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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
First Virtual Holdings Incorporated
- --------------------------------------------------------------------------------
(Name of Registrant as specified in its charter)
- --------------------------------------------------------------------------------
(Name of person(s) filing proxy statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was
determined) : N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
(1) Amount Previously Paid: N/A
(2) Form, Schedule, or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
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FIRST VIRTUAL HOLDINGS INCORPORATED
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 23, 1998
TO THE STOCKHOLDERS OF FIRST VIRTUAL HOLDINGS INCORPORATED:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of First
Virtual Holdings Incorporated, a Delaware corporation (the "Company"), will be
held on June 23, 1998 at 9:00 a.m., local time, at the San Diego/Del Mar Hilton,
15575 Jimmy Durante Blvd. Del Mar, California 92014, for the following purposes:
1. To ratify and approve the issuance, pursuant to the Purchase Agreement
dated April 30, 1998 by and among the Company and SOFTBANK Technology
Ventures IV L.P., a Delaware limited partnership, and SOFTBANK Holdings
Inc., a Delaware corporation, of up to 18,658,333 shares of the
Company's Common Stock;
2. To approve an amendment to the Company's Certificate of Incorporation to
eliminate the classification of the Company's Board of Directors such
that each director will stand for election annually;
3. To elect two Class II directors and one Class III director to serve for
the applicable remaining terms and until their successors are duly
elected and qualified;
4. To ratify and approve the issuance, pursuant to Private Placement
Purchase Agreements dated October 14, 1997 by and among the Company and
certain investors, of 1,000 shares of the Company's Series A Preferred
Stock, and of warrants to purchase shares of the Company's Common Stock
and shares of Common Stock issuable upon conversion or exercise thereof;
5. To amend the Company's 1995 Stock Option Plan to increase the number of
shares available for issuance thereunder by 1,000,000 shares to an
aggregate of 4,000,000 shares;
6. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending December 31, 1998; and
7. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on April 30, 1998 are
entitled to notice of, and to vote at, the meeting and any adjournment thereof.
All stockholders are cordially invited to attend the meeting in person.
HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO MARK,
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
POSTAGE PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. You may revoke your proxy at
any time before it has been voted, and if you attend the meeting you may vote in
person even if you have previously returned your proxy card. Your prompt
cooperation will be greatly appreciated.
Sincerely,
Lewis Silverberg
Secretary
San Diego, California
, 1998
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FIRST VIRTUAL HOLDINGS INCORPORATED
11975 EL CAMINO REAL, SUITE 300
SAN DIEGO, CALIFORNIA 92130
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PROXY STATEMENT
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INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of First Virtual Holdings
Incorporated, a Delaware corporation (the "Company") for use at the Annual
Meeting of Stockholders (the "Annual Meeting") to be held on Tuesday, June 23,
1998 at 9:00 a.m. local time, or at any adjournment thereof, for the purposes
set forth herein and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at the San Diego/Del Mar Hilton.
These proxy solicitation materials will be mailed on or about May , 1998
to all stockholders entitled to vote at the meeting.
RECORD DATE AND OUTSTANDING SHARES
Stockholders of record at the close of business on April 30, 1998 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting.
On the Record Date, 11,785,492 shares of the Company's Common Stock, $0.001
par value, were issued and outstanding. The only persons known by the Company to
be the beneficial owners of more than 5% of the Company's Common Stock as of the
Record Date were Paymentech Merchant Services, Inc. ("Paymentech"), First USA
Financial, Inc., Lee H. Stein, Tawfiq N. Khoury, Next Century Communications
Corp. and their respective affiliates. The only persons known by the Company to
be the beneficial owners of more than 5% of the Company's Series A Preferred
Stock as of the Record Date were Seth Joseph Antine, the Huberfeld Bodner Family
Foundation, Millenco LP and the Murray Huberfeld/David Bodner Partnership. See
"Security Ownership of Certain Beneficial Owners and Management" below.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
VOTING AND SOLICITATION
The cost of this solicitation will be borne by the Company. The Company
will reimburse brokerage firms and other persons representing beneficial owners
of shares for their expenses in forwarding solicitation material to such
beneficial owners in accordance with applicable regulations. Proxies may also be
solicited by certain of the Company's directors, officers and regular employees,
without additional compensation, personally or by telephone, electronic mail or
facsimile.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the shares of Common Stock issued and outstanding on the Record
Date. Shares that are voted "FOR," "AGAINST" or "WITHHELD FROM" a matter are
treated as being present at the meeting for purposes of establishing a quorum
and are also treated as shares "represented and voting" at the Annual Meeting
(the "Votes Cast") with respect to such matter.
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While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both the presence or absence of a
quorum for the transaction of business and the total number of Votes Cast with
respect to a particular matter. In the absence of controlling precedent to the
contrary, the Company intends to treat abstentions in this manner. However,
because directors are elected by a plurality vote, abstentions in the election
of directors have no import once a quorum exists. In a 1988 Delaware case,
Berlin v. Emerald Partners, the Delaware Supreme Court held that, while broker
non-votes may be counted for purposes of determining the presence or absence of
a quorum for the transaction of business, broker non-votes should not be counted
for purposes of determining the number of Votes Cast with respect to the
particular proposal on which the broker has expressly not voted. Broker
non-votes with respect to proposals set forth in this Proxy Statement will
therefore not be considered "Votes Cast" and, accordingly, will not affect the
determination as to whether the requisite majority of Votes Cast has been
obtained with respect to a particular matter.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date, or by attending the meeting and voting in person. This Proxy Statement and
form of proxy will first be sent or given to stockholders on or about June 1,
1998, together with the Notice of Annual Meeting of Stockholders and the
Company's 1997 Annual Report to Stockholders.
STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's next Annual Meeting of Stockholders must
be received by the Company no later than February 28, 1999 in order to be
considered for possible inclusion in the Company's proxy statement and form of
proxy relating to that meeting.
FINANCIAL STATEMENTS
Please see the Company's Annual Report on Form 10-K for the fiscal year
ending December 31, 1997 and the Company's Quarterly Report on Form 10-Q for the
quarter ending March 31, 1998, both of which are being mailed to stockholders
with this Proxy Statement, for the financial statements of the Company for the
fiscal year ended December 31, 1997 and for the quarter ended March 31, 1998,
and as of such dates, respectively, and certain other information.
PROPOSAL 1
RATIFICATION OF SALE OF COMMON STOCK
At the Annual Meeting, the stockholders are being asked to consider and
approve the issuance and sale of an aggregate of up to 10,000,000 shares of the
Company's Common Stock, par value $0.001 (the "Shares") pursuant to a Purchase
Agreement dated April 30, 1998 (the "Purchase Agreement") by and among the
Company, SOFTBANK Technology Ventures IV L.P., a Delaware limited partnership
("SOFTBANK Technology"), and SOFTBANK Holdings Inc., a Delaware corporation
("SOFTBANK Holdings") (collectively, SOFTBANK Technology and SOFTBANK Holdings
are referred to herein as "SOFTBANK") and the issuance by the Company of up to
an additional 8,658,333 shares of Common Stock pursuant to a Conversion
Agreement dated April 30, 1998 (the "Conversion Agreement") between the Company
and SOFTBANK. The Purchase Agreement provides for the issuance and sale of
10,000,000 shares of Common Stock to SOFTBANK at the price of $0.60 per share.
The Conversion Agreement provides for the issuance to SOFTBANK of up to an
additional 2,700,000 shares of Common Stock upon the conversion of certain
indebtedness of the Company to be purchased by SOFTBANK from the holders of
outstanding promissory notes and the issuance of up to an additional 5,958,333
shares of Common stock upon conversion of shares of Series A Preferred Stock
which SOFTBANK has the option to purchase from certain stockholders of the
Company, in each case pursuant to agreements between SOFTBANK and existing
holders of securities of the Company (the "Related Agreements"). The issuance to
SOFTBANK of shares of Common Stock pursuant to the Purchase Agreement and the
Conversion Agreement is being conducted as a private offering (the
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"Offering") pursuant to Regulation D under the Securities Act of 1933, as
amended. The proceeds to the Company shall be used to retire existing corporate
debt and for general corporate purposes.
The closing of the Offering is subject to, among other conditions, the
approval by the Company's stockholders of the issuance of Common Stock in the
Offering.
Pursuant to the Related Agreements SOFTBANK agreed to acquire an additional
1,200,000 shares of Common Stock from certain existing holders. As a result of
the Offering and related transactions, SOFTBANK will hold or have the right to
acquire up to 19,858,333 shares of Common Stock which would constitute
approximately 65% of the total number of shares of Common Stock outstanding.
SOFTBANK will also have the right to appoint a majority of the members of the
Company's Board of Directors.
The following is a summary of the material provisions of the Purchase
Agreement and the Conversion Agreement, copies of which are attached as ANNEX A
and ANNEX B to this Proxy Statement, and are incorporated herein by reference,
and of certain related agreements, copies of which are available from the
Company's Secretary upon request. Statements in this Proxy Statement with
respect to the terms of the Purchase Agreement and the Conversion Agreement and
such related agreements are qualified in their respective entireties by
reference to the more detailed information set forth in the Purchase Agreement
and the Conversion Agreement and such related agreements.
BACKGROUND AND REASONS FOR OFFERING
During the past fiscal year, the Board of Directors determined that the
Company would require additional equity funding to finance the Company's product
development, marketing and other operations. The Board determined that
additional funding is necessary in light of the fact that the Company has
continued to experience significant operating losses and due to the additional
resources needed to complete development of the Company's Interactive Messaging
Platform and to commercially launch the service. As of March 31, 1998, the
Company's cash and cash equivalents were $2.3 million, a substantial portion of
which was subject to a lien for the benefit of certain of the Company's
creditors. Additional equity funding is also required in order to ensure that
the Company continues to meet the requirements for listing its Common Stock on
the Nasdaq National Market. The Nasdaq National Market has required that the
Company maintain a net equity position of $5 million.
The Company entered into discussions with several potential investors
commencing in January 1998. In addition, the Company retained a placement agent
to identify and contact potential investors. Discussions with SOFTBANK were
initiated in February 1998. The Board of Directors of the Company convened on
several occasions between February 1, 1998 and April 29, 1998 to discuss the
Company's financing options. On April 30, 1998, after reviewing and discussing
at length the proposed terms of the Offering and of the funding alternatives
available to the Company, the Board of Directors determined that it was in the
best interests of the Company and its stockholders to enter into the Purchase
Agreement and to seek stockholder approval of the Offering.
In reaching its decision to approve the Purchase Agreement and the
Offering, the Board considered a number of factors, including the reports from
management and legal and financial advisers on the specific terms of the
Purchase Agreement and the Related Agreements, terms of the proposed
transaction, and the current and historical market price of the Company's Common
Stock. The Board determined that, in addition to providing the Company with the
requisite funding, the Offering would have several strategic benefits to the
Company. In particular, the Board considered SOFTBANK's background as a key
investor in Internet-related ventures and SOFTBANK's ability to leverage its
experience, knowledge and resources to help the Company grow its business and
achieve the Company's strategic vision for its Interactive Messaging Platform
and other technologies and services. The Board also considered the potentially
negative factors attendant to the Offering and related transactions, including
the possibility of management disruption associated with assumption of majority
control of the Company by SOFTBANK and the potential loss of key technical and
management personnel, the risks associated with obtaining the necessary
approvals and fulfilling the conditions to closing of the Offering, the
potential dilution to existing stockholders of the Company, and the risk that
the strategic benefits of the Offering may not be realized.
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The foregoing discussion of the information and factors considered by the
Board of Directors in connection with its evaluation of the Offering is a
summary and is not intended to be exhaustive.
PURCHASE AGREEMENT
The Purchase Agreement provides for the issuance and sale of 5,000,000
shares of Common Stock to each of SOFTBANK Holdings and SOFTBANK Technology, at
a price of $0.60 per share. The aggregate purchase price of $6,000,000 will be
paid in part in cash and in part by cancellation of up to $1,500,000 in loans
which SOFTBANK Holdings has agreed to provide to the Company under a Loan
Agreement dated April 30, 1998. The closing of such issuance is contingent on
satisfaction of several conditions, including approval by the Company's
stockholders at the Annual Meeting of the issuance of the shares of Common Stock
to be sold in the Offering, the election by the stockholders of the Company at
the Annual Meeting of three nominees designated by SOFTBANK to the Company's
Board of Directors, the consummation of the transactions contemplated by the
Related Agreements, waiver of certain severance benefits by an officer of the
Company, execution of a Voting Agreement between SOFTBANK and certain
stockholders of the Company, and other customary conditions to closing.
The Company and SOFTBANK have each agreed to indemnify the other party
against any losses, damages, liabilities or expenses, including reasonable
counsel fees incurred as a result of (i) any misrepresentation or breach of any
representation or warranty of the indemnifying party contained in the Purchase
Agreement or in any instrument delivered thereunder or (ii) any failure by the
indemnifying party to perform any obligation or covenant required to be
performed by it under any provision of the Purchase Agreement, provided that the
liability of the Company and the aggregate liability of the Purchasers shall not
exceed $10 million. In addition, the Company has agreed to reimburse up to
$150,000 in expenses incurred by SOFTBANK in connection with the Offering.
The Company has agreed that, subject to certain limited exceptions, prior
to the earlier of the closing of the Offering or the termination of the Purchase
Agreement pursuant to its terms, (a) neither the Company nor any of its
officers, directors, advisors, agents or any other person or entity acting on
behalf of any or all of them shall, directly or indirectly, initiate, solicit,
induce, support, encourage (including, without limitation by providing
non-public information), agree to, or enter into any alternative proposal,
negotiation or transaction for an investment in, sale of any outstanding or
newly-issued equity interests in or voting securities of, or sale or transfer of
a substantial portion of the assets, stock or business (including by way of
merger or consolidation) of, the Company (an "Alternative Transaction") and (b)
in the event the Company receives any proposal for an Alternative Transaction,
the Company shall promptly notify SOFTBANK of the receipt of such proposal.
Under the Purchase Agreement, the Company is required to take all customary
actions in accordance with applicable law and its Certificate of Incorporation
and By-Laws to seek (i) stockholder approval by the holders of a majority of the
outstanding shares of Common Stock at the Annual Meeting of the issuance and
sale of the shares of Common Stock to be sold in the Offering; (ii) the election
at or immediately following the Annual Meeting of a Board of Directors
consisting of a total of five members meeting the requirement that one of such
members shall be designated by Lee H. Stein, one of such members shall be
designated by Paymentech and the remaining members shall be designated by
SOFTBANK, and (iii) stockholder approval of an amendment of the Company's
Certificate of Incorporation to eliminate the classification of the Board of
Directors so that, following such amendment, the entire Board of Directors shall
be elected at each annual meeting of stockholders. Subject to the limited
exceptions in the event the Company receives a third party offer meeting certain
criteria, the Purchase Agreement further provides that the Board of Directors of
the Company shall recommend approval of the Offering by the stockholders of the
Company and that the Company shall solicit such approval in accordance with its
customary practices.
The Purchase Agreement may be terminated and the Offering and related
transactions may be abandoned at any time prior to the closing of the Offering
(a) by mutual consent of the Company and SOFTBANK, (b) by the Company or
SOFTBANK if (i) the Offering is not consummated prior to July 15, 1998, or (ii)
the stockholders of the Company fail to approve this proposal at the Annual
Meeting, or (iii) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any
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other action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by the Purchase Agreement and such order, decree,
ruling or other action has become final and non-appealable, or (iv) the Board of
Governors of Nasdaq notifies the Company of a final decision to remove the
Company's Common Stock from quotation on the Nasdaq National Market; provided,
that the party seeking to terminate the Purchase Agreement pursuant to the
foregoing clause (iii) has used all reasonable efforts to remove such
injunction, order or decree; and provided, in the case of a termination pursuant
to the foregoing clause (i), that the terminating party has not breached in any
material respect its obligations under the Purchase Agreement in any manner that
shall have substantially contributed to the failure to consummate the Offering
by July 15, 1998, (c) by the Company if there has been a material breach by
SOFTBANK of any representation, warranty, covenant or agreement made by it in
the Purchase Agreement, (d) by SOFTBANK if (i) the Board of Directors of the
Company withdraws or modifies in a manner materially adverse to SOFTBANK its
approval or recommendation to the stockholders of the Company of the
transactions contemplated by the Purchase Agreement or (ii) there has been a
material breach by the Company of any representation, warranty, covenant or
agreement made by it in this Agreement which breach, subject to certain
exceptions, has not been cured within 15 days of delivery of notice thereof to
the Company.
RELATED TRANSACTIONS TO THE PURCHASE AGREEMENT
Purchase and Conversion of Promissory Notes and Series A Preferred Stock
SOFTBANK has entered into an agreement to purchase from the TNKRGK Family
Trust dated December 23, 1976 and from Next Century Communications Corp. (the
"Noteholders") certain promissory notes of the Company with an aggregate
principal amount of $1.2 million and accrued interest of approximately $400,000
(collectively referred to herein as the "Promissory Notes"). In addition, the
Noteholders and certain other holders of Common Stock have agreed to sell
1,200,000 shares of Common Stock of the Company of which they are the beneficial
owners to SOFTBANK. SOFTBANK's purchase of the Promissory Notes and such Common
Stock is contingent on the simultaneous closing of the Offering. If this
proposal is approved by the stockholders of the Company, the principal amounts
and all accrued interest of the Promissory Notes will be converted into Common
Stock at the conversion price of $0.60 per share immediately following the
Closing.
SOFTBANK has also entered into an agreement with the holders of all 655
outstanding shares of Series A Preferred Stock (the "Series A Holders"),
pursuant to which SOFTBANK has acquired options to purchase all or a portion of
the outstanding shares of Series A Preferred Stock of the Company (the
"Options"). Any shares of Series A Preferred Stock purchased by SOFTBANK will be
converted into Common Stock at a conversion price of $0.60 per share (subject to
certain adjustments) as soon as reasonably practicable. SOFTBANK's right to
exercise the Options is contingent on the Company reducing the exercise price of
Warrants to purchase 850,000 shares of Common Stock held by the Series A holders
(the "Warrants") from $5.75 to $1.00. Accordingly, the Company has reduced the
exercise price of the Warrants as an inducement to SOFTBANK to enter into the
Offering. Proposal 3, below, Ratification of Sale of Series A Preferred Stock,
describes the Series A Preferred Stock and the sale of such stock and the
Warrants to the Series A Holders.
Pursuant to the Conversion Agreement immediately following the acquisition
by SOFTBANK of any of the Promissory Notes, the Promissory Notes will be
canceled and immediately converted into the number of shares of Common Stock
equal to the quotient of the principal and accrued interest of the Promissory
Notes divided by a conversion price of $0.60 per share. The Conversion Agreement
further provides that in the event any shares of Series A Preferred Stock of the
Company are purchased by SOFTBANK, such shares will be converted into a number
of shares of Common Stock equal to SOFTBANK's purchase price per share of Series
A Preferred Stock ($5,458) divided by a conversion price of $0.60 per share of
Common Stock. Pursuant to the Conversion Agreement, the Company and SOFTBANK
have agreed to waive the application of any provision of the Company's
Certificate of Designation of Series A Preferred Stock that is contrary to the
above-described conversion.
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Principal Stockholders' Voting Agreement
The Purchase Agreement provides that consummation of the Offering is
conditioned on the execution by SOFTBANK and Lee H. Stein, June L. Stein,
Paymentech and First USA Financial, Inc. (the "Principal Stockholders") of a
voting agreement (the "Voting Agreement") relating to the composition of the
Company's Board of Directors, providing that for a period ending the earlier of
(i) the second anniversary of the closing of the Offering or (ii) such time as
the Principal Stockholders collectively beneficially own less than 75% of the
number of shares of the Company's Common Stock they held as of April 30, 1998,
SOFTBANK and the Principal Stockholders shall vote all shares of capital stock
of the Company they hold to ensure that the Board of Directors of the Company
consists of (i) one member designated by Mr. Stein, (ii) one member designated
by Paymentech and (iii) three to five members designated by SOFTBANK. After
giving effect to the Offering and the related transactions, SOFTBANK and the
Principal Stockholders will beneficially own an aggregate of 23,179,550 shares
of Common Stock, representing approximately 76% of shares of Common Stock
outstanding. The Voting Agreement further provides that in the event that the
composition of the Board of Directors deviates from the foregoing requirement
for any reasons, or if any vacancy in the Board occurs, SOFTBANK and the
Principal Stockholders will take all necessary actions, including calling a
special meeting of stockholders, to ensure that the composition of the Board
meets the foregoing requirements.
Stockholders' Agreement
In connection with the Offering, SOFTBANK and the following stockholders of
the Company (collectively the "Stockholders") and certain of their affiliates
have entered into the Stockholders' Agreement dated as of April 30, 1998 (the
"Stockholders' Agreement"): Paymentech, First USA Financial, Inc., G.E. Capital,
First Data Corporation, Sybase Inc., Marshall Rose, Einar Stefferud, June L.
Stein and Lee H. Stein.
Pursuant to the Stockholders' Agreement, the Stockholders have agreed (i)
to vote in favor of the Purchase Agreement, the issuance of Common Stock upon
conversion of the Promissory Notes and upon conversion of any shares of Series A
Preferred Stock acquired by SOFTBANK; (ii) to vote against any action or
agreement that would result in a breach in any respect of any covenant,
representation or warranty of the Company under the Purchase Agreement; (iii)
unless otherwise agreed to by SOFTBANK, to vote against any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination or the sale, lease or transfer of all or substantially all of the
assets of the Company or its subsidiaries, or a reorganization,
recapitalization, dissolution or liquidation of the Company of its subsidiaries;
or any material change in the present capitalization of the Company or any
amendment of the Company's Certificate of Incorporation or Bylaws, which could
reasonably be expected to impede, delay or adversely affect the Purchase
Agreement. In addition, each Stockholder has executed an irrevocable proxy
appointing SOFTBANK or its designees to vote the shares of Common Stock held by
the Stockholders accordingly. The Stockholders' Agreement terminates if the
Purchase Agreement terminates. As of the Record Date the Stockholders
beneficially owned an aggregate of 4,979,061 shares of Common Stock,
representing 42.2% shares of Common Stock outstanding.
Loan Agreement and Loan Note
In order to secure funding for the Company's operations pending the closing
of the Offering, the Company and SOFTBANK Holdings have entered into a Loan
Agreement dated April 30, 1998 (the "Loan Agreement"). Pursuant to the Loan
Agreement, SOFTBANK Holdings has agreed to provide loans in an aggregate
principal amount of up to $1,500,000 at an interest rate of 8.0% per annum. The
Loan Agreement provides for periodic loan disbursements to the Company, each
evidenced by a promissory note (the "Loan Notes"). SOFTBANK's obligations under
the Loan Agreement are subject to certain conditions, including the Company's
provision of periodic statements detailing the Company's proposed application of
the proceeds of each loan disbursement. Upon the closing of the Offering, all
Loan Notes automatically convert into the number of shares of Common Stock
determined by dividing all of the unpaid principal and interest due on the Loan
Notes as of the Closing by a conversion price of $0.60 per share of Common
Stock. Failure of SOFTBANK Holdings to provide loan disbursements as required by
the Loan Agreement shall give the
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Company the right to terminate the Purchase Agreement. The Loan Agreement
terminates if the Purchase Agreement terminates.
Agreements with Lee H. Stein
Pursuant to the Purchase Agreement, the Company agreed to cause to be
waived any provisions contained in any employment or severance agreement with
Lee H. Stein, the Company's Chairman and Chief Executive Officer, which provide
for the payment, accrual or acceleration of any benefit, other than the
accelerated vesting of stock options with respect to no more than 67,708 shares
of Common Stock plus 255,319 unvested options under the Company's compensation
reduction plan. Mr. Stein has informed the Company that, subject to satisfactory
documentation of his stock option rights, he will cease to serve as an officer
of the Company following the Closing. The Company expects to enter into an
agreement with Mr. Stein for provision of consulting services following the
closing of the Offering at the monthly fee of no less than $6,500 per month,
terminable on no less than two months notice. The consulting agreement may be
amended from time to time by mutual consent of the parties.
Approval of the Purchase Agreement
At the Annual Meeting, the stockholders of the Company are being asked to
consider and approve the issuance and sale by the Company of up to 18,658,333
shares of its Common Stock in the Offering pursuant to the Purchase Agreement
and the Conversion Agreement, as required by Nasdaq National Market Rule
4460(i). Should the Company's stockholders fail to approve this proposal at the
Annual Meeting, each of SOFTBANK and the Company will have the right to
terminate the Purchase Agreement.
Effect of the Offering Upon Rights of Existing Stockholders
The Offering and related transactions, if consummated, are expected to
result in substantial dilution to existing stockholders. The Purchase Agreement
and the Conversion Agreement provide for the issuance of up to 18,658,333 shares
of Common Stock of the Company to SOFTBANK at purchase or conversion prices of
approximately $0.60 per share. In addition, the Company has reduced to $1.00 the
exercise prices of Warrants to purchase up to 850,000 shares of Common Stock
held by certain stockholders of the Company. The exercise of such Warrants is
expected to result in additional dilution to existing stockholders.
Upon consummation of the Offering and related transactions, SOFTBANK will
hold or have the right to acquire up to 19,858,333 shares of Common Stock which
will constitute approximately 65% of the total number of shares of Common Stock
outstanding. SOFTBANK will also have the right to appoint a majority of the
members of the Company's Board of Directors. As a result, SOFTBANK will be able
to control the Company's affairs and business and all matters requiring approval
by the Board and the stockholders, including the election of directors and
approval of significant corporate transactions. Such concentration of ownership
will have the effect of preventing a change in control of the Company and making
certain transactions more difficult or impossible absent SOFTBANK's support,
including tender offers, open-market purchase programs and other transactions
which could give stockholders of the Company an opportunity to realize a premium
over the then prevailing market price for shares of Common Stock of the Company.
In addition, subsequent sales in the public market of substantial amounts of the
shares to be acquired by SOFTBANK through the Offering and the related
transactions could adversely affect the market price of the Common Stock.
VOTE REQUIRED
Approval of this proposal will require a majority of the Votes Cast on the
proposal at the Annual Meeting.
RECOMMENDATION
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ISSUANCE AND SALE OF
COMMON STOCK IN THE OFFERING PURSUANT TO THE PURCHASE AGREEMENT AND THE
CONVERSION AGREEMENT AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THIS
PROPOSAL.
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PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION TO ELIMINATE CLASSIFICATION
OF THE BOARD OF DIRECTORS
The Board of Directors is proposing an amendment (the "Amendment") to the
Company's Amended and Restated Certificate of Incorporation (the "Restated
Certificate") to eliminate the classification of the Company's Board of
Directors (the "Board") and thereby ensure that each director will stand for
election annually.
Article XI, Section 1 of the Restated Certificate currently provides that
the Board shall be divided into three classes, Class I, Class II and Class III.
Members of each Class serve terms of three years ending at the third annual
meeting of stockholders of the Company following the election of that Class.
If this proposal is approved by the stockholders, the Restated Certificate
will be amended to eliminate the classification of the Board, such that all
directors will stand for election annually. The Board believes that elimination
of the classification of the Board is in the best interest of the Company and
its stockholders in that it will allow stockholders to review and express their
views on the performance of all directors each year. This proposal is being
presented pursuant to the Purchase Agreement described in Proposal No. 1 above,
and not in response to any stockholder demand.
If this proposal is not approved by the stockholders, then the Board will
continue to be classified, and following the Annual Meeting, the Board will
consist of two Class I directors, two Class II directors and one Class III
director as provided under Proposal 3, Election of Directors.
The Board has determined that the declassification of the Board should
become effective commencing with the annual meeting of stockholders of the
Company in fiscal 1999. Accordingly, if this proposal is approved by the
stockholders, the terms of all directors will end at the annual meeting of
stockholders of the Company in fiscal 1999, and all directors elected at that
annual meeting will have one-year terms.
If the Amendment is approved by the stockholders, Article XI, Section 1 of
the Restated Certificate will be amended as set forth in ANNEX C hereto.
VOTE REQUIRED
The affirmative vote of two-thirds of the shares of Common Stock of the
Company outstanding as of the Record Date will be required to approve the
Amendment.
RECOMMENDATION
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDMENT AND
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE AMENDMENT.
PROPOSAL 3
ELECTION OF DIRECTORS
DIRECTORS AND NOMINEE FOR DIRECTOR
The Company's Board of Directors currently consists of four persons,
divided into three classes serving staggered terms of office. Currently there
are two Class I directors, one Class II director and one Class III director. The
two Class I directors are Lee H. Stein and Pamela H. Patsley. The current Class
II director is Stephen Marcus. The current Class III director is Scott J.
Loftesness. Two Class II directors and one Class III director shall be elected
at the Annual Meeting. The two current Class I directors have two years left to
serve for their terms and are not up for election.
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If the above Proposal 2 to eliminate classification of the Board is
approved, then the terms of all directors will end at the annual meeting of
stockholders of the Company in fiscal 1999, and all directors elected at that
annual meeting will have one-year terms. If the Board remains a classified Board
because Proposal 2 does not receive the required approval by the stockholders,
then the directors' terms will be as follows: the two Class I directors' terms
will expire at the Annual Meeting of Stockholders held in 2000; the Class II
directors' terms will expire at the Annual Meeting of Stockholders held in 2001
and the Class III director's term will expire at the Annual Meeting of
Stockholders held in 1999.
Each person named below as a nominee for election has consented to serve if
elected. If any nominee unexpectedly becomes unavailable to serve, the proxy
holders will vote their proxies for a substitute nominee designated by the
Board. It is not expected that the nominees will be unable or will decline to
serve as a director, except that each of the nominees may decline to serve as
director in the event the Offering described under Proposal No. 1 above is not
consummated. All directors hold office until their successors have been elected
and qualified, or until their earlier death, resignation or removal from office.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the election of Ronald D. Fisher and Gary E. Rieschel, the
Company's nominees as the Class II directors and for the election of Bradley A.
Feld, the Company's nominee for the Class III director.
NOMINEES FOR ELECTION OF CLASS II AND III DIRECTORS
Ronald D. Fisher, 50, has been the Vice Chairman of SOFTBANK Holdings Inc.
since 1995. From 1990 to 1995, Mr. Fisher was the Chief Executive Officer of
Phoenix Technologies Ltd, a leading developer and marketer of system software
for personal computers. His prior experience includes senior management
positions at Interactive Systems Corporation, VisiCorp, TRW and ICL (USA). In
addition to being a Board member of SOFTBANK Corporation, Mr. Fisher serves on
the boards of Ziff-Davis Inc., Phoenix Technologies Ltd, Microtouch Systems Inc.
and Segue Software Inc.
Gary E. Rieschel, 41, is the Executive Managing Director of SOFTBANK
Technology Ventures. Prior to joining SOFTBANK Technology Ventures in January
1996, Mr. Rieschel served as Vice President of Marketing for nCube from
September 1994 to December 1995; as Director of Channel Sales for Cisco Systems
from July 1993 to October 1994; and as General Manager, Asia for Sequent
Computer from January 1989 to July 1993. Mr. Rieschel is a director of
Concentric Networks, USWEB Corporation and several privately held companies.
Bradley A. Feld, 32, is a Managing Director of SOFTBANK Technology
Ventures. Prior to joining SOFTBANK Technology Ventures in June 1996, Mr. Feld
founded and managed Intensity Ventures from 1995 to 1996 and served as Chief
Technology Officer at AmeriData Technologies after that firm acquired Feld
Technologies, a company he founded in 1988. Mr. Feld is an Entrepreneur in
Residence at the Kauffman Foundation Center for Entrepreneurial Leadership and
serves as Director of several privately held companies.
The remaining directors of the Company, and certain information about them
as of the Record Date, are set forth below:
Lee H. Stein, 44, a founder of the Company, has served as Chairman of the
Board of the Company since January 1996 and as a director and Chief Executive
Officer of the company since March 1994. Since 1980, Mr. Stein has also been
Chairman of Stein & Stein Incorporated, a firm which has provided advisory and
management services to a selected clientele of high net worth and entertainment
industry individuals, and which is the general partner of The Stein Company,
Ltd., an investment partnership. Mr. Stein is a director of Scripps Foundation
for Medicine and Science, a former director of the American Cancer Society and
former chairman of Jack Murphy Stadium Authority, City of San Diego. Mr. Stein
is a member of the bars of the State of California and the Commonwealth of
Pennsylvania.
Pamela H. Patsley, 41, has served as a director of the Company since
December 1995. Ms. Patsley has been President, Chief Executive Officer and a
director of Paymentech, Inc. since December 1995. She has also served as
President and Chief Executive Officer of Paymentech, a wholly-owned subsidiary
of Paymentech, Inc., since December 1991, Executive Vice President and Manager
since July 1990, and as
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Chairman of the Board of First USA Financial Services, Inc., a wholly-owned
subsidiary of Paymentech, Inc., since August 1994. Ms. Patsley has also served
as Executive Vice President and Secretary of First USA, Inc. since August 1994.
Ms. Patsley also served as Executive Vice President and Secretary of First USA,
Inc. from July 1989 until June 1997 and as Chief Financial Officer from January
1987 to April 1994. Ms. Patsley is also a Director of Adolf Coors Company and
Coors Brewing Company.
BOARD MEETINGS AND COMMITTEES
During 1997, the Board of Directors held ten meetings. The two standing
committees of the Board of Directors are an Audit Committee and a Compensation
Committee. There is no nominating committee.
The Audit Committee held three meetings in 1997. The functions of the Audit
Committee include recommending appointment of the Company's independent auditors
to the Board of Directors and reviewing (i) the scope of the independent
auditors' annual audit and their compensation, (ii) the general policies and
procedures of the Company with respect to internal auditing, accounting and
financial controls and (iii) any change in accounting principles, significant
audit adjustments proposed by the auditors and any recommendations that the
auditors may have with respect to policies and procedures.
The Compensation Committee held six meetings in 1997. The Compensation
Committee monitors the nature and levels of compensation paid by the Company to
its executive personnel.
During 1997, with the exception of John McKinley and Ms. Patsley who each
attended 70% of meetings of the Board of Directors, no director attended fewer
than seventy-five percent (75%) of the aggregate of (i) the total number of
meetings of the Board of Directors held and (ii) the total number of meetings
held by all committees of the Board of Directors on which such director served.
DIRECTORS' COMPENSATION; GRANT OF OPTIONS TO DIRECTORS
Directors of the Company receive reimbursement of expenses for attending
meetings of the Board of Directors. Stephen Marcus received a fully-vested
option to purchase 20,000 shares of the Company's Common Stock at an exercise
price of $2.06 per share in January 1998. Each of Tawfiq N. Khoury, John A.
McKinley, Scott J. Loftesness, Robert Epstein, Pamela H. Patsley and Jon M.
Rubin received an option to purchase 2,000 shares of Common Stock at an exercise
price of $6.375 on June 20, 1997. In January 1998, the Board determined that, in
the future, non-employee directors shall receive an option to purchase 20,000
shares of the Company's Common Stock upon becoming non-employee directors (the
"Initial Grant") and an option to purchase 10,000 shares of the Company's Common
Stock immediately following each of the Company's annual meetings of
stockholders (the "Annual Grant"). Initial Grants and Annual Grants will be made
under the Company's 1995 Stock Plan and will vest over a four-year period.
Messrs. McKinley, Loftesness and Epstein have notified the Company that
they hold the aforementioned option for the benefit of their respective
employers, General Electric Capital Corporation, First Data Corporation and
Sybase, Inc.
VOTE REQUIRED
The nominees for Class II directors and Class III directors receiving the
highest number of Votes Cast shall be elected as directors. Votes withheld from
any nominee are counted for purposes of determining the presence or absence of a
quorum, but have no other legal effect under Delaware law.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE COMPANY'S
NOMINEES FOR DIRECTORS.
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PROPOSAL 4
RATIFICATION OF SALE OF SERIES A PREFERRED STOCK
At the Annual Meeting, the stockholders are being asked to consider and
ratify the issuance and sale of an aggregate of 1,000 shares of its Series A
Convertible Preferred Stock (the "Series A Preferred Stock") and warrants to
purchase 850,000 shares of Common Stock at an exercise price of $1.00 (the
"Warrants"), as well as an indeterminate number of shares issuable upon
conversion of, and as dividends on, the Series A Preferred Stock. The Series A
Preferred Stock and Warrants, which were sold in October 1997, were issued and
sold to the Series A Holders in a private offering pursuant to Regulation D of
the Securities Act of 1933, as amended (the "Private Placement"). Gross proceeds
to the Company were $5,000,000. As of the Record Date, 655 shares of Series A
Preferred Stock remained outstanding, and 345 had been converted.
Pursuant to Private Placement Purchase Agreements dated October 14, 1997
(attached hereto as ANNEX C), the Company sold the Series A Preferred Stock and
the Warrants in units, each consisting of ten shares of Series A Preferred Stock
and a Warrant to purchase 8,500 shares of Common Stock. The price per unit was
$50,000. In connection with the sale and issuance of Series A Preferred Stock
and Warrants, the Company agreed to file a registration statement on Form S-3 to
permit the public sale of shares of Common Stock issuable upon conversion of or
as dividends on the Series A Preferred, or upon exercise of the Warrants.
Subject to certain exceptions, the registration statement must remain effective
for two years with respect to Common Stock issued upon conversion of Preferred
Stock and three years with respect to Common Stock issued upon exercise of the
Warrants. The Company also covenanted to the Series A Holders that, for a period
of 200 days after the closing of Private Placement or until the Series A Holders
own less than 50% of the Series A Preferred Stock (whichever is sooner), the
Company will not without the prior written consent of the Series A Holders raise
funds by way of the sale of debt or equity securities pursuant to Regulation D
or Regulation S except from (i) existing stockholders, (ii) from an entity whose
relationship with the Company creates intangible value, or (iii) to fund a
merger or acquisition related activity.
The holders of Series A Preferred Stock are entitled to receive, prior and
in preference to any distribution of any of the assets or surplus funds of the
Company to the holders of junior stock (as such term is defined in the
Certificate of Designation) or Common Stock of the Company by reason of their
ownership thereof, an amount equal to their full liquidation preference of
$5,000 per share of Series A Preferred Stock, plus accrued and unpaid dividends.
The holders of Series A Preferred Stock are entitled to receive a dividend,
payable quarterly on the first day of each calendar quarter commencing January
1, 1998, which accrues from the date of issuance at the annual rate of $350 per
share. The dividends are payable at the option of the Company either in cash or
in shares of Common Stock which on the date of the dividend payment have a value
equal to the dividend, provided that dividends may be paid in Common Stock only
if the public sale thereof is permitted under a then effective registration
statement.
The Company's Certificate of Designation of Series A Preferred Stock,
attached hereto as ANNEX D (the "Certificate of Designation") provides that each
share of Series A Preferred Stock is convertible into the number of shares of
the Company's common stock (the "Common Stock") equal to (i) the purchase price
per share ($5,000) divided by (ii) the Conversion Price of the Series A
Preferred Stock. Subject to certain adjustment provisions, the Conversion Price
is equal to the lower of (a) $5.50 or (b) 80% of the average closing bid price
for the Company's Common Stock on the Nasdaq National Market ("Nasdaq") during
the last ten days prior to the date of conversion (the "Conversion Price").
Since the Series A Preferred Stock is convertible into Common Stock at a
conversion price which is limited to the lesser of $5.50 or 80% of the average
closing bid price per share of Common Stock for the prior ten days, conversion
of the Series A Preferred Stock will result in at least modest dilution to
existing investors, and may result in substantial dilution. Additional dilution
may result upon the exercise of the Warrants issued in this financing. Moreover,
holders of Series A Preferred Stock enjoy certain rights and preferences which
may adversely affect holders of Common Stock, including the right to quarterly
dividend payments and the right to a preference payment in the event of a
liquidation or dissolution of the Company.
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At the Annual Meeting, the stockholders of the Company are being asked to
approve the Private Placement, and the issuance of the Company's Common Stock
pursuant thereto, as required by Nasdaq Rule 4460(i) (the "Nasdaq Rule"). Should
the Company's stockholders fail to approve the Private Placement and the
issuance of shares pursuant thereto at the Annual Meeting, the Warrants shall
not be exercisable, and the 655 shares of Series A Preferred Stock which remain
outstanding will not be convertible into Common Stock. In such instance, the
Company would be obligated, at the demand of any other Series A Holders, to
redeem any portion of the Series A Preferred Stock held by such Purchaser at a
redemption price equal to $6,000 per share of Series A Preferred Stock plus
accrued but unpaid dividends. The redemption price for shares requested to be
redeemed is payable within 90 days of the redemption demand, and will accrue
interest from the date of the demand at a rate of 11% per annum.
If the stockholders approve the Private Placement and the issuance of
shares pursuant thereto at the Annual Meeting, any shares of Series A Preferred
Stock which remain outstanding on September 30, 2001, will automatically convert
into shares of the Company's Common Stock at the then applicable Conversion
Price, but only if the listing of the Company's Common Stock on Nasdaq has been
effective at all times since September 30, 2000, and only if the Common Stock
issuable upon conversion of such shares of Series A Preferred Stock can be
resold to public pursuant to an effective registration statement or an available
exemption from registration.
Pursuant to the Option Agreement between SOFTBANK and the Series A Holders
described above in Proposal 1, Ratification of the Sale of Common Stock,
SOFTBANK has acquired the right to purchase up to all outstanding shares of
Series A Preferred Stock from the Series A Holders. The Company and SOFTBANK
have further agreed that any shares of Series A Preferred Stock acquired by
SOFTBANK will have a conversion price of $0.60 and moreover. In addition, the
exercise price of the Warrants has been reduced from $5.75 to $1.00 per share as
a condition to SOFTBANK's right to purchase the Series A Preferred Stock from
the Series A Holders. SOFTBANK's purchase of the Series A Preferred Stock and
the Warrants and the subsequent conversion of the Series A Preferred Stock into
Common Stock and/or the exercise of the Warrants into Common Stock at the new
exercise price will result in significant dilution to existing stockholders.
The above description of the Private Placement and the rights and
preferences of the Series A Preferred Stock is a summary only. Stockholders are
encouraged to review the more detailed information set forth in the form of
Private Placement Agreement and Certificates of Designation of Series A
Preferred Stock which are included as ANNEX D and ANNEX E to this proxy
statement, respectively.
VOTE REQUIRED
Approval of this proposal requires a majority of the Votes Cast on the
proposal at the Annual Meeting.
RECOMMENDATION
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PRIVATE PLACEMENT AND
RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THIS PROPOSAL.
PROPOSAL 5
AMENDMENT OF 1995 STOCK PLAN
The Company's 1995 Stock Plan (the "1995 Plan") was adopted in September
1995, with 2,000,000 shares of Common Stock reserved for issuance thereunder. In
October 1996, the 1995 Plan was amended to increase the number of shares of
Common Stock reserved for issuance thereunder by 1,000,000 for an aggregate of
3,000,000 reserved for issuance under the 1995 Plan. As of April 30, 1998, an
aggregate of 239,380 shares were available for future grant under the 1995 Plan.
In January 1998, the Board of Directors amended the 1995 Plan, subject to
stockholder approval, to increase the shares reserved for issuance thereunder by
1,000,000 shares to an aggregate of 4,000,000 shares. The stockholders are being
asked to
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approve this share increase at the Annual Meeting. The Board believes that
increasing the number of shares available under the 1995 Plan is necessary in
order to allow the Company to continue to attract, retain and motivate
employees.
The principal features of the 1995 Plan, as proposed to be modified, are
described below:
GENERAL
The 1995 Plan authorizes the Board of Directors (the "Board"), or a
committee which the Board may appoint from among its members (the "Option
Committee"), to grant options and rights to purchase shares of Common Stock.
Options granted under the Stock Plan may either be "incentive stock options" as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, ("the
Code"), or nonstatutory stock options, as determined by the Board or Option
Committee. The 1995 Plan is not a qualified deferred compensation plan under
Section 401(a) of the Code, nor is it subject to the Employee Retirement Income
Security Act of 1974, as amended.
PURPOSE
The general purpose of the 1995 Plan is to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to the employees and consultants of the Company and to
promote the success of the Company's business.
STOCK SUBJECT TO THE 1995 PLAN
Subject to other provisions of the 1995 Plan, the maximum aggregate number
of shares of Common Stock which may be optioned and sold under the Stock Plan
shall be 4,000,000 shares. The shares reserved under the 1995 Plan may be
authorized, but unissued, or reacquired Common Stock.
ADMINISTRATION
The 1995 Plan may be administered by the Board or Option Committee. Subject
to other provisions of the 1995 Plan, the Board or Option Committee has the
authority to: (i) select the employees, directors and consultants to whom
options are to be granted; (ii) to approve forms of agreement for use under the
Plan; (iii) determine whether and to what extent options are granted under the
Plan; (iv) determine the number of shares to be made subject to each option; (v)
determine whether and to what extent options are to be granted; (vi) prescribe
the terms and conditions of each option (including the exercise price, whether
an option will be classified as an incentive stock option or a nonstatutory
option and the provisions of the stock option or restricted stock purchase
agreement to be entered into between the Company and the grantee); (vii) modify
or amend each option subject to applicable legal and plan restrictions; (viii)
reduce the exercise price of any Option to the then current fair market value if
the fair market value of the Common Stock covered by such Option has declined
since the date the Option was granted; (ix) allow optionees to satisfy
withholding tax obligations by electing to have the Company withhold from the
shares to be issued upon exercise of an option that number of shares having a
fair market value equal to the amount required to be withheld, (x) to provide
for the early exercise of unvested Options, subject to such terms and conditions
as shall be determined by the Administrator and (ix) construe and interpret the
terms of the Plan and awards granted pursuant to the Plan. The Board or Option
Committee's decisions, determinations and interpretations are final and binding
on all optionees and any other holder of options.
ELIGIBILITY
The 1995 Plan provides that nonstatutory stock options may be granted to
employees, directors and consultants of the Company. Incentive stock options may
be granted only to employees.
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LIMITATION
The 1995 Plan provides that no employee shall be granted, in any fiscal
year of the Company, options to purchase more than 500,000 shares of Common
Stock.
TERMS AND CONDITIONS OF OPTIONS
Each option is to be evidenced by a stock option agreement between the
Company and the employee or consultant to whom such option is granted, and is
subject to the following additional terms and conditions:
(a) Exercise Price. The Board or the Option Committee determines the
exercise price of options at the time the options are granted. However,
excluding options issued to 10% stockholders, the exercise price under an
incentive stock option must not be less than 100% of the fair market value
of the Common Stock on the date such option is granted. In the case of
nonstatutory stock option, the exercise price shall be determined by the
Board or Option Committee. Incentive stock options granted to 10%
shareholders must have an exercise price of not less than 110% of the fair
market value of the Common Stock on the date such option is granted.
Notwithstanding the foregoing, options may be granted with an exercise
price of less than 100% of the fair market value per Share on the date of
grant pursuant to a merger or other corporate transaction.
(b) Form of Consideration. The means of payment for shares issued upon
exercise of an option is specified in each option agreement and generally
may be made by cash, check, other shares of Common Stock of the Company
owned by the optionee for more than six months on the date of surrender,
delivery of an exercise notice together with such other documentation as
the administrator or broker shall require to effect the exercise of the
option and delivery to the Company of the sale or loan proceeds required to
pay the exercise price, or by any combination thereof or any other
consideration and payment method for the issuance of Common Stock to the
extent permitted by applicable laws.
(c) Term of the Option. Each stock option agreement will specify the
term of the option and the date when the option is to become exercisable.
In the case of an incentive stock option, the term must be ten years from
the date of grant or such shorter time as may be provided in the notice of
grant. In the case of an incentive stock option granted to a 10%
stockholder, the term of the option must be no more than five years from
the date of grant. No option may be exercised by any person after the
expiration of its term.
(d) Termination of Employment. If an optionee's employment terminates
for any reason (other than death or permanent disability), then all options
held by such optionee under the 1995 Plan will expire as set forth in his
or her notice of grant (but not to exceed three months after the
termination of his or her employment in the case of an incentive stock
option). The optionee may exercise all or part of his or her option at any
time before such expiration to the extent such option was exercisable at
the time of termination of employment.
(e) Disability. If an optionee should terminate his or her employment
or consulting relationship as a result of total and permanent disability
(as defined in the Code), then all options held by such optionee under the
1995 Plan will expire the earlier of (i) the date specified in the option
agreement (which may not exceed 12 months from the date of termination of
the optionee's employment), or (ii) the expiration date of such option. The
optionee may exercise all or part of his or her option at any time before
such expiration to the extent that such option was exercisable at the time
of termination of employment.
(f) Death. In the event of death of an optionee, any options which are
then vested, or which would have otherwise vested within 12 calendar months
from the date of death, may be exercised at any time within 12 months after
the date of death (but in no event later than the expiration of such
options), by the optionee's estate or by the person who acquired the right
to exercise the option by bequest or inheritance.
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(g) Nontransferability of Options. During an optionee's lifetime, his
or her option(s) will be exercisable only by the optionee and will not be
transferable other than by will or laws of descent and distribution.
(h) Value Limitation. If the aggregate fair market value of all shares
of Common Stock subject to an optionee's incentive stock option which are
exercisable for the first time during any calendar year exceeds $100,000,
the excess options shall be treated as nonstatutory stock options.
(i) Other Provisions. The stock option agreements used in conjunction
with the 1995 Plan may contain such other terms, provisions and conditions
not inconsistent with the 1995 Plan as may be determined by the Board or
Option Committee.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event that the stock of the Company is changed by reason of any
stock split, reverse stock split, stock dividend, combination, reclassification
or other change in the capital structure of the Company effected without the
receipt of consideration, appropriate proportional adjustments shall be made in
the number and class of shares of stock subject to the 1995 Plan, the number and
class of shares of stock subject to any option outstanding under the 1995 Plan,
and the exercise price of any such outstanding option. Any such adjustment shall
be made upon approval of the Board, whose determination shall be conclusive.
Notwithstanding the above, in connection with any merger, consolidation,
acquisition of assets or like occurrence involving the Company, each outstanding
option must be assumed or an equivalent option or right substituted by the
successor corporation. If the successor corporation refuses to assume the
options or to substitute substantially equivalent options, optionees will have
the right to exercise their options as to all the optioned stock, including
shares which would not otherwise be exercisable. If an option is exercisable in
lieu of assumption or substitution, the Board or Option Committee will notify
the optionee that the option shall be fully exercisable for 15 days from the
date of such notice, and the option will terminate upon expiration of such
period.
AMENDMENT AND TERMINATION OF THE PLAN
The Board may amend, alter, suspend or terminate the 1995 Plan or any part
thereof, at any time and for any reason. However, the Company will obtain
stockholder approval for any amendment to the 1995 Plan to the extent necessary
to comply with any applicable law, rule or regulation. No such action by the
Board of Directors or stockholders may alter or impair any option previously
granted under the 1995 Plan without the written consent of the optionee. In any
event, the 1995 Plan shall terminate no later than ten years from its approval
by the Board.
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the 1995 Plan may be either "incentive stock
options," as defined in Section 422 of the Code, or nonstatutory options. An
optionee who is granted an incentive stock option will not recognize taxable
income at the time the option is granted or upon its exercise, although the
exercise may subject the optionee to the alternative minimum tax. Upon the sale
or exchange of the shares more than two years after grant of the option and one
year after exercising the option, any gain or loss will be treated as long-term
capital gain or loss. If these holding periods are not satisfied, the optionee
will recognize ordinary income at the time of sale or exchange equal to the
difference between the exercise price and the lower of (i) the fair market value
at the date of the option exercise or (ii) the sale price of the shares. A
different rule for measuring ordinary income upon such a premature disposition
may apply if the optionee is also an officer, director, or 10% stockholder of
the Company. The Company will be entitled to a deduction in the same amount as
the ordinary income recognized by the optionee. Any gain or loss recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income will be characterized as long-term or short-term capital gain or
loss, depending on the holding period.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time he or she is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize taxable income generally measured by the
excess of
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the then fair market value of the shares purchased over the purchase price. Any
taxable income recognized in connection with an option exercise by an optionee
who is also an employee of the Company will be subject to tax withholding by the
Company. The Company will be entitled to a deduction in the same amount as
ordinary income recognized by the employee. Upon sale of such shares by the
optionee, any difference between the sales price and the optionee's purchase
price, to the extent not recognized as taxable income as provided above, will be
treated as long-term or short-term capital gain or loss, depending on the
holding period.
The foregoing is only a summary of the effect of federal income taxation
upon the employee or consultant and the company with respect to awards under the
1995 Plan and does not purport to be complete, and reference should be made to
the applicable provisions of the code. In addition, this summary does not
discuss alternative minimum tax laws or the provisions of the income tax laws of
any municipality, state or foreign country in which the employee or consultant
may reside.
VOTE REQUIRED
The approval of the amendment to the 1995 Plan requires the affirmative
vote of a majority of the Votes Cast on the proposal at the Annual Meeting.
RECOMMENDATION
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDMENT TO THE 1995
PLAN AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THIS PROPOSAL.
PROPOSAL 6
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Ernst & Young LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending December 31, 1998. If the stockholders do not ratify the appointment of
Ernst & Young LLP, the selection of independent auditors will be reconsidered by
the Board of Directors. Ernst & Young LLP has audited the Company's financial
statements since the Company's inception. Representatives of Ernst & Young LLP
are expected to be present at the meeting, will have the opportunity to make a
statement if they desire to do so, and are expected to be available to respond
to appropriate questions.
VOTE REQUIRED
Approval of this proposal requires a majority of the Votes Cast on the
proposal at the Annual Meeting.
RECOMMENDATION
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE APPOINTMENT OF ERNST &
YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR FISCAL 1998 AND RECOMMENDS
THAT THE STOCKHOLDERS VOTE "FOR" THIS PROPOSAL.
16
<PAGE> 19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of the Record Date, (i) each person known by the Company to
beneficially own more than 5% of the Company's Common Stock, (ii) each director,
(iii) the executive officers of the Company named in the Summary Compensation
Table below (the "Named Executive Officers"), and (iv) all directors and
executive officers as a group:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED(1)
-------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OF TOTAL(2)
------------------------ --------- -------------------
<S> <C> <C>
Paymentech Merchant Services, Inc.(3)..................... 2,583,951 21.07%
1601 Elm Street
Dallas, TX 75201
Lee H. Stein(4)........................................... 2,491,733 19.76%
11975 El Camino Real, Suite 300
San Diego, CA 92130-2543
Tawfiq N. Khoury(5)....................................... 1,357,000 11.41%
2505 Congress Street, Suite 200
San Diego, CA 92110
Next Century Communications Corp.(6)...................... 1,382,000 11.50%
1400 Key Boulevard, First Floor
Arlington, VA 22209
Marshall T. Rose(7)....................................... 256,425 2.17%
Stephen Marcus(8)......................................... 63,600 *
John M. Stachowiak(9)..................................... 103,750 *
Scott A. Loftesness(10)................................... 227,194 1.93%
Pamela H. Patsley(11)..................................... 2,585,951 21.08%
Nathaniel S. Borenstein(12)............................... 287,179 2.39%
Michael D. Schauer(13).................................... 112,500 *
All directors & officers as a group (11 persons)(14)...... 6,155,939 45.32%
</TABLE>
- ---------------
* Less than 1%.
(1) Except pursuant to applicable community property laws or as indicated in
the footnotes to this table, to the Company's knowledge, each stockholder
identified in the table possesses sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by such
stockholder.
(2) Based on 11,785,492 shares of Common Stock outstanding as of April 30,
1998.
(3) Paymentech Merchant Services, Inc. is a wholly-owned subsidiary of
Paymentech, Inc. Pamela H. Patsley, a director of First Virtual, is Chief
Executive Officer and a director of Paymentech, Inc. Includes 7,000 shares
subject to options exercisable within 60 days of April 30, 1998. Includes
940,734 shares beneficially owned by First USA Financial, Inc., a majority
owner of Paymentech, Inc. Includes 475,734 shares subject to warrants
exercisable within 60 days of April 30, 1998.
(4) Includes 827,783 shares subject to options exercisable within 60 days of
April 30, 1998 and 577,600 shares held by June L. Stein, Mr. Stein's
spouse, for her own account. Also includes 64,800 shares held in trusts for
the benefit of Mr. Stein's children and 444,450 shares held by The Stein
Company, Ltd., of which Stein & Stein Incorporated is the general partner.
Mr. Stein and his spouse are the sole shareholders of Stein & Stein
Incorporated.
(5) Includes 107,000 shares subject to options exercisable within 60 days of
April 30, 1998 and 312,500 shares held by the TNKRGK Family Trust dated
December 23, 1976, of which Mr. Khoury is a beneficiary. Also includes
937,500 shares held by three separate trusts, each being for the sole
benefit of one of Mr. Khoury's three children. Mr. Khoury disclaims
beneficial ownership of these shares
17
<PAGE> 20
(6) Includes 137,000 shares subject to options exercisable within 60 days of
April 30, 1998. Also includes 95,000 shares subject to options exercisable
within 60 days of April 30, 1998 and 250,000 shares of Common Stock held by
Jon M. Rubin, President of NCCC.
(7) Includes 4,550 shares subject to options exercisable within 60 days of
April 30, 1998.
(8) Includes 2,000 shares subject to options exercisable within 60 days of
April 30, 1998.
(9) Includes 93,750 shares subject to options exercisable within 60 days of
April 30, 1998.
(10) Includes 7,000 shares subject to options exercisable within 60 days of
April 30, 1998. Also includes 220,194 shares held by First Data Corporation
("First Data"), as to which Mr. Loftesness disclaims beneficial ownership.
Mr. Loftesness is Group Executive of First Data Merchant Systems, a
subsidiary of First Data.
(11) Includes 7,000 shares subject to options exercisable within 60 days of
April 30, 1998 and 2,000 shares of Common Stock. Also includes (i)
1,636,217 shares held by Paymentech (ii) 940,734 shares beneficially owned
by First USA Financial, Inc., a majority owner of Paymentech, Inc., and
(iii) 475,734 shares subject to warrants exercisable within 60 days of
April 30, 1998, as to which Ms. Patsley disclaims beneficial ownership. Ms.
Patsley is President and Chief Executive Officer of Paymentech, Inc., of
which Paymentech Merchant Services, Inc. is a wholly-owned subsidiary, and
may therefore be deemed to share voting and investment power with respect
to such shares.
(12) Includes 241,569 shares subject to options exercisable within 60 days of
April 30, 1998.
(13) Includes 112,500 shares subject to options exercisable within 60 days of
April 30, 1998.
(14) Includes 1,322,944 shares subject to options exercisable within 60 days of
April 30, 1998.
The following table sets forth the beneficial ownership of Series A
Preferred Stock of the Company as of the Record Date by each person known by the
Company to be the beneficial owner of more than 5% of the Company's Series A
Preferred Stock. No nominees for director, Named Executive Officers, or
directors held shares of Series A Preferred Stock as of such date.
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
BENEFICIALLY OWNED(1)
-------------------------------------
NAME NO. OF SHARES PERCENT OF CLASS(2)
---- ------------- --------------------
<S> <C> <C>
Seth Joseph Antine.................................... 60 9.16%
2120 Bay Avenue
Brooklyn, NY 11230
Huberfeld Bodner Family Foundation.................... 400 61.07%
152 West 57th Street
54th Floor
New York, NY 10019
Millenco LP........................................... 130 19.85%
111 Broadway
New York, NY 10006
Murray Huberfeld/David Bodner Partnership............. 35 5.34%
152 West 57th Street
54th Floor
New York, NY 10019
</TABLE>
- ---------------
(1) Except as noted below, the persons named in the table, to the Company's
knowledge, have sole voting and investment power with respect to all shares
of Preferred Stock shown as beneficially owned by them, subject to community
property laws where applicable.
(2) Based on 655 shares of Series A Preferred Stock outstanding as of April 30,
1998.
18
<PAGE> 21
ADDITIONAL INFORMATION RELATING TO
DIRECTORS AND OFFICERS OF THE COMPANY
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company for services rendered during the fiscal year ended December
31, 1997 by the Chief Executive Officer of the Company and each of the four
other most highly compensated executive officers of the Company ("Named
Executive Officers"), based upon salary and bonus earned by such executive
officers in fiscal 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
-------------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (# OF SHARES) COMPENSATION
--------------------------- ---- -------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Lee H. Stein........................... 1997 $240,000 $ -- $ -- $ --
Chairman and Chief Executive Officer 1996 240,000(1) -- 725,000 --
1995 -- -- -- --
Michael D. Schauer(2).................. 1997 183,334 45,834 -- 28,173(3)
Former President 1996 260,626(4) -- 225,000 97,554(5)
Nathaniel Borenstein(6)................ 1997 200,000 -- 55,000 --
Former Chief Scientist 1996 224,000 -- 114,500 --
1995 130,000 -- 16,700 --
Marshall T. Rose....................... 1997 200,000 -- 100,000 --
Technical Advisor to the Chairman 1996 188,750(7) -- 100,000 --
1995 39,241 -- 4,550 --
John M. Stachowiak(8).................. 1997 200,000 -- 55,000 63,056(5)
Former Vice President, Finance and 1996 164,447(9) -- 125,000 --
Administration and Chief Financial
Officer
</TABLE>
- ---------------
(1) Mr. Stein first received a salary on January 1, 1996 with fifty percent of
his compensation deferred. Mr. Stein's deferred wages were paid out in the
first quarter of 1997. The deferred amount accrued interest at an annual
rate of 7.0%.
(2) Mr. Schauer's full-time employment with the Company terminated on June 4,
1997.
(3) Consists of severance payment in connection with termination of Mr.
Schauer's employment with the Company.
(4) Includes deferred bonuses paid out in the first quarter of 1997.
(5) Consists of reimbursable living expenses.
(6) Dr. Borenstein's full-time employment with the Company terminated on January
16, 1997. Dr. Borenstein currently serves as a consultant to the Company.
(7) Includes $88,750.00 in consulting fees. Dr. Rose served as a consultant to
the Company until July 1996 when he joined the Company as an employee.
(8) Mr. Stachowiak's employment with the Company terminated on May 15, 1998.
(9) Includes $117,000.00 in consulting fees and $7,863.78 in reimbursable living
expenses. Mr. Stachowiak joined the Company as an employee in October 1996.
19
<PAGE> 22
OPTION GRANTS IN FISCAL 1997
The following table sets forth information with respect to stock options
granted to Named Executive Officers in the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS AT ASSUMED ANNUAL RATES
UNDERLYING GRANTED TO EXERCISE OF STOCK APPRECIATION
OPTIONS EMPLOYEES PRICE PER FOR OPTION TERM(5)
GRANTED IN FISCAL SHARE EXPIRATION ---------------------------
NAME (#)(1) YEAR(2) ($)(3) DATE(4) 5% 10%
---- ---------- ----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Lee H. Stein............... -- --% $ n/a n/a $ n/a $ n/a
Michael D. Schauer......... -- --% n/a n/a n/a n/a
Nathaniel S. Borenstein.... 55,000 4.93% 4.88 10/13/2007 168,795.32 427,760.48
John M. Stachowiak......... 45,000 4.03% 3.94 08/15/2007 111,503.02 282,570.54
10,000 0.90% 1.00 08/15/2007 6,288.95 15,937.42
Marshall T. Rose........... 100,000 8.96% 4.88 10/13/2007 306,900.58 777,746.32
</TABLE>
- ---------------
(1) Options to purchase shares of Common Stock granted under the 1995 Stock Plan
which provide for vesting as to 25% of the underlying Common Stock one year
after the date of grant, then ratably over 36 months thereafter.
(2) Options to purchase an aggregate of 1,115,600 shares of Common Stock of the
Company were granted to employees during the fiscal year ended December 31,
1997.
(3) Options were granted at an exercise price equal to 100% of the fair market
value of the Company's Common Stock on the date of grant, as determined by
the closing price of the Common Stock on the Nasdaq National Market on the
date of grant.
(4) Options may terminate before their expiration dates if the optionee's status
as an employee or consultant is terminated, upon the optionee's death or
disability or upon an acquisition of the Company.
(5) This column shows the hypothetical gains or option spreads for the option
granted based on assumed annual compound stock appreciation rates of 5% and
10% over the full ten-year term of the option. The assumed rates of
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the company's estimate or projection of
future Common Stock prices.
AGGREGATE STOCK OPTION EXERCISES IN FISCAL 1997 AND FISCAL YEAR-END VALUES
No options to purchase shares of the Company's Common Stock were exercised
by Named Executive Officers during fiscal 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Lee H. Stein............................ 636,458 88,542 $322,916.00 $177,084.00
Michael D. Schauer...................... 112,500 0 0.00 0.00
Nathaniel S. Borenstein................. 242,269 155,906 713,309.92 2,428.08
John M. Stachowiak...................... 71,201 108,799 5,834.00 14,166.00
Marshall T. Rose........................ 4,550 200,000 13,468.00 0.00
</TABLE>
- ---------------
(1) Based on the difference between the weighted average exercise price of the
listed options and the closing price of the Company's Common Stock on
December 31, 1997, as reported by the Nasdaq National Market.
BENEFIT PLANS
1995 Stock Plan. For a description of the material terms of the Company's
1995 Stock Plan, please see Proposal 5, Amendment of 1995 Stock Plan.
20
<PAGE> 23
Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan
(the "Purchase Plan") provides for the purchase by eligible employees of shares
of the Company's Common Stock. A total of 100,000 shares of Common Stock have
been reserved for issuance under the Purchase Plan. The Purchase Plan, which is
intended to qualify under Section 423 of the Code, is administered by the
Compensation Committee of the Board of Directors. Employees (including officers
and employee directors) of the Company or any subsidiary of the Company
designated by the Board for participation in the Purchase Plan are eligible to
participate in the Purchase Plan if they are customarily employed for more than
20 hours per week and more than five months per calendar year. The Purchase Plan
will be implemented during concurrent 24 month offering periods each of which
will initially be divided into four consecutive six-month purchase periods,
subject to change by the Board of Directors. Offering periods generally begin in
January and July of each year. The Purchase Plan terminates on the earliest of
(i) the last business day of December 2006; (ii) the date on which all shares
available for issuance have been sold or (iii) the date on which all purchase
rights are exercised in connection with an acquisition or change in control of
the Company. The Purchase Plan permits eligible employees to purchase Common
Stock through payroll deductions. which may not exceed 20% of an employee's
compensation during a purchase period. Shares are purchased on the last day of
each purchase period. The price at which stock may be purchased under the
Purchase Plan is equal to 85% of the lower of the fair market value of the
Company's Common Stock on the first day of the offering period or the last day
of the purchase period. Employees may end their participation in the offering at
any time during the offering period, and participation ends automatically on
termination of employment with the Company. In addition, participants generally
may not purchase stock having a value greater than $25,000 in any calendar year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was formed in January 1996 to review
and approve the compensation and benefits for the Company's executive officers,
administer the Company's stock option plans and employee stock purchase plan and
make recommendations to the Board of Directors regarding such matters. The
committee is currently composed of Ms. Patsley and Mr. Loftesness. Ms. Patsley
serves as President and Chief Executive Officer of Paymentech a beneficial owner
of more than 5% of the Company's capital stock. See "Share Ownership by
Principal Stockholders and Management." No interlocking relationship exists
between the Company's Board of Directors or Compensation Committee and the board
of directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities ("10% Stockholders") to
file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with
the Securities and Exchange Commission (the "SEC") and the National Association
of Securities Dealers. Such officers, directors and 10% Stockholders are also
required by SEC rules to furnish the Company with copies of Section 16(a) forms
that they file.
Based solely on its review of the copies of such forms received by it, the
Company believes that, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and 10%
Stockholders were satisfied.
EMPLOYMENT AGREEMENTS AND CHANGE-IN CONTROL ARRANGEMENTS
In January 1996, the Company entered into an employment agreement with Lee
H. Stein, the Chief Executive Officer and Chairman of the Company's Board of
Directors. The employment agreement provides that Mr. Stein shall receive a
salary of $240,000 annually (subject to increases by the Company's Board of
Directors). The employment agreement further provides that, upon the termination
or upon the occurrence of a Change of Control of the Company (as defined in the
employment agreement) and subsequent termination of Mr. Stein's service as
Chairman of the Company's Board of Directors (a) Mr. Stein shall receive either
$20,000 per month for a period of twelve months following the Triggering Event
(as defined in the
21
<PAGE> 24
employment agreement) or a lump-sum payment of $200,000, (b) Mr. Stein shall
further receive all deferred salary and interest accrued on such deferred salary
(as of the date of this proxy statement, there was no deferred salary owing to
Mr. Stein), and (c) all options granted to Mr. Stein pursuant to his employment
agreement shall fully vest and become exercisable.
Pursuant to the Purchase Agreement and the Related Agreements discussed
above in Proposal 1, Ratification and Sale of Common Stock, the Company agreed
to cause to be waived any provisions contained in any employment or severance
agreement with Mr. Stein, which provide for the payment, accrual or acceleration
of any benefit, other than the accelerated vesting of stock options with respect
to no more than 67,708 shares of Common Stock plus 255,319 unvested options
under the Company's compensation reduction plan. Mr. Stein has informed the
Company that, subject to satisfactory documentation of his stock option rights,
he will cease to serve as an officer of the Company following the closing of the
Offering. The Company expects to enter into an agreement with Mr. Stein for
provision of consulting services following the closing of the Offering at the
monthly fee of no less than $6,500 per month, terminable on no less than two
months notice. The consulting agreement may be amended from time to time by
mutual consent of the parties.
In July 1996, the Company entered into a two-year employment agreement with
Marshall T. Rose, Technical Advisor to the Chairman with the Company holding an
option for one additional year of service on the same terms. The employment
agreement provides that Mr. Rose shall receive a salary of $200,000 per annum.
In April 1997, the Company entered into an employment agreement with Keith
Kendrick, President of the Company. The employment agreement, as amended,
provides (i) Mr. Kendrick receive an annual salary of $215,000, (ii) a bonus of
$83,000 for the 1997 fiscal year, (iii) a signing bonus of $15,000 and certain
relocation expenses and (iv) that, if upon a Change of Control (as defined in
the agreement) Mr. Kendrick's duties with the Company are significantly changed,
he may terminate his employment with the Company. Upon a termination under such
circumstances, all options previously granted to Mr. Kendrick shall fully vest
and become exercisable. In addition, the employment agreement provides that if
the Company's cash or cash equivalents fall below $1,500,000, the Company shall
pay Mr. Kendrick $100,000 within ten days of Mr. Kendrick's request for payment
under the employment agreement.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following report shall
not he incorporated by reference into any such filings.
COMPENSATION COMMITTEE REPORT
The following report is submitted by the Compensation Committee. Each
member of the Compensation Committee is a non-employee director. The
Compensation Committee is responsible for establishing the direction for the
Company's executive compensation strategy. Underlying the Compensation
Committee's decisions is the firm belief that the actions of the Company's
executive officers directly impact the short-term and long-term performance of
the Company, and such officers should be rewarded in a manner consistent with
the Company's financial and non-financial results.
EXECUTIVE COMPENSATION PHILOSOPHY
The Company's executive compensation program has been designed to provide
competitive levels of compensation that are linked to the performance of the
Company, recognize achievement of annual and long-term goals, reward above
target performance. and help attract and retain qualified executives. Consistent
with this philosophy, the executive compensation program provides annual cash
compensation through base salary and in some cases an annual bonus, and a
long-term component through stock options. The program
22
<PAGE> 25
supports a performance-oriented environment by providing incentive compensation
that changes in a consistent and measurable way with both the financial
performance of the Company and management performance in support of strategic
objectives.
The Compensation Committee determines annual salaries, bonuses and
long-term incentives for senior executive officers. Salaries are based primarily
on experience, responsibility and individual performance. Equity-based
compensation is oriented toward the achievement of increasing stockholder value
over the long term and is determined pursuant to the 1995 Stock Plan.
BASE SALARY
The Compensation Committee establishes base salaries each year at a level
intended to be competitive with comparable companies. In addition to the
competitive market range, many factors are considered in determining actual base
salaries, including the duties and responsibilities assumed by the executive,
the scope of the executive's position, length of service, individual
performance, internal equity considerations and special expertise beneficial to
the Company. The Compensation Committee also reviews relevant financial results
and the success of the management team in areas of performance that are not
easily captured through accounting measures, such as business strategies and
introductions of new products and services.
ANNUAL ASSESSMENT OF EXECUTIVE OFFICERS
The Compensation Committee makes an assessment of performance of each
executive officer on an annual basis by considering such factors as the economic
environment, performance comparisons against competitors, the quality of
earnings, the balance between short- and long-term objectives and the stability
of the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal 1997, the Company's Chairman and Chief Executive Officer, Lee
H. Stein, earned $240,000. As a participant in the Company's Cash Compensation
Reduction Plan, Mr. Stein on April 29, 1998 elected to reduce his cash
compensation by 50%, and in consideration will receive options to purchase
Common Stock of the Company. The Compensation Committee's approach to
establishing Mr. Stein's compensation is to be competitive with comparable
companies and to have a significant portion of his compensation depend on the
achievement of financial and non-financial performance criteria. All
compensation actions relating to Mr. Stein are subject to the approval of the
Board of Directors. Certain compensation actions relating to Mr. Stein in
connection with the Softbank transaction are subject to the approval of the
Board of Directors and were approved by the Board on April 29, 1998.
CONCLUSION
The Compensation Committee believes the mix of market-based salaries and
the potential for equity-based rewards for long-term performance represents an
appropriate balance of total compensation. This balanced executive compensation
program provides a competitive and motivational compensation package to the
executive officer team required to produce the results the Company strives to
achieve in the future. The Compensation Committee further believes that the
executive compensation program strikes an appropriate balance between the
interest of the stockholders, the needs of the Company in operating its business
and the executive team.
COMPENSATION COMMITTEE
Pamela H. Patsley
Scott Loftesness
23
<PAGE> 26
CERTAIN TRANSACTIONS
First Data Transaction
On August 26, 1996, the Company and First Data Corporation ("First Data")
entered into a Securities Purchase Agreement, pursuant to which First Data
purchased 200,000 shares of the Company's Series D Preferred Stock at a price of
$15.00 per share for an aggregate purchase price of $3.0 million. First Data
also received a warrant (the "First Data Warrant") to purchase up to an
additional 1,500,000 shares of the Common Stock of the Company at an exercise
price ranging from $2.23 to $5.00 per share of Common Stock. The right to
exercise the First Data Warrant and the exercise price were conditioned upon
First Data securing the registration of a certain number of VirtualPINs.
The Company and First Data agreed to an amendment to the First Data Warrant
in March 1997. Pursuant to such amendment, the deadlines for First Data securing
registration of VirtualPINs (on which the exercisability of First Data Warrant
was contingent) were altered, and the range of exercise prices for the First
Data Warrant was reduced to $1.50 to $4.50 per share. The First Data Warrant
expired without being exercised on September 29, 1997. In March 1997, the
Company and First Data also entered into a VirtualPIN License Agreement,
pursuant to which First Data licensed from the Company 350,000 VirtualPINs,
which First Data was permitted to relicense to consumers. The Company received
$700,000 in license fees from First Data.
Services Arrangements
Since September 12, 1994, Paymentech has provided credit card transaction
acquisition services to the Company pursuant to a Merchant Credit Card Agreement
between the Company and Paymentech dated as of that date. The Company paid
Paymentech $151,284 for the year ended December 31, 1997 pursuant to this
agreement.
In addition, pursuant to a Shareholder Rights Agreement dated December 22,
1995 (the "Shareholder Rights Agreement") among the Company and certain of its
stockholders, including Paymentech the Company agreed, for a period of four
years, not to enter into an agreement with, or otherwise utilize, a payment card
transaction acquirer other than Paymentech for provision of payment processing
services that Paymentech is willing and capable of providing at a commercially
reasonable price (the "Processing Right"). In August 1996, in connection with
the amendment and restatement of the Shareholder Rights Agreement, the Company
entered into an agreement with Paymentech for the waiver of the Processing
Right. In exchange for such waiver, the Company agreed to pay Paymentech
facility fees totaling $500,000 and transaction surcharges of no less than
$500,000 during the forty month period beginning September 1, 1996, depending
upon the number of transactions processed through merchant acquirers other than
Paymentech.
The Company believes that the payments for services provided by Paymentech
were no less favorable to the Company than would be charged for similar services
by unrelated third parties. Any future transaction between the Company and its
executive officers, directors and their affiliates will be on terms no less
favorable to the Company than can be obtained from unaffiliated third parties,
and any material transactions with such persons will be approved by a majority
of the disinterested members of the Board of Directors.
Indemnification Agreements
The Company has entered into indemnification agreements with each of its
directors and executive officers. Such agreements require the Company to
indemnify such individuals to the fullest extent permitted by law.
24
<PAGE> 27
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: , 1998
25
<PAGE> 28
ANNEX A
PURCHASE AGREEMENT
This PURCHASE AGREEMENT, dated as of April 30, 1998 (the "Agreement"),
is entered into by and among (i) First Virtual Holdings Incorporated, a
Delaware corporation (the "Company"), and (ii) SOFTBANK Technology Ventures IV
L.P., a Delaware limited partnership, and SOFTBANK Holdings, Inc., a Delaware
corporation (each a "Purchaser" and, collectively, the "Purchasers").
WHEREAS, the Company has an authorized capitalization of 40,000,000
shares of common stock, par value $0.001 per share ("Common Stock"), of which,
as of April 28, 1998, 11,779,653 shares of Common Stock are issued and
outstanding, and 5,000,000 shares of Preferred Stock, par value $0.001 per
share, of which 655 shares of Preferred Stock are issued and outstanding; and
WHEREAS, the Company and Purchasers desire that the Purchasers
participate in the ownership of the Company through the purchase of an aggregate
of 10,000,000 shares of Common Stock (the "Shares") from the Company.
NOW, THEREFORE, the parties hereto agree as follows:
1. Purchase and Sale
(a) Upon the terms and subject to the conditions of this Agreement,
each Purchaser, severally and not jointly, will purchase, and the Company will
issue and sell to each Purchaser, the number of Shares set forth opposite such
Purchaser's name on Exhibit A hereto against payment to the Company of the
purchase price of $0.60 per Share. The consummation of such purchase and sale
(the "Closing") shall occur at the offices of Sullivan & Cromwell, 444 South
Flower Street, Los Angeles, CA 90071 at 9:00 A.M. on the first business day
following the satisfaction or waiver of the conditions set forth in Sections 5
and 6 hereof, or at such other time and date as the Purchasers and the Company
mutually agree (the "Closing Date").
(b) At the Closing, the Company shall deliver to each Purchaser a stock
certificate representing the number of Shares to be purchased by such Purchaser
as set forth on
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Exhibit A against payment to the Company by wire transfer of the purchase price
therefor in immediately available funds.
2. Representations and Warranties of the Company
The Company represents and warrants to the Purchasers as follows:
(a) Corporate Existence. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all power necessary to carry on its business as now being conducted. The
Company is duly qualified to do business and is in good standing in California
and Texas, and there is no other jurisdiction in which the failure to so qualify
would have a material adverse effect on the business, financial condition or
results of operations of the Company (a "Material Adverse Effect").
(b) Execution, Delivery and Performance. The Company has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement. The Board of Directors of the Company has unanimously
approved this Agreement and the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company, and constitutes
a valid and binding agreement of the Company enforceable against the Company in
accordance with its terms.
(c) Capitalization. At the date hereof and as of the Closing, the
authorized capitalization of the Company consists and will consist of 40,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock, of which 1,000
shares are designated Series A Convertible Preferred Stock. As of April 28,
1998, the Company has 11,779,653 shares of Common Stock issued and outstanding
and 15,490,320 shares of Common Stock reserved for issuance upon exercise of
outstanding stock options and warrants, and a sufficient number of shares
reserved for issuance upon conversion of shares of Series A Convertible
Preferred Stock and pursuant to the Company's employee stock purchase plans.
Except as set forth on Schedule 2(c) hereto, (i) the Company does not have
outstanding any other capital stock, or options or warrants for or securities
convertible into or exchangeable for any shares of capital stock, and (ii) no
person has any right to subscribe for or to purchase any stock or options for or
securities convertible into or exchangeable for any shares of capital stock.
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(d) Shares. All of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable. The Shares when issued and delivered in accordance with the
terms of this Agreement, the shares of Common Stock issuable upon conversion of
the Series A Convertible Preferred Stock, when issued and delivered in
accordance with the Company's Certificate of Incorporation and Certificate of
Designation of Series A Preferred Stock and the Conversion Agreement in the form
of Exhibit 2(d) hereto, and shares to be issued upon conversion of the
promissory notes (the "Promissory Notes") in the aggregate principal amount of
$1,200,000 as contemplated by Section 4(g) hereof, when issued and delivered
will, in each case, be duly and validly authorized and issued and will be fully
paid and non-assessable. The Shares and shares of Common Stock to be issued upon
conversion of the Series A Convertible Preferred Stock and the Promissory Notes
are herein collectively referred to as the "Underlying Shares."
(e) SEC Documents. (i) The Company has filed all forms, reports and
documents required to be filed by it with the Securities and Exchange Commission
("SEC") since December 31, 1996 (collectively, together with the Company's
Registration Statement on Form S-1 (File No. 333-14573) in the form in which it
became effective, the "Company Reports"). As of their respective dates, the
Company Reports and any such reports, forms and other documents filed by the
Company with the SEC after the date of this Agreement and before the Closing (i)
complied, or will comply, as to form in all material respects with the
applicable requirements of the Securities Act of 1993, the Securities Exchange
Act of 1934, and the rules and regulations thereunder and (ii) did not, or will
not, contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(ii) Each of the balance sheets of the Company included in or
incorporated by reference into the Company Reports (including the related notes
and schedules) fairly presents the financial position of the Company as of its
date, and each of the statements of income, retained earnings and cash flows of
the Company included in or incorporated by reference into the Company Reports
(including any related notes and schedules) fairly presents the results of
operations, retained earnings or cash flows,
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as the case may be, of the Company for the periods set forth therein (subject,
in the case of unaudited statements, to normal year-end audit adjustments which
would not be material in amount or effect), in each case in accordance with
generally accepted accounting principles consistently applied during the periods
involved, except as may be noted therein. The Company does not have any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) that would be required to be reflected on, or reserved against in,
a balance sheet of the Company or described in the notes thereto, under
generally accepted accounting principles consistently applied, except for (i)
liabilities or obligations that were so reserved on, or reflected in (including
the notes to), the balance sheet of the Company as of December 31, 1997 or March
31, 1998; (ii) liabilities or obligations arising in the ordinary course of
business since December 31, 1997 and (iii) liabilities or obligations which
would not, individually or in the aggregate, have a Material Adverse Effect.
(f) Absence of Certain Changes. Except as set forth in Schedule 2(h)
hereto, since March 31, 1998, there has not been (i) any material adverse change
in the Company's business, financial condition or results of operations or (ii)
any material change in the Company's accounting principles, practices or
methods.
(g) Taxes. (i) The Company has filed all material tax returns and
reports required to be filed by it, or requests for extensions to file such
returns or reports have been timely filed and granted and have not expired, and
all tax returns and reports are complete and accurate in all respects, except to
the extent that such failures to file, have extensions granted that remain in
effect or be complete and accurate in all respects, as applicable, individually
or in the aggregate, would not have a Material Adverse Effect. The Company has
paid all taxes shown as due on such tax returns and reports. The most recent
financial statements contained in the Company Reports reflect an adequate
reserve for all taxes payable by the Company for all taxable periods and
portions thereof accrued through the date of such financial statements, and no
deficiencies for any taxes have been proposed, asserted or assessed against the
Company that are not adequately reserved for. No tax audits of the Company by
any federal, state, local or foreign tax authority are currently being conducted
or, to the Company's knowledge, pending. No requests for waivers of the time to
assess any taxes against the Company or any of its subsidiaries have been
granted or are pending.
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(ii) As used in this Section 2(g), "taxes" shall include all Federal,
state, local and foreign income, franchise, property, sales, use, excise and
other taxes, including obligations for withholding taxes from payments due or
made to any other person and any interest, penalties or additions to tax.
(h) Intellectual Property. The Company owns, licenses or otherwise has the
right to use all patents, trademarks, service marks, trade names and other
intellectual property necessary to enable it to carry on its business as now
conducted without, to the best of its knowledge, any conflict with or
infringement of the rights of others.
(i) No Conflict. The execution and delivery of this Agreement and the
performance of the Company's obligations hereunder will not (a) violate or be in
conflict with (i) any provision of law, (ii) any order, rule or regulation of
any court or other governmental agency or authority binding on the Company or
(iii) any provision of the Certificate of Incorporation or By-Laws of the
Company, (b) violate, be in conflict with, result in a breach of, or constitute
(with or without notice or lapse of time or both) a default under any material
indenture, agreement, lease or other agreement or instrument to which the
Company is a party or by which it or any of its properties is bound, or (c)
result in the creation or imposition of any lien, charge or encumbrance upon any
of its properties or assets.
(j) Litigation. Except as disclosed in the Company Reports or as set
forth in Schedule 2(j), there is no litigation or proceeding pending or, to the
best of the Company's knowledge, threatened against the Company or its
properties or business which is likely to have a Material Adverse Effect or
which seeks to prevent the consummation of the transactions contemplated by this
Agreement.
(k) Employment Agreements. Except as listed in Schedule 2(k) (copies of
which have heretofore been provided to the Purchasers), the Company is not a
party to any employment agreement with any of its employees.
(l) Employee Benefit Plans. Except as described in Schedule 2(1) (copies
of which have heretofore been provided to the Purchasers), the Company does not
maintain an employee benefit plan that is subject to Title IV of the Employee
Retirement Income Security Act of 1974, as amended. There is no litigation or
proceeding pending or, to the best
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of the Company's knowledge, threatened against any such plan or any
administrator or fiduciary thereof.
(m) Consents, etc. No consent, approval or authorization of or
declaration or filing with any governmental authority or other persons or
entities on the part of the Company is required in connection with the
execution or delivery of this Agreement or the consummation of the transactions
contemplated hereby other than the approval by the holders of a majority of the
Company's outstanding shares of Common Stock of the issuance and sale of the
Shares and the issuance of the Underlying Shares as contemplated by Section
4(g) hereof, except as otherwise contemplated by this agreement.
(n) Finders. There is no investment banker, broker, finder, consultant
or similar intermediary that has been retained by, or is authorized to act on
behalf of the Company who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement.
3. Representations and Warranties of the Purchasers
Each Purchaser, severally but not jointly, represents and warrants to the
Company as follows:
(a) Investment Representations.
(i) Such Purchaser is acquiring the Shares and will acquire any
Underlying Shares for its own account for investment and not with a view to
distribution.
(ii) Such Purchaser is an "accredited investor" as defined in Rule
501(a) under the Securities Act of 1933 (the "Securities Act").
(iii) Such Purchaser has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Shares and the Underlying Shares,
and has so evaluated the merits and risks of such investment.
(iv) Such Purchaser is able to bear the economic risk of an investment
in the Shares and the Underlying Shares and, at the present time, is able to
afford a complete loss of such investment.
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(v) Such Purchaser understands and acknowledges that (i) the Shares and
the Underlying Shares are being offered and sold to it without registration
under the Securities Act by reason of reliance upon certain exemptions
therefrom and (ii) the availability of such exemptions, depends in part on, the
foregoing representations set forth in this Section 3(a).
(b) Execution, Delivery and Performance. Such Purchaser has the
corporate or partnership, as applicable, power and authority to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by such Purchaser and constitutes a valid and binding
agreement of such Purchaser enforceable against it in accordance with its terms.
(c) Consents, etc. No consent, approval or authorization of or
declaration or filing with any governmental authority or other persons or
entities on the part of such Purchaser is required in connection with the
execution or delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(d) Finders. There is no investment banker, broker, finder, consultant
or similar intermediary that has been retained by, or is authorized to act on
behalf of, such Purchaser who is entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement.
4. Covenants
(a) Issuance of Capital Stock. The Company covenants and agrees that,
after the date hereof and prior to the earlier of the Closing Date or the
termination of this Agreement pursuant to Section 8 hereof, except as otherwise
contemplated by this Agreement,or as described on Schedule 4(a) hereof, the
Company shall not issue, sell, pledge or dispose of any additional shares of,
or securities convertible or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital stock of any
class of the Company or its subsidiaries other than shares of Common Stock
issuable pursuant to options outstanding on the date hereof, upon exercise of
warrants outstanding on the date hereof or upon conversion of the Series A
Convertible Preferred Stock. Notwithstanding the foregoing, the Company may
continue to
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<PAGE> 35
issue stock options to employees and consultants under its 1995 Stock Plan, and
stock purchase rights to employees under its Employee Stock Purchase Plan
consistent with past practice.
(b) Alternative Transactions. The Company covenants that, except as
permitted by Section 4(a) hereof, (A) prior to the earlier of the Closing date
or the termination of this Agreement pursuant to Section 8 hereof, neither the
Company nor any of its officers, directors, advisors, agents or any other person
or entity acting on behalf of any or all of them (collectively,
"Representatives") shall, director or indirectly, initiate, solicit, induce,
support, encourage (including, without limitation by providing non-public
information), agree to, or enter into any alternative proposal, negotiation or
transaction for an investment in, sale of any outstanding or newly-issued equity
interests in or voting securities of, or sale or transfer of a substantial
portion of the assets, stock or business (include by way of merger or
consolidation) of, the Company (an "Alternative Transaction") and (B) in the
event the Company receives any proposal for an Alternative Transaction, the
Company shall promptly notify the Purchasers of the receipt of such proposal;
provided, however, that this Section 4(b) and Section 4(a) shall not restrict
the Company's ability to incur bona fide indebtedness that is not convertible
into or exchangeable for any equity security of the Company; provided, further,
that, notwithstanding this Section 4(b) and Section 4(a), the Company may issue
or sell in a transaction pursuant to a bona fide offer from a third party (x) no
more than 666,667 shares (the "Maximum Number") of its Common Stock at a price
per share of not less than $0.75 (the "Minimum Price") and (y) convertible debt
securities or non-voting convertible preferred securities collectively
convertible into no more than the Maximum Number less the number of shares sold
pursuant to clause (x) hereof at a conversion price per share not less than the
Minimum Price, in each case (x) and (y) provided that the Purchasers are
previously offered in writing the opportunity to purchase such securities on the
same or more favorable terms as those offered by such third party (it being
understood that (1) such written offer to the Purchasers shall identify the
third party offeror and describe with specificity the terms of the transaction
proposed to be consummated with such third party and (2) the Purchasers shall
exercise such right of first refusal within 2 business days after receipt of
such notice). In the event of a stock split, reverse stock split or stock
dividend involving the Company, the Minimum
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Price and the Maximum Number shall be appropriately adjusted.
(c) Meeting of the Company Stockholders. The Company shall take all
customary actions in accordance with applicable law and its Certificate of
Incorporation and By-Laws to seek (i) stockholder approval by the holders of a
majority of the outstanding shares of Common Stock at the annual meeting of
stockholders to be held on or before June 30, 1998 (the "Annual Meeting") of the
issuance and sale of the Shares and the issuance of the Underlying Shares as
contemplated hereby; (ii) the election at or immediately following the Annual
Meeting of a Board of Directors consisting of a total of five members (or seven
members if requested in writing by the Purchasers prior to the filing with the
Securities and Exchange Commission of proxy materials in respect of the Annual
Meeting) meeting the requirement (the "Board Composition Requirement") that one
of such members shall be designated by Lee H. Stein, one of such members shall
be designated by Paymentech Merchant Services, Inc. and the remaining members
shall be designated by the Purchasers, acting jointly, and (iii) stockholder
approval of an amendment of the Company's Certificate of Incorporation to
eliminate the classification of the Board of Directors so that, following such
amendment, the entire Board of Directors shall be elected at each annual meeting
of stockholders. Subject to the exceptions hereinafter set forth in this Section
4(c), the Board of Directors of the Company shall recommend such approval and
the Company shall solicit such approval in accordance with its customary
practices. The proxy statement soliciting proxies in connection with such
meeting shall not be filed, and no amendment or supplement to the proxy
statement will be made by the Company, without prior consultation with the
Purchasers and their counsel. Notwithstanding any other provision of this
Agreement, prior to the approval of this Agreement by the stockholders of the
Company, if a Superior Offer (as hereinafter defined) is made to the Company and
is not withdrawn, the Board of Directors of the Company may, in light of the
Superior Offer, to the extent it determines in good faith, after consultation
with outside legal counsel, that it is required to do so in order to comply with
its fiduciary duties to the Company's stockholders under applicable law,
withdraw or modify its approval or recommendation of this Agreement and the
transactions contemplated hereby and/or approve or recommend such Superior
Offer, in each case at any time after the fourth business day following written
notice by the Company to the Purchasers advising the Purchasers that the Board
of
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Directors has received a Superior Offer and specifying the material terms and
structure of the Superior Offer (a "Notice of Superior Offer"). In addition, if
the Board of Directors proposes to withdraw or adversely modify its approval or
recommendation of the transactions contemplated hereby or to approve or
recommend a Superior Offer, the Company shall make effective provision to
ensure that there shall be cash available to pay the Termination Fee (as
defined in Section 8(f)) within the time period and in the manner provided in
Section 8(f). In such event, the Company may refrain from soliciting proxies
from its stockholders with respect to this Agreement and the transactions
contemplated thereby, in which event, however, the Company shall, subject to
compliance with applicable law, include in the proxy statement mailed by the
Company to its stockholders with respect to the meeting at which the Superior
Offer is to be considered by stockholders, proxy materials that have been
prepared by the Purchasers. Nothing contained herein shall prohibit the Company
from taking and disclosing to its stockholders a position contemplated by Rule
14d-9(e) under the Exchange Act prior to the fourth business day following the
Purchaser's receipt of a Notice of Superior Offer provided that the Company does
not withdraw or modify its position with respect to the transactions
contemplated hereby or approve or recommend an Alternative Transaction.
A "Superior Offer" means a bona fide written offer made by a third
party to acquire, directly or indirectly a number of shares equal to more than
50% of the Common Stock of the Company or the purchase of all or substantially
all of the Company's assets on terms that the Company's Board of Directors
determines in its reasonable judgment, after consultation with independent
financial advisors of national reputation, to be more favorable to the
Company's stockholders than this Agreement and the transactions contemplated
hereby or any revised offer made by Purchaser following a Notice of Superior
Offer.
(d) Access. Upon reasonable notice, the Company shall afford
Purchasers' officers, employees, counsel, accountants and other authorized
representatives access, during normal business hours throughout the period
prior to the Closing Date, to its properties, books, contracts and records and,
during such period, the Company shall (and shall cause each of its subsidiaries
to) furnish promptly to Purchaser all information concerning its business,
properties and personnel as the Purchasers or their representatives may
reasonably request. The Purchasers
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shall not, and each of them shall cause its representatives not to, use any
information obtained pursuant to this paragraph for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement.
(e) Publicity. The Company and the Purchasers shall consult with each
other prior to issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and prior to making any
filings with any federal or state governmental or regulatory agency or any
self-regulatory organization with respect thereto.
(f) Change of Control Benefits. The Company shall use its reasonable
efforts to cause to be waived any provisions contained in any employment or
severance agreement with Lee H. Stein which provides for the payment, accrual or
acceleration of any benefit (other than the accelerated vesting of stock options
with respect to no more than 67,708 shares of Common Stock plus 255,319 unvested
options under the Company's Compensation Reduction Plan (of a total of 351,064
options thereunder)) to such person as a result of the consummation of the
transactions contemplated hereby; provided however that the Company shall have
offered Mr. Stein an agreement for provision of consulting services following
the Closing Date, which agreement shall provide for monthly consulting fees of
no less than $6,500 per month and shall be terminable on no less than two months
notice.
(g) Related Transactions. The Company and the Purchasers shall cause to
be done all things necessary and appropriate so that (i) upon purchase by the
Purchasers of all or part of the Promissory Notes described on Schedule 4(g)
hereto by the Purchasers from the holders thereof, such principal amount and all
accrued interest thereon shall be converted into Common Stock at a conversion
price of $0.60 per share immediately prior to the Closing and (ii) upon the
purchase by the Purchaser of outstanding shares of Series A Convertible
Preferred Stock pursuant to an option or purchase agreement between the
Purchasers and the current holders of such shares (the "Options"), such shares
of Series A Convertible Preferred Stock shall be converted into Common Stock at
a conversion price of $0.60 per share. The purchase of the Promissory Notes and
the Options are herein collectively referred to as the "Related Transactions."
The conversion prices referred to in this Paragraph (g) shall be subject to
customary anti-dilution adjustments in the event of a stock split, reverse stock
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split, stock dividend, issuance of Common Stock at below the prevailing market
price or similar transactions or events.
(h) Fulfillment of Conditions. Each of the Company and each Purchaser
shall use reasonable efforts to perform, comply with and fulfill all
obligations, covenants and conditions required by this Agreement to be
performed, complied with or fulfilled on its part prior to or at the Closing
Date.
(i) Further Assurances. The Company shall use its reasonable efforts at
any time and from time to time prior to, at and after the Closing to execute and
deliver to the Purchasers such further documents and instruments and to take all
such further actions as the Purchasers reasonably may request in order to convey
and transfer the Shares and provide for the conveyance and transfer of the
Underlying Shares to the Purchasers and to consummate the transactions
contemplated by this Agreement; provided, however, that nothing herein shall be
deemed to create any duty or obligation on the part of the Company to facilitate
or otherwise participate in the sale of the Promissory Notes or the issuance or
sale of the Options or the Series A Preferred Stock underlying such Options to
the Purchasers or on the part of the Purchasers to enter into agreements with
the holders of the Promissory Notes or the Series A Convertible Preferred Stock
except on terms and conditions satisfactory to the Purchasers in their sole
discretion.
5. Conditions Precedent to Obligations of the Purchasers
The Purchasers' obligation to consummate the transactions contemplated by
this Agreement is subject to the satisfaction at or prior to the Closing Date of
each of the following conditions:
(a) The Related Transactions shall be consummated before or concurrently
with the consummation of the transactions contemplated in this Agreement.
(b) The Company shall have caused to be waived any provisions contained in
any employment or severance agreements with Lee H. Stein which provide for the
payment, accrual or acceleration of any benefit (other than the accelerated
vesting of stock options with respect to no more than 67,708 shares of Common
Stock plus 255,319 unvested options under the Company's Compensation Reduction
Plan (of a total of 351,064 options thereunder)) to such person as a result of
the consummation of the transactions contemplated
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hereby; provided however that the Company shall have offered Mr. Stein an
agreement for provision of consulting services following the Closing Date, which
agreement shall provide for monthly consulting fees of no less than $6,500 per
month and shall be terminable on no less than two months notice.
(c) The Purchasers shall have received indications reasonably satisfactory
to them from Nasdaq to the effect that, subject to consummation of the
transactions contemplated hereby and the Related Transactions and subsequent
compliance by the Company with applicable requirements for continued quotation,
the Common Stock will not be removed from quotation on the Nasdaq National
Market on account of any potential failure to meet applicable minimum tangible
net asset requirements.
(d) No preliminary or permanent injunction or other binding order, decree
or ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, shall be in effect which
shall have the effect of preventing the consummation of the transactions
contemplated by this Agreement; provided, however, that the parties hereto shall
use their best efforts to seek to obtain the removal of such injunction, order,
decree or ruling.
(e) All representations and warranties of the Company contained in this
Agreement shall be true in all material respects at and as of the Closing Date
as though made at such time (except where such representations and warranties
speak as of an earlier date), and the Company shall have performed and complied
in all material respects with all covenants, obligations and conditions required
by this Agreement to be performed or complied with by it prior to or on the
Closing Date.
(f) Stockholders of the Company holding a majority of the outstanding
shares of Common Stock shall have approved the issuance and sale of the Shares
and the issuance of the Underlying Shares as provided herein and a Board of
Directors meeting the Board Composition Requirement shall have been duly
established.
(g) The Company shall have duly executed and delivered the Conversion
Agreement substantially in the form of Exhibit 2(d) hereto.
(h) Lee H. Stein, June L. Stein, Paymentech Merchant Services, Inc. and
First USA Financial (the
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"Principal Stockholders") shall have executed and delivered a voting agreement
reasonably satisfactory to the parties thereto providing for maintenance of
the Board Composition Requirement for a period ending on the earlier of (1) the
second anniversary of the Closing Date and (2) such time as the Principal
Stockholders collectively beneficially own less than 75% of the number of shares
of the Company's Common Stock beneficially owned as of the date hereof.
(i) All corporate and other proceedings required to carry out the
transactions contemplated by this Agreement and all instruments and other
documents relating to such transactions shall be reasonably satisfactory in form
and substance to Sullivan & Cromwell, counsel to the Purchasers, and the
Purchasers shall have been furnished with such instruments, documents and
opinions as such counsel shall have reasonably requested.
6. Conditions Precedent to Obligations of the Company
The obligation of the Company to consummate the transactions
contemplated by this Agreement is subject to the satisfaction at or prior to the
Closing Date of each of the following conditions:
(a) No preliminary or permanent injunction or other binding order,
decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, shall be in
effect which shall have the effect of preventing the consummation of the
transactions contemplated by this Agreement; provided, however, that the parties
hereto shall use their best efforts to seek to obtain the removal of such
injunction, order, decree or ruling.
(b) All representations and warranties of the Purchasers contained in
this Agreement shall be true in all material respects at and as of the Closing
Date as though made at such time, and the Purchasers shall have performed and
complied in all material respects with all covenants, obligations and conditions
required by this Agreement to be performed or complied with by them prior to or
on the Closing Date.
(c) Stockholders of the Company holding a majority of the outstanding
shares of Common Stock shall have approved the issuance and sale of the Shares
and the issuance of the Underlying Shares as provided herein.
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(d) The Purchasers shall have duly executed and delivered the
Conversion Agreement substantially in the form of Exhibit 2(d) hereto.
(e) The Purchasers shall have executed and delivered a voting
agreement reasonably satisfactory to the parties thereto providing for
maintenance of the Board Composition Requirement for a period ending on the
earlier of (1) the second anniversary of the Closing Date and (2) such time as
the Principal Stockholders collectively beneficially own less than 75% of the
number of shares of the Company's Common Stock beneficially owned as of the
date hereof.
(f) All corporate and other proceedings required to carry out the
transactions contemplated by this Agreement and all instruments and other
documents relating to such transactions shall be reasonably satisfactory in
form and substance to Wilson Sonsini Goodrich & Rosati, counsel to the Company,
and the Company shall have been furnished with such instruments and documents
as such counsel shall have reasonably requested.
7. Indemnification
Each of the Company and each Purchaser (severally but not jointly) (an
"Indemnifying Party") covenants and agrees to indemnify and hold the other (the
"Indemnified Party") harmless from and against, and to reimburse each
Indemnified Party for, any claim for any losses, damages, liabilities or
expenses, including reasonable counsel fees (collectively "Damages") incurred by
such Indemnified Party by reason of or arising from (i) any misrepresentation
or breach of any representation or warranty of such Indemnifying Party
contained in this Agreement or in any instrument delivered hereunder or (ii)
any failure by such Indemnifying Party to perform any obligation or covenant
required to be performed by it under any provision of this Agreement.
The indemnification obligation hereunder shall not apply to any claim
until the aggregate of all such claims against an Indemnifying Party reaches
$200,000, in which event such Indemnifying Party's indemnity obligation shall
apply to the total amount. The liability of the Company, on the one hand, and
the aggregate liability of the Purchasers, on the other hand, for indemnity
hereunder shall not exceed $10.0 million.
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<PAGE> 43
8. Termination
(a) This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing, by mutual consent of
the Purchasers and the Company.
(b) This Agreement may be terminated and the transactions contemplated
hereby may be abandoned by action of the Purchasers, acting jointly, or the
Company if (i) the transactions contemplated hereby shall not have been
consummated by July 15, 1998, or (ii) the approval of the Company's stockholders
of the issuance and sale of the Shares and the issuance of the Underlying Shares
as contemplated hereby shall not have been obtained at the Company's 1998 Annual
Meeting of Stockholders or a special meeting duly convened therefor or at any
adjournment thereof or (iii) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and non-appealable or
(iv) the Board of Governors of Nasdaq shall have notified the Company after the
date hereof of a final decision to remove the Common Stock from quotation from
the Nasdaq National Market; provided, that the party seeking to terminate this
Agreement pursuant to the foregoing clause (iii) shall have used all reasonable
efforts to remove such injunction, order or decree; and provided, in the case of
a termination pursuant to clause (i) above, that the terminating party shall not
have breached in any material respect its obligations under this Agreement in
any manner that shall have substantially contributed to the failure to
consummate the transactions contemplated hereby by July 31, 1998.
(c) This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing by action of the Board
of Directors of the Company, if there has been a material breach by any
Purchaser of any representation, warranty, covenant or agreement made by it in
this Agreement.
(d) This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing by the Purchasers,
acting jointly, if (i) the Board of Directors of the Company shall have
-16-
<PAGE> 44
withdrawn or modified in a manner materially adverse to the Purchasers its
approval or recommendation to stockholders of the transactions contemplated
hereby or (ii) there has been a material breach by the Company of any
representation, warranty, covenant or agreement made by it in this Agreement
which breach (if not a breach of Section 4(a) or 4(b) hereof, which shall be
deemed uncurable) has not been cured within 15 days of delivery of notice
thereof to the Company or (iii) the Board of Directors shall have withdrawn or
adversely modified its approval or recommendation to stockholders of the
transactions contemplated hereby or shall have approved or recommended to
stockholders an Alternative Transaction that constitutes a Superior Offer.
(e) In the event of a termination of this Agreement and the abandonment
of the transactions contemplated hereby pursuant to this section 8, all
obligations of the parties hereto (other than the obligations of the Company
pursuant to Section 8(f) hereof) shall terminate; provided, that in the event
of termination of this Agreement pursuant to Sections 8(c) and 8(d), nothing
herein shall relieve a party from liability for any willful breach of this
Agreement.
(f) If after the date hereof and during the term of this Agreement
Purchaser shall have terminated this Agreement pursuant to Section 8.1(d)(iii)
hereof, then the Company shall, on or prior to the earlier of (i) the 30th day
after the date of such termination or (ii) two business days after the date the
Company enters into an agreement with a third party to consummate an Alternative
Transaction, pay to Purchasers a fee of $600,000 (the "Termination Fee") in
same-day funds. The Company acknowledges that the agreement contained in this
Section 8(f) are an integral part of the transactions contemplated in this
Agreement, and that, without this agreement, Purchasers would not enter into
this Agreement.
9. Miscellaneous
(a) Fees and Expenses. Upon the closing of the purchase of the Shares
shall be consummated and except as otherwise expressly provided in this
Agreement, the Company shall pay its own fees and expenses of its counsel,
accountants and other experts and all other expenses incurred by it in
connection with the negotiation, preparation, execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and all
other matters incident thereto and shall reimburse the Purchasers for their
reasonable out-of-pocket expenses
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<PAGE> 45
(including reasonable fees and expenses of counsel) in an amount not to exceed
$150,000 incurred by the Purchasers in connection with the negotiation,
preparation, execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby upon presentment of bills therefor.
(b) Survival. All representations, warranties, covenants and agreements
made herein shall survive for two years after the Closing Date and shall
continue in full force and effect after delivery of and payment for the Shares
and after issuance of the Underlying Shares through such date. No claim on
account of any breach of any representation, warranty, covenant or agreement
made herein, or for indemnification in respect thereof, may be asserted unless
written notice of such breach has been given to the party against whom such
claim is asserted prior to such second anniversary.
(c) Modification and Waiver. No amendment or modification of the terms
or provisions of this Agreement shall be binding unless the same shall be in
writing and duly executed by the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed to or shall constitute a waiver of
any other provisions hereof. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof.
(d) Entire Agreement. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof. Any
previous agreement or understandings between the parties regarding the subject
matter hereof are merged into and superseded by this Agreement.
(e) Severability. In case any provision in this Agreement (including
the Exhibits and Schedules hereto) shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
(f) Notices. All notices, consents or other communications shall be in
writing, and shall be deemed to have been duly given and delivered when
delivered by hand, or when mailed by registered or certified mail, return
receipt requested, postage prepaid, or when received via telecopy, telex or
other electronic transmission, in all
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<PAGE> 46
cases addressed to the party for whom intended at its address set forth below:
If to the Purchasers:
SOFTBANK Holdings Inc.
10 Langley Road, Suite 403
Newton Center, Massachusetts 02169
Facsimile No.: (617) 928-9301
Attention: Ronald Fisher
Vice Chairman
With a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Telephone: (212) 558-3504
Telecopier: (212) 558-3588
Attention: Stephen A. Grant, Esq.
If to the Company:
First Virtual Holdings Incorporated
11975 El Camino Real
Suite 300
San Diego, California 92130
Telephone: (619) 793-2700
Telecopier: (619) 793-2950
Attention: Lee H. Stein
Chairman of the Board
and Chief Executive Officer
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Telephone: (650) 493-9300
Telecopier: (650) 493-6811
Attention: Jeffrey D. Saper, Esq.
John T. Sheridan, Esq.
or such other address as a party shall have designated by notice in writing
to the other party given in the manner provided by this Section.
(g) No Implied Rights. Nothing herein express or implied,
is intended to or shall be construed to confer upon
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<PAGE> 47
or give to any person, firm, corporation or legal entity, other than the
parties hereto and their affiliates, any interest, rights, remedies or other
benefits with respect to on in connection with any agreement or provision
contained herein or contemplated hereby.
(h) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
(i) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.
-20-
<PAGE> 48
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
FIRST VIRTUAL HOLDINGS
INCORPORATED
By: /s/ Lee H. Stein
------------------------------------
Name: Lee H. Stein
Title: Chairman of the Board
and Chief Executive Officer
SOFTBANK TECHNOLOGY
VENTURES IV L.P.
By: Its General Partner
STV IV LLC
By: /s/ Bradley Feld
---------------------------------
Name: Bradley Feld
Title: Managing Director
SOFTBANK HOLDINGS INC.
By: /s/ Ronald Fisher
------------------------------------
Name: Ronald Fisher
Title: Vice Chairman
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<PAGE> 49
ANNEX B
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made effective as of the 30th
day of April, 1998 (the "EFFECTIVE DATE"), by and between First Virtual Holdings
Incorporated, a Delaware corporation (the "COMPANY") , and SOFTBANK Holdings
Inc., a Delaware corporation ("LENDER").
RECITALS
WHEREAS, on the date hereof, the Company and Lender are entering into a
Purchase Agreement (the "Purchase Agreement"), pursuant to which the Company
intends to sell and Lender intends to acquire 10 million shares of the Company's
Common Stock, par value $.001 per share (the "Share Acquisition").
WHEREAS, the Company and Lender wish to enter into this Agreement to
fund the Company's operations until the closing of the Share Acquisition, which
is currently expected to occur on or around June 24, 1998.
IN WITNESS WHEREOF, the parties agree as follows:
1. THE LOAN. Subject to the terms and conditions of this Agreement,
Lender agrees to loan to the Company, and the Company agrees to borrow from
Lender, funds in an aggregated principal amount of up to One Million Five
Hundred Thousand Dollars ($1,500,000) (the "LOAN"), in installments of not less
than Two Hundred Thousand Dollars ($200,000) per advance. Subject to Section 4
hereof, advances shall be made in the amounts specified by the Company (each a
"LOAN DISBURSEMENT") within five (5) days following the date of receipt of
written notice from the Company (the "NOTICE DATE") as to such Loan
Disbursement, provided that the maximum amount advanced by Lender shall not
exceed the total amount of the Loan. The first loan disbursement, with a
principal amount of $500,000, shall be made on the date hereof. Interest shall
accrue on each Loan Disbursement from the date of advance (each a "DISBURSEMENT
DATE") by Lender. Lender will transmit each Loan Disbursement to the Company via
wire transfer at the following account: Account No.: 001-26-1495, Bank Name:
City National Bank, Beverly Hills, CA; ABA No. 1220-16-066; or pursuant to such
other instructions as may have been provided in writing by the Company, and the
Company will accept each Loan Disbursement pursuant to the terms of this
Agreement.
2. THE NOTES. Each of the Loan Disbursements will be evidenced by, and
repaid with interest in accordance with, an interest-bearing promissory note in
the form of Exhibit A (the "NOTES"), duly completed and dated as of the date of
such Loan Disbursement and delivered to Lender at or prior to the time of such
Loan Disbursement.
3. INTEREST AND PAYMENTS. Interest shall accrue and be paid to Lender on
the outstanding and unpaid principal amount of the Loan at the rate of 8.0% per
annum, computed on the basis of the actual number of days elapsed and a year of
360 days consisting of twelve 30 day months. Payments of principal and interest
will be made to Lender in the manner specified in the
<PAGE> 50
Note. The principal amount of the Loan may be prepaid in whole or in part at any
time and from time to time without premium or penalty.
4. SPENDING PLAN. The obligation of Lender to make any Loan Disbursement
to the Company (other than the first loan disbursement made on the date hereof)
will be subject to Lender's receipt, on or before the Notice Date, of a
statement prepared by the Company specifying in reasonable detail the Company's
proposed application of the proceeds of such Loan Disbursement (the "Spending
Plan"), which Spending Plan shall be satisfactory to the Lender. Lender shall
not unreasonably withhold its consent to any Spending Plan, provided that such
Spending Plan shall in the good faith judgment of the Company's Board of
Directors be consistent with maintaining and preserving the Company's
operations. The proceeds of any Loan Disbursement shall be used only for the
purposes set forth in the Spending Plan delivered with respect to such Loan
Disbursement.
5. FAILURE TO PROVIDE LOAN DISBURSEMENTS. In the event that Lender shall
fail to provide Loan Disbursements pursuant to this Agreement upon request by
the Company as required by Section 4 hereof, then the Company shall have right
to terminate this Agreement and the Purchase Agreement, and all rights
obligations of the parties under this Agreement and the Purchase Agreement shall
terminate and be without further effect. The parties agree that Section 5 shall
supersede any provision of the Purchase Agreement to the contrary.
6. TERMINATION OF DISBURSEMENT OBLIGATION. Lender shall not be required
to make any further Loan Disbursements under this Agreement in the event that
and following such time as the Purchase Agreement is terminated in accordance
with Section 8 thereof.
7. EVENTS OF DEFAULT. The occurrence of any of the following events will
be an "Event of Default" hereunder:
(a) Voluntary Bankruptcy or Insolvency Proceedings. The Company
shall (i) apply for or consent to the appointment of a receiver, trustee,
liquidator or custodian of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of its or any of its
creditors, (iii) be dissolved or liquidated in full or in substantial part, (iv)
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
consent to any such relief or to the appointment of or taking possession of its
property by any official in an involuntary case or other proceeding commenced
against it, or (v) take any action for the purpose of effecting any of the
foregoing; or
(b) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings
for the appointment of a receiver, trustee, liquidator or custodian of the
Company or of all or a substantial part of the property thereof, or an
involuntary case or other proceedings seeking liquidation, reorganization or
other relief with respect to the Company or the debts thereof under any
bankruptcy, insolvency or other similar law now or hereafter in effect shall be
commenced and an order for relief entered or such proceeding shall not be
dismissed or discharged within sixty (60) days of commencement.
-2-
<PAGE> 51
(c) Cross Default. The Company fails to pay or discharge any
obligation in excess of $200,000 when due, whether by scheduled maturity,
required prepayment, acceleration, or otherwise) (other than any debts to Tawfiq
N. Khoury, Jon M. Rubin, Next Century Communications Corp. or their respective
affiliates).
(d) Judgment. Rendering of a final judgment or judgments (not
subject to appeal) against the Company or any of its subsidiaries in an
aggregate amount in excess of $500,000 which remains unstayed, in effect and
unpaid for a period of 60 consecutive days thereafter.
(e) Conversion Default. With respect to outstanding obligations
under any Note, any breach by the Company with respect to its obligations to
issue shares of Common Stock upon conversion of such Note pursuant to Section 3
thereof.
8. RIGHTS OF THE LENDER UPON DEFAULT. Upon the occurrence or existence
of an Event of Default specified in Section 7(a) or (b), immediately and without
notice, all outstanding obligations payable by the Company hereunder shall
automatically become immediately due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived. Upon the occurrence or existence of an Event of Default as specified in
Sections 7(c), (d) or (e), the Lender may declare all outstanding obligations
under all outstanding Notes immediately due and payable by written notice to the
Company and upon any such declaration such obligations shall become immediately
due and payable.
9. SUCCESSORS AND ASSIGNS. The Company and the Holder shall be binding
upon and benefit the successors, assigns, heirs, administrators and transferees
of the parties.
10. WAIVER AND AMENDMENT. Any provision of this Agreement may be
amended, waived or modified upon the written consent of the Company and the
Lender.
11. ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder may be assigned, by operation of law or otherwise, in
whole or in part, by the Company or the Holder without the prior written consent
of the other party except (i) in the case of the Company, in connection with an
assignment in whole to a successor corporation to the Company, provided that
such successor corporation acquires, by purchase of assets, merger or otherwise,
all or substantially all of the Company's property and assets, and (ii) in the
case of Lender, in connection with any transfer to a subsidiary or parent
company of the Lender or partnership of which the Lender is the sole general
partner, provided in any such case that the transferee provides such investment
representations as the Company may reasonably request to ensure securities law
compliance.
12. ADDRESSES FOR NOTICES, ETC. Any notices and other communications
required or permitted under this Agreement shall be effective if in writing and
delivered personally or sent by telecopier, Federal Express or registered or
certified mail, postage prepaid, addressed as follows:
If to Lender, to: SOFTBANK Holdings Inc.
10 Langley Road, Suite 403
Newton Center, Massachusetts 02169
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<PAGE> 52
Telecopier: (617) 928-9301
Attention: Ronald Fisher
Vice Chairman
with a copy to: Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Telephone: (212) 558-3504
Telecopier: (212) 558-3588
Attention: Stephen A. Grant, Esq.
If to the Company, to: First Virtual Holdings Incorporated
11975 El Camino Real
Suite 300
San Diego, California 92130
Telephone: (619) 793-2700
Telecopier: (619) 793-2950
Attention: Lee H. Stein
Chairman of the Board
and Chief Executive Officer
with a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone: (650) 493-9300
Telecopier: (650) 493-6811
Attention: Jeffrey D. Saper, Esq.
John T. Sheridan, Esq.
Unless otherwise specified herein, such notices or other communications
shall be deemed effective (a) on the date delivered, if delivered personally,
(b) two business days after being sent, if sent by Federal Express or other
commercial overnight delivery service, (c) one business day after being sent, if
sent by telecopier with confirmation of good transmission and receipt, and (d)
three business days after being sent, if sent by registered or certified mail.
Each of the parties hereto shall be entitled to specify another address by
giving notice as aforesaid to each of the other parties hereto.
13. SEVERABILITY. The holding of any provision of this Agreement to be
invalid or unenforceable by a court of competent jurisdiction shall not affect
any other provisions and the other provisions of this Note shall remain in full
force and effect.
14. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York.
-4-
<PAGE> 53
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
FIRST VIRTUAL HOLDINGS INCORPORATED,
a Delaware corporation
By: /s/ LEE H. STEIN
------------------------------------
Title: Chairman & CEO
----------------------------------
SOFTBANK HOLDINGS INC.,
a Delaware corporation
By: /s/ RONALD FISHER
------------------------------------
Title: Vice Chairman
----------------------------------
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<PAGE> 54
ANNEX C
ARTICLE XI, SECTION 1 OF THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION,
AS PROPOSED TO BE AMENDED
"SECTION 1. Through and until immediately prior to the annual meeting of
stockholders to be held in fiscal year 1999, the directors shall be divided into
three classes, designated Class I, Class II and Class III, and each director
shall serve for a term running until the second annual meeting of stockholders
succeeding his or her election and until his or her successor shall have been
duly elected and qualified; provided, however, that the terms of all directors
shall expire at the annual meeting of stockholders to be held in fiscal year
1999. Commencing at the annual meeting of stockholders to be held in fiscal year
1999, each director shall be elected to serve until the annual meeting of
stockholders held in the following fiscal year and until his or her successor
shall have been duly elected and qualified."
26
<PAGE> 55
ANNEX D
Private Placement Purchase Agreement
October 22, 1997
First Virtual Holdings Incorporated
11975 El Camino Real
San Diego, CA 92130
Gentlemen:
1. The undersigned ("Subscriber") has reviewed the filings which you (the
"Company") have made with the Securities Exchange Commission during the past 12
months. The Company represents and warrants to the Subscriber that all such
filings were made timely, are correct and accurate in all material respects and
in all material respects state all facts necessary to make such filings not
misleading. Subscriber has had the opportunity to discuss the Company's affairs
with the Company's officers.
2. At a closing (the "Closing") to occur at the offices of the Company
simultaneously herewith, the Subscriber will for $50,000 per Unit (as defined
below) purchase from the Company, and the Company will sell, the number of Units
set forth below opposite Subscriber's name below. Each Unit consists of 10
shares of Series A Convertible Preferred Stock (the "Preferred") having a
liquidation value of $5,000 per share (the "Preferred") and warrants (the
"Warrants") to purchase 8,500 shares of common stock of the Company, par value
$0.001 per share ("Common Stock"). Such purchase by Subscriber is part of an
offering in which an aggregate of 100 Units will be sold simultaneously with
such sale to Subscriber. The purchasers of the 100 Units are referred to herein
collectively as the "Purchasers." The purchase price will be paid in full and in
cash at the Closing. The date of the Closing is referred to herein as the
"Completion Date."
3. The Certificate of Determination for the Preferred is in the form of
Exhibit A. The Warrants are in the form of Exhibit B.
4. Registration.
(a) The Company represents that it has no knowledge of any facts or
circumstances which at any time from and after December 15, 1997
would make it ineligible to file registration statements on Form
S-3 for sales of securities by shareholders of the Company. The
Company will on or before December 19, 1997 file a registration
statement on Form S-3 (or on a similar form if S-3 is not
available) (the "Registration Statement") for the
non-underwritten public sale by the holders of the shares of
Common Stock which have theretofore been issued or which may
thereafter be issued on conversion of the Preferred or upon
exercise of the Warrants.
(b) The Company shall use its best efforts to cause the Registration
Statement to become effective not later than 60 days after the
date of filing, and, subject to Section 4(h), to remain effective
for two years with respect to Common Stock issued upon conversion
of Preferred Stock and three years with respect to Common Stock
issued upon exercise of Warrants; provided, however, that the
Subscriber shall provide all such information and materials
relating to the Subscriber, and take all such action as may be
required in order to permit the Company to comply with all the
applicable requirements of the SEC and to obtain any desired
acceleration of the effective date of such Registration
Statement, such provision of information and materials to be a
condition precedent to the obligations of the Company pursuant to
this Section. The registration shall be accompanied by blue sky
clearances in such states as the holders may reasonably request.
(c) The Company shall pay all expenses of the registration hereunder,
other than the holders' brokerage fees, discounts or commissions,
and transfer taxes, if any.
<PAGE> 56
(d) Registration rights may be assigned to assignees of the
Preferred, the Warrants or the underlying stock, but only with
the Company's prior written consent, which consent shall not be
unreasonably withheld or delayed. The provisions of this Section
are for the benefit of the Subscriber and Subscriber's personal
representatives and permitted assigns.
(e) In connection with such registration, the Company and the
Subscriber will sign indemnification agreements which are
conventional in transactions of this kind.
(f) Should Subscriber from time to time or times give to the Company
notice that it has assigned all or any part of the Preferred or
the Warrants or any shares of Common Stock issuable on conversion
or exercise in transactions permitted hereunder, the Company
shall, at no cost to Subscriber, within five business days file a
supplement to the registration statement to reflect the name(s)
of the transferee(s) as (a) selling shareholder(s).
(g) Notwithstanding Section 4(b), the Company shall be entitled to
postpone the declaration of effectiveness of any Registration
Statement prepared and filed pursuant to this Section 4 for a
reasonable period of time, but not in excess of 60 calendar days
after the applicable deadline, if the Board of Directors of the
Company determines that there exists material non-public
information about the Company which is not disclosed, and is
required to be disclosed, in the prospectus included in the
Registration Statement, and which information was not theretofore
known to the Company.
(h) Subscriber agrees that, upon receipt of any notice from the
Company of the happening of a Material Event, Subscriber will
forthwith discontinue disposition of the Common Stock pursuant to
any Registration Statement described in Section 4(b) for not more
than 45 days, before the end of which period, the Company agrees
to deliver to Subscriber copies of supplemented or amended
prospectuses prepared by the Company. "Material Event" means the
happening of any event during the period that the Registration
Statement described in Section 4(b) hereof is required to be
effective as a result of which such registration statement or the
related prospectus contains or may contain any untrue statement
of a material fact or omits or may omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading.
(i) Subscriber agrees that for a period of 12 months from the Closing
it shall not offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of any Common Stock (each, a
"Sale") that Subscriber does not own as of such date, provided,
however, that no such restriction shall apply to any Common Stock
to be issued to Subscriber upon the conversion of any Preferred
which is converted within 10 business days after such Sale or
upon the exercise of any Warrants which are exercised within 10
business days after such Sale.
5. The Company covenants to call a meeting of stockholders on or before
April 30, 1998 and to hold such meeting not later than June 30, 1998 (the
"Annual Meeting") and to propose to the stockholders at such meeting that the
stockholders approve the issuance of shares on conversion of the Preferred and
on exercise of the Warrants. Lee H. Stein has agreed to vote in favor of such
approval, and the Board of Directors of the Company will recommend that the
stockholders of the Company vote in favor of such approval. Until such approval
is obtained, the Warrants shall not be exercisable, and the maximum number of
shares which will be issued on conversion of the Preferred by all Purchasers is
1,760,000, issuable on a first converted-first exercised basis. Should such
approval not be obtained on or before June 30, 1998, then until such approval is
obtained, the Company shall on demand by Subscriber made at any time or times
redeem any portion of the Preferred Stock which is not convertible under the
preceding sentence and which is designated by Subscriber for redemption (the
"Redeemed Portion") at a redemption price equal to $6,000 per share proposed to
be converted plus accrued but unpaid dividends. The redemption price for each
redemption demand shall be payable within 90 business days after such demand is
made, and shall accrue interest from the date of the demand by Subscriber at 11%
per annum or, if
<PAGE> 57
less, the maximum statutory interest rate in California. Interest shall be
payable on demand by Subscriber after such 90th day.
6. Certain General Representations.
(a) Subscriber represents and warrants that it is purchasing the
Units solely for investment solely for its own account and not
with a view to or for the resale or distribution or of Units, or
of the Preferred or any shares (the "Shares") of Common Stock
issuable upon conversion or exercise thereof .
(b) Subscriber understands that it may sell or otherwise transfer the
Units, the Preferred, the Warrants or the Shares only if such
transaction is duly registered under the Securities Act of 1933,
as amended, under the Registration Statement or otherwise, or if
Subscriber shall have received the favorable opinion of counsel
to the holder, which opinion shall be reasonably satisfactory to
counsel to the Company, to the effect that such sale or other
transfer may be made in the absence of registration under the
Securities Act of 1933, as amended (the "Securities Act") , and
registration or qualification in every applicable state. The
certificates representing the aforesaid securities will be
legended to reflect these restrictions, and stop transfer
instructions will apply. Subscriber realizes that the Units are
not a liquid investment.
(c) Subscriber has not relied upon the advice of a "Purchaser
Representative" (as defined in Regulation D of the Securities
Act) in evaluating the risks and merits of this investment.
Subscriber has the knowledge and experience to evaluate the
Company and the risks and merits relating thereto.
(d) Subscriber represents and warrants that Subscriber is an
"accredited investor" as such term is defined in Rule 501 of
Regulation D promulgated pursuant to the Securities Act of 1933,
as amended, and shall be such on the date any shares are issued
to the holder; Subscriber acknowledges that Subscriber is able to
bear the economic risk of losing Subscriber's entire investment
in the shares and understands that an investment in the Company
involves substantial risks; Subscriber has the power and
authority to enter into this agreement, and the execution and
delivery of, and performance under this agreement shall not
conflict with any rule, regulation, judgment or agreement
applicable to the Subscriber; and Subscriber has invested in
previous transactions involving restricted securities.
(e) Subscriber represents that Subscriber's investment decision to
purchase the Units was based exclusively on the Company's SEC
filings.
(f) The Subscriber acknowledges that it has been informed of, and has
considered in evaluating its investment in the Units, the
following factors (without limitation): (i) the Company's
business and prospects are highly dependent on the acceptance of
the Company's Internet Payment System and other Internet-related
products and services, and on widespread adoption of the Internet
as a medium for commercial transactions; (ii) the Company is
currently in the process of shifting the focus of its business
away from the Company's Internet Payment System and towards the
Company's Interactive Messaging Platform, and there can be no
assurance as to the technical viability or market acceptance of
the Interactive Messaging Platform, (iii) the market for
Internet-based transaction systems has only recently begun to
develop, is rapidly evolving and is characterized by an
increasing number of entrants and rapid technological change;
(iv) the future viability of the Internet as a medium for
commercial transactions is highly speculative; the Internet may
not prove to be a viable commercial marketplace because of
inadequate development of the necessary infrastructure, such as
reliable network backbone or timely development of complementary
products, such as high speed modems; (v) if the necessary
infrastructure or
<PAGE> 58
complementary products are not developed, if the Internet does
not become a viable commercial marketplace, or if the Company's
Internet Payment System and Interactive Messaging Platform are
not widely adopted by merchants and consumers, the Company's
business, operating results and financial condition will be
materially adversely affected; and (vi) the Company is currently
actively exploring various strategic options which may include
without limitation the acquisition of the Company or its assets
by a third party, or an acquisition by the Company of other
businesses or technologies, and the Company has engaged an
investment bank to advise it in connection with such strategic
options.
7. Fees and Expenses.
(a) The Company will upon Closing pay to Mueller Trading Company a
fee for all Purchasers which aggregates $50,000.
(b) The Company will at Closing pay a total of $15,000 to Oscar D.
Folger for his services as counsel to certain Purchasers in
connection herewith.
(c) Except as aforesaid, each party shall bear its own expenses in
connection with this transaction.
8. Funding Limitations; Certain Company Representations and Covenants.
(a) During the 200-day period after the Completion Date, but only so
long as the Purchasers in the aggregate continue to own not less
than 50% of the Preferred, the Company will not without the prior
written consent of Subscriber raise funds by way of the sale of
debt or equity securities pursuant to Regulation D or Regulation
S under the Securities Act except:
(i) from existing shareholders of the Company;
(ii) from an entity whose relationship with the Company creates
intangible value for the Company; or
(iii) to fund merger and or acquisition related activity.
(b) Notwithstanding anything to the contrary contained in Section
8(a), the Company may, upon 10 days' prior written notice to
Subscriber, raise additional funds within the period specified in
Section 8(a) to the extent the Board of Directors determines, in
good faith, that such action is necessary in order to allow the
Company to meet its obligations as they become due. The notice to
Subscriber aforesaid shall set forth in detail the nature of the
proposed financing and detailed factors and all other relevant
information which support the Board's determination as aforesaid.
(c) The Company represents that neither the issuance of the Preferred
or Warrants, nor the conversion or exercise thereof, will trigger
any rights under any outstanding securities of the Company.
(d) For so long as Subscriber owns any shares of Preferred, the
Company will promptly forward to Subscriber copies of all press
releases by the Company and all filings made by the Company with
the Securities and Exchange Commission.
9. The Preferred shall be transferable by the Investor only with the prior
written consent of the Company, which shall not be unreasonably withheld or
delayed. It shall be a condition precedent to any transfer that the transferee
enter into an agreement containing representations and covenants of the
transferee substantially similar to those contained in this Agreement.
<PAGE> 59
10. This Agreement may not be changed or terminated except by written
agreement of the Company and a majority-in-interest of the Purchasers. It shall
be binding on the parties and on their personal representatives and permitted
assigns. It sets forth all agreements of the parties. It shall be enforceable by
decrees of specific performance (without posting bond or other security) as well
as by other available remedies. This Agreement may be signed in counterparts.
This Agreement shall be governed by the internal laws of the State of
California. The California courts shall have exclusive jurisdiction over this
instrument and the enforcement thereof. Service of process shall be effective if
by certified mail, return receipt requested.
Subscriber: FIRST VIRTUAL HOLDINGS INCORPORATED
_________________________ By:_____________________________
Number of Units: _____________
<PAGE> 60
ANNEX E
CERTIFICATE OF DESIGNATION OF SERIES A
PREFERRED STOCK
of
FIRST VIRTUAL HOLDINGS INCORPORATED
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
We, the undersigned duly authorized officers of First Virtual Holdings
Incorporated, a corporation organized and existing under the General Corporation
Law of the State of Delaware (the "Company"), in accordance with the provisions
of Section 103 thereof, and pursuant to Section 151 thereof, do hereby certify:
That pursuant to the authority conferred upon the Board of Directors by
the Certificate of Incorporation of the Company (the "Certificate of
Incorporation"), the Board of Directors of the Company on October 13, 1997,
adopted the following resolution creating a series of 1,000 shares of Series A
Preferred Stock, par value $0.001 per share:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Company in accordance with the provisions of its Certificate
of Incorporation, a series of Series A Preferred Stock of the Company be and it
hereby is created, that the shares of such series shall be designated as Series
A Preferred Stock (the "Series A Preferred Stock"), that the number of shares
constituting such series shall be 1,000 and that the designation and amount
thereof and the preferences and relative, optional and other special rights of
the shares of such series, and the qualifications, limitations or restrictions
thereof are as follows:
1. For purposes of this Certificate of Determination and the Certificate of
Incorporation, (i) any series of Preferred Stock of the Company entitled to
dividends and liquidation preference on a parity with the Series A Preferred
Stock shall be referred to as "Parity Preferred Stock," (ii) any series of
Preferred Stock ranking senior to the Series A Preferred Stock and Parity
Preferred Stock with respect to dividends and liquidation preference shall be
referred to as "Senior Stock," and (iii) the Common Stock and any series of
Preferred Stock ranking junior to the Series A Preferred Stock and Parity
Preferred Stock with respect to dividends and liquidation preference shall be
referred to as "Junior Stock." As of the date of this Certificate of
Determination there is not outstanding any Parity Preferred Stock or Senior
Stock.
2. In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, after setting apart or paying in full the
preferential amounts due to holders of Senior Stock, the holders of Series A
Preferred Stock and Parity Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets or surplus funds of
the Company to the holders of Junior Stock or common stock of the Company (the
"Common Stock") by reason of their ownership thereof, an amount equal to their
full liquidation preference, which in the case of shares of Series A Preferred
Stock shall be $5,000 per share, plus accrued and unpaid dividends (the
"Redemption Value"). If, upon such liquidation, dissolution or winding-up of the
Company, the assets of the Company available for distribution to the holders of
its stock be insufficient to permit the distribution in full of the amounts
receivable as aforesaid by the holders of Series A
<PAGE> 61
Preferred Stock and Parity Preferred Stock, then all such assets of the Company
shall be distributed ratably among the holders of Series A Preferred Stock and
Parity Preferred Stock in proportion to the amounts which each would have been
entitled to receive if such assets were sufficient to permit distribution in
full as aforesaid. Neither the consolidation nor merger of the Company nor the
sale, lease or transfer by the Company of all or any part of its assets shall be
deemed to be a liquidation, dissolution or winding-up of the Company for the
purposes of this paragraph.
3. The holders of the Series A Preferred Stock shall be entitled to receive
a dividend, payable quarterly on the first day of each calendar quarter
commencing January 1, 1998, which accrues from the date of issuance at the
annual rate of $350 per share. The dividends shall be payable at the option of
the Company either in cash or in shares of Common Stock which on the date of the
dividend payment have a value equal to the dividend, provided that dividends may
be paid in Common Stock only if the public sale thereof is permitted under a
then effective registration statement. The value of each share of Common Stock
for the purposes of any dividend payment shall be equal to the average of the
last reported sales prices therefor on the NASDAQ National Market on the last
five trading days prior to the date of the payment.
4. Conversion
(a) The holder shall have the right at any time in its sole
discretion, to convert the Series A Preferred Stock, in whole or
in part, into a number of shares (the "Conversion Shares") of
Common Stock equal to $5,000 per share converted divided by the
Conversion Price. The "Conversion Price" means the lesser of (1)
$5.50 (the "Cap") or (2) 80% (the "Percentage") of the average of
the closing bid price of a share of Common Stock of the Company
during the ten trading days prior to such conversion.
(b) In the event that the holder elects to exercise its conversion
rights hereunder, it shall give to the Company written notice (by
fax, overnight courier service or personal delivery) of such
election and shall surrender the stock certificates representing
the Series A Preferred Stock to be converted to the Company for
cancellation. Conversion shall be effective upon the giving of
such notice.
(c) All shares of Series A Preferred Stock outstanding as of
September 30, 2001 shall automatically convert into Common Stock
on that date at the Conversion Price then in effect, but only if
the Company's listing on the NASDAQ National Market has been in
effect at all times from and after September 30, 2000, and only
if the Common Stock issuable upon conversion of the Series A
Preferred Stock may then be resold publicly pursuant to an
effective registration statement under the Securities Act of 1933
or under Rule 144 thereunder and only to the extent such
conversion would not violate Section 5 of the Private Placement
Purchase Agreement between the Company and certain investors of
even date herewith (the "Private Placement Purchase Agreement").
(d) The Company shall at all times reserve and keep available out of
its authorized and unissued Common Stock, solely for issuance
upon the conversion of the Series A Preferred Stock as herein
provided, twice the number of shares of Common Stock as shall
from time to time be issuable upon the conversion of the Series A
Preferred Stock.
<PAGE> 62
(e) The Percentage and the Cap shall each be reduced by two
percentage points for each full 30-day period after the 135th day
after the date hereof in which the Registration Statement (as
defined in a Private Placement Purchase Agreement) has not been
declared effective, except to the extent that the effectiveness
of the Registration Statement has been delayed pursuant to
Section 4(g) of the Private Placement Purchase Agreement,
provided that neither the Cap nor the Percentage shall ever be
less than 50% of its initial value. The preceding sentence shall
not limit any other rights or remedies of the holders of Series A
Preferred Stock as a result of the breach by the Company of any
provisions herein relating to the Registration Statement or
otherwise.
(f) The Cap shall be equitably adjusted in case the Company shall
issue Common Stock as a dividend upon Common Stock, shall
subdivide the number of outstanding shares of its Common Stock
into a greater number of shares or shall contract the number of
outstanding shares of its common stock into a lesser number of
shares.
(g) Mergers, Consolidation or Sale
If any consolidation or merger of the Company into another
corporation whose aggregate capitalization is at least
$250,000,000, or the sale or conveyance of all or substantially
all of its assets to any corporation with such capitalization, or
any consolidation or merger or sale of assets for exclusively
cash consideration, shall be effected, then, as conditions
precedent to such transaction, (1) the holders of the Series A
Preferred Stock shall receive not less than 10 days' prior
written notice of such transaction, and (2) upon the consummation
of such transaction (in lieu of the shares of Common Stock
immediately theretofore receivable with respect to such Series A
Preferred Stock, upon the exercise of conversion rights) the
holders of the Series A Preferred Stock shall be issued such
publicly traded shares of stock, securities or assets as would
have been issued or payable with respect to or in exchange for
the number of outstanding shares of such Common Stock receivable
in such consolidation, merger or sale with respect to such Series
A Preferred Stock had the Series A Preferred Stock been converted
immediately prior to the consummation thereof. If any other
consolidation, merger or sale of all or substantially all the
Company's assets shall be effected, or if any capital
reorganization or reclassification of the Common Stock shall be
effected, then, as a condition precedent of such transaction,
appropriate provision shall be made to the end that conversion
rights hereunder (including, without limitation, provisions for
appropriate adjustments) shall thereafter be applicable, as
nearly as may be practicable in relation to the kind of stock,
securities or assets which are deliverable in respect of Common
Stock upon the consummation of such transaction.
(h) Shares of Series A Preferred Stock shall be convertible at any
time only to the extent that holder thereof would not as a result
of such conversion beneficially own more that 4.99% of the then
outstanding Common Stock. Beneficial ownership shall be defined
in accordance with Rule 13d-3 under the Securities Exchange Act
of 1934, as amended. The opinion of counsel to such holder shall
prevail in the event of any dispute on the calculation of the
holder's beneficial ownership.
(i) Should a holder of Series A Preferred Stock propose to convert
any Series A Preferred Stock at a Conversion Price which is less
than $4.00, the Company shall have the
<PAGE> 63
option to redeem all (but not any part) of the shares proposed to
be converted at a redemption price of $6,000 per share, plus any
accrued but unpaid dividends. The option shall be exercisable by
written notice from the Company to such holder which is given
within four business days of delivery of notice of conversion by
such holder and which is accompanied by payment of the redemption
price in full.
5. Certain Payments. In the event the Company fails within five business
days after conversion to deliver to a holder of Series A Preferred Stock
certificates for shares of Common Stock issued upon conversion of any shares of
Series A Preferred Stock, or if the Company fails timely to make any required
redemption payment in respect of any shares of Series A Preferred Stock, then,
without limiting such holder's other rights and remedies (including, without
limitation, rights and remedies available to such holder upon an event of
default), the Company shall forthwith pay to such holder an amount accruing at
the rate of $250 per day for each share of Series A Preferred Stock until such
certificates for shares of Common Stock are delivered. In no event shall the
aggregate amount for any day of all such payments for all Series A Preferred
Stock then outstanding exceed $7,500.
6. Without the consent of a majority-in-interest of the holders of the
Series A Preferred Stock, the Company shall not create any class of equity
security which is senior to or in parity with the Series A Preferred Stock in
liquidation rights, other than in connection with the sale of shares to existing
stockholders of the Company; or to an entity whose relationship with the Company
creates intangible value for the Company; or to fund merger and/or acquisition
related activity.
7. All share, redemption and similar amounts referred to herein are subject
to appropriate adjustment in the event of stock splits, stock dividends,
recapitalizations and similar events.
IN WITNESS WHEREOF, First Virtual Holdings Incorporated has caused this
Certificate of Designation to be executed by Lee H. Stein, its Chief Executive
Officer attested by Philip Bane, its Secretary, this 15th day of October, 1997.
FIRST VIRTUAL HOLDINGS INCORPORATED
/s/ LEE H. STEIN
Lee H. Stein, Chief Executive Officer
ATTEST
/s/ PHILIP BANE
Philip Bane, Secretary
<PAGE> 64
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FIRST VIRTUAL HOLDINGS INCORPORATED
1998 SPECIAL MEETING OF STOCKHOLDERS
JUNE 23, 1998
The undersigned stockholder of First Virtual Holdings Incorporated, a
Delaware corporation, hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders and Proxy Statement, each dated ______, and hereby
appoints Lee Stein, Keith Kendrick and John Stachowiak, and each of them,
proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
1998 Annual Meeting of Stockholders of First Virtual Holdings Incorporated to be
held on June 23, 1998 at 9:00 a.m. local time, at the San Diego/Del Mar Hilton,
15575 Jimmy Durante Blvd., Del Mar, California, and at any adjournment or
adjournments thereof, and to vote all shares of Common Stock and Preferred Stock
which the undersigned would be entitled to vote if then and there personally
present, on the matters set forth below:
1. To ratify and approve the issuance, pursuant to the Purchase Agreement
dated April 30, 1998 by and among the Company and Softbank Technology
Ventures IV L.P., a Delaware limited partnership, and Softbank Holdings
Inc., a Delaware corporation, of up to 18,658,333 shares of the Company's
Common Stock.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. To approve an amendment to the Company's Certificate of Incorporation to
eliminate the classification of the Company's Board of Directors such that
each director will stand for election annually.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To elect two Class II directors and one Class III director to serve for the
applicable remaining terms and until their successors are duly elected and
qualified.
[ ] FOR the election of Ronald D. Fisher, Gary E. Rieschel and
Bradley A. Feld.
[ ] WITHHOLD authority to vote for the election of:
(Instructions: strike that nominee's name below)
Ronald D. Fisher
Gary E. Rieschel
Bradley A. Feld
4. To ratify and approve the issuance, pursuant to Private Placement Purchase
Agreements dated October 22, 1997 by and among the Company and certain
investors and the issuance, of 1,000 shares of the Company's Series A
Preferred Stock, Warrants to purchase 850,000 shares of the Company's
Common Stock and the shares of Common Stock issuable upon conversion or
exercise thereof.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
<PAGE> 65
5. To amend the Company's 1995 Stock Option Plan to increase the number of
shares available for issuance thereunder by 1,000,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. To ratify the appointment of Earnst & Young LLP as independent auditors of
the Company for the fiscal year ending December 31, 1998.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
and, in their discretion, upon such other matter or matters which may properly
come before the meeting or any adjournment or adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE AMENDMENT PROPOSALS SET FORTH ABOVE AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Dated: , 1998
------------------
-------------------------------
Signature
-------------------------------
Signature
(This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
