1(b) of the Treasury
Regulations (and any successor provisions thereto). Notwithstanding any
other provision of this ARTICLE II, the Regulatory Allocations shall be
taken into account in allocating other profits, losses and items of
income, gain, loss and deduction among the Members so that, to the extent
possible, the net amount of such allocations of other profits, losses and
other items and the Regulatory Allocations to each Member shall be equal
to the net amount that would have been allocated to each such Member if
the Regulatory Allocations had not been made.
(e) Special Fees. Special Fees shall constitute items of Company
------------
operating income.
(f) Maintenance Expenses; Organizational and Syndication Expenses. For
-------------------------------------------------------------
purposes of this ARTICLE II and the provisions of ARTICLE X dealing with
final allocations, all fees and expenses that the Managing Member must
pay pursuant to Section 5.4(a) that are Maintenance Expenses or expenses
of organizing and syndicating the Company under Section 709 of the Code
and the Treasury Regulations thereunder shall be treated as expenses of
the Managing Member and deducted from its Capital Account. For purposes
of this ARTICLE II and the provisions of ARTICLE X dealing with final
allocations, all allocations with respect to Maintenance Expenses and the
expenses of organizing and syndicating the Company shall be made to the
Capital Account of the Managing Member. All the forgoing amounts shall be
treated as contributions by the Managing Member to the Company for its
own Capital Account.
(g) Special Allocations. Notwithstanding the allocation provisions set
-------------------
forth in Section 2.5 and in Section 2.6, the Company may, with the
approval of the Managing Member and with the approval of a Majority in
Interest of the Profit Members, make a special allocation of any part or
all of any Net Realized Capital Gains to one or more of the Members
provided that (i) any special distribution with respect to such special
allocation of Net Realized Capital Gains to a Profit Member shall not
exceed the amount of such Profit Member's Vested Carried Interest at the
time of such special allocation determined for purposes only of this
special allocation pursuant to this Section 2.7(g) as if all the
Portfolio Company Securities then held by the Company of the kind being
sold to produce the Net Realized Capital Gains were valued at Fair Market
Value determined as provided in Section 4.8 on the date of such special
allocation and further provided that (ii) such special allocation (and
any related special distribution) shall be carried on the books of the
Company as a special allocation (and as a related special distribution)
with respect to the Capital Account of each Member receiving such special
allocation which shall (except for the calculation of the special
allocation (and any related special distribution) set forth herein)
eventually comply with
13
and be in accordance with (A) the formula for allocating Net Realized Capital
Gains as set forth in Sections 2.5 and 2.6 above, and (B) the terms and
conditions with respect to the allocation, vesting and distribution of Net
Realized Capital Gains in excess of Unrecovered Capital as set forth in Section
2.5 and Section 2.6 above and in ARTICLE III and in ARTICLE IV hereof. Likewise,
upon the approval and at the direction of a Majority in Interest of the Profit
Members, the Company shall sell Marketable Securities held by the Company to the
extent of the Profit Members' Vested and Unvested Carried Interests therein,
determined for purposes only of this special allocation pursuant to this Section
2.7(g) as if all the Portfolio Company Securities then held by the Company of
the kind being sold to produce the Net Realized Capital Gains were valued at
Fair Market Value determined as provided in Section 4.8 on the date of such
special allocation, and with the Net Realized Capital Gains resulting from any
such sale to be specially allocated to the accounts of certain Profit Members
(and invested as determined by a Majority in Interest of the Profit Members)
pending distribution upon vesting as provided herein, provided that any such
special allocation shall be carried on the books of the Company as a special
allocation with respect to the Capital Account of each Member receiving such
special allocation which shall (except for the calculation of the special
allocation set forth herein) eventually comply with and be in accordance with
(A) the formula for allocating Net Realized Capital Gains as set forth in
Sections 2.5 and 2.6 above, and (B) the terms and conditions with respect to the
allocation, vesting and distribution of Net Realized Capital Gains in excess of
Unrecovered Capital as set forth in Section 2.5 and Section 2.6 above and in
ARTICLE III and in ARTICLE IV hereof. Notwithstanding the forgoing, at the time
of termination and liquidation of the Company as provided herein all allocations
of Net Realized Capital Gains during the entire term of the Company must comply
with the formula set forth in Section 2.5 and in Section 2.6 above.
2.8 Tax Allocations; Income Tax Elections.
-------------------------------------
(a) For federal, state and local income tax purposes, the income, gains,
losses and deductions of the Company shall, for each taxable period, be
allocated among the Members in the same manner and in the same proportion that
such items have been allocated to the Members as provided in this ARTICLE II;
provided, that (i) any adjustments made pursuant to Section 743 or 734 of the
Code shall be taken into account and (ii) items of income, gain, loss and
deduction with respect to Company property reflected in the Capital Members'
Capital Accounts and on the books of the Company at a value that differs from
the Company's adjusted tax basis in such property shall be allocated, solely for
tax purposes, among the Capital Members so as to take account of that difference
in value in accordance with Code Section 704(c) and Treasury Regulations
Sections 1.704-1(b)(2)(iv)(f) and 1.704-1(b)(4)(i).
(b) Upon the written request of any Capital Investment Member that an
election provided for in Section 754 of the Code be made, the Managing Member
shall promptly give notice to all the other Capital Investment Members of such
request. Unless the Managing Member has received written objections to the
making of such election from a Majority in Interest of the Capital
14
Investment Members within thirty (30) days of such notice, it shall, if then
permitted by applicable law, make such election. All costs and expenses incurred
by the Company in connection with the making of such an election shall be borne
by the Capital Investment Member requesting the same or, if more than one
Capital Investment Member shall have made such request, by each requesting
Capital Investment Member in the proportion which its Capital Commitment bears
to the Capital Commitments of all Capital Investment Members making such
request.
2.9 Modification of Capital Commitments.
-----------------------------------
Capital Commitments shall be subject to modification only as follows:
(a) If, in the opinion of counsel reasonably satisfactory to the
Managing Member, there have occurred changes in laws or regulations after the
date hereof that are likely materially and adversely to affect the Company's
ability to achieve its investment objectives as set forth in Section 1.7 or
otherwise to operate in substantially the manner as contemplated herein, the
Managing Member (with the approval of the Advisory Committee) or two-thirds in
interest of the Capital Investment Members may shorten or cause an early
termination of the Commitment Period.
(b) Capital Commitments may be increased in accordance with Sections 7.2
and 2.10(c) and decreased in accordance with Sections 2.11(b) and 2.11(c)
without penalty pursuant to this Section 2.9 or any other provision of this
Agreement.
2.10 Default in Capital Commitment.
-----------------------------
Except as provided in Section 2.9, if a Capital Investment Member fails
to fund its Capital Commitment as required under Section 2.1 on the Due Date and
such failure continues for seven (7) Business Days after receipt of written
notice of such failure from the Managing Member (or for such longer period (not
to exceed twenty (20) Business Days) as the Managing Member may in its sole
discretion permit under extraordinary circumstances), then such Capital
Investment Member which failed to make payment within such seven (7) Business
Days, as the case may be, after receipt of such notice or assessment (in each
case, the "Date of Default") shall be a "Defaulting Capital Investment Member,"
and the following provisions of this Section 2.10 shall apply:
(a) 25% Forfeiture. As of the Date of Default, the Defaulting Capital
--------------
Investment Member shall forfeit 25% of such Member's Capital Account balance, if
positive (the "Forfeiture Amount"). The Forfeiture Amount shall be reallocated
among all Non-Defaulting Capital Investment Members as follows: any Non-
Defaulting Capital Investment Member who purchases a portion of the Defaulting
Capital Investment Member's remaining interest in accordance with Section
2.10(b) shall be allocated that percentage of the Forfeiture Amount equal to the
percentage of the Defaulting Capital Investment Member's interest so purchased.
The balance of the
15
Forfeiture Amount, if any, shall be allocated among all Non-Defaulting Capital
Investment Members in proportion to their respective Percentages in Interest as
set forth in Exhibit A, determined without inclusion of any Defaulting Capital
Investment Member's Capital Contribution and without giving effect to any
purchase under Section 2.10(b). Any such adjustments shall not affect tax
allocations that had previously been made in accordance with Section 2.8.
(b) 75% Sale. The Managing Member will give prompt written notice of
--------
such default to all Non-Defaulting Capital Investment Members, each of whom will
then have thirty (30) days after receipt of such notice (which notice shall
specify the purchase price of the Defaulting Capital Investment Member's
remaining interest in the Company, as reduced in accordance with Section 2.10(a)
above), within which to elect to purchase that percentage of such reduced
interest equal to the purchasing Capital Investment Member's Percentage in
Interest (determined without inclusion of any Defaulting Capital Investment
Member's Capital Contribution). The aggregate purchase price of the Defaulting
Capital Investment Member's interest in the Company shall be equal to the
Defaulting Capital Investment Member's Capital Account (after forfeiture in
accordance with Section 2.10(a)) plus (minus) the net unrealized capital gains
(losses) allocable to the Defaulting Capital Investment Member's Capital Account
(as so reduced) on the last day of the quarter of the Fiscal Year in which the
default occurs. For purposes of this Section 2.10(b) only, net unrealized
capital gains shall be equal to eighty percent (80%) of the excess of the Fair
Market Value of Portfolio Securities over the book value of such securities, and
net unrealized capital losses shall be equal to the excess of the book value of
Portfolio Securities over the Fair Market Value thereof, in each case
disregarding any adjustment under Section 734 or 743 of the Code. All purchases
pursuant to this Section 2.10(b) shall be made within thirty (30) days after
notice from the Non-Defaulting Capital Investment Members of their election to
purchase and shall be made in cash paid to the Defaulting Capital Investment
Member. If fewer than all Non-Defaulting Capital Investment Members so elect,
the Managing Member shall reoffer to each Non-Defaulting Capital Investment
Member that did so elect the option of electing further to increase the portion
of the interest of the Defaulting Capital Investment Member purchased by it in
an amount equal to the total of the Defaulting Capital Investment Member's
interest not so purchased multiplied by a fraction, the numerator of which is
the amount which such Non-Defaulting Capital Investment Member elected to
purchase and the denominator of which is equal to the aggregate amount which all
Non-Defaulting Capital Investment Members elected to purchase. If after applying
the foregoing procedure any portion of the Defaulting Capital Investment
Member's interest remains unsold, the Managing Member shall reoffer each
electing Non-Defaulting Capital Investment Member the option of electing further
to increase the portion of the interest of the Defaulting Capital Investment
Member which it purchases in an amount determined equitably by the Managing
Member.
(c) Adjustment of Capital Accounts and Commitments. The Defaulting
----------------------------------------------
Capital Investment Member's Capital Account shall be decreased by 25% to reflect
the forfeiture pursuant to Section 2.10(a). In addition, to reflect purchases of
a Defaulting Capital Investment Member's interest pursuant to Section 2.10(b),
the Capital Account of the Defaulting Capital Investment Member shall be
decreased by the percentage of the Defaulting Capital Investment Member's
16
interest being purchased (calculated after the forfeiture pursuant to Section
2.10(a)), and the Capital Account and Percentage of Contributed Capital of each
purchasing Capital Investment Member shall correspondingly be increased. Each
Member who purchases a portion of a Defaulting Capital Investment Member's
interest under Section 2.10(b) shall by virtue of such action assume liability
for that percentage of the Defaulting Capital Investment Member's unpaid Capital
Commitment equal to the percentage of the interest so purchased, and shall have
its Percentage in Interest as set forth in Exhibit A correspondingly increased.
(d) Loss of Voting Rights, Etc. To the extent that the Non-Defaulting
---------------------------
Capital Investment Members do not purchase the entire interest of the Defaulting
Capital Investment Member, the Defaulting Capital Investment Member shall remain
a Capital Investment Member and shall not be released from that portion of such
Capital Investment Member's unfunded Capital Commitment which is not assumed by
Non-Defaulting Capital Investment Members upon purchase of the Defaulting
Capital Investment Member's interest as provided in this Section 2.10; such
Defaulting Capital Investment Member shall not be entitled to make further
Capital Contributions to the Company except as requested and called in the
discretion of the Managing Member. All subsequent allocations to such Defaulting
Capital Investment Member in accordance with ARTICLE IV shall be made on the
basis of the Defaulting Capital Investment Member's Percentage of Contributed
Capital following the reduction thereof in accordance with Sections 2.10(a) and
(b). Whenever the vote, consent or decision of the Members is required or
permitted pursuant to this Agreement, no Defaulting Capital Investment Member
shall be entitled to participate in such vote (except for a vote pursuant to
Section 17-801(3) of the Delaware Act), to offer or withhold its consent or to
make such decision, and such vote, consent or decision shall be made as if such
Defaulting Capital Investment Member were not a Member. Any such vote, consent
or decision shall be binding upon such Defaulting Capital Investment Member.
(e) Applications of Reductions. All reductions in the Capital Account
--------------------------
of a Defaulting Capital Investment Member pursuant to this Section 2.10 shall be
applied equally to Capital Contributions and amounts allocated to such Capital
Account but not yet distributed.
2.11 Continuing Participation.
------------------------
(a) The Managing Member may excuse any Capital Investment Member from
continuing participation in an Investment in a Portfolio Company (such Capital
Investment Member shall be an "Excused Member" with respect thereto and such
Investment shall be an "Excused Investment") if the Managing Member determines
that there is a substantial likelihood that such Capital Investment Member's
continuing indirect Investment in such Portfolio Company might have a Material
Adverse Effect (as defined in Section 2.11(d) below) on the Company or the
Portfolio Company and the Managing Member shall have given 10 days' advance
written notice to any such Capital Member specifying its reason for availing
itself of the provisions of this Section 2.11(a) and shall have delivered to
such Capital Investment Member an opinion of counsel to such
17
effect. Such Capital Investment Member shall become an Excused Member with
respect to such Excused Investment as soon as practicable. The Managing Member
shall take commercially reasonable steps to cause the portion of the Excused
Investment that would have been allocated to the Excused Member promptly to be
sold by the Company for a cash price equivalent to the Fair Market Value of such
portion of the Excused Investment, taking into account the factors set forth in
Section 4.8(c). The proceeds of such sale shall be paid over to such Excused
Member. All costs and expenses of the Company in respect of the determinations
and other matters referred to in this Section 2.11 shall be allocated to the
Capital Account of the Excused Member.
(b) If at any time the Managing Member determines in good faith that
there is a substantial likelihood that the continuing participation in the
Company by any Capital Investment Member might have a Material Adverse Effect on
the Company, such Capital Investment Member will, at the request of the Managing
Member, use its best efforts to dispose of its entire interest in the Company
(or such portion of its interest in the Company that is sufficient to prevent or
remedy such Material Adverse Effect) to any person at a price acceptable to such
Capital Investment Member, in a transaction which complies with Section 7.3. If
such Capital Investment Member has not disposed of such of its interest as is
sufficient to prevent or remedy such Material Adverse Effect within ninety (90)
days of the Managing Member having notified such Capital Investment Member of
the determination set forth in the preceding sentence (or within such fewer
number of days as the Managing Member may determine, as supported by an opinion
of counsel, is necessary to avoid a Material Adverse Effect), then the Managing
Member shall have the right, upon at least 15 days' prior written notice to such
Capital Investment Member, to take, in its sole discretion any or all of the
following actions to prevent or remedy such Material Adverse Effect:
(i) prohibit such Capital Investment Member from making a Capital
Contribution with respect to any and all future investments in Portfolio
Companies and reduce its unused Capital Commitment to any amount (greater
than or equal to zero);
(ii) offer to any person, including each other Member, the
opportunity to purchase all or a portion of such Capital Investment
Member's interest in the Company at its Fair Market Value (provided that
if the Managing Member itself purchases such interest, the purchase price
shall be determined by an appraiser mutually acceptable to such Capital
Investment Member and the Managing Member, the cost of such appraiser to
be divided equally between the Managing Member and such Capital
Investment Member); or
(iii) liquidate all or any portion of such Capital Investment
Member's interest, taking into account the factors set forth in Section
4.8 and making adjustments to the Capital Investment Members' Capital
Account balances in accordance with Section 2.3(b), in the Company or
make, subject to Section 4.4(b)(iii), a special distribution in respect
of such interest to such Capital Investment Member where, with respect to
such distribution, the Managing Member (x) shall reduce the Capital
Account of such Capital Investment Member by the amount of the
distribution, provided that in no event shall such Capital
18
Investment Member's Capital Account (as it would exist upon the deemed
sale of all Company assets) be reduced to an amount which is less than
zero and (y) may choose to distribute cash, cash equivalents and
securities or any combination of the foregoing, in an amount (or having a
value) equal to the Fair Market Value of such interest.
(c) Any Capital Investment Member shall be excused from continuing
participation in the Company or participation in future investments of the
Company if the following conditions are met:
(i) such Capital Investment Member reasonably determines in good
faith that its continuing investment in the Company or participation in
future investments of the Company would have a Material Adverse Effect on
such Capital Investment Member;
(ii) such Capital Investment Member shall have given the Managing
Member twenty (20) days' advance written notice of its intention to avail
itself of the provisions of this Section 2.11(c); and
(iii) within ten (10) days of the giving of notice pursuant to
subparagraph (ii) above, such Capital Investment Member shall have
delivered to the Managing Member an opinion of counsel reasonably
satisfactory to the Managing Member to the effect that its continuing
participation in the Company or participation in future investments of
the Company would result in a Material Adverse Effect on such Capital
Investment Member.
If the foregoing conditions are met, the Managing Member shall cause the
Capital Investment Member's interest in the Company to be sold by the Company in
accordance with Section 2.11(b)(ii) and to dispose of any portion thereof
remaining unsold in accordance with Section 2.11(b)(iii), or, at the option of
such Capital Investment Member, excuse such Capital Investment Member from
participation in any future investments of the Company. All costs and expenses
of the Company in respect of the determinations and other matters referred to in
this Section 2.11(c) shall be allocated to the Capital Account of the Capital
Investment Member excused from the Company.
(d) A contribution or investment or a purchase of all or any portion of
an interest in the Company by any Capital Investment Member shall have a
"Material Adverse Effect" if such contribution, investment or purchase is
substantially likely, when taken by itself or together with the contributions,
investments or purchases by any other Capital Investment Members, (i) to result
in a violation of a statute, rule or regulation of a federal, state or foreign
governmental authority which might have a material adverse effect on a Portfolio
Company, the Company or any Member, as the case may be (including that a Capital
Member classified as a tax-exempt organization pursuant to Section 501(c)(3) of
the Code will lose its status as such), (ii) to subject a Portfolio Company, the
Company or any Member, as the case may be, to any material tax or governmental
charge (not including any loss or deferral of an interest deduction pursuant to
Section 163(j) of the Code, as
19
enacted by the Omnibus Budget Reconciliation Act of 1989, or any successor
provisions thereto), or to any material filing or regulatory requirement
(including the Investment Company Act) to which it would not otherwise be
subject or materially increase such filing or requirement beyond what it would
otherwise have been, or (iii) to result in any securities or other assets owned
by the Company being deemed to be "plan assets" under ERISA. In addition, a
Material Adverse Effect on such Capital Investment Member shall exist if any
governmental authority or official having jurisdiction over the subject matter
with respect to such Capital Investment Member has taken the position that
contributions, investments, or participation in partnerships or limited
liability companies similar to the Company would cause such Capital Investment
Member to violate laws, regulations or judicial interpretations of the same to
which it is subject.
2.12 Consent to Remedies.
-------------------
Each of the Members hereby consents to the application to it of the
remedies provided in Sections 2.9, 2.10 and 2.11 in recognition of the risk and
speculative damages its default or failure to pay its capital commitment would
cause the other Members and further agrees that no right, power or remedy
available to the Managing Member in Section 2.9, 2.10 or 2.11 shall be exclusive
and that each such right, power or remedy shall be cumulative and in addition to
any other right, power or remedy available at law or in equity. No course of
dealing between the Managing Member and any Defaulting Capital Investment
Member, and no delay in exercising any right, power or remedy shall operate as a
waiver or otherwise prejudice the exercise of such right, power or remedy.
2.13 In Kind Distributions.
---------------------
For purposes of allocating Net Realized Capital Gains and Net Realized
Capital Losses and in maintaining Capital Accounts hereunder, all unrealized
gain or loss on any property distributed in kind shall be deemed realized as
gain or loss from the sale or exchange of such property and allocated as
provided in this ARTICLE II as of the date of distribution.
2.14 In Kind Contributions; Managing Member Investments.
---------------------------------------------------
For purposes of allocating invested capital and maintaining Capital
Accounts hereunder, in the event that the Managing Member holds an Investment in
Portfolio Securities after such Investment is made and then transfers such
Investment in whole or in part to the Company, the total amount of such
Investment shall be recorded on the books of the Company as a Capital
Contribution for the respective accounts of the Capital Members which made such
original Investment as if such Investment had been originally held by the
Company. Any gain with respect to such Investment between the time of the
Investment and the time of the transfer shall be treated
20
as a realized gain or a realized loss from the sale or exchange of such property
and allocated to the Capital Accounts of the Capital Members and to the Capital
Accounts of the Profit Members (to the extent that such gain exceeds the total
amount of the Investment) as of the date of transfer in accordance with this
ARTICLE II, as if the Investment had been originally held by the Company. Any
loss with respect to such Investment between the time of the Investment and the
time of the transfer shall belong entirely to the Capital Members. Any loss with
respect to such Investment which is not transferred to the Company shall belong
entirely to the Capital Members; provided, however, that any Net Realized
Capital Loss with respect to any such Investment shall be taken into account for
all purposes of this Agreement as if the Investment had been made by the Company
and not by the Managing Member.
3.
PROFIT MEMBERS
--------------
3.1 Profit Members; Rights Thereof.
------------------------------
Listed on Exhibit A hereto are the names and addresses of those persons
(the "Profit Members") who have been admitted to the Company in the sole
discretion of the Managing Member as Profit Members and not as Capital Members
and who shall have a right (i) to participate in the Profit Members Carried
Interest Allocation in accordance with the terms and conditions of this Limited
Liability Company Agreement to the extent of their respective Carried Interests
as hereinafter defined, and (ii) to participate in distributions with respect to
the Profit Members Carried Interest Allocation to the extent of their respective
Vested Units as hereinafter defined.
3.2 Award and Vesting of Carried Interests.
--------------------------------------
(a) Each Profit Member shall be awarded participation units ("Units") by
the Managing Member in the Profit Members Carried Interest Allocation in such
amounts as the Managing Member may determine in its sole discretion (except as
provided herein) and set forth in the appropriate table in Exhibit A with
respect to each Investment made by the Company as described in Exhibit A. Units
awarded to each Profit Member shall entitle such Member to a percentage (the
"Carried Interest") of the Net Operating Profits and Net Operating Losses and
Net Realized Capital Gains and Net Realized Capital Losses of the Company
allocated to the Profit Members as determined pursuant to the provisions of this
Agreement. Units awarded to each Profit Member hereunder shall vest with respect
to that particular Profit Member (the "Vested Units") in forty (40) quarter-
annual cumulative consecutive installments of three and three quarters percent
(3.75%) each for the first five (5) years (the first twenty (20) installments)
and one and one quarter percent
21
(1.25%) each for the second five years (the next twenty (20) additional
installments) with the first four installments vesting on the first anniversary
of the date of hire of each respective Profit Member (which date of hire shall
be set forth with respect to each respective Profit Member in Exhibit A) and
with each subsequent installment vesting in arrears at the end of each
consecutive quarter-annual period following the first anniversary of each
respective Profit Member's date of hire and with all such Units to have vested
by the tenth anniversary of such date of hire provided that on each such vesting
date each such Profit Member must then be a full-time employee of the Company
and must be in compliance with, and not in default of, all of his or her
obligations hereunder in order for such vesting to occur. Units awarded to each
Profit Member hereunder which have not yet vested shall be referred to herein as
Unvested Units (the "Unvested Units") with respect to that particular Profit
Member.
(b) The Carried Interest of each Profit Member (including Former Profit
Members to the extent that they have not forfeited their Vested Units as
hereinafter provided) with respect to the allocation of Net Operating Profits
and Net Operating Losses or Net Realized Capital Gains and Net Realized Capital
Losses of the Company as determined pursuant to the provisions of this Agreement
shall be determined at any time or from time to time for each Investment by
dividing the number of Units owned by that particular Profit Member by the total
number of Units owned by all Profit Members (including Former Profit Members to
the extent that they have not forfeited their Units as hereinafter provided) and
then multiplying the result by the Profit Members' Carried Interest Allocation
for that particular Investment expressed as a decimal.
(c) That portion of the Profit Members Carried Interest Allocation with
respect to Net Operating Profits and Net Operating Losses and Net Realized
Capital Gains and Net Realized Capital Losses of the Company which is allocable
to Unvested Units which have not been forfeited shall be added to the Capital
Account maintained by the Company for each respective Profit Member but shall be
held in suspense pending vesting of the Unvested Units for each respective
Profit Member and shall not be distributed to such Profit Member except to the
extent that such Unvested Units, with respect to which such portion of the Net
Operating Profits and Net Operating Losses and Net Realized Capital Gains and
Net Realized Capital Losses of the Company are being held in suspense, have
vested. As of any distribution date, each Profit Member shall therefore be
entitled to receive (subject to the terms and conditions of this Agreement)
distributions from his or her Capital Account only to the extent of (i) his or
her vested percentage (determined by dividing his or her Vested Units as of the
distribution date by the total of his or her Vested and Unvested Units as of
such date) of all amounts allocated to such Capital Account up to the
distribution date less (ii) any prior distributions. Any Profit Member whose
membership relationship with the Company is terminated as provided in Section
3.3 below (a "Former Profit Member"), shall forfeit all of his or her Units to
the extent that such Units are unvested at the time of termination and shall
forfeit that portion of his or her Capital Account, if any, which is at that
time held in suspense pending vesting of such Unvested Units but shall retain
that portion of his or her Capital Account, if any, which is at that time held
with respect to Vested Units. Such Profit Member shall become a Former Profit
Member and shall retain his or her Vested Units for the purpose of continuing to
22
participate in the Profit Members Carried Interest Allocation subject to the
terms and conditions of this Limited Liability Company Agreement. A Profit
Member whose membership relationship with the Company is terminated for Cause as
hereinafter defined, shall immediately forfeit all of his or her Vested and
Unvested Units and shall forfeit that portion of his or her Capital Account, if
any, which is at that time held in suspense pending vesting of such Unvested
Units, but shall retain that portion of his or her Capital Account, if any,
which is at that time held with respect to Vested Units.
(d) No portion of the Profit Members Carried Interest Allocation with
respect to Net Operating Profits and Net Operating Losses and Net Realized
Capital Gains and Net Realized Capital Losses of the Company shall be allocated
to Vested or Unvested Units which have been forfeited as hereinafter provided,
but any such previously allocated portion (to the extent not previously
distributed) shall be reallocated pro rata among the Vested and Unvested Units
then belonging to the Profit Members and among the Vested Units then belonging
to the Former Profit Members.
(e) Any Units belonging to any Former Profit Member must only be Units
which were Vested Units belonging to such Former Profit Member at the time of
his or her termination. No Units shall vest whatsoever in a Profit Member after
his or her membership relationship with the Company has terminated for any
reason whatsoever.
(f) Additional Units may be awarded from time to time by the Managing
Member to one or more Profit Members and to one or more additional Profit
Members but only with the approval of a Majority in Interest of the Profit
Members. Furthermore, the Managing Member may reallocate Units (both vested and
unvested) among the Profit Members but only with the approval of a Majority in
Interest of the Profit Members provided that no Profit Member shall give up any
Units (either vested or unvested) without his or her consent, except as herein
provided with respect to termination). The Managing Member may accelerate the
vesting of any Units for any one or more of the Profit Members or by fulfillment
of such conditions as the Managing Member shall approve or otherwise, but only
with the approval of a Majority in Interest of the Profit Members. The Managing
Member may also attach conditions or restrictions to the award or vesting of
Units with respect to any Profit Member but only with the approval of a Majority
in Interest of the Profit Members.
(g) Special Allocations. Notwithstanding the foregoing, the Company may
-------------------
make a special allocation of any part or all of any Net Realized Capital Gains
to one or more of the Members as provided in Section 2.7(g) above.
(h) Discontinuance of Fund Activities; Vesting. Upon the discontinuance
------------------------------------------
of the activities of the Company, or the discontinuance by the Parent or any of
its affiliates, of activities related to the funding of additional companies
after the Company has been fully invested, and with the approval of a
23
Majority in Interest of the Profit Members, the Unvested Units belonging to the
Profit Members shall all become Vested Units, provided, however, that the
provisions of Sections 3.2(e) and 3.3 shall nonetheless control in the case of
Former Profit Members.
3.3 Termination of Employment and Membership Status.
-----------------------------------------------
(a) In the event of termination of a Profit Member's employment and
membership relationship with the Company (i) by the Profit Member voluntarily,
or (ii) by the Managing Member with the concurrence of a Majority in Interest of
the Profit Members but otherwise in its sole discretion for any reason or for no
reason except for Cause as hereinafter defined, or (iii) by the death of the
Profit Member, or (iv) by the Managing Member on account of the continuous
disability of the Profit Member for a period of more than three (3) months
(provided that the Managing Member determines in its sole discretion that such
Profit Member cannot continue to fulfill his or her executive responsibilities
to the Company on account of such disability and gives such Profit Member at
least thirty (30) days notice of such determination), then in each such case
such Profit Member's employment relationship with the Company and status as a
Profit Member shall terminate forthwith and said Profit Member shall become a
Former Profit Member and shall retain his or her Vested Units for purposes of
determining his or her Vested Carried Interest at any time and from time to time
with respect to the Profit Members Carried Interest Allocation, but said Former
Profit Member shall forfeit all of his or her Units to the extent not vested at
the time of termination. In the event of termination of the Profit Member's
employment relationship and membership relationship with the Company by the
Managing Member in its sole discretion for Cause as hereinafter defined, then
such Profit Member's employment relationship with the Company and status as a
Profit Member shall terminate forthwith and said Profit Member shall not become
a Former Profit Member but rather shall forfeit all of his or her Units both
vested and unvested and shall forfeit in its entirety such Profit Member's
Vested Carried Interest and any and all other interests he or she may have in
the Company or in any Capital Account held for the benefit of such Profit Member
pursuant hereto except that said Profit Member shall retain that portion of his
or her Capital Account, if any, which is at that time held with respect to
Vested Units and shall also retain the right to participate to the extent of his
or her Vested Units at the time of his or her termination in the Profit Members
Carried Interest Allocation but only to the extent of any Net Realized Capital
Gains with respect to Portfolio Company Securities owned by the Company at the
time of his or her Termination for Cause. The status of a Former Profit Member
and his or her relationship as such with the Company may also be terminated by
the Managing Member in its sole discretion at any time for Cause as hereinafter
defined, in which event the Former Profit Member shall immediately forfeit all
of his or her Vested Units and shall forfeit in its entirety such Former Profit
Member's Vested Carried Interest and any and all other interests he or she may
have in the Company or in any Capital Account held for the benefit of such
Former Profit Member pursuant hereto except that said Profit Member shall retain
that portion of his or her Capital Account, if any, which is at that time held
with respect to Vested Units. The names and addresses of all Former Profit
Members shall be listed on Exhibit A, together with their respective Vested
Units. Said
24
Former Profit Members shall be considered to be Profit Members for purposes of
determining the allocation of net operating profits, net operating losses,
capital gains and capital losses pursuant to Sections 2.5 and 2.6 and for no
other purposes.
(b) Cause.
-----
For purposes of this Agreement, termination of a Profit Member's
employment relationship with the Company and status as a Profit Member or status
as a Former Profit Member for Cause shall be determined in each instance in the
sole discretion of the Board of Directors of the Managing Member and shall mean:
(i) conviction for, or plea of nolo contendere to, (A) a felony,
whether or not business related, which may injure the business or
reputation of the Company, the Managing Member or an Affiliate of either
of them, or (B) a crime of moral turpitude;
(ii) theft or embezzlement of assets of the Company, the Managing
Member or an Affiliate of either of them;
(iii) a material breach of any agreement between the Profit Member
and the Company, the Managing Member or an Affiliate of either of them
including, without limitation, any violation of the non-competition
covenant hereinafter set forth in Section 3.5 (the "Non-Competition
Covenant");
(iv) the willful and continued failure by the Profit Member to
substantially perform his or her duties (other than as a result of
incapacity due to physical or mental illness);
(v) gross neglect of duties or responsibilities as an employee of
the Company or as a Member, or dishonesty or incompetence, or willful
misconduct, which in any case seriously and adversely affects the
business of the Company or of the Managing Member or of an Affiliate of
either of them but only if there has been a good faith determination by
the Board of Directors of the Managing Member that such neglect or
misconduct or dishonesty or incompetence has occurred.
Termination for Cause can only be effected by the Board of Directors of
the Managing Member by notice to the Member being terminated, which notice must
be given within five (5) days following a hearing before the Board at which such
Member will have an opportunity to answer the charges constituting Cause. The
hearing before the Board can be held only after at least twenty (20) days'
written notice to such Member (unless such Member agrees to a shorter period) of
the date and time of the hearing and the nature of the charges constituting
Cause. At the time of a notice of the hearing or any time thereafter but prior
to the Board's decision following the
25
hearing, the Board may immediately relieve such Member of his or her duties and
responsibilities hereunder pending its decision.
3.4 Change of Control.
-----------------
(a) Upon a Change of Control, as hereinafter defined, the Company shall
repurchase all, and not less than all, of the Units of each of the Profit
Members and each of the Former Profit Members, at the individual election (an
"Initial Election") of each Profit Member and each Former Profit Member (such
election to be exercised within two (2) months of the date of the Change of
Control) for an aggregate purchase price per Unit (the "Change of Control
Repurchase Price per Unit") equal to twenty-two and one-half percent (22.5%) of
the fair market value of the assets of the Company (determined as if the Company
were a publicly traded entity) in excess of the Capital Members' Unrecovered
Capital (as calculated in accordance with Section 3.4(b), the "Fair Market Value
of the Company"), divided by the total number of Units (both vested and
unvested) owned by the Profit Members and Former Profit Members at the time of
the Change of Control.
(b) For purposes of determining the Change of Control Repurchase Price
per Unit, the Fair Market Value of the Company (determined as if the Company
were a publicly traded entity) shall be determined by an independent firm of
investment bankers of national reputation (the "Appraiser"), the selection of
which by either the Profit Members or the Managing Member is acceptable to both
(i) a majority of all the members of the Board of Directors of the Managing
Member and (ii) a Majority in Interest of the Profit Members. The Appraiser must
be selected within one (1) month of the date of the Change of Control. If a
majority of all the members of the Board of Directors of the Managing Member and
a Majority in Interest of the Profit Members fail to select an Appraiser, then
each shall select an independent firm of investment bankers of national
reputation and those two firms shall select an Appraiser in no case more than
two (2) months following the date of the Change of Control. The Fair Market
Value of the Company shall be (i) the fair market value of the Company
determined by the Appraiser as if the Company were a publicly traded entity at
the time of the Change of Control (ii) less the Capital Members' Unrecovered
Capital. In determining the Fair Market Value of the Company as if it were a
publicly traded entity, the Appraiser shall give primary and substantial weight
as a relevant frame of reference to the fair market value of the Company
determined in accordance with the following methodology:
(i) The Appraiser shall first determine the consideration or
value belonging or accruing to all the stockholders of the Parent as the
ultimate owners of both (A) 100% of the Unrecovered Capital and the
appropriate Capital Members' Allocation of the profits of the Company and
(B) all the other assets of the Parent, at the time of the Change of
Control, which consideration or value shall be deemed to be equal to the
Common Stock Price, as hereinafter defined, multiplied by the number of
shares of Common Stock of the Parent outstanding at the time of the
Change of Control determined after giving effect to
26
(X) the conversion of all convertible securities of the Parent and (Y)
the exercise of all options, whether or not exercisable, outstanding at
such time.
(ii) The Appraiser shall then deduct from that consideration or
value (A) all cash, cash equivalents and the amount of any invested cash
held directly or indirectly by the Parent (including, without limitation,
all Unrecovered Capital of the Company as appearing on the books of the
Company) and (B) the fair market value of the Parent's other core
businesses (excluding the Company and its Investments, Portfolio
Companies and other activities) comprised of companies, tangible assets
and operating divisions to the extent owned by the Parent (determined as
if these other core businesses were, in the aggregate, a separate
publicly traded entity), the fair market value of which shall also be
determined by the Appraiser as of the time of the Change of Control. The
purpose of this calculation is to determine the value of the Company
considered as if it were a publicly traded entity at the time of the
Change of Control by determining that portion of the value of the Parent
as measured by the Common Stock Price (less cash, cash equivalents and
the amount of any invested cash including the Unrecovered Capital of the
Company and the appraised value of the Parent's interest in other core
businesses) which reflects the value of all the Company's Internet-
related Investments, Portfolio Companies and activities which have been
invested in by the Company determined as if the Company were a publicly
traded entity owned by the stockholders of the Parent immediately prior
to the time of the Change of Control with the remainder of the value of
the Parent as measured by the Common Stock Price reflecting the value of
the Parent's other core businesses (excluding the Company and its
Investments, Portfolio Companies and other activities) determined as if
those other core businesses were a separate publicly traded entity also
owned by the stockholders of the Parent immediately prior to the time of
the Change of Control.
The Appraiser must first determine the Fair Market Value of the Company
determined as if it were a publicly traded entity by applying the methodology
set forth above, since this is the best available evidence of the actual value
of the Company as if it were a publicly traded entity at the time of the Change
of Control to the extent that the Common Stock Price reflects the Fair Market
Value of the Company. Thereafter, the Appraiser, in its discretion, may also
(but need not) consider and take into account the following criteria in
descending order of importance:
(x) The fair market value of other publicly traded entities
dealing primarily in Internet-related investments and activities of a
kind similar to those of the Company; and
(y) The Fair Market Value of the Company (determined as if the
Company were a publicly traded entity) taken as a whole after taking into
account the future earnings potential, business prospects of all its
various Internet-related investments and activities taken as a whole,
with particular emphasis on the Company's business plan and strategy for
implementing that plan, taken as a whole, and the general market
conditions in the venture
27
capital industry for Internet-related investments and activities of the
kind owned by the Company.
In determining the Fair Market Value of the Company, the Appraiser in no
event shall determine the individual value of each of the Portfolio Company
Securities or Investments of the Company and then add these values together
because such a methodology would fail to take into account the overall business
plan and strategy of the Company to build a business comprised of Internet-
related investments and activities which complement and support each other as
parts of an overall strategy for the development of an Internet business, but
must in all events consider the Fair Market Value of the Company taken as a
whole.
(c) Upon a Change of Control, as hereinafter defined, the Unvested Units
belonging to the Profit Members shall all become Vested Units, provided,
however, that the provisions of Sections 3.2(e) and 3.3 shall nonetheless
control in the case of Former Profit Members.
(d) The Company, the Managing Member, and the Parent shall be jointly
and severally liable to the Profit Members for the payment of the Change of
Control Repurchase Price per Unit with respect to the Company's repurchase of
the Vested Units pursuant to this Section 3.4.
(e) Upon the consummation of the repurchase by the Company of any of the
Units of the Profit Members upon a Change of Control pursuant to the terms of
this Section 3.4, the Managing Member may, in its sole discretion, and without
the approval of the Profit Members (i) retire the repurchased Units or (ii)
admit additional Profit Members in accordance with Section 7.3 hereof and award
to the additional Profit Members any or all of the repurchased Units.
(f) For purposes of this Agreement, a "Change of Control" shall be
deemed to have occurred when there has occurred a change of control of the
Parent (i) which has not been approved by a majority of all the members of the
Board of Directors of the Parent, or (ii) which has been approved by a majority
of all the members of the Board of Directors of the Parent but which has not
been approved by a Majority in Interest of the Profit Members and which is
likely by its terms to have a material adverse effect upon the business and
prospects of the Company as currently, or planned to be, conducted, and which
change of control in either event is of a nature that would be required to be
reported in response to Items 6(e) or 14(i), (iv), or (v) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") provided that, in the case of a Change of Control
reportable under Item 6(e), such Change of Control involves the acquisition by
any "person" (as such term is used in Sections 13(d)(3) and 14(d)(2) of the
Exchange Act, but expressly excluding David S. Wetherell of beneficial
ownership, directly or indirectly, of securities or interests in the Parent
which represent more than thirty percent (30%) of the combined voting power of
the Parent's outstanding securities. For purposes of this Agreement, a "Change
of Control" shall also be deemed to have occurred when there has occurred a
change of control of the Managing Member (i) which has not been approved by a
majority of all the members of the Board of Directors of the Parent, or (ii)
which has
28
been approved by a majority of all the members of the Board of Directors of the
Parent but which has not been approved by a Majority in Interest of the Profit
Members and which is likely by its terms to have a material adverse effect upon
the business and prospects of the Company as currently, or planned to be,
conducted, and which change of control in either event involves (i) the
acquisition by any "person" (as such term is used in Sections 13(d)(3) and
14(d)(2) of the Exchange Act) of beneficial ownership, directly or indirectly,
of securities or interests in the Managing Member which represents more than
fifty percent (50%) of the combined voting power of the Managing Member's
outstanding securities, or (ii) a sale of all or substantially all of the assets
of the Company or of the Managing Member, or (iii) either the merger or
consolidation of the Company or the Managing Member with another entity which is
the surviving entity of such merger or consolidation provided that such other
entity, prior to such merger or consolidation, was not controlled directly or
indirectly by the Parent.
(g) All fees and expenses associated with the appraisal process set
forth above shall be paid by the Parent.
(h) Each Profit Member or Former Profit Member making an Initial
Election to have his or her Units repurchased by the Company as provided in
Section 3.4(a) above following a Change of Control shall have one (1) month
following the determination of the Change of Control Repurchase Price per Unit
as provided above to reconsider and withdraw such Initial Election. Any
withdrawal of an Initial Election must be made by the Profit Member or Former
Profit Member by written notice to the Company within said one (1) month period.
In the event any such Initial Election is not withdrawn in a timely manner, then
it shall become final and binding on the parties and the Company shall proceed
to repurchase the Units owned by such Profit Member or Former Profit Member
within two (2) months following the date of the determination of the Change of
Control Repurchase Price per Unit as provided above. In the event that any
Profit Member or Former Profit Member fails to make a timely Initial Election
(except for reasons beyond his or her control) to have his or her Units
repurchased by the Company as provided in Section 3.4(a) above following a
Change of Control, such right shall immediately become null and void and shall
be of no further force or effect with respect to that Change of Control, but
said Profit Member or Former Profit Member shall retain his or her rights
hereunder with respect to any other or future Change of Control.
3.5 No Recruitment or Solicitation.
------------------------------
Each Profit Member agrees that during his or her employment by the
Company and while he or she is a Profit Member and for a period of three (3)
years following termination of his or her employment and membership relationship
with the Company (i) by the Profit Member voluntarily, or (ii) by the Managing
Member for Cause, such Profit Member will not, directly or indirectly: (A)
recruit, solicit or induce, or attempt to induce, any employee or consultant of
the Parent or of the Managing Member or of the Company or of any Portfolio
Company or of any Affiliate of any
29
of them to terminate his or her employment with, or otherwise cease any
relationship with, the Parent or the Managing Member or the Company or any
Portfolio Company or any Affiliate of any of them; or (B) solicit, divert, take
away, or attempt to divert or take away, any investment opportunity with respect
to any Portfolio Company or any investment opportunity with respect to any
prospective investment or prospective portfolio company which the Managing
Member or the Company contacted or solicited during such Profit Member's
employment relationship and status as a Profit Member with the Company. If any
restriction set forth herein is found by any court to be unenforceable because
it extends for too long a period of time, or over too great a range of
activities, or over too broad a geographic area, the restriction shall be
interpreted to extend only over the maximum period of time, range of activities,
or geographic area which the court finds to be enforceable. Each Profit Member
acknowledges and agrees that the restrictions contained in this Section 3.5 are
necessary for the protection of the business and goodwill of the Parent and of
the Managing Member and of the Company and of the Portfolio Companies and of the
Affiliates of any of them and are considered by such Profit Member to be
reasonable for such purpose and that his or her interest in the Company is being
received partly in consideration for the foregoing non-competition covenant.
3.6 Non-Disclosure and Invention Assignment Agreement.
-------------------------------------------------
Each Profit Member shall enter into a Non-Disclosure and Invention
Assignment Agreement with the Company in the form of Exhibit B attached hereto.
3.7 Capital Accounts.
----------------
A Capital Account shall be established on the books of the Company for
each Profit Member. Each Profit Member's Capital Account shall be increased or
decreased to reflect allocations of Net Operating Profits, Net Operating Losses,
Net Realized Capital Gains and Net Realized Capital Losses and distributions of
Cash Flow and Capital Proceeds, as provided in ARTICLE II and ARTICLE IV hereof.
4.
DISTRIBUTIONS; WITHHOLDING; VALUATION
-------------------------------------
4.1 Withdrawal of Capital.
---------------------
30
Except as otherwise set forth in this Agreement, no Capital Member shall
have the right to withdraw capital from the Company or to receive any
distribution or return of its Capital Contribution.
4.2 Distributions of Cash Flow.
--------------------------
Subject to the terms and conditions of ARTICLE III and ARTICLE IV, Cash
Flow for each Fiscal Year (excluding Cash Flow attributed to Unvested Carried
Interests but including Cash Flow for prior Fiscal Years attributable to Carried
Interests that have vested during the current Fiscal Year) shall be distributed
to all of the Members in proportion to their respective allocations of Net
Operating Profits and Net Realized Capital Gains as determined pursuant to
ARTICLE II and ARTICLE III; provided, however, that Cash Flow may first be
applied to the payment of expenses incurred by the Company in the sale or other
disposition of Portfolio Securities or any other Maintenance Expenses with
respect to which the Company does not receive sufficient cash to pay such
expenses. In the event the Company is unable, for any reason, to pay any portion
of such expenses, the amount not paid shall be carried forward, as a priority
item, without interest, to be paid out of Cash Flow or on liquidation. Final
distributions of Cash Flow for each Fiscal Year, determined in accordance with
the provisions of this Section 4.2, shall be made as soon as practicable
following such Fiscal Year. In the discretion of the Managing Member, interim
distributions of Cash Flow for a Fiscal Year may also be made at any time during
such Fiscal Year. The Managing Member shall in all events make available to the
Profit Members by distribution or loan (with appropriate security) or otherwise
sufficient cash to pay all taxes due and payable by the Profit Members with
respect to the activities of the Company.
4.3 Distributions of Capital Proceeds.
---------------------------------
Subject to the terms and conditions of ARTICLE III and ARTICLE IV,
Capital Proceeds arising during a Fiscal Year shall be distributed in the same
manner and subject to the same terms and conditions as provided in Section 4.2
above as soon as practicable and in no event later than three (3) months after
the close of such Fiscal Year, to all of the Members as determined pursuant to
ARTICLE II and ARTICLE III.
4.4 Additional Distribution Provisions.
----------------------------------
(a) Distributions of Property. Except as provided in subparagraph (b)
-------------------------
below, any property other than cash received with respect to any Portfolio
Security shall be distributed to the Members as provided in Sections 4.2 and
4.3. Upon a distribution of such property, the property shall be valued in
accordance with Section 4.8 and such property shall be deemed to have been sold
at such value and the proceeds of such sale shall be deemed to have been
distributed to the
31
Members receiving such property for all purposes of this Agreement. The Managing
Member shall provide ten (10) days' prior notice in writing to the Members of
any distribution of property other than cash.
(b) Distribution of Securities and other Property in Kind.
-----------------------------------------------------
(i) The Managing Member may in its discretion, and shall upon the
affirmative vote of a Majority in Interest of the Profit Members,
distribute to the Members (but only to the extent vested and only in
accordance with Sections 2.5, 2.6, 2.7, 3.1, 3.2, 3.3, 4.2, 4.3 and 4.4),
Portfolio Securities which are Marketable Securities and which are not
subject to any restrictions on transferability (except as provided in
Section 4.4(c) below), including restrictions pursuant to Rule 144
(except Rule 144(k)) under the Securities Act (with the exception of
Portfolio Securities distributed in connection with a Final
Distribution). Upon any distribution of securities, the securities
distributed shall be valued in accordance with Section 4.8 and such
securities shall be deemed to have been sold at such value and the
proceeds of such sale shall be deemed to have been distributed to the
Members receiving them for all purposes of this Agreement. An amount of
the securities distributed no greater in value than the federal income
tax basis of all securities included in the distribution (disregarding
any adjustment under Section 734 or 743 of the Code) shall be distributed
first to each Member as determined pursuant to Sections 2.5, 2.6, 2.7,
3.1, 3.2, 3.3, 4.2, 4.3 and 4.4 as of the date of distribution. The
balance, if any, of the securities included in the distribution shall
then be distributed to the Members also in accordance with Sections 2.5,
2.6, 2.7, 3.1, 3.2, 3.3, 4.2, 4.3 and 4.4.
(ii) In connection with any distribution of Portfolio Securities
which are Marketable Securities and which are not subject to any
restrictions on transferability (except as provided in Section 4.4(c)
below) including restrictions pursuant to Rule 144 (except Rule 144(k))
under the Securities Act, the Managing Member shall offer to all Members
the right to receive at their election all or any portion of such
distribution in the form of the proceeds of the disposition of the
securities that otherwise would have been distributed to such Members,
and will use its best efforts so to dispose of such securities for the
benefit of any electing Member. In such event, (a) such electing Members
shall be deemed to receive cash equal to the Fair Market Value of the
Marketable Securities they otherwise would have received and (b) such
electing Members will bear pro rata all the expenses (including, without
limitation, underwriting costs) of such disposition.
(iii) If any Member would otherwise receive a distribution of an
amount of any securities that is substantially likely to cause such
Member to own or control in excess of the amount of such securities that
it may lawfully own or control or which, by reason of any legal or
contractual restriction, the Managing Member may not distribute to such
Member, the Managing Member shall, at the written request of such Member
and to the extent it is practicable to do so, dispose of all or any
portion of such securities and distribute
32
the proceeds of such disposition to such Member; provided that such
Member (a) shall be deemed to receive cash equal to the Fair Market Value
of the securities they otherwise would have received and (b) shall bear
pro rata all of the expenses (including, without limitation, underwriting
costs) of such disposition.
(c) Voting Agreement; Right of First Refusal. In connection with any
----------------------------------------
distribution of Portfolio Securities by the Company or by the Managing Member,
each Member receiving any such securities shall, prior to and as a condition to
receiving any such distribution, enter into a Voting Agreement and Right of
First Refusal Agreement with the Managing Member in form satisfactory to the
Managing Member in all respects to the effect that each such Member shall
receive title to any such distributed Portfolio Securities but that the Managing
Member shall retain the right to vote such Portfolio Securities in its sole
discretion in all instances and shall also retain a right of first refusal with
respect to the disposition of such securities. If such Member shall thereafter
die or seek to dispose of any part or all of such distributed Portfolio
Securities for any reason whatsoever and whether by operation of law or
otherwise the Managing Member shall have the right to exercise its right of
first refusal as set forth in said Agreement with respect to the disposition of
such distributed Portfolio Securities substantially exercisable as follows.
(i) If at any time such Member or transferee wishes to transfer (as
hereinafter defined) any of such distributed shares of Portfolio
Securities, other than as provided for in Section 4.5(c) of this
Agreement, the Member or transferee shall first give written notice to
the Managing Member, stating the nature of the proposed transfer, the
name and address of the proposed transferee or transferees, the number of
shares to be transferred (the "Offered Shares"), the price to be paid
therefor and all the terms and conditions of the proposed transfer, and
shall forthwith offer in writing to transfer such shares to the Managing
Member for the same consideration and on the same terms and conditions
and the Company shall have the irrevocable and exclusive first option
("Right of First Refusal"), but not the obligation, to acquire from the
Member or transferee all or any portion of the Offered Shares on the same
terms and conditions.
(ii) Within thirty (30) days following delivery of the Member's or
transferee's notice, as specified above, the Managing Member shall give
written notice to the Purchaser, stating whether or not the Managing
Member elects to exercise its Right of First Refusal as to all or any
part of the Offered Shares. Failure by the Managing Member to give this
notice within the 30 day period shall be deemed to be an election by it
not to exercise its Right of First Refusal for the Offered Shares.
(iii) Within ten (10) days after the date of the Managing Member's
notice of exercise of its Right of First Refusal as specified above, the
Member or transferee, or his or her estate, shall tender to the Managing
Member at its principal office the certificate or certificates
representing that portion of the Offered Shares which the Managing Member
has elected to acquire, duly endorsed in blank by the Member or
transferee or with duly endorsed stock
33
powers attached thereto, all in form suitable for the transfer of such
Offered Shares to the Managing Member and the Managing Member shall pay
to the Member or transferee the purchase price at the times and upon the
terms and conditions proposed to be paid by the proposed third-party
transferee, as set forth in the Member's or transferee's notice.
(iv) If the Member's or transferee's notice shall be duly given, and
the Managing Member shall fail to purchase all of the Offered Shares by
the exercise of its Right of First Refusal, then, but only then, the
Member or transferee shall be free to transfer the Offered Shares, but
only for the price and upon the terms and conditions set forth in the
Member's or transferee's notice, and only to the transferee or
transferees named therein, and only if said transfer is consummated
within sixty (60) days after the date of the Member's or transferee's
notice to the Managing Member. If the Offered Shares shall not be so
transferred by the Member or transferee within the period specified
above, then the transfer may not be made and the Offered Shares shall
remain subject to the terms of the Voting Agreement and the Right of
First Refusal Agreement in the same manner as if the Purchaser's or
transferee's notice had not been given.
(v) If the proposed disposition is for no consideration or for a
nominal consideration, then the Right of First Refusal shall be
exercisable by the Managing Member as aforesaid except that the purchase
price shall be Fair Market Value as determined pursuant to Section 4.8.
If the proposed disposition is in a public market, then the Member's or
transferee's notice may state that the proposed disposition will be made
at prevailing market prices and may omit the name or names of the
proposed transferee or transferees, and if the Managing Member elects to
exercise its Right of First Refusal as to all or any part of the offered
shares, then the purchase price shall be Fair Market Value as determined
pursuant to Section 4.8 on the date the Managing Member shall give
written notice to the Purchaser electing to exercise its Right of First
Refusal as to all or any part of the offered shares. The rights of the
Managing Member with respect to the Voting Agreement or the Right of
First Refusal Agreement shall be assignable by the Managing Member in its
sole discretion. Any certificate representing shares of Portfolio
Securities subject to the Voting Agreement and/or the Right of First
Refusal Agreement shall contain a legend satisfactory to the Managing
Member in all respects.
(d) Compliance with Securities Laws. The Managing Member may cause
-------------------------------
certificates evidencing any securities to be distributed to be imprinted with
legends as to such restrictions on transfers that it may deem necessary or
appropriate, including legends as to applicable federal or state securities laws
or other legal or contractual restrictions, and may require any Member to which
securities are to be distributed to agree in writing that such securities will
not be transferred except in compliance with (i) such restrictions and (ii)
applicable law.
(e) Reserves; 125% of Contributed Capital Retained. The Managing
----------------------------------------------
Member shall have the right, in its sole discretion to establish reserves at any
time or from time to time with
34
respect to any anticipated losses with respect to any Investment in any
Portfolio Company. Furthermore, no distributions shall be made hereunder (except
for distributions to the Members for the sole purpose of enabling such Members
to pay taxes) until the Managing Member has determined with respect to each
distribution (other than the Final Distribution) that the Company shall retain,
after any such proposed distribution, Investments and other assets valued on its
books in excess of 125% of the Unrecovered Capital of its Capital Members.
(f) Borrowings. The Company shall not borrow to make distributions to
----------
the Members or for any other purpose.
(g) Maintenance Expenses. All Maintenance Expenses shall be paid by
--------------------
and shall be the responsibility of the Company which shall be reimbursed
therefore by contributions for this purpose made by the Managing Member who
shall receive a special allocation with respect to such contributions and with
respect to the payment of such Maintenance Expenses. Maintenance Expenses shall
not be paid out of the Net Operating Profits or Net Realized Capital Gains or
Cash Flow or Capital Proceeds or Capital Contributions of the Company except as
aforesaid.
(h) Distribution of Unrecovered Capital. The Managing Member shall
-----------------------------------
have the right, in its sole discretion, and prior to a Final Distribution, to
distribute all or any part of amounts in the Capital Accounts of Capital Members
up to the amount of Capital Contributions less any Returns of Capital and less
any distributions of Unrecovered Capital previously made to the Capital Members
pursuant to this Section 4.4(h).
4.5 Other Distributions.
-------------------
Any distributions not included in Sections 4.2, 4.3, 4.4 or 10.3 shall be
made in cash to the Members in accordance with Sections 2.5, 2.6, ARTICLE III
and ARTICLE IV hereof.
4.6 Withholding.
-----------
Each Member hereby authorizes the Company to withhold and to pay over, or
otherwise pay, any withholding or other taxes payable by the Company as a result
of such Member's status as a Member hereunder. If and to the extent that the
Company shall be required under applicable law to withhold or pay any such taxes
with respect to any Member or as a result of any Member's participation in the
Company, such Member shall be deemed for all purposes of this Agreement to have
received a distribution from the Company in the amount of such tax on the last
day of the taxable year for which the tax is withheld or paid or, if earlier, on
the last day on which such Member owned its interest in the Company. The amount
of any distribution to which such Member would otherwise be entitled shall be
reduced by the amount of such deemed distribution. To the extent that the
aggregate of such distributions to a Member for any month exceeds the
35
distributions to which such Member is entitled for such period, the amount of
such excess shall be repaid by such Member to the Company within 30 days of the
end of such month. The withholdings referred to in this Section 4.6 shall be
made at the maximum applicable statutory rate under the applicable tax law
unless the Managing Member otherwise decides or unless the Managing Member shall
have received an opinion of counsel, satisfactory to the Managing Member, to the
effect that a lower rate is applicable, or that no withholding is applicable.
4.7 No Restoration by the Managing Member.
-------------------------------------
Except as provided by law or Sections 8.3 or 10.3, the Managing Member
shall not be obliged at any time to repay or restore to the Company or any
Member all or any part of any distributions made to the Managing Member by the
Company.
4.8 Valuation.
---------
For all purposes of this Agreement, the Fair Market Value of securities
and other property of the Company shall be determined as follows:
(a) Marketable Securities shall (i) if traded on a national securities
exchange, be valued at their last sales price on such exchange on which such
Marketable Securities shall have traded on the last trading day on which such
Marketable Securities were traded immediately preceding the date of
determination, or (ii) if the trading of such Marketable Securities is reported
through the National Association of Securities Dealers Automated Quotation
System, such Marketable Securities shall be valued at the last sale price as
shown by the National Association of Securities Dealers Automated Quotation
System on the last trading day on which such Marketable Securities were traded
immediately preceding the date of determination.
(b) All property other than Marketable Securities shall be valued by the
Managing Member in good faith. Factors considered in valuing individual
securities shall include, but need not be limited to, purchase price, estimates
of liquidation value, the price at which Members receiving a distribution of
securities will be able to sell them and the time at which such securities may
be sold, the existence of restrictions on transferability, prices received in
recent significant private placements of securities of the same issuer, prices
of securities of comparable public companies engaged in similar businesses and
changes in the financial condition and prospects of the issuer.
(c) All Portfolio Securities shall be valued by the Managing Member at
the time of any distribution pursuant to ARTICLE IV in order to determine
whether the Fair Market Value of any Portfolio Security is less than 100% of the
Capital Contributions allocable thereto for purposes of Section 4.4.
36
(d) Upon any valuation of securities or other property of the Company
pursuant to Section 4.8, the Managing Member shall notify each member of the
Advisory Committee in writing of the Fair Market Value of such securities or
other property as determined by the Managing Member in accordance with the
provisions of Section 4.8. The Advisory Committee shall, not more than ten
Business Days after the receipt of such notice from the Managing Member, furnish
notice in writing to the Managing Member stating whether or not the Advisory
Committee has approved or has not approved the Managing Member's valuation. If
the Advisory Committee approves such valuation (or shall have failed to provide
the Managing Member with the aforementioned notice within such ten Business
Days), such valuation shall constitute the Fair Market Value of such property
for all purposes hereof. If the Advisory Committee does not approve such
valuation, and if the Managing Member and the Advisory Committee cannot agree on
a valuation within five Business Days (or such other period of time as the
Managing Member and the Advisory Committee may determine) of the date on which
the Committee advises the Managing Member that it has not approved such
valuation, the Managing Member and the Advisory Committee shall jointly select
an independent appraiser who shall be retained to determine, as promptly as
practicable, the Fair Market Value of the property to be distributed. The
Company shall pay the expenses of such appraiser.
(e) The Managing Member shall make no distribution to the Members
pursuant to ARTICLE IV until the Fair Market Value of all property valued in
connection with such distribution has been determined in accordance with this
Section 4.8.
5.
MANAGEMENT; PAYMENT OF EXPENSES
-------------------------------
5.1 Description of Managing Member.
------------------------------
CMG@Ventures, Inc., a Delaware corporation, is the Managing Member of the
Company.
5.2 Management by the Managing Member.
---------------------------------
Subject in all instances to approval, disapproval, change, amendment or
modification by the Board of Directors of the Managing Member, the management,
policy and operation of the Company shall be vested in a Majority in Interest of
the Profit Members, who shall perform all acts and enter into and perform all
contracts and other undertakings which they deem necessary or advisable in their
sole discretion to carry out any and all of the powers and purposes of the
Company. Without limiting the foregoing general powers and duties, and except
as is otherwise expressly set forth herein, a Majority in Interest of the Profit
Members (subject to the power and
37
authority of the Board of Directors of the Managing Member as aforesaid) is
hereby authorized and empowered on behalf of the Company:
(a) to perform, or arrange for the performance of all management and
administrative services necessary for the operations of the Company;
(b) to identify investment opportunities for the Company, negotiate and
structure the terms of such Investments, and arrange additional financing needed
to consummate such Investments and thereafter to deal with such Investments, and
to restructure, amend, terminate, vote, or dispose of such Investments in all
respect;
(c) except as otherwise provided in this Agreement, to invest the assets
of the Company in the securities of any organization, domestic or foreign,
without limitation as to kind and without limitation as to marketability of the
securities, and pending such Investment and the disposition of the proceeds
thereof, to invest the assets of the Company in Temporary Investments;
(d) to exercise all rights, powers, privileges and other incidents of
ownership with respect to the Portfolio Securities, including, without
limitation the voting of such Securities, the approval of a restructuring of an
Investment, participation in arrangements with creditors, the institution and
settlement or compromise of suits and administrative proceedings, and other
similar matters;
(e) to sell, transfer, liquidate or otherwise terminate Investments made
by the Company or by the Managing Member;
(f) to employ or consult brokers, accountants, attorneys, or specialists
in any field of endeavor whatsoever ("Consultants"), including Consultants who
may be Members;
(g) to deposit any funds of the Company in any money market fund or in
any bank or trust company having capital in excess of $100,000,000 and to
entrust to such bank or trust company any of the securities, monies, documents
and papers belonging to or relating to the Company; provided, however, that from
time to time, in order to facilitate any transaction, any of the said
securities, monies, documents and papers belonging to or relating to the Company
may be deposited in and entrusted to any brokerage firm that is a member of the
New York Stock Exchange and has capital in excess of $100,000,000;
(h) to determine, settle and pay all expenses of and claims against the
Company and make Capital Calls for the Company, and sell and liquidate
Investments or make withdrawals from reserves or take any other actions
consistent with Section 5.4 for the payment of Maintenance Expenses as needed to
do so with the understanding that all Maintenance Expenses are to be paid by the
Company and reimbursed to the Company by the Managing Member and are not to be
paid out of the Net Operating Profits or Net Realized Capital Gains or Cash Flow
or Capital Proceeds or
38
Capital Contributions of the Company, and, in general, to make all accounting,
tax and financial determinations and decisions, including any election under
federal and state tax laws and to act as the "tax matters partner" of the
Company, as such term is defined in Section 6231(a)(7) of the Code, and to
exercise any authority permitted the tax matters partner under the Code in
accordance with Section 12.12;
(i) to provide bridge financing to Portfolio Companies;
(j) to admit an assignee of all or any portion of a Capital Investment
Member's interest in the Company to be a Substitute Capital Investment Member in
the Company pursuant to and subject to the terms of Section 7.4;
(k) to enter into, make and perform all contracts, agreements and other
undertakings as may be determined by the Managing Member in its sole discretion
to be necessary or advisable or incident to the carrying out of the foregoing
objectives and purposes, the execution thereof by the Managing Member to be
conclusive evidence of such determination;
(l) to execute all other instruments of any kind or character which the
Managing Member, in its sole discretion determines to be necessary or
appropriate in connection with the business of the Company and which are not
inconsistent with any other provisions of this Agreement, the execution thereof
by the Managing Member to be conclusive evidence of such determination; and
(m) to interpret and construe the terms, conditions and other provisions
of this Limited Liability Company Agreement or any agreement entered into
pursuant hereto, such construction or interpretation to be binding on all
parties.
5.3 Powers of Capital Investment Members.
------------------------------------
(a) The Capital Investment Members shall not participate in the control
of the Company and shall have no authority whatsoever with respect to the
management of the Company and shall not act for or bind the Company in any
respect.
(b) In addition to any other restrictions applicable to Capital
Investment Members set forth in this Agreement and notwithstanding any other
provisions thereof, no Capital Investment Member (and no officer, director or
equivalent non-corporate official of a Capital Investment Member that is not an
individual) shall vote on the removal of the Managing Member, except to the
extent permitted by Section 7.6, or vote on the admission of additional Managing
Members, except to the extent permitted by Section 7.1.
39
5.4 Fees and Expenses.
-----------------
(a) The Managing Member shall pay all fees and expenses incurred with
respect to the business of the Company ("Maintenance Expenses") (which payments
shall all be specially allocated to the Capital Account of the Managing Member),
including, without limitation:
(i) out-of-pocket expenses incurred and fees paid by the Company
or the Managing Member in connection with the formation of the Company
and the offering and distribution of interests therein to the Capital
Investment Members and the Profit Members;
(ii) expenses which relate to office space, supplies and other
facilities of its business, and salaries, fees and expenses of officers,
employees, consultants, attorneys and accountants, investment bankers,
and similar outside advisors of the Company or the Managing Member;
(iii) expenses of the Company associated with the acquisition
(whether or not consummated) of Portfolio Securities, where such expenses
are not paid by the applicable Portfolio Company;
(iv) out-of-pocket expenses incurred in connection with
maintaining (a) qualification to do business of the Company or of the
Managing Member in the Commonwealth of Massachusetts and elsewhere, (b)
the specified office at which records which are required to be maintained
under the Delaware Act are kept and (c) the registered agent in the State
of Delaware;
(v) out-of-pocket costs of holding or selling Portfolio
Securities or of acquiring or holding Temporary Investments (including
all day-to-day operating expenses and overhead expenses of the Managing
Member), including recordkeeping expenses and, with respect to Temporary
Investments only, finders', placement, brokerage and other similar fees;
(vi) out-of-pocket costs of reporting obligations of the Members;
(vii) any taxes, fees or other governmental charges levied against
the Company or on its income or assets or in connection with its business
or operations;
(viii) all costs of litigation and the amount of any judgments or
settlements paid in connection therewith (including damages or equitable
remedies of Members with respect to remedies exercised by the Managing
Member in good faith pursuant to Sections 2.10 or 2.11) and matters that
are the subject of indemnification pursuant to Section 8.2 and costs of
winding-up and liquidating the Company;
40
(ix) the reasonable expenses of the Advisory Committee; and
(x) the expenses of any appraiser payable by the Company pursuant
to Section 4.8(e).
(xi) all other expenses of the Company reasonably determined by
the Managing Member to be reasonably related to the business and
operation of the Company as set forth herein.
Maintenance Expenses shall be paid by the Company and such payments shall
be reimbursed to the Company by the Managing Member. Contributions by the
Managing Member to the Company for the purpose of paying Maintenance Expenses
shall be specially allocated to the Capital Account of the Managing Member and
all payments of Maintenance Expenses shall also be specially allocated to the
Capital Account of the Managing Member. Under no circumstances shall Maintenance
Expenses be paid out of the Net Operating Profits or Net Realized Capital Gains
or Cash Flow or Capital Proceeds or Capital Contributions of the Company except
as provided in the preceding two sentences.
(b) Break-Up Fees. Any Break-Up Fee shall be added to the income of the
-------------
Company.
(c) Transaction Fees; Special Fees. Any transaction fee or Special
------------------------------
Fee of any kind shall also be added to the income of the Company.
(d) Consulting Fees. Management or consulting fees or director fees
---------------
received from Portfolio Companies shall also be added to the income of the
Company.
5.5 The Advisory Committee.
----------------------
(a) Each year a Majority in Interest of the Profit Members shall select
an Advisory Committee, which shall consist of not more than six (6) persons.
(b) The functions of the Advisory Committee will be (i) to advise the
Managing Member on such matters, including investment advice, about which the
Managing Member may from time to time, in its sole discretion, determine to
consult the Advisory Committee, (ii) to review, in its discretion, valuations of
Company assets in accordance with Section 4.8 or otherwise, (iii) to make
recommendations on compensation issues, (iv) to advise the Managing Member
concerning the creation of any reserves with respect to Investments in Portfolio
Companies pursuant to Section 4.4(d), and (v) to review and consult with the
Board of Directors of the Managing Member concerning any potential conflicts of
interest of the Managing Member, including: (A) any Portfolio Company in which
the Company has an interest affecting a material financial transaction (other
than pursuant to Section 6.2) with the Managing Member or any
41
Affiliate thereof; (B) the Company investing in a Portfolio Company which is an
Affiliate of the Managing Member; (C) the Managing Member or an Affiliate
thereof directly purchasing any securities of any Portfolio Company in which the
Company has invested, other than purchases pursuant to Section 6.2; (D) any
other action which would give rise to a potential conflict of interest between
the Company and the Managing Member or any Affiliate thereof. Neither the
Advisory Committee nor any member thereof shall have the power to bind or act
for or on behalf of the Company in any manner and in no event shall a member of
the Advisory Committee be considered a Managing Member of the Company by
agreement, estoppel or otherwise as a result of the performance of his or her
duties hereunder or otherwise. The reasonable expenses of the Advisory Committee
shall be paid by the Company as Maintenance Expenses. In addition, the Company
shall indemnify the members of the Advisory Committee to the extent provided in
Section 8.2 hereof. No member of the Advisory Committee shall be entitled to any
fee or honorarium in connection with his or her service thereon.
(c) The Advisory Committee shall act by the vote of a Majority in
Interest of the Profit Members who are members of the Committee. Except as
expressly provided herein, the recommendations of the Advisory Committee shall
be advisory only and shall not obligate the Managing Member to act in accordance
therewith. Any member of the Advisory Committee may resign by giving to the
Managing Member and the other members of the Advisory Committee thirty (30)
days' prior written notice. Any vacancy in the Advisory Committee, whether
created by such a resignation or by the death of any member, shall promptly be
filled as provided in Section 5.5(a).
(d) The Managing Member shall supply the Advisory Committee with all
such information and data as it shall request to enable the Advisory Committee
to reach an informed judgment.
5.6 Conflicts of Interest.
---------------------
No contract or transaction between the Managing Member or the Company and
one or more of its Members or Affiliates, or between the Managing Member or the
Company and any other limited liability company, corporation, partnership,
association or other organization in which one or more of its Members or
affiliates are directors, officers, members or partners or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the Member or affiliate is present at or participates in any meeting of
directors, members, managers or partners which authorizes the contract or
transaction, or solely because his, her or their votes are counted for such
purpose, if:
(a) the material facts as to his, her or their interest and as to the
contract or transaction are disclosed or are known to the directors, the
managers, the members or the partners and the directors, the managers, the
members or the partners authorize in good faith the contract or transaction by a
vote sufficient for such purpose without counting the vote of the interested
director,
42
managers, members or partner even though the disinterested directors, managers,
members or partners be less than a quorum; or
(b) the material facts as to his, her or their interest and as to the
contract or transaction are disclosed or are known to the partners, the
managers, the members or directors entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by a vote of the partners,
the managers, the members or the directors; or
(c) the contract or transaction is fair to the Managing Member or the
Company or its or their Affiliates as of the time it is authorized, approved or
ratified by the directors, the managers, the members or the partners.
Interested directors, managers, members or partners shall be counted in
determining the presence of a quorum at a meeting of the partners, managers,
members or directors which authorizes such contract or transaction. No
director, member, manager, partner or officer shall be liable to account to the
Managing Member or the Company for any profit realized by him or her from or
through such contract or transaction solely by reason of the fact that he or she
or any other limited liability company, corporation, partnership, association or
other organization which he or she is a director, member, manager, partner or
officer, or has a financial interest, was interested in such contract or
transaction.
6.
OTHER ACTIVITIES OF MEMBERS
---------------------------
6.1 Commitment of Managing Member.
-----------------------------
The Managing Member hereby agrees to use its best efforts in connection
with the purposes and objectives of the Company and to devote to such purposes
and objectives such of its time and resources as shall be necessary for the
management of the affairs of the Company. Subject to the other provisions of
this Agreement, the Managing Member and any of its Affiliates may act as a
director, officer, employee or advisor of any corporation, a trustee of any
trust, a member or manager of a limited liability company or a partner of any
partnership; may receive compensation for its services as an advisor with
respect to, or participation in profits derived from, the investments of any
such corporation, trust, limited liability company or partnership; and may
acquire, invest in, hold and sell securities of any entity. Neither the Company
nor any Member shall have by virtue of this Agreement, any right, title or
interest in or to such other corporation, trust, partnership, limited liability
company investment or security.
43
6.2 Agreements with Portfolio Companies.
-----------------------------------
The Managing Member, the Parent of the Managing Member and its or their
Affiliates may enter into contracts, commitments and agreements with Portfolio
Companies consistent with ARTICLE V for the benefit of said Managing Member, the
Parent of the Managing Member and/or its or their Affiliates.
6.3 Obligations and Opportunities for Members.
-----------------------------------------
The Members shall be obligated to refer investment opportunities,
consistent with the purposes and objectives of the Company, to the Company. Any
determination as to the appropriateness of an investment opportunity for the
Company or for an Affiliate of the Company or for the Parent of the Managing
Member shall be made by the disinterested directors of the Managing Member.
7.
ADMISSIONS; ASSIGNMENTS; REMOVAL AND WITHDRAWALS
------------------------------------------------
7.1 Admission of Additional Managing Member.
---------------------------------------
It is not contemplated that any additional Managing Members will be
admitted to the Company. A person may be admitted to the Company as a Managing
Member only with the written consent of each Member including the Managing
Member. In the event of the addition of a Managing Member, the participation of
such person in the management of the Company and the interest of such person in
the Company's profits and losses must be approved by all the Members at the time
of such person's or entity's admission.
7.2 Admission of Additional Capital Investment Members; Increase in Capital
-----------------------------------------------------------------------
Commitments.
-----------
(a) The Managing Member may admit one or more additional Capital
Investment Members, subject only to satisfaction of the following conditions:
(i) each such additional Capital Investment Member shall execute and deliver a
Power of Attorney pursuant to which such additional Capital Investment Member
agrees to be bound by the terms and provisions hereof, (ii) such admission would
not result in a violation of any applicable law, including the federal or state
securities laws, or any term or condition of this Agreement and, as a result of
such admission, the Company would not be required to register as an investment
company under the Investment
44
Company Act, and (iii) each such additional Capital Investment Member shall pay
to the Company on the date of its admission to the Company (or on such other
date as may be determined by the Managing Member in its sole discretion) an
amount equal to the percentage of its Capital Commitment which is equal to the
percentage of the other Capital Investment Members' Capital Commitments that
shall have been payable at or prior to the admission of the additional Capital
Investment Member. The name and business address of each Capital Investment
Member admitted to the Company under this Section 7.2 and the amount of its
Capital Commitment shall be added to Exhibit A, and each such Capital Investment
Member shall be bound by all the provisions hereof. Each additional Capital
Investment Member admitted pursuant to this Section 7.2 shall be deemed for
purposes of all allocations pursuant to ARTICLE II to have been admitted on the
date of admission. Admission of an additional Capital Investment Member in
accordance with the terms hereof shall not be a cause of dissolution of the
Company. Additional Capital Investment Members (other than Substitute Capital
Investment Members admitted pursuant to Section 7.4) shall be admitted to the
Company only with the written consent of, and on the terms approved by, the
Managing Member and a Majority in Interest of the Capital Investment Members.
Notwithstanding Section 12.3, the terms referred to in the preceding sentence
may require the amendment of this Agreement in a manner that will treat
adjustments to Members' Capital Account balances pursuant to Section 2.3(b) upon
or as a result of admissions of additional Capital Investment Members as
adjustments to their Capital Contributions for purposes of calculating their
Percentages in Interest with respect to Capital from the times of such
admissions.
(b) The Managing Member may permit any Capital Investment Member to
increase its Capital Commitment within a reasonable time of its notification to
the Managing Member of its desire to do so, provided that the conditions of
Section 7.2(a) and all other provisions of Section 7.2(a) have been satisfied as
though such Capital Investment Member were an additional Capital Investment
Member with respect to such increase, except that Exhibit A shall be amended
only to reflect such increase, and provided further that such increase would not
cause the Company to violate any statute or regulation applicable to it or any
covenant herein. The Managing Member shall notify the Members in a timely
fashion of each additional Capital Investment Member admitted pursuant to
Section 7.2(a) and of each Capital Investment Member that increases its
percentage of the total Capital Commitments of the Company pursuant to this
Section 7.2(b) beyond its percentage thereof upon its admission to the Company.
Except in the case of an assignment or transfer of Capital Membership interests
to Capital Investment Members in accordance with Section 7.4, a Capital
Investment Member may increase its Capital Commitment only with the written
consent of, and on the terms approved by, the Managing Member and a Majority in
Interest of the Capital Investment Members. The terms referred to in the
preceding sentence may require the amendment of this Agreement in a manner that
will treat adjustments to Members' Capital Account balances pursuant to Section
2.3(b) upon or as a result of increases in Capital Members' Capital Commitments
pursuant to this Section 7.2(b) as adjustments to Capital Contributions for
purposes of calculating Percentages of Contributed Capital. Notwithstanding
Section 12.3, any amendment referred to in the preceding sentence shall require
the approval of a Majority in Interest of the Capital Investment Members.
45
7.3 Admission of Additional Profit Members.
--------------------------------------
The Managing Member may admit one or more additional Profit Members,
subject only to satisfaction of the following conditions: (i) each such
additional Profit Member shall execute and deliver a Power of Attorney pursuant
to which such additional Profit Member agrees to be bound by the terms and
provisions hereof, and (ii) such admission would not result in a violation of
any applicable law, including the federal or state securities laws, or any term
or condition of this Agreement and, as a result of such admission, the Company
would not be required to register as an investment company under the Investment
Company Act. The name and business address of each Profit Member admitted to the
Company under this Section 7.3 and the number of his or her Units awarded to
such additional Profit Member and his or her date of hire shall be added to
Exhibit A, and each such Profit Member shall be bound by all the provisions
hereof. Each additional Profit Member admitted pursuant to this Section 7.3
shall be deemed for purposes of all allocations pursuant to ARTICLE II to have
been admitted on the date of hire. Admission of an additional Profit Member in
accordance with the terms hereof shall not be a cause of dissolution of the
Company. Additional Profit Members shall be admitted to the Company only with
the written consent of, and on the terms approved by, the Managing Member and a
Majority in Interest of the Profit Members.
7.4 Assignment of a Membership Interest.
-----------------------------------
(a) The Managing Member shall not assign or otherwise transfer its
interest as the Managing Member of the Company. A Capital Investment Member may
sell, assign or otherwise transfer all or any part of its interest in the
Company only with the consent in writing of the Managing Member, which consent
shall be given if the Managing Member is satisfied that the transaction (i)
complies with and does not violate any federal or state securities law, (ii)
will not cause the termination or dissolution of the Company, (iii) will not
create a substantial risk that the Company would be classified other than as a
partnership for federal income tax purposes, (iv) will not cause the Company to
be required to register as an investment company under the Investment Company
Act and (v) will not create a substantial risk that the Capital Investment
Members and Profit Members would lose their limited liability as members under
the Delaware Act.
(b) A purchaser, assignee or transferee of a Capital Investment Member's
interest in the Company (an "Assignee") shall have the right to become a
Substitute Capital Investment Member only if the following additional conditions
are satisfied:
(i) a duly executed and acknowledged written instrument of
assignment satisfactory to the Managing Member shall have been filed with
the Company;
46
(ii) the Capital Investment Member and the Assignee shall have
executed and acknowledged such other instruments and taken such other
action as the Managing Member shall reasonably deem necessary or
desirable to effect such substitution, including, without limitation, the
execution by the Assignee of a Power of Attorney substantially similar to
that referred to in Section 12.8 hereof;
(iii) the restrictions on transfer contained in Section 7.5 are
inapplicable, and, if requested by the Managing Member, the Capital
Investment Member or the Assignee shall have obtained an opinion of
counsel reasonably satisfactory to the Managing Member as to the legal
matters set forth in that Section;
(iv) the Capital Investment Member or the Assignee shall have paid
to the Company such amount of money as is sufficient to cover all
expenses incurred by or on behalf of the Company in connection with such
substitution;
(v) the Managing Member shall have consented to such
substitution, which consent shall not be unreasonably withheld.
The pledge or hypothecation to a bank or financial institution of the right to
receive distributions with respect to a Capital Investment Member's interest in
the Company shall not be deemed an assignment or transfer of a Capital
Investment Member's interest in the Company, provided that such pledge or
hypothecation shall nonetheless be subject to the restrictions set forth in
Section 7.5. An Assignee who is not admitted to the Company as a Substitute
Capital Investment Member shall have none of the rights of and no liability as a
Capital Investment Member and the assignor in such case shall remain fully
liable for the unpaid portion of its Capital Commitment.
(c) No Profit Member may sell, assign or otherwise transfer all or any
part of its interest as a Profit Member of the Company in any respect whatsoever
except that the interest of a Profit Member may be transferred by will or by the
laws of descent and distribution to such Profit Member's estate or to his or her
beneficiaries or heirs following the death of such Profit Member, provided that
each and every such transferee agrees to be bound by all the terms and
conditions of this Limited Liability Company Agreement applicable to Former
Profit Members including, without limitation, those set forth in ARTICLE III and
ARTICLE IV.
7.5 Restrictions on Transfer.
------------------------
Notwithstanding any other provision of this Agreement, no Capital
Investment Member may sell, assign or otherwise transfer all or any part of its
interest in the Company, and no attempted or purported assignment or transfer of
such interest shall be effective, unless (a) after giving effect thereto, the
aggregate of all the assignments or transfers by the Members of interests in the
Company within the 12 month period ending on the proposed date of such
assignment or
47
transfer would not equal or exceed 50% of the total interests of the Members in
the capital or profits of the Company, and such assignment or transfer would not
otherwise terminate the Company for the purposes of Section 708 of the Code, (b)
such assignment or transfer would not result in a violation of applicable law,
including the federal and state securities laws and provided that, if such
assignment or transfer would cause the Managing Member to violate any covenant
of this Agreement and the Managing Member has taken all reasonable steps to
prevent such violation, the Managing Member shall not be liable to the Company
as a result thereof and the Managing Member shall be indemnified by such Capital
Investment Member for any losses, damages or expenses incurred as a result of
such violation, (c) such assignment or transfer would not cause the Company to
lose its status as a partnership for federal income tax purposes or cause the
Company to become subject to the Investment Company Act, (d) if requested by the
Managing Member, such Capital Investment Member shall deliver a favorable
opinion of counsel satisfactory to the Managing Member as to the matters
referred to in the foregoing clauses (b) and (c), (e) if such assignment or
transfer is to an employee benefit plan within the meaning of ERISA (a "Benefit
Plan Investor"), the Managing Member shall have consented thereto, which consent
may be granted or withheld at its sole discretion, and (f) such assignment or
transfer is to an entity which is an Accredited Investor. Notwithstanding the
foregoing, a Capital Investment Member which is a Benefit Plan Investor may
sell, assign or transfer all or part of its interest to a successor fiduciary or
trustee of the same plan or trust without the consent of the Managing Member,
and in such case the successor fiduciary or trustee shall be substituted as a
Capital Investment Member.
7.6 Removal or Withdrawal of Managing Member.
----------------------------------------
(a) Except as otherwise provided in this Agreement, without the prior
written approval of at least Eighty Percent in Interest of both the Capital
Investment Members and the Profit Members, the Managing Member may not resign or
withdraw as Managing Member of the Company or voluntarily terminate its
existence as Managing Member of the Company. If the Managing Member resigns,
withdraws or terminates its existence in violation of this Section 7.6, then the
interest of the Managing Member shall be divided into two components: (i) 25%
thereof shall be allocated proportionately to the Capital Investment Members,
thereby increasing their respective Capital Accounts (and the Capital
Contributions deemed to have been made by the Capital Investment Members shall
be automatically adjusted to reflect such increase) and (ii) 75% thereof shall
be distributed to the Managing Member as provided in paragraph (d) below.
(b) Upon the approval of at least a eighty percent in interest of the
Capital Investment Members, the Capital Investment Members may remove the
Managing Member without cause.
(c) Upon the approval of at least two-thirds in interest of the Capital
Investment Members, the Capital Investment Members may remove the Managing
Member if any act or omission of the Managing Member in connection with the
Company constitutes willful misconduct or fraud or if the Managing Member is in
material violation of its obligations hereunder. If the
48
Managing Member is so removed, then the interest of the Managing Member shall be
divided into two components: (i) 35% thereof shall be allocated proportionately
to the Capital Investment Members, thereby increasing their respective Capital
Accounts (and the Capital Contributions deemed to have been made by the Capital
Investment Members shall be automatically adjusted to reflect such increase),
and (ii) 65% thereof shall be distributed to the Managing Member as provided in
paragraph (d) below.
(d) Upon the resignation, removal, withdrawal or voluntary termination
of existence of the original or any successor Managing Member, the Company shall
not be dissolved if, within ninety (90) calendar days after such resignation,
removal, withdrawal or voluntary termination of existence, a Majority in
Interest of the remaining Capital Investment Members and a Majority in Interest
of the remaining Profit Members shall have agreed in writing to continue the
business of the Company and shall have selected, effective as of the date of
such event, a successor Managing Member. In such event, except as provided in
Sections 7.6(a) and 7.6(c), the former Managing Member shall be entitled to
receive a distribution equal to any amounts it would have been entitled to
receive had the Company dissolved in accordance with Section 10.3 hereof and
distributed in kind all Company assets as of the date of the resignation,
removal, withdrawal or voluntary termination of existence of the Managing
Member. For purposes of determining allocations and distributions pursuant to
the preceding sentence, securities and other property held by the Company shall
be valued pursuant to the procedures set forth in Section 4.8. If the Managing
Member shall have resigned, withdrawn or voluntarily terminated its existence or
been removed pursuant to this Section 7.6, such distribution shall be made in
kind, or with the approval of at least a Majority in Interest of the Capital
Investment Members and a Majority in Interest of the Profit Members, in cash,
within thirty (30) calendar days (or as soon thereafter as is practicable but no
later than thirty calendar days) after such removal, resignation, withdrawal or
voluntary termination of existence.
(e) Upon and as of the date of the resignation, removal, withdrawal or
voluntary termination of existence of the original or any successor Managing
Member (the "Permitted Managing Member"), such Permitted Managing Member will
cause, to the extent it is legally possible, all its rights, obligations and
interest as such Managing Member arising under this Agreement or any other
contracts, agreements or documents entered into by it on behalf of the Company
to be assigned to the successor Managing Member or to the Managing Member of the
new limited liability company or partnership; such successor or new Managing
Member will assume and agree to perform all of such Permitted Managing Member's
duties and obligations arising under this Agreement and such other instruments
and such Permitted Managing Member will, upon making a proper accounting to the
successor or new Managing Member, be relieved of any further duties or
obligations arising under this Agreement and such other instruments from and
after the time such resignation, removal, withdrawal or voluntary termination of
existence shall have become effective.
7.7 Withdrawals of Capital Investment Members.
-----------------------------------------
49
No Capital Investment Member shall have the right to withdraw from the
Company except in connection with an assignment under Section 7.4.
50
8.
LIABILITY OF MEMBERS; INDEMNIFICATION
-------------------------------------
8.1 Liability of Members.
--------------------
(a) No Member shall have any personal liability for any obligation of
the Company in excess of his, her or its respective Capital Contribution;
provided, however, that a Capital Member shall be liable to the Company to the
extent of previous distributions only to the extent required by law and only to
the extent provided in Section 18-607 of the Delaware Act.
(b) Subject to Section 8.2, and unless otherwise required by applicable
law, the Managing Member and any Profit Member shall not be liable to the
Company or any other Member for any action taken by any other Member, nor shall
the Managing Member or any Profit Member (in the absence of negligence,
misconduct, fraud or a willful violation of law by the Managing Member or any
Profit Member) be liable to the Company or any other Member for any action of
any employee, broker or agent of the Company provided that the Managing Member
or any Profit Member shall have exercised appropriate care in the selection and
supervision of such employee, broker or agent or unless the Managing Member or
any Profit Member would otherwise be responsible under applicable law for the
actions of such employee, broker or agent.
8.2 Indemnification.
---------------
(a) The Managing Member, each of the Profit Members, each of the members
of the Advisory Committee, and the Affiliates of any of them (the "Indemnitees")
shall not have any liability to the Company or to any Member for any loss
suffered by the Company which arises out of any action or inaction of such
Indemnitee if such Indemnitee in good faith determined that such course of
conduct was in the best interests of the Company and such course of conduct did
not constitute negligence or misconduct (including violations of law, breach of
fiduciary duty and breach of this Agreement) of such Indemnitee. An Indemnitee
shall be indemnified and held harmless by the Company against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims
sustained by it in connection with the Company provided that the same were not
the result of negligence or misconduct (including violations of law, breach of
fiduciary duty and breach of this Agreement) on the part of such Indemnitee.
(b) Notwithstanding the above, such Indemnitee shall not be indemnified
for losses, liabilities or expenses arising from or out of an alleged violation
of federal or state securities laws unless (1) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular Indemnitee; (2) such claims have been dismissed
with
51
prejudice on the merits by a court of competent jurisdiction as to the
particular Indemnitee; or (3) a court of competent jurisdiction approves a
settlement of the claims against a particular Indemnitee.
(c) In any claim for indemnification for federal or state securities law
violations, the party seeking indemnification shall place before the court the
position of the Securities and Exchange Commission and the Massachusetts
Securities Division with respect to the issue of indemnification for securities
law violations.
(d) The Company shall not incur the cost of the portion of any
insurance, other than public liability insurance, which insures any party
against any liability the indemnification of which is herein prohibited.
(e) Prior to entering into any compromise or settlement which would
result in an obligation of the Company to indemnify such person, the Indemnitee
shall obtain the written consent of the Managing Member (if such person is other
than the Managing Member) or (if such person is the Managing Member) either (i)
an opinion of counsel, such counsel to be chosen by a Majority in Interest of
the Profit Members, to the effect that such compromise or settlement is not
unreasonable, which opinion shall be furnished to all Members or (ii) the
consent of a Majority in Interest of the Profit Members.
8.3 Payment of Expenses.
-------------------
Expenses incurred by an Indemnitee in defense or settlement of any claim
that may be subject to a right of indemnification hereunder may be advanced by
the Company prior to the final disposition thereof provided that the following
conditions are satisfied: (1) the claim relates to the performance of duties or
services by the Indemnitee on behalf of the Company or the Advisory Committee,
as the case may be, (2) the claim is initiated by a third party who is not a
Capital Investment Member and (3) the Indemnitee undertakes to repay the
advanced funds to the Company if it is ultimately determined that the Indemnitee
is not entitled to be indemnified hereunder or under applicable law. The right
of any Indemnitee to the indemnification provided herein shall be cumulative of,
and in addition to, any and all rights to which such Indemnitee may otherwise be
entitled by contract or as a matter of law or equity and shall extend to such
Indemnitee's successors, assigns and legal representatives. All judgments
against the Company and the Managing Member, in respect of which such Managing
Member is entitled to indemnification, must first be satisfied from Company
assets before the Managing Member is responsible therefor. The obligations of
Capital Investment Members under this ARTICLE VIII shall be satisfied only after
any applicable insurance proceeds have been exhausted and then only out of
Company assets and, only to the extent required by law, and only to the extent
provided in Section 18-607 of the Delaware Act, out of distributions made by the
Company to its Members, and Capital Investment Members shall have no personal
liability to fund indemnification payments hereunder.
52
9.
ACCOUNTING FOR THE COMPANY; REPORTS
-----------------------------------
9.1 Accounting for the Company.
--------------------------
The Company shall use such methods of accounting as the Managing Member
determines to be consistent with federal income tax requirements and (to the
extent possible) with generally accepted accounting principles.
9.2 Books and Records.
-----------------
The Managing Member shall keep or cause to be kept complete and
appropriate records and books of account. Except as otherwise expressly provided
herein, such books and records shall be maintained on the basis used in
preparing the Company's federal income tax returns. Such information as is
necessary to reconcile such books and records with generally accepted accounting
principles shall also be maintained. The books and records shall be maintained
at the principal office of the Company, and shall be available for inspection
and copying by any Member at its expense during ordinary business hours
following reasonable notice for any purpose reasonably related to its interest
as a Member of the Company. In addition, the Managing Member shall provide any
Capital Investment Member or Profit Member with a list of all Capital Members
and their respective Percentages of Interest or with a list of all Profit
Members and Former Profit Members and their Vested and Unvested Carried
Interests within 30 days of receipt by the Managing Member of a written request
for the same.
9.3 Reports to Members.
------------------
Promptly after consummation of each Investment in a Portfolio Company,
the Managing Member shall prepare and deliver to each Member a description of
such Investment and the Portfolio Company in which it was made. The Managing
Member will deliver to each Member the audited or unaudited balance sheet and
income statement and/or other annual and quarterly financial statements of each
Portfolio Company within a reasonable time of the receipt thereof by the
Managing Member. After the end of each Fiscal Year, the Managing Member shall
cause an audit of the Company to be made by an independent public accountant of
nationally recognized status of the financial statements of the Company for that
year. Such audit shall be certified and a copy thereof shall be delivered to
each Member within 90 days after the end of each of the Company's Fiscal Years.
Such certified financial statements shall also be accompanied by a report on the
53
Company's activities during the year prepared by the Managing Member and (a) a
list of all Capital Members and their respective percentages of contributed
capital and a list of all Profit Members and Former Profit Members and their
respective Vested and Unvested Carried Interests and Capital Accounts and (b) if
the Capital Commitments of Benefit Plan Investors exceeds 25% of total Capital
Commitments, a certification to each Benefit Plan Investor that the Company is a
Venture Capital Operating Company as defined in 39 C.F.R. (S)2510. Within 90
days after the end of each Fiscal Year, the Company will deliver to each Member
the Managing Member's good faith estimate of the fair value of the Company's
Investments as of the end of such year and a statement showing the balances in
such Member's Capital Account (both vested and unvested) as of the end of such
year. Within 60 days after the end of each Fiscal Year, the Managing Member will
cause to be delivered to each Member a Form K-1 and such other information, if
any, with respect to the Company as may be necessary for the preparation of such
Member's federal income tax returns, including a statement showing each Member's
share of income, gain or loss and credits for such Fiscal Year for federal
income tax purposes.
10.
DISSOLUTION AND WINDING UP
--------------------------
10.1 Dissolution.
-----------
The existence of the Company shall dissolve upon the first to occur of
the following events:
(a) April 13, 2010; provided that the duration of the Company may be
extended by the Managing Member in its sole discretion by notice in writing to
each Member not later than thirty (30) days prior to any such extension for one
or more additional periods from such date of not less than three years or more
than ten years each, if the Managing Member determines, in each instance, taking
into account the Company's Investments and the amount of capital calls remaining
to be invested, that such extension is in the best interests of the Company;
(b) if (A) the Managing Member commences any case, proceeding or other
action (y) under any law relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with respect to
the Company or the Managing Member, or seeking to adjudicate the Company or the
Managing Member a bankrupt or insolvent, or seeking reorganization, winding-up,
liquidation, dissolution, composition or other relief with respect to the
Company or the Managing Member or the debts of either of them, or (z) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its assets, or if the Managing Member or
the Company shall make a general assignment for the benefit of its creditors; or
if (B) there shall be commenced against the Company or against the Managing
Member any case, proceeding or other action of a nature referred to in clause
(A) above which (y)
54
results in the entry of an order for relief or any such adjudication or
appointment or (z) remains undismissed, undischarged or unbonded for a period of
ninety calendar days; or if (C) there shall be commenced against the Company or
against the Managing Member any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets, which results in the entry of
an order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within ninety calendar days from the entry
thereof; of if (D) any other event not expressly provided for in this Agreement
occurs which under the Delaware Act causes the Managing Member to cease to be a
Managing Member of the Company; unless (i) at the time of such event there is at
least one other Managing Member of the Company who is hereby authorized to, and
does continue, the business of the Company; provided that a Majority in Interest
of the Capital Investment Members and a Majority in Interest of the Profit
Members agree to continue the business of the Company or (ii) if within 90 days
of such removal, bankruptcy, dissolution or withdrawal, a Majority in Interest
of the Capital Investment Members and a Majority in Interest of the Profit
Members agree in writing to continue the business of the Company and to the
appointment, effective upon the date of such event, of one or more additional
Managing Members;
(c) the sale or other disposition of all or substantially all of the
assets of the Company;
(d) the entry of a decree of judicial dissolution under the Delaware
Act;
(e) the written consent of the Managing Member and a Majority in
Interest of the Profit Members to terminate the Company;
(f) upon the determination of a Majority in Interest of the Capital
Investment Members and a Majority in Interest of the Profit Members that there
is a substantial risk that the Company would be taxed as a corporation under the
Code and that, as a result, the objectives of the Company would be substantially
impaired, provided that such Members furnish an opinion to such effect in form
and substance reasonably satisfactory to the Managing Member and from counsel
reasonably satisfactory to the Managing Member.
10.2 Winding Up.
----------
Upon the occurrence of an event specified in Section 10.1, the affairs of
the Company shall be wound up and its assets liquidated and distributed in
accordance with this Agreement. The Managing Member or, if there is no Managing
Member, a liquidator appointed by a Majority in Interest of the Capital
Investment Members and a Majority in Interest of the Profit Members, shall
proceed with the Dissolution Sale as promptly as practicable; provided that the
Managing Member or such liquidator can continue such Dissolution Sale as long as
it feels is reasonably necessary to obtain fair value for the Investments in
Portfolio Companies and other assets of the Company. Assets that the Managing
Member or the liquidator believes could be sold in the Dissolution Sale
55
only at an undue loss to the Members or with great impracticality may be
distributed to the Members in kind pro rata in accordance with Sections 2.5,
2.6, 2.7 3.1, 3.2, 3.3 and ARTICLE IV.
10.3 Final Distribution and Allocation.
---------------------------------
(a) In the final Fiscal Year of the Company, each item of Net Operating
Profits and Net Operating Losses and Net Realized Capital Gains and Net Realized
Capital Losses shall be allocated to the Members in such manner as would, to the
extent possible, result in the Members' having zero balances in their respective
Capital Accounts if all distributions by the Company for such Fiscal Year,
including liquidating distributions, were made in accordance with ARTICLE IV. If
the Fair Market Value of Company assets to be distributed in kind exceeds ("book
gain") or is less than ("book loss") the book value of such assets, to the
extent not otherwise recognized to the Company, such book gain or book loss
shall be taken into account in computing Net Operating Profits or Net Operating
Losses, Net Realized Capital Gains and Net Realized Capital Losses for such
Fiscal Year for all purposes of crediting or charging the Capital Accounts of
the Members pursuant to ARTICLE II and ARTICLE III as if such assets had been
sold and the proceeds distributed pursuant to ARTICLE IV. Thereupon, all of the
assets of the Company, or the proceeds therefrom, shall be distributed or used
as follows and in the following order of priority:
(i) for the payment, or the reasonable provision for the payment, of
the debts and liabilities of the Company, including amounts owed to any
Members in their capacities as creditors of the Company, and the expenses
of liquidation; to the setting up of any reserves which the Managing Member
or the liquidator may deem reasonably necessary for any contingent
liabilities or obligations of the Company; and
(ii) to the Members, in accordance with the positive balances in their
Capital Accounts and Profit Accounts in compliance with Section 1.704-
1(b)(2)(ii)(b)(2) of the Treasury Regulations and the balance pro rata in
accordance with Sections 2.5, 2.6, 2.7, 3.1, 3.2, 3.3 and ARTICLE IV.
(b) Upon the dissolution and liquidation of the Company, after all
allocations of Net Operating Profits, Net Operating Losses, Net Realized Capital
Gains and Net Realized Capital Losses have been made but before any Final
Distribution has been made to the Members, and in any event before the later of
the end of the Company's taxable year of liquidation or 90 days after the
Company's liquidation, the Managing Member shall contribute to the capital of
the Company an amount equal to the negative balance, if any, in its Capital
Account.
Notwithstanding the foregoing, the Managing Member's obligation pursuant to
this Section 10.3(b) shall not inure to the benefit of, or be invoked or
enforced by or for the benefit of, any creditor who has otherwise contractually
obligated itself to look solely to all or a part of the assets
56
of the Company and not to the assets of any Member for satisfaction of any debt
owed or owing to that creditor by the Company.
(c) When the Managing Member or the liquidator has complied with the
foregoing liquidation plan, the Members shall execute, acknowledge and cause to
be filed an instrument evidencing the cancellation of the Certificate of
Formation of the Company pursuant to (S)18-203 of the Delaware Act.
10.4 Merger of Company into Another Entity.
-------------------------------------
The merger of the Company into another entity, which may or may not be
another limited liability company, shall occur upon the affirmative vote of the
Managing Member and of a Majority in Interest of the Capital Investment Members
and a Majority in Interest of the Profit Members, and in any case shall not be
deemed a dissolution under this ARTICLE X.
11.
DEFINITIONS
-----------
As used herein, the following terms have the following meanings:
Accredited Investor: An investor which qualifies as an "accredited
-------------------
investor" as defined in Regulation (S)230.501 of Regulation D promulgated under
the Securities Act.
Adjusted Capital Account Deficit: A Capital Member's deficit Capital
--------------------------------
Account balance as determined by (i) crediting to such Member's Capital Account
all amounts which such Member is obligated to restore to his Capital Account or
is deemed to be obligated to restore to his Capital Account pursuant to either
or both of the penultimate sentences of Sections 1.704-lT(b)(4)(iv)(f) and
1.704-lT(b)(4)(iv)(h)(5) of the Treasury Regulations and (ii) debiting to such
Member's Capital Account the items described in Sections 1.704-
1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations.
Advisory Committee: As defined in Section 5.5.
------------------
Affiliate: Any person or entity that directly or indirectly controls, is
---------
controlled by, or is under common control with, the person or entity in
question, provided however, that "Affiliate" for the purposes of ARTICLE VIII
shall mean any person performing services on behalf of the Company who:
57
(1) directly or indirectly controls, is controlled by, or is under common
control with the Managing Member; or
(2) who owns or controls 10% or more of the outstanding voting securities
of the Managing Member; or
(3) is an officer, director, partner, member, manager or trustee of the
Managing Member or of the Parent or of an Affiliate of the member, manager,
or
(4) if the Managing Member is an officer, director, partner, member,
manager or trustee, is any company for which the Managing Member acts in
any such capacity.
Agreement: This Limited Liability Company Agreement.
---------
Announcement Date: The date on which the Change of Control is publicly
-----------------
announced or the date on which information regarding the same is disseminated to
the public generally, whichever occurs first.
Appraiser: As defined in Section 3.4(b).
---------
Assignee: As defined in Section 7.4.
--------
Benefit Plan Investor: As defined in Section 7.5.
---------------------
Break-up Fee: Any fee, reimbursement or other form of compensation in the
------------
nature of a topping, no-go, commitment or break-up or other arrangement payable
by a third party as a result of the failure to consummate a proposed investment
in a Portfolio Security.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday which
------------
is not a day on which banking institutions in Boston, Massachusetts, are
authorized or obligated by law to close.
Call Notices: As defined in Section 2.2.
------------
Capital Account: As defined in Section 2.3.
---------------
Capital Commitment: As defined in Section 2.1.
------------------
Capital Contribution: As defined in Section 2.2.
--------------------
Capital Investment Members: As defined in the recitals and in Exhibit A.
--------------------------
58
Capital Member Loss: The amount of $4,000,000 plus Net Operating Losses
-------------------
and Net Realized Capital Losses allocated to the Capital Members' Capital
Accounts as provided in Sections 2.5 and 2.6.
Capital Members: As defined in the recitals and in Exhibit A.
---------------
Capital Members' Allocation: That portion of the Net Operating Profits,
---------------------------
Net Operating Losses, Net Realized Capital Gains and Net Realized Capital Losses
allocated to the Capital Investment Members as provided in Sections 2.5 and 2.6.
Capital Proceeds: The net proceeds from sales or other dispositions of
----------------
Portfolio Securities, including liquidating and other like distributions on
Portfolio Securities.
Carried Interest: As defined in Section 3.2.
----------------
Cash Flow: For any Fiscal Year, the aggregate cash receipts of the Company
---------
for such Fiscal Year (including receipts by, on behalf of or for the benefit
of the Company or the Members) other than receipts of Capital Contributions from
the Members, receipts arising from sales or other dispositions of Portfolio
Securities and liquidating and other like distributions on Portfolio Securities.
Cause: As defined in Section 3.3(b).
-----
Change of Control: As defined in Section 3.4(f).
-----------------
Change of Control Repurchase Price Per Unit. As defined in Section 3.4(a).
-------------------------------------------
Code: The Internal Revenue Code of 1986, as amended.
----
Commitment Period: The period from the date hereof up to and including
-----------------
April 13, 2010, unless extended by the Managing Member as provided in Section
1.5 and ARTICLE X or unless terminated earlier as provided therein and in
Section 2.9.
Common Stock: The common stock, par value $.01, of the Parent.
------------
Common Stock Price: The average of the twenty (20) highest last sale prices
------------------
with respect to the Common Stock during the three-month period preceding the
Announcement Date on the National Association of Securities Dealers, Inc.
Automated Quotations (NASDAQ) System, or, if the Common Stock is not listed on
NASDAQ, then the average of the twenty (20) highest last sale prices with
respect to the Common Stock during the three-month period preceding the
Announcement Date on the principal United States securities exchange registered
under the Exchange Act on which the Common Stock is listed.
59
Company: As defined in the recitals.
-------
Consultants: As defined in Section 5.2(f).
-----------
Date of Default: As defined in Section 2.10.
---------------
Defaulting Capital Investment Member: As defined in Section 2.10.
------------------------------------
Delaware Act: The Delaware Limited Liability Company Act, as amended,
------------
6 Del. C. (S)18-101, et seq. or any successor to such act.
------
Dissolution Sale: Sales and liquidations by or on behalf of the Company of
----------------
all or substantially all of its assets in connection with or in contemplation of
the winding up of the Company.
Due Date: As defined in Section 2.2.
--------
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
-----
Exchange Act: As defined in Section 3.4.
------------
Excused Investment: As defined in Section 2.11.
------------------
Excused Member: As defined in Section 2.11.
--------------
Fair Market Value: The value of Company assets and, when the reference so
-----------------
requires, of Portfolio Securities, determined as provided in Section 4.8.
Fair Market Value of the Company. As defined in Section 3.4.
--------------------------------
Final Distribution: The distribution described in Section 10.3(a).
------------------
Financial Institution: A bank, savings institution, trust company,
---------------------
insurance company, pension or profit sharing trust, or similar entity which is a
member of any group of such persons, having assets of at least $100,000,000, or
other entity (other than an individual) a substantial part of whose business
consists of investing in, purchasing or selling the securities of others.
Fiscal Year: The fiscal year ending on the last day of July in any year.
-----------
In the case of the first and last fiscal years, the fraction thereof commencing
on the date on which the Company is formed or ending on the date on which the
winding up of the Company is completed, as the case may be.
60
Follow-On Investments: An Investment in a Portfolio Company following a
---------------------
prior Investment in that company.
Former Profit Member: As defined in Section 3.2 and in Exhibit A.
--------------------
Holding Companies: As defined in Section 1.7(a).
-----------------
Indemnitees: As defined in Section 8.3.
-----------
Initial Election: As defined in Section 3.4(a).
----------------
Investments: As defined in Section 1.7.
-----------
Investment Company Act: The Investment Company Act of 1940, as amended.
----------------------
Liabilities: As defined in Section 8.3.
-----------
Maintenance Expenses: As defined in Section 5.4(a).
--------------------
Majority in Interest of the Capital Investment Members: At any time, those
------------------------------------------------------
Capital Investment Members whose aggregate Percentages in Interest exceed 50%.
Majority in Interest of the Profit Members: At any time, those Profit
------------------------------------------
Members whose aggregate Carried Interests exceed 50%.
Managing Member: As defined in the recitals and in Exhibit A.
---------------
Managing Member Loss: As of the end of any Fiscal Year, the excess of
--------------------
any Net Realized Capital Losses and/or Net Operating Losses allocated to the
Managing Member pursuant to Section 2.5(b)(ii) and Section 2.6(b)(ii).
Marketable Securities: Securities that are traded on a national securities
---------------------
exchange, reported through the National Association of Securities Dealers
Automated Quotation System or traded over-the-counter.
Material Adverse Effect: As defined in Section 2.11(d).
-----------------------
Members: As defined in the recitals.
-------
Net Operating Losses: With respect to any period, shall mean the excess of
--------------------
aggregate expenses incurred during (or attributable to) such period by the
Company and not by any Portfolio
61
Company or Investment (other than expenses directly relating or attributable to
the sale, purchase, exchange or distribution of Portfolio Securities) over the
aggregate income earned during such period by the Company from all sources
whatsoever (other than net gain from the sale, purchase, exchange or
distribution of Portfolio Securities), such Net Operating Losses to be computed
in accordance with applicable U.S. federal income tax accounting principles and
(to the extent possible) with generally accepted accounting principles.
Net Operating Profits: With respect to any period, shall mean the excess
---------------------
of aggregate income earned during (or attributable to) such period by the
Company (and not by any Portfolio Company or Investment) from all sources
whatsoever (other than net gain from the sale, purchase, exchange or
distribution of Portfolio Securities) over all expenses incurred during (or
attributable to) such period by the Company (other than expenses directly
relating or attributable to the sale, purchase, exchange or distribution of
Portfolio Securities), such Net Operating Profits to be computed in accordance
with applicable U.S. federal income tax accounting principles and (to the extent
possible) with generally accepted accounting principles.
Net Realized Capital Gains: For any period shall mean the excess of gains,
--------------------------
determined in accordance with U.S. federal income tax principles, on any sales
or other dispositions of Portfolio Securities for such Fiscal Year over the
losses, determined in accordance with federal income tax principles, on any
sales or other dispositions of Portfolio Securities for such Fiscal Year.
Notwithstanding the foregoing, for purposes of this definition, gains and losses
with respect to Portfolio Securities reflected on the Company's books at values
that differ from their adjusted tax bases as a result of the application of
Section 2.3(b) shall be measured by the differences between the amounts realized
upon sales or other dispositions of such Portfolio Securities and the book
values of such Portfolio Securities.
Net Realized Capital Losses: For any period shall mean the excess of
---------------------------
losses, determined in accordance with U.S. federal income tax principles, on any
sales or other dispositions of Portfolio Securities for such Fiscal Year over
the gains, determined in accordance with federal income tax principles, on any
sales or other dispositions of Portfolio Securities for such Fiscal Year.
Notwithstanding the foregoing, for purposes of this definition, gains and losses
with respect to Portfolio Securities reflected on the Company's books at values
that differ from their adjusted tax bases as a result of the application of
Section 2.3(b) shall be measured by the differences between the amounts realized
upon sales or other dispositions of such Portfolio Securities and the book
values of such Portfolio Securities.
Non-Competition Covenant: As defined in Section 3.3(b)(iii) and as set
------------------------
forth in Section 3.5.
Non-Defaulting Capital Investment Members: As defined in Section 2.10.
-----------------------------------------
Notice Members: As defined in Section 12.12.
--------------
62
Offered Shares: As defined in Section 4.5(c).
--------------
Parent: CMG Information Services, Inc., a Delaware corporation.
------
Percentage in Interest: In the case of each Capital Member, the Capital
----------------------
Contribution of such Member divided by the sum of the Capital Contributions of
all Capital Members.
Plan Participant: As defined in Section 12.13.
----------------
Portfolio Companies: As defined in Section 1.7.
-------------------
Prime Rate: The rate of interest announced by The First National Bank of
----------
Boston from time to time as its Prime Rate.
Profit Account: As defined in Section 3.7.
--------------
Profit Members: As defined in the recitals and in Section 3.1 and
--------------
Exhibit A.
Profit Members Carried Interest Allocation: That portion of the Net
------------------------------------------
Operating Profits, Net Operating Losses, Net Realized Capital Gains and Net
Realized Capital Losses allocated to the Profit Members as provided in Sections
2.5 and 2.6.
Profit Member Loss: Net Operating Losses and Net Realized Capital Losses
------------------
allocated to the Profit Members' Capital Accounts as provided in Sections 2.5
and 2.6.
Portfolio Securities: Securities of Portfolio Companies described in
--------------------
Section 1.7 owned by the Company or by the Managing Member.
Recovered Capital: Any distribution of capital to the Capital Members
-----------------
pursuant to Section 4.4(h).
Regulatory Allocations: As defined in Section 2.7(d).
----------------------
Return of Capital: Any return of capital pursuant to Section 2.2.
-----------------
Right of First Refusal: As defined in Section 4.5(c).
----------------------
Securities: As defined in Section 1.7(a).
----------
Securities Act: The Securities Act of 1933, as amended from time to time.
--------------
63
Special Fees: Transaction fees payable to the Company pursuant to Section
------------
5.4(c) and any other fee or reimbursement payable to the Company as income for
services or otherwise (including the fees referred to in Section 5.4).
Substitute Capital Investment Member: A purchaser, assignee or transferee
------------------------------------
of a Capital Member's interest in the Company that is admitted to the Company as
a Capital Member pursuant to Section 7.4 and shown as a Capital Member on the
books and records of the Company.
Tax Matters Partner: As defined in Section 12.12.
-------------------
Temporary Investments:
---------------------
(i) Investments in direct obligations of the United States of
America, or obligations of any instrumentality or agency thereof, payment
of principal and interest of which is unconditionally guaranteed by the
United States of America, having a final maturity of not more than 180 days
from the date of issue thereof;
(ii) Investments in certificates of deposit or repurchase agreements
having a final maturity not more than 180 days from the date of acquisition
thereof issued by any bank or trust company organized under the laws of the
United States of America or any state thereof having capital and surplus of
at least $100,000,000;
(iii) investments in money market funds; and
(iv) commercial paper payable on demand or having a final maturity
not more than 180 days from the date of acquisition thereof which has the
highest credit rating of either Standard & Poor's Corporation or Moody's
Investors Service, Inc.
Treasury Regulations: The Income Tax Regulations (final or temporary)
--------------------
promulgated under the Code. References to specific sections of the Treasury
Regulations shall be to such sections as amended, supplemented or superseded by
Treasury Regulations currently in effect.
Units: As defined in Section 3.2.
-----
Unrecovered Capital: All amounts in the Capital Accounts of the Capital
-------------------
Members up to the amount of their Capital Contributions, less any Returns of
Capital and less any distributions of Unrecovered Capital previously made to the
Capital Members pursuant to Section 4.4(h).
Unvested Units: As defined in Section 3.2.
--------------
Vested Units: As defined in Section 3.2.
------------
64
12.
MISCELLANEOUS
-------------
12.1 Registration of Securities.
--------------------------
Stocks, bonds, securities and other property owned by the Company shall be
registered in the Company name or a "street name." Any corporation or transfer
agent called upon to transfer any stocks, bonds and securities to or from the
name of the Company shall be entitled to rely on instructions or assignments
signed or purporting to be signed by the Managing Member without inquiry as to
the authority of the person signing or purporting to sign such instructions or
assignments or as to the validity of any transfer to or from the name of the
Company. At the time of transfer, the corporation or transfer agent is entitled
to assume (i) that the Company is still in existence and (ii) that this
Agreement is in full force and effect and has not been amended unless the
corporation or transfer agent has received written notice to the contrary.
12.2 Entire Agreement.
----------------
This Agreement and Exhibit A attached hereto set forth the full and
complete agreement of the Members with respect to the subject matter hereof and
supersede any prior agreement or undertaking among the parties.
12.3 Amendments.
----------
This Agreement may be modified from time to time by the Managing Member and
a Majority in Interest of the Capital Investment Members and a Majority in
Interest of the Profit Members; provided, however, that amendments which do not
adversely affect the Capital Investment Members or the Profit Members or the
Company may be made to this Agreement and the certificate of limited company for
the Company, from time to time, by the Managing Member, without the approval of
any of the Capital Investment Members or any of the Profit Members, (i) to add
to the representations, duties or obligations of the Managing Member, or to
surrender any right granted to the Managing Member herein, (ii) to cure any
ambiguity, or to correct or supplement any immaterial provision herein or in the
certificate of limited company for the Company which may be inconsistent with
any other provision herein or therein, or correct any printing, stenographic or
clerical errors or omissions which will not be inconsistent with the provisions
of this Agreement or the status of the Company as a partnership for federal
income tax purposes, or to clarify any tax or accounting treatment, and (iii) to
make any amendment or change which is for the benefit of, or
65
not adverse to the interests of, the Capital Investment Members or of the Profit
Members. No amendment may be made to any provision of this Agreement which
contemplates action by a vote or consent of greater than a Majority in Interest
of the Capital Investment Members or of the Profit Members without a vote or
consent of such greater majority as therein specified in each case. In addition,
this Agreement may be amended by the Managing Member without the consent of any
other Member in order to conform to any safe harbor provisions of the Code and
Treasury Regulations which would preserve the substantial economic effect of the
allocation of profits and losses set forth in ARTICLE II and ARTICLE III,
provided that no such amendment shall materially decrease the amount or defer
the timing of any distribution, including distributions payable upon
liquidation, that the Capital Investment Members or Profit Members would
otherwise be entitled to pursuant to this Agreement. Changes to Exhibit A to
reflect the addition and deletion of Capital Investment Members or Profit
Members and changes in the addresses of Capital Investment Members or Profit
Members shall not be deemed amendments to this Agreement. The Managing Member
shall promptly furnish the Capital Investment Members and the Profit Members
with copies of each amendment to this Agreement.
12.4 Severability.
------------
If any provision of this Agreement, or the application of such provision to
any person or circumstance, shall be held invalid, the remainder of this
Agreement or the application of such provision to other persons or circumstances
shall not be affected thereby. Any default hereunder by a Capital Investment
Member shall not excuse a default by any other Capital Investment Member.
12.5 Notices.
-------
All notices, requests, demands and other communications shall be in writing
and shall be deemed to have been duly given if personally delivered or sent by
United States mail, by facsimile if transmission is mechanically confirmed, or
by telegram or telex confirmed by letter, if to the Members, at the addresses
set forth on Exhibit A attached hereto, and if to the Company, to the Managing
Member at its address set forth in Exhibit A, or to such other address as any
Member shall have last designated by notice to the Company and the other
Members, or as the Managing Member shall have last designated by notice to the
Capital Investment Members and Profit Members, as the case may be. Any notice
shall be deemed received, unless earlier received, (i) if sent by certified or
registered mail, return receipt requested, when actually received, (ii) if sent
by overnight mail, when actually received, (iii) if sent by telegram or telex or
facsimile transmission, on the date sent provided confirmatory notice is sent by
first-class mail, postage prepaid, and (iv) if delivered by hand, on the date of
receipt.
12.6 Heirs and Assigns; Execution.
----------------------------
66
This Agreement (a) shall be binding on the executors, administrators,
estates, heirs, legal representatives, successors, and assigns of the Members
and (b) may be executed in more than one counterpart with the same effect as if
the parties executing the several counterparts had all executed one counterpart;
provided, however, that each separate counterpart shall have been executed by
the Managing Member and that the several counterparts, in the aggregate, shall
have been signed by all of the Members.
12.7 Waiver of Partition.
-------------------
Except as may be otherwise provided by law in connection with the
dissolution, winding-up, and liquidation of the Company, each Member hereby
irrevocably waives any and all rights that it may have to maintain an action for
partition of any of the Company's property.
12.8 Power of Attorney.
-----------------
Upon the request to the Managing Member, each Capital Investment Member
shall execute a Power of Attorney in form satisfactory to the Managing Member
granting the Managing Member authority to act on its behalf hereunder.
12.9 Headings.
--------
The Section headings in this Agreement are for convenience of reference
only, and shall not be deemed to alter or affect the meaning or interpretation
of any provisions hereof.
12.10 Further Actions.
---------------
Each Member shall execute and deliver such other certificates, agreements
and documents, and take such other actions, as may reasonably be requested by
the Managing Member in connection with the formation of the Company and the
achievement of its purposes, including, without limitation, (a) any documents
that the Managing Member deems necessary or appropriate to form, qualify, or
continue the Company as a limited company in all jurisdictions in which the
Company conducts or plans to conduct business and (b) all such agreements,
certificates, tax statements and other documents as may be required to be filed
in respect of the Company.
12.11 Gender, Etc.
------------
67
Whenever the context permits, the use of a particular gender shall include
the masculine, feminine and neuter genders, and any reference to the singular or
the plural shall be interchangeable with the other.
12.12 Tax Matters Partner.
-------------------
The Managing Member shall be designated as the "Tax Matters Partner" in
accordance with Section 6231 of the Code and shall promptly notify the other
Members if any tax return or report of the Company is audited or if any
adjustments are proposed. In addition, the Managing Member shall promptly
furnish to the Members all notices concerning administrative or judicial
proceedings relating to federal income tax matters as required under the Code
and shall supply such information to the Internal Revenue Service as may be
necessary to identify the Members as "Notice Members" under Section 6231 of the
Code. During the pendency of any administrative or judicial proceeding, the
Managing Member shall furnish to the Members periodic reports concerning the
status of any such proceeding. Without the consent of a Majority in Interest of
the Members, the Managing Member shall not extend the statute of limitations,
file a request for administrative adjustment or enter into any settlement
agreement relating to any Company item of income, gain, loss, deduction or
credit for any fiscal year of the Company.
12.13 Certain ERISA Matters.
---------------------
If this Agreement is executed and delivered on behalf of a Benefit Plan
Investor, or on behalf of an entity whose assets include the assets of an
employee benefit plan (such plan or entity to be referred to hereinafter as a
"Plan Participant"), the Plan Participant shall be identified as such on Exhibit
A hereto and shall represent and warrant, based upon the accuracy of the list of
Capital Members to be provided by the Managing Member, that the acquisition of a
Membership interest by such Plan Participant does not constitute a prohibited
transaction within the meaning of Section 4975 of the Code. The Managing Member
represents that: either (a), to the best knowledge of the Managing Member, after
due inquiry, less than 25% of the value of any class of the equity interests in
the Company is held by Benefit Plan Investors or (b) the Managing Member shall
obtain an opinion of counsel reasonably satisfactory to such Plan Participant to
the effect that the underlying assets of the Company are not "plan assets" (as
that term is defined in 29 C.F.R. (S)510.3-101). Each Capital Member may rely
upon said representation until the earliest to occur of: (i) its withdrawal from
the Company, (ii) the dissolution of Company, (iii) the Managing Member's
notifying the undersigned that such representation may no longer be relied upon
or (iv) the Capital Member's obtaining actual knowledge that such representation
is no longer accurate. The inaccuracy of such representation shall (without
precluding the exercise of any other remedies available to such Capital Member)
constitute a Material Adverse Effect for purposes of Section 2.11. The Managing
Member will use its best efforts to discharge its responsibilities and to
exercise its authority under the Limited Liability Company Agreement in such a
manner that the assets of
68
the Company will not be characterized as "plan assets." The Managing Member will
notify the Capital Members as soon as practicable if 20% or more of the value of
the equity interests in the Company is held by Benefit Plan Investors.
12.14 Applicable Law.
--------------
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware as applied between residents of
that state entering into contracts wholly to be performed in that state.
Section 12.15 Counterparts.
------------
This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
69
IN WITNESS WHEREOF, the parties to this Agreement have executed the same
as of the date first above set forth.
MANAGING MEMBER:
CMG@VENTURES, INC.
By:
----------------------------
John A. McMullen, Director
CAPITAL INVESTMENT MEMBER:
CMG@VENTURES CAPITAL CORP.
By:
----------------------------
John A. McMullen, Director
70
PROFIT MEMBERS:
-----------------------------------
David S. Wetherell
-----------------------------------
Guy M. Bradley
-----------------------------------
Peter H. Mills
-----------------------------------
Andrew J. Hajducky III
-----------------------------------
Jonathan Callaghan
Acknowledged and agreed to
with respect to Section 3.4:
CMG INFORMATION SERVICES, INC.
By:
----------------------------
John A. McMullen, Director
LLC3
71
EXHIBIT A
---------
PERCENTAGE CAPITAL
---------- -------
MANAGING MEMBER: IN INTEREST: COMMITMENT:
- --------------- ----------- ----------
CMG@Ventures, Inc. 1% $220,000
100 Brickstone Square
1st Floor
Andover, MA 01810
CAPITAL INVESTMENT MEMBER:
- -------------------------
CMG@Ventures Capital Corp. 99% $21,780,000
100 Brickstone Square
1st Floor
Andover, MA 01810
PROFIT MEMBERS: DATE OF HIRE: NO. OF UNITS(1): NO. OF UNITS(2):
- -------------- ------------ --------------- ---------------
David S. Wetherell 01/30/95 8,581 8,581
30 Kittredge Road
North Andover, MA 01845
Guy M. Bradley 01/30/95 3,000 3,000
10 White Pine Knoll Road
Wayland, MA 01778
Peter H. Mills 03/31/95 8,581 8,581
810 University Drive
Menlo Park, CA 94025
Andrew J. Hajducky 10/01/95 500 500
48 Edward Drive
Winchester, MA 01890
Jonathan Callaghan 05/02/97 -- 500
1654 Massachusetts Avenue
Apt. 41
Cambridge, MA 02138
72
FORMER PROFIT MEMBERS: DATE OF HIRE: NO. OF UNITS(1): NO. OF UNITS(2):
- --------------------- ------------ --------------- ---------------
Daniel J. Nova (3) 900 900
114 Coachman's Lane
North Andover, MA 01845
Jerry D. Colonna (3) 938 938
Two Litchfield Drive
Port Washington, NY 11050
(1) Relates to all investments.
(2) Relates only to investments in Blaxxun Interactive, Ikonic Interactive,
GeoCities, Vicinity and Parable.
(3) The number of units shown are fully vested without regard to date of hire.
73
Exhibit 10.37
WARRANT PURCHASE AGREEMENT
by and among
SALESLINK CORPORATION
and
BANKBOSTON, N.A.
dated as of October 24, 1996
- --------------------------------------------------------------------------------
WARRANT PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
Table of Contents
Page
I. CERTAIN DEFINED TERMS..................................................
II. AUTHORIZATION OF WARRANT..............................................
(S)2.1 Capitalization of Company....................................
(S)2.2 Authorization of Warrants....................................
(S)2.3 Other Definitions............................................
III. SALE AND PURCHASE OF WARRANT AT CLOSING..............................
(S)3.1 Sale and Purchase of Warrant.................................
(S)3.2 Acknowledgments of the Company and the Banks.................
(S)3.3 Closing Conditions...........................................
IV. THE CLOSING...........................................................
V. ADDITIONAL REPRESENTATIONS OF COMPANY..................................
VI. REPRESENTATIONS OF THE INVESTORS......................................
VII. COVENANTS OF COMPANY.................................................
(S)7.1 Records and Accounts.........................................
(S)7.2 Financial Statements, Certificates and Information...........
(S)7.3 Notice of Litigation and Judgments...........................
(S)7.4 Inspection; Visitation Rights................................
(S)7.5 Issuance of Preferred Capital Stock, etc.....................
(S)7.6 Amendments to Charter Documents; etc.........................
VIII. REGISTRATION RIGHTS.................................................
(S)8.1 Piggyback Registrations......................................
(S)8.2 Lockup Agreements............................................
(S)8.3 Registration Procedures......................................
(S)8.4 Cooperation by Prospective Sellers, etc......................
(S)8.5 Registration Expenses........................................
(S)8.6 Indemnification..............................................
(S)8.7 Rule 144 Requirements; Form S-3..............................
(S)8.8 Participation in Underwritten Registrations..................
Page
(S)8.9 No Inconsistent Agreements.................................
(S)8.10 Registrable Securities Held by the Company.................
(S)8.11 Term.......................................................
IX. GRANT OF PREEMPTIVE RIGHTS............................................
(S)9.1 Preemptive Rights..........................................
(S)9.2 No Inconsistent Agreements.................................
(S)9.3 Termination of Preemptive Rights...........................
X. CALL AND PUT OPTIONS...................................................
(S)10.1 Right to Put Securities....................................
(S)10.2 Put Closing................................................
(S)10.3 Right to Call Securities; Call Closing.....................
(S)10.4 Payment....................................................
(S)10.5 Repurchase Price for Securities............................
(S)10.6 Additional Payments Upon Merger, Etc.......................
(S)10.7 Repurchase Upon Certain Transactions.......................
XI. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION..........................
(S)11.1 Survival of Representations................................
(S)11.2 Indemnification for Misrepresentations.....................
(S)11.3 Expenses...................................................
XII. MISCELLANEOUS........................................................
(S)12.1 Notices....................................................
(S)12.2 Governing Law..............................................
(S)12.3 Amendments and Waivers.....................................
(S)12.4 Proportional Adjustments...................................
(S)12.5 Integration................................................
(S)12.6 Rights and Obligations Several.............................
(S)12.7 No Waiver; Cumulative Remedies.............................
(S)12.8 Entire Agreement...........................................
(S)12.9 Severability...............................................
(S)12.10 Binding Effect.............................................
(S)12.11 Counterparts...............................................
Schedules
Schedule 1 - Shareholders
Exhibits
Exhibit A - Form of Common Stock Warrant
SALESLINK CORPORATION
25 Drydock Avenue
Boston, Massachusetts 02210
WARRANT PURCHASE AGREEMENT
BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02110
Dated as of: October 24, 1996
Ladies and Gentlemen:
The undersigned, SalesLink Corporation, a Delaware corporation
(hereinafter, together with its successors in title and assigns, the "Company"),
proposes to issue and sell to BankBoston, N.A. (formerly known as The First
National Bank of Boston), a national banking association (hereinafter, together
with its successors in title and assigns, the "Bank"), a Common Stock Purchase
Warrant of the Company in the form of Exhibit A hereto, all being on the terms
and subject to the conditions contained in this Agreement.
Accordingly, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINED TERMS
As used herein, the following terms shall have the respective meanings
assigned to them in this Article I:
"Bank" shall have the meaning ascribed to that term in the preamble
hereto.
"Certificate of Incorporation" shall have the meaning ascribed to that
term in (S)2.1(a) hereof.
"Closing" shall have the meaning ascribed to that term in Article IV
hereof.
"Closing Date" means the date of the Closing.
"CMG" means CMG Information Services, Inc., a Delaware corporation.
-2-
"CMG Entity" means CMG and its successors, assigns and transferees, but
shall exclude any Person who purchased any shares of the capital stock of the
Company from CMG or its successors, assigns and transferees in an arms-length
transaction for fair and valuable consideration.
"CMG Shares" means, in relation to any CMG Entity at any particular date,
(a) all shares of Common Stock or Preferred Capital Stock, as the case may be,
held of record by such Investor on such date, and (b) all shares of Common Stock
or Preferred Capital Stock, as the case may be, issuable by the Company to such
CMG Entity upon conversion of or in exchange for or upon exercise of rights
under all other capital stock or other securities (including any warrants and
options) of the Company held of record by such CMG Entity on such date; and, in
this Agreement, each CMG Entity shall be deemed to hold of record on any
particular date the total number of shares of Common Stock or Preferred Capital
Stock, as the case may be, issuable by the Company upon conversion of or in
exchange for or upon exercise of rights under all capital stock or other
securities (including any other warrants or options) of the Company then held of
record by such CMG Entity.
"Commission" means the Securities and Exchange Commission.
"Common Stock" shall have the meaning ascribed to that term in (S)2.1(a)
hereof.
"Company" shall have the meaning ascribed to that term in the preamble
hereto.
"Covenant Termination Date" means the date on which the Company shall
complete and close in all material respects the Qualified Public Offering.
"Credit Agreement" shall have the meaning ascribed to that term in
Article V hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any federal statute or code which is a successor thereto.
"Form S-1,"Form S-3" and "Form S-8" means the forms so designated and
promulgated by the Commission for registration of securities under the
Securities Act, and any forms succeeding to the functions of such forms, whether
or not bearing the same designation.
"generally accepted accounting principles" shall have the meaning
ascribed to that term in the Credit Agreement.
"Holders" means, collectively, all Investors, including all Permitted
Transferees of Investors; and the term "Holder" shall mean any one of the
Holders.
"Indemnified Party" shall have the meaning ascribed to that term in
(S)8.6(c) hereof.
"Indemnifying Party" shall have the meaning ascribed to that term in
(S)8.6(c) hereof.
"Initial Public Offering" means in relation to the Company, the first
public offering pursuant to an effective Registration Statement under the
Securities Act covering the offer and sale of shares of Common Stock whether or
not such Initial Public Offering is a Qualified Public Offering.
"Investor Consent" means, at any particular date, the consent, approval
or vote of the Majority Investors.
-3-
"Investors" means, collectively, (a) the Bank so long as the Bank shall
continue to own and hold of record any of the Securities, (b) each Permitted
Transferee of the Bank so long as such Permitted Transferee shall continue to
own and hold of record any of the Securities, and provided such Permitted
Transferee made the representations and warranties contained in Article VI to
the Company at the time it obtained ownership of any of the Securities, and (c)
each Permitted Transferee of any other Investor so long as such Permitted
Transferee shall continue to own and hold of record any of the Securities.
"Investor Shares" means, in relation to any Investor at any particular
date, (a) all shares of Common Stock or Preferred Capital Stock, as the case may
be, held of record by such Investor on such date, and (b) all shares of Common
Stock or Preferred Capital Stock, as the case may be, issuable by the Company to
such Investor upon conversion of or in exchange for or upon exercise of rights
under all other capital stock or other securities (including the Warrants and
any other warrants and options) of the Company held of record by such Investor
on such date; and, in this Agreement, each Investor shall be deemed to hold of
record on any particular date the total number of shares of Common Stock or
Preferred Capital Stock, as the case may be, issuable by the Company upon
conversion of or in exchange for or upon exercise of rights under all capital
stock or other securities (including the Warrants and any other warrants or
options) of the Company then held of record by such Investor.
"Majority Investors" means, in relation to the Investors at any
particular date, Investors holding of record or deemed to be holding of record,
at such date, at least fifty-one percent (51%) of the total number of all
Investor Shares then held or deemed held of record by all Investors on such
date.
"NASDAQ" means the National Association of Securities Dealers automated
quotation system.
"Permitted Transferee" means, in relation to any particular Investor:
(a) any affiliate or limited or general partner of such Investor;
(b) any other Investor or any affiliate thereof;
(c) any Person who shall acquire Securities from such Investor or from
any Permitted Transferees thereof in a transaction not involving any public
offering and not in violation or in contravention of the terms of Article
VI hereof;
(d) any Person who shall acquire Securities from such Investor in
connection with any distribution of such Securities by such Investor to the
beneficial owners (including, without limitation, the general partners and
the limited partners of a general or limited partnership, the shareholders
of a corporation and the beneficiaries of a trust) of any securities or
other equity or ownership interests of such Investor;
(e) in the case of any Investor or any Permitted Transferee thereof
which is not a natural Person, any Person who shall acquire (whether by
operation of law or otherwise) all or any substantial part of the assets of
such Investor or Permitted Transferee; or
-4-
(f) in the case of any Investor or any Permitted Transferee thereof
who is a natural Person, any executor, administrator, heir or legatee of
such Investor or Permitted Transferee.
"Person" means an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Piggyback Registration" shall have the meaning ascribed to that term in
(S)8.1(a) hereof.
"Preferred Capital Stock" shall have the meaning ascribed to that term in
(S)7.4(b) hereof.
"Prospectus" means the prospectus included in any Registration Statement,
as amended or supplemented by any Prospectus supplement with respect to the
terms of the offering of any portion of the Registrable Securities covered by
such Registration Statement and all other amendments and supplements to the
prospectus, including post-effective amendments, and all material incorporated
by reference in such prospectus.
"Qualified Public Offering" means, in relation to the Company, the first
underwritten public offering pursuant to an effective Registration Statement
under the Securities Act covering the offer and sale of shares of Common Stock
in which (a) not less than $15,000,000 of gross proceeds from such public
offering shall be received by the Company for the account of the Company; (b)
the public offering price per share of Common Stock in such public offering
shall equal or exceed $5.00 per share (proportionally adjusted as provided in
(S)12.4 hereof); and (c) each of the underwriters participating in such public
offering shall be obligated to buy on a "firm commitment" basis all shares of
Common Stock which such underwriters shall have agreed to distribute.
"register, registered and registration" refers to a registration effected
by preparing and filing a Registration Statement in compliance with the
Securities Act and the declaration or ordering by the Commission of
effectiveness of such Registration Statement.
"Registrable Securities" means, in relation to the Holders at any
particular time: (a) all shares of Common Stock issuable upon conversion of or
in exchange for or upon exercise of rights under any capital stock or other
securities (including, without limitation, options and warrants) of the Company
held of record by Holders at such time; and (b) all shares of Common Stock held
of record at such time by Holders.
"Registration Expenses" shall have the meaning ascribed to that term in
(S)8.5(a) hereof.
"Registration Statement" means any Registration Statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.
"Requirement of Law" means, in respect of any person or entity, any law,
treaty, rule, regulation or determination of an arbitrator, court or other
governmental authority, in each case applicable to or binding upon such person
or entity or affecting any of its property.
"Rule 144" means Rule 144 issued by the Commission under the Securities
Act, or any subsequent rule pertaining to the disposition of securities without
registration.
-5-
"Securities" means the Warrant and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended, or any
federal statute or code which is a successor thereto.
"Special Sale Event" means any offer, sale, transfer, assignment or other
disposition by any CMG Entity of any of its shares of Common Stock in which the
consideration and/or value received by such CMG Entity is (a) not in the form of
cash, cash equivalents or for the settlement of any indebtedness (whether
contingent or otherwise) owing by such CMG Entity to the transferee (or its
affiliates); and (b) not directly retained by such CMG Entity but is instead
contributed directly to the Company.
"Subsidiary" means, in relation to the Company at any particular time, any
other corporation at least fifty percent (50%) of the outstanding voting shares
in the capital of which shall be owned or controlled (whether directly or
indirectly) by the Company and/or by any one or more of the Company's other
Subsidiaries.
"Underwriters' Maximum Number" shall mean in any registration effected
pursuant to (S)8.1 or 8.2 hereof which is an underwritten offering, the managing
underwriters shall give written notice to the Company and the Holders of
Registerable Securities to be included in such registration that, in the
reasonable opinion of such managing underwriters, marketing factors require a
limitation in the total number of securities to be underwritten.
"underwritten registration" or "underwritten offering" refers to any
registration in which securities of the Company are sold or to be sold pursuant
to a firm commitment underwriting.
"Warrant" shall have the meaning ascribed to that term in (S)2.2(a) hereof
and shall in any event include all other warrants delivered in exchange or in
substitution therefor.
"Warrant Shares" means the shares of Common Stock issuable upon exercise of
the Warrant.
ARTICLE II
AUTHORIZATION OF WARRANTS
The Company represents and warrants to the Bank as follows:
(S)2.1. Capitalization of Company.
(a) The authorized capital stock of the Company will, on and as of the
Closing Date, consist of: 12,000,000 shares of common stock, par value $0.01 per
share (the "Common Stock"). A description of the Common Stock and of the voting
powers, rights, & privileges thereof is stated in the Company's Certificate of
Incorporation (herein, the "Certificate of Incorporation").
(b) As of the Closing Date the Company's issued and outstanding
securities consist of 9,000,000 shares of Common Stock and the options referred
to in subsection 2.1(c). All of the shares
-6-
of Common Stock have been duly and validly issued, are presently outstanding and
are fully paid and non-assessable and are owned beneficially and of record by
CMG.
(c) As of the Closing Date the Company has not granted or issued
options, warrants or other rights to acquire any shares of Common Stock other
than options granted or to be granted exercisable for up to 2,000,000 shares of
Common Stock (in each case, not including the Warrant and other rights granted
herein).
(S)2.2. Authorization of Warrant.
(a) The Company will, prior to the Closing Date, duly and properly
authorize the issuance to the Bank of the Company's Common Stock Purchase
Warrant sold and purchased pursuant to this Agreement (the "Warrant") evidencing
rights to subscribe for and purchase from the Company shares of the Company's
Common Stock and shares of Common Stock issuable by the Company upon exercise of
the Warrant.
(b) The Warrant will be exercisable at a price, subject to adjustment as
therein provided, of $3.15 per Warrant Share. The Warrant will be in
substantially the form of Exhibit A annexed to this Agreement.
-7-
ARTICLE III
SALE AND PURCHASE OF
WARRANT AT CLOSING
(S)3.1. Sale and Purchase of Warrant. At the Closing hereunder, the
Company will issue and sell to the Bank, and, subject to the terms and
conditions hereof and in reliance upon the written representations and
warranties of the Company, the Bank will severally purchase from the Company,
for a total purchase price of one cent ($0.01), the Warrant to subscribe for and
purchase one hundred thousand (100,000) shares of Common Stock.
(S)3.2. Closing Conditions. The obligation of the Bank to purchase the
Warrant shall be subject to the satisfaction of the condition that the Warrant
shall have been duly authorized and issued to the Bank, shall be in full force
and effect and shall be in form and substance satisfactory to the Bank.
ARTICLE IV
THE CLOSING
The closing under this Agreement (the "Closing") will take place at 9:00
a.m., local time, on October 24, 1996, or at such other time and on such other
date as may be mutually agreed upon in writing by the Bank and the Company. At
the Closing, the Company will (among other things) deliver to the Bank the
Warrant purchased by the Bank hereunder, and the Bank will deliver to the
Company the total consideration payable by the Bank for the Warrant.
ARTICLE V
ADDITIONAL REPRESENTATIONS OF COMPANY
The Company hereby further represents and warrants to the Bank that all of
the representations and warranties set forth in (S)7 of the Revolving Credit and
Term Loan Agreement dated as of October 24, 1996, by and among the Company, the
Bank, CMG, Pacific Direct Marketing Corp., the other lending institutions party
thereto and the Agent (as defined therein) (herein, as modified or amended from
time to time, the "Credit Agreement") are true and correct on and as of the
Closing Date.
ARTICLE VI
REPRESENTATIONS OF THE INVESTORS
Each of the Investors represents and warrants to the Company that:
(a) Such Investor is purchasing the Warrant from the Company or another
Investor, as the case may be, in accordance with the terms hereof for such
Investor's own account without a view to any distribution thereof in violation
of the Securities Act, but, subject, nevertheless, to any requirement of law
that the disposition of such Investor's property shall at all times be within
such Investor's control. Such Investor has been informed and understands that
the Securities have not been
-8-
registered pursuant to the provisions of Section 5 of the Securities Act and
must be held indefinitely unless such Securities are subsequently registered
under the provisions of the Securities Act or an exemption from such
registration is available.
(b) Such Investor represents that it is an "accredited investor" within
the meaning of Rule 501(a) promulgated under the Securities Act.
(c) Each stock certificate or instrument representing or evidencing any
Securities shall bear a legend in or substantially in the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER, AND ARE SUBJECT TO, THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER
THE 1933 ACT OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE 1933
ACT.
THESE SECURITIES ARE SUBJECT TO CERTAIN RESTRICTIONS CONTAINED IN A WARRANT
PURCHASE AGREEMENT, DATED AS OF OCTOBER 24, 1996. THE COMPANY WILL FURNISH
A COPY OF SUCH AGREEMENT TO THE HOLDER OF THESE SECURITIES UPON WRITTEN
REQUEST."
ARTICLE VII
COVENANTS OF COMPANY
The Company hereby covenants with each of the Investors that, from the
Closing Date and until the Covenant Termination Date, except as otherwise
expressly permitted or provided, in any particular instance, by a written
Investor Consent:
(S)7.1. Records and Accounts. From the date which is ninety (90) days
prior to the exercise by the Bank or its Permitted Transferee of its rights
hereunder, the Company will (a) keep, and cause each of its Subsidiaries to
keep, true and accurate books of account in accordance with generally accepted
accounting principles and (b) maintain its corporate existence, business and
assets and comply with all Requirements of Law.
(S)7.2. Financial Statements, Certificates and Information. The Company
will deliver to each of the Investors:
(a) as soon as available, but in any event within ninety (90)
days after the close of each fiscal year of the Company, the
audited consolidated balance sheet of the Company and its
Subsidiaries and the audited consolidating balance sheet of the
Company and its Subsidiaries, each as at the end of such year, and
the related audited consolidated statement of income and audited
consolidated statement of cash flow and audited consolidating
statement of income and audited consolidating statement of cash
flow for such year, each setting forth in comparative form the
figures for the previous fiscal year and all such consolidated and
consolidating statements to be in reasonable detail, prepared in
accordance with generally accepted accounting principles, and
-9-
certified without qualification by a certified public accountant
of nationally recognized standing selected by the Company;
(b) as soon as available, but in any event within forty-five
(45) days after the end of each of the fiscal quarters of the
Company, copies of the unaudited consolidated balance sheet of the
Company and its Subsidiaries and the unaudited consolidating
balance sheet of the Company and its Subsidiaries, each as at the
end of such quarter, and the related consolidated statement of
income and consolidated statement of cash flow and consolidating
statement of income and consolidating statement of cash flow for
the portion of the Company's fiscal year then elapsed, all in
reasonable detail and prepared in accordance with generally
accepted accounting principles, together with a certification by
the principal financial or accounting officer of the Company that
the information contained in such financial statements fairly
presents the financial position of the Company and its
Subsidiaries on the date thereof (subject to year-end
adjustments);
(c) as soon as available, but in any event within thirty (30)
days after the end of each month in each fiscal year of the
Company, unaudited monthly consolidated financial statements of
the Company and its Subsidiaries for such month and unaudited
monthly consolidating financial statements of the Company and its
Subsidiaries for such month, each prepared in accordance with
generally accepted accounting principles, together with a
certification by the principal financial or accounting officer of
the Company that the information contained in such financial
statements fairly presents the financial condition of the Company
and its Subsidiaries on the date thereof (subject to year-end
adjustments);
(d) contemporaneously with the filing or mailing thereof,
copies of all material of a financial nature filed with the
Securities and Exchange Commission or sent to the stockholders of
the Company; and
(e) from time to time such other financial data and
information (including accountants' management letters) as any
Investor may reasonably request.
So long as the Credit Agreement remains in effect, the Company may satisfy
its obligations under this (S)7.2 by delivering to each Investor the information
which it is required to deliver to the Bank under the corresponding covenants
contained in the Credit Agreement at the times required by the Credit Agreement.
(S)7.3. Notice of Litigation and Judgments. The Company will, and will
cause each of its Subsidiaries to, promptly give notice to each of the Investors
in writing of any threatened or pending litigation or similar proceedings
affecting the Company or any of its Subsidiaries or any material change in any
such litigation or proceeding previously reported if such litigation or change
in any litigation or proceeding previously reported would have a material
adverse effect on the assets, business or financial condition of the Company and
its Subsidiaries, taken as a whole. So long as the Credit Agreement remains in
effect, the Company may satisfy its obligations under this (S)7.3 by delivering
to each Investor the information which it is required to deliver to the Bank
under the corresponding covenants contained in the Credit Agreement at the times
required by the Credit Agreement.
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(S)7.4. Issuance of Preferred Capital Stock, etc.
(a) Except (i) as otherwise expressly contemplated or required by Article
III and Article IV of this Agreement and (ii) except for issuances, sales or
grants of shares of Preferred Capital Stock to any CMG Entity in contemplation
of an acquisition, merger, other business combination, business affiliation or
joint venture where such CMG Entity will not be the holder of such Preferred
Capital Stock for more than ninety (90) days and the disposition thereof will
consititute a Special Sale Event, the Company will not at any time after the
Closing Date issue (whether by way of a dividend payment or otherwise), sell or
grant to any CMG Entity (i) any shares of Preferred Capital Stock or Common
Stock, (ii) any securities convertible into or exchangeable for or carrying any
rights to acquire any shares of Preferred Capital Stock or Common Stock, or
(iii) any options, warrants or any other rights to acquire any shares of
Preferred Capital Stock or Common Stock (collectively, the "Capital Stock
Issuance") unless the Company also grants to each of the Investors preemptive
rights to purchase a portion of such Capital Stock Issuance that the Company may
from time to time after the effective date hereof propose to issue, sell or
grant to any CMG Entity. The preemptive rights granted to each of the Investors
by this (S)7.4 shall be governed by and subject to all of the terms and
provisions contained in this (S)7.4.
(b) The term "Preferred Capital Stock" shall mean: any class or any
series of any class of the capital stock of the Company: (i) which shall be
entitled, upon any distribution of any assets of the Company, whether by
dividend or by liquidation or by redemption, to any preference ranking prior or
superior to the Common Stock; or (ii) which shall be entitled, upon any
redemption of any shares of such capital stock, whether at the option of the
Company, at the option of the holders thereof, or upon the happening of any
specified events, to any preference in redemption payments ranking prior or
superior to the Common Stock; or (iii) the holders of which shall be or may
become entitled, at any time or upon the happening of any specified events or
conditions, to more than one vote for each share of such capital stock held by
such holders; or (iv) which shall be convertible into, or exchangeable for,
whether at the option of the Company, at the option of the holders thereof, or
upon the happening of any specified events or conditions, any shares of
Preferred Capital Stock of any class or series.
(c) In the event (and on each occasion) that the Company shall decide to
undertake any Capital Stock Issuance to any CMG Entity, the Company will give to
each of the Investors written notice (an "Offer Notice") of the Company's
decision, describing the Capital Stock Issuance, the price (which shall be the
price to be paid by the CMG Entity), and the general terms upon which the
Company has decided to issue the Capital Stock Issuance. Each Investor shall
have thirty (30) days from the date on which the Company shall give the written
Offer Notice to the Investors (the "Offer Date") to agree to purchase its
Investor Percentage of such Capital Stock Issuance for the price and upon the
general terms specified in the Offer Notice, and in compliance with paragraphs
(e) and (f) of this (S)7.4, by giving written notice to the Company and stating
therein the quantity of the Investor Percentage of the Capital Stock Issuance to
be purchased by such Investor. If, in connection with such a proposed Capital
Stock Issuance, any Investor shall for any reason fail or refuse to give such
written notice to the Company within such period of thirty (30) days, such
Investor shall, for all purposes of this (S)7.4, be deemed to have refused (in
that particular instance only) to purchase any of such Capital Stock Issuance
and to have waived (in that particular instance only) all rights of such
Investor under this (S)7.4 to purchase any of such Capital Stock Issuance.
(d) In the event that any Investor shall fail or refuse to exercise its
rights of first refusal within said thirty (30) day period, the Company shall
have forty-five (45) days thereafter to sell the
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quantity of Capital Stock Issuance which such Investor did not agree to purchase
pursuant to paragraphs (e) and (f) of this (S)7.4, at a price and upon terms no
more favorable to the purchasers thereof than specified in the Company's Offer
Notice to each of the Investors. In the event the Company has not sold the
Capital Stock Issuance within said period of forty-five (45) days, the Company
will not thereafter issue or sell any Capital Stock Issuance to any CMG Entity
without first offering the applicable Investor Percentage of such securities to
each of the Investors in the manner provided by the foregoing provisions of this
(S)7.4.
(e) Unless each of the Investors shall otherwise agree in writing, the
Capital Stock Issuance to be issued by the Company on any particular occasion
shall be allocated among the Investors on the basis set forth below in this
paragraph (e) and in paragraph (f) of this (S)7.4. Each Investor shall be
entitled to purchase its Investor Percentage of any Capital Stock Issuance to be
issued by the Company to a CMG Entity at any time after the date hereof. As used
in this paragraph (e), in relation to any particular Investor and any CMG Entity
and any particular Capital Stock Issuance, the term "Investor Percentage" shall
mean the percentage obtained by dividing (X) the total number of Investor Shares
(or, in the case of any CMG Entity, any CMG Shares) held or deemed held of
record on the Offer Date by such Investor or CMG Entity, as the case may be, by
(Y) the total number of all shares of capital stock of such class held or deemed
held of record on the Offer Date by all stockholders holding such class of
capital stock which is the subject of the Capital Stock Issuance.
(f) If any Investor shall agree to purchase less than such Investor's pro
rata portion of that part of a Capital Stock Issuance allocable to the Investors
(as determined pursuant to paragraph (e) of this (S)7.4), each Investor and any
CMG Entity who shall be willing to purchase more than such Investor's or such
CMG Entity's pro rata portion of the Capital Stock Issuance allocable to the
Investors or the CMG Entity, as the case may be, shall be entitled to its
Investor Percentage of such portion of the unallocated Capital Stock Issuance
(as determined pursuant to paragraph (e) of this (S)7.4). The procedure
described in the preceding sentence for allocating Capital Stock Issuance among
Investors and the applicable CMG Entities willing to purchase such Capital Stock
Issuance shall be repeated until all unallocated Capital Stock Issuance
allocable to the Investors and the CMG Entities shall have been allocated among
Investors and the CMG Entities willing to purchase such unallocated Capital
Stock Issuance, all in compliance with the provisions contained in the preceding
sentence of this paragraph (f).
(g) Each Investor covenants with the Company and each of the other
Investors that each written notice given to the Company by such Investor
pursuant to paragraph (c) of this (S)7.4 shall be consistent and in compliance
with the terms of paragraphs (e) and (f) of this (S)7.4.
(h) Each Investor may designate any Permitted Transferee of such Investor
to exercise any preemptive rights of such Investor under this (S)7.4.
(i) The Company has not entered into, and will not, at any time after the
Closing Date of this Agreement, enter into any agreement or contract (whether
written or oral) which is inconsistent in any respect with the preemptive rights
granted by the Company to the Investors pursuant to this (S)7.4.
(j) All rights of the Investors under this (S)7.4, and all agreements and
obligations of the Company under this (S)7.4, shall terminate and shall have no
further force or effect from and after the closing of a Qualified Public
Offering.
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ARTICLE VIII
REGISTRATION RIGHTS
T.
(S)8.1. Piggyback Registrations.
(a) Rights to Piggyback.
(i) If (and on each occasion that) the Company proposes to register
any of its securities under the Securities Act, either for the Company's
own account or for the account of any of its securityholders (other than
the Holders of Registrable Securities in their capacity as Holders) (each
such registration being herein called a "Piggyback Registration"), the
Company will give written notice to all Holders of Registrable Securities
of the Company's intention to effect such Piggyback Registration not later
than the earlier to occur of (A) the tenth day following the receipt by the
Company of notice of exercise of any registration rights by any Persons
(other than the Holders of Registrable Securities in their capacities as
Holders), and (B) thirty (30) days prior to the anticipated filing date of
such Piggyback Registration.
(ii) Subject to the provisions contained in paragraphs (c) and (d)
of this (S)8.1 and in the last sentence of this clause (ii), (A) the
Company will be obligated and required to include in each Piggyback
Registration all Registrable Securities with respect to which the Company
shall receive from Holders of Registrable Securities, within thirty (30)
days after the date on which the Company shall have given written notice of
such Piggyback Registration to all Holders of Registrable Securities
pursuant to (S)8.1(a)(i) hereof, the written requests of such Holders for
inclusion in such Piggyback Registration, and (B) subject to the Company's
unconditional right to abandon registering any securities under the
Securities Act at any time for any reason, the Company will use its best
efforts in good faith to effect promptly the registration of all such
Registrable Securities. The Holders of Registrable Securities shall be
permitted to withdraw all or any part of the Registrable Securities of such
Holders from any Piggyback Registration at any time prior to the effective
date of such Piggyback Registration. The Company will not be obligated or
required to include any Registrable Securities in any registration effected
solely to implement an employee benefit plan or a transaction to which Rule
145 of the Commission is applicable.
(b) Piggyback Registration Expenses. The Company will pay all
Registration Expenses of each Piggyback Registration attributable to Registrable
Securities or otherwise incurred or sustained in connection with or arising out
of the inclusion in each such Piggyback Registration of Registrable Securities.
(c) Priority on Piggyback Registrations. If a Piggyback Registration is
an underwritten registration, and the managing underwriters shall give written
advice to the Company of an Underwriters' Maximum Number, then: (i) the Company
shall be entitled to include in such registration that number of securities
which the Company proposes to offer and sell for its own account in such
registration and which does not exceed the Underwriters' Maximum Number; (ii) if
the Underwriters' Maximum Number exceeds the number of securities which the
Company proposes
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to offer and sell for its own account in such registration, then the Company
will be obligated and required to include in such registration that number of
Registrable Securities requested by the Holders thereof to be included in such
registration and which does not exceed such excess and such Registrable
Securities shall be allocated first, to any Holders other than a CMG Entity and
the Investors if such Holders have a written agreement with the Company
obligating the Company to include such Holders ahead of the CMG Entity and the
Bank (a "Preferred Holder"), and second pro rata among the Holders thereof which
are not Preferred Holders on the basis of the number of Registrable Securities
requested to be included therein by each such Holder; and (iii) if the
Underwriters' Maximum Number exceeds the sum of the number of Registrable
Securities which the Company shall be required to include in such registration
pursuant to clause (ii) and the number of securities which the Company proposes
to offer and sell for its own account in such registration, then the Company may
include in such registration that number of other securities which persons shall
have requested be included in such registration and which shall not be greater
than such excess.
(d) Selection of Underwriters. In any Piggyback Registration, the Company
shall (unless the Company shall otherwise agree) have the right to select the
investment bankers and managing underwriters in such registration.
(S)8.2. Lockup Agreements.
(a) Restrictions on Public Sale by Holders of Registrable Securities.
Each Holder of Registrable Securities, any of whose Registrable Securities are
included in any underwritten registration of the Company's securities, if the
Company or the managing underwriters so request in connection with such
registration, will not, without the prior written consent of the Company or such
underwriters, effect any public sale or other distribution of any equity
securities of the Company, including any sale pursuant to Rule 144, during the
seven (7) days prior to, and during the one hundred eighty (180) day period
commencing on, the effective date of such underwritten registration, except in
connection with such underwritten registration, except, in each case, to the
extent such Holder is prohibited by applicable law or exercise of fiduciary
duties from agreeing to withhold Registrable Securities from sale or is acting
in its capacity as a fiduciary or investment adviser; provided that each officer
and director of the Company and each holder of more than one percent (1%) of the
issued and outstanding shares of Common Stock shall enter into similar
agreements. Without limiting the scope of the term "fiduciary", a Holder shall
be deemed to be acting as a fiduciary or an investment adviser if its actions or
the Registrable Securities to be sold are subject to the Employee Retirement
Income Security Act of 1974, as amended, or the Investment Company Act of 1940,
as amended, or if such Registrable Securities are held in a separate account
under applicable insurance law or regulation. At the request of either the
Company or the managing underwriter, each holder of Registerable Securities
agrees to sign an agreement (which shall be in form and substance reasonably
satisfactory to such holder) memorializing its obligations under this (S)8.2.
(b) Restrictions on Public Sale by Company. The Company agrees not to
effect any public sale or other distribution of its equity securities, or any
securities convertible into or exchangeable or exercisable for such equity
securities, during the period commencing on the seventh day prior to, and ending
on the one hundred and eightieth day following, the effective date of any
underwritten Piggyback Registration, except in connection with any such
underwritten registration and except for any offering pursuant to an employee
benefit plan and registered on Form S-8.
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(S)8.3. Registration Procedures. Whenever the Holders of Registrable
Securities have requested pursuant to (S)8.1 that any Registrable Securities be
registered pursuant to this Agreement, the Company will, subject to the
conditions expressly set forth in this Agreement, use its best efforts to effect
the registration and the sale of such Registrable Securities in accordance with
the intended method of disposition thereof, and pursuant thereto the Company
will as expeditiously as possible:
(a) prepare and file with the Commission a Registration Statement with
respect to such Registrable Securities and use its best efforts to cause such
Registration Statement to become effective (provided, that before filing a
Registration Statement or Prospectus or any amendments or supplements thereto,
the Company will furnish to counsel selected by the Holders of Registrable
Securities covered by such Registration Statement, copies of all such documents
proposed to be filed, which documents will be subject to the timely review of
such counsel and the Company will not file any Registration Statement or
amendment thereto or any Prospectus or any supplement thereto, including
documents incorporated by reference, to which the Holders of a Majority of the
Registrable Securities covered by such Registration Statement shall reasonably
object);
(b) prepare and file with the Commission such amendments and supplements
to such Registration Statement and the Prospectus used in connection therewith
as may be necessary to keep such Registration Statement effective for not more
than six (6) months and, comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during such effective period in accordance with the intended methods
of disposition by the sellers thereof set forth in such Registration Statement
and cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act;
(c) upon request, furnish to each seller of Registrable Securities such
number of copies of such Registration Statement, each amendment and supplement
thereto, the Prospectus included in such Registration Statement (including each
preliminary Prospectus and each Prospectus filed under Rule 424 of the
Securities Act) and such other documents as each such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by each such seller (it being understood that the Company consents to the
use of the Prospectus and any amendment or supplement thereto by such seller in
connection with the offering and sale of the Registrable Securities covered by
the Prospectus or any amendment or supplement thereto);
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests, use its best efforts to keep each such
registration or qualification effective, including through new filings,
amendments or renewals, during the period such Registration Statement is
required to be kept effective, and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller; provided that the Company will not be required (i) to qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph (d), (ii) to subject itself to taxation in any
such jurisdiction or (iii) to consent to general service of process in any such
jurisdiction;
(e) notify each seller of such Registrable Securities, at any time when a
Prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the Prospectus included
in such Registration Statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and,
at
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the request of any such seller, the Company will promptly prepare (and, when
completed, give notice to each seller of Registrable Securities) a supplement or
amendment to such Prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such Prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading; provided that upon such notification by the
Company, each seller of such Registrable Securities will not offer or sell such
Registrable Securities until the Company has notified such seller that it has
prepared a supplement or amendment to such Prospectus and delivered copies of
such supplement or amendment to such seller;
(f) cause all such Registrable Securities to be listed, prior to the date
of the first sale of such Registrable Securities pursuant to such registration,
on each securities exchange on which similar securities issued by the Company
are then listed and, if not so listed, to be listed with NASDAQ;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such Registration Statement;
(h) enter into all such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the Holders of
a Majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, effecting a stock split
or a combination of shares);
(i) make available for inspection on a confidential basis by any seller,
any underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney, accountant or other agent retained by any such
seller or underwriter (in each case after reasonable prior notice), all
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors, employees and independent
accountants to supply on a confidential basis all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such Registration Statement;
(j) permit any Holder of Registrable Securities which Holder, in its sole
and exclusive judgment, might be deemed to be an underwriter or a controlling
person of the Company within the meaning of Section 15 of the Securities Act, to
participate in the preparation of such registration or comparable statement and
to permit the insertion therein of material, furnished to the Company in
writing, which in the reasonable judgment of such Holder and its counsel should
be included, provided that such material shall be furnished under such
circumstances as shall cause it to be subject to the indemnification provisions
provided pursuant to (S)8.6(b) hereof;
(k) in the event of the issuance of any stop order suspending the
effectiveness of a Registration Statement, or of any order suspending or
preventing the use of any related Prospectus or suspending the qualification of
any Registrable Securities included in such Registration Statement for sale in
any jurisdiction, the Company will use its best efforts promptly to obtain the
withdrawal of such order;
(l) if requested by the managing underwriter or underwriters or any
holder of Registrable Securities in connection with any sale pursuant to a
Registration Statement, promptly incorporate in a Prospectus supplement or post-
effective amendment such information relating to such underwriting as the
managing underwriter or underwriters or such Holder reasonably requests to be
included therein,
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and make all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after being notified of the matters
incorporated in such Prospectus supplement or post-effective amendment;
(m) cooperate with the Holders of Registrable Securities and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends) representing
Registrable Securities to be sold under such registration, and enable such
Registrable Securities to be in such denominations and registered in such names
as the managing underwriter or underwriters, if any, or such Holders may
request;
(n) use its best efforts to cause the Registrable Securities to be
registered with or approved by such other governmental agencies or authorities
within the United States and having jurisdiction over the Company as may
reasonably be necessary to enable the seller or sellers thereof or the
underwriter or underwriters, if any, to consummate the disposition of such
Registrable Securities;
(o) use its best efforts to obtain:
(i) at the time of effectiveness of each registration, a "comfort
letter" from the Company's independent certified public accountants
covering such matters of the type customarily covered by "cold comfort
letters" as the Holders of a Majority of the Registrable Securities covered
by such registration and the underwriters reasonably request; and
(ii) at the time of any underwritten sale pursuant to a Registration
Statement, a "bring-down comfort letter", dated as of the date of such
sale, from the Company's independent certified public accountants covering
such matters of the type customarily covered by comfort letters as the
Holders of a Majority of the Registrable Securities covered by such
Registration Statement and the underwriters reasonably request;
(p) use its best efforts to obtain, at the time of effectiveness of each
Piggyback Registration and at the time of any sale pursuant to each
registration, an opinion or opinions, favorable in form and scope to the Holders
of a Majority of the Registrable Securities covered by such registration, from
counsel to the Company in customary form; and
(q) otherwise comply with all applicable rules and regulations of the
Commission, and make generally available to its securityholders (as contemplated
by Section 11(a) under the Securities Act) an earnings statement satisfying the
provisions of Rule 158 under the Securities Act no later than ninety (90) days
after the end of the twelve month period beginning with the first month of the
Company's first fiscal quarter commencing after the effective date of the
Registration Statement, which statement shall cover said twelve month period.
(S)8.4. Cooperation by Prospective Sellers, etc.
(a) Information Requests. Each prospective seller of Registrable
Securities will furnish to the Company in writing such information as the
Company may reasonably require from such seller in connection with any
Registration Statement with respect to such Registrable Securities.
(b) Failure to Cooperate. The failure of any prospective seller of
Registrable Securities to furnish any information or documents in accordance
with any provision contained in this Article
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VIII shall not affect the obligations of the Company under this Article VIII to
any remaining sellers who furnish such information and documents unless, in the
reasonable opinion of counsel to the Company or the underwriters, such failure
impairs or may impair the viability of the offering or the legality of the
Registration Statement or the underlying offering.
(c) Suspension of Sales. The Holders of Registrable Securities included
in any Registration Statement will not (until further notice) effect sales
thereof after receipt of telegraphic or written notice from the Company to
suspend sales to permit the Company to correct or update such Registration
Statement or Prospectus; but the obligations of the Company with respect to
maintaining any Registration Statement current and effective shall be extended
by a period of days equal to the period such suspension is in effect.
(d) Removal of Shares from Registration. At the end of any period during
which the Company is obligated to keep any Registration Statement current and
effective as provided by (S)8.3 hereof (and any extensions thereof required by
the preceding paragraph (c) of this (S)8.4), the Holders of Registrable
Securities included in such Registration Statement shall discontinue sales of
shares pursuant to such Registration Statement upon receipt of notice from the
Company of its intention to remove from registration the shares covered by such
Registration Statement which remain unsold, and such Holders shall notify the
Company of the number of shares registered which remain unsold promptly after
receipt of such notice from the Company.
(e) Warrants or Options. Notwithstanding any other provision herein to
the contrary, no Holder of Registrable Securities which constitute warrants or
options shall be required to exercise such warrants or options in connection
with any registration until the actual sale of the shares of Common Stock
issuable upon exercise of such warrants or options. The Company shall enter into
such agreements and shall otherwise cooperate with the Holders of Registrable
Securities in order to ensure that such Holders are not required to exercise any
warrants or options prior to the date of the actual sale of the shares of Common
Stock issuable upon exercise of such warrants or options.
(S)8.5. Registration Expenses.
(a) Expenses Borne by the Company. All costs and expenses incurred or
sustained in connection with or arising out of each registration pursuant to
(S)8.1 hereof, including, without limitation, all registration and filing fees,
fees and expenses of compliance with securities or Blue Sky laws (including
reasonable fees and disbursements of counsel for the underwriters in connection
with the Blue Sky qualification of Registrable Securities), printing expenses,
messenger, telephone and delivery expenses, fees and disbursements of counsel
for the Company and of counsel for the sellers of Registrable Securities
(subject to the limitations contained in paragraph (b) of this (S)8.5), fees and
disbursements of all independent certified public accountants (including the
expenses relating to the preparation and delivery of any special audit or "cold
comfort" letters required by or incident to such registration), and fees and
disbursements of underwriters (excluding discounts and commissions, but
including underwriters' liability insurance if the Company or if the
underwriters so require), the reasonable fees and expenses of any special
experts retained by the Company of its own initiative or at the request of the
managing underwriters in connection with such registration, and fees and
expenses of all (if any) other Persons retained by the Company (all such costs
and expenses being herein called, collectively, the "Registration Expenses"),
will be borne and paid by the Company. The Company will, in any case, pay its
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit, the expense of liability insurance referred to above, and
the fees and expenses incurred
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in connection with the listing of the securities to be registered on each
securities exchange on which similar securities of the Company are then listed.
(b) Attorneys' Fees; Taxes. In connection with each registration of
Registrable Securities pursuant to this Article VIII, the Company will reimburse
the Holders of Registrable Securities being registered in such registration for
the reasonable fees and disbursements of one law firm which acts as counsel
chosen by the Holders of a Majority of Registrable Securities. The Company will
not bear the cost of nor pay for any stock transfer taxes imposed in respect of
the transfer of any Registrable Securities to any purchaser thereof by any
Holder of Registrable Securities in connection with any registration of
Registrable Securities pursuant to this Article VIII.
(c) Payment by Holder. To the extent that Registration Expenses incident
to any registration are, under the terms of this Article VIII, not required to
be paid by the Company, each Holder of Registrable Securities included in such
registration will pay all Registration Expenses which are clearly solely
attributable to the registration of such Holder's Registrable Securities so
included in such registration, and all other Registration Expenses not so
attributable to one Holder will be borne and paid by all sellers of securities
included in such registration in proportion to the number of securities so
included by each such seller.
(S)8.6. Indemnification.
(a) Indemnification by Company. The Company will indemnify each Holder
requesting or joining in a registration and each underwriter of the securities
so registered, the officers, directors and partners of each such Person and each
Person who controls any thereof (within the meaning of the Securities Act),
against any and all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of any material fact contained in any Prospectus, offering
circular or other document incident to any registration, qualification or
compliance (or in any related Registration Statement, notification or the like)
or any omission (or alleged omission) to state therein any material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company and relating to
any action or inaction required of the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, officer, director, partner, controlling Person, and underwriter for
any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage or liability arises out of or is based
on any untrue statement or omission based upon written information furnished to
the Company in an instrument duly executed by such Holder, officer, director,
partner, controlling Person, or underwriter and stated to be exclusively and
specifically for use therein.
(b) Indemnification by Each Holder. Each Holder requesting or joining in
a registration will indemnify each underwriter of the securities so registered,
the Company and its officers and directors and each Person, if any, who controls
any thereof (within the meaning of the Securities Act) and their respective
successors in title and assigns against any and all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of any material fact contained in
any Prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related Registration
Statement, notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statement therein not misleading, and such
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Holder will reimburse each underwriter, the Company and each other Person
indemnified pursuant to this paragraph (b) for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, however, that this paragraph
(b) shall apply only if (and only to the extent that) such statement or omission
was made in reliance upon information furnished to the Company in any instrument
duly executed by such Holder and stated to be specifically for use in such
Prospectus, offering circular or other document (or related Registration
Statement, notification or the like) or any amendment or supplement thereto. The
maximum liability under this paragraph (b) of each Holder joining in any
registration shall be limited to the aggregate amount of all sales proceeds
actually received by such Holder upon the sale of such Holder's Registrable
Securities in connection with such registration.
(c) Indemnification Proceedings. Each party entitled to indemnification
pursuant to this (S)8.6 (the "Indemnified Party") shall give notice to the party
required to provide indemnification pursuant to this (S)8.6 (the "Indemnifying
Party") promptly after such Indemnified Party acquires actual knowledge of any
claim as to which indemnity may be sought, and shall permit the Indemnifying
Party (at its expense) to assume the defense of any claim or any litigation
resulting therefrom; provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be acceptable to the
Indemnified Party, and the Indemnified Party may participate in such defense at
such party's expense; and provided further, that if any Indemnified Party shall
have reasonably concluded that there may be one or more legal defenses available
to such Indemnified Party which are different from or additional to and are
inconsistent with those available to the Indemnifying Party, or that such claim
or litigation involves or could have an effect upon matters beyond the scope of
the indemnity agreement provided in this (S)8.6, the Indemnifying Party shall
not have the right to assume the defense of such action on behalf such
Indemnified Party and such Indemnifying Party shall reimburse such Indemnified
Party and any Person controlling such Indemnified Party for that portion of the
fees and expenses of any counsel retained by the indemnified which are
reasonably related to the matters covered by the indemnity agreement provided in
this (S)8.6; and provided, further, that the failure by any Indemnified Party to
give notice as provided in this paragraph (c) shall not relieve the Indemnifying
Party of its obligations under this (S)8.6 except to the extent that the failure
results in a failure of actual notice to the Indemnifying Party and such
Indemnifying Party is damaged (or the indemnification liability of such
Indemnifying Party hereunder would be increased) solely as a result of the
failure to give notice. No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. The reimbursement required by this (S)8.6 shall be made by periodic
payments during the course of the investigation or defense, as and when bills
are received or expenses incurred.
(d) Contribution in Lieu of Indemnification. If the indemnification
provided for in this (S)8.6 from the Indemnifying Party is unavailable to an
Indemnified Party hereunder in respect of any losses, claims, damages,
liabilities or expense (or actions in respect thereof) referred to therein, then
the Indemnifying Party in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative fault of such indemnifying and indemnified parties
shall be determined by reference to, among other things, whether any action in
question,
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including any untrue or alleged untrue statement of a material fact, has been
made by, or relates to information supplied by, such Indemnifying Party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action; provided,
however, that in no event shall the liability of any Holder hereunder be greater
in amount than the difference between the dollar amount of the proceeds received
by such Holder upon the sale of the Registrable Securities giving rise to such
contribution obligation and all amounts previously contributed by such Holder
with respect to such losses, claims, damages, liabilities and expenses referred
to above which shall be deemed to include, any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation or
proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this (S)8.6(d) were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to in the immediately preceding paragraph. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(S)8.7. Rule 144 Requirements; Form S-3. From time to time after the
earlier to occur of (a) the ninetieth day following the date on which there
shall first become effective a Registration Statement filed by the Company under
the Securities Act, or (b) the date on which the Company shall register a class
of securities under Section 12 of the Exchange Act, the Company will make every
effort in good faith to take all steps necessary to ensure that the Company will
be eligible to register securities on Form S-3 (or any comparable form adopted
by the Commission) as soon thereafter as possible, and to make publicly
available and available to the Holders of Registrable Securities, pursuant to
Rule 144 or Rule 144A of the Commission under the Securities Act, such
information as shall be necessary to enable the Holders of Registrable
Securities to make sales of Registrable Securities pursuant to such Rules. The
Company will furnish to any Holder of Registrable Securities, upon request made
by such Holder at any time after the undertaking of the Company in the preceding
sentence shall have first become effective, a written statement signed by the
Company, addressed to such Holder, describing briefly the action the Company has
taken or proposes to take to comply with the current public information
requirements of Rule 144 or Rule 144A. The Company will, at the request of any
Holder of Registrable Securities, upon receipt from such Holder of a certificate
certifying (i) that such Holder has held such Registrable Securities for a
period of not less than three (3) consecutive years, and (ii) that such Holder
has not been an affiliate (as defined in Rule 144) of the Company for more than
the ninety (90) preceding days, remove from the stock certificates representing
such Registrable Securities that portion of any restrictive legend which relates
to the registration provisions of the Securities Act.
(S)8.8. Participation in Underwritten Registrations. No Person may
participate in any underwritten registration pursuant to this Article VIII
unless such Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Persons entitled,
under the provisions contained in this Article VIII, to approve such
arrangements, and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required by the terms of such underwriting arrangements, provided, however, that
no such indemnities or underwriting agreements shall provide for indemnification
or contribution obligations of any Holder to a greater extent than the
obligations of such Holder set forth in (S)8.6(b) hereof. Any Holder of
Registrable Securities to be included in any underwritten registration shall be
entitled at any time to withdraw such Registrable Securities from such
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registration in the event that such Holder shall disapprove of any of the terms
of the related underwriting agreement.
(S)8.9. No Inconsistent Agreements. The Company will not, at any time
after the effective date of this Agreement, enter into any agreement or contract
(whether written or oral) with respect to any of its securities which is
inconsistent in any respect with the registration rights granted by the Company
to Investors pursuant to Article VIII of this Agreement or otherwise conflicts
with the provisions hereof.
(S)8.10. Registrable Securities Held by the Company. Whenever the consent
or approval of Holders of Registrable Securities is required pursuant to this
Article VIII, Registrable Securities held by the Company shall not be counted in
determining whether such consent or approval was duly and properly given by such
Holders pursuant to and in compliance with any of the terms of Article VIII of
this Agreement.
(S)8.11. Term. The agreements of the Company contained in this Article
VIII shall continue in full force and effect so long as any Holder holds any
Registrable Securities.
ARTICLE IX
TRANSFERS
(S)9.1. General Restrictions. Except to the extent otherwise provided in
this Agreement, the Warrant and all rights thereunder are transferable to any
Permitted Transferee, in whole or in part, at the office or agency of the
Company by the registered holder thereof in person or by a duly authorized
attorney, upon surrender of the Warrant, together with an assignment in the form
of Exhibit B attached to the Warrant, properly endorsed; provided such transfer
is subject to the satisfaction of the conditions set forth in this (S)9.
(S)9.2. Notice of Transfer. Prior to any transfer of the Warrant, the
holder thereof shall be required to give written notice to the Company
describing in reasonable detail the manner and terms of the proposed transfer
and the identity of the proposed transferee (the "Transfer Notice"), accompanied
by the written agreement of the proposed transferee to be bound by all of the
provisions hereof, applicable to holders of such Securities hereunder.
(S)9.3. Restrictive Legends. Except as otherwise permitted by this
Section 9, each Security shall bear the legend specified for such Security in
subparagraph (c) of Article VI of this Agreement.
(S)9.4. Restrictions on Transferability. Until the earlier to occur of a
Qualified Public Offering or October 24, 1999 (the "Transfer Period"), the Bank
shall not be entitled to transfer any Securities except (a) to the Company or
its assigns; (b) to any affiliate or limited or general partner of the Bank; (c)
to any Person who becomes a "Bank" under the Credit Agreement at any time on or
after the date such Person becomes a "Bank" thereunder; (d) in the event the
Bank is required to transfer such Securities due to any law, rule, order,
regulation or policy of any kind; (e) pursuant to a public offering or an open
market sale following a public offering; and (f) pursuant to Article X hereof.
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(S)9.4. Termination of Restrictions. The restrictions imposed by this
(S)9 upon the transferability of Securities shall terminate as to any particular
Securities when such Securities shall have been effectively registered under the
Securities Act or sold pursuant to a public sale. Whenever any of such
restrictions shall terminate as to any Securities, the holder thereof shall be
entitled to receive from the Company, at the Company's expense, new Securities
without such legends.
-23-
ARTICLE X
RIGHTS OF SALE
The Company and CMG hereby grants to the Investors certain rights
regarding sale of the Securities as set forth herein.
(S)10.1. Restrictions on Transfer. During the Transfer Period, the
Investors, the Company and each CMG Entity agrees that neither CMG nor any CMG
Entity will, directly or indirectly, offer, sell, transfer, assign or otherwise
dispose of (or make any exchange, gift, assignment or pledge of) (collectively,
for purposes of this Article X, a "Transfer") any Common Stock except in a
Qualified Public Offering or as permitted by (S)10.2 below. Any attempt to
transfer or encumber any shares of Common Stock not in accordance with this
Agreement shall be null and void and neither the Company nor any transfer agent
of such securities shall give any effect to such attempted transfer or
encumbrance in its stock record.
(S)10.2. Right to Join in Sale. (a) Notwithstanding anything to the
contrary contained in this Agreement, if any CMG Entity, in a single transaction
or series of related transactions sells, disposes of or otherwise transfers any
of its shares of Common Stock, except in a Special Sale Event, such Person shall
refrain from effecting such transaction unless, prior to the consummation
thereof, each Investor shall have been afforded the opportunity to join in such
sale of Common Stock and Securities on a pro rata basis, as hereinafter
provided.
(b) Prior to the consummation of any proposed sale, disposition or transfer
of Common Stock described in (S)10.2(a), the CMG Entity effecting such sale,
disposition or transfer shall cause the Person or group of Persons that proposes
to acquire such shares (the "Proposed Purchasers") to offer (the "Purchase
Offer") in writing to each of the Investors to purchase shares of Securities
owned by such Investor (regardless of whether the shares of Common Stock
proposed to be sold by the CMG Entity are the same class as the shares of
Securities owned by the Investors), such that the number of shares of such
Securities so offered to be purchased from such Investor shall be equal to the
product obtained by multiplying the total number of shares of such Securities
owned by such Investor by a fraction, the numerator of which is the aggregate
number of shares of Common Stock proposed to be purchased by the Proposed
Purchaser from all Holders (including the CMG Entity and the Investors) and the
denominator of which is the aggregate number of shares of Common Stock and
Securities then outstanding (with such number computed assuming the exercise of
all outstanding options and warrants and treating the options for 2,000,000
shares of Common Stock included in the employee stock option pool as outstanding
even to the extent that have not yet been issued). Such purchase shall be made
at the highest price per share and on such other terms and conditions as the
Proposed Purchaser has offered to purchase shares of Common Stock to be sold by
the CMG Entity. Each Investor shall have twenty (20) calendar days from the date
of receipt of the Purchase Offer in which to accept such Purchase Offer, and the
closing of such purchase shall occur within thirty (30) calendar days after such
acceptance or at such other time as the Investors and the Proposed Purchaser may
agree. The number of shares of Common Stock to be sold to the Proposed Purchaser
by the CMG Entity shall be reduced by the aggregate number of shares of Common
Stock or Securities purchased by the Proposed Purchaser from the Investors
pursuant to the acceptance by them of Purchase Offer in accordance with the
provisions of this (S)10.2(b). In the event of any sale of Securities pursuant
to this (S)10.2, to the extent that any Securities consists of unexercised
Warrants,
-24-
such sale may be made either by sale of all or a part of the relevant Warrant,
or by the exercise of the Warrant and sale of the applicable Common Stock. In
the event that a sale or other transfer subject to this (S)10.2 is to be made to
a Proposed Purchaser who is not a Holder, the CMG Entity shall notify the
Proposed Purchaser that the sale or other transfer is subject to this (S)10.2
and shall ensure that no sale or other transfer is consummated without the
Proposed Purchaser first complying with this (S)10.2. It shall be the
responsibility of each CMG Entity to determine whether any transaction to which
it is a party is subject to this (S)10.2.
(S)10.3. CMG Entity. If at any time CMG sells, disposes or otherwise
transfers any of its interest in any Common Stock to any CMG Entity, prior to
such disposition, sale or transfer, CMG shall provide to the Investors and the
Company evidence that such CMG Entity agrees to be bound by the provisions of
this (S)10. In addition, CMG is joining this Agreement solely for the purpose
of being bound by the provisions of this (S)10.
(S)10.4. Termination of Investor Rights. All rights granted to the
Investors under this Article X and all agreements and obligations of the
Company and CMG under this Article X shall terminate and have no further force
and effect from and after the closing of a Qualified Public Offering.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.
(S)11.1. Survival of Representations. The representations and warranties
of the Company and of the Bank and the Investors contained in this Agreement, or
any agreement, instrument or document delivered pursuant to any of the
provisions of this Agreement, shall survive the execution and delivery of this
Agreement, any examination or investigation conducted by or on behalf of the
Company or the Bank, and the Closing hereunder.
(S)11.2. Expenses. Whether or not all or any of the arrangements or
transactions contemplated by this Agreement or by any of the Warrants shall be
consummated, the Company agrees to pay to the Investors, on demand by the
Investors at any time and as often as the occasion therefor may require,
expenses incurred in connection with any litigation, proceeding or dispute
arising out of or relating to this Agreement or any of the Warrants or
relationships created thereby, or in connection with any action or proceeding
taken by any Investor to protect or preserve all or any of the rights, remedies,
powers or privileges of such Investor under any of such documents or to enforce
any of the covenants, agreements or obligations of the Company under any of such
documents (including, without limitation, all of the reasonable fees and
disbursements of legal counsel for each Investor).
ARTICLE XII
MISCELLANEOUS
(S)12.1. Notices.
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(a) All notices and other communications pursuant to this Agreement shall
be in writing, either delivered in hand, mailed by United States registered or
certified first-class mail, postage prepaid, sent by overnight courier, or sent
by telegraph, telecopy, facsimile or telex and confirmed by delivery via courier
or postal service, addressed as follows:
(i) if to the Company, at the address of the Company set forth on the
first page hereof, or at such other address as shall have been furnished to
each of the Investors in writing by the Company, and a copy thereof shall
in any event be simultaneously transmitted to William Williams II, Esq.,
Palmer & Dodge LLP, One Beacon Street, Boston, Massachusetts 02108; or
(ii) if to any Investor, at such addresses (in each case) as shall
have been furnished to the Company and to the other Investors by such
Investor in writing, and a copy thereof shall in any event be
simultaneously transmitted to Linda J. Groves, Esq., Bingham, Dana & Gould
LLP, 150 Federal Street, Boston, MA 02110.
(b) Any notice or other communication pursuant to this Agreement shall be
deemed to have been duly given or made and to have become effective (i) if
delivered by hand, overnight courier or facsimile to a responsible officer of
the party to which it is directed, at the time of receipt thereof by such
officer or the sending of such facsimile or (ii) if sent by registered or
certified first-class mail, postage prepaid, on the third business day following
the mailing thereof.
(S)12.2. GOVERNING LAW. THIS AGREEMENT IS INTENDED TO TAKE EFFECT AS A
SEALED INSTRUMENT. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
(S)12.3. Amendments and Waivers.
(a) Except as otherwise provided by paragraph (b) of this (S)12.3, and
except as otherwise expressly required by any other provisions of this
Agreement, none of the terms or provisions contained in this Agreement, and none
of the agreements, obligations or covenants of the Company contained in this
Agreement, may be amended, modified, supplemented, waived or terminated unless
(i) the Company shall execute an instrument in writing agreeing or consenting to
such amendment, modification, supplement, waiver or termination, and (ii) the
Company shall receive a prior written Investor Consent therefor.
(b) Each of the terms and provisions contained in this (S)12.3 or in the
definitions of Permitted Transferee, Investor Consent or Majority Investors
contained in Article I hereof may be amended, modified, supplemented, waived or
terminated only by a written instrument or consent signed by the Company and by
each of the Investors holding of record any Securities at the effective date
thereof.
(c) In connection with any action taken or to be taken pursuant to
paragraph (a) of this (S)12.3, there shall be no obligation or requirement on
the part of the Company, any of the Investors or any other Persons (i) to
solicit or to attempt to solicit from all of the Investors the consent or
approval of all of the Investors for such action, or (ii) to submit any notices
of any kind to all of the Investors in advance of any action proposed to be
taken pursuant to paragraph (a) of this (S)12.3. However,
-26-
copies of all written consents or approvals given by Investors in connection
with any action taken or to be taken pursuant to and in compliance with
paragraph (a) of this (S)12.3 shall be sent by the Company, promptly after the
receipt thereof by the Company, to each Investor who shall have failed or
refused to give a written consent or approval for such action.
(d) Any action taken pursuant to and in compliance with paragraph (a) of
this (S)12.3 shall be binding upon the Company and upon all of the Investors,
including all of the Investors who shall have failed or refused to give a
written consent or approval for such action.
(S)12.4. Proportional Adjustments. There are references in this Agreement
to a specific price per share of the Company's Common Stock or to a specific
number of shares in the capital of the Company. The specific price per share
and the specific number of shares so stated are effective as of the Closing
Date. The specific price per share and the specific number of shares so stated
shall (in each case) be proportionally adjusted from time to time if (and on
each occasion that) there shall be effected by the Company any stock dividend,
stock split, subdivision of shares, combination of shares, reclassification,
recapitalization or other similar corporate reorganization affecting the capital
structure of the Company. The exact amount and the effective date of each
adjustment effected pursuant to this (S)12.4 shall be determined in good faith
and on a reasonable basis by the Board of Directors of the Company. The Company
shall promptly notify each Investor in writing of each such adjustment.
(S)12.5. Integration. Annexed to this Agreement is Exhibit A. Such
Exhibit is an integral part of this Agreement and is hereby incorporated by
reference.
(S)12.6. Rights and Obligations Several. The rights and obligations of
each of the parties hereto shall be several (and not joint), except as otherwise
expressly provided by this Agreement.
(S)12.7. No Waiver; Cumulative Remedies. No failure or delay on the part
of any Investor in exercising any right, power or remedy hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
(S)12.8. Entire Agreement. This Agreement, including the Exhibit hereto,
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and supersedes any prior understandings or agreements
concerning the subject matter hereof.
(S)12.9. Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.
(S)12.10. Binding Effect. All of the covenants and agreements of the
Company contained in, and all of the rights granted by the Company pursuant to,
this Agreement, shall inure to the benefit of each Investor, including each of
the Permitted Transferees of such Investor. None of such covenants, agreements
or rights shall be assignable or transferable by any Investor to any Person
except to a Person who is a Permitted Transferee of such Investor.
(S)12.11. Counterparts. This Agreement may be executed simultaneously in
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one
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and the same agreement. In making proof of this Agreement, it shall not be
necessary to produce or account for more than one such counterpart signed by
each of the parties hereto.
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If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this Agreement and return such
counterpart to the undersigned, whereupon this Agreement, as so accepted by you,
shall become a binding agreement under seal between you and the undersigned.
Very truly yours,
SALESLINK CORPORATION
By:/s/ Andrew Hajducky
-----------------------------
Name: Andrew Hajducky
Title:
Attest
/s/ William Williams II
- ------------------------
CMG INFORMATION SERVICES, INC.
By:/s/ Andrew Hajducky
-----------------------------
Name: Andrew Hajducky
Title:
Attest
/s/ William Williams
- ------------------------
Dated as of: October 24, 1996
The foregoing Warrant Purchase Agreement with SalesLink Corporation is
hereby accepted by the undersigned on and as of the date thereof.
INVESTORS:
BANKBOSTON, N.A.
By: /s/ Daniel G. Head
-------------------
Name: Daniel G. Head
Title:
Exhibit 10.38
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OR
CONVERSION OF THIS WARRANT HAVE BEEN REGISTERED UNDER, AND ARE SUBJECT TO, THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE
1933 ACT OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE 1933 ACT.
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OR CONVERSION OF THIS
WARRANT ARE SUBJECT TO CERTAIN RESTRICTIONS CONTAINED IN A WARRANT PURCHASE
AGREEMENT, DATED AS OF OCTOBER 24, 1996. THE COMPANY WILL FURNISH COPIES OF
SUCH AGREEMENT WITHOUT CHARGE TO THE HOLDER OF THIS WARRANT UPON WRITTEN
REQUEST.
SALESLINK CORPORATION
25 Drydock Avenue
Boston, Massachusetts 02210
COMMON STOCK PURCHASE WARRANT
-----------------------------
dated as of October 24, 1996
Void after Warrant Expiration Date
No. W-1 Common Stock
THIS CERTIFIES that BankBoston, N.A. (formerly known as The First National
Bank of Boston) (the "Bank"), or registered assigns, is entitled, at any time
----
during the Warrant Exercise Period (as hereinafter defined), to subscribe for
and purchase from SalesLink Corporation, a Delaware corporation (including any
corporation which shall succeed to or assume the obligations of the company
hereunder, the "Company"), up to 100,000 fully paid and non-assessable shares of
-------
the Company's Common Stock (as defined below), at an initial purchase price per
share equal to $3.15 (such price per share as adjusted from time to time as
provided herein is referred to herein as the "Exercise Price"). The number and
-------- -----
character of such shares of Common Stock and the Exercise Price are subject to
adjustment as provided herein.
-2-
This Warrant was originally issued by the Company to the original holder
under the terms of, and as provided and contemplated by, that certain Warrant
Purchase Agreement, dated as of October 24, 1996 (herein, as so amended and from
time to time in effect, called the "Warrant Agreement"), between the Company and
------- ---------
the original holder. The holder of this Warrant shall be entitled to all of the
benefits and shall be subject to all of the obligations of the Warrant
Agreement.
Copies of the Warrant Agreement are on file and available for inspection at
the principal office of the Company or at such other office of the Company as
the Company shall designate by notice in writing to the registered holder hereof
at the address of such holder appearing on the books of the Company.
This Warrant is subject to the following terms and conditions:
(S)1. Definitions. As used herein the following terms, unless the context
-----------
otherwise requires, have the following respective meanings:
Bank shall have the meaning set forth in the preamble.
----
Common Stock shall have the meaning set forth in the Warrant Agreement.
------ -----
Company shall have the meaning set forth in the preamble.
-------
Credit Agreement shall mean the Revolving Credit and Term Loan Agreement,
------ ---------
dated as of October 24, 1996, by and among the Company, CMG Information
Services, Pacific Direct Marketing Corp., The First National Bank of Boston,
certain other lending institutions party thereto and the Agent (as defined
therein), as amended and in effect from time to time.
Exercise Price shall have the meaning set forth in the preamble.
-------- -----
Exercise Shares shall have the meaning set forth in (S)2.1 hereof.
-------- ------
Net Consideration Per Share shall mean the amount equal to the total
--- ------------- --- -----
amount of consideration, if any, received by the Company for the issuance of
such warrants, options, subscriptions or other purchase rights or convertible or
exchangeable securities, plus the minimum amount of consideration, if any,
payable to the Company upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be issued if all such
warrants options, subscriptions or other purchase rights or convertible or
exchangeable securities were exercised, exchanged or converted. The Net
Consideration Per Share which may be received by the Company shall be
determined in each instance as of the date of issuance of warrants, options,
subscriptions or other purchase rights or convertible or exchangeable securities
without giving effect to any possible future price adjustments or rate
adjustments which may be applicable with respect to such warrants, options,
subscriptions or other purchase rights or convertible or exchangeable
securities.
Original Issue Date shall mean October 24, 1996.
-------- ----- ----
-3-
Other Securities shall mean any stock (other than Common Stock) and other
----- ----------
securities of the Company or any other entity (corporate or otherwise) which (i)
the holder of this Warrant at any time shall be entitled to receive, or shall
have received, on the exercise of this Warrant, in lieu of or in addition to
Common Stock, or (ii) at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or other securities, in each case
pursuant to (S)(S)7, 8 or 9 hereof.
Warrant Agreement shall have the meaning set forth in the preamble.
------- ---------
Warrant Exercise Period shall mean the period beginning on the date of this
------- -------- ------
Warrant and ending on the Warrant Expiration Date.
Warrant Expiration Date shall have the meaning set forth in (S)2.4 hereof.
------- ---------- ----
Warrant Stock shall mean: (i) the Company's Common Stock authorized as of
------- -----
the date of this Warrant and issuable upon the exercise or conversion of this
Warrant or any warrants delivered in substitution or exchange therefor; and (ii)
shall include also any other capital stock of any other class which may become
and be issuable upon such exercise or conversion.
(S)2. Exercise of Warrant.
-------- -- -------
(S)2.1. Exercise. This Warrant may be exercised prior to the
--------
Warrant Expiration Date by the holder hereof at any time or from time to
time, by surrender of this Warrant, with the form of subscription attached
as Exhibit A hereto duly executed by such holder, to the Company at its
------- -
principal office, accompanied by payment, by certified or official bank
check payable to the order of the Company or by wire transfer to its
account, in the amount obtained by multiplying the number of shares of
Common Stock for which this Warrant is then being exercised by the Exercise
Price then in effect. In the event the Warrant is not exercised in full,
the Company, at its expense, will forthwith issue and deliver to or upon
the order of the holder hereof a new Warrant or Warrants of like tenor, in
the name of the holder hereof or as such holder (upon payment by such
holder of any applicable transfer taxes) may request, calling in the
aggregate on the face or faces thereof for the number of shares of Common
Stock equal (without giving effect to any adjustment therein) to the number
of such shares called for on the face of this Warrant minus the number of
such shares (without giving effect to any adjustment therein) for which
this Warrant shall have been exercised. Upon any exercise of this Warrant,
in whole or in part, the holder hereof may pay the aggregate Exercise Price
with respect to the shares of Common Stock for which this Warrant is then
being exercised (collectively, the "Exercise Shares") by (a) in the event
-------- ------
the holder of this Warrant is also the holder of a Note (as defined in the
Credit Agreement), decreasing the outstanding principal amount of such Note
by such amount or (b) surrendering its rights to a number of Exercise
Shares having a fair market value equal to or greater than the required
aggregate Exercise Price, in which case the holder hereof would receive the
number of Exercise Shares to which it would otherwise be entitled upon such
exercise, less the surrendered shares.
(S)2.2. Conflict With Other Laws. Any other provisions hereof to
-------- ---- ----- ----
the contrary notwithstanding, neither the Bank nor any of its affiliates,
shall be entitled to exercise the right under this Warrant to purchase any
share or shares of Common Stock if, under any
-4-
law or under any regulation, rule or other requirement of any governmental
authority at any time applicable to the Bank or any of its affiliates, (a)
as a result of such purchase, the Bank and all affiliates of the Bank,
taken as a whole, would own, control or have power to vote a greater
quantity of securities of any kind than the Bank and its affiliates shall
be permitted to own, control or have power to vote, or (b) such purchase
would not be permitted.
(S)2.3. Warrant Agent. In the event that a bank or trust company
------- -----
shall have been appointed as trustee for the holder of the Warrant pursuant
to (S)7.2 hereof, such bank or trust company shall have all the powers and
duties of a warrant agent appointed pursuant to (S)17 hereof and shall
accept, in its own name for the account of the Company or such successor
entity as may be entitled thereto, all amounts otherwise payable to the
Company or such successor, as the case may be, on exercise of this Warrant
pursuant to this (S)2.
(S)2.4. Termination. This Warrant shall terminate upon the
-----------
earlier to occur of (i) exercise in full, or (ii) May 16, 2002 (the
"Warrant Expiration Date").
(S)3. Registration Rights. The holder of this Warrant has the
------------ ------
registration rights specified in (S)8 of the Warrant Agreement.
(S)4. Rights of Co-Sale. The holder of this Warrant has the rights of co-
------ -- -------
sale as set forth in (S)10 of the Warrant Agreement.
(S)5. Delivery of Stock Certificates on Exercise.
-------- -- ----- ------------ -- --------
(S)5.1. Delivery. As soon as practicable after the exercise of
--------
this Warrant in full or in part, and in any event within twenty (20) days
thereafter, the Company, at its expense (including the payment by it of any
applicable issue taxes), will cause to be issued in the name of and
delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and non-assessable shares of
Common Stock (or Other Securities) to which such holder shall be entitled
on such exercise, together with any other stock or other securities and
property (including cash, where applicable) to which such holder is
entitled upon such exercise.
(S)5.2. Fractional Shares. In the event that the exercise of this
---------- ------
Warrant, in full or in part, results in the issuance of any fractional
share of Common Stock, then in such event the holder of this Warrant shall
be entitled to cash equal to the fair market value of such fractional share
as determined in good faith by the Company's Board of Directors.
(S)6. Charges, Taxes and Expenses. Issuance of certificates for shares of
------- ----- --- --------
Warrant Stock upon the exercise or conversion of this Warrant or any portion
thereof shall be made without charge to the Company hereof for any issue or
transfer taxes or any other incidental expenses in respect of the issuance of
such certificates, all of which taxes and expenses shall be paid by the holder,
and such certificates shall be issued in the name of the holder of this Warrant;
provided, however, that any income taxes or capital gains taxes or similar taxes
- -------- -------
shall be payable by the holder of this Warrant.
-5-
(S)7. Adjustment for Reorganization, Consolidation, Merger, Etc.
---------- --- --------------- -------------- ------- ----
(S)7.1. Certain Adjustments. In case at any time or from time to time,
------- -----------
the Company shall (a) effect a capital reorganization, reclassification or
recapitalization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then in each such case, the holder of this Warrant, on the exercise
hereof as provided in (S)2 hereof at any time after the consummation of such
reorganization, recapitalization, consolidation or merger or the effective date
of such dissolution, as the case may be, shall receive, in lieu of the Common
Stock (or Other Securities) issuable on such exercise prior to such consummation
or effective date, the stock and Other Securities and property (including cash)
to which such holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such holder had so
exercised this Warrant immediately prior thereto, all subject to further
adjustment thereafter as provided in (S)(S)8 and 9 hereof.
(S)7.2. Appointment of Trustee for Warrant Holders Upon Dissolution. In
----------- -- ------- --- ------- ------- ---- -----------
the event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall, at its expense, deliver or cause to be delivered the stock
and Other Securities and property (including cash, where applicable) less the
Exercise Price receivable by the holders of the Warrant after the effective date
of such dissolution pursuant to this (S)7 to a bank or trust company having its
principal office in Boston, Massachusetts, as trustee for the holder or holders
of the Warrant.
(S)7.3. Continuation of Terms. Upon any reorganization, consolidation,
------------ -- -----
merger or transfer (and any dissolution following any transfer) referred to in
this (S)7, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the shares of stock and Other Securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or Other Securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in (S)10 hereof.
(S)8. Adjustments for Issuance of Common Stock and Amount of Outstanding
----------- --- -------- -- ------ ----- --- ------ -- -----------
Common Stock .
------ ----- -
8.1. General. If at any time there shall occur any stock split, stock
-------
dividend, reverse stock split or other subdivision of the Company's Common Stock
("Stock Event"), then the number of shares of Common Stock to be received by the
----- -----
holder of this Warrant shall be appropriately adjusted such that the proportion
of (a) the number of shares issuable hereunder plus the number of shares of
----
Warrant Stock held by the holder of this Warrant to (b) the total number of
shares of the Company (on a fully diluted basis) prior to such Stock Event is
equal to the proportion of (x) the number of shares issuable hereunder plus the
----
number of shares of Warrant Stock held by the holder of this Warrant after such
Stock Event to (y) the total number of shares of the Company (on a fully-diluted
basis) after such Stock Event. In each such Stock Event, the Exercise Price in
effect immediately prior to such Stock Event shall, simultaneously with the
happening of such Stock Event, be adjusted by multiplying the Exercise Price in
effect immediately prior to such Stock Event by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such Stock Event and the
-6-
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such Stock Event, and the product so obtained shall be the
Exercise Price in effect immediately after such Stock Event; provided that in no
event will the Exercise Price be less than the par value of the Common Stock In
case the Company shall take a record of the holders of its Common Stock for the
purpose of entitling them (a) to receive a dividend or other distribution
payable in Common Stock or in Convertible Securities (as hereinafter defined) or
(b) to subscribe for or purchase Common Stock or Convertible Securities, then
such record date chosen by the Company shall be deemed to be the date of the
issue of the shares of Common Stock issued upon the declaration of such dividend
or the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be
8.2. Other Issuances of Common Stock. (a) If the Company shall at any
----- --------- -- ------ -----
time or from time to time issue or sell any additional shares of Common Stock
without consideration or for a consideration per share less than the Exercise
Price in effect immediately prior to such issuance, then the Exercise Price
shall be adjusted to a price determined by dividing (a) an amount equal to the
sum of (i) the product of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by (B) the then existing
Exercise Price plus (ii) the consideration, if any, received by the Company upon
such issue or sale by (b) the total number of shares of Common Stock outstanding
immediately after such issue or sale.
(b) In case the Company shall at any time or from time to time in any
manner grant any rights to subscribe for or to purchase any options for the
purchase of Common Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such convertible or exchangeable stock or
securities being herein called "Convertible Securities") and the price per share
for which Common Stock is issuable upon the exercise of such rights or options
or upon conversion or exchange of such Convertible Securities (determined by
dividing (a) the sum of (i) the total amount, if any, received or receivable by
the Company as consideration for the granting of such rights or options, plus
(ii) the minimum aggregate amount of additional consideration payable to the
Company upon the exercise of such rights or options, plus, (iii) in the case of
such Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the conversion or exchange thereof, by (b)
the maximum number of shares of Common Stock issuable upon the exercise of such
rights or options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such rights or options) shall be less
than the Exercise Price in effect immediately prior to the time of the granting
of such rights or options, then the maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon conversion or
exchange of the maximum amount of such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the date of granting of such
rights or options) be deemed to be outstanding and to have been issued for said
price per share as so determined; provided, that no further adjustment of the
--------
Exercise Price shall be made upon the actual issue of such Common Stock or of
such Convertible Securities, upon exercise of such rights or options or upon the
actual issue of such Common Stock or upon conversion or exchange of such
Convertible Securities; and provided, further, that upon the expiration of such
-------- -------
rights or options, if any thereof shall not have been exercised, (x) the number
of shares of Common Stock deemed to be issued and outstanding by reason of the
fact that they were issuable upon the exercise of such rights or options or upon
conversion or exchange of Convertible Securities so issuable, which rights or
options were not exercised, shall no longer be deemed to be issued and
outstanding, and (y) the Exercise Price shall forthwith be readjusted and
thereafter the Exercise Price shall be the price which it would have been had
-7-
adjustment been made on the basis of the issue only of the shares of Common
Stock or of the Convertible Securities actually issued upon the exercise of such
rights or options.
(c) In case the Company shall in any manner issue or sell any Convertible
Securities and the price per share for which Common Stock is issuable upon such
conversion or exchange (determined by dividing (a) the sum of (i) the total
amount received or receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus (ii) the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the conversion or
exchange thereof, by (b) the maximum number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities) shall be
less than the Exercise Price in effect immediately prior to the time of such
issue or sale, then the maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall (as of the date
of the issue or sale of such Convertible Securities) be deemed to be outstanding
and to have been issued for said price per share as so determined; provided,
--------
that if any such issue or sale of such Convertible Securities is made upon
exercise of any rights to subscribe for or to purchase or any option to purchase
any such Convertible Securities for which an adjustment of the Exercise Price
has been or is to be made pursuant to other provisions of this Section 8.2 no
further adjustment of the Exercise Price shall be made by reason of such issue
or sale; and provided, further, that upon the termination of the right to
-------- -------
convert or to exchange such Convertible Securities for Common Stock (x) the
number of shares of Common Stock deemed to be issued and outstanding by reason
of the fact that they were issuable upon conversion or exchange of any such
Convertible Securities, which were not so converted or exchanged, shall no
longer be deemed to be issued and outstanding and (y) the Exercise Price shall
be forthwith readjusted and thereafter the Exercise Price shall be the price
which it would have been had adjustment been made on the basis of the issue only
of the number of shares of Common Stock actually issued upon conversion or
exchange of such Convertible Securities.
(d) In case the Company shall declare a dividend or make any other
distribution upon any stock of the Company payable in Common Stock or in
Convertible Securities (other than Stock Events which are provided in Section
8.1), the aggregate number of shares of Common Stock issuable in payment of such
dividend or distribution or upon conversion of or in exchange for such
Convertible Securities issuable in payment of such dividend or distribution,
shall, for purposes of determining the Exercise Price, be deemed for the
purposes of this Section 8.2 to have been issued or sold without consideration.
(e) In case any shares of Common Stock or Convertible Securities or any
rights or options to purchase any such stock or securities shall be issued for
cash, the consideration received therefor shall be deemed to be the amount
received by the Company therefor, before deduction therefrom of any expenses
incurred and any underwriting commissions or concessions paid or allowed by the
Company in connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase any such stock or
securities shall be issued for a consideration other than cash (or a
consideration which includes cash, if such cash constitutes a part of the assets
of a corporation or business substantially all the assets of which are being
received as such consideration), then, for the purposes of this Section 8.2, the
Board of Directors of the Company shall determine in good faith the fair value
of such consideration, and such Common Stock, rights, options or Convertible
Securities shall be deemed to have been issued for an amount of cash equal to
the value so determined by the Board of Directors. In case any shares of Common
Stock or Convertible Securities or any rights or options to purchase any
-8-
such stock or securities are issued in connection with the sale of other assets
of the Company for a consideration which includes both, the Board of Directors
shall determine in good faith what part of the consideration so received is to
be deemed to be consideration for the issue of such shares of such Common Stock
or Convertible Securities or rights or options to purchase such stock or
securities and what part is properly allocable to such other assets.
(f) Upon each adjustment of the Exercise Price pursuant to this Section
8.2, the holder of this Warrant shall thereafter (until another such adjustment)
be entitled to purchase upon exercise of this Warrant the number of shares
obtained by multiplying the number of shares of Common Stock which were issuable
upon exercise hereof, immediately prior to such adjustment by the Exercise Price
in effect immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price. The Exercise Price shall be readjusted
in the foregoing manner upon the happening of any successive event or events
described herein in this Section 8.2, and the adjustments or readjustments
required by this Section 8.2 shall be calculated in the order in which the
events giving rise thereto occur.
(g) The provisions of this Section 8.2 shall not apply to (i) any
issuance of additional Common Stock for which an adjustment is provided under
Section 8.1 hereof, (ii) any issuance of options pursuant to the Company's stock
option plan as in effect on the date hereof, and shares of Common Stock issued
pursuant to such options, in an amount not to exceed 2,000,000 shares, or (iii)
in the case of a Qualified Public Offering.
8.3. Other Securities. In case any Other Securities shall have been
----- ----------
issued, or shall then be subject to issue upon the conversion or exchange of any
stock (or Other Securities) of the Company (or any other issuer of Other
Securities or any other entity referred to in Section 7 hereof) or to
subscription, purchase or other acquisition pursuant to any rights or options
granted by the Company (or such other issuer or entity), the holder hereof shall
be entitled to receive upon exercise hereof such amount of Other Securities (in
lieu of or in addition to Common Stock) as is determined in accordance with the
terms hereof, treating all references to Common Stock herein as references to
Other Securities to the extent applicable, and the computations, adjustments and
readjustments provided for in this Section 8 with respect to the number of
shares of Common Stock issuable upon exercise of this Warrant shall be made as
nearly as possible in the manner so provided and applied to determine the amount
of Other Securities from time to time receivable on the exercise of the Warrant,
so as to provide the holder of the Warrant with the benefits intended by this
Section 8 and the other provisions of this Warrant..
9. Adjustment for Dividends, Distributions and Reclassifications. In
---------- --- ---------- ------------- --- ------------------
case at any time or from time to time, the holders of Common Stock shall have
received, or (on or after the record date fixed for the determination of
shareholders eligible to receive) shall have become entitled to receive, without
payment therefor:
(a) other or additional stock, other securities, cash or property
by way of dividend; or
(b) other or additional (or less) stock or other securities or
property (including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate restructuring;
-9-
other than additional shares of Common Stock issued as a stock dividend or in a
- ----- ----
stock-split (adjustments in respect of which are provided for in Section 8
hereof), then and in each such case the holder of this Warrant, on the exercise
hereof as provided in Section 2 hereof, shall be entitled to receive the amount
of stock and other securities and property (including cash in the case referred
to in subsection (b) of this Section 9) which such holder would have received
prior to or would have held on the date of such exercise if on the date hereof
it had been the holder of record of the number of shares of Common Stock called
for on the face of this Warrant and had thereafter, during the period from the
date hereof to and including the date of such exercise, retained such shares and
all such other or additional stock and other securities and property (including
cash in the case referred to in subsection (b) of this Section 9 receivable by
such holder as aforesaid during such period, giving effect to all further
adjustments called for during such period by Sections 7 and 8 hereof.
(S)10. No Dilution. The Company will not, by amendment of its Certificate
-- --------
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate in order to protect the rights of the holder of the
Warrant against dilution. Without limiting the generality of the foregoing, the
Company (a) will not increase the par value of any shares of stock receivable on
the exercise of the Warrant above the amount payable therefor on such exercise,
(b) will take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and non-assessable shares
of stock on the exercise of the Warrant from time to time outstanding, and (c)
will not transfer all or substantially all of its properties and assets to any
other entity (corporate or otherwise), or consolidate with or merge into any
other entity or permit any such entity to consolidate with or merge into the
Company (if the Company is not the surviving entity), unless such other entity
shall expressly assume in writing and will be bound by all the terms of this
Warrant and the Warrant Agreement.
(S)11. Accountants' Certificate as to Adjustments. In the case of each
------------------------------------------
event that may require any adjustment or readjustment in the shares of Warrant
Stock issuable on the exercise of this Warrant, the Company at its expense will
promptly prepare a certificate setting forth such adjustment or readjustment, or
stating the reasons why no adjustment or readjustment is being made, and
showing, in detail, the facts upon which any such adjustment or readjustment is
based, including a statement of (a) the number of shares of the Company's Common
Stock then outstanding on a fully diluted basis, and (b) the number of shares of
Warrant Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted and
readjusted (if required by (S)9) on account thereof. The Company will forthwith
mail a copy of each such certificate to each holder of a Warrant, and will, on
the written request at any time of any holder of a Warrant, furnish to such
holder a like certificate setting forth the calculations used to determine such
adjustment or readjustment. At its option, the holder of a Warrant may confirm
the adjustment noted on the certificate by causing such adjustment to be
computed by an independent certified public accountant at the expense of the
Company.
(S)12. Notices of Record Date. In the event of:
----------------------
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or
-10-
other distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any Other Securities or
property, or to receive any other right; or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any transfer of all or substantially all the assets of the Company to or
any consolidation or merger of the Company with or into any other Person;
or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
(d) any proposed issue or grant by the Company of any shares of
stock of any class or any Other Securities, or any right or option to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any Other Securities (other than the issue of Warrant Stock on the
exercise of this Warrant),
then, and in each such event, the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (a) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, (b)
the date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is
anticipated to take place, and the time, if any is to be fixed, as of which the
holders of record of Common Stock (or Other Securities) shall be entitled to
exchange their shares of Common Stock (or Other Securities) for securities or
other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up and (c) the amount and character of any stock or Other Securities, or
rights or options with respect thereto, proposed to be issued or granted, the
date of such proposed issue or grant and the persons or class of persons to whom
such proposed issue or grant is to be offered or made. Such notice shall be
mailed at least twenty (20) days prior to the date specified in such notice on
which any such action is to be taken.
(S)13. Reservation of Stock Issuable on Exercise of Warrant. Sufficient
----------- -- ----- -------- -- -------- -- -------
shares of authorized but unissued Common Stock of the Company have been reserved
by appropriate corporate action in connection with the prospective exercise of
the Warrant. The issuance of the Securities will not require any further
corporate action by the stockholders or directors of the Company, is not subject
to pre-emptive rights in any present stockholders of the Company and does not
conflict with any provision of any agreement to which the Company is a party or
by which it is bound, and such Common Stock, when issued upon exercise of the
Warrant in accordance with its terms or upon such conversion, will be duly
authorized, fully paid and non-assessable.
(S)14. No Rights or Responsibilities as Shareholder. This Warrant neither
-- ------ -- ---------------- -- -----------
entitles the holder hereof to any rights, nor subjects the holder hereof to any
responsibilities, as a shareholder of the Company.
(S)15. Exchange. This Warrant is exchangeable, upon the surrender hereof
--------
by the registered holder at the principal office of the Company, for new
warrants of like tenor and date representing in the aggregate the right to
purchase the number of shares of Warrant Stock purchasable hereunder, each of
such new warrants to represent the right to purchase such number
-11-
of shares of Warrant Stock as shall be designated by said registered holder at
the time of such surrender.
(S)16. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
---- ----- ----------- -- ---------- -- -------
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto
including the cost of a surety bond, if necessary, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will make and deliver a
new warrant of like tenor and date, in lieu of this Warrant.
(S)17. Warrant Agent. The Company may, by written notice to the holder of
------- -----
this Warrant, appoint an agent having an office in Boston, Massachusetts for the
purpose of issuing Common Stock on the exercise of this Warrant pursuant to (S)2
hereof, and exchanging or replacing this Warrant pursuant to this Warrant and
the Warrant Agreement, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
(S)18. Remedies. The Company stipulates that the remedies at law of the
--------
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
(S)19. Transfer of Warrant. This Warrant and all rights hereunder are
-------- -- -------
transferable to any Permitted Transferee (as such term is defined in the Warrant
Agreement), in whole or in part, pursuant to the provisions of (S)9 of the
Warrant Agreement.
(S)20. Communications and Notices. All communications and notices
-------------- --- -------
hereunder must be in writing, either delivered in hand or sent by first-class
mail, postage prepaid, or sent by telecopier, and, if to the Company, shall be
addressed to it at the address set forth on the first page hereof, or at such
other address as the Company may hereafter designate in writing by notice to the
registered holder of this Warrant, and, if to such registered holder, addressed
to such holder at the address of such holder as shown on the books of the
Company.
(S)21. Sundays, Holidays, etc. If the last or appointed day for the
------- -------- ---
taking of any action required or the expiration of any right granted herein
shall be a Sunday or a Saturday or shall be a legal holiday or a day on which
banking institutions in Boston, Massachusetts, are authorized or required by law
to remain closed, then such action may be taken or right may be exercised on the
next succeeding day which is not a Sunday, a Saturday or a legal holiday and not
a day on which banking institutions in Boston, Massachusetts, are authorized or
required by law to remain closed.
(S)22. Miscellaneous.
-------------
(a) THIS WARRANT SHALL BE BINDING UPON THE COMPANY'S SUCCESSORS IN
- --------------------------------------------------------------
TITLE AND ASSIGNS. THIS WARRANT SHALL CONSTITUTE A CONTRACT UNDER SEAL AND, FOR
- -------------------------------------------------------------------------------
ALL PURPOSES, SHALL BE CONSTRUED IN
- -----------------------------------
-12-
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
- -----------------------------------------------------------------------------
(b) Reference is made to the Warrant Agreement. For all purposes of the
-
Warrant Agreement the original holder hereof and its Permitted Transferees shall
be bound by all of the terms and conditions contained in, and entitled to all of
the benefits of, the Warrant Agreement.
(c) In case any provision of this Warrant shall be invalid, illegal or
-
unenforceable, or partially invalid, illegal or unenforceable, the provision
shall be enforced to the extent, if any, that it may legally be enforced and the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby. This Warrant and any term hereof may
be changed, waived, discharged or terminated only by a statement in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
This Warrant shall take effect as an instrument under seal.
-13-
IN WITNESS WHEREOF, SALESLINK CORPORATION has caused this COMMON STOCK
PURCHASE WARRANT to be signed in its corporate name and its corporate seal to be
impressed hereon by its duly authorized officers.
The Company:
--- -------
Dated as of: SALESLINK CORPORATION
March 14, 1997
By: /s/ Andrew Hajducky
-------------------------------
Title:
Attest:
/s/ William Williams II
- -------------------------
Exhibit A
---------
FORM OF SUBSCRIPTION
(To be signed only on exercise or conversion of Common Stock Purchase Warrant)
TO: SALESLINK CORPORATION
The undersigned, the registered holder of the within Common Stock Purchase
Warrant of SalesLink Corporation, hereby irrevocably elects:
(check one)
A. to exercise this Common Stock Purchase Warrant for, and to purchase
------- thereunder, _____* shares of Common Stock of SalesLink Corporation
and the undersigned herewith makes payment of $_______ therefor.
B. ------- to convert _____* Warrants represented by this Common Stock Purchase
Warrant into ______ shares of Common Stock of SalesLink Corporation.
The undersigned requests that the certificates for such shares be issued in the
name of and delivered to ____________________, whose address is _______________.
Dated:
----------------- ------------------------------
(Signature must conform in all
respects to name of registered
holder as specified on the face
of the Warrant)
------------------------------
(Address)
Signed in the presence of:
- ----------------------
- ----------------------
*Insert here the number of shares (all or part of the number of shares
called for in the Common Stock Purchase Warrant) as to which the Common Stock
Purchase Warrant is being exercised or converted without making any adjustment
for any other stock or other securities or property or cash which, pursuant to
the adjustment provisions of the Common Stock Purchase Warrant, may be
deliverable on exercise or conversion.
Exhibit B
---------
FORM OF ASSIGNMENT
(To be signed only on transfer of Common Stock Purchase Warrant)
ASSIGNMENT
----------
For value received, the undersigned, _______________________, hereby sells,
assigns, and transfers unto ____________________ the right represented by the
within Common Stock Purchase Warrant to purchase _____________ shares of Common
Stock of SalesLink Corporation to which the within Common Stock Purchase Warrant
relates, and appoints ___________ Attorney to transfer such right on the books
of SalesLink Corporation with full power of substitution in the premises.
Dated:
------------- ------------------------------
(Signature must conform in all
respects to name of registered
holder as specified on the face
of the Warrant)
------------------------------
(Address)
Signed in the presence of:
- -----------------------
Exhibit 10.39
(Local Currency--Single Jurisdiction)
ISDA(R)
International Swaps and Derivatives Association, Inc.
MASTER AGREEMENT
dated as of January 14, 1997
The First National Bank of Boston and CMG Information Services, Inc. (the
"Counterparty") have entered and/or anticipate entering into one or more
transactions (each a "Transaction") that are or will be governed by this Master
Agreement, which includes the schedule (the "Schedule"), and the documents and
other confirming evidence (each a "Confirmation") exchanged between the parties
confirming those Transactions.
Accordingly, the parties agree as follows:--
1. Interpretation
(a) Definitions. The terms defined in Section 12 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) Single Agreement. All Transactions are entered into in reliance on the fact
that this Master Agreement and all Confirmations form a single agreement between
the parties (collectively referred to as this "Agreement"), and the parties
would not otherwise enter into any Transactions.
2. Obligations
(a) General Conditions.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for value
on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required
currency. Where settlement is by delivery (that is, other than by
payment), such delivery will
Copyright (R) 1992 by International Swaps and Derivatives Association, Inc.
Second Printing
be made for receipt on the due date in the manner customary for the
relevant obligation unless otherwise specified in the relevant Confirmation
or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential Event of
Default with respect to the other party has occurred and is continuing, (2)
the condition precedent that no Early Termination Date in respect of the
relevant Transaction has occurred or been effectively designated and (3)
each other applicable condition precedent specified in this Agreement.
(b) Change of Account. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) Netting. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be
made in the Schedule or a Confirmation by specifying that Subparagraph (ii)
above will not apply to the Transactions identified as being subject to the
election, together with the starting date (in which case subparagraph (ii) above
will not, or will cease to, apply to such Transactions from such date). This
election may he made separately for different groups of Transactions and will
apply separately to each pairing of branches or offices through which the
parties make and receive payments or deliveries.
(d) Default Interest; Other Amounts. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment, at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
or elsewhere in this Agreement.
2 ISDA (R) 1992
Second Printing
3. Representations
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered
into) that:--
(a) Basic Representations.
(i) Status. It is duly organised and validly existing under the laws of
the jurisdiction of its organisation or incorporation and, if relevant
under such laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver
this Agreement and any other documentation relating to this Agreement that
it is required by this Agreement to deliver and to perform its obligations
under this Agreement and any obligations it has under any Credit Support
Document to which it is a party and has taken all necessary action to
authorise such execution, delivery and performance;
(iii) No Violation or Conflict. Such execution, delivery and performance
do not violate or conflict with any law applicable to it, any provision of
its constitutional documents, any order or judgment of any court or other
agency of government applicable to it or any of its assets or any
contractual restriction binding on or affecting it or any of its assets;
(iv) Consents. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in full
force and effect and all conditions of any such consents have been complied
with; and
(v) Obligations Binding. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal, valid
and binding obligations, enforceable in accordance with their respective
terms (subject to applicable bankruptcy, reorganisation, insolvency,
moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in
equity or at law)).
(b) Absence of Certain Events. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has occurred
and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any
Credit Support Document to which it is a party.
(c) Absence of Litigation. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding at
law or in equity or before any court, tribunal, governmental body, agency or
official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to
which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) Accuracy of Specified Information. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
3 ISDA (R) 1992
Second Printing
4. Agreements
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:--
(a) Furnish Specified Information. It will deliver to the other party any
forms, documents or certificates specified in the Schedule or any Confirmation
by the date specified in the Schedule or such Confirmation or, if none is
specified, as soon as reasonably practicable.
(b) Maintain Authorisations. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.
(c) Comply with Laws. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
5. Events of Default and Termination Events
(a) Events of Default. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any of the following events constitutes an event of default (an
"Event of Default") with respect to such party:--
(i) Failure to Pay or Deliver. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or 2(d)
required to be made by it if such failure is not remedied on or before the
third Local Business Day after notice of such failure is given to the
party;
(ii) Breach of Agreement. Failure by the party to comply with or perform
any agreement or obligation (other than an obligation to make any payment
under this Agreement or delivery under Section 2(a)(i) or 2(d) or to give
notice of a Termination Event) to be complied with or performed by the
party in accordance with this Agreement if such failure is not remedied on
or before the thirtieth day after notice of such failure is given to the
party;
(iii) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of such
party to comply with or perform any agreement or obligation to be
complied with or performed by it in accordance with any Credit
Support Document if such failure is continuing after any applicable
grace period has elapsed;
(2) the expiration or termination of such Credit Support Document
or the failing or ceasing of such Credit Support Document to be in
full force and effect for the purpose of this Agreement (in either
case other than in accordance with its terms) prior to the
satisfaction of all obligations of such party under each
Transaction to which such Credit Support Document relates without
the written consent of the other party; or
4 ISDA (R) 1992
Second Printing
(3) the party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document:
(iv) Misrepresentation. A representation made or repeated or deemed to
have been made or repeated by the party or any Credit Support Provider of
such party in this Agreement or any Credit Support Document proves to have
been incorrect or misleading in any material respect when made or repeated
or deemed to have been made or repeated;
(v) Default under Specified Transaction. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party (1)
defaults under a Specified Transaction and, after giving effect to any
applicable notice requirement or grace period, there occurs a liquidation
of, an acceleration of obligations under, or an early termination of, that
Specified Transaction, (2) defaults, after giving effect to any applicable
notice requirement or grace period, in making any payment or delivery due
on the last payment, delivery or exchange date of, or any payment on early
termination of, a Specified Transaction (or such default continues for at
least three Local Business Days if there is no applicable notice
requirement or grace period) or (3) disaffirms, disclaims, repudiates or
rejects, in whole or in part, a Specified Transaction (or such action is
taken by any person or entity appointed or empowered to operate it or act
on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default, event
of default or other similar condition or event (however described) in
respect of such party, any Credit Support Provider of such party or any
applicable Specified Entity of such party under one or more agreements or
instruments relating to Specified Indebtedness of any of them (individual
or collectively) in an aggregate amount of not less than the applicable
Threshold Amount (as specified in the Schedule) which has resulted in such
Specified Indebtedness becoming, or becoming capable at such time of being
declared, due and payable under such agreements or instruments, before it
would otherwise have been due and payable or (2) a default by such party,
such Credit Support Provider or such Specified Entity (individually or
collectively) in making one or more payments on the due date thereof in an
aggregate amount of not less than the applicable Threshold Amount under
such agreements or instruments (after giving effect to any applicable
notice requirement or grace period);
(vii) Bankruptcy. The party, any Credit Support Provider of such party or
any applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to pay
its debts or fails or admits in writing its inability generally to
pay its debts as they become due; (3) makes a general assignment,
arrangement or composition with or for the benefit of its
creditors; (4) institutes or has instituted against it a proceeding
seeking a judgment of insolvency or bankruptcy or any other relief
under any bankruptcy or insolvency law or other similar law
affecting creditors' rights, or a petition is presented for its
winding-up or liquidation and, in the case of any such proceeding
or petition instituted or presented against it, such proceeding or
petition (A) results in a judgment of insolvency or bankruptcy or
the entry of an order for relief or the making of an order for its
winding-up or liquidation or (B) is not dismissed, discharged,
stayed or restrained in each case within 30 days of the institution
or presentation thereof; (5) has a resolution passed for its
winding-up, official management or liquidation (other than pursuant
to a consolidation, amalgamation or merger); (6) seeks or becomes
subject to the appointment of an administrator, provisional
5 ISDA (R) 1992
Second Printing
liquidator, conservator, receiver, trustee, custodian or other
similar official for it or for all or substantially all its assets;
(7) has a secured party take possession of all or substantially all
its assets or has a distress, execution, attachment, sequestration
or other legal process levied, enforced or sued on or against all
or substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged,
stayed or restrained, in each case within 30 days thereafter; (8)
causes or is subject to any event with respect to it which, under
the applicable laws of any jurisdiction, has an analogous effect to
any of the events specified in clauses (1) to (7) (inclusive); or
(9) takes any action in furtherance of, or indicating its consent
to, approval of, or acquiescence in, any of the foregoing acts; or
(viii) Merger Without Assumption. The party or any Credit Support Provider
of such party consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, another entity and, at
the time of such consolidation, amalgamation, merger or transfer:--
(1) the resulting, surviving or transferee entity fails to assume
all the obligations of such party or such Credit Support Provider
under this Agreement or any Credit Support Document to which it or
its predecessor was a party by operation of law or pursuant to an
agreement reasonably satisfactory to the other party to this
Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by such
resulting, surviving or transferee entity of its obligations under
this Agreement.
(b) Termination Events. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an Illegality if the
event is specified in (i) below, and, if specified to be applicable, a Credit
Event Upon Merger if the event is specified pursuant to (ii) below or an
Additional Termination Event if the event is specified pursuant to (iii)
below:--
(i) Illegality. Due to the adoption of, or any change in, any
applicable law after the date on which a Transaction is entered into, or
due to the promulgation of, or any change in, the interpretation by any
court, tribunal or regulatory authority with competent jurisdiction of any
applicable law after such date, it becomes unlawful (other than as a result
of a breach by the party of Section 4(b)) for such party (which will be the
Affected Party):--
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in respect
of such Transaction or to comply with any other material provision
of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party to
perform, any contingent or other obligation which the party (or
such Credit Support Provider) has under any Credit Support Document
relating to such Transaction;
(ii) Credit Event Upon Merger. If "Credit Event Upon Merger" is
specified in the Schedule as applying to the party, such party ("X"), any
Credit Support Provider of X or any applicable Specified Entity of X
consolidates or amalgamates with, or merges with or into, or transfers all
or substantially all its assets to, another entity and such action does not
constitute an event
6 ISDA (R) 1992
Second Printing
described in Section 5(a)(viii) but the creditworthiness of the resulting,
surviving or transferee entity is materially weaker than that of X, such
Credit Support Provider or such Specified Entity, as the case may be,
immediately prior to such action and, in such event, X or its successor or
transferee, as appropriate, will be the Affected Party); or
(iii) Additional Termination Event. If any "Additional Termination Event"
is specified in the Schedule or any Confirmation as applying, the
occurrence of such event (and, in such event, the Affected Party or
Affected Parties shall be as specified for such Additional Termination
Event in the Schedule or such Confirmation).
(c) Event of Default and Illegality. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.
6. Early Termination
(a) Right to Terminate Following Event of Default. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) Right to Terminate Following Termination Event.
(i) Notice. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying the
nature of that Termination Event and each Affected Transaction and will
also give such other information about that Termination Event as the other
party may reasonably require.
(ii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1)
occurs and there are two Affected Parties, each party will use all
reasonable efforts to reach agreement within 30 days after notice thereof
is given under Section 6(b)(i) on action to avoid that Termination Event.
(iii) Right to Terminate. If:--
(1) an agreement under Section 6(b)(ii) has not been effected with
respect to all Affected Transactions within 30 days after an
Affected Party gives notice under Section 6(b)(i); or
(2) an Illegality other than that referred to in Section 6(b)(ii),
a Credit Event Upon Merger or an Additional Termination Event
occurs,
7 ISDA (R) 1992
Second Printing
either party in the case of an Illegality, any Affected Party in the case
of an Additional Termination Event if there is more than one Affected
Party, or the party which is not the Affected Party in the case of a Credit
Event Upon Merger or an Additional Termination Event if there is only one
Affected Party may, by not more than 20 days notice to the other party and
provided that the relevant Termination Event is then continuing, designate
a day not earlier than the day such notice is effective as an Early
Termination Date in respect of all Affected Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date so
designated, whether or not the relevant Event of Default or Termination
Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section 2(a)(i)
or 2(d) in respect of the Terminated Transactions will be required to be
made, but without prejudice to the other provisions of this Agreement. The
amount, if any, payable in respect of an Early Termination Date shall be
determined pursuant to Section 6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable detail,
such calculations (including all relevant quotations and specifying any
amount payable under Section 6(e)) and (2) giving details of the relevant
account to which any amount payable to it is to be paid. In the absence of
written confirmation from the source of a quotation obtained in determining
a Market Quotation, the records of the party obtaining such quotation will
be conclusive evidence of the existence and accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day that
notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event of
Default) and on the day which is two Local Business Days after the day on
which notice of the amount payable is effective (in the case of an Early
Termination Date which is designated as a result of a Termination Event).
Such amount will be paid together with (to the extent permitted under
applicable law) interest thereon (before as well as after judgment), from
(and including) the relevant Early Termination Date to (but excluding) the
date such amount is paid, at the Applicable Rate. Such interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs, the
following provisions shall apply based on the parties election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
8 ISDA (R) 1992
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(i) Events of Default. If the Early Termination Date results from an Event
of Default:--
(1) First Method and Market Quotation. If the First Method and Market
Quotation apply, the Defaulting Party will pay to the Non-defaulting
Party the excess, if a positive number, of (A) the sum of the
Settlement Amount (determined by the Non-defaulting Party) in respect
of the Terminated Transactions and the Unpaid Amounts owing to the
Non-defaulting Party over (B) the Unpaid Amounts owing to the
Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply, the
Defaulting Party will pay to the Non-defaulting Party, if a positive
number, the Non-defaulting Party's Loss in respect of this Agreement.
(3) Second Method and Market Quotation. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A) the sum
of the Settlement Amount (determined by the Non-defaulting Party) in
respect of the Terminated Transactions and the Unpaid Amounts owing to
the Non-defaulting Party less (B) the Unpaid Amounts owing to the
Defaulting Party. If that amount is a positive number, the Defaulting
Party will pay it to the Non-defaulting Party; if it is a negative
number, the Non-defaulting Party will pay the absolute value of that
amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply, an
amount will be payable equal to the Non-defaulting Party's Loss in
respect of this Agreement. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it is a
negative number, the Non-defaulting Party will pay the absolute value
of that amount to the Defaulting Party.
(ii) Termination Events. If the Early Termination Date results from a
Termination Event:--
(1) One Affected Party. If there is one Affected Party, the amount
payable will be determined in accordance with Section 6(e)(i)(3), if
Market Quotation applies, or Section 6(e)(i)(4), if Loss applies,
except that, in either case, references to the Defaulting Party and to
the Non-defaulting Party will be deemed to be references to the
Affected Party and the party which is not the Affected Party,
respectively, and, if Loss applies and fewer than all the Transactions
are being terminated, Loss shall be calculated in respect of all
Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:--
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions, and
an amount will be payable equal to (I) the sum of (a) one-half of
the difference between the Settlement Amount of the party with
the higher Settlement Amount ("X") and the Settlement Amount of
the party with the lower Settlement Amount ("Y") and (b) the
Unpaid Amounts owing to X less (II) the Unpaid Amounts owing to
Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the Transactions
are being terminated, in respect of all terminated Transactions)
and an amount will be payable equal to one-half
9 ISDA (R) 1992
Second Printing
of the difference between the Loss of the party with the higher
Loss ("X") and the Loss of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if
it is a negative number, X will pay the absolute value of that
amount to Y.
(iii) Adjustment for Bankruptcy. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies in
respect of a party, the amount determined under this Section 6(e) will be
subject to such adjustments as are appropriate and permitted by law to
reflect any payments or deliveries made by one party to the other under
this Agreement (and retained by such other party) during the period from
the relevant Early Termination Date to the date for payment determined
under Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if market Quotation applies an
amount recoverable under this Section 6(e) is a reasonable pre-estimate of
loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks and except as otherwise
provided in this Agreement neither party will be entitled to recover any
additional damages as a consequence of such losses.
7. Transfer
Neither this Agreement nor any interest or obligation in or under this Agreement
may be transferred (whether by way of security or otherwise) by either party
without the prior written consent of the other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e)
Any purported transfer that is not in compliance with this Section will be void.
8. Miscellaneous
(a) Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) Amendments. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
10 ISDA (R) 1992
Second Printing
(d) Remedies Cumulative. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and waiver in
respect of it may be executed and delivered in counterparts (including by
facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally or
otherwise). A Confirmation shall be entered into as soon as practicable
and may be executed and delivered in counterparts (including by facsimile
transmission) or be created by an exchange of telexes or by an exchange of
electronic messages on an electronic messaging system, which in each case
will be sufficient for all purposes to evidence a binding supplement to
this Agreement. The parties will specify therein or through another
effective means that any such counterpart, telex or electronic message
constitutes a Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) Headings. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
9. Expenses
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees,
incurred by such other party by reason of the enforcement and protection of its
rights under this Agreement or any Credit Support Document to which the
Defaulting Party is a party or by reason of the early termination of any
Transaction, including, but not limited to, costs of collection.
10. Notices
(a) Effectiveness. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the date it
is delivered;
(ii) if sent by telex, on the date the recipient's answerback is
received;
(iii) if sent by facsimile transmission, on the date that transmission is
received by a responsible employee of the recipient in legible form (it
being agreed that the burden of proving
11 ISDA (R) 1992
Second Printing
receipt will be on the sender and will not be met by a transmission report
generated by the sender's facsimile machine):
(iv) if sent by certified or registered mail (airmail, if overseas) or
the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic
message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) Change of Addresses. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
11. Governing Law and Jurisdiction
(a) Governing Law. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this Agreement
is expressed to be governed by English law, or to the non-exclusive
jurisdiction of the courts of the State of New York and the United States
District Court located in the Borough of Manhattan in New York City, if
this Agreement is expressed to be governed by the laws of the State of New
York; and
(ii) waives any objection which it may have at any time to the laying of
venue of any Proceedings brought in any such court, waives any claim that
such Proceedings have been brought in an inconvenient forum and further
waives the right to object, with respect to such Proceedings, that such
court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act of 1982 or any modification, extension or re-
enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
proceedings in any other jurisdiction.
(c) Waiver of Immunities. Each party irrevocably waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
12 ISDA (R) 1992
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12. Definitions
As used in this Agreement:--
"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
"Affected Transactions" means (a) with respect to any Termination Event
consisting of an Illegality, all Transactions affected by the occurrence of such
Termination Event and (b) with respect to any other Termination Event, all
Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"Applicable Rate" means:--
(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate; and
(d) in all other cases, the Termination Rate.
"consent" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is specified as
such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with Section
6(a) or 6(b)(iii).
"Event of Default" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
13 ISDA (R) 1992
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"Illegality" has the meanings specified in Section 5(b).
"law" includes any treaty, law, rule or regulation and "lawful" and "unlawful"
will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located, (c) in
relation to any notice or other communication, including notice contemplated
under Section 5(a)(i), in the city specified in the address for notice provided
by the recipient and, in the case of a notice contemplated by Section 2(b), in
the place where the relevant new account is to be located and (d) in relation to
Section 5(a)(v)(2), in the relevant locations for performance with respect to
such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, an amount that party reasonably
determines in good faith to be its total losses and costs (or gain, in which
case expressed as a negative number) in connection with this Agreement or that
Terminated Transaction or group of Terminated Transactions, as the case may be,
including any loss of bargain, cost of funding or, at the election of such party
but without duplication, loss or cost incurred as a result of its terminating,
liquidating, obtaining or reestablishing any hedge or related trading position
(or any gain resulting from any of them). Loss includes losses and costs (or
gains) in respect of any payment or delivery required to have been made
(assuming satisfaction of each applicable condition precedent) on or before the
relevant Early Termination Date and not made, except, so as to avoid
duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does
not include a party's legal fees and out-of-pocket expenses referred to under
Section 9. A party will determine its Loss as of the relevant Early Termination
Date, or, if that is not reasonably practicable, as of the earliest date
thereafter as is reasonably practicable. A party may (but need not) determine
its Loss by reference to quotations of relevant rates or prices from one or more
leading dealers in the relevant markets.
"Market Quotation" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference Market-
maker to enter into a transaction (the "Replacement Transaction") that would
have the effect of preserving for such party the economic equivalent of any
payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have been required after that date. For this
purpose, Unpaid Amounts in respect of the Terminated Transaction or group of
Terminated Transactions are to be excluded but, without limitation, any payment
or delivery that would, but for the relevant Early Termination Date, have been
required (assuming satisfaction of each applicable condition precedent) after
that Early Termination Date is to be included. The Replacement Transaction
would be subject to such documentation as such party and the Reference Market-
maker may, in good faith, agree. The party making the determination (or its
agent) will request each Reference Market-maker to provide its quotation to the
extent reasonably practicable as of the same day and time (without regard to
different time zones) on or as soon as
14 ISDA (R) 1992
Second Printing
reasonably practicable after the relevant Early Termination Date. The day and
time as of which those quotations are to be obtained will be selected in good
faith by the party obliged to make a determination under Section 6(e), and, if
each party is so obliged, after consultation with the other. If more than three
quotations are provided, the Market Quotation will be the arithmetic mean of the
quotations, without regard to the quotations having the highest and lowest
values. If exactly three such quotations are provided, the Market Quotation
will be the quotation remaining after disregarding the highest and lowest
quotations. For this purpose, if more than one quotation has the same highest
value or lowest value, then one of such quotations shall be disregarded. If
fewer than three quotations are provided, it will be deemed that the Market
Quotation in respect of such Terminated Transaction or group of Terminated
Transactions cannot be determined.
"Non-default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"Non-defaulting Party" has the meaning specified in Section 6(a).
"Potential Event of Default" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"Reference Market-makers" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"Scheduled Payment Date" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"Set-off" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"Settlement Amount" means, with respect to a party and any Early Termination
Date, the sum of:--
(a) the Market Quotations (whether positive or negative) for each Terminated
Transaction or group of Terminated Transactions for which a Market Quotation is
determined; and
(b) such party's Loss (whether positive or negative and without reference to
any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"Specified Entity" has the meaning specified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
15 ISDA (R) 1992
Second Printing
"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"Terminated Transactions" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"Termination Event" means an Illegality or, if specified to be applicable, a
Credit Event Upon Merger or an Additional Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market value of that which was (or would have been) required to be
delivered as of the originally scheduled date for delivery, in each case
together with (to the extent permitted under applicable law) interest, in the
currency of such amounts, from (and including) the date such amounts or
obligations were or would have been required to have been paid or performed to
(but excluding) such Early Termination Date, at the Applicable Rate. Such
amounts of interest will be calculated on the basis of daily compounding and the
actual number of days elapsed. The fair market value of any obligation referred
to in clause (b) above shall be reasonably determined by the party obliged to
make the determination under Section 6(e) or, if each party is so obliged, it
shall be the average of the fair market values reasonably determined by both
parties.
16 ISDA (R) 1992
Second Printing
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
THE FIRST NATIONAL BANK OF BOSTON CMG INFORMATION SERVICES, INC.
(Name of Party) (Name of Party)
By: /s/ Randy Kautin By: /s/ Andrew J. Hajducky III
------------------------------ ---------------------------------
Name: Randy Kautin Name: Andrew J. Hajducky III
Title: Managing Director Title: Treasurer
Date: Date:
17 ISDA (R) 1992
Second Printing
Exhibit 10.40
January 14, 1997
CMG Information Services, Inc.
187 Ballardvale Street
Suite B110
Wilmington, MA 01887-7000
Attention: Andrew J. Hajducky III
Re: Transaction
-----------
The purpose of this letter is to confirm the terms and conditions of the
Transaction entered into between us as of January 14, 1997 (the "Transaction").
This letter constitutes a "Confirmation" as referred to in the Master Agreement
(Local Currency) entered into between us and dated as of January 14, 1997 (the
"Swap Agreement") and incorporates by reference the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc.) (the
"1991 Definitions").
This Confirmation supplements, forms a part of, and is subject to, the Swap
Agreement. All provisions set forth in the 1991 Definitions or contained or
incorporated by reference in the Swap Agreement shall govern this Confirmation
except as expressly modified below. It is our intention to have this
Confirmation serve as the final documentation for this trade and accordingly, no
letter Confirmation will follow.
This Confirmation will be governed by and construed in accordance with the laws
of the State of New York, without reference to choice of law doctrine.
The terms of the Transaction to which this Confirmation relates are as follows:
1. Parties
-------
The parties are:
(1) The First National Bank of Boston ("Bank")
Office through which this Transaction is booked and address for
notices:
The First National Bank of Boston
100 Federal Street
Boston, MA 02110
Attention:
Telex:
Answerback:
Telecopy No.:
Account for
Payments: [To Be Advised]
(2) CMG Information Systems Inc.
(the "Counterparty")
Office through which this Transaction is booked and address for
notices:
CMG Information Systems, Inc.
187 Ballardvale Street
Suite B110
Wilmington, MA 01887-7000
Attention:
Telex No.:
Answerback:
Facsimile No.:
Telephone No.:
Account for Payments: [To be advised]
2. Payments
--------
(a) On each Payment Date, the Counterparty shall pay to Bank a Floating
Amount in USD (the "Counterparty Note Floating Amount") computed in accordance
with Section 6.1 of the 1991 Definitions as follows:
(i) "Calculation Amount" means USD $10,000,000;
(ii) "Floating Rate Option" means USD-LIBOR-BBA;
(iii) "Designated Maturity" means 3 month;
(iv) "Spread" means plus 1.75% per annum;
(v) "Reset Date" means the first day of each Calculation Period;
and
(vi) "Floating Rate Day Count Fraction" means Actual/365.
2
(b) On the Termination Date, the Bank and Counterparty shall pay the
amounts set forth in this paragraph (b). Upon a repurchase of the Underlying
Shares in accordance with the terms of the Repurchase Agreement, (i) the Bank
shall pay or cause to be paid to the Counterparty an amount equal to the
positive difference, if any, between the Liquidation Amount and the Final
Payment Amount and (ii) the Counterparty shall pay to the Bank an amount equal
to the positive difference, if any, between the Final Payment Amount and the
Liquidation Amount. If the Underlying Shares have not been purchased in
accordance with the terms of the Repurchase Agreement, (i) the Bank shall pay or
cause to be paid to the Counterparty an amount in USD equal to the Liquidation
Amount minus any liquidation expenses incurred by the Bank in connection with
such liquidation and (ii) the Counterparty shall pay to the Bank an amount in
USD equal to the Final Payment Amount.
(c) When paid by the Issuer and received by the holders of the Underlying
Shares, Bank shall pay to the Counterparty an aggregate amount equal to any
payments in respect of dividends with respect to the Underlying Shares.
(d) Upon the occurrence of an Event of Default or a Termination Event
relating to the Counterparty and the exercise by the Bank of its right to
terminate this Agreement prior to the Termination Date, the Counterparty shall
pay to the Bank a fee, in addition to the other amounts payable hereunder, equal
to the product of (I) 175 basis points; (II) the Calculation Amount and (III)
1/365 payable for each calendar day elapsed from (and including) the Early
Termination Date to (but excluding) the Termination Date.
3. Definitions
-----------
In this confirmation:
"Calculation Agent" means Bank. All determinations and calculations
by the Calculation Agent shall (a) be made in good faith and in the exercise
of its commercially reasonable judgment and (b) be determined, where
applicable, on the basis of then prevailing market rates or prices. All such
determinations and calculations shall be binding on the Counterparty in the
absence of manifest error.
"Effective Date" means January 17, 1997.
"Final Payment Amount" means an amount equal to USD 10,000,000.
"Issuer" means Lycos, Inc., a Delaware corporation.
3
"Liquidation Amount" means an amount calculated three (3) Business
Days prior to the Termination Date equal to the fair market value on such
date of the Underlying Shares as calculated by the Calculation Agent.
"Payment Dates" means each April 17, July 17, October 17 and January
17 commencing on April 17 1997 and ending on the Termination Date (with the
final Payment Date to be the Termination Date), subject to adjustment in
accordance with the Modified Following Business Day Convention.
"Repurchase Agreement" means the repurchase agreement, dated as of
January 14, 1997, among CMG @ Ventures L.P., the Counterparty, and Long
Lane Master Trust relating to the repurchase of the Underlying Shares.
"Termination Date" means January 17, 1998.
"Underlying Shares" means the shares of common stock, par value of USD
$.01, of the Issuer, with an aggregate market value of $10,000,000.
4. Other Provisions
----------------
(a) Business Day. As used herein, "Business Day" means a day on which
------------
banks are open for business in Boston, Massachusetts and New York, New York
other than a Saturday or a Sunday.
(b) Adjustment to Shares. In the event of a change affecting the
--------------------
Underlying Shares, including without limitation, a capitalization issue, rights
issue, share split, merger, consolidation, amalgamation, sub-division, capital
reduction, recapitalization, reclassification, dissolution, liquidation, winding
up or other similar event, which occurs after the Trade Date but before the
Termination Date, the Calculation Agent shall (after consultation with the
Counterparty), if necessary, (i) adjust the number of Underlying Shares and/or
the Calculation Amount with respect to payments made pursuant to paragraph 2 of
this Confirmation and (ii) determine the effective date of such adjustments, if
any, to achieve as nearly as practicable the economic position the Counterparty
would have been in had it been the holder of the Underlying Shares upon the
occurrence of such event.
4
Please confirm your agreement to be bound by the terms of the foregoing by
executing the copy of this Confirmation enclosed for that purpose and returning
it to us.
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Randy Kautin
-----------------------------
Name:
Title:
Accepted and confirmed as of
the date first above written
CMG INFORMATION SERVICES, INC.
By: /s/ Andrew J. Hajducky
------------------------
Name:
Title:
5
SCHEDULE
to the
Master Agreement
dated as of January 14, 1997
between
The First National and CMG Information Services, Inc.
Bank of Boston (the "Counterparty")
("Bank")
Part 1
------
Termination Provisions
----------------------
In this Agreement:
(1) "Specified Entity":
(a) means, in relation to Bank, none, and
(b) means, in relation to the Counterparty, all affiliates of the
Counterparty, including, without limitation, Direct Interactive Inc., Saleslink
Corporation, and Pacific Direct Marketing Corp.
(2) "Specified Transaction" will have the meaning specified in Section 14 of
this Agreement.
(3) The "Cross Default" provisions of Section 5(a)(vi) will apply to Bank and
the Counterparty, and for such purpose:
(a) "Specified Indebtedness" means (i) with respect to either party
hereto, any obligation (whether present or future, contingent or
otherwise, as principal or surety or otherwise) in respect of borrowed
money and (ii) with respect to the Counterparty, the Revolving Credit
and Term Loan Agreement, dated as of October 24, 1996 among the Bank,
the Counterparty, Saleslink Corporation, Pacific Direct Marketing
Corp., and the other lending institutions set forth on Schedule I
thereto.
6
(b) "Threshold Amount" means (i) in relation to Bank, an amount equal to 3
percent of the total stockholders' equity of Bank and (ii) in relation
to the Counterparty, U.S. $500,000.
(4) "Termination Currency" means United States Dollars.
(5) The "Credit Event Upon Merger" provisions of Section 5(b)(iv) of the
Agreement will apply to Bank and the Counterparty.
(6) "Additional Termination Event" means for purposes of Section 5(c), any
termination by the Counterparty, at its sole discretion, upon delivery of
written notice to the Bank five Business Days prior to such termination.
(7) The "Automatic Early Termination" provisions of Section 6(a) will not apply
to either party.
(8) For purposes of computing amounts payable on early termination:
(a) Market Quotation will apply to this Agreement, and
(b) The Second Method will apply to this Agreement.
Part 2
------
Agreement to Deliver Documents
------------------------------
For the purpose of Section 4(a), each party agrees to deliver the following
documents, as applicable.
Party required to Form/Document Certificate Date by which to Covered by
deliver document be delivered Section 3(d)
- ---------------- ------------------------- ---------------- Representation
---------------
Counterparty An executed United States Upon execution of this
Internal Revenue Service Agreement
form W-9 (or any successor
thereto).
Counterparty and A certificate of an Upon execution of this Yes
Bank authorized officer for Agreement and as deemed
such party certifying the necessary for any further
authority, names and true documentation.
signatures of the officers
signing this Agreement and
each Confirmation
reasonably satisfactory in
form and substance to
each party.
7
Counterparty Certified copies of Upon execution of this Yes
documents evidencing each Agreement.
action taken by Counter-
party to authorize its
execution of this
Agreement, and each
Confirmation, and the
performance of its
obligations hereunder as
well as its bylaws and
articles of incorporation.
Counterparty Annual audited financial Promptly upon request. Yes
statements prepared in
accordance with generally
accepted accounting
principles in the
United States.
Counterparty Quarterly unaudited Promptly upon request. Yes
financial statements
prepared in accordance
with generally accepted
accounting principles
in the United States.
Counterparty A written opinion of Upon execution of this No
legal counsel to Counter- Agreement if requested and
party reasonably as deemed necessary.
satisfactory in form and
substance to Bank.
Counterparty Such other documents as Promptly upon request. Yes
Bank may reasonably
request in connection
with each transaction.
Part 3
------
Miscellaneous
-------------
(1) Governing Law. This Agreement will be governed by and construed in
-------------
accordance with the laws of the State of New York without reference to
choice of law doctrine.
(2) Notices.
-------
(a) In connection with Section 10, all notices to Bank shall, with respect
to any particular Transaction, be sent to the address, telex number or
facsimile number specified in the relevant Confirmation, and any
notice for purposes of Sections 5 or 6 shall be sent to the address,
telex number or facsimile number specified below.
First National Bank of Boston
100 Federal Street
Boston, MA 02110
Attention:
Telex:
Answerback:
Facsimile No.:
8
(b) In connection with Section 10, all notices to the Counterparty shall,
with respect to any particular Transaction, be sent to the address,
telex number or facsimile number specified in the relevant
Confirmation and any notice for purposes of Section 5 or 6 shall be
sent to the address, telex number or facsimile number specified below:
CMG Information Services, Inc.
187 Ballardvale Street
Suite B110
Wilmington, MA 01887-7000
Attention:
Telex:
Answerback:
Facsimile No.:
(3) Netting of Payments. Section 2(c)(ii) of this Agreement will apply with
-------------------
respect to all Transactions under this Agreement.
(4) Credit Support Documents
------------------------
With respect to this Agreement, Credit Support Document means the ISDA
Credit Support Annex, dated the date hereof, between the parties hereto,
which shall provide credit support for the obligations of the Counterparty
to the Bank and which shall have an Independent Amount equal to $7,000,000.
(5) Credit Support Provider
-----------------------
None.
Part 4
------
Other Provisions
----------------
(1) ISDA Definitions. Reference is hereby made to the 1991 ISDA Definitions
----------------
(the "ISDA Definitions") each as published by the International Swaps and
Derivatives Association, Inc., which are hereby incorporated by reference
herein. Any terms used and not otherwise defined herein which are contained
in the ISDA Definitions shall have the meaning set forth therein.
(2) Set-off. "Set-off" shall, for purposes of this Agreement and any Credit
-------
Support Document, have the meaning set forth in Section 12 and shall
include without limitation the
9
rights in Section 6(f). Section 6 of this Agreement is modified to include
the following additional sub-clause (f):
"(f) Set-off. Any amount (the "Early Termination Amount") payable to one
party (the "Payee") by the other party (the "Payer") under Section
6(e), in circumstances where there is a Defaulting Party or one
Affected Party will, at the option of the party ("X") other than the
Defaulting Party or Affected Party (and without prior notice to same)
be reduced by its set-off against any amount(s) (the "Other Agreement
Amount") payable (whether at such time or in the future or upon the
occurrence of a contingency) by the Payee to the Payer (irrespective
of the place of payment or booking office of such obligation) under
any other agreement(s) between the Payee and the Payer or
instrument(s) or undertaking(s) issued or executed by one party to,
or in favor of, the other party (and the Other Agreement Amount(s)
will be discharged promptly and in all respects to the extent it is
so set-off). X will give notice to the other party of any set-off
effected under this Section 6(f).
If an obligation is unascertained, X may in good faith estimate that
obligation and set-off in respect of the estimate, subject to the
relevant party accounting to the other when the obligation is
ascertained.
Nothing in this Section 6(f) shall be effective to create a charge or
other security interest. This Section 6(f) shall be without prejudice
and in addition to any right of set-off otherwise available to a
party (whether by operation of law, contract, or otherwise)."
(3) Calculation Agent. The Calculation Agent will be Bank.
-----------------
(4) Severability. In the event any one or more of the provisions contained in
------------
this Agreement should be held invalid, illegal, or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby. The parties shall endeavor, in good faith negotiations, to
replace the invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
(5) Non-Reliance. In connection with the negotiation of the entering into, and
------------
the confirming of the execution of this Agreement, each Transaction, and
any other documentation
10
relating to this Agreement to which the Counterparty is a party or that the
Counterparty is required by this Agreement to deliver:
(i) the Counterparty is acting for its own account, and it has made its
own independent decisions to enter into that Transaction and as to
whether that Transaction is appropriate or proper for it based upon
its own judgment and upon advice from such advisors as it has deemed
necessary;
(ii) the Counterparty is not relying (for purposes of making any
investment decision or otherwise) upon any advice, counsel, or
representations (whether written or oral) of the other party to this
Agreement, each Transaction or such other documentation other than
the representations expressly set forth in this Agreement, and in
any Confirmation; it being understood that information and
explanations related to the terms and conditions of a Transaction
shall not be considered investment advice or a recommendation to
enter into that Transaction. No communication (written or oral)
received from the other party shall be deemed to be an assurance or
guarantee as to the expected results of that Transaction;
(iii) the Counterparty has consulted with its own legal, regulatory, tax,
business, investment, financial and accounting advisors to the
extent it has deemed necessary, and it has made its own investment,
hedging and trading decisions (including decisions regarding the
suitability of any Transaction pursuant to this Agreement) based
upon any advice from such advisors as it has deemed necessary and
not upon any view expressed by the other party to this Agreement,
each Transaction or such other documentation;
(iv) the Counterparty is capable of assessing the merits of and
evaluating and understanding (on its own behalf or through
independent professional advice), and it has a full understanding of
all the terms, conditions, and risks (economic and otherwise) of the
Agreement, each Transaction, and such other documentation and is
capable of assuming and willing to assume (financially and
otherwise) those risks;
(v) the Counterparty is entering into this Agreement, each Transaction,
and such other documentation for
11
the purposes of managing its borrowings or investments, hedging its
underlying assets or liabilities or in connection with a line of
business and not for purposes of speculation;
(vi) the Counterparty is entering into this Agreement, each Transaction,
and such other documentation as principal, and not as agent or in
any other capacity, fiduciary or otherwise; and
(vii) the Bank (a) is not acting as a fiduciary or financial, investment
or commodity trading advisor for it; (b) has not given to the
Counterparty (directly or indirectly through any other person) any
assurance, guaranty or representation whatsoever as to the merits
(either legal, regulatory, tax, financial, accounting or otherwise)
of this Agreement, each Transaction, and such other documentation;
and (c) has not committed to unwind the Transactions.
(6) Waiver of Jury Trial. Each party hereby irrevocably waives any and all
--------------------
right to trial by jury in any proceedings arising out of or relating to
this Agreement or any transaction contemplated hereby.
(7) Confidentiality. The existence of this Agreement, its contents and the
---------------
existence of and contents and all other instruments and documents relating
to this Agreement, and any information made available by one party to the
other party with respect to this Agreement or any Transaction hereunder is
confidential and shall not be discussed with or disclosed to any third
party (nor shall any public announcement or press release relating to this
Agreement or any Transaction hereunder be made by either party, except with
the prior written consent of the other party hereto), except for such
information (i) as may become generally available to the public, (ii) as
may be required or appropriate in response to any summons, or otherwise in
connection with any litigation or to comply with any applicable law, order,
regulation, ruling, or accounting disclosure rule or standard (iii) as may
be obtained from a non-confidential source that disclosed such information
in a manner that did not violate its obligations to the other party in
making such disclosure, or (iv) as may be furnished to that party's
auditors, attorneys, advisors, or financial institutions with which the
party has a written agreement or which are otherwise required to keep the
information that is disclosed in confidence.
12
Please confirm your agreement to be bound by the terms of the foregoing by
executing the copy of this Confirmation enclosed for that purpose and returning
it to us.
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Randy Kautin
------------------------------
Name: Randy Kautin
Title:
Accepted and confirmed as of
the date first above written
CMG INFORMATION SERVICES, INC.
By: /s/ Andrew J. Hajducky
----------------------------
Name:
Title:
13
Exhibit 10.41
(Bilateral Form) (ISDA Agreements Subject to New York Law Only)
ISDA(R)
International Swaps and Derivatives Association, Inc.
CREDIT SUPPORT ANNEX
to the Schedule to the
ISDA Master Agreement (Local Currency)
dated as of January 14, 1997
between
The First National Bank of Boston and CMG Information Services, Inc.
("Party A") ("Party B")
This Annex supplements, forms part of, and is subject to, the above-referenced
Agreement, is part of its Schedule and is a Credit Support Document under this
Agreement with respect to each party.
Accordingly, the parties agree as follows: --
Paragraph 1. Interpretation
(a) Definitions and Inconsistency. Capitalized terms not otherwise defined
herein or elsewhere in this Agreement have the meanings specified pursuant to
Paragraph 12, and all references in this Annex to Paragraphs are to Paragraphs
of this Annex. In the event of any inconsistency between this Annex and the
other provisions of this Schedule, this Annex will prevail, and in the event of
any inconsistency between Paragraph 13 and the other provisions of this Annex,
Paragraph 13 will prevail.
(b) Secured Party and Pledgor. All references in this Annex to the "Secured
Party" will be to either party when acting in that capacity and all
corresponding references to the "Pledgor" will be to the other party when acting
in that capacity; provided, however, that if Other Posted Support is held by a
party to this Annex, all references herein to that party as the secured Party
with respect to that Other Posted Support will be to that party as the
beneficiary thereof and will not subject that support or that party as the
beneficiary thereof to provisions of law generally relating to security
interests and secured parties.
Paragraph 2. Security Interest
Each party, as the Pledgor, hereby pledges to the other party, as the Secured
Party, as security for its Obligations, and grants to the Secured Party a first
priority continuing security interest in, lien on and right of Set-off against
all Posted Collateral Transferred to or received by the Secured Party hereunder.
Upon the Transfer by the Secured Party to the Pledgor of Posted Collateral, the
security interest and lien
Copyright(C) 1994 by international Swaps and Derivatives Association, Inc.
granted hereunder on that Posted Collateral will be released immediately and, to
the extent possible, without any further action by either party.
Paragraph 3. Credit Support Obligations
(a) Delivery Amount. Subject to Paragraphs 4 and 5, upon a demand made by the
Secured Party on or promptly following a Valuation Date, if the Delivery Amount
for that Valuation Date equals or exceeds the Pledgor's Minimum Transfer Amount,
then the Pledgor will Transfer to the Secured Party Eligible Credit Support
having a Value as of the date of Transfer at least equal to the applicable
Delivery Amount (rounded pursuant to Paragraph 13). Unless otherwise specified
in Paragraph 13, the "Delivery Amount" applicable to the Pledgor for any
Valuation Date will equal the amount by which:
(i) the Credit Support Amount
exceeds
(ii) the Value as of that Valuation Date of all Posted Credit Support held
by the Secured Party.
(b) Return Amount. Subject to Paragraphs 4 and 5, upon a demand made by the
Pledgor on or promptly following a Valuation Date, if the Return Amount for that
Valuation Date equals or exceeds the Secured Party's Minimum Transfer Amount,
then the Secured Party will Transfer to the Pledgor Posted Credit Support
specified by the Pledgor in that demand having a Value as of the date of
Transfer as close as practicable to the applicable Return Amount (rounded
pursuant to Paragraph 13). Unless otherwise specified in Paragraph 13, the
"Return Amount" applicable to the Secured Party for any Valuation Date will
equal the amount by which:
(i) the Value as of that Valuation Date of all Posted Credit Support held
by the Secured Party
exceeds
(ii) the Credit Support Amount.
"Credit Support Amount" means, unless otherwise specified in Paragraph 13, for
any Valuation Date (i) the Secured Party's Exposure for that Valuation Date plus
(ii) the aggregate of all Independent Amounts applicable to the Pledgor, if any,
minus (iii) all Independent Amounts applicable to the Secured Party, if any,
minus (iv) the Pledgor's Threshold; provided, however, that the Credit Support
Amount will be deemed to be zero whenever the calculation of Credit Support
Amount yields a number less than zero.
Paragraph 4. Conditions Precedent, Transfer Timing, Calculations and
Substitutions
(a) Conditions Precedent. Each Transfer obligation of the Pledgor under
Paragraphs 3 and 5 and of the Secured Party under Paragraphs 3, 4(d)(ii), 5 and
6(d) is subject to the conditions precedent that:
(i) no Event of Default, Potential Event of Default or Specified Condition
has occurred and is continuing with respect to the other party; and
(ii) no Early Termination Date for which any unsatisfied payment
obligations exist has occurred or been designated as the result of an Event
of Default or Specified Condition with respect to the other party.
2 ISDA(R) 1994
(b) Transfer Timing. Subject to Paragraphs 4(a) and 5 and unless otherwise
specified, if a demand for the Transfer of Eligible Credit Support or Posted
Credit Support is made by the Notification Time, then the relevant Transfer will
be made not later than the close of business on the next Local Business Day; if
a demand is made after the Notification Time, then the relevant Transfer will be
made not later than the close of business on the second Local Business Day
thereafter.
(c) Calculations. All calculations of Value and Exposure for purposes of
Paragraphs 3 and 6(d) will be made by the Valuation Agent as of the Valuation
Time. The Valuation Agent will notify each party (or the other party, if the
Valuation Agent is a party) of its calculations not later than the Notification
Time on the Local Business Day following the applicable Valuation Date (or in
the case of Paragraph 6(d), following the date of calculation).
(d) Substitutions.
(i) Unless otherwise specified in Paragraph 13, upon notice to the Secured
Party specifying the items of Posted Credit Support to be exchanged, the
Pledgor may, on any Local Business Day, Transfer to the Secured Party
substitute Eligible Credit Support (the "Substitute Credit Support"); and
(ii) Subject to Paragraph 4(a), the Secured Party will Transfer to the
Pledgor the items of Posted Credit Support specified by the Pledgor in its
notice not later than the Local Business Day following the date on which
the Secured Party receives the Substitute Credit Support, unless otherwise
specified in Paragraph 13 (the "Substitution Date"); provided that the
Secured Party will only be obligated to Transfer Posted Credit Support with
a Value as of the date of Transfer of that Posted Credit Support equal to
the Value as of that date of the Substitute Credit Support.
Paragraph 5. Dispute Resolution
If a party (a "Disputing Party") disputes (I) the Valuation Agent's calculation
of a Delivery Amount or a Return Amount or (II) the Value of any Transfer of
Eligible credit Support or Posted credit Support, then (1) the Disputing Party
will notify the other party and the Valuation Agent (if the Valuation Agent is
not the other party) not later than the close of business on the Local Business
Day following (X) the date that the demand is made under Paragraph 3 in the case
of (I) above or (Y) the date of Transfer in the case of (II) above, (2) subject
to Paragraph 4(a), the appropriate party will Transfer the undisputed amount to
the other party not later than the close of business on the Local Business Day
following (X) the date that the demand is made under Paragraph 3 in the case of
(I) above or (Y) the date of transfer in the case of (II) above, (3) the parties
will consult with each other in an attempt to resolve the dispute and (4) if
they fail to resolve the dispute by the Resolution Time, then:
(i) In the case of a dispute involving a Delivery Amount or Return Amount,
unless otherwise specified in Paragraph 13, the Valuation Agent will
recalculate the Exposure and the Value as of the Recalculation Date by:
(A) utilizing any calculations of Exposure for the Transactions (or
Swap Transactions) that the parties have agreed are not in dispute;
(B) calculating the Exposure for the Transactions (or Swap
Transactions) in dispute by seeking four actual quotations at mid-
market from Reference Market-makers for purposes of calculating Market
Quotation, and taking the arithmetic average of those obtained;
provided that if four quotations are not available for a particular
Transaction
3 ISDA(R) 1994
(or Swap Transaction), then fewer than four quotations may be used for
that Transaction (or Swap Transaction); and if no quotations are
available for a particular Transaction (or Swap Transaction), then the
Valuation Agent's original calculations will be used for that
Transaction (or Swap Transaction); and
(C) utilizing the procedures specified in Paragraph 13 for calculating
the Value, if disputed, of Posted Credit Support.
(ii) In the case of a dispute involving the Value of any Transfer of
Eligible Credit Support or Posted Credit Support, the Valuation Agent will
recalculate the Value as of the date of Transfer pursuant to Paragraph 13.
Following a recalculation pursuant to this Paragraph, the Valuation Agent will
notify each party (or the other party, if the Valuation Agent is a party) not
later than the Notification Time on the Local Business Day following the
Resolution Time. The appropriate party will, upon demand following that notice
b the Valuation Agent or a resolution pursuant to (3) above and subject to
Paragraphs 4(a) and 4(b), make the appropriate Transfer.
Paragraph 6. Holding and Using Posted Collateral
(a) Care of Posted Collateral. Without limiting the Secured Party's rights
under Paragraph 6(c), the Secured Party will exercise reasonable care to assure
the safe custody of all Posted Collateral to the extent required by applicable
law, and in any event the Secured Party will be deemed to have exercised
reasonable care if it exercises at least the same degree of care as it would
exercise with respect to its own property. Except as specified in the preceding
sentence, the Secured party will have no duty with respect to Posted Collateral,
including, without limitation, any duty to collect any Distributions, or enforce
or preserve any rights pertaining thereto.
(b) Eligibility to Hold Posted Collateral; Custodians.
(i) General. Subject to the satisfaction of any conditions specified in
Paragraph 13 for holding Posted Collateral, the Secured Party will be
entitled to hold Posted Collateral or to appoint an agent (a "Custodian")
to hold Posted Collateral for the Secured Party. Upon notice by the
Secured Party to the Pledgor of the appointment of a Custodian, the
Pledgor's obligations to make any Transfer will be discharged by making the
Transfer to that Custodian. The holding of Posted Collateral by a
Custodian will be deemed to be the holding of that Posted Collateral by the
Secured Party for which the Custodian is acting.
(ii) Failure to Satisfy Conditions. If the Secured Party or its Custodian
fails to satisfy any conditions for holding Posted Collateral, then upon a
demand made by the Pledgor, the Secured Party will, not later than five
Local Business Days after the demand, Transfer or cause its Custodian to
Transfer all Posted Collateral held by it to a Custodian that satisfies
those conditions or to the Secured Party if it satisfies those conditions.
(iii) Liability. The Secured Party will be liable for the acts or
omissions of its Custodian to the same extent that the Secured Party would
be liable hereunder for its own acts or omissions.
(c) Use of Posted Collateral. Unless otherwise specified in Paragraph 13 and
without limiting the rights and obligations of the parties under Paragraphs 3,
4(d)(ii), 5, 6(d) and 8, if the Secured Party is not a Defaulting Party or an
Affected Party with respect to a Specified condition and no Early
4 ISDA(R) 1994
Termination Date has occurred or been designated as the result of an Event of
Default or Specified condition with respect to the Secured Party, then the
Secured Party will, notwithstanding Section 9-207 of the New York Uniform
Commercial Code, have the right to:
(i) sell, pledge, rehypothecate, assign, invest, use, commingle or
otherwise dispose of, or otherwise use in its business any Posted
Collateral it holds, free from any claim or right of any nature whatsoever
of the Pledgor, including any equity or right of redemption by the Pledgor;
and
(ii) register any Posted Collateral in the name of the Secured Party, its
Custodian or a nominee for either.
For purposes of the obligation to Transfer Eligible Credit Support or Posted
Credit Support pursuant to Paragraphs 3 and 5 and any rights or remedies
authorized under this Agreement, the Secured Party will be deemed to continue to
hold all Posted Collateral and to receive Distributions made thereon, regardless
of whether the Secured Party has exercised any rights with respect to any Posted
Collateral pursuant to (i) or (ii) above.
(d) Distributions and Interest Amount.
(i) Distributions. Subject to Paragraph 4(a), if the Secured Party
receives or is deemed to receive Distributions on a Local Business Day, it
will Transfer to the Pledgor not later than the following Local Business
Day any Distributions it receives or is deemed to receive to the extent
that a Delivery Amount would not be created or increased by that Transfer,
as calculated by the Valuation Agent (and the date of calculation will be
deemed to be a Valuation Date for this purpose).
(ii) Interest Amount. Unless otherwise specified in Paragraph 13 and
subject to Paragraph 4(a), in lieu of any interest, dividends or other
amounts paid or deemed to have been paid with respect to Posted Collateral
in the form of Cash (all of which may be retained by the Secured Party),
the Secured Party will Transfer to the Pledgor at the times specified in
Paragraph 13 the Interest Amount to the extent that a Delivery Amount would
not be created or increased by that Transfer, as calculated by the
Valuation Agent (and the date of calculation will be deemed to be a
Valuation Date for this purpose). The Interest Amount or portion thereof
not Transferred pursuant to this Paragraph will constitute Posted
Collateral in the form of Cash and will be subject to the security interest
granted under Paragraph 2.
Paragraph 7. Events of Default
For purposes of Section 5(a)(iii)(1) of this Agreement, an Event of Default will
exist with respect to a party if:
(i) that party fails (or fails to cause its Custodian) to make, when due,
any Transfer of Eligible Collateral, Posted Collateral or the Interest
Amount, as applicable, required to be made by it and that failure continues
for two Local Business Days after notice of that failure is given to that
party;
(ii) that party fails to comply with any restriction or prohibition
specified in this Annex with respect to any of the rights specified in
Paragraph 6(c) and that failure continues for five Local Business Days
after notice of that failure is given to that party; or
5 ISDA(R) 1994
(iii) that party fails to comply with or perform any agreement or
obligation other than those specified in Paragraphs 7(i) and 7(ii) and that
failure continues for 30 days after notice of that failure is given to that
party.
Paragraph 8. Certain Rights and Remedies.
(a) Secured Party's Rights and Remedies. If at any time (1) an Event of
Default of Specified Condition with respect to the Pledgor has occurred and is
continuing or (2) and Early Termination Date has occurred or been designated as
the result of an Event of Default or Specified Condition with respect to the
Pledgor, then, unless the Pledgor has paid in full all of its Obligations that
are then due, the Secured Party may exercise one or more of the following rights
and remedies:
(i) all rights and remedies available to a secured party under applicable
law with respect to Posted Collateral held by the Secured Party;
(ii) any other rights and remedies available to the Secured Party under
the terms of Other Posted Support, if any;
(iii) the right to Set-off any amounts payable by the Pledgor with respect
to any Obligations against any Posted Collateral or the Cash equivalent of
any Posted Collateral held by the Secured Party (or any obligation of the
Secured Party to Transfer that Posted Collateral); and
(iv) the right to liquidate any Posted Collateral held by the Secured
Party through one or more public or private sales or other dispositions
with such notice, if any, as may be required under applicable law, free
from any claim or right of any nature whatsoever of the Pledgor, including
any equity or right of redemption by the Pledgor (with the Secured Party
having the right to purchase any or all of the Posted Collateral to be
sold) and to apply the proceeds (or the Cash equivalent thereof) from the
liquidation of the Posted Collateral to any amounts payable by the Pledgor
with respect to any Obligations in that order as the Secured Party may
elect.
Each party acknowledges and agrees that Posted Collateral in the form of
securities may decline speedily in value and is of a type customarily sold on a
recognized market, and, accordingly, the Pledgor is not entitled to prior notice
of any sale of that Posted Collateral by the Secured Party, except any notice
that is required under applicable law and cannot be waived.
(b) Pledgor's Rights and Remedies. If at any time an Early Termination Date
has occurred or been designated as the result of an Event of Default or
Specified Condition with respect to the Secured Party, then (except in the case
of an Early Termination Date relating to less than all Transactions (or Swap
Transactions) where the Secured Party has paid in full all of its obligations
that are then due under Section 6(e) of this Agreement):
(i) the Pledgor may exercise all rights and remedies available to a pledgor
under applicable laws with respect to Posted Collateral held by the Secured
Party;
(ii) the Pledgor may exercise any other rights and remedies available to
the Pledgor under the terms of Other Posted Support, if any;
(iii) the Secured Party will be obligated immediately to Transfer all
Posted Collateral and the Interest Amount to the Pledgor; and
6 ISDA(R) 1994
(iv) to the extent that Posted Collateral or the Interest Amount is not so
Transferred pursuant to (iii) above, the Pledgor may:
(A) Set-off any amounts payable by the Pledgor with respect to any
Obligations against any Posted Collateral or the Cash equivalent of
any Posted Collateral held by the Secured Party (or any obligation of
the Secured Party to Transfer that Posted Collateral); and
(B) to the extent that the Pledgor does not Set-off under (iv)(A)
above, withhold payment of any remaining amounts payable by the
Pledgor with respect to any Obligations, up to the Value of any
remaining Posted Collateral held by the Secured Party, until that
Posted Collateral is Transferred to the Pledgor.
(c) Deficiencies and Excess Proceeds. The Secured Party will Transfer to the
Pledgor any proceeds and Posted Credit Support remaining after liquidation, Set-
off and/or application under Paragraphs 8(a) and 8(b) after satisfaction in full
of all amounts payable by the Pledgor with respect to any Obligations; the
Pledgor in all events will remain liable for any amounts remaining unpaid after
any liquidation, Set-off and/or application under Paragraphs 8(a) and 8(b).
(d) Final Returns. When no amounts are or thereafter may become payable by the
Pledgor with respect to any Obligations (except for any potential liability
under Section 2(d) of this Agreement), the Secured Party will Transfer to the
Pledgor all Posted Credit Support and the Interest Amount, if any.
Paragraph 9. Representations
Each party represents to the other party (which representations will be deemed
to be repeated as of each date on which it, as the Pledgor, Transfers Eligible
Collateral) that:
(i) it has the power to grant a security interest in and lien on any
Eligible Collateral it Transfers as the Pledgor and has taken all necessary
actions to authorize the granting of that security interest and lien;
(ii) it is the sole owner of or otherwise has the right to Transfer all
Eligible Collateral it Transfers to the Secured Party hereunder, free and
clear of any security interest, lien, encumbrance or other restrictions
other than the security interest and lien granted under Paragraph 2;
(iii) upon the Transfer of any Eligible Collateral to the Secured Party
under the terms of this Annex, the Secured Party will have a valid and
perfected first priority security interest therein (assuming that any
central clearing corporation or any third-party financial intermediary or
other entity not within the control of the Pledgor involved in the Transfer
of that Eligible Collateral gives the notices and takes the action required
of it under applicable law for perfection of that interest); and
(iv) the performance by it of its obligations under this Annex will not
result in the creation of any security interest, lien or other encumbrance
on any Posted Collateral other than the security interest and lien granted
under Paragraph 2.
7 ISDA(R) 1994
Paragraph 10. Expenses
(a) General. Except as otherwise provided in Paragraphs 10(b) and 10(c), each
party will pay its own costs and expenses in connection with performing its
obligations under this Annex and neither party will be liable for any costs and
expenses incurred by the other party in connection herewith.
(b) Posted Credit Support. The Pledgor will promptly pay when due all taxes,
assessments or charges of any neither that are imposed with respect to Posted
Credit Support held by the Secured Party upon becoming aware of the same,
regardless of whether any portion of that Posted Credit Support is subsequently
disposed of under Paragraph 6(c), except for those taxes, assessments and
charges that result form the exercise of the Secured Party's rights under
Paragraph 6(c).
(c) Liquidation/Application of Posted Credit Support. All reasonable costs and
expenses incurred by or on behalf of the Secured Party or the Pledgor in
connection with the liquidation and/or application of any Posted Credit Support
under Paragraph 8 will be payable, on demand and pursuant to the Expenses
Section of this Agreement, by the Defaulting Party or, if there is no Defaulting
Party, equally by the parties.
Paragraph 11. Miscellaneous
(a) Default Interest. A Secured Party that fails to make, when due, any
Transfer of Posted Collateral or the Interest Amount will be obligated to pay
the Pledgor (to the extent permitted under applicable law) an amount equal to
interest at the Default Rate multiplied by the Value of the items of property
that were required to be Transferred, from (and including) the date that Posted
Collateral or Interest Amount was required to be Transferred to (but excluding)
the date of Transfer of that Posted Collateral or Interest Amount. This interest
will be calculated on the basis of daily compounding and the actual number of
days elapsed.
(b) Further Assurances. Promptly following a demand made by a party, the other
party will execute, deliver, file and record any financing statement, specific
assignment or other document and take any other action that may be necessary or
desirable and reasonably requested by that party to create, preserve, perfect or
validate any security interest or lien granted under Paragraph 2, to enable that
party to exercise or enforce its rights under this Annex with respect to Posted
Credit Support or an Interest Amount or to effect or document a release of a
security interest on Posted Collateral or an Interest Amount.
(c) Further Protection. The Pledgor will promptly give notice to the Secured
Party of, and defend against, any suit, action, proceeding or lien that involves
Posted Credit Support Transferred by the Pledgor or that could adversely affect
the security interest and lien granted by it under Paragraph 2, unless that
suit, action, proceeding or lien results from the exercise of the Secured
Party's rights under Paragraph 6(c).
(d) Good Faith and Commercially Reasonable Manner. Performance of all
obligations under this Annex, including, but not limited to, all calculations,
valuations and determinations made by either party, will be made in good faith
and in a commercially reasonable manner.
(e) Demands and Notices. All demands and notices made by a party under this
Annex will be made as specified in the Notices Section of this Agreement, except
as otherwise provided in Paragraph 13.
8 ISDA(R) 1994
(f) Specifications of Certain Matters. Anything referred to in this Annex as
being specified in Paragraph 13 also may be specified in one or more
Confirmations or other documents and this Annex will be construed accordingly.
Paragraph 12. Definitions
As used in this Annex: --
"Cash" means the lawful currency of the United States of America.
"Credit Support Amount" has the meaning specified in Paragraph 3.
"Custodian" has the meaning specified in Paragraphs 6(b)(i) and 13.
"Delivery Amount" has the meaning specified in Paragraph 3(a).
"Disputing Party" has the meaning specified in Paragraph 5.
"Distributions" means with respect to Posted Collateral other than Cash, all
principal, interest and other payments and distributions of cash or other
property with respect thereto, regardless of whether the Secured Party has
disposed of that Posted Collateral under Paragraph 6(c). Distributions will not
include any item of property acquired by the Secured Party upon any disposition
or liquidation of Posted Collateral or, with respect to any Posted Collateral in
the form of Cash, any distributions on that collateral, unless otherwise
specified herein.
"Eligible Collateral" means, with respect to a party, the items, if any,
specified as such for that party in Paragraph 13.
"Eligible Credit Support" means Eligible Collateral and Other Eligible Support.
"Exposure" means for any Valuation Date or other date for which Exposure is
calculated and subject to Paragraph 5 in the case of a dispute, the amount, if
any, that would be payable to a party that is the Secured Party by the other
party (expressed as a positive number) or by a party that is the Secured Party
to the other party (expressed as a negative number) pursuant to Section
6(e)(ii)(2)(A) of this Agreement as if all Transactions (or Swap Transactions)
were being terminated as of the relevant Valuation Time; provided that Market
Quotation will be determined by the Valuation Agent using its estimates at mid-
market of the amounts that would be paid for Replacement Transactions (as that
term is defined in the definition of "Market Quotation").
"Independent Amount" means, with respect to a party, the amount specified as
such for that party in Paragraph 13; if no amount is specified, zero.
"Interest Amount" means, with respect to an Interest Period, the aggregate sum
of the amounts of interest calculated for each day in that Interest Period on
the principal amount of Posted Collateral in the form of Cash held by the
Secured Party on that day, determined by the Secured Party for each such day as
follows:
(x) the amount of that Cash on that day; multiplied by
(y) the Interest Rate in effect for that day; divided by
(z) 360.
9 ISDA(R) 1994
"Interest Period" means the period from (and including) the last Local Business
Day on which an Interest Amount was Transferred (or, if no Interest Amount has
yet been Transferred, the Local Business Day on which Posted Collateral in the
form of Cash was Transferred to or received by the Secured Party) to (but
excluding) the Local Business Day on which the current Interest Amount is to be
Transferred.
"Interest Rate" means the rate specified in Paragraph 13.
"Local Business Day", unless otherwise specified in Paragraph 13, has the
meaning specified in the Definitions Section of this Agreement, except that
references to a payment in clause (b) thereof will be deemed to include a
Transfer under this Annex.
"Minimum Transfer Amount" means, with respect to a party, the amount specified
as such for that party in Paragraph 13; if no amount is specified, zero.
"Notification Time" has the meaning specified in Paragraph 13.
"Obligations" means, with respect to a party, all present and future obligations
of that party under this Agreement and any additional obligations specified for
that party in Paragraph 13.
"Other Eligible Support" means, with respect to a party, the items, if any,
specified as such for that party in Paragraph 13.
"Other Posted Support" means all Other Eligible Support Transferred to the
Secured Party that remains in effect for the benefit of that Secured Party.
"Pledgor" means either party, when that party (i) receives a demand for or is
required to Transfer Eligible Credit Support under Paragraph 3(a) or (ii) has
Transferred Eligible Credit Support under Paragraph 3(a).
"Posted Collateral" means all Eligible Collateral, other property,
Distributions, and all proceeds thereof that have been Transferred to or
received by the Secured Party under this Annex and not Transferred to the
Pledgor pursuant to Paragraph 3(b), 4(d)(ii) or 6 (d)(i) or released by the
Secured Party under Paragraph 8. Any Interest Amount or portion thereof not
Transferred pursuant to Paragraph 6(d)(ii) will constitute Posted Collateral in
the form of Cash.
"Posted Credit Support" means Posted Collateral and Other Posted Support.
"Recalculation Date" means the Valuation Date that gives rise to the dispute
under Paragraph 5; provided, however, that if a subsequent Valuation Date occurs
under Paragraph 3 prior to the resolution of the dispute, then the
"Recalculation Date" means the most recent Valuation Date under Paragraph 3.
"Resolution Time" has the meaning specified in Paragraph 13.
"Return Amount" has the meaning specified in Paragraph 3(b).
"Secured Party" means either party, when that party (i) makes a demand for or is
entitled to receive Eligible Credit Support under Paragraph 3(a) or (ii) holds
or is deemed to hold Posted Credit Support.
"Specified Condition" means, with respect to a party, any event specified as
such for that party in Paragraph 13.
10 ISDA(R) 1994
"Substitute Credit Support" has the meaning specified in Paragraph 4(d)(i).
"Substitution Date" has the meaning specified in Paragraph 4(d)(ii).
"Threshold" means, with respect to a party, the amount specified as such for
that party in Paragraph 13; if no amount is specified, zero.
"Transfer" means, with respect to any Eligible Credit Support, Posted Credit
Support or Interest Amount, and in accordance with the instructions of the
Secured Party, Pledgor or Custodian, as applicable:
(i) in the case of Cash, payment or delivery by wire transfer into one or
more bank accounts specified by the recipient;
(ii) in the case of certificated securities that cannot be paid or
delivered by book-entry, payment or delivery in appropriate physical form
to the recipient or its account accompanied by any duly executed
instruments of transfer, assignments in blank, transfer tax stamps and any
other documents necessary to constitute a legally valid transfer to the
recipient;
(iii) in the case of securities that can be paid or delivered by book-
entry, the giving of written instructions to the relevant depository
institution or other entity specified by the recipient, together with a
written copy thereof to the recipient, sufficient if complied with to
result in a legally effective transfer of the relevant interest to the
recipient; and
(iv) in the case of Other Eligible Support or Other Posted Support, as
specified in Paragraph 13.
"Valuation Agent" has the meaning specified in Paragraph 13.
"Valuation Date" means each date specified in or otherwise determined pursuant
to Paragraph 13.
"Valuation Percentage" means, for any item of Eligible Collateral, the
percentage specified in Paragraph 13.
"Valuation Time" has the meaning specified in Paragraph 13.
"Value" means for any Valuation Date or other date for which Value is calculated
and subject to Paragraph 5 in the case of a dispute, with respect to:
(i) Eligible Collateral or Posted Collateral that is:
(A) Cash, the amount thereof; and
(B) a security, the bid price obtained by the Valuation Agent
multiplied by the applicable Valuation Percentage, if any;
(ii) Posted Collateral that consists of items that are not specified as
Eligible Collateral, zero; and
(iii) Other Eligible Support and Other Posted Support, as specified in
Paragraph 13.
11 ISDA(R) 1994
Paragraph 13. Elections and Variables
(a) Security Interest for "Obligations". The term "Obligations" as used in
this Annex includes the following additional obligations:
With respect to Party A: ..None...........................................
With respect to Party B: ..None...........................................
(b) Credit Support Obligations.
(i) Delivery Amount, Return Amount and Credit Support Amount
(A) "Delivery Amount" has the meaning specified in Paragraph 3(a),
unless otherwise specified here......................................
(B) "Return Amount" has the meaning specified in Paragraph 3(b),
unless otherwise specified here......................................
(C) "Credit Support Amount" has the meaning specified in Paragraph 3,
unless otherwise specified here......................................
(ii) Eligible Collateral. The following items will qualify as "Eligible
Collateral" for the party specified:
Party A Party B Valuation
Percentage
(A) Cash [ ] [X] [ ]%100
(B) negotiable debt obligations issued by [ ] [X] [ ]%100
the U.S. Treasury Department having an
original maturity at issuance of not
more than one year ("Treasury Bills")
(C) negotiable debt obligations issued by [ ] [X] [ ]%99
the U.S. Treasury Department having an
original maturity at issuance of more
than one year but not more than 10
years ("Treasury Notes")
(D) negotiable debt obligations issued by [ ] [X] [ ]%98
the U.S. Treasury Department having an
original maturity at issuance of more
than 10 years ("Treasury Bonds")
(E) other: with the consent of Party A, [ ] [ ] [ ]%100
Lycos, Inc. (LCOS) shares and any other
publicly-traded shares, up to a limit
of 25% of the outstanding shares on the
Trade Date.
(iii) Other Eligible Support. The following items will qualify as
"Other Eligible Support" for the party specified:
Party A Party B
(A) ......................... [ ] [ ]
(B) ......................... [ ] [ ]
12 ISDA(R) 1994
(iv) Thresholds.
(A) "Independent Amount" means with respect to Party A: $.NONE...................
"Independent Amount" means with respect to Party B: $.7,000,000..............
(B) "Threshold" means with respect to Party A: $.0...............................
"Threshold" means with respect to Party B: $.0...............................
(C) "Minimum Transfer Amount" means with respect to Party A: $.100,000...........
"Minimum Transfer Amount" means with respect to Party B: $.10,000............
(D) Rounding. The Delivery Amount and the Return Amount will be rounded down to
the nearest integral multiple of $1/up and down to the nearest integral
multiple of $1, respectively./*/
(c) Valuation and Timing.
(i) "Valuation Agent" means, for purposes of Paragraph 3 and 5, the party
making the demand under Paragraph 3, and, for purposes of Paragraph 6(d),
the Secured Party receiving or deemed to receive the Distributions or the
Interest Amount, as applicable, unless specified here: Party A.
(ii) "Valuation Date" means: Each Friday that is a Business Day in Boston
and New York.
(iii) "Valuation Time" means:
[ ] the close of business in the city of the Valuation Agent on the
Valuation Date of date of calculation, as applicable;
[x] the close of business on the Local Business Day before the
Valuation Date or date of calculation, as applicable;
provided that the calculations of Value and Exposure will be made as of
approximately the same time on the same date.
(iv) "Notification Time" means 1:00 p.m., New York time, on a Local
Business Day, unless otherwise specified here:............................
(d) Conditions Precedent and Secured Party's Rights and Remedies. The following
Termination Event(s) will be a "Specified Condition" for the party specified
(that party being the Affected Party if the Termination Event occurs with
respect to that party):
- ------------------------
* Delete as applicable
13 ISDA(R) 1994
Party A Party B
Illegality [x] [x]
Tax Event [x] [x]
Tax Event Upon Merger [x] [x]
Credit Event Upon Merger [x] [x]
Addition Termination Event(s):/1/
.................................. [ ] [ ]
.................................. [ ] [ ]
(e) Substitution.
(i) "Substitution Date" has the meaning specified in Paragraph 4(d)(ii),
unless otherwise specified here:..........................................
(ii) Consent. If specified here as applicable, then the Pledgor must obtain
the Secured Party's consent for any substitution pursuant to Paragraph
4(d): [applicable/nonapplicable*]/2/
(f) Dispute Resolution.
(i) "Resolution Time" means 1:00 p.m., New York time, on the Local
Business Day following the date on which the notice is given that gives
rise to a dispute under Paragraph 5, unless otherwise specified
here:.....................................................................
(ii) Value. For the purpose of Paragraph 5(i)(C) and 5(ii), the Value of
Posted Credit Support will be calculated as follows:......................
(iii) Alternative. The provisions of Paragraph 5 will apply, unless an
alternative dispute resolution procedure is specified here:...............
(g) Holding and Using Posted Collateral.
(i) Eligibility to Hold Posted Collateral; Custodians. Party A and its
Custodian will be entitled to hold Posted Collateral pursuant to Paragraph
6(b); provided that the following conditions applicable to it are
satisfied:
(1) Party A is not a Defaulting Party.
(2) Posted Collateral may be held only in the following
jurisdictions: ...................................................
(3) ..................................................................
- --------------------------
* Delete as applicable.
/1/ If the parties elect to designate an Additional Termination Event as a
"Specified Condition", then they should only designate one or more Additional
Termination Events that are designated as such in their Schedule.
/2/ Parties should consider selecting "applicable" where substitution without
consent could give rise to a registration requirement to perfect properly the
security interest in Posted Collateral (e.g., where a party to the Annex is the
New York branch of an English bank.)
14 ISDA(R) 1994
Initially, the Custodian for Party A is ..Brown Brothers Harriman &
Co...................................................................
Party B and its Custodian will be entitled to hold Posted Collateral
pursuant to Paragraph 6(b); provided that the following conditions
applicable to it are satisfied:
(1) Party B is not a Defaulting Party.
(2) Posted Collateral may be held only the following
jurisdictions:.......................................................
(3) .................................................................
Initially, the Custodian for Party B is..............................
(ii) Use of Posted Collateral. The provisions of Paragraph 6(c) will not
apply to the party specified here:
[x] Party A
[ ] Party B
and [that party/those parties*] will not be permitted to:
(h) Distributions and Interest Amount
(i) Interest Rate. The "Interest Rate" will be: 0; for Cash the Interest
will be specified by Party A as a percentage
(ii) Transfer of Interest Amount. The Transfer of the Interest amount will
be made on the last Local Business Day of each calendar month and on any
Local Business Day that Posted Collateral in the form of Cash is
Transferred to the Pledgor pursuant to Paragraph 3(b), unless otherwise
specified here:...........................................................
(iii) Alternative to Interest Amount. The provisions of Paragraph
6(d)(ii) will apply, unless otherwise specified here:.....................
(i) Additional Representation(s).
Party B represents to the other party (which representation(s) will be
deemed to be repeated as of each date on which it, as the Pledgor, Transfers
Eligible Collateral) that:
(i) .......................................................................
(ii) ......................................................................
- ----------------------
* Delete as applicable.
15 ISDA(R) 1994
(j) Other Eligible Support and Other Posted Support.
(i) "Value" with respect to Other Eligible Support and Other Posted Support
means:
(ii) "Transfer" with respect to Other Eligible Support and Other Support
means:
(k) Demands and Notices.
All demands, specifications and notices under this Annex will be made pursuant
to the Notices Section of this Agreement, unless otherwise specified here:
Party A: The First National Bank of Boston, 100 Federal Street, Boston,
Massachusetts 02110
Party B: CMG Information Systems, Inc., 187 Ballardvale Street, Suite B110
Wilmington, Massachusetts 01887-7000
(l) Addresses for Transfers.
Party A: ..To be advised.................................................
..........................................................................
Party B: ..To be advised.................................................
..........................................................................
(m) Other Provisions. Posted Collateral shall include the collateral
transferred by Party B to Long Lane Master Trust on or prior to the
Effective Date.
Notwithstanding anything herein to the contrary, Party B shall be required
to post additional Eligible Collateral at the times and manner specified
herein if on any Valuation Date the aggregate market value of the Posted
Collateral is equal to or less than $12,500,000.
16 ISDA(R) 1994
Exhibit 10.42
REPURCHASE AGREEMENT
This Repurchase Agreement, dated as of January 14, 1997, is made by and
between CMG @ Ventures L.P. ("CMG"), a Delaware limited partnership, CMG
Information Services, Inc., a Delaware corporation ("CMGI"), and Long Lane
Master Trust, a Delaware business trust (the "Trust").
WHEREAS, CMGI has entered into an ISDA Swap Agreement, and schedule and
confirmation thereto, each dated as of January 14, 1997, (collectively, the
"Swap Agreement") with The First National Bank of Boston (the "Bank") whereby
the Bank has agreed to provide financing to CMG Information in accordance with
the terms of the Swap Agreement;
WHEREAS, in connection with such financing, the Bank will cause the Trust
to issue securities (the "Securities"), the proceeds of which will be utilized
to provide such financing to CMG Information;
WHEREAS, in conjunction with the issuance of such securities by the Trust,
CMG will pledge and transfer to the Trust its right, title and interest to
shares of common stock of Lycos, Inc. with an aggregate market value of at least
$10,000,000 (the "Shares") to secure the obligations of CMGI to the Bank;
NOW THEREFORE, BE IT RESOLVED, the parties hereto agree as follows:
1. Holding of Shares. The Trust hereby accepts delivery of the Shares and
-----------------
shall pledge such Shares to First Trust of New York, N.A., as indenture trustee
for the Securities in accordance with the terms of the Trust Agreement and
supplement thereto, each dated as of January 14, 1997, between the Bank, as
grantor and the Trust. The Trust further agrees that it will not sell, pledge
or hypothecate and/or otherwise transfer of the Shares except in accordance with
this Agreement; provided, however, that the parties hereto acknowledge that the
Trust will pledge the Shares to First Trust of New York, N.A., as indenture
trustee for the Securities.
2. Repurchase of Shares. The parties hereto agree that upon the earlier
--------------------
to occur of (i) the termination of the Swap Agreement in accordance with its
terms; (ii) the liquidation of the Shares in accordance with the terms of the
Trust Indenture, dated as of January 14, 1997, between the Trust and First Trust
of New York, as indenture trustee due to the occurrence of an event of default
thereunder or (iii) January 17, 1998, CMGI shall repurchase the Shares on behalf
of CMG from the Trust in the manner set forth herein. The Trust shall send
immediate written notification to CMG upon the occurrence of an event described
in clauses (i) or (ii) above. No notification shall be required
with respect to the repurchase of Shares on January 17, 1998. Within one
business day of receipt of such notification, CMG shall send written
notification to the Trust of its intent to repurchase the Shares on behalf of
CMG, together with a request for wiring instructions for the purchase price of
the Shares.
3. Purchase Price. The purchase price for the Shares shall be the fair
--------------
market value of the Shares, as determined by the Bank, three business days prior
to the date of delivery of such Shares to CMG. CMGI shall deposit the purchase
price, in immediately available funds, at the account designated by the Trust on
or prior to the date of delivery of such Shares to CMG.
4. Release of Lien. Upon receipt of notification that the purchase price
---------------
has been received from CMGI, the Trust will cause the lien created on the Shares
pursuant to the Trust Indenture to be released and shall cause the Shares to be
delivered to CMG or its designee.
5. Obligation Unconditional. The obligation of CMGI to repurchase the
------------------------
Shares on behalf of CMG hereunder is absolute and unconditional without any
right of offset or counterclaim.
6. Default by CMG. CMG and CMGI hereby agree that if CMGI fails to
--------------
repurchase the Shares at the times and manner set forth herein, the Trust shall
be free to sell the Shares without restriction to any other party without
further notice to CMG or CMGI.
7. Voting of Shares. The parties hereto agree that the Shares shall be
----------------
voted in accordance with the Assignment of Voting Rights Agreement, dated as of
January 14, 1997, between the Trust and CMG.
8. Governing Law. The Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York without regard to the conflict
of law provisions thereof.
9. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall constitute an original, but all of which shall together constitute
one Agreement.
10. Owner Trustee. The Owner Trustee is executing this document solely in
-------------
its capacity as trustee under the Trust Agreement and, as such, the Owner
Trustee shall incur no personal liability in connection therewith.
2
IN WITNESS WHEREOF, the parties hereto have caused to be executed by their
respective officers, thereunto duly authorized, as of the day and year first
above written.
LONG LANE MASTER TRUST
By: DELAWARE TRUST CAPITAL
MANAGEMENT, INC.
not in its individual
capacity but solely as
Owner Trustee
By: /s/ Richard N. Smith
-----------------------
Name: Richard N. Smith
Title: Vice President
CMG @ VENTURES L.P.
By: /s/ Andrew J. Hajducky
------------------------
Name: Andrew J. Hajducky
Title:
3
Exhibit 10.43
FIRST AMENDMENT AND WAIVER TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT
FIRST AMENDMENT AND WAIVER TO REVOLVING CREDIT AND TERM LOAN AGREEMENT,
dated as of March 14, 1997 (this "Amendment"), by and among SALESLINK
CORPORATION (the "Borrower"), CMG INFORMATION SERVICES, INC. (the "Parent
Guarantor"), PACIFIC DIRECT MARKETING CORP. (the "Subsidiary Guarantor"), THE
FIRST NATIONAL BANK OF BOSTON and the other lending institutions listed on
Schedule 1 to the Credit Agreement (collectively, the "Banks") and THE FIRST
- -------- -
NATIONAL BANK OF BOSTON as agent for the Banks (in such capacity, the "Agent"),
amending certain provisions of the Revolving Credit and Term Loan Agreement,
dated as of October 24, 1996 (the "Credit Agreement"), by and among the
Borrower, the Parent Guarantor, the Subsidiary Guarantor, the Agent and the
Banks. Terms not otherwise defined herein which are defined in the Credit
Agreement shall have the same respective meanings herein as therein.
WHEREAS, the Borrower and the Banks and the Agent desire to amend and waive
certain provisions of the Credit Agreement as provided more fully herein below;
NOW THEREFORE, in consideration of the mutual agreements contained in the
Credit Agreement and herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
(S)1. Amendment to Section 4 of the Credit Agreement. Section 4.6 of the
--------- -- ------- - -- --- ------ ---------
Credit Agreement is hereby amended by deleting such (S)4.6 and restating it in
its entirety as follows:
4.6. Letter of Credit Fees. The Borrower shall, on the date of
------ -- ------ ----
issuance or of any extension or renewal of the Letter of Credit and at such
other time or times as such changes are customarily made by the Agent, pay
a fee (in each case a "Letter of Credit Fee") to the Agent in an amount
equal to one percent (1%) per annum of the face amount of such Letter of
Credit (of which 1/8 of such 1% shall be retained for the account of the
Agent as issuer of such Letter of Credit), plus the Agent's customary
----
issuance, amendment and other administrative processing fees, such Letter
of Credit Fee (other than the 1/8 of such 1% and not such issuance,
amendment or administrative fee) to be for the accounts of the Banks in
accordance with their respective Commitment Percentages.
(S)2. Amendment to Section 9 of the Credit Agreement. Section 9.3(f) of
--------- -- ------- - -- --- ------ ---------
the Credit Agreement is hereby amended by deleting such (S)9.3(f) and restating
it in its entirety as follows:
(f) permit (i) the Parent Guarantor's Unencumbered Cash to be less
than (A) $10,000,000 at any time from the Closing Date through November 30,
1996, (B) $20,000,000 at any time from December 1, 1996 through February
28, 1997, and (C) $15,500,000 at any time thereafter; and (ii) the Parent
Guarantor's and its Subsidiaries Unencumbered Cash to be less than (A)
$35,000,000 at any time from the Closing Date through February 28, 1997,
and (B) $31,000,000 at any time thereafter.
(S)3. Waiver to the Credit Agreement. Pursuant to (a) (S)9.3(c) of the
------ -- --- ------ ---------
Credit Agreement, the Parent Guarantor and the Borrower have agreed that they
will not permit the ratio of the Borrower's Consolidated Operating Cash Flow to
Consolidated Total Debt Service as at December 31, 1996 to be less than
2.50:1.00; and (b) (S)9.3(f)(i) of the Credit Agreement, the Parent Guarantor
and the Borrower have agreed that they will not permit the Parent Guarantor's
Unencumbered Cash to be less than (i) $10,000,000 at any time from the Closing
Date through November 30, 1996 and (ii) $20,000,000 during the period from
December 1, 1996 through February 28, 1997. Notwithstanding the foregoing, the
Banks and the Agent hereby waive, (a) solely for the fiscal quarter ended
December 31, 1996 compliance with the provisions of (S)9.3(c) of the Credit
Agreement; and (b) solely for the period from November 1, 1996 through February
28, 1997, compliance with the provisions of (S)9.3(f)(i) of the Credit
Agreement.
(S)4. Conditions to Effectiveness. This Amendment shall not become
---------- -- -------------
effective until the Agent shall have received a counterpart of this Amendment
executed by the Borrower, the Parent Guarantor, the Subsidiary Guarantor, the
Agent and the Banks.
(S)5. Representations and Warranties. Each of the Borrower, the Parent
--------------- --- ----------
Guarantor, and the Subsidiary Guarantor hereby represents and warrants to the
Agent and the Banks as follows:
(a) Representation and Warranties in the Credit Agreement. The
-------------- --- ---------- -- --- ------ ---------
representations and warranties of each of the Borrower, the Parent
Guarantor, and the Subsidiary Guarantor contained in the Credit Agreement
were true and correct in all material respects as of the date when made and
continue to be true and correct in all material respects on the date
hereof, except to the extent of changes resulting from transactions or
events contemplated by the Credit Agreement and the other Loan Documents
and changes occurring in the ordinary course of business that singly or in
the aggregate are not materially adverse to the Borrower, the Parent
Guarantor, or the Subsidiary Guarantor, or to the extent that such
representations and warranties relate expressly to an earlier date.
(b) Ratification, Etc. Except as expressly amended hereby, the
------------ ----
Credit Agreement, and all documents, instruments and agreements related
thereto, are hereby ratified and confirmed in all respects and shall
continue in full force and effect. The Credit Agreement, shall together
with this Amendment, be read and construed as a
single agreement. All references in the Credit Agreement or any related
agreement or instrument shall hereafter refer to the Credit Agreement as
amended hereby.
(c) Authority, Etc. The execution and delivery by each of the
---------- ---
Borrower, the Parent Guarantor, and the Subsidiary Guarantor of this
Amendment and the performance by each of the Borrower, the Parent
Guarantor, and the Subsidiary Guarantor of all of its agreements and
obligations under the Credit Agreement as amended hereby are within the
corporate authority of the Borrower, the Parent Guarantor, and the
Subsidiary Guarantor and have been duly authorized by all necessary
corporate action on the part of the Borrower, the Parent Guarantor, and the
Subsidiary Guarantor.
(d) Enforceability of Obligations. This Amendment and the Credit
-------------- -- -----------
Agreement as amended hereby constitute the legal, valid and binding
obligations of the Borrower, the Parent Guarantor, and the Subsidiary
Guarantor enforceable against the Borrower, the Parent Guarantor, and the
Subsidiary Guarantor in accordance with their terms, except as
enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the enforcement
of, creditors' rights and except to the extent that availability of the
remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be
brought.
(e) No Default. No Default or Event of Default has occurred and is
-- -------
continuing, and no Default or Event of Default will exist after execution
and delivery of this Amendment.
(S)6. No Other Amendments or Waivers. Except as expressly provided in
-- ----- ---------- -- -------
this Amendment, all of the terms and conditions of the Credit Agreement and the
other Loan Documents remain in full force and effect.
(S)7. Execution in Counterparts. This Amendment may be executed in any
--------- -- ------------
number of counterparts, each of which shall be deemed an original, but which
together shall constitute one instrument.
(S)8. Expenses. Pursuant to (S)14 of the Credit Agreement, all costs and
--------
expenses incurred or sustained by the Agent in connection with this Amendment,
including the fees and disbursements of legal counsel for the Agent in
producing, reproducing and negotiating the Amendment, will be for the account of
the Borrower whether or not the transactions contemplated by this Amendment are
consummated.
(S)9. Miscellaneous. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT
-------------
UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS (EXCLUDING THE LAWS
APPLICABLE TO CONFLICTS OR CHOICE OF LAW). The captions in this Amendment are
for convenience of reference only and shall not define or limit the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as a
document under seal as of the date first above written.
SALESLINK CORPORATION
By:
----------------------------------
Title:
CMG INFORMATION SERVICES, INC.
By:
----------------------------------
Title:
PACIFIC DIRECT MARKETING CORP.
By:
----------------------------------
Title:
THE FIRST NATIONAL BANK
OF BOSTON, Individually and Agent
By:
----------------------------------
Title:
Exhibit 10.44
ASSUMPTION, SECOND AMENDMENT AND CONFIRMATION AGREEMENT
This ASSUMPTION, SECOND AMENDMENT AND CONFIRMATION AGREEMENT (this
"Agreement") is made as of July 11, 1997, by and among SALESLINK CORPORATION, a
Delaware corporation having its principal place of business at 25 Drydock
Avenue, Boston, Massachusetts 02210 (the "New Borrower") and BANKBOSTON, N.A.
(formerly known as The First National Bank of Boston) and the other lending
institutions set forth on the Schedule 1 to the Credit Agreement (as hereinafter
-------- -
defined) (collectively, the "Banks").
WHEREAS, SalesLink Corporation, a Massachusetts corporation (the "Old
Borrower"), the Banks and BankBoston, N.A. as agent for the Banks (in such
capacity, the "Agent") have previously entered into a Revolving Credit and Term
Loan Agreement, dated as of October 24, 1996 (as amended and in effect from time
to time, the "Credit Agreement");
WHEREAS, the Old Borrower has been merged into the New Borrower pursuant to
a merger (the "Merger") in which the New Borrower was the surviving corporation;
WHEREAS, immediately prior to the effectiveness of the Merger, certain of
the business assets previously owned by the Old Borrower were transferred as a
capital contribution to the New Borrower, a wholly-owned Subsidiary of the Old
Borrower (the "Initial Asset Transfer", and, together with the Merger, the
"Transactions");
WHEREAS, capitalized terms used and not defined in this Agreement shall
have the meanings ascribed thereto in the Credit Agreement;
WHEREAS, the Banks have agreed to increase the Total Revolving Credit
Commitment as provided on Schedule 1 attached hereto to $4,500,000;
WHEREAS, the parties wish to confirm the assumption by the New Borrower of
the Obligations, to maintain in full force in effect the Obligations, and to
modify the Loan Documents in certain respects to reflect the occurrence of the
Transactions and the other transactions contemplated hereby;
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Assumption of Obligations. The New Borrower hereby expressly assumes,
-------------------------
confirms, and agrees to pay, perform, observe and maintain in full force and
effect, all of the covenants, agreements, obligations, liabilities and
indebtedness constituting the Obligations of the Old Borrower, including,
without limitation, any and all Obligations in respect of principal, interest,
fees, expenses, and other amounts payable or to become payable by the Old
Borrower under the Credit Agreement or the other Loan Documents. The New
Borrower confirms that the Obligations are and shall be Obligations of the New
Borrower. In addition, the New Borrower hereby assumes any liability of the Old
Borrower related to any representation or warranty made by the Old Borrower in
any of the Loan Documents. The parties hereto agree that this Agreement shall be
deemed to be a "Loan Document" under the Credit Agreement.
2. Joinder of New Borrower to Loan Documents. From and after the date
-----------------------------------------
hereof, the New Borrower is and shall be subject to and bound by, and shall be
entitled to all the benefits of, the Loan Documents, and shall be a party
thereto, all as if the New Borrower had been the "Borrower" or the "Company" (or
any other relevant term used to describe the Old Borrower thereunder) party to
the original execution and delivery thereof; and all references in the Loan
Documents to the "Borrower" and/or "Company" (or any other relevant term used to
describe the Old Borrower thereunder) shall hereafter be deemed to be references
to the New Borrower. The preamble to the Credit Agreement and each other
applicable Loan Document, and any other applicable provisions of the Loan
Documents, shall hereafter be deemed modified to reflect the provisions of this
paragraph.
2.1. Further Assurances. The New Borrower hereby agrees that it
shall, at any time and from time to time, upon the reasonable request of the
Agent or any Bank, and at the expense of the New Borrower, promptly execute and
deliver any and all such further agreements, instruments, and documents and take
such further action as the Agent or such Bank may reasonably deem necessary or
advisable to effect the purposes of this Agreement.
3. Amendments to Credit Agreement. Subject to the terms and conditions
------------------------------
hereof, the Credit Agreement is hereby amended as follows:
3.1. The preamble of the Credit Agreement is amended to reflect that the
New Borrower has succeeded the Old Borrower as the Borrower under the Credit
Agreement, pursuant to this Agreement.
3.2. Section 1 of the Credit Agreement is hereby amended by deleting each
of the definitions of "Cash Equivalents", "Investment Equivalents", "Swap
Program" and "Unencumbered Cash" in its entirety.
3.3. Section 1 of the Credit Agreement is hereby further amended by adding
the following definitions in the appropriate alphabetical order:
"Collateral: All of the property, rights and interests of the
----------
Borrower and its Subsidiaries that are or are intended to be subject to the
security interests and mortgages created by the Security Documents."
"Perfection Certificates: Each of the Perfection Certificates of the
-----------------------
Borrower and the Subsidiary Guarantor as defined in the Security
Agreements."
"Security Agreements: Collectively, (a) the Security Agreement, dated
-------------------
or to be dated on or prior to July 11, 1997, between the Borrower and the
Agent and in form and substance satisfactory to the Agent; and (b) the
Security Agreement, dated or to be dated on or prior to July 11, 1997,
between the Subsidiary Guarantor and the Agent, and in form and substance
satisfactory to the Agent, and as each
Security Agreement may be amended, restated, modified and/or supplemented
from time to time."
"Security Documents: Collectively, the Security Agreements, each
------------------
Guaranty, the Trademark Agreements and the Stock Pledge Agreement."
"Stock Pledge Agreement: The Stock Pledge Agreement dated or to be
----------------------
dated on or prior to July 11, 1997 between the Borrower and the Agent and
in form and substance satisfactory to the Banks and the Agent."
"Trademark Agreement: The Trademark Collateral Security and Pledge
-------------------
Agreement, dated or to be dated on or prior to July 11, 1997, between the
Borrower and the Agent, and in form and substance satisfactory to the
Agent, and as such Trademark Agreement may be amended, restated, modified
and/or supplemented from time to time."
3.4. Section 7 of the Credit Agreement is hereby amended by (a) deleting
the word "and" which appears at the end of (S)7(l); (b) deleting the period
which appears at the end of the text of (S)7(m) and inserting in place thereof a
semicolon and the word "and"; and (c) inserting immediately after the end of the
text of (S)7(m) the following:
"(n) all filings, assignments, pledges and deposits of documents or
instruments have been made and all other actions have been taken that are
necessary or advisable, under applicable law, to establish and perfect the
Agent's security interest in the Collateral. The Collateral and the
Agent's rights with respect to the Collateral are not subject to any
setoff, claims, withholdings or other defenses. The Borrower and the
Subsidiary Guarantor (with respect to the Collateral under the Subsidiary
Guarantor's Security Agreement) is the owner of the Collateral free from
any lien, security interest, encumbrance and any other claim or demand,
except Liens permitted under (S)9.2(b) (the "Permitted Liens")."
3.5. Section 9.1(c)(iii) of the Credit Agreement is hereby amended by
deleting the words "the United States" which appear in (S)9.1(c)(iii) and
substituting in place thereof the words "in Boston, Massachusetts or at such
other place in the United States of America as the Borrower shall designate upon
written notice to the Agent".
3.6. Section 9.2 of the Credit Agreement is hereby amended by (a)
inserting immediately after the end of the text of (S)9.2(g) the word "and"; (b)
deleting the semicolon and the word "and" immediately after the text of
(S)9.2(g) and substituting in place thereof a period; and (c) deleting (S)9.2(h)
in its entirety.
3.7. Section 9.3 of the Credit Agreement is hereby amended as follows:
(a) Section 9.3(a) of the Credit Agreement is hereby amended by deleting
the words "Exceed (i) $1,200,000 in fiscal year 1998, and (ii) $1,000,000 in any
fiscal year thereafter" and substituting in place thereof the words "exceed (i)
$1,250,000 in fiscal year 1997; (ii) $1,700,000 in fiscal year 1998, and (iii)
$1,200,000 in any fiscal year thereafter";
(b) Section 9.3(c) of the Credit Agreement is hereby amended by deleting
(S)9.3(c) in its entirety and restating (S)9.3(c) in its entirety as follows:
"(c) permit the ratio of the Borrower's Consolidated Operating Cash
Flow to Consolidated Total Debt Service for any Reference Period to be less
than 1.25:1.00."
(c) Section 9.3 is further amended by (i) deleting the period at the end
of (S)9.3(d) and inserting in place thereof a semicolon and the word "or"; (ii)
deleting the semicolon and the word "or" which appears at the end of (S)9.3(e)
and inserting in place thereof a period; and (iii) deleting (S)9.3(f) in its
entirety.
3.8. Section 10 of the Credit Agreement is hereby amended as follows:
(a) Section 10(g) is hereby amended by inserting immediately after the
words "in full force and effect" the words "or if any of the Loan Documents
shall be canceled, terminated, revoked or rescinded or the Agent's security
interests, mortgages or liens in a substantial portion of the Collateral shall
cease to be perfected, or shall cease to have the priority contemplated by the
Security Documents, in each case otherwise than in accordance with the terms
thereof or with the express prior written agreement, consent or approval of the
Banks, or any action at law, suit in equity or other legal proceeding to cancel,
revoke or rescind any of the Loan Documents shall be commenced by or on behalf
of the Borrower or any of its Subsidiaries party thereto or any of their
respective stockholders, or any court or any other governmental or regulatory
authority or agency of competent jurisdiction shall make a determination that,
or issue a judgment, order, decree or ruling to the effect that, any one or more
of the Loan Documents is illegal, invalid or unenforceable in accordance with
the terms thereof"; and
(b) Section 10 of the Credit Agreement is further amended by inserting at
the end of (S)10 the following:
In the event that, following the occurrence or during the
continuance of any Default or Event of Default, the Agent or any Bank, as
the case may be, receives any monies in connection with the enforcement of
any of the Security Documents, or otherwise with respect to the realization
upon any of the Collateral, such monies shall be distributed for
application as follows: (a) first, the payment of, or, as the case may be,
the reimbursement of the Agent for or in respect of all reasonable costs,
expenses, disbursements and losses which shall have been incurred or
sustained by the Agent in connection with the collection of such monies by
the Agent, for the exercise, protection or enforcement by the Agent of all
or any of the rights, remedies, powers and privileges of the Agent under
this Credit Agreement or any of the other Loan Documents or in respect of
the Collateral and supports the provision of adequate indemnity to the
Agent against all taxes or liens which by law shall have, or may have,
priority over the rights of the Agent to such monies; (b) second, to all
other Obligations in such order or preference as the Majority Banks may
determine; provided, however that distributions in respect of such
Obligations shall be made (i) pari passu among Obligations
with respect to the Agent's fee payable under (S)6 and all other
Obligations and (ii) Obligations owing to the Banks with respect to each
type of Obligations such as interest, principal, fees and expenses, shall
be made among the Banks pro rata; and provided, further, that the Agent may
in its discretion make proper allowance to take into account any
Obligations not then due and payable; (c) third, upon payment and
satisfaction in full or other provisions for payment in full satisfactory
to the Banks and the Agent of all of the Obligations, to the payment of any
obligations required to be paid pursuant to (S)9-504(1)(c) of the Uniform
Commercial Code of the Commonwealth of Massachusetts; and (d) fourth, the
excess, if any, shall be returned to the Borrower or to such other Persons
as are entitled thereto."
4. Allonge to the Term Notes. The New Borrower hereby agrees that a copy
-------------------------
of this Agreement may be attached to each Term Note and as so attached shall
constitute an allonge to the Term Note or the New Borrower shall, at the request
of any Bank, execute and deliver to such Bank a new Term Note replacing the Term
Note executed and delivered by the Old Borrower.
5. Replacement of Schedule 1. Schedule 1 to the Credit Agreement is
------------------------- -------- -
hereby amended by deleting Schedule 1 in its entirety and substituting in place
thereof the new Schedule 1 attached hereto.
-------- -
6. Conditions to Effectiveness. This Agreement will become effective as
---------------------------
of the date hereof upon the satisfaction of the following conditions precedent:
(a) the Agent shall have received fully-executed original counterparts
of this Agreement signed by each of the parties hereto;
(b) the Agent shall have received fully-executed original amended and
restated Revolving Credit Notes, payable to each Bank in the amount of such
Bank's Commitment;
(c) the Agent shall have received fully-executed original Security
Agreements, Perfection Certificates and Trademark Agreements from each of
the Borrower and the Subsidiary Guarantor, together with UCC-1 financing
statements which the Agent may request in order to perfect the Bank's
security interest in all the assets of each of the Borrower and the
Subsidiary Guarantor;
(d) the Agent shall have received fully-executed original counterparts
of the Stock Pledge Agreement signed by each of the Borrower and the Bank,
together with the stock certificates representing the Borrower's ownership
interest in the Subsidiary Guarantor, and stock power, duly executed in
blank;
(e) all proceedings and documents in connection with the Transactions
shall be reasonably satisfactory in form and substance to the Agent and the
Agent shall have received (i) a certificate of an officer of the New
Borrower, as to (A) the Charter Documents of the New Borrower, (B) the
resolutions of the board of directors of the New Borrower with respect to
the Transactions and each of the
transactions contemplated hereby, and (C) the names, titles, incumbency and
signatures of the officers of the New Borrower who are authorized to
execute and deliver this Agreement and the other Loan Documents and (ii)
such other documents, instruments and certificates as the Agent shall have
reasonably requested;
(f) all proceedings and documents in connection with the Transactions
shall be reasonably satisfactory in form and substance to the Agent and the
Agent shall have received (i) a certificate of an officer of the Subsidiary
Guarantor, as to (A) the Charter Documents of each such Subsidiary, (B) the
resolutions of the board of directors of each such Subsidiary with respect
to each of the transactions contemplated hereby, and (C) the names, titles,
incumbency and signatures of the officers of each such Subsidiary who are
authorized to execute and deliver the Security Agreement, the Trademark
Agreement, the Perfection Certificate, the financing statements and the
other Loan Documents to which the Subsidiary Guarantor is a party and (ii)
such other documents, instruments and certificates as the Agent shall have
reasonably requested;
(g) the Agent shall be satisfied that (i) the Transactions shall have
been consummated without adversely affecting or impairing the rights of the
Agent or any of the Banks under the Loan Documents, (ii) the
representations and warranties of the New Borrower contained in (S)8 of
this Agreement shall be true and correct on the date hereof, (iii) the
legal rights and obligations of the parties to the Loan Documents shall
continue in full force and effect; and (iv) the Agent shall have a first
priority perfected security interest in all the assets of the Borrower and
the Subsidiary Guarantor subject to Permitted Liens; and
(h) the Agent shall have received a legal opinion addressed to the
Agent from Palmer & Dodge, legal counsel to the Borrower and the Subsidiary
Guarantor, such legal opinion to be in form and substance satisfactory to
the Agent.
7. Representations and Warranties. In order to induce the Agent and the
------------------------------
Banks to enter into this Agreement, the New Borrower hereby represents and
warrants to the Agent and the Banks as follows:
7.1. The Transactions, as previously described in writing to the Agent,
have been consummated.
7.2. The representations and warranties of the "Borrower" and the
"Company" contained in the Credit Agreement and the other Loan Documents, after
giving effect to the Transactions and this Agreement, are true and correct in
all material respects on the date hereof, as if made on and as of this date, and
the Agent and the Banks shall be entitled to rely on such representations and
warranties to the same extent as though the same were made by the New Borrower
on the date hereof and set forth in full in this Agreement, other than
representations which were specific to a certain date specified in the Credit
Agreement.
7.3. After giving effect to this Agreement and the consummation of the
Transactions, no Default or Event of Default shall have occurred, which has not
been waived by the Agent and the Banks, and be continuing.
7.4. Prior to the completion of the Transactions, the New Borrower did not
own any assets or have any liabilities, and did not carry on any business.
7.5. The Transactions, the execution, delivery, and performance by the New
Borrower of this Agreement, and the assumption by the New Borrower of the
Obligations (i) are within the corporate powers of the New Borrower and have
been duly authorized by all necessary corporate action on the part of the New
Borrower, (ii) do not require any Consents (other than from the Agent and the
Banks), except those which have been duly obtained and are in full force and
effect, (iii) do not and will not conflict with any Requirement of Law, Charter
Document, corporate minute or resolution, (iv) after giving effect to this
Agreement and the consummation of the Transactions, do not result in any breach
of or constitute a default under any agreement or instrument to which either the
New Borrower or the Old Borrower is a party or by which any of them or their
properties are bound, and (v) do not result in or require the creation or
imposition of any mortgage, deed of trust, pledge, lien, security interest or
other charge or encumbrance of any nature upon any of the assets or properties
of the New Borrower, other than in favor of the Agent.
7.6. Each of this Agreement and the other documents delivered or to be
delivered to the Agent or any Bank in connection herewith has been duly executed
and delivered by the New Borrower and constitutes the legal, valid, and binding
obligation of the New Borrower, enforceable against the New Borrower in
accordance with its terms, except to the extent that (i) enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws of general application affecting the rights and remedies of
creditors, (ii) enforcement may be subject to general principles of equity, and
(iii) the availability of the remedies of specific performance and injunctive
relief may be subject to the discretion of the court before which any
proceedings for such remedies may be brought.
8. Scope of this Agreement. Except as specifically provided in this
-----------------------
Agreement and as may be necessary to reflect the consummation of the
Transactions, all of the terms and provisions of the Credit Agreement and the
other Loan Documents are unaffected hereby and shall remain and continue in full
force and effect.
9. Expenses. The New Borrower confirms its obligation under the Credit
--------
Agreement with respect to the payment of the expenses of the Agent and the Banks
incurred in connection with the preparation, negotiation, execution, amendment,
administration or enforcement of this Agreement and the other Loan Documents.
10. Governing Law. This Agreement shall be a contract to be governed by
-------------
and construed in accordance with the internal laws of the Commonwealth of
Massachusetts (without regard to principles of conflicts of laws) and shall take
effect as an instrument under seal.
11. Successors and Assigns. This Agreement shall be binding upon the New
----------------------
Borrower and its successors and assigns and shall inure to the benefit of the
Agent and the Banks and their respective successors and assigns, provided that
--------
the New Borrower may not assign or transfer any of their rights or obligations
under this Agreement, the Credit Agreement or the other Loan Documents without
the prior written consent of the Agent and the Banks.
12. Miscellaneous. The captions in this Agreement are for convenience of
-------------
reference only and shall not define or limit the provisions hereof. This
Agreement may be executed in several counterparts and by each party on a
separate counterpart, each of which when so executed and delivered shall be an
original, but all of which together shall constitute one instrument. In proving
this Agreement, it shall not be necessary to produce or account for more than
one such counterpart signed by the party against whom enforcement is sought.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as a
sealed instrument as of the date first above written.
SALESLINK CORPORATION,
a Delaware corporation
By:
---------------------------
Title:
CMG INFORMATION SERVICES, INC.
By:
---------------------------
Title:
PACIFIC DIRECT MARKETING CORP.
By:
---------------------------
Title:
BANKBOSTON, N.A.
By:
---------------------------
Name:
Title:
IMPERIAL BANK
By:
---------------------------
Name:
Title:
Schedule 1
Revolving Credit
Loan Term Loan Letter of Credit Commitment
Bank Commitment Commitment Commitment Percentage
BankBoston, N.A. $3,048,387.10 $3,725,805.45 $5,080,645.16 67.7419354839%
Domestic Lending Office:
100 Federal St.
Boston, MA
LIBOR Lending Office:
Same as above
Imperial Bank $1,451,612.90 $1,774,193.55 $2,419,354.84 32.2580645161%
Domestic Lending Office:
225 Franklin St.
Boston, MA
LIBOR Lending Office:
Same as above
Exhibit 10.45
TERM NOTE
$1,774,193.55 as of March 14, 1997
FOR VALUE RECEIVED, the undersigned SALESLINK CORPORATION, a Delaware
corporation, (the "Borrower"), hereby promises to pay to the order of IMPERIAL
BANK, California banking corporation (the "Bank") at the Agent's Head Office (as
defined in the Credit Agreement referred to below):
(a) prior to or on the Term Loan Maturity Date the principal amount
of ONE MILLION SEVEN HUNDRED SEVENTY FOUR THOUSAND ONE HUNDRED NINETY THREE
DOLLARS AND FIFTY FIVE CENTS ($1,774,193.55), evidencing the Term Loan made
by the Bank to the Borrower pursuant to the Revolving Credit and Term Loan
Agreement dated as of October 24, 1996 (as amended and in effect from time
to time, the "Credit Agreement"), by and among the Borrower, the Bank and
other parties thereto;
(b) the principal outstanding hereunder from time to time at the
times provided in the Credit Agreement; and
(c) interest from the date hereof on the principal amount from time
to time outstanding to and including the maturity hereof at the rates and
terms and in all cases in accordance with the terms of the Credit
Agreement.
This Note evidences borrowings under and has been issued by the Borrower in
accordance with the terms of the Credit Agreement. The Bank and any holder
hereof is entitled to the benefits of the Credit Agreement, the Guaranty and the
other Loan Documents, and may enforce the agreements of the Borrower contained
therein, and any holder hereof may exercise the respective remedies provided for
thereby or otherwise available in respect thereof, all in accordance with the
respective terms thereof. All capitalized terms used in this Note and not
otherwise defined herein shall have the same meanings herein as in the Credit
Agreement.
The Borrower irrevocably authorizes the Bank to make or cause to be made,
at the time of receipt of any payment of principal of this Note, an appropriate
notation on the grid attached to this Note, or the continuation of such grid, or
any other similar record, including computer records, reflecting the receipt of
such payment. The outstanding amount of the Term Loan set forth on the grid
attached to this Note, or the continuation of such grid, or any other similar
record, including computer records, maintained by the Bank with respect
to the Term Loan shall be prima facie evidence of the principal amount of the
Term Loan owing and unpaid to the Bank, but the failure to record, or any error
in so recording, any such amount on any such grid, continuation or other record
shall not limit or otherwise affect the obligation of the Borrower hereunder or
under the Credit Agreement to make payments of principal of and interest on this
Note when due.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole or part of the principal
of this Note on the terms and conditions specified in the Credit Agreement.
If any one or more of the Events of Default shall occur, the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
become or be declared due and payable in the manner and with the effect provided
in the Credit Agreement.
No delay or omission on the part of the Bank or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Bank or such holder, nor shall any delay, omission or waiver
on any one occasion be deemed a bar or waiver of the same or any other right on
any future occasion.
The Borrower and every endorser and guarantor of this Note or the
obligation represented hereby waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, and assents to any extension
or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable.
THIS NOTE AND THE OBLIGATIONS OF THE BORROWER HEREUNDER SHALL FOR ALL
PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR
CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS
NOTE MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY
FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE NONEXCLUSIVE JURISDICTION
OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE
BORROWER BY MAIL AT THE ADDRESS SPECIFIED BENEATH THE BORROWER'S SIGNATURE ON
THE SIGNATURE PAGE OF THE CREDIT AGREEMENT. THE BORROWER HEREBY WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY
SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.
This Note shall be deemed to take effect as a sealed instrument under the
laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has caused this Note to be signed in
its corporate name and its corporate seal to be impressed thereon by its duly
authorized officer as of the day and year first above written.
[Corporate Seal]
SALESLINK CORPORATION
By:
----------------------------------------
Title:
Exhibit 10.46
AMENDED AND RESTATED TERM NOTE
------------------------------
$3,725,806.45 as of March 14, 1997
FOR VALUE RECEIVED, the undersigned SALESLINK CORPORATION, a Delaware
corporation, (the "Borrower"), hereby promises to pay to the order of THE FIRST
NATIONAL BANK OF BOSTON, a national banking association (the "Bank") at the
Agent's Head Office (as defined in the Credit Agreement referred to below):
(a) prior to or on the Term Loan Maturity Date the principal amount
of THREE MILLION SEVEN HUNDRED TWENTY FIVE THOUSAND EIGHT HUNDRED SIX
THOUSAND DOLLARS FORTY FIVE CENTS ($3,725,806.45), evidencing the Term Loan
made by the Bank to the Borrower pursuant to the Revolving Credit and Term
Loan Agreement dated as of October 24, 1996 (as amended and in effect from
time to time, the "Credit Agreement"), by and among the Borrower, the Bank
and other parties thereto;
(b) the principal outstanding hereunder from time to time at the
times provided in the Credit Agreement; and
(c) interest from the date hereof on the principal amount from time
to time outstanding to and including the maturity hereof at the rates and
terms and in all cases in accordance with the terms of the Credit
Agreement.
This Note constitutes the amendment and restatement in its entirety of the
Term Note issued by the Borrower to the Bank in the original principal amount of
$5,500,000, dated as of October 24, 1996 (the "Original Note") and is issued in
substitution therefor and an amendment and replacement thereof. Nothing herein
or in any other document shall be construed to constitute payment of the
Original Note or to release or terminate any guaranty, lien, mortgage, pledge or
other security interest in favor of the Bank.
This Note evidences borrowings under and has been issued by the Borrower in
accordance with the terms of the Credit Agreement. The Bank and any holder
hereof is entitled to the benefits of the Credit Agreement, the Guaranty and the
other Loan Documents, and may enforce the agreements of the Borrower contained
therein, and any holder hereof may exercise the respective remedies provided for
thereby or otherwise available in respect thereof, all in accordance with the
respective terms thereof. All capitalized terms used in this Note and not
otherwise defined herein shall have the same meanings herein as in the Credit
Agreement.
-2-
The Borrower irrevocably authorizes the Bank to make or cause to be made,
at the time of receipt of any payment of principal of this Note, an appropriate
notation on the grid attached to this Note, or the continuation of such grid, or
any other similar record, including computer records, reflecting the receipt of
such payment. The outstanding amount of the Term Loan set forth on the grid
attached to this Note, or the continuation of such grid, or any other similar
record, including computer records, maintained by the Bank with respect to the
Term Loan shall be prima facie evidence of the principal amount of the Term Loan
----- -----
owing and unpaid to the Bank, but the failure to record, or any error in so
recording, any such amount on any such grid, continuation or other record shall
not limit or otherwise affect the obligation of the Borrower hereunder or under
the Credit Agreement to make payments of principal of and interest on this Note
when due.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole or part of the principal
of this Note on the terms and conditions specified in the Credit Agreement.
If any one or more of the Events of Default shall occur, the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
become or be declared due and payable in the manner and with the effect provided
in the Credit Agreement.
No delay or omission on the part of the Bank or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Bank or such holder, nor shall any delay, omission or waiver
on any one occasion be deemed a bar or waiver of the same or any other right on
any future occasion.
The Borrower and every endorser and guarantor of this Note or the
obligation represented hereby waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, and assents to any extension
or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable.
THIS NOTE AND THE OBLIGATIONS OF THE BORROWER HEREUNDER SHALL FOR ALL
PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR
CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS
NOTE MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY
FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE NONEXCLUSIVE JURISDICTION
OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE
BORROWER BY MAIL AT THE ADDRESS SPECIFIED
-3-
BENEATH THE BORROWER'S SIGNATURE ON THE SIGNATURE PAGE OF THE CREDIT AGREEMENT.
THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN
INCONVENIENT COURT.
This Note shall be deemed to take effect as a sealed instrument under the
laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has caused this Note to be signed in
its corporate name and its corporate seal to be impressed thereon by its duly
authorized officer as of the day and year first above written.
[Corporate Seal]
SALESLINK CORPORATION
By:
--------------------------
Title:
Exhibit 10.47
SECOND AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$1,451,612.90 as of July 11, 1997
FOR VALUE RECEIVED, the undersigned SALESLINK CORPORATION a Massachusetts
corporation (the "Borrower"), hereby promises to pay to the order of IMPERIAL
BANK, a national banking association (the "Bank") at the Agent's Head Office (as
such term is defined in the Credit Agreement referred to below):
(a) prior to or on the Revolving Credit Loan Maturity Date the
principal amount of ONE MILLION FOUR HUNDRED FIFTY-ONE THOUSAND SIX HUNDRED
TWELVE DOLLARS AND NINETY CENTS ($1,451,612.90) or, if less, the aggregate
unpaid principal amount of Revolving Credit Loans advanced by the Bank to
the Borrower pursuant to the Revolving Credit and Term Loan Agreement dated
as of October 24, 1996 (as amended and in effect from time to time, the
"Credit Agreement"), among the Borrower, the Bank and other parties
thereto;
(b) the principal outstanding hereunder from time to time at the
times provided in the Credit Agreement; and
(c) interest on the principal balance hereof from time to time
outstanding from the Closing Date under the Credit Agreement through and
including the maturity date hereof at the times and at the rate provided in
the Credit Agreement.
This Note constitutes the second amendment and restatement in its entirety
of the Amended and Restated Revolving Credit Note issued by the Borrower to the
Bank in the original principal amount of $806,451.61, dated as of March 14, 1997
(the "Original Note") and is issued in substitution therefor and an amendment
and replacement thereof. Nothing herein or in any other document shall be
construed to constitute payment of the Original Note or to release or terminate
any guaranty, lien, mortgage, pledge or other security interest in favor of the
Bank.
This Note evidences borrowings under and has been issued by the Borrower in
accordance with the terms of the Credit Agreement. The Bank and any holder
hereof is entitled to the benefits of the Credit Agreement, the Guaranty and the
other Loan Documents, and may enforce the agreements of the Borrower contained
therein, and any holder hereof may exercise the respective remedies provided for
thereby or otherwise available in respect thereof, all in accordance with the
respective terms thereof. All capitalized terms used in this Note and not
otherwise defined herein shall have the same meanings herein as in the Credit
Agreement.
The Borrower irrevocably authorizes the Bank to make or cause to be made,
at or about the time of the Drawdown Date of any Revolving Credit Loan or at the
time of receipt of any payment of principal of this Note, an appropriate
notation on the grid attached to this Note, or the continuation of such grid, or
any other similar record, including computer records, reflecting the making of
such Revolving Credit Loan or (as the case may be) the receipt of such payment.
The outstanding amount of the Revolving Credit Loans set forth on the grid
attached to this Note, or the continuation of such grid, or any other similar
record, including computer records, maintained by the Bank with respect to any
Revolving Credit Loans shall be prima facie evidence of the principal amount
thereof owing and unpaid to the Bank, but the failure to record, or any error in
so recording, any such amount on any such grid, continuation or other record
shall not limit or otherwise affect the obligation of the Borrower hereunder or
under the Credit Agreement to make payments of principal of and interest on this
Note when due.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole or part of the principal
of this Note on the terms and conditions specified in the Credit Agreement.
If any one or more of the Events of Default shall occur, the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
become or be declared due and payable in the manner and with the effect provided
in the Credit Agreement.
No delay or omission on the part of the Bank or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Bank or such holder, nor shall any delay, omission or waiver
on any one occasion be deemed a bar or waiver of the same or any other right on
any further occasion.
The Borrower and every endorser and guarantor of this Note or the
obligation represented hereby waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, and assents to any extension
or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable.
THIS NOTE AND THE OBLIGATIONS OF THE BORROWER HEREUNDER SHALL FOR ALL
PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR
CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS
NOTE MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY
FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE NONEXCLUSIVE JURISDICTION
OF SUCH
COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE
BORROWER BY MAIL AT THE ADDRESS SPECIFIED BENEATH THE BORROWER'S SIGNATURE ON
THE SIGNATURE PAGE OF THE CREDIT AGREEMENT. THE BORROWER HEREBY WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY
SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.
This Note shall be deemed to take effect as a sealed instrument under the
laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has caused this Revolving Credit Note
to be signed in its corporate name and its corporate seal to be impressed
thereon by its duly authorized officer as of the day and year first above
written.
[Corporate Seal]
SALESLINK CORPORATION
By:
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Title:
Amount of Balance of
Amount Principal Paid Principal Notation
Date of Loan or Prepaid Unpaid Made By:
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Exhibit 10.48
SECOND AMENDED AND RESTATED
REVOLVING CREDIT NOTE
---------------------
$3,048,387.10 as of July 11, 1997
FOR VALUE RECEIVED, the undersigned SALESLINK CORPORATION a Massachusetts
corporation (the "Borrower"), hereby promises to pay to the order of BANKBOSTON,
N.A. (f/k/a The First National Bank of Boston), a national banking association
(the "Bank") at the Agent's Head Office (as such term is defined in the Credit
Agreement referred to below):
(a) prior to or on the Revolving Credit Loan Maturity Date the
principal amount of THREE MILLION FORTY-EIGHT THOUSAND THREE HUNDRED
EIGHTY-SEVEN DOLLARS AND TEN CENTS ($3,048,387.10) or, if less, the
aggregate unpaid principal amount of Revolving Credit Loans advanced by the
Bank to the Borrower pursuant to the Revolving Credit and Term Loan
Agreement dated as of October 24, 1996 (as amended and in effect from time
to time, the "Credit Agreement"), among the Borrower, the Bank and other
parties thereto;
(b) the principal outstanding hereunder from time to time at the
times provided in the Credit Agreement; and
(c) interest on the principal balance hereof from time to time
outstanding from the Closing Date under the Credit Agreement through and
including the maturity date hereof at the times and at the rate provided in
the Credit Agreement.
This Note constitutes the amendment and restatement in its entirety of the
Amended and Restated Revolving Credit Note issued by the Borrower to the Bank in
the original principal amount of $1,693,548.39, dated as of March 14, 1997 (the
"Original Note") and is issued in substitution therefor and an amendment and
replacement thereof. Nothing herein or in any other document shall be construed
to constitute payment of the Original Note or to release or terminate any
guaranty, lien, mortgage, pledge or other security interest in favor of the
Bank.
This Note evidences borrowings under and has been issued by the Borrower in
accordance with the terms of the Credit Agreement. The Bank and any holder
hereof is entitled to the benefits of the Credit Agreement, the Guaranty and the
other Loan Documents, and may enforce the agreements of the Borrower contained
therein, and any holder hereof may exercise the respective remedies provided for
thereby or otherwise available in respect thereof, all in accordance with the
respective terms thereof. All capitalized terms used in this Note and not
otherwise defined herein shall have the same meanings herein as in the Credit
Agreement.
The Borrower irrevocably authorizes the Bank to make or cause to be made,
at or about the time of the Drawdown Date of any Revolving Credit Loan or at the
time of receipt of any payment of principal of this Note, an appropriate
notation on the grid attached to this Note, or the continuation of such grid, or
any other similar record, including computer records, reflecting the making of
such Revolving Credit Loan or (as the case may be) the receipt of such payment.
The outstanding amount of the Revolving Credit Loans set forth on the grid
attached to this Note, or the continuation of such grid, or any other similar
record, including computer records, maintained by the Bank with respect to any
Revolving Credit Loans shall be prima facie evidence of the principal amount
----- -----
thereof owing and unpaid to the Bank, but the failure to record, or any error in
so recording, any such amount on any such grid, continuation or other record
shall not limit or otherwise affect the obligation of the Borrower hereunder or
under the Credit Agreement to make payments of principal of and interest on this
Note when due.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole or part of the principal
of this Note on the terms and conditions specified in the Credit Agreement.
If any one or more of the Events of Default shall occur, the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
become or be declared due and payable in the manner and with the effect provided
in the Credit Agreement.
No delay or omission on the part of the Bank or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Bank or such holder, nor shall any delay, omission or waiver
on any one occasion be deemed a bar or waiver of the same or any other right on
any further occasion.
The Borrower and every endorser and guarantor of this Note or the
obligation represented hereby waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, and assents to any extension
or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable.
THIS NOTE AND THE OBLIGATIONS OF THE BORROWER HEREUNDER SHALL FOR ALL
PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR
CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS
NOTE MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY
FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE NONEXCLUSIVE JURISDICTION
OF SUCH
COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER
BY MAIL AT THE ADDRESS SPECIFIED BENEATH THE BORROWER'S SIGNATURE ON THE
SIGNATURE PAGE OF THE CREDIT AGREEMENT. THE BORROWER HEREBY WAIVES ANY OBJECTION
THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH
COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.
This Note shall be deemed to take effect as a sealed instrument under the
laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has caused this Revolving Credit Note
to be signed in its corporate name and its corporate seal to be impressed
thereon by its duly authorized officer as of the day and year first above
written.
[Corporate Seal]
SALESLINK CORPORATION
By:
-----------------------------
Title:
BD&G Draft
05/23/97
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Amount of Balance of
Amount Principal Paid Principal Notation
Date of Loan or Prepaid Unpaid Made By:
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Exhibit 10.49
REVOLVING CREDIT AGREEMENT
--------------------------
This REVOLVING CREDIT AGREEMENT (this "Agreement") is made as of May 14,
1997, by and among CMG INFORMATION SERVICES, INC. (the "Borrower"), a Delaware
corporation having its principal place of business at 100 Brickston Square,
First Floor, Andover, Massachusetts 01810, BANKBOSTON, N.A. (f/k/a THE FIRST
NATIONAL BANK OF BOSTON), a national banking association, and the other lending
institutions listed on Schedule 1 hereto and BANKBOSTON, N.A. as agent for
-------- -
itself and such other lending institutions.
1. DEFINITIONS:
-----------
Certain capitalized terms are defined below:
Accounts: All rights of the Borrower or any of its Subsidiaries to any
--------
payment of money for services rendered, goods sold, leased or otherwise marketed
in the ordinary course of business, whether evidenced by or under or in respect
of a contract or instrument, and to all proceeds in respect thereof.
Affiliate: Any Person that would be considered to be an affiliate of the
---------
Borrower under Rule 144(a) of the Rules and Regulations of the Securities and
Exchange Commission, as in effect on the date hereof, if the Borrower were
issuing securities.
Agent: BankBoston, N.A. acting as agent for the Banks.
-----
Agent's Head Office: The Agent's head office located at 100 Federal
------- ---- ------
Street, Boston, Massachusetts 02110, or at such other location as the Agent may
designate from time to time.
Agreement: See the preamble, which term shall include this Agreement and
---------
the Schedules and Exhibits hereto, all as amended and in effect from time to
time.
Assignment and Acceptance: See (S)11.
-------------------------
Balance Sheet Date: July 31, 1996.
------------------
BankBoston: BankBoston, N.A., a national banking association, in its
----------
individual capacity.
Banks: BankBoston and the other lending institutions listed on Schedule 1
----- -------- -
hereto and any other Person who becomes an assignee of any rights and
obligations of a Bank pursuant to (S)11.
Base Rate: The higher of (a) the annual rate of interest announced from
---------
time to time by BankBoston at its head office as its "base rate" and (b) one-
half of one percent (1/2%) above the Federal Funds Effective Rate.
Base Rate Loans: Revolving Credit Loans bearing interest calculated by
---------------
reference to the Base Rate.
Blackxxun: Blackxxun Interactive Inc..
---------
Borrower: See the preamble.
--------
Borrowing Base: At the relevant time of reference thereto, an amount
--------------
determined by the Agent by reference to the most recent Borrowing Base Report
which is equal to fifty percent (50%) of (a) the Determined Value of the
Borrower's Unrestricted Public Equity Security Investments less (b) the
----
estimated federal or state taxes and transaction costs due to the United States
or any state thereof upon or after the liquidation of such shares as a result of
such liquidation.
Borrowing Base Report: A report, with supporting details satisfactory to
---------------------
the Agent and the Banks, setting forth the Borrower's computation of the
Borrowing Base, such report to be in the form of the Exhibit A attached hereto.
------- -
Business Day: Any day on which banking institutions in Boston,
------------
Massachusetts, are open for the conduct of a substantial part of its commercial
banking business generally and, in the case of LIBOR Rate Loans, also a day
which is a LIBOR Business Day.
Capitalized Leases: Leases under which the Borrower or any of its
------------------
Subsidiaries is the Lessee or obligor, the discounted, future rental payment
obligations under which are required to be capitalized on the consolidated
balance sheet of the Borrower and its Subsidiaries in accordance with GAAP.
Charter Documents: In respect of any entity, the certificate or articles
-----------------
of incorporation or organization and the by-laws of such entity, or other
constitutive documents of such entity.
Closing Date: The first date on which the conditions set forth in (S)6
------------
have been satisfied and any Revolving Credit Loans are to be made.
CMG@Ventures I: CMG@Ventures I, L.P., a Delaware limited partnership.
--------------
CMG@Ventures II: CMG@Ventures II, L.P., a Delaware limited partnership.
---------------
Commitment: With respect to each Bank, the amount set forth on Schedule 1
---------- -------- -
hereto as the amount of such Bank's commitment to make Revolving
Credit Loans to the Borrower, as the same may be reduced from time to time or
terminated hereunder.
Commitment Percentage: With respect to each Bank, the percentage set forth
---------------------
on Schedule 1 hereto as such Bank's percentage of the aggregate Commitments of
-------- -
all the Banks.
Compliance Certificate: See (S)7.1(a)(iv) hereof.
----------------------
Consent: In respect of any person or entity, any permit, license or
-------
exemption from, approval, consent of, registration or filing with any local,
state or federal governmental or regulatory agency or authority, required under
applicable law.
Consolidated Assets: All assets of the Borrower and its Subsidiaries
-------------------
determined on a consolidated basis in accordance with GAAP.
Consolidated Liabilities: All liabilities of the Borrower and its
------------------------
Subsidiaries determined on a consolidated basis in accordance with GAAP and all
Indebtedness of the Borrower and its Subsidiaries, whether or not so
classified.
Consolidated Tangible Net Worth: The excess of Consolidated Assets over
-------------------------------
Consolidated Liabilities, and less the sum of:
----
(a) the total book value of all assets of the Borrower and its
Subsidiaries properly classified as intangible assets in accordance with
GAAP, including such items as good will, the purchase price of acquired
assets in excess of the fair market value thereof, trademarks, trade names,
service marks, brand names, copyrights, patents and licenses, and rights
with respect to the foregoing; plus
----
(b) all amounts representing any write-up in the book value of any
assets of the Borrower or its Subsidiaries resulting from a revaluation
thereof subsequent to the Balance Sheet Date, except for the write-up, if
any, in unrealized gains recorded on securities available for sale; plus
----
(c) to the extent otherwise includable in the computation of
Consolidated Tangible Net Worth, any subscriptions receivable.
Consolidated Total Debt Service: For any period, all scheduled mandatory
-------------------------------
payment of principal on Indebtedness and Capitalized Leases of the Borrower and
its Subsidiaries made or required to be made in that period plus the
----
Consolidated Total Interest Expense of the Borrower and its Subsidiaries for
such period; provided, however, when calculating Consolidated Total Debt Service
-------- -------
for purposes of compliance with (S)7.3(b) hereof, Consolidated Total Debt
Service shall exclude for such period (i) all Indebtedness of SalesLink,
Blackxxun and, to the extent not guaranteed by the Borrower, of CMG@Ventures I
and CMG@Ventures II; (ii) any mandatory payments of principal of Revolving
Credit
Loans and (iii) any mandatory payments of principal on Indebtedness of Long Lane
Trust.
Consolidated Total Interest Expense. For any period, the aggregate amount
-----------------------------------
of interest required to be paid or accrued by the Borrower and its Subsidiaries
during such period on all Indebtedness of the Borrower and its Subsidiaries
outstanding during all or any part of such period, whether such interest was or
is required to be reflected as an item of expense or capitalized, including
payments consisting of interest in respect of Capitalized Leases and including
commitment fees, agency fees, facility fees, balance deficiency fees and similar
fees or expenses in connection with the borrowing of money.
Conversion Request: A notice by the Borrower to the Agent of the
------------------
Borrower's election to convert or continue a Revolving Credit Loan in accordance
with (S)2.3 hereof.
Default: An event or act which with the giving of notice and/or the lapse
-------
of time, would become an Event of Default.
Determined Value: At the relevant time of reference thereto, that value
----------------
which is determined by reference to the average of the last sales price of a
share of the Unrestricted Public Equity Investment reported on the principal
national securities exchange on which it is listed.
Domestic Lending Office: Initially, the office of each Bank designated as
-----------------------
such in Schedule 1 hereto; thereafter, such other office of such Bank, if any,
-------- -
located within the United States that will be making or maintaining Base Rate
Loans.
Drawdown Date: The date on which any Revolving Credit Loan is made or is
-------------
to be made, and the date on which any Revolving Credit Loan is converted or
continued in accordance with (S)2.3.
Eligible Assignee: Any of (a) a commercial bank or finance company
-----------------
organized under the laws of the United States, or any State thereof or the
District of Columbia, and having total assets in excess of $1,000,000,000; (b) a
savings and loan association or savings bank organized under the laws of the
Untied States, or any State thereof or the District of Columbia, and having a
net worth of at least $100,000,000, calculated in accordance with GAAP; (c) a
commercial bank organized under the laws of any other country which is a member
of the Organization for Economic Cooperation and Development ( the "OECD"), or a
political subdivision of any such country, and having total assets in excess of
$1,000,000,000, provided, that such bank is acting through a branch or agency
--------
located in the country in which it is organized or another country which is also
a member of the OECD; (d) the central bank of any country which is a member of
the OECD; and (e) if, but only if, any Event of Default has occurred and is
continuing, any other bank, insurance company, commercial
finance company or other financial institution or other Person approved by the
Agent, such approval not to be unreasonably withheld.
Environmental Laws: All laws pertaining to environmental matters,
------------------
including without limitation, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act of 1986, the Federal Clean Water
Act, the Federal Clean Air Act, the Toxic Substances Control Act, in each case
as amended, and all rules, regulations, judgments, decrees, orders and licenses
arising under all such laws.
ERISA: The Employee Retirement Income Security Act of 1974, as amended,
-----
and all rules, regulations, judgments, decrees, and orders arising thereunder.
Eurocurrency Reserve Rate: For any day with respect to a LIBOR Rate Loan,
-------------------------
the maximum rate (expressed as a decimal) at which any lender subject thereto
would be required to maintain reserves under Regulation D of the Board of
Governors of the Federal Reserve System (or any successor or similar regulations
relating to such reserve requirements) against "Eurocurrency Liabilities" (as
that term is used in Regulation D), if such liabilities were outstanding. The
Eurocurrency Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in the Eurocurrency Reserve Rate.
Event of Default: Any of the events listed in (S)8 hereof.
----------------
Federal Funds Effective Rate: For any day, the rate per annum equal to the
----------------------------
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for such day on such transactions received by the Agent from three
funds brokers of recognized standing selected by the Agent.
Financials: In respect of any period, the consolidated balance sheet of
----------
any Person and its Subsidiaries as at the end of such period, and the related
statement of income and consolidated statement of cash flow for such period,
each setting forth in comparative form the figures for the previous comparable
fiscal period, all in reasonable detail and prepared in accordance with GAAP.
GAAP: Generally accepted accounting principles consistent with those
----
adopted by the Financial Accounting Standards Board and its predecessor, (a)
generally, as in effect from time to time, and (b) for purposes of determining
compliance by the Borrower with its financial covenants set forth herein, as in
effect for the fiscal year therein reported in the most recent Financials
submitted to the Agent prior to execution of this Agreement.
Indebtedness: In respect of any entity, all obligations, contingent and
------------
otherwise, that in accordance with GAAP should be classified upon the obligor's
balance sheet as liabilities, or to which reference should be made by footnotes
thereto (excluding operating leases, if any), including in any event and whether
or not so classified, where the underlying obligation appears on the balance
sheet of such entity: (a) all debt and similar monetary obligations, whether
direct or indirect, (b) all liabilities secured by Liens, whether or not the
liability secured thereby shall have been assumed, (c) all guarantees,
endorsements and other contingent obligations whether direct or indirect in
respect of indebtedness of others, including any obligation to supply funds to
or in any manner to invest in, directly or indirectly, the debtor, to purchase
indebtedness, or to assure the owner of indebtedness against loss, through an
agreement to purchase goods, supplies or services for the purpose of enabling
the debtor to make payment of the indebtedness held by such owner or otherwise
and (d) all liabilities in respect of bankers' acceptances.
Interest Payment Date: (a) As to any Base Rate Loan, the last day of the
---------------------
calendar month which includes the Drawdown Date thereof; and (b) as to any LIBOR
Rate Loan in respect of which the Interest Period is (i) ninety (90) days or
less, the last day of such Interest Period and (ii) more than ninety (90) days,
the date that is ninety (90) days from the first day of such Interest Period
and, in addition, the last day of such Interest Period.
Interest Period: With respect to each Revolving Credit Loan (a) initially,
---------------
the period commencing on the Drawdown Date of such Revolving Credit Loan and
ending on the last day of one of the periods set forth below, as selected by the
Borrower in a Loan Request (i) for any Base Rate Loans, the last day of the
calendar month; and (ii) for any LIBOR Rate Loan, 1, 2, or 3 months; and (b)
thereafter each period commencing on the last day of the immediately preceding
Interest Period applicable to such Revolving Credit Loan and ending on the last
day of one of the periods set forth above, as selected by the Borrower in a
Conversion Request; provided that all of the foregoing provisions relating to
--------
Interest Periods are subject to the following:
(a) if any Interest Period with respect to a LIBOR Rate Loan would
otherwise end on a day that is not a LIBOR Business Day, that Interest
Period shall be extended to the next succeeding LIBOR Business Day unless
the result of such extension would be to carry such Interest Period into
another calendar month, in which event such Interest Period shall end on
the immediately preceding LIBOR Business Day;
(b) if any Interest Period with respect to a Base Rate Loan would end
on a day that is not a Business Day, that Interest Period shall end on the
next succeeding Business Day;
(c) If the Borrower shall fail to give notice as provided in (S)2.3,
the Borrower shall be deemed to have requested a conversion of the affected
LIBOR Rate Loan to a Base Rate Loan and the continuance of all Base
Rate Loans as Base Rate Loans on the last day of the then current Interest
Period with respect thereto;
(d) any Interest Period relating to any LIBOR Rate Loan that begins
on the last LIBOR Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end
of such Interest Period) shall end on the last LIBOR Business Day of a
calendar month; and
(e) any Interest period relating to any LIBOR Rate Loan that would
otherwise extend beyond the Revolving Credit Loan Maturity Date shall end
on the Revolving Credit Loan Maturity Date.
Investment Policy: The Borrower's investment policy set forth on Schedule
----------------- --------
2 hereto.
- -
LIBOR Business Day: Any day on which commercial banks are open for
------------------
international business (including dealings in U.S. dollar deposits) in London or
such other eurodollar interbank market as may be selected by the Agent in its
sole discretion acting in good faith.
LIBOR Lending Office: Initially, the office of each Bank designated as
--------------------
such in Schedule 1 hereto; thereafter, such other office of such Bank, if any,
-------- -
that shall be making or maintaining LIBOR Rate Loans.
LIBOR Rate: For any Interest Period with respect to a LIBOR Rate Loan, the
----------
rate of interest equal to (a) the rate determined by the Agent at which U.S.
dollar deposits for such Interest Period are offered based on information
presented on Telerate Page 3750 (or any successor publication or source selected
by the Bank in its reasonable discretion) at 11:00 a.m. (London time) on the
second LIBOR Business Day, prior to the first day of such Interest Period,
divided by (b) a number equal to 1.00 minus the Eurocurrency Reserve Rate, if
applicable.
LIBOR Rate Loans: Revolving Credit Loans bearing interest calculated by
----------------
reference to the LIBOR Rate.
Liens: Any encumbrance, mortgage, pledge, hypothecation, charge,
-----
restriction or other security interest of any kind securing any obligation of
any entity or person.
Loan Documents: This Agreement and the Revolving Credit Notes, in each
--------------
case as from time to time amended or supplemented.
Loan Request: See (S)2.2.
------------
Loans: The Revolving Credit Loan.
-----
Long Lane Trust:
---------------
Majority Banks: As of any date, (a) if there are only two (2) Banks,
--------------
Majority Banks shall mean all of the Banks, and (b) if there are three (3) or
more Banks the Banks whose aggregate Commitments constitute at least sixty six
and two thirds percent (66 2/3%) of the Total Commitment.
Materially Adverse Effect: Any materially adverse effect on the financial
-------------------------
condition or business operations of the Borrower and its Subsidiaries taken
together or material impairment of the ability of the Borrower or any of its
Subsidiaries to perform its obligations hereunder or under any of the other Loan
Documents.
Minimum Debt Service Reserve: The amount which the Borrower and its
----------------------------
Subsidiaries have set aside for the making of payments of principal and interest
payments on Indebtedness of the Borrower and its Subsidiaries as the same
becomes due and payable.
Obligations: All indebtedness, obligations and liabilities of the Borrower
-----------
and its Subsidiaries to any of the Banks and the Agent, existing on the date of
this Agreement or arising thereafter, direct or indirect, joint or several,
absolute or contingent, matured or unmatured, liquidated or unliquidated,
secured or unsecured, arising by contract, operation of law or otherwise,
arising or incurred under this Agreement or any other Loan Document or in
respect of any of the Revolving Credit Loans made or any of the Revolving Credit
Notes or any documents, agreements or instruments executed in connection
therewith, or other instruments at any time evidencing any thereof.
Person: Any individual, corporation, partnership, trust, unincorporated
------
association, business or other legal entity, and any government or any
governmental agency or political subdivision thereof.
Requirement of Law: In respect of any person or entity, any law, treaty,
------------------
rule, regulation or determination of an arbitrator, court, or other governmental
authority, in each case applicable to or binding upon such person or entity or
affecting any of its property.
Revolving Credit Loan Maturity Date: May 14, 1998.
-----------------------------------
Revolving Credit Loans: Revolving credit loans made or to be made by the
----------------------
Banks to the Borrower pursuant to (S)2 hereof.
Revolving Credit Note: See (S)2.2(c) hereof.
---------------------
SalesLink: SalesLink Corporation, a Massachusetts corporation and wholly-
---------
owned Subsidiary of the Borrower.
SalesLink Agreement: The Revolving Credit and Term Loan Agreement dated as
-------------------
of October 24, 1996 among SalesLink, the Borrower, Pacific Direct Marketing
Corp., BankBoston, N.A. (f/k/a The First National Bank of Boston) and the other
lending institutions party thereto (collectively, the "SalesLink
Banks") and BankBoston, N.A. as agent for the SalesLink Banks (the "SalesLink
Agent"), as the same may be amended, modified, supplemented or restated from
time to time.
Subsidiary: In respect of any Person, any business entity of which such
----------
Person at any time owns or controls directly or indirectly more than fifty
percent (50%) of the outstanding shares of stock having voting power, regardless
of whether such right to vote depends upon the occurrence of a contingency.
Total Commitment: The sum of the Commitments of the Banks, as in effect
----------------
from time to time.
Unrestricted Public Equity Security Investment: The Borrower's and/or its
----------------------------------------------
Subsidiary's assets and Investments consisting of the common shares of Lycos,
Inc. and which shares are (a) not subject to any Liens and (b) freely marketable
(including, without limitation pursuant to a private placement or secondary
offering).
2. REVOLVING CREDIT FACILITY.
-------------------------
2.1. Commitment to Lend. Upon the terms and subject to the conditions of
------------------
this Agreement, each of the Banks severally agrees to lend to the Borrower such
sums that the Borrower may request, from the Closing Date until but not
including the Revolving Credit Loan Maturity Date, up to a maximum aggregate
amount outstanding (after giving effect to all amounts requested) at any one
time equal to such Bank's Commitment, provided that the sum of the outstanding
--------
amount of the Revolving Credit Loans (after giving effect to all amounts
requested) shall not at any time exceed the lesser of (a) the Total Commitment
and (b) the Borrowing Base. Revolving Credit Loans shall be in the minimum
aggregate amount of $100,000 or an integral multiple thereof.
2.2. Requests for Loans.
------------------
(a) The Borrower shall give to the Agent written notice in form and
substance satisfactory to the Agent (or telephonic notice confirmed in
writing in form and substance satisfactory to the Agent) of each Revolving
Credit Loan being requested hereunder (a "Loan Request") (i) no later than
10:00 a.m. (Boston time) on the proposed Drawdown Date of any Base Rate
Loan and (ii) no less than three (3) LIBOR Business Days prior to the
proposed Drawdown Date of any LIBOR Rate Loan. Each such notice shall
specify (A) the principal amount of the Revolving Credit Loan being
requested, (B) the proposed Drawdown Date of such Revolving Credit Loan,
(C) in the event the Revolving Credit Loan being requested is a LIBOR Rate
Loan, the Interest Period for such Revolving Credit Loan and (D) whether
such Revolving Credit Loan shall be a Base Rate Loan or a LIBOR Rate Loan.
Promptly upon receipt of any such notice, the Agent shall notify each of
the Banks thereof. Each Loan Request shall be irrevocable and binding upon
the Borrower and shall obligate the
Borrower to accept the Revolving Credit Loan requested from the Banks on
the proposed Drawdown Date. Each Loan Request shall be in a minimum
aggregate amount of $100,000 or an integral multiple thereof.
(b) Notwithstanding the notice requirements set forth in (S)2.2(a)
and the minimum Revolving Credit Loan amount provisions contained in (S)2.1
and 2.2(a), Revolving Credit Loans may be made from time to time in the
following manner: the Banks may make Revolving Credit Loans to the
Borrower by entry of credits by the Agent to the Borrower's controlled
disbursement account (the "Disbursement Account") with the Agent to cover
checks and other charges which the Borrower has drawn or made against such
Disbursement Account. The Borrower hereby requests and authorizes the
Banks to make from time to time such Revolving Credit Loans by means of
appropriate entries of such credits sufficient to cover checks and other
charges then presented. The Borrower and the Banks may also agree to
effect such other controlled disbursement arrangements as may be mutually
satisfactory. The Borrower acknowledges and agrees that the making of such
Revolving Credit Loans in accordance with this (S)2.2(b) shall, in each
case, be subject in all respects to the provisions of this Agreement as if
they were Revolving Credit Loans covered by a Loan Request, including
without limitation, the limitations set forth in (S)2.1 and the requirement
that the applicable provisions of (S)6 be satisfied. All actions taken by
the Agent and the Banks pursuant to the provisions of this (S)2.2(b) shall
be conclusive and binding upon the Borrower.
(c) The obligation of the Borrower to repay to the Banks the
principal of the Revolving Credit Loans and interest accrued thereon shall
be evidenced by separate promissory notes (each a "Revolving Credit Note")
dated as of the Closing Date and completed with appropriate insertions.
One Revolving Credit Note shall be payable to the order of each Bank in a
principal amount equal to such Bank's Revolving Credit Loan Commitment or,
if less, the outstanding amount of all Revolving Credit Loans made by such
Bank, plus interest accrued thereon, as set forth in (S)2.4 below.
2.3. Conversion Options.
---------- -------
2.3.1. Conversion to Different Loan Type. The Borrower may elect from
---------- -- --------- ---- ----
time to time to convert any outstanding Revolving Credit Loan from a Base
Rate Loan to a LIBOR Rate Loan or from a LIBOR Rate Loan to a Base Rate
Loan, provided that (a) with respect to any such conversion of a LIBOR
--------
Rate Loan to a Base Rate Loan, the Borrower shall give the Agent at least
three (3) Business Day's prior written notice of such election; (b) with
respect to any such conversion of a Base Rate Loan to a LIBOR Rate Loan,
the Borrower shall give the Agent at least three (3) LIBOR Business Days
prior written notice of such election; (c) with respect to any such
conversion of a LIBOR Rate Loan into a Base Rate Loan, such conversion
shall only be made on the last day of the Interest
Period with respect thereto; and (d) no Revolving Credit Loan may be
converted into a LIBOR Rate Loan when any Default or Event of Default has
occurred and is continuing. On the date on which such conversion is being
made each Bank shall take such action as is necessary to transfer its
Commitment Percentage of such Revolving Credit Loans to its Domestic
Lending Office or its LIBOR Lending Office, as the case may be. All or any
part of Revolving Credit Loans may be converted as provided herein,
provided that any partial conversion shall be in an aggregate principal
--------
amount of $100,000 or a whole multiple thereof. Each Conversion Request
relating to the conversion of a Base Rate Loan to a LIBOR Rate Loan shall
be irrevocable by the Borrower.
2.3.2. Continuation of Loan Type. Any Base Rate Loan or LIBOR Rate
------------ -- ---- ----
Loan may be continued as such upon the expiration of an Interest Period
with respect thereto by compliance by the Borrower with the notice
provisions contained in (S)2.3.1; provided that no LIBOR Rate Loan may be
--------
continued as such when any Default or Event of Default has occurred and is
continuing, but shall be automatically converted to a Base Rate Loan on the
last day of the first Interest Period relating thereto ending during the
continuance of any Default or Event of Default of which officers of the
Agent active upon the Borrower's account have actual knowledge. In the
event that the Borrower fails to provide any such notice with respect to
the continuation of any LIBOR Rate Loan as such, then such LIBOR Rate Loan
shall be automatically converted to a Base Rate Loan on the last day of the
first Interest Period relating thereto.
2.3.3. LIBOR Rate Loans. Any conversion to or from LIBOR Rate Loans
----- ---- -----
shall be in such amounts and be made pursuant to such elections so that,
after giving effect thereto, the aggregate principal amount of all LIBOR
Rate Loans having the same Interest Period shall not be less than $100,000
or a whole multiple thereof, and there shall not be more than three (3)
outstanding Revolving Credit Loans which are LIBOR Rate Loans at any time.
2.4. Interest. So long as no Event of Default is continuing, and except
--------
as otherwise provided herein, (a) each Base Rate Loan shall bear interest for
the period commencing with the Drawdown Date thereof and ending of the last day
of the Interest Period with respect thereto at the rate of one half of one
percent (1/2%) per annum above the Base Rate; (b) each LIBOR Rate Loan shall
bear interest for the period commencing with the Drawdown Date thereof and
ending on the last day of the Interest Period with respect thereto at the rate
of two and one-half percent (2 1/2%) per annum above the LIBOR Rate determined
for such Interest Period; and (c) the Borrower promises to pay interest on each
Revolving Credit Loan in arrears on each Interest Payment Date with respect
thereto. While an Event of Default is continuing, amounts payable under any of
the Loan Documents shall bear interest (compounded monthly and payable on demand
in respect of overdue amounts) at a rate per annum which is equal four percent
(4%) above the rate of interest otherwise applicable to the Revolving Credit
Loans hereunder until such amount is paid in full or (as the case may be) such
Event of Default has been cured or waived in writing by the Majority Banks
(after as well as before judgment).
2.5. Repayments and Prepayments. The Borrower hereby agrees to pay to the
--------------------------
Agent for the benefit of the Banks on the Revolving Credit Loan Maturity Date
the entire unpaid principal of and interest on all Revolving Credit Loans. If at
any time the aggregate amount of all outstanding Revolving Credit Loans exceeds
the lesser of (a) the Total Commitment and (b) the Borrowing Base, then the
Borrower shall immediately pay the amount of such excess to the Agent for the
respective accounts of the Banks for application to the Revolving Credit Loans.
Each prepayment of Revolving Credit Loans shall be allocated among the Banks, in
proportion, as nearly as practicable, to the respective unpaid principal amount
of each Bank's Revolving Credit Note, with adjustments to be extent practicable
to equalize any prior payments or repayments not exactly in proportion. The
Borrower may elect to prepay the outstanding principal of all or any part of any
Revolving Credit Loan, without premium or penalty, in a minimum amount of
$100,000 or an integral multiple thereof, upon written notice to the Agent given
by 10:00 a.m. Boston time on the date of such prepayment, of the amount to be
prepaid. Each partial prepayment shall be allocated among the Banks, in
proportion, as nearly as practicable, to the respective unpaid principal amount
of each Bank's Revolving Credit Note, with adjustments to the extent practicable
to equalize any prior repayments not exactly in proportion. The Borrower shall
be entitled to reborrow before the Revolving Credit Loan Maturity Date such
amounts, upon the terms and subject to the conditions of this Agreement. Each
repayment or prepayment of principal of any Revolving Credit Loan shall be
accompanied by payment of the unpaid interest accrued to such date on the
principal being repaid or prepaid. The Borrower may elect to reduce or terminate
the Total Commitment by a minimum principal amount of $100,000 or an integral
multiple thereof, upon written notice to the Agent given by 10:00 a.m. Boston
time at least two (2) Business Days prior to the date of such reduction or
termination. The Borrower shall not be entitled to reinstate the Commitments
following such reduction or termination.
2.6. Funds for Revolving Credit Loan.
-------------------------------
2.6.1. Funding Procedures. Not later than 11:00 a.m. (Boston time) on
------------------
the proposed Drawdown Date of any Revolving Credit Loans, each of the Banks
will make available to the Agent, at the Agent's Head Office, in
immediately available funds, the amount of such Bank's Commitment
Percentage of the amount of the requested Revolving Credit Loans. Upon
receipt from each Bank of such amount, and upon receipt of the documents
required by (S)6 and the satisfaction of the other conditions set forth
therein, to the extent applicable, the Agent will make available to the
Borrower the aggregate amount of such Revolving Credit Loans made available
to the Agent by the Banks. The failure or refusal of any Bank to make
available to the Agent at the aforesaid time and place on
any Drawdown Date the amount of its Commitment Percentage of the requested
Revolving Credit Loans shall not relieve any other Bank from its several
obligation hereunder to make available to the Agent the amount of such
other Bank's Commitment Percentage of any requested Revolving Credit Loans.
2.6.2. Advances by Agent. The Agent may, unless notified to the
-----------------
contrary by any Bank prior to a Drawdown Date, assume that such Bank has
made available to the Agent on such Drawdown Date the amount of such Bank's
Commitment Percentage of the Revolving Credit Loans to be made on such
Drawdown Date, and the Agent may (but it shall not be required to), in
reliance upon such assumption, make available to the Borrower a
corresponding amount. If any Bank makes available to the Agent such amount
on a date after such Drawdown Date, such Bank shall pay to the Agent on
demand an amount equal to the product of (a) the average computed for the
period referred to in clause (c) below, of the weighted average interest
rate paid by the Agent for federal funds acquired by the Agent during each
day included in such period, times (b) the amount of such Bank's
-----
Commitment Percentage of such Revolving Credit Loans, times (c) a fraction,
-----
the numerator of which is the number of days that elapse from and including
such Drawdown Date to the date on which the amount of such Bank's
Commitment Percentage of such Revolving Credit Loans shall become
immediately available to the Agent, and the denominator of which is 365. A
statement of the Agent submitted to such Bank with respect to any amounts
owing under this paragraph shall be prima facie evidence of the amount
----- -----
due and owing to the Agent by such Bank. If the amount of such Bank's
Commitment Percentage of such Revolving Credit Loans is not made available
to the Agent by such Bank within three (3) Business Days following such
Drawdown Date, the Agent shall be entitled to recover such amount from the
Borrower on demand, with interest thereon at the rate per annum applicable
to the Revolving Credit Loans made on such Drawdown Date.
3. CHANGES IN CIRCUMSTANCES, ETC.
------- -- -------------- ---
3.1. Inability to Determine LIBOR Rate. In the event, prior to the
--------- -- --------- ----- ----
commencement of any Interest Period relating to any LIBOR Rate Loan, the Agent
shall determine or be notified by the Majority Banks that adequate and
reasonable methods do not exist for ascertaining the LIBOR Rate that would
otherwise determine the rate of interest to be applicable to any LIBOR Rate Loan
during any Interest Period, the Agent shall forthwith give notice of such
determination (which shall be conclusive and binding on the Borrower and the
Banks) to the Borrower and the Banks. In such event (a) any Loan Request or
Conversion Request with respect to LIBOR Rate Loans shall be automatically
withdrawn and shall be deemed a request for a Base Rate Loan, (b) each LIBOR
Rate Loan will automatically, on the last day of the then current Interest
Period relating thereto, become a Base Rate Loan, and (c) the obligations of the
Banks to make LIBOR Rate Loans shall be suspended until the Agent or the
Majority
Banks determines that the circumstances giving rise to such suspension no longer
exist, whereupon the Agent or, as the case may be, the Agent upon the
instruction of the Majority Banks shall so notify the Borrower and the Banks.
3.2. Illegality. Notwithstanding any other provisions herein, if any
----------
present or future law, regulation, treaty or directive or in the interpretation
or application thereof shall make it unlawful for any Bank to make or maintain
LIBOR Rate Loans, such Bank shall forthwith give notice of such circumstances to
the Borrower and the other Banks and thereupon (a) the commitment of such Bank
to make LIBOR Rate Loans or convert Base Rate Loans to LIBOR Rate Loans shall
forthwith be suspended and (b) such Bank's Revolving Credit Loans then
outstanding as LIBOR Rate Loans, if any, shall be converted automatically to
Base Rate Loans on the last day of each Interest Period applicable to such LIBOR
Rate Loans or within such earlier period as may be required by law. The Borrower
hereby agrees promptly to pay the Agent for the account of such Bank, upon
demand by such Bank, any additional amounts necessary to compensate such Bank
for any costs incurred by such Bank in making any conversion in accordance with
this (S)3.2, including the discounted present value of any interest or fees
payable by such Bank to lenders of funds obtained by it in order to make or
maintain its LIBOR Loans hereunder.
3.3. Changes in Circumstances. If, on or after the date hereof any Bank or
------- -- -------------
the Agent determines that (a) the adoption of, or any change in, any applicable
law, rule, regulation or guideline or the interpretation or administration
thereof (whether or not having the force of law), or (b) compliance by such Bank
or the Agent or its parent holding company with any guideline, request or
directive (whether or not having the force of law), (i) has the effect of
reducing the return on the Bank's, the Agent's or such holding company's capital
as a consequence of the Commitment or the Revolving Credit Loans to a level
below that which such Bank, the Agent or such holding company could have
achieved but for such adoption, change or compliance by any amount deemed by
such Bank or the Agent to be material, or (ii) shall subject such Bank to any
tax, duty or other charge with respect to any LIBOR Rate Loan or any Revolving
Credit Note, or shall change the basis of taxation of payments to such Bank of
the principal of or interest on, LIBOR Rate Loans or in respect of any other
amount due under this Agreement in respect of LIBOR Rate Loans (other than with
respect to taxes based upon such Bank's net income); or (iii) shall impose,
modify or deem applicable any reserve, special deposit or similar requirement
(including, without limitation, any imposed by the Board of Governors of the
Federal Reserve System, but excluding with respect to any LIBOR Rate Loan any
such requirement included in the applicable Eurocurrency Reserve Rate) against
assets of, deposits with or for the account of, or credit extended by, any Bank
or the Agent, or shall impose on any Bank, the Agent or the London interbank
market any other condition affecting LIBOR Rate Loans or the Revolving Credit
Notes, and the result of any of the foregoing is to increase the cost to any
Bank of making or maintaining any LIBOR Rate Loan, or to reduce the amount of
any sum received or receivable by such Bank under this Agreement or under any
Revolving Credit Note with respect to any Revolving
Credit Loan, by an amount reasonably deemed by such Bank or the Agent to be
material, then such Bank or the Agent may notify the Borrower thereof. The
Borrower agrees to pay to the Agent for the account of such Bank or the Agent,
as the case may be, (A) the amount of the Borrower's allocable share of the
amount of such reduction in the return on capital as and when such reduction is
determined, upon presentation by such Bank of a statement in the amount and
setting forth such Bank's calculation thereof, which statement shall be deemed
true and correct absent manifest error and (B) such additional amount or amounts
as will compensate such Bank for such other increased costs or reduction. Each
Bank agrees to allocate shares of such reduction among the Borrower and such
Bank's other customers similarly situated on a fair and non-discriminatory
basis.
3.4. Certificate. A certificate setting forth any additional amounts
-----------
payable pursuant to (S)3.3 and a brief explanation of such amounts which are
due, submitted by any Bank or the Agent to the Borrower, shall be conclusive,
absent manifest error, that such amounts are due and owing.
3.5. Indemnity. The Borrower agrees to indemnify each Bank and to hold
---------
each Bank harmless from and against any loss, cost or expense that such Bank may
sustain or incur as a consequence of (a) default by the Borrower in payment of
the principal amount of or any interest on any LIBOR Rate Loans as and when due
and payable, including any such loss or expense arising from interest or fees
payable by such Bank to lenders of funds obtained by it in order to maintain its
LIBOR Rate Loans, (b) default by the Borrower in making a borrowing or
conversion after the Borrower has given (or is deemed to have given) a Loan
Request or a Conversion Request relating thereto in accordance with (S)2.2 or
(S)2.3 or (c) the making of any payment of a LIBOR Rate Loan or the making of
any conversion of any such Revolving Credit Loan to a Base Rate Loan on a day
that is not the last day of the applicable Interest Period with respect thereto,
including interest or fees payable by any Bank to lenders of funds obtained by
it in order to maintain any such LIBOR Rate Loans.
4. FEES AND PAYMENTS.
-----------------
Contemporaneously with execution and delivery of this Agreement, the
Borrower shall pay to the Agent for its own account a closing fee in the amount
of $50,000. The Borrower shall pay to the Agent for the Agent's own account an
agent's fee at the times and in the amounts determined by the Agent and the
Borrower. The Borrower shall pay to the Agent for the pro rata accounts of the
--- ----
Banks, on the first day of each calendar quarter hereafter, and upon the
Revolving Credit Loan Maturity Date or the date upon which the Total Commitment
is no longer in effect, a commitment fee calculated at a rate per annum which is
equal to one half of one percent (1/2%) of the average daily difference by which
the Total Commitment amount exceeds the aggregate sum of the outstanding
Revolving Credit Loans during the preceding calendar quarter or portion thereof.
All payments to be made by the Borrower hereunder or under any of the other Loan
Documents shall be made in U.S. dollars in immediately
available funds at the Agent's Head Office, without set-off or counterclaim and
without any withholding or deduction whatsoever. Each Bank and the Agent shall
be entitled to charge any account of the Borrower with such Bank for any sum due
and payable by the Borrower to such Bank hereunder or under any of the other
Loan Documents. If any payment hereunder is required to be made on a day which
is not a Business Day, it shall be paid on the immediately succeeding Business
Day, with interest and any applicable fees adjusted accordingly. All
computations of interest or of the commitment fee payable hereunder shall be
made by the Bank on the basis of actual days elapsed and on a 360-day year.
5. REPRESENTATIONS AND WARRANTIES.
------------------------------
The Borrower represents and warrants to the Banks and the Agent on the date
hereof, on the date of any Loan Request, on each Drawdown Date that:
(a) each of the Borrower and its Subsidiaries is duly organized,
validly existing, and in good standing under the laws of its jurisdiction
of incorporation and is duly qualified and in good standing in every other
jurisdiction where it is doing business, and the execution, delivery and
performance by each of the Borrower and its Subsidiaries of the Loan
Documents to which it is a party (i) are within its corporate authority,
(ii) have been duly authorized, (iii) do not conflict with or contravene
its Charter Documents;
(b) upon execution and delivery thereof, each Loan Document shall
constitute the legal, valid and binding obligation of the Borrower and its
Subsidiaries party thereto, enforceable in accordance with its terms;
(c) each of the Borrower and its Subsidiaries has good and marketable
title to all its material properties, subject only to Liens permitted
hereunder, and possesses all assets, including intellectual properties,
franchises and Consents, adequate for the conduct of its business as now
conducted, without known conflict with any rights of others. Each of the
Borrower and its Subsidiaries maintains insurance with financially
responsible insurers, copies of the policies for which have been previously
delivered to the Agent, covering such risks and in such amounts and with
such deductibles as are customary in the each of the Borrower's or such
Subsidiary's business and are adequate;
(d) the Borrower has provided to the Agent its audited Financials as
at July 31, 1996, and for the fiscal period then ended, and such Financials
are complete and correct and fairly present the position of the Borrower
and its Subsidiaries on a consolidated basis as at such date and for such
period in accordance with GAAP consistently applied;
(e) since July 31, 1996, there has been no materially adverse change
of any kind in the Borrower or any of its Subsidiaries which would have a
Materially Adverse Effect;
(f) there are no legal or other proceedings or investigations pending
or threatened against the Borrower or any of its Subsidiaries before any
court, tribunal or regulatory authority which would, if adversely
determined, alone or together, have a Materially Adverse Effect;
(g) the execution, delivery, performance of its obligations, and
exercise of its rights under the Loan Documents by each of the Borrower and
its Subsidiaries, including borrowing under this Agreement (i) do not
require any Consents; and (ii) are not and will not be in conflict with or
prohibited or prevented by (A) any Requirement of Law, or (B) any Charter
Document, corporate minute or resolution, instrument, agreement or
provision thereof, in each case binding on it or affecting its property;
(h) neither the Borrower nor any of its Subsidiaries is in violation
of (i) any Charter Document, corporate minute or resolution, (ii) any
instrument or agreement, in each case binding on it or affecting its
property, or (iii) any Requirement of Law, in a manner which could have a
Materially Adverse Effect, including, without limitation, all applicable
federal and state tax laws, ERISA and Environmental Laws;
(i) as of the Closing Date, the Borrower has no Subsidiaries other
than those Subsidiaries set forth on Schedule 5(i)(1) hereto and neither
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the Borrower nor any Subsidiary is a party to any partnership or joint
venture except as set forth on Schedule 5(i)(2) hereto;
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(j) no representation or warranty made by the Borrower or any of its
Subsidiaries in this Agreement or any Loan Document or in any agreement,
instrument, document, certificate, statement or letter furnished to the
Agent or any Bank by or on behalf of the Borrower or any such Subsidiary in
connection with any of the transactions contemplated by any of the Loan
Documents contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
therein not misleading in light of the circumstances in which they are
made; and
(k) the proceeds of the Revolving Credit Loans shall be used for
permitted acquisitions under (S)7.2(e) and for working capital and general
corporate purposes of the Borrower and its Subsidiaries. No portion of any
Revolving Credit Loan is to be used for the purpose of purchasing or
carrying any "margin security" or "margin stock" as such terms are used in
Regulations U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R. Parts 221 and 224.
6. CONDITIONS PRECEDENT.
--------------------
In addition to the making of the foregoing representations and warranties
and the delivery of the Loan Documents and such other documents and the taking
of such actions as the Agent and each Bank may require at or prior to the time
of executing this Agreement, the obligation of any Bank to make any Revolving
Credit Loan to the Borrower hereunder, is subject to the satisfaction of the
following further conditions precedent:
(a) each of the representations and warranties of each of the
Borrower and its Subsidiaries to the Agent and the Banks herein, in any of
the other Loan Documents to which such Person is a party or any documents,
certificate or other paper or notice in connection herewith shall be true
and correct in all material respects as of the time made or claimed to have
been made;
(b) no Default or Event of Default shall be continuing;
(c) all proceedings in connection with the transactions contemplated
hereby shall be in form and substance satisfactory to the Agent and the
Banks, and the Agent and the Banks shall have received all information and
documents as it may have reasonably requested;
(d) no change shall have occurred in any law or regulation or in the
interpretation thereof that in the reasonable opinion of the Agent or any
Bank would make it unlawful for such Bank to make such Revolving Credit
Loan;
(e) the Borrower shall have delivered to the Agent and the Banks (i)
certified copies of its Charter Documents; (ii) evidence that all corporate
action necessary for the valid execution, delivery and performance by the
Borrower of the Loan Documents to which it is a party has been duly and
effectively taken; (iii) an incumbency certificate signed by a duly
authorized officer of the Borrower, and giving the name and bearing a
specimen signature of each individual who shall be authorized to sign, in
the name and on behalf of the Borrower, each of the Loan Documents to which
each is a party and to give notices and to take action on the Borrower's
behalf under the Loan Documents; (iv) a solvency certificate of the
Borrower in form and substance satisfactory to the Agent; and (v) a
favorable legal opinion addressed to the Agent and the Banks in form and
substance satisfactory to the Agent and the Banks from counsel to the
Borrower;
(f) the Borrower shall have paid to the Agent the closing fee and the
agent's fee as set forth in (S)4 hereof;
(g) the Agent and the Banks shall have received an opinion of counsel
to the Borrower satisfactory to the Agent and the Banks; and
(h) the Agent and the Banks shall have received from the Borrower the
initial Borrowing Base Report dated as of the Closing Date.
7. COVENANTS.
---------
7.1. Affirmative Covenants. The Borrower agrees that until the
---------------------
termination of the Commitment and the payment and satisfaction in full of all
the Obligations, the Borrower will, and will cause each of its Subsidiaries to
comply with, its obligations as set forth throughout this Agreement and to:
(a) furnish the Agent and the Banks: (i) as soon as available but in
any event within ninety (90) days after the close of each fiscal year, the
Borrower's audited consolidated and consolidating Financials for such
fiscal year, certified by the Borrower's accountants, and the Borrower's
consolidating Financials for such fiscal period; (ii) as soon as available
but in any event within forty-five (45) days after the end of each fiscal
quarter of the Borrower, the Borrower's unaudited consolidated and
consolidating Financials for such quarter, certified by its chief financial
officer; (iii) as soon as available but in any event within thirty (30)
days after the end of each month in each fiscal year of the Borrower,
unaudited monthly consolidated Financials for such month, certified by its
chief financial officer; (iv) together with the quarterly and annual
audited Financials, a certificate of the Borrower (the "Compliance
Certificate") setting forth computations demonstrating compliance with the
Borrower's financial covenants set forth herein, and certifying that no
Default or Event of Default has occurred, or if it has, the actions taken
by the Borrower with respect thereto; (v) within thirty (30) days after the
end of each calendar month or at such earlier time as the Agent may
request, a certificate of the Borrower setting forth computations
demonstrating compliance with (S)7.3(b) hereof for the next twenty-four
calendar months, calculated on a pro forma basis, with the calculation of
--- -----
Consolidated Total Interest Expense being calculated such that the amount
of interest required to be paid or accrued by (1) the Borrower to the Banks
on the Revolving Credit Loans shall be calculated as if the outstanding
amount of the Revolving Credit Loans on such date equaled the Total
Commitment on such date and that such Revolving Credit Loans were Base Rate
Loans; and (2) notwithstanding anything to the contrary contained in any
agreement, document or instrument otherwise evidencing any Indebtedness of
Long Lane Trust, such Indebtedness shall bear interest at the rate of 8.6%
per annum for the period from the Closing Date through January 1, 1998 and
one-half of one percent per annum above the Base Rate thereafter; (vi)
within fifteen (15) days after the end of each calendar month or at such
earlier time as the Agent may request, a Borrowing Base Report setting
forth the Borrowing Base as at the end of such calendar month; provided,
however, in the event the Determined Value of the Unrestricted Public
Equity Investment is at any time less than $9.375 per share, the Borrower
shall deliver to the Agent a Borrowing Base Report as frequently as the
Agent shall require; (vii) contemporaneously with the
delivery thereof, copies of all accountants' management letters delivered
to the Borrower or any of its Subsidiaries; and (viii) from time to time
such other financial data and information as the Agent or any Bank may
request;
(b) keep true and accurate books of account in accordance with GAAP,
maintain its current fiscal year and permit the Agent or any Bank or its
designated representatives to inspect the Borrower's premises during normal
business hours, to examine and be advised as to such or other business
records upon the request of the Agent or any Bank, and to permit the
Agent's or any Bank's commercial finance examiners to conduct periodic
commercial finance examinations which prior to an Event of Default shall be
no more often than two (2) per year;
(c) (i) maintain its corporate existence, business and assets, (ii)
keep its business and assets adequately insured, (iii) maintain its chief
executive office in the United States, (iv) continue to engage in
substantially similar lines of business, and (v) comply with all
Requirements of Law, including ERISA and Environmental Laws;
(d) notify the Agent and the Banks promptly in writing of (i) the
occurrence of any Default or Event of Default, (ii) any noncompliance with
ERISA or any Environmental Law or proceeding in respect thereof which could
have a Materially Adverse Effect, (iii) any change of address, (iv) any
threatened or pending litigation or similar proceeding affecting the
Borrower or its Subsidiaries or any material change in any such litigation
or proceeding previously reported and (v) claims against any assets or
properties of the Borrower or any such Subsidiaries encumbered in favor of
the Agent or any Bank;
(e) use the proceeds of the Revolving Credit Loans solely to finance
permitted acquisitions under (S)7.2(e) and for working capital purposes of
the Borrower and its Subsidiaries, and not for the carrying of "margin
security" or "margin stock" within the meaning of Regulations U and X of
the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221
and 224;
(f) cooperate with the Agent and the Banks, take such action, execute
such documents, and provide such information as the Agent and the Banks may
from time to time reasonably request in order further to effect the
transactions contemplated by and the purposes of the Loan Documents; and
(g) provide the Agent with simultaneous written notice of (i) the
formation or acquisition of any Subsidiary formed or acquired after the
Closing Date and (ii) the sale, disposition or dissolution of any
Subsidiary of the Borrower.
7.2. Negative Covenants. The Borrower agrees that so long as there are any
------------------
Revolving Credit Loans outstanding and until the termination of the Commitment
and the payment and satisfaction in full of all the Obligations, the Borrower
will not and will not permit its Subsidiaries to:
(a) create, incur or assume any Indebtedness other than (i)
Indebtedness to the Agent and the Banks, (ii) current liabilities of the
Borrower or any of its Subsidiaries not incurred through the borrowing of
money or the obtaining of credit except credit on an open market
customarily extended, (iii) Indebtedness in respect of taxes or other
governmental charges contested in good faith and by appropriate proceedings
and for which adequate reserves have been taken; (iv) unsecured
Indebtedness of the Borrower and its Subsidiaries not otherwise provided
for in this (S)7.2(a) which, when taken together with all Indebtedness of
the Borrower and its Subsidiaries set forth on Schedule 7.2(a) does not
-------- ------
exceed, in the aggregate, $5,000,000; (v) Indebtedness not included above
and listed on Schedule 7.2(a) hereto and (vi) Indebtedness of the Borrower
-------- ------
and SalesLink under the SalesLink Agreement;
(b) create or incur any Liens on any of the property or assets of the
Borrower or any of its Subsidiaries except (i) Liens securing the
Obligations; (ii) Liens securing taxes or other governmental charges not
yet due; (iii) deposits or pledges made in connection with social security
obligations; (iv) Liens of carriers, warehousemen, mechanics and
materialmen, less than 120 days old as to obligations not yet due; (v)
easements, rights-of-way, zoning restrictions and similar minor Liens which
individually and in the aggregate do not have a Materially Adverse Effect;
(vi) purchase money security interests in or purchase money mortgages on
real or personal property securing purchase money Indebtedness permitted by
(S)7.2(a)(ii), covering only the property so acquired; (vii) other Liens
existing on the date hereof and listed on Schedule 7.2(b) hereto; and
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(viii) Liens to secure the Indebtedness permitted by (S)7.2(a)(vi);
(c) with respect to the Borrower and its Subsidiaries, make any
investments other than investments in (i) marketable obligations of the
United States maturing within one (1) year, (ii) certificates of deposit,
bankers' acceptances and time and demand deposits of United States banks
having total assets in excess of $1,000,000,000, (iii) Investments existing
on the date hereof and listed on Schedule 7.2(c) hereto; (iv) Investments
-------- ------
made by the Borrower in compliance with its Investment Policy; or (v) such
other investments as the Agent and the Majority Banks may from time to time
approve in writing;
(d) with respect to the Borrower and its Subsidiaries, make any
distributions on or in respect of its capital of any nature whatsoever,
other than dividends payable solely in shares of common stock or
distributions by Subsidiaries of the Borrower to the Borrower; provided,
--------
however, the Borrower shall be permitted to make distributions not
-------
otherwise permitted hereunder so long as no Default or Event of Default has
occurred and is continuing and would not exist as a result thereof;
(e) become party to a merger or sale-leaseback transaction, or to
effect any disposition of assets other than in the ordinary course, and
other than the sale of shares of a wholly-owned Subsidiary of the Borrower
so long as the net cash proceeds of such sale received by the Borrower are
equal to or greater than the carrying costs of the remaining shares of such
Subsidiary after giving effect to such sale, or to purchase, lease or
otherwise acquire assets other than in the ordinary course; provided,
--------
however, the Borrower shall be permitted to acquire the assets and/or stock
-------
of another entity so long as (i) such entity is in the same or a similar
line of business as the Borrower; (ii) the Borrower has provided the Bank
with five (5) Business Days prior written notice of such acquisition, which
notice shall include a reasonably detailed description of the acquisition;
(iii) the business and/or entity to be acquired would not subject the Agent
or any Bank to regulatory or third party approvals in connection with the
exercise of its rights and remedies under this Agreement or the other Loan
Documents; (iv) the Borrower has demonstrated to the satisfaction of the
Agent and the Banks, based on a pro forma Compliance Certificate,
--- -----
compliance with (S)7.3 on a pro forma basis immediately prior to and after
--- -----
giving effect to any such acquisition; (v) the business and assets so
acquired in each such acquisition shall be acquired by the Borrower free
and clear of all liens and Indebtedness; and (vi) the aggregate purchase
price of all acquisitions permitted hereunder does not exceed $11,000,000
during the term of this Agreement;
(f) make any change in or amendment to the Borrower's or any
Subsidiary's Charter Documents unless such change or amendment that would
not have any adverse effect on the Agent's or any Bank's interest under the
Loan Documents or the Borrower's or such Subsidiary's obligations under the
Loan Documents;
(g) the Borrower will not make any material change in its Investment
Policy;
(h) enter into any agreement, contract or arrangement (other than the
Credit Agreement and the other Loan Documents) restricting the ability of
any of the Borrower's Subsidiaries to pay or make dividends or
distributions in cash or kind, to make loans, advances or other payments of
whatsoever nature or to make transfers or distributions of all or any part
of its assets to the Borrower; and
(i) enter into any agreement (excluding this Agreement and the Loan
Documents) prohibiting the creation or assumption of any Lien upon any of
its properties, revenues or assets of the Borrower or its Subsidiaries,
whether now owned or hereafter acquired, (including,
without limitation, the Borrower's interest in CMG@Ventures I and
CMG@Ventures II) other than agreements with Persons prohibiting any such
lien on such assets in which such Person has a prior security interest
which is a Permitted Lien.
7.3. Financial Covenants. The Borrower agrees that so long as there are
-------------------
any Revolving Credit Loans outstanding and until the termination of the
Commitment and the payment and satisfaction in full of all the Obligations, the
Borrower will not:
(a) make capital expenditures which in the aggregate and on a
consolidated basis exceed $3,700,000 in any fiscal year; provided, however,
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that, if during any fiscal year the amount of capital expenditures
permitted for that fiscal year is not so utilized, such unutilized amount
may be utilized in the next succeeding fiscal year but not in any
subsequent fiscal year;
(b) permit the Minimum Debt Service Reserve at any time to be less
than the greater of (i) $5,000,000 or (ii) 24 months of Consolidated Total
Debt Service from the date of determination.
(c) permit Consolidated Tangible Net Worth at any time to be less than
$14,000,000 in the aggregate for such period.
8. EVENTS OF DEFAULT; ACCELERATION.
-------------------------------
If any of the following events ("Events of Default") shall occur:
(a) the Borrower shall fail to pay when due and payable any principal
of the Revolving Credit Loans when the same becomes due;
(b) the Borrower shall fail to pay interest on the Revolving Credit
Loans, or any other sum due under any of the Loan Documents within two (2)
Business Days after the date on which the same shall have first become due
and payable;
(c) the Borrower or any Subsidiary shall fail to perform any term,
covenant or agreement contained in (S)(S)7.1(a), 7.1(d) through (h), 7.2
and 7.3;
(d) the Borrower or any Subsidiary shall fail to perform any other
term, covenant or agreement contained in the Loan Documents within fifteen
(15) days after the Agent has given written notice of such failure to the
Borrower;
(e) any representation or warranty of the Borrower or any of its
Subsidiaries in the Loan Documents or in any certificate or notice given in
connection therewith shall have been false or misleading in any material
respect at the time made or deemed to have been made;
(f) the Borrower or any of its Subsidiaries shall be in default
(after any applicable period of grace or cure period) under any agreement
or agreements evidencing Indebtedness owing to the Bank or any affiliates
of the Bank, or in excess of $500,000 in aggregate principal amount, or
shall fail to pay such Indebtedness when due, or within any applicable
period of grace;
(g) any of the Loan Documents shall cease to be in full force and
effect,
(h) the Borrower or any of its Subsidiaries (i) shall make an
assignment for the benefit of creditors, (ii) shall be adjudicated bankrupt
or insolvent, (iii) shall seek the appointment of, or be the subject of an
order appointing, a trustee, liquidator or receiver as to all or part of
its assets, (iv) shall commence, approve or consent to, any case or
proceeding under any bankruptcy, reorganization or similar law and, in the
case of an involuntary case or proceeding, such case or proceeding is not
dismissed within forty-five (45) days following the commencement thereof,
or (v) shall be the subject of an order for relief in an involuntary case
under federal bankruptcy law;
(i) the Borrower or any of its Subsidiaries shall be unable to pay
its debts as they mature;
(j) there shall remain undischarged for more than thirty (30) days
any final judgment or execution action against the Borrower or any of its
Subsidiaries that, together with other outstanding claims and execution
actions against the Borrower and its Subsidiaries exceeds $500,000 in the
aggregate; or
(k) an Event of Default (as such term is defined in the SalesLink
Agreement) has occurred and is continuing under the SalesLink Agreement
then, and in any such event, so long as the same may be continuing, the Agent
may, and upon the request of the Majority Banks shall, by notice in writing to
the Borrower declare all amounts owing with respect to this Credit Agreement,
the Revolving Credit Notes and the other Loan Documents to be, and they shall
thereupon forthwith become, immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived by the Borrower; provided that in the event of any Event of Default
--------
specified in (S)(S)8(h) or 8(i), all such amounts shall become immediately due
and payable automatically and without any requirement of notice from the Agent
or any Bank.
If any one or more of the Events of Default specified in (S)8(h) or (S)8(i)
shall occur, any unused portion of the credit hereunder shall forthwith
terminate and each of the Banks shall be relieved of all further obligations to
make Revolving Credit Loans to the Borrower. If any other Event of Default
shall have occurred
and be continuing, the Agent may and, upon the request of the Majority Banks,
shall, by notice to the Borrower, terminate the unused portion of the credit
hereunder, and upon such notice being given such unused portion of the credit
hereunder shall terminate immediately and each of the Banks shall be relieved of
all further obligations to make Revolving Credit Loans. No termination of the
credit hereunder shall relieve the Borrower or any of its Subsidiaries of any of
the Obligations.
In case any one or more of the Events of Default shall have occurred and be
continuing, and whether or not the Banks shall have accelerated the maturity of
the Revolving Credit Loans pursuant to (S)8, each Bank, if owed any amount with
respect to the Revolving Credit Loans, may, with the consent of the Majority
Banks but not otherwise, proceed to protect and enforce its rights by suit in
equity, action at law or other appropriate proceeding, whether for the specific
performance of any covenant or agreement contained in this Agreement and the
other Loan Documents or any instrument pursuant to which the Obligations to such
Bank are evidenced, including as permitted by applicable law the obtaining of
the ex parte appointment of a receiver, and, if such amount shall have become
-- -----
due, by declaration or otherwise, proceed to enforce the payment thereof or any
other legal or equitable right of such Bank. No remedy herein conferred upon
any Bank or the Agent or the holder of any Revolving Credit Note is intended to
be exclusive of any other remedy and each and every remedy shall be cumulative
and shall be in addition to every other remedy given hereunder or now or
hereafter existing at law or in equity or by statute or any other provision of
law.
9. SETOFF.
------
Regardless of the adequacy of any collateral for the Obligations, any
deposits or other sums credited by or due from any of the Banks to the Borrower
may be applied to or set off following an Event of Default against any
principal, interest and any other amounts due from the Borrower to the Banks at
any time without notice to the Borrower, or compliance with any other procedure
imposed by statute or otherwise, all of which are hereby expressly waived by the
Borrower. Each of the Banks agrees with each other Bank that (a) if an amount
to be set off is to be applied to Indebtedness of the Borrower to such Bank,
other than Indebtedness evidenced by the Revolving Credit Notes held by such
Bank, such amount shall be applied ratably to such other Indebtedness and to the
Indebtedness evidenced by all such Revolving Credit Notes held by such Bank, and
(b) if such Bank shall receive from the Borrower, whether by voluntary payment,
exercise of the right of setoff, counterclaim, cross action, enforcement of the
claim evidenced by the Revolving Credit Notes held by such Bank by proceedings
against the Borrower at law or in equity or by proof thereof in bankruptcy,
reorganization, liquidation, receivership or similar proceedings, or otherwise,
and shall retain and apply to the payment of the Revolving Credit Note or
Revolving Credit Notes held by such Bank any amount in excess of its ratable
portion of the payments received by all of the Banks with respect to the
Revolving Credit Notes held by all of the Banks, such Bank will make such
disposition and arrangements with the other Banks with respect to such excess,
either by way of distribution, pro tanto assignment of claims, subrogation or
--- -----
otherwise as shall result in each Bank receiving in respect of the Revolving
Credit Notes held by it, its proportionate payment as contemplated by this
Agreement; provided that if all or any part of such excess payment is thereafter
--------
recovered from such Bank, such disposition and arrangements shall be rescinded
and the amount restored to the extent of such recovery, but without interest.
10. THE AGENT.
---------
10.1. Authorization.
-------------
(a) The Agent is authorized to take such action on behalf of each of
the Banks and to exercise all such powers as are hereunder and under any of
the other Loan Documents and any related documents delegated to the Agent,
together with such powers as are reasonably incident thereto, provided that
--------
no duties or responsibilities not expressly assumed herein or therein shall
be implied to have been assumed by the Agent.
(b) The relationship between the Agent and each of the Banks is that
of an independent contractor. The use of the term "Agent" is for
convenience only and is used to describe, as a form of convention, the
independent contractual relationship between the Agent and each of the
Banks. Nothing contained in this Agreement nor the other Loan Documents
shall be construed to create an agency, trust or other fiduciary
relationship between the Agent and any of the Banks.
(c) As an independent contractor empowered by the Banks to exercise
certain rights and perform certain duties and responsibilities hereunder
and under the other Loan Documents, the Agent is nevertheless a
"representative" of the Banks, as that term is defined in Article 1 of the
Uniform Commercial Code, for purposes of actions for the benefit of the
Banks and the Agent with respect to all collateral security and guaranties
contemplated by the Loan Documents. Such actions include the designation
of the Agent as "secured party", "mortgagee" or the like on all financing
statements and other documents and instruments, whether recorded or
otherwise, relating to the attachment, perfection, priority or enforcement
of any security interests, mortgages or deeds of trust in collateral
security intended to secure the payment or performance of any of the
Obligations, all for the benefit of the Banks and the Agent.
10.2. Employees and Agents. The Agent may exercise its powers and execute
--------------------
its duties by or through employees or agents and shall be entitled to take, and
to rely on, advice of counsel concerning all matters pertaining to its rights
and duties under this Agreement and the other Loan Documents. The Agent may
utilize the services of such Persons as the Agent in its sole discretion
may reasonably determine, and all reasonable fees and expenses of any such
Persons shall be paid by the Borrower.
10.3. No Liability. Neither the Agent nor any of its shareholders,
------------
directors, officers or employees nor any other Person assisting them in their
duties nor any agent or employee thereof, shall be liable for any waiver,
consent or approval given or any action taken, or omitted to be taken, in good
faith by it or them hereunder or under any of the other Loan Documents, or in
connection herewith or therewith, or be responsible for the consequences of any
oversight or error of judgment whatsoever, except that the Agent or such other
Person, as the case may be, may be liable for losses due to its willful
misconduct or gross negligence.
10.4. No Representations. The Agent shall not be responsible for the
------------------
execution or validity or enforceability of this Agreement, the Revolving Credit
Notes, any of the other Loan Documents or any instrument at any time
constituting, or intended to constitute, collateral security for the Revolving
Credit Notes, or for the value of any such collateral security or for the
validity, enforceability or collectibility of any such amounts owing with
respect to the Revolving Credit Notes, or for any recitals or statements,
warranties or representations made herein or in any of the other Loan Documents
or in any certificate or instrument hereafter furnished to it by or on behalf of
the Borrower or any of its Subsidiaries, or be bound to ascertain or inquire as
to the performance or observance of any of the terms, conditions, covenants or
agreements herein or in any instrument at any time constituting, or intended to
constitute, collateral security for the Revolving Credit Notes or to inspect any
of the properties, books or records of the Borrower or any of its Subsidiaries.
The Agent shall not be bound to ascertain whether any notice, consent, waiver or
request delivered to it by the Borrower or any holder of any of the Revolving
Credit Notes shall have been duly authorized or is true, accurate and complete.
The Agent has not made nor does it now make any representations or warranties,
express or implied, nor does it assume any liability to the Banks, with respect
to the credit worthiness or financial conditions of the Borrower or any of its
Subsidiaries. Each Bank acknowledges that it has, independently and without
reliance upon the Agent or any other Bank, and based upon such information and
documents as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement.
10.5. Payments.
--------
10.5.1. Payments to Agent. A payment by the Borrower to the Agent
-----------------
hereunder or any of the other Loan Documents for the account of any Bank
shall constitute a payment to such Bank. The Agent agrees promptly to
distribute to each Bank such Bank's pro rata share of payments received by
--- ----
the Agent for the account of the Banks except as otherwise expressly
provided herein or in any of the other Loan Documents.
10.5.2. Distribution by Agent. If in the opinion of the Agent the
---------------------
distribution of any amount received by it in such capacity hereunder, under
the Revolving Credit Notes or under any of the other Loan Documents might
involve it in liability, it may refrain from making distribution until its
right to make distribution shall have been adjudicated by a court of
competent jurisdiction. If a court of competent jurisdiction shall adjudge
that any amount received and distributed by the Agent is to be repaid, each
Person to whom any such distribution shall have been made shall either
repay to the Agent its proportionate share of the amount so adjudged to be
repaid or shall pay over the same in such manner and to such Persons as
shall be determined by such court.
10.5.3. Delinquent Banks. Notwithstanding anything to the contrary
----------------
contained in this Agreement or any of the other Loan Documents, any Bank
that fails (a) to make available to the Agent its pro rata share of any
--- ----
Revolving Credit Loan or (ii) to comply with the provisions of (S)9 with
respect to making dispositions and arrangements with the other Banks, where
such Bank's share of any payment received, whether by setoff or otherwise,
is in excess of its pro rata share of such payments due and payable to all
--- ----
of the Banks, in each case as, when and to the full extent required by the
provisions of this Agreement, shall be deemed delinquent (a "Delinquent
Bank") and shall be deemed a Delinquent Bank until such time as such
delinquency is satisfied. A Delinquent Bank shall be deemed to have
assigned any and all payments due to it from the Borrower, whether on
account of outstanding Revolving Credit Loans, interest, fees or otherwise,
to the remaining nondelinquent Banks for application to, and reduction of,
their respective pro rata shares of all outstanding Revolving Credit Loans.
--- ----
The Delinquent Bank hereby authorizes the Agent to distribute such payments
to the nondelinquent Banks in proportion to their respective pro rata
--- ----
shares of all outstanding Revolving Credit Loans. A Delinquent Bank shall
be deemed to have satisfied in full a delinquency when and if, as a result
of application of the assigned payments to all outstanding Revolving Credit
Loans of the nondelinquent Banks, the Banks' respective pro rata shares of
--- ----
all outstanding Revolving Credit Loans have returned to those in effect
immediately prior to such delinquency and without giving effect to the
nonpayment causing such delinquency.
10.6. Holders of Revolving Credit Notes. The Agent may deem and treat the
---------------------------------
payee of any Revolving Credit Note as the absolute owner or purchaser thereof
for all purposes hereof until it shall have been furnished in writing with a
different name by such payee or by a subsequent holder, assignee or transferee.
10.7. Indemnity. The Banks ratably agree hereby to indemnify and hold
---------
harmless the Agent from and against any and all claims, actions and suits
(whether groundless or otherwise), losses, damages, costs, expenses (including
any expenses for which the Agent has not been reimbursed by the Borrower as
required by (S)12), and liabilities of every nature and character arising out of
or related to this Agreement, the Revolving Credit Notes, or any of the other
Loan Documents or the transactions contemplated or evidenced hereby or thereby,
or the Agent's actions taken hereunder or thereunder, except to the extent that
any of the same shall be directly caused by the Agent's willful misconduct or
gross negligence.
10.8. Agent as Bank. In its individual capacity, BankBoston shall have
-------------
the same obligations and the same rights, powers and privileges in respect to
its Commitment and the Revolving Credit Loans made by it, and as the holder of
any of the Revolving Credit Notes, as it would have were it not also the Agent.
10.9. Resignation. The Agent may resign at any time by giving sixty
-----------
(60) days prior written notice thereof to the Banks and the Borrower. Upon any
such resignation, the Majority Banks shall have the right to appoint a successor
Agent. Unless a Default or Event of Default shall have occurred and be
continuing, such successor Agent shall be reasonably acceptable to the Borrower.
If no successor Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Banks, appoint a successor Agent, which shall be a financial institution
having a rating of not less than A or its equivalent by Standard & Poor's
Corporation. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation, the provisions of this
Agreement and the other Loan Documents shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.
10.10. Notification of Defaults and Events of Default. Each Bank hereby
----------------------------------------------
agrees that, upon learning of the existence of a Default or an Event of Default,
it shall promptly notify the Agent thereof. The Agent hereby agrees that upon
receipt of any notice under this (S)10.10 it shall promptly notify the other
Banks of the existence of such Default or Event of Default.
11. ASSIGNMENT AND PARTICIPATION.
----------------------------
11.1. Conditions to Assignment by Banks. Except as provided herein, each
---------------------------------
Bank may assign to one or more Eligible Assignees all or a portion of its
interests, rights and obligations under this Credit Agreement (including all or
a portion of its Commitment Percentage and Commitment and the same portion of
the Revolving Credit Loans at the time owing to it, the Revolving Credit Notes
held by it); provided that (a) each of the Agent and, unless a Default or Event
--------
of Default shall have occurred and be continuing, the Borrower shall have given
its prior written consent to such assignment, which consent, in the case of the
Borrower, will not be unreasonably withheld, (b) each such
assignment shall be of a constant, and not a varying, percentage of all the
assigning Bank's rights and obligations under this Agreement, (c) each
assignment shall be in an amount that is a whole multiple of $1,000,000 and (d)
the parties to such assignment shall execute and deliver to the Agent, for
recording in the Register (as hereinafter defined), an Assignment and
Acceptance, in form and substance satisfactory to the Agent (an "Assignment and
Acceptance"), together with any Revolving Credit Notes subject to such
assignment. Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and Acceptance, which
effective date shall be at least five (5) Business Days after the execution
thereof, (i) the assignee thereunder shall be a party hereto and, to the extent
provided in such Assignment and Acceptance, have the rights and obligations of a
Bank hereunder, and (ii) the assigning Bank shall, to the extent provided in
such assignment and upon payment to the Agent of the registration fee referred
to in (S)11.3, be released from its obligations under this Agreement.
11.2. Certain Representations and Warranties; Limitations; Covenants. By
--------------------------------------------------------------
executing and delivering an Assignment and Acceptance, the parties to the
assignment thereunder confirm to and agree with each other and the other parties
hereto as follows:
(a) other than the representation and warranty that it is the legal
and beneficial owner of the interest being assigned thereby free and clear
of any adverse claim, the assigning Bank makes no representation or
warranty, express or implied, and assumes no responsibility with respect to
any statements, warranties or representations made in or in connection with
this Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Credit Agreement, the other Loan
Documents or any other instrument or document furnished pursuant hereto,
(b) the assigning Bank makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower and their Subsidiaries or any other Person primarily or
secondarily liable in respect of any of the Obligations, or the performance
or observance by the Borrower and its Subsidiaries or any other Person
primarily or secondarily liable in respect of any of the Obligations of any
of their obligations under this Agreement or any of the other Loan
Documents or any other instrument or document furnished pursuant hereto or
thereto;
(c) such assignee confirms that it has received a copy of this Credit
Agreement, together with copies of the most recent financial statements
referred to in (S)7.1 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance;
(d) such assignee will, independently and without reliance upon the
assigning Bank, the Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under this Agreement;
(e) such assignee represents and warrants that it is an Eligible
Assignee;
(f) such assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this
Agreement and the other Loan Documents as are delegated to the Agent by the
terms hereof or thereof, together with such powers as are reasonably
incidental thereto;
(g) such assignee agrees that it will perform in accordance with
their terms all of the obligations that by the terms of this Agreement are
required to be performed by it as a Bank; and
(h) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance.
11.3. Register. The Agent shall maintain a copy of each Assignment and
--------
Acceptance delivered to it and a register or similar list (the "Register") for
the recordation of the names and addresses of the Banks and the Commitment
Percentage of, and principal amount of the Revolving Credit Loans owing to the
Banks from time to time. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Agent and the Banks may treat
each Person whose name is recorded in the Register as a Bank hereunder for all
purposes of this Credit Agreement. The Register shall be available for
inspection by the Borrower and the Banks at any reasonable time and from time to
time upon reasonable prior notice. Upon each such recordation, the assigning
Bank agrees to pay to the Agent a registration fee in the sum of $2,500.
11.4. New Revolving Credit Notes. Upon its receipt of an Assignment and
--------------------------
Acceptance executed by the parties to such assignment, together with each
Revolving Credit Note subject to such assignment, the Agent shall (a) record the
information contained therein in the Register, and (b) give prompt notice
thereof to the Borrower and the Banks (other than the assigning Bank). Within
five (5) Business Days after receipt of such notice, the Borrower, at its own
expense, shall execute and deliver to the Agent, in exchange for each
surrendered Revolving Credit Note, a new Revolving Credit Note to the order of
such Eligible Assignee in an amount equal to the amount assumed by such Eligible
Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank
has retained some portion of its obligations hereunder, a new Revolving Credit
Note to the order of the assigning Bank in an amount equal to the amount
retained by it hereunder. Such new Revolving Credit Notes shall provide that
they are replacements for the surrendered Revolving Credit Notes, shall be in an
aggregate principal amount equal to the aggregate principal amount of the
surrendered Revolving Credit Notes, shall be dated the effective date of such in
Assignment and Acceptance and shall otherwise be substantially the form of the
assigned Revolving Credit Notes. Within five (5) days of issuance of any new
Revolving Credit Notes pursuant to this (S)11.4, the Borrower shall deliver an
opinion of counsel, addressed to the Banks and the Agent, relating to the due
authorization, execution and delivery of such new Revolving Credit Notes and the
legality, validity and binding effect thereof, in form and substance
satisfactory to the Banks. The surrendered Revolving Credit Notes shall be
canceled and returned to the Borrower.
11.5. Participations. Each Bank may sell participations to one or more
--------------
banks or other entities in all or a portion of such Bank's rights and
obligations under this Credit Agreement and the other Loan Documents; provided
--------
that (a) any such sale or participation shall not affect the rights and duties
of the selling Bank hereunder to the Borrower, and (b) the only rights granted
to the participant pursuant to such participation arrangements with respect to
waivers, amendments or modifications of the Loan Documents shall be the rights
to approve waivers, amendments or modifications that would reduce the principal
of or the interest rate on any Revolving Credit Loans, extend the term or
increase the amount of the Commitment of such Bank as it relates to such
participant, reduce the amount of any commitment fees to which such participant
is entitled or extend any regularly scheduled payment date for principal or
interest.
11.6. Disclosure. The Borrower agrees that in addition to disclosures made
----------
in accordance with standard and customary banking practices any Bank may
disclose information obtained by such Bank pursuant to this Agreement to
assignees or participants and potential assignees or participants hereunder;
provided that such assignees or participants or potential assignees or
- --------
participants shall agree (a) to treat in confidence such information unless such
information otherwise becomes public knowledge, (b) not to disclose such
information to a third party, except as required by law or legal process and (c)
not to make use of such information for purposes of transactions unrelated to
such contemplated assignment or participation.
11.7. Assignee or Participant Affiliated with the Borrower. If any
----------------------------------------------------
assignee Bank is an Affiliate of the Borrower or any of its Subsidiaries, then
any such assignee Bank shall have no right to vote as a Bank hereunder or under
any of the other Loan Documents for purposes of granting consents or waivers or
for purposes of agreeing to amendments or other modifications to any of the Loan
Documents or for purposes of making requests to the Agent pursuant to (S)11.1 or
(S)11.2, and the determination of the Majority Banks shall for all purposes of
this Agreement and the other Loan Documents be made without regard to such
assignee Bank's interest in any of the Revolving Credit Loans. If any Bank sells
a participating interest in any of the Revolving Credit Loans to a participant,
and such participant is the Borrower or an Affiliate of the Borrower, then such
transferor Bank shall promptly notify the Agent of the sale of such
participation. A transferor Bank shall have no right to vote as a Bank hereunder
or under any of the other Loan Documents for purposes of granting consents or
waivers or for purposes of agreeing to amendments or modifications to any of the
Loan Documents or for purposes of making requests to the Agent pursuant to
(S)11.1 or (S)11.2 to the extent that such participation is beneficially owned
by the Borrower or any Affiliate of the Borrower, and the determination of the
Majority Banks shall for all purposes of this Agreement and the other Loan
Documents be made without regard to the interest of such transferor Bank in the
Revolving Credit Loans to the extent of such participation.
11.8. Miscellaneous Assignment Provisions. Any assigning Bank shall retain
-----------------------------------
its rights to be indemnified pursuant to (S)12 with respect to any claims or
actions arising prior to the date of such assignment. If any assignee Bank is
not incorporated under the laws of the United States of America or any state
thereof, it shall, prior to the date on which any interest or fees are payable
hereunder or under any of the other Loan Documents for its account, deliver to
the Borrower and the Agent certification as to its exemption from deduction or
withholding of any United States federal income taxes. Anything contained in
this (S)11 to the contrary notwithstanding, any Bank may at any time pledge all
or any portion of its interest and rights under this Agreement (including all or
any portion of its Revolving Credit Notes) to any of the twelve Federal Reserve
Banks organized under (S)4 of the Federal Reserve Act, 12 U.S.C. (S)341. No such
pledge or the enforcement thereof shall release the pledgor Bank from its
obligations hereunder or under any of the other Loan Documents.
11.9. Assignment by Borrower. The Borrower shall not assign or transfer
----------------------
any of its rights or obligations under any of the Loan Documents without the
prior written consent of each of the Banks.
12. MISCELLANEOUS.
-------------
The Borrower agrees to indemnify and hold harmless the Agent and the Banks
and their officers, employees, affiliates, agents, and controlling persons from
and against all claims, damages, liabilities and losses of every kind arising
out of the Loan Documents, including without limitation, against those in
respect of the application of Environmental Laws to the Borrower and its
Subsidiaries absent the gross negligence or willful misconduct of the Agent and
the Banks. The Borrower shall pay to the Agent and the Banks promptly on demand
all costs and expenses (including any taxes and reasonable legal and other
professional fees [and fees of its commercial finance examiner which commercial
finance examiner fees shall not exceed $5,000 in any twelve (12) month period
-----
prior to the occurrence of an Event of Default]) incurred by the Agent and the
Banks in connection with the preparation, negotiation, execution, amendment,
administration or enforcement of any of the Loan Documents. Any communication
to be made hereunder shall (a) be made in writing, but unless otherwise stated,
may be made by telex, facsimile transmission, overnight delivery or letter, and
(b) be made or delivered to the address of the party receiving notice which is
identified with its signature below (unless such party
has by five (5) days written notice specified another address), and shall be
deemed made or delivered, when dispatched, left at that address, one (1) day
after given to an overnight delivery service, or five (5) days after being
mailed, postage prepaid, to such address. This Agreement shall be binding upon
and inure to the benefit of each party hereto and its successors and assigns,
but the Borrower may not assign its rights or obligations hereunder. This
Agreement may not be amended or waived except by a written instrument signed by
the Borrower, the Agent and the Majority Banks, and any such amendment or waiver
shall be effective only for the specific purpose given; provided, however,
-------- -------
notwithstanding the foregoing, (a) (i) the rate of interest on the Revolving
Credit Notes, (ii) the term of the Revolving Credit Notes, (iii) the Commitment
amounts and the amount of the fees hereunder, (iv) the definition of Majority
Banks, (v) the advance rates set forth in the definition of Borrowing Base, and
(vi) this sentence of (S)12 shall not be changed without the written consent of
all the Banks, and (b) (i) the amount of the agent's fee and (ii) (S)10 may not
be amended without the consent of the Agent. No failure or delay by the Bank to
exercise any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege preclude any other
right, power or privilege. The provisions of this Agreement are severable and
if any one provision hereof shall be held invalid or unenforceable in whole or
in part in any jurisdiction, such invalidity or unenforceability shall affect
only such provision in such jurisdiction. This Agreement, together with all
Schedules hereto, expresses the entire understanding of the parties with respect
to the transactions contemplated hereby. This Agreement and any amendment
hereby may be executed in several counterparts, each of which shall be an
original, and all of which shall constitute one agreement. In proving this
Agreement, it shall not be necessary to produce more than one such counterpart
executed by the party to be charged. THIS AGREEMENT AND THE REVOLVING CREDIT
NOTES ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND
SHALL BE CONSTRUED IN ACCORDANCE THEREWITH AND GOVERNED THEREBY. THE BORROWER
AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS MAY BE
BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT
SITTING THEREIN. The Borrower, as an inducement to the Bank to enter into this
Agreement, hereby waives its right to a jury trial with respect to any action
arising in connection with any Loan Document.
IN WITNESS WHEREOF, the undersigned have duly executed this Revolving
Credit Agreement as a sealed instrument as of the date first above written.
CMG INFORMATION SERVICES, INC.
By: /s/ Andrew J. Hajducky III
-----------------------------
Name: Andrew J. Hajducky III
Title: Treasurer
Address:
--------
100 Brickston Square, First Floor
Andover, Massachusetts 01810
Tel: (508)
Fax: (508)
BANKBOSTON, N.A. (f/k/a/ The First
National Bank of Boston),
individually and as Agent
By: Daniel G. Head, Jr.
-----------------------------
Name: Daniel G. Head, Jr.
Title: Vice President
Address:
--------
100 Federal Street
High Technology Division
Boston, Massachusetts 02110
Tel: (617)434-7524
Fax: (617)434-0819
Exhibit 10.50
REVOLVING CREDIT NOTE
---------------------
$10,000,000 as of May 14, 1997
FOR VALUE RECEIVED, the undersigned CMG INFORMATION SERVICES, INC. a
Delaware corporation (the "Borrower"), hereby promises to pay to the order of
BANKBOSTON, N.A. (f/k/a The First National Bank of Boston), a national banking
association (the "Bank") at the Agent's Head Office (as such term is defined in
the Credit Agreement referred to below):
(a) prior to or on the Revolving Credit Loan Maturity Date the
principal amount of TEN MILLION DOLLARS ($10,000,000) or, if less, the
aggregate unpaid principal amount of Revolving Credit Loans advanced by the
Bank to the Borrower pursuant to the Revolving Credit Agreement dated as of
May 14, 1997 (as amended and in effect from time to time, the "Credit
Agreement"), among the Borrower, the Bank and other parties thereto;
(b) the principal outstanding hereunder from time to time at the
times provided in the Credit Agreement; and
(c) interest on the principal balance hereof from time to time
outstanding from the Closing Date under the Credit Agreement through and
including the maturity date hereof at the times and at the rate provided in
the Credit Agreement.
This Note evidences borrowings under and has been issued by the Borrower in
accordance with the terms of the Credit Agreement. The Bank and any holder
hereof is entitled to the benefits of the Credit Agreement, the Guaranty and the
other Loan Documents, and may enforce the agreements of the Borrower contained
therein, and any holder hereof may exercise the respective remedies provided for
thereby or otherwise available in respect thereof, all in accordance with the
respective terms thereof. All capitalized terms used in this Note and not
otherwise defined herein shall have the same meanings herein as in the Credit
Agreement.
The Borrower irrevocably authorizes the Bank to make or cause to be made,
at or about the time of the Drawdown Date of any Revolving Credit Loan or at the
time of receipt of any payment of principal of this Note, an appropriate
notation on the grid attached to this Note, or the continuation of such grid, or
any other similar record, including computer records, reflecting the making of
such Revolving Credit Loan or (as the case may be) the receipt of such payment.
The outstanding amount of the Revolving Credit Loans set forth on the grid
attached to this Note, or the continuation of such grid, or any other similar
record, including computer records, maintained by the Bank with respect to any
Revolving Credit Loans shall be prima facie evidence of the principal amount
----- -----
thereof owing and unpaid to the Bank, but the failure to record, or any error in
so recording, any such amount on any such grid, continuation or other record
shall not limit or otherwise affect the obligation of the Borrower hereunder or
under the Credit Agreement to make payments of principal of and interest on this
Note when due.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole or part of the principal
of this Note on the terms and conditions specified in the Credit Agreement.
If any one or more of the Events of Default shall occur, the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
become or be declared due and payable in the manner and with the effect provided
in the Credit Agreement.
No delay or omission on the part of the Bank or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Bank or such holder, nor shall any delay, omission or waiver
on any one occasion be deemed a bar or waiver of the same or any other right on
any further occasion.
The Borrower and every endorser and guarantor of this Note or the
obligation represented hereby waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, and assents to any extension
or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable.
THIS NOTE AND THE OBLIGATIONS OF THE BORROWER HEREUNDER SHALL FOR ALL
PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR
CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS
NOTE MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY
FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE NONEXCLUSIVE JURISDICTION
OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE
BORROWER BY MAIL AT THE ADDRESS SPECIFIED BENEATH THE BORROWER'S SIGNATURE ON
THE SIGNATURE PAGE OF THE CREDIT AGREEMENT. THE BORROWER HEREBY WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY
SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.
This Note shall be deemed to take effect as a sealed instrument under the
laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has caused this Revolving Credit Note
to be signed in its corporate name and its corporate seal to be impressed
thereon by its duly authorized officer as of the day and year first above
written.
[Corporate Seal]
CMG INFORMATION SERVICES, INC.
By: /s/ Andrew J. Hajducky
--------------------------------
Title: Treasurer
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Amount of Balance of
Amount Principal Paid Principal Notation
Date of Loan or Prepaid Unpaid Made By:
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Exhibit 11
CMG INFORMATION SERVICES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share data)
Year Ended July 31,
1997 1996 1995
---------- -------- ---------
Primary:
Income (loss) from continuing operations $(22,027) $14,322 $ 4,762
Discontinued operations, net of income taxes:
Loss from operations of BookLink Technologies, Inc. -- -- (690)
Gain on disposal of BookLink Technologies, Inc. -- -- 24,143
-------- ------- -------
Net income (loss) $(22,027) $14,322 $28,215
======== ======= =======
Weighted average common and common equivalent shares outstanding:
Shares outstanding at the beginning of the year 9,167 8,839 8,767
Weighted average treasury shares acquired during the year (26) -- --
Weighted average shares issued during the year 288 165 18
Weighted average common stock equivalents -- 678 606
-------- ------- -------
Weighted average common and common equivalent shares outstanding 9,429 9,682 9,391
======== ======= =======
Income (loss) from continuing operations $ (2.34) $ 1.48 $ 0.51
Discontinued operations, net of income taxes:
Loss from operations of BookLink Technologies, Inc. -- -- (0.07)
Gain on disposal of BookLink Technologies, Inc -- -- 2.56
-------- ------- -------
Primary net income (loss) per share $ (2.34) $ 1.48 $ 3.00
======== ======= =======
Fully diluted:
Income (loss) from continuing operations $(22,027) $14,322 $ 4,762
Discontinued operations, net of income taxes:
Loss from operations of BookLink Technologies, Inc. -- -- (690)
Gain on disposal of BookLink Technologies, Inc. -- -- 24,143
-------- ------- -------
Net income (loss) $(22,027) $14,322 $28,215
======== ======= =======
Weighted average common and common equivalent shares outstanding:
Shares outstanding at the beginning of the year 9,167 8,839 8,767
Weighted average treasury shares acquired during the year (26) -- --
Weighted average shares issued during the year 288 165 18
Weighted average common stock equivalents -- 894 959
-------- ------- -------
Weighted average common and common equivalent shares outstanding 9,429 9,898 9,744
======== ======= =======
Income (loss) from continuing operations per share $ (2.34) $ 1.45 $ 0.49
Discontinued operations, net of income taxes:
Loss from operations of BookLink Technologies, Inc. -- -- (0.07)
Gain on disposal of BookLink Technologies, Inc. -- -- 2.48
-------- ------- -------
Fully diluted net income (loss) per share $ (2.34) $ 1.45 $ 2.90
======== ======= =======
All share information contained in the per share calculations has been adjusted
to reflect 2-for-1 and 3-for-2 common stock splits effected as stock dividends
on February 2, 1996 and March 17, 1995, respectively.
Exhibit 13.1
20
SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA - The following table sets forth selected
consolidated financial information of the company for the five years in the
period ended July 31, 1997. This selected financial information should be read
in conjunction with the company's Consolidated Financial Statements and related
Notes.
(in thousands, except per share data)
Years ended July 31,
1997 1996 1995 1994 1993
---------- --------- --------- --------- ---------
Consolidated Statement of Operations Data:
Net revenues $ 70,607 $ 28,485 $22,293 $19,388 $16,548
Cost of revenues 42,152 17,909 13,014 11,329 10,028
Research and development expenses 25,058 6,971 -- -- --
In-process research and development expenses 1,312 2,691 -- -- --
Selling, general and administrative expenses 55,194 21,488 6,387 4,792 4,225
-------- -------- ------- ------- -------
Operating income (loss) (53,109) (20,574) 2,892 3,267 2,295
Interest income (expense), net 1,749 2,691 225 (96) (323)
Gain on sale of investment in TeleT Communications 3,616 -- -- -- --
Gain on sale of NetCarta Corporation 15,111 -- -- -- --
Gain on dividend distribution of Lycos, Inc. common stock 8,413 -- -- -- --
Gain on sale of available-for-sale securities -- 30,049 4,781 -- --
Gain on issuance of stock by subsidiary -- 19,575 -- -- --
Other income (expense), net (769) (746) (292) -- (139)
Income tax benefit (expense) 2,962 (16,673) (2,844) (1,211) (627)
-------- -------- ------- ------- -------
Income from continuing operations (22,027) 14,322 4,762 1,960 1,206
Gain from discontinued operations -- -- 23,453 (159) --
-------- -------- ------- ------- -------
Net income (loss) $(22,027) $ 14,322 $28,215 $ 1,801 $ 1,206
======== ======== ======= ======= =======
Fully diluted earnings (loss) per share:
Income (loss) from continuing operations $(2.34) $1.45 $ 0.49 $ 0.25 $0.19
Discontinued operations -- -- 2.41 (0.02) --
-------- -------- ------- ------- -------
Net income (loss) $(2.34) $1.45 $ 2.90 $ 0.23 $0.19
======== ======== ======= ======= =======
Weighted average shares outstanding - fully diluted 9,429 9,898 9,744 7,801 6,310
======== ======== ======= ======= =======
Consolidated Balance Sheet Data:
Working capital $ 38,554 $ 72,009 $47,729 $ 5,925 $(1,441)
Total assets 148,354 109,503 80,486 12,740 7,260
Long-term obligations 16,769 555 508 165 931
Redeemable convertible preferred stock -- -- -- -- 250
Stockholders' equity 29,448 53,992 55,490 8,867 174
Exhibit 13.2
21
MANAGEMENT'S DISCUSSION &
ANALYSIS OF FINANCIAL CONDITION
& RESULTS OF OPERATIONS
The discussion in this report contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below in "Risk
Factors that May Affect Future Results", as well as those discussed in this
section and elsewhere in this report.
OVERVIEW
In 1986, CMG Information Services, Inc. was formed through the acquisition of
College Marketing Group, Inc. which had been in operation since 1968. Since its
origins, the Company has expanded the breadth and depth of its product and
service offerings to the direct marketing industry. The Company completed and
introduced the College List database in 1973, and diversified its mailing list
product offerings in 1982 through the introduction of the Information Buyers
List database. In 1992, the Company introduced its Elementary/High School List
database. In the course of creating and developing these databases and lists,
the Company also developed expertise in servicing and managing customer and
prospect lists compiled by its clients, leading to the establishment of the
Company's ListLab and ListLine services in 1987 and 1989, respectively. In
1989, the Company also completed the acquisition of the business of SalesLink
Corporation (SalesLink), which provides "fulfillment services" including sales
lead/inquiry management, product and literature fulfillment, and business-to-
business telemarketing services.
In February of 1994, the Company formed a new subsidiary, BookLink Technologies,
Inc. (BookLink), which developed InternetWorks, a PC-based viewer/browser for
the Internet. In December 1994, the Company sold all outstanding stock of
BookLink to America Online (AOL) for 1,420,000 shares of AOL common stock.
After selling its AOL stock, the Company realized a pretax gain on the
transaction in excess of $70 million.
In February 1995, the Company formed its Internet investment and development
arm, CMG @Ventures L.P., to provide intellectual and financial capital to
companies seeking to further the commercialization of the Internet and other
interactive media through the development and application of information-based
direct marketing products and services. The Company owns 100% of the capital
and is entitled to 77.5% of the net capital gains of CMG @Ventures, L.P. During
fiscal year 1995, the Company, (through CMG @Ventures) acquired, formed or
invested in four new companies, including Lycos, Inc. (Lycos), which has
developed into a leading global Internet navigation center, NetCarta Corporation
(NetCarta), a developer of Internet Web navigation and content management tools,
FreeMark Communications, Inc. (FreeMark), a developer of advertising sponsored
e-mail services, and Ikonic Interactive, Inc. (Ikonic), a Web consulting and
development company. While FreeMark suspended operations in December 1996, CMG
sold its investment in NetCarta to Microsoft in January 1997 and recognized a
pre-tax gain of $15.1 million. In fiscal year 1996, Lycos successfully
completed an initial public offering of 3,135,000 shares of its common stock,
raising net proceeds to Lycos of $46 million. CMG distributed 603,000 shares of
Lycos common stock to CMG's shareholders in the form of a dividend on July 31,
1997. As of July 31, 1997 CMG continued to own approximately 53% of Lycos and
37% of Ikonic.
The Company continued its growth and development in fiscal year 1996 with the
acquisition, formation or investment in eight new companies. CMG @Ventures
added four new investments in companies, including Blaxxun Interactive, Inc.
(Blaxxun, formerly Black Sun Interactive, Inc.), a developer of three
dimensional interactive software, GeoCities, a builder and operator of special-
interest online communities, Vicinity Corporation (Vicinity), a provider of
geographically oriented content and services for the Web, and TeleT
Communications LLC (TeleT), a marketer of products which allow direct telephone-
to-Internet access for adding or editing Web pages, and also enable users to
communicate in their own voices to other Web users. CMG @Ventures' investment
in TeleT was made in April 1996 and totaled $750,000. In September 1996, CMG
@Ventures sold its equity investment in TeleT to Premiere Technologies, Inc.
receiving cash and Premiere Technologies, Inc. common stock with a total value
of approximately $8,250,000 at the date of closing. In August 1995, CMG formed
a new subsidiary, Engage Technologies, Inc. (Engage, formerly CMG Direct
Interactive, Inc.) from the Company's former ListLab division. In addition to
the Company's traditional list management services, Engage has evolved into a
database and Internet software systems company, focusing on direct marketing
solutions. Also during fiscal 1996, the Company formed three new wholly-owned
subsidiaries, ADSmart Corporation (ADSmart), InfoMation Publishing Corporation
(InfoMation) and Planet Direct Corporation (Planet Direct). ADSmart was formed
to capitalize on Internet advertising opportunities, and InfoMation builds
knowledge management applications. Planet Direct was formed to combine and
leverage the Company's Internet technologies to provide a content based product
for Internet service providers.
During fiscal year 1997, CMG completed its $35 million commitment to fund CMG
@Ventures L.P. and formed a new limited liability company subsidiary, CMG
@Ventures II LLC. During fiscal 1997, through CMG @Ventures L.P and CMG
@Ventures II LLC, CMG acquired minority investment interests in six new
companies, including a 46% investment interest in Parable LLC (Parable), a
software firm developing multimedia tools and technology, a 23% interest in
Silknet Software, Inc. (Silknet), a provider of Web-based customer service
software, a 15% interest in Sage Enterprises, Inc. (Sage Enterprises), the
innovator of the Planet All service which helps Internet users stay in touch
with the people and groups they care about, a 9% interest in Softway Systems,
Inc. (Softway Systems), a provider of UNIX system products for Windows NT, a 31%
interest in Reel.com LLC (Reel.com), a marketer of video sales and rentals
through Web-based and traditional retail channels, and a 15% interest in KOZ,
inc., a provider of an integrated set of Web-based publishing solutions that
allow organizations or groups to share information with their members and the
community at large. Also during fiscal year 1997, the Company's subsidiary,
SalesLink acquired Pacific Direct Marketing Corporation (Pacific Link), lending
substantial revenue growth to the Company's fulfillment
22
MANAGEMENT'S DISCUSSION &
ANALYSIS OF FINANCIAL CONDITION
& RESULTS OF OPERATIONS (CONT'D.)
services segment. In addition, the Company formed NaviSite Internet Services
Corporation (NaviSite) to provide Web hosting and Internet server management,
and formed CMG Direct, Inc. to provide solutions for integrating traditional
direct marketing with Internet marketing.
The Company has adopted a strategy of seeking opportunities to realize
significant 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 significantly
increase shareholder value as well as provide capital to support the growth in
the Company's subsidiaries and investments. Additionally, in fiscal year 1998,
the Company will continue to develop and refine the products and services of its
businesses, with the goal of significantly increasing revenue as new products
are commercially introduced, and will continue to pursue a strong pace of
investing in new Internet opportunities.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain items from the
Company's Consolidated Statements of Operations expressed as a percentage of net
revenues.
Fiscal Year Ended July 31,
1997 1996 1995
---- ---- ----
Net revenues 100% 100% 100%
Cost of revenues 60 63 58
Research and development expenses 35 24 --
In-process research and development expenses 2 9 --
Selling, general and administrative expenses 78 76 29
---- ---- ----
Operating income (loss) (75) (72) 13
Interest income, net 3 9 1
Gain on sale of NetCarta Corporation 21 -- --
Gain on dividend distribution of Lycos, Inc.
common stock 12 -- --
Gain on sale of investment in TeleT Communications 5 -- --
Gain on sale of available-for-sale securities -- 105 21
Gain on issuance of stock by subsidiary -- 69 --
Equity in losses of affiliates (8) (10) (1)
Minority interest 7 8 --
Income tax benefit (expense) 4 (59) (13)
---- ---- ----
Income (loss) from continuing operations (31)% 50% 21%
==== ==== ====
The Company's operations have been classified into three business segments (i)
investment and development, (ii) fulfillment services, and (iii) lists and
database services. (See note 3 of Notes to Consolidated Financial Statements.)
Fiscal 1997 Compared to Fiscal 1996
Net revenues increased $42,122,000, or 148%, to $70,607,000 in 1997 from
$28,485,000 in 1996. The increase was attributable to increases of $24,069,000
and $18,252,000 in net revenues for the Company's fulfillment services and
investment and development segments, respectively. The fulfillment services
segment increase is primarily due to the acquisition of Pacific Link on October
24, 1996 as well as the addition of several new SalesLink accounts closed in the
second half of fiscal year 1996. The increase in net revenues for the
investment and development segment primarily reflects increased revenues by the
Company's subsidiary, Lycos, whose net revenues for the 1997 fiscal year
increased by $16,996,000 in comparison with 1996. Net revenues in the lists and
database services segment decreased by $199,000 during 1997 due to continued
consolidation in the educational publishing industry and competitive pricing
pressure. The Company expects that net revenues for the fulfillment services
segment in the first quarter of fiscal 1998 will be significantly higher than
the corresponding quarter of fiscal 1997 due to the addition of Pacific Link at
the end of the first quarter of fiscal 1997. Additionally, the Company believes
that its portfolio of companies will continue to develop and introduce their
products commercially, actively pursue increased revenues from new and existing
customers, and look to expand into new market opportunities during fiscal 1998.
Therefore, the Company expects to report future revenue growth.
Cost of revenues increased $24,243,000, or 135%, to $42,152,000 in 1997 from
$17,909,000 in 1996, primarily due to increases of $18,740,000 and $4,911,000 in
the fulfillment services and investment and development segments, respectively,
resulting from higher revenues. In the fulfillment services segment, cost of
revenues as a percentage of net revenues increased to 74% in 1997 from 65% in
1996 due to the mix of services associated with the acquisition of Pacific Link
at the end of the first quarter of fiscal 1997. In the investment and
development segment, cost of revenues as a percentage of net revenues decreased
to 35% in 1997 from 60% in 1996 due to the ability to spread fixed costs, such
as facilities and equipment costs, over a larger revenue base.
Research and development expenses increased $18,087,000, or 260%, to $25,058,000
in fiscal 1997 from $6,971,000 in fiscal 1996. The increase consists primarily
of an increase of $12,516,000 in research and development expenses for the
investment and development segment as product development activities continued
at all of the Company's consolidated Internet investments. Also, research and
development expenses increased $5,732,000 in the lists and database services
segment reflecting the continued development of Engage Technologies' data
mining, querying, analysis and targeting products and services. The Company
recorded $1,312,000 of in-process research and development expenses related to
investments in Parable and Silknet during 1997, compared with $2,691,000 of in-
process research and development expenses recorded in 1996 related to the
acquisition of several Internet investments during 1996. The Company
anticipates it will continue to devote substantial resources to product
development and that these costs may substantially increase in future periods.
23
MANAGEMENT'S DISCUSSION &
ANALYSIS OF FINANCIAL CONDITION
& RESULTS OF OPERATIONS (CONT'D.)
Selling expenses increased $25,917,000, or 222% to $37,583,000 in 1997 from
$11,666,000 in 1996. This increase was primarily attributable to a $22,609,000
selling expense increase in the Company's investment and development segment,
reflecting the sales and marketing efforts related to several product launches
and continued growth of sales and marketing infrastructures by the subsidiaries
of this segment. Also, during 1997, Lycos launched a national television
advertising campaign which contributed to the increased selling expenses in the
investment and development segment. Selling expenses in the lists and database
services segment increased by $1,982,000 versus 1996 due to product launch
expenses and the continued building of sales and marketing infrastructure for
Engage Technologies. Selling expenses in the fulfillment services segment
increased by $1,326,000 in comparison with 1996 due to the acquisition of
Pacific Link. Selling expenses increased as a percentage of net revenues to 53%
in 1997 from 41% in 1996. The Company anticipates that its subsidiaries will
continue to introduce new products and expand revenues and, therefore, expects
to incur significant promotional expenses, increased advertising expenses, as
well as expenses related to the hiring of additional sales and marketing
personnel, and anticipates that these costs may substantially increase in
absolute dollar amounts in future periods.
General and administrative expenses increased $7,789,000, or 79%, to $17,611,000
in 1997 from $9,822,000 in 1996. The investment and development segment and
lists and database services segment experienced increases of $4,884,000 and
$1,505,000, respectively, due to the addition of management personnel and
administrative infrastructure in several of the Company's Internet investments
and Engage Technologies. General and administrative expenses in the fulfillment
services segment increased by $1,400,000 in comparison with fiscal 1996 due to
the acquisition of Pacific Link, including approximately $804,000 of goodwill
amortization charges. General and administrative expenses decreased as a
percentage of net revenues to 25% in 1997 from 35% in 1996 due to the
significant increase in net revenues in fiscal year 1997. The Company
anticipates that its general and administrative expenses will continue to
increase in absolute dollar amounts as the Company's subsidiaries, particularly
in the investment and development segment, continue to expand their
administrative staffs and infrastructures.
Gain on sale of NetCarta Corporation in fiscal 1997 reflects the Company's pre-
tax gain of $15,111,000 on the sale of this subsidiary to Microsoft Corporation
on January 31, 1997. Gain on distribution of Lycos stock of $8,413,000 in
fiscal 1997 resulted from the dividend distribution of 603,000 shares of Lycos
common stock to CMG shareholders on July 31, 1997. This distribution
represented the first dividend under the Company's venture dividend program
which was announced in May 1997 (see further description of this program in the
Liquidity and Capital Resources section below). Gain on sale of investment in
TeleT Communications of $3,616,000 in fiscal 1997 resulted when the Company sold
its equity interest in TeleT to Premiere Technologies, Inc. (Premiere) in
exchange for $550,000 and 320,833 shares of Premiere stock in September 1996.
Gain on sale of available-for-sale securities in fiscal 1996 occurred when the
Company sold its remaining 1,020,000 shares of AOL common stock, realizing a
gain of $30,049,000 in October 1995. Gain on issuance of stock by subsidiary in
fiscal 1996 represented the Company's $19,575,000 gain recorded as a result of
the sale of stock by Lycos in an initial public offering in April 1996. The
gain from the Lycos stock offering reflected the increase in the Company's
proportionate share of Lycos' equity.
Interest income increased $618,000 to $3,368,000 in 1997 from $2,750,000 in
1996. The increase in interest income primarily reflects income earned by Lycos
from the investment of the proceeds of their initial public offering, which
occurred in April 1996, partially offset by the impact of lower corporate cash
balances in fiscal 1997 as compared with fiscal 1996. Interest expense
increased $1,560,000 to $1,619,000 in 1997 from $59,000 in 1996. The increase
in interest expense was primarily due to borrowings incurred to finance the
Company's acquisition of Pacific Link and interest expense related to the
Company's $10,000,000 collateralized corporate note payable to a bank which was
issued in January 1997.
Equity in losses of affiliates resulted from the Company's minority ownership in
certain investments which are accounted for under the equity method. Under the
equity method of accounting the Company's proportionate share of each
affiliate's operating losses and amortization of the Company's net excess
investment over its equity in each affiliate's net assets is included in equity
in losses of affiliates. The results for fiscal 1996 reflect five minority
investments: FreeMark, Ikonic, GeoCities, Vicinity and TeleT. During the
fourth quarter of fiscal 1996, the Company increased its ownership in FreeMark
and GeoCities above 50% and, accordingly, began including their operating
results in the Company's consolidated operating results. FreeMark was
consolidated through December 1996 when it suspended operations. Equity in
losses of affiliates for fiscal 1997 include the results from the Company's
minority ownership in Ikonic, Vicinity, Parable, Silknet, Reel.com and TeleT
(through the date of the sale of TeleT in September 1996). Also, in January
1997, GeoCities successfully completed a $9 million equity financing round in
which CMG @Ventures contributed $2 million. With this round of financing, CMG
@Ventures' ownership in GeoCities decreased from approximately 61% to
approximately 41%, and the Company began accounting for its investment in
GeoCities under the equity method of accounting, rather than the consolidation
method and, accordingly, began including the results of its ownership in
GeoCities in equity in losses of affiliates. In the fourth quarter of fiscal
1997, Vicinity repurchased certain shares of its common stock which had
previously been outstanding. The repurchase of shares by Vicinity increased the
Company's ownership in Vicinity above 50% and, accordingly, the Company began
including Vicinity's operating results in the Company's consolidated operating
results beginning in the fourth quarter of fiscal 1997. The Company expects its
portfolio companies to continue to invest in the development of products and
services, and to recognize operating losses, which will result in future charges
recorded by the Company to reflect its proportionate share of such losses.
24
MANAGEMENT'S DISCUSSION &
ANALYSIS OF FINANCIAL CONDITION
& RESULTS OF OPERATIONS (CONT'D.)
Minority interest increased to $4,787,000 in 1997 from $2,169,000 in 1996
reflecting minority interest in net losses of consolidated subsidiaries within
the Company's investment and development segment.
The Company's effective tax rates for fiscal 1997 and 1996 were 12% and 54%,
respectively. The effective tax rates in fiscal 1997 and fiscal 1996 differed
from the federal statutory rate of 35% primarily due to the provision for state
income taxes and the Company's inability to record a tax benefit from operating
losses of certain subsidiaries and affiliates not included in the Company's
consolidated federal income tax return.
Fiscal 1996 Compared To Fiscal 1995
Net revenues increased $6,192,000, or 28%, to $28,485,000 in 1996 from
$22,293,000 in 1995. The increase was primarily attributable to a revenues
increase of $5,660,000 from the Company's investment and development segment
which was formed during the third quarter of fiscal 1995 and includes fiscal
1996 revenues of $5,257,000 from Lycos, Inc. Additionally, fulfillment services
segment revenues increased $984,000 reflecting several new hi-tech and
healthcare customers, and lists and database services segment revenues declined
$452,000 due to consolidation in the educational publishing industry and
curtailed direct mail activity due to high paper and postage costs in the first
half of the year.
Cost of revenues increased $4,895,000, or 38%, to $17,909,000 in 1996 from
$13,014,000 in 1995, due primarily to an increase of $3,382,000 in costs related
to the Company's new investment and development segment, an increase of $574,000
in the fulfillment services segment resulting from higher revenues, and an
increase of $939,000 in the cost of revenues for the lists and database services
segment. In the lists and database services segment, cost of revenues as a
percentage of net revenues increased to 62% in 1996 from 51% in 1995. This
increase was primarily attributable to increases in operating expenses related
to the launching of the Company's Elementary/High School Database product line.
Prior to fiscal 1996 all costs related to the development of the Elementary/High
School Database product were capitalized.
Research and development expenses totaled $6,971,000 in 1996, consisting of
$5,219,000 related to the operations of the investment and development segment,
$1,559,000 incurred by Engage within the lists and database services segment and
$193,000 relating to the fulfillment services segment. In addition, the Company
recorded $2,691,000 of in-process research and development expenses related to
the acquisition of several Internet investments. No research and development
costs were incurred in fiscal year 1995.
Selling expenses increased $8,641,000, or 286%, to $11,666,000 in 1996 from
$3,025,000 in 1995. This increase was primarily attributable to a $7,954,000
selling expense increase in the Company's new investment and development
segment, reflecting the sales and marketing efforts related to various product
launches. Additionally, selling expense increases of $541,000 and $146,000 were
incurred by the lists and database services and fulfillment services segments,
respectively. Selling expenses increased as a percentage of net revenues to 41%
in fiscal 1996 from 14% in fiscal 1995.
General and administrative expenses increased $6,460,000, or 192%, to $9,822,000
in fiscal 1996 from $3,362,000 in fiscal 1995. This increase was attributable
to the creation of the investment and development business segment during the
third quarter of fiscal 1995, which had expense increases of $5,729,000,
including payroll, facilities, goodwill amortization, legal and accounting,
depreciation and other general and administrative costs. Additionally, lists
and database services segment general and administrative expenses increased
$471,000, reflecting the strengthening of Engage's management infrastructure,
and general and administrative costs for the Company's fulfillment services
segment increased $260,000 over fiscal 1995. General and administrative
expenses increased as a percentage of net revenues to 35% from 15% in fiscal
1995.
Equity in losses of affiliates resulted from the Company's minority ownership in
certain investments, which were made through CMG @Ventures and are accounted for
under the equity method. Under the equity method of accounting the Company's
proportionate share of each affiliate's operating losses and amortization of the
Company's net excess investment over its equity in each affiliate's net assets
is included in equity in losses of affiliates. The 1995 results reflect one
investment, FreeMark, which was acquired during the third quarter of 1995, with
$306,000 equity in losses being recognized in fiscal 1995, compared with
$2,915,000 for fiscal 1996, which included results from the Company's minority
ownership in FreeMark, Ikonic, GeoCities, Vicinity, and TeleT. During the
fourth quarter of fiscal 1996, the Company increased its ownership in FreeMark
and GeoCities above 50% and, accordingly, began including their operating
results in the Company's consolidated operating results beginning on the dates
on which controlling interests were obtained.
Gain on sale of available-for-sale securities occurred when the Company sold its
remaining 1,020,000 shares of America Online common stock, realizing a gain of
$30,049,000 in October 1995. Gain on issuance of stock by subsidiary represents
the Company's $19,575,000 gain recorded as a result of the sale of stock by its
subsidiary, Lycos, in an initial public offering in April 1996. This gain from
the Lycos stock offering reflects the increase in the Company's proportionate
share of Lycos' equity. See Note 9 of Notes to Consolidated Financial
Statements for a more complete description of this transaction. Interest income
increased primarily due to income from investment of the proceeds from the sale
of the AOL stock and the Lycos public offering.
Minority interest increased to $2,169,000 in fiscal 1996 from $14,000 in fiscal
1995, reflecting minority interest in net losses of consolidated subsidiaries
within the Company's investment and development business segment.
The Company's effective tax rates for the fiscal years ended July 31, 1996 and
1995 were 54% and 37%, respectively. The effective rate in fiscal 1996 differed
from the federal statutory rate of 35% primarily due to the provision for state
income taxes and the Company's inability to record a tax benefit from operating
25
MANAGEMENT'S DISCUSSION &
ANALYSIS OF FINANCIAL CONDITION
& RESULTS OF OPERATIONS (CONT'D.)
losses of certain entities not included in the Company's consolidated income tax
return. The effective rate in fiscal 1995 differed from the federal statutory
rate of 34% primarily due to the provision for state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at July 31, 1997 decreased to $38.6 million compared to $72.0
million at July 31, 1996. The Company's principal uses of capital during fiscal
1997 were for funding of start-up activities in the Company's investment and
development segment and lists and database services segment, the acquisition of
Pacific Link, investments by CMG @Ventures L.P. and CMG @Ventures II LLC in
several Internet companies, purchases of property and equipment, and purchases
of treasury stock. The Company's principal sources of capital during fiscal
1997 were from short and long term borrowings, the sale of NetCarta and the sale
of common stock. The Company intends to continue to fund existing and future
Internet and interactive media investment and development efforts.
The Company received net cash proceeds of $18,468,000 from the sale of NetCarta
on January 31, 1997, of which $2 million is being held by an outside escrow
agent through February 1998. Prior to the sale of NetCarta, CMG @Ventures had
funded an additional $3.8 million to NetCarta during fiscal 1997. Additionally,
the Company received proceeds of $550,000 in cash and 320,833 shares of
Premiere common stock from the sale of its investment in TeleT in September
1996. The Company is subject to restrictions, which expire in September 1997
and September 2002, on selling 283,333 and 37,500 of the Premiere shares,
respectively.
On October 24, 1996, the Company's wholly-owned subsidiary, SalesLink, acquired
100% of the outstanding stock of Pacific Link for a purchase price of
$17,000,000. The Company's acquisition of Pacific Link was financed through
$3,000,000 from corporate funds, a $5,500,000, five year bank loan, a
$7,500,000, three year seller's note, and a $1,000,000 seller's note which was
paid in February 1997.
CMG @Ventures L.P. invested a total of $10.8 million in five companies during
fiscal year 1997, including an initial investment of $2 million for a 46%
ownership interest in Parable, $1.2 million for 153,192 additional shares of
Lycos, $3.8 million for additional funding of NetCarta, and follow on
investments of $1.8 million in Vicinity and $2 million in GeoCities. The
Company's investment in Vicinity was made during the second quarter as part of a
$5 million equity round, including outside investors, and reduced the Company's
ownership in Vicinity from 47% to 45%. With the repurchase of certain
outstanding shares by Vicinity during the fourth quarter of fiscal 1997, CMG
@Ventures L.P.'s ownership increased to 53% and the Company began accounting for
its investment in Vicinity on the consolidation method of accounting rather than
the equity method. The additional investment in GeoCities was made in January
1997 as part of a $9 million equity round, including outside investors, and
reduced the Company's ownership in GeoCities from approximately 61% to
approximately 41%. This reduction in ownership caused the Company to change its
method of accounting for its investment in GeoCities to the equity method rather
than the consolidation method beginning in January 1997. In December 1996, the
Company's consolidated subsidiary, FreeMark suspended operations of its free
email service. Prior to the reduction in the Company's ownership in GeoCities
and the suspension of operations at FreeMark, the operating results of GeoCities
and FreeMark were consolidated within the operating results of the Company's
investment and development segment.
The Company's investments in Parable, GeoCities, Vicinity, NetCarta, FreeMark,
Blaxxun, Ikonic, TeleT and Vicinity were made through its majority-owned limited
partnership, CMG @Ventures L.P and its wholly-owned subsidiary CMG @Ventures,
Inc. The Company owns 100% of the capital interest and has all voting rights,
and is entitled to 77.5% of the net capital gains, as defined, of these
investments. The remaining 22.5% interest in the net capital gains on these
investments are attributed to profit partners, including the President and Chief
Executive Officer and the Chief Financial Officer of the Company. The Company
is responsible for all operating expenses of CMG @Ventures L.P. and CMG
@Ventures, Inc. CMG @Ventures L.P.'s interest in Lycos (consisting of 7,389,248
shares of common stock at July 31, 1997) is subject to further reduction because
CMG @Ventures L.P. is obligated, as of July 31, 1997, to sell to Lycos up to a
total of 780,804 shares of common stock of Lycos, as necessary, to provide for
shares issuable upon exercise of options granted by Lycos under its 1995 stock
option plan. Of these 780,804 shares, CMG @Ventures L.P. is obligated to sell
522,680 shares to Lycos at a price of $0.01 per share and 258,124 shares at
prices ranging from $0.29 to $9.60 per share.
During fiscal 1997, the Company completed its original commitment of $35 million
in capital to its limited partnership subsidiary, CMG @Ventures L.P., and formed
a new limited liability company subsidiary, CMG @Ventures II LLC, to continue
the Company's model of providing intellectual and financial capital to companies
seeking to further the commercialization of the Internet and other interactive
media through the development and application of direct marketing products and
services. CMG @Ventures II LLC invested a total of $8.3 million in five
companies during fiscal year 1997, including initial investments of $1.3 million
for a 26% ownership interest in Silknet, $2 million for a 15% interest in KOZ,
inc., $1 million for a 9% interest in Softway Systems, $1 million for a 15%
interest in Sage Enterprises, $2.3 million for a 31% interest in Reel.com, and
$743,000 for a follow on investment in Silknet. The follow on investment in
Silknet was part of a $5 million equity round, including outside investors, and
reduced the Company's ownership in Silknet from 26% to 23%. The Company owns
100% of the capital interest and has all voting rights, and is entitled to 80%
of the net capital gains, as defined, of the investments made by CMG @Ventures
II LLC. The remaining 20% interest in the net capital gains on these
investments are attributed to profit partners, including the President and Chief
Executive Officer and the Chief Financial Officer of the Company.
26
MANAGEMENT'S DISCUSSION &
ANALYSIS OF FINANCIAL CONDITION
& RESULTS OF OPERATIONS (CONT'D.)
During fiscal year 1997, the Company also formed NaviSite to provide Web hosting
and Internet server management to companies that depend on the Internet as a
critical business tool. CMG has begun funding and intends to provide all
required funding for start-up costs of this new venture.
The Company's subsidiary, Lycos, entered into a joint venture agreement with
Bertelsmann Internet Services, Gmbh (Bertelsmann) dated as of May 1, 1997, to
create Internet navigation centers throughout Eastern and Western Europe.
Bertelsmann will provide $5 million in equity capital, and an additional $5
million loan facility to the venture and Lycos will contribute its technology
and Internet expertise. Lycos and Bertelsmann will each own a 50% stake in the
new venture, named Lycos-Bertelsmann. The venture has commenced operations in
Germany, the United Kingdom and France and is expected to establish operations
by September in Italy, Belgium, Netherlands, Luxembourg and Spain. Lycos
accounts for its investment in this joint venture under the equity method.
During fiscal year 1997, SalesLink secured a $4.5 million revolving credit note
agreement with a bank which expires on October 1, 1998. As of July 31, 1997,
$2.5 million in borrowings were outstanding under this agreement. On May 14,
1997, CMG entered into a one year revolving credit note agreement with a bank
which provides for borrowings up to $10 million. As of July 31, 1997, $10
million in borrowings were outstanding under this agreement. The agreement
expires on May 14, 1998. In January 1997, the Company issued a collateralized
note payable to a bank for $10 million. The note is collateralized by 784,314
Lycos common shares owned by the Company and the note is payable in full on
January 17, 1998. The Company is considering either seeking the renewal of this
note, or repaying it using future proceeds from the sale of stock of certain
investee companies.
On May 28, 1997, the Company announced a new venture dividend program in
connection with the Company's CMG@Ventures Internet investments. Subject to
restrictions on transfer, the program envisions that it may distribute up to 10%
of the stock held by CMG @Ventures following an initial public offering by any
one of the companies in which it holds an investment. The Company may also
announce from time to time other stock dividends in connection with its Internet
investments. Such dividends are subject to approval of the Company's Board of
Directors and subject to holding requirements by regulatory agencies such as the
Securities and Exchange Commission. The program may be altered or discontinued
at any time at the discretion of the Company. The Company also announced its
first dividend under the new program, of one share of Lycos common stock for
every sixteen shares of the Company's common stock held by stockholders of
record on June 5, 1997. The Company distributed 603,000 shares of Lycos common
stock, with a market value of $11,008,000 at the date of distribution, to the
Company's stockholders on July 31, 1997 as payment of this dividend. The
payment of this dividend reduced the Company's ownership interest in Lycos to
53% as of July 31, 1997.
During the first quarter of fiscal 1997, the Company's Board of Directors
authorized the Company to buy back up to 500,000 shares of its common stock.
During the first and second quarters of fiscal 1997, 100,000 shares were
repurchased at an average cost of $9.84 per share, for a total of $984,000. On
January 31, 1997, the Company sold 470,477 shares of its common stock, including
the 100,000 treasury shares acquired in fiscal 1997, to Microsoft at a price of
$14.50 per share. The shares sold to Microsoft represented 4.9% of the
Company's total outstanding shares of common stock following the sale, with
proceeds to the Company totaling $6,822,000.
The Company's consolidated capital expenditures were $6,939,000 in fiscal 1997.
Concurrent with its growth and the commencement of start-up operations, the
Company has experienced a substantial increase in its capital expenditures and
operating lease arrangements in fiscal year 1997 and anticipates that this will
continue in the future. The Company's accounts receivable, accounts payable and
accrued expenses increased $9,203,000, $2,542,000 and $12,186,000, respectively,
primarily as a result of the acquisition of Pacific Link and significant growth
in several of the Company's subsidiaries in the investment and development
segment during fiscal 1997. Costs in excess of net assets of subsidiaries
acquired, net of accumulated amortization, in the Company's July 31, 1997
Consolidated Balance Sheet increased $14,644,000 in comparison with July 31,
1996, primarily due to $17,229,000 of goodwill recorded relating to the
acquisition of Pacific Link in October 1996, offset by amounts amortized during
fiscal 1997.
Of the Company's consolidated cash and available-for-sale securities at July 31,
1997, 64% was held by subsidiaries that are not wholly-owned by the Company.
This percentage may vary significantly over time. The Company's ability to
access assets held by its majority-owned subsidiaries through dividends, loans,
or other transactions is subject in each instance to a fiduciary duty owed to
minority shareholders of the relevant subsidiary. In addition, dividends
received from a subsidiary that does not consolidate with the Company for tax
purposes are subject to tax. Therefore, under certain circumstances, a portion
of the Company's consolidated cash and available-for-sale securities may not be
readily available to the Company or certain of its subsidiaries.
Subsequent to July 31, 1997, the Company's wholly-owned subsidiary, Engage
Technologies, sold certain rights to its Engage.FusionTM and Engage.DiscoverTM
products to Red Brick Systems, Inc. (Red Brick) for cash and Red Brick common
stock valued at approximately $11.5 million. Also subsequent to July 31, 1997,
the Company exercised options to purchase additional Lycos shares and filed with
the SEC on Form 144 to sell up to 300,000 shares of Lycos stock on the open
market. The Company exercised 96,000 Lycos options for an investment of
$192,000 and sold 219,900 of its shares of Lycos common stock for total proceeds
of $7.1 million in September and October 1997. Through the subsequent sale of
Lycos shares, the Company's ownership percentage in Lycos was reduced from 53%
at July 31, 1997, to just in excess of 50% in October 1997.
27
MANAGEMENT'S DISCUSSION &
ANALYSIS OF FINANCIAL CONDITION
& RESULTS OF OPERATIONS (CONT'D.)
During the first quarter of fiscal 1998, the Company also sold 224,795 shares of
Premiere common stock for total proceeds of $7.6 million.
The Company believes that existing working capital, available borrowings under
revolving credit note agreements, proceeds from Engage's sale of certain rights
to two of its products to Red Brick Systems subsequent to July 31, 1997,
proceeds from the sale of Lycos and Premiere stock subsequent to July 31, 1997,
and additional Lycos shares which could be sold or posted as collateral for
additional loans, will be sufficient to fund its operations, investments and
capital expenditures for the foreseeable future. Should additional capital be
needed to fund future investment and acquisition activity, the Company may seek
to raise additional capital through public or private offerings of the Company's
or its subsidiaries' stock, or through debt financings. Further, the Company
continues to see a strong flow of strategic opportunities that fit within its
investment and development business model and expects to seek to secure
additional financing commitments from third parties to pursue additional
investment opportunities in the future.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a number of
risks, some of which are beyond the Company's control. Forward-looking
statements in this document and those made from time to time by the Company
through its senior management are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking
statements concerning the expected future revenues or earnings or concerning
projected plans, performance, product development, product release or product
shipment, as well as other estimates related to future operations are
necessarily only estimates of future results and there can be no assurance that
actual results will not materially differ from expectations. The Company
undertakes no obligation to publicly release the results of any revisions to
forward-looking statements which may be made to reflect events or circumstances
occurring after the date such statements were made or to reflect the occurrence
of unanticipated events.
Factors that could cause actual results to differ materially from results
anticipated in forward-looking statements include, but are not limited to the
following:
. The development of the Internet, the level of usage of the Internet, future
acceptance of the Company's Internet related products and services, demand
for Internet advertising, the introduction of new products and services by
the Company and its affiliates or its competitors and potential expense
increases associated with the Company's investments at the early stages of
development may materially affect the Company's operations. As a result, the
Company's mix of services and products may undergo substantial changes as the
Company reacts to competitive and other developments in the overall Internet
market. If widespread commercial use of the Internet does not develop, or if
the Internet does not develop as an effective advertising medium, the
Company's business, results of operations and financial condition will be
materially adversely affected.
. The Company's business model envisions additional opportunities to realize
value through gains on its strategic investment and development activities
over the next few years. Historically, such gains have been substantial in
certain periods. Additionally, the Company's business model envisions
potentially leveraging its investment in present and future Internet
development opportunities through public and private placement of portions of
such investments with outside investors. The size and timing of these
transactions are dependent on market and other conditions that are beyond the
Company's control. Accordingly, there can be no assurance that the Company
will be able to generate gains from such transactions in the future. These
same factors, along with potential restrictions from regulatory agencies,
such as holding requirements by the Securities and Exchange Commission, could
also effect the Company's ability to provide future distributions under its
venture dividend program.
. The Company has made and continues to make numerous early-stage investments
in companies with little or no revenues, and has realized several significant
gains through the selective sale or distribution of investments or, as in the
case of Lycos, selling minority interests through initial public offering of
stock. For these reasons, the Company's operating results have varied
significantly from quarter to quarter, and are likely to continue to do so.
In addition, the Company's operating results may vary significantly from
quarter to quarter as a result of several other factors, including but not
limited to: the timing of new product announcements and introductions by the
companies in which CMG has invested or will invest, or their competitors,
market acceptance of the Company's products or services, and changes in the
product mix of sales. All of the above factors can materially adversely
affect the Company's business and operating results for one quarter or a
series of quarters, and are difficult to forecast.
. Along with its investment and development segment, the Company's lists and
database services and fulfillment services segments are subject to industry
related risks, including continued acceptance of the Company's products and
services, the introduction of new products and services by the Company or its
competitors, changes in the mix of services sold and the channels through
which those services are sold, product pricing and changes, general economic
conditions and specific economic conditions in the direct marketing and
Internet industries.
. During fiscal year 1997 a significant portion of the Company's revenues were
derived from a limited number of customers, including Cisco Systems, Inc.
(Cisco), which accounted for 24% of total revenues and 47% of fulfillment
services segment fiscal year 1997 revenues. While the Company is actively
pursuing increasing the number of fulfillment services customers, the Company
believes that its dependence on Cisco will continue. This concentration of
customers may cause net sales and operating results to fluctuate from quarter
to quarter based on Cisco's requirements and the timing of their orders and
shipments. The Company does not have agreements in place with Cisco to ensure
minimum purchase commitments or exclusivity for purchase of a particular
product or service. The Company's operating results could be materially
affected if Cisco were to choose to reduce its level of orders, were to
change to another vendor, were to experience financial, operational, or other
difficulties, or were to delay paying or fail to pay amounts due to the
Company.
Exhibit 13.3
28
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
July 31,
1997 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 59,762 $ 63,387
Available-for-sale securities 5,945 13,069
Accounts receivable, trade, less allowance for doubtful
accounts of $1,083 and $442 in 1997 and 1996 19,869 10,666
License fees receivable 9,066 1,032
Prepaid expenses 6,174 2,199
Other current assets 5,875 213
-------- --------
Total current assets 106,691 90,566
-------- --------
Property and equipment 20,091 14,657
Less accumulated depreciation and amortization 8,947 6,196
-------- --------
Net property and equipment 11,144 8,461
-------- --------
Investments in affiliates 9,160 4,073
Costs in excess of net assets of subsidiaries acquired,
net of accumulated amortization of $1,420 in 1997
and $718 in 1996 17,109 2,299
Other assets 4,250 4,104
-------- --------
$148,354 $109,503
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 22,494 $ --
Current installments of long-term debt 3,221 --
Accounts payable 9,959 7,251
Accrued expenses 18,341 6,245
Deferred revenues 13,680 4,620
Other current liabilities 442 441
-------- --------
Total current liabilities 68,137 18,557
-------- --------
Long-term debt, less current installments 9,550 --
Long-term deferred revenues 5,100 --
Deferred income taxes 8,481 9,122
Other long-term liabilities 2,119 555
Minority interest 25,519 27,277
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value per share. Authorized
5,000,000 shares; none issued -- --
Common stock, $.01 par value per share. Authorized
40,000,000 shares; issued and outstanding 9,659,543
shares at July 31,1997 and 9,166,747 shares at
July 31, 1996 97 92
Additional paid-in capital 16,879 9,243
Net unrealized gain on available-for-sale securities 852 --
Retained earnings 11,620 44,657
-------- --------
Total stockholders' equity 29,448 53,992
-------- --------
$148,354 $109,503
======== ========
see accompanying notes to consolidated financial statements
29
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Years ended July 31,
1997 1996 1995
---------- --------- ---------
Net revenues $ 70,607 $ 28,485 $22,293
Operating expenses:
Cost of revenues 42,152 17,909 13,014
Research and development 25,058 6,971 --
In-process research and development 1,312 2,691 --
Selling 37,583 11,666 3,025
General and administrative 17,611 9,822 3,362
-------- -------- -------
Total operating expenses 123,716 49,059 19,401
-------- -------- -------
Operating income (loss) (53,109) (20,574) 2,892
-------- -------- -------
Other income (deductions):
Interest income 3,368 2,750 248
Interest expense (1,619) (59) (23)
Gain on sale of investment in TeleT Communications 3,616 -- --
Gain on sale of NetCarta Corporation 15,111 -- --
Gain on dividend distribution of Lycos, Inc. common stock 8,413 -- --
Gain on sale of available-for-sale securities -- 30,049 4,781
Gain on issuance of stock by subsidiary -- 19,575 --
Equity in losses of affiliates (5,556) (2,915) (306)
Minority interest 4,787 2,169 14
-------- -------- -------
28,120 51,569 4,714
-------- -------- -------
Income (loss) from continuing operations before income taxes (24,989) 30,995 7,606
Income tax expense (benefit) (2,962) 16,673 2,844
-------- -------- -------
Income (loss) from continuing operations (22,027) 14,322 4,762
Discontinued operations, net of income taxes:
Loss from operations of BookLink Technologies, Inc. -- -- (690)
Gain on disposal of BookLink Technologies, Inc. -- -- 24,143
-------- -------- -------
Net income (loss) $(22,027) $ 14,322 $28,215
======== ======== =======
Primary earnings (loss) per share:
Income (loss) from continuing operations $(2.34) $ 1.48 $ 0.51
Loss from discontinued operations of BookLink Technologies, Inc. -- -- (0.07)
Gain on disposal of BookLink Technologies, Inc. -- -- 2.56
-------- -------- -------
Net income (loss) $(2.34) $ 1.48 $ 3.00
======== ======== =======
Fully diluted earnings (loss) per share:
Income (loss) from continuing operations $(2.34) $ 1.45 $ 0.49
Loss from discontinued operations of BookLink Technologies, Inc. -- -- (0.07)
Gain on disposal of BookLink Technologies, Inc. -- -- 2.48
-------- -------- -------
Net income (loss) $(2.34) $ 1.45 $ 2.90
======== ======== =======
Weighted average shares outstanding:
Primary 9,429 9,682 9,391
======== ======== =======
Fully diluted 9,429 9,898 9,744
======== ======== =======
see accompanying notes to consolidated financial statements
30
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
Net unrealized
Additional gain on
Common paid-in available-for-sale Retained Treasury
stock capital securities earnings stock
----- ------- ---------- -------- -----
Balance at July 31, 1994
(8,766,714 shares) $88 $ 6,773 $ -- $ 2,120 $ --
Net income -- -- -- 28,215 --
Net unrealized gain on
available-for-sale securities -- -- 18,005 -- --
Issuance of common stock
(72,006 shares) -- 103 -- -- --
Tax benefit of stock option exercises -- 186 -- -- --
Decrease in related party receivable -- -- -- -- --
--- ------- -------- -------- --------------
Balance at July 31, 1995
(8,838,720 shares) 88 7,062 18,005 30,335 --
Net income -- -- -- 14,322 --
Issuance of common stock
(328,027 shares) 4 367 -- -- --
Tax benefit of stock option exercises -- 695 -- -- --
Effect of subsidiaries' equity
transactions -- 1,119 -- -- --
Sale of available-for-sale securities -- -- (18,005) -- --
--- ------- -------- -------- --------------
Balance at July 31, 1996
(9,166,747 shares) 92 9,243 -- 44,657 --
Net loss -- -- -- (22,027) --
Dividend of Lycos, Inc. common stock -- -- -- (11,010) --
Net unrealized gain on
available-for-sale securities -- -- 852 -- --
Purchase of treasury stock
(100,000 shares) -- -- -- -- (984)
Issuance of common stock
(592,796 shares) 5 7,181 -- -- 984
Tax benefit of stock option exercises -- 277 -- -- --
Effect of subsidiaries' equity -- 178 -- -- --
transactions --- ------- -------- -------- --------------
Balance at July 31, 1997
(9,659,543 shares) $97 $16,879 $ 852 $ 11,620 $ --
=== ======= ======== ======== ==============
Total
Related party stockholders'
receivable equity
--------- ------
Balance at July 31, 1994
(8,766,714 shares) $(114) $ 8,867
Net income -- 28,215
Net unrealized gain on
available-for-sale securities -- 18,005
Issuance of common stock
(72,006 shares) -- 103
Tax benefit of stock option exercises -- 186
Decrease in related party receivable 114 114
-------------- --------
Balance at July 31, 1995
(8,838,720 shares) -- 55,490
Net income -- 14,322
Issuance of common stock
(328,027 shares) -- 371
Tax benefit of stock option exercises -- 695
Effect of subsidiaries' equity
transactions -- 1,119
Sale of available-for-sale securities -- (18,005)
-------------- --------
Balance at July 31, 1996
(9,166,747 shares) -- 53,992
Net loss -- (22,027)
Dividend of Lycos, Inc. common stock -- (11,010)
Net unrealized gain on
available-for-sale securities -- 852
Purchase of treasury stock
(100,000 shares) -- (984)
Issuance of common stock
(592,796 shares) -- 8,170
Tax benefit of stock option exercises -- 277
Effect of subsidiaries' equity -- 178
transactions -------------- --------
Balance at July 31, 1997
(9,659,543 shares) $ -- $ 29,448
============== ========
see accompanying notes to consolidated financial statements
31
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended July 31,
1997 1996 1995
---------- --------- --------
Cash flows from operating activities:
Income (loss) from continuing operations $(22,027) $ 14,322 $ 4,762
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used for) continuing operations:
Depreciation and amortization 5,307 2,823 896
Deferred income taxes (871) 8,283 (92)
Gain on sale of investment in TeleT Communications (3,616) -- --
Gain on sale of NetCarta Corporation (15,111) -- --
Gain on dividend distribution of Lycos, Inc. common stock (8,413) -- --
Gain on sale of available-for-sale securities -- (30,049) (4,781)
Gain on issuance of stock by subsidiary -- (19,575) --
Equity in losses of affiliates 5,556 2,915 306
Minority interest (4,787) (2,169) (14)
In-process research and development 1,312 2,691 --
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures:
Trade accounts and license fees receivable (11,963) (7,269) 314
Prepaid expenses and other current assets (6,436) (1,762) (54)
Accounts payable and accrued expenses 10,039 8,232 564
Deferred revenues 12,866 4,595 --
Refundable and accrued income taxes, net (3,157) 12,876 (444)
Other assets and liabilities (352) (685) (78)
-------- -------- -------
Net cash provided by (used for) continuing operations (41,653) (4,772) 1,379
Net cash used for discontinued operations -- -- (589)
-------- -------- -------
Net cash provided by (used for) operating activities (41,653) (4,772) 790
-------- -------- -------
Cash flows from investing activities:
Net decrease in related party receivable -- -- 114
Additions to property and equipment (6,939) (7,068) (1,474)
Payments related to disposal of BookLink Technologies, Inc. -- -- (650)
Income taxes paid related to disposal of BookLink Technologies, Inc. and available-for-sale
securities -- (20,554) (3,846)
Proceeds from sale or maturities of available-for-sale securities 13,069 69,918 15,531
Purchase of available-for-sale securities -- (25,526) --
Investments in affiliates and acquisitions of subsidiaries (25,825) (9,892) (3,006)
Proceeds from sales of NetCarta Corporation and investment in TeleT Communications 19,018 -- --
Cash acquired through acquisitions of subsidiaries 2,259 3,882 --
Other, net (734) (67) (966)
-------- -------- -------
Net cash provided by investing activities 848 10,693 5,703
-------- -------- -------
Cash flows from financing activities:
Proceeds from issuance of notes payable and long-term debt 29,130 -- --
Repayments of long-term debt (1,230) -- --
Sale of common and treasury stock 8,170 371 128
Purchase of treasury stock (984) -- --
Net proceeds from issuance of stock by subsidiaries -- 48,058 --
Other 2,094 (386) (153)
-------- -------- -------
Net cash provided by (used for) financing activities 37,180 48,043 (25)
-------- -------- -------
Net increase (decrease) in cash and cash equivalents (3,625) 53,964 6,468
Cash and cash equivalents at beginning of year 63,387 9,423 2,955
-------- -------- -------
Cash and cash equivalents at end of year $ 59,762 $ 63,387 $ 9,423
======== ======== =======
see accompanying notes to consolidated financial statements
32
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(1) Nature of Operations
CMG Information Services, Inc. (the Company) is a direct marketing service
provider that invests in, develops and integrates advanced, Internet,
interactive, and database management technologies. CMG and its subsidiaries
offer their clients a wide variety of direct marketing opportunities to choose
from, including: Internet and interactive media direct marketing software
technologies, product and literature fulfillment and turnkey outsourcing, sales
lead/ inquiry management, business-to-business telemarketing services, highly
segmented and accurate mailing lists, database management, design and
development capabilities, consultative list management and brokerage services.
The Company is advancing products and services that will both create and profit
from direct marketing opportunities on the Internet.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation and Presentation
The consolidated financial statements of the Company include its wholly-owned
and majority-owned subsidiaries, Engage Technologies, Inc. (Engage Technologies,
formerly CMG Direct Interactive, Inc.), CMG Direct Corporation, SalesLink
Corporation (SalesLink), CMG @Ventures, Inc., CMG @Ventures, L.P., CMG @Ventures
Capital Corporation, CMG Securities Corporation, CMG @Ventures II LLC, Lycos,
Inc. (Lycos), Blaxxun Interactive, Inc. (Blaxxun, formerly Black Sun
Interactive, Inc.), ADSmart Corporation, InfoMation Publishing Corporation,
Planet Direct Corporation, Navisite Internet Services Corporation, and Vicinity
Corporation (Vicinity). Lycos is a majority-owned public subsidiary. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The Company accounts for investments in businesses in which it
owns between 20% and 50% using the equity method and accounts for investments in
which it owns less than 20% at original cost. Certain amounts for prior periods
have been reclassified to conform with current year presentations. Financial
information related to BookLink Technologies, Inc. (BookLink) in fiscal 1995 has
been presented as discontinued operations (see note 5).
(b) Revenue Recognition
Revenue from the sale of mailing lists is recognized when the mailing labels are
shipped. Revenue for services is recognized upon completion of the service.
The Company's advertising revenues are derived principally from short-term
Internet advertising contracts in which the Company guarantees a minimum number
of impressions for a fixed fee or on a per-impression basis with an established
minimum fee. Revenues from advertising are recognized as the services are
performed.
The Company's license and product revenues are derived principally from product
licensing fees and fees from maintenance and support of its products. License
and product revenues are generally recognized upon delivery provided that no
significant Company obligations remain and collection of the receivable is
probable. In cases where there are significant remaining obligations, the
Company defers such revenue until those obligations are satisfied. Fees from
maintenance and support of the Company's products, including those fees bundled
with the initial licensing fees, are deferred and recognized ratably over the
service period.
(c) Gain on Issuances of Stock by Subsidiaries
At the time a subsidiary sells its stock to unrelated parties at a price in
excess of its book value, the Company's net investment in that subsidiary
increases. If at that time, the subsidiary is an operating entity and not
engaged principally in research and development, the Company records the
increase as a gain in its Consolidated Statements of Operations. Otherwise, the
increase is reflected in "effect of subsidiaries' equity transactions" in the
Company's Consolidated Statements of Stockholders' Equity.
If gains have been recognized on issuances of a subsidiary's stock and shares of
the subsidiary are subsequently repurchased by the subsidiary or by the Company,
gain recognition does not occur on issuances subsequent to the date of a
repurchase until such time as shares have been issued in an amount equivalent to
the number of repurchased shares. Such transactions are reflected as equity
transactions, and the net effect of these transactions is reflected in the
Consolidated Statements of Stockholders' Equity.
(d) Cash Equivalents and Statement of Cash Flows Supplemental Information
Highly liquid investments with maturities of three months or less at the time of
acquisition are considered cash equivalents.
Net cash provided by (used for) operating and investing activities reflects cash
payments for interest and income taxes as follows:
Year ended July 31,
1997 1996 1995
---- ---- ----
Interest $1,429,000 $ 26,000 $ 23,000
========== =========== ==========
Income taxes $1,856,000 $16,069,000 $6,753,000
========== =========== ==========
During fiscal year 1997, significant non-cash investing activities included the
sale of the Company's equity interest in TeleT Communications, LLC (TeleT) in
exchange for available-for-sale securities in addition to $550,000 in cash (see
note 10) and the acquisition of one subsidiary, Pacific Link, for consideration
which included $7.5 million financed through a seller's note (see note 7).
Significant non-cash financing activities in fiscal 1997 consisted of the
dividend distribution of 603,000 shares of Lycos stock to CMG shareholders (see
note 15). During fiscal year 1996, in a non-cash investing transaction, the
Company's consolidated subsidiary, Lycos, acquired Point Communications
Corporation (Point) in exchange for 526,316 shares of Lycos stock. During fiscal
year 1995, significant non-cash investing transactions included the sale of
BookLink in exchange for available-for-sale securities (see note 5) and the
acquisition of one subsidiary, NetCarta Corporation (NetCarta), in exchange for
notes payable (see note 8).
33
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT'D.)
(e) Fair Value of Financial Instruments
The carrying value for cash and cash equivalents, accounts receivable, accounts
payable and notes payable, approximates 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.
(f) Marketable Securities
The Company determines the appropriate classification of marketable securities
at the time of purchase and reevaluates such designation at each balance sheet
date. Marketable securities have been classified as available-for-sale and are
carried at fair value, based on quoted market prices, net of market value
discount to reflect any restrictions on transferability, with unrealized gains
and losses reported as a separate component of stockholders' equity.
(g) Accounting for Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards (SFAS) No.121,
the Company assesses the need to record impairment losses on long-lived assets
used in operations when indicators of impairment are present. On an on-going
basis, management reviews the value and period of amortization or depreciation
of long-lived assets, including costs in excess of net assets of subsidiaries
acquired. During this review, the Company reevaluates the significant
assumptions used in determining the original cost of long-lived assets.
Although the assumptions may vary from transaction to transaction, they
generally include revenue growth, operating results, cash flows and other
indicators of value. Management then determines whether there has been a
permanent impairment of the value of long-lived assets based upon events or
circumstances which have occurred since acquisition.
(h) License Fees Receivable
License fees receivable are comprised of fees to be earned over the next one to
three years on license agreements existing at the balance sheet date.
(i) Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization is
provided on the straight-line basis over the estimated useful lives of the
respective assets (three to seven years). Leasehold improvements are amortized
on a straight-line basis over the lesser of the estimated useful life of the
asset or the lease term.
Maintenance and repairs are charged to operating expenses as incurred. Major
renewals and betterments are added to property and equipment accounts at cost.
(j) Investments in Affiliates
The Company's investments in affiliated companies for which its ownership
exceeds 20%, but which are not majority-owned or controlled, are accounted for
using the equity method. Under the equity method, the Company's proportionate
share of each affiliate's net income or loss and amortization of the Company's
excess investment over its equity in each affiliate's net assets is included in
"equity in losses of affiliates". The unamortized excess of the Company's
investments in affiliates which are accounted for under the equity method, over
its equity in the underlying net assets of those affiliates at the date of
investment was $1,227,000 and $2,847,000 at July 31, 1997 and 1996,
respectively. Amortization is recorded on a straight-line basis over periods
ranging from five to ten years.
(k) Costs in Excess of Net Assets of Subsidiaries Acquired
The costs in excess of net assets of subsidiaries acquired (goodwill) are
principally being amortized over periods expected to be benefited, ranging from
five to twenty years.
(l) Deferred Revenues
Deferred revenues are comprised of license fees to be earned in the future on
license agreements existing at the balance sheet date and billings in excess of
earnings on both license and advertising contracts.
(m) Research and Development Costs and Software Costs
Expenditures related to the development of new products and processes, including
significant improvements and refinements to existing products and the
development of software, are expensed as incurred, unless they are required to
be capitalized. Software development costs are required to be capitalized when
a product's technological feasibility has been established by completion of a
detailed program design or working model of the product, and ending when a
product is available for general release to customers. To date, the
establishment of technological feasibility and general release have
substantially coincided. As a result, capitalized software development costs
have not been significant. Additionally, at the date of acquisition or
investment, the Company evaluates the components of the purchase price of each
acquisition or investment to identify amounts allocated to in-process research
and development. Upon completion of acquisition accounting and valuation (based
on independent appraisals), such amounts are charged to expense if technological
feasibility had not been reached at the acquisition date.
(n) Accounting for Income Taxes
Income taxes are accounted for under the asset and liability method whereby
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax
34
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT'D.)
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(o) Earnings Per Share
Earnings per share is computed based on the weighted average number of common
shares outstanding during each period, after giving effect to stock options
considered to be dilutive common stock equivalents.
(p) Stock-based Compensation Plans
The Company has adopted SFAS No. 123, "Accounting for Stock-based Compensation."
As permitted by SFAS No. 123, the Company measures compensation cost in
accordance with Accounting Principles Board Opinion (APB) No. 25, "Accounting
for Stock Issued to Employees" and related interpretations. Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to equity. Therefore, the adoption of SFAS No. 123 was
not material to the Company's financial condition or results of operations;
however, the pro forma impact on earnings per share has been disclosed in the
Notes to Consolidated Financial Statements as required by SFAS No. 123 (see note
16).
(q) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(r) Diversification of Risk
Sales to one customer, Cisco Systems, Inc. (Cisco), accounted for 24% of total
revenues and 47% of fulfillment services segment revenues for fiscal year 1997.
Accounts receivable from this customer amounted to approximately 14% of total
trade accounts receivable at July 31, 1997. The Company's products and services
are provided to customers primarily in North America.
Financial instruments which potentially subject the Company to concentrations of
credit risk are cash equivalents, available-for-sale securities, and accounts
receivable. The Company's cash equivalent investment portfolio is diversified
and consists primarily of short-term investment grade securities. To reduce
risk, the Company performs ongoing credit evaluations of its customers'
financial conditions and generally does not require collateral on accounts
receivable. The Company has not incurred any material write-offs related to its
accounts receivable. A substantial portion of the Company's available-for-sale
securities were sold subsequent to July 31, 1997 (see note 20).
The Company enters into interest rate swap and cap agreements to reduce the
impact of changes in interest rates on its floating rate debt. The swap
agreements are contracts to exchange floating rate for fixed interest payments
periodically over the life of the agreements without the exchange of the
underlying notional amounts. The notional amounts of interest rate agreements
are used to measure interest to be paid or received and do not represent the
amount of exposure to credit loss. The differential paid or received on
interest rate agreements is recognized as an adjustment to interest expense.
(s) New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share", which establishes and simplifies standards for computing
and presenting earnings per share. SFAS No. 128 replaces primary and fully
diluted earnings per share with basic and diluted earnings per share. SFAS No.
128 will be effective for the Company's second quarter of fiscal 1998, and
requires restatement of all previously reported earnings per share data that are
presented. Early adoption of this statement is not permitted. The Company has
not yet evaluated the impact of adopting SFAS No. 128.
(3) Segment Information
The Company's continuing operations have been classified in three primary
business segments, (i) investment and development, (ii) fulfillment services,
and (iii) lists and database services. Investment and development is a business
segment formed during the third quarter of fiscal year 1995 to focus on
strategic investment and development opportunities afforded by the Internet and
interactive media markets. Fulfillment services include product and literature
fulfillment and turnkey outsourcing, telemarketing, and sales/lead inquiry
management. Lists and database services, which has historically included
customer and prospect list databases and list services, began increasing its
database capacity during fiscal 1996, positioning itself to serve additional
markets, including database opportunities afforded by the Internet. Corporate
and other includes available-for-sale securities and certain cash equivalents
which are not identifiable to the operations of the Company's primary business
segments.
35
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT'D.)
During fiscal year 1997, one significant customer accounted for approximately
47% of net revenues in the fulfillment services segment. Previously, three
customers individually accounted for 15%, 15% and 13% of fulfillment services
segment net revenues in fiscal 1996 and 19%, 19% and 12% of segment net revenues
in fiscal 1995. During fiscal years ended July 31, 1997, 1996 and 1995, one
significant customer accounted for approximately 12%, 13% and 14%, respectively,
of net revenues in the lists and database services segment. Summarized
financial information by business segment for the fiscal years ended July 31,
1997, 1996 and 1995 is as follows:
Years Ended July 31,
1997 1996 1995
---- ---- ----
Net revenues:
Investment and development $ 23,917,000 $ 5,665,000 $ 5,000
Fulfillment services 36,139,000 12,070,000 11,086,000
Lists and database services 10,551,000 10,750,000 11,202,000
------------ ------------ -----------
$ 70,607,000 $ 28,485,000 $22,293,000
============ ============ ===========
Operating income (loss):
Investment and development $(45,250,000) $(19,961,000) $ (645,000)
Fulfillment services 4,330,000 1,566,000 1,755,000
Lists and database services (12,189,000) (2,179,000) 1,782,000
------------ ------------ -----------
$(53,109,000) $(20,574,000) $ 2,892,000
============ ============ ===========
Total assets:
Investment and development $ 87,626,000 $ 68,256,000 $5,243,000
Fulfillment services 32,734,000 6,366,000 4,314,000
Lists and database services 10,317,000 8,338,000 10,424,000
Corporate and other 17,677,000 26,543,000 60,505,000
------------ ------------ -----------
$148,354,000 $109,503,000 $80,486,000
============ ============ ===========
Capital expenditures:
Investment and development $ 3,620,000 $ 3,053,000 $ 188,000
Fulfillment services 1,048,000 791,000 794,000
Lists and database services 2,271,000 3,224,000 492,000
------------ ------------ -----------
$ 6,939,000 $ 7,068,000 $ 1,474,000
============ ============ ===========
Depreciation and amortization:
Investment and development $ 2,321,000 $ 1,467,000 $ 24,000
Fulfillment services 1,623,000 450,000 326,000
Lists and database services 1,363,000 906,000 546,000
------------ ------------ -----------
$ 5,307,000 $ 2,823,000 $ 896,000
============ ============ ===========
(4) Available-for-Sale Securities
At July 31, 1997, available-for-sale securities consist of 283,333 shares of
Premiere Technologies, Inc. (Premiere) common stock carried at fair value, based
on quoted market prices, net of market value discount to reflect an average one-
year restriction on transferability through September 19, 1997. An $852,000
unrealized gain, based on the change in the market value of the stock from date
of acquisition to July 31, 1997, is presented in the equity section of the July
31, 1997 Consolidated Balance Sheet, net of deferred income taxes.
At July 31, 1996, available-for-sale securities consisted of U.S. Government
agency obligations, carried at fair value, which the Company did not hold to
maturity. The fair value of each investment at July 31,1996 approximated its
amortized cost.
At July 31, 1995, available-for-sale securities included 1,020,000 shares of
America Online (AOL) stock. An $18,005,000 unrealized gain, based on the change
in market value of the stock from date of acquisition to July 31, 1995, is
presented as a component of equity as of July 31, 1995 in the Company's
Consolidated Statements of Stockholders' Equity, net of deferred income taxes.
During fiscal 1996, the Company sold 1,020,000 shares of AOL stock. The net
proceeds from the sale were $57,462,000 and the Company realized a gain on the
sale of $30,049,000. During fiscal 1995, the Company sold 400,000 shares of AOL
stock. The net proceeds from the sale were $15,531,000. The Company realized a
gain on the sale of $4,781,000.
(5) Discontinued Operations
On November 8, 1994, the Company entered into a definitive agreement to sell all
outstanding stock of its wholly-owned subsidiary, BookLink to AOL for
$30,000,000 of AOL common stock. The Company closed the transaction on December
23, 1994 by exchanging all of the outstanding shares of BookLink common stock
for 1,420,000 shares (adjusted to reflect a 2-for-1 stock split) of AOL common
stock. Discontinued operations reflect a loss from BookLink operations and a
gain on disposal of $24,143,000, net of income taxes of $13,144,000, in fiscal
1995. The market value of the AOL stock on the date of closing was $38,163,000,
and deferred income taxes of $13,144,000 were provided as part of the
transaction.
The Company's consolidated financial statements for fiscal year 1995 reflect the
results of BookLink as discontinued operations. Accordingly, the net results of
BookLink's operations have been reflected as loss from discontinued operations
in the Consolidated Statements of Operations. BookLink's fiscal 1995 results of
operations included sales, loss before income taxes and income tax benefit of
$100,000, $(1,149,000) and $459,000, respectively.
36
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT'D.)
(6) Property and Equipment
Property and equipment consists of the following:
July 31,
1997 1996
---- ----
Machinery and equipment $10,609,000 $ 8,344,000
Software 3,693,000 2,871,000
Office furniture and equipment 2,485,000 1,592,000
Leasehold improvements 2,646,000 953,000
Other equipment 658,000 897,000
----------- -----------
$20,091,000 $14,657,000
=========== ===========
(7) Acquisition of Pacific Link
On October 24, 1996, the Company's fulfillment services subsidiary, SalesLink,
acquired Pacific Link, a company specializing in high technology product and
literature fulfillment and turnkey outsourcing. The consideration for the
acquisition was $17 million, $8.5 million of which was paid in cash at the date
of acquisition, $1 million of which SalesLink paid (along with interest at the
annual rate of 7%) in February 1997, and the remaining $7.5 million of which was
financed through a seller's note (see note 13). The sources of the cash portion
of the purchase price were $3 million from corporate funds provided by the
Company to SalesLink for the acquisition and $5.5 million from a bank loan (see
note 13). Additional purchase price of up to $1 million could be paid if
certain future performance goals are met.
The acquisition of Pacific Link has been accounted for using the purchase method
of accounting, and, accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based upon their fair values at the
date of acquisition. The excess of the purchase price over the fair values of
the net assets acquired was $17.2 million and has been recorded as goodwill,
which will be amortized on a straight line basis over 15 years.
The net purchase price was allocated as follows:
Working capital $(1,204,000)
Property, plant and equipment 713,000
Other assets 385,000
Goodwill 17,229,000
Other long-term liabilities (123,000)
-----------
Purchase price $17,000,000
===========
The following unaudited pro forma financial information presents the
consolidated operations of the Company and Pacific Link as if the acquisition
had occurred as of the beginning of fiscal 1997 and 1996, after giving effect to
certain adjustments including increased amortization of goodwill related to the
acquisition, increased interest expense related to long-term debt issued in
conjunction with the acquisition and decreased compensation for certain officers
to reflect contractual post-acquisition compensation. The unaudited pro forma
financial information are provided for informational purposes only and should
not be construed to be indicative of the Company's consolidated results of
operations had the acquisition been consummated on the dates assumed and do not
project the Company's results of operations for any future period:
Year ended July 31,
1997 1996
------------ -----------
Net revenues $ 77,274,000 $45,125,000
============ ===========
Net income (loss) $(22,153,000) $13,699,000
============ ===========
Primary earnings (loss) per share $ (2.35) $ 1.41
============ ===========
(8) CMG @Ventures Investments
During fiscal year 1995, the Company, through its subsidiary limited
partnership, CMG @Ventures, L.P. , formed and incorporated Lycos, capitalizing
it with an initial $1 million. CMG @Ventures L.P. then purchased, for $500,000
and 20% of Lycos, Inc. stock, an exclusive license to the Lycos software
technology from Carnegie Mellon University. During fiscal year 1995, CMG
@Ventures L.P. also invested $1,750,000 for an initial 44% ownership interest in
FreeMark Communications, Inc. (FreeMark) and $1,256,000 for a 19.8% interest in
Ikonic Interactive, Inc. (Ikonic). Beginning with its initial investments, the
Company began accounting for FreeMark under the equity method of accounting and
Ikonic under the cost method of accounting. Also, during fiscal year 1995, CMG
@Ventures acquired NetCarta for $773,000. The acquisition of NetCarta was
primarily funded through term notes and was accounted for using the purchase
method. Accordingly, the purchase price was allocated to assets acquired and
liabilities assumed based on their estimated fair values.
During fiscal year 1996, the Company, through CMG @Ventures L.P., invested $19.2
million in eight companies, including initial investments of $2 million for a
45% interest in Vicinity, $750,000 for a 46% interest in TeleT Communications
LLC (TeleT), and $1 million for an initial 45% interest in GeoCities. Fiscal
1996 investments also included start-up funding of $4 million for Blaxxun,
additional funding of $4.5 million to NetCarta and $1 million to Lycos, and
participation in follow-on round funding for Ikonic, FreeMark and GeoCities.
With its initial investments in Vicinity, TeleT and GeoCities in fiscal 1996,
the Company began accounting for such investments under the equity method of
accounting. In December 1995, CMG @Ventures L.P. invested $1,750,000 to
increase its ownership in Ikonic from 19.8% to 37%. With its increase in
ownership in Ikonic, the Company began using the equity method of accounting,
rather than the cost method, for its investment in Ikonic. CMG@Ventures' $1
million follow-on investment in GeoCities in June 1996 increased the Company's
ownership to 61%. Also in June 1996, FreeMark successfully completed a $5.1
million equity financing. Pursuant to this transaction, CMG@Ventures L.P.
invested an
37
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT'D.)
additional $3.2 million in FreeMark, including the conversion of $1,670,000 of
notes which had been funded to FreeMark during fiscal 1996, and increased its
ownership from 44% to 54%. Beginning in June 1996, when controlling interests
were acquired, the Company, accordingly, began consolidating the operating
results of GeoCities and FreeMark in the Company's consolidated operating
results.
CMG @Ventures L.P. invested a total of $10.8 million in five companies during
fiscal year 1997, including an initial investment of $2 million for a 46%
ownership interest in Parable LLC (Parable), $1.2 million for 153,192 additional
shares of Lycos, $3.8 million for additional funding of NetCarta, and follow-on
investments of $1.8 million in Vicinity and $2 million in GeoCities. With its
initial investment in fiscal 1997, the Company began accounting for its
investment in Parable under the equity method of accounting. The Company's
investment in Vicinity was made during the second quarter as part of a $5
million equity round, including outside investors, and reduced the Company's
ownership in Vicinity from 47% to 45%. With the repurchase of certain
outstanding shares by Vicinity during the fourth quarter of fiscal 1997, CMG
@Ventures L.P.'s ownership increased to 53% and the Company began accounting for
its investment in Vicinity on the consolidation method of accounting rather than
the equity method. The follow-on investment in GeoCities was made in January
1997 as part of a $9 million equity round, including outside investors, and
reduced the Company's ownership in GeoCities from 61% to 41%. This reduction in
ownership caused the Company to change its method of accounting for its
investment in GeoCities to the equity method rather than the consolidation
method beginning in January 1997. In December 1996, the Company's consolidated
subsidiary, FreeMark, suspended operations of its free email service. Prior to
the reduction in the Company's ownership in GeoCities and the suspension of
operations at FreeMark, the operating results of GeoCities and FreeMark were
consolidated within the operating results of the Company's investment and
development segment.
The Company's investments in Parable, GeoCities, Vicinity, NetCarta, FreeMark,
Blaxxun, Ikonic, TeleT and Vicinity were made through its majority-owned limited
partnership, CMG @Ventures L.P and its wholly-owned subsidiary, CMG @Ventures,
Inc. The Company owns 100% of the capital interest and has all voting rights,
and is entitled to 77.5% of the net capital gains, as defined, of these
investments. The remaining 22.5% interest in the net capital gains on these
investments are attributed to profit partners, including the President and Chief
Executive Officer and the Chief Financial Officer of the Company. The Company
is responsible for all operating expenses of CMG @Ventures L.P. and CMG
@Ventures, Inc. CMG @Ventures L.P.'s interest in Lycos (consisting of 7,389,248
shares of common stock at July 31, 1997) is subject to further reduction because
CMG @Ventures L.P. is obligated, as of July 31, 1997, to sell to Lycos up to a
total of 780,804 shares of common stock of Lycos, as necessary, to provide for
shares issuable upon exercise of options granted by Lycos under its 1995 stock
option plan. Of these 780,804 shares, CMG @Ventures L.P. is obligated to sell
522,680 shares to Lycos at a price of $0.01 per share and 258,124 shares at
prices ranging from $0.29 to $9.60 per share.
During fiscal 1997, the Company completed its minimum commitment of $35 million
in capital to CMG @Ventures L.P., and formed a new limited liability company
subsidiary, CMG @Ventures II LLC, to continue the Company's model of providing
intellectual and financial capital to companies seeking to further the
commercialization of the Internet and other interactive media through the
development and application of direct marketing products and services. The
Company owns 100% of the capital interest and has all voting rights, and is
entitled to 80% of the net capital gains, as defined, of the investments made by
CMG @Ventures II LLC. The remaining 20% interest in the net capital gains on
these investments are attributed to profit partners, including the President and
Chief Executive Officer and the Chief Financial Officer of the Company. CMG
@Ventures II LLC invested a total of $8.3 million in five companies during
fiscal year 1997, including initial investments of $1.3 million for a 26%
ownership interest in Silknet Software, Inc. (Silknet), $2 million for a 15%
interest in KOZ, inc., $1 million for a 9% interest in Softway Systems, Inc.
(Softway Systems), $1 million for a 15% interest in Sage Enterprises, Inc. (Sage
Enterprises), $2.3 million for a 31% interest in Reel.com LLC (Reel.com), and
$743,000 for a follow on investment in Silknet. The follow on investment in
Silknet was part of a $5 million equity round, including outside investors, and
reduced the Company's ownership in Silknet from 26% to 23%. With its initial
investments in fiscal 1997, the Company began accounting for its investments in
KOZ, inc., Softway Systems, and Sage Enterprises under the cost method of
accounting, and its investments in Silknet and Reel.com under the equity method.
The acquisition accounting and valuation for the Company's or its subsidiaries'
investments in Parable and Silknet in fiscal year 1997, and FreeMark, NetCarta,
GeoCities, Point, and Vicinity in fiscal 1996, resulted in totals of $1,312,000
and $2,691,000 in fiscal years 1997 and 1996, respectively, being identified as
in-process research and development, which was expensed because technological
feasibility had not been reached at the dates the investments were made.
(9) Transactions in Stock of Subsidiaries
In October 1995, the Company's majority-owned subsidiary, Lycos acquired 100% of
Point, a company involved in reviewing and ranking sites on the Internet, in
exchange for a minority interest in Lycos. The former owner of Point also
received an option to purchase 343,000 additional shares of Lycos at an exercise
price of $2.00 per share. The option has a ten-year term and became fully
vested at the closing of Lycos' initial public offering in April 1996. As a
result of this transaction, the Company's ownership interest in Lycos was
reduced from approximately 80% to approximately 76% and the Company's net equity
in Lycos increased by $190,000, net of $132,000 of deferred income taxes. The
increase has been reflected as an equity transaction included in "Effect of
subsidiaries' equity transactions" in the accompanying Consolidated Statements
of Stockholders' Equity.
38
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT'D.)
In April 1996, Lycos sold 3,135,000 shares of its previously unissued common
stock in an initial public offering at $16 per share, receiving net proceeds of
$46,021,000. With this transaction, the Company's ownership interest in Lycos
was reduced from approximately 76%, to approximately 58%, and the Company's net
investment in Lycos increased from approximately $1 million to approximately
$20.6 million, resulting in the recognition of a pre-tax gain of $19,575,000.
This gain reflects the increased book value of the Company's investment in Lycos
resulting from the net proceeds received by Lycos from the sale of its stock.
The Company provided $8,026,000 for deferred income taxes resulting from the
gain.
On July 31, 1996, another of the Company's subsidiaries, Blaxxun, successfully
completed an equity financing, issuing 400,000 shares of preferred stock to an
outside party in exchange for $2,000,000. With this transaction, the Company's
net equity in Blaxxun increased from approximately $780,000 to approximately
$2,082,000. Since at the time of the transaction Blaxxun was engaged principally
in research and development, the resulting $768,000 increase, net of $534,000 of
deferred income taxes, has been reflected as an equity transaction included in
"Effect of subsidiaries' equity transactions" in the accompanying Consolidated
Statements of Stockholders' Equity.
Lycos develops and provides on-line guides to the Internet's World Wide Web,
enabling users of the Internet to identify, select, and access the resources and
information of interest to them. Blaxxun develops three dimensional interactive
software. The above gain on issuance of stock by subsidiary and effects of
subsidiaries' equity transactions are reported net of the 22.5% interest
attributed to CMG @Ventures' profit partners (see note 8).
(10) Sale of Investment in TeleT Communications
On September 19, 1996, the Company sold its equity interest in TeleT to
Premiere for $550,000 in cash and 320,833 shares of Premiere stock. The
Company, through CMG@Ventures, acquired its 46% equity interest in TeleT for
$750,000 during April 1996. As a result of the sale, the Company recognized a
pre-tax gain of $3,616,000, reported net of the 22.5% interest attributed to
CMG@Ventures' profit partners, reflected as "Gain on sale of investment in TeleT
Communications" in the accompanying Consolidated Statements of Operations. Of
the Premiere shares received, 37,500 are to be held in escrow for a six-year
period, subject to certain customary conditions, and have been classified in
other assets with a carrying value of $450,000. The remaining shares were
received subject to an average one-year restriction on transferability, and have
been classified in available-for-sale securities, with a carrying value at the
time of acquisition of $4,080,000, net of market value discount to reflect the
restriction on transferability.
(11) Sale of NetCarta Corporation
On December 9, 1996, Microsoft Corporation (Microsoft) entered into a definitive
agreement to acquire one of the Company's subsidiaries, NetCarta, for
$20,000,000 in cash, subject to certain conditions. On January 31, 1997, the
sale of NetCarta was finalized, with the Company receiving proceeds of
$18,468,000, net of proceeds to former NetCarta employees who exercised employee
stock options. As a result of the sale, the Company recognized a pretax gain of
$15,111,000, reported net of the 22.5% interest attributed to CMG@Ventures'
profit partners, reflected as "Gain on sale of NetCarta Corporation" in the
accompanying Consolidated Statements of Operations. Of the proceeds received,
$2,000,000 included in "Cash and cash equivalents" at July 31, 1997, is
currently held on the Company's behalf by an outside escrow agent, to secure
certain indemnification obligations of the Company and CMG @Ventures related to
the sale of NetCarta, and is restricted for this purpose through February 1998.
(12) Accrued Expenses
Accrued expenses consist of the following:
July 31,
1997 1996
---- ----
Accrued promotional expenses $ 4,178,000 $ 300,000
Accrued compensation and benefits 2,455,000 1,538,000
Accrued customer deposits 2,204,000 431,000
Accrued professional services 2,121,000 763,000
Accrued list owners' commissions 1,342,000 1,168,000
Other 6,040,000 2,045,000
----------- ----------
$18,340,000 $6,245,000
=========== ==========
(13) Borrowing Arrangements
Notes payable at July 31, 1997 consisted of $10 million in collateralized
corporate borrowings, $10 million borrowed under the Company's corporate line of
credit, and $2,494,000 owed by SalesLink under its line of credit. The
Company's $10 million collateralized borrowing is secured by 784,314 of the
Company's common shares of its subsidiary, Lycos, with interest payable
quarterly at a rate of LIBOR plus 1.75% (7.52% effective rate at July 31, 1997),
and is payable in full on January 17, 1998. Under this agreement, the Company
could become subject to additional collateral requirements under certain
circumstances. As of February 24, 1997, the Company had entered into an
interest rate swap arrangement with the lender providing the collateralized
financing. The agreement effectively fixed the interest rate on this debt for a
notional principal amount of $10 million at a rate of 7.52% through January 17,
1998. SalesLink's borrowings were made under its $4,500,000 revolving credit
note agreement with a bank. The revolving credit note is payable in full on
October 1, 1998 and provides for the option of interest at the London Interbank
Offered Rate (LIBOR) or the higher of 1) the rate announced by First National
Bank of Boston as its base rate (Prime), or 2) one-half percent above the
Federal Funds Effective Rate plus, in any case, an applicable margin based on
SalesLink's leverage ratio (7.66% effective rate in place at July 31, 1997).
The Company's $10 million
39
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT'D.)
corporate line of credit with the same bank provides for the option of interest
at LIBOR plus 2.5% or Prime plus 0.5% (8.22% effective rate in place at July 31,
1997), provides for the payment of commitment fees equal to 0.5% of unused
portions of the line balance, and expires on May 14, 1998. Borrowings under the
corporate line may not exceed 50% of the after-tax market value of the Company's
unrestricted shares of Lycos. Additionally, the Company's line of credit
facilities are subject to normal banking terms and conditions which do not
materially restrict the Company's activities, including financial covenants
requiring the Company and SalesLink to maintain certain levels of net worth as
well as limitations on indebtedness and capital expenditures.
Long-term debt at July 31, 1997 consisted of $12.8 million borrowed to finance
the Company's acquisition of Pacific Link in October 1996 (see note 7),
including $7.3 million outstanding on a seller's note and $5.5 million
outstanding on a bank note. The seller's note is supported by a bank letter of
credit, bears interest at 7% per year and is payable monthly in arrears over a
term of 30 months beginning July 31, 1997. The bank loan provides for the
option of interest at the London Interbank Offered Rate (LIBOR) or the higher of
1) the rate announced by First National Bank of Boston as its base rate, or 2)
one-half percent above the Federal Funds Effective Rate plus, in any case, an
applicable margin based on SalesLink's leverage ratio (7.66% effective rate in
place at July 31, 1997). The bank loan is repayable in quarterly installments
beginning January 31, 1998 through July 31, 2001, with the remaining balance to
be repaid on October 1, 2001. Maturities of long-term debt for the next five
fiscal years are as follows: 1998, $3,221,000; 1999, $3,567,000; 2000,
$2,983,000; 2001, $2,375,000; and 2002, $625,000.
As of February 24, 1997, the Company had entered into an interest rate swap
agreement with the lender providing SalesLink's $2.5 million line of credit
borrowing and $5.5 million long term bank note. The agreement effectively set a
maximum LIBOR interest rate base on debt for a notional principal amount of $8
million at a rate of 8.5% through February 26, 2002. This swap was purchased to
provide protection to the Company from exposure to higher interest rates in the
future (above 8.5%), and requires additional payments by the Company should
LIBOR fall below 5% or should LIBOR be above 6%, but below 8.5%. At July 31,
1997, based on prices quoted from the bank, interest rate hedge agreement values
would indicate an obligation of $85,000 to terminate this contract.
(14) Commitments
The Company leases facilities and certain other machinery and equipment under
various noncancelable operating leases expiring through June 2011. Future
minimum lease payments as of July 31, 1997 are as follows:
Year ending July 31:
1998 $11,664,000
1999 10,033,000
2000 4,996,000
2001 1,823,000
2002 1,722,000
Thereafter 11,430,000
-----------
$41,668,000
===========
Total rent and equipment lease expense charged to continuing operations was
$8,184,000, $2,112,000 and $1,093,000 for the years ended July 31, 1997, 1996
and 1995, respectively.
In March 1997, Lycos renewed its one year "Premier Provider" agreement (the
Agreement) with Netscape Communications Corporation (Netscape) which commenced
in May 1997 for an additional one year term, pursuant to which Lycos was
designated as one of four "Premier Providers" of search and navigation services
accessible from the "Net Search" button on the Netscape browser. Lycos is
obligated to make minimum payments of $4.7 million under the terms of the
Agreement. Lycos recognizes the cost of the Agreement ratably over its term.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position of the Company.
(15) Stockholders' Equity
On February 2, 1996 and March 17, 1995, the Company effected 2-for-1 and 3-for-2
common stock splits, respectively, in the form of stock dividends. Accordingly,
all data shown in the accompanying consolidated financial statements has been
retroactively adjusted to reflect these events.
During the first quarter of fiscal 1997, the Company's Board of Directors
authorized the Company to buy back up to 500,000 shares of its common stock.
During the first and second quarters of fiscal 1997, 100,000 shares were
repurchased at an average cost of $9.84 per share, for a total of $984,000.
Pursuant to a stock purchase agreement entered into as of December 10, 1996, the
Company sold 470,477 shares of its common stock (the "CMG Shares"), including
the 100,000 treasury shares acquired in fiscal 1997, to Microsoft on January 31,
1997, representing 4.9% of CMG's total outstanding shares of common stock
following the sale. The CMG Shares were priced at $14.50 per share, with
proceeds to CMG totaling $6,821,917. The CMG Shares purchased by Microsoft are
not registered under the Securities Act of 1933 and carry a one year prohibition
on transfer or sale. Under the terms of the agreement and following the
40
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT'D.)
one-year period, Microsoft is entitled to two demand registration rights as well
as piggy back registration rights. Additionally, Microsoft is subject to "stand
still" provisions, whereby it is prohibited for a period of three years, without
the consent of CMG, (i) from increasing its ownership in CMG above ten percent
of CMG's outstanding shares, (ii) from exercising any control or influence over
CMG, and (iii) from entering into any voting agreement with respect to its CMG
Shares.
On May 28, 1997, the Company announced a new venture dividend program in
connection with the Company's CMG @Ventures Internet investments. Subject to
restrictions on transfer, the program envisions that it may distribute up to 10%
of the stock held by CMG @Ventures following an initial public offering by any
one of the companies in which it holds an investment. The Company may also
announce from time to time other stock dividends in connection with its Internet
investments. Such dividends are subject to approval of the Company's Board of
Directors and subject to holding requirements by regulatory agencies such as the
Securities and Exchange Commission. The program may be altered or discontinued
at the discretion of the Company. The Company also announced its first dividend
under the new program, of one share of Lycos common stock for every sixteen
shares of the Company's common stock held by stockholders of record on June 5,
1997. The Company distributed 603,000 shares of Lycos common stock, with a
market value of $11,008,000 at the date of distribution, to the Company's
stockholders on July 31, 1997 as payment of this dividend. The distribution
resulted in a pre-tax gain of $8,413,000 in fiscal 1997 reflected as "Gain on
dividend distribution of Lycos, Inc. common stock" in the accompanying
Consolidated Statements of Operations.
(16) Stock Option Plans
The Company has two stock option plans currently in effect: the 1986 Stock
Option Plan (the "1986 Plan") and the 1995 Stock Option Plan For Non-Employee
Directors (the "Directors' Plan"). The Directors' Plan was adopted by the Board
of Directors on May 31, 1995, and was approved by the stockholders of the
Company at the 1995 Annual Meeting of Stockholders. Options under both plans
are granted at fair market value on the date of the grant.
Options granted under the 1986 Plan are generally exercisable in equal
cumulative installments over a four-to-ten year period beginning one year after
the date of grant. Options under the Directors' Plan become exercisable in five
equal annual installments beginning immediately after each Annual Stockholders
Meeting following grant. Outstanding options under both Plans at July 31, 1997,
expire through 2007.
Under the 1986 Plan, non-qualified stock options or incentive stock options may
be granted to the Company's or its subsidiaries' employees, as defined. The
Board of Directors administers this plan, selects the individuals to whom
options will be granted, and determines the number of shares and exercise price
of each option. 1,500,000 shares of the Company's common stock were initially
reserved for issuance under this plan. During fiscal 1994, the Company's Board
of Directors reserved 1,533,024 additional shares of common stock for issuance
upon the exercise of options. The number of shares reserved for issuance
pursuant to the 1986 Plan is reduced by the number of shares issued under the
Company's 1995 Employee Stock Purchase Plan (see note 17).
Pursuant to the Directors' Plan, 282,000 shares of the Company's common stock
were initially reserved. Options for 47,000 shares are to be granted to each
Director who is neither an officer or full time employee of the Company, nor an
affiliate of an institutional investor which owns shares of common stock of the
Company. Options were granted to existing Directors with five years of
continuous service at the date the Plan was adopted, and are granted to
subsequent Directors at the time of election to the Board.
The status of the plans during the three fiscal years ended July 31, 1997, was
as follows:
1997 1996
-------------------------------- -----------------------------
Weighted Weighted
Number of average Number of average
shares exercise price shares exercise price
------ -------------- ------- --------------
Options outstanding, beginning of year 1,021,858 $ 7.73 1,203,074 $ 3.27
Granted 169,050 15.86 228,456 19.74
Exercised (108,627) 8.33 (320,842) 0.77
Canceled (114,591) 20.29 (88,830) 3.32
--------- ---------
Options outstanding, end of year 967,690 $ 7.59 1,021,858 $ 7.73
========= ====== ========= ========
Options exercisable, end of year 369,886 $ 5.95 142,896 $ 4.95
========= ====== ========= ========
Options available for grant, end of 890,640 956,618
year ========= =========
1995
---------------------------------
Weighted
Number of average exercise
shares price
------ -----
Options outstanding, beginning of year 1,141,956 $ 1.85
Granted 600,338 5.37
Exercised (65,700) 0.72
Canceled (473,520) 2.87
---------
Options outstanding, end of year 1,203,074 $ 3.27
========= ======
Options exercisable, end of year 285,966 $ 0.56
========= ======
Options available for grant, end of 1,104,568
year =========
The following table summarizes information about the Company's stock options
outstanding at July 31, 1997:
Options Outstanding Options Exercisable
---------------------------------------------------------------------------------------------
Weighted average Weighted average Weighted
Number of remaining exercise Number average
Range of exercise prices shares contractual life price shares exercise
------------------------ --------- ---------------- --------- -------- ----------
$ 1.54 - $ 2.67 329,282 5.8 years $ 2.57 116,918 $ 2.41
$ 2.96 - $ 3.67 210,535 2.2 $ 3.63 136,856 $ 3.63
$ 6.13 - $10.13 186,017 5.5 $ 8.07 80,200 $ 8.07
$12.00 - $16.00 203,800 5.4 $14.52 21,319 $13.22
$24.50 - $35.63 38,056 3.7 $33.55 14,593 $33.79
------- -------
$ 1.54 - $35.63 967,690 4.8 years $ 7.59 369,886 $ 5.95
================ ======= ========== ====== ======= ======
41
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT'D.)
SFAS No. 123, "Accounting for Stock-Based Compensation", sets forth a fair-value
based method of recognizing stock-based compensation expense. As permitted by
SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account
for its stock-based compensation plans. Had compensation cost for awards in
fiscal 1997 and 1996 under the Company's stock-based compensation plans been
determined based on the fair value method set forth under SFAS No. 123, the pro
forma effect on the Company's net income (loss) and earnings (loss) per share
would have been as follows:
Year ended July 31,
1997 1996
-------------- ------------
Net income (loss):
As reported $(22,027,000) $14,322,000
============ ===========
Pro forma $(23,907,000) $13,666,000
============ ===========
Primary earnings (loss) per share:
As reported $ (2.34) $ 1.48
============ ===========
Pro forma $ (2.54) $ 1.41
============ ===========
The fair value of each stock option grant has been estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions for fiscal 1997 and 1996, respectively: volatility of 66.69%
and 80.30%; risk-free interest rate of 6.19% and 5.81%; expected life of options
of 6.2 years and 4.0 years; and 0% dividend yield for both years. The weighted
average fair value per share of options granted during fiscal 1997 and 1996 was
$10.55 and $10.11, respectively.
The effect of applying SFAS No. 123 as shown in the above pro forma disclosure
is not likely to be representative of the pro forma effect on reported income or
loss for future years. SFAS No. 123 does not apply to awards made prior to
fiscal 1996 and additional awards in future years are anticipated.
(17) Employee Stock Purchase Plan
On October 4, 1994, the Board of Directors of the Company adopted the 1995
Employee Stock Purchase Plan (the Plan). The purpose of the Plan is to provide a
method whereby all eligible employees of the Company and its subsidiaries may
acquire a proprietary interest in the Company through the purchase of shares of
common stock. Under the Plan, employees may purchase the Company's common stock
through payroll deductions.
At the beginning of each of the Company's fiscal quarters, commencing with
February 1, 1995, employees are granted an option to purchase shares of the
Company's common stock at an option price equal to 85% of the fair market value
of the Company's common stock on either the first business day or last business
day of the applicable quarterly period, whichever is lower.
Employees purchased 11,519 shares, 8,324 shares and 7,374 shares of common stock
of the Company under the Plan during fiscal 1997, 1996 and 1995, respectively.
(18) Income Taxes
The provision (benefit) for income taxes from continuing operations for the
years ended July 31, consists of the following:
Current Deferred Total
------------- ------------ -------------
July 31, 1995:
Federal $ 2,569,000 $ (70,000) $ 2,499,000
State 367,000 (22,000) 345,000
----------- ---------- -----------
$ 2,936,000 $ (92,000) $ 2,844,000
=========== ========== ===========
July 31, 1996:
Federal $ 7,758,000 $6,448,000 $14,206,000
State 632,000 1,835,000 2,467,000
----------- ---------- -----------
$ 8,390,000 $8,283,000 $16,673,000
=========== ========== ===========
July 31, 1997:
Federal $(3,114,000) $ (849,000) $(3,963,000)
State 1,023,000 (22,000) 1,001,000
----------- ---------- -----------
$(2,091,000) $ (871,000) $(2,962,000)
=========== ========== ===========
Excluded from the tax benefit in fiscal 1997 but included in deferred tax
liabilities and assets are $593,000 provided for unrealized holding gains from
the increase in the market value of available-for-sale securities and $260,000
related to deferred tax assets acquired with the acquisition of Pacific Link,
respectively. Excluded from the tax provision in fiscal 1996 but included in
deferred income tax liabilities are $666,000 provided for the effect of
subsidiaries' equity transactions and $78,000 related to the difference in bases
of assets acquired. Excluded from the tax provision in fiscal 1995 but included
in deferred income tax liabilities were $10,810,000 provided for unrealized
holding gains from the increase in the market value of available-for-sale
securities and $9,298,000 owed in conjunction with the disposal of BookLink.
42
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT'D.)
Deferred income tax assets and liabilities have been classified on the
accompanying Consolidated Balance Sheets in accordance with the nature of the
item giving rise to the temporary differences. The components of deferred tax
assets and liabilities are as follows:
July 31, 1997 July 31, 1996
---------------------------------------- -------------------------------------
Current Non-current Total Current Non-current Total
------------ ------------ ------------ --------- ------------ ------------
Deferred tax assets:
Accruals and reserves $1,630,000 $ -- $ 1,630,000 $213,000 $ -- $ 213,000
Income tax basis in excess of financial
basis of investments in subsidiaries and
affiliates -- 6,990,000 6,990,000 -- 3,544,000 3,544,000
Other -- 866,000 866,000 -- 254,000 254,000
---------- ----------- ----------- -------- ----------- -----------
Total gross deferred tax assets 1,630,000 7,856,000 9,486,000 213,000 3,798,000 4,011,000
Less valuation allowance (985,000) (7,716,000) (8,701,000) -- (3,798,000) (3,798,000)
---------- ----------- ----------- -------- ----------- -----------
Net deferred tax assets 645,000 140,000 785,000 213,000 -- 213,000
---------- ----------- ----------- -------- ----------- -----------
Deferred tax liabilities:
Gain on issuance of stock by subsidiary -- (7,340,000) (7,340,000) -- (8,042,000) (8,042,000)
Effect of subsidiaries' equity
transactions -- (654,000) (654,000) -- (666,000) (666,000)
Differences in tax depreciation and
amortization -- (570,000) (570,000) -- (336,000) (336,000)
Financial basis in excess of tax basis of
available-for-sale securities (534,000) -- (534,000) -- -- --
Other -- (57,000) (57,000) -- (78,000) (78,000)
--------- ----------- ----------- --------- ----------- -----------
Total gross deferred tax liabilities (534,000) (8,621,000) (9,155,000) -- (9,122,000) (9,122,000)
--------- ----------- ----------- --------- ----------- -----------
Net deferred tax asset (liability) $ 111,000 $(8,481,000) $(8,370,000) $213,000 $(9,122,000) $(8,909,000)
========= =========== =========== ========= =========== ===========
The net change in the total valuation allowance for the year ended July 31, 1997
was an increase of $4,903,000. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Based upon the
level of historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences, net of the existing valuation allowance at July
31, 1997.
The following table reconciles the income tax expense (benefit) based on the
federal statutory income tax rate to the Company's actual income tax expense
(benefit):
July 31,
1997 1996 1995
------------- ------------ -----------
Provision (benefit) for income taxes at federal statutory rate $(8,746,000) $10,848,000 $2,586,000
Difference in income tax expense (benefit) resulting from:
Non-deductible goodwill amortization 311,000 129,000 5,000
Valuation allowance 4,903,000 3,798,000 --
State income taxes, net of federal benefit 651,000 1,604,000 228,000
Other (81,000) 294,000 25,000
----------- ----------- ----------
Actual income tax expense (benefit) $(2,962,000) $16,673,000 $2,844,000
=========== =========== ==========
43
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT'D.)
(19) Selected Quarterly Financial Information (unaudited)
The following table sets forth selected quarterly financial and stock price
information for the years ended July 31, 1997 and 1996. The operating results
for any given quarter are not necessarily indicative of results for any future
period. The Company's common stock is traded on the NASDAQ National Market
System ("NASDAQ/NMS") under the symbol CMGI. Included below are the high and
low sales prices (adjusted for a 2-for-1 stock split effected on February 2,
1996) during each quarterly period for the shares of common stock as reported by
NASDAQ/NMS.
(in thousands, except per share data)
Fiscal 1997 Quarter ended Fiscal 1996 Quarter ended
-------------------------------------- --------------------------------------
Oct. 31 Jan. 31 Apr. 30 Jul. 31 Oct. 31 Jan. 31 Apr. 30 Jul 31
-------- -------- -------- -------- -------- -------- -------- --------
Net revenues $10,640 $18,897 $19,010 $22,060 $5,835 $6,105 $7,484 $9,061
Cost of revenues 5,366 11,286 11,551 13,949 3,593 3,827 4,988 5,501
Research and development expenses 4,965 6,732 6,466 6,895 500 1,449 1,751 3,271
In-process research and development expenses 1,312 - - - - 452 - 2,239
Selling, general and administrative expenses 13,446 13,688 12,749 15,311 2,776 3,643 5,548 9,521
------- ------ ------ ------ ------- ------ ------ ------
Operating loss (14,449) (12,809) (11,756) (14,095) (1,034) (3,266) (4,803) (11,471)
Interest income, net 924 260 328 237 239 829 474 1,149
Gain on sale of available-for-sale securities - - - - 30,049 - - -
Gain on sale of investment in TeleT 3,616 - - - - - - -
Gain on sale of NetCarta Corporation - 15,111 - - - - - -
Gain on distribution of Lycos, Inc. common stock - - - 8,413 - - - -
Gain on issuance of stock by subsidiary - - - - - - 19,575 -
Equity in losses of affiliates (1,008) (1,081) (1,924) (1,543) (270) (751) (931) (963)
Minority interest 2,422 1,025 492 848 43 257 517 1,352
Income tax benefit (expense) 1,098 (1,840) 2,584 1,120 (10,849) 286 (7,418) 1,308
------- ------ -------- ------- ------- ------- ------- -------
Net income (loss) $(7,397) $ 666 $(10,276) $(5,020) $18,178 $(2,645) $7,414 $(8,625)
======= ====== ======== ======= ======= ======= ====== =======
Market Price
High $15.00 $17.63 $15.88 $16.88 $18.00 $50.25 $47.25 $33.00
======= ====== ======== ======= ======= ======= ====== =======
Low $9.13 $15.00 $11.50 $12.88 $9.63 $17.38 $26.13 $12.25
======= ====== ======== ======= ======= ======= ====== =======
Note: Quarterly amounts reported above vary slightly from the amounts
previously reported on Forms 10Q due to the reclassification of costs
associated with Lycos' Premier Provider agreement with Netscape (see note 14),
which were previously included in cost of revenues, to selling expenses .
Amounts reclassified were $1,250,000, $1,250,000, and $972,000 for the fiscal
year 1997 quarters ended October 31, January 31, and April 30, respectively,
and $278,000 for the fiscal 1996 quarter ended April 30. This reclassification
conforms the Company's presentation to industry practice, and has no effect on
previously reported net income or earnings per share.
(20) Subsequent Events (unaudited)
Subsequent to July 31, 1997, the Company's wholly-owned subsidiary, Engage
Technologies, sold certain rights to its Engage.Fusion/TM/ and Engage.Discover
/TM/ products to Red Brick Systems, Inc. (Red Brick) for cash and Red Brick
common stock valued at approximately $11.5 million. During the first quarter of
fiscal 1998, the Company also sold 224,795 shares of Premiere common stock for
total proceeds of $7.6 million. Also, subsequent to July 31, 1997, CMG @Ventures
L.P. and CMG@Ventures II LLC invested a total of $3,016,000 in new and
previously existing Internet investments.
44
Independent Auditors' Report
The Board of Directors and Stockholders
CMG Information Services, Inc.:
We have audited the accompanying Consolidated Balance Sheets of CMG Information
Services, Inc. and subsidiaries as of July 31, 1997 and 1996, 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 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CMG
Information Services, Inc. and subsidiaries as of July 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the years in
three-year period ended July 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Boston, Massachusetts
September 19, 1997
Exhibit 21
CMG INFORMATION SERVICES, INC.
Subsidiaries of the Registrant
1. SalesLink Corporation, a Massachusetts corporation.
2. CMG Securities Corporation, a Massachusetts corporation.
3. CMG @Ventures, Inc., a Delaware corporation.
4. CMG @Ventures Capital Corporation, a Delaware corporation.
5. CMG @Ventures, L.P., a Delaware limited partnership.
6. Lycos, Inc., a Delaware corporation
7. Engage Technologies, Inc., a Delaware corporation (formerly CMG Direct
Interactive, Inc.).
8. Blaxxun Interactive, Inc., a Delaware corporation (formerly Black Sun
Interactive, Inc.).
9. Planet Direct Corporation, a Delaware corporation.
10. ADSmart Corporation, a Delaware corporation.
11. InfoMation Publishing Corporation, a Delaware corporation.
12. Pacific Link Corporation, a California corporation.
13. CMG Direct Corporation, a Delaware corporation.
14. NaviSite Internet Services Corporation, a Delaware corporation.
15. Vicinity Corporation, a California corporation.
16. CMG @Ventures II, LLC, a Delaware limited liability company.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
CMG Information Services, Inc.:
We consent to the incorporation by reference in the registration
statements of CMG Information Services, Inc. on Form S-8 (File No. 33-86742 and
File No. 33-06745) of our reports dated September 19, 1997, relating to the
Consolidated Balance Sheets of CMG Information Services, Inc. and subsidiaries
as of July 31, 1997 and 1996, and the related Consolidated Statements of
Operations, Stockholders' Equity and Cash Flows and related schedule for each of
the years of the three-year period ended July 31, 1997, which reports appear in
the July 31, 1997 annual report on Form 10-K of CMG Information Services, Inc.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Boston, Massachusetts
October 28, 1997
5
1,000
12-MOS
JUL-31-1997
AUG-01-1996
JUL-31-1997
59,762
5,945
19,869
1,083
0
106,691
20,091
8,947
148,354
68,137
0
0
0
97
29,351
148,354
70,607
70,607
42,152
42,152
81,564
0
(1,749)
(24,989)
(2,962)
(22,027)
0
0
0
(22,027)
(2.34)
(2.34)
