<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1999
REGISTRATION NO. 333-76995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
YAHOO! INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 7373 77-0398689
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
3420 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
(408) 731-3300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
GARY VALENZUELA
SENIOR VICE PRESIDENT, FINANCE AND ADMINISTRATION, AND CHIEF FINANCIAL OFFICER
3420 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
(408) 731-3300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
JOSHUA L. GREEN RICHARD A. FINK
STEVEN J. TONSFELDT GREG T. WILLIAMS
C. KEITH MOSLEY JOSEPH H. CHI
VENTURE LAW GROUP BROBECK PHLEGER & HARRISON LLP
A PROFESSIONAL CORPORATION 38 TECHNOLOGY DRIVE
2800 SAND HILL ROAD IRVINE, CALIFORNIA 92618
MENLO PARK, CALIFORNIA 94025
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the merger described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
- -------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- -------------
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
April 28, 1999
Dear GeoCities Stockholder:
I am pleased to forward this proxy statement/prospectus for a special
meeting of the stockholders of GeoCities to be held on May 28, 1999, at 8:00
a.m. local time, at the Marina Beach Marriott Hotel, 4100 Admiralty Way, Marina
del Rey, California.
At the special meeting, you will be asked to vote upon the proposed merger
of GeoCities with Yahoo! Inc. Yahoo! expects to issue approximately 27.4 million
shares of its common stock in connection with the merger. The merger is
described more fully in this proxy statement/prospectus.
The merger must be approved by the holders of a majority of the outstanding
shares of common stock of GeoCities entitled to vote at the special meeting. You
should note that five stockholders of GeoCities who collectively own
approximately 61.3% of GeoCities' outstanding common stock have already agreed
to vote their shares in favor of the merger. Therefore, approval of the merger
is assured. However, you should still carefully read this proxy
statement/prospectus in its entirety and vote your shares as you desire. IN
PARTICULAR, YOU SHOULD REVIEW THE MATTERS REFERRED TO UNDER "RISK FACTORS"
STARTING ON PAGE 6.
Please use this opportunity to take part in the affairs of GeoCities by
voting on the approval of the merger. Whether or not you plan to attend the
meeting, please complete, sign, date and return the accompanying proxy card in
the enclosed self-addressed stamped envelope. Returning the proxy does NOT
deprive you of your right to attend the meeting and to vote your shares in
person. YOUR VOTE IS VERY IMPORTANT.
Sincerely,
[LOGO]
Thomas R. Evans
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION AND THE SECURITIES
BEING OFFERED BY YAHOO! OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated April 28, 1999 and was first mailed
to stockholders on or about April 30, 1999.
<PAGE>
GEOCITIES
4499 GLENCOE AVENUE
MARINA DEL REY, CALIFORNIA 90292
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 1999
---------------------
To the Stockholders of GeoCities:
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of
GeoCities, a Delaware corporation, will be held at 8:00 a.m., local time, on May
28, 1999, at the Marina Beach Marriott Hotel, 4100 Admiralty Way, Marina del
Rey, California for the following purposes:
1. To consider and vote upon a proposal to approve the merger of a
wholly-owned subsidiary of Yahoo! with and into GeoCities whereby, among
other things, each outstanding share of GeoCities capital stock will be
converted into the right to receive 0.6768 shares of Yahoo! common stock, as
more fully described in this proxy statement/prospectus. In addition, each
outstanding option to purchase shares of GeoCities common stock will be
assumed by Yahoo! and converted into an option to purchase shares of Yahoo!
common stock, as more fully described in this proxy statement/prospectus;
2. To grant GeoCities' board of directors discretionary authority to
adjourn, if necessary, the special meeting in order to solicit additional
votes for approval of the merger; and
3. To transact such other business as may properly come before the
special meeting or any adjournment or postponement thereof.
GEOCITIES' BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN YOUR BEST
INTERESTS AND RECOMMENDS THAT YOU VOTE TO APPROVE THE MERGER.
Each of the foregoing items of business is more fully described in this
proxy statement/prospectus, which we urge you to read carefully.
Stockholders of record at the close of business on April 21, 1999, are
entitled to notice of and to vote at the special meeting and any adjournment or
postponement thereof. Approval of the merger will require the affirmative vote
of the holders of GeoCities capital stock representing a majority of the
outstanding shares of GeoCities common stock entitled to vote.
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON. ANY EXECUTED BUT UNMARKED PROXY CARDS WILL BE VOTED FOR
APPROVAL OF THE MERGER. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED AT
THE SPECIAL MEETING. ANY STOCKHOLDER ATTENDING THE SPECIAL MEETING MAY VOTE IN
PERSON EVEN IF SUCH STOCKHOLDER HAS RETURNED A PROXY.
PLEASE DO NOT SEND ANY GEOCITIES STOCK CERTIFICATES IN YOUR PROXY ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
[LOGO]
David C. Bohnett
SECRETARY
Marina del Rey, California
April 28, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................................................... 1
SUMMARY.................................................................................................... 2
The Companies............................................................................................ 2
The Merger............................................................................................... 2
Stockholder Approval..................................................................................... 2
Voting Agreements........................................................................................ 2
Voting Shares Held by Your Broker in Street Name......................................................... 2
Changing Your Vote....................................................................................... 2
Completion of the Merger................................................................................. 3
Exchanging Your Stock Certificate........................................................................ 3
GeoCities' Reasons for the Merger; Recommendation of GeoCities' Board.................................... 3
Opinion of Financial Advisor to GeoCities................................................................ 3
Interests of Certain Persons in the Merger............................................................... 3
Conditions to the Merger................................................................................. 3
Termination of the Merger Agreement...................................................................... 4
Termination Fee and Expenses............................................................................. 4
No Solicitation.......................................................................................... 4
Yahoo! Stock Option...................................................................................... 5
Governmental and Regulatory Matters...................................................................... 5
Federal Income Tax Consequences.......................................................................... 5
Anticipated Accounting Treatment......................................................................... 5
No Appraisal Rights...................................................................................... 5
Forward-Looking Statements May Prove Inaccurate.......................................................... 5
Who Can Help Answer Your Questions....................................................................... 5
RISK FACTORS............................................................................................... 6
Risks Related to the Merger.............................................................................. 6
Risks Related to Yahoo! and GeoCities as a Combined Company.............................................. 7
Investment Risks......................................................................................... 22
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE............................................................ 23
TRADEMARKS................................................................................................. 23
YAHOO! SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA..................................................... 24
GEOCITIES SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA.................................................. 26
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA....................................................... 28
COMPARATIVE PER SHARE DATA................................................................................. 30
MARKET PRICE AND DIVIDEND INFORMATION...................................................................... 32
Recent Share Prices...................................................................................... 32
Dividend Information..................................................................................... 33
Number of Stockholders................................................................................... 33
RECENT DEVELOPMENTS........................................................................................ 34
Business of Broadcast.com Inc............................................................................ 34
Terms of the Acquisition................................................................................. 35
Effect of broadcast.com acquisition upon GeoCities stockholders.......................................... 35
THE SPECIAL MEETING........................................................................................ 36
Date, Time and Place of the Special Meeting.............................................................. 36
Matters to Be Considered at the Special Meeting.......................................................... 36
Record Date for Voting on the Merger; Stockholders Entitled to Vote...................................... 36
Voting and Revocation of Proxies......................................................................... 36
Stockholder Vote Is Required to Approve the Merger....................................................... 36
Board Recommendation..................................................................................... 37
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
THE MERGER................................................................................................. 38
<S> <C>
General.................................................................................................. 38
Background of the Merger................................................................................. 38
Reasons for the Merger................................................................................... 40
Opinion of Goldman, Sachs & Co., Financial Advisor to GeoCities.......................................... 44
Exchange Ratio History................................................................................... 45
Transaction Premium Analysis............................................................................. 45
Comparison of Selected Internet Companies................................................................ 46
Pro Forma Transaction Analysis........................................................................... 48
Contribution Analysis.................................................................................... 48
Pro Forma Merger Analysis................................................................................ 49
Transaction Multiple Analysis............................................................................ 50
Comparable Transaction Premium Analysis.................................................................. 51
Interests of Certain Persons in the Merger............................................................... 53
Governmental and Regulatory Matters...................................................................... 55
Federal Income Tax Considerations........................................................................ 55
Anticipated Accounting Treatment......................................................................... 56
No Appraisal Rights...................................................................................... 57
Delisting and Deregistration of GeoCities Common Stock................................................... 57
Listing of Yahoo! Common Stock to Be Issued in the Merger................................................ 57
Restriction on Resales of Yahoo! Common Stock............................................................ 57
THE MERGER AGREEMENT....................................................................................... 58
The Merger............................................................................................... 58
The Effective Time....................................................................................... 58
Directors and Officers of GeoCities after the Merger..................................................... 58
Conversion of Shares in the Merger....................................................................... 58
GeoCities' Stock Option and Stock Purchase Plans......................................................... 58
The Exchange Agent....................................................................................... 59
Procedures for Exchanging Stock Certificates............................................................. 59
Distributions with Respect to Unexchanged Shares......................................................... 59
No Fractional Shares..................................................................................... 59
Representations and Warranties........................................................................... 60
Conduct of Business of GeoCities Pending the Merger...................................................... 60
Conduct of Business of Yahoo! Pending the Merger......................................................... 61
No Solicitation.......................................................................................... 62
Director and Officer Indemnification..................................................................... 63
Yahoo! Stock Option...................................................................................... 63
Conditions to the Merger................................................................................. 64
Termination.............................................................................................. 65
Termination Fee and Expenses............................................................................. 66
Amendment; Waiver........................................................................................ 67
VOTING AND AFFILIATE AGREEMENTS............................................................................ 68
Voting Agreements........................................................................................ 68
GeoCities Affiliate Agreements........................................................................... 68
Yahoo! Affiliate Agreements.............................................................................. 69
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS................................................ 70
DESCRIPTION OF YAHOO! COMMON STOCK......................................................................... 77
COMPARISON OF RIGHTS OF SHAREHOLDERS OF YAHOO! AND STOCKHOLDERS OF GEOCITIES............................... 78
INFORMATION REGARDING YAHOO!............................................................................... 87
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
INFORMATION REGARDING GEOCITIES............................................................................ 88
<S> <C>
BUSINESS OF GEOCITIES...................................................................................... 88
Overview................................................................................................. 88
The GeoCities Solution................................................................................... 88
The GeoCities Strategy................................................................................... 89
Homesteading on GeoCities................................................................................ 91
How Homesteaders Join.................................................................................... 92
Participating in the GeoCities Community................................................................. 92
How to Surf the GeoCities Community...................................................................... 92
Advertising, Commerce and Premium Services............................................................... 92
Web Rings................................................................................................ 94
Distribution Agreement with Yahoo!....................................................................... 94
Infrastructure and Operations............................................................................ 94
Competition.............................................................................................. 95
Intellectual Property and Proprietary Rights............................................................. 96
Employees................................................................................................ 97
Facilities............................................................................................... 98
Legal Proceedings........................................................................................ 98
GEOCITIES' MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 101
RESULTS OF OPERATIONS...................................................................................... 103
LIQUIDITY AND CAPITAL RESOURCES............................................................................ 106
YEAR 2000 READINESS........................................................................................ 107
GEOCITIES STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................... 109
DESCRIPTION OF GEOCITIES CAPITAL STOCK..................................................................... 111
FUTURE STOCKHOLDER PROPOSALS............................................................................... 112
EXPERTS.................................................................................................... 112
LEGAL MATTERS.............................................................................................. 112
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 112
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
Appendix A -- Agreement and Plan of Merger dated as of January 27, 1999, by and among Yahoo! Inc., Home
Page Acquisition Corp. and GeoCities.......................................................... A-1
Appendix B -- Opinion of Goldman, Sachs & Co............................................................... B-1
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING THE MERGER? HOW WILL I BENEFIT?
A: This merger will combine two of the largest and most popular services on
the Internet. Following the merger, you will have a stake in one of the world's
leading global branded Web networks. Overall, both Yahoo! and GeoCities believe
that the merger will provide added value to all of their respective
stockholders. However, both Yahoo! and GeoCities note that their goals in the
merger are subject to the risks discussed in this proxy statement/prospectus in
the section labelled "Risk Factors."
Q: PLEASE EXPLAIN WHAT I WILL RECEIVE IN THE MERGER.
A: In the merger, you will receive 0.6768 shares of Yahoo! common stock for
each share of GeoCities common stock that you own. For example, if you own 100
shares of GeoCities common stock, you will receive 67 shares of Yahoo! common
stock in exchange for your shares.
Yahoo! will not issue fractional shares of common stock. You will receive
cash based on the market price of Yahoo! common stock instead of any fractional
share.
The number of shares of Yahoo! common stock to be issued for each share of
GeoCities common stock is fixed and will not be adjusted based upon changes in
the value of Yahoo! common stock. As a result, the value of the Yahoo! common
stock you receive in the merger will not be determined at the time you vote on
the merger and will go up or down as the market price of Yahoo! common stock
goes up or down. The following table reflects the value of the Yahoo! common
stock that you will receive, per share of GeoCities common stock, for various
market prices of Yahoo! common stock. The values shown are purely hypothetical,
and the actual market price and the corresponding value of the Yahoo! common
stock that you may receive in the merger may be more or less than the range of
values shown in the table.
<TABLE>
<CAPTION>
MERGER VALUE PER
MARKET PRICE OF SHARE OF
YAHOO! COMMON GEOCITIES COMMON
STOCK STOCK
- --------------- -----------------
<S> <C>
$210.00 $ 142.13
200.00 135.36
190.00 128.59
180.00 121.82
170.00 115.06
160.00 108.29
150.00 101.52
</TABLE>
On April 27, 1999, the closing sale price per share of Yahoo! common stock
on The Nasdaq National Market was $184.50. Neither party will be permitted to
terminate the merger agreement based solely on changes in the value of Yahoo!
common stock prior to the closing of the transaction. It is presently
anticipated by the parties that there will be no more than a few days between
the date of the special meeting to approve the merger and the closing of the
transaction itself.
Q: YAHOO! HAS ALSO ANNOUNCED THAT IT IS ACQUIRING BROADCAST.COM INC. HOW
WILL THAT AFFECT ITS PROPOSED TRANSACTION WITH GEOCITIES?
A: On March 31, 1999, Yahoo! entered into an agreement to acquire
broadcast.com inc., the leading aggregator and broadcaster of streaming media
programming on the Web with the network infrastructure to deliver hundreds of
live and on-demand audio and video programs over the Internet to hundreds of
thousands of users. Under the terms of the agreement, Yahoo! will issue 0.7722
of a share of Yahoo! common stock for each outstanding share of broadcast.com
common stock. This exchange will result in Yahoo! issuing approximately 34
million shares of Yahoo! common stock for all the capital stock of broadcast.com
on a fully diluted basis. The acquisition is intended to be accounted for as a
"pooling of interests" and is subject to certain conditions, including
regulatory approval and approval by broadcast.com stockholders. Consummation of
the broadcast.com merger is NOT a condition to the consummation of Yahoo!'s
merger with GeoCities.
1
<PAGE>
SUMMARY
The following summary highlights information which is provided in greater
detail elsewhere in this document. Even though we have highlighted what we feel
is the most important information for you, Yahoo! and GeoCities encourage you to
read this document in its entirety for a complete understanding of the
transaction.
THE COMPANIES (PAGES 87 AND 88)
YAHOO! INC.
3420 Central Expressway
Santa Clara, California 95051
Attention: Investor Relations
(408) 731-3300
Yahoo! is a global internet media company that offers a branded network of
comprehensive information, communication and shopping services to millions of
users daily. As the first online navigational guide to the web, www.yahoo.com is
a leading guide in terms of traffic, advertising and household and business user
reach, and is one of the most recognized brands associated with the Internet.
GEOCITIES
4499 Glencoe Avenue
Marina del Rey, California 90292
Attention: Investor Relations
(310) 827-3700
GeoCities is the world's largest and one of the fastest growing web-based
communities for Internet users to express themselves, share ideas, interests and
expertise, and publish personal content accessible to other users with common
interests. Homesteaderssm comprise the main part of GeoCities' community.
Homesteaders are Internet users who create their own personal web sites or
"homesteadssm" in themed "neighborhoods" on the GeoCities web site. These
neighborhoods provide:
- - a context for web users to publish content, to share experiences and ideas
with other users and to access a centralized and easy-to-navigate destination
for user-published content; and
- - a compelling and attractive environment for advertisers, sponsors and
e-commerce merchants.
THE MERGER (PAGE 38)
GeoCities and Yahoo! have entered into a merger agreement which sets forth the
terms and conditions of the proposed merger of GeoCities and Yahoo!. The merger
agreement provides that if the merger is approved, GeoCities will merge with a
subsidiary of Yahoo! and become a wholly-owned subsidiary of Yahoo!. As a
stockholder of GeoCities, you will become a shareholder of Yahoo! following the
merger.
STOCKHOLDER APPROVAL (PAGE 36)
The holders of a majority of the outstanding shares of GeoCities common stock
must approve the merger. You are entitled to cast one vote per share of
GeoCities common stock you held at the close of business on April 21, 1999. On
such date, 32,616,922 shares of GeoCities common stock were outstanding and
entitled to vote.
VOTING AGREEMENTS (PAGE 68)
GeoCities stockholders owning approximately 61.3% of GeoCities outstanding
common stock have agreed to vote all of their shares of GeoCities common stock
for approval of the merger. Therefore, approval of the merger is assured.
VOTING SHARES HELD BY YOUR BROKER IN STREET NAME (PAGE 36)
Your broker will vote your shares only if you provide instructions on how to
vote. If you do not instruct your broker on how to vote, your shares will not be
voted at the special meeting and it will have the same effect as voting against
approval of the merger.
CHANGING YOUR VOTE (PAGE 36)
If you want to change your vote, just send a later-dated, signed proxy card to
the Secretary of GeoCities before the special meeting or attend
2
<PAGE>
the special meeting in person and vote. You may also revoke your proxy by
sending written notice to the Secretary of GeoCities before the special meeting.
COMPLETION OF THE MERGER (PAGE 58)
Assuming approval of the merger and the satisfaction or waiver of all other
conditions of the merger agreement, we anticipate that the merger will occur on
the date of the special meeting, and in any event will occur within a few days
following such meeting.
EXCHANGING YOUR STOCK CERTIFICATE (PAGE 59)
Do not send in your stock certificates now. After the merger is completed, we
will send you written instructions for exchanging your GeoCities stock
certificates for Yahoo! stock certificates.
GEOCITIES' REASONS FOR THE MERGER; RECOMMENDATION OF GEOCITIES' BOARD (PAGE 41)
GeoCities' board of directors has determined that the terms of the merger are
fair to, and in the best interests of, GeoCities and its stockholders. In
reaching its decision, GeoCities' board of directors identified several
potential benefits of the merger, the most important of which included:
- - the premium to be paid by Yahoo! and the relative interests of Yahoo! and
GeoCities' stockholders in the equity of the combined company;
- - the strategic benefits of GeoCities' combination with a leading global
internet media company, including the potential to greatly enhance the size,
functionality and performance of, and increase the traffic to, the GeoCities
web site for the benefit of GeoCities' homesteaders, web visitors,
advertisers and sponsors; and
- - the larger market capitalization of Yahoo! compared to GeoCities and the
corresponding higher trading liquidity of Yahoo! common stock compared to
GeoCities common stock.
GeoCities' board of directors also considered that GeoCities' stockholders would
have the opportunity to participate in the potential growth of the combined
company following the merger.
GEOCITIES' BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
MERGER.
OPINION OF FINANCIAL ADVISOR TO GEOCITIES (PAGE 44 AND APPENDIX B)
In deciding to approve the merger, GeoCities' board of directors considered the
opinion of Goldman, Sachs & Co., its financial advisor, that, as of the date
Yahoo! and GeoCities signed the merger agreement, the exchange ratio was fair,
from a financial point of view, to the holders of GeoCities common stock. Such
opinion was provided for the information and assistance of GeoCities' board of
directors in connection with the merger and does not constitute a recommendation
as to how any holder of shares of GeoCities common stock should vote with
respect to the merger. The full
text of the written opinion of Goldman, Sachs & Co., which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached as Appendix B. You are urged to read
such opinion in its entirety.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
(PAGE 53)
In considering GeoCities' board of directors' recommendation that you vote to
approve the merger, you should note that certain officers and directors of
GeoCities have interests in the merger that are different from, or in addition
to, your interests. These interests relate to accelerated vesting of stock
options, potential severance payments and indemnification rights. As a result,
directors and officers may be more likely to vote to approve the merger than
GeoCities' stockholders generally.
CONDITIONS TO THE MERGER (PAGE 64)
Yahoo! and GeoCities will complete the merger only if the conditions specified
in the merger agreement are either satisfied or waived, some of which include:
3
<PAGE>
- - the representations and warranties of the respective parties made in the
merger agreement remain accurate;
- - the parties perform their respective covenants and obligations in the merger
agreement;
- - the GeoCities stockholders approve the merger;
- - there are no restraining orders, injunctions or administrative actions or
proceedings preventing completion of the merger;
- - the waiting periods under the federal antitrust laws expire;
- - the parties each receive a written opinion from their respective tax counsel
regarding the merger; and
- - Yahoo! receives letters from PricewaterhouseCoopers LLP as to the
appropriateness of pooling of interests accounting for the merger.
If any material condition is waived, Yahoo! and GeoCities will amend this
document and resolicit the vote of GeoCities' stockholders.
TERMINATION OF THE MERGER AGREEMENT (PAGE 65)
The boards of directors of both companies may mutually agree to terminate the
merger agreement at any time without completing the merger. Either company may
terminate the merger agreement if:
- - the merger is not completed by September 30, 1999;
- - a governmental authority or legal action permanently prohibits the merger;
- - the GeoCities stockholders do not approve the merger; or
- - the other company breaches any representations or warranties or any of such
representations or warranties become inaccurate, and such breach or
inaccuracy is not cured and has a material adverse effect on the company
desiring to terminate the merger agreement, or the other party fails to
comply with its obligations under the merger agreement, in each case
resulting in the inability of the party to satisfy a condition to the
completion of the merger.
In addition, Yahoo! may terminate the merger agreement if the following
triggering events occur:
- - GeoCities' board of directors withdraws or amends in an adverse manner to
Yahoo!, its recommendation of the merger;
- - GeoCities' board of directors fails to affirm its recommendation of the
merger following the public announcement of a third-party acquisition
proposal;
- - GeoCities' board of directors approves any other acquisition proposal by a
third party or GeoCities enters into any agreement accepting another
acquisition proposal;
- - a tender or exchange offer for GeoCities common stock is commenced and
GeoCities' board of directors fails to recommend rejection of the offer; or
- - GeoCities intentionally breaches its obligations under the "no solicitation"
section of the merger agreement.
TERMINATION FEE AND EXPENSES (PAGE 66)
If Yahoo! terminates the merger agreement because any of the above triggering
events has occurred, GeoCities will be required to pay Yahoo! $100 million. In
addition, if either Yahoo! or GeoCities terminates the merger agreement because
the required GeoCities' stockholder vote is not obtained, GeoCities may be
required to pay Yahoo! all of the expenses incurred by Yahoo! in connection with
the merger. GeoCities may also be required to pay a termination fee if the
GeoCities stockholders fail to approve the merger and GeoCities enters into an
acquisition transaction with another party within nine months of the date of
termination.
NO SOLICITATION (PAGE 62)
GeoCities has generally agreed not to initiate or engage in discussions with
another party regarding a business combination with that party while the merger
is pending.
4
<PAGE>
YAHOO! STOCK OPTION (PAGE 63)
In connection with the execution of the merger agreement, GeoCities granted
Yahoo! a stock option to purchase up to 6,370,000 shares of GeoCities common
stock at a price of $113.66 per share. This number represents approximately
19.9% of GeoCities' outstanding shares at the time the merger agreement was
signed. The stock option is not currently exercisable. However, if the merger
agreement is terminated because the required approval of GeoCities' stockholders
is not obtained or if a "triggering event" occurs, Yahoo! may be able to
exercise the stock option. The events qualifying as a "triggering event" are
described on page 63.
Yahoo! required GeoCities to grant the stock option as a condition to entering
into the merger agreement. The stock option, the termination fee and the
non-solicitation provisions of the merger agreement may discourage third parties
who are interested in acquiring a significant stake in GeoCities and are
intended by Yahoo! to increase the likelihood that the merger will be completed.
GOVERNMENTAL AND REGULATORY MATTERS (PAGE 55)
U.S. antitrust laws prohibit Yahoo! and GeoCities from completing the merger
until they have furnished information to the Antitrust Division of the U.S.
Department of Justice and the Federal Trade Commission and a required waiting
period has ended. Both Yahoo! and GeoCities have furnished the required
information and the waiting period expired on March 21, 1999.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 55)
Yahoo! and GeoCities expect that the merger will qualify as a tax-free
reorganization for federal income tax purposes. If the merger qualifies as a
tax-free reorganization, GeoCities' stockholders will not recognize any gain or
loss for federal income tax purposes upon the exchange of their GeoCities common
stock for Yahoo! common stock, except with respect to any cash received in lieu
of a fractional share of Yahoo! common stock.
ANTICIPATED ACCOUNTING TREATMENT (PAGE 56)
Yahoo! and GeoCities expect that the merger will be accounted for as a pooling
of interests, which means that Yahoo! and GeoCities will be treated as if they
had always been combined for accounting and financial reporting purposes. The
availability of this accounting treatment is a condition to the merger.
NO APPRAISAL RIGHTS (PAGE 57)
Under Delaware law, you do not have any right to an appraisal of the value of
your GeoCities common stock in connection with the merger.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 23)
Each of Yahoo! and GeoCities has made forward-looking statements in this
document that are subject to risks and uncertainties. Forward-looking statements
include expectations concerning matters that are not historical facts. Words
such as "believes," "expects," "anticipates" or similar expressions, indicate
forward-looking statements. For more information regarding factors that could
cause actual results to differ from these expectations, you should refer to
"Risk Factors" on page 6.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have questions about the merger, you should contact:
GeoCities
4499 Glencoe Avenue
Marina del Rey, California 90292
Telephone: (310) 827-3700
Attention: Investor Relations
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RISK FACTORS
YOU SHOULD CONSIDER THESE RISK FACTORS IN EVALUATING WHETHER TO APPROVE THE
MERGER AND THEREBY BECOME HOLDERS OF YAHOO! COMMON STOCK. THESE FACTORS SHOULD
BE CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS, THE APPENDICES AND EXHIBITS HERETO AND THE DOCUMENTS
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, THE BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS OF EITHER OR BOTH OF YAHOO! AND GEOCITIES MAY
BE SERIOUSLY HARMED. IN SUCH CASE, THE TRADING PRICE OF YAHOO! COMMON STOCK MAY
DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. ALL NUMBERS RELATING
TO YAHOO! HAVE BEEN ADJUSTED TO REFLECT THE 2-FOR-1 SPLIT OF YAHOO! COMMON STOCK
ON FEBRUARY 8, 1999.
RISKS RELATED TO THE MERGER
EXPECTED BENEFITS OF THE MERGER MAY NOT BE REALIZED.
If we are not able to effectively integrate our technology, operations and
personnel in a timely and efficient manner, then the benefits of the merger will
not be realized. In particular, if the integration is not successful:
- - our operating results may be adversely affected;
- - we may lose key personnel; and
- - we may not be able to retain GeoCities' community membership base of
homesteaders(SM).
In addition, the attention and effort devoted to the integration of the two
companies will significantly divert management's attention from other important
issues, and could have a material adverse impact on the combined company.
THE MERGER COULD ADVERSELY AFFECT COMBINED FINANCIAL RESULTS.
If the benefits of the merger do not exceed the costs associated with the
merger, including the dilution to Yahoo!'s shareholders resulting from the
issuance of shares in connection with the merger, Yahoo!'s financial results,
including earnings per share, could be adversely affected. Specifically, Yahoo!
expects to incur a one-time charge of approximately $66 million related to the
merger during the second quarter of 1999.
YOU WILL RECEIVE 0.6768 OF A SHARE OF YAHOO! COMMON STOCK DESPITE CHANGES IN
MARKET VALUE OF GEOCITIES COMMON STOCK OR YAHOO! COMMON STOCK.
Each share of GeoCities common stock will be exchanged for 0.6768 of a share
of Yahoo! common stock upon completion of the merger. This exchange ratio will
not be adjusted for changes in the market price of either GeoCities common stock
or Yahoo! common stock, and neither party is permitted to terminate the merger
agreement solely because of changes in the market price of Yahoo! common stock.
Consequently, the specific dollar value of Yahoo! common stock to be received by
you will depend on the market value of Yahoo! at the time of completion of the
merger and may decrease from the date that you submit your proxy. You are urged
to obtain recent market quotations for Yahoo! common stock and GeoCities common
stock. We cannot predict or give any assurances as to the market price of Yahoo!
common stock at any time before or after the merger.
THE MARKET PRICE OF YAHOO! COMMON STOCK MAY DECLINE AS A RESULT OF THE MERGER.
The market price of Yahoo! common stock may decline as a result of the
merger if:
- - the integration of Yahoo! and GeoCities is unsuccessful;
- - we do not achieve the perceived benefits of the merger as rapidly or to the
extent anticipated by financial analysts; or
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- - the effect of the merger on our financial results is not consistent with the
expectations of financial analysts.
FAILURE OF THE MERGER TO QUALIFY AS A POOLING OF INTERESTS WOULD NEGATIVELY
AFFECT COMBINED FINANCIAL RESULTS.
The failure of the merger to qualify for pooling of interests accounting
treatment for financial reporting purposes for any reason would materially and
adversely affect Yahoo!'s reported earnings and, likely, the price of Yahoo!'s
common stock.
The availability of pooling of interests accounting treatment for the merger
depends upon circumstances and events occurring after the effective time of the
merger. For example, there must be no significant changes in the business of the
combined company, including significant dispositions of assets, for a period of
two years following the effective time. Further, affiliates of Yahoo! and
GeoCities must not sell any shares of either Yahoo! or GeoCities capital stock
until the day that Yahoo! publicly announces financial results covering at least
30 days of combined operations of Yahoo! and GeoCities after the merger. If the
effective time of the merger occurs during May 1999, we expect that such
combined financial results would be published in July 1999. If affiliates of
Yahoo! or GeoCities sell their shares of Yahoo! common stock prior to that time
despite a contractual obligation not to do so, the merger may not qualify for
accounting as a pooling of interests for financial reporting purposes.
RISKS RELATED TO YAHOO! AND GEOCITIES AS A COMBINED COMPANY
The following risk factors assume that the merger is successfully completed
and describe the risks of the ongoing operations relating to the combined
company.
FAILURE TO SUCCESSFULLY COMPLETE THE ACQUISITION AND INTEGRATION OF
BROADCAST.COM COULD ADVERSELY AFFECT THE COMBINED COMPANY'S STOCK PRICE.
The proposed acquisition of broadcast.com is expected to close after the
consummation of the GeoCities merger. If Yahoo! is unable to effectively
complete the acquisition or successfully integrate the personnel, technology and
operations of broadcast.com, its business and operations could be seriously
harmed. In particular, whether or not the acquisition is successful over the
long term, the acquisition and integration of broadcast.com may:
- - significantly divert the attention of management from other important issues;
- - delay strategic initiatives;
- - cause the loss of customers or key employees; and
- - disrupt sales and marketing efforts.
In addition, Yahoo's stock price may decline if it does not achieve the
perceived benefits of the broadcast.com acquisition in a manner consistent with
the expectations of the financial markets.
THE COMBINED COMPANY WILL HAVE A LIMITED OPERATING HISTORY AND MAY NOT BE ABLE
TO IMPLEMENT ITS GROWTH STRATEGY.
Yahoo! was incorporated in March 1995 and did not begin generating
advertising revenues until August 1995. GeoCities was incorporated in December
1994 and has not achieved profitability on a quarterly or annual basis to date.
Therefore, Yahoo! and GeoCities have limited operating histories, and their
prospects are subject to the risks, expenses and uncertainties frequently
encountered by young companies that operate exclusively in the new and rapidly
evolving markets for Internet products and
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services. Successfully achieving the combined company's growth plan depends on
the combined company's ability to:
- - continue to develop and extend the Yahoo! and GeoCities brands;
- - develop new media properties;
- - maintain and increase the levels of traffic;
- - develop or acquire competitive services or products;
- - effectively generate revenues through sponsored services and placements;
- - effectively integrate businesses or technologies;
- - successfully develop personalized Web-based services, such as e-mail
services; and
- - continue to identify, attract, retain and motivate qualified personnel.
Furthermore, the growth of the combined company depends on factors outside
its control, including:
- - adoption by the market of the Web, and more specifically, the combined
company as an effective advertising medium; and
- - relative price stability for Web-based advertising, despite competition and
other factors that could reduce market prices for advertising.
The combined company may not be successful in implementing its growth plan.
THE COMBINED COMPANY ANTICIPATES INCREASED OPERATING EXPENSES AND MAY EXPERIENCE
LOSSES.
Because of Yahoo!'s and GeoCities' limited operating histories and the
uncertain nature of the rapidly changing markets they serve, the prediction of
future results of operations is difficult or impossible. In addition,
period-to-period comparisons of operating results are not likely to be
meaningful. You should not rely on the results for any period as an indication
of future performance. In particular, although Yahoo! experienced strong revenue
growth during 1998, Yahoo! does not believe that this level of revenue growth
will be sustained in future periods. Yahoo! currently expects that the combined
company's operating expenses will continue to increase significantly as Yahoo!
expands its sales and marketing operations, continues to develop and extend the
Yahoo! and GeoCities brands, funds greater levels of product development,
develops and commercializes additional media properties, and acquires
complementary businesses and technologies. As a result, the combined company may
experience significant losses on a quarterly and annual basis.
QUARTERLY OPERATING RESULTS WILL FLUCTUATE BECAUSE OF A NUMBER OF FACTORS,
INCLUDING THE RELIANCE ON SHORT-TERM ADVERTISING CONTRACTS.
Operating results of the combined company may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside its
control. These factors include:
- - the level of usage of the Internet;
- - demand for Internet advertising;
- - the addition or loss of advertisers;
- - the level of user traffic on the properties of the combined company;
- - the mix of types of advertising the combined company sells (targeted
advertising generally has higher rates);
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- - the amount and timing of capital expenditures and other costs relating to the
expansion of the combined company's operations;
- - the introduction of new products or services by the combined company or its
competitors;
- - pricing changes for Internet-based advertising;
- - the timing of initial set-up, engineering or development fees that may be
paid in connection with larger advertising and distribution arrangements;
- - technical difficulties with respect to the use of the combined company's
online properties;
- - costs incurred with respect to acquisitions; and
- - negative general economic conditions and their resulting effects on media
spending.
The combined company may from time to time make certain pricing, service or
marketing decisions that may adversely affect its profitability in a given
quarterly or annual period.
Yahoo! and GeoCities derive the majority of their combined revenues from the
sale of advertisements under short-term contracts, which are difficult to
forecast accurately. Their expense levels are based in part on expectations of
future revenue and, to a large extent, are fixed. The combined company may be
unable to adjust spending quickly enough to compensate for any unexpected
revenue shortfall. Accordingly, the cancellation or deferral of advertising or
sponsorship contracts could have a material adverse effect on the combined
company's financial results. The combined company's operating expenses are
likely to increase significantly over the near term. To the extent that the
combined company's expenses increase but its revenues do not, its business,
operating results, and financial condition may be materially and adversely
affected.
The advertising revenue of Yahoo! and GeoCities is also subject to seasonal
fluctuations. Historically, advertisers spend less in the first and third
calendar quarters and user traffic on Yahoo's online media properties has
historically been lower during the summer and during year-end vacation and
holiday periods.
THE RATE STRUCTURE OF SOME ADVERTISING CONTRACTS CREATES EXPOSURE TO POTENTIALLY
SIGNIFICANT FINANCIAL RISKS.
A key element of Yahoo!'s strategy is to generate advertising revenues
through sponsored services and placements by third parties in its online media
properties in addition to banner advertising. The combined company typically
receives sponsorship fees as well as a portion of transaction revenues received
by the sponsor from users originated through the Yahoo! placement in return for
minimum levels of user impressions to be provided by the combined company. These
arrangements expose the combined company to potentially significant financial
risks, including the following:
- - if the combined company fails to deliver required minimum levels of user
impressions or "click throughs," the combined company's fee may be adjusted
downwards;
- - the sponsors may not renew the agreements or renew at lower rates; and
- - the arrangements may not generate anticipated levels of shared transaction
revenue, or sponsors may default on the payment commitments in such
agreements as has occurred in the past.
As a result of these financial risks, the combined company may not achieve
significant revenue from these sponsorship arrangements. In addition, because of
the limited experience with these arrangements, the combined company is unable
to determine what effect these arrangements will have on gross margins and
results of operations. Transaction-based fees have not to date represented a
material portion of Yahoo!'s net revenues. If and to the extent such revenues
become a significant portion of the combined company's results, there could be
greater variations in its quarterly operating results.
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THE COMBINED COMPANY IS IN A HIGHLY COMPETITIVE INDUSTRY AND SOME OF ITS
COMPETITORS MAY BE MORE SUCCESSFUL IN ATTRACTING AND RETAINING CUSTOMERS.
The market for Internet products and services is highly competitive. There
are no substantial barriers to entry in these markets, and the combined company
expects that competition will continue to intensify. Negative competitive
developments could have a material adverse effect on the combined company's
business and the trading price of Yahoo!'s stock.
The combined company will compete with many other providers of online
navigation, information and community services. As it expands the scope of its
Internet services, Yahoo! will compete directly with a greater number of
Internet sites and other media companies across a wide range of different online
services, including:
- - vertical markets where competitors may have advantages in expertise, brand
recognition, and other factors;
- - metasearch services and software applications that allow a user to search the
databases of several directories and catalogs simultaneously;
- - database vendors that offer information search and retrieval capabilities
with their core database products;
- - Web-based email and instant messaging services either on a stand alone basis
or integrated into other products and media properties; and
- - online merchant hosting services.
Companies that offer competitive products or services addressing Web
navigation, information and community services include:
- - America Online, Inc. (NetFind);
- - CNET, Inc. (Snap);
- - Compaq/Digital Equipment Corporation (AltaVista);
- - Excite, Inc. (including WebCrawler);
- - Infoseek Corporation (including GO Network);
- - Inktomi Corporation;
- - Lycos, Inc. (including HotBot and Tripod);
- - Microsoft Corporation (msn.com); and
- - Netscape Communications Corporation (Netcenter).
A large number of these Web sites and online services as well as
high-traffic e-commerce merchants such as Amazon.com, Inc. also offer or are
expected to offer informational and community features that may be competitive
with the services that Yahoo! offers. In order to effectively compete, Yahoo!
may need to expend significant internal engineering resources or acquire other
technologies and companies to provide such capabilities. Any of these efforts
could be dilutive to Yahoo!'s shareholders.
MARKET CONSOLIDATION IS CREATING MORE FORMIDABLE COMPETITORS.
In the recent past, there have been a number of significant acquisitions and
strategic plans announced among and between certain of Yahoo!'s competitors,
including:
- - The Walt Disney Company acquiring a significant interest in Infoseek;
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- - AOL acquiring Netscape;
- - @Home Networks, a provider of high speed internet access serving the cable
television infrastructure and the largest shareholder of which is AT&T,
acquiring Excite;
- - NBC acquiring an interest in Snap, a subsidiary of CNET;
- - USA Networks and Ticketmaster Online-CitySearch announcing that they intend
to combine their services with Lycos; and
- - Compaq's control of AltaVista.
The effect of these completed and pending acquisitions and strategic plans
on Yahoo! cannot be predicted with certainty, but all of these competitors are
aligned with companies that are significantly larger or more well established
than Yahoo!. In particular, many of them are television broadcasters having
substantial marketing resources and capabilities to assist Yahoo!'s competitors.
As a result, each of them will have access to significantly greater financial,
marketing and, in certain cases, technical resources than Yahoo!.
RECENT ALLIANCES MAY MAKE IT MORE DIFFICULT TO ACCESS YAHOO!'S PRODUCTS AND
MEDIA PROPERTIES.
These recent acquisitions and alliances will result in greater competition
as more users of the Internet consolidate on fewer services that incorporate
search and retrieval features. In addition, providers of software and other
Internet products and services are incorporating search and retrieval features
into their offerings. For example, Web browsers offered by Netscape and
Microsoft increasingly incorporate prominent search buttons that direct search
traffic to competing services. These features could make it more difficult for
Internet users to find and use our products and services. Netscape has an
agreement with Excite under which Excite is the most prominent navigational
service within the Netcenter website. In the future, Netscape, Microsoft and
other browser suppliers may also more tightly integrate products and services
similar to Yahoo! into their browsers or their browsers' pre-set home pages.
Another example is the recently announced arrangement that will result in Compaq
including prominent links to Alta Vista with many of the computers which it
sells. Any of these companies could take actions that would make it more
difficult for consumers to find and use Yahoo! services. Microsoft recently
announced that it will feature and promote Internet search services provided by
Alta Vista and signed a long term partnership with LookSmart to provide
directory services in the Microsoft Network and other Microsoft online
properties. Such search services may be tightly integrated into future versions
of the Microsoft operating system, the Internet Explorer browser, and other
software applications, and Microsoft may promote such services within the
Microsoft Network or through other Microsoft affiliated end-user services such
as MSNBC or WebTV Networks. Each of these situations creates a potential
competitive advantage over the combined company because their Internet
navigational offerings are more conveniently accessed by users.
INCREASED COMPETITION MAY EXERT DOWNWARD PRICING PRESSURE ON ADVERTISING
CONTRACTS.
Yahoo! competes with online services, other website operators and
advertising networks, as well as traditional offline media such as television,
radio and print for a share of advertisers' total advertising budgets. Yahoo!
believes that the number of companies selling Web-based advertising and the
available inventory of advertising space has recently increased substantially.
Accordingly, the combined company may face increased pricing pressure for the
sale of advertisements, which could reduce its advertising revenues. In
addition, the combined company's sales may be adversely affected to the extent
that its competitors offer superior advertising services that better target
users or provide better reporting of advertising results.
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THE COMBINED COMPANY WILL DEPEND ON CONTINUED GROWTH IN THE USE OF WEB
ADVERTISING TO SUPPORT ITS REVENUE MODEL.
Web-based advertising is relatively new, and it is difficult to predict the
extent of further growth, if any, in Web advertising expenditures. The Internet
may not prove to be a viable commercial marketplace for a number of reasons,
including lack of acceptable security technologies, potentially inadequate
development of the necessary infrastructure, or the lack of timely development
and commercialization of performance improvements.
THE MARKET FOR THE COMBINED COMPANY'S PRODUCTS IS NEW, AND THE GROWTH IN MARKET
ACCEPTANCE FOR THESE PRODUCTS IS UNCERTAIN.
The markets for Yahoo!'s and GeoCities' products and media properties have
only recently begun to develop, are rapidly evolving, and are increasingly
competitive. Demand and market acceptance for recently introduced products and
services are subject to a high level of uncertainty and risk. If the market
develops more slowly than expected or becomes saturated with competitors, or if
the combined company's products and media properties do not sustain market
acceptance, the combined company's business, operating results, and financial
condition will be materially and adversely affected.
THE INTERNET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGES, AND THE COMBINED
COMPANY MUST ADAPT QUICKLY TO THESE CHANGES TO COMPETE EFFECTIVELY.
The market for Internet products and services is characterized by rapid
technological developments, evolving industry standards and customer demands,
and frequent new product introductions and enhancements. For example, to the
extent that higher bandwidth Internet access becomes more widely available, the
combined company may be required to make significant changes to the design and
content of its products and media properties. Failure to effectively adapt to
these or any other technological developments could adversely affect the
combined company's business, operating results, and financial condition.
THE COMBINED COMPANY MUST DEVELOP AND MAINTAIN A "BRAND IDENTITY" FOR ITS
PRODUCTS IN ORDER TO ATTRACT AND EXPAND ITS USER AND ADVERTISER BASE.
Yahoo! believes that establishing and maintaining the Yahoo! and GeoCities
brands is a critical aspect of its efforts to attract and expand its user and
advertiser base. Yahoo! also believes that the importance of brand recognition
will increase due to the growing number of Internet sites and the relatively low
barriers to entry. Promotion and enhancement of the Yahoo! and GeoCities brands
will depend largely on the combined company's success in providing high-quality
products and services. In order to attract and retain Internet users and to
promote and maintain the Yahoo! and GeoCities brands, the combined company may
find it necessary to increase expenditures devoted to creating and maintaining
brand loyalty. In the event of any breach or alleged breach of security or
privacy involving its services, or if any third party undertakes illegal or
harmful actions utilizing its community, communications or commerce services,
the combined company could suffer substantial adverse publicity and impairment
of its brands and reputation. If any of these events occur, the combined
company's business, operating results, and financial condition will be
materially and adversely affected.
THE COMBINED COMPANY'S ABILITY TO UTILIZE THE WEB AS AN ADVERTISING MEDIUM
DEPENDS ON EFFECTIVELY ADDRESSING AN AUDIENCE THAT IS ATTRACTIVE TO ADVERTISERS
AND CONTINUING TO ENHANCE DELIVERY AND MEASUREMENT SYSTEMS.
Most of the combined company's advertising customers have limited experience
with the Web as an advertising medium. The ability to generate significant
advertising revenues will depend upon:
- - the development of a large base of users of its services possessing
demographic characteristics attractive to advertisers; and
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- - the ability to continue to develop and update effective advertising delivery
and measurement systems.
No standards have yet been widely accepted for the measurement of the
effectiveness of Web-based advertising. Advertisers may determine that banner
advertising, which will comprise the majority of the combined company's
revenues, is not an effective advertising medium. The combined company may not
be able to effectively transition to any other forms of Web-based advertising,
should such other forms prove more popular. Certain advertising filter software
programs are available that limit or remove advertising from an Internet user's
desktop. Such software, if generally adopted by users, may have a materially
adverse effect upon the viability of advertising on the Internet. The combined
company's advertising customers may not accept the internal and third-party
measurements of impressions received by advertisements on Yahoo! online media
properties and such measurements may contain errors. Yahoo! relies primarily on
our internal advertising sales force for domestic advertising sales, which
involves additional risks and uncertainties, including risks associated with the
recruitment, retention, management, training, and motivation of sales personnel.
As a result of these factors, the combined company may not be able to sustain or
increase current advertising sales levels. Failure to do so will have a material
adverse effect on the combined company's business, operating results, and
financial position.
THE SUCCESSFUL OPERATION OF THE COMBINED COMPANY'S BUSINESS DEPENDS UPON THE
SUPPLY OF CRITICAL ELEMENTS FROM OTHER COMPANIES.
The combined company will depend substantially upon third parties for
several critical elements of its business including technology and
infrastructure, content development, and distribution activities.
TECHNOLOGY AND INFRASTRUCTURE. Inktomi provides text-based Web search results
to complement Yahoo!'s directory and navigational guide. Yahoo! depends
substantially upon ongoing maintenance and technical support from Inktomi to
ensure accurate and rapid presentation of such search results to customers. If
Inktomi were to prematurely terminate its agreement with Yahoo! or fail to renew
it, Yahoo! would have to make substantial expenditures to develop or license
replacement technology. This also could result in lower levels of use of
Yahoo!'s navigational services. Yahoo! relies on a private third-party provider,
Frontier GlobalCenter, Inc., for its principal Internet connections. Email and
other service Internet connections are provided to Yahoo! by GTE. Any disruption
in the Internet access provided by these third-party providers or any failure of
these third-party providers to handle current or higher volumes of use could
have a material adverse effect on the combined company's business, operating
results, and financial condition. Yahoo! licenses technology and related
databases from third parties for certain elements of Yahoo! properties,
including, among others, technology underlying the delivery of news, stock
quotes and current financial information, chat services, street mapping,
telephone listings, and similar services. Yahoo! has experienced and expects to
continue to experience interruptions and delays in service and availability for
such elements, including recent interruptions in its stock quote services.
Furthermore, Yahoo! is dependent on hardware suppliers for prompt delivery,
installation, and service of servers and other equipment to deliver its products
and services. Any errors, failures, or delays experienced in connection with
these third-party technologies and information services could negatively impact
the combined company's relationship with users and adversely affect its brand
and its business, and could expose it to liabilities to third parties.
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CONTENT DEVELOPMENT. A key element of Yahoo!'s strategy involves the
implementation of Yahoo!-branded media properties targeted for interest areas,
demographic groups, and geographic areas. In these efforts, Yahoo! relies on
content development and localization efforts of third parties, such as SOFTBANK
in Japan and Korea. Yahoo! cannot guarantee that its current or future
third-party affiliates will effectively implement these properties, or that
their efforts will result in significant revenue to the combined company. Any
failure of these parties to develop and maintain high-quality and successful
media properties also could hurt the Yahoo! and GeoCities brands. Certain of
these arrangements also require Yahoo! to integrate third parties' content with
its services, which can require significant programming and design efforts. In
addition, Yahoo! has granted exclusivity provisions to certain third parties,
and may in the future grant additional exclusivity provisions. Exclusivity
provisions may have the effect of preventing Yahoo! from accepting particular
advertising or sponsorship arrangements during the term of exclusivity.
DISTRIBUTION RELATIONSHIPS. In order to create traffic for its online
properties and make them more attractive to advertisers and consumers, Yahoo!
has certain distribution agreements and informal relationships with leading Web
browser providers such as Microsoft and Netscape, operators of online networks
and leading websites, and computer manufacturers, such as Toshiba,
Hewlett-Packard and Gateway. These distribution arrangements typically are not
exclusive, and may be terminated upon little or no notice. In addition, the
combined company may be required to establish relationships with providers of
broadband services. Even if sufficient distribution opportunities are available
to the combined company in the U.S. or abroad, third parties that provide
distribution assess fees or otherwise impose additional conditions on the
listing of Yahoo! or our other online properties. Any failure to
cost-effectively obtain distribution could have a material adverse effect on the
combined company's business, results of operations, and financial condition.
Yahoo! recently announced a co-branding and distribution arrangement with
AT&T under which Yahoo! will provide a Web-based online service in conjunction
with dial-up Internet access provided by AT&T WorldNet Service. The acquisition
of Excite by @Home Networks, whose largest stockholder is AT&T, could adversely
affect Yahoo!'s relationship with AT&T.
TO BE SUCCESSFUL IN THE CONTINUALLY EVOLVING MARKET FOR ONLINE SERVICES, THE
COMBINED COMPANY MUST CONTINUE TO ENHANCE ITS PROPERTIES AND DEVELOP NEW ONES.
To remain competitive, the combined company must continue to enhance and
improve the functionality, features, and content of the Yahoo! main site, as
well as its other media properties. The combined company may not be able to
successfully maintain competitive user response times or implement new features
and functions, which will involve the development of increasingly complex
technologies. Personalized information services, such as Yahoo!'s Web-based
email services, message boards, stock portfolios and Yahoo! Clubs community
features, require significantly greater expenses than Yahoo!'s general services.
Yahoo! cannot guarantee that these additional expenses will be offset by
additional revenues from personalized services.
The combined company's future success also depends in part upon the timely
processing of website listings submitted by users and Web content providers,
which have increased substantially in recent periods. Yahoo! has, from time to
time, experienced significant delays in the processing of submissions. Further
delays could have a material adverse effect on the combined company's goodwill
among users and Web content providers, and on its business.
A key element of Yahoo!'s business strategy is the development and
introduction of new Yahoo!-branded online properties targeted for specific
interest areas, user groups with particular demographic characteristics, and
geographic areas. The combined company may not be successful in developing,
introducing, and marketing such products or media properties and such properties
may not achieve market acceptance, enhance its brand name recognition, or
increase user traffic. Furthermore,
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enhancements of or improvements to Yahoo! or new media properties may contain
undetected errors that require significant design modifications, resulting in a
loss of customer confidence and user support and a decrease in the value of its
brand name. If the combined company fails to effectively develop and introduce
new properties, or those properties fail to achieve market acceptance, the
combined company's business, results of operations, and financial condition
could be adversely affected.
YAHOO!'S EQUITY INVESTMENTS IN OTHER COMPANIES MAY NOT YIELD ANY RETURNS.
Yahoo! has made equity investments in affiliated companies that are involved
in the commercialization of Yahoo!-branded online properties, such as Yahoo!
Japan and Yahoo! Korea. These affiliated companies typically are in an early
stage of development and may be expected to incur substantial losses. Yahoo!'s
investments in such companies may not result in any return. As a result, Yahoo!
has recorded and expects to continue to record a share of the losses in such
affiliates attributable to its ownership. Yahoo! has also made equity
investments in non-affiliated companies involved in the development of
technologies or services that are complementary or related to Yahoo!'s business.
Yahoo! intends to continue to make significant additional investments in the
future. Losses resulting from such investments could have a material adverse
effect on the combined company's operating results.
YAHOO! MUST MANAGE ITS RECENT GROWTH AND THE INTEGRATION OF RECENTLY ACQUIRED
COMPANIES SUCCESSFULLY IN ORDER TO ACHIEVE DESIRED RESULTS.
Yahoo!'s recent growth has placed a significant strain on its managerial,
operational, and financial resources. To manage its growth, Yahoo! must continue
to implement and improve its operational and financial systems and to expand,
train, and manage its employee base. Any inability to manage growth effectively
could have a material adverse effect on the combined company's business,
operating results, and financial condition.
The process of managing advertising within large, high traffic websites such
as Yahoo! is an increasingly important and complex task. Yahoo! relies on both
internal and licensed third-party advertising inventory management and analysis
systems. To the extent that any extended failure of its advertising management
system results in incorrect advertising insertions, Yahoo! may be exposed to
"make good" obligations, which, by displacing advertising inventory, could defer
advertising revenues. Failure of Yahoo!'s advertising management systems to
effectively scale to higher levels of use or to effectively track and provide
accurate and timely reports on advertising results also could negatively affect
its relationships with advertisers.
As part of its business strategy, Yahoo! has completed several acquisitions
and expects to enter into additional business combinations and acquisitions.
Acquisition transactions are accompanied by a number of risks, including:
- - the difficulty of assimilating the operations and personnel of the acquired
companies;
- - the potential disruption of its ongoing business and distraction of
management;
- - the difficulty of incorporating acquired technology or content and rights
into its products and media properties;
- - the correct assessment of the relative percentages of in-process research and
development expense which can be immediately written off as compared to the
amount which must be amortized over the appropriate life of the asset;
- - the failure to successfully develop an acquired in-process technology could
result in the impairment of amounts currently capitalized as intangible
assets;
- - unanticipated expenses related to technology integration;
- - the maintenance of uniform standards, controls, procedures and policies;
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- - the impairment of relationships with employees and customers as a result of
any integration of new management personnel; and
- - the potential unknown liabilities associated with acquired businesses.
The combined company may not be successful in addressing these risks or any
other problems encountered in connection with such acquisitions.
THE COMBINED COMPANY WILL CONTINUE TO EXPAND INTO INTERNATIONAL MARKETS IN WHICH
IT HAS LIMITED EXPERIENCE.
A key part of Yahoo!'s strategy is to develop Yahoo!-branded online
properties in international markets. Yahoo! has developed and operates, through
joint ventures with SOFTBANK and related entities, versions of Yahoo! localized
for Japan, Germany, France, the United Kingdom, and Korea. It also operates
localized or mirror versions of Yahoo! through wholly-owned subsidiaries in
Australia, Denmark, Italy, Norway, Sweden, and Singapore and offers Yahoo!
guides in Spanish and Mandarin Chinese. The combined company or its partners may
not be able to successfully market and operate its products and services in
foreign markets.
To date, Yahoo! has only limited experience in developing localized versions
of its products and marketing and operating its products and services
internationally. It relies on the efforts and abilities of its foreign business
partners in such activities. Yahoo! also believes that in light of substantial
anticipated competition, it will need to move quickly into international markets
in order to effectively obtain market share. For example, in a number of
international markets, Yahoo! faces substantial competition from ISPs, some of
which have a dominant market share in their territories, that offer or may offer
their own navigational services. Yahoo! expects to continue to experience higher
costs as a percentage of revenues in connection with international online
properties. International markets Yahoo! has selected may not develop at a rate
that supports its level of investment. In particular, international markets may
be slower in adoption of the Internet as an advertising and commerce medium.
In addition to uncertainty about Yahoo!'s ability to continue to generate
revenues from its foreign operations and expand its international presence,
there are certain risks inherent in doing business on an international level,
including:
- - unexpected changes in regulatory requirements;
- - trade barriers;
- - difficulties in staffing and managing foreign operations including, as a
result of distance, language and cultural differences;
- - longer payment cycles;
- - currency exchange rate fluctuations;
- - problems in collecting accounts receivable;
- - political instability;
- - export restrictions;
- - seasonal reductions in business activity; and
- - potentially adverse tax consequences.
One or more of these factors could have a material adverse effect on the
combined company's future international operations and, consequently, on its
business, operating results, and financial condition.
THE COMBINED COMPANY'S OPERATIONS COULD BE SIGNIFICANTLY HINDERED BY THE
OCCURRENCE OF A NATURAL DISASTER OR OTHER CATASTROPHIC EVENT.
The combined company's operations will be susceptible to outages due to
fire, floods, power loss, telecommunications failures, break-ins and similar
events. In addition, substantially all of Yahoo!'s network infrastructure is
located in Northern California, an area susceptible to earthquakes. Yahoo! does
not have multiple site capacity in the event of any such occurrence. Despite its
implementation of network security
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measures, its servers are vulnerable to computer viruses, break-ins, and similar
disruptions from unauthorized tampering with its computer systems. Yahoo! does
not carry sufficient business interruption insurance to compensate it for losses
that may occur as a result of any of these events. Such events could have a
material adverse effect on the combined company's business, operating results,
and financial condition.
THE COMBINED COMPANY'S INTELLECTUAL PROPERTY RIGHTS ARE COSTLY AND DIFFICULT TO
PROTECT.
The combined company regards its copyrights, trademarks, trade dress, trade
secrets, and similar intellectual property as critical to its success. It relies
upon trademark and copyright law, trade secret protection and confidentiality or
license agreements with its employees, customers, partners and others to protect
its proprietary rights. For example, Yahoo! has obtained the registration for
certain of its trademarks, including "Yahoo!" and "Yahooligans!". Effective
trademark, copyright, and trade secret protection may not be available in every
country in which its products and media properties are distributed or made
available through the Internet, and while it attempts to ensure that the quality
of its brand is maintained by its licensees, Yahoo!'s licensees may take actions
that could materially and adversely affect the value of its proprietary rights
or the reputation of its products and media properties. Yahoo! is aware that
third parties have, from time to time, copied significant portions of Yahoo!
directory listings for use in competitive Internet navigational tools and
services. The distinctive elements of Yahoo! may not be protectible under
copyright law. Yahoo! cannot guarantee that the steps it has taken to protect
its proprietary rights will be adequate.
THE COMBINED COMPANY MAY BE SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT
CLAIMS, WHICH ARE COSTLY TO DEFEND AND COULD LIMIT ITS ABILITY TO USE CERTAIN
TECHNOLOGIES IN THE FUTURE.
Many parties are actively developing search, indexing, e-commerce and other
Web-related technologies. Yahoo! believes that these parties will continue to
take steps to protect these technologies, including seeking patent protection.
As a result, Yahoo! believes that disputes regarding the ownership of these
technologies are likely to arise in the future. For example, Yahoo! is aware
that a number of patents have been issued in the areas of:
- - electronic commerce;
- - online auctions;
- - Web-based information indexing and retrieval, including patents recently
issued to one of its direct competitors;
- - online direct marketing;
- - fantasy sports;
- - common Web graphics formats; and
- - mapping technologies.
Yahoo! anticipates that additional third-party patents will be issued in the
future. From time to time, parties assert patent infringement claims against
Yahoo! in the form of letters, lawsuits and other forms of communications.
In addition to patent claims, third parties may assert claims against Yahoo!
alleging infringement of copyrights, trademark rights, trade secret rights or
other proprietary rights or alleging unfair competition. In the event that
Yahoo! determines that licensing patents or other proprietary rights is
appropriate, Yahoo! cannot guarantee that it will be able to license such
proprietary rights on reasonable terms or at all. Yahoo! may incur substantial
expenses in defending against third party infringement claims regardless of the
merit of such claims. In the event that there is a determination that Yahoo! has
infringed third-party proprietary rights, it could incur substantial monetary
liability and be prevented from using the rights in the future.
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Yahoo! is aware of lawsuits filed against two of our competitors regarding
the presentment of advertisements in response to search requests on "keywords"
that may be trademarks of third parties. It is not clear what, if any, impact an
adverse ruling in these recently filed lawsuits would have on the combined
company.
THE COMBINED COMPANY WILL DEPEND ON KEY PERSONNEL WHO MAY NOT CONTINUE TO WORK
FOR IT.
Yahoo! is substantially dependent on the continued services of its key
personnel, including its two founders, its chief executive officer, chief
financial officer, chief operating officer, chief technical officer, its vice
presidents in charge of business development, sales and production and its
senior engineers. Each of these individuals has acquired specialized knowledge
and skills with respect to Yahoo! and its operations. As a result, if any of
these individuals were to leave Yahoo!, the combined company could face
substantial difficulty in hiring qualified successors and could experience a
loss in productivity while any such successor obtains the necessary training and
experience. Yahoo! expects that it will need to hire additional personnel in all
areas. The competition for qualified personnel is intense, particularly in the
San Francisco Bay Area, where Yahoo!'s corporate headquarters are located. At
times, Yahoo! has experienced difficulties in hiring personnel with the right
training or experience, particularly in technical areas. Yahoo! does not
maintain key person life insurance for any of its personnel. If the combined
company does not succeed in attracting new personnel, or retaining and
motivating existing personnel, its business will be adversely affected.
GEOCITIES HAS AN UNPROVEN BUSINESS MODEL THAT IS HIGHLY DEPENDENT ON THE
CONTINUED SUPPORT OF ITS MEMBERS AND ADVERTISERS.
GeoCities' business model, which will be incorporated into the combined
company's business model following the closing, depends upon its ability to
leverage its community platform and to generate multiple revenue streams. The
potential profitability of this business model is unproven, and, to be
successful, the combined company must, among other things, develop and market
solutions that achieve broad market acceptance by its members, Internet
advertisers, commerce vendors and Internet users. GeoCities is substantially
dependent upon its member-generated content, the grass-roots promotional efforts
of its members, the acceptance by its members of advertising and other
promotional programs of third parties and GeoCities and the voluntary
involvement of its community leaders and liaisons to attract Web users to its
site and to reduce the demands on company personnel. This model has existed for
only a limited period of time, and, as a result, is relatively unproven. There
can be no assurance that the combined company's member-generated content or the
promotional efforts of its members will continue to attract users to GeoCities'
Website or that they will attract advertising revenue from third parties in
sufficient amounts to make the business commercially viable. There can also be
no assurance that GeoCities' community leaders and liaisons will continue to
devote their time voluntarily to improving the community. If a substantial
number of homesteaders became dissatisfied with the combined company's services
or its focus on the commercialization of those services, the combined company's
business, results of operations and financial condition would be adversely
affected.
The GeoCities business model relies on volunteers such as its community
leaders and liaisons to provide assistance to homesteaders and other users of
the GeoCities website. Yahoo! and GeoCities are aware of a published report that
several volunteers at AOL have asked the U.S. Department of Labor to investigate
whether AOL's use of voluntary labor violates the Federal Fair Labor Standards
Act. The same report states that the Labor Department has not begun an
investigation into the matter, but acknowledges that it has received information
from several of AOL's volunteers. Although GeoCities is not aware of any similar
requests by any of its volunteers, no assurances can be given that such requests
will not be made in the future. GeoCities does not believe that any of its
practices in connection with the use of volunteers in its business is in
violation of any labor laws; however, to the
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extent that the Department of Labor makes an adverse determination in the AOL
matter, it could materially and adversely affect the combined company's business
and financial results.
THE COMBINED COMPANY WILL BE SUBJECT TO U.S. AND FOREIGN GOVERNMENT REGULATION
OF THE INTERNET, THE IMPACT OF WHICH IS DIFFICULT TO PREDICT.
There are currently few laws or regulations directly applicable to the
Internet. The application of existing laws and regulations to the combined
company relating to issues such as user privacy, defamation, pricing,
advertising, taxation, gambling, sweepstakes, promotions, content regulation,
quality of products and services, and intellectual property ownership and
infringement can be unclear. In addition, the combined company will also be
subject to new laws and regulations directly applicable to its activities. Any
existing or new legislation applicable to the combined company could expose it
to substantial liability, including significant expenses necessary to comply
with such laws and regulations, and dampen the growth in use of the Web.
Other nations, including Germany, have taken actions to restrict the free
flow of material deemed to be objectionable on the Web. The European Union has
recently adopted privacy and copyright directives that may impose additional
burdens and costs on the combined company's international operations. In
addition, several telecommunications carriers, including America's Carriers'
Telecommunications Association, are seeking to have telecommunications over the
Web regulated by the FCC in the same manner as other telecommunications
services. Many areas with high Web use have begun to experience interruptions in
phone service, and local telephone carriers, such as Pacific Bell, have
petitioned the FCC to regulate ISPs and OSPs and to impose access fees. A number
of proposals have been made at the federal, state and local level that would
impose additional taxes on the sale of goods and services through the Internet.
If any such proposals are adopted, it could substantially impair the growth of
the Internet and adversely affect the combined company.
Several recently passed federal laws could have an impact on the combined
company's business. The Digital Millenium Copyright Act is intended to reduce
the liability of online service providers for listing or linking to third-party
websites that include materials that infringe copyrights or other rights of
others. The Children's Online Protection Act and the Children's Online Privacy
Protection Act are intended to restrict the distribution of certain materials
deemed harmful to children and impose additional restrictions on the ability of
online services to collect user information from minors. In addition, the
Protection of Children From Sexual Predators Act of 1998 requires online service
providers to report evidence of violations of federal child pornography laws
under certain circumstances. Yahoo! is currently reviewing this legislation, and
cannot currently predict the effect, if any, that they will have on its
business. They may impose significant additional costs on the combined company's
business or subject it to additional liabilities.
GeoCities and Yahoo! post policies concerning the use and disclosure of user
data. In addition, the combined company will be required to comply, to a certain
extent, with the consent order described in Information Regarding
GeoCities--Business of GeoCities--Legal Proceedings. Any failure of the combined
company to comply with its posted privacy policies or the consent order could
adversely affect the combined company's business, results of operations and
financial condition.
Due to the global nature of the Web, it is possible that the governments of
other states and foreign countries might attempt to regulate its transmissions
or prosecute Yahoo! for violations of their laws. Yahoo! might unintentionally
violate such laws. Such laws may be modified, or new laws enacted, in the
future. Any such developments could have a material adverse effect on the
combined company's business, results of operations, and financial condition.
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THE COMBINED COMPANY MAY BE SUBJECT TO LEGAL LIABILITY FOR ITS ONLINE SERVICES.
Yahoo! hosts a wide variety of services that enable individuals to exchange
information, generate content, conduct business and engage in various online
activities, including services relating to online auctions and the homesteading
and other services currently offered by GeoCities which will continue to be
offered by the combined company. The law relating to the liability of providers
of these online services for activities of their users is currently unsettled.
Claims could be made against the combined company for defamation, negligence,
copyright or trademark infringement, unlawful activity, tort, including personal
injury, fraud, or other theories based on the nature and content of information
that the combined company provides links to or that may be posted online or
generated by its users or with respect to auctioned materials. These types of
claims have been brought, and sometimes successfully pressed, against online
service providers in the past. In addition, Yahoo! is aware that governmental
agencies are currently investigating the conduct of online auctions.
Yahoo! also periodically enters into arrangements to offer third-party
products, services, or content under the Yahoo! brand or via distribution on
Yahoo! properties, including stock quotes and trading information. The combined
company may be subject to claims concerning such products, services or content
by virtue of its involvement in marketing, branding or providing access to them,
even if it does not itself host, operate, provide, or provide access to these
products, services or content. While its agreements with these parties often
provide that Yahoo! will be indemnified against such liabilities, such
indemnification may not be adequate.
It is also possible that, if any information provided directly by Yahoo!
contains errors or is otherwise negligently provided to users, third parties
could make claims against the combined company. For example, Yahoo! offers
web-based email services, which expose Yahoo! to potential risks, such as
liabilities or claims resulting from unsolicited email, lost or misdirected
messages, illegal or fraudulent use of email, or interruptions or delays in
email service. Investigating and defending any of these types of claims is
expensive, even to the extent that the claims do not result in liability.
E-COMMERCE ACTIVITIES MAY EXPOSE THE COMBINED COMPANY TO UNCERTAIN LEGAL RISKS
AND POTENTIAL LIABILITIES.
As part of its business, Yahoo! enters into agreements with sponsors,
content providers, service providers, and merchants under which it is entitled
to receive a share of revenue from the purchase of goods and services by users
of our online properties. In addition, Yahoo! provides hosting and other
services to online merchants. These types of arrangements may expose the
combined company to additional legal risks and uncertainties, including
potential liabilities relating to the products and services offered by such
third parties.
Yahoo! recently began offering a Yahoo!-branded VISA credit card, which
includes a "rewards" program entitling card users to receive points that may be
redeemed for merchandise, such as books or music. This arrangement exposes
Yahoo! to risks and expenses relating to compliance with consumer protection
laws, loss of customer data, disputes over redemption procedures and rules,
products liability, sales taxation and liabilities associated with any failure
in performance by participating merchants.
Although Yahoo! maintains liability insurance, insurance may not cover these
claims or may not be adequate. Even to the extent these types of claims do not
result in material liability, investigating and defending the claims is
expensive.
THE YEAR 2000 PROBLEM COULD CAUSE THE COMBINED COMPANY'S SOFTWARE PRODUCTS AND
THOSE OF ITS SUPPLIERS TO MALFUNCTION, WHICH WOULD PREVENT OR LIMIT ACCESS TO
ITS ONLINE PROPERTIES AND COULD BE COSTLY TO REMEDY.
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot distinguish
twenty-first century dates from twentieth
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century dates. To function properly, these date-code fields must distinguish
twenty-first century dates from twentieth century dates and, as a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such "Year 2000" requirements.
HOW YAHOO! IS AFFECTED. Yahoo! is dependent on the operation of numerous
systems that may be adversely affected by the Year 2000 problem, including:
- - Yahoo!'s and GeoCities' internal systems; and
- - equipment, software and content supplied to Yahoo! and GeoCities by third
party vendors that may not be Year 2000 compliant, including outside
providers of web-hosting services on which Yahoo! and GeoCities are currently
dependent.
In addition, Yahoo!'s future business depends on the successful operation of the
Internet following the commencement of the Year 2000. If the Internet is
inaccessible for an appreciable period of time, or if Yahoo!'s customers and
users are unable to access Yahoo!'s site, Yahoo!'s business and revenues could
be materially adversely affected. Yahoo! is also subject to external forces that
might generally affect industry and commerce, such as telecommunications,
utility or transportation company Year 2000 compliance failures, related service
interruptions and the economic impact that such failures have on Yahoo!
customers and advertisers.
YEAR 2000 COMPLIANCE ASSESSMENT PLANS. Yahoo! has undertaken a two-phase
process of analyzing the impact of the Year 2000 problem. First, Yahoo! has
completed an informal assessment of its primary internal systems and, based on
such assessment and our knowledge of the specific software and systems, Yahoo!
currently believes that its systems are Year 2000 compliant in all material
respects or can readily be brought into compliance with the application of
corrective software modifications. In many cases, we expect these modifications
to be provided by the vendors of the computer and software products we have
installed. Yahoo! has not incurred material costs to date in this informal phase
of the assessment process, and currently does not believe that the cost of
additional actions will have a material effect on its results of operations or
financial condition.
Second, Yahoo! is in the process of performing a formal assessment of both
its internal systems and the vendor-supplied items and services it employs to
determine how the Year 2000 problem will affect all aspects of Yahoo!'s
operations. Yahoo! expects to complete this second phase of its assessment by
mid-spring of 1999. The formal process involves assessment of the following
Yahoo! systems:
- - hardware systems, including servers and systems used for data storage;
- - software systems, including applications, development tools and proprietary
code;
- - infrastructure systems, including routers, hubs and networks;
- - facility systems, including general building functions, security, HVAC and
related operations; and
- - the systems of our business partners, including content providers and ISPs.
Yahoo! is conducting its formal assessment of Year 2000 readiness by
gathering information on each aspect of Yahoo!'s systems, reviewing each
component or application for date usage, and examining date representations.
With respect to vendor-supplied items and services, Yahoo! is conducting an
extensive review of product compliance information on such items and services
available on line, in vendor literature and through trade group information
resources, contacting its vendors for compliance information, and maintaining
documentation of assessments that have been performed by such vendors or outside
sources.
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Each department of Yahoo! is involved in this formal assessment process.
Once complete, the formal assessment will lead to the creation of a formal
remediation and contingency plan for achieving Year 2000 readiness. Yahoo! does
not anticipate, however, undertaking a formal assessment of the Year 2000
readiness of the Internet or its underlying telecommunications infrastructure,
and will therefore be unable to predict the impact of Year 2000 issues that
might affect the broader Internet business community, including Yahoo!.
RESULTS OF COMPLIANCE EFFORTS TO DATE. Based on the completed informal
assessment and progress on the formal assessment, Yahoo! currently believes that
its internal systems are or can readily be made Year 2000 compliant in all
material respects. However, it is possible that these current internal systems
contain undetected errors or defects with Year 2000 date functions. In addition,
although the combined company does not anticipate problems, vendor-supplied
items and services could contain undetected errors or defects which, if not
corrected, could result in serious unanticipated negative consequences,
including significant downtime for one or more Yahoo! media properties.
COSTS OF YEAR 2000 COMPLIANCE COULD BE SIGNIFICANT. Although Yahoo! is not
aware of any material operational issues or costs associated with preparing its
internal systems for the Year 2000, and although Yahoo! has not incurred
material costs to date with respect to the Year 2000 readiness of these internal
systems, the occurrence of any of the following events could materially and
adversely affect Yahoo!'s business, results of operations and financial
condition:
- - errors and defects are detected after the formal assessment process is
complete;
- - third-party equipment, software or content fails to operate properly with
regard to the Year 2000;
- - Web advertisers expend significant resources to correct their current systems
for Year 2000 compliance, resulting in reduced funds available for Web
advertising or sponsorship of Web services; or
- - material costs arise in connection with preparing GeoCities' internal systems
for the Year 2000 problem. See "Year 2000 Readiness."
INVESTMENT RISKS
YAHOO!'S STOCK PRICE HAS HISTORICALLY BEEN VOLATILE, WHICH MAY MAKE IT MORE
DIFFICULT FOR YOU TO RESELL SHARES WHEN YOU WANT AT PRICES YOU FIND ATTRACTIVE.
The trading price of Yahoo! common stock has been and may continue to be
subject to wide fluctuations. During 1998, the closing sale prices of Yahoo!
common stock on the Nasdaq Stock Market ranged from $14.52 to $137.75. The stock
price may fluctuate in response to a number of events and factors, such as
quarterly variations in operating results, announcements of technological
innovations or new products and media properties by Yahoo! or its competitors,
changes in financial estimates and recommendations by securities analysts, the
operating and stock price performance of other companies that investors may deem
comparable, and news reports relating to trends in our markets. In addition, the
stock market in general, and the market prices for Internet-related companies in
particular, have experienced extreme volatility that often has been unrelated to
the operating performance of such companies. These broad market and industry
fluctuations may adversely affect the price of Yahoo!'s stock, regardless of its
operating performance.
AFTER THE MERGER, MANAGEMENT AND ONE LARGE SHAREHOLDER WILL BENEFICIALLY OWN
APPROXIMATELY 51% OF YAHOO!'S COMMON STOCK; THEIR INTERESTS COULD CONFLICT WITH
YOURS.
Following the merger, Yahoo!'s directors and executive officers, and
SOFTBANK will beneficially own approximately 51% of Yahoo!'s outstanding common
stock. As a result of their ownership, the
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directors and executive officers of Yahoo! and SOFTBANK collectively are able to
control all matters requiring shareholder approval, including the election of
directors and approval of significant corporate transactions. Such concentration
of ownership may also have the effect of delaying or preventing a change in
control of Yahoo!.
ANTI-TAKEOVER PROVISIONS COULD MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO
ACQUIRE YAHOO!
Yahoo!'s board of directors has the authority to issue up to 10,000,000
shares of preferred stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the shareholders. The rights of the holders of
common stock may be subject to, and may be adversely affected by, the rights of
the holders of any preferred stock that may be issued in the future. The
issuance of preferred stock may have the effect of delaying, deferring or
preventing a change of control of Yahoo! without further action by the
shareholders and may adversely affect the voting and other rights of the holders
of common stock. Yahoo! has no present plans to issue shares of preferred stock.
Further, certain provisions of its charter documents, including provisions
eliminating the ability of shareholders to take action by written consent and
limiting the ability of shareholders to raise matters at a meeting of
shareholders without giving advance notice, may have the effect of delaying or
preventing changes in control or management of Yahoo!, which could have an
adverse effect on the market price of the stock. In addition, Yahoo!'s charter
documents do not permit cumulative voting, which may make it more difficult for
a third-party to gain control of the Board of Directors.
PRIVATELY-SOLD SHARES ELIGIBLE FOR PUBLIC RESALE COULD HAVE A NEGATIVE EFFECT ON
YAHOO!'S STOCK PRICE.
As of March 1, 1999, Yahoo! had 202,325,813 shares of common stock
outstanding, and there were outstanding options to purchase approximately
50,500,000 shares of Yahoo! common stock under stock option plans. Of the
outstanding shares of common stock approximately 2,570,000 shares issued by
Yahoo! in connection with acquisitions and investments have been available for
resale pursuant to currently effective registration statements previously filed
by Yahoo! with the SEC. Sales of substantial amounts of these shares in the
public market or the prospect of these sales could adversely affect the market
price of Yahoo! common stock.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This document, including information incorporated by reference, contains
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
statements relate to expectations concerning matters that are not historical
facts. Words such as "projects," "believes," "anticipates," "plans," "expects,"
"intends," and similar words and expressions are intended to identify
forward-looking statements. Although each of Yahoo! and GeoCities believes that
such forward-looking statements are reasonable, neither can assure you that such
expectations will prove to be correct. Important language regarding factors that
could cause actual results to differ materially from such expectations are
disclosed herein including, without limitation, in the "Risk Factors" beginning
on page 6. All forward-looking statements attributable to Yahoo! or GeoCities
are expressly qualified in their entirety by such language. Neither Yahoo! nor
GeoCities undertakes any obligation to update any forward-looking statements.
TRADEMARKS
This document contains trademarks of Yahoo! and GeoCities and may contain
trademarks of others.
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YAHOO!
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data should be read
in conjunction with Yahoo!'s consolidated financial statements and related notes
thereto and Yahoo!'s "Management's Discussion and Analysis of Financial
Condition and Results of Operations" incorporated by reference in this document.
The consolidated statement of operations data for each of the three years ended
December 31, 1998, and the consolidated balance sheet data at December 31, 1998
and 1997, are derived from the consolidated financial statements of Yahoo! which
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
are incorporated by reference in this document. The consolidated statement of
operations data for the year ended December 31, 1995, and the consolidated
balance sheet data at December 31, 1996 and 1995, are derived from the audited
consolidated financial statements of Yahoo! which are not included or
incorporated by reference in this document. Historical results are not
necessarily indicative of the results to be expected in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996 1995
-------- -------- ------- -------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues................................................ $203,270 $ 70,450 $21,490 $ 1,620
Cost of revenues............................................ 26,742 10,885 4,722 281
-------- -------- ------- -------
Gross profit.............................................. 176,528 59,565 16,768 1,339
-------- -------- ------- -------
Operating expenses:
Sales and marketing....................................... 92,380 45,778 16,168 935
Product development....................................... 22,742 12,082 5,700 340
General and administrative................................ 11,210 7,392 5,834 1,153
Amortization of intangibles............................... 2,028 -- -- --
Other non-recurring costs................................. 19,400 25,095 -- --
-------- -------- ------- -------
Total operating expenses................................ 147,760 90,347 27,702 2,428
-------- -------- ------- -------
Income (loss) from operations............................... 28,768 (30,782) (10,934) (1,089)
Investment income, net...................................... 14,579 4,535 3,967 73
Minority interests in operations of consolidated
subsidiaries.............................................. 68 727 540 --
-------- -------- ------- -------
Income (loss) before income taxes........................... 43,415 (25,520) (6,427) (1,016)
Provision for income taxes.................................. 17,827 -- -- --
-------- -------- ------- -------
Net income (loss)........................................... $ 25,588 $(25,520) $(6,427) $(1,016)
-------- -------- ------- -------
-------- -------- ------- -------
Net income (loss) per share--basic(1)....................... $ 0.14 $ (0.15) $ (0.04) $ (0.01)
-------- -------- ------- -------
-------- -------- ------- -------
Net income (loss) per share--diluted(1)..................... $ 0.11 $ (0.15) $ (0.04) $ (0.01)
-------- -------- ------- -------
-------- -------- ------- -------
Shares used in per share calculation--basic(1).............. 184,060 174,672 157,300 109,468
-------- -------- ------- -------
-------- -------- ------- -------
Shares used in per share calculation--diluted(1)............ 224,100 174,672 157,300 109,468
-------- -------- ------- -------
-------- -------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1998 1997 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments..... $ 433,499 $ 91,343 $ 96,947 $ 6,167
Working capital....................................... 387,256 84,050 92,790 5,620
Total assets.......................................... 621,884 143,512 116,205 7,489
Total stockholders' equity............................ 536,210 118,358 105,916 5,975
</TABLE>
24
<PAGE>
- ------------------------
(1) Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income
(loss) per share is computed using the weighted average number of common and
common equivalent shares outstanding during the period. Common equivalent
shares consist of the incremental common shares issuable upon conversion of
convertible preferred stock (using the if-converted method) and shares
issuable upon the exercise of stock options and warrants (using the treasury
stock method). For 1998, common equivalent shares primarily related to
shares issuable upon the exercise of stock options and approximated 40.0
million shares. Common equivalent shares in 1997 and 1996 were excluded from
the computation as their effect was anti-dilutive.
25
<PAGE>
GEOCITIES
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data should be read
in conjunction with GeoCities' consolidated financial statements and related
notes thereto and GeoCities' "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this document. The
consolidated statement of operations data for each of the three years ended
December 31, 1998, and the consolidated balance sheet data at December 31, 1998
and 1997, are derived from the consolidated financial statements of GeoCities
which have been audited by PricewaterhouseCoopers LLP, independent accountants,
and are included elsewhere in this document. The statement of operations data
for the year ended December 31, 1995, and the balance sheet data at December 31,
1996 and 1995, are derived from audited financial statements of GeoCities not
included in this document. Historical results are not necessarily indicative of
the results to be expected in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996 1995
-------- -------- ------- -------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues................................................ $ 18,359 $ 4,582 $ 314 $ 46
Cost of revenues............................................ 9,696 3,789 788 103
-------- -------- ------- -------
Gross profit (loss)....................................... 8,663 793 (474) (57)
-------- -------- ------- -------
Operating expenses:
Sales and marketing....................................... 17,486 5,837 764 117
Product development....................................... 4,093 1,045 475 72
General and administrative................................ 9,156 2,930 1,252 233
-------- -------- ------- -------
Total operating expenses................................ 30,735 9,812 2,491 422
-------- -------- ------- -------
Loss from operations........................................ (22,072) (9,019) (2,965) (479)
Other income (expense), net................................. 2,314 117 (40) (2)
-------- -------- ------- -------
Loss before provision for income taxes...................... (19,758) (8,902) (3,005) (481)
Provision for income taxes.................................. (1) (1) (1) (1)
-------- -------- ------- -------
Net loss.................................................... $(19,759) $ (8,903) $(3,006) $ (482)
-------- -------- ------- -------
-------- -------- ------- -------
Basic and diluted net loss per share applicable to common
stockholders(2)........................................... $ (1.42) $ (3.72) $ (1.19) $ (0.11)
Weighted average shares outstanding used in basic and
diluted net loss per share calculation(2)................. 15,001(1) 2,620 2,617 4,431
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1998 1997 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments....... $ 84,811 $ 3,785 $ 33 $ 1
Working capital (deficiency)............................ 79,504 26,451 (1,642) (135)
Total assets............................................ 130,382 32,868 1,448 105
Debt and capital lease obligations, less current
portion............................................... 2,327 834 437 --
Mandatory redeemable convertible preferred stock........ -- 38,137 2,168 --
Total stockholders' equity (deficiency)................. 116,999 (10,046) (3,151) (40)
</TABLE>
26
<PAGE>
- ------------------------
(1) This information is based on the number of shares of common stock
outstanding as of December 31, 1998. It excludes (1) approximately 8,307,000
shares of common stock issuable upon the exercise of stock options under
GeoCities' 1997 Stock Option Plan, GeoCities' 1998 Stock Incentive Plan and
pursuant to written agreements with certain officers, directors,
consultants, founders and employees of GeoCities outstanding at December 31,
1998, with a weighted average exercise price of $7.97 per share; (2)
approximately 1,277,000 shares of common stock reserved for future issuance
under GeoCities' 1997 Stock Option Plan and GeoCities' 1998 Stock Incentive
Plan; (3) approximately 215,000 shares of common stock issuable upon the
exercise of stock options granted under GeoCities' Starseed, Inc. 1998 Stock
Option/Stock Issuance Plan, with a weighted average exercise price of $6.39
per share and (4) 300,000 shares of common stock reserved for future
issuance under GeoCities' employee stock purchase plan. See
"Capitalization", "Management -- Employee Benefit Plans", "Description of
Capital Stock" and Notes 2, 7, 10, and 12 of notes to consolidated financial
statements.
(2) Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares are excluded
from the calculation if their effect is anti-dilutive (see Note 2 of Notes
to the GeoCities Consolidated Financial Statements included herein). Basic
and diluted net loss per share takes into consideration the accretion of
mandatory redeemable preferred stock.
27
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The selected unaudited pro forma combined financial data give effect to the
proposed merger of Yahoo! and GeoCities on a pooling of interests basis. The
Yahoo! and GeoCities unaudited pro forma combined financial data are based on
the respective historical consolidated financial statements and the notes
thereto, which are incorporated by reference or included elsewhere in this
document. The Yahoo! and GeoCities unaudited pro forma combined balance sheet
data assume that the merger of Yahoo! and GeoCities took place on December 31,
1998, 1997 and 1996, and combines the Yahoo! consolidated balance sheet with
GeoCities' consolidated balance sheet as of each respective date. The Yahoo! and
GeoCities unaudited pro forma combined statements of operations data assume that
the merger of Yahoo! and GeoCities took place as of the beginning of the periods
presented and combine Yahoo!'s consolidated statements of operations for the
years ended December 31, 1998, 1997 and 1996, with GeoCities' consolidated
statements of operations for the years ended December 31, 1998, 1997 and 1996,
respectively. This presentation is consistent with the years expected to be
combined after the date of the closing of the merger.
On March 31, 1999, Yahoo! entered into an agreement to merge with
broadcast.com inc. in a transaction to be accounted for as a pooling of
interests. See "Recent Developments." The Yahoo!, GeoCities and broadcast.com
unaudited combined financial data are based on the historical consolidated
financial statements and notes thereto of Yahoo! and GeoCities and the
supplemental historical consolidated financial statements and notes thereto of
broadcast.com, which are incorporated by reference or included elsewhere in this
document. This presentation is on the same basis as the Yahoo! and GeoCities
unaudited proforma combined financial data described above and is consistent
with the years expected to be combined after the date of the closing of the
mergers of Yahoo!, GeoCities and broadcast.com.
The unaudited pro forma combined financial data are presented for
illustrative purposes only and are not necessarily indicative of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had the entities been a single entity
during these periods. The unaudited pro forma combined financial data as of
December 31, 1998, and for each of the three years in the period ended December
31, 1998, are derived from the unaudited pro forma condensed combined financial
statements included elsewhere herein and should be read in conjunction with
those statements and notes thereto. See "Unaudited Pro Forma Condensed Combined
Financial Statements."
28
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
YAHOO!, GEOCITIES AND
YAHOO! AND GEOCITIES BROADCAST.COM
---------------------------------- ----------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------------- ----------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENTS OF
OPERATIONS DATA:
Net revenues.......................... $ 221,747 $ 75,032 $ 21,804 $ 243,509 $ 84,011 $ 23,793
Gross profit.......................... 181,993 60,358 16,294 187,058 63,556 16,506
Total operating expenses.............. 189,697 100,159 30,193 211,947 110,254 33,449
Net loss applicable to common
stockholders........................ $ (10,248) $ (35,255) $ (9,538) $ (25,708) $ (42,056) $ (12,535)
Net loss per share -- basic and
diluted............................. $ (0.05) $ (0.20) $ (0.06) $ (0.12) $ (0.22) $ (0.07)
Shares used in per share calculation
-- basic and diluted................ 193,757 176,445 159,071 218,917 195,129 174,325
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------------------------------ ------------------------------------
1998 1997 1996 1998 1997 1996
------------ ---------- ---------- ------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA COMBINED BALANCE SHEET
DATA:
Cash, cash equivalents, and
short-term and long-term
investments in marketable debt
securities...................... $ 572,331 $ 111,830 $ 106,728 $ 622,159 $ 133,180 $ 111,311
Working capital................... 400,760 110,501 91,148 451,342 142,505 95,540
Total assets...................... 729,609 171,280 117,653 775,230 200,965 125,939
Shareholders' equity.............. 564,552 103,212 102,765 606,191(1) 130,117 110,367
</TABLE>
- ------------------------
(1) Excludes charge for costs resulting from the proposed merger of Yahoo! with
broadcast.com which is yet to be determined.
29
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables reflect (a) the historical net income (loss) and book
value per share of Yahoo!, GeoCities and broadcast.com common stock in
comparison with the unaudited pro forma net loss and book value per share after
giving effect to the proposed mergers of Yahoo! with GeoCities and Yahoo! and
GeoCities with broadcast.com on a "pooling of interests" basis and (b) the
equivalent historical net loss and book value per share attributable to 0.6768
of a share of Yahoo! common stock which will be received for each share of
GeoCities common stock. The information presented in the following tables should
be read in conjunction with the unaudited pro forma condensed combined financial
statements included in this document, the historical consolidated financial
statements and related notes of Yahoo! and GeoCities and the supplemental
historical consolidated financial statements and related notes of broadcast.com
which are incorporated by reference or included elsewhere in this document.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------
YAHOO! PER SHARE DATA 1998 1997 1996
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
YAHOO! HISTORICAL PER COMMON SHARE:
Net income (loss) per common share -- basic (2)..................................... $ 0.14 $ (0.15) $ (0.04)
Net income (loss) per common share -- diluted (2)................................... $ 0.11 $ (0.15) $ (0.04)
Book value per share (1)............................................................ $ 2.69
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------
GEOCITIES PER SHARE DATA 1998 1997 1996
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
GEOCITIES HISTORICAL PER COMMON SHARE:
Net loss per common share -- basic and diluted (2).................................. $ (1.42) $ (3.72) $ (1.19)
Book value per share (1)............................................................ $ 3.65
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
YAHOO! AND GEOCITIES -------------------------------
PRO FORMA COMBINED PER SHARE DATA 1998 1997 1996
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
PRO FORMA COMBINED PER COMMON SHARE:
Net loss per Yahoo! share -- basic and diluted...................................... $ (0.05) $ (0.20) $ (0.06)
Net loss per equivalent GeoCities share -- basic and diluted (3).................... $ (0.03) $ (0.14) $ (0.04)
Book value per Yahoo! share (1)(4).................................................. $ 2.56
Book value per equivalent GeoCities share (3)....................................... $ 1.73
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------
BROADCAST.COM PER SHARE DATA 1998 1997 1996
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
BROADCAST.COM SUPPLEMENTAL HISTORICAL PER COMMON SHARE:
Net loss per common share -- basic and diluted (2).................................. $ (0.47) $ (0.28) $ (0.15)
Book value per share (1)............................................................ $ 1.62
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
YAHOO!, GEOCITIES AND BROADCAST.COM -------------------------------
PRO FORMA COMBINED PER SHARE DATA 1998 1997 1996
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
PRO FORMA COMBINED PER COMMON SHARE:
Net loss per Yahoo! share -- basic and diluted...................................... $ (0.12) $ (0.22) $ (0.07)
Net loss per equivalent GeoCities share -- basic and diluted (3).................... $ (0.08) $ (0.15) $ (0.05)
Book value per Yahoo! share (1)(4).................................................. $ 2.45
Book value per equivalent GeoCities share (3)(4).................................... $ 1.66
</TABLE>
- ------------------------
(1) The historical book value per share is computed by dividing shareholders'
equity by the number of shares of common stock outstanding at December 31,
1998. The pro forma combined book value per share is computed by dividing
pro forma shareholders' equity by the pro forma number of shares of Yahoo!
common stock outstanding as of December 31, 1998, assuming the merger had
occurred as of that date.
(2) Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares consist of
the incremental common shares issuable upon conversion of the convertible
preferred stock (using the if-converted method) and shares issuable upon the
exercise of stock options and warrants (using the treasury stock method).
Common equivalent shares are excluded from the computations if their effect
is antidilutive.
(3) The equivalent pro forma combined per GeoCities share is calculated by
multiplying the pro forma combined share amounts by the exchange ratio of
0.6768 shares of Yahoo! common stock for each share of GeoCities common
stock.
(4) Excludes effect of charge for costs resulting from the proposed merger
between Yahoo! and broadcast.com which is yet to be determined.
31
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Yahoo!'s common stock is traded on The Nasdaq National Market under the
symbol "YHOO." The following table sets forth the range of high and low
intra-day sales prices reported on The Nasdaq National Market for Yahoo! common
stock for the periods indicated, adjusted to reflect the 2-for-1 stock split
that occurred in February 1999, the 2-for-1 stock split that occurred in August
1998, and the 3-for-2 stock split that occurred in September 1997.
<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
FISCAL 1997
First Quarter....................................................... $ 6.231 $ 2.793
Second Quarter...................................................... 6.563 4.125
Third Quarter....................................................... 14.500 5.582
Fourth Quarter...................................................... 17.750 8.532
FISCAL 1998
First Quarter....................................................... $ 23.563 $ 14.407
Second Quarter...................................................... 39.938 22.719
Third Quarter....................................................... 67.313 29.500
Fourth Quarter...................................................... 143.000 48.750
FISCAL 1999
First Quarter....................................................... $ 222.500 $ 119.844
Second Quarter (through April 27, 1999)............................. 244.000 155.000
</TABLE>
GeoCities' common stock has traded on The Nasdaq National Market under the
symbol "GCTY" since August 1998. The following table sets forth the range of
high and low intra-day sales prices reported on The Nasdaq National Market for
GeoCities common stock for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
---------- ---------
<S> <C> <C>
FISCAL 1998
Third Quarter........................................................ $ 51.375 $ 16.250
Fourth Quarter....................................................... 47.375 13.250
FISCAL 1999
First Quarter........................................................ $ 117.375 $ 33.000
Second Quarter (through April 27, 1999).............................. 159.250 102.000
</TABLE>
RECENT SHARE PRICES
The following table sets forth the closing sales prices per share of Yahoo!
common stock on The Nasdaq National Market and the closing sales prices per
share of the GeoCities common stock on The Nasdaq National Market, on (1)
January 27, 1999, the last full trading date prior to the public announcement of
the merger, and (2) April 27, 1999, the latest practicable trading day before
the printing of this proxy statement/prospectus. The equivalent GeoCities per
share price as of any given date, including the dates indicated, is determined
by multiplying the price of one share of Yahoo! common stock as of such date by
0.6768, the exchange ratio set forth in the merger agreement, and
32
<PAGE>
represents what the market value of one share of GeoCities common stock would
have been if the merger had been consummated on or prior to such day.
<TABLE>
<CAPTION>
YAHOO! GEOCITIES EQUIVALENT
COMMON COMMON GEOCITIES PER
STOCK STOCK SHARE PRICE
---------- ---------- -------------
<S> <C> <C> <C>
January 27, 1999....................................... $ 167.938 $ 75.000 $ 113.660
April 27, 1999......................................... $ 184.500 $ 122.125 $ 124.870
</TABLE>
No assurance can be given as to the market prices of Yahoo! common stock or
GeoCities common stock at any time before the closing of the merger or as to the
market price of Yahoo! common stock at any time thereafter. The exchange ratio
is fixed and will not be adjusted to compensate GeoCities' stockholders for
decreases in the market price of Yahoo! common stock which could occur before
the merger becomes effective. If the market price of Yahoo! common stock
decreases or increases prior to the effective time of the merger, the market
value of the Yahoo! common stock to be received in the merger in exchange for
GeoCities common stock will correspondingly decrease or increase. STOCKHOLDERS
OF GEOCITIES ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS OF GEOCITIES COMMON
STOCK AND YAHOO! COMMON STOCK.
DIVIDEND INFORMATION
Neither Yahoo! nor GeoCities has ever paid any cash dividends on their
stock, and both anticipate that they will continue to retain any earnings for
the foreseeable future for use in the operation of their respective businesses.
NUMBER OF STOCKHOLDERS
As of April 21, 1999, there were 1,075 stockholders of record who held
shares of GeoCities capital stock.
33
<PAGE>
RECENT DEVELOPMENTS
On March 31, 1999, Yahoo! entered into an agreement to acquire broadcast.com
inc. in a stock-for-stock merger. The following sets forth certain pertinent
information relating to the proposed transaction.
BUSINESS OF BROADCAST.COM INC.
Broadcast.com inc. is a leading aggregator and broadcaster of streaming
media programming on the Web with the network infrastructure and expertise to
deliver or "stream" hundreds of live and on-demand audio and video programs over
the Internet to hundreds of thousands of users. Broadcast.com's Web sites offer
a large and comprehensive selection of live and on-demand audio and video
programming, including sports, talk and music radio, television, business
events, full-length CDs, news, commentary and full-length audio-books.
Broadcast.com broadcasts on the Internet 24 hours a day seven days a week, and
its programming includes more than 385 radio stations and networks, 40
television stations and cable networks and game broadcasts and other programming
for over 420 college and professional sports teams. Broadcast.com licenses such
programming from content providers, in most cases under exclusive, multi-year
agreements. Broadcast.com's Business Services Division provides cost-effective
Internet and intranet broadcasting services to businesses and other
organizations. These business services include the turnkey production of press
conferences, earnings conference calls, investor conferences, trade shows,
stockholder meetings, product introductions, training sessions, distance
learning seminars, customized corporate TV channels and media events. In
addition to its business services, broadcast.com derives revenues from the sale
of advertising on its Web sites, including gateway ads with guaranteed
click-thrus, channel and event sponsorships, multimedia and traditional banner
ads, as well as its new in-stream ads and in-player banner ads. In December
1998, broadcast.com's Web sites served a daily average of over 800,000 unique
users ranking broadcast.com's sites #16 among all sites on the Internet
according to a January 1999 Media Metrix report. In July 1998, broadcast.com
completed its initial public offering, raising approximately $43.2 million.
During November 1998, broadcast.com acquired Simple Network Communications,
Inc., a premier provider of Web hosting services, to expand into Internet
broadcasting services for consumer and small businesses. In March 1999,
broadcast.com acquired Net Roadshow, Inc., the leading provider of Internet IPO
roadshows.
Broadcast.com believes it has accomplished numerous Internet achievements
since its initial live broadcast in September 1995, including the Internet
broadcast of the first live commercial radio station, first live sporting event,
first live corporate quarterly earnings call and first live stockholders'
meeting. Broadcast.com's early entrance into the Internet broadcasting market
has enabled it to establish strong brand recognition for its broadcasts and
services and to form relationships with a diverse range of content providers.
Broadcast.com currently offers content from a variety of sources including radio
and television, college and professional sports teams and leagues, production
and film studios and record labels. Broadcast.com has broadcast over 19,500 live
events, such as the last four NFL Super Bowls and last four NCAA Basketball
Tournaments, the Stanley Cup Playoffs, the entire 1998-99 season for all 27 NHL
teams, game broadcasts for the entire season of over 350 college teams, the
Internet premiere of the movie "Casablanca," an exclusive Internet-only webcast
with Paul McCartney, the 1998 World Champion New York Yankees Ticker Tape Parade
and the launch of the Space Shuttle with Astronaut John Glenn. Broadcast.com has
also amassed over 65,000 hours of on-demand broadcast programming, including
over 2,400 full-length music CDs, sports programming, talk radio and business
and media events. Broadcast.com's business services customers include 3Com,
AutoDesk, Bell South, Harvard University, Business Week, Dell, E! Online, Epson,
IBM, Intel, Oracle, Prudential, Tandem, Tenet Health Systems, Trilogy, Texaco
and more than 600 other organizations.
The success of Yahoo! following completion of the broadcast.com acquisition
will depend, in part, upon the success of the broadcast.com business. The
success of the broadcast.com business will depend
34
<PAGE>
upon a number of factors, including the market's acceptance of streaming media
technology and the combined company's ability to:
- - aggregate and deliver compelling content created by others over the Internet;
- - establish and maintain a leadership position in Internet and intranet
broadcasting for businesses; and
- - broadcast audio and video programming to a large number of simultaneous
users.
TERMS OF THE ACQUISITION
Under the terms of the merger agreement with broadcast.com, Yahoo! will
issue 0.7722 of a share of Yahoo! common stock for each outstanding share of
broadcast.com common stock. In addition, all outstanding options to acquire
shares of broadcast.com common stock will be assumed by Yahoo! and converted at
the same exchange ratio into options to purchase Yahoo! common stock. In the
acquisition, Yahoo! will exchange approximately 34 million shares of Yahoo!
common stock for all the issued and outstanding capital stock of broadcast.com
on a fully diluted basis. Following the merger, broadcast.com will become a
wholly-owned subisidiary of Yahoo!. Yahoo! and broadcast expect the acquisition
will qualify to be accounted for as a "pooling of interests", and will qualify
as a tax-free reorganization. The acquisition is subject to certain conditions,
including regulatory approval and approval by broadcast.com stockholders. The
acquisition of broadcast.com is not subject to approval by Yahoo! shareholders.
It is anticipated by Yahoo! that the broadcast.com merger will be consummated in
the third quarter of 1999.
EFFECT OF BROADCAST.COM ACQUISITION UPON GEOCITIES STOCKHOLDERS
The primary effects of the acquisition of broadcast.com by Yahoo! on
GeoCities stockholders will be dilution to their share ownership of Yahoo!,
consolidation of broadcast.com losses by Yahoo! in its statements of operations
and increased costs to effect the integration into Yahoo! on a going forward
basis.
The proposed acquisition of broadcast.com will result in dilution to Yahoo!
shareholders, including GeoCities stockholders who will become Yahoo!
shareholders as a result of the merger. Immediately prior to the acquisition of
broadcast.com, and assuming the exercise of all outstanding Yahoo! and GeoCities
options, GeoCities stockholders will own approximately 9.8% of Yahoo!. After the
acquisition of broadcast.com, and assuming the exercise of all outstanding
Yahoo!, GeoCities and broadcast.com options, GeoCities stockholders will own
approximately 8.7% of Yahoo!.
Broadcast.com has not achieved profitability on a quarterly or annual basis
to date, and it is expected that the broadcast.com business will continue to
incur significant operating losses following the acquisition. These losses will
have a negative impact as they are consolidated in Yahoo!'s statement of
operations.
Finally, it is expected that the combined company's operating expenses will
increase following the broadcast.com acquisition. This increase will result from
the integration of broadcast.com into Yahoo!. In addition, the combined company
intends to expand its sales and marketing operations, fund greater levels of
product development, develop and commercialize additional media properties,
acquire complementary businesses and technologies, and license additional
quality content, all of which will increase operating expenses. If these
expenses are not more than offset by increased revenues over time, there may be
an adverse impact on Yahoo!'s financial results. For additional information
regarding the effect of the broadcast.com acquisition on the historical
financial results of Yahoo!, see "Unaudited Pro Forma Condensed Combined
Financial Statements" on page 70.
35
<PAGE>
THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting will be held on May 28, 1999, at 8:00 a.m., local time,
at the Marina Beach Marriott Hotel, 4100 Admiralty Way, Marina del Rey,
California.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, stockholders of GeoCities will be asked to approve
the merger and to transact such other business as may properly come before the
special meeting or any postponements or adjournments thereof.
RECORD DATE FOR VOTING ON THE MERGER; STOCKHOLDERS ENTITLED TO VOTE
Only stockholders of record of GeoCities common stock at the close of
business on April 21, 1999, are entitled to notice of and to vote at the special
meeting. As of the close of business on that record date, there were
shares of GeoCities common stock outstanding and entitled to vote, held of
record by stockholders. Each GeoCities stockholder is entitled to one vote for
each share of GeoCities common stock held as of the record date.
VOTING AND REVOCATION OF PROXIES
The GeoCities proxy accompanying this document is solicited on behalf of
GeoCities' board of directors. Stockholders are requested to complete, date and
sign the accompanying proxy and promptly return it in the accompanying envelope
or otherwise mail it to GeoCities. All properly executed proxies received by
GeoCities prior to the special meeting that are not revoked, will be voted at
the special meeting in accordance with the instructions indicated on the proxies
or, if no direction is indicated, to approve the merger. GeoCities' board of
directors does not presently intend to bring any other business before the
special meeting and, so far as is known as of the date of this document, no
other matters are to be brought before the special meeting. As to any other
business that may properly come before the special meeting, however, it is
intended that proxies, in the form enclosed, will be voted in respect thereof in
accordance with the judgment of the persons voting such proxies. A GeoCities
stockholder who has given a proxy may revoke it at any time before it is
exercised at the special meeting by (1) delivering to the Secretary of GeoCities
a written notice, bearing a date later than the date of the proxy, stating that
the proxy is revoked, (2) signing and delivering a proxy relating to the same
shares and bearing a later date than the date of the previous proxy prior to the
vote at the special meeting, or (3) attending the special meeting and voting in
person.
STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE MERGER
Approval of the merger by GeoCities' stockholders is required by the
Delaware General Corporation Law. Such approval requires the affirmative vote of
the holders of a majority of the shares of GeoCities common stock outstanding
and entitled to vote at the special meeting. Abstentions and broker non-votes
are not affirmative votes and, therefore, will have the same effect as votes
against approval of the merger. IN ADDITION, THE REQUIRED VOTE OF THE
STOCKHOLDERS OF GEOCITIES IS BASED UPON THE NUMBER OF OUTSTANDING SHARES OF
GEOCITIES COMMON STOCK RATHER THAN UPON THE SHARES ACTUALLY VOTED IN PERSON OR
BY PROXY AT THE SPECIAL MEETING. THEREFORE, IF THE HOLDERS OF ANY SUCH SHARES
FAIL TO EITHER SUBMIT A PROXY OR VOTE IN PERSON AT THE SPECIAL MEETING, SUCH
FAILURE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST APPROVAL OF THE MERGER. See
"Voting and Affiliate Agreements -- Voting Agreements."
As of the record date and the date of this proxy statement/prospectus,
Yahoo! owned 673,796 shares of GeoCities common stock which represents
approximately 2.1% of the outstanding shares of GeoCities common stock entitled
to vote on the merger as of the record date. Yahoo! intends to vote all of such
shares in favor of the merger.
In addition, on the same day that the merger agreement was signed, five
stockholders of GeoCities who collectively own approximately 61.3% of GeoCities'
outstanding common stock entered into voting agreements with Yahoo!, granting
Yahoo! a proxy to vote all of their
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shares of GeoCities stock for approval of the merger. Due to the existence of
these voting agreements, GeoCities is assured of receiving the requisite votes
at the special meeting to approve the merger.
BOARD RECOMMENDATION
GEOCITIES' BOARD OF DIRECTORS HAS APPROVED THE MERGER AND BELIEVES THAT THE
TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND THAT THE MERGER IS IN THE BEST
INTERESTS OF, GEOCITIES AND ITS STOCKHOLDERS AND THEREFORE RECOMMENDS THAT THE
HOLDERS OF GEOCITIES CAPITAL STOCK VOTE FOR APPROVAL OF THE MERGER. Eric C.
Hippeau, a member of GeoCities' board of directors, is also a member of Yahoo!'s
board of directors. While GeoCities was considering the Yahoo! offer, Mr.
Hippeau participated in all portions of the GeoCities board meetings during
which the general strategic direction of GeoCities was discussed. However,
because of the conflict of interest presented by Mr. Hippeau's position on
Yahoo!'s board of directors, he did not participate in any specific discussions
about Yahoo!'s offer or any vote of GeoCities' board of directors related to
such offer, including the vote of GeoCities' board of directors approving the
merger. In addition, Mr. Hippeau did not participate in the Yahoo! board meeting
at which the merger was approved.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF GEOCITIES. ACCORDINGLY, GEOCITIES' STOCKHOLDERS ARE URGED
TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS DOCUMENT, AND
TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
YOU SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARD. A
transmittal form with instructions for the surrender of certificates for
GeoCities common stock will be mailed to you as soon as practicable after
completion of the merger. For more information regarding the procedures for
exchanging your GeoCities stock certificates for Yahoo! stock certificates,
please see the section entitled "Procedures for Exchanging Stock Certificates"
on page 59 of this proxy statement/prospectus.
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THE MERGER
GENERAL
This section of the document describes aspects of the proposed merger that
we consider to be important. The discussion of the merger in this document and
the description of the principal terms of the merger agreement are only
summaries of the material features of the proposed merger. You can obtain a more
complete understanding of the merger by reading the merger agreement, a copy of
which is attached to this document as Appendix A. You are encouraged to read the
merger agreement and the other appendices to this document in their entirety.
BACKGROUND OF THE MERGER
On or about December 10, 1998, Jeffrey Mallett, President and Chief
Operating Officer of Yahoo!, contacted Stephen L. Hansen, Chief Financial and
Chief Operating Officer of GeoCities, to set up a mutually convenient time to
contact Mr. Hansen and Thomas R. Evans, President and Chief Executive Officer of
GeoCities, to discuss potential ways in which Yahoo! and GeoCities could work
together in 1999.
On December 16, 1998, Timothy K. Koogle, Chairman and Chief Executive
Officer of Yahoo!, Mr. Mallett, and Jerry C. Yang, Chief Yahoo of Yahoo!,
contacted Messrs. Evans and Hansen to discuss the potential of Yahoo! and
GeoCities entering into a comprehensive strategic relationship beyond their
relationship under the existing co-distribution agreement between the parties.
Mr. Koogle also requested certain financial and business information regarding
GeoCities as well as information relating to potential synergies between Yahoo!
and GeoCities.
On December 17, 1998, Yahoo! and GeoCities executed a mutual non-disclosure
agreement. On this date, Messrs. Koogle, Mallett and Yang, and John J. Healy,
Director, Corporate Development of Yahoo!, also met with Messrs. Evans and
Hansen, Steven D. Bardack, Vice President, Strategic and Business Development of
GeoCities, William E. Losch, Vice President, Finance of GeoCities, and Jeffrey
Stoddard, Director of Sales and Marketing Strategy of GeoCities, to discuss the
financial and business information regarding GeoCities previously requested by
Yahoo!. In addition to discussing certain performance data relating to the
GeoCities web site, these representatives continued to discuss the possibility
of entering into some type of comprehensive strategic relationship and potential
synergies between GeoCities and Yahoo!.
On December 18, 1998, Messrs. Mallett and Healy contacted Mr. Hansen to
request additional web site performance information and more detailed financial
and business information on GeoCities.
On December 21, 1998, Messrs. Koogle, Mallett, Yang and Healy contacted
Messrs. Evans and Hansen to inform GeoCities that Yahoo! would continue to
evaluate the materials that had been previously provided, but that such
evaluation would be on hold during the upcoming holidays.
On January 15, 1999, Mr. Hansen contacted Harry D. Lambert and Peter H.
Mills, members of GeoCities' board of directors, to discuss management's
preliminary discussions with Goldman, Sachs & Co. and whether to engage that
firm to provide strategic investment banking services to GeoCities. Messrs.
Hansen, Lambert and Mills determined that engaging Goldman Sachs was premature
and declined to formally engage Goldman Sachs at that time.
On the morning of January 21, 1999, Messrs. Mallett and Yang and Gary
Valenzuela, Chief Financial Officer of Yahoo!, contacted Messrs. Evans and
Hansen of GeoCities and informed them that Yahoo! was preliminarily interested
in a possible acquisition of GeoCities. Messrs. Mallet, Yang and Valenzuela did
not propose any specific terms, but indicated that, if the parties were to
proceed with the negotiation of a transaction, it was Yahoo!'s objective to sign
a definitive agreement and announce
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the transaction simultaneously with GeoCities' scheduled fourth-quarter earnings
release on January 28, 1999. Later that day, Messrs. Evans and Hansen briefed
GeoCities' board of directors on the status of their discussions with Yahoo! at
a regularly scheduled board meeting. Eric C. Hippeau, a director of GeoCities
who is also a member of the board of directors of Yahoo!, excused himself from
the meeting during the discussions regarding Yahoo!. Representatives of Goldman
Sachs participated in a portion of the meeting during the discussion of Yahoo!.
GeoCities' board of directors then authorized management to proceed with
negotiations with Yahoo! and approved the engagement of Goldman Sachs to advise
GeoCities during such negotiations.
On January 22, 1999, GeoCities formally engaged Goldman Sachs to act as its
financial advisor. On that day, Messrs. Evans and Hansen and representatives of
Goldman Sachs also met with Messrs. Koogle, Mallett, Valenzuela and Healy to
discuss preliminary terms of the proposed acquisition. While preliminary terms
were discussed, no agreement was reached on an exchange ratio or other principal
terms. Messrs. Evans and Hansen instructed the representatives of Goldman Sachs
to prepare information to provide them with a basis for discussing a potential
exchange ratio with Yahoo!.
On January 24, 1999, Messrs. Koogle, Mallett, Yang, Valenzuela and Healy,
together with representatives of Thomas Weisel Partners LLC, financial advisor
to Yahoo!, met with Messrs. Evans and Hansen and representatives of Goldman
Sachs to make an offer to acquire GeoCities in a stock-for-stock merger using an
exchange ratio of 0.34 shares of Yahoo! common stock for each outstanding share
of GeoCities common stock (or 0.68 following the completion of Yahoo!'s
then-pending two-for-one stock split) less any fee that GeoCities was obligated
to pay as a result of a merger with Yahoo! to Wasserstein Perella & Co., Inc.,
an investment banking firm with which GeoCities had a previous arrangement
arising from the sale of its preferred stock in December 1997. The parties also
discussed certain of the other principal terms of the proposed acquisition.
Yahoo! conditioned its offer on GeoCities and certain of its stockholders
entering into exclusive negotiation agreements with Yahoo! and satisfactory
completion of Yahoo!'s due diligence review of GeoCities. During this meeting
with Yahoo!, the representatives of Goldman Sachs also presented the information
that they had prepared at the request of Messrs. Evans and Hansen. This meeting
ended without definitive agreement on the exchange ratio or other material terms
of the proposed merger. Later that day, and again on the morning of January 25,
1999, Messrs. Evans and Hansen and representatives of Goldman Sachs briefed
GeoCities' board of directors at a special two-part telephonic meeting on the
proposed merger terms and the status of the negotiations with Yahoo!, including
the proposed exchange ratio and the prohibition on shopping the financial terms
to third parties. On January 25, 1999, GeoCities' board of directors authorized
management to proceed with negotiating a definitive merger agreement based on
the proposed terms presented by Yahoo!. GeoCities' board of directors also
directed management to proceed with conducting an in-depth due diligence
investigation of Yahoo!. Mr. Hippeau did not participate in either part of this
meeting.
From January 25 through January 27, 1999, Yahoo! and GeoCities, together
with their respective legal, financial and accounting advisors, conducted due
diligence reviews and negotiated the terms of the definitive merger agreement
and the other agreements providing for the merger.
On January 27, 1999, GeoCities' board of directors met with senior
management and GeoCities' legal, financial and accounting advisors at a special
telephonic meeting to discuss the status of the negotiations with Yahoo!,
GeoCities' due diligence review of Yahoo! and the directors' comments on the
draft of the merger agreement. After management provided its view of the
proposed merger, Goldman Sachs presented its analysis of various information to
serve as the basis for evaluating the proposed exchange ratio and orally
informed GeoCities' board of directors of its opinion (subsequently confirmed in
writing) that the exchange ratio was fair, from a financial point of view, to
the holders of GeoCities common stock. Goldman Sachs also responded to questions
raised by members of GeoCities' board of directors regarding its analysis and
opinion. This discussion was followed by a presentation by members of Brobeck,
Phleger & Harrison LLP, GeoCities' outside legal counsel, of the proposed terms
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of the merger agreement and related documents. A representative of
PricewaterhouseCoopers LLP then discussed the accounting treatment of the
proposed merger. Following these presentations, the board engaged in a full
discussion of the terms of the proposed merger, including the strategic benefits
of the combination, the terms and conditions of the proposed merger agreement,
and the analysis and opinion of Goldman Sachs. GeoCities' board of directors
concluded that the merger agreement was fair to GeoCities' stockholders and that
the proposed merger was in the best interests of GeoCities and its stockholders.
Accordingly, GeoCities' board of directors approved the merger and the merger
agreement and related documents and authorized management to proceed with the
execution of the merger documents. Mr. Hippeau participated in this meeting, but
abstained from voting on the resolution approving the merger.
On January 27, 1999, Yahoo!'s board of directors met with senior management
and Yahoo!'s financial advisors and in-house legal counsel at a special meeting
of the board to review the status of the negotiations with GeoCities, the terms
of the draft merger agreement and Yahoo!'s due diligence review of GeoCities.
Given Mr. Hippeau's relationship with GeoCities, he excused himself from this
meeting. At this meeting, representatives of Thomas Weisel Partners LLC reviewed
the financial terms of the transaction. Yahoo!'s management reviewed the other
terms of the merger with the board. Following these presentations, the board
engaged in a full discussion of the terms of the proposed transaction and its
advisability. At the conclusion of this meeting, Yahoo!'s board of directors
approved the merger and the terms of the merger agreement and authorized
management to proceed with the execution of the transaction documents.
During the evening of January 27, 1999, the parties executed the merger
agreement and the related transaction documents. In connection with executing
the merger agreement, the $20 million cash fee payable to Wasserstein Perella &
Co., Inc. in connection with its previous arrangement with GeoCities was agreed
upon, and, as a result, the final exchange ratio contained in the merger
agreement was reduced to 0.6768 from 0.68. Other than this prior relationship
between GeoCities and Wasserstein in December 1997, neither GeoCities nor Yahoo!
had any relationship with Wasserstein Parella & Co., Inc.
The merger was jointly announced by Yahoo! and GeoCities on the morning of
January 28, 1999.
REASONS FOR THE MERGER
YAHOO!'S REASONS FOR THE MERGER
Yahoo!'s board of directors and management believe that the merger will
benefit Yahoo! and its shareholders for the following reasons:
- - CREATION OF WORLD'S LARGEST WEB COMMUNITY. The merger of Yahoo! and GeoCities
will combine two of the web's leading brands to form the world's largest web
community. Yahoo! believes that this will strengthen and accelerate Yahoo!'s
leadership position as a comprehensive, global branded network of properties.
- - EXPANSION OF PERSONAL PUBLISHING TOOLS ACROSS YAHOO! Over the past year,
Yahoo! has seen increasing demand across its network for personal publishing
and editing tools. In response to this, Yahoo! has continued to expand areas
on the Yahoo! network where users can create and publish personal information
and content -- including Yahoo! Auctions, Chat, Classifieds, Clubs, Message
Boards and Shopping. Yahoo! believes that the aggressive expansion of these
services is a key feature in its plan to provide the best online experience
to its users worldwide. The merger of Yahoo! and GeoCities will permit Yahoo!
to immediately integrate GeoCities' proven and scalable personal publishing
and editing tools and services across the Yahoo! platform.
- - POWER OF THE GEOCITIES BRAND, SERVICE, MEMBERSHIP AND USER BASE. Over the
past year, Yahoo! and GeoCities have had a cross-distribution relationship,
and Yahoo! has been an equity investor
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in GeoCities. This pre-existing relationship has given Yahoo! an excellent
vantage point to observe GeoCities' business, the growth of its services, and
the potential synergies between the two companies. GeoCities pioneered and
defined the web community experience, and has maintained its position as the
leading online community and brand. As of December 1998, GeoCities had over
3.2 million active homesteaders, and over 19 million unique monthly visitors
consuming over 1.6 billion pages of content. According to Media Metrix,
GeoCities was one of the top three individual web sites in December 1998 and
the combined Yahoo!/GeoCities network would have unduplicated home/work reach
in excess of 58%, making it the second largest network of properties on the
web.
- - ABILITY TO DISTRIBUTE YAHOO! SERVICES ACROSS GEOCITIES' PLATFORM. Yahoo! also
believes that it will benefit significantly from its ability to distribute
Yahoo! communities (Chat, Clubs, Message Boards), communications (Mail and
Pager and Mail) and commerce (Auctions, Shopping and Store) services across
the GeoCities platform, significantly expanding its user base and generating
additional revenue opportunities.
- - INTERNATIONAL EXPANSION AND INCREASED DISTRIBUTION. With 15 international
sites across Europe, Asia, Central and South America, Yahoo! believes that it
will be able to rapidly integrate GeoCities' personal publishing tools across
its product offerings in these markets and help GeoCities to expand its
homesteader and visitor base in these international markets.
- - ADDITIONAL FINANCIAL BENEFITS. Yahoo! believes that there are significant
opportunities to cross-sell advertising, sponsorship and direct marketing
programs across the expanded Yahoo!/GeoCities network.
GEOCITIES' REASONS FOR THE MERGER
GeoCities' board of directors has determined that the terms of the merger
and the merger agreement are fair to, and in the best interests of, GeoCities
and its stockholders. Accordingly, GeoCities' board of directors has approved
the merger agreement and the consummation of the merger and recommends that you
vote for approval of the merger agreement and the merger.
In reaching its decision, GeoCities' board of directors identified several
potential benefits of the merger the most important of which included:
- - THE PREMIUM TO BE PAID BY YAHOO!. GeoCities' board of directors focused on
the substantial premium that Yahoo! was willing to pay in the merger. Based
on the closing sale price of Yahoo! common stock on The Nasdaq National
Market on January 27, 1999, the day prior to the public announcement of the
merger, the exchange ratio represented a 51.6% premium over the closing price
of GeoCities common stock on that day.
- - COMBINATION WITH A LEADING INTERNET GLOBAL MEDIA COMPANY. Yahoo! is a global
internet media company that offers a branded network of information,
communication and shopping services. The combination of Yahoo! and GeoCities
provides the potential to greatly enhance the functionality and performance
of, and increase traffic to, GeoCities which would benefit GeoCities'
homesteaders, visitors to GeoCities' web site and advertisers and sponsors.
As a result of the merger, homesteaders will have direct access to more
services and a greater selection of enhanced utilities and tools to help
build their web sites, including well-developed community, communication and
commerce services, thereby offering homesteaders the potential to create
more compelling content and have more successful commercial sites.
GeoCities' homesteaders should also benefit from the increasing size of the
community, which will provide a larger pool of members with common interests
with which to interact. The combination of Yahoo! and GeoCities also has the
potential to increase commercial partners for purposes of affiliation.
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Visitors to GeoCities' web site will find it easier to locate more of the
content they are looking for on GeoCities' web site due to the enhancement
of GeoCities' directory structure, including the integration of the Yahoo!
directory within GeoCities. Increasing the integration of the two sites also
has the potential to make it easier for visitors to locate and purchase a
wider array of goods and services.
Advertisers and sponsors will have access to newer ad formatting and
delivery mechanisms as well as enhanced ad performance reporting tools and
services. Advertisers should also enjoy access to a larger and more diverse
network of affiliates, larger audience sizes and better performing ad buys
due to increased use of enhanced ad targeting technology.
- - LARGER MARKET CAPITALIZATION OF YAHOO! AND HIGHER CORRESPONDING TRADING
LIQUIDITY. Based on the closing prices of Yahoo! common stock and GeoCities
common stock on January 27, 1999, the day prior to the public announcement of
the merger, Yahoo! had a market capitalization of $33.6 billion, compared to
GeoCities' market capitalization of $2.4 billion. Accordingly, by combining
with Yahoo!, GeoCities' stockholders will be afforded substantially increased
trading liquidity for their investment.
- - RAPID EXPANSION OF THE GEOCITIES BUSINESS MODEL INTERNATIONALLY. GeoCities
expects to rapidly roll out its web community model across Europe, Asia and
Central and South America by leveraging Yahoo!'s existing reach in these
areas. By doing so, GeoCities expects to expand its homesteader and visitor
bases and obtain new advertising customers in these international markets.
GeoCities' board of directors consulted with GeoCities' senior management as
well as its legal counsel, independent accountants and financial advisers in
reaching its decision to approve the merger. Among the factors considered by
GeoCities' board in its deliberations were the following:
- - historical information concerning Yahoo!'s and GeoCities' respective
financial performance, results of operations, assets, liabilities,
operations, technology, brand development, management and competitive
position, including public reports covering the most recent fiscal year and
fiscal quarter for each company filed with the Commission;
- - GeoCities' management's view of the financial condition, results of
operations, assets, liabilities, businesses and prospects of Yahoo! and
GeoCities after giving effect to the merger;
- - current market conditions and historical trading information with respect to
Yahoo! and GeoCities common stock;
- - the fact that Yahoo! conditioned its offer on GeoCities and certain of its
stockholders entering into exclusive negotiation agreements with Yahoo!;
- - comparable merger transactions in the Internet market;
- - the terms and conditions of the merger agreement taken as a whole;
- - the expected tax-free treatment to GeoCities and its stockholders;
- - the analysis prepared by Goldman, Sachs & Co. and presented to GeoCities'
board of directors on January 27, and the oral opinion of Goldman Sachs,
subsequently confirmed in writing, that the exchange ratio was fair, from a
financial point of view, to GeoCities' stockholders, as described more fully
in the text of the entire opinion attached as Appendix B to this document;
- - Yahoo!'s track record, which clearly demonstrated an ability to compete
effectively in the Internet market; and
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- - the ability of GeoCities' board of directors to enter into discussions with
another party in response to an unsolicited superior offer to the merger if
GeoCities' board of directors believed in good faith, after consultation with
its legal counsel, that such action was required in order to comply with its
fiduciary obligations.
In addition, based on the presentation of its senior management, GeoCities'
board of directors believed that combining GeoCities and Yahoo! would result in
potential operating synergies and cost savings, including the elimination of
duplicate expenses in sales and marketing, business development, administration,
and product development, and increased buying power due to the size of the
combined entity. These potential operating synergies and cost savings, although
supportive of the board's conclusion to approve the merger, were not a
determining factor next to the substantial premium that Yahoo! was offering in
the merger and the overall potential strategic benefits of the merger.
GeoCities' board of directors also identified and considered a variety of
potential negative factors in its deliberations concerning the merger,
including, but not limited to:
- - the risk to GeoCities' stockholders that the value to be received in the
merger could decline significantly due to the fixed exchange ratio;
- - the loss of control over the future operations of GeoCities following the
merger;
- - the impact of the loss of GeoCities' status as an independent company on
GeoCities' stockholders, employees, homesteaders, web visitors, advertisers
and sponsors;
- - the risk that the potential benefits sought in the merger might not be fully
realized;
- - the possibility that the merger might not be consummated and the potential
adverse effects of the public announcement of the merger on:
- GeoCities' sales and operating results;
- GeoCities' ability to attract and retain key employees;
- the progress of certain strategic initiatives; and
- GeoCities' overall competitive position;
- - the risk that, despite the efforts of Yahoo! and GeoCities, key technical,
sales and management personnel might not remain employees of Yahoo! or
GeoCities following the closing of the merger; and
- - the transaction costs expected to be incurred in connection with the merger,
including the fee payable to Goldman, Sachs & Co. for its services in
connection with the merger, and the payment to Wasserstein Perella & Co.
under its prior arrangement with GeoCities, and the other risks described
under "Risk Factors -- Risks Related to the Merger" beginning on page 6.
After due consideration, GeoCities' board of directors concluded that the
risks associated with the proposed merger were outweighed by the potential
benefits of the merger.
During the process of evaluating the Yahoo! offer, GeoCities' board of
directors also considered GeoCities' exclusive negotiation agreement with Yahoo!
and the provisions of the merger agreement that prohibited solicitation of
third-party bids and the acceptance, approval or recommendation of any
unsolicited third-party bids, and the termination fee payable to Yahoo! under
certain circumstances. After fully discussing these matters during its
deliberations, GeoCities' board of directors determined that the substantial
premium offered by Yahoo! justified these conditions and proceeded to approve
the merger.
The foregoing discussion of the information and factors considered by
GeoCities' board of directors is not intended to be exhaustive but is believed
to include all material factors considered by
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GeoCities' board of directors. In view of the complexity and wide variety of
information and factors, both positive and negative, considered by GeoCities'
board of directors, it did not find it practical to quantify, rank or otherwise
assign relative or specific weights to the factors considered. In addition,
GeoCities' board of directors did not reach any specific conclusion with respect
to each of the factors considered, or any aspect of any particular factor, but,
rather, conducted an overall analysis of the factors described above, including
thorough discussions with GeoCities' management and legal, financial and
accounting advisors. In considering the factors described above, individual
members of all GeoCities' board of directors may have given different weight to
different factors. GeoCities' board of directors considered all these factors as
a whole and believed the factors supported its determination to approve the
merger. After taking into consideration all of the factors set forth above,
GeoCities' board of directors concluded that the merger was fair to, and in the
best interests of, GeoCities and its stockholders and that GeoCities should
proceed with the merger.
During the time period in which GeoCities was engaged in discussions with
Yahoo!, it did not receive any unsolicited offers regarding a possible business
combination with any third parties.
OPINION OF GOLDMAN, SACHS & CO., FINANCIAL ADVISOR TO GEOCITIES
On January 27, 1999, Goldman Sachs delivered its opinion, subsequently
confirmed in writing, to GeoCities' board of directors that, as of such date,
the exchange ratio pursuant to the merger agreement was fair from a financial
point of view to the holders (other than Yahoo! and its affiliates) of GeoCities
common stock.
The full text of the written opinion of Goldman Sachs, dated January 27,
1999, which sets forth, among other things, assumptions made, matters considered
and limitations on the review undertaken in connection with the opinion, is
attached hereto as Appendix B and is incorporated herein by reference. Holders
of GeoCities common stock are urged to, and should, read such opinion in its
entirety. Goldman Sachs' opinion is directed to GeoCities' board of directors
and addresses only the fairness of the exchange ratio pursuant to the merger
agreement from a financial point of view to the holders of GeoCities common
stock (other than Yahoo! and its affiliates) as of the date of the opinion, and
does not address any other aspect of the merger and does not constitute a
recommendation to any holder of GeoCities common stock as to how to vote at the
special meeting.
In connection with its opinion, Goldman Sachs reviewed, among other things:
(1) the merger agreement;
(2) the registration statement of GeoCities on Form S-1 dated August 10, 1998,
related to the initial public offering of GeoCities common stock, including
the prospectus therein;
(3) the registration statement of Yahoo! on Form S-1 dated April 12, 1996,
related to the initial public offering of Yahoo! common stock, including the
prospectus therein;
(4) annual reports to stockholders and annual reports on Form 10-K of Yahoo! for
the two years ended December 31, 1997;
(5) certain interim reports to stockholders and quarterly reports on Form 10-Q
of GeoCities and Yahoo!;
(6) certain other communications from GeoCities and Yahoo! to their respective
stockholders;
(7) certain internal financial analyses and forecasts for GeoCities prepared by
its management, including certain estimates of cost savings and operating
synergies expected to result from the merger; and
(8) certain estimates of pro forma financial performance of GeoCities prepared
by the management of Yahoo!.
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Goldman Sachs also held discussions with members of the senior management of
GeoCities and Yahoo! regarding the strategic rationale for, and the potential
benefits of, the transaction contemplated by the merger agreement and the past
and current business operations, financial condition and future prospects of
their respective companies. Goldman Sachs reviewed the reported price and
trading activity for GeoCities common stock and Yahoo! common stock, compared
certain financial and stock market information for GeoCities and Yahoo! with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the internet industry specifically and in other industries
generally and performed such other studies and analyses as Goldman Sachs
considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information discussed with or reviewed by it and has assumed
such accuracy and completeness for purposes of rendering its opinion. In that
regard, Goldman Sachs assumed with the consent of GeoCities' board of directors
that the synergies expected to result from the merger had been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of GeoCities, and that such synergies would be realized in the amounts
and time periods contemplated thereby. These synergies included the elimination
of certain duplicative operating expenses and estimated increases in revenues
that may potentially result from the merger. Furthermore, Yahoo! did not make
available its forecasts of future financial performance and Goldman Sachs, with
the consent of GeoCities, relied on the estimates of published Goldman Sachs
investment research for Yahoo! for purposes of its analysis. In addition,
Goldman Sachs did not make an independent evaluation or appraisal of the assets
and liabilities of GeoCities or Yahoo! or any of their subsidiaries, and Goldman
Sachs was not furnished with any such evaluation or appraisal. Goldman Sachs was
not requested to solicit, and did not solicit, interest from other parties with
respect to an acquisition of, or other business combination involving,
GeoCities. The advisory services described, and the opinion expressed in, the
opinion of Goldman Sachs were provided for the information and assistance of
GeoCities' board of directors in connection with its consideration of the
transaction contemplated by the merger agreement, and such opinion does not
constitute a recommendation as to how any holder of GeoCities common stock
should vote with respect to the merger.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its opinion to GeoCities' board of
directors.
EXCHANGE RATIO HISTORY
Goldman Sachs reviewed the implied market exchange ratio for shares of
GeoCities common stock and Yahoo! common stock for the period from August 10,
1998, to January 26, 1999, determined by dividing the per share closing price
for GeoCities common stock by the per share closing price for Yahoo! common
stock for each day during the period. The daily implied market exchange ratio
over this period ranged from approximately 0.12 to 0.48 with an average exchange
ratio of 0.22 over the same period.
TRANSACTION PREMIUM ANALYSIS
Goldman Sachs compared the historical stock prices of GeoCities common stock
and Yahoo! common stock on the basis of the respective closing prices per share
on January 26, 1999, and the respective closing stock prices and period averages
for the prior five days, 10 days, 20 days, 30 days, 60 days and the period since
GeoCities' initial public offering on August 10, 1998. The following table
presents the premiums over GeoCities common stock prices (at a point in time and
an average of such
45
<PAGE>
prices for each of the periods covered) implied by the exchange ratio of the
merger and the Yahoo! common stock price as of January 26, 1999:
<TABLE>
<CAPTION>
PREMIUM PAID
PREMIUM PAID (BASED ON AVERAGE
(BASED ON CLOSING PRICE CLOSING PRICE
PERIOD AT POINT IN TIME) DURING PERIOD)
- -------------------------------------------------------------------------- ----------------------- -----------------
<S> <C> <C>
January 26, 1999.......................................................... 67.4% 67.4%
5 day..................................................................... 82.9% 85.7%
10 day.................................................................... 51.7% 79.3%
20 day.................................................................... 212.3% 119.7%
30 day.................................................................... 262.9% 145.8%
60 day.................................................................... 303.8% 180.7%
August 10, 1998........................................................... 218.6% 250.6%
</TABLE>
The following table presents the premiums over GeoCities common stock
implied by the exchange ratio of the merger and based on the implied exchange
ratio between the closing stock price of GeoCities common stock and Yahoo!
common stock at a point in time for each of the periods covered and based on the
average closing stock price of GeoCities common stock and Yahoo! common stock
for each of the periods covered:
<TABLE>
<CAPTION>
PREMIUM PAID IMPLIED EXCHANGE
IMPLIED EXCHANGE (BASED ON RATIO (BASED ON
RATIO (BASED ON CLOSING PRICES AVERAGE CLOSING
CLOSING PRICES AT AT POINT IN PRICE DURING
PERIOD POINT IN TIME) TIME) PERIOD)
- -------------------------------------------------------- ------------------- --------------- -------------------
<S> <C> <C> <C>
January 26, 1999........................................ 0.20x 67.4% 0.20x
5 day................................................... 0.23x 49.5% 0.22x
10 day.................................................. 0.19x 80.5% 0.20x
20 day.................................................. 0.14x 144.1% 0.18x
30 day.................................................. 0.17x 96.3% 0.17x
60 day.................................................. 0.21x 58.8% 0.19x
August 10, 1998 (IPO date).............................. 0.41x (17.5)% 0.22x
<CAPTION>
PREMIUM PAID
(BASED ON AVERAGE
CLOSING PRICE
PERIOD DURING PERIOD)
- -------------------------------------------------------- -----------------
<S> <C>
January 26, 1999........................................ 67.4%
5 day................................................... 53.9%
10 day.................................................. 66.0%
20 day.................................................. 92.3%
30 day.................................................. 98.5%
60 day.................................................. 82.1%
August 10, 1998 (IPO date).............................. 55.7%
</TABLE>
COMPARISON OF SELECTED INTERNET COMPANIES
Goldman Sachs compared certain financial information of GeoCities and Yahoo!
with publicly available information of a group of Internet commerce companies
including:
- - Amazon.com, Inc.
- - Beyond.com Corporation
- - CDNow, Inc.
- - Cyberian Outpost, Inc.
- - Digital River Incorporated
- - eBay Inc.
- - E*trade Securities, Inc.
- - Harbinger Corporation
- - N2K Inc.
46
<PAGE>
- - OnSale, Inc.
- - Preview Travel, Inc.; and
- - Sterling Commerce, Inc.
Goldman Sachs also compared certain financial information of GeoCities and
Yahoo! with publicly available information of a group of Internet content/portal
companies, including:
- - America Online, Inc.
- - At Home Corporation
- - broadcast.com inc.
- - CNET, Inc.
- - Excite Inc.
- - theglobe.com, inc.
- - Infoseek Corporation
- - Intuit Inc.
- - Lycos, Inc.
- - MarketWatch.com, Inc.
- - SportsLine USA, Inc.
- - Ticketmaster Online-CitySearch, Inc.; and
- - XOOM.com, Inc.
The following table presents the stock price as a percentage of 52 week
high, last quarter revenue growth and revenue multiples of GeoCities, Yahoo! and
the median of the other Internet companies examined:
<TABLE>
<CAPTION>
REVENUE MULTIPLES
STOCK PRICE LAST QUARTER REVENUE (BASED ON
(AS % OF 52 GROWTH (FROM ONE YEAR PROJECTED 1999
WEEK HIGH) AGO) REVENUES)
------------- ----------------------- ------------------
<S> <C> <C> <C>
GeoCities............................................................... 86.5% 316.2% 56.5x
Yahoo!.................................................................. 78.9% 187.4% 118.0x
Internet Commerce Companies (median).................................... 56.0% 175.3% 4.7x
Internet Portal/Content Companies (median).............................. 74.2% 144.2% 24.1x
</TABLE>
GeoCities projected a revenue multiple for 1999 of 56.5 times, compared to
Yahoo!'s multiple of 118.0 times, the highest of any of the companies used in
the comparison. It should be noted that no company utilized in the analysis
above is identical to either GeoCities or Yahoo!. In evaluating the Internet
Commerce Companies and Internet Content/Portal Companies, Goldman Sachs made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of GeoCities or Yahoo!, such as the impact of competition on
the business of GeoCities or Yahoo! and the industry generally, industry growth
and the absence of any material change in the financial condition and prospects
of GeoCities or Yahoo! or the industry or in the financial markets in general.
Mathematical analysis (such as determining the average or median) is not in
itself a meaningful method of using selected Internet company data.
47
<PAGE>
PRO FORMA TRANSACTION ANALYSIS
Goldman Sachs prepared pro forma analyses of the financial impact of the
merger. The analyses were prepared using the following five different sets of
financial projections:
(1) Goldman Sachs published research revenue estimates plus estimates by
GeoCities' management of the Synergies (the "Research Plus Synergies Case")
for 1999 and 2000;
(2) estimates by GeoCities' management (the "Base Case") for 1999;
(3) the Base Case plus estimates by GeoCities' management of the Synergies (the
"Base Case Plus Synergies") for 1999;
(4) estimates by Yahoo!'s management of GeoCities' performance (the "Yahoo!
Estimate") for 1999; and
(5) an extrapolation of the Yahoo! Estimate by Goldman Sachs for 2000.
Goldman Sachs compared the revenue per share and the earnings per share of
each of GeoCities and Yahoo! common stock, on a stand-alone basis, to the
revenue per share and EPS of the combined company on a pro forma basis. Goldman
Sachs performed this analysis based on the exchange ratio of 0.3384 shares of
Yahoo! common stock for each share of GeoCities common stock on a diluted basis.
The following table presents the pro forma effect of the merger on revenue per
share and EPS (assuming that the merger would be treated as a
pooling-of-interests for accounting purposes) based on the different sets of
financial projections:
<TABLE>
<CAPTION>
COMBINED COMPANY REVENUE COMBINED COMPANY COMBINED COMPANY
PER SHARE IN 1999 EPS IN 1999 EPS IN 2000
------------------------ ------------------ ------------------
<S> <C> <C> <C>
Research plus Synergies Case.................. 9.1% accretive 7.8% accretive 15.6% accretive
Base Case..................................... 5.5% accretive 22.6% dilutive
Base Case Plus Synergies...................... 12.4% accretive 10.8% accretive
Yahoo! Estimate............................... 4.7% accretive 11.4% dilutive
Extrapolation of Yahoo! Estimate.............. 5.6% accretive
</TABLE>
CONTRIBUTION ANALYSIS
Goldman Sachs performed a contribution analysis using GeoCities' management
estimates of revenue and net income from the prior quarter's run rate
extrapolated for a full year ("Last Quarter Annualized"), Goldman Sachs
published research for 1999 and 2000, the Base Case for 1999 and the Yahoo!
Estimate for 1999. The following table presents the contribution analysis of
GeoCities to the combined company using estimates of revenue and net income from
the Last Quarter Annualized based on four different sets of financial
projections:
<TABLE>
<CAPTION>
CONTRIBUTION OF CONTRIBUTION OF
GEOCITIES TO GEOCITIES TO
ESTIMATED REVENUES ESTIMATED NET INCOME
-------------------- --------------------
1999 2000 1999 2000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Last Quarter Annualized........................................................ 9.0% (44.1)%
Goldman Sachs published research............................................... 11.8% 16.6% (43.7)% (12.6)%
Base Case...................................................................... 14.6% (27.9)%
Yahoo! Estimate................................................................ 11.1% (1.9)%
</TABLE>
The contribution analysis performed by Goldman Sachs also indicated that the
current GeoCities common stock and common stock equivalents would represent
10.0% of the combined market capitalization of Yahoo! pro forma for the merger.
48
<PAGE>
PRO FORMA MERGER ANALYSIS
Goldman Sachs performed pro forma analyses of the impact on EPS, revenue per
share and seller ownership in the new entity resulting from an acquisition of
GeoCities by each of several potential purchasers (assumed to be accounted for
as a pooling-of-interests), based on the nominal price per share of GeoCities
common stock of $118.86 implied by the exchange ratio and the closing price of
Yahoo! common stock on January 26, 1999.
PRO FORMA EPS ANALYSIS. The first pro forma analysis calculated the effect
on EPS of such an acquisition, the required pre-tax synergies for breakeven of
such an acquisition and the pro forma ownership after such an acquisition of the
new entity by the former owners of GeoCities common stock. The first pro forma
analysis used the following entities as potential purchasers:
- - At Home Corporation/Excite, Inc.
- - America Online, Inc./Netscape Communications Corporation
- - eBay Inc.
- - Lycos, Inc.
- - Microsoft Corporation; and
- - Yahoo!
The following table presents the effect on EPS in 1999 of each such
acquisition under the Base Case and the Base Case Plus Synergies, the required
pre-tax synergies in 1999 to breakeven for each such acquisition under the Base
Case and the Base Case Plus Synergies and the pro forma ownership of the sellers
of GeoCities common stock after such an acquisition:
<TABLE>
<CAPTION>
REQUIRED PRE-TAX SYNERGIES
EFFECT ON EPS TO BREAKEVEN (IN MILLIONS)
---------------------------------------- ---------------------------- PRO FORMA
BASE CASE PLUS BASE CASE PLUS OWNERSHIP OF
BASE CASE SYNERGIES BASE CASE SYNERGIES SELLERS
------------------- ------------------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
At Home
Corporation/Excite, Inc..... (73.2)% dilutive 67.9% accretive $ 17.8 $ 0.0 18.9%
America Online, Inc./
Netscape.................... (9.9)% dilutive 2.5% accretive $ 27.4 $ 0.0 5.1%
eBay Inc...................... (160.6)% dilutive 171.7% accretive $ 16.6 $ 0.0 34.0%
Lycos, Inc.................... (268.8)% dilutive 302.1% accretive $ 16.1 $ 0.0 46.6%
Microsoft Corporation......... (1.2)% dilutive (0.7)% dilutive $ 131.1 $ 78.3 0.9%
Yahoo!........................ (22.6)% dilutive 10.8% accretive $ 37.4 $ 0.0 10.0%
</TABLE>
PRO FORMA REVENUE PER SHARE ANALYSIS. The second pro forma analysis
calculated (i) the effect on revenue per share of such an acquisition and (ii)
the pro forma ownership in the entity resulting from the combination of
GeoCities and Yahoo! by current GeoCities stockholders ("NewCo Ownership") based
on hypothetical premiums paid to the current market price of GeoCities common
stock ranging from 40% to 100%. The second pro forma analysis used the following
entities as potential acquirors:
- - At Home Corporation/Excite, Inc.
- - America Online, Inc./Netscape Communications Corporation
- - Ticketmaster Online-CitySearch, Inc.
- - eBay Inc.
- - Lycos, Inc.
49
<PAGE>
- - Microsoft Corporation; and
- - Yahoo!
The following table presents the range of effect on revenue per share under
the Base Case and the Base Case with Synergies and the range of NewCo Ownership
under both the Base Case and the Base Case with Synergies:
<TABLE>
<CAPTION>
RANGE OF EFFECT ON REVENUE PER SHARE RANGE OF NEWCO
------------------------------------------ OWNERSHIP FOR BASE
BASE CASE PLUS CASE AND BASE CASE
BASE CASE SYNERGIES PLUS SYNERGIES
-------------------- -------------------- --------------------
<S> <C> <C> <C>
At Home Corporation/
Excite, Inc................................. (4.0)% - (10.2)% 1.6% accretion - 16.3% - 21.8%
dilution (5.0)% dilution
America Online, Inc./Netscape................. (3.2)% - (5.0)% (2.7)% - (4.5)% 4.3% - 6.1%
dilution dilution
Ticketmaster Online-CitySearch, Inc........... 9.6% accretion - 35.8% - 12.5% 48.4% - 57.3%
(9.2)% dilution accretion
eBay Inc...................................... 20.7% - 6.9% 43.6% - 27.2% 30.1% - 38.1%
accretion accretion
Lycos, Inc.................................... (19.1)% - (31.5)% (8.6)% - (22.6)% 42.2% - 51.1%
dilution dilution
Microsoft Corporation......................... (0.5)% - (0.8)% (0.4)% - (0.7)% 0.8% - 1.1%
dilution dilution
Yahoo!........................................ 7.2% - 3.5% 14.3% - 10.3% 8.4% - 11.6%
accretion accretion
</TABLE>
TRANSACTION MULTIPLE ANALYSIS
Goldman Sachs performed two sets of analysis comparing the merger to the
Excite Acquisition. The first analysis compared the implied transaction values
in the merger and the Excite Acquisition to both historical and projected
revenues for GeoCities and Excite, Inc., respectively. The following table
presents the revenue multiples based on the implied transaction values for
Excite, Inc. based on Last Quarter Annualized revenues and investment analyst
reports for 1999 and for GeoCities based on Last Quarter Annualized revenues,
Goldman Sachs published research for 1999, Goldman Sachs published research for
2000 and the Base Case for 1999:
<TABLE>
<CAPTION>
EXCITE GEOCITIES
--------- -----------
<S> <C> <C>
Last Quarter Annualized........................................................................ 30.8x 154.8x
Investment analyst reports for 1999............................................................ 28.4x
Goldman Sachs published research for 1999...................................................... 97.1x
Goldman Sachs published research for 2000...................................................... 50.4x
Base Case for 1999............................................................................. 76.2x
</TABLE>
The second analysis compared the exchange ratio premium to be paid in the
merger to that paid in the Excite Acquisition. The following table presents the
exchange ratio premium to be paid for each
50
<PAGE>
of Excite, Inc. and GeoCities based on current market price, prior 30-day
average and prior 60-day average market price for each respective company:
<TABLE>
<CAPTION>
EXCITE GEOCITIES
----------- -------------
<S> <C> <C>
Premium based on current market prices......................................................... 57.3% 67.4%
Premium based on prior 30 day average.......................................................... 47.4% 98.5%
Premium based on prior 60 day average.......................................................... 41.6% 82.1%
</TABLE>
COMPARABLE TRANSACTION PREMIUM ANALYSIS
Goldman Sachs reviewed a number of technology industry transactions that
have been announced since June 1998. These transactions include:
- - At Home Corporation/Excite, Inc.
- - America Online, Inc./Netscape Communications Corporation
- - CDNow, Inc./N2K Inc.
- - USWeb/CKS Corporation
- - Softbank Corporation/Yahoo!
- - Walt Disney Company/Infoseek Corporation; and
- - National Broadcasting Corporation/CNET, Inc.
The following table presents the ranges and the mean indicated for the such
transactions for the closing price the day before the transaction was announced,
the closing price five days prior to the announcement, the closing price 20 days
prior to the announcement and the 52-week high prior to the announcement:
<TABLE>
<CAPTION>
COMPARABLE TRANSACTIONS
-------------------------------
RANGE MEAN
-------------------- ---------
<S> <C> <C>
Premium to day prior closing price............................................... (4.2)% - 57.3% 19.9%
Premium to five days' prior closing price........................................ (22.2)% - 41.2% 14.5%
Premium to 20 days' prior closing price.......................................... (29.9)% - 112.0% 34.2%
Premium to 52-week high.......................................................... (82.0)% - 27.3% (24.0)%
</TABLE>
Such comparable transaction premium analysis also provided the following
range and mean for the multiple of latest twelve month revenues and multiple of
projected twelve month revenues:
<TABLE>
<CAPTION>
RANGE MEAN
------------- ---------
<S> <C> <C>
Multiple of latest twelve month revenues................................................... 0.9x - 88.5x 28.2x
Multiple of projected twelve month revenues................................................ 0.2x - 49.5x 16.8x
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, may create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
GeoCities or Yahoo! or the merger. The analyses were prepared solely for
purposes of Goldman Sachs providing its opinion to GeoCities' board of directors
as to the fairness from a financial point of view of the exchange ratio pursuant
to the merger agreement to the holders (other than Yahoo! and its affiliates) of
GeoCities common stock and do not purport to be appraisals or necessarily
reflect the prices at which the business or securities actually may be sold.
51
<PAGE>
Analyses based upon forecasts of future results, which are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or their respective advisors, are not necessarily indicative of
actual future results, which may be significantly more or less favorable than
suggested by such analyses. As described above, Goldman Sachs' opinion to
GeoCities' board of directors was one of many factors taken into consideration
by GeoCities' board of directors in making its determination to approve and
adopt the merger agreement. The foregoing summary describes material financial
analyses used by Goldman Sachs in connection with providing its opinion to
GeoCities' board of directors on January 27, 1999, but does not purport to be a
complete description of the analysis performed by Goldman Sachs in connection
with such opinion and is qualified by reference to the written opinion of
Goldman Sachs set forth in Appendix B hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. GeoCities selected
Goldman Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions similar
to the merger.
Goldman Sachs is familiar with GeoCities, having provided certain investment
banking services to GeoCities from time to time, including having acted as
managing underwriter of the initial public offering of GeoCities common stock in
August 1998, and having acted as its financial advisor in connection with, and
having participated in certain of the negotiations leading to, the merger
agreement. Goldman Sachs received a fee of approximately $2.5 million in
connection with its underwriting services in connection with GeoCities' initial
public offering.
Goldman Sachs also has provided certain investment banking services to
Yahoo! from time to time, including having acted as managing underwriter of the
initial public offering of Yahoo! common stock in April 1996 and having acted as
financial advisor in various strategic advisory assignments including, but not
limited to, the acquisition of Four11 Corp. in October 1997 and the announced
acquisition of broadcast.com in April 1999. Goldman Sachs received a fee of
approximately $1.0 million in connection with Yahoo!'s initial public offering.
Goldman Sachs received customary fees, expense reimbursement and indemnification
from Yahoo! in connection with the strategic advisory assignments described
above. Goldman Sachs may provide investment banking services to Yahoo! and its
affiliates in the future. Goldman Sachs has also provided other brokerage
services to certain affiliates of Yahoo!. Goldman Sachs provides a full range of
financial advisory and securities services and, in the course of its normal
trading activities, may from time to time effect transactions in and hold
securities, including derivative securities, of GeoCities or Yahoo! for its own
account and for the accounts of customers. As of January 27, 1999, Goldman Sachs
had accumulated a short position of 2,211 shares of GeoCities common stock. In
addition, as of January 27, 1999, Goldman Sachs had accumulated a long position
of 151,070 shares of Yahoo! common stock against which Goldman Sachs was short
200 shares of Yahoo! common stock.
Pursuant to a letter agreement dated January 21, 1999, GeoCities engaged
Goldman Sachs to act as its financial advisor in connection with a potential
transaction involving Yahoo! or a third party. Pursuant to the terms of this
engagement letter, GeoCities has agreed to pay Goldman Sachs a fee equal to
0.475% of the aggregate consideration received by GeoCities' shareholders in the
merger. Assuming the merger is consummated at the exchange ratio of 0.3384 and
based on the closing price of Yahoo! common stock on January 26, 1999 of
$351.25, Goldman Sachs estimates that its fee will total approximately $23
million dollars. Such fee is contingent upon the closing of the merger. Goldman
Sachs will not receive a separate fee for rendering its opinion to GeoCities'
board of directors. GeoCities has also agreed to reimburse Goldman Sachs for its
reasonable out-of-pocket expenses, including attorney's fees and disbursements
plus any sales, use or similar taxes, and to indemnify Goldman Sachs against
certain liabilities, including certain liabilities under the federal securities
laws.
52
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of GeoCities' board of directors with
respect to the merger, you should be aware that members of GeoCities' board of
directors and management have interests in the merger that are in addition to
your interests as a holder of GeoCities common stock generally. GeoCities' board
of directors was aware of these interests and considered them in approving the
merger.
STOCK OPTIONS ACCELERATED UPON MERGER
As a result of the merger, the vesting under stock options held by David C.
Bohnett, Chairman and Secretary, and John C. Rezner, Chief Technical Officer and
Vice President, Research and Development, will fully accelerate and the vesting
under stock options held by Edward J. Pierce, Vice President, Legal Affairs and
General Counsel, and James G. Glicker, Vice President, Marketing, will partially
accelerate as set forth below:
<TABLE>
<CAPTION>
OPTION SHARES EXERCISE
NAME ACCELERATED PRICE
- --------------------------------------------------------------- ------------- -------------
<S> <C> <C>
David Bohnett.................................................. 300,000 $ 0.8850
John Rezner.................................................... 100,000 0.8850
Edward Pierce.................................................. 10,000 0.3125
Edward Pierce.................................................. 20,000 0.7500
James Glicker.................................................. 50,000 3.0000
</TABLE>
All of the foregoing acceleration arrangements were pursuant to the terms of
pre-existing agreements with such parties.
STOCK OPTIONS ACCELERATED UPON TERMINATION OF EMPLOYMENT FOLLOWING MERGER
In addition, Stephen L. Hansen, Chief Operating and Chief Financial Officer,
and Michael G. Barrett, Senior Vice President, Sales and Strategic Partnerships,
hold stock options to purchase GeoCities common stock that are subject to
partial acceleration following the merger if the employment of either of them is
terminated without cause within prescribed periods of time following the
consummation of the merger. The acceleration feature applies for a period of 18
months following the consummation of the merger for Mr. Hansen and for a period
of 12 months following the consummation of the merger for Mr. Barrett. If the
employment of either Mr. Hansen or Mr. Barrett is terminated without cause
during such periods, each of them would receive vesting credit for the portion
of the year through the month during which the termination occurs, plus an
additional 12 months of vesting on a majority of the options that they currently
hold. Mr. Hansen holds 450,000 options which are subject to this feature with an
exercise price of $0.825 per share, and Mr. Barrett holds 280,000 options which
are subject to this feature with an exercise price of $0.75 per share. The
actual number of option shares that would be accelerated for Messrs. Hansen and
Barrett will depend on the timing of the termination without cause.
In addition, all options granted by GeoCities under its 1998 Stock Incentive
Plan, other than certain performance options relating to an aggregate of 300,000
shares of GeoCities common stock granted by GeoCities in connection with its
acquisition of Starseed, Inc. in December 1998, contain provisions that provide
for full acceleration of such options if the employment of any option holder is
involuntarily terminated within 18 months following the merger. GeoCities' 1998
Stock Incentive Plan was adopted by GeoCities in connection with its initial
public offering in August 1998. Mr. Barrett, Steven D. Bardack, Vice President,
Strategic and Business Development, Michael A. McConachie, Vice President,
Engineering, David J. Codiga, Senior Vice President, Operations and Development,
and
53
<PAGE>
Bruce Zanca, Vice President, Communications, have all received option grants
under the 1998 Stock Incentive Plan which include this special acceleration
provision, as set forth below:
<TABLE>
<CAPTION>
OPTION SHARES EXERCISE
NAME ACCELERATED PRICE
- ---------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Michael Barrett................................................. 50,000 $ 29.375
Steven Bardack.................................................. 75,000 29.375
Michael McConachie.............................................. 75,000 26.563
David Codiga.................................................... 175,000 40.875
Bruce Zanca..................................................... 100,000 20.875
</TABLE>
The acceleration of the vesting of options upon the merger for Messrs.
Rezner, Pierce and Glicker, together with any severance payments made to Mr.
Pierce, will result in "excess parachute payments" as defined in Section 280G of
the Internal Revenue Code. In addition, accelerated vesting of the options held
by Messrs. Hansen, Barrett, Bardack, McConachie, Codiga and Zanca and certain
other employees of GeoCities due to a termination of employment following the
merger, together with any severance payments received by Messrs. Hansen and
Barrett, will also result in "excess parachute payments". Excess parachute
payments are not deductible in accordance with Section 280G. As a result, Yahoo!
will not be entitled to a tax deduction for the amounts determined to be excess
parachute payments. The amount of the lost deduction will depend upon the value
of the shares at the time of the merger and the number of option shares being
accelerated.
EMPLOYEE STOCK PURCHASE PLAN
The terms of GeoCities' employee stock purchase plan provide that all
outstanding purchase rights under the plan will be exercised immediately prior
to the effective time of the merger, and that each participant in the plan will
be issued shares of GeoCities common stock at that time pursuant to the terms of
the plan. Each share of GeoCities common stock so issued shall, by virtue of the
merger, be converted into the right to receive 0.6768 shares of Yahoo! common
stock. Some of GeoCities' management participate in the employee stock purchase
plan and may purchase up to $5,000 of GeoCities common stock each purchase
period at the purchase price available under the plan.
SEVERANCE ARRANGEMENTS
Messrs. Hansen, Barrett, and Pierce are eligible to receive salary
continuation severance benefits pursuant to their employment or other agreements
with GeoCities if their employment is terminated without cause within prescribed
time periods following the merger as set forth in their individual agreements.
In addition, Mr. Pierce is eligible to receive such severance benefits if he
voluntarily leaves GeoCities after the merger. The salary continuation
obligations of GeoCities are more particularly set forth below:
<TABLE>
<CAPTION>
SEVERANCE PAY
-------------------------
NAME MONTHS TOTAL
- ------------------------------------------------------------------------ ------------- ----------
<S> <C> <C>
Stephen Hansen.......................................................... 6 $ 100,000
Michael Barrett......................................................... 6 100,000
Edward Pierce........................................................... 6 80,000
</TABLE>
None of such agreements was entered into in connection with the negotiation
of the merger.
INDEMNIFICATION ARRANGEMENTS
Under the merger agreement, Yahoo! has agreed that, from and after the
effective time of the merger, Yahoo! will cause GeoCities to fulfill and honor
in all respects the obligations of GeoCities
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under (1) any indemnification agreements that exist between GeoCities and its
officers and directors at the effective time of the merger and (2) any
indemnification provisions under GeoCities' certificate of incorporation or
bylaws that are in effect on the date of the merger agreement. The merger
agreement also provides that the certificate of incorporation and bylaws of
GeoCities following the effective time will contain provisions regarding
exculpation and indemnification that are at least as favorable to the
indemnified parties as those contained in GeoCities' certificate of
incorporation and bylaws on the date of the merger agreement. In addition, the
merger agreement provides that, for a period of at least three years after the
effective time of the merger, such exculpation and indemnification provisions
will not be amended, repealed or otherwise modified in any manner that would
adversely affect the rights of individuals who, immediately prior to the
effective time of the merger, were directors, officers, employees or agents of
GeoCities, unless such modification is required by law. Yahoo! has also agreed
to cause GeoCities to use commercially reasonable efforts to maintain directors'
and officers' liability insurance for a period of three years after the
effective time of the merger.
GOVERNMENTAL AND REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules
of the Federal Trade Commission promulgated thereunder, the merger may not be
consummated until notifications have been given and certain information has been
furnished to the FTC and the Antitrust Division of the United States Department
of Justice and specified waiting period requirements have been satisfied. Yahoo!
and GeoCities each filed notification and report forms with the FTC and the
Department of Justice on February 19, 1999. The specified waiting period expired
on March 21, 1999.
At any time before or after the consummation of the merger, the FTC, the
Department of Justice or any state could take such action under applicable
antitrust laws as it deems necessary or desirable. Such action could include
seeking to enjoin the consummation of the merger or seeking divestiture of
particular assets or businesses of Yahoo! or GeoCities. Private parties may also
initiate legal actions under the antitrust laws under certain circumstances.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material federal income tax
considerations of the merger that are generally applicable to holders of
GeoCities common stock. Venture Law Group, a Professional Corporation, counsel
to Yahoo!, and Brobeck, Phleger and Harrison LLP, counsel to GeoCities, are of
the opinion that the following discussion accurately describes such material
federal income tax consequences.
This discussion does not deal with all income tax considerations that may be
relevant to particular GeoCities stockholders in light of their particular
circumstances, such as stockholders who are dealers in securities, foreign
persons, banks, insurance companies or tax-exempt entities, stockholders who
acquired their shares in connection with previous mergers involving GeoCities or
an affiliate, stockholders who hold their shares as part of a hedging, straddle,
conversion or other risk reduction transaction, or stockholders who acquired
their shares in connection with stock option or stock purchase plans or in other
compensatory transactions. In addition, the following discussion does not
address the tax consequences of transactions effectuated prior to or after the
merger (whether or not such transactions are in connection with the merger),
including transactions in which shares of GeoCities common stock were or are
acquired or shares of Yahoo! common stock were or are disposed of. Furthermore,
no foreign, state or local tax considerations are addressed in this proxy
statement/ prospectus. The discussion is based on federal income tax law in
effect as of the date of this proxy statement/prospectus, which could change at
any time, possibly with retroactive effectiveness. ACCORDINGLY, GEOCITIES'
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER AND APPLICABLE TAX RETURN
REPORTING REQUIREMENTS.
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It is a condition to the closing of the merger that Yahoo! and GeoCities
each receive an opinion from their respective counsel that the merger will
constitute a "reorganization" within the meaning of Section 368 of the Internal
Revenue Code of 1986. If the merger qualifies as a reorganization, the following
federal income tax consequences will result:
- - No gain or loss will be recognized by holders of GeoCities common stock
solely upon their receipt of Yahoo! common stock in the merger, except to the
extent of cash received in lieu of a fractional share of Yahoo! common stock;
- - The aggregate tax basis of the Yahoo! common stock received in the merger by
a GeoCities stockholder, including any fractional share not actually
received, will be the same as the aggregate tax basis of the GeoCities common
stock surrendered in exchange for such Yahoo! common stock;
- - The holding period of the Yahoo! common stock received in the merger by a
GeoCities stockholder will include the period during which the stockholder
held the GeoCities common stock surrendered in exchange for such Yahoo!
common stock, so long as the GeoCities common stock is held as a capital
asset at the time of the merger;
- - Cash payments received by holders of GeoCities common stock in lieu of a
fractional share of Yahoo! common stock will be treated as if the fractional
share of Yahoo! common stock had been issued in the merger and then
repurchased by Yahoo!. A GeoCities stockholder receiving such cash will
generally recognize gain or loss upon such payment, equal to the difference
between such stockholder's basis in the fractional share and the amount of
cash received; and
- - None of Yahoo!, the merger subsidiary or GeoCities will recognize gain or
loss solely as a result of the merger.
The opinions of counsel that the merger will qualify as a reorganization
will be subject to the limitations and qualifications referred to in this
document. In addition, the opinions will (a) rely upon the truth and accuracy of
representations and covenants set forth in the merger agreement and in
certificates to be delivered to counsel prior to the effective time by Yahoo!,
the merger subsidiary and GeoCities, and (b) assume that the merger will be
consummated in accordance with the terms of the merger agreement. The parties
are not requesting a ruling from the Internal Revenue Service in connection with
the merger. The opinions of counsel referred to above do not bind the IRS or
prevent the IRS from adopting a contrary position. Yahoo! and GeoCities
undertake to recirculate these proxy materials and resolicit proxies in the
event that the parties waive the condition to closing of the merger of receipt
of an opinion from their respective counsel that the merger will be a
reorganization for federal income tax purposes.
A successful IRS challenge to the "reorganization" status of the merger
would result in a GeoCities stockholder recognizing gain or loss with respect to
each share of GeoCities common stock surrendered equal to the difference between
the stockholder's basis in such share and the fair market value, as of the
effective time of the merger, of the Yahoo! common stock received in exchange
therefor. In such event, a stockholder's aggregate basis in the Yahoo! common
stock so received would equal its fair market value and his holding period for
such stock would begin the day after the merger.
ANTICIPATED ACCOUNTING TREATMENT
The merger is intended to qualify as a pooling of interests for financial
reporting purposes in accordance with generally accepted accounting principles.
Consummation of the merger is conditioned upon receipt by Yahoo! and GeoCities
of letters from their independent accountants, PricewaterhouseCoopers LLP,
regarding that firm's concurrence with Yahoo! management's and GeoCities
management's conclusions as to the appropriateness of pooling of interests
accounting for the merger under APB No. 16, and the related interpretations of
the American Institute of Certified Public Accountants, the Financial Accounting
Standards Board and the rules and regulations of the Commission.
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NO APPRAISAL RIGHTS
Delaware law provides appraisal rights to stockholders of Delaware
corporations in certain situations. However, such appraisal rights are not
available to stockholders of a corporation, such as GeoCities:
- - whose securities are listed on a national securities exchange or are
designated as a national market security on an interdealer quotation system
by the National Association of Securities Dealers, Inc.; and
- - whose stockholders are not required to accept in exchange for their stock
anything other than (A) stock in another corporation listed on a national
securities exchange or an interdealer quotation system by the NASD, and (B)
cash in lieu of fractional shares.
Due to the following factors, stockholders of GeoCities will not have
appraisal rights with respect to the merger:
- - GeoCities common stock is traded on The Nasdaq National Market;
- - GeoCities' stockholders are being offered stock of Yahoo!, which is also
traded on The Nasdaq National Market; and
- - GeoCities' stockholders are being offered cash in lieu of fractional shares.
Delaware law does not provide appraisal rights to stockholders of a
corporation, such as Yahoo!, that issues shares in connection with a merger but
is not itself a constituent corporation in the merger.
DELISTING AND DEREGISTRATION OF GEOCITIES COMMON STOCK
If the merger is consummated, GeoCities common stock will be delisted from
The Nasdaq National Market and will be deregistered under the Securities
Exchange Act of 1934.
LISTING OF YAHOO! COMMON STOCK TO BE ISSUED IN THE MERGER
It is a condition to the consummation of the merger that the shares of
Yahoo! common stock to be issued in the merger and the shares of Yahoo! common
stock to be reserved for issuance in connection with the assumption of
outstanding GeoCities stock options be approved for listing on The Nasdaq
National Market.
RESTRICTION ON RESALES OF YAHOO! COMMON STOCK
The Yahoo! common stock to be issued in the merger will have been registered
under the Securities Act, thereby allowing such shares to be freely traded
without restriction by all former holders of GeoCities common stock who are not
"affiliates" of GeoCities at the time of the special meeting and who do not
become "affiliates" of Yahoo! after the merger. Persons who may be deemed to be
affiliates of Yahoo! or GeoCities generally include individuals or entities that
control, are controlled by, or are under common control with, such party and may
include certain officers and directors of Yahoo! and GeoCities, as well as
significant stockholders.
Shares of Yahoo! common stock received by those stockholders of GeoCities
who are deemed to be affiliates of GeoCities may be resold without registration
under the Securities Act only as permitted by Rule 145 under the Securities Act
or as otherwise permitted under the Securities Act. The merger agreement
requires GeoCities to use commercially reasonable efforts to cause its
affiliates to enter into agreements not to make any public sale of any Yahoo!
common stock received in the merger, except in compliance with the Securities
Act and the rules and regulations thereunder.
This document does not cover resales of Yahoo! common stock received by any
person who may be deemed to be an affiliate of Yahoo! or GeoCities.
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THE MERGER AGREEMENT
THE FOLLOWING IS A BRIEF SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX A TO THIS DOCUMENT AND
INCORPORATED HERE BY REFERENCE. STOCKHOLDERS OF GEOCITIES ARE URGED TO READ THE
MERGER AGREEMENT IN ITS ENTIRETY FOR A MORE COMPLETE DESCRIPTION OF THE MERGER.
IN THE EVENT OF ANY DISCREPANCY BETWEEN THE TERMS OF THE MERGER AGREEMENT AND
THE FOLLOWING SUMMARY, THE MERGER AGREEMENT WILL CONTROL.
THE MERGER
Following the approval and adoption of the merger agreement by the
stockholders of GeoCities and the satisfaction or waiver of the other conditions
to the merger, GeoCities will merge with a wholly-owned subsidiary of Yahoo!,
with GeoCities continuing as the surviving corporation and a wholly-owned
subsidiary of Yahoo!.
THE EFFECTIVE TIME
As soon as practicable on or after the closing of the merger, the parties
will cause the merger to become effective by filing a certificate of merger with
the Delaware Secretary of State. The parties anticipate that this will occur in
the second quarter of 1999.
DIRECTORS AND OFFICERS OF GEOCITIES AFTER THE MERGER
At the effective time, the directors of the merger subsidiary will become
the new directors of GeoCities, and the officers of the merger subsidiary will
become the new officers of GeoCities.
CONVERSION OF SHARES IN THE MERGER
At the effective time, each share of GeoCities common stock will be
automatically canceled and converted into the right to receive 0.6768 shares of
Yahoo! common stock, except that shares of GeoCities common stock held
immediately prior to the effective time by GeoCities, Yahoo! or any wholly-owned
subsidiary of GeoCities or Yahoo! shall be canceled. The 0.6768 exchange ratio
already takes into consideration Yahoo!'s 2-for-1 stock split on February 5,
1999. In addition, the exchange ratio will be further adjusted to reflect the
effect of any stock split, stock dividend, reorganization, recapitalization,
reclassification or other like change with respect to either Yahoo! common stock
or GeoCities common stock that may occur on or after the date of this document.
GEOCITIES' STOCK OPTION AND STOCK PURCHASE PLANS
At the effective time, each outstanding option to purchase shares of
GeoCities common stock under GeoCities' 1997 Stock Option Plan, GeoCities' 1998
Stock Incentive Plan, GeoCities' Starseed, Inc. 1998 Stock Option/Stock Issuance
Plan, and written agreements with certain officers, directors, consultants,
founders and employees of GeoCities will be assumed by Yahoo! regardless of
whether they are exercisable. Each GeoCities stock option that is assumed by
Yahoo! will continue to have, and be subject to, the same terms and conditions
that were applicable to the option immediately prior to the effective time,
except that:
- - each GeoCities stock option will be exercisable for shares of Yahoo! common
stock, and the number of shares of Yahoo! common stock issuable upon exercise
of any given option will be determined by multiplying 0.6768 by the number of
shares of GeoCities common stock underlying such option, rounded down to the
nearest whole number; and
- - the per share exercise price of any given option will be determined by
dividing the exercise price of the option immediately prior to the effective
time by 0.6768, rounded up to the nearest whole cent.
The parties intend for the GeoCities stock options assumed by Yahoo! to
qualify as incentive stock options, as defined in Section 422 of the Internal
Revenue Code, to the extent the stock options qualified as incentive stock
options prior to the effective time.
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Immediately prior to the effective time, any outstanding purchase rights
under GeoCities' 1998 Employee Stock Purchase Plan will automatically be
exercised and paid for through payroll deductions. This will allow participants
to purchase shares of GeoCities common stock under the plan prior to the
effective time. This accelerated purchase period will expire immediately
following the new purchase date, and the plan will terminate immediately prior
to the effective time.
Yahoo! has agreed to file a registration statement on Form S-8 for the
shares of Yahoo! common stock issuable with respect to the assumed GeoCities
stock options within 30 days after the effective time, and Yahoo! intends to
maintain the effectiveness of the registration statement for so long as any
GeoCities stock options or other rights remain outstanding.
THE EXCHANGE AGENT
Promptly after the effective time, Yahoo! is required to deposit with a bank
or trust company certificates representing the shares of Yahoo! common stock to
be exchanged for shares of GeoCities common stock, and cash to pay for
fractional shares and any dividends or distributions to which holders of
GeoCities common stock may be entitled to receive under the merger agreement.
PROCEDURES FOR EXCHANGING STOCK CERTIFICATES
Promptly after the effective time, Yahoo! will cause the exchange agent to
mail to the holders of record of GeoCities stock certificates, (1) a letter of
transmittal and (2) instructions on how to surrender GeoCities stock
certificates in exchange for certificates representing shares of Yahoo! common
stock, cash for fractional shares and any dividends or other distributions that
they may be entitled to receive under the merger agreement. HOLDERS OF GEOCITIES
COMMON STOCK SHOULD NOT SURRENDER THEIR GEOCITIES STOCK CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
Upon surrendering their GeoCities stock certificates to the exchange agent
for cancellation, together with the letter of transmittal and any other
documents required by the exchange agent, the holders of GeoCities stock
certificates will be entitled to receive a certificate representing that number
of whole shares of Yahoo! common stock which that holder has the right to
receive cash for fractional shares of Yahoo! common stock and any dividends or
other distributions to which the holder is entitled. Until surrendered to the
exchange agent, outstanding GeoCities stock certificates will be deemed from and
after the effective time to evidence (1) only the right to receive the number of
full shares of Yahoo! common stock into which the shares of GeoCities common
stock have converted and (2) the right to receive an amount in cash for any
fractional shares and any dividends or distributions payable under the merger
agreement.
DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES
Until each GeoCities stockholder surrenders his GeoCities stock certificate
in exchange for a Yahoo! stock certificate, that stockholder will not receive
any dividends or other distributions declared or made by Yahoo! after the
effective time of the merger. However, once that stockholder surrenders his or
her GeoCities stock certificate to the exchange agent, he or she will receive
(1) a Yahoo! stock certificate, (2) cash as payment for fractional shares, and
(3) cash, without interest, as payment for any dividends or other distributions
declared or made by Yahoo! after the effective time of the merger.
NO FRACTIONAL SHARES
No fractional shares of Yahoo! common stock will be issued because of the
merger. Instead, each GeoCities stockholder who would be entitled to a
fractional share of Yahoo! common stock will receive cash. The amount of cash to
be received by such GeoCities stockholder will be determined by multiplying the
fraction of such share that such stockholder would have received by the average
closing sale price of one share of Yahoo! common stock over the five trading
days immediately prior to the effective time of the merger.
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REPRESENTATIONS AND WARRANTIES
In the merger agreement GeoCities made a number of representations and
warranties in favor of Yahoo! that relate to a number of matters, including:
- - GeoCities' due organization and good standing;
- - GeoCities' capital structure and rights or obligations relating to GeoCities'
capital stock;
- - the authorization, execution, delivery, and enforceability of the merger
agreement;
- - the absence of conflict with or violation of any agreement, law, or charter
or bylaw provision and the absence of the need for filings, consents,
approvals or actions in order to consummate the merger;
- - documents filed with the Commission;
- - the accuracy of information supplied by GeoCities;
- - the absence of certain material changes, events, litigation or
investigations;
- - the filing of tax returns and the payment of taxes;
- - GeoCities' title to, or valid leasehold interests in, material properties and
assets;
- - the disclosure of material contracts;
- - GeoCities' compliance with laws;
- - GeoCities' employee benefit plans and labor relations;
- - change of control payments to officers and directors of GeoCities;
- - GeoCities' ownership of or right to use, and non-infringement of others'
rights to, intellectual property;
- - approval of the merger by GeoCities' board;
- - the payment of broker's or advisor's fees;
- - the receipt of a fairness opinion of Goldman, Sachs & Co.; and
- - pooling of interests accounting treatment for the merger.
The merger agreement also includes representations and warranties made by
Yahoo! in favor of GeoCities that relate to a number of matters, including the
following:
- - the organization and good standing of Yahoo!;
- - the capital structure of Yahoo!;
- - the authorization, execution, delivery, and enforceability of the merger
agreement;
- - the absence of conflict with or violation of any agreement, law, or charter
or bylaw provision and the absence of the need for filings, consents,
approvals or actions in order to consummate the merger;
- - documents filed with the Commission;
- - the accuracy of information supplied by Yahoo!;
- - the absence of material changes or events;
- - the absence of material litigation or investigations;
- - pooling of interests accounting treatment for the merger; and
- - the valid issuance of Yahoo! common stock in the merger.
The representations and warranties of GeoCities and Yahoo! will terminate at
the effective time.
CONDUCT OF BUSINESS OF GEOCITIES PENDING THE MERGER
GeoCities has agreed that, during the period from the date of the merger
agreement until the earlier of the termination of the merger agreement or the
effective time, it will carry on its business in the usual, regular and ordinary
course. GeoCities is required to preserve intact its current business
organization, keep available the services of its present officers and employees
and preserve its relationships with customers, suppliers, licensors, licensees,
and others having business dealings with it. GeoCities has also agreed that,
prior to the effective time or the
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termination of the merger agreement, without Yahoo!'s consent, it will not:
- - waive any stock repurchase rights, accelerate, amend or change the period of
exercisability of options or restricted stock, reprice options or authorize
cash payments in exchange for options;
- - grant severance or termination pay to any officer or employee, except
pursuant to written agreements already in effect, or policies already
existing, on the date of the merger agreement, or adopt any new severance
plan;
- - transfer, license, extend, amend or modify in any material respect any rights
to its intellectual property, other than non-exclusive licenses in the
ordinary course of business;
- - declare, set aside or pay any dividends on or make any other distributions in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities;
- - purchase, redeem or otherwise acquire any shares of capital stock of
GeoCities or its subsidiaries, except repurchases of an employee's unvested
shares in connection with such employee's termination of employment;
- - issue, deliver, sell, authorize, pledge or otherwise encumber any shares of
capital stock or any securities convertible into shares of capital stock
other than pursuant to the exercise of stock options or pursuant to
GeoCities' 1998 Employee Stock Purchase Plan;
- - cause, permit or propose any amendments to its certificate of incorporation,
bylaws or other charter documents or similar governing instruments of any of
its subsidiaries;
- - acquire, merge or consolidate with any business or corporation, or otherwise
acquire any material assets or enter into any material joint ventures,
strategic partnerships or alliances;
- - sell, lease, license, encumber or otherwise dispose of any material
properties or assets;
- - incur any indebtedness or guarantee any indebtedness of another person, issue
or sell any debt securities or options, warrants, calls or other rights to
acquire any debt securities of GeoCities;
- - adopt or amend any employee benefit plan or enter into any employment
contract or collective bargaining agreement other than offer letters and
agreements entered into in the ordinary course of business with employees who
are terminable "at will";
- - pay any special bonus or remuneration to any director or employee, or
increase the salaries or wage rates or fringe benefits of its directors,
officers, employees or consultants other than in the ordinary course of
business;
- - modify, amend or terminate any material contract or agreement or waive,
release or assign any material rights or claims under any material contract
or agreement;
- - enter into any licensing, distribution, sponsorship, advertising, merchant
program or other similar contracts which may not be canceled without penalty
by GeoCities or which include over $50,000 in payments by or to GeoCities;
- - revalue any of its assets or make any change in accounting methods,
principles or practices;
- - interfere with Yahoo!'s ability to account for the merger as a pooling of
interests;
- - fail to make timely filings with the Commission; or
- - engage in any action with the intent to adversely impact any of the
transactions contemplated by the merger agreement.
CONDUCT OF BUSINESS OF YAHOO! PENDING THE MERGER
Yahoo! has agreed that, during the period from the date of the merger
agreement until the
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earlier of the termination of the merger agreement or the effective time, it
will not:
- - cause, permit or propose any amendments to its articles of incorporation or
bylaws or other charter documents in a manner that would have an adverse
impact on GeoCities' stockholders; provided that the foregoing will not
restrict the ability of Yahoo! to reincorporate in another jurisdiction; or
- - take any action that would be reasonably likely to interfere with Yahoo!'s
ability to account for the merger as a pooling of interests.
All of GeoCities' and Yahoo!'s covenants will terminate at the effective
time, except those that by their terms survive the effective time.
NO SOLICITATION
The merger agreement provides that GeoCities will not authorize or permit
any of its officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by it to:
- - solicit or induce the making or announcement of any acquisition proposal;
- - participate in any discussions regarding, or furnish to any person any
nonpublic information with respect to, or make any proposal that constitutes
or may reasonably be expected to lead to, any acquisition proposal;
- - engage in discussions with any person with respect to any acquisition
proposal;
- - approve or recommend any acquisition proposal; or
- - enter into any letter of intent or similar document or any contract relating
to any acquisition proposal.
However, prior to the approval of the merger agreement by the GeoCities
stockholders, the merger agreement does not prohibit GeoCities from furnishing
nonpublic information to, entering into a confidentiality agreement with or
entering into discussions with, any person or group in response to a more
favorable offer submitted by such person or group if:
- - GeoCities has not violated any of the restrictions set forth above;
- - GeoCities' board concludes that the action is required to comply with its
fiduciary obligations to GeoCities' stockholders;
- - prior to furnishing any nonpublic information to, or entering into
discussions with, any person or group, GeoCities (1) gives Yahoo! written
notice of the identity of the person or group and GeoCities' intention to
furnish nonpublic information to, or enter into discussions with, the person
or group and (2) GeoCities receives from the person or group an executed
confidentiality agreement containing customary provisions; and
- - contemporaneously with furnishing any nonpublic information to any person or
group, GeoCities furnishes the same nonpublic information to Yahoo!.
In addition, GeoCities has agreed to provide Yahoo! with prior written
notice of any meeting of GeoCities' board of directors at which the board is
expected to recommend a more favorable offer to its stockholders.
The merger agreement defines an "acquisition proposal" as any bona fide
offer or proposal relating to any transaction other than the transactions
contemplated by the merger agreement involving:
- - any acquisition or purchase from GeoCities of more than a 15% interest in the
total outstanding voting securities of GeoCities;
- - any tender offer or exchange offer that, if consummated, would result in any
person or group beneficially owning 15% or more of the total outstanding
voting securities of GeoCities;
- - any merger, consolidation, business combination or similar transaction
involving GeoCities pursuant to which the stockholders of GeoCities
immediately preceding such transaction hold less than
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85% of the equity interest in the surviving entity after such transaction;
- - any sale, lease, exchange, transfer, license other than in the ordinary
course of business, acquisition or disposition of more than 50% of the assets
of GeoCities; or
- - any liquidation or dissolution of GeoCities.
GeoCities has agreed to promptly advise Yahoo! of any request for nonpublic
information or any inquiry which GeoCities believes would lead to an acquisition
proposal, the material terms and conditions of the acquisition proposal, and the
identity of the person or group making the request, acquisition proposal or
inquiry.
DIRECTOR AND OFFICER INDEMNIFICATION
From and after the effective time of the merger, Yahoo! will cause the
surviving corporation to fulfill and honor GeoCities' obligations under any
indemnification agreements with its directors and officers that existed as of
the effective time of the merger and any indemnification provisions under
GeoCities' organizational documents that were in effect on the date of the
merger agreement.
The certificate of incorporation and bylaws of GeoCities following the
merger will contain provisions relating to exculpation and indemnification that
are at least as favorable to the indemnified directors and officers as those
contained in GeoCities' organizational documents that were in effect on the date
of the merger agreement. These indemnification provisions will not be amended,
repealed or otherwise modified for three years after the effective time of the
merger if such modification would adversely affect the rights of individuals who
were directors, officers, employees or agents of GeoCities immediately prior to
the effective time of the merger, unless such modification is required by law.
For three years after the effective time of the merger, Yahoo! will cause
the surviving corporation to use its commercially reasonable efforts to maintain
directors' and officers' liability insurance covering those persons who are
currently covered by GeoCities' directors' and officers' liability insurance
policy, on comparable terms to such policy. However, neither Yahoo! nor the
surviving corporation will be required to expend more than 125% of the annual
premium currently paid by GeoCities for such coverage.
YAHOO! STOCK OPTION
GeoCities has granted Yahoo! an irrevocable option to purchase up to
6,370,000 shares of GeoCities common stock at a cash exercise price of $113.66
per share. Based on the number of GeoCities shares outstanding on January 27,
1999, as represented by GeoCities in the merger agreement, the option may be
exercisable for approximately 19.9% of GeoCities' outstanding shares, or
approximately 16.6% of the GeoCities shares on a fully diluted basis after
giving effect to exercise of the option. The option was granted to Yahoo! for no
additional consideration. Yahoo! may exercise this option, in whole or in part,
at any time from the day on which one of the triggering events described below
occurs or the day on which the merger agreement is terminated by either
GeoCities or Yahoo! because the required approval of GeoCities' stockholders was
not obtained. Yahoo!'s right to exercise the stock option terminates on the
earlier of (1) the effective time or (2) nine months after the termination of
the merger agreement.
Under the merger agreement, a "triggering event" has occurred if:
- - GeoCities' board withdraws, amends or modifies in a manner adverse to Yahoo!
its recommendation in favor of the adoption and approval of the merger;
- - GeoCities' board fails to reaffirm its recommendation in favor of the
approval of the merger after Yahoo! requests that such recommendation be
reaffirmed at any time following the public announcement of an acquisition
proposal;
- - GeoCities' board approves or publicly recommends any other acquisition
proposal;
- - GeoCities enters into any letter of intent, agreement or commitment accepting
any other acquisition proposal;
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- - a tender or exchange offer relating to securities of GeoCities in excess of
15% of its outstanding voting securities is commenced by a person
unaffiliated with Yahoo! and GeoCities does not send to its stockholders a
statement disclosing that GeoCities recommends rejection of such tender or
exchange offer; or
- - GeoCities intentionally breaches its obligations under the "no solicitation"
section of the merger agreement.
Yahoo! may purchase shares of GeoCities common stock pursuant to its stock
option only if, at the time of purchase, all of the following conditions are
satisfied:
- - Yahoo! is not in material breach of its obligations under the merger
agreement;
- - no preliminary or permanent injunction or other order, decree or ruling
against the sale or delivery of the shares of GeoCities common stock issued
by any federal or state court is in effect; and
- - any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act has expired or terminated.
If a change in GeoCities' capital stock dilutes or changes Yahoo!'s rights
under the merger agreement, the number and kind of shares of GeoCities common
stock subject to the stock option and the purchase price per share will be
adjusted so that, upon exercise of the stock option, Yahoo! will receive the
number and class of shares of GeoCities common stock that Yahoo! would have
received if the option had been exercised immediately prior to such event.
At any time after the date on which the option becomes exercisable, Yahoo!
may, upon two days' notice to GeoCities, surrender all or a part of the stock
option to GeoCities, in which event GeoCities will pay to Yahoo!, on the day of
each such surrender, an amount in cash per share of GeoCities common stock equal
to (1) the closing sale price of the GeoCities' common stock on The Nasdaq
National Market on the date of surrender over (2) the exercise price. Upon
exercise of its right to surrender its stock option or any portion thereof and
the receipt by Yahoo! of cash as set forth in this document, all rights of
Yahoo! to purchase shares of GeoCities common stock with respect to the portion
of the stock option surrendered shall be terminated.
CONDITIONS TO THE MERGER
The obligations of Yahoo! and GeoCities to effect the merger are subject to
the satisfaction of the following conditions:
- - GeoCities' stockholders approve the merger;
- - the Commission declares the registration statement effective and no stop
order suspending the effectiveness of the registration statement shall have
been issued and no proceeding for that purpose, and no similar proceeding in
respect of this document, shall have been initiated or threatened in writing
by the Commission;
- - no governmental entity enacts, issues, promulgates, enforces or enters any
statute, rule, regulation, executive order, decree, injunction or other order
which is in effect and which makes the merger illegal or otherwise prohibits
consummation of the merger;
- - all waiting periods under the Hart-Scott-Rodino Act relating to the merger
expire or terminate early and all material foreign antitrust approvals
required to be obtained prior to the merger are obtained;
- - Yahoo! and GeoCities receive written opinions from tax counsel to the effect
that the merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and the opinions shall not have
been withdrawn;
- - Yahoo! receives letters from PricewaterhouseCoopers LLP stating its
concurrence with the conclusions of Yahoo!'s management and GeoCities'
management as to the appropriateness of pooling of interest accounting for
the merger; provided, however, that this condition shall be deemed waived by
GeoCities if GeoCities or any of its stockholders, employees or affiliates is
the proximate cause of Yahoo!'s inability to account for the merger as a
pooling of interests; and
- - the shares of Yahoo! common stock to be issued in the merger are approved for
listing on The Nasdaq National Market.
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<PAGE>
In addition, the obligation of GeoCities to consummate and effect the merger
shall be subject to the satisfaction of the following conditions, any of which
may be waived by GeoCities:
- - the representations and warranties of Yahoo! contained in the merger
agreement (a) shall have been true and correct in all material respects as of
the date of the merger agreement and (b) shall be true and correct on and as
of the closing date of the merger as if made on such date, except that:
- in each case, or in the aggregate, any items that are not true but do
not constitute a material adverse effect on Yahoo!;
- representations and warranties that address matters only as of a
particular date shall have been true and correct as of such date or do
not constitute a material adverse effect on Yahoo!; and
- changes contemplated by the merger agreement.
- - all agreements and covenants required by the merger agreement to be performed
or complied with by Yahoo! shall have been performed or complied with in all
material aspects.
Further, the obligation of Yahoo! to consummate and effect the merger shall
be subject to the satisfaction of the following conditions, any of which may be
waived by Yahoo!:
- - the representations and warranties of GeoCities contained in the merger
agreement (a) shall have been true and correct in all material respects as of
the date of the merger agreement, and (b) are true and correct on and as of
the closing date as if made on and as of the closing date except that:
- in each case, or in the aggregate, any items that are not true but do
not constitute a material adverse effect on GeoCities;
- changes contemplated by the merger agreement; and
- representations and warranties that address matters only as of a
particular date shall have been true and correct as of such date or do
not constitute a material adverse effect on GeoCities.
- - All agreements and covenants required by the merger agreement to be performed
or complied with by GeoCities shall have been performed or complied with in
all material respects, and Yahoo! shall have received a certificate to such
effect signed on behalf of GeoCities by the Chief Executive Officer and the
Chief Financial Officer of GeoCities; and
- - each affiliate of GeoCities enters into an agreement with Yahoo! pursuant to
which such affiliate agrees to restrict (a) its transfer of Yahoo! stock that
it receives in the merger and (b) its ability to take actions which would
adversely affect Yahoo!'s ability to account for the merger as a pooling of
interests transaction.
If any material condition is waived, Yahoo! and GeoCities will amend this
document and resolicit the vote of GeoCities' stockholders.
TERMINATION
The merger agreement may be terminated at any time prior to the effective
time of the merger, whether before or after the requisite
approval of the stockholders of GeoCities has been obtained:
- - by mutual consent authorized by the boards of directors of both Yahoo! and
GeoCities;
- - by either GeoCities or Yahoo! if the merger is not consummated by September
30, 1999; provided, however, this right to terminate the merger agreement
shall not be available to any party who has been a principal cause of the
failure of the merger to occur by such date;
- - by either GeoCities or Yahoo! if a governmental entity shall have issued an
order, decree or ruling or taken any other
65
<PAGE>
action which permanently restrains, enjoins or otherwise prohibits the
merger;
- - by either GeoCities or Yahoo! if the required approval of GeoCities'
stockholders is not obtained, although the right to terminate the merger
agreement shall not be available to GeoCities if the failure to obtain
stockholder approval shall have been caused by GeoCities in an action or
failure to act that constitutes a material breach by GeoCities of the merger
agreement;
- - by Yahoo! if any triggering event occurs;
- - by GeoCities, upon Yahoo!'s breach of any representation, warranty, covenant
or agreement as set forth in the merger agreement, or if any representation
or warranty of Yahoo! becomes untrue and such breach or untrue representation
or warranty has a material adverse effect on GeoCities; however, Yahoo! is
entitled to a 20-day cure period as long as such 20-day period does not
extend beyond September 30, 1999; or
- - by Yahoo!, upon GeoCities' breach of any representation, warranty, covenant
or agreement set forth in the merger agreement, or if any representation or
warranty of GeoCities becomes untrue and such breach or untrue representation
or warranty has a material adverse effect on Yahoo!; however, GeoCities is
entitled to a 20-day cure period as long as such cure period does not extend
beyond September 30, 1999. Yahoo! may not terminate the merger agreement if
it materially breaches the merger agreement.
TERMINATION FEE AND EXPENSES
Except as set forth below, all fees and expenses incurred in connection with
the merger agreement and the merger shall be paid by the party incurring such
expenses, whether or not the merger is consummated; however, Yahoo! and
GeoCities shall share equally all fees and expenses, other than attorneys' and
accountants fees and expenses incurred in relation to the printing and filing of
this document and the registration statement and any amendments or supplements
to such documents.
If Yahoo! terminates the merger agreement because a triggering event has
occurred, GeoCities shall, within one day after the date of such termination,
pay Yahoo! a termination fee of $100 million. In addition, if either Yahoo! or
GeoCities terminates the merger agreement because the required GeoCities
stockholder vote is not obtained and, prior to the vote of GeoCities'
stockholders at the special meeting, an alternative acquisition proposal was
publicly announced, GeoCities shall, within one day after the date of such
termination, pay Yahoo! an amount equal to Yahoo!'s documented expenses incurred
in connection with the merger. Furthermore, if within nine months following such
termination GeoCities enters into a definitive agreement with respect to another
acquisition transaction or consummates an acquisition transaction with a third
party, GeoCities shall pay Yahoo! a fee equal to the fee described above.
The total proceeds that Yahoo! shall be permitted to realize with respect to
the fees described above and the stock option granted to Yahoo! shall not exceed
$140 million. If Yahoo!'s total proceeds exceeds such amount, then Yahoo! shall,
at its sole election,
- - reduce the number of shares of GeoCities common stock subject to Yahoo!'s
stock option;
- - deliver shares of GeoCities common stock received upon an exercise of the
Yahoo! stock option to GeoCities for cancellation;
- - pay cash to GeoCities; or
- - do any combination of the above so that Yahoo!'s actual realized total
proceeds do not exceed $140 million.
Yahoo's "total proceeds" means the aggregate, before taxes, of:
- - any amount received pursuant to GeoCities' repurchase of the Yahoo! stock
option;
- - any amount received pursuant to GeoCities' repurchase of the shares of
GeoCities common stock from Yahoo!;
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<PAGE>
- - any net cash received by Yahoo! from any third party from the sale of shares
of GeoCities common stock received by Yahoo! through any exercise of the
Yahoo! stock option;
- - any amounts received on transfer of the Yahoo! stock option or any portion of
the option to a third party;
- - any equivalent amounts received with respect to the Yahoo! stock option
adjusted pursuant to Section 5.14(f) of the merger agreement; and
- - the termination fee actually paid by GeoCities.
Payment of the fees described above shall not be in lieu of damages incurred
in the event of a willful or intentional breach of the merger agreement.
AMENDMENT; WAIVER
Subject to applicable law, the merger agreement may be amended by the
parties at any time by execution of a written instrument signed on behalf of
Yahoo! and GeoCities. At any time prior to the effective time of the merger, any
party may, to the extent legally allowed:
- - extend the time for the performance of any of the obligations or other acts
of the other parties to the merger agreement;
- - waive any inaccuracies in the representations and warranties made to such
party as contained in the merger agreement or in any document delivered
pursuant to the merger agreement; and
- - waive compliance with any of the agreements or conditions for the benefit of
such party as contained in the merger agreement.
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<PAGE>
VOTING AND AFFILIATE AGREEMENTS
VOTING AGREEMENTS
Concurrently with the execution of the merger agreement, two SOFTBANK
entities, two CMG Ventures entities, and David C. Bohnett, who collectively own
61.3% of the outstanding common stock of GeoCities, entered into a voting
agreement with Yahoo! whereby such parties agreed to:
- - appear, or cause the holder of record to appear, at any meeting of the
stockholders of GeoCities held for the purpose of voting on the merger; and
- - vote, or cause the record holder to vote, all of the shares of GeoCities
common stock owned, controlled by or subsequently acquired by such
stockholder in favor of the merger, the merger agreement and the transactions
contemplated by the merger agreement.
In addition, with respect to all shares owned of record and all shares
acquired by the signing stockholders at any time prior to the effective time of
the merger, the signing stockholders have appointed Yahoo! as their irrevocable
proxy and lawful attorney to demand that the Secretary of GeoCities call a
special meeting of the stockholders of GeoCities for the purpose of considering
any action related to the merger and to vote each of their shares as their proxy
in favor of the merger. The voting agreements terminate upon the earlier of the
termination of the merger agreement or the effective time of the merger.
The voting agreements also prohibit the signing stockholders from soliciting
additional acquisition proposals from third parties on behalf of GeoCities or
from engaging in any discussions with third parties regarding any acquisition
proposal. This prohibition continues for so long as the voting agreements remain
effective.
As of March 1, 1999, SOFTBANK and its affiliated entities beneficially held
8,932,460 shares of GeoCities' common stock, which represented approximately
27.4% of GeoCities' outstanding common stock on that date. As of March 1, 1999,
SOFTBANK and its affiliated entities held 56,265,128 shares of Yahoo! common
stock, which represented approximately 27.8% of Yahoo!'s outstanding common
stock on that date.
GEOCITIES AFFILIATE AGREEMENTS
Concurrently with or following the execution of the merger agreement, David
C. Bohnett, the two SOFTBANK entities, CMG@Ventures I, LLC, and CMG@Ventures II,
LLC, entered into affiliate agreements with Yahoo! in which they agreed to
restrict their transfer of any Yahoo! common stock they receive in the merger
and to refrain from taking actions which would adversely affect Yahoo!'s ability
to account for the merger as a pooling of interests transaction. Specifically,
the GeoCities affiliate agreements provide, among other things, that the
affiliates will not sell, transfer or otherwise dispose of the Yahoo! common
stock issued to them in connection with the merger other than:
- - in compliance with Rule 145 of the Securities Act;
- - if the sale, transfer or other disposition is done as part of an effective
registration statement under the Securities Act; or
- - if an authorized representative of the Commission has rendered written advice
that the Commission would take no action, or that the staff of the Commission
would not recommend that the Commission take action, with respect to the
proposed sale, transfer or other disposition, and a copy of the Commission's
written advice is provided to Yahoo!.
The GeoCities affiliate agreements also generally provide that, pursuant to
Commission Staff Bulletin No. 65, until the earlier of (1) Yahoo!'s public
announcement of financial results covering at least 30 days of combined
operations of Yahoo! and GeoCities, or (2) the merger agreement's termination,
the affiliate will not sell, exchange, transfer, pledge, distribute, or
otherwise dispose of or grant any option, establish any "short" or put
equivalent position,
68
<PAGE>
or enter into any similar transaction which is intended to, or has the effect
of, reducing its risk relative to (a) any shares of GeoCities common stock,
except pursuant to and in connection with the consummation of the merger; or (b)
any shares of Yahoo! common stock received by the affiliate in the merger or
upon exercise of options assumed by Yahoo! in connection with the merger. In
addition, GeoCities has delivered to Yahoo!, from each additional GeoCities
affiliate, a similarly executed agreement which will be in full force and effect
as of the effective time of the merger.
YAHOO! AFFILIATE AGREEMENTS
Yahoo! has agreed to use commercially reasonable efforts to deliver, as
promptly as practicable following the date of the merger agreement, from each
Yahoo! affiliate, an executed affiliate agreement, which will be in full force
and effect as of the effective time of the merger.
The Yahoo! affiliate agreements provide that, pursuant to Commission Staff
Bulletin No. 65, such affiliate will not sell, exchange, transfer, pledge,
distribute, or otherwise dispose of or grant any option, establish any "short"
or put equivalent position with respect to or enter into any similar transaction
which is intended to, or has the effect of, reducing its risk relative to any
Yahoo! common stock until the earlier of (1) Yahoo!'s public announcement of
financial results covering at least 30 days of combined operations of Yahoo! and
GeoCities, or (2) the merger agreement's termination.
69
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On January 27, 1999, Yahoo! entered into an agreement to merge with
GeoCities in a transaction to be accounted for as a pooling of interests. Under
the terms of the agreement, each issued and outstanding common share of
GeoCities will be exchanged for 0.6768 shares of Yahoo! common stock.
Additionally, the Company will convert approximately 8,894,000 GeoCities stock
options into approximately 6,019,000 Yahoo! stock options. During the year ended
December 31, 1998, Yahoo! and GeoCities acquired Viaweb Inc. and Starseed, Inc.,
respectively, in transactions accounted for as purchases (referred to herein as
the "Acquired Entities"). The aggregate purchase price of the Acquired Entities
was approximately $73,400,000. (See Yahoo! and GeoCities historical consolidated
financial statements incorporated by reference or included elsewhere in this
document.)
On March 31, 1999, Yahoo! entered into an agreement to merge with
broadcast.com in a transaction to be accounted for as a pooling of interests.
Under the terms of the agreement, each issued and outstanding common share of
broadcast.com will be exchanged for 0.7722 shares of Yahoo! common stock.
Additionally, the Company will convert approximately 7,013,000 broadcast.com
stock options into approximately 5,415,000 Yahoo! stock options.
The following unaudited pro forma condensed combined financial statements
present the effect of the proposed mergers between Yahoo! and GeoCities and
between Yahoo!, GeoCities and broadcast.com to be accounted for as poolings of
interests. The unaudited pro forma condensed combined balance sheet presents the
combined financial position of Yahoo! and GeoCities and of Yahoo!, GeoCities and
broadcast.com as of December 31, 1998, assuming that the proposed mergers had
occurred as of December 31, 1998. Such pro forma information is based upon the
historical consolidated balance sheet data of Yahoo! and GeoCities and the
supplemental historical consolidated balance sheet data of broadcast.com as of
that date. The unaudited pro forma condensed combined statements of operations
give effect to the proposed mergers of Yahoo! and GeoCities and of Yahoo!,
GeoCities and broadcast.com by combining the results of operations of Yahoo! for
each of the three years in the period ended December 31, 1998, with the results
of operations of GeoCities for each of the three years in the period ended
December 31, 1998, and by combining the unaudited pro forma condensed combined
results of operations of Yahoo! and GeoCities for each of the three years ended
December 31, 1998, with the supplemental historical results of operations of
broadcast.com for each of the three years ended December 31, 1998, respectively,
on a pooling of interests basis. The supplemental consolidated financial
statements of broadcast.com, incorporated by reference herein, have been
adjusted to conform to the income statement presentation of Yahoo! and reflect
the acquisition of Net Roadshow, Inc. by broadcast.com on March 15, 1999, which
was accounted for as a pooling of interests, as of December 31, 1998.
Additionally, the unaudited pro forma condensed combined statements of
operations reflect the acquisition by Yahoo! and GeoCities of the Acquired
Entities as if such acquisitions had occurred on January 1, 1998.
The unaudited pro forma condensed combined financial statements are based on
the estimates and assumptions set forth in the notes to such statements, which
are preliminary and have been made solely for purposes of developing such pro
forma information. The unaudited pro forma condensed combined financial
statements are not necessarily an indication of the results that would have been
achieved had such transactions been consummated as of the dates indicated or
that may be achieved in the future.
Yahoo! and GeoCities estimate that they will incur direct transaction costs
of approximately $66 million in connection with the proposed merger of Yahoo!
with GeoCities, which will be charged to operations in the quarter in which the
merger is consummated. This amount is a preliminary estimate and is therefore
subject to change. There can be no assurance that Yahoo! will not incur
additional charges in subsequent quarters to reflect costs associated with the
proposed merger.
These unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical consolidated financial statements and
notes thereto of Yahoo! and GeoCities, the supplemental consolidated financial
statements and notes thereto of broadcast.com and other financial information
pertaining to Yahoo!, GeoCities and broadcast.com including "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Risk Factors" incorporated by reference or included herein.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
YAHOO!/GEOCITIES/
YAHOO!/GEOCITIES SUPPLEMENTAL BROADCAST.COM
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
--------------------- --------------------------- ------------- --------------------------
YAHOO! GEOCITIES ADJUSTMENTS COMBINED BROADCAST.COM ADJUSTMENTS COMBINED
--------- --------- ------------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 125,474 $ 51,014 $ $176,488 $ 49,828 $-- $226,316
Short-term investments
in marketable
securities........... 308,025 33,797 341,822 -- -- 341,822
Accounts receivable,
net.................. 24,831 4,296 29,127 4,447 -- 33,574
Other current assets... 8,909 1,453 10,362 429 (200)(A) 10,591
--------- --------- ------------- --------- ------------- ------------ ---------
Total current
assets............. 467,239 90,560 -- 557,799 54,704 (200) 612,303
Long-term investments in
marketable
securities............. 90,266 5,094 (22,657)(B) 72,703 -- (16,772)(B) 55,931
Property and equipment,
net.................... 15,189 8,706 23,895 6,786 -- 30,681
Other assets............. 49,190 26,022 75,212 1,103 -- 76,315
--------- --------- ------------- --------- ------------- ------------ ---------
Total assets......... $ 621,884 $130,382 $(22,657) $729,609 $ 62,593 (1$6,972) $775,230
--------- --------- ------------- --------- ------------- ------------ ---------
--------- --------- ------------- --------- ------------- ------------ ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 6,504 $ 2,269 $ $ 8,773 $ 1,033 $-- $ 9,806
Accrued expenses and
other current
liabilities.......... 35,178 8,452 66,000(C) 109,630 1,954 -- (C) 111,584
Deferred revenue....... 38,301 335 38,636 1,135 (200)(A) 39,571
--------- --------- ------------- --------- ------------- ------------ ---------
Total current
liabilities........ 79,983 11,056 66,000 157,039 4,122 (200) 160,961
Other long term
obligations............ 5,691 2,327 8,018 60 -- 8,078
Shareholders' equity:
Common stock and
other................ 523,020 149,159 (11,599)(B) 660,580 84,475 (7,056)(B) 737,999
Accumulated deficit.... (8,442) (32,160) (66,000)(C) (106,602) (26,064) -- (132,666)
Accumulated other
comprehensive
income............... 21,632 -- (11,058)(B) 10,574 -- (9,716)(B) 858
--------- --------- ------------- --------- ------------- ------------ ---------
Total shareholders'
equity............. 536,210 116,999 (88,657) 564,552 58,411 (16,772) 606,191
--------- --------- ------------- --------- ------------- ------------ ---------
Total liabilities and
shareholders'
equity............. $ 621,884 $130,382 $(22,657) $729,609 $ 62,593 (1$6,972) $775,230
--------- --------- ------------- --------- ------------- ------------ ---------
--------- --------- ------------- --------- ------------- ------------ ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
71
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YAHOO!/GEOCITIES
PRO FORMA
HISTORICAL ---------------------------------------------------
--------------------------- ACQUIRED
YAHOO! GEOCITIES ENTITIES ADJUSTMENTS COMBINED
---------- -------------- -------------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues............................ $ 203,270 $ 18,359 $ 729 $ (611)(A) $ 221,747
Cost of revenues........................ 26,742 9,696 143 3,173(D) 39,754
---------- -------------- ------- -------- ----------
Gross profit.......................... 176,528 8,663 586 (3,784) 181,993
---------- -------------- ------- -------- ----------
Operating expenses:
Sales and marketing................... 92,380 17,486 1,053 (611)(A) 110,936
628(E)
Product development................... 22,742 4,093 1,416 (300)(E) 27,951
General and administrative............ 11,210 9,156 565 (1,228)(E) 19,703
Amortization of intangibles........... 2,028 -- -- 8,779(D) 11,407
600(E)
Other -- non-recurring costs.......... 19,400 -- -- 300(E) 19,700
---------- -------------- ------- -------- ----------
Total operating expenses............ 147,760 30,735 3,034 8,168 189,697
---------- -------------- ------- -------- ----------
Income (loss) from operations........... 28,768 (22,072) (2,448) (11,952) (7,704)
Net interest income (expense) and
other................................. 14,647 2,314 (281) 16,680
---------- -------------- ------- -------- ----------
Income (loss) before income taxes....... 43,415 (19,758) (2,729) (11,952) 8,976
Provision for income taxes.............. 17,827 1 -- 17,828
---------- -------------- ------- -------- ----------
Net income (loss)....................... 25,588 (19,759) (2,729) (11,952) (8,852)
Accretion of mandatory redeemable
convertible preferred stock........... -- (1,604) -- 208(F) (1,396)
---------- -------------- ------- -------- ----------
Net income (loss) applicable to common
stockholders.......................... $ 25,588 $ (21,363) $ (2,729) $ (11,744) $ (10,248)
---------- -------------- ------- -------- ----------
---------- -------------- ------- -------- ----------
Net income (loss) per share -- basic.... $ 0.14 $ (1.42) $ (0.05)
---------- -------------- ----------
---------- -------------- ----------
Net income (loss) per share --
diluted............................... $ 0.11 $ (1.42) $ (0.05)
---------- -------------- ----------
---------- -------------- ----------
Shares used in per share calculation --
basic................................. 184,060 15,001 193,757
---------- -------------- ----------
---------- -------------- ----------
Shares used in per share calculation --
diluted............................... 224,100 15,001 193,757
---------- -------------- ----------
---------- -------------- ----------
<CAPTION>
YAHOO!/GEOCITIES/
SUPPLEMENTAL BROADCAST.COM
HISTORICAL PRO FORMA
-------------- ----------------------------------
BROADCAST.COM ADJUSTMENTS COMBINED
-------------- ----------------- ----------
<S> <C> <C> <C> <C>
Net revenues............................ $ 24,270 $ (2,508)(A) $ 243,509
Cost of revenues........................ 16,697 -- 56,451
-------------- ------- ----------
Gross profit.......................... 7,573 (2,508) 187,058
-------------- ------- ----------
Operating expenses:
Sales and marketing................... 15,520 (2,508)(A) 123,948
Product development................... 3,450 -- 31,401
General and administrative............ 4,165 -- 23,868
Amortization of intangibles........... 89 -- 11,496
Other -- non-recurring costs.......... 1,534 -- 21,234
-------------- ------- ----------
Total operating expenses............ 24,758 (2,508) 211,947
-------------- ------- ----------
Income (loss) from operations........... (17,185) -- (24,889)
Net interest income (expense) and
other................................. 1,725 -- 18,405
-------------- ------- ----------
Income (loss) before income taxes....... (15,460) -- (6,484)
Provision for income taxes.............. -- -- 17,828
-------------- ------- ----------
Net income (loss)....................... (15,460) -- (24,312)
Accretion of mandatory redeemable
convertible preferred stock........... -- -- (1,396)
-------------- ------- ----------
Net income (loss) applicable to common
stockholders.......................... $ (15,460) $ -- $ (25,708)
-------------- ------- ----------
-------------- ------- ----------
Net income (loss) per share -- basic.... $ (0.47) $ (0.12)
-------------- ----------
-------------- ----------
Net income (loss) per share --
diluted............................... $ (0.47) $ (0.12)
-------------- ----------
-------------- ----------
Shares used in per share calculation --
basic................................. 32,811 218,971
-------------- ----------
-------------- ----------
Shares used in per share calculation --
diluted............................... 32,811 218,971
-------------- ----------
-------------- ----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
72
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YAHOO!/GEOCITIES
HISTORICAL PRO FORMA
--------------------------- ----------------------------------
YAHOO! GEOCITIES ADJUSTMENTS COMBINED
---------- -------------- ----------------- ----------
<S> <C> <C> <C> <C>
Net revenues............................ $ 70,450 $ 4,582 $ $ 75,032
Cost of revenues........................ 10,885 3,789 14,674
---------- -------------- -------- ----------
Gross profit.......................... 59,565 793 -- 60,358
---------- -------------- -------- ----------
Operating expenses:
Sales and marketing................... 45,778 5,837 98(E) 51,713
Product development................... 12,082 1,045 13,127
General and administrative............ 7,392 2,930 (98)(E) 10,224
Other -- non-recurring costs.......... 25,095 -- 25,095
---------- -------------- -------- ----------
Total operating expenses............ 90,347 9,812 -- 100,159
---------- -------------- -------- ----------
Loss from operations.................... (30,782) (9,019) -- (39,801)
Net interest income (expense) and
other................................. 5,262 117 5,379
---------- -------------- -------- ----------
Loss before income taxes................ (25,520) (8,902) -- (34,422)
Provision for income taxes.............. -- 1 1
---------- -------------- -------- ----------
Net loss................................ (25,520) (8,903) -- (34,423)
Accretion of mandatory redeemable
convertible preferred stock........... -- (832) (832)
---------- -------------- -------- ----------
Net loss applicable to common
stockholders.......................... $ (25,520) $ (9,735) $ -- $ (35,255)
---------- -------------- -------- ----------
---------- -------------- -------- ----------
Net loss per share -- basic............. $ (0.15) $ (3.72) $ (0.20)
---------- -------------- ----------
---------- -------------- ----------
Net loss per share -- diluted........... $ (0.15) $ (3.72) $ (0.20)
---------- -------------- ----------
---------- -------------- ----------
Shares used in per share calculation --
basic................................. 174,672 2,620 176,445
---------- -------------- ----------
---------- -------------- ----------
Shares used in per share calculation --
diluted............................... 174,672 2,620 176,445
---------- -------------- ----------
---------- -------------- ----------
<CAPTION>
YAHOO!/GEOCITIES/
SUPPLEMENTAL BROADCAST.COM
HISTORICAL PRO FORMA
-------------- ----------------------------------
BROADCAST.COM ADJUSTMENTS COMBINED
-------------- ----------------- ----------
<S> <C> <C> <C> <C>
Net revenues............................ $ 9,179 $ (200)(A) $ 84,011
Cost of revenues........................ 5,781 -- 20,455
------- ----- ----------
Gross profit.......................... 3,398 (200) 63,556
------- ----- ----------
Operating expenses:
Sales and marketing................... 6,323 (200)(A) 57,836
Product development................... 1,674 -- 14,801
General and administrative............ 2,298 -- 12,522
Other -- non-recurring costs.......... -- -- 25,095
------- ----- ----------
Total operating expenses............ 10,295 (200) 110,254
------- ----- ----------
Loss from operations.................... (6,897) -- (46,698)
Net interest income (expense) and
other................................. 139 -- 5,518
------- ----- ----------
Loss before income taxes................ (6,758) (41,180)
Provision for income taxes.............. 43 -- 44
------- ----- ----------
Net loss................................ (6,801) -- (41,224)
Accretion of mandatory redeemable
convertible preferred stock........... -- -- (832)
------- ----- ----------
Net loss applicable to common
stockholders.......................... $ (6,801) $ -- $ (42,056)
------- ----- ----------
------- ----- ----------
Net loss per share -- basic............. $ (0.28) $ (0.22)
------- ----------
------- ----------
Net loss per share -- diluted........... $ (0.28) $ (0.22)
------- ----------
------- ----------
Shares used in per share calculation --
basic................................. 24,196 195,129
------- ----------
------- ----------
Shares used in per share calculation --
diluted............................... 24,196 195,129
------- ----------
------- ----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
73
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YAHOO!/GEOCITIES
HISTORICAL PRO FORMA
---------------------- ------------------------
YAHOO! GEOCITIES ADJUSTMENTS COMBINED
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues............ $ 21,490 $ 314 $ $ 21,804
Cost of revenues........ 4,722 788 5,510
--------- ----------- ----------- -----------
Gross profit.......... 16,768 (474) -- 16,294
--------- ----------- ----------- -----------
Operating expenses:
Sales and marketing... 16,168 764 16,932
Product development... 5,700 475 6,175
General and
administrative...... 5,834 1,252 7,086
--------- ----------- ----------- -----------
Total operating
expenses.......... 27,702 2,491 -- 30,193
--------- ----------- ----------- -----------
Loss from operations.... (10,934) (2,965) -- (13,899)
Net interest income
(expense) and other... 4,507 (40) 4,467
--------- ----------- ----------- -----------
Loss before income
taxes................. (6,427) (3,005) -- (9,432)
Provision for income
taxes................. -- 1 1
--------- ----------- ----------- -----------
Net loss................ (6,427) (3,006) -- (9,433)
Accretion of mandatory
redeemable convertible
preferred stock....... -- (105) (105)
--------- ----------- ----------- -----------
Net loss applicable to
common stockholders... $ (6,427) $ (3,111) $ -- $ (9,538)
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
Net loss per share --
basic................. $ (0.04) $ (1.19) $ (0.06)
--------- ----------- -----------
--------- ----------- -----------
Net loss per share --
diluted............... $ (0.04) $ (1.19) $ (0.06)
--------- ----------- -----------
--------- ----------- -----------
Shares used in per share
calculation --
basic................. 157,300 2,617 159,071
--------- ----------- -----------
--------- ----------- -----------
Shares used in per share
calculation --
diluted............... 157,300 2,617 159,071
--------- ----------- -----------
--------- ----------- -----------
<CAPTION>
YAHOO!/GEOCITIES/
SUPPLEMENTAL BROADCAST.COM
HISTORICAL PRO FORMA
-------------- ----------------------------------
BROADCAST.COM ADJUSTMENTS COMBINED
-------------- ----------------- ----------
<S> <C> <C> <C>
Net revenues............ $ 2,049 $ (60)(A) $ 23,793
Cost of revenues........ 1,777 -- 7,287
------- --- ----------
Gross profit.......... 272 (60) 16,506
------- --- ----------
Operating expenses:
Sales and marketing... 1,769 (60)(A) 18,641
Product development... 749 -- 6,924
General and
administrative...... 798 -- 7,884
------- --- ----------
Total operating
expenses.......... 3,316 (60) 33,449
------- --- ----------
Loss from operations.... (3,044) -- (16,943)
Net interest income
(expense) and other... 72 -- 4,539
------- --- ----------
Loss before income
taxes................. (2,972) -- (12,404)
Provision for income
taxes................. 25 -- 26
------- --- ----------
Net loss................ (2,997) -- (12,430)
Accretion of mandatory
redeemable convertible
preferred stock....... -- -- (105)
------- --- ----------
Net loss applicable to
common stockholders... $ (2,997) $ -- $ (12,535)
------- --- ----------
------- --- ----------
Net loss per share --
basic................. $ (0.15) $ (0.07)
------- ----------
------- ----------
Net loss per share --
diluted............... $ (0.15) $ (0.07)
------- ----------
------- ----------
Shares used in per share
calculation --
basic................. 19,754 174,325
------- ----------
------- ----------
Shares used in per share
calculation --
diluted............... 19,754 174,325
------- ----------
------- ----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
74
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1
The unaudited pro forma condensed combined financial statements of Yahoo!
and GeoCities give retroactive effect to the proposed merger of Yahoo! and
GeoCities, which is being accounted for as a pooling of interests and, as a
result, the unaudited pro forma condensed combined balance sheets and statements
of operations are presented as if Yahoo! and GeoCities had been combined for all
periods presented. The accompanying unaudited pro forma condensed combined
statements of operations give effect to the acquisition by Yahoo! and GeoCities
of Viaweb and Starseed on June 10, 1998 and December 4, 1998, respectively, as
if such acquisitions occurred on January 1, 1998. For pro forma purposes,
Starseed's results of operations for the year ended September 30, 1998 were used
to approximate the results of operations for the period January 1, 1998 through
December 4, 1998. Additionally, on March 31, 1999, Yahoo! entered into an
agreement to merge with broadcast.com. The unaudited pro forma condensed
combined financial statements of Yahoo! and GeoCities have been updated to
reflect the proposed merger with broadcast.com, which is being accounted for as
a pooling of interests and, as a result, the unaudited pro forma condensed
combined balance sheets and statements of operations are presented as if Yahoo!,
GeoCities and broadcast.com had been combined for all periods presented.
The unaudited pro forma condensed combined financial statements, including
the notes thereto, should be read in conjunction with the historical
consolidated financial statements and related notes of Yahoo! and GeoCities and
the supplemental historical consolidated financial statements of broadcast.com
incorporated by reference or included elsewhere in this document. Certain
amounts from the broadcast.com supplemental historical consolidated financial
statements have been reclassified to conform with Yahoo! historical
classifications.
All share numbers in these unaudited pro forma condensed combined financial
statements for all periods presented have been adjusted to reflect the Yahoo!
2-for-1 stock splits that occurred in February 1999 and August 1998, the Yahoo!
3-for-2 stock split that occurred in September 1997, the GeoCities 2-for-1 stock
split that occurred in July 1998, the broadcast.com 2-for-1 stock split that
occurred in February 1999 and the broadcast.com 60-for-1 stock split that
occurred in April 1997.
NOTE 2
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income (loss)
per share is computed using the weighted average number of common and dilutive
common equivalent shares outstanding during the period. Dilutive common
equivalent shares consist of the incremental common shares issuable upon
conversion of the convertible preferred stock (using the if-converted method)
and shares issuable upon exercise of stock options and warrants (using the
treasury stock method). Common equivalent shares are excluded from the
computations if their effect is anti-dilutive. Pro forma net loss per share is
computed by adding Yahoo! historical weighted average shares outstanding to
GeoCities and broadcast.com historical weighted average shares outstanding
converted to give effect to the exchange ratios of 0.6768 and 0.7722,
respectively. GeoCities' and broadcast.com's converted weighted average shares
outstanding do not include Yahoo!'s investments in GeoCities or broadcast.com of
673,000 and 159,000 common shares, respectively.
NOTE 3
The provision for income taxes does not reflect the benefit of GeoCities' or
broadcast.com's consolidated net losses due to certain limitations and
uncertainty surrounding realization.
75
<PAGE>
NOTE 4
The following pro forma adjustments have been made to the historical
financial statements of Yahoo!, GeoCities and broadcast.com. These adjustments
are based upon preliminary estimates and assumptions made by management for
purposes of preparing the unaudited pro forma condensed combined financial
statements:
A. To record the elimination of the effects of transactions during 1998 between
Yahoo! and GeoCities and Yahoo! and broadcast.com pursuant to a one-year
distribution and commerce agreement and a one-year advertising and promotion
agreement, respectively. To record the elimination of the effects of certain
advertising insertion orders between Yahoo! and broadcast.com and GeoCities
and broadcast.com during the years ended December 31, 1997 and 1996.
B. To record the elimination of Yahoo!'s common stock investments in GeoCities
and broadcast.com of $22,657,000 and $16,772,000, respectively. These
amounts include unrealized gains of $11,058,000, net of tax of $6,495,000,
and $9,716,000, net of tax of $5,706,000, respectively, which were recorded
as a separate component of shareholders' equity (see Note 1 to Yahoo!
consolidated historical financial statements). The related tax effect has
been eliminated as a reduction to additional paid-in capital as it results
in an increase in the valuation allowance on deferred tax assets generated
from the exercise of stock options.
C. To record the accrual of estimated costs resulting from the proposed merger
of Yahoo! and GeoCities. It is anticipated that Yahoo! will incur charges to
operations related to the proposed merger with GeoCities, currently
estimated to be $66 million, principally in the quarter in which the
proposed merger is consummated. These charges include direct transaction
costs including estimated investment banking and financial advisory fees of
approximately $44 million and other estimated merger related expenses
totaling $22 million consisting of professional services; severance costs
which relate to termination of certain employees with redundant job
functions in substantially all functional areas; closing costs of certain
duplicate and redundant operating and sales facilities which are expected to
be closed within 30 to 90 days of consummation of the merger as well as the
write-off of certain related fixed assets and leasehold improvements
associated with the severance and closure activities; termination fees
related to contracts which provide certain services to GeoCities which are
redundant to certain pre-existing Yahoo! services; and other merger related
expenses. The estimated charge is reflected in the unaudited pro forma
condensed combined balance sheet data, but is not reflected in the unaudited
pro forma condensed combined statement of operations data. This charge is a
preliminary estimate and is subject to change.
The unaudited pro forma condensed combined balance sheet does not reflect an
estimate of the costs which will result from the proposed merger of Yahoo!
and broadcast.com as such estimate is not currently available. Such amount
is expected to be significant and will be expensed in the quarter in which
the proposed merger is consummated.
D. As Viaweb and Starseed were acquired in June and December 1998, respectively,
the historical consolidated financial statements of Yahoo! and GeoCities for
the year ended December 31, 1998 include $4,945,000 and $766,000,
respectively, of amortization expense related to purchased technology and
other intangible assets acquired in these transactions. These adjustments
record additional amortization expenses of $3,173,000 related to purchased
technology and $8,779,000 related other intangible assets, to reflect the
acquisitions of Viaweb and Starseed as if they had occurred on January 1,
1998. For additional information concerning purchased technology and other
intangible assets, see the notes to the Yahoo! and GeoCities historical
consolidated financial statements incorporated by reference or included
elsewhere in this document.
E. To record reclassifications of GeoCities operating expenses to conform with
Yahoo! historical classifications.
F. To reduce accretion on GeoCities mandatory redeemable convertible preferred
stock related to shares held by Yahoo!.
76
<PAGE>
DESCRIPTION OF YAHOO! COMMON STOCK
Yahoo! is authorized to issue up to 900,000,000 shares of common stock, par
value $0.00017 per share. Holders of shares of Yahoo! common stock are entitled
to one vote per share on all matters to be voted on by stockholders. The holders
of Yahoo! common stock are entitled to receive such dividends, if any, as may be
declared from time to time by the Yahoo! board of directors out of funds legally
available therefor. Upon liquidation or dissolution of Yahoo!, the holders of
Yahoo! common stock are entitled to share ratably in the distribution of assets,
subject to the rights of the holders of Yahoo! preferred stock, if any. Holders
of Yahoo! common stock have no preemptive rights, subscription rights or
conversion rights. There are no redemption or sinking fund provisions with
respect to the Yahoo! common stock. As of March 17, 1999, there were
approximately 202,950,716 shares of Yahoo! common stock outstanding, held by
approximately 3,066 holders of record.
In addition, Yahoo! is authorized to issue 10,000,000 shares of preferred
stock, $0.001 par value per share, in one or more series as determined by the
Yahoo! board of directors. No shares of Yahoo! preferred stock are currently
issued or outstanding. The Yahoo! board of directors may, without further action
by the stockholders of Yahoo!, issue a series of Yahoo! preferred stock and fix
the rights and preferences of those shares, including the dividend rights,
dividend rates, conversion rights, exchange rights, voting rights, terms of
redemption, redemption price or prices, liquidation preferences, the number of
shares constituting any series and the designation of such series. The rights of
the holders of Yahoo! common stock will be subject to, and may be adversely
affected by, the rights of the holders of any Yahoo! preferred stock issued by
Yahoo! in the future.
77
<PAGE>
COMPARISON OF RIGHTS OF SHAREHOLDERS
OF YAHOO! AND STOCKHOLDERS OF GEOCITIES
GeoCities is currently a Delaware corporation, and the rights of GeoCities'
stockholders are governed by GeoCities' certificate of incorporation, bylaws and
Delaware law. Yahoo! is currently a California corporation, and the rights of
Yahoo!'s shareholders are governed by Yahoo!'s articles of incorporation, bylaws
and California law. Yahoo! expects to hold its annual shareholders meeting on
May 14, 1999, and at that meeting, Yahoo!'s shareholders will be asked to vote
on a proposal to change Yahoo!'s state of incorporation from California to
Delaware.
If Yahoo's shareholders approve the reincorporation, then the rights of
GeoCities' stockholders following consummation of the merger will be governed by
Yahoo!'s certificate of incorporation, Yahoo!'s bylaws and Delaware law
following the merger. If, however, Yahoo!'s shareholders do not approve the
reincorporation, then GeoCities' stockholders will become shareholders of Yahoo!
following the merger and their rights will be governed by Yahoo!'s articles of
incorporation, bylaws and California law.
Yahoo!'s articles of incorporation currently requires Yahoo! to establish a
classified board of directors when the board consists of six directors. As
Yahoo!'s board was recently expanded to include a sixth director, it has become
necessary to either institute a classified board or amend the articles of
incorporation. Yahoo!'s board believes that it is in the best interests of
Yahoo! and its shareholders to amend Yahoo!'s articles of incorporation to
remove the classified board provision. At Yahoo!'s annual shareholders meeting,
Yahoo!'s shareholders will be asked to vote on a proposal to remove this
provision from Yahoo!'s articles of incorporation. In addition, Yahoo!'s board
has recommended that Yahoo!'s shareholders adopt this proposal.
Currently, the rights and privileges of GeoCities' stockholders are, in many
ways, comparable to those of shareholders of Yahoo!. Despite the similarities,
however, there are differences. The following is a summary of the material
differences between the rights of GeoCities' stockholders and the rights of
Yahoo!'s shareholders as of the date of this proxy statement/prospectus. It is
not practical to summarize all of the differences between California law and
Delaware law here. Therefore, you are advised to review Yahoo!'s California
articles of incorporation and bylaws, Yahoo!'s proposed Delaware certificate of
incorporation and bylaws, and GeoCities' Delaware certificate of incorporation
and bylaws, which are available as described under "Where You Can Find More
Information" on page 112.
<TABLE>
<CAPTION>
DELAWARE LAW AND CURRENT GOVERNING CALIFORNIA LAW AND CURRENT GOVERNING PROPOSED GOVERNING DOCUMENTS OF
DOCUMENTS OF GEOCITIES DOCUMENTS OF YAHOO! YAHOO! AS A DELAWARE CORPORATION
SIZE OF THE BOARD OF DIRECTORS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- - Under GeoCities' certificate of - Under Yahoo!'s bylaws, the number - Under Yahoo!'s proposed
incorporation, the number of of directors must be at least four certificate of incorporation, the
directors must be at least five and no more than seven. number of directors shall be fixed
and no more than ten. - Currently, Yahoo! has six from time to time by a bylaw duly
- - Currently, GeoCities has six directors. adopted by the board of directors.
directors and one vacant position. - Under Yahoo!'s proposed bylaws,
the initial number of directors will
be six.
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
DELAWARE LAW AND CURRENT GOVERNING CALIFORNIA LAW AND CURRENT GOVERNING PROPOSED GOVERNING DOCUMENTS OF
DOCUMENTS OF GEOCITIES DOCUMENTS OF YAHOO! YAHOO! AS A DELAWARE CORPORATION
<S> <C> <C>
CLASSIFIED BOARD OF DIRECTORS
- ----------------------------------------------------------------------------------------------------------------
- - GeoCities has only one class of - Yahoo! has one class of directors. - Same as GeoCities.
directors. - Yahoo!'s articles of incorporation
- - All of GeoCities' directors are and bylaws provide for a classified
elected annually. board of directors with directors
- - GeoCities' certificate of elected on a rotating basis each
incorporation does not provide for year when the number of directors
a classified board of directors. reaches six. This method of
- - Delaware law permits a classified electing directors makes a change
board of directors, with staggered in the composition of the board of
terms under which the directors directors, and a potential change
are elected for terms of two or in control of Yahoo!, a
three years. potentially lengthier and more
difficult process. The Yahoo!
board of directors has proposed,
however, that the shareholders of
Yahoo! approve the removal of the
classified board provisions from
its charter documents.
- California law permits a
classified board of directors for
corporations with outstanding
shares listed on a national stock
exchange, including Nasdaq.
NOMINATING DIRECTORS
- ----------------------------------------------------------------------------------------------------------------
- - GeoCities' bylaws require advance - Yahoo!'s bylaws also require - Yahoo!'s proposed bylaws also
notice of director nominations by advance notice of director require advance notice of director
stockholders. Such notice must nominations by shareholders and nominations by stockholders and
contain all information regarding require the same type of the same type of information.
each nominee which would be information. However, such notice However, notice must be delivered
required to be set forth in a must also be delivered in writing to Yahoo! no less than 60 days and
definitive proxy statement filed to Yahoo!'s principal executive no more than 90 days prior to the
with the Commission pursuant to office no less than 20 days and no meeting at which directors are to
Section 14 of the Exchange Act. In more than 90 days prior to the be elected; provided, however,
addition, such notice must be date of the meeting. If, however, that if less than 60 days' notice
delivered in writing to GeoCities' the shareholders are given less of the meeting is given to
principal executive office no less than 30-days' notice of the date stockholders, then notice of
than 120 days and no more than 150 of the shareholders' meeting, then director nominations must be
days prior to the first advance notice of a director received by Yahoo! no later than
anniversary of the date of the nomination must be received by the the 10th day after notice of the
notice of annual meeting provided close of business on the 10th day meeting was first mailed or
by GeoCities for the previous following the day on which notice announced.
year's annual meeting of of the date of the meeting was
stockholders. mailed or publicly disclosed.
STOCKHOLDER PROPOSALS
- ----------------------------------------------------------------------------------------------------------------
- - GeoCities' bylaws provide that no - Yahoo!'s bylaws provide that - Same as GeoCities except that the
proposal by any person other than shareholders may propose business stockholder must provide notice to
the board of directors may be to be brought before a meeting of Yahoo! no less than 60 days and no
submitted for the approval of shareholders only if they deliver more than 90 days prior to the
GeoCities' stockholders at any notice to the principal executive first anniversary of the preceding
regular or special meeting of offices no less than 20 days and year's annual meeting of
stockholders, unless the person no more than 90 days prior to the stockholders. In addition, if the
advancing the proposal is a record first anniversary of the preceding annual meeting is more than 30
stockholder and has delivered a year's annual meeting of days prior to or 60 days later
written notice to the secretary of shareholders. If the date of the than the anniversary date, then
GeoCities no less than 120 days annual meeting is more than 30 notice must be delivered no
and no more than 150 days prior to days prior to or more than 60 days earlier than the 90th day prior to
the first anniversary of the date after the anniversary date of the the meeting and no later than the
on which initial notice of the preceding year's meeting, notice close of business on (1) the 60th
previous year's annual meeting of of the shareholder's proposal must day prior to the meeting or (2)
stockholders was given to the be delivered not earlier than the the 10th day following public
stockholders. 90th day prior to such annual announcement of the meeting.
meeting and not later than the
close of business on the later of
the 20th day prior to such annual
meeting or the 10th day following
the day on which notice of the
date of the meeting was publicly
announced.
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
DELAWARE LAW AND CURRENT GOVERNING CALIFORNIA LAW AND CURRENT GOVERNING PROPOSED GOVERNING DOCUMENTS OF
DOCUMENTS OF GEOCITIES DOCUMENTS OF YAHOO! YAHOO! AS A DELAWARE CORPORATION
<S> <C> <C>
CUMULATIVE VOTING
- ----------------------------------------------------------------------------------------------------------------
- - GeoCities' certificate of - Yahoo!'s articles of incorporation - Same as GeoCities.
incorporation does not permit also do not permit cumulative voting
cumulative voting for the election for the election of directors.
of directors.
SPECIAL MEETINGS OF STOCKHOLDERS/SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------
- - GeoCities' bylaws provide that the - Under both California law and - Under Yahoo!'s proposed bylaws, a
chairman of the board, if any, or Yahoo!'s bylaws, a special meeting special meeting of the
a majority of the board of of shareholders may be called by stockholders may be called at any
directors may call special the board of directors, the time by the board of directors, by
meetings of stockholders. chairman of the board, the the chairman of the board, or by
- - Under Delaware law, a special president, the holders of shares the president.
meeting of stockholders may be entitled to cast not less then 10%
called by the board of directors of the votes at such meeting, and
or any other person authorized to such other persons as are
do so in the corporation's authorized to do so in the
certificate of incorporation or articles of incorporation or
bylaws. bylaws.
STOCKHOLDER CONSENT IN LIEU OF MEETING
- ----------------------------------------------------------------------------------------------------------------
- - GeoCities' certificate of - Yahoo!'s articles of incorporation - Same as GeoCities.
incorporation does not permit its and bylaws do not permit its
stockholders to act by written shareholders to act by written
consent; stockholder actions may consent; shareholder actions may
only be taken upon the vote of only be taken upon the vote of
stockholders at a meeting. shareholders at a meeting.
AMENDING THE CHARTER DOCUMENTS
- ----------------------------------------------------------------------------------------------------------------
- - Delaware law provides that, unless - California law provides that, - Yahoo!'s proposed certificate of
otherwise specified in a unless otherwise specified in a incorporation will be subject to
corporation's certificate of corporation's articles of Delaware law, which means that
incorporation, an amendment to the incorporation and except for amendments to the certificate of
certificate of incorporation certain amendments such as stock incorporation will require the
requires the approval of the board splits, an amendment to the approval of the board of directors
of directors and the affirmative articles of incorporation requires and the affirmative vote of a
vote of a majority of the the approval of the board of majority of the outstanding shares
outstanding shares entitled to directors and the affirmative vote entitled to vote.
vote. of a majority of the outstanding
- - GeoCities' certificate of shares entitled to vote.
incorporation states that - Yahoo!'s articles of incorporation
provisions regarding directors, do not require a greater level of
stockholder meetings, limitations approval for an amendment to such
on liability, indemnification and articles than required under
amendments to the certificate of California law.
incorporation, may not be amended
without the affirmative vote of at
least 66.67% of the outstanding
shares entitled to vote generally
in the election of directors.
AMENDING THE BYLAWS
- ----------------------------------------------------------------------------------------------------------------
- - Under Delaware law, stockholders - Under California law and subject - Same as GeoCities except that
hold the power to adopt, amend or to certain limitations, a Yahoo!'s proposed certificate of
repeal the bylaws of a corporation's bylaws may be incorporation does not require a
corporation. adopted, amended or repealed greater than majority vote of
- - Delaware law also allows a either by the board of directors stockholders in order to adopt
corporation to, in its certificate or the shareholders of the bylaws inconsistent with bylaws
of incorporation, confer such corporation. adopted by the board of directors.
power on the board of directors in - Yahoo!'s bylaws may be adopted,
addition to the stockholders. amended or repealed either by the
- - GeoCities' certificate of vote of the holders of a majority
incorporation expressly authorizes of the outstanding shares entitled
the board of directors to adopt, to vote or by the board of
amend or repeal GeoCities' bylaws. directors; provided, however, that
- - In addition, GeoCities' bylaws may the board of directors may not
not be repealed by its amend the bylaws in order to
stockholders and no bylaw change the authorized number of
provision inconsistent with a directors.
bylaw provision adopted by the
board of directors may be adopted
without the affirmative vote of at
least 66.67% of the outstanding
shares of stock entitled to vote
generally in the election of
directors.
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
DELAWARE LAW AND CURRENT GOVERNING CALIFORNIA LAW AND CURRENT GOVERNING PROPOSED GOVERNING DOCUMENTS OF
DOCUMENTS OF GEOCITIES DOCUMENTS OF YAHOO! YAHOO! AS A DELAWARE CORPORATION
<S> <C> <C>
SPECIAL TRANSACTIONS
- ----------------------------------------------------------------------------------------------------------------
- - Delaware law requires the - California law requires that the - Same as GeoCities.
affirmative approval of a majority principal terms of a merger be
of the outstanding shares of stock approved by the affirmative vote
entitled to vote to authorize any of a majority of the outstanding
merger or consolidation of a shares of stock entitled to vote
corporation, except that, unless on the merger, except that no
required by its certificate of shareholder vote is required of a
incorporation, no stockholder vote corporation that is to be the
is required of a corporation surviving corporation in the
surviving a merger if: merger, as long as the
1.such corporation's certificate shareholders of such corporation
of incorporation is not amended own, immediately after the
by the merger; merger, more than five-sixths of
2.each share of stock of such the voting power of the
corporation outstanding surviving corporation.
immediately prior to the effective - California law further requires
date of the merger will be an the affirmative vote of a majority
identical outstanding or treasury of the outstanding shares entitled
share of the surviving corporation to vote on the merger if:
after the merger; and 1.the surviving corporation's
3.the number of shares to be articles of incorporation will be
issued in the merger does not amended and would otherwise
exceed 20% of such corporation's require shareholder approval; or
common stock outstanding 2.shareholders of the surviving
immediately prior to the merger. corporation will receive shares of
- - GeoCities' certificate of a non-California corporation or
incorporation does not require a shares of the surviving
greater percentage vote for corporation having different
special actions than required rights, preferences, privileges or
under Delaware law. restrictions than the shares
- - Stockholder approval is also not surrendered.
required under Delaware law for - Yahoo!'s articles of incorporation
mergers or consolidations in which do not require a greater percentage
a parent corporation merges or vote than required under
consolidates with a subsidiary of California law.
which it owns at least 90% of the - Shareholder approval is not
outstanding shares of each class required under California law for
of stock. mergers or consolidations in which
a parent corporation merges or
consolidates with a subsidiary of
which it owns at least 90% of the
outstanding shares of each class
of stock.
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APPRAISAL/DISSENTERS' RIGHTS
- ----------------------------------------------------------------------------------------------------------------
- - Under Delaware law, stockholders - Under California law, if - Same as GeoCities.
who do not vote in favor of a shareholder approval is required for
merger or consolidation have a merger or reorganization, each
certain appraisal rights pursuant shareholder who was entitled to
to which they can demand payment vote on the transaction, but did
in cash for their shares equal to not vote in favor of the
the fair value, excluding any reorganization may require the
appreciation or depreciation as a corporation to purchase for cash
consequence or in expectation of at their fair market value the
the transaction, of such shares. shares owned by such shareholder.
- - Appraisal rights are not available - Appraisal rights are not available
for shares of any class or series for shares listed on any national
listed on a national securities securities exchange certified by
exchange or designated as a the Commissioner of Corporations
national market system security on or listed on the list of OTC
The Nasdaq National Market or held margin stocks issued by the Board
of record by more than 2,000 of Governors of the Federal
stockholders, unless the agreement Reserve Systems, unless:
of merger or consolidation 1.there exists with respect to such
converts such shares into anything shares any restriction on transfer
other than: imposed by the corporation or by
1.stock of the surviving any law or regulation; or
corporation; 2.demands for payment are made with
2.stock of another corporation respect to 5% or more of the
which is either listed on a outstanding shares of that class.
national securities exchange or - Because Yahoo! is listed on a
designated as a national market national securities exchange, Yahoo!
system security on The Nasdaq shareholders will not have
National Market or held of record dissenters' rights, unless the
by more than 2,000 stockholders; provisions described in the
3.cash in lieu of fractional immediately preceding paragraph
shares; or exist at the time of a merger or
4.some combination of the above. reorganization to which Yahoo! is
- - Appraisal rights are not available a party.
for any shares of the surviving
corporation if the merger did not
require the vote of the
stockholders of the surviving
corporation.
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INDEMNIFICATION
- ----------------------------------------------------------------------------------------------------------------
- - Under Delaware law, a corporation - Under California law, a - Yahoo!'s proposed certificate of
has the power to indemnify present corporation has the power to incorporation permits Yahoo! to
and former directors, officers, indemnify present and former indemnify agents of Yahoo! in
employees and agents against directors, officers, employees and excess of the indemnification and
expenses, judgments, fines, agents against expenses, advancement otherwise permitted by
settlements and other amounts if judgments, fines, settlements and Section 145 of the Delaware
that person acted in good faith other amounts (other than in General Corporation Law, subject
and in a manner the person connection with actions by or in only to limits created by
reasonably believed to be not the right of the corporation) if applicable Delaware law, with
opposed to the best interests of that person acted in good faith respect to actions for breach of
the corporation and, in the case and in a manner the person duty to Yahoo!, its stockholders,
of a criminal proceeding, had no reasonably believed to be in the and others.
reasonable cause to believe such best interests of the corporation
conduct was unlawful. and, in the case of a criminal
- - The indemnification authorized by proceeding, had no reasonable
Delaware law is not exclusive, and cause to believe such conduct was
a corporation may grant its unlawful.
directors, officers, employees or - In addition, California law allows
other agents certain additional a corporation to indemnify, with
rights to indemnification. certain exceptions, any person who
- - GeoCities' certificate of is a party to any action by or in
incorporation provides that the right of the corporation,
GeoCities may indemnify any person against expenses actually and
who, because such person was a reasonably incurred by that person
director, officer, employee or in connection with the defense or
agent of GeoCities, is a party or settlement of the action if the
threatened to be made a party to person acted in good faith and in
any litigation or proceeding. a manner the person believed to be
GeoCities may indemnify any person in the best interests of the
who served, or agreed to serve, at corporation and its shareholders.
the request of GeoCities as a - The indemnification authorized by
director, officer or trustee of California law is not exclusive,
another entity. and a corporation may grant its
- - Indemnification may include directors, officers, employees or
payment by GeoCities of expenses, other agents certain additional
including attorneys' fees, rights to indemnification.
incurred in defending an action or - California law also allows a
proceeding prior to the final corporation to advance payment of
disposition of the matter, so long an indemnitee's expenses prior to
as the person being indemnified the final disposition of an
agrees to repay GeoCities if that action, provided that the
person is determined not to be indemnitee undertakes to repay any
entitled to indemnification under such amount advanced if it is
GeoCities' certificate of later determined that the
incorporation. indemnitee is not entitled to
- - GeoCities will not indemnify any indemnification with regard to the
person who seeks indemnification action for which the expenses were
in connection with a lawsuit or advanced.
proceeding that was initiated by - Yahoo!'s articles of incorporation
such person, unless the board of and bylaws provide for the
directors authorized the bringing indemnification of its directors,
of the lawsuit or proceeding. officers, employees and agents in
excess of what is permitted by
California law.
- Under California law, however,
Yahoo! may still not indemnify any
person for certain wrongs, such as
acts, omissions or transactions
that involve:
1.intentional misconduct;
2.a knowing and culpable violation
of law; or
3.an improper personal benefit to
that person.
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DIRECTOR LIABILITY
- ----------------------------------------------------------------------------------------------------------------
- - Delaware law provides that a - California law provides that a - Under Yahoo!'s proposed
corporation's charter documents corporation's charter documents certificate of incorporation,
may include provisions which limit may include provisions which limit directors shall not, to the
or eliminate the liability of or eliminate the liability of fullest extent permitted by
directors to the corporation or directors to the corporation or Delaware law, be personally liable
its stockholders for monetary its shareholders for monetary to Yahoo! or its stockholders for
damages for breach of fiduciary damages for breach of fiduciary monetary damages for breach of
duty as a director, as long as duty as a director. However, fiduciary duty as a director.
such liability does not arise from California law specifically
certain prohibited conduct, such provides different forms of
as breach of the director's duty prescribed conduct than Delaware
of loyalty to the corporation, law. These forms include:
acts or omissions not in good - intentional misconduct or knowing
faith or which involve intentional and culpable violation of law;
misconduct or a knowing violation - acts or omissions that a director
of law, the payment of unlawful believes to be contrary to the
dividends or expenditure of funds best interests of the corporation
for unlawful stock purchases or or its shareholders or that
redemptions or transactions from involve the absence of good faith
which such director derived an on the part of the director;
improper personal benefit. - the receipt of an improper
- - Under GeoCities' certificate of personal benefit;
incorporation, no director shall - acts or omissions that show
be personally liable to GeoCities reckless disregard for the
as a director so long as the director's duty to the corporation
director's liability does not or its shareholders;
arise from certain prohibited - where the director in the ordinary
conduct enumerated under Delaware course of performing a director's
law. duties should be aware of a risk
of serious injury to the
corporation or its shareholders;
- acts or omissions that constitute
an unexcused pattern of
inattention that amounts to an
abdication of the director's duty
to the corporation and its
shareholders;
- interested transactions between
the corporation and a director in
which a director has a material
financial interest; and
- liability for improper
distributions, loans or
guarantees.
-Under Yahoo!'s articles of
incorporation, the liability of
directors of Yahoo! for damages is
eliminated to the fullest extent
permissible under California law.
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ANTI-TAKEOVER PROVISIONS AND INTERESTED STOCKHOLDER TRANSACTIONS
- ----------------------------------------------------------------------------------------------------------------
- - Delaware law prohibits, in certain - California law does not contain a - Under Yahoo!'s proposed
circumstances, a "business comparable provision regarding certificate of incorporation, Yahoo!
combination" between the business combinations with has not opted out of the Delaware
corporation and an "interested interested shareholders. However, provision relating to business
stockholder" within three years of California law does provide that, combinations between corporations
the stockholder becoming an subject to certain exceptions, if and interested stockholders as
"interested stockholder." An the surviving corporation or its described under GeoCities.
"interested stockholder" is a parent corporation owns, directly
holder who, directly or or indirectly, shares of the
indirectly, controls 15% or more target corporation representing
of the outstanding voting stock or more than 50% of the voting power
is an affiliate of the corporation of the target corporation prior to
and was the owner of 15% or more the merger, the nonredeemable
of the outstanding voting stock at common stock of a target
any time within the prior year corporation may be converted only
period. A "business combination" into nonredeemable common stock of
includes a merger or the surviving corporation or its
consolidation, a sale or other parent corporation, unless all of
disposition of assets having an the shareholders of the class
aggregate market value equal to consent.
10% or more of the consolidated - Under Section 1203 of the
assets of the corporation or the California General Corporation Law,
aggregate market value of the a tender offer or proposal for a
outstanding stock of the reorganization made by an
corporation and certain interested party must be
transactions that would increase accompanied by an affirmative
the interested stockholder's opinion in writing as to the
proportionate share ownership in fairness of the consideration to
the corporation. This provision the shareholders. For purposes of
does not apply where: this provision, an "interested
- either the business combination party" is any person who is a
or the transaction which party to the transaction and (1)
resulted in the stockholder directly or indirectly controls
becoming an interested the target corporation, (2) is,
stockholder is approved by the or is directly or indirectly
corporation's board of directors controlled by, an officer or
prior to the date the interested director of the target
stockholder acquired such 15% corporation, or (3) is an entity
interest; in which a material financial
- upon the consummation of the interest is held by any director
transaction which resulted in or executive officer of the
the stockholder becoming an target corporation. This
interested stockholder, the provision could make it more
interested stockholder owned at difficult for an interested
least 85% of the outstanding party to take control of the
voting stock of the corporation corporation or to cause a change
excluding for the purposes of of control in the corporation.
determining the number of shares
outstanding shares held by
persons who are directors and
also officers and by employee
stock plans in which
participants do not have the
right to determine
confidentiality whether shares
held subject to the plan will be
tendered;
- the business combination is
approved by a majority of the
board of directors and the
affirmative vote of two-thirds
of the outstanding votes
entitled to be cast by
disinterested stockholders at an
annual or special meeting;
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- the corporation does not have a
class of voting stock that is
listed on a national securities
exchange, authorized for
quotation on an inter-dealer
quotation system of a registered
national securities association,
or held of record by more than
2,000 stockholders unless any of
the foregoing results from
action taken, directly or
indirectly, by an interested
stockholder or from a
transaction in which a person
becomes an interested
stockholder;
- the stockholder acquires a 15%
interest inadvertently and
divests itself of such ownership
and would not have been a 15%
stockholder in the preceding
three years but for the
inadvertent acquisition of
ownership;
- the stockholder acquired the 15%
interest when these restrictions
did not apply; or
- the corporation has opted out of
this provision. GeoCities has
not opted out of this provision.
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The foregoing discussion of certain similarities and material differences
between the rights of Yahoo! shareholders and the rights of GeoCities'
stockholders under their respective articles/certificate of incorporation and
bylaws is only a summary of certain provisions and does not purport to be a
complete description of such similarities and differences, and you should refer
to California law, Delaware law, the common law and the full text of the
articles/certificate of incorporation and bylaws of each of Yahoo! and GeoCities
for a complete description.
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INFORMATION REGARDING YAHOO!
The following is a brief description of the business of Yahoo!. Additional
information regarding Yahoo! is contained in its filings with the Commission.
For information on how you can obtain copies of such filings, please see the
section entitled "Where You Can Find More Information" on page 112 of this proxy
statement/prospectus.
Yahoo! is a global Internet media company that offers a branded network of
comprehensive information, communication and shopping services to millions of
users daily. As the first online navigational guide to the web, www.yahoo.com is
a leading guide in terms of traffic, advertising, household and business user
reach, and is one of the most recognized brands associated with the Internet.
Under the Yahoo! brand, Yahoo! provides broadcast media, personal communications
and direct services. In March 1999, Internet users viewed an average of 235
million web pages per day in Yahoo!-branded properties.
Yahoo! makes its properties available without charge to users and generates
revenue primarily through the sale of advertising. Advertising on Yahoo!
properties is sold through an internal advertising sales force. During the first
quarter of 1999, approximately 2,125 advertisers purchased advertising on Yahoo!
properties.
Yahoo!'s principal executive offices are located at 3420 Central Expressway,
Santa Clara, California 95051, and its telephone number is (408) 731-3300.
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INFORMATION REGARDING GEOCITIES
BUSINESS OF GEOCITIES
OVERVIEW
GeoCities offers the world's largest and one of the fastest growing
communities of personal web sites on the Internet. GeoCities pioneered the first
large-scale, web-based community for Internet users to express themselves, share
ideas, interests and expertise, and publish content accessible to other users
with common interests. The mainstay of GeoCities' community is its
"homesteaders," Internet users who create their own personal web sites or
"homesteads" in themed "neighborhoods" on the GeoCities web site. These
neighborhoods provide:
- - a context for web users to publish content, to share experiences and ideas
with other users and to access a centralized and easy-to-navigate destination
for user-published content; and
- - a compelling and attractive environment for advertisers, sponsors and
e-commerce merchants.
THE GEOCITIES SOLUTION
GeoCities pioneered the first large-scale, web-based community for Internet
users to express themselves, share ideas, interests and expertise and publish
content accessible to other users with common interests. GeoCities was founded
on the belief that affinity to the web occurs when users relate personally to
their online experience, and the more active users are in the creation of that
experience, the more personal the experience becomes. To attract members to its
community, GeoCities established a service enabling Internet users to create
their own web sites in themed "neighborhoods" within GeoCities' web site.
Since its inception, GeoCities has become the world's largest and one of the
fastest growing communities of personal web sites on the Internet. With
thousands of homesteaders joining each day, the GeoCities community has grown
from approximately 10,000 homesteaders in October 1995 to over 3.2 million in
December 1998. Homesteaders have created an estimated 32 million pages of
personalized content, attracting over approximately 19 million unique visitors
to, and generating over 1.6 billion page views on, the GeoCities community,
according to Media Metrix and Nielson I/Pro reports prepared for GeoCities in
December 1998. GeoCities was the third most trafficked web site on the Internet
in December 1998, according to Media Metrix and, based on this information,
GeoCities believes it was the most popular community of personal web sites on
the Internet in 1998.
GeoCities believes that its success to date is attributable to its focus on
four distinct constituents: (a) homesteaders, (b) web visitors, (c) advertisers
and sponsors, and (d) e-commerce partners and merchants. This focus is
highlighted by the following distinguishing characteristics of the GeoCities
community:
LARGE WEB-BASED COMMUNITY WITH BROAD RANGE OF
NEIGHBORHOODS
Homesteaders are able to join one of 41 themed GeoCities neighborhoods,
which are organized topically, based on themes associated with well-known
places. By providing this broad range of neighborhoods for homesteaders,
GeoCities fosters a virtual "greenhouse" for a wide range of individual
self-expression and interaction. Web users interested in finance and investing,
for example, homestead in and create content for WallStreet, and those
interested in politics homestead in and support CapitolHill. Moreover, as the
Internet's largest community of personal web sites, GeoCities offers on average
over 80,000 homesteads within each of its neighborhoods, providing homesteaders
with the critical mass and platform to interact with and be recognized by
others.
ACTIVE OWNERSHIP AND COMMUNITY PARTICIPATION
GeoCities encourages active participation in its community and offers a
number of programs
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to increase levels of participation. When homesteaders first apply to join a
GeoCities neighborhood, they agree to abide by the GeoCities community
guidelines. Homesteaders also agree to begin creation of their web sites within
three weeks of joining a GeoCities neighborhood or relinquish their homesteads.
Additionally, GeoCities welcomes suggestions from its homesteaders and
implements those ideas that it believes will improve the community. As a result,
GeoCities' homesteaders develop a keen sense of personal involvement in and
ownership of the GeoCities community, and actively encourage others to join and
participate.
Homesteaders seeking greater involvement in their neighborhoods are given
the opportunity to join the active ranks of 41 community liaisons and over 1,800
community leaders. The community liaison and community leaders within each
neighborhood welcome new homesteaders, provide assistance to other homesteaders,
and actively provide GeoCities with suggestions for improvements and monitor
sites. GeoCities believes that the greater the involvement of GeoCities'
homesteaders, the greater the loyalty and affinity of those homesteaders to the
GeoCities site, and the more successful the GeoCities community.
FOCUS ON CONTINUALLY IMPROVING THE MEMBER EXPERIENCE
GeoCities continually strives to improve the online experience of its
members. Homesteaders are provided free of charge with disk space for personal
web sites, web-page publishing and communication tools to create their own fully
customized, multimedia-rich content and e-mail, chat and bulletin board
services. Members are offered a variety of opportunities to participate in
commercial activities, including GeoCities' affiliates program with major
merchants. GeoCities also offers premium memberships for homesteaders who want
more utilities, disk space and a personal URL (Uniform Resource Locator that
determines the particular location of a web page on the Internet). GeoCities
holds a monthly conference call with its community liaisons in order to
proactively determine what improvements and suggestions are important to the
community. By supplementing this call with a weekly newsletter for community
leaders, GeoCities maintains close interaction with its community on issues and
suggestions of a broader group of homesteaders. In addition, GeoCities offers a
comprehensive online help function and encourages volunteerism among its
community leaders and liaisons and other homesteaders in helping their GeoCities
neighbors.
INTUITIVE MEANS OF FINDING PERSONALIZED CONTENT
While Internet users can generally find web content aggregated by subject
area, aggregated user-created content is much more challenging to find.
GeoCities' topical categorization of user-created content provides visitors with
a central online site for quickly accessing a critical mass of an estimated 32
million pages of personalized content. Given their strong affinity for their
homesteads and the GeoCities community, homesteaders actively promote their web
sites throughout the Internet with hyperlinks located on other individual sites
as well as through listings on Internet directories and search engines, thereby
resulting in millions of visitors from the Internet at large.
UNIQUE PERSONALIZED COMMUNITY ENVIRONMENT FOR ADVERTISING AND COMMERCE
Online communities of members with common interests and demographics
constitute attractive opportunities for advertisers and e-commerce merchants
seeking to promote and sell their products and services online. The combination
of GeoCities' unique community context, intuitive topical organization, high
volumes of traffic and homesteaders' desire for commerce opportunities and
acceptance of the role of advertising in the community provides an attractive
platform for targeted and cost-effective web advertising and web commerce.
THE GEOCITIES STRATEGY
GeoCities' objective is to be the world's leading member-created online
community for
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people on the web. GeoCities' strategies to achieve this objective include:
FOCUS ON HOMESTEADER GROWTH AND AFFINITY
GeoCities intends to continue to increase the number of its homesteaders and
concentrate on member affinity to maintain its position as a leading community
of personal web sites. GeoCities intends to continue to grow its membership base
by:
- - introducing additional classes of membership that appeal to a broader range
of Internet users;
- - offering easier-to-use web-page publishing tools;
- - allowing homesteaders to easily create and enhance personal web sites,
including the integration of e-commerce opportunities and GeoCities'
affiliates program;
- - promoting GeoCities as a destination point on the web by augmenting its
existing distribution alliances; and
- - launching brand-name promotional campaigns to drive both growth in membership
and traffic to its members' personal web sites.
In addition, GeoCities intends to introduce more value-added member services
and strengthen and expand the number of affinity programs and affiliate
management tools that it offers, including GeoCities' GeoRewards affinity
program. Similar to airline frequent-flyer bonus point programs, the GeoRewards
affinity program is designed to reward homesteaders with points based on their
level of participation, which they can later redeem for discounts on purchases
within the GeoCities community. GeoCities believes that its focus on the needs
of its homesteaders and enhancing their experience within the GeoCities
community will produce continued growth in, and foster loyalty among, its
membership base. GeoCities believes that a large and growing base of committed
homesteaders organized on a contextual basis provides advertisers and e-commerce
merchants with an attractive market to target promotion and sales of their
products and services, thereby creating advertising and commerce revenue
opportunities for GeoCities.
CONTINUE TO ENHANCE SITE FUNCTIONALITY AND PERFORMANCE
GeoCities believes continually providing homesteaders and visitors with
greater functionality and performance is critical to its continued leadership.
GeoCities continually improves its user interface to facilitate the presentation
of member-generated content in an intuitive topical format. In 1998, GeoCities
integrated third-party news and editorial content into its site, allowing
side-by-side interaction of personal and professionally published content. In
January 1999, GeoCities entered into an agreement with Be Free, Inc. to provide
affiliate management tools and services to homesteaders who participate in
GeoCities' affiliates program. GeoCities will also continue to provide its
members with web-page publishing and communication tools to enhance the
community experience. GeoCities believes that continually-enhancing site
functionality and performance foster homesteader and visitor growth and affinity
to the GeoCities community, thereby providing GeoCities with a platform to
attract more advertisers and revenue sharing relationships and to expand
GeoCities' fee-generating premium membership services.
ESTABLISH NEW STRATEGIC ALLIANCES
GeoCities has formed a number of strategic relationships intended to
increase traffic and memberships of both partners. GeoCities has also formed
four premier commerce relationships with Amazon.com for books, CDnow for compact
discs, First USA for credit cards and Surplus Direct/Egghead for software and
computer hardware, making the products and services of these leading Internet
vendors available throughout the GeoCities community. These relationships
provide an opportunity for GeoCities to receive monthly payments and share in
any ongoing revenue streams from sales of products and services by these
partners. GeoCities intends to seek additional strategic relationships with
commerce and distribution partners in the future.
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EXPAND GLOBALLY
GeoCities believes that the anticipated growth of Internet usage
internationally presents significant opportunities to extend GeoCities globally.
GeoCities is focused on establishing the GeoCities community and brand in Japan,
a market which, according to Jupiter Communications, is second only to the
United States in terms of Internet use. Accordingly, GeoCities has entered into
a joint venture with SOFTBANK to form GeoCities Japan, which is 40% owned by
GeoCities. GeoCities intends to pursue additional opportunities for
international expansion. GeoCities believes that the introduction of localized
GeoCities web communities in international markets will present many of the same
opportunities for advertising and commerce revenue as those in the United
States.
BUILD MULTIPLE REVENUE STREAMS
GeoCities' large and growing web community offers a scaleable business
platform from which it plans to generate revenue from multiple sources,
including advertising, commerce and premium membership service fees. GeoCities
intends to achieve its revenue objectives by:
- - increasing its advertising revenues through expansion of its customer base,
increasing the rates GeoCities charges advertisers by continuing to improve
its ability to contextually target advertisements, increasing its page views,
increasing the average size and length of its advertising contracts,
increasing the number of its direct sales representatives and continuing to
invest in improving ad serving and ad targeting technology;
- - expanding its revenue-sharing commerce relationships and GeoCities'
relationships with third-party content providers that pay GeoCities for
access to the GeoCities web site;
- - offering its GeoShops program, which is designed to provide an effective
means for small and home business owners to leverage the reach of the
Internet through a commercial presence within the GeoCities community;
- - expanding the number and scope of its fee-based premium membership services;
and
- - developing a program that will allow merchants to sell their products through
homesteaders who select the products and earn commissions from sales that
occur via such homesteaders' web sites.
HOMESTEADING ON GEOCITIES
GeoCities distinguishes itself from other web sites by offering homesteaders
a diverse range of neighborhoods and a critical mass of neighbors with whom to
interact. GeoCities also promotes active homesteader participation through its
member-focused editorial philosophy -- millions of personal web pages created
and maintained by the community members themselves -- providing Internet users
with a platform for contributing their talents and ideas, meeting and
interacting with others with similar interests and creating their own "home on
the web". Supporting the editorial efforts of its homesteaders are approximately
74 GeoCities employees dedicated exclusively to community organization, content
management and community interaction. GeoCities provides disk space, powerful
web-page publishing tools, customer support, high-speed, high-quality site
performance and e-mail, chat and bulletin-board services, all free of charge.
GeoCities emphasizes a sense of responsibility among community members by
leveraging the characteristics of the web that users find most attractive --
connection, expression, communication, entertainment and utility. GeoCities'
homesteaders abide by the community values -- respect for the individual, open
and honest communication, encouragement of ethical behavior and respect for
diverse points of view -- reflected in GeoCities' content guidelines and rules
of conduct. GeoCities appeals to people's interest in others by inviting users
to move in, meet their neighbors, share ideas, communicate, shop, check e-mail
and join its growing community.
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HOW HOMESTEADERS JOIN
GeoCities' 41 themed neighborhoods -- virtual communities of people with
common interests -- are based on familiar themes and provide web users with a
place to connect on the Internet. Homesteading is analogous to moving to a new
community, picking a neighborhood to live in and designing and building a new
home to reflect one's own style and tastes. Each homesteader is able to join the
neighborhood that most closely matches his or her interests. For example,
homesteaders interested in music join and contribute to SunsetStrip and those
interested in wine support NapaValley. Homesteading in the GeoCities community
is designed to be easy and fun. After choosing a neighborhood, homesteaders find
a vacant address, fill out an application, move-in and commence developing their
personal web site. Homesteaders agree to abide by the community guidelines and
begin construction of their home within three weeks of moving into a
neighborhood. The homesteading experience makes a user's online experience
expressive, interactive and personal.
PARTICIPATING IN THE GEOCITIES COMMUNITY
After joining a neighborhood, homesteaders are encouraged to become active
in the community. Members can interact with their neighbors, support community
building initiatives, participate in chat sessions with their neighbors and
collaborate on editorial content. GeoCities believes that the more homesteaders
participate, the more attachment they feel to the community and the higher the
quality of their content. Homesteaders seeking greater involvement apply to
become community leaders and community liaisons. GeoCities currently has over
1,800 community leaders, who are elected by homesteaders, and 41 community
liaisons, who represent a neighborhood and are elected by community leaders. The
community leaders and community liaisons are highly valued community builders
who greet and assist new homesteaders, mentor other homesteaders, coordinate
neighborhood activities, interface with GeoCities' in-house editorial staff and
work to foster core community values. GeoCities intends to introduce additional
community leadership positions in the future to increase levels of community
participation. GeoCities also encourages greater homesteader involvement through
its GeoRewards affinity program. Homesteaders accrue bonus points based on their
level of participation which they can later redeem for discounts on purchases
within the GeoCities community.
HOW TO SURF THE GEOCITIES COMMUNITY
GeoCities believes that it provides users surfing the web with a
comprehensive, high-quality concentration of personal web sites on the Internet.
GeoCities strives to improve its site for such users by continually upgrading
the look and feel of its web site to provide easier navigation of and to direct
greater levels of traffic to homesteaders' web sites. GeoCities' user interface
presents the GeoCities web site to visitors in a topical format to facilitate
the aggregation of categories of interests. This format allows easier and more
intuitive access to content on the GeoCities web site and enhances the
integration of homesteaders' content with GeoCities' e-mail, chat,
bulletin-board services and selected third-party content such as news and
editorial feeds from Reuters, Women.com and ZDNet.
ADVERTISING, COMMERCE AND PREMIUM SERVICES
ADVERTISING
GeoCities has built a direct sales organization located in New York, San
Francisco and Los Angeles, which is dedicated to maintaining close relationships
with top advertisers and leading advertising agencies nationwide. GeoCities'
direct sales organization is organized regionally and is focused solely on
selling advertising on the GeoCities web site. GeoCities' sales organization
consults regularly with advertisers and agencies on design and placement of
their web-based advertising, provides customers with advertising measurement
analysis and focuses on providing a high level of customer service and
satisfaction.
Currently, advertisers and advertising agencies enter into short-term
agreements, on average two to three months, pursuant to which
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they receive a guaranteed number of impressions for a fixed fee. Advertising in
GeoCities currently consists primarily of banner-style advertisements that are
prominently displayed at the top of pages on a rotating basis throughout the
GeoCities community, including members' personal web sites. From each banner
advertisement, viewers can hyperlink directly to the advertiser's own web site,
thus providing the advertiser an opportunity to directly interact with an
interested customer. GeoCities' standard cost per thousand impressions ("CPM")
for banner advertisements currently ranges from $25 to $50, depending upon
location of the advertisement and the extent to which it is targeted for a
particular audience. Discounts from standard CPM rates may be provided for
higher volume, longer-term advertising contracts.
GeoCities intends to increase its advertising revenues by focusing on a
number of key strategies, including expanding its advertising customer base,
increasing the CPM it charges advertisers by continuing to improve its ability
to contextually target advertisements, increasing page views, increasing the
average size and length of its advertising contracts, increasing the number of
its direct sales representatives and continuing to invest in improving ad
serving and ad targeting technology.
GeoCities also offers special sponsorship and promotional advertising
programs, such as contests, sampling and couponing opportunities to build brand
awareness, generate leads and drive traffic to an advertiser's site. GeoCities
also sells sponsorships of special interest pages where topically focused
content is aggregated on a permanent area within a neighborhood. GeoCities has
also recently entered into relationships with third-party Internet content
providers, many of whom pay GeoCities for integrating their content within the
GeoCities community. GeoCities will also seek to expand its third-party
content-provider relationships.
GeoCities has derived a substantial majority of its revenues to date from
the sale of advertisements. For the years ended December 31, 1997 and 1998
advertising revenues represented 90.6% and 89.6%, respectively, of GeoCities'
net revenues.
During 1997 and 1998, GeoCities' four largest customers accounted for
approximately 29% and 23%, respectively, of GeoCities' net revenues. No customer
accounted for more than 10% of GeoCities' net revenues during 1998. One
customer, Surplus Direct/Egghead, accounted for 12% of GeoCities' net revenues
during 1997.
COMMERCE PARTNERS
GeoCities believes web commerce fits naturally into GeoCities' community
model. Through web commerce, GeoCities partners with merchants and service
providers to integrate their products and services into the GeoCities community,
making them available for sale to GeoCities' homesteaders and visitors. In its
premier commerce arrangements, GeoCities generally receives a fixed monthly fee
and a share of the proceeds from any online sales. In addition, certain of
GeoCities' premier commerce partners pay GeoCities fees for homesteader
participation in vendor-sponsored sales programs after a minimum level of
participation has been achieved. To date, GeoCities has entered into four
premier alliances with commerce partners that are given access to GeoCities'
community platform and are provided with premier banner and other space in
permanent locations on select community web pages. These premier commerce
arrangements typically have one-year terms and, subject to the payment of
certain fees, are renewable at the option of GeoCities' commerce partners.
GeoCities has established premier commerce relationships with the following
entities:
- - Amazon.com -- providing GeoCities' homesteaders and visitors with the
opportunity to purchase books throughout GeoCities' web site;
- - CDnow -- providing GeoCities' homesteaders and visitors with the opportunity
to purchase compact discs and other music-related items;
- - Surplus Direct/Egghead -- providing GeoCities' members and visitors with the
opportunity to purchase software and computer hardware; and
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- - First USA -- providing GeoCities' members and visitors with an opportunity to
apply for a First USA credit card.
GEOSHOPS
In March 1998, GeoCities introduced GeoShops, its member-focused web
commerce solution designed to provide a range of services which commerce-enable
homesteaders' personal web sites. Homesteaders are able to choose between two
GeoShops options: (1) for a $24.95 monthly fee, GeoShops allows GeoCities
members to sell products and services from their personal web sites within the
GeoCities community and (2) for a set-up fee of $195, a $0.55 per transaction
fee and an additional monthly fee of $99.95, GeoCities provides homesteaders
with a transaction authentication and processing solution for their web-based
businesses. With its GeoShops program, GeoCities enables home-based businesses
to leverage a fast, effective, easy-to-use program for commerce, and GeoCities
intends to actively promote this service in the future.
GEOPLUS
In addition to its free services, GeoCities offers a fee-based premium
service for its homesteaders. For a fee of $4.95 per month, GeoCities' GeoPlus
service provides enhanced web-page publishing tools for creating more robust
content, a personalized URL and up to 25 megabytes of disk space for
homesteaders' personal web sites. GeoCities intends to introduce additional
features and premium service levels to appeal to a broader range of
homesteaders. GeoCities does not generate revenues from general Internet access
or subscription fees.
WEB RINGS
In December 1998, GeoCities acquired Starseed, Inc., and has since operated
Starseed's business through a wholly-owned subsidiary named WebRing, Inc. Web
rings permit people with personal web sites to create topically specific groups.
New members join a web ring by placing navigation bars on their pages that allow
visitors to click from site to site within the ring. Ringmasters oversee the
recruiting of new web ring members and maintain the ring's coherence. GeoCities
is currently undertaking certain improvements to the WebRing technology to
enhance its engineering capabilities and scalability.
DISTRIBUTION AGREEMENT WITH YAHOO!
In December 1997, GeoCities entered into a one-year distribution
relationship with Yahoo! which was renewed for a subsequent one-year term,
subject to the right of either party to terminate the relationship at the end of
any one-year term upon 90-days' notice. In connection with the distribution
agreement, Yahoo! also made a minority equity investment in GeoCities. As of
December 31, 1998, Yahoo! held 2.1% of GeoCities' outstanding capital stock.
This agreement was designed to increase traffic and memberships of both parties
in addition to offering GeoCities' homesteaders an array of free personalized
member services on Yahoo!. Under the terms of the agreement, GeoCities agreed to
provide its community-based, web services for free to registered users of
Yahoo!. In addition, Yahoo! agreed to market GeoCities' branded personal
publishing programs on select areas throughout Yahoo!, as well as provide a
GeoCities-specific programming module on My Yahoo! for GeoCities' homesteaders.
There are no minimum marketing or advertising requirements for either GeoCities
or Yahoo! under the agreement.
INFRASTRUCTURE AND OPERATIONS
GeoCities has developed an open standard hardware and software system that
is designed to be reliable and responsive. GeoCities' third-generation
architecture is a scaleable system which includes over nine terabytes of raw
disk space and supports over 290 million hits per day, has a peak bandwidth of
over 550 megabits per second and transfers 3.0 terabytes of data each day.
GeoCities provides its homesteaders and visitors with a robust content platform
containing an estimated 32 million pages of user-created content that generated
over 1.6 billion page views in December 1998, according to Nielson I/PRO.
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GeoCities provides an efficient, responsive user experience through network
servers housed in Santa Clara, California, third-party and public domain server
software optimized internally by GeoCities and internally developed tools and
utilities. Requests for files to GeoCities are distributed to the appropriate
servers using Resonate Dispatch load distribution and balancing software.
Member-generated content is stored on a redundant array of independent disks, is
backed up to long-term tape storage devices on a daily basis and copied on a
weekly basis to be stored offsite. User profile information is stored on
multiple disk arrays using Informix Dynamic Server database software and backed
up to long-term tape storage devices on a semi-hourly basis. GeoCities will
continue to upgrade and expand its server and networking infrastructure in an
effort to enhance its functionality and scalability.
Site connectivity to the Internet is provided via multiple DS-3 and OC-3
links on a 24 hour-a-day, seven days per week basis by Exodus. Exodus also
provides and manages power and environmentals for GeoCities' networking and
server equipment. GeoCities manages and monitors its servers and network
remotely from its headquarters in Marina del Rey, California. GeoCities strives
to rapidly develop and deploy high-quality tools and features into its system
without interruption or degradation in service. Any disruption in the Internet
access provided by Exodus, or any interruption in the service that Exodus
receives from other providers, or any failure of Exodus to handle higher volumes
of Internet users to the GeoCities' site could have a material adverse effect on
GeoCities' business, operating results, and financial condition.
COMPETITION
The market for members, visitors and Internet advertising and e-commerce
opportunities is new and rapidly evolving, and competition for members, visitors
and advertisers is intense and is expected to increase significantly in the
future. Barriers to entry are relatively insubstantial. GeoCities believes that
the principal competitive factors for companies seeking to create community on
the Internet are critical mass, functionality, brand recognition, member
affinity and loyalty, broad demographic focus and open access to visitors. Other
companies that are primarily focused on creating web-based community on the
Internet are America Online, Inc., Excite, Inc., Disney, Tripod, Inc., Angelfire
Communications, Xoom, Inc. and theglobe.com.
GeoCities will likely also face competition in the future from web
directories, search engines, shareware archives, content sites, commercial
online services, sites maintained by Internet service providers and other
entities that attempt to or establish communities on the Internet by developing
their own or purchasing one of GeoCities' competitors. In addition, GeoCities
may face competition in the future from traditional media companies, a number of
which, including Disney, CBS and NBC, have recently made significant
acquisitions of or investments in Internet companies. Further, there can be no
assurance that GeoCities' competitors and potential competitors will not develop
communities that are equal or superior to those of GeoCities or that achieve
greater market acceptance than GeoCities' community.
GeoCities also competes for visitors with many Internet content providers
and Internet service providers, including web directories, search engines,
shareware archives, content sites, commercial online services and sites
maintained by Internet service providers, as well as thousands of Internet sites
operated by individuals and government and educational institutions. These
competitors include free information, search and content sites or services, such
as America Online, Inc., CNET, Inc., CNN/ Time Warner, Inc., Excite, Inc.,
Infoseek Corporation, Lycos, Inc., Netscape Communications Corporation,
Microsoft Corporation and Yahoo!, some of which, such as Yahoo! and Disney,
owner of a significant interest in Infoseek, also have relationships with
GeoCities. GeoCities also competes with the foregoing companies, as well as
traditional forms of media such as newspapers, magazines, radio and television,
for advertisers and advertising revenue. GeoCities believes that the principal
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competitive factors in attracting advertisers include the amount of traffic on
its web site, brand recognition, customer service, the demographics of
GeoCities' members and viewers, GeoCities' ability to offer targeted audiences
and the overall cost-effectiveness of the advertising medium offered by
GeoCities. GeoCities believes that the number of Internet companies relying on
web-based advertising revenue will increase greatly in the future. In the past
several months, a number of significant acquisitions of Internet companies have
been announced, including:
- - Disney's acquisition of a significant interest in Infoseek;
- - AOL's acquisition of Netscape;
- - @Home Networks, Inc.'s acquisition of Excite, Inc.; and
- - USA Networks' and Ticketmaster Online-CitySearch, Inc.'s combination of
services with Lycos, Inc.
Accordingly, GeoCities will likely face increased competition, which will
increase pricing pressures on its advertising rates, which could in turn have a
material adverse effect on GeoCities' business, results of operations and
financial condition.
Many of GeoCities' existing and potential competitors, including web
directories and search engines and large traditional media companies, have
longer operating histories in the web market, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than GeoCities. Such competitors are able to undertake more extensive
marketing campaigns for their brands and services, adopt more aggressive
advertising pricing policies and make more attractive offers to potential
employees, distribution partners, commerce companies, advertisers and third
party content providers. There can be no assurance that Internet content
providers and Internet service providers, including web directories, search
engines, shareware archives, sites that offer professional editorial content,
commercial online services and sites maintained by Internet service providers
will not be perceived by advertisers as having more desirable web sites for
placement of advertisements. In addition, substantially all of GeoCities'
current advertising customers and strategic partners also have established
collaborative relationships with certain of GeoCities' competitors or potential
competitors, and other high-traffic web sites. Accordingly, there can be no
assurance that GeoCities will be able to grow its memberships, traffic levels
and advertiser customer base at historical levels or retain its current members,
traffic levels or advertiser customers, or that competitors will not experience
greater growth in traffic than GeoCities as a result of such relationships which
could have the effect of making their web sites more attractive to advertisers,
or that GeoCities' strategic partners will not sever or will elect not to renew
their agreements with GeoCities. There can also be no assurance that GeoCities
will be able to compete successfully against its current or future competitors
or that competition will not have a material adverse effect on GeoCities'
business, results of operations and financial condition.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
GeoCities regards its technology as proprietary and attempts to protect it
by relying on trademark, service mark, copyright and trade secret laws and
restrictions on disclosure and transferring title and other methods. GeoCities
currently has no patents or patents pending and does not anticipate that patents
will become a significant part of GeoCities' intellectual property in the
foreseeable future. GeoCities also generally enters into confidentiality or
license agreements with its employees and consultants, and generally controls
access to and distribution of its documentation and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use GeoCities' proprietary information without
authorization or to develop similar technology independently. GeoCities pursues
the registration of its service marks in the United States and internationally,
and has applied for and obtained the registration in the United States for a
number of its service marks, including "GeoCities". Effective trademark, service
mark, copyright and trade secret protection may not be available in every
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country in which GeoCities' services are distributed or made available through
the Internet, and policing unauthorized use of GeoCities' proprietary
information is difficult.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any proprietary rights of GeoCities or other companies
within this market. There can be no assurance that the steps taken by GeoCities
will prevent misappropriation or infringement of its proprietary information.
Any such infringement or misappropriation, should it occur, might have a
material adverse effect on GeoCities' business, results of operations and
financial condition. In addition, litigation may be necessary in the future to
enforce GeoCities' intellectual property rights, to protect GeoCities' trade
secrets or to determine the validity and scope of the proprietary rights of
others. Such litigation might result in substantial costs and diversion of
resources and management attention and could have a material adverse effect on
GeoCities' business, results of operations and financial condition.
Furthermore, there can be no assurance that GeoCities' business activities
will not infringe upon the proprietary rights of others, or that other parties
will not assert infringement claims against GeoCities. From time to time,
GeoCities has been, and expects to continue to be, subject to claims in the
ordinary course of its business including claims of alleged infringement of the
copyrights, trademarks, service marks and other intellectual property rights of
third parties by GeoCities and the content generated by its members. Although
such claims have not resulted in significant litigation or had a material
adverse effect on GeoCities' business to date, such claims and any resultant
litigation, should it occur, might subject GeoCities to significant liability
for damages and might result in invalidation of GeoCities' proprietary rights
and even if not meritorious, could be time consuming and expensive to defend and
could result in the diversion of management time and attention, any of which
might have a material adverse effect on GeoCities' business, results of
operations and financial condition.
GeoCities currently licenses from third parties certain technologies
incorporated into GeoCities' web site, including a site license for its database
software. GeoCities relies on the licensed software under this site license to
manage the storage and retrieval of homesteader information, including
homesteader names, e-mail addresses, passwords and usage information. This site
license remains in effect until it is terminated by either party. The site
license also terminates in certain other circumstances, including in the event
of a breach by either party. Although GeoCities believes that it could obtain an
alternative site license for its database software should this site license
terminate for any reason, any such termination would have a disruptive effect on
GeoCities' ability to manage the storage and retrieval of homesteader
information for a period of time.
As GeoCities continues to introduce new services that incorporate new
technologies, it may be required to license additional technology from others.
There can be no assurance that these third-party technology licenses will
continue to be available to GeoCities on commercially reasonable terms, if at
all. The inability of GeoCities to obtain any of these technology licenses could
result in delays or reductions in the introduction of new services or could
adversely affect the performance of its existing services until equivalent
technology could be identified, licensed and integrated.
EMPLOYEES
As of December 31, 1998, GeoCities had 281 full-time employees, including 70
in marketing and sales, 40 in editorial, 38 in finance and administration and
133 in operations and support. GeoCities' future success will depend, in part,
on its ability to continue to attract, retain and motivate highly qualified
technical and management personnel, for whom competition is intense. From time
to time, GeoCities also employs independent contractors to support its research
and development, marketing, sales and support and administrative organizations.
GeoCities' employees are not
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represented by any collective bargaining unit, and GeoCities has never
experienced a work stoppage. GeoCities believes its relations with its employees
are good.
FACILITIES
GeoCities' headquarters are currently located in a leased facility in Marina
del Rey, California, consisting of approximately 24,000 square feet of office
space. The facility is under a five-year lease and has two renewal options, each
for an additional three years. In January 1999, GeoCities entered into an
18-month lease to rent approximately 20,000 square feet of office space in
Marina del Rey adjacent to its headquarters. GeoCities has also leased (a)
approximately 13,000 square feet of office space in Santa Monica, California,
and (b) approximately 25,000 square feet of office space in New York, New York,
and approximately 1,700 square feet of office space in San Francisco, California
for its East and West Coast sales offices, respectively.
WebRing, Inc., a wholly-owned subsidiary of GeoCities, leases two adjacent
facilities located in Ashland, Oregon consisting of 2,600 and 900 square feet of
office space under three-year and eighteen-month lease terms, respectively.
LEGAL PROCEEDINGS
In September 1997, GeoCities received a letter from the FTC requesting that
GeoCities voluntarily produce certain information regarding GeoCities'
collection and use of personal identifying information. GeoCities produced the
requested information, as well as certain supplemental information in late 1997.
In February 1998, the FTC staff sent a draft complaint and draft consent order
to GeoCities. At that time, the FTC staff indicated that, if approved by the
FTC, an administrative suit would be brought against GeoCities alleging that it
had violated Section 5(a) of the Federal Trade Commission Act (the "FTC Act") by
engaging in unfair and deceptive practices in connection with GeoCities'
collection and use of personal identifying information obtained from
individuals, including children. The FTC staff also offered to settle the matter
under the terms contained in the draft consent order.
After receiving the draft complaint and draft consent order, GeoCities and
the FTC staff engaged in settlement discussions. As a result of these
discussions, on June 11, 1998, GeoCities and FTC staff attorneys executed a
proposed Agreement Containing Consent Order (the "proposed consent order").
Following a period of public comment, the proposed consent order was amended so
that GeoCities' compliance with the terms of the Children's Online Privacy
Protection Act of 1998 would be permitted under the order. The amended version
of the Agreement Containing Consent Order (the "consent order") was issued by
the FTC on February 5, 1999. The consent order resolves the FTC's allegations,
which are contained in a complaint filed by the FTC with the consent order, that
GeoCities:
- - disclosed to third parties personal identifying information collected in its
member application process contrary to what had been represented to consumers
by GeoCities;
- - implied that there was an affiliation between GeoCities and a children's club
operated by a GeoCities community leader such that children provided personal
identifying information to the club believing they were disclosing the
information to GeoCities; and
- - failed to disclose to consumers, including the parents of children, how
GeoCities would use the personal identifying information it collected from
those consumers and children.
Under the consent order, GeoCities is required to:
- - cease and desist from the allegedly deceptive practices in the future and
- - establish certain procedures to:
- give adequate notice to consumers regarding GeoCities' information
collection and disclosure practices;
- provide consumers with the ability to have GeoCities delete their
personal
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identifying information from GeoCities' database;
- more clearly identify its affiliation (or lack thereof) with third
parties which may collect information or sponsor activities on GeoCities;
and
- obtain express parental consent prior to collecting and using personal
identifying information obtained from children under 13 years of age.
By the terms of the consent order, GeoCities did not admit any of the
allegations contained in the complaint, nor was it required to make any monetary
payment to the FTC or consumers.
Although the consent order requires that GeoCities take specific actions,
including those outlined above, GeoCities has been and remains committed to
protecting the privacy rights of all consumers (and, in particular children) on
the Internet. As part of its ongoing efforts to enhance the protection of the
privacy of its members, GeoCities has consulted and worked with industry
self-regulation groups and has implemented or intends to implement programs
designed to enhance the protection of the privacy of its members, including
children. Such programs include:
- - publishing a comprehensive, multi-screen, privacy statement that is
accessible from many places on GeoCities' web site, including the GeoCities
home page and new member application form;
- - revamping the new member application form to make the questions clearer to
consumers;
- - enhancing its training program for community leaders;
- - suspending certain e-mail marketing programs of an affiliate and confirming
that the affiliate had never sent e-mails to individuals based on the
representation included in the application form;
- - altering its rules to expressly forbid third parties from collecting
information in connection with promotions for any purpose other than to
fulfill the promotion;
- - instructing companies that received information from GeoCities regarding
children under 13 to cease use of such information;
- - making changes to the content that appears on GeoCities' web site, such as
warnings to children not to give out personal information, and removing
inappropriate advertising and promotions from GeoCities' children and
family-oriented "Enchanted Forest" neighborhood; and
- - requiring that individuals under 13 involve their parents in the process of
applying for a free membership in GeoCities.
To confirm the adequacy of its disclosure practices in the area of
information collection and use, GeoCities submitted its privacy statement to
TRUSTe, an industry self-regulation group. TRUSTe has certified such statement
as an accurate representation to consumers of GeoCities' information collection
practices. GeoCities has also joined the Online Privacy Alliance.
In August 1998, a lawsuit was filed against GeoCities in Los Angeles County
Superior Court involving GeoCities' collection and use of personal identifying
information (HYATT V. GEOCITIES). The complaint in this case follows the FTC
draft complaint without alleging any new facts. This case involves a single
cause of action for the alleged violation of California Business and Professions
Code Section 17200 and seeks an injunction, disgorgement of any profits obtained
as a result of the alleged improper activity and attorneys' fees. GeoCities
filed an answer to this lawsuit in September 1998.
In September 1998, an additional case was filed against GeoCities in Los
Angeles County Superior Court related to the same activity (WORMLEY V.
GEOCITIES, ET. AL.). The complaint in this case also followed the FTC draft
complaint and alleged no new facts. This suit purported to be a class action and
alleged causes of action for the violation of California Business and
Professions Code Sections 17200 and 17500
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fraud, unjust enrichment, negligent misrepresentation and invasion of privacy.
This suit sought disgorgement of any profits obtained as a result of the alleged
improper activity, unspecified damages, and attorneys' fees. In November 1998,
GeoCities filed a demurrer to and motion to strike portions of the WORMLEY
complaint. In December 1998, in response to GeoCities' demurrer and motion to
strike, the plaintiff filed an amended complaint. The amended complaint, like
the original complaint, purports to be a class action and alleges causes of
action for the violation of Sections 17200 and 17500, the Consumers Legal
Remedies Act ("CLRA"), fraud, unjust enrichment, negligent misrepresentation,
and invasion of privacy. The plaintiffs are seeking the same remedies as in the
original complaint. In January 1999, GeoCities filed a demurrer to and motion to
strike portions of the amended complaint. In January 1999, the court in the
WORMLEY matter determined that the HYATT matter (discussed above) is related to
the WORMLEY matter, and ordered the HYATT matter transferred to the department
where the WORMLEY matter is pending. In February 1999, a hearing was held on
GeoCities' demurrer to and motion to strike portions of the amended WORMLEY
complaint. At that hearing, the court dismissed the Section 17500, CLRA, and
invasion of privacy causes of action. In early March 1999, a joint status
conference was held in both cases. As a result of this status conference, the
court set hearings for April 1999 to determine whether (1) the cases should be
heard in the same department and (2) discovery in the HYATT matter should be
limited or stayed until the resolution of the class certification process in the
WORMLEY matter.
Based on GeoCities' analysis of these lawsuits and given the fact that they
involve the same set of circumstances that are covered in the FTC matter,
GeoCities believes that the allegations contained in the two complaints are
without merit and intends to defend these actions vigorously. GeoCities intends
to contest class certification as inappropriate in light of the claims alleged
in the WORMLEY matter. GeoCities also plans to assert various factual and legal
defenses to these matters by way of summary judgment and any other appropriate
means.
GeoCities, in the normal course of business, is subject to various other
legal matters. While the results of litigation and claims cannot be predicted
with certainty, GeoCities believes that the final outcome of these other matters
will not have a material adverse effect on GeoCities' business, results of
operations or financial condition.
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GEOCITIES' MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of GeoCities should be read in conjunction with the consolidated
financial statements and the related notes to such financial statements included
elsewhere in this prospectus/proxy statement. This discussion contains
forward-looking statements that involve risks and uncertainties. GeoCities'
actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not
limited to, those set forth under "Risk Factors" and elsewhere in this
prospectus/proxy statement.
OVERVIEW
To date, GeoCities' revenues have been derived principally from the sale of
advertisements. GeoCities sells banner advertisements, event sponsorships and
premium site locations within the GeoCities' web site. GeoCities also receives
advertising revenues from select premier commerce partners in return for
preferred banner advertising locations on, and integration into, the GeoCities
web site. GeoCities also recently began receiving advertising revenues from
third-party content providers who pay GeoCities to display their content on the
GeoCities web site. Currently, the duration of GeoCities' banner advertising
arrangements averages between two to three months. Advertising rates are
dependent on whether the impressions are for general rotation throughout the
GeoCities web site or for targeted audiences and properties within specific
areas of the GeoCities site. All advertising revenues are recognized ratably in
the period in which the advertisement is displayed, provided that no significant
obligations remain on GeoCities' part and collection of the resulting receivable
is probable. GeoCities' advertising obligations typically include guarantees of
a minimum number of "impressions" or times that an advertisement appears in page
views downloaded by users. Payments received from advertisers prior to
displaying their advertisements on the site are recorded as deferred revenues
and are recognized as revenue ratably when the advertisement is displayed.
In addition to advertising revenues, GeoCities derives other revenues
primarily from its GeoPlus program, and, to a lesser extent, from its GeoShops
program. GeoCities also received revenues in the fourth quarter of 1998 from
licensing fees under an agreement with a third party for e-mail services to be
provided to its homesteaders. GeoCities' GeoPlus program offers premium services
for a monthly fee, providing homesteaders additional disk space and enhanced
publishing tools for their web pages. In March 1998, GeoCities introduced the
GeoShops program, a commerce service that, for a monthly fee, allows
homesteaders to sell products and services on their personal web sites, and, for
an additional fee, provides homesteaders with transaction authorization and
processing capabilities. Revenues from the GeoPlus and GeoShops programs are
recognized in the month that the service is provided. License fees for
maintenance and support of the Company's products are deferred and recognized
ratably over the service period.
GeoCities has incurred significant losses since its inception, and as of
December 31, 1998, had an accumulated deficit of approximately $32.2 million.
Also, in connection with the grant of certain stock options to employees during
1997 and the year ended December 31, 1998, GeoCities recorded unearned deferred
compensation of approximately $8.0 million, representing the difference between
the deemed value of GeoCities' common stock for accounting purposes and the
exercise price of such options at the date of grant. At December 31, 1998, the
unearned deferred compensation balance was $6.8 million. Such amount is
presented as a reduction of stockholders' equity and amortized over the vesting
period of the applicable options. As a result, GeoCities currently expects to
amortize the following amounts of deferred compensation annually: 1999 -- $1.5
million; 2000 -- $1.8 million; 2001 -- $2.0 million; 2002 -- $0.9 million; 2003
- -- $0.4 million and 2004 --
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$0.2 million. Amortization of deferred compensation was $1.1 million and $24,000
for the years ended December 31, 1998 and 1997, respectively.
GeoCities, FTC staff attorneys and the Director of Consumer Protection for
the FTC executed a consent order in June 1998, in connection with the FTC's
investigation into certain of GeoCities' past business practices. The consent
order was given final approval by the FTC on February 5, 1999. Based on the
scope of the consent order, GeoCities does not believe that its compliance with
the consent order will have a material adverse effect on its business, results
of operations or financial condition.
In December 1998, GeoCities completed the acquisition of Starseed, Inc. for
a total consideration of approximately $24.8 million. Under the terms of the
agreement, GeoCities issued 545,527 shares of common stock, forgave $600,000 in
debt and paid $2.0 million in cash in exchange for all the outstanding stock and
stock options of Starseed. The acquisition closed in December 1998 and was
accounted for as a purchase. Starseed, now known as WebRing, Inc., is a
wholly-owned subsidiary of GeoCities.
In March 1999, GeoCities acquired all of the issued and outstanding capital
stock and options to purchase capital stock of Future Touch Corporation. The
purchase price included an aggregate of 65,000 shares of GeoCities common stock,
valued at $6.2 million, and an additional $1.0 million payable on the first year
anniversary of the closing, subject to the achievement of performance criteria.
The three former Future Touch shareholders were also granted options under
GeoCities' 1998 Stock Incentive Plan to purchase an aggregate of 70,000 shares
in connection with their employment arrangements with GeoCities. The acquisition
was accounted for as a purchase.
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RESULTS OF OPERATIONS
The following table sets forth the results of operations for GeoCities
expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
------- ------- -------
(AS A PERCENTAGE OF NET
REVENUES)
Net revenues............................ 100% 100% 100%
Cost of revenues........................ 53 83 251
------- ------- -------
Gross profit (loss)................... 47 17 (151)
Operating expenses:
Sales and marketing................... 95 127 243
Product development................... 22 23 151
General and administrative............ 50 64 399
------- ------- -------
Total operating expenses............ 167 214 793
Loss from operations.................... (120) (197) (944)
Other income (expense), net............. 12 3 (13)
------- ------- -------
Loss before provision for income
taxes................................. (108) (194) (957)
Provision for income taxes.............. -- -- --
------- ------- -------
Net loss................................ (108) (194) (957)
------- ------- -------
------- ------- -------
</TABLE>
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NET REVENUES
Net revenues increased $13.8 million or 300%, from $4.6 million for the year
ended December 31, 1997, to $18.4 million for the year ended December 31, 1998.
Net revenues increased $4.3 million or 1,365%, from $0.3 million for the year
ended December 31, 1996, to $4.6 million for the year ended December 31, 1997.
The increases in revenues were due primarily to an increase in the number of
advertisers from 29 advertisers in 1996, to 188 advertisers in 1997, and to 370
advertisers in 1998, and an increase in traffic on GeoCities' web site,
exemplified by the increase in the number of unique visitors from 8.0 million
for the year ended December 31, 1997 to 19.0 million for the year ended December
31, 1998, and the increase in page views from 0.1 billion for the year ended
December 31, 1996 to 0.5 billion for the year ended December 31, 1997, to 1.6
billion for the year ended December 31, 1998. These factors were slightly offset
by year to year decreases in the Company's overall average CPM as the Company
introduced new advertising programs. To a lesser extent, net revenues for the
year ended December 31, 1998 increased due to revenues derived from the
expansion of GeoPlus memberships, product licensing fees and the deployment of
GeoShops. The Company does not have available definitive information regarding
the number of unique visitors for the year ended December 31, 1996; however, the
Company believes that this number increased from the year ended December 31,
1996 to the year ended December 31, 1997, thereby contributing to the increased
net revenue for the year ended December 31, 1997.
Advertising revenues accounted for approximately 89.6%, 90.6% and 89.7%, of
net revenues in 1998, 1997 and 1996, respectively. GeoCities' four largest
advertising customers accounted for 23%, 29% and 40% of net revenues for the
years ended 1998, 1997 and 1996, respectively. For 1998, 1997 and 1996,
GeoCities' other sources of net revenues, which included revenues from premium
services, barter transactions and a licensing fee received in the fourth quarter
of 1998 from a third party for the provision of e-mail services to its
homesteaders, were individually insignificant as a percentage of net revenues.
GeoCities anticipates that
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advertising revenues will continue to comprise a substantial share of its net
revenues in the foreseeable future primarily driven by increasing its customer
base, and the introduction in 1999 of a new program, "Pages that Pay", that will
allow merchants to sell their products through individual homesteaders' web
sites.
COST OF REVENUES
Cost of revenues increased $5.9 million or 155% from $3.8 million for the
year ended December 31, 1997 to $9.7 million for the year ended December 31,
1998. Cost of revenues as a percentage of net revenues decreased from 83% for
the year ended December 31, 1997, to 53% for the year ended December 31, 1998.
Cost of revenues increased $3.0 million or 382% from $0.8 million for the
year ended December 31, 1996 to $3.8 million for the year ended December 31,
1997. Cost of revenues as a percentage of net revenues decreased from 251% for
the year ended December 31, 1996, to 83% for the year ended December 31, 1997.
Cost of revenues in 1998, 1997 and 1996 related to other sources of
GeoCities' net revenues were individually insignificant. The absolute dollar
increases from year to year in cost of revenues were primarily due to the costs
of building GeoCities' server and networking infrastructure in response to the
growth in homesteader membership, year to year growth in homesteader membership
from 0.3 million homesteads at December 31, 1996, to 1.2 million homesteads at
December 31, 1997, and to 3.2 million homesteads at December 31, 1998 increasing
costs of serving banner advertisements due to increasing page views and
amortization of purchase technology costs of $0.4 million from the purchase of
GeoBuilder, a Web-page development technology and the acquisition of Starseed,
Inc. in 1998. Cost of revenues as a percentage of net revenues has decreased
because of the growth in net revenues. GeoCities anticipates that its Internet
connection, web site equipment and related operating costs will continue to grow
in absolute dollars for the foreseeable future to support the anticipated
increase in homesteader membership, traffic to GeoCities' Web-site and new
commerce and advertising programs.
OPERATING EXPENSES
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased $11.7 million or 202% from $5.8
million for the year ended December 31, 1997, to $17.5 million for the year
ended December 31, 1998. Sales and Marketing expenses as a percentage of net
revenues decreased from 127% for the year ended December 31, 1997, to 95% for
the year ended December 31, 1998.
Sales and marketing expenses increased $5.0 million or 659% from $0.8
million for the year ended December 31, 1996, to $5.8 million for the year ended
December 31, 1997. Sales and marketing expenses as a percentage of net revenues
decreased from 243% for the year ended December 31, 1996 to 127% for the year
ended December 31, 1997.
The absolute dollar increases from year to year in sales and marketing
expenses were primarily attributable to GeoCities' continued efforts to build a
direct sales force and marketing group which increased from 22 employees at
December 31, 1996, to 36 employees at December 31, 1997, and to 70 employees at
December 31, 1998. and increased expenses associated with promotion and
marketing efforts. Sales and marketing expenses as a percentage of net revenues
have decreased because of the growth in net revenues. GeoCities expects that
sales and marketing expenses will continue to grow in absolute dollars for the
foreseeable future as it proceeds with building the direct sales force and
marketing new products and services.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses increased $3.1 million or 310% from $1.0
million for the year ended December 31, 1997, to $4.1 million for the year ended
December 31, 1998. Product development expenses as a percentage of net revenues
decreased slightly from 23% for the year ended December 31, 1997, to 22% for the
year ended December 31, 1998.
Product development expenses increased $0.5 million or 100% from $0.5
million for the year ended December 31, 1996, to $1.0 million for the year ended
December 31, 1997. Product
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development expenses as a percentage of net revenues decreased from 151% for the
year ended December 31, 1996, to 23% for the year ended December 31, 1997. The
absolute dollar increases from year to year in product development expenses were
primarily attributable to increases in the number of engineers devoted to
support enhancement to and development of GeoCities' products. Product
development expenses as a percentage of net revenues have decreased because of
the growth in net revenues. GeoCities believes that significant investments in
product development are required to remain competitive. Therefore, GeoCities
expects that its product development expenses will continue to increase in
absolute dollars for the foreseeable future.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $6.3 million or 217% from $2.9
million for the year ended December 3, 1997, to $9.2 million for the year ended
December 31, 1998. General and administrative expenses as a percentage of net
revenues decreased from 64% for the year ended December 31, 1997, to 50% for the
year ended December 31, 1998.
General and administrative expenses increased $1.6 million or 123% from $1.3
million for the year ended December 31, 1996, to $2.9 million for the year ended
December 3, 1997. General and administrative expenses as a percentage of net
revenues decreased from 399% for the year ended December 31, 1996, to 64% for
the year ended December 31, 1997.
The absolute dollar increases from year to year in general and
administrative expenses were primarily due to increases in the number of general
and administrative personnel from six employees at December 31, 1996 to 15 at
December 31, 1997 and to 38 at December 31, 1998, professional services and
facility expenses to support the growth of GeoCities' operations and
amortization of intangible assets expense of $0.6 million in 1998 in connection
with the Starseed acquisition. General and administrative expenses as a
percentage of net revenues have decreased because of the growth in net revenues.
GeoCities anticipates that it will incur additional administrative expenses in
absolute dollars to sustain the growth of the business.
OTHER INCOME (EXPENSE), NET
Other income, net increased $2.2 million or 1,866% from $0.1 million for the
year ended December 31, 1997 to $2.3 million for the year ended December 31,
1998. Other expense, net was $0.4 million for the year ended December 31, 1996
and increased $0.08 million or 193%, to $0.1 million for the year ended December
31, 1997. The increase in other income (expense), net for the year ended
December 31, 1998 was primarily due to a higher average investment balance as a
result of the proceeds received from GeoCities' initial public offering in
August 1998.
INCOME TAXES
As of December 31, 1998, GeoCities had approximately $28.2 million and $27.6
million of federal and state net operating loss carryforwards, respectively, for
tax reporting purposes available to offset future taxable income. GeoCities'
federal and state net operating loss carryforwards expire beginning 2010 and
2002, respectively. Due to the change in GeoCities' ownership interests in 1996,
1997 and 1998, future utilization of GeoCities' net operating loss carryforwards
will be subject to certain limitations or annual restrictions under the tax
laws. See Note 11 of Notes to Consolidated Financial Statements.
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LIQUIDITY AND CAPITAL RESOURCES
GeoCities invests predominantly in instruments that are highly liquid, of
quality investment grade, and predominantly have maturities of less than one
year with the intent to make such funds readily available for operating
purposes. As of December 31, 1998, GeoCities had approximately $51.0 million in
cash and cash equivalents and $38.9 million in short-term and long-term
investments. GeoCities regularly invests excess funds in short-term money market
funds, government securities and commercial paper.
Net cash used in operating activities was $14.3 million, $7.2 million, and
$2.8 million for the years ended December 31, 1998, 1997 and 1996, respectively.
The increase in net cash used resulted primarily from increases in net losses,
accounts receivable, and prepaid expenses partially offset by increases in
accounts payable and accrued expenses.
Net cash used in investing activities increased to $47.2 million from $1.3
million and $130,000 for the years ended December 31, 1998 and 1997 and 1996,
respectively, primarily due to increased purchases of property and equipment,
purchases of securities with the proceeds derived from GeoCities' initial public
offering in August 1998, and payments of $2.9 million in connection with the
acquisition of Starseed, Inc.
Net cash provided by financing activities increased to $108.7 million for
the year ended December 31, 1998 compared to $12.3 million and $2.9 million for
the years ended December 31, 1997 and 1996, respectively resulting primarily
from the $84.3 million in net proceeds received from the sale of shares of
GeoCities' common stock in connection with the consummation of GeoCities'
initial public offering. Furthermore, the receivable of approximately $25.0
million of cash proceeds was received in January 1998 in connection with the
sale of shares of GeoCities' preferred stock for $38.0 million in December 1997.
GeoCities has a bank line of credit for $10.0 million. To date there have
been no borrowings under this line of credit. This credit facility includes a
$7.0 million revolving facility for working capital and a $3.0 million lease
facility. This facility bears interest at the bank's prime rate for the
revolving facility and the bank's prime rate plus 0.75% for the lease facility.
Any borrowings under this line of credit will be collateralized by substantially
all of GeoCities' assets.
GeoCities' capital requirements depend on numerous factors, including market
acceptance of GeoCities' services, the amount of resources GeoCities devotes to
investments in the GeoCities community, the resources GeoCities devotes to
marketing and selling its services and its brand promotions and other factors.
GeoCities has experienced a substantial increase in its capital expenditures and
operating lease arrangements since its inception consistent with the growth in
its operations and staffing, and anticipates that this will continue for the
foreseeable future. Additionally, GeoCities will continue to evaluate possible
investments in complementary products, technologies and businesses. GeoCities
currently anticipates that its existing line of credit and available funds will
be sufficient to meet its anticipated needs for working capital and capital
expenditures for at least the next 12 months.
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YEAR 2000 READINESS
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates at the turn of this
century and, as a result, many companies' software and computer systems may need
to be upgraded or replaced in order to comply with such "Year 2000"
requirements.
STATE OF READINESS
In October 1998, GeoCities completed an initial evaluation of the year 2000
readiness of the information technology systems used in its operations ("IT
Systems") and its non-IT Systems, such as building security, voice mail and
other systems. Based on this evaluation, GeoCities identified two database
tables that hold information concerning GeoCities' homesteaders in which the
date-of-birth year field was stored as a two-digit character string and, as a
result, were not year 2000 compliant. All programs affected by the
aforementioned noncompliance were identified and converted to a year 2000
compliant system in March 1999. In addition, as a result of the preliminary
evaluation, all production server operating systems used by GeoCities at that
time which were not deemed year 2000 compliant have been upgraded to year 2000
compliant systems.
GeoCities is currently undergoing a more comprehensive analysis of the year
2000 readiness of its IT and non-IT systems. This additional analysis will cover
the following phases:
(1) identification of GeoCities-owned and third-party IT Systems and non-IT
Systems within GeoCities' direct control;
(2) obtaining representations and other assurances from third-party vendors and
licensors of their products' year 2000 readiness;
(3) assessment of any repair or replacement requirements;
(4) repair or replacement;
(5) testing;
(6) implementation; and
(7) creation of contingency plans in the event of year 2000 failures.
GeoCities has completed the first phase of this additional analysis and is
currently performing phases (2) through (6) of the analysis. GeoCities expects
to complete these phases by the end of June 1999, after which, GeoCities will
implement phase (7) of the plan. GeoCities expects to complete all of the phases
by the end of July 1999.
Other than the foregoing, based on its preliminary evaluation and the
interim results of its current analysis, GeoCities believes it is year 2000
compliant.
COSTS
To date, GeoCities has not incurred any material expenditures in connection
with identifying or evaluating year 2000 compliance issues. Most of its expenses
have related to the opportunity cost of time spent by employees of GeoCities
evaluating its IT Systems and non-IT Systems, year 2000 compliance matters
generally, and repairing existing IT Systems and non-IT Systems, based on the
findings of its evaluations. Furthermore, based on its analysis to date,
GeoCities does not expect that it will be required to incur any material
expenditures in the future with respect to year 2000 compliance issues.
RISKS OF YEAR 2000 ISSUES
While GeoCities believes it is year 2000 compliant, there are currently
still a number of risks associated with year 2000 issues. For instance,
GeoCities relies heavily on third-party software and services to implement,
track and account for its advertising revenues. If a year 2000 issue were to
arise with respect to such software or services, GeoCities' ability to generate
and collect revenues could be materially and adversely impacted.
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In addition to the IT Systems and non-IT Systems within its direct control,
GeoCities relies both domestically and internationally, upon various vendors,
governmental agencies, utility companies, telecommunications service companies,
delivery service companies and other service providers who are outside of
GeoCities' control. We cannot assure you that these parties will not suffer a
year 2000 business disruption which in turn adversely affects GeoCities.
In particular, if a year 2000 problem were to arise with respect to a
telecommunications service company, GeoCities' website could become
inaccessible. In such event, GeoCities' business, results of operations and
financial condition would be materially and adversely impacted.
CONTINGENCY PLAN AND MONITORING
GeoCities does not presently have a contingency plan with respect to year
2000 issues. As part of the comprehensive analysis that GeoCities is currently
performing, GeoCities plans to develop a contingency plan to address such
issues.
In addition, GeoCities is continuing to monitor all of the new IT Systems
and non-IT Systems that it acquires or accesses in the normal course of its
business. If additional year 2000 compliance issues are discovered, GeoCities
plans to evaluate the need for repair or replacement or to develop contingency
plans relating to such issues.
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GEOCITIES STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of GeoCities common stock as of December 31, 1998, by (1) each person
or group of affiliated persons known by GeoCities to own beneficially more than
5% of the outstanding shares of GeoCities common stock, (2) the chief executive
officer of GeoCities and each of the three most highly compensated executive
officers of GeoCities, (3) each of GeoCities' directors, and (4) all directors
and executive officers of GeoCities as a group. Unless otherwise indicated, the
address for each of the following stockholders is 4499 Glencoe Avenue, Marina
del Rey, California 90292. The shares beneficially owned and percentage of
ownership are based on 32,019,000 shares of GeoCities common stock outstanding
as of December 31, 1998. Shares of GeoCities common stock subject to options
which are currently exercisable or exercisable within 60 days of December 31,
1998, are, in accordance with the rules of the Commission, deemed outstanding
for computing the percentages of the person holding such options, but are not
deemed outstanding for computing the percentages of any other person. Unless
otherwise indicated, the persons named in the table have sole voting and sole
investment control with respect to all shares beneficially owned. The
"Exercisable Options" column includes shares of GeoCities common stock issuable
upon exercise of options which are exercisable within 60 days of December 31,
1998.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------- PERCENTAGE
EXERCISABLE OF
NAME OF BENEFICIAL OWNER COMMON STOCK OPTIONS OWNERSHIP
- ---------------------------------------------------------------------- ------------ ------------ -----------------
<S> <C> <C> <C>
CMG@Ventures, Inc.(1)................................................. 8,772,356 1,000,000 29.6%
Peter H. Mills
David S. Wetherell
SOFTBANK Holdings Inc.(2)............................................. 8,932,460 -- 27.9%
Eric C. Hippeau
David C. Bohnett(3)................................................... 2,325,850 300,000 8.1%
Chase Venture Capital Associates, L.P.(4)............................. 1,749,736 -- 5.5%
John C. Rezner(5)..................................................... 702,398 174,602 2.7%
Jerry D. Colonna(6)................................................... 171,924 -- *
Thomas R. Evans(7).................................................... -- -- *
Stephen L. Hansen(8).................................................. -- 75,000 *
Michael G. Barrett(9)................................................. -- 40,000 *
All directors and executive officers as a group (13 persons).......... 20,356,780 1,415,000 65.1%
</TABLE>
- ------------------------
* Less than one percent
(1) Includes 8,267,888 shares of GeoCities common stock and an option currently
exercisable for 1,000,000 shares of common stock held by CMG@Ventures I,
LLC, and 504,468 shares of GeoCities common stock held by CMG@Ventures II,
LLC, each of which are affiliates of CMG@Ventures, Inc. The address of
CMG@Ventures, Inc., CMG@Ventures I, LLC and CMG@Ventures II, LLC is 2420
Sand Hill Road, Suite 101, Menlo Park, CA 94025. Messrs. Mills and
Wetherell are each profit members of CMG@Ventures I, LLC, and directors of
GeoCities. Messrs. Mills and Wetherell disclaim beneficial ownership of
such shares except to the extent of their pecuniary interest therein.
(2) Includes (a) 7,056,086 shares of GeoCities common stock held by SOFTBANK
America, Inc., an affiliate of SOFTBANK Holdings, Inc. (which number
includes (i) 100,000 shares of GeoCities common stock held by SOFTBANK
America Inc. and subject to an option held by Mr. Hippeau to purchase such
shares, which option vests over a three-year period which commenced in
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January 1998 and (ii) 50,000 shares of GeoCities common stock held by
SOFTBANK America Inc. and subject to an option held by Ronald D. Fisher,
Vice Chairman of SOFTBANK Holdings Inc. and SOFTBANK America Inc.); (b)
1,838,848 shares of GeoCities common stock held by SOFTBANK Technology
Ventures IV L.P., an affiliate of SOFTBANK Holdings Inc.; and (c) 37,526
shares of Geo Cities common stock held by SOFTBANK Technology Advisors Fund
L.P., an affiliate of SOFTBANK Holdings Inc. The address of SOFTBANK
Holdings Inc. and the entities associated with SOFTBANK Holdings Inc. is 10
Langley Road, Newton Center, MA 02159-1972. Mr. Hippeau, Chairman of the
Board and Chief Executive Officer of Ziff-Davis, a subsidiary of SOFTBANK
Holdings Inc., is a director of GeoCities.
(3) Excludes options to purchase an additional 300,000 shares of GeoCities
common stock which are not currently exercisable or exercisable within 60
days of December 31, 1998.
(4) Includes 171,924 shares of GeoCities common stock held by the Flatiron
Fund. The Flatiron Fund is a venture investment program affiliated with
Chase Capital Partners, an affiliate of Chase Venture Capital Associates,
L.P. The address of Chase Venture Capital Associates, L.P. and the entities
associated with Chase Venture Capital Associates, L.P. is Chase Capital
Partners, 380 Madison Avenue, New York, NY 10017.
(5) Excludes options to purchase a total of 120,000 shares of GeoCities common
stock that were issued to Mr. Rezner in connection with his employment and
which are not currently exercisable or exercisable within 60 days of
December 31, 1998.
(6) Consists of 171,924 shares of GeoCities common stock held by the Flatiron
Fund, of which Mr. Colonna is a partner. Mr. Colonna disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein.
(7) Excludes options to purchase up to 1,632,760 shares of GeoCities common
stock that were issued to Mr. Evans in connection with his employment and
which are not currently exercisable or exercisable within 60 days of
December 31, 1998. On April 9, 1999, 244,914 of these options will become
exercisable in accordance with the terms of Mr. Evans' option agreement.
(8) Excludes options to purchase an additional 525,000 shares of GeoCities
common stock that were issued to Mr. Hansen in connection with his
employment and which are not currently exercisable or exercisable within 60
days of December 31, 1998. On May 21, 1999, an additional 37,500 of these
options will become exercisable in accordance with the terms of Mr.
Hansen's option agreement.
(9) Excludes options to purchase an additional 290,000 shares of GeoCities
common stock that were issued to Mr. Barrett in connection with his
employment and which are not currently exercisable or exercisable within 60
days of December 31, 1998.
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DESCRIPTION OF GEOCITIES CAPITAL STOCK
As of the date of this document, the authorized capital stock of GeoCities
consists of 60,000,000 shares of common stock, $.001 par value and 5,000,000
shares of preferred stock, $.001 par value. The following description of
GeoCities' capital stock is only a summary and may be more completely understood
by reading GeoCities' certificate of incorporation and bylaws and the provisions
of applicable Delaware law.
COMMON STOCK
As of April 21, 1999, there were 32,616,922 shares of common stock
outstanding and held of record by 1,075 stockholders.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and the certificate of incorporation
provides that they do not have cumulative voting rights. Accordingly, holders of
a majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared by the board of directors out of funds legally available therefor,
subject to any preferential dividend rights of any outstanding preferred stock.
Upon the liquidation, dissolution or winding up of GeoCities, the holders of
common stock are entitled to receive ratably the net assets of GeoCities
available after the payment of all debts and other liabilities and subject to
the prior rights of any outstanding preferred stock. Holders of the common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which GeoCities may designate and issue in the future without
further stockholder approval. No shares of preferred stock are currently
outstanding.
PREFERRED STOCK
Upon the closing of the initial public offering, the board of directors was
authorized, without further stockholder approval, to issue from time to time up
to an aggregate of 5,000,000 shares of preferred stock in one or more series and
to fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series. GeoCities has no present plan to issue any shares
of preferred stock. See "-- Anti-Takeover Effects of Certain Provisions of
Delaware Law and GeoCities' Certificate of Incorporation and Bylaws".
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for GeoCities' common stock is U.S. Stock
Transfer Corporation. Its telephone number is (818) 502-1404.
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FUTURE STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, GeoCities' stockholders may
present proper proposals for inclusion in GeoCities' proxy statement and for
consideration at the next annual meeting of its stockholders by submitting such
proposals to GeoCities in a timely manner. In order to be so included for the
1999 annual meeting, in the event the merger has not been consummated prior
thereto, stockholder proposals must be received by GeoCities no later than June
1, 1999, and must otherwise comply with the requirements of Rule 14a-8.
EXPERTS
The consolidated financial statements of Yahoo! Inc. incorporated in this
document by reference to the Annual Report on Form 10-K of Yahoo! Inc. for the
year ended December 31, 1998, have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998 of GeoCities
included in this document have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Starseed, Inc. as of September 30, 1998 and
1997, and for the year ended September 30, 1998 and for the period from October
8, 1996 (date of inception) to September 30, 1997, have been included in this
document in reliance upon the report of KPMG Peat Marwick LLP, independent
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The report of KPMG Peat Marwick LLP dated
October 8, 1998, except as to note 9, which is as of October 23, 1998, contains
an explanatory paragraph that states that Starseed, Inc. has incurred losses
since inception and has a net capital deficiency. These conditions raise
substantial doubt about the entity's ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of that uncertainty.
The consolidated financial statements and the supplementary consolidated
financial statements of broadcast.com inc. as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998, incorporated
in this document by reference to Yahoo! Inc.'s Current Report on Form 8-K dated
April 1, 1999, as amended April 19, 1999, have been so incorporated in reliance
on the reports of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Yahoo!
common stock offered hereby and certain tax matters with respect to the merger
will be passed upon for Yahoo! by Venture Law Group, A Professional Corporation,
Menlo Park, California. Certain tax matters with respect to the merger will be
passed upon for GeoCities by Brobeck, Phleger & Harrison LLP, Irvine,
California.
WHERE YOU CAN FIND MORE INFORMATION
Yahoo! and GeoCities file annual, quarterly and special reports, proxy
statements and other information with the Commission. You may read and copy any
reports, statements or other information filed by either company at the
Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.,
20549, or at any of the Commission's other public reference rooms in New York,
New York and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Yahoo!'s and GeoCities'
Commission filings are also available to the public from commercial document
retrieval services and at the web site maintained by the Commission at
http://www.sec.gov.
Yahoo! filed a registration statement to register the Yahoo! common stock to
be issued to GeoCities' stockholders in the merger. This proxy
statement/prospectus is a part of that registration
112
<PAGE>
statement and constitutes a prospectus of Yahoo! in addition to being a proxy
statement of GeoCities for the meeting of GeoCities' stockholders. As allowed by
the Commission's rules, this proxy statement/ prospectus does not contain all
the information you can find in the Yahoo! registration statement or the
exhibits to the registration statement.
The Commission allows Yahoo! to "incorporate by reference" information into
this proxy statement/prospectus, which means important information may be
disclosed to you by referring you to another document filed separately with the
Commission. The information of Yahoo! incorporated by reference is deemed to be
part of this proxy statement/prospectus, except for information superseded by
information in (or incorporated by reference in) this proxy
statement/prospectus. This proxy statement/prospectus incorporates by reference
the documents set forth below that have been previously filed with the
Commission. The following documents contain important information about Yahoo!
and its finances and are hereby incorporated by reference:
1. Yahoo!'s Annual Report on Form 10-K for the year ended December 31,
1998;
2. Yahoo!'s Current Report on Form 8-K dated January 29, 1999;
3. Yahoo!'s Current Report on Form 8-K dated January 13, 1999;
4. Yahoo!'s Current Report on Form 8-K dated April 5, 1999 (as amended on
April 19, 1999);
5. Yahoo!'s Current Report on Form 8-K dated April 8, 1999; and
6. The description of Yahoo!'s common stock set forth in its Registration
Statement on Form 8-A, filed with the Commission on March 12, 1996.
Yahoo! is also incorporating by reference additional documents that it may
file with the Commission pursuant to the Exchange Act between the date of this
proxy statement/prospectus and the date of the special meeting.
Yahoo! has supplied all information contained or incorporated by reference
in this proxy statement/prospectus relating to Yahoo!, and GeoCities has
supplied all information contained in this proxy statement/prospectus relating
to GeoCities.
If you are a shareholder of Yahoo! you may have been sent some of the
documents incorporated by reference, but you can obtain any of them through
Yahoo! or the Commission. Documents incorporated by reference are available from
Yahoo! without charge, excluding any exhibits which are not specifically
incorporated by reference as exhibits in this proxy statement/prospectus.
GeoCities' stockholders may obtain documents incorporated by reference in this
proxy statement/prospectus by requesting them in writing or by telephone from
the appropriate party at the following address:
<TABLE>
<S> <C>
Yahoo! Inc. GeoCities
3420 Central Expressway 4499 Glencoe Avenue
Santa Clara, California 95051 Marina del Rey, California 90292
Tel: (408) 731-3300 Tel: (310) 827-3700
Attention: Attention:
WEB SITE: HTTP://WWW.YAHOO.COM WEB SITE: HTTP://WWW.GEOCITIES.COM
</TABLE>
If you would like to request documents from either company, please do so by
May 18, 1999 (10 days prior to the special meeting), to receive them before the
special meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE APPROVAL OF THE
MERGER AGREEMENT. NEITHER YAHOO! NOR GEOCITIES HAS AUTHORIZED ANYONE TO PROVIDE
YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED APRIL 28, 1999.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY OTHER DATE, AND NEITHER THE MAILING
OF THIS PROXY STATEMENT/PROSPECTUS TO GEOCITIES' STOCKHOLDERS NOR THE ISSUANCE
OF YAHOO! COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE
CONTRARY.
113
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
GEOCITIES CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets at December 31, 1998 and 1997.................................................. F-3
Consolidated Statements of Operations for each of the three years in the period ended December 31, 1998.... F-4
Consolidated Statements of Stockholders' Equity (Deficiency) for each of the three years in the period
ended December 31, 1998.................................................................................. F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1998.... F-6
Notes to Consolidated Financial Statements................................................................. F-8
STARSEED, INC. FINANCIAL STATEMENTS
Independent Auditors' Reports.............................................................................. F-26
Balance Sheets at September 30, 1998 and 1997.............................................................. F-27
Statements of Operations for the year ended September 30, 1998 and for the period from October 8, 1996
(inception) to September 30, 1997........................................................................ F-28
Statement of Shareholders' Deficit for the year ended September 30, 1998 and for the period from October 8,
1996 (inception) to September 30, 1997................................................................... F-29
Statement of Cash Flows for the year ended September 30, 1998 and for the period from October 8, 1996
(inception) to September 30, 1997........................................................................ F-30
Notes to Financial Statements.............................................................................. F-31
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of GeoCities
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficiency) and
of cash flows present fairly, in all material respects, the financial position
of GeoCities and its subsidiary (the "Company") at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2, the accompanying consolidated financial statements
for 1997 and 1996 have been restated to reflect accretion on the Company's
mandatory redeemable convertible preferred stock.
PRICEWATERHOUSECOOPERS LLP
Woodland Hills, California
January 27, 1999, except for Note 8
as to which the date is February 11, 1999
and the restatement portion of
Note 2 as to which the date is
February 19, 1999
F-2
<PAGE>
GEOCITIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 51,014,000 $ 3,785,000
Short-term investments in marketable securities................................... 33,797,000 --
Accounts receivable, less allowance for doubtful accounts of $726,000 and $98,000
for 1998 and 1997, respectively................................................. 4,296,000 1,206,000
Prepaids and other current assets................................................. 1,453,000 403,000
Subscription receivable........................................................... -- 25,000,000
------------- -------------
Total current assets............................................................ 90,560,000 30,394,000
Long-term investments in marketable securities...................................... 5,094,000 --
Property and equipment, net......................................................... 8,706,000 1,216,000
Goodwill and other intangibles, net................................................. 24,482,000 --
Deposits............................................................................ 970,000 613,000
Other assets........................................................................ 570,000 645,000
------------- -------------
Total assets.................................................................... $ 130,382,000 $ 32,868,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.................................................................. $ 2,269,000 $ 1,036,000
Accrued expenses and other current liabilities.................................... 6,745,000 2,289,000
Deferred revenue.................................................................. 335,000 225,000
Capital lease obligations, current portion........................................ 1,707,000 393,000
------------- -------------
Total current liabilities....................................................... 11,056,000 3,943,000
Capital lease obligations, net of current portion................................... 1,641,000 183,000
Related party note payable.......................................................... 686,000 651,000
------------- -------------
13,383,000 4,777,000
Commitments and contingencies (Note 8)
Series A, B, C, D, E and F mandatory redeemable convertible preferred stock, $0.001
par value; authorized 26,526,000 shares in 1997: issued and outstanding,
22,230,000 shares in 1997; liquidation preference of approximately $39,129,000 at
1997.............................................................................. -- 38,137,000
Stockholders' equity (deficiency):
Preferred stock, par value $0.001; authorized 5,000,000 shares in 1998; issued and
outstanding 0 shares at 1998.................................................... -- --
Common stock, par value $0.001; authorized 60,000,000 shares for 1998 and 1997;
issued and outstanding 32,019,000 and 2,641,000 shares at 1998 and 1997,
respectively.................................................................... 32,000 49,000
Additional paid-in capital........................................................ 155,972,000 2,966,000
Unearned compensation............................................................. (6,845,000) (660,000)
Accumulated deficit............................................................... (32,160,000) (12,401,000)
------------- -------------
Total stockholders' equity (deficiency)......................................... 116,999,000 (10,046,000)
------------- -------------
Total liabilities and stockholders' equity (deficiency)......................... $ 130,382,000 $ 32,868,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
GEOCITIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Net revenues........................................................ $ 18,359,000 $ 4,582,000 $ 314,000
Cost of revenues.................................................... 9,696,000 3,789,000 788,000
-------------- ------------- -------------
Gross profit (loss)............................................. 8,663,000 793,000 (474,000)
Operating expenses:
Sales and marketing............................................... 17,486,000 5,837,000 764,000
Product development............................................... 4,093,000 1,045,000 475,000
General and administrative........................................ 9,156,000 2,930,000 1,252,000
-------------- ------------- -------------
Loss from operations................................................ (22,072,000) (9,019,000) (2,965,000)
Other income (expense):
Interest income................................................... 2,597,000 238,000 19,000
Interest and other expense........................................ (283,000) (121,000) (59,000)
-------------- ------------- -------------
Loss before provision for income taxes.............................. (19,758,000) (8,902,000) (3,005,000)
Provision for income taxes.......................................... (1,000) (1,000) (1,000)
-------------- ------------- -------------
Net loss............................................................ $ (19,759,000) $ (8,903,000) $ (3,006,000)
-------------- ------------- -------------
-------------- ------------- -------------
Basic and diluted net loss per share applicable to common
stockholders...................................................... $ (1.42) $ (3.72) $ (1.19)
Weighted average shares outstanding used in basic and diluted per
share calculation................................................. 15,001,000 2,620,000 2,617,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
GEOCITIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- -------------------------- PAID-IN UNEARNED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
----------- --------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995........... 1,200,000 $ 386,000 2,617,000 $ 43,000 $ 23,000
Accretion of mandatory redeemable
convertible preferred stock.......... -- -- -- -- (105,000)
Net loss............................... -- -- -- -- --
----------- --------- ------------ ------------ ------------- --------------
Balance at December 31, 1996........... 1,200,000 386,000 2,617,000 43,000 (82,000)
Additional paid-in capital related to
issuance of Series E mandatory
redeemable convertible preferred
stock for cash....................... -- -- -- -- 3,196,000
Conversion of Series C convertible
preferred stock to mandatory
redeemable convertible preferred
stock................................ (1,200,000) (386,000) -- -- --
Exercise of stock options.............. -- -- 24,000 6,000 --
Unearned compensation related to stock
options granted...................... -- -- -- -- 684,000 $ (684,000)
Compensation related to stock options
vesting.............................. -- -- -- -- -- 24,000
Accretion of mandatory redeemable
convertible preferred stock.......... -- -- -- -- (832,000) --
Net loss...............................
----------- --------- ------------ ------------ ------------- --------------
Balance at December 31, 1997........... -- -- 2,641,000 49,000 2,966,000 (660,000)
Repurchase of common stock............. -- -- (10,000) (19,000) -- --
Exercise of stock options.............. -- -- 1,079,000 223,000 25,000 --
Unearned compensation related to stock
options granted...................... -- -- -- -- 7,321,000 (7,321,000)
Compensation related to stock options
vesting.............................. -- -- -- -- -- 1,136,000
Accretion of mandatory redeemable
convertible preferred stock.......... -- -- -- -- (1,604,000) --
Conversion of mandatory redeemable
convertible preferred stock.......... -- -- 22,230,000 42,937,000 (3,196,000) --
Delaware reincorporation and change in
par value of common stock............ -- -- -- (43,164,000) 43,164,000 --
Issuance of common stock pursuant to
initial public offering.............. -- -- 5,463,000 5,000 84,320,000 --
Issuance of common stock pursuant to
exercise of warrant.................. -- -- 20,000 95,000 --
Issuance of common stock to community
leaders.............................. -- -- 16,000 258,000 --
Issuance of common stock to Compu-Trak,
Inc.................................. -- -- 35,000 729,000 --
Issuance of common stock pursuant to
the acquisition of Starseed, Inc.
(net of acquisition costs)........... -- -- 545,000 1,000 21,894,000 --
Net loss............................... -- -- -- -- -- --
----------- --------- ------------ ------------ ------------- --------------
Balance at December 31, 1998........... -- -- 32,019,000 $ 32,000 $ 155,972,000 $ (6,845,000)
----------- --------- ------------ ------------ ------------- --------------
----------- --------- ------------ ------------ ------------- --------------
<CAPTION>
TOTAL
STOCKHOLDERS'
ACCUMULATED EQUITY
DEFICIT (DEFICIENCY)
------------- -------------
<S> <C> <C>
Balance at December 31, 1995........... $ (492,000) $ (40,000)
Accretion of mandatory redeemable
convertible preferred stock.......... -- (105,000)
Net loss............................... (3,006,000) (3,006,000)
------------- -------------
Balance at December 31, 1996........... (3,498,000) (3,151,000)
Additional paid-in capital related to
issuance of Series E mandatory
redeemable convertible preferred
stock for cash....................... -- 3,196,000
Conversion of Series C convertible
preferred stock to mandatory
redeemable convertible preferred
stock................................ -- (386,000)
Exercise of stock options.............. -- 6,000
Unearned compensation related to stock
options granted...................... -- --
Compensation related to stock options
vesting.............................. -- 24,000
Accretion of mandatory redeemable
convertible preferred stock.......... -- (832,000)
Net loss............................... (8,903,000) (8,903,000)
------------- -------------
Balance at December 31, 1997........... (12,401,000) (10,046,000)
Repurchase of common stock............. -- (19,000)
Exercise of stock options.............. -- 248,000
Unearned compensation related to stock
options granted...................... -- --
Compensation related to stock options
vesting.............................. -- 1,136,000
Accretion of mandatory redeemable
convertible preferred stock.......... -- (1,604,000)
Conversion of mandatory redeemable
convertible preferred stock.......... -- 39,741,000
Delaware reincorporation and change in
par value of common stock............ -- --
Issuance of common stock pursuant to
initial public offering.............. -- 84,325,000
Issuance of common stock pursuant to
exercise of warrant.................. -- 95,000
Issuance of common stock to community
leaders.............................. -- 258,000
Issuance of common stock to Compu-Trak,
Inc.................................. -- 729,000
Issuance of common stock pursuant to
the acquisition of Starseed, Inc.
(net of acquisition costs)........... -- 21,895,000
Net loss............................... (19,759,000) (19,759,000)
------------- -------------
Balance at December 31, 1998........... $ (32,160,000) $ 116,999,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
GEOCITIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
-------------- ------------- -------------
Cash flows from operating activities:
Net loss.......................................................... $ (19,759,000) $ (8,903,000) $ (3,006,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................... 2,746,000 431,000 188,000
Write-off of acquired in-process technology..................... 300,000 -- --
Issuance of common stock to community leaders................... 258,000 -- --
Issuance of warrant related to note payable..................... -- 51,000 --
Deferred compensation earned.................................... 1,136,000 24,000 --
Bad debt reserve................................................ 628,000 98,000 --
Changes in operating assets and liabilities:
Accounts receivable........................................... (3,670,000) (1,042,000) (255,000)
Prepaids and other current assets............................. (943,000) (346,000) (56,000)
Deposits and other assets..................................... (282,000) (396,000) (214,000)
Accounts payable.............................................. 1,041,000 639,000 309,000
Accrued expenses and other liabilities........................ 4,123,000 2,095,000 162,000
Deferred revenue.............................................. 110,000 115,000 110,000
-------------- ------------- -------------
Net cash used in operating activities....................... (14,312,000) (7,234,000) (2,762,000)
-------------- ------------- -------------
Cash flows from investing activities:
Purchase of property and equipment................................ (5,422,000) (674,000) (130,000)
Payments in connection with acquisition........................... (2,887,000) -- --
Investment in affiliate........................................... -- (645,000) --
Redemption of held-to-maturity securities......................... 1,500,000 -- --
Purchases of held-to-maturity securities.......................... (40,391,000) -- --
-------------- ------------- -------------
Net cash used in investing activities....................... (47,200,000) (1,319,000) (130,000)
-------------- ------------- -------------
Cash flows from financing activities:
Issuance of common stock pursuant to initial public offering...... 84,325,000 -- --
Payments under capital-lease obligations.......................... (808,000) (143,000) (239,000)
Proceeds from exercise of common stock options.................... 248,000 6,000 --
Proceeds from exercise of warrant................................. 95,000 -- --
Repurchase of common stock........................................ (19,000) -- --
Proceeds from issuance of mandatory redeemable convertible
preferred stock................................................. -- 37,897,000 2,063,000
Subscription receivable........................................... 25,000,000 (25,000,000) --
Proceeds from related-party note payable (receivable)............. (100,000) 645,000 --
Proceeds from note payable........................................ -- -- 1,100,000
Repayment on note payable......................................... -- (1,100,000) --
-------------- ------------- -------------
Net cash provided by financing activities................... 108,741,000 12,305,000 2,924,000
-------------- ------------- -------------
Increase in cash and cash equivalents....................... 47,229,000 3,752,000 32,000
Cash and cash equivalents, beginning of year........................ 3,785,000 33,000 1,000
-------------- ------------- -------------
Cash and cash equivalents, end of year.............................. $ 51,014,000 $ 3,785,000 $ 33,000
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
F-6
<PAGE>
GEOCITIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Supplemental disclosure of cash-flow information:
Cash paid during the period for:
Interest........................................................ $ 163,000 $ 89,000 $ 71,000
Income taxes.................................................... 1,000 1,000 1,000
Schedule of non-cash investing and financing activities:
Equipment under capital leases.................................... 3,580,000 94,000 844,000
Conversion of Series C convertible preferred stock to mandatory
redeemable convertible preferred stock.......................... -- 386,000 --
Conversion of series A, B, C, D, E and F mandatory redeemable
convertible preferred stock to common stock..................... 39,741,000 -- --
Issuance of common stock in connection with purchased
technology...................................................... 729,000 -- --
Issuance of common stock in connection with acquisition........... 21,895,000 -- --
Assets and liabilities recognized in connection with acquisition:
Accounts receivable............................................... 48,000 -- --
Other current assets.............................................. 7,000 -- --
Property and equipment............................................ 106,000 -- --
Goodwill and other intangibles.................................... 23,992,000 -- --
Purchased technology.............................................. 1,189,000 -- --
Accounts payable.................................................. 192,000 -- --
Accrued expenses.................................................. 368,000 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
GeoCities (the "Company") was incorporated as a California corporation on
December 16, 1994, and began operations in 1995. In June 1998, the Board of
Directors approved the reincorporation of the Company in the State of Delaware
and changed the par value of the Company's common stock. The Company offers a
community of personal web sites on the Internet within 41 themed neighborhoods.
The Company's main source of revenue is from advertising, along with other
revenue streams, including fee-based premium services, licensing fees and
commerce. The Company conducts its business within one industry segment. The
Company's business is characterized by rapid technological change, new product
development and evolving industry standards.
The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany accounts and transactions have
been eliminated. Certain items shown in December 31, 1997 and 1996, financial
statements have been reclassified to conform with the current period
presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
RESTATEMENT
In February 1999, the Company restated its financial statements for the
years ended December 31, 1997 and 1996 to reflect the accretion on its mandatory
redeemable convertible preferred stock (see Note 10 of Notes to the Consolidated
Financial Statements). The effect of this restatement was to increase the
previously reported historical basic and diluted net loss per share applicable
to common stockholders from $(3.40) to $(3.72) and $(1.15) to $(1.19) for the
years ended December 31, 1997 and 1996, respectively. The restatement had no
effect on the previously reported net loss in the Company's statements of
operations and cash flows for any period presented and has no impact on the
previously reported pro forma net loss per share for the year ended December 31,
1997. This restatement also had the following effects:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
--------------------- --------------
<S> <C> <C>
Series A, B, C, D, E, and F mandatory redeemable convertible preferred
stock.................................................................... $ 37,200,000 $ 38,137,000
--------------------- --------------
Additional paid-in capital................................................. $ 3,903,000 $ 2,966,000
--------------------- --------------
Total Stockholders' Equity (deficiency).................................... $ (9,109,000) $ (10,046,000)
--------------------- --------------
</TABLE>
This restatement does not affect previously reported cash flows for each
year ended December 31, 1997 or 1996. Upon the closing of the Company's initial
public offering in August 1998, all of the mandatory redeemable preferred stock
converted into common stock and ceased accruing a dividend; no previously
accrued dividend was required to be paid.
USE OF ESTIMATES
In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
At December 31, 1998 and 1997, certificates of deposit totaling
approximately $125,000 and $255,000, respectively, were used to collateralize
certain of the Company's lease obligations, and have been included in deposits
on the balance sheet.
SHORT AND LONG-TERM INVESTMENTS
The Company invests its excess cash in debt instruments of the U.S.
government and its agencies, and in high-quality corporate debt securities.
Those securities with original maturities greater than three months and maturing
within twelve months from the balance sheet date are considered short-term
investments; those maturing greater than twelve months from the balance sheet
date are considered long-term investments. The Company classifies its
investments as held-to-maturity and utilizes specific identification in
computing realized and unrealized gains and losses on investments. At December
31, 1998, 87% of the Company's securities will mature in one year or less and
13% will mature between one and two years. At December 31, 1998, the carrying
value of the Company's investments approximated fair value.
At December 31, 1998, the fair value of the Company's short and long-term
investments in held-to-maturity securities are as follows:
<TABLE>
<CAPTION>
GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUES
------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Corporate debt securities.............. $ 20,774,000 -- $ (41,000) $ 20,733,000
U.S. Government and agencies........... 18,117,000 -- (5,000) 18,112,000
--
------------- ----------- -------------
$ 38,891,000 -- $ (46,000) $ 38,845,000
--
--
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
The Company's investments in held-to-maturity securities are categorized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
TYPE OF SECURITY 1998
- ------------------------------------------------------------------------------- -------------
<S> <C>
Corporate debt securities with maturities less than one year................... $ 18,688,000
U.S. government and its agencies debt securities with maturities less than one
year......................................................................... 15,109,000
-------------
Total short-term investments................................................. 33,797,000
-------------
Corporate debt securities with maturities between one and two years............ 2,086,000
U.S. government and its agencies debt securities with maturities between one
and two years................................................................ 3,008,000
-------------
Total long-term investments.................................................. 5,094,000
-------------
Total short and long-term investments...................................... $ 38,891,000
-------------
-------------
</TABLE>
F-9
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method based upon
the estimated useful lives of the assets, ranging from three to five years.
Leasehold improvements and equipment under capital leases are amortized over the
shorter of the estimated useful life or the life of the lease. Useful lives are
evaluated regularly by management in order to determine recoverability in light
of current technological conditions. Maintenance and repairs are charged to
expense as incurred while renewals and improvements are capitalized. Upon the
sale or retirement of property and equipment, the accounts are relieved of the
cost and the related accumulated depreciation or amortization, with any
resulting gain or loss included in the Consolidated Statement of Operations.
LONG-LIVED ASSETS
The Company identifies and records impairment losses on long-lived assets
when events and circumstances indicate that such assets might be impaired. The
Company periodically evaluates the recoverability of its long-lived assets based
on expected undiscounted cash flows and recognizes impairments, if any, based on
expected discounted cash flows.
INTANGIBLE ASSETS
Intangible assets consisting of an assembled work-force and goodwill are
amortized over an estimated useful life of three years using the straight-line
method.
COMPUTATION OF NET LOSS PER SHARE
The Company calculates net loss per share in accordance with SFAS No. 128,
"Earnings Per Share." In accordance with SFAS No. 128, basic earnings per share
is computed using the weighted average number of common shares outstanding
during the period. Diluted earnings per share is computed using the weighted
average number of common and common equivalent shares outstanding during the
period. Common equivalent shares consist of the incremental common shares
issuable upon the conversion of the mandatory redeemable convertible preferred
stock (using the if-converted method) and shares issuable upon the exercise of
stock options and warrants (using the treasury stock method); common equivalent
shares are excluded from the calculation if their effect is anti-dilutive.
Pursuant to SEC Staff Accounting Bulletin No. 98, common stock and convertible
preferred stock issued for nominal consideration, prior to the effective date of
the IPO, are required to be included in the calculation of basic and diluted net
loss per share, as if they were outstanding for all periods presented. To date,
the Company has not had any issuances or grants for nominal consideration.
Diluted net loss per share for the years ended December 31, 1998, 1997, and
1996, does not include the effect of options to purchase 8,522,000, 4,605,000,
and 1,113,000 shares of common stock, respectively, and 0, 20,304 and 0 common
stock warrants, respectively.
Net loss per share for the years ended December 31, 1997 and 1996, does not
include 22,230,000 and 6,008,000 shares of mandatory redeemable convertible
preferred stock on an "if converted" basis, respectively.
F-10
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------------------
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Net loss............................................................ $ (19,759,000) $ (8,903,000) $ (3,006,000)
Accretion of mandatory redeemable convertible preferred stock....... (1,604,000) (832,000) (105,000)
-------------- ------------- -------------
Net loss applicable to common stockholders.......................... $ (21,363,000) $ (9,735,000) $ (3,111,000)
-------------- ------------- -------------
-------------- ------------- -------------
Weighted average shares........................................... 15,001,000 2,620,000 2,617,000
Basic and diluted net loss per share applicable to common
stockholders.................................................... $ (1.42) $ (3.72) $ (1.19)
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation." Under
APB No. 25, compensation cost, if any, is recognized over the respective vesting
period based on the difference, on the date of grant, between the fair value of
the Company's common stock and the grant price.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and the tax bases of assets and
liabilities using enacted tax rates in effect for the period in which the
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
REVENUE RECOGNITION
The Company's revenues are derived principally from the sale of banner
advertisements under short-term contracts; advertising rates are dependent on
whether the impressions are for general rotation throughout the Company's web
site or premier targeted audiences and properties within specific areas of the
Company's web site. To date, the duration of the Company's advertising
commitments has generally averaged from two to three months. In December 1997,
the Company also began selling a combination of sponsorship and banner
advertising campaign contracts to select premier commerce partners. In general,
these premier commerce partner contracts have longer terms than standard banner
advertising contracts (generally up to one year) and involve some integration
with the Company's web site. Advertising revenues on both banner and premier
commerce partner contracts are recognized ratably in the period in which the
advertisement is displayed, provided that no significant Company obligations
remain and collection of the resulting receivable is probable. Company
obligations typically include the guarantee of a minimum number of "impressions"
or times that an advertisement appears in pages viewed by the users of the
Company's online properties. To the extent that minimum
F-11
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
guaranteed impressions are not met, the Company defers recognition of the
corresponding revenue until the remaining impressions are delivered.
In addition to advertising revenues, the Company derives revenues from its
GeoPlus program, a premium service for its members (introduced in late 1996) and
GeoShops, a commerce service for its members (introduced in March 1998). These
services require the payment of monthly fees by the customers; revenues are
recognized on a monthly basis as the fees become due. In the fourth quarter of
1998, the Company also began to generate revenues from licensing fees for e-mail
services provided to its Homesteaders. These revenues are deferred and
recognized ratably over the service period. The Company also has revenue sharing
agreements with its premier commerce partners. These revenues are recognized by
the Company upon notification by the premier commerce partners of revenues
earned by the Company, and to date, have not been significant. To date, these
sources of revenues have not been significant.
Revenues from barter transactions are recognized during the period in which
the advertisements are displayed. Barter transactions are recorded at the fair
value of the goods or services provided or received, whichever is more readily
determinable in the circumstances. To date, barter transactions have not been
significant.
PRODUCT DEVELOPMENT
Product development costs are expensed as incurred. Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed," requires capitalization of certain
software development costs subsequent to the establishment of technological
feasibility. Based upon the Company's product development process, technological
feasibility is established upon completion of a working model. Costs incurred by
the Company between completion of the working model and the point at which the
product is ready for general release have been insignificant
ADVERTISING COSTS
Advertising production costs are recorded as expense the first time an
advertisement appears. The Company does not incur any direct-response
advertising costs. All other advertising costs are expensed as incurred.
Advertising expense totaled approximately $2,578,000, $1,742,000 and $196,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income generally represents all changes in
stockholders' equity during the period except those resulting from investments
by, or distributions to, stockholders. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997 and requires restatement of earlier
periods presented. Management determined that SFAS No. 130 had no significant
impact on the Company's financial statements through December 31, 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that a public enterprise reports
F-12
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
information about operating segments in its annual financial statements, and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997 and requires
restatement of earlier periods presented. Management determined that SFAS No.
131 had no impact on the Company's consolidated financial statements through
December 31, 1998.
STOCK SPLIT
In July 1998, the Company authorized and implemented a two-for-one stock
split. The share information in the accompanying financial statements has been
retroactively restated to reflect the effect of this stock split.
3. CONCENTRATION OF CREDIT RISK:
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents, short-term and long-term
investments and trade accounts receivable. The Company maintains cash and cash
equivalents with various domestic financial institutions. The Company performs
periodic evaluations of the relative credit standing of these institutions. From
time to time, the Company's cash balances with any one financial institution may
exceed Federal Deposit Insurance Corporation insurance limits.
The Company's customers are concentrated in the United States. The Company
performs ongoing credit evaluations, generally does not require collateral and
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of customers, historical trends and other information; to date,
such losses have been within management's expectations.
For the year ended December 31, 1998, no one customer accounted for 10% of
all revenues generated by the Company and no one customer accounted for 10% of
accounts receivable at December 31, 1998.
For the year ended December 31, 1997, one customer accounted for 12% of all
revenues generated by the Company, and 12% of accounts receivable at December
31, 1997.
For the year ended December 31, 1996, two customers accounted for
approximately 14% and 10%, respectively, of all revenues generated by the
Company.
F-13
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Computer equipment, including assets under capital leases of
$4,085,000 and $766,000 for 1998 and 1997, respectively....... $ 8,460,000 $1,399,000
Furniture and fixtures, including assets under capital leases of
$401,000 and $172,000 for 1998 and 1997, respectively......... 1,289,000 292,000
Leasehold improvements.......................................... 1,630,000 151,000
------------- ------------
11,379,000 1,842,000
Less, accumulated depreciation and amortization, including
amounts related to assets under capital leases of $1,073,000
and $459,000 for 1998 and 1997, respectively.................. (2,673,000) (626,000)
------------- ------------
Total....................................................... $ 8,706,000 $1,216,000
------------- ------------
------------- ------------
</TABLE>
5. ACQUISITIONS:
ACQUISITION OF STARSEED, INC.
In December 1998, GeoCities completed the acquisition of Starseed, Inc.
("Starseed"), for a total consideration of $24,782,000, including $2,000,000 in
cash, $16,200,000 million in common stock valued at $29.63 per share, $6,000,000
related to assumed outstanding options to purchase common stock, and forgiveness
of $600,000 in debt. In exchange for the consideration given, GeoCities acquired
all of the outstanding shares of Starseed common stock and assumed all
outstanding options to purchase Starseed common stock. Starseed was merged with
and into a subsidiary of GeoCities ("WebRing"), which was the surviving
corporation in the merger and will remain a wholly-owned subsidiary of
GeoCities.
Under the terms of the merger agreement and related escrow agreement, an
aggregate of 128,881 shares of common stock of the Company will be held in
escrow for the purpose of indemnifying the Company against certain liabilities
of Starseed and its stockholders. The escrow will expire in June 2000.
The acquisition was accounted for as a purchase with the excess purchase
price over the fair value of net assets acquired being recorded as goodwill and
other intangibles. The purchase price was allocated to the assets acquired and
the liabilities assumed based on their estimated fair values as follows:
<TABLE>
<S> <C>
Purchased technology.............................. $ 1,189,000
Goodwill and other intangible assets.............. 23,992,000
Other assets...................................... 161,000
Liabilities assumed............................... (560,000)
------------
Total purchase price.............................. $ 24,782,000
------------
------------
</TABLE>
F-14
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACQUISITIONS: (CONTINUED)
The results of operations for WebRing are included in the Company's
consolidated financial statements for the period subsequent to the date of
acquisition. The purchased technology is being amortized on a straight-line
basis over one year. The goodwill and other intangibles are being amortized on a
straight-line basis over three years. At December 31, 1998, accumulated
amortization of purchased technology and goodwill and other intangible assets is
$99,000 and $600,000, respectively.
The following unaudited pro forma consolidated results of operations give
effect to the acquisition of Starseed as if it occurred as of the beginning of
the period (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Net revenues.......................................................... $ 18,515 $ 4,589
Net loss.............................................................. $ (30,267) $ (18,582)
Net loss per share applicable to common stockholders--basic and
diluted............................................................. $ (1.95) $ (5.87)
Shares used in per share calculation--basic and diluted............... 15,502 3,166
</TABLE>
GeoCities filed a Form 8-K with the Securities and Exchange Commission
summarizing the terms of the acquisition.
PURCHASED TECHNOLOGY FROM COMPU-TRAK, INC.
In August 1998, the Company completed the purchase of certain Web-page
development technology for a total consideration of $1,580,000, including
$850,000 in cash and $729,000 in unregistered shares of common stock valued at
$20.65 per share. GeoBuilder, the Web-page development technology, was launched
to market in October 1998. During the year ended December 31, 1998, $300,000 was
recorded as purchased in-process research and development. The purchased
technology is classified as property and equipment and is being amortized over
one year.
6. RELATED-PARTY TRANSACTIONS:
In November 1997, the Company and SOFTBANK Corporation of Japan
("SOFTBANK"), the parent company of an investor in the Company, formed a joint
venture called GeoCities Japan Corporation ("GeoCities Japan") to create and
manage a Japanese version of GeoCities. In accordance with the joint venture
agreement ("Agreement"), the Company purchased 40% of GeoCities Japan for
approximately $645,000 and licensed certain intellectual properties for the
purpose of localizing the Japanese version of GeoCities to GeoCities Japan. The
Agreement remains in effect perpetually, provided that, if as of April 1, 2001,
or any April 1 thereafter; (i) GeoCities Japan has sustained net losses for the
four consecutive fiscal quarters, and (ii) GeoCities and SOFTBANK differ with
respect to the future business plan of GeoCities Japan, then each party shall
have the right to terminate the Joint Venture with 90-days notice.
The Company's investment of approximately $645,000 was funded through a loan
from SOFTBANK. Pursuant to the terms of the loan agreement, the loan bears
interest at 5.5% per annum and is repayable upon occurrence of a Significant
Financing Event, which is defined as a non-U.S. IPO or private placement that
raises at least 1.5 billion yen for GeoCities Japan. In the event that GeoCities
Japan does not have a Significant Financing Event on or prior to March 31, 2000,
SOFTBANK will
F-15
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. RELATED-PARTY TRANSACTIONS: (CONTINUED)
forgive the repayment of the loan. Interest expense and accrued interest for the
years ended December 31, 1998 and 1997, were each $35,000 and $6,000,
respectively.
In consideration of the licenses granted, GeoCities Japan is required to pay
the Company an amount equal to 3% of total revenue obtained by GeoCities Japan
within 30 days of the end of each quarter. The license expires 20 years from the
date of the Agreement, unless the Agreement is terminated earlier. Upon
termination, GeoCities Japan will cease to use and distribute all licensed
properties. Royalty payments for the years ended December 31, 1998 and 1997,
were approximately $9,000 and $0, respectively.
The investment is being accounted for under the equity method and is
included in other assets at December 31, 1998. The loss on affiliate recorded
for the years ended December 31, 1998 and 1997, was approximately $138,000 and
$0, respectively.
Advertising revenues at December 31, 1998 and 1997, include $124,000 and
$107,000, respectively, in revenues received from an entity that is controlled
by a significant stockholder of the Company. At December 31, 1998 and 1997,
$9,000 and $0, respectively, of these amounts are included in accounts
receivable.
Advertising revenues at December 31, 1998 and 1997, include $89,000 and $0,
respectively, in revenues received from an entity that is a subsidiary of
Yahoo!, Inc. ("Yahoo!"), (see Note 14). At December 31, 1998 and 1997, $16,000
and $0, respectively, of these amount were included in accounts receivable.
In July 1998, the Company loaned $100,000 to an officer/director of the
Company. This loan bears an annual interest rate of 5.56%, and is due in April
1999. At December 31, 1998, the loan was included in prepaids and other current
assets.
In December 1997, in conjunction with its financing activities, the Company
entered into a one-year distribution and commerce agreement ("Agreement") with
Yahoo!, which is automatically renewable for subsequent one-year terms, subject
to the right of either party to terminate the relationship at the end of any
term with up to 90-days' notice. In connection with the Agreement, Yahoo! also
made a minority equity investment in the Company. The Agreement was designed to
increase traffic and memberships of both parties in addition to offering
GeoCities' Homesteaders an array of free personalized member services on Yahoo!.
Under the terms of the Agreement, GeoCities agreed to provide its
community-based, Web site and other services for free to registered users of
Yahoo!. In addition, Yahoo! agreed to market GeoCities-branded personal
publishing programs on select areas throughout Yahoo!, as well as provide a
GeoCities-specific programming module on My Yahoo! for GeoCities' Homesteaders.
The Agreement did not involve any cash consideration; any revenues related to
the Agreement are accounted for in accordance with the Company's barter revenue
recognition policy, as appropriate. To date, such barter revenues have not been
significant.
7. LINE OF CREDIT:
In August 1997, the Company executed a $2,000,000 revolving line of credit
(the "Line") with a commercial bank. Pursuant to the agreement, the Line matured
on December 1, 1998, bears interest at the bank's prime rate of interest, plus
0.50%, and is collateralized by substantially all of the Company's assets. The
Company is required to comply with certain financial covenants, as defined in
the agreement, which include tangible effective net-worth and quick-ratio
covenants. In connection with the
F-16
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LINE OF CREDIT: (CONTINUED)
Line, the Company issued a warrant to the bank to purchase up to 20,304 shares
of the Company's common stock at the exercise price of $4.925, which was higher
than the then estimated fair market value of a share of the Company's common
stock, which was exercised in August 1998.
In May 1998, the Company negotiated an increase of the Line to $10,000,000,
including a $7,000,000 revolving facility for working capital and $3,000,000
lease facility, extended the maturity to December 31, 1999, and reduced the
interest rate to prime for the revolving facility (7.75% at December 31, 1998)
and prime plus 0.75% (8.5% at December 31, 1998) for the lease facility; all
other terms substantially remained the same. In addition, the commitment letter
also includes a non-revolving line of credit for $3,000,000, which bears
interest at the bank's prime rate plus 0.75% per year, and matures on May 12,
1999, if not renewed. At December 31, 1998 and 1997, there were no borrowings
under either agreement.
8. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases its facilities and certain computer and office equipment
under noncancelable leases for varying periods through 2009. The Company's lease
obligations are collateralized by $1,688,000 in standby letters of credit and
certain assets of the Company at December 31, 1998. The following are the
minimum lease obligations under these leases at December 31, 1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------ -------------
<S> <C> <C>
1999........................................................... $ 1,946,000 $ 2,553,000
2000........................................................... 1,097,000 1,933,000
2001........................................................... 769,000 1,444,000
2002........................................................... -- 1,241,000
2003........................................................... -- 1,131,000
Thereafter..................................................... -- 4,443,000
------------ -------------
Minimum lease payments........................................... 3,812,000 $ 12,745,000
-------------
-------------
Less: Amount representing interest............................... (464,000)
------------
Present value of minimum lease payments.......................... 3,348,000
Less: Current portion............................................ 1,707,000
------------
Long-term portion................................................ $ 1,641,000
------------
------------
</TABLE>
Rent expense pertaining to operating leases for the years ended December 31,
1998, 1997 and 1996, was approximately $2,478,000, $1,100,000, and $229,000,
respectively.
EMPLOYMENT AGREEMENTS
The Company maintains employment agreements with certain of its executive
officers. The employment agreements provide for minimum salary levels, incentive
compensation and severance benefits, among other items.
F-17
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
GEOREWARDS PROGRAM
During 1996, the Company created a marketing program to reward members of
the Company's online community ("Homesteaders") for various activities, allowing
them to earn GeoPoints. Homesteaders may redeem GeoPoints to upgrade their web
site or purchase goods from the Company's GeoStore. At December 31, 1998 and
1997, the Company had accrued $709,000 and $463,000 for probable future
redemption of GeoPoints; these amounts are included in accrued expenses.
CONTINGENCIES
The Company and the Federal Trade Commission ("FTC") staff attorneys
executed a Consent Order in February 1999 in connection with certain past
business practices of the Company related to disclosure of personal identifying
information to third parties. Based on the scope of the Consent Order, the
Company does not believe that its compliance with the Consent Order will have a
material adverse effect on the Company's business, results of operation,
financial condition, or cash flows.
On August 14, 1998, a lawsuit was filed against GeoCities in Los Angeles
County Superior Court involving GeoCities' collection and use of personal
identifying information (Hyatt v. GeoCities). The complaint in this case follows
the FTC draft complaint without alleging any new facts. This case involves a
single cause of action for the alleged violation of California Business and
Professions Code Section 17200 and seeks an injunction, disgorgement and any
profits obtained as a result of the alleged improper activity, and attorneys'
fees. GeoCities filed an answer to this lawsuit on September 17, 1998.
On September 30, 1998, an additional case was filed against the Company in
Los Angeles County Superior Court related to the same activity (Wormley v.
GeoCities et al.). The complaint in this case also followed the FTC draft
complaint and alleged no new facts. This suit purported to be a class action and
alleged causes of action for the violation of Section 17200 and California
Business and Professions Code Section 17500 ("Section 17500"), fraud, unjust
enrichment, negligent misrepresentation and invasion of privacy. This suit
sought disgorgement of any profits obtained as a result of the alleged improper
activity, unspecified damages, and attorneys' fees. On November 16, 1998, the
Company filed a demurrer to and motion to strike portions of the Wormley
complaint. On December 11, 1998, in response to the Company's demurrer and
motion to strike, the plaintiff filed an amended complaint. The amended
complaint, like the original complaint, purports to be a class action and
alleges causes of action for the violation of Sections 17200 and 17500, the
Consumers Legal Remedies Act ("CLRA"), fraud, unjust enrichment, negligent
misrepresentation, and invasion of privacy. This suit seeks disgorgement of any
profits obtained as a result of the alleged improper activity, unspecified
damages, and attorneys' fees. On January 15, 1999, the Company filed a demurrer
to and motion to strike portions of the amended complaint. On January 29, 1999,
the court determined that the Hyatt matter (discussed above) is related to the
Wormley matter, and ordered the Hyatt matter transferred to the department where
the Wormley matter is pending. On February 11, 1999, a hearing was held on the
Company's demurrer to and motion to strike portions of the amended Wormley
complaint. At that hearing, the court dismissed the Section 17500, CLRA, and
invasion of privacy causes of action. The court also set a joint case management
conference and a class certification hearing for later in 1999. GeoCities
intends to contest class certification as inappropriate in light of the claims
alleged in the Wormley matter.
F-18
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Based on the Company's analysis of these lawsuits and given that they
involve the same set of circumstances that are covered in the FTC matter, the
Company believes that the allegations contained in the two complaints are
without merit and intends to defend these actions vigorously.
From time to time, the Company has been party to various other litigation
and administrative proceedings relating to claims arising from its operations in
the normal course of business. Management believes that the resolution of these
other matters will not have a material adverse effect on the Company's business,
results of operations, financial condition or cash flows.
9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
At December 31, 1998 and 1997, the Company had accrued expenses and other
current liabilities consisting of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Vacation, wages and other employee benefits............. $ 2,140,000 $ 419,000
Advertising and marketing expenses...................... 1,751,000 563,000
Professional service expenses........................... 720,000 --
Ad-serving expenses..................................... 546,000 --
Employee stock purchase plan payable.................... 323,000 --
Internet connectivity expenses.......................... 239,000 296,000
Offering expenses....................................... -- 808,000
Other accrued and current liabilities................... 1,026,000 203,000
------------ ------------
Total accrued expenses and other current liabilities.... $ 6,745,000 $ 2,289,000
------------ ------------
------------ ------------
</TABLE>
10. CAPITALIZATION:
In August 1998, the Company completed an initial public offering in which it
sold 5,463,000 shares of common stock, including 712,500 shares in connection
with the exercise of the underwriters' over-allotment option, at $17.00 per
share. The Company's authorized capital consists of 60,000,000 shares of common
stock of which approximately 32,019,000 shares were outstanding at December 31,
1998.
The Board of Directors is authorized, without further stockholder approval,
to issue from time to time up to an aggregate of 5,000,000 shares of Preferred
Stock in one or more series and to fix or alter the designations, preferences,
rights and any qualifications, limitations or restrictions of the shares of each
such series thereof, including the dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. At December 31, 1998, no
such shares were issued.
The Company had six series of mandatory redeemable convertible preferred
stock (collectively "Preferred Stock") authorized and outstanding. The holders
of the various series of Preferred Stock generally had the same rights and
privileges; significant differences are discussed below.
F-19
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITALIZATION: (CONTINUED)
The holders of the Preferred Stock were entitled to a discretionary
noncumulative dividend as specified below which is mandatory in the event of a
liquidation (not included in the liquidation preference below), and were
entitled to the number of votes equal to the number of shares of common stock
that could be converted on the date of the vote. Upon liquidation, the holders
of the Preferred Stock would have received, prior and in preference to the
holders of common stock, their liquidation preference plus accrued dividends at
the stated rate, from the date of issuance to the date payment was made
available. Redemption, at the option of the holders of Preferred Stock, could be
elected beginning on January 1, 2001 at which time, the redemption preference
equal to the original issue price plus seven percent per annum, on a compounded
cumulative basis would be due. At the option of the holders of Preferred Stock,
each share of Preferred Stock was convertible at the stated conversion price per
share, subject to adjustment as defined in the Certificate of Incorporation.
Upon the closing of the Company's initial public offering in 1998, all of the
Company's mandatory redeemable convertible preferred stock (and accrued
dividends) converted to common stock on a one-for-one basis.
During the year ended December 31, 1996, the Company issued 3,108,000 and
2,900,000 shares of Series A Stock and Series B Stock for $1,000,000 and
$1,100,000, respectively. During January and February 1997, the Company issued
10,169,492 shares of Series D Stock for approximately $9,000,000. In October and
December 1997, the Company issued 1,428,564 and 814,270 shares of Series E Stock
at $3.50 and $7.4254 per share, respectively, for total cash consideration of
$9,750,000 and 20,242 shares of Yahoo! stock valued at approximately $1,300,000,
which resulted in the recording of a subscription receivable for approximately
$6,000,000 at December 31, 1997. The subscription receivable was collected in
January 1998, and the Yahoo! stock was sold in January 1998.
In December 1997, the Company sold 2,552,576 shares of Series F Stock for
approximately $19,000,000 which resulted in the recording of a subscription
receivable at December 31, 1997. The subscription receivable was collected in
January 1998.
In August 1998, approximately 16,000 shares of common stock were issued by
the Company to its Community Leaders and Liaisons valued at $17.00 per share
under the 1998 Stock Incentive Plan. The Company recorded expense of $258,000.
WARRANTS
In connection with the Series D Preferred Stock issuance, the Company issued
a warrant to a bank to purchase 64,972 of the Company's Series D Preferred Stock
at $0.885 per share, exercisable at any time prior to January 12, 2002. On
December 31, 1997, the bank converted this warrant (on a net basis), and the
Company issued 57,226 shares of Series D Preferred Stock. The Bank immediately
sold these shares in connection with the Series E and F Preferred Stock
issuances. Also see Notes 7 and 12 of Notes to Financial Statements for a
warrant issued in connection with a line of credit, and options issued to a
Series D Preferred stockholder and others pursuant to stock option agreements.
F-20
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES:
The primary components of temporary differences which gave rise to deferred
taxes at December 31 are:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................................................... $ 11,582,000 $ 4,639,000
Bad debt expense................................................................... 298,000 40,000
Accrued expenses................................................................... 614,000 321,000
Other.............................................................................. 1,000 1,000
------------- ------------
Total deferred tax assets........................................................ 12,495,000 5,001,000
Valuation allowance................................................................ (12,452,000) (4,958,000)
------------- ------------
Net deferred tax assets.......................................................... 43,000 43,000
------------- ------------
Deferred tax liabilities:
Depreciation and amortization...................................................... (43,000) (43,000)
------------- ------------
Total deferred tax liabilities................................................... (43,000) (43,000)
------------- ------------
Net.............................................................................. $ -- $ --
------------- ------------
------------- ------------
</TABLE>
As a result of the Company's loss history, management believes a valuation
allowance for the entire net deferred tax assets, after considering deferred tax
liabilities, is required. The change in the valuation allowance was an increase
of $7,494,000 in 1998. As of December 31, 1998, the Company had federal and
state net operating loss carryforwards of approximately $28,245,000 and
$27,644,000, respectively. Federal and state net operating loss expirations
begin in 2010 and 2002, respectively. Due to changes in ownership (see Note 10),
the Company will be limited in the annual utilization of its net operating loss
carryforwards.
12. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN:
In 1998, the Company adopted the 1998 Stock Option Plan (the "Plan"). The
Plan supercedes the 1997 Stock Option Plan (the "Predecessor Plan") and provides
for issuance of both non-statutory and incentive stock options to employees,
officers, directors and consultants of the Company. At December 31, 1998, the
Company had authorized 10,688,000 shares of common stock for issuance. Incentive
stock options may be granted at no less than 100% of the fair market value of
the Company's common stock on the date of grant as determined by the Board of
Directors (110% if granted to an employee who owns 10% or more of the common
stock). Options granted to date generally vest ratably over a four-year period
from the date of grant and are generally exercisable for a period of no longer
than seven years from the date of grant (five years if granted to an individual
who owns 10% or more of the common stock). Options granted under the Plan, other
than certain performance options granted in connection with the acquisition of
Starseed representing an aggregate of 300,000 shares of the Company's common
stock (see Note 5), contain certain provisions that provide for full
acceleration if the holder of the option is involuntarily terminated within 18
months following a change in control.
In connection with its Series D stock offering in early 1997, the Company
granted options to purchase 1,000,000 shares of its common stock at an exercise
price of $0.885 per share to CMG@Ventures; these options vested immediately and
are exercisable by January 13, 2004. The
F-21
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN: (CONTINUED)
exercise price was in excess of the then estimated fair market value of a common
share. The Company has no obligation to repurchase the option from CMG@Ventures.
At that time, the Company also granted an option to purchase 1,000,000 shares of
its common stock at an exercise price of $0.885 per share to certain officers,
directors and consultants to the Company. These options generally vest over a
four-year period from the date of grant and are generally exercisable by January
13, 2004. In certain circumstances, the vesting of these options may accelerate,
and there are certain participation rights in the event of a liquidation.
A summary of the status of the Company's stock options, as of December 31,
1998, 1997 and 1996, and the changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ----------- ---------- ----------- ---------- -----------
Outstanding at beginning of year................. 4,605,000 $ 0.66 1,113,000 $ 0.16 777,000 $ 0.01
Granted--price equals fair value............... 2,305,000 $ 24.07 2,648,000 $ 0.74 364,000 $ 0.25
Granted--less than fair value.................. 3,154,000 $ 3.47 1,307,000 $ 0.81 -- --
Exercised...................................... (1,079,000) $ 0.23 (25,000) $ 0.25 -- --
Canceled....................................... (678,000) $ 4.26 (438,000) $ 0.35 (28,000) $ 0.25
----------- ---------- ----------
Outstanding at year-end.......................... 8,307,000 $ 7.97 4,605,000 $ 0.66 1,113,000 $ 0.16
----------- ---------- ----------
----------- ---------- ----------
Options exercisable at year-end.................. 1,562,000 $ 0.84 $ 0.52
Options available for future grant............... 1,277,000
</TABLE>
At December 31, 1998 and 1997, the Company had reserved a total of 9,584,000
and 5,530,000 shares of common stock for issuance to its stock option holders.
In connection with its grants of options, the Company has recorded unearned
compensation of approximately $7,321,000, $684,000 and $0 for the years ended
December 31, 1998, 1997 and 1996, respectively. These amounts will be amortized
over the vesting periods, ranging from 48 to 72 months, from the date of grant;
$1,136,000 and $24,000 was expensed during the years ended December 31, 1998 and
1997, respectively.
F-22
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN: (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
- --------------------- ----------- --------------- ----------- ----------- -----------
$0.01 75,000 3.99 $ 0.01 75,000 $ 0.01
$0.25--$0.44 404,000 5.18 $ 0.32 73,000 $ 0.32
$0.75--$1.38 2,845,000 5.35 $ 0.88 1,386,000 $ 0.89
$1.82--$3.00 2,307,000 6.91 $ 2.30 28,000 $ 1.82
$3.90 122,000 6.25 $ 3.90 -- --
$9.00--$17.00 1,046,000 6.54 $ 12.03 -- --
$18.25--$35.44 1,303,000 6.91 $ 28.46 -- --
$37.00--$43.31 205,000 6.95 $ 39.76 -- --
----------- -----------
8,307,000 1,562,000
----------- -----------
----------- -----------
</TABLE>
1998 STARSEED STOCK OPTION PLAN
In connection with the acquisition of Starseed, the Company assumed the 1998
Starseed Stock Option Plan under which nonqualified stock options to purchase
common stock may be granted to directors, officers, key employees and advisors.
A portion of these options are fully vested and are exercisable over a 10-year
period from the date of grant. The remaining options granted vest over a
four-year period and are exercisable over a 10-year period from the date of
grant.
<TABLE>
<CAPTION>
1998
----------------------
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
--------- -----------
<S> <C> <C>
Outstanding at December 4, 1998............. 215,000 $ 6.39
Granted................................... -- --
Exercised................................. -- --
Canceled.................................. -- --
--------- -----
Outstanding at year-end..................... 215,000 $ 6.39
--------- -----
--------- -----
Options exercisable at year-end............. 118,000 $ 2.48
Options available for future grant.......... -- --
</TABLE>
F-23
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN: (CONTINUED)
The following table summarizes information about stock options outstanding under
the 1998 Starseed Stock Option plan at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ------------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
- ------------------------------ ----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$2.24 115,000 9.43 $ 2.24 115,000 $ 2.24
$11.19 100,000 9.42 $ 11.19 3,000 $ 11.19
----------- -----------
215,000 118,000
----------- -----------
----------- -----------
</TABLE>
The fair value of options granted during 1998, 1997 and 1996, is estimated
as $38,635,000, $993,000, and $12,000, respectively, on the dates of grants
using the Black-Scholes option pricing model for grants in the year ended 1998
and the minimum value method for grants in the years ended 1997 and 1996 with
the following assumptions: (i) dividend yield of 0%, (ii) expected volatility of
61.4% for 1998 and 0% for 1997 and 1996, respectively, (iii) weighted-average
risk-free interest rate ranging from 4.1% to 5.7% for 1998, 5.8% to 6.5% for
1997 and 6.04% to 6.8% for 1996 (iv) weighted-average expected life of five
years for 1998, 1997 and 1996, and (v) assumed forfeiture rate of 0% for 1998,
and 10% for 1997 and 1996.
The Company applies APB No. 25 in accounting for its stock based
compensation plans and accordingly, no compensation expense has been recognized
in the financial statements (except for those options issued with exercise
prices at less than fair market value at date of grant). Had the Company
determined compensation costs for its options and purchase plans based upon the
methodology prescribed under SFAS No. 123, the Company's net loss would have
been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss applicable to common stockholders.......... As reported $ (21,363,000) $ (9,735,000) $ (3,111,000)
-------------- ------------- -------------
-------------- ------------- -------------
Pro forma $ (25,422,000) $ (9,782,000) $ (3,111,000)
-------------- ------------- -------------
-------------- ------------- -------------
Basic net loss per share applicable to common
stockholders...................................... As reported $ (1.42) $ (3.72) $ (1.19)
-------------- ------------- -------------
-------------- ------------- -------------
Pro forma $ (1.69) $ (3.73) $ (1.19)
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
The effects of applying SFAS No. 123 in the pro forma disclosure above are
not indicative of future amounts. Additional awards in future years are
anticipated.
On July 6, 1998, the Company's Board of Directors adopted the Employee Stock
Purchase Plan (the "ESPP"), which provides for the issuance of a maximum of
300,000 shares of common stock. Eligible employees can have up to 10% of their
earnings withheld, up to certain maximums, to be used to purchase shares of the
Company's common stock on the last business day of every January and July. The
first issuance of shares of common stock under the ESPP occurred on January 29,
1999. The price
F-24
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN: (CONTINUED)
of the common stock purchased under the ESPP will be equal to 85% of the lower
of the fair market value of the common stock on the commencement date of each
six-month offering period or the specified purchase date. During 1998, the
grant-date fair value of options granted was $5.46. There were no shares issued
under the ESPP during 1998. On January 29, 1999, 25,635 shares were purchased at
$14.45 per share.
13. RETIREMENT PLAN
The Company has a qualified 401(k) Profit Sharing Plan (the "Plan")
available to all employees who meet the Plan's eligibility requirements.
Employees may elect to contribute from 1% to 18% of their eligible earnings to
the Plan. This defined contribution plan provides that the Company will, at its
discretion, make contributions to the Plan on a periodic basis. Additionally,
the employer may match 33 1/3% of the first 6% of the employees' contributions,
which amounts vest over five years. Terminations and forfeitures from the Plan
are allocated to Plan participants at year-end. The Company made contributions
to the Plan of approximately $39,000 and $10,000 in 1998 and 1997, respectively.
14. SUBSEQUENT EVENTS
MERGER WITH YAHOO!
In January 1999, the Company entered into an agreement with Yahoo! whereby
the Company will become a wholly-owned subsidiary of Yahoo!
Under the terms of the agreement, Yahoo! will issue .6768 shares of Yahoo!
common stock in exchange for each share of the Company's common stock. In
addition, all options to purchase the Company's common stock will be converted
into options to purchase Yahoo! common stock at the same conversion rate. The
acquisition is intended to be accounted for as a pooling of interests and is
expected to be completed in May of 1999.
The merger agreement contains provisions under which either Yahoo! or the
Company may terminate the agreement. If Yahoo! terminates the merger agreement
because the Company has taken or failed to take certain actions specified in the
merger agreement, the Company will be required to pay Yahoo! $100 million. In
addition, if either Yahoo! or the Company terminates the merger agreement
because the required shareholder vote for the Company was not obtained, the
Company may be required to pay Yahoo! all of the expenses incurred by Yahoo! in
connection with the merger agreement.
In addition, the Company granted Yahoo! an option to purchase up to
6,370,000 shares of the Company's common stock at a price of $113.66 per share.
This option is exercisable by Yahoo! at anytime, in whole or in part, if certain
events take place or if the merger agreement is terminated. Yahoo!'s right to
exercise this option expires on the earlier of the effective date of the
contemplated merger or nine months after the termination of the merger
agreement.
LEASED OFFICE SPACE
In January 1999, the Company entered into an eighteen-month lease agreement
to rent approximately 20,000 square feet of office space in Marina del Rey
adjacent to the Company's worldwide headquarters. Monthly lease payments of
$32,000 commence January of 1999.
F-25
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Starseed, Inc.:
We have audited the accompanying balance sheets of Starseed, Inc. (the
"Company") as of September 30, 1998 and 1997, and the related statements of
operations, shareholders' deficit, and cash flows for the year ended September
30, 1998 and for the period from October 8, 1996 (date of inception) to
September 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Starseed, Inc. as of
September 30, 1998 and 1997, and the results of its operations and its cash flow
for the year ended September 30, 1998 and for the period from October 8, 1996
(date of inception) to September 30, 1997 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 9 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in note 9. The financial statements do not include any
adjustment that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Portland, Oregon
October 8, 1998, except as to note 9,
which is as of October 23, 1998.
F-26
<PAGE>
STARSEED, INC.
BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................ $ 47,810 $ 3,227
Accounts receivable, net........................ 42,493 1,722
Prepaid expenses................................ 3,721 458
------------ ------------
Total current assets........................ 94,024 5,407
Property and equipment, net....................... 105,604 64,101
Other assets, net................................. 3,420 86,350
------------ ------------
Total assets................................ $ 203,048 $ 155,858
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses........... $ 210,505 $ 174,762
Current portion of notes payable................ 426,000 18,000
Current portion of capital lease obligations.... 15,091 --
Other current liabilities....................... 130,000 --
------------ ------------
Total current liabilities................... 781,596 192,762
Notes payable (including notes to related
parties), net of current portion................ 41,700 45,200
Capital lease obligations, net of current
portion......................................... 29,643 --
------------ ------------
Total liabilities........................... 852,939 237,962
------------ ------------
Commitments and contingencies
Shareholders' deficit:
Common stock, no par value; 10,000,000 shares
authorized; 1,201,175 and 1,100,042 shares
issued and outstanding on September 30, 1998
and 1997, respectively........................ 2,192,059 410,834
Unearned compensation........................... (261,374) --
Accumulated deficit............................. (2,580,576) (492,938)
------------ ------------
Total shareholders' deficit................. (649,891) (82,104)
------------ ------------
Total liabilities and shareholders'
deficit................................... $ 203,048 $ 155,858
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
STARSEED, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND FOR THE
PERIOD FROM OCTOBER 8, 1996 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues, net..................................... $ 155,651 $ 6,669
Cost of revenues.................................. 107,598 28,000
------------ ------------
Gross profit (loss)......................... 48,053 (21,331)
------------ ------------
Operating costs and expenses:
Sales and marketing............................. 452,475 97,259
Product development............................. 1,016,400 139,793
General and administrative...................... 497,763 215,478
------------ ------------
1,966,638 452,530
------------ ------------
Loss from operations........................ 1,918,585 473,861
Other expense:
Interest expense................................ 151,408 --
Other expense................................... 17,645 19,077
------------ ------------
Loss before provision for income taxes...... 2,087,638 492,938
Provision for income taxes........................ -- --
------------ ------------
Net loss.................................... $ 2,087,638 $ 492,938
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
STARSEED, INC.
STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND FOR THE
PERIOD FROM OCTOBER 8, 1996 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------ ACCUMULATED UNEARNED SHAREHOLDERS'
SHARES AMOUNT DEFICIT COMPENSATION DEFICIT
---------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, October 8, 1996
(date of inception)..................... -- $ -- $ -- $ -- $ --
Issuance of common stock in exchange for
fixed assets............................ 1,000,000 49,624 -- -- 49,624
Issuance of common stock.................. 75,042 248,100 -- -- 248,100
Issuance of common stock for acquisition
of purchased technology................. 25,000 100,000 -- -- 100,000
Additional capital contributions.......... -- 13,110 -- -- 13,110
Net loss.................................. -- -- (492,938) -- (492,938)
---------- ------------ ------------- ------------ -------------
Balance, September 30, 1997............... 1,100,042 410,834 (492,938) -- (82,104)
Issuance of common stock.................. 101,133 386,500 -- -- 386,500
Unearned compensation on stock option
grants.................................. -- 348,499 -- (348,499) --
Amortization of unearned compensation..... -- -- -- 87,125 87,125
Compensation and consulting expense on
stock option grants..................... -- 1,046,226 -- -- 1,046,226
Net loss.................................. -- -- (2,087,638) -- (2,087,638)
---------- ------------ ------------- ------------ -------------
Balance, September 30, 1998............... 1,201,175 $ 2,192,059 $ (2,580,576) $ (261,374) $ (649,891)
---------- ------------ ------------- ------------ -------------
---------- ------------ ------------- ------------ -------------
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
STARSEED, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND FOR THE
PERIOD FROM OCTOBER 8, 1996 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1998 1997
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ $ (2,087,638) $ (492,938)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization..................................................... 131,370 51,955
Non-cash compensation and consulting expense on stock option grants............... 1,046,226 --
Amortization of unearned compensation............................................. 87,125 --
Changes in assets and liabilities:................................................
Accounts receivable............................................................. (40,771) (1,722)
Prepaid expenses................................................................ (3,263) (458)
Accounts payable and accrued expenses........................................... 35,743 174,762
Other current liabilities....................................................... 130,000 --
------------- -----------
Net cash used in operating activities......................................... (701,208) (268,401)
------------- -----------
Cash flows from investing activities:
Purchase of equipment............................................................... (36,614) (38,432)
Cash paid for purchased technology.................................................. -- (12,000)
------------- -----------
Net cash used in investing activities......................................... (36,614) (50,432)
------------- -----------
Cash flows from financing activities:
Proceeds from notes payable......................................................... 426,000 63,200
Proceeds from issuance of common stock.............................................. 386,500 248,100
Capital contributions............................................................... -- 13,110
Increase in other assets............................................................ (1,070) (2,350)
Repayment of notes payable.......................................................... (21,500) --
Repayment of capital leases......................................................... (7,525) --
------------- -----------
Net cash provided by financing activities..................................... 782,405 322,060
------------- -----------
Increase in cash.............................................................. 44,583 3,227
Cash at beginning of year............................................................. 3,227 --
------------- -----------
Cash at end of year................................................................... $ 47,810 $ 3,227
------------- -----------
------------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.......................................................................... $ -- $ --
Income taxes...................................................................... -- --
Supplemental disclosures of non-cash transactions:
Issuance of common stock for acquisition of purchased technology.................... $ -- $ 100,000
Issuance of common stock in exchange for fixed assets............................... -- 49,624
Equipment acquired under capital leases............................................. 52,259 --
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
STARSEED, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Starseed, Inc. (Starseed or the Company) was incorporated in Louisiana on
October 8, 1996, and began operations in Ashland, Oregon October 15, 1996. The
Company's focus revolves around innovations in internet communications and
information access.
In June 1997, the Company acquired "WebRing", an internet technology which
offers access to hundreds of thousands of member websites organized by related
interests into easy-to-travel rings.
Inherent in the Company's business are various risks and uncertainties,
including its limited operating history and the limited history of commerce on
the internet. Future revenues from online services are dependent on the
continued growth and acceptance of the internet, use of the internet for
information, publication, distribution and commerce, and acceptance of the
internet as an effective advertising medium.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company's revenues are derived primarily from advertising revenue based
on the number of visits to the Company's WebRing web-sites. Revenue is
recognized monthly as it is earned.
During 1998, the Company derived a portion of their revenues from assembling
computers from parts and selling them to a computer reseller.
Effective January 1, 1998, the Company adopted the Statement of Position
97-2, "Software Revenue Recognition," ("SOP 97-2"). SOP 97-2 generally requires
revenue earned on software arrangements involving multiple elements to be
allocated to each element based on the relative fair values of the elements. The
revenue allocated to software products generally is recognized upon delivery of
the products. The revenue allocated to post-contract customer support generally
is recognized ratably over the term of the support and revenue allocated to
service elements generally is recognized as the services are performed. The
adoption of SOP 97-2 did not have a significant impact on the Company's
financial statements.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method based upon
the estimated useful lives of the assets, ranging from three to five years.
Equipment under capital leases are amortized over the shorter of the estimated
useful life or the life of the lease. Useful lives are evaluated regularly by
management in order to determine recoverability in light of current
technological conditions. Maintenance and repairs are charged to expense as
incurred while renewals and improvements are capitalized. Upon the
F-31
<PAGE>
STARSEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
sale or retirement of property and equipment, the accounts are relieved of the
cost and the related accumulated depreciation or amortization, with any
resulting gain or loss included in the Statement of Operations.
LONG-LIVED ASSETS
The Company identifies and records impairment losses on long-lived assets
when events and circumstances indicate that such assets might be impaired. To
date, no such impairment has been recorded.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences of events that have been included in the financial statements and
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to be recovered or settled. Valuation
allowances are established to reduce deferred tax assets to the amount expected
to be realized.
CAPITALIZED SOFTWARE
Under Statement of Financial Accounting Standards No. 86, software
development costs are to be capitalized beginning when a product's technological
feasibility has been established and ending when a product is made available for
general release to customers. The establishment of technological feasibility of
the Company's products has occurred shortly before general release and,
accordingly, no costs have been capitalized.
OTHER ASSETS
Other assets consisted of the WebRing Technology purchased in July 1997.
This asset is amortized using the straight-line method over an estimated useful
life of one year. For the year ended September 30, 1998 and for the period from
October 8, 1996 (date of inception) to September 30, 1997 amortization for the
WebRing Technology was $84,000 and $28,000. At September 30, 1998 and 1997
accumulated amortization was $112,000 and $28,000, respectively.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the Financial
Accounting Standard Board's Statement of Financial Accounting Standards No. 123
(SFAS 123), Accounting for Stock-Based Compensation. This statement permits a
company to choose either a fair-value based method of accounting for its
stock-based compensation arrangements or to comply with the current Accounting
Principles Board Opinion 25 (APB Opinion 25) intrinsic-value-based method adding
pro forma disclosures of net loss computed as if the fair-value-based method had
been applied in the financial statements. The Company applies SFAS No. 123 by
retaining the APB Opinion 25 method of accounting for stock-based compensation
for employees with annual pro forma disclosures of net loss. Stock-based
compensation for non-employees is accounted for using the fair-value-based
method.
F-32
<PAGE>
STARSEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
The Company expenses the costs of advertising when the costs are incurred.
Advertising expense was approximately $200 and $-0- for the year ended September
30, 1998 and for the period from October 8, 1996 (date of inception) to
September 30, 1997, respectively.
PRODUCT DEVELOPMENT
Expenditures for research and development are expensed as incurred.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130), which establishes
requirements for disclosure of comprehensive income. The objective of SFAS 130
is to report all changes in equity that result from transactions and economic
events other than transactions with owners. Comprehensive income is the total of
net income and all other non-owner changes in equity. SFAS 130 is effective for
fiscal years beginning after December 15, 1997. Reclassification of earlier
financial statements for comparative purposes is required. The Company does not
expect implementation to have a significant impact on its financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." SFAS 131 requires public companies to
report certain information about their operating segments in a complete set of
financial statements to shareholders. It also requires reporting of certain
enterprise-wide information about the Company's products and services, its
activities in different geographic areas and its reliance on major customers.
The basis for determining the Company's operating segments is the manner in
which management operates the business. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. The Company does not expect implementation to
have a significant impact on its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 standardizes the accounting for
derivative instruments by requiring that an entity recognize those items as
assets or liabilities in the financial statements and measure them at fair
value. SFAS 133 is required to be adopted for fiscal years beginning after June
15, 1999. Since the Company does not hold any derivative instruments, SFAS 133
is not expected to impact the Company.
F-33
<PAGE>
STARSEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
Computer equipment, including assets under capital leases of $52,259 and $-0- for
1998 and 1997, respectively....................................................... $ 167,045 $ 80,242
Furniture and fixtures.............................................................. 9,884 7,814
------------- -------------
176,929 88,056
Less accumulated depreciation and amortization, including amounts related to assets
under capital leases of $8,632 and $-0- for 1998 and 1997, respectively........... (71,325) (23,955)
------------- -------------
Total............................................................................. $ 105,604 $ 64,101
------------- -------------
------------- -------------
</TABLE>
(3) INCOME TAXES
The Company incurred a loss for both financial reporting and tax return
purposes and, as such, there was no current or deferred tax provision for the
year ended September 30, 1998 and for the period from October 8, 1996 (date of
inception) through September 30, 1997.
The difference between the expected tax expense, computed by applying the
federal statutory rate of 34% to loss before taxes, and the actual tax expense
of $-0- is primarily due to the increase in the valuation allowance for deferred
tax assets.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liability at September 30,
1998 is approximately as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Deferred tax assets:
Federal and state operating loss carryforwards.................................... $ 432,000 $ 169,500
Research and experimentation credits.............................................. 52,000 11,000
Unearned compensation............................................................. 501,500 --
Property and equipment, due to differences in depreciation and amortization....... 42,500 12,500
------------- -------------
1,028,000 193,000
Less valuation allowance.......................................................... (1,028,000) (193,000)
------------- -------------
Net deferred tax assets......................................................... $ -- $ --
------------- -------------
------------- -------------
</TABLE>
The total valuation allowance for deferred tax assets as of September 30,
1998 and 1997 was $1,028,000 and $193,000, respectively. The net change in the
total valuation allowance for the year ended September 30, 1998 was an increase
of $835,000.
At September 30, 1998, the Company has federal and state net operating loss
and research and experimentation credit carryforwards of approximately $432,000
and $52,000, respectively. These carryforwards will expire between 2002 and 2012
if not used by the Company to reduce income taxes payable in future periods.
These carryforwards will be subject to further limitations upon closing of the
proposed transaction discussed in note 9.
F-34
<PAGE>
STARSEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) 1998 STOCK OPTION PLAN
In 1998, the Company adopted the 1998 Stock Option/Stock Issuance Plan (the
Plan) whereby a total of 525,000 shares of common stock have been reserved for
the grant of stock options to selected employees, officers, directors,
consultants and advisors. Options granted pursuant to the Plan are non-qualified
stock options.
Under the Plan, options generally vest annually over four years. Options
granted under the Plan must be exercised within ten years of the date of the
grant. Option prices are generally not less than the fair market value of the
shares at the date of grant. At the time of the exercise of the option, all
optionee's must grant the Company or its designee a right of first refusal with
respect to all transfers.
During 1998, the Company granted to certain key employees and consultants
options to purchase 258,500 shares of the Company's common stock for $1.00 per
share. These options were fully-vested on the grant date and were issued at a
price below the fair market value of the Company's stock on the date of grant.
The difference between the stock option grant price and the fair market value on
the date of grant has been included as compensation or consulting expense in the
accompanying statement of operations.
The Company has elected to account for its stock-based compensation plans
under APB Opinion 25; however, the Company has computed, for proforma disclosure
purposes, the value of all options granted during 1998 using the minimum value
option-pricing model as prescribed by SFAS 123 using the following assumptions
used for grants:
<TABLE>
<CAPTION>
<S> <C>
Risk-free interest rate........................................................... 6.50%
Expected dividend yield........................................................... $ --
Expected lives.................................................................... 5 years
Weighted average grant date fair value per option................................. $ 5
</TABLE>
If the Company had accounted for these options in accordance with SFAS 123,
the Company's net loss for the year ended September 30, 1998 would have
increased to the following pro forma amounts:
<TABLE>
<CAPTION>
<S> <C>
Net loss:
As reported.................................................................. $ (2,087,638)
Proforma..................................................................... (2,181,902)
</TABLE>
A summary of the status of the Company's Plan at September 30, 1998 and
changes during the year then ended is presented in the following table:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
--------- -----------
<S> <C> <C>
Outstanding September 30, 1997.......................................... -- $ --
Granted................................................................. 475,000 2.89
Exercised............................................................... -- --
Canceled................................................................ -- --
--------- -----
Outstanding September 30, 1998.......................................... 475,000 $ 2.89
--------- -----
--------- -----
</TABLE>
F-35
<PAGE>
STARSEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) 1998 STOCK OPTION PLAN (CONTINUED)
The outstanding stock options have a weighted average remaining contractual
life of 10 years. At September 30, 1998, a total of 295,000 non-qualified stock
options were exercisable at a weighted average exercise price of $1.86 share and
with a weighted average remaining contractual live in years of 10.
(5) COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its facilities and certain computer and office equipment
under noncancelable leases for varying periods through 2002. The Company's lease
obligations are collateralized by certain assets at September 30, 1998. The
following are the minimum lease obligations under these leases at September 30,
1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- -----------
<S> <C> <C>
1999................................................................... $ 19,188 $ 11,136
2000................................................................... 18,595 11,136
2001................................................................... 9,980 6,392
2002................................................................... 4,020 --
---------- -----------
51,783 $ 28,664
-----------
-----------
Less: amount representing interest..................................... (7,049)
----------
Present value of minimum lease payments................................ 44,734
Less: current portion.................................................. (15,091)
----------
Long-term portion...................................................... $ 29,643
----------
----------
</TABLE>
Rental expense pertaining to operating leases for the year ended September
30, 1998 and the period October 8, 1996 (date of inception) to September 30,
1997 was approximately $35,000 and $46,000, respectively.
CONSULTING AGREEMENT
The Company has entered into a consulting agreement with an individual
through June 1999. Under this agreement, the Company is to pay a consulting fee
of $2,000 a month.
CONTINGENCIES
From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising from its operations in the
normal course of business. Management believes that the resolution of these
matters will not have a material adverse effect on the Company's business,
results of operations, financial condition and cash flows.
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex as virtually
F-36
<PAGE>
STARSEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) COMMITMENTS AND CONTINGENCIES (CONTINUED)
every computer operation will be affected in some way by the rollover of the
two-digit year value to 00. The issue is whether computer systems will properly
recognize date sensitive information when the year changes to 2000. Systems that
do not properly recognize such information could generate erroneous data or
cause a system to fail.
The Company has conducted a review of the Company's exposure to the year
2000 problem, including working with computer systems and software vendors to
assure that they are prepared for the year 2000. Based on this review and
discussions with such vendors, the Company currently believes that its internal
systems are year 2000 compliant. The Company does not expect to incur any
significant operating expenses or invest in additional computer systems to
resolve issues relating to the year 2000 problem, with respect to both its
information technology and product and service functions.
(6) NOTES PAYABLE
At September 30, 1998 and 1997 notes payable consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Notes payable to GeoCities, payable in a lump-sum plus accrued interest at 9% per annum
payable upon the earlier of January 29, 1999 or upon the Company obtaining equity
financing in excess of $1,000,000........................................................ $ 200,000 $ --
Note payable to Keyline Investments, payable in a lump-sum November 1998................... 226,000 --
Notes payable to shareholders, payable in a lump-sum plus accrued interest at 12% per annum
due October 1, 2000...................................................................... 41,700 45,200
Note payable to individual payable in a lump-sum no interest, due December 31, 1997........ -- 18,000
---------- ---------
467,700 63,200
Less-current portion....................................................................... 426,000 18,000
---------- ---------
$ 41,700 $ 45,200
---------- ---------
---------- ---------
</TABLE>
The Note payable to shareholders is payable upon the earlier of October 1,
2000 or upon a corporate transaction. Corporate transaction means any of the
following: (1) a merger or consolidation in which the Company is not the
surviving entity; (2) the sale, transfer or other disposition of all or
substantially all of the assets of the Company and (3) any reverse merger in
which the Company is the surviving entity but in which fifty percent or more of
the Company's outstanding voting stock is transferred to holders different from
those who held the stock immediately prior to such merger.
The combined aggregate amount of debt maturities for the five years
subsequent to September 30, 1998 follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending September 30:
1999............................................................................ $ 426,000
2000............................................................................ 41,700
----------
$ 467,700
----------
----------
</TABLE>
F-37
<PAGE>
STARSEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) CUSTOMER INFORMATION
The Company had three significant customers in 1998 that each account for
greater than 10% of the Company's revenues. These customers accounted for 97% of
the Company's accounts receivable at September 30, 1998.
(8) WARRANTS
During 1998, the Company issued warrants to purchase 92,105 shares of the
Company's common stock at $11.43 per share exercisable at anytime until
September 1, 2000, in connection with the note payable to GeoCities. The
warrants will terminate by mutual agreement upon the closing of GeoCities
purchasing the Company. (See note 9)
(9) SUBSEQUENT EVENTS
The Company obtained an additional note payable from GeoCities of $100,000
payable in a lump-sum plus accrued interest at 9% per annum, payable upon the
earlier of January 29, 1999 or upon the Company obtaining equity financing in
excess of $1,000,000.
In October 1998, the Company entered into a non-binding letter of intent
with GeoCities. Pursuant to the agreement; among other things all the issued and
outstanding shares of the Company shall be converted into the right to receive
shares of common stock of GeoCities and cash. Additionally, all outstanding
options under the Company's 1998 stock option/stock issuance plan, whether
vested or unvested, will be assumed by GeoCities.
This acquisition is expected to provide the Company with the additional
financial resources to continue operations. If the acquisition is not completed,
there is substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The Company entered into a settlement agreement with Keyline Investments.
The agreement requires the repayment of the outstanding loan to the Company of
$226,000 and the issuance of 20,000 shares. The fair market value of the 20,000
shares is $130,000 which has been accrued as other current liabilities in the
balance sheet at September 30, 1998.
F-38
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
YAHOO! INC.
HOME PAGE ACQUISITION CORP.
AND
GEOCITIES
Dated as of January 27, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I THE MERGER...................................................................................... A-1
1.1 The Merger................................................................................... A-1
1.2 Effective Time; Closing...................................................................... A-1
1.3 Effect of the Merger......................................................................... A-2
1.4 Certificate of Incorporation; Bylaws......................................................... A-2
1.5 Directors and Officers....................................................................... A-2
1.6 Effect on Capital Stock...................................................................... A-2
1.7 Surrender of Certificates.................................................................... A-3
1.8 No Further Ownership Rights in GeoCities Common Stock........................................ A-4
1.9 Lost, Stolen or Destroyed Certificates....................................................... A-4
1.10 Restricted Stock............................................................................. A-4
1.11 Tax and Accounting Consequences.............................................................. A-5
1.12 Taking of Necessary Action; Further Action................................................... A-5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF GEOCITIES.................................................... A-5
2.1 Organization of GeoCities.................................................................... A-5
2.2 GeoCities Capital Structure.................................................................. A-6
2.3 Obligations With Respect to Capital Stock.................................................... A-6
2.4 Authority.................................................................................... A-7
2.5 SEC Filings; GeoCities Financial Statements.................................................. A-8
2.6 Absence of Certain Changes or Events......................................................... A-8
2.7 Taxes........................................................................................ A-9
2.8 Title to Properties; Absence of Liens and Encumbrances....................................... A-11
2.9 Intellectual Property........................................................................ A-11
2.10 Compliance with Laws; Permits; Restrictions.................................................. A-13
2.11 Litigation................................................................................... A-13
2.12 Employee Benefit Plans....................................................................... A-14
2.13 Environmental Matters........................................................................ A-17
2.14 Agreements, Contracts and Commitments........................................................ A-18
2.15 Pooling of Interests......................................................................... A-18
2.16 Change of Control Payments................................................................... A-19
2.17 Statements; Proxy Statement/Prospectus....................................................... A-19
2.18 Board Approval............................................................................... A-19
2.19 Brokers' and Finders' Fees................................................................... A-19
2.20 Fairness Opinion............................................................................. A-19
2.21 Affiliates................................................................................... A-19
2.22 Section 203 Not Applicable................................................................... A-19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF YAHOO! AND MERGER SUB....................................... A-20
3.1 Organization of Yahoo! and Merger Sub........................................................ A-20
3.2 Yahoo! and Merger Sub Capital Structure...................................................... A-20
3.3 Authority.................................................................................... A-20
3.4 SEC Filings; Yahoo! Financial Statements..................................................... A-21
3.5 Absence of Certain Changes or Events......................................................... A-22
3.6 Proxy Statement/Prospectus................................................................... A-22
3.7 Litigation................................................................................... A-22
3.8 Pooling of Interests......................................................................... A-22
3.9 Affiliates................................................................................... A-22
3.10 Valid Issuance............................................................................... A-22
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................................................ A-22
4.1 Conduct of Business by GeoCities............................................................. A-22
4.2 Conduct of Business by Yahoo!................................................................ A-24
ARTICLE V ADDITIONAL AGREEMENTS........................................................................... A-24
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings; Board Recommendations..... A-24
5.2 Meeting of GeoCities Stockholders............................................................ A-25
5.3 Confidentiality: Access to Information....................................................... A-26
5.4 No Solicitation.............................................................................. A-27
5.5 Public Disclosure............................................................................ A-28
5.6 Reasonable Efforts; Notification............................................................. A-28
5.7 Third Party Consents......................................................................... A-29
5.8 Stock Options and ESPP....................................................................... A-29
5.9 Form S-8..................................................................................... A-30
5.10 Indemnification.............................................................................. A-30
5.11 Nasdaq Listing............................................................................... A-30
5.12 Affiliate Agreements......................................................................... A-30
5.13 [Reserved]................................................................................... A-31
5.14 GeoCities Stock Option....................................................................... A-31
5.15 Letter of GeoCities' Accountants............................................................. A-33
ARTICLE VI CONDITIONS TO THE MERGER....................................................................... A-34
6.1 Conditions to Obligations of Each Party to Effect the Merger................................. A-34
6.2 Additional Conditions to Obligations of GeoCities............................................ A-35
6.3 Additional Conditions to the Obligations of Yahoo! and Merger Sub............................ A-35
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER............................................................. A-36
7.1 Termination.................................................................................. A-36
7.2 Notice of Termination Effect of Termination.................................................. A-37
7.3 Fees and Expenses............................................................................ A-37
7.4 Amendment.................................................................................... A-38
7.5 Extension; Waiver............................................................................ A-38
ARTICLE VIII GENERAL PROVISIONS........................................................................... A-39
8.1 Non-Survival of Representations and Warranties............................................... A-39
8.2 Notices...................................................................................... A-39
8.3 Interpretation; Certain Defined Terms........................................................ A-40
8.4 Counterparts................................................................................. A-40
8.5 Entire Agreement; Third Party Beneficiaries.................................................. A-40
8.6 Severability................................................................................. A-41
8.7 Other Remedies; Specific Performance......................................................... A-41
8.8 Governing Law................................................................................ A-41
8.9 Rules of Construction........................................................................ A-41
8.10 Assignment................................................................................... A-41
8.11 Waiver of Jury Trial......................................................................... A-41
</TABLE>
A-ii
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of GeoCities Voting Agreement
Exhibit B Form of GeoCities Affiliate Agreement
Exhibit C Form of Yahoo! Affiliate Agreement
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of January 27,
1999 (this "AGREEMENT"), among Yahoo! Inc., a California corporation ("YAHOO!"),
Home Page Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Yahoo! ("MERGER SUB"), and GeoCities, a Delaware corporation
("GEOCITIES").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law ("DELAWARE LAW"), Yahoo!,
Merger Sub and GeoCities intend to enter into a business combination
transaction.
B. The Board of Directors of GeoCities (i) has determined that the Merger
(as defined in Section 1.1) is consistent with and in furtherance of the
long-term business strategy of GeoCities and advisable and fair to, and in the
best interests of, GeoCities and its stockholders, (ii) has approved this
Agreement, the Merger and the other transactions contemplated by this Agreement
and (iii) has determined to recommend that the stockholders of GeoCities adopt
and approve this Agreement and approve the Merger.
C. The Board of Directors of Yahoo! (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of Yahoo!
and advisable and fair to, and in the best interests of, Yahoo! and its
shareholders and (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement.
D. Concurrently with the execution of this Agreement, and as a condition and
inducement to Yahoo!'s willingness to enter into this Agreement, certain
stockholders of GeoCities are entering into Voting Agreements in substantially
the form attached hereto as EXHIBIT A (the "GEOCITIES VOTING AGREEMENTS") and
certain persons or entities who may be deemed to be affiliates of GeoCities are
entering into Affiliate Agreements in substantially the form attached hereto as
EXHIBIT B (the "GEOCITIES AFFILIATE AGREEMENTS").
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE").
F. It is also intended by the parties hereto that the Merger shall qualify
for accounting treatment as a pooling of interests.
NOW, THEREFORE, in consideration of the covenants, agreements,
representations and warranties set forth herein, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time and subject to and upon the terms
and conditions of this Agreement and the applicable provisions of Delaware Law,
Merger Sub shall be merged with and into GeoCities (the "MERGER"), the separate
corporate existence of Merger Sub shall cease and GeoCities shall continue as
the surviving corporation. GeoCities as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "SURVIVING CORPORATION."
1.2 EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger, in such appropriate form as determined by the parties,
with the Secretary of State of the State of Delaware in accordance with the
relevant provisions of Delaware Law (the "CERTIFICATE OF MERGER") (the time of
such filing (or such later time as may be agreed in writing by GeoCities and
Yahoo! and specified in the Certificate of Merger) being the
A-1
<PAGE>
"EFFECTIVE TIME") as soon as practicable on or after the Closing Date (as herein
defined). The closing of the Merger (the "CLOSING") shall take place at the
offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park, California, at a
time and date to be specified by the parties, which shall be no later than the
second business day after the satisfaction or waiver of the conditions set forth
in Article VI, or at such other time, date and location as the parties hereto
agree in writing (the "CLOSING DATE").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, at the Effective Time all
the property, rights, privileges, powers and franchises of GeoCities and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of GeoCities and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Certificate of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation of the
Surviving Corporation; PROVIDED, HOWEVER, that at the Effective Time Article
I of the Certificate of Incorporation of the Surviving Corporation shall be
amended to read: "The name of the corporation is GeoCities."
(b) At the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended.
1.5 DIRECTORS AND OFFICERS. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial corporate officers of the Surviving Corporation shall
be the corporate officers of Merger Sub immediately prior to the Effective Time,
until their respective successors are duly appointed.
1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, GeoCities or the
holders of any of the following securities:
(a) CONVERSION OF GEOCITIES COMMON STOCK. Each share of common stock,
par value $0.001 per share, of GeoCities ("GEOCITIES COMMON STOCK") issued
and outstanding immediately prior to the Effective Time, other than any
shares of GeoCities Common Stock to be canceled pursuant to Section 1.6(b),
will be canceled and extinguished and automatically converted (subject to
Sections 1.6(d) and (e)) into the right to receive .3384 of a share (the
"EXCHANGE RATIO") of common stock, par value $0.00033 per share ($0.00017
per share following the pending two-for-one stock split), of Yahoo! ("YAHOO!
COMMON STOCK") upon surrender of the certificate representing such share of
GeoCities Common Stock in the manner provided in Section 1.7. The parties
acknowledge that following completion of Yahoo!'s pending two-for-one stock
split the Exchange Ratio shall be adjusted to equal .6768 of a share of
Yahoo! Common Stock, subject to potential further adjustment as contemplated
by subsection (d) below.
(b) CANCELLATION OF GEOCITIES-OWNED AND YAHOO!-OWNED STOCK. Each share
of GeoCities Common Stock held by GeoCities or owned by Merger Sub, Yahoo!
or any direct or indirect wholly owned subsidiary of GeoCities or of Yahoo!
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(c) CAPITAL STOCK OF MERGER SUB. Each share of common stock, $0.0l par
value per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into one validly issued, fully paid
and nonassessable share of common stock, $0.01 par value per share, of the
Surviving Corporation. Each certificate evidencing ownership of shares of
the common stock of Merger Sub shall evidence ownership of such shares of
capital stock of the Surviving Corporation.
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(d) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect appropriately the effect of any stock split, reverse
stock split, stock dividend (including any dividend or distribution of
securities convertible into Yahoo! Common Stock or GeoCities Common Stock),
reorganization, recapitalization, reclassification or other like change with
respect to Yahoo! Common Stock or GeoCities Common Stock occurring on or
after the date hereof and prior to the Effective Time.
(e) FRACTIONAL SHARES. No fraction of a share of Yahoo! Common Stock
will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of GeoCities Common Stock who would otherwise be entitled to a
fraction of a share of Yahoo! Common Stock (after aggregating all fractional
shares of Yahoo! Common Stock that otherwise would be received by such
holder) shall receive from Yahoo! an amount of cash (rounded to the nearest
whole cent) equal to the product of (i) such fraction, multiplied by (ii)
the average closing sale price of one share of Yahoo! Common Stock for the
five (5) most recent days that Yahoo! Common Stock has traded ending on the
trading day immediately prior to the Effective Time, as reported on the
Nasdaq Stock Market.
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Yahoo! shall select a bank or trust company
reasonably acceptable to GeoCities to act as the exchange agent (the
"EXCHANGE AGENT") in the Merger.
(b) YAHOO! TO PROVIDE COMMON STOCK. Promptly after the Effective Time,
Yahoo! shall make available to the Exchange Agent for exchange in accordance
with this Article I, the shares of Yahoo! Common Stock issuable pursuant to
Section 1.6 in exchange for outstanding shares of GeoCities Common Stock,
and cash in an amount sufficient for payment in lieu of fractional shares
pursuant to Section 1.6(e) and any dividends or distributions to which
holders of shares of GeoCities Common Stock may be entitled pursuant to
Section 1.7(d).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, Yahoo!
shall cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates (the "CERTIFICATES"), which
immediately prior to the Effective Time represented outstanding shares of
GeoCities Common Stock, whose shares were converted into shares of Yahoo!
Common Stock pursuant to Section 1.6 (i) a letter of transmittal in
customary form (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent and shall contain such other
customary provisions as Yahoo! may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for
certificates representing shares of Yahoo! Common Stock, cash in lieu of any
fractional shares pursuant to Section 1.6(e) and any dividends or other
distributions pursuant to Section 1.7(d). Upon surrender of Certificates for
cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by Yahoo!, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto,
the holders of such Certificates shall be entitled to receive in exchange
therefor certificates representing the number of whole shares of Yahoo!
Common Stock into which their shares of GeoCities Common Stock were
converted at the Effective Time, payment in lieu of fractional shares which
such holders have the right to receive pursuant to Section 1.6(e) and any
dividends or distributions payable pursuant to Section 1.7(d), and the
Certificates so surrendered shall forthwith be canceled. Until so
surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, to evidence only the ownership
of the number of full shares of Yahoo! Common Stock into which such shares
of GeoCities Common Stock shall have been so converted and the right to
receive an amount in cash in lieu of the issuance of any fractional shares
in accordance with Section 1.6(e) and any dividends or distributions payable
pursuant to Section 1.7(d).
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(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the date of this Agreement with
respect to Yahoo! Common Stock with a record date after the Effective Time
will be paid to the holders of any unsurrendered Certificates with respect
to the shares of Yahoo! Common Stock represented thereby until the holders
of record of such Certificates shall surrender such Certificates. Subject to
applicable law, following surrender of any such Certificates, the Exchange
Agent shall deliver to the record holders thereof, without interest,
certificates representing whole shares of Yahoo! Common Stock issued in
exchange therefor along with payment in lieu of fractional shares pursuant
to Section 1.6(e) hereof and the amount of any such dividends or other
distributions with a record date after the Effective Time payable with
respect to such shares of Yahoo! Common Stock.
(e) TRANSFERS OF OWNERSHIP. If certificates representing shares of
Yahoo! Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
persons requesting such exchange will have paid to Yahoo! or any agent
designated by it any transfer or other taxes required by reason of the
issuance of certificates representing shares of Yahoo! Common Stock in any
name other than that of the registered holder of the Certificates
surrendered, or established to the satisfaction of Yahoo! or any agent
designated by it that such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.7, neither the Exchange Agent, Yahoo!, the Surviving Corporation
nor any party hereto shall be liable to a holder of shares of Yahoo! Common
Stock or GeoCities Common Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
1.8 NO FURTHER OWNERSHIP RIGHTS IN GEOCITIES COMMON STOCK. All shares of
Yahoo! Common Stock issued in accordance with the terms hereof (including any
cash paid in respect thereof pursuant to Section 1.6(e) and 1.7(d)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of GeoCities Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of GeoCities
Common Stock which were outstanding immediately prior to the Effective Time. If
after the Effective Time Certificates are presented to the Surviving Corporation
for any reason, they shall be canceled and exchanged as provided in this Article
I.
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Yahoo! Common Stock into which the shares of
GeoCities Common Stock represented by such Certificates were converted pursuant
to Section 1.6, cash for fractional shares, if any, as may be required pursuant
to Section 1.6(e) and any dividends or distributions payable pursuant to Section
1.7(d); PROVIDED, HOWEVER, that Yahoo! may, in its discretion and as a condition
precedent to the issuance of such certificates representing shares of Yahoo!
Common Stock, cash and other distributions, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum and with
customary provisions as it may reasonably direct as indemnity against any claim
that may be made against Yahoo!, the Surviving Corporation or the Exchange Agent
with respect to the Certificates alleged to have been lost, stolen or destroyed.
1.10 RESTRICTED STOCK. Shares of GeoCities Common Stock that are subject
to repurchase by GeoCities in the event a GeoCities employee ceases to be
employed by GeoCities ("GEOCITIES RESTRICTED STOCK") shall be converted into the
right to receive Yahoo! Common Stock on the same basis as provided in Section
1.6. Shares of GeoCities Restricted Stock shall be replaced with shares of
Yahoo! Common Stock, subject to the same restrictions as the original GeoCities
Restricted Stock. Such
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replacement shares of Yahoo! Common Stock shall be issued to and registered in
the name of the holder, but shall be held by Yahoo! pending satisfaction of the
applicable vesting schedules pursuant to existing agreements in effect at the
Effective Time. GeoCities hereby assigns to the Surviving Corporation all
repurchase rights relating to the GeoCities Restricted Stock, effective at the
Effective Time. A listing of the holders of GeoCities Restricted Stock, together
with the number of shares of GeoCities Restricted Stock held by each, is set
forth on Schedule 1.10 of the GeoCities Schedules (as defined in Article II
below).
1.11 TAX AND ACCOUNTING CONSEQUENCES.
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368 of the Code.
The parties hereto adopt this Agreement as a "plan of reorganization" within
the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Income Tax Regulations.
(b) It is intended by the parties hereto that the Merger shall qualify
for accounting treatment as a pooling of interests.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of GeoCities and Merger Sub, the officers and directors of
GeoCities and Merger Sub will take all such lawful and necessary action. Yahoo!
shall cause Merger Sub to perform all of its obligations relating to this
Agreement and the transactions contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF GEOCITIES
GeoCities represents and warrants to Yahoo! and Merger Sub, subject to the
exceptions specifically disclosed in writing in the disclosure letter delivered
by GeoCities to Yahoo! dated as of the date hereof and certified by a duly
authorized officer of GeoCities (the "GEOCITIES SCHEDULES"), as follows:
2.1 ORGANIZATION OF GEOCITIES.
(a) GeoCities and each of its subsidiaries (i) is a corporation or other
legal entity duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is organized; (ii) has the corporate or
other power and authority to own, lease and operate its assets and property
and to carry on its business as now being conducted; and (iii) except as
would not be material to GeoCities, is duly qualified or licensed to do
business in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary.
(b) GeoCities has delivered to Yahoo! a true and complete list of all of
GeoCities' subsidiaries as of the date of this Agreement, indicating the
jurisdiction of organization of each subsidiary and GeoCities' equity
interest therein. Except as set forth on such list, neither GeoCities nor
any of its subsidiaries owns any equity interest in any corporation,
partnership or joint venture arrangement or other business entity that is
material to GeoCities.
(c) GeoCities has delivered or made available to Yahoo! a true and
correct copy of the Certificate of Incorporation and Bylaws of GeoCities and
similar governing instruments of each of its subsidiaries (other than the
subsidiary of GeoCities organized under the laws of United Kingdom), each as
amended to date, and each such instrument is in full force and effect.
Neither GeoCities nor any of its subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent
governing instruments.
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2.2 GEOCITIES CAPITAL STRUCTURE. The authorized capital stock of GeoCities
consists of 60,000,000 shares of Common Stock, par value $0.001 per share, of
which there were 32,034,826 shares issued and outstanding as of January 27, 1999
(none of which were held by GeoCities in its treasury), and 5,000,000 shares of
Preferred Stock, par value $0.001 per share, none of which are issued or
outstanding. All outstanding shares of GeoCities Common Stock are duly
authorized, validly issued, fully paid and nonassessable and are not subject to
preemptive rights created by statute, the Certificate of Incorporation or Bylaws
of GeoCities or any agreement or document to which GeoCities is a party or by
which it is bound. As of January 27, 1999, GeoCities had reserved an aggregate
of (i) 2,670,940 shares of GeoCities Common Stock for issuance pursuant to
GeoCities' 1998 Stock Incentive Plan, 4,759,310 shares of GeoCities Common Stock
for issuance pursuant to GeoCities' 1997 Stock Option Plan, and (iii) 215,090
shares of GeoCities Common Stock for issuance pursuant to GeoCities' Starseed,
Inc. 1998 Stock Option/Stock Issuance Plan. As of January 27, 1999, there were
options outstanding to purchase an aggregate of (u) 1,664,500 shares of
GeoCities Common Stock pursuant to GeoCities' 1998 Stock Incentive Plan, (v)
4,759,310 shares of GeoCities Common Stock pursuant to GeoCities' 1997 Stock
Option Plan, (w) 215,090 shares of GeoCities Common Stock pursuant to GeoCities'
Starseed, Inc. 1998 Stock Option/Stock Issuance Plan, and (x) 2,306,054 shares
of GeoCities Common Stock pursuant to written agreements with certain officers,
directors, consultants, founders and employees of GeoCities. GeoCities' 1998
Stock Incentive Plan, GeoCities' 1997 Stock Option Plan, Starseed, Inc. 1998
Stock Option/Stock Issuance Plan and the aforementioned written agreements
granting options are collectively referred to in this Agreement as the
"GEOCITIES STOCK OPTION PLANS." There are no warrants outstanding to purchase
any shares of GeoCities Common Stock. As of January 27, 1999, GeoCities had
reserved an aggregate of 300,000 shares of GeoCities Common Stock for issuance
pursuant to GeoCities' 1998 Employee Stock Purchase Plan (the "ESPP"). All
shares of GeoCities Common Stock subject to issuance as aforesaid, upon issuance
on the terms and conditions specified in the instruments pursuant to which they
are issuable, would be duly authorized, validly issued, fully paid and
nonassessable. The GeoCities Schedules list for each person who held options or
warrants to acquire shares of GeoCities Common Stock as of January 26, 1999, the
name of the holder of such option or warrant, the exercise price of such option
or warrant, the number of shares as to which such option or warrant had vested
at such date, the vesting schedule for such option or warrant and whether the
exercisability of such option or warrant will be accelerated in any way by the
transactions contemplated by this Agreement, and indicates the extent of
acceleration, if any.
2.3 OBLIGATIONS WITH RESPECT TO CAPITAL STOCK. Except as set forth in
Section 2.2, there are no equity securities, partnership interests or similar
ownership interests of any class of GeoCities equity security, or any securities
exchangeable or convertible into or exercisable for such equity securities,
partnership interests or similar ownership interests, issued, reserved for
issuance or outstanding. Except for securities GeoCities owns free and clear of
all claims and encumbrances, directly or indirectly through one or more
subsidiaries, and except for shares of capital stock or other similar ownership
interests of certain subsidiaries of GeoCities that are owned by certain nominee
equity holders as required by the applicable law of the jurisdiction of
organization of such subsidiaries, there are no equity securities, partnership
interests or similar ownership interests of any class of equity security of any
subsidiary of GeoCities, or any security exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except as set
forth in Section 2.2, there are no subscriptions, options, warrants, equity
securities, partnership interests or similar ownership interests, calls, rights
(including preemptive rights), commitments or agreements of any character to
which GeoCities or any of its subsidiaries is a party or by which it is bound
obligating GeoCities or any of its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, or repurchase, redeem or otherwise
acquire, or cause the repurchase, redemption or acquisition of, any shares of
capital stock, partnership interests or similar ownership interests of GeoCities
or any of its subsidiaries or obligating GeoCities or any of its subsidiaries to
grant, extend, accelerate the vesting of or enter into any such subscription,
option, warrant, equity
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security, call, right, commitment or agreement. Except as contemplated by this
Agreement, there are no registration rights and thre is no voting trust, proxy,
rights plan, antitakeover plan or other agreement or understanding to which
GeoCities is a party or by which it is bound with respect to any equity security
of any class of GeoCities or with respect to any equity security, partnership
interest or similar ownership interest of any class of any of its subsidiaries.
Stockholders of GeoCities will not be entitled to dissenters' rights under
applicable state law in connection with the Merger.
2.4 AUTHORITY.
(a) GeoCities has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of GeoCities, subject only to the approval and
adoption of this Agreement and the approval of the Merger by GeoCities'
stockholders and the filing of the Certificate of Merger pursuant to
Delaware Law. A vote of the holders of a majority of the outstanding shares
of the GeoCities Common Stock is sufficient for GeoCities' stockholders to
approve and adopt this Agreement and approve the Merger. This Agreement has
been duly executed and delivered by GeoCities and, assuming the due
execution and delivery by Yahoo! and Merger Sub, constitutes a valid and
binding obligation of GeoCities, enforceable against GeoCities in accordance
with its terms, except as enforceability may be limited by bankruptcy and
other similar laws and general principles of equity. The execution and
delivery of this Agreement by GeoCities does not, and the performance of
this Agreement by GeoCities will not, (i) conflict with or violate the
Certificate of Incorporation or Bylaws of GeoCities or the equivalent
organizational documents of any of its subsidiaries, (ii) subject to
obtaining the approval and adoption of this Agreement and the approval of
the Merger by GeoCities' stockholders as contemplated in Section 5.2 and
compliance with the requirements set forth in Section 2.4(b) below, conflict
with or violate any law, rule, regulation, order, judgment or decree
applicable to GeoCities or any of its subsidiaries or by which GeoCities or
any of its subsidiaries or any of their respective properties is bound or
affected, or (iii) result in any material breach of or constitute a material
default (or an event that with notice or lapse of time or both would become
a material default) under, or impair GeoCities' rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a material lien or encumbrance on any of the material properties
or assets of GeoCities or any of its subsidiaries pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise, concession, or other instrument or obligation, in each case that
is material to GeoCities, to which GeoCities or any of its subsidiaries is a
party or by which GeoCities or any of its subsidiaries or its or any of
their respective assets are bound or affected. The GeoCities Schedules list
all consents, waivers and approvals under any of GeoCities' or any of its
subsidiaries' agreements, contracts, licenses or leases required to be
obtained in connection with the consummation of the transactions
contemplated hereby, which, if individually or in the aggregate not
obtained, would result in a loss of benefits to GeoCities, Yahoo! or the
Surviving Corporation as a result of the Merger that would be reasonably
likely to result in a Material Adverse Effect with respect to GeoCities,
Yahoo! or the Surviving Corporation.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental authority or instrumentality, foreign or domestic
("GOVERNMENTAL ENTITY"), is required to be obtained or made by GeoCities in
connection with the execution and delivery of this Agreement or the
consummation of the Merger, except for (i) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (ii) the filing
of the Proxy Statement/Prospectus (as defined in Section 2.17) with the
Securities and Exchange Commission ("SEC"), (iii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal,
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foreign and state securities (or related) laws and the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), and the
securities or antitrust laws of any foreign country, and (iv) such other
consents, authorizations, filings, approvals and registrations which if not
obtained or made would not be material to GeoCities or Yahoo! or have a
material adverse effect on the ability of the parties hereto to consummate
the Merger.
2.5 SEC FILINGS; GEOCITIES FINANCIAL STATEMENTS.
(a) GeoCities has filed all forms, reports and documents required to be
filed by GeoCities with the SEC since August 1, 1998, and has made available
to Yahoo! such forms, reports and documents in the form filed with the SEC.
All such required forms, reports and documents (including those that
GeoCities may file subsequent to the date hereof) are referred to herein as
the "GEOCITIES SEC REPORTS." As of their respective dates, the GeoCities SEC
Reports (i) were prepared in accordance with the requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), or the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as the case may be,
and the rules and regulations of the SEC thereunder applicable to such
GeoCities SEC Reports and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then
on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. None of GeoCities' subsidiaries
is required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the GeoCities SEC Reports (the
"GEOCITIES FINANCIALS"), including each GeoCities SEC Reports filed after
the date hereof until the Closing, (i) complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, (ii) was prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may be
permitted by the SEC on Form 10-Q under the Exchange Act) and (iii) fairly
presented the consolidated financial position of GeoCities and its
subsidiaries as at the respective dates thereof and the consolidated results
of GeoCities' operations and cash flows for the periods indicated, except
that the unaudited interim financial statements may not contain footnotes
and were or are subject to normal and recurring year-end adjustments. The
balance sheet of GeoCities contained in GeoCities SEC Reports as of
September 30, 1998 is hereinafter referred to as the "GEOCITIES BALANCE
SHEET." Except as disclosed in the GeoCities Financials, since the date of
the GeoCities Balance Sheet neither GeoCities nor any of its subsidiaries
has any liabilities required under GAAP to be set forth on a balance sheet
(absolute, accrued, contingent or otherwise) which are, individually or in
the aggregate, material to the business, results of operations or financial
condition of GeoCities and its subsidiaries taken as a whole, except for
liabilities incurred since the date of the GeoCities Balance Sheet in the
ordinary course of business consistent with past practices and liabilities
under this Agreement or incurred in connection with the transactions
contemplated hereby.
(c) GeoCities has heretofore furnished to Yahoo! a complete and correct
copy of any amendments or modifications, which have not yet been filed with
the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by GeoCities with the SEC
pursuant to the Securities Act or the Exchange Act.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the GeoCities
Balance Sheet there has not been: (i) any Material Adverse Effect (as defined in
Section 8.3(c)) with respect to GeoCities and its subsidiaries, taken as a
whole, (ii) any declaration, setting aside or payment of any dividend on, or
other distribution (whether in cash, stock or property) in respect of, any of
GeoCities' capital stock,
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or any purchase, redemption or other acquisition by GeoCities of any of
GeoCities' capital stock or any other securities of GeoCities or any options,
warrants, calls or rights to acquire any such shares or other securities except
for repurchases from employees following their termination pursuant to the terms
of their pre-existing stock option or purchase agreements, (iii) any split,
combination or reclassification of any of GeoCities' capital stock, (iv) any
granting by GeoCities or any of its subsidiaries of any increase in compensation
or fringe benefits to any of their officers, directors or managers or employees
who earn more than $100,000 per year, or any payment by GeoCities or any of its
subsidiaries of any bonus to any of their officers, directors or managers or
employees who earn more than $100,000 per year, or any granting by GeoCities or
any of its subsidiaries of any increase in severance or termination pay or any
entry by GeoCities or any of its subsidiaries into, or material modification or
amendment of, any currently effective employment, severance, termination or
indemnification agreement or any agreement the benefits of which are contingent
or the terms of which are materially altered upon the occurrence of a
transaction involving GeoCities of the nature contemplated hereby, (v) any
material change or alteration in the policy of GeoCities relating to the
granting of stock options to its employees and consultants, (vi) entry by
GeoCities or any of its subsidiaries into, or material modification, amendment
or cancellation of, any licensing, distribution, sponsorship, advertising,
merchant program or other similar agreement or which either is not terminable by
GeoCities or its subsidiaries, as the case may be, without penalty upon no more
than 45 days' prior notice or provides for payments by or to GeoCities or its
subsidiaries in an amount in excess of $50,000 over the term of the agreement,
(vii) any material change by GeoCities in its accounting methods, principles or
practices, except as required by concurrent changes in GAAP, or (viii) any
revaluation by GeoCities of any of its assets, including, without limitation,
writing off notes or accounts receivable other than in the ordinary course of
business.
2.7 TAXES.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "TAX" or
"TAXES" refers to (i) any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and
liabilities relating to taxes, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value added,
ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest, penalties
and additions imposed with respect to such amounts, (ii) any liability for
payment of any amounts of the type described in clause (i) as a result of
being a member of an affiliated consolidated, combined or unitary group, and
(iii) any liability for amounts of the type described in clauses (i) and
(ii) as a result of any express or implied obligation to indemnify another
person or as a result of any obligations under any agreements or
arrangements with any other person with respect to such amounts and
including any liability for taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS.
(i) GeoCities and each of its subsidiaries have timely filed all
material federal, state, local and foreign returns, estimates,
information statements and reports ("RETURNS") relating to Taxes required
to be filed by or on behalf of GeoCities and each of its subsidiaries
with any Tax authority, such Returns are true, correct and complete in
all material respects, and GeoCities and each of its subsidiaries have
paid (where required by law or otherwise accrued) all Taxes shown to be
due on such Returns.
(ii) GeoCities and each of its subsidiaries have withheld with
respect to its employees all federal and state income Taxes, Taxes
pursuant to the Federal Insurance Contribution Act ("FICA"), Taxes
pursuant to the Federal Unemployment Tax Act ("FUTA") and other Taxes
required to be withheld.
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(iii) There is no material Tax deficiency outstanding, proposed or
assessed against GeoCities or any of its subsidiaries, nor has GeoCities
or any of its subsidiaries executed any unexpired waiver of any statute
of limitations on or extending the period for the assessment or
collection of any Tax that is still in effect.
(iv) No audit or other examination of any Return of GeoCities or any
of its subsidiaries by any Tax authority is presently in progress, nor
has GeoCities or any of its subsidiaries been notified of any request for
such an audit or other examination.
(v) No adjustment of Tax relating to any Returns filed by GeoCities
or any of its subsidiaries has been proposed in writing formally or
informally by any Tax authority to GeoCities or any of its subsidiaries
or any representative thereof.
(vi) Neither GeoCities nor any of its subsidiaries has any liability
for unpaid Taxes which has not been accrued for or reserved on the
GeoCities Balance Sheet, whether asserted or unasserted, contingent or
otherwise, which is material to GeoCities, other than any liability for
unpaid Taxes that may have accrued since the date of the GeoCities
Balance Sheet in connection with the operation of the business of
GeoCities and its subsidiaries in the ordinary course.
(vii) There is no contract, agreement, plan or arrangement to which
GeoCities is a party, including but not limited to the provisions of this
Agreement and the agreements entered into in connection with this
Agreement, covering any employee or former employee of GeoCities or any
of its subsidiaries that, individually or collectively, would be
reasonably likely to give rise to the payment of any amount that would
not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
(viii) Neither GeoCities nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as defined in Section 341(f)(4) of the Code) owned by
GeoCities.
(ix) Neither GeoCities nor any of its subsidiaries is party to or
has any obligation under any tax-sharing, tax indemnity or tax allocation
agreement or arrangement.
(x) Except as may be required as a result of the Merger, GeoCities
and its subsidiaries have not been and will not be required to include
any material adjustment in Taxable income for any Tax period (or portion
thereof) pursuant to Section 481 or Section 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Closing.
(xi) GeoCities has made available to Yahoo! or its legal or
accounting representatives copies of all foreign, federal and state
income tax and all state sales and use tax Returns for the GeoCities and
each of its subsidiaries filed for all periods since December 31, 1993.
(xii) There are no liens, pledges, charges, claims, restrictions on
transfer, mortgages, security interests or other encumbrances of any sort
(collectively, "LIENS") on the assets of the GeoCities or any of its
subsidiaries relating to or attributable to Taxes, other than Liens for
Taxes not yet due and payable.
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2.8 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) GEOCITIES OWNS NO REAL PROPERTY INTERESTS. The GeoCities Schedules
list all real property leases to which GeoCities is a party and each
amendment thereto that is in effect as of the date of this Agreement. All
such current leases are in full force and effect, are valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or event which with notice
or lapse of time, or both, would constitute a default) that would give rise
to a claim against GeoCities in an amount greater than $50,000.
(b) GeoCities has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except as reflected in the GeoCities
Financials and except for Liens for Taxes not yet due and payable and such
Liens or other imperfections of title and encumbrances, if any, which are
not material in character, amount or extent, and which do not materially
detract from the value, or materially interfere with the present use, of the
property subject thereto or affected thereby.
2.9 INTELLECTUAL PROPERTY. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, arising out of or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations
and continuations-in-part thereof; (ii) all inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and
customer lists, and all documentation relating to any of the foregoing;
(iii) all copyrights, copyrights registrations and applications therefor,
and all other rights corresponding thereto throughout the world; (iv) all
industrial designs and any registrations and applications therefor
throughout the world; (v) all trade names, logos, common law trademarks
and service marks, trademark and service mark registrations and
applications therefor throughout the world; (vi) all databases and data
collections and all rights therein throughout the world; (vii) all moral
and economic rights of authors and inventors, however denominated,
throughout the world; and (viii) any similar or equivalent rights to any
of the foregoing anywhere in the world.
"GEOCITIES INTELLECTUAL PROPERTY" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, GeoCities or one of its
subsidiaries.
"REGISTERED INTELLECTUAL PROPERTY" means all United States, international
and foreign: (i) patents and patent applications (including provisional
applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or
applications related to trademarks; (iii) registered copyrights and
applications for copyright registration; and (iv) any other Intellectual
Property that is the subject of an application, certificate, filing,
registration or other document issued, filed with, or recorded by any
state, government or other public legal authority.
"GEOCITIES REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, GeoCities or one
of its subsidiaries.
(a) No GeoCities Intellectual Property or product or service of
GeoCities is subject to any proceeding or outstanding decree, order,
judgment, agreement, or stipulation restricting in any manner the use,
transfer, or licensing thereof by GeoCities, or which may affect the
validity, use or enforceability of such GeoCities Intellectual Property,
which in any such case would be reasonably likely to have a Material Adverse
Effect on GeoCities.
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(b) Each material item of GeoCities Registered Intellectual Property is
valid and subsisting. All necessary registration, maintenance and renewal
fees currently due in connection with such Registered Intellectual Property
have been made and all necessary documents, recordations and certificates in
connection with such Registered Intellectual Property have been filed with
the relevant patent, copyright, trademark or other authorities in the United
States or foreign jurisdictions, as the case may be, for the purposes of
maintaining such Registered Intellectual Property, except where the failure
to do so would not be reasonably likely to have a Material Adverse Effect on
GeoCities.
(c) GeoCities or one of its subsidiaries owns and has good and exclusive
title to, or has license (sufficient for the conduct of its business as
currently conducted and as proposed to be conducted) to, each material item
of GeoCities Intellectual Property used in connection with the conduct of
its business as currently conducted and as proposed to be conducted free and
clear of any lien or encumbrance (excluding licenses and related
restrictions); and GeoCities or one of its subsidiaries is the exclusive
owner of all trademarks and trade names used in connection with and material
to the operation or conduct of the business of GeoCities and its
subsidiaries, including the sale of any products or the provision of any
services by GeoCities and its subsidiaries.
(d) GeoCities or one of its subsidiaries owns exclusively, and has good
title to, all copyrighted works that are GeoCities products or which
GeoCities otherwise expressly purports to own.
(e) To the extent that any material Intellectual Property has been
developed or created by a third party for GeoCities or any of its
subsidiaries, GeoCities or its subsidiaries, as the case may be, has a
written agreement with such third party with respect thereto and GeoCities
or its subsidiary thereby either (i) has obtained ownership of and is the
exclusive owner of, or (ii) has obtained a license (sufficient for the
conduct of its business as currently conducted and as proposed to be
conducted) to all such third party's Intellectual Property in such work,
material or invention by operation of law or by valid assignment, to the
fullest extent it is legally possible to do so.
(f) The GeoCities Schedules list all material contracts, licenses and
agreements to which GeoCities is a party (i) with respect to GeoCities
Intellectual Property licensed or transferred to any third party (other than
end-user licenses in the ordinary course); or (ii) pursuant to which a third
party has licensed or transferred any material Intellectual Property to
GeoCities.
(g) All material contracts, licenses and agreements relating to the
GeoCities Intellectual Property are in full force and effect. The
consummation of the transactions contemplated by this Agreement will neither
violate nor result in the breach, modification, cancellation, termination,
or suspension of such contracts, licenses and agreements in accordance with
its terms, the effect of which would have a Material Adverse Effect on
GeoCities. GeoCities is in material compliance with, and has not materially
breached any term of any of such contracts, licenses and agreements and, to
the knowledge of GeoCities, all other parties to such contracts, licenses
and agreements are in compliance in all material respects with, and have not
materially breached any term of, such contracts, licenses and agreements.
Following the Closing Date, the Surviving Corporation will be permitted to
exercise all of GeoCities' rights under such contracts, licenses and
agreements to the same extent GeoCities would have been able to had the
transactions contemplated by this Agreement not occurred and without the
payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which GeoCities would otherwise be required to pay.
(h) The operation of the business of GeoCities as such business
currently is conducted, including GeoCities' design, development, marketing
and sale of the products or services of GeoCities (including with respect to
products currently under development) has not, does not and will not
infringe or misappropriate in any material manner the Intellectual Property
of any third
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party or, to the knowledge of GeoCities, constitute unfair competition or
trade practices under the laws of any jurisdiction.
(i) GeoCities has not received written notice from any third party, and
to the knowledge of GeoCities, no other pending overt threat from any third
party, that the operation of the business of GeoCities or any act, product
or service of GeoCities, infringes or misappropriates the Intellectual
Property of any third party or constitutes unfair competition or trade
practices under the laws of any jurisdiction.
(j) To the knowledge of GeoCities, no person has or is infringing or
misappropriating any GeoCities Intellectual Property.
(k) GeoCities and its subsidiaries have taken reasonable steps to
protect GeoCities' and its subsidiaries' rights in GeoCities' and such
subsidiaries' confidential information and trade secrets that they wish to
protect or any trade secrets or confidential information of third parties
provided to GeoCities or such subsidiaries, and, without limiting the
foregoing, GeoCities and its subsidiaries have and enforce a policy
requiring each employee and contractor to execute a proprietary
information/confidentiality agreement in substantially the form provided to
Yahoo!, and except under confidentiality obligations, there has been not
disclosure by GeoCities or one of its subsidiaries of any such trade secrets
or confidential information.
2.10 COMPLIANCE WITH LAWS; PERMITS; RESTRICTIONS.
(a) Neither GeoCities nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or in violation of (i) any law,
rule, regulation, order, judgment or decree applicable to GeoCities or any
of its subsidiaries or by which GeoCities or any of its subsidiaries or any
of their respective properties is bound or affected, or (ii) any material
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which GeoCities or
any of its subsidiaries is a party or by which GeoCities or any of its
subsidiaries or its or any of their respective properties is bound or
affected, except for conflicts, violations and defaults that (individually
or in the aggregate) would not be reasonably likely to result in a Material
Adverse Effect on GeoCities. No investigation or review by any Governmental
Entity is pending or, to GeoCities' knowledge, has been threatened in a
writing delivered to GeoCities against GeoCities or any of its subsidiaries,
nor, to GeoCities' knowledge, has any Governmental Entity indicated an
intention to conduct an investigation of GeoCities or any of its
subsidiaries. There is no material agreement, judgment, injunction, order or
decree binding upon GeoCities or any of its subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of GeoCities or any of its subsidiaries, any
acquisition of material property by GeoCities or any of its subsidiaries or
the conduct of business by GeoCities as currently conducted.
(b) GeoCities and its subsidiaries hold, to the extent legally required,
all permits, licenses, variances, exemptions, orders and approvals from
governmental authorities that are material to and required for the operation
of the business of GeoCities as currently conducted (collectively, the
"GEOCITIES PERMITS"). GeoCities and its subsidiaries are in compliance in
all material respects with the terms of the GeoCities Permits.
2.11 LITIGATION. There are no claims, suits, actions or proceedings
pending or, to the knowledge of GeoCities, threatened against, relating to or
affecting GeoCities or any of its subsidiaries, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
singularly or in the aggregate with all such claims, actions or proceedings, to
have a Material Adverse Effect on GeoCities or the Surviving Corporation
following the Merger or have a material adverse effect on the ability of the
parties hereto to
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consummate the Merger. No Governmental Entity has at any time challenged or
questioned in a writing delivered to GeoCities the legal right of GeoCities to
design, offer or sell any of its products in the present manner or style
thereof.
2.12 EMPLOYEE BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of "Affiliate"
set forth in Section 2.12(a)(i) below (which definition shall apply only to
this Section 2.12), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity under common
control with GeoCities within the meaning of Section 414(b), (c), (m) or
(o) of the Code and the regulations issued thereunder;
(ii) "GEOCITIES EMPLOYEE PLAN" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit
plan," within the meaning of Section 3(3) of ERISA which is or has been
maintained, contributed to, or required to be contributed to, by
GeoCities or any Affiliate for the benefit of any Employee and pursuant
to which GeoCities or any Affiliate has any material liability;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
(v) "EMPLOYEE" shall mean any current, former, or retired employee,
officer, or director of GeoCities or any Affiliate;
(vi) "EMPLOYEE AGREEMENT" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas,
work permit or similar agreement or contract between GeoCities or any
Affiliate and any Employee or consultant;
(vii) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended;
(ix) "INTERNATIONAL EMPLOYEE PLAN" shall mean each GeoCities
Employee Plan that has been adopted or maintained by GeoCities, whether
informally or formally, for the benefit of Employees outside the United
States;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA;
(xii) "PBGC" shall mean the Pension Benefit Guaranty Corporation; and
(xiii) "PENSION PLAN" shall mean each GeoCities Employee Plan which is
an "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
(b) SCHEDULE. The GeoCities Schedules contain an accurate and complete
list of each GeoCities Employee Plan and each Employee Agreement. GeoCities
does not have any plan or commitment to establish any new GeoCities Employee
Plan, to modify any GeoCities Employee Plan or Employee Agreement (except to
the extent required by law or to conform any such GeoCities Employee Plan or
Employee Agreement to the requirements of any applicable law, in
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each case as previously disclosed to Yahoo! in writing, or as required by
this Agreement), or to enter into any GeoCities Employee Plan or Employee
Agreement, nor does it have any intention or commitment to do any of the
foregoing. The GeoCities Schedules also contain a list of all GeoCities
employees as of the date hereof, each such person's date of hire and each
such person's annual compensation.
(c) DOCUMENTS. GeoCities has provided to Yahoo!: (i) correct and
complete copies of all material documents embodying to each GeoCities
Employee Plan and each Employee Agreement including all amendments thereto
and written interpretations thereof; (ii) the most recent annual actuarial
valuations, if any, prepared for each GeoCities Employee Plan; (iii) the
three (3) most recent annual reports (Form Series 5500 and all schedules and
financial statements attached thereto), if any, required under ERISA or the
Code in connection with each GeoCities Employee Plan or related trust; (iv)
if the GeoCities Employee Plan is funded, the most recent annual and
periodic accounting of GeoCities Employee Plan assets; (v) the most recent
summary plan description together with the summary of material modifications
thereto, if any, required under ERISA with respect to each GeoCities
Employee Plan; (vi) all IRS determination, opinion, notification and
advisory letters, and rulings relating to GeoCities Employee Plans and
copies of all applications and correspondence to or from the IRS or the DOL
with respect to any GeoCities Employee Plan; (vii) all material written
agreements and contracts relating to each GeoCities Employee Plan,
including, but not limited to, administrative service agreements, group
annuity contracts and group insurance contracts; (viii) all communications
material to any Employee or Employees relating to any GeoCities Employee
Plan and any proposed GeoCities Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events
which would result in any material liability to GeoCities; and (ix) all
registration statements and prospectuses prepared in connection with each
GeoCities Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. (i) GeoCities has performed in all
material respects all obligations required to be performed by it under, is
not in default or violation of; and has no knowledge of any material default
or violation by any other party to each GeoCities Employee Plan, and each
GeoCities Employee Plan has been established and maintained in all material
respects in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to
ERISA or the Code; (ii) each GeoCities Employee Plan intended to qualify
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code has either received a favorable determination
letter from the IRS with respect to each such Plan as to its qualified
status under the Code or has remaining a period of time under applicable
Treasury regulations or IRS pronouncements in which to apply for such a
determination letter and make any amendments necessary to obtain a favorable
determination and no event has occurred which would adversely affect the
status of such determination letter or the qualified status of such Plan;
(iii) no "prohibited transaction," within the meaning of Section 4975 of the
Code or Sections 406 and 407 of ERISA, and not otherwise exempt under
Section 408 of ERISA, has occurred with respect to any GeoCities Employee
Plan; (iv) there are no actions, suits or claims pending, or, to the
knowledge of GeoCities, threatened or reasonably anticipated (other than
routine claims for benefits) against any GeoCities Employee Plan or against
the assets of any GeoCities Employee Plan; (v) each GeoCities Employee Plan
can be amended, terminated or otherwise discontinued after the Effective
Time in accordance with its terms, without liability to Yahoo!, GeoCities or
any of its Affiliates (other than ordinary administration expenses typically
incurred in a termination event); (vi) there are no audits, inquiries or
proceedings pending or, to the knowledge of GeoCities, threatened by the IRS
or DOL with respect to any GeoCities Employee Plan; and (vii) neither
GeoCities nor any Affiliate is subject to any penalty or tax with respect to
any GeoCities Employee Plan under Section 402(i) of ERISA or Sections 4975
through 4980 of the Code.
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(e) PENSION PLANS. GeoCities does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the
Code.
(f) MULTIEMPLOYER PLANS. At no time has GeoCities contributed to or
been requested to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. No GeoCities Employee Plan
provides, or has any liability to provide, retiree life insurance, retiree
health or other retiree employee welfare benefits to any person for any
reason, except as may be required by COBRA or other applicable statute, and
GeoCities has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a
group) or any other person that such Employee(s) or other person would be
provided with retiree life insurance, retiree health or other retiree
employee welfare benefit, except to the extent required by statute.
(h) COBRA; FMLA. Neither GeoCities nor any Affiliate has, prior to the
Effective Time, and in any material respect, violated any of the health care
continuation requirements of COBRA, the requirements of FMLA or any similar
provisions of state law applicable to its Employees.
(i) EFFECT OF TRANSACTION.
(i) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any GeoCities Employee Plan, Employee Agreement, trust or loan that
will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with
respect to any Employee.
(ii) No payment or benefit which will or may be made by GeoCities or
its Affiliates with respect to any Employee as a result of the
transactions contemplated by this Agreement will be characterized as an
"excess parachute payment," within the meaning of Section 280G(b)(1) of
the Code or will be treated as a nondeductible expense within the meaning
of Section 162 of the Code.
(j) EMPLOYMENT MATTERS. GeoCities: (i) is in compliance in all
material respects with all applicable foreign, federal, state and local
laws, rules and regulations respecting employment, employment practices,
terms and conditions of employment and wages and hours, in each case, with
respect to Employees; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments to
Employees; (iii) is not liable in any material respect for any arrears of
wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) is not liable for any material payment to any trust or
other fund or to any governmental or administrative authority, with respect
to unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice).
There are no pending, or, to GeoCities' knowledge, threatened or reasonably
anticipated claims or actions against GeoCities under any worker's
compensation policy or long-term disability policy which would be reasonably
likely to have a Material Adverse Effect on GeoCities. To GeoCities'
knowledge, no Employee of GeoCities has violated any employment contract,
nondisclosure agreement or noncompetition agreement by which such Employee
is bound due to such Employee being employed by GeoCities and disclosing to
GeoCities or using trade secrets or proprietary information of any other
person or entity.
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(k) LABOR. No work stoppage or labor strike against GeoCities is
pending, threatened or reasonably anticipated. GeoCities does not know of
any activities or proceedings of any labor union to organize any Employees.
There are no actions, suits, claims, labor disputes or grievances pending,
or, to the knowledge of GeoCities, threatened or reasonably anticipated
relating to any labor, safety or discrimination matters involving any
Employee, including, without limitation, charges of unfair labor practices
or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to
GeoCities. Neither GeoCities nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations
Act. GeoCities is not presently, nor has it been in the past, a party to, or
bound by, any collective bargaining agreement or union contract with respect
to Employees and no collective bargaining agreement is being negotiated by
GeoCities.
(l) INTERNATIONAL EMPLOYEE PLAN. Each International Employee Plan has
been established, maintained and administered in material compliance with
its terms and conditions and with the requirements prescribed by any and all
statutory or regulatory laws that are applicable to such International
Employee Plan. Furthermore, no International Employee Plan has unfunded
liabilities, that as of the Effective Time, will not be offset by insurance
or fully accrued.
2.13 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. Except as would not result in material
liability to GeoCities, no underground storage tanks and no amount of any
substance that has been designated by any Governmental Entity or by
applicable federal, state or local law to be radioactive, toxic, hazardous
or otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as
a hazardous waste pursuant to the United States Resource Conservation and
Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws, but excluding office and janitorial supplies, (a "HAZARDOUS
MATERIAL") are present, as a result of the actions of GeoCities or any of
its subsidiaries or any affiliate of GeoCities, or, to GeoCities' knowledge,
as a result of any actions of any third party or otherwise, in, on or under
any property, including the land and the improvements, ground water and
surface water thereof that GeoCities or any of its subsidiaries has at any
time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. Except as would not result in a
material liability to GeoCities (in any individual case or in the aggregate)
(i) neither GeoCities nor any of its subsidiaries has transported, stored,
used, manufactured, disposed of released or exposed its employees or others
to Hazardous Materials in violation of any law in effect on or before the
Closing Date, and (ii) neither GeoCities nor any of its subsidiaries has
disposed of; transported, sold, used, released, exposed its employees or
others to or manufactured any product containing a Hazardous Material
(collectively "HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity in
effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) PERMITS. GeoCities and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"GEOCITIES ENVIRONMENTAL PERMITS") material to and necessary for the conduct
of GeoCities' and its subsidiaries' Hazardous Material Activities and other
businesses of GeoCities and its subsidiaries as such activities and
businesses are currently being conducted.
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2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as otherwise set forth
in the GeoCities Schedules, neither GeoCities nor any of its subsidiaries is a
party to or is bound by:
(a) any employment agreement, contract or commitment with any employee
or member of GeoCities' Board of Directors, other than those that are
terminable by GeoCities or any of its subsidiaries on no more than thirty
days notice without liability or financial obligation, except to the extent
general principles of wrongful termination law may limit GeoCities' or any
of its subsidiaries' ability to terminate employees at will, or any
consulting agreement;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(c) any agreement of indemnification or any guaranty;
(d) any agreement, contract or commitment containing any covenant
limiting in any respect the right of GeoCities or any of its subsidiaries to
engage in any line of business or to compete with any person or granting any
exclusive distribution rights;
(e) any agreement, contract or commitment currently in force relating to
the disposition or acquisition by GeoCities or any of its subsidiaries after
the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which GeoCities has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than GeoCities' subsidiaries;
(f) any licensing, distribution, sponsorship, advertising, merchant
program or other similar agreement to which GeoCities or one of its
subsidiaries is a party which may not be canceled by GeoCities or its
subsidiaries, as the case may be, without penalty in excess of $50,000 upon
notice of 45 days or less or which provides for payments by or to GeoCities
or its subsidiaries in an amount in excess of $50,000 over the term of the
agreement;
(g) any agreement, contract or commitment currently in force to provide
source code to any third party for any product or technology; or
(h) any other agreement, contract or commitment currently in effect that
is material to GeoCities' business as presently conducted and proposed to be
conducted.
Neither GeoCities nor any of its subsidiaries, nor to GeoCities' knowledge
any other party to a GeoCities Contract (as defined below), is in breach,
violation or default under, and neither GeoCities nor any of its subsidiaries
has received written notice (or to its knowledge, any other form of notice) that
it has breached, violated or defaulted under, any of the material terms or
conditions of any of the agreements, contracts or commitments to which GeoCities
or any of its subsidiaries is a party or by which it is bound that are required
to be disclosed in the GeoCities Schedules pursuant to clauses (a) through (h)
above or pursuant to Section 2.9 hereof (any such agreement, contract or
commitment, a "GEOCITIES CONTRACT") in such a manner as would permit any other
party to cancel or terminate any such GeoCities Contract the effect of which
would have a Material Adverse Effect on GeoCities, or would permit any other
party to seek material damages or other remedies (for any or all of such
breaches, violations or defaults, in the aggregate).
2.15 POOLING OF INTERESTS. To the knowledge of GeoCities, based on
consultation with its independent accountants, neither GeoCities nor any of its
directors, officers, affiliates or stockholders has taken or agreed to take any
action which would preclude Yahoo!'s ability to account for the Merger as a
pooling of interests.
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2.16 CHANGE OF CONTROL PAYMENTS. The GeoCities Schedules set forth each
plan or agreement pursuant to which any amounts may become payable (whether
currently or in the future) to current or former officers and directors of
GeoCities as a result of or in connection with the Merger.
2.17 STATEMENTS; PROXY STATEMENT/PROSPECTUS. The information supplied by
GeoCities for inclusion in the Registration Statement (as defined in Section
3.3(b)) shall not at the time the Registration Statement is filed with the SEC
and at the time it becomes effective under the Securities Act contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The information
supplied by GeoCities for inclusion in the proxy statement/prospectus to be sent
to the stockholders of GeoCities in connection with the meeting of GeoCities'
stockholders to consider the approval and adoption of this Agreement and the
approval of the Merger (the "GEOCITIES STOCKHOLDERS' MEETING") (such proxy
statement/prospectus as amended or supplemented is referred to herein as the
"PROXY STATEMENT/PROSPECTUS") shall not, on the date the Proxy
Statement/Prospectus is first mailed to GeoCities' stockholders or at the time
of the GeoCities Stockholders' Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the GeoCities
Stockholders' Meeting which has become false or misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Securities Act, the Exchange Act and the rules and regulations
thereunder. If at any time prior to the Effective Time any event relating to
GeoCities or any of its affiliates, officers or directors should be discovered
by GeoCities which is required to be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement/Prospectus,
GeoCities shall promptly inform Yahoo!. Notwithstanding the foregoing, GeoCities
makes no representation or warranty with respect to any information supplied by
Yahoo! or Merger Sub which is contained in any of the foregoing documents.
2.18 BOARD APPROVAL. The Board of Directors of GeoCities has, as of the
date of this Agreement, determined (i) that the Merger is advisable and fair to,
and in the best interests of GeoCities and its stockholders and (ii) to
recommend that the stockholders of GeoCities approve and adopt this Agreement
and approve the Merger.
2.19 BROKERS' AND FINDERS' FEES. Except for fees payable to Goldman, Sachs
& Co., GeoCities has not incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby. A copy of the Goldman, Sachs & Co. engagement letter with
GeoCities has been previously provided to Yahoo!.
2.20 FAIRNESS OPINION. GeoCities' Board of Directors has received an
opinion from Goldman, Sachs & Co. as of the date hereof, to the effect that, as
of the date hereof, the Exchange Ratio is fair from a financial point of view to
GeoCities' stockholders (other than Yahoo! and its affiliates).
2.21 AFFILIATES. Set forth on the GeoCities Schedules is a list of those
persons who may be deemed to be, in GeoCities' reasonable judgment, affiliates
of GeoCities within the meaning of Rule 145 promulgated under the Securities Act
(each a "GEOCITIES AFFILIATE").
2.22 SECTION 203 NOT APPLICABLE. The Board of Directors of GeoCities has
taken all actions so that the restrictions contained in Section 203 of the
Delaware General Corporation Law applicable to a "business combination" (as
defined in such Section 203) will not apply to the execution, delivery or
performance of this Agreement or to the consummation of the Merger or the other
transactions contemplated by this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF YAHOO! AND MERGER SUB
Yahoo! and Merger Sub represent and warrant to GeoCities, subject to the
exceptions specifically disclosed in writing in the disclosure letter delivered
by Yahoo! to GeoCities dated as of the date hereof and certified by a duly
authorized officer of Yahoo! (the "YAHOO! SCHEDULES"), as follows:
3.1 ORGANIZATION OF YAHOO! AND MERGER SUB.
(a) Each of Yahoo! and Merger Sub (i) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is organized; (ii) has the corporate or other power and authority
to own, lease and operate its assets and property and to carry on its
business as now being conducted; and (iii) except as would not be material
to Yahoo!, is duly qualified or licensed to do business in each jurisdiction
where the character of the properties owned, leased or operated by it or the
nature of its activities makes such qualification or licensing necessary.
(b) Yahoo! has delivered or made available to GeoCities a true and
correct copy of the Certificate of Incorporation and Bylaws of Yahoo!, each
as amended to date, and each such instrument is in full force and effect.
Neither Yahoo! nor any of its subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent
governing instruments.
3.2 YAHOO! AND MERGER SUB CAPITAL STRUCTURE. The authorized capital stock
of Yahoo! consists of 225,000,000 shares of Yahoo! Common Stock, of which there
were 99,956,023 shares issued and outstanding as of January 26, 1999, and
10,000,000 shares of Preferred Stock, none of which are issued and outstanding.
All outstanding shares of Yahoo! Common Stock are duly authorized, validly
issued, fully paid and nonassessable and are not subject to preemptive rights
created by statute, the Certificate of Incorporation or Bylaws of Yahoo! or any
agreement or document to which Yahoo! is a party or by which it is bound. As of
January 25, 1999, there were options outstanding to purchase an aggregate of
25,836,093 shares of Yahoo! Common Stock under Yahoo!'s stock option plans. The
authorized capital stock of Merger Sub consists of 1,000 shares of Common Stock,
$0.01 par value, all of which, as of the date hereof, are issued and outstanding
and are held by Yahoo!. Merger Sub was formed for the purpose of consummating
the Merger and has no material assets or liabilities except as necessary for
such purpose.
3.3 AUTHORITY.
(a) Each of Yahoo! and Merger Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Yahoo! and
Merger Sub, subject only to the filing of the Certificate of Merger pursuant
to Delaware Law. This Agreement has been duly executed and delivered by each
of Yahoo! and Merger Sub and, assuming the due authorization, execution and
delivery by GeoCities, constitutes the valid and binding obligation of
Yahoo! and Merger Sub, enforceable against Yahoo! and Merger Sub in
accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. The
execution and delivery of this Agreement by each of Yahoo! and Merger Sub
does not, and the performance of this Agreement by each of Yahoo! and Merger
Sub will not, (i) conflict with or violate the Certificate of Incorporation
or Bylaws of Yahoo! or Merger Sub, (ii) conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Yahoo! or Merger
Sub or by which any of their respective properties is bound or affected, or
(iii) result in any material breach of or constitute a material default (or
an event that with notice or lapse of time or both would become a material
default) under, or impair Yahoo!'s rights or alter the rights or obligations
of any third party under, or give to others any rights of termination,
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amendment, acceleration or cancellation of; or result in the creation of a
material lien or encumbrance on any of the material properties or assets of
Yahoo! or Merger Sub pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation, in each case that is material to Yahoo!, to which Yahoo! or
Merger Sub is a party or by which Yahoo! or Merger Sub or any of their
respective properties are bound or affected.
(b) No consent, approval, order or authorization of; or registration,
declaration or filing with any Governmental Entity is required to be
obtained or made by Yahoo! or Merger Sub in connection with the execution
and delivery of this Agreement or the consummation of the Merger, except for
(i) the filing of a Form S-4 (or any similar successor form thereto)
Registration Statement (the "REGISTRATION STATEMENT") with the SEC in
accordance with the Securities Act, (ii) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (iii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal, foreign and state
securities (or related) laws and the HSR Act and the securities or antitrust
laws of any foreign country, and (v) such other consents, authorizations,
filings, approvals and registrations which if not obtained or made would not
be material to Yahoo! or GeoCities or have a material adverse effect on the
ability of the parties hereto to consummate the Merger.
3.4 SEC FILINGS; YAHOO! FINANCIAL STATEMENTS.
(a) Yahoo! has filed all forms, reports and documents required to be
filed by Yahoo! with the SEC since January 1, 1997, and has made available
to GeoCities such forms, reports and documents in the form filed with the
SEC. All such required forms, reports and documents (including those that
Yahoo! may file subsequent to the date hereof) are referred to herein as the
"YAHOO! SEC REPORTS." As of their respective dates, the Yahoo! SEC Reports
(i) were prepared in accordance with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such Yahoo! SEC Reports, and (ii) did not
at the time they were filed (or if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of Yahoo!'s subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Yahoo! SEC Reports (the
"YAHOO! FINANCIALS"), including any Yahoo! SEC Reports filed after the date
hereof until the Closing, (i) complied as to form in all material respects
with the published rules and regulations of the SEC with respect thereto,
(ii) was prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may be
permitted by the SEC on Form 1O-Q under the Exchange Act) and (iii) fairly
presented the consolidated financial position of Yahoo! and its subsidiaries
as at the respective dates thereof and the consolidated results of Yahoo!'s
operations and cash flows for the periods indicated, except that the
unaudited interim financial statements may not contain footnotes and were or
are subject to normal and recurring year-end adjustments. The balance sheet
of Yahoo! contained in Yahoo! SEC Reports as of September 30, 1998 is
hereinafter referred to as the "YAHOO! BALANCE SHEET."
(c) Yahoo! has heretofore furnished to GeoCities a complete and correct
copy of any amendments or modifications, which have not yet been filed with
the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Yahoo! with the SEC
pursuant to the Securities Act or the Exchange Act.
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3.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Yahoo!
Balance Sheet there has not been any Material Adverse Effect with respect to
Yahoo! and its subsidiaries, taken as a whole.
3.6 PROXY STATEMENT/PROSPECTUS. The information supplied by Yahoo! for
inclusion in the Registration Statement shall not at the time the Registration
Statement is filed with the SEC and at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The information supplied by Yahoo! for inclusion in the Proxy
Statement/Prospectus shall not, on the date the Proxy Statement/Prospectus is
first mailed to GeoCities' stockholders or at the time of the GeoCities
Stockholders' Meeting contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the GeoCities Stockholders' Meeting which has become
false or misleading. If at any time prior to the Effective Time, any event
relating to Yahoo! or any of its affiliates, officers or directors should be
discovered by Yahoo! which is required to be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement/Prospectus, Yahoo!
shall promptly inform GeoCities. Notwithstanding the foregoing, Yahoo! makes no
representation or warranty with respect to any information supplied by GeoCities
which is contained in any of the foregoing documents.
3.7 LITIGATION. There are no claims, suits, actions or proceedings pending
or, to the knowledge of Yahoo!, threatened against, relating to or affecting
Yahoo! or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seeks
to restrain or enjoin the consummation of the transactions contemplated by this
Agreement.
3.8 POOLING OF INTERESTS. To the knowledge of Yahoo!, based on
consultation with its independent accountants, neither Yahoo! nor any of its
directors, officers, affiliates or stockholders has taken or agreed to take any
action which would preclude Yahoo!'s ability to account for the Merger as a
pooling of interests.
3.9 AFFILIATES. Set forth on the Yahoo! Schedules is a list of those
persons who may be deemed to be, in Yahoo!'s reasonable judgment, affiliates of
Yahoo! within the meaning of Rule 145 promulgated under the Securities Act (each
a "YAHOO! AFFILIATE").
3.10 VALID ISSUANCE. The Yahoo! Common Stock to be issued in the Merger,
when issued in accordance with the provisions of this Agreement, will be validly
issued, fully paid and nonassessable.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS BY GEOCITIES. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, GeoCities and each of its
subsidiaries shall, except to the extent that Yahoo! shall otherwise consent in
writing, carry on its business in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted and in compliance in all
material respects with all applicable laws and regulations, pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, pay or
perform other material obligations when due, and use its commercially reasonable
efforts consistent with past practices and policies to (i) preserve intact its
present business organization, (ii) keep available the services of its present
officers and employees and (iii) preserve its relationships with customers,
suppliers, licensors, licensees, and others with which it has business dealings.
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In addition, except as permitted by the terms of this Agreement, and
except as provided in Schedule 4.1 of the GeoCities Schedules, without the
prior written consent of Yahoo!, during the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, GeoCities shall not
do any of the following and shall not permit its subsidiaries to do any of
the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of
such plans;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements in effect, or policies existing, on
the date hereof and as previously disclosed in writing to Yahoo!, or adopt
any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the GeoCities
Intellectual Property, other than non-exclusive licenses in the ordinary
course of business and consistent with past practice;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of GeoCities or its subsidiaries, except repurchases
of unvested shares at cost in connection with the termination of the
employment relationship with any employee pursuant to stock option or
purchase agreements in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber any
shares of capital stock or any securities convertible into shares of capital
stock, or subscriptions, rights, warrants or options to acquire any shares
of capital stock or any securities convertible into shares of capital stock,
or enter into other agreements or commitments of any character obligating it
to issue any such shares or convertible securities, other than the issuance
delivery and/or sale of (i) shares of GeoCities Common Stock pursuant to the
exercise of stock options therefor, and (ii) shares of GeoCities Common
Stock issuable to participants in the ESPP consistent with the terms
thereof;
(g) Cause, permit or propose any amendments to its Certificate of
Incorporation, Bylaws or other charter documents (or similar governing
instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof; or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to the business of GeoCities or enter into any material joint
ventures, strategic partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate,
to the business of GeoCities;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
GeoCities, enter into any "keep well" or other agreement to maintain any
financial statement condition or enter into any arrangement having the
economic effect of any of the foregoing other than (i) in connection with
the financing of ordinary course trade payables consistent with past
practice or (ii) pursuant to existing credit facilities in the ordinary
course of business;
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(k) Adopt or amend any employee benefit plan or employee stock purchase
or employee stock option plan, or enter into any employment contract or
collective bargaining agreement (other than offer letters and letter
agreements entered into in the ordinary course of business consistent with
past practice with employees who are terminable "at will"), pay any special
bonus or special remuneration to any director or employee, or increase the
salaries or wage rates or fringe benefits (including rights to severance or
indemnification) of its directors, officers, employees or consultants other
than in the ordinary course of business, consistent with past practice;
(l) Modify, amend or terminate any material contract or agreement to
which GeoCities or any subsidiary thereof is a party or waive, release or
assign any material rights or claims thereunder;
(m) Enter into any licensing, distribution, sponsorship, advertising,
merchant program or other similar contracts, agreements, or obligations
which may not be canceled without penalty by GeoCities or its subsidiaries
upon notice of 45 days or less or which provide for payments by or to
GeoCities or its subsidiaries in an amount in excess of $50,000 over the
term of the Agreement;
(n) Revalue any of its assets or, except as required by GAAP, make any
change in accounting methods, principles or practices;
(o) Take any action, or omit to take any action, that would be
reasonably likely to interfere with Yahoo!'s ability to account for the
Merger as a pooling of interests, whether or not otherwise permitted by the
provisions of this Article IV;
(p) Fail to make in a timely manner any filings with the SEC required
under the Securities Act or the Exchange Act or the rules and regulations
promulgated thereunder;
(q) Engage in any action with the intent to directly or indirectly
adversely impact any of the transactions contemplated by this Agreement; or
(r) Agree in writing or otherwise to take any of the actions described
in Section 4.1 (a) through (q) above.
4.2 CONDUCT OF BUSINESS BY YAHOO!. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, without the prior written consent
of GeoCities, Yahoo! shall not do any of the following and shall not permit its
subsidiaries to do any of the following:
(a) Cause, permit or propose any amendments to its Articles of
Incorporation or Bylaws or other charter documents (or similar governing
instruments of any of its subsidiaries) in a manner that would have an
adverse impact on GeoCities' stockholders; PROVIDED that the foregoing shall
not restrict the ability of Yahoo! to reincorporate in another jurisdiction
prior to the termination of this Agreement or the Effective Time; or
(b) Take any action that would be reasonably likely to interfere with
Yahoo!'s ability to account for the Merger as a pooling of interests,
whether or not otherwise permitted by this Article IV.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT; OTHER FILINGS;
BOARD RECOMMENDATIONS.
(a) As promptly as practicable after the execution of this Agreement,
GeoCities and Yahoo! will prepare, and file with the SEC, the Proxy
Statement/Prospectus and Yahoo! will prepare and file with the SEC the
Registration Statement in which the Proxy Statement/Prospectus will be
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included as a prospectus. Each of GeoCities and Yahoo! will respond to any
comments of the SEC, will use its respective commercially reasonable efforts
to have the Registration Statement declared effective under the Securities
Act as promptly as practicable after such filing and GeoCities will cause
the Proxy Statement/Prospectus to be mailed to its stockholders at the
earliest practicable time after the Registration Statement is declared
effective by the SEC. As promptly as practicable after the date of this
Agreement, each of GeoCities and Yahoo! will prepare and file any other
filings required to be filed by it under the Exchange Act, the Securities
Act or any other Federal, foreign or Blue Sky or related laws relating to
the Merger and the transactions contemplated by this Agreement (the "OTHER
FILINGS"). Each of GeoCities and Yahoo! will notify the other promptly upon
the receipt of any comments from the SEC or its staff or any other
government officials and of any request by the SEC or its staff or any other
government officials for amendments or supplements to the Registration
Statement, the Proxy Statement/Prospectus or any Other Filing or for
additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC or its staff or any other government officials, on the
other hand, with respect to the Registration Statement, the Proxy
Statement/Prospectus, the Merger or any Other Filing. Each of GeoCities and
Yahoo! will cause all documents that it is responsible for filing with the
SEC or other regulatory authorities under this Section 5.1(a) to comply in
all material respects with all applicable requirements of law and the rules
and regulations promulgated thereunder. Whenever any event occurs which is
required to be set forth in an amendment or supplement to the Proxy
Statement/Prospectus, the Registration Statement or any Other Filing,
GeoCities or Yahoo!, as the case may be, will promptly inform the other of
such occurrence and cooperate in filing with the SEC or its staff or any
other government officials, and/or mailing to stockholders of GeoCities,
such amendment or supplement.
(b) Each of Yahoo! and GeoCities shall use commercially reasonable
efforts to cause its respective independent accountants to deliver as
promptly as practicable following the date hereof audited financial
statements for the year ended December 31, 1998.
5.2 MEETING OF GEOCITIES STOCKHOLDERS.
(a) Promptly after the date hereof, GeoCities will take all action
necessary in accordance with the Delaware Law and its Certificate of
Incorporation and Bylaws to convene the GeoCities Stockholders' Meeting to
be held as promptly as practicable after the declaration of effectiveness of
the Registration Statement, for the purpose of voting upon this Agreement
and the Merger. GeoCities will use its commercially reasonable efforts to
solicit from its stockholders proxies in favor of the adoption and approval
of this Agreement and the approval of the Merger and will take all other
action necessary or advisable to secure the vote or consent of its
stockholders required by the rules of the NASD or Delaware Law to obtain
such approvals. Notwithstanding anything to the contrary contained in this
Agreement, GeoCities may adjourn or postpone GeoCities Stockholders' Meeting
to the extent necessary to ensure that any necessary supplement or amendment
to the Prospectus/Proxy Statement is provided to GeoCities' stockholders in
advance of a vote on the Merger and this Agreement or, if as of the time for
which GeoCities Stockholders' Meeting is originally scheduled (as set forth
in the Prospectus/Proxy Statement) there are insufficient shares of
GeoCities Common Stock represented (either in person or by proxy) to
constitute a quorum necessary to conduct the business of the GeoCities'
Stockholders' Meeting. GeoCities shall ensure that the GeoCities
Stockholders' Meeting is called, noticed, convened, held and conducted, and
subject to Section 5.2(c) that all proxies solicited by the GeoCities in
connection with the GeoCities Stockholders' Meeting are solicited, in
compliance with the Delaware Law, its Certificate of Incorporation and
Bylaws, the rules of the NASD and all other applicable legal requirements.
GeoCities' obligation to call, give notice of, convene and hold the
GeoCities Stockholders' Meeting in accordance with this Section 5.2(a) shall
not be limited to or
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otherwise affected by the commencement, disclosure, announcement or
submission to GeoCities of any Acquisition Proposal, or by any withdrawal,
amendment or modification of the recommendation of the Board of Directors of
GeoCities with respect to the Merger.
(b) Subject to Section 5.2(c): (i) the Board of Directors of GeoCities
shall recommend that GeoCities' stockholders vote in favor of and adopt and
approve this Agreement and the Merger at the GeoCities Stockholders'
Meeting; (ii) the Prospectus/Proxy Statement shall include a statement to
the effect that the Board of Directors of the GeoCities has recommended that
GeoCities' stockholders vote in favor of and adopt and approve this
Agreement and the Merger at the GeoCities Stockholders' Meeting; and (iii)
neither the Board of Directors of GeoCities nor any committee thereof shall
withdraw, amend or modify, or propose or resolve to withdraw, amend or
modify in a manner adverse to Yahoo!, the recommendation of the Board of
Directors of GeoCities that GeoCities' stockholders vote in favor of and
adopt and approve this Agreement and the Merger.
(c) Nothing in this Agreement shall prevent the Board of Directors of
GeoCities from withholding, withdrawing, amending or modifying its
recommendation in favor of the Merger if (i) a Superior Offer (as defined
below), or an offer reasonably believed by the Board of Directors of
GeoCities to be a Superior Offer, is made to the GeoCities and is not
withdrawn, (ii) neither GeoCities nor any of its representatives shall have
violated any of the restrictions set forth in Section 5.4, and (iii) the
Board of Directors of GeoCities or any committee thereof concludes in good
faith, after consultation with its outside counsel, that, in light of such
Superior Offer, the withholding, withdrawal, amendment or modification of
such recommendation is required in order for the Board of Directors of
GeoCities or any committee thereof to comply with its obligations to
GeoCities' stockholders under applicable law. Nothing contained in this
Section 5.2(c) shall limit GeoCities' obligation to hold and convene the
GeoCities Stockholders' Meeting (regardless of whether the recommendation of
the Board of Directors of the GeoCities shall have been withdrawn, amended
or modified). For purposes of this Agreement ("SUPERIOR OFFER") shall mean
an unsolicited, bona fide written offer made by a third party to consummate
any of the following transactions: (i) a merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving GeoCities pursuant to which the stockholders of
GeoCities immediately preceding such transaction hold less than 50% of the
equity interest in the surviving or resulting entity of such transaction;
(ii) a sale or other disposition by GeoCities of assets representing in
excess of 50% of the fair market value of GeoCities' business immediately
prior to such sale, or (iii) the acquisition by any person or group
(including by way of a tender offer or an exchange offer or issuance by
GeoCities), directly or indirectly, of beneficial ownership or a right to
acquire beneficial ownership of shares representing in excess of 50% of the
voting power of the then outstanding shares of capital stock of the
GeoCities, on terms that the Board of Directors of GeoCities determines, in
its reasonable judgment, after consultation with its financial advisor, to
be more favorable, or is reasonably likely to be more favorable, to
GeoCities stockholders than the terms of the Merger; PROVIDED, HOWEVER, that
any such offer shall not be deemed to be a "Superior Offer" if any financing
required to consummate the transaction contemplated by such offer is not
committed and is not likely in the judgment of GeoCities' Board of Directors
to be obtained by such third party on a timely basis.
5.3 CONFIDENTIALITY; ACCESS TO INFORMATION.
(a) The parties acknowledge that GeoCities and Yahoo! have previously
executed a Confidentiality Agreement (the "CONFIDENTIALITY AGREEMENT"),
which Confidentiality Agreement will continue in full force and effect in
accordance with its terms.
(b) GeoCities will afford Yahoo! and its accountants, counsel and other
representatives reasonable access during normal business hours to the
properties, books, records and personnel of GeoCities during the period
prior to the Effective Time to obtain all information concerning the
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business, including the status of product development efforts, properties,
results of operations and personnel of GeoCities, as Yahoo! may reasonably
request. Yahoo! will afford GeoCities and its representatives reasonable
access to information concerning Yahoo!'s business that GeoCities may
reasonably request in order to permit, and solely for the purpose of
permitting, GeoCities to confirm the accuracy of the representations and
warranties made by Yahoo! in Article III. No information or knowledge
obtained by Yahoo! or GeoCities in any investigation pursuant to this
Section 5.3 will affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the
parties to consummate the Merger.
5.4 NO SOLICITATION.
(a) From and after the date of this Agreement until the Effective Time
or termination of this Agreement pursuant to Article VII, GeoCities and its
subsidiaries will not, nor will they authorize or permit any of their
respective officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by any of them
to, directly or indirectly, (i) solicit, initiate, encourage or induce the
making, submission or announcement of any Acquisition Proposal (as
hereinafter defined), (ii) participate in any discussions or negotiations
regarding, or furnish to any person any non-public information with respect
to, or take any other action to facilitate any inquiries or the making of
any proposal that constitutes or may reasonably be expected to lead to, any
Acquisition Proposal, (iii) engage in discussions with any person with
respect to any Acquisition Proposal, except as to the existence of these
provisions, (iv) subject to Section 5.2(c), approve, endorse or recommend
any Acquisition Proposal or (v) enter into any letter of intent or similar
document or any contract, agreement or commitment contemplating or otherwise
relating to any Acquisition Transaction; PROVIDED, HOWEVER, that prior to
the approval of this Agreement by the required GeoCities stockholder vote,
this Section 5.4(a) shall not prohibit GeoCities from furnishing nonpublic
information regarding GeoCities and its subsidiaries to, entering into a
confidentiality agreement with or entering into discussions with, any person
or group in response to a Superior Offer submitted by such person or group
(and not withdrawn) if (1) neither GeoCities nor any representative of
GeoCities and its subsidiaries shall have violated any of the restrictions
set forth in this Section 5.4, (2) the Board of Directors of GeoCities
concludes in good faith, after consultation with its outside legal counsel,
that such action is required in order for the Board of Directors of
GeoCities to comply with its fiduciary obligations to GeoCities'
stockholders under applicable law, (3) prior to furnishing any such
nonpublic information to, or entering into discussions with, such person or
group, GeoCities gives Yahoo! written notice of the identity of such person
or group and of GeoCities' intention to furnish nonpublic information to, or
enter into discussions with, such person or group and the GeoCities receives
from such person or group an executed confidentiality agreement containing
customary limitations on the use and disclosure of all nonpublic written and
oral information furnished to such person or group by or on behalf of the
GeoCities, and (4) contemporaneously with furnishing any such nonpublic
information to such person or group, GeoCities furnishes such nonpublic
information to Yahoo! (to the extent such nonpublic information has not been
previously furnished by the GeoCities to Yahoo!). GeoCities and its
subsidiaries will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any Acquisition Proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding
two sentences by any officer, director or employee of GeoCities or any of
its subsidiaries or any investment banker, attorney or other advisor or
representative of GeoCities or any of its subsidiaries shall be deemed to be
a breach of this Section 5.4 by GeoCities. In addition to the foregoing, the
GeoCities shall provide Yahoo! with at least two (2) business days or
forty-eight (48) hours prior written notice of a meeting of GeoCities' Board
of Directors at which GeoCities' Board of Directors is reasonably expected
to recommend a Superior Offer to its stockholders and together with such
notice a copy of the documentation relating to such Superior Offer that
exists at such time.
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For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any bona
fide offer or proposal (other than an offer or proposal by Yahoo!) relating
to any Acquisition Transaction. For the purposes of this Agreement,
"ACQUISITION TRANSACTION" shall mean any transaction or series of related
transactions other than the transactions contemplated by this Agreement
involving: (A) any acquisition or purchase from the GeoCities by any person
or "group" (as defined under Section 13(d) of the Exchange Act and the rules
and regulations thereunder) of more than a 15% interest in the total
outstanding voting securities of the GeoCities or any of its subsidiaries or
any tender offer or exchange offer that if consummated would result in any
person or "group" (as defined under Section 13(d) of the Exchange Act and
the rules and regulations thereunder) beneficially owning 15% or more of the
total outstanding voting securities of the GeoCities or any of its
subsidiaries or any merger, consolidation, business combination or similar
transaction involving the GeoCities pursuant to which the stockholders of
the GeoCities immediately preceding such transaction hold less than 85% of
the equity interests in the surviving or resulting entity of such
transaction; (B) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than 50% of the assets of the
GeoCities; or (C) any liquidation or dissolution of the GeoCities.
(b) In addition to the obligations of GeoCities set forth in paragraph
(a) of this Section 5.4, GeoCities as promptly as practicable shall advise
Yahoo! orally and in writing of any request for non-public information which
GeoCities reasonably believes would lead to an Acquisition Proposal or of
any Acquisition Proposal, or any inquiry with respect to or which GeoCities
reasonably should believe would lead to any Acquisition Proposal, the
material terms and conditions of such Acquisition Proposal (to the extent
known), and the identity of the person or group making any such request,
Acquisition Proposal or inquiry. GeoCities will keep Yahoo! informed in all
material respects of any material amendments or proposed amendments to any
such Acquisition Proposal.
5.5 PUBLIC DISCLOSURE. Yahoo! and GeoCities will consult with each other,
and to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Merger, this Agreement
or an Acquisition Proposal and will not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law or any listing agreement with a national securities exchange. The parties
have agreed to the text of the joint press release announcing the signing of
this Agreement.
5.6 REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including using reasonable efforts to
accomplish the following: (i) the taking of all reasonable acts necessary to
cause the conditions precedent set forth in Article VI to be satisfied, (ii)
the obtaining of all necessary actions or nonactions, waivers, consents,
approvals, orders and authorizations from Governmental Entities and the
making of all necessary registrations, declarations and filings (including
registrations, declarations and filings with Governmental Entities, if any)
and the taking of all reasonable steps as may be necessary to avoid any
suit, claim, action, investigation or proceeding by any Governmental Entity,
(iii) the obtaining of all necessary consents, approvals or waivers from
third parties, (iv) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions
contemplated hereby, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated
or reversed, and (v) the execution or delivery of any additional instruments
necessary to consummate the
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transactions contemplated by, and to fully carry out the purposes of, this
Agreement. In connection with and without limiting the foregoing, GeoCities
and its Board of Directors shall, if any state takeover statute or similar
statute or regulation is or becomes applicable to the Merger, this Agreement
or any of the transactions contemplated by this Agreement, use all
reasonable efforts to ensure that the Merger and the other ransactions
contemplated by this Agreement may be consummated as promptly as practicable
on the terms contemplated by this Agreement and otherwise to minimize the
effect of such statute or regulation on the Merger, this Agreement and the
transactions contemplated hereby. Notwithstanding anything herein to the
contrary, nothing in this Agreement shall be deemed to require Yahoo! or any
of its affiliates to make proposals, execute or carry out agreements or
submit to orders providing for the sale or other disposition or holding
separate (through the establishment of a trust or otherwise) of any assets
or categories of assets of Yahoo!, any of its affiliates or GeoCities or the
holding separate of the shares of GeoCities Common Stock or imposing or
seeking to impose any limitation on the ability of Yahoo! or any of its
subsidiaries or affiliates to conduct their business or own such assets or
to acquire, hold or exercise full rights of ownership of the shares of
GeoCities Common Stock.
(b) GeoCities shall give prompt notice to Yahoo! of any representation
or warranty made by it contained in this Agreement becoming untrue or
inaccurate, or any failure of GeoCities to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, in each case, such that the conditions
set forth in Section 6.3(a) or 6.3(b) would not be satisfied; PROVIDED,
HOWEVER, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
(c) Yahoo! shall give prompt notice to GeoCities of any representation
or warranty made by it or Merger Sub contained in this Agreement becoming
untrue or inaccurate, or any failure of Yahoo! or Merger Sub to comply with
or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, in each case, such
that the conditions set forth in Section 6.2(a) or 6.2(b) would not be
satisfied; PROVIDED, HOWEVER, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.7 THIRD PARTY CONSENTS. As soon as practicable following the date
hereof, Yahoo! and GeoCities will each use its commercially reasonable efforts
to obtain any consents, waivers and approvals under any of its or its
subsidiaries' respective agreements, contracts, licenses or leases required to
be obtained in connection with the consummation of the transactions contemplated
hereby.
5.8 STOCK OPTIONS AND ESPP.
(a) At the Effective Time, each outstanding option to purchase shares of
GeoCities Common Stock (each a "GEOCITIES STOCK OPTION") under the GeoCities
Stock Option Plans, whether or not exercisable, will be assumed by Yahoo!.
Each GeoCities Stock Option so assumed by Yahoo! under this Agreement will
continue to have, and be subject to, the same terms and conditions set forth
in the applicable GeoCities Stock Option Plan immediately prior to the
Effective Time (including, without limitation, any repurchase rights or
vesting provisions), except that (i) each GeoCities Stock Option will be
exercisable (or will become exercisable in accordance with its terms) for
that number of whole shares of Yahoo! Common Stock equal to the product of
the number of shares of GeoCities Common Stock that were issuable upon
exercise of such GeoCities Stock Option immediately prior to the Effective
Time multiplied by the Exchange Ratio, rounded down to the nearest whole
number of shares of Yahoo! Common Stock and (ii) the per share exercise
price for the shares of Yahoo! Common Stock issuable upon exercise of such
assumed GeoCities Stock Option will be equal to the quotient determined by
dividing the exercise price per share of GeoCities Common Stock at which
such GeoCities Stock Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
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(b) It is intended that GeoCities Stock Options assumed by Yahoo! shall
qualify following the Effective Time as incentive stock options as defined
in Section 422 of the Code to the extent GeoCities Stock Options qualified
as incentive stock options immediately prior to the Effective Time and the
provisions of this Section 5.8 shall be applied consistent with such intent.
(c) GeoCities shall take all actions necessary pursuant to the terms of
the ESPP in order to accelerate the purchase date of the purchase period
under such plan which includes the Effective Time (the "CURRENT PURCHASE
PERIOD") such that a new purchase date for such purchase period shall occur
prior to the Effective Time and shares shall be purchased by ESPP
participants prior to the Effective Time. The Current Purchase Period shall
expire immediately following such new purchase date, and the ESPP shall
terminate immediately prior to the Effective Time. Subsequent to such new
purchase date, GeoCities shall take no action, pursuant to the terms of the
ESPP, to commence any new purchase period.
5.9 FORM S-8. Yahoo! agrees to file a registration statement on Form S-8
for the shares of Yahoo! Common Stock issuable with respect to assumed GeoCities
Stock Options as soon as is reasonably practicable after the Effective Time, and
in any event within 30 days after the Effective Time, and intends to maintain
the effectiveness of such registration statement thereafter for so long as any
of such options or other rights remain outstanding.
5.10 INDEMNIFICATION.
(a) From and after the Effective Time, Yahoo! will cause the Surviving
Corporation to fulfill and honor in all respects the obligations of
GeoCities pursuant to any indemnification agreements between GeoCities and
its directors and officers as of the Effective Time (the "INDEMNIFIED
PARTIES") and any indemnification provisions under GeoCities' Certificate of
Incorporation or Bylaws as in effect on the date hereof. The Certificate of
Incorporation and Bylaws of the Surviving Corporation will contain
provisions with respect to exculpation and indemnification that are at least
as favorable to the Indemnified Parties as those contained in the
Certificate of Incorporation and Bylaws of GeoCities as in effect on the
date hereof, which provisions will not be amended, repealed or otherwise
modified for a period of three years from the Effective Time in any manner
that would adversely affect the rights thereunder of individuals who,
immediately prior to the Effective Time, were directors, officers, employees
or agents of GeoCities, unless such modification is required by law.
(b) For a period of three years after the Effective Time, Yahoo! will
cause the Surviving Corporation to use its commercially reasonable efforts
to maintain in effect, if available, directors' and officers' liability
insurance covering those persons who are currently covered by GeoCities'
directors' and officers' liability insurance policy on terms comparable to
those applicable to the current directors and officers of GeoCities;
PROVIDED, HOWEVER, that in no event will Yahoo! or the Surviving Corporation
be required to expend in excess of 125% of the annual premium currently paid
by GeoCities for such coverage (or such coverage as is available for such
125% of such annual premium).
(c) This Section 5.10 shall survive the consummation of the Merger, is
intended to benefit GeoCities, the Surviving Corporation and each
indemnified party, shall be binding on all successors and assigns of the
Surviving Corporation and Yahoo!, and shall be enforceable by the
indemnified parties.
5.11 NASDAQ LISTING. Yahoo! agrees to authorize for listing on the Nasdaq
Stock Market the shares of Yahoo! Common Stock issuable, and those required to
be reserved for issuance, in connection with the Merger, upon official notice of
issuance
5.12 AFFILIATE AGREEMENTS. In addition to those GeoCities Affiliate
Agreements executed and delivered to Yahoo! concurrently with the execution of
this Agreement, GeoCities will use its
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commercially reasonable efforts to deliver or cause to be delivered to Yahoo!,
as promptly as practicable on or following the date hereof, from each additional
GeoCities Affiliate an executed GeoCities Affiliate Agreement, each of which
will be in full force and effect as of the Effective Time. Yahoo! will use its
commercially reasonable efforts to deliver or cause to be delivered, as promptly
as practicable following the date hereof, from each Yahoo! Affiliate an executed
affiliate agreement in substantially the form attached hereto as EXHIBIT C (the
"YAHOO! AFFILIATE AGREEMENT"), each of which will be in full force and effect as
of the Effective Time. Yahoo! will be entitled to place appropriate legends on
the certificates evidencing any Yahoo! Common Stock to be received by a
GeoCities Affiliate pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the Yahoo!
Common Stock, consistent with the terms of the GeoCities Affiliate Agreement.
5.13 [RESERVED]
5.14 GEOCITIES STOCK OPTION.
(a) GRANT OF GEOCITIES STOCK OPTION. Subject to the terms of Section
7.3(d), GeoCities hereby grants to Yahoo! an irrevocable option (the
"GEOCITIES STOCK OPTION") to purchase for $113.66 per share (the "EXERCISE
PRICE") in cash up to 6,370,000 shares of GeoCities Common Stock.
(b) TERM OF GEOCITIES STOCK OPTION. Yahoo! may exercise the GeoCities
Stock Option, in whole or in part, at any time or from time to time from the
day (the "EXERCISE COMMENCEMENT DATE") on which a Triggering Event (as such
term is defined in Section 7.1) shall have occurred or on which this
Agreement shall be terminated in the circumstances contemplated by Section
7.1(d), until the day (the "OPTION TERMINATION DATE") which is the earlier
of (i) the Effective Time or (ii) nine months after the termination of this
Agreement.
(c) CONDITIONS TO PURCHASE. Yahoo! may purchase shares of GeoCities
Common Stock pursuant to the GeoCities Stock Option only if all of the
following conditions are satisfied: (i) Yahoo! is not at the time of
purchase in material breach of its obligations under this Agreement, (ii) no
preliminary or permanent injunction or other order, decree or ruling against
the sale or delivery of the shares of GeoCities Common Stock issued by any
federal or state court of competent jurisdiction in the United States is in
effect at such time, and (iii) any applicable waiting period under the HSR
Act shall have expired or been terminated at or prior to such time.
(d) EXERCISE OF STOCK OPTION. If Yahoo! wishes to exercise the
GeoCities Stock Option, it shall do so by giving the GeoCities notice to
such effect, specifying the number of Shares to be purchased and a place and
date not earlier than one business day nor later than ten business days from
the date such notice is given for the closing of the purchase. If any such
closing cannot be consummated on the date specified by Yahoo! in its notice
of election to exercise the GeoCities Stock Option because any condition to
the purchase of shares of GeoCities Common Stock has not been satisfied or
as a result of any restriction arising under any applicable law or
regulation, the date for such closing shall be on such date within five days
following the satisfaction of all such conditions and the cessation of all
such restrictions as Yahoo! may specify.
(e) PAYMENT AND DELIVERY OF SHARES. At any closing in connection with
the GeoCities Stock Option, (i) Yahoo! shall make payment to the GeoCities
of the aggregate purchase price for the shares of GeoCities Common Stock to
be purchased by delivery to the GeoCities of a certified, cashier's or bank
check payable to the order of the GeoCities or, if mutually agreed, by wire
transfer of funds to an account designated by the GeoCities, and (ii) the
GeoCities shall deliver to Yahoo! a certificate or certificates representing
the shares so purchased, registered in the name of Yahoo! or its designee.
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(f) CERTAIN ADJUSTMENTS. In the event of any change in the GeoCities'
capital stock by reason of stock dividends, stock splits, mergers,
consolidations, recapitalizations, combinations, conversions, exchanges of
shares, extraordinary or liquidating dividends, or other changes in the
corporate or capital structure of the GeoCities which would have the effect
of diluting or changing Yahoo!'s rights hereunder, the number and kind of
shares of GeoCities Common Stock subject to the GeoCities Stock Option and
the purchase price per Share (but not the total purchase price) shall be
appropriately and equitably adjusted so that Yahoo! shall receive upon
exercise of the GeoCities Stock Option the number and class of shares of
GeoCities Common Stock or other securities or property that Yahoo! would
have received in respect of the shares purchasable upon exercise of the
GeoCities Stock Option if the GeoCities Stock Option had been exercised
immediately prior to such event.
(g) SURRENDER RIGHT. At any time or from time to time after the
Exercise Commencement Date, Yahoo! may, at its election, upon two days'
notice to the GeoCities, surrender all or a part of the GeoCities Stock
Option to GeoCities, in which event GeoCities shall pay to Yahoo!, on the
day of each such surrender and in consideration thereof, against tender by
Yahoo! of an instrument evidencing such surrender, an amount in cash per
share of GeoCities Common Stock the rights to which are surrendered equal to
(i) the closing sale price of the GeoCities' Common Stock on the Nasdaq
Stock Market on the date of surrender (or the closing price as reported by
any other applicable securities exchange if not listed on the Nasdaq Stock
Market), or if not actively traded, the fair market value as determined by
investment bankers chosen by Yahoo over (ii) the Exercise Price. Upon
exercise of its right to surrender the GeoCities Stock Option or any portion
thereof and the receipt by Yahoo! of cash pursuant to this Section 5.14(g),
any and all rights of Yahoo! to purchase shares of GeoCities Common Stock
with respect to the portion of the GeoCities Stock Option surrendered
pursuant to this Section shall be terminated.
(h) LISTING AND RESERVATION OF SHARES; NOTIFICATION OF RECORD DATES.
(i) Promptly after the date hereof, and from time to time thereafter
if necessary, GeoCities will apply to list all of the shares of GeoCities
Common Stock subject to the GeoCities Stock Option on the Nasdaq Stock
Market and will use its best efforts to obtain approval of such listing
as soon as practicable.
(ii) GeoCities has taken all necessary corporate and other action to
authorize and reserve and to permit it to issue, and at all times from
the date hereof until such time as the obligation to deliver shares of
GeoCities Common Stock upon the exercise of the GeoCities Stock Option
terminates, will have reserved for issuance, upon any exercise of the
GeoCities Stock Option, the number of shares of GeoCities Common Stock
subject to the GeoCities Stock Option (less the number of shares
previously issued upon any partial exercise of the GeoCities Stock Option
or as to which the GeoCities Stock Option may no longer be exercised).
(iii) GeoCities shall give Yahoo! at least ten days' prior written
notice before setting the record date for determining the holders of
record of shares of GeoCities Common Stock entitled to notice of, or to
vote on, any matter, to receive any dividend or distribution or to
participate in any rights offering or other matter, or to receive any
other benefit or right, with respect to shares of GeoCities Common Stock.
(i) REGISTRATION OF THE SHARES.
(i) If Yahoo! requests GeoCities in writing to register under the
Securities Act any of the shares of GeoCities Common Stock owned by
Yahoo!, GeoCities will use its best efforts to cause the offering of the
shares so specified in such request to be registered as soon as
practicable so as to permit the sale or other distribution by Yahoo! of
the shares specified in
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its request (and to keep such registration in effect for a period of at
least 90 days), and in connection therewith prepare and file as promptly
as reasonably possible (but in no event later than 60 days from receipt
of Yahoo!'s request) a registration statement under the Securities Act to
effect such registration on an appropriate form, which would permit the
sale of the shares of GeoCities Common Stock by Yahoo! in the manner
specified by Yahoo! in its request. GeoCities shall not be obligated to
make effective more than three registration statements pursuant to the
foregoing sentence. Upon written notice to Yahoo!, GeoCities may postpone
effecting a registration pursuant to this Section 5.14 on one occasion
during any period of six consecutive months for a reasonable time
specified in the notice but not exceeding 90 days (which period may not
be extended or renewed) if (1) an investment banking firm of recognized
national standing shall advise GeoCities and Yahoo! in writing that
effecting the registration would materially and adversely affect an
offering of securities of GeoCities the preparation of which had then
been commenced, or (2) GeoCities is in possession of material non-public
information the disclosure of which during the period specified in such
notice GeoCities believes, in its reasonable judgment, would not be in
the best interests of GeoCities. The obligations of GeoCities under this
Section 5.14 (i)(i) shall terminate at such time as Yahoo! may sell all
shares of GeoCities Common Stock without restriction under Rule 144 (k).
(ii) GeoCities shall notify Yahoo! in writing not less than ten days
prior to filing a registration statement under the Securities Act (other
than a filing on Form S-4 or S-8) with respect to any shares of GeoCities
Common Stock of GeoCities' intention so to file. If Yahoo! wishes to have
any portion of its shares of GeoCities Common Stock included in such
registration statement, it shall advise GeoCities in writing to that
effect within two business days following receipt of such notice, and
GeoCities will thereupon include the number of shares of GeoCities Common
Stock indicated by Yahoo! under such Registration Statement. If such
registration involves an underwritten public offering and the managing
underwriter shall advise GeoCities and Yahoo! that in its view the number
of shares of GeoCities Common Stock requested to be included in such
registration (including any securities which the GeoCities proposes to be
included) exceeds the largest number of shares which can be sold without
having an adverse effect on such offering, including the price at which
such shares can be sold (the "MAXIMUM OFFERING SIZE"), GeoCities will
include in such registration, up to the Maximum Offering Size, first, all
securities proposed to be registered by GeoCities, and second, shares of
GeoCities Common Stock requested to be registered by Yahoo!.
(iii) GeoCities shall pay all fees and expenses in connection with
any registration pursuant to this Section 5.14 other than underwriting
discounts and commissions to brokers or dealers and shall indemnify
Yahoo!, its officers, directors, agents, other controlling persons and
any underwriters retained by Yahoo! in connection with such sale of such
shares of GeoCities Common Stock in the customary way, and agree to
customary contribution provisions with such persons, with respect to
claims, damages, losses and liabilities (and any expenses relating
thereto) arising (or to which Yahoo!, its officers, directors, agents,
other controlling persons or underwriters may be subject) in connection
with any such offer or sale under the federal securities laws or
otherwise, except for information furnished in writing by Yahoo! or its
underwriters to GeoCities. Yahoo! and its underwriters, respectively,
shall indemnify GeoCities to the same extent with respect to information
furnished in writing to GeoCities by Yahoo! and such underwriters.
5.15 LETTER OF GEOCITIES' ACCOUNTANTS. GeoCities shall use all reasonable
efforts to cause to be delivered to Yahoo! a letter of PricewaterhouseCoopers
LLP, dated no more than two (2) business days before the date on which the
Registration Statement becomes effective (and reasonably satisfactory in form
and substance to Yahoo!), that is customary in scope and substance for letters
delivered by
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independent public accountants in connection with registration statements
similar to the Registration Statement.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) GEOCITIES STOCKHOLDER APPROVAL. This Agreement shall have been
approved and adopted, and the Merger shall have been duly approved, by the
requisite vote under applicable law, by the stockholders of GeoCities.
(b) REGISTRATION STATEMENT EFFECTIVE; PROXY STATEMENT. The SEC shall
have declared the Registration Statement effective. No stop order suspending
the effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose, and no similar
proceeding in respect of the Proxy Statement/Prospectus, shall have been
initiated or threatened in writing by the SEC.
(c) NO ORDER; HSR ACT. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger. All waiting periods, if any, under the HSR Act relating to the
transactions contemplated hereby will have expired or terminated early and
all material foreign antitrust approvals required to be obtained prior to
the Merger in connection with the transactions contemplated hereby shall
have been obtained.
(d) TAX OPINIONS. Yahoo! and GeoCities shall each have received
written opinions from their respective tax counsel (Venture Law Group, A
Professional Corporation, and Brobeck, Phleger & Harrison LLP,
respectively), in form and substance reasonably satisfactory to them, to the
effect that the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code and such opinions shall not have been
withdrawn; PROVIDED, HOWEVER, that if the counsel to either Yahoo! or
GeoCities does not render such opinion, this condition shall nonetheless be
deemed to be satisfied with respect to such party if counsel to the other
party renders such opinion to such party. The parties to this Agreement
agree to make reasonable representations as requested by such counsel for
the purpose of rendering such opinions.
(e) NASDAQ LISTING. The shares of Yahoo! Common Stock to be issued in
the Merger shall have been approved for listing on the Nasdaq Stock Market.
(f) OPINION OF ACCOUNTANTS. Yahoo! shall have received letters from
PricewaterhouseCoopers LLP, dated within two (2) business days prior to the
Effective Time, regarding that firm's concurrence with Yahoo!'s management's
and GeoCities' management's conclusions as to the appropriateness of pooling
of interest accounting for the Merger under Accounting Principles Board
Opinion No. 16, if the Merger is consummated in accordance with this
Agreement; PROVIDED, HOWEVER, that this condition shall be deemed waived by
GeoCities in the event that any action taken by, or omitted to be taken by,
GeoCities or any of its shareholders, employees or affiliates shall have the
been the proximate cause of the inability of Yahoo! to account for the
Merger as a pooling of interests.
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6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF GEOCITIES. The obligation of
GeoCities to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by GeoCities:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and warranty
of Yahoo! and Merger Sub contained in this Agreement (i) shall have been
true and correct in all material respects as of the date of this Agreement,
and (ii) shall be true and correct on and as of the Closing Date with the
same force and effect as if made on the Closing Date except (A) in each
case, or in the aggregate, as does not constitute a Material Adverse Effect
on Yahoo! and Merger Sub, (B) for changes contemplated by this Agreement,
and (C) for those representations and warranties which address matters only
as of a particular date (which representations shall have been true and
correct except as does not constitute a Material Adverse Effect on Yahoo!
and Merger Sub as of such particular date) (it being understood that, for
purposes of determining the accuracy of such representations and warranties
for purposes of clause (ii), (1) all "Material Adverse Effect"
qualifications and other qualifications based on the word "material" or
similar phrases contained in such representations and warranties shall be
disregarded, and (2) any update of or modification to the Yahoo! Schedules
made or purported to have been made after the date of this Agreement shall
be disregarded). GeoCities shall have received a certificate with respect to
the foregoing signed on behalf of Yahoo! by an authorized officer of Yahoo!.
(b) AGREEMENTS AND COVENANTS. Yahoo! and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing Date, and GeoCities shall have received a
certificate to such effect signed on behalf of Yahoo! by an authorized
officer of Yahoo!.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF YAHOO! AND MERGER SUB. The
obligations of Yahoo! and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Yahoo!:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and warranty
of GeoCities contained in this Agreement (i) shall have been true and
correct in all material respects as of the date of this Agreement, and (ii)
shall be true and correct on and as of the Closing Date with the same force
and effect as if made on and as of the Closing Date except (A) in each case,
or in the aggregate, as does not constitute a Material Adverse Effect on
GeoCities, (B) for changes contemplated by this Agreement, and (C) for those
representations and warranties which address matters only as of a particular
date (which representations shall have been true and correct except as does
not constitute a Material Adverse Effect on GeoCities as of such particular
date) (it being understood that, for purposes of determining the accuracy of
such representations and warranties, (1) all "Material Adverse Effect"
qualifications and other qualifications based on the word "material" or
similar phrases contained in such representations and warranties shall be
disregarded, and (2) any update of or modification to the GeoCities
Schedules made or purported to have been made after the date of this
Agreement shall be disregarded). Yahoo! shall have received a certificate
with respect to the foregoing signed on behalf of GeoCities by an authorized
officer of GeoCities.
(b) AGREEMENTS AND COVENANTS. GeoCities shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it at or prior to the
Closing Date, and Yahoo! shall have received a certificate to such effect
signed on behalf of GeoCities by the Chief Executive Officer and the Chief
Financial Officer of GeoCities.
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(c) AFFILIATE AGREEMENTS. Each of the GeoCities Affiliates shall have
entered into the GeoCities Affiliate Agreement and each of such agreements
will be in full force and effect as of the Effective Time.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approvals of the
stockholders of GeoCities or Yahoo!:
(a) by mutual written consent duly authorized by the Boards of Directors
of Yahoo! and GeoCities;
(b) by either GeoCities or Yahoo! if the Merger shall not have been
consummated by September 30, 1999, for any reason; PROVIDED, HOWEVER, that
the right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Merger to occur on or before such
date;
(c) by either GeoCities or Yahoo! if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree, ruling or other action is final
and nonappealable;
(d) by either GeoCities or Yahoo! if the required approval of the
stockholders of GeoCities contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting
of GeoCities stockholders duly convened therefor or at any adjournment
thereof (provided that the right to terminate this Agreement under this
Section 7.1(d) shall not be available to GeoCities where the failure to
obtain GeoCities stockholder approval shall have been caused by the action
or failure to act of GeoCities and such action or failure to act constitutes
a breach by GeoCities of this Agreement);
(e) by Yahoo! if a Triggering Event (as defined below) shall have
occurred.
(f) by GeoCities, upon a breach of any representation, warranty,
covenant or agreement on the part of Yahoo! set forth in this Agreement, or
if any representation or warranty of Yahoo! shall have become untrue, in
either case such that the conditions set forth in Section 6.2(a) or Section
6.2(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, PROVIDED that
if such inaccuracy in Yahoo!'s representations and warranties or breach by
Yahoo! is curable by Yahoo! through the exercise of its commercially
reasonable efforts, then GeoCities may not terminate this Agreement under
this Section 7.1(f) for twenty (20) days after delivery of written notice
from GeoCities to Yahoo! of such breach, provided Yahoo! continues to
exercise commercially reasonable efforts to cure such breach (it being
understood that GeoCities may not terminate this Agreement pursuant to this
Section 7.1(f) if it shall have materially breached this Agreement or if
such breach by Yahoo! is cured during such 20-day period and PROVIDED that
such 20-day period does not extend beyond September 30, 1999); or
(g) by Yahoo!, upon a breach of any representation, warranty, covenant
or agreement on the part of GeoCities set forth in this Agreement, or if any
representation or warranty of GeoCities shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, PROVIDED that if such
inaccuracy in GeoCities' representations and warranties or breach by
GeoCities is curable by GeoCities through the exercise of its commercially
reasonable efforts, then Yahoo! may not terminate this Agreement under this
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Section 7.1(g) for twenty (20) days after delivery of written notice from
Yahoo! to GeoCities of such breach, provided GeoCities continues to exercise
commercially reasonable efforts to cure such breach (it being understood
that Yahoo! may not terminate this Agreement pursuant to this Section 7.1(g)
if it shall have materially breached this Agreement or if such breach by
GeoCities is cured during such 20-day period and PROVIDED that such 20-day
period does not extend beyond September 30, 1999).
For the purposes of this Agreement, a "TRIGGERING EVENT" shall be deemed to
have occurred if: (i) the Board of Directors of GeoCities or any committee
thereof having authority to bind the Board shall for any reason have
withdrawn or shall have amended or modified in a manner adverse to Yahoo!
its recommendation in favor of the adoption and approval of the Agreement or
the approval of the Merger; (ii) GeoCities shall have failed to include in
the Proxy Statement/ Prospectus the recommendation of the Board of Directors
of GeoCities in favor of the adoption and approval of the Agreement and the
approval of the Merger; (iii) the Board of Directors of GeoCities fails to
reaffirm its recommendation in favor of the adoption and approval of the
Agreement and the approval of the Merger within ten (10) business days after
Yahoo! requests in writing that such recommendation be reaffirmed at any
time following the public announcement of an Acquisition Proposal; (iv) the
Board of Directors of GeoCities or any committee thereof having authority to
bind the Board shall have approved or publicly recommended any Acquisition
Proposal; (v) GeoCities shall have entered into any letter of intent of
similar document or any agreement, contract or commitment accepting any
Acquisition Proposal; (vi) a tender or exchange offer relating to securities
of GeoCities in excess of 15% of its outstanding voting securities shall
have been commenced by a person unaffiliated with Yahoo! and GeoCities shall
not have sent to its securityholders pursuant to Rule 14e-2 promulgated
under the Securities Act, within ten (10) business days after such tender or
exchange offer is first published sent or given, a statement disclosing that
GeoCities recommends rejection of such tender or exchange offer; or (vii)
GeoCities shall have intentionally breached its obligations under Section
5.4.
7.2 NOTICE OF TERMINATION EFFECT OF TERMINATION. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (i) as set forth
in this Section 7.2, Section 7.3 and Article VIII (Miscellaneous), each of which
shall survive the termination of this Agreement, and (ii) nothing herein shall
relieve any party from liability for any willful or intentional breach of this
Agreement. No termination of this Agreement shall affect the obligations of the
parties contained in the Confidentiality Agreement, all of which obligations
shall survive termination of this Agreement in accordance with their terms.
7.3 FEES AND EXPENSES.
(a) GENERAL. Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses
whether or not the Merger is consummated; provided, however, that Yahoo! and
GeoCities shall share equally all fees and expenses, other than attorneys'
and accountants fees and expenses, incurred in relation to the printing and
filing with the SEC of the Proxy Statement/Prospectus (including any
preliminary materials related thereto) and the Registration Statement
(including financial statements and exhibits) and any amendments or
supplements thereto.
(b) GEOCITIES PAYMENTS. In the event that this Agreement is terminated
by Yahoo! pursuant to Section 7.1(e), GeoCities shall promptly, but in no
event later than one day after the date of such termination, pay Yahoo! a
fee equal to $100 million in immediately available funds (the "TERMINATION
FEE"). In addition, in the event that this Agreement is terminated by Yahoo!
or
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GeoCities, as the case may be, pursuant to Section 7.1(d) and prior to the
vote of GeoCities stockholders at the GeoCities Stockholders' Meeting an
Acquisition Proposal shall have been publicly announced, GeoCities shall
promptly, but in no event later than one day after the date of such
termination, pay Yahoo! a amount equal to Yahoo!'s documented expenses
incurred in connection with the transactions contemplated by this Agreement,
and furthermore, in the event that within nine months following such
termination GeoCities shall enter into a definitive agreement with respect
to an Acquisition Transaction or shall consummate an Acquisition Transaction
with a third party, GeoCities shall contemporaneously with such execution or
consummation, as the case may be, pay Yahoo! a fee equal to the Termination
Fee. GeoCities acknowledges that the agreements contained in this Section
7.3(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Yahoo! would not enter into
this Agreement; accordingly, if GeoCities fails promptly to pay the amounts
due pursuant to this Section 7.3(b), and, in order to obtain such payment,
Yahoo! commences a suit which results in a judgment against GeoCities for
the amounts set forth in this Section 7.3(b), GeoCities shall pay to Yahoo!
its reasonable costs and expenses (including attorneys' fees and expenses)
in connection with such suit, together with interest on the amounts set
forth in this Section 7.3(b) at the prime rate of The Chase Manhattan Bank
in effect on the date such payment was required to be made.
(c) Payment of the fees described in Section 7.3(b) above shall not be
in lieu of damages incurred in the event of a willful or intentional breach
of this Agreement.
(d) Notwithstanding any provision of this Agreement to the contrary, the
"Total Proceeds" (as hereinafter defined) that Yahoo! shall be permitted to
realize in respect of the Termination Fee and the GeoCities Stock Option
shall not exceed $140 million. In the event Yahoo!'s Total Proceeds would
exceed such amount, Yahoo! shall, at its sole election, (a) reduce the
number of shares of GeoCities Common Stock subject to the GeoCities Stock
Option, (b) deliver shares of GeoCities Common Stock received upon an
exercise of the GeoCities Stock Option to the GeoCities for cancellation,
(c) pay an amount of cash to the GeoCities, or (d) do any combination of the
foregoing so that Yahoo!'s actual realized Total Proceeds shall not exceed
$140 million. "TOTAL PROCEEDS" shall mean the aggregate (before taxes) of
(i) any amount received pursuant to the GeoCities' repurchase of that
GeoCities Stock Option (or any portion thereof), (ii) any amount received
pursuant to the GeoCities' repurchase of the shares of GeoCities Common
Stock (less the purchase price for such shares), (iii) any net cash received
pursuant to the sale of shares of GeoCities Common Stock received by Yahoo!
in any exercise of the GeoCities Stock Option to any third party (less the
purchase price of such shares), (iv) any amounts received on transfer of the
GeoCities Stock Option or any portion thereof to a third party, (v) any
equivalent amounts received with respect to the GeoCities Stock Option
adjusted pursuant to Section 5.14(f), and (vi) the Termination Fee actually
paid.
7.4 AMENDMENT. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Yahoo!, Merger Sub and GeoCities.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of GeoCities, Yahoo! and Merger Sub contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Yahoo! or Merger Sub, to:
Yahoo! Inc.
3420 Central Expressway
Santa Clara, California 95051
Attention: Chief Executive Officer
Telephone No.: (408) 731-3300
Telecopy No.: (408) 731-3510
with a copy at the same address to the attention of
the General Counsel and Secretary and with a copy to:
Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, California 94025
Attention: Steven J. Tonsfeldt
Telephone No.: (650) 854-4488
Telecopy No.: (650) 233-8386
(b) if to GeoCities, to:
GeoCities
4499 Glencoe Avenue
Marina Del Rey, California 90292
Attention: General Counsel
Telephone No.: (310) 827-3700
Telecopy No.: (310) 827-8177
with a copy to:
Brobeck, Phleger & Harrison LLP
38 Technology Drive
Irvine, California 92618
Attention: Richard A. Fink
Telephone No.: (949) 790-6300
Telecopy No.: (949) 790-6301
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8.3 INTERPRETATION; CERTAIN DEFINED TERMS.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise
indicated. When a reference is made in this Agreement to Sections, such
reference shall be to a Section of this Agreement unless otherwise
indicated. The words "INCLUDE," "INCLUDES" and "INCLUDING" when used herein
shall be deemed in each case to be followed by the words "WITHOUT
LIMITATIONS." The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. When reference is made herein to "THE
BUSINESS OF" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference
to the subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity.
(b) For purposes of this Agreement the term "KNOWLEDGE" means with
respect to a party hereto, with respect to any matter in question, that any
of the executive officers of such party has actual knowledge of such matter.
(c) For purposes of this Agreement, the term "MATERIAL ADVERSE EFFECT"
when used in connection with a party hereto means any change, event,
circumstance or effect that is materially adverse to the business, assets
(including intangible assets), capitalization, financial condition or
results of operations of such party and its subsidiaries taken as a whole,
except (i) any continued or increased operating losses (provided the
obligations of GeoCities set forth in Section 4.1 are complied with) or (ii)
to the extent that any such change, event or effect is attributable to or
results from (w) the direct effect of the public announcement or pendency of
the transactions contemplated hereby on current or prospective customers or
revenues of GeoCities, (x) changes in general economic conditions or changes
affecting the industry generally in which such party operates, (y) changes
in trading prices for such party's capital stock, or (z) stockholder class
action litigation arising from allegations of a breach of fiduciary duty of
the GeoCities Board of Directors relating to this Agreement; PROVIDED,
HOWEVER, that with respect to clause (ii)(w) of this sentence, GeoCities
shall bear the burden of proof in any proceeding with regard to establishing
that any change, event, circumstance or effect is attributable to or results
from the direct effect of the public announcement or pendency of the
transactions contemplated hereby.
(d) For purposes of this Agreement, the term "PERSON" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, GeoCities (including any limited liability GeoCities
or joint stock GeoCities), firm or other enterprise, association,
organization, entity or Governmental Entity.
(e) For purposes of this Agreement, "SUBSIDIARY" of a specified entity
will be any corporation, partnership, limited liability GeoCities, joint
venture or other legal entity of which the specified entity (either alone or
through or together with any other subsidiary) owns, directly or indirectly,
fifty percent (50%) or more of the stock or other equity or partnership
interests the holders of which are generally entitled to vote for the
election of the Board of Directors or other governing body of such
corporation or other legal entity.
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by facsimile, all of which shall be considered one and the
same agreement and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other party, it being
understood that all parties need not sign the same counterpart.
8.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the GeoCities Schedules and the
Yahoo! Schedules (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
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understandings, both written and oral, among the parties with respect to the
subject matter hereof, it being understood that the Confidentiality Agreement
shall continue in full force and effect until the Closing and shall survive any
termination of this Agreement; and (b) are not intended to confer upon any other
person any rights or remedies hereunder, except as specifically provided in
Section 5.10.
8.6 SEVERABILITY. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
8.7 OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
8.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 ASSIGNMENT. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.11 WAIVER OF JURY TRIAL. EACH OF YAHOO!, GEOCITIES AND MERGER SUB HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF YAHOO!, GEOCITIES OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
<TABLE>
<S> <C> <C>
YAHOO! INC.
By: /s/ TIMOTHY K. KOOGLE
-----------------------------------------
Name: Timothy K. Koogle
Title: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
HOME PAGE ACQUISITION CORP.
By: /s/ TIMOTHY K. KOOGLE
-----------------------------------------
Name: Timothy K. Koogle
Title: PRESIDENT
GEOCITIES
By: /s/ THOMAS R. EVANS
-----------------------------------------
Name: Thomas R. Evans
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
**** MERGER AGREEMENT ****
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APPENDIX B
OPINION OF GOLDMAN, SACHS & CO.
PERSONAL AND CONFIDENTIAL
January 27, 1999
Board of Directors
GeoCities
4499 Glencoe Avenue
Marina del Rey, CA 90292
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders (other than Yahoo! Inc. ("Parent") and its affiliates) of
the outstanding shares of Common Stock, par value $0.001 per share (the "Company
Shares"), of GeoCities (the "Company") of the Exchange Ratio (as defined below)
pursuant to the Agreement and Plan of Merger, dated as of January 27, 1999,
among Parent, Home Page Acquisition Corp., a wholly-owned subsidiary of Parent
("Merger Sub"), and the Company (the "Agreement"). Pursuant to the Agreement,
Merger Sub shall be merged with and into the Company (the "Merger") and each
outstanding Company Share will be converted into the right to receive 0.3384
(the "Exchange Ratio") of a share of Common Stock, par value $0.00033 per share,
of Parent (the "Parent Shares").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services to
the Company from time to time, including having acted as managing underwriter of
the initial public offering of Company Shares in August 1998 and having acted as
its financial advisor in connection with, and having participated in certain of
the negotiations leading to, the Agreement. We also have provided certain
investment banking services to Parent from time to time, including having acted
as managing underwriter of the initial public offering of Parent Shares in April
1996, and having acted as financial advisor in various strategic advisory
assignments including, but not limited to, the acquisition of Four11 Corp. in
October 1997. We also have provided other brokerage services to certain
affiliates of Parent. Goldman, Sachs & Co. may provide investment banking and
brokerage services to Parent and its affiliates in the future.
Goldman, Sachs & Co. provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including derivative
securities, of the Company or Parent for its own account and for the accounts of
customers. As of the date hereof, Goldman, Sachs & Co. accumulated a short
position of 2,211 Company Shares. Additionally, as of the date hereof, Goldman,
Sachs & Co. accumulated a long position of 151,070 Parent Shares against which
Goldman, Sachs & Co. is short 200 Parent Shares.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement of the Company on Form S-1 dated August
10, 1998 related to the initial public offering of Company Shares, including the
Prospectus therein; the Registration Statement of Parent on Form S-1 dated April
12, 1996 related to the initial public offering of Parent Shares, including the
Prospectus therein; Annual Reports to Stockholders and Annual Reports on Form
10-K of Parent for
B-1
<PAGE>
the two years ended December 31, 1997; certain interim reports to stockholders
and Quarterly Reports on Form 10-Q of the Company and Parent; certain other
communications from the Company and Parent to their respective stockholders;
certain internal financial analyses and forecasts for the Company prepared by
its management, including certain estimates of cost savings and operating
synergies expected to result from the Merger (the "Synergies"); and certain
estimates of pro forma financial performance of the Company prepared by the
management of Parent. We also have held discussions with members of the senior
management of the Company and Parent regarding the strategic rationale for, and
the potential benefits of, the transaction contemplated by the Agreement and the
past and current business operations, financial condition and future prospects
of their respective companies. In addition, we have reviewed the reported price
and trading activity for the Company Shares and the Parent Shares, compared
certain financial and stock market information for the Company and Parent with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the internet industry specifically and in other industries
generally and performed such other studies and analyses as we considered
appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In that
regard, we have assumed with your consent that the Synergies have been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the Company and that the Synergies will be realized in the
amounts and time periods contemplated thereby. As you are aware, Parent did not
make available its forecasts of future financial performance. Instead, for
purposes of our analysis, we have relied, with your consent, on the estimates of
certain research analysts for Parent. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the Company
or Parent or any of their subsidiaries and we have not been furnished with any
such evaluation or appraisal. We were not requested to solicit, and did not
solicit, interest from other parties with respect to an acquisition of, or other
business combination involving, the Company. Our advisory services and the
opinion expressed herein are provided for the information and assistance of the
Board of Directors of the Company in connection with its consideration of the
transaction contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any holder of the Company Shares should vote with
respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to the
holders (other than Parent and its affiliates) of the Company Shares.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
- -----------------------------------
(GOLDMAN, SACHS & CO.)
B-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 317 of the California Corporations Code allows for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933. Article VII of the Registrant's Articles of
Incorporation and Article VI of the Registrant's Bylaws provide for
indemnification of the Registrant's directors, officers, employees and other
agents to the extent and under the circumstances permitted by the California
Corporations Code. The Registrant has also entered into agreements with its
directors and officers that will require the Registrant, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as directors to the fullest extent not prohibited by law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
The following exhibits are filed herewith or incorporated herein by
reference:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of January 27, 1999, by and among Yahoo! Inc., Home Page
Acquisition Corp. and GeoCities (without exhibits) (included as Appendix A to the proxy
statement/prospectus forming a part of this Registration Statement and incorporated herein by
reference.)
2.2 Agreement and Plan of Merger, dated as of March 31, 1999, by and among Yahoo! Inc., Alamo Acquisition
Corp. and broadcast.com inc. (without exhibits) (Filed as Exhibit 1 to the broadcast.com Schedule
13D, dated April 9, 1999, and incorporated herein by reference.)
3.1 Amended and Restated Articles of Incorporation of Yahoo!, dated January 22, 1999 (Filed as Exhibit
3.1 to Yahoo!'s Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and
incorporated herein by reference.)
3.2* Amended and Restated Bylaws of Yahoo!, dated February 23, 1999
4.1 Articles IV and V of Yahoo!'s Amended and Restated Articles of Incorporation and Articles II, VII and
IX of Yahoo!'s Amended and Restated Bylaws (See Exhibits 3.1 and 3.2, which are incorporated herein
by reference.)
5.1* Opinion of Venture Law Group, A Professional Corporation, regarding the validity of the securities
being registered
8.1* Opinion of Venture Law Group, A Professional Corporation, regarding certain tax aspects of the Merger
8.2* Opinion of Brobeck Phleger & Harrison LLP regarding certain tax aspects of the Merger
10.1 Form of Indemnification Agreement with Yahoo!'s officers and directors (Filed as Exhibit 10.1 to the
SB-2 Registration Statement and incorporated herein by reference.)
10.2 1995 Stock Plan, as amended, and form of stock option agreement (Filed as Exhibit 10.2 to Yahoo!'s
Annual Report on Form 10-K for the year ended December 31, 1996 [the "December 31, 1996 10-K"] and
incorporated herein by reference.)
10.3 Form of Management Continuity Agreement with Yahoo!'s Executive Officers (Filed as Exhibit 10.3 to
the SB-2 Registration Statement and incorporated herein by reference.)
10.4 Stock Purchase Agreement dated March 3, 1995 with each of David Filo and Jerry Yang (Filed as Exhibit
10.4 to the SB-2 Registration Statement and incorporated herein by reference.)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.5 Series A Preferred Stock Agreement dated April 7, 1995 between Yahoo! and Purchasers of Series A
Preferred Stock (Filed as Exhibit 10.5 to the SB-2 Registration Statement and incorporated herein
by reference.)
10.6 Form of Stock Restriction Agreements dated April 7, 1995 between Yahoo! and Jerry Yang and David Filo
(Filed as Exhibit 10.6 to the SB-2 Registration Statement and incorporated herein by reference.)
10.7 Series B Preferred Stock Agreement dated November 22, 1995 between Yahoo! and Purchasers of Series B
Preferred Stock (Filed as Exhibit 10.7 to the SB-2 Registration Statement and incorporated herein
by reference.)
10.8 Series C Preferred Stock Agreement dated March 12, 1996 between Yahoo! and SOFTBANK Holdings Inc.
(Filed as Exhibit 10.8 to the SB-2 Registration Statement and incorporated herein by reference.)
10.9 Second Amended and Restated Investor Rights Agreement dated March 12, 1996 between Yahoo! and certain
shareholders (Filed as Exhibit 10.9 to the SB-2 Registration Statement and incorporated herein by
reference.)
10.10 Second Amended and Restated Co-Sale Agreement dated March 12, 1996 between Yahoo! and certain
shareholders (Filed as Exhibit 10.10 to the SB-2 Registration Statement and incorporated herein by
reference.)
10.11 Second Amended and Restated Voting Agreement dated March 12, 1996 between Yahoo! and certain
shareholders (Filed as Exhibit 10.11 to the SB-2 Registration Statement and incorporated herein by
reference.)
10.12+ Publishing Agreement dated June 2, 1995 between Yahoo! and IDG Books Worldwide, Inc. (Filed as
Exhibit 10.12 to the SB-2 Registration Statement and incorporated herein by reference.)
10.13 Sublease Agreement dated June 6, 1996 relating to Yahoo!'s office at 3400 Central Expressway, Suite
201, Santa Clara, California (Filed as Exhibit 10.15 to the December 31, 1996 10-K and incorporated
herein by reference.)
10.14+ Agreement dated January 15, 1996 between Yahoo! and Ziff-Davis Publishing Company (Filed as Exhibit
10.19 to the SB-2 Registration Statement and incorporated herein by reference.)
10.15 1996 Employee Stock Purchase Plan and form of subscription agreement (Filed as Exhibit 10.20 to the
SB-2 Registration Statement and incorporated herein by reference.)
10.16 1996 Directors' Stock Option Plan and form of option agreement (Filed as Exhibit 10.21 to the SB-2
Registration Statement and incorporated herein by reference.)
10.17+ Yahoo! Canada Affiliation Agreement dated February 29, 1996 between Yahoo! and Rogers Multi-Media
Inc. (Filed as Exhibit 10.23 to the SB-2 Registration Statement and incorporated herein by
reference.)
10.18 Standstill and Voting Agreement dated March 12, 1996 between Yahoo! and SOFTBANK Holdings Inc. (Filed
as Exhibit 10.26 to the SB-2 Registration Statement and incorporated herein by reference.)
10.19+ Joint Venture Agreement dated April 1, 1996 by and between Yahoo! Inc. and SOFTBANK Corporation
(Filed as Exhibit 10.2 to Yahoo!'s Quarterly Report on Form 10-Q/A for the quarter ended June 30,
1996 [the "June 30, 1996 10-Q"] and incorporated herein by reference.)
10.20+ Yahoo! Japan License Agreement dated April 1, 1996 by and between Yahoo! Inc. and Yahoo! Japan
Corporation (Filed as Exhibit 10.3 to the June 30, 1996 10-Q and incorporated herein by reference.)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.21+ SOFTBANK Letter Agreement dated April 1, 1996 by and between Yahoo! Inc. and SOFTBANK Group (Filed as
Exhibit 10.4 to the June 30, 1996 10-Q and incorporated herein by reference.)
10.22+ Joint Venture Agreement dated November 1, 1996 by and between Yahoo! Inc. and SB Holdings (Europe)
Ltd. (Filed as Exhibit 10.30 to the December 31, 1996 10-K and incorporated herein by reference.)
10.23+ Yahoo! UK License Agreement dated November 1, 1996 by and between Yahoo! Inc. and Yahoo! UK (Filed as
Exhibit 10.31 to the December 31, 1996 10-K and incorporated herein by reference.)
10.24+ Yahoo! Deutschland License Agreement dated November 1, 1996 by and between Yahoo! Inc. and Yahoo!
Deutschland (Filed as Exhibit 10.32 to the December 31, 1996 10-K and incorporated herein by
reference.)
10.25+ Yahoo! France License Agreement dated November 1, 1996 by and between Yahoo! Inc. and Yahoo! France
(Filed as Exhibit 10.33 to the December 31, 1996 10-K and incorporated herein by reference.)
10.26 Restructuring Agreement dated as of July 29, 1997 among Yahoo!, Visa International Service
Association, Visa Marketplace, Inc., Sterling Payot Company, and Sterling Payot Capital, L.P.
(Filed as Exhibit 4.1 to Yahoo!'s Current Report on Form 8-K, dated July 29, 1997 and incorporated
herein by reference.)
10.27 Joint Venture Agreement, dated August 31, 1997 between Yahoo! Inc., SOFTBANK Korea Corporation,
SOFTBANK Corporation, and Yahoo! Japan Corporation (Filed as Exhibit 10.1 to Yahoo!'s Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997 [the "September 30, 1997 10-Q"] and
incorporated herein by reference.)
10.28 Sublease Agreement, dated September 11, 1997 between Yahoo! Inc. and Amdahl Corporation (Filed as
Exhibit 10.2 to the September 30, 1997 10-Q and incorporated herein by reference.)
10.29 Four11 Corporation 1995 Stock Option Plan Registrant (Filed as Exhibit 4.2 to Yahoo!'s Registration
Statement on Form S-8, Registration No. 333-39105, dated October 30, 1997, and incorporated herein
by reference.)
10.30+ Amendment Agreement dated September 17, 1997 by and between Yahoo! Inc. and SOFTBANK Corporation
(Filed as Exhibit 10.39 to Yahoo!'s Annual Report on Form 10-K for the year ended December 31, 1997
[the "December 31, 1997 10-K"] and incorporated herein by reference.)
10.31+ Amendment to Yahoo! Japan License Agreement dated September 17, 1997 by and between Yahoo! Inc. and
Yahoo! Japan Corporation (Filed as Exhibit 10.40 to the December 31, 1997 10-K and incorporated
herein by reference.)
10.32+ Services Agreement dated November 30, 1997 by and between Yahoo! Korea Corporation and SOFTBANK Korea
Corporation (Filed as Exhibit 10.41 to the December 31, 1997 10-K and incorporated herein by
reference.)
10.33+ Yahoo! Korea License Agreement dated November 30, 1997 by and between Yahoo! Inc., Yahoo! Korea
Corporation, and Yahoo! Japan Corporation (Filed as Exhibit 10.42 to the December 31, 1997 10-K and
incorporated herein by reference.)
10.34 Agreement and Plan of Merger dated June 4, 1998 by and among Yahoo! Inc., XY Acquisition Corporation,
and Viaweb Inc. (Filed as Exhibit 2.1 to Yahoo!'s Current Report on Form 8-K, dated June 12, and
incorporated herein by reference.)
10.35 Viaweb Inc. 1997 Stock Option Plan and form of Option Agreement thereunder (Filed as Exhibit 4.2 to
Yahoo!'s Registration Statement on Form S-8, Registration No. 333-56781, dated June 12, 1998 [the
"S-8 Registration Statement dated June 12, 1998"], and incorporated herein by reference.)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.36 Forms of Viaweb Inc. 1996 Option Agreements (Filed as Exhibit 4.3 to the S-8 Registration Statement,
dated June 12, 1998, and incorporated herein by reference.)
10.37 Stock Purchase Agreement dated as of July 7, 1998, between Yahoo! and SOFTBANK Holdings Inc. (Filed
as Exhibit 10.1 to Yahoo!'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 [the
"June 30, 1998 10-Q"] and incorporated herein by reference.)
10.38 Amendment to Second Amended and Restated Investor Rights Agreement dated July 7, 1998 among Yahoo!,
SOFTBANK Holdings Inc., Sequoia Capital VI and Sequioia Technology Partners VI (Filed as Exhibit
10.2 to the June 30, 1998 10-Q and incorporated herein by reference.)
10.39 Content License Agreement dated January 8, 1998 between Yahoo! and ZDNet (Filed as Exhibit 10.3 to
the June 30, 1998 10-Q and incorporated herein by reference.)
10.40 Agreement and Plan of Merger dated as of October 9, 1998, by and among Yahoo! Inc., YO Acquisition
Corporation, and Yoyodyne Entertainment, Inc. (Filed as Exhibit 2.1 to the Company's Current Report
on Form 8-K, dated October 23, 1998 [the "8-K dated June 12, 1998"] and incorporated herein by
reference.)
10.41 Amendment to the Agreement and Plan of Merger dated as of October 19, 1998, by and among Yahoo! Inc.,
YO Acquisition Corporation, and Yoyodyne Entertainment, Inc. (Filed as Exhibit 2.2 to 8-K dated
June 12, 1998 and incorporated herein by reference.)
10.42 Yoyodyne Entertainment, Inc. 1996 Stock Option Plan and form of Option Agreement thereunder. (Filed
as Exhibit 4.1 to the Company's Registration Statement on Form S-8, Registration No. 333-66067,
dated October 23, 1998 and incorporated herein by reference.)
13.1 Yahoo!'s Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and incorporated
herein by reference
21.1 List of Subsidiaries (Filed as Exhibit 21.1 to Yahoo!'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, and incorporated herein by reference.)
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of PricewaterhouseCoopers LLP
23.5 Consent of Goldman, Sachs & Co.
23.6* Consent of Venture Law Group, A Professional Corporation (included as part of its opinions filed as
Exhibit 5.1 and Exhibit 8.1 and incorporated herein by reference.)
23.7* Consent of Brobeck Phleger & Harrison LLP (included as part of its opinion filed as Exhibit 8.2 and
incorporated herein by reference.)
99.1 Form of proxy card for GeoCities special meeting
</TABLE>
- ------------------------
+ Confidential treatment granted.
* Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
None.
ITEM 22. UNDERTAKINGS
A. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of
II-4
<PAGE>
1934) that is incorporated by reference in this registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
B. The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
C. The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (B) immediately proceeding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, as amended, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
D. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
E. The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
F. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Santa Clara, State of California, on April 28, 1999.
<TABLE>
<S> <C> <C>
YAHOO! INC.
By: *
-----------------------------------------
Timothy Koogle
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
* Chairman and Chief April 28, 1999
- ------------------------------ Executive Officer
Timothy Koogle (Principal Executive
Officer)
* President, Chief Operating April 28, 1999
- ------------------------------ Officer, and Director
Jeff Mallett
/s/ GARY VALENZUELA Senior Vice President, April 28, 1999
- ------------------------------ Finance and
Gary Valenzuela Administration, and
Chief Financial Officer
(Principal Financial
Officer)
* Vice President, Finance April 28, 1999
- ------------------------------ (Principal Accounting
James J. Nelson Officer)
Director , 1999
- ------------------------------
Eric Hippeau
* Director April 28, 1999
- ------------------------------
Arthur H. Kern
Director , 1999
- ------------------------------
Michael Moritz
* Director April 28, 1999
- ------------------------------
Jerry Yang
* /s/ GARY
VALENZUELA
- ------------------------------
Gary Valenzuela
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Yahoo! Inc. of
our report dated January 8, 1999, except as to the stock split described in Note
1 and Note 10, which are as of February 8, 1999, appearing on page 39 of Yahoo!
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998. We also
consent to the references to us under the headings "Experts" and "Selected
Historical Consolidated Financial Data" in such Prospectus. However, it should
be noted that PricewaterhouseCoopers LLP has not prepared or certified such
"Selected Historical Consolidated Financial Data."
PricewaterhouseCoopers LLP
San Jose, California
April 25, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Registration Statement of Yahoo! Inc. on
Form S-4 of our report dated January 27, 1999, except for Note 8 as to which the
date is February 11, 1999 and the restatement portion of Note 2 as to which the
date is February 19, 1999, on our audits of the consolidated financial
statements of GeoCities as of December 31, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998. We also consent to the
reference to our firm under the captions "Experts" and "Selected Historical
Consolidated Financial Data".
PricewaterhouseCoopers LLP
Woodland Hills, California
April 23, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
GeoCities, Inc.:
We consent to the use of our report dated October 8, 1998, except as to note
9, which is as of October 23, 1998 included in Proxy Statement/Prospectus on
Form S-4 on or about April 26, 1999 of GeoCities, Inc. relating to the balance
sheets of Starseed, Inc. as of September 30, 1998 and 1997, and the related
statements of operations, stockholders' equity (deficit), and cash flows for the
year ended September 30, 1998 and the period from October 8, 1996 (date of
inception) to September 30, 1997 and to the reference to our firm under the
heading "Experts" in the Information Statement/Prospectus.
Our report dated October 8, 1998, except as to note 9, which is as of
October 23, 1998 contains an explanatory paragraph that states that the Company
has suffered recurring losses from operations and has a net capital deficiency,
which raises substantial doubt about its ability to continue as a going concern.
The financial statements and financial statement schedules do not include any
adjustments that might result from the outcome of that uncertainty.
KPMG Peat Marwick LLP
Portland, Oregon
April 26, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Yahoo! Inc. of
our report dated January 27, 1999, except as to Notes 3 and 11, which are as of
March 15, 1999, relating to the consolidated financial statements of
broadcast.com inc., and our report dated January 27, 1999, except as to the
pooling of interests with Net Roadshow, Inc. and Note 3, which are as of March
15, 1999, and Note 11, which is as of April 1, 1999, relating to the
supplementary consolidated financial statements of broadcast.com inc., which
appear in the Current Report on form 8-K/A of Yahoo! Inc. dated April 1, 1999,
as amended on April 19, 1999. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Dallas, Texas
April 25, 1999
<PAGE>
EXHIBIT 23.5
[GOLDMAN SACHS & CO. LETTERHEAD]
PERSONAL AND CONFIDENTIAL
April 28, 1999
Board of Directors
GeoCities
4499 Glencoe Avenue
Marina del Rey, CA 90292
Re: Amendment number one to the Registration Statement on Form S-4 of Yahoo!
Inc., filed with the Securities and Exchange Commission on April 28, 1999,
relating to Common Stock, par value $0.00017 per share, of Yahoo! Inc.
issuable to holders of Common Stock, par value $0.001 per share, of
GeoCities in the proposed merger of GeoCities into a subsidiary of Yahoo!
Ladies and Gentlemen:
Reference is made to our opinion letter dated January 27, 1999 with respect
to the fairness from a financial point of view to the holders (other than Yahoo!
Inc. ("Yahoo!") or any of its affiliates) of the outstanding shares of Common
Stock, par value $0.001 per share, of GeoCities (the "Company") of the Exchange
Ratio (as defined therein) pursuant to the Agreement and Plan of Merger, dated
as of January 27, 1999, among Yahoo!, Home Page Acquisition Corp., wholly-owned
subsidiary of Yahoo!, and the Company.
The foregoing opinion letter is provided for the information and assistance
of the Board of Directors of GeoCities in connection with its consideration of
the transaction contemplated therein and is not to be used, circulated, quoted
or otherwise referred to for any other purpose, nor is it to be filed with,
included in or referred to, in whole or in part in any registration statement,
proxy statement, or any other document, except in accordance with our prior
written consent. We understand that the Company has determined to include our
opinion in the above-referenced Registration Statement.
In that regard, we hereby consent to the reference to the opinion of our
Firm under the captions "Summary -- Opinion of Financial Advisor to GeoCities,"
"Reasons for the Merger -- GeoCities' Reasons for the Merger," and "Opinion of
Goldman, Sachs & Co." and to the inclusion of the foregoing opinion in the Joint
Proxy Statement/Prospectus included in the above-mentioned Registration
Statement. In giving such consent, we do not hereby admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission thereunder.
Notwithstanding the foregoing, it is understood that our consent is being
delivered solely in connection with the filing of the above-mentioned version of
the Registration Statement and that our opinion is not to be used, circulated,
quoted or otherwise referred to for any other purpose, nor is it to be filed
with, included in or referred to in whole or in part in any registration
statement (including any subsequent amendments to the above-mentioned
Registration Statement), proxy statement or any other document, except in
accordance with our prior written consent.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
-----------------------------------------------------------------------------
(GOLDMAN, SACHS & CO.)
<PAGE>
GEOCITIES
SPECIAL MEETING OF STOCKHOLDERS, MAY 28, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
GEOCITIES
The undersigned hereby revokes all previous proxies, acknowledges receipt of
the Notice of Special Meeting of Stockholders to be held on May 28, 1999 and the
Proxy Statement/Prospectus, each dated April 28, 1999, and hereby appoints
Thomas R. Evans and Stephen L. Hansen, and each of them, as the Proxy of the
undersigned, each with full power of substitution, to vote on behalf of the
undersigned at the Special Meeting of Stockholders of GeoCities ("the Company")
to be held at the Marina Beach Marriott Hotel, 4100 Admiralty Way, Marina del
Rey, California, on Friday, May 28, 1999, at 8:00 a.m. (the "Special Meeting"),
and at any adjournment or postponement thereof, with the same force and effect
as the undersigned might or could do if personally present thereat. The shares
represented by this Proxy shall be voted in the following manner:
1. Proposal to approve (a) the Agreement and Plan of Merger, dated as of
January 27, 1999 (the "Merger Agreement"), among Yahoo! Inc., a California
corporation, Home Page Acquisition Corp., a Delaware corporation, and
GeoCities, and (b) the merger (the "Merger") of Home Page Acquisition Corp,
a wholly-owned subsidiary of Yahoo!, with and into GeoCities whereby, among
other things, each outstanding share of GeoCities common stock will be
converted into the right to receive 0.6768 shares of Yahoo! common stock.
/ / FOR / / AGAINST / / ABSTAIN
2. Proposal to grant GeoCities' Board of Directors discretionary authority to
adjourn, if necessary, the Special Meeting in order to solicit additional
votes for approval of the Merger Agreement and the Merger.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to vote or otherwise represent the shares on such other business as
may properly come before the Special Meeting or any adjournment or
postponement thereof.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
The Board of Directors recommends a vote FOR each of the proposals listed
above. This Proxy, when properly executed, will be voted as specified above. THE
PROXY WILL BE VOTED FOR THE PROPOSALS LISTED ABOVE IF NO SPECIFICATION IS MADE.
Please print the name(s) appearing
on each share certificate(s) over
which you have voting authority:
___________________________________
(Print name(s) on certificate(s)
___________________________________
Please sign your name
___________________________________
(Authorized Signature(s))
Date:______________________________
