<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-80227
[BROADCAST.COM LOGO]
June 16, 1999
Dear broadcast.com Stockholder:
I am pleased to forward you this proxy statement/prospectus for a special
meeting of the stockholders of broadcast.com to be held on July 20, 1999, at
8:00 a.m. local time, at
2909 Taylor Street, Dallas, Texas.
At the special meeting, you will be asked to vote upon the proposed merger
of broadcast.com with Yahoo! Inc. Yahoo! expects to issue approximately 33.9
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 broadcast.com entitled to vote at the special meeting.
Please 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 broadcast.com 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,
[/S/ TODD R. WAGNER]
/s/ TODD R. WAGNER
Todd R. Wagner
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 June 16, 1999 and was first mailed to
stockholders on or about June 18, 1999.
<PAGE>
BROADCAST.COM INC.
2914 TAYLOR STREET
DALLAS, TEXAS 75226
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 20, 1999
---------------------
To the Stockholders of broadcast.com:
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of
broadcast.com, a Delaware corporation, will be held at 8:00 a.m., local time, on
July 20, 1999, at 2909 Taylor Street, Dallas, Texas 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 broadcast.com whereby, among
other things, each outstanding share of broadcast.com common stock will be
converted into the right to receive 0.7722 shares of Yahoo! common stock, as
more fully described in this proxy statement/prospectus. In addition, each
outstanding option to purchase shares of broadcast.com 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;
and
2. To transact such other business as may properly come before the
special meeting or any adjournment or postponement thereof.
BROADCAST.COM'S BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE
BEST INTERESTS OF BROADCAST.COM AND ITS STOCKHOLDERS AND RECOMMENDS THAT
STOCKHOLDERS 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 May 24, 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 broadcast.com common stock representing a majority of the
outstanding shares of broadcast.com 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 BROADCAST.COM STOCK CERTIFICATES IN YOUR PROXY
ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ BELINDA J. JOHNSON
[/S/ BELINDA J. JOHNSON]
Belinda J. Johnson
SECRETARY
Dallas, Texas
June 16, 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 Agreement......................................................................................... 2
Noncompetition Agreements................................................................................ 2
Voting Shares Held by Your Broker in Street Name......................................................... 3
Changing Your Vote....................................................................................... 3
Completion of the Merger................................................................................. 3
Exchanging Your Stock Certificates....................................................................... 3
Broadcast.com's Reasons for the Merger; Recommendation of broadcast.com's Board.......................... 3
Opinion of Financial Advisor to broadcast.com............................................................ 3
Interests of Certain Persons in the Merger............................................................... 3
Conditions to the Merger................................................................................. 4
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 broadcast.com's Business................................................................ 7
Risks Related to Yahoo! and broadcast.com as a Combined Company.......................................... 10
Investment Risks......................................................................................... 25
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE............................................................ 26
TRADEMARKS................................................................................................. 26
YAHOO! SELECTED SUPPLEMENTARY CONSOLIDATED FINANCIAL DATA.................................................. 27
BROADCAST.COM SELECTED SUPPLEMENTARY CONSOLIDATED FINANCIAL DATA........................................... 29
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA....................................................... 31
COMPARATIVE PER SHARE DATA................................................................................. 33
MARKET PRICE AND DIVIDEND INFORMATION...................................................................... 34
Recent Share Prices...................................................................................... 34
Dividend Information..................................................................................... 35
Number of 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
THE MERGER................................................................................................. 38
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
General.................................................................................................. 38
Background of the Merger................................................................................. 38
Reasons for the Merger................................................................................... 40
Opinion of Financial Advisor to broadcast.com............................................................ 43
Interests of Certain Persons in the Merger............................................................... 50
Governmental and Regulatory Matters...................................................................... 51
Federal Income Tax Considerations........................................................................ 51
Anticipated Accounting Treatment......................................................................... 52
No Appraisal Rights...................................................................................... 53
Delisting and Deregistration of broadcast.com Common Stock............................................... 53
Listing of Yahoo! Common Stock to Be Issued in the Merger................................................ 53
Restriction on Resales of Yahoo! Common Stock............................................................ 53
THE MERGER AGREEMENT....................................................................................... 54
The Merger............................................................................................... 54
The Effective Time....................................................................................... 54
Directors and Officers of broadcast.com After the Merger................................................. 54
Conversion of Shares in the Merger....................................................................... 54
Broadcast.com's Stock Option and Stock Purchase Plans.................................................... 54
The Exchange Agent....................................................................................... 55
Procedures for Exchanging Stock Certificates............................................................. 55
Distributions with Respect to Unexchanged Shares......................................................... 55
No Fractional Shares..................................................................................... 55
Representations and Warranties........................................................................... 55
Conduct of Business of broadcast.com Pending the Merger.................................................. 56
Conduct of Business of Yahoo! Pending the Merger......................................................... 57
No Solicitation.......................................................................................... 58
Director and Officer Indemnification..................................................................... 59
Yahoo! Stock Option...................................................................................... 59
Conditions to the Merger................................................................................. 60
Termination.............................................................................................. 61
Termination Fee and Expenses............................................................................. 62
Amendment; Waiver........................................................................................ 63
VOTING, AFFILIATE AND NONCOMPETITION AGREEMENTS............................................................ 64
Voting Agreement......................................................................................... 64
Broadcast.com Affiliate Agreements....................................................................... 64
Yahoo! Affiliate Agreements.............................................................................. 65
Noncompetition Agreements................................................................................ 65
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS................................................ 66
DESCRIPTION OF YAHOO! COMMON STOCK......................................................................... 76
COMPARISON OF RIGHTS OF HOLDERS OF BROADCAST.COM COMMON STOCK AND YAHOO! COMMON STOCK...................... 77
Classes of Common Stock of broadcast.com and Yahoo!...................................................... 77
Classified Board of Directors............................................................................ 77
Number of Directors...................................................................................... 77
Removal of Directors..................................................................................... 77
Filling Vacancies on the Board of Directors.............................................................. 78
Limits on Stockholder Action by Written Consent.......................................................... 78
Ability to Call Special Meetings......................................................................... 78
Advance Notice Provisions for Stockholder Nominations and Proposals...................................... 78
Preferred Stock.......................................................................................... 80
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Amendment of Certificate of Incorporation................................................................ 80
Amendment of Bylaws...................................................................................... 80
State Anti-Takeover Statutes............................................................................. 81
Limitation of Liability of Directors..................................................................... 81
Indemnification of Directors and Officers................................................................ 81
Stockholder Rights Plan.................................................................................. 82
INFORMATION REGARDING YAHOO!............................................................................... 83
INFORMATION REGARDING BROADCAST.COM........................................................................ 84
BUSINESS OF BROADCAST.COM.................................................................................. 84
Introduction............................................................................................. 84
Industry Background...................................................................................... 84
The broadcast.com Solution............................................................................... 85
Strategy................................................................................................. 87
Programming.............................................................................................. 88
Business Services........................................................................................ 93
Sales and Marketing...................................................................................... 94
Strategic Relationships.................................................................................. 97
Network.................................................................................................. 98
Competition.............................................................................................. 98
Governmental Regulation.................................................................................. 100
Intellectual Property.................................................................................... 101
Employees................................................................................................ 102
Properties............................................................................................... 102
Legal Proceedings........................................................................................ 102
BROADCAST.COM'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 104
Overview................................................................................................. 104
Results of Operations.................................................................................... 106
Liquidity and Capital Resources.......................................................................... 110
Year 2000 Computer Systems and Software Products Readiness............................................... 111
Net Operating Loss Carryforwards......................................................................... 112
BROADCAST.COM SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................... 113
DESCRIPTION OF BROADCAST.COM CAPITAL STOCK................................................................. 115
FUTURE STOCKHOLDER PROPOSALS............................................................................... 116
EXPERTS.................................................................................................... 116
LEGAL MATTERS.............................................................................................. 116
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 116
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
Appendix A -- Agreement and Plan of Merger dated as of March 31, 1999, by and among Yahoo! Inc., Alamo
Acquisition Corp. and broadcast.com inc....................................................... A-1
Appendix B -- Opinion of Morgan Stanley & Co. Incorporated................................................. 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 broadcast.com
believe that the merger will provide added value to all of their respective
stockholders. However, both Yahoo! and broadcast.com note that their goals in
the merger are subject to the risks discussed in this proxy statement/prospectus
in the section labeled "Risk Factors."
Q: PLEASE EXPLAIN WHAT I WILL RECEIVE IN THE MERGER.
A: In the merger, you will receive 0.7722 shares of Yahoo! common stock for
each share of broadcast.com common stock that you own. For example, if you own
100 shares of broadcast.com common stock, you will receive 77 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 average closing sale price of Yahoo! common stock for the five
most recent trading days ending on the trading day immediately prior to the
effective time of the merger instead of any fractional share.
The number of shares of Yahoo! common stock to be issued for each share of
broadcast.com 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 broadcast.com 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>
MARKET
PRICE OF MERGER VALUE PER
YAHOO! SHARE OF
COMMON BROADCAST.COM COMMON
STOCK STOCK
- ----------- ---------------------
<S> <C>
$180.00 $ 139.00
170.00 131.27
160.00 123.55
150.00 115.83
140.00 108.11
130.00 100.39
120.00 92.66
</TABLE>
On June 16, 1999, the closing sale price per share of Yahoo! common stock on
The Nasdaq National Market was $141.625. 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.
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 broadcast.com encourage
you to read this document in its entirety for a complete understanding of the
transaction.
THE COMPANIES (PAGES 83 AND 84)
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.
BROADCAST.COM INC.
2914 Taylor Street
Dallas, Texas 75226
Attention: Investor Relations
(214) 748-6600
Broadcast.com is the 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 or intranets. The broadcast.com Web sites offer a large and
comprehensive selection of programming, including sports, talk and music radio,
television, business events, full-length CDs, news, video, commentary and full-
length audiobooks, serving an average of over 1.1 million unique users per day.
Broadcast.com broadcasts on the Internet 24 hours a day, seven days a week, and
its programming includes 410 radio stations and networks, 50 television stations
and cable networks, and game broadcasts and other programming for over 450
college and professional sports teams. Broadcast.com also provides Internet and
intranet broadcasting services to businesses and other organizations, including
turnkey production of live and archived press conferences, earnings conference
calls, investor conferences, trade shows, stockholder meetings, product
introductions, training sessions, distance learning telecourses and media
events.
THE MERGER (PAGE 38)
Broadcast.com and Yahoo! have entered into a merger agreement which sets forth
the terms and conditions of the proposed merger of broadcast.com and Yahoo!. The
merger agreement provides that if the merger is approved, broadcast.com will
merge with a subsidiary of Yahoo! and become a wholly-owned subsidiary of
Yahoo!. As a stockholder of broadcast.com, you will become a stockholder of
Yahoo! following the merger.
STOCKHOLDER APPROVAL (PAGE 36)
The holders of a majority of the outstanding shares of broadcast.com common
stock must approve the merger. You are entitled to cast one vote per share of
broadcast.com common stock you held at the close of business on May 24, 1999. On
such date, 37,040,155 shares of broadcast.com common stock were outstanding and
entitled to vote.
VOTING AGREEMENT (PAGE 64)
Broadcast.com stockholders owning approximately 45.0% of broadcast.com
outstanding common stock have agreed to vote all of their shares of
broadcast.com common stock for approval of the merger.
NONCOMPETITION AGREEMENTS (PAGE 65)
Both Todd R. Wagner, the Chief Executive Officer of broadcast.com, and Mark
Cuban, the Chairman and President of broadcast.com, have entered into
noncompetition agreements with Yahoo! in which they agreed not to compete with
Yahoo! in a business engaged in aggregating, broadcasting or distributing audio
and video programming over the Internet for three years following the merger or
one year following termination of their employment with broadcast.com, whichever
is earlier.
2
<PAGE>
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 broadcast.com before the special meeting or attend the special
meeting in person and vote. You may also revoke your proxy by sending written
notice to the Secretary of broadcast.com before the special meeting.
COMPLETION OF THE MERGER (PAGE 54)
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 CERTIFICATES (PAGE 55)
Do not send in your stock certificates now. After the merger is completed, we
will send you written instructions for exchanging your broadcast.com stock
certificates for Yahoo! stock certificates.
BROADCAST.COM'S REASONS FOR THE MERGER; RECOMMENDATION OF BROADCAST.COM'S BOARD
(PAGE 41)
Broadcast.com's board of directors has determined that the terms of the merger
are fair to, and in the best interests of, broadcast.com and its stockholders.
In reaching its decision, broadcast.com's board of directors identified several
potential benefits of the merger, the most important of which included:
- - Broadcast.com's stockholders will have the opportunity to participate in the
potential for growth of the combined company after the merger;
- - Combining with Yahoo! will increase the business services, advertising and e-
commerce relationships and opportunities available to broadcast.com;
- - Yahoo!'s existing international infrastructure should facilitate
broadcast.com's expansion in Europe, Asia and Central and South America; and
- - The exchange ratio in the merger represented a premium of approximately 39.5%
over the average closing price for broadcast.com common stock over the 30 day
trading period ending on March 31, 1999.
BROADCAST.COM'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
MERGER.
OPINION OF FINANCIAL ADVISOR TO BROADCAST.COM (PAGE 43 AND APPENDIX B)
In deciding to approve the merger, broadcast.com's board of directors considered
the opinion of Morgan Stanley & Co. Incorporated, its financial advisor, that,
as of the date Yahoo! and broadcast.com signed the merger agreement, the
exchange ratio was fair, from a financial point of view, to the holders of
broadcast.com common stock. Such opinion was provided for the information and
assistance of broadcast.com's board of directors in connection with the merger
and does not constitute a recommendation as to how any holder of shares of
broadcast.com common stock should vote with respect to the merger. The full text
of the written opinion of Morgan Stanley, 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 50)
In considering the broadcast.com board of directors' recommendation that you
vote to approve the merger, you should note that certain officers and directors
of broadcast.com have interests in the merger that are different from, or in
addition to, your interests. These interests relate to accelerated vesting of
stock options and indemnification rights. As a result, directors and officers
may be more likely to vote to approve the merger than broadcast.com's
stockholders generally.
3
<PAGE>
CONDITIONS TO THE MERGER (PAGE 60)
Yahoo! and broadcast.com will complete the merger only if the conditions
specified in the merger agreement are either satisfied or waived, some of which
include:
- - 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 broadcast.com 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.
TERMINATION OF THE MERGER AGREEMENT (PAGE 61)
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 October 31, 1999;
- - a governmental authority or legal action permanently prohibits the merger;
- - the broadcast.com stockholders do not approve the merger; or
- - the other company breaches any representations or warranties, or any of the
representations or warranties become inaccurate, in either case such that the
other company is unable to satisfy certain conditions to the completion of
the merger, and the breach or inaccuracy is not cured.
In addition, Yahoo! may terminate the merger agreement if any of the following
triggering events occur:
- - broadcast.com's board of directors withdraws or amends in an adverse manner
to Yahoo! its recommendation of the merger;
- - broadcast.com's board of directors fails to affirm its recommendation of the
merger following the public announcement of a third-party acquisition
proposal within fifteen days of a request by Yahoo! to make such affirmation;
- - broadcast.com's board of directors approves or publicly recommends any other
acquisition proposal by a third party, or broadcast.com enters into any
agreement accepting another acquisition proposal;
- - a tender or exchange offer for broadcast.com common stock is commenced and
broadcast.com sends to its stockholders a statement that broadcast.com
recommends acceptance of the tender or exchange offer; or
- - broadcast.com intentionally breaches its obligations under the "no
solicitation" section of the merger agreement.
TERMINATION FEE AND EXPENSES (PAGE 62)
If Yahoo! terminates the merger agreement because any of the above triggering
events has occurred, broadcast.com will be required to pay Yahoo! a termination
fee of $135 million. In addition, if either Yahoo! or broadcast.com terminates
the merger agreement because the required broadcast.com stockholder vote is not
obtained, broadcast.com may be required to pay Yahoo! all of the expenses
incurred by Yahoo! in connection with the merger. Broadcast.com may also be
required to pay the $135 million termination fee if broadcast.com stockholders
fail to approve the merger and broadcast.com enters into an acquisition
transaction with another party within 270 days of termination.
NO SOLICITATION (PAGE 58)
Broadcast.com has generally agreed not to initiate or engage in discussions with
another
4
<PAGE>
party regarding a business combination with that party while the merger is
pending.
YAHOO! STOCK OPTION (PAGE 59)
In connection with the execution of the merger agreement, broadcast.com granted
Yahoo! a stock option to purchase up to 7,333,300 shares of broadcast.com common
stock at a price of $130.02 per share. This number represents approximately
19.9% of broadcast.com's 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 broadcast.com
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 59.
Yahoo! required broadcast.com 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 broadcast.com and
are intended by Yahoo! to increase the likelihood that the merger will be
completed.
GOVERNMENTAL AND REGULATORY MATTERS (PAGE 51)
U.S. antitrust laws prohibit Yahoo! and broadcast.com 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 broadcast.com have furnished the required
information and the waiting period ended on May 12, 1999.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 51)
Yahoo! and broadcast.com 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, broadcast.com stockholders will not recognize any gain
or loss for federal income tax purposes upon the exchange of their broadcast.com
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 52)
Yahoo! and broadcast.com expect that the merger will be accounted for as a
pooling of interests, which means that Yahoo! and broadcast.com 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 53)
Under Delaware law, you do not have any right to an appraisal of the value of
your broadcast.com common stock in connection with the merger.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 26)
Each of Yahoo! and broadcast.com 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:
broadcast.com inc.
2914 Taylor Street
Dallas, Texas 75226
Attention: Investor Relations
Telephone: (214) 748-6660
5
<PAGE>
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 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 BROADCAST.COM
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.
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 broadcast.com's content providers.
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 stockholders 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 $22 million for merger
related expenses during the third quarter of 1999.
YOU WILL RECEIVE 0.7722 OF A SHARE OF YAHOO! COMMON STOCK DESPITE CHANGES IN
MARKET VALUE OF BROADCAST.COM COMMON STOCK OR YAHOO! COMMON STOCK.
Each share of broadcast.com common stock will be exchanged for 0.7722 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 broadcast.com
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 broadcast.com 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 broadcast.com is unsuccessful;
- - we do not achieve the perceived benefits of the merger as rapidly or to the
extent anticipated by financial analysts or investors; or
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- - the effect of the merger on our financial results is not consistent with the
expectations of financial analysts or investors.
FAILURE OF THE MERGER TO QUALIFY AS A POOLING OF INTERESTS WOULD NEGATIVELY
AFFECT COMBINED FINANCIAL RESULTS.
The failure of this 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 this
merger depends upon circumstances and events occurring after the effective time
of the merger. For example, there must not be any 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 broadcast.com must not sell any shares of either Yahoo! or
broadcast.com capital stock except certain limited amounts until the day that
Yahoo! publicly announces financial results covering at least 30 days of
combined operations of Yahoo! and broadcast.com after the merger. If the
effective time of the merger occurs prior to September 1, 1999, we expect that
such combined financial results would be published in October 1999. If
affiliates of Yahoo! or broadcast.com sell shares of Yahoo! common stock in
excess of the limited exception 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 BROADCAST.COM'S BUSINESS
Assuming the merger is consummated, broadcast.com will constitute a
meaningful part of the combined company's business. As a result, it is important
for stockholders to consider the following ongoing risks related to
broadcast.com's business when considering their vote on the merger.
BROADCAST.COM IS DEPENDENT ON THIRD-PARTY CONTENT PROVIDERS.
Broadcast.com's future success depends upon its ability to aggregate
compelling content and deliver that content on the Web. Broadcast.com typically
does not create content. Rather, it relies on third parties including major
sports organizations, radio and television stations, record labels, cable
networks, businesses, colleges and universities, film producers and distributors
and other organizations for the compelling and entertaining content available on
the broadcast.com sites. Broadcast.com's ability to maintain and build
relationships with third-party content providers will be critical to the
combined company's success and also exposes it to the following risks.
MANY OF BROADCAST.COM'S CONTENT AGREEMENTS EXTEND FOR A PERIOD OF LESS THAN
TWO YEARS AND THERE CAN BE NO GUARANTEE THAT THEY WILL BE RENEWED UPON THEIR
EXPIRATION ON FAVORABLE TERMS OR AT ALL. Broadcast.com's inability to secure
licenses from content providers, performance rights societies or other
copyright holders or the termination of a significant number of content
provider agreements would decrease the availability of content and likely
result in decreased traffic on broadcast.com's Web sites. As a result,
broadcast.com would receive decreased advertising revenue, which would
adversely affect its business. Also, as competition for compelling content
increases, broadcast.com's content providers may increase the prices at
which they offer their content to broadcast.com upon the expiration of these
contracts. Either of these events would negatively affect broadcast.com's
business.
THE ROYALTY RATES FOR CERTAIN MUSIC LICENSES HAVE NOT BEEN SET AND MAY BE
SET AT RATES THAT ARE HIGHER THAN ANTICIPATED. In order to have the right to
broadcast music on the Web, broadcast.com is currently required to license
and pay royalties on the copyrighted musical compositions and also on the
copyrighted recordings of the music to be broadcast. Broadcast.com has
license agreements in place with ASCAP and BMI, the two largest music
societies that license the copyrights in the compositions, to license the
musical composition copyrights on reasonable terms. The Recording
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Industry Association of America is representing the five major record labels
and numerous smaller record labels in inter-industry negotiations to set the
royalties to be paid by Webcasters, like broadcast.com, for the license to
perform most music recordings. If these negotiations are not successful, the
rates will be determined through arbitration under the aegis of the
Librarian of Congress. The royalty and other terms for the sound recordings
performance license has not been determined and it is therefore unclear how
it will affect broadcast.com's business. If ASCAP, BMI or the Librarian sets
high royalty rates, offers to renew existing agreements only at higher
rates, provides other terms which make it difficult to support
broadcast.com's current business model or if broadcast.com is unsuccessful
in negotiating licenses with other performance rights societies or licensing
agencies, the combined company's overall business could be adversely
affected.
CONTENT AGREEMENTS ARE OFTEN NOT EXCLUSIVE AND OTHER COMPANIES ARE OFTEN
ABLE TO OFFER SIMILAR CONTENT. In some cases, broadcast.com has not been
able to enter into exclusive licenses to the content it licenses from third
parties for distribution on the Internet. Accordingly, other Webcasters may
often be able to offer similar content. Likewise, most sports and
entertainment content available from broadcast.com is also available on
other media like radio or television. These media are currently, and for the
forseeable future will be, much more widely adopted for listening or viewing
such content than the Web. To the extent other companies are able to
broadcast content that is similar to or the same as broadcast.com, the
number of users on the broadcast.com Web sites may not grow at all or at a
slower rate than anticipated and therefore broadcast.com will generate less
advertising revenue than expected.
BROADCAST.COM IS DEPENDENT ON THE DEVELOPMENT, ACCEPTANCE AND AVAILABILITY OF
STREAMING MEDIA TECHNOLOGY.
Broadcast.com relies on two leading providers of streaming media products,
RealNetworks and Microsoft, for licenses to the software it uses to encode and
broadcast its content and for distribution of the player software needed by
users to receive streaming content from the Web. There can be no assurance that
these providers will continue licensing the software on reasonable terms or at
all to broadcast.com. In addition, users are currently able to download copies
of RealNetworks' RealPlayer and Microsoft's Windows Media Player software free
of charge from those companies' Web sites. These and other providers of
streaming media products may begin charging users for copies of their player
software or otherwise change their business model in a manner which prevents the
widespread acceptance of these products. In order for broadcast.com to be
successful, there must be a large and growing base of users of these streaming
media products. In addition, competitors of RealNetworks and Microsoft may
introduce and promote products which obtain a substantial share of the market
for streaming media software. In such event, broadcast.com may need to acquire
licenses from such companies, as to which there can be no assurance that they
may be available on reasonable terms or at all. Broadcast.com has limited or no
control over the availability or acceptance of streaming media software, and to
the extent that any of these circumstances occur, broadcast.com's business could
be materially adversely affected.
Broadcast.com's success also depends on users having access to the necessary
hardware, software and bandwidth to receive high quality streaming media.
Congestion over the Internet and packet loss may interrupt audio and video
streams, resulting in unsatisfying user experiences. In order to receive
streamed media adequately, users generally must have multimedia PCs with certain
microprocessor requirements and at least 28.8 kbps Internet access and streaming
media software. Users typically electronically download such software and
install it on their PCs. Such installation may require technical expertise that
some users do not possess. Furthermore, in order for users to receive streaming
media over corporate intranets, information systems managers may need to
reconfigure such intranets. Because of bandwidth constraints on corporate
intranets, some information systems managers block reception of streamed media.
Widespread adoption of streaming media technology depends on overcoming these
obstacles, improving audio and video quality and educating customers and users
in
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the use of streaming media technology. If streaming media technology fails to
overcome these obstacles, broadcast.com's business could be adversely affected.
BROADCAST.COM'S BUSINESS IS DEPENDENT ON BUSINESS SERVICES REVENUES.
Broadcast.com expects to derive a substantial amount of its revenues by
providing services to businesses to enable them to stream content over the
Internet and corporate intranets. The demand and market acceptance for these
business services solutions is uncertain. Broadcast.com's ability to establish
and maintain a leadership position in Internet and intranet broadcasting for
businesses and in the distribution of other live and on-demand events will
depend on, among other things:
- - market acceptance of its current and future business service offerings;
- - the reliability of its networks and services; and
- - the extent to which end users are able to receive broadcasts at adequate bit
rates to provide for high quality services, none of which can be assured.
Broadcast.com operates in a market that is at a very early stage of
development, is rapidly evolving and is characterized by an increasing number of
competitors. Broadcast.com expects its competitors, which include other Internet
companies providing broadcast services, companies offering teleconferencing or
videoconferencing solutions, software companies, Internet service providers or
networking companies, to become more formidable in the future. Demand and market
acceptance for recently introduced services by broadcast.com are subject to a
high level of uncertainty and risk. Sales of business services may require an
extended sales effort in certain cases. Because the market for business services
is new and evolving, it is difficult to predict the size of this market and its
growth rate, if any. In addition, it is uncertain whether businesses and other
organizations will utilize the Internet to any significant degree as a means of
broadcasting business conferences and other events. There can be no assurance
that the market for broadcast.com's business services will continue to develop
or be sustainable. If the market fails to develop, develops more slowly than
expected or becomes more competitive than is currently expected, or if
broadcast.com's sites do not achieve or sustain market acceptance, the portion
of the combined company's business related to such activities could be adversely
affected.
BROADCAST.COM MAY NOT BE ABLE TO SUCCESSFULLY SCALE ITS OPERATIONS.
Broadcast.com's success depends on its ability to attract large numbers of
additional users and broadcast audio and video programming to these users
simultaneously. In addition, streaming media content requires more bandwidth
than most data transmissions. As a result, to the extent that demand for
broadcast.com's content increases, there will be a need to expand its
infrastructure, including the capacity of its hardware servers, its available
bandwidth and the sophistication of its licensed software. It may also result in
the demand by a greater number of users to transition to the use of high
bandwidth Internet access devices such as cable modems and xDSL devices. This
expansion will be expensive and complex, and will require additional technical
expertise. As the demand for bandwidth increases, rates for such bandwidth may
increase. If broadcast.com is unable to accommodate this growth, its business
could be adversely affected.
From the commencement of operations, broadcast.com has deployed unicasting
technology (one user per company originated stream) to broadcast audio and video
programming to users over the Internet. Recently, it began to deploy another
broadcast technology, multicasting (multiple users per company originated
stream). Broadcast.com believes that unicasting will continue to be used to
distribute archived and on-demand programming and that multicasting or a similar
broadcasting technology will be used for live and other events where a larger
audience for the content is expected.
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To increase its unicast capacity, the successful expansion of
broadcast.com's network infrastructure through the acquisition and deployment of
additional network equipment and bandwidth will be necessary. There can be no
assurance that broadcast.com will be successful in such expansion or that such
expansion can be accomplished at prices that support broadcast.com's business
model.
Broadcast.com also must successfully deploy multicasting or a similar
broadcasting technology that can deliver streaming media content to many users
simultaneously through one-to-many Internet connections. Broadcast.com will be
required to test, deploy and successfully scale its multicast network
infrastructure to serve mass audiences. There can be no assurance that it will
be successful in doing so, that multicasting will be able to support a
substantial audience or that an alternative technology will not emerge that
offers superior broadcasting technology as compared to multicasting. In the
event that multicasting technology is not successfully deployed in a timely
manner or such an alternative technology emerges, broadcast.com would likely be
required to expend significant resources to deploy a technology other than
multicasting, which could adversely affect its results of operations. If
broadcast.com fails to scale its broadcasts to large audiences of simultaneous
users, such failure could adversely affect its business.
RISKS RELATED TO YAHOO! AND BROADCAST.COM 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.
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. Broadcast.com was incorporated in May
1995 and has not achieved profitability on a quarterly or annual basis to date.
Therefore, Yahoo! and broadcast.com 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 services. Successfully achieving the
combined company's growth plan depends on the combined company's ability to:
- - continue to develop and extend the Yahoo! brand;
- - 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 email 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.
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THE COMBINED COMPANY ANTICIPATES INCREASED OPERATING EXPENSES AND MAY EXPERIENCE
LOSSES.
Because of Yahoo!'s and broadcast.com's 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 and the first quarter of 1999, 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 broadcast.com 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);
- - 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 broadcast.com 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.
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The advertising revenue of Yahoo! and broadcast.com 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 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
significant 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.
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, entertainment, business and community services. As it
expands the scope of its Internet offerings, Yahoo! will compete directly with a
greater number of Internet sites, media companies and companies providing
business services 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;
- - online merchant hosting services; and
- - online broadcasting of business events.
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Companies that offer competitive products or services addressing Web
navigation, information and community services include:
- - America Online, Inc. (NetFind);
- - CNET, Inc. (Snap.com);
- - Compaq/Digital Equipment Corporation (AltaVista);
- - Excite@Home (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 stockholders.
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;
- - 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 announcing that it intends to merge its Internet holdings with XOOM.com,
Inc. and Snap.com, a subsidiary of CNET; and
- - Compaq taking control of AltaVista through its acquisition of Digital
Equipment Corporation.
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.
The recent acquisitions and alliances discussed above 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
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within the Netcenter Web site. 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 AltaVista 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
AltaVista 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 may be more conveniently accessed by users.
INCREASED COMPETITION MAY EXERT DOWNWARD PRICING PRESSURE ON ADVERTISING
CONTRACTS.
Yahoo! competes with online services, other Web site 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.
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 the 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 broadcast.com's 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
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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
broadcast.com brands is an important 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
broadcast.com 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 broadcast.com 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 REACHING 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
- - 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 banner advertising from Web pages
viewed by an Internet user. 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 its 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.
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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 and
telephone listings, streaming capabilities and other 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, interruptions 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.
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 broadcast.com 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! and broadcast.com have granted exclusive rights to certain
third parties, and may in the future grant additional exclusive rights. These
exclusive rights may have the effect of preventing the combined company from
accepting particular advertising, sponsorship or content 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 Web sites, 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.
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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 Web site 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, 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
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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 Web sites
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 their business strategies, Yahoo! and broadcast.com have
completed several acquisitions, including Yahoo!'s recent acquisitions of
GeoCities, Encompass, Inc. ("Encompass") and Online Anywhere ("Online Anywhere")
and broadcast.com's recent acquisition of Net Roadshow, and Yahoo! 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 negative impact on reported earnings if any of these transactions which
are expected to qualify for pooling of interests accounting treatment for
financial reporting purposes fail to so qualify;
- - 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
resulting 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;
- - 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.
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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. Neither
Yahoo! nor broadcast.com has multiple site capacity in the event of any
catastrophic event. Despite implementation of network security measures, the
combined company's 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
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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 Yahoo! attempts to
ensure that the quality of its brand is maintained by its licensees, its
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. Protection of the distinctive elements
of Yahoo! may not be available 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 the
combined company 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. The combined company 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 the combined company has infringed third-party proprietary
rights, it could incur substantial monetary liability and be prevented from
using the rights in the future.
Yahoo! is aware of lawsuits filed against two of its 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. In addition, lawsuits have been filed against broadcast.com alleging
patent infringement relating to broadcast.com's use of streaming media products.
See "Information Regarding Broadcast.com--Business of Broadcast.com--Legal
Proceedings."
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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 is 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 WAS RECENTLY ACQUIRED BY YAHOO! AND HAS AN UNPROVEN BUSINESS MODEL
THAT IS HIGHLY DEPENDENT ON THE CONTINUED SUPPORT OF ITS MEMBERS AND
ADVERTISERS.
On May 28, 1999, Yahoo! completed its acquisition of GeoCities, one of the
world's largest Web-based communities. GeoCities' business model, which is a
meaningful part of the combined company's business model, 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'
Web site 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 Web site. Yahoo! is 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. Yahoo! is also aware of a report that two former AOL
volunteers have filed a class action lawsuit alleging that AOL violated the Fair
Labor Standards Act by not paying its volunteers a minimum wage for work
performed by volunteers. Although Yahoo! is not aware of any similar requests by
any of its or GeoCities' volunteers, and although neither Yahoo! nor GeoCities
has been named a defendant in any similar class action lawsuits brought on
behalf of its community members, no assurances can be given that such requests
will not be made or that such lawsuits will not be filed in the future. Yahoo!
does not believe that any of its or GeoCities' practices in connection with the
use of volunteers in its business is in violation of any labor laws; however, to
the extent that the Department of Labor makes an adverse determination
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in the AOL matter or to the extent the plaintiffs in the class action lawsuit
prevail, 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
Web sites 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.
Yahoo! posts policies concerning the use and disclosure of user data. In
addition, the combined company will be required to comply, to a certain extent,
with a consent order issued by the FTC to GeoCities, which imposes certain
obligations and restrictions with respect to information collected from users.
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.
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
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auctions and homesteading. 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. Likewise,
broadcast.com licenses third-party content for distribution over the Internet.
The combined company may be subject to claims concerning these products,
services or content by virtue of its involvement in marketing, branding,
broadcasting or providing access to them, even in cases where it does not itself
host, operate, provide, or provide access to these products, services or
content. While agreements with these parties often provide that Yahoo! or
broadcast.com 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 its 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 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.
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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 broadcast.com's internal systems; and
- - equipment, software and content supplied to Yahoo! and broadcast.com by
third-party vendors that may not be Year 2000 compliant, including outside
providers of Web-hosting services on which Yahoo! and broadcast.com 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 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. Unlike other businesses, Yahoo! does
not have an installed base of legacy systems dating back many years.
Nonetheless, in order to reduce the risks of the Year 2000 compliance problem,
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-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 compliance by
gathering information on each aspect of Yahoo!'s systems, reviewing each
component or application for date usage, and examining date representations. As
to Yahoo!'s systems, the preliminary results of this formal assessment are
consistent with the results of Yahoo!'s informal assessment. With respect to
vendor-supplied items and services, Yahoo! is conducting an extensive review of
product compliance information on such items and services available online, 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.
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 compliance. Yahoo! does
not anticipate, however, undertaking a formal assessment of the Year 2000
compliance of the Internet or its underlying telecommunications infrastructure,
and will
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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 compliance 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 broadcast.com's internal
systems for the Year 2000 problem.
In addition, see "Broadcast.com's Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Readiness" for a
discussion of broadcast.com's readiness for the Year 2000.
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 and the first quarter of 1999, the
closing sale prices of Yahoo! common stock on the Nasdaq Stock Market ranged
from $14.52 to $219.125. 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 STOCKHOLDER WILL BENEFICIALLY OWN
APPROXIMATELY 47% OF YAHOO!'S COMMON STOCK; THEIR INTERESTS COULD CONFLICT WITH
YOURS; SIGNIFICANT SALES OF STOCK HELD BY THEM COULD HAVE A NEGATIVE EFFECT ON
YAHOO!'S STOCK PRICE.
Following the merger, Yahoo!'s directors and executive officers, and
SOFTBANK will beneficially own approximately 47% of Yahoo!'s outstanding common
stock. As a result of their ownership, the directors and executive officers of
Yahoo! and SOFTBANK collectively are able to exert significant influence on all
matters requiring stockholder approval, including the election of directors and
approval
25
<PAGE>
of significant corporate transactions. Such concentration of ownership may also
have the effect of delaying or preventing a change in control of Yahoo!. In
addition, sales of significant amounts of shares held by Yahoo!'s directors and
executive officers and SOFTBANK, or the prospect of these sales, could adversely
affect the market price of Yahoo! common stock.
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 stockholders. 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
stockholders 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 stockholders to take action by written consent and
limiting the ability of stockholders to raise matters at a meeting of
stockholders 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 Yahoo!'s board of directors.
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 broadcast.com 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 is
disclosed herein including, without limitation, in the section entitled "Risk
Factors" beginning on page 6. All forward-looking statements attributable to
Yahoo! or broadcast.com are expressly qualified in their entirety by such
language. Neither Yahoo! nor broadcast.com undertakes any obligation to update
any forward-looking statements.
TRADEMARKS
This document contains trademarks of Yahoo! and broadcast.com and may
contain trademarks of others.
26
<PAGE>
YAHOO!
SELECTED SUPPLEMENTARY CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data should be read
in conjunction with Yahoo!'s supplementary consolidated financial statements and
related notes thereto and Yahoo!'s "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which are incorporated by
reference in this document and reflect the acquisitions of GeoCities, Encompass,
and Online Anywhere completed on May 28, May 26 and May 28, 1999, respectively.
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 supplementary 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 consolidated financial statements of Yahoo! and GeoCities which
are not included or incorporated by reference in this document. The consolidated
statement of operations data for the three months ended March 31, 1999 and 1998,
and the consolidated balance sheet data at March 31, 1999 are derived from the
unaudited supplementary consolidated financial statements incorporated by
reference in this document. In the opinion of management, these statements have
been prepared on the same basis as the audited supplementary consolidated
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair statement of the results of these
periods. Historical results are not necessarily indicative of the results to be
expected in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ --------------------------------------
1999 1998 1998 1997 1996 1995
-------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenues................................................ $ 94,266 $ 32,863 $223,078 $ 75,129 $21,804 $ 1,666
Cost of revenues............................................ 14,879 5,890 36,578 14,708 5,510 384
-------- -------- -------- -------- ------- -------
Gross profit.............................................. 79,387 26,973 186,500 60,421 16,294 1,282
-------- -------- -------- -------- ------- -------
Operating expenses:
Sales and marketing....................................... 38,232 19,075 111,214 52,083 16,932 1,052
Product development....................................... 12,434 5,722 28,717 14,140 6,175 412
General and administrative................................ 6,802 3,451 20,777 11,118 7,086 1,386
Amortization of intangibles............................... 3,203 -- 2,628 -- -- --
Other non-recurring costs................................. 9,775 -- 19,700 25,095 -- --
-------- -------- -------- -------- ------- -------
Total operating expenses................................ 70,446 28,248 183,036 102,436 30,193 2,850
-------- -------- -------- -------- ------- -------
Income (loss) from operations............................... 8,941 (1,275) 3,464 (42,015) (13,899) (1,568)
Investment income, net...................................... 7,535 1,681 17,081 4,713 3,926 70
Minority interests in operations of consolidated
subsidiaries.............................................. (325) 243 68 727 540 --
-------- -------- -------- -------- ------- -------
Income (loss) before income taxes........................... 16,151 649 20,613 (36,575) (9,433) (1,498)
Provision for income taxes.................................. 10,508 1,071 17,827 -- -- --
-------- -------- -------- -------- ------- -------
Net income (loss)........................................... 5,643 (422) 2,786 (36,575) $(9,433) (1,498)
Accretion of mandatorily redeemable convertible preferred
stock..................................................... -- 598 1,396 832 105 --
-------- -------- -------- -------- ------- -------
Net income (loss) applicable to common stockholders......... $ 5,643 $ (1,020) $ 1,390 $(37,407) $(9,538) $(1,498)
-------- -------- -------- -------- ------- -------
-------- -------- -------- -------- ------- -------
Net income (loss) per share--basic(1)....................... $ 0.03 $ (0.01) $ 0.01 $ (0.21) $ (0.06) $ (0.01)
-------- -------- -------- -------- ------- -------
-------- -------- -------- -------- ------- -------
Net income (loss) per share--diluted(1)..................... $ 0.02 $ (0.01) $ 0.01 $ (0.21) $ (0.06) $ (0.01)
-------- -------- -------- -------- ------- -------
-------- -------- -------- -------- ------- -------
Shares used in per share calculation--basic(1).............. 224,045 174,924 194,790 177,110 159,071 112,467
-------- -------- -------- -------- ------- -------
-------- -------- -------- -------- ------- -------
Shares used in per share calculation--diluted(1)............ 264,860 174,924 238,287 177,110 159,071 112,467
-------- -------- -------- -------- ------- -------
-------- -------- -------- -------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------------------------
1999 1998 1997 1996 1995
---------------- --------- --------- --------- -------
(IN THOUSANDS)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments..................................... $ 511,265 $ 522,955 $ 98,529 $ 96,980 $ 6,168
Working capital................................... 441,683 471,221 113,710 91,148 5,485
Total assets...................................... 853,843 735,198 175,016 117,653 7,594
Mandatory redeemable convertible preferred
stock........................................... -- -- 33,137 2,168 --
Total stockholders' equity........................ 727,597 635,373 111,686 102,765 5,935
</TABLE>
27
<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 43.5
million shares. Common equivalent shares in 1997, 1996 and the three months
ended March 31, 1998 were excluded from the computation as their effect was
anti-dilutive. For the three months ended March 31, 1999, common equivalent
shares approximated 40.8 million and were primarily related to shares
issuable upon the exercise of stock options.
28
<PAGE>
BROADCAST.COM
SELECTED SUPPLEMENTARY CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data should be read
in conjunction with broadcast.com's consolidated financial statements and
related notes thereto and broadcast.com's "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 broadcast.com which have been audited by PricewaterhouseCoopers
LLP, independent accountants, and are included elsewhere in this document. The
consolidated statement of operations data for the period from Inception (May 19,
1995) to December 31, 1995, and the consolidated balance sheet data at December
31, 1996 and 1995, are derived from audited consolidated financial statements of
broadcast.com not included in this document. The consolidated statement of
operations data for the three months ended March 31, 1999 and 1998, and the
consolidated balance sheet data at March 31, 1999 are derived from the unaudited
consolidated financial statements of broadcast.com included elsewhere in this
document. In the opinion of management, these statements have been prepared on
the same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of the results of these periods. Historical results are not
necessarily indicative of the results to be expected in the future.
<TABLE>
<CAPTION>
PERIOD
FROM
INCEPTION
(MAY
19,
THREE MONTHS ENDED 1995)
MARCH 31, YEAR ENDED DECEMBER 31, TO
------------------ ----------------------------- DECEMBER
1999 1998 1998 1997 1996 31, 1995
-------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Business services......................................... $ 7,124 $ 2,798 $ 15,851 $ 5,368 $ 958 $--
Advertising............................................... 3,164 1,725 8,419 3,811 1,091 --
-------- -------- -------- -------- ------- -------
Total revenues.......................................... 10,288 4,523 24,270 9,179 2,049 --
Operating expenses:
Productions costs......................................... 1,537 1,280 4,664 3,005 1,301 --
Operating and development................................. 5,384 2,699 15,211 5,510 1,621 --
Sales and marketing....................................... 4,012 1,904 11,920 4,208 768 21
General and administration................................ 2,010 857 4,752 1,934 841 217
Depreciation and amortization............................. 1,318 663 3,374 1,419 562 30
Other non-recurring expenses.............................. 462 -- 1,534 -- -- --
-------- -------- -------- -------- ------- -------
Total operating expenses................................ 14,723 7,403 41,455 16,076 5,093 268
-------- -------- -------- -------- ------- -------
Net operating loss...................................... (4,435 ) (2,880) (17,185) (6,897) (3,044) (268 )
Interest and other income................................... 589 275 1,925 213 76 --
Interest expense............................................ (1 ) (33) (200) (74) (4) --
-------- -------- -------- -------- ------- -------
Loss before income taxes provision...................... (3,847 ) (2,638) (15,460) (6,758) (2,972) (268 )
Provision for income taxes.................................. -- -- -- 43 25 --
-------- -------- -------- -------- ------- -------
Net loss................................................ $(3,847 ) $ (2,638) $(15,460) $ (6,801) $(2,997) $(268 )
-------- -------- -------- -------- ------- -------
-------- -------- -------- -------- ------- -------
Basic and diluted net loss per share(2)..................... $ (0.11 ) $ (0.09) $ (0.47) $ (0.28) $ (0.15) $(0.02 )
-------- -------- -------- -------- ------- -------
-------- -------- -------- -------- ------- -------
Shares used in the net loss per share calculations(2)....... 36,392 (1) 29,847 32,811(1) 24,196 19,754 12,040
-------- -------- -------- -------- ------- -------
-------- -------- -------- -------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
MARCH DECEMBER 31,
31, --------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
(IN
THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................... $46,260 $ 49,828 $ 21,350 $ 4,583 $ 142
Working capital (deficit)...................... 49,104 50,582 23,004 4,392 (75)
Total assets................................... 68,622 62,593 29,685 8,287 676
Total stockholders' equity (deficit)........... 61,527 58,411 26,905 7,602 (214)
</TABLE>
29
<PAGE>
- ------------------------
(1) This information is based on the number of weighted average shares of common
stock outstanding for the year ended December 31, 1998. It excludes (1)
approximately 7,509,000 shares of common stock issuable upon the exercise of
stock options under broadcast.com's 1998 Stock Option Plan, broadcast.com's
1996 Stock Option Plan and broadcast.com's 1996 Non-Employee Directors Stock
Option Plan, with a weighted average exercise price of $11.77 per share; (2)
approximately 1,212,000 shares of common stock reserved for future issuance
under broadcast.com's 1998 Stock Option Plan, broadcast.com's 1996 Stock
Option Plan and broadcast.com's 1996 Non-Employee Directors Stock Option
Plan; (3) 436,192 shares of common stock issuable upon the exercise of
certain warrants, with a weighted average exercise price of $4.36 per share,
of which warrants to purchase 318,472 shares of common stock held by Yahoo!
will expire unexercised upon consummation of the proposed merger, and (4)
500,000 shares of common stock reserved for future issuance under
broadcast.com's 1998 Employee Stock Purchase Plan. See "Description of
Capital Stock" and Notes 8 and 9 of notes to consolidated financial
statements. At March 31, 1999, the number of weighted average shares of
common stock outstanding does not include approximately 6.9 million and
312,000 shares of common stock issuable upon the exercise of stock options
and warrants, respectively.
(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
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 broadcast.com consolidated financial statements
included herein).
30
<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 broadcast.com on a pooling of interests basis. The
Yahoo! and broadcast.com unaudited pro forma combined financial data are based
on the audited historical supplementary consolidated financial statements and
the notes thereto of Yahoo! and the audited historical consolidated financial
statements of broadcast.com, which are incorporated by reference or included
elsewhere in this document. The Yahoo! and broadcast.com unaudited pro forma
combined balance sheet data assume that the merger of Yahoo! and broadcast.com
took place on March 31, 1999, December 31, 1998, 1997 and 1996, and combines the
Yahoo! historical supplementary consolidated balance sheet with broadcast.com's
historical consolidated balance sheet as of each respective date. The Yahoo! and
broadcast.com unaudited pro forma combined statements of operations data assume
that the merger of Yahoo! and broadcast.com took place as of the beginning of
the periods presented and combine Yahoo!'s historical supplementary consolidated
statements of operations data with broadcast.com's historical consolidated
statements of operations data for the years ended December 31, 1998, 1997 and
1996, and for the three months ended March 31, 1999 and 1998. This presentation
is consistent with the periods expected to be combined after the date of the
closing of the merger.
During May 1999, Yahoo! completed the acquisitions of GeoCities, Encompass
and Online Anywhere. These acquisitions, accounted for as poolings of interests,
are reflected in the Yahoo! historical supplementary consolidated financial
statements, incorporated by reference herein, as if the acquired entities were
wholly-owned subsidiaries of Yahoo! since inception.
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
March 31, 1999 and for each of the three years in the period ended December 31,
1998, and for the three months ended March 31, 1999 and 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."
31
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
YAHOO! AND BROADCAST.COM
--------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------------- ----------------------------------
1999 1998 1998 1997 1996
--------------- --------------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
DATA:
Net revenues............................. $ 104,354 $ 37,351 $ 245,569 $ 84,108 $ 23,793
Gross profit............................. 83,591 27,131 188,978 63,619 16,506
Total operating expenses................. 79,085 36,445 217,099 112,531 33,449
Net income (loss) applicable to common
stockholders........................... $ 1,796 $ (8,915) $ (28,751) $ (44,208) $ (12,535)
Net income (loss) per
share -- basic......................... $ 0.01 $ (0.05) $ (0.13) $ (0.23) $ (0.07)
Net income (loss) per
share -- diluted....................... $ 0.01 $ (0.05) $ (0.13) $ (0.23) $ (0.07)
Shares used in per share calculation --
basic.................................. 252,024 197,849 220,004 195,794 174,325
Shares used in per share calculation --
diluted................................ 297,463 197,849 220,004 195,794 174,325
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1999
-------------
(IN
THOUSANDS)
<S> <C>
PRO FORMA COMBINED BALANCE SHEET
DATA:
Cash, cash equivalents, and short-term and long-term investments in
marketable debt securities................................................. $ 655,093
Working capital.............................................................. 400,787
Total assets................................................................. 867,506
Stockholders' equity......................................................... 644,165
</TABLE>
32
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables reflect (a) the supplementary historical net income
(loss) and book value per share of Yahoo! stock and the historical net loss and
book value per share of broadcast.com common stock in comparison with the
unaudited pro forma net loss and book value per share after giving effect to the
proposed merger of Yahoo! with broadcast.com on a "pooling of interests" basis
and (b) the equivalent historical net loss and book value per share attributable
to 0.7722 of a share of Yahoo! common stock which will be received for each
share of broadcast.com 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 supplementary
historical consolidated financial statements and related notes of Yahoo! and the
historical consolidated financial statements of broadcast.com which are
incorporated by reference or included elsewhere in this document.
<TABLE>
<CAPTION>
THREE MONTHS FISCAL YEAR ENDED DECEMBER 31,
ENDED MARCH 31,
------------------------ -------------------------------
YAHOO! PER SHARE DATA 1999 1998 1998 1997 1996
- ------------------------------------------------------------------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
YAHOO! SUPPLEMENTARY HISTORICAL PER COMMON SHARE:
Net income (loss) per common share -- basic (2).................. $ 0.03 $ (0.01) $ 0.01 $ (0.21) $ (0.06)
Net income (loss) per common share -- diluted (2)................ $ 0.02 $ (0.01) $ 0.01 $ (0.21) $ (0.06)
Book value per share (1)......................................... $ 3.22
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS FISCAL YEAR ENDED DECEMBER 31,
ENDED MARCH 31,
------------------------ -------------------------------
BROADCAST.COM PER SHARE DATA 1999 1998 1998 1997 1996
- ------------------------------------------------------------------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BROADCAST.COM HISTORICAL PER COMMON SHARE:
Net loss per common share -- basic and diluted (2)............... $ (0.11) $ (0.09) $ (0.47) $ (0.28) $ (0.15)
Book value per share (1)......................................... $ 1.67
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS FISCAL YEAR ENDED DECEMBER 31,
ENDED MARCH 31,
YAHOO! AND BROADCAST.COM ------------------------ -------------------------------
PRO FORMA COMBINED PER SHARE DATA 1999 1998 1998 1997 1996
- ------------------------------------------------------------------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED PER COMMON SHARE:
Net income (loss) per Yahoo! share -- basic...................... $ 0.01 $ (0.05) $ (0.13) $ (0.23) $ (0.07)
Net income (loss) per Yahoo! share -- diluted.................... $ 0.01 $ (0.05) $ (0.13) $ (0.23) $ (0.07)
Net income (loss) per equivalent broadcast.com share -- basic
(3)............................................................ $ 0.01 $ (0.03) $ (0.10) $ (0.17) $ (0.05)
Net income (loss) per equivalent
broadcast.com share -- diluted (3)............................. $ 0.00 $ (0.03) $ (0.10) $ (0.17) $ (0.05)
Book value per Yahoo! share (1).................................. $ 2.54
Book value per equivalent broadcast.com share (3)................ $ 1.96
</TABLE>
- --------------------------
(1) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock outstanding at March 31,
1999. The pro forma combined book value per share is computed by dividing
pro forma stockholders' equity by the pro forma number of shares of Yahoo!
common stock outstanding as of March 31, 1999 assuming the merger had
occurred as of that date.
(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
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 broadcast.com share is calculated by
dividing the pro forma combined share amounts by the exchange ratio of
0.7722 shares of Yahoo! common stock for each share of broadcast.com common
stock.
33
<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 June 16, 1999).............................. 244.000 117.625
</TABLE>
Broadcast.com's common stock has traded on The Nasdaq National Market under
the symbol "BCST" since July 1998. The following table sets forth the range of
high and low intra-day sales prices reported on The Nasdaq National Market for
broadcast.com common stock for the periods indicated, adjusted to reflect the
2-for-1 stock split that occurred in February 1999.
<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
FISCAL 1998
Third Quarter (beginning July 17, 1998)............................. $ 37.000 $ 16.375
Fourth Quarter...................................................... 51.875 16.407
FISCAL 1999
First Quarter....................................................... $ 144.750 $ 38.500
Second Quarter (through June 16, 1999).............................. 177.250 89.250
</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 broadcast.com common stock on The Nasdaq National Market on (1)
March 31, 1999, the last full trading date prior to the public announcement of
the merger, and (2) June 16, 1999, the latest practicable trading day before the
printing of this proxy statement/prospectus. The equivalent broadcast.com 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
0.7722, the exchange ratio set forth in the merger agreement, and
34
<PAGE>
represents what the market value of one share of broadcast.com's common stock
would have been if the merger had been consummated on or prior to such day.
<TABLE>
<CAPTION>
YAHOO! EQUIVALENT
COMMON BROADCAST.COM BROADCAST.COM PER
STOCK COMMON STOCK SHARE PRICE
----------- ------------- -----------------
<S> <C> <C> <C>
March 31, 1999................................ $ 168.3750 $ 118.1875 $ 130.0191
June 16, 1999................................. $ 141.6250 $ 108.5000 $ 109.3628
</TABLE>
No assurance can be given as to the market prices of Yahoo! common stock or
broadcast.com 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 broadcast.com 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
broadcast.com common stock will correspondingly decrease or increase.
STOCKHOLDERS OF BROADCAST.COM ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS OF
BROADCAST.COM COMMON STOCK AND YAHOO! COMMON STOCK.
DIVIDEND INFORMATION
Neither Yahoo! nor broadcast.com 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 May 24, 1999, there were 200 stockholders of record who held shares of
broadcast.com common stock.
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THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting will be held on July 20, 1999, at 8:00 a.m., local time,
at 2909 Taylor Street, Dallas, Texas.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, stockholders of broadcast.com 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 broadcast.com common stock at the close of
business on May 24, 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 37,040,155
shares of broadcast.com common stock outstanding and entitled to vote, held of
record by 200 stockholders. Each broadcast.com stockholder is entitled to one
vote for each share of broadcast.com common stock held as of the record date.
VOTING AND REVOCATION OF PROXIES
The proxy accompanying this document is solicited on behalf of
broadcast.com's 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 broadcast.com. All properly executed proxies
received by broadcast.com 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.
Broadcast.com's 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 broadcast.com 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 broadcast.com 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 broadcast.com's 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 broadcast.com common stock
outstanding and entitled to vote at the special meeting. Abstentions and broker
non-votes are not affirmative votes and will thus have the same effect as votes
against approval of the merger. IN ADDITION, THE REQUIRED VOTE OF THE
STOCKHOLDERS OF BROADCAST.COM IS BASED UPON THE NUMBER OF OUTSTANDING SHARES OF
BROADCAST.COM 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, Affiliate and Noncompetition Agreements--Voting Agreement."
As of the record date and the date of this proxy statement/prospectus,
Yahoo! owned 159,236 shares of broadcast.com common stock which represents
approximately 0.4% of the outstanding shares of broadcast.com 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. Yahoo! also holds a warrant to purchase
318,472 shares of broadcast.com common stock at an exercise
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price of $4.71 per share, which, if exercised, would represent approximately
0.9% of the outstanding shares of broadcast.com on the record date. Such warrant
will expire upon consummation of the merger.
In addition, on the same day that the merger agreement was signed, three
stockholders of broadcast.com who collectively own approximately 45.0% of
broadcast.com's outstanding common stock entered into a voting agreement with
Yahoo!, granting Yahoo! a proxy to vote all of their shares of broadcast.com
stock for approval of the merger.
BOARD RECOMMENDATION
BROADCAST.COM'S 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, BROADCAST.COM AND ITS STOCKHOLDERS AND THEREFORE RECOMMENDS
THAT THE HOLDERS OF BROADCAST.COM CAPITAL STOCK VOTE FOR APPROVAL OF THE MERGER.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF BROADCAST.COM. ACCORDINGLY, BROADCAST.COM'S 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 broadcast.com stock
certificates will be mailed to you as soon as practicable after completion of
the merger. For more information regarding the procedures for exchanging your
broadcast.com stock certificates for Yahoo! stock certificates, please see the
section entitled "The Merger Agreement--Procedures for Exchanging Stock
Certificates" on page 55 of this proxy statement/ prospectus.
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THE MERGER
GENERAL
This section of the document describes certain aspects of the proposed
merger that we consider to be important. This 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
Broadcast.com and Yahoo! have been familiar with each other for several
years and have done business together from time to time. For example, in
December 1997, broadcast.com and Yahoo! entered into transactions whereby Yahoo!
maintained a co-branded Web site linking to sports-related broadcast.com
content. In addition, Yahoo! has been an investor in broadcast.com since
December 1997.
On January 26, 1999, John J. Healy, Director, Corporate Development of
Yahoo!, contacted Jack A. Riggs, Chief Financial Officer of broadcast.com, to
set up a mutually convenient time to contact Todd R. Wagner, Chief Executive
Officer of broadcast.com, and Mark Cuban, Chairman and President of
broadcast.com, to discuss potential ways in which Yahoo! and broadcast.com could
continue to work together in the future.
On February 17, 1999, Mr. Healy and Jeffrey Mallett, President and Chief
Operating Officer of Yahoo!, spoke with Messrs. Wagner and Cuban to discuss the
merits of a possible strategic transaction between Yahoo! and broadcast.com,
including among other things, a possible business combination.
On February 24, 1999, Mr. Mallett, Mr. Healy, Timothy K. Koogle, Chairman
and Chief Executive Officer of Yahoo!, and other Yahoo! representatives met with
Messrs. Wagner and Cuban to discuss the business of Yahoo! and broadcast.com,
the potential synergies between the companies and a possible business
combination between the companies. Mr. Mallett also requested certain financial
and business information from broadcast.com, which broadcast.com subsequently
provided.
On February 24, 1999, broadcast.com engaged Morgan Stanley & Co.
Incorporated to provide it with strategic investment banking services.
On March 5, 1999, Messrs. Mallett and Healy met with Messrs. Wagner and
Cuban and other broadcast.com representatives to discuss the financial and
business information previously provided, including certain performance data
relating to broadcast.com's Web sites.
On March 6, 1999, Mr. Wagner spoke with each of Joseph W. Autem and Steven
D. Leeke, non-employee members of broadcast.com's board of directors, concerning
the recent discussions with Yahoo!. From this date through the execution of the
definitive merger agreement on March 31, 1999, Mr. Wagner discussed the progress
of the Yahoo! negotiations with broadcast.com's non-employee directors on a
regular basis.
On March 8, 1999, Messrs. Wagner and Cuban spoke with representatives of
Morgan Stanley regarding the status of discussions with Yahoo!. At such meeting,
Morgan Stanley was asked to perform financial diligence and prepare valuation
information in connection with a potential combination of Yahoo! and
broadcast.com.
On the morning of March 19, 1999, Messrs. Wagner and Cuban met with
representatives of Morgan Stanley to discuss the results of Morgan Stanley's
financial diligence. From this date through the execution of the definitive
merger agreement on March 31, 1999, members of broadcast.com's
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management discussed the possible business combination with Morgan Stanley on a
regular basis. Later that day, Messrs. Koogle, Mallett and Healy, Jerry Yang,
co-founder of Yahoo! and a member of Yahoo!'s board of directors, and Gary
Valenzuela, Chief Financial Officer of Yahoo!, met with Messrs. Wagner and Cuban
and informed them that Yahoo! was preliminarily interested in a possible
acquisition of broadcast.com. The representatives of Yahoo! indicated that, if
the parties were to proceed with the negotiation of a transaction, it was
Yahoo!'s desire to sign a definitive agreement and announce the transaction by
April 1, 1999. While preliminary terms of the proposed acquisition were
discussed, no agreement was reached on an exchange ratio or other principal
terms. At the conclusion of this meeting, Messrs. Wagner and Cuban, in their
individual capacities, and broadcast.com each entered into an agreement with
Yahoo! pursuant to which each agreed to terminate any continuing discussions
with third parties regarding a sale of broadcast.com and not to solicit or
initiate any discussions with any third party regarding such a sale for a
specified period of time.
On March 21, 1999, Mr. Wagner contacted each of Messrs. Autem and Leeke to
brief them on the status of the negotiations relating to the proposed merger.
Each of Messrs. Autem and Leeke authorized management to proceed with
negotiating a definitive merger agreement based on the proposed terms and with
conducting an in-depth due diligence investigation of Yahoo!.
From March 22 through March 31, 1999, Yahoo! and broadcast.com, 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 related to the merger, including the following:
- - termination rights under the merger agreement;
- - the conditions upon which any breakup fee would be payable; and
- - the representations, warranties and covenants to be made.
Also during this period, there was discussion of whether the merger
agreement would contain a contingent stock option and a subsequent discussion of
the stock option's terms and conditions.
On March 24, 1999, Messrs. Mallett and Healy met with Mr. Wagner to review
the progress of the due diligence reviews and to further discuss merger terms.
They also reviewed additional Web site performance information and more detailed
financial and business information on broadcast.com.
On March 29, 1999, broadcast.com's board of directors held a meeting at
which senior management and legal and financial advisors of broadcast.com
discussed the following with the directors:
- - the status of the negotiations of the proposed transaction;
- - the results of due diligence;
- - the benefits and potential risks of the transaction with Yahoo!; and
- - the principal terms of the merger agreement and related documents.
At the meeting, broadcast.com's legal advisors discussed the board's
fiduciary duties in considering a strategic business combination and strategic
alternatives and further discussed the terms of the merger agreement and related
documents. Broadcast.com's financial advisors reviewed the strategic rationale
for, and financial analyses relating to, the proposed merger.
On March 30, 1999, broadcast.com's board of directors met again to further
discuss the proposed merger and the merger agreement. Broadcast.com's legal
advisors responded to questions raised by members of broadcast.com's board of
directors regarding the terms of the merger agreement and related documents.
Broadcast.com's financial advisors further reviewed the strategic rationale for,
and financial analyses relating to, the proposed merger.
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On March 31, 1999, broadcast.com's board of directors met with senior
management and broadcast.com's legal and financial advisors at a special
telephonic meeting to discuss the status of final negotiations with Yahoo! and
the directors' comments on the draft of the merger agreement. Morgan Stanley
presented its final analysis of various information to serve as the basis for
evaluating the exchange ratio and orally informed broadcast.com's board of
directors of its opinion, subsequently confirmed in writing, that the exchange
ratio was fair, from a financial point of view, to broadcast.com's stockholders.
Morgan Stanley also responded to questions raised by members of broadcast.com's
board of directors regarding its analysis and opinion. Following this
presentation, the board engaged in a full discussion of the terms of the
proposed merger and the analysis and opinion of Morgan Stanley. Broadcast.com's
board of directors concluded that the merger agreement was fair to
broadcast.com's stockholders and that the proposed merger was in the best
interests of broadcast.com and its stockholders. Accordingly, broadcast.com's
board of directors unanimously approved the merger and the merger agreement and
related documents and authorized management to proceed with the execution of the
merger documents.
On March 31, 1999, Yahoo!'s board of directors met with senior management
and in-house legal counsel at a special meeting of the board to review the
status of the negotiations with broadcast.com, the terms of the draft merger
agreement and Yahoo!'s due diligence review of broadcast.com. At this meeting,
Yahoo!'s management reviewed the financial terms and 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 March 31, 1999, Yahoo! and broadcast.com entered into
the merger agreement; certain stockholders of broadcast.com entered into the
voting agreement with Yahoo!; and each of the members of Yahoo!'s and
broadcast.com's boards of directors and certain officers of Yahoo! and
broadcast.com entered into affiliate agreements with Yahoo! and broadcast.com,
respectively.
The merger was jointly announced by Yahoo! and broadcast.com on the morning
of April 1, 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 stockholders for the following reasons:
- - EXTENSION OF YAHOO! BUSINESS MODEL TO AUDIO/VIDEO ENVIRONMENT. The merger of
Yahoo! and broadcast.com will permit Yahoo! to extend its present
text-oriented business model to the audio/ video environment. Yahoo! believes
that this will result in a unique enhancement of users' experience on Yahoo!
Finance, Yahoo! News, Yahoo! Sports and other similar Yahoo! services and
will serve as a key differentiator between services offered by Yahoo! and
those of its competitors. As bandwidth on the Web grows, users worldwide
expect richer media and content. This acquisition will accelerate the wide
array of content and services available for Yahoo's users by immediately
expanding its offerings in streamed video and audio.
- - ENTRY INTO BUSINESS SERVICES MARKETPLACE. It is anticipated that the proposed
merger will provide Yahoo! with a powerful entry into the business services
marketplace. The broadcast.com Business Services Group provides turnkey
Internet broadcasting services for hundreds of corporations and
organizations. Broadcast.com delivers live and on-demand audio and video
solutions for a variety of corporate communications applications, including
seminars, product launches, keynote addresses,
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distance learning, annual shareholder meetings and quarterly earnings calls.
Yahoo! believes that the addition of this capability will in the future be a
key component of its overall product offering.
- - MERGER COMPLEMENTS YAHOO!'S FUSION MARKETING ONLINE STRATEGY. The acquisition
of broadcast.com complements Yahoo!'s Fusion Marketing Online strategy of
providing a comprehensive suite of marketing services to its advertisers,
merchants and business partners worldwide. Broadcast.com's Business Services
Group will provide a new service for Yahoo!'s business, content and merchant
partners by offering a full turnkey audio and visual programming service.
Yahoo! believes that this service will provide additional revenue
opportunities from advertisers and merchants today and from expanded business
services in the future.
- - PROVEN MANAGEMENT TEAM. It is anticipated that the current senior executive
officers of broadcast.com will join Yahoo! following consummation of the
merger in management positions. This group of executive officers has a proven
record in establishing and building a successful business and retaining and
supporting teams of talented employees. For the first time, Yahoo!
anticipates that it will be forming an independent business unit within
Yahoo!. Todd Wagner, Chief Executive Officer of broadcast.com, and Mark
Cuban, Chairman of the Board and President of broadcast.com, will co-manage
the group as vice presidents of Yahoo! Broadcast Services. Given the intense
competition for qualified personnel in the Internet industry, the ability to
add key managers such as Messrs. Wagner and Cuban to the Yahoo! employee base
was viewed by Yahoo! as a large benefit of the transaction.
BROADCAST.COM'S REASONS FOR THE MERGER
Broadcast.com's board of directors has determined that the terms of the
merger and the merger agreement are fair to, and in the best interests of,
broadcast.com and its stockholders. Accordingly, broadcast.com's 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, broadcast.com's board of directors identified
several potential benefits of the merger, the most important of which included:
- - Broadcast.com's stockholders will have the opportunity to participate in the
potential for growth of the combined company after the merger;
- - Combining with Yahoo! will increase the business services, advertising and
e-commerce relationships and opportunities available to broadcast.com and
also give broadcast.com the opportunity to expand its audience;
- - Yahoo!'s existing international infrastructure should facilitate
broadcast.com's expansion in Europe, Asia and Central and South America;
- - The exchange ratio in the merger represented a premium of approximately 39.5%
over the average closing price for broadcast.com common stock over the 30 day
trading period ending on March 31, 1999; and
- - By combining with Yahoo!, broadcast.com's stockholders will be afforded
substantially increased trading liquidity for their investment.
Broadcast.com's board of directors consulted with broadcast.com's 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 broadcast.com's board in its deliberations were the following:
- - historical information concerning Yahoo!'s and broadcast.com's respective
financial performance, results of operations, assets, liabilities,
operations, technology, brand development, management
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and competitive position, including public reports covering the most recent
fiscal year and fiscal quarter for each company filed with the Commission;
- - broadcast.com's management's view of the financial condition, results of
operations, assets, liabilities, businesses and prospects of Yahoo! and
broadcast.com after giving effect to the merger;
- - current market conditions and historical trading information with respect to
Yahoo! and broadcast.com common stock;
- - comparable merger transactions in the Internet market;
- - the terms and conditions of the merger agreement, including the expected
tax-free treatment to broadcast.com's stockholders;
- - the analysis prepared by Morgan Stanley and presented to broadcast.com's
board of directors and the oral opinion of Morgan Stanley, subsequently
confirmed in writing, that the exchange ratio was fair, from a financial
point of view, to broadcast.com's 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
- - the ability of broadcast.com's board of directors to enter into discussions
with another party in response to an unsolicited superior offer to the merger
if broadcast.com's 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.
Broadcast.com's 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 broadcast.com's 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 broadcast.com following the
merger;
- - the impact of the loss of broadcast.com's status as an independent company on
broadcast.com's stockholders, employees, Web site visitors, business services
clients, 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:
- broadcast.com's sales and operating results;
- broadcast.com's ability to attract and retain key employees;
- the progress of certain strategic initiatives; and
- broadcast.com's overall competitive position;
- - the risk that, despite the efforts of Yahoo! and broadcast.com, key
technical, sales and management personnel might not remain employees of
Yahoo! or broadcast.com following the closing of the merger; and
- - the transaction costs expected to be incurred in connection with the merger
and the other risks described under "Risk Factors--Risks Related to the
Merger" beginning on page 6.
After due consideration, broadcast.com's board of directors concluded that
the risks associated with the proposed merger were outweighed by the potential
benefits of the merger.
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Broadcast.com's board of directors does not intend the foregoing discussion
of information and factors to be exhaustive but believes the discussion to
include all of the material factors that it considered. In view of the
complexity and wide variety of information and factors, both positive and
negative, that it considered, broadcast.com's board of directors did not find it
practical to quantify or otherwise assign relative or specific weights to the
specific factors considered. However, after taking into consideration all of the
factors set forth above, broadcast.com's board of directors concluded that the
merger agreement and merger were fair to, and in the best interests of,
broadcast.com and its stockholders and that broadcast.com should proceed with
the merger.
OPINION OF FINANCIAL ADVISOR TO BROADCAST.COM
Pursuant to a letter agreement dated as of February 24, 1999 (the
"Engagement Letter"), Morgan Stanley was engaged to provide financial advisory
services and a financial fairness opinion in connection with the merger. Morgan
Stanley was selected by the broadcast.com board of directors to act as
broadcast.com's financial advisor based on Morgan Stanley's qualifications,
expertise, reputation and its knowledge of the business and affairs of
broadcast.com. At the meeting of the board of directors of broadcast.com on
March 31, 1999, Morgan Stanley rendered its oral opinion, subsequently confirmed
in writing, that as of March 31, 1999, and based upon and subject to the various
considerations set forth in the opinion, the exchange ratio pursuant to the
merger agreement was fair from a financial point of view to the holders of
shares of broadcast.com common stock.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY DATED MARCH 31, 1999,
WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY
MORGAN STANLEY IN RENDERING ITS OPINION, IS ATTACHED AS APPENDIX B TO THIS PROXY
STATEMENT/PROSPECTUS. BROADCAST.COM STOCKHOLDERS ARE URGED TO, AND SHOULD, READ
THE OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION IS DIRECTED
TO THE BROADCAST.COM 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 SHARES OF BROADCAST.COM COMMON STOCK 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 BROADCAST.COM COMMON STOCK AS TO
HOW TO VOTE AT THE BROADCAST.COM SPECIAL MEETING. THE SUMMARY OF THE OPINION OF
MORGAN STANLEY SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- - reviewed certain publicly available financial statements and other
information of broadcast.com, Yahoo! and GeoCities, respectively;
- - reviewed certain internal financial statements and other financial and
operating data concerning broadcast.com, Yahoo! and GeoCities prepared by the
managements of broadcast.com and Yahoo!, respectively;
- - discussed the past and current operations and financial condition and the
prospects of broadcast.com, including information relating to certain
strategic, financial and operational benefits anticipated from the merger,
with senior executives of broadcast.com;
- - discussed the past and current operations and financial condition and the
prospects of Yahoo! and GeoCities, including information relating to certain
strategic, financial and operational benefits anticipated from the merger,
with senior executives of Yahoo!;
- - reviewed the pro forma impact of the merger on the revenues and the earnings
per share of Yahoo! and the revenues and the earnings of Yahoo! pro forma for
the merger with GeoCities;
- - reviewed the reported prices and trading activity for the broadcast.com
common stock and the Yahoo! common stock;
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- - compared the financial performance of broadcast.com and Yahoo! and the prices
and trading activity of the broadcast.com common stock and the Yahoo! common
stock with that of certain other comparable publicly-traded companies and
their securities;
- - reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;
- - reviewed and discussed with the senior managements of broadcast.com and
Yahoo! their strategic rationales for the merger;
- - participated in discussions and negotiations among representatives of
broadcast.com and Yahoo! and their financial and legal advisors;
- - reviewed the GeoCities agreement;
- - reviewed the draft merger agreement and certain related agreements; and
- - performed such other analyses and considered such other factors as Morgan
Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of this opinion. With respect to the internal
financial statements and other financial and operating data, including
forecasts, and discussions relating to the strategic, financial and operational
benefits, including synergies, anticipated from the merger provided by
broadcast.com and Yahoo!, Morgan Stanley assumed that they were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the prospects of broadcast.com, Yahoo! and GeoCities. Morgan
Stanley relied upon the following:
- - the assessment by the managements of broadcast.com and Yahoo! of their
ability to retain key employees of broadcast.com, Yahoo! and GeoCities;
- - without independent verification, the assessment by the managements of
broadcast.com and Yahoo! of the strategic and other benefits expected to
result from the merger;
- - without independent verification, the assessment by the managements of
broadcast.com and Yahoo! of broadcast.com's, Yahoo!'s and GeoCities'
technologies and products;
- - the timing and risks associated with the integration of broadcast.com, Yahoo!
and GeoCities; and
- - the validity of, and risks associated with, broadcast.com's, Yahoo!'s and
GeoCities' existing and future products and technologies.
Morgan Stanley did not make any independent valuation or appraisal of the
assets or liabilities or technology of broadcast.com, Yahoo! or GeoCities, nor
was it furnished with any such appraisals. In addition, Morgan Stanley assumed
that the merger will be accounted for as a "pooling-of-interests" business
combination in accordance with U.S. Generally Accepted Accounting Principles and
the merger will be treated as a tax-free reorganization and/or exchange, each
pursuant to the Internal Revenue Code of 1986, and will be consummated in
accordance with the terms set forth in the merger agreement. Morgan Stanley's
opinion is necessarily based on financial, economic, market and other conditions
as in effect on, and the information made available to it as of 11:31 a.m. PST
on March 31, 1999.
The following is a brief summary of the material analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
written opinion letter dated March 31, 1999. Morgan Stanley presented certain
analyses at a meeting of broadcast.com's board of directors on March 29, 1999
based on closing prices as of March 26, 1999 and presented certain updated
analyses at a meeting of broadcast.com's board of directors on March 31, 1999
based on the inter-day prices on
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March 31, 1999. For the purposes of its opinion, Morgan Stanley relied on
certain of the analyses based on the March 26, 1999 closing prices as well as
the updated analyses based on the inter-day prices as of 11:31 a.m. PST on March
31, 1999.
These summaries of financial analyses include information presented in
tabular format. In order to fully understand the financial analyses used by
Morgan Stanley, the tables must be read together with the text of each summary.
The tables alone do not constitute a complete description of the financial
analyses. Since Yahoo! was still in the process of consummating its merger with
GeoCities, and the merger of Yahoo! and broadcast.com was not dependent on the
completion of the merger of Yahoo! and GeoCities, Morgan Stanley analyzed the
merger of broadcast.com with Yahoo! under two different scenarios: assuming that
the merger with GeoCities was completed, or "Yahoo! Pro Forma"; and assuming
that the merger with GeoCities was not completed, or "Yahoo! Standalone." In
addition, prior to the announcement of the merger, broadcast.com common stock
rose by $33.19 to $118.19 over the period from March 22, 1999 to March 31, 1999
from $85.00 on March 19, 1999, as a result of published rumors about a potential
Yahoo! and broadcast.com merger. In its analysis of the merger, Morgan Stanley
examined certain valuation parameters as of the closing price of broadcast.com
common stock on March 19, 1999 of $85.00 (the "Unaffected Price").
COMPARATIVE STOCK PRICE PERFORMANCE. Morgan Stanley reviewed the recent
stock price performance of broadcast.com and Yahoo! and compared such
performance with that of GeoCities and a comparables stock index which included
the following companies:
- - @Home Corporation
- - CNET, Inc.
- - eBay Inc.
- - Infoseek Corporation
- - Lycos, Inc.
Morgan Stanley observed that over the period from July 17, 1998, the date of
the broadcast.com initial public offering, to March 26, 1999, the market price
of broadcast.com common stock increased 1,128% (from the IPO price of $9 per
share) and 252% (from the closing price on July 17, 1998), compared with an
increase of 671% for Yahoo! common stock over the period from March 26, 1998 to
March 26, 1999, an increase of 198% (from the closing price on August 11, 1998)
for GeoCities common stock over the period from August 11, 1998, the GeoCities
IPO date, to March 26, 1999, and an increase of 509% for the comparables index
over the period from March 26, 1998 to March 26, 1999.
PEER GROUP COMPARISON. Morgan Stanley compared certain financial
information of broadcast.com and Yahoo! with publicly available information for
two groups of companies:
<TABLE>
<CAPTION>
INTERNET PORTAL COMPANIES: INTERNET E-COMMERCE COMPANIES:
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
- - America Online, Inc. - Microsoft Corporation
- - @Home Corporation - Amazon.com, Inc.
- - Excite, Inc. - eBay Inc.
- - @Home/Excite, pro forma for the merger - Intuit Inc.
- - Infoseek Corporation - Verisign, Inc.
- - Lycos, Inc.
- - CNET, Inc.
</TABLE>
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For this analysis Morgan Stanley examined a range of estimates based on
securities research analysts. The following table presents, as of March 26,
1999, the median for the Internet portal companies and Internet e-commerce
companies of each of estimated aggregate value, defined as market capitalization
plus total debt less cash and cash equivalents, to projected calendar year 1999
revenue multiples, aggregate value to projected calendar year 2000 revenue
multiples and aggregate value to projected calendar year 2000 revenue multiples
divided by long term growth rates, compared to the values indicated for
broadcast.com, broadcast.com based on the Unaffected Price, Yahoo! Standalone
and Yahoo! Pro Forma estimates on March 31, 1999.
<TABLE>
<CAPTION>
AGGREGATE VALUE TO PROJECTED AGGREGATE VALUE
CALENDAR YEAR PROJECTED CALENDAR
-------------------------------- 2000 REVENUE LONG
1999 REVENUE 2000 REVENUE TERM GROWTH
--------------- --------------- -------------------
<S> <C> <C> <C>
Internet Portal Companies
Low............................................................ 25.1x 16.1x 0.33x
Median......................................................... 39.0 24.5 0.49
High........................................................... 73.0 34.1 0.68
Internet E-Commerce Companies
Low............................................................ 5.9 4.4 0.09
Median......................................................... 22.6 13.8 0.32
High........................................................... 153.4 105.8 2.12
broadcast.com.................................................... 125.8 70.8 1.18
broadcast.com (Unaffected Price)................................. 91.0 51.2 0.85
Yahoo! Standalone................................................ 114.0 84.4 1.26
Yahoo! Pro Forma................................................. 111.5 73.0 1.09
</TABLE>
No company utilized in the peer group comparison analysis as a comparison is
identical to broadcast.com or Yahoo!. In evaluating the peer groups, Morgan
Stanley 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 broadcast.com or Yahoo!, such as the
impact of competition on the business of broadcast.com, Yahoo! or the industry
generally, industry growth and the absence of any adverse material change in the
financial condition and prospects of broadcast.com, 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 peer group
data.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Morgan Stanley reviewed four
Internet-related transactions which consisted of:
- - the acquisition of Netscape Communications Corporation by America Online,
Inc.;
- - the acquisition of Excite, Inc. by @Home Corporation;
- - the acquisition of GeoCities by Yahoo!; and
- - the acquisition of Moviefone, Inc. by America Online, Inc.
Morgan Stanley compared the publicly available statistics for the
transactions listed above to the relevant financial statistics for broadcast.com
based on the value of broadcast.com implied by the exchange ratio and the
inter-day price for broadcast.com common stock and Yahoo! common stock on March
31, 1999. The following table presents the implied values of calendar 1999
projected revenues and calendar 2000 projected revenues, as well as the one
trading day, average 20 trading days, average 30 trading days and the average 60
trading days implied exchange ratio premium for the Internet-
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<PAGE>
related transactions, compared to the respective revenue multiples and exchange
ratio premium implied by the merger on March 31, 1999 and March 19, 1999.
<TABLE>
<CAPTION>
IMPLIED AGGREGATE VALUE
(BASED ON OFFER PRICE)
TO CALENDAR YEAR
ESTIMATED EXCHANGE RATIO PREMIUM
------------------------ -------------------------------------
EQUITY 1999 2000 20 DAY 30 DAY
SELECTED PRECEDENT TRANSACTIONS VALUE REVENUES REVENUES 1 DAY PRIOR AVERAGE AVERAGE
- --------------------------------------------- --------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Netscape/America Online...................... $ 4,443 5.2x 4.0x -4.2% 15.1% 13.6%
Excite/@Home................................. 6,667 27.6x 21.1x 57.4% 64.8% 50.9%
GeoCities/Yahoo!............................. 4,351 88.4x 46.2x 51.5% 90.2% 97.7%
Moviefone Inc./America Online................ 385 N.A. N.A. 10.4% 42.0% 42.8%
Median of Internet Transactions.............. 27.6x 21.1x 31.0% 53.4% 46.8%
broadcast.com................................ 5,786 145.6x 81.9x 17.8% 33.3% 37.1%
broadcast.com (Unaffected Price)............. 5,786 145.6x 81.9x 54.4% 44.6% 52.8%
<CAPTION>
60 DAY
SELECTED PRECEDENT TRANSACTIONS AVERAGE
- --------------------------------------------- -----------
<S> <C>
Netscape/America Online...................... 8.5%
Excite/@Home................................. 29.8%
GeoCities/Yahoo!............................. 80.1%
Moviefone Inc./America Online................ 38.1%
Median of Internet Transactions.............. 33.9%
broadcast.com................................ 53.7%
broadcast.com (Unaffected Price)............. 66.3%
</TABLE>
No transaction utilized as a comparison in the precedent transactions
analysis is identical to the merger. In evaluating the transactions listed
above, Morgan Stanley 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 broadcast.com or Yahoo!,
such as the impact of competition on broadcast.com, Yahoo! or the industry
generally, industry growth and the absence of any adverse material change in the
financial condition and prospects of broadcast.com, 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 comparable
transaction data.
RELATIVE CONTRIBUTION ANALYSIS. Morgan Stanley analyzed the pro forma
contribution of broadcast.com and Yahoo! Pro Forma to the combined company
assuming consummation of the merger and based on estimates from securities
research analysts for both companies. The analysis showed, among other things,
that in terms of last 12 months' historical revenue, calendar year 1999
projected revenue, calendar year 2000 projected revenue, last 12 months'
historical gross profit, calendar year 1999 gross profit, calendar year 2000
gross profit, calendar year 1999 operating income, calendar year 2000 operating
income, calendar year 1999 net income and calendar year 2000 net income,
broadcast.com would contribute an average and median of 7.8% and 8.8%,
respectively, to the combined company in a combination with Yahoo! Pro Forma.
These figures, adjusted to reflect each company's respective capital structures,
were compared to the pro forma fully-diluted ownership of the combined company
by broadcast.com shareholders of 10.9% implied by the merger with Yahoo! Pro
Forma.
EXCHANGE RATIO ANALYSIS. Morgan Stanley reviewed the ratios of the closing
prices of broadcast.com common stock divided by the corresponding prices of
Yahoo! common stock over various periods during the twelve month periods ending
March 30, 1999 and March 19, 1999 and computed the premia represented by the
exchange ratio over the averages of these daily ratios over various periods. The
following table presents the range of implied exchange ratios over the periods
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<PAGE>
covered and the implied exchange ratios as of March 30, 1999 and March 19, 1999,
compared to the exchange ratio of the merger.
<TABLE>
<CAPTION>
PERCENTAGE PREMIUM REPRESENTED BY
EXCHANGE RATIO IN MERGER OVER
AVERAGE EXCHANGE RATIO FROM HISTORICAL EXCHANGE RATIO
-------------------------------------- --------------------------------------
MARCH 19, 1999 MARCH 19, 1999
PRIOR TRADING PERIOD (UNAFFECTED PRICE) MARCH 30, 1999 (UNAFFECTED PRICE) MARCH 30, 1999
- ------------------------------------------- ------------------- ----------------- ------------------- -----------------
<S> <C> <C> <C> <C>
1 Trading Day.............................. 0.500 0.658 54% 17%
5 Trading Days............................. 0.509 0.657 52% 18%
10 Trading Days............................ 0.516 0.622 50% 24%
20 Trading Days............................ 0.534 0.580 45% 33%
30 Trading Days............................ 0.505 0.563 53% 37%
60 Trading Days............................ 0.464 0.502 66% 54%
90 Trading Days............................ 0.417 0.445 85% 73%
</TABLE>
DISCOUNTED EQUITY VALUE. Morgan Stanley performed an analysis of the
present value per share of broadcast.com on a standalone basis based on
broadcast.com's future trading price. Morgan Stanley observed that, on March 31,
1999, and based on a range of revenue estimates for the calendar year 2001 and
2002, based on securities research analysts estimates, illustrative multiples of
revenue ranging from 30.0 times to 72.2 times, compared to an average forward
revenue multiple of 41.0 from August 19, 1998 to March 19, 1999, and
illustrative discount rates of 20.0% to 25.0%, the present value per share of
broadcast.com common stock on a standalone basis ranged from $51.87 to $142.24.
Morgan Stanley noted that broadcast.com common stock closed at $85.00 on March
19, 1999 and had an inter-day price of $116.00 on March 31, 1999.
Morgan Stanley compared the results of the broadcast.com standalone analysis
to an analysis of the present value per share of the implied value of
broadcast.com based on Yahoo! Pro Forma's and Yahoo! Standalone's future trading
prices assuming consummation of the merger and based on a range of revenue
estimates from securities research analysts for both companies for calendar year
2001 and 2002 prior to any synergies resulting from the merger, and multiples of
revenue ranging from 50.0 times to 90.0 times, compared to an average forward
revenue multiple of 62.7 from August 19, 1998 to March 26, 1999. Based on this
analysis, Morgan Stanley estimated on March 31, 1999, a present value per
equivalent share of broadcast.com common stock ranging from $100.95 to $228.33
and $87.31 to $197.16 based on Yahoo! Pro Forma and Yahoo! Standalone revenue
estimates, respectively.
Morgan Stanley also performed an analysis of the present value per share of
Yahoo! Standalone and Yahoo! Pro Forma on a standalone basis. Morgan Stanley
observed that, based on revenue estimates from securities research analysts for
the calendar year 2001 and 2002, illustrative multiples of revenue ranging from
50.0 times to 90.0 times and illustrative discount rates ranging from 15.0% to
20.0%, the present value per share of Yahoo! Pro Forma common stock on a
standalone basis on March 31, 1999, ranged from $132.58 to $300.99 and the
present value per share of Yahoo! Standalone common stock on a standalone basis
ranged from $112.69 to $255.42. Morgan Stanley observed that the price of Yahoo!
common stock on March 31, 1999 was $173.00.
PRO FORMA MERGER ANALYSIS. Morgan Stanley analyzed the pro forma impact of
the merger on Yahoo! Pro Forma's projected earnings per share for the calendar
years 1999 and 2000. Such analysis was based on earnings projections by
securities research analysts for both companies. Based on this analysis, Morgan
Stanley observed that, assuming that the merger was treated as a pooling
transaction, the merger would result in earnings per share dilution on March 31,
1999, for Yahoo! Pro Forma shareholders of 19.6% and 6.8% and earnings per share
dilution for Yahoo! Standalone shareholders of 20.7% and 7.1% for calendar years
1999 and 2000, respectively, before taking into account any one-time charges or
synergies. According to this analysis, the revenue synergies required for the
combined
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<PAGE>
entity to realize no earnings dilution in calendar year 2000 are $18.3 million
and $16.5 million for Yahoo! Pro Forma and Yahoo! Standalone, respectively.
In connection with the review of the merger by the broadcast.com board of
directors, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of its opinion given in connection therewith. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. In arriving at its
opinion, Morgan Stanley considered the results of all of its analyses as a whole
and did not attribute any particular weight to any analysis or factor considered
by it. Furthermore, Morgan Stanley believes that selecting any portion of its
analyses, without considering all analyses, would create an incomplete view of
the process underlying its opinion. In addition, Morgan Stanley may have given
various analyses and factors more or less weight than other analyses and factors
and may have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting from any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of broadcast.com or Yahoo!.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of broadcast.com or Yahoo!.
Any estimates contained in Morgan Stanley's analysis are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than those suggested by such estimates. The analyses performed
were prepared solely as part of Morgan Stanley's analysis of the fairness of the
exchange ratio pursuant to the merger agreement from a financial point of view
to the holders of broadcast.com common stock and were conducted in connection
with the delivery of the Morgan Stanley opinion to the board of directors of
broadcast.com. The analyses do not purport to be appraisals or to reflect the
prices at which broadcast.com common stock or Yahoo! common stock might actually
trade. The exchange ratio pursuant to the merger agreement and other terms of
the merger agreement were determined through arm's-length negotiations between
broadcast.com and Yahoo! and were approved by the broadcast.com board of
directors. Morgan Stanley provided advice to broadcast.com during such
negotiations; however, Morgan Stanley did not recommend any specific
consideration to broadcast.com or that any specific consideration constituted
the only appropriate consideration for the merger. In arriving at its opinion,
Morgan Stanley was authorized to solicit the interest of one additional party
with respect to the acquisition of broadcast.com or any of its assets. Morgan
Stanley did not negotiate with any party, other than Yahoo!. In addition, as
described above, Morgan Stanley's opinion and presentation to the broadcast.com
board of directors was one of many factors taken into consideration by
broadcast.com's board of directors in making its decision to approve the merger.
Consequently, the Morgan Stanley analyses as described above should not be
viewed as determinative of the opinion of the broadcast.com board of directors
with respect to the value of broadcast.com or of whether the broadcast.com board
of directors would have been willing to agree to a different consideration.
The broadcast.com board of directors retained Morgan Stanley based upon
Morgan Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan Stanley,
as part of its investment banking and financial advisory business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. In the ordinary course of
Morgan Stanley's trading and brokerage activities, Morgan Stanley or its
affiliates may at any time hold long or short positions, trade or otherwise
effect transactions, for its own account or for the account of customers, in the
equity or debt securities or senior loans of broadcast.com, Yahoo! or GeoCities.
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<PAGE>
Pursuant to an engagement letter dated February 24, 1999, Morgan Stanley
provided financial advisory services and a financial opinion in connection with
the merger, and broadcast.com agreed to pay Morgan Stanley a customary fee in
connection therewith. Broadcast.com has also agreed to reimburse Morgan Stanley
for its expenses incurred in performing its services. In addition, broadcast.com
has agreed to indemnify Morgan Stanley and its affiliates, their respective
directions, officers, agents and employees and each person, if any, controlling
Morgan Stanley or any of its affiliates against certain liabilities and
expenses, including certain liabilities under the federal securities laws,
related to or arising out of Morgan Stanley's engagement and any related
transactions. In the past, Morgan Stanley and its affiliates have provided
financial advisory services for broadcast.com and have received fees for the
rendering of these services.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of broadcast.com's board of directors with
respect to the merger, you should be aware that members of broadcast.com's board
of directors and management have interests in the merger that are in addition
to, and that may be different from, your interests as a holder of broadcast.com
common stock generally. Broadcast.com's board of directors was aware of these
interests and considered the following matters, among others, in approving the
merger.
STOCK OPTIONS ACCELERATED UPON MERGER
Pursuant to the merger agreement, Yahoo! will assume each outstanding option
under the broadcast.com 1998 Stock Option Plan and the broadcast.com 1996 Stock
Option Plan. Options granted under these plans will not accelerate upon
consummation of the merger.
Under the pre-existing terms of the broadcast.com 1996 Non-Employee
Directors Stock Option Plan, the consummation of the merger will cause each
outstanding option under the plan to accelerate, allowing each holder of an
outstanding option to exercise such option immediately prior to the effective
time of the merger. The two non-employee members of broadcast.com's board of
directors, Steven D. Leeke and Joseph W. Autem, hold outstanding options under
this plan.
EMPLOYEE STOCK PURCHASE PLAN
Pursuant to the terms of the merger agreement and in accordance with the
provisions of the broadcast.com 1998 Employee Stock Purchase Plan, broadcast.com
will shorten the offering period such that all outstanding purchase rights under
the plan will be exercised prior to the effective time of the merger and each
participant in the plan will be issued shares of broadcast.com common stock at
the effective time pursuant to the terms of the plan. Each share of
broadcast.com common stock so issued will, by virtue of the merger, be converted
into the right to receive 0.7722 shares of Yahoo! common stock.
SEVERANCE ARRANGEMENTS
Broadcast.com is party to employment agreements with each of Todd R. Wagner,
Chief Executive Officer of broadcast.com, and Mark Cuban, Chairman and President
of broadcast.com, which provide for severance payments if either of their
employment terminates within six months following the consummation of a merger.
Messrs. Wagner and Cuban have each agreed to terminate their employment
agreements and their rights to severance payments upon the closing of this
merger.
INDEMNIFICATION ARRANGEMENTS
Under the merger agreement, Yahoo! has agreed that, from and after the
effective time of the merger, Yahoo! will cause broadcast.com to fulfill and
honor in all respects the obligations of
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broadcast.com under (1) any indemnification agreements that exist between
broadcast.com and its officers and directors at the effective time of the merger
and (2) any indemnification provisions under broadcast.com's 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 broadcast.com 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 broadcast.com's 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 six 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
broadcast.com, unless such modification is required by law. Yahoo! has also
agreed to cause broadcast.com 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 broadcast.com each filed notification and report forms with the FTC and the
Department of Justice on April 12, 1999. The specified waiting period ended on
May 12, 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 broadcast.com. 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
broadcast.com common stock. Venture Law Group, a Professional Corporation,
counsel to Yahoo!, and Gibson Dunn & Crutcher LLP, counsel to broadcast.com, 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 broadcast.com 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
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 broadcast.com common stock were or are acquired or in which 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 effect. ACCORDINGLY, BROADCAST.COM 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 broadcast.com
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 broadcast.com common stock
solely upon their receipt of Yahoo! common stock in the merger, except as
described below with respect to 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 broadcast.com stockholder, including any fractional share not actually
received, will be the same as the aggregate tax basis of the broadcast.com
common stock surrendered in exchange for such Yahoo! common stock;
- - The holding period of the Yahoo! common stock received in the merger by a
broadcast.com stockholder will include the period during which the
stockholder held the broadcast.com common stock surrendered in exchange for
such Yahoo! common stock, so long as the broadcast.com common stock is held
as a capital asset at the time of the merger;
- - Cash payments received by holders of broadcast.com 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 broadcast.com 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 broadcast.com 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 (1) 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 broadcast.com and (2) 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 broadcast.com
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 broadcast.com stockholder recognizing gain or loss with
respect to each share of broadcast.com 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
broadcast.com of letters from their independent accountants,
PricewaterhouseCoopers LLP, regarding that firm's concurrence with Yahoo!
management's and broadcast.com management's conclusions as to the
appropriateness of pooling of interests accounting
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for the merger under Accounting Principles Board Opinion 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.
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 broadcast.com:
- - 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 or (b)
cash in lieu of fractional shares.
Due to the following factors, stockholders of broadcast.com will not have
appraisal rights with respect to the merger:
- - broadcast.com common stock is traded on The Nasdaq National Market;
- - broadcast.com stockholders are being offered stock of Yahoo!, which is also
traded on The Nasdaq National Market; and
- - broadcast.com 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 BROADCAST.COM COMMON STOCK
If the merger is consummated, broadcast.com 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 broadcast.com 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 broadcast.com common stock who are
not "affiliates" of broadcast.com 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 broadcast.com 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
broadcast.com, as well as significant stockholders.
Shares of Yahoo! common stock received by those stockholders of
broadcast.com who are deemed to be affiliates of broadcast.com may be resold
without additional registration under the Securities Act only in the manner
permitted by Rule 145 under the Securities Act or as otherwise permitted under
the Securities Act. The merger agreement requires broadcast.com 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 broadcast.com.
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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 PROXY
STATEMENT/PROSPECTUS AND INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS OF
BROADCAST.COM 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 broadcast.com and the satisfaction or waiver of the other
conditions to the merger, broadcast.com will merge into a wholly-owned
subsidiary of Yahoo!, and broadcast.com will continue as the surviving
corporation as 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
July 1999.
DIRECTORS AND OFFICERS OF BROADCAST.COM AFTER THE MERGER
At the effective time, the directors of Yahoo!'s merger subsidiary will
become the new directors of broadcast.com, and the officers of Yahoo!'s merger
subsidiary will become the new officers of broadcast.com.
CONVERSION OF SHARES IN THE MERGER
At the effective time, each share of broadcast.com common stock will be
automatically canceled and converted into the right to receive 0.7722 shares of
Yahoo! common stock, except that shares of broadcast.com common stock held
immediately prior to the effective time by broadcast.com, Yahoo! or any
wholly-owned subsidiary of broadcast.com or Yahoo! will be canceled. 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 broadcast.com common stock that may occur on or after the date of this proxy
statement/prospectus.
BROADCAST.COM'S STOCK OPTION AND STOCK PURCHASE PLANS
At the effective time, each outstanding option to purchase shares of
broadcast.com common stock under broadcast.com's 1998 Stock Option Plan,
broadcast.com's 1996 Stock Option Plan and broadcast.com's 1996 Non-Employee
Directors Stock Option Plan will be assumed by Yahoo! regardless of whether they
are exercisable. Each broadcast.com 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 broadcast.com 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 0.7722 by the
number of shares of broadcast.com 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 0.7722, rounded up to the nearest whole cent.
The parties intend for the broadcast.com 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.
Immediately prior to the effective time, any outstanding purchase rights
under broadcast.com's 1998 Employee Stock Purchase Plan will automatically be
exercised and paid for through accumulated payroll deductions. This
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will allow participants to purchase shares of broadcast.com common stock under
the plan prior to the effective time. This shortened 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 broadcast.com
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
broadcast.com 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 broadcast.com common stock, and cash to pay for
fractional shares and any dividends or distributions to which holders of
broadcast.com 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 broadcast.com stock certificates (1) a letter
of transmittal and (2) instructions on how to surrender broadcast.com stock
certificates in exchange for certificates representing shares of Yahoo! common
stock, cash for fractional shares and cash for any dividends or other
distributions that they may be entitled to receive under the merger agreement.
HOLDERS OF BROADCAST.COM COMMON STOCK SHOULD NOT SURRENDER THEIR BROADCAST.COM
STOCK CERTIFICATES UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FROM THE
EXCHANGE AGENT.
Upon surrendering their broadcast.com 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 broadcast.com 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 cash for any
dividends or other distributions to which the holder is entitled. Until
surrendered to the exchange agent, outstanding broadcast.com 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 broadcast.com 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 broadcast.com stockholder surrenders his broadcast.com 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 broadcast.com 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 broadcast.com 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 broadcast.com 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.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, broadcast.com made a number of representations and
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warranties in favor of Yahoo! that relate to a number of matters, including:
- - broadcast.com's due organization and good standing;
- - broadcast.com's capital structure and rights or obligations relating to
broadcast.com's 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 broadcast.com;
- - the absence of certain material changes, events, litigation or
investigations;
- - the filing of tax returns and the payment of taxes;
- - broadcast.com's title to, or valid leasehold interests in, material
properties and assets;
- - the disclosure of material contracts;
- - broadcast.com's compliance with laws;
- - broadcast.com's employee benefit plans and labor relations;
- - environmental matters;
- - change of control payments to officers and directors of broadcast.com;
- - broadcast.com's ownership of or right to use, and non-infringement of others'
rights to, intellectual property;
- - approval of the merger by broadcast.com's board;
- - the payment of broker's or advisor's fees;
- - affiliates;
- - anti-takeover provisions under Delaware law;
- - the receipt of a fairness opinion from Morgan Stanley & Co. Incorporated; and
- - pooling of interests accounting treatment for the merger.
The merger agreement also includes representations and warranties made by
Yahoo! in favor of broadcast.com that relate to a number of matters, including
the following:
- - Yahoo!'s due organization and good standing;
- - Yahoo!'s capital structure;
- - 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;
- - affiliates;
- - pooling of interests accounting treatment for the merger; and
- - the valid issuance of Yahoo! common stock in the merger.
The representations and warranties of broadcast.com and Yahoo! will
terminate at the effective time.
CONDUCT OF BUSINESS OF BROADCAST.COM PENDING THE MERGER
Broadcast.com 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. Broadcast.com 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. Broadcast.com has also agreed that,
prior to the
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effective time or the 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
broadcast.com 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
broadcast.com's 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 or
issue or sell any debt securities or options, warrants, calls or other rights
to acquire any debt securities of broadcast.com;
- - 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 broadcast.com upon 45 days or less notice or which include over $50,000 in
payments by or to broadcast.com;
- - 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 broadcast.com stockholders, except for Yahoo!'s reincorporation in
another jurisdiction;
- - take any action that would be reasonably likely to interfere with Yahoo!'s
ability to account for the merger as a pooling of interests; or
- - fail to make timely filings with the Commission.
All of broadcast.com's 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 broadcast.com 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 otherwise facilitate any inquiries
or the making of 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,
agreement or commitment relating to any acquisition proposal.
However, prior to the approval of the merger agreement by the broadcast.com
stockholders, the merger agreement does not prohibit broadcast.com 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:
- - broadcast.com has not violated any of the restrictions set forth above;
- - broadcast.com's board concludes that the action is required to comply with
its fiduciary obligations to broadcast.com's stockholders;
- - prior to furnishing any nonpublic information to, or entering into
discussions with, any person or group, broadcast.com (1) gives Yahoo! written
notice of the identity of the person or group and broadcast.com's intention
to furnish nonpublic information to, or enter into discussions with, the
person or group and (2) broadcast.com receives from the person or group an
executed confidentiality agreement containing customary limitations on the
use and disclosure of such nonpublic information; and
- - contemporaneously with furnishing any nonpublic information to any person or
group, broadcast.com furnishes the same nonpublic information to Yahoo!.
In addition, broadcast.com has agreed to provide Yahoo! with prior written
notice of any meeting of broadcast.com's 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 broadcast.com of more than a 30% interest in
the total outstanding voting securities of broadcast.com or any of its
subsidiaries;
- - any tender offer or exchange offer that, if consummated, would result in any
person or group beneficially owning 30% or more of the total outstanding
voting securities of broadcast.com or any of its subsidiaries;
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- - any merger, consolidation, business combination or similar transaction
involving broadcast.com pursuant to which the stockholders of broadcast.com
immediately preceding such transaction hold less than 70% 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 broadcast.com; or
- - any liquidation or dissolution of broadcast.com.
Broadcast.com has agreed to promptly advise Yahoo! of any request for
nonpublic information or any inquiry which broadcast.com 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 broadcast.com's 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
broadcast.com's organizational documents that were in effect on the date of the
merger agreement.
The certificate of incorporation and bylaws of broadcast.com 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 broadcast.com's 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 six 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 broadcast.com
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 broadcast.com's 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 150% of the
annual premium currently paid by broadcast.com for such coverage.
YAHOO! STOCK OPTION
Broadcast.com has granted Yahoo! an irrevocable option to purchase up to
7,333,300 shares of broadcast.com common stock at a cash exercise price of
$130.02 per share. Based on the number of broadcast.com shares outstanding on
March 31, 1999, as represented by broadcast.com in the merger agreement, the
option may be exercisable for approximately 19.9% of broadcast.com's outstanding
shares, or approximately 16.6% of the broadcast.com 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 broadcast.com or Yahoo! because the required approval of broadcast.com's
stockholders was not obtained. Yahoo!'s right to exercise the stock option
terminates on the earlier of (1) the effective time or (2) 270 days after the
termination of the merger agreement.
Under the merger agreement, a "triggering event" has occurred if:
- - broadcast.com's board withdraws, amends or modifies in a manner adverse to
Yahoo! its recommendation in favor of the adoption and approval of the
merger;
- - broadcast.com's board fails to reaffirm its recommendation in favor of the
approval of the merger within 15 days after Yahoo! requests that such
recommendation be reaffirmed at any time following the public announcement of
an acquisition proposal;
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- - broadcast.com's board approves or publicly recommends any other acquisition
proposal;
- - broadcast.com enters into any letter of intent, agreement or commitment
accepting any other acquisition proposal;
- - a tender or exchange offer relating to securities of broadcast.com in excess
of 50% of its outstanding voting securities is commenced by a person
unaffiliated with Yahoo!, and broadcast.com sends to its stockholders a
statement that broadcast.com recommends acceptance of the tender or exchange
offer; or
- - broadcast.com intentionally breaches its obligations under the "no
solicitation" section of the merger agreement.
Yahoo! may purchase shares of broadcast.com 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 broadcast.com 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 broadcast.com's capital stock dilutes or changes Yahoo!'s
rights under the merger agreement, the number and kind of shares of
broadcast.com 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 broadcast.com 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 business days' notice to broadcast.com, surrender all or a part of
the stock option to broadcast.com, in which event broadcast.com will pay to
Yahoo!, on the day of each such surrender, an amount in cash per share of
broadcast.com common stock equal to (1) the closing sale price of broadcast.com
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 broadcast.com common stock with
respect to the portion of the stock option surrendered will be terminated.
CONDITIONS TO THE MERGER
The obligations of Yahoo! and broadcast.com to effect the merger are subject
to the satisfaction of the following conditions:
- - broadcast.com stockholders approve the merger;
- - the Commission declares the registration statement filed by Yahoo! on Form
S-4 effective and no stop order suspending the effectiveness of the
registration statement has been issued and no proceeding for that purpose,
and no similar proceeding in respect of this proxy statement/prospectus has
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
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 broadcast.com 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 have not been
withdrawn;
- - Yahoo! receives letters from PricewaterhouseCoopers LLP stating its
concurrence with the conclusions of Yahoo!'s management and broadcast.com's
management as to the appropriateness of pooling of interest accounting for
the merger, but broadcast.com will be deemed to have waived this condition if
broadcast.com 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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In addition, the obligation of broadcast.com to consummate and effect the
merger is subject to the satisfaction of the following conditions, any of which
may be waived by broadcast.com:
- - the representations and warranties of Yahoo! contained in the merger
agreement (a) were 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 of the merger as if made on such date, except for:
- 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 which are to 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! have been performed or complied with in all
material aspects.
Further, the obligation of Yahoo! to consummate and effect the merger is
subject to the satisfaction of the following conditions, any of which may be
waived by Yahoo!:
- - the representations and warranties of broadcast.com contained in the merger
agreement (a) were 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 for:
- in each case, or in the aggregate, any items that are not true but do
not constitute a material adverse effect on broadcast.com;
- representations and warranties that address matters only as of a
particular date which are to have been true and correct as of such date
or do not constitute a material adverse effect on broadcast.com; and
- changes contemplated by the merger agreement.
- - all agreements and covenants required by the merger agreement to be performed
or complied with by broadcast.com have been performed or complied with in all
material respects, and Yahoo! receives a certificate to such effect signed on
behalf of broadcast.com by the Chief Executive Officer and the Chief
Financial Officer of broadcast.com; and
- - each affiliate of broadcast.com 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 broadcast.com will amend
this document and resolicit the vote of broadcast.com 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 broadcast.com has been obtained:
- - by mutual consent authorized by the boards of directors of both Yahoo! and
broadcast.com;
- - by either broadcast.com or Yahoo! if the merger is not consummated by October
31, 1999, but if any party has been a principal cause of the failure of the
merger to occur by such date and the act or failure to act constitutes a
breach by that party, that party may not terminate the agreement;
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- - by either broadcast.com or Yahoo! if a governmental entity issues an order,
decree or ruling or takes any other action which permanently restrains,
enjoins or otherwise prohibits the merger;
- - by either broadcast.com or Yahoo! if the required approval of broadcast.com
stockholders is not obtained, although the right to terminate the merger
agreement will not be available to broadcast.com if the failure to obtain
stockholder approval was caused by broadcast.com's action or failure to act,
and the action or failure to act constitutes a material breach of the merger
agreement by broadcast.com;
- - by Yahoo! if any triggering event occurs;
- - by broadcast.com, 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, in either case such that
Yahoo! is unable to satisfy certain conditions to the completion of the
merger; however, Yahoo! is entitled to a 20-day cure period provided that
such cure will be completed on or prior to October 31, 1999, and that
broadcast.com may not terminate the merger agreement if it materially
breaches the merger agreement; or
- - by Yahoo!, upon broadcast.com's breach of any representation, warranty,
covenant or agreement set forth in the merger agreement, or if any
representation or warranty of broadcast.com becomes untrue, in either case
such that broadcast.com is unable to satisfy certain conditions to the
completion of the merger; however, broadcast.com is entitled to a 20-day cure
period provided that such cure will be completed on or prior to October 31,
1999, and that 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 will be paid by the party incurring such
expenses, whether or not the merger is consummated. However, Yahoo! and
broadcast.com will share equally all fees and expenses, other than attorneys'
and accountants fees and expenses, incurred in relation to the printing and
filing of this proxy statement/ prospectus and the registration statement filed
by Yahoo! on Form S-4 and any amendments or supplements to such documents.
If Yahoo! terminates the merger agreement because a triggering event has
occurred, broadcast.com must, within one day after the date of such termination,
pay Yahoo! a termination fee of $135 million.
If either Yahoo! or broadcast.com terminates the merger agreement because
the required broadcast.com stockholder vote is not obtained and, prior to the
vote of broadcast.com stockholders at the special meeting, an alternative
acquisition proposal was publicly announced, broadcast.com must, 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 270 days following such termination broadcast.com enters into a
definitive agreement with respect to another acquisition transaction or
consummates an acquisition transaction with a third party, broadcast.com must
pay Yahoo! the $135 million termination fee.
For purposes of this section only, an acquisition transaction is defined as:
- - an acquisition of more than a 50% interest in broadcast.com's outstanding
voting securities;
- - any tender or exchange offer that would result in any person or group
beneficially owning 50% or more of broadcast.com's outstanding voting
securities;
- - any merger, consolidation, or business combination in which the stockholders
of broadcast.com immediately prior to the transaction hold less than 50% of
the equity interest in the surviving entity;
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- - any sale, lease, exchange, transfer, license, acquisition or disposition of
more than 50% of the assets of broadcast.com; or
- - any liquidation or dissolution of broadcast.com.
The total proceeds that Yahoo! shall be permitted to realize with respect to
the fees described above and the stock option granted to Yahoo! may not exceed
$165 million. If Yahoo!'s total proceeds exceeds such amount, then Yahoo! must,
at its sole election,
- - reduce the number of shares of broadcast.com common stock subject to Yahoo!'s
stock option;
- - deliver shares of broadcast.com common stock received upon an exercise of the
Yahoo! stock option to broadcast.com for cancellation;
- - pay cash to broadcast.com; or
- - do any combination of the above so that Yahoo!'s actual realized total
proceeds do not exceed $165 million.
Yahoo's "total proceeds" means the aggregate, before taxes, of:
- - any amount received pursuant to broadcast.com's repurchase of the Yahoo!
stock option;
- - any amount received pursuant to broadcast.com's repurchase of the shares of
broadcast.com common stock from Yahoo!;
- - any net cash received by Yahoo! from the sale to any third party of shares of
broadcast.com common stock received by Yahoo! through any exercise of the
Yahoo! stock option;
- - any amounts received upon transfer to any third party of the Yahoo! stock
option or any portion of the option;
- - any equivalent amounts received with respect to adjustments made to the
Yahoo! stock option because of changes in broadcast.com common stock; and
- - the termination fee actually paid by broadcast.com.
Payment of the fees described above will 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 broadcast.com. 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.
63
<PAGE>
VOTING, AFFILIATE AND NONCOMPETITION AGREEMENTS
VOTING AGREEMENT
Concurrently with the execution of the merger agreement, Motorola, Inc.,
Todd R. Wagner and Mark Cuban, who collectively own 45.0% of the outstanding
common stock of broadcast.com, entered into a voting agreement with Yahoo!
whereby they agreed to:
- - appear, or cause their respective holders of record to appear, at any meeting
of the stockholders of broadcast.com held for the purpose of voting on the
merger; and
- - vote, or cause their respective holders of record to vote, all of the shares
of broadcast.com common stock owned, controlled by or subsequently acquired
by them 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 broadcast.com call a
special meeting of the stockholders of broadcast.com 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 agreement terminates upon the
earlier of the termination of the merger agreement or the effective time of the
merger.
The voting agreement also prohibits the signing stockholders from soliciting
additional acquisition proposals from third parties on behalf of broadcast.com
or from engaging in any discussions with third parties regarding any acquisition
proposal. This prohibition continues for so long as the voting agreement remains
effective.
BROADCAST.COM AFFILIATE AGREEMENTS
Concurrently with or following the execution of the merger agreement,
Motorola, Inc., Todd R. Wagner, Mark Cuban, Jack A. Riggs, Kevin W. Parke,
Steven D. Leeke and Joseph W. Autem entered into affiliate agreements with
Yahoo! in which they agreed to restrict their transfers 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, each of the broadcast.com affiliate
agreements provide, among other things, that the affiliate will not sell,
transfer or otherwise dispose of the Yahoo! common stock issued to such
affiliate in connection with the merger other than:
- - in compliance with Rule 145 of the Securities Act and the pooling of
interests rules;
- - 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!.
Each of the broadcast.com affiliate agreements also generally provides that,
pursuant to Commission Staff Bulletin No. 65, the affiliate will not sell,
exchange, transfer, pledge, distribute, or otherwise dispose of or grant any
option, establish any "short" or put equivalent position or enter into any
similar transaction which is intended to, or has the effect of, reducing its
risk relative to (1) any shares of broadcast.com common stock, except pursuant
to and in connection with the consummation of the merger, or (2) 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 until the earlier of (a)
Yahoo!'s public announcement of financial results covering at least 30 days of
combined operations of Yahoo! and broadcast.com or (b) the merger agreement's
termination.
64
<PAGE>
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
broadcast.com or (2) the merger agreement's termination.
NONCOMPETITION AGREEMENTS
Concurrently with the execution of the merger agreement, and as a condition
and inducement to Yahoo!'s willingness to enter into the merger agreement, Todd
R. Wagner, the Chief Executive Officer of broadcast.com, and Mark Cuban, the
Chairman and President of broadcast.com, entered into noncompetition agreements
with Yahoo!. Under the noncompetition agreements, Messrs. Wagner and Cuban
agreed not to compete with Yahoo! in any business that is engaged in
aggregating, broadcasting or distributing audio and video programming over the
Internet for three years following the merger or one year following termination
of their employment with broadcast.com, whichever is earlier. In addition,
Messrs. Wagner and Cuban agreed not to solicit employees or customers of
broadcast.com to leave or terminate their relationship with Yahoo! during the
period covered by the agreement. It is a condition to the merger that the
noncompetition agreements be in full force and effect at the effective time.
65
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On March 31, 1999, Yahoo! Inc. ("Yahoo!") entered into an agreement to merge
with broadcast.com inc. ("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, Yahoo! will convert approximately 6,888,000
broadcast.com stock options into approximately 5,319,000 Yahoo! stock options.
During May 1999, Yahoo! completed the acquisitions of GeoCities, Encompass
and Online Anywhere in transactions to be accounted for as poolings of
interests. Under the terms of these agreements Yahoo! exchanged approximately
0.6768, 0.1217 and 0.0438 shares of Yahoo! common stock for each issued and
outstanding share of GeoCities, Encompass and Online Anywhere common stock on an
as-if-converted basis, respectively. Additionally, Yahoo! converted
approximately 8,432,451, 914,101 and 1,997,875 GeoCities, Encompass and Online
Anywhere stock options into approximately 5,707,083, 111,237 and 87,525 options
to purchase Yahoo! common stock, respectively. The historical supplementary
consolidated financial information has been restated to reflect the
acquisitions, on a pooling of interests basis, as if the acquired entities were
wholly-owned subsidiaries of Yahoo! since inception. During the year ended
December 31, 1998, Yahoo! acquired Viaweb Inc. ("Viaweb") and Starseed, Inc.
("Starseed"), 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! historical
supplementary consolidated financial statements incorporated by reference in
this document.)
The following unaudited pro forma condensed combined financial statements
present the effect of the proposed merger between Yahoo! and broadcast.com to be
accounted for as pooling of interests. The unaudited pro forma condensed
combined balance sheet presents the combined financial position of Yahoo! and
broadcast.com as of March 31, 1999 assuming that the proposed mergers had
occurred as of that date. Such pro forma information is based upon the
historical supplementary consolidated balance sheet data of Yahoo! and the
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 merger of Yahoo! and broadcast.com by combining the supplementary
results of operations of Yahoo! for the three months ended March 31, 1999 and
1998 and for each of the three years ended December 31, 1998, with the results
of operations of broadcast.com for the same respective periods, on a pooling of
interests basis. The consolidated financial statements of broadcast.com,
included herein, have been adjusted to conform to the income statement
presentation of Yahoo!. Additionally, the unaudited pro forma condensed combined
statements of operations reflect the acquisition by Yahoo! 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 broadcast.com estimate that they will incur direct transaction
costs of approximately $22 million in connection with the proposed merger of
Yahoo! with broadcast.com which will be charged to operations in the quarter in
which the merger is consummated. Additionally, Yahoo! estimates that it will
incur direct transaction costs of approximately $68 million in connection with
the completed acquisitions of GeoCities, Encompass and Online Anywhere during
the second quarter of 1999. These amounts are preliminary estimates and are
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 mergers.
These unaudited pro forma condensed combined financial statements should be
read in conjunction with the audited historical supplementary consolidated
financial statements and notes thereto of Yahoo! and the audited historical
consolidated financial statements of broadcast.com and other financial
information pertaining to Yahoo! 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.
66
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUPPLEMENTARY YAHOO!/BROADCAST.COM
HISTORICAL HISTORICAL PRO FORMA
-------------- ------------- -------------------------
YAHOO! BROADCAST.COM ADJUSTMENTS COMBINED
-------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 218,282 $ 46,260 $ -- $ 264,542
Short-term investments in marketable securities........ 292,983 -- -- 292,983
Accounts receivable, net............................... 33,689 6,569 -- 40,258
Other current assets................................... 12,258 1,512 -- 13,770
-------------- ------------- ------------ -----------
Total current assets................................. 557,212 54,341 -- 611,553
Long-term investments in marketable securities........... 151,274 2,964 (54,959)(B) 99,279
Property and equipment, net.............................. 31,978 7,713 -- 39,691
Other assets............................................. 113,379 3,604 -- 116,983
-------------- ------------- ------------ -----------
Total assets......................................... $ 853,843 $ 68,622 $ (54,959) $ 867,506
-------------- ------------- ------------ -----------
-------------- ------------- ------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 11,325 $ 1,201 $ -- $ 12,526
Accrued expenses and other current liabilities......... 56,472 3,045 22,000(D) 149,517
68,000(F)
Deferred revenue....................................... 47,732 991 -- 48,723
-------------- ------------- ------------ -----------
Total current liabilities............................ 115,529 5,237 90,000 210,766
Other long-term obligations.............................. 10,717 1,858 -- 12,575
Stockholders' equity:
Common stock and other................................. 733,725 92,262 (21,185)(B) 804,802
Accumulated deficit.................................... (40,154) (30,735) (22,000)(D) (160,889)
(68,000)(F)
Accumulated other comprehensive income................. 34,026 -- (33,774)(B) 252
-------------- ------------- ------------ -----------
Total stockholders' equity........................... 727,597 61,527 (144,959) 644,165
-------------- ------------- ------------ -----------
Total liabilities and stockholders' equity........... $ 853,843 $ 68,622 $ (54,959) $ 867,506
-------------- ------------- ------------ -----------
-------------- ------------- ------------ -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
67
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUPPLEMENTARY YAHOO!/BROADCAST.COM
HISTORICAL HISTORICAL -------------------------
------------- ------------- PRO FORMA
YAHOO! BROADCAST.COM ADJUSTMENTS COMBINED
------------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
Net revenues.................. $ 94,266 $ 10,288 $ (200)(A) $104,354
Cost of revenues.............. 14,879 5,884 20,763
------------- ------------- ------------- ---------
Gross profit................ 79,387 4,404 (200) 83,591
------------- ------------- ------------- ---------
Operating expenses:
Sales and marketing......... 38,232 5,205 (200)(A) 43,237
Product development......... 12,434 1,337 -- 13,771
General and
administrative............ 6,802 1,800 8,602
Amortization of
intangibles............... 3,203 35 -- 3,238
Other -- non-recurring
costs..................... 9,775 462 -- 10,237
------------- ------------- ------------- ---------
Total operating
expenses................ 70,446 8,839 (200) 79,085
------------- ------------- ------------- ---------
Income (loss) from
operations.................. 8,941 (4,435) -- 4,506
Net interest income (expense)
and other................... 7,210 588 -- 7,798
------------- ------------- ------------- ---------
Income (loss) before income
taxes....................... 16,151 (3,847) -- 12,304
Provision for income taxes.... 10,508 -- -- 10,508
------------- ------------- ------------- ---------
Net income (loss)............. $ 5,643 $ (3,847) $ -- $ 1,796
------------- ------------- ------------- ---------
------------- ------------- ------------- ---------
Net income (loss) per share --
basic....................... $ 0.03 $ (0.11) $ 0.01
------------- ------------- ---------
------------- ------------- ---------
Net income (loss) per share --
diluted..................... $ 0.02 $ (0.11) $ 0.01
------------- ------------- ---------
------------- ------------- ---------
Shares used in per share
calculation -- basic........ 224,045 36,392 252,024
------------- ------------- ---------
------------- ------------- ---------
Shares used in per share
calculation -- diluted...... 264,860 36,392 297,463
------------- ------------- ---------
------------- ------------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
68
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUPPLEMENTARY YAHOO!/BROADCAST.COM
HISTORICAL HISTORICAL -----------------------
------------- ------------- ACQUIRED PRO FORMA
YAHOO! BROADCAST.COM ENTITIES ADJUSTMENTS COMBINED
------------- ------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues........................................... $ 32,863 $ 4,523 $ 327 $ (362)(A) $ 37,351
Cost of revenues....................................... 5,890 2,738 45 1,547(E) 10,220
------------- ------------- -------- ----------- ---------
Gross profit......................................... 26,973 1,785 282 (1,909) 27,131
------------- ------------- -------- ----------- ---------
Operating expenses:
Sales and marketing.................................. 19,075 3,003 413 (362)(A) 22,129
Product development.................................. 5,722 993 454 -- 7,169
General and administrative........................... 3,451 654 159 2,868(E) 7,132
Amortization of intangibles.......................... -- 15 -- -- 15
------------- ------------- -------- ----------- ---------
Total operating expenses........................... 28,248 4,665 1,026 2,506 36,445
------------- ------------- -------- ----------- ---------
Loss from operations................................... (1,275) (2,880) (744) (4,415) (9,314)
Net interest income (expense) and other................ 1,924 242 (98) -- 2,068
------------- ------------- -------- ----------- ---------
Income (loss) before income taxes...................... 649 (2,638) (842) (4,415) (7,246)
Provision for income taxes............................. 1,071 -- -- -- 1,071
------------- ------------- -------- ----------- ---------
Net loss............................................... (422) (2,638) (842) (4,415) (8,317)
Accretion of mandatory redeemable convertible preferred
stock................................................ 598 -- -- -- 598
------------- ------------- -------- ----------- ---------
Net loss applicable to common stockholders............. $ (1,020) $ (2,638) $ (842) $(4,415) $ (8,915)
------------- ------------- -------- ----------- ---------
------------- ------------- -------- ----------- ---------
Net loss per share -- basic and diluted................ $ (0.01) $ (0.09) $ (0.05)
------------- ------------- ---------
------------- ------------- ---------
Shares used in per share calculation -- basic and
diluted.............................................. 174,924 29,847 197,849
------------- ------------- ---------
------------- ------------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
69
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUPPLEMENTARY YAHOO!/BROADCAST.COM
HISTORICAL HISTORICAL -----------------------
------------- ------------- ACQUIRED PRO FORMA
YAHOO! BROADCAST.COM ENTITIES ADJUSTMENTS COMBINED
------------- ------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues.................. $223,078 $ 24,270 $ 729 $ (2,508)(A) $245,569
Cost of revenues.............. 36,578 16,697 143 3,173(C) 56,591
------------- ------------- -------- ----------- ---------
Gross profit................ 186,500 7,573 586 (5,681) 188,978
------------- ------------- -------- ----------- ---------
Operating expenses:
Sales and marketing......... 111,214 15,520 1,053 (2,508)(A) 125,279
Product development......... 28,717 3,450 1,416 -- 33,583
General and
administrative............ 20,777 4,165 565 -- 25,507
Amortization of
intangibles............... 2,628 89 -- 8,779(C) 11,496
Other -- non-recurring
costs..................... 19,700 1,534 -- -- 21,234
------------- ------------- -------- ----------- ---------
Total operating
expenses................ 183,036 24,758 3,034 6,271 217,099
------------- ------------- -------- ----------- ---------
Income (loss) from
operations.................. 3,464 (17,185) (2,448) (11,952) (28,121)
Net interest income (expense)
and other................... 17,149 1,725 (281) -- 18,593
------------- ------------- -------- ----------- ---------
Income (loss) before income
taxes....................... 20,613 (15,460) (2,729) (11,952) (9,528)
Provision for income taxes.... 17,827 -- -- -- 17,827
------------- ------------- -------- ----------- ---------
Net income (loss)............. 2,786 (15,460) (2,729) (11,952) (27,355)
Accretion of mandatory
redeemable convertible
preferred stock............. 1,396 -- -- -- 1,396
------------- ------------- -------- ----------- ---------
Net income (loss) applicable
to common stockholders...... $ 1,390 $(15,460) $(2,729) $(11,952) $(28,751)
------------- ------------- -------- ----------- ---------
------------- ------------- -------- ----------- ---------
Net income (loss) per share --
basic....................... $ 0.01 $ (0.47) $ (0.13)
------------- ------------- ---------
------------- ------------- ---------
Net income (loss) per share --
diluted..................... $ 0.01 $ (0.47) $ (0.13)
------------- ------------- ---------
------------- ------------- ---------
Shares used in per share
calculation -- basic........ 194,790 32,811 220,004
------------- ------------- ---------
------------- ------------- ---------
Shares used in per share
calculation -- diluted...... 238,287 32,811 220,004
------------- ------------- ---------
------------- ------------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
70
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YAHOO!/BROADCAST.COM
SUPPLEMENTARY PRO FORMA
HISTORICAL HISTORICAL ----------------------------------
---------- -------------- PRO FORMA
YAHOO! BROADCAST.COM ADJUSTMENTS COMBINED
---------- -------------- ----------------- ----------
<S> <C> <C> <C> <C>
Net revenues............................ $ 75,129 $ 9,179 $ (200)(A) $ 84,108
Cost of revenues........................ 14,708 5,781 -- 20,489
---------- -------------- ----- ----------
Gross profit.......................... 60,421 3,398 (200) 63,619
---------- -------------- ----- ----------
Operating expenses:
Sales and marketing................... 52,083 6,323 (200)(A) 58,206
Product development................... 14,140 1,674 15,814
General and administrative............ 11,118 2,298 -- 13,416
Other -- non-recurring costs.......... 25,095 -- -- 25,095
---------- -------------- ----- ----------
Total operating expenses............ 102,436 10,295 (200) 112,531
---------- -------------- ----- ----------
Loss from operations.................... (42,015) (6,897) -- (48,912)
Net interest income (expense) and
other................................. 5,440 139 -- 5,579
---------- -------------- ----- ----------
Loss before income taxes................ (36,575) (6,758) -- (43,333)
Provision for income taxes.............. -- 43 -- 43
---------- -------------- ----- ----------
Net loss................................ (36,575) (6,801) -- (43,376)
Accretion of mandatory redeemable
convertible preferred stock........... 832 -- -- 832
---------- -------------- ----- ----------
Net loss applicable to common
stockholders.......................... $ (37,407) $ (6,801) $ -- $ (44,208)
---------- -------------- ----- ----------
---------- -------------- ----- ----------
Net loss per share -- basic and
diluted............................... $ (0.21) $ (0.28) $ (0.23)
---------- -------------- ----------
---------- -------------- ----------
Shares used in per share calculation --
basic and diluted..................... 177,110 24,196 195,794
---------- -------------- ----------
---------- -------------- ----------
</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, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUPPLEMENTARY YAHOO!/BROADCAST.COM
HISTORICAL HISTORICAL PRO FORMA
-------------- ------------- ----------------------------
YAHOO! BROADCAST.COM ADJUSTMENTS COMBINED
-------------- ------------- --------------- -----------
<S> <C> <C> <C> <C>
Net revenues............................ $ 21,804 $ 2,049 $ (60)(A) $ 23,793
Cost of revenues........................ 5,510 1,777 -- 7,287
-------------- ------------- --- -----------
Gross profit.......................... 16,294 272 (60) 16,506
-------------- ------------- --- -----------
Operating expenses:
Sales and marketing................... 16,932 1,769 (60)(A) 18,641
Product development................... 6,175 749 -- 6,924
General and administrative............ 7,086 798 -- 7,884
-------------- ------------- --- -----------
Total operating expenses............ 30,193 3,316 (60) 33,449
-------------- ------------- --- -----------
Loss from operations.................... (13,899) (3,044) -- (16,943)
Net interest income (expense) and
other................................. 4,466 72 -- 4,538
-------------- ------------- --- -----------
Loss before income taxes................ (9,433) (2,972) -- (12,405)
Provision for income taxes.............. -- 25 -- 25
-------------- ------------- --- -----------
Net loss................................ (9,433) (2,997) -- (12,430)
Accretion of mandatory redeemable
convertible preferred stock........... 105 -- -- 105
-------------- ------------- --- -----------
Net loss applicable to common
stockholders.......................... $ (9,538) $ (2,997) $ -- $ (12,535)
-------------- ------------- --- -----------
-------------- ------------- --- -----------
Net loss per share -- basic and
diluted............................... $ (0.06) $ (0.15) $ (0.07)
-------------- ------------- -----------
-------------- ------------- -----------
Shares used in per share calculation --
basic and diluted..................... 159,071 19,754 174,325
-------------- ------------- -----------
-------------- ------------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
72
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1
The unaudited pro forma condensed combined financial statements of Yahoo!
and broadcast.com give retroactive effect to the proposed merger of Yahoo! and
broadcast.com, which is being accounted for as a pooling of interests and, as a
result, the unaudited pro forma condensed combined balance sheet and statements
of operations are presented as if Yahoo! and broadcast.com had been combined for
all periods presented. The accompanying unaudited pro forma condensed combined
statements of operations give effect to the acquisition by Yahoo! 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. During May 1999, Yahoo! completed the acquisition of
GeoCities, Encompass and Online Anywhere in transactions accounted for as
poolings of interests. As such the Yahoo! historical financial information
reflects the combined financial position and results of operations as if Yahoo!,
GeoCities, Encompass and Online Anywhere were combined since inception.
The unaudited pro forma condensed combined financial statements, including
the notes thereto, should be read in conjunction with the historical
supplementary consolidated financial statements and related notes of Yahoo! and
the historical consolidated financial statements of broadcast.com incorporated
by reference or included elsewhere in this document. Certain amounts from the
broadcast.com 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 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 income (loss) per
share is computed by adding Yahoo! historical weighted average shares
outstanding to broadcast.com historical weighted average shares outstanding
converted to give effect to the exchange ratio of 0.7722. Broadcast.com
converted weighted average shares outstanding do not include Yahoo!'s investment
in broadcast.com of 159,000 common shares.
NOTE 3
The provision for income taxes does not reflect the benefit of
broadcast.com's consolidated net losses due to certain limitations and
uncertainty surrounding realization.
73
<PAGE>
NOTE 4
The following pro forma adjustments have been made to the historical
financial statements of Yahoo! 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 and the
three months ended March 31, 1999 between Yahoo! and broadcast.com pursuant
to a one-year advertising and promotion agreement. To record the elimination
of the effects of certain advertising insertion orders between Yahoo! and
broadcast.com during the years ended December 31, 1997 and 1996.
B. To record the elimination of Yahoo!'s common stock investment in
broadcast.com of $54,959,000 at March 31, 1999. These amounts include
unrealized gains of $33,774,000, net of tax of $19,835,000, which was
recorded as a separate component of stockholders' equity. The related tax
effects have 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. As Viaweb and Starseed were acquired in June and December 1998,
respectively, the supplementary historical consolidated financial statements
of Yahoo! for the year ended December 31, 1998 include $5,711,000 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! historical supplementary consolidated
financial statements incorporated by reference in this document.
D. To record the accrual of estimated costs resulting from the proposed merger
of Yahoo! and broadcast.com. It is anticipated that Yahoo! will incur
charges to operations related to the proposed merger with broadcast.com,
currently estimated to be $22 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 $14 million and other estimated merger related expenses
totaling $8 million consisting of professional services ($3.2 million);
severance costs which relate to termination of certain employees with
redundant job functions in certain functional areas ($1.3 million);
securities registration fees ($2.5 million); and other merger related
expenses ($1.0 million). 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.
E. As Viaweb and Starseed were acquired in June and December 1998,
respectively, the supplementary historical consolidated financial statements
of Yahoo! for the three months ended March 31, 1998 do not include
amortization expense related to purchased technology and other intangible
assets acquired in these transactions. These adjustments record amortization
expenses of $1,547,000 related to purchased technology and $2,868,000
related to 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! historical supplementary consolidated financial
statements incorporated by reference in this document.
F. To record the accrual of estimated costs resulting from the merger of Yahoo!
with GeoCities, Encompass and Online Anywhere. It is anticipated that Yahoo!
will incur charges to operations related to these mergers, currently
estimated to be $68 million, principally in the second quarter of
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1999. 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 $24 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.
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DESCRIPTION OF YAHOO! COMMON STOCK
Yahoo! is authorized to issue up to 900,000,000 shares of common stock, par
value $0.001 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 May 31, 1999, there were approximately
228,126,833 shares of Yahoo! common stock outstanding, held by approximately
4,500 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.
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COMPARISON OF RIGHTS OF HOLDERS OF
BROADCAST.COM COMMON STOCK AND
YAHOO! COMMON STOCK
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS DESCRIBES CERTAIN DIFFERENCES
BETWEEN THE RIGHTS OF HOLDERS OF BROADCAST.COM COMMON STOCK AND YAHOO! COMMON
STOCK. WHILE WE BELIEVE THAT THIS DESCRIPTION COVERS THE MATERIAL DIFFERENCES
BETWEEN THE TWO, THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE OTHER
DOCUMENTS WE REFER TO FOR A MORE COMPLETE UNDERSTANDING OF THE DIFFERENCES
BETWEEN BEING A STOCKHOLDER OF BROADCAST.COM AND BEING A STOCKHOLDER OF YAHOO!.
As a stockholder of broadcast.com, your rights are governed by
broadcast.com's restated certificate of incorporation, as currently in effect,
and broadcast.com's amended and restated bylaws. After completion of the merger,
you will become a stockholder of Yahoo!. As a Yahoo! stockholder, your rights
will be governed by Yahoo!'s certificate of incorporation and Yahoo!'s bylaws.
We are each incorporated under the laws of the State of Delaware and
accordingly, your rights as a stockholder will continue to be governed by the
Delaware General Corporation Law after completion of the merger.
CLASSES OF COMMON STOCK OF BROADCAST.COM AND YAHOO!
We each have one class of common stock issued and outstanding. Holders of
Yahoo! common stock and holders of broadcast.com common stock are each entitled
to one vote for each share held. Neither of our certificates of incorporation
permits our respective stockholders to cumulate votes at any election of
directors.
CLASSIFIED BOARD OF DIRECTORS
Delaware law provides that a corporation's board of directors may be divided
into various classes with staggered terms of office. Broadcast.com has one class
of directors, with each director elected for a term of one year, but effective
at the first annual meeting following broadcast.com's initial public offering,
broadcast.com's board of directors shall be divided into three classes, as
nearly equal in size as possible, with one class being elected annually and with
each director elected for a term of three years. As of the date of this proxy
statement/prospectus, broadcast.com has not held its first annual meeting
following its initial public offering and will not hold its first annual meeting
before the close of the merger.
Yahoo! has one class of directors, and Yahoo!'s certificate of incorporation
does not provide for a classified board of directors. Yahoo!'s directors are
elected for a term of one year.
NUMBER OF DIRECTORS
Broadcast.com's board of directors currently consists of five directors, and
broadcast.com's bylaws provide that the number of directors shall be not less
than one and not more than ten, as determined by the board. In addition,
broadcast.com's certificate of incorporation provides that during any period
when holders of preferred stock may be entitled to elect a specified number of
directors, the number of directors will be increased by that number of
directors. Currently, broadcast.com does not have any outstanding preferred
stock.
Yahoo!'s board of directors currently consists of six directors. The number
of directors on Yahoo!'s board is fixed by a bylaw or amendment to the bylaws
duly adopted by the board of directors.
REMOVAL OF DIRECTORS
Directors of broadcast.com may be removed (1) for "cause" by the affirmative
vote of the holders of 67% of the total outstanding shares entitled to elect
directors or (2) by the affirmative vote of the
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holders of a simple majority of the total outstanding shares entitled to elect
directors at a special meeting of stockholders called for such purpose. "Cause"
is not defined in either broadcast.com's certificate of incorporation or its
bylaws.
Yahoo!'s bylaws provide that any director of Yahoo!, or the entire Yahoo!
board, may be removed with or without cause by the holders of a majority of the
shares then entitled to vote at an election of directors.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Any newly created directorships or vacancies in either of our boards of
directors, resulting from any increase in the number of authorized directors,
may be filled by the vote of a majority of the remaining members of such board
of directors, even though less than a quorum, or in the case of Yahoo!, by a
sole remaining director, subject to the rights of holders of any outstanding
series of preferred stock. No decreases in the number of directors in Yahoo!'s
board of directors may shorten the term of any director then in office.
LIMITS ON STOCKHOLDER ACTION BY WRITTEN CONSENT
Both broadcast.com stockholders and Yahoo! stockholders may take action only
at annual or special meetings of stockholders, and they may not take action by
written consent.
ABILITY TO CALL SPECIAL MEETINGS
Special meetings of broadcast.com stockholders may be called at any time by
broadcast.com's board of directors or by the chief executive officer.
Special meetings of Yahoo! stockholders may be called at any time by
Yahoo!'s board of directors, by the chairman of the board or by the president.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND PROPOSALS
The broadcast.com bylaws allow stockholders to nominate candidates for
election to broadcast.com's board of directors at annual stockholder meetings
and to propose business to be brought before annual stockholder meetings.
Nominations and proposals may only be made by a stockholder who has given timely
written notice to the Secretary of broadcast.com before the annual meeting.
To be timely, notices for stockholder nominations or proposals must be
delivered to the Secretary of broadcast.com no less than 120 days before the
date of the proxy statement sent to stockholders in connection with the previous
year's annual meeting of stockholders, except that if no annual meeting was held
in the previous year, or if the date of the annual meeting has been changed by
more than 30 calendar days from the date contemplated at the time of the
previous year's proxy statement, then the notice must be received by
broadcast.com within a reasonable time before the solicitation is made.
A stockholder's notice for the nomination of directors must set forth
certain information, including all of the following:
- - the name and address of, and the class and number of shares beneficially
owned by, the stockholder who intends to make the nomination and any other
stockholders known by the stockholder to support the nomination;
- - the name, age, business address, residence address and principal occupation
of, and the class and number of shares beneficially owned by the nominee; and
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- - any other information relating to the nominee that is required to be included
in a proxy statement filed pursuant to the proxy rules of the Commission.
Stockholder nominees will be eligible for election as directors only if they
are nominated in accordance with the procedures set forth in broadcast.com's
bylaws.
A stockholder's notice regarding a proposal must set forth as to each matter
the stockholder proposes to bring before the annual meeting the following
information:
- - a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting;
- - the name and address of, and the class and number of shares beneficially
owned by, the stockholder proposing such business and any other stockholders
known by the stockholder to support the proposal; and
- - any financial interest of the stockholder in such business.
Broadcast.com's board of directors may reject any nomination or proposal of
business made by a stockholder unless it is made on a timely basis and in
accordance with the advance notice procedures set forth in broadcast.com's
bylaws. If the board of directors determines that the information provided in
the stockholder's notice does not satisfy the information requirements set forth
in the bylaws, the Secretary of broadcast.com will notify the stockholder of the
deficiency, and the stockholder will have an opportunity to cure the deficiency
within five days.
The Yahoo! bylaws also allow stockholders to nominate candidates for
election to Yahoo!'s board of directors at any annual or special stockholder
meeting at which the board of directors has determined that directors will be
elected. In addition, the bylaws allow stockholders to propose business to be
brought before any annual stockholder meeting. However, nominations and
proposals may only be made by a stockholder who has given timely written notice
to the Secretary of Yahoo! before the annual or special stockholder meeting.
Under Yahoo!'s bylaws, to be timely, notice of stockholder proposals to be
made at an annual stockholder meeting must be received by the Secretary of
Yahoo! no less than 60 days nor more than 90 days before the first anniversary
of the preceding year's annual meeting of stockholders. If the date of the
annual meeting is more than 30 days before or more than 60 days after the
anniversary of the preceding year's annual stockholder meeting, notice will be
timely if delivered no earlier than the 90th day before the annual meeting and
not later than the 60th day before the annual meeting or the 10th day following
the day on which the meeting is first publicly announced.
In addition, for nominations by stockholders to be timely, the nominations
must be mailed and received at Yahoo!'s principal executive offices no less than
60 days and no more than 90 days before the meeting. If, however, stockholders
are given less than 60 days prior notice of the meeting, then to be timely,
nominations must be received no later than the tenth day following the date on
which notice was first mailed to stockholders or publicly disclosed.
A stockholder's notice to Yahoo! must set forth all of the following:
- - the name, age, business address and residence of any nominations;
- - all information required to be disclosed in solicitations of proxies for
election of directors, or information otherwise required by applicable law,
relating to any person that the stockholder proposes to nominate for election
or reelection as a director, including that person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected;
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- - a brief description of the business the stockholder proposes to bring before
the meeting, the reasons for conducting that business at that meeting and any
material interest of the stockholder in the business proposed; and
- - the stockholder's name and address as they appear on Yahoo!'s books and the
class and number of shares of Yahoo! which are beneficially owned by the
stockholder.
Stockholder nominations and proposals will not be brought before any Yahoo!
stockholder meeting unless the nomination or proposal was brought before the
meeting in accordance with Yahoo!'s stockholder advance notice procedures.
The chairman of the Yahoo! stockholder meeting will have the power to
determine whether the nomination or proposal was made by the stockholder in
accordance with the advance notice procedures set forth in Yahoo!'s bylaws. If
the chairman determines that the nomination or proposal is not in compliance
with Yahoo!'s advance notice procedures, the chairman may declare that the
defective proposal or nomination shall be disregarded.
PREFERRED STOCK
Both of our certificates of incorporation provide that our boards of
directors are authorized to provide for the issuance of shares of preferred
stock in one or more series, and to fix the designations, powers, preferences
and rights of the shares of each series and any qualifications, limitations or
restrictions thereof.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Under Delaware law, a certificate of incorporation of a Delaware corporation
may be amended by approval of the board of directors of the corporation and the
affirmative vote of the holders of a majority of the outstanding shares entitled
to vote for the amendment, unless a higher vote is required by the corporation's
certificate of incorporation.
Broadcast.com's certificate of incorporation provides that the affirmative
vote of the holders of at least 67% of the outstanding shares of capital stock
of broadcast.com entitled to vote in the election of directors, voting together
as a single class, will be required to amend, repeal or modify any provision of
broadcast.com's certificate of incorporation which deal with the following:
- - the powers and authority expressly conferred upon the board of directors;
- - the manner in which the number of directors is fixed;
- - the creation and maintenance of a classified board of directors, including
the filling of vacancies and the allocation of directors among classes;
- - the election of directors by holders of preferred stock;
- - the removal of directors from office; and
- - the manner in which the provisions of the certificate of incorporation
dealing with the above may be amended, repealed or modified.
Yahoo!'s certificate of incorporation contains no provisions requiring a
vote greater than that required by Delaware law to amend its certificate of
incorporation.
AMENDMENT OF BYLAWS
Under Delaware law, stockholders entitled to vote have the power to adopt,
amend or repeal bylaws. In addition, a corporation may, in its certificate of
incorporation, confer such power upon the
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board of directors. The stockholders always have the power to adopt, amend or
repeal bylaws, even though the board may also be delegated such power.
Broadcast.com's certificate of incorporation expressly authorizes the board
of directors to make, repeal, alter, amend and rescind broadcast.com's bylaws.
In addition, broadcast.com's bylaws provide that any bylaw may be made, altered,
amended or repealed by the board of directors upon the vote of a majority of
directors then in office. Any of broadcast.com's bylaws made or altered by the
stockholders may be altered or repealed by either the board of the directors or
the stockholders.
Yahoo!'s certificate of incorporation authorizes the board of directors to
make, alter or repeal Yahoo!'s bylaws.
STATE ANTI-TAKEOVER STATUTES
We are both subject to Section 203 of the Delaware General Corporation Law,
which, under certain circumstances, may make it more difficult for "Interested
Stockholders," as defined in Section 203, to effect various business
combinations with either of us for a three-year period. Under Delaware law, a
corporation's certificate of incorporation or bylaws may exclude a corporation
from the restrictions imposed by Section 203. Our respective certificates of
incorporation and bylaws do not exclude us from the restrictions imposed under
Section 203.
LIMITATION OF LIABILITY OF DIRECTORS
The Delaware General Corporation Law permits a corporation to include a
provision in its certificate of incorporation eliminating or limiting the
personal liability of a director or officer to the corporation or its
stockholders for damages for a breach of the director's fiduciary duty, subject
to certain limitations. Our respective certificates of incorporation include
such a provision to the maximum extent permitted by law.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their fiduciary duties, they do not eliminate
that duty. Accordingly, these provisions will have no effect on the availability
of equitable remedies such as an injunction or rescission based on a director's
breach of his fiduciary duty.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law permits a corporation to indemnify
officers and directors for actions taken in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful.
Broadcast.com's bylaws and Yahoo!'s certificate of incorporation and bylaws
provide that any person who was or is a party or is threatened to be a party to
or is involved in any action, suit, or proceeding, whether civil, criminal,
administrative or investigative, because that person is or was a director or
officer, or is or was serving at the request of either of us as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, will be indemnified against expenses,
including attorney's fees, and held harmless by each of us to the fullest extent
permitted by the Delaware General Corporation Law. The indemnification rights
conferred by each of us are not exclusive of any other right to which persons
seeking indemnification may be entitled under any statute, our respective
certificates of incorporation or bylaws, any agreement, vote of stockholders or
disinterested directors or otherwise. In addition, each of us is authorized to
purchase and maintain insurance on behalf of its directors and officers.
Additionally, each of us may pay expenses incurred by our directors or
officers in defending a civil or criminal action, suit or proceeding because
that person is a director or officer, in advance of the
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final disposition of that action, suit or proceeding. However, such payment will
be made only if we receive an undertaking by or on behalf of that director or
officer to repay all amounts advanced if it is ultimately determined that he or
she is not entitled to be indemnified by us, as authorized by our respective
certificates of incorporation and bylaws.
STOCKHOLDER RIGHTS PLAN
Under Delaware law, every corporation may create and issue rights entitling
the holders of such rights to purchase from the corporation shares of its
capital stock of any class or classes, subject to any provisions in its
certificate of incorporation. The price and terms of such shares must be stated
in the certificate of incorporation or in a resolution adopted by the board of
directors for the creation or issuance of such rights. Neither broadcast.com nor
Yahoo! have entered into stockholder rights agreements.
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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 116 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 BROADCAST.COM
BUSINESS OF BROADCAST.COM
INTRODUCTION
Broadcast.com inc. is the 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 and intranets. 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, video, 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 410 radio stations and networks, 50 television stations and
cable networks and game broadcasts and other programming for over 450 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 Group 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. Broadcast.com also derives revenues from
the sale of advertising on its Web sites, including gateway ads with guaranteed
click-thrus, channel and event sponsorships and traditional banner ads. In March
1999, broadcast.com's Web sites served a daily average of over 1.1 million
unique users, ranking broadcast.com's sites #14 among all sites on the Internet
according to Media Metrix. In July 1998, broadcast.com completed its initial
public offering, raising approximately $43.2 million after expenses. During
November 1998, broadcast.com acquired Simple Network Communications, Inc., a
premier provider of Web hosting services, to expand into Internet broadcasting
services for consumers and small businesses. In March 1999, broadcast.com
acquired Net Roadshow, Inc., the leading provider of Internet initial public
offering roadshows, in order to quickly expand into Internet broadcasting for
the financial services market.
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
enabled broadcast.com 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 25,000 live events, such as the last four NFL Super Bowls, the
NCAA Basketball Tournament, the Stanley Cup Playoffs, the entire 1998-99 season
for all 27 NHL teams, game broadcasts for 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, the
launch of the Space Shuttle with Astronaut John Glenn and the Victoria's Secret
Fashion Show. Broadcast.com has also amassed over 75,000 hours of on-demand
broadcast programming, including over 3,000 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, Texaco, Trilogy and more than 850 other organizations.
INDUSTRY BACKGROUND
The Internet has grown rapidly in recent years, spurred by developments such
as easy-to-use Web browsers, the availability of inexpensive multimedia PCs and
Internet access, the adoption of more
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robust network architectures and the emergence of compelling Web-based content
and commerce applications. The broad acceptance of the Internet Protocol
standard has also led to the emergence of intranets and the development of a
wide range of non-PC devices that enable users to access the Internet and
intranets.
Much of the Internet's rapid evolution towards becoming a mass medium can be
attributed to the accelerated pace of technological innovation, which has
expanded the Web's capabilities and improved users' experiences. Most notably,
the Internet has evolved from a mass of static, text-oriented Web pages and
email services to a much richer environment, capable of delivering graphical,
interactive and multimedia content. Prior to the development of streaming media
technologies, users could not play back audio and video clips until the content
was downloaded in its entirety. As a result, live Internet broadcasts were not
possible and archived clips were cumbersome to download and use. The development
of streaming media products by companies such as Microsoft and RealNetworks
enabled the simultaneous transmission and playback of continuous "streams" of
audio and video content over the Internet and intranets. These technologies have
evolved to deliver audio and video over widely used 28.8 kilobits per second
narrow bandwidth modems, yet can scale in quality to take advantage of higher
speed access provided by xDSL, cable modems and other emerging broadband
technologies.
Broadcasting audio and video content over the Internet offers certain
opportunities that are not generally available from traditional media. Currently
available analog technology and government regulations limit the ability of
radio and television stations to broadcast beyond certain geographic areas.
Radios and televisions are not widely used in office buildings and other
workplaces, where Internet access has become commonplace. Traditional business
communication tools such as audio conferencing and videoconferencing can be
costly, non-targeted and inconvenient. In addition, traditional broadcasters are
limited in their ability to measure or identify in real time the listeners or
viewers of a program. By using the Internet, streaming media content can be
targeted to a geographically dispersed audience of customers, suppliers,
employees and stockholders at relatively low costs. Internet users can interact
with the broadcast content by responding to online surveys, voting in polls and
obtaining additional information. In addition, Internet broadcasters can provide
highly specific information about a program's audience to content providers,
advertisers and users of Internet business services. The convergence of the
Internet's capabilities and attributes has accelerated its acceptance as a
business tool, leading to rapidly growing economic opportunities in Web-based
advertising and business service offerings.
Broadcast.com believes that several challenges must be overcome to realize
cost-effective Internet broadcasting: aggregating diverse and compelling
content, scaling Internet broadcasts from small to large audiences, deploying
new transmission and streaming technologies in a timely manner and providing
multimedia advertisements and services. In order to aggregate content, Internet
broadcasters must rapidly identify and secure licensing opportunities by
demonstrating to content providers broad based distribution and the ability to
deliver associated traffic. Successful Internet broadcasters serving a large
number of simultaneous users around the clock also need to design, develop and
integrate complex network elements, including scalable bandwidth, streaming
licenses, equipment and technical expertise. The rapid evolution of streaming
media technologies requires Internet broadcasters to support multiple vendors,
an investment few companies have made. Broadcast.com believes, therefore, that a
successful Internet broadcaster must develop a well-branded, highly-trafficked
Web portal and destination which offers compelling content, a network capable of
streaming audio and video programming to large audiences 24 hours a day seven
days a week and an organization that can deliver quality broadcasting services
to advertisers, businesses and content providers.
THE BROADCAST.COM SOLUTION
Broadcast.com believes it has established a significant brand for its
broadcasts and services on the Internet due to its breadth of content, network
infrastructure, audience size and distribution
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capabilities. In addition, broadcast.com's Web sites provide an attractive
platform for advertisers seeking to target specific users with rich, compelling
advertising solutions. Key elements of the broadcast.com solution include:
LARGE AGGREGATION OF STREAMING MEDIA CONTENT
Broadcast.com's Web sites offer a large and comprehensive selection of live
and on-demand audio and video programming on the Internet, including sports,
talk and music radio, television, business events, full-length CDs, news,
commentary and audio-books. Broadcast.com currently owns Internet broadcasting
rights for more than 410 radio stations and networks, 50 television stations and
cable networks and over 450 college and professional sports teams. Broadcast.com
has also amassed over 75,000 hours of on-demand broadcast programming, including
over 3,000 full-length music CDs, sports programming, talk radio and business
and media events. Broadcast content providers include Capitol Records, Granite
Broadcasting, Learfield Communications, Major League Baseball, the NHL, Trimark
Pictures and Turner Broadcasting System, Inc. Broadcast.com believes that its
content aggregation has established WWW.BROADCAST.COM as a leading destination
for Internet users seeking streaming media content and also for multimedia
content providers and advertisers seeking to reach large online audiences. This
leading position, combined with broadcast.com's broadcast networking
capabilities and experience in establishing content relationships, further
enables broadcast.com to attract compelling programming.
LEADING PROVIDER OF INTERNET AND INTRANET BUSINESS SERVICES BROADCASTS
Broadcast.com leverages its network infrastructure and expertise by
providing Internet and intranet broadcasting and distribution services to
businesses and other organizations. Broadcast.com's business services enable
customers to conduct cost-effective Internet or intranet broadcasts of live and
on-demand business and educational programming, including press conferences,
quarterly earnings conference calls, investor conferences, trade shows,
stockholder meetings, product introductions, training sessions, distance
learning seminars, customized corporate TV channels and media events, tailored
to each such customer's needs. Broadcast.com believes that these services
differentiate its content and broaden its revenue base. 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, Texaco, Trilogy and more than 850 other organizations.
LEADING INTERNET BROADCAST NETWORK INFRASTRUCTURE
Broadcast.com's network infrastructure and expertise permits broadcast.com
to stream hundreds of live and on-demand audio and video programs over the
Internet to hundreds of thousands of users. Broadcast.com's distribution network
can support over 650 simultaneous live events and includes over 1,000 multimedia
servers that support multiple streaming technologies. These servers are linked
through direct 45 and 155 megabits per second connections to major Internet
backbone providers including AT&T, BBN, Cable & Wireless, MCI WorldCom and
Sprint Corporation which, in turn, connect to over 80% of the downstream
Internet service providers. Broadcast.com believes that direct connections to
the major backbone providers help to enhance the end-user experience by avoiding
the congestion of public peering points which can cause transmission delays or
packet loss. Broadcast.com believes that its broadcast network infrastructure
provides it with the flexibility to implement new software, hardware and system
developments without incurring substantial redesign costs or down time.
Broadcast.com also continues to deploy its multicast network which is designed
to provide streaming media content to hundreds of thousands of users
simultaneously through one-to-many Internet connections.
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BRANDED DISTRIBUTION
Broadcast.com believes it has established a leading brand for streaming
media content through its Web sites, which have been ranked by Media Metrix as
among the Internet's top 20 most frequently visited destinations. Broadcast.com
drives traffic to its sites and enhances brand awareness through strategic
relationships with key Internet companies. Broadcast.com has established
increased visibility among Internet users through its relationships with Yahoo!,
RealNetworks, Microsoft, SOFTBANK (broadcast.com japan), and The Nasdaq Stock
Market, among others.
DIFFERENTIATED, INTERACTIVE MULTIMEDIA ADVERTISING
Broadcast.com offers exclusive and comprehensive audio and video programming
that can be targeted to specific audiences and demographics. Additionally,
unlike Web sites that offer only text-based banner ads, broadcast.com offers
multimedia packages incorporating custom audio and video applications such as
gateway ads with guaranteed click-thrus and channel and event sponsorships, as
well as its new in-stream ads and in-player banner ads. Broadcast.com also
provides advertisers with the opportunity to bundle Web and traditional media
advertising because of commercial spots it receives from its radio and
television station content providers.
STRATEGY
Broadcast.com's objective is to enhance its leadership position in Internet
broadcasting by aggregating comprehensive audio and video programming,
preferably on an exclusive basis, and providing services enabling the delivery
of a broad range of streaming media content over the Internet. Key elements of
broadcast.com's strategy include the following:
ENHANCE AND EXPAND EXCLUSIVE CONTENT OFFERINGS
Broadcast.com seeks to provide the most comprehensive audio and video
programming on the Internet. To this end, broadcast.com's objective is to
acquire exclusive, long-term Internet broadcast rights to streaming media
content provided by radio and television stations, networks and ownership
groups, college and professional sports teams and leagues, production and film
studios, record labels and other content providers.
FURTHER PENETRATE THE BUSINESS SERVICES MARKET
Broadcast.com's broadcast services enable businesses, consumers and other
organizations to improve communication with, and the dissemination of
information to, customers, suppliers, employees and the investment community.
Broadcast.com believes that its network infrastructure, the local and global
reach of the Internet and the integration of multicasting within corporate
intranets provides business services customers with lower transmission costs
than conventional broadcast and communications systems and enables these
customers to access both large and small target audiences. Broadcast.com intends
to continue to rapidly expand and optimize its turnkey broadcasting solutions to
continue to enhance the broadcast experience for its business services
customers. Broadcast.com has also recently established a consulting group whose
primary focus is to multicast-enable corporate intranets and to assist customers
with real-time internal corporate communications.
EXPAND INTERNET BUSINESS-TO-BUSINESS SALES FORCE
Broadcast.com continues to expand its dedicated, experienced Internet sales
force in order to increase its presence across the business services and
advertising markets. Broadcast.com currently employs over 100 salespeople
dedicated to further differentiating broadcast.com as a leading provider of
Internet broadcasting solutions. Broadcast.com has also implemented a three-week
training program, broadcast.com University, to train and equip incoming
salespeople on the latest developments in
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Internet broadcasting and advertising solutions. Broadcast.com is expanding its
sales team and added directors and account executives in strategic regions
across the United States to continue delivering personalized service and acquire
new customers across a variety of vertical markets, including the automotive,
distance learning, financial services and healthcare industries.
EXPAND NETWORK INFRASTRUCTURE
Broadcast.com intends to expand its network infrastructure through the
acquisition and deployment of additional network equipment, bandwidth and
broadcast scaling technologies. As part of its network expansion strategy,
broadcast.com is deploying its multicast network which is designed to provide
streaming media content to hundreds of thousands of users simultaneously through
one-to-many Internet connections. Broadcast.com has entered into agreements with
over 45 Internet service providers and UUNET, now a part of MCI WorldCom, and is
building the first large-scale commercial multicast network, which provides
broadcast.com with access to over 500,000 dial-up multicast ports. Broadcast.com
has developed software to more efficiently handle the broadcast of hundreds of
simultaneous live events and developed proprietary software to handle broadcast
blackouts, remote monitoring and remote server access. Although streaming video
over the Internet does not currently offer broadcast television equivalent
quality to a broad base of users, broadcast.com believes that the quality of and
demand for Internet video broadcasts will continue to improve as broadband
Internet access technologies such as xDSL and cable modems become more commonly
available. Further, broadcast.com believes that video is an important and
essential element in the future of Internet broadcasting. Accordingly, the
broadcast.com network is video enabled and supports multiple leading video
streaming technologies including RealNetworks' RealPlayer G2 and Microsoft's
Windows Media Player.
CAPTURE AND DEVELOP EMERGING REVENUE OPPORTUNITIES
Broadcast.com intends to capture strategic revenue growth opportunities as
user demand increases and technological developments become more widely adopted.
Such opportunities are expected to include pay-per-listen/view applications,
fee-based sharing of broadcast.com's exclusive content on other Web sites,
insertion of commercials within programming, electronic commerce opportunities,
business services consulting and broadcasting for consumers and small
businesses.
PROGRAMMING
Broadcast.com's Web sites offer a large and comprehensive selection of live
and on-demand audio and video programming, live continuous broadcasts of over
410 radio stations and networks, 50 television stations and cable networks, game
broadcasts of more than 450 college and professional sports teams and over
75,000 hours of on-demand programming, including over 3,000 full-length music
CDs, sports programming, talk radio and business and media events. The
WWW.BROADCAST.COM Web site is organized into content channels. The following is
a description of certain elements of broadcast.com's programming, illustrating
the breadth and depth of its content.
SPORTS
Broadcast.com believes that it provides the most comprehensive live and
on-demand broadcasting of sporting events on the Internet. Broadcast.com's early
entrance into Internet broadcasting has allowed it to establish relationships
with a broad range of sports teams and leagues. Broadcast.com has the Internet
broadcasting rights for certain sporting events, including football and
basketball in most cases, for over 150 colleges and universities participating
in NCAA Division IA athletics, over 95% of which are on an exclusive basis. In
addition, broadcast.com is the exclusive streaming media partner for all of the
27 NHL teams and broadcasts on behalf of Major League Baseball most of MLB's
regular season and playoff games. Broadcast.com has handled the Internet
broadcast for the last four Super
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Bowls and the NCAA Basketball Tournament, as well as the 1998 World Champion New
York Yankees Ticker Tape Parade. PGA TOUR and broadcast.com provide Internet
audiences with a variety of golf programming, including live reports hourly from
each PGA TOUR stop on Thursdays and Fridays, PGA TOUR Radio, which includes live
Saturday and Sunday stroke coverage from most tour events, and video highlights
each Sunday night of the final round of each tour stop.
In the case of special events, broadcast.com often broadcasts programming
complementary to television broadcasts, such as stadium announcer press box
feeds and full-length post-game press conferences with players and coaches, in
lieu of, or in addition to, game broadcasts. Broadcast.com typically archives
game broadcasts until the next game is played so users can access sporting
events they may have missed. In addition, a "Great Games" section contains
archives of a wide variety of classic match-ups for fans to access at any time.
Broadcast.com's sports programming includes video programming as well, including
arrangements with the NHL, PGA TOUR, Major League Baseball and numerous colleges
and universities.
The following table illustrates the breadth of the sports content
broadcast.com is currently broadcasting, or has broadcast.
BROADCAST.COM SPORTS PROGRAMMING
NATIONAL HOCKEY LEAGUE
Anaheim Mighty Ducks
Boston Bruins
Buffalo Sabres
Calgary Flames
Carolina Hurricanes
Chicago Blackhawks
Colorado Avalanche
Dallas Stars
Detroit Red Wings
Edmonton Oilers
Florida Panthers
Los Angeles Kings
Montreal Canadiens
Nashville Predators
New Jersey Devils
New York Islanders
New York Rangers
Ottawa Senators
Philadelphia Flyers
Phoenix Coyotes
Pittsburgh Penguins
San Jose Sharks
St. Louis Blues
Tampa Bay Lightning
Toronto Maple Leafs
Vancouver Canucks
Washington Capitals
MAJOR LEAGUE BASEBALL
Anaheim Angels
Arizona Diamondbacks
Baltimore Orioles
Chicago White Sox
Cincinnati Reds
Cleveland Indians
Houston Astros
New York Mets
New York Yankees
Oakland Athletics
Philadelphia Phillies
San Diego Padres
San Francisco Giants
St. Louis Cardinals
Texas Rangers
GOLF
PGA TOUR
PGA of America
Senior Tour
USGA
Nike Tour
MAJOR LEAGUE SOCCER
Chicago Fire
Colorado Rapids
Columbus Crew
D.C. United
NY/NJ Metrostars
Dallas Burn
Kansas City Wizards
Los Angeles Galaxy
Miami Fusion F.C.
New England Revolution
San Jose Clash
Tampa Bay Mutiny
AUTO RACING
Selected In-car radio and events:
ARCA
CART
Indy Racing League
Motoworld "Supecross"
NASCAR Winston Cup
NASCAR Busch Series
NHRA
Performance Racing Network
Professional SportsCar Racing
Toyota Atlantic
PRO FOOTBALL
1997 and 1998 NFL Training
Camp
Arena Football
Canadian Football League
1997 Grey Cup (CFL)
NFL Europe -- Audio and Video
NFL pre- and post-game
coverage
Super Bowls XXX, XXXI,
XXXII and XXXIII
HORSE RACING
Belmont Stakes
Kentucky Derby
Preakness Stakes
Breeder's Cup
Capitol Racing
Fair Grounds
Gulfstream
Churchill Downs
Keeneland
Lone Star Park Racing
Meadowlands
Monmouth
New York Racing Association
Oaklawn
Santa Anita
PRO BASKETBALL
NBA Championship Press
Conferences
NBA Draft
1997 Continental Basketball
Association Finals and
All-Star Game
"The Game" on Showtime
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OTHER SPORTS COVERAGE
Boston Marathon
HBO World Championship
Boxing
Minor League Baseball
Minor League Hockey
NBC 1996 Atlanta
Olympics Interviews
Tour de France
U.S. Open Tennis
United States Olympic
Committee Press
Conferences
Wimbledon
World Golf Village Opening
Ceremonies
NCAA COLLEGES AND UNIVERSITIES
Air Force Academy Falcons
Alabama Crimson Tide
Alaska-Fairbanks Nanooks
Albion College Britons
Alcorn State Braves
Appalachian State Mountaineers
Arizona State Sun Devils
Arizona Wildcats
Arkansas Little Rock Trojans
Arkansas Razorbacks
Arkansas State Indians
Ball State Cardinals
Baylor Bears
Boise State Broncos
Boston University Terriers
Brigham Young Cougars
Bucknell Bison
Butler Bulldogs
Cal State Fullerton Titans
Cal-Berkeley Bears
Central Florida Golden Knights
Central Michigan Chipawas
Clemson Tigers
Colorado Buffaloes
Connecticut Huskies
Cornell Big Red
Dayton Flyers
Denver Pioneers
Duke Blue Devils
East Carolina Pirates
Eastern Kentucky Colonels
Florida Gators
Florida State Seminoles
Fresno State Bulldogs
George Washington Colonials
Georgetown Hoyas
Georgia Bulldogs
Georgia Southern Eagles
Georgia Tech Yellow Jackets
Harvard Crimson
Southern Miss. Golden Eagles
St. Bonaventure Bonnies
St. John's Red Storm
St. Joseph's Hawks
St. Louis Billikens
Hawaii Rainbows
Houston Cougars
Idaho Vandals
Illinois State Redbirds
Illinois-Chicago Flames
Indiana Hoosiers
Iowa Hawkeyes
Iowa State Cyclones
Jacksonville Dolphins
James Madison Dukes
Kansas Jayhawks
Kansas State Wildcats
Kentucky Wildcats
Lamar Cardinals
Lehigh Mountain Hawks
Long Beach State 49ers
Louisiana State Tigers
Louisiana Tech Bulldogs
Louisville Cardinals
Marquette Golden Eagles
Marshall Thundering Herd
Maryland Terrapins
Massachusetts Minutemen
Memphis Tigers
Merrimack Warriors
Miami (Florida) Hurricanes
Miami (Ohio) Redhawks
Michigan State Spartans
Mississippi Rebels
Mississippi State Bulldogs
Missouri Tigers
Mount St. Mary's Mountaineers
Naval Academy Midshipmen
UNC Tar Heels
UNC-Charlotte 49ers
Nebraska Cornhuskers
New Hampshire Wildcats
New Mexico Lobos
North Carolina St. Wolfpack
North Texas Eagles
Northern Arizona Lumberjacks
Notre Dame Fighting Irish
Ohio Bobcats
Oklahoma Sooners
Oklahoma State Cowboys
Old Dominion Monarchs
Oregon Ducks
Oregon State Beavers
Penn State Nittany Lions
Pepperdine Waves
Pittsburgh Panthers
Portland State Vikings
Princeton Tigers
Purdue Boilermakers
Radford Highlanders
Rhode Island Rams
Rice Owls
Richmond Spiders
Rutgers Scarlet Knights
Samford Bulldogs
San Diego State Aztecs
San Francisco Dons
San Jose State Spartans
SE Louisiana Lions
Seton Hall Pirates
Siena College Saints
SMU Mustangs
South Carolina Gamecocks
South Dakota Coyotes
South Florida Bulls
Southeastern Louisiana Lions
St. Mary's Rattlers
Stanford Cardinal
Stephen F. Austin Lumberjacks
SW Louisiana Cajuns
Syracuse Orangemen
TCU Horned Frogs
Tennessee Volunteers
Texas A&M Aggies
Texas Longhorns
Texas Tech Red Raiders
Texas-El Paso Miners
Toledo Rockets
Trinity Tigers
Tulane Green Wave
Tulsa Hurricanes
UAB Blazers
UCLA Bruins
UC-Santa Barbara Gauchos
UNLV Rebels
USC Trojans
Utah Utes
VA Commonwealth Rams
Vanderbilt Commodores
Villanova Wildcats
Virginia Cavaliers
Virginia Tech Hokies
Wake Forest Demon Deacons
Washington Huskies
Washington State Cougars
West Virginia Mountaineers
Western Kentucky Hilltoppers
Western Michigan Broncos
Wichita State Shockers
William and Mary Tribe
Wisconsin Badgers
Wisconsin Eau Claire Blugolds
Wisconsin-LaCrosse Eagles
Wright State Raiders
Wyoming Cowboys
Yale Bulldogs
Youngstown State Penguins
RADIO
Broadcast.com is the leading Internet broadcaster of radio programming and
has rights to broadcast more than 410 stations based in over 120 cities, in most
cases under exclusive multi-year agreements. Broadcast.com's relationships with
radio stations and networks provide it with content from 18 of the nation's top
20 radio markets. Broadcast.com has benefited from its ability to license radio
content from ownership groups, including a group of over 40 stations which are a
part of Clear Channel Communications, a group of 72 stations which are a part of
Capstar Broadcasting Corporation
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and the 23-station Susquehanna Radio Corp. family. Broadcast.com's radio
programming spans all formats, from talk shows and news programs to country
music and classic rock. Broadcast.com's audience benefits from the ability to
receive local radio programming in-office and from outside the listener's
geographic area, allowing users to select from hundreds of stations and dozens
of formats. Broadcast.com is the exclusive provider of Internet broadcasts from
popular top-rated nationally syndicated hosts Rush Limbaugh, Dr. Laura
Schlessinger, Art Bell and Jim Rome. Broadcast.com also archives thousands of
hours of selected talk radio programming so users can listen to their favorite
shows and hosts when they are unable to listen to the live broadcast.
TELEVISION
Broadcast.com continues to expand its content aggregation strategy into
television programming. Broadcast.com currently has video Internet broadcasting
rights for selected programming for 50 stations, cable networks and national
networks. Broadcast.com recently reached an agreement with three ABC owned and
operated stations, WABC New York, WPVI Philadelphia and KTRK Houston, to
exclusively broadcast their local programming. Broadcast.com's relationships
with television stations and networks provide it with content from eight of the
nation's top ten television markets. Broadcast.com provides archives of
newscasts so users can access the latest information on breaking news 24 hours a
day seven days a week from their home or office. Broadcast.com believes that the
continued emergence of broadband Internet access technologies has the potential
to increase the demand for and quality of Internet-delivered video content,
possibly leading to a convergence of the Internet and television.
BUSINESS
Broadcast.com is a leading aggregator of audio and video business-related
content. In addition to the thousands of hours of events and special programming
offered live and on demand from broadcast.com's business services customers,
broadcast.com has also aggregated content from other sources to provide a
complete business content channel, which offers video interviews and features
from CNBC/Dow Jones Business Video and other business programming from
broadcast.com's selection of radio and television content providers.
Broadcast.com has broadcast quarterly earnings conference calls from such
diverse companies as Yahoo!, Millenium Chemical and Texaco; product launches
from Asymetrix, Dell and Sybase, Inc.; and keynote speeches from industry
leaders such as Intel's Andy Grove, Hewlett Packard's Lewis Platt and
Microsoft's Bill Gates. In addition, broadcast.com is working with companies to
develop customized Internet-only corporate TV broadcasts, such as the monthly
"Breakfast with Dell" series, which features Dell executives speaking on topics
of interest to its customers, and IBM's "Webinar" series, with topics ranging
from "Knowledge Based Marketing in the Next Century" to "Data Management: The
Six Universals." Broadcast.com's Interactive Group provides supplemental data
and management services to accompany Internet broadcasts, such as proprietary
database registration services and real-time audience measurement.
VIDEO
Broadcast.com provides Internet broadcasting services to entertainment and
media companies, film studios, broadcast networks and other content providers.
Content providers utilize broadcast.com's distribution network, technology,
services, Web site promotions, email newsletter and sizable audience base to
deliver and drive traffic to high profile events. Broadcast.com recently
broadcast all of the live and on-demand Webcasts of the 1999 Academy Awards
coverage in conjunction with ABC.com, including red-carpet arrivals and
backstage interviews in their entirety. In addition, broadcast.com recently
announced an agreement with Trimark Pictures under which it is licensing
Trimark's library of films for distribution over the Internet. Broadcast.com and
Trimark will also work together to broadcast first run movies, previews and live
premieres and to distribute movies on the Internet under a variety
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of new revenue models including pay-per-view, electronic commerce, integrated
advertising, personalized marketing and user interactive content. The
broadcast.com Video Channel now showcases over 9,500 hours of on-demand video,
streamed at bandwidths ranging from 56 kbps to 300 kbps.
MUSIC
Through the broadcast.com Jukebox, broadcast.com believes it offers the
largest selection of full-length CDs available for listening on demand over the
Internet, currently numbering over 3,000 titles. Broadcast.com has entered into
agreements with over 200 record labels to broadcast all or some of their CDs in
their entirety. Capitol Records and broadcast.com recently launched
"CapitolBroadcasts," a co-branded music channel hosted on the broadcast.com Web
site, showcasing audio and video programming from Capitol Records and its family
of labels. Music fans can listen to and watch their favorite Capitol artists and
compilations, full-length songs and videos from individual artists and
soundtracks and live events from premier Capitol artists, including CD
"Listening Parties" and live cybercasts. To expand its Jukebox selections,
broadcast.com intends to continue to form relationships with leading record
companies. Current customer feedback indicates that listeners use the
broadcast.com Jukebox as a way to sample new music and, in turn, purchase CDs
that they enjoy. Accordingly, broadcast.com believes that its Jukebox will
provide an attractive platform for record labels and musicians to promote and
sell their recordings over the Internet through broadcast.com. Broadcast.com has
also broadcast numerous exclusive, high-profile concerts and events featuring
leading musicians and groups such as Paul McCartney, Willie Nelson, Jewel and
Rod Stewart, as well as concerts as a part of A&E's "Live By Request" series,
featuring Phil Collins and Tony Bennett.
OTHER PROGRAMMING
Broadcast.com has aggregated thousands of hours of live and on-demand
content in several other channels, providing broadcast.com users with a
comprehensive selection of streaming media programming on broadcast.com's Web
sites. An illustrative list follows:
<TABLE>
<CAPTION>
CHANNEL EXAMPLES
- ---------------------------------------------------- --------------------------------------------
<S> <C>
AudioBooks.......................................... Over 500 full length audio-books including:
Charles Dickens's "A Tale of Two Cities"
Jane Austen's "Pride and Prejudice"
Education........................................... PBS The Business Channel
Harris Methodist Continuing Education
Seminars
Rutgers University
News................................................ BBC World Service
CNN Audioselect
Court TV
Entertainment....................................... Paul McCartney Internet-only Webcast
"CASABLANCA"
1999 Academy Awards Coverage
Special Interest.................................... Rush Limbaugh
Dr. Laura Schlessinger
Art Bell
Spiritual........................................... The 700 Club
"Love Worth Finding" with Adrian Rogers
Reunion Church with Richard Ellis
Technology.......................................... CNET Radio
IBM Netfinity Worldcast
Y2K: The Press and Preventing Panic
</TABLE>
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BUSINESS SERVICES
Broadcast.com's Business Services Group provides cost-effective Internet and
intranet broadcasting services to businesses and other organizations. These
business services include turnkey production of press conferences, earnings
conference calls, investor conferences, tradeshows, stockholder meetings,
product introductions, training sessions, distance learning seminars, customized
corporate TV channels and media events. Since January 1997, broadcast.com has
broadcast over 3,200 business services events for customers such as 3Com,
AutoDesk, Bell South, Harvard University, Business Week, Dell, E! Online, Epson,
IBM, Intel, Oracle, Prudential, Tandem, Tenet Health Systems, Texaco, Trilogy
and more than 850 other organizations.
Broadcast.com's broadcast services enable these businesses and other
organizations to improve communication with, and the dissemination of
information to, customers, suppliers, employees and the investment community by:
COST-EFFECTIVELY REACHING THE IN-OFFICE USER
The proliferation of multimedia-enabled networked personal computers and
other Internet-attached devices in the workplace has created the opportunity for
businesses to use the Internet and intranets to cost-effectively broadcast
streaming media communications to both large and small targeted audiences.
Broadcast.com is able to broadcast events to users who can view and listen to
such broadcasts uninterrupted while continuing to perform other tasks on their
computers. Broadcast.com has recently established a consulting group whose
primary focus is to multicast-enable corporate intranets and to assist customers
with real-time internal corporate communications. For example, broadcast.com was
an integral team member in a Motorola company-wide broadcast to 30,000 of their
worldwide employees, providing rapid dissemination of new company directives.
Using Internet Protocol Multicast and broadcast.com consulting and support, this
event cost Motorola a fraction of what they spent the previous year to reach the
same audience through satellite delivery to all of its worldwide locations.
DELIVERING TURNKEY BROADCASTING SOLUTIONS
Broadcast.com delivers turnkey Internet broadcasting solutions by providing
analysis, telecommunications and, if necessary, on-site equipment and personnel
to its business services customers. Based on the expertise gained from
broadcasting more than 3,200 business services and over 25,000 total live
events, broadcast.com is able to determine the most effective way to capture the
broadcast feed, whether by satellite, coupler or on-site with a team of its
engineers. Once captured, the broadcast feed is then integrated with other
content such as Powerpoint presentations and computer demonstration screens.
Potential Internet congestion is bypassed by using a private point-to-point
connection to broadcast.com's broadcast center. The broadcast is then digitally
distributed to the Internet audience via broadcast.com's multicast distribution
network, or, if desired, restricted to a limited audience utilizing
password-protected access or player authentication. In addition, broadcast.com
can determine the total number of devices receiving a broadcast, the length of
time such devices are receiving the broadcast and the quality of the broadcast.
Broadcast.com's broadcast of the Victoria's Secret Fashion Show in February
1999 exemplifies how Internet broadcasting has emerged as a new medium for
companies to interact with consumers, collect valuable customer data and
ultimately drive sales of their products. Broadcast.com received a company
record 2 million unique users to its Web site on the day of the event and
generated sales of Victoria's Secret merchandise with the attention that was
received from the high profile Web event.
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INNOVATIVELY ENHANCING THE BROADCAST EXPERIENCE
Broadcast.com has established the broadcast.com Interactive Group in order
to provide business services clients a turnkey, complete end-to-end solution,
based on their needs and objectives, that reaches far beyond the delivery of the
media stream. Creative design and application development solutions are utilized
in order to create compelling content and engage the user. User profiles are
created, which provide the basis for broadcast.com's proprietary application
suite. Applications include the ability to control slide presentations, conduct
user surveys and audience polls, administer distance learning tests, solicit and
answer questions from users and take roll of online users. Information is
collected and logged to each user's profile, providing clients with important
user information in real time to help them better interact with and serve their
users. A selection of companies that have utilized these turnkey solutions
include Dell, Cisco Systems and Sprint.
The depth and breadth of broadcast.com's experience and expertise includes
numerous other business services events. An illustrative selection includes:
BUSINESS AND FINANCIAL SHOWS
Calico Technology Seminar Series
CNBC/Dow Jones Business Video news updates
Executive Talk
Money Talk
Radio Wall Street
Tiger Investments: After Hours Trading
Wall Street Review
DISTANCE LEARNING
Cato Institute
Columbia Basin
Darton University
Johns Hopkins Medicine Rounds
Krieble Institute USA
Quality Learning Services
University of Texas
EARNINGS ANNOUNCEMENTS/INVESTOR RELATIONS
America Online
AT&T
Dell
General Motors
Nike
Texaco
Texas Instruments
KEYNOTE SPEECHES
3Com: Eric Benhamou
Dell Computer: Michael Dell
Hewlett Packard: CEO Lewis Platt
IBM: John Brisbane
Intel: CEO Dr. Andrew Grove
Microsoft: Bill Gates
Tandem: Patrick Smyth
PRODUCT LAUNCHES
Ameritech: Clearpath Wireless Launch
Asymetrix: Cool Tools
Bell & Howell: Scanner Division
Mercedes Benz
Microsoft Internet Explorer Launch
Silicon Graphics Workstation Launch
Victoria's Secret
PUBLIC RELATIONS
AOL/Netscape merger announcement
Chicago Tribune's George Lazarus
Communications Week: Meet the Editor
Fox News Media Coffee
Getting Ready for ORYX
MSNBC: Meet the Editors
The New York Financial Writers' Association
SEMINARS
Calico eSeminar
Dell: Breakfast With Dell
Harvard Seminar on Internet Society
IBM Webinars
Price Waterhouse LLP Technology Forecast
SAS Institute: Data Mining Forum
Sprint "Community of One" Webcast
TRADE SHOWS/CONFERENCES
COMDEX
Internet World
MacWorld Expo
National Association of Broadcasters
National Investor Relations Institute
NetWorld + Interop
PC Expo
SALES AND MARKETING
Broadcast.com sells business services and advertising through its direct
sales force and through reseller arrangements. Broadcast.com currently maintains
distinct sales departments for both of these revenue sources; however, both
departments work together to sell integrated packages. In addition,
broadcast.com maintains a marketing and public relations department to promote
the broadcast.com brand and its services.
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BUSINESS SERVICES
To date, broadcast.com has focused its business services marketing efforts
on larger companies in varied industries. Based on the success of these direct
sales efforts, broadcast.com believes that it can successfully market its
services to medium-sized and smaller businesses as well. Broadcast.com's recent
acquisition of Simple Network Communications allows it to expand into Internet
broadcasting services for the consumer and small business market. Broadcast.com
and SimpleNet are working together to introduce self-service audio and video
streaming to existing customers of SimpleNet's Web hosting service. Users will
be able to create and broadcast their own personalized audio and video
programming, including Internet-only radio and television shows, business
presentations and home movies, that will be accessible within minutes of setting
up their service.
Broadcast.com is constantly expanding its Internet sales force and is
aggressively attacking vertical market opportunities. Broadcast.com seeks to
expand its business services customer base and broadcast offerings by targeting
industries and businesses that are early adopters of technological advancement.
Broadcast.com's recent acquisition of Net Roadshow accelerates the expansion of
broadcast.com's Internet broadcasting services to newly public companies by
leveraging Net Roadshow's existing relationships with leading investment banking
institutions. Broadcast.com is acquiring new customers by entering a variety of
vertical markets, including the automotive, distance learning, financial
services and healthcare industries.
Broadcast.com also utilizes reseller arrangements, whereby partners have the
right to sell broadcast.com business services packages to their established
customer base. World Color, a leader in the printing industry, provides
broadcast.com with direct access to World Color's extensive client base of
companies in the publishing and retail industries. Medialink, a leader in
providing video and audio production, satellite distribution and press release
services, also provides broadcast.com with an additional channel to market its
turnkey Internet broadcasting solutions.
ADVERTISING
Broadcast.com's wide variety of content offers the ability to sell
advertising packages targeted to specific audiences and demographics.
Additionally, unlike Web sites that offer only text-based banner advertisements,
broadcast.com offers multimedia packages incorporating custom audio and video
applications such as gateway ads with guaranteed click-thrus and channel and
event sponsorships, as well as its new in-stream ads and in-player banner ads.
GATEWAY ADS WITH GUARANTEED CLICK-THRUS. Broadcast.com provides
advertisers the opportunity to incorporate gateway ads into their Internet
advertising packages. Gateway ads are audio or video clips that are inserted
at the lead of selected programming, lasting from 15 to 30 seconds, that
play prior to the audio or video content that has been selected by the user.
A guaranteed click-thru is a pop-down browser window that automatically
launches at the beginning of the gateway ad displaying an advertiser's Web
site or other targeted information. Gateway ads are also available without
guaranteed click-thrus. Broadcast.com currently sells these advertisements
at a higher cost per thousand than traditional banner ads because of their
unique nature. Advertisers that have purchased gateway ads with guaranteed
click-thrus include 3Com, Amazon.com and First USA.
CHANNEL AND EVENT SPONSORSHIPS. Broadcast.com offers advertisers the
ability to sponsor one or more of its programming channels or events,
enabling advertisers to brand entire sections of broadcast.com's Web sites.
A channel or event sponsorship can involve the rotating and permanent
placement of buttons, logos, Web site links, integrated gateway ads and
mention on the broadcast.com home page, channel home page and email
newsletter (which has over 425,000 current subscribers in over 175
countries). These sponsorships may also include promotional advertisements
utilizing broadcast.com's radio and television spot inventory. Event
sponsorships
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have been purchased by companies such as Pepsi, Intel and Microsoft.
Broadcast.com typically sells these packages on a channel-by-channel or
event-by-event basis.
IN-STREAM ADS AND IN-PLAYER BANNER ADS. As streaming media technology
advances, broadcast.com continues to capitalize on new opportunities to
differentiate its advertising solutions. Broadcast.com has introduced
in-stream ads, which are advertisements within the Internet feed of
programming, similar to a broadcast network. Another new application is the
in-player banner ad, available on the RealNetworks RealPlayer G2. While
listening to a radio station or CD, the user is delivered a rotating
selection of video images and scrolling text, all linked directly to
advertisers' Web sites, which, in effect, turn the player into a browser.
This allows the advertiser to follow consumers wherever they may go on the
broadcast.com Web site. These new applications have just been introduced and
sell at a higher cost per thousand due to their unique and effective nature.
As compensation for broadcasting radio and television station feeds,
broadcast.com receives on-air inventory of radio and, in certain instances,
television ad spots or direct cash payments. Broadcast.com sells the majority of
these advertising spots to traditional radio and television advertisers. As of
December 31, 1998, broadcast.com had over 3,500 radio spots per week available
for sale.
MARKETING
Broadcast.com's marketing efforts are aimed at promoting the broadcast.com
brand and broadcast.com's audio and video programming and business services.
Broadcast.com utilizes both traditional and innovative media vehicles for
marketing and promotional purposes, including radio, television and print
advertisements, as well as marketing arrangements with other leading Web sites,
gateway ads with guaranteed click-thrus and in-player banner ads on
broadcast.com's Web sites and email newsletters.
RADIO AND TELEVISION. Broadcast.com's radio and television content
providers typically grant broadcast.com a certain amount of commercial spot
inventory. The commercial spots that broadcast.com receives as part of its
radio and television hosting activities can be used by broadcast.com for
promotion of broadcast.com's programming and services. Radio and television
stations also extend brand awareness for broadcast.com through required
on-air mentions during their broadcasts.
PRINT AND OTHER MEDIA. In exchange for Internet broadcasts of sporting
events, colleges and universities provide advertising space for
broadcast.com in various campus publications including gameday programs,
newsletters and alumni magazines. Broadcast.com has also received
advertising space in the official NCAA Basketball Tournament Final Four
program and several major NCAA football bowl game programs. In addition,
broadcast.com has received signage space at numerous college and university
sporting events. Stadium public address announcements during some sporting
events also extend broadcast.com's brand awareness. Broadcast.com has placed
advertisements in targeted trade magazines, including AudioFile,
Broadcasting and Cable and Meeting Planners International, and major daily
papers such as the Chicago Tribune and USA Today.
ONLINE MARKETING. Broadcast.com exchanges banner ads with other high
traffic and targeted Web sites such as Yahoo!, FinancialWeb.com,
AllCampus.com, CBS SportsLine, CNET and Lycos. Broadcast.com uses these
opportunities to highlight its high profile live events and drive traffic to
revenue generating channels. The banner ads are also used to promote
business services customers' events in order to attract larger audiences.
Broadcast.com extends brand awareness on the Internet by requiring that its
logo and distinctive "listen/view button" be placed prominently on the Web
pages of broadcast partners. Additionally, broadcast.com works with a
growing number of search engines and live events guides that feature
broadcast.com content and events, such as Microsoft's
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Web Events, Yahoo! NetEvents, Yack.com, NetGuide.com, Infobeat.com, Excite,
Infoseek and Go2Net.
GATEWAY ADS, IN-PLAYER BANNER ADS AND EMAIL NEWSLETTERS. Broadcast.com
utilizes media rich audio/video gateway ads and in-player banner ads to
promote upcoming broadcast.com content offerings. Broadcast.com also
distributes free semi-weekly email newsletters to over 425,000 registered
subscribers in 175 countries which highlight events and programs for the
upcoming week. In addition to its main newsletter highlighting programming
from the entire site, broadcast.com distributes sports-focused,
business-focused and music-focused newsletters and is developing additional
specialty newsletters targeted to those interested in particular programming
channels. In addition, broadcast.com utilizes the newsletter distribution
list to alert users, especially daytime office users, to major breaking news
stories that are being broadcast on broadcast.com's Web sites.
STRATEGIC RELATIONSHIPS
Broadcast.com has entered into strategic relationships with content
providers and other key companies in order to continue building on
broadcast.com's competitive advantages. Broadcast.com believes that licensing
content from third parties is preferable to creating content because such
licensed content has existing demand and is self-replenishing. Key relationships
include A.H. Belo Corporation, BBC World Service, Capitol Records, CNN, Granite
Broadcasting, Host Communications, Learfield Communications, the NHL, Major
League Baseball, Susquehanna Radio Corp., Trimark Pictures, a group of over 40
radio stations now part of Clear Channel Communications and a group of 72 radio
stations now a part of Capstar Broadcasting Corporation.
Broadcast.com leverages its content aggregation and Internet broadcast
network through strategic relationships with key companies to increase traffic
and brand awareness. During 1998, broadcast.com and Yahoo! established a
co-branded area on the Yahoo! Web site at sports.yahoo.com to make available
broadcast.com's programming and to provide a link to listen/view pages on the
www.broadcast.com Web site. Broadcast.com also has an agreement with
RealNetworks which provides for the placement of a link on the drop-down menu
item for RealNetworks' RealPlayer G2 and RealPlayer Plus G2 streaming products
to broadcast.com's home page and five key channels on broadcast.com's Web sites.
Broadcast.com believes that RealNetworks' streaming products have been
downloaded more than 50 million times. In addition, Microsoft has selected
broadcast.com as a high-level promotional and content partner for its Web Events
programming guide, showcasing the breadth of content and variety of radio
stations that broadcast.com offers to users of the Windows Media Player,
including high-bandwidth content. Microsoft has also provided premier placement
and links to more than 100 broadcast.com radio stations from its Windows Radio
Toolbar, which is integrated into every version of Internet Explorer 5.0.
Broadcast.com has established two key partnerships which it believes will
enable it to extend the reach and distribution of its Internet broadcasting
services to new markets. In January 1999, broadcast.com and SOFTBANK formed a
joint venture to launch broadcast.com japan, which will aggregate and broadcast
Japanese language-based audio and video programming to Internet users, and which
will also sell broadcast.com's Internet and intranet broadcasting services to
business customers in Japan. In addition, the joint venture will have access to
broadcast.com's vast archive of English language-based programming, including
sports events, music CDs and videos. In December 1998, The Nasdaq Stock Market
and broadcast.com partnered to provide Internet broadcasting services for
quarterly earnings conference calls in a pilot program. Broadcast.com believes
that Nasdaq's selection of broadcast.com as the exclusive broadcaster of
earnings calls over the Internet for Nasdaq-100-Registered Trademark- entities
will accelerate the adoption of Internet broadcasting as a medium for investor
relations and corporate communications and that this partnership opens a new
avenue for broadcast.com to sell its turnkey broadcasting services to these
companies.
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NETWORK
In order to support hundreds of thousands of simultaneous streaming media
users on the Internet, broadcast.com has developed and implemented an extensive
streaming media aggregation and distribution network designed to ensure the
broadcast quality of the content received from broadcasters and distributed to
users.
AGGREGATION
Broadcast.com aggregates content from broadcasters through satellite feeds
and direct network connections from content providers to its broadcast center
where it is monitored for broadcast quality and encoded for delivery over the
Internet. The satellite receiving system is currently comprised of 25 satellite
dishes which can receive hundreds of simultaneous feeds from traditional
broadcasts and live events. Broadcast.com also receives radio and television
signals over a private frame relay network. This private network is designed to
efficiently and securely feed content directly from broadcasters to
broadcast.com's headquarters, thus avoiding the congestion of public and private
peering points on the Internet which can cause transmission delays or packet
loss. Broadcast.com believes that the use of a private aggregation network
enables broadcast.com to better control the broadcast quality of the content it
receives.
DISTRIBUTION
Currently, broadcast.com employs both unicasting (one user per company
originated stream) and multicasting (many users per company originated stream)
technologies to distribute streaming media content to users over the Internet.
Broadcast.com's unicast network can provide content to tens of thousands of
simultaneous users through over 1,000 multimedia servers which support multiple
streaming technologies. These servers are linked through direct 45 mps and 155
mps connections to major Internet backbone providers including AT&T, BBN, Cable
& Wireless, MCI WorldCom and Sprint which, in turn, connect to over 80% of the
downstream Internet service providers. Broadcast.com believes that direct
connections to these major backbone providers enhance the user experience by
avoiding the congestion of public and private peering points which can cause
transmission delays or packet loss.
Although broadcast.com anticipates that unicasting will remain essential for
archived and on-demand applications, it believes that multicasting, or similar
scaling technology, is essential to the future of large-scale Internet
broadcasting to mass audiences. Currently, broadcast.com is deploying its
multicast network which is designed to provide streaming media content to
hundreds of thousands of users simultaneously through one-to-many Internet
connections. Broadcast.com has entered into agreements with over 45 Internet
service providers and UUNET and is building the first large-scale commercial
multicast network, which provides broadcast.com with access to over 500,000
dial-up multicast ports.
COMPETITION
The market for Internet broadcasting and services is highly competitive and
broadcast.com expects that competition will continue to intensify. Broadcast.com
competes with:
- other Web sites, Internet portals and Internet broadcasters to acquire
and provide content to attract users;
- videoconferencing companies, audio conferencing companies and Internet
business services broadcasters;
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- online services, other Web site operators and advertising networks, as
well as traditional media such as television, radio and print, for a
share of advertisers' total advertising budgets; and
- local radio and television stations and national radio and television
networks for sales of advertising spots.
There can be no assurance that broadcast.com will be able to compete
successfully or that the competitive pressures faced by broadcast.com, including
those described below, will not adversely affect broadcast.com's business.
Competition among Web sites that provide compelling content, including
streaming media content, is intense and is expected to increase significantly in
the future. Broadcast.com competes against a variety of businesses that provide
content through one or more mediums, such as print, radio, television, cable
television and the Internet. Traditional media companies have not established a
significant streaming media presence on the Internet and may expend resources to
establish a more significant presence in the future. These companies possess
significantly greater brand recognition and financial, technical, marketing and
other resources than broadcast.com. Broadcast.com competes generally with other
content providers for the time and attention of users and for advertising
revenues. To compete successfully, broadcast.com must license and then provide
sufficiently compelling and popular content to generate users, support
advertising intended to reach such users and attract business and other
organizations seeking Internet broadcasting and distribution services.
Broadcast.com competes with other Internet broadcasters and Web sites to acquire
Internet broadcasting rights to compelling content. Broadcast.com believes that
the principal competitive factors in attracting Internet users include the
quality of service and the relevance, timeliness, depth and breadth of content
and services offered. In the market for Internet distribution of radio and
television broadcasts, broadcast.com competes with Internet service providers,
radio and television stations and networks that originate their own Internet
broadcasts. RealNetworks' Real Broadcast Network and INTERVU Inc. deliver audio
and video broadcasts over the Internet. In the area of sports content,
broadcast.com competes with ESPN.com. Broadcast.com also competes for the time
and attention of Internet users with thousands of Web sites operated by
businesses and other organizations, individuals, governmental agencies and
educational institutions. For example, many Web sites provide a collection of
links to other Web sites with streaming media content. Broadcast.com expects
competition to intensify and the number of competitors to increase significantly
in the future. In addition, as broadcast.com expands the scope of its content
and services, it will compete directly with a greater number of Web sites and
other media companies. Because the operations and strategic plans of existing
and future competitors are undergoing rapid change, it is extremely difficult
for broadcast.com to anticipate which companies are likely to offer competitive
services in the future.
Broadcast.com competes with videoconferencing and teleconferencing
companies, along with companies that provide Internet broadcasting services to
businesses and other organizations. Principal competitive factors include price,
transmission quality, transmission speed, reliability of service, ease of
access, ease of use, customer support, brand recognition and operating
experience. Broadcast.com's current and potential competitors may have
significantly greater financial, technical and marketing resources, longer
operating histories and greater brand recognition. Traditional videoconferencing
and teleconferencing may allow for a more interactive user experience. As prices
for videoconferencing systems decrease and transmission quality increases, the
installed base of videoconferencing systems may increase. Companies that provide
media streaming software may also enter the market for Internet broadcast
services. If media streaming technology and backbone bandwidth becomes more
readily available to companies at low prices, broadcast.com's customers may
decide to broadcast their own programming. In particular, local exchange
carriers, Internet service providers and other data communication service
providers may compete in the future with a portion of or all of broadcast.com's
business services as technological advancements facilitate the ability of these
providers to offer
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effectively these services. There can be no assurance that broadcast.com will be
able to compete successfully against current or future competitors for Internet
broadcast services.
Broadcast.com also competes with online services, other Web site operators
and advertising networks, as well as traditional media such as television, radio
and print for a share of advertisers' total advertising budgets. Broadcast.com
believes that the principal competitive factors for attracting advertisers
include the number of users accessing broadcast.com's Web sites, the
demographics of broadcast.com's users, broadcast.com's ability to deliver
focused advertising and interactivity through its Web sites and the overall
cost-effectiveness and value of advertising offered by broadcast.com. There is
intense competition for the sale of advertising on high-traffic Web sites, which
has resulted in a wide range of rates quoted by different vendors for a variety
of advertising services, making it difficult to project levels of Internet
advertising that will be realized generally or by any specific company. Any
competition for advertisers among present and future Web sites, as well as
competition with other traditional media for advertising placements, could
result in significant price competition. Broadcast.com believes that both the
number of companies selling Web-based advertising and the available inventory of
advertising space have recently increased substantially. Accordingly,
broadcast.com may face increased pricing pressure for the sale of
advertisements. Reduction in broadcast.com's Web advertising revenues would
adversely affect broadcast.com's business.
Broadcast.com competes for traditional media advertising sales with national
radio and television networks, as well as local radio and television stations.
Local radio and television content providers and national radio and television
networks may have larger and more established sales organizations than
broadcast.com. These companies may have greater name recognition and more
established relationships with advertisers and advertising agencies than
broadcast.com. Such competitors may be able to undertake more extensive
marketing campaigns, obtain a more attractive inventory of ad spots, adopt more
aggressive pricing policies and devote substantially more resources to selling
advertising inventory. Broadcast.com's traditional media advertising sales
efforts depend on broadcast.com's ability to obtain an inventory of ad spots
across the top radio and television markets. If broadcast.com is unable to
obtain such inventory, it could adversely affect broadcast.com's business.
GOVERNMENTAL REGULATION
Although there are currently few laws and regulations directly applicable to
the Internet, it is likely that new laws and regulations will be adopted in the
United States and elsewhere covering issues such as privacy, pricing, sales
taxes and the characteristics and quality of Internet services. It is possible
that governments will enact legislation that may be applicable to broadcast.com
in areas such as content, network security, encryption and the use of key
escrow, data and privacy protection, electronic authentication or "digital"
signatures, illegal and harmful content, access charges and retransmission
activities. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, content, taxation, defamation and
personal privacy is unsettled. The majority of such laws were adopted before the
widespread use and commercialization of the Internet and, as a result, do not
contemplate or address the unique issues presented by the Internet and related
technologies. Any such export or import restrictions, new legislation or
regulation or governmental enforcement of existing regulations may limit the
growth of the Internet, increase broadcast.com's cost of doing business or
increase broadcast.com's legal exposure, which could adversely affect
broadcast.com's business.
On October 28, 1998, Congress enacted the Digital Millennium Copyright Act.
This Act permits statutory licenses for the performance of sound recordings and
for the making of ephemeral recordings to facilitate transmissions. Under these
statutory licenses, broadcast.com will be required to pay licensing fees for its
performance of sound recordings in original and archived programming and through
retransmissions of radio broadcasts. The Act does not specify the rate and terms
of the statutory licenses, which will be determined either through voluntary
inter-industry negotiations or arbitration.
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By distributing content over the Internet, broadcast.com also faces
potential liability for claims based on the nature and content of the materials
that it distributes, including claims for defamation, negligence or copyright,
patent or trademark infringement, which claims have been brought, and sometimes
successfully litigated, against Internet companies. While the current law
generally states that entities like broadcast.com which provide interactive
computer services will not be treated as the publisher or speaker with respect
to third party content they distribute, the scope of the law's definition and
limitations on liability have not been widely tested in court. Accordingly,
broadcast.com may be subject to such claims. To protect itself from such claims,
broadcast.com maintains media liability insurance as well as general liability
insurance. In addition, under broadcast.com's agreements with content providers,
such content providers generally represent that they have the rights to
distribute and transmit their programming on the Internet and, in most cases,
are required to indemnify broadcast.com for liability based on a breach of such
representations and warranties. These indemnification arrangements and
broadcast.com's media and general liability insurance may not cover all
potential claims of this type or may not be adequate to indemnify broadcast.com
for any liability that may be imposed. Any liability that is not covered by
indemnification or insurance or is in excess of indemnification or insurance
coverage could adversely affect broadcast.com's business.
INTELLECTUAL PROPERTY
Broadcast.com regards its copyrights, trademarks, trade secrets and similar
intellectual property as important to its success and relies on a combination of
copyright and trademark laws, trade secret protection, confidentiality and
non-disclosure agreements and contractual provisions with its employees and with
third parties to establish and protect its proprietary rights. There can be no
assurance that these steps will be adequate, that broadcast.com will be able to
secure trademark registrations for all of its marks in the United States or
other countries or that third parties will not infringe upon or misappropriate
broadcast.com's copyrights, trademarks, service marks and similar proprietary
rights. In addition, effective copyright and trademark protection may be
unenforceable or limited in certain countries, and the global nature of the
Internet makes it impossible to control the ultimate destination of
broadcast.com's broadcasts. In the future, litigation may be necessary to
enforce and protect broadcast.com's trade secrets, copyrights and other
intellectual property rights.
Broadcast.com may also be subject to litigation to defend against claims of
infringement of the rights of others or to determine the scope and validity of
the intellectual property rights of others. If third parties hold trademark,
copyright or patent rights that conflict with the business of broadcast.com,
then broadcast.com may be forced to litigate infringement claims that could
result in substantial costs to broadcast.com. In addition, if broadcast.com were
unsuccessful in defending such a claim, its business could be adversely
affected. Lawsuits alleging patent infringement were filed against broadcast.com
and RealNetworks on or about August 25, 1998 and against broadcast.com and
Microsoft on or about December 29, 1998, which lawsuits have been consolidated
into one action. Broadcast.com intends to vigorously defend against the action
and seek its early dismissal. If third parties prepare and file applications in
the United States that claim trademarks used or registered by broadcast.com,
broadcast.com may oppose those applications and be required to participate in
proceedings before the United States Patent and Trademark Office to determine
priority of rights to the trademark, which could result in substantial costs to
broadcast.com. An adverse outcome in litigation or privity proceedings could
require broadcast.com to license disputed rights from third parties or to cease
using such rights. Any litigation regarding broadcast.com's proprietary rights
could be costly and divert management's attention, result in the loss of some of
broadcast.com's proprietary rights, require broadcast.com to seek licenses from
third parties and prevent broadcast.com from selling its services. In addition,
to the extent that broadcast.com licenses a substantial portion of its content
from third parties, its exposure to copyright infringement actions may increase
because broadcast.com must rely upon such third parties for information as to
the origin and ownership of such licensed content. Broadcast.com generally
obtains representations as to the origins and ownership of such
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licensed content and generally obtains indemnification to cover any breach of
any such representations; however, there can be no assurance that such
representations will be accurate or given or that such indemnification will
adequately protect broadcast.com.
In December 1997, in anticipation of the change in broadcast.com's name from
AudioNet, Inc. to broadcast.com, broadcast.com filed an application for a United
States trademark registration for "broadcast.com." There can be no assurance
that broadcast.com will be able to secure such a registered trademark.
Broadcast.com intends to pursue the registration of its trademarks based upon
anticipated use internationally. There can be no assurance that broadcast.com
will be able to secure adequate protection for these trademarks in foreign
countries. Many countries have a "first-to-file" trademark registration system
and thus broadcast.com may be prevented from registering its marks in certain
countries if third parties have previously filed applications to register or
have registered the same or similar marks. It is possible that competitors of
broadcast.com or others will adopt service names similar to broadcast.com's,
thereby impeding broadcast.com's ability to build brand identity and possibly
leading to customer confusion. In addition, there could be potential trademark
or trademark infringement claims brought by owners of other registered
trademarks or trademarks that incorporate variations of the term broadcast.com.
As part of its confidentiality procedures, broadcast.com generally enters
into agreements with its employees and consultants and limits access to and
distribution of its software, documentation and other proprietary information.
There can be no assurance that the steps taken by broadcast.com will prevent
misappropriation of its proprietary information or that agreements entered into
for that purpose would be enforceable. Notwithstanding the precautions taken by
broadcast.com, it might be possible for a third party to copy or otherwise
obtain and use broadcast.com's proprietary information without authorization.
The laws of some countries may afford broadcast.com little or no effective
protection of its intellectual property.
EMPLOYEES
As of May 31, 1999, broadcast.com had 320 full-time employees. None of
broadcast.com's employees are subject to a collective bargaining agreement and
broadcast.com believes that its relations with its employees are good.
PROPERTIES
Broadcast.com's executive offices are located in Dallas, Texas in a 28,000
square foot facility that broadcast.com leases at a current monthly rent of
$3,920. The lease agreement terminates on February 1, 2002. Broadcast.com has an
option to extend the lease agreement for three additional five-year terms.
Broadcast.com also leases a 10,000 square foot facility adjacent to
broadcast.com's headquarters at a current monthly rent of $4,783. The lease
agreement terminates on February 1, 2002. In addition, broadcast.com leases an
office in New York, New York at a current monthly rent of $6,033. This lease
expires on January 31, 2001. Broadcast.com's wholly-owned subsidiary, SimpleNet,
leases an office in San Diego, California at a current monthly rent of $20,208.
The lease agreement terminates on March 31, 2005. Broadcast.com also leases
various small sales offices throughout the country on a short-term basis.
Broadcast.com does not own any real estate.
LEGAL PROCEEDINGS
On or about August 25, 1998, Venson M. Shaw and Steven M. Shaw filed a
lawsuit against broadcast.com and RealNetworks in the United States District
Court for the Northern District of Texas Dallas Division, and on or about
December 29, 1998, the plaintiffs filed a lawsuit against broadcast.com and
Microsoft in the same District. The two lawsuits have been consolidated into one
action. In both claims in the consolidated action, the plaintiffs allege that
broadcast.com's use of streaming media
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software products and services directed to media delivery systems infringes on
the plaintiffs' patent. The plaintiffs are seeking to enjoin broadcast.com,
RealNetworks and Microsoft from further alleged infringement of their patents
and an unspecified amount of monetary damages. Although no assurance can be
given as to the outcome of the lawsuit, broadcast.com believes that the
allegations in the action are without merit and intends to vigorously defend
against the action and seek its early dismissal. In addition, broadcast.com
believes it is entitled to be indemnified under the terms of its license
agreements with RealNetworks and Microsoft for the claims raised by the
plaintiffs. No assurances, however, can be given as to the availability of such
indemnification at this time or the results of such proceeding.
From time to time broadcast.com has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business,
including claims of alleged infringement of third party trademarks and other
intellectual property rights by broadcast.com and its licensees. Such claims,
even if not meritorious, could result in the expenditure of significant
financial and managerial resources. Broadcast.com is not aware of any legal
proceedings or claims that broadcast.com believes will, individually or in the
aggregate, adversely affect broadcast.com's business.
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BROADCAST.COM'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of broadcast.com should be read in conjunction with the consolidated
financial statements and the related notes to such financial statements included
elsewhere in this proxy statement/prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties. Broadcast.com's
actual results may differ 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 proxy statement/prospectus.
OVERVIEW
From broadcast.com's inception on May 19, 1995 through December 31, 1995,
broadcast.com had no revenues and its operating activities consisted primarily
of investing in necessary network infrastructure and in the initial planning and
development of its Web sites and operations.
During 1996, broadcast.com generated revenues from business services and
advertising. Broadcast.com engaged in operating activities primarily as follows:
- it continued to develop the network infrastructure required for
large-scale streaming media broadcasts;
- it continued to enhance its Web sites; and
- it opened a sales office in New York.
During 1997, broadcast.com significantly increased revenues from business
services and advertising. In addition, broadcast.com began generating revenues
from the sale of ad spots received from radio stations in exchange for
broadcasting their programming over the Internet. Broadcast.com engaged in
operating activities primarily as follows:
- it continued to expand its network infrastructure;
- it moved to a 28,000 square foot facility in Dallas, Texas;
- it continued to enhance its Web sites; and
- it added qualified personnel for sales, marketing, operations and general
and administrative.
In 1998, broadcast.com added television ad spot sales to its advertising
revenues. Broadcast.com engaged in operating activities primarily as follows:
- it continued to enhance its Web sites;
- it expanded its customer and user base;
- it hired regional sales managers and vice presidents;
- it expanded its sales force into Los Angeles, San Francisco, Houston,
Austin, Seattle, Toronto and Washington, D.C.;
- it continued to expand its network infrastructure; and
- it continued to expend significant resources as it further aggregated
content by obtaining Internet broadcasting rights to audio and video
programming.
In November 1998, broadcast.com acquired Simple Network Communications
("SimpleNet"), a provider of inexpensive Web site hosting services to consumers
and small businesses. Under the terms of the acquisition, which was accounted
for as a pooling of interests, broadcast.com exchanged 821,618
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shares of its common stock for all of SimpleNet's outstanding common stock. The
consolidated financial statements for the three years ended December 31, 1998
and the accompanying notes reflect broadcast.com's financial position and
results of operations as if SimpleNet was a wholly-owned subsidiary of
broadcast.com since inception.
Thus far in 1999, broadcast.com engaged in operating activities primarily as
follows:
- it continued to enhance its Web sites;
- it expanded its customer and user base;
- it expanded its sales force into Chicago and Detroit;
- it continued to expand its network infrastructure; and
- it continued to expend significant resources as it further aggregated
content by obtaining Internet broadcasting rights to audio and video
programming.
In March 1999, broadcast.com acquired Net Roadshow, an Internet provider of
initial public offerings and other financial roadshow services. Under the terms
of the acquisition, which was accounted for as a pooling of interests,
broadcast.com exchanged 929,094 shares of its common stock for all of Net
Roadshow's outstanding common stock. The consolidated financial statements for
the three years ended December 31, 1998 and the accompanying notes reflect
broadcast.com's financial position and results of operations as if Net Roadshow
was a wholly-owned subsidiary of broadcast.com since inception.
Sales of business services and advertising are the main sources of
broadcast.com's revenues. Included in business services revenues are fees for
broadcasting live and on-demand events as well as hosting services. Also
included are the cash payments broadcast.com receives from radio and television
stations in exchange for broadcasting their programming over the Internet.
Broadcast.com recognizes business services revenues in the month in which it is
to perform the service, provided that it has no significant obligations
remaining and collection of the resulting receivable is probable. Broadcast.com
derives advertising revenues by selling gateway ads with guaranteed click-thrus,
channel and event sponsorships and multimedia and traditional banner ads, as
well as by selling ad spots received from radio and television stations in
exchange for broadcasting their programming over the Internet and by selling
prepaid advertising. Broadcast.com recognizes advertising revenues in the period
in which it displays the advertisement on one of its Web pages, except for
sponsorship sales, which it recognizes ratably over the term of the sponsorship,
provided that it has no significant obligations remaining and collection of the
resulting receivable is probable.
Broadcast.com has incurred significant losses since inception and, as of
March 31, 1999, had an accumulated deficit of approximately $30.7 million.
Broadcast.com believes that its success will depend largely on its ability to
extend its leadership position as a leading source for streaming media
programming and business services on the Web. Accordingly, broadcast.com intends
to invest heavily in order to:
- enhance its sales and marketing;
- acquire content; and
- continue its development of its network infrastructure.
Broadcast.com expects to continue to incur substantial operating losses for
the foreseeable future.
In view of the rapidly evolving nature of its business and its limited
operating history, broadcast.com believes that period-to-period comparisons of
its revenues and operating results, including operating expenses as a percentage
of total net revenues, are not necessarily meaningful and should not be relied
upon as indications of future performance. Although broadcast.com has
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experienced sequential quarterly growth in revenues, broadcast.com does not
believe that its historical growth rates are necessarily sustainable or
indicative of future growth.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 AND YEARS ENDED DECEMBER 31, 1998 AND
DECEMBER 31, 1997
REVENUES
THREE MONTHS ENDED MARCH 31, 1999 AND 1998.
Broadcast.com's total revenues increased $5.8 million, or 127.5%, to $10.3
million from $4.5 million, for the three months ended March 31, 1999 and 1998,
respectively.
BUSINESS SERVICES. Broadcast.com's business services revenues increased
$4.3 million, to $7.1 million from $2.8 million, for the three months ended
March 31, 1999 and 1998, respectively. Business services revenues represented
69.2% of total revenues for the three months ended March 31, 1999 and 61.9% of
total revenues for the three months ended March 31, 1998. The increase in
business services revenues was due primarily to (i) an increase in the number of
broadcasted business services events to 660 events from 368 events in the three
months ended March 31, 1999 and 1998, respectively, and (ii) an increase in the
number of customer Web sites hosted by SimpleNet.
ADVERTISING. Broadcast.com's advertising revenues increased $1.4 million,
to $3.2 million from $1.7 million for the three months ended March 31, 1999 and
1998, respectively. Advertising revenues represented 30.8% of total revenues for
the three months ended March 31, 1999 and 38.1% of total revenues for the three
months ended March 31, 1998. Broadcast.com's bartered Web advertising revenues
increased $327,000, to $607,000 from $280,000, for the three months ended March
31, 1999 and 1998, respectively. The increase in advertising revenues was due
primarily to an increase in the number of sponsorships sold as well as increases
in the number of ads sold to existing and new advertisers on broadcast.com's Web
sites.
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997.
Broadcast.com's total revenues increased $15.1 million, or 164.4%, to $24.3
million in 1998 from $9.2 million in 1997.
BUSINESS SERVICES. Broadcast.com's business services revenues increased
$10.5 million, to $15.9 million in 1998 from $5.4 million in 1997. Business
services revenues represented 65.3% of total revenues in 1998 and 58.5% of total
revenues in 1997. The increase in business services revenues was due primarily
to (i) an increase in the number of broadcasted business services events to
1,780 events in 1998 from 742 events in 1997 and (ii) an increase in the number
of customer Web sites hosted by SimpleNet.
ADVERTISING. Broadcast.com's advertising revenues increased $4.6 million,
to $8.4 million in 1998 from $3.8 million in 1997. Advertising revenues
represented 34.7% of total revenues in 1998 and 41.5% of total revenues in 1997.
Broadcast.com's bartered Web advertising revenues increased $153,000, or 15.0%,
to $1.2 million in 1998 from $1.0 million in 1997, and represented 4.8% of total
revenues in 1998 and 11.1% of total revenues in 1997. The increase in
advertising revenues was due primarily to an increase in ads broadcast.com sold
to existing and new advertisers on its Web sites, including gateway ads, which
it began selling in the first quarter of 1997, and increased sales of ad spots
it acquired by licensing additional radio and television stations.
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OPERATING EXPENSES
PRODUCTION COSTS.
THREE MONTHS ENDED MARCH 31, 1999 AND 1998.
Broadcast.com's production costs increased $257,000, to $1.5 million from
$1.3 million, for the three months ended March 31, 1999 and 1998, respectively.
These expenses increased primarily due to the increased number of business
services events. These increases were partially offset by a decrease in the
amount of expenses related to prepaid advertising credits, as broadcast.com had
no such expenses in the first three months of 1999. Excluding both the revenues
and expenses associated with bartered Web advertising transactions, production
costs decreased to 9.6% of total revenues for the three months ended March 31,
1999 from 23.6% of total revenues for the three months ended March 31, 1998.
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997.
Broadcast.com's production costs increased $1.7 million, or 55.2%, to $4.7
million in 1998 from $3.0 million in 1997. These expenses increased primarily
because of increased production costs necessitated as broadcast.com broadcasted
additional business services events; increased royalty license fees; increased
expenses associated with sales of prepaid advertising credits; and increased
bartered Web advertising expenses. Excluding both the revenues and expenses
associated with bartered Web advertising transactions, production costs
decreased to 15.1% of total revenues in 1998 from 24.4% of total revenues in
1997.
OPERATING AND DEVELOPMENT.
THREE MONTHS ENDED MARCH 31, 1999 AND 1998.
Broadcast.com's operating and development expenses increased $2.7 million,
to $5.4 million from $2.7 million, for the three months ended March 31, 1999 and
1998, respectively. The increase was due primarily to expenditures for (i) data
communications as user traffic increased; (ii) operations personnel to handle
additional broadcasts of its additional live events and content; and (iii)
content license fees in order to acquire additional content. As its user traffic
increases and the number of business services events it produces increases,
broadcast.com expects these expenditures to increase.
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997.
Broadcast.com's operating and development expenses increased $9.7 million,
to $15.2 million in 1998 from $5.5 million in 1997. The increase was due
primarily to expenditures broadcast.com made for (i) data communications as user
traffic increased, (ii) operations personnel to handle additional broadcasts of
its additional content, (iii) software license fees as its network
infrastructure expanded and (iv) content license fees in order to acquire
additional content.
SALES AND MARKETING.
THREE MONTHS ENDED MARCH 31, 1999 AND 1998.
Broadcast.com's sales and marketing expenses increased $2.1 million, to $4.0
million from $1.9 million, for the three months ended March 31, 1999 and 1998,
respectively. The increase was due primarily to growth in its sales force.
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YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997.
Broadcast.com's sales and marketing expenses increased $7.7 million, to
$11.9 million in 1998 from $4.2 million in 1997. The increase was due primarily
to growth in broadcast.com's sales force and marketing staff and increased
advertising expenses.
GENERAL AND ADMINISTRATIVE.
THREE MONTHS ENDED MARCH 31, 1999 AND 1998.
Broadcast.com's general and administrative expenses increased $1.2 million,
to $2.0 million from $857,000, for the three months ended March 31, 1999 and
1998, respectively. The increase was due primarily to increases in expenses
necessary to support broadcast.com's growth such as increased professional fees,
increased personnel expenses and increased building expenses.
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997.
Broadcast.com's general and administrative expenses increased $2.8 million,
to $4.8 million in 1998 from $1.9 million in 1997. The increase was due
primarily to increases in expenses necessary to support broadcast.com's growth
such as increased personnel expenses, increased professional fees and increased
building expenses.
DEPRECIATION AND AMORTIZATION.
THREE MONTHS ENDED MARCH 31, 1999 AND 1998.
Broadcast.com's depreciation and amortization expenses increased $655,000,
to $1.3 million from $663,000, for the three months ended March 31, 1999 and
1998, respectively. These expenses increased primarily because broadcast.com
added property and equipment as it expanded its network infrastructure, incurred
leasehold improvement costs and purchased equipment necessary to support the
growth in its personnel.
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997.
Broadcast.com's depreciation and amortization expenses increased $2.0
million, to $3.4 million in 1998 from $1.4 million in 1997. These expenses
increased primarily because broadcast.com added property and equipment as it
expanded its network infrastructure, incurred leasehold improvement costs and
purchased equipment necessary to support the growth in its personnel.
OTHER NON-RECURRING EXPENSES.
THREE MONTHS ENDED MARCH 31, 1999 AND 1998.
In the three months ended March 31, 1999, broadcast.com incurred $462,000 of
non-recurring expenses related to its merger with Net Roadshow. These costs
consisted primarily of legal and accounting fees and certain other expenses
directly related to the merger.
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997.
In 1998, broadcast.com incurred $1.5 million in merger costs related to its
acquisition of SimpleNet. These costs consisted primarily of legal and
accounting fees, underwriting commissions and other expenses directly related to
the acquisition.
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INTEREST AND OTHER INCOME.
THREE MONTHS ENDED MARCH 31, 1999 AND 1998.
Broadcast.com's interest and other income, increased to $589,000 from
$275,000 for the three months ended March 31, 1999 and 1998, respectively. The
increase was due primarily to interest broadcast.com earned from the investment
of higher cash and cash equivalent balances which were derived from sales of
common stock in December 1997 and broadcast.com's initial public offering in
July 1998.
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997.
Interest and other income increased approximately $1.7 million, to $1.9
million in 1998 from $213,000 in 1997. The increase was due primarily to
interest broadcast.com earned from the investment of higher cash and cash
equivalent balances, which were derived from sales of common stock in December
1997 and broadcast.com's initial public offering in July 1998.
INTEREST EXPENSE.
THREE MONTHS ENDED MARCH 31, 1999 AND 1998.
Broadcast.com's interest expense decreased to $1,000 in the three months
ended March 31, 1999 from $33,000 in the three months ended March 31, 1998. The
decrease was due to interest related to capital leases oustanding during the
first quarter of 1998, which were paid off in December 1998.
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997.
Broadcast.com's interest expense increased $126,000, to $200,000 in 1998
from $74,000 in 1997. The increase was due to interest related to additional
capital leases broadcast.com entered into during 1998, which were paid off in
December 1998.
PROVISION FOR INCOME TAXES.
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997.
Provision for income taxes was $0 in 1998 compared to $43,000 in 1997 as
broadcast.com's subsidiary incurred taxable income during 1997.
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
REVENUES
Broadcast.com's total revenues increased $7.1 million, or 348.0%, to $9.2
million in 1997 from $2.1 million in 1996.
BUSINESS SERVICES. Broadcast.com's business services revenues increased
$4.4 million, to $5.4 million in 1997 from $958,000 in 1996. Business services
revenues represented 58.5% of total revenues in 1997 and 46.8% of total revenues
in 1996. The increase in business services revenues was due primarily to (i) an
increase in the number of business services events broadcast.com broadcast to
742 events in 1997 from 238 events in 1996 and (ii) an increase in the number of
customer Web sites hosted by SimpleNet.
ADVERTISING. Broadcast.com's advertising revenues increased $2.7 million,
to $3.8 million in 1997 from $1.1 million in 1996. Advertising revenues
represented 41.5% of total revenues in 1997 and 53.2% of total revenues in 1996.
Broadcast.com's bartered Web advertising revenues increased $379,000, or 59.4%,
to $1.0 million in 1997 from $638,000 in 1996, and represented 11.1% of total
revenues in 1997 and 31.1% of total revenues in 1996. The increase in
advertising revenues was due primarily to an
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increase in ads broadcast.com sold to existing and new advertisers on its Web
sites, including gateway ads, which it began selling in the first quarter of
1997, and increased sales of ad spots it acquired by licensing additional radio
and television stations.
OPERATING EXPENSES
PRODUCTION COSTS. Broadcast.com's production costs increased $1.7 million,
or 131.0%, to $3.0 million in 1997 from $1.3 million in 1996. These expenses
increased primarily because of increases in sales of prepaid advertising
credits, bartered Web advertising expenses and production and personnel costs
required to broadcast additional business services events. Excluding both the
revenues and expenses associated with bartered Web advertising transactions,
production costs decreased to 24.4% of total revenues in 1997 from 47.0% of
total revenues in 1996.
OPERATING AND DEVELOPMENT. Broadcast.com's operating and development
expenses increased $3.9 million, to $5.5 million in 1997 from $1.6 million in
1996. The increase primarily resulted from expenditures broadcast.com made for
(i) data communications as user traffic increased, (ii) operations personnel to
handle additional broadcasts it made of additional content and (iii) content
license fees in order to acquire additional content.
SALES AND MARKETING. Broadcast.com's sales and marketing expenses increased
$3.4 million, to $4.2 million in 1997 from $768,000 in 1996. The increase was
due primarily to growth in broadcast.com's sales force and marketing staff.
GENERAL AND ADMINISTRATIVE. Broadcast.com's general and administrative
expenses increased $1.1 million, to $1.9 million in 1997 from $841,000 in 1996.
These expenses increased because of increases in expenses necessary to support
broadcast.com's growth such as personnel expenses, professional fees and
building expenses.
DEPRECIATION AND AMORTIZATION. Broadcast.com's depreciation and
amortization expenses increased $857,000, to $1.4 million in 1997 from $562,000
in 1996. These expenses increased primarily because broadcast.com added property
and equipment as it expanded its network infrastructure, incurred leasehold
improvement costs and purchased equipment necessary to support the growth in
personnel.
INTEREST AND OTHER INCOME
Interest and other income increased $137,000, to $213,000 in 1997 from
$76,000 in 1996 due to interest earned on higher cash and cash equivalent
balances.
INTEREST EXPENSE
Broadcast.com's interest expense increased $70,000, to $74,000 in 1997 from
$4,000 in 1996. The increase was due to interest related to additional capital
leases broadcast.com entered into during 1997.
PROVISION FOR INCOME TAXES
Provision for income taxes was $43,000 in 1997 compared to $25,000 in 1996
as broadcast.com's subsidiary had higher taxable income in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, broadcast.com has financed its operations primarily through
sales of common stock and warrants. Net proceeds from these sales from inception
to March 31, 1999 have totaled approximately $87.6 million. At March 31, 1999,
broadcast.com's principal source of liquidity was approximately $46.3 million of
cash and cash equivalents. In April 1998, broadcast.com entered into an
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operating lease facility which provides for up to $2.5 million for equipment
leasing, of which it has utilized approximately $814,000 as of March 31, 1999.
Broadcast.com used net cash in its operating activities equaling $4.3
million and $1.1 million in the three months ended March 31, 1999 and 1998,
respectively, and $10.8 million in 1998; $6.0 million in 1997; and $4.2 million
in 1996. The net cash broadcast.com used in operating activities, for the three
months ended March 31, 1999 and 1998 and for the two years ended December 31,
1998, was primarily attributable to net operating losses and increases in
accounts receivable, offset in part by increases in accounts payable and accrued
liabilities. For the year ended December 31, 1996, net cash used in operating
activities was primarily attributable to net losses, increases in accounts
receivable and prepaid expenses, and decreases in accounts payable, offset by
increases in accrued liabilities.
Broadcast.com used net cash in its investing activities equaling $2.8
million and $1.3 million in the three months ended March 31, 1999 and 1998,
respectively, and $6.1 million in 1998; $3.2 million in 1997; and $1.4 million
in 1996. The net cash broadcast.com used in its investing activities was related
primarily to purchases of property and equipment and other intangible assets.
Broadcast.com's financing activities provided net cash equaling $3.5 million
and $3.6 million in the three months ended March 31, 1999 and 1998,
respectively, and $45.4 million in 1998; $26.0 million in 1997; and $10.0
million in 1996. The net cash provided by broadcast.com's financing activities
resulted primarily from sales of common stock and exercises of common stock
options offset by payments on capital lease obligations.
Broadcast.com believes that current cash and cash equivalents will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures for the next twelve months. However, it may need to raise
additional funds through public or private financings or other arrangements.
Broadcast.com can make no assurance that it will be able to obtain such
additional financings, if needed, on terms attractive to it, if at all. Failure
to raise capital when needed could adversely affect broadcast.com's business. If
broadcast.com raises additional funds through the issuance of equity securities,
then current broadcast.com stockholders would have their percentages of
ownership of broadcast.com reduced. Furthermore, such equity securities might
have rights, preferences or privileges senior to those of common stock.
On April 1, 1999, broadcast.com announced that it had reached an agreement
to be acquired by Yahoo! Inc. ("Yahoo!"). Under the terms of the agreement,
broadcast.com's stockholders will receive 0.7722 share of Yahoo! common stock
for each share of broadcast.com common stock. Assuming satisfaction of certain
conditions, including regulatory approval and receipt of the requisite
stockholder approval, the proposed merger is expected to be consummated in the
third quarter of 1999. Completion of the proposed merger is expected to enhance
broadcast.com's ability to finance its growth as cash flow and capital markets
access of the combined companies will be greater than prior to the proposed
merger. In the event that the proposed merger with Yahoo! is not consummated,
broadcast.com believes it will have sufficient resources to fund its planned
capital growth and operating requirements.
YEAR 2000 COMPUTER SYSTEMS AND SOFTWARE PRODUCTS READINESS
Many currently installed computer systems and software products only accept
two digits to identify the year in any date. Thus, the year 2000 will appear as
"00", which the system might consider to be the year 1900 rather than the year
2000. This could result in system failures, delays or miscalculations causing
disruptions to its operations.
With the assistance of an independent consultant, broadcast.com has
evaluated the Year 2000 readiness of the hardware and software utilized in its
operations, including non-information technology
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operations, such as building security, voice mail and other systems.
Broadcast.com's evaluation included:
- the identification of internally utilized products;
- checking of products' Year 2000 readiness; and
- assessment of repair or replacement.
Based on this assessment, broadcast.com has determined that there are no
material Year 2000 issues within its systems and services. A plan addressing the
issues which were identified has been formulated, with implementation scheduled
to be completed by the end of 1999.
Since third parties developed and currently support many of the systems that
broadcast.com uses, a significant part of this effort will be to ensure that
these third-party systems are Year 2000 ready. Broadcast.com plans to confirm
this readiness through a combination of the representation by these third
parties of their products' Year 2000 readiness, as well as specific testing of
these systems. The failure of systems maintained by third parties to be Year
2000 ready could cause broadcast.com to incur significant expense to remedy any
problems, reduce its revenues from such third parties or otherwise seriously
damage its business. A significant Year 2000-related disruption of the network
services or equipment that third-party vendors provide to broadcast.com could
also cause its users to consider seeking alternate providers or cause an
unmanageable burden on its technical support.
In addition, broadcast.com relies upon various governmental agencies,
utility companies, telecommunications service companies, delivery service
companies and other service providers. There is no assurance that such parties
will not suffer a year 2000 business disruption, which could adversely affect
broadcast.com's ability to conduct its business.
Broadcast.com's failure to correct a material Year 2000 problem could result
in an interruption in, or a failure of, some of its normal business activities
or operations.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1998, broadcast.com had available net operating loss
carryforwards totaling approximately $28.3 million, which expire beginning in
2011. Under the Tax Reform Act of 1986, use of net operating loss carryforwards
may be subject to limitations triggered by ownership changes which may have
occurred or could occur in the future or limitations imposed by the separate
return limitation year rules.
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BROADCAST.COM SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain ownership information with respect to
the beneficial ownership of broadcast.com's common stock as of May 31, 1999
(except as otherwise noted) by (a) each person who is known by broadcast.com to
own beneficially more than 5% of its common stock; (b) each director of
broadcast.com; (c) each executive officer; and (d) all directors and executive
officers of broadcast.com as a group.
Unless otherwise indicated, and subject to community property laws where
applicable, each of the stockholders named in the following table has sole
voting and investment power with respect to the shares shown as beneficially
owned by it. A person is deemed to be the beneficial owner of securities which
can be acquired by such person within 60 days from May 31, 1999 upon the
exercise of options and warrants. Each beneficial owner's percentage ownership
is determined by assuming that options which are held by such person and which
are exercisable within 60 days from May 31, 1999 have been exercised; options
which held by any other person and which are exercisable within 60 days from May
31, 1999 are not assumed to have been exercised.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OF COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP BENEFICIALLY OWNED
- -------------------------------------------------- ---------------------------- ---------------------------------
<S> <C> <C>
Mark Cuban ....................................... 9,450,080(1) 25.3%
c/o broadcast.com inc.
2914 Taylor Street
Dallas, Texas 75226
Todd R. Wagner ................................... 5,104,160(2) 13.7
c/o broadcast.com inc.
2914 Taylor Street
Dallas, Texas 75226
Motorola, Inc. ................................... 2,743,712(3) 7.4
1303 E. Algonquin Road
Schaumburg, Illinois 60196
Amerindo Investment Advisors Inc. ................ 2,659,500(4) 7.2
(California)
One Embarcadero Center, Suite 2300
San Francisco, California 94111
Alberto W. Vilar ................................. 2,659,500(4) 7.2
c/o One Embarcadero Center, Suite 2300
San Francisco, California 94111
Gary A. Tanaka ................................... 2,659,500(4) 7.2
c/o One Embarcadero Center, Suite 2300
San Francisco, California 94111
Amerindo Investment Advisors Inc. ................ 2,631,000(4) 7.1
(Panama)
c/o Edificio Sucre, Calle 48 Este, Bella Vista,
Apartado 6277
Panama 5, Panama
Jack A. Riggs .................................... 61,667(5) *
c/o broadcast.com inc.
2914 Taylor Street
Dallas, Texas 75226
</TABLE>
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<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OF COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP BENEFICIALLY OWNED
- -------------------------------------------------- ---------------------------- ---------------------------------
<S> <C> <C>
Joseph W. Autem .................................. 42,890(6) *
c/o broadcast.com inc.
2914 Taylor Street
Dallas, Texas 75226
Steven D. Leeke .................................. 8,700(7) *
c/o Motorola, Inc.
1303 E. Algonquin Road
Schaumburg, Illinois 60196
Kevin W. Parke ................................... 5,147(8) *
c/o broadcast.com inc.
2914 Taylor Street
Dallas, Texas 75226
All directors and executive officers as a ........ 14,629,754(9) 38.8
group (6 persons)
</TABLE>
- ------------------------
* Less than one percent of broadcast.com's common stock.
(1) Includes an aggregate of 345,600 shares of common stock issuable pursuant to
options that are currently exercisable or are exercisable within 60 days of
May 31, 1999. Mr. Cuban is required to vote his shares to ensure
representation of Motorola on the board of directors.
(2) Includes an aggregate of 282,960 shares of common stock issuable pursuant to
options that are currently exercisable or are exercisable within 60 days of
May 31, 1999. Mr. Wagner is required to vote his shares to ensure
representation of Motorola on the board of directors.
(3) Includes 8,700 shares which represent shares of common stock issuable to Mr.
Leeke pursuant to options that are currently exercisable or are exercisable
within 60 days of May 31, 1999 which, pursuant to an agreement between
Motorola and Mr. Leeke, may only be exercised at the sole direction of and
for the sole benefit of Motorola.
(4) Based solely on information filed with the Securities and Exchange
Commission. Messrs. Vilar and Tanaka are the sole shareholders and directors
of Amerindo Investment Advisors Inc., a California corporation and Amerindo
Investment Advisors, Inc., a Panama corporation. Mr. Vilar, Mr. Tanaka,
Amerindo Investment Advisors (California) and Amerindo Investment Advisors
(Panama) individually and collectively disclaim beneficial ownership of any
common stock of broadcast.com and disaffirm membership in any group under
Rule 13d-5 of the Securities Exchange Act of 1934.
(5) Includes an aggregate of 61,667 shares of common stock issuable pursuant to
options that are currently exercisable or are exercisable within 60 days of
May 31, 1999.
(6) Includes an aggregate of 7,500 shares of common stock issuable pursuant to
options that are currently exercisable or are exercisable within 60 days of
May 31, 1999.
(7) Includes an aggregate of 8,700 shares of common stock issuable pursuant to
options that are currently exercisable or are exercisable within 60 days of
May 31, 1999. Pursuant to an agreement between Mr. Leeke and Motorola, Mr.
Leeke can exercise his options at the sole direction of, and for the sole
benefit of, Motorola. Mr. Leeke disclaims beneficial ownership of any shares
of common stock beneficially owned by Motorola.
(8) Includes an aggregate of 3,800 shares of common stock issuable pursuant to
options that are currently exercisable or are exercisable within 60 days of
May 31, 1999.
(9) Includes an aggregate of 702,727 shares of common stock issuable pursuant to
options that are currently exercisable or are exercisable within 60 days of
May 31, 1999.
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DESCRIPTION OF BROADCAST.COM CAPITAL STOCK
As of the date of this document, the authorized capital stock of
broadcast.com consists of 60,000,000 shares of common stock, $0.01 par value and
5,000,000 shares of preferred stock, $0.01 par value. The following description
of broadcast.com's capital stock is only a summary and may be more completely
understood by reading broadcast.com's certificate of incorporation and bylaws
and the provisions of applicable Delaware law.
COMMON STOCK
As of May 24, 1999, there were 37,040,155 shares of common stock outstanding
and held of record by 200 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 broadcast.com, the holders of
common stock are entitled to receive ratably the net assets of broadcast.com
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 broadcast.com may designate and issue in the future
without further stockholder approval. No shares of preferred stock are currently
outstanding.
PREFERRED STOCK
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. Broadcast.com has no
present plan to issue any shares of preferred stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for broadcast.com common stock is
ChaseMellon Shareholder Services LLC. Its telephone number is (800) 635-9270.
115
<PAGE>
FUTURE STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, broadcast.com stockholders
may present proper proposals for inclusion in broadcast.com's proxy statement
and for consideration at its 1999 annual meeting of stockholders, in the event
the merger has not been consummated prior thereto, by submitting such proposals
to broadcast.com in a timely manner. In order to be so included for the 1999
annual meeting stockholder proposals must be received by broadcast.com within a
reasonable time before the meeting, and must otherwise comply with the
requirements of Rule 14a-8.
EXPERTS
The consolidated financial statements and supplementary consolidated
financial statements of Yahoo! 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 the Annual Report on Form 10-K of Yahoo! Inc., as
amended on April 29, 1999, for the year ended December 31, 1998 and the Current
Report on Form 8-K dated June 2, 1999, as amended on June 8, 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.
The 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, 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.
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 broadcast.com by Gibson Dunn & Crutcher LLP, New York, New York.
Sean P. Griffiths, a partner of Gibson, Dunn & Crutcher LLP, currently owns
30,400 shares of broadcast.com common stock.
WHERE YOU CAN FIND MORE INFORMATION
Yahoo! and broadcast.com 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 broadcast.com's
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 broadcast.com stockholders in the merger. This proxy
statement/prospectus is a part of that registration statement and constitutes a
prospectus of Yahoo! in addition to being a proxy statement for the meeting of
broadcast.com 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
116
<PAGE>
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
(as amended on April 29, 1999);
2. Yahoo!'s Quarterly Report on Form 10-Q dated May 17, 1999;
3. Yahoo!'s Current Report on Form 8-K dated January 13, 1999;
4. Yahoo!'s Current Report on Form 8-K dated January 29, 1999;
5. Yahoo!'s Current Report on Form 8-K dated April 5, 1999 (as amended on
April 19, 1999);
6. Yahoo!'s Current Report on Form 8-K dated April 8, 1999;
7. Yahoo!'s Current Report on Form 8-K dated June 2, 1999 (as amended on
June 8, 1999);
8. 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 broadcast.com has
supplied all information contained in this proxy statement/prospectus relating
to broadcast.com.
If you are a stockholder 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.
Broadcast.com 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. broadcast.com inc.
3420 Central Expressway 2914 Taylor Street
Santa Clara, California 95051 Dallas, Texas 75226
Attention: Investor Relations Attention: Investor Relations
(408) 731-3300 (214) 748-6660
WEB SITE: HTTP://WWW.YAHOO.COM WEB SITE: HTTP://WWW.BROADCAST.COM
</TABLE>
If you would like to request documents from either company, please do so by
July 10, 1999 (ten 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 BROADCAST.COM 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 JUNE 16,
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 BROADCAST.COM STOCKHOLDERS NOR THE
ISSUANCE OF YAHOO! COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO
THE CONTRARY.
117
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
BROADCAST.COM INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Operations...................................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit).................................................. F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of broadcast.com inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
broadcast.com inc. and its subsidiaries 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.
PricewaterhouseCoopers LLP
Dallas, Texas
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
F-2
<PAGE>
BROADCAST.COM INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------
1999 1998 1997
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 46,260 $ 49,828 $ 21,350
Accounts receivable, net of allowance of $303 (unaudited),
$239 and $76, respectively............................... 6,569 4,447 2,007
Prepaid expenses........................................... 1,512 429 1,995
----------- --------- ---------
Total current assets..................................... 54,341 54,704 25,352
Property and equipment, net.................................. 7,713 6,786 4,075
Intangible assets, net....................................... 1,366 850 127
Other........................................................ 5,202 253 131
----------- --------- ---------
Total assets............................................. $ 68,622 $ 62,593 $ 29,685
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 1,201 $ 1,033 $ 947
Accrued liabilities........................................ 3,045 1,954 664
Deferred revenue........................................... 991 1,135 355
Capital lease obligations, current portion................. -- -- 382
----------- --------- ---------
Total current liabilities................................ 5,237 4,122 2,348
Capital lease obligations, less current portion.............. -- -- 372
Notes payable................................................ 1,858 60 60
Commitments and contingencies (NOTE 6)
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized, par $.01,
none issued and outstanding.............................. -- -- --
Common stock, 60,000,000 shares authorized, par $.0l,
36,851,149 (unaudited), 35,953,906 and 28,795,650 shares
issued and outstanding, respectively..................... 261 252 180
Additional paid-in capital................................. 92,062 84,379 36,746
Common stock subscribed.................................... -- -- 45
Deferred compensation...................................... (61) (156) --
Accumulated deficit........................................ (30,735) (26,064) (10,066)
----------- --------- ---------
Total stockholders' equity............................... 61,527 58,411 26,905
----------- --------- ---------
Total liabilities and stockholders' equity............... $ 68,622 $ 62,593 $ 29,685
----------- --------- ---------
----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
BROADCAST.COM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, YEAR ENDED DECEMBER 31,
------------------------- --------------------------
1999 1998 1998 1997 1996
----------- ----------- -------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Business services............................... $ 7,124 $ 2,798 $ 15,851 $ 5,368 $ 958
Advertising..................................... 3,164 1,725 8,419 3,811 1,091
----------- ----------- -------- ------- -------
Total revenues................................ 10,288 4,523 24,270 9,179 2,049
Operating expenses:
Productions costs............................... 1,537 1,280 4,664 3,005 1,301
Operating and development....................... 5,384 2,699 15,211 5,510 1,621
Sales and marketing............................. 4,012 1,904 11,920 4,208 768
General and administration...................... 2,010 857 4,752 1,934 841
Depreciation and amortization................... 1,318 663 3,374 1,419 562
Other non-recurring expenses.................... 462 -- 1,534 -- --
----------- ----------- -------- ------- -------
Total operating expenses...................... 14,723 7,403 41,455 16,076 5,093
----------- ----------- -------- ------- -------
Net operating loss............................ (4,435) (2,880) (17,185) (6,897) (3,044)
Interest and other income......................... 589 275 1,925 213 76
Interest expense.................................. (1) (33) (200) (74) (4)
----------- ----------- -------- ------- -------
Loss before income taxes provision............ (3,847) (2,638) (15,460) (6,758) (2,972)
Provision for income taxes........................ -- -- -- 43 25
----------- ----------- -------- ------- -------
Net loss...................................... $(3,847) $(2,638) $(15,460) $(6,801) $(2,997)
----------- ----------- -------- ------- -------
----------- ----------- -------- ------- -------
Basic and diluted net loss per share.............. $ (0.11) $ (0.09) $ (0.47) $ (0.28) $ (0.15)
----------- ----------- -------- ------- -------
----------- ----------- -------- ------- -------
Shares used in the net loss per share
calculations.................................... 36,392 29,847 32,811 24,196 19,754
----------- ----------- -------- ------- -------
----------- ----------- -------- ------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
BROADCAST.COM INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
---------------------- PAID-IN COMMON STOCK DEFERRED ACCUMULATED EQUITY
SHARES AMOUNTS CAPITAL SUBSCRIBED COMPENSATION DEFICIT (DEFICIT)
--------- ----------- ----------- ------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995...... 12,060 $ 13 $ 40 $ -- $ -- $ (268) $ (215)
Issuance of Common Stock.......... 11,005 110 10,703 -- -- -- 10,813
Net loss.......................... -- -- -- -- -- (2,997) (2,997)
--------- ----- ----------- --- ----- ------------ ------------
Balance at December 31, 1996...... 23,065 123 10,743 -- -- (3,265) 7,601
Issuance of Common Stock.......... 5,731 57 25,283 -- -- -- 25,340
Common Stock subscribed........... -- -- -- 45 -- -- 45
Issuance of warrants.............. -- -- 720 -- -- -- 720
Net loss.......................... -- -- -- -- -- (6,801) (6,801)
--------- ----- ----------- --- ----- ------------ ------------
Balance at December 31, 1997...... 28,796 180 36,746 45 -- (10,066) 26,905
Issuance of Common Stock.......... 1,692 17 3,866 (45) -- -- 3,838
Exercise of stock option and
warrants........................ 91 1 322 -- -- -- 323
Issuance of compensatory stock
agreements...................... -- -- 257 -- (156) -- 101
Issuance of stock in public
offering net.................... 5,375 54 43,188 -- -- -- 43,242
Distribution to Stockholders...... -- -- -- -- -- (538) (538)
Net loss.......................... -- -- -- -- -- (15,460) (15,460)
--------- ----- ----------- --- ----- ------------ ------------
Balance at December 31, 1998...... 35,954 252 84,379 -- (156) (26,064) 58,411
Exercise of stock options
(unaudited)..................... 851 9 3,489 -- -- -- 3,498
Issuance of Common Stock
(unaudited)..................... 46 -- 3,387 -- -- -- 3,387
Recognition of non-cash
compensation expenses
(unaudited)..................... -- -- -- -- 95 -- 95
Undistributed earnings related to
business acquisition
(unaudited)..................... -- -- 807 -- -- (807) --
Distribution to Stockholders
(unaudited)..................... -- -- -- -- -- (17) (17)
Net loss (unaudited).............. -- -- -- -- -- (3,847) (3,847)
--------- ----- ----------- --- ----- ------------ ------------
Balance at March 31, 1999
(unaudited)..................... 36,851 $ 261 $ 92,062 $ -- $ (61) $ (30,735) $ 61,527
--------- ----- ----------- --- ----- ------------ ------------
--------- ----- ----------- --- ----- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
BROADCAST.COM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ -------------------------------
1999 1998 1998 1997 1996
----------- ----------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................ $ (3,847) $ (2,638) $ (15,460) $ (6,801) $ (2,997)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation.......................... 1,234 648 3,288 1,350 506
Amortization.......................... 84 15 86 69 56
Recognition of deferred compensation
expense............................. -- -- 101 45 --
Non cash compensation expense......... 95 -- -- -- --
Provision for doubtful accounts....... 181 89 482 86 84
Changes in operating assets and
liabilities.........................
Accounts receivable................. (2,304) (750) (2,922) (1,686) (491)
Prepaid expenses.................... (843) 510 1,566 (227) (1,695)
Other assets........................ 22 (446) (122) (112) (8)
Accounts payable.................... 168 831 86 816 (175)
Accrued liabilities................. 1,091 607 1,290 175 491
Deferred revenue.................... (144) 10 781 297 57
----------- ----------- --------- --------- ---------
Net cash used in operating
activities........................ (4,263) (1,124) (10,824) (5,988) (4,172)
----------- ----------- --------- --------- ---------
Cash flows from investing activities:
Purchases of business and other
intangible assets..................... (600) (80) (875) -- --
Purchases of property and equipment..... (2,161) (1,210) (5,241) (3,197) (1,415)
----------- ----------- --------- --------- ---------
Net cash used in investing
activities........................ (2,761) (1,290) (6,116) (3,197) (1,415)
----------- ----------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from common stock issuances.... -- 3,851 47,080 25,340 10,049
Proceeds from exercise of warrants and
options............................... 3,473 -- 323 720 --
Proceeds from notes payable............. -- -- 750 -- --
Payment on notes payable................ -- -- (750) -- --
Payments on capital lease obligations... -- (218) (1,447) (161) --
Payments on stockholder loan............ -- -- -- (7) (25)
Proceeds from stockholder loan.......... -- -- -- 60 4
Distribution to shareholders............ (17) -- (538) -- --
Purchase of treasury stock.............. -- -- -- -- (160)
Proceeds from sale of treasury stock.... -- -- -- -- 160
----------- ----------- --------- --------- ---------
Net cash provided by financing
activities........................ 3,456 3,633 45,418 25,952 10,028
----------- ----------- --------- --------- ---------
Net increase in cash and cash
equivalents............................. (3,568) 1,219 28,478 16,767 4,441
Cash and cash equivalents at beginning of
period.................................. 49,828 21,350 21,350 4,583 142
----------- ----------- --------- --------- ---------
Cash and cash equivalents at end of
period.................................. $ 46,260 $ 22,569 $ 49,828 $ 21,350 $ 4,583
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
</TABLE>
(See disclosure of noncash transactions in Note 2 and 11)
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
BROADCAST.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Cameron Audio Networks, Inc. ("Cameron") was incorporated and filed its
Articles of Incorporation (the "Articles") with the Secretary of State of Texas
on May 19, 1995. On May 15, 1996, Cameron purchased the rights to the name
AudioNet and subsequently filed a Certificate of Incorporation to form AudioNet,
Inc. ("AudioNet"), a new entity, in the state of Delaware, on September 19,
1996. On November 1, 1996, Cameron and AudioNet filed a Certificate of Merger,
effectively a stock-for-stock merger, whereby Cameron merged with and into
AudioNet, with AudioNet continuing as the surviving entity. Each share of Common
Stock of Cameron was converted to one share of Common Stock of AudioNet, and
Cameron ceased to exist at the date of such merger. Effective as of the date of
the merger, the Common Stock of the Company was changed from no par value to par
value of $0.01. The financial statements have been retroactively restated to
reflect this reincorporation, except for the original issuance of founders'
shares. Effective May 1998, the Company changed its name to broadcast.com inc.
("broadcast.com" or the "Company").
In March 1999, a newly formed subsidiary of the Company merged with Net
Roadshow, Inc., a provider of Internet initial public offerings and other
financial roadshow services. All financial results include the Merger, which was
accounted for as a pooling of interests (see Note 4).
In November 1998, a newly formed subsidiary of the Company merged with
Simple Network Communications, Inc. ("SimpleNet"), a provider of inexpensive
web-site hosting services to consumers and small businesses. All financial
results include the Merger, which was accounted for as a pooling of interests
(see Note 4).
The Company aggregates content and is a broadcaster of streaming media
programming on the Web with the network infrastructure and expertise to deliver
or "stream" live and on-demand audio and video content on the Internet. The
Company offers a comprehensive selection of live and on-demand audio and video
programming on the Internet, including sports, talk and music radio, television,
business events, full-length music CDs, news, commentary and full-length
audio-books. The Company broadcasts on the Internet 24 hours a day seven days a
week, and its programming includes radio stations, television stations and cable
networks and game broadcasts and other programming for college and professional
sports teams. The Company licenses such programming from content providers, in
most cases under exclusive, multi-year agreements. The Company's Business
Services Group also provides Internet and intranet broadcasting services to
businesses and other organizations. These business services include turnkey
production of press conferences, earnings conference calls, stockholder
meetings, product introductions, training sessions, distance learning
telecourses and media events.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany accounts and transactions have
been eliminated in the consolidation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements
F-7
<PAGE>
BROADCAST.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUES
The Company generates revenues through business services and advertising.
Services paid for in advance are recorded as deferred revenue.
BUSINESS SERVICES. In 1998, 1997 and 1996, the Company derived 65%, 58% and
47%, respectively, of revenues from business services. Included in business
services revenues are fees for broadcasting live and on-demand events as well as
hosting services. Also included are the cash payments the Company receives from
radio and television stations in exchange for the Company broadcasting their
programming over the Internet. Business services revenues are recognized in the
month in which the service is performed, provided that no significant Company
obligations remain and collection of the resulting receivable is probable.
ADVERTISING. In 1998, 1997 and 1996, the Company derived 35%, 42% and 53%,
respectively, of its revenues from the sale of advertisements. Included in
advertising revenues are fees for Web advertising and also the sale of ad spots
received from radio and television stations in exchange for the Company
broadcasting their programming over the Internet. Bartered Web advertising
revenues are derived from transactions in which the Company trades advertising
on its Web sites in exchange for advertisements on the Web sites of other
companies. Bartered Web advertising revenues are recognized at the fair market
value of consideration received or provided, whichever is lower. If a barter
agreement extends over the end of any accounting period, an asset and a
liability are each recorded related to the fair value of the prepaid advertising
expense and for advertisement obligations remaining at such period end. Because
historically all bartered Web advertising agreements have been for periods not
exceeding 30 days, all bartered Web advertising revenues are offset by an equal
amount of bartered Web advertising expense in production costs. Bartered Web
advertising revenues, which were $1.2 million in 1998, $1.0 million in 1997 and
$638,000 in 1996, represented 14%, 27% and 59% of advertising revenues, or 5%,
11% and 31% of total revenues in 1998, 1997 and 1996, respectively. The
corresponding expenses recorded for bartered Web advertising were $1.2 million,
$1.0 million and $638,000 in 1998, 1997 and 1996, respectively. Advertising
revenues are recognized in the period in which the advertisement is displayed on
one of the Company's Web pages, except for sponsorship sales, which are
recognized ratably over the term of the sponsorship, provided that no
significant Company obligations remain and collection of the resulting
receivable is probable. The duration of the Company's advertising commitments
has generally ranged from one week to one year.
In 1998 and 1997, no customer accounted for more than 10% of revenues. In
1996, two customers of the Company each accounted for 10% of revenues, one of
which is currently a stockholder.
PRODUCTION COSTS
Production costs consist primarily of event production costs, bartered Web
advertising expenses, expenses from the sale of prepaid advertising credits,
direct personnel expenses associated with event production and performance
license fees.
F-8
<PAGE>
BROADCAST.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OPERATING AND DEVELOPMENT EXPENSES
Operating and development expenses consist primarily of data communications
expenses, personnel expenses associated with broadcasting, software and content
license fees, operating supplies and overhead.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of personnel expenses
associated with the sale of the Company's business services and advertising,
marketing of the Company's Web sites, related travel expenses and overhead.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of administrative
personnel expenses, professional fees, expenditures for applicable facilities
costs and overhead.
NET LOSS PER SHARE
Basic net loss per share has been computed in accordance with Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE, ("FAS 128") using
the weighted average number of common shares outstanding. The provisions and
disclosure requirements for FAS 128 were required to be adopted for interim and
annual periods ending after December 15, 1997, with restatement of EPS for all
prior periods.
Diluted net loss per share gives effect to all dilutive potential common
shares that were outstanding during the period. The Company had a net loss for
all periods presented herein; therefore, none of the options and warrants
outstanding during each of the periods presented, as discussed in Note 8, were
included in the computations of diluted earnings per share because they were
antidilutive. See Note 8 for a list of options and warrants outstanding at
December 31, 1998, 1997 and 1996 that were excluded from the diluted EPS
computation because they were antidilutive.
CASH EQUIVALENTS
The Company considers investments with original maturity dates of 90 days or
less to be cash equivalents. The carrying values of these investments are
approximately equal to their fair market values at the end of the year.
ADVERTISING EXPENSES
Advertising expenses are either charged to operations when incurred or
purchased in advance and capitalized for future use or sale and expensed as the
advertising credits are used or sold. The cost of advertising used by the
Company is charged to operations while the cost of advertising sold to customers
is included in production costs.
PREPAID EXPENSES
In December 1997, the Company entered into an agreement with Yahoo! Inc.
("Yahoo!"), an existing stockholder, to integrate their services and conduct
certain joint marketing activities. Amounts
F-9
<PAGE>
BROADCAST.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
paid under this agreement for prepaid advertising credits are capitalized and
expensed as the advertising credits are utilized. Amounts paid under this
agreement for the use, reproduction and display of the broadcast.com brand, page
views received from Yahoo! for banner advertising, sponsorships and promotions
for the Company are capitalized and expensed ratably over the term of the
agreement, which terminated on January 31, 1999.
In conjunction with a stock transaction with Premiere Radio Networks, Inc.
("Premiere"), the Company entered into an agreement in November 1996 to pay
Premiere $2,000,000 in exchange for an equal value of advertising credits. The
Company is required to utilize a minimum of $250,000 in each twelve-month period
over a maximum of four years. The asset has been and will continue to be
expensed in the period the advertising credits are utilized (see Advertising
expenses). In 1998, 1997 and 1996, the Company utilized approximately $935,000,
$780,000 and $285,000, respectively, in advertising credits.
Prepaid advertising credits that will be utilized within the next twelve
months are classified as current assets.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is depreciated over its
estimated useful life, ranging from one to five years. The Company provides for
depreciation of assets using the straight-line method for financial reporting
purposes and accelerated methods for income tax purposes. Prior to 1996,
capitalized software costs were being amortized over three years. However, in
1996, the Company changed the estimated life of all capitalized software costs
to one year. The effect of this change was to increase the net loss during 1996
by approximately $240,000, or $0.01 per share. Leasehold improvements are
amortized over the life of the lease using the straight-line method.
Expenditures for maintenance and repairs are charged to operations in the period
they are incurred.
Long-lived assets held and used by the Company, or to be disposed of, are
reviewed for impairment whenever events or changes in circumstances indicate
that the net book value of the asset may not be recoverable. An impairment loss
is recognized if the sum of the expected future cash flows (undiscounted and
before interest) from the use of the asset is less than the net book value of
the asset. The amount of the impairment loss will generally be measured as the
difference between net book value of the assets and the estimated fair value of
the related assets. Based on its most recent analysis, the Company believes that
no impairment of long-lived assets existed at December 31, 1998.
INTANGIBLE ASSETS
Intangible assets consist of certain transmission and digital programming
distribution rights acquired under license agreements that are accounted for as
a purchase of rights by the Company, as well as the excess of costs over net
assets acquired and certain non-compete agreements related to the Merger. Assets
and related liabilities associated with license agreements are reported at cost
when the license period begins and the program material is available for
distribution. Intangible assets are reported at the lower of unamortized cost or
estimated net realizable value based on management's expectation of the assets'
usefulness and are amortized on a straight-line basis over the asset's estimated
useful life.
F-10
<PAGE>
BROADCAST.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In January 1996, the Company entered into an agreement to purchase a license
from Universal Sports in exchange for 780,120 shares of Common Stock. The
license provides the Company with the right to broadcast several college and
university sports programs over the Internet. The license is stated at an
historical cost of $195,000, less accumulated amortization of approximately
$117,000 and $78,000 at December 31, 1998 and 1997, respectively, and is being
amortized on a straight-line basis over a five-year period.
FINANCIAL INSTRUMENTS
As of December 31, 1998 and 1997, the fair values of the Company's accounts
receivable and accounts payable and accrued liabilities approximate the related
carrying values.
ACCRUED LIABILITIES
At December 31, 1998, accrued liabilities included approximately $429,000 in
software license fees, approximately $412,000 in content license fees and
approximately $300,000 in sales commissions payable.
At December 31, 1997, accrued liabilities included approximately $368,000 in
software license fees.
INCOME TAXES
The Company presents income taxes pursuant to Statement of Financial
Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES ("FAS 109"). FAS 109
uses an asset and liability approach to account for income taxes, wherein
deferred taxes are provided for book and tax basis differences for assets and
liabilities. In the event differences between the financial reporting basis and
the tax basis of the Company's assets and liabilities result in deferred tax
assets, an evaluation of the probability of being able to realize the future
benefits indicated by such assets is required. A valuation allowance is provided
for a portion or all of the deferred tax assets when there is sufficient
uncertainty regarding the Company's ability to recognize the benefits of the
assets in future years.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION ("FAS 123"), encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has elected to continue to account for stock-
based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. Accordingly, compensation cost for stock options issued
to employees is measured as the excess, if any, of the fair market value of the
Company's Common Stock at the date of grant over the amount the employee must
pay to acquire the stock. Pro forma disclosure of net loss based on the
provisions of FAS 123 is discussed in Note 8.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("FAS 133"), was
issued and is effective for fiscal years beginning after June 15, 1999. FAS 133
requires that all derivative instruments be recorded on the balance sheet
F-11
<PAGE>
BROADCAST.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
at their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The Company believes that adoption of the standard will
not have a material impact on the Company's consolidated results of operations
or financial position.
In April 1998, Statement of Position 98-5, REPORTING ON THE COSTS OF
START-UP ACTIVITIES ("SOP 98-5"), was issued and is effective for fiscal years
beginning after December 15, 1998. SOP 98-5 provides guidance on the financial
reporting of start-up and organization costs and requires that these costs be
expensed as incurred. The Company believes that the adoption of this standard
will not have a material impact on the Company's consolidated results of
operations or financial position.
In March 1998, Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1"), was
issued and is effective for fiscal years beginning after December 15, 1998. SOP
98-1 provides guidelines for companies to capitalize or expense costs incurred
to develop or obtain internal use software. The Company believes that the
adoption of this standard will not have a material impact on the Company's
consolidated results of operations or financial position.
In June 1997, Statement of Financial Accounting Standards No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("FAS 131"),
was issued and was adopted by the Company in the first quarter of fiscal 1998.
This Statement establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. As the Company operates and management
monitors the results in only one operating segment, there are no additional
disclosure requirements involved with the Company's adoption of this Statement.
In June 1997, Statement of Financial Accounting Standards No. 130, REPORTING
COMPREHENSIVE INCOME ("FAS 130"), was issued and was adopted by the Company in
the first quarter of fiscal 1998. This Statement establishes standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains and losses). Comprehensive income as defined includes all
changes in equity (net assets) during a period from non-owner sources. Such
items may include foreign currency translation adjustments, unrealized
gains/losses from investing and hedging activities, and other transactions. As
the Company has no components of other comprehensive income for the years ended
December 31, 1998, 1997 and 1996, there are no disclosure requirements currently
required in the Company's financial statements as a result of the adoption of
this statement.
RECLASSIFICATIONS
Certain reclassifications have been made for consistent presentation.
UNAUDITED INTERIM RESULTS
The accompanying balance sheet as of March 31, 1999, the statements of
operations and of cash flows for the three months ended March 31, 1999 and 1998
and the statement of stockholders' equity (deficit) for the three months ended
March 31, 1999 are unaudited.
F-12
<PAGE>
BROADCAST.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In the opinion of management, these statements have been prepared on the
same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of the results of these periods. The data disclosed in notes to the
financial statements for these periods are unaudited.
3. STOCK SPLITS
A two-for-one split of the Company's Common Stock was effected in the form
of a stock dividend in February 1999. All references in the financial statements
to shares, share prices, per share amounts and stock plans have been adjusted
retroactively for the two-for-one stock split.
A sixty-for-one split of the Company's Common Stock was effected in the form
of a stock dividend in April 1997. All references in the financial statements to
shares, share prices, per share amounts and stock plans have been adjusted
retroactively for the sixty-for-one stock split.
4. BUSINESS COMBINATIONS
In March 1999, a newly formed subsidiary of the Company merged with Net
Roadshow, Inc., a provider of Internet initial public offerings and other
financial roadshow services, by exchanging 929,094 shares of its Common Stock
for all of the common stock of Net Roadshow. Stockholders of Net Roadshow
received 92.218 shares of the Company's Common Stock for each share of Net
Roadshow common stock in the merger, which has been accounted for as a pooling
of interests. All data presented in the accompanying financial statements has
been restated to reflect the merger. There were no material transactions between
the Company and Net Roadshow prior to the combination, and immaterial
adjustments were recorded to conform Net Roadshow's accounting policies to those
of the Company (see Note 11).
In November 1998, a wholly owned subsidiary of the Company merged with
SimpleNet by exchanging 821,618 shares of the Company's Common Stock for all of
the common stock of SimpleNet. Stockholders of SimpleNet received 398.457 shares
of the Company's Common Stock for each share of SimpleNet common stock in the
merger, which has been accounted for as a pooling of interests. All data
presented in the accompanying financial statements has been restated to reflect
the merger. There were no material transactions between the Company and
SimpleNet prior to the combination, and immaterial adjustments were recorded to
conform SimpleNet's accounting policies to those of the Company. Merger related
costs of $1,534,000 related primarily to legal and accounting fees, underwriting
commissions and certain other expenses related directly to the Merger were
recorded as a result of the transaction.
F-13
<PAGE>
BROADCAST.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BUSINESS COMBINATIONS (CONTINUED)
The following information presents certain statement of operations data of
the separate companies (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------
1999 1998 1998 1997 1996
--------- --------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Broadcast.com...................... $ 9,077 $ 3,175 $ 17,654 $ 6,856 $ 1,756
SimpleNet.......................... -- 1,018 4,718 2,293 293
Net Roadshow....................... 1,211 330 1,898 30 --
--------- --------- ---------- --------- ---------
Combined....................... $ 10,288 $ 4,523 $ 24,270 $ 9,179 $ 2,049
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Net income (loss)
Broadcast.com...................... $ (4,538) $ (2,723) $ (14,290) $ (6,474) $ (2,989)
SimpleNet.......................... -- (98) (2,154) (194) (8)
Net Roadshow....................... 691 183 984 (133) --
--------- --------- ---------- --------- ---------
Combined....................... $ (3,847) $ (2,638) $ (15,460) $ (6,801) $ (2,997)
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
</TABLE>
On April 1, 1998, the Company purchased certain Web site design and
development assets from CreateTech, Inc. ("CreateTech assets") for an aggregate
purchase price of $400,000. The acquisition was accounted for as a purchase,
whereby the excess purchase price over the net assets acquired has been recorded
based upon the fair market values of assets acquired and liabilities assumed.
The approximate fair value of property and equipment acquired at the date of
acquisition was $65,000. The excess purchase price over the net assets acquired
is being amortized on a straight-line basis over a ten-
year period. Accumulated amortization totaled $25,000 at December 31, 1998. The
Company's consolidated statements of operations include the results of the
operations of the CreateTech assets since April 1, 1998. The operations of the
CreateTech assets are not significant to the Company's operations.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Computer hardware.............................................. $ 8,453 $ 4,342
Computer software.............................................. 935 588
Furniture and equipment........................................ 702 232
Leasehold improvements......................................... 1,660 792
--------- ---------
11,750 5,954
Accumulated depreciation....................................... (4,964) (1,879)
--------- ---------
$ 6,786 $ 4,075
--------- ---------
--------- ---------
</TABLE>
F-14
<PAGE>
BROADCAST.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT (CONTINUED)
Computer software represents software purchased from outside vendors for
internal use and is being amortized over one year. Assets under capital leases
totaling $914,000 at December 31, 1997 were purchased by the Company in 1998.
6. COMMITMENTS AND CONTINGENCIES
A summary of future minimum lease payments under operating leases for
buildings and equipment as of December 31, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
- ---------------------------------------------------------------------
<S> <C>
1999................................................................. $ 996
2000................................................................. 634
2001................................................................. 396
2002................................................................. 318
2003 and thereafter.................................................. 748
---------
Total............................................................ $ 3,092
---------
---------
</TABLE>
Rental expense of approximately $544,000, $262,000 and $28,000 was incurred
during 1998, 1997 and 1996, respectively.
In December 1997, the Company entered into an agreement with Yahoo! to
integrate their services and conduct certain joint marketing activities. In
December 1997, the Company paid Yahoo! $1,000,000, representing a prepaid
advertising credit (see Note 2). The Company agreed to pay Yahoo! an additional
$1,500,000 in 1998, pursuant to which Yahoo! agreed to promote broadcast.com
programming on its Web site. The Company has paid all amounts due and the
agreement terminated on January 31, 1999.
In December 1997, the Company entered into a line of credit, which provides
for borrowings of up to $2,500,000 for working capital needs and equipment
purchases. The Company's right to make borrowings under the line of credit can
be terminated by the lender upon the occurrence of a default by the Company,
including an uncured failure to pay principal or interest due under the
facility, certain breaches of the representations and warranties made by the
Company in connection with the establishment of the line of credit, and certain
insolvency events of the Company. The Company is obligated to pay monthly
interest on amounts outstanding under the line of credit, but no commitment fee
is payable by the Company with respect to unaccessed funding capacity. The
agreement expired in 1998.
Pursuant to an agreement with Capitol Radio Network, Inc. ("Capitol"), the
Company is obligated to purchase a minimum of $75,000 of advertising spots from
Capitol each year during the term of the agreement which began in February 1997
and which expires on December 31, 2000.
From time to time, the Company is subject to legal proceedings and claims in
the ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property rights. The Company is not currently
aware of any legal proceedings or claims that the Company believes will have,
individually or in the aggregate, a material adverse effect on the Company's
financial position, results of operations or cash flows.
F-15
<PAGE>
BROADCAST.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
The components of income tax expense for the years ended December 31, 1998,
1997, and 1996 are (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- ----- -----
<S> <C> <C> <C>
Current:
Federal................................................ -- $ 34 $ 18
State.................................................. -- 9 7
--------- --- ---
-- 43 25
Deferred:
Federal................................................ -- -- --
State.................................................. -- -- --
--------- --- ---
Provision for income taxes................................. -- $ 43 $ 25
--------- --- ---
--------- --- ---
</TABLE>
Deferred taxes are provided for those items reported in different periods
for income tax and financial reporting purposes. The net deferred tax asset has
been fully reserved because of uncertainty regarding the Company's ability to
recognize the benefit of the asset in future years. Included in the deferred tax
asset and valuation allowance is approximately $172,000 resulting from the
exercise of stock warrants which will be credited to additional paid-in-capital
when realized. The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets are presented below (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................................... $ 10,451 $ 3,797
Intangible amortization............................................. 59 35
Depreciation........................................................ 438 124
Deferred revenue.................................................... 161 101
Other............................................................... 46 12
---------- ---------
Gross deferred tax assets........................................... 11,155 4,069
Deferred tax liabilities:
Accrual to cash adjustment.......................................... 576 368
Capital leases...................................................... 320 1
---------- ---------
Net deferred tax assets................................................. 10,259 3,700
Valuation allowance..................................................... (10,259) (3,700)
---------- ---------
Deferred tax balance.................................................... $ -- $ --
---------- ---------
---------- ---------
</TABLE>
F-16
<PAGE>
BROADCAST.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The provision for income taxes is different than the amount computed using
the applicable statutory federal income tax rate with the difference for each
year summarized below:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Federal tax benefit at statutory rate.............................................. (34)% (34)% (34)%
State taxes, net of federal benefit................................................ (3)% (4)% (4)%
Adjustment due to increase in valuation allowance.................................. 37% 39% 39%
-- -- --
Provision for income taxes......................................................... --% 1% 1%
</TABLE>
As of December 31, 1998, the Company has available net operating loss
carryforwards totaling approximately $28,270,000 which expire beginning in 2011.
Utilization of net operating loss carryforwards may be limited by ownership
changes which may have occurred or could occur in the future and by the separate
return limitation year ("SRLY") rules.
Net Roadshow was taxed as an S corporation for all periods presented,
therefore all income taxes were paid by the stockholders individually.
Accordingly, no provision or liability has been made in the financial statements
for Net Roadshow; however, an amount sufficient to cover the stockholders' tax
liabilities on the Company's taxable income was paid out in the form of
distributions to stockholders. The pro-forma adjustments for a provision for
income taxes would have been $0 for all periods presented.
8. STOCK PLANS
The Company's 1998 Stock Option Plan for employees and consultants was
approved by the Board of Directors in August 1997 and approved by the
stockholders of the Company in June 1998, and, as amended, authorizes the grant
of up to 5,600,000 shares of the Company's Common Stock in the form of incentive
stock options ("ISOs") and nonqualified stock options ("NSOs"). The plan is
administered by the Compensation Committee of the Board of Directors (the
"Committee"). Options typically expire 10 years from the date of grant, and
become exercisable in installments of 20% per year commencing one year from the
date of grant, or over such other vesting period determined by the Committee.
Compensation expense is recorded and amortized over the options' vesting period
for options granted to consultants. The amount of compensation expense is
calculated based on the fair value of the options determined using the
Black-Scholes Option Pricing Model. Shares issued for such options come from the
Company's authorized but unissued or reacquired Common Stock.
The Company's 1996 Stock Option Plan for employees and consultants was
approved by the Board of Directors and stockholders of the Company in April 1996
and authorizes the grant of up to 2,880,000 shares of the Company's Common Stock
in the form of ISOs and NSOs. The plan is administered by the Committee. Options
typically expire 10 years from the date of grant, and under Committee policy
become exercisable in installments of 20% per year commencing one year from the
date of grant, or over such other vesting period determined by the Committee.
Shares issued for such options come from the Company's authorized but unissued
or reacquired Common Stock. Effective August 19, 1997, the Company discontinued
the 1996 Stock Option Plan.
The Company's 1996 Stock Option Plan for Non-Employee Directors, which was
approved by the Board of Directors and the stockholders in April 1996,
authorizes the grant of up to 300,000 shares of the Company's Common Stock in
the form of ISOs and NSOs. The plan is administered by the
F-17
<PAGE>
BROADCAST.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK PLANS (CONTINUED)
Committee. Options typically expire 10 years from the date of grant, and under
Committee policy become exercisable in installments of 50% per year commencing
one year from the date of grant, or over such other vesting period determined by
the Committee. Shares issued for such options come from the Company's authorized
but unissued or reacquired Common Stock. During 1998, the Company granted to
non-employee directors options to purchase 30,000 shares of Common Stock at an
exercise price of $4.95 per share and options to purchase 34,800 shares of
Common Stock at an exercise price of $9.00 per share. During 1996, the Company
granted to a non-employee director an option to purchase 30,000 shares of Common
Stock at an exercise price of $0.54 per share. At December 31, 1998 and December
31, 1997, 79,800 and 30,000, respectively, of these options were outstanding.
If compensation cost for the Company's stock option plans had been
determined based on the fair value at the grant date for awards issued in 1998,
1997 and 1996 consistent with the provisions of FAS 123, then the Company's net
loss would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Net loss--as reported (in thousands)................................... $ (15,460) $ (6,801) $ (2,997)
Net loss--pro forma (in thousands)..................................... (17,335) (7,004) (3,034)
Basic and diluted net loss per share--as reported...................... (0.47) (0.28) (0.15)
Basic and diluted net loss per share--pro forma........................ (0.53) (0.29) (0.15)
</TABLE>
The weighted average fair value at date of grant for options granted during
1998, 1997 and 1996 was $20.82, $1.08 and $0.43 per option, respectively. The
fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Dividend yield.................................................. -- -- --
Expected volatility............................................. 80.2% -- --
Risk-free rate of return........................................ 4.9% 5.9% 6.2%
Expected life................................................... 3.0 years 3.0 years 3.0 years
Expected forfeiture rate........................................ 15.0% 15.0% --
</TABLE>
F-18
<PAGE>
BROADCAST.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK PLANS (CONTINUED)
The following table summarizes activity under the Company's stock option
plans during the years ended December 31, 1998 1997 and 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE PRICE
---------- ------------- -------------
<S> <C> <C> <C>
Outstanding at December 31, 1995............................. --
Granted.................................................. 1,416,614 $ 0.54- 9.00 $ 1.57
----------
Outstanding at December 31, 1996............................. 1,416,614 0.54- 9.00 1.57
Granted.................................................. 2,554,132 3.40- 8.05 3.41
Forfeited................................................ (174,080) 1.35- 3.40 3.14
----------
Outstanding at December 31, 1997............................. 3,796,666 0.54- 9.00 2.74
Granted.................................................. 4,084,568 4.71-38.13 19.44
Exercised................................................ (59,364) 1.35- 4.95 3.65
Forfeited................................................ (312,754) 0.54-25.75 3.88
----------
Outstanding at December 31, 1998............................. 7,509,116 0.54-38.13 11.77
----------
----------
Options exercisable at December 31, 1998..................... 1,304,606 $ 0.54-27.88 $ 3.14
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER REMAINING NUMBER
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- --------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$ 0.54 15,000 7.4 years 15,000
1.35 1,280,800 7.4 years 505,360
1.67 12,000 7.9 years 4,800
3.40 2,184,880 8.5 years 542,394
4.03 6,240 8.0 years 1,248
4.71 858,122 9.3 years 73,722
4.95 463,000 9.4 years 103,000
8.05 6,240 8.0 years 1,248
9.00 176,134 9.1 years 47,834
20.22 65,000 9.7 years 0
20.97 55,000 9.8 years 0
25.75 107,500 9.8 years 0
27.88 1,981,200 9.9 years 10,000
38.13 32,000 10.0 years 0
38.82 266,000 10.0 years 0
</TABLE>
In addition to the option activity described above, in September 1996, the
Company issued a warrant to purchase 31,920 shares of Common Stock at an
exercise price of $3.40 per share, which was subsequently exercised in July
1998. In February and December 1997, the Company issued 294,240 and 318,472
warrants, respectively, for the purchase of Common Stock to two participants in
private placement offerings at exercise prices of $3.40 and $4.71, respectively
(see Note 9).
F-19
<PAGE>
BROADCAST.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK PLANS (CONTINUED)
During May 1998, the Company's Board of Directors adopted the 1998 Employee
Stock Purchase Plan (the Plan). Under the Plan, eligible employees may purchase
shares of the Company's Common Stock at a discount through voluntary monthly
payroll deductions with a maximum contribution being 10% of an eligible
employee's salary, beginning in August 1998. Semi-annually, on February 15 and
August 15, participant account balances are used to purchase shares at the
lesser of 85 percent of the fair market value of the Common Stock on either the
first or last day of the subscription period.
The Company sponsors a defined contribution plan covering substantially all
employees; the plan is qualified under Section 401(k) of the Internal Revenue
Code. Under the provisions of the plan, eligible participating employees may
elect to contribute up to the maximum amount of tax deferred contribution
allowed by the Internal Revenue Code. The Company did not make matching
contributions to the plan in 1998, 1997 or 1996.
9. STOCKHOLDERS' EQUITY
The Company completed an initial public offering in July 1998. The Company's
Registration Statement on Form S-1 with respect to the initial public offering
was declared effective on July 16, 1998, and the Company's stock began trading
on the Nasdaq National Market under the symbol BCST on July 17, 1998. The
Company sold 5,375,000 shares of Common Stock at a per share price of $9.00. Net
proceeds to the Company, after deduction of the underwriting discount and
related expenses, were approximately $43.2 million. A selling shareholder also
sold 375,000 shares at a per share price of $9.00. Net proceeds to the
shareholder after deduction of the underwriting discount was approximately $3.1
million. The Company did not receive any proceeds from the sale of shares by the
selling shareholder.
The Company granted to certain owners of Common Stock preemptive rights that
expired immediately prior to the Company's initial public offering.
In March 1998, the Company issued 814,332 shares of Common Stock to new and
existing stockholders for $3,835,504 or $4.71 per share.
In December 1997, the Company issued 4,591,570 shares of Common Stock for
$21,626,294 or $4.71 per share to new and existing stockholders, including
Motorola, Intel and Yahoo! In connection with these transactions, the two
largest stockholders agreed to vote their shares so as to elect a second nominee
of Motorola to the Board of Directors and the Company issued a warrant to Yahoo!
for approximately $600,000 representing the right to purchase 318,472 shares of
the Company's Common Stock at a strike price of $4.71 per share or $1,500,000.
The warrant is exercisable immediately and expires on December 30, 2000.
Between September 1996 and May 1997, the Company issued a total of 3,741,360
shares of Common Stock to new and existing stockholders, including Motorola and
Intel, for approximately $3.40 per share or $12,712,830. In connection with
Motorola's investment in September 1996, the two largest stockholders agreed to
vote their shares so as to elect a nominee of Motorola to the Board of
Directors. In February 1997, the Company issued a warrant to Intel for $120,000
representing the right to acquire 294,240 shares of the Company's Common Stock
at a price of $3.40 per share, or $1,000,416. Under the terms of the warrant,
the right to acquire 117,720 shares is exercisable immediately and expires on
February 23, 2004. However, the right to acquire the remaining 176,520 shares of
the Company's Common Stock at $3.40 per share did not vest and expired on June
30, 1998. In addition,
F-20
<PAGE>
BROADCAST.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
an underwriting fee related to certain of these transactions totaling
approximately $365,000 was recorded as a reduction in additional paid-in
capital.
In July 1996, the Company repurchased 240,000 shares of Common Stock from
Cameron for $0.67 per share or $160,000 and subsequently resold these shares to
new and existing stockholders for $0.67 per share.
In June 1996, the Company issued 998,160 shares of Common Stock to new and
existing stockholders for $536,012 or approximately $0.54 per share.
Between January and March 1996, the Company issued a total of 6,561,120
shares of Common Stock to new and existing stockholders of the Company for $0.25
per share or $1,640,280.
10. RELATED PARTY TRANSACTIONS
A stockholder of the Company loaned the Company $60,120 during 1997. No
interest accrued in 1997. The note was formalized in 1998 and accrues interest
at 7%. The note and related interest is due on December 31, 1999. The note was
settled in stock in conjunction with the merger with Net Roadshow (see Note 4).
The Company and Motorola, a stockholder of the Company, entered into a
Negotiation Rights Agreement in September 1996 pursuant to which the Company
agreed to offer Motorola a non-exclusive license to certain of its technologies
as well as certain rights of notice and first negotiation with Motorola
regarding licenses that the Company proposes to grant to other parties. In
connection with this agreement, the Company, Motorola, and the two largest
stockholders entered into a stockholders agreement pursuant to which Motorola
was granted representation rights on the Company's Board of Directors and
certain tag-along rights with respect to certain sales of shares by the two
largest stockholders after the date of the Offering. Motorola is also a customer
of the Company, to which the Company provides business services. These
relationships with Motorola have generated revenues for the Company of $406,000
and $10,000 for the twelve months ending December 31, 1998 and 1997,
respectively.
11. SUBSEQUENT EVENTS
On March 31, 1999 the Company entered into a definitive agreement to be
acquired by Yahoo!. Under the terms of the agreement, Yahoo! will issue 0.7722
of a share of Yahoo! common stock for each share of the Company's Common Stock.
In addition, all outstanding options of the Company will be converted into
Yahoo! options. The acquisition, which will be accounted for as a pooling of
interests and is subject to certain conditions, including regulatory approval
and approval by the Company's shareholders, is expected to be completed in the
third quarter of 1999.
In March 1999, a newly formed subsidiary of the Company merged with Net
Roadshow, Inc., a provider of Internet initial public offerings and other
financial roadshow services (see Note 4).
In February 1999, the Company announced an agreement with Trimark Holdings,
Inc. in which the Company will license Trimark's library of films for
distribution over the Internet. Under the terms of the agreement, Trimark will
exchange 412,363 of its common stock and the rights to broadcast its films for
45,858 of the Company's Common Stock. The amount by which the fair value of the
Company's common stock issued exceeded the fair value of the Trimark common
stock received was capitalized as
F-21
<PAGE>
BROADCAST.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS (CONTINUED)
an intangible asset to be amortized over the length of the agreement. The
Trimark common stock is being accounted for under Statement of Financial
Accounting Standards No. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES."
In January 1999, the Company and Softbank Corp., Japan's largest distributor
of software and computer technology publications, announced plans to form a
joint venture to launch broadcast.com japan. The new company will aggregate and
broadcast Japanese language-based audio and video programming to Internet users,
and will also sell the Company's Internet and intranet broadcasting services to
business customers in Japan. The joint venture will be accounted for using the
equity method of accounting as the Company owns 40% of the joint venture. The
Company's investment was funded by a note payable to Softbank Corp.
F-22
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
YAHOO! INC.
ALAMO ACQUISITION CORP.
AND
BROADCAST.COM INC.
DATED AS OF MARCH 31, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
ARTICLE I THE MERGER................................................................................... A-1
1.1 The Merger...................................................................................... A-1
1.2 Effective Time; Closing......................................................................... A-2
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 Broadcast.com Common Stock....................................... A-4
1.9 Lost, Stolen or Destroyed Certificates.......................................................... A-4
1.10 Tax and Accounting Consequences................................................................. A-5
1.11 Taking of Necessary Action; Further Action...................................................... A-5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY................................................... A-5
2.1 Organization of Broadcast.com................................................................... A-5
2.2 Broadcast.com Capital Structure................................................................. A-5
2.3 Obligations With Respect to Capital Stock....................................................... A-6
2.4 Authority....................................................................................... A-7
2.5 SEC Filings; Broadcast.com 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-10
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-13
2.13 Environmental Matters........................................................................... A-16
2.14 Agreements, Contracts and Commitments........................................................... A-17
2.15 Pooling of Interests............................................................................ A-18
2.16 Change of Control Payments...................................................................... A-18
2.17 Statements; Proxy Statement/Prospectus.......................................................... A-18
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-19
3.1 Organization of Yahoo! and Merger Sub........................................................... A-19
3.2 Yahoo! and Merger Sub Capital Structure......................................................... A-19
3.3 Authority....................................................................................... A-20
3.4 SEC Filings; Yahoo! Financial Statements........................................................ A-20
3.5 Absence of Certain Changes or Events............................................................ A-21
3.6 Proxy Statement/Prospectus...................................................................... A-21
3.7 Litigation...................................................................................... A-21
3.8 Pooling of Interests............................................................................ A-21
3.9 Affiliates...................................................................................... A-22
3.10 Valid Issuance.................................................................................. A-22
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
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<C> <S> <C>
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME......................................................... A-22
4.1 Conduct of Business by Broadcast.com............................................................ 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............................... A-24
5.2 Meeting of Broadcast.com Stockholders........................................................... A-24
5.3 Confidentiality; Access to Information.......................................................... A-26
5.4 No Solicitation................................................................................. A-26
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 Company Stock Option............................................................................ A-31
5.14 Letter of Broadcast.com's 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 Broadcast.com........................................... A-34
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 Broadcast.com Voting Agreement
Exhibit B Form of Broadcast.com Affiliate Agreement
Exhibit C Form of Noncompetition Agreement
Exhibit D 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 March 31,
1999 (this "AGREEMENT"), among Yahoo! Inc., a California corporation ("YAHOO!"),
Alamo Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Yahoo! ("MERGER SUB"), and broadcast.com inc., a Delaware corporation
("BROADCAST.COM").
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 broadcast.com intend to enter into a business combination
transaction.
B. The Board of Directors of broadcast.com (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 broadcast.com and advisable and fair to, and in
the best interests of, broadcast.com 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
broadcast.com 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 broadcast.com are entering into Voting Agreements in
substantially the form attached hereto as EXHIBIT A (the "BROADCAST.COM VOTING
AGREEMENTS") and certain persons or entities who may be deemed to be affiliates
of broadcast.com are entering into Affiliate Agreements in substantially the
form attached hereto as EXHIBIT B (the "BROADCAST.COM AFFILIATE AGREEMENTS").
E. In addition, concurrently with the execution of this Agreement, and as a
condition and inducement to Yahoo!'s willingness to enter into this Agreement,
Mark Cuban and Todd R. Wagner are entering into Noncompetition Agreements in
substantially the form attached hereto as EXHIBIT C (the "NONCOMPETITION
AGREEMENTS").
F. 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").
G. 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 broadcast.com (the "MERGER"), the
separate corporate existence of Merger Sub shall cease and broadcast.com shall
continue as the surviving corporation. Broadcast.com as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"SURVIVING CORPORATION."
A-1
<PAGE>
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 broadcast.com and
Yahoo! and specified in the Certificate of Merger) being the "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 broadcast.com and
Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities
and duties of broadcast.com 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 broadcast.com inc."
(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, broadcast.com or the
holders of any of the following securities:
(a) CONVERSION OF BROADCAST.COM COMMON STOCK. Each share of common
stock, par value $0.01 per share, of broadcast.com ("BROADCAST.COM COMMON
STOCK") issued and outstanding immediately prior to the Effective Time,
other than any shares of broadcast.com 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
0.7722 of a share (the "EXCHANGE RATIO") of common stock, par value $0.00017
per share, of Yahoo! ("YAHOO! COMMON STOCK") upon surrender of the
certificate representing such share of broadcast.com Common Stock in the
manner provided in Section 1.7.
(b) CANCELLATION OF BROADCAST.COM-OWNED AND YAHOO!-OWNED STOCK. Each
share of broadcast.com Common Stock held by broadcast.com or owned by Merger
Sub, Yahoo! or any direct or indirect wholly owned subsidiary of
broadcast.com or of Yahoo! immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
A-2
<PAGE>
(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.
(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 broadcast.com Common
Stock), reorganization, recapitalization, reclassification or other like
change with respect to Yahoo! Common Stock or broadcast.com 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 broadcast.com 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 broadcast.com 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 broadcast.com 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 broadcast.com 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 broadcast.com
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 broadcast.com 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
A-3
<PAGE>
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 broadcast.com 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).
(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
broadcast.com 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 BROADCAST.COM 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 broadcast.com Common Stock, and there shall be no further registration
of transfers on the records of the Surviving Corporation of shares of
broadcast.com 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
broadcast.com 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.
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<PAGE>
1.10 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.
1.11 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 broadcast.com and Merger Sub, the officers and directors of
broadcast.com 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 COMPANY
Broadcast.com represents and warrants to Yahoo! and Merger Sub, subject to
the exceptions specifically disclosed in writing in the disclosure letter
delivered by broadcast.com to Yahoo! dated as of the date hereof and certified
by a duly authorized officer of broadcast.com (the "BROADCAST.COM DISCLOSURE
LETTER"), as follows:
2.1 ORGANIZATION OF BROADCAST.COM.
(a) Broadcast.com 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 broadcast.com, 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) Broadcast.com has delivered to Yahoo! a true and complete list of all of
broadcast.com's subsidiaries as of the date of this Agreement, indicating the
jurisdiction of organization of each subsidiary and broadcast.com's equity
interest therein. Except as set forth on such list, neither broadcast.com 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
broadcast.com.
(c) Broadcast.com has delivered or made available to Yahoo! a true and
correct copy of the Certificate of Incorporation and Bylaws of broadcast.com and
similar governing instruments of each of its subsidiaries, each as amended to
date, and each such instrument is in full force and effect. Neither
broadcast.com nor any of its subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent governing
instruments.
2.2 BROADCAST.COM CAPITAL STRUCTURE. The authorized capital stock of
broadcast.com consists of 60,000,000 shares of Common Stock, par value $0.01 per
share, of which there were 36,851,149 shares issued and outstanding as of March
31, 1999 (none of which were held by broadcast.com in its treasury), and
5,000,000 shares of Preferred Stock, par value $0.01 per share, none of which
are issued or outstanding. All outstanding shares of broadcast.com 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 broadcast.com or any agreement or document to which
broadcast.com is a party or by which it is bound. As of March 31, 1999,
broadcast.com had reserved an
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aggregate of (i) 5,187,296 shares of broadcast.com Common Stock for issuance
pursuant to broadcast.com's 1998 Stock Option Plan, (ii) 2,438,074 shares of
broadcast.com Common Stock for issuance pursuant to broadcast.com's 1996 Stock
Option Plan, and (iii) 277,500 shares of broadcast.com Common Stock for issuance
pursuant to broadcast.com's 1996 Non-Employee Directors Stock Option Plan. As of
March 31, 1999, there were options outstanding to purchase an aggregate of (u)
5,121,108 shares of broadcast.com Common Stock pursuant to broadcast.com's 1998
Stock Option Plan, (v) 1,834,600 shares of broadcast.com Common Stock pursuant
to broadcast.com's 1996 Stock Option Plan, and (w) 57,300 shares of
broadcast.com Common Stock pursuant to broadcast.com's 1996 Non-Employee
Directors Stock Option Plan. Broadcast.com's 1998 Stock Option Plan,
broadcast.com's 1996 Stock Option Plan and broadcast.com's 1996 Non-Employee
Directors Stock Option Plan are collectively referred to in this Agreement as
the "BROADCAST.COM STOCK OPTION PLANS." There are warrants outstanding to
purchase 436,192 shares of broadcast.com Common Stock. As of March 31, 1999,
broadcast.com had reserved an aggregate of 494,849 shares of broadcast.com
Common Stock for issuance pursuant to broadcast.com's 1998 Employee Stock
Purchase Plan (the "ESPP"). All shares of broadcast.com 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 broadcast.com Disclosure
Letter lists for each person who held options or warrants to acquire shares of
broadcast.com Common Stock as of March 31, 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 broadcast.com 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 broadcast.com owns
free and clear of all claims and encumbrances, directly or indirectly through
one or more subsidiaries, there are no equity securities, partnership interests
or similar ownership interests of any class of equity security of any subsidiary
of broadcast.com, 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 broadcast.com or any of its subsidiaries is a party or by which it is
bound obligating broadcast.com 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
broadcast.com or any of its subsidiaries or obligating broadcast.com or any of
its subsidiaries to grant, extend, accelerate the vesting of or enter into any
such subscription, option, warrant, equity security, call, right, commitment or
agreement. Except as contemplated by this Agreement, there are no registration
rights and there is no voting trust, proxy, rights plan, antitakeover plan or
other agreement or understanding to which broadcast.com is a party or by which
it is bound with respect to any equity security of any class of broadcast.com or
with respect to any equity security, partnership interest or similar ownership
interest of any class of any of its subsidiaries. Stockholders of broadcast.com
will not be entitled to dissenters' rights under applicable state law in
connection with the Merger.
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2.4 AUTHORITY.
(a) Broadcast.com 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 broadcast.com, subject only to the approval and
adoption of this Agreement and the approval of the Merger by broadcast.com's
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
broadcast.com Common Stock is sufficient for broadcast.com's stockholders to
approve and adopt this Agreement and approve the Merger. This Agreement has been
duly executed and delivered by broadcast.com and, assuming the due execution and
delivery by Yahoo! and Merger Sub, constitutes a valid and binding obligation of
broadcast.com, enforceable against broadcast.com 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
broadcast.com does not, and the performance of this Agreement by broadcast.com
will not, (i) conflict with or violate the Certificate of Incorporation or
Bylaws of broadcast.com 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 broadcast.com's 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 broadcast.com or any of its subsidiaries or by
which broadcast.com 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 broadcast.com's 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 broadcast.com 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 broadcast.com, to which broadcast.com or any of its subsidiaries is
a party or by which broadcast.com or any of its subsidiaries or its or any of
their respective assets are bound or affected. The broadcast.com Disclosure
Letter lists all consents, waivers and approvals under any of broadcast.com's 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 broadcast.com, Yahoo! or the Surviving Corporation as a
result of the Merger that would be reasonably likely to result in a Material
Adverse Effect (as defined in Section 8.3(c)) with respect to broadcast.com,
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 broadcast.com 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, foreign and state securities (or related) laws and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), and (iv) such other consents, authorizations, filings, approvals and
registrations which if not obtained or made would not be material to
broadcast.com or Yahoo! or have a material adverse effect on the ability of the
parties hereto to consummate the Merger.
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2.5 SEC FILINGS; BROADCAST.COM FINANCIAL STATEMENTS.
(a) Broadcast.com has filed all forms, reports and documents required to be
filed by broadcast.com with the SEC since July 16, 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 broadcast.com
may file subsequent to the date hereof) are referred to herein as the
"BROADCAST.COM SEC REPORTS." As of their respective dates, the broadcast.com 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 broadcast.com 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 broadcast.com'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 broadcast.com SEC Reports (the
"BROADCAST.COM FINANCIALS"), including each broadcast.com 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 broadcast.com and its subsidiaries as at the respective
dates thereof and the consolidated results of broadcast.com'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 broadcast.com contained
in broadcast.com SEC Reports as of December 31, 1998 is hereinafter referred to
as the "BROADCAST.COM BALANCE SHEET." Except as disclosed in the broadcast.com
Financials, since the date of the broadcast.com Balance Sheet neither
broadcast.com 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 broadcast.com and its
subsidiaries taken as a whole, except for liabilities incurred since the date of
the broadcast.com 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) Broadcast.com 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 broadcast.com 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
broadcast.com Balance Sheet there has not been: (i) any Material Adverse Effect
with respect to broadcast.com 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 broadcast.com's
capital stock, or any purchase, redemption or other acquisition by broadcast.com
of any of broadcast.com's capital stock or any other securities of broadcast.com
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 broadcast.com's
capital stock, (iv) any granting by broadcast.com or any of its subsidiaries of
any increase in compensation or fringe benefits to any of their officers,
directors or managers or employees
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who earn more than $100,000 per year, or any payment by broadcast.com 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 broadcast.com
or any of its subsidiaries of any increase in severance or termination pay or
any entry by broadcast.com 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 broadcast.com of the nature contemplated hereby, (v)
any material change or alteration in the policy of broadcast.com relating to the
granting of stock options to its employees and consultants, (vi) entry by
broadcast.com 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 broadcast.com 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 broadcast.com or its subsidiaries in an amount in excess of $50,000 over the
term of the agreement, (vii) any material change by broadcast.com in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, or (viii) any revaluation by broadcast.com 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) Broadcast.com 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 broadcast.com and each of its subsidiaries with any Tax authority,
such Returns are true, correct and complete in all material respects, and
broadcast.com and each of its subsidiaries have paid (where required by law or
otherwise accrued) all Taxes shown to be due on such Returns.
(ii) Broadcast.com 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.
(iii) There is no material Tax deficiency outstanding, proposed or assessed
against broadcast.com or any of its subsidiaries, nor has broadcast.com 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 broadcast.com or any of
its subsidiaries by any Tax authority is presently in progress, nor has
broadcast.com or any of its subsidiaries been notified of any request for such
an audit or other examination.
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(v) No adjustment of Tax relating to any Returns filed by broadcast.com or
any of its subsidiaries has been proposed in writing formally or informally by
any Tax authority to broadcast.com or any of its subsidiaries or any
representative thereof.
(vi) Neither broadcast.com nor any of its subsidiaries has any liability for
unpaid Taxes which has not been accrued for or reserved on the broadcast.com
Balance Sheet, whether asserted or unasserted, contingent or otherwise, which is
material to broadcast.com, other than any liability for unpaid Taxes that may
have accrued since the date of the broadcast.com Balance Sheet in connection
with the operation of the business of broadcast.com and its subsidiaries in the
ordinary course.
(vii) There is no contract, agreement, plan or arrangement to which
broadcast.com 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 broadcast.com 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 broadcast.com 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 broadcast.com.
(ix) Neither broadcast.com 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, broadcast.com 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) Broadcast.com 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 broadcast.com and each of its subsidiaries
filed for all periods since its inception.
(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 broadcast.com or any of its subsidiaries relating to
or attributable to Taxes, other than Liens for Taxes not yet due and payable.
2.8 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) Broadcast.com owns no real property interests. The broadcast.com
Disclosure Letter lists all real property leases to which broadcast.com 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 broadcast.com in an amount greater than $50,000.
(b) Broadcast.com 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 broadcast.com
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.
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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.
"BROADCAST.COM INTELLECTUAL PROPERTY" shall mean any Intellectual
Property that is owned by, or exclusively licensed to, broadcast.com 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.
"BROADCAST.COM REGISTERED INTELLECTUAL PROPERTY" means all of the
Registered Intellectual Property owned by, or filed in the name of,
broadcast.com or one of its subsidiaries.
(a) No broadcast.com Intellectual Property or product or service of
broadcast.com is subject to any proceeding or outstanding decree, order,
judgment, agreement, or stipulation of any Governmental Entity restricting
(other than such restrictions that are contained in the instrument by which
broadcast.com acquired such broadcast.com Intellectual Property) in any
manner the use, transfer, or licensing thereof by broadcast.com, or which
may affect the validity, use or enforceability of such broadcast.com
Intellectual Property, which in any such case would be reasonably likely to
have a Material Adverse Effect on broadcast.com.
(b) Each material item of broadcast.com 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
broadcast.com.
(c) Broadcast.com 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 to, each material item of broadcast.com
Intellectual Property used in connection with the conduct of its business as
currently conducted free and clear of any lien or encumbrance (excluding
licenses and related restrictions); and broadcast.com or one of its
subsidiaries is the exclusive owner of all trademarks and trade
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names used in connection with and material to the operation or conduct of
the business of broadcast.com and its subsidiaries, including the sale of
any products or the provision of any services by broadcast.com and its
subsidiaries.
(d) Broadcast.com or one of its subsidiaries owns exclusively, and has
good title to, all copyrighted works that are broadcast.com products or
which broadcast.com otherwise expressly purports to own.
(e) To the extent that any material Intellectual Property has been
developed or created by a third party for broadcast.com or any of its
subsidiaries, broadcast.com or its subsidiaries, as the case may be, has a
written agreement with such third party with respect thereto and
broadcast.com 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 to all such third party's
Intellectual Property in such work, material or invention by operation of
law or by valid assignment.
(f) The broadcast.com Disclosure Letter lists all material contracts,
licenses and agreements to which broadcast.com is a party (i) with respect
to broadcast.com 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 broadcast.com.
(g) All material contracts, licenses and agreements relating to the
broadcast.com 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
broadcast.com. Broadcast.com 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 broadcast.com, 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 broadcast.com's rights
under such contracts, licenses and agreements to the same extent
broadcast.com 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 broadcast.com would otherwise be required to pay.
(h) The operation of the business of broadcast.com as such business
currently is conducted, including broadcast.com's design, development,
marketing and sale of the products or services of broadcast.com (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 party or, to the knowledge of broadcast.com,
constitute unfair competition or trade practices under the laws of any
jurisdiction.
(i) Broadcast.com has not received written notice from any third party,
and to the knowledge of broadcast.com, no other pending overt threat from
any third party, that the operation of the business of broadcast.com or any
act, product or service of broadcast.com, 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 broadcast.com, no person has or is infringing or
misappropriating any broadcast.com Intellectual Property.
(k) Broadcast.com and its subsidiaries have taken reasonable steps to
protect broadcast.com's and its subsidiaries' rights in broadcast.com's and
such subsidiaries' confidential information and
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trade secrets that they wish to protect or any trade secrets or confidential
information of third parties provided to broadcast.com or such subsidiaries,
and, without limiting the foregoing, broadcast.com 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 broadcast.com or one of its subsidiaries of any such
trade secrets or confidential information.
2.10 COMPLIANCE WITH LAWS; PERMITS; RESTRICTIONS.
(a) Neither broadcast.com 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 broadcast.com or any of its
subsidiaries or by which broadcast.com 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 broadcast.com or any of its
subsidiaries is a party or by which broadcast.com 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
broadcast.com. No investigation or review by any Governmental Entity is pending
or, to broadcast.com's knowledge, has been threatened in a writing delivered to
broadcast.com against broadcast.com or any of its subsidiaries, nor, to
broadcast.com's knowledge, has any Governmental Entity indicated an intention to
conduct an investigation of broadcast.com or any of its subsidiaries. There is
no material agreement, judgment, injunction, order or decree binding upon
broadcast.com 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 broadcast.com or any of its subsidiaries, any acquisition of
material property by broadcast.com or any of its subsidiaries or the conduct of
business by broadcast.com as currently conducted.
(b) Broadcast.com 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 broadcast.com as currently conducted (collectively, the
"BROADCAST.COM PERMITS"). Broadcast.com and its subsidiaries are in compliance
in all material respects with the terms of the broadcast.com Permits.
2.11 LITIGATION. There are no claims, suits, actions or proceedings that
have a reasonable likelihood of success on the merits pending or, to the
knowledge of broadcast.com, threatened against broadcast.com or any of its
subsidiaries, before any Governmental Entity or any arbitrator that seek 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 broadcast.com or the Surviving Corporation following the
Merger or have a material adverse effect on the ability of the parties hereto to
consummate the Merger. No Governmental Entity has at any time challenged or
questioned in a writing delivered to broadcast.com the legal right of
broadcast.com to design, offer or sell any of its services 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 broadcast.com within the meaning of Section 414(b), (c), (m) or
(o) of the Code and the regulations issued thereunder;
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(ii) "BROADCAST.COM 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 broadcast.com or any
Affiliate for the benefit of any Employee and pursuant to which
broadcast.com 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 broadcast.com 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 broadcast.com 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) "IRS" shall mean the Internal Revenue Service;
(x) "MULTIEMPLOYER PLAN" shall mean any "PENSION PLAN" (as defined
below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA;
(xi) "PBGC" shall mean the Pension Benefit Guaranty Corporation; and
(xii) "PENSION PLAN" shall mean each broadcast.com Employee Plan which is
an "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
(b) SCHEDULE. The broadcast.com Disclosure Letter contains an accurate and
complete list of each broadcast.com Employee Plan and each Employee Agreement.
Broadcast.com does not have any intention or commitment to establish any new
broadcast.com Employee Plan, to modify any broadcast.com Employee Plan or
Employee Agreement (except to the extent required by law or to conform any such
broadcast.com Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Yahoo! in writing, or as
required by this Agreement), or to adopt any broadcast.com Employee Plan or
Employee Agreement, nor does it have any commitment to do any of the foregoing.
The broadcast.com Disclosure Letter also contains a list of all broadcast.com
employees as of the date hereof, each such person's date of hire and each such
person's annual compensation.
(c) DOCUMENTS. Broadcast.com has provided or made available to Yahoo!: (i)
correct and complete copies of all material documents embodying to each
broadcast.com 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 broadcast.com 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 broadcast.com Employee Plan or related
trust; (iv) if the broadcast.com Employee Plan is funded, the most recent annual
and periodic accounting of broadcast.com 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
broadcast.com Employee Plan; (vi) all IRS determination, opinion, notification
and advisory letters, and rulings relating to broadcast.com Employee Plans and
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copies of all applications and correspondence to or from the IRS or the DOL with
respect to any broadcast.com Employee Plan; (vii) all material written
agreements and contracts relating to each broadcast.com 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 broadcast.com Employee Plan and any
proposed broadcast.com 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 broadcast.com; and (ix) all registration statements and
prospectuses prepared in connection with each broadcast.com Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. (i) Broadcast.com 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 broadcast.com Employee Plan, and each
broadcast.com 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 broadcast.com 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
broadcast.com Employee Plan; (iv) there are no actions, suits or claims pending,
or, to the knowledge of broadcast.com, threatened or reasonably anticipated
(other than routine claims for benefits) against any broadcast.com Employee Plan
or against the assets of any broadcast.com Employee Plan; (v) each broadcast.com
Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Yahoo!,
broadcast.com 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 broadcast.com,
threatened by the IRS or DOL with respect to any broadcast.com Employee Plan;
and (vii) neither broadcast.com nor any Affiliate is subject to any penalty or
tax with respect to any broadcast.com Employee Plan under Section 402(i) of
ERISA or Sections 4975 through 4980 of the Code.
(e) PENSION PLANS. Broadcast.com 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 broadcast.com contributed to or
been requested to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. No broadcast.com 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
broadcast.com 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.
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(h) COBRA; FMLA. Neither broadcast.com 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 broadcast.com
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 broadcast.com 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. Broadcast.com: (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 broadcast.com's knowledge,
threatened or reasonably anticipated claims or actions against broadcast.com
under any worker's compensation policy or long-term disability policy which
would be reasonably likely to have a Material Adverse Effect on broadcast.com.
To broadcast.com's knowledge, no Employee of broadcast.com has violated any
employment contract, nondisclosure agreement or noncompetition agreement by
which such Employee is bound due to such Employee being employed by
broadcast.com and disclosing to broadcast.com or using trade secrets or
proprietary information of any other person or entity.
(k) LABOR. No work stoppage or labor strike against broadcast.com is
pending, or to broadcast.com's knowledge, threatened or reasonably anticipated.
Broadcast.com 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 broadcast.com, 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
broadcast.com. Neither broadcast.com nor any of its subsidiaries has engaged in
any unfair labor practices within the meaning of the National Labor Relations
Act. Broadcast.com 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
broadcast.com.
(l) INTERNATIONAL EMPLOYEE PLAN. No Employee Plan has been adopted or
maintained by broadcast.com, whether informally or formally, for the benefit of
Employees outside the United States.
2.13 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. Except as would not result in material liability
to broadcast.com, no underground storage tanks and no amount of any substance
that has been designated by any
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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
broadcast.com or any of its subsidiaries or any affiliate of broadcast.com, or,
to broadcast.com's 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 broadcast.com 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 broadcast.com (in any individual case or in the aggregate)
(i) neither broadcast.com 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, and (ii) neither broadcast.com 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. Broadcast.com and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"BROADCAST.COM ENVIRONMENTAL PERMITS") material to and necessary for the conduct
of broadcast.com's and its subsidiaries' Hazardous Material Activities and other
businesses of broadcast.com and its subsidiaries as such activities and
businesses are currently being conducted.
2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as otherwise set forth
in the broadcast.com Disclosure Letter, neither broadcast.com 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 broadcast.com's Board of Directors, other than those that are
terminable by broadcast.com 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
broadcast.com's 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 outside the ordinary course of
broadcast.com's business or any guaranty;
(d) any agreement, contract or commitment containing any covenant
limiting in any respect the right of broadcast.com 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 broadcast.com 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 broadcast.com has any
material ownership interest in any corporation, partnership, joint venture
or other business enterprise other than broadcast.com's subsidiaries;
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(f) any licensing, distribution, sponsorship, advertising, merchant
program or other similar agreement to which broadcast.com or one of its
subsidiaries is a party which may not be canceled by broadcast.com 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
broadcast.com 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 broadcast.com's business as presently conducted.
Neither broadcast.com nor any of its subsidiaries, nor to broadcast.com's
knowledge any other party to a broadcast.com Contract (as defined below), is in
breach, violation or default under, and neither broadcast.com 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
broadcast.com or any of its subsidiaries is a party or by which it is bound that
are required to be disclosed in the broadcast.com Disclosure Letter pursuant to
clauses (a) through (h) above or pursuant to Section 2.9 hereof (any such
agreement, contract or commitment, a "BROADCAST.COM CONTRACT") in such a manner
as would permit any other party to cancel or terminate any such broadcast.com
Contract or seek damages or other remedies the effect of which would have a
Material Adverse Effect on broadcast.com.
2.15 POOLING OF INTERESTS. To the knowledge of broadcast.com, based on
consultation with its independent accountants, neither broadcast.com 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.
2.16 CHANGE OF CONTROL PAYMENTS. The broadcast.com Disclosure Letter sets
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 broadcast.com as a result of or in connection with the Merger.
2.17 STATEMENTS; PROXY STATEMENT/PROSPECTUS. The information supplied by
broadcast.com 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 not
misleading. The information supplied by broadcast.com for inclusion in the proxy
statement/prospectus to be sent to the stockholders of broadcast.com in
connection with the meeting of broadcast.com's stockholders to consider the
approval and adoption of this Agreement and the approval of the Merger (the
"BROADCAST.COM 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 broadcast.com's stockholders or at the time of the broadcast.com
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 broadcast.com Stockholders' Meeting which has
become false or misleading. If at any time prior to the Effective Time any event
relating to broadcast.com or any of its affiliates, officers or directors should
be discovered by broadcast.com which is required to be set forth in an amendment
to the Registration Statement or a supplement to the Proxy Statement/Prospectus,
broadcast.com shall promptly inform Yahoo!. Notwithstanding the foregoing,
broadcast.com makes no
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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 broadcast.com has, as of
the date of this Agreement, determined (i) that the Merger is advisable and fair
to, and in the best interests of broadcast.com and its stockholders and (ii) to
recommend that the stockholders of broadcast.com approve and adopt this
Agreement and approve the Merger.
2.19 BROKERS' AND FINDERS' FEES. Except for fees payable to Morgan Stanley
& Co. Incorporated ("MORGAN STANLEY"), broadcast.com 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 Morgan Stanley engagement
letter with broadcast.com has been previously provided to Yahoo!.
2.20 FAIRNESS OPINION. Broadcast.com's Board of Directors has received an
opinion from Morgan Stanley 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
broadcast.com's stockholders (other than Yahoo! and its affiliates).
2.21 AFFILIATES. Set forth on the broadcast.com Disclosure Letter is a
list of those persons who may be deemed to be, in broadcast.com's reasonable
judgment, affiliates of broadcast.com within the meaning of Rule 145 promulgated
under the Securities Act (each a "BROADCAST.COM AFFILIATE").
2.22 SECTION 203 NOT APPLICABLE. The Board of Directors of broadcast.com
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.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF YAHOO! AND MERGER SUB
Yahoo! and Merger Sub represent and warrant to broadcast.com, subject to the
exceptions specifically disclosed in writing in the disclosure letter delivered
by Yahoo! to broadcast.com dated as of the date hereof and certified by a duly
authorized officer of Yahoo! (the "YAHOO! DISCLOSURE LETTER"), 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 broadcast.com 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 202,926,761 shares issued and outstanding as of March 31, 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
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which it is bound. As of March 31, 1999, there were options outstanding to
purchase an aggregate of 50,823,743 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 broadcast.com,
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, 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 (v)
such other consents, authorizations, filings, approvals and registrations which
if not obtained or made would not be material to Yahoo! or broadcast.com 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
broadcast.com 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
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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 December 31, 1998 is hereinafter referred to as the "YAHOO!
BALANCE SHEET."
(c) Yahoo! has heretofore furnished to broadcast.com 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.
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 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 broadcast.com's stockholders or at the
time of the broadcast.com 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 broadcast.com
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 broadcast.com.
Notwithstanding the foregoing, Yahoo! makes no representation or warranty with
respect to any information supplied by broadcast.com which is contained in any
of the foregoing documents.
3.7 LITIGATION. There are no claims, suits, actions or proceedings that
have a reasonable likelihood of success on the merits 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 seek 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.
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3.9 AFFILIATES. Set forth on the Yahoo! Disclosure Letter 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 BROADCAST.COM. 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, broadcast.com 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.
In addition, except as permitted by the terms of this Agreement, 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, broadcast.com 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 broadcast.com
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 broadcast.com 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 broadcast.com
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Common Stock pursuant to the exercise of stock options or warrants therefor,
and (ii) shares of broadcast.com 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 broadcast.com 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 broadcast.com;
(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
broadcast.com, 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;
(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 broadcast.com 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 broadcast.com or its
subsidiaries upon notice of 45 days or less or which provide for payments by
or to broadcast.com 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.
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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 broadcast.com, 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 broadcast.com's 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;
(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; or
(c) 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.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT; OTHER FILINGS. As
promptly as practicable after the execution of this Agreement, broadcast.com 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 included as a prospectus. Each of
broadcast.com 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 broadcast.com 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 broadcast.com 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 broadcast.com 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 broadcast.com 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, broadcast.com 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
broadcast.com, such amendment or supplement.
5.2 MEETING OF BROADCAST.COM STOCKHOLDERS.
(a) Promptly after the date hereof, broadcast.com will take all action
necessary in accordance with the Delaware Law and its Certificate of
Incorporation and Bylaws to convene the broadcast.com Stockholders' Meeting to
be held as promptly as practicable after the declaration of effectiveness of the
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Registration Statement, for the purpose of voting upon this Agreement and the
Merger. Broadcast.com 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,
broadcast.com may adjourn or postpone broadcast.com Stockholders' Meeting to the
extent necessary to ensure that any necessary supplement or amendment to the
Prospectus/Proxy Statement is provided to broadcast.com's stockholders in
advance of a vote on the Merger and this Agreement or, if as of the time for
which broadcast.com Stockholders' Meeting is originally scheduled (as set forth
in the Prospectus/Proxy Statement) there are insufficient shares of
broadcast.com Common Stock represented (either in person or by proxy) to
constitute a quorum necessary to conduct the business of the broadcast.com's
Stockholders' Meeting. Broadcast.com shall ensure that the broadcast.com
Stockholders' Meeting is called, noticed, convened, held and conducted, and
subject to Section 5.2(c) that all proxies solicited by broadcast.com in
connection with the broadcast.com 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.
Broadcast.com's obligation to call, give notice of, convene and hold the
broadcast.com Stockholders' Meeting in accordance with this Section 5.2(a) shall
not be limited to or otherwise affected by the commencement, disclosure,
announcement or submission to broadcast.com of any Acquisition Proposal (as
defined in Section 5.4(a)), or by any withdrawal, amendment or modification of
the recommendation of the Board of Directors of broadcast.com with respect to
the Merger.
(b) Subject to Section 5.2(c): (i) the Board of Directors of broadcast.com
shall recommend that broadcast.com's stockholders vote in favor of and adopt and
approve this Agreement and the Merger at the broadcast.com Stockholders'
Meeting; (ii) the Prospectus/Proxy Statement shall include a statement to the
effect that the Board of Directors of broadcast.com has recommended that
broadcast.com's stockholders vote in favor of and adopt and approve this
Agreement and the Merger at the broadcast.com Stockholders' Meeting; and (iii)
neither the Board of Directors of broadcast.com 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
broadcast.com that broadcast.com's 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
broadcast.com 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
broadcast.com to be a Superior Offer, is made to broadcast.com and is not
withdrawn, (ii) neither broadcast.com 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 broadcast.com 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 broadcast.com
or any committee thereof to comply with its obligations to broadcast.com's
stockholders under applicable law. Nothing contained in this Section 5.2(c)
shall limit broadcast.com's obligation to hold and convene the broadcast.com
Stockholders' Meeting (regardless of whether the recommendation of the Board of
Directors of broadcast.com 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
broadcast.com pursuant to which the stockholders of broadcast.com 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 broadcast.com of assets representing in excess of 50% of the fair
market value of broadcast.com's business immediately prior to such sale, or
(iii) the
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acquisition by any person or group (including by way of a tender offer or an
exchange offer or issuance by broadcast.com), 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 broadcast.com, on terms that the Board of Directors of
broadcast.com determines, in its reasonable judgment, after consultation with
its financial advisor, to be more favorable, or is reasonably likely to be more
favorable, to broadcast.com 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 broadcast.com's 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 broadcast.com 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) Broadcast.com will afford Yahoo! and its accountants, counsel and other
representatives reasonable access during normal business hours to the
properties, books, records and personnel of broadcast.com during the period
prior to the Effective Time to obtain all information concerning the business,
including the status of product development efforts, properties, results of
operations and personnel of broadcast.com, as Yahoo! may reasonably request.
Yahoo! will afford broadcast.com and its representatives reasonable access to
information concerning Yahoo!'s business that broadcast.com may reasonably
request in order to permit, and solely for the purpose of permitting,
broadcast.com to confirm the accuracy of the representations and warranties made
by Yahoo! in Article III. No information or knowledge obtained by Yahoo! or
broadcast.com 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, broadcast.com 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, (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 broadcast.com stockholder vote, this Section 5.4(a)
shall not prohibit broadcast.com from furnishing nonpublic information regarding
broadcast.com 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 broadcast.com nor any representative of broadcast.com and its
subsidiaries shall have violated any of the restrictions set forth in this
Section 5.4, (2) the Board of Directors of broadcast.com concludes in good
faith, after consultation with its outside legal counsel, that such action is
required in order for the Board of Directors of broadcast.com to comply with its
fiduciary obligations to broadcast.com's stockholders under applicable law, (3)
prior to furnishing any such nonpublic information to, or entering into
discussions with, such person or group, broadcast.com
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gives Yahoo! written notice of the identity of such person or group and of
broadcast.com's intention to furnish nonpublic information to, or enter into
discussions with, such person or group and broadcast.com 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 broadcast.com,
and (4) contemporaneously with furnishing any such nonpublic information to such
person or group, broadcast.com furnishes such nonpublic information to Yahoo!
(to the extent such nonpublic information has not been previously furnished by
broadcast.com to Yahoo!); PROVIDED, FURTHER, that nothing herein shall prevent
the Board of Directors of broadcast.com from taking, and disclosing to
broadcast.com's stockholders, a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act. Broadcast.com 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 broadcast.com or any of its subsidiaries or any investment
banker, attorney or other advisor or representative of broadcast.com or any of
its subsidiaries shall be deemed to be a breach of this Section 5.4 by
broadcast.com. In addition to the foregoing, broadcast.com shall provide Yahoo!
with at least two (2) business days or forty-eight (48) hours prior written
notice of a meeting of broadcast.com's Board of Directors at which
broadcast.com's 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.
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 broadcast.com 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 30% interest in the total outstanding voting
securities of broadcast.com 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 30% or more of the total outstanding voting
securities of broadcast.com or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving
broadcast.com pursuant to which the stockholders of broadcast.com immediately
preceding such transaction hold less than 70% 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 broadcast.com; or (C) any liquidation or dissolution
of broadcast.com.
(b) In addition to the obligations of broadcast.com set forth in paragraph
(a) of this Section 5.4, broadcast.com as promptly as practicable shall advise
Yahoo! orally and in writing of any request for non-public information which
broadcast.com reasonably believes would lead to an Acquisition Proposal or of
any Acquisition Proposal, or any inquiry with respect to or which broadcast.com
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. Broadcast.com will keep Yahoo! informed in all material respects of any
material amendments or proposed amendments to any such Acquisition Proposal.
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5.5 PUBLIC DISCLOSURE. Yahoo! and broadcast.com 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 execution 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 transactions
contemplated by, and to fully carry out the purposes of, this Agreement. In
connection with and without limiting the foregoing, broadcast.com 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 transactions 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 broadcast.com or the holding separate of the shares of
broadcast.com 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 broadcast.com Common Stock.
(b) Broadcast.com 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 broadcast.com 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 broadcast.com 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
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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 broadcast.com 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
broadcast.com Common Stock (each a "BROADCAST.COM STOCK OPTION") under the
broadcast.com Stock Option Plans, whether or not exercisable, will be assumed by
Yahoo!. Each broadcast.com 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 broadcast.com Stock Option Plan
immediately prior to the Effective Time (including, without limitation, any
repurchase rights or vesting provisions), except that (i) each broadcast.com
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 broadcast.com Common Stock that were issuable
upon exercise of such broadcast.com 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 broadcast.com Stock Option will be equal to the quotient determined by
dividing the exercise price per share of broadcast.com Common Stock at which
such broadcast.com Stock Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
(b) It is intended that broadcast.com 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 broadcast.com 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) Broadcast.com shall take all actions necessary pursuant to the terms of
the ESPP in order to accelerate the exercise date of the offering period under
such plan which includes the Effective Time (the "CURRENT OFFERING PERIOD") such
that a new exercise date for such offering period shall occur prior to the
Effective Time and shares shall be purchased by ESPP participants prior to the
Effective Time. The Current Offering Period shall expire immediately following
such new exercise date, and the ESPP shall terminate immediately prior to the
Effective Time. Subsequent to such new exercise date, broadcast.com shall take
no action, pursuant to the terms of the ESPP, to commence any new offering
period.
(d) Broadcast.com shall take all necessary action to cause any 401(k) plan
sponsored or maintained by broadcast.com to be terminated one day prior to the
Closing Date.
(e) Prior to the Effective Time, broadcast.com agrees to make such
modifications to broadcast.com's 1996 Non-Employee Directors Stock Option Plan
(relating to exercise of options following termination of service with
broadcast.com) as shall be reasonably requested by Yahoo! in order to permit the
business combination contemplated by the Merger to be accounted for as a pooling
of interests.
(f) The Board of Directors of Yahoo! shall, to the extent permitted by
applicable law, take or cause to be taken all actions necessary to obtain
approval in the form required by Rule 16b-3 of the Exchange Act so that, with
respect to persons who will or may become officers or directors of Yahoo!, the
transactions relating to the Merger that may be considered acquisitions under
such Rule for such persons will be exempt from Section 16 of the Exchange Act.
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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
broadcast.com 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
broadcast.com pursuant to any indemnification agreements between broadcast.com
and its directors and officers as of the Effective Time (the "INDEMNIFIED
PARTIES") and any indemnification provisions under broadcast.com's 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 broadcast.com as in effect on the date hereof, which
provisions will not be amended, repealed or otherwise modified for a period of
six 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 broadcast.com, 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 broadcast.com's directors' and
officers' liability insurance policy on terms comparable to those applicable to
the current directors and officers of broadcast.com; PROVIDED, HOWEVER, that in
no event will Yahoo! or the Surviving Corporation be required to expend in
excess of 150% of the annual premium currently paid by broadcast.com for such
coverage (or such coverage as is available for such 150% of such annual
premium).
(c) This Section 5.10 shall survive the consummation of the Merger, is
intended to benefit broadcast.com, 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 broadcast.com Affiliate
Agreements executed and delivered to Yahoo! concurrently with the execution of
this Agreement, broadcast.com will use its 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 broadcast.com Affiliate an
executed broadcast.com 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 D (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
broadcast.com 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 broadcast.com Affiliate
Agreement.
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5.13 COMPANY STOCK OPTION.
(a) GRANT OF BROADCAST.COM STOCK OPTION. Subject to the terms of Section
7.3(d), broadcast.com hereby grants to Yahoo! an irrevocable option (the
"BROADCAST.COM STOCK OPTION") to purchase for $130.02 per share (the "EXERCISE
PRICE") in cash up to 7,333,300 shares of broadcast.com Common Stock.
(b) TERM OF BROADCAST.COM STOCK OPTION. Yahoo! may exercise the
broadcast.com Stock Option, in whole or in part, at any time or from time to
time on the date (the "EXERCISE COMMENCEMENT DATE") and from the time
contemporaneously with the time at 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) 270 days after the termination of this Agreement.
(c) CONDITIONS TO PURCHASE. Yahoo! may purchase shares of broadcast.com
Common Stock pursuant to the broadcast.com 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 broadcast.com 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
broadcast.com Stock Option, it shall do so by giving broadcast.com 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 broadcast.com Stock Option because any condition to the purchase
of shares of broadcast.com 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. Yahoo! represents and warrants to broadcast.com that any shares of
broadcast.com Common Stock acquired upon exercise of the broadcast.com Stock
Option will be acquired for Yahoo!'s own account, and will not be, and the
broadcast.com Stock Option is not being, acquired by Yahoo! with a view to the
distribution thereof in violation of any applicable provision of the Securities
Act. Yahoo! has such knowledge and experience in business and financial matters
as to be capable of utilizing the information which is available to Yahoo! to
evaluate the merits and risks of an investment by Yahoo! in the broadcast.com
Common Stock and Yahoo! is able to bear the economic risks of any investment in
the broadcast.com Common Stock which Yahoo! may acquire upon exercise of the
broadcast.com Stock Option.
(e) PAYMENT AND DELIVERY OF SHARES. At any closing in connection with the
broadcast.com Stock Option, (i) Yahoo! shall make payment to broadcast.com of
the aggregate purchase price for the shares of broadcast.com Common Stock to be
purchased by delivery to broadcast.com of a certified, cashier's or bank check
payable to the order of broadcast.com or, if mutually agreed, by wire transfer
of funds to an account designated by broadcast.com, and (ii) broadcast.com shall
deliver to Yahoo! a certificate or certificates representing the shares so
purchased, registered in the name of Yahoo! or its designee. Certificates for
broadcast.com Common Stock delivered at any closing may be endorsed with a
restrictive legend that shall read substantially as follows: "The transfer of
the shares represented by this certificate is subject to certain provisions of
an agreement between the registered holder hereof and broadcast.com, a copy of
which agreement is on file at the principal office of broadcast.com, and to
resale restrictions arising under the Securities Act of 1933, as amended. A copy
of the aforementioned agreement will be mailed to the holder without charge
promptly after receipt by broadcast.com of a
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written request therefor." In addition, the certificates shall bear any other
legend as may be required by applicable law.
(f) CERTAIN ADJUSTMENTS. In the event of any change in broadcast.com's
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 broadcast.com which would have the effect of
diluting or changing Yahoo!'s rights hereunder, the number and kind of shares of
broadcast.com Common Stock subject to the broadcast.com 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 broadcast.com Stock Option the number and class of shares of
broadcast.com Common Stock or other securities or property that Yahoo! would
have received in respect of the shares purchasable upon exercise of the
broadcast.com Stock Option if the broadcast.com 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 and prior to the Option Termination Date, Yahoo! may, at its
election, upon two business days' notice to broadcast.com, surrender all or a
part of the broadcast.com Stock Option to broadcast.com, in which event
broadcast.com 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 broadcast.com Common Stock the rights
to which are surrendered equal to (i) the closing sale price of the
broadcast.com's 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 broadcast.com
Stock Option or any portion thereof and the receipt by Yahoo! of cash pursuant
to this Section 5.13(g), any and all rights of Yahoo! to purchase shares of
broadcast.com Common Stock with respect to the portion of the broadcast.com
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, broadcast.com will apply to list all of the shares of broadcast.com
Common Stock subject to the broadcast.com Stock Option on the Nasdaq Stock
Market and will use its best efforts to obtain approval of such listing as soon
as practicable.
(ii) Broadcast.com 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 broadcast.com
Common Stock upon the exercise of the broadcast.com Stock Option terminates,
will have reserved for issuance, upon any exercise of the broadcast.com Stock
Option, the number of shares of broadcast.com Common Stock subject to the
broadcast.com Stock Option (less the number of shares previously issued upon any
partial exercise of the broadcast.com Stock Option or as to which the
broadcast.com Stock Option may no longer be exercised).
(iii) Broadcast.com shall give Yahoo! at least ten days' prior written notice
before setting the record date for determining the holders of record of shares
of broadcast.com 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 broadcast.com Common Stock.
(i) REGISTRATION OF THE SHARES.
(i) If Yahoo! requests broadcast.com in writing to register under the
Securities Act any of the shares of broadcast.com Common Stock owned by Yahoo!,
broadcast.com 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
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as to permit the sale or other distribution by Yahoo! of the shares specified in
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 broadcast.com
Common Stock by Yahoo! in the manner specified by Yahoo! in its request.
Broadcast.com shall not be obligated to make effective more than two
registration statements pursuant to the foregoing sentence. Upon written notice
to Yahoo!, broadcast.com may postpone effecting a registration pursuant to this
Section 5.13 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 broadcast.com and Yahoo! in writing that
effecting the registration would materially and adversely affect an offering of
securities of broadcast.com the preparation of which had then been commenced, or
(2) broadcast.com is in possession of material non-public information the
disclosure of which during the period specified in such notice broadcast.com
believes, in its reasonable judgment, would not be in the best interests of
broadcast.com. The obligations of broadcast.com under this Section 5.13(i)(i)
shall terminate at such time as Yahoo! may sell all shares of broadcast.com
Common Stock without restriction under Rule 144 (k).
(ii) Broadcast.com 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 broadcast.com Common
Stock of broadcast.com's intention so to file. If Yahoo! wishes to have any
portion of its shares of broadcast.com Common Stock included in such
registration statement, it shall advise broadcast.com in writing to that effect
within two business days following receipt of such notice, and broadcast.com
will thereupon include the number of shares of broadcast.com Common Stock
indicated by Yahoo! under such Registration Statement. If such registration
involves an underwritten public offering and the managing underwriter shall
advise broadcast.com and Yahoo! that in its view the number of shares of
broadcast.com Common Stock requested to be included in such registration
(including any securities which broadcast.com 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"), broadcast.com will include in such registration, up to
the Maximum Offering Size, first, all securities proposed to be registered by
broadcast.com, and second, shares of broadcast.com Common Stock requested to be
registered by Yahoo!.
(iii) Broadcast.com shall pay all fees and expenses in connection with any
registration pursuant to this Section 5.13 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 broadcast.com 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
broadcast.com. Yahoo! and its underwriters, respectively, shall indemnify
broadcast.com to the same extent with respect to information furnished in
writing to broadcast.com by Yahoo! and such underwriters.
5.14 LETTER OF BROADCAST.COM'S ACCOUNTANTS. Broadcast.com 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 independent public accountants in connection
with registration statements similar to the Registration Statement.
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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) BROADCAST.COM 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 broadcast.com.
(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 broadcast.com shall each have received
written opinions from their respective tax counsel (Venture Law Group, A
Professional Corporation, and Gibson, Dunn & Crutcher 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 broadcast.com 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 broadcast.com's 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
broadcast.com in the event that any action taken by, or omitted to be taken
by, broadcast.com or any of its stockholders, employees or affiliates shall
have been the proximate cause of the inability of Yahoo! to account for the
Merger as a pooling of interests.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF BROADCAST.COM. The obligation
of broadcast.com to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date
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of each of the following conditions, any of which may be waived, in writing,
exclusively by broadcast.com:
(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! Disclosure
Letter made or purported to have been made after the date of this Agreement
shall be disregarded). Broadcast.com 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 broadcast.com 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 broadcast.com 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
broadcast.com, (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 broadcast.com 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 broadcast.com Disclosure Letter 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
broadcast.com by an authorized officer of broadcast.com.
(b) AGREEMENTS AND COVENANTS. Broadcast.com 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 broadcast.com by the Chief Executive Officer and the
Chief Financial Officer of broadcast.com.
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(c) AFFILIATE AGREEMENTS. Each of the broadcast.com Affiliates shall
have entered into the broadcast.com Affiliate Agreement and each of such
agreements will be in full force and effect as of the Effective Time.
(d) NONCOMPETITION AGREEMENTS. Each of the Noncompetition Agreements
entered into concurrently with the execution of this Agreement shall remain
in full force and effect.
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 broadcast.com or Yahoo!:
(a) by mutual written consent duly authorized by the Boards of Directors
of Yahoo! and broadcast.com;
(b) by either broadcast.com or Yahoo! if the Merger shall not have been
consummated by October 31, 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 and such action or failure to act constitutes a breach by such party of
this Agreement;
(c) by either broadcast.com 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 broadcast.com or Yahoo! if the required approval of the
stockholders of broadcast.com contemplated by this Agreement shall not have
been obtained by reason of the failure to obtain the required vote at a
meeting of broadcast.com 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 broadcast.com where the
failure to obtain broadcast.com stockholder approval shall have been caused
by the action or failure to act of broadcast.com and such action or failure
to act constitutes a breach by broadcast.com of this Agreement);
(e) by Yahoo! if a Triggering Event (as defined below) shall have
occurred.
(f) by broadcast.com, 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 broadcast.com may not terminate this Agreement
under this Section 7.1(f) for twenty (20) days after delivery of written
notice from broadcast.com to Yahoo! of such breach, provided Yahoo!
continues to exercise commercially reasonable efforts to cure such breach
(it being understood that broadcast.com 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 cure shall be completed on or prior to October 31, 1999);
or
(g) by Yahoo!, upon a breach of any representation, warranty, covenant
or agreement on the part of broadcast.com set forth in this Agreement, or if
any representation or warranty of broadcast.com shall have become untrue, in
either case such that the conditions set forth in
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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 broadcast.com's
representations and warranties or breach by broadcast.com is curable by
broadcast.com through the exercise of its commercially reasonable efforts,
then Yahoo! may not terminate this Agreement under this Section 7.1(g) for
twenty (20) days after delivery of written notice from Yahoo! to
broadcast.com of such breach, provided broadcast.com 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
broadcast.com is cured during such 20-day period and PROVIDED that such cure
shall be completed on or prior to October 31, 1999).
For the purposes of this Agreement, a "TRIGGERING EVENT" shall be deemed
to have occurred if: (i) the Board of Directors of broadcast.com 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) broadcast.com shall have
failed to include in the Proxy Statement/ Prospectus the recommendation of
the Board of Directors of broadcast.com in favor of the adoption and
approval of the Agreement and the approval of the Merger; (iii) the Board of
Directors of broadcast.com fails to reaffirm its recommendation in favor of
the adoption and approval of the Agreement and the approval of the Merger
within 15 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 broadcast.com or
any committee thereof having authority to bind the Board shall have approved
or publicly recommended any Acquisition Proposal; (v) broadcast.com 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 broadcast.com in excess of 50% of
its outstanding voting securities shall have been commenced by a person
unaffiliated with Yahoo! and broadcast.com shall have sent to its
stockholders pursuant to Rule 14e-2 promulgated under the Exchange Act a
statement disclosing that broadcast.com recommends acceptance of such tender
or exchange offer; or (vii) broadcast.com 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 and there shall be no
liability hereunder on the part of broadcast.com, Yahoo!, Merger Sub or their
respective officers or directors, 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
broadcast.com 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.
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(b) BROADCAST.COM PAYMENTS. In the event that this Agreement is terminated
by Yahoo! pursuant to Section 7.1(e), broadcast.com shall promptly, but in no
event later than one day after the date of such termination, pay Yahoo! a fee
equal to $135,000,000 in immediately available funds (the "TERMINATION FEE"). In
addition, in the event that this Agreement is terminated by Yahoo! or
broadcast.com, as the case may be, pursuant to Section 7.1(d) and prior to the
vote of broadcast.com stockholders at the broadcast.com Stockholders' Meeting an
Acquisition Proposal shall have been publicly announced, broadcast.com 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 270 days following such termination broadcast.com shall enter
into a definitive agreement with respect to an Acquisition Transaction (defined
for this purpose to substitute "50%" for the references to "30%" and "70%" in
the definition set forth in Section 5.4(a)) or shall consummate an Acquisition
Transaction (defined for this purpose to substitute "50%" for the references to
"30%" and "70%" in the definition set forth in Section 5.4(a)) with a third
party, broadcast.com shall contemporaneously with such execution or
consummation, as the case may be, pay Yahoo! a fee equal to the Termination Fee.
broadcast.com 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 broadcast.com 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 broadcast.com for the amounts set forth
in this Section 7.3(b), broadcast.com 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 broadcast.com Stock Option
shall not exceed $165,000,000. In the event Yahoo!'s Total Proceeds would exceed
such amount, Yahoo! shall, at its sole election, (a) reduce the number of shares
of broadcast.com Common Stock subject to the broadcast.com Stock Option, (b)
deliver shares of broadcast.com Common Stock received upon an exercise of the
broadcast.com Stock Option to broadcast.com for cancellation, (c) pay an amount
of cash to broadcast.com, or (d) do any combination of the foregoing so that
Yahoo!'s actual realized Total Proceeds shall not exceed $165,000,000. "TOTAL
PROCEEDS" shall mean the aggregate (before taxes) of (i) any amount received
pursuant to broadcast.com's repurchase of that broadcast.com Stock Option (or
any portion thereof), (ii) any amount received pursuant to broadcast.com's
repurchase of the shares of broadcast.com Common Stock (less the purchase price
for such shares), (iii) any net cash received pursuant to the sale of shares of
broadcast.com Common Stock received by Yahoo! in any exercise of the
broadcast.com Stock Option to any third party (less the purchase price of such
shares), (iv) any amounts received on transfer of the broadcast.com Stock Option
or any portion thereof to a third party, (v) any equivalent amounts received
with respect to the broadcast.com Stock Option adjusted pursuant to Section
5.13(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 broadcast.com.
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
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<PAGE>
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.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of broadcast.com, 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, CA 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 broadcast.com, to:
broadcast.com inc.
2914 Taylor Street
Dallas, TX 75226
Attention: Chief Executive Officer
Telephone No.: (214) 748-6660
Telecopy No.: (214) 748-2470
with a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Attention: Sean P. Griffiths
Telephone No.: (212) 351-4000
Telecopy No.: (212) 351-4035
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<PAGE>
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 that obligations of broadcast.com 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 broadcast.com, (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 broadcast.com Board of Directors relating to
this Agreement; PROVIDED, HOWEVER, that with respect to clause (ii)(w) of this
sentence, broadcast.com 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, broadcast.com (including any limited liability broadcast.com or
joint stock broadcast.com), 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 broadcast.com, 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 broadcast.com Disclosure
Letter and the Yahoo! Disclosure Letter (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior
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agreements and 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!, BROADCAST.COM 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!, BROADCAST.COM OR MERGER SUB
IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
*****
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<PAGE>
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.
YAHOO! INC.
By: /s/ TIMOTHY K. KOOGLE
-----------------------------------
Name: Timothy K. Koogle
---------------------------------
Title: Chairman and Chief Executive
Officer
---------------------------------
ALAMO ACQUISITION CORP.
By: /s/ TIMOTHY K. KOOGLE
-----------------------------------
Name: Timothy K. Koogle
---------------------------------
Title: President
---------------------------------
BROADCAST.COM INC.
By: /s/ TODD WAGNER
-----------------------------------
Name: Todd Wagner
---------------------------------
Title: Chief Executive Officer
---------------------------------
**** AGREEMENT AND PLAN OF MERGER ****
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<PAGE>
MORGAN STANLEY DEAN WITTER APPENDIX B
2725 SAND HILL ROAD
BUILDING C - SUITE 200
MENLO PARK, CALIFORNIA 94025
(650) 234-5500
March 31, 1999
Board of Directors
broadcast.com inc.
2914 Taylor Street
Dallas, TX 75226
Members of the Board:
We understand that broadcast.com inc. ("broadcast.com"), Yahoo! Inc. ("Yahoo!")
and Alamo Acquisition Corp. ("Merger Sub"), a wholly-owned subsidiary of Yahoo!,
propose to enter into an Agreement and Plan of Merger, substantially in the form
of the draft dated as of March 31, 1999 (the "Merger Agreement") which provides,
among other things, for the merger (the "Merger") of Merger Sub with and into
broadcast.com. Pursuant to the Merger, broadcast.com will become a wholly-owned
subsidiary of Yahoo! and each outstanding share of common stock, par value $0.01
per share (the "broadcast.com Common Stock") of broadcast.com, other than shares
held in treasury or held by Yahoo! or any subsidiary of broadcast.com or Yahoo!,
will be converted into the right to receive 0.7722 shares (the "Exchange Ratio")
of common stock, par value $0.00017 per share (the "Yahoo! Common Stock") of
Yahoo!. We further understand that Yahoo! has entered into an Agreement and Plan
of Merger, dated as of January 27, 1999 (the "GeoCities Agreement"), with
GeoCities, pursuant to which among other things, GeoCities will become a
wholly-owned subsidiary of Yahoo!. We note that pursuant to the Merger Agreement
the consummation of the Merger is not contingent upon Yahoo!'s consummation of
its merger with Geocities. The terms and conditions of the Merger are more fully
set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to the
Merger Agreement is fair from a financial point of view to the holders of shares
of broadcast.com Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of broadcast.com, Yahoo! and GeoCities, respectively;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning broadcast.com, Yahoo! and Geocities prepared
by the managements of broadcast.com and Yahoo!, respectively;
(iii) discussed the past and current operations and financial condition and
the prospects of broadcast.com, including information relating to
certain strategic, financial and operational benefits anticipated from
the Merger, with senior executives of broadcast.com;
(iv) discussed the past and current operations and financial condition and
the prospects of Yahoo! and GeoCities, including information relating
to certain strategic, financial and operational benefits anticipated
from the Merger, with senior executives of Yahoo!;
(v) reviewed the pro forma impact of the Merger on the revenues and the
earnings per share of Yahoo! and the revenues and the earnings of Yahoo!
pro forma for the merger with GeoCities;
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<PAGE>
Board of Directors
March 31, 1999 MORGAN STANLEY DEAN WITTER
Page 2
(vi) reviewed the reported prices and trading activity for the broadcast.com
Common Stock and the Yahoo! Common Stock;
(vii) compared the financial performance of broadcast.com and Yahoo! and the
prices and trading activity of the broadcast.com Common Stock and the
Yahoo! Common Stock with that of certain other comparable
publicly-traded companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(ix) reviewed and discussed with the senior managements of broadcast.com and
Yahoo! their strategic rationales for the Merger;
(x) participated in discussions and negotiations among representatives of
broadcast.com and Yahoo! and their financial and legal advisors;
(xi) reviewed the Geocities Agreement;
(xii) reviewed the draft Merger Agreement and certain related agreements; and
(xiii) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the internal financial statements and other financial
and operating data, including forecasts, and discussions relating to the
strategic, financial and operational benefits, including synergies, anticipated
from the Merger provided by broadcast.com and Yahoo!, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the prospects of broadcast.com, Yahoo! and GeoCities.
We have relied upon the assessment by the managements of broadcast.com and
Yahoo! of their ability to retain key employees of broadcast.com, Yahoo! and
GeoCities. We have also relied upon, without independent verification, the
assessment by the managements of broadcast.com and Yahoo! of the strategic and
other benefits expected to result from the Merger. We have also relied upon,
without independent verification, the assessment by the managements of
broadcast.com and Yahoo! of broadcast.com's, Yahoo!'s and GeoCities'
technologies and products, the timing and risks associated with the integration
of broadcast.com, GeoCities and Yahoo and the validity of, and risks associated
with, broadcast.com's, Yahoo!'s and GeoCities' existing and future products and
technologies. We have not made any independent valuation or appraisal of the
assets or liabilities or technology of broadcast.com, Yahoo! or GeoCities, nor
have we been furnished with any such appraisals. In addition, we have assumed
that the Merger will be accounted for as a "pooling-of-interests" business
combination in accordance with U.S. Generally Accepted Accounting Principles and
the Merger will be treated as a tax-free reorganization and/or exchange, each
pursuant to the Internal Revenue Code of 1986 and will be consummated in
accordance with the terms set forth in the Merger Agreement. Our opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
As you know, Morgan Stanley was authorized by broadcast.com to solicit the
interest of one additional party with respect to the acquisition of
broadcast.com or any of its assets. We did not negotiate with any party, other
than Yahoo!
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Board of Directors
March 31, 1999 MORGAN STANLEY DEAN WITTER
Page 3
We have acted as financial advisor to the Board of Directors of broadcast.com in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory services for broadcast.com and have received fees for the
rendering of these services. In the ordinary course of our business we may
actively trade the securities of broadcast.com, Yahoo! and GeoCities for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of broadcast.com and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by broadcast.com with the Securities and Exchange Commission
in respect of the Merger. In addition, this opinion does not in any manner
address the prices at which the Yahoo! Common Stock will actually trade at any
time and we express no recommendation or opinion as to how the holders of
broadcast.com Common Stock should vote at the shareholders' meeting held in
connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of broadcast.com Common Stock.
<TABLE>
<S> <C> <C>
Very truly yours.
MORGAN STANLEY & CO. INCORPORATED
By: /s/ CHARLES R. CORY
-----------------------------------------
Charles R. Cory
MANAGING DIRECTOR
</TABLE>
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